Cognizant Technology Solutions Corporation (CTSH) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Cognizant's 2021 Investor Briefing. We are 100% virtual today. So we hope that you were able to skip the commute and enjoy breakfast with the family. Before we get started, a few housekeeping items. This investor presentation contains forward-looking statements and non-GAAP financial measures. For important details with respect to such statements and measures as well as the reconciliation to non-GAAP financial measures to the corresponding GAAP measures, please see additional disclosures at the end of this presentation. A recording of this event and a copy of this presentation will be available on our website in the coming days. In addition, all year-to-date figures referenced throughout this event and in the presentation are as of September 30, 2021, unless otherwise noted. So thank you again for joining. With us today, we have Brian Humphries, our Chief Executive Officer; and Jan Siegmund, our Chief Financial Officer. Our agenda is pretty straightforward. First, Brian will kick us off with a strategic update, including progress against our strategic priorities over the last 2.5 years. Then Jan will take us through the financials, including our multiyear financial outlook. After that, Jan will open up the line for questions. In addition, you'll have the ability to submit questions through the online platform. With that, I will turn it over to Brian.

Thank you, Tyler, and good morning, everybody. I'm delighted to be here with you. To say it's been a busy 30 months for me as the world's biggest understatement. We've dealt with exogenous events, internal dynamics, but I'm very proud to say we've worked through all of that. And I'm proud of the progress we've made despite everything. We still have a lot of work to do, much more progress to make. And as we make more progress, we will be more competitive. But to Tyler's point, the story arc of what we're talking about today is a little bit about what we've been doing, where our strategy is taking us in the coming years. Jan, of course, will complement that with an update on our financial model, including revenue and margin outlook for the coming years. Now let's jump into the presentation, and I will start about the growth opportunity that is available to us as one of the largest services firms in the world. First of all, from a macro point of view, this is a large growing market, growing in the mid- to high single digits. We're also investing behind that growth. Core to our strategy is an investment in international markets, where growth opportunities are larger, but also the progress we're making in our shift to digital. In the last few years, we've meaningfully invested behind this, $2.5 billion in digital acquisitions. We've also really turbocharged our investments behind training and reskilling, sales and marketing, and we brought in hundreds of more commercially-oriented go-to-market client-facing teams. This has been at the core of our growth acceleration in 2021. Not only am I satisfied with the momentum we're making and the opportunity available to us in the market, but in parallel, we have some Cognizant-specific opportunities, not just as we come out of the corner in terms of our transformation and turnaround, but also we are sitting on a huge installed base that is a prized asset for us. In fact, about 50% of our current clients are only buying one of our current practices, 25%, 2 to 4 and 25%, 5-plus. So we have a huge opportunity to land and expand, to upsell, to cross-sell, and we're getting after that opportunity by putting in place much more sophisticated go-to-market customer segmentation, account plans, et cetera. So we're very thrilled to be sitting on this opportunity, and I'm looking forward to talking about this in the years ahead. Now in recent years, many of you have asked me a question in terms of where we are in the turnaround of Cognizant? And very often, the framework I use that I refer to my own mind, start with strategy. Everything follows strategy, the portfolio we need to build out, the talent we need around us, the partnerships we need around that. And at the core of our strategy is also our purpose, our vision and indeed our values, our people strategy. In parallel, in recent years, we've been very fixated on reigniting revenue growth. Cognizant's history is built around client centricity, delivery excellence and a growth DNA. And this is something we embraced a number of years ago, knowing we had to reinvest back into growth. I'm pleased to say, a few years later, we've seen the fruits of our labor, bookings momentum, top line growth acceleration. Of course, strategy, portfolio, talent, partnerships and growth will never go away. That is always core to who we are and what we're setting out to achieve. At this moment in time, however, we're throwing yet another ball into the air because we now need to start thinking about margin expansion. Some of those investments we've made in growth were intentional in nature and came with margin erosion, both investments in M&A as well as investments in sales and marketing. Now that we're starting to get some financial leverage from the growth that comes with these investments, we will turn our attention to more sustainable continued margin expansion in the years ahead, and Jan will talk to that in subsequent slides. Now I want to spend a moment talking about the Cognizant agenda. In other words, our purpose, our vision and our values because we have to start in today's world with associates around serving up why we exist? What is our purpose? And our purpose in Cognizant is quite simply to engineer modern businesses to improve everyday life. So while we are a B2B company, the work we do for our clients around the world serves billions of consumers on any given day. Our vision, which is about what we aspire to achieve and therefore, needs to be much more quantifiable or measurable, is to become the preeminent technology services provider to the Global 2000 C-Suite. And think of that as measurable in terms of growth rates, Global 2000 penetration rates, digital rates, et cetera, all of that fuels our strategy. But none of that is possible without our values. And in recent years, we certainly embrace long-standing values of Cognizant, including working as one, teaming collaboration, doing the right thing, the right way. But we've also tried to turbocharge some of these values by really strengthening our commitment to starting with a point of view, as we evolve our business model to be more of a thought leader for our clients, to be data-centric, seeking data, building knowledge, built around meritocracy and also making sure we have a much more diverse and inclusive culture at Cognizant, creating conditions for everyone to thrive. And so this is our North Star in terms of why we exist and how we set about running the company on a daily basis. That fuels our strategy. And our strategy is a growth strategy, which is in line with the company's history over the last 25-plus years. And the beautiful thing about our strategy is its simplicity. It's built around 4 major pillars: accelerating digital, globalizing the company, increasing our relevance to clients and helping them be more successful. And indeed, that is enabled by the repositioning of the Cognizant brand. None of this is possible without our people strategy, which is a core tenet of the work we're doing today as well. And I'm going to speak to this strategy later in this morning's presentation. Before I do so, I want to go back to that plan I referred to earlier in terms of what strategy gives rise to. And let's start with portfolio, because this is an area where we've made a significant amount of moves in the last 2 years. First of all, we strengthened our portfolio towards our digital portfolio because it's a higher growth, higher margin category. And that was both partnerships, investments, organic investments but also $2.5 billion of M&A since 2019. In parallel, strategy is also about what you don't want to do and exiting categories that are less strategic to you. Now we've repositioned the portfolio by also exiting categories that weren't strategic to us, as an example, content moderation. That has allowed us to focus our portfolio in our digital business operations, which is about 10% of Cognizant about $2 billion. It's been one of our great success stories. On the back of content moderation exiting, we have focused this portfolio into key verticals like the digital natives, where we're focused on maps, location-based services, ad optimization, et cetera, and also other key verticals, including healthcare BPaaS. This business is now growing for us in the high teens, and we expect continued momentum in our BPO portfolio in the coming years, well in excess of market growth rates. These choice points also related to certain geographies. And while we're committed to many of these geographies in terms of global delivery network are indeed serving our global clients, we have exited certain geographies from a local commercial point of view. That has enabled us, once again, to focus on higher growth, much more strategic markets like the U.K., like Australia, Japan and Germany. Now last but not least, I'd like to give you an update on a large financial services contract that earlier this year, we announced that we had an intent to exit. Since then, I can now confirm that we have signed an agreement to sell Samlink assets in Western Europe. This was an example of a deal that we solutioned in the latter part of 2018 and signed in early 2019. From my perspective, this deal was ambitious in nature. We are true to our client centricity and have agreed an amicable resolution with the client in question, and I'm delighted to have been able to serve the clients during the period, but nonetheless, to be able to move on from this. I feel very good about the rest of Cognizant's portfolio, but this is just one example of where we had to tidy up the portfolio a little bit. Let's move basis now to our people strategy. As a knowledge-based business, perhaps there's nothing more important to Cognizant than our people. And so we have really put a lot of emphasis around our vision, our purpose and making sure that the employee value proposition of Cognizant is important. There's been many stories written about leadership changes in Cognizant in the last 2 years. The reality is that we have a relatively stable leadership team at this moment in time, which is a culmination of external hires, plus a lot of internal promotions. We're now in what I would term business as usual, leadership changes related to performance, retirements, et cetera. In parallel, more broadly across the organization below the top 100 or so people, we have certainly embraced the importance of our people strategy, the sophistication around talent management, performance management, annual goal setting, annual performance reviews. And that is very well received in line with our focus and values around meritocracy. We've been receiving a significant amount of recognition as a top employer, both in the Western world as well as in Asia and India. Core to this is also the fact that we have gone back to basics, around our delivery pyramid. And as you'll see, we have significantly increased the amount of freshers onboarded in 2021, and that will further increase in 2022, not just because of our bullish stance on the market overall but because our pyramid was not appropriately shaped a number of years ago, and we're correcting that as we speak. I want to spend a moment talking about partnerships because in the world of digital, we cannot do everything ourselves. And in the last few years, we've made significant progress establishing hyperscale business groups behind Microsoft, AWS and Google. But we've also complemented our traditional ISVs, like SAP and Oracle, with next-generation software players. A great example of this is Salesforce. A number of years ago, we were not even in Salesforce top 10 partners. Today, we're in the top 3 or 4. That's on the back of organic investments as well as 3 Salesforce Platinum partner acquisitions that we've done in the last few years. And complementing some of these horizontal capabilities and partnerships, we have embraced industry-specific partners in financial services, in life sciences, companies like Guidewire, Temenos, Veeva, Medidata, Duck Creek Technologies. This is really important to our future. We are now taking these partnerships to the next level, not just in terms of what we're trying to do together, but making sure we show up in the field with joint go-to-market capabilities, account planning, asymmetrical accounts, mapping amongst our respective clients and making sure one-on-one is more than 2. I want to touch back again on the notion of accelerating growth, which was so core to Cognizant getting our swagger back and getting a good sense of momentum back into the company. To accelerate growth, we've made meaningful investments. The M&A that we have done has exposed us to higher growth categories, and Jan will talk to that later. We've also made meaningful changes to our promotion cycle, our compensation process, our training. We've made meaningful investments in our commercial engine, not just in hiring of 500 commercially oriented resources that tend to have come in at a higher cost just because of the sophistication and the alignment and the expertise needed by industry to walk the corridors beyond the CIO and CTO office, but as we're selling digital into the broader C-Suite. We've also made investments behind branding and digital and other enablers of our business, including pricing. And of course, as we scale our business, the infrastructure needs to be ready to scale with that. And so we've made meaningful digitization investments in the company, not just to deal with the IT security modernization agenda we have, but also around things like our human capital management process. This has resulted in a commercial momentum that has picked up. Our book-to-bill ratio is very healthy these days of 1.2. Our backlog is as strong as it has ever been, and I'm very optimistic about our go-forward momentum and our ability to, once again, get back not just to gaining share, but ultimately, over time, as we continue through our turnaround and transformation into top quartile performance. And with that, we will have a scalable infrastructure to enable it. Now perhaps enough in terms of where we've been coming from, let's spend more time talking about where we're going and our strategy, and I wanted to start with digital. Arguably there's a critical success factor to Cognizant going forward. Why is digital important? It's not just for financial benefits in terms of double-digit growth exposure, margin accretion, it's also because it enables us to play a much more strategic role for our clients as we enable their digital transformation. So too that has enabled us to attract, retain and develop our talent and make sure that Cognizant remains a talent magnet. Now we have made significant progress in our digital portfolio in the last few years, not just in terms of the M&A, I mentioned earlier, the organic investments, the partnerships I touched upon, but also acknowledging that we have to change the company to facilitate or shift to digital. Nowhere is that perhaps more important than in our delivery organization where we've leveraged much more agile delivery methodologies, frameworks, and build out digital skills and onshore and nearshore digital capabilities to enable us to deliver digital transformation for our clients. The financial consequences of our progress in digital is a part for everybody to see. We have CAGR growth in digital engineering in excess of 30% in the last 2 years; our IoT business, 35%; our cloud business, 20% plus; all which is fueling a meaningful shift in our portfolio from non-digital to digital where we are now standing about 45% digital as a revenue mix, up about 15 points in the last 2 years -- 3 years, excuse me. External world is also taking note, not just our employees, not just clients, but also industry analysts. And as you'll see here, industry analysts are increasingly acknowledging the progress we're making with our digital portfolio. As a consequence, of our portfolio change and in a world where clients are ultimately choosing strategic partners, we have a broad-based portfolio now where we can lead with digital around software product engineering, digital experience, data modernization, cloud migration, and actually scale into the more nondigital work as needed, or alternatively leverage our enormous asset, our footprint, our installed base and scale, as I touched upon earlier in the presentation, to cross-sell and upsell our portfolio into our extended digital capabilities, and that is core to our strategy to drive growth. It's not just all about new logos, it's also about upselling and cross-selling from our existing organization clients. I want to shift gears and talk about our second strategic priority, which is around globalizing Cognizant. And this is something I'm passionate about because the market opportunity for Cognizant internationally is immense. If you think about the market opportunity, it's $900 billion in size, but Cognizant's exposure to that is approximately only half of that of many of our peers. And so it speaks to opportunity. Now to get after that opportunity, of course, there are a series of things that we have been working hard to do in the last few years, notably to change our sales and marketing mix internationally. We now have over 30% of our marketing spend, serving our international markets, up 20 points in the last 2 years. We've meaningfully refreshed our leadership team with local hires. I'm firmly able to believe that we need a local leader serving our Japanese clients to take one example. We've also, with this senior leadership team, enabled ourselves to be in a position where we could deploy more capital in the form of mergers and acquisitions behind these senior leaders such as our belief in post-merger integration success. And so examples of this are Servian, which we've executed earlier in 2021 in Australia and New Zealand; ESG mobility in Germany; or indeed in the U.K. and Ireland, examples like Zenith Technologies, TQS, Inawisdom and Contino. In parallel, in line with our comments made earlier around our global delivery network, we've been building out delivery capabilities in our overseas markets. Earlier this week, we announced an intent to hire 1,600 delivery resources around Adelaide in Australia. In the month of September, we announced a plan to build out 2,500 additional resources in the United Kingdom around capabilities to enable our digital transformation for clients. Now all of this will happen, obviously, in parallel with our strong delivery footprint, which will always remain our core delivery organization in India. But with the shift to digital and with the shift to international markets, we needed to complement that with local and nearshore delivery. Now watch this space. Hopefully, in the coming months, we'll have a broader announcement to make around Eastern Europe and we'll complement nearshore and onshore in Europe and Asia, also with Latin America, Canada, Mexico, et cetera. I'm delighted with the momentum we have. We're getting access to decision-makers and clients that we never had access to before. Some of our largest deals signed internationally have been signed in the last year, Oxford University Press, Inchcape is a great example of our largest-ever BPO deal in the United Kingdom, we have a tremendous amount of momentum around the world. This is something I'm particularly excited about, and we will continue to fuel in the years ahead. Okay. Let's switch gears and talk about our third strategic priority, that of increasing our relevance to clients, all with a view to helping clients be more successful in what they are setting out to achieve. Now in order for us to do so, we need to embrace industries and subindustries. Retail banking is very different from capital markets. Property and Casualty is different from life insurance, et cetera. And in order for us to add the value we want to add, we need to show up with a strong point of view and a conviction behind each and every one of those industries and subindustries, what's happening from a regulatory environment, et cetera, et cetera, and understanding the pain points such that we can sell solution and ultimately, deliver client outcomes against those ambitions. That also requires us to lead a little bit more to be consulting-enabled in Cognizant, and we'll spend more time talking about that in the years ahead. Now one of my great joys, as a CEO and a client-centric CEO, is the opportunity to work with some of the greatest clients around the world and really try to help them achieve their strategic ambitions. I could talk to any of these at length, but I just want to touch upon a few quick ones. Qualcomm, as an example, a leading semiconductor connectivity solutions company. They turn to us to use or to build a reliable cloud-agnostic connected vehicle management solution. And for those of you who've been watching Cognizant, you'll know that the automotive industry and the CMT industries for Cognizant have been growing double digits, and it has been part of our strategic ambition as evidenced by the ESG acquisition we've done earlier this year. AmEx is a long-standing partner of Cognizant. And more recently, we've scaled well upon the non-digital elements of the portfolio to scale into digital solutions. As an example, today, we're working to build AmEx a network modernization strategy. We built and deployed a cloud native payment network platform that brings scalability and availability to their global payments network. For those of you who've been watching AmEx in recent times, they're the first foreign payment network to get approval to operate within the Chinese market. And the project we have worked on has enabled that for them. And last but not least, Albertsons. It's a great joy to talk about this, because this was a proactive proposal Cognizant put in place to get after an opportunity for a $70 billion retailer. They selected us as their strategic partner for digital and cloud. It will help us further transform their customer experience, supply chain across all of their channels. And to do so, we're leveraging our entire digital portfolio from experience, to IoT, to AI and cloud technologies. Just 3 examples of how we're leading with solutions, with thought leadership and migrating well beyond the nontraditional heritage of Cognizant and scaling into the portfolio that has never been stronger at any time in our history. I want to bridge from client successes and how we increase our relevance to clients to health care, which is arguably one area of our portfolio where our client intimacy is greater than anywhere else in Cognizant. This is a huge market and is a strategic gem in our portfolio. And you should expect us to strengthen our hand in health care in the years ahead. We build out a set of capabilities, but most of all, for me, this business, if you think about it, almost needs to be divided between the U.S. payer provider market, which is about 2/3 of our health care business and our Life Sciences business, which is about 1/3 of the business. The U.S. payer provider business had stalled a little in growth following the TriZetto acquisition in 2014. And the road map of the product portfolio, in particular, had become somewhat, as you'll see in the quotes on the slide, monolithic on-premise is middle of the road. And so a number of years ago, we made a commitment to get this business back on track. And as you'll see on the industry analyst recognition in the chart now, we have gone from being monolithic, on-prem, to next generation. We've gone from middle of the road to best-in-class, and that is now also showing up in the financials. Our product revenue growth in our health care portfolio has gone from low single digits for a number of years back into high single digits and now into double digits. And I'm very pleased with the momentum that we have and our opportunity in this space going forward, not just in our area of traditional strength, our payer business, but also in our provider business. And so too where we look at extending this portfolio internationally. Our Life Sciences business is another example of an area where we have some targeted platform plays, including our shared investigative platform. Some of this has been core and instrumental to helping getting vaccines out into the world as we've gone through the COVID pandemic in the last year. We've been strengthening our hand in Life Sciences with the acquisition of Zenith Technologies and TQS around manufacturing 4.0. Our Life Sciences business has been growing double digits for a number of years. And our Healthcare business overall, with these levels of growth and the opportunity available to us, will continue to become a more and more important portion of Cognizant's portfolio going forward. Now our recovery in Financial Services is ongoing. Our Financial Services business is our single largest industry segment in Cognizant. It is a huge market. But in many ways, we have lost momentum over the last 3 to 5 years. And some of this was self-imposed wounds. We've lost some large deals because of delivery or client engagement model execution challenges. We pivoted slowly to digital, and so we became marginalized as these larger institutions in-sourced either to their captives or to their capabilities around the world. We have a plan in place, and I'm confident that, that plan is beginning to kick into place. We changed our delivery leadership team, our commercial leadership team. We've refreshed the vast majority now of our client-facing teams. We've reembraced our partnership ecosystem for these markets. And as we have been trying to get back into some of those large banks that we have lost in recent years, we have, in parallel, been driving a tremendous amount of momentum in regional banks in North America. Now this is starting to show up in the numbers. Our bookings growth in financial services is higher than the company average year-to-date. That's been driven by banking and our digital momentum, which is particularly strong. We've had strong double-digit growth in North America regional banks for the best part of 2 years at this stage, and we expect growth in Financial Services to further improve in 2022 relative to the improvements you've seen in 2021. So watch this space. It will be a paced recovery. It is ongoing in nature, but I'm highly confident we're doing all the right things to get this business back on track. I want to switch gears now to our brand because to accelerate digital, to globalize Cognizant, or indeed to increase our relevance to clients to help clients be more successful, companies need to think about Cognizant differently, and employees need to think about Cognizant differently, not just current employees but prospective employees as well. And in the last few years, we did a lot of work around our brand studies in terms of how we're perceived. Are we an Indian brand? Are we a U.S. brand? Are we a global brand? Are we a digital brand? And to be very honest, the conclusions were unsatisfactory. So we set about increasing our investments behind marketing, behind branding, behind client hospitality and a whole host of other things such that we have the opportunity to show up as a preeminent technology services provider, which is 100% in line with our vision, if you go back to the Cognizant agenda that I referenced earlier. And so we started the journey to get there. It will take multiple years for this to happen. We're funding it. Our global brand campaigns. We've massively evolved our digital branding. In 2019, the vast majority of our portfolio was in legacy marketing tactics. Think of that as webinars, e-mails. We are now 75% modern, Think of that as geofencing, digital displays, social, et cetera. In parallel, not just have we been deploying account-based marketing into our major accounts around the world and leveraging digital tactics, we've also recognized the importance of strengthening our employee value proposition or employee brand. We've been celebrating success, both at an individual level as well as a team level and making sure companies -- or making sure our associates feel valued within the Cognizant domain. A natural extension of the progress we've made in recent years, both strategically as well as financially, has been our role in society at large. And this is something we take very, very seriously, both the leadership team as well as the Board of Directors of Cognizant. In the last year, we have made meaningful progress in our ESG agenda. We've hired a senior leader. We've issued our first ESG report in June of 2021. Most recently, in October, we committed to net 0. And all of this is encapsulated with a new spirit in Cognizant across our employees. This ESG agenda, by the way, of reference will also permeate into day-to-day existence in Cognizant. How we think about our travel and entertainment policy? How we think about work from home and hybrid working the office of the future? And Jan will talk to some of those elements later as we talk through margin bridges, et cetera. We've also committed to social. I'm very proud of the work we did in India this year around our operation C-3 as we help fight COVID. But more broadly, earlier this year in February, we announced a $0.25 billion commitment over 5 years, and this was targeted ultimately at advancing education, diversity, inclusion, digital economy, educational opportunities, community health and well-being, all the right things. We can do well financially while doing well for society at large. Last but not least, governance. We take this very seriously. Jan will also talk to increased transparency in terms of our quarterly disclosure, et cetera, and the progress we've made in the last few years. But I'm delighted to say as well that we've received recognition externally in terms of our overall corporate disclosure and proxy disclosure, and that is something you should expect to see commitments from Cognizant on in the years ahead. I want to wrap up with arguably the most important asset of Cognizant, our people. We are, after all, a knowledge business. And never perhaps in the history of Cognizant, has this been more important faced with the labor market conditions that the entire industry is faced with these days. Our employee value proposition is built around impact, impact for our clients, the ability of associates and Cognizant to work for some of the leading brands globally, not just as a B2B engagement, but recognizing the work that they do helps billions of people on a daily basis and helps people do some incredible work, whether it's hospitals, or life sciences, or banking, day-to-day transactions that help us on -- lead more impactful lives. Impact on one another. We're a culture of collaboration and teaming. Impact on society at large. We talked about the Cognizant Foundation, which has been extended by the way, into the U.K., Canada, Australia, Germany, not -- no longer just serving the United States or India. An impact on an employee's life. One of our core values is to make sure we are a company where everybody can thrive and be their best self. This is so core to the future of Cognizant, getting back to double-digit growth, being a company that can serve the career ambitions of associates, but making sure that our compensation and hearts and minds agenda is such that Cognizant remains a talent magnet. One of the great data points of our last quarterly earnings that we announced a few weeks ago was the fact that we hired record numbers of employees to Cognizant in the third quarter, and our ambition for growth into the coming years will drive significant headcount growth and our employee value proposition is core to that as well. So without further ado, I want to wrap up and allow you to have a conversation with Jan, and then we'll subsequently take questions. I'll just wrap up by saying, again, we are a team united in purpose. Delighted to be in a high-growth market. Delighted to have made the relevant trade-offs and capital allocation prioritization to fund investments in what matters for Cognizant, getting into higher growth categories, investing in our employees, investing in our systems and tools to digitize Cognizant. We are in an extremely strong financial position. We're back on the attack, back on the front foot and you absolutely should believe that we will continue to drive shareholder value creation for Cognizant. So with that context, I'll pass you now to Jan, and we look forward to taking Q&A later. Jan?

Thank you, Brian, and good morning, everybody. I'm looking very much forward to sharing with you our multiyear financial outlook after Brian has really presented to us with an exciting vision for the future. But I thought it would be helpful, before I dive into our multiyear outlook, to ground us in our most recent performance. You will recall that we finished our third quarter with growing momentum. Our revenues grew 11% at constant currency year-over-year, fueled by 24% bookings growth in the quarter, 13% year-to-date bookings. Of that revenue growth, we experienced 18% digital revenue growth year-over-year. Digital revenues now represent 44% of total revenues. That acceleration of revenue growth was paired with an operating margin of 15.8% and allowed us to reconfirm our full year guidance of revenue and margin for the full year. Our multiyear financial plan is grounded and aligned to the core strategic priorities that Brian elaborated on earlier. To accelerate our growth in digital revenues, it anticipates a scaling of our international opportunity and it provides funding for investments into solutions and offerings that will increase the relevance to our clients, all grounded in our continued investment to advance the brand and the marketing of Cognizant to let our clients know of what we are standing for. Cognizant is nothing without our people. People are our most important asset in our multiyear financial outlook and corporate many investments into driving our employee value proposition and ensuring the success of our growth strategy. So here is our financial outlook for '22 to '24. We are anticipating an 8% to 11% constant currency revenue growth. The 8% to 11% revenue growth includes an approximate 2 percentage points of inorganic revenue growth. We expect our operating margin to grow between 20 and 40 basis points on an annual basis. We continue to anticipate 100% cash conversion from net income. And our capital deployment plan stays the same as we shared with you at the fourth quarter of last year. We're continuing to anticipate to plan approximately 50% of our free cash flow to acquisitions. 25% of our cash flow is being used to share repurchases. Those share repurchases set the dilution caused by our equity compensation. And we're targeting a 25% payout on dividends. Let's talk a little bit about the revenue growth. The support for the revenue growth comes of our expectations on bookings. And as you can see on this chart, our book-to-bill ratio has been steady at 1.2. This is a healthy ratio to ensure future revenue growth for the company. Digital battleground bookings have been even stronger in excess of our overall bookings growth. And paired with that, even though I have to caution the number not to take the number too -- in too much detail, our win rates have been gradually improving over the last quarter. For me, that is a good sign for future revenues to come. As I decompose our revenue growth, I thought it would be helpful for us to look out of what is the share of digital revenues be throughout the next 3 years. Our total revenue growth of 8% to 11% will be driven by revenue growth in the digital area in the high teens to low-20s. Non-digital revenue is expected to grow in the low mid-teens singles. And if we execute on that plan, our digital share of total revenues, which shift and increase from approximately 45% today to 55% to 60%. I personally feel 60% would be a good goal for us to have by the end of '24. Underlining this is a continuation of the execution of our M&A strategy. We have been disciplined in our M&A approach. Our M&A transaction have been strategically aligned, all in the digital space, in the future with a stronger focus on our international opportunities. We know we have more opportunities internationally, and we will direct our capital and M&A to support that strategic priority of us. Our acquisitions have been good fit and medium-sized portfolio build, and we have been focusing rigorously on post-merger integration. Our initial results of our M&A portfolio, as we have shared in earlier meetings, have been promising. We have been driving revenue synergies, and we have been seeing a great adaptation of the solutions that we have added to our portfolio. So it's fair to assume that with the capital anticipated to be deployed in the planning horizon that approximately 2% of our revenue growth will come from inorganic contributions of such acquisitions. It is also fair to note that these acquisitions themselves have actually an accretive organic revenue growth to our company because that's the ultimate reason of why we are acquiring additional capabilities into our portfolio. This all leads to an overall revenue growth, as I mentioned before, of 8% to 11%, 6% to 9% organic constant currency, 2% in organic. The organic revenue growth remains the center of our attention. We are funding our sales force. We're funding our marketing effort, and we are leveraging our increased digital capabilities to strengthen our growth profile. As a larger portion of our portfolio is positioned in faster-growing markets, we will reap the benefit of accelerated revenue growth. As a consequence, fiscal year '22 is expected to be on the higher end of this growth momentum as we are exiting the year with a good revenue growth into '22. Let's shift our focus on to operating margin. This year, in the third quarter, we confirmed our annual guidance of 15.4%. And this represents, if you take into account the impact that the exit from the Financial Services contract had on fiscal year 2020, a small increase in -- of 20 basis points in our operating margin. Many tailwinds. Many headwinds. The industry had a tumultuous year. You're all aware about this COVID had a big impact. The acceleration of demand and the hard labor markets across the globe and the high attrition rates in the industry have all contributed to headwinds on for all of us. But I want to focus today on our margin of the investments. We have stayed focus on executing on our strategic priorities. We have invested into our people M&A, as we all know, has caused a temporary dilution of our bottom line. And we have invested into accelerated -- into larger sales and marketing teams and modernized our IT infrastructure. All this is setting the foundation for the future. Let's switch to our outlook for margin expansion. I thought it would be helpful to give you a few pointers about the levers we are planning to deploy in order to achieve our 20 to 40 basis points margin expansion annually. We have, by gross margin and SG&A, tailwinds and headwinds. We are anticipating that we will be able to offset the pressure caused by increasing labor cost and by the return to office, the return to travel, et cetera, we feel we have the opportunity to offset those increase in costs by 2 components: pricing as well as our help in the shift to higher-margin digital offerings. On the SG&A side, we're planning to continue to invest into our strategic priorities. We're planning to continue M&A, as I mentioned before, which will have a dilutive effect on our margins at least in the initial years. And those types of things will be offset by focus on scaling our traditional SG&A expenditures, including the optimization of our real estate portfolio for a go-forward hybrid model that we see as evolving in the industry. As a consequence, for '22, we expect to be at the lower end of our margin expansion because some of the factors that the industry currently experiencing will be -- have to be factored into our economic model. Our healthy cash flow and strong balance sheets are supports of our strategy. We have a 1.2 free cash flow to net income ratio and a $1.7 billion net cash position paired with a very healthy balance sheet gives us a flange flexibility to execute on our strategic program. Our annual cash flow conversion target remains at 100%. We're disciplined on our working capital, and we're focused on our DSO and vendor optimization to ensure that working capital is optimized. Our capital spending program focuses on investments into our organic growth opportunity and operation and is under the same rule of discipline. With ample liquidity and strong balance sheet, we feel great to execute our strategy. And we're planning to use that capital in the manner that I mentioned before. Approximately 50% of the capital will be spent on M&A, 25% on dividends and 25% of our cash flow will be dedicated to offset the equity compensation dilution in our programs. The trailing 12 months have been impacted. Just as a reminder, by a strong share repurchase and particularly in the fourth quarter of 2020 when we returned cash from our India cash dividend to our shareholders. We have a strong commitment, and Brian mentioned it before, to enhance the transparency of our reporting. And we have a history of doing so. In the first quarter of '20, we introduced our definition of digital revenues. We, in the first quarter of '21, clarified and had full transparency of the contribution of inorganic and organic revenues. The bookings number is particularly close to my heart. We continuously have improved the disclosure around our bookings, the quality of our bookings number. And you have seen increasing disclosures starting today with our -- this offering -- trailing 12 months bookings in absolute numbers. Our attrition reporting, I believe, is industry leading. We have a comprehensive disclosure of our attrition by voluntary and involuntary. On the complete base, for ease of comparability, we added a 12-month trailing measure to our disclosures. Brian mentioned our ESG commitment and reporting and all culminated really in great rewards that we are proud to have received on our proxy disclosures as well as our transparency awards that are listed on this chart. So in summary, Cognizant is a company that faces meaningful growth opportunities. We are supported by a large and fragmented industry. We have a fantastic client base that will fuel our future growth. We are making the right investments into digital and international, supporting sustained and consistent revenue growth paired with a continued margin expansion. Our strong cash flow and balance sheet is there to support our strategy and its balanced overall. We're committed to generate and drive shareholder returns and support this shareholder growth by a variety of factors: revenue growth, margin expansion and a return of capital will ensure that we achieve our objectives. With that, I am concluding my presentation. Give us a few minutes to get us here on some chairs for the Q&A session, and we'll open the lines for Q&A, and we'll come back to you in a minute. [Break]

Good morning, everyone. Welcome back. Brian and Jan, thank you very much for the prepared remarks. We're now going to open the line for some questions. So I'm going to turn it over to the operator. Operator, over to you.

Our first question comes from the line of Rod Bourgeois, DeepDive.

Okay, great. So yes. Great. So I have a question first on Healthcare and then on Financial Services. Brian, the turnaround in growth at TriZetto, in particular, has been pretty impressive. I wanted to ask what has been the key to the turnaround in the growth in that healthcare product unit, TriZetto? And will TriZetto's turnaround and growth open more opportunities for Cognizant in the Healthcare BPaaS market?

Rob. Great to be here and look, it's an insightful question and something we were very focused on a few years ago because, post the TriZetto acquisition in 2014, it wasn't clear to me that we were fully unlocking the value of that asset. And as you've watched the space in recent years, private equity have been very active here. And clearly we see this as a wonderful market. And so we said about refreshing the leadership team. This is a fantastic example of an internal promotion. Surya Gummadi, who's been with Cognizant over 20 years. We promoted Surya to lead our global health care business. And he said about making the relevant changes in terms of capital re-prioritization to get after the intellectual property we had in the platform. At that time, we're somewhat oriented towards what I would call legacy technologies, almost screen type user interfaces. We've completely overhauled the product line. In parallel, we've gone after a much more aggressive stance in terms of how we position the product with clients in terms of go-to-market value proposition but also, Rod, in terms of how we position the product to make sure industry analysts recognize the progress we're making. And I'm frankly delighted with the win rates we've seen in the business. We've been on the attack, both protecting our own accounts as well as enlarging our scope by being able to dislodge some of our competitors from the accounts that maybe they had taken from us in prior years. So it's been a combination of sales and marketing and product and frankly, fantastic delivery excellence. At the end of the day, whatever we sell in Cognizant it's a promise to deliver against that commercial outcome, and we've done a great job overall. And I'm pleased with it, because to your point, the product success is a very strong leading indicator of future services success as well. So all roads lead to promising outcomes in the health care business, both in terms of the sheer size of the market, the investments and the trends within that market and Cognizant's substantially increased competitiveness in health care in recent years. That is actually starting to become one of our single biggest industry segments. The largest we have today are our Financial Services segment, which is about 33% of our overall revenue. With Healthcare, they represent collectively about 66% of our portfolio. Financial Services recovery has been less, I would say, noticeable. It's a more paced recovery. As I said in my prepared remarks, we're doing the right things. I'm absolutely confident we got the right leadership team. We have refreshed our commercial leader, our delivery leader. We've reembraced the partnership ecosystem. We have a largely refreshed client-facing team. And some of the largest banks and insurance companies of the world are quite sophisticated in terms of the skill sets that they want in-house and the partnership expectations that they have of a service provider like Cognizant. We had been slower to pivot to digital in prior years. We're absolutely committed to digital now, and we're seeing good momentum. And just as we've mitigated some of the erosion in some of those large global banks by being very successful in our mid-market North America bank strategy and working with our innovation teams around fintechs, so to where we're very committed to get back into some of these largest banks. And hopefully, in the coming quarters, we'll have good news in that regard as well. Getting Healthcare and Financial Services back to stronger growth, by definition, will catapult the company's prospects forward because they represent the biggest single portion of our portfolio. I don't want to just not make a comment on CMT and products and resources, I'm very proud of our teams there. They have helped us diversify the portfolio. They have been growing, frankly, double digits for multiple years. And as we went through COVID last year, it is true that the product and resources business, particularly the consumer goods and travel and hospitality, took a hit. But we're now back to pre-COVID levels in those businesses and performing very, very well. So all in all, I think we've got a good story across our industry sectors. Healthcare has been a shining star. So has products and resources and CMT. But certainly, I feel confident that Financial Services recovery is ongoing and will continue into next year 2022.

Brian, if I maybe offer a few round out comments to the healthcare success. The success in TriZetto in the revitalization of the product has not only yielded the acquisition of new logos. So we have expanded our client base despite the broad market presence the product already had, which is good to see. And Rod, in addition to your question, yes, BPaaS has benefited from that because we do offer services around that product set. And consequently, many of our clients also engage us, of course, in our more traditional IT services offering. So it's really a great crystallization point to spur growth of the overall sector.

Okay. Operator, next question please.

Our next question comes...

There's no sound coming out.

I had a question on the international effort front. So you're showing solid bookings momentum there. Is that broad-based across the portfolio? Or any particular subsegments that are standing out well for you? And if it is concentrated in certain pockets, what can you do to leverage those successes to drive broader performance?

We're particularly pleased with our international momentum. The revenue growth is there and should accelerate in the years ahead, but the bookings growth and the qualified pipeline that we see gives us further confidence as well. The reality is that it is broad-based. Now the leadership team that we brought into our international markets come with a profile that is very C-Suite-centric, very accustomed to selling and leading with consulting client outcomes, selling, solution, delivering client outcomes. So our digital opportunity will accelerate internationally in the years ahead. Perhaps in prior years, we had sold more, what I would orient captive or structure type deal engagements, but our mix of business will shift internationally in the years ahead, given the profile of the people we've hired on our increased focus and onus on digital. Likewise, the acquisitions we have invested in, in our international business have been 100% aligned with our digital strategy, which will help us going forward. So there's no real story in our international markets beyond one of my expectations of exponential growth as well as the profile of the growth that we're getting, which is more digitally-oriented. We have a great set of leaders now internationally, which allows us to capture the market opportunity to get access to C-Suite execs that we've never, frankly, had access to before. And we're starting to see also more momentum in our business process outsourcing business internationally as well, which certainly internationally had been perhaps less stellar than our North American performance in the prior 5 years. In fact, our single biggest BPO win in the last few years internationally happened in the U.K., and I referenced Inchcape in my prepared remarks earlier. So all in all, we're very pleased with our momentum and pleased, frankly, with our prospects in the years ahead.

If you think about the capital that we deployed just in the last couple of years, you -- an example of this is our investment into Australia, fully in the digital and analytics space. And with ESG mobility company located in the fatherland, in my home, in Germany. I'm part and partial to that acquisition in the space of automotive and digital. So those are examples. And I mentioned in my remarks that we're planning to have an increased focus on capital allocation towards the international space. So I think each of these countries will then, in the future, also benefit from integrating additional expertise and capabilities into them, which should sustain that and accelerate that growth rate that we're expecting.

Just I think inherent in the comments, you'll hear, obviously, a very strong focus on connecting logical dots. If our strategy suggests we want to scale internationally, that requires us to make portfolio considerations, sales and marketing considerations, talent considerations, leadership considerations, but also delivery. I touched upon that in my prepared remarks. As we scale into international markets and as we scale into digital, we will complement our extraordinary base of talent in India with near and onshore capabilities to enable us to deliver those digital transformation programs for our clients. And I referenced the delivery center in Adelaide and Australia, our commitment to building out an extra 2,500 resources in the U.K. in the coming years. Those are just good illustrations of the work that needs to be done to execute successfully against the strategy we outlined in recent years.

Okay. And if I could just do a quick follow-up on Financial Services. Do you have near-term visibility bottoming of some of these large global legacy bank losses, of which you can really start to ratchet up and build growth here? Just trying to make sure we -- our expectations are understood as we think about a build in Financial Services over the next few years?

Well, yes, look, on a quarterly basis, by definition, I know exactly where we are with those large global banks and the roll off on some of those logos, which has been partially mitigated. If I take the North America -- the North American mid-market banks, which are now almost fully, not quite, but almost fully offsetting the erosion in some of those large global banks. So I would like to think that the, the material impact of that is increasingly behind us, not quite yet, but increasingly. And that gives me confidence that we will get this business back on a growth trajectory that will ultimately further improve in the years ahead. It's a paced recovery. We've been very consistent about that because it wasn't just about Cognizant changing ourselves and embracing the fintech market and the partnership ecosystem and refreshing our team, it's also about repositioning how we show up to clients and how clients perceive us as we move beyond being a provider of resources and being much more of a thought leader, enabled by consulting and selling solutioning and delivery outcomes. That is a branding, if you will, of Cognizant, which starts each and every day with how we show up in front of clients in the corridors and how we represent ourselves and the thought leadership we bring to the table to help clients address their pain points. So I think we're doing all the right things. I'm confident in the strategy. I'm certainly confident in the team, and I believe you will see improved performance in the years ahead.

Our next question comes from the line of Darrin Peller with Wolfe Research.

It's great to see the expectation on margin expansion from here. And I just really want to get a better sense of your balance and what you expect to do in terms of investments in the business relative to, to some degree, efficiencies coming forward. Just coming off the last few years, obviously, that's been a priority. But especially when thinking about wage inflation and the potential for investing people, can you just talk to us a little bit about where the investments are going? And what kind of balance you could have between dollars out of it in terms of savings?

Yes. Thank you for the question. You're breaking up a little bit. So if I'm not covering everything, please definitely follow up with the question. So the impact that compensation has on our margin is going to be quite meaningful. As you imagine, we reacted to the industry -- high demand for talent in the industry and the high levels of attrition by accelerating our hiring and also, of course, adjusting and implementing compensation measures to retain our associates. I'm expecting that compensation will have a negative effect on our margin next year. And so we, as I indicated, that paired with incremental cost items that were absent in 2021, will have a little bit more pressure on our margin for '22. So the compensation effort that will be higher, I think, than it will be in '21 will be offset by our efforts and work on delivery optimization and efficiencies paired with this portfolio effect that we have on our margins as we're shifting and increasing share of revenues into our digital bucket. That share of revenue comes with a higher gross margin attachment and is helping us to offset the pressure that we will see from compensation in '22. And additional pricing will help us, and then the range of measures that I mentioned in my remarks just a few minutes ago, to drive basically the lower end of the margin for next year. So that's kind of the overall framework of how we think about it. Brian, on comparing it with employee value proposition measures?

The employer value proposition is really of course, as we think about recruitment, but also retention. But in parallel, as we work on the hearts and minds in that entire agenda as well as the compensation elements, what's been very important is to get the company back on to a strong growth trajectory, which gives associates around the world, confidence that we can fulfill their career ambition both domestically as well as internationally. And I referenced in one of my slides earlier, the notion that we have reembraced the delivery pyramid. From my perspective, the level of onboarded freshers in 2018 and '19 was somewhat reflective of our somewhat restricted campus drives in 2017 and '18. We have corrected that, and you're seeing a meaningful increase in our onboarding of freshers in 2020, '21 and our expectations for 2022. That gives us a tremendous opportunity then to get back to the basics of a good services hygiene pyramid where you increasingly bring people into the lower levels of the pyramid and promote from within, which actually gives a very good feel good factor internally because more and more people are seeing their colleagues being promoted. And we have even adjusted the processes to facilitate more of an ongoing real-time promotion process through the course of the year. That not just as good from an employee morale and engagement and motivation, but it's also good, as Jan knows, from a compensation point of view, from a cost point of view, rather than recruiting laterals from the outside. So we're doing the right things to offset that. Of course, pricing is a big consideration as well. It is a knowledge-based business, and so we have to get all of those levers right. But I think we know what we need to do.

That's really helpful, guys. Just one quick follow-up on a similar topic. I mean it's great to see the metrics on headcount you've shown in the slides today. Just when we think about what's embedded in the outlook in terms of head count growth and your ability to maintain or obviously reduce attrition levels. Can you just give us a couple of data points on what you're anticipating in the next few years as part of that guidance? And obviously, again, it's nice to see the true, but I appreciate it.

Yes. So we are expecting for '22 continued high levels of attrition in our employee base. This is, I think, an industry phenomenon, and we don't see it changing in any short term of mind. It's largely driven by high demand for, in particular, digital skill sets. So our plan anticipates that, and we're providing for the appropriate amount of hiring capabilities and capacity to meet the demand that is anticipated. I mentioned the revenue growth in the upper end of our medium-term guidance range. So you should expect employee growth kind of supporting that. And overall, attrition will be not as high as in -- this is why I'm sticking here. We have seen a slight leveling, as Brian mentioned, in our third quarter call of our attrition rates. And so we're anticipating it to be high but not quite as high as we had seen it earlier in the year.

Just a few comments to build upon that. Of course, it's still early in the fourth quarter, and we look at net resignations on a daily basis. And while we expect the industry attrition will remain elevated, given the bullish macro demand that's out there, it is encouraging to see in October where we are quarter-to-date trends, although it's still early to call this something that will continue into the coming years. So we've modeled elevated industry attrition and therefore, elevated Cognizant attrition, but we'll obviously do everything possible to work on engagement and retention to mitigate that. Other considerations that are important in this is also how you think about decoupling headcount growth from revenue growth. Some of that will go back to the nature of our business, how much growth we have in our BPO business versus our other tech services business. We have made good momentum in our automation agenda. Cognizant Automation Center has been a great product. We've rolled out. We've over well in excess of 100 clients leveraging that technology. And our automation agenda is important not just in delivery, but it's also important to how we think about client engagement and even our BPO business. We're very proud of Cognizant Neuro, and the opportunity that, that gives us to differentiate ourselves. And of course, last but not least, we have a concerted effort to scale our digital business. As you're aware, it's a core part of our strategy, and the bill rates in our digital business tend to be higher and therefore, you can have upward pressure in bill rates per hour just given the nature of how our digital business is growing into being upwards of 55% to 60% of our business in the coming years. So we are a services company. We have made some targeted investments in platforms, like the TriZetto product platform and the shared investigator platform. But in the same way, we are committed to being a services company. And so you will see headcount growth that's meaningful in the years ahead, but those other considerations should be borne in mind, too.

Our next question comes from the line of Lisa Ellis with MoffettNathanson.

You painted a pretty compelling outlook over the next 3 or 4 years, the 8% to 11% revenue growth, 20 to 40 basis points margin improvement with 100% cash conversion. Can you guys comment on, as you look at that outlook, what parts of it, in your view, will be the most challenging to achieve? And then also where you see upside to set out if you look at the underlying building blocks?

Yes. Brian and I looked at each other and see, do we have the same priorities of it, Lisa? So underlining our revenue plan is, of course, a relatively healthy or a very healthy industry outlook. So Brian has been describing this 7% to 8% industry outlook. So we're kind of aiming obviously to be right in that space to have slight market share gains, which we think we will be able to capture due to the differentiation that we have been building, and then M&A is adding to that. But overall, the achievement of that revenue growth will facilitate really a lot of things, not only meeting revenue targets, but proud provides a very important foundation for us to meet our margin objectives as well. So our focus is clearly on achieving and sustaining the revenue growth right now. So bookings and translation for -- organic performance of our M&A entities, those are all items that are coming together that I watch very carefully. And then more operationally, next year, I think we have, on the margin side, definitely a lot of work ahead of us. It's no secret that the higher attrition has put cost pressure on the compensation and other HR areas into it. We are adding gradually, though in a controlled way, travel and entertainment back into our P&L as we start traveling and as we return to our offices. Those are onetime effort, onetime things that kind of hit us in '22. So that is a lot of work for us in the margin that we make true on the commitment. But I think that's relatively manageable in the sense versus the clear focus of the entire management team on growth.

Yes. The only thing I would add to that, Jan, is just more how we think about our relative competitiveness. We have gone through 2.5 years of an evolution of the company, strategic evolutions, some leadership team changes, reprioritization of capital and organic investments and partnership considerations. I think with every passing quarter, our competitiveness continues to improve. And so therefore, in the years ahead, there's a consideration in terms of how we start accelerating out of the corner, are we able to become increasingly competitive as well? But it starts, as Jan said, with the macro picture. We feel very bullish about that. I have no reason to believe it's going to materially change in the years ahead. And if we continue to make progress, if we continue to win over the hearts and minds of our employees and bring them with us on our journey, there's no reason we can't be successful in the years ahead.

Great. And then for my follow-up, I had a question about portfolio composition because Brian, you started with that as the first pillar of the strategy of Cognizant. Can you elaborate a bit, on a go-forward basis, how you're thinking about portfolio composition? And I know you've highlighted international at length, but maybe more in the digital context, what areas, in particular, you're looking to do more of? And then also on the flip side, what areas you're looking to do less of going forward?

Well, I'll take it maybe from a trifecta point of view. I'll start with industries. As to Rod's question earlier, Healthcare has been a good growth trajectory for us. Products and Resources and CMT have actually helped us diversify the portfolio over the last 3 years. And so the portfolio will probably become more diversified in the years ahead from an industry point of view. From a geographic point of view, my expectation is to see exponential growth internationally. On our international business, the U.K. is by far our largest country, second only to the United States, but we have big growth ambitions, not just there, but also in what we call DAC, which is Germany and Switzerland. Australia and New Zealand has a tremendous growth trajectory, and I'm very pleased with our team down there and the momentum that they will bring to Cognizant. And then we have other strategic areas where we need to do better in the years ahead, countries like Japan where we're executing very, very well this year. So I think geographically, you'll see Europe, Middle East and Asia become a bigger portion of our pie. And by the way, as Jan and I thought about this 3-year financial plan, including the capital expectations to be deployed over that 3-year period, we certainly have in mind the percentage of our capital that will be deployed internationally to facilitate that. And then the consideration from my perspective is also just on 2 other elements. One is our BPO business. This team have done an incredible job in the last 2 years. We refocused the business post the exit of content moderation. That was a brave decision we took in 2019 because it was a $0.25 billion business growing at a very strong CAGR for us, but it just was not strategically aligned to our future direction. And I think the -- in hindsight, it was an incredible decision. It got us focused on where we needed to go, and that business now is growing multiples of the market average, which will actually make our BPO business likely a bigger portion of our portfolio going forward. And we're very oriented to, I would say, industry-specific use cases. I referenced some of those in my prepared remarks earlier, to make sure it's not some plain vanilla horizontal BPO, but something where we can extract better customer value and, therefore, better pricing dimensions. The digital portfolio, of course, becomes bigger and bigger. As we pointed out, in Jan's slide, 55% to 60% of our business in the years ahead will be digital. We have been quite conservative, I would say, in our definition of digital. We've been consistent since Q1 2020 in that regard. We called out digital battlegrounds around AI and analytics, around cloud, around digital engineering and around IoT. But obviously, we surround that with a big focus as well around things like digital experience, and our digital operations, digital capabilities, including IPA and process consulting. So expect that to be fueled by organic investments as well as inorganic place. And then last but not least, there's a bit of a gem in the portfolio that we'll see us shine up a little bit more in the years ahead, Cognizant Consulting, which is less around strategic management consulting, but much more around industry-aligned consulting that will enable us to show up with clients, help them be more successful by Cognizant leading with a point of view. But everything we do aligned by industry is ultimately intersected with a strong technology consulting backbone. And so whether it's AI for Life Sciences, or helping somebody with a cloud migration or a packaged application, that ultimately consulting has a pull-through to the rest of the portfolio. And I'd like to think in the years ahead, that will become a bigger portion of our portfolio as well. So Lisa, those are the considerations at play as I think about the future shape of Cognizant in the next 3 to 5 years.

Our next question comes from the line of Keith Bachman with Bank of Montreal.

Brian, Jan, I wanted to focus my first question on supply. And you mentioned that you didn't think supply/demand would catch up in '22. It sounds like attrition will remain high. And so I'm wondering, Brian, in particular, if you could call out new processes that you're doing? And what are the risks and the opportunities associated with that? And what I mean by that is, I think you're recruiting from a broader range of schools perhaps even, I think, earlier promotions and those kind of things, obviously, opportunities, but also risk in terms of execution. And then, Brian, you did tease a little bit on that in terms of the geographic distribution work in that not only perhaps doing more in India, but it sounds like greater diversification of low-cost work, so to speak, in Eastern Europe. But I'm just wondering how you see the pyramid changing more fundamentally as you try to execute against those margins. And I had a margin question, I want to follow up with Jan please.

Yes. So look, hopefully, you'll understand we're not going to get into some of the secret sauce in terms of the recruiting engine that our team have been able to put in place in recent years. I think they've done an extraordinary job, and I should thank them on this venue as well because they have really helped us mitigate the elevated industry attrition that we spotted 6, 9 months ago, and they are doing exemplary work on a daily basis. So thank you very much to that team for that. Keith, within that, without sharing details, obviously, we've been watching best-in-class practices across each and every one of our divisions, making sure we replicate those. Our focus on schooling, by the way, to clarify, hasn't fundamentally changed very much. One of the first things I did in 2019 was to go across campuses in India, and acknowledge to them that while we hadn't shown up as much in 2017 and '18, I was absolutely committed to building out our campus program in India, and we followed it up, as you've seen with very strong momentum since then, and that momentum will continue to grow. So I don't want anybody to feel as though we are compromising on the quality of the Cognizant associate on the country. Our delivery PSAT scores have been, from my perspective, in a very acceptable range. And of course, industry elevated attrition is a challenge for every services company CEO. But I don't think we're unique in that regard. And actually, I think we're doing a great job from customer satisfaction and NPS. Going back to the other question, which is around international, yes, the nature of our business drives the decisions we take downstream. So if our strategy is to scale internationally, we will end up with more local hires, people who speak local languages. If our strategy is to scale into digital, we will, by definition, need more agile capabilities near and offshore. And then to your point, while India will always be a prized asset for Cognizant, it is truly a gem. We're very proud of our 200,000-plus associates in India. In the same vein, we need to build out a global delivery network to accommodate our international ambition, our digital ambition. But from my perspective as well, we, as an industry, have learned lessons in recent years around business continuity and how to make sure you can show up to clients and give them peace of mind. And therefore, complementing India with a global delivery network where we can modularize service delivery Eastern Europe, across Latin and America, Central America into Canada and nearshore locations, even in Eastern Europe as well as offshore locations complementing India with Philippines, Malaysia, et cetera. it just makes perfect sense for us to get access to talent and to complement the crew we have in India. So that's something you should expect us just to build out the implications on our pyramid, obviously, will be something Jan and I model and think through in the years ahead. But obviously, it's not just a cost consideration, Keith, from an implication on pyramid, it's the bill rate you get with that as well. And with that comes in the methodologies, the tools, the frameworks that, as I think about our soft vision business, as an example, the bill rates we're able to get from Romania are substantially different than the build rates we get in India. So there is a price and a cost consideration to bear in mind. But I'm comfortable we're doing the right things. I think we've got a spot on strategy and delivery, and we are optimistic that this will be a set of cars that will serve us well in the years ahead.

Yes, makes sense, Brian. Okay. Jan to follow up for you is on margins. You indicated that the margin profile in '22 may be a bit less than the longer-term outlook. And I want to just try to make -- it makes perfect sense, but I just want to try to make sure I understand the build with that. And is that driven by concerns around near-term pressure of wage inflation or mix? And also, how is the selectivity opportunities positively impacting that? In other words, I think Cognizant you have more demand than you have supply right now. So you can, in fact, I think, be a little more discerning about choosing what work you want to pursue. So presumably, that's a tailwind associated with the markets. But if you could just flush out the reasons why on '22, a little bit less, again, it makes sense? I just want to make sure I understand it. And that's it for me.

Yes. No, I appreciate that question. And I think you are really our direction and is aligned with how we think about it. The items of compensation increases have to be always seen in parallel with the revenue opportunities that we have, and so we are managing very carefully the revenue realization of those resources. And clearly, the translation of higher compensation costs into higher revenue has a time delay due to contract nature and the nature of some of the business we have, but we have seen also already today the opportunity to focus on the clients that see very high value in Cognizant and are willing to pay for the quality that we can deliver, in particular, in the battlegrounds of digital, where that is manifesting itself already. When I think about the uniqueness, I think this situation will stay with us throughout the planning horizon. So I -- the compensation while it creates a little bit of a value for us in '22, there are more onetime items of we're returning from virtual to a partial hybrid model that will increased costs that were just principally absent in our P&L. We have the return to travel. So those are more components that I think will have a small margin impact overall, we'll make it a little bit harder for us to be right into the middle of that range of my -- of the forecast. So that's kind of -- it's a nuance, I think. To be quite honest, probably even ahead of my skis here, we are in the middle of our budget process and you'll get, of course, a detailed outlook when we give our annual guidance in -- at the end of our fourth quarter report.

Our next question comes from the line of Bryan Keane with Deutsche Bank.

I want to ask kind of the high level. Last time Cognizant gave an outlook, or a midterm outlook, it didn't work out. Curious to think about the financial controls and the planning process, how it's different than previous years? And I know both you guys weren't really around for the previous guidance and the previous regime. But just trying to figure out how we can get more comfortable with the targets and the planning process to put them out there?

Well, we are keenly both keenly aware about that Investor Day and the effort that the team really put in to create a viable outlook had been -- has been considerable. On the financial side, which is kind of my land's, Brian, will give a broader view here is that we really developed a fairly detailed view about a variety of drivers that could impact our business. And then so we did our best effort. I cannot comment on the prior Investor Day, but we have put our best thinking together to do so. And then from my personal perspective, it's always important that plans have contingencies and trade-offs and you see a little bit this thinking in my comments on margin, we have a number of factors to play with and that we can fine tune. And so it's not only one path to success, it's multiple levers that we can push. You mentioned, for example, that high demand allows us to be a little bit more selective about the highest opportunities for us. Those have helped, and I mentioned now in a couple of calls, which we continue to see there's really nice differentiation on our digital business that has momentum and has sustained its higher profit profile for us. those are all factors that have really some momentum that should underlining help us for success in this. Now I'm a little over year with the company, so that's the best effort I can offer to you. And Brian on your side?

I don't have much to add. We know our strategy. We know the portfolio and into the markets in which we play. The degree of financial rigor in our multiyear internal plan, by the way, which we're not talking about today, but of course, which fuels our financial outlook shared today is excruciating in detail. Jan and I have spent hours and hours and hours going through with the FP&A team. So I want to reassure everybody, there's a lot of rigor behind our assumptions, and it's the right set of numbers for us to disclose today.

Awesome. And just another follow-up for me. With the market focus so much on market share gains and losses, when you think about that digital business, Brian, do you feel like high teens to 20% is the right growth rate for Cognizant? Or given the background of the business, is it -- can it even gain further share versus the competition?

Look, these are the numbers we feel are appropriate in our 8% to 11% top line outlook that we shared, which is 6% to 9% organic and then there's about 2 points via mergers and acquisitions, which will, by definition, be oriented towards digital. We'll obviously do our best to execute better to become more competitive. But the -- that's the set of numbers that we feel comfortable sharing at this moment in time. And that will take our digital mix up towards 55%, 60% of the portfolio. So look I think we're becoming more known as a provider of digital transformation solutions for clients, country by country, industry by industry around the world. And sooner or later, you start hitting a tipping point in terms of credibility and referenceability. And if I certainly go back to my first week in Cognizant, in early 2019, it was very apparent to me in the early client meetings I had, the clients were thinking about Cognizant more in the build run arena, which is typically prone to, let's say, price pressure as people free up investments for digital transformation. And so we were providing clients with efficiencies, but we were not benefiting on the other hand, from the digital transformation work that they were deploying those efficiencies against. And I think that is changing these days. We have got a plethora of examples of clients where we have historically played in one arena. And now as we drive efficiencies for them there, we're actually their strategic partner on their digital transformation journey. And so I feel as though our brand recognition and our portfolio in digital is better than ever before. We're fortunate to have a crystal clear strategy, which enables us to make the right capital allocation decisions from an M&A point of view. And of course, thereafter, we're focused on post-merger integration and making sure we get that right. So we will obviously moderate investments at the pace that we're most comfortable with to make sure we get the best returns for you as shareholders of Cognizant. But that's where we view the growth trajectory of Cognizant in the years ahead.

Our next question comes from the line of Maggie Nolan with William Blair.

Can you get a little more specific on your goals for expanding into additional service lines to clients? Are there any metrics or time lines that you're holding yourself to? And then what are the key steps to getting there?

So Maggie, I think we got a pretty comprehensive portfolio as it exists already today. Our BPO business is about $2 billion. We've oriented that primarily towards industry-specific use cases. Health care and digital natives are 2 of our most successful arenas. But So too is products and resources. We've got more work to do, I think, in FSI and the BPO business. But in the tech services arena, we've got a very comprehensive portfolio from data and analytics through to cloud, digital engineering, our experienced portfolio, our IoT portfolio. So -- and as well as by definition, the classic application development, maintenance business and testing businesses, some of those, by the way, are absolutely fantastic, franchises, our testing business is world class. So I'm very pleased with the portfolio. I don't feel we have gaps per se in our portfolio. What we want to do is strengthen our competitiveness in the portfolio that we have rather than opening up another battleground because there are many other areas that are of interest to me intellectually, megatrends, high-growth markets, but they can be crowded markets. They can be expensive markets to build a franchise within. And it would distract us from what we're setting out to achieve with our current strategy. So you should anticipate that our strategy will stay largely similar in the years ahead, and we have work to do to execute against that. I'm absolutely confident it's the right strategy. By the way, it resonates with our associates. It resonates with industry analysts. It resonates with our clients, most importantly and our partners, and we will execute against that in the coming years.

Okay. And then on the talent side, Does the focus on rebalancing the pyramid continue beyond 2022? And what other cultural changes or changes to the talent management infrastructure we still need to make -- to cater to a larger base of freshers?

There was somewhat of a catch-up in our delivery pyramid in the last few years, and that will continue a little bit into next year. But thereafter, we'll get into more, what I would call business as usual, what you would anticipate for a services organization, where we fuel the pyramid at the bottom and we scale resources up with appropriate training and experience in the years ahead. So I'm less concerned about that being a go-forward consideration. We've done a lot of heavy lifting on that and our delivery leadership team have done exemplary work, and candidly Cognizant is known delivery excellence over 2.5 decades. So it's less a concern of mine. The only consideration on the pyramid is our international markets. And we will build that greater campus programs in Western Europe and in North America. So that's maybe the next extension of our delivery pyramid as part of our global delivery network. With regards to the cultural dynamics from our people strategy, we've got a world-class human resource organization, our Chief People Officer, and Becky's team have done incredible work in the last few years. And from my perspective, we've done a lot of heavy lifting already. We are in the middle, nonetheless, of continuing some other work around rolling out as an example, Workday, which will be rolled out in the coming years around our human capital modernization agenda. There's cultural dynamics, talent management dynamics that have kicked off in the last 18 months. So now we're in the mode of just institutionalizing those every single year. But there's less of an inflection point now and just more of a continuation of the incredible work that the Chief People Officer and her team have done in recent years. The values I touched upon in the Cognizant agenda. Many of those are consistent values with what we've had for 25-plus years. some of the emphasis we put on around creating conditions for everyone to thrive a commitment to affinity groups, diversity and inclusion and big focus around leveraging data being a curious organization, a data-driven organization, we've really, I would say, sharpened our pencils on a number of those arenas. But all in all, I actually feel very good about where we stand. And in some regard, some of the riskier parts of the evolution of a company that is a knowledge-based business is somewhat behind us. That's not to say we're perfect by any means. We have a lot to do still in the coming years. And every time we make progress against those initiatives, we will become more and more competitive. And that's what I think you should really have confidence in Cognizant's leadership team about, we're united in purpose what we're setting out to achieve. We know we've got more to do, but we're actually fully aware that, that is actually less of a problem and more of an opportunity for us to show up differently and ultimately, that will show up with better financial numbers in the years ahead as well.

Our next question comes from the line of James Faucette with Morgan Stanley.

And I want to add my thanks to you guys spending the time and effort to put this on for us today. I want to dig in on a couple of things around. First, the sale and how we should think about the puts and takes of the Samlink assets and the impact of that sale on your 2022 outlook and maybe some of the things we should keep in mind there.

Should I take this? Yes. So we reported in fourth quarter of 2020, the exit of the client portfolio that was related, now we talk about it at Samlink. And throughout the last -- throughout this fiscal year, we had made progress with some of the clients, but reached a final resolution of this transaction with the agreement to dispose of the entity and transition the clients to -- and Samlink to a new environment. We did this really with a primary consideration of what is best for the client base. We are a client-centric organization. It was very important for us to find an answer and the solution that is beneficial for all stakeholders involved. This is a great solution for everybody. And for us, is basically a no meaningful financial impact related. It's all in line with the expectations that we had set in the fourth quarter call earlier this year. And obviously, there's a revenue impact that will happen throughout the next fiscal year in banking and financial services. That is anticipated in my comments of revenue expectations. But other than that, it should be really no meaningful financial impact other than the ones that I just mentioned.

That's great. And then I guess more generally, back on the attrition question is that obviously, there's a lot of end market demand. But can you talk about -- is there an opportunity -- and you've indicated that you think '22 will be kind of at the high end of your medium-term outlook of 8% to 11% revenue growth. But if you're able to arrest kind of attrition and do better than on the competitors, is there an opportunity to kind of reengage some of the work that maybe you're being selective around right now to even drive faster growth and move that higher? I'm just wondering like how much operational opportunity there is to do even better for Cognizant.

No, I appreciate that question, and I'll give you the hand with already early indicating my revenue ideas for next fiscal year, now you want even more for that. So but I appreciate the question. So it's really -- I think I want to bring it back to the assessment of what are the drivers of a higher turnover. And we have a high-demand environment and skills have to be built. So I think the labor market will remain tight and as an industry phenomenon. We have a return-to-work anticipated in next fiscal year. That should have a -- in my personal view, a positive impact because the return to work will allow our associates to rejoin their teams, et cetera, balancing factors overall. So for me, I don't want to engage too much in what and if could be. We have been able to fund our growth, as we demonstrated just in the last quarter, where we had employment growth of 12%, 13%, supporting our revenue growth of 11%. So we feel we will be able in a high attrition environment to support the growth opportunities that we have. Now can we hope for better. We always could. But I think we give you a fairly realistic and actually a good goal for us. We will work for it, and it's not -- we have to -- our work is cut out for it, but a realistic goal, I think.

Our next question comes from the line of David Togut with Evercore ISI.

Jan, one of the first challenges you tackled when you became CFO was a large underperforming contract in the portfolio. So my question really is what is the state of your portfolio contracts today in terms of where you're performing versus milestones? And what do you see as the mix going forward of fixed price versus time and materials?

Yes, that's actually a very important question, David. We have based on the experiences that I had to report in the fourth quarter have a rigorous process of, in particular, large and complex delivery execution. And as Brian said, we have really made meaningful progress not only in the governance of this but also in the actual execution of these complex contracts. And so there's always -- in a large global company like us, there's always a set of clients that need attention and has opportunities to improve. But I would say the overall risk balance in the portfolio has really stayed stable. And so there's not news, David, that I can report to you other than we have a rigorous governance process on it and that we haven't really seen any massive shift in the overall profile, risk profile of the portfolio. We haven't engaged in very large-scale transactions, captive deals, et cetera. So our growth has been fueled either by medium-sized organic deals. And then obviously, we have augmented this with M&A transactions. So from that perspective, we have also not added high-risk large deals to the portfolio. With this -- the shift in business model, I think the shift to digital will lead itself more naturally to some degree of outcome-oriented time and material-based contracts. And then in addition to that, I think there's a group of contracts that will be in a pure outcome or fixed bid, as you call it, type nature, both categories will be important for us. And I think what I see decreasing in the future is our exposure to a more classic rate card type business. That should decrease, but the mix between time and material because of the lean to digital as well as to an increased utilization of outcome-based projects, I think that will be the shift.

Just as a follow-up, just looking at your margin bridge from 2021 to 2024, the 110 basis points of margin expansion planned, you don't quantify any of those 4 steps from '21 to '24. Could you perhaps quantify each of those 4 elements over the next 3 years?

I somehow could have almost bet with your focus, David, that you would ask the question. So I think what I want to illustrate is really that some of these factors are directionally offsetting. So while the size of the blocks is purposefully fuzzy because I think I need a little bit flexibilities of how I manage the overall outcome. I think from a big margin driver perspective is that the key component of compensation return to work and T&E is offset by our focus on delivery efficiency, on recapturing the pricing opportunity. I think digital offers that to us, in particular, this year and next year in the move to more digital business in the digital margin that is higher. Those are the key, key factors that drive really the initial gross margin development. On the classic SG&A, we have a little bit of a benefit that some of the early investments that Brian and team made in strengthening, for example, our IT infrastructure and security, reaching an appropriate level of marketing and branding support, tend to now anniversary and they're going to go into a mode of more scaling and helping with the scale of our margin in the business. That's when I talk about controlling the expansion of SG&A cost in a more traditional way while maintaining our strategic focus. That will be another factor that I'll be working with the team to get to the desired outcome.

Understood.

Our next question comes from the line of Dave Koning with Baird.

And I guess, first of all. Just thinking about M&A to add 2% through using half of your cash flow, it implies about 3x revenue for the acquisitions you're buying. Has that changed a lot over time? Like I guess really the question is, it seems like every day pretty much Accenture's in the market buying stuff, you bought more stuff INFI et cetera. Is it still possible to get decent valuations? I mean we've seen some of the private companies just accelerate their valuation so much. Just wondering kind of how you see that balance.

Of course, as a CFO, I do have to complain about high valuations in the space, but quite seriously, we have really a great M&A approach and a great team. The portfolio, if I look at the portfolio that we have acquired throughout the last 2 years, which formed the assumption that you correctly characterized is a mix of competitively acquired transactions, but also a large share of developed M&A opportunities where we have acted in exclusivity. And so we have been actually in full disclosure, better than the 3x revenue that you calculated there. So I think this is a realistic number. We had transactions, obviously, that we're a pricier, but we had also many transactions that were not as pricy. So I feel the 3x revenue assumption is actually a realistic one that we, as a team, are comfortable to execute. The world is not only highly visible, highly competitive transactions that bubble through the ether. There's a lot of good stuff that we have been developing, where we have long-term relationships with these companies developed in the early stages that we will benefit in the future. So and I say this always, we do watch the return characteristics of this M&A. We have a very active Board that reviews the performance of this M&A. So we are sensitive to this. So it is by no means a shopping spree that we are under. It's a very disciplined approach to find that right target, maybe a last comment, that's why I also were so keen to reaffirm our capital allocation framework because I believe when we start to think about, here's the capital that I have at hand, here is the contribution that I want to make, here's the strategic direction of where I want to go, the whole system in collaboration of business units, the corporate development team, our strategic ambition comes better in a disciplined way. And I think that's why we have high confidence actually that this capital allocation be sufficient to drive the M&A.

Got you. And maybe a follow-up, I'll ask a margin question too. If we think about the 20 to 40 basis points, how much of that is just a mix shift to digital, right? Because obviously, digital has higher margins. And then, I guess, really are both digital and nondigital margins themselves rising each year? Or is it just a mix shift?

Yes. No, I appreciate the question. It's really -- I open up the lens here to cast a wider picture because the margin expansion of 20 to 40 basis points is really in size actually very understandable. I don't want to say small or large, but it's like it is what it is. Each factor that comes in can have even a higher variance up and down than the net result of the 20 to 40. And so it's a little bit misleading. So that's why I don't want to give you that number of how big that effect is because the waterfall as it is optically indicated, has lots of ups and downs. And so the dynamic over the next 3 years will be -- need to be carefully monitored. But I mentioned, so to speak, this shift towards digital because that's a steady contribution throughout the planning horizon that I'm booking on and that we are monitoring and that we are -- that I have an eye on that we are driving that home. But in its size, I don't think itself is going to be that meaningful, but you will have to see it in relationship to all these other factors.

Our next question comes from the line of Jason Kupferberg with Bank of America.

Appreciate all the detail today. Just want to start out talking about 2022, I know you said you'd be at the high end of the 8% to 11% multiyear target. So should we think about 2% being the M&A contribution for 2022 specifically? Or is the number materially different from that? And if you can just talk about the general visibility on what seems to be a pretty robust top line outlook for next year.

Yes. It gave me quite a bit of discussion and consideration to include M&A revenue not completed into this multiyear outlook. I felt it was fair because we were discussing a fair amount of capital allocated to it. So it would make sense that we would also account for the -- and hold ourselves accountable for the contribution that those capital outlays would make. So for next year, again, we are in that budgeting process. So this is really more a reflection of where the multiyear plan will fall where we are today. And it will be a combination. We are going to have some contribution from inorganic due to acquisitions that we completed within this fiscal year, and then it's going to be a regular contribution of targets that we're planning to close or in the next fiscal year. So yes, it will be a mix of them. And we have to -- we haven't really decided yet of our actual revenue guidance. We'll fully include the M&A. So this is kind of still work in progress for us. But I think for the overall expected revenue, we are going business as usual, basically yes.

And just turning to the supply side of things, I think you mentioned a plan to hire 50,000 freshers in 2022. So I was curious what the geographic mix of those might look like in terms of India versus non-India? And is that mix changing? And any data perhaps you can share just in terms of job offer acceptance rates among the freshers? It certainly seems like you've been ramping that, the hiring efforts quite well. And to your earlier point, Brian, you're kind of impacting the staffing pyramid in a positive fashion as a result.

Yes. The vast majority of those freshers onboarded will be in India, just by the sheer volume of skills available to us, but obviously, we'll start scaling out more into the thousands in North America and Western Europe as well. And I want to say, it was yesterday, we announced the delivery center in Adelaide. We announced in September about 2,500 people to be hired across the United Kingdom as well. So we will scale that internationally, but the preponderance of our delivery resources remain in India that will be complemented by a global delivery network, but a lot of the work we had to do to rightsize the pyramid was actually in India because of a slowdown in campus activity in 2017 and 2018. I'm actually very pleased with the campus acceptance rates. They've actually gone up in recent years, and Cognizant's brand remains strong. If I think about the Forbes recognition of Cognizant in terms of a wonderful location to fulfill your career ambitions, we came second to only 1 player of all companies based in India, both foreign multinationals as well as local players. So our standing in India remains very, very strong, and we're intent with our employee value proposition to make sure we continue to bolster that in the years ahead.

Our next question comes from the line of Surinder Thind with Jefferies.

A follow-on question about the changes that are being made to the shape of the pyramid. As you kind of broaden out the base, can you maybe talk about the perspective of what clients are -- should expect there in terms of -- is there a consideration around the number of freshers that are being onboarded, discussions about the seniority level of the staffing. Can you help us understand that dynamic?

Yes. But of course, to a certain extent, part of our strategic ambition is to sell a solution and deliver client outcomes as opposed to being a mere provider of resources. If you're in the world of providing resources and clients want to interview resources, by definition, the notion of how many years' experience they have, et cetera, becomes very pertinent to the discussion. But one of our strategic goals is to continue to evolve towards more client outcomes and also selling larger deals as part of a digital transformation type project and that actually enables us to industrialize delivery, better leverage automation, better optimize our pyramid as well as optimize or on near and offshore ratio. So in some regards, our desire is to take that pain point away from clients and commit to client outcomes. We have a lot of confidence in our delivery excellence and our credibility over the years demonstrates that, that is a core DNA of Cognizant. And the more we can talk to clients about outcomes and solutions against those headcounts the better. And therefore, that pyramid question should be less and less visible to clients going forward.

That's helpful. And then as a follow-on, can you maybe talk about the lens of growth through maybe consulting versus outsourcing? Should we generally think about the digital business as -- is the proxy for the consulting side of the business? And then maybe talk about just general expectations for growth in the outsourcing business as we kind of look across the framework. Is that mostly slight volume growth there with continued pricing pressures? Or how should we think about that?

When I think about the consulting business, actually, my mind goes into 2 dialogues. One is a pure consulting business for Cognizant. That is stand-alone in nature that is intersected with key industries and technologies, whether it's cloud or AI aligned to health care or insurance or otherwise. And by definition, therefore, you have a consulting community, a career architecture, compensation that goes hand in gloves with that pyramid and utilization and chargeability KPIs and metrics, et cetera. But also what Cognizant has been doing as an effort to show up more to be consultative in our engagement with clients. And consultative in our engagement goes back to our client's interface, our commercial teams, our delivery teams, our desire to lead with a point of view to really understand the industry and sub industry, and we are absolutely committed to industries, and that is a muscle memory that will actually strengthen in the years ahead. And so to show up and not be waiting for clients to ask for resources, but instead to proactively show up to a client understanding the secular trends in their industry or subindustry to regulatory environments, the customer pain points and giving clients optionality. And as we start thinking about the evolution of Cognizant in the last few years and certainly in the next 5 years, my hope is that we will continue to see clients say what they're saying to me today, which is, you are showing up differently. The client-facing teams you have in front of us are being much more proactive and giving me choices and I don't always have to execute against that as from Cognizant, but at least you're stimulating me to think about problems differently. And so think about our framework of our business in those regards. So consulting as a business will actually scale in the years ahead. Don't be surprised if you see some targeted industry acquisitions against that. But our consultative engagement overall also goes hand in glove not just with a philosophical desire of Cognizant to increase our relevance to clients in line with our strategy by showing up differently but also by definition, the nature of digital requires us to do much more consultative-type engagements where we are doing more project type work as opposed to application outsourcing, leveraging labor arbitrage in India and what not. So that's a natural evolution of the portfolio in line with our strategy.

Just making sure that your question was not targeting our external reporting differentiation between consulting and outsourcing. That's kind of our formal SEC -- in our formal SEC reporting. The portion of outsourcing is, to a large degree or BPO-type business that Brian actually referenced in his presentation, is really compared to their industry competitor is really doing well, with industry differentiated solutions and good margin profile, albeit a little bit lower than our what we externally classifies our consulting business. So if you think about outsourcing in that external reporting sense, that's largely our BPO-type business. Some other overlap, it's not 100% clean and what we classify as our consulting business is basically our technology business. Overall, it includes, of course, the very specific consulting as a business segment that we have.

Ladies and gentlemen, our final question comes from line of Jamie Friedman from Susquehanna.

Well, it should be applause on knowing how thorough and meticulous this presentation was. So nice job. I guess I'll just ask my 2 upfronts. Yes, historically, the margins in these segments have varied. So like BFS according to the 10-K is lower than CMT and Resources, which are really higher. In terms of the margin strategy and your responses have been very thorough. But is it more to like bring the bottom up or move them all together? I'm just wondering about how to think margins on a segment basis. I realize you don't guide that way. And then I'll just ask my follow-up if I could. Brian, in terms of digital versus legacy, as digital continues to grow towards your targets to be the majority of revenue, does it change your delivery and human resource strategy at all. So the first on the margin, second on the digital.

Yes. Maybe, Brian, you'll take the second question, but our first question, you're a keen observer of different margin profiles in our industry segments that we report. Some of them are a little bit more structural due to business type mix of product versus a stronger exposure to BPO-type offerings. And so it's hard to dissect those segments as an industry-specific margin. It is really more a result of the portfolio of projects that we are conducting. So the general push is, I think, aligned with our strategy. It's like we have portfolios where digital is below the company average, just by definition. And so those segments receive a lot of encouragement to drive the share of digital app. If we have a higher amount of classic rate card-based business, we'd have a high push away to the higher growth areas of digital and time and materials and fixed income. So we have a more strategic driven push to adjust our portfolio the right market segment. So -- and the outcome of that is the portfolio should be improving. So I guess, net-net, it should be even if our business segments would all execute against that, but it's nothing too specific, I think, across industries, my answer.

And with regards to the question around delivery and the implications of digital, look, the implication of the strategy has broad implications on everything, the portfolio, the partnerships, the talent as well as your delivery capabilities, something as simple as BPO, if it's a linguistic element. The Philippines is very successful in that regard for historical reasons. India obviously has been a tremendous success story over the last 30 years, pre-Y2K and beyond. And then in digital, some of the next-generation digital companies you're fully aware of, have been very strong in the Ukraine, Lithuania, Romania, et cetera, just given the STEM education in those markets. And so the nature of what we sell and ultimately, solution and delivered by definition has implications in terms of how we think about application outsourcing and leveraging labor arbitrage in India, but the sheer shift of Cognizant towards digital transformation type work, which tends to be more project-oriented, we'll continue to see us put more resources on and nearshore. And as I implied in my comments earlier this morning, you will see us continue to scale out our capabilities, both on and nearshore and Eastern Europe will become an ever more important part of our portfolio that actually complements India. But so too will you see that in nearshore locations like Canada where our headcount has been scaling. So if you think about time and material, rate card work that can be interview centric. Some of that can be very much onshore as well as offshore. If you think about managed services or digital transformation type project work, the nature of the delivery pyramid and the location and the intimacy or proximity to client does indeed change. And we're all over that as part of our multiyear strategic plan and our global delivery network. And we have, I would say, very strong minds in delivery, orienting that with our commercial market teams to make sure we're building out capabilities in the right locations to fuel our multiyear growth factor. So I think with that does that conclude -- Sorry, was there another question? Well, thank you for the compliments. Tyler, I would also like to thank you. Even though Jan and I did all the work this morning, you did all the work leading into this. So thank you very much for help pulling this together. We will do these type of events periodically. It's a regret we're not in person today as we're responding to your questions. But nonetheless, I think it's been an effective forum given the environment that we're working in today. Hopefully, it's very apparent to you. We are united as a leadership team. We have the luxury from a macro point of view of being present as a very strong brand in a large growing cottage industry where we have ample room to grow. And certainly, I hope we've evidenced that the capital allocation and organic investments and choice points we have made as a leadership team have ultimately positioned us into higher growth categories. So I'm very pleased with our strategic direction. We're executing well against that. And we're united as a leadership team, and I'd like to thank our employees around the world who help make this possible for Cognizant. We're getting back on the front foot. And I'm convinced if we do the right things for our clients, for our partners as well as for our valued employees globally, we will continue to drive meaningful shareholder value creation in the years ahead. So thank you for your questions this morning, and thank you for participating, and I wish you all a pleasant day.