Ladies and gentlemen, welcome to the Cognizant Technology Solutions First Quarter 2018 Earnings Conference Call. All lines have been laced on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I would now like to turn the conference over to David Nelson, Vice President of Investor Relations and Treasurer at Cognizant. Please go ahead, sir.

Thank you, operator. And good morning, everyone. By now, you should have received a copy of the earnings release for the company's first quarter 2018 results. If you have not, a copy is available on our website, cognizant.com. The speakers we have on today's call are Francisco D'Souza, Chief Executive Officer; Raj Mehta, President; and Karen McLoughlin, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risk and uncertainties as described in the company's earnings release and other filings with the SEC. I would now like to turn the call over to Francisco D'Souza. Please go ahead, Francisco. Francisco D'Souza: Good morning, everyone, and thanks for joining our call. This morning, I'd like to cover two topics: first, a few highlights from our Q1 performance; and second, an update on how we're competing effectively and scaling up our business in the current environment. Let's begin with the quarter. We've gotten the year off to a solid start. First quarter revenue was $3.91 billion at the high end of our guided range and up 10% year-over-year. Our first quarter digital revenue grew about 27%, well above company average and represented about 29% of total revenue, reflecting the profile of many of our clients who are pivoting quickly to digital. Our portfolio of digital services generated above company average margins, and our non-GAAP EPS for the quarter was $1.06. Turning to guidance. We expect second quarter revenue to be within a range of $4 billion to $4.04 billion. We now expect full year revenue to be within a range of $16.05 billion and $16.3 billion, a growth of 8.4% to 10%. And we remain confident in our previously stated guidance of achieving a non-GAAP operating margin in 2018 of approximately 21%. Moving to my second topic, thriving in today's environment. Cognizant continues to be one of the world's fastest growing professional services companies, even at our scale. We've sustained our growth by innovating in response to macroeconomic and technological changes and the resulting shift in our clients' needs. The current environment is defined in part by global economic momentum, accelerating technological progress and increasing demand for colocating with clients. As a result of these trends, we see tightening labor markets and skill shortages in many parts of the world. To thrive in this environment, we continue to emphasize three broad approaches that I'd like to cover this morning. I'll refer to them as digitized, internationalized and localized. Let's start with digitized. We have a distinctive approach to digital that really resonates with our clients. We help them become digital to their core, digitizing their products and services, personalizing the experience they offer customers, fully automating their business processes, modernizing their IT infrastructures and doing all of this in tandem. We use this approach to transform clients' entire enterprises, their business, their operating and their technology models. This three layer transformation enables us to build digital at scale and at speed throughout three practice areas: digital business, digital operations and Digital Systems & Technology. This ability to, in essence, run a digital plumb line through all layers of a client's enterprise gives us an edge in pursuing and capturing a significant portion of the huge market opportunity for enterprise transformation. It also serves to expand our presence well beyond the CIO to other decision makers within our accounts like the CFO, COO and the chief marketing officer. Reflecting our commitment to partnering with the CMO, we're delighted that Cognizant interactive, which is part of our digital business practice, was just recognized by Ad Age as one of the world’s largest digital agency networks. At the same time, we've built a strong and scalable foundation on which to keep advancing our digital capabilities and leadership. Our broad foundation has many elements. These include our trusted intimate relationships with strategic clients and our penetrating knowledge of clients' industries, business models and technology environments. We know how to apply powerful new technologies like artificial intelligence, the Internet of Things, virtual and augmented reality, robotic process automation, blockchain, cloud and more. As clients more fully adopt these technologies, we'll be able to use our leadership position in these areas to capture a substantial portion of the growth opportunity for all of the services and solutions that will emerge. In the meantime, our understanding of how to apply these technologies serves to amplify our ability to anticipate client’s needs and rapidly develop solutions at scale and at the highest levels of reliability. Perhaps the most important element of our growth foundation are our high-end skills, our global and local delivery and the end-to-end capabilities which include our global consulting teams that advise on strategy, operations and technology, all of which enable us to build and deliver specialized software platforms and industry-specific solutions to quickly create new value for clients. And therefore, we're sustaining our investments to further scale our digital practices aggressively across industries, geographies, both organically and through acquisitions. Now with over 80% of our revenue coming from the work we do for clients in financial services, health care, retail and manufacturing, we're at the center of the fintech, health tech, biotech and smart product revolutions. Our clients depend on us to keep them at the leading edge of these shifts. We do so by developing solutions to advance their businesses. Here are two quick examples. We partnered with an engine manufacturer to identify potential engine failures on long haul truck runs. We helped the client increase truck utilization and catch 20,000 faults per month, enabling preventive maintenance across a fleet of 150,000 vehicles. We also helped a leading health care company save as much as $60 million by identifying 85,000 at risk patients. We developed an advanced machine learning algorithm to analyze and report on the warning signs of patients who are exhibiting behaviors that may indicate patterns of substance abuse. This enables professionals to intervene early to improve these patients' quality of life. We continue to invest to broaden and deepen our services and capabilities, and we've intensified our focus on developing more end to end industry-specific solutions. Based on our forward momentum and sustained investment, we expect our digital portfolio to continue to grow at double-digit rates. Our second approach to today's environment is to further internationalize. Non-U.S. markets are, of course, sizable and fast growing and the application of digital technologies is absolutely a worldwide phenomenon. Last year, our businesses outside the U.S. crossed the $3 billion revenue mark for the first time. We've expanded our geographic footprint organically, adding new delivery and operation centers, as well as Collaboratories in our key global markets. We have digital-at-scale projects underway with the likes of the English Football Association, Softbank Robotics, Centrica, Dexia, BHP and a consortium of Indian life insurers, to name just a few projects. And many of our acquisitions over the past couple of years have been outside the U.S., among them Idea Couture, Mirabeau, Brilliant Services, Adaptra, Netcentric and Zone. In essence, we've been methodically planting seeds across Europe, Asia Pacific and Latin America, and many of these have already become growth engines for us. In short, we have the clients, the talent, the operating model and the integrated delivery to excel outside the U.S., and we see the potential for several of our non-U.S. markets to each become billion-dollar businesses early in the next decade. Our third emphasis is on continuing to localize. As you can imagine, when you're partnering with clients to transform their business, operating and technology models, the need to engage with them locally is essential. In fact, the growing volume of digital at scale work we're doing typically involves agile development and a deeply consultative in-person approach with clients. So we continue to invest extensively in training and rescaling our teams and in substantially expanding our local workforces around the world. Our goal is to complement the massive delivery capability and operations we have in India with additional specialized points of delivery around the globe. That's why we've built a network of local and regional delivery centers in Europe, Asia, North America and Latin America. With their proximity to clients, these delivery centers also enable high-quality digital, agile and secure services that comply with local regulations and are delivered using the technologies and languages clients require. These centers also enable us to hire, develop and retain talented local people who can serve multiple clients. By the way, as we've built skills and capabilities in the local communities where we operate, we're also partnering with educational institutions to establish and fund retraining programs in high-demand digital technologies. To wrap up, our business is strong as is our ability to sense and respond quickly to market shifts. Our digitized, internationalized, localized approach is serving us well in today's business environment. We're one of a small handful of companies with the range of capabilities to help clients transform at every level of their enterprises. We've developed a strong and scalable foundation on which to extend our leadership as the builder of the digital economy, and we expect our forward momentum to deliver a strong 2018. And now over to Raj, who will discuss how we're working with clients to speed them along their digital transformation journeys as well as the specifics of our business segment performance. Raj?

Thanks, Frank, and good morning, everyone. To echo Frank, we feel very good about Cognizant's range of capabilities, business model and sustained investment. In combination, they're enabling us to be the scale builder of the digital economy and the go-to transformation partner for our clients. I am going to cover our industry, segment and geographic performance. But first, I want to add to Frank's discussion about how we create value for clients, and there's no better way than with a concrete client example. Consider the work we're doing with a top property and casualty insurer of high-net-worth individuals and families. Our client needed help rethinking and redesigning a key moment of truth in their claims process. This is a point where a policyholder calls to report an accident or damage to property. Of course, people are often stressed when they make such a call. So that experience can determine client satisfaction and retention. Cognizant developed an analytics platform informed by artificial intelligence to transform this first notice of loss. Our AI solution enables the insurer to audit and analyze conversations between policyholders and customer service representatives and guide the rep in real time about how best to respond. We brought together machine learning, chat bots, voice-to-text transcription and analytics to automate repeatable processes. The machine learning alone have dual [ph] knowledge gained from reviewing 25,000 policyholder calls. This has improved the quality of the information captured and reduced the likelihood of misunderstandings that can result in litigation or fraud. As a result, the insurers saw about a 30% reduction in call length and associated expenses and a 15% reduction in total labor and expect to see significant improvement in client satisfaction. We have many other client engagements underway in which we're doing AI-enabled work that delivers business outcomes of this importance. It's this combination of capabilities, including continued investment in our client facing teams and further scaling of our practice areas, that equips us to be the go-to partner for our clients' digital-at-scale transformations. Let's look now at how our industry segments performed in Q1. Banking and Financial Services grew 6.2% year-over-year. In the quarter, we had double-digit growth in our insurance business that was driven primarily by large strategic deals. Insurers are increasingly interested in using advanced technology to transform the customer experience as conveyed by my earlier example. Moving to Banking. We continue to see strong growth amongst our mid-tier banking clients as they work to transform their business models, which involves greater investment in advanced technologies. As large money-center banks reported more positive industry business climate, they're putting more pressure on their run-the-bank spending while stepping up investment in the change-the-back technology. While we're seeing a pickup in this digitally intensive work, we anticipate continued optimization of the legacy portion of our banking business and a modest overall improvement. Turning to Healthcare. Our revenue was up 11.8% year-over-year. We saw consistent demand across payer clients with increasing interest in our digital, analytics, cloud and virtualization solutions. We continued to invest and position our health care practice to capture demand as clients shift their underlying business models from fee-for-service to value-based care. To complement our strong position in the payer market, we've expanded our scope to include the provider network of doctors, hospitals and other clinicians. We recently closed our acquisition of privately held Boulder Healthcare Solutions, a leading provider of end-to-end revenue cycle management solutions to hospitals and physicians. Boulder expands our health care consulting, IT and business process services portfolio and extends our leadership in digital health care technology and operations. By bringing together Boulder Healthcare with TriZetto, TMG Health and Top Tier Consulting, we now have offerings that span the payer and provider business value chain. Turning to Products and Resources. We increased revenue 11.4% year-over-year. Strong growth from our manufacturing and logistics clients continues, which offsets sluggish growth in retail. Our strength in the manufacturing, logistics, energy and utility areas result from our emphasis on leading with digital offerings. The infusion of digital has already made many products smarter and the consumer experience richer. And now AI-based autonomy enabled by sensors, data analytics and machine learning is making machines far more versatile and self-driven than ever before. This has caught the attention of CXOs who are increasingly engaging us to implement advanced digital process to transform their business models. Communications, Media and Technology had another strong quarter of broad-based growth, up 18.4% year-over-year, with an expansion in areas like creating and curating digital content for digital platform providers. The digital economy is all about creating meaningful experiences with personalized content. As we have seen with many of our Silicon Valley clients, this requires the ability to help manage and run digital business to deliver personalized content. These clients seek our help with sheer volume of content monitoring and moderation, particularly as they intensify their efforts to verify the authenticity of user-generated content and scale globally. Looking at our geographies. Our markets outside the U.S. continue to exhibit strong growth. Europe grew 22.4% year-over-year in Q1, including 11.7% positive impact from currency. And the rest of world was up 11.9% from a year ago, including a 310 basis point positive impact from currency. We now have offices in over three dozen countries, and much of our growth has been enabled by successful localization across many of these countries. The value we create for clients is predominantly knowledge-based work so we depend heavily on the insight, passion and collaboration of our global associates. We continuously invest in the skills and development of all of our associates to keep Cognizant strong and relevant to clients. At the same time, we're aware that our annualized attrition rate of 20.3% this quarter is several points higher than our historic norm for Q1. We believe the higher attrition is largely the result of increasing global demand for the very skills we specialize in, including shortage of technology talent, particularly in the local markets and the transition our organization has gone through to build a scalable foundation for expanding our digital leadership. We continue to focus on our workforce strategy and management. To sum up, over the past year, we focused considerable energy and investment in strengthening our foundation for profitable growth and extending our capabilities to help clients succeed in their transformation journeys. Karen, over to you.

Thank you, Raj, and good morning, everyone. The business got off to a solid start in Q1, which positions us well to achieve our updated full year revenue and margin guidance. First quarter revenue of $3.91 billion was at the high end of our guidance range and represented a year-over-year increase of 10.3%, including a positive 210 basis point impact from currency. Non-GAAP operating margin, which excludes stock-based compensation expense, acquisition related expenses and realignment charges, was 20.3%, and non-GAAP EPS was $1.06. Our Q1 non-GAAP tax rate of 24.6% was higher than expected primarily due to the updated interpretation of the global intangible low tax income or GILTI provision of the new U.S. tax law. As I will discuss further in the guidance section of my remarks, this updated interpretation of the GILTI provision is estimated to have a full year EPS impact of $0.09 per share. In the first quarter, we demonstrated our commitment to return capital to shareholders through launching a $300 million accelerated share repurchase or ASR program in March, with completion expected during the second quarter. This ASR marked the second piece of our expected $1.2 billion share repurchase by the end of 2018. And today, we declared a quarterly cash dividend of $0.20 per share for shareholders of record at the close of business on May 22. Additionally, during the quarter, we repatriated $2 billion of earnings that were available for distribution to the United States as a result of U.S. tax reform. We have already deployed approximately 25% of that cash through the acquisition of Boulder. We are continuing to evaluate the implications of U.S. tax legislation on our overall capital return program. Now let me discuss additional details of our financial performance. Consulting and technology services and outsourcing services represented 58% and 42% of revenue, respectfully, for the quarter. Consulting and technology services grew 10.7% year-over-year and outsourcing services revenue grew 9.7% from Q1 a year ago. During the first quarter, 39% of our revenue came from fixed-price contracts, and we continue to make progress, over the long term, changing the mix of our business to more fixed-price or managed services arrangements. Also, as we've spoken about for some time, we are seeing an increasing trend towards output or transaction-based pricing. And so beginning with Q1, we are breaking out transaction-based contracts separately, which were approximately 9% of revenue in the quarter. We added 7 strategic customers in the quarter, defined as clients that have the potential to generate at least $5 million to $50 million or more in annual revenue, bringing our total number of strategic clients to 364. And now moving to a discussion on margin. We remain committed to and are on track to achieve our target of 22% non-GAAP operating margin in 2019. In the first quarter, we continued focus on driving higher value services, in addition to continual improvement in our business, focusing on levers such as sustained higher levels of utilization, optimal pyramid structure, simplification of our business unit overhead structure and leveraging our corporate function spend more effectively. Our offshore utilization for the quarter was 79%. Offshore utilization excluding recent college graduates who are in our training program was 83%. And on-site utilization was 92% during the quarter. Turning to our balance sheet, which remains very healthy. We finished the quarter with $5 billion of cash, short-term investments and restricted cash. Net of debt, this was up by $33 million from the quarter ending December 31 and up $1.15 billion from the year-ago period. This balance at the end of the quarter includes restricted cash and short-term investments of $507 million. These restricted amounts are related to the ongoing dispute with the India income tax department. Receivables were $3 billion at the end of the quarter. We finished the quarter with a DSO of 75 days, up 4 days versus last quarter. The adoption of the new revenue recognition standard increased our DSO for the quarter by two days. Our outstanding debt balance was $773 million at the end of the quarter. Our diluted share count was 589 million shares for the current quarter. Now I would like to now comment on our outlook for Q2 and the full year 2018. For the full year 2018, we expect revenue to be in the range of $16.05 billion to $16.3 billion, which represents growth of 8.4% to 10%. Our guidance is based on the current exchange rates at the time at which we are providing the guidance and does not forecast for potential currency fluctuations over the course of the year. For the second quarter of 2018, we expect to deliver revenue in the range of $4 billion to $4.04 billion. And for the second quarter, we expect to deliver non-GAAP EPS of at least $1.09. This guidance anticipates a share count of approximately 586 million shares and a tax rate of approximately 27%. For the full year 2018, we expect non-GAAP operating margins to be approximately 21% and to deliver non-GAAP EPS of at least $4.47. This guidance anticipates a full year share count of approximately 585 million shares and a tax rate of approximately 26%. As I mentioned earlier, our tax rate expectation has increased from our previous guidance due to an updated interpretation of the GILTI provision. The impact of this higher estimated tax rate on EPS is partially offset by our better than expected performance in Q1, as well as the expected benefit from the Boulder acquisition, which closed last month. As we receive additional clarification and the interpretation continues to evolve, our estimate of the impact of the GILTI provision could change. Our non-GAAP EPS guidance excludes stock-based compensation; acquisition-related expenses and amortization; realignment charges; net non-operating foreign currency exchange gains and losses; any future adjustments to the onetime 2017 incremental income tax expense related to the tax reform act; and our contribution to the new Cognizant U.S. Foundation, which we expect to fund in the second quarter of this year. Our guidance also does not account for the impact from shifts in the regulatory environment in areas such as immigration or tax. In summary, our solid execution in Q1, along with continued investment in the business, has positioned us well to deliver another strong year of revenue and earnings growth in 2018. Operator, we can open the call for questions.

Thank you. [Operator Instructions] Our first question is from the line of Tien-tsin Huang with JPMorgan. Tien-tsin Huang: Thanks, good morning. I wanted to ask if there's any change to your organic revenue growth outlook versus 90 days ago. The Boulder Health, I thought that would have a little bit more impact starting in the second quarter. So can you also maybe update us on the acquisition contribution to revenue this year? Thanks..

Sure. Tien-tsin, this is Karen. Let me take that. So as you would have seen obviously, we took up the bottom end of the revenue guidance to about 8.4%, which did account for the Boulder acquisition. However, FX also moved against us so that offset about half of the benefit that we'll get from Boulder this year. So if you recall, at the beginning of the year, we had said there was about 100 basis points of FX year-over-year impact. That number has now dropped to about a 70 basis point impact on a year-over-year basis because of the recent movement in the European currencies. Tien-tsin Huang: Got it. So on the organic revenue side, any change there, since I'm at it, on the 606 front? What can you - go ahead, sorry.

Yes. So on an organic basis, no changes in our guidance other than for Boulder and the FX movement as we talked about. The 606, as you saw, was a little over $20 million for the quarter. Obviously, that's more of a timing issue than anything because, ultimately, that reverses as those contracts mature. So on a full year basis, we still don't expect to have a material impact from 606. Tien-tsin Huang: There is a material, okay. Thank you, Karen.

Our next question is from the line our Bryan Keane with Deutsche Bank. Please proceed with your question.

Hi, guys. I'll ask my questions upfront. Just looking at Financial Services, on the larger bank spend. It doesn't look like we've seen any real pickup in increase in spend there. And then secondly, Karen, how long can you guys continue to grow the revenue growth high single digits to low double digits without growing the headcount much? Thanks.

Yes. Bryan, this is Raj. I'll take the first part, and then Karen can answer the second part. Look, financial -- our banking portfolio, I think, it's in transition. Obviously, you're seeing a good healthy growth in the mid-tier banks, but the challenge is obviously the large money-center banks. And honestly, our portfolio is in transition. In one side, you have some of our portfolio which represents more of the legacy work. That continues to get optimized. And with that, we continue to evaluate what we think is strategic and to make sure that we can continue to deliver high margins on that work. And then we're starting to see a strong pickup on the digital portfolio at these banks, and we're actually winning a lot of work there. And we're winning in mobility solutions. We're winning in legacy app modernization, even some initial work in blockchain. So the business in digital is really growing at a healthy pace, consistent to the overall Cognizant digital growth. But - so the overall - look, the business is growing there. But the portfolio, as we get - as additional digital spend continues, I think then we'll start getting back to the healthy strong growth that we've seen in banking.

And Bryan, so to answer your question about headcount. So I do think that as we look to the next few months, we'll start to see headcount increase on an overall basis. There's a number of things. Obviously, did a great job of bringing up utilization last year, and it held fairly flat on a sequential basis from Q4 to Q1 both on-site and offshore. But I wouldn't want to take it up much beyond where we are right now given the current environment and the demand environment and this need for new skills and so forth that we're seeing in the marketplace. But having said that, while you've got headcount growth and strong demand obviously in digital, then there are parts of the business where automation and so forth are also helping us to drive utilization and manage headcount more effectively. So I do think you'll see headcount grow in the coming months. But as we've talked about in the past, I would no longer expect headcount and revenue to grow in line with each other as the business continues to evolve.

Okay. Thanks for the color.

Our next question is from the line of Jim Schneider with Goldman Sachs. Please proceed with your question.

Good morning. Thanks for taking my question. Maybe just one more on the financials, Karen. Can you maybe talk about the extent to which you expect attrition to tick down either short term and what your plans are to kind of reduce the attrition rate longer term? And maybe talk about how much of the attrition was voluntary versus involuntary in the quarter.

Yes. Jim, this is actually Raj. Look, we don't break out the voluntary and involuntary. I think the key point to notice are the number that we quoted includes everything, includes our attrition that happens in our BPO business, our training pool, all the voluntary, involuntary and plus the trainees. I think one thing you got to keep in mind in this -- look, obviously, we're committed to reducing the number in terms of attrition. But we've invested over the past -- I would say, over the past seven years, we've been investing a lot around digital, especially with all of our SMAC, social mobility analytics and cloud initiatives. So in addition to that, we've trained many of our associates around all the digital skills, and so it's not surprising, especially in this environment that we're at. A lot of our employees, a lot of our associates, given their latest digital technology skills, it's not a surprise our competitors use that as an opportunity to attract associates. But we continue to monitor the levels. I think we've seen this in the past during the dot-com days. We had fluctuations in terms of our attrition. But we continue to attract, we continue to monitor and we continue to engage our employees. And we think we have a great platform for growth for our associates, and we would expect that -- attrition levels to come down in the future quarters.

Yes. And I think, Jim, let's also keep in mind there is some seasonality to attrition, right? So we tend to see attrition spike after bonus payments. You tend to see a spike after promotions and raises and so forth. And if you recall, last year, we didn't -- we've deferred our promotions and the raises until the fourth quarter. So I think we've seen a little bit of a change in the seasonality pattern. Obviously, this year, we expect to do raises and promotions on a normal schedule, back in early Q3, but there is some seasonality to those numbers.

Okay. That's helpful. And then maybe just as a follow up, can you maybe provide us with a little bit of an update on your M&A outlook and particularly your willingness to commit to some larger deals rather than some of the tuck-in acquisitions you've been doing thus far? Francisco D'Souza: Jim, it's Frank. I would say largely consistent with what we have said in the past, which is that the primary focus will continue to be small tuck-ins. And as we've said in the past, as we become bigger, the definition of what is small and what tucks in gets larger. Boulder was a little bit bigger compared to things that we've done in the past. But I'm also - and I've said that we are open to looking at something that's larger, more transformative if it's the right thing. We feel like the TriZetto acquisition that we did a few years ago is now well integrated. We have the capability and the capacity, the management bandwidth to be able to integrate something larger at this point. But we'll be cautious, and we will only do something large if it makes strategic sense that the - and the economics work and we think we can create value for shareholders obviously. The places that we'd obviously be continuing to look would be things like digital. We've talked a lot about digital and the progress we've made there. If we found something that could accelerate our shift to digital, we would consider something along those lines. If you - we look at international expansion. We talked about international on the script today and I think that -- in prepared comments. I think those are also interesting potential opportunities. We think there's plenty of growth left for us in non-U.S. markets, so we could look at something like that. And then, of course, we continue, like we did with TriZetto, to look at software and IP and platforms and those kinds of assets.

Thank you.

The next question is from the line of Jason Kupferberg with Bank of America Merrill Lynch. Please proceed with your question.

Thanks, guys. Good morning. I just wanted to ask a follow-up to start on the attrition point. I wanted to see if you could give us a little bit of color on which parts of the pyramid perhaps drove the increase. I know, in the past, when there's been a spike, it's tended to be kind of at the lower levels. And around the middle of last year, we had that dynamic, and are you contemplating higher wage increases this year vis-à-vis last year to try and combat some of the war for talent?

Sure. Jason, it's Karen. So in terms of where the attrition is happening, it does tend to be in the lower ends of the pyramid, which is historically where we've seen attrition. Over the years, the middle, top end of our pyramid tend to have very low attrition, tend to be skewed towards offshore obviously, which is where the vast majority of our - the junior part of our pyramid is based. So that's fairly consistent with what we've seen during other periods of high attrition. In terms of wages, we will base ourselves on what the market does, both in India and elsewhere around the world. And so as that becomes a little bit more apparent as to what competitors are doing, we will certainly make sure that we are competitive in the marketplace in that regard.

Thank you.

The next question is from the line of Moshe Katri with Wedbush Securities.

Thank you. Just a clarification. When you spoke about Financial Services, did you say that you expected a modest improvement this year? And then just to follow up, is there a way to quantify the portion of the legacy business in Financial Services just to kind of give us a feel of how to kind of look at the entire growth -- the growth of the entire vertical this year? Thanks.

Yes, Moshe. So look, what I said is that we are having -- we're starting to see a pickup on the spend on the digital side of the business, and it is growing at a very healthy pace, with -- in line with the company. I think with that, right, as we continue to -- the large money-center banks, you're starting -- they're obviously much healthier with all the -- some of the changes with the tax reform. You're starting to see more spending there. So I would expect that as some of these engagements continue to get larger and more prevalent with the "money-center" banks, at some point, you'll get the increasing demand there to outstrip some of the optimization that's happening in the legacy portfolio. So in terms of the business -- I mean, in terms of -- we are going -- so the business is growing even with all the focus on some of the optimization. And then along with that, right, you have some of the money-center banks also looking at - with some of the changes in regulatory and amount of work that they've outsourced, they continue to look at some work in-house as well too. So overall, with all that, the business is growing, and I would expect some sort of pickup at some point later in the year.

Yes. And I think, Moshe, if I could just add to that. In fact -- obviously, while banking is growing slower than the overall Financial Services practice, Q1 was, in fact, the strongest year-over-year growth in the last several quarters. So I think while still not where we'd like it to be, it's certainly starting to trend in the right direction. And then in regards to your question of legacy versus digital type spend, the banking practice is right in line with company average. So the company average is about 29% of our revenue right now is digital, and that's right in line with our Financial Services practices as well.

Thank you. The next question comes from the line of Ashwin Shirvaikar with Citi.

Hi, thanks. I wanted to start off with a clarification. Karen, when you said full year ASC 606 is immaterial for revenues, would that apply to operating income and EPS as well? And then the question on reskilling is, can you comment broadly? As you roll out technology training and such, what percent of new skills come from new hires versus reskilled people? And does that have an impact on attrition?

So in terms of -- Ashwin, in terms of the rev rec changes, obviously, a lot of this is a timing issue. So depending on the timing of contracts and the structure of contracts and so forth, revenue will get pulled forward or deferred. And similarly, on the margin side, what happens is, under the new rules, there are more of the -- what I would call transition or implementation costs that we are required to capitalize than we did in the past. So you saw a little bit of that impact in Q1. At this point, we're not expecting that to have a material impact on the quarter -- or on the year rather. But obviously, as new contracts come in, that will certainly make the final determination of what that looks like. In terms of -- go ahead, Frank. I'll turn it over to Frank for reskilling. Francisco D'Souza: Yes. Ashwin, I'm not sure how exactly to answer your question on reskilling. What I'd -- as you know, we reskilled tens of thousands of employees last year. We continue to do that quite aggressively, but that's not some -- that's not a recent phenomenon. As Raj pointed out, we've been skilling and training -- and more than skilling and training, we've been executing projects in the digital area for the better part of seven or eight years now from the time we first talked to you about SMAC and so on and so forth. So we think we've got a very digitally scaled and skilled workforce. And as Raj pointed out, I think part of the reason that we're seeing higher attrition is that competitors view us as a good place to get talent from. So and again, that's not inconsistent with what we've seen in past technology transitions. We have a very structured process and a very -- we're very focused when we reskill or retrain somebody. We get them deployed in the new skills as quickly as we can so that, from a career management standpoint, obviously, it's maximizing our investment when we do that, but it's also an important retention tool. So when you think about how we go through the process, reskilling and retraining and redeploying is really the primary source. And then we rely on recruiting to fill gaps when our reskilling and retraining and redeploying doesn't create the right skills in the right geographies or the right locations. So recruiting is sort of the -- in a sense, the last resort when we can't fill from internally. And when I say recruiting, I mean experienced recruiting. Of course, we're always recruiting at the entry level to continue to grow the business.

Thank you. Our next question is from the line of Brian Essex with Morgan Stanley. Please proceed with your question.

Hi, good morning. And thank you for taking the question. I was wondering if I could first start with a follow-up to Jim's question. Just maybe outlook for M&A through the remainder of the year. And maybe to follow up, how much cash in the U.S. on the balance sheet, might we see a bit of an acceleration there, maybe what the composition of your pipeline looks like relative to prior periods. Is that getting more robust? Just a little bit of color on what expectations through the rest of the year might be. Francisco D'Souza: I would say, Brian, the pipeline of small tuck-in acquisitions continue to be robust. I would characterize it as about the same as it's been over the last 12 months, maybe a little bit more robust but not meaningfully so. And then the bigger deals are - we continue to evaluate different things, but those are, I would say, so unique that I don't think we'd have any more substantial -- any more of a substantial pipeline than we've had in the past. We've always continued to look at the bigger deals. But as I said before, we'll be very careful and cautious on what we do, and it's got to be a good fit. So if we find something that makes sense this year, clearly, we'll look at it and we'll execute on it, but it isn't a foregone conclusion by any stretch that we would do something this year. We'll continue to look and evaluate. And I'll turn it over to Karen on U.S. cash.

Yes. So I think, as I talked about on the call, we did bring back about $2 billion back to the U.S., which was obviously a benefit we could do after U.S. tax reform. We've spent about 1/4 of that, about $500 million -- just under $500 million on Boulder. Certainly, our objective is to make sure that we have enough flexibility around the world, not just in the U.S. but in Europe and elsewhere, to take advantage of transactions as they occur. As Frank said, right, the timing is not always that predictable. So certainly, we will continue to evaluate our cash needs around the world and also evaluate the capital return program as we look forward over the next few months.

Thank you. The next question is from the line of Rod Bourgeois with DeepDive Equity. Please proceed with your question.

Okay, great. I want to ask about how the underlying margin picture might be changing over time. In the industry at large, on the negative side, we've see margin disappointment at Accenture and IBM, and Infosys just guided to some meaningful margin contraction. And our pricing data do show some challenges in certain key markets. But on the positive side, your commentary about digital margins have suggested pretty good prospects. So I guess, in this context, I want to ask, is your path to achieving your long-term margin targets looking more difficult or easier given these big factors in the industry? And I'm not asking about guidance. I know your guidance for margin is unchanged. I'm asking about the challenges involved in getting to those margin targets and whether the challenges are becoming bigger or smaller as you get closer to 2019?

Yes. So Rod, it's Karen. Let me take a stab at that. I think, as you said, right, there's a number of different factors at play. And as we think about our margin profile and the targets that we set out for ourselves, the 22% in 2019, that was really a compilation of a number of things. So we knew, and I think we said this last year, that, certainly, the 2017 and early 2018 improvements would come from utilization and optimizing some of our SG&A spend and some of our business unit overhead spend. And certainly, we've been right on track with the benefits that we expected to achieve from that. We took a lot of those actions in '17. You're now getting the full year benefit of that in '18. And then as we look forward into 2019, it is more about the shift in the business, so the shift to digital, which is currently running at higher margin than the rest -- than the core business as well as the platform business. As that continues to evolve and mature, that starts to look much more like a nonlinear business and drive higher margins. So we're sort of, right, I guess I would say, in that pivot of now looking towards the shift in the business mix to continue to drive the margins for next year. So you do have a number of things that are offsetting each other, but we are very comfortable with the trajectory of the business at this point. We've made very good traction on the -- what I would call the cost optimization, still more room on things that we think we can do around pyramid and driving automation and so forth in the business. But we continue to evolve, and then, obviously, we'll have to see where the market is heading as we get into 2019 and beyond.

And our next question is from the line of Bryan Bergin with Cowen and Company.

Good morning. Thank you. I wanted to ask on health care. Can you comment on the overall large-deal health care pipeline? And then how may Boulder affect an integrated large-deal offering across health care organizations? Thanks.

Yes. Bryan, it's Raj. Look, overall, health care continues to do well for us. I think probably one of the few companies that have been able to -- with investments that we've made in health care now that we -- not only the payer side of the business, but we also have an opportunity to expand our provider side of the business as well. Look, in terms of the large pipeline, right, I mean, I think those deals -- like we have done those BPaaS deals around TriZetto, there continues to be some large type of deals sort of like the Emblem ones that we have done in the past, but those take a long time to materialize. So it's hard to predict when they will come in, but we do have some of those out there. But in addition to that, we've seen a lot of progress around our TMG BPaaS solutions as well. As you're aware, it addresses the Medicare, Medicaid. So we're seeing a lot of good traction and, along with that, a lot of new products that are coming out of the TriZetto space as well, the QNXT platform that addresses more the small player and then our CareAdvance solution as well. So in addition to that, right, as you're aware, there's a lot of potential mergers and acquisitions that are out there. We're excited about the opportunity because not only are we working for the company that may get acquired, but the acquiree as well too. So I think, as those transactions continue to develop, I think there'll be good opportunity for future M&A work as well.

Yes. And I think if I could just add to that, Bryan. I think what's nice with the suite of offerings we have now in health care, with the Boulder acquisition in particular, is that really does open up that full end-to-end market of not just the payers, which has been our historical strength, but also the provider market. And with the platforms now that we have between Boulder and TriZetto and so forth, we can really offer that full-service suite of offerings for clients. And it also opens up a whole new market of clients not just in the provider. But even in the payer space, what we're seeing is now, with the platform business, bigger opportunities with what I'd call small and mid-sized payers who historically wouldn't have had enough spend, frankly, to be significant clients for us. But with the platform business, we can really open up those opportunities now, and we continue to be, I think, very bullish on the long-term benefits and opportunities for health care.

Our next question comes from the line of Glenn Greene with Oppenheimer.

Thanks, good morning. I'll ask a couple of questions upfront. Given the size of the Boulder acquisition, maybe Karen, you could help us sort of frame the annual revenue contribution, the impact on margins and give us some sense of what kind of growth expectations for it. And then a follow-up for Raj would be, I thought you heard -- I thought I've heard you say that retail was somewhat sluggish, which is somewhat counterintuitive, so maybe -- the retail environment actually seems fairly solid, so maybe just some color there?

So on Boulder, Glenn, we didn't break it out, but it's roughly - this year, it'd be roughly $100 million of contribution, fairly neutral on the margin line, a little bit dilutive but not enough to be material. So - and then, obviously, we'll expect the synergies to start to kick in probably not this year but certainly maybe split into this year or as we get into next year. And then, Raj, you want to comment on...

Yes. So Glenn, look, I think we're starting to see a little bit of pickup in retail, but I think when I compare it to previous years, it's still a little sluggish. I mean we're starting to see the retailers are starting to invest a lot in emerging technologies, such as robotic, RPA and intelligent automation and even AI algorithms. So we're starting to see that, but again, when I compare it to previous years, it's still a little sluggish for us.

Our next question is from the line of Arvind Ramnani with KeyBanc. Please proceed with your question.

Hi. Just a quick clarification. From my understanding, your guidance doesn't include M&A, right?

So Arvind, our guidance does not include prospective M&A. It includes the benefits of Boulder and the deals that we've already completed, but it does not include prospective M&A.

Great. And just a broader question on digital. The definition has certainly evolved from SMAC to digital. Can you comment on what the high-growth areas of digital are, and how are you able to stay in front of these newer technologies? And also, if you can expand on how you're changing your sales and delivery team with the definition of digital is - keeps evolving? Francisco D'Souza: Arvind, it's Frank. There are, I guess, a number of different areas within digital, so I'll point out a few of the key high-growth ones. First of all, digital engineering, which is sort of the new way of app development, is obviously high growth. And continuing within what we call digital systems and technology, things like cybersecurity, cloud migration, replatforming to the cloud, all of those are, I would say, high growth. Within the digital operations business, the higher growth parts there are, as Raj pointed out, robotic process automation, intelligent process automation, using other forms of automation and artificial intelligence to automate key business processes. And then within our digital business practice, virtually all of that is higher growth. You look at things like data and insight, you look at Cognizant interactive that I spoke a little bit about during my prepared comments, looking at smart products both within the [indiscernible] and the digital business portfolio. So digital business is almost entirely all high growth. So that gives you a little bit of a picture. As I -- as we said in the past, there is no real consistent definition of digital across the industry. So I think our definition is a prudent but perhaps somewhat conservative definition. We are trying to give you a good sense of kind of what we think of as the core high-value digital works that we do so that you get a sense of the progress that we're making as we continue that shift. And I think the second part of your question was on skilling and retraining. I think that we've talked a lot about skilling and retraining, and we're doing a lot of it, equally focusing on rotation of our associates across the business because we think it's important to give people exposure to multiple technologies and skills and capabilities. I think one of the things that's just worth noting is that, in many ways, the company has a very strong engine of retraining and reskilling. It's not something that we've -- that's new in the digital world. I mean, we've been reskilling and retraining our employees from day one. So we've got a very strong DNA, and we've got a very strong capability. And I think reskilling, retraining is something that we do particularly well.

Thank you. We've reached the end of our question-and-answer session. We have time for one final question, which will be coming from the line of Frank Atkins with SunTrust.

Thanks for squeezing me in here at the end. I appreciate it. A quick question, in your prepared remarks, you talked about driving further international business. Can you talk about demand outside the U.S., especially on the digital side and the margin for that work? And then, as my kind of second part, can you explain a little bit more clearly exactly what the change was in the view on taxes for the year? Thanks. Francisco D'Souza: Sure, Frank. Let me talk about growth outside the U.S. As we said during -- I said during the prepared comments, last year, our non-U.S. market crossed $3 billion. We still think there's tremendous opportunity upside and growth there. We see -- as you know, the economies around the world are -- certainly in the markets where we participate largely, are doing quite well. The economies are doing well, so we see the same fundamental drivers of growth in many parts of the world as we see in the U.S. -- of digital adoption as we see in the U.S. In some parts of the world, as happens with technology, you even see stronger growth as some economies leapfrog one generation of technology and go straight to digital, skipping over older generations of technologies. So we see good demand around the world. And in general, as we've said, the margin on our digital work is higher than company average margin. And let me turn it over to Karen on the tax question.

Yes, sure. So Frank, regarding the tax, right, I think, as we all understand, the new U.S. tax laws were put in place fairly quickly back in the fourth quarter. And as we've gone into 2018, there's been a lot of folks continuing to look at the language in the tax law and continuing to refine both the interpretation of the laws. And in some cases, there have been some clarifications and updates to that. In particular, the one area of focus that has received some, I guess I would call it, review scrutiny is around what they call the global intangible low tax income or GILTI. And essentially, what that means for us is that it provides a limit on the amount of foreign tax credits that we're able to get. This was not clear back in the fourth quarter and back in February when we gave the original guidance, but as we've looked at the law more closely, at least in its current writing, we believe that, that will impact our tax rate for this year. And as we've said, it's about $0.09 of EPS. It is possible that there may be some clarifications around this later this year or in the future or perhaps even a complete revision. We're not sure at this point. But for now, we thought it prudent to base our tax -- our guidance and our tax rate and EPS on the law as it is currently drafted, and that's what caused the change in the impact there. For anybody who has more questions, you can certainly reach out to us on that, and there will be more clarification in our 10-Q filing when that is filed later today or tomorrow. Francisco D'Souza: Great. And with that, I think we'll wrap up. I want to thank everybody for joining us again today and for your questions. And we look forward to speak with you again next quarter. Thanks, everybody.

This concludes today's Cognizant Technology Solutions First Quarter 2018 Earnings Conference Call. You may now disconnect.