Ravi Kumar S
Chief Executive Officer at Cognizant Technology Solutions
Thank you, Tyler. Good afternoon, everyone. When I spoke to you, early February, I was just three weeks into my role. I explained my plan to move rapidly up the learning curve, by embarking on a global listening and learning tour with associates, clients, and partners. I also mentioned that I would meet with more than 100 clients and as many of our associates as possible.
In addition, I outlined three interrelated priorities making Cognizant an employer of choice in this industry. Accelerate revenue growth, especially by winning large deals and enhancing our operational discipline.
I'll comment on progress of future of these areas. But first, I want to cover a few of the quarter's financial and operational highlights. In quarter one, we delivered revenue of $4.8 billion, a decline of 0.3% year-over-year as reported. But a growth of 1.5% in constant currency, above the high end of our guidance range. Our adjusted operating margin was 14.6%. We recorded strong quarterly bookings growth of 28% year-over-year and ended quarter one with record trailing 12 months bookings of $25.6 billion and a trailing 12 months book-to-bill of 1.3x. Approximately 30% of our in-quarter -- quarter one bookings were large deals, which we define as total contract value of about $50 million, compared to approximately 20% for all of 2022.
We were very pleased with our first quarter bookings performance, as well as the building our pipeline, which includes a strong mix of large new opportunities. I'm especially pleased to see the continuing reduction in our attrition with trailing 12 months voluntary attrition for our technology services business, declining to 23%, down 3% points sequentially and 7% points Y-on-Y, year-on-year.
While Jan will cover our financial performance of the business segment level, given the importance of financial services and our momentum, I want to comment on the state of this business and the emerging opportunities we see in this segment.
For starters, we believe our Company specific operational challenges in financial services have largely subsided. And we are beginning to stabilize the business. Our client portfolio has shown resilience both in the U.S. and internationally. But we're also seeing the impact from softer discretionary spending and decision delays by existing and potential clients.
In the U.S., our banking clients are generally large institutions and we have seen an uptick in our deal pipeline. Overall, we have seen early green shoots that we're moving this portfolio in the right direction while navigating the macro dynamics. We are encouraged by the leading indicators, such as a strong Q1 global bookings growth for financial services at a rate above the Company average, as well as an uptick in our large deal pipeline.
I'm particularly encouraged by my conversations with about two dozen of our financial services clients. I came away from these meetings with many new opportunities to pursue related to cost takeout, vendor consolidation, post-merger integration, and the new wave of outsourcing and fintechs.
Having said that, we still have a lot of work ahead and will be closely monitoring the environment to anticipate shifts in our clients that needs. Today, I have met either in-person or virtually with C-Suite executives from more than 100 of our clients representing nearly all of our industry segments and all of our major geographies. Several teams have surfaced from these candid conversations.
We have a strong goodwill with our clients and continue to recognize a culture of client-centricity. This way, we are easy to work with, adventive to nurturing our client relationships, and deeply understand their businesses. They like our entrepreneurial approach to developing solutions to the challenges.
They also appreciate our humility, our willingness to learn, listen and adapt. I believe the longevity and depth of our relationships have created a lot of accumulated trust. By the way, none of our clients I spoke to mentioned about Cognizant's digital mix. I believe that's because digital and non-digital capabilities have converged to the point where the distinction between the two is less significant.
Instead, the differentiator many clients have spoken about is how well-positioned Cognizant is at the confluence of technology and industry demands. Given that our digital mix is no longer a true measure of the value we're providing to clients, we have decided to stop disclosing this metric.
With that said, clients want more from us. They trust us with their agenda strategies and competitive challenges. That tells me Cognizant has earned the right to challenge that thinking and be a strategic partner who co-creates solutions with them and offers insights and improving their operations.
Overall, I came away with the sense that many clients are fans of a Company. What also surfaced is that most clients are grappling with largely similar challenges, although with variations by industry. The cost basis reflects the higher growth levels seen during the pandemic era, prompting an intensified focus on optimizing cost and efficiency in building greater resilience. They need to digitize workflows, enhance their customer and employee experiences and boost the efficiency of their commercial and operational teams.
In that context, I thought it would be useful to mention a few recent client wins that underscore the strategic cloud-focused work we do for clients and a skill-as-a-systems integrator. We are partnering with Microsoft to build an integration roadmap between our TriZetto health products and the cloud for Healthcare. Our shared aim is to give payers and providers easy access to cutting-edge technology solutions, streamlined claims management, and improved interoperability to deliver better patient and member experiences.
In a new win, we are working with Boehringer Ingelheim to speed the development and improve the accuracy of their life-saving therapies. We help our clients unify medicinal development processes and data into a unified cloud platform and enhance the collaboration across clinical, regulatory, and quality functions.
We've been engaged by Volkswagen Group Ireland to reengineer its siloed contact center platform into omnichannel customer service landscape that will deliver more personalized agent and customer experiences using Salesforce Cloud and Amazon Connect.
And last week, we announced a new five-year agreement to transform and support the global technology operations of a long-term client, Nike. We will help drive customer, employee, and partner experiences from Nike by leveraging hyper-automation, AI, and processing reengineering.
These are just a few examples. In short, our capabilities are in demand as clients navigate an uncertain macroeconomic environment.
Let's turn to the Company's three focus areas of growth enablers and the progress we are beginning to make. The first of these is to become an employer of choice. We recognize this as a multiyear undertaking. To take the pulse of employee sentiment, I've been using every communication channel available to get unfiltered feedback from tens of thousands of associates to learn what's working well and what needs to improve.
As a part of my immersion, I spent two weeks in India visiting a half a dozen cities where we have major facilities, along with traveling to see associates in the U.K., Switzerland, Canada, and across the U.S. I've been moved by our associates' warmth, enthusiasm and energy, and what I'm hearing from them is very encouraging.
In this post-pandemic era, we are back to walking the corridors for clients, mining relationships, and building new ones, and we're revitalizing our ability to land and expand within existing clients as we steadily bring on new accounts.
Across the organization, I see a rising pride in the Company. Associates at all levels of our Company want to partner with me to begin writing the next chapter in Cognizant's nearly 30-year history and are moving forward with renewed confidence about the future.
To be an employer of choice, we need to meet the demands of a diverse workforce that spans geographies, generations, and a range of work and life priorities. Here are a few of our approaches.
We have made career progression easier by expanding our internal job board process and redesigning the promotion process to increase more movement across our organization. We have intensified our focus on continuous upscaling and learning by expanding a learning library, running internal learning and development campaigns, and launching a new leadership training initiative for people at all levels.
We have had three merit increases in 18 months for the majority of our associates who are in the levels up to associate director. And over the past couple of years, we've invested significantly more in compensation. In addition, we are stepping up the efforts to get our associates to return to office because doing so, we believe, helps build and sustain our culture and helps associates build their social capital with colleagues.
To tap into the creativity of our more than 350,000 associates, we are launching a grassroots innovation movement because I believe innovative ideas can come from everyone. This program called Blue Bold encourages and celebrates the thousands of flashes of inspiration that our associates have every day as they innovate for our clients.
Over the coming months, we plan to train more than 20,000 additional project leads in our innovation methods and generate over 100,000 ideas for clients to use rapid prototyping and the identification of new opportunities.
A second focus area I've spoken about is accelerating revenue growth and building commercial momentum, especially by strengthening our ability to win large deals. Our Q1 bookings were a balance of renewals, expansions, and new engagements, which we believe will provide revenue opportunities for us later in the year and valid until 2024.
Our strong bookings growth in the quarter, including four deals with a total contract value of about $100 million. To cite one large deal, one recent large deal, Horizon Healthcare Services selected us to manage their claims processing and counter submissions to the state and enrollment services for their 1.2 million members.
In the seven-year renewal agreement, we will bring to bear advanced automation solutions for our TriZetto product suite to help Horizon expedite the claims payment process and ensure accuracy in support of their member services. Our large deal pipeline remains healthy for the next couple of quarters. Large deal bookings that aligned with our risk appetite are essential to building commercial momentum, but they can take time to ramp up and realize revenue. We are working on strengthening and industrializing delivery to support our execution of large deals.
Moving to our third priority, operational excellence. As you may recall from my last call, I said that internal simplification would be a team will carry forward to help achieve the Company's full potential. Our drive for simplification will include operating with fewer layers to deliver greater agility along with realigning the business to be closer to our clients and employees, and of course, to increase a growth mindset.
This endeavor named NextGen is aimed at building the enterprise of the future by simplifying our business operations, optimizing our corporate functions, and realigning our workforce to a post-pandemic era of hybrid and redistributed work. This shift will provide an opportunity to rationalize the workspaces across the world and especially in India's largest cities where we're distributing some real estate to smaller cities where we can expand and by modernizing some existing space.
We expect the structural shift in our real estate costs to help eliminate 80,000 seats and 11 million square feet in large cities in India. This shift will also enable us to invest in collaboration spaces in smaller cities while creating structural savings for the future that we can invest in our people and growth opportunities.
We expect this program to help enable us to deliver margin expansion in the range of 20 to 40 basis points in 2024 while supporting a large deal pipeline. Combined with our efforts to increase utilization, improve delivery efficiency, maintain disciplined pricing and a lower attrition, we believe we have the levers to drive modest margin expansion over the next several years while we continue to fund growth investments in 2024 and beyond. Recognizing how much work we have ahead of us, I plan to provide periodic updates about our progress in achieving these three priorities.
Let's spend a moment on the demand environment and tech trends. We are carefully monitoring what remains an uncertain macroeconomic environment and with its potential for shifts in client priorities. That said, we are optimistic about our long-term opportunity within the IT services market. The demand for solutions and business outcomes remains solid as technology becomes core to nearly every business.
The tech trend on everyone's mind is Generative AI with recent breakthroughs offering the potential to fundamentally transform our clients' businesses and increase our own productivity. To that end, we are accelerating our investment in Generative AI. Our AI accelerator process uses studio environments to collaborate with clients to identify priority AI use cases and rapidly implement prototype solutions for field testing.
We have conducted ideation sessions with over 30 clients and are now working to industrialize solutions to their common challenges. We believe Generative AI will revolutionize the technology services industry, creating higher rates of productivity and driving greater prominence for software and data engineering expertise.
We are using AI to enhance our own creativity and productivity. We are operating pilots that use Generative AI to accelerate consulting, design, engineering, and operations with the long-term goal of doubling the productivity of our associates.
With that in mind, last month, we launched a Neuro IT operations, a next-generation platform that brings new levels of automation and intelligence to applications and infrastructure operations. By applying an AI-led automation-first approach, we are enabling enterprises to innovate faster and drive down cost and risk.
We believe that adapting new IT operations can actually reduce operational costs by 25% to 45%, reduce mean time to delivery and mean time to detect by 30% to 50%, and reduce FTEs by 15% to 30% compared with the use of traditional approaches.
Across every industry, the cloud is today the biggest transformational opportunity, and therefore, our clients need a partner that can orchestrate cloud in a heterogeneous environment. In response, we just introduced a new cloud platform called Cognizant Skygrade. This multi-hybrid cloud and edge management platform applies an industry-focused approach designed to help clients transition to a modern cloud-native architecture, develop modern applications that evolve with the pace of business, and streamline the cloud management operations.
With Skygrade, we believe we can accelerate migration and modernization programs by shortening transformation time by 20% to 40%, resulting in faster value realization while reducing ongoing run and governance costs by 15% to 25%.
To wrap up, I stand behind my initial assessment that Cognizant has the strong foundation in place on which we could accelerate growth. I am especially optimistic about the strength of our portfolio and partner ecosystem, combined with our ability to create value for our clients at the intersection of technology and industry use cases.
We recognize that our renewed strength in bookings momentum is helping us replenish a softer backlog from the past nine months, and we believe we can demonstrate improved growth towards the end of this year and in 2024.
With that, I'll turn the call over to Jan to provide additional details on the quarter and our outlook for 2023. Jan, over to you.
