Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr.
Sandeep Mahendru. Thank you, and over to you, sir.
Hello everyone and welcome to the Infosys earnings call relating to Q4 FY 2020 earnings release with Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh CEO, Mr. Praveen Drah AFO Mr. Nilanjan Drah along with other members of the senior management team.
We'll start the call with some remarks on the performance of the company by Salil, Praveen and Nilanjan before opening up the call for questions. Kindly note that anything which we say which refers to our outlook for the future is a forward looking statement, which must be read in conjunction with the risks that the company faces. A full statement explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'd now like to pass it on to Salal.
Thank you, Sandeep. First, apologies from us for starting this off late. Good evening and good morning to everyone on the call. I trust each of you and your loved ones are safe in these extremely different times. The financial year that just ended, ended very well for us.
It was an exceptional year. We grew at 9.8% in constant currency, delivered 21.3% operating margin, grew our digital revenue by 38% and for it for the digital revenue now in Q4 has become 42% of our overall business. We did this with $9,000,000,000 of large deals for the full year. Our earnings per share grew at 8 point 3% in dollar terms. We had in fact the highest cash collection for the quarter and for the full year in our history.
In Q4 itself, we grew our business 6.4% year on year in constant currency and delivered 21.1 percent operating margin with $1,600,000,000 of large deals, some of which in the last few weeks of the quarter. We closed the year with an extremely strong cash position of $3,600,000,000 and no debt on our balance sheet. As the last 2 to 3 weeks of March saw, the impact of COVID was significant, we had already activated our business continuity plans with an intense focus on employee safety and client service delivery. Today, we have 93% of our employees working remotely, a task that was performed with incredible efficiency and tremendous hard work by all of our teams. Praveen will share with you more color on this later in the call.
In addition to that, we have added financial security of the company and absolute focus on liquidity and cash. We have now activated a comprehensive program for cost control and reduction. Lanjan will share some preliminary highlights of this later in the call. We, of course, anticipate near term challenges in the business environment across a whole set of industries. However, we see increased interest from our clients in cloud, virtualization, workforce transformation and cost reduction programs.
Our discussions with clients indicate they would like to consolidate their work with a strong player like us with exceptional service delivery, agility to reach 93% remote working and an extremely strong balance sheet. I think those trends will hold us in good stead in the medium term. Let me spend a few minutes to share with you what we are doing outside of work, supporting our communities that we live and work in. Via our foundation, we have dedicated INR 100 crores towards relief efforts, including half of it to the Prime Minister Cares Fund in India to help enhance hospital capacity, provide treatment, ventilators, testing kits, PPEs for frontline health workers. In the U.
S, we've opened Pathfinders Online Institute, an online learning platform for teachers, school children and their families, so they can access high quality computer science education from home for free. Coming back to business, given the uncertain environment with the global pandemic and client business being marred by volatility, we do not feel it will be appropriate for us to provide guidance for this financial year. As a result, we are suspending providing guidance on revenue growth and operating margin for financial year 2021. Given our strong performance in the just concluded financial year and our strong cash position, we are pleased to announce our final dividend for the financial year at INR 9.50 per share, bringing the total dividend for the financial year to INR 17.50 per share. I'm extremely grateful to our employees for their diligence through this stressful period and proud of the work they have delivered for our clients.
While we are unsure about what lies immediately ahead, have enormous trends that we believe will help us navigate this period and emerge stronger from it. We have a sustained focus on client relevance and we are now repurposing our efforts in terms of what clients are looking for and we see good traction in that. Our ability to work with clients across the entire spectrum of their needs, including accelerating their digital journey and extreme automation for cost efficiencies. A highly skilled workforce of 240,000 people passionately working towards making a client successful, unparalleled delivery capabilities, dollars 3,600,000,000 in cash on our debt free balance sheet, which gives us ample liquidity. And with that, I'll pause my comments and hand it over to you.
Praveen, over to you.
Thank you, Saleel. Hello, everyone. Let me start by summarizing key aspects of our quarter 4 performance. Our operating parameters were steady during quarter 4. On-site offshore effort mix remained stable sequentially, but improved by 110 bps over quarter 4 2019.
Utilization dropped sequentially during the quarter to 83.5 percent, partly due to COVID-nineteen related supply constraints. Large deal wins were healthy at $1,650,000,000 for quarter 4, with the share of new deals increasing to 56%. We won 12 large deals in quarter 4, out of which 4 deals were in retail and energy, utilities, resources and services and 1 deal each in financial services, communication, manufacturing and high-tech. Region wise, 7 were from America and 5 were from Europe. Encouragingly, many of the large deal closures happened in the last 2 weeks of the quarter despite the COVID-nineteen situation.
Attrition on a stand alone basis was slightly higher at 18.2%. However, voluntary attrition reduced further to 15.1% from 15.6% last quarter. Higher involuntary attrition during quarter 4 was mainly on account of separations that occurred as a result of yearly performance revenues which closed in December. This is part of our focus on ensuring a high performance culture. Moving into FY 2020, we finished the year with a strong 9.8% constant currency growth in revenues despite the impact of COVID-nineteen ledged slowdown in March.
Volume growth for the year was 8%. 5 of our business segments, Communication, Energy Utility Resources and Services, Manufacturing, High-tech and Life Sciences recorded double digit growth in FY 2020. Similarly, both of our largest regions, North America and Europe, clocked double digit growth in constant currency. We had large deal TCV of more than $9,000,000,000 in FY 2020, which is 44% higher than in the previous year. Moving to the business segments.
We see near term weakness across the board, especially in the area of discretionary spending. Plans are focused on ensuring safety of their employees and maintaining business continuity, while at the same time conserving cash. This is bound to impact near term performance as they reprioritize and delay some projects and reduce volumes. However, we see long term opportunity as the focus on digital and core transformation gets accelerated. Financial Services segment is seeing the impact from interest rate decline across the world, which has severely compressed the net interest margin.
The banking sector is also expected to experience increase in loan losses in the near future, which will have impact on their profits. Insurance may also see increased pressure due to higher clients. Post COVID-nineteen, we expect a strong opportunity for cloud, data services and creating new digital bank capabilities. Retail segment has been hit hard, especially non grocery, apparel, lifestyle and fashion, logistics, etcetera. While on a sequential basis, we have seen positive performance in the last quarter and there was a healthy level of large deal wins from this segment.
We expect significant pressure on spend for this segment in the coming quarters. The deal pipeline is strong, but the conversion rate is expected to slow down. Large deal wins in Communications segment has led to stellar performance in the last fiscal. While we expect relatively stable performance from the telecom player, the media and entertainment industry is seeing pressure due to stoppage of outdoor events and general squeeze in advertising spend. Spend on 5 gs rollout and B2B use cases of 5 gs may also get delayed as the industry players reassess capital allocation priorities.
Energy utility resources and services vertical reported strong growth in the last year with many large deal win across geographies. However, with low energy prices and demand and supply chain issues in other sub segments, the performance is expected to be weak in the near term. Manufacturing segment recorded double digit growth in the last year despite weaknesses in automotive segment and supply chain pressure due to trade loss. However, COVID-nineteen spread, exacerbated by supply chain disruptions, has resulted in widespread closure of production facilities across the globe. Stop age and probably reduced travel in the near future will also affect the aerospace industry in terms of order book and deliveries.
Digital is growing strong with share of revenue reaching 41.9% at the end of quarter 4 FY 2020 from 33 point 8% in quarter 4 FY2019. Growth in digital revenue in the last fiscal was 37.8% on constant currency. While the global pandemic is having widely varied impacts on different industries, the demand for business reinvention around digital is universal and increasingly urgent. From building more flexible supply chain to supporting new models of employee experience to urgently enhancing e commerce offering, brands are being forced to accelerate their pace of change. Technology is essential to support that change.
Automation and efficiency is essential to fund that change and design and experience are essential to unlocking value from those changes. Clients continue to see the need for investment around digital transformation and need partners who can help them navigate the strategic and technological complexity they face. Infosys remains their critical and trusted partner now more than ever. In the last year, we have been rated as leader in 26 services related to capabilities around Digital Pentagon by industry analysts, which is a testimony to our digital capabilities. Our VPN services had a standout year and crossed $1,000,000,000 revenues at industry leading margins.
Additionally, revenue per employee improved, thanks to automation and be featured in multiple external awards. With that, I will hand over to Nilanjan. Thank
you for the MSY 2020 earnings call. I will start with a quick overview of Q4 and a recap of FY 2020 before moving to how we are preparing to secure our future in these challenging times. Quarter four operating margins were 21.1 percent compared to 21.9% in core XE, a drop of 80 basis points. These included 90 basis points margin headwind due to COVID led utilization and RTP decline. There was an additional headwind of 40 basis points this quarter for H1 visas in the U.
S. For the financial year 2021 due to the change in the USCIS lottery approval process where the lottery were declared in the March quarter. In addition, we took a hit of receivables provision account of ECL and higher CSR for the quarter of 50 basis points. This was offset by the repeat depreciation of 2.1 and Our DSO dropped by 4 days to 69. Our sustained focus on collection was demonstrating an OCF of $684,000,000 for the quarter, which is a year on year increase of 17.3%.
Free cash flow grew 27% year on year to $593,000,000 Let me talk about full year FY 2020. Our operating margins were at 21.3% for FY 2020 within our guidance band of 21% to 23%. The 1.5% drop in operating margins over FY 2019 were largely due to compensation increases, higher visa costs and lower realization, partly offset by our cost optimization measures where we exceeded our $150,000,000 target for the year. For FY 2020, operating cash flow grew 15.4 percent to $2,610,000,000 Free cash grew 12.1 percent and crossed $2,000,000,000 for the first time, Driven by a robust cash generation and healthy cash balance of 3,600,000,000 the Board has recommended a final dividend of INR 9.50 per share, which will result in a total dividend of INR 17.5 for FY 2020, which is the same as FY 2019. Yield on cash balance was 7.06% in Q4 compared to 7.7% in Q3.
Looking ahead, our yield in FY 2021 will be impacted further due to the declining interest rate regime in India. These are unprecedented times and we are taking multiple measures to ensure execution excellence of our operations. First, liquidity and cash management is a top priority. This includes rigorous focus on working capital cycles, including collections, receivables and any other block cash. Secondly, reduction in CapEx barring any committed or non discretionary expense.
A debt free balance sheet and a superior local currency credit rating of A3 from Moody's gives us an enormous advantage during these times. The second area of focus will be agility in operations. We will need to be extremely nimble, yet measured in our decision making process to counter the uncertainty which the current situation presents. We will balance short term margin pressures with long term sustainability by making no regrets move. Our 3rd big focus will be accelerated cost takeouts.
While we have made enormous progress on this during the last few years, this is even more critical for FY 2021. We have embarked on a series of steps to address near term margin pressures emanating from lower utilization due to supply and demand mismatches. These steps include, guessing salary increases on promotions, delaying the hiring process and timelines, complete fees on discretionary spending. We will also continue to look at the entire gamut of other cost levers we have as the situation evolves. Our ongoing strategic cost optimization levers around automation, pyramid rationalization, on-site offshore, subcontractors will of course continue as in the earlier years.
We are confident that our proximity to our clients and our superior talent engine will enable us to weather this storm. With that, we can open up the call for questions.
The first question is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Hi, thanks for taking my question. The first question is, Salil, if you understand the need to drop guidance this time, but based on your current visibility on demand, I know it's an exceptional year and the order book and the conversations you've had, how should we think about when you get back to normalcy in the sort of the rhythm you were in before, either in terms of the revenue profitability levels last seen in December or March or how the shape or seasonality of revenues might turn out this year? Thanks.
Hi, Alkur. I'm Sabeel. What we are seeing today is overall, there is no real clarity on when things are going to be back into a situation where we have a clear view to give a guidance. Today, we definitely see in the short term some concerns where the business environment is extremely difficult. However, when we start to see this business environment starting to stabilize and we have visibility, we will be back with what we see in terms of guidance.
We don't have a clear answer today whether this is for X quarters or Y quarters. Our sense is the first order effect, I think, is visible all around in the sectors. And Praveen shared specific detail on them. There'll probably be some second order effect and it also depends overall on how the medical situation evolves. So we are not commenting on the time line here.
What we are very clear is and these are already discussions that many of us within the leadership have had with clients, There's a strong interest in consolidation with strong partners like us. There's a strong interest in looking at cloud movements and making changes in virtualization. There's a strong interest in looking at could there be some captives that could become more available. And all of those areas, we're exploring. So in the medium term, given our strength in terms of delivery, our financial strength and the overall interest that clients have in consolidation, I feel positive.
But in the near term, we see some weakness going ahead.
Thanks for that, Salil. In the near term, do you think there will be any changes to your capital return policy just to keep the Cloudera driver acquisitions or other movements you may have to make?
So I'll take that. So I think our capital allocation is quite clear. It's linked to our free cash flows. So I think, like I said, we have enough of headroom and we'll have to see if any assets which come up which interest us during this period, but we are open to everything at this stage.
All right. Thank you, Investment.
Let's take the next question.
Yes, Mr. Ritter. Thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.
Hi, thank you very much. I wanted to ask about any boundaries or any signposts that you could give us on your margins. So even if we stay away from revenue comments, is there any kind of minimums or floors you think the business could sustain even in the face of what is obviously incremental revenue pressure? And or you mentioned that there was 90 basis points of COVID impact in the current quarter. Is there any incremental COVID impact that we should be thinking about in the June quarter?
But just some broader comments on just margin trends or boundaries or things to consider as we're looking at our models.
Yes. So the impact of COVID was largely about 30 odd 1000000, 32,000,000 dollars 2 third of that was supply led, which was as we were ramping up our enablement of work from home. And about a third of that was demand led, partly from clients who have started now giving us a proof to work from home and partly because of some ramp down. So that was the equation for the last quarter. So that pretty much fell into the quarter margin as well, like I mentioned, 90 odd basis points.
As we're looking into this quarter, of course, initially, we are making trying to improve the work enablement. The figure of 93% of costs for the on-site is much, much higher and slightly lower than offshore. That's number 1 for us. First priority is to continue to improve our supply side of the equation. So we don't leave any money on the table.
In terms of the Q1 near term outlook without looking at how much of revenues, etcetera, are going to happen, We've already made started making the margin moves, like I said, which we call no regret moves. We've talked about the whole moving out of the hiring season, the fees on the promotions, the fees on the salary hikes. So those are the things we've already started off to. There will be pressure. As you know that the entire industry in effect around the world did not gear up or sudden stop.
So the people hired, etcetera, as we close the quarter for a different set of volume. There will be natural attrition during the quarter as well, which will help us for the first. Not an impact, of course, is going to be on the utilization because of the supply demand mismatch, but that will iron itself out as the quarters progress. And we will continue, like I said, on our margin optimization strategically was in terms of automation, in terms of the permit, the on-site pyramid, which is we are only the ones who are capable of doing that because of our full stack DCs in the U. S.
Context. Our subcon costs, how do we rotate them. So these are a number of levers which we will look at, discretionary expenditure, that's completely stopped now, whether it's discretionary CapEx. So a number of levers both from a margin, preservation of cash, making sure that our liquidity cycles continue to roll, early runnings in terms of any step on any clients in terms of default. But like I said, quarter 4 is anything to go by.
We had a very strong collection quarter.
Okay. My follow-up question then is, I wanted to ask something that TCS mentioned last week in that the comment was that the financial crisis was at least from a growth perspective a relevant benchmark. In other words, the Q1 of the financial crisis, revenues dropped plus or minus 10%. And I just wanted to know is that an industry perspective that you would endorse? And what I mean by that is, just the sequential drop for industry related revenues as investors think about the June quarter is the financial crisis when that first struck, is that a relevant benchmark?
Or do you think this is different from the financial crisis? Thanks very much.
Hi, this is Salil. Let me try to address that point. I think our sense is this situation is somewhat different from what transpired in the financial crisis from a few years ago, in that this is across all sectors and all geographies. Equally, there's an incredible financial stimulus that at least the U. S.
Have put together and which there is strong indication that several European countries or certainly the European region will join in. So those are some distinctions that we see between the actual crisis from an economic perspective. With respect to how that impacts Q1, it's therefore not a straightforward comparison. I think what it's clear is there will be obviously some impact in Q1. And then we'll have to see how this plays out because there are counterbalancing forces.
If the fiscal stimulus force becomes more dominant versus anything on the medical side. There's one set of outcomes. If the medical side has sort of a second wave, there's another set of outcomes. And that's part of the reason why we don't have a sense of what is the sort of quarterly progression here. We are very focused on ensuring as The London Show have a very aggressive cost line.
We're very focused in this view. We're preparing share. We have real operational capability to do delivery well. And we have extreme strength that we think will emerge with all the consolidation in the medium term.
Okay. Thanks very much. That's it for me.
Thank you. The next question is from the line of Devyana Gajan from UBS. Please go ahead.
Hi, thanks for taking my question. Just a follow-up to the previous couple of questions. If you were to kind of look at the 2018 timeframe, and I do get your point that it's not really apples to apples here. Typically in downturns, we do see a fair amount of pricing pressure. Could you kind of give us your sense on how this could be the same or different to last time because we're clearly in a very strong technology cycle.
What I'm trying to understand is that could that offset some of the typical pricing pressures that we see in spending environments that are stressed?
Let me start with that and Nilanjan might have other points to add to it as well. On pricing, there's obviously depending on the industry of our clients in their segment, there'll be different levels of cost stress among them. Equally, as you mentioned and Praveen shared earlier, we have some real trends that we see, for example, in telco, in high-tech. We see some strength in Life Sciences, in the sort of consumer, staple, grocery. So there are pockets of strength.
And there, we see some positive activity as well. And some of the service offerings where we see a real shift from a client buying perspective, we see strength there as well. And we believe we've actually got a good set of investments there, whether it's cloud or virtualization or workflow transformation. And we think those will be positive. So it's a bit of a mix in terms of the sort of overall view therefore on pricing.
Got that. And it's impressive that you and the entire industry has kind of gotten to this work from home situation in a very short period of time. How do you see this model evolving for you in the medium to long term? And how does that kind of tie into some of the longer term cost savings that you could get from a model like this?
I'll start off and Praveen will provide more color. I think what we are extremely proud of is this very rapid transition that we've made. We believe with 93%, that's a really strong number. And as Bilanjan was sharing earlier, that's moving off every day. There's tremendous amount of infrastructure, security, bandwidth capability that we have already put in place and that we further enhance to make all of this happen.
In terms of how we see the future evolving, let me pass it on to Praveen. He can share with you more color on what we see in the coming weeks and months.
Thanks, Saleel. As Saleel mentioned, in a very short span of time, we were able to get about 93% of our people globally work from home in a remote fashion. So from that perspective, I think we have demonstrated resilience and agility in doing it, and the feedback from the clients have been extremely positive. So from a technology perspective, I think now it's proven that we can do this. Obviously, we have to make sure that we invest in infrastructure, we invest in security, control, we invest in productivity tools, collaboration tools and other things.
And one of the positive things is, I mean, if you are able to demonstrate good security and good productivity, I'm sure many clients will be much more open to doing this. So that means that in future, some of the things around ODCs, air gap ODCs and constraints around that could potentially disappear at least. So it may take some time, but some of those things could disappear. So it will result in probably having much more virtual OTCs rather than any physical ODCs. So and ability to work remotely also means that it doesn't matter whether you are in India, whether you are in different part of the world.
So it's possible to leverage people capability wherever it exists. And it's also probably possible to start looking C2 assets and things like that in a way. So I think fundamentally, this new normal will probably many I mean, the ideas I'm talking are nothing new, but this crisis has really enabled some of the acceleration or increasing adoption of some of those stocks. So from that perspective, obviously, there are opportunities for cost takeout you may have. You don't have to invest as much in real estate.
Your travel costs may come down. But you have to invest a lot more in technology, a lot more in security and other things. So net net, I think it's a very positive thing that has happened. But whether eventually the new normal means 20% office, 80% home or whatever, I think that will only take time to tell. And again, it can vary from risk perceptions of the clients, risk perceptions of the industry.
But definitely, it will probably be much different than what we are seeing today.
Sorry, just as a follow-up, could you quantify the cost savings that you will get in the at least in the immediate next quarter from some savings in travel facilities, subcontracting and other savings you might get because of the reduced activity and contrast that within what you might lose in terms of utilization and pricing?
Yes. So these are pretty mature. I think many of these, like I said, will be cost avoidance as well. There will be some cost optimizing per se, which is about, like I said, automation, pyramid, etcetera. So it will be difficult to give a number of where we'll end up on utilization.
That will also depend on how demand works out. So but like I said, we are continuing to make sure that we are taking decisions early, making the non regret decisions and of course monitoring how the overall demand situation and then take appropriate action. So I think I can leave it at that.
Thanks taking my questions. All the best and I'll come back if there's time for follow-up. Thank you.
Thank you. The next question is from the line of Edward Caso from Wells Fargo. Please go ahead.
Hi, thank you. Good evening. I was curious if you could differentiate your clients' discretionary spending. How much of it is work that what you would have been done you would have been doing, say, a month or so ago? And how much of it is sort of shifted over to business continuity, help move their workforce remote, etcetera.
So has there been a change in that? And is that sort of coming to an end?
Hi. This is Salil. I'm not sure I fully followed the question. I think I'll try and answer it. But if there's something more, please ask a follow-up.
The question was what was the discretionary a month ago and how is it today? That's the question. We don't normally split up our discretionary project work from our overall revenue. However, of course, some of the discretionary work is where we see some slowing in the near term, if that's what you're asking about. But is there something else?
Just I didn't follow the follow-up question.
I guess I was trying to understand if the makeup of discretionary spend has shifted to more survival work by your clients and therefore as they settle into this new normal, whether we'll have sort of a drop off after that. So will you get a sort of a continuum of discretionary spending in the short run and then have it fall off after
that? Okay. I think for us, not we've not quantified how that might play out. We certainly see there is some amount of that sort of work. I would say survival is much more focused on what could be benefits that can be achieved as they want to do, let's say, more virtualization or more move to the cloud.
I don't know if it's discretionary, but it certainly seems in this new environment, what would be much more strategic for those clients. And I don't have a sense whether that's going to stay or fall off. At this stage, we do see there's different model for recession playbook and different sets of discussions that I shared earlier that we're having with our clients. And some of that gives us confidence here in the medium term.
My other question is around H-1B and L-1 visas. It appears the Trump administration is sort of taking advantage of the current environment and further tightening the ability to get visas and move people around. So are you seeing that both from an impact on your operations, but also maybe a positive in the sense that as people, other H1Bs and other firms lose their jobs in the U. S, can you pick those people up to help you meet sort of onshore demand? Thank you.
On
the H1, Salil, wait a minute, again.
Yes, go ahead. Yes, Salil, I can take that. We have I mean, post COVID, we have not really seen any changes. So whatever changes we have seen in H1, L1, the new lottery system, all those things happened much earlier. It's I don't see any changes in this regime.
Obviously, I mean, even today, as we speak, even for some of our own employees, given that all travel is cut off, some people have been out of status, and we are talking to the U. S. Administration to make sure that they get some relief and so on. But in the long run, obviously, it's a question of I mean, if there is a lot of people are letting go and there'll be probably a lot more availability of talent. But whether we will be able to take advantage of it really depends on the nature of demand, right?
So it will be a good function of demand. But from our own perspective, in the last couple of years, our approach has been to derisk ourselves from H1, L1 And so we have invested, as you're aware, a lot in terms of our U. S. Talent strategy. In the last couple of years, we have recruited more than 10,000 U.
S. Nationals. We have created 6 hubs. These hubs in U. S, different parts of the years, they are not only delivery hubs, but they also serve as innovation hubs.
So we are in some sense, we have invested a lot. And today, a lot of our people working in U. S. Are local nationals. So from that perspective, we are probably less dependent on what happens on the H1, L1 thing.
But obviously, I mean, if there is a demand and there is availability of talent, right, talent will be always open till it came out.
Thank you.
Thank you. The next question is from the line of Sudhir Guntupalli from Motilal Oswal Financial Services. Please go ahead.
Yes. Good evening, gentlemen. Thanks for taking my questions. You highlighted in
the press briefing that you were winning deals as late as in
the last 2 weeks of March and even in the 1st 2 weeks of April. Probably this will be a closer proxy to the expected deal activity over the near term. In that context, it will be very helpful for us if you can give us some more characteristics of these deals, which were won over the last 30 days, which geographies are these, which verticals, which service areas, is there also any discretionary spending in this?
This is Salih. I think, why don't I share it? Salil, you want to go ahead?
I can start, and if Mohit is on the call, you can also probably add some color. I mean, as I mentioned earlier, we won 12 lot deals. 4 of them was in retail, 4 of them were in Energy, Equity, Resources and Services and one being in Financial Services, Communication, Manufacturing and High-tech. And total TCV was $1,650,000,000 and 56% of it was net new. And again, from a geography perspective, 7 were from Americas and 5 were from Europe.
So as you can see, these deals have been across several industries and geographies as well. And the fact is, as we mentioned, in the last 2 to 3 weeks of the quarter, even after COVID has taken, we were able to close many of these deals. So from that perspective, it was very encouraging for us that we have not seen postponement of at least some of the deals that were in the pipeline. So Mohit, if on the call, you can probably provide the color.
I'm here, Praveen. So I think Praveen has solidified in any great detail. The only thing I'll add is that we were obviously concerned that the signature on these deals may get delayed because of the infection. But thankfully, given the relationships and given that we are fairly advanced in the deal, we've been able to push ahead and close. It's a mix of deals across segments and across geographies and really across service lines as well.
So there are cloud deals in this, there are traditional application maintenance and application development deals, there are intra services deals for the workspace. And moving ahead as well, obviously, we have an existing portfolio of a pipeline for last year and we continue to push right? The dialogues with the client are continuing, and we are working to make sure that we don't lose momentum. Sure, sir. So you
mean to say that even in the last 2 weeks, whatever deal activity happened or even in
the 1st 2 weeks of April, it's more of a broad based kind of a deal activity and not characterized towards any one particular segment.
That is correct. It's not one single deal. Okay.
It's multiple days. Sure, sir. And secondly, our exposure to time and material contracts has been comparatively higher at around roughly 47 percent of our revenue as per our last reporting. And the feasibility that clients have to ramp down the workloads in these contracts, are we seeing a higher trend or impact in the P and N portion of our portfolio than otherwise?
This is Raveed. I can answer. I don't see I mean, it's early days. I don't see any distinction between CNM or fixed price. Obviously, clients are really looking at whether I mean, in these times, initially, clients are probably more worried about ensuring business continuity, safety of their own employees and so on.
But in these situations, again, conserving cash is a very critical element. And there are obviously, they'll start looking at projects. They'll start looking at each project, the business case or the projects, whether in the current situation, whether it's priority or not. I think the division will be taken on that basis. Every project will be evaluated for a business case and in the new context.
And that is a decision they will probably take. I don't think I mean T and M or a fixed price on a managed services is more a commercial
concept. Sure,
sir. And my last question is regarding the On-site Pyramid. As you said, we currently have around 10,000 local employees in U. S. Even before COVID-nineteen, we were seeing some utilizationproductivity challenges over there, given that we have recently hired these guys and they were going through the ramp up curve.
Now with the demand expected to take a sharp hit, what is our thought process around managing the utilization of these employees? Some damage control measures which we could have possibly taken in the case of H1Bs may not be very realistic right now. So what are your thoughts on how this could be impacting our margins as in this particular
cost element? Yes. This is Sabine again. So far, I think our utilization on-site has been fairly good. It's in line with what we had planned.
And obviously, we had also tried to balance slightly lower utilization with building a pyramid there, and that, that works out well for us. But in the new context, we have to see, I mean, in the light of demand and other things. Obviously, we will go slow on hiring in this coming year in all geographies. We'll hire only on any basis, and any incremental hiring will be based on only from a skill perspective. We also have opportunities to rotate out subcon and replace them with our own people.
So there are 2 levers still available where we can still try to improve the utilization. Again, I mean, we have to evaluate all options to make sure that our costs are under control. We still have not taken a call on this, and we have to still I mean, we have to write on how this situation will unfold, and we'll have to take a view particularly if the utilization drops down dramatically. But we have enough levers, as I said, subcont replacement, a lot of things possible to fix utilization.
Sure. Thanks, gentlemen. All the best and stay safe.
Thank you. The next question is from the line of Moshe Katri from Wedbush. Please go ahead.
Hey, thanks for taking my question. Is there any way to kind of differentiate in terms of the services that are getting impacted here? And obviously, there's a lot of talk about discretionary that's impacted and non discretionary that's not impacted. Can you give us color some color in terms
of what's included in what
you call discretionary? And is that also including what we call digital in terms of the impact in the slowdown? That's my first question. Thanks.
Hi, Moshe, it's Salim here. I think in terms of services, some of the points you sort of discussed earlier, I mean, I'll elaborate on those. I think we definitely see some of our services as it relates to areas around cloud and virtualization actually gaining traction. We will see some other services, which relate to some more project level work, which is discretionary, which will probably restore. Overall, we are now getting into looking at how that plays out given the speed in which this is new.
And we start to develop a sense from all of that into what becomes the focus for Q1 and going ahead. My sense, again, as I shared earlier, is we definitely see the conversations many of us are having with our clients that relate to some benefits accruing to us from consolidation, some benefits accruing to us from cloud, some benefits accruing to us from workplace transformation. And those are the sources of services that will be positive. Those areas, virtualization, cloud, let's say transformation, all form a part of digital. That's one of the elements of digital that we see some traction.
Everything that helps clients to move more and more of their work into the remote working approach. There are other elements of this tool which potentially which are more project related, which we think will become slower in this kind of quarter.
That's helpful. And then my follow-up here. There are some questions on pricing. So to frame it the right way, are you seeing any sort of effort or efforts on behalf of clients to try to restructure contracts at this point? Maybe it's too early for us to get there, but is there any concern that this is where we're going to get to?
And then are you seeing any potential competitors employing any sort of disruptive pricing out there that could impact the industry competitively? Thanks.
So on the competitors, at this stage, we don't see any rules. In fact, where we do see some activity is what I shared earlier around vendor consolidation, which is even for some larger competitors of ours, which are not potentially as efficient in that delivery model as we are, We see some advantages accruing to us there. In terms of pricing, again, in the sectors where clients are or the sectors are most impacted, we I'm sure we'll hear about some of these discussions. Do we anticipate some of that to happen? But usually those discussions are also coupled with different delivery models that Praveen was sharing earlier and also consequent consolidation discussions that come about.
So at this stage, we don't have a quantified view on that, but my sense is we'll see some of those discussions now come
up. Thanks for the color.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yes. Hi. Thanks for taking my question. In the last post the last crisis, actually, we saw because it started with Financial Services, we saw a lot of spends around M and A integration and, let's say, risk and compliance and so on and so forth. If you just look out and visualize now, what do you think would be the key areas of spend that people would go out and do once there is some sort of recovery?
Sorry, you broke up a little bit, but I think you were saying M and A spend. Was that the question?
No. What I was referring to was during post GFC, we actually saw a lot of spends during the recovery phase come in terms of merger and integration spends of those banks and risk and compliance related spends. So when you visualize recovery this time around, which areas do you see spend really coming out in a big way?
My sense is even through this period, especially as things come back to a different new normal, the spend on digital will continue to accelerate. There's different components of it, which are active. As I shared earlier, we see some of that already going through this and especially the focus around the broader cloud discussion. But the big figure moves on digital will absolutely come back at that stage. In addition, there will be transformation initiatives, which we will see more and more of my senses as and when we see that sort of recovery phase starting to come back in.
Sure. And as a follow-up to that, so if you see the recovery phase last time, we saw a lot of these services that were built over the previous 10 years sort of go through a commoditization. This time around, if you look at digitalizing, it's now a reasonable part of portfolios of most vendors. Do you envision some sort of a commoditization there in some form? Or do you think that because there will be far more transformation projects and so on and so forth, you'll actually see a shift to larger vendors from smaller vendors?
How would you visualize the changes this time around?
The monetization, more, this is just for me to comment today. We have to sort of wait and see in part how the demand supply looks at that. In terms of movement, it's very clear already to us that there's a movement from the smaller or the less capable vendors to larger or the more capable vendors. And we definitely see with our strength, we believe we'll benefit from that.
Sure. Thank you so much and all the best.
Thank you.
The next question is from the line of Brian Gorgen from Cowen. Please go ahead.
Hi, thank you. I wanted to ask a clarification on the remote capability for the Q1. Do you still have supply constraints that will limit your 1Q revenue potential? Or is it all demand driven going forward?
I'll start off and Pradeep will add if I miss something. We still have some supply constraints, which we're working through. We have internally the target to get to essentially what we call 100% capability there. We have all of our clients' initiatives. Praveen, it's going to add some insights.
Yes. See, if you look at the remaining 7%, a very small percentage are areas where plants have not given us permission to operate from work from home. It's a very small percentage. So in the context of a lockdown or an extended lockdown, then we will continue to be challenged from a supply perspective because we'll not be able to get people to come to office and work. That's one percentage.
Then we also have in a lockdown situation some percentage of people who have gone home or not in our locations, and they don't have any personal assets or company assets with them. So they're also stranded. So I think only during this period of lockdown, we would anticipate some kind of supply issues. But once the lockdown gets relaxed, we should be able to get people back to office and equip them either with assets or wherever clients have not given permission, they should be able to come and work in office first.
Yes. I just want to add that when you're looking at 97% 93%, if you know on-site, most of it is nearly 100%. So on-site, as you know, our billing rates, etcetera, are much, much higher. So 93% doesn't mean that we're losing 7% of revenue due to supply. For
the new deals that you closed, are those for the new deals that you closed, are those projects ramping up and starting on a normal time frame or are any of those delayed?
In fact, I'll make one comment on that and then firstly then Mohan can also add to it. We had one of our largest projects ramping up in literally the middle of all of this activity late March, early April, the European project. And we saw how through all of this remote working, we could manage to ramp that up extremely successfully and on schedule. So that's one of the positives that we've seen. But for more color on the specific deals there, Praveen, if you want to have something and then move it.
I think, I mean, you explained, so the challenges initially would have been only around transition and ramp up. But in the deal that Salil mentioned, we, in fact, had rebadging, and we were able to get a significant number of client people on to Infosys. So we were able to do onboarding on a remote manner. Similarly, with other clients in U. S, again, we were just about to start the project when this COVID situation and lockdown happened, but we were able to use tools and other things and start working on a remote transition plan.
So we had a couple of we had a few days where we had to rework our plans on things. So there are few examples like this, which has given us confidence and comfort that even in situations like this, using technology and collaboration tools, we should be able to do the transition. So from that perspective, I mean, going forward, I don't see too much of a challenge in terms of ramp up unless clients want to slow down on some of the ramp ups during the current situation. Mohit, anything to add? Okay.
No, I think we're trying to ramp up as we can. In many cases, we have seen even the remote ramp ups happen or remote transition, remote KT happen. So that is obviously a positive thing for us. Now there will be instances where remote transition is not possible in the situation of a complete lockdown and you might need some percentage of people to be at the client's location. Those might get slightly delayed.
But on the whole, we are not seeing any of these programs sort of being structurally delayed because clients are now walking back their commitments.
Okay. If I could squeeze one more in here. You mentioned vendor consolidation conversations that you're having with clients. In what industries is that occurring?
I'll start with that, and many of our leaderships have had that sort of discussion. We've had that and we have had those discussions across multiple sectors, so it's not specific at this stage to this sector. There have been areas where it's related more to where clients see some small vendors potentially having challenges as they went to remote working, challenges on financial stability in the medium to long term. In other cases, we've seen this with large clients where they want to make sure that the benefits of automation are more sort of streamlined into their work. So it's not specific to at least any industry in the discussions I have had and our leadership has had.
Okay. Thank you.
Thank you. Ladies and gentlemen, this was the last question today.
I now hand the conference over to the management for their closing comments. Over to you, sir.
We'd like to thank everyone for joining us on this call. Look forward to continuing our conversation over the course of this quarter. Thanks and have a good day.
Thank you very much members of the management. Ladies and gentlemen, on behalf of Infosys, that concludes this conference call.
Thank you for joining us and you may now disconnect your line.