Infosys Ltd

NYSE:INFY

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Infosys Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you, and over to you, sir.

[Sandeep Mahindroo]

Hello, everyone, and welcome to the Infosys earnings call relating to Q4 and FY '20 earnings release. I'm Sandeep from the Investor Relations team in Bangalore. Joining us today on this call are CEO and MD Mr. Salil Parekh; COO Mr. Pravin Rao; CFO, Mr. Nilanjan Roy; along with other members of senior management team. We'll start the call with some remarks on the performance of the company by Salil, Pravin and Nilanjan before opening up the call for questions. And we note that everything which we say which refer 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 and 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 Salil.

[Salil Satish Parekh, MD, CEO & Director]

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 reach $9 billion of large deals for the full year. Our earnings per share grew at 8.3% 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% operating margin with $1.6 billion of large deals, some of which in the last 2 weeks of the quarter. We closed the year with an extremely strong cash position of $3.6 billion and no debt on our balance sheet. As the last 2 to 3 weeks of March saw, the impact of COVID was significant. We have 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. Pravin 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. Nilanjan 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 to frontline health workers. In the U.S., we 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 to financial year '21. 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, we 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 re-pivoting 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 our clients successful; our unparalleled delivery capabilities; our $3.6 billion in cash on a debt-free balance sheet, which gives us ample liquidity. And with that, I told my comments and hand it over to you, Pravin. Over to you.

[U. B. Pravin Rao, COO & Whole]

Thank you, Salil. 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 '19. Utilization dropped sequentially during the quarter to 83.5% partly due to COVID-19-related supply constraints. Large deal wins were healthy at $1.65 billion 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 & Services and one deal in financial services, Communication, Manufacturing and Hi Tech. Region-wise, 7 were from Americas and 5 were from Europe. Encouragingly, many of the large deal closures happened in the last 2 weeks of the quarter despite the COVID-19 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 reviews, which close in December. This is part of our focus on ensuring a high-performance culture. Going into FY '20, we finished the year with a strong 9.8% constant currency growth in revenues despite the impact of COVID-19 that slowed down in March. Volume growth for the year was 8%. Five of our business segments, Communication, Energy, Utility, Resources & Services, Manufacturing, Hi tech and Life Sciences, recorded double-digit growth in FY '20. 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 billion in FY '20, 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. Clients 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. Insurers may also see increased pressure due to higher claims. Post COVID-19, 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, et cetera. 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 players, the media and entertainment industry is seeing pressure due to stoppage of outdoor events and general peak in advertising spend. Spend on 5G rollout and B2B use cases of 5G may also get delayed as the industry players reassess capital allocation priorities. Energy, Utility, Resources & Services vertical reported strong growth in the last year with many large deal wins 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 wars. However, COVID-19 spread, exacerbated by supply chain disruptions, has resulted in widespread closure of production facilities across the globe. Stoppage 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 '20 from 33.8% in quarter 4 FY '19. 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 offerings, 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 that 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 BPM services had a standout year and crossed $1 billion in revenues at industry-leading margins. Additionally, revenue per employee improved, thanks to automation, and we featured in multiple external awards. With that, I will hand over to Nilanjan.

[Nilanjan Roy, Chief Financial Officer]

[Audio Gap]Our FY '20 earnings call. I'll start with a first overview of Q4 and a recap of FY '20 before moving to how we are preparing to secure our future in these challenging times. Quarter 4 operating margins were 21.1% compared to 21.9% in quarter 3, a drop of 80 basis points. These included a 90 basis points margin headwind due to COVID-led utilization and RPP decline. We had an additional headwind of 40 basis points this quarter for H1 visas in the U.S. for the financial year '21 due to a change in the USTR flat fee approval process, where the lot fee were declared in the March quarter. In addition, we took a hit of receivables provision account of ECL and higher fees for the quarter of 50 basis points. This was offset by the rupee depreciation of 2.1% against the dollar during the quarter, which helped margins by another 50 basis points; another 50 basis points of lower travel costs and other cost optimization measures. Our DSO dropped by 4 days to 69. Our sustained focus on collection was demonstrating in OCF of $684 million for the quarter, which is a year-on-year increase of 17.3%. Free cash flow grew 27% year-on-year to $593 million. Let me talk about full year FY '20. Our operating margins were at 21.3% for FY '20, within our guidance band of 21% to 23%. The 1.5% drop in operating margins over FY '19 were largely due to compensation increases, higher visa costs and lower realization, partly offset by our cost optimization measures, where we exceeded our $150 million target for the year. For FY '20, operating cash flow grew 15.4% to $2.611 billion. Free cash grew 12.1% and crossed $2 billion for the first time. Driven by our robust cash generation and healthy cash balance of $3.6 billion, 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 '20, which is the same as FY '19. Yield on cash balance was 7.06% in Q4 compared to 7.7% in Q3. Looking ahead, our yield in FY '21 will be impacted further due to the declining interest rate regime in India. These are unprecedented times, and we're 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 nondiscretionary spend. 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 and operations. We will need to be extremely nimble yet measured in our decision-making process to counter the uncertainty which the current situations presents. We will balance short-term margin pressures with long-term sustainability by making no-regret moves. Our third big focus will be accelerated cost takeouts. While we have made enormous progress on this during the last 2 years, this is even more critical for FY '21. 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 definite increases on promotion, delaying the hiring process and time lines, complete freeze 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're 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.

[Operator]

[Operator Instructions] The first question is from the line of Ankur Rudra from JP Morgan.

[Ankur Rudra, Research Analyst]

The first question is, Salil, if you -- I understand the need to drop guidance at 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, the sort of rhythm you were in before either in terms of the revenue profitability levels last seen in December or March or how the shape of seasonality of revenues might turn out this year?

[Salil Satish Parekh, MD, CEO & Director]

Ankur, I'm Salil. 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'll 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. Pravin shared specific detail on them. There'll probably be some second order effect and 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 in discussions that many of us within the leadership have had with clients, with the strong interest in consolidation with strong partners like us, with the strong interest in looking at cloud movements and making changes in virtualization, with the strong interest in looking at could there be some captives that could become more available, and all of these areas are very solid. 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 in that.

[Ankur Rudra, Research Analyst]

In the near term, do you think there will be any changes to your capital return policy just to keep the powder dry for acquisitions or other movements you may have to make?

[Nilanjan Roy, Chief Financial Officer]

Well, I'll take that. So I think our capital allocation is quite clear, linked to our free cash flow. 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.

[Operator]

The next question is from the line of Keith Bachman from Bank of Montreal.

[Keith Frances Bachman, MD & Senior Research Analyst]

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.

[Nilanjan Roy, Chief Financial Officer]

Yes. So the impact of COVID was largely about 30-odd million, 32 million. 2/3 of that was supply led, which was as we were ramping up our enablement of work from home, and about 1/3 of that was demand led partly from clients who have started now giving us approval to work from home and partly because of some ramp down. So that was the situation for the last quarter. So that pretty much had improved the quarter's margins as well, like I mentioned, 90-odd basis points. As we're looking into this quarter 4 initially, we are making -- trying to improve the work enablement. The figure of 93% of cost for the on-site is much, much higher and slightly lower more offshore. So that's number one. So our first strategy 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 ahead of how much of revenues, et cetera, is going to happen, we already made -- started making the margin moves, like I said, which we call no-regrets moves. We've talked about the -- moving out of the hiring season, the freeze on the promotions, the freeze on the salary hikes. So those are the things we've already started off to. There will be pressure. As you know, the entire industry, in effect, around the world did not gear up or probably stop with people hired, et cetera, as we closed the quarter for a different set of volume. There will be natural attrition during the quarter as well, which will help us in the first. There was an impact. Of course, it's 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-wise in terms of automation, in terms of the pyramid, 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 there are a number of levers which we will look at. Discretionary expenditure that completely stopped now whether it's discretionary CapEx. So a number of levers, both on a margin, preservation of cash, making sure that our liquidity cycles continue to run. Early innings in terms of any stress on any clients in terms of default. But like I said, if quarter 4 is anything to go by, we had a very strong collection quarter.

[Keith Frances Bachman, MD & Senior Research Analyst]

Okay. My follow-up question then is I want 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 first quarter 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 a 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?

[Salil Satish Parekh, MD, CEO & Director]

This is Salil. Just 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 some 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 is 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're very focused on ensuring, as Nilanjan shared, a very aggressive cost line. We're very focused in this new, what Pravin shared, we have real operational capability to do a delivery one. And we have extreme strength that we think will emerge with all the consolidation in the medium term.

[Operator]

The next question is from the line of Diviya Nagarajan from UBS.

[Diviya Nagarajan, Executive Director and Research Analyst]

Just a follow-up to the previous couple of questions. If you were to kind of look at the 2018 time frame, 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 than last time because you'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?

[Salil Satish Parekh, MD, CEO & Director]

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, their segments, there'll be different levels of cost stress among them. Equally, as you mentioned and Pravin shared earlier, we have some real strengths that we see, for example, in telco, in Hi 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 workforce transformation. And we think those will be farther in. So it's a bit of a mix in terms of the -- sort of overall view therefore on pricing.

[Diviya Nagarajan, Executive Director and Research Analyst]

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?

[Salil Satish Parekh, MD, CEO & Director]

I'll start off, and Pravin will provide more color. The -- I think what we are extremely proud of is this very rapid transition that we've made. We believe that with 93%, that's a really strong number. And as Nilajan was sharing earlier, that's moving north every day. There's tremendous amount of infrastructure, security, bandwidth capability that we had already put in place and that we further enhanced to make all of this happen. In terms of how we see the future evolving, let me pass it on to Pravin, who can share with you more color on what we see in the coming weeks and months.

[U. B. Pravin Rao, COO & Whole]

Yes. Thanks, Salil. As Salil 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 a 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 make sure that we invest in infrastructure, we invest in security controls, 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 the future, some of the things around ODC, share gap ODC, then constraints around that could potentially be there at least. So it may take some time, but some of those things will disappear. So it will result in probably having much more virtual ODCs rather than any physical ODCs. So an ability to work remotely also means that it doesn't matter whether you're in India, whether you are in different part of the world. So it's possible to leverage people, capability wherever expected. And it's also probably possible to start looking at [indiscernible] 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 stuff. 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. Well, 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 is 20% office, 80% home or whatever, I think that will only take time to tell. And it -- 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 are seeing today.

[Diviya Nagarajan, Executive Director and Research Analyst]

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 by then what you might lose in terms of utilization and pricing.

[Nilanjan Roy, Chief Financial Officer]

Yes. So it's a bit premature. I think many of these, like I said, will be cost avoidance as well. There'll be some cost optimizing per se, which is about, like I said, automation pyramid, et cetera. So it will be difficult to give a number where we'll end up on utilization. That will also depend on how the 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 actions. So I can leave it at that.

[Operator]

The next question is from the line of Edward Caso from Wells Fargo.

[Edward Stephen Caso, Managing Director and Senior Analyst]

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 has sort of shifted over to business continuity to help move their workforce, remote, et cetera? So has there been a change in that? And is that sort of coming to an end?

[Salil Satish Parekh, MD, CEO & Director]

This is Salil. I'm not sure I fully follow 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'll see some slowing in the near term if that's what you're asking about. Is there something else? Please let me know. I didn't follow the question.

[Edward Stephen Caso, Managing Director and Senior Analyst]

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?

[Salil Satish Parekh, MD, CEO & Director]

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 won't say survival. It's 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. A little bit discretionary, but it definitely 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 -- more of a 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 in near and the medium term.

[Edward Stephen Caso, Managing Director and Senior Analyst]

My other question is around H1B and L1 visas. It appears the Trump administration is sort of taking advantage of the current environment with 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 in other firms lose their jobs in the U.S., can you pick those people up to help you meet sort of onshore demand?

[Salil Satish Parekh, MD, CEO & Director]

On the H1B...

[U. B. Pravin Rao, COO & Whole]

Salil, wait...

[Salil Satish Parekh, MD, CEO & Director]

Again -- yes, go ahead.

[U. B. Pravin Rao, COO & Whole]

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 they're 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. Our -- these hubs in U.S., different parts of U.S., 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's availability of talent, great talent, we'll be always open to pick them up.

[Operator]

The next question is from the line of Sudheer Guntupalli from Motilal Oswal Financial Services.

[Sudheer Guntupalli, Research Analyst]

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 first 2 weeks of April. Probably this would 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, if there are also any discretionary spending in this.

[Salil Satish Parekh, MD, CEO & Director]

This is Salil. I think what I shared -- Pravin, you want to go ahead?

[U. B. Pravin Rao, COO & Whole]

No. I can start, and since Mohit's on the call, he can also probably add some color. I mean as I mentioned earlier, we won 12 large deals. 4 of them was in Retail, 4 of them were in Energy, Utilities, Resources & Services and 1 deal each in Financial Services, Communication, Manufacturing and Hi Tech. And total TCV of $1.65 billion. And 56% of it was net new. And again from a geography perspective, 7 were from Americas and 5 were from Europe. So as far 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 set in, we were able to close many of these deals. So from that perspective, it was very encouraging for us that we are not seeing postponement of at least some of the deals that were in the pipeline. But Mohit's on the call. He can probably provide follow-up.

[Mohit Joshi, President]

Sure. I'm here Pravin. So I think as Pravin has covered it in fairly great detail. The only thing I'll add is that we were obviously concerned that the signatures on these deals may get delayed because of the infection. But thankfully, given the relationships and given that we were 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 maybe across service lines as well. So there are cloud deals in this. There are traditional application maintenance and application development deals, infra services deals for the workflows. And moving ahead as well, obviously, we have an existing portfolio of a pipeline from last year, and we continue to push hard on this, right? The dialogues with clients are continuing and we are working to make sure that we don't lose momentum.

[Sudheer Guntupalli, Research Analyst]

Sure, sir. So you mean to say that even in the last 2 weeks, whatever deal activity happened even in the first 2 weeks of April, it's more of a broad-based kind of a deal activity and not characterized towards any one particular segment?

[Mohit Joshi, President]

That is correct. It's not one single deal, no single deal.

[Sudheer Guntupalli, Research Analyst]

Okay. Sure, sir. And secondly, our exposure to time and material contracts has been comparatively higher at around roughly 47% of our revenue as per our last reporting. Would it be that clients have to ramp down what are closed in these contracts? Are we seeing a higher trend or impact in the T&M portion of our portfolio than otherwise?

[U. B. Pravin Rao, COO & Whole]

This is Pravin. I can answer. I don't see -- I mean, it's early days. I don't see any distinction between T&M or fixed price. Obviously, clients are really looking at whether -- I mean, in these times, clients -- initially, clients are probably more worried about ensuring business continuity and safety of their own employees and so on. But in these situations, again, conserving cash is a very critical element. And they -- 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 decision will be taken on this 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&M or a fixed price on a managed services is more a commercial concern.

[Sudheer Guntupalli, Research Analyst]

Sure, sir. And my last question is regarding the on-site pyramid. As you said, you currently have around 10,000 local employees in the U.S. Even before COVID-19, we were seeing some utilization/productivity challenges over there given that you 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 your 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 part?

[U. B. Pravin Rao, COO & Whole]

Yes. This is Pravin again. So far, I think our utilization on-site has been fairly good. It's in line with what they had planned. And obviously, we had also -- strike a balance in the slightly lower utilization with building the pyramid there, and that work has 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. And we'll hire only on a need basis, and any incremental hiring will be based on -- only from a deal perspective. We also have opportunities to rotate our platform and replace them with our own people. So there are 2 levers still available where we can still try to improve 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 wait on how this situation will unfold, and we'll have to take a view particularly if the utilization drops dramatically. But we have enough levers, as I said, upon replacement, a lot of things possible to fix the utilization up.

[Operator]

The next question is from the line of Moshe Katri from Wedbush.

[Moshe Katri]

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 nondiscretionary 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 and the slowdown? That's my first question.

[Salil Satish Parekh, MD, CEO & Director]

This is Salil 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 follow to be sure. Overall, we are now heading into looking at how that plays out given the period which -- this is new. And we'll 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 also services that will be positive. Those areas, virtualization, cloud, workplace, transformation, all form 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 digital which are more project related which we think will become slower in this, if that's helpful.

[Moshe Katri]

That's helpful. And then my follow-up here. There were 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?

[Salil Satish Parekh, MD, CEO & Director]

So on the competitors at this stage, we don't see any moves. In fact, where we do see some activity is what I shared earlier around -- and the consolidation which is -- even for some larger competitors of ours which are not potentially as efficient in their 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. So we anticipate some of that to happen. But usually, those discussions are also coupled with different delivery models that Pravin 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 think some of those discussions ought to come up.

[Operator]

The next question is from the line of Nitin Padmanabhan from Investec.

[Nitin Padmanabhan, Analyst]

In the last -- post the last crisis actually, we saw -- because it started with financial services, we saw a lot of spend around M&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 will be the key areas of spend that people would go out and do once there is some sort of recovery?

[Salil Satish Parekh, MD, CEO & Director]

Sorry, you broke up a little bit, but I think you were saying M&A spend. Was that the question?

[Nitin Padmanabhan, Analyst]

No. What I was referring to was during post GFC, we actually saw a lot of spend during the recovery phase come in terms of merger and integration spend of those banks and risk and compliance-related spend. So when you visualize a recovery, this time around, which areas do you see spend really coming out in a big way?

[Salil Satish Parekh, MD, CEO & Director]

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 are 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 bigger moves on digital will absolutely come back on that pace. In addition, there will be transformation initiatives which we will see more and more of, my sense is, as and when we see that sort of recovery phase starting to come back in.

[Nitin Padmanabhan, Analyst]

Sure. And 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. At this time around, if you look at digitalizing is 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'd 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?

[Salil Satish Parekh, MD, CEO & Director]

The commoditization, more difficult for me to comment today. We have to sort of wait and see in part how the demand-supply looks at. 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.

[Operator]

The next question is from the line of Bryan Bergin from Cowen.

[Bryan C. Bergin, MD & Analyst]

I wanted to ask a clarification on the remote capability for the first quarter. Do you still have supply constraints that will limit your 1Q revenue potential? Or is it all demand driven going forward?

[Salil Satish Parekh, MD, CEO & Director]

Yes. I'll start off and Pravin will add if I miss something. We still have some supply constraints which we're working through. We have internally a target to get to essentially what we call 100% capability there. We have all of our clients in it. So -- and Pravin is going to add something, too.

[U. B. Pravin Rao, COO & Whole]

Yes. See, if you look at the remaining 7%, a very small percentage or area where clients have not given us permission to operate from, well, 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 1 percentage. Then we also have in a lockdown situation some percentage of people who have gone home who are not in our locations, and they don't have any personal assets or company assets with them. So they are also stranded. So I think only during this period of lockdown we would anticipate some kind of supply issue. 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 offices.

[Nilanjan Roy, Chief Financial Officer]

Yes. I just want to add that when you're looking at 97% -- 93%, if you go on site, most of it is nearly 100%. So on site, as you know, our billing rates, et cetera, are much, much higher. So 97% -- 93% doesn't mean that we're losing 7% of revenue due to supply.

[Bryan C. Bergin, MD & Analyst]

Okay. That's helpful. The large deal signings you've had in late March and early April 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?

[Salil Satish Parekh, MD, CEO & Director]

In fact, I'll make one comment on that, and then Pravin and Mohit can also add to it. We had one of the largest projects ramping up in actually the middle of all of this activity, late March, earlier to 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 some more color on the specific deals there, Pravin, if you have something, and then Mohit.

[U. B. Pravin Rao, COO & Whole]

So I think -- I mean, you explained -- so the challenges initially would have been only around transition and ramp-up. But in the deal which Salil mentioned, we, in fact, had rebadging, and we were able to get a significant number of plant, people on prem. So this was -- we were able to do onboarding on a remote manner. Similarly with other plants in U.S., again, we were just about to start the projects 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 a few examples like this which have 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 plans on -- to slow down on some of the ramp-up given the current situation. Mohit, anything to add?

[Bryan C. Bergin, MD & Analyst]

Okay. That's helpful.

[Mohit Joshi, President]

No. I think we're trying to ramp up where we can. And in many cases, we have seen even remote ramp-ups happen or remote transition, remote KT happen. So that is obviously a positive thing for us. Now there'll 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 location. Those might get slightly delayed. But on the whole, we are not seeing any of these programs sort of been structurally delayed because clients are now working back their commitments.

[Bryan C. Bergin, MD & Analyst]

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?

[Salil Satish Parekh, MD, CEO & Director]

I'll start with that, and many of our leadership have had that sort of discussion. We've had -- at least I've had those discussions across multiple sectors. It's not specific at this stage to a 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 growth. So it's not specific to at least any industry in the discussions I've had and our leadership we have.

[Operator]

Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you, sir.

[Sandeep Mahindroo]

We'd like to thank everyone for joining us on this call. We look forward to continuing our conversation over the course of the quarters. Thanks, and have a good day.

[Operator]

Thank you very much, members of the management. Ladies and...

[Sandeep Mahindroo]

Thank you.

[Operator]

Ladies and gentlemen, on behalf of Infosys, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.