I would like to welcome everyone to the Cognizant TechnologySolutions third quarter 2007 earnings conference call. (OperatorInstructions) I would now like to turntoday’s call over to Scott Hoffman from Financial Dynamics. Please go ahead,sir.

Thank you, operator and good morning everyone. By now youshould have received a copy of the company’s third quarter 2007 earningsrelease. If you have not, please call our offices at 212.850.5600 and we’ll besure to get a copy sent to you. The speakers we have on the call today are FranciscoD’Souza, President and Chief Executive Officer; and Gordon Coburn, ChiefFinancial and Operating Officer of Cognizant Technology Solutions. Before we begin, I would like to remind you that some of thecomments made on today’s call and some of the responses to your questions maycontain forward-looking statements. These statements are subject to the risksand uncertainties as described in the company’s earnings release and otherfilings with the SEC. I would now like to turn the call over to Francisco D’Souza.Please go ahead, Francisco. Francisco D’Souza: Thank you, Scott and good morning, everyone. Thank you allfor joining us today for Cognizant’s third quarter 2007 earnings call. Thismorning I’ll provide an overview of our third quarter results and discuss thekey drivers of our financial and operating performance. I will also discuss ourrecent announcement regarding our intention to acquire marketRx. Finally I’llprovide you with some color around clients’ 2008 spending expectations based onclient feedback from our recently concluded customer conference. I am joined on our call today by our Chief Financial andOperating Officer, Gordon Coburn, who will take you through our financial andoperating results in greater detail in a few moments. We had a strong third quarter, which featured healthycontinued growth across our vertical industries segments, service offerings andgeographies. Our third quarter reflects the results of several key company-widestrategic initiatives, which we laid out at the start of the year. First, we are making the necessary investments to buildtruly distinctive capabilities in each of the markets that we serve. Second, we continue to globalize, both on…

Thank you, Francisco and good morning to everyone. I wouldlike to provide some additional information on the third quarter and thendiscuss our financial expectations for the remainder of the year. Revenue for thethird quarter exceeded our prior guidance and expectations due to continuedstrength in Europe, strong year-over-year growth in ourretail manufacturing and logistics segment, as well as health care, and allthree of our industry verticals within our other business segment. Quarterly revenue grew 8% sequentially and 48% year over year.As the quarter proceeded, we continued to see healthy volume growth across a broadrange of services and industries. Our core businesses remain vibrant and ourpipeline is robust. During the quarter, our financial services segment, whichincludes our practices in insurance, banking and transaction processing, grewby almost $79 million year over year and represented 47% of revenue for thequarter. Health care grew $43 million and represented 23% of revenues. Retailmanufacturing logistics grew by over $31 million representing approximately 15%of revenues for the quarter. The remaining 15% of our revenues came primarily from otherservice-oriented industries of telecom, media and technology, which grew byalmost $29 million compared to the third quarter of last year. During the quarter, financial services grew 43% year over yearand 7% sequentially. Health care grew 49% year over year and 10% sequentially.Retail manufacturing and logistics grew 56% year over year, and 12%sequentially. Growth in our retail manufacturing logistics segment was drivenby several newer retail clients, which we have won and are now ramping up. Our other business segment grew 54% year over year and 5%sequentially. Growth in the other segment benefited from strong growth in ourinformation and media operation as well as technology and communications. For thequarter, we saw healthy demand for our entire service offering.Application management represented 51% of revenues and application developmentwas 49%. Both services continued to grow significantly…

Your first question comes from Adam Frisch - UBS.

In reading the release, both of you went out of your way tospeak very positively and favorably about the ‘08 growth outlook, which I foundcomforting. I am wondering how we should connect the dots between the slowdownwe’ve seen through ‘07 and especially what we are seeing, and I know the year-over-yearcomps are tough in the fourth quarter but 3Q came in a little bit light as yourstock is reflecting this morning. How do we connect the dots here in terms ofthe slowdown that we are seeing in ‘07? Does that continue into ‘08 or were therecertain actions in the second half of the year, which don’t necessarily makethem the right points to extrapolate next year’s growth trends on? Francisco D’Souza: I think you have to look at a couple of things. When youlook at the third quarter, the growth across our segments was actually quitehealthy, as Gordon mentioned, healthcare grew 10% sequentially. Retailmanufacturing and logistics grew 12% sequentially. Europewas very strong at 24% sequentially. Financial services grew 7% sequentially. Now its interesting, if you parse out financial services alittle bit, between financial services and insurance, what happened in thethird quarter in financial services or our BFSI segment if you will, is thatthe financial services piece actually grew considerably faster than 7% andinsurance actually grew slower than the 7%. We actually saw strength in the corefinancial services sector as well. So overall if you look at the pieces of the business, theyare all growing quite well in the third quarter. As you look out to the fourthquarter as Gordon said, what’s really going on there is that unlike in prioryears, we are just not seeing the budget flush that we saw in prior fourthquarters.

I think Francisco hit the key thing. If you look historicallysome fourth quarters we saw very nice sequential growth. Other fourth quarters werea little bit weaker due to customers not pulling projects or launching projectsearly. Clearly this year we aren’t not seeing that budget flush, but we alsothink that actually sets us up fairly well on a sequential basis for next year. In our mind, the most important thing is what we’re hearingfrom our clients at this point despite some of the economic headwinds, clientsare saying they want to keep increasing outsourcing in 2008. The big question,if you go back six, eight, ten weeks ago, was what did all of this creditcrunch mean for the 2008 budgets? What we are hearing so far now that we havesome quantitative data from our clients is we were hearing that some of theeconomic issues may yet turn out to be a positive factor for us.

Hitting the trend line topic, I appreciate your color there,but I think the critical point here now is the trend lines that we are seeing,especially in the fourth quarter of growth at the top end being around 40% andmaybe a little bit slower; is that the kind of growth we should expect goingforward? Can we actually see a rebound or somewhat of an acceleration as wehead out of fourth quarter?

Obviously the year-over-year comparable for the quarter istough in the fourth quarter. We are not ready to give guidance for 2008 as wehave done always in the past. We want to finish the planning cycle with ourclients so when we put out numbers we will have a great deal of confidence inthem. So a little too early to know exactly what the numbers will be for 2008 butcertainly qualitatively, we are hearing quite positive things from our clients.

[Management] has slowed sequentially but developmentactually accelerated. So that’s also I guess that’s a positive sign in termswhat your clients are thinking. Not what you would normally expect you get onnegative expectations out there on macro spending.

That was a pleasant surprise. In Q3 the discretionaryspending was strong despite some of the macroeconomic activity. What that saysis clients still want to get work done and to get it done they are moving itoffshore.

Were there any company or more likely customer-specificissues in the quarter here where maybe a ramp-up didn’t happen as fast orsomeone decreased spending where that impacted the overall rate?

A little bit there, but nothing that stands out.

The factors driving down the SG&A expense as percent ofrevenues, are these kind of things sustainable and should we expect this tocontinue in the future? Was it part of a utilization increase or was it a one-timething in the third quarter?

No. I do not view that as one time. Clearly, there are scaleefficiencies in SG&A. Our goal is to continue to stay in that, excludingoption expense, in the 19% to 20% margin range. We still have leverage we canpull if needed but as we have demonstrated in the third quarter, the leversthat we pulled kicked in nicely and we’re feeling pretty good about our abilityto match costs; so that is not at the top of our priorities to focus on.

Your next question comes from Moshe Katri - Cowen.

The budget flush comment, is that coming out from anyspecific vertical or verticals and maybe top ten clients? Then also focusing onthe budget cycle that’s going on right now, we are hearing that the decisionson ‘08 spending budgets have been pushed out from the typical, I don’t know,you guys typically hear about this towards the end of November and earlyDecember and now we’re talking about January. Is this something that you arehearing as well and will that impact funding for projects in Q1 of next year?Thanks.

Well, let me take the first part of the question. Franciscowill talk about the budgets. The question on the budget flush or lack of budgetflush in any one industry, the answer is no. It’s across the board. It’sclearly not something that’s specific to financial services. When I look acrossall of our segments, it’s fairly consistent. Francisco D’Souza: With respect to the budget cycle, Moshe, as I said, we’vejust come back from the customer conference. I didn’t hear anything although wedidn’t specifically ask the question during the formal part of the survey.Nothing that I heard qualitatively tells me that budget cycles are gettingelongated beyond the normal process. The normal process at clients is that youstart to get some clarity in November and December but in reality most clientsdon’t lock down their budgets until the earlier and middle part of the firstquarter, so nothing that I heard at the customer conference suggested thatgoing to go longer than that.

Gordon, can you comment on pricing during the quarter onsiteversus offshore?

Really no surprises there. Onsite sequentially, we were up alittle bit. Offshore was flat but that’s more as BPO is ramping up so if you justtook IT, we would have been up a little bit. So we were tracking right where weare planning on average realized rate up about 2% for the year.

Your next question comes from Anthony Miller - Arete.

I’m just interested in those statistics you gave from yourcustomer forum when you said, 92% do not expect an overall IT budget to decline,19% say budget reduction would may increase would not reduce offshore spending.For the 8% who do expect their overall IT budget to decline going into ‘08,what would characterize them? Where they in a particular industry sector? Werethere particular pressures that are unique and similarly for those that said overallthat IT reduction budget reduction would reduce offshore again, can you characterizewhy?

We looked at that. It’s hard to draw conclusions. Thereasons are all over the place. You have a few people for example, that mighthave had an unusually high investment year in 2007 and just naturally budgetswill go down in 2008. I can think of aclient or two that has done that. Then you just have some clients who look atthings and say, given if our overall IT spending were to decline, that wouldhave a proportionate impact on our offshore spending. That tends to be the moremature clients who have moved a substantial amount of their work offshore. For the clients who are less mature with off shoring, youtypically tend to find that a budget cut will incent them to move work offshorea little bit more aggressively. But when there isn’t that opportunity to dothat because they’ve moved a lot of their work already offshore, then an acrossthe board budget cut will have the impact of potentially reducing the spendingboth offshore as well. That sort of ties if you will to comments we made earlierabout our strategic customers and the number of customers that we think aremature in that they’ve moved significant portions of the work that they canmove offshore. That number in our case is relatively low and that reflects inthese statistics as well.

Did you run a similar survey this time last year? And if sohow did the results compare?

I know. We did not do a formal survey last year.

Your next question comes from Bryan Keane - Credit Suisse.

I’m just trying to understand, you are not seeing a budgetflush at the end of this year but you feel confident about 2008. Why wouldn’tyou be nervous about 2008 as the budget flush isn’t coming this year?

I think it’s really based on what our clients are tellingus. They are saying that this year they don’t have the extra money in their2007 budget but as they are planning and starting to lock down their budgets orget further into the budget process for 2008, that part of the way they are making theirbudgets work for next year is to further leverage offshoring. In prior years sometimes you would see people start adevelopment project this year instead of wait to January 1, or try to finishone up earlier because people just had more dollars left over. What we’rehearing this year, they have stuff ready to go, but they have to wait for theirnew budget dollars to become available.

If you look at the revenue by geography, obviously Europegrew exponentially but North America didn’t grow quiteas fast. I have it at about 5.6% sequentially; that’s slower than we’ve seen inthe past. Was there anything in particular in North Americathat slowed the revenue sequentially?

Really nothing. There was no one item. Nothing specific.

Finally, obviously we’re all going to be waiting for 2008and beyond. I don’t know, Francisco, is there any kind of long-term growth rateor revenue growth rate you think the company can maintain over the next threeyears that we can kind of target? Francisco D’Souza: What we’ve said in the past and what we continue to becomfortable with is that given the investments we’re making in the businessthat we can continue to grow the business faster than the industry and fasterthan our key competitors and I’m comfortable with that.

Any idea how fast the industry is supposed to grow nextyear?

There are a lot of statistics out there and the industrywill grow probably slower than our competitors. So that’s one that fleshes outas we go along. When we think about our strategy of keeping our margins alittle bit lower than our competitors, which we’ve done for years andreinvesting that back into relationship management, the customer experience,domain expertise. We feel the best measure for ourselves and we hope the wayinvestors think about measuring our strategy as successful is are we growingfaster that our key competitors? That’s something on a full year basis obviouslywe have been doing for a while and based on what we see, we believe that willcontinue.

Your next question comes from Joseph Foresi - JanneyMontgomery Scott.

I wonder if you could talk a little bit about the change in methodologythat we’re seeing involving guidance. Typically we see a number and then obviously a freeze associated withit. Is that just sort of a quarterly change? Or has there been a change in thethought process in giving guidance?

That is really two things. One, because we had our client eventlast week, we released the earnings a couple days later than normal and thereforewe have our October results in already so we have a better sense of where weare and we had a couple analysts who were getting fairly aggressive. So wewanted to make sure that people didn’t have unrealistic expectations for Q4. Sowe wanted to set more of a boundary for this quarter. Obviously when you start a year and you have 11 months aheadof you, I would expect we’ll probably go back to our old language as we getinto next year.

A second question here, it sounds like what you’re seeing isless of a budget flush but you’re confident of spending toward next year.Assuming that it’s not the picture that you’re seeing right now, is there a waythat you guys plan on maybe compensating for a potential slowdown and if sowhat are the areas of growth that you would target in order to continue to keepthe business moving forward? Because of our strategy of heavily reinvesting in thebusiness, we are already investing in multiple areas at once, both service lineexpansion, geographic expansion, domain expertise. So I think we’ll continuethat strategy. Obviously if there’s a major recession, that’s going to impacteveryone. The good news is based on what clients are saying now, it seemsfairly clear to us that cutting offshore is not going to be at the top of theirlist.

Lastly, just curious as to what the impacts you’re expectingfrom the recent acquisition next quarter on the top line.

For the fourth quarter, we expect marketRx to close as weget further into the latter part of the quarter. So the impact on Q4 will befairly small and we have a small amount of revenue built in. Obviously we getthe full impact for Q1.

Your next question comes from Ashish Thadhani - Gilford.

Do you have anything more specific for marketRx on anannualized basis in terms of revenue, recent growth and profitability?

Yes. On a full year basis marketRx will be a $40 millionplus business in 2007. Profit margins excluding all of the purchase accountingstuff for 2008, we would expect it to beroughly in line with company average. It’s a business that’s obviously growingand we bought it not for any cost synergies, they already are a veryefficiently-run business. We think there are some meaningful revenue synergiesthat we would certainly hope to capture as we go into 2008.

There has been some talk of salary moderation attributed toCognizant management. Could you elaborate on your expectations for next year?

Obviously, we don’t give our salary increases until April. Howmuch we give will depend largely on what other tier one players give, becausewe certainly will make sure that we’re competitive with our tier one players,but we certainly will not be seeking to gain any advantage there. We’re hopefulthat wage increases in 2008 will be less than 2007, but a little too early toknow for sure as we get into the first quarter, we should start to probably geta better flavor on that.

Your next question comes from Ed Caso - Wachovia CapitalMarkets.

Any initial thoughts on the tax rate for 2008? Francisco D’Souza: Ed, did you say 2008 or 2009?

2008.

2008, I would not expect any material change from the 16.4%.So this year, full year will be 15.6%, because we had one timers, but onexcluding the one timers, we are at 16.4% for this year. So, certainly my modelfor next year, I’m assuming, will be around 16.4% again. I am sure it will be alittle less or a little more, but that would be our best guess.

I didn’t hear it if you did, your top account percentage ofrevenue?

The top five customers in the third quarter represented 24%of revenue, and the top ten customers represented 34% of revenue. Each of thosewere down 1 percentage point from the second quarter, which is a trend thatobviously has been going on for a long time as the size of our customer basegrows.

One last one on the H1B, as I see this legislative proposalto maybe push up the fee to $5,000 per application from $1,500. I don’t know ifyou knew where that stood and how important are the H1Bs and are you changingthe way the model works and maybe address some of the tightness in H1B market.

Certainly, our business model has enabled us to do more andmore US basedhiring as we get bigger, so we don’t have the utilization risks. So, wecontinue to increase our UShiring. Certainly, it is important to leverage the visa programs to bring overwhere the specific skill sets that we can’t find here as well as some of theknowledge of the onsite offshore model. Obviously, we prefer the fees don’t goup, but given the size of our corporation I’m not sure if the fees goes up alittle bit it won’t materially change anything.

Your next question comes from George Price - StifelNicolaus.

Just going back to the comments on the financial servicesvertical and you noted Frank, that insurance was actually the slower growingcomponent as opposed to the other financial services area that people might bemore concerned about. Why did insurance grow slower? Did something happen at aparticularly large client, or can you give us a little bit more color aroundthat? Francisco D’Souza: We obviously looked into that in detail. There’s nothingreally specifically going there. We just look at that as the ups and downs inthe business. Insurance, as you know, has been growing very well for us over along period of time now. The insurance segment is one where we have a very goodposition in the marketplace. So, I wouldn’t attribute that at this point toanything beyond just the ups and downs of the business.

When you’re talking about budgets, flattish budgets lookinginto next year overall, do you have an overall view on this year? Where I’mgoing with the question is, just based on what you maybe saw this year for yourview of what overall budgets did this year, even if they are still going to beflattish and maybe up a little bit, the growth is probably going to be down sayfrom this year and I’m just trying to understand the confidence in that, you losethat multiplier effect even given the offshore component maybe increasingwithin those budgets.

Just to be clear on the survey for next year, we are 92% ofthe clients said budget is not declining, but that doesn’t mean they are allflat. So, we would expect that overall IT budgets are growing a little bit fornext year. How much compared to this year? Our sense is that becomes more of arounding error. I’m not sure there are any dramatically different trends thatwe’re ever seeing at this point.

Gordon, did you say 304.7 million shares for the fourthquarter.

Our guidance is based for the full year 304.7 million, forthe fourth quarter 307 million.

Your final question comes from Julio Quinteros - GoldmanSachs.

The 2008 outlook, maybe approaching it a little bitdifferently from more of a bottoms up perspective. If we look at headcountgrowth for 2007, right now we’re looking for about 42% headcount growth tofinish the year of 55,000. Thinking about that into 2008 from a utilizationperspective, or pricing perspective, and the levers that normally drive thisbusiness, why would we not see kind of the normal trend that we’ve seen overthe last two or three years where headcount growth is one of the most importantleading indicators that we have for revenue growth into ‘08?

Sure. That’s an important question. For a couple years,Julio, we’re trying to take utilization down. We actually grew headcount fasterthan revenue. Now, we’re taking utilization up a bit. As we’ve gotten scaleefficiencies, we came to understand that we were sub-optimized a little bitrunning as low a utilization as we did. So we’ve come up several points thisyear. I would expect we’ll go up a little bit more next year even if the Rupeedoesn’t move just because it’s the right thing to do operationally. So, I thinkthat’s driven by some the natural scale efficiencies in utilization. We’ll becoming out of the year with a very healthy bench of freshers who are in thetraining program and obviously, we do as much lateral hiring as we need.

So if your headcount growth finishes in the 42% range,utilization is going up, pricing is probably flat to up next year as well. Itwould seem like anything below a 40% growth rate would be a little bitconservative, or am I thinking about that incorrectly?

We haven’t given guidance for next year, and it all dependson how much lateral hiring we do. But as Francisco and I said, we are certainlyhearing positive things from our customers.

Let me try for a different perspective. On the keycompetitors Satyam, TCS, Infosys on average are expected to grow about 30% nextyear. Some of these guys are double the size that you guys have. Does seemslike a sustainable growth rate at least for the next 12 months for the keycompetitors of the industry?

Let me be clear, we would certainly expect to grow fasterthan our key competitors. We don’t see that we’re about to fall off a cliff byany stretch of the imagination based on what we know today.

Finally on the margins, the gross margin sequentially itlooked like it was down from where you were last quarter, typically June is thetrough. Can you just give us the kind of the breakdown of what drove the grossmargins from June into September, on a basis point perspective if possible?

The big piece of that is because the efficiency actionprimarily utilization really kicked in and we’re getting the benefit from it.We are sharing that with our employees through higher bonuses. So, we took ourbonus accruals up in the third quarter. We committed to our employees to do it,if they could generate the [inaudible].

The Rupee, we know what that did. Anything else? I think youmentioned D&A as well, was there anything with D&A, no, that’s actuallyout of that line. Okay.

The Rupee wasn’t that. It was the Rupee a little bit,actually the Rupee and the bonuses, those are the two.

I’d like to turn the call back over to management forclosing remarks. Francisco D’Souza: Thank you very much, everyone again for joining us on thecall today. In conclusion I just would like to say that we’re pleased with ourstrong financial performance during the third quarter. Moving forward, wecontinue to closely manage the business model to generate long-term value forour shareholders while investing in further differentiating Cognizant in the eyesour customers. We’re confident that our focused investment strategy and ourability to capitalize on the most strategic opportunity for future growth willcontinue to translate into strong financial and operating results. We lookforward to talking to you again next quarter. Thank you.