Ladies and gentlemen, welcome to the Cognizant Technology Solutions Second Quarter 2025 Earnings Conference Call. Thank you. I would now like to turn the conference over to Mr. Tyler Scott, Vice President of 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 investor supplement for the company's second quarter 2025 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 us. Our momentum continued in the second quarter of 2025, as we again delivered revenue growth and adjusted operating margin ahead of our expectations, while also accelerating our bookings growth. Our performance reflects the depth and strength of our portfolio, supported by our continued strategic focus on AI-led opportunities and disciplined execution. As you can see from today's results, we continue to make progress towards building a resilient and durable company that thrives in both slow and high-velocity markets. In the past, I've described the AI opportunity as a double engine transformation for our clients, both on productivity and innovation. In the second quarter, we delivered a healthy combination of wins in AI efficiency-led large deals and innovation-led projects with Agentic AI unlocking new revenue pools and spend cycles. The 3-Vector AI opportunity we have laid out on our strategy is resonating very well with our clients. AI projects in experimentation over the past few quarters have started to build momentum in downstream opportunities. I will expand on this further when I review our strategic progress shortly. First, I will walk through the highlights and our key drivers from the quarter. Second quarter revenue grew 7.2% year-over-year in constant currency to $5.2 billion. Our results marked the fourth consecutive quarter of year-over-year organic growth and another solid placement in our industry's Winner Circle. Organic revenue growth was led by Financial Services and Health Sciences and benefited from the ramp of recently won large deals. Q2 bookings grew 18% year-over-year, translating to trailing 12 months growth of 6%. During the quarter, we landed 6 large deals with total contract value of $100 million or greater, including 2 mega deals, each valued around $1 billion. As a result of these wins, the total contract value of our large deals more than doubled year-over-year. Adjusted operating margin of 15.6% improved by 40 basis points year-over-year. We are on track to achieve our 20 to 40 basis points margin expansion goal for 2025. Headcount grew about 2% sequentially, led by hiring of recent college graduates, while trailing 12 months voluntary attrition for tech services declined by 60 basis points sequentially to 15.2%. The progress reported today is the result of the strategic actions we have taken over the past 2.5 years to sharpen our innovation engine and develop our capabilities through investments in AI, engineering, and our platform strategy. While we are still in the early innings of capturing the AI opportunity, I believe these strategic steps are helping drive our performance. A few data points of our progress include: first, we currently have more than 2,500 early GenAI client engagements compared to 1,400 in quarter 1. Nearly 30% of our code was AI generated in quarter 2, significantly improving the productivity of our developers. This compares to only approximately 20% when we first disclosed this estimate 2 quarters ago. And thirdly, our AI research labs are accelerating the industrialization of agent-based systems backed by a robust portfolio of 59 U.S. patents. Our areas of research are focused on building AI platforms and tooling to help clients accelerate the embrace of AI and agentic systems in enterprise landscapes. In the current economic environment, clients are prioritizing productivity and value what we have characterized as Vector 1. Our ability to proactively craft AI-driven technology deployments that deliver faster execution, improved productivity, and cost savings is driving several of our large deal wins, including the 2 mega deals we won in quarter 2. We expect Vector 1 to further accelerate as clients underwrite their innovation and growth projects with AI productivity-led savings we are enabling. In the second quarter out of a subset of a client base of nearly 360 key accounts, 97% of clients have adopted AI, of which 56% are scaling Gen AI and out of which 78% have demonstrated impact from the adoption and scaling. We're also actively pursuing Vector 2 and Vector 3 opportunities, which we have labeled as industrializing AI and agentifying the enterprise, respectively. This includes proactively helping clients with their AI-led innovation and agentic strategy as we quickly evolve our capabilities from experimentation to scaled production-grade programs. In a scaled and structured manner, we have created cross-service line cohorts anchored by our client partner teams to deliver agentic workshops across our client base. For example, we are combining our strengths in logistics, customer service, and Agentic AI to extend our relationship with Lineage, the world's largest owner and operator of temperature-controlled warehouses. Under our new agreement announced earlier this week, we will use powerful tools like Agentic AI, automation, and predictive insights to empower Lineage customer care professionals and help deliver a differentiated experience for their customers. I will touch on a few more examples shortly. Now I want to update you on our progress against our strategic priorities to amplify our talent, scale innovation, and accelerate growth. First, with amplifying talent, we continue to prepare our workforce for an AI-led future. We are deepening our talent investments in emerging technology hubs with plans to expand operations in Visakhapatnam. This follows a new site in GIFT City Ahmedabad and plans for a new 21-acre learning center in Chennai that is expected to train freshers and experienced hires in advanced AI skills. Our talent efforts are reflected in our employee engagement survey completed during the quarter, where scores remained well above industry and best-in-class benchmarks for the third year in a row. Next, with scaling innovation, our engine continues to gain momentum. Earlier this month, we launched Cognizant Agent Foundry, which accelerates enterprise-scale adoption of Agentic AI. Agent Foundry, powered by our Neuro AI suite and a strong AI Partner Ecosystem with hundreds of distinctive agents already available for use, spans industries and platforms with domain-specific small language models, agent templates, and the library of prebuilt agents supporting the full agent life cycle. As enterprises reimagine their processes and workflows, we are building a repository of reusable agents for rapid deployment into enterprise landscapes. Earlier today, we launched our first-ever Vibe Coding Week for all 344,000 of our associates to evangelize an AI-enabled software development cycle as the new and only way to deliver software with the help of our Code Assist platform partners. We believe this is the world's largest initiative of its kind, but what excites me most is the opportunity for every associate to build real AI fluency and deliver continued higher productivity to all our client project work. Also today, we launched Cognizant AI Training Data Services for Global 2000 clients who are embracing AI models in their businesses. For many years, Cognizant has helped digital-native leaders train some of the world's most advanced AI models. Working with trained leaders in tech, health care, automotive, media, and retail, our more than 10,000 specialists have curated, annotated, and quality-checked billions of data points and millions of data labels across every major modality. This includes speech, 2D/3D imagery, video, and LiDAR, often enriched with Geospatial metadata for added accuracy. Our domain know-how has enabled us to produce high-precision specialized data sets across industries. This new strategic offering will help empower enterprises to quickly build, fine-tune, validate, and deploy production-grade AI models at scale. Currently, with accelerated growth, let me share a few examples of our innovation in action. Last month, we introduced Cognizant Autonomous Customer Engagement, a platform built with Google Cloud that uses Agentic AI to deliver faster, smarter, and more intuitive customer service. It is a significant advancement, and we have already secured clients in both Health Sciences and global food sectors. We have formed a strategic partnership with a major global biopharmaceutical company to outsource the management of its global IT systems and applications and transform them using Generative AI and Agentic AI. Our global collaboration is twofold, driving productivity and efficiency by modernizing IT operations, while upskilling and cross-skilling technology specialists who will transfer to Cognizant. This partnership highlights our growing leadership in AI-led transformation as well as our long-term vision to empower clients through talent development and innovation. Earlier today, we announced a new partnership with WRITER, a leader in Agentic AI for the enterprise. This collaboration will bring together deep industry knowledge with the global scale of WRITER's end-to-end enterprise-grade platform to enable organizations to build and deploy AI agents with a focus on highly regulated industries. We recently won new business to deliver third-party administration services for a leading insurance company managing a closed book of annuities. What makes me particularly excited about the strategic agreement is the next-generation AI platform built to not only modernize the portfolio, but also the opportunity for us to scale this AI platform to other clients in the future. And finally, we delivered key TriZetto milestones in quarter 2. In May, we completed what we believe is the largest TriZetto Facets cloud migration with a leading North American health care payer. We moved over 10 million member records to a containerized cloud environment, improving scalability and stability and achieving new performance benchmarks. In parallel, TriZetto has advanced its Agentic AI strategy with nearly 30 agents now live or in pilot and another 10 in development. These agents are streamlining workflows across care management, claims, benefits and customer service, cutting onboarding time and improving case handling efficiency. The underlying foundation of the TriZetto agentic strategy is the TriZetto AI gateway, which we are pleased to announce, will launch next week. Looking ahead, as I have described today and at our Investor Day earlier this year, we are positioning Cognizant for the Generative and Agentic AI future, and in the process, I believe we are building a new opportunity, one defined by agentification at scale with new client spend cycles. We see this as a once-in-a-lifetime opportunity enabled by a revolutionary technology to reimagine enterprises' workplaces and the workforce. We believe we have a bigger total addressable spend than ever before to partner with our clients on their AI journeys. Our 3 core strategic imperatives are unchanged, but I want to shift the aperture on our lens to help you see more holistically the steps we have taken to differentiate ourselves in a rapidly changing market. I believe the AI wave is different from the prior waves. So too is the way Cognizant is responding. Historically, the most successful companies in our industry thrived by sensing technological shifts and incubating economically viable solutions and new capabilities at scale. To capture the AI opportunity, we recognized and have started building a new layer, one that's in addition to the traditional interdisciplinary capabilities. This new layer includes translating our award-winning AI labs work to differentiated AI platforms, small language models, and tooling to address the accuracy of the models, reasoning layers to help make the technology responsible, and investments into the evolving agent development life cycles. Our pioneering work in context engineering, which is building layers of context, tribal knowledge, data flows, and workflows to create efficient and productive agentic systems, is already making waves with our clients on their agentic journeys. From now, I call this new layer IP on the edge, a working description on the evolving transitionary phase of Agentic AI. Our IP on the edge progress is a very important differentiator in a fragmented and heterogeneous market of AI builders. We believe our early investments in AI, led by IP on the edge are scalable interdisciplinary capability. Our partnerships and continued focus to diffuse AI efficiently into our product and client services teams have really helped us stay strategic to our clients' AI journeys, which is reflected in our financial, people, and client metrics. In closing, we are proud of our Q2 results. We appreciate that long-term success will be determined by our ability to deliver sustainable performance. That said, while the demand environment remains dynamic, we are encouraged by our continued ability to drive large deal momentum and win a growing number of new spend cycles in Vector 2 and Vector 3 agentic opportunities. Now I'm going to turn the call over to Jatin.

Thank you, Ravi, and thank you all for joining us. Our second quarter revenue exceeded the high end of our guidance range, once again earning us a place in the Winner Circle based on peer results reported so far. Our Q2 performance was characterized by sharp operational rigor, disciplined cost management, and a productivity-first mindset that helped drive year-over-year margin expansion and EPS growth that outpaced revenue growth. Through the first half of 2025 on a year-over-year basis, we achieved top-tier revenue growth, 40 basis points of adjusted operating margin expansion, and 11% adjusted EPS growth. Now let's turn to the details of the quarter. Second quarter revenue of $5.2 billion grew 7.2% year-over-year in constant currency. Growth was led by strong organic performance in Financial Services and Health Sciences. Belcan contributed approximately 400 basis points of inorganic growth. The demand environment was largely unchanged in the quarter. While visibility is still limited, the ramp of large deals more than offset discretionary spending pressure. Now let me provide some color by segment and region. All segment and region growth commentary represents year-over-year constant currency growth unless otherwise stated. Financial Services grew 6% year-over-year and led our organic growth with broad-based demand across sub-industries driven by digital engineering, legacy modernization, and vendor consolidation initiatives. These have supported a healthy pace of GenAI productivity-led deals and GCC opportunities across BFSI. For example, earlier this year, we were chosen as a transformation partner by a large North American bank. This multi-year, multi-hundred million dollar deal has the client partnering with Cognizant in driving talent and technology transformation across the bank's banking and insurance units to support its go-to-market and talent strategies at the right cost. While our BFS business continues to build on its strong performance, our insurance business is showing signs of improved growth, supported by strategic engagements with several key insurance clients in North America. Health Sciences grew 5% year-over-year driven by organic growth across payers, providers, and Life Sciences customers. As we noted last quarter, our clients are navigating a rapidly changing environment. We expect the recent passage of the U.S. Budget Bill and its changes to Medicaid will weigh on near-term discretionary demand from payers and providers. Meanwhile, Life Sciences customers face heightened uncertainty related to the tariffs. Despite this uncertainty, we believe our deep domain expertise and strong client relationships position us well as a strategic partner to help healthcare organizations adapt quickly, unlocking new opportunities for innovations, efficiency, and growth. As a great example, one of the mega deals we signed in Q2 was with a large healthcare client. Our proactive approach and compelling value proposition helped us extend our long-standing relationship. We are helping this customer drive productivity and fund innovation by leveraging our deep industry expertise, AI skills, and platform investments. In Products and Resources, growth was primarily attributable to Belcan. Although trade policy uncertainty has tempered discretionary spending, we are seeing demand for cost takeout and productivity-led engagements, areas where our value proposition remains strong. In retail, consumer goods, and travel and hospitality, clients are actively investing in GenAI pilots aimed at elevating the customer experience. Communication, Media, and Technology returned to organic growth this quarter, led by the technology sector. We are witnessing robust demand from clients aiming to reduce costs and reallocate capital towards R&D and other capital expenditures. Our expanding expertise in GenAI is strengthening our position as a strategic partner in the CMT industry, enabling us to secure significant wins. An example of this is the mega deal we won in the Communication Sector in Q2. The partnership encompasses both GenAI-driven productivity transformation and a good mix of new business through the contract duration. For our clients, this deal leverages all three pillars of our AI strategy, accelerating growth through AI-native offerings, enhancing enterprise productivity through AI-driven automation, and transforming customer experience with intelligent personalization. By geography, revenue grew across all major regions. North America led with 8% growth driven by Financial Services and Health Sciences. Continued strength in large deals and disciplined execution enabled us to deliver industry-leading growth again in Q2. We believe we are gaining market share in this region. Europe grew 4%, again driven by growth among Life Sciences and Financial Services clients, including public sector. We are pleased with our momentum in the region, supported by new logos and a revamped sales strategy that have led to an improved large deal pipeline. The rest of the world increased by about 6%, driven by Financial Services and Health Sciences from a segment standpoint and by Australia geographically. Now to bookings. As Ravi mentioned, mega deals drove strong bookings this quarter. Second quarter bookings included a balanced mix of new wins and renewals. The trailing 12-month annual contract value, or ACV, increased high single digits year-over-year. This improved backlog, along with our last 12-month book-to-bill of 1.4x, supports our full year revenue outlook. Turning to margins. Second quarter operating margin of 15.6% increased by 40 basis points on an adjusted basis, benefiting from next-gen program savings and operational rigor and the Indian rupee depreciation despite the dilutive impact of Belcan. These improvements were partially offset by increased compensation costs and initial ramp-up costs of large deals. Now moving to cash flow and capital allocation. Days sales outstanding of 83 days increased by 2 days sequentially and by 3 days year-over-year. Second quarter free cash flow was $331 million compared to $183 million a year ago. During the second quarter, we returned $521 million of capital to shareholders through share repurchases and dividends, bringing the first half total to $885 million. We ended the quarter with cash and short-term investments of $1.8 billion or net cash of $1.2 billion. Before turning to guidance, I will provide a brief overview of the expected impact from recent changes in U.S. tax laws. In July, the U.S. passed a Budget Bill which, among other provisions, repealed certain requirements to capitalize research and experimental costs. As a result of this change, we expect to incur a one-time non-cash tax expense of approximately $400 million in the third quarter related to a deferred tax asset on our Q2 balance sheet. This amount would have otherwise been available to offset future taxes related to our non-U.S. earnings. On a cash basis, this legislation is expected to reduce our near-term cash taxes and increase our operating cash flow. In 2025, we expect this improvement to be $200 million, thereby increasing our capital available to return to shareholders. Now the details of our forward outlook. For the third quarter of 2025, we expect revenue to grow 3.5% to 5% year-over-year in constant currency. As a reminder, Q3 includes only a partial year-over-year benefit from the Belcan acquisition, which closed in August 2024. We expect a little more than 200 basis points of inorganic contribution in the third quarter. The remaining guidance items I will discuss are for full year 2025. We are modestly increasing the midpoint of our revenue range based on our year-to-date performance and improved confidence in the second half. In 2025, we now expect revenue to grow 4% to 6% in constant currency, reflecting a 50 basis point increase at the low end of the range. Revenue details in dollars are available in our press release and supplement. We continue to expect full year inorganic contribution of approximately 250 basis points. Our revenue guidance is based on current visibility and considers a range of scenarios that could unfold in the second half of the year. The low end of the range continues to assume further deterioration in the demand environment. The midpoint incorporates an unchanged environment with ongoing discretionary weakness, partially offset by pipeline conversion and the high end assumes an improved demand environment, further supported by our large deal pipeline. Our adjusted operating margin guidance range remains 15.5% to 15.7% or 20 to 40 basis points of expansion. We expect margin expansion will be driven by cost discipline and SG&A leverage. In parallel, we are driving continued operational rigor through AI-led automation and pyramid optimization to support gross margin over the medium term. As a reminder, the second half of the year will include margin investments in large deals and a merit cycle. Due to cash flow benefits from the U.S. Budget Bill, I discussed earlier, we now expect free cash flow to represent approximately 100% of net income, excluding the one-time non-cash charge that will be recorded in the third quarter. This has also allowed us to increase our expected return of capital. For the full year, we plan to return $2 billion to shareholders, an increase of $300 million from last quarter, driven by higher expected share repurchases. In total, we expect to deploy approximately $1.4 billion in repurchases this year. Even with this increase, we maintain flexibility to pursue opportunistic M&A this year. Other than the one-time non-cash tax charge I discussed, we don't expect the Budget Bill to impact our effective tax rate. Therefore, our adjusted tax rate guidance, which will exclude the one-time charge, is unchanged at 24% to 25%, but is trending towards the lower end of the range based on first half performance. We are increasing our EPS guidance range to $5.08 to $5.22 compared to our prior range of $4.98 to $5.14, reflecting our revised revenue guidance and favorable foreign currency rates. This represents 7% to 10% year-over-year growth. We expect a weighted average dilutive share count of about 489 million versus 491 million previously. With that, we'll open the call for your questions.

The first question comes from Tien-Tsin Huang with JPMorgan.

Really, really strong bookings here. So I'll ask on that if that's okay. I think I heard a pretty balanced mix of renewals and new deals. So I just wanted to clarify that. And it sounds like you're seeing early renewals with clients looking to implement AI efficiencies. So I just wanted to clarify that because we're all looking ahead and thinking about the pipeline. So I'm curious if you can replenish the pipeline and what's your outlook for bookings in the second half of the year?

Thank you for the question, Tien-Tsin. This is Ravi, and I'll have Jatin provide additional insights. We experienced a solid mix of bookings, with an 18% increase year-over-year and a 6% increase over the past twelve months, including a mix of renewals and new business, six large deals, and two mega deals exceeding $1 billion. While clients are not generally pushing for early renewals, there are occasional instances where that happens. Clients are actively seeking to enhance productivity during renewal cycles. When opportunities arise where we can sole-source and initiate deals, even as the incumbent, we aim to create value for both our clients and ourselves. In recent quarters, we've primarily seen momentum from large deals driven by productivity, consolidation, and AI enhancements. However, we are now beginning to observe deals driven by innovation, which is promising as it indicates new spending cycles from our clients that align with their growth objectives. This quarter marks the first instance where we've observed a mix of large and small deals, contributing to an increase in our annual contract value, which is encouraging as it suggests a quicker monetization of billings to revenue. The combination of renewals—both small and large—has remained robust, and we are now witnessing both productivity and innovation working in tandem. Overall, this represents one of the healthiest bookings mixes we have seen, and we hope to continue this trend throughout the year.

Tien-Tsin, as we look at the pipeline, we continue to feel good about what we have and how we are shaping the pipeline. So yes, it's been a great quarter, but we continue to work hard to add more to our pipeline as we look at the second half of the year.

Great. That's interesting. Good color. Thank you for sharing the ACV comment, both of you. Just on the quickly follow-up, just gross margin outlook. You mentioned deal ramps, of course, with contract execution. So these deals are coming on. Any considerations for gross margin as we look to the second half of the year?

We will continue to execute well. If you see our utilization for the first half is approximately 2 percentage points higher than the first half of 2024. We are doing some investments as we execute in the second half. You saw that the headcount has actually gone up by 7,500 employees. And so that's the play that we have, Tien-Tsin. As we execute, we'll have to constantly balance how well we use our resources, but at the same time, continue to evolve our resource mix for the demand that we see in the marketplace. And that will shape our gross margin. There is an overlay of the investments that we make as we ramp up our large deals, and we have won 2 of them in quarter 2. So that overlay also will play out in the second half of the year. We have done so far well in terms of a stable gross margin year-over-year, we've done slight improvement sequentially. So we'll continue to work on this path as we move forward.

And those 2 mega deals have sizable new business components.

Our next question comes from James Faucette with Morgan Stanley.

I want to probably touch on kind of the work that you've been doing, I'm intrigued by, as you characterize it, Vector 1, Vector 2, Vector 3. We've noticed a number of patents that you've been awarded. You talked about on today's call about having 100 agents or so available. Can you just talk about how you're pricing those and incorporating those into deals and putting together that structure? That's a question we get a lot from investors is, how to think about some of this IP Cognizant developing that unique to it and how to think about its impact on the business, both from a pricing as well as business opportunity standpoint?

Yes, that's a great question. For the first time, we have an opportunity to truly make outcome-based solutions mainstream. This is an evolving space. The differentiation for the IT services sector is no longer just about building capabilities; it has become about interdisciplinary capabilities combined with intellectual property at the edge, which refers to the last-mile infrastructure necessary for enterprise-grade AI or Agentic. We have invested significantly in identifying these elements and transforming them into platforms, tools, and reusable components in our foundry. This investment not only enhances our offerings but also helps us create lasting relationships and premium value. Although it's still early, I am very pleased and optimistic because we have established a real differentiation for ourselves. The real challenge now is to continue developing it. We are beginning to explore small language models and considering what support is necessary once we reach the finishing line, particularly for components that software companies or plumbing providers may not offer, such as insights into the agent development cycle. We are committed to this investment. We have a groundbreaking technology that is poised to revolutionize every process, workflow, and data flow within organizations. Our goal is to understand how to develop a framework around it and effectively deliver it to our project teams to make it a reality. This is rapidly evolving, and I am excited about the possibilities for pricing and bundling. This approach differs significantly from productivity, which is something we typically share with clients. In contrast, innovation capital can be monetized in a nonlinear manner. We will persist in our investments and in shaping this narrative as it will become our largest differentiator in guiding our clients through agentic journeys. Additionally, I mentioned that this initiative goes beyond merely agentifying a process within a company. It also provides us the chance to manage those processes on behalf of our clients, leading to a new area of expenditure that we aim to capture. This is why I indicated that the total addressable spend is greater than before. There were instances where we simply applied technology and empowered our clients to operate independently, but now clients are questioning whether, combining digital and human labor, we are better positioned to oversee certain functions, such as customer care. This means the overall market potential is expanding, as it is not just about technology but our ability to manage those processes effectively. We are starting to strategize on how to propose to clients the possibility of outsourcing process functions to us, integrating both digital and human resources. This leads to higher addressable spending, flexible pricing, and the opportunity to tap into new talent and funding pools. The talent we attract will need to bridge both domain knowledge and technology. We are seeing promising examples through our partnerships with clients.

That's great. And then I wanted to touch on capital allocation. Back at the analyst meeting earlier this year, you talked about spending up to half of free cash flow on acquisitions. Just wondering if you can give an update on progress on pipeline there and what you're seeing from a valuation perspective, et cetera?

Sure. James, we covered 2 aspects at the Investor Day, and I will cover them again. The first is the capital allocation that we have spoken about for 2025 and second is the long-term capital allocation plan. So for 2025, we had spoken about returning $1.7 billion to our shareholders at the Investor Day, which we have further increased to $2 billion, as I covered in my opening remarks. Of that $2 billion, $1.4 billion is for share repurchases and $600 million towards dividends. And that leaves us approximately with about $500 million for M&A for this year, and we have a decent pipeline to think about it in the second half of the year. Now let me touch on the overall long-term capital allocation policy. That remains 50, 25, 25, which is 50 for M&A, 25 for the share buyback, and 25 for dividends.

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

You laid out the range of assumptions embedded in your full year outlook. But can you help frame how we should think about that as it relates to your 4Q exit rate? Are you assuming any sort of change in velocity in the business given some of the embedded deceleration in that back half?

Thank you for your question. Our position in the fourth quarter will be influenced by the performance in the third quarter and the fourth quarter itself, with nearly half of the year still remaining. Currently, due to the uncertainty, our expected outcome is a wide range. On the lower end, we could face a negative number, the midpoint suggests an exit rate around 1%, and the upper end is just below 4%. This range gives us the flexibility we need to operate, and we believe we will continue to perform within it as we have been doing. However, this is indeed a broad range. While we aim for the midpoint of our guidance, we always strive to perform at our best throughout the year.

I appreciate that insight. And given some of the demand-related puts and takes you laid out in your prepared remarks, can you help unpack which verticals and geographies you'd expect to maybe decelerate versus accelerate for the remainder of the calendar year, especially considering some of the large deal ramps you're anticipating?

Yes. So look, we've had Financial Services doing pretty well. This is the fourth consecutive quarter we've been able to achieve year-over-year growth in almost the whole year. We have actually 3 quarters now, sequentially, we've been growing in Financial Services. That's a sector I'm very excited about. It's unlocking innovation dollars, not just dollars related to productivity. And whenever you unlock innovation dollars, it's related to revenue and growth. So it's always exciting. I see health care as an opportunity. I mean, as we talk, there is just hot out of the press make American health care technology great again. And that opportunity is all about applying technology to reduce the operational overhead overhang on that sector. It's been a sector that hasn't embraced technology as much, and it has been fragmented all the way from payer providers and pharmacies. So we see that as a sector where we have strength as well. So we're going to see that. I mean this is also the first time over the last few quarters, our comp in the technology sector has gone into positive territory. And we are starting to improve in products and resources. So effectively, if you see the performance of this quarter, it's been all-around performance, including our geo-based. If you double-click on a geo, even if you take the Belcan numbers out, all 3 geographies, Asia Pacific, Europe, and the U.S., the U.S. on a big base, I mean, amongst our peers, if you look at it, we are doing significantly well in the U.S. So it is reflective of all-around performance, all-weather company, and durable in a more sustainable momentum for us. So I'm optimistic about all-around continued performance as we go forward into the second half.

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

Ravi, if you go back to the 3-Vector approach that you've articulated enabling hyper-productivity was one, industrializing AI was 2; agentifying the enterprise is 3 and I know you just recently made these at the Analyst Day, but I'd just be curious if you could update us your perspective as to which of those because the chronology that you described was that it's now for all of them. Are any of those ahead of the others?

Great question. The Vector 1 is significantly ahead of the other two. It is well-timed for a market that is uncertain and slow. Clients are seeking value, and some are investing in those savings for innovation. Vector 1 has performed well; we completed 29 large deals last year and 17 in 2023. We've been on this journey for a while and are seeing success. Regarding productivity, which we promise our clients, we have been able to deliver results while maintaining some savings for ourselves. I'm performing well on bids and productivity. Today, we held a major event at Cognizant to transition everyone to the Code Assist platform. Consequently, productivity is likely ahead of the other two. The second and third vectors are interconnected, with the second laying the foundation for the third. I'm pleasantly surprised by the momentum that the third vector is gaining. A quarter ago, I wouldn't have expected this, but there's notable progress in customer care, finance and accounting, financial services, and healthcare. Our healthcare TriZetto platform is now attracting clients. The concept of agentification isn't merely about that process, but rather aims to reduce elapsed times or boost throughput, or enhance the overall experience; clients are exploring various possibilities. Last quarter, we had 1,400 projects, which has now increased to 2,500 projects this quarter, nearly doubling. So, I would say we are stable with Vector 1 and Vector 2, while Vector 3 is rapidly gaining momentum. I always anticipated that increased spending would occur, unlocking more funds. With that, the excitement around using AI for growth and developing new products and services will stimulate additional spending cycles, allowing us to engage with more labor pools. Therefore, while productivity growth will start to decelerate, innovation is poised for significant acceleration.

And then for my follow-up, this time last year, you used to talk about the swim lane of cost takeout and that remained the theme. This time, though, you mentioned the word innovation more. I'm just trying to reconcile that with short duration discretionary. When you say innovation, does that mean short duration discretionary? Because it doesn't seem like your guidance contemplates much cadence there, but your commentary does?

Part of this relates to costs in the second cycle, even if driven by innovation; I'm referring to software development cycles. We've seen an increase from 20% to 30% of code being written by machines. I define innovation as an effort to shorten cycle times and reduce operational costs in a creative manner. For example, if you tell a bank that you can cut their 'know your customer' cycle from four or five days to one or two days with Agentic, you can argue that this leads to a better experience, higher efficiency, and lower costs. Clients are interested in such self-service options. Recently, we announced a customer care deal with a logistics company called Lineage, which combined experience and costs, yet it was all about Agentic. There is still potential for increased productivity since we're currently at only 30%, which is average. I believe that the proportion of code written by machines could reach 50% in a year, as I've mentioned in previous podcasts, and that trend is accelerating. I see significant potential there and non-linear growth. My enthusiasm is centered more on the innovation aspect because as enterprises recognize the value, they will shift towards newer products and services growth, leveraging Agentic to achieve that.

Our next question comes from Bryan Bergin with TD Cowen.

I wanted to ask on the health care headwinds versus potential offsets here. So is there any way to frame how much the BBB may be incrementally weighing on growth in that segment versus what you thought 90 days ago? Any commentary on how you see health care moving through the second half of this year? And then where are the offsets in the business if there are incremental headwinds?

I believe our exposure to Medicaid and Medicare is minimal. We primarily focus on commercial health care, with significant business from both payers and providers. We also have a substantial stake in Life Sciences, which is currently increasing its spending. They are shifting funds from productivity to innovation, as technology will drive innovation cycles in that sector. In the U.S. health care system, most challenges relate to productivity and outcomes, and I see technology as the key to addressing these issues. I view health care as an opportunity for us to succeed in these transitions, with a focus on proximity, which is essential at this moment. It won't be as much about innovation as I previously mentioned. I can highlight one of our $1 billion deals in the health care sector, where the company sought to enhance productivity through AI-led transformation, leading to a mutually beneficial outcome. I expect to see more such opportunities in health care compared to Financial Services, which will focus more on innovation.

Okay. Understood. And then, Ravi, just a question for you as it relates to kind of the convergence of IT services and BPM. There's obviously a deal announced here recently in the space. How are you thinking about that dynamic from the standpoint of organic capabilities you have in Cognizant now versus inorganic targets to ensure you have the deep domain expertise and broader process depth as you talk about digitizing, agentifying client operations and then running them?

Great question. Originally, many believed that the first application of technology, particularly AI, would be in operations. However, we initially focused on software development cycles, and now our attention has shifted to operations. I truly believe that operations, data, AI, and agentic capabilities will all converge. Companies that advance technologically can disrupt existing portfolios. The combination of these elements, along with the use of agentic in company operations, presents a unique opportunity. To seize this opportunity, we need to grow faster than any potential cannibalization. A significant portion of our BPO portfolio supports digital natives. Today, we announced our Cognizant AI Data Training Services, which consists of AI and machine learning algorithms we’ve been refining for years, with a team of 10,000 people dedicated to this effort. This positions us uniquely to offer these services to Fortune 500 and Global 2000 companies as they develop their AI models, allowing us to stand out in a competitive space. Some aspects of BPO may eventually become commoditized and automated, leading to the emergence of new labor pools. I see BPO as a major transformation opportunity with agentic and AI at its core, and we are leveraging this as a key strength in many of our deals.

Our next question comes from the line of Amit Daryanani with Evercore ISI.

To begin with your headcount, it appears to have increased year-over-year for the first time in about eight quarters. As we look toward the latter half of the year, could you discuss how we should view headcount growth? Additionally, can the utilization rates maintain their current range, or is there a possibility that they might decrease?

Yes, Amit, this reflects the hiring we do during this time of year for recent college graduates, which has contributed to the increase of 7,500 compared to the first quarter. You will also see some growth in the second half of the year, but it won't be a significant increase as we will continue to focus on AI-led productivity and figure out how to achieve more with less. So, it will be a combination of bringing in more recent graduates to our talent pool while also maximizing what we can accomplish through AI-led productivity. Therefore, you can expect some increases, but they won't be substantial.

In fact, if you do a year-over-year comparison, you would notice that we are almost flat because we had 6,000 to 7,000 people who got added from Belcan. But we have actually done 3%, more than 3% organic growth. So it's a combination of, I would say, AI-led productivity, which we could keep to ourselves plus operational rigor, which Jatin spoke about. And the addition now which we have had is freshers, school graduates. And what we'll do for the rest of the year is also mostly school graduates out of India.

Perfect. And then if you go back to the bookings growth, I think bookings were up like 18%. And clearly, the industry is not growing at that rate. So it's fair to assume that your folks are picking up a good better market share over here. I'm curious, what do you attribute the share gains to? And are these share gains coming at potentially a lower margin point, at least initially versus what you traditionally get?

So again, Jatin, feel free to jump in. We have successfully won competitive deals that were properly priced, and we are confident we will meet our margin targets. Looking back, last year we secured 29 deals and the year before, 17, and now we have established a strong template that is helping us improve consistently. Our win rates have seen a notable increase, allowing us to source and originate new deals. For instance, we originated a $1 billion deal ourselves, demonstrating our agility in the market. We have effectively communicated our value proposition to clients, who recognize it as beneficial for both sides. This quarter has shown a solid mix of new business with an 18% year-over-year increase in total contract value, including a balanced combination of small and large deals. We've also focused more on innovation, which has gained significant traction this quarter.

Amit, you know we have been consistently successful, with Ravi mentioning 17 deals in 2023 and then 29 in 2024. This year has also begun strong, with three major deals secured since the start. For 2024 and 2025, we anticipate a margin expansion of 20 to 40 basis points. In the first half of this year, we achieved 40 basis points higher. The key point is that these large deals have become a standard aspect of our business, allowing us to manage investments within these deals while maintaining overall cost discipline, resulting in positive outcomes and expanding margins. With everything Ravi discussed, we have a strong process in place to govern our execution effectively.

Our last question for today comes from the line of Surinder Thind with Jefferies.

When I think about all of the commentary on innovation spend, I guess, is that code for seeing that clients are getting more comfortable with the discretionary spend component? And then I guess as part of that, what is allowing them to make those decisions, given what I would argue is the pace of technological change, right? Like it seems like every month, every few weeks, every quarter, we're seeing pretty big advances in the frontier models. And so I just want to understand that the decision-making and the conversations that you're having and how we should think about what I would call these green shoots here of spend.

Yes, I use the term innovation, but I would actually frame it as innovation-driven process change. As I mentioned, the goal is to enhance banking processes to understand customer cycles more quickly, providing a better experience at a lower cost. This isn’t just about cost reduction; many processes haven't been updated in a long time, and now there's a push to leverage technology for transformation. Just as the advent of the Internet permanently changed sales and marketing, there's a unique chance to alter current practices. However, this opportunity isn't solely about implementing AI or automation; it's also about reshaping the labor market since customers are now more open to outsourcing, a shift that wasn't possible before due to the integration of digital and human labor. We've been strategic in identifying such opportunities. A prime example is customer care, where companies aren't merely pursuing automation to cut costs, but rather to enhance the experience and provide quicker and better access for their end users. To achieve all this, as you mentioned frontier models, it's important to recognize that these models alone won’t suffice. They need to be complemented by a robust data flow strategy, workflow changes, and context engineering, the latter of which I've discussed publicly before. It’s crucial to integrate the unique knowledge and context of an enterprise, and that’s the role of a systems integrator. I'm now observing a shift in application and agent development life cycles, which differ significantly from traditional software development. The focus of agent development is on defining outcomes rather than specs, involving behavioral design, scaling, deploying, and maintaining agents. Supervising these agents throughout their lifecycle, including maintenance, adds a new dimension to the process. We've redefined how we build intellectual property around this process while being mindful of which labor pools are prepared for the change. As discretionary spending rises, opportunities will expand, and it’s essential to allocate resources wisely. The financial services sector is more receptive to these changes, while other sectors lag behind, but unlocking this potential is inevitable, with value shifting to the front end where systems integrators will play a key role.

That's actually quite helpful. Given the recent announcement from OpenAI about their willingness to provide certain consulting services for a minimum investment of $10 million, should we consider this from a competitive perspective? How should we interpret this development?

It's quite challenging for a technology company that possesses a frontier model to implement a change in business processes, which involves a mix of domain expertise, operations, and system integration. I mentioned the additional layers beyond the frontier model necessary for the technology to function effectively within an enterprise. This is similar to the concept of customization in traditional software, where you relate it to context engineering, data flows, and workflows. Understanding how things are done within a client's organization is essential for facilitating this. It involves integrating technology, operations, and domain knowledge. Delivering these services is impossible without this combination, unless one believes that companies with frontier models would want to be in the service sector. My services are not solely about capability; they also focus on building those essential layers. There are companies pushing AI into their operations, while we aim to be a builder of AI. In the future, we may have a few significant integrated products that will alter the role of system integrators, or we might have acquired enough intellectual property by then to continue monetizing it. Intellectual property at the edge is a crucial differentiator in the AI era, and we are channeling some of our capital into investing in it.

Thank you. Ladies and gentlemen, this concludes today's Cognizant Technologies Solutions Second Quarter 2025 Earnings Conference Call. You may now disconnect your lines. Thank you for your participation.