Greetings and welcome to the Cognizant Call to announce the agreement to acquire Belcan. At this time, all participants are in a listen-only mode. A Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tyler Scott, Vice President, Investor Relations for Cognizant. Thank you. You may begin.
Thank you, Operator, and good morning, everyone. Thank you for joining us this morning to discuss Cognizant's agreement to acquire Belcan. A press release with information on today's announcement can be found on the websites of both companies at cognizant.com and belcan.com. A presentation to accompany our discussion is posted on our website at investors.cognizant.com. The speakers we have on today's call are Cognizant CEO, Ravi Kumar S, and CFO, Jatin Dalal. In addition, Surya Gummadi, EVP and President of Americas, will join for the Q&A portion with Ravi and Jatin. Before we begin, I would like to remind you that some 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 press release and other filings with the SEC.
Additionally, during the call today, we may reference certain non-GAAP Financial Measures that we believe provide useful information to our investors. Reconciliations of non-GAAP Financial Measures, where appropriate to the corresponding GAAP measures, can be found in the company's press release and other filings with the SEC. With that, I'd like to turn the call over to Ravi. Please go ahead.
Thank you, Tyler, and good morning, everyone. Thank you for joining us today on short notice. This morning, we announced our agreement to acquire Belcan, a leading global supplier of engineering research and development, or ER&D, services across the commercial aerospace, defense, space, marine, and industrial verticals. This transaction fits squarely into our long-term strategy of expanding our service offerings into new vectors like ER&D while supporting our existing areas of strength in application services, business process outsourcing, and infrastructure services. In addition, Belcan supports our strategy of diversifying and expanding our footprint into industries like aerospace, defense, industrials, and automotive. Furthermore, this transaction is fully aligned with our focus on leading at the confluence of industry and technology and with our M&A strategy to strengthen our capabilities while driving long-term revenue growth.
We expect the deal to close in the Q3 of 2024, subject to regulatory approvals and other closing conditions. Now, let me provide some more information on Belcan's business and strategic benefits. I will then turn the call over to Jatin, who will provide additional details on the transaction, including anticipated synergies. Finally, we'll open the call up to Q&A. I'll begin with a brief overview. Belcan is an established player in the ER&D space. It brings mission-critical digital embedded software and highly complex engineering services to its long-standing customer base across the commercial aerospace, defense, space, marine, and industrial industries. We expect Belcan to bring deep domain expertise in commercial and defense aerospace, an emerging capability in industrials and automotive, and significant technological capabilities. This deal provides four key benefits, which I will discuss in greater detail.
First, it expands Cognizant's access to the $190 billion ER&D services market, which is expected to grow at over 10% CAGR through 2026. Next, it increases our presence in the fast-growing aerospace and defense sector with a blue-chip client base. We expect these areas to grow faster than other industries in the years ahead, driven by increased end-customer demand and increased adoption of outsourcing. Third, Belcan brings a workforce of over 6,500 highly skilled and experienced engineers and technical consultants to Cognizant, primarily based in North America and the United Kingdom. And finally, it helps diversify the Cognizant portfolio and is expected to deliver revenues and cost synergies to drive long-term value creation. Now, let me dive into the details of the strategic rationale for this acquisition.
First, Belcan will expand our access to the ER&D services market and grew 8% annually over the last two years, which is substantially faster than our core portfolio. The ER&D services market is experiencing strong fundamental tailwinds driven by what we describe as the ongoing digitalization of the physical. In the past decade, the velocity of digital technology adoption was much higher in the services industries. However, over the next decade, we believe other more physical industries like manufacturing, automotive, and aerospace will significantly expand investment in digital technologies. The adoption of digital technology and engineering is transforming business models as CXOs attempt to keep pace with innovative technologies. These trends are, in turn, driving increased demand for outsourcing to ER&D service providers because ER&D requires the use of highly technical and costly interfaces and programs.
Belcan offers these highly complex services and subject matter experts at scale, and it has a successful track record of delivery in advanced engineering and model-based systems engineering and complements our existing Internet of Things and digital engineering capabilities. Second, the acquisition will help diversify Cognizant's revenue mix, increasing our presence and establishing a leadership position in the fast-growing aerospace and defense industry. The aerospace and defense industry is experiencing strong secular tailwinds, including growing demand for commercial aircraft driven by increased commercial airline passenger traffic and next-generation aircraft, increasing defense spending globally, and the growth of satellite launchers accompanied by the emergence of new private space enterprises. Belcan will bring to Cognizant a blue-chip client portfolio of multi-decade trusted relationships with category leaders. In fact, the top 10 ER&D spenders in the A&D industry are active Belcan clients.
Third, Belcan will bring a highly skilled and experienced workforce of over 6,500 engineers and technical consultants. Belcan hires talented individuals with domain expertise and strong engineering skills to meet client demand across the entire ER&D product lifecycle. Belcan associates operate from near-site locations, allowing them to fully address the needs of clients. We also believe Belcan has a highly compatible client-centric culture. It has a low voluntary attrition and has a long-tenured employee base, which fits well with our goal to make Cognizant an employer of choice. We are pleased that Belcan CEO Lance Kwasniewski and key members of the leadership team are expected to continue in their roles post-transaction. We've been deeply impressed by Lance and the Belcan leadership team and are excited to continue working with them.
Finally, we expect Belcan to help diversify our portfolio and unlock revenue and cost synergies to drive long-term shareholder value. Belcan is expected to enable us to reach new clients and expand our traditional offerings to new sectors and industries. First, we see an opportunity to scale global ER&D delivery to address existing demand from Belcan's commercial aerospace customers that it cannot address today. Second, we also see meaningful opportunities to expand Belcan's ER&D services, currently catering primarily to the aerospace and defense industries, into our automotive and industrials client base. And third, we see significant opportunities to bring breadth and capabilities in our existing portfolio across digital application services, BPO, cloud, and infrastructure services to Belcan's blue-chip client base to generate revenue synergies.
We expect the transaction to deliver over $100 million in annual revenue synergies within three years and to be accretive to EPS starting full year 2026. Jatin will cover the financials in more detail in a moment. With the acquisition of Belcan, we expect to build upon our value-creating M&A track record. Since the beginning of 2019, we deployed approximately $4 billion on acquisitions, which have helped enhance our capabilities and improve our positioning in faster-growing areas of our addressable market in a financially disciplined manner. For example, in 2019, we acquired Zenith Technologies to strengthen our global industry 4.0 offering with new end-to-end smart factory capabilities in the life sciences area. Since then, we have been successful in expanding into larger deals in life sciences through joint go-to-market with end-to-end operational technology capabilities.
With the acquisition of ESG Mobility in 2021, we extended our capabilities in digital automotive engineering, including in smart and connected mobility in Germany and the Americas. Utegration, acquired in December 2022, has established us as a leading player in SAP S/4 transformation programs in the utility industry. Mobica, which was a 2023 acquisition, has greatly enhanced our embedded software capabilities and chip-to-cloud capabilities. We believe the combination of Mobica and Belcan's engineering expertise will greatly enhance our capabilities to support the digitalization of the physical. Finally, we are pleased with the early traction of our Q1 acquisition of Thirdera, the largest independent global pure-play ServiceNow consultancy at the time of the acquisition, which has significantly expanded our ServiceNow skills and credentials. Thirdera has already provided a healthy pipeline of opportunities to cross-sell within our existing client base.
We'll continue to balance our inorganic strategy with organic growth through investments in our capabilities across industries and geographies. In summary, I'm confident that this combination with Belcan supports our strategic priorities to accelerate revenue growth and to lead at the intersection of industry and technology. Combining our expertise and our shared focus on providing value to our clients through distinctive technological capabilities helps further position us as a leader in the ongoing digitalization of the physical product and markets with compelling fundamental tailwinds. We operate at a scale and scope that enables us to deliver best-in-class solutions for customers across the world. Together, we expect to offer capabilities with significant scale and reach, leveraging a strong financial foundation, and capitalize on new growth verticals in the future. With that, I'll turn the call over to Jatin to discuss the details of the transaction.
T hank you, Ravi. Let me provide a few more details on the transaction. Cognizant agreed to acquire Belcan for approximately $1.29 billion, subject to customary adjustments at close. The transaction price is expected to be paid by approximately $1.19 billion in cash consideration and 1.47 million shares of Cognizant Class A Common Stock. The cash consideration will be financed through cash on hand and debt. We expect the deal to close in the Q3 of 2024, subject to receipt of regulatory approval and satisfaction or waiver of closing conditions. Turning now to synergies. Given Belcan's growth track record and the broad market tailwinds, we expect the deal to be immediately accretive to top-line growth upon closing. We also expect the transaction will generate over $100 million of annual revenue synergies within three years derived from three key areas. First, by cross-selling Cognizant's IT services to Belcan customers.
We see particular opportunities in helping Belcan clients meet pressures to adopt model-based systems engineering by combining Cognizant's strengths in digital engineering, data, supply chain, and manufacturing operations with Belcan's advanced engineering capabilities across full product lifecycle. Second, by scaling global ER&D delivery to address demand from existing Belcan customers in sectors like commercial aerospace and industrial manufacturing. And third, by cross-selling Belcan engineering services to Cognizant's automotive and industrial clients and their demand for fungible U.S. based skills, for example, in systems engineering, model-based systems engineering, and embedded software. From a cost perspective, our global delivery presence enables us to capitalize on outsourcing opportunities, unlocking higher-margin revenue synergies. We anticipate cost synergies through SG&A savings from central function modernization and efficiencies over a period of time.
In terms of financial impact, we expect to provide an update to our full year 2024 guidance related to this transaction after the deal closes. However, I would like to provide a few preliminary comments. First, as a reminder, on our Q1 call, we provided a full year revenue target which assumed up to 100 basis points of inorganic revenue contribution. With the acquisition of Belcan, we expect the inorganic contribution to be above that level in 2024. The revenue that the acquired business will contribute to Cognizant in 2024 will depend on the timing of the close, but is expected to be over $800 million on an annualized basis. Second, we expect a modest dilution to 2024 operating margin of approximately 40 basis points, which is largely due to non-cash amortization of customer relationship intangible assets, and one-time acquisition and integration-related expenses.
This assumes the acquisition closes in the Q3 of 2024 and includes estimates for amortization and integration expenses, which are subject to change. We will provide an update on these estimates after the deal has closed. As a result of this cost, as well as financing costs related to reduced interest income and incremental interest expense, we expect the acquisition will be dilutive to our current 2024 EPS guidance. However, we expect the transaction will be broadly neutral to EPS in 2025 and accretive to EPS in 2026. Longer term, we expect the acquisition to support both revenue and adjusted operating income growth driven by revenue and cost synergies. Taking a step back, this transaction aligns with our capital allocation priorities. We remain committed to maintaining our strong balance sheet, driving operating leverage over time, and returning capital to shareholders through our regular dividend and buyback program.
In connection with the transaction, we also intend to increase our share purchase plans for 2024 to maintain our current share count guidance of 497 million for the full year. In terms of integration strategy, we plan to have Belcan continue to operate under the Belcan name as an operating unit of Cognizant. Lance, the CEO of Belcan, is expected to continue to lead the business and, together with the dedicated Cognizant leadership team, scale our ER&D capabilities. We will also establish a dedicated integration program office to drive execution against our strategic and financial goals for the transaction. Putting aside the transaction, we also wanted to provide a quick update on the trends we have seen in the Q2.
While we are not updating our full year guidance, we now expect quarter two revenue will be in the upper half of the guidance range we provided on our May 1 call. The purpose of the call this morning is to discuss our agreement to acquire Belcan, and therefore we will not be commenting or taking questions on Q2 performance or our full year guidance. We look forward to discussing our Q2 results during our earnings call at the end of July. With that, I will pass it back to Ravi for his closing remarks.
Thank you, Jatin. In closing, I'm thrilled to be here with you all to announce our agreement to acquire Belcan. We are confident that the acquisition will expand Cognizant's access to the ER&D services market and increase our presence in high-growth industries. We see a compelling opportunity to accelerate revenue growth and create substantial shareholder value through the combined engineering capabilities. With that, we'll open the call for your questions.
Thank you. At this time, we'll be conducting a Q&A session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.
Great. Thank you very much. Congratulations on the acquisition. Just wondering if you can give a little bit more operational detail on the company and how we should think about it. For example, where will headcount be geographically positioned? It seems like U.S. and U.K.-based, but I don't know if that's accurate, and how will you maybe think about moving that? And then can you give a sense on their deals? What's a typical deal size for them and the relative pace of backlog conversion into revenue for the company? Thank you very much.
All right. Thank you, James. Thank you for that question. If you look at the last 25 to 30 years, corporations outsourced information technology, and over a period of time, they outsourced business process-related work. So companies went from outsourcing I.T and B.T, as I call it, which is information technology and business transformation. And I would believe the next wave of outsourcing, as much as the previous two are strong pillars, will be on operational technologies, which are at the intersection of physical and digital. So I would believe that Cognizant will end up being one of those companies which works at the convergence of O.T, B.T, and I.T, O.T being operational technologies, I.T being information technologies, and B.T being business transformation. The space of engineering, the addressable spend, is roughly around $2 trillion, of which only $190 billion is in the range of outsourcing as of today.
I believe there is significant headroom to do that. Over a period of time, this would also go through the cycles of offshoring, as I can see. We actually believe our thesis is the last 10 years, services industries digitized and increased tech intensity. The next 10 years, the next decade, industries with the manifestation of physical will actually do much more digitization and increase tech intensity and therefore lay the foundation for the embrace of AI. Coming to your question on two specific questions, the headcount, because this is a company which focused on aerospace and defense, has predominantly in the United States as well as some in the U.K. to address one of their big European clients. They do have some small capacity in India because commercial aerospace is up for offshoring.
So we are actually excited about the fact that we can bring the strength of Cognizant to these sectors which are ripe for offshoring. So it's predominantly the U.S., a little bit in the U.K. We have opportunity to expand in Europe. And of course, we have a huge opportunity to expand in India because we do believe as outsourcing goes up in this space, we will see offshoring as well. The typical deal size you spoke about, it is slightly, I mean, they do have discretionary and non-discretionary, but the discretionary is slightly longest terms because when you're actually engineering in aero, the cycles of spend are much longer. So it also gives us a sense of resilience, if I may, on our portfolio because IT services are shorter periods of discretionary, while aerospace and engineering services are a longer period of discretionary.
So the spend patterns are going to be more sticky and more long-term as I look at it. The deal sizes, I mean, these are big, large corporations in aerospace, industrial, both commercial and defense. So the size of those opportunities are going to be sticky and longer versus information technology and BPO-led business.
Thank you. Our next question comes from the line of Brian Bergin with TD Cowen. Please proceed with your question.
Hi. This is actually Jared Levine on for Brian today. In terms of the 8% revenue CAGR disclosed, seems to have some 2022 M&A. Can you discuss what this growth rate looks like on an organic basis?
Yeah. So this is adjusted for the acquisition. So this is the momentum of the organic business.
Got it. And then we're also seeing about 10,000+ headcount disclosed on that company's website. Was there any restructuring that has occurred?
No. I think they have project-based work, and there is always a sort of fluctuation in the headcount. The number that we have represented is the composition of the business that comes to Cognizant. As Ravi described, 85% of that is in U.S. and a strong presence in U.K. and India.
Great. Thank you.
Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question.
Hey, guys. Congrats on this. I really want to understand a little bit more of the competitive differentiation that Belcan offers and what you're thinking is going to be your area to enhance that differentiation so that you can ensure the growth obviously keeps staying up as strong as it's been. It's good to see that it's additive to the overarching growth rate of the company. And maybe just a little bit more of an understanding of the competitive landscape and a little more on who's who that you're really going head-to-head with here. Thanks, guys.
Sure. Thank you, Dan, for that question. There are specialized engineering services firms. If I just look at the evolution of information technology outsourcing, I want to remind you that when information technology outsourcing happened in the last 25 years, we had standalone BPO companies evolve, and over a period of time, IT services companies built BPO expertise. Similarly, we do think information technology companies will now actually look for engineering services as a logical and a natural expansion. Over the last two or three years, Cognizant organically built ER&D capabilities. And in addition, we bought a company called Genith, which was focused around life sciences manufacturing. Then we bought something called ESG Mobility, which was focused around automotive-led manufacturing. And then last year, we bought something called Mobica, which was focused around chip-to-cloud embedded software.
So I would actually believe that if you look at that value chain, all the way starting from systems engineering to model-based engineering to embedded software, in fact, we will complement what we did with Mobica in 2023 with embedded software, which is a sizable chunk of Belcan's revenues, and build that capability at that intersection of physical and digital, as I call it. The players who actually compete with us in this space would be, I mean, you would have known that Capgemini bought something a couple of years ago. Then HCL bought something a couple of years ago. Then there is Quest and Cyient, which are boutique firms which do work in this space. And of course, all the other global system integrators have some element of engineering services. This one makes us a formidable player in aero and defense.
It, of course, actually strengthens our capability in automotive, and it puts us in a pole position to capture and seize opportunities in manufacturing and industrial. So we are very upbeat about the fact that we can also cross-pollinate services. We can take Belcan's services in aero and actually cross-pollinate into automotive and industrials. And equally, we can take Cognizant's services in IT and BPO and cross-pollinate into Belcan's clients. So we see significant synergies as we go forward. It's a U.S. centric entity, but as you're aware, there is a sizable market in Europe for engineering services. This is product engineering and industries like manufacturing and aero. So we would actually leverage the Belcan capability to also expand into Europe. They already started that even before we announced this transaction. So we are excited about the fact that they already have that journey.
We are also excited about the fact that commercial aerospace is going to offshore quite a bit. Belcan has started that presence in India. With the Cognizant portfolio of services out of India, we think we're going to strengthen that as well. So very, very excited about the portfolio fit it has to what we do. As I said earlier, we will probably be one of the only few companies in the world which will bring the convergence of operational technologies, OT, information technology, which is I.T, and business transformation, which is B.T. So O.T, I.T, and B.T, we are going to converge. We also believe that we are poised to bring our AI capabilities at that intersection of physical and digital, which is going to be the next big wave, if I may.
We think that foundation which we lay now will set us for the next decade on AI-led embrace and industries which have a physical manifestation.
Thanks, Ravi. That's helpful.
Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.
Good morning, guys. I wanted to ask about the gross margin and the EBIT margin profile at Belcan, if you can comment on that, obviously excluding any of the deal-related costs.
Yeah, sure. So we haven't broken that down, Jason. So I won't be able to comment specifically on the numbers, but suffice to say that they have a healthy margin for predominantly on-site work that they have been performing over the last few years. So that's as competitive or good as you can expect in that industry. It also reflects the sort of competitive edge and premium they are able to command in the market. So overall, it's a well-reflected on-site profitability in both gross and operating margin of the entity.
And just to add to what Jatin said, if you remember, I mentioned about a market, a spend of $2 trillion on engineering and $190 billion of outsourcing addressable spend. As we progress and as this space matures, I actually believe that the outsourcing spend will go up. Equally, the offshoring spend in this industry will go up.
Okay. Just to follow on, actually kind of a two-part question, I guess. But since these are new verticals and ER&D is kind of a new service line largely for Cognizant, are you going to report out on Belcan as a separate unit? It sounds like you're going to internally maintain it as a separate operating unit, but just from an external reporting standpoint. And then just any comments you'd have on Belcan's revenue growth trajectory for 2024. Thank you.
Yeah. So as we speak, we do not anticipate any change in the external reporting segments or otherwise of the organization, but we will be sharing an update on Belcan in our future earnings call given just the importance of this opportunity for Cognizant. This company continues to have a healthy growth rate through 2024. And therefore, we have commented that it enhances our growth profile immediately because the company is growing at a faster clip than the market or IT services or our own guidance. Just to reinforce what Jatin said, if you've noticed, engineering services, because of the headroom, is growing at faster than IT services. And Belcan is expected to grow faster than the parent, which is, I mean, when the transaction closes, Cognizant. So we really expect this to be a growth vector for the company.
Thank you.
Thank you. Our next question comes from the line of Jamie Friedman with Susquehanna International Group. Please proceed with your question.
Hi. Good morning. Let me echo the congratulations. So I said from your vision, Ravi, that part of the objective, like you just said in the previous answer, is both to capture the outsourcing and the offshoring vectors of the end market. Looking at the website, it looks like they have a lot of aerospace and defense and then a lot of public sector. So I'm just wondering if you could unpack the constraints you may see in those from the offshoring perspective because historically, some of those have been on-site-centric.
Yeah. So that's a great question. We would expect auto and aero to grow faster than the other industries for the future. We also expect engineering services to grow faster than IT services. So that gives us a clear vector for growth. It also, because of the intersection with technology, especially digital technologies, the data and digital infrastructure as a foundation for the future transformation of this business is our thesis is that it is only going to intensify. And as that intensifies, that capability set has to be outsourced. It happens today, and it'll happen more. More technology will be embedded into physical objects, be it aero, be it defense, or for that matter, be it other industries where we could expand using this. In fact, embedded software is a fairly big part of the value chain of Belcan.
So we expect a portion of that business continues to be outsourced. And the portion of work which is commercial-led, which is aerospace commercial, and automotive, which is also a growing industry for Belcan, will actually have opportunities to offshore. So a portion of that business will get outsourced significantly. A section of that business could actually get offshored, which is primarily commercial-led. That's what we believe. Inside Belcan as well, the commercial aerospace business is actually growing higher than the defense aerospace business.
Got it. Thank you. That's helpful. I'll drop back in the queue.
Thank you. Our next question comes from the line of Dan Dolev with Mizuho. Please proceed with your question.
Hey, guys. Thanks for taking my question. Two questions quickly. It wasn't clear to me on the annual organic guides. There's no change there, right, from an annual perspective? Just so I'm 100% clear on that.
Yeah. So then, let me summarize. We are not commenting on full-year guidance given the fact that it will change once we close this transaction. And to the extent it will change will depend on the exact timing of this transaction. So we are not commenting on full-year guidance. However, we are commenting on quarter two guidance that we expect it to be in the upper half of the guidance range that we provided on May 1st in our May 1st earnings call, which is on a standalone basis.
Yeah. Yeah. That's great to hear. Okay. Great. Thanks for clarifying. And a quick one on the customer concentration. I think you said about 70% from top 15. Any more granularity into maybe the top two or three customer concentration would be great. And congrats again.
So I'll ask Jason to add, but the top 10 ER&D spenders in aero, all 10 of them are Belcan's clients. So these are fairly big corporations that we are very, very excited about the cross-pollination of Cognizant services, of course, taking that expertise to the value chain of aero and then taking that expertise to the value chain of automotive industrials. Something like embedded software can be very pervasive. It can go to every industry which has a physical connection. Yeah. So only other color which is covered in our presentation is that 27 of the top 30 customers are global 2,000 customers. So they are all large customers with fairly big budgets given their scale and size. And I think that's another exciting part.
I appreciate it. Congrats again.
Thank you. Our next question comes from the line of Kevin McVeigh with UBS. Please proceed with your question.
Great. Thank you so much. Let me add my congratulations as well. Can you give us a sense of the $100 million of revenue synergies, how we should expect that to scale? I think that was over kind of a three-year period. And maybe just a little bit more detail on what the components of that would be.
Yeah. Sure. So this is Jason. I will share. So there are three fundamental components there, and it will scale as fast as typically the synergies take to scale. But we are quite excited. I think the first big component is selling the big suite of IT services of Cognizant to existing large customers of Belcan. Second, which is equally exciting, is to take the expertise of Belcan to our engineering expertise to our existing customers of Cognizant. And third is to continue to build on offshoring vector and grow that business. So overall, we remain very excited about the synergies that this business can provide and the growth that it can overall land for the company.
Helpful. And then just any thoughts as to existing client overlap?
There is very minimal overlap. So it just gives us such a unique opportunity to cross-leverage our offerings all the way from IT to BPO to infrastructure services to Belcan clients and equally taking the power of the engineering services capability to our clients in automotive industrial. I mean, they started the journey already, and we will now double down on it because we have a huge install base of clients in manufacturing, medical devices, automotive, industrial. So I think it is going to be an exciting opportunity to cross-leverage on both sides.
Thank you.
Thank you. Our final question comes from the line of Dave Koning with Baird. Please proceed with your question.
Yeah. Hey, guys. Thanks so much. Maybe you mentioned North America and Europe focused here. I looked at the revenue per employee, $120,000 or so. Your core, your existing, is about half that. Do you think you'll kind of transition over time and kind of bolster the offshore part of this to boost margins? Do you kind of just expect a shift over time?
Yeah. So I think the bigger opportunity for us there is really to build the additional offerings of services that we can bolt on to today's offering of Belcan. And those offerings can be a combination of offshore expertise of Cognizant and engineering expertise of Belcan. So these are new services that we'll offer rather than offshoring the current piece of work. I think the current services are really concentrated on the opportunities where we work very closely with our customers. And therefore, they will continue to grow. And that is an additional opportunity in a similar domain which we can build over time. And that's what our synergy endeavor is for this asset.
Just to add to it, the way I see it is there are four vectors in our business: engineering services, infrastructure services, technology services, and business process services. They all have digitization in some form, and they equally have significant headroom for AI embrace. What Belcan does today is on one vector. So we can take the other three vectors of this value chain I spoke about and create headroom for more services and headroom for potentially more offshoring. Equally, we believe we can take that capability to other sectors in the future. And of course, that will mean more services and potential for more offshoring. So that's how we see it. So we don't see the transition of the current services. We see the transition to the new services we put forth as well as new sectors we go to, having the chance to create that leverage on offshoring.
Yeah. No, thanks for that. And excuse me, maybe just as a follow-up, just to understand, I think you said 40 bps of dilution to margins from this. Is that on the same basis of your original guidance, 20 to 40 bps, higher margins, and then we just take 40 bps off for the intangibles and kind of non-recurring stuff?
That's absolutely right.
Okay. Good. Well, thanks, guys.
Thanks.
Thank you. Ladies and gentlemen, this concludes our Q&A session, and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.