Sandeep Mahindroo - Investor Relations Vishal Sikka - CEO and Managing Director M. D. Ranganath - CFO Pravin Rao - COO Mohit Joshi - VP and Head, Financial Services Europe S. Ravi Kumar - President

Moshe Katri - Wedbush Securities Joseph Foresi - Cantor Fitzgerald Bryan Bergin - Cowen & Company David Koning - Robert W. Baird James Friedman - Susquehanna Financial Group Anil Doradla - William Blair & Company Shashi Bhusan - IDFC Securities

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

Hello, everyone and welcome to Infosys earnings call to discuss Q1 FY18 results. This is Sandeep from the Investor Relations team in Bangalore. Joining us today on this earnings call is CEO and MD, Dr. Vishal Sikka; COO, Mr. Pravin Rao; CFO, Mr. M. D. Ranganath, President and the other members of the senior management team. We will start the call with some remarks on the performance of the Company by Dr. Sikka and Mr. Ranganath. Subsequent to which we will open up the call for questions. Please note that anything which we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the Company faces. A full statement 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 Dr. Sikka.

Thanks, Sandeep. Hey, everyone and thanks for joining. I’m really proud of our achievements in Q1. It was the passion focused on execution of our management team, and indeed every Infoscion to steadfastly execute and to continue on our path to transformation. We’re deeply convinced of the differentiated value that we can deliver to clients, helping them leverage the power of artificial intelligence and Design Thinking to reimagine their businesses. And we can do this to our learn ability, our culture of innovation, in which every Infoscion is empowered to be a proactive problem finder. During the previous earnings call, I had emphasized our relentless focus on our commitment to execution in Q1. We did this and this is reflected in the all round performance in Q1. Solid constant currency revenue growth, resilient margins despite multiple headwinds, record cash generation, improvement in utilization to record levels, revenue per -- revenue productivity per person and uptick in revenue per FTE. Ranga will provide more color on these shortly. In Q1, our revenues grew sequentially by 3.2% on reported dollar basis and 2.7% on constant currency basis. Growth was distributed between both volumes and utilization with volumes growing by 1.7% quarter-on-quarter and utilization growing 1.8% quarter-on-quarter. On a year-over-year basis, revenues grew by 6% on reported dollar basis and 6.3% on constant currency basis. INR revenues declined by 0.2% sequentially due to rupee appreciation and increased by 1.8% on a year-on-year basis. Our utilization excluding trainees were up 84%, which is the highest level in 15 years and including trainees utilization was 80.2%, which is the highest level ever. I’m happy to share that driven by our improved performance compared to the last few quarters, we are paying higher variable pay to our employees this quarter. Consistent with recent quarters, the percentage payout will be higher at lower levels and lower at senior management and leadership levels. Within each level we will continue to strive towards higher performance differentiation through different payout levels. Our attrition was up 16.9% on a standalone basis as compared to 15.8% in Q1 last year, and 13.5% in Q4 last year, owing to Q1 seasonality when employees leave to pursue higher studies. We had broad based growth across verticals and geographies, including financial services and insurance, retail and CPG, and our ECS vertical. On financial services, our growth is expected to pick up in the second half of the fiscal year as the impact of increased interest rates and lower regulatory pressures in the U.S. start to reflect in our client spending. Consistent with our commentary on the last quarter on higher disclosures, this quarter we have disclosed revenues from new services and software that we started since the 1st of April 2015. 8.3% of our quarter Q1 revenues came from new services, in the cloud first, AI first digital experience service area that are strategic to our clients and that were launched in the past two years. Similarly 1.6% of our Q1 revenues came from new software that started since the 1st of April 2015 comprising of Edge, Nia, our next-generation AI platform, Panaya and Skava. In management, we also welcomed Inderpreet Sawhney to Infosys as our new General Counsel. Inderpreet brings to Infosys a wealth of critical experience in large complex global firms, as well as small innovative one from India to Silicon Valley, to help us become a much more global agile organization, while upholding the highest standards of integrity and governance. And finally we announced plans to hire 10,000 American workers over the next two years and established four renovation hubs, with the first two in Indiana and North Carolina where we will hire 2,000 people each in the next few years. In Q1, 600 plus U.S workers have already been hired. This is a continuation of plans that we launched in 2014, starting with 2,000 American hires to get closer to the clients, deliver new high touch, high-value services, leverage the best local and global talent, and build the next generation of innovators through world-class education and training. Now let me share some specifics of our strategy execution. In the new traditional services, in Q1 through our Zero Distance program, we delivered grassroots innovation, leveraging Design Thinking, and to date more than 16,500 ideas have been generated from our project teams and more than 2,200 of these have already been implemented with clients, including Myers, My picker App in Australia, for fulfilling retail orders with more efficiency and better user experience. We're now evolving to Zero Distance [indiscernible] with a focus on themes and solution. From the 16,500 ideas, the teams have synthesized 75 plus themes in areas like insurance claims adjudication, digital farming, cyber security and others with the potential for reuse, conversion into packet business solutions or an IP creation. Zero Distance is at the heart of transforming at a grassroots level, our efforts towards innovation and automation. We continue to drive automation into our service clients, saving more than 3,500 FTEs worth of effort in Q1. Beyond saving FTEs, we have seen radical use cases of Nia within our services. Nia is being used for large scale transformation within our AMS services, as well as to drive cost savings in managed projects. Our Zero Bench program continues to thrive with 42,000 work records already created and 24,000 work records completed by the end of Q1, and it is one of the key reason that threshold utilization has gone up significantly. Coming to new digital services, we continue to build out our new higher growth, higher margin, higher ARPU services, which are exactly in line with clients most important business needs and we are seeing strong traction in these. Cyber Security, for example, is one of our fastest growing new services, given the heightened awareness at the CXO level due to a recent incident. Coming to new software led offerings, in Q1, we saw continued momentum in Nia, Skava, Edge and Panaya. We launched Nia in April, building on and accelerating our work over in the last 2.5 years with our first junction AI platform with IAP and with AssistEdge. And now with more than 160 AI based scenarios across 70 clients, Nia is central to all our conversations with clients. And what started as a journey of IT use cases has quickly moved to strategic business areas like sales operation, demand sensing, supply chain, digital contracts and policy management, and other critical business areas where we are seeing even greater traction. In Edgewell, we had a strong performance with 24 wins and 21 go lives for Finacle and 12 wins and 17 go lives for Edge products. We launched the pilot blockchain network for international remittances, which is already live in some banks. Across all new areas we continue to drive Design Thinking into all our engagements with clients and build out our strategic design consulting practice where we are helping BP, for example, to reimagine their HR on boarding experience, Adient to accelerate their transformation in the rapidly evolving automotive industry, ERM to reimagine the sustainability challenges of the future and Spark in New Zealand where leaders can timeframe and rapidly prototype solutions to the most important problems in their highly disruptive markets. Finally this quarter we wrapped up our efforts around the rollout of GST in India, which launched on the 1st of July. The system has already handled a peak of 1.2 million daily logins and up 40 million page views and between 20,000 and 40,000 concurrent users at its peak. Once complete, this will be one of the largest open source project and the largest tax project in the world. As we speak, we are proud and humbled to be handling the digital economic infrastructure for the entire country from company formation to direct and indirect tax. In project of such unprecedented scale and complexity will always present challenges during rollout, which we will continue to address with the agility and dedication. Coming to Culture, we continue to simplify our internal processes through automation. We deployed Nia into our i-Travel system to drive efficiency. We continued to invest in education and training and I'm really proud to say that our second Stanford global leadership program batch graduated with 36 graduates in Q1, bringing the total graduates to 70 so far, and another 40 plus in the current batch, and it's one of a kind program to build our next-generation leaders. We have trained over 2,100 employees in Nia and Design Thinking now covers 142,000 plus employees across the entire organization. Looking at beyond business, some of the key initiatives of the Infosys Foundation in India in the quarter, included improvements and renovation of the existing pediatric ward building of a hospital in Odisha, and construction of a major operation theater complex at Kidwai Memorial Institute of Oncology in Bangalore. The foundation also partnered with local bodies to distribute and channelize water through a gravity technique in rural drought hit villages in Andhra Pradesh. The Infosys Foundation in the U.S hosted its annual Thought Leadership Conference, CrossRoads, in conjunction with our flagship confluence planned event in San Francisco in May of this year. It's one of a kind event in Computer Science and Maker education featured 20 plus panels with 155 participants from 133 organizations across academia, policy-making, and nonprofits. The Foundation also announced the 25 winners of the 2017 Infy Maker Awards in a blog written by NASA astronaut Alvin Drew. The Foundation extended its why I make Maker Education Awareness campaign by releasing new episodes with famous Makers to U.S TV networks and broadcasters, resulting in 3,000 nationwide airings, reaching over 28 million views. Coming to guidance, I'm happy with multiple aspects of our Q1 performance and based on our expectation for the rest of FY18 and our visibility at this point, we're retaining our FY18 guidance at 6.5% to 8.5% in constant currency. In closing, I'm pleased with our performance this quarter. This all-around execution has led to a solid performance, as well as strong growth in the new strategic areas. And this has further strengthened my belief that when we're focused purposeful and empowered in our work, there are no limits to what we can achieve. I'll now hand it over to my friend Ranga for his comments. Thank you. A - M. D. Ranganath: Thank you, Vishal. Hello everyone. Vishal has already talked about revenues and business outlook. Apart from revenues, the key outcome of the quarter has been strong cash generation and improved operational efficiencies, which is reflected in operating margins. Let me address these one-by-one. Cash provided within operating activities as per consolidated IFRS was robust at $644 million. Likewise, free cash flow which is operating cash flow less capital expenditure increased to $558 million. CapEx for the quarter was $86 million, a reduction of $14 million from last quarter. Due to strong cash generation, cash and cash equivalents including investments stood at a record high of $6,091 million, an increase of $112 million from last quarter, despite large outflow of $522 million on account of dividend during the quarter. Operating cash as a percentage of net profit remained over 100% for the fourth quarter in a row. Mohit and team have done a great job in collections. Coming to operational efficiencies, utilization excluding trainees increased to further to 84% as compared to 80.5% in Q1 last year. Likewise, total employee cost as a percentage of revenue reduced to 54.6% in Q1 this year from 55% in Q1 last year. However, subcon cost as a percentage of revenue went up by 0.9% in Q1 '18 to 6.3%, partly due to high utilization levels and non pay talent demand. On-site mix increased to 30.1%. Ravi's team is working towards moderating this. Ravi and team did an exemplary job on improving operational efficiencies on multiple fronts. On-site volumes grew 2% and offshore volumes grew 1.5% quarter-on-quarter. Pricing realization improved by 1.8% in reported terms and 1.3% in constant currency terms sequentially. On a year-over-year basis, which is a better comparison, pricing realization decreased by 0.5% in reported terms and 0.2% in constant currency terms. Our gross margins in Q1 were 36.2%, 0.1% lower compared to Q1 last year, and 1% lower compared to Q4. Our operating margin for Q1 '18 is at 24.1%, which is same as Q1 last year. Sequentially operating margins declined by 60 basis points. Appreciation in rupee during the quarter impacted the margins negatively by 80 basis points, which was partly offset by 20 basis points of cross currency movement benefit. Improvement in utilization helped margins by 90 basis points, while improvement in realization helped margins by 50 basis points. However, this was offset by higher employee variable pay, higher visa, and subcon costs which impacted the margins by 140 basis points all put together. Yield on cash for the quarter was 7.07% as compared to 7.12% last quarter. Our hedge position as of June 30 was $1,481 million. EPS for the quarter was 20%, which is a growth of 5.8% as compared to Q1 last year. We ended the quarter with a total headcount of 198 to 553 at the group level, which is a decrease of 1,811 from last quarter. Net headcount addition was 3,006 in Q1 of last year. On a year-over-year basis, headcount grew at the group level by 0.8%, while the revenue grew by 6% in constant currency and 6.3% in reported terms, which is reflected in increase in revenue per employee to $51,921. During the quarter, the Company has written down the entire carrying value of the investment in its associate DWA Nova LLC. The impact of write-down of this investment on Q1 '18 profit -- net profit is $11 million. Coming to capital allocation policy, the Company reiterates its commitment to execute the capital allocation policy announced in April in a timely manner. As envisaged [ph] in the capital allocation policy, the Company has identified an amount up to INR13,000 crore, about $2 billion, to be paid out to shareholders during the fiscal 2018. As the Company has a large global shareholder base and is listed in multiple countries, the manner of distribution to shareholders requires compliances and approvals in several jurisdictions. We are in the process of finalizing a distribution mechanism that complies with the applicable regulatory requirements in the best interest of all shareholders in a timely manner. We're retaining our constant currency revenue guidance at 6.5% to 8.5% for fiscal '18. Similarly, we expect our fiscal '18 operating margins in the range of 23% to 25% as stated in the beginning of the year. We have rolled up compensation increases for certain levels with the effect on July and hence there will be an impact on the same on margins for Q2. While the average compensation decrease -- increase is approximately 6%, our top performers have received higher increases. With that, we will open the floor for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Moshe Katri from Wedbush. Please go ahead.

Hi, thanks. Guys you’ve a significant uptick in utilization rates during the quarter. I think you reached about 84% ex trainees, maxed out here and then what’s left in terms of leverage for sustaining margins within the guided range? And then I also have a -- another follow-up. Thanks. M. D. Ranganath: Yes. So, on utilization, we have just been …

Hey, Moshe -- Ravi you want to answer this? Maybe Ravi can answer this. S. Ravi Kumar: Yes, hi. So on utilization, we had just been working very hard on how to get this to where we have brought to, starting from working on the quality of demand to working at the bottom of the pyramid, that's where utilization is the hardest to achieve. We still have a little more buffer around there, if I may. And then looking at the way we do role mix in our projects. Here on, depending on how the quality of demand is, we can continue to work hard on streamlining it. Remember one thing, in the last 2 to 3 years the firm actually went through a federated sales structure in the consolidated delivery structure. So that give us a kind of a platform to make the efficiency work and to put them to get to here, because that helped us to take out any pockets or any silos, if I may, in the structure. So a bunch of things we could continue to do from here on to keep the momentum up, the price -- assuming the pricing drop doesn't happen, or assuming the pricing can hold up, we have a bunch of levers. The on-site mix has still gone up a little bit from last few quarters and we might have to look at how to keep it in control as Ranga earlier said. There is still an opportunity to do more automation. We have had a good runway on automation this quarter. We're hoping to see more accelerated benefits out of automation as we go forward, but what could also happen is we are also hiring talent in the U.S and if we can actually get back talent into projects, then I think that will help us on our model. So these are a few other levers we can actually start working on from here on. And the last one I want to talk about in terms of margin is the ability to get newer services which are much more profitable as a higher proportion of our revenues, because it just helps us to keep the trajectory up.

So, thanks Ravi. Moshe just to add to what Ravi said, the -- when I started, we were at 76%, 77% utilization and we used to hear that the wheels would come off at 78%, and then the wheels would come off at 80%, and the wheels would come off at 82%. So we are at 84% and the wheels still haven't come off, so there is probably little bit more room, not much perhaps, but like Ravi said there are the various operating parameters in terms of optimizing the execution efficiency. But the most important one obviously is automation and especially bringing more and more automation into the fixed-price project and into the maintenance, and -- maintenance projects, the large-scale managed service projects and so forth.

Okay.

And new services tend to make up a higher margin and especially new software, so more that we emphasize on those aspects of the business, the more of a effect that we can start to have on margin.

To add on -- sorry go ahead. S. Ravi Kumar: If you look at the other focus area has been on the on-site employee cost as a percentage of revenue, as well as the total employee cost as a percentage of revenue, of course this is some kind of -- it's not just utilization describes this, there are also elements of the role ratios in a project. For example, fixed-price project on-site is way the bulk of our focus is, how could we release top heavy projects with more senior resources, because the revenue is not going to be impacted, but how could we release them and efficiency redeploy in other projects with higher billing rates and so on. This will also address better efficiencies on-site and that’s one focus area for us not just this quarter or the last couple of quarters as well. So as a result, if you look at our on-site employee cost as a percentage of revenue has come down to 38.5% as compared to 39.3% same quarter last year, despite pricing decline and so on. So likewise the overall employee cost. I think these are -- and one of the element is the net headcount. Of course, a part of it is because of high utilization, net headcount this quarter was minus 1,800 as compared to a plus 3,000 previous quarter. And most importantly the -- if you look at the year-on-year revenue growth while it has been 6.3%, the headcount growth has been 0.8%. So I think the multiple parts we need to look at, but while we appreciate and we clearly recognize the fact that operating levers in the medium-term will kind of -- will kind of plateau out, the primary focus needs to be some -- the other measures that I talked about.

Okay. Just as a follow-up, so when asked about quarterly bookings or TCV in your earlier media appearances, I think Pravin indicated that you have mostly renewals this quarter and down the road this metric will become less and less relevant given the Company's increased focus on new digital areas. So, one, can you confirm your commentary on renewals? And then, two, are your selling efforts now will exclusively be focusing on digital and pretty much less and less on legacy services? Thanks a lot.

Hi. This is Pravin here. On the large deals the run rate is similar to what we have seen earlier quarters on an average around -- slightly around $800 million, but a big percentage of it is renewals. And over the last few quarters we have been focusing on building out on new services and new software and for the first time this quarter we published our metrics on that. We believe that these are the services that will be the future for us in the coming years as we embark on our transformation journey. So far large deals and other things will probably become irrelevant over a period of time. We have -- most of the focus will be on newer technologies, ticket savings [ph] will be much smaller and so on. Having said that, we will continue to compete aggressively on large deals. We will continue to win our fair share of large deals. We're not walking away from that, but as a metric we are focusing on pure metrics which will be probably be more relevant in future.

Great. Good execution. Thanks.

Okay. Just to clarify the total TCV for this quarter is 657 for large deals. I just want to clarify that.

Thank you.

Thank you. The next question is from the line of Joseph Foresi from Cantor. Please go ahead.

Hi. So everyone at this point has been talking about having digital practices. I’m wondering could you clarify for us what your differentiator is in those newer digital practices? And is this a case of everybody's kind of participating in this wave or do you feel it at some point it's going to become a market share game like the other businesses?

Hey, Joseph. That’s a great question. You know I have for the last couple of years I have said that when people ask me how much of your business is digital, I always say it is a 100%, because we ranked software for digital computers and -- joking aside, the reality is that as you said there is always an adoption curve in these things and at any given point in time there is an emerging set of services, emerging set of technologies that require a new skill development, new capability development, and bringing new solution and even new IP into the market to do that. And on the one hand, we have to commoditize and bring a large-scale through these technologies as much as possible, and on the other hand we want to do that as early as possible when typically the scale and skill development is not there yet. So if you look at today's status for instance, virtual reality and augment reality technologies or voice interfaces, I mean Electra or the Amazon voice service just crossed 15,000 skills that are available for Electra in -- by the end of June, or if you look at the various voice and chat interfaces, AI and machine learning technologies, autonomous driving technologies, one of the programs that we have put in place here is to train several thousand people in autonomous driving technology. Where earlier today I have demonstrated one of our indigenously built golf cart -- autonomous system for the golf -- for a golf cart and that was done right here in our Mysore facility by our engineering services team to train our employees on autonomous technologies, autonomous driving technologies. So there is always this emerging set of areas where the sooner you can start building capability and skill, the better you can monetize the higher value, higher margin, higher ARPU kind of services. And so coming back to the point of 8.3% in new services and the 1.6% in new software, is all examples of services on software that we did not have on the 1st of April in 2015. So that is completely new revenue from the last -- a little bit more than two years. And if you look at the $2 billion in growth that we have had since then, this is a -- a $1 billion of that $2 billion have come from the new software and new services and that is something that we're really proud of. And so we're counting on a much higher growth in these areas, which tend to be the AI first, cloud first, kind of areas, cyber security, IoT things like this where we’re building next-generation capabilities and earlier today somebody asked me about this, how does this compare to the digital revenue and we did despite my -- I was repeatedly saying that everything we do is visible, we benchmarked our services compared to the way other peers of ours do in the industry and that number is approximately 23%. So approximately 23% of our services revenue. Our revenue is from this digital services and the 8.3% and 1.3% that I talked about is a part of that 23%.

Got it. Did you give a number on the growth rate of the 23%?

No, not yet. The -- I mean, the growth rate -- this is the first quarter that we’ve done this fine-grained auditable reporting of these numbers. So going forward, you'll be able to measure the growth rate. But when it comes to the new services, what I can say is that the revenue from these was zero in April 2015, so that means that all of the roughly $1 billion now is new.

Got it. Okay. You talked about confidence in the rebound in financial services in the second half of the year. Are these actual conversations or contracts? Do you have visibility to that or is that more of a macro call, in fact, the interest rates have gotten a bit better and the spreads have widened a little bit for banks?

Yes, Joseph. Pravin, why don’t you can answer this one?

Sure, Vishal. Joseph, so at this point of time, this is a belief that we’ve. Again, as you rightly pointed out, based on the macro trends that we are seeing and also from the greater degree of client confidence that we are seeing. And this is a very U.S specific thing, right. If you see our results in Europe and in Australia, we continue to have a very strong performance for the sector. For insurance, we continue to have a very strong performance.

Okay. And then the final one for me, I mean, we saw pricing tick up. Can you give us an update on the pricing environment and how you think about that in relations to margin going forward? Thanks.

So the way we see that is obviously the new services demand a higher pricing premium. And so the more that we focus on those things, the better. And by bringing automation into the traditional services and being able to get more productive at it, that is another way that we can stem this declining pricing tides [ph]. So those are some of the factors that have run into this.

Thank you.

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

Hi. Thank you. A bit of a follow-up here on the competitive dynamics in the new service areas. Are you mostly self sourcing a lot of this work?

Ravi, you want to answer this? S. Ravi Kumar: Yes. So new services that the challenge is not as much about demand. It's actually about how do you build talent and capabilities to address them, because a large part of that is already available as opportunities in the market. With existing customers, a lot of them which are very contemporary and new are actually coming to us based on existing relationships. It's slightly matured ones which actually need, I would say, a sense of steady-state. Those are the ones which actually go through a procurement process than RFP process, but if we can call it out early, we obviously have a short there. But the key messages in new services, a majority of them is all about how do you build talent and competency pools to fulfill them. That to me is the key. It's not as much the demand, but it's as much about how do you build capabilities to fulfill the demand.

Yes, and this is Mohit here. Just want to add one small point to this. It's wherever we are able to use our own software, right, those discussions that yet to be more of sole sourced discussions. So if we are able to sell our Nia platform or sell the idea of the used case around Nia to apply, then the sort of attached new services will be sole sourced. So for instance, for the U.S based bank, we were able to sell consulting and our Infosys signification platform, because they were looking to incentivize their field force for a greater cross-sell. So something like this would be sole sourced.

Okay. That's helpful. So do you change your approach at all as it relates to industry alliances and potentially increasing M&A in new service areas to accelerate growth there?

Yes. The -- so Bryan, when it comes to the acquisition of talent as Ravi talked about, acquisition of skill, using agency subcontracting and also using equity hires and acquisitions as a strategy to hire some of this talent, it's something that we’re working on. The longer-term sustained approach obviously is to develop our own training and as I mentioned earlier, we have built the world's largest ever Design Thinking training endeavor and we have trained more than 142,000 people on this. Similarly we have now working on developing more detailed, more deeper design engagement, kinds of initiative. So that you can participate in the transformational journey of the clients and not just beyond the receiving end of a particular services project or something of this nature. And then, when it comes to M&A and so forth obviously those are all mechanisms available to us to develop more capability and more talent in this. The Skava platform also helps in getting into some of these areas as does the Nia platform in bringing AI capability and -- so that the software can amplify our productivity, our profitability and our ability to build new kinds of scenarios.

Okay. That's helpful. My follow-up just on the GST contracting, can you comment on scale of that and really I guess the whether it's kind of a one-time type of contract or if that carries forward as we -- as you continue to implement solutions there? I’m just trying to understand how they may have impacted the quarter. S. Ravi Kumar: First of all, this quarter the incremental revenue from GST was negligible. It was less than $3 million, that is one point. So GST hardly provided an incremental revenue this quarter. Second, if you look at the ROW incremental revenue that we saw this quarter's primarily from Australia, which is a very profitable market. Coming to GST and the trajectory, as you know GST has two phases, build phase and maintenance phase. We're pretty much at the fag-end of the build phase, then the maintenance phase would kick start. And the trajectory is also from one in which is kind of more -- we do not expect too much of lumpiness, much more gradual progress. They are all linked to certain milestones and deliverables. So that's what we visualize on GST at this point.

Okay. Thank you.

Thank you. The next question is from the line of David Koning from Baird. Please go ahead.

Yes. Hey, guys. Thanks for taking my question. And I guess, first of all, the margin this quarter was a little bit above the midpoint of your full-year guidance. Usually Q1 is a low point and I believe a lot of that maybe has to do with the timing of the wage increases, but is it fair to think this year Q1 might not be the low point of your margins for the year? M. D. Ranganath: Hi. This is Ranga here. I think, if you look at this year's Q1, 24.1 is same as last year same quarter, it's 24.1. As I was telling, we were impacted by 80 basis points on rupee which was offset to some extent by the cross currency by about 20 basis points. Large part of margin uptick was also due to the utilization and the pricing realization which gave us 90 basis and 50 basis points and we increased the variable pay to employees this year based on the revenue performance. So sequentially that plus some of these subcon costs were additional headwind of 140 basis points. So that’s the broad math. But coming to your question, we are -- we have actually announced the compensation increases effective July and the compensation increases incremental delta would be around 0.7% to 0.8%. That would be the broad impact on these compensation increases.

Okay. So Q2 might be sequentially down a debate based on that? M. D. Ranganath: That is one and the compensation increases. Of course, as you know the margin trajectory for any quarter apart from this comp is also a factor of how much is a sequential revenue, as well as some of the how the trajectory of rupee and so on. And some of the other levers that we talked about I think it will be a combination of all these factors.

Okay, great. Thank you. And then just maybe one follow-up, the interest in other income remains quite strong, the yield is good obviously on cash in India. Was there anything one-off in the $127 million of interest other that might not carry into the following quarters or is that a pretty good base to keep building on in future quarters? M. D. Ranganath: I think there is nothing unusual about it. It consistently -- it has interest income and other -- the income from the other investments that we have. At the same time, we also have this hedges right, any profits made on hedges also flow into other income and it has been consistent across all the quarters.

Okay, great. And I guess, finally just real quick, is July the new ongoing wage increase quarter like you think in future years that is going to be the same timing? M. D. Ranganath: I think what we have, if you look at the last year, the -- while for the junior employees we started early and for the senior employees we have kind of gradually spread it over quarters, depending upon the progress of the revenue trajectory last year, and in our BPO business that has been there for quite some time. This year of course we have done from effective July and so we would at this point in time see all the increases effective July.

Great. Thank you.

Thank you. The next question is from the line of James Friedman from Susquehanna Financial Group. Please go ahead.

Hi. My first question was with regards to Pravin's comment about the $657 million of large deal TCV. And my question is there -- if you look at that on a vertical basis, is there anything in there, Pravin, that suggests that there will be an acceleration in BFS consistent with what you're contemplating for the second half?

This is Mohit here. I think look, BFS has always been a fairly significant contributor to the overall large deal volume, not just for this quarter, but consistently for the past six to eight quarters. And that's the trend that that even this quarter's vertical break up will show. In terms of large deal pipeline and large deal momentum, I think we are seeing a reasonable momentum. Deal cycles have become a bit longer especially in the U.S., the decision timeframes are taking longer, but there is nothing unusual or radical that we see there. The confidence about -- and again I think Joseph had asked this question earlier about why we’re making a call? And it is primarily a macro call, it is primarily a macro call, which is supplemented by the discussions that we’re having with our clients. And while you would notice that we’ve not seen a significant uptick in their budget, there is a lot more confidence, there is a lot more pressure from business on discretionary spend, there is a lot more focus on spending on new technology areas like AI in digital and so it is a subjective call based on those factors. Finally I will also mention that given the fact that in this financial services business, we have such a huge concentration of clients, right. Just one or two clients can really make or break a quarter, $5 million or $6 million or $10 million increase or a decrease with a single client can really impact the sequential growth. And in this case, we have a couple of clients were growth has been lagging for the past three or four quarters and we expect that in this client specific instances that their spend will pick up in the second half of our financial year.

Yes. I think …

And just to add that, James -- yes, go ahead.

No, no. I apologize, Vishal. Go ahead.

So just to add to that, I mean, it is -- we are not giving up on large deals. We are simply saying that the large deals in the commoditizing services are going to be increasingly be not so relevant and we want -- that's why we are publishing and focusing on the new services and new software areas. When it comes to large deals, wherever there are large deals, obviously we will be vigorously and with a lot of focus and attention competing for those, we have spent a lot of effort in becoming much more competitive and winning larger deals by using better solution, bringing AI, and especially bringing Design Thinking into the solutions, into deep -- more deeply understanding the problems at the root of the large deals that are being proposed and also in our engagement process and so forth so you see a significant improvement in our large deal wins and conversion rates over the last many quarters. But having said that, it is just the commoditizing services and going after big projects which is a -- it's not something that we see as a strategic area as much as we see the new services and the new software. So this is what you're seeing in our commentary.

Yeah, that's helpful context [ph]. Thank you. And then, Ranga, I just wanted to ask you about the subcontractor costs, I realize that that maybe to some degree be a function of the utilization heat. But where -- because that was up a 100 basis points year-over-year on my math, where should we anticipate that travel into over the course of the year? M. D. Ranganath: Yes, you’re right. Primary uptick if you recollect few quarters ago, it had gone up to 6.3%, I think Q3 of FY16 and we’ve very consciously brought it down to 5.3% two quarters ago and it started again inching upwards. One of the key pieces is really the higher utilization level and the second one is typically what we have tried to do is prioritize to subcon cost for new services where the billing rates are higher and the margins are better. So one ways to put more away from the subcon costs in the other services and move towards this, that is one at least even if it is as a percentage of revenue is high, one approach has been could we at least look at the profitability of those subcon costs -- subcon expenses and redirect the expenses to more profitable service lines. So that’s one approach. But in the short-term we do see this being at these levels till we have much more efficiencies in talent planning kicking in and as our on-site hiring picks up.

Great. Mohit, Ranga and Vishal thank you. Thank you for your comments. M. D. Ranganath: Yes.

Thank you. The next question is from the line of Anil Doradla from William Blair & Company. Please go ahead.

Hey, guys. Thanks for taking my question. Couple of questions. Vishal, you’ve talked about 10,000 employees in the U.S. and I think your initial focus is a couple thousand. So where are you today -- I mean, in terms of have you started kind the job requisitions, are they out today? And what is it -- what is going to be the mix between experienced and new hires here?

Anil, Ravi can answer this. S. Ravi Kumar: Yes. So, yes, thanks for the question. So we’ve -- we put a plan for 10,000 hires in two years. We wanted to do it in 4 to 5 centers depending on how we get there. We put a set of criteria on how to establish those centers. I’ve earlier spoken about how the model which we operate on, which is an on-site offshore model will kind of morph [ph] to an on-site near shore offshore model and the near shore centers are the ones which we're talking about, which is primarily innovation and technology hubs where we believe clients and Infosys employees and clients can come together and work on in an agile fashion. So then the experienced talent which we hire in the U.S is an ongoing process, that hasn't stopped. That will continue to go forward. We would hire for deploying to client sites. Now the next step of hiring is to hire into the centers, so that we could transition into the on-site near shore offshore model and use them under the cluster of clients which are in and around those centers. So last quarter we did almost 600 plus. We’ve already hired 600 plus joined us last quarter. We’ve already hired around 500 plus from campus -- campuses across the U.S. They’re going to join us and the first batch has actually joined us and they are going to continue to join us for the next few months. And we will keep hiring round the year till the end of the year. So the idea is to train them there, build those capabilities and actually have them into projects in the treaty or model I spoke about. And a lot of it is in contemporary skill, so we’re actually hiring them on in and around the clusters of where the -- where those locations are, and then we’re going to train, tap, and push them into projects. So the journey has already started. Campus hiring is round the year. The experienced talent continues. The normal thing it continues to happen for our client locations and then the third feeder which we will get is refactoring talent in adjacent areas. So that third feeder in the 10,000. Pressures experience hires and refactored talent. So that’s something we will kick off as well. So we’re doing the local enablement, local training, local hiring and then deploying into projects.

Great. And I think, Ranga, you talked about focusing on new metrics. Now these business models are changing, you are seeing a lot of automation in new additional technologies. Are there some metrics that we as an industry are not looking at today could potentially be part of your kind of financial model? Are there some metrics that you might introduce over the next, call it year or two, as the business models change? M. D. Ranganath: Well, I think primarily whichever service line that we look at, it's extremely important for us to focus on three key elements, which is the per capita revenue. Per capita revenue of the service line as well as the on-site mix of a service line and that profitability which is a result into both put together. Now what we’ve attempted this quarter is really by calling of new services, we want to give a view to the investors on the trajectory of the new services as a percentage of as our total revenue as well as the incremental revenue. For example, this quarter we’ve stated it is 8.3%, so next quarter the investors would be getting a perspective on how this trajectory of 8.3% both at relative and absolute terms is changing. Now as we move forward in couple of quarters, certainly as some of those services become a critical size, for example about six groups of services contributing to 8.3% and one of them might even pick up in the relative 4%, 5% et cetera, at that point in time we want to call out some of the key metrics that I talked about. So essentially I think that would be one -- that's one thing clearly on our mind in the coming quarters.

Okay. So as it becomes bigger, each of these could be further broken down by some of the metrics that you are talking about? M. D. Ranganath: Absolutely.

Okay, great. Thanks a lot guys.

Thank you. The next question is from the line of Shashi Bhusan from IDFC Securities. Please go ahead.

Thanks for taking my questions, and congrats to a good quarter. 2.5 year back when we started the journey towards the transformation, which had acquisition as an integral part. However, there has been no action over the last few quarter. Is there any change in the strategy or we're not finding the right – right price? Can you elaborate on our newest strategy for the same?

Hey Shashi, it is more of the latter. It’s finding the right companies at the right price. The right companies meaning companies that are companies of tomorrow with technology and advanced technology, strategic area that we want to be in, not buying companies from of yesterday. And the right price obviously is the right price. So that combination is not easy obviously and -- but we are committed to it. Last quarter we bought a small company called Sky Tree, which had very unique machine learning expertise to make it a part of our Nia platform. And wherever we see opportunities like this, we will continue to do that. But we do wish to see acquisition as a key part of our story going forward, but not -- we don't want to buy backward looking technologies. We don't want to buy market share or revenue growth. We want to buy purposeful technologies of the future.

Sure. And the second question related to -- coming from two quarters of low single-digit growth due to client specific issues this quarter performance was a good positive surprise, I would say. Would it be fair to say that top client specific issue are behind? And follow-up to that is, our second half tend to be weaker over the last few years barring few exceptions. Given our deal win and pipeline, any color on the same how it looks in FY18?

It's too early to talk about the second half of the year, although as our software business becomes bigger, obviously, some of the seasonality would not apply, but obviously it would continue to apply to the services business. And in terms of the -- what was the other question?

Other question was client specific issue?

Yes, in some of these super large clients we have -- we already have a very large market share and so that's where we are, but we are generally adding. So when I started, we had $1,200 million account. That number went up to 19 previous quarter and now 18. And the 18 is just because one client had a couple million dollar movement, so I put them out of the $100 million number for the quarter. But I'm not particularly worried about that. We have a dedicated focus on top clients and the second tier below the top 25 are actually going quite robustly. So we want to continue to make sure that there is a healthy balance there between the focus on the top clients and the second tier ones. There isn't anything -- I know some of the analysts have written about this, but I am -- I don't see anything in particular and what's going on with the top clients to be concerned about.

Sure. And any reason why we’ve stopped sharing some of the client buckets like $200 million and $300 million, even top clients in this quarter? S. Ravi Kumar: I think, we kind of wanted to focus on the $100 million plus and $100 million plus typically includes $200 million and $300 million, but if the question is, if there is a decline in the number of $200 million or $300 million quarter clients this quarter? No, that’s not the reason, because we’ve seen the same number of $200 million clients and $300 million clients in this quarter as it was last quarter. There is no decline there. $100 million there is a decline by one which was a narrow miss by maybe $2 million or something. So beyond that there is nothing more to read to it, and we will continue to publish the $100 million which is our core focus.

[Indiscernible].

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand over the floor back to Mr. Sandeep Mahindroo for his closing comments. Over to you, sir.

We would like to thank everyone for joining us on this call. Wish you a good weekend ahead and look forward to talking to you again.

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