COGNIZANT TECHNOLOGY SOLUTIONS CORP Q3 FY2024 earnings call

• Results: Third quarter revenue was at the high end of constant currency guidance range, grew 3.5% sequentially in constant currency. Adjusted operating margin was 15.3%, improved sequentially. Adjusted EPS grew ~7% year-over-year. • Accelerating growth: Traction in large deals, AI-led revenue opportunities; partnerships with Palo Alto Networks, ServiceNow, NVIDIA, AWS; acquisitions like Thirdera and Belcan. • Employer of choice: Investments in talent, learning, and upskilling; employee engagement scores strong, voluntary attrition low; named on Forbes and Newsweek lists. • Modernizing operations: Improved gross margin by 50 basis points sequentially due to better utilization and automation, focus on operational rigor.

Third quarter revenue was $5 billion, growing 3.5% sequentially in constant currency. Health Sciences segment grew 7.6% year-over-year in constant currency, driven by strong differentiated offerings. Financial Services segment grew 0.5% year-over-year in constant currency, benefiting from uptick in discretionary demand. Products and Resources revenue grew 4.6% year-over-year in constant currency, driven by Belcan. CMT declined 4% year-over-year in constant currency due to tight discretionary spending. Geographically, Americas grew ~4%, Europe declined ~2%, and Rest of World grew ~4%.

• Q4: Expect revenue to increase 4.8% to 6.8% in constant currency, translating to $5 billion to $5.1 billion on as-reported basis. • Full year: Tightened revenue range, now expects 1.4% to 1.9% constant currency growth, $19.7 billion to $19.8 billion as-reported. Adjusted operating margin expected to be ~15.1%. Full year adjusted EPS guidance $4.63 to $4.67. • Share repurchases: Remaining $1.4 billion under authorization, returned $391 million to shareholders in Q3. • Free cash flow: Expected to be ~80% of net income, no change to full-year guidance.

• Economic uncertainties and competitive pressures could impact revenue and margins. • Dependence on key clients and industries for growth. • Integration challenges from acquisitions may affect performance.

Q: Jason Kupferberg from Bank of America asked about organic growth and AI-enabled coding productivity.

A: Ravi Kumar said Q4 organic growth around 2% and explained how AI productivity helps share savings with clients, making Cognizant more competitive.

Q: Tien-Tsin Huang from JPMorgan asked about large deal pipeline and vertical diversification.

A: Ravi Kumar stated confidence in sustaining large deal momentum, expanding into new geographies and industries, with healthcare and financial services leading growth.

Q: Jim Schneider from Goldman Sachs asked about gross margin sustainability.

A: Ravi Kumar said Belcan won't materially impact gross margin, and levers like utilization, automation, pyramid initiatives, and pricing drive gross margin.

Q: Maggie Nolan from William Blair asked about sales cycle and conversion rate.

A: Ravi Kumar mentioned smaller discretionary deals gaining momentum, and AI tooling helping win deals by enabling more for less.

Q: Bryan Keane from Deutsche Bank asked about GenAI impact on pricing.

A: Ravi Kumar said GenAI allows sharing productivity gains with clients, making technology spend elastic and creating more opportunities.

Q: Bryan Bergin from TD Cowen asked about growth considerations and utilization.

A: Ravi Kumar stated progress in growth trajectory and that there's still some room for improvement in utilization.