The paragraph introduces the Cognizant Technology Solutions Third Quarter 2024 Earnings Conference Call. Tyler Scott, Vice President of Investor Relations, confirms the availability of the earnings release and investor supplement on the company's website. The call features Ravi Kumar, CEO, and Jatin Dalal, CFO, who will discuss third-quarter results. It provides a disclaimer regarding forward-looking statements and mentions the use of non-GAAP financial measures. Ravi Kumar then expresses satisfaction with the company's third-quarter performance, noting revenue and earnings growth, improved margins, and progress on strategic priorities.

The company is experiencing a recovery in financial services spending and leveraging its historical strength in health sciences for growth. Significant progress with large deals and AI-led revenue opportunities, along with talent investments and operational focus, have resulted in strong performance. Third-quarter revenue reached $5 billion, a sequential growth of 3.5% in constant currency, with contributions from recent acquisitions. Year-over-year revenue grew by 2.7%, with inorganic contributions accounting for nearly 200 basis points. An adjusted operating margin improved to 15.3%, and adjusted EPS grew by 7% year-over-year. The company focuses on accelerating growth, driven by its key segments, Health Sciences and Financial Services, and successful large deal engagements. Health Sciences saw a 7.6% increase year-over-year, and Financial Services resumed growth thanks to strong execution and discretionary spending returns. They signed six large deals each worth at least $100 million, totaling 19 significant deals year-to-date, surpassing last year's figures.

The paragraph highlights Cognizant's success and strategic focus on AI-driven innovation across industries, emphasizing its investment in AI initiatives, platforms, and capabilities. The company is leveraging its engineering expertise, client relationships, and flexible model to accelerate AI adoption both for clients and internally, thereby enhancing productivity. Cognizant has implemented over 225 AI projects for more than 120 clients and is advancing its Flowsource platform, which integrates human and AI efforts to improve productivity. The company is currently testing and adopting AI tools with over 150 clients, generating significant code output that enhances project delivery.

The paragraph discusses the impact of AI in enhancing productivity and reducing technology deployment costs, specifically through the Neuro IT Ops platform launched in late 2023. This platform, used by 150 clients for IT operations, facilitates AI-driven automation and infrastructure management. A case study with DIRECTV shows how Neuro IT Ops and Flowsource are modernizing its infrastructure and improving operational efficiencies. The company has introduced two new offerings: an enhanced Neuro AI platform, praised by clients like Gilead Sciences, which simplifies problem-solving and decision-making, and Cognizant Neuro Cybersecurity, which strengthens enterprise security. Additionally, AI integration in the TriZetto product suite has improved user productivity by at least 30%.

The paragraph discusses the company's progress with over 1,000 GenAI engagements, highlighting key use cases in software development, customer experience, content aggregation, and generation. There's a strong demand across industries like financial services and healthcare for AI applications such as fraud detection and drug discovery. The company is leveraging partnerships and acquisitions to drive growth, including a new partnership with Palo Alto Networks for AI-driven cybersecurity solutions and an expanded collaboration with NVIDIA to enhance data modernization. Additionally, they are integrating AI into digital workflows through a partnership with ServiceNow.

Earlier this week, a strategic collaboration was formed with Amazon Web Services to deliver advanced technology solutions and cloud computing for smart manufacturing. Recent acquisitions, including Thirdera and Belcan, have enhanced the company's position in AI-driven solutions, expanded access to the $190 billion ER&D services market, and increased presence in aerospace and defense. The integration process is progressing well, with new opportunities identified. In Financial Services, the company is aiding Citizens Bank in its cloud transformation and enhancing its fraud management and customer experience systems. Success is also noted in the UK public sector.

During the third quarter, the company expanded its operations with a contract over $100 million with the UK Valuation Office Agency to provide property valuations and advice. Additionally, they secured a $200 million deal with a global technology client to enhance customer support operations using GenAI, focusing on productivity and cost reduction. They are also prioritizing becoming the employer of choice by investing in talent development, particularly through AI-enabled learning and innovation initiatives like the Bluebolt program, which generated numerous client-facing ideas. Employee engagement remains strong, with low voluntary attrition rates, and the company has been recognized by Forbes and Fortune for its positive workplace and commitment to change. The Synapse program aims to train nearly 1 million people worldwide, showcasing the company’s dedication to learning and development.

The paragraph highlights Cognizant's recent recognition as one of America's most reliable companies by Newsweek, reflecting its strong service delivery. The company has enhanced its services portfolio and is well-positioned to capitalize on AI opportunities. A successful event in Austin showcased AI strengths, generating enthusiasm and early momentum in large AI-powered deals. The company envisions AI transforming business processes and models, leading to new opportunities. Appreciation is expressed to employees for their commitment. Jatin Dalal then discusses strong third-quarter performance, revenue growth, and ongoing efforts to modernize operations.

In the third quarter, the company achieved several financial milestones. Gross margin increased by 50 basis points due to better utilization, automation, and AI, resulting in an adjusted operating margin of 15.3%, exceeding expectations despite costs related to acquisitions and merit cycle impacts. Year-to-date, the adjusted operating margin was 15.2%, rising 40 basis points year-over-year. Revenue hit $5 billion, with a 3.5% sequential growth in constant currency, including contributions from recent acquisitions, specifically Belcan. Year-over-year revenue grew 2.7% in constant currency, also aided by acquisitions. Health Sciences was the strongest segment, with a 7.6% growth driven by demand for the TriZetto platform. Financial Services increased by 0.5% year-over-year, boosted by demand and better execution, particularly in North American banking and Canadian insurance sectors. Products and Resources revenue increased by 4.6%, influenced by Belcan's contribution.

The paragraph discusses the financial performance and strategic focus of a company across different industries and geographies. The company is seeing some discretionary spending weaknesses in manufacturing, logistics, aerospace, and automotive sectors but is optimistic about growth opportunities in grid modernization, software-defined vehicles, and smart manufacturing. The Communications, Media, and Technology (CMT) sector saw a 4% decline due to tight spending, while the Americas experienced a 4% growth driven by financial services and health sciences. Europe faced a 2% decline due to reduced software spending but showed positive sequential growth. The rest of the world saw a 4% increase, supported by large deals in communication, media, and technology. Overall bookings remained flat, with $26.2 billion in the trailing 12 months, a slight decrease year-over-year. Six major deals were signed, including in health sciences and financial services, with two coming from Europe and other regions. Smaller deals showed stability.

In the third quarter, the company experienced a modest improvement in annual contract value trends and increased revenue despite muted total contract value performance. Operating margins were impacted by $33 million in costs related to NextGen, but adjusted margins saw slight sequential growth. Improvements stemmed from better gross margins and operational efficiencies, including AI utilization. The quarter's tax rates and earnings per share reflected increases and benefits from discrete items. The company acquired Belcan for $1.3 billion, affecting its cash and borrowing positions, and had a slight increase in days sales outstanding. Free cash flow was strong at $791 million for Q3, leading to a year-to-date of approximately $1 billion, with no change in the full-year cash flow guidance.

The paragraph discusses the financial activities and projections of a company. It mentions a $360 million payment to Indian tax authorities involving an ongoing 2016 tax matter appeal. During the quarter, the company returned $391 million to shareholders through share repurchases and dividends, with $1.4 billion remaining for future repurchases. Year-to-date, approximately $900 million has been returned to shareholders, with a forecast of $1.2 billion for the full year, including $100 million in share repurchases related to the Belcan acquisition. For Q4, the company expects revenue to grow by 4.8% to 6.8% in constant currency or $5 billion to $5.1 billion, partly driven by the Belcan acquisition. Full-year revenue growth is projected at 1.4% to 1.9%, or $19.7 billion to $19.8 billion, with 200 basis points from inorganic growth. The acquisition of Belcan, closed in late August, is expected to provide $100 million in annual revenue synergies in three years and be accretive to EPS by 2026.

The company is pleased with its year-to-date performance and expects a full-year adjusted operating margin of about 15.1%, which is the midpoint of its prior range. The fourth quarter margin is anticipated to be affected by the integration costs of Belcan and non-cash amortization, alongside the merit cycle impact starting August 1st. Despite these challenges, operational rigor and savings from the NextGen program should partially offset them. The full-year net interest income is expected to be around $65 million, up from $55 million, with the tax rate and shares outstanding guidance unchanged at 24-25% and approximately $497 million, respectively. The adjusted earnings per share guidance has been increased to $4.63-$4.67. During a Q&A session, Jason Kupferberg from Bank of America asked about the organic growth for Q4, which is projected to be around 2%. Ravi Kumar confirmed that for Q4, the company anticipates organic year-on-year growth, with a midpoint of 1% and an upper end of 2%.

In the paragraph, Ravi Kumar discusses the impact of AI-enabled coding on productivity and client relationships. He explains that increased productivity offers opportunities to transition time-and-material projects to fixed-price contracts, benefiting both the company and clients. Clients appreciate that enhanced efficiency allows for reduced backlogs and enables them to accomplish more with less budget. Additionally, improved productivity can lead to consolidating and increasing revenue by outperforming competitors. While there's a concern about potential revenue cannibalization, clients generally perceive these productivity gains positively.

The paragraph discusses strategies for maintaining and expanding a company's large deal pipeline. Ravi Kumar explains that they are increasing their large deals compared to the previous year, with 19 deals over $100 million so far. The strategy involves not only seeking transformation projects but also focusing on cost efficiency and vendor consolidation. By using creativity to consolidate work and improve productivity, they can offer clients more value at lower costs, which boosts spending with the company. Ravi expresses confidence in sustaining this momentum and notes that they are seeing new opportunities in Europe and Asia Pacific.

In the paragraph, the company discusses its expansion efforts across different regions and industries. Recently, they completed six deals, with projects in Asia Pacific and Europe. They are broadening their industry focus beyond tech services and BPO to include engineering and infrastructure services, following acquisitions like Belcan. As a result, they have become a top player in engineering services. The infrastructure services segment is also gaining traction. Despite traditionally focusing on BFSI, healthcare has emerged as their largest vertical, showing significant growth. The company expresses confidence in sustaining momentum and highlights ongoing efforts to diversify across geographies and practices.

The paragraph discusses the company's progress and strategy across various sectors. They express confidence in healthcare and financial services, noting growth in the latter. They see a significant opportunity in industrial and manufacturing, especially with the addition of Belcan, providing access to blue-chip aerospace clients and enhancing their engineering capabilities. The company aims to build strength in winning large deals across sectors like automotive and technology services. However, they acknowledge a need to improve in the energy oil and gas sector and expand internationally beyond the US. Overall, their strategy has expanded their capabilities and sustained momentum in securing large deals.

In the interview, Ravi Kumar discusses the expected performance of various business verticals for 2025. He anticipates financial services and healthcare will drive growth, while manufacturing may lag initially but could improve. He also mentions that CMT (Communications, Media, and Telecom) needs momentum to catch up. Regarding gross margins, Kumar identifies key factors influencing them: utilization, AI-driven automation and productivity, employee skill levels (pyramid), pricing, and offshore mix. Additionally, he notes that Belcan won't significantly impact gross margins as it operates within the company's typical range.

The paragraph discusses various strategic initiatives and market dynamics within a company. It highlights that fixed-price projects allow for more offshore flexibility, and utilization rates have been improving quarterly. Automation, particularly AI, presents significant opportunities, with plans for more extensive rollout and absorption capabilities. The Pyramid initiative, which faced challenges during fluctuations in demand from 2020 to 2022, is regaining momentum as a multi-year strategy. Current pricing is competitive but not currently beneficial for gross margins. Additionally, as Maggie Nolan from William Blair asks, the company is pleased with its efforts to revamp its financial services business, which faced both company-specific and market-specific challenges.

The company has resolved past issues and now has a stable team and compelling offerings, leading to increased wallet share among financial services clients. They are optimistic that financial services will return to a high discretionary spending environment due to its innovative nature and partnerships with companies like theirs. Having regained their strong position in this sector, they anticipate capitalizing on market opportunities as conditions improve. Maggie Nolan inquires about changes in sales cycles and deal conversion rates, noting a resurgence of smaller discretionary deals. Ravi Kumar confirms the growing momentum of these smaller deals.

The paragraph discusses a shift in how large deals are being approached in the tech industry. There is a focus on providing cost-saving proposals that leverage AI tools to offer more value for less expenditure, which clients appreciate. This approach allows savings to be funneled into innovation and clearing backlogs, creating a favorable cycle for winning deals. The spending is described as elastic, meaning that doing more with less enables more projects to be completed. The conversation then shifts to Jamie Friedman asking Ravi Kumar about the stability of the Health Science recovery, noting a significant turnaround despite market volatility. Ravi is prompted to discuss the potential effects on demand in segments like payer, provider, pharma benefit, and Life Sciences.

The paragraph discusses the growing role of technology in the Life Sciences sector, where it is now integral to core business functions such as drug discovery and manufacturing, rather than just enabling IT systems. The company sees significant opportunities in this area to reduce drug development cycles. In the healthcare payer sector, there's a focus on reducing costs, especially with the cost per member per month under pressure. Technology, including Generative AI, has helped cut costs by 30% for case managers and increased claims processing efficiency through auto adjudication. The paragraph highlights the potential for cost-driven transformation in the payer sector and mentions the consolidation occurring in the provider market, with the company's TriZetto platform hosting a large number of providers and members.

The paragraph discusses the transformation occurring in the healthcare sector, driven by technology, particularly in the realm of Clearing House services that sit between payers and providers. Ravi Kumar highlights that their unique position in healthcare will provide significant benefits and opportunities as the sector undergoes change. Bryan Keane from Deutsche Bank points out that GenAI (Generative AI) is being used to gain competitive advantage by offering lower prices than competitors and improving productivity, which is then shared with clients. Kumar confirms this strategy, noting a shift from labor-led to technology and AI-led models, emphasizing the deflationary impact on IT services as productivity gains from GenAI are passed on, thus pressuring traditional pricing models and enhancing outcome-based pricing contracts.

The discussion focuses on addressing backlogs and technical debt faced by CIOs, emphasizing the opportunity to reallocate spending from maintenance (run) to growth (bid) activities. It highlights the potential of reducing operational costs to increase productivity and drive growth, noting that technology spending is highly elastic. The conversation touches on the variability in cost savings depending on factors like the phase of the technology cycle and client maturity. There's a suggestion to pursue fixed-price and managed services deals as a compelling proposition to optimize productivity and value.

The paragraph discusses a company's strategy and outlook, highlighting its role in helping clients build their tech capabilities and captives in India. The speaker emphasizes seeing this as an opportunity to stay relevant rather than a threat of cannibalization. There's focus on growth, with an aim to improve organic growth rates and bookings. The company's execution in every quarter of the current year is noted, with the past quarter showing improved growth momentum. The emphasis is on effectively executing the growth plan for the upcoming quarter and preparing to leverage opportunities at the start of 2025.

In the teleconference, Ravi Kumar expresses satisfaction with the company's quarterly progress toward their goals for 2025 but considers it too early to discuss specifics for that year. Bryan Bergin inquires about margin levers, specifically utilization rates, and whether there is room to increase them beyond the current level of 84%. Ravi Kumar believes there is limited room for further improvement. The session concludes, and participants are thanked for their involvement.

This summary was generated with AI and may contain some inaccuracies.