Welcome to the Cognizant Technology Solutions third 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 conference over to David Nelson, Vice President of Investor Relations at Cognizant. Please go ahead.

By now you should have received a copy of the company's third quarter 2008 earnings release. If you have not, the release is available on our website, cognizant.com, or by calling our office at 212-850-5600. The speakers 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 to begin the call.

Thank you all for joining Gordon and me today for Cognizant's third quarter 2008 earnings call. We're pleased to report solid results for the third quarter 2008, which exceeded guidance and demonstrated continued industry leading growth, despite an economic environment which deteriorated substantially over the quarter. Our performance this quarter and year-to-date demonstrates that despite the limited short-term visibility and turbulence caused by the economy, the fundamentals of our industry remain strong and Cognizant is well positioned to capture that opportunity. I'll cover four topics in my comments today. First, I'll provide some highlights on our third quarter results. Second, I'd like to discuss the state of the economy and the implications that this has for our sector. Third, what I'd like to do is talk about Cognizant's performance, our opportunities for growth and the investments that we are continuing to make to maintain that growth. Finally, I'll provide our thoughts on the outlook for the rest of the year. So, starting with our financial and operating results for the quarter, we generated $734.7 million in revenue, versus our previous guidance of at least $723 million. This is an increase of 31% over the third quarter of 2007 and 7% versus the second quarter of 2008. During the quarter, our non-GAAP operating margin was 20.8%, which is above the company's targeted 19% to 20% range. Non-GAAP operating margin, as you know, excludes stock based compensation expense and stock based India fringe benefit tax expenses. In our Financial Services sector, we logged stronger sequential growth than the company average with a quarter-over-quarter increase of 7.9%. This is the second quarter in a row where our Financial Services business unit has outperformed the company average on a sequential basis and reflects the fact that the current economic environment actually carries opportunities for…

Thank you, Francisco and good morning to everyone. During the third quarter our Financial Services segment, which includes our practices in insurance, banking and transaction processing grew by over $78 million year-over-year and represented 46.1% of revenue for the quarter. Healthcare grew by almost $44 million and represented almost 24% of revenues. Retail Manufacturing and Logistics grew by about $29 million, representing 15.7% of revenues for the quarter. The remaining 14.4% of our revenues came primarily from Other Service oriented industries like communications, media and new technology which grew by almost $25 million, compared to Q3 of last year. For the quarter, application management represented 53% of revenues and application development was 47%. Both services continued to grow significantly in Q3. Application management grew 36% year-over-year and 8% sequentially. Development grew 26% year-over-year and 6% sequentially. The sequential strength in application management we believe was driven by clients seeking to optimize efficiency on nondiscretionary spending due to budget concerns. During the quarter, over 78% of revenues came from clients in North America. Europe was approximately 20% and 1.7% of revenue came from the Asian market. Our European business grew over 4% sequentially and 54% year-over-year for the quarter, as a result of our continued investment in that region. European sequential growth was negatively impacted in the third quarter by approximately 300 basis points or $4.5 million of sequential growth due to a 4% depreciation for the quarter, and the average rate of the pound, Euro and Swiss Frank versus the US dollar. We had a gross addition of 63 new customers during the quarter. We closed the quarter with approximately 550 active customers. During the quarter, the number of accounts which we considered to be strategic and have the potential to ramp up to at least 5 million to more…

(Operator Instructions) Your first question comes from the line of Adam Frisch with UBS.

Can you provide some color on deal ramp ups from strategic customers signed in let's say the past four to eight quarters and maybe some spending trends of your top 20 customers?

Let me start with spending trends at the top 5 and 10, because those are the numbers that historically we've given out. The top five represented 19% of revenue during the quarter, which translates into 2% sequential growth and that 2% includes a reduction in revenue at one of our healthcare payer clients that we talked about on our last call. Well, we actually saw growth at all of our other top five clients on a sequential basis. And our top 10 represented 29.7% of revenue, which was 4% sequential growth. Francisco, you want to give some high level comments on any changes in ramp ups?

We've not seen any changes to projected ramp ups of deals that we won over the last few quarters. Those continue on track. As we've said in the past few calls, given the current economic environment, the demand tends to be shifting more towards Application Maintenance, IT Infrastructure Services and BPO and that type of service offering, but we haven't seen ramp ups get pushed out or delayed of clients that we've won, let's say, over the last two or three quarters.

Even in the strategic area, correct?

With the large clients? No, they continue to ramp, yes.

Okay. What areas do you expect to grow the most over the next several quarters assuming the economy is weakening and will stay weak for a while? Do you expect BPO and ITO to be bigger growth going forward? Is that a potential opportunity for you given the environment?

I think application maintenance will continue to grow in excess of application development. I think BPO and IT Infrastructure Services will continue to show healthy growth, but you have to keep that in perspective that they'll still represent relatively small percent of total company revenue and we're growing off a small base. Then I think that, outside of the impact of the currencies that we talked about, I think that there is still large parts of Europe, particularly continental Europe that are relatively underpenetrated from an off shoring standpoint.

On M&A you guys have been real conservative just doing small plug-ins assuming with the environment right now and the importance of a cash balance. Is there any reason to think that you would get any bigger with your M&A strategy?

Our focus continues to be focused on acquisitions, actually one of three goals, either geographic expansion, domain expertise or industry expertise. So, I think that strategy continues. Size, obviously we're going to be a bigger company. So what is the definition of small starts to change. Never say never on bigger things, but we remain very focused on acquisitions that we believe we can successfully integrate.

Okay, and then one house keeping, Gordon, you said the 4Q guidance, EPS at least does not include any gains or losses from FX. Is that primarily in the other income line?

Yes. That's specifically in the other income line, so basically balance sheet, the impact of FX gains or losses from balance sheet revaluation with the currencies bouncing around so much, you know, we don't want to have to run the business to offset those or vice versa.

So just to clarify, FX is included in your revenue and operating income guidance, but just nothing below the line?

That is correct.

Okay, great.

FX is included in operating income, but not in non-operating expenses.

Okay, guys, thank you.

Your next question comes from the line of [Tan Sen Wong] with JPMorgan.

Hi.

Hi, good morning, thanks. I had a question on the margin side. If the rupee trend persists here going into 2009, do you plan to reinvest all the rupee margin up side, which sounds like it could be significant?

Yes, that is our plan. Obviously we exceeded our margin goal in the third quarter for two reasons, one the rupee movement started to really happen later in the quarter and you can see in our SG&A line, we had accelerated investments in the second quarter, so we were able to moderate our investments in the third quarter and then the rupee moved in our favor. By the time we turned our back on, it was a little too late. Plus we had that big non-operating FX loss because we had not forewarned our investors about it. We wanted to cover a little bit about that. I would fully expect our margins to be in the 19% to 20% range on a go-forward basis.

Any change in what you're reinvesting given the upside? I'm curious, are you changing your reinvestment strategy? What are you investing in and what kind of return do you expect to get out of those types of investments?

Frank you want to talk about the test (inaudible)? It's a fairly wide, long list.

I think that it really continues to be focused on the areas that we've spoken about for some quarters now that we think represent good growth opportunities and are still relatively under-penetrated. First of all geographies around the world; we continue to invest in Europe, building up the sales force, as I mentioned, putting local country management into the various countries in Europe. We have a good footprint in some of the countries of continental Europe, we still have work to do in some of the other countries, for example in the Nordics and so on and so forth. We have a priority to continue on the geography axis into Asia. We've put country management teams into Japan and Australia. We will continue to build out our footprint in Asia, and then start to turn our attention to some of the emerging markets of the world; Latin America and the Middle East, where we have some presence, but we think those are significant opportunities and we are underrepresented in those geographies. We continue on the service line side, we think that BPO and IT infrastructure represents strong growth opportunities, and for us are still in invest and ramp up mode. So those are probably the major areas that we would continue to invest in from a priority standpoint.

Okay, two few more questions. Just first on pricing, can you give us an update there, any change in trend or competitiveness, particularly in September or October?

Pricing has remained relatively flat. We've not seen significant change over the last couple of months.

Good. And then lastly, how big is BPO and ITO today? I guess, also, if you can give us a margin profile of each in relation to a corporate average that would be helpful.

Both of those are relatively small. BPO, we're starting to get some traction and winning some decent sized deals, but obviously it's heavily offshore and billing rates are lower than for IT services. So that's still a relatively modest piece of revenue, it's in the low single digits. ITIS, that's in the mid-single digits, but both of these once again are growing at a very healthy basis.

And then the margin profile?

Once they sort of get critical mass, I'm not sure you can see any meaningful difference in margin profiles. Obviously when you're first starting out and you hire all the management until you get the revenue, margin profiles will be lower.

Thanks for the detail.

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

Thanks. Gordon, when you were talking about some of the bank consolidation and mergers, just to be clear, it sounds like you don't expect really much change in those relationships going forward, do you think you'll still do the same amount of work or potentially you're going to do more?

I'm not sure I'd go that far. If you look at some of these acquisitions where we were doing work both for the acquirer and the acquiree, do we expect some of the work to go away on a long-term basis, absolutely. There will be discretionary stuff that they might have been working on that will go away. You might have some one-time pops on integration, but on a long-term basis, you now have one firm instead of two. So, no, I would not expect it to be status quo, but we're also certainly not seeing I think fall off the face of the earth. We've gotten very lucky and that the companies doing the acquiring, we have healthy relationships with and so far it's been okay.

Okay, and just a couple of clarifications. The 50 million in non-operating FX loss this quarter, if currency stays about the same, are we going to have these types of sizable losses going forward?

They're generated by the tremendous fluctuations in the currency on a monthly basis, so it's all generated by what's the change in the spot rate at the end of the month versus the prior month. So if you have major gyrations here, we had movement of 10% in a month during the third quarter. If you have those sorts of gyrations, you'll have big gains and losses. When the currency was moving a couple of points in a month, it was kind of noise.

Anything we should be modeling for fourth quarter?

You know, it's bouncing around so much, it's tough to tell. For October, we haven't closed our books yet, but just given where the currency moves, that will certainly generate a loss. For the first couple of days in November, we have a bit of a gain, where it all settles out, I don't know. And things are bouncing around so much, we just don't want to give any guidance on that other than to say it will definitely be a number and it could be material one way or the other.

Okay. And then just on pricing, it's relatively flat today. Francisco, I guess, given the market conditions, do you expect that to deteriorate in 2009 or do you think it can hold the line?

You know, at this point we are holding the line. We believe that the demand environment is strong and, as we've been out talking to customers, we've been holding the line on pricing.

All right. Final question, the visibility for the first quarter '09 and then for the rest of 2009. I guess what percentage of visibility do you have and how does that compare to previous years?

Along with every other company that's public in this market, we at this point are not making any comments on next year until our clients are further along in their budget cycle. One of the interesting things and fortunate things we've done in our annual global customer conference this year is actually at the beginning of February for a [bunch] of just logistical reasons rather than in November, which, you know, we had scheduled before all the turmoil happened. But that's actually very fortunate for us, because by early February, obviously clients will have a much better view on '09. I'm not sure it's realistic that clients have a good view on '09 at this point.

Okay. Thank you very much.

Your next question comes from the lines of Mark Marostica with Piper Jaffray.

Give us some color on the spike in attrition in the quarter, and perhaps comment on the trend that you saw in voluntary attrition versus non-voluntary. Then just add on to that, where you think things will head in Q4 on attrition.

Sure. No big movements on voluntary versus non-voluntary. I only have year-to-date in front of me. Year-to-date we are 15% annualized attrition, about 9 of those points are voluntary or people going for other opportunities, and the other 6 points are involuntary or people going back to grad school and so forth, so the mix is [tracking] about where we want. Certainly we had a spike in July and August. Part of that may have been due to the fact that we moved our promotion cycle from April to July as we had previously announced and you always have people who wait to see if they get promoted to make decisions. But as I mentioned, we clearly came back in the right direction in September and that trend continued favorably in October, and obviously that's in part due to the economy. So we're not seeing or hearing anything in our work force that gives us any concern.

In regards to utilization, you've obviously been taking that up with the hiring plans being shelved, but curious, what's the practical limit to that metric, the off-shore utilization metric given the capabilities of your bench?

You can break it down in to two pieces. For on site, I think we're pretty close to it. We're pretty close to where we want to be and you only saw a very small movement onsite versus last quarter. Offshore, there, if you include the trainees, you can have seasonality, because this year a lot of our trainees are going to be joining in Q1 and early Q2. So you'll see some reversal of offshore attrition including trainees as all those people come onboard, so you have some seasonality. So if you average that all out, we have some room still to move up utilization from where we are. But it won't be a straight line up.

Okay, great. One last question, and I'm curious as you talk to your customers, when do you get a sense that they will have their budgets, 'finalized' or at least at a level where they have some conviction in the budgets?

Our best view at this point is it will be towards the end of Q1.

Okay. And typically it's when, November timeframe?

December and early Q1.

Early Q1.

My guess is it will move three months out, two to three months out.

And will you be changing in any way how you give guidance on an annual basis as you kind of look at next year?

We haven't put any thought into that. Obviously a lot of it will depend on by the time we report our earnings and whatever, mid-February, do we have a pretty good handle on what customers are saying. As I mentioned, fortunately we'll probably be reporting earnings just after we've held our Global Customer Conference. So a lot of it will depend on how far customers are into their budget cycle. They don't have to have it finalized for us to have a view, they just have to be well enough into it.

Fair enough. Thank you.

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

Gordon, is it possible to get just an organic revenue growth rate year-over-year for the quarter, X foreign currency and X a little bit of acquisition revenue?

Yes. Rather might get, just ping us off line for giving that to you.

Okay. And then on the balance sheet, you got your cash obviously and the short-term investments and also long-term investments. Can you just remind us what is in the short-term and long-term?

Yes. The long-term is one thing, it is auction rate securities that are with UBS. So, those will be sitting there for a while through the settlement with the Attorney General. We can sell those back in June of 2010. The good news is we're, you get the premium interest done and so once we don't need the cash, it's actually not that bad a thing. 95% of that is guaranteed by the US government. Short-term investments, that's just, fairly liquid stuff that just has a duration of over a year and most of that stuff is between a year and two years.

And obviously no concern about…

No. Our cash management, other than we are starting auction rate securities, extremely high credit, just no liquid, and our cash management is extraordinarily conservative.

And then the, just as we have the modeling 2009, just a best guess on the tax rate to use?

I would use something around 60 at this point 62, 63.

Okay.

Probably 62 is as good to get to that thing.

Also just as we think about the sort of the wage cycle next year, given change in demand environment, should we think it will be kind of quite different than prior years?

Obviously a lot of it is going to depend on what the other tier one players do, most of whom will go for us. I would certainly, assuming the economy stays weak; I think one would expect that wage inflation in '09 will be less than '08. What it really is will depend on what some of our key competitors do, but I would have difficulty understanding why any competitor would not have lower wage inflation next year than this year.

Okay. Great, thank you.

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

I was wondering if you could tell what your campus offers look like for next year and maybe the timing up there driving the company?

Let's first start with the offers we made for people who graduate this past summer. Those people obviously pushed out the joining dates now a lot of those are those people. Most of them will join Q1, Q2. Some will join in Q4, but the big chunk is Q1, Q2. So the people who graduate next summer, we haven't set the dates and obviously the reality is it kind of gets spread over time. So, I think you will have some that will join immediately, some that will take a little while. We've not disclosed the specific number for competitive reasons.

And just as far as the timing of visibility for budgets next year, I know you said it's happening sort of towards the end of the first quarter you think. Are you seeing, is that atypical of what usually happens. In other words, is it taking longer for that visibility to materialize compared to this year or do you expect it to be consistent with prior years?

No, no, it's definitely different. People are starting later. I think a lot of companies, normally people start on Labor Day. I think there's so much turmoil people are starting a little bit later or dragging out the process just so they can understand better what's happening with the economy. So when budgets get wrapped up for '09, I certainly expect it to be later than '08.

And just one last one here, what typically do you walk into a year, what type of visibility do you walk into a year with and any expectations for that being potentially different heading into '09?

You know, let's come at it a little bit different way. In a typical year, well over 90% of revenue will come from customers with us on January 1. Based on everything we're seeing now, there's nothing leads us to believe that this is going to be any different. The business model is, when you win a new customer it takes a little while for it to kick in. So the key is the customers that we've won this year, last year, the year before that, at what rates do they ramp up? The good news is we continue to win customers at healthy rates. Just in third quarter, the number of strategic customers increased by six.

Okay. Thank you.

Your next question comes from the line of Joseph Vafi with Jefferies & Company. Joseph Vafi - Jefferies & Company: Good morning. Maybe just another kind of conceptual question on guidance. You can go to past years if certain clients hadn't had their budget put in place, how do you kind of approach their contribution relative to, what they had the previous year in guidance if they don't really have their budget in place?

We have hundreds of account managers out there who are really good at being part of the CIO's inner circle. So they're out talking to the CIO's, to the project managers every day of the week. So they can get a feel as the client starts to get a feel for what they think their budget will be. The difference this year is I think it will be later than in prior years before the customer has a good sense of what their budget will be. Just probably you can talk to us about what their priorities are going to be, but especially on the discretionary side, there will be a local (inaudible) before they know what will be funded. Joseph Vafi - Jefferies & Company: I guess the real question is, is if you know, some of the clients really push out some of their real decisions to a point that, say for example, you announce your Q4 results and you still don't have as much information as you'd like from clients, I was wondering how that might affect your view and decision making process on, what guidance might look like for '09?

Sure. That's just too hypothetical at this point. As I said, the good news is we'll be coming right out of our Global Customer Conference when we release fourth quarter earnings. But, without having a crystal ball for what the economy is doing over the next three months, few things kind of stabilize at whatever level it may be or is it just continued turmoil, it's tough to say. The good news is we have very tight relationships with our clients, so they share information as they have it and a lot of our revenue stuff that, as Francisco mentioned in his talk, are things that help clients to reduce their costs and obviously that's very good in this environment. Joseph Vafi - Jefferies & Company: Okay. That's fair. Then maybe just one final question, going back to Adam's question on customer ramps from recent strategic and, you know, Francisco's response was not really too much of a change in the pace of those ramps. I was wondering if you could kind of reconcile that commentary to the fact that obviously we are seeing some slowing in the business model and, if it's not coming from new customer ramps, then where it's coming from?

Sure. A couple of things obviously, the European currency which was, in our favor and helping sequential growth for a long period of time, you swung back in Q3 and big time in Q4 against us, so you sort of have that. And you have anomalies. Use the example of the healthcare client we talked about last quarter. It's unusual for us to have a client that contracts in Q3 and continuing into Q4. That's an example of a client that's actually contracting. So you have some of that. Its ramp ups as robust as it was a year ago, no, but are ramp up's still healthy, yeah, you saw that in Q3. But it's a little bit of the edge off of, of course. Joseph Vafi - Jefferies & Company: Great, thanks so much.

Your next question comes from the line of Arvind Ramnani with Banc of America Securities.

Financial services, can you provide some color on where you see strength in terms of the size of the clients or the geographies or the type of work?

Sure. You know, I don't think there were any specific geographic trends in the third quarter in financial services. We saw a good growth from both European and US financial services clients. I think that the from a revenue standpoint, the skew is toward application maintenance services, to some extent BPO and IT infrastructure services, but I would say that it's mostly being driven by increased application outsourcing. I'm sorry, was there another part to the question?

I have just a couple of other questions.

Sure.

So in terms of your large healthcare account, do you have kind of a road map into what's going to happen with that account in 2009?

I think like with all of our customers, they're going through their 2009 planning process and we're certainly participating in that and getting visibility into that as we move forward. But at this point, I can't give you much more than that.

Sure. Final question, are you all developing specific solutions to address the short-term needs of your clients based on recent events?

Sure. I think that we are more than short-term specific solutions. What we're doing is emphasizing solutions that already exist within our portfolio of services that are specifically relevant in that environment. So at the highest level, you have services that generally will help clients reduce operating costs and those are basic things like application maintenance, IT infrastructure services, BPO. These are services that take an operation that a client already has, typically a higher cost operation, moves it to a lower cost operating model. But then there are also service offerings like post merger integration that I spoke about. We have quite a lot of intellectual capital around, post merger integration, how do you approach the whole process both from a systems standpoint, but also from a people and from a business process standpoint through our consulting group. So post-merger integration is another example of the kind of service that we're specifically emphasizing with our clients.

Operator we have time for one more question.

Yes sir, your next question comes from the line of Rod Bourgeois with Bernstein.

Rod Bourgeois here. Gordon, can your flat sequential growth imply anything about your growth plans for 2009?

No, I don't think you can read anything one way or the other about it from the headcount. Just remember, we especially in this market, we have the ability to turn around all lateral hiring in two minutes notice. We still have over 4,400 people who have essentially finished training and are waiting to go be [billed] of the pressures. So I won't read into it anything one way or the other.

So just to elaborate on that, if clients started making decisions again at a normal rate and your deal flow ramped up, how quickly could you turn on the hiring engine to meet the sort of potential surge in demand that that could happen?

Yeah, that's purely hypothetical. Demand spikes in Q1, I have, as I said, still a healthy bench, including 4400 fresher's who are fully trained as well as my bench of experienced professionals. I can very quickly go out into the market for lateral hires which take two weeks of training. So when you think about it next year, it's a question of what's demand going to be, it's not a question of what supply or these supply will be able to make demand.

One more hypothetical on the pricing front. There are certainly one-off accounts where price comes under pressure and sometimes you have competitors that break rank and try to win a deal with aggressive pricing. If you extrapolated kind of a ugly case scenario through 2009 on pricing, on deals that come up for grab and where pricing gets renegotiated on new deals. Is it feasible that pricing could drop by 5% over the next year or is that a highly unlikely scenario based on the pricing dynamics and the basic math in your average price?

Fortunately the market in many ways has consolidated to a handful of tier one players and two multinationals, all of whom are showing very healthy discipline in terms of pricing, because I think everyone realizes it's a zero sum game and no one's going to gain market share through pricing. So as Francisco said, at this point we see a stable environment. To get to the account numbers you're talking about, you have to see a collapse in pricing and I can't imagine how any rational competitor would trigger that.

Great. Thanks, Gordon.

Okay, operator.

Let me just thank everyone for joining us on the call today. Just to finish up, you know, I think we're very pleased with our financial and operating performance during the third quarter across the company, which exceeded our guidance and I think more importantly proved our ability to maintain industry leading growth, despite a tough economic climate. Despite our caution in the near term, we're confident in our ability to grow and that our strategy to date has been effective and will continue to be. We look forward to talk with you again next quarter. Thanks very much.

Thank you. This concludes today's conference call.