Infosys Limited (NYSE: INFY) Q4 2020 Earnings Call Transcript

Infosys Limited  (INFY) Q4 2020 earnings call dated Apr. 20, 2020

Corporate Participants:

Sandeep Mahindroo — Financial Controller and Head of Investor Relations

Salil Parekh — Chief Executive Officer and Managing Director

Pravin Rao — Chief Operating Officer

Nilanjan Roy — Chief Financial Officer

Mohit Joshi — Head, Banking, Financial Services & Insurance, Healthcare and Life Sciences Head, Infosys Brazil

Analysts:

Ankur Rudra — JPMorgan — Analyst

Keith Bachman — BMO Capital Markets — Analyst

Diviya Nagarajan — UBS — Analyst

Edward Caso — Wells Fargo Securities — Analyst

Sudheer Guntupalli — Motilal Oswal Financial Services — Analyst

Moshe Katri — Wedbush — Analyst

Nitin Padmanabhan — Investec — Analyst

Bryan Bergin — Cowen & Company — Analyst

Presentation:

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 — Financial Controller and Head of Investor Relations

Hello, everyone, and welcome to the Infosys earnings call relating to Q4 and FY ’20 earnings release. This is Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh; COO Mr. Pravin Rao; CFO Mr. Nilanjan Roy 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, Pravin and Nilanjan before opening up the call for questions. Kindly note that anything which we say with respect 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 Parekh — Chief Executive Officer and Managing 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 this with $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 two 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 two to three 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. 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 an 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 INR100 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 front line 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 ’21.

Given our strong performance in the just concluded financial year and our strong cash position, we are pleased to announce a final dividend for the financial year at INR9.50 per share, bringing the total dividend for this financial year to INR17.50 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 the extreme automation for cost efficiencies. A highly skilled workforce of 240,000 people passionately working towards making our client’s successful, our unparalleled delivery capabilities, a $3.6 billion in cash on our debt-free balance sheet which gives us ample liquidity.

With that, I’ll pause my comments and hand it over to you — Pravin, over to you.

Pravin Rao — Chief Operating Officer

Thank you, Salil. Hello, everyone. Let me start by summarizing key aspects of our Q4 quarter four performance. Our operating parameters were steady during quarter four. On-site offshore effort mix remained stable sequentially, but improved by 110 bps over quarter four ’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 four with the share of new deals increasing to 56%.

We won 12 large deals in quarter four, out of which four deals were in retail and energy utilities resources and services, and one deal each in financial services, communication, manufacturing and high-tech. Region wise, seven were from America and five were from Europe.

Encouragingly, many of the large deal closures happened in the last two weeks of the quarter, despite the COVID-19 situation. Attrition on a standalone 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 four was mainly on account of separations that occur as a result of yearly performance reviews which closed in December. This is part of our focus on ensuring a high performance culture.

Moving into FY ’20, we finished the year with a strong 9.8% constant currency growth in revenues, despite the impact of COVID-19 led slowdown in March. Volume growth for the year was 8%. Five of our business segments; communication, energy utility resources & services, manufacturing, high-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 have 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 re-prioritize and delay some projects and reduced 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 have 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 feel increased pressure due to higher clients. 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 etc. 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 the segment in the coming quarters. The deal pipeline is strong, but the conversion rate is expected to slow down.

Large deal wins in communication 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 squeeze in advertising spend. Spend on 5G rollout and B2B use cases of 5G may also get delayed as the industry player 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, their 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 four FY ’20 from 33.8% in quarter four 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 grew, thanks to automation and the feature in multiple external awards.

With that, I will hand over to Nilanjan.

Nilanjan Roy — Chief Financial Officer

[Technical Issues] FY ’20 earnings call. I will start with a quick overview of Q4 and a recap of FY ’20 before moving to how we are preparing to secure our future in these challenging time. Quarter four operating margins were 21.1% compared to 21.9% in quarter three, a drop of 80 basis points.

These included a 90 basis points margin headwinds due to COVID led utilization and RPP decline. There was an additional headwind of 40 basis points this quarter for H1 Visas in the U.S. for the financial year ’21 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 off receivable provision in account of ECL and higher CSR 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 and another 50 basis points of lower travel cost and other cost optimization measures.

Our DSO dropped by four days to 69. Our sustained focus on collections were demonstrating an 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 up 21.3% for FY ’20, within our guidance band of 21% to 23%. The 1.5% drop in operating margins for FY ’19 were largely due to compensation increases, higher visa costs and lower realizations, 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 INR9.50 per share, which will result in a total dividend of INR17.50 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 blocked cash.

Secondly, reduction in capex, barring any committed or non-discretionary 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 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 regret moves.

Our third big focus will be accelerated cost take-outs. While we have made enormous progress on this during the last few 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 deferring salary increases and promotions, delaying the hiring process and timelines, 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 are confident that our proximity to our clients are our superior talent engine will enable us to weather this storm.

With that, we can open up the call for questions.

Questions and Answers:

Operator

Thank you very much sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ankur Rudra from JPMorgan. Please go ahead.

Ankur Rudra — JPMorgan — Analyst

Hi, thanks for taking my question. The first question is, Salil if you — I 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 and the sort of the rhythm you were in before, either in terms of the revenue or profitability levels last seen in December or March or how the shape of seasonality of revenues might turn out this year? Thanks.

Salil Parekh — Chief Executive Officer and Managing Director

Hi 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 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 Pravin shared specific detail on them. There will probably be some second order effect and it also depends overall on how the medical situation evolves. So we are not commenting on the timeline here.

What we are very clear is, and these are already discussions that many of us within the leadership have had with clients, there is a strong interest in consolidation with strong partners like us. There is a strong interest in looking at cloud move — movements and making changes in virtualization. There is 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 interests that clients have in consolidation, I feel positive. But in the near term, we see some weaknesses going ahead.

Ankur Rudra — JPMorgan — Analyst

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 powder dry for acquisitions or the movements you may have to make?

Salil Parekh — Chief Executive Officer and Managing Director

So, I think our capital allocation is quite clear. It’s 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 interests us during this period, but we are open to everything at this stage.

Ankur Rudra — JPMorgan — Analyst

All right, thank you and best of luck.

Salil Parekh — Chief Executive Officer and Managing Director

Let’s take the next question?

Operator

Yeah, Mr. Rudra, thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.

Keith Bachman — BMO Capital Markets — Analyst

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?

Pravin Rao — Chief Operating Officer

Yeah. So, the impact of COVID was largely about $30-million-odd, $32 million; two-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 approvals 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 [Phonetic] margins 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 cost for the onsite is much, much higher and slightly lower in the offshore. So that’s number one. So our first priority is to continue to improve our supply side of the equation, so we don’t leave any money on the table.

And in terms of the Q1 near-term outlook, without looking at how much of revenues etc. 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 freeze on the promotions, the freeze on the salary hikes. So those are the things we’ve already started off too.

There will be pressure, as you know that the entire industry in effect around the world did not gear up for a sudden stop, so there were people hired etc., as we close the quarter for different set of volume, there will be natural attrition during the quarter as well, which will help us. But the first, near-term 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 pyramid, the on-site pyramid which is we are only the ones who are capable of doing that because of our full stacked DCs in the — in the U.S. context. Our sub-con cost, 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 is discretionary capex. So a number of levers both from a margin, preservation of cash, making sure that our liquidity cycles continue to roll, early warnings in terms of any stress on any client’s in terms of default. But like I said, in quarter four is very big to go by. We had a very strong collection quarter.

Keith Bachman — BMO Capital Markets — Analyst

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 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? Thanks very much.

Salil Parekh — Chief Executive Officer and Managing Director

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 is 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 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 as one set of outcomes. If the medical side has sort of a second wave, there is 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 Nilanjan shared, a very aggressive cost-line. We’re very focused in this view that Pravin shared, we have real operational capabilities to do it delivery-wise and we have extreme strength that we think will emerge with all of the consolidation in the medium term.

Keith Bachman — BMO Capital Markets — Analyst

Okay, thanks very much. That’s it from me.

Operator

Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.

Diviya Nagarajan — UBS — Analyst

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 2008-2010 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 they’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 Parekh — Chief Executive Officer and Managing Director

Let me start with that and Nilanjan might have other points to add to it as well. On pricing, there is obviously depending on the industry of our clients, their segments, there will be different levels of cost stress among them. Equally as you mentioned and Pravin 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, groceries. 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 a positive. So it’s a bit of a mix in terms of the sort of overall view therefore on pricing.

Diviya Nagarajan — UBS — Analyst

Got that. And it’s impressive that you and the entire industry is 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 — that you could get from a model like this?

Salil Parekh — Chief Executive Officer and Managing Director

I’ll start off and Pravin 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 Nilanjan was sharing earlier, that’s moving north every day. There is tremendous amount of infrastructure, security, bandwidth capability that we had already put in place and that’ll be further enhanced to make all of this happen. In terms of how we see the future evolving, let me pass it on to Pravin, he can share with you more color on what we see in the coming weeks and months.

Pravin Rao — Chief Operating Officer

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 resilience and agility in doing it and the feedback from the clients have been extremely positive. But 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 thing 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 ODC, share gap ODC and constraints around that could potentially disappear at least. So it may take some time, but somehow those things would disappear. So it will result in probably having much more virtual ODCs rather than any physical ODCs.

So and ability to work remotely also means that, it doesn’t matter whether you are an 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 at [Indecipherable] and things like that in a way. So I think fundamentally, this new normal will probably many idea — I mean, the ideas I’m talking are nothing new, but this crisis has really enabled some of the acceleration or increase in adoption of some of thoughts.

So, from that perspective, obviously there are opportunities for cost take-outs. You may have — you don’t have to invest as much in real estate. So travel costs may come down, but you have to invest lost more in technology, lot more in security and other things. So net-net, I think it’s a very positive thing that has happened, but whether eventually that new normal means 20% office, 80% go home or whatever.

I think that will only take time to tell. And it — again, it can vary from risk perceptions I’ve declared, risk assumptions of the industry, but definitely it will probably be much different than what we have seen today.

Diviya Nagarajan — UBS — 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 with you might lose in terms of utilization and pricing?

Pravin Rao — Chief Operating Officer

Yeah, so those are premature. 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 etc. So it will be difficult to give a number 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 decision early, making the non-regret decisions and of course monitoring how the overall demand situation and then take appropriate actions. So I think I can leave it at that.

Diviya Nagarajan — UBS — Analyst

Thanks for taking the questions. All the best and I’ll come back if there is time of follow-up. Thank you.

Operator

Thank you. The next question is from the line of Edward Caso from Wells Fargo. Please go ahead.

Edward Caso — Wells Fargo Securities — Analyst

Hi, thank you, good evening. I was curious if you could differentiate your clients’ discretionary spending. How much of it is work that you would have been done — you would have been doing, say a month or so ago. And then how much of it has sort of shifted over to business continuity to help move their workforce remote etc. So has there been a change in that and is that sort of coming to an end?

Salil Parekh — Chief Executive Officer and Managing Director

Hi Ed, this is Salil. I’m not sure I fully followed the question I think. I’ll try and answer it, but if there is something more, please ask a follow-up. The question was, what was the discretionary a month ago and how is it today? If 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. But if there is something else, because certainly I didn’t follow the question right.

Edward Caso — Wells Fargo Securities — 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 where they will 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 Parekh — Chief Executive Officer and Managing 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 wouldn’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.

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 see a fall off at this stage. We do see there is 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, again, in the medium term.

Edward Caso — Wells Fargo Securities — Analyst

My other question is around H1B and L1 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 at 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.

Salil Parekh — Chief Executive Officer and Managing Director

On the H1 [Speech Overlap] Yeah, go ahead Pravin, Please.

Pravin Rao — Chief Operating Officer

Yeah, Salil, I can take that. Okay, we have — I mean post COVID we have not really seen any changes. So, whatever changes we have seen in H1, L1, a new lottery system, all those things happen much earlier. I don’t see any changes in this as regime. Obviously, I mean even today as we speak, even from 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 lot of people are letting go and there will be probably 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 pure function of demand.

But from our own perspective, in the last couple of years, our approach has been to de-risk ourselves from H1, L1 and so we have invested, as you are aware, lot in terms of our U.S. talent strategy. In the last couple of, we have to have recruited more than 10,000 U.S. national. We have created six hubs and this hubs are in U.S. — different parts of U.S. They are not only delivery hubs, but they also serve as innovation hubs.

So we are the — in some sense, we have invested a lot and today a lot of our people working in the U.S. are local nations. 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 that there is availability of talent, right talent, we’ll be always open to pick them up.

Edward Caso — Wells Fargo Securities — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Sudheer Guntupalli from Motilal Oswal Financial Services. Please go ahead.

Sudheer Guntupalli — Motilal Oswal Financial Services — Analyst

Yeah, 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 two weeks of March and even in the first two 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 this? Which verticals? Which service areas? Is there also any discretionary spending in this?

Salil Parekh — Chief Executive Officer and Managing Director

This is Salil. I think what I share is — Pravin, you want to go ahead?

Pravin Rao — Chief Operating Officer

No, I can start and if Mohit is on the call, he can also probably add some color. I mean, as I mentioned earlier, we won 12 large deals; four of them was in retail, four of them were in energy utility resources and services. And one deal each in financial services, communication, manufacturing and high-tech and total TCV was $1.65 billion and 56% of it was net new.

And again, from a geography perspective, seven were from Americas and five 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 two to three 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. So, if Mohit, is on the call, he can provide more color.

Mohit Joshi — Head, Banking, Financial Services & Insurance, Healthcare and Life Sciences Head, Infosys Brazil

Yeah Pravin. So I think Pravin has followed it in fairly 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 way, we have 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, infra services deals for the workspace. And moving ahead as well, obviously we have an existing portfolio for a pipeline for large deals and we continue to push hard on this, right. The dialog with the client are continuing, and we are working to make sure that we don’t lose momentum.

Sudheer Guntupalli — Motilal Oswal Financial Services — Analyst

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

Salil Parekh — Chief Executive Officer and Managing Director

That is correct. It’s not one single deal, multiple deals.

Sudheer Guntupalli — Motilal Oswal Financial Services — Analyst

Okay, sure. 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. Assuming [Phonetic] the feasibility that clients have to ramp down the workloads in these contracts, are we seeing a higher trend or impact in the T&M portion of our portfolio than otherwise?

Salil Parekh — Chief Executive Officer and Managing Director

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, safety of their own employees and so on. But in these situations again, conserving cash is a very critical element and 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 that decision will be taken on that basis. Every project will be evaluated for a business case and in the new context and that is the decision they will probably take. I don’t think — I mean T&M or a fixed price or a managed services is more a commercial concern.

Sudheer Guntupalli — Motilal Oswal Financial Services — Analyst

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-19, we were seeing some utilization/productivity challenges over there, given that we have recently hired these guys and they were going to 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 H-1B’s may not be very realistic right now. So what are your thoughts on how this could be impacting our margins as in this particular, you know cost element?

Pravin Rao — Chief Operating Officer

Yes, this is Pravin again. See, 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 strike a balance into a slightly lower utilization with building a pyramid there, and that had worked 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 will hire only on a need basis and any incremental hiring will be based on — only from a skill perspective.

We also have opportunities to rotate our sub-con and replace them with our own people. So there are a few 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 will have to take a view of, particularly if the utilization drops down dramatically. But we have enough levers, as I said, sub-con replacement, lot of things possible to keep the utilization up.

Sudheer Guntupalli — Motilal Oswal Financial Services — Analyst

Sure. Thanks, gentlemen. All the best and stay safe.

Operator

Thank you. The next question is from the line of Moshe Katri from Wedbush. Please go ahead.

Moshe Katri — Wedbush — Analyst

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 some color in terms of what’s included and 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. Thanks.

Salil Parekh — Chief Executive Officer and Managing Director

Hi Moshe, it’s Salil here. I think in terms of services, some of the points we sort of discussed earlier and I’ll elaborate on those. I think you definitely see some of our services is related to areas around cloud and virtualization actually is gaining traction. We will see some other services, which relate to some more project level work, which is discretionary, which will probably be slower.

Overall, we’re now getting into looking at how that plays out, given the speed at which this has moved. And we’ll star to develop a sense from all of that into what becomes the focus with Q1 and going ahead. But 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 consolidations, some benefits accruing to us from cloud, some benefits accruing to us from workspace transformation.

And those are sorts of services that will be positive. Those areas, virtualization, cloud, workspace transformation all form a part of digital. That’s one of the elements of digital and 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 — potentially which are more project related, which we think will become slower in this kind of work [Phonetic].

Moshe Katri — Wedbush — Analyst

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? Thanks.

Salil Parekh — Chief Executive Officer and Managing 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 vendor 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 that are most impacted, 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’ll see some of those discussions start to come up.

Moshe Katri — Wedbush — Analyst

Right. Thanks for the color.

Operator

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan — Investec — Analyst

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&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?

Salil Parekh — Chief Executive Officer and Managing Director

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

Nitin Padmanabhan — Investec — Analyst

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 the risk and compliance related spends. So when you visualize a recovery this time around, which areas do you see spends really coming out in a big way?

Salil Parekh — Chief Executive Officer and Managing Director

My sense is even through this period that 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 growing through this and especially the focus around the broader cloud discussion. But the bigger moves on digital will absolutely come back at 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 — Investec — Analyst

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 round, if we 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’ll be far more transformation projects and so on and so forth, you’ll actually see a shift to larger vendors from smaller vendors. How do you visualize the changes this time around?

Salil Parekh — Chief Executive Officer and Managing Director

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

Nitin Padmanabhan — Investec — Analyst

Sure. Thank you so much and all the best.

Operator

Thank you. The next question is from the line of Bryan Bergin from Cowen. Please go ahead.

Bryan Bergin — Cowen & Company — Analyst

Hi, thank you. 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 Parekh — Chief Executive Officer and Managing Director

So, 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 the target to get to essentially what we call 100% capability there. We have all of our client’s initiative [Phonetic]. Pravin, if you can add something please.

Pravin Rao — Chief Operating Officer

Yes, see if you look at the remaining 7%, a very small percentage are areas where clients have not given us permission to operate from work from home. It’s a very small percentage. So in the context of a lockdown on 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 who are not in our locations, and they don’t have any personal assets or company assets with them. So they’re also stranded, but 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 offices.

Nilanjan Roy — Chief Financial Officer

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

Bryan Bergin — Cowen & Company — 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 timeframe or are any of those delayed?

Salil Parekh — Chief Executive Officer and Managing Director

In fact, I’ll make one comment on that and then — firstly, then Mohit can also add to it. We had one of the largest projects ramping up in literally the middle of all of these 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, Pravin if you want to add something and then Mohit if you want?

Pravin Rao — Chief Operating Officer

No, I think, I mean you explained, 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 to [Phonetic] services. So we were able to do on-boarding on a remote manner. Similarly with another client 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 plan 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 given the current situation. Mohit, anything to add?

Mohit Joshi — Head, Banking, Financial Services & Insurance, Healthcare and Life Sciences Head, Infosys Brazil

No, I think we’re try to ramp up as we can. And In many cases we have seen, even remote ramps happen or remote transition, remote KT happens. So that is obviously a processing for us. Now there will be instances where remote transition is not possible in the situation of a complete lockdown and we 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 working on that [Indecipherable].

Bryan Bergin — Cowen & Company — 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 Parekh — Chief Executive Officer and Managing Director

I’ll start with that, and many of our leaderships have that sort of discussions. We’ve had — at least I have had those discussions across multiple sectors, so it’s not specific at this stage to a sector. There will be 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’ve had and our leadership will have with them.

Bryan Bergin — Cowen & Company — Analyst

Okay, thank you.

Operator

Thank you. 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 — Financial Controller and Head of Investor Relations

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

Operator

[Operator Closing Remarks]