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Good afternoon and wish you a happy new year. I'm Salil Parekh, the Chief Executive Officer of Infosys. I'm joined here by my colleagues, Pravin, our Chief Operating Officer; and Ranga, our Chief Financial Officer.It is a privilege for me to have this opportunity to lead Infosys. I'd like to thank Nandan and the entire board for having put their trust in me. I've been in the technology industry for several years, and I've always admired and respected what Infosys has stood for. In my first few days in this role, I've had the chance to meet with and interact with several employees here at Infosys. I have been hugely energized by them. There's a huge sense of pride, of responsibility and really a commitment to all the values of Infosys that each employee carries with them. In fact, there is even a warmth that I have found that has really been there in the welcome that each employee has put forward for me. The passion of each employee is what reflects in all the work that we do for our clients. And with respect to clients, as I've reached out to them, they've come back to me with a demonstration and endorsement of how Infosys has built a partnership with them over all these years. The messages I've got back from clients show a real delight for working with Infosys and for all the work that we do for them.As we look in the market, there are exciting new opportunities that exist today in the IT services market and with our clients. Each of our clients are facing a digital disruption that their sector is involved in, that their business is involved in and many of their competitors are driving. That creates a tremendous opportunity for us to partake in all of that digital disruption for the benefit of our clients.At Infosys, we have a strong foundation for our business. We have the trust of 1,100 clients, 200,000 passionate employees. We work across a broad range of sectors and service lines. We have a business that's growing and with high operating margins. We generate exceptional cash flow, and we have a strong balance sheet. All of that builds a strong foundation for our business.Building on the strategy refresh that Nandan initiated, I have structured a review that looks into 4 dimensions. These are the new market opportunities, our client relationships, the people dimension and our service offering portfolio that's constantly being rejuvenated. These are the 4 critical elements of our business as we look forward. Over the next 3 months, I'm meeting with several of our clients, several of our employees, several of our partners, working with our leadership team and the board to test the assumptions and the approach and build then a comprehensive view along those 4 critical elements. In April, I plan to conclude this exercise and lay out the strategic priorities for us going forward.With a strong set of building blocks and renewed energy and attention to the digital changes in the marketplace, we have an opportunity to build a stronger Infosys in the years to come. I look forward to working with the entire team here at Infosys, all of our clients and our partners to partake in that journey and be part of the success going forward.Thank you, and now I'll ask Pravin and then Ranga to comment on the Q3 results.
Thank you, Salil, and happy new year. We had a very good quarter across multiple dimensions. Our revenues grew 1% sequentially on reported basis and 0.8% on constant currency. Margins remained stable at 24.3%. Revenues from new software and services increased 11.6% as compared to 11% in the previous quarter. It's a 6.8% sequential quarter-on-quarter growth. Our revenues from digital services gross 25%, our share of revenues from digital services. Our utilization continues to be at an all-time high. Our client metrics are looking very solid. We added about 79 new clients this quarter. We have seen improvement in client numbers across multiple markets. We had 8 large deal wins, $779 million PCV. So pipeline is very healthy. Our attrition has come down to -- from very high levels to about 15.8% this quarter.So net-net, a very good performance across all dimensions, considering what is typically a very soft quarter.
Thanks, Salil and Pravin. A very happy new year to all of you. This quarter's performance of the company was resilient on multiple dimensions, whether it is revenue, profitability, cash generation, new services growth, attrition and multiple dimensions.Coming to the operating margins, they were -- they improved sequentially from 24.2% to 24.3%. This was on the back of a broad-based improvement in operating -- several operational efficiency parameters like utilization, we've touched 84.9%, which is an all-time high. The on-site mix improved to 29%, which is an 11-quarter low. Then we had reduction in the subcontractor expenses and so on.Our cash generation was record. If you look at the first 9 months of this year, while the revenues grew 6.5%, the free cash flow grew 23%. Again, this quarter had certain significant developments. As you know, we entered into an Advanced Pricing Agreement with the United States Revenue Service. Apart from resulting in the reversal of providence of $225 million, it also enhances the predictability of our future tax liabilities.Next, and last but not the least, we concluded one of the largest share buyback programs in the country with INR 13,000 crores of share buyback. And as you know, this is in line with the commitment made by the company in its capital allocation policy that was announced in April 2017.The other important point that I would like to highlight is, this quarter, for the first time, our per capita revenue grossed $53,000 per person, which is, as a result of productivity improvements, if you look at the first 9 months of the year, while the headcount increased by 1%, the revenues grew by 6.5%.So with that, we will open the floor for questions.
Chandra, Sekar from Ingenium. First of all, welcome and look forward to meeting you and interacting with you going forward. Just want to start by asking you about the overall commentary. I know it's been a few days since you joined Infosys. You also mentioned, in your opening remarks, that you will continue to review and lay out a new strategy by April. But based on everything that you see from a global perspective, from an environment demand perspective, what are the immediate challenges that you see for the company? And what brief have you been given by Nandan Nilekani even though you cannot give us something on strategy immediately? And challenges with respect to senior management attrition, we've seen a President leaving this quarter. So what will you do to ensure that senior management attrition is contained because that was an issue we saw in the last couple of years? Ranga, a couple of questions for you on pricing. You've seen yet another quarter where pricings improves. So has the environment around pricing stabilized? And is there more scope to really take up utilization because again, at 84-point-odd percent, is there no more headroom to improve utilization? Pravin, just an overview of where you see sectors as well as geographies because a lot of people are saying that digital has reached a maturity cycle. So perhaps, Indian companies stand to gain in the next couple of years, it won't just be Accenture.
Let me start off. Thank you Chandra, for the welcome. In terms of what the immediate priorities are, as I laid out, my first priority is really to connect with our people and connect with our clients. And build, together with them, what we think is a road map for the future ahead, and that's what we want to lay out in this April time frame. In terms of what Nandan has asked me to do, he's told me to get on with it and get the job done. It's quite simple. You know him. He's very straightforward. In terms of the President leaving, let me ask Pravin to comment on it. It was for his personal reasons that Rajesh has decided to leave.
I think this is something that is not new, Rajesh had indicated the -- his desire a few months back and it so happened from a timing perspective he was able to find something which was suiting his preferences at this time. So I don't think we should read anything more than the fact that he had some personal reasons and he had to leave.
How about the challenges [indiscernible]?
I think the environment has a tremendous set of opportunities today where there's growth in the new areas. If you look at areas of data analytics, IOT, cloud, security, digital customer experience, AI, machine learning, there are several elements of growth. The challenge for the environment is to make sure that the business is positioned in those growth areas. From an Infosys perspective, again, I need to spend time with our clients and our employees and then start to build our road map and come back with a set of strategic priorities.
Coming to pricing that you asked, Chandra, quarter-to-quarter then the volatility but a better indicator is really how has the pricing moved over the 9-month period as compared to the 9-month of previous year. If you look at that, in reported currency terms, the price realization has improved by 0.8%. In constant currency, it is flat. But the important point to note is that the last 2 years, FY '16 and '17, there was a pricing decline in constant currency terms of 1.5%, 1% to 1.5%. But this year, first time, it has been flat which is a good indicator in terms of stability. Yes, on utilization, you're right. We have touched 84.9%. And of course, that is a very high level. And our -- if you look at the beginning of the year, we gave the operating margin guidance of 23% to 25%, and we have said that the rupee and our investments in U.S. talent model is the reason, 23% to 25%. If you look at the first 9 months, we are 24.2%, pretty much at the midpoint. So I think while the utilization lever has helped us, but from now on, the headway is quite short there. And of course, it reveals the delivery team had done a fantastic job breaking the peaks every quarter. So we have to look at the other levers. For example, on-site mix is one, which we had talked earlier. It used to be at 30.1% and then last quarter, it came down, this quarter '18, it has come down to 29%. That is something that we are focusing on. Most importantly, if we look at the first 9 months of this year, the on-site employee cost as a percentage of revenue has also come down. It is primarily on account of managing our fixed price project profitability, roll mix and many other factors. But you're right. I think the headway -- rather the runway that we have for utilization is quite muted.
Coming to the sectors, this quarter, in quarter 3, our performance in financial services has been muted, primarily, 3 reasons. One is we have higher-than-expected furloughs. We had some budget cuts in a couple of our large plants. And thirdly, some of the plantations or some of the deals that we won in the last few quarters, the ramp up was mixed on this lower side. But we are -- we remain very confident about this sector, and we believe that the calendar year '18 will be much better than calendar year '17 for the financial services. Our positioning in this is very strong. I talked about the 8 large deals and all of it, nearly 5 deals have from the financial services. So we remain very optimistic about this sector. Insurance, we had a very strong performance in the insurance, constant currency basis, we are sequentially to grow about close to 8%. '18 does add up to several quarters, 3.2% growth on a constant-currency basis, retail and CPG. While this sector really see challenges in retail and CPG, but we do expect that there are a lot of opportunities, particularly in the transformation areas and even our differentiation and client base, we believe that we have a good opportunity to grow in retail and CPG going forward. Manufacturing has been a bit muted this quarter, again, because they typically have a much larger impact from a furlough perspective. We expect some of the growth to come back in the coming quarters. Our -- consistent with we had seen in the last few quarters, growth in ECS has been pretty solid, both on the energy and utilities deal in this quarter, we have seen more than 5% constant currency growth. We continue to see good traction there. When you had good growth on the telecom side, we expect the growth to be a little bit volatile going forward. Growth in energy has started picking up, given the stability in oil prices and so on. So net-net, I think it has been a fairly broad-based growth, and we do expect some of this screening to come back in the coming year. And from a geography perspective, North America was marginally lower than the company from a growth perspective 0.7% on constant currency growth but primarily impacted by higher furlough. Europe continues to be very strong. We've had close to 5% constant currency growth in Europe. And across these sectors, we see a lot more opportunities and pipeline in Europe as compared to North America. So overall, I think it's been, I mean, this quarter has -- we have had a fair amount of consistent performance across sectors, and we do expect in the coming quarters, some of the spend to come back.
I'm Sajeet Manghat from BloombergQuint. Salil, you spoke about your review and 4 pillars of review we should be looking at, new market, client operations, people and certainly in the service portfolio. Can you elaborate a bit on all this 4? What exactly will you be looking at when you review all these 4 pillars? And from the operations point of view, if you look at your earnings this quarter, you had a $225 million tax reversal, which came in. Aside of that, you had a $31 million of other income, which was interest on the taxes, which came in. So if you look at the earnings, excluding all these 2, the earnings or profitability was much lower than Street expectation there. So if you can comment on that part of it. From a revenue point of view, how do you see revenues going into Q4? Are you confident enough that you will be able to meet the guidance of 5.5% to 6.5% in terms of constant currency? Banking and retail vertical, you said there are some -- there is some slow growth coming in there. What I saw in your numbers was that Europe grew good, but North America was a little muted. How much of banking was the reason there? And if that was a thing, how is banking as a character segment for Europe and U.S. working, both are working on opposite direction it seems from the numbers, which has come in. Then finally APA, I just wanted to check with you, there is some more money, which will be coming into you as part of the reversal. Over how many quarters will it come in?
Thanks. The question on the 4 pillars, I think there was a strategic refresh that was initiated by Nandan, so my intention is to really dig into it myself and confirm it. These pillars are traditional pillars around which our business is built and the market opportunity to understand where the market is, client relationships to build upon how our client activity is and how to leverage that to produce more work in the new areas from our clients. The people dimension is the most critical because we have to be very clear on how employee interactions are, how their re-skilling is and how our leadership development is. And the final dimension on the portfolio, the service offering is, again, if you look at how we rejuvenate that service offering, vis-Ă -vis the market opportunities and the client needs are. Those are the dimensions that we look at. They're already being looked at. It's more a question of making me dig into it deeper with the strategy refresh that Nandan had launched. I'm taking the time to get some feedback from our clients, our employees and our partners and build it with the leadership team. So that's the thinking around that. On the earnings, I'll request Ranga to answer that from the one-off versus the non-one-off.
Sure. Thanks, Salil. When if you look at the profitability of the company, let's look at the operating margin, right? It improved sequentially. It improved to 24.3%. Coming back to the net profit, the question that you had, yes the APA resulted in the reversal of $225 million and the other income that you talked about. If you eliminate both the effect, if you look at the EPS growth or the 9 months over 9 months, EPS grew by 7%, after normalizing for these. Quarter-to-quarter, yes, sequentially dropped, but that is primarily on account of this time we had a payout of $2 million on the other income and the interest income but they were minor detail. But overall if you look at the 9-month over 9-month, which is the sequential growth sometimes is very volatile because of these pluses and minuses. And more reliable and more relevant is to look at what 9 months to over 9 months, how it has moved. Their retail's growth has been 7%, whereas the revenue growth has been 6.5%. So it is ahead.
[indiscernible]
I think we have retained our guidance to 5.5% to 6.5% in constant currency. And if we look at the first 9 months of the year in terms of constant currency, we have grown at 5.6%. So I think our focus is now to -- on the execution of Q4 as Salil and Pravin said. So we have retained our guidance.
And then on the banking, as I mentioned earlier, in this quarter, it was muted primarily, as I highlighted, 3 reasons, higher-than-expected furlough impact, but they can't sync up the accounts, and slower ramp-up of some of the deals that we have run in the previous quarter. From a Europe versus North America perspective, we see much better traction in Europe than North America. But our expectation is, we will see, at least in this sector, we will see our spend coming back in the coming year, quarter and coming year. And we expect calendar year '18 to be better than calendar year '17 for this sector.
[indiscernible]
Together, for this, we expect spend to come back at least on the discretionary side, we expect spend to come back even in the Americas for the banking sector in the coming year. And on the retail front, we have had a good quarter after several quarters. We are hopeful that the momentum and the trend will continue. But this sector, by nature, is very volatile so it remains to be seen, but we have had, I mean, for this quarter, we had a good one. So we are hopeful that, that momentum will continue.
[indiscernible]
I mean, it's -- see, for us, from a Europe perspective, I mean, you have to go back to look at these 3 and sometimes it's also a portfolio mix, right? So it really depends on that. I don't think it's -- I mean, the application is different from a geography perspective. It's a combination of the portfolio that you have and where you are in your own credit.
[indiscernible] from CNBC-TV. Salil, congratulations. Good to see you at Infosys. My first question to you, you have talked about the 4 pillars, and I'm sure we get the specifics. I'm not going to ask you about that but I want to understand how critical will digital investments be? In my earlier interaction with you, you have spoken about the importance of consulting while you're looking at driving growth across the board. How critical will that be and scaling of these areas will be as you go ahead? Pravin made a very important point that BFS -- for BFS, 2018 will be better than 2017. Can we assume then that a lot of the pressures that was there, based on the macro environment, Salil, can you assume then that professional IT industry has seen in the year 2017 will be done and 2018 will start in terms of the growth driver that we were expecting? So that's Salil. I hope you remember that. Ranga, as far as the guidance is concerned, you said that you have retained it. Will Q4 be better than Q3? And if it will, will you be able to come in at the higher level? Will you be able to beat the guidance? The other point I wanted to understand is the impact of the U.S. tax reform. Have you started, of course, it's just been a few days, but when are you expecting to start seeing some kind of a pickup as far as Q3 spending is concerned and that, thereby impacting your numbers? Pravin, as far as the kind of levers that you have in the India growth, the fact is that -- I agree that India has a smaller number but it has declined substantially, ROW has declined substantially. Will that continue to remain a volatile factor over the next couple of quarters? And also, I just wanted to get your perspective on what levers you have to be able to -- I agree utilization is at a substantial high, but what are the other levers that you have to be able to expand this? And Ranga, if you can just add to that point on those margin levers that have right now?
Let me start with the digital and consulting point. From the way we're looking at our business today in terms of the market, clearly, there's a huge shift in the market for that activity, for digital and also for consulting because the buyers are not just the CIOs anymore. There are a lot of business buyers. And with consulting, it gives you a tremendous advantage that you have linkage and access to those buyers. We have a strong business within consulting, a large business, and we have also nice footprint on digital. So those would clearly be elements that go into this refresh that we're looking at.
And the other point on demand environment [indiscernible].
Which one?
Still 1%.
At this stage, firstly, we want to get through our Q4, which is a critical quarter for us. As we come to the close of the Q4, we'll have made more clear plans for the next fiscal and that will be a better time to address that.
Yes. You had a point on the guidance. We have retained our guidance in constant currency terms from 5.5% to 6.5%. If you look at the first 9 months of this year as compared to the first 9 months of last year, our growth in constant currency has been 5.6%. So as I said earlier, our focus is to -- on executing Q4 as Salil just now pointed out, and we're focusing on that. The second point was on the margin levers. As you know, we had indicated the band of 23% to 25% for the year. If you look at the first 9 months, we're at 24.2%, pretty much at the midpoint. And the multiple levers that we had talked about earlier was on, how do we manage the on-site employee costs through productivity, the fixed price project, the role issues. Then we also talked about the reduction in the on-site mix earlier. If you look at on-site mix, it has come down from 29.8% the same quarter last year to 29%. Last quarter, also it had come down. That is something that we are closely watching. Second one is the AFP projects, what are some of the lean aspects that we can look into. Coming to utilization, which is kind of 84.9%, it has gone up 3 full percentage points, it was 81.9% last year, same time and there is limited head runway from here. So on-site mix, focusing on the productivity and the lean pieces in the on-site role ratios and the on-site fixed price projects. And if we look at the other piece this quarter, the subcontractor expenses as a percentage of revenue is below 6%. It has come down this quarter. And there, looking at all these aspects, and we have retained our -- the operating margin guidance of 23% to 25%.
[indiscernible]
Well, I think we are focusing on -- our relentless focus will continue but some levers are already -- the runway is limited, but we had to look at what other levers that are at our disposal. But we are reiterating our guidance for the year at 23% to 25%.
Just to add onto the efficiency side, I think, well traditionally, we're maximized a great extent. We still have opportunities around automation and lean, and so on, so that's an effort -- that's a continuous effort and we'll continue to work on that. And some of our units still are not performing to our expectation, consulting is one. And then we have actively now re-purposed some of our earlier project side with our new thinking, so some of those things also are expected to pick up over the next 3, 4 quarters. And if you look at it, our revenue from new services and -- which are faster growing and that will also probably help us in improving our -- bringing in much more revenues at a much higher price points, and so on. So there's a combination of factors, which will probably help us in managing our economics as well as helping us in investing in business because with all the disruptions happening, we need to also invest back in business and people as well. And coming to the -- in the question on India and rest of the world, I think on India, we are very selective. It's a very small part of the business. I don't think you should read any meaning into it. We are very careful in which products to go after. Rest of the world is not a secular trend. It's just the one point phenomenon so we are not really concerned about it.
Pravin, if you could just add to that, you had expressed last time that there were also contracts [indiscernible].
In...
[indiscernible] outlined last time that there was some contract specification that had [indiscernible] for a challenge last quarter. Is that still there or not?
No. I probably don't have any clearance.
I'm Manisha [indiscernible] from [indiscernible] Salil, [Foreign Language].
So to answer your first question, in terms of what is the evolution of the U.S. visa situation. At this stage, there is no new news that I have to share in the sense of changes. There's always an environment where we have declared in the past that we want to scale up our U.S. workforce. We have made some clear statements, which we are focusing on and there's a need to work on that and build that up. But outside of that, there is no new comment on the visa situation in terms of the news flow.
Just to add to Salil, I mean, we are committed to recruiting about 10,000 people over the next couple of years. In U.S., locals, startups, there is going on. We have already identified 2 locations for our technology and innovation hubs, one in Indianapolis, another in North Carolina. We have strategic partnerships with [indiscernible] School of Design, with Purdue University and so on. So that whatever plan we have on the U.S. talent to mitigate the visa issues, well, the plan is going on well. And from a budget perspective, in today's world, I think people are willing to do the budgeting, but today it doesn't have the same meaning as it historically used to happen. Given the volatility, we constantly see a lot of projects getting pushed out, new projects coming on board and every quarter, people actually take a look at existing projects and take different decisions. But having said that, from a sector perspective, we do expect to see a lot more discretionary spend in financial services, in retail and CPG and in manufacturing, whereas in some of the sectors like high-tech and if you look at telecom, perhaps there'll be a lot more focus on optimizing on the nondiscretionary spend, so it's a mixed bag.
Yes, just coming to your on-site mix question. It used to be close to 30%. Over the last couple of quarters, it has come down to 29%, which is a positive thing for us from a margin standpoint. Each service line has a different context. For example, typically the consulting has a slightly higher on-site mix as compared to the regular IT services. For example, others like testing or infrastructure management have a much lower possibility to bring down -- higher possibility to bring down the on-site mix. So we are looking at the portfolio level, how to address this, but overall, the trajectory in the last 3, 4 quarters has been positive for us on the on-site mix.
[Foreign Language]
We have already said in the next 2 years, we'll be recruiting over 10,000 locals there.
Thank you. Thank you, gentlemen.