Ladies and gentlemen, welcome to the Cognizant Technology Solutions Fourth Quarter 2014 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] Thank you. I would now like to turn the conference over to David Nelson, Vice President, Investor Relations and Treasurer at Cognizant. Please go ahead, sir.

Thank you, Rob and good morning, everyone. By now, you should have received a copy of the earnings release for the company's fourth quarter and full year 2014 results. If you have not, a copy is available on our website, cognizant.com. The speakers we have on today's call are Francisco D'Souza, Chief Executive Officer; Gordon Coburn, President; and Karen McLoughlin, 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. I would now like to turn the call over to Francisco D'Souza. Francisco, please go ahead.

Thank you, David, and good morning, everyone. Thanks for joining us today. We finished 2014 on a strong note. Our fourth quarter revenues were $2.74 billion, a sequential increase of 6.2% including revenues from TriZetto. Excluding the impact of the TriZetto acquisition, we posted sequential growth of 3.1% in Q4 which includes a negative currency impact of 1.1%. For the full year 2014 including TriZetto we delivered $10.26 billion of revenue which represent a growth of 16.1% over 2013. As you're aware, we revised our full year guidance, growth guidance at the time of our Q2 earnings release on account of client specific issues and delayed ramp ups in some projects. As is clear from our strong performance during Q3 and Q4 those clients and projects specific issues are now behind us and as we enter 2015, we are encouraged by the strength of the demand environment and how well positioned we are to capture the market opportunity. For the full year 2015, we expect to deliver at least $12.21 billion of revenue which represents full year growth of at least 19% after a 2% currency headwind. Adjusting for the impact of TriZetto and currency movement, this guidance reflects strong revenue growth in our underlying business and is roughly in line with our 2014 growth. Karen will provide you with full details of our expected financial performance shortly. I'd like to spend the next few minutes providing you a perspective on the trends that we saw last year and how these are impacting the demand environment going forward and how Cognizant is positioned to address the market opportunity. Let me start with the demand environment. For many quarters, we've been talking to you about a once in a decade shift driven by digital technologies that are putting industries and businesses…

Thank you, Frank. Before I get into the details of the quarter, I'll first discuss the status of the integration and revenue synergies of the TriZetto acquisitions and then provide some additional color on the current demand environment. As announced previously, we closed the $2.8 billion acquisition of TriZetto on November 20th. At this point, client account teams have been integrated and detailed plans are in place to begin to drive revenue synergies this year. We have a team of people dedicated to the integration and the various synergy tracks we outlined several months back. We have identified at a granular level, the path to achieving the $1.5 billion of synergy opportunities over the next five years and remain confident and our ability to deliver that result based on the many exciting opportunities we see. First, we anticipate picking up incremental projects integrating TriZetto platforms for pair clients. Second, we think there is an opportunity to cross-sell our BPS hosting and consulting services into the TriZetto clients where we currently don't have relationships. Finally, the longer term opportunity goes beyond that. The combination of TriZetto's platforms with our services and program management capabilities will allow us to create end-to-end platform based solutions for pair clients. At the time, the significant disruption in the healthcare industry, regulatory reform ageing populations increasing price competition to manage for transparency and new technologies. These, end-to-end solutions gain interaction. We are receiving numerous inquiries from CEOs and COOs at our clients. They are proactively reaching out to us starting conversations about combined Cognizant and TriZetto solutions. These clients are intrigued by how these comprehensive platform-based solutions can create compelling value propositions for their companies. Let me now comment on the overall demand environment and our performance across industry segments and geographies during the fourth quarter.…

Thank you Gordon and good morning everyone. Fourth quarter revenue of $2.74 billion included approximately $80.6 million associated with TriZetto and represented growth of 6.2% sequentially and 16.4% year-over-year. Non-GAAP operating margin which excludes stock-based compensation expense and acquisition related expenses was 19.4% within our target range of 19% to 20%. During the quarter, we adjusted our estimate of 2014 incentive compensation downward to reflect the margin impact of accelerated hiring and other investments. This revision positively impacted our Q4 operating margin by approximately 2 percentage points. Non-GAAP EPS of $0.67 exceeded our previous guidance by $0.04. For the full year 2014, revenue of $10.26 billion represented growth of 16.1% year-over-year. Non-GAAP operating margin was 20.2% and non-GAAP EPS was $2.60. Consulting and technology services and outsourcing services represented 54% and 46% of revenue respectfully for the quarter. Consulting and technology services increased 8% sequentially and 26% year-over-year while outsourcing services were up 5% sequentially and grew 7% from Q4 a year ago. During the quarter $45 million of revenue from TriZetto was included in consulting and technology services and $35 million was included in outsourcing. For the full year, consulting and technology services and outsourcing services represented 53% and 47% of revenue respectfully. During the fourth quarter 36% of our revenue came from fixed price contracts and as expected overall pricing was stable. As part of the TriZetto acquisition, we added both payer and provider clients including more than 245,000 providers as such the customer count is no longer as relevant a metric for measuring our core performance, so we will no longer be providing that going forward. We will however continue to provide the number of strategic accounts which we have defined as clients that have the potential to generate at least $5 million to $50 million or…

Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions]. The first question comes from the line of Darrin Peller of Barclays. Please proceed with your question.

Thanks guys and nice end to the year. Just wanted to start off first with your outlook for the 2015 year. You talked about an organic growth rate that similar to 2014 levels, which were nearly roughly 14%, 15% now, I guess 15% as when you called out. I guess the first question is just touching on the dynamics of the $80 million run rate from the last quarter seemed a little higher than we would have thought from TriZetto last, from really just December and a little bit in November from TriZetto. So can you talk a little bit about, you're actually including near 15 outlook for that? And then also, given that help that’s not close, is that actually included in your guidance and maybe just talk a little bit about the underlying healthcare drivers beyond TriZetto it looks like it accelerated pretty nicely in the fourth quarter? Thanks guys.

Hey Darrin, this is Karen. I’ll start with the first part about the guidance and I’ll let Frank and Gordon talk a little bit more about the industry side of this. So for TriZetto keep in mind that obviously their primary revenue is software, so Q4 tends to be very, very strong for them, it is by far their strongest quarter of the year. I think when we talked about the acquisition previously we mentioned that there about $720 million run rate, which is essentially where they landed for 2014, but a lot of that revenue is back ended. So think about them as give or take about $720 million company growing mid-single-digit have been historically their growth rate and that would what you back a little bit guidance is. In terms of Health Net, I’ll let Frank and Gordon talk a little bit more about the actual contract and what’s happening there, but in terms of guidance as we have talked about previously, we expect that we will get regulatory clearance by about the middle of the year. And so we do have baked into our full year guidance what the increase in the Health Net revenue would be from that point forward.

And just to add that we’re willing to the process of regulatory approvals at this point our expectation is that things would be in line with the timing that we had expected mid this year to be able to go live?

Yes. And I’ll just add to that Darrin. Look, it’s Frank. On a big picture level the, if you recall this strategic rationale behind the TriZetto acquisition was premised on the fact that the healthcare landscape is undergoing very strong significant structural shifts due to not just the reform law, but associated cost pressure is shifting responsibility between payers and providers. And we think all of these things together create great growth opportunity for us, I think you saw some of that in the fourth quarter, I was very encouraged by the level of activity and dialogue that we saw in Q4 around the combined Cognizant TriZetto proposition with interest from clients and clients talking to us about the combined opportunity. So I think, great start to the combined relationship and I expect to see increased momentum as we go into '15.

Thank you. Our next question comes from the line of Edward Caso with Wells Fargo. Please go ahead with your question.

Hi thanks and congrats on the quarter. I was more curious about hiring and training as whole digital phenomenon takes off here as your peers are facing the same opportunity as well. So are you hiring people with the skills, have you develop new training program so this is added burden or is this just a different kind of training. Thanks.

Ed its Franc. I think it's a little bit of both, when you look at the digital opportunity from a skill standpoint, there are, I would say two tracks in a sense. You've got a set of foundational technologies that you need to deploy for clients and building out foundational technology skills, I would say follow the similar process to what Cognizant has historically done when it comes to building out new technology capability area. So we have great partnerships and alliances with technology providers, very deep partnerships we've got Cognizant academy that recruits trains cross trains cross skills our teams on foundational technologies. But equally importantly and in what we find in the digital world is that it's not just about technologies. To really make digital come alive, you have to bring together these cross functional multi-functional teams that include consultant’s technologist’s data scientist’s designers and of course folks who want to stand the client in the client context. And the skills like designers and data scientists are skills that we are both building organically internally but also recruiting heavily for in the marketplace and also as you've seen from the - some of the acquisitions that we did in 2014 we're also looking at inorganic ways to grow those capabilities. And I think you'll continue to see us pushing forward on all those fronts that I just mentioned as we go into '15 and we continue to build out the digital capability at Cognizant.

And Ed one thing to add to that as Cognizant's brand awareness continues to strengthen, the quality and the breadth of the people that we're tracking is that all time high. So we're able to attract the technologists, the designers and people recognize our brand and they see that we are clearly positioned as a leader in the space. So we're really quite pleased with our recruiting capability right now, as well as we've always been terrific at training capability.

Thank you. Our next question comes from the line of Ashwin Shirvaikar with Citigroup. Please go ahead with your question.

Thanks. And let me add my congratulations on the year as well as good guidance guys. So I guess two questions one was the timing of TriZetto synergies. Just wanted to clarify 2015 guidance is there anything there is it reasonable to assume that the mid-single-digit growth rate can accelerate to maybe a low-double type number over the next 12 to 18 months. And then secondly on your operating margins, the last time below 20% was I think some crack in 2007. So my question is if you include TriZetto ramping Health Net, the investments you're making in digital and automation. Is this the year you finally kind of get down to the 19, 20.

Sure Ashwin its Gordon. So a couple of things, as we said in our prepared remarks we remain quite confident of achieving our $1.5 billion of revenue synergies over the next five years. As we said when we did the acquisitions that is back and loaded because the biggest piece of that comes from selling the integrated deals and obviously there is a long lead time on that. But also as we said we are actually seeing quite a bit of interest in that, so the pipeline is building. Going forward you will not see us breakout TriZetto revenue, because what's TriZetto what's Cognizant very quickly becomes blurred particularly when you think about services revenue and BPO revenue. So we are managing as part of our healthcare practice going forward obviously we want to break it out as people understood what organic growth was for 2015. Revenue synergies for 2015 as we said when we did the deal are certainly more modest than we will be in future years and it'll be heavily weighted towards services work which even prior to the acquisition we had the leading practice and obviously that’s further strengthen now and we certainly feel good about the pipeline there.

Thank you.

Sorry on the operating margins, our target remains 19% to 20% we have bounced above 20% a little bit each time we did that we did reaffirm that we do not want to be above 20% so certainly our expectation is we would be in the 19% to 20% range for 2015 and our guidance assumes that and I would certainly encourage people and their models to assume we're in the 19% to 20%.

Thank you. Your next question comes from the line of Tien-tsin Huang with JP Morgan. Please go ahead with your question.

Great, thanks. Good morning. Good results here. Just want to ask on the top five top 10 client growth composition of those clients change excluding TriZetto and also maybe I missed just the outlook for technology versus outsourcing revenue for the year? Thank you.

Sure, so top five for the quarter was 11.6% and top ten 20.1 Tien-tsin so, it’s coming down at the percentage of revenue as you would expected too. No material changes this quarter and in terms of the customers that make that up so obviously we did have some overlap with TriZetto in terms of customers but the revenue for customer obviously is a little bit less than ours so no material change there and we did not provide specific guidance around the outlook for consulting the technology services versus outsourcing but I think as we had said previously with the ramp-up of some of the new contracts we signed this year including Health Net and then the big insurance contract and the board contracts and others that we talked about earlier in the year we would expect outsourcing revenue to recover a little bit as we go into 2015.

Thank you. Our next question comes from Lisa Ellis from Bernstein. Please proceed with your question.

Hey, good morning guys. I had a question around the TriZetto roadmap, can you provide maybe that’s for Gordon, a bit more color around what how you are thinking about the product roadmap for the underlying TriZetto product and how you are thinking about incorporating and owning and managing as software platform into your overall business operations?

Hey, Lisa its fine let me address that so as we said when we did the TriZetto acquisition, the TriZetto business that we acquired has become part of the Cognizant Healthcare business but continues to operate as relatively standalone unit within the healthcare business. Now obviously we're focused on the synergy opportunities from an execution standpoint and as Gordon said those synergy opportunities in the short run are around the services business and the BPO business that we can generate together. But the core product, the TriZetto product set that capability remains a separate unit run by the management team that came to us when we did the TriZetto acquisition and they continue to execute against the product roadmap that they had laid out for their customers and now for our customers before the acquisition so we are keeping the platform very much as a standalone unit. We will continue to invest in it as we had as the plan had been in the past. If anything we feel like we might be able to accelerate some aspects of the product roadmap because of our development capability and so on and so forth but we clearly recognized that the rhythm of a software business is different from the rhythm of a services business and so we are keeping it as a standalone unit within the healthcare, the bigger healthcare business unit so that we protect that culture and we continue to make the - create the necessary focus I would say around the software product business.

Thank you. The next question comes from the line of Sara Gubins from Bank of America. Please go ahead with your question.

Hi, thank you good morning. As you are thinking about 2015 what you are expecting client budgets to be during, there has been some discussions from competitors of US bank, IT budgets are down in 2015 because of regulatory cost I'm wondering if you're seeing that.

Hey it’s Franc. Let me jump in and then Gordon can add to it. I don't think we're seeing budgets down overall we are actually seeing sort of flat to modestly up budgets. So I think Gartner predicted or Gartner's projection from January of this year was sort of 2.4%, 2.5% increase in budgets. That sort of consistent with what we're seeing. Clearly, there is a shift going on within budgets and I think that's really the more important trend for to focus on what we are seeing is that is dual mandate that we've been speaking about for so long is really playing out in budgets where because overall budgets are call it flat to modestly up. The pressure that it creates for organizations is to really get more done with those essentially same budget dollars. And so what that means is that on one side clients continue to look for ways to drive greater degrees of efficiency and effectiveness kind of what we call the run better side of the equation. So that they can invest those dollars in deploying new digital and other capabilities that sort of the run different side of the equation. Clearly in financial services regulatory compliance initiatives are consuming a significant amount of our client's budgets. I think this is anecdotal, I would say that the most intense period of that was probably last year I think as we go into '15 when I look at in our financial services institutions. It's not to say that the regulatory compliance spend goes away but I think it's, I would say it's become more stable I don't see increasing as a percent of overall budgets and so that's started to create a degree of stability within our financial services clients where I start to see more focus and attention being turned to digital initiatives and initiatives that I considered to be ones that will drive competitiveness and top line growth for financial services. So I am actually seeing a positive shift in financial services more towards innovation and growth as regulatory compliance stabilizes and becomes a better and more understood level of spending. I don't know Gordon if there is anything you want to add to that.

No I think you've covered that well. The only thing I might add in Europe obviously the economies are little bit softer but we're seeing that actually serve as a catalyst for people to shift their spending and look at services such as Cognizant to help reduce their cost of running the business so they can still invest in innovation.

Thank you. The next question comes from the line of Keith Bachman with Bank of Montreal. Please proceed with your question.

Yes thank you. Good morning team. I had a question either for Karen and Gordon on operating margins. A if you could you had two quarters of non-GAAP operating margins in the 19.5% range call it. How much the TriZetto impact December quarter operating margins and as the follow on we don't yet have the 10-Q yet for the December quarter, but at least in the September quarter industry segment level operating dollars of profit actually declined year-over-year and I was hoping you could flush out why is that will that continue. And as my follow on question Karen if you could talk about some of the puts and takes in the CY15 operating margin guidance and specifically including how much TriZetto and or FX impacting the guidance that you provided. Thank you.

Okay, sure so let me start with TriZetto Keith. So TriZetto's operating margin is roughly in line with Cognizant. So in terms of the impact on overall margin percent it's nominal so it's really just about the revenue growth there that's obviously on a non-GAAP basis, on a GAAP basis because of all the acquisition amortization obviously that would be dilutive. But on a non-GAAP basis I think about its being roughly in line with company average margin going forward. FX has a little bit of an impact on margin, but fairly nominal it's mainly a revenue issue with the FX headwinds that we had both in Q4 and that we're forecasting as we move into 2015. In terms of the segment margin, obviously we have done a lot of hiring in the last six months, and that obviously puts pressure on margin until those folks become fully billable utilization ticked down both in Q3 and Q4. We would expect for that to stabilize in 2015 as we've talked about utilization will go up and down a little bit based on hiring and based on growth opportunities that we see in the company, but we would expect utilization to stabilize and margins to stabilize accordingly with that. And so then as we move into 2015 really nothing unusual it really is about stabilizing utilization integrating TriZetto but as we said that generally runs in line with company average and continuing to ensure that we are driving for industry leading growth.

Thank you. Our next question comes from the line of Jim Steiner [ph] with Goldman Sachs. Please go ahead with your question.

Good morning. Thanks for taking my question. Two if I may, first on the guidance you are providing excluding the effect of TriZetto and FX for 2015. As you look in 2015 versus where you were at the same point last year how you've adjusted your guidance for the year underlying that to be either more conservative the same or potentially more optimistic than your last year and then secondly with respect to offshore cash there has been some talk about potential legislation there to allow low rate repatriation of cash if that were to go through how much you think about your cash differently?

Sure, this is Gordon. Let me start with the question on guidance and how conservative we have been. Clearly we build a meaningful risk adjustments into our guidance compared to the targets that our field organization has certainly we do not want to end up in situation similar to last year, so, we think we have built in the appropriate risk adjustments taking into account the experience that we have last year.

Sure, and then in terms of cash repatriation obviously we are supportive of anything that the U.S. does to help multinational companies be successful and to ensure that we can make the right investments around the world. So if something happens obviously we will take the appropriate steps and actions but we'll wait and see what happens at this point.

I would remind you for the cash that we have in India even with the tax holiday or a reduced tax for repatriation in U.S. there is still a tax for taking the cash out of India.

Thank you. Your next question comes from the line of David Togut with Evercore. Please go ahead with your question.

Thank you. As you look across each of your three horizons of services could you quantify unit price changes year-over-year 2015 versus 2014 and then for the employees we are working in each of these horizons what are the unit changes year-over-year and wages look like against the price changes? Thanks.

Sure, so pricing is this over the past couple of quarters have been stable. I think that's a reasonable assumption going forward. You may see some divergence certainly on pricing in digital will be higher than in traditional apps maintenance but the people cost more there as well so when you netted all out I think reasonably stable price environment is the way to think about it. In terms of wage inflation we do our wage increases later in the year and certainly we'll make sure that we're competitive with what others do but I would expect given the strong supply that wage increases will be relatively modest compare to prior year but in the end we will certainly match what others do so but I would expect others to be fairly disciplined in their wage increases.

Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please go ahead with your question.

Hi, guys just want to give up data in the large deal pipeline any other chunky or larger deals that you are working on that could come in throughout the year and then just like just the outlook in Europe you guys are expecting to pick up demand in Europe, Thanks.

Sure, large pipeline is healthy but you are absolutely it is chunky you don’t have one every month we're certainly working on that number of large deals when that will - you never know with larger deals but the good news is we are clearly competitive in the large integrated deals that include BPS that include infrastructure that include co-IT so we have achieved critical mass and infrastructure and business process services and that's very important so we can we are quite competitive in the larger deals. In terms of Europe, pipeline is healthy obviously the economy is a bit lumpy over there what we are seeing certainly in some of the more traditional outsourcing it serves as a catalyst for people to move forward because they have to reduce their run cost. It's early to note that what the impact will be on innovation spend certainly there is lots of interest you will see what's sort of projects kick off, but overall we continue to invest heavily in Europe, because we think the window for outsourcing is very active right now.

Thank you. The next question is from the line of Joseph Foresi with Janney. Please go ahead with your question.

Hi. You had mentioned before that I think you are looking for at least $200 million in incremental revenues from large deal winds next year and in this year 2015. Is that still the case and can you wrap some numbers for us around SMAC as a percentage of revenue growth rates and margins. Thank you.

Sure so on the large deals that $200 million was related to the three large deals that we talked about on the prior earnings call. I think that is still an accurate assumptions assuming everything continues on track to way it is currently. In terms of SMAC, SMAC has been kind of folded into the broader digital initiatives which and within digital what we're seeing is across is all of our businesses all of our accounts. So it becomes very difficult to say it's in a specific amount because it touches everything. So we don't have a further update on that other than to say clearly there is healthy SMAC demand within digital and digital we're seeing currently - across all three horizons currently.

Thank you. The next question is from the line of Brian Essex, Morgan Stanley. Please go ahead with your question.

Hi good morning and thank you for taking the question. I was wondering if you could dig in a little bit on TriZetto and I think when you announced the deal we talked about the potential opportunity for some kind of halo around it you think kind of Health Net as an example of the reference of those deals. I wondered can you talk a little bit about conversations that you're having with customers in the pipeline and are there any potential prospects like wins in the pipeline and understand those several type of the little bit longer, our near term might some of those deals be as far as in the pipeline.

Its Franc let me take that. Let me start by saying that I think that and as I said in my prepared comments, one of the trends that I'm quite excited about is this notion of clients looking to us in various forms to create these large integrated deals that include apps infrastructure and business process services. And those sometimes those like in the case of Health Net those are relatively standalone and in other cases we see migrating potentially to shared industry utility type of model which I think TriZetto and Health Net will enable going forward. After the announcement of the TriZetto acquisition, I would say that we've seen an increase in conversations with clients about the potentials of those kinds of deals. I would characterize the pipeline of those deals as relatively early stage at this point, but certainly an active set of conversations going on right now with prospects around what those kinds of deals structures might look like. I would remind you that the Health Net deal, the sales cycle was probably in the order of, Health Net has been a Cognizant's client for 10 years close to 10 years and the sales cycle on this particular transactions was closed to three years. My hope is that when we look at the TriZetto opportunity that we're not looking at three year sales cycle, but I would still set the expectations that it's 18 to 20 months before we start to see those kinds of transactions these are large complicated deals that involve a lot of structuring and a lot of groundwork with clients, but I think all of the elements are there I feel very good about how we're positioned to do those deals and I think that the Health Net transaction serves us as somewhat of a beacon that others will emulate.

Operator we have time for one more call. One more question.

Yes that question is coming from the line of Steven Milunovich with UBS. Please go ahead with your question.

Great. Thank you very much. Just quick question Karen could you go over the discussion of incentive comp again and the impact?

Sure so in Q4, we adjusted down our incentive comp across as you know that's obviously variable compensation and we tie that to the performance of the business and which is both based on the revenue and margin. So we did adjust that down in Q4 to offset the margin impact the strong hiring’s and some of the other investments we were making in the quarter and that had a two point impact on the quarter.

Very good. I think with that we'll wrap up the call. I want to just thank everybody for joining us today and for your questions. And I look forward to speaking with you again next quarter. Thanks for joining us.

Thank you. This concludes today's Cognizant Technology Solutions' fourth quarter 2014 earnings conference call. You may now disconnect.