Ladies and gentlemen, thank you for standing by and welcome to the Cognizant Technology Solutions First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Hannah Sloane from Financial Dynamics. Please go ahead.

Thank you operator and good morning everyone. By now you should have received a copy of the company's first quarter 2008 earnings release. If you have not, please call our offices on 212-850-5600 and we will send you a copy. The speakers we have on today's call are Francisco D'Souza, President and Chief Executive Officer and Gordon Coburn, Chief Financial and Operating Officer of Cognizant Technology Solutions. 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. I would now like to turn the call over to Francisco D'Souza. Please go ahead.

Thank you Hannah and good morning everyone. Thank you all for joining us today for Cognizant's first quarter 2008 earnings call. This morning I'll provide highlights of our first quarter results and discuss the key drivers of our financial performance. I will also discuss our outlook for the remainder of 2008 and the key focus points for the company in order to drive the business forward in the coming months and years. As always I'll be joined on today's call by our Chief Financial and Operating Officer, Gordon Coburn. We are pleased to report our first quarter 2008 financial and operating results during which particular geographies and verticals have demonstrated significant growth despite pockets of weakness and uncertain economic conditions. Our performance is a result of the diversification of our business across multiple industries and geographies. Starting with our financial and operating and results for the first quarter, we exceeded our guidance for revenue generating $643.1 million during the quarter which represents an increase of 40% from the first quarter of 2007 when we recorded $460.3 million in revenue, and an increase of 7.2% sequentially from $600 million in the 2007 fourth quarter. During the quarter our non-GAAP operating margin remained solidly within our target range. We continue to see demand for our services across a range of industries, geographic markets and solution offerings. We experienced strong performance in the health care sector which grew 45% year-over-year and 10% sequentially. Manufacturing, retail and logistics which grew 40% year-over-year and over 12% sequentially and our other segment which includes communication, information, media and entertainment and technology business areas which grew 11% sequentially and 41% year-over-year. And despite turmoil in the financial markets during the quarter, our financial services sector showed growth of 3% sequentially and 37% year-over-year. I will provide further…

Thank you Francisco and good morning to everyone. I'd like to provide some additional information on the first quarter and then discuss our financial expectations for the second quarter as well as the full year. Revenue for the first quarter grew 7.2% sequentially and 39.7% year-over-year. During the first quarter, our Financial Services segment, which includes our practices and insurance, banking and transaction processing, grew by over $78 million year-over-year and represented 45.5% of revenue for the quarter. Healthcare, grew over $49 million and represented almost 25% of revenues. Retail, manufacturing and logistics grew by almost $28 million representing just over 15% of revenues for the quarter. The remaining 15% of our revenues came primarily from other service oriented industries of communications, media and new technology which grew by over $27 million. For the quarter, application management represented 52% of revenues and application development was 48%, both services continue to grow significantly in Q1. Application management grew 37% year-over-year and 10% sequentially. Development grew, 43% year-over-year and 5% sequentially. The sequential strength in application management, we believe was driven by client seeking to optimize efficiency and non-discretionary spending due to budget concerns. During the quarter, almost 80% of revenue came from clients in North America. As Francisco mentioned, approximately 19% of revenues were from Europe, just over 1% of revenue came from the Asian market, Europe grew 12% sequentially and 87% year-over-year, as a result of our continued investment in that region. We had a gross addition of 56 new clients during the first quarter. We closed the quarter with 505 active clients. During the quarter the number of accounts which we consider to be strategic and have the potential to ramp up to at least 5 to more than $50 million in annual revenue increased by 6, bringing our…

[Operator Instructions]. Your first quarter comes from the line of Rod Bourgeois with Sanford C. Bernstein.

Yes, its' Rod Bourgeois here. Gordon, I wanted to enquire about the full year guidance of approximately 38%. This is somewhat new language in terms of the way you are giving guidance versus the past. And so I was wondering if you could give us some more specificity on what approximately 38% means. Is there anyway that you can give us kind of a low end of the realistic range for 2008 versus the upper end of the realistic range that you are looking at?

Yes, obviously we changed the words as we mentioned in our script from at least 38% to approximately. And the reason we did that is we... the economy has clearly worsened particularly in the last six to eight weeks. And where we in our at least guidance we had both in cushion for the weakening economy, we feel that reduce a good amount of that cushion. There is no specific range that the 38% means. But I think what it indicates is we don't expect it to be dramatically higher or lower than based on that what we see today.

Okay. And then Gordon, is there any more color you can give on what cause the uncertainty over the last couple of month that you are referring within financial services? Can you give some example of the nature of disruption that might have occurred in some of your project? And then as you look at that going forward, what assumptions are you making about that type of project disruption going forward. Are you assuming as the uncertainty that was created in the last couple of months, do you assume that gets rectified as the year progresses or are you continuing to assume that type of activity might continue?

Let me hit the first part of question and Francisco will pick it up. Obviously in early March, the world of financial services changed a bit with the announcement from Bear Stearns and both the reality and perception that triggered throughout the financial services industry, and clearly had an effect on people's decision and their outlook on the health of their businesses for the year. So there was a very real event that happened, really right around early March. And that's when we saw a change in attitude. But let me have Francisco comment both on some more specific on what we are seeing and more importantly what our sense is on how people can be acting in the medium term.

Yes, great. Rod, as Gordon said, things did change significantly during March. And we saw clients as a result of that step back and say we want to reassess our spending plans going forward. So, we certainly saw some project delays during March in particular and some cut backs as a result of that. Now, looking forward I will tell you, what we are seeing and then I will also tell you, what we've assumed as we've looked at Q2 guidance. What we are seeing is that, clients in financial services are beginning to digest the news. They are sort of re factoring their plans. And I would say beginning to start to spend again having digested the economic news of March. Now, in our guidance for Q2, we have been somewhat conservative on that front, and what we have assumed is that financial services... our growth in financial services is in the single digits sequentially in Q2. So, I think that a prudent and conservative approach at this point, given what we are seeing; it's possible that our clients will have factored in there the economic news and will start to spend again and ramp up in Q2. But at this point, we are not comfortable assuming that in our guidance.

That's very helpful. And then I guess on a more positive note; can you give us an update on how the early stages of the T-Systems relationship is going and when might we see some benefit from that relationship? Is that a 2009 event or that helps your growth in Europe or are you starting to see new revenues come into the pipelinepretty soon in Germany? Thanks a lot.

Sure, we have been in the T-System thing now for about two months or so, on the ground transitions, re-batching people, that's all have been going very well. That process is essentially done. The other core part of the relationship obviously is jointly going to market in Germany and we are starting to do that. Obviously, there is lead time when that stuff hits, so I think you are right in assuming for joint opportunities for new clients, there are some lead times. We are also leveraging T-Systems in certain situations, where we need hosting capabilities and we've already won our first joint field on that and kind of some others in the pipeline. But we are in the process of building that joint sales pipeline. And so far, it's looking good. But I think your assessment is right, but the new stuff takes a little while to kick in.

Thank you, guys.

Your next question comes from the line of with Moshe Katri Cowen and Company.

Hi, thanks; good morning. Can you hear me?

Yes; go ahead, Moshe.

Great. So, are you assuming any contributions from T-System in your '08 guidance, Gordon?

Absolutely, because we... that's part of winning that relationship. We took over responsibility for their offshore operations, so...

Can you remind us what's the contribution by couple of 100 basis points? Is that kind of a good number for the year?

We took over about 1,000 people that include some support people and so forth. So, I don't have the exact number in front of me, but it will... certainly one of many new customers that will help drive both during this year.

Understood. And then you didn't talk revenue concentration. Usually, you talk about, I don't know number if you mentioned half one, but you do talk about outside of top ten and when you're talking about the deferrals that you've seen during the quarter, was it concentrated in the top five, especially obviously our focus is on your largest client that's more on the banking side?

Let me just give you the statistics and then answer the question. In the first quarter, the top five were approximately 20.5% and the top ten were approximately 31% of revenue. If you do the map, you will see that in terms of sequential dollars, the top five was down in Q1 same exact trend that we saw in Q1 of last year, the top five in dollar terms was down and then you picked up, so you always have some gyration. So, do the top five contribute to that? Certainly. Was it just the top five and then...

Okay. Can you comment on your largest client? Is there... at this point if you've seen a slow down there and what you are expecting to see from this client throughout the year?

We don t comment on specific clients, but among our largest clients, we still believe there is a meaningful growth opportunities.

Okay.

But gyrations absolutely just like we had gyrations last yea and the year before that.

Okay. And then finally, what sort of expectation should we have for application development growth there in the second half of '08?

I am hesitant to set expectations for that. As we are talking to clients there, are still... clearly talking about discretionary development stuff. But when I think about where exactly the year settles down the... the ultimate answer will be more dependent on that. So clearly we expect a growth... how much growth, I'd be hesitant to give us specific number.

Okay, then... sorry, go ahead.

Hi, Moshe, just a very quick macro commentary on that. In my comments, there really are two things going in the... in our marketplace right now. You've got the cyclical trend, which is driven by obviously the sort on we're seeing and then you've got secular trends in each of our industry. And each of those trends actually driving different kind of demand for us. So the cyclical trend tends to drive demand for services that are focused on helping customers reduce costs. So, the cyclical trend drives application, outsourcing drives it seems like certain types of BPO, IT infrastructure services, our testing services and so and so forth. On the secular side, as customers look to cope with fundamental structure changes in the industry, that tends to drive more of the application development and new system implementation type of work, because the structural changes in the industries are generally requiring clients to do things in new and different ways, and that tends to drive the demand for new systems in some form. So, it really depends as you go to 2008, which of these two trends is going to be a stronger trend. I think both of them are going to play into the mix, which is why it's a little difficult for us to predict exactly how development and maintenance are going to behave over the course of this year.

Given... I want to officially call 9:30 for the market opening for everyone, let's go on to the next question, operator.

Your next question comes from the line of with Joseph Foresi with Janney Montgomery.

Hi guys. And in the essence of keeping a quick... just two quick ones. Just first in talking to the clients, what was the reasoning for the quick hold back? If you can give us an idea of that and then conversely, pickup in the strategic client, when we can talk about their reasoning to potentially outsource more.

The pull back I think, Joe, was just the increased level of uncertainty. Clients... there is uncertainty out there. We are not sure what this means and we're going to reassess our current spending to see if it aligns with the new view of the world. That's actually very, I don't know, I think I would say expected behavior given what we saw in March in the broader economy.

In terms of the strategic customers, clearly what we are seeing is the comfort level with sourcing a broader range of services used in global delivery model is expanding very quickly, and that' why as Francisco mentioned the pipeline of large deals the strongest it's ever been, and we are winning larger deals. And that's tied to people are now saying let's look at kind of the broad range of offshore. We understand offshore model works, so let's make the decision and get going. So, that's part of why... let me look at back half of the year, we are saying based on what we are winning, it actually looks pretty good.

And just as a... guidance of approximately; does that... are you factoring an improvement in the economy or are you expecting it to be stable or down? What are your views in taking that?

Our guidance assumes the economy is stable... stable with current condition.

Okay. And then one last quick one; two part are here. Obviously, you sort of are de-linking hiring from revenue growth by not giving a guidance here. We have heard from sort of other vendors that the ability to pick up employees in just in time has improved. Is that something you are seeing and also if you can give us, what your annual wage increase for this year, that will be great.

Sure, in terms of our ability to resource people, yes, it has improved; there is no question about it. And also we are sitting with a very healthy resource pool right now, combination of both lateral people, who are ready to run the projects as well as we hired a lot of trainees late last year. So, we are very comfortable with both our ability to meet demand with people we have and then... if it turns out, we need more... we can easily get them in the market. So that's not a concern, what we don't want to do is set a number that and then start to hit that even if it's not operation, the right thing for the business. In terms of wage inflation, clearly it's coming below last year offshore. Our competitors most have announced results and have indicated sort of 10% and 11% offshore wage inflation. The devil is obviously in the details on that and we are just watching make sure what exactly happens on ground, and so my expectation is when it all settles down, it will be at that level maybe even a little bit low back when you sort of calculate the real number.

Okay, thank you.

Your next question comes from the line of Bryan Keane with Credit Suisse.

Hi, Bryan. Operator, why don't we go to next one?

Your next question comes from the line of Adam Frisch with UBS.

I think everyone went home. Adam, are you there?

Hello?

Yes, got ahead.

Okay, thanks. The June quarter guidance implied some stronger results or at least some stable results in the second quarter to get to the full. Again, is that... my call got chopped up a little bit in between, but I think Francisco was going through that. Is that a measure of what you have now on the pipeline and what the projects that are already ramping or telling you or does that anticipate deal flows moving through cycle as anticipated? Did that take account into any potential delay?

Adam, I missed first part of your question. You cut out a little bit there, but as it relate to Q2, we've taken somewhat cautious approach with financial services assuming that financial services will grow in the single digit sequential in Q2. And then we still expect healthy growth in Europe and in some of the other industries, the industry segments. As... our Q2 view is based on our current visibility into coal business and also revenue results, which we haven't at this point. As we look to full year, obviously that's based on the combination of deals that we have in the pipeline as Gordon... as I mentioned, we are tracking 50 large opportunities. We've won a number of deals that we'll start to ramp up in June. And it's also based on existing business with clients that we see in the third and fourth quarters.

Okay. On the 38% guidance, obviously still close to 50% better than your largest competitors, yet the multiples are the same. We think that provides some opportunities for the stock to achieve some upside. But what could happen to threaten the 38% on the year? Would that have to be something catastrophic or would it just be a further deterioration?

It's just a significant further deterioration in the economy. Clearly, that's not factored in, obviously there has been a lot of deterioration already, so you were assuming the economy and the industry we play in are kind of stable from here on now.

Okay. And then last question, and I will get off. The majority of your strategic client base that has always meant to be kind of a secret sauce here for the continued growth. Where are you in that maturity cycle or your key client?

This is part of what I think is a core part of the story, because of the range of services that people want to do offshore, keeps expanding. Now infrastructure management, business process outsourcing, the higher end consultants, clients that in theory should have matured by now, still aren't maturing, because we can tap additional budget pool. So, when I look at our under 13 strategic clients overall, we are 20, 30% penetrated. That number just hasn't changed a lot, because the denominator keeps getting bigger as the numerator increases.

Great, thanks guys.

Your next question comes from the line of George Price with Stifel Nicolaus.

Hi, thanks very much. I guess just you mentioned financial services, single digit quarter-over-quarter for 2Q. Are we talking low single digits again? And typically given that 2Q, I think tends to be your strongest seasonally quarter in terms of quarter-over-quarter growth. And guidance is basically in the mid single digits. Is there anything else pressuring revenue outside of financial services going into the second quarter?

The primary thing is financial services. We had a little bit conservatism on other areas; yes, we'd be crazy not to. Bu the big driver of why Q2 has not been... we are not forecasting to be the same strength as it has historically been the primary driver is financial services.

Okay. You mentioned that you have the April numbers and you've looked at them. What are they telling you? Can you give us a little detail and maybe how things progressed sequentially in March and April?

Yes, we don't really break out sequentially, but what it tells us that basic guidance that we laid out that the business continues to be healthy. So, eve it's the base of our guidance, the 680, we are still guiding to sequential growth levels up what the industry is guiding to. And we need to watch financial services and we book out into our guidance.

Okay, and maybe let me ask one more on pricing, given what you are seeing, you thought it previously about expectations around 2% intended to be less aggressive at least in commentary than many of your peers. What do you see now for the year? You're seeing clients backing off a price increases, are you seeing any as per concession? What are you seeing competitors doing?

Yes a few people always ask for concessions and lower prices, yes, that happen for us 10 years, but have we seen anything that changes might view on where pricing will end up for the year, no change in the my price application.

Okay, great. Thanks very much.

Thanks. And I think we have time for one more call operator.

Your next call from the line of Bryan Keane with Credit Suisse.

Hi. I am not sure what happened there. I guess is the weakness just in financial services or are there other vertical for the weak as well?

When you look... the primary... I think the financial service is not big piece of the pie for us. And what do you look at where things really change during the quarter, obviously the financial services industry has pretty big shock as we went into March. So, when we look at the over all business, the... do you have to keep an eye on everything just because of the weak economy, yes, but the one we are keeping a close eye on is financial services.

Okay, and then the key systems deal, I though that was about 5 million on an annual basis; is that... am I close, Gordon?

You broke up; you thought it was what?

About 35 million in annual revenues.

We haven't broken out the exact number for confidentiality reasons, but as we pick up 1,000 people offshore, that includes a bunch of support people and bench folks. So, it's one where we get some revenue from winning that deal and I think someone asked the question earlier. As we look out to the potential to jointly sale particularly in the German... European and German market, we think medium term and long-term, the part that's most exciting about deal is the upside opportunity from winning new customers.

Is there any other acquisitions in the revenue guidance?

No.

Okay. And then just I guess finally, I guess guiding double-digit sequential third and fourth quarter revenue growth, I guess I'm just wondering how realistic that is considering you're talking about project delays and IP cut backs. And I know throughout quarter people are going be pushing you guys on why not take the guidance down.

The... no, I think... we look at that as you can imagine long and hard. We look at it from multiple different perspectives, Bryan. And we went out in March, and then again in April, did a bottoms up reforecast of the business from the field. And when we looked at all of that data and layered on top of that, our pipeline of large deals that I mentioned, the business that we have won and expect to start ramping in June. We felt that the guidance we provided of approximately 38% felt reasonable.

Okay. And then lastly, Gordon, 16.5% for 2009 tax rate; is that probably where we're going to come out?

Give or take, I don't expect any big movements from this year's rate. It will be up a little, down a little. I don't know, but for modeling, for right now I think that would be a good assumption.

Okay, great. Thank you, guys.

Okay, and...

Well, thanks everyone again for joining us on the call today. In conclusion, we are very pleased with our strong financial and operating performance in the first quarter across the company. We remain excited about the opportunity ahead for the company as we execute on our growth strategy both in the short and long-term. We remain absolutely committed to ensuring our leading edge services. Industry vertical segments and geographies continue to service our clients in the best and most effective way possible ensuring that we continue our industry leading growth. We look forward to talking to you again next quarter. Thank you.

Thank you. This concludes today's Cognizant Technology Solutions first quarter 2008 earnings conference call. You may now disconnect.