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' Second 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 at Financial Dynamics. Please go ahead sir.

Thank you, operator, and good morning, everyone. By now, you should have received a copy of the company's second 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 second quarter 2007 earnings call. This morning I'll provide an overview of our second quarter results and discuss the key drivers of our financial and operating performance. I am joined on today's call by our Chief Financial and Operating Officer, Gordon Coburn who will take you through our financial and operating results in greater detail. I am pleased to report that the steadfast execution of our long-term strategy has enabled us to surpass an annualized $2 billion revenue run rate during the quarter, just six quarters after surpassing the $1 billion annualized revenue run rate in the fourth quarter of 2005. Our rapid achievement of this milestone is a testament to the strong fundamentals of our business, the success of long-term strategy, our dedication to client satisfaction and our commitment to delivering value to our shareholder. Cognizant's tremendous growth was also recently recognized by Business Week, which once again named Cognizant's among the InfoTech 100, Business Week's annual ranking of the top technology industry performers. Cognizant outpaced all of its industry competitors in this year's InfoTech 100 and placed ninth overall on the fastest growing sub list, with a 62% year-over-year revenue growth rate for the 12-month period measured by Business Week. These achievements were a result of our approach and culture of partnering with our customers every day to build stronger businesses and deliver a tangible return on their IT investments. Our ability to maintain these results oriented client-centric culture while scaling the business rapidly, essential to our ability to maintain industry leading growth which was again evident in our second quarter results. Turning to our second quarter financial results in more detail. We once again exceeded our internal forecast and our guidance…

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 third quarter, as well as full year 2007. Revenue for the second quarter exceeded our prior guidance and expectations due to continued strength in Europe, strong year-over-year growth in our healthcare segment, as well as all three of the industry verticals within our other segment. Quarterly revenue grew 12% sequentially, 53% year-over-year. As the quarter proceeded we continued to see healthy volume growth across the broad range of services and industries. Our core business remains vibrant and our pipeline is robust. During the quarter our Financial Services segment, which includes our practices in insurance, banking and transaction processing, grew by over $80 million year-over-year and represented 47% of revenue for the quarter. Healthcare grew over $45 million and represented 23% of revenues, retail, manufacturing and logistics grew by almost $25 million, representing approximately 15% of revenues for the quarter. The remaining 15% of our revenues came primarily from other service-oriented industries of telecom, media and technology, which grew by over $29 million compared to the second quarter of last year. During the quarter, financial services grew 49% year-over-year, and over 13% sequentially. Healthcare grew 62% year-over-year, about 8% sequentially. Retail, manufacturing and logistics grew 48% year-over-year, and 11% sequentially. Growth in our retail, manufacturing and logistics segment was driven by several new retail accounts that we have won and are now ramping up, including the previously announced transaction with Kimberly-Clark. And our other segment grew 60% year-over-year and 17% sequentially. Growth in the other segment benefited from strong growth in our information and media operations, as well as technology and telecommunications. For the quarter, application management represented 52% of revenues, and application…

(Operator Instructions). Your first question comes from Julio Quinteros from Goldman Sachs.

Hey guys, good morning. Real quickly, just to get a couple of things out of the way here. How much mortgage exposure do you guys have in your BFSI segment as a percentage of revenue?

In terms of subprime mortgages, it's negligible. Overall mortgage -- that I have to check on. But very well exposure to subprime mortgage.

Okay, great. And then looking at the model, the way that it shaped up for the quarter, obviously we're expecting utilization to go up. How much further can you take utilization from current levels, in other words how much is less in terms of cushion from utilization? And then can you walk us through pricing for the quarter as well?

Starting with utilization, as we said last call, our goal is to take utilization up around four points or so, because of the way they are averaging works for the quarter takes two quarters to get there. So, we still have a more increasing utilization plan and that's obviously baked into our headcount guidance and that's just simply a fact of the next two quarters to pull through the impact. In terms of -- what was the other question, pricing?

Yeah, pricing.

Pricing is coming right where we had expected. For the full year we expected it to be about 2%, on an apples-to-apples basis compared to last year. Sequentially we had a very modest increase in pricing, year-over-year we were only about 2%.

Okay, great. And then just the four percentage points, I think there was a little bit of confusion last quarter. I just want to make sure I understand. When we think four percentage point increase, are you talking offshore blended including, excluding, just to make sure, we have the right number here?

So that's global.

Global total including trainees.

Yeah.

Got it, great. Thanks guys.

Your next question comes from Rod Bourgeois from Bernstein.

Hey guys, nice to see all the growth here continuing. I wanted to ask about specifically the CapEx outlook with all the plans to expand the facilities. Presumably a lot of the movement into the Special Economic Zone is geared towards optimizing the tax rate after the tax savings expire in March '09. Can you talk about what these investments and facilities in Special Economic Zones might do to your sort of capital expenditures compared to the run rate that we've seen in recent history?

Sure, whether the SEZs existed or not, the company would still be doing constructions if the economics are better than renting. This expansion does not impact our 2007 CapEx budget. As said, we still look at that to be $180 million, haven't worked out 2008 yet. But if you look over the last couple of years as a percentage of revenue it still remains fairly constant. So, that's probably as good an assumption as any at this point.

Okay, great. There has been a lot of attention focused on the headcount kind of growth outlook in recent periods here. I wanted to ask a scenario -- you guided up again on revenues, if the revenue growth outlook continues to improve and you are able to take you revenue growth guidance up again later in the year, would you then be in a position to take your headcount growth guidance up to 7.9 or do you have enough headcount in place right now to hit a range that goes even higher than where your current revenue growth guidance resides?

With 55,000 people we certainly do look at more revenues than we have got into. Even with our increasing utilization we will still be well below the industry. So they are sort of two separate things. Would we need to take headcount now -- can just obviously know. Would we want to? Maybe yes, maybe no, but when we look at end of the year, was about 55,000 well that gives us room to meet demand this year and positions us quite well for next year.

Okay, and then --

And as far as, just finish the talk on -- quite obviously large because we have been running so low historically, you just have a lot of buffer in there.

Right and then with the expansion plan. I mean do these Special Economic Zones and the related investments, does that have implications for the type of headcount growth you are planning for the 2008 timeframe or is it too early to give a read on that? Just presumably with all this investment being planned, you've got some idea of the type of headcount you're hoping to achieve in 2008?

A lot of this construction, some of it starts to come online at beginning 2008, but some of it doesn't come online until late 2008, early 2009. So it's sort of a constant process continuing to expand, but the fact that we've expanded the program clearly means that as we look into the future in 2008-2009 and beyond, we still see a lot of runaway in terms of growth opportunities.

Okay. And then just to complete all this thought. I'm assuming that your continued plans to take utilization up -- I'm assuming you're still arguing that the higher utilization will not create any trade-off with respect to your growth rates?

At the level that we're targeting to take it up to, we're very comfortable that it does not impact our ability to deliver services and once again that comes back to -- we have been running quite low large scale efficiencies with bench resources, and even with where we are increasing utilization too, we're still -- we still have room, you'll still be below industry standards.

Alright, thanks guys very much.

Your next question comes from Ed Caso with Wachovia Securities.

Good morning, congratulations on another great set of numbers here. I think you haven't talked much about your BPO business. Can you give us a sense of percent of revenue growth rates, focus areas, what the demands are for the future?

Yeah, Ed, it's Frank. We continue to make good progress on the BPO business. We've -- I think a call or two ago I spoke about -- I gave examples of some clients who we're winning there. As I've said in the past we are focused on what we think of as vertical BPO, industry-specific BPO or what we're calling V-BPO. And so we're making good progress. We're pleased there with the progress we're making in that business and also looking at the synergies between our IT business and our BPO business. In terms of the specifics that you asked for, I think a couple of things. Right now revenue for our BPO business is relatively small. It's also important to remember that revenue per head in the BPO business is significantly lower than it is in the IT business. And so, the BPO business today is not a material, significant part of the overall revenue stream.

Great. Gordon, can you remind us, your goal on the short run for two quarters is to raise global utilization 4 points. How many more points of flexibility do you have beyond that?

We certainly have flexibility beyond that. The question becomes at what point does it start to create a skills mismatch. Yeah, I think we still probably have a little bit of room, bit down to four points. We are kind of growing at an unprecedented rate, so it's more of an art than a science to know what point you hit that skills mismatch. Again, what we know is like we have four points, we are not at that point yet. If you keep going at some point you head it. But we're pretty comfortable with how the model is working and as we're taking utilization up so far this quarter, it's actually been a good thing for the business. We probably realize we probably have let it get a little bit lower than it needed to be.

Can you talk a little bit about H1Bs? How you get in the lottery, any issues there? How you are thinking about scenarios long-term?

As you know, a lot more applications were filed than visas issued. We certainly understood the process and filed our visas appropriately and received the visas we need to run our business. We continue to monitor the situation. Washington, obviously [excluded] with the immigration legislation, EDAP and then slowing down. So, we will continue to keep an eye on it.

Okay. Thank you.

Your next question comes from Julie Santoriello with Morgan Stanley.

Thanks, good morning. I wanted to ask a little bit about the tax rate going forward. Are they part of the construction plans or really all-round I am eluding to SEZs. So, what kind of tax rate do you think we can expect post March of 2009? Can you completely offset some of the exploration with SEZ activity or how much might you be able to offset?

You are absolute right, Julie. Obviously, we are building some SEZs and we're leasing stuff in SEZs. As I mentioned we recently signed leases for almost 800,000 square feet of leased SEZ space, so it's a combination of leasing and building. Really the way the rules work are you cannot move any existing volume from the old passed programs to the new. So, whether our tax rate will jump by 2009 will depend on two factors, how fast does the business grow between now and the end of 2009, and how much of that growth can I put into Special Economic Zones. We'll have a better feel for that later on this year when we start to understand what 2008 looks like and we will start to give a range for the tax rate in 2009. But, I would certainly expect the material increase in the tax rate in 2009, because vast majority of my existing volume starts to become fully taxed.

So, it would be fair for us at this point to look at a tax rate that is somewhere between the 16% now and 32% or so kind of global rate?

We haven't given any guidance, and the range is so wide, I am not sure it has been that helpful for people. Yeah, obviously it will be more than 16% now. When we were fully taxed they didn't recognize the benefit of tax holidays, we were at 37%. Obviously, we not could be at either of those extremes.

Okay. And a question on the consulting business, basically you mentioned some good tractions there. Can you give us an update on the number of people you have now in consulting? And just a little bit more on the strategy there, should we be looking towards specific consulting related revenues from Cognizant or is the consulting practice more geared towards just driving the rest of the services?

Yes. We've taken the very deliberate approach of putting our consulting business, if you will, into the core businesses. We think that that's an effective way to drive the business. It's an effective way to grow consulting practice. But also that really creates tight integration between the consulting business and the rest of the business, if you will. So, I don't try to sort of look at consulting revenues as split about separately. What I will say is that we're seeing good traction and a lot of interest from clients, as I said during the earlier part of this call, engaging us upfront, understanding, helping us, inviting us to help understand and frame the business problem before, than engaging us on the downstream work as well.

Does that have more positive margin implications?

I think it's neutral, I think from a margin perspective -- but I think it certainly has significant implications in terms of our relationships with clients, the depth of our relationships with clients. The kind of dialogue we're having and then of course, the ability to drive downstream revenues.

Okay, thanks. And just lastly, any discussion internally on hedging strategies or plans to put a more formal program in place?

As you Julie -- today we don't hedge at all. Am I looking at it, it doesn't make any sense. Yeah, I am looking at it, no near term decisions. In my mind the only way it would make sense is if I could get hedge accounting since I have the hedges reached mark-to-market each quarter probably that doesn't create a lot benefit for shareholders. So, we are looking at it but, no near term plan, certainly [noting]. It does clear whether all the pieces work for the instrument that we will need.

Okay. Thank you.

Thanks.

Your next question comes from Mark Marostica with Piper Jaffray.

Good morning, it's [Mark Scuntows] for Marostica. Just a question on the SG&A line. Could you just be a little bit more specific on the scale of interest that gained here than whether we can expect to see these year-over-year gains through the rest of the year?

There is a broad range of stock. As we transition more to our own facilities that's going to have scale efficiencies -- the scale efficiencies for communications and some of the marketing related activities and back office activities. So, the scale efficiencies is a question of when do you lever those, and when don't you. One of the ways we run the businesses, we target our operating margin and we look at SG&A, that's something we can accelerate or decelerate depending where cost of goods sold come in.

Okay. And then just one other question as it relates to attrition. Could you just remind us of what the components where that 20% spike that you had last year and sort of how that compares to where we are, hope for where we will be in 3Q this year?

[You know, bill] through is now where we will be in the third quarter, because August is a tentative swing month, but third quarter last year was unusual in terms of spiking to 20%. And then as we have been running actually well below normal for the first half of last year, spiked up in the third quarter and then started to come back down. Part of it may have been that in 2006 we tried to sort of set the market on wages by indicating or keeping wage increases modest, others didn't fall in that lead, so we ended up a little bit behind market last year on wages. That may have caused that third quarter spike, obviously we fixed that this year so there wasn't any one item that caused it.

Okay. So just looking at the last three quarters you guys upticked year-over-year. Is that trajectory sort of expected if you look out over the next couple of quarters or should that reverse itself?

It's a little difficult to predict, what I'd like you to assume. Are we still running a little bit higher than I'd like? Absolutely, yes. Are we running -- but it's only a little bit higher. One that concerned me was third quarter last year when there was a significant spike, now we're running a point two points higher which has got noise in my mind.

Okay, great. Thanks.

Your next question comes from Ashwin Shirvaikar with Citigroup.

Thank you. Thank you for the fabulous results as well hopefully makes it clear there is more to revenue growth than headcount growth. I wanted to talk about the growth of your European business. Are you assigned to strategic clients there, is there something different European clients look for than U.S. clients could delve into that?

Yeah, it's Frank. I think that the -- I would point to a couple of things that we are doing in Europe. That I wouldn't say different but requires us to focus in a different way in Europe, because of particularly language issues and differences across continental Europe. We are having to build out local teams in each of the countries in Europe in which we are operating. And so that's probably the first, we can't rely obviously on English as the language of business in these countries even tough many of our multi-national clients operate in English, you still need to have a local language capability in each of the countries. So, that requires us to invest -- that requires us to build local teams in each of these countries and really get the local team deeply integrated with the rest of Cognizant, in our global delivery models so on and so forth. The other thing that we are seeing to some extent in Europe, which is somewhat different than in perhaps other parts of the world, is that we tend to see interest in applications, development and system integration work, perhaps earlier than in other parts of the world where you might see a lead with application maintenance in the U.S., it tends to be a little bit more focused on application development than Europe. And that sometimes has to do with the labor laws and other regulations in Europe, which limit or prevent the displacement of existing workers in Europe.

Okay. And I guess last question. As you line up client requirements that are strongest today with your capabilities, do you feel a need to over-invest in any particular areas, either organically or through acquisition or do you think you are pretty well set and set for the next 12 to 18 months?

Yeah. Our acquisition program is ongoing. We are always looking out there to see where there are strategic fits. We've said that we continue to look for acquisition that will extend our capabilities in really three areas. We are looking for acquisitions that are complimentary in terms of the industries that we serve. Looking to deepen our industry expertise I talked about, consulting as an increasing area of interest and so we're looking for acquisitions in the industries that we serve that can add that capability. The second axis that we're looking for in terms of acquisitions and continue to always keep our eyes open for our technology based acquisitions. Good example of that was the acquisition we did some years ago of Aces that got us into the CRM space. And the third is, the third screen we use is geographic screen. So, we're continuing to look at acquisitions in markets in Europe that would extend or deepen our presence in the markets that we want to serve in Europe.

Okay. Thank you and congratulations once again.

Thanks Ashwin. And operator, we have time for one more call.

Your final question comes from Joseph Vafi with Jefferies & Co. Joseph Vafi - Jefferies & Co.: Hi guys, great results. Good morning. Just one real question, but first a housekeeping, did I miss what the salary hike was for the year that you had in the quarter?

Yeah, the salary increases affected the beginning of the second quarter. We averaged about 16% in India and very low single-digits on onsite. Joseph Vafi - Jefferies & Co.: Okay, very good. So, the real question is now that we've taken the salary hikes for the year, we have some utilization levers coming and assuming that Rupee stay stable here in Q3, is there anything I'm missing here? Should we not have the capacity to have higher margins in Q3 if those three things have occurred and/or are stable at this point?

No, I'm not sure I've set that expectation. However, we have promotions in October and our promotion cycle has always been twice a year, so you have some cost impact from that. And we don't want to disrupt our long-term investments, so as I said our goal is to be around midpoint of our range. Joseph Vafi - Jefferies & Co.: Okay. So, just given some normal business development expenses that we're going to see in the quarter, but otherwise it seems like salary hikes weren't too big and there is clearly leverage off those moving forward and…

Yeah, the big things for the year are under our belt. And the big negative things in the year under our belt, those all head in Q2. But, we are very committed to and it's still early in the game we're offshoring and so we're committed to investing for the long-term. And given where the Rupee has moved, we think that the midpoint of our range is the right thing in terms of balance of short-term and the long-term. Joseph Vafi - Jefferies & Co.: Great, thanks so much.

Thanks, Jeff.

Well, thank you everyone again for joining us on our call today. In conclusion, we're very pleased with our strong financial performance in the second quarter and our success in maintaining our operating targets, while reinvesting in the growth of the business. Moving forward, we are confident that the steadfast execution of our strategy and our commitment to expanding our global platform will continue to drive our industry leading growth. We look forward to talking to you all again next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.