Cognizant Technology Solutions Corp (CTSH) — Q4 2020 Transcript

Thank you, operator and good afternoon everyone. By now, you should have received a copy of the earnings release and investor supplement for the company’s fourth quarter and full year 2020 results. If you have not, copies are available on our website, cognizant.com. The speakers we have on today’s call are Brian Humphries, Chief Executive Officer; and Jan Siegmund, Chief Financial Officer.

Thank you, Katie. Good afternoon everybody. Today, I'd like to address three topics with you; namely, a brief summary of the fourth quarter, our continuing progress executing our strategy, and our confidence about the future. Let me start with Q4. Fourth quarter revenue was $4.2 billion, a decline of 3% year-over-year in constant currency. This included a negative 120 basis point impact from the exit of content moderation services and a negative 250 basis points impact related to the anticipated exit from a large financial services engagement. This relates to a complex ambitious project that was scoped in late 2018. Over time, both parties realized that the transformation aspect of the project as initially conceived was unlikely to achieve our shared expectations. I'm confident that it is in everyone's interest to manage to an exit. Jan will provide more details on the financial implications of this exit in his remarks. However, I want to underscore that I'm confident in both our client portfolio and our deal review and solutioning processes, many aspects of which we've overhauled in the last year. Excluding the impact from the anticipated exits from this engagement, we executed well in the quarter and delivered against our expectations and our guidance. Gross margins increased, cash flow is strong, and we continue to invest significantly to fuel our growth priorities. We maintained our momentum in the quarter with full year 2020 bookings growth in the mid-teens. With over one year of data, assumption tweaks and refinements behind us, our analytics have been improved on going to bookings, bookings growth, including renewals and new business, and bookings to revenue. We entered 2021 with growing confidence in our strategic, operational and commercial progress and a strengthening demand environment.

Thank you, Brian and good afternoon everyone. I'm delighted to be with you on my second earnings call and to be reporting another good quarter, excluding the one-time impact I'll discuss more later. The business performed well, modestly exceeding our expectations during the quarter, driven by solid performance across the board, excluding financial services, and the industries most directly impacted by COVID, notably retail, consumer goods, and travel and hospitality. For the full year, revenue was $16.7 billion, representing a decline of 0.8% compared to 2019 and a decline of 0.7% in constant currency. Compared with the prior year, this includes a negative 110 basis points impact from the exit of certain content services, a negative 70 basis point impact of the anticipated exit from a large engagement in our Financial Services segment and a positive approximately 210 basis points of contribution from our acquired businesses. For the full year, digital grew over 13%, it represented approximately 42% of total revenue, an increase of five points as a percentage of total revenue from 2019. Our Q4 revenue was $4.2 billion, representing a decline of 2.3% year-over-year or 3% in constant currency. Compared with the prior year period, this includes a negative 250 basis points impact of the anticipated exit from a large engagement in our Financial Services segment, a negative 120 basis points impact from the exit of certain content services and a positive 270 basis points of contribution from our acquisitions. Before moving on, I will provide some additional details relating to the anticipated exit from the previously mentioned large engagement. In discussions, the parties agreed that a clean separation would be to our mutual benefit. As a result of those discussions, in the fourth quarter, we made an offer that includes among other terms, a proposed payment and the forgiveness of certain receivables. As a result of this offer, we recorded a $140 million charge in the fourth quarter, which included a reduction to Q4 revenue of $107 million and additional expenses of $33 million, which impacted SG&A primarily related to the impairment of long lived assets. The charge exclusively impacts our Financial Services segment. We are in active discussions and hope to have a finalized agreement in the near future. Now, moving on to segment results, where all growth rates provided will be year-over-year in constant currency. Financial Services declined 11.4% and including a negative 730 basis points impact from the anticipated contract exit. Excluding this impact, banking and insurance both declined mid-single digits, in banking, growth in regional and retail banking in North America was more than offset by weakness in cards and payments clients. Insurance also performed below our expectations, driven primarily by weakness in North America. Health care grew 3.3%, which included similar performance in both in the US payer business and life sciences. Life sciences revenue was strong among our pharmaceutical clients, further enhanced by the expansion of our portfolio of services as a result of our acquisitions of Zenith Technologies. Growth was partially offset by the continued weakness in medical device clients, which have been impacted by reduced elective procedures volumes. Our Healthcare payer business had the best performance in seven quarters, with strength in software license sales from the addition of several new logos. Products and Resources declined 2.4% as low double-digit growth in manufacturing, logistics, energy and utilities was offset by double-digit declines in the travel and hospitality industry, and a high single-digit decline in retail and consumer goods, while still challenged on a year-over-year basis, we have witnessed some stabilization in the last two quarters, particularly within retail and consumer goods, which grew modestly on a sequential basis. Communications, media and technology grew 3.4%, which included a negative 790 basis points impact from our decision to exit certain portions of our content services business. Outside of this impact, we remain very pleased with the business momentum within technology. Communications and media growth accelerated sequentially and grew low double-digit growth year-over-year, helped in part by several of our acquisitions. Now, moving on to margins. In Q4, our GAAP operating margin was 11.1% and adjusted operating margin, which excludes restructuring and COVID-related charges, was 12.3%. Both our GAAP and adjusted operating margin included a negative 300 basis points impact related to the anticipated contract exit, which includes an approximately 160 basis points impact to gross margin. Diluted GAAP EPS was $0.59, and adjusted diluted EPS was $0.67, which both included a negative $0.25 per share impact from the anticipated contract exit. Our adjusted tax rate was 32.9% in the quarter, reflecting the charge related to the anticipated contract exit, which generated losses that are not tax deductible. Adjusted operating margin declined approximately 470 basis points year-over-year, reflecting the charge related to the anticipated contract exit, high incentive compensation, annual merit increases and investments in organic and inorganic revenue growth. Savings from our Fit for Growth program, lower T&E and favorable movement in the rupee partially offset this pressure. During the quarter, we completed our Fit for Growth program, achieving $530 million in gross annualized savings through continued cost discipline, which has allowed us to accelerate our growth investments. The majority of savings achieved under this program benefit our gross margin, while the accelerated pace of investments is primarily being captured in SG&A. These investments include an accelerated pace of acquisitions which we believe are key to our business transformation, additional sales hiring, repositioning the Cognizant brand and hiring more senior talent in international markets to drive growth. We manage the business at the operating margin level and therefore, believe it is a better metric to judge the profitability of the business. Now turning to the balance sheet. We ended the quarter with cash and short-term investments of $2.7 billion or $2 billion net of debt. As a reminder, at the end of October, we fully repaid our outstanding revolving credit facility of $1.7 billion. Cash flow in Q4 was again strong, with free cash flow of $809 million. This brought our full year free cash flow to $2.9 billion. DSO ended the year at 70 days, representing a year-over-year improvement of 3 days. In 2021, we expect to see our free cash flow decline from 2020 levels as a result of several benefits we experienced this year, which will not repeat in 2021. These include government offered deferrals of certain tax payments and a lower cash payment related to our 2019 annual incentive compensation, which was paid in Q1 2020. Our outlook for 2021 assumes free cash flow conversion will return to more normalized levels around 100% of net income as we focus on building upon the DSO improvements achieved this year. We opportunistically utilized our strong free cash flow in 2020 and continue to achieve capital deployment strategy, utilizing over 110% of annual free cash flow. In 2020, we spent $1.1 billion on acquisitions, representing approximately 40% of our full year free cash flow. We returned approximately 70% of our free cash flow in share repurchases and $480 million in dividends. As I mentioned last quarter, we have reversed our indefinite reinvestment assertion on India earnings. This decision allows us to more efficiently utilize 100% of free cash flow globally, giving us greater flexibility in our ongoing capital allocation program. Over the next several years, we plan to deploy 100% of our annual free cash flow through a balanced capital allocation program. We intend to allocate 50% of free cash flow towards M&A in areas aligned with our strategic priorities. The remaining 50% will be allocated to dividends and share repurchases, targeting a consistent dividend payout ratio of approximately 25% and repurchases to offset dilution annually. While these are a set of guiding principles, we will continue to be opportunistic in our allocation of capital, as well as leverage our strong balance sheet. In support of this strategy, during the fourth quarter, the Board approved a $2 billion increase in our share repurchase authorization, and today we are announcing a 9% increase in our quarterly cash dividend. The second consecutive year of increase since initiating the dividend in 2017. Turning to guidance. For Q1, we expect revenue in the range of $4.34 billion to $4.38 billion, representing 2.8% to 3.8% growth, or 1% to 2% in constant currency based on our expectation that currency will have a favorable 180 basis points impact. This outlook assumes an improving yet still cautious start to the year with continued macro uncertainty. We expect stabilization in financial services and continued pressure across retail and consumer goods, travel and hospitality and communications and media. Q1 also still includes an approximately 85 basis points of headwind from the exit of certain content services. For the full year, we expect revenue of $17.6 billion to $18.1 billion, representing 5.5% to 8.5% growth, or 4% to 7% in constant currency, based on our expectation that currency will have a favorable 150 basis points impact. This outlook includes approximately 300 basis points contribution from inorganic revenue and assumes improving revenue momentum from Q1 levels. To put the full year guidance in better perspective, there are several factors impacting the quarterly guidance to highlight. First, keep in mind, our Q2 2020 actuals included a combined impact of COVID and the ransomware attack, which will lead to easier year-over-year comparisons in Q2 2021 and growth levels above our full year outlook. Second, the charge recognized in Q4 related to the anticipated exit from the customer engagement will create challenging year-over-year comparisons through Q3 and then an easy compare in Q4. However, this does not impact full year revenue comparisons. Moving on to margins. We expect full year adjusted operating margin in the range of 15.2% to 16.2%. We expect margins in Q1 to be at the low end of that range and to operate within the range each quarterly period for the full year. This leads to our full year adjusted EPS guidance of $3.90 to $4.02. Our full year outlook assumes interest income of $20 million to $30 million versus $119 million in 2020. As a result of the $1.2 billion cash repatriation in the fourth quarter, which moved cash from India to other jurisdictions with lower yields. Our outlook assumes average shares outstanding of approximately 530 million and a tax rate of 25% to 26%. Our guidance does not account for any potential impact from events like changes to the immigration and tax policies. With that, we will open the call for questions.

Terrific. Thanks for taking my question. Brian, in your prepared remarks, you highlighted a number of areas of progress in the Cognizant transformation, both strategic and operational. Just can you take a step back here now almost two years in, how would you characterize where you are in the transformation journey at Cognizant, kind of still in the beginning, middle innings near the end? And what aspects would you say are mostly completed versus what are the big steps still remaining?

Hi Lisa. Yes, thanks for the question. I'd say we're in the middle. And I think we still have a few years of work ahead of us, but we've made huge progress, and I'm very proud of the team and grateful for everything that they've helped us to do. If you go back two years ago, we talked about a transformation office that started with our strategic direction and refinements, which naturally led to refinements of our company portfolio, both exiting non-strategic elements such as content moderation as well as strengthening our digital capabilities with an intensive targeted set of M&A transactions. We're now much more in the strategic execution mode and there are four elements to that. Core to this is globalizing and repositioning the brand. You've seen some recent announcements. We'll have more to go through in the coming weeks and months. That will actually help us with our second goal, that of globalizing Cognizant, which involves really getting after under-penetrated markets internationally, which today still represent approximately a quarter of our revenue as well as giving clients around the world greater assurance that we have a robust and resilient delivery network. The third goal will be around accelerating digital, and we made good progress there, and we will continue to invest behind this strategic goal and I should point out that clients are very pleased that we are actually showing up with a broader portfolio, giving them optionality and alternatives. And then the fourth point that you'll see us continue to invest in as part of our transformation is increasing our relevance to clients. That has involved us changing out some of our commercial teams, refreshing them, bringing in people with much deeper industry knowledge, and indeed, sub-industry knowledge and making sure we have client-facing teams who can interface across the entire C-suite of Global 2000 companies. So, we've accomplished a great deal. Some would say against the odds, particularly given COVID and ransomware in the last year. But the team are energized, we're in this together, and we're all committed to do something incredible in the coming years. But that's why, to be very honest, we've also left room in our financial plan in the coming years to continue to invest behind the transformation because we're not done yet.

Terrific. Thank you.

Hi. Thank you. I wanted to ask around bookings performance. Any color you can give as it relates to the overall company and digital bookings in Q4? And then as you think about your growth here over the last, let's say, two quarters or so, can you give us a sense of whether that's been from stronger competitive wins and better positioning of Cognizant due to the investments you've been making versus just the rising tide in the recovery of overall demand and spend? Just curious if you can give us a sense of how you see the mix of contributing factors to your booking performance here?

Yes. I'll start by discussing the bookings. In my previous call, I mentioned that I underwent some formal training to better understand our bookings number, and I did that. Our bookings growth for the full year was in the mid-teens. I learned that we provide this bookings number primarily to illustrate the momentum and success we have with our clients, so it should be viewed in that light. Brian noted that we continually enhance our review and understanding of this bookings number, and we've made good strides in the fourth quarter. I'm pleased to see that the momentum remains in the mid-teens. We did make some adjustments to our bookings as we reallocated between quarters, but the full year figure is consistent with what we reported in the third quarter, which is also around the mid-teens. Brian, would you like to share more details on digital bookings and distribution bookings?

Yes, I believe we are more competitive and client-focused than in recent years. This improved approach begins with leadership, and we have significantly expanded our coverage in the past year. While this is a positive development, we expect to see even more benefits as our new team members become more productive over time. We've experienced some disruptions this year due to upgrades in our client-facing teams, aiming to ensure they can effectively engage with the entire C-suite. Overall, we are stronger, more energized, and focused on our clients. Our portfolio has also strengthened due to an aggressive M&A strategy over the past year, which positions us well to connect beyond the CIO and CTO levels and engage broadly at the C-suite. There is growing optimism in the market as clients are making investment decisions despite the uncertain environment created by the ongoing vaccine rollout. Indecision can be detrimental for CEOs in the services sector, so it's encouraging to see decisive action. Clients are investing in areas like growth acceleration, efficiency, agility, scalability, and business continuity, focusing on Customer 360, customer experience, cloud acceleration, automation, hyper-personalization, data modernization, AI, and machine learning. This shift is occurring as clients adapt to new ways of working, particularly through distributed agile methods. This evolution is prompting questions about strategic partnerships, which is why we are committed to investing in industry thought leadership, solutions, and technology consulting. Furthermore, I am pleased that Cognizant is well positioned to support clients through build, operate, and transformation processes. Overall, I feel confident about our standing, even as we note a disconnect between demand and supply within the market due to skill shortages in the industry.

Thank you.

Thank you very much. Good afternoon, good evening. I wanted to ask about guidance, and I appreciate the information provided regarding the 4% to 7% growth, which includes 3 points from M&A. However, I would like some further clarifications regarding the events of Q4. How should we view financial services in the context of that 4% to 7% constant currency growth? I understand there may be ongoing challenges from earlier quarters, but could you provide some parameters on how we should consider the financial services aspect specifically? Additionally, is there any extra impact we should anticipate on the adjusted operating margin of 15.2% to 16.2%, particularly in relation to the developments in Q4 with the financial services organization? Thank you.

Yes. I can provide some additional details regarding the exit from this financial services engagement. It mainly took place in the fourth quarter. We accounted for the charge in revenues and its effect on the bottom line. The impact on financial services in the fourth quarter contributed to a growth rate of just over 7%.

Yes.

Financial services performance continued to decline in the fourth quarter and has been a weak spot in our overall performance. Therefore, as Brian and I mentioned, we anticipate stabilizing financial services performance throughout the fiscal year and ultimately achieving stability in this area.

Okay. Are there any additional charges related to the margins, or is everything accounted for in the fourth quarter?

They’re all taken in Q4. There should be no more impact in 2021.

Okay.

Keith, it's Brian here. That's behind us. Maybe just a little bit of flavor for quarters where Jan wasn't here last year. Q1, as you know, is a tougher compare than the rest of the year because COVID really started being talked more about in the mainstream media and beyond in the month of March. So the last month of Q1 so the compare and financial services and as we think about the shape of the year, we'll still be, let's say, more challenging there as the turnaround efforts continue to take hold against a tougher backdrop. Q2 should be an easier compare for us. And frankly, the easiest compare for us in FSI should be in Q4, given, as Jan said, we've taken financial entries this quarter related to the anticipated exit of this contract. But I'm fully aligned to Jan's point of view, we'd expect a gradual recovery in 2021 with the quarterly I've just given you against the quarters within that.

Okay. All right. Thank you, Brian.

Hey guys. Hey, I just want to ask about the growth versus margin topic as you look forward? Specifically in 2021, does your margin guidance leave you with enough room to invest in building digital capabilities and driving share gains? And then I think even looking beyond 2021, it'd be great to get a sense, do you feel like your growth investments would taper after this year as you make further progress in the turnaround? Or would your growth investments be prone to continue at a similar clip as you look beyond maybe this year? If you can give us some outlook there on the growth versus margin trajectory.

Yes. Maybe I'll jump in with setting the framework. Our guidance includes the impact of acquisitions that we have announced and closed as of today, and is anticipated. These acquisitions will create margin pressure for us in 2021, approximately 100 basis points or so, roughly. And that is built into as well as our continued investment of building out our organic growth capabilities, our investments into marketing, et cetera. So the guidance includes the substantive continuation of our strategic initiatives into 2021. That was very important for Brian and me as we devised our budget process that we continue committed to executing that strategy, which is a multi-year strategy. Future acquisitions, as I indicated, we're planning to continue on our M&A strategy, where I illustrated our capital allocation outlook and plan. So if we were to spend another $1 billion on acquisitions, that would be incremental margin pressure that is now built could be incremental margin pressure. That's not built into our guidance as always will be incremental. But I think the plan as it is provides full support of the strategic direction that Brian illustrated earlier.

Yes, I would like to expand on those comments. Hello, Rod. First, we are pleased with our guidance for 2021, which suggests revenue acceleration and margin expansion while significantly investing in the future. It is important to clarify that our aim is to create shareholder value by positioning Cognizant for medium- and long-term success and sustained earnings growth, and we believe the best way to achieve this is by pursuing revenue opportunities. We are currently in the midst of a multi-year project to reposition the company. I am genuinely satisfied with how the team has united; we are ambitious and eager to demonstrate our potential. In 2020, I challenged the team to work together to implement the transformation agenda, which involved strategic, organizational, cultural, and financial elements, some of which were challenging for parts of our workforce. However, we have pursued an aggressive M&A strategy to enhance our portfolio and implemented a restructuring program that generated savings, allowing us to reinvest in the business, including the hiring of commercial resources we mentioned earlier. With bookings now increasing in the mid-teens, our P&L is starting to improve. This growth has historically fueled investments in delivering excellence to our clients, enabling sustainable progress. That is the direction we are moving forward with. While we have many more tasks ahead, I feel increasingly optimistic about the future. I’m also feeling more confident in our position as much of the initial heavy lifting of the transformation is complete. We will continue to invest in delivery excellence, commercial coverage, our talent, as well as our systems and tools, which I believe were not initially suited for a Fortune 200 company. This is why we announced our intention to proceed with Workday and HCM. We are making significant investments in IT and security remediation and modernization. We will keep investing in our portfolio and our brand, and we feel quite comfortable with our current standing.

Thank you.

Thank you. So, I guess the question for me is with regards to the underlying sort of economic and operating assumptions for the lower and upper part of both the revenue and margin outlook? And given the confidence implied in post Q1 acceleration. I guess the follow-on to that is the supply side question because when I look at high utilization and sequentially higher attrition, can you provide some comfort on the ability to meet delivery objectives of that implied acceleration of demand?

So, let me start a little bit with some order questions, Jan, feel free to jump in at any moment here as well. So, first of all, with regards to the delivery organization of where we stand on that, look, we have a demand/supply imbalance, if you will. The market has snapped back aggressively, as evidenced in our strong bookings momentum. I would say that the competition for digital talent is extremely competitive. All major digital domain skills are in high demand across cloud, digital engineering, data, AI and we are, therefore, very much focused on recruitment and attrition. For those of you who track media, you'll see us be much more aggressive in terms of social platforms for hiring. We're doing a luck with our employee base around making sure they see the potential of the company, making sure they understand the growth ambitions of the company, their career opportunities. And so we look forward to trying to optimize that as best we can. But you guys know as much as we do that in a high demand environment, where you have an imbalance, it can lead to certain outcomes. Now, we've got to understand what that means in terms of pricing environment as well to be very, very clear. With regards to utilization, there's a few things happening simultaneously from my perspective. First of all, clients are embracing new ways of working, including distributed agile, and that has been somewhat forced upon them in 2020. But actually, I think it's worked well. And now many clients are looking at real estate consolidation policies and understanding that we can work for them nearshore, onshore or indeed, offshore. The higher the offshore mix can actually help margin rate, but it's not necessarily helpful to margin dollars or indeed revenue dollars. So, we're seeing a trend certainly towards offshore leverage which is pushing the short-term offshore utilization higher as we consume the bench. But I don't know that that's likely to be sustained over the longer term because we plan to increase our hiring, rebuild our benches, and though we are, as I said earlier, in a high demand environment at this moment in time. We're also doing some tactical things internally. We've recently moved our India-based workforce onto a nine-hour Workday, which is in line, I should add, with industry practice which will result in a reduction of utilization in India, in theory, in the next quarter or so by one to two points. But we'll continue to look at utilization and track it and understand how these dynamics play in.

Got it. Thank you.

Hey. Thanks so much. I know you've covered a lot already, but I want to ask about the customer engagement again and what makes this unique here in terms of what happened and why the exit occurred? I'm just trying to get a better sense of if this was one off? Or are there some other accounts that you're tracking as well?

Yes. Let me get off. And then Jan, if you've any of the financial elements, please embellish this as well. So first of all, we have a delivery excellent organization. That ensures we're aligned to a sophisticated set of delivery methods for want of a better words, you could think about these as methodologies, principles, programs, tools. As a Global Fortune 200 company, at any time, we probably have between 20,000 and 25,000 projects or programs underway in our delivery organization. And these projects are constantly reviewed and mapped. It goes without saying. For Cognizant then I bet every other services company out there in the world that at any one-time for a company of our size, there are certain projects that are classified amber, some red. These projects are monitored constantly actions and frankly, senior management right up to me get involved in client discussions as needed. I will say we're on top of this. I've reviewed our entire portfolio over the last few years. I know where we stand. We have enhanced rigor in our dealer review and solutioning processes. Many of those aspects, by the way, have been changed in the past year. And just as a reminder, we have a new CFO, who's pretty hands on. We have a new global delivery leader who came into last year, who's been our new Chief Admin Officer who's charged, amongst other things, with contract management and pricing. Each of these executives bring their own experience and value on complex deal pursuits, steel solution and pricing, which puts me in a position where I feel confidence where we stand.

Trust rigorous there. Then I think

Good evening, everyone. Thank you for addressing my question. Many insightful questions have already been asked and answered. I would like to dive a bit deeper into the hiring dynamics and international aspects. Brian, you mentioned the recruitment of several Managing Directors globally. What kind of timeline or delay should we expect from the hiring process to actually boosting business in some international markets? Additionally, regarding the broader hiring landscape, can you discuss the challenges posed by the scarcity of talent and finding individuals with the right skill sets? Thank you.

Look, from the international perspective, we called it global growth markets, which is about 25% of our business. We were quite intentional in the last year that as we're globalizing the company, so too, that we want to localize the company to a certain extent. So that means, as an example, we've recently changed our Head of Japan. We've hired a Japanese local previously was the Head of Microsoft Japan, prior experience in Oracle, HP, IBM Japan. So somebody with followership amongst clients, somebody would followership with talent and a roster of C-suite networks in the country. That's important to me, but we also need the people who can fit in with Cognizant culture are extremely energetic and really want to do something incredible in the years ahead. I've got to say, it's been an absolute pleasure. We've been able to attract incredible talent to Cognizant across upgrades we've made in the U.K., Ireland, in the Nordics, in Germany, in Australia, New Zealand, in Japan and indeed the new Head of Global Growth Markets, Ursula, who joined us in the month of December as well. And I'm very optimistic that they will ramp rapidly because they are Class A type personalities, very senior, quick studies. We've helped them already with multiyear business plans to see how we can drive exponential growth in these geographies. Of course, I want to give them time to settle in, but they know that they've been hired with great expectations. And of course, they're charged not just with delivering commercially and from a delivery point of view locally and spending for the principles of the company, but also we are pivoting, transforming the company, the classic, very heavy leverage of application outsourcing, labor arbitrage, India model is being complemented, of course, with much more local selling, solutioning and delivery as we're driving across the entire C-suite to sell projects. So I'm very optimistic. I'm very excited about the potential we have overseas. And I think it's an area that we haven't adequately mined internationally, and it's an area that, frankly should enable us to drive nice growth. The broader talent question ultimately goes back to the market dynamics, which are stronger. If you look at the industry analysts these days, many of them are thinking about growth rates in the 3% to 6% for the entire industry going forward. Digital skills are particularly in demand. And that's something I think the entire industry is facing into. We can control what we will. So we are 100% focused as the management team around recruitment and around attrition and making sure we can fulfill against our bookings momentum. In the same vein, I'm proud to say we promoted tens of thousands of associates recently and rewarded the majority of our employees with a merit-based salary increase and indeed, this year we accrued and we will pay bonuses at higher levels than last year, notwithstanding COVID-19 and a ransomware attack. So we have a more rigorous approach to talent. You will see that process continue. We will probably be faced with still sequential pressure in involuntary attrition simply because we're going through end of year cycles, and after bonuses are paid, we'll see what happens. But we're 100% focused on attrition and recruiting and is 100% focused on ensuring that our employee value proposition and employee brand is world-class.

Got it. Thank you very much.

Thank you. Brian, you spoke positively about the building strength of the portfolio and your positioning in light of substantial M&A activity. Can you comment on the competitive environment in the digital engineering space? Do you hope to take up market share with new or existing clients? And do you have to disrupt competitors to do this?

This is one of the hidden jewels, Maggie, in the entire corporation. Obviously, we have a rich heritage in application development and application maintenance, but that gives us a tremendous opportunity then to move much more forward, leveraging the strong skill sets and the talent that we acquired with Softvision back in 2018. In fact, we've done 2 digital engineering acquisitions in the last probably 4 months, Tin Roof in the United States, as well as Magenic and that most recently as well in this week that we closed. And you'll see us continue to complement those across the globe. We already have a very strong footprint across North America, and you'll see us continue to embellish Western Europe with that skill set as well. Of course, we think we're entering a new phase of digital, and this brings with it different dynamics. Clients aren't thinking of digital necessarily anymore simply as the classic tech stack at the bottom where they think about applications or infrastructure or data. Our vision is ultimately that clients will recognize its power of digital is unlocked not in those silos investments, but more across business processes and operating models. And that ultimately involves selling value, delivering value. It involves intelligence in consumer-grade applications from a CX point of view with security-grade features, ultimately driven by intelligence that's fueled by massive data modern architecture sitting on cloud platforms. And our digital engineering play truly leverages interactive and experienced capabilities making us one of the only companies in the world that can scale from the bottom of the tech stack right up to the top. There are certain pure-play digital companies that play in certain arenas. There are certain IPPs that play more at the bottom of the stack. But we're one of, I think, the two companies in the world’s can truly scale top to bottom in that regard. And core to this belief as well, by the way, is the notion that processes will ultimately become more agile, data-driven and automated with a huge focus on CX. We've got some great examples already, by the way, in the portfolio, both vertically as well as horizontally. ATG is a company we acquired in 2018. It's a leader in advisory, implementation and managed services in quote to cash. And that's one example or Lev another Salesforce Platinum Partner that we acquired in 2020 helps business is simplify and modernize marketing campaigns, leveraging Salesforce’s marketing cloud and that really helps them provide data insight and personalization across their customer journey. This, in my mind, is where digital is going. It's not about silo tech stacks. I personally have collapsed our organization to really get at the intersection point of cloud and digital. This is happening when certain other companies are actually doubling down in cloud silos, but I actually think the true value is that intersection point. And I feel we can truly get after new customers, but we're also dislodging certain companies from accounts that they've long held. Some of these companies are private companies, some are public, but we feel we got one of the biggest digital engineering companies in the world, and you'll see us continue to double that in that regard.

Thank you.

This is Katie. I'd just like to thank you all for taking the time and joining the call, and we look forward to speaking with you in the coming days. Thanks.