At this time, I would like to welcome everyone to the Cognizant Technology Solutions second quarter 2006 earnings conference call. (Operator Instructions) I will now turn the conference over to Ms. Julie Prozeller with Financial Dynamics. Ms. Prozeller?

Thank you, operator, and good morning everyone. By now you should have received a copy of the company’s second quarter 2006 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. On the call, we have Lakshmi Naravanan, President and CEO, Francisco D’Souza, COO, and Gordon Coburn, CFO of Cognizant Technology Solutions. Before we begin, I’d like to remind you 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 risks and uncertainties as apprised in the company’s earnings release and other filings with the SEC. I would now call like to turn the call over to Lakshmi. Please go ahead.

Thank you, Julie, and good morning everyone. Thank you for joining us today for our conference call. Today we will discuss Cognizant’s second quarter 2006 earnings and the management succession plan, both of which we announced this morning. I am joined this morning as usual by Francisco D’Souza, our Chief Operating Officer, and Gordon Coburn, our Chief Financial Officer. We are pleased with the financial performance of Cognizant in Q2 and are really happy about the executive-level promotions as we announced, leading to the management succession plan. Let me start by discussing the management succession plan. As you are all well aware, our strategy has always been focused on making ahead of the curve investments to ensure that our organization can support our aggressive growth trajectory. Today we have announced a further investment in Cognizant’s future, to take us to the next level as a mighty, billion-dollar company. After careful planning, and with the support of the Board of Directors, today we announce that I’ll be taking on the new fulltime role of Vice Chairman of the Board and our Chief Operating Officer, Francisco D’Souza, will take over as President and CEO effective as of January 1, 2007. In addition, Gordon Coburn, currently Chief Financial Officer, will be promoted to Chief Financial and Operating Officer. During more than a decade at Cognizant, Frank has played an integral role in building our client relationship management, sales and marketing and global delivery organizations into world class operations. Frank is widely recognized in the industry for his strategic vision and operational excellence which are two strengths complimentary to Cognizant’s ability to achieve its financial and operational goals and continue its industry leading growth. I look forward to working with Frank over the next several months to ensure a smooth transition of my responsibilities…

Thank you Francisco, and good morning to everyone. I would like to provide some additional information on the second quarter and then discuss our financial expectations for Q3 as well as full year 2006. Revenue for the second quarter significantly exceeded our prior guidance and expectations due to continued application ramp-up of clients won over the past few years, significant knowledge transfer of additional application management projects, as well as continued greater than anticipated strength in development spending, a trend that started for us in 2003. Revenue growth accelerated to 18% sequentially, and 59% year-over-year. During the quarter, we continued 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 second quarter our financial services segment, which includes our practices in insurance, banking and transaction processing, grew by more than $58 million year-over-year and represented 48% of revenue for the quarter. Healthcare grew over $33 million year-over-year and represented 22% of revenues. Retail, manufacturing, and logistics grew by over 14 million, representing approximately 16% of revenues for the quarter. The remaining 14% of our revenues came primarily from other service-oriented industries including telecom, media and new technology. Those industries grew by over $18 million compared to Q2 of last year. As Francisco mentioned, financial services grew by 56% year-over-year and 20% sequentially. Healthcare grew 85% year-over-year and 17% sequentially. Growth in our healthcare segment was in particular driven by the numerous life sciences clients we have won and are now ramping up. Retail, manufacturing and logistics grew 38% year-over-year and 16% sequentially, and the other segment grew 62% year-over-year, and 15% sequentially. For the quarter, application management represented 51% of revenues and application development was 49%. Both services grew significantly in Q2. On a year-over-year…

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

Congratulations to you and the rest of your team on these fantastic results. Gordon, a quick question for you, does your new role mean that you are going to get a new briefcase? Or are you going around the lucky beat-up green one?

The beat-up briefcase has been very lucky so I intend to keep that one until the holes get too big.

Okay sounds good. In getting more serious now, the 20% increase in salary to the 07 hires, is that across the board and does that materially cut into the cushion that exists in your operating margin above the 20% top end bogey?

Yeah, let me be very clear about that. The 20% increase relates to offers that we are putting out now for college students who will be joining us during the 2007 season. The impact of that change for 2007, holding everything else constant, would be about 50 to 60 basis points and the reason for that, even though its large number of people, it’s a relatively small portion of our cost base. So we do not see a change in our range and, you know, it's built into our planning for 2007.

Is there any kind of ripple effect, then, that happens with the other levels of people, or do you just give a more upfront and then a raise once they finish the training program is last, so does it keep everything pretty much in line?

There will be a little bit of a ripple effect, but the ripple effect is not significant

Okay. Second quarter, posted your best sequential growth rate, I think, in your company's history despite being your biggest quarter, if I'm not mistaken, despite the multiple headwinds that you talked about on your prior call. So Gordon, if you could, just talk about what drove it and what does it suggest about the second half in the year? Should we expect somewhat of a slowdown here?

Sure. Yeah, there are couple of things that occurred in Q2. Probably the single biggest thing, and you saw it in the growth and application management for the first time in a long time actually growing faster sequentially than application development, part of what happened – we saw a real spike in application management work and when you have that kind of spike, you have a lot of onsite knowledge transfer. So, you kind of get this surge where you have a lot of people come onsite, obviously at higher billing rates, and then go back offshore. And that's one reason why you saw very strong growth in Q2 and our guidance for Q3. Obviously it's very healthy at 54%, but on a sequential basis is slower than Q2 because now that’s – some of that management work, you know, their [KT] is done and we’ll start to move it offshore. But let me let Frank and Lakshmi comment more strategically on what we’re seeing that's driving this more general phenomenon of, you know, why we are dong so well. Francisco D’Souza: It's Frank, Adam. I think, you know, overall, and we've talked about this on prior calls, we’re really benefiting from the investments we’ve made in three primary areas. The first is, and we talked about them on the call this morning, the first is just across all of our industry vertical segments, the investments we've been making in domain experts and in folks on the client facing – in the client facing organization are really paying off. We’re able to engage with our clients more strategically, engage with them on more complex engagements on, on really working with them to solve their business problems. And so that’s sort of driving growth, very healthy growth across all of our verticals. This quarter was characterized by strong growth across, as I said earlier, both the large verticals, the historic, the big Cognizant verticals and also the smaller verticals where we see increasing traction. The second trend that we are benefiting from is the increased adoption and acceptance of offshoring in Europe. As we said, this quarter Europe grew faster than the company average and we continue to feel optimistic about the demand in Europe and also our ability to service that demand as we put - continue to strengthen the team on the ground in Europe. And then finally, you know, the increasing set of services that we've been investing in, particularly things like ERP implementation, our IT infrastructure services that I touched on. These are new service lines that we've invested in considerably over the last several quarters and we are now starting to see real traction for those services in the marketplace. I think all of those three things are coming together to generate some significant demand.

Okay, great, and then just a final housekeeping question. Gordon, I noticed your guidance for EPS next quarter does not include the words at least, so I was wondering if you could just manage expectations and what's behind that? Is there, the margin guidance was pretty specific, but what's going on on the EPS line?

I think that's the - similar to the language that we used last quarter. I think we used approximately. Historically we've never used at least when talking about the next quarter up.

Okay, thanks guys. Again, great job.

Your next question comes from Andrew Steinerman of Bear Sterns. Andrew Steinerman – Bear Sterns: Hi there, congratulations. My question has to do with application development. I noticed the surge in application management, obviously application development still grew strong, and it seems like the outlook is still very healthy. I was just wondering, just looking at the application development side, do you see any slowdown in some clients in terms of discretionary spending?

No, Andrew, I think the application development side has also been growing substantially. This is somewhat technology driven; I think we talked about the service-oriented architecture. As more and more of these organizations adopt the new technology the development effort increases. And the discretionary spending is also something that is consistent like as we have seen in the past quarter, because the benefit of this new technology is kind of immediate and the business impact us quite substantial. So, we see a large number of our customers willing to invest in these new technologies going forward. Andrew Steinerman – Bear Sterns: Right. And so, when you look at financial services client like I think about my own firm your stock market has sunk for a couple of months now, you haven't seen any change of client patterns even in financial services?

No, even in financial services we haven't seen any significant change from the prior quarters. The investments that have been committed for technology infrastructure upgrade, et cetera, are continuing. There is no pull back. Andrew Steinerman – Bear Sterns: Thank you very much.

Thanks, Andrew.

Your next question comes from Moshe Katri of Cowen and Company. Moshe Katri – Cowen and Company: Hey, thanks. Good morning and congratulations for Frank. A couple of things. Just to confirm Gordon, you said the currency benefits were about $1.5 million during the quarter?

There are two parts of the currency that’s in motion. In non-operating income, below the line, there was a $1.5 million gain and that's comes from currency - from the balance sheet translation. In addition to that, baked into our operating expenses, we also had the benefit from the rupee moves in our favor. So, there is sort of something above the line as well as a decrease on below the line. Moshe Katri – Cowen and Company: What was the other benefit? Can you quantify that?

The rupee moved by just over 2%. Every 1% movement is worth about 20 basis points of margin. Moshe Katri – Cowen and Company: Okay that's great. And then, how do we offset the 50 to 60 basis points margin impact next year from the 20% increase in salaries?

As you know, we have lots of levers to pull just like, you know, this year we pulled levers depending on what's happening with volume, what's happening with onset offshore mix, utilization, the more general salary pool, bonus levels, so, you know it's, in the realm of things, 50, 60 basis points is not – is not a lot of money to come from one way or the other. Moshe Katri – Cowen and Company: All right, so it's pretty manageable and then during the second half, should we see a re-acceleration in application development, sequential revenue growth versus application management, or we are going to keep on saying to strength in application management that's been kind of unusual?

That one we don't guide to. The reality is, you know, we will do what's right for the customer. Yeah, we are saying healthy demand on both sides of the business, so it starts to become just very client specific in terms of what projects hit when and how quickly do they ramp up. To be very clear, yeah, both sides of the businesses are very healthy. Moshe Katri – Cowen and Company: Okay, and then in terms of turnover, that's been in the mid-teens right now. Do you think this is where it's going to be at by the end of the year, or at this point do you think that's kind of stable at this point?

If you – turnover has seasonality. Generally Q2 and Q3 are the higher quarters, Q1 and Q4 are lower. For both Q1 and Q2 of this year, we’ve been running lower than we ran last year, and our target is to be in the low teens on a full year basis and that's our target coming into the year and that target has not changed. Moshe Katri – Cowen and Company: Okay and then finally, can you talk about top one and top five clients in terms of revenue concentration and remind us where it year ago and sequentially?

Sure. We don't report top one, we have no clients over 10%, but the top five clients were 30% of revenue and grew roughly in line with the company. Moshe Katri – Cowen and Company: Okay, great. Thanks a lot.

Your next question comes from the line of Bryan Keane of Prudential. Bryan Keane – Prudential : Hi, good morning. I guess, since demand is really terrific, I guess the question comes how fast can you hire to keep up with it? And what kind of supply constraints do you see in the upcoming future quarters?

I think that's, like you said, the demand is quite strong in our customer base, as well as the new opportunities. The thing that we are most focused on today is on fixing the supply side. We don't see much of the problem over the next four to six quarters. All our efforts currently are to sustain that level of input into the organization because one of the concerns that we have is longer-term we are relying on the education infrastructure in India. Will that be in a position to support the increasing demand, not just from us, but from the entire industry? So, there are several initiatives that we have undertaken in order to collaborate with the education institutions to have the right quality of people come on board. And two, this also requires a certain higher level of investment within Cognizant as part of Cognizant Academy to train and develop people, both at the technical levels, but more importantly at the managerial and the leadership level. I think the last quarter we talked about the management development program and the High Five leadership development program, which is coming along well. And we have launched several initiatives at the mid level to create a greater bandwidth and a great pool of project managers and technical and domain experts who can who can really come in and deliver growth in this organization. And this is frankly, this one of the reasons why I'm taking on a different type of role, clearly to work with the education institutions, the academics, and also build a brand for Cognizant so that we are in a position to continue to attract large number of people from business schools, from educational institutions, and also set up some institutional infrastructure to sustain the supply of qualified people on a long-term basis. Bryan Keane – Prudential : Now, these extra investments you’re talking about, especially in training, does that change the profile of the company, you know, the long-term pro forma operating margins of 19 to 20?

That does not change the long-term impact of the operating margin. That will continue to remain in the 19% to 20% range. The investments that we make of some that are done at the education institutions level, we just help them do those, make some of those changes so that the people coming out of colleges are industry-ready, and there are some that we have to do in our academy, and a lot of it is driven by technology. You know, I talk about the learning mechanisms, the e-learning, et cetera. So, these are all – while they are investments, these are not substantial in terms of dollar terms, but they apply technology to get to the level that we require. Bryan Keane – Prudential : Okay. And then just to follow-ups. Just a comment…

Bryan, I'm sorry to interrupt, we have only 10 minutes then people have to drop-off for another call. So, let me just let some other folks ask a question, if that's okay, and we catch up with other questions offline. Bryan Keane – Prudential : Okay, great. Thanks. Congratulations.

Okay, Bryan. Thank you.

Your next question comes from Julio Quinteros of Goldman Sachs. Julio Quinteros – Goldman Sachs: Hi, guys. I have one question in 10 parts. Sorry about that. My question is actually pretty simple to, as it relates to the 10% bump on campuses that Infosys discussed and the 20% that you guys are talking about, can you just explain to me how, what those variances are and whether you guys have sort of caught up with them, or what the delta would be there in terms of the campus salaries? And then, related to that, just the issue with regards to the turnover. It looks like it was 11%, Q1, and 15% this quarter, but that's an annualized number correct?

Let me just hit the second question, and Lakshmi will take the first one. Turnover is 11% annualized in Q1, 15% annualized in Q2. Both of those quarters were lower than they were in the same quarters last year. So we’re actually a couple points better than we were last year in each quarter.

And coming back to the question on campus salaries, actually the – the top three or four companies have the best lots as far as recruitment is concerned. We stated that in the majority of the campuses that we went to this year, we were either No. 1 or No. 2. So, we had access to the best people there. And that's because the top companies offer compensation within a narrow band, and this band has moved by about 10 to 20% over the last 2 years. Some companies particularly the Tier 2 companies who went to the campuses later, had to offer greater salary in order to attract people from these universities last year. And now, the Tier-1 companies are having to do it effective next year. To that extent, the band remains within the 10 to 20% range. We have to increase a little more than the other companies because we were at the middle or slightly lower than the middle range of the band. Now, we are in the upper half of the band. Julio Quinteros – Goldman Sachs: Got it, and then I will just back to Gordon. The turnover, can you just sort of break up the turnover number a little bit between sort of entry level, mid-management and senior management, where are you seeing the turnover?

Really no change in that. It’s always been at the lower levels. It's quite rare that we move people to senior levels unless, you know, it's more of a mutual decision. So, it's at the lower levels primarily in India. You know, you’ll see a little bit more in the US as we’re doing more U.S. hiring of technical staff, but no change in the general characteristics of where it's coming from. Julio Quinteros – Goldman Sachs: Okay, great, thanks.

Your next question comes from Cynthia Houlton of RBC Capital Markets. Cynthia Houlton – RBC Capital Markets: Just a quick question on bill rates concerning - it sounds like you had a lot of onsite work especially in the app management, anything different going on with bill rates, either offshore or onsite? Francisco D’Souza: Sure. The two discrete pieces, onsite and offshore, were quite constant sequentially. On a blended basis they moved up a little bit, obviously, because we moved to a little bit more onsite but - and you have a couple underlying things going on there. You have deals getting bigger, obviously large customers, you know, get more favorable rates. We’re doing a mix of business certainly from very high-end work to, you know, jobs where the BPO rates are obviously at lower rates. But, we’re, you know, it's a very stable rate environment. We are not seeing anything that's causing concern. Cynthia Houlton – RBC Capital Markets: Thank you.

Your next question comes from Sandra Notardonato of Robert W. Baird. Sandra Notardonato – Robert W. Baird: Hi, thanks. First question is, should we be expecting any other changes to follow the executive management's announcement that you made today such as a sales force reorganization, or other things to help support the next growth phase? And then secondly, if I can get the growth of the customers that would represent your top six through ten. You gave the first five. If I could get the six through ten, that will be great.

Yeah. I mean, let me talk about the organization changes and the succession plan. Clearly, as we continued to grow, we need to increase the management bandwidth. The set of promotions and the changes that we announced today are preparing the organization's – preparing Cognizant to meet the demands of rapid growth and to be a multi-billion dollar company. Surely, it will be followed by additional changes in the organization in terms of people from within taking greater responsibility, as well as inducting more people at both the senior and the middle levels in the organization. This is something that we have been doing in the last couple of years. We have inducted at least a coupe of very senior people into the organization, who have been well inducted into the organization, who are discharging responsibilities that are consistent with the overall goals and strategic vision of the company. So, we would anticipate some more changes at the middle and the senior management levels in the organization. That will be driven largely by the executive team, the five members that we announced that we put up in announcement today, they will drive the next level of changes in the organization to prepare for growth

And Sandy, just to answer your second question, for the top ten, I don't have six to ten, no, but for the top ten in total, we were a little over 41% of revenue and the top ten grew pretty much in line with company average sequentially, just a touch below it. Sandra Notardonato – Robert W. Baird: Okay, thank you

Your next question comes from Edward Caso of Wachovia.

Great, thanks. Gordon, can you give us an update on your BPO business as a percent of revenue, what the outlook is, are you still getting attraction there? It wasn't mentioned today.

As you know, we don't breakout, you know, the service offerings by percentage of revenue but clearly we’re gaining traction there, and we’re actually feeling quite good about it. Let me let Francisco and Lakshmi comment, you know, give some more color around that. Francisco D’Souza: Yeah, just in terms of the BPO business, I think we have always said and talked about on this call, our strategy with the BPO business has always been to focus on BPO opportunities that fit two characteristics. One is, they have a high degree of industry knowledge within the process so that we can leverage the investments that we are making in industry experience, its folks and building domain expertise through our industry verticals. And the other characteristic we look for are business processes that have a high degree of IT content, so that we can leverage our core competency in IT and systems. And what we are finding and what we have found in the last few quarters is that that segment of the BPO market is beginning to see increased traction in India. It took time for customers to get comfortable with moving those types of processes into a global environment. We’re starting to see that happen. So, over the last two or three quarters, we’ve actually started several pilots across many of our industry verticals from healthcare - from big verticals like healthcare and financial services to smaller verticals like media, in the BPO space, all of them focused on these higher-value, knowledge-intensive and IT-intensive BPO processes.

Ed, be sure to remember that for BPO it will impact headcount well before materially impacts the revenue, because BPO is still heavily offshore and billing rates tend to be lower than for IT. You know, it takes a lot of people to move the needle in a material way on revenue.

Thank you.

Your next question comes from Rod Bourgeois of Bernstein.

Hey, guys. Can you give an update on where you are sourcing your gross headcount additions from? In other words, how much of your headcount additions is coming from campuses versus lateral hires or other sources?

No. Typically we have between 65% to 70% of our people coming from campuses and the remaining 30% to 35% at the lateral level, and the lateral level is predominantly via the hires that we make outside of India. On average, for example, we hire anywhere between 30 to 35 people per week here in the U.S. which is, I mean, a substantial number. Likewise, we hire a fair number of lateral hires in India too, and referral is the single big best source. People within the company who like the culture, who understand the culture and the direction of the company refer to us their colleagues who come in and join.

Now I guess my question is, as your headcount addition requirement goes up, are you seeing any shift towards more lateral hiring or more campus hires?

No, its --over the last 2 years it has remained consistently in that band, 60% to 70% of campus hires from the remaining lateral. We expect that trend to continue.

So, Rod, what that translates into is, we are putting out a lot of offers right now for people will join us in 2007, because there is, basically a year lead time on the calls hires. And, you know, if revenue is really strong, that means we have to go out into the open market a little so that can move what the final mix is between, between college and lateral but, as Lakshmi said, yeah, we try to target that 65% range or so, and you'll see, obviously year-to-date we are running about 50% and part of that is seasonality. Q3 is a huge quarter for the college kids coming in. Where exactly we end up for the year depends on where final headcount ends up.

Great thanks for that.

Great and with that, its 10:00 a.m. I know many of you have to jump for another earnings call so why don't we have Lakshmi, a closing talk?

Yes. Let me conclude with these concluding remarks, and I have to thank you once again for joining our call today. We’re pleased with our financial performance during the second quarter, both across our verticals and our service offerings. We are confident that we have right strategy in place to continue delivering strong financial and operating performance throughout the remainder of 2006 and we believe, more importantly, that the expanded executive management team we announced today firmly positions Cognizant to continue our growth well into the future, and we all look forward to talking to you in the next quarter. Thank you very much.

Thank you ladies and gentlemen. This concludes Cognizant Technology Solutions second quarter 2006 earnings conference call. You may now disconnect.