Good morning, my name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the Cognizant Technology Solutions 1st Quarter 2006 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. If you would like to ask a question during this time, simply press “8” then the number “1” on your telephone keypad; if you would like to withdraw your question, press “*’ then the number “2” on your telephone keypad. I would now like to turn today’s call over to Julie Huang with Financial Dynamics for opening remark.

Thank you, Operator and good morning everyone. By now you should have received a copy of the company’s 1st Quarter 2006 Earnings Release. If you have not, please call our offices at (212) 850-5600 and we will be sure to get you a copy sent to you. On the call today, we have Lakshmi Naravanan, President and Chief Executive Officer, Francisco D’Souza, Chief Operating Officer, and Gordon Coburn, Chief Financial Officer of Cognizant Technology Solutions. Before we begin, I’d like to remind you that some of the comments made on today’s call and some of the responses to your questions may contain certain 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’d now like to turn the call over to Lakshmi. Lakshmi, please go ahead.

Thank you, Julie and good morning everyone. Thank you for joining us today for Cognizant’s 1st quarter 2006 Earnings Call. This morning, I will provide an overview of the highlights of our 1st quarter and discuss the key drivers of our financial performance. I’ll also discuss the investments that we have made steadily making in the business to ensure that we continue to effectively manage our industry leading growth while producing consistently strong results across our key financial and operating matrix. I’ll be joined on today’s call by our Chief Operating Officer, Francisco D’Souza, who’ll give color on some of the operational highlights in the quarter and investments we are making in our infrastructure, and our CFO, Gordon Coburn will take you through our numbers in greater detail. We are extremely pleased with the performance of our business in the 1st quarter. While our numbers are outstanding, what is more significant is how we achieved these results. Continued strong performance of our largest verticals was augmented by strong growth in our new verticals where we have been making significant investments. This performance was also enhanced by the investments we have made in our client relationships, delivery organization, new services, and the development of our growing management team which contributed to continued delivery excellence. As we said in our last conference call, we began the year with all of the required resources firmly in place to sustain our momentum in 2006 and our outstanding 1st quarter results are a testament to the consistent execution of our strategy. Furthermore, our firm continues to outpace the market on strength and our confidence in our ability to deliver another exciting year of growth for Cognizant. Turning to our 1st quarter results, we exceeded our internal expectations and guidance to investors generating 285 points $5…

Thanks, Frank. As I said earlier we are very pleased with our strong start to 2006. We recognize that our financial success to date on industry leading rate of growth is dependent upon both the consistent execution of our strategy and as we are focused on the new investments we are making in the business to sustain our momentum. The foundation of both of these continues to be our customer centric focus which shapes our corporate culture, our operations, and our investments. We are clearly benefiting from the increased discretionary spending by our customers. We believe that as the market increases its technology spent to gain a competitive advantage, we will get a fair share of the increased spreads. With that, I’ll request Gordon to take us through the numbers in detail, Gordon.

Thank you, Lakshmi and good morning to everyone. I’d like to spend some additional time on the 1st quarter and then discuss our financial expectations for Q2 of this year as well as full-year 2006. Revenue for the 1st quarter significantly exceeded our prior guidance due to continued application management ramp up of clients won over the last few years and more importantly continued greater than anticipated strength in discretionary development spending, a trend that started for us in the 2nd quarter of 2003. Revenue grew 11% sequentially and 57% year-over-year. As the quarter proceeded, we continue to see healthy volume growth across a broad range of services and industries. Our core businesses remain vibrant and our pipeline is robust. During the quarter, our financial services segment, which includes our practices and insurance, banking, and transaction processing grew by more than $46 million year-over-year and represented 48% of revenue for the quarter. Healthcare grew over $27 million and represented 22% of revenues. Retail manufacturing logistics grew by over $9 million and represented 16% of revenues. The remaining 15% of our revenues came primarily from other service orientated industries in the telecom, media, and new technology areas. Financial services grew 51% year-over-year and 5% sequentially. Healthcare, as we mentioned earlier, grew 77% year-over-year and 16% sequentially. Growth in our healthcare segment was in particular driven by numerous life sciences clients that we have won recently and are now ramping up. Retail manufacturing logistics grew 25% year-over-year and 12% sequentially. And our other segment grew 103% year-over-year and 26% sequentially. Growth in the other segment benefited from growth in telecom, media, new technologies and alliances, as well as on a year-over-year basis the acquisition of (inaudible) in April, 2005. For the quarter, application management represented 49% of revenues and application development was…

Thank you. Ladies and gentlemen, if you would like to ask a question please press “*” then the number “1” on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Rod Bourgeois, Sanford C. Bernstein & Co. Rod Bourgeois, Sanford C. Bernstein & Co: Hi, great and good morning to you guys. Gordon, can I ask a question about the margins – so your margins exceeded your 20% target range. What will cause margins over the remaining quarters of the year to come back down? Are you going to take the liberty to invest in growth, lower utilization what is the factor that is going to bring margins down for the remaining quarters?

There are several things, first of all our wage increases go to effect in April and so that will impact margins and I’ll come back and we can talk about the levels there. Second we are significantly accelerating our investments in everything from geographies to adding to management to building out our industries and verticals. We clearly have an opportunity to continue to take market share and our strategy is to invest anything above 20% non-GAAP operating margin to drive long term sustained above industry level growth. On wages, wage inflation for this year is coming in exactly where we planned. We are expecting offshore wage increases in the very low double digits and on site wage inflation in the very low single digit, so we are not seeing any surprises there – it is exactly what we planned but obviously that does have impact on margins on a sequential basis. Maybe Lakshmi would like to just comment a little bit more about why we are seeing wage inflation very different then what you are hearing from many others in the marketplace.

Let me add to what Gordon was saying as far the wages and the inflation and I’ll just mention in terms of (inaudible) we had the best quarter so far. There are three reasons that contribute to greater retention and our ability to manage the wage increase. First and foremost, it is the growth because of the higher than expected growth and higher than the industry growth; we are able to provide greater growth opportunities for our people within the organization. We have seen significant number of promotions in our culture people like the way that they are taking greater responsibilities, number one. Number two – I also talked about the increase in the application development work or the discretionary spending. This is exciting work – this is new technology work, this is challenging work that excites the people as they get to work on some of the leading technologies and products. And finally, our philosophy of variable compensation and the philosophy of better the performance, better the pay has been well understood by the entire organization. For example, last year we shared a substantial portion of our performance through the bonus of incentives key. We paid well above the target bonus and given our performance so far we expect to continue to pay a higher variable component on a higher bonus. Given all of which we are able to manage the rate increase offshore at the low double digits and onsite which is US and Europe at the low single digits. Rod Bourgeois, Sanford C. Bernstein & Co: Alright, great - well you answered the second part of my question about your turnover and wage inflation is not the same that you are seeing with your competitors. You hit a positive inflection point in Europe, that business was somewhat…

Your next question comes from Ed Caso, Wachovia Securities

Good morning, thank you – I was sort of curious given the traumatic success you’ve had over the last several years with expanding strategic with clients, why do you actually pick up non-strategic clients every quarter? Is that the sort of learn new technologies on or what is the strategy there?

Yes, Ed you mentioned part of the answer – it is some of the other customers that we work with, they work with different products, different technologies, and different models. By working with some of these customers, we understand that (inaudible) which we are able to apply in all the relationships that we have. There is a tremendous learning that happens by working with all the customers.

My other question is on a lot of your competitors offer dividends and you have a significant cash position at this point, what are your plans for both share repurchase and a possible dividend?

Ed, as discussed with investors – first of all having a healthy cash balance is very important as we are now winning very large deals. Not because we would use the cash as part of winning the deal, but customers are betting their businesses on us and they want to know we are going to be around for the long term, so we want to continue to have a healthy balance sheet. In addition, we do small acquisitions – the definition of small changes obviously, we used to do – as we get bigger it no longer makes sense to do a $2 or $3 million dollar acquisition the last one we did was $35 million dollar cost or so, so we used some money on acquisitions. And then finally, we want to have the ability if there are opportunities in the marketplace due to external events that either impact our stock or other stock to have that flexibility - so near term no change and no strategy for use of cash.

Your next question comes from Joseph Vafi, Jefferies & Co. Joseph Vafi, Jefferies & Co: Hi gentlemen, good morning and great quarter. I was wondering if we could talk a little bit about the strategic customers that you signed in the quarter relative to maybe penetration in the different verticals. Clearly financial services is probably the biggest adopter and has become the most mature vertical. What are seeing in terms of other verticals and also the maturity of financial services as a ground to find new strategic customers moving forward.

Joe, you are absolutely right. What we have seen this quarter and what you have seen in the past quarters in 2005 left so prior to that, is our wins are becoming much more diversified, our pipeline is becoming much more diversified, and industries beyond just financial services now look at offshore strategically. For example, is pharmaceutical. A couple of years ago, very little interest in offshore, now as we mentioned we are doing work for seven of the top pharmaceutical companies in the world. So I think this is a trend that you are going to continue to see of diversification of our client base. Now do not read that as financial services is maturing. We still have tremendous growth opportunities there. We continue to win strategic clients there but it is now in addition to that we have a lot of other pockets that we are going after.

Let me add to what Gordon was saying and just one point about the financial services industry. They are the aggressor verticals of technology. They spend a substantial portion of their revenues on new technology and that is a great opportunity for us to continue to grow there. There is one other industry that I mentioned, very specifically, that is the media and the entertainment industry and that is something that is just awaken to be cause of this outsourcing and offshore outsourcing and combined with telecom, where there is this convergence that is happening – that presents a good opportunity for us to deliver some high end technology solutions to that new industry. So these are the ones that are contributing to the growth and expect to continue that. Joseph Vafi, Jefferies & Co.: Ok that is helpful, and then drilling down into the development business which is clearly doing better – maybe we could get some color on looking at that development market now say vs. a year ago or maybe 18-months ago and your ability to go after a larger piece of the pie in the overall development market because your skill set has advanced and your competing on different types of business then you hadn’t been a year ago and we could get a feel for where that growth might be coming from a larger overall addressable market vs. just a strength in an overall market.

I’ll try and give you two data points as far as the development business is concerned. First one is as it relates to integrated application of solutions which includes packages and essentially the system integration type of work. We announce some work that we do with the safety in some of the other (inaudible) products and then there is the new net weaver platform which is something that is being increasingly adopted by customers. So, that is the new type of work that is taking place in the marketplace, one. And the second point is, in addition to the development work that we carry out there is a whole lot of development that corporations are carrying out either using their own in-house tasks or other partners and we get to participate in those activities to our testing. Testing as you know is one of the fastest growing horizontals in Cognizant and we have grown that practice several (inaudible) in the last quarters. These two are examples of what contributes to the growth to the development market. Joseph Vafi, Jefferies & Co.: Ok, and just Gordon – the top five and the top ten and maybe some comments on maturity of those customers and your view of those moving forward?

Certainly, just give me one second – the top five customers was 30% of revenue in the quarter. Now, if you do the math you’ll see that is actually down in terms of dollars sequentially. That was fully expected as a couple of customers we have some projects winding up, we do not view those customers as mature and we actually expect very healthy sequential growth in Q2 so as sort of an anomaly within the quarter on projects, but the growth continues to be very healthy among the top five as we look into Q2. Top ten was 42% of revenue which was about a 3% sequential increase. Obviously over time the top five and top ten as we discussed will come down just because we have more customers outside of the top five and top ten.

Your next question comes from Christine Savino, JPMorgan

Good morning, just a few questions here – you mentioned that Europe is strong and the uptake in offshore in Europe, can you talk about specific areas in geographies in Europe where you are seeing maybe the strongest demand whether it be France, Germany, Netherlands, UK, etc.? Francisco D’Souza, Chief Operating Officer: Yes, hi this is Frank and let me try to put some color on that – clearly the UK has been our historic area of investment and it’s been where we currently have the strongest presence and the adoption of offshore is probably the most mature of all the markets in Europe in the UK. That is a big factor there is the language being English helps with the India offshore. In terms of continental Europe, in our particular case we are seeing attraction in many markets in continental Europe, I would specifically point out the (inaudible) as the result of an acquisition that we had done there some years ago, we are not beginning to see traction in (inaudible) and also Switzerland. Those are the two markets that I would point to in continental Europe. I think France and Germany, from a Cognizant perspective, we are beginning to see signs there of interest but it is still early days.

And then you talked about discretionary increased, discretionary spending boosting the application development business, can you talk a little bit more about what you are seeing there – is it just larger IT budgets generally or existing customers reinvesting some of the savings that they’ve yielded from offshore or just more spending being directed towards offshore or probably all three.

It is more of the second point that you mentioned as the overall cost of maintenance keeps coming down they are reinvesting to save dollars on new development initiatives with us. That I would consider is the primary reason for the increase in the development of the discretionary spending. In addition, many of our customers experiencing good growth in their respective sectors because of which they are able to increase the budget on some of which comes towards the development initiative.

And then just one last question on the operating margins – as you continue to grow at these above industry average rates, do you see a point where you won’t be required to make the same investment in the business on a percentage basis and how long will you continue to grow at these rates and keep the operating margin steady state?

Christine, this is Gordon – because the business is somewhat unique and it is very much a long term relationship business not go and then do one project then leave. The name of the game here is while the market is wide open to win as many clients as possible and invest to ramp them up as quickly as possible – so our strategy is to take anything above 20% non-GAAP and use that to grow faster than others in the marketplace because we believe on a long term basis that is what is going to drive shareholder value. Obviously there is going to be a quarter or two where we just don’t spend money fast enough, Q1 was an example of that, March came in very strong and we just couldn’t crank the spending up fast enough. We are fully committed to take anything above 20% non-GAAP and putting it back into making sure our employees are satisfied, our clients are satisfied, and most importantly we deliver on that special Cognizant client experience that Francisco mentioned – in the end that is what it comes down to and we are putting the money there and it is paying off. We are growing our relationships faster than others.

Your next question comes from George Price, Stifel, Nicolaus & Company George Price, Stifel, Nicolaus & Company: Hi, thanks very much – just a couple of follow-ups, first of all Gordon just on the operating margin issue you mentioned some SG&A costs that we a little bit higher than expected, was there any – did the operating margin float up in any way to offset any of that, was it that thinking or was it just purely the timing and the strength of the revenue.

George, just be clear, the SG&A expensed in Q4 of last year were higher than normal because of a couple of items that I mentioned and then came back to normalized level in Q1. What happened in Q1 we just (inaudible) until we got into the latter part of the quarter internally we didn’t realize see how strong revenue was going to be because we really had a strong surge in March. At that point we cranked up the SG&A spending but it takes a little while for it to really crank up and that is why we are saying Q2 will be back to a normal level but we couldn’t get back to a normal level in Q1. George Price, Stifel, Nicolaus & Company: Ok, I am sorry I miss heard you. Then on the competitive landscape, maybe if you could give a little bit more detail inside around what you are seeing from some of your other offshore competitors given the margin pressure and the wage pressure that some of them are seeing, are there any changes out there in the competitive dynamics of the industry that are evolving and also maybe how the multinationals are doing?

I think in terms of the competitive landscape there is one factor that is important – the clear separation between the tier one players and the tier two and tier three players. The separation started happening about three or four quarters back and that seems to be strengthening. That gives us the opportunity to hire people from some of the other companies into our fold. That is one opportunity in terms of people and in terms of the competitive positioning in the marketplace, clearly the tier one players will get a greater proportion of the projects of the wins compared to the other tier two companies. And as far as the market (inaudible) corporations are concerned clearly a number of them are investing in India expanding and there is a reasonable amount of computation for us there. From a Cognizant perspective, since we enjoy a good reputation in the academic institutions which is where we hire a bulk of our people, anywhere between 65-70 people on top of the new hire will be (inaudible) college and business schools. And we have a good program going. For this year, we have a lock on all the resources that we need based on the campus hiring that we did last year and we have a plan that is place that will go unlock these resources for next year as well. It doesn’t appear to be too much of a problem. I want to add just one last point. I talked about the wage increases – there is (inaudible) rates pressure at the entry level. There has been no significant change in the compensation because there is a large number of people that are graduating out of these colleges, we can dig deep and get them and because we have a very robust and strong training program in the development program we are able to get them to speak and contribute to the development activities frequently. George Price, Stifel, Nicolaus & Company: And just last thing, maybe a comment if there have been any changes to pricing in the industry continue to hear stable with an upward bias which is pretty often used term – but, what you are seeing maybe as new business comes on if blended pricing how that might be impacted by how the mix of your business is shipping. And then, Gordon, if you could remind us also on a wage percent basis, what percent of the overall cost base is on site vs. offshore wages?

First of all, we sound like a broken record, but I think you summarized it just right – pricing is stable with an upward bias. Our pricing was up very slightly from Q4 and we think we are about right in our planning assumptions for the full-year which was up about 1.5% on a blended basis. Now that includes the impact of moving towards larger customers on the negative side, on the positive side some of the higher value services; but you are absolutely right and we have not seen any change in the belief that it is stable with an upward bias. In terms of wages, about 17-18% of our total costs in our India wages, and about 55% of our total costs are onsite wages and as I mentioned, wages came in exactly where we planned for and budgeted for so no surprises there. Operator, I think we have time for one final question.

Your final question comes from the line of Julio Quinteros, Goldman Sachs

Question in ten parts –

Start with the fifth part, right?

I’ll start with the first part – Francisco, actually I just wanted to start with you, can you maybe just give us a sense on just the operations. What is different about the way that you guys are executing right now vs. your competitor and maybe if you could just point to one or two things that will help us get our arms around the out performance. And then, the last question that I have was for Gordon, if you could just sort of break up the gross margin impact issues that you highlighted, I think you highlighted the (inaudible) wages – I just wanted to get a sense on what the impact was on a basis point perspective. Francisco D’Souza, Chief Operating Officer: What I’ll point to here is what we are calling the Cognizant customer experience. For some time now we have been talking about the fact that we are continuing to reinvest the customer interface. We put a lot of effort and energy and dollars behind that and that is really the single point of differentiation. We are servicing a smaller number of clients, servicing them very deeply. Investing very heavily at the client interface and what’s happening is that as the services that we are performing for clients are becoming increasingly more sophisticated as we are getting into the discretionary spending, the development that Lakshmi talked about the systems integration work. These are more sophisticated capabilities that require a deeper level of engagement at the client interface. We are very well positioned there to take a client through both the technology but also the business change issues that are involved in those types of sophisticated programs. And, I think that is probably the most important thing that is allowing us to scale client relationships because as clients get more comfortable moving more sophisticated work offshore, our client partners, our industry experts, our program managers, our project managers are all there to surround the client to provide them with a very seamless Cognizant experience.

Francisco, do you have maybe a specific number then or some percentages that you could give us just to sort of illustrate the difference. Maybe, a percentage of MBA’s within your billable work staff vs. maybe the industry norm. Do you guys have a sense on what that would look like? Francisco D’Souza, Chief Operating Officer: At this point, Julio, we have about one MBA for 25-30 technologists – it is roughly in that order of magnitude. It is very high percent of MBA’s to non-MBA’s and that actually really helps with that Cognizant experience. And as I mentioned earlier in the call, in the 1st quarter we hired about 200 MBA’s which represented just under 10% of our total net hiring in the quarter.

And Julio, on your question of the break up of the impact of those – we don’t provide a specific breakout. All of them had impact – (inaudible) moved by an average by about 2.3% and as I mentioned in the past, each 1% movement in the (inaudible) impacts operating margin, but most of gross margin is by about 20 basis points. As Lakshmi mentioned we are accruing bonus in Q1 and expect to pay bonus for 2006 at a healthy level. We share the success with our employees. Employee healthcare costs jumped up in Q1 as we start the new year and hire rates and you have to accrue for terminal liability and all that kind of stuff, so that comes back down and then FICA, FICA is probably the least of the four items but each one clearly has impact.

And then finally, just the CapEx projection for the full-year?

We are projecting about $120 million; we spent about $20 million in Q1. a lot of it will end up depending on exactly when we stared constructing buildings but at this point our view would be unchanged.

Have your construction plans changed at all or you guys still on target with them?

It always moves around – some stuff accelerates some stuff decelerates and a lot of it ties to getting approvals for a special economic zones so it is a shifting playing field but at this point no dramatic changes in the overall plan where exactly buildings may be built is always fluid for the industry.

Ok, maybe if I could just wrap up then, Gordon – on the second half of the year, obviously there is in the implied guidance there is a little bit of deceleration, is that just a little bit of cautiousness, conservativeness on your part given the kind of growth that we are seeing now or is there something more that we have to think about in terms of the seasonality of the second half of the year where September/December being more holidays and probably when the World Cup factors into the numbers in the second half.

Clearly there is a seasonality impact in Q4 and normally it is Q1 and Q4. If you rank it Q2 tends to be the strongest then Q3, then Q1, then Q4 – but, without a doubt you have a seasonality impact and billings days in Q4, less so in Q3.

At this time I’d like to turn the conference back to Lakshmi for closing remarks.

Thank you and in summary – our strong financial performance in the 1st quarter is the result of substantial growth across our broad range of industry verticals and service offerings. We are confident that this strategy will try our future success and thank you for participating in this call. Copyright policy: : THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. : THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.