Cognizant transformational deals in 2019

I say, often, that every enterprise is now a technology enterprise, every business leader is really a technology leader, every budget can be considered a technology budget inside of our clients. I mean, there's really this pervasiveness of technology, where we're already starting to see, and therefore, which I think we're going to continue to see as technology becomes just more and more integral to not just businesses, but governments, and societies, and so on, and so forth.

Against that context, I think that firms like ours need to really have a set of capabilities that line up directly with that role that technology will play going forward. That's why I think that the six capabilities that we outlined for you at Investor Day are so important. If you look at them as capabilities, they individually represent big market opportunities. And so, I think that this notion of how you organize yourself as a services business, and how you respond to this idea of Digital at Scale, the pervasiveness of technology across the enterprise is really going to be the core trend that services businesses will have to respond to over the coming decade.

Great, thank you. And then, maybe as my follow-up, I'll ask the inevitable every two-year's question, I suppose, with new congress in session, inevitably, over the next couple of months, I imagine we'll hear some noise surrounding H1B Visa reform. So, just perhaps to get ahead of that, can you proactively highlight what progress Cognizant has made over the last couple of years reducing your dependence on H1B Visas.

I recall, I believe, at Investor Day, you gave some statistics about the percentage of your U. Can you just maybe put those top-of-mind before we see any of that noise coming out over the next couple of months? Thanks, Lisa. Look, I always start the immigration questions with the big-picture answer, which is that the reality is that in many parts of the world, certainly, in the United States, many parts of Western Europe, there really is a significant shortage of technology talent, which needs to be addressed for these economies to remain competitive. If you go back to the first part, or your first question, as the world becomes more technology-intensive, these economies really need skilled technologists to maintain the competitive edge.

We continue to make progress. And I think, Lisa -- this is Karen, if I could just add to that. I mean, as I think you know, if you will recall, last year, we setup our U. As Frank said, obviously, the biggest challenge is shortage of talent, not just here, but in other parts of the world, as well. So, we are certainly focused on helping to change that trajectory in the coming years. I was curious if you could give more color to your strategic accounts, of them. Just give us a little bit more color other than it goes up 7 every quarter.

So, Ed, this is Karen. So, there's a fairly large number of significant clients that have emerged over the years. My other question is on the healthcare. How sensitive are you to winning sort of these large transformational deals to sort of get the healthcare group back on track? Thanks, and congrats to Frank. Thanks, Ed. Look, I don't think we are dependent on winning large transformational deals.

The business is built on this -- and the vast majority, whether it's in healthcare, or in any of the other verticals, it's built on this idea of continuing to grow with our clients in a methodical way. That usually involves many, many small and medium-sized projects with each client, to continue to grow. We'll continue to do large transformational deals.

We announced the deal that Karen spoke about this quarter, with the three Finnish banks.

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That's a great example of a transformational deal that plays into our strategy, platforms, and so on, and so forth. So, I certainly will not rule out doing those deals going forward, but I don't think the engine, or the Cognizant business is built on an assumption that we're going to do those deals to continue to grow. And I think, Ed, if could just also add to what Frank said. I think we talked about this last quarter a little bit. Particularly, with the platform deals, the TMG deal, and the EmblemHealth deal, you want certainly, that large-feed client to launch the platform, and be able to build out the capability, and so forth.

But after that, it actually enables you to add a lot of smaller engagements, and smaller clients that historically, we may not have been able to really support in a meaningful way. And we're certainly starting to see that traction now, particularly, with the TMG relationship, and being able to onboard now, smaller opportunities, which obviously, you can move a lot faster, and they become accretive quite quickly. So, that's certainly happening in that side of the business.

And then, overall, in healthcare, as we had talked about, there's been, obviously, a number of mergers that are under way in healthcare. While, we certainly expect to get our fair share of the integration work once that commences, we certainly have seen a little bit of pullback recently, as those clients are planning for integration; that's typical. We said that at some point, we thought that would happen, and we've seen that a little bit over the last few weeks. At some point, they will move into execution of the integration.

Our next question comes from the line of Brian Essex, with Morgan Stanley. Good morning, and thank you for taking the question. Karen, I was wondering if you could touch on inorganic contribution in the quarter. You guys had a pretty active fourth quarter, with deals, and it sounds like you continued that activity into this year. Just wondering what the contribution is, and how we might anticipate contributions through the remainder of the year.

And I have a quick follow-up. That is also true in Q1, so you will see that again in Q1. For full year 18, it was about basis points, on a year-over-year basis, versus And in our guidance, that includes the deals that we have already completed, which is also about basis points of revenue. New deals, as we talked about at Investor Day, we would expect to add about to basis points a year of new deals.

So, we've obviously done that for 18, we've done it again, included in our 19 guidance. And then, new deals in 19 would be beyond that. Got it, that's super helpful. And then, you know, maybe if we could touch on -- you mentioned in your prepared remarks that the impact of the rupee appreciation gave you a little bit of flexibility to invest for growth. I think, some are anticipating a little bit of maybe that's flipping to a headwind this year.

And if that's the case, what measures might you have to continue to -- or I guess, to manage that, and continue to invest for growth throughout Fiscal 19? So, I mean, we certainly ramped up hiring in the fourth quarter to support growth as we go in to And we'll put those folks to good use. I think, as we look at , utilization stayed fairly consistent last year with We know we've got a little bit of room to continue to push that, if need be. Certainly, we continue to focus on our pyramid as we move into And then, really scaling some of the larger, more structured deals, or platform opportunities, as we had said.

Really, two years ago, when we started outlining this new framework that, initially, those deals do tend to be margin dilutive, and as you get into the outer years, such as where we're starting to get now, with some of the original ones, you start to see that margin accretion kick in, which then allows us to continue to fund more investments.

But really, our focus right now, is driving for growth, and making sure that we're investing in the talent, and rescaling, and so forth, to do that. Our next question comes from the line of Jim Schneider, with Goldman Sachs. Good morning. Thanks for taking my question. Good luck to you, Frank, in your next phase of your career. Maybe just to start off, on the overall IT spending environment -- from your customers right now, clearly, they're spending more on digital, and less on maintenance. Can you maybe talk about their overall posture as they go into ?

Any signs of worries around an economic slowdown or a pullback in IT spending? Or are things pretty much running the same course as they have been? Jim, it's Frank. Look, I think, as I said in my prepared comments, what I see is an environment, as you said, in traditional, in what you would think of as traditional IT, clearly, a pressure on running the business, maintenance types of activities, in order to free-up the dollars to invest in growth. That trend has been going on for a while. Equally importantly as I said, as technology permeates organizations, I think we are able to tap into new budgets.

Overall, I think our market opportunities has never been larger; it continues to expand given technology permeating all aspects of organizations. I think, as it relates to the macro environment, clearly, there are concerns out there about various issues in Europe, relations with China, and so on, and so forth.

I haven't seen it yet translate into a meaningful impact on demand for us. So, at this point, when I think about , I see a solid demand environment. Thanks, and maybe, as a follow-up. Regarding the outlook in financial services in particular, I think Karen referenced a couple of specific deal wins that would improve that trajectory in Q2. I guess, what's your level of confidence in that improvement in financial sustain itself? Can you maybe just kind of address what you're seeing in your U. So, in terms of the confidence, Jim, as we talked about the Finnish deal, for example, as a signed deal -- so, we're just waiting for final clearance and closing of that.

We have other deals, similarly, in the pipeline that we're very close to finalizing here. So, we have a high degree of confidence, particularly, in the European markets, in terms of what we're seeing. And then, as it relates to -- I'm actually going to talk about North America, as well as the Top 5. So, if you recall at Investor Day, right, we talked about the Top 5, and that two of them had returned to very nice growth. That continued in Q4, and continues into Q1, where we're talking about, in some cases, double-digit year-over-year growth, and those are obviously, very large relationships.

So, it's a very nice turnaround there. The other three accounts continue to be under some pressure, and at this point, we're certainly not assuming a big turnaround for our guidance for those accounts. But then, if we look at the rest of the North America banking business, it has and continues to grow quite nicely. It just gets under pressure when you have some of these larger relationships pulling down the overall growth rate of the business.

Our next question comes from the line of Bryan Keane, with Deutsche Bank. Congrats, Frank. I did want to ask about the CEO change, a little bit surprised it didn't -- you know, the background of Brian isn't somebody with a little bit more IT services background, or an executive from one of your peers, or competitors. Can you just talk about why somebody outside the industry, necessarily, was the right hire for Cognizant? Thanks, Bryan. As I said before, the board conducted a very methodical search for my successor.

We kept in mind very carefully the strategy that we outlined for you during our Investor Day, a few months ago. As we went through that process, we just determined that Brian is the right executive. We think that he's got a terrific track record of success across companies in the technology space, multiple industries, obviously, technologies, themselves, geographies, roles in organizational cultures.

And when we put all of that together, we just think that Brian is the right executive to execute on the strategy that we outlined for you at Investor Day, as digital continues to permeate and power, as I said before, every industry. Okay, that's helpful.

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And then, Karen, just thinking about the guidance, I know the fourth quarter came in about 8. Guidance is calling for 7 and 9. So, I guess, you're already running at the high end of the revenue guide, and with financial services improving in , just thinking about what pulls down, maybe, the range toward 7 and 9, and not a touch higher, since you guys have a little bit of momentum heading into I think, Bryan, I mean, certainly, the guidance is consistent with what we outlined at Investor Day.

Q1, is a little soft, which obviously puts a little bit of pressure on the full year.

Although, we're very comfortable with the ramp for the back half of the year. I think, obviously, we like to be prudent, particularly, earlier in the year. As we see things start to evolve, we will certainly take that into consideration. But I think, right now, we're very comfortable this is consistent with what we said back, in November, and we've made the investments to support this growth range for this year.

Cognizant to acquire Softvision

Regarding your onshore hiring efforts, can you comment on the inflation levels in this tight labor environment? Particularly, around digital capabilities. And then, how are clients responding on pricing? And your ability to pass those costs through. I would say a couple of things, which we've said in the past. On a like-for-like basis, once you look at all-in costs, our talent base in the U. So, we are, from a cost standpoint, indifferent. Of course, as I said earlier, we are in a tight, in a constrained market, as you pointed out.

So, given the demand for our services, we're always struggling to find the talent that we need to fulfill our growth ambitions. But like-for-like, you know, all-in, the costs are about the same. Yes, and I think -- just to add to that, too -- talking a little bit about pricing. I think, as Frank said, like-for-like, you're not actually seeing a big change, and certainly, I don't think wage inflation, given the skills we're hiring, we've seen that in a significant way.

What you do see, obviously, is -- and this is always true -- skills, that are in hot demand, come with a high price. That's no different now versus the last 10 or 20 years. But the flipside is that, in this environment, clients need that talent as much as we do, and you'll get the pricing to accommodate that.

I think, as we talked about last year, pricing has remained quite consistent, and in fact, last year, was the first year in quite a while that you actually had some pricing strength in the market because of the shortage of talent. That trend has continued. You know, the last thing, maybe I'll add -- sorry, to jump back in. Remember, when we look at our portfolio of digital -- our revenue from digital that is running -- it has, and continues to run at above company average margins, which, I think, speaks to our ability there, to drive pricing despite the fact that, in general, the talent pool, as Karen pointed out, in the digital part of the business, is a higher cost talent pool.

Hi, thank you, very much. First, Frank, congratulations on Brian. I know him from his HP days. I think he's a terrific choice. As a matter of fact, I think getting somebody from outside of industry could certainly help Cognizant quite a bit. So, congratulations on that. My question was a little bit different in that if I read the press release correctly, you're the founder of the company, as you said, have tremendous success over a number of years.

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You're going to move to the board seat, I think, after a transition period. Frequently, particularly with founders, there are situations in which, when new leadership comes on board, they eventually get off to allow the new leadership to have unbridled capabilities to direct the strategy, but it doesn't sound like you plan on doing that. Am I correct in reading that? You know, Keith, my primary, and really, only goal here is to ensure that we do whatever is necessary to make sure that Brian is incredibly successful as we go through the transition, and beyond that.

And my commitment to my fellow board members and to the company, is that I will play whatever role is necessary to make sure that that happens, and not a bit more than that.

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  • Softvision - Softvision Joins Forces with Cognizant?
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  • And so, we will play that as things come. But at the moment, my commitment is, to all of you, to our shareholders, to my , fellow associates around the world, and to my fellow board members, that my commitment is to make sure that I do whatever is in my power to ensure we have an absolutely smooth transition. Fair enough. Just one for you, Karen. I just want to understand in My assumption is, it's neutral in I know it's hard to predict because it depends on the nature of the contracts.

    Top executive Debashis Chatterjee returns to Cognizant Technology Solutions

    But is that the right assumption, that is neutral to both the top line and to the margins in ? Yes, that is a fair response from Keith, and we will no longer, in , we will not be breaking it out. That was a one-year requirement to make that disclosure. But from a modeling perspective, just assume it's neutral. Ladies and gentlemen, our last question this morning will come from the line of Rod Bourgeois, with DeepDive Equity Research. Hey, there.

    Softvision - Cognizant to acquire Softvision

    And I'd echo the last comment. I think Brian is a great hire, and it's nice to see the new thinking about being more global, and so on. I wanted to ask, in that context, a couple of things. Do you expect, as the CEO change occurs that anything related to guidance or financial targets might be reconsidered? And also, do you expect any management departures related to the CEO change, besides the one that's already been announced? Rod, it's Frank. Multiple parts to your question there. Let me just, first of all, just say that as we think about Raj, I want to just say that it's worth really, spending a minute to thank Raj for his countless contributions to the growth and success of Cognizant.

    He's, as you know, served as our president for the past 2 and a half years. So, I just want to thank Raj, acknowledge his many, many, many contributions to the company on this call. I wish him well in his future endeavors. I think, as we've outlined for you today, our targets and our guidance for are based on our best view of the business at this point for the year. We're providing those to you, as we always do, having considered all of the factors that could positively or negatively influence our performance. And this is our best view, and that continues to be the case with the guidance.

    I'm sure that, as Brian comes in, he'll bring his perspectives to the role. And when we have updates, we'll provide those to you -- or Brian will, going forward. I don't think we have anything else to add to that. So, I guess, thanks very much, everybody. Thanks, again, for joining the call. I want you all to know that I've truly enjoyed the many, many interactions with all of you over the 48 quarters that I've done this. I look forward to introducing Brian to you in the days ahead, and during the transition process, once he's on board.

    So, thank you, very much. This concludes today's teleconference. You may disconnect your liens at this time. Thank you for your participation. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings.

    After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market. David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now That's right -- they think these 10 stocks are even better buys. See the 10 stocks. Motley Fool Transcription has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Skip to main content Helping the world invest better since Hi, Fool! Premium Services. Stock Advisor Flagship service. Rule Breakers High-growth stocks. Interestingly, a diminished role of its consulting practice will contribute to better margins — a demand made in November by its most vocal activist shareholder Elliott Management.

    A CBC employee who quit last year — one of seven ET reached out to — says the original intent was for Cognizant to fully engage with clients in strategic discussions. The IT industry, though, felt differently about it. That is a losing battle. We are more focused on driving the engineering approach. With its matrix structure, it had deeply integrated its consulting team with technology and business process services delivery teams. For the customer, it meant the combination of technology, business domain and strategy services—a team led by consulting to engage with. CBC was opening up large transformational deals.

    But according to the former CBC employee, internal alignment still needed some work. While it could help Cognizant bill clients higher for upstream work, consulting partners and resources on a bench could add to cost when the market slacks. In , consulting and technology services revenue failed to grow more than 2. In the previous two years, onquarter growths were 4. As a result, we have simplified how our clients engage with us across our business.

    In the middle of , we shifted our internal approach to one of deep collaboration to capture more business and market share. As part of this strategic shift, Cognizant brought together our vertical industry business units and CBC into one overarching organisation. We have tightly integrated consulting with the industry verticals; it is not a horizontal practice. The matrix model had been envisaged to scale consulting in an IT-services company. This meant, a CBC subject matter expert retail or pharma would report to a vertical or industry practice and to the CBC head.


    This dual accountability model promoted collaboration. Bendor-Samuel says Cognizant has been the most successful of the Indian-based services providers in building a robust consultative capability into its service offerings. With the new realities imposed on it by Elliott, they are finding new limits on their ability to continue this practice and, hence, they are evolving their approach to be more cost effective.

    Its two broad demands were — enhance operating margins and a capital return programme. One, the potential of digital projects to grow and be more profitable than traditional deals. What the chief executive did last year was to make CBC leaner and relevant for the digital market, without abandoning what CBC had built.

    Future ready you say? The article has been updated to correct the genesis of Accenture. It also required Andersen Consulting to relinquish the name. The company changed its name to Accenture on January 1, Read more on Cognizant. IT services company. Elliott Management. Recommended For You. Does it make sense to avail December discounts on cars? Right-wing proselytizers thrive on TikTok.

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