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Infosys Ltd (NYSE:INFY)
Q1 2019 Earnings Conference Call
Jul. 13, 2018 8:45 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day, and welcome to the Infosys earnings conference call. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [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 -- Investor Relations

Thanks, Karuna. Hello, everyone, and welcome to Infosys' earnings call to discuss Q1 FY 2019 earnings. I'm Sandeep from the investor relations team in Bangalore. Joining us today on this call is CEO and M.D., Mr.

Salil Parekh; COO, Mr. Pravin Rao; CFO, Mr. M.D. Ranganath; presidents and the other members of the executive management team.

We'll start the call with some remarks from Mr. Salil Parekh, Mr. Pravin Rao, and Mr. Ranganath on the recently concluded quarter, subsequent to which we'll 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 Mr. Parekh.

Salil Parekh -- Chief Executive Officer and Managing Director

Thanks, Sandeep. Good afternoon and good morning to everyone on the call. We're pleased to share with you our results from the first quarter of fiscal 2019. We're delighted that our strategic approach to focus on scaling agile digital and energizing our core services with automation and AI is resonating with our clients, as also is our approach to enhance the skills of our employees and the actions on localization in the markets we operate in.Our digital revenue has grown by 25% year on year in constant currency to reach $813 million, which is a quarter-on-quarter growth of 8% in constant currency again.

Our total digital revenue is at 28% of our business. Our overall revenue has grown by 6% year on year and 2.3% quarter on quarter in constant currency. Our operating margin was at 23.7% . We had $1.1 billion in large deals in Q1, the largest we've had in the last several quarters, of which 40% were in financial services, and we had an increase of four clients to a total of 24 clients now that are over $100 million per year in revenue and two of these four clients were in financial services.

Overall, we see a good demand environment in the U.S., in Europe, and in Asia-Pacific. In terms of sector demand, we see strength in energy, utilities, retail, insurance, and manufacturing. In our agile digital business, we see especially strong traction for the work we're doing in the cloud area, data and analytics, IoT, and in the area of experience; user experience, client experience, and employee experience.

Our two recent acquisitions Brilliant Basics in the UK and WongDoody in the U.S. are helping us expand our portfolio in this experience area, and are already starting to have an impact across our clients. We're seeing continuing traction off our automation approach and of our artificial intelligence platform, Nia, in our core services, and our approach to progressively move our employees on to an agile platform is seeing good traction.

In our localization program, we've launched a new 75-acre campus in Indiana in the U.S., and are now planning four other locations in the U.S., six in Europe, and three in Australia. With a strong foundation of delivery and focus on agile digital and AI-powered core services, we are now expanding on our strong sales and go-to-market themes. With that, I feel we have a stable start to the year and are executing on our strategy and our three-year transformation program.Let me now hand it over to Pravin, our COO.

Pravin Rao -- Chief Operating Officer and Whole-time Director

Thanks, Salil. We had a steady quarter from an operations perspective and continue to progress on our digital growth targets. We had eight large deal wins during the quarter with TCV of $1.1 billion. Seven of the eight bids were in Americas and one in Europe.

Three bids were in energy, utility, resources, and services, three in retail, and two were in financing services business. Volume grew by 2.6% and realization in constant currency terms remained stable.Utilization excluding trainees increased further to 85.7%, which is an all-time high. Attrition increased to 20.6%, partly exceeding [Inaudible] senior level exits. Our senior-level bench strength is quite strong.

We continued our strong recruitment drive and added 17,709 professionals during the quarter on the gross basis. During the quarter, we also rolled out compensation increases for about 85% of our employees.

Now, let me talk about the client sector. Digital transformation remains the key theme with clients across all the business verticals, and more budgetary spend gets diverted toward this area from the traditional business. The focus is on using technology to delivering business outcomes are helping strategic differentiation. We are building a strong team of digital specialists to work as a tip of the spear consulting layer, stretching across all the five pillars of our digital engagement.During the quarter, we completed the acquisition of WongDoody, and this enhances our offerings in creative services as well as the entire value chain of creative, production, campaign, analytics, and measuring outcomes.

We have also launched the design and innovations studio at Rhode Island and announced a five-year partnership with Rhode Island School of Design to accelerate our capabilities in digital space. A large part of our new deal wins during the quarter involve digital, and we have a healthy pipeline.

When we saw some softness in the financial services in quarter one driven by cost reduction pressures and in sourcing [ph] in a couple of clients, momentum continued for second tier and regional banks and fund management customers. Many clients in the U.S. are increasing the spending and we expect our U.S. business to outperform the portfolio in the coming quarters.

And the European portfolio was soft in Quarter 1, we expect it to improve in the coming quarter. Pipeline for deals is showing a steady increase and our 40% of large deals TCV in Quarter 1 was in this vertical. Overall, pricing is stable and deal sizes are higher.

In insurance, [Inaudible] spend is increasing and insurers across the spectrum are modernizing their middle and back-end systems to improve experiences for customers. We have a robust pipeline and more focus on core platforms modernization, digital, closed-loop management, and vendor consolidation [Inaudible]. Growth is expected to remain robust with a strong deal pipeline and newer contract wins.

In retail and CPG, we had a standout performance, driven by ramp up in deals won earlier and continued momentum with existing clients. Within the sector, CPG and Logistics are showing more growth than the core retail vertical. We are seeing growing interest in digital, AI, RPA, analytics, cloud and cybersecurity. Europe is seeing growing interest in integrated outsourcing deals and new transformation programs.

While retail is seeing some early signs of green shoots, there are challenges in CPG driven by M&A [by] while logistics is seeing weak demand due to CapEx reduction and oil price volatility. IT budgets in the telecom sector continues to face headwinds due to competition in the industry and change in the industry dynamics leading to severe top-line and bottom-line squeeze. M&A activities, vendor consolidations, cost cutting methods, insourcing and competition from legacy services are impacting growth. Trending [Inaudible] are opening up in the U.S.

in areas like digital transformation, software designed networks, IoT, customer experience, and cybersecurity. Digital deal sizes are seeing an upward momentum. Growth in the energy utilities, resources, and services verticals continues to remain robust with momentum in top accounts and ramp up of previous deal wins.

Although the general structure of cost need for traditional services continues, newer opportunities in the digital space in the form of analytics, RPA, cloud adoption, cybersecurity, are opening up. Stability in oil prices is a positive for the energy sector, and we are seeing pockets of opportunities where the focus is on building differentiated capabilities. On the utility sector, we've seen increased spend on digital customer engagement and cloud adoption on the back of changing regulations, especially around solar and other distributed energy resources and the next wave of a maturing smart grid.

The subdued commodity prices are putting pressure on the resources sector, clients are planning to embrace digital transformation to improve asset efficiencies and are looking to consolidate and upgrade their ERP systems for better business insights. Manufacturing continues to see pockets of higher activities in areas like ERP, cloud, digital transformation and [other] model-based sourcing transformation. Demand in Continental Europe continues to be better as clients look for cost optimization to further run operations, and are looking for transformation ideas for long-term benefits. Increased focus in manufacturing is on digitalization of end-to-end focus, with a strong focus on leading mobile, cloud, IoT, and back-end systems seamlessly to provide a superior customer experience.

I will now hand over to Ranga.

M.D. Ranganath -- Chief Financial Officer

Thanks, Pravin. Hello everyone. In Q1, we had broad-based financial performance on multiple trends, and we continued our trajectory on key financial parameters. Let me start with a few of them.

First, our operating margin for the quarter was 23.7%, at the higher end of margin guidance of 22% to 24%. I will provide more color on this shortly. Second, free cash flow was robust and was up 32.1% quarter on quarter to $552 million. Third, our return on equity further improved and was healthy at 25.5%, and increased from 22% of Q1 in last year.

Fourth, EPS growth year on year was 3.9% in dollar terms and 9.1% in rupee terms. Fifth, due to continued productivity improvement, utilization, and increase in digital share, revenue per employee increased year on year 5.7% to 54,878 which is one of the highest in recent years. Salil and Pravin have already talked about digital revenues, deal wins, client metrics, and business outlook.

Now let me come to revenues, price realization, and margins. Revenues in Q1 '19 were $2.831 million, a growth of 2.3% in constant currency terms and 0.9% in dollar terms on a quarter-on-quarter basis. In rupee terms, the revenue for the quarter was INR19, 128 crores, which is a sequential growth of 5.8%. As compared to Q1 of last year, revenues grew 6% in constant currency terms, 6.8% in dollar terms, and 12% in rupee terms.

Price realization remained flat in constant currency terms on a quarter-to-quarter basis.

Operating efficiency parameters continued to improve. Utilization was at a new high of 85.7%, as compared to 84.7% last quarter. Our continued efforts toward improvement of on-site mix resulted in the onsite mix decreasing further to 28.6% this quarter, as compared to 30.1% same quarter last year. This is the lowest level in the last 14 quarters.

Our focus on optimizing onsite employee costs, including a sharper focus on productivity, onsite pyramid levels, localization, and optimization measures led to a decrease in the on-site employee costs as a percentage of revenue to 37.9% in Q1, as compared to 38.3% in the previous quarter.

At the beginning of the financial year, we had planned several investments in digital to leverage opportunities, enhance investments in U.S. talent localization, and other local markets, revitalized teams for tapping market opportunities and repurpose talent. These investments are being made in a gradual manner to leverage business opportunities. Operating margin in Q1 was 23.7%, which is near the high end of the guidance range of 22% to 24%.

Operating margin for the quarter declined 100 basis points sequentially. During the quarter, the benefits of rupee depreciation were partially offset by cross currency headwinds, leading to a net benefit of 100 basis points on the currency front. This was fully offset by the compensation increases that were effective on April 1 for 85% of our employees.

Operating parameters, including utilization and onsite/offshore mix, improved during the quarter, which helped operating margins by 40 basis points. However, that was offset by investments in building onsite talent supply chain, including subcontractors, higher sales investments, cost of new H1 visas, and an increase in other business overheads, all of which impacted margins by 140 basis points. So overall, there was a 100-basis-point reduction in operating margin sequentially.

We ended the quarter with a total headcount of 209,905 employees, which is an increase of 2.8% from last quarter. Gross headcount addition increased to 17,709 from 12,329 last quarter. The subcontractor expenses this quarter stood at 6.8% of revenue, as compared to 6.1% of revenue last quarter. As you know, the subcontractor expenses are driven primarily by utilization levels and onsite talent demand.

Cash generated from operating activities in Q1 as per IFRS consolidated was $631 million and we paid $64 million of taxes as per the APA entered into United States IRS earlier in 2018.

Capital expenditure for the quarter was $79 million, which is about INR537 crores. Free cash flow, which is operating cash flow less capex for the quarter was $552 million. Cash and cash-equivalents including investments stood at $4.202 million, which converts to approximately INR28,774 crores. Day sales outstanding for the quarter stood at 66 days, compared to 67 days last quarter, a decrease of one day led by better collections.

Q1 witnessed huge volatility in currency markets and we managed to navigate the same effectively. The yield on cash for the quarter was 7.2%, as compared to 7.29% last quarter. Hedge position as of June 30 was $1.956 million.

In Q1, the EPS declined 6.5% sequentially in dollar terms and 2.1% in INR terms. As compared to Q1 of last year, EPS growth stood at 3.9% in dollar terms and 9.1% in INR terms. As you would recall that in March 2018, based on the conclusion of a strategic review of the portfolio of businesses, we had initiated identification and the valuation of potential buyers for Panaya and Skava and reclassified their assets and liabilities as held for sale. During the quarter, we continued negotiations with potential buyers of Panaya.

On remeasurement, including consideration of progress negotiations on offers from prospective buyers for Panaya, the company has recorded a reduction in the value of disposal group held for sale amounting $39 million in respect of Panaya. This impacted the net profit for the quarter by $39 million, and EPS for the quarter by $0.02.

During the quarter, the company executed its capital-allocation policy announced earlier by paying a final dividend of 20.5 shares. With this, the dividend paid to shareholders for fiscal '18, the 70% of free cash flow was distributed in line with the capital allocation policy. The company also took steps executing the capital allocation policy announced in April 2018. As per the policy, out of the $2 billion identified to be paid to shareholders, approximately $400 million was paid out as a special dividend in June 2018.

The balance amount of $1.6 billion will be paid out to shareholders for fiscal 2019 in such manner to be decided by the board. Further updates on this will be provided in due course.

The board in its meeting held on July 13 has considered, approved, and recommended a bonus issue of one equity share for every equity share held, and a stock dividend of one American Depositary Share for every American Depositary Share held, as on the record date yet to be determined. Consequently, the ratio of equity shares underlying the ADS' held by the American Depositary Receipt holder would remain unchanged. The board approved and recommended the issue of bonus shares to celebrate the 25th year of Company's public listing in India, and to further increase the liquidity of its shares.

The bonus issue of equity shares and ADS will be subject to the approval of shareholders and any other applicable statutory and regulatory approvals. We voluntarily delisted our ADS from Euronext Paris and London. The primary reason for voluntary delisting from Euronext Paris and London was the low average daily trading volume of Infosys' ADS on these exchanges, which was not commensurate with the related administrative expenses. However, our ADS will continue to be listed and traded on New York Stock Exchange as before.

Coming to operating margin guidance for fiscal '19, we're retaining our operating margin guidance in the range of 22% to 24%. Coming to revenue guidance, in constant currency terms, we continue to retain 68% and based on March 31, 2018 rate, we retained in U.S. dollar terms 7% to 9%.

With that, we will open the floor for questions.

Questions and Answers:

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session [Operator instructions]. The first question is from the line of Joseph Foresi from Cantor. Please go ahead.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

I was wondering if you could talk about financial services. The performance there was obviously below some of your peers, and you've had some pretty good data points that things are picking up. I think you've talked about some cost reductions but you thought it was going to reverse. Maybe you could just delve into those cost reductions on the client part and why you think it would reverse?

Pravin Rao -- Chief Operating Officer and Whole-time Director

This is Pravin here. In financial services, we had a soft quarter, primarily due to insourcing and reduced spend in a couple of accounts. Having said that, we have seen very strong pipeline, about 40% of TCV of large deal wins that we had this quarter was from this sector. And after several quarters, we're seeing good demand and conversion in the Americas, and we expect the growth in the Americas in the coming quarters to outperform the other geographies for this sector.

While Europe was soft in Quarter 1, we expect the momentum to come back in the coming quarters. Given our competitive position in this space and the diversified portfolio that we have across geographies and sub-segments, we remain optimistic about this space.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

And then, I want to get some background on digital. You've given some color around what percentage of revenue it is. How are you competing for the digital dollars? I am curious as to what Infosys' competitive advantage is there and are these open bids, or are you getting the digital dollars from existing clients?

Pravin Rao -- Chief Operating Officer and Whole-time Director

On digital, as you referenced, we've had a strong performance in Q1 with growth and the scale of the business expanding. Today, way we're seeing our clients move to digital, we see a lot of traction that comes from one of the five areas that we've defined on experience, data analytics, IoT, cloud, and cyber security assurance. Some of those projects are competitive, many which are in our existing strong client relationships are places where we are proactively seeking and billing those client-related work. We're also introducing to our clients two of our recent acquisitions, one our Brilliant Basics in the UK and the second WongDoody in the U.S.

And this is forming the base of our experience within the digital space.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

And then just lastly, I was wondering about the margins. Utilization, I think I've never seen it higher for the firm. I think it's 86% excluding trainees. So I was wondering, what is the biggest margin driver at this point and can utilization go higher from this particular level, and how do you offset another [ph] pricing pressure going forward? Thanks.

M.D. Ranganath -- Chief Financial Officer

This is Ranga here. If you look at the margins, as you know it sequentially dropped by 100 basis points. If you were to break it up, currency in the rupee, net of the gross currency was 100 basis points of positive impact, which was entirely offset by the compensation hikes that we announced for 85% of our employees effective April 1. And we gained about 40 basis points on account of utilization improvement as well as the onsite mix.

As you know, the onsite mix has considerably come down for the last couple of quarters, and it is now 12 quarter low [ph]. That gave us about 40 basis points. Then we had additional investments that we made including the G&A as well as increased subcontractor expenses amounting to 140 basis points, so the net decline was 100. So as we announced at the beginning of the year while we continue to make gradual investments in digital, at the same time, we also continue to optimize.

One of the elements that I would like to highlight here, should note is which I also highlighted is the per capita revenue improvement. It has happened on three or four accounts, one, of course, our gross margins for the digital business is higher than the core IT services and that as a percentage share of digital increases that gives us some benefit on the gross margin, as well as the operating margin. Second, some of the service lines which are more amenable to automation lines such as [Inaudible] maintenance and infrastructure, we are able to kind of intensify some of those productivity improvements and of course the utilization itself. So I think a combination of these factors has been drivers.

As I was telling earlier, the utilization we believe that the runway is limited from here but other levers that I talked about we continue to focus.

Operator

Thank you. The next question is from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

So your constant currency revenue growth guidance conveys that you expect some upcoming growth acceleration. I wanted to ask if you can elaborate on the sources of that growth acceleration. And if you can specifically share your thoughts on how much of the acceleration outlook is coming from improved trends in the market versus improvement in your competitive performance outlook?

Salil Parekh -- Chief Executive Officer and Managing Director

In terms of what we see in the demand environment looking ahead, we've had an especially strong quarter in retail. The demand environment in that segment for us remains positive. We also saw good traction in energy, utilities, our services business, manufacturing, and insurance. As Pravin mentioned, there is demand coming back in the U.S.

geography; and in Europe, we still see a good demand; and in the Australian market as well. To the question on where we see the distinction between our own and the market view, I think the strong traction we're starting to see digital, coupled with some of the investments we're starting to make in our go-to-market and digital footprint gives us some level of confidence, and this will be one of the areas where we see continued growth.

Also, our core services, which is powered by artificial intelligence, which is giving tremendous productivity improvements to our clients and to us are seeing a good traction in the market, and we believe we are very competitive in that space in the market. Between that combination of things, we see the demand environment is quite solid at this stage.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

And if you break the demand environment into consulting deals versus outsourcing deals, or project-based deals versus long-term contract deals, where are you seeing the most incremental improvement over the last few months? Is it on the consulting and project side or is it on the outsourcing and long-term contract side?

Salil Parekh -- Chief Executive Officer and Managing Director

One of the things we've seen recently is the, what we announced in Q1 with large deals that's over $1 billion, it's an upward trend if you look at our last six to seven quarters, and we feel confident that the large multiyear deals are something that we are starting to play better and better at. We also see more and more project activity, which is related to specific areas. For example, we see some of that in our digital banking space, we see some of that on our retail segments, and some of that in our manufacturing areas. So at this stage, there is no one which is more or less, we see stable traction across both in those spaces.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

And then one final quick question. So you've now been in place for a few months. And I wondered if you could give us your view on what's the biggest bright spot that you found in the organization that you view as a real bright spot that you can build on, as you've gotten to know the employees and the positioning of the company better? And then what's the biggest challenge you see going forward that you want to work on? Thanks.

Salil Parekh -- Chief Executive Officer and Managing Director

In terms of where we've seen and I've seen some trends in meeting with over 70 clients over the past few months. The thing that's really resonated the most is the debt we have in our delivery, and the strength of that across both the new digital areas and our core services with the AI infused in it. With delivery really the super strength within the company and based on that and based on those relationships of trust, I think we can build a good future for the company with these clients and new clients.

In terms of challenges, we have some businesses where we need to do more work. We've seen recently our consulting business turn a corner where we've stabilized the revenue quarter on quarter. And we still have to work on margins there. And we see, for example, a business in China which needs some work and focus.

So we have a couple of these areas within the company that needs attention. And we put in place plans to work on those businesses and hopefully, bring them to a positive situation in the coming quarters.

Operator

Thank you. The next question is from the line of Ankur Rudra from CLSA. Please go ahead.

Ankur Rudra -- CLSA -- Analyst

So your 1Q performance in banking, as you said, wasn't very strong but it does seem at odds with the forward-looking commentary and with dealer traction. Could you perhaps elaborate how long the pressures from in-sourcing that you've seen in a few clients will continue to pressure this versus the growth you see in your new deal win? So when do we see the balance turning more positive?

Mohit Joshi -- President

Ankur, this is Mohit here. I think as Salil mentioned, we saw the in-sourcing challenges last quarter but we see the rebalance coming back, which is why moving forward for Q2 and beyond we think that on balance we are optimistic about the status of the portfolio, which you also see in the large deal wins and in the addition of the $100 million clients and the two additions to our $100 million client portfolio. Our insurance business has been strong over the past few quarters and few years. And both on the services side and on the platform side, the business continues to do well.

The [Inaudible] business as Salil alluded to is being rated as a top performer by Gartner. And with the pivot to digital, we are seeing a lot of opportunities just about a week ago we would have seen an announcement where we've been selected as the global cash management platform partner by Santander in the UK. So hopefully this gives you more of a color. In any business which is as large as ours and with a significant degree of client concentration, you always see a set of headwinds either it's in-sourcing or its budget cuts, especially because of client concentration and you see some tailwinds, like the pivot to digital, like the full use of our capabilities on the digital centering.

So it's always a balance but on balance, we're optimistic about the flow and the potential for the balance of the year.

Ankur Rudra -- CLSA -- Analyst

And quickly on retail as well. Can you elaborate what was the performance of the retail business on a pro forma basis? I understand there is probably some contribution from WongDoody, maybe some headwinds from Skava. So adjusted for those two events, how is the business and how is the perception of demand evolve? Thanks.

Pravin Rao -- Chief Operating Officer and Whole-time Director

In the CRM space, we had perhaps another best growth in some quarters, on a constant-currency basis, 26.5% growth largely driven on the back of large deal wins in the last couple of quarters, as well as growth in some of the existing accounts. Within that segment from a consumer technology company's perspective, we continue to see a large demand. Whereas when you look at it from a CPG and logistics perspective they remain a challenge and there is a lot of focus on direct-to-consumer and so on.

And even on the core retail side, they're facing continued disruption from the likes of Amazon, Facebook and so on. So we have seen a lot of increased spend to counter the disruption that they're seeing and that has translated into the kind of growth that we are seeing in this quarter. Having said that, we have seen some green shoots but perhaps it's a little bit early to say that with momentum will continue the rest of the year. We remain cautiously optimistic in this space.

Ankur Rudra -- CLSA -- Analyst

And just a quick question on the margins. Clearly, Ranga, you mentioned that you have 100 basis points gain from the currency net of gross. Maybe this was somewhat unexpected. Why aren't you changing your margin guidance given where we are on the spot? Thanks.

M.D. Ranganath -- Chief Financial Officer

Well, at the beginning of the year when we said 22% to 24%, we had said that we would also be making certain gradual investments in our digital area, refocusing sales and U.S. localization, etc. So we expect a gradual uptick in those investments in the balance quarters and we are comfortable with 22% to 24%.

Ankur Rudra -- CLSA -- Analyst

So are you saying that any margin tailwind that comes to which was unexpected would also be invested, so your investments may accelerate sort of reinvesting? Or are you saying you'll see this as it goes through the year?

M.D. Ranganath -- Chief Financial Officer

No, as I said earlier as well, clearly, we know what exactly the investment that we are planning for in these areas. So any tailwind for the margin does not necessarily mean that we're going to invest that extra benefit into these investments, because we clearly have concretized those investment plans.

Operator

Thank you. The next question is from the line of Yogesh Agarwal from HSBC. Please go ahead.

Yogesh Agarwal -- HSBC -- Analyst

Just have a couple of questions, firstly on the attrition. Attrition in stand-alone business is now highest last 15, 16 quarters now. And I get the seasonality part but it's still very high considering industries growing just 6%, 7%, so is it something which bothers you guys or is it OK in your scheme of things?

Pravin Rao -- Chief Operating Officer and Whole-time Director

Yogesh, this is Pravin here. As you rightly said, part of the reason for high attrition is seasonality. Having said that it's higher than what we have seen in the past. In the last few quarters, we have done multiple things from employee-engagement perspectives giving ... this time we had compensation increase for 85% of the workforce on time starting April.

We've had 100% of variable pay in the last couple of quarters and so on. There is a lot of focus on reskilling and training and so on. And we have analyzed based on our analysis, we find that the main areas or our problem area, in this case, are people with two to four-year experience. So we are now looking at maybe two or three interventions to address and bring this attrition level down.

So we do expect the attrition to come down in the subsequent quarters.

Yogesh Agarwal -- HSBC -- Analyst

And then just follow up, Ranga, maybe for you. How should we look at the balance of onsite cost reduction and onsite investments? Because you have been talking about a reduction in onsite cost, and I think it's a very quarter low, which you just mentioned but the subcon cost is all-time high probably and then you are saying all the investments are with locals and subcontractors. So how should we look at the balance, are they offsetting each other or one is higher than the other. Could you just help clearing the air?

M.D. Ranganath -- Chief Financial Officer

Clearly, this quarter if you look at the onsite employee cost as a percentage of revenue that's got tagged below 38%. As you rightly said, the subcontractor cost has an interest of 6.8% of revenue. I think when you look at the onsite supply chain, we had to ensure that especially given some of their short-term visa, visa kind of challenges we need to really ensure that the supply chain for some of the projects is uninterrupted, that is one aspect but at the same time, what we have also done, as I was mentioning earlier in my prepared, we're looking at the fixed price projects onsite.

And we're doing a combination of building a pyramid, the thousand fresh graduates that we hired, they've been deployed in these fixed price projects and to some extent even in T&M projects, they are at a very healthy utilization level. So our ability to build at pyramid onsite is clearly increasing, so that is another factor that I think to keep in mind. Second, I think some of the productivity improvements on the onsite, fixed price projects, without dropping the revenue all the productivity improvements could kick into us.

So I think the way we are seeing this is that we do not see the onsite, the local hiring to significantly change the cost structure as a percentage of revenue. In digital and couple of other areas, while the localization level could be higher and they are also coming at slightly higher points but as I said earlier, the gross margins for our digital revenue is also higher, which essentially means that as a percentage of revenue to the employee cost could be in the desired level so a combination of these levers that we are looking at.

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

My question is around fixed price contracting and automation. How much success have you had and convinced your clients to move to a more fixed price or fixed output based pricing, so you can then deploy your automation? Where are we in that spectrum and how much more opportunity is there?

M.D. Ranganath -- Chief Financial Officer

This is Ranganath here. That's a good question. If you look at last eight or nine quarters, the percentage of revenue from fixed price projects has moved from early to mid-40s to close to mid-50. One of the things that have happened is even from the customers' standpoint of view, they want the certainty on their cost.

For us, it also offers an opportunity to enhance productivity in those fixed price projects, especially on site. And given the revenues fixed, we have an opportunity to keep those productivity improvements.

Now, when you plan for fixed price projects, there is an on-site component there is an offshore component. And at this point in time, especially over the last three or four quarters, our focus has been how to enhance productivity in the onsite fixed price projects whereas you know the per employee cost is significantly higher than India. So for the same reduction of our project manager or a software engineer in on-site gives us a nonlinear benefit on the margin as compared to the offshore. So that is where our focus has been.

And the second one is really on the pyramid aspect that I talked about. Barely a few quarters ago, the propensity for our clients to accept freshers on site was quite limited but I think now, especially in some of the new niche technologies where we're able to train the fresh hires from colleges, which we have hired thousand and they're able to get deployed in these projects. And the propensity to accept them has also significantly increased. So a combination of productivity, as well as the pyramid building on site, is one approach that we are taking.

Edward Caso -- Wells Fargo Securities -- Analyst

My other question is going back to foreign exchange impacts here. I assume you had anticipated weakening rupee in your guidance. Did it do what you thought it would do, did it happen sooner in the year than you thought it would? Just trying to understand that if the rupee hadn't done what it did this quarter, would you still have made the investments that you made? Thank you.

M.D. Ranganath -- Chief Financial Officer

As you know, we have a 22% to 24% operating margin guidance at the beginning of the year but that took into account the strategic investments that we need to make. We've pretty much crystallized those investments, in which area, one is, of course, the sales revitalization, the localization of talent in the U.S. and digital investments and repurpose [ph] of talent. We've pretty much crystallized clients on how do we go about investing there.

Now yes indeed yes, in this particular quarter, the tailwind on account of currency, especially rupee-dollar helped us by 100 basis points at the same time but we also had improvements in operational efficiency that I talked about, about 40 basis points came from on-site mix and utilization and slightly higher component of digital in our share, which is also higher gross margin, gave us some benefits. So to answer your question, I think our plans are pretty much concretized where we want to invest and there will be gradual investments, and we have a gradual client for that. At the same time, based on the current currency rates, we are pretty comfortable with 22% to 24%.

Operator

Thank you. The next question is from the line of our Ashish Chopra from Motilal Oswal Securities. Please go ahead.

Ashish Chopra -- Motilal Oswal Securities -- Analyst

I just wanted a clarification on the guidance and had a question on the margins, firstly since WondDoody has been now integrated as on 22nd May. Would it have a significant impact on the CC revenue growth guidance?

M.D. Ranganath -- Chief Financial Officer

On the revenue guidance of 68%, we're comfortable with that band and no material change on that.

Ashish Chopra -- Motilal Oswal Securities -- Analyst

But that would now include because I think last quarter you had clarified that it was not included because the acquisition wasn't complete back then but would this now be including actually the clarification as I see?

M.D. Ranganath -- Chief Financial Officer

Yes.

Ashish Chopra -- Motilal Oswal Securities -- Analyst

And secondly on the margins, Ranga, so what we've really seen is in the past five years, so the first quarter is usually the lowest quarter as far as the margins go and then they just gradually progress and that's understandable given the wage hikes, etc., but is there anything, as far as your budgeting goes, which makes you believe that it would play out differently this time around but for the vagaries of currencies, etc., because like you mentioned that you've calibrated the investments pretty well and you're sticking to that plan. So any reason why we should expect it to play out differently than a normal year?

M.D. Ranganath -- Chief Financial Officer

Well, I think your assessment of the past is correct in that look, initially, we start with the lower Q1 and it increases. I think this year we don't want to give any such trajectory. We have a certain investment plan that we have in mind and which we have concretized. And I think we have taken into account all those factors while we have guided to 22% to 24%.

At the same time, as I responded to earlier questions, any additional tailwind if it comes, either currency, etc., I think we're not going to further enhance the investments, we know what investments we need to make.

Operator

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

Diviya Nagarajan -- UBS Group -- Analyst

On the banking side, I think you had earlier talked about how banking would see some improvement on a year-over-year basis in fiscal '19 versus '18. Given the start that we've had in Q1, does that still hold? Do you still expect banking to pick up on a year-over-year basis? And secondly if not then what really picks up the slack as far as your guidance is concerned? Thanks.

M.D. Ranganath -- Chief Financial Officer

So the first piece is around Finacle and the Finacle piece, while there isn't a gigantic core banking wave happening, there's a lot of interest in the digital components at Pinnacle, a lot of interest in the blockchain components. And so we feel that that business has a good trajectory for the remainder of the year. On the services side, there has been an uptick in our U.S. business and we feel that that is stable.

And finally on the Europe side, again we had weakness in one client this year, because of project delays and cancellations. And I expect growth to come back to some degree in Q2 but after that, we see a strong trajectory for that business.

The insurance business has been a strong performer for us, both on the services side and increasingly on the platform side within the McCamish platform that we have. If you look at all the components of the business, the Finacle business with increased trajectory and increased visibility on the digital component of Finacle, if you look at the services business again we'd spoken in Q4 about in-sourcing for one of our large clients but we believe that that rebalancing is pretty much complete and that business has grown faster than the overall portfolio.

For the Europe business, as Pravin and Salil mentioned, we had a muted performance in this quarter. And we see some growth coming back in Q2 but a strong performance for the remainder of the year. The rest of the world business has remained strong and so hopefully this gives you more color to the business. As I had mentioned in my previous answer to Ankur, the fact is that this business has a very high degree of client concentration, just like with our peers.

And so when you have this mix of client concentration and certain headwinds like sudden budget cuts or a degree of inflation. And you have these tailwinds like the greater move toward digital, very strong strength in running significant transformational programs like a lending transformation or a trade transformation. It does make for a complex business to forecast but having said that and because we've been very successful in this business for past many years we had a very strong record over the past 16 to 20 quarters. On balance, we remain optimistic about this, about our potential in this business over the remainder of the year.

Diviya Nagarajan -- UBS Group -- Analyst

And on the large deals, I noticed that your TCV has gone up. Could you give us the color of the renewal versus new components in that mix this quarter? Thanks.

M.D. Ranganath -- Chief Financial Officer

On the large deals, TCV that what's you're asking, Diviya?

Diviya Nagarajan -- UBS Group -- Analyst

Yes, I just want to understand what is ... So I think in the past you've given us a sense of whether what percentage of that is 100% new deals and versus renewals if you could help me understand that.

M.D. Ranganath -- Chief Financial Officer

We've got for this year over $1.1 billion in large deals, of which 47% has come from net new, and as earlier mentioned 40% come from our financial services sector.

Diviya Nagarajan -- UBS Group -- Analyst

Thank you. I'll come back for follow-up if there is time, thanks. Have a good day.

Operator

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

Moshe Katri -- Wedbush Securities -- Analyst

Congrats on very strong TCV. Looking at the 40% you've been talking about in terms of financial services. Can you give some color on whether what's the mix between North America versus the other part of the business? And then are we calling a bottom to the weakness in financial services given the TCV and given the ongoing ramp or the conversion of the existing backlog and bookings into revenues? Thanks.

M.D. Ranganath -- Chief Financial Officer

Those are the large deals that we've spoke about, both of them are in North America. As far as calling a bottom is concerned, look, as we've stated in the previous commentary, I think we remain optimistic about our potential in this business over the remainder of the year. It's a complex business. It has its own headwinds and tailwinds but we've had a very strong track record.

We've seen a huge amount of uptick of our digital suite of businesses. And we are, on balance optimistic about the potential of the business for the remainder of the year.

Moshe Katri -- Wedbush Securities -- Analyst

And just as a follow-up, is there anything different in terms of how you close the quarter on a monthly basis looking at April, May, and June in terms of the pickup in the business? Have you seen a steady pickup, have you seen that catching up toward the end of the quarter, maybe some color on that?

M.D. Ranganath -- Chief Financial Officer

Are you talking specifically to financial services or across the company?

Moshe Katri -- Wedbush Securities -- Analyst

Financially services and across the company.

M.D. Ranganath -- Chief Financial Officer

Overall, we don't see any monthly valuation in a quarter if that's the question, if I have understood it right. Overall, the volume pickup for us in Q1 was quite strong and overall, the quarter-on-quarter growth for the company remain in constant currency at 2.3. With the large deal wins and some of the traction we're seeing in large accounts, both in financial services and across the company, we remain positive with respect to what we see in the demand environment. We don't see a monthly distinction in that at least not in what we've seen so far.

Operator

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

I wanted to ask two longer-term questions on margins, and I'll ask them concurrently since they are related. The first is on your on-site offshore mix is with all the Connecticut and Indiana, and Australia. Do you anticipate that the mix of delivery will change? I think you've been at roughly 70-30. Will that change over the next few years? And I understand that you've mentioned that you can have a pyramid scheme onshore if you will but wouldn't the cost of onshore labor still or the profitability of the onshore labor still be less than what you can get offshore? So I'm just trying to understand the margin implication, and actually as my follow up question.

So if you can just talk about the onshore-offshore mix over the next couple of years, and what the margin implications would be?

M.D. Ranganath -- Chief Financial Officer

This is Ranga here. Now coming to the onsite mix, if you look at the last seven, eight quarters, it has come down from little over 30 to 28 level. We did not see a significant change from the overall 30-70 structure that we've had. We don't see significant change.

The question is because of the digital, which tends to have higher onsite, as well as the higher localization would it change. Our current assessment is that at least in the near term, we don't see a significant change in that.

Point number two is the point on the localization, what we're doing is really the composition of the workforce onshore is changing. What I really mean by that is the percentage of visa-independent folks or the local hires would keep rising. So that is one part. The second part of the pyramid is ... when I say pyramid, it includes the freshers that we hired from the U.S.

universities or any other local universities. There we have found that for the concomitant H1 hires with the similar experience clearly, those hires are coming at an attractive ... the cost equation.

So the thing is we also make them undergo three months of training onsite. We just announced the Indiana training center. So they'll undergo a three-month ... I think at the first batch there's already thousand people have undergone and their utilization level is also high and the propensity of the clients to deploy them in projects is also significantly higher than what we saw maybe a year or two year ago. So to come back to your question no significant change on account of business mix and the onsite-offshore ratio; second, building the pyramid onsite is a gradual process that we'll continue to focus on; and third, while some part of the digital in the initial phases we'll have higher larger onsite component.

What we have seen is also that as the scale increases, I think our flexibility and ability to offshore some of that has also happened. Now, for example, Salesforce.com related implementation barely a few quarters ago with a very high onset component. And as they built up the scale and as we also got trained a lot of folks offshore, the offshore component has been increasing. So I think it's all about scale and as well as our ability to train.

So a combination of these factors, I would say that in the near to medium term, we don't see a significant change in the on-site offshore mix structure.

Keith Bachman -- BMO Capital Markets -- Analyst

My follow-up question is related. This year you anticipate making incremental investments, which is why you're guiding margins down for the year. No change from your original guidance but how investors understand that this year is not a trend rather than an anomaly? In other words, what gives you the confidence that in subsequent years because the business mix is changing, you will have to make incremental investments [Inaudible] pressure to margins why is this year one-time? And that's it for me. Thank you.

M.D. Ranganath -- Chief Financial Officer

So I think as we outlined in April, there are certain areas where we see an opportunity to invest to leverage on growth, so I think that's what we have made. And they've had a detailed plan and we're concretized where we want to invest, how much we have to invest. And, of course, on an ongoing basis even in our core IT services, we make a lot of investments whether in training people and attracting certain specific niche talent that we continue to make. I think that's the normal course of enhancing our capabilities from time-to-time that happens.

I think what we outlined this year was essentially revitalizing sales we had to, especially our focus on large deals and certain new geographies and things like that, as well as certain digital competency investments. While there will be an ongoing investment as a normal course of business, I think what we outlined this year is something that we want to do for about the next 12 months.

Operator

Thank you. The next question is from the line of Viju George from JP Morgan. Please go ahead.

Viju George -- J.P.Morgan -- Analyst

Just had a couple of questions on wage hikes, I think you indicated that the wage hike impacted about 100 basis points. Isn't that a little lower than what a normal impact is?

M.D. Ranganath -- Chief Financial Officer

Viju, hi. Ranga here. I think this year also we gave 6% to 8% in India and 1% to 2% onsite. And there's no difference in terms of the impact.

As you know for 85% of the employees we have rolled out, effective April 1 and for the balance 15%, we'll be rolling out from July. So to that extent, there will be some catch up in Q2 but not very, very significant.

Viju George -- J.P.Morgan -- Analyst

So I think it's pretty much on par with prior years?

M.D. Ranganath -- Chief Financial Officer

Yes, for 85%, we have already rolled out effective April 1, for 15%, effective July 1st. To that extent, there will be some catch-up but not significant.

Viju George -- J.P.Morgan -- Analyst

The other question I had was on the investments you mentioned Ranga. I mean it's 140 basis points investment you've put in there, that's almost $40 million. Now you I think increased [Inaudible] cost is also part of that, which is $20 million Q-o-Q. That still is a fairly large gap of $20 million of investments to do in a single quarter.

And I don't think it has taken the form of sales and marketing, because the sales and marketing people costs are pretty much flat, even mildly down Q-o-Q. So where are $20 million investments gone to?

M.D. Ranganath -- Chief Financial Officer

I think the trajectory of investments, as we've said it is gradual, some of these investments, as you know and also in terms of hiring and etc. If you look at some of the investments that you talked about are split between three components, one is the U.S. talent model that we have to invest that will be reflected in the onsite employee costs that will be part of that. Then we also had certain localization investments, which will be part of the G&A as well.

Then also in certain specific digital skills, we also had to invest in subcon to some extent, so a combination of all three that we are talking about.

Viju George -- J.P.Morgan -- Analyst

But I have just to take it forward, if I may where does it get reflected, because S&M people costs don't seem to have moved Q-on-Q. G&A people costs don't seem to have moves Q-on-Q. Is this largely seen in the cost of revenues as far as localization cost is concerned?

M.D. Ranganath -- Chief Financial Officer

One way I would suggest, Viju, one way to look at it is to look at the average quarterly cost of our FY'18 that will give you a trend line. Just on a sequential basis, we cannot totally indicate to you, because there is an effect of both currency as well as the other elements but to answer your question, these are split into these three components. And if you get into an average, the quarterly average of the last three that will give you an indication between G&A, sales, and on-site employee cost.

Viju George -- J.P.Morgan -- Analyst

And one last question was on gross margin, your gross margins have declined 60 basis points Y-o-Y. Logically speaking, if I look at on a Y-o-Y basis, you've had several tailwinds in [Inaudible] while you've had utilization that moved 170 basis points, you've had an exchange rate that depreciated over 4%, digital you said has gained traction and typically margins in digital are better. On-site you've been bringing down the component of on-site, yet your gross margins have declined despite all these tailwinds. So what does it mean? Does it mean that the legacy business margins are coming down more sharply and is something there to be concerned about?

M.D. Ranganath -- Chief Financial Officer

I think one point is we need to recollect the Q1 of last year. We did not have comp review, it was rolled out effective July. So then this quarter, we have rolled out April 1 as well, as well as the last year that July 1 is also playing in there that was not in the previous Q1. So this is the combination of the fact.

Viju George -- J.P.Morgan -- Analyst

And the last question, I mean, you did talk about interventions debt. Is attrition at the middle to senior level a matter of concern now? Because at least you've lost two business heads very recently. Are you seeing attrition at levels, one or two levels below them as well and is that concerning, and why is this happening?

Pravin Rao -- Chief Operating Officer and Whole-time Director

This is Pravin here. As I've explained earlier, the attrition [Inaudible] primarily with people with two- to four-year experience. We're not seeing any that the same trends at senior level. The attrition is much lower and under control.

We did have a couple of exits in the recent past. And as we've always maintained it's sad to see people leave who've been with us for a fair amount of time and contributed. And people do get opportunities, and they want to pursue different things, we've to just [Inaudible]. We have a strong leadership and in one sense it gives an opportunity for our people at the next level to step up.

And we have already identified a replacement for the two people who left and there's no impact.

Viju George -- J.P.Morgan -- Analyst

And has the high performing attrition, attrition of the high performers, has that also moved up because in the past that was the metric you were more concerned with rather than overall attrition. Is that also moved up to cause concern?

Pravin Rao -- Chief Operating Officer and Whole-time Director

Yes, this quarter, we have seen increasing high-performance attrition as well. In the past, you're absolutely right. Concern about high performer attrition was on the lower side. This quarter has been an exception.

So as I said earlier, we have already identified [Inaudible] and we are confident that we should be able to bring it back under control.

Operator

Thank you. The next question is from the line of David Grossman from Stifel. Please go ahead.

David Grossman -- Stifel Financial Corp. -- Analyst

I am wondering if I could go back to the comments, or the revenue productivity per employee. It looks like the productivity is still down, yet utilization is up. Does that tell us anything about pricing? And if so, can you just help us walk us through that?

M.D. Ranganath -- Chief Financial Officer

Hi, Ranga here. If you look at the per capita revenue that is the total revenue [Inaudible] by total employees that has gone up during the quarter. So year on year, it has gone up by 5.7% [Inaudible] also it has gone up. Probably referring to the price realization number, well, I think I would not draw too much of theme on the sequential basis.

I think year on year is a much more indicative number; pretty much it is flat.

David Grossman -- Stifel Financial Corp. -- Analyst

So you're saying like-for-like pricing on a year-over-year basis has been relatively flat?

M.D. Ranganath -- Chief Financial Officer

Yes. The price realization that is the revenue per billed employee in a broad term, so price realization that has been flat, which is some kind of a surrogate indicator of pricing. However, if you look at the revenue per employee, which essentially takes into account the productivity improvements which includes both billed as well as unbilled the total revenue, that has been going up, which is the reflection of two things; one, the rate of growth of revenue is higher than the rate of growth of headcount in certain services, essential infrastructure management, testing and maintenance services, which are more amenable for automation that's where it has happened; and it is also of course to some extent influenced by utilization, as well as the percentage of digital revenue growth' and as digital is coming at a higher gross margin currently, that will also have a play on that.

David Grossman -- Stifel Financial Corp. -- Analyst

And then just a question on FX. Can you help us better understand just the dynamic when you see these volatile currency environments? I mean one of your competitors said ignore currency because it will impact wage hikes and another spending. Is that how you view it? And how do these fluctuations in currency eventually accrue back to the client over time?

M.D. Ranganath -- Chief Financial Officer

Was the question about how are the fluctuations currently impact the margin?

David Grossman -- Stifel Financial Corp. -- Analyst

Well, it's a broader question just about how currency flows through over time. So one of your competitors said, you really shouldn't look at the impact short term on margins from currency fluctuations, because it will affect spending levels, wage hikes or another spending. And so that's one question. Is that really how you view it as well? And then secondly, I have to assume that eventually, currency fluctuations accrue back to your clients.

And I'm just wondering if you could walk us through that dynamic?

M.D. Ranganath -- Chief Financial Officer

Well, I think as you know, the currency is an important element, especially U.S. dollar in India. And last year, for example, it was adverse in the sense that rupee had appreciated. So it does have an impact on the margin, primarily because the offshore costs are translated back differently.

However, when we planned we clearly look at -- we're not linking our investment plan, or probably other cost elements that we need to do primarily on the expectations of a currency movement, it is primarily driven by the business need. And of course like this quarter, the tailwind and the currency helped us to some extent but that's not always the expectation that, look every quarter we expect certain currency and based on that we budget.

I think primarily that's why the plan to [Inaudible] for margins, so is why 22% to 24% and the first quarter is at 23.7%. And we have planned such an investment as we have outlined at the beginning of the year and they are gradual investments. And at the same time, while as I was mentioning earlier, there are operational efficiencies and cost levers that we have, both productivity based as well as the other factors like an on-site pyramid and so on, we'll continue to leverage them as we make these investments competently we'll also be optimizing these levers. So we are comfortable with the current band.

David Grossman -- Stifel Financial Corp. -- Analyst

And just one last question on the subcontractors, as you mentioned, it did pick up as a percentage of revenue. And obviously, you've had two consistent quarters of relatively strong bookings. So is the increase in subcontractors just a function of better bookings and ramping capacity to meet that? Or is there something more behind just the mix of business that's mandating as you get different skill sets so you don't currently have in-house?

M.D. Ranganath -- Chief Financial Officer

So as we said, there are three factors in play on subcontractors expenses, one, of course, certain digital projects, etc., that we undertake in the initial stages, which has higher on-site component. And sometimes the current visa environment provides us with challenges to start those projects on time. While to some extent we are mitigating through local hiring, still we have some play to go there. So that is one of the reasons that demand subcontractor expenses come.

Second and very important point is also that we're running at very high utilization level that also plays into that.

So one point to note is that when we look at our total employee costs, we look at both aspects; the onsite employee costs as a percentage of revenue as well as the subcontractors expenses as a percentage of revenue. The whole idea is when we engage subcontractors we need to also to ensure that the corresponding billing rates to reflect their prices are also there. As they're typically getting incremental, ones are getting into a higher price, higher billing rate digital projects, that percentage is [Inaudible].

Operator

Thank you. The next question is from the line of Srinivas Rao from Deutsche Bank. Please go ahead.

Srinivas Rao -- Deutsche Bank -- Analyst

I have two questions, first, your share of digital continues to increase but this quarter, at least on a quarterly basis, we see fixed price and a project actually share coming down. Could you give some color as to do the digital projects are also you're getting are on a time and material basis, or they're generally skewed toward fixed price? So that color would be helpful. Second, within your digital stack, any feedback on the type of projects which are getting a share of cloud migration is more, or as you said, the share of experience projects. Any such feedback would be helpful.

And third, just further taking the point which you answered in the previous question. As you said the subcontractor expenses also need to be appropriately billed, which means they have a positive impact on revenue but they're not part of the employee stack, is that on a seasonal basis, leading to higher revenue per employee number, which you get to see? These are my three questions. Thank you very much.

M.D. Ranganath -- Chief Financial Officer

Let me answer the second question, that's not the case. I think it's not only because of subcontractors are getting billed at a higher rate, the per capita revenue has gone up now, even at a broader pool also, because of the factors more productivity, utilization, automation and the higher digital component. Now, on the other part, I request our president Ravi Kumar to address on the digital piece.

S. Ravi Kumar -- President

So most of our digital revenue is primarily on all the five pillars but the biggest chunk of it is actually coming from cloud transformation projects, which primarily come in a fair bit of fixed price. We do see very pointed projects coming up in cyber security the experienced power which we called out earlier. And then there is a big opportunity around modernization, which again comes in a big chunk; modernization in different aspects of digital; and there is open source migrating workloads to the cloud. There's also great opportunity around agile DevOps and legacy modernization.

So that's where we're seeing the trends of where the digital revenues are evolving.

A lot of our existing customers are actually taking small projects and then they're scaling it up, while large deals come at the opening into digital where we could look at existing landscapes of a client and actually transition those landscapes into the digital world.

Operator

Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal -- Edelweiss -- Analyst

[Technical Difficulty]

Operator

This is the operator, Mr. Agarwal. May we request you to speak closer to the phone, please.

Sandip Agarwal -- Edelweiss -- Analyst

So my question is regarding the guidance, 6% to 8% I understand, it is just the first quarter but this quarter, we have come at 8%. Now, the thing which I'm trying to understand that this 6% to 8%. How do you see the way demand momentum you're seeing, the order book growth and the relatively positive commentary versus last quarter? So is that going to increase, No. 1? And when you are guiding, you are building in that? That is precisely the question?

Salil Parekh -- Chief Executive Officer and Managing Director

This is Salil. In terms of our business environment, we shared over the last few questions and in our press release, what we see in terms of how our clients are reacting to, first, the agile digital capabilities we have and second, the AI and automation infused cost services business that we have. Those things show us that we have good traction in the market, and the overall demand environment is stable. On the guidance side, we started the year and we built a plan and we shared the constant currency guidance at that time.

And that's something that we've done.

We're now focused fully on our clients and the execution of the business. And we're not looking in that sense day to day on what is going on with the guidance. The demand environment discussion comes really from all the interactions that our leadership, our salespeople and many of our delivery leaders have with our clients and what we see in the market generally.

Operator

Thank you. The next question is from the line of Ravi Menon from Elara Securities. Please go ahead.

Ravi Menon -- Elara Securities -- Analyst

Could just give me some color on the last [Inaudible] win rate improvement, I mean do you feel that you are [Inaudible] from last year has improved over the last two quarters. So what's really [Inaudible] broader pipeline and if that's the case where it is coming from; or if it's better to win rate, what's helping you now?

M.D. Ranganath -- Chief Financial Officer

I think we are doing multiple things under large deal side and that has reflected in increased trajectory over the last few quarters. Right from deal origination [Inaudible], we are increasing our engagement with dealer [Inaudible] and industry [Inaudible] who play sometimes an intensive role in helping the large deals. Then we have put together a large deal team dedicated and to bring the best solution, tapping the best talent within Infosys. So that's the other thing that we have done.

And we have also created some incentive structures [Inaudible] incentivizing people to go after and convert large deals. So it's a combination of things but primarily the increased focus and strategic interventions that [Inaudible] in higher win rate in this large deal space.

Ravi Menon -- Elara Securities -- Analyst

And then I noticed that you stopped giving metrics that showed [Inaudible] contribution. Is this prelude to a reorganization of your delivery side and if you could also explain how you've organized your services, the people aligned to the services versus vertical that would be great? Thanks.

M.D. Ranganath -- Chief Financial Officer

As part of [Inaudible] IFSR 15 changes to look in reporting we try to reflect the reporting line that how we are internally organized but really [Inaudible] anything in that sense.

Ravi Menon -- Elara Securities -- Analyst

And last follow-up. Could you give the one [Inaudible] contribution [Inaudible] this quarter?

M.D. Ranganath -- Chief Financial Officer

It's about $2 million.

Ravi Menon -- Elara Securities -- Analyst

Thank you.

Operator

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

Bryan Bergin -- Cowen & Company -- Analyst

A clarification on the North America improved outlook. Is that solely due to an improved pipeline of financial services? Or are you seeing a broader increase in client budgets across other verticals as well?

M.D. Ranganath -- Chief Financial Officer

So North America, we've seen strength in what we've done in retail sector. We see continued strength in energy, utility, resources and services business. We also see a good traction in financial services, which is a change from the previous quarter. The overall environment for us remains stable to good in the U.S.

geography.

Bryan Bergin -- Cowen & Company -- Analyst

And then on the large deals, the two financial services deals that you noted. Are those net new work or renewals?

M.D. Ranganath -- Chief Financial Officer

The two financial services. What was the question? The two ...

Bryan Bergin -- Cowen & Company -- Analyst

I think you mentioned in total earlier how much of your large deals was net new work versus renewals. And you do just for the financial services piece?

M.D. Ranganath -- Chief Financial Officer

Yes, so it's about the same. It's about 43% roughly, 43% of the financial services deals were net new.

Operator

Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.

Apurva Prasad -- HDFC Securities -- Analyst

Just very quick one, if you can just talk about the large deal wins margin profile, how different would that be versus large deals earlier? Thank you, and that's it.

M.D. Ranganath -- Chief Financial Officer

On the large deal wins the margin profile discussion what we've noticed in the large deal wins especially the ones [Inaudible] Q1 there the competitive margin profile is at the start always very strong. However, there is a lot of automation and AI that we built in, a lot of productivity improvement that comes as we get into these deals over a period of time. So from a start perspective, the competitive dynamic is always strong and over a period of time, we start to see productivity in AI and automation with these deals.

Sandeep Mahindroo -- Investor Relations

Thanks, everyone for joining us on the call. We look forward to talking to you again. I would like to Salil to say a few words.

Salil Parekh -- Chief Executive Officer and Managing Director

So thank you, everyone, for joining us for the call. Just to confirm what we've said earlier overall we started the fiscal year with a solid quarter and we see good momentum within our agile digital business. We see our core services automation and AI becoming more and more relevant with our clients. We see a strong margin performance in Q1, and we see the demand environment which starts to give us a good level view into what our clients are spending going ahead.

And this marks the start of the execution of our strategy and of our three-year transformation program. So thank you, everyone, and talk to you at the next quarterly call.

Operator

[Operator signoff]

Duration: 89 minutes

Call Participants:

Sandeep Mahindroo -- Investor Relations

Salil Parekh -- Chief Executive Officer and Managing Director

Pravin Rao -- Chief Operating Officer and Whole-time Director

M.D. Ranganath -- Chief Financial Officer

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Ankur Rudra -- CLSA -- Analyst

Mohit Joshi -- President

Yogesh Agarwal -- HSBC -- Analyst

Edward Caso -- Wells Fargo Securities -- Analyst

Ashish Chopra -- Motilal Oswal Securities -- Analyst

Diviya Nagarajan -- UBS Group -- Analyst

Moshe Katri -- Wedbush Securities -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Viju George -- J.P.Morgan -- Analyst

David Grossman -- Stifel Financial Corp. -- Analyst

Srinivas Rao -- Deutsche Bank -- Analyst

S. Ravi Kumar -- President

Sandip Agarwal -- Edelweiss -- Analyst

Ravi Menon -- Elara Securities -- Analyst

Bryan Bergin -- Cowen & Company -- Analyst

Apurva Prasad -- HDFC Securities -- Analyst

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