The first paragraph provides an introduction to Cognizant Technology Solutions' Fourth Quarter 2024 Earnings Conference Call. Tyler Scott, Vice President of Investor Relations, announces that copies of the earnings release are available on the company's website, and introduces the speakers: Ravi Kumar, CEO, and Jatin Dalal, CFO. Tyler reminds listeners about forward-looking statements and non-GAAP financial measures. Ravi Kumar begins by expressing gratitude and recalling that he joined Cognizant two years ago, attracted by the company's innovative capabilities and ambition to be a leader in new technology trends.

In 2024, the company successfully transitioned from stabilization to growth, achieving significant milestones in revenue growth, large deals, and operational efficiency. The completion of the NextGen program contributed to improved margins and strategic investments. The company focused on growth initiatives, such as enhancing platforms and forging partnerships. Notable AI advancements included new offerings like Flowsource and Neuro Edge. The company expanded its alliances and acquired Thirdera and Belcan, enhancing their market position and opportunities in the ServiceNow ecosystem and the ER&D market. The integration of these acquisitions is progressing well.

The third paragraph highlights Cognizant's recent achievements and strategic priorities. The company completed Phase 1 of commercial integration, securing a significant deal with an aerospace client and improving client satisfaction to historic highs. It emphasized becoming an employer of choice through AI reskilling, maintaining high employee engagement, and low attrition, with 13,000 employees returning. The BlueBolt initiative doubled client-implemented ideas and the Synapse program upskilled over 400,000 individuals. Cognizant was recognized by Forbes, Newsweek, and Fortune for its accomplishments. Operational advancements, including the NextGen cost program and expanding infrastructure in smaller Indian cities, further supported growth. AI is seen as a key factor for transformation by speeding up company and client progress.

The organization is actively implementing AI to enhance agility and shares insights with clients. Over 200 AI use cases focus on improving associate experience, business operations, and technology security, which will remain priorities through 2025. The company concluded the year with strong momentum, showing a 6.7% increase in revenue to $5.1 billion due to improved organic growth, especially in Health Sciences and Financial Services, supported by new deals and increased discretionary spending. In Q4, 10 large deals were signed, bringing the total for the year to 29, up from 17 in 2023. Health Sciences saw over 10% revenue growth, bolstered by the TriZetto platform's continued success, while Financial Services experienced growth driven by demand for cloud and modernization services.

The company reported an improved adjusted operating margin and better-than-expected annual performance. It highlighted growing momentum in its Generative AI capabilities, evidenced by over 1,200 early AI engagements across various industries, including healthcare, financial services, manufacturing, and media. New initiatives include the launch of Stores 360 with ServiceNow for retail industry enhancements and a five-year agreement with Toyota to integrate Gen AI into software development. The company also renewed its partnership with McDonald's to modernize its infrastructure using cloud-based systems, enhancing operational efficiency and customer experiences.

The paragraph highlights the expanded partnership between the company and Gilead Sciences, focusing on utilizing machine learning and AI to enhance productivity and cost efficiency. It also mentions winning a strategic partnership with an insurance provider to establish a global capability center in India, aiming to improve operational efficiency and digital transformation. The company emphasizes its role in driving innovation through AI, playing a key role in reshaping business models and services, and maintaining a leadership position in AI-led services by leveraging its expertise in design, deep engineering, and operations.

The paragraph discusses the transformative potential of AI across three main vectors. The first vector involves using AI in software development to enhance productivity and address technical debt, enabling the modernization of legacy systems. The second vector focuses on modernizing data and cloud infrastructures to integrate AI effectively into enterprises. This includes building specific infrastructures for cognitive tasks, ensuring ethical AI usage, and optimizing outputs. The third vector explores new service opportunities created by AI's ability to perform tasks traditionally done by humans, leading to innovative applications that collaborate with human teams, potentially revolutionizing work categories.

The paragraph outlines Cognizant's vision for integrating autonomous systems into business operations, beyond just technology budgets, highlighting opportunities in various business functions. The company believes its 2024 achievements have strengthened its strategic position, moving from stabilization to growth, with AI and innovative capabilities at the core. Cognizant is confident in its potential for growth and improved revenue. The upcoming Investor Day will offer more details. Jatin Dalal then shares that fourth-quarter results show progress in strategic goals, with a 6.7% revenue growth in constant currency.

The paragraph highlights the company's revenue growth driven by the Health Sciences and financial services sectors, with significant contributions from acquisitions of Thirdera and Belcan. The company reported strong fourth-quarter and full-year financial performances, with adjusted operating margins exceeding expectations. Health Sciences experienced widespread growth across various markets, focusing on cost efficiency and modernization. In financial services, growth was observed in several areas, alongside a gradual increase in discretionary spending. North America showed promising opportunities for modernization projects, especially in insurance and banking. The Canadian market also saw healthy growth, and Belcan was a key contributor to the Products & Resources segment.

In the fourth quarter, the segment faced pressure from a cautious discretionary environment impacting markets like automotive and aerospace. Despite this, three large deals were signed, and growth opportunities were identified, particularly in the convergence of IT and operational technology. North America led geographic growth with an 8% increase, supported by health sciences, Belcan, and banking. Europe saw a modest 1% growth, with health sciences and financial services strong but offset by weakness in products and resources. The rest of the world grew by 4%. Bookings rose 11% year-over-year due to large deals, helping drive an overall 3% growth in bookings and a 1.4 times book-to-bill ratio. The NextGen program concluded, incurring $49 million in costs, but excluding these, the adjusted operating margin was 15.7%. Margins declined by 40 basis points year-over-year, mainly due to Belcan and higher compensation costs, partially offset by savings from NextGen and favorable currency rates.

The company closed the year with a strong cash flow and a more resilient operating model, generating $837 million in free cash flow in the fourth quarter and $1.8 billion for the full year, despite a $360 million tax payment in India. They ended with $2.2 billion in cash and short-term investments. The company returned $1.2 billion to shareholders and invested $1.6 billion in acquisitions. Looking ahead, the strategy focuses on long-term EPS growth through revenue growth and margin expansion. For Q1 2025, revenue growth is expected between 5.6%-7.1% year-over-year, with full-year growth projected at 2.6%-5.1%. The Belcan acquisition, contributing significantly to 2025 growth, is expected to have a greater impact in the first half of the year.

The paragraph provides financial guidance for the company's performance in 2024 and 2025. The company expects adjusted operating margins to increase slightly and projects an adjusted tax rate of 24% to 25%. It no longer provides net interest income guidance, aligning with industry standards, and anticipates a modest decline in net interest income due to lower cash balances. Earnings per share (EPS) are expected to grow by 3% to 7% in 2025, despite a 2% negative impact from foreign exchange rates and higher tax rates. Free cash flow is projected to be over 90% of net income. Capital allocation will focus on balancing shareholder returns with investment in growth. The company plans to return $1.2 billion to shareholders through share repurchases and dividends, with a dilutive share count of approximately 493 million. Additionally, it intends to repay $300 million on its credit facility. The paragraph concludes by opening the floor for a Q&A session.

The paragraph discusses the company's momentum in securing large deals, noting an increase from 17 deals in 2023 to 29 in 2024. Ravi Kumar highlights several positive factors for 2025, including strong deal-making velocity, a book-to-bill ratio of 1.4%, and a resurgence in small deals, which offer same-year monetization. The company's internal ACV numbers are higher, indicating a positive trend in both ACV and TCV. Their win rates have improved, and their services have expanded across application, infrastructure, and now engineering services, boosted by their acquisition of Belcan. They've also broadened industry reach and geographical presence. Overall, the company is in a strong position heading into 2025.

The paragraph discusses the company's optimistic outlook for organic growth across various industries for 2025. Ravi Kumar highlights robust year-on-year growth in healthcare and financial services, attributing this to a strong foundation and renewed discretionary spending in financial services. He also notes successful expansion in communications and technology sectors, as well as products and resources, particularly in retail and consumer goods. The company's American market leads growth, but international markets are increasingly contributing. Kumar emphasizes strong first-quarter guidance despite typically weak seasonality, indicating positive momentum from the previous quarter.

In the paragraph, Jason Kupferberg from Bank of America asks about the organic growth target of 1% to 3.5% for the year, noting it aligns with how they ended 2024, and questions whether the lack of apparent acceleration is due to conservatism or other factors. Ravi Kumar responds, explaining that with the start of the year, the visibility into the second half is still developing. They hope for continued positive momentum into the second half, aiming for the upper end of the guidance range. He notes a return of discretionary spending and expresses optimism, given that they achieved the upper guidance range in the last four quarters. Jason also inquires about client interest in agentic AI, and how Cognizant is preparing for that opportunity, although Ravi's specific response to this is not included in the paragraph.

Ravi Kumar discusses how DeepSeek could impact the IT services industry, highlighting three main vectors. First, he emphasizes that using machines to assist in writing code will enhance productivity and help address legacy technology debt. This approach has already contributed to winning large deals due to different productivity assumptions between providers, with AI-led productivity being a key factor. Second, Kumar talks about innovation and growth, mentioning that their clients are investing in them, with 1,200 projects in areas like cloud migration and data modernization. Their agentification platform aids in creating stickiness and accelerating predictable journeys. Lastly, DeepSeek is unlocking new pools of addressable spend in areas like connected care, retail operations, and drug discovery, offering significant opportunities for growth.

The paragraph discusses the evolving opportunities in business operations beyond just the CIO, highlighting an expansion in the addressable pool of work, which serves as a force multiplier for companies. In the context of DeepSeek, it mentions how it has democratized and commoditized foundational models on the back end, allowing financial resources to shift towards the front end and accelerating AI adoption in enterprises. The opportunity with DeepSeek is seen as a pivotal moment in transferring value from the back end to the front end. Surinder Thind from Jefferies questions Ravi on the sustainability of proprietary AI solutions, noting a shift from services to incorporating more software, and Ravi refers back to a discussion from a London conference, indicating progress since then.

The paragraph discusses the evolving role of system integrators in adapting to technological changes, particularly in the context of enterprise software and cloud technology. The author introduces a software layer known as "fast software," designed to aid clients by accelerating processes, bridging gaps, or creating industry-specific templates. An example provided is the Flowsource platform, which acts as an orchestration layer for code assist platforms like GitHub, improving synchronization and productivity between machine and human-written code. The paragraph also emphasizes the continuous need for addressing current gaps in technology and optimizing AI for enterprise use. The author highlights the ongoing efforts in identifying new service opportunities, such as leveraging structured data in sales and marketing functions.

The paragraph discusses the potential of leveraging unstructured data, such as chat messages, emails, and meeting minutes, to improve sales momentum by transforming it into valuable insights. This untapped data can be used to optimize company operations and create service opportunities. The speaker mentions their organization's strength in combining engineering, operations, and industry knowledge to implement real-life projects for clients. Additionally, the discussion touches on the growth potential from large deals and managed services, as well as the changing dynamics between consulting and managed services from 2024 to 2025.

The paragraph discusses the financial performance and improvements expected by 2025, highlighting a return in discretionary spending and growth in annual contract value (ACV), driven by both large and small deals, particularly in financial services. Jatin Dalal attributes margin outperformance, despite softer utilization figures, to improved operational execution and benefits from their NextGen program. Ravi Kumar emphasizes enhanced operational rigor over the past two years, contributing to the company's positive financial results.

The company is focusing on enhancing productivity through AI and its NextGen program, which started in 2023 and is expected to impact 2024 and 2025. They are pleased with their large deals, resulting in margin growth and a positive outlook for 2025. They have also managed to mitigate margin dilution from mergers, acquisitions, and AI investments. Looking ahead, they plan to continue aggressive hiring from Q1 2025, maintaining a strong talent base across all geographies, and they aim to improve margins while staying competitive.

In the discussion, Jatin Dalal clarifies that the 250 basis point contribution expected from Belcan in 2025 is solely based on the additional revenue from eight months post-acquisition, without factoring in any other inorganic growth. James Faucette appreciates the clarity and inquires about budgeting trends, noting improvements in discretionary spending and deal-making. Ravi Kumar responds positively, indicating a favorable business environment with decreasing global uncertainty, which should lead to increased investment in innovation and discretionary projects.

The paragraph discusses a company's growth and evolving strengths, particularly in financial services and global capability centers (GCCs). The speaker, Ravi, is optimistic about their progress and ability to seize opportunities like data modernization and cloud migration. He highlights that many clients are seeking help to set up GCCs using a build-operate-transfer model, reflecting a strong skillset in this area. The company has diversified its service offerings beyond financial services and healthcare, enhancing its heterogeneity across various verticals. Ravi feels positive about the company's transformation and its potential for the future. Tien-Tsin Huang asks how these developments, particularly involving GCCs, affect Cognizant's strategy and the balance between in-sourcing and outsourcing.

Ravi Kumar discusses Cognizant's strategic involvement in Global Capability Centers (GCCs), particularly in offshoring hubs like India, where GCCs make up a significant portion of the market. Cognizant plays a crucial role by offering various services, including building, operating, and transferring systems, integrating AI tooling, and providing micro-services that allow companies to focus on core activities while outsourcing non-core functions. He highlights the trend of companies reorganizing their operations and technology through offshoring and nearshoring. Additionally, Cognizant offers engineering capabilities, allowing companies to maintain control over essential functions like software development for critical applications.

In the paragraph, Ravi Kumar discusses the role of technology in business amid economic uncertainties, emphasizing its dual utility for growth and efficiency. He highlights a recent successful collaboration with an insurer as an exciting opportunity. Kumar notes that while budget visibility has improved compared to the previous year, it's not fully stabilized yet. He expresses optimism about navigating both growth and efficiency through technology, particularly AI. Tien-Tsin Huang and the operator transition the conversation to a question from an analyst substituting for Jim Schneider from Goldman Sachs, seeking insights on consumer behavior differences between the UK and Continental Europe.

The paragraph discusses the differences in outsourcing and offshoring opportunities between the UK and Continental Europe. In Continental Europe, there are emerging outsourcing opportunities, including offshoring, with certain industries being more mature than others. The UK market is more mature in terms of outsourcing and offshoring, especially in financial services, public sector, and consumer communications. The company sees potential for growth in Continental Europe with recent investments, aiming to increase its presence and competitiveness there. Additionally, the UK market is showing increased momentum in the latter half of 2024.

In the current quarter, there is a revenue shift between the UK and Europe due to a contract renewal by one of the company's CMT customers in the US instead of the UK. Despite this geographic revenue movement, the company is experiencing good momentum in the UK. After answering questions, Tyler Scott from management thanked participants and looked forward to the next quarter's discussion. The conference call was then concluded.

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