Ladies and gentlemen, welcome to the Cognizant Technology Solutions second quarter 2017 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will 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, operator, and good morning, everyone. By now you should have received a copy of the earnings release for the company's second quarter 2017 results. If you have not, a copy is available on our website, cognizant.com. Additionally, we have loaded an investor presentation onto our website. This presentation covers the key points discussed on this 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 risks and uncertainties as described in the company's earnings release and other filings with the SEC, including our Form 10-Q filed later today. I would now like to turn the call over to Francisco D'Souza. Please go ahead, Francisco.

Good morning, everyone, and thank you for joining us today. Cognizant delivered strong second quarter results. Q2 revenue was $3.67 billion, which is at the high end of our guided range and up 8.9% year over year. Three of our four business segments were strong contributors to our performance. Healthcare, Products and Resources, and Communications, Media and Technology averaged double-digit growth rates. And our digital-related revenues continue to grow well above company average. Non-GAAP EPS for the quarter was $0.93. Our non-GAAP operating margin improved sequentially from 18.9% to 20%. In light of our strong first half results, we have raised the lower end of our full-year guidance range. We now expect full-year revenue to be in the range of $14.7 billion and $14.84 billion. And as we continue to invest in the business for growth, we expect our full-year 2017 non-GAAP operating margin to be at least 19.5%. We've now delivered two consecutive quarters of solid performance in 2017. This is a result of our strong and distinctive position in the marketplace and our ability to execute against the large opportunity in front of us. During recent earnings calls and investor conferences, we've discussed our plan to accelerate Cognizant's shift to digital services and solutions. As a reminder, the three elements of our plan are: one, to invest in and scale our digital practices to solve clients' current and emerging challenges; two, to continue to invest in our core business, which remains very relevant as we accelerate our shift to digital; and three, to implement our margin improvement and capital return programs. We believe our performance through the first half demonstrates the consistency of our execution against this plan. So this morning, I'd like to highlight our progress in helping clients achieve the full value of digitizing their entire…

Thanks, Frank. Like other members of our leadership team, I spend much of my time with our strategic clients. And I listen for new ways to add value to their businesses, including how to help speed their transformation journey. Our clients of course pay close attention to the rising expectations of their customers and the competitive moves of their peers, so they know how fast things are changing and how easy it is to be left behind if their business, operating, and technology models are not digital through and through. We're responding by investing in the build-out of repeatable industry-specific solutions that we can deploy across our practices. These platforms solve pressing problems and deliver measurable results. Frank talked about clients needing to digitize their entire enterprises, so let's look at a few examples of how they're deploying digital at scale. Many consumer product companies today are running to catch up to their retailers' new expectations for engaging customers. Retailers expect relevant product suggestions and self-service channels as well as speed and convenience when placing orders with their suppliers. In response, Cognizant has developed a next-gen sales platform that enables businesses to acquire and retain more customers and sell more product. Next-gen sales is built on our Onvida SaaS platform, which is a cloud-based and omni-channel. You may recall that Onvida also serves as the foundation for the physician and patient communication network of LifeBridge Health, a client I talked about last quarter. To create next-gen sales, we have integrated digital commerce, email marketing, account acquisition, and advanced analytics in one platform. Consider the impact of this platform on a large consumer products client. This organization needed to replace its traditional phone-based sales operation with a digital ordering and service platform, a true digital commerce and marketing portal. They also…

Thank you, Raj, and good morning, everyone. Q2 performance continued to be strong, and we made significant progress on each element of our overall plan. Second quarter revenue of $3.67 billion was at the high end of our guidance range and increased 8.9% year over year. We had a negative currency headwind that impacted year-over-year revenue growth by $35 million, or 100 basis points. Non-GAAP operating margin, which excludes stock-based compensation expense, acquisition-related expenses, and realignment charges, was 20%, and non-GAAP EPS was $0.93. In the second quarter, we continued to execute the $1.5 billion accelerated share repurchase program, with completion expected during the third quarter. And today we declared our second quarterly cash dividend of $0.15 per share for shareholders of record at the close of business on August 22. This dividend will be payable on August 31. Now let me discuss additional details of our financial performance. Consulting and technology services represented 58.7% of revenue, and outsourcing services 41.3% of revenue for the quarter. Consulting and technology services grew 11.4% year over year, driven by an increased demand for digital solutions. Outsourcing services revenue grew 5.6% from Q2 a year ago. The slower growth in outsourcing is largely attributable to the timing of the ramp-up of several client engagements and clients continuing to optimize their spend in certain areas such as application maintenance. We expect growth in our outsourcing services to improve in the second half, as projects ramp and demand in digital operations and infrastructure services remains strong. During the second quarter, 38% of our revenue came from fixed price contracts. We continue to make progress toward shifting the mix of our business over the longer term towards more fixed-price or managed services arrangements. We added seven strategic customers in the quarter, defined as those with the…

Our first question comes from the line of Brian Essex with Morgan Stanley. Please proceed with your question. Brian L. Essex - Morgan Stanley & Co. LLC: Good morning and thank you for taking the question. I was wondering if we could just touch on your outlook for the growth in the healthcare space briefly. Obviously, we've heard across the space that in light of the uncertainty around repeal/replace and the Affordable Healthcare Act (sic) [Affordable Care Act] that there's some hesitancy with regard to budgets. So I'm curious in terms of what you're seeing on the budget conversation side with your clients, how much is being held back versus how much is a recovery in pent-up spending demand. And then maybe as a follow-up, any pressure on the BPO or BPaaS side as a result of some of the larger payers pulling out of exchanges?

Hey, Brian, this is Raj. Look, I think when you look at healthcare, we've invested very heavily on our healthcare practice, and it's really created a differentiated offering which has positioned us well. And if you look at the entire practice, with what's happening with the healthcare ecosystems, with the providers, the payers, and the pharma, with all the collaboration that's going on there, and these are all big practices for us, so I think that we're positioned very well in healthcare. And in addition to that, we've talked about last year we had a couple large M&A transactions, and obviously with those going away, you see a lot of the pent-up demand. So there's still some uncertainty with what happens with the ACA. But overall, I think this year and going into next year with the position we are, we're well positioned. Regarding some of the BPO, we haven't seen any impact on that at all.

Thank you. Our next question comes from the line of Lisa Ellis with Alliance Bernstein. Please proceed with your question. Lisa Dejong Ellis - Sanford C. Bernstein & Co. LLC: Hi. Good morning, guys. Karen, this one is probably for you, just a question around the margin plan and your hiring plans. First, just relative to where you were six months ago when you put forward the margin plan, would you characterize the actions you've taken so far as going better than expected or in line with expected? And then a related question, you mentioned that the gross hiring in the quarter was 10,800 folks. Can you give a sense for the skill mix and locations of those folks and in particular whether they're coming in at a higher revenue per head level?

Sure, Lisa, so I think in terms of overall plans and margin trajectory, I think we're right on track. I think Q2 was a little stronger than we expected. Headcount came down a little faster than we thought and utilization came up a little bit faster than we thought it might, so I think that was positive as we get into the back half of the year, though obviously we'll have raises and promotions. And I would not expect head count to decline from here. It will actually start to tick back up as we continue to invest for growth and as we look forward to next year and what our plans are for growth there, so I think we reached a low point, at least for 2017 anyhow. In terms of the hiring, as you mentioned, we added 10,800 gross hires during the quarter. As has been the case for the last several quarters now, you're really seeing a shift mix towards more of the digital skills, higher-end consulting, designers, the data scientists, et cetera, folks who can support our infrastructure business, and then certainly the digital operations business as well, which is experiencing high growth rates. So it's really a mixture of those three sets of skill types. In terms of the onsite/offshore ratio, we haven't seen a significant change there. You'll see head count shifted a little bit onsite this quarter, but that was really mainly because of the decline in head count for the quarter. So from a hiring perspective, hiring hasn't really shifted from quarter to quarter.

Thank you. Our next question comes from the line of James Schneider with Goldman Sachs. Please proceed with your question. James Schneider - Goldman Sachs & Co. LLC: Good morning, thanks for taking my question. I was wondering if you could maybe just talk a little bit more about the financials vertical, obviously muted spending, conservative spending from the banks at this point. Maybe just talk about what you think gets them unstuck in terms of their discretionary spending plans and whether you have any visibility in terms of bookings, that that's actually going to happen before year-end.

Hi, Jim. This is Raj. So look, I think the overall financial services, I think if we look at the entire practice, obviously insurance continued doing well. Where the challenge is, is a little bit on the banking side. And as we talked about, regional banks are healthy, strong growth. Where we're challenged is on a couple of the large money-center banks. The good news here is obviously we're in a better position than I think we were at this time last year with them. But as we look out, they're still very much focused on the cost side and optimizing that, but we are, obviously, engaged with many of them on digital-type engagements. Now as these projects become larger scale enterprise initiatives, I think we're well positioned to benefit from that. But right now, that's our focus area right now in terms of continuing to invest and continuing to be well positioned for those large enterprise transformations.

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

Good morning and congratulations. A quick question, the TMG Health deal, is that in your guidance or not, and about how much would it contribute this year?

Ed, this is Karen. We have really not baked in any significant revenue from TMG. As you know, that deal still requires regulatory approval. So in the guidance, we did not bake anything in until we get a little bit more clarity – or anything significant until we get a little bit more clarity around the timing of those approvals.

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

Thanks, guys, just a question on the overall environment. First, what areas are showing strength versus the original plan? Obviously, we saw the lower end of guidance increase, and maybe you can hone in a little more on the healthcare financial side. But really when we think about – you're trending at about 10% growth year to date, year over year, and comps look like they get easier in the second half. So is there anything we should consider in terms of elements on guidance being conservative or any other factor that would cause a deceleration in the second half? Thanks, guys.

Why don't I take that, Darrin? It's Frank. I would say we've invested significantly, as you know, over the last years in building and realigning our business around these three practice areas that I talked about that cut across our business segments. And we think we're really well positioned right now to capture the emerging and evolving demand for digital solutions, so I think that's the core driver of our growth. As I said in my prepared comments, three out of our four business segments grew when taken together on average double digits, so strong growth. Financial Services was the only business segment that didn't have strong year-over-year growth. So we feel like we're well positioned. We feel like the solution set that we've been building with these three practice areas is resonating in the marketplace, and we're well positioned. I think as we look to the back half of the year, it's largely that that gave us the confidence to take the lower end of our guidance range up. But just to set the expectation, I would say given where we are in the year at this point, there's not that much time in our business. We don't have a lot of runway here to deliver above the high end of our range. So we think it's a prudent range that we've given you in the 9% to 10% range. I don't think there's a lot above that, but I feel very good about how we're positioned as I think about 2018 and beyond.

I think, Darrin, if I could just add to Frank's comments, if you look at Q3 and Q4, it's just for argument's sake you assume that we're in the middle of the range. I think you'll actually see the growth versus last year – growth rates in Q3 and Q4 would actually be higher than in 2016. So I don't think we're seeing a decelerating trend there.

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

Hi, guys, congrats on the solid results. I want to ask on the non-GAAP operating margin. It came in at 20% in 2Q 2017. I guess I'm curious. Why wouldn't that adjusted operating margin continue at or above that 20% level in the second half? Maybe it has to do with some of the raises and promotions, but I thought there would be some other offsets, but just curious on that. And then secondly, looking at the implied 4Q 2017 guidance, it looks like stronger than anticipated sequential revenue growth in that fourth quarter. What's driving that? Thanks so much.

So, Bryan, this is Karen. Let me take that. So margins in the back half of the year, there will be a couple of things that will happen. One is we will have raises and promotions kicking in later this year. The other thing, as we mentioned earlier, while we have not assumed a lot of revenue from the TMG contract, there are some ramp-up costs that are already starting to take place that will accelerate as we get into the back half of the year before the contract even moves over officially. And then obviously, we want to continue to invest for growth. So as we always have in the past, when we used to talk about a 19% to 20% range and that we would invest above that to continue to drive growth, the same story holds true this year. So as we think about what we need for next year and beyond to really continue to drive the digital transformation, we will continue to invest. As I mentioned, we would expect head count to certainly not decline any further and, if anything, will start to come back up a little bit as we get back into the back half of the year. So all of those will lead to some decline in margin essentially versus Q2. And as we said earlier, we remain committed to be at least 19.5% for the year and feel that we're very comfortably on track for the 22% in 2019. As it relates to Q4 revenue, I think certainly we are seeing some good growth as we get into the back half of the year. The pipeline continues to be strong. We're seeing a nice recovery in the healthcare practice. So I think we're certainly shaping up for a very nice Q3 and Q4 as we get into the back half of the year.

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

Thanks, good morning, nice quarter. Karen, how much inorganic growth is factored in that 9% to 10% number for the year? And then just in general, I think, Raj, you spoke about a couple of large banks that are maybe a bit weaker in terms of performance. Are they predominantly Europe-based, European, maybe some color on that? Thanks.

Sure, Moshe, I'll take the first part of that and turn it over to Raj for the BFS question. We have not baked any incremental inorganic revenue into our guidance for the remainder of the year. And obviously, we've done a couple of very small deals this year, but nothing that's material in the current run rate either, so the 9% to 10% is essentially organic revenue.

Moshe, the large money central banks obviously have both a European and U.S. presence. So I think you're seeing softness there because of the discretionary work not kicking in as fast as we would like it. Now again, like I said, we're engaged in a lot of the digital initial work with those banks. And as these banks continue to get healthier, I would expect that you would start seeing some more of the enterprise transformation initiatives that we're expecting. And I think we're well positioned. If you look at it from the business to the operations to the technology layers, I think there are very few companies that can help these banks. And so that's obviously areas that we're investing in, and we're hopeful for future growth as they get healthier.

Thank you. Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question.

Thank you, nice results here. Just – I think it's smart to not include TMG Health, I'm just curious about the BPaaS pipeline. How does that look today? How active is it? And then on TriZetto cloud, will you actively mine your legacy accounts to convert them to cloud? Is there any way to size the impact of this potential work if you flip the whole portfolio to cloud? Thanks.

Hi, Tien-Tsin. It's Frank. Let me try to take that. Look, the BPaaS pipeline is really healthy right now. We feel very, very good about the TriZetto BPaaS, the healthcare BPaaS opportunities. Obviously, TMG Health is part of a relationship, BPaaS relationship that we are building with TMG's parent, HCSC. And so that's just one example that we feel good about where we are with healthcare BPaaS. And I think that it's fair to say that our strong performance – part of our strong performance in healthcare this second quarter and going forward is the result of the investments that we've made in the scaling up of our BPaaS offerings, so good traction there. As I said in my prepared remarks, the healthcare cloud, the TriZetto Healthcare Cloud that we launched on Microsoft Azure, it's still early days. We have 300 active TriZetto clients that we could migrate over. We absolutely will go back to them and work with them on the migration. And as I said, the economics will generally be a one-time revenue opportunity for us to migrate but then an ongoing revenue opportunity for us to manage, maintain, monitor, upgrade, support those implementations once they're in our cloud. And then of course, there's an additional opportunity beyond that, which is converting them to our full BPaaS offering once they're on our cloud, so I think it's a multi-layer opportunity. Given that the 300 clients range from small health plans all the way up to the very biggest health plans, each individual opportunity I think is quite different and varied in size. And so I'm not going to give you an overall opportunity, but 300 clients and I think multi-layers of the opportunity as I look over multiple years.

Thank you. Our next question comes from the line of Bryan Bergin with Cowen & Company. Please proceed with your question. Bryan C. Bergin - Cowen & Co. LLC: Hi, good morning. Thank you. Just on automation, can you give us an update on your automation investments and your progress there? Any quantitative details you could also share, whether it's level of FT (47:38) savings or just client-based implementations? Thanks.

It's Frank. I would say that we continue to push forward actively across many areas of the business in looking at applying advanced automation. And I would just remind you that historically, we've always had a practice of automating in our businesses, in our practices. So my comments here are related specifically to what I think of as advanced automation that makes use of new technologies like robotic process automation and artificial intelligence and machine learning and so on and so forth. We gave you a few examples during our prepared remarks in our Digital Operations business. We have several clients. We have a proprietary Cognizant technology that came to us as part of the TriZetto acquisition, which we've now expanded, not just to serve healthcare clients but to serve a broad range of clients. That combined with the work we're doing with third-party automation providers, we now have hundreds of thousands of – we process hundreds of thousands of transactions across many clients. But we're not stopping there. We are working to automate in our Digital Systems & Technology business, particularly infrastructure, application value management, quality engineering services. All of these are opportunities for us to automate, and we continue to do that. So that's the second part of it. The third part of it is that as we're building out industry solutions, as Raj spoke about, we often find that, for example, in the digital automation fabric that Raj mentioned, machine learning and artificial intelligence are important components there as well. So across the business, we continue to push forward very hard in automation. It's hard to give you quantitative numbers. We're seeing automation benefits anywhere from 10%, 20% productivity to 30% productivity. There's a wide range in there. And I think we'll continue to see those benefits as the impact of automation broadens across the business. And I think that's part of the reason that we will continue to drive utilization higher as we automate more.

Thank you. Our next question comes from the line of Ramsey El-Assal with Jefferies. Please proceed with your question.

Hi, good morning. Thanks for taking my question. This is Damian Wille on for Ramsey. I'm hoping you can help us frame how much of your digital sales come from cross-sell versus signing a new logo. And along the same lines, if you could speak to how much of the digital cross-sales you think of as a push from you or a pull from the client. Thanks.

Hi, Damian, it's Frank. Let me try to address that. I would say just it has been historically been Cognizant's pattern that in any period – month, quarter, year – the vast majority of our revenues come from cross-sell to existing clients. The foundation of our business model, as you know, is serving a small number of clients, serving them very deeply, building multiyear-long relationships with our clients. So that continues to be the case with digital. I would remind you that core to our competitive advantage in digital is this notion that we're able to use the knowledge that we have of our clients' technology environments, our clients' operating model to help them as they look at transforming their business model. And so our perspective on digital is this transformation of the business model, the operating model, and the technology model simultaneously. That's really where we feel we have a really strong core competitive advantage, and that advantage is strongest where we have existing relationships. And we've had a long history of serving the client and understand their technology and operating models in detail. So I would say that a significant portion, certainly the majority of our digital revenue comes from cross-selling to existing clients.

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

Hi, good morning. Thanks for taking my call. I was wondering if you could comment on sustainability of onsite utilization rates at this level if hiring picks up again and if shift to digital drives shorter project durations and potentially a higher onsite mix. Thanks.

So, Joseph, this is Karen. I'll talk about that, and obviously Raj and Frank can chime in. But running at 93%, where we were for Q2, is fine. Onsite utilization, as long as it doesn't get above say 95%, is absolutely fine. We can continue to grow at the pace at which we expect to continue to invest in the business. So while it certainly came up from Q1 over the last couple of quarters, utilization has ticked down both onsite and offshore. So bringing it back up into a 93% – 94% range is very comfortable for us and we can continue to invest and drive the growth that we want.

I have nothing to add to that, Joe. We could say that as we continue the process of building out regional centers in the U.S. as opposed to our historical model where folks have been more onsite in our client locations, I think that that will help drive utilization actually higher, because when we have people in a physical location, our ability to redeploy them across clients and so on and so forth, the project then becomes higher. Now that's a longer-term trend. Our journey of building out regional centers is well underway, but we have some ways to go on that. So I think as regional centers become a greater portion of our overall onsite workforce, I think that will be a contributor to being able to take onsite utilization up higher. And I think, operator, we have time for one more question.

Yes, our final question will come from the line of Arvind Ramnani with KeyBanc Capital Markets. Please proceed with your question.

Hey, guys, congrats and thanks for fitting me in. So it looks like these digital projects are certainly gaining scale and clients clearly value your consulting and advisory services. Can you talk a little bit more about your consulting capabilities and how you're looking to scale at onsite hiring and leveraging consultants on management? And part two of that question is the impact on margins by hiring more onsite consultants.

Let me try to address that. So first just the data, as said in my prepared remarks, consulting is now just shy of 6,000 people. It has been a focus of ours for more than a decade. We continue to grow it. Our consulting capability is – I would say in the last few years we've really, really focused it and emphasized the vertical aspect of consulting very, very hard. So I think our 6,000 consultants, the vast majority of them are deep domain experts in the industries where Cognizant is strong. And increasingly now the work they do is very focused on digital transformation and leading various aspects of our clients' digital transformations. We will continue to grow, and we will continue to scale Consulting. We remain very committed to that business. You're absolutely right. The Consulting team is becoming a more and more integral part of our client account management teams as they build long-term relationships with clients beyond the technology organizations, and so that's a trend that we view as positive and will continue. And then in terms of margin impact, I think proportionately I don't see Consulting growing dramatically as an overall part of the total company revenue, so I don't think that it has a meaningful margin impact one way or the other. We continue to be very comfortable with our ability to grow that part of the business and still maintain our overall margin goals as we think about 2018 and 2019.

And so with that, I'll wrap up. I'd like to thank everybody for joining us today and for your questions, and we look forward to talking with all of you again next quarter. Thank you.

Thank you. This concludes today's Cognizant Technology Solutions second quarter 2017 earnings call. You may now disconnect.