Ladies and gentlemen, thank you for standing by, and welcome to the Cognizant Technology Solutions Second Quarter 2008 Earnings 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 afternoon, everyone. By now you should have received a copy of the company's second quarter 2008 earnings release. If you have not, please call our offices at 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, Francisco.

Thank you, Hannah and good afternoon, everyone. Thank you for joining us today for Cognizant's second quarter 2008 earnings call. I would like to do few things this afternoon first provide an overview of highlights of our second quarter results. Second, discuss the trends we have seen particularly relating to the demand environment for our services in light of the economy climate. And finally, put some color around our guidance for the third quarter and the remainder of 2008. As usual I will be joined on today's call by our Chief Financial and Operating Officer Gordon Coburn. Our financial results for the second quarter of 2008, exceeded our prior guidance and demonstrated continued industry leading growth despite a very difficult macro economic environment during the second quarter. In addition as Gordon will discuss in a few minute most of our operating metrics remain strong during the quarter. While we deliver solid performance in the second quarter by continuing deterioration in the economy in the latter of part of Q2 and in the first part of Q3 has led us to reduce our outlook for the full year 2008. 90 days ago when we provided our prior 2008 outlook we were seeing pressure and portions of the financial service sector. But, the remainder of our portfolio continue to stable. We also noted during our last earnings call that in difficult economic time clients are likely to increase their offshore spending in order to get more done with the same of your budget dollars. When we look at our actual results in Q2 the good news is that our financial services portfolio saw and improves stability. Actually growing slightly above the company average on a sequential basis. However, as the quarter progressed we begin to see the impact of the economy affecting…

Thank you Francisco, and good evening to everyone. I'd like to provide some additional information on the second quarter, and then discuss our financial expectations for the third quarter and the remainder of 2008. As Francisco mentioned, quarterly revenue grew 6.6% sequentially and 33% year-over-year. During the second quarter, our financial services segment, which includes our practices and insurance, banking, and transaction processing grew by over $71 million year-over-year and represented 45.8% of revenue for the quarter. Healthcare grew by almost $46 million and represented 24% revenues. Retail manufacturing and logistics grew by over $29 million, and represented 15.6% revenues for the quarter. The remaining 14.6% of our revenues came primarily from other service oriented industries of communications, media, and new technology, which grew by over $22 million compared to Q2 of last year. For the quarter, application management represented 53% of revenues and application development was 47%. Both services continue to grow significantly in Q2. Application management grew 34% year-over-year and over 8% sequentially. Development grew 32% year-over-year and almost 5% sequentially. In sequential strength and application maintenance, we believe was driven by clients seeking to optimize efficiencies on non-discretionary spending due to budget concerns. During Q2 just over 78% of revenue clients in North America and for the first time Europe made up over 20% of total quarterly revenue at 20.3%. 1% and 1.5% of our revenue came from the Asian market. Our European business grew almost 15% sequentially and over 83% year-over-year for the quarter, as a result of our continued investment in that region. We had a gross addition of 63 new customers during the second quarter. We close the quarter with 520 active customers. During the quarter the number of accounts, which we consider to be strategic and have the potential to ramp up to…

[Operator Instructions]. Your first question comes from Ed Caso with Wachovia. Your line is open.

Hi, good afternoon. Your... changing of your adjectives from approximately to at least, is that just... that you are giving us the worst case scenario or close to the worst case scenario?

Well, we gave the guidance of approximately three months ago, that was based on... this is... our best guess where we are going to land. When we have changed the language to at least, we look at that as... we are achieving this level. So it is definitely the change... intentional change in language.

Okay. Can you quantify the impact of the IndyMac Bank and when that hit receivables like exposure?

We... obviously, had a first phase of ramp down last year. But we've still been doing a fair amount of work for them. The... we are fully reserved for any cash that's not collected in Q2, so we don't have any exposure coming to Q3 on the receivables at IndyMac.

Last question: are you extending start dates?

Can you clarify that a little bit?

For the offers made a year ago for those that are coming on now or you pushed out start dates?

In terms of the callers recruit we made offers to a year ago, who started joining us in May of this year and will continue into 2009, clearly with a reduction in revenue guidance. We won't need as many people as we originally thought. We still intend to bring all those people on. There is no question about that. However the timing of that with some of the spread out over longer period of time, which is something you are seeing very common in the industry right now.

Thank you.

Your next question comes from Ashwin Shirvaikar with Citigroup. Your line is open.

Thanks. Just a question on the cost side. How should we think about the cost side of the equation with the new lower, growth rate and how does it effect? To some extend, you answered the on boarding. Does it effect people's compensation expectations and so on?

The biggest impact obviously is we won't hire as many people as we planned. Yes, we bought our guidance down, but we are still growing at a very, very healthy pace. So, we will continue to add people during the year, but selling not as many as we originally planned. So the biggest lever on the cost side is controlling the headcount growth.

Okay.But in terms of compensation expectations, people are expecting... what level of compensation increase now.

That's all done, the competition increases with CRO rolled out; that came in pretty much where we planned... and that's sort to 10% to 12% range offshore. But that's just because that's completely done.

Okay and could you give the number for... what was... what kind of pricing you are seeing, plus what was the CapEx goes to?

Sure. In terms of pricing, it's best way to phrase it, it's best way to phrase it, it's stable. We are actually seeing the competitors fee quite rationale on pricing. As there are bigger hot bias certainly not in this economy. But it's stable pricing environment. CapEx for the quarter was about $32 million. For the full year, given we are going slower... CapEx will probably come in below our original target of $250 million. How much below, we haven't fully worked that out. Obviously a lot of it's related to construction and yes, we stop underway obviously, we will finish up on schedule.

Okay, but you guys... any difference between banking versus financial service versus insurance?

Clearly the biggest pressure were seen are in BFS part of it, to the banking and financial services as opposed to insurance, although we are... as we look to the rest of the year being more cautious and as we look... as we provided the revise guidance, we are also anticipating that some of the softness rolls over into insurance. And in fact into our other industry sectors as well. The other part of it was that when we talk with you last quarter, we hadn't yet stated to see the impacts of the economy, and so on financial services customers in Europe. And we are now starting to see some sign that they could be impacted of the economy and customers in the financial service sector and other sectors in Europe.

Okay, Thank you.

your next question comes from Rob Burgow [ph] with Bernstein. Your line is open.

Hi guys. I just wanted to clarify some of the assumptions in the guidance. And I guess the specific question is: is your guidance assuming the current macro conditions remain in plate. Are you assuming that there might be macro issues worsening in the second half. In other words, do you see risks that you could have to lower your guidance again if macro issues plans up again in the second half?

Robert, what we are assuming now in the interest of caution is that macro conditions will worsen slightly over the course of the next rest of the year, not... we are not assuming that there going to be a major worsening, but we are not... we are expecting that things will deteriorate. As I said in my comments, what we saw in Q2 was the impact in healthcare. We are assuming over the cost of the rest of year, that we'll see the impact in our other industry sector as well. Another way to think about the way we framed our guidance, if you look on a quarterly basis over the next couple of quarters, what we try to be conservative in forecasting out for the rest of the year and the way we looked at it in addition to looking at our core operating metrics and pipelines and forecast and those kinds of measures that when look out over the next couple of quarters. The other thing we did was we said in general even through this period of economic turmoil, we tend to have pretty good visibility one quarter out. So we feel reasonably good about our Q3 guidance. The... at least 723 million for Q3 that we mentioned. In Q4, we've taken an appropriately conservative view in our mind as we think about the potential of deterioration in the macro environment. And so our implied revenue growth for Q4 is quite modest. One way to think about it is that in each of the last nine quarters so for more than two years, we have added more revenue in each of those quarters than our guidance implies relied in the fourth quarter.

And the reason we did that is... our belief is the economy is going to stay tough for the rest of the year. And we want to be prudent in our expectation.

I got it. And then when you look at the guidance from another angle. Can you state an upper end to your revenue growth prospects for the year. Alternatively stated is the 35% revenue growth range, still a possibility for 2008, given that you seem to be adding some buffer for a weakening economy?

We have not put a upper end. But obviously it is the challenging economy out there as you read the on the papers everyday. So we think we've been prudent in assuming this new guidance.

Alright. And then in terms of the margins it looks like reinvesting all of the ruby based margin of site back in the business. Is that case? Or you seeing that ruby base margin of site being offset by certain margin pressures? What's happening on that front?

The I said the for Q2 we invested back into business. Now remember the average rate for Q2 is less than the current spot rates. So there is some more ruby benefit in Q3 assuming that ruby will be hold. But as I mentioned in my prepared comments, we did move a significant portion of the south the kind of salary increases to the end of the quarter. So that leads us to Q3 and way that is funded is by the assuming the ruby stays where it is utilization go up materially in Q3. So what we have some thing what we meant to significantly take up utilization. And yes if you look at the sequential on crisis SG&A spend it is very significant Q2 and it will have the significant Q3. So we saw the accelerated a bunch of SG&A client bases investment and also we wont that same sort of bump in Q3.

Right. I guess I am try to ask or obtain here is there anything worrisome on the margin front that you are using the ruby to offset.

No that's the on a margin side most information being going in our favor. So there is nothing I think significantly that's been going down.

Okay. So another one just a rupee word sort of appreciate some here you wouldn't need to take down your margin range or your EPS guidance you'll have ability sort of a jump to that?

We have a lot levels in our expense base so lets go with a drastic movement will be I am not particularly concern about achieve our margin targets.

Alright. Thanks guys.

Your next question comes from Karl Keirstead from Kaufman Brothers. Your line is open.

Hi, good afternoon. I have got two questions one is, if you look at your guidance your fourth quarter revenue assumption would about $760 million if I would see after that the growth will kind of normalized 5-6% on a sequentially basis, I get to an '09 growth rate of about 23%, 25% is that a good working assumption from here?

Hey Karl, it is just way to early to know. Yes, a lot of it depends on what's happening with the economy and as customers go through some difficult financial transitions do they... how could we, do they leverage offshore to adjusted in their cost structure. So it's... we haven't even begun with discussions clients the 2009 yet. The good news is, penetration levels is still very low for offshore, and we provide part of the solution on long term basis, some clients suggesting to potentially new economic model. But at this point, we'll more focused on our 2008, and making the investments some 2009 and beyond. We continue job industry leading growth.

Fair enough. And then a second question here, it seems you are talking little bit more on the prepared remarks about investing and enhancing your demand and consulting expertise and extending our offering into BPO and KPO and ITO for that matter. Can you talk a little bit about what's happening in the client base set might be incensing you to adjust the business model, if you would like to perhaps you want to change six months ago, so it sounds like perhaps you are something to other than the sickle downturn which everybody is seeing. Perhaps you could offer some thoughts.

Yes. I think that a... Karl first of all I would say that, these all of these investment that we have refer to under that of worker my prepared comment are not new. We have been systematically building out industry domain expertise for years now in each of the industry that we serve and we have updated all of you periodically on a refer to that with the acquisition like SEC and market our extend like scientist a few quarters a go. So we are continue to do that we thing that is very important as you look forward to not just be able to provide our clients with good technology solutions with that be able to report an industry lands on top of that so that we provide solution to clients business problems and we can be more business relevant. We seem to be strategically relevant when we have our dialogs with customers. So in terms of industry domain expertise that been going for years now and it some thing that we will continue to do in systematically build out across each of the industry that we serve in terms of BPO and IT infrastructure services again this are service line that we have been talking about for several quarters now. We think that they both represent in there own right strong revenue opportunity particularly the vertical business process outsourcing that we talk about present time and ITO which is significantly under penetrate from on offering perspective. The reason that we are highlight those on the call today first because they starting to see some attraction with infrastructure services for example now approaching 5% of our revenues but also because we are starting to see clients really looking to looking beyond the traditional application based to this are there area and in the top economic environment to say how can I spend my use of off shoring and this are two logical BPO and KPO and IT infrastructure services are logical place when they turn in.

Okay, great. Thank you for taking my questions.

Thanks Karl.

Your next question comes from Moshe Katri from Cowen. Your line is open.

Thanks, if you look at the June quarter and monthly basis what the trends similar to see in March started strong ended to the weaker and then so far during the month of July, did you see further deterioration in demand and fundamentals?

No, it's a different situation in Q1. In Q1 March was very bad, in Q2 this was June was not very good but we are counting on was... coming getting slower momentum to coming out from Q2 going into Q3 and so more steady quarter. So different dynamics than Q1 were you know things would fell off not in March. But we clearly did not have momentum that we are hoping for, coming out of Q2.

And is that extent into to the month of July as well?

We haven't closed that specially after July

Okay. And than you are talking about a but very difficult environment you seen any significantly delays and projects starts or anything in terms of meaningful project cancellations

I pointed out couple of situations Moshe, during my prepaid comment. I think in Q2 we saw life sciences customers in particular, pausing and re assessing putting some of there plans on hold and then specifically for the rest of the year one of our payer customers a large customer has inform there is plan to cut bank spending quite significantly over then, over the third and fourth quarters. So we are seeing some delayed and we are seeing some kind.

Okay. Is there any quantify those, with sort of impact form that customer will have on the second half in terms of revenues and then just to be clear, based on management's bonus compensation structure, I think the magic number is about 35% revenue growth and I think below that, I think the management will not get paid in bonus or bonuses record?

That's correct in the long-term competition not on the annual bonds level long-term that is going.

Okay and can you also quantify the impact from that pair on second half revenues? Thanks.

It's built into the guidance.

it's built into our guidance. It is not always to talk about different clients.

Alright thanks.

Your next question comes from Julio Quinteros from Goldman Sachs. Your line is open.

Thanks, want to go back to one specific area, you guys can talk a little bit about trends in ERP spending especially coming out of the SAP quarter over the last couple of days. I am just trying to get a sense for how those things tied together. Because it sounds like your commentary around ERP still sounds like, it's a relatively robust and maybe if you could just put any numbers around, what that growth rate looks like, that would be helpful.

We had a good quarter with ERP, our... just looking at the numbers here. Both the SAP and the Oracle businesses grew nicely just to give you some context. Both of them grew sequentially better than 20%, and on a year-over-year basis, both of them grew most of 50%. So, we continue to see strong growth in both of those, it's being helped a little bit by our key system relationship, some SAP work there as well. And we have a strong, most of our customers have a strong installed of SAP and Oracle, so we'll continue to do work for them. And it's I would say that our progress there has been strong and we are very pleased sequential growth in both of the market.

One of the things to remember is a lot of the work we do is maintenance enhancements, rollouts, so this is not a way to direct correlation between new license sales and our revenue and ERP, because a lot of it is related to the installed base, and some moving our work to support that installed based offshore.

Got it. And what are your advice assumption now having had two systems under wings a little bit. What are you guys thinking about there in terms of revenue run rate or contribution from these systems going forward?

Real key is the new deals, we are joining like going after. And we are starting to go after some meaningful deals. But as you know larger deals in Europe take on. So, when I think about key systems being a growth driver as I said, when we did the deal and on the first quarter earnings call, we should not expect it to be a growth drive in the second half of this year. Where we're thinking, because again it's kicking as next year things go the way we go.

Okay, great. And then finally, I guess just in terms of sort of this proverbial question about how we know that this is really the bottom and guidance, I guess more to you Gordon, given that this all kind of fault in your lab [ph] here, where are we at in terms of what really needs to be done to actually hit the number for the fourth quarter, more than anything else, I guess it's the full year number, 2.8 billion at this point. Can you just give us a sense in terms of do you actually have to win these stuff to get to those numbers, the ones that you are projecting here, or is there some other way of thinking about what it takes to really hit this from here.

You areasking the right question, Julio. In Q3, we are roll up into it and this is not a business we wait to loss that quarters on a contract. So Q3, we kind of understand where we are going to land. Q4, because of all the uncertainty out there to kind of calculate our guidance, you'll see Q3 we're guiding to 5.5% of growth, 5.5% sequential growth. In Q4, we put some cushion in there and we guided to look the less... about 5% sequential growth, because there is a little bit more of an unknown. So, we think we have sufficient impression in there, just when where the part you care about is that a lost X percent of revenue. There is a core part is ongoing, but it is on short time. But we built that into our model.

And just looking maybe back as you guys looking at your business now and sort of compare where we were at the beginning of the year and where we are now. I mean typically, I think we had assumed that maybe half of the business was really discretionary, because it was abs... versus abs maintenance or something along those lines? Is there just some sense in terms of what can really turned off and what needs to run of course maybe some percentages around what ultimately is discretionary in your model?

The issues... that's what could be turned off, because... yes, we have a couple of accounts, where steps went down a little bit. But the bigger issue is the growth and how quickly are people moving new projects offshore, and that can impact both maintenance and development.

Right.

Now obviously you saw it in the sequential growth numbers that maintenance grew a little faster than development, which makes sense at a touch economy. But the uncertain economy can impact the growth of maintenance, yes absolutely. And that's an assumptions that it will is baked into our guidance.

Got it, okay. And then can you just give us those final metrics on the offshore onside effort mix and just kind of a standard ones that we usually at?

Sure, just hold on a second. We went very slightly on sites compared to last quarter, but almost unchanged. Pricing on a year-over-year basis is up 1.5% to 2%. Utilization is 88%, onsite 55%, offshore on, so no surprises in the metrics, when I look the metrics for Q2 in my mind the only one I was disappointed in was surprise by was DSO that sound to be higher than one and we understand why but I mean out your credit risk but on that metrics pretty much attractive or reflected.

Great. Thanks.

Your next question comes from James Friedman from Susquehanna. Your line is open.

Hi, thanks. It's Jamie Friedman at Susquehanna. I wanted to ask first about the balance sheet question Gordon. When I look at the unbilled revenue as a percentage of the revenue that actually decline to which I see to help each trend, but I am trying to reconcile that with the DSO and receivablesas a percentage of the revenue, how should we think about those two dynamics?

Unbilled has bounce round. We had a good as we saw jump in Q1 and it came back down a little bit in a Q2, I think about that a little bit different, DSO number we report includes unbilled and it went up is driven by UK healthcare customers and just generally customers panel a bit slower, due to the economy, So what we did not see is also very small customers stretch all payments. What we every seen slower payment of that is the large customers, which obviously means it's not a credit concern it's more just we got a get tougher on that. Unbilled receivables bounce around here we continue to bill 56% of it gets billed in July so we will up or down next quarter was about allow that and some you can get the contracts.

Okay. And I also want to ask you about the operating margin. I think you know the company is well known for its march of governing the operating margin in certain level, and reinvesting in the top line, but the gross margin for actually quite healthy in the quarter, I guess is there any update here thinking at this juncture in the life cycle of the company. Is there any opportunity to release the operating margins higher being at the growth as decelerated?

No, you should have no expectations of that. The gross margin was up because we made a decision on the... to phase the timing of the salary increases, and to invest very heavily down on quite basing into demand expertise. So our SG&A spend went up significantly, sequentially while our gross margin went up due to the rupee and improvement in utilization, what you are seeing in Q3, because that has been impacted the salary increases, you will see gross margin come down a little bit, but operating margin remain healthy.

You know, Just to add to that Jamie, we are playing for the long term here and that show some significant opportunities to invest in capital share market. We talked a little bit things like IT infrastructure services and so far and so forth these are very under penetrated service offerings there are still considerable opportunity for us to invest. We are talking beyond the Europe there are other geographies in the world where we have investment priorities. So there are still significant growth opportunities and significant investment opportunities for us as we look forward.

Thank you.

Great. And with that it's a little bit it is 6 o'clock people probably want to get home for dinner, so thanks.

Yes, thanks and thanks everyone for joining us on the call today. To conclude, we are pleased with our financial and operating performance in the second quarter across the company, it's exceeded our guidance and improved our ability to maintain industry leading growth despite the continuing the current economic climate. We are adopting a more cautious stance for the remainder of the year. But, we remain optimistic about our ability to best position this business for future growth to continue to outpace the industry average.