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

Good morning, everyone. I'm Rayna Kumar, and I lead U.S. payment processors and IT services equity research at UBS. I am lucky today to be joined by Cognizant's CEO, Brian Humphries. Brian, thanks for joining us.

Good to be here.

So let's start with your press release this morning. You just announced that you will be acquiring SAP alliance. Can you talk a little bit about the strategic reasoning behind that acquisition?

Yes. So just maybe from a capital allocation framework first, to put it in context, we generate approximately $2 billion of free cash flow per year. We've committed to return about $1 billion of that to shareholders in the form of dividends and share repurchases. We've actually gone deeper in share repurchases in recent years. We would also spend about $1 billion of that on mergers and acquisitions. So we tend to do that in areas where we have a strong affinity towards higher growth categories, namely the so-called digital arena, also scaling our business internationally, which is part of our strategy. And in key verticals and consulting areas, this is one of those key verticals. Energy and utilities, there are secular trends towards smart grids. And really, this acquisition is in that category. It's an SAP acquisition that's aligned to some of the larger utility companies in North America.

Got it. Do you have partnerships with some of the largest hyperscalers, many of which have been enhanced by you during your tenure at Cognizant. How do you think your partners fit specifically with Amazon Web Services and Microsoft Azure are differentiated with your competitors?

Look, 3 years ago, we didn't have business groups behind Microsoft or AWS or Google, we established them in 2019 and 2020. And I would say the strongest one in particular is Microsoft. We set up 2 acquisitions behind the Microsoft business group in, I want to say, 2020. New Signature and 10th Magnitude were 2 acquisitions that really strengthened our position there behind the Azure franchise. I'm looking also at Dynamics these days. I see a lot of momentum in Microsoft in Dynamics. And that's where we're strong. I'd say AWS is the second strongest, and GCP is of interest really around key workloads, data-intensive workloads. If you think about autonomous vehicles, electrification of vehicles and whatnot, they're going to throw off a ton of data. So with Thomas, we're exploring partnership in areas like that. And invariably, you see certain industries, like retail, where perhaps AWS, for obvious reasons, is not as strong as others and people want an alternative to Microsoft. Differentiation is more challenging in that regard because, let's face it, most services companies in the world recognize the power of the hyperscalers, and therefore, standing up practices behind us. What really becomes important in differentiation from my point of view for hyperscalers are industry-aligned solutions. So let me take one example our TriZetto business, which has been a good turnaround story in the last few years for us, really positions us very strongly to be the service provider of choice for the health cloud for each and every one of these firms. So we're doing a ton of work with Microsoft as an example, linking TriZetto and then porting, frankly, TriZetto want to Azure Cloud and coming up with use cases around TriZetto that can be deployed around the world. We're also looking at bringing TriZetto perhaps into international markets. It's really been a U.S. payer-provider target area for us with over 200 million people we leverage at each year. We're looking at international opportunities that should enable us to scale that further.

What's the time line on that scaling of TriZetto to international markets?

It's been part of our strategy for the last year, and we have some things in the work right now.

You recently made some changes to your people strategy, including accelerating your merit cycle for most of your associates. How have these been perceived by your employees? And have you seen an improvement in voluntary attrition in the fourth quarter as a result?

So look, the industry I think is -- let's not disguise the fact with a robust digital environment you end up in a services environment with demand-supply economics by key skills that are imbalanced. The industry's been elevated attrition. We've been viewed as being an outlier in terms of the upper end of elevated attrition. Some of that is actually correct, and I can get into that thing that smoke in mirrors. Because we actually disclose every single thing in our attrition, whether it's trainee or somebody from a BPO business versus others, they exclude those categories. So ours is very comprehensive. But actually, our employee engagement scores this year went up in 8 categories renovate and ramped multiyear highs. And I've been pretty clear last quarter, while attrition fell 3 points sequentially, we expected a much more meaningful reduction in attrition in the fourth quarter -- much more meaningful than the third quarter reduction from Q2. I'm really starting to see the green shoots of the work we've done. We put a retention war room in place 18 months ago. We've done a whole bunch of things from overhauling the compensation strategy of the company, to overhauling learning and development, to overhauling the promotion process. And that's starting to kick in. I dare say a slowing or uncertain macroeconomic background will also temper attrition across the entire industry, but I suspect that our attrition reduction sequentially will be higher than most in the industry this quarter, which is obviously good for us in terms of our ability to fulfill and, obviously, get back on a faster revenue curve.

You recently announced some major management changes, including Ravi Kumar as President of Cognizant North Americas, and Prasad Sankaran as SVP in your Enterprise Technology Global Practice. Can you talk about the roles within Cognizant? And where do you see the most opportunity for them?

Yes. Both are -- I'm really pleased to have been able to recruit them. The first time I met Ravi and started a dialogue with him was over 15 months ago. So this was a long gestation period to try to wine and dine and talk about the possibilities of us working together and what he could do for us here in Cognizant. So he's been the President of the Infy for 6 years. They ran a very good playbook, and I think he brings a very strong growth agenda to Cognizant, which would really help us in North America, which is about $15 billion of our revenue. So getting more growth in what is 3/4 of our business ultimately helps overall company growth. And Prasad Sankaran, actually, I started talking to him in spring of 2020, so this is almost 3 years in the works. If you think about it in that regard, it just takes a long time to get people of this caliber into your company to find the right role that fits. He's running effectively what we call software platform engineering. So think of that as ADM, digital engineering or QE&A, our testing business, our digital experience business and he'll play a very strong role, actually back to the hyperscalers, orchestrating those relationships for us. He was in Accenture for 25 years before going to Bain for a few years. And actually, he stood up the business group strategy in Accenture back in the day. So both of those bring very strong skills to Cognizant. They've been in the works, if you will, for between 15 and -- almost 3 years, 15 and 36 months, but we're pleased to have them join. Prasad joined November 1st, and Ravi starts January 16th.

In your third quarter earnings call, you appeared cautious on your outlook, particularly for your Financial Services business. Can you highlight the areas of financial services that are more prone towards discretionary versus nondiscretionary spending?

Is not just Financial Services. If -- can I just step back just for 1 second, just the strategy of the company, what are we trying to do, because the third piece of the strategy fits into your question. The first piece of the strategy is pretty obvious, globalize the company. $15 billion of revenues in North America, $5 billion overseas. We want to get out that market opportunity overseas. And that requires us to change out some country leaders overseas, refresh them. I won't apologize for saying my head of Japan should speak Japanese and should probably understand the Japanese culture, so we've made those changes. We've got good momentum in Japan at the moment. We're also complementing our international business with more M&A, more branding and actually a delivery network, where we complement India with nearshore and onshore international delivery capabilities. That's part one. Part two of the strategy is around scaling into digital, higher growth categories. It's ultimately about repositioning the company towards higher growth categories. When I joined a few years ago, we were about 30% digital, 70% exposed to lower-growth categories, so we're way behind the industry. We've been pushing that envelope as quickly as we could. We leveraged the balance sheet. We spent about $1 billion a year on that, we're now 51% digital. That will help our growth rate. It actually also helps employee retention and attraction, because employees want to have contemporary skills. It also improves our relationship with clients because we're not just doing build, run our maintenance, we're actually doing some of our most innovative and strategic projects. The third part of the strategy links back to where you're going with these things, which is -- I inherently of the belief that being a provider of resources is not a sustainable advantage, and it's not clearly as strategic perhaps as it was 25 years ago, pre-Y2K or leading into that post-Y2K era. So if you provide resources, you can inherently become more culturally passive. You're waiting for somebody to ask for .NET or Java or others. So what we've been really trying to do is accelerate our shift from being a provider of time and material type work to sell solution and deliver client outcomes. Now either said than done, and that's, therefore, the hardest part of the strategy. In order to do so, you need to have a client interface that shows up with a point of view by industry and subindustry. Take an example, financial services and banking, retail banking versus capital markets or payments, different dialogues, different pain points, property and casualty versus life insurance, et cetera, et cetera. So you have to have a strong conviction and a point of view of the pain points of the C-Suite in those industries and subindustries. Then you have to have a client interface that shows up more proactively with a point of view. And thereafter, you have to have solutioning and project and program management capabilities to actually price solution and deliver successfully against those commitments. And so that pivot, in that third part of the strategy, is very important to us. We're not trying to become McKinsey or become a strategy consultancy firm. Our prowess is actually technology, but what we want to do is complement our technology capabilities with more of an advisory capability wrapped around that. Now that ultimately starts shifting your revenue mix away from time and material towards managed services/fixed bid/fixed price, which can enable us thereafter, therefore, to industrialize delivery. So the good news about this is if I have committed an outcome to a client, I can manage my pyramid, I can manage my shoring and I can better manage my margins because I leverage automation, I sell larger deals. If I'm simply providing bodies, resources, and it's even worse if you provide resources that are interview-based resources, you can find yourself selling a lot more smaller deals and a lot of deals you can't automate because you're selling an individual, sometimes based on an interview or teams of individuals. And so that's the pivot we're trying to make. And the best maybe illustration of the risk of not making that is if you're in time and material, you're subject to things you've known about for years. Things like furloughs because people want to make savings. And in a period of macro demand uncertainty, you end up in a time and material business. Just like a consulting business, you're more exposed to the vagaries of budgets. We want to continue to evolve away from that. But as a company, we're still approximately 50% time and material. In banking, more explicitly, our banking business, our FSI business is 57% time and materials. So therefore, more exposed to that. And obviously, as we talked to the earnings call, there are pockets like mortgages that are weaker than they've been previously.

What do you think is the right mix between time and material cost plus effects for Cognizant?

Look, I don't really want to get into that because we have internal dimensions we're working through as well, but we will have less time and material over time.

Got it. If you look about the elongated sales cycles on your last earnings call, are you experiencing any improvements in the sales cycle into the fourth quarter?

Earnings was just 4 or 5 weeks ago, so I don't think things changed in the macro demand environment that rapidly. What we talked about at that moment of time was, in North America, certainly a slowing of sales cycle, some degree of uncertainty. I'm a little bit worried. I was at an event yesterday in D.C., a business roundtable, there were 200 CEOs there. They were all talking about things like return to office, the macro environment. Sometimes where we talk ourselves into a recession, because if everybody is talking about interest rates and, frankly, energy prices and a whole bunch of other things, before you know that CFOs are tightening their belts anticipating scenario A versus B versus C for the forthcoming fiscal year, and we can quickly talk ourselves into a recession. But it's certainly being a slower environment, as I talked about in the earnings call, than I had anticipated 3 months earlier. 3 months earlier, I had been somewhat cautious. I think certainly in the third quarter, we saw more of that, I'd say, dynamic that people are second guessing spend, things that don't have a quicker ROI, things that could potentially be pushed off or postponed, have been pushed that. Internationally, Continental Europe has been weaker for us. The U.K. has been a very strong success story for us for a few years now, it's our second largest country and really has been growing mid-teens to 20%. So that's a playbook we're trying to replicate, frankly, in the rest of Europe. And in North America, by industry, it's really been banking, a little bit in health care and consumer goods, and technology has been a little slower, as I said on our earnings call than we had hoped. It's still a double-digit growth business for us, but you're seeing every week technology companies are laying off employees and I think CFOs there are second-guessing spend as well. Now in the same way, I would say the portfolio we built these days, it's very different. We've got a $10 billion digital business and a $10 billion nondigital business. And so whether a -- this takes the more exciting part of uncertainty to a certain extent. If a client simply wants to massively try to do vendor consolidation and reduce cost, we have a very strong portfolio to play in that arena. Or if they are committed to customer journeys and digital experience, rolling out packaged applications, et cetera, we have very strong capabilities there that we never had before. We didn't have a Workday practice 3 years ago. I just am on my second Workday acquisition 6 weeks ago. We were a partner number -- I want to say, 14 for Salesforce 3 years ago. Today, we're in the top 3 or 5. But we've really tried to make ourselves much stronger in the digital arena. And hopefully, the fruit of that repositioning of the company will actually start showing up with better growth over time as well.

If anyone has any questions for Brian, feel free to put it into UBS' TMT conference app, and I will read it off the iPad. Moving on. So quarter to date, have you seen any improvements in optimizing your onshore model in North America? Has your ability to secure work visas for your headcount improved? What do you believe is the right mix here between onshore/offshore and nearshore?

So sometimes the right mix depends on what you're selling. And it was a predisposition, I guess, a few years ago, that digital meant much more nearshore and onshore, and yet COVID has proven that that's not necessarily correct. Because if you can work remotely in your home, 25 miles away, well, then you can work 500 miles away, you can probably work 5,000 miles away as well. So we, like the rest of the industry, have shifted each of the last 2 years -- about 1.5 to 2 points of our delivered revenue has shifted more towards actually India and away from onshore locations in the last few years. The classic IT services model is, however, maximize margin rate offshore, you somewhat subsidize that with onshore capabilities. And of course, there in lies the rub. If you reduce your headcount onshore too much, you actually lose higher revenue and margin dollar per headcount. So while margin rate might be lower onshore, margin dollar and revenue dollar per head is actually higher onshore. And that's a little -- one of the things that hit us more recently. And it wasn't because we were intentionally trying to reduce onshore headcount. It's just -- we're in a world where -- when I joined the company, we were well in excess of 50% visa-dependent in North America. There was Trump administration policies, which were coming into play. And I would say as well, client pressure to say you've got a show up more representative of society in North America, so we went through a meaningful visa reduction in North America. That, by the way, was one of the factors that hurt our attrition in India because hitherto, you joined Cognizant and then you got a one-way ticket to North America and hopefully a Green Card thereafter. The good news is most of that pain is now behind us. Over the last 2 years, we've meaningfully reduced our visa dependency well below 50%. And now we're in a better position where our employees in India. So actually, now we can get more people back to North America because we've done the heavy cuts, if you will, and we're now more normalized. We had frankly gone a little bit too far not because we wanted to go that far, simply because every company in the world is struggling with the U.S. immigration policy, whether it's farmers or hotel companies or, frankly, IT services companies. It's a great dialogue on Capitol Hill at this moment in time, as people are co-mingling, if you will, the Mexico border situation with white collar H1B visa situation. And so we, like many others, have had less H1B visas approved in any time in our history. And even those that have been approved, to try to get them onshore is harder because the visa processing time in U.S. consulates throughout India is at all-time lows post-COVID. They still have not recovered. So those that are onshore are faced with lots of job offers because people are short of labor, and those that you get offshore to try to get approved to come onshore, it takes longer to get them onshore. The more fundamental change in our onshore headcount strategy actually won't be visa headcount that will be around the edges important for us and important for morale and attrition. The more fundamental thing is actually attrition. And as I said, on the earnings call, we've seen that 4, 5 months of resignations on a daily basis falling, and that's a very strong leading indicator of future attrition. So hence, my confidence when I say you see substantially lower voluntary attrition in Cognizant in the fourth quarter versus the third quarter because, frankly, we know what's coming because we've seen resignations deduction.

Given the changes in immigration that we've seen over the last few years, what do you think is now the value proposition that you offer to your employees in India?

Look, I mean, there still is the same value proposition as most other companies, which is you have an opportunity to work for a large company that serves multiple industries, that work -- you can work in some of the most interesting companies in the world. You can have an international relocation opportunity, and you get to work in companies that have a heart. In our case, we do a ton of work around Cognizant Foundation, volunteerism, et cetera. Within -- I dare say, if you go to Accenture, Capgemini, Infy or otherwise, we all have similar ambitions with our employees. We're going to throw a lot of money at your learning and development. Last year, we invested [indiscernible] in learning and development. We had 130,000 people take digital training last year in Cognizant. You get to move internationally. You get to work on companies across all industries. I mean that's a similar value proposition. And what we've been trying to do as well is make sure that we do that with, as I said, career path progression with a compensation structure that's more advantageous these days than previously. And I think getting people back to the office, by the way, is going to be important, an important element of that, because it helps cultural affinity and engagement levels. And this notion of camaraderie, whether it's transportation or a cafeteria, where it's like people ultimately do better when they're in a convivial environment.

We have a few questions from the audience, so let's take some of these. How long will the turnaround take would reflect to organic revenue growth which is below your peers?

Look, it's a -- you've got to start almost with the starting point. And by the way, I should say as well, last year, we grew revenue, our highest growth rate since 2015. And most people don't recognize that. We grew revenue about 11% last year, about 2 points of that was inorganic, [indiscernible]. But in order for us to get where we need to be, I would say, in terms of top quartile revenue growth, a few things. First of all, attrition. Getting attrition back where it needs to be is so fundamental to achieving your growth potential. The second thing for us is change in the portfolio. And as I said, getting from a starting point of 30% digital to now 50% digital, we're still behind the industry, but we're catching up. Many of our peers were 50% plus digital 3 years ago. But we're exposing ourselves to higher growth categories, and that's going to help our relative performance. I think people like Ravi coming shouldn't be underestimated, and Prasad, because they really bring a client's tangent and followership, and that's really going to help I think our top line momentum. And then last but not least, when I think about some of our peers have had 2, 3 points -- it's viewed as organic growth rate. It's really structured deals. Sometimes they deploy capital to get those structured deals. In a strange way, people talk about M&A as inorganic, but structured deals is organic. That's one of the inconsistencies. But we had stepped away from some larger deals in the last few years. We were very, I would say, disciplined in terms of how we approach them. Why? Very simply because I inherited a lot of structured deals that were not very healthy. And when you peel the covers back and do a post mortem on it, they were poorly solution, the T's and C's weren't very good. and we could have lost a lot of money. And I went as far as exiting one of these structured deals in the banking space in the Nordics at the end of 2020 because, frankly, it could have cost us hundreds of millions of dollars as far as I was concerned, and it would have massively impacted our brand in Europe, which is one of our growth regions. But as I said to the Board at the start of this year, we've made a lot of progress now with the deal governance. We've established what I would call pretty standard deal governance around legal and solutioning and delivery, people signing off and HR signing off their element for the solution. We've done a lot of work around pricing. We've also done a lot of work around, what we call, a solution architect environment and what good looks like for single practice deals versus multi-practice deals. And project and program management, of course, is pretty essential. And we've been doing a ton of work to try to industrialize, if you will, what is the gold standard there and make sure we get more people playing to those levels. So I entered this year having made progress in those elements, feeling, okay, we can be a little bit more open this year in 2022 and beyond around doing larger deals. And so that will be the other thing of the relative growth rate. It's attrition. It's client-facing leaders like Ravi joining the company. Reducing attrition, getting people like Ravi to join the company. And also changing the portfolio to higher growth categories like digital, which was well underway. And last but not least, you'll see us doing more opportunistically these larger deals aligned to key geographies or industries, where we can get an anchor tenant client or supplement what we already have. But I'll still be, I would say, judicious when it comes to those things.

Will you move more aggressively towards software development like EPAM, which offers higher value-added services, digital engineering?

We actually have a multibillion-dollar digital engineering business already. And if I take the ADM business, which was also multibillion, we have a very clear pathway towards a $4 billion-plus modern [indiscernible] business within Cognizant, and that is very much part of the strategy. So it's not as though we're starting from scratch. We have a $2 billion post digital engineering business. We've done a lot of acquisitions in the last [indiscernible] years. Even before I came, we acquired Softvision in 2018. And then in the last 2 years, we have acquired Tin Roof, Magenic and a host of other digital engineering firms. Devbridge was in Eastern Europe as well. And our vision, ultimately, is to have a very strong on-ramp into digital engineering, be the ADM business and ultimately take that business forward, and Prasad Sankaran is in charge of that for us.

What is the salary inflation environment like today versus 12 months ago? And how does that compare with the pricing environment?

It's tempering a little. There was irrational behavior in the market, I would argue in the last 18 months, 2 years. It started changing in the last 3 months -- 3 to 6 months. Irrational behavior of people that work for you and leave and they get a 45% or 75% numbers and salary increase to go across the road. And you think their build rate -- there's no way in hell that their build rate is going to go up 45% or 75%. So ultimately, it was going to lead to margin pressure in the industry. We've been, I think from our perspective, quite pleased with how we've managed in a resource-constrained environment. I wish we didn't have the same elevated attrition we did. I'm delighted to say we will see a meaningful reduction in voluntary attrition now in the fourth quarter. But in a resource-constrained environment, we try to optimize our yield. That's how I've been trained over the years. So demand-supply economics, if you don't have enough headcount and you have more demand than your headcount, then you put them on accounts that yield the highest margin. The last quarter, you would have seen perhaps, for the second quarter in a row. When the industry was going backwards in margins, we drove margin expansion sequentially and year-over-year. And actually, for the year, we'll drive about 20 basis points margin expansion in line with our framework that we outlined about a year ago. We've been able to do that because we've maximized yields in a resource-constrained environment, but we've also done a lot on pricing. I think it's been one of the nice success stories for us this last year. And it's not something we've either to been necessarily known for. We've been known for client centricity and delivery excellence. And an awkward conversation around -- I think my labor costs have gone up 10%, 15%, I'm going to have to pass those on to you as a client was somewhat foreign for a client-based team. But we tried to industrialize a program behind that, and that helped us recuperate. So I would say, look, net-net, the upward pressure in salary is not as great as it was 6 months ago. We've been able to mitigate that better, I think, than most in the industry, as you've seen in our margins. Everybody has benefited from a depreciation rupee [indiscernible] take those common things out. You just stand up and see, okay, whose margins didn't flux. So I think that's something we're looking forward to continuing to drive on a go-forward basis. We have very good knowledge around who traded and why, and where they stand on a pay scale. We have 5 pay bands and the median is, let's say, [ P50 ] in the market and where our people vis-a-vis the median of [ P50 ]. So one of the reasons we actually have, I would say, significantly change of comp strategy in the last 2 years, and we've baked it into the next 2 years' financial plans is because we wanted to take our relative compensation closer to industry norm. We were a little bit lower than the industry, and some of that was -- we could afford to do it because we had a, let's say, a richer green card program in the past. But as I said, regulatory policies in the U.S. changed that and forced our hands a little bit. So next year, we moved our comp strategy up from Q4 to Q2 proactively. And that's one of the things that's helping employee engagement scores and reducing attrition.

Just a follow up on your price comments. When does the pricing changes typically go into effect? And if you can help us quantify those increases.

It's -- look, it's -- there's no one single rule. I mean clients are smart, and many clients leverage companies like Azure and Everest to say, "Well, how do I deflect these pricing increases?" So some of them have already effect in Q3 and in Q4. And next year, therefore, we'll get, let's say, 12 months annualized benefit versus 3 or 6 months benefit in 2022. Other clients have said, "Well, look, I'll do it. But it's not on my budget. I'll do it effective January 1." So it is ultimately a mix of the benefit for that. But it's meaningful for us. It's the most meaningful price increase agenda we have driven, I would say, in our history.

Given the announcement of your acquisition of SAP align this morning, are you continuing to see an improvement in your deal pipeline?

The acquisition this morning is a company called Utegration. It's a U.S. company. And that's the third acquisition we've announced in the last 6 weeks. And so that starts getting impact on the framework. We had a slower start to the year because the -- I would say, there was irrational behavior in the M&A market last year, where we actually walked away from some deals because the buyer-seller disconnect in terms of valuations was greater than I was comfortable with. And at the end of the day, I'm a custodian of the company, I don't own the company. I'm a part of it, but I'm here to represent you, so we're not going to do anything irrational from an M&A point of view. Things have, I think, become more rational. There are certain deals last year, by the way, we wanted to get done, where we couldn't get closed, we couldn't get into exclusivity. It's always invariably competitive. So I'm pleased that having not had acquisitions to announce for the first 2 quarters of this year, we just announced 3 in quick succession. And I actually think the M&A pipeline for us is pretty healthy at this moment in time. I feel confident we'll be very much in the realm of this normalized $1 billion of acquisitions, give or take, per year. And we'll do it consists of what we've been doing in the last few years, more tuck-in type acquisitions, aligned by industry, aligned into higher-growth categories like digital, supplementing our international growth agenda with acquisitions to complement what senior leaders we put in those markets. And one thing that's important for me in that third part of the strategy to move up the value chain by selling solutions and delivering client outcomes, more of an advisory capability. So we call it -- internally call it consulting. And if you've been a client interface that has really been around a certain business model, but you want to complement that with more thought leadership by industry, that's why we have our consulting business aligned by industry, so we can show up with that view I talked about earlier.

As we exit 2022, what do you think will be the key themes in IT services in 2023? How do you think your clients will prioritize their spending?

I mean the client advisory board, I want to say, about 2 months ago -- and this was a topic we actually discussed with major clients. I would certainly say that clients like us and their CFOs are debating the macroeconomic backdrop. It is not necessarily a time to be dogmatic. It is somewhat uncertain. There's lots of pockets of opportunity. We see some larger deal opportunities that we hadn't seen in prior years as people look through workflows and processes and want to get automation. So I think the themes will be one -- and I talked about this for a while now, vendor consolidation is real, and I think that will only continue in a period of time where there are demands for cost efficiency. Automation and AI, by definition. Historically, maybe we thought about technology as a stack, the application layer, the data layer, the infra layer. I think more and more clients think about customer journeys. And so you start thinking about, well, sometimes because of things like the iPhone, where people want a consumer-grade experience, but of course, [indiscernible] an enterprise-grade security, you want hyper personalization if you're trying to -- if you're in the telco arena or a banking arena or insurance arena or otherwise, there's no such thing a segment of male or female or youth or elderly, those days are gone. It's a segment of one. And in order to get a segment of one and a consumer-grade experience with enterprise-grade security, you need massive datasets that are engineered in a modern manner. They're openly sitting in the cloud with target metric. So I think that whole customer journey will actually become very, very real in the years ahead and how we modernize that customer journey. You'd still be surprised, by the way, how many of the larger companies in the world assuming their early innings of their cloud migration and their tech stack modernization. So those trends will continue. I'm actually pretty optimistic that come what may in the short term, and it is uncertain, frankly, this is a great industry. This year, while we wish we had done better, we guided in our guidance last quarter, 7% organic growth rate for the year and 7% to 8% EPS growth for the year. We're giving back year-to-date, I think, $1.5 billion to shareholders via dividend, via share repurchases, and this is the year that it's somewhat uncertain in recent quarters. I mean this is a fantastic industry to be in. It's a high-growth industry. It's a cottage industry. And I'm convinced that the digital transformation agenda of companies will fuel growth for years to come.

Can you talk about some of the dynamics that will drive margin performance going forward? Will levers remain for Cognizant to offset some of the investments made in the employee base? And how should we think about the benefits to margin from the depreciation of the rupee versus the U.S. dollar?

Indian rupee depreciation is not a secret that happened over multiple decades, and I'm not sure I'm in a better position than UBS to comment on what the future is as an example around that, but that's somewhat of a level playing field. Some companies are more exposed to India than others. So versus the Indian pure-play companies, we may have less exposure there, but we're probably more like a Capgemini in some regard -- sorry, Accenture in regards, that we're more of a U.S.-listed company and a more global leadership team who wanted a better word. If I think about things like that, that are common across the industry, I'll go back to where we are. One thing I said is we're trying to move away -- not fully away, by the way, it will always be important portion of our portfolio, but from time and material type work to enable us to sell more managed services and fixed-bid, fixed-price deals, that will fundamentally allow us to industrialize delivery. Let me just spell this out in clear terms for everybody. If a client who has been trained to think of Cognizant in a certain way for 2 decades has grown used to leveraging us as a provider of resources, and they interviewed 10 people in this room to say, "Hey, we love Rayna. We want Rayna. And let's make this really simple." So Rayna is based in India, you cost me 100, I bill you for 150. After 12 months you want 10% increase, your cost go to 110. The bill rates typically will stay 150. After another 12 months, your cost base is 121, your bill rate would still 150, my margin anew has gone from 50% to 29%. That is not a -- that model can work if you're growing exponentially and always offsetting that margin erosion. And I would say that was one the things that caught up in Cognizant. As our relative growth rate slowed in '16, '17 and '18 and then into '19, that exponential growth that has been driven in the company started -- because we started losing that, we started being unable to cover the reality, which was a time and material heavy business. Plus shifting away from that really allows me to say, well, we can sell larger deals, which I can automate. We can make the outcome what's important to the client, not the input. Therefore, I can actually rotate employees with you. I can have a very different pyramid, and I can have more offshoring versus onshoring, et cetera. So there's a whole bunch of things like that that's very important in, what I would call, delivery industrialization. We have other initiatives underway. Procurement, real estate, as an example, that should drive margin opportunities for us. And then last but not least, recognizing companies that scale to a certain extent might -- areas of my business will not scale with revenue. Let's take an example, my corporate functions, legal, finance, HR, et cetera, I will get financial leverage on those portions of our business going forward as it come gets larger and larger. So those are key elements. Pricing is, of course, relevant. And as I said, we're proud of our pricing progress. If you think about a labor cost increase model, you have to offset that labor cost each year with delivery in industrialization and pricing. Otherwise, you're running to standstill. So that's how I think about the margin. We've talked about our multiyear lens back 1 year ago, granted the economic outlook was different at that moment in time. So there was 2 elements of the discussion. One was a top line story, a multiyear CAGR. And then one element was the margin expansion story. And I certainly feel the 20 to 40 basis points margin expansion story we laid out is something we should be able to accomplish if we execute our strategy. Things like digital for us, by the way, are fundamentally more profitable than the nondigital. So as that business has gone from 30% of our business to 51%, that gives us some tailwind on margin, too.

Very helpful details. So we're at the last few minutes of our session. So I guess just finally, what are you most excited about as we enter 2023 for Cognizant?

I think I'll have the strongest leadership team, first of all, I have had since I inherited Cognizant 3.5 years ago. Ravi, Prasad, Rob Walker stepped into international role. These are all very strong leaders. We are more stable now than it's been. In terms of our strategy, the digital mix is bigger than it's been, which is going to give us some breathing room in terms of margin and revenue growth. All of those are good things. The brand is getting a little stronger with every passing year. But probably the bane of our existence in the last few years. I mean, it's been a challenging year. We had a cyberattack 2.5 years ago. Then we had a work-from-home brush with COVID. Humanitarian crisis in India. Followed by -- as we had exited content moderation, we exited a larger contract with Samlink. So there were some exogenous events and some company-specific events that, I stand behind, we did the right exiting in that contract, we did the writing exiting content moderation. I think our strategy now in some of those early moves that I felt were needed is more stable. And so I'm looking forward to a year where we have less change, frankly less attrition. And that will, in my mind, hopefully -- one may in the macroeconomic backdrop, that's the great uncertainty. But I think our house is more and more in order than it's been.

Great. Well, Brian, thanks for joining us today.

Thank you.