- The firm is projecting revenue of at least $680 million for the second quarter.
- For the full year, revenue is expected to be $2.95 billion, representing growth of 38% compared to 2007.
- Operating margin is expected to remain in the range of 19% to 20% before the impact of equity based compensation and non-cash fringe benefit tax expense from on the exercising stock options in India.
- Second quarter EPS is expected to be 34 cents to 35 cents and for the full year to be $1.50.
Key questions and answers from the first quarter earnings call conducted by Cognizant Technology Solutions Corp. (CTSH: chart) on May 7, 2008.
Rod Bourgeois (Sanford C. Bernstein):
Can you provide any more color on what caused the uncertainty within financial services?
Gordon Coburn: In early March, the world of financial services changed a bit with the announcement from Bear Stearns and both the reality and perception that triggered throughout the financial services industry, and clearly had an effect on people''s decision and their outlook on the health of their businesses for the year.
Francisco D''Souza: Things did change significantly during March. And we saw clients as a result of that step back and say we want to reassess our spending plans going forward. We certainly saw some project delays during March in particular and some cut backs as a result of that.
What we are seeing is that, clients in financial services are beginning to digest the news. They are sort of re factoring their plans. In our second quarter guidance, we have been somewhat conservative on that front.
Rod Bourgeois (Sanford C. Bernstein):
Can you give us an update on how the early stages of the T-Systems relationship is going and when might we see some benefit from that relationship?
Gordon Coburn: We have been in the T-System thing now for about two months or so, on the ground transitions, re-batching people, that''s all have been going very well. That process is essentially done.
The other core part of the relationship obviously is jointly going to market in Germany and we are starting to do that. There is lead time when that stuff hits. We are also leveraging T-Systems in certain situations, where we need hosting capabilities and we have already won our first joint field on that.
Moshe Katri (Cowen and Company):
Can you comment on your largest client?
Gordon Coburn: We do not comment on specific clients, but among our largest clients, we still believe there is a meaningful growth opportunities.
Moshe Katri (Cowen and Company):
What sort of expectation should we have for application development growth there in the second half of 2008?
Gordon Coburn: As we are talking to clients there, are still clearly talking about discretionary development stuff. We do expect a growth.
Francisco D''Souza: The cyclical trend tends to drive demand for services that are focused on helping customers reduce costs. The cyclical trend drives application, outsourcing drives it seems like certain types of BPO, IT infrastructure services, our testing services and so and so forth.
On the secular side, as customers look to cope with fundamental structure changes in the industry, that tends to drive more of the application development and new system implementation type of work, because the structural changes in the industries are generally requiring clients to do things in new and different ways, and that tends to drive the demand for new systems in some form.
Joseph Foresi (Janney Montgomery):
On the guidance, are you factoring an improvement in the economy or are you expecting it to be stable or down?
Gordon Coburn: Our guidance assumes the economy is stable with current condition.
Joseph Foresi (Janney Montgomery):
Comment on your ability to pick up employees?
Gordon Coburn: In terms of our ability to resource people, it has improved. We are sitting with a very healthy resource pool right now, combination of both lateral people, who are ready to run the projects as well as we hired a lot of trainees late last year.
In terms of wage inflation, clearly it''s coming below last year offshore. Our competitors most have announced results and have indicated sort of 10% and 11% offshore wage inflation.
