Ladies and gentlemen, welcome to the Cognizant Technology Solutions Third Quarter 2024 Earnings Conference Call. All lines have been muted to eliminate background noise. After the speakers conclude their remarks, we will have a question-and-answer session. I would now like to hand the conference over to our host, Mr. Tyler Scott, Vice President of Investor Relations. Please proceed.

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 third 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 our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for 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 now like to turn the call over to Ravi. Please go ahead.

Thank you, Tyler, and good afternoon, everyone. Thank you for joining our third quarter 2024 earnings call. We are pleased with our third quarter results, which delivered revenue and earnings growth while expanding adjusted margins sequentially and represented strong execution of our strategic priorities to accelerate growth, become an employer of choice in our industry and modernize operations. We are seeing a gradual rebound of spend cycles and gaining wallet share in financial services. While our historical strength in health sciences is driving differentiation and growth. Meanwhile, significant traction with large deals and AI-led revenue opportunities, investments in talent, and a steadfast focus on operational rigor together led to a strong all-around performance. Let me begin with a quick summary of our results before an update on our strategic priorities. Third quarter revenue was at the high end of our constant currency guidance range. Revenue of $5 billion grew 3.5% sequentially, in constant currency, including approximately 150 basis points of inorganic contribution from our recently completed acquisitions. Year-over-year revenue grew by approximately 2.7% in constant currency, including approximately 200 basis points of inorganic contribution. Adjusted operating margin of 15.3% improved sequentially, driven by strong cost discipline despite investments in Belcan in the partial quarter impact from our annual merit cycle. Adjusted EPS grew approximately 7% year-over-year, our fourth consecutive quarter of year-over-year growth, bringing our year-to-date EPS growth to approximately 5%. Now let me provide an update on the progress we made against our strategic priorities. First, accelerating growth. Our improving momentum was driven in the quarter by growth in our two largest segments, Health Sciences and Financial Services, and contribution from our recently completed acquisitions. Health Sciences increased 7.6% year-over-year in constant currency backed by our strong differentiated offerings. Financial Services returned to year-over-year growth, driven by strong execution and partial return of discretionary spending. And we maintained our large deal momentum, signing six deals, each with a total contract value of $100 million or more. Year-to-date, we signed 19 sub-deals compared to 17 during all of 2023. We are excited about the all-around sustained momentum in large deals across industries and service lines. I'm particularly pleased with the traction we are getting in digital engineering, infrastructure, and cloud services. We believe in order to sustain this momentum, we must remain at the forefront of our clients' innovation agenda where today, AI is at the top of the list. Our heritage of deep engineering and strong domain expertise, intimate client relationships, and flexible operating model has allowed us to quickly respond to this opportunity. We have rapidly developed practical tools to help our clients accelerate AI adoption, while also applying it to ourselves as we aim to significantly accelerate our own productivity. AI is a profound shift, what I call a double-engine transformation because it offers Cognizant the chance to disrupt ourselves as much as it does for our clients. Consistent with our heritage, we spotted the AI opportunity early and in mid-2023, announced plans to invest $1 billion into AI initiatives, platforms, and capabilities. Let me share some examples, beginning with our platforms where our clients are co-creating with us. The foundation of our AI strategy is powered by the Cognizant data and toolkit, which we utilized to increase speed, reduce costs, and improve the predictability of our clients' data modernization journeys. Today, we have over 225 project implementations supporting over 120 clients. And our Flowsource platform, which is a developer workbench that integrates human and AI effort to improve productivity. Today, we are in various phases of testing and adoption with more than 150 clients. Using AI tooling, we are generating 150,000 lines of accepted code per month. That means on an annualized basis, 2 million lines of code are accepted by our developers into the projects to deliver to our clients. It's a great example of how AI is enabling hyper productivity as we share these productivity gains with clients and lower the cost of technology deployment. Our Neuro IT Ops platform, launched in late 2023, is also supporting 150 clients in various phases of testing and adoption. It enables end-to-end AI-driven automation for IT operations, bringing Ops and infrastructure into a single pane of glass. As an example, we are leveraging both our Neuro IT Ops and Flowsource platforms together with a strategic project for DIRECTV to modernize its technology infrastructure and enhance its operational capabilities. Neuro IT Ops is helping DIRECTV increase efficiency and resiliency through intelligent detection and automated IT issue resolution. And Flowsource is scaling GenAI across DIRECTV's software development lifecycle, promoting innovation through faster time to market, increased collaboration, and greater transparency. We've recently introduced two new additions to our Neuro suite. First, our enhanced Neuro AI platform incorporates market orchestration and aims to help enterprises by simplifying problem identification, data generation, and AI model creation, improving decision-making and revenue opportunities. Clients like Gilead Sciences praised its approach, while others like Bayer have tested several foundational capabilities, now available on the platform. These enhancements aim to help our clients navigate complex decision-making scenarios effectively. Second, Cognizant Neuro Cybersecurity offers AI-enabled enterprise security orchestration for enhanced cybersecurity resilience and risk management. This tool is designed to help improve cybersecurity resilience by integrating and orchestrating point cybersecurity solutions across the enterprise. We have also infused AI through our TriZetto product suite, helping improve end-user productivity by at least 30%. Looking across our enterprise, we now have more than 1,000 GenAI early engagements compared to about 750 at the end of the second quarter. We are seeing significant traction in four categories of use cases, starting with tech for tech or applying AI to software development cycles, which had the highest velocity, followed by customer and employee experience, content aggregation, and early use cases in content generation. We see broad-based demand across industries, including fraud detection, credit risk assessment, and regulatory compliance in financial services. Drug discovery, medical imaging, transcription in healthcare, and design optimization and predictive maintenance in manufacturing. Partnerships and strategic acquisitions are also important levers in our strategy to accelerate growth. First, an update on our partnerships. I'm excited about our recently announced relationship with Palo Alto Networks through which we will deliver AI-driven cybersecurity capabilities and services for enterprises across industries. We have significant opportunities to leverage AI to keep up with evolving cybersecurity threats and improve overall levels of security. This last week, ServiceNow announced that Cognizant will be the first system integrator to bring its new workflow data fabric to market, giving our joint customers the capability to integrate AI agents and real-time data orchestration layers that can be tightly integrated into their digital workflows. We also announced an expansion of our NVIDIA partnership, bringing together our capabilities with NVIDIA’s RAPIDS, part of the NVIDIA AI software platform, to enhance data modernization offerings. Together, we aim to help clients transition to GPU-based infrastructure and accelerate the implementation of exciting new GenAI use cases. And earlier this week, we strengthened our partnership with Amazon Web Services by signing a strategic collaboration agreement with plans to deliver advanced technology solutions and cloud computing services focused on enhancing smart manufacturing capabilities for global enterprises across multiple industries. Turning to our strategic acquisitions. Thirdera, acquired earlier this year, positioned us as one of the world's largest ServiceNow partners and as a leader in AI-driven automation and enterprise workflow solutions. And our acquisition of Belcan has significantly broadened our access to the $190 billion ER&D services market, which is projected to outpace the legacy IT services market through 2026. Additionally, it has notably increased our footprint in the aerospace and defense industries with an attractive blue-chip client base. I'm happy to report that our commercial integration is progressing well. We have already seen early pipeline opportunities and identified the potential for new joint offerings in areas such as model-based systems engineering where Belcan has significant expertise. We believe these actions to accelerate growth are resonating in the market. Let me share a few additional highlights of the value we are bringing to our customers across industries. Within Financial Services, we continue to see traction from the changes in investments we have made over the last 20 months. We are bringing the breadth and depth of our capabilities to every opportunity. For example, we are supporting Citizens Bank's ongoing cloud transformation journey. We have collaborated with Citizens to revamp their fraud management capabilities with a new in-house system. And we are helping Citizens elevate their customer banking experience with a modernized system that streamlines dispute resolution. In the UK, we continued to see success winning in the public sector. During the third quarter, we expanded our relationships with the UK Valuation Office Agency of His Majesty's Revenue and Customs. This was one of a greater than $100 million contract signed in the quarter. Under the agreement, we will provide the UK government with property valuations and advice needed to support taxation and benefits. And clients are still looking to drive productivity and underwrite future innovation. For example, we won a significant $200 million deal in the third quarter with a longstanding global technology client to transform the customer support operations using GenAI. This was a vendor consolidation opportunity where we leveraged GenAI to streamline operations, improve agent productivity, and reduce costs. A differentiated AI-led approach, which included elements of outcome-based pricing, allowed us to displace the incumbent. Now moving on to our next strategic priority of becoming the employer of choice in our industry. We believe our investments in talent are bearing fruit as well. We're adding more access to learning and upskilling, notably through AI, in an effort to boost mobility and demonstrate that we are an organization where our employees can grow. Our grassroots innovation initiative, Bluebolt, continues to build traction with more than 300,000 ideas, of which 40,000 ideas, mostly related to AI, are being presented to clients. Employee engagement scores stayed strong. Trailing 12 months voluntary attrition for tech services is at 14.6%, near multi-year lows. And we were recently named for the second straight year to Forbes' list of the world's best employers. Our Synapse program, which aims to provide technology training to nearly 1 million people worldwide, is another great example of a deep commitment to learning. I was delighted when Fortune named us as number seven in the world on its prestigious Change the World list while recognizing the impact of Synapse. Just last week, we were named number 10 on Newsweek's list of America's most reliable companies. This recognition, based on the independent survey of more than 1,700 decision-makers, highlights our exceptional reliability in delivering services to our clients. We are confident that our expanded breadth of portfolio of services, strengthened by our domain capabilities, talent, and partner ecosystem is more resilient and healthier than when I joined Cognizant nearly two years ago. And I believe we are in a strong position to capture the growing and developing AI opportunity for ourselves and our clients. In closing, a few weeks ago, we brought together over 200 clients to our Americas discovery event in Austin, Texas, to showcase the strength of AI platforms, capabilities, and offerings. The event's buzz and enthusiasm were incredible. We were excited about the early momentum of large deals with AI-powered productivity and numerous initial products. Our belief is the AI productivity wave will evolve from task automation to business process to business model transformation, leading to new products and revenue streams and faster innovation cycles, a flywheel of new opportunities to tap into. I want to thank all our employees globally for their commitment to our clients and their work to strengthen our capabilities for the future. With that, I will turn the call over to Jatin, who will cover the details of the quarter and progress against our third strategic priority of modernizing operations.

Thank you, Ravi. Good afternoon, everyone, and thank you for joining us. We delivered a solid third quarter performance with revenue at the high end of our constant currency growth guidance range and a return to organic year-over-year revenue growth for the first time in six quarters. During the quarter, we continued to focus on modernizing our operations. This helped us increase gross margin by 50 basis points sequentially, driven by improved utilization and increased adoption of automation and AI within delivery. This allowed us to deliver an adjusted operating margin of 15.3%, which modestly exceeded our expectations despite headwinds from acquisition-related costs and a partial quarter impact from our annual merit cycle that became effective on August 1st. Year-to-date, we delivered an adjusted operating margin of 15.2%, a 40 basis point increase year-over-year. Now let's turn to the details. Third quarter revenue was $5 billion, growing 3.5% sequentially in constant currency, including approximately 150 basis points of inorganic contribution from about five weeks of Belcan. Year-over-year, revenue increased 2.7% in constant currency. This included approximately 200 basis points of growth from recent acquisitions. From an industry standpoint, Health Sciences was our strongest segment, growing 7.6% year-over-year in constant currency. Growth here was broad-based across payer, provider, and life sciences. On the payer and provider side, clients continue to seek our TriZetto platform solutions for modern scalable cloud solutions. In particular, our offering has seen healthy demand for its delivery of true end-to-end revenue cycle management, including clearing house services. On the Life Sciences side, growth has been supported by the ramp-up of recent large deal wins. Our Financial Services segment grew 0.5% year-over-year in constant currency. This performance added to last quarter's momentum and benefited from an uptick in the discretionary demand environment and better execution. Growth was led by banking and financial services clients in North America. In Canada, we have seen strong performance across both banking and insurance customers. Products and Resources revenue grew 4.6% year-over-year in constant currency, driven by the contribution of Belcan. We have seen pockets of discretionary weakness with clients in manufacturing, logistics, aerospace, and automotive industries. We are sharply focused on grid modernization, software-defined vehicles, and smart manufacturing. This area, we believe, will drive significant opportunity in the long run. CMT declined 4% year-over-year in constant currency, primarily reflecting a continued tight discretionary spending environment across customers in both technology and telecom and media. Moving on to the details by geography, where all growth rates provided will be year-over-year in constant currency. Growth in the third quarter was led by Americas geography, which increased about 4%. This was driven by the strength in Financial Services and Health Sciences and the contribution from Belcan. Europe declined about 2% and has been impacted by software discretionary spending. However, recent wins in our largest segments helped support positive sequential growth in Europe, and we are optimistic about the growth opportunity we see in areas like the UK and Ireland, Germany, and the Nordics. We delivered healthy growth in our Rest of the World region, which increased about 4%. Performance in this geography was driven by recent large deals, particularly within communications, media, and technology, and strength in financial services. Turning to bookings. Third quarter bookings were roughly flat year-over-year, driven in part by the lumpiness of large deals. On a trailing 12-month basis, bookings were $26.2 billion, down 2% year-over-year and represented a 1.3x book-to-bill. As Ravi mentioned, we signed six deals in the quarter that each had a TCV value of more than $100 million. This included four deals in Health Sciences, one in financial services, and one in CMT. I am also pleased that two of these six deals were from outside North America, one each in Europe and the rest of the world. We also saw TCV from smaller deals stabilize sequentially. This has led to a modest improvement in our trailing 12-month annual contract value trend from last quarter. We are seeing this reflected in our improved revenue performance this quarter despite muted TCV performance. Now moving on to margins. In the third quarter, we incurred $33 million of costs related to NextGen, which negatively impacted our GAAP operating margin by approximately 70 basis points. The adjusted operating margin was 15.3%, an increase of 10 basis points sequentially and a decrease of 20 basis points year-over-year. Our sequential improvement was driven by gross margin, which expanded approximately 50 basis points quarter-over-quarter. We delivered this through operational rigor, improved utilization, and corresponding lower bench costs. We are also making progress in modernizing our operations, increasingly leveraging our AI platforms in delivery to help improve fulfillment and increase productivity with fewer resources. In Q3, our GAAP tax rate was 22.7%, and adjusted tax rate was 22.2%, reflecting a benefit from the timing of discrete items. Q3 diluted GAAP EPS was $1.17, and Q3 adjusted EPS was $1.25. This represented year-over-year growth of 13% and 7%, respectively. Now turning to the balance sheet. We ended the quarter with cash and short-term investments of $2 billion or net cash of about $800 million. This reflects our $1.3 billion acquisition of Belcan in the third quarter, which was funded primarily through a combination of cash on hand and borrowings under our revolving credit facility. DSO of 81 days was one day up sequentially and increased four days year-over-year driven by our business mix. Free cash flow of Q3 was $791 million, bringing year-to-date free cash flow to approximately $1 billion. There is no change to our full-year free cash flow conversion guidance. We continue to expect full-year free cash flow to represent about 80% of net income. This includes previously disclosed negative impact from a $360 million payment made to the Indian tax authorities in relation to our ongoing appeal of our 2016 tax matter in the first quarter. During the quarter, we returned $391 million to shareholders, including $242 million in aggregate through share repurchases and $149 million to shareholders through our regular dividend. As of September 30th, we had $1.4 billion remaining under our share repurchase authorization. Year-to-date, we have returned approximately $900 million to shareholders through share repurchases and dividends. And for the full year, we now expect to return approximately $1.2 billion. This includes approximately $100 million of share repurchases to offset the new shares issued as part of the Belcan acquisition. Turning now to our forward outlook. For the fourth quarter, we expect revenue to increase 4.8% to 6.8% in constant currency. On an as-reported basis, this translates to revenue of $5 billion to $5.1 billion, representing year-over-year growth of 5.1% to 7.1%. This guidance reflects the benefit of a full quarter of Belcan, partially offset by year-end seasonality, including the impact of lower billings and furloughs. For the full year, we have tightened the revenue range and maintained the midpoint. We now expect revenue to grow 1.4% to 1.9% in constant currency. On an as-reported basis, this translates to revenue of $19.7 billion to $19.8 billion, representing growth of 1.6% to 2.1%. Our output includes approximately 200 basis points of inorganic contribution, unchanged from our prior assumption. As Ravi mentioned, we closed our acquisition of Belcan in late August. There are no changes to the financial projections we shared at the time of the acquisition announcement in June. We anticipate the transaction will generate over $100 million in annual revenue synergies within three years and be accretive to EPS starting in full year 2026. Moving on to adjusted operating margin. We are pleased with our year-to-date performance. We now expect full-year adjusted operating margin will be approximately 15.1%, which is the midpoint of our prior range. The fourth quarter adjusted operating margin is expected to be impacted by the full quarter impact of Belcan, including integration-related costs, and the impact of non-cash amortization of acquired customer intangibles. It also will include the full quarter impact from our merit cycle that was effective August 1st. We expect these headwinds will be partially offset by continued rigor in operations and the savings associated with our NextGen program. For the full year, we anticipate net interest income of approximately $65 million, which compares to $55 million previously, primarily reflecting the latest cash balance assumptions. Our full-year adjusted tax rate guidance of 24% to 25% is unchanged. Our guidance for shares outstanding is also unchanged at approximately 497 million. Our full-year adjusted earnings per share guidance is $4.63 to $4.67, which is up from $4.56 to $4.64 previously. With that, we will open the call for your questions.

Great. Thank you. We will now begin the question-and-answer session. Our first question comes from Jason Kupferberg from Bank of America. Please proceed.

Thank you, guys. So just looking at the midpoint of Q4 guidance, our math suggests organic growth will be right around 2%. So I just wanted to check and see if that's right. And if so, is that a floor we can think about for Cognizant to accelerate off of in 2025, especially since it seems like you are starting to see a turn up in discretionary spending in your largest vertical? Thanks.

Yes. So I thought the upper end of the year-on-year fourth quarter was around 2%. So you're right that in quarter four, we are starting to build an organic year-on-year positive movement. I mean, the midpoint is going to be 1%, and the upper end is going to be 2%. So it's a good tail velocity to get into 2025.

Okay. Understood. And then I wanted to come back to some of the comments around sharing savings from the AI-enabled coding efforts with your clients. What would you estimate the productivity improvement has been that you're seeing from those AI-enabled coding efforts? And what are the sort of offsets that you're seeing to avoid revenue cannibalization?

Jason, this is a complicated economic situation, and the response is going to be a little complicated as well. Let me state how this works. When we have productivity that is non-linear and not labor-oriented, and it is new, you have an opportunity to go and tell your clients, if you have time and material business, we can translate that to fixed price business and share the benefits with them. If you have noticed, I mentioned about 2 million lines of code annually accepted by our developers. So that number is going to keep going up. So our ability to share those benefits with the clients makes us more competitive in the market. In fact, many of my clients have actually said, when you share these benefits and the cost of deployment goes down, we can take our backlog down, that's a very positive side. I mean, clients are not saying that because of productivity, we'll reduce our budgets. They're actually saying we want to do more for less. So that is a very positive indicator. It also gives us an opportunity to consolidate in places where our productivity is higher than our peers. We can offer consolidation, and therefore, increase revenue throughput to us. One of the examples I mentioned in my remarks is about a client where we displaced an incumbent because we showed up with higher productivity. Now there is a third set, where you could arguably say clients could cannibalize our revenue. But those are times you want to be creative, and you go back to clients and say, 'Look, the work packet we did, we could do it for less. But you know what, if we consolidate it, we actually do more for less,' which then means you could protect your turf, but you could still share the productivity benefits. Then there is a fourth set, which I would say is time and material work, where, in some ways, the productivity benefits can generate value, but you have to work with your clients to move that work to a fixed price. So I would believe this is a very positive development. There is elasticity in tech spend. So if you can reduce the cost of deployment, clients are actually going to spend more with you. And we believe we are ahead of the curve in comparison to all our peers. And that's why we're winning more large deals and we are able to protect our turf.

Thanks, Ravi.

Our next question is from Tien-Tsin Huang from JPMorgan. Please go ahead.

Thanks a lot. Good afternoon, here. I want to ask on the large deal pipeline, considering you signed quite a bit here year-to-date more than last year, your confidence in being able to replenish the large deal pipeline from here, Ravi?.

Yes. So last year, we did 17 for the full year, $100 million deals, more than $100 million deals. This year, we are already at 19, more than $100 million deals. I'm very confident that we can sustain the momentum. The way to sustain this is not just look for transformation opportunities where the spend goes up, but also look for cost takeout efficiency and vendor consolidation opportunities. Similar to what I mentioned in my previous response, there's always an opportunity to consolidate using productivity. So we are excited about it. I think we are starting to see large deals in Europe and Asia Pacific. In fact, out of the six deals we did this quarter, one of them was in Asia Pacific, one of them was in Europe, and we had a similar large deal in Asia Pacific last quarter as well. So we can expand. I mean this is also concentrated in a few industries. Now we are stepping up and taking a broader view of other industries. So the expansion will come from more industries. The expansion will come from going beyond Americas, which has already started happening. And the expansion will come from our services landscape. Two years ago, a lot of our work was related to tech services and BPO. Now we have tech services, BPO, engineering because of the Belcan acquisition and some of the acquisitions we did before. We are now a top five player in engineering services. And interestingly, we are getting quite a bit of traction on infrastructure services, which we historically haven't had those many large deals. So right now, all four capability sets are firing on cylinders. So I'm very confident about how we can sustain the large deal momentum.

No, that's great. That's good color. It actually segues nicely into my follow-up question because I know one of your objectives was to diversify. You just mentioned you're doing that geographically and across some of your practices. But healthcare is now your largest vertical. Looks like, which is so used to seeing BFSI being the biggest for Cognizant. But where are you in the journey now to expand into some of the other under-indexed verticals? Is that still a priority? Can we expect that to come? Or is it more work to do on what we discussed before?

No, that's a great question. If you look at our revenue mix and the momentum we have, we have grown 7.6% year-on-year in healthcare. We have seen growth both sequentially and year-on-year, and we are very excited about the opportunities in this sector. Our differentiation and lead in some areas are unmatched. We are confident in healthcare. In financial services, we are back on track. Last quarter, we achieved sequential growth, and this quarter, we have realized growth both year-on-year and sequentially. Financial services has a different dynamic, and we believe we have stabilized and are winning wallet share there. I see a unique opportunity in industrial and manufacturing with Belcan included, as we have access to blue-chip clients in aerospace. Our engineering capabilities allow us to enter industrial, manufacturing, and automotive sectors, where we believe we can build the capacity to secure large deals. We have extensive capabilities ranging from engineering services to tech services. Although the pace of spend in vertical comps has been slower, we have established a strong team to get that moving. We need to make progress in the energy oil and gas sector, where our presence is currently low, and that is a focus area for me. Over the past two years, we have developed a wide range of capabilities from engineering, BPO, technology services, to infrastructure services, which has opened up broader opportunities across industries. I have work to do on international markets outside the US, but I am pleased with our progress so far, as this strategy of expansion has helped maintain momentum on our large deals.

Thank you for the complete answer there. Thank you.

Next question is from Jim Schneider from Goldman Sachs. Please go ahead.

Good afternoon. Thanks for taking my question. Good to see the momentum in healthcare you just talked about earlier. So maybe to follow up on the last question. Maybe as you think about your backlog of business for 2025. Obviously, you're not providing guidance now, but can you maybe tell us directionally which verticals do you think might outperform your overall corporate revenue growth in 2025? And then which ones might lag a little bit?

Yes. So Jim, as we look at the deal wins and the momentum that we have built, certainly financial services and healthcare will continue to lead the growth of the company. We have to build back momentum that we had all through 2023 in CMT, Comms Media and Telecom, as we get into next year. And manufacturing has been slow, but one hopes that should also come through. So I think that is the order, Jim, for us to look at who would lead the growth as we look at next few quarters.

Thank you. And then maybe as a follow-up. It was good to see the gross margin leverage you delivered in the quarter. You mentioned part of that is utilization, but also part of it was AI, as you mentioned in the quarter. Can you maybe just help us on a go-forward basis into Q4? And then 2025 with sort of the moving pieces of gross margins, how much of those gains are sustainable? And what should we think about in terms of the mix of Belcan in Q4 and beyond in terms of where gross margins should land?

Sure, Jim. So let me start with Belcan because that's easier to get out of the way. I think Belcan will not have a material movement on the gross margin number of the company, they operate at a similar sort of range, so we should be okay. There should not be any noise from that. Now from a classic gross margin standpoint, the levers are utilization, automation, and productivity led by AI is another one. Pyramid is the third one, and the fourth is really the pricing. So I would say these are the four largest levers. The fifth is offshore mix, but offshore mix typically tends to be driven more by the requirements of our customers in a time and material business. And only in the fixed-price projects, we have more flexibility around offshore. So I would count four big ones and the fifth on, which can be leveraged in specific situations. So as we look at the performance of this year, certainly utilization has continued to inch up every quarter. And I think we still have some flexibility left as we enter quarter four. Automation, led by AI, is a tremendous opportunity. We have executed well in 2024, and I still feel we'll continue to get additional leverage of that as we build a greater rollout capability, greater absorption capability of that within our delivery spectrum. The Pyramid is certainly an ongoing initiative. We have had, as an organization and as an industry, struggle to keep up with the reason for the Pyramid all through 2020, 2021, and 2022 as the industry went through a shock of a sudden drop in demand and then a sudden increase in demand. I think we are getting back to that rhythm of building Pyramids. So I would say it is not a lever for 2025, but it certainly is a lever as we look at the next three years, and we are putting a great internal initiative around it. And finally, pricing. Pricing in the current environment is, I would say, competitive. It's not something that is adding to gross margin today, but it is a factor of the demand environment. So that's how I see it.

That’s great color. Thank you.

Our next question is from Maggie Nolan from William Blair. Please go ahead.

Hi, thank you. Do you view financial services as leading in terms of how IT spend may trend across your business and end markets? Or do you view the dynamics of the financial services performance to be more vertical specific and Cognizant specific at this time?

We are very satisfied with the progress we have made in restructuring our financial services business. When I joined, we faced both company-specific and market-specific challenges. However, I believe we have resolved the company-specific issues, which have been addressed for several quarters now. We have assembled a strong and stable team, and our offerings are compelling. We are engaging with our clients effectively, leading to an increase in our wallet share. Financial services clients are increasing their spending, and we are likely capturing some of that from our competitors. I am optimistic that financial services will eventually return to a high discretionary spending environment, as it is one of the most innovative sectors, often partnering with companies like ours for technological advancements. We have previously been a leading player in financial services globally, and I feel we have regained that position. As the financial services market improves, we will be ready to seize new opportunities. We no longer face the specific challenges that hindered us in the past, which gives me confidence in our differentiation, agility, and team. As the market rebounds, there is a resurgence of discretionary spending in financial services, and we are well-positioned to capture more wallet share.

Okay. Thank you. And then any changes that you're seeing in the sales cycle and the conversion rate, both for this quarter that you just reported? And then also your forward expectations just given that continued large deal traction but also what appears to be the early return of some of the smaller discretionary deals and demand?

Yes. The smaller discretionary deals have started to gain some momentum. So on the large deals, I would say the biggest change I have seen in the last few months is if we are able to put a proposal on the table where you can feed to the legacy, make savings, and underwrite those savings for innovation. Our clients love that flywheel. Sometimes they're not saying I'm going to spend more. But they're saying, can you do more for less. So the AI tooling is helping us do more for less. And those savings are getting translated to innovation dollars and translating into backlog getting cleared. I think that is a new model which is helping us win those deals. I mean, when we win these large deals, those dollars are not going back elsewhere, they're actually going back to technology. And we are able to put a model where we underwrite those dollars for the innovation. So that's the change. That's what clients are looking for in an industry of this kind where you can do more for less, the spend is elastic. I mean, if you do more or less the spend, you could get more done, and therefore, clients are going to get more projects to be done.

Makes sense. Thank you.

Our next question is from Jamie Friedman from Susquehanna. Please go ahead.

Thank you. So I wanted to ask briefly on your view of the durability of the Health Sciences recovery. Ravi, results speak for themselves. It's a clear turnaround. But we're getting a lot of questions that the end market seems to be volatile. And if you could unpack that maybe on the payer and Life Sciences side, but how do you see the changes in the end market, especially on the payer side potentially impacting the demand for your services?

It's a great question. There are four segments: payer, provider, pharma benefit, and Life Sciences. Life Sciences is notable because clients are no longer just using technology as a support tool; they are integrating it into their core operations. We have excellent capabilities to partner with our clients in this area. This is not about enabling business, which refers to IT systems; instead, it concerns the core business processes like drug discovery and the application of technology to support them. We have strong capabilities, including in Life Sciences manufacturing. I believe this sector will continue to invest in technology to shorten the drug development cycle, and we see a good opportunity there. On the payer side, as you've likely noticed, there will be significant cost reductions because the cost per member per month is under pressure. This forces payers to consider how to lower their costs while enhancing care value. We believe technology can play a key role in achieving cost reductions. For example, with our TriZetto platform, we implemented Generative AI, allowing us to cut costs by 30% for case managers and users processing claims. The administrative expenses for payers are quite high, so utilizing technology and AI can generate more value and facilitate more straight-through processing. Our auto-adjudication of claims has notably increased, allowing us to process claims without human intervention. Much is happening in the payer space regarding technology, leading to cost reduction rather than anything else. This cost pressure will drive transformation in the payer sector. The provider market is quite dispersed, and there is consolidation occurring among providers. We see a unique opportunity because our TriZetto platform supports a vast network; we have 200 million members linked to thousands of providers on our platform. Additionally, our Clearing House serves as a connection point between providers and payers. There are only a few pharma benefit companies, and they are undergoing their transformations as well. Yes, we will see more consolidation and changes in this sector, all driven by technology. We believe our distinct position in healthcare will significantly benefit from the opportunities that arise. I’m optimistic about the transformation of this entire value chain over the next few years.

Okay. Great answer. I’ll jump back in the queue. Thank you.

Next question is from Bryan Keane from Deutsche Bank. Please go ahead.

Hi. Hey, Ravi, to me, it sounds like you're using GenAI as an advantage to come in and price below some of the peers using you guys' expertise in the technology to replace some incumbents and pass on some productivity gains. Is that fair?

Yes, if the engagement model allows for it, we could share those benefits with our clients. In the past, the focus was on labor, but we've really optimized that across the industry. Now, the focus is on technology, AI, and automation-led productivity. Sharing these benefits with clients is a mainstream model that we are adapting to secure large deals where we have maintained strong momentum.

Yes, because the argument will be that it's a deflationary environment for the overall IT services adds more of the cost-saved productivity in GenAI gets passed on, the old time and materials models come under pressure and the yields are lower. The outcomes-based pricing is going to yield the outcome for the contracts. So it's got a deflationary impact. So you've got to make it up by volume. It's the only way you can make faster growth.

Yes. My observation is that nearly every CIO I have talked to has mentioned a backlog that they want to address. This presents us with an opportunity to tackle those backlogs. Some CIOs have expressed that there is significant technical debt accumulated. A report indicates that US corporations have about $1 trillion in technical debt on their balance sheets, with nearly $400 billion spent just to service that debt. As a result, a considerable amount of funds is allocated to maintaining operations instead of investing in growth. This is our chance to shift resources from ongoing operational costs to innovation. By reducing operational expenses and reallocating those funds towards new initiatives, we can create more opportunities. Technology spending is highly adaptable, and it will stay that way because it's such a powerful transformation tool. If we can achieve more with fewer resources, we will ultimately have even more to work with, as there is significant potential for growth. I genuinely believe that the approach of achieving more with less will lead to increased opportunities for us.

And is it roughly 20% to 40% less or how much more or less is it?

Yes, it's hard to put a number because it depends on the phase of the technology cycle. If it's pure play development, it is much higher. If it's testing, it is much higher. Equally, if you're in a fiercely competitive situation, you probably give it away to – you partially give it away to clients. There's also the maturity of the client, which kind of determines how much you can get productivity. So there is a compelling proposition to do fixed-price and managed services deals. But there are always companies which have huge retained organizations, and they use companies like us to engage on a time and material or a capacity-based because they have strategically decided to build their own tech shop. In fact, we are actually helping some of those clients to build the tech shop. There are captives being set up in India. We are actually a pioneering partner to partner with our clients to set up their captives. Another opportunity which has kind of evolved in the last one year. And again, I'm excited about it. I don't see that as cannibalization. I see that as an opportunity to stay more relevant with them.

Great. Thanks for taking the question.

The last question is from Bryan Bergin from TD Cowen. Please go ahead.

Hi, guys. Good afternoon. Thank you. I do have a follow-up question here on the forward view. If you're targeting kind of an organic exit rate of about 1% at the midpoint, and flat bookings here when we consider the year ahead, are there puts and takes about the conversion of the multi-year larger deals versus some of the smaller deals picking up to support the near-term growth reacceleration? Just any thoughts you want to share directionally about growth considerations as we get closer to 2025?

Certainly. This year, we have successfully followed the growth plan we established at the start of each quarter. This is our first quarter, and quarter three marked our initial quarter of organic growth after several previous quarters. We are finishing this period with a much stronger momentum than we had at the end of 2023, which is encouraging. It is crucial for us to maintain our focus and effectively execute in the fourth quarter while also preparing for the opportunities that may arise at the beginning of 2025, along with setting our guidance for that year. Although it's a bit early to discuss 2025, I am pleased with the progress we are achieving each quarter on our growth path.

Okay. Understood. And then when we think about the margin levers, specifically on utilization. Do you have a targeted optimal level for you as you manage the bench? So you've gotten to 84%. Can you lean on that more until demand recovers? Or is that an upper bound as you think about utilization?

I do think there is a little more flexibility left on that, certainly, that I see, but not a lot more.

Okay. Thank you.

Thank you. This concludes the question-and-answer session. This also concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.