Welcome. I'm Bryan Keane. I cover IT services here at Citi, and we're excited to have Cognizant here for a fireside chat. We got Jatin Dalal, who's the CFO, and we're going to run through a list of questions. If you have any in the audience, feel free to raise your hand and we'll run a mic or I'll repeat the question for you. First, Jatin, thanks for coming and thanks for being here. No, thank you. Thank you for hosting us. I appreciate the opportunity. Yeah. I wanted to start high level thinking about the IT services industry. It's growing revenue well below its historical norms. How much do you think can be explained by the geopolitical turmoil versus the secular industry pressures from AI? I think it's an interesting question to start. If you see, the industry has seen now more than a few years or two or three years of slow growth. In our assessment, it is partially the secular pressure, but it's also the lack of discretionary spend because, for example, in BFSI, Cognizant grew double- digit in Q2, and that was notwithstanding the secular pressure because of AI-led productivity, and everything else that is going around the world. So I think it is some amount of secular pressure, but it is also largely the lack of discretionary spend in the rest of the sector, which is leading to a low growth phase for the industry as we see. How would you characterize the demand environment then, the discretionary spend environment, demand environment in general from maybe last year to the beginning of this year to over the last month or two? No, absolutely. The BFSI sector continues to be a robust performer, robust enabler, or robust driver for the growth for the sector and certainly for Cognizant. We have a slightly differing situation in rest of the sectors, and let me go one by one. On CMT, which is communication, media, and technology, we see excellent demand from technology customers. They understand this wave well, and they are investing in their future. We see excellent, almost as good a discretionary spend environment on technology side. But you do not see an overall growth there because communication sector and a couple of customers, specifically one that has impacted Cognizant, has sort of made the overall aggregate number more flattish. Products and resources are impacted by the geopolitical situation, where they are working through their supply chain. There is a little bit overemphasis on today's operation versus investing on new technology or new spend. In some form, health is going through its own policy related predicaments or opportunities and challenges. We see these three sectors in a differing space of, or time as discretionary spend, so far as discretionary spend is concerned. Got it. Any change you are seeing just recently, the most recent month or two, and going forward, do you expect any change in that? I would not say more recently. I think it is more of the same. The demand environment remains very similar to what we articulated on the earnings call. Only my hope is that as some of the impact of communication sector plateaus this year, and stabilizes, you should see a slightly better outcome on CMT in coming quarters. I do see that there is an opportunity out there on the CMT space better than what it has been in the past. It is not because the environment is changing, but a particular customer that impacted our performance in the first half is now more stable and will not create any more negative headwind for us. The question that comes up from investors is that customer that created that impact, could that be more like that to come? Could there be other customers in CMT that make similar decisions in their spend? Yeah, you can't say what would happen, but I don't see any of that on the horizon as we speak. Okay. The other thing that we're hearing in the channel is that incumbents are more at risk than usual to be replaced by competing IT service companies. How much are the new non-FTE models driven by AI impacting competitive decisions, making incumbents more vulnerable? What I observed on the deal activity, including the large deals that Cognizant has signed over previous few quarters, is not whether it is incumbent versus a new player or a player from a new industry or something like that. I think the key differentiators have been your ability to demonstrate that you understand the use case or a large application of new technology like AI in a particular situation or a customer problem. Customer also look at which are the companies that seem to be the companies which are leaning forward and will be the companies of relevance in time to come, in next three or four years. So combination of your ability to problem solve a particular customer challenge and your ability to demonstrate that you would be that forward-leaning organization, not just now, but in coming years, is the sort of secret sauce of winning large deals. Is there a pressure on incumbents? Yes, but it has always been that incumbents would always be challenged with an aggressive proposal from an outsider. At the same time, incumbents have the advantage of understanding the IT estate, which is more and more relevant. Most of the probabilistic solutions are AI plus context is equal to your answer, and ability of an incumbent to provide context is real, and it is a real advantage. So I would think incumbents are not that much as a risk as you hear in the sideline conversations. Okay, that is helpful. The other one that we discuss a lot on the industry is just the delivery model, and it is a surprise to us that we are still seeing headcount growth in some of the models. You would think that with AI you would replace a meaningful amount of heads, in that there should be a reduction in the amount of heads for IT service companies of 25%-50% or more, like over a certain amount of years. So how do you see the headcount evolving in the industry? Sure. We track this quite closely. In fact, we have seen that from 2023 to 2024, there was an aggregate increase in employment or increase in workforce for large players, 2024 to 2025 also. But if you see 2025 to 2026, that number is largely flattish, and that is flattish despite most of us hiring a large amount of recent college graduates and including Cognizant, which continues to hire in a very large quantum. So we are at a position of that transition, Bryan, that you no longer see that addition. You are still not seeing a reduction, but you are not seeing that addition. And that is where I think the model will be for next 18 to 24 months, where you will see more range bound numbers around a current mean versus large additions or reductions. You should definitely see a more, from a P&L standpoint, if I look at my cost of sales, I see my employee cost as the largest component now. Over a period of time, that should go down and should be replaced by the virtual effort or the inference cost. Still, on aggregate, not exceed the today's total so that I am able to maintain my gross margins as we go. Yeah. So over time, that headcount number just in the industry, forget about Cognizant for a sec, probably— Yeah probably starts to decline as the efficiency gains continue. It continue to come in. Right. Got it. Another question we get a lot and we are getting asked is just thinking about the service budget, the allocation of dollars going to services. Is that getting squeezed versus other areas like tokens or memory getting a higher percentage of the overall budget? Yeah. I think it is fascinating because it always works in cycles, right? Almost always when a new component in the ecosystem of outcome creation gets added, that new element has a disproportionate share of the total dollars. If you go back in history of when the first time licenses were sold by the likes of SAP, Oracle or Microsoft 20 years back, or if you go back and check when the cloud was being pursued aggressively in 2015, 2016, 2017 by Microsoft, Google and other large players, rightly so. That cost always increased as part of the total pie of the consumption for a CIO. But as the technology started diffusing, that tended to get spread over a period of time, and it gave the space to the services because the value realization layer is a services layer where the customer sort of sees the outcome of that investment that the customer has made initially. So I feel very confident that this is a phase in the cycle where you would see a very high consumption of the new element, which in this case happens to be the tokens from LLM providers or the usage of GPU, as it gets deployed. But as you see the value diffusion cycle, you would see that the spend sort of tends to balance itself out. Got it. Or it will balance itself out. Yeah. The other kind of question we are getting in the industry is thinking about this line blurring between software and services, and that they are going to start competing versus each other, going both sides. Service companies buying more product and then software companies getting into more services, implementation, and maintenance. How do you think about that line's blurring, and will the two sides start competing more aggressively for business going forward? Yeah. On the deterministic side, the boundaries are very clear, where the SaaS sits and where IT services sits. When you go on the probabilistic side of the table and you see the role of the players, it is quite clear on the compute side, it is quite clear on hosting side, it is quite clear on LLM side. And downstream, the roles are evolving. And clearly, there is a little bit of blur. I think over a period of time, that tends to stabilize and the companies figure out what they are best equipped to do, and where they are able to add the maximum value for customer. Is there an opportunity for an IT services provider to be providing a bespoke AI solution to customers? The answer is a very solid yes. At the same time, for a SaaS player to do something that hitherto would have been characterized as services, probably answer is equally solid yes. It will evolve. I do see an opportunity for blurring of the lines for next few years and until a firm clear line emerges here. Okay, great. Just thinking at a high level about Cognizant. You guys, I think, outlined at an analyst day a few years back that you guys wanted to get into the winning circle. You guys have moved into the winning circle maybe even faster than you expected, and you guys are growing faster than other peers when it comes to organic revenue growth. Why is that? Why has Cognizant been in the winning circle faster than maybe others? Yeah. Thank you. That was our aspiration that, by 2027, we land that, but I am very happy we landed that winner's circle position. We were able to do that in 2025 itself. As I see the performance for first six months of 2026, we continue to be there at winner's circle. A few things have come together very well for Cognizant. One is that Cognizant always has been at the cross-section of functional knowledge, deep domain capabilities, and technical sort of prowess. We see in the new world of probabilistic system or AI, that is a key advantage that is playing for us in any client situation. Second is our ability to win large deals and then execute on them well because winning large deal is a virtuous cycle until you can continue to deliver very well on large deals, because every large deal comes with a few very senior, very strong referrals, that you are able to land a $200 million or $500 million deals. Those references are really somebody that you are serving today and serving the customers with the great satisfaction of the customer that those referrals come. I think that is a second point where we have been able to keep the virtuous cycle of large deal win and then delivery and then again winning them, et cetera, work well. Third is, I think we are investing disproportionately, relatively speaking, within IT services industry on AI, and customer sees us as a player of future. Therefore, you tend to win some of these large deal because customers do not only think about today, but three years from now when customers are deciding on meaningful customer projects. I think these are the things which are coming out well. It is a good cycle of strong execution that we have been able to deliver to get to in that winner's circle. Yeah, I was going to ask about your guys' AI capabilities or AI strategy. How do you differentiate your AI strategy versus your competitors and your peers? Yeah. For longest time, I think IT services was less differentiated, if I can say that way. Because if you see between, let's say 2002 to 2026, all the new opportunities in the sector was offering land. You were selling X, you could sell Y, you could sell Z, you could sell something new. It was not as transformational as AI has been, which is not only selling new things, but also changing the way you do your business, changing the way you perform your client obligations. You are now imagining almost to a different industry or different swim lane of delivery. The one that was deterministic systems, and secondly, the probabilistic system. We envision that all of our large customers in next three years will have 70%- 75% of the classic deterministic system because they will be still relevant. Another 20%- 25%, 30% of their probabilistic system that they deploy. This is a big shift, and we believe we have been able to differentiate because we invested before anybody. We remain almost very focused or very watchful of the fact that we are not only changing the front end and offering, but also we are changing the organization of Cognizant. That's why in AI forum that we hosted, we had one conversation on our offering, but we had six conversations on how we are delivering that and what our customers are seeing. I think this is the first opportunity for one of the industry players to truly differentiate itself by not only changing the offerings, which has happened for last 20 years in various scenarios, but changing itself. That's what we believe is future, and that's what I think is also resonating with our customers, and therefore you see the sense of differentiation that we are able to create with our customers. Got it. Looking at bookings, they are up 5% over the trailing 12 months, led by growth in those large deals that you were referencing. Why is Cognizant able to, we are talking about this, obviously it is AI led, but why is Cognizant gaining in the large deal wins? Is volume still growing double- digits for you guys? I would say volumes is growing in the new work, definitely double- digit, but it is definitely in the existing piece of work, you definitely have what I would say productivity led shrinkage, and therefore on net you are still growing. You are not growing double- digits, but volume is still growing. If I look at quarter two of 2026 over quarter two of 2025, there is a volume expansion, but it is a net effect, it is not a gross effect. Gross effect is double digit for new work, but it is definitely a shrinkage for something like software engineering where we have ourselves said that 40% of the work is now AI assisted on software engineering side. So where there is a shrinkage in the human effort of work. Got it. How much revenue today, Cognizant has outlined the vector one, vector two, and vector three services. Just curious on, because I feel like we are still heavily in vector one, but how much are we seeing in vector two and vector three, and how much has that changed yet 2025 to 2026, or is that more a 2027 to 2028 phenomenon that we see vector two, vector three maybe have a bigger impact? You are right. We would see more impact of it in 2027 and 2028. On 2026 we still see a similar pattern as we saw in 2025 where the revenue is still dominated by vector one, largely as proportion of revenue. But we do see a differing and more visible impact in bookings, which is an early indication that vector two, vector three should eventually start contributing to a relatively larger share of the total revenue. In some of the signings that you are doing, you are seeing vector two, vector three. Vector three opportunity. Then it takes how long before that converts into revenue typically? Yeah. It essentially converts within next six to eight months. They are still smaller deals. The pendulum of larger deals is still tilted largely on the vector one opportunities. While they will start translating into revenue, by the time they start making an impact on proportion of revenue, it would be 2027/ 2028, and hence my comment that it is a little more out in the future opportunity for that revenue mix to shift. We are already seeing visible clear wins which are no longer POCs or $2 million- $3 million contracts. They are sizably larger contracts, but they are still not a $300 million contract. We have greater visibility into booking. They are more prominent features of our bookings now. It is not yet shifting a percentage of bookings or percentage of revenue yet. Okay. Got it. Revenue per head increased 5% for Cognizant. Where can this figure go to when we think about the revenue per head? I think as we move more and more effort towards inference and virtual effort, that number will continue to grow. I think this 5% to 7% to 8%, the range that we have spoken about in last few quarters is a good benchmark to have because it's not going to be an overnight large shift. It's going to be a gradual shift, as we generate more and more revenue through inference compared to the traditional efforts. One of the conversations you and I have had is talking about the rate cards. Rate cards obviously in the beginning were under pressure due to just the productivity gains that we talked about in vector one. There was a transition maybe in the beginning of this year where you started to see some supplement to the rate card on AI, getting a little bit of boost there, and that obviously being a positive sign. Can you talk a little bit about the rate card, where it was in 2025 and maybe 2026, and then how that might evolve with AI on top? Yeah. I would say there is no specific pressure on rate card, as you rightly indicated, in 2026. It is more on the total cost of ownership. As you look at total cost of ownership in fixed price deal, it's very easy to compute saying you took all the risk and you delivered something at $100, now you can deliver at $80. I don't know, and I don't care how much effort you put, both the classical effort and virtual effort to get to that throughput. So there is no negotiation around individual's rate card in that sense on fixed price. On time and material side, we are increasingly going towards an A0 to A4 model, where on A0 we give price for a classical time and material rate card. Let's say A1 is the primary doer is an AI, and it's been initiated and reviewed by a human agent. Let's say A2 is something where primary doer is AI and only reviewed once before its submission by AI. There is a whole spectrum of A0 to A3 or A4, where A4 is a fully agentic system. Depending upon the work that you perform, for example, application maintenance can go to A3 very quickly, whereas systems engineering or embedded engineering will probably never go to A3. It will always remain at A1 or A0. That's how the model is emerging on rate cards, not just for small deals, but very large commercial constructs. We are already embedding inference as part of our pricing. On one hand, you could worry that the human effort is coming down, and therefore P into Q, the Q is shrinking. But now you have Q1 and Q2, where Q1 is the effort, which was classic human effort, and you have Q2, which is the inference, and you are pricing both in your T&M offering. You have, of course, a Q1 deflated, but Q2 which you never priced. There is an opportunity for growth there. No, it's interesting how it's evolving. I wanted to ask about Cognizant's expectations for organic revenue growth. I think, if I remember correctly, this third quarter is supposed to be a similar kind of organic growth as the second or thereabout, and then there is an implied acceleration in the fourth quarter. Can you talk a little bit about the third quarter guide comparatively to the second, and then what's driving that acceleration in revenue growth for the fourth quarter? There are a couple of things. One, there is a slightly different days impact this year compared to working days impact this year compared to last year. We do see a slightly higher number of bill days in the second half versus first half. Two, and more importantly for us is, there have been a host of projects which have been on a transition phase, during the first half, which we won in Q4 of last year, Q1 of this year. That translate into the revenue addition in second half, which we have visibility to. I think so these are the, I would say, two reasons why we see the Q3 and Q4 guide numbers the way we have given. Got it. Can you talk a little bit about Project Leap and the impact to gross margins in the second half operating margin outlook as a result of that? Then as we get into fiscal year 2027, how do we think about gross and operating margins? Yeah. As we have called out, gross margin will slowly continue to improve as we go. What we really guide on is operating margin. We have guided as a result of Leap, 10 basis point higher operating margin at the midpoint of the guidance range for 2026. We are investing. Leap is an exercise whereby we are creating a bucket of savings, and we are reinvesting a large bucket of that savings into employee training, AI infrastructure for delivery, investing in things like Harness that we have built, and so on and so forth. To that extent, the savings of the Leap will be reinvested for an accelerated growth or staying ahead than others in the growth cycle. We will make a decision of 2027 as it comes. But for this year, we have articulated how that Leap saving flows into the operating margin cycle. Okay. How about capital allocation? We have seen some more aggressive buybacks in the industry since the whole industry is down. Are you guys thinking about more aggressive capital return for buybacks versus what does the M&A pipeline look like? I think we will always remain opportunistic on M&A space. This is also the time of transformation and time to invest in right assets. Of course, one would be thoughtful about the fact that this is also time to invest back in your own stock through buyback and other initiatives. We have accelerated that. In the beginning of this year, we also had an additional $1 billion that we announced and executed in the month of May. Going forward, we will stick with our classic 50/25/25, 50% for M&A, 25% for dividend, and 25% of buyback. Probably some of the future, the way to see it is that we will maintain this over a period of time, which means some of the future buybacks we have pulled forward in the current year because the timing and the price at which the share was trading that time, it was very opportunistic to do so. Okay, we got a couple minutes left. I have to ask about the latest on the Indian listing, how the mechanics of the listing will work. I know there is a lot of different things you guys are working with the regulators. So, for example, how the IDR is classified, it is currently a derivative and limits the institutional investment, the limits on the use of proceeds, the tax ambiguity, the materiality of disclosure requirements, all those things. Can you give us an update on those conversations with the regulators, and where we are on that potential listing? Yeah, absolutely. So I think there are various aspects around this. I wouldn't comment on one versus the other because finally, it is a package of a regulatory framework that one would receive. Our expectation is that we should have some draft regulation on this being offered for players like us by the end of the year by the regulator. Once the draft regulation is available, Board will make a decision on whether the regulation is amenable from keeping an interest of our existing shareholders, keeping an interest of other stakeholders from a Cognizant standpoint, whether it makes sense. Assuming it makes sense, then we go ahead and we tell the shareholders about it. If we decide not to, then we share accordingly with the shareholders. So I think we will have some decision on it by end of this year, is what our current anticipation is. My guess is there is some give or take. Like, some of the things that you would want, you definitely want to get in there or want in there, you are not going to exactly get, and then the regulator is going to have to change some things that maybe they wanted to change. How are those dialogue going between, I assume both sides want to try to get something done, but is it even feasible given some of the complications? Yeah, I think the dialogue has been very constructive, and we are very grateful for the conversations that we have had with regulator. One hopes that finally we are able to find a ground which is a great product for not just Cognizant, but any other company which wants to pursue that. There's a great product out there for everybody to pursue. But right now, that's all I can say because we will have to wait for what comes out in the final regulation. Yep. Okay, with that, Jatin, we're going to have to keep it there. Thanks so much for being here. Thank you very much, Bryan. Thank you.