Good morning. My name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the Cognizant Technology Solutions' First Quarter 2007 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). Thank you. Mr. Hoffman, you may begin your conference.

Thank you, operator, and good morning, everyone. By now, you should have received the copy of the company's first quarter 2007 earnings release. If you have not, please call our offices at 212-850-5600, and we'll be sure to get a copy sent to you. The speakers we have on the call today 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, Scot, and good morning, everyone. Thank you all for joining us today for Cognizant's first quarter 2007 earnings call. This morning, I'll provide an overview of the highlights of our first quarter results and discuss the key drivers of our financial performance. I will also discuss several investments that we have been steadily making in the business to insure that we meet the needs of our clients, effectively manage our growth and deliver strong financial performance to our shareholders. I'll be joined on today's call by our Chief Financial and Operating Officer, Gordon Coburn. We are pleased with our strong first quarter financial and operating results which are a testament to the consistent successful execution of our strategy and reflect our ability to further expand our growth platform. In the first quarter, we exceeded our internal forecast, generating $460.3 million in revenue, which represents an increase of 61% from the first quarter of 2006. GAAP EPS was $0.50 for the quarter, up 56% from the year-ago quarter. Non-GAAP EPS, which excludes stock-based compensation expense of $0.04, was $0.54 in the first quarter, compared to $0.36 in the first quarter of 2006. We also increased our number of active clients by 25 in the quarter, including five of which are consider strategic. Meaning, these clients have the potential to generate between $5 million and $40 million or more in annual revenue for Cognizant over the long term. Our growth was driven by strong performance across vertical sectors, including our largest sector BFS or Banking and Financial Services. I am also pleased to report that during the quarter we continue to make investments in our people and infrastructure on a global scale. We increased our headcounts by close to 12% sequentially with a net addition of approximately 4,600 employees around…

Thank you, Francisco, and good morning to everyone. I would like to provide some additional information on the first quarter and then discuss our financial expectations for the second quarter as well as for the full year 2007. Revenue for the first quarter exceeded our prior guidance and expectations due to continued strength in Europe, strong year-over-year growth in healthcare, life sciences and financial services, as well as improvement in manufacturing retail and logistics. Quarterly revenue grew 8% sequentially and 61% year-over-year, as the quarter proceeded, we continue to see healthy volume growth across the broad range of services in industries. Our core businesses remained 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 over $78 million year-over-year and represented 47% of revenue for the quarter. Healthcare grew over $47 million and represented 24% of revenues. Retail, manufacturing and logistics grew by almost $25 million, representing approximately 15% of revenues for the quarter. The remaining 14% of our revenues came primarily from other service-oriented industries including telecom, media and technology, which grew by over $24 million. During the quarter financial services grew 58% year-over-year and 7% sequentially. Healthcare grew 76% year-over-year and 2% sequentially. Retail, manufacturing and logistics grew 55% year-over-year and 22% sequentially. Growth in our retail, manufacturing and logistics segment was driven by several new retail accounts that we've won and are now ramping up including the previously announced transaction with Kimberly-Clark. Our other segment grew 57% year-over-year and 10% sequentially. Growth in our other segment benefited from growth in our information and media operations. For the quarter, application management represented 53% of revenues and application development was 47%. Both services continued to grow significantly in Q1. Application management grew 73% year-over-year…

Thank you. (Operator Instructions). Your first question is from the line of George Price with Stifel Nicolaus.

Good morning and congratulations on another very nice quarter. I guess, in terms of the 2007 outlook clearly you are expecting continued strong demand, so I think some may have been hoping for a little bit more of a raise for the '07 guidance overall. Is there anything out there in the market that concerns you from a demand perspective making more caution? Any macro, any impact to client spending patterns or indications based on macro indicators, any concerns given the trends away from development application maintenance anything like that?

Hi, it's Francisco. George, actually at this point, while there is mixed economic news out there. We have not seen any slow down in demand our informal channel tax and continue to indicate that demand is healthy and that was reflected, I think, in our strong performance in Q1, and also in our increased guidance for the full year. So, at this point, we don't see any of the mixed economic news that's out there translating into a slowdown in demand.

Where would you attribute, for a couple of quarters now, we've been seeing application maintenance really ramp-up faster than development and obviously development had a trend for probably a couple of years that memory serve. What would you attribute that to?

George, this is Gordon, obviously we saw very strong sequential growth in maintenance and that was driven in part by a couple of the newer clients who are in the high ramp up phase, ramping up on the maintenance side of the business. But our development business obviously did very well in Q4, so the sequential comps were a little difficult. We continue to have nice growth in development. And the other thing to remember, development impacts a little bit more in Q1 than maintenance because it is more discretionary a lot of times client won't start their development activity till the new budget here, so the budgets are finalized and released versus maintenance which will start without it.

Okay, and then is it fair to say that in terms of your action on the hiring, which I notice is pretty modest relative to some of your competitors. Is that really, incrementally, Gordon, driven by where the Rupee is? I mean I guess if the Rupee had more of a neutral impact, would you have taken that action?

Absolutely, it's driven by the Rupee. Our philosophy is very transparent about it. We clearly were not expecting a 7% depreciation in the Rupee and what we decided is that we want to balance it. That we want to continue to invest but we needed to certainly cover a portion of it. So, obviously we have adjusted our guidance to be at the midpoint of our range. But in order to do that, we need to take utilization out. One thing I think about our business is we've been running with utilization well below the industry average, which gives the ability to pull those leverage without impacting the operations of the business.

Okay. And last thing, just a couple of housekeeping items. I missed the onsite utilization and I wanted to confirm that you said 1% rise, it was in the overall utilization, is 50 basis in operating margin?

Yeah. Onsite utilization was 84% in the quarter and you are correct on the second point.

Okay. And then G&A, could you give G&A in the quarter?

It was $12.26 million.

Great. Thank you.

Your next question is from the line of Andrew Steinerman with Bear Stearns.

Hi, there. Could you just go over headcount goals? I understand that given the increased utilization to offset the Rupee that you are able to generate, even more revenue growth this year without the extra 1,000 people. But why not hire the extra 1,000 people anyhow, if demand is so strong, if it's the hiring season, right now for college campus. Is this just sort of second quarter, a key quarter to set your pace for hiring?

The hiring, that will be impacted by this is more the lateral hiring. The offers with college kids went out last year and obviously we are on all of those. So, while it's accelerating, decelerating, lateral hiring. And in the end, why are we slowing down hiring, because we want to stay within our target margin range, which we feel we can do without disrupting the business at all, because we are running such a low utilization today.

I got it. That makes sense. And then, also could you give any sense for your two quarter trends? How did the quarter shape up as you looked, January, February, March?

It was a solid quarter, as typical in every first quarter, certainly because of billing date. March is by far the biggest month. But if you equalize for that we had buying growth as well as volume growth as we continue through the quarter.

Okay. And then, just to square away the hiring question. You are doing hiring now, right now, this spring and people will come on next year. So, you are affecting next year's hiring at this time. Are you holding back at all in that uncounted hiring?

The uncounted hiring happens over, essentially, a nine-month period. So, you can't bring everyone on, once you are going to train everyone. Is that what you were talking about?

Okay. Thank you so much.

Your next question is from the line of Christine Pezino with JP Morgan.

Good morning. Just a couple of questions. First, on the competitive environment. I am just wondering if you have seen any change there specifically with the tier 2 firms, which seem to be improving their growth. Are you seeing them in deals more often or is it the same players?

Hi, Christine. Its Francisco. No, I think I would characterize it as unchanged. We are continuing to see a strong bifurcation between the tier 1 and the tier 2. In the majority of the situations in which we compete, we are competing against the three top tier India players the other top three India players. And then one or two of the multinationals will be in the mix. We almost never or very rarely see a tier 2 player.

Okay. And then, one thing you didn't mention in Q2 as impacting the margins of visa costs, should we expect something along those lines in Q2 as well?

No, we use combination of H visas and L visas. So, we have the cost in Q1, Q2 tend to be a little bit higher, but I don't expect a spike in Q2.

Okay. And then just my last question on the mix of strategic customers, have you seen any trend in terms of vertical of what kinds of customers are coming online? I would presume that the FSI was the early bulk of those strategic customers? And now maybe you are seeing from another vertical like retail, would that be a fair summary?

If you look across strategic customers, the overall portfolio of strategic customers is well diversified, the increase of size that we had this quarter will again as I said was diversified across industry segments. We had good growth in the number of strategic financial services customers that we added earlier, over the last 18 or so months we added a number of and continue to add a number of healthcare and life sciences customers. And now increasingly in the last, I would say two quarters or so, we've seen good traction in retail manufacturing as well as we are adding strategic customers in those verticals.

Okay, great, thanks.

Your next question is from the line of Julio Quinteros with Goldman Sachs

Hi, real quickly Gordon. Can you just give us the metrics on the account percentage contributions top account, top five, top ten?

Certainly, top five is 26%, top ten is 36%. And if you do the math you'll see that the top five is on a sequential basis and down slightly that's not unusual. We saw the same exact phenomenon last year, where the top five is down in the first quarter, top ten was roughly flat. We do not view any of the top five as mature. So, we continue to see opportunities there.

Okay. And then top account itself, are you still looking around the 9% number or has that changed?

We don't have any customers over 10%.

Okay. And then I guess for Francisco. Can you talk a little bit about clients where you are seeing multi service providers, so we have more than one offshore guy doing the work. What is the nature of the competitive environment at some of the largest accounts at least for some other things that we've heard is that, there is more competition among the offshore providers going after each other, at some of the larger accounts. Are you guys seeing that? And how is that expected to play out over the next couple of quarters for you guys?

Couple of things I would say, first of all, I think there has been an increase in amount of dual sourcing that we are seeing out there. As customers look at offshoring more strategically and it becomes a bigger part of their overall IT portfolio. They are looking at dual sourcing to mitigate risks across at least to providers. So, there is clearly a trend towards dual sourcing. We are also seeing that maybe two years ago, you would see some customers adopting a dual sourcing strategy of one key or one player or perhaps a tier 2 player or small player. You see that happening less in the marketplace today. It generally tends to be dual sourcing amongst the two tier 1 players. In general, though, once the customer has made a selection, I wouldn't characterize the competition as any more intense in the recent past and we always have healthy competition for clients. But once we've won a client, we tend to coexist with the other provider at the clients, because essentially we're both in there. And of course, we compete for business within that. But for some extent, the client tries to manage the portfolio as well between the two vendors, so that there is a balance of work. So, I will say that I don't think it's gotten any more competitive than it has in the past.

Okay. And then Gordon, can you comment at all on the EDS business itself, post the Mphasis BFL acquisition. Where are we exactly on that align in terms of revenue contribution or anything else, you might be able to provide a color there?

Yes. As we have said, when we announced the partnership, we viewed them as a value partner. The Mphasis acquisition was not a surprise. They were very upfront when we originally formed the acquisition that they were going to acquire something. They continue to be a value partner of ours and we have a healthy relationship. It's really decent of them to talk about size of the relationship. But it's healthy and it's continuing.

So, you are still generating revenue through that relationship?

Absolutely, Julio.

And then finally, the math on the Rabobank deal, I think I heard you indicate that the outsourcing has been in the neighborhood of three point something million hours contracted already with Rabobank?

Right. Not all of that comes to us. That's the total amount they are outsourcing, portion goes to Ordina and then a portion come to us.

Okay. But you didn't say exactly what was your contribution?

No, we haven't.

Okay. Because it looks like that deal could be in excess of $100 million at 3.8 million hours, right, total?

You mean, total of it in seven years?

Yes.

Yeah. It certainly sounds like its substantial. And the question is, what was the mix between us and Ordina's?

Got it. Okay, great. Thank you.

Your next question is from the line of Greg Smith with Merrill Lynch.

Hi. Just quickly on the weak tax effect, the options expense, could we just use the GAAP tax rate for that?

No. It's not quite the GAAP tax rate. The difference becomes the rounding error, (inaudible) differences, it gets a little technical but it was different than the GAAP rate.

Okay. But it's essentially lower, that was.

It bounces around from quarter-to-quarter.

Okay.

Other way the math works.

That's fine.

Sometimes is higher, sometimes is lower.

Okay. I will follow up. And then just when we modeled the interest income, should we just assume for '07 of the cash on the balance sheet continues to grow?

Yeah. That grows slowly. Yes.

Okay. And then, just speaking --

I think I also remember, as we mentioned in Q2, we do expect to have a below the line FX loss. You know, we always have a gain or loss each quarter, in Q2, a little bit of loss.

Okay, good. And then just a bigger picture question, let's say, the Rupee continues to appreciate or you have had higher wage inflation, would you sacrifice ultimately revenue growth to stay within the 19% to 20% operating margin then?

I think, when you talk about sacrificing revenue growth, I take an action, it impacts revenue tomorrow. It's at what point you started impacting long-term revenue. We were in the fortunate position of heavily over-investing in the business today, running at relatively low utilization. So, unlike others who might already be running at pretty high margin, we have the luxury, we believe, of having a bunch of leverage to pull. If it keeps appreciating at 7% a quarter, that gets serious.

Yes, but I guess I sort of alluded to my next question then because your sort of breaking down your headcount growth a little bit and then increasing utilization. Do you still have some nice cushion or does this push you into a little bit of different profile?

The way to think about, we are using some of our cushion, not all of it.

Okay.

By definition taking utilization up uses some of the cushion but we are still investing heavily in the business.

Okay. And then just got to throw it out there, any guesses on where the tax rate goes in '09 and 2010?

A little too early to know, once I get a little bit better sense of how quickly my SEZs will come online, I will be able to answer that.

Okay. Thanks a lot.

Your next question is from the line of Sandra Notardonato with Robert W. Baird.

Great, thank you. I have two questions, first is, it looks like some of your peers hedged to manage the repeat fluctuation. And I believe the last time you guys hedged is back in July of '04. What are your thoughts on that for the future?

The only thing we've ever hedged is the balance sheet. So, where I mentioned Q2 will have a below-the-line loss, from time-to-time I will hedge against that, normally I can just do that with the timing when I move cash around the world. And each, even now, I can keep it within a reasonable risk range. We've never actually hedged operating expense. Some of our competitors' hedged revenue obviously we don't need to do that since our functional currency is not the Rupee. So, if we would hedge something it would be expense. And my velocity is there is a cost to that and if I hedge it, it just puts off the inevitable for whatever period you hedged for. And given that, we are running the business with the bunch of levers to call that are controlled, I believe fairly quickly, the cost the hedge probably that's make sense versus the point.

Okay. And then my next question, I was wondering, if we can just talk about the relationship of wage rate increases in pricing. If you were to hold utilization study at the more lower level that you reported back in Q4 and over the last couple of years, what percentage increase in bill rate do you need to offset the 16% wage increase that you passed this year?

Give me one second here. I think I would need about 3% or 4%.

Okay great. Thank you.

Your next question is from the line of Abhi Gami with Banc of America.

Hi, thanks, couple of questions. First of all, you mentioned earlier the EDS relationship is healthy. Is that relationship actually growing?

Yes, due to the nature but EDS has to comment on?

Okay, second. There's a lot of speculation around slow down net and spending about the financial services sector in the US particularly within banking, your growth seems to cover that fairly well. Has there been any change in the nature of demand from within the FSI, so as banking rep (inaudible) picking up or any other color you can provide within that group?

No Abhi, I think that we haven't seen any shift in pattern, sort of a cost effectors of banking, insurance, transaction processing. I think that's what's driving our growth is that, that is really two things in financial services. One is the breadth of clients we serve, we have actually a very broad range of banking and insurance customers that we're serving today. I gave some color around that during the comments. And the second thing is that we've been investing over a long time now to continually deepen the service offerings that we have for financial services. So, what we're able to do is, is continue to stay relevant over the life cycle. So, as customers become more comfortable with offshoring and start trusting increasingly more sophisticated engagements to an offshoring model we are there with the capability to be able to match that demand. So, I think that those are the two things that continue to drive our BFS growth, broadening of the portfolio and the deepening of our service offerings particularly our BFS specific service offerings.

Okay. I think that's good.

Thanks.

Operator, we have time for one more question.

Your final question is from the line of Adam Frisch with UBS.

Thanks guys for squeezing demand here. I just wanted to clarify the point, because it's the only real issue that's impacting your stock this morning and it has to do with the headcount, the down take of growth there by a mere 1,000 people which on a percentage basis is not much but it is a down take. Can we say with some certainty that, that down take is in no way shape or form a reflection of your being less bullish on demand and growth? It's purely to offset the Rupee situation?

Let me be crystal clear here. We get ahead with a 140 basis point margin impact on the Rupee. I have a choice, I could let her off flow through or I can pull some leverage to not let her off flow through. When we looked at it, we said we want to balance the two, so we are letting it a little bit of it flow through we taken our targeting, operating margin as mid-point of our range and we are absorbing the rest and primarily too amusing to absorb it is the margin. At the same time, that is the utilization, at the same time that your headcount down that took revenue growth up which if you do math and works out to I won't take utilization up above three points. So, it's a purely a function of one of the levers like pull through to offset the Rupee appreciation.

Okay. But it's not any reflection of a down take in your assessment of the demand environment or your ability to grow?

Absolutely, not.

Absolutely, not. Okay. So then the next question becomes, what was the rationale of not letting margins go below that 19%, if that was all we do to the Rupee, if it could ensure that you could grow at the rate that the street has become accustom to?

Because I think because of scale efficiencies and so forth, we look down and said yes, we can take utilization up a little bit without hurting the business.

Okay.

And we've made commitments to our investors that our goal is to stay in the 19% to 20% range and given that we do run that business at a much lower margin than others, we thought that's the right balance between near-term shareholder value and long-term revenue growth.

So, what you are doing today is it certainly doesn't impact revenue growth in '07 negatively because you are increasing your guidance. But should we take it as negatively or positively impact in growth in '08?

No, I think where we stand. We think we can run the business at a little bit higher utilization.

Okay.

And support the needs of our clients.

Okay, and still generate the kind of business metrics that we become accustom to?

Headcount has never been a constraint to our growth, and I don't think changing utilization back up point is going to holds down make headcount a constraint to grow.

Okay. And obviously, you spoke real favorably about demand discretionary spend seems good, is there any supply constraint in the marketplace or now you guys always been real strong on the college campuses and so forth, is there is any supply constraints right now?

In general, we don't see supply constraints across the industry, there are always pocket to supply constraint. As certain skills become more in demand and less in demand and supply demand imbalances show up in little pocket here and there. But as I look at a macro-level, we don't see supply demand imbalance.

Okay. Great, so thanks guys for clarifying.

Thank you.

Ladies and gentlemen, we have reached the end of the allotted time for questions-and-answers. Are there any closing remarks?

Thank you again for joining us on our call today. In conclusion, we're very pleased with our financial and operating performance in the first quarter across the company. We are excited about the opportunity ahead for Cognizant as we execute on our long-term growth strategy, continue to globalize our business, and meet the growing demand for our services across industry vertical segments. We look forward to talking with you again next quarter. Thank you.

This concludes today's conference call. You man now disconnect.