Ladies and gentlemen, welcome to the Cognizant Technology Solutions First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Tyler Scott, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. By now, you should have received a copy of the earnings release and the investor supplement for the company's first quarter 2024 results. If you have not, copies are available on our website, cognizant.com. The speakers we have on today's call are Ravi Kumar, Chief Executive Officer; and Jatin Dalal, 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 risks and uncertainties as described in the company's earnings release and other filings with the SEC. Additionally, during the call today, we will reference certain non-GAAP financial measures that we believe provide useful information to our investors. Reconciliations of non-GAAP financial measures, where appropriate, to the corresponding GAAP measures can be found in the company's earnings release and other filings with the SEC. With that, I'd like to turn the call over to Ravi. Please go ahead.

Thank you, Tyler, and good afternoon, everyone. Thank you for joining our first quarter 2024 earnings call. I'm pleased to report that during the quarter, we continued to make progress against the strategic priorities I laid out last year while navigating a challenging demand environment. We delivered revenue growth that exceeded the high end of our guidance range and expanded our adjusted operating margin year-over-year. Voluntary attrition improved again, and we ended Q1 with trailing 12-month voluntary attrition for our technology services business at 13.1%, representing a decline of 10 percentage points year-over-year. And our NextGen program remains on track as we continue to focus on simplification and operational excellence. As we have all seen in recent earnings results for our peer companies and economic headlines, the demand environment remains uncertain and geopolitical risks continue. These dynamics are shifting near-term client spending priorities from discretionary projects towards projects that will drive near-term cost savings and fund innovation for the future. Now moving on to Q1 highlights. We delivered revenue of $4.8 billion, which was sequentially flat and represented a decline of 1% year-over-year, both as reported and in constant currency. We expanded our adjusted operating margin by 50 basis points to 15.1% as we continue to execute our cost optimization strategy and take out structural costs. First year -- first quarter bookings on a trailing 12-month basis were $25.9 billion, an increase of 1% year-over-year. While there is good sustained traction with our large deals, we saw softness in smaller deals in the range of 0 to $10 million total contract value, reflecting the tight discretionary environment. Our strong deal momentum in the quarter was evidenced by the fact we signed 8 deals, each with TCV of $100 million or more compared to only 4 in the prior year period. We've also seen early green shoots in our efforts to diversify our large deals outside of North America. And in quarter 1, two of the 8 greater than $100 million contracts we signed with in the APJ region. On a trailing 12-month basis, our book-to-bill ratio of 1.3x remains strong, which we believe provides a healthy backlog of opportunities to improve revenue performance over the next several quarters. We continue to grow our pipeline for larger deals and make progress against our goal of increasing the value of large deals in our bookings. From a segment perspective, demand trends were consistent with what we have seen in recent quarters. We saw sequential growth in Health Sciences and Communications, Media and Technology, offset by declines in Financial Services and Products and Resources. While Financial Services has been impacted more meaningfully than other segments by weaker discretionary spending, we did see sequential growth among our banking and financial services clients, which represents about 60% of our Financial Services segment, and are encouraged by the opportunities we are seeing in the overall pipeline, particularly within our intuitive operations and automation practice area. We see several themes that we believe are helping drive demand for our services. This includes clients' continued investments in developing a modern technology infrastructure related to AI, cloud and digital technologies, data engineering, prioritization of hyper-personalization and customer experience projects and the need to deliver innovation. One example of infrastructure modernization this quarter was an agreement we signed with a new client, McCormick & Company, a global leader in flavor. Over the next 5 years, we will help transform and manage its global technology infrastructure, leveraging AI automated tools to enhance McCormick's employee and customer experience while improving productivity and driving financial savings for our clients. Another example of monetization hyper-personalization is our recently announced new strategic alliance with Shopify and Google Cloud. Under this alliance, we will help drive digital transformation and platform modernization, enabling global retailers and brands to unlock business value from generative AI. We believe today's retailers must drive a modernization agenda while investing in innovation to elevate their end users and customers' experiences. Earlier this week, we signed a strategic agreement with Telstra, Australia's leading telecom and technology company, to elevate their software engineering capabilities and enhance their customers' experience. We believe this is a key strategic win in our APJ market. And we will leverage our AI tools to drive innovation, enable more efficient software engineering and ID operations, and decommission legacy systems to improve operational efficiency and support their employee experience by building them a superior engineering experience. And as a fourth example, we extended our long-standing relationship with CNO Financial Group during the quarter. Under this expanded agreement, we will implement cloud and digital technologies to help CNO deliver more personalized digital and convenient solutions to their customers. We'll also leverage gen AI technologies to help drive efficiencies across infrastructure, applications, enterprise software and engineering services. Our clients' desire and need to drive innovation is apparent in all our client interactions, but funding for that innovation is being impacted by demand uncertainties in our clients' own end markets. The timing of a return in discretionary spending remains unknown, but our thesis remains simple. We plan to be prepared when it returns by continuing our organic investments in learning and development, people, platforms and innovation, while supporting those initiatives with inorganic capability-enhancing investments. On the client side, data from our project-level client feedback process for the first quarter of this year shows a 39% improvement in our Net Promoter Score regarding our project delivery quality over the last 2 years. We believe this is a result of a self-reinforcing cycle we created through tighter client collaboration since the beginning of 2023. As a testament to our longtime focus on helping clients innovate, during the quarter, Fortune Magazine recognized Cognizant as one of the America's Most Innovative Companies in 2024. Our focus on innovation is reflected in our Bluebolt grassroots innovation initiative, which we launched a year ago in April. Bluebolt has already generated more than 130,000 ideas from our associates, 23,000 of which have been implemented with clients. Overall, more than 220,000 Cognizant associates have been trained on Bluebolt. In addition, Google named Cognizant a Google Cloud 2024 Breakthrough Partner of the Year. This is one of our industry's most distinguished awards. I will elaborate more on Google Cloud in a moment. And just this month, LinkedIn recognized Cognizant as a #3 on its Top Companies 2024 Employer List in India, which is home to more than 250,000 of our valued associates. This repeat recognition is a reminder that our focus on becoming the employer of choice is paying off in the country that is at the heart of Cognizant's success in India. These client wins and industry recognitions demonstrate one of our core differentiators, our collaborative innovation. And nowhere else is the demand for innovation higher than in gen AI. To date, we have more than 450 early client engagements in more than 500 additional opportunities in the pipeline. We have seen increased demand for AI services across 4 key areas. First, customer and employee experience as clients seek to deliver improved interactions through hyper-personalization. Second, content summarization and insights to empower decision-making. Third, content generation. And finally, leveraging gen AI to accelerate innovation and technology development cycles. We continue to see strong interest from clients as they assess proofs of concept and the return on investment of these opportunities. These efforts are supported by our recently launched Advanced Artificial Intelligence Lab in San Francisco, where we are investing in state-of-the-art core AI research aimed to position us at the forefront of innovation in our industry. This builds upon our network of AI innovation studios in London, New York, San Francisco, Dallas and Bengaluru. Incidentally, our Advanced Artificial Intelligence Lab has already produced 53 AI patents with applications for many more pending. This quarter alone, we had 7 new AI patents approved and granted to us. In quarter 1, we announced a series of new partnerships and co-innovations behind this strategy we announced last year to invest $1 billion in generative AI over 3 years. This includes our collaboration with Microsoft to infuse gen AI into health care administration. The TriZetto Assistant on our Facets platform will leverage Azure OpenAI Service and Semantic Kernel to provide access to gen AI within the TriZetto user interface. We are already progressing from proof of concept to the piloting phase and are seeing strong interest from some of our largest health care customers. And last week, we announced another element of our expanded partnership with Microsoft. We plan to leverage Microsoft Copilot and Cognizant's advisory and digital transformation services to help our employees and enterprise customers operationalize generative AI and realize strategic business transformation benefits from this technology. In addition, as a part of Cognizant's Synapse skilling program, Cognizant will train 25,000 developers of the use of Github Copilot, doubling the number trained on the technology. We are also collaborating with NVIDIA to leverage our deep life sciences and AI domain expertise with NVIDIA's pretrained industry-specific generative AI models offered as a part of BioNeMo. There -- through this collaboration, we will provide clients access to a suite of model-making services, including pretrained models, cutting-edge frameworks and application programming interfaces, that offer clients an accelerated path to train and customize enterprise models using the proprietary data. By leveraging gen AI-infused models, clinical researchers can rapidly sift through extensive data sets, more accurately predict interactions between drug compounds and create a new viable drug development pathway. We also expanded our partnership with Google Cloud. We'll adopt Gemini for Google Cloud in two ways: first, by training Cognizant associates to use Gemini for software development assistance; and second, by integrating Gemini's advanced capabilities within Cognizant's internal operations and platforms. Using Gemini for Google Cloud, Cognizant's developers will be equipped to write, test and deploy code faster and more effectively with the help of AI-powered tools, improving the reliability and cost efficiency of building and managing client applications. Over the next 12 months, Cognizant expects to up-skill more than 70,000 cross-functional associates on Google Cloud's AI offerings. This is another milestone in our Synapse initiative to up-skill 1 million individuals globally by 2026. Additionally, Cognizant will work to integrate Gemini into its suite of automated platforms and accelerators beginning with the recently announced Cognizant Flowsource platform for developers. As a part of our social responsibility platform, we recently announced that since 2018, we have awarded $70 million in philanthropic funds to global skilling programs for underrepresented communities. These 117 grants combined Cognizant's culture of continuous skilling, our focus on prioritization on empowering diversity through technology, and the philosophy that AI and other advanced technologies can be a great equalizer for the future of work. We intend to continue following and participating in the AI innovation cycles by investing in last-mile platform infrastructure, productivity studies and capabilities to enable better and faster integration into enterprise landscapes. In the last 12 months, our AI platforms gained significant traction as we on-boarded clients on the Neuro, Skygrade and Flowsource platforms to cover various phases of AI deployment cycles. By investing in productivity studies, which dissect the anatomy of skills and occupations and map the AI exposure scores to different roles, we have assisted our clients in realizing value and driving the scaled embrace of newer AI use cases. As we continue to navigate this ongoing soft demand environment, we remain focused on investing in areas to help our clients reduce total cost of ownership, boost productivity, enhance technology intensity and enable better adoption of new age technologies like AI to capture the current demand and be prepared for the future. And we remain differentiated by investing in industry domain capabilities and platforms in select industries. We also believe inorganic opportunities remain an important element of our investment strategy. We continue to seek to expand and deepen capabilities, diversify our business, including into industries where we are underexposed and improve our geographic mix. For example, we are pleased with the early traction of our Q1 acquisition of Thirdera, an industry-leading ServiceNow platform, which has significantly expanded our capabilities and credentials. We already see a healthy pipeline of opportunities as direct result of this acquisition to cross-sell within our existing client base. In closing, I want to thank our 345,000 employees around the world for their dedication to our clients and Cognizant. In 2024, we will keep working to increase our revenue growth, become the employer of choice in our industry, and to simplify our operations. Jatin, over to you.

Thank you, Ravi, and thank you all for joining us. As I enter my sixth month as Cognizant's CFO, I remain deeply impressed by the culture, passion and client centricity across the organization. I am pleased with our execution in the first quarter in what remains a tough economic environment. Revenue exited the high end of our guidance range, supported by our Communications, Media and Technology segments. The sequential growth of our healthcare segment was also heartening. Strong execution on our NextGen program and disciplined cost optimization actions allowed us to deliver a 15.1% adjusted operating margin, representing 50 basis points of expansion year-on-year. Looking ahead, I am focused on several objectives in support of our broader strategic priorities. First, continue to strengthen our partnerships and collaborations across the organization to improve revenue growth. Second, improve our margin profile through our NextGen cost programs and process enhancements, driven in part by leveraging AI tools. Next, continue to invest in our people with a focus on supporting our company-wide employee skilling programs designed to train our employees on the latest technology, including gen AI. And finally, drive disciplined execution with a focus on maximizing value creation from our M&A investments and improving our large deals risk management framework. First quarter revenue was $4.8 billion, representing a decline of 1.1% year-over-year or a decline of 1.2% in constant currency. Year-over-year performance includes approximately 70 basis points of growth from recent acquisitions. On a sequential basis, revenue was flat from the prior quarter. Across global industry segments and geographies, we have seen the uncertain economic outlook and volatile geopolitical environment weigh on our client spending priorities, which has kept their discretionary spend muted. These headwinds are more pronounced in Financial Services, which is more susceptible to higher interest rates. Health Sciences customers are also being impacted by the inflationary environment and industry-specific headwinds. At the same time, clients continue to prioritize spending that can deliver cost savings quickly and continue to fund investments in transformation and innovation. For example, within our Products and Resources segment, we have seen resiliency among utility customers where grid modernization remains a critical priority. This has been further supported by our 2022 acquisitions of Utegration, which helps drive SAP S/4 cloud opportunities with the utilities customers. In addition, we have seen positive trends amongst automotive customers in area like software-defined vehicles and in our Products and Resources segment, where the convergence of IT and operational technology is driving transformation and digitization priorities. Finally, we were pleased with the performance of our Communications, Media and Technology segment, which grew year-over-year, driven by contribution of recently completed acquisitions and wins with the communications and media customers. This has helped offset discretionary spending pressure among our technology customers, which we believe have been impacted by clients focused on reducing costs. Now moving on to margins. Our NextGen optimization program has progressed well in helping us drive structural cost savings and simplification of our operations. During the quarter, we incurred approximately $23 million of costs related to this program. This negatively impacted our GAAP operating margin by approximately 50 basis points. Excluding this impact, adjusted operating margin was 15.1%, which benefited from savings related to our NextGen program and the depreciation of the Indian rupee. Both our GAAP and adjusted tax rate in the quarter were 24.8%. Q1 diluted GAAP EPS was $1.10 and Q1 adjusted EPS was $1.12. Now turning to cash flow and the balance sheet. DSO of 78 days was up 1 day sequentially and increased 5 days year-over-year, primarily driven by our business mix. Free cash flow in Q1 was $16 million and included the impact of previously disclosed $360 million payments made to Indian tax authorities as well as the payout of bonuses that were accrued last year. As a reminder, the tax payment to the Indian tax authority was required to proceed with the appeals process relating to our 2016 tax matter. The appeal is ongoing and final amounts refunded to Cognizant or due to tax authorities will be determined at the end of the process. We also returned $284 million to shareholders, including $133 million through share repurchases and $151 million through our regular remit. In addition, we completed our acquisition of Thirdera in January for a total consideration, net of cash acquired, of approximately $420 million. These factors drove quarter end cash and short-term investments of $2.2 billion or net cash of $1.6 billion. In 2024, we continue to expect to return over $1 billion to our shareholders, including at least $400 million through share repurchases and $600 million through regular dividends. We will also continue to evaluate inorganic strategic investment opportunities to help accelerate our growth profile, expand our capabilities and diversify our portfolio. Now let me speak about the forward outlook. For the second quarter, we expect revenue to be flat to growth of 1.5% sequentially, in constant currency. Year-over-year, this implies a decline of 2.5% to a decline of 1% in constant currency. On a reported basis, this translates to a revenue of $4.75 billion to $4.82 billion, representing a year-over-year decline of 2.9% to a decline of 1.4%. For the full year, we continue to expect a revenue decline of 2% to a growth of 2% in constant currency. On a reported basis, this translates to revenue in range of $18.9 billion to $19.7 billion and a decline of 2.2% to a growth of 1.8%, reflecting our latest exchange assumptions. The guidance we are providing as of today assumes up to 100 basis points of inorganic contribution. We see an active pipeline of acquisition opportunities, and we continue to evaluate assets for the right capabilities to support our strategic priorities. Our NextGen program remains on track, and there are no changes to our assumptions regarding the program. We still intend to reinvest the majority of NextGen savings in our growth opportunities in 2024 and beyond. Moving on to adjusted operating margin. We are pleased with our Q1 performance and we continue to expect the full year to be in the range of 15.3% to 15.5%. For Q2, we expect adjusted operating margin will be in a narrow range around Q1's number, with NextGen cost savings and improved utilization being offset by initial negative impact from the ramp of large deals and the revenue mix. I am pleased with our sequential improvement in utilization during the quarter, and we are sharply focused on driving further improvements to support margins next quarter. For the full year, we anticipate net interest income of approximately $60 million, which compares to $40 million previously, primarily reflecting updated interest rate and cash balances assumptions. Our adjusted tax rate guidance of 24% to 25% remains unchanged. Our full year free cash flow guidance is also unchanged, and we continue to expect it will represent 80% of our net income. This includes the previously discussed negative impact of $360 million payment made with Indian tax authorities in relation to our ongoing appeal of our 2016 tax matter. Our guidance for shares outstanding is unchanged at approximately 497 million. This leads to our full year adjusted earnings per share guidance of $4.50 to $4.68, unchanged from our previous guidance. With that, we'll open the call for your questions.

[Operator Instructions] Our first question comes from the line of Bryan Bergin with TD Cowen.

I guess to start, can you comment on what areas performed better than your expectations here on growth in 1Q versus your guide? And then as we see an implied sequential improvement in the coming quarters, at least at the midpoint, how do we reconcile that with some of the commentary about the unknown timing of discretionary recovery? I'm curious if it's kind of an improvement driven by the ramp of the large deals and easier comps or if you're actually forecasting some improvement in that discretionary -- in that decision-making environment too.

Thank you, Bryan. Thank you for that question. This is Ravi here, and let me give it a try, and then I will ask Jatin to add in. The way we look at our guidance range is based on the visibility we get to the middle of the range. And then we look for what's the upside available. The upside available is based on large deal momentum. There is 30 to 40 basis points of M&A, which we are yet to do because this guidance includes 100 basis points of M&A. And the committed spend from many of our clients, sometimes, you can get an upside on it if you ramp up well. So that's the starting point. Why did we put this in a broad range? We put it in a broad range -- normally, at this point of time, you would have 200 basis points of range. We have 400 basis points of a range because the market is sluggish. While we are doing well, we've performed well in quarter 1, the market is sluggish, so we kind of kept a broader range. How do we see discretionary today? We don't see discretionary changed since we spoke to all of you last quarter. So it remains the same. It hasn't changed. Now let's come to performance of quarter 1. If you've noticed, I mean, the biggest drop in discretionary has been in Financial Services in the past. And that has been for us as well as for the sector and the industry. If you've noticed, the sequential drop from quarter 4 to quarter 1 for us is only $10 million in banking, financial services and insurance. And we are seeing green shoots in BFS, which is 60% of BFSI. Health care is doing well. We have managed to continue on our strong portfolio with sequential growth. You've heard about communications, CMT, it's been a phenomenal run for us. We have had year-on-year growth as well as sequential growth that is backed by some large deals we won in the last 12 months. This is also a quarter where we have 8 large deals. If you compare that with quarter 1 of last year, it is 4 large deals last year. And these -- out of the 8, 5 were expansion plus renewal, and that gives me a lot of confidence about the fact that we're continuing to expand on large deals. The large deal momentum continues. Of course, there is softness in 0 to $10 million and 0 to $20 million of kind of deals, which are discretionary in [ India ]. So that's broadly how I shape it. And if I have to add manufacturing and products, that is pretty stable. So this is how I see how we got to the guidance range. This is how we performed in quarter 1. We have also seen expansion of our deals outside of Americas to Asia Pacific. We have 2 deals out of the 8, which have actually come from Asia Pacific. You've already seen the announcement we did with Telstra, which is a part of our release. Jatin, anything else?

Yes. No, Bryan, we are good. If you have any follow-up, we can take it.

No, that was very detailed. I appreciate that. My thoughts on margin, so just kind of unpacking the margin attribution with the gross margin contraction year-over-year but a strong SG&A reduction. Is that a trend we should expect that will continue as you move through '24, just given the large deal ramping? And just maybe, Jatin, talk about your comfort level in reducing the SG&A profile in NextGen still?

There will be puts and takes every quarter, as you very well know. But directionally, SG&A should continue to show a right momentum around improvement, but not so much because we have taken a large action in '23. So you would see the [ back ] end of our NextGen program acting through the SG&A line during the course of the rest of the year, but it won't be as large an impact or a big number compared to 2023. That's the view on SG&A.

I would say the only thing I would add to what Jatin said is SG&A also has leverage with growth. So if growth comes back, you will see leverage on SG&A.

Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Just following on Bryan's question there. Just thinking about bookings ahead in the second quarter, maybe second half as well. Any call-outs there around expectations, new deals or logos versus renewals, short versus large? What do you see on the horizon there?

Tien-Tsin, thank you so much for that question. We continue to see good large deals momentum through the whole of 2023. I mean, whatever we did in 2023 is helping us on ramp-ups this year, and we'll continue to build that for the rest of the year. This has been a good quarter. In fact, if you just see the announcements we made with clients as a part of our earnings release, you would notice that the number of announcements have also gone up. So I'm very pleased with the progress. I'm also pleased with the fact that we have now started to expand that into Europe and Asia Pacific. The softer nature of smaller deals between 0 to $10 million and, I would say, 0 to $15 million or $20 million, that hasn't changed much since we spoke last. And it's hard to predict how that's going to look like for the rest of the year. I do see some improvements, some green shoots in it, and that is reflected in our Financial Services BFSI results, but we should -- we are continuing to watch that area very keenly. Essentially, most of the large deals are on cost takeout, vendor consolidation, productivity, efficiency kind of deals. And we are very, very excited about the fact that, that momentum is going to continue for us. Those are deals the market offers, and we are -- we seem to be winning well on that. Of course, the period -- because these large deals are cost-takeout deals, the period of -- the duration of those deals is longer, so you will see realization of revenues over a period of time. But it is also sticky, and it gives you an opportunity to create better fulfillment through managed services. So one of the other things we are tracking internally is annual contract value in addition to the total contract value, so that we start to know how much is it contributing to this year. What will be exciting for us is we now have a runway from 2023 into 2024. And going into 2025, we'll have a runway from 2024.

Our next question comes from the line of Bryan Keane with Deutsche Bank.

I just wanted to ask about pricing in the environment right now since demand is low. Wondering if you're seeing pressure on the rate card in the industry right now? And any kind of bottom insight for that?

Yes. Bryan, thanks for your question. This is Jatin. Fundamentally, the current environment is that of consolidation of spend, of cost management, improvement in the productivity and so on and so forth. So this is the characteristics of the deals that we are seeing in the market. By design, these deals come with an expectation of superior pricing than what is the pricing which is inherent in the current work. So yes, there is a downward pressure on pricing, but it is nothing out of ordinary that one would expect in the current demand environment. We are not seeing out-of-ordinary behavior in the market as we compete. And I think it's a fair play from that expectation standpoint.

Got it. And then as my follow-up, you mentioned that normally, you guys would narrow the range for the revenue guide, but you've kept it due to some of the uncertainties. What would need to happen for you guys to get towards the high end of the range? Would you need some of that short-term demand work to come back? And would it even come back fast enough to hit the P&L to impact this fiscal year to get up towards the, I think, 2% constant currency revenue range?

Sure. So overall, the reason for large -- a larger range is as follows. I mean, as Ravi mentioned, we start with the midpoint and we look at what is the expected outcome that one can get to. Then we see the range of possibilities. Now if you see our own guidance vis-a-vis quarter 1 to quarter 2, there is an improvement in the guidance range that we gave in -- we are giving in quarter 2 versus quarter 1. And that also means that we will grow sequentially in quarter 2. So overall, we are making good progress. But if you see the demand environment remains reasonably tough, no different than what we spoke in the beginning of the year. And hence, there is a sort of uncertainty in the environment that we are factoring in as we look at our own performance as well as we look at the environment, which is surrounding us. Now what can help us go towards the higher end of the range are a few things, and one or more of this could help us. One is that there is some improvement in discretionary spend in the later part of the year. The second is, as Ravi mentioned earlier, a lot of times, when we win a large deal, there is a committed business and there is a right to go after sort of business, which is not committed. But if you fulfill well, if your delivery is good, you can naturally go after that upside to the committed business. That's second. The third is we spoke about the inorganic component of our guidance. We have maybe 30 to 40 basis points of potential to execute on. And that could mean in the second half, that could get added to the performance because we have done only one acquisition since the beginning of the year. And fourth is sometimes, a re-batch kind of deal, which comes with a large volume of revenue getting ramped up at a relatively faster pace than the normal ramp-up that you see in a deal. So one or more of this could be at play. Right now, we have remained sort of true to our original guidance. We will narrow the range when we meet you next time. But right now, considering all of this, sitting where we are in the year, we thought we'll keep the range same as it was in the beginning of the year.

Our next question comes from the line of Jonathan Lee with Guggenheim Securities.

Ravi, given your call-out in your prepared remarks to your commentary, can you talk through any sort of deal leakage or cancellations or delays you may have seen in recent months? And if so, across which types of projects or verticals are you seeing this in?

Yes. So let me start and get Jatin to add. Discretionary has to be earned every year, so the discretionary doesn't come back. You could call it as structural leakage, if I may, but it isn't as much. It's not like somebody else is taking that away. So discretionary is always the unknown part, if I may. On the -- when I started the year in 2023, we had leakages because when there was a consolidation, somebody else was winning it and not us. That isn't happening anymore. I mean we are very stable with our clients. Our clients are continuing to invest in customers. There's no company-specific challenges, which have led to leakage or there is a potential of leakage. We see that as a very stable platform. In fact, my Net Promoter Scores with the clients is continuing to scale up every quarter since 2023. Our attrition rates have fallen significantly, the 10 percentage points we have dropped Y-o-Y this quarter. That's an important part of what clients trust, providers like us. So there is no structural leakage, if I may. The discretionary, which is -- the behavior of discretionary spend leads to it not coming back sometimes, coming back in shorter spurts, coming back in a delayed way. Those are the ones you would be watchful about. So that's broadly how I see it. I mean most of the managed services deals, we are winning, both with existing clients, new business as well, some which are proactively bid. We are on the winning side. We are mostly on the winning side in the last, I would say, 15 months or so.

Yes. And if I just add a perspective of the deals that we have won in last, let's say, 18 months. Typically, you would see that compared to what you expected at the time when you won the deal, typically, you will go sometimes faster because you are fulfilling better, you are executing better than what you initially thought and customer thought. And sometimes, it would be slower because there are more change management issues they need to deal with, et cetera. So I think we are evenly placed regarding the pace versus expectation. I don't see anything out of ordinary. There will always be one of the deals that is taking a little longer time to ramp up because there is some change in the client organization, but nothing that is out of ordinary on a win versus execution of the deal.

Our next question comes from the line of Jason Kupferberg with Bank of America.

I just wanted to start on gen AI. I kind of had a 2-part question there because I know, Ravi, you mentioned rural gen AI and accelerating software development a couple of times. Just curious what your longer-term views are on role of a human software developer will change as gen AI tools potentially do more of the actual coding. And then just you mentioned 450 active gen AI client engagements. Can you give us a sense of the average project size there?

Thank you, Jason. The 450 -- let me start with the first one. The 450-odd client engagements, we've come a long way. If you remember, in quarter 2, 2023, we spoke about 100, and now we have 400 early client engagements. And these are very short prototype, rapid prototype kind of deals. 500 of them -- more than 500 of them, we have in the pipeline, and the thing to watch for now is how many of these will go into scaled execution for our clients. And that's where the monetize-able opportunities are. So we are continuing to work on it. There are broadly 2 things we are investing on -- or rather, three: first, follow the innovation cycles of AI; second, build the last-mile infrastructure so that the raw power of AI can be made production grade, enterprise grade for our clients. That means last-mile infrastructure related to managing AI platforms, orchestration. In case of AI and like other discontinuities, how do you improve the accuracy of the models? How do you create explainability because this is a black box? How do you create explainability? How do you create observability? So all of those platforms we have built and we have announced is the last-mile infrastructure I kind of referred to, which helps us to take the drop over and make it production grade. The second thing we're investing on is productivity studies. I mean, what does AI do to different roles and different operations of different industries? And how do we make embrace of AI much faster on larger cohorts? And we partnered with Oxford Economics and we created templates for every industry, every role, so that we can do an anatomy of tasks, as I call it. And then we then start to figure out how to create a much faster and a much broader embrace in enterprises. So this is preparing for the future where we believe enterprises are going to be a people-plus-machine endeavor. Now what does it do to our operating model? Our tech for tech, as I call it. It, of course, changes the productivity of a developer. When the cloud came into picture a couple of years ago, it flipped the productivity where, as a developer, you spend very little time on the plumbing, but you spend a lot of time on innovation. You spend a lot of time on building. This is our second shot at improving developer productivity and not actually spending time on repetitive tasks, not actually spending time on things which a machine can write, but you could actually pivot the developer productivity on innovation. So this is the second shot at it. And I would believe this is probably more disruptive than what the cloud did. And we think what will happen is this will lead to reducing backlog, improving the throughput to our clients, increasing the tech intensity at a lower cost. So I always believe that this is going to be an opportunity than a threat if we can pivot ourselves well. And the opportunity is about creating the tech intensity. Every industry doesn't have that intensity, so we have this unique opportunity to create that intensity at a lower cost and a lower entry barrier. I mean you don't need to be a developer to embrace software code, which means the entry barrier goes down. So we think we have a bigger opportunity than before as long as we can embrace this into our own landscape and equally build the use cases for our clients to embrace it. So I see this as a uniquely big opportunity for companies like Cognizant.

That's good color. And then just a quick follow-up. You mentioned 8 large deals you won in the quarter, $100 million-plus TCV, I think. Are those expected to contribute materially to 2024 revenue? And if so, were they already contemplated in your original revenue guidance?

Yes, I mean the visibility we have so far on the deals we have won, we have baked it into our guidance range. But Jason, you know this, the deals we won last year have a better throughput this year. And the deals we win this year will have a better throughput in the second half of this year and in 2025. The challenge in 2023 was we did have that backlog as we got into 2023 because we were not playing on large deals. Right now, I don't have that challenge because I had a good, healthy pipeline in 2023 that's contributing to 2024. And then we keep doing this in the same sustained manner, we will exit into 2025 with tail velocity. So the first year is normally lower than the second year. And by the end of the second year, you get to the run rate you have to. Normally, the span of the deals has changed. Earlier, it used to be lower. Now, it's 3.5 years or plus because large deals now come on a cost-takeout model, unlike transformation related to -- unlike transformation-related large deals. But once we start to execute and get the bid versus bid in a good shape, then the committed spend will then flip over to new spend because you're already in the groove. So that's what we are betting on as well. I mean, once you start to perform well, you have the license to take more from our clients.

Our next question comes from the line of James Faucette with Morgan Stanley.

Wanted to ask a couple of follow-up questions. You kind of laid out what needed to happen, particularly in the return of discretionary deals in order to get to the high end of your guidance range. Conversely, what would be the scenario in your mind that would end up with you towards the lower end of that guided range? I mean, are we looking at incremental pushouts and delays of starting of deals? Or I'm just trying to get a gauge there on the bottom end.

Yes, sure. So if you do that mathematically, I'm sure you already looked at those numbers, and those numbers really mean a very flattish performance for rest of the year and a negative performance that typically happens in quarter 4, given the furloughs. So that's the sort of trajectory we are looking at if markets really tanked and our performance didn't show any positive progress.

Got it. Got it. Okay. And then there's been a lot of talk about the transformational or discretionary deals and more focus on transformation. And it seems like that that's directly impacting your bookings and the types of things that you're able to put in into the pipeline right now. But is that having any impact on what you're doing from a hiring or skilling perspective? And how should we think about that as we go into next year if this kind of environment persists? Are there other considerations we should be taking into account in terms of how you'll be hiring and what impact that could have on profitability, et cetera?

Yes. So discretionary is small projects. Normally, in smaller projects, you have a different kind of a pyramid versus large deals, where you have a much healthy pyramid, if I may. So with discretionary -- normally, when discretionary comes in, you hire more lateral hires with experience. And when you deal with managed services deals, you hire the pyramid because the pyramid rightly fits in there. So that's probably how it is. If you've noticed, we improved utilization from quarter 4 to quarter 1. So that gave us the extra runway, and we'll continue to sharpen our utilization. So that gives us the continued extra runway to grow and keep the engine agile enough to hire the senior people you need and rotate the people from existing teams into newer projects as that happens. So I think we have that agility now on our fulfillment engines. I'm very pleased not just about the -- how we have tackled the demand environment. We're very pleased with what we have done on utilization and what we have done on fulfillment of deals we have won as well as getting prepared for the discretionary spend whenever it eventually comes back. So the engine is as agile enough for the current demand situation as well as if there is a spike in the demand. We think we are well placed to seize those opportunities.

Our next question comes from the line of Moshe Katri with Wedbush Securities.

It's Moshe Katri from Wedbush. Ravi, congrats on strong execution in a pretty tough environment. I just want to go back to the booking kind of metrics, 1.3x book-to-bill. Is there a way to kind of break it down by new logos to the renewals and extensions and maybe compared to last year of, I guess, you mentioned ACV? I think you said bookings on a 12-month basis were up 1%. Is there a way to kind of get the same comps for ACVs?

Moshe, good to hear from you. So we do have that visibility. We have not published that externally. What we track is multiple things. We track the total contract value, the size of the deals, the duration of the deals, how much of that translates to ACV for this year and ACV for the next year, so for the first 12 months or the next 12 months. And we also track the pyramid attached to it and the capability set needed. So I pretty much have that information to rely on so that we can get our fulfillment engine intact as well as forecast better. So it is something we have. We have not published that externally, but I'm keeping a constant track on it. And in the book-to-bill ratios, Moshe, you know this, it also depends on what are the duration of the deals. I'm sure you asked this question because of that. The duration of the deals, when you take large deals, they go up. When you take small deals, it goes down. So the book-to-bill has a meaningful impact between the 2. So one of the other metrics we are internally tracking is ACV because then that gives us what is the incremental revenue we'll get for the current calendar year. So it's a combination of things you have to put together to get to a point where you know how much is it going to incrementally contribute to growth.

Okay. And then is there a way to get that mix of new logos to renewals? Or that's also kind of internal and you don't disclose that?

So we have had a very healthy new logo program, Moshe. Since I've come on board, we have a specific program for new logos. We also have a program to ramp new logos to, say, a $50 million or $100 million client, an annual spend of $100 million, $50 million client. I mean opening new logos is one thing, but ramping them up to a $50 million account is another thing. So we have put both swim lanes. We're very, very active in our journey. We also have a target list now of new logos and geo-based. And we have kind of separated that from the mining engine because the hunting engine has to -- the hunting engine is humming very well. And there's a transition to the mining engine as the annual size of those accounts changes. What we have not done is we have not expressed this to our market on how many new logos we are opening, and we have not created that information pack in the external market. But internally, we're very, very pleased with where we are on new logos and how we are ramping it up.

Thank you. Our next question comes from the line of Jamie Friedman with SIG.

Jatin, I just want to make sure I'm understanding how you're thinking about the shape of the year. If I take the midpoint of your Q2 sequential and if I make the assumption that the Q4 is flat, and I know in most years, it's not, but just for simple math, I'm getting about a 2.5% sequential in the Q3. Does that sound about right to you?

I'm -- I don't have the math in front of me, but yes, I mean, qualitatively, I would agree with you that we'll have to have a strong quarter 3 and a flattish quarter 4 for us to get to the -- towards the higher range -- higher end of our range, for sure.

Okay. And then Ravi, you, I think, used the word green shoot in the context of the BFS letters in BFSI. And it's the first time I've heard your company or most companies use that language with those 3 letters in years. Can you elaborate on that?

Yes. So the context was if you look at the last few quarters of sequential drop in BFS, you would notice that the sequential drop is relatively smaller between quarter 4 and quarter 1. So something has happened in between. So in the last 12 months, we have worked on reorganizing our BFSI vertical. We have energized the teams with some new hires. We have now a exceptionally good list of offerings. I mean, I now have an operating list for banking and financial services or for insurance. We have opened doors on fintech. We have taken AI and created small discretionary spend opportunities for ourselves. Just to give you a sense in insurance, we have quite a few AI projects running. So we have a variety of things happening. I'll give you one or 2 examples. In insurance, there is mainframe modernization, which is a important initiative. In P&C insurance, there is digitizing the distribution network, which is primarily agents and platforms. The group benefits and the policy admin platforms are going through a significant change. In banking and financial services, customer service is going through a significant transformation. So we have an offering that -- and it is an offering which is bundled with AI. We have fraud detection and prevention, which is an important opportunity. The regional banks are going through massive cost takeout. We have an offering out there. So I think we now have -- I mean, there is a market reality of what is happening in BFSI. And there is the organizational strength to counter that market reality. So we are a stable shop with all the offerings in place with the right teams, and we are climbing up the ladder. We are trying everything we can in a tough market.

Yes. Sorry, Jamie. I just add to what I just said before. It's -- I want to go back to what I said in response to an earlier question saying, our expected likely outcome is what we see at the midpoint of the guidance. And then we see the range of possibility on the both ends. And when you specifically asked, I was reacting to the range of possibility on the upper end. I mean, I just want to reflect accordingly so that I respond to you in its completeness.

Thank you. This concludes today's Cognizant Technology Solutions Q1 2024 Earnings Conference Call. You may now disconnect.