"Infosys" Q1 FY 2027 Earnings Call - Revenue Guidance Cut Amid AI Pricing Pressure and Leadership Handover

Moderator/Operator: Ladies and gentlemen, greetings and welcome to Infosys Limited Q1 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there’ll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you, and over to Mr. Mahindroo.

Sandeep Mahindroo, Head of Investor Relations, Infosys Limited: Thanks everyone. Welcome to this earnings call to discuss Infosys Q1 FY 2027 financial results. Joining us on this call is Chairman of the Board, Mr. Nandan Nilekani, CEO and MD, Mr. Salil Parekh, CFO, Mr. Jayesh Sanghrajka, along with other members of the leadership team. We’ll start the call with some remarks by Nandan, followed by remarks by Salil and Jayesh on the performance. Subsequent to that, we’ll open up the call for questions with Salil and Jayesh. Kindly note that anything we say which refers to our future outlook is a forward-looking statement that must be read in conjunction with the risks that the company faces. A full statement explanation of these risks is available in our filing with the SEC, which can be found on www.sec.gov. I’d now like to pass on the call to Nandan.

Nandan Nilekani, Chairman of the Board, Infosys Limited: Thank you, Sandeep. It’s really a pleasure to talk to all of you. I joined this call to make an important announcement. As you know, Salil has done a stellar job as the CEO for almost 10 years, and under his leadership, the company has grown from $10 billion to $20 billion. He’s done the transition to the digital era, and he’s laid the foundation for a differentiated AI strategy, which will serve the company in good stead for many more years. However, his term is coming to an end on March 31st, 2027, and the board has decided today to appoint a new CEO who’s coming from inside Infosys, from within, an internal candidate. His name is Ashiss Dash. Ashiss Dash has been in Infosys for more than 31 years, since he joined as a software engineer from IIT Kharagpur. He has all-round experience of Infosys.

He has worked in delivery for many years. He has worked on account management. He has been involved with starting a DC in Bhubaneswar. He has been in sales. Of course, he has been a sales and segment head for many years, running the sure practice, which has many verticals. He is a outstanding person. He’s very good at his job. He’s very collegial. He’s very good collaborative. He’s accepted and liked by everybody in the company. He has quintessential Infosys values. At the same time, he’s focused on the market and being able to get good deals at good revenue and good margin. Because of his technical background, he understands the AI, what is happening in AI, and that will help him in the future. The board has appointed Mr. Dash as the CEO Designate. He will work with Salil over the next few months.

For next two, three months, he’ll focus on getting more coaching and training on being a CEO. For six months, he will work as a mentee under Salil’s leadership, who will groom him for the complex job of managing a $20 billion company at a very transformational time. We are all very excited by the choice. It has got a very good response internally and with customers. You will get to see him in a few months. You can maybe keep that in mind. Maybe now I’ll ask Salil to add a few words on Dash.

Salil Parekh, CEO and Managing Director, Infosys Limited: Thanks, Nandan. Good morning. Good evening, everyone. It’s an absolute pleasure for me to have Dash be the next CEO of the company. I’ve had the opportunity to work with him over the last several years. In my mind, he’s a fantastic leader and very good with the people around. He’s worked very closely with clients and built a portfolio which is, I think, quite strong and exceptional on the growth dimension and the way it’s managed operationally and economically. All of the ingredients which make for a successful business. In addition to his leadership, Dash is a very good friend, and I’m delighted for this. Congratulations to him. I look forward to working with him over the course of the next few months, as Nandan mentioned, in the way we transition, in a smooth transition there. Look forward to all of that.

Sandeep Mahindroo, Head of Investor Relations, Infosys Limited: As Nandan said, you will get to meet Dash in the coming quarters as well then.

Nandan Nilekani, Chairman of the Board, Infosys Limited: Thank you, I’ll excuse myself and Salil and Jayesh and the team will continue the quarterly call. Thank you very much.

Salil Parekh, CEO and Managing Director, Infosys Limited: Thanks, Nandan. Good evening and good morning to everyone on the call. Thank you for joining us. Let me start off with the update for the business in this quarter. Our revenue growth for Q1 was 2.4% year-on-year and 1% quarter-on-quarter in constant currency terms.

We had a one-time revenue impact of a client decision during this quarter. Our AI services revenue was 8.2% of overall revenue. Our large deals were at $3.6 billion with a net new of 61%. Our operating margin was 21.1%, free cash flow at $955 million. Our earnings per share were higher by 15% in Q1 in INR terms. We saw a strong acceleration in our AI business, as I shared earlier, with AI revenues for the quarter at 8.2%. This is growing at double-digit quarter-on-quarter over the last several quarters. With this momentum, we see long-term relevance of our services for our clients. From our delivery team, over 80,000 employees are working today on coding tools, such as Claude Code or Codex for our clients and for some projects inside.

We saw strong traction across the six areas of growth in our AI strategy hexagon. We see client work, for example, in building agents for processes, work on data in AI, in modernization, and of course, in coding tools. For a healthcare company, we implemented AI agents to automate Medicaid eligibility verification and operation support. The solution reduced eligibility verification time from, which was about 6-8 days to approximately four minutes. We are building a team of frontier engineers to support our client work. Our plan is to have 6,000 frontier engineers over the next few years. We built a platform, Topaz Fabric, that allows our clients to get benefits of AI while keeping the sovereignty of their data and company knowledge with themselves. Our clients are able to work with any foundation model, closed, open weight, on cloud, on their server.

Topaz Fabric provides a harness to our client to enable them to more fully deploy the benefits of the foundation models into their organization. Our clients are also able to optimize their token cost by ensuring appropriate models are used for appropriate tasks. Overall, we see a good pipeline for AI services, that gives us a good view for continued AI work with our clients. Outside of that, we continue to see the macro environment remaining uncertain. With our Q1 results and a view of the rest of the financial year, we change our revenue growth guidance to 1.5%-3% year-on-year growth in constant currency terms. Our operating margin guidance remains the same at 20%-22%. Thank you. With that, let me hand it over to Jayesh for his update.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Thank you, Salil. Good morning, good evening, everyone, and thank you for joining the call today. We entered FY 2027 against a backdrop of a dynamic and evolving business environment, which is reflected in lower than expected volumes. Clients continue to prioritize investments in AI, modernization, cloud, and productivity initiatives while remaining selective in discretionary spending. Our focus remained on disciplined execution, supporting clients’ transformation agenda, and delivering sustainable financial performance. Q1 revenues were at $5,082 million, increase of 1% sequentially and 2.4% year-on-year in constant currency terms. Acquisition contributed approximately 1.1% sequentially. Our AI revenue momentum is very strong with AI revenues at 8.2% of our overall revenues, growing at a strong double digit sequentially over the last many quarters. We are seeing strong traction across all six value pools with higher share of revenues coming from process AI strategy and engineering, and data for AI.

Q1 revenues growth was lower than our expectations, mainly due to one-off 50 basis point impact on account of program termination by an EURS client during the quarter. This was not factored in the earlier guidance. Volumes were soft and weaker than expectations and also versus the historical Q1 trends. Additionally, client expectation on productivity along with high competitive intensity is resulting in softer price increase and price versus our expectation. Sequential revenue growth was also impacted by higher offshoring to de-risk our business model along with lower revenues from a European manufacturing client, as I mentioned in the last earning call. Despite lower than expected growth, gross margins improved by 60 basis points sequentially. Operating margin improved by 20 basis points sequentially to 21.1%. Major components of the change are as below.

Tailwinds of 70 basis points from rupee depreciation, 20 basis points from Project Maximus, 20 basis points net benefit due to amortization of cost on intangibles incurred in Q4, offset by impact of new acquisitions in Q1. Headwinds of 50 basis points from investment in AI sales and marketing, 40 basis points from one-time revenue impact arising out of program termination. We also had one-time cost benefit of approximately 30 basis points, which was offset by 20 basis points due to increase in various other expenses. Our tight focus on improving operational efficiency led to utilization, excluding trainees, improving by 1.9% to 84.9%. On-site mix, excluding new acquisitions, dropped by 30 basis points. However, including acquisitions, it remained flat. We expect on-site mix excluding new acquisitions to reduce by 75 basis points to 1% for the year. DSO reduced by four days sequentially to 63.

DSO, including unbilled net of unearned, was 76 days versus 78 in Q4. Headcount reduced by 500 employees after adding over 2,000 employees from acquisition. Attrition increased slightly to 13% versus 12.6% sequentially, in line with Q1 seasonality. We plan to give salary hikes to most of our employees effective October, while the rest of the employees will be covered in January 2027. We expect effective tax rates for the year to be in the range of 29%-30%. EPS for the quarter stood at ₹19.19, up approximately 15% year-on-year. Q1 yield on cash investment balance was at 6.8%. Our balance sheet continues to be strong and debt-free. Consolidated cash and cash investments were at $3.9 billion at the end of the quarter, after returning more than $1 billion to the shareholders through dividends. Free cash flow was strong at $955 million, at 116.5% of net profit.

Large deal wins were strong at $3.6 billion, with high net new of 61%, reflecting the relevance of our value proposition. Out of the 22 large deals won, we had three deals worth $400 million each. We have been on the positive side of vendor consolidation, with 20% of the total large deals TCV being from new vendor consolidation deals. Vertical-wise, we won five deals in financial services and communications, four in EURS, three in manufacturing, two in retail. One each in life science, high tech, and others. Region-wise, we signed 11 deals in North America, eight in Europe and three in the rest of the world. Coming to verticals. In financial services, uncertainty and geopolitical instability is causing some clients hesitancy as spending patterns are taking a more cautious approach. Client priorities are centered on efficiency, productivity, and modernization, with discretionary spend being evaluated more carefully.

We see momentum across banking payments, capital markets and wealth management. AI adoption has been incremental and additive, with clients increasingly engaging us to support their AI journeys across strategy, platforms, engineering and operations. This is reflected in our strong deal wins this quarter, with approximately $1 billion in large deal TCV or large deal net new TCV. GCCs continue to expand and we are partnering with our clients both in set up and growth of GCCs. Growth in manufacturing continues to be impacted due to lower revenue from a large client. Clients remain cautious on discretionary spend and decision-making is elongated, especially in European auto. The impact of tariffs, geopolitical uncertainty and energy costs is keeping budgets tightly controlled. While AI adoption is creating new opportunity areas, it is also raising productivity expectations from clients. We are getting better pricing on AI skills and consulting.

We remain focused on supporting clients through digital AI modernization and consolidation initiatives while balancing growth opportunities with disciplined deal selection and sustainable pricing. EURS segment was impacted by one-off client termination, adjusted for which the growth was strong. Macroeconomic uncertainty continues to influence client spending patterns and decision-making timelines. Clients are driving business priorities including cost optimization, operational resilience, productivity improvements and regulatory compliance. Generative AI is emerging as a strong growth catalyst, driving process reimagination and productivity initiatives. Our partnerships with hyperscalers and AI native companies is allowing us to experiment and ideate faster. In retail and CPG, consumer spend remains muted and budgets are tightly controlled due to geopolitics, inflation and tariffs. Spend is shifting towards AI modernization and productivity-led programs funded through operational efficiency and cost optimization. Clients are asking for AI-led productivity commitments, leading to new pricing structures.

We are leveraging our native knowledge of the client’s business processes and technology landscapes and augmenting it with AI. Large deal pipeline is healthy, but decision cycles are longer. In communications, operating environment remains challenging as clients continue to exercise discipline on discretionary spending and closely scrutinize investment decisions. AI is reshaping spending patterns. Enterprises are increasingly prioritizing initiatives that deliver near-term gains. Telecom is undergoing significant transformation with consolidation and M&A, with increased investments, especially for OEMs. We remain focused on aligning our offerings to these evolving client priorities and helping enterprise realize measurable business outcomes. Considering lower than expected Q1 revenues and revised view of the rest of the year, we are revising our revenue guidance to 1.5%-3%. This includes approximately 1.7% contribution from recently closed acquisitions of Optimum Healthcare IT and Stratus Global LLC.

Slightly over 1% impact from large European manufacturing clients due to reduced client spend, along with our conscious decision to not pursue certain deals that were not aligned to our return expectations. Approximately 0.75% to 1% impact from shift towards offshore. Overall business environment continues to remain volatile. Lower end of the guidance assumes further deterioration in macro. Top end of the guidance assumes an improvement in macro, though lower than what we had assumed in April guidance. FS and URS are expected to grow higher than the company average. The underlying fundamentals of our business remain strong. We continue to see healthy client engagements leading to a robust pipeline. We are taking decisive actions to capitalize on the opportunities ahead, especially on six identified AI value pools. Spending is shifting towards areas with clear business cases such as AI-led modernization, cost transformation, cybersecurity, cloud optimization and vendor consolidation.

As we look at the rest of the year, we remain confident in our strategy, disciplined in our investments and focused on delivering stronger performance. Margin guidance is maintained at 20%-22%. This assumes headwind from wage hikes, productivity pass-throughs AI investments and 50 basis point impact from acquisitions of Optimum Healthcare and Stratus. These headwinds will be partly offset by initiatives under Project Maximus and currency benefits. With that, we can open up for the questions. Thank you.

Moderator/Operator: Thank you very much. We’ll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. A kind request to all the participants, kindly use handsets while asking the question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. First question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Kumar Rakesh, Analyst, BNP Paribas: Hi. Good evening, and thank you for taking my question. My first question was a bit of clarification around the guidance, especially the like-to-like guidance, what we had given last quarter versus this quarter. So if I’m looking at the new guidance that is at the midpoint suggesting 2.25% sort of a growth, which I understand you indicated includes acquisition of about 1.7%. So that would imply an organic growth of about half a percent or slightly higher than that, versus 2.5%, which was in the last quarter. So is that about two percentage point of cut at the midpoint in the guidance, or am I reading that wrong?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Hi, Kumar. The last quarter midpoint would be around 2.2% in the guidance, because as you remember, we had said 20 basis points was the Stratus, which was already baked in in the guidance, which was 1.5%-3.5%.

Kumar Rakesh, Analyst, BNP Paribas: Okay, got that. In that case, like to like this time it would be about 0.8 point sort of a number, excluding the incremental acquisition that we have baked in.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Yep.

Kumar Rakesh, Analyst, BNP Paribas: Got that. Looking into the second quarter, given some of the impact that we have seen in this quarter with lower than expected volume and one-time client-related decision as well, how much of that you are expecting that to flow into second quarter as well? How you are looking at the demand environment and the growth momentum?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Kumar, as you know, typically whatever happens in Q1, it’ll have a cascading effect in Q2, and especially if the volumes have been softer through the Q1, automatically it’ll have some impact on Q2 and therefore the rest of the year. That kind of largely explains the guidance change. As I said earlier, the multiple reasons on the change in guidance is, first of all, one-off that we had in one of the URS clients, the volumes that were softer with the cascading effect, the ask of productivity from clients and the increased competitiveness. Competition in pricing that reflected in a lower than expected pricing this quarter, which will again have effect on the rest of the year.

As I had called out at the beginning of the year, we expect our onsite mix to be lower by roughly around 0.75%-1%, which will have impact on a year-to-year comparison if you’re doing. We had called out a European manufacturing client impact between 0.75%-1% last time, which is now clearly above 1% as we have progressed on certain other deals as well. That is an additional headwind as well. All of that is baked in in the revised guidance.

Kumar Rakesh, Analyst, BNP Paribas: Thanks a lot, Jayesh, for that. Just one clarification around the one-time client decision which you spoke about. If you could give some context to that would be great. That’s all from my side. Thank you.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Thanks, Kumar. This is with respect to a client which has terminated a project in the URS vertical.

Kumar Rakesh, Analyst, BNP Paribas: Got it. Thank you.

Moderator/Operator: Thank you. Next question is from the line of Jonathan Lee from Guggenheim. Please go ahead.

Jonathan Lee, Analyst, Guggenheim: Great. Thanks for taking my questions. You mentioned that softer volumes and pricing contributed to Q1 alongside the program termination and that the upper end of the prior guide assumed macro stabilization that’s not materialized. Can you walk us through how the quarter progressed relative to internal expectations, whether April, May, and June trended differently when the program termination was communicated to you, and whether decision-making velocity and discretionary spend deteriorated or stabilized through the quarter? What have you seen in the first few weeks of July that may inform your shape of Q2?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Jonathan, sorry I wasn’t very clear with the question, but from whatever I understood, the question is whether we saw the change through the quarter and the increase in volatility. The softness that we saw in terms of volumes was through the quarter. The one-off impact that we saw was mainly on account of a client termination which happened towards the end of the quarter. The additional deal that we talked about, European client, that was also towards the end of the quarter. I think all of those factors reflected in the revised guidance, if that is what you’re looking at.

Jonathan Lee, Analyst, Guggenheim: Thanks for that color. Given your commentary on pricing, particularly around the competition has been building for several quarters and Maximus explicitly includes value-based selling, why were pricing headwinds not more fully contemplated in the April outlook? What has changed in the last three months? Is the pressure concentrated in specific verticals or deal types or renewals versus the new? What gives you visibility that pricing may actually stabilize from here?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Jonathan Lee, we are not saying that we are not seeing a price increase. What I am saying here is we haven’t seen as much price increase that we envisaged at the beginning of the year on the back of the AI productivity ask of the clients, plus the intensifying competitiveness in the market. We are still seeing a net increase in the pricing.

Jonathan Lee, Analyst, Guggenheim: Appreciate that clarification.

Moderator/Operator: Thank you very much. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Gaurav Rateria, Analyst, Morgan Stanley: Hi. Thank you for taking my question. My first question is on the multiple client-specific issues. One is the European automotive that we highlighted last quarter, then this quarter on the EURS vertical. How should we think about all these, like are completely disconnected issues and just happen to take place at the same time coincidentally, or there are certain common links which basically could be early renewals, competitive pricing, et cetera, going on because of the technology change. Just trying to understand how much of it is led by underlying changes in technology happening and driving clients to take these decisions and creating competitiveness in the market. Or are they completely disconnected events?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Gaurav, there are two parts to the question. One is the European manufacturing clients that you talked about. Certain part of the deals that we had, we knew at the beginning of the year, which was in April, and there were additional deals that happened in Q1 of this year. Both of these were the deals where we decided not to pursue the deals beyond a certain point because it did not make economic sense for us or commercial sense for us. That’s the reason. That has nothing to do with the client behavior or in terms of AI, et cetera. The other deal is a contract where the client has terminated the contract for various reasons. Again, nothing to do with AI here. It’s a termination of the contract and therefore, a reduction in revenues.

Gaurav Rateria, Analyst, Morgan Stanley: Got it. My second question is on your margin outlook. I know that you maintained your outlook on the band, but now that you have announced the wage hike for the second half for the company as a whole, there will be incremental headwinds around that. Just want to understand what would be some levers that will help you to offset these pressures in the second half. Would it be fair to say that our aspiration will be to just hold on the margin level compared to the last year and this year? Thank you.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Gaurav, at this point in time, we have given a guidance of 20%-22%. Let me say that at the outset, we are very confident of that guidance. Of course, as I had called out at the beginning of the year, we will have a headwind coming out from the acquisition that we have done from, in terms of amortization of intangibles and retention payout to the founders or the management team, et cetera, or the acquired entities. We also have tailwinds coming from currency, coming from Project Maximus. As you see this quarter also, we’ve got 20 basis points of tailwind from Project Maximus, 70 basis points of currency. All of those are tailwinds. As we look forward, as I said earlier, as we’re in the call, we will have 75%-1% reduction in onsite mix. That is the tailwind.

All of those are tailwinds. Puts and takes of all of that put together, we are still very confident of maintaining our margin guidance.

Gaurav Rateria, Analyst, Morgan Stanley: Thank you. All the best.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Thank you.

Moderator/Operator: Thank you very much. Next question is from the line of Abhishek from Motilal Oswal. Please go ahead.

Abhishek, Analyst, Motilal Oswal: Yeah. Hi, am I audible?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Yeah. Abhishek?

Abhishek, Analyst, Motilal Oswal: Yeah. Yeah. Hi. I think my question is on deal wins. It does look like we’ve had a pretty decent quarter on deal TCV. Net new seems to be decently strong as well as compared to historical levels. Clearly that’s not translating into guidance. How’s the TCV versus ACV dynamic playing out? Are we seeing extended TCV sort of, or extended tenures right now, which is leading to lower ACV? Or are we seeing sort of delayed ramp-ups, but clients are still committing to spends? That will be very helpful to understand with regards to the conversion of the deals that we are winning.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Abhishek, if you look at the deal wins, typically, the terms of the large deals have not gone up. They still remain between, on an average, between three to five years. Of course, when you look at some of the mega deals, the terms could be longer. But in the current year deals, we have most of the deals which are not mega deals. The deals that we signed, while most of them were less than $500 million, we did have some deals between $400 million-$500 million, three of them. What we also need to remember is whenever the deal comes up for renewal, we always used to have the additional productivity ask from the client, which is how traditionally this industry has been. On the back of AI, there is additional deflation on the AI-led deflation, as we call it. That’s a headwind.

That’s only on the large deal portion. That’s also there on the non-large deal portion. That is what is getting offset by the net new business that we are seeing.

Abhishek, Analyst, Motilal Oswal: Understood. Could you quantify the deflation if you can? I know it’s sort of dynamic, but just a quantification of what the deflation entails would be helpful. Lastly, how do we define AI-led revenues? Is this AI implementation or AI infused? Just a broad sort of sense of that will also be very helpful. Thanks. That’s all from my side.

Salil Parekh, CEO and Managing Director, Infosys Limited: Hi, this is Salil. On the AI lens, I’ll come to the other one after that. I think what we are seeing on the AI revenues is these are revenues which are coming from the strategic framework we described at the investor day, which are the six areas that we see new growth, the new addressable market of INR 300 billion. For example, process AI. For example, making AI engineering strategy work. For example, data which is needed, the data layer for AI. Each of those six areas we see a good growth. This revenue is 8%, 8.2% growing double digit Q1 QO the last several quarters. That’s the primary AI revenue. Internally, we also look at AI revenue, which you referenced like infused or augmented or where AI is and part of an existing work stream that becomes more AI.

This specific one that we shared externally is what we see from the AI strategy that we put together.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Go ahead.

Salil Parekh, CEO and Managing Director, Infosys Limited: No. On the quantification, we don’t quantify that compression part externally. We acknowledge, of course, there is a compression, and internally we track it to see how that works. In many cases, when there is the compression, we typically, given the work we are doing with clients, have the opportunity to do more work in other areas, so the contract terms, scope, et cetera, gets redefined. In many cases we see adjacent to that other pieces of work, not related to that, which come through. It’s not easy to simply say like for like in many cases, but there definitely we see a compression.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Vishesh, just to add to what Salil was saying. The AI first revenue is everything that is around the hexagon. AI augmented revenue is what we presented on the AI day also. That is not part of this. While we track it internally, that is still not part of this. AI first is everything that we do in terms of hexagon and the sub-services that we called out at Hexagon. We have a very robust process inside the company of identifying these at a child sub-project level, and tracking it and monitoring it. It is growing at a very strong double-digit growth.

Abhishek, Analyst, Motilal Oswal: Thank you. That’s all from my side. All the best.

Moderator/Operator: Thank you very much. Next question is from the line of Ankur Rudra from JP Morgan. Please go ahead.

Ankur Rudra, Analyst, JP Morgan: Thank you. Just curious to start with on the demand environment worsening, especially from an AI productivity pass-through demand that you’ve been getting. Could you talk about how secular this is across your industries and geographies, and how often do you see?

Moderator/Operator: Ankur, sorry to interrupt you. We are losing your audio in between. Can I request you to please come in a better reception area?

Ankur Rudra, Analyst, JP Morgan: Yeah. Is it clear now?

Moderator/Operator: It’s still breaking.

Ankur Rudra, Analyst, JP Morgan: Is it any better now?

Moderator/Operator: Yes, go ahead.

Ankur Rudra, Analyst, JP Morgan: Okay. Sure. Thank you. My question was on the worsening demand environment from an AI productivity pass-through perspective. How secular is this across industries and geographies, and how often do clients ask for productivity increases in the middle of a contract as opposed to on renewal?

Salil Parekh, CEO and Managing Director, Infosys Limited: Hi, this is Salil. Ankur, I think what we are seeing is there is a demand for AI productivity which is across most industries. Now, if you look at where AI is most getting used, we probably see telcos, we see financial services, we see even on retail utilities. That’s where their usage is pretty high, especially with the foundation models, the modernization, the coding tools. On the productivity side, it’s a broad sort of coverage that we see. It typically, at least in the recent past, has come up as there’s progress made by the AI foundation model companies or there’s a perception that sort of a benefit can be achieved. The discussion starts and of course, at the renewal time, it’s definitely there. Sometimes it does come in between the timeframe of the contract’s renewal as well.

Ankur Rudra, Analyst, JP Morgan: Okay. Thanks for clarifying that. I just wanted to sort of follow up on AI revenues, which have been growing at a very high pace like you’ve been highlighting. If we think this out a few years, at what size of your overall portfolio do AI revenues have to be so that you can overcome the AI deflation or the compression in the rest of the portfolio, any thought there?

Salil Parekh, CEO and Managing Director, Infosys Limited: We don’t have a view in that sense, externally on what you’re sort of referencing. I think if we are able to execute on this AI transformation as we have done in the last few quarters, we get this sort of a momentum. It’s not that difficult to see that in the coming few quarters, it will start to become more and more larger part of our overall revenue, and that will drive the growth of the overall company. If I go back to how we saw it, not that it’s the same thing, but there’s some lessons maybe on the digital. We saw that there was a way that at one stage we were at 20%, and then over a few years, we then went to 60% of our revenue becoming digital.

If that sort of a path becomes followed, we can see a big sort of a transformation and a long-term sort of support to the view that what we are doing remains relevant in terms of services for our clients. Now here, there are strong partnerships with the foundation model companies. There is extremely strong internal work on Topaz Fabric. We are building things where clients can use multi-model scenarios within our Topaz Fabric, where they can use different models for different types of work so the token cost is optimized. We have an ability to provide a harness so that they can build what they want to build and keep the sovereignty of the data and the knowledge of the company more within themselves. To me, all of that points to that it’s a nice growth area for the long term.

We are now looking at 8%, it’s fairly sizable, and we are looking at it becoming more and more sizable in the quarters to come.

Ankur Rudra, Analyst, JP Morgan: Appreciate it. Just one last clarification.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Sorry, Ankur, just one addition data point I would want to add is, if you remember in February, we talked about our AI revenue, which was 5.5% for Q3, and in two quarters it’s already become 8.2%. You can imagine the rate at which it’s growing. Even if you look at a longer five, six quarter view, it’s growing at a strong double digit, and that kind of gives us the confidence that this is becoming our growth engine.

Ankur Rudra, Analyst, JP Morgan: Appreciate it. Maybe just one clarification, Jayesh. Can you confirm that the program termination was fully absorbed in Q1, or will it have an impact in the second quarter also from a sequential basis?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Ankur, the program has been terminated. What we know has obviously been taken in Q1 at this point in time.

Ankur Rudra, Analyst, JP Morgan: No follow-through in Q2 in terms of that program specifically.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Yeah. What we know at this point in time has been considered in this number.

Ankur Rudra, Analyst, JP Morgan: Okay. Thank you. Best luck.

Moderator/Operator: Thank you very much. Next question is from Bryan Bergin from TD Cowen. Please go ahead.

Bryan Bergin, Analyst, TD Cowen: Hi. Thank you. Good evening. First of Salil, congrats to you and congrats to Ashesh. My first question is on AI talent and competition. I am curious what your view is on hyperscalers like AWS and Microsoft recently announcing new investment in their own FDE practices. Just considering their historic use of the services channel around cloud deployment, this seemed to be a bit more surprising than OpenAI or Anthropic doing it. What are your thoughts there? You have announced plans to add 6,000 frontier engineers, but it seems everyone is looking to add that base of talent. Can you just talk about how you plan to navigate that elevated competition for top-tier talent?

Salil Parekh, CEO and Managing Director, Infosys Limited: First, thank you. I think with other companies launching services companies to help large enterprises with making AI work. At a high level, I see that as a positive for Infosys because it reconfirms that what we do, now with the AI revenue growth that we are demonstrating, that we have sort of relevance for the long term for our clients. What I think works for us is we have over 300,000 employees. We have deep knowledge and context of the select clients that we work with, that becomes the way to really ensure that AI gets leverage into that environment, which is typically quite complex. We are also in a position where we are partnering with some of the companies you named, I have spoken with them as they have launched their programs.

The intent and the idea is really in terms of scale, a few hundred or a couple of 1,000 is not going to be the same as 300,000 from Infosys. There is a way to partner and make all of that work for the benefit of the client. That is how at least we are looking at it for now. There are similar type of models existed, as you probably know well, in the past, when there were software companies which had their own small services businesses. In terms of talent, first, we have already people within Infosys who are operating at the level of frontier engineers, we have put together a program to bring all of that together to make them at the same type of a global level.

We have training for the people that we will recruit and build out to be like that, frontier engineers. Then, of course, we will look externally, but the primary method is recruitment in college training and taking internal people who are doing some of that type of work and making sure they are fully deployed into the frontier engineer work. We feel that we have a decent start to it. It is not that we are going to, tomorrow morning, recruit 6,000 from the outside. Equally, we also have, as has been always the case with Infosys, the approach of training the people from ground up, building out that skill set, which is slightly longer, that is why I have sort of said it is over a few years. We want to build it out, make sure that we support our clients in that.

Bryan Bergin, Analyst, TD Cowen: Okay. That’s clear. My follow-up’s on AI productivity. Can you just give us a sense of how much of your existing backlog has been repriced under the higher levels of market productivity? I’m trying to understand how long the company may face outsized compression as you renew the installed base of work where there wasn’t any meaningful GenAI-driven efficiencies before.

Salil Parekh, CEO and Managing Director, Infosys Limited: As you can imagine, it’s something we look at internally, but it’s not something we share externally.

Bryan Bergin, Analyst, TD Cowen: Okay. Understood. Thank you.

Moderator/Operator: Thank you very much. Next question is from Lana Vibhor Singhal from Nuvama. Please go ahead.

Lana Vibhor Singhal, Analyst, Nuvama: Yeah. Hi. Thanks for taking my questions. Just two questions from my side. One question, Salil, on the basically the overall environment in which we are operating. Some of our peers have kind of called out, and I think it’s kind of what is also the concept which is gaining traction, is that more and more belief that enterprises might not just basically look to deploy the premier large language models for their enterprise needs. They might be now going more towards more like customized Small Language Models, the SLMs which can be basically cater to their own specific needs. To that extent, more and more deals and large deals specifically are basically making their way into the market towards the peers. Is that also what we are also seeing in our conversations with the clients? Do we see some of those kind of deals on the horizon?

Do you see that basically playing out over the next few quarters?

Salil Parekh, CEO and Managing Director, Infosys Limited: There, I think the way you describe it, what we are seeing it is the large companies, large enterprises, are becoming more sensitive to what is a foundation model like best equipped for, and for the various tasks and activities and processes that they have inside their company, which model should be used for which thing. Can we use, like a company might think, like a less parameter model, also less expensive model, like even an older version of some of the big company models for some tasks, and the most recent one for some very specific, let’s say, high-end type of tasks which needs it. That optimization is going on, and that’s where we think what we have built in Topaz Fabric allows the company to do this in a very efficient way.

It also looks at companies also looking at, okay, I will use for the simpler task, a slightly older model or less expensive. Let me also then look at the cost of token usage for that model. Even there’s a way for the same effectiveness you can get a lower token cost approach in a model. This whole approach of this multi-model is critical for the task and the cost. At least we are seeing the large companies are being sensitive to that. That’s where what we have built and how we can work with them. Today we are working in Fabric Topaz with 15 different models. Let’s say you come as a large company, Global 100, and you want to do something, you don’t even have to decide by looking at the task.

We will decide between the 15 where to put it and give you the most efficient outcome. Those are things like that will help the companies to do the things in a better way, we feel.

Lana Vibhor Singhal, Analyst, Nuvama: Got it. Overall, this should basically, if I were to let’s say, take a top view of this would mean that there is an increasing level of customization that, or let’s say, a specific requirement that each client would require rather than more of a standardization to begin with.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: It depends also a little bit like. See, this is available, but some companies might say, "Look, I want Model X. I want to build deep capability in that." Model X, like Company X, will have three models. They can go with an older model in the Company X. It’s not like there’s one answer, meaning people are all doing different things, but the flexibility exists today, so depending on how a company wants to do it.

Lana Vibhor Singhal, Analyst, Nuvama: Got it. Just one last question on the margins front. Jayesh, if I could just bother you on that. In FY 2026, we had the wage hike which was spread over Q4 FY 2025 and Q1 FY 2026. We just probably had basically half of the impact of the wage hike in FY 2026. In FY 2027, we are going to give the wage hike in Q3 and Q4, the entire impact is going to be absorbed in this year itself. Plus, we have the acquisition impact which you called out in the call. Are we looking at more headwinds this year on the margins than FY 2026? I know we are in that same guided range of 20%-22%, but vis-à-vis FY 2026, are we looking at more headwinds than FY 2026?

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Vibhor, if you look at FY 2026, we had a full year impact of the wage hike that we gave in January as well as in April, right?

Lana Vibhor Singhal, Analyst, Nuvama: Right.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Of course, whatever we gave in January, the flow-through of that was for three quarters, but whatever we gave in April, the whole full year impact of that came in the year. Versus in FY 2027, we have only half year impact of whatever we’ll do in October and one quarter impact of whatever we’ll do in January. To that extent, the relative impact is going to be lower in FY 2027 versus FY 2026. Of course, there will be a 50 basis point impact on account of the acquisition that we have called out.

Lana Vibhor Singhal, Analyst, Nuvama: Acquisition.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: If you look at the tailwind that I called out, there is a currency tailwind, at least as we stand today versus the last year. The Project Maximus is still creating value. We have seen pricing benefit a little bit lesser than what we estimated at the beginning of the year. Utilization has gone up quarter-on-quarter significantly. Our onsite mix is going to go down. I think there are puts and takes on both sides.

Lana Vibhor Singhal, Analyst, Nuvama: Got it. Got the math. Thanks a lot for taking my questions, wish you all the best.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Thank you.

Moderator/Operator: Thank you very much. Next question is from Leon of Pacman from BMO Capital Markets. Please go ahead.

Leon Pacman, Analyst, BMO Capital Markets: Good evening. Good morning. I wanted to ask about your thoughts on headcount growth trends through FY 2027. I am not looking for specifics, but just generalities. Is headcount going to grow, be flat, reduce as you look at the next 12 months? Even if you opine on the next few years, how do you see the headcount growth in relation to revenue growth?

Salil Parekh, CEO and Managing Director, Infosys Limited: Hi, this is Salil. First, what we saw in the last financial year, as you know, is we recruited 20,000 college graduates for the full year. This year we have a plan to recruit 20,000 college graduates. In the first quarter, we have recruited over 4,000 already. Our plan is to continue to bring in talent, make them more and more AI well-versed, then have them work with our clients. What we are seeing with the 8% revenue of the AI is that to make many of these things work, it’s a combination of foundation model agents and people. Of course, there’s more efficiency, so the same amount of work can be done maybe with fewer people, but there’s more work. Overall, at least right now, we are seeing that.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: We don’t have an exact external view on the end year headcount, but we continue to look at recruitment. We think it looks like the headcount will be part of our future as our revenue grows as well.

Leon Pacman, Analyst, BMO Capital Markets: Okay. It’ll be interesting to see how. I understand the recruitment parts. It’ll be interesting to see how your net headcount trends unfold. Can I go to dislocation? You talked about 20% of your TCV was vendor consolidation deals. Could you provide some context on really the economics associated with those deals? What I mean by, what was the leverage that enabled you to win those deals? In particular, you talked about price was a little more aggressive this quarter. How were pricing trends during this enabling you to win those deals? Just any kind of attributes that you could throw out such as was it more competitive or were price downs, anything along those lines. That’s just one of many things.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: I’ll start. Jayesh will add a little bit more into it. What we saw, like in the reasons for winning a consolidation deal, typically, what we are noticing is there’s a complex tech environment. The clients are seeing that what we have done for them over the past in terms of delivering value is very significant, more reliable. That’s typically when we are the beneficiaries of the consolidation deals.

In terms of pricing for those specific deals, there’s always productivity benefits because that is in the nature of the discussion in this period. The reason primarily for the wins are more about the depth of delivery, understanding of technology.

Just to add to this, what Salil said. On an aggregate level, all of these consolidated deals came at a very healthy margins, even when you compare to our overall large deals portfolio. As I said earlier, we will compete aggressively in the market, but we are not going to underwrite uneconomic productivity assumptions. In those cases, we would prefer to not pursue those deals further, when it doesn’t make economic sense to us.

Leon Pacman, Analyst, BMO Capital Markets: Perfect. Many thanks.

Jayesh Sanghrajka, Chief Financial Officer, Infosys Limited: Thank you.

Moderator/Operator: Thank you. Next question is from line of Jamie Friedman from Susquehanna. Please go ahead.

Jamie Friedman, Analyst, Susquehanna: Hi, good evening. Salil, well done piloting the company and Ash, we look forward to working together. I had a bigger picture question, back to the strategy hexagon. Be interested in your perspective on the supply side, what sort of reskilling does that require? On the demand side, Salil, you mentioned what you’re finding is resonating most. Obviously, it’s performing well. Is there anything though that needs to be adjusted? Supply and demand question about the strategy hexagon. Thank you.

Salil Parekh, CEO and Managing Director, Infosys Limited: Thank you for that. On the supply side first, we have taken a view and I’m sure you know that. We have not done any staff restructuring in the company. We have done essentially all reskilling. That is a significant work for the company, but I think we see a benefit of that over time. What we are seeing is, as another reason for doing the college graduate hiring, because what we see from colleges, are people coming in with a lot more native understanding of the AI landscape and the tool set. Then building, like training them on our Fabric and Topaz is the next step after that. Also training them on our tools which are pre-AI, so that they have a sense of how software development works.

We think we will be able to manage a lot of that supply side with the people we bring in. There are also specialized things where there’ll be some accelerations needed when a specific tool is very much in demand. For that, of course, we have some recruitment which is more lateral as well. Even there, we need a little bit of reskilling or training, but not massive. There’s good understanding. That, of course, is in short supply, so we will still rely more heavily on the bringing in from college training, which by design is a longer duration process. On the demand side, we are now tracking each of the six areas pretty granularly. As Jayesh mentioned earlier, we have good traction on the process. AI side’s going pretty well. On the AI engineering is going pretty well, meaning in terms of scale.

All of them are growing very fast, but those things are pretty scale already. The data AI part is going pretty well. The whole work of building agents, doing the coding, doing the modernization, doing the data, those things are really scaling up. Meaning have a decent scale today. We think those will continue going pretty well.

Jamie Friedman, Analyst, Susquehanna: Okay. Thank you, Sunil. I’ll drop back in the queue.

Moderator/Operator: Thank you very much. Ladies and gentlemen, we’ll take that as our last question. I now hand the conference over to the management for closing comments.

Salil Parekh, CEO and Managing Director, Infosys Limited: Thank you. First, thanks everyone for joining. A couple of points to summarize from my side. Overall in the quarter, we had neutral revenues, strong margins, strong free cash flow, and very strong large deals. The more critical thing, our AI services revenue, 8% growing across quarters, Q1 Q, double digit, and becoming more and more upscale for us. Showing us therefore that there’s a long-term relevance of what we are doing for our clients. That gives us a tremendous benefit given the client connects that we have across the different industries and across the different markets. Thank you all for joining in and we’ll catch up at the next quarterly call.

Moderator/Operator: Thank you very much. Members of the management and ladies and gentlemen, on behalf of Infosys Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines. Thank you.