A little discombobulated because they took my drink I left up here. Thanks for joining us this afternoon. My name is James Faucette, Senior IT Services Analyst here at Morgan Stanley, I'm very pleased to have Jatin Dalal, CFO of Cognizant that'll be chatting with us this afternoon. Before we get started, I do have a quick disclosure to read. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. Thanks for being here today. Really appreciate you guys making the trip. Always excited to hear kinda what's happening with Cognizant. Certainly, there's been a lot of work underway for a few years, with the management team very focused on AI development, et cetera. You know, maybe to start, why don't you give us a little bit of a preamble. Talk about how you put together your outlook for calendar year 2026, and how you're thinking about organic growth generally. Sure. James, thank you very much for having us. Wonderful to be here with meeting all the investors. Let me start with our, you know, the whole assumption around guidance range. As you know, we guided 4%- 6.5% total growth for 2026, of which inorganic contribution is roughly 150 basis points, of which 100 is done and 50 to go. Now at the midpoint of our guidance range, we assume that the environment continues to be what it was at the time of giving the guidance. At the upper end, we expected the guide, you know, the environment to improve during the course of 2026. Clearly at the bottom end, we have assumed that if environment falls off from where we started and that could be the lower range. That's the overall thinking as we think about 2026. If with that 1.5% of organic growth, you know, it's seems all right, maybe slightly better than what we've heard across the market as a whole. How much do you attribute that to market share gains versus a broader improvement in client spending? You know, let's start there, I guess. If you, if you, the midpoint of the organic range. If you see the total range is 4%-6.5%, midpoint is 5.25%, and therefore the organic is 3.75% for 2026. It is combination of both. We have seen some amount of gains coming from discretionary spend, which is in areas like BFSI. The market is expanding, and we have participated better than others in that discretionary spend. Through our large deal wins, there is of course market share gain, as we have consolidated our position in some of our key accounts. That has also contributed. It's little bit of both that we have considered for our midpoint of our organic items. Got it. Got it. Let's talk about the competitive environment a little bit. What do you think is central to your ability to take at least some share in the current environment? A few things. You know, the whole cycle of winning more business in consolidation, when the industry is going through consolidation is about your ability to execute well. You know, we continue to win large deals, but more importantly, we execute them very well. We won, you know, 27, 28 deals in 2024 and similar number in 2025. We continue to execute well, customer then build a sort of a pool of references, come forward, therefore you're able to win the next deal and deal after, et cetera. The beauty or virtue of cycle of large deal wins is your ability to execute well. The second is you should be seen as a company of future and a company which is leaning forward in investments like AI, to be seen as a partner of future. Very happy to share that I think we have built that image over last three years that our customers perceive us as a company which is investing in future, and that's the right partner for them. Right. Got it. Let's talk about your clients and what they're communicating around their calendar year 2026 IT budgets relative to particularly last year. You know, can you give a general assessment now that we're really past February, how budget growth looks like it'll compare this year to last year? Where are you seeing, either by vertical or geography, spending increase versus where would you characterize clients as still being more cautious? Yeah. I would say the environment remains what it was. It has certainly not shown an acceleration from where it was. Mm-hmm. Of course, there are more macro issues that we have, we have seen in last week that have surfaced, so to, as a short-term headwind so to say. The environment remains what it is. From an industry standpoint, we definitely see BFSI continue to grow very well. You know, for 2025 we grew 7%, and it exited at a 9% growth run rate. Mm. Healthcare, which is another large segment for us. Yes ... has grown 5%, 6% in 2025. Despite regulatory uncertainty, that industry has done well. Where we do see a certain lack of discretionary momentum is products and resources. Okay. Communication and media, at both places we see more of a wait and watch or a slow growth, scenario. Can I delve in a little bit? When you talk about like BFSI, like doing pretty well, that makes sense given kind of the way those end markets have been functioning. Healthcare always seems like it's a work in process there. Materials and that kind of thing, you know, it seems like, and maybe this is just an artifact of the stock market, but it seems like that market is maybe a little bit better. What do you think needs to happen there for that industry to start to feel a little more optimistic about their spend? I think that industry, especially. Mm Retail and manufacturing, has been far more focused on the supply chain during the course of 2025. With some stability emerging there, I think the priority will now shift to what they need to get accomplished on IT and new trends like AI for their businesses. I think 2025 was more about catching up on what they need to accomplish on the supply chain. Obviously that was very disrupted or a lot of uncertainty introduced because of tariff and potential changes in tariff regimes, et cetera. Yep So, that makes sense. Let's, let's pivot to everybody's top topic, AI and its implications. You've noted that GenAI driven productivity is really being embedded into New Deal economics. How are recent deal vintages tracking versus your internal efficiency assumptions? Are you performing as you expected when you put these deals together? Absolutely. This is something that we are very careful when we first review the deal before we submit our bids. We look at very carefully how the deal is constructed and what is the solution, because you don't win some of these deals on price point. I mean, that's one of the factors, but it's also how well-knit and how well thought through your solution is for customer makes a big difference. One is we review it very well, we track it versus through a process called bid versus bid on a monthly basis. The CEO of the company and I review it every month. We have done quite well as a portfolio. We are within a percentage range of the revenue that we expected from the deal. We are within a percentage points within the margin that we expected. As a portfolio, we continue to deliver well. We have a delivery excellence team which continues to review the deployment of tools and productivity measures that we had anticipated in the deal and how they're getting deployed. We have the orchestration behind to make sure we deliver to the promise that we made to the customer. Got it. How do you see those types of engagements evolving? I mean, do you see customers be more willing to accept that, or do you feel like they're being more demanding in assuming productivity improvements? You know, how are you navigating that? It's a very collaborative process where you work with customer. I mean, there is no deal which gets signed on the RFP being out and bids being submitted. You know, there are at least four or five very detailed workshops that we do with customers to decide what is the right answer from a solutioning standpoint to very specific customer context. Therefore, there's very little surprise from customer standpoint on what to expect when we start deploying the solution. There is over, I would say last five quarters, there is a significantly higher openness and keenness to deploy the newer technologies and therefore expect a greater productivity and Total Cost of Ownership significantly better than what it could have been, let's say in 2023. There's definitely more keenness to deploy. Got it. Once again, sticking a little bit on contract structure. Fixed price revenue grew strongly in 2025. Looking ahead, where do you see the primary risks in these structures, whether it's in scoping, productivity assumptions, execution, change order dynamics? You know, I think it's interesting to me at least that fixed price, as something to do or not to do kind of ebbs and flows over the history of IT services. Where are we now in terms of where it could go and what are your key risks? I think the risks of, and of course, rewards of fixed price project remain as we all know. I think this is a better model for our customer when there are a lot of things changing around them, and it is difficult for them to anticipate the sort of Total Cost of Ownership they would be able to achieve in a time and material basis. Mm-hmm. This is a certainty of outcome that we are able to give. Most of the time, we deliver to the point. It's not that fixed price projects are significantly more profitable for us or significantly more loss-making for us. Right. It is the certainty of outcome that is the best sort of offer coming through fixed price project. In a changing technology landscape, we also like fixed price project because sometimes you assume that you will use a technique A and a tool A, and then when you actually start executing, you get a better answer to the same problem, and you can deploy it and get to the superior outcome. The flexibility it leaves with partner as well as certainty it offers to the customer is something that creates the win-win for the fixed price project. Do you see that continuing to grow as a proportion of your mix? And where can it get to, do you think? Yeah, we continue to believe that it will continue to grow and, you know, over the last three years it has moved about 6%-7%. Okay. 41-47, 48. Yep. Yep. Yep. I think, a 2%- 3% increase every year is quite feasible. How important is moving to fixed price to achieving kind of your margin targets? We'll come to those more specifically in a minute. Is it a meaningful contributor or unlikely? Hard to say? It is definitely a good enabling block for us to have sort of a free hand to execute once we have signed up a contract. It's a good enabler, but it also comes with a greater risk. You could have, of course, you know, a more cost deployment to get to the same outcome. I wouldn't say that it's a nirvana for margin. Right. It is a good enabler, a good building block to get to a good outcome. We also make a good profitability on time and material contracts, so that's also fine. I don't think we should drive fixed price project just from profitability angle. It should be just the win-win that we. It should be more about the win-win that we spoke about before. I'm hopeful that you can help address a little bit of a mystery or conundrum around BPO. BPO has grown roughly at 9%-10% for the last several years. Quite a bit faster, obviously, than the corporate average, and certainly ahead of the industry. On the other hand, most investors really have concerns about GenAI disruption, particularly to this segment of the business. What has been driving that growth in practice? Is it net new demand, share gains? Are you being able to increase pricing, expanding scope beyond typical BPO? Just help us understand what's been driving the growth in BPO and how sustainable that might be. Sure. BPO has been a great adopter of GenAI technology. Yep. While the initial perception was that because of GenAI adoption, the throughput that BPO generates would shrink or the volume that it operates will shrink, but effectively, it has been otherwise. Meaning we are able to now generate more throughput with a combination of human and virtual agents. Mm-hmm. Mm-hmm. That has been lapped up by customer. On top of that, we are also going after the total addressable market, which was not accessible to third-party service provider. For example, there is a 100 people, you know, customer service work. Essentially, it would not have gone to BPO because it would have been too small. Too small, yeah. Now, you know, multiple thousands of such 100 people, pieces of work are spread across many organizations, which are now far more amenable for an agentic deployment. You don't even have to worry about offshoring, et cetera. You could, but you need not. You could even deploy an agentic solution wherever that work is, and you could get significant productivity, like 50%, 60% productivity coming through that. Therefore, you see BPO has not only overcome the compression that was perceived as a risk to the sector, to the revenue line, but is actually growing healthy as an industry. Not just Cognizant, but other companies also in the industry. Yeah, for sure. For sure. A similar question to fixed price. You know, in some of the other companies that are publicly traded and have financials in the BPO space, their margins tend to be pretty good, sometimes 400, 500 basis points above kind of even where Cognizant is operating. Is BPO for you being faster growth? Is it a margin contributor right now? How should we think about that? Yeah, absolutely. It's a great question, BPO business is not only faster growing, but it's also better profitability for us. All in all, it's a good portfolio contribution that if they grow faster. That's interesting. On to the most the one topic that people tend to be most sensitive to, and that's discretionary spend, right? Because I think Cognizant over particularly the last three or four years, has done a really great job, not only on BPO, as we've just talked about, also in some of the other work that you're doing on long duration contracts and outsourcing and the like. Discretionary spend seems to be the volatile piece and can make the difference, or at least make a big difference, one year to the next in terms of growth rates or even versus estimates. It seems like there's been a little bit of spend improvement, that has been visible in financial services. What types of projects in financial services are seeing the strongest demand? How do you view the durability of these key drivers? That's an excellent question. I think discretionary spend is what goes and sits on the layer of large deals that you win. Discretionary spend tends to give you a bump for the growth in a particular year. As a historical reference, the discretionary spend really, really grew post-COVID, and then by end of 2022 or early 2023, that started moderating. We definitely see the BFSI discretionary spend. As I mentioned, we grew 8%, 9%, 9% for quarter four of 2025. These contracts are in two or three buckets, but, you know, the one is really compliance-led work where a lot of change around BFSI continues to happen, and at some point in time, they need to catch up on that. The second is BFSI is an early adopter of technology, so they are now deploying AI tools and techniques in their workflows, in their functions, their customer service, their engagement with their end customers and so on and so forth. That's second. Third is they, you know, in terms of some of the, some of the work that was accelerated on digitization post-COVID and put on back burner now is coming back in terms of, you know, how do I improve my customer journey for my digital bank, et cetera. It's some compliance. Second is improving overall enterprise or functional strength of the BFSI organization. Third is customer journey. These are the three things that we see. Got it. I've been monopolizing questions for the last 20 minutes or so. Any questions from the audience, just raise your hand and we'll give you a microphone. Let's go... Just stay on the discretionary spend topic. A little bit of improvement in financial services. Where else have you been seeing recently some improvement in discretionary spend outlook? We have seen some improvement, definitely, on health, on pharmaceutical side. There is some discretionary improvement. We have seen a little bit improvement also on consumer product side. Mm. Which was actually clubbed with retail and manufacturing, until, I would say, quarter three of last year. It's sort of coming back in terms of discretionary spend. Got it. Got it. Any place that's getting worse on discretionary spend? I mean, I don't know how it could have. I think, I would say communication and media has been sort of volatile. That's what I would say. I mean, one quarter is good, one quarter is little uncertain. Got it. What do you think is driving the volatility there? Any speculation? I think there are more company-specific, especially on communication side, there are company-specific initiatives that are taken to either significantly reduce cost or transform the organization. I think there are various company priorities which are taking over the immediate IT spend decisions. How much on uplift in discretionary spend? You know, I think one of the things that investors have been keenly trying to watch is as companies and organizations move from AI pilots and trying to figure out what makes sense to move into production, et cetera, turning to the likes of a Cognizant to help them with those development work, implementation, maybe even restructuring and re-architecting some of the underlying systems and data. Like, what's happening from that perspective? Is that a meaningful part of your work or even of the discretionary business that's starting to come in the front door? We definitely see that we are moving away from just POCs and let's create something which looks good, but it's not scalable, it's small application, to real impact on business. Yeah. We spoke about deployment of agentic solutions to one of our large logistics customer in U.S. Very recently we have rolled out a large agentic solution for one of our customers in food processing industry. There is now more meaningful deployment of agentic solutions that we see. We see that there's a unique role that companies like Cognizant has to play in terms of helping customer determine what is the right answer for customer. Got it. I think we have a question here in the back. Yeah. Get into kind of the AI or AI pipeline in production and just status of it. I mean, GenAI is moving like really quickly right now, right? The velocity is very fast. How much of an impediment is that for your customers in terms of like waiting until kinda maybe the rate of improvement slows down before going through the long process of asking Cognizant to do something really big for the company? Maybe an analogy is looking at, you know, past cycles where at the initial phase of the technology, did you have to wait for the rate of improvement to slow down somewhat before the bulk of your clients start to sign up? I would say it is not so much about rate of improvement to stabilize before the deployment begins. I think it's bringing AI to B2B applications, which is just beginning to take off. So far it was lapped up by consumers, but now. Yeah. Now we are beginning to see where the application is becoming real for B2B, for large customers. You know, we have examples on a faster deployment of a package implementation. We have now examples of quick solutions regarding modernization of legacy code. Some of that is now beginning to getting picked up much faster than what it has been. Until six or eight months back, the technology was for the technology's sake. Now it is really the practical application for a Fortune 2000 customers, which is coming to fore. We are very early in that cycle. Yes, there are a set of customers who are waiting to see what is the final outcome, and then I will sort of go after it. More than that, I think it's really making practical applications of AI for large-scale IT problems or IT challenges of a Fortune 2000 customer is just beginning to happen. Hopefully it will take off as we go forward. A follow-up question. Can we just give him a follow-up? Just give your follow-up question then I'll repeat it. Talk about the size of the AI contract. Project. How project size. The question was, how do these AI-related project sizes compare to traditional contracts? Yeah. They're still smaller in size, maybe $8 million-$10 million, $12 million in TCV, whereas of course, in traditional size you could have $200 million, $300 million, $500 million of contract. That is not unanticipated for a new service. Almost every new service that we have ever sold as an industry has started on small scale. This is actually the right size to anticipate as we look at a new technology deployment. Got it. Question over here in the back. Yeah. In your contracts to date or as you work with agentic solutions in enterprises, what does the shape of that adoption typically look like? Do people start by building their own solutions? Are they using OpenAI's frontier? Are they taking out-of-the-box solutions from SaaS companies? Where is it that enterprises are investing today when you see it? It is different for different customers, as you would imagine at this point of evolution. Effectively what customer starts by is that I have a business problem that can be solved by AI. Let me first think about what is a solution that I'm going to build. You start with what is a compute that you are going to get? What is the LLM that you are going to deploy? Do you need entire LLM, or you can build an SLM and filter it 20%, 30% to LLM and risk you can solve at their end to reduce the cost. Do I need agents which are branded agents from SaaS players, or I could use a generic agent to be deployed, and I could do from a cost standpoint, a combination of 30/70 or something like that. You go back and check saying, "This is the data requirement and this is a training requirement. How do I sequence my load on GPU from training versus actual usage?" Then I start deploying, and then I think about how do I monitor the performance of agent. This is the whole cycle. It is not going to one partner and asking the answer, but it's really working with the ecosystem and developing this whole integrated answer before the deployment. You could even use something like Workfabric in the middle to improve the training time, which is very effective. This is how it is getting deployed as we speak. I wanna talk quickly back on margin expansion and we'll tie some of this back together. On the 10 to 30 basis points of operating margin expansion, can you break down the key contributors across gross margin, SG&A leverage, utilization, and even FX? Like how should we be thinking about the contribution of each of those elements? Sure. We have for 2026 suggested 10 to 30 basis point margin expansion, coming with a combination of both gross margin and SG&A leverage. Our message on gross margin is that of stability. Okay For the year. It will have its own volatility through the quarters as we go. Reason for that is some of the large deals when you win and when you're ramping them up, you tend to deploy cost ahead of the revenue generation and therefore, you know, you tend to manage that as a year, quarterly there could be variation around that. We definitely see contribution coming from an improved pyramid. We hired 20,000, you know, recent college graduates in 2025. We're going to add to that number another 15%-20% in 2026. We will have a big thrust on the AI-led productivity, not just where we need to do as per the contract, but where we could improve the gross margin profile and retain with ourselves. SG&A, the leverage of AI on SG&A, right shoring of SG&A are another opportunity. These are the levers with which we'll work through this. Big question we tend to get, obviously, and I'm sure you get it as well, as kind of a blanket question is one of pricing. And what are you seeing from a pricing perspective? I think some of your recent commentary was that maybe that was improving slightly, but I'm trying to measure that against things like gross margin and how you may be changing utilization and pyramid util-use, et cetera, to get to that flat gross margin that you're talking about. Yes, the pricing on the new work related with AI is definitely better and superior to the current book of business. Mm. On the current book of business, definitely there is a productivity pressure, I would say not pricing pressure. It's reduction of unit of consumption versus the unit price reduction that you're looking at. I think this is the two worlds that we need to navigate that on new business we price what is right, and we defend well on the existing book of business. Last few minutes here, want to talk about the potential for India listing. I know that that has been something that investors here in the U.S. have looked at with a great deal of interest, feeling like maybe that was a potential path to realize some value that maybe the stock should have, et cetera. Any progress on that evaluation, and what are the main considerations and timeline that investors should be prepared for as far as next updates and progress? Absolutely. I think the biggest driver for it is that there is a set of investors that would love to invest with us. That pool is today not fully accessible by us. Listing that could make Cognizant as an investable stock by those that large pool of captive capital. Second is, of course, we are a large brand in India- Yeah It could further enhance that, and our employees could own more local shares. The timeline continues to be, you know, it's something which is medium term. It is not immediate because there is a regulatory process. We continue to make good progress, but we are still not at a point where we have enough clarity regarding the decision of whether we go forward or we don't go forward. We have far more awareness of the regulation and what it could entail compared to where we began the journey in end of October. We continue to make progress, and we'll continue to update as we move forward. Do you think, you know, obviously, there can be lots of considerations why you would move forward or not, but sitting here today, do you feel like it is feasible, that if it is something that makes sense to you, et cetera, that can be done? I think I would say we are progressing on that journey, and we don't have the view of the final regulation, so difficult to say yes or no to that question. Okay. I would say economic rationale remains, and we'll work through the regulation. So, last 45 seconds here or so, Jatin, what would be the primary thing that you would have investors focus on and pay attention to for 2026? I would say it's just the role that companies like Cognizant can play and Cognizant has demonstrated it, is how we capture the value in the, in the new world of AI. I think that's our story, and we would request attention there. Got it. Well, thank you very much. Thanks to everybody for joining us. Have a good rest of the day. Thank you very much, Jim. Yep. Thank you.