Greetings, and welcome to the Cognizant Q3 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Katie Royce, Global Head of Investor Relations.
Please go ahead, Katie.
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 Q3 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 Siegmann, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward looking statements.
These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Additionally, during our call today, we will reference certain non GAAP financial measures that we believe provide useful information for our investors. Reconciliations of non GAAP financial measures where appropriate to the corresponding GAAP measures can be found in the company's earnings release and other filings with the SEC. With that, I'd now like to turn the call over to Brian Humphries. Please go ahead, Brian.
Thank you, Katie. Good afternoon, everybody, and a warm welcome to Yan, who many of
you know in what is his first Cognizant earnings call. Today, I'd like to address 4 topics with you, namely a brief summary of the Q3, an update on our employee engagement, observations on the demand environment and clients' evolving needs, and our strategic focus areas as we aim to revitalize revenue growth. Let's start with the 3rd quarter. 3rd quarter revenue was $4,200,000,000 decline of 70 basis points year over year in constant currency. Excluding the negative 130 basis points impact from the exit of certain non strategic content services business, revenue grew 60 basis points year over year.
We executed well in what remains a challenging environment. Highlights of the quarter include continued commercial momentum with bookings growth in excess of 25% year over year ongoing momentum in digital with revenue growth up 13% year over year and continued strength in digital bookings and qualified pipeline. Gross margin and cash flow strength, enabling us to continually invest in the business and significantly increase and sustain financial flexibility on India earnings and cash. Jan will provide more insights on the quarter in his prepared remarks. Moving to our second topic, I would like to briefly address our talented associates.
I'm grateful to each of them for their professionalism and perseverance in serving our clients during this protracted pandemic, which has put a tremendous strain on families and compressed our lives to screens and hopes. We could not have executed against our commitments in 2020 without their client centricity, work ethic and engagement. Given our financial performance and in recognition of the contributions of our associates, we are accruing 2020 bonuses at higher levels than 2019. We're also implementing targeted merit increases and promotions in the Q4. Both will hurt our cost structure in 2020 versus prior year, but are an essential and normalized part of the cost structure in the services business.
In stressful times like Deans, we are especially attentive to employee engagement, a measure of how committed and connected people are to our company. A recent Cognizant people engagement survey showed scores consistently above industry benchmarks and our overall engagement score meaningfully increased versus prior surveys. In an external endorsement of sorts, Forbes Magazine just ranked Cognizant 19 out of 750 Companies across 45 countries in its World's Best Employers list. These high levels of employee engagement, coupled with the current economic environment, contributed to our 5th consecutive quarter of reductions in voluntary attrition. We anticipate some sequential increases in voluntary attrition in the coming quarters after the forthcoming merit based promotions and salary increase cycle.
We continue to prioritize the health and safety of all our associates and remain in a work from home and restricted travel posture with only limited exceptions. Now I'd like to turn to clients and in particular the trends we are seeing. These trends fall into 2 categories, 1 cyclical and 1 secular. First, on the cyclical side and set against a protracted pandemic, clients are increasingly decisive on their technology priorities. They are focused on cost savings, CapEx reductions, resiliency and agility.
This is slowing large project deployments with extended paybacks, but creating other opportunities. We are seeing accelerated vendor consolidation trends, which we stand to benefit from given our deep strategic relationships and client references in build operate and our enhanced portfolio and growing reputation in digital, where more and more clients want to see us challenge digital incumbents. Client focus on innovation and cost savings is also creating opportunities for incumbent vendor displacement and larger deals. We plan to be disciplined and selective in our pursuit of larger deals, including captives, as these transactions, if not well conceived, can bring diluted compound annual growth rates, margin pressure and unfavorable terms. I want to focus my comments on the more consequential secular trends, digital transformation.
This is our top priority. It goes to the heart of client business model innovation, transformation and experiences. COVID-nineteen has widened the digital divide between the digital natives and legacy economy companies, which have struggled to shift to a fully digital operating model. These industrial era companies have focused on upgrading their tech stack at the infrastructure data and application layers. They've migrated their apps and data to the cloud and improved the agility of their underlying technology.
These improvements, however, important fall short of delivering the full power of digital transformation as they optimize the technology foundation rather than the business process or operating model. I believe the industry is at an inflection point in digital adoption. We see growing client interest in realizing more immediate customer and business value by identifying use cases to shift to agile digital workflows. That means transforming processes to become agile, data driven and automated. Such workloads can be industry specific, such as claims and policy management or pharma co vigilance or horizontal, such as quote to cash or digital marketing.
One such case is how we engineered an agile digital workflow for a leading apparel company that needed a return to work and to store strategy. We offered our safe workforce solution built on the Salesforce work.com platform. This comprehensive employee safety solution provides management with information about public health conditions, office capacity, employee health and shift schedules. It can stagger arrival times to minimize contact, encourage hygiene through automated reminders and when connected with IoT sensors, help enforce social distancing and occupancy limits. As more clients implement agile digital workflows, the digital services market is evolving into a 3rd phase.
In Phase 1 of digital, clients sought to understand what digital really meant to their industries. In Phase 2, they implemented digital experiments and projects at the edge of their enterprises. In Phase 3, clients realized they must be software driven enterprises and digital to their core. So what does this shift to agile digital workflows mean for services companies? And who will be the winners?
The first and perhaps most obvious thing to say is that there will be more than 1 winner. That being said, everything we are doing as a company from our strategy, solution portfolio, partnerships, mergers and acquisitions, branding and marketing and talent is focused on being one of the biggest beneficiaries of this new phase of digital. To become modern businesses and create business value, companies need to embrace the digital technology stack that consists of personalized and engaging customer and employee experiences, enabled by software engineering, powered by customer and operational intelligence, driven by data and run on a modern cloud business platform. We haven't always done a great job marketing this, but we are one of the few firms in the world with and partnerships across every layer of this stack. Inorganic investments have strengthened our SaaS partnerships with both Salesforce and Workday, complementing long standing relationships with SAP, Oracle and ServiceNow to offer clients the full suite of enterprise application services they require to modernize their core processes and enable agile digital workflows.
In the last 6 months, we further strengthened our partnership commitment to all 3 leading hyperscale providers, announcing the formation of dedicated business groups for both Microsoft and AWS and investing to enhance our Google Cloud credentials. Whatever approach
a client wants to take to
become a modern business, our portfolio allows multiple on laps. Let's say a client wants to start at the bottom of the digital technology stack by accelerating cloud migration. We can do this for them, driving efficiencies that can subsequently be invested in innovation. That's exactly what we're doing for a global automotive manufacturer that came to us for help to bring agility, innovation and efficiency to their business processes. We started by executing an agile delivery model for core modernization.
We then deployed our 1 DevOps model across the clients, dealers, supply chain, accessories, parts and incentives, improving speed, flexibility and user experience. In another example, we're engaged in partnership with Snowflake in a digital transformation project for a leading financial services firm. We're building a cloud based intelligent data platform that facilitates multiple analytical and machine based use cases. This platform unlocks innovation opportunities and value added use cases, including real time intelligence for fraud detection, a better user experience for opening and reactivating accounts, a reduction in low dispute processing time and improved field agent selling effectiveness. More and more clients are however starting at the top of the digital technology stack by focusing on the customer and employee experience.
Such experiences can be continuously improved through the magic of human centric insights, software product engineering, automation and applied AI and hyper personalization, all of which ultimately requires clients to embark on a core and data modernization journey. That's what we did for a large global insurance company that selected Cognizant to design, implement and run a new direct to consumer business that will provide a compelling AI enabled interactive experience to consumers and agents. Recognizing this needed to be integrated with existing core systems and data architectures,
we then work with AWS
to host this in a scalable modern digital platform. In these examples, you will see the opportunity to create a flight wheel effect or virtual cycle, which Cognizant and our clients stand well positioned to benefit from. In a world of vendor consolidation, Cognizant is one of the few firms that can capture this opportunity. I'd now like to turn to the company's future and our goal to increase our relative commercial momentum and revitalize revenue growth. In the knowledge base business, investing for growth starts with attracting, developing and retaining talent.
The last 6 months, we have overhauled our talent management and annual performance evaluation processes, which allow us to develop a diverse, inclusive and high performance team where talent is identified and nurtured for promotions. Meanwhile, we have invested in growth by strengthening our country leadership with senior hires in Germany, the Nordics, Australia and Asia Pacific, Japan. Earlier this week, we also announced the completion of our executive committee with the announcement of our new President for Global Growth Markets and the newly created role of Executive Vice President and Chairman for Cognizant India. We've also rallied the organization behind what we call the Cognizant Agenda, which articulates our purpose, vision and values. Our vision is to become the preeminent technology services partner to the Global 2000 C suite.
To achieve this, we are aligned behind the fears of both moves that require investments. First, we will meaningfully increase investments in branding and marketing, including launching a breakthrough global brand campaign in the coming months. This campaign will reposition the Cognizant brand and will reach beyond our familiar technology audience to the entire C suite as well as the next generation of talent. 2nd, we will continue to accelerate digital. Our priority areas of digital engineering, AI and analytics, cloud and IoT are more relevant than ever to clients.
We aim
to lead in the 3rd phase of digital, which will require continued investment in M and A, our commercial and delivery capabilities, offer management, talent and branding. 3rd, we will continue to globalize Cognizant by investing for growth in targeted countries, strengthening our regional capabilities, scaling our brand internationally and executing a global delivery network that will ensure greater resiliency in our delivery capabilities. And 4th, we will continue to make investments that increase our relevance to clients by strengthening our industry expertise and technology consulting capabilities, investing in our talents and extending our solution integrator and designer competency. As we invest for growth, we will also continue to leverage our balance sheet to accelerate our strategy. Our M and A strategy continues to be focused on advancing our digital priorities across the globe.
Last month, we closed the acquisition of Kin Root Software, a custom software and digital product development services company that expands our software product engineering footprint in the United States. And earlier this month, we closed the acquisition of 10th Magnitude, one of Microsoft's longest standing Azure Sentry partners. This deal expands the Microsoft Azure expertise within our new Microsoft Business Group and adds development and managed services hubs throughout the United States. And last week, we agreed to acquire BrightWolf, a technology services provider that specializes in custom industrial IoT solutions for Fortune 1000 companies, which will expand our smart products and Industry 4.08 expertise. In short, we are committed to growth and we'll continue to make meaningful investments to ensure we increase our relevance to clients and enhance our competitiveness.
While the macro and political backdrop remain uncertain, come what may, our goal is to ensure we outgrow the market just like we did in the Q3, whilst remaining commercially difficult. In closing, I would remind you that 18 months ago, when we set Cognizant's transformation in motion, aimed at returning the company to be the IT services industry bellwether, we knew this would be a multiyear endeavor and our view has not changed. While we continue to have a lot of work ahead of us, we are encouraged by our progress. Our employees are energized and united by our shared purpose and vision. We're excited about our strengthening competitive position, the opportunity to expand internationally and the opportunity presented by the 3rd phase of digital.
There will be several big winners in this attractive market and we aim to be one of them. With that, I'll turn the call over to Jan, will take you through the details of the Q3 and our fiscal year outlook before we take your questions.
Jan, over to you.
Thank you, Brian, and good afternoon, everyone. I'm very happy to be part of the Cognizant team and look forward to connecting with all of you going forward. From the onset, I was intrigued by Cognizant's meaningful growth opportunity and my 1st weeks in the job have more than confirmed my initial assessment. I will work hard to fill Karen's shoes and wanted to say a big thank you to her for making my onboard so smooth and seamless. Moving on to Q3 results.
3rd quarter revenue of $4,200,000,000 was flat year over year or a decline of 70 basis points in constant currency. Compared to the prior year period, this includes a positive 250 basis points contribution from inorganic growth and a negative 130 basis points impact from the exit of certain content related services. Sequentially, we saw broad based improvement in the business, particularly in areas such as cloud and enterprise application services, IoT and software engineering. Moving to the industry verticals where all of the growth rates provided will be year over year in constant currency. Financial Services declined 2.2% with similar performance in both banking and insurance.
Retail Banking improved in the quarter driven by regional banks, while Capital Markets returned to growth after several quarters of softness. However, we continue to see weakness across global banking accounts and with clients in the payment sector. We continue to expect below company average performance in the Financial Services segment for the next several quarters. Healthcare grew 4.2% led by double digit growth in Life Sciences, driven by strong growth in the biopharma clients and included the contribution of the Zenith acquisition, which we lapped mid quarter. Growth was partially offset by continued weakness in the medical device clients.
Within our healthcare vertical, revenue saw modest growth. After 6 quarters of decline, we are pleased with early signs of improvements in the healthcare business. We see improvement in the payer segment across key accounts, which is offsetting the decline in the provider market that continues to be negatively impacted by COVID. Products and resources declined 4.6% with double digit growth in manufacturing, logistics, energy and utilities, offset by double digit declines in travel and hospitality and high single digit declines in retail and consumer goods. While we saw strength in bookings in retail and consumer goods, we expect continued pressure in 2021 as a result of the ongoing pandemic.
Communications, media and technology was flat, including the approximately negative $57,000,000 year over year impact to technology from our decision to exit certain portions of our content services business. Excluding this negative 9.20 basis point impact, growth in Communications, Media and Technology was approximately 9%. Communications and Media grew mid single digits as growth in communications and education clients offset continued weakness in media and entertainment. We expect pressure in media and entertainment into 2021. While overall we saw improved momentum across the business, the demand environment remains uncertain.
But we believe we are gaining traction across industries as reflected in the strong bookings and pipeline numbers Brian referenced earlier. Moving on to margins. In Q3, our GAAP operating margins and diluted EPS were 14.2% and $0.64 respectively. GAAP EPS reflects a $140,000,000 or 0 point $2.6 per share income tax expense related to the reversal of our indefinite reinvestment assertion on accumulated India earnings. I'll comment more on that decision later in my prepared remarks.
Adjusted operating margin, which excludes restructuring and COVID related charges, was 15.9% and our adjusted diluted EPS was $0.97 dollars Adjusted operating margin was down 140 basis points year over year, primarily driven by higher incentive based compensation and the dilutive impact of our recently completed acquisitions, which more than offset savings from our Fit for Growth program, lower T and E expense and the favorable movement in the rupee. Additionally, during the quarter, we incurred $43,000,000 of charges related to the Fit for Growth plan. The actions drove continued cost discipline, which allowed us to further invest into our growth initiatives. The majority of the actions under Fit for Growth are complete and we have achieved our savings targets. We expect charges to be approximately $200,000,000 in annualized gross run rate savings of $520,000,000 to $550,000,000 in 2021.
While we don't anticipate charges under Fit for Growth to continue in 2021, we will continue to invest savings achieved to help accelerated growth aligned behind the 4 strategic areas Brian outlined. Repositioning the Cognizant brand, accelerating digital, globalizing the company, increasing our relevance with clients. Now turning to the balance sheet. Our cash and short term investments balance as of September 30th stood at $4,600,000,000 or net cash of $2,100,000,000 Our outstanding net debt balances include the approximate $1,700,000,000 drawn on our revolving credit facilities in the Q1 2020. We had a strong cash flow quarter generating $821,000,000 of free cash flow, largely driven by improved collections of our receivables.
DSO improved by 5 days year over year to 72 days. Before turning to guidance, I will provide additional detail on our decision to reverse our indefinite reinvestment assertion on uncumulated India earnings totaling $5,200,000,000 The decision was made based on our strategic priorities to accelerate growth in international markets and to expand our global delivery footprint. Changes to the India budget enacted in April and changes to the U. S. Tax regulations that became effective in September.
This reversal resulted in a one time GAAP only tax cost of approximately $140,000,000 and makes those earnings available globally. In October, we distributed $2,100,000,000 from our subsidiary in India, which resulted in a net $2,000,000,000 cash transfer from India after payment of India withholding tax. Importantly, on a go forward basis, we can now more efficiently utilize 100 percent of free cash flow globally, which gives us greater flexibility in our ongoing capital allocation program. While we are reviewing our capital allocation program, we initiated our share repurchase program and intend to repay our credit facilities by the end of this month. The share repurchase activity will offset a portion of the EPS impact from the lost interest income historically generated from cash balances held in India.
While interest rates in India have steadily declined in the last several quarters, year to date that cash had earned roughly 5%. This generated approximately $95,000,000 of interest income or $0.13 per share. Since September, we have deployed over $700,000,000 on share buybacks, repurchasing approximately 10,000,000 shares. Now turning to guidance. The macroeconomic environment remains uncertain and the pace of recovery complicated by the evolving nature of the coronavirus pandemic.
While we are pleased with the solid bookings and pipeline of the business year to date, how that pipeline converts to revenue will likely be impacted by the pace of economic recovery and thus clients' confidence and spend. We are reaffirming revenue guidance at the high end of our previously guided range. Specifically, for the full year 2020, we expect revenue to decline approximately 0.4% year over year in constant currency. Based on current exchange rate, this translates to a decline of 0.5 percent to approximately $16,700,000,000 on a reported basis. Our revenue guidance includes our estimate of the negative impact of approximately 110 basis points to the full year revenue from our decision to exit certain work within our content services business that will be reflected in our CMT segment and a positive contribution of approximately 200 basis points from closed acquisitions.
This guidance continues to reflect a muted outlook for Financial Services and the Retail and Consumer Goods and Travel and Hospitality portions of our product and resources segment. For the full year 2020, we expect adjusted operating margin to be approximately 15%, which assumes incremental costs associated with the remediation of the ransomware attack, wage increases and promotions for certain of our associates effective October 1 and incentive compensation above 2019 levels. Our current guidance also assumes that Q4 revenue will be negatively impacted by lower bill days versus Q3 and the typical cycle of furloughs. We expect to deliver adjusted diluted EPS in the range of 3 point $6.3 to $3.67 Please see the non GAAP reconciliations in the 8 ks we filed today for a full definition. This guidance anticipates a full year share count of approximately 541,000,000 shares and GAAP tax rate of approximately 32%, which implies a Q4 tax rate of approximately 27%.
Our guidance does not account for any potential impact from events like changes to the immigration and tax policies. With that, operator, we can open the call for questions.
Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Jason Kupferberg from Bank of America. Your line is now live.
Hey, thanks. Good afternoon, guys. Congratulations on the quarter. Maybe I'll just ask 2 quick ones upfront in the interest of time. First off, in light of what's happened recently with SAP, we've been getting a lot of questions just around the size of the practice that you guys may still have in that area.
So any sizing you can give us there would be helpful. And then can you just comment on with the digital bookings growth being as strong as it has been, I think you're up 40% year to date. When does that start translating to faster digital revenue growth? I know we've been hovering in kind of the almost the mid teens range here the last couple of quarters. And then that kind of dovetails with a related question of do you think revenue growth could actually turn positive in Q1?
I know previously you'd said that you may still see negative growth through the Q1 of next year, but obviously you're on a better trajectory now. Thank you.
Hey, Jason, it's Brian. So let me take a shot at some of these and Jan, by all means, feel free to jump in if you've incremental details to add. So SAP as a practice, it's multiple 100,000,000 of dollars for us. It's sub-one billion. It is actually a very healthy business for us.
And I have been in touch with the SAP leadership team in recent periods to see what we can do to accelerate our momentum there. It's pretty intuitive what they're doing, but in the same vein, it's also interesting for us given our ambition to scale much more internationally and given the installed base of SAP. So, it's a partner that really is strategic
to us and we will continue to work closely with.
Digital bookings, look more broadly if I stand back for bookings are strong overall, and it's broad based by geography, by industry, by new and expansion versus renewals and digital bookings are continuing to be strong as well. So what's been very pleasing to me is in the course of the last year, we have consistently shown strong bookings growth year over year. That has enabled us to actually build a stronger backlog through the year, and now we're
in a very healthy position, healthier than we've been before.
And of course, the pipeline, as Jan healthier than we've been before. And of course, the pipeline, as Jan suggested earlier, is strong as well. Not just strong overall, but also strong in digital in particular and strong in the strategic accounts that we focused on as part of our customer segmentation exercise in the RAP model. So I feel really good about our momentum there. The timing of all of this to revenue can vary by quarter, of course, and in the face of economic environment, which is unsettled to say the very least, including announcements made tonight across Europe.
But we're pleased with what we've done. And if this continues, it augurs very well for our future. We're not giving commentary around Q1 or indeed fiscal year 2021 at this moment in time. The only thing I'll say is we will continue to try to outgrow the industry. That's what we did this quarter.
We think we're more competitive than we've been before, and we're absolutely committed to grow and to make investments to grow. If that means compromising some margins in the short term to achieve that, we will absolutely do that. But I'm expecting performance to improve in 2021, but we'll share more details of that, of course, Q4 earnings. But the big caveat around this is what we're going through at this point in time, which is a very uncertain macroeconomic environment.
Thank you. Our next question is coming from Lisa Ellis from MoffettNathanson. Your line is now live.
Good afternoon. Thanks, guys, and congratulations. All right. So the election, inevitably causes and triggers some discussions and questions related to H-1B visas and L-1 visas. Can you just remind us what fraction of Cognizant's U.
S. Labor force is currently on visas? What sort of your level of dependence and focus is on that program? And maybe kind of a little bit of the movie of how your labor force structure has evolved over the last few years and how that's evolving going forward. Maybe I'll just dovetail that into my other kind of observation was just that you actually had headcount increase sequentially quarter to quarter and that utilization is way up, attrition is way down or are you kind of at where you want to be with your labor force at this point going forward?
Thank you.
Hi, Lisa. Brian here. So let's start first with the HayCast situation. I think our utilization levels are now quite high. We tightened it out earlier in the year, as I think every company in the world did.
But we've seen somewhat of a V shaped recovery, particularly in the digital side of our business. And as such, we're at this stage now that our bench is light and we're committed as a leadership team to build that out. We've already started that over the last month or so, but it takes time, of course, to get that built out. Obviously, we want to continue to drive more operational rigor around forecasting, which triggers in enterprise resource management and all of that, make sure we have the right resources in the right place at the right time. So you will see us continue to build out our capabilities with evergreen skills or hot skills as we would call and build upon our capabilities such that we can reduce utilization, which is a little bit high at this moment in time.
I am pleased with the employee engagement. I am pleased that voluntary attrition is down for the 5th quarter in a row. Notwithstanding that, we're really pushing meritocracy in a performance culture these days. So you have seen a big bifurcation between voluntary versus involuntary attrition. And we do expect voluntary attrition to pick up a little bit in the coming quarters as we go through the merit based promotion and salary cycle we're going through, and I underscore the word merit based.
With regards to H-1B visas, look, it's quite topical, but perhaps I could hand back to here a little bit and talk because the administrative rule changes with regards to skilled immigration visas that have been quite topical in recent weeks, Some of those have been enjoined through litigation already. And for other elements, there are challenges pending at this moment in time. So whether the rules survive or not remains to be seen. All that being said, I actually think all roads are leading this direction anyway. So we will always intend to comply with the letter of the law to use these applications and any extensions we intend to pursue.
We are a H-1B visa, I would say, dependent organization. You used the word evolution, and I think that's the right word. Over the years, we have reduced our dependency on Visa. And we've also acquired companies that enable us to be more global in nature. But in the same vein, some of the strategic decisions we took, which were the right decisions, including exiting a portion of content moderation, has set us back a little bit.
That being said, the rule is solely triggered by new applications and extensions and H-1B visas are currently on a 3 year visa. So this will roll in gradually. And I would say, and I want to reassure everybody, our intention is to globalize Cognizant. And so you'll see us build out much more of a global based workforce to meet client expectations, whilst of course, staying focused on quality of delivery. And that will include a whole host of things that we will do, including U.
S. College Campus, recruiting, upskilling, and just a broader effort around the local employee base in the U. S. And indeed globally.
Thank you. Our next question today is coming from Ashwin Shirvaikar from Citi. Your line is now live.
Thank you. Hi, Brian. Welcome, Yan. Good to speak with you again. My question is on the healthcare vertical and it's good to see the improvement.
Question is with regards to the sustainability of that and the investments that you're making in various healthcare capabilities, including but not limited to TriZeta? And on the topic of TriZeta with the Atos settlement, was that included in the cash forecast that you have? What does it mean from an operational perspective in terms of your client relationships? If you could address those questions.
So Jan, I'll touch on the Healthcare business, if you want to touch upon then the cash flow and the cash balance of the Sintel settlement, which we were pleased to see yesterday. So Ashwin, first of all, health care is really important to us. It's almost 30% of the total company and it consists of 2 major portions. 1 is life sciences. We're doing really well there.
We have been for a long time. It's highly strategic to us. You are seeing now the lapping of Zenith technology, which happens in Q3 of 2020. So that will impact growth rates a little bit, but I'm very optimistic around the opportunities in Life Sciences at the intersection point of biopharma, medical devices, right through to Industry 4.0, healthcare, retail and indeed health tech. And I spent a number
of hours on that with
the team over the weekend. So we're really pumped around what we can do there, and you will see us continue to invest in it. The majority of the business is, however, the U. S. Healthcare business, which is split between payer and providers.
The payer business accelerated meaningfully this quarter with strength in services and indeed in products. We have a new leader who took over the healthcare business earlier this year, an internal promotion who has done a fantastic job and this entire team are doing great for us. Bookings are very strong. Product growth is strong. We're getting new logos.
Margins are improving. And we're just generally feeling very good at better payer business. The provider business, which is much smaller than our payer business, saw a significant erosion year over year in the Q3 As you know, the provider business is suffering from transaction volumes that are decreasing because the pandemic is obviously reducing elective procedures. And I would say that's an area that we would expect to come back, but more holistically, the momentum we're seeing in peers, which is 3 quarters of the business, and Life Sciences will give us confidence that we can continue to post strong health care results going forward for improving. Jan, over to you.
Let me add a few comments to the Syntel lawsuit. You may have seen this morning that we won a jury verdict of $854,000,000 This lawsuit has a long history for Cognizant and at the core is our claim that Sintel misappropriates TriZetto's intellectual property related to some software products during that time and while Syntel was a TriZetto subcontractor. And the jury verdict, which found no liability for TriZetto or Cognizant, basically, speaks for itself. We're gratified with the results. But at Atos, the owner of Syntel has already indicated that they're planning to appeal the verdict.
So it will be quite a bit out, I think, till we have the final results of this trial coming through. So way too early to take that cash into account for any actions. Nevertheless, I think it was satisfying to see the jury to side with Cognizant's position. Relative to the cash repatriation, it might be worthwhile just spending an extra minute on it to it. So we had about a cash balance in India of $2,100,000,000 and we at the end of September reversed our indefinite reinvestment assertion and decided to repatriate that cash from India.
And as part of that decision, we could make that decision for two reasons. The most important one is strategically driven actually because we are executing well on our strategy to globalize the enterprise and we'll continue to invest into international markets and for that capital will be needed. But number 2, also the 2021 fiscal year 2021 India budget enacted in April and some changes in U. S. Tax regulations allowed us to repatriate this cash on a cost effective basis and we did so actually in October.
The cash balances in India historically have earned some interest on the cash balances on the cash that we have there. And approximately, I think as I said in the script, about 5% and we offsetting we used some of the cash that we returned from India and cash at hand to repurchase shares during the months of September October and the accretion created to the share buybacks is actually approximately offsetting the contribution that our interest income would have generated in India. So the outlook is quite balanced and it's a starting point. And obviously, we're excited about the go forward benefit of this transaction because we going forward have now full flexibility and full access to our free cash flow on a global basis.
Thank you. Our next question is coming from Bryan Bergin from Cowen and Company. Your line is now live.
Hey, thank you. Good afternoon. Just thinking about your largest verticals here. So you've turned the corner on healthcare. I wanted to ask on financial services.
I hear the commentary on lower than average growth for the next few quarters. But I'm curious what you're seeing in the areas of the clients and whether it's still limited to only a handful of the former large banking accounts. Really, how close are you to the end of the tunnel on stabilizing those? And what do you think you need to do in those areas to really turn the corner in financial services too?
Hey, Brian. So I would say, yes, it remains challenged. Look, first of all, just like healthcare, financial services has got a greatest impact from ransomware. But the financial services results, I'd almost cut them into 2 portions of discussion. First of all, insurance.
And as you know, the insurance industry has really been pressured, to say the very least, in the last year, both at a pandemic level, insurance rebates on automobiles, SMB businesses interrupted, failures. That's impacting the property and casualty insurance industry and, of mortality rates on life carriers. And then on top of that, to make matters worse, catastrophic events and low interest rates. So that sector is under pressure. Our business is, let's say, 80% of our insurance business is in North America, so a little bit more than the average in the company.
It's one of our strongest franchises, but it will decline in this year in 2020. So we need to turn it around. We need to improve the pipeline, to be very honest. Bookings have been strong, but the pipeline isn't strong enough. Our leader has retired in the last month or so.
So we have some new energy in there. And hopefully, we can get that back on track. Banking, look, if I paint a macro picture first, as we've implied in the prepared remarks, capital markets, retail and commercial banking grew year over year, cards or payments were down. With
regards to some
of the larger global banking clients that you've referenced, it's more of a handful. Some of that, to be very honest, relates to ramps of where we were turning some around. Some is self inflicted wounds related to a lack of appropriate seniority in client partners we had and some of it relates to secular pressure towards in sourcing that we're seeing at those banks. Now what do we do to turn all around this entire situation? I'm confident we'll get insurance back on track.
I think we'll also continue to make progress in the North America regional banks, and we've even brought some accounts into a platinum account status this quarter, I. E, they surpassed $100,000,000 But in the same vein, we have a lot of work to do in our current accounts, and that includes scaling more into digital in those banks. The good news is our digital bookings in those banks are up in excess of 50%. So we are starting to get our foot in the door. We continue to upgrade our client partners, and we're continuing to try to do a much more sophisticated job in terms of account planning.
In the same vein, right up to the executive committee, me included, we are trying to break into some of the other large banks. And I think we're making progress actually on 2 in particular. So hopefully, we'll have some good news on that in
the foreseeable
future. Europe in banking just remains weak. We lost an account there in the last year, and we have some transformation product issues in 1 large account over there. It is fixable, but I just don't see the momentum turning around there as quickly in banking overall as I have seen in healthcare.
Thank you. Our next question today is coming from Rod Bourgeois from DeepDive Equity Research. Your line is now live.
Okay, great. Hey, nice progress by Cognizant in these results. I want to ask a high level question. Recognizing that the COVID pandemic is continuing here, do you see Cognizant as still somewhat in a crisis response and basic blocking and tackling mode? Or have you transitioned now into a more forward moving strategic attack mode?
I guess the main part of the question here is assuming you are in a transition, what are the next set of metrics you're most focused on to gauge Cognizant's progress moving forward here?
Thanks, Rod. Brian here. So look, there's a short answer and there's a long answer, so I'm going to give you something in between. First of all, I really feel good about the progress we've made in the last 18 months. We've actually done a lot, probably more than people realize, Clarified our strategy, we executed non strategic portion of the business.
We executed a restructuring program. We used some of the proceeds from that to reinvest back into the business. We've meaningfully improved our digital portfolio competencies and partnerships. We've built a strong professional mature client centric leadership team. We've begun a pretty significant commercial transformation that is showing positive leading indicators and pipeline win rates, bookings.
And we put, I would say, a better business management system in place to ensure optimal financial and operational rigor. And we did all of that, to be very honest, in a period that I was not expecting. We managed through a global pandemic that impacted both demand as well as fulfillment. We navigated a ransomware attack well, and I want to say that humbly, but we did as best as we could, and we've actually received good client feedback on that. We've improved employee engagement to levels not seen for a few years and have reduced voluntary attrition at 5 quarters in a row.
And we've managed to put ourselves in a position that we built a multiyear plan that incorporates sustained investments. So I'd characterize all of that as pleased, but not satisfied, to be very honest. We're not the finished product yet. We're in the middle of a multiyear project, and we must continue to, of course, as we said, reposition the brand, execute our strategy, globalize the company, take advantage of the opportunity overseas, globalize our delivery, build on our growing momentum in healthcare and fix financial services and of course accelerate our position in digital, which just simply exposes us to higher categories of growth and makes us more relevant to clients. If we do all of this, our bookings momentum will continue and ultimately this will translate to revenue growth.
And so Rod, everything else at some stage becomes a leading indicator, pipeline win rates, the leadership team, the bookings. Our goal here is to invest in the business to get back to growth. If we do that, growth accelerates and we will show margin expansion, but in a very calculated manner that allows us to sustainably reinvest back into the business. I say all this with a great deal of caveats given the uncertain macroeconomic situation we're in at this moment in time. That being said, I'll just wrap up by saying I'm really proud of our team and of our associates around the world.
I'm confident of the unity of our leadership team, the absolute support of our Board of Directors who've been tremendously supportive of what we're doing and are growing execution rigor. And honestly, I think we're on track. We're increasingly competitive, and you've seen that hopefully in this quarter's results.
Thank you. Our next question today is coming Keith Bachman from BMO.
I wanted to actually try to get to and I'll ask them concurrently. The first is I wanted to return to bookings and your bookings growth has been really strong. It sounds like 15% year to date and it sounded like it was 25% for the quarter, so accelerating bookings growth. And I'm trying to understand the translation of revenue broadly speaking for Cognizant. While bookings has been strong, is there something else that we should be thinking about on the other side of attrition, specifically of revenues outside of Facebook?
And so normally, you would expect that to start to show up next year, but just want to make sure we understand the other side. Has there been a greater level of attrition, again, outside of Facebook that would cause revenue growth to perhaps not show up as quickly as we might think over the course of the next year or so? And then the second question, Brian, is I wanted to see if you could just touch on philosophical margins. And what I mean by that, you outlined your 4 investment areas and also the benefit associated with how the savings plan is going to manifest itself during 'twenty one. But just philosophically, is there any words that you can give without providing specific guidance on how investors should be thinking about margins, given those puts and takes associated with 'twenty one?
That's it for me. Thank you.
So, look, let me start on the revenue question and the bookings question. There's no big story here, to be honest, outside of the exit of the non strategic portion of the content moderation business, which is in our operations business. Frankly, I think we're executing well, both in our most of our verticals, say, we've got more work to do in financial services. But even in products and resources, we're doing well in the areas that
are not consumer goods, travel and hospitality. And
so I just feel we have growing momentum, Keith, but I'm very cautious to commit anything because of the macro environment. The bookings is real. When I look at bookings by renewal versus expansion versus new, just feels as though we had in the last year and a half, 2 years maybe lost a buildup of our backlog and we had eroded that. And now we started replenishing what I would call the late and now we're in a position where I'm feeling better about the future. So there's no major story there.
And the more we can keep up this bookings momentum, the better, because it's inevitable then it will show up in revenue. So we just need to keep executing. With regards to margins and in some ways, revenue versus margin trade offs, I guess, comes into mind. Look, I think that is always in 2 ways. First of all, it's important to differentiate between a cost and an investment.
And secondly, growth investments will be prioritized versus short term margin optimization. And our goal is ultimately to increase our wealth and commercial momentum and to revitalize revenue growth. And we will make some short term margin trade offs to achieve this. We're investing meaningfully in the business, probably even more than anticipated a year ago, because the more I'm here, the more I see opportunities. In talent, overall in our talent management system, we're accruing bonuses at higher levels.
We're getting back to merit based promotions and raises. In digital, we're attracting talent, which is a constrained asset and therefore an expensive asset. We're upgrading our client partners to be better able to represent Cognizant beyond the traditional CIO, CTO organization. The targeted M and A that we're doing, which I'm very pleased with, comes with integration costs. And while gross margins are reasonable, we do have some margin dilution on the operating income level because of the SG and A nature, intensive nature of those businesses that we're scaling.
And then of course, we're continuing to build out commercial hiring, rebuilding our bench, which will aid our delivery costs, investing in automation, branding, marketing. We got overall our internal systems and tools, remediate and modernize our IT and security and globalize our delivery network. So I've got plenty on my mind to find a way to continue to show margin expansion. And as I've said, 2020 was, in my perspective, a very challenging year from a margin perspective because of ransomware, because of COVID. I'd like to think that as we got through our restructuring program, as we got more operational rigor, as we continue to work on pricing and renewals, upselling across, I mean, our existing accounts, optimizing our pyramid, our near and offshore mix versus on our automation agenda.
I'd like to think we can do what's needed in investments and yet continue to show margin expansion at a pace that is appropriate for us to continue to invest in the business. And for investors who are interested in that story, I think there's very few more compelling investments in Cognizant at this moment in time.
Thank you. In the interest of time, we have time for one more question from the line of James Friedman from Susquehanna. Your line is now live.
Hi, thank you. I was wondering, Brian, do you have any view at this point on 'twenty one budgets? And if that's too hard, just more generally, how important do you think your client budgets are in terms of impacting Cognizant's fortunes?
Well, it's an interesting question, James, because there's many moving parts. I would say macro demands on unclaimed buying behavior. So on one hand, I really feel good about our momentum today, bookings momentum up 15% year to date. And buying every one of those bookings, either renewal or expansion or a new logo is a client win. So the first thing I'll say is, macro demand is better maybe than the most pessimist the analysts suggested back in April, which is good for the entire industry.
But of course, in a world of better consolidation, some like Cognizant will do better than others. Second thing is maybe against this protracted pandemic, clients have become increasingly decisive in their technology priorities and indeed their spend decisions, which is also good because uncertainty is a real enemy. 3rd,
we are less exposed to some troubled verticals for customer segments than others. Travel and hospitality, retail and consumer goods is less than 15% of our mix. We really focus on the Global 2000 customer segmentation. So SMB issues are less concern for
us. And 4th, we have momentum in digital. We've strengthened our portfolio and we can be a winner in well term in the next phase of digital. And I think that inflection point is real by the way. On the other hand, this week's growing COVID-nineteen numbers and the latest restrictions, including lockdowns that were announced across Europe today, are a major cause for concern for us.
And it's unclear whether this will really impact decision making and indeed budgets. So what has looked more promising at least months may turn against us. So that leaves us in a situation that is challenging going into the months ahead because we have to figure out how to optimize our bench and how to reduce utilization a little and sure we continue to get the right skills into Cognizant, but at the same time, watch demand signals and customer volume behavior like a hawk. With regards to customer volume behavior, look, I would say they're more decisive, as I said. They are seeking more strategic or trusted partners to help them through the pandemic.
There's some very short term or cyclical priorities. They would include all the things you would expect, remote working enablement, e commerce, AI and analytics with a view to doing hyper personalization activity. There's a whole set of initiatives clients are looking at to provide cost relief, CapEx reductions. And I've seen more and more clients look towards enhanced resiliency, security, agility, scalability. So the whole notion of cloud acceleration will continue.
The implications of this, for sure, there's some freed up opportunities in the short term around e commerce and working remotely. Certainly, some larger, I would call longer payback projects like EDP are slower, but there are some larger opportunities that have been freed up, including captives that we will look at carefully, because unlike the book of business we've been acquiring through M and A, captives can be revenue catered, dilutive. There are lots of vendor consolidation opportunities, which is good for us in legacy. And by the way, I would say increasingly good for us in digital because I am seeing some fatigue with certain suppliers or the so called digital incumbents who are perhaps less malleable or flexible than cognizant on T's and C's and pricing. And look, there's other things happening in parallel.
The pandemic is truly forcing companies to look at virtual agile and perhaps a greater consideration as to when they partner versus bring work in house. So those things are real and I think that's impacting budgets for the coming year. As long as the situation doesn't get materially worse, The most important thing is clients are making decisions faster and are more decisive leading into a budget cycle. If things get worse, then I think we may end up as an industry, not just in services, but beyond back in a world of pain again. The real trend that I'm 100% focused on, and we will put all of those resources and effort behind this, relates to digital.
That's a secular trend. It's strong. Our bookings are strong. Our pipeline is strong. We've got an improving brand.
We see strength in digital engineering where we're showing up very well these days. Software as a service, AI and analytics, interactive. As I said, clients, I think, are now hitting a point where they've almost reached an epiphany that they've upgraded their tech stack, but at the same time, they're wondering if they're getting adequate returns from this based on everything they've spent. And so if you think about Phase 3 of digital and think of COVID as a very low tide that exposes everything before the enormous tsunami wave comes in and follows, we're seeing clients realize that their platforms or e commerce capabilities are clunky or inadequate. Their marketing is actually more analog than digital.
They cannot hyper personalize because of poor data hierarchies for engineering. Their processes are so people intensive that they're unscalable. And so in essence, even though we've gone through multiple phases of digital, what we've really been doing around the edge has been upgrading the tech stack and the infrastructure data and application layer for non digital native companies. And that fundamentally doesn't solve all of their problems. And clients, I think, going into this budget cycle and beyond in the years ahead will become much more savvy with the fact that they need to become much more software and data driven, they must embrace user experiences and they ultimately must shift use cases to agile and legal workflows.
That's what we're focused on. That's where we're pointing our guns and we'll participate elsewhere, but we will definitely focus on digital and we're committed to
Thank you. We've reached the
end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.
This is Katie. Thank you all for joining and for your questions. And we'll speak to you again later in next quarter. Thank you.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.