Cognizant Technology Solutions Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: Strong Q2 performance delivered 7.2% YoY revenue growth to $5.2 B, 15.6% adjusted operating margin (+40 bps YoY), and 18% YoY bookings growth including six $100 M+ deals and two ~$1 B mega deals.
  • Positive Sentiment: AI momentum accelerated with 2,500+ early Gen AI client engagements (vs 1,400 in Q1), ~30% of code AI-generated (up from 20%), and the launch of Cognizant Agent Foundry for enterprise-scale agentic AI.
  • Positive Sentiment: Key innovation partnerships and product launches include Cognizant Autonomous Customer Engagement with Google Cloud, a biopharma IT outsourcing deal powered by agentic AI, a new Rytr collaboration, and major TriZetto cloud migration and AI gateway milestones.
  • Positive Sentiment: For full-year 2025, management raised guidance to 4–6% constant-currency revenue growth, expects 15.5–15.7% margin expansion, ~100% free cash flow conversion, and increased capital returns to $2 B ($1.4 B buybacks, $600 M dividends).
  • Negative Sentiment: Regulatory headwinds from the U.S. budget bill changes and Medicaid reimbursement shifts may weigh on near-term discretionary IT spend in healthcare payers and providers.
AI Generated. May Contain Errors.
Earnings Conference Call
Cognizant Technology Solutions Q2 2025
00:00 / 00:00

Transcript Sections

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Operator

Ladies and gentlemen, welcome to the Cognizant Technology Solutions Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. I would now like to turn the conference over to Mr. Tyler Scott, Vice President, Investor Relations. Please go ahead, sir.

Tyler Scott
Tyler Scott
VP of Investor Relations at Cognizant Technology Solutions

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 risk 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.

Tyler Scott
Tyler Scott
VP of Investor Relations at Cognizant Technology Solutions

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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

The 3-Vector AI opportunity we have laid out in 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 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's 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%.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

During the quarter, we landed six large deals with a TCV of $100 million or greater, including two mega deals, each valued around $1 billion. As a result of these wins, the TCV 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 basis points-40 basis points margin expansion goal for 2025. Headcount grew about 2% sequentially, led by the 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 two and a half years to sharpen our innovation engine and develop our capabilities through investments in AI engineering and our platform strategy.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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 one. Nearly 30% of our code was AI-generated in quarter two, significantly improving the productivity of our developers. This compares to only approximately 20% when we first disclosed this estimate two quarters ago. 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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 two mega deals we won in quarter two. 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 our client base of nearly 360 key accounts, 97% of clients have adopted AI, of which 56% are scaling GenAI, and out of which 78% have demonstrated impact from the adoption and scaling. We are 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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 remain 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 is powered by our Neuro AI suite and a strong AI Partner Ecosystem with hundreds of distinctive agents already available for use. It spans industries and platforms with domain-specific small language models, agent templates, and a library of pre-built agents supporting the full agent lifecycle.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

As enterprises reimagine their process 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 clients' 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Working with trailblazers in tech, healthcare, 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. Thirdly, 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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 our 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

We recently won new business to deliver third-party administration services for a leading insurer's closed book of annuities business. What makes me particularly excited about this strategic agreement is the next-generation AI platform we'll build to not only modernize the portfolio but also the opportunity for us to scale this AI platform to other clients in the future. Finally, we delivered key TriZetto milestones in quarter two. In May, we completed what we believe is the largest TriZetto Facets cloud migration with a leading North American healthcare 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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've described today and at our Investor Day earlier this year, we are positioning Cognizant for the Generative and Agentic AI future. 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' work, 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Our three 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. The way Cognizant is responding is different as well. 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 accuracy of the models, reasoning layers to help make the technology responsible, and investments into the evolving agent development life cycles.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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. I call this new layer IP on the edge, a working description in the evolving transitionary phase of Agentic AI. Our IP on the edge progress is a very important differentiator in a fragmented and a heterogeneous market of AI builders. We believe our early investments in AI led by IP on the edge are scaled interdisciplinary capability. Our partnerships, our 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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's 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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

This has 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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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 CapEx investments. 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 Communications Sector in Q2. The partnership encompasses both GenAI-driven productivity transformation and a good mix of new business through the contract duration. For our client, 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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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 the public sector. We are pleased with our momentum in the region, supported by new logos and a revamped sales strategy that has led to an improved large deal pipeline. 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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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. DSO of 83 days increased by two days sequentially and by three 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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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'll 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, therefore increasing our capital available to return to shareholders.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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%-15.7%, or 20 basis points-40 basis points of expansion. We expect margin expansion will be driven by cost discipline and SG&A operation. In parallel, we are driving continued operational rigor through AI-led automation and pyramid optimization to support gross margins over the medium. As a reminder, the second half of the year will include margin investments in large deals and a merit cycle. Due to cash flow benefit from the U.S.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

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%-25% but is trending towards the lower end of the range based on first-half performance.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

We are increasing our EPS guidance range to $5.08-$5.22, compared to our prior range of $4.98-$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.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator

In the interest of time, we ask that you limit yourself to one question and one follow-up. One moment, please, while we poll for questions. The first question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.

Tien-Tsin Huang
Tien-Tsin Huang
Analyst at JPMorgan

Thanks so much. Good afternoon. 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. It sounds like you're seeing early renewals with clients looking to implement AI efficiencies. I just wanted to clarify that because we're all looking ahead and thinking about the pipeline. I'm curious if you can replenish the pipeline and what's your outlook for bookings in the second half of the year.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Yes, Tien-Tsin, thank you for the question. This is Ravi here, and I'll ask Jatin to add.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

We had a good bookings mix, 18% YoY, 6% trailing 12 months. Good mix of renewals and new business. Six large deals, two mega deals, more than $1 billion. I wouldn't say clients are proactively pushing and renewing earlier. There are occasional opportunities of that kind. I would equally say that clients are looking for sharing productivity when the renewal cycles come. If we see an opportunity where we can sole-source and originate a deal, even if we are an incumbent because we can actually share the benefit and create a bigger estate for ourselves, we are actually proactively reaching out to clients wherever we can if we have the ability to create that value for the client and for ourselves. One of the things in the last few quarters, Tien-Tsin, was mostly large deals, and momentum was related to productivity, consolidation, and AI-led productivity.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Now we are starting to see innovation-led deals. I call them Vector 2 and Vector 3. We're starting to see innovation-led deals, which is very encouraging because that is new spend cycles for our clients, and it kind of aligns to growth imperatives of our clients. This is the first quarter where we've seen a combination of large deals, small deals. Our ACV numbers are going up, which is very, very exciting because the monetization of billings to revenue will be faster. It's gone up sequentially, gone up YoY. Combination of renewals and new, small and big, the big mega deals have sustained the momentum, and we're now seeing productivity and innovation both layering together. It's probably one of the most healthy mixes of how I see bookings shaping up. Hopefully it continues that way for the rest of the year.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Tien-Tsin, as we look at pipeline, we continue to feel good about what we have and how we are shaping the pipeline. 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.

Tien-Tsin Huang
Tien-Tsin Huang
Analyst at JPMorgan

Great. No, it's interesting. Good covered. Thank you for that. 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, there's contract execution, so these deals are coming on. Any considerations for gross margin as we look to the second half of the year? Thank you for the time.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

We will continue to execute well. If you see our utilization for first half is approximately 2 percentage points higher than the first half of 2024. We are doing some investments as we execute the second half.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

You saw that the headcount has actually gone up by 7,500 employees. 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 two of them in quarter two. 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 have done slight improvement sequentially. We'll continue to work on this path as we move forward.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Those two mega deals have sizable new component, new business component.

Tien-Tsin Huang
Tien-Tsin Huang
Analyst at JPMorgan

Understood. Thank you.

Operator

Thank you. Our next question comes from James Faucette with Morgan Stanley. Please go ahead. Great.

James Faucette
James Faucette
Analyst at Morgan Stanley

Thank you so much. Appreciate all the details here. 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 the 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 the IP Cognizant's developing this unique to it and how to think about its impact on the business, both from a pricing as well as business opportunity standpoint.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Yeah, that's a great question. For the first time, we have an opportunity to really make it mainstream, outcome-based. This is an evolving space. The differentiation for the IT services sector, and I've mentioned this in my remarks. It is no longer about just building capability. It's actually about interdisciplinary capability layered with IP on the edge, as I call it. IP on the edge because this is last-mile infrastructure needed to get enterprise-grade AI or Agentic. We have invested heavily on sensing them and converting them into platforms, tools, and reusable agent components in our foundry. It certainly gives us the opportunity to make it sticky as well as to create some premium attached to it. Early days, but I'm very optimistic. I'm very pleased and I'm very optimistic about the fact that we have created a real differentiation for ourselves. The real opportunity now is to continue building on it.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

I mean, we are starting to think about small language models. We're starting to think about areas where when you hit the finishing line, you need things which are not going to be available either by software companies or by the companies which are establishing the plumbing, which is like, how does an application, how does an agent development cycle look like? We are investing into it. We are investing into, you know, for the first time, there is a revolutionary technology which is now going to disrupt every process, every workflow, every data flow in a company. How do we create the ontology around it and package it into the things we can hand over to our project teams so that that becomes real? This is fast evolving. I'm excited about how we could price it, how we could bundle it. This is very different from productivity.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Productivity, you share it with clients. While innovation capital, you can monetize in a linear way. We will continue to invest and continue to shape this narrative. I think this is going to be our single biggest differentiator as we take our customers into agentic journeys. What's also happening, I did mention this in my remarks, this is not just about agentifying a process or a function in a company. In addition to that, it's also our opportunity to run that process on behalf of the company, which then means there is a new spend area which we are going to capture. That's why I said the total addressable spend is higher than before. I mean, there are things we just applied technology and allowed our clients to run that.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Now clients are saying, wait a minute, if there's digital labor and human labor and they're going to come together, say, for a customer care function, are you better suited to run the customer care function? Which means the pie is going to increase because it's not just the technology, but we have to run the process. We have to run that function on behalf of a company. We are starting to think about how do we pitch to clients on process functions, which are available for a partner to come and run it on their behalf with digital and human labor. Higher addressable spend, elasticity to pricing, and the ability to capture new talent pools, new spend pools. Of course, the talent we need is going to be interdisciplinary between domain and technology. We're seeing some good, exciting examples with our partnerships with our clients.

James Faucette
James Faucette
Analyst at Morgan Stanley

That's great. I want 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.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Sure. James, we covered two 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. For 2025, we have 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 is towards dividend. That leaves us approximately with about $500 million for M&A for this year.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

We have a decent pipeline to think about it in the second half of the year. Now, let me touch about 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.

James Faucette
James Faucette
Analyst at Morgan Stanley

That's great. Thanks very much, guys. Have a good day.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Thank you.

Operator

Thank you. Our next question comes from the line of Jonathan Lee from Guggenheim Partners. Please go ahead.

Jonathan Lee
Analyst at Guggenheim Partners

Great. Thanks for taking my question. 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?

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Thank you for that question. Really, where we land in quarter four is a factor of quarter three performance and quarter four performance and nearly half of the year to go. Really, as a range. Given the current uncertainty, it's a wide range today. At the lowest end, it's a negative number. At midpoint, we see that exit number around 1%. At the upper end, that is just under 4%. We have flexibility within the range to execute, and we believe we'll continue to execute within that range in the way we have done so far. It's a wide range, and we are not, I mean, we always mention that we are anchored around the midpoint of our guidance, but we always endeavor, of course, to do our best as we execute during the course of the year.

Jonathan Lee
Analyst at Guggenheim Partners

I appreciate that insight. 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?

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Yeah. Look, you know, we've had Financial Services doing pretty well. This is the fourth consecutive quarter we have. We've been able to do YoY growth in almost the whole year. We have actually three 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. Whenever you unlock innovation dollars, you know, it's related to revenue, related to growth. It's always exciting. I see healthcare as an opportunity.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

I mean, as we talk, there is just a hot out of the press, make American healthcare technology great again. That opportunity is all about applying technology to reduce the operational overhead, overhang on that sector. It's been a sector which hasn't as much embraced technology, and it has been fragmented all the way from payer providers and pharmacies. We see that as a sector where we have strength as well. We're going to see that. This is also the first time over the last few quarters our comms and technology sector has gone into a positive zone. We are starting to improve in products and resources. Effectively, you know, if you see the performance of this quarter, it's been an all-round performance. Including our geo-based, if you double-click on our geo, even if you take the Belcan numbers out, all three geographies, Asia-Pacific, Europe, and the U.S., U.S.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

on a big base. I mean, amongst our peers, if you look at it, we are doing significantly well in the U.S. It is reflective of. An all-round performance, an all-weather company, a durable and a more sustainable momentum for us. I'm optimistic about all-round, continued all-round performance as we go forward into the second half.

Jonathan Lee
Analyst at Guggenheim Partners

Thanks for that call, Ravi.

Operator

Thank you. Our next question comes from the line of Jamie Friedman with SIG. Please go ahead.

Jamie Friedman
Analyst at SIG

Thank you for taking the questions. Ravi, if you go back to the 3-Vector approach that you've articulated, enabling hyper-productivity was 1, industrializing AI was 2, agentifying the enterprise is 3.

Jamie Friedman
Analyst at SIG

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 had described was that it's now for all of them. Are any of those ahead of the others?

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Great question. Of course, the Vector 1 is significantly ahead of the other two. It is timed in a way that we are in an uncertain market, slow market. Clients are looking for value. Some clients are underwriting those savings for innovation. Vector 1 has been, I mean, look, we did 29 large deals last year. We did 17 in 2023. We've been on this journey for a while, and we've been doing very well on it.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

On productivity, which we commit to our clients, we have been able to deliver as well as keep the savings what we can for ourselves. I'm doing very well on bid versus bid and productivity. We have today, just today, we ran this huge event in Cognizant to get everybody onto Code Assist platforms. Productivity is probably ahead of the other two. On the second and third, they're interlinked. They're interlinked because you do the second to lay the foundation for the third. I'm actually surprised that the third is catching so much momentum. I wouldn't have said this a quarter ago, but so much momentum. Customer care, F&A, Financial Services as an industry, healthcare. Now our healthcare TriZetto platform has agents which our clients are trying to embrace.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Agentification of an enterprise, not looking at agentification as the purpose, but looking at reducing elapsed times or increasing throughput or straight-through processing or a completely new experience. Clients are experimenting. Just see the numbers. 1,400 projects we had last quarter. That number was incrementally moving. This quarter, we are at 2,500 projects. It's suddenly almost close to double. I would say stable. On a runway, Vector 1 and Vector 2 and Vector 3 is trying to catch up like a hockey stick now. I mean, that's the right, you know, I always expected it that way. More spend will happen, more unlock of dollars will happen. When that happens, the excitement of using AI for growth, using AI for creating new products and new services will drive additional spend cycles which we want to capture, additional labor pools and additional spend cycles.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

The runway on productivity will start to slow down and the runway on innovation will start to take off.

Jamie Friedman
Analyst at SIG

For my follow-up, this time last year, you used to talk about the swim lane of cost takeout. That was and remained the theme. This time, though, you're mentioning 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Part of it also gets to cost in the second cycle, the Vector 2 and 3, even if it's innovation-led. I mean, productivity, the way I defined it was software development cycles. That's how I defined it. We went from 20 to 30%, ridden by machines.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

The way I define innovation is even if you're doing it to reduce the cycle time, you're doing it to reduce operational cost, but you're doing it in an innovative way. I'll give you examples. Say if you go to a bank and say, you know, I can reduce your know your customer cycle to two days or one day versus four or five days using Agentic. You could arguably say better experience, higher throughput, faster velocity, which is also reduced costs. Clients are looking at some of that, which is self-served, if I may. I mean, we announced a deal on customer care, which is for a logistics company called Lineage. That was a combination of things, experience, cost, everything put together, but it's Agentic. There is still runway on productivity because productivity has only got to 30%. I mean, 30% is average.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

I have myself said that writing code from machines could be 50% in one year. I've said this before in some of my podcasts, and that is true. That is catching up. I think there is headroom there. There is non-linearity there. My excitement is more about the innovation side of it because as. Enterprises start to see the value, they will flip to newer products, newer services, growth, and using Agentic to get there.

Jamie Friedman
Analyst at SIG

Thank you.

Operator

Thank you. The next question comes from Bryan Bergin with TD Cowen. Please go ahead.

Bryan Bergin
Bryan Bergin
Analyst at TD Cowen

Hi guys. Thanks for taking the question. Wanted to ask on the healthcare headwinds versus potential offsets here. 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?

Bryan Bergin
Bryan Bergin
Analyst at TD Cowen

Any commentary on how you see healthcare moving through the second half of this year? Where are the offsets in the business if there are incremental headwinds?

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

I don't see, I mean, the way I see this is our exposure to Medicaid and Medicare is not a lot, right? We have a lot of commercial healthcare, a lot of payer business and provider business. Of course, we also have a fairly big exposure to Life Sciences. Life Sciences is actually spending more than before. They will take the money from productivity and move it to innovation because innovation cycles are going to be run by technology and Life Sciences. In healthcare, United States, it's predominantly United States. Almost all the problems you can talk about are related to productivity, related to outcomes. Based on what I know, technology is the only way you can come out of it.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

I would categorize healthcare as an opportunity of winning in the turns, more productivity-led, because that is the need of the hour. It will not be as much innovation like I spoke in my previous thing. I would categorize that opportunity as, I mean, one of the deals we did, one of the billion-dollar deals we did was a healthcare company. They did because they wanted to unlock the productivity from AI-led transformation. We've been able to create a win-win situation. I'm going to see more of those opportunities in healthcare versus Financial Services, which will be more innovation-led.

Bryan Bergin
Bryan Bergin
Analyst at TD Cowen

Okay, understood. Ravi, just a question for you as it relates to the convergence of IT services and BPM. There's obviously a deal announced here recently in the space.

Bryan Bergin
Bryan Bergin
Analyst at TD Cowen

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 that deep domain expertise and broader process depth as you talk about. Digitizing and gentrifying client operations and then running them?

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Great question again. I mean, look, you know, originally everybody thought applying AI to operations will be the first thing to do. Sequentially, the way this shaped up is we first applied it to software development cycles. Now the lens is on operations. I would actually believe that operations, data, AI, Agentic, they're all going to come together. The companies which have technology provis can go and disrupt existing portfolios. The convergence of all of them and the application of Agentic to operations of companies is a unique opportunity.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

The way to go about that opportunity is, can you actually grow faster than what it cannibalizes? If you look at our BPO portfolio, a large part of it is also related to what we cater to digital natives. In fact, today we announced a service called Cognizant AI Training Data Services. This is AI algorithms and machine learning algorithms we were training for years. We have 10,000 people doing that. Now look at the unique opportunity. I can actually flip it around and take it to Fortune 500 and the Global 2000, who are now building AI models. We could create a unique differentiation because we are one of the largest players in that space. There are opportunities. You could almost argue that there are some things in BPO which will completely get commoditized and completely get automated.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

It will lead to a new set of things which you can add back, which is new labor pools. I actually see BPO as a headless transformation opportunity with Agentic and AI in the middle. We are anchoring a lot of our deals using this as a key strength.

Operator

Thank you. Our next question comes from the line of Amit Daryanani with Evercore ISI. Please go ahead.

Amit Daryanani
Amit Daryanani
Analyst at Evercore ISI

Thanks for answering my question. Yes, maybe to start with your headcount, I think was up on a year-over-year basis for the first time in about eight quarters. As you look into the back half of the year, can you just talk about how should we think about headcount growth and can the utilization rate actually sustain the 85% range, or is there potential for that to dip down?

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Yeah, hi, Amit. We will, you know, this represents the hiring that we do during this time of the year of recent college graduates, and that has reflected in the increase of 7,500 compared to quarter one. You will see some increase also in. Second half of the year, but it won't be large increases as we will continue to double down on the AI-led productivity and how do we do more with less. It will be a combination. On one hand, we will infuse more college recent graduates as part of our talent pool, and on the other hand, try and get the best out of what we can do with AI-led productivity. You would see some increases, but it won't be large numbers.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

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

Amit Daryanani
Amit Daryanani
Analyst at Evercore ISI

Perfect, thank you. If I go back to the bookings growth, I think bookings were up like 18%. Clearly, the industry is not growing at that rate. It is fair to assume that you folks are picking up a good bit of market share over here. I'm curious, what do you attribute these share gains to?

Amit Daryanani
Amit Daryanani
Analyst at Evercore ISI

Are these share gains coming at potentially a lower margin point, at least initially, versus what you traditionally get?

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Jatin, you can jump in. Look, we have been, we have won them competitively. These are deals which we rightly priced. We know we'll hit the margin numbers we targeted for. In fact, the 29 last year and the 17 the year before, we have now got a template in place, which we are therefore getting stronger and stronger. Our win rates have significantly increased. We are able to sole-source and originate new deals. In fact, one of the deals we did was a deal we originated, the billion-dollar deal. One of them we originated it ourselves. It didn't exist.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Our ability to take this to the market in an agile way and our ability to call it out where we think we can, we have been super sleek in the market to make that value proposition to our clients who see this as a win-win. This quarter, as I said earlier, it's been a fairly good mix, new business, higher ACV, 18% YoY TCV, good mix of small and large deals, renewables and new, and innovation and productivity-led. I mean, you know, I've kind of used innovation more often in this quarter than before because we've really seen more traction attached to it. I mean, I'm kind of encouraged by the spread and the distribution across industries and geographies as well.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

Amit, you are aware that we have been consistently winning, and Ravi referred to that 17 deals in 2023 and then 29 in 2024.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

This year also started with very healthy numbers with three mega deals that we have won since the beginning of the year. In 2024 as well as in 2025, we have guided for a 22, I mean, now in 2025, we are guided to 20 basis point-40 basis point margin expansion. For the first half of this year, we have delivered 40 basis point higher. This stream, the point I'm trying to make is these large deals are now mainstream, part of our business. We are able to execute the investment in this deal with the overall cost discipline in the organization to overall, you know, give out the outcomes which are on aggregate, accretive, and margin which is expanding.

Jatin Dalal
Jatin Dalal
CFO at Cognizant Technology Solutions

As per, you know, with everything that Ravi spoke about, you know, we have a bid versus bid, we have a tight governance on how we execute and so on and so forth.

Operator

Thank you. Our last question for today comes from the line of Surinder Thind with Jefferies. Please go ahead.

Surinder Thind
Surinder Thind
Analyst at Jefferies

Thank you. When I think about all of the commentary on innovation spend, I guess is that code for saying that, you know, clients are getting more comfortable with the discretionary spend component? 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? It seems like every month, every few weeks, every quarter, we're seeing pretty big advances in the frontier models.

Surinder Thind
Surinder Thind
Analyst at Jefferies

I just want to understand that 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.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

Yeah, Surinder, you know, I kind of use the word innovation, but I would actually frame it as innovation-led process change, right? I mean, as I said, you want to go to a bank and do a process and know your customer in a lesser time, better experience, and with lower cost. It is not as much as cost, but it is also because some of these processes have not been disrupted for a very, very long time. Right now, they have all started to look at this technology to go and revisit how to change. Like what happened when the internet came, sales and marketing changed forever. Now there is a unique opportunity to change that.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

The opportunity is not just about going and applying AI or going and applying Agentic. The opportunity is also to service that labor pool as a part of an opportunity where a customer is willing to outsource it now while they didn't do it in the past because there is digital and human labor attached to it. We've been thoughtful about going and finding those kind of opportunities. I mean, customer care is probably the best example. Customer care, nobody's wanting to do it, you know, go through the identification to just reduce cost. They're going through the identification to improve experience and to also create more real-time access to, I mean, more real-time leverage to their end consumers. The way I see it is to do all of this, I mean, you spoke about frontier models, to do all of this, the frontier models by itself can't do anything.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

They will need to be layered with a lot of things. They'll have to be layered with a data flow strategy. How are you going to change the workflows? How do you build context engineering? I spoke about context engineering in some of my public posts before. How do you weave tribal knowledge and context of an enterprise? All of this is a role of a system integrator. I'm starting to see, you know, I'm now starting to see even application, even agent development life cycles, which are very different to software development cycles. Agent development life cycle is about scoping for outcomes, not scoping for a spec. Scope, you know, behavioral design of agents. Scaling agents, deploying agents. Maintenance in software is different from maintenance in agents. You have to supervise agents even during maintenance. That whole cycle has changed.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

We have reinvented the process of building that IP on the edge methodology, sensing what labor pools will be ready for it with the limited discretionary which is there. As discretionary goes up, the other possibilities will change. As discretionary is available, you will have to, you know, route it to the right places. In Financial Services, it's much more open. We're seeing more of it. In other sectors, it is less. That unlock will happen. It is bound to happen, and the value has to shift to the front end where the system integrators will anchor it.

Surinder Thind
Surinder Thind
Analyst at Jefferies

That's actually quite helpful. Since you brought this up with the frontier models, a few weeks ago, OpenAI announced that they're willing to do certain consulting services if you're willing to spend at least $10 million with them.

Surinder Thind
Surinder Thind
Analyst at Jefferies

Is that something that we should consider or that you consider from a competitive perspective, that they're starting to get into the services game here? How should we take that news?

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

It's very complicated for just a technology company which owns a frontier model to go and implement a business process change, which is a combination of domain, operations, and system integration. I spoke about the layers. In addition to the frontier model, which you need to make the technology work in context to an enterprise, you could draw parallels to customization in an enterprise. When traditional software requires customization, you could draw the parallel to context engineering, data flows, workflows, and all of that. You have to walk the corridors of the clients to know how that is done in a company and how it could be done now. It's a combination of technology, ops, and domain.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

There is no way you can actually deliver those services without that unless you believe that the frontier model companies want to be in the services business. As I said, my services business is not just about capability. My services business is also to build these layers. As I said before, there are companies which are plumbing in AI, there are companies which are going to build in AI, and we want to be that AI builder company. Over a period of time, maybe a couple of good big products integrated will show up at that point of time, and the role of a system integrator might change. Or maybe we will own so much IP by then that we will continue to monetize it. IP on the edge is a real differentiator and a real thing needed in the AI era.

Ravi Kumar
Ravi Kumar
CEO at Cognizant Technology Solutions

We are actually using some of our capital to invest into it.

Surinder Thind
Surinder Thind
Analyst at Jefferies

Thank you, Ravi. That's very, very helpful.

Surinder Thind
Surinder Thind
Analyst at Jefferies

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

Executives
    • Tyler Scott
      Tyler Scott
      VP of Investor Relations
    • Ravi Kumar
      Ravi Kumar
      CEO
    • Jatin Dalal
      Jatin Dalal
      CFO
Analysts
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