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Cognizant Technology Solutions (CTSH) 2025 Conference June 11, 2025 09:00 AM ET Speaker0 Everyone. So I'm Surinder Thind, the technology and information services analyst here at Jefferies. With me, I have Jatin Dalal, Chief Financial Officer of Cognizant. Welcome. Speaker1 Thank you. Thank you for having Speaker0 us here. It's great having you. I'd like to maybe start with some discussion of recent news. In the past couple of weeks, you've announced two mega deals, right? These are contracts valued at over ...

Summary of Cognizant Technology Solutions (CTSH) Conference Call Company Overview - **Company**: Cognizant Technology Solutions (CTSH) - **Event**: 2025 Conference - **Date**: June 04, 2025 Key Points Historical Perspective and Organizational Changes - **Leadership Change**: Ravi took over as CEO two and a half years ago, leading to significant organizational changes [2][4] - **Core Values**: Cognizant is anchored on four key pillars: agility, entrepreneurial culture, empowerment, and these values have remained constant [5][6] - **Growth Adjustments**: The company overcorrected its processes between 2015 and 2020, leading to rigidity perceived by clients and associates [6][7] - **Current State**: The company is now recalibrating towards a balanced approach, regaining client and associate satisfaction [8] Macro Environment - **Current Macro Dynamics**: The current macro environment is characterized by uncertainty and change, particularly due to AI disruptions across enterprises [10][11] - **Comparison with Past Crises**: Each crisis has unique nuances, but the common factor is the uncertainty they induce [10] Market Segments and Customer Demand - **Financial Services**: This segment is showing signs of recovery with discretionary spending beginning to return, though not fully [12][13] - **Healthcare**: Characterized as cautious due to government spending discussions, particularly on Medicare and Medicaid [13][14] - **Life Sciences**: Facing anxiety due to tariff uncertainties, leading to caution in spending [14] - **Products and Resources**: This segment is dealing with tariff turbulence affecting IT projects [15] - **Communications, Media, and Technology (CMT)**: Currently neutral with no significant changes in spending patterns [15] Deal Activity - **Large Deals**: Cognizant closed 29 large deals (over $100 million) last year, up from 17 the previous year [20][21] - **Mega Deals**: The company has closed three mega deals (over $500 million) by the end of Q2, including a significant deal in health sciences worth approximately $1 billion [22][23] - **Deal Structure**: The approach involves unlocking trapped value in existing contracts to fund AI-driven transformations [23][28] AI Integration and Pricing Models - **AI Utilization**: Currently, 20% of code is generated by AI tools, with expectations to increase to 50% in the coming years [31][32] - **Pricing Environment**: The pricing environment is competitive but stable, with a shift towards outcome-based pricing expected as clients adapt to AI productivity gains [36][40] Financial Services Recovery - **Structural Changes**: Cognizant has focused on sub-segment levels within financial services, revamped its sales engine, and tailored solutions powered by AI [50][52] - **Market Share Recovery**: The company is regaining market share and winning discretionary spending as the market stabilizes [54] Vendor Consolidation Trends - **Client Behavior**: Clients are focusing on cost optimization rather than vendor consolidation, seeking to break silos and consolidate vendors for maximum value [55] Additional Insights - **Client Engagement**: Cognizant is proactively engaging clients with AI solutions to unlock productivity and drive transformation [26][27] - **Long-term Deal Duration**: The average tenure for mega deals is around five years [46] This summary encapsulates the key insights and developments discussed during the conference call, highlighting Cognizant's strategic direction, market dynamics, and operational adjustments in response to evolving client needs and macroeconomic conditions.

Financial Data and Key Metrics Changes - In 2024, the company returned $1.2 billion to shareholders and achieved revenue growth of 7.5% year over year in Q1 2025, or 8.2% in constant currency [7][8] - Adjusted earnings per share increased year over year for the sixth consecutive quarter in Q1 2025 [8] - The company expects to increase shareholder returns to $1.7 billion in 2025 [21] Business Line Data and Key Metrics Changes - The company signed 29 large deals in 2024, up from 17 the previous year, indicating a strong demand for its services [7] - Client Net Promoter scores are near all-time highs, and employee engagement scores are well above global and IT industry benchmarks [10] Market Data and Key Metrics Changes - The company reported that over 72% of its global employees are based in India, which may influence operational strategies [46] Company Strategy and Development Direction - The company is focusing on AI-powered software-led engineering and has invested in platforms like NeuroSuite and FlowSource [12] - A dual transformation strategy is being pursued, emphasizing hyper productivity from AI and innovation from intelligent systems [12] - The company aims to broaden its portfolio and deepen its industry focus while fostering a culture that attracts and develops talent [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the near-term macro environment is uncertain but remains focused on building a long-term advantage [22] - The company is committed to investing in each geography based on growth needs and market conditions [48] Other Important Information - The company has launched a company-wide cost discipline initiative and modernized operations to better serve clients globally [9] - The Synapse program has trained over 400,000 individuals, with a goal of reaching 1 million [16] Q&A Session Summary Question: Will tariffs have any impact on CTSH? What percent of CTSH employees are in India? - The CFO stated that tariffs do not directly impact the services business, but there may be secondary effects on certain industries [45] - Over 72% of the company's employees are based in India [46] Question: Why did Zane Abdallah and Leo McKay receive more than 50 million against votes each in 2024? - The company does not have visibility into why shareholders vote against certain directors but noted that all directors received over 85% support [47] Question: How much investment will be in the US, and will the employee raise be better than the 1% policy from last year? - The CFO mentioned that investment decisions will be based on growth needs and market conditions, and the 2025 compensation raise approach has not yet been finalized [48][49]

Company Overview - Cognizant (CTSH) shares have increased by approximately 7.2% over the past month, outperforming the S&P 500 [1] - The most recent earnings report is crucial for understanding the catalysts affecting the stock [1] Earnings Estimates - Estimates for Cognizant have been revised upward in the past month, indicating positive sentiment among analysts [2][4] - The stock currently holds a Zacks Rank 2 (Buy), suggesting expectations for above-average returns in the coming months [4] VGM Scores - Cognizant has an average Growth Score of C, a Momentum Score of F, and a Value Score of B, resulting in an aggregate VGM Score of B [3] Industry Performance - Cognizant is part of the Zacks Computers - IT Services industry, where Roper Technologies (ROP) has seen a 1.2% gain over the past month [5] - Roper Technologies reported revenues of $1.88 billion for the last quarter, reflecting a year-over-year increase of 12% [5] - Roper Technologies is expected to post earnings of $4.82 per share for the current quarter, indicating a 7.6% increase from the previous year [6]

Core Viewpoint - Cognizant Technology Solutions (CTSH) has experienced a 9% increase in shares over the past month, outperforming the broader Zacks Computer & Technology sector's 8.8% increase, driven by an expanding clientele and strong partner base [1] Group 1: Partner Base and Clientele Expansion - The expanding partner base, including companies like Pegasystems, Docusign, NVIDIA, and Amazon, is expected to enhance Cognizant's growth prospects in 2025 [2] - Cognizant secured several contracts in Q1 2025, including a significant deal valued at over $500 million, contributing positively to overall growth [2] - The collaboration with Pegasystems aims to enhance AI services and streamline cloud transformations for joint clients, addressing inefficiencies in legacy systems [3][4] Group 2: AI Capabilities and Portfolio Expansion - Cognizant has advanced its AI capabilities with innovations such as the Neuro AI Multi-Agent accelerator and has engaged in over 1,400 Generative AI projects across multiple clients in Q1 2025 [8] - The company announced the open-sourcing of its Neuro AI Multi-Agent Accelerator to foster collaboration and support scalable deployment of agent networks [9] Group 3: Financial Guidance and Growth Expectations - For Q2 2025, Cognizant expects revenues between $5.14 billion and $5.21 billion, indicating growth of 5.9%-7.4% [10] - The Zacks Consensus Estimate for Q2 2025 revenues is $5.19 billion, reflecting a year-over-year growth of 6.92% [11] - The consensus earnings estimate is $1.25 per share, indicating a year-over-year increase of 6.84% [11]

Core Insights - Cognizant (CTSH) is currently rated 2 (Buy) by Zacks Rank, indicating a stronger earnings outlook compared to Epam (EPAM), which is rated 3 (Hold) [3] - CTSH has a Value grade of B, while EPAM has a Value grade of C, suggesting that CTSH is the superior value option at this time [6][7] Valuation Metrics - CTSH has a forward P/E ratio of 15.58, while EPAM has a forward P/E ratio of 16.42, indicating that CTSH may be undervalued relative to EPAM [5] - The PEG ratio for CTSH is 1.81, compared to EPAM's PEG ratio of 1.84, suggesting that CTSH offers better value when considering expected earnings growth [5] - CTSH's P/B ratio is 2.62, while EPAM's P/B ratio is 2.76, further supporting the notion that CTSH is a more attractive investment based on market value versus book value [6]

Core Insights - The mortgage industry is at a pivotal moment as technology, particularly AI, is set to redefine operations and value across the mortgage lifecycle, with 2025 identified as a turning point [1][2][3] Industry Challenges - Non-bank mortgage lenders are experiencing operational fatigue, regulatory pressures, and rapid technological disruptions, with many still playing defense rather than innovating [1][4] - Compliance issues are escalating, with one executive reporting over 1,700 regulatory alerts in the previous year, indicating a need for continuous compliance operations [5][7] Technological Innovations - The emergence of Agentic AI, which combines generative AI with automation, is seen as a significant driver of change in the industry, enabling more efficient and intelligent operations [6][7] - Intelligent Document Processing (IDP) is gaining traction among lenders for its quick returns, especially in environments still reliant on paper [7][8] Strategic Recommendations - A majority (74%) of non-bank lenders are focusing on innovation for differentiation, yet only 21% consider themselves true innovators, highlighting a gap in the market [7] - Lenders are encouraged to redefine outsourcing partnerships, moving beyond cost-cutting to leverage technology for platform modernization and AI deployment [14] - Automation is projected to encompass 68% of mortgage operations by 2026, indicating a shift towards integrating technology with human expertise for continuous improvement [7][8]

Core Insights - The rapid deployment of AI technology and significant investments in its development present substantial growth opportunities for investors [4] AI Technology and Market Trends - AI is solving real-world problems across various sectors, including customer service, medical diagnosis, fraud detection, and autonomous vehicles [1] - The rise of Generative AI and Agentic AI is enhancing AI capabilities, driving efficiency, automation, and innovation in industries such as robotics, healthcare, finance, and e-commerce [2] - Major tech companies like Microsoft, Amazon, Google, and Meta are leading advancements in AI technology, supported by powerful AI chips from NVIDIA [3] Company-Specific Developments - Microsoft has over 60,000 Azure AI customers and its Azure AI Foundry application has been adopted by more than 70,000 enterprises [5] - Microsoft Copilot has shown significant growth, with 15 million users and over 8 million requests handled by its code review agent [6] - Lam Research is well-positioned to benefit from the increasing demand for AI and datacenter chips, leveraging its advanced etch and deposition technologies [8][9] - Cognizant Technology Solutions is enhancing its AI capabilities with over 1,400 Generative AI engagements and is investing heavily in AI-powered software-led engineering [10][11] Strategic Partnerships and Innovations - Cognizant has a strong partner base, including Microsoft, Amazon, and Google, and has launched an AI-powered dispute management solution in collaboration with ServiceNow [12] - The integration of NVIDIA's AI technology into Cognizant's Neuro AI platform is expected to drive significant business transformation [13]

Summary of Cognizant Technology Solutions (CTSH) FY Conference Call Company Overview - **Company**: Cognizant Technology Solutions (CTSH) - **Date of Conference**: May 15, 2025 - **Key Speakers**: Jatin Dalal (CFO), Tyler Scott (Investor Relations) Key Points Company Culture and Strategy - Cognizant has a strong culture of customer centricity deeply embedded in its DNA, which is evident across all teams [4][5] - The organization demonstrates a keen willingness to win, focusing on understanding client ecosystems and delivering high-quality solutions rather than competing solely on price [5][6] - Cognizant's intellectual property, including assets like TriZetto and the Neuro platform, serves as a significant differentiator in deal-making [6] Financial Performance and Deal Wins - Cognizant has returned to the "Winner's Circle," a goal set by previous leadership, with a focus on sustaining this success over multiple quarters [7][8] - The company has rebuilt a cycle of winning large deals, executing well, and leveraging that success to secure additional business. In 2023, Cognizant won 17 large deals, increasing to 24 in 2024, with four large deals in Q1 2025, including a mega deal [9][10] - The backlog for the second half of the year appears stronger, indicating confidence in future revenue growth [19][20] Market Environment and Spending Trends - The current market environment remains uncertain, particularly affecting sectors like manufacturing, supply chain, consumer products, and retail. However, discretionary spending in the BFSI (Banking, Financial Services, and Insurance) segment remains strong [12][13] - There is a debate on whether the current spending cycle is cyclical or secular, with indications that there is a secular demand for technology investments despite recent fluctuations [14][15] Large Deals and Risk Management - Large deals are categorized into two types: transformational projects and cost-cutting initiatives. Cognizant is focusing on both types to enhance efficiency and effectiveness [16][17] - The company is managing risks associated with large deals by ensuring a strong backlog and focusing on renewal components to secure revenue in uncertain environments [19][20] AI and Technology Integration - Cognizant is leveraging AI to enhance productivity and is focused on three vectors: improving productivity, preparing organizations for AI, and applying AI in new areas [29][30] - The company is confident in its ability to integrate AI into its service offerings, which is seen as a significant differentiator in the market [30][31] Workforce and Employee Development - Cognizant is committed to investing in employee training to ensure that its workforce is equipped to handle new AI-driven opportunities. Over 230,000 employees have received training in relevant technologies [42][43] - Employee satisfaction is crucial for retaining talent and reducing costs associated with turnover, which has been a focus for the company [62][63] Future Outlook and Key Performance Indicators (KPIs) - Cognizant aims to balance revenue growth with margin expansion, targeting a 10 to 30 basis points increase while continuing to invest in business growth [57][58] - Key KPIs for the company include customer satisfaction and employee satisfaction, which are seen as foundational for achieving revenue and margin goals [62][63] Conclusion - Cognizant is positioned to capitalize on its strengths in customer-centric culture, large deal execution, and AI integration while navigating a complex market environment. The focus on employee development and satisfaction is also critical for sustaining growth and maintaining competitive advantage.