Ladies and gentlemen, welcome to the Cognizant Technology Solutions Fourth Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. Thank you. I would now like to turn the conference over to David Nelson, Vice President, Investor Relations and Treasurer at Cognizant. Please go ahead, sir.

Thank you, Melissa, and good morning, everyone. By now, you should have received a copy of the earnings release for the company's fourth quarter and full-year 2016 results. If you have not, a copy is available on our website, cognizant.com. Additionally, we have loaded an Investor Presentation onto the Investor Relations portion of our website. This presentation covers the key points discussed on the call. The speakers we have on today's call are Francisco D'Souza, Chief Executive Officer; Raj Mehta, President; and Karen McLoughlin, 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 risk and uncertainties as described in the company's earnings release and other filings with the SEC. I would now like to turn the call over to Francisco D'Souza. Francisco, please go ahead.

Good morning, everyone, and thank you for joining us today to hear about our 2016 financial performance and our outlook for the upcoming quarter and year. For 2016, we finished within our guided revenue and EPS ranges. Our Q4 revenue was $3.46 billion, up 0.3% sequentially and 7.1% year-over-year. Our full-year 2016 revenue was $13.49 billion, which represented 8.6% growth over 2015, including a negative currency impact of 120 basis points. Turning to guidance, we're confident that the investments we've made position us well to deliver strong results in 2017. For Q1, we expect our revenue to be within a range of $3.51 billion to $3.55 billion. And for the full-year 2017, we expect our revenue to be within a range of $14.56 billion to $14.84 billion, representing full-year growth of 8% to 10%. Now, as we customarily do during our first call of the year, let me provide some color around client demand and our strategic outlook. For some time now, we've been speaking to you about our client's dual mandate. On the one hand, they have to run better and optimize their core operations; on the other, they have to run different and invest in the digital technologies that are reshaping business models. Over the last few quarters, we've seen clients' relative emphasis on these two shifts towards digital. For some time now, you've been asking us to break out our digital revenue. We've defined Cognizant's digital revenue as work with clients to help them win in the digital economy by applying technology and analytics to change consumer experiences to drive sustainable growth, deploying systems of intelligence to automate and improve core business processes, and improving technology systems by deploying cloud and cyber security solutions and as-a-service models to make them simpler, more modern, and secure. Our digital…

Thank you. Frank has talked to you about our plan to accelerate our shift to digital, which now accounts for approximately 23% of revenue. We're pleased with our position in digital market, and a number of prominent industry analysts and sourcing advisors acknowledge the expanding depth and breadth of our digital capabilities. Leading independent observers including Gartner, IDC, Forrester, Everest, and others have ranked us among the top global players in categories such as strategy and consulting, Internet of Things, intelligent automation, artificial intelligence, business analytics, design thinking, workplace services, and digital operations. Frank outlined key priorities for our path forward. I would like to elaborate on how we are operationalizing them. Last summer, we began to implement several transformational initiatives and entered 2017 well-positioned to advance our Cognizant 2020 strategy and accelerate our journey. Let me touch on some of the highlights. First, we're accelerating our shift to digital by establishing new practices, developing the skills of our people, and scaling up our local workforce. For example, we are expanding the number of client innovation spaces, we call collaborators, with locations in the U.S., Europe, and Asia-Pacific. In addition, we are supplementing our expertise with select acquisitions. For example, Idea Couture provides digital innovation, strategy, and design services; Mirabeau specializes in digital marketing and customer experiences; and KBACE adds cloud strategy and integration skills. As we scale our digital capabilities, we are also scaling the way we bring digital to market. We have segmented our client base, and we better aligned our client-facing teams to bring Cognizant's expanded portfolio of capabilities to a broader range of buyers within our clients. This allows us to sell more effectively and productively. Second, to ensure that our core business is robust and healthy, we unified our delivery capabilities, allowing more holistic and…

Thank you, Raj, and good morning, everyone. You heard from Frank and Raj how we are accelerating our shift to digital, while ensuring that the core business remains robust and healthy. Additionally, as an ongoing commitment to creating shareholder value, we are also enhancing our financial model in two principal ways. Before getting into details of the quarter, I'd like to explain our new financial strategy in greater depth. First, we are instituting a robust capital return program that rewards our long-term shareholders. Given our size and scale, our strong cash flow profile, and the confidence we have in our future growth opportunities, we are stepping up our capital return commitment to our shareholders. We have thought very carefully about our future cash balances in making these decisions and, despite a considerable capital return program, we expect to maintain balance sheet strength and sufficient financial flexibility to run our business and take advantage of both organic and inorganic investment opportunities that may present themselves in the future. We are announcing an expanded share repurchase program and, subject to board declaration, announcing the initiation of a dividend. Over the next two years, we expect to return a total of approximately $3.4 billion in capital through a combination of dividends and share repurchases. We are initiating a quarterly cash dividend of $0.15 per share starting in Q2 which will amount to approximately 1% dividend yield based on yesterday's closing price. We plan to utilize $2.7 billion of cash to step-up our share repurchase program significantly over the next two years. This plan includes a $1.5 billion accelerated share repurchase which we expect to commence in Q1. We anticipate spending an incremental $1.2 billion during 2017 and 2018 to buy back stock in the open market. The capital return plan is expected to…

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question.

Hey, so I thought that's nice, exciting stuff with the new plan. I guess I'll ask the revenue impact or revenue implications of some of these changes in this period from 2017 to 2019. Can you comment on that and what that might look like and maybe what you expect your digital revenue mix to be by 2019? Thank you.

Hi, Tien-Tsin, this is Frank. Thanks. Yeah, we are excited about the plan that we have announced today. I think that we've been talking to you for some time about this shift to digital, and this gives us an opportunity to really accelerate that shift. What I would say is that, as we think about that shift to digital, we will of course emphasize the growth in the digital side of the business; making the investments that we need to scale up both organically and inorganically, that side of the business. And as we said, we'll continue to be thoughtful about growing the core business, making sure that we invest to stay competitive there. We think that the core business is an important part of our ability to serve clients and our ability to be an integral part of their digital futures, because as you know, most of our clients are building their new digital capabilities on the backbone of their traditional systems. Having said that, we do expect that in the core business we're going to make thoughtful choices about the business areas on which we focus and, if appropriate, pivot away from lower margin part to that business. And so, that may have somewhat of an impact on revenue, but we think it'll be offset by growth – above-company average growth in the digital side of the business. So, as we execute on this plan our commitment is to continue to deliver high-quality, sustainable growth and we think this plan enables us to do that. As it relates to our digital revenue, as you know, as we mentioned in the prepared comments, we're breaking it out for the first time for you based on feedback that we've received from all of you. It was approximately 23% of revenue in 2016. And as I said, we expect going forward that it will continue to grow above-company average. I don't have targets for where it'll wind up, but we'll just periodically report progress to you on that number so you can get a sense of how that shift is unfolding.

Great.

Thank you. Our next question comes from the line of Edward Caso with Wells Fargo. Please proceed with your question.

Hi. Thank you. All the best with the new strategy here. Just curious on slide 9 you talk about 120-basis-point to 200-basis-point impact, does that incorporate, I guess, the shift you said to more U.S. and other non-Indian locations? And does that – what kind of pricing assumption is based in there, and is there any higher implied visa cost in that number as well? Thank you.

So, Ed, good morning. This is Karen. So, as you mentioned on slide 9 of the investor deck that's out on the website, we talk about the different components of the 22% non-GAAP operating margin target in 2019. And as you mentioned on the right side of that slide, in particular, we talk about some headwinds that will result in about 120 basis point to 200 basis point impact over the next three years. That's a combination of all of the things on that part of the slide, which includes the talent strategy, current industry pricing trends, and then some of the investments that we're obviously making in digital and automation and so forth. Really, what that assumes is no change in pricing based on what we've seen to-date, so no further deterioration. And as Frank talked about, we're going to be fairly selective in the types of work that we'd go after particularly around the core business in the future. And then around the talent strategy, as both Frank and Raj talked about, obviously we've been expanding our local hiring and retraining and so forth in various geographies around the world, but assumes essentially that we continue on that path with no significant changes in terms of immigration policy or so forth.

Thank you. Our next question comes from the line of David Togut with Evercore ISI. Please proceed with your question.

Thank you. Good morning. Could you give us a sense of your spending intentions of your Financial Services customers for 2017, clearly, given big changes with a new administration, higher net interest margin and attempts to roll back Dodd-Frank?

Yeah. Hi, David. This is Raj Mehta here. Look, with our Financial Services clients, they're obviously in much better shape going into 2017 than they were in 2016. And as you touched on, the increasing interest rate environment some roll-backs in regulation, I think it's a little too early for us right now. We're cautiously optimistic about what that means in terms of spending patterns moving forward. But right now, it's a little too early for us to see the impact of those changes.

Understood. Thanks.

Thank you. Our next question comes from the line of Darrin Peller with Barclays. Please proceed with your question.

Thanks, guys. Congrats on this shift in strategy. Just touching on the digital one more time, 23% of total revenues, I appreciate that statistic. Can you just touch on, again, I guess – I know someone else asked the growth profile of that over time or what it can get to. What is it growing at right now? And then what is the rest of your business, the components of the rest of your business growing and if you could break us down now that we have that piece the growth profiles of each of the other pieces along with digital itself today? And then, Karen, just a follow-up on liquidity and capital return strategy, can you give us a little more granularity, the sources of capital and cash coming for the buyback and the dividend? And what target leverage ratio you have now? Thanks again, guys.

Sure, Darrin. So, on the digital growth, as Frank mentioned in his prepared remarks, it is growing significantly above company average; he did give a specific number. But I think, as you would expect and as others have seen, it is certainly been the big growth driver for quite – for the last, certainly, several quarters and the last couple of years now and we would expect that to continue. Obviously, it does mean that other parts of the business – some of the core parts of the business are growing slower than company average. And then from an industry perspective, as we saw last year, obviously, we had some slower growth in banking and Healthcare, some of which was specific situations around Healthcare with M&A and so forth, but certainly a little bit slower growth there. So, I think very consistent with what others are seeing in the marketplace and the demand from clients which is that digital will be the high-growth driver for the coming years, and we would expect that to continue to be a meaningful driver for us. In terms of the sources of cash, at the end of the year, we have about – as you'll see when we file our 10-K, we have about $1.1 billion of cash in the U.S. today, and the cash – the funds for the dividends and the buybacks will come from our existing cash balances in the U.S., from U.S. free cash flow that we will generate over the next coming years. And then we will, as necessary, lever the balance sheet up a little bit. As you know, we have a revolver today, which has about $750 million of capacity in it and then, if necessary, we would take debt on beyond that, but certainly, our intent is to maintain a very strong balance sheet, maintain very strong investment-grade rating if and when we went to the rating agencies to do that, and to maintain a lot of flexibility for both organic and inorganic investments.

Thank you. Our next question comes from the line of Brian Essex with Morgan Stanley. Please proceed with your question. Brian L. Essex - Morgan Stanley & Co. LLC: Hi. Good morning, and congrats on the transition from me as well. Thank you for taking the question. I was wondering if you could talked about, obviously, you're going to ramp up your level of acquisition activity as you kind of accelerate into digital businesses. Do you have a set target in terms of what you might anticipate to spend? How aggressive you might be on that front? And then maybe a follow-up with how the pipeline looks as you head into the New Year?

Yeah. Brian, it's always been the case that we focus first on the quality of acquisitions and we're selective on making sure that the acquisition – particularly as we look at the tuck-in acquisitions that they are focused on achieving one or more of a specific set of goals that we're looking for: technology, industry, capability, geography. Those are the major criteria that we look at. So, as a result of that, I don't have a specific spend target or a specific volume target, but as you know and as you saw, we did a number of acquisitions in the fourth quarter of 2016, and I would expect that the pace would continue at that level or maybe a little bit even ahead of that. We also, in 2016, did a couple of investments and the first time that we've taken investments in promising companies that we think are complementary to the company and I think you should expect to continue to see us doing some of that as well. Brian L. Essex - Morgan Stanley & Co. LLC: Got that. And maybe just to follow up, are you seeing a change in the valuation and competitive nature of these deals, or are you kind of shooting above where most of that deal competition is in terms of size of deal or what you can bring to the table from a Cognizant point of view?

I'm looking to Karen as well to see if she has a different perspective. I don't think that we've seen the market change meaningfully in terms of valuation for the kinds of firms that we're looking for. Obviously, there are valuation differences between what I would think of as traditional services, digital services, and then platform or IP-based companies, but those are well understood. I don't think there's been meaningful change in that over, let's say, the last 12 months. And as I said in my prepared comments, we continue at the moment to focus primarily on looking at tuck-in acquisitions to expand our digital capabilities. Really right now focused on expanding digital across the industry segments and focusing on expanding digital across the geographies around the world where we operate.

Thank you. Our next question comes from the line of Jim Schneider with Goldman Sachs. Please proceed with your question. James Schneider - Goldman Sachs & Co.: Good morning, and congratulations on the capital allocation program. My question is on immigration. I was wondering if you could maybe talk a little bit about – I understand fully that you're increasing your hiring in the U.S., but if there are changes to the current H-1B program as it stands today, potentially a salary bid process or some other process that would change kind of the minimum floor on labor rates, would you consider accelerating the hiring in the U.S., or would you be more likely to sort of just continue to request H-1Bs at the same level as you are now? Maybe just comment on the broader outlook there from a policy perspective. Thank you.

Jim, it's Frank. Look, first of all, I would say that it's very difficult for us to speculate on potential changes to the program there. As you know, even currently, many alternative proposals out there, and over the last several years, have been even more. I would say that our intent has always been and continues to be to scale and to hire in the U.S. as aggressively as we can. As Raj said in his prepared comments, last year we hired over 4,000 citizens and permanent residents. But we also have to continue to supplement that with talent from around the world, because we do see shortages of talent in certain areas. We are trying to address that by focusing on retraining and re-skilling. But I think going forward you should expect to see that that will continue to be somewhat of a balance. We will continue to be as aggressive as we possibly can on scaling up and focusing on local recruitment, but I believe that there will be some prudent balance between those two things going forward.

Thank you. Our next question comes from the line of Glenn Greene with Oppenheimer. Please proceed with your question. Glenn Greene - Oppenheimer & Co., Inc.: Thanks. Good morning. Just a quick follow-up on that question and one other. But just to be clear, so in the context of raising the margin target to the 22%, you haven't factored in anything sort of extraordinary for, sort of, the visa reform. I just want to understand the context of it. Is it just too speculative at this point and you'll deal with it in an extraordinary – sort of on an extraordinary basis? And the other question I had is just for Karen, sort of, just thinking about the cadence to get to the 22% margin target in 2019 and I would assume there's a certain normal level of revenue growth embedded in that to get a fair amount of SG&A leverage, which would be a key part of the margin story.

Yeah. So, Glenn, this is Karen. On the immigration and what's baked into the margin, I think, as we said in our comments and it's highlighted also in the deck that's on the website, we have assumed sort of current status for immigration. We've obviously assumed that we will continue expanding our local hiring in the markets in which we operate, but we have not factored in any material changes to the immigration policy. At this point, it is just too speculative to try and make that determination. So, we will address that if and when the time comes. In terms of the cadence to get to the 22%, as we mentioned, our guidance for Q1 assumes that we have flat margins with Q4, and then on a full-year 2017 basis, that we'll be at least 19.5%, which is where we landed for the full-year 2016. So, what you will see is that the benefits of the margin optimization, those actions are already starting to be underway and will continue to increase as the year goes on and as we move into 2018. And so, we will see improvement as we go through the year. And as we mentioned, in my comments, that's a three-year program to generate the 360 basis points to 440 basis points of margin opportunity, but the vast majority of that happens in the first two years. And so, you'll see some improvement this year to offset some of the pressures we've seen – or the investments that we made last year. And then as we move into 2018, you'll get the full benefit of the 2017 actions as well as incremental actions that will happen in 2018. And then in 2019 is when we would expect to generate the 22% non-GAAP operating margin base for the full-year 2019. So, it'll be phased; it will incremental each year.

Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.

Hi, guys. One question and a quick follow-up. On top line, when I look at fourth quarter results, Cognizant came in towards the low end of guidance for revenue, but the first quarter guide for 2017 shows a solid pick-up in top line growth. I think the midpoint of the range is something like 2% sequential. I remember last year I think Cognizant's growth was down 1% sequential 1Q 2016, so I'm just curious on the change in demand you're seeing there for a stronger pick-up starting in this first quarter?

So, I think, Bryan – this is Karen. As you said clearly, Q1 this year looks like it will be much stronger than Q1 last year. I think we are seeing good demand across the business at this point. Last year, if you remember, in January is when the banking sector really started to fall apart and that put a lot of pressure on our Q1 numbers. We have not seen that this year. We have our January results. January came in exactly as we expected. So, we do think that Q1 is off to a good start. The other thing is a small impact but impacted sequential growth a little bit is, as we have said when we did the TriZetto acquisition, part of our objective there is to move into more annuity stream revenue versus just pure license sales. So, if you remember Q4 is always their strongest because of the license sales. We've started to make that transition, so it's a little bit less of an impact than it would have been in prior periods with them as well which obviously helps fund the overall Q1 number.

Yeah. And I'll just add to that, in addition to Financial Services, we're starting to see some – we had a lot of M&A in Healthcare in the beginning of 2016. So, we're starting to see some resolution, at least some of the discretionary spend. As you know, one of the large M&A transaction has been decided on and you're starting to see some discretionary spend starting to happen on that since that didn't move forward. And so you have a little bit of clarity in that. Plus, in addition to that, we have – we've talked a lot about our platform play that TriZetto BPaaS opportunities and you're seeing good traction in those areas as well. That's helped bring the stability with Healthcare.

Thank you. Our next question comes from the line of Joseph Vafi with Loop Capital. Please proceed with your question.

Hey, Guys. Good morning, and thanks for taking the question. I think first if maybe – this would be little more theoretical but is there a way to quantify how much work that maybe being done right now by visa holders could be migrated back to offshore facilities without impacting service levels? And then secondly just a housekeeping item, is the accelerated buyback built in to the guidance on the EPS line for 2017? Thanks.

Hey, Joe. It's Frank. I'll let Karen answer the second part of your question while I think about the first part.

So, Joe, I think as we mentioned, we have baked in an estimate of the impact of the ASR into the share count. So, nothing in Q1 but in the full-year share count for Q2 – or I'm sorry, for the full year rather the 597 million does assume that we are able to start – launch the ASR sometime in Q1.

Yeah. And Joe, to the first part of your question, it is somewhat theoretical. What I would say is that, as I said I think in my prepared remarks, as we shift towards digital, those are the kinds of services where the value of colocation with the client is actually higher. You need to be close to the client. You need a more consultative approach. And so, I expect that those services will require us to continue to have folks on-site and scale up, as we said, our workforces around the world. I think if you look at the traditional business, there might be an opportunity to optimize a little bit around the edges in terms of what I think of as shoring, that is moving work to other parts of the world, but I don't think that's a significant opportunity. It might move the ratio between our on-site and offshore teams by a point or two, but I don't think it's going to be substantially higher than that.

Thank you. Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald. Please proceed with your question.

Hi. I was wondering, do you think raising the margin profile, just given the commoditization and your efforts to invest in digital, might make you a little less competitive? And can you give us more color on the current margin profile in digital? Thanks.

Yeah. Obviously we thought long and hard about this, Joseph. I think that we think we've landed in a good place that balances our ability to invest in the business. We were careful to make sure both when thinking about our income statement and our balance sheet that our first priority was to make sure that we protected our ability to invest in the business, to continue to do the things that will allow us to make the transition to digital; and at the same time, be prudent about, in the case of the balance sheet, returning capital to shareholders, and in the case of the income statement, increasing our margins. I think at 22%, we feel like we're – it's a good solid place to be. It's a balanced margin profile, and puts us squarely in the competitive set, but also allows us to make the right investments in the business.

Thank you. Our final question for today comes from the line of Moshe Katri with Wedbush Securities. Please proceed with your question.

Hey, thanks for squeezing me in. Can you talk a bit about what you're seeing in terms of outlook for the various pieces of Healthcare in 2017? I think you spoke very briefly on that so maybe talk a bit also about what you're seeing in pharma? And then does guidance – top-line growth guidance for this year also include the impact of the acquisitions that you've done so far and what would that be? Thanks.

Yeah. So, I'll kick it off and talk about just guidance for the year and, Karen, you can jump in on the acquisitions. But look, I think, overall we're pleased that we're off to a good start in 2017. Obviously, when we entered the year in 2016 we had the M&A overhang on the Healthcare deals and the financial Brexit and other issues that we had in the Financial Services industry. So, going into 2017, we're on to a positive start. I think there's still some caution out there. There is still – clients are still, obviously, nervous about what will happen with Affordable Care Act and they're waiting to see what the current administration will do towards that. But overall, we're seeing good pick-ups in terms of some of the discretionary spend in Healthcare. And in addition to that, like I touched on earlier, we are seeing a lot of traction on our BPaaS solutions that we've had around TriZetto. And I think we'll see continued acceptance of that model within other payers as well too.

Moshe, this is Karen. On the M&A front, obviously, we've made a couple of small acquisitions in Q4, and then we have the investments that we did earlier in the year in ReD and a couple of other acquisitions and in Measure as well. ReD and Measure, remember, don't generate any revenue for us. Those are just investments. So, there's no revenue there. And then from the rest of the group, it's less than 2% of the revenue. So, about 1% of revenue for the year would be from the rest of the acquisitions; it's very small.

Good. So with that, we'll wrap up. I want to thank everybody for joining us today and for your questions. And, as always, we look forward to speaking with you again next quarter. Thanks, everybody.

Thank you. This concludes today's Cognizant Technology Solutions fourth quarter 2016 earnings conference call. You may now disconnect your lines.