Infosys Ltd (NSE:INFY) Q4 FY22 Earnings Concall dated Apr. 13, 2022
Corporate Participants:
Sandeep Mahindroo — Vice President, Financial Controller and Head of Investor Relations
Salil Parekh — Chief Executive Officer & Managing Director
Nilanjan Roy — Chief Financial Officer
Analysts:
Ankur Rudra — J.P. Morgan — Analyst
Moshe Katri — Wedbush Securities — Analyst
Nitin Padmanabhan — Investec — Analyst
Keith Bachman — BMO Capital Markets — Analyst
Sudheer Guntupalli — Kotak Mahindra AMC — Analyst
Diviya Nagarajan — UBS — Analyst
Pankaj Kapoor — CLSA — Analyst
Vibhor Singhal — PhillipCapital — Analyst
Ravi Menon — Macquarie Capital — Analyst
Jamie Friedman — Susquehanna Financial Group — Analyst
Kumar Rakesh — BNP Paribas — Analyst
Sandeep Shah — Equirus Securities — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Infosys Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sandeep Mahindroo. Thank you. And over to you, sir.
Sandeep Mahindroo — Vice President, Financial Controller and Head of Investor Relations
Thanks, Margaret. Hello, everyone, and welcome to Infosys Earnings Call to discuss Q4 and FY ’22 Earnings Release. I am Sandeep from the Investor Relations team in Bangalaore.
Joining us today on this earnings call is CEO and MD, Mr. Salil Parekh; CFO, Mr. Nilanjan Roy, along with other members of the senior management team. We will start the call with some remarks on the performance of the company by Salil and Nilanjan. Subsequent to this, we will open up the call for questions.
Please note that anything that we say, which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risk 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 would now turn it over to Salil.
Salil Parekh — Chief Executive Officer & Managing Director
Thanks, Sandeep. Good morning, good afternoon, and good evening to everyone joining on the call. Thank you for taking the time to join us today.
We’ve had an exceptional year with annual growth of 19.7% in constant currency terms. This was the fastest growth we’ve seen in 11 years. We’re gaining market share. We’re building on a leadership in cloud and digital, and we are part of more and more programs where our clients are looking at digital transformation. Growth was broad-based across business segments, lines and geographies. Each of our business segments grew in double digits. The top three grew in high-teens. US and Europe grew over 20%. The North America region crossed $10 billion in revenue, while financial services cross $5 billion in revenue milestones.
Our digital revenues now account for 59.2% and grew at 41.2% for the year. Our digital revenues crossed $10 billion annualized on a run-rate basis. Within digital, our cloud work is growing faster, and Cobalt cloud capabilities are seeing significant traction with our clients. Our growth has been accompanied by robust operating margins at 23%. We deliver these margins while maintaining focus on our employees with increased compensation and benefits.
Our large deals wins were at $9.5 billion for the full year and was $2.3 billion for Q4. Our net new percentage was 40% for the year and 48% for Q4, helping us set up a strong growth foundation for financial year ’23. Our Q4 revenue growth was 20.6% year-on-year and 1.2% quarter-on-quarter in constant currency terms. Our industry-leading performance in FY ’22 would not have been possible without the relentless commitment from our employees. I’m extremely proud as well as grateful for the extraordinary efforts in delivering success for our clients. Our last 12 months attrition increased to 27.7% — at 27.7%. Our quarterly annualized attrition declined by approximately 5 points on a sequential basis. We recruited 85,000 college graduates in this financial year.
In the fourth quarter, we had a net addition of 22,000 employees. We have an overall strong recruitment program, which is a reflection of our enhanced recruitment capabilities, solid brand and deep penetration into various talent markets. This increases our comfort to support clients in the digital transformation agenda as we look ahead. We’ve initiated a compensation review exercise for this financial year. We’ve planned this exercise so that we can focus on employee segments that need greater attention, while also covering a broader group with regular increases.
As in the past, we will look at individual performance, skills and market benchmarks, while determining individual compensation increases. We will focus on accelerated career growth, targeted development and opportunity to work on cutting-edge digital innovation globally. Our strategy launched four years ago has served us well. We’ve delivered industry-leading growth and industry-leading TSR.
Looking ahead to the next phase to further enhance our leadership on the digital innovation curve, we plan to expand our capabilities in scaling our cloud business, expanding digital capability, expanding on our automation work and increasing relevance with large clients and tech natives and also strengthen our employee value proposition. Our focus on staying ahead in the cloud and digital ecosystem, the focus on our employees and our costs give us strong confidence for the future.
Our sustained momentum in FY ’22, large deal wins, robust deal pipeline and client confidence give us comfort to guide for 13% to 15% growth in FY ’23 in constant currency. Our focus now, as we look ahead, as we build our new strategy that is looking at cloud and the digital ecosystem, our focus on employees and the costs related to the post-COVID work environment result in our operating margin guidance to be at 21% to 23% for FY ’23.
In terms of our business segment performance, let me go through the highlights by segment. Financial Services segment grew at 14.1% in constant currency, with eight large deal wins during the quarter and 27 large deal wins in FY ’22. Our U.S. business continues to lead the growth as we work on large transformation programs. Our overall large deal pipeline in Financial Services is healthy across the regions.
Retail segment growth was at 16.5% in constant currency. As clients focus on digital and costs takeout programs, we see integrated outsourcing deals and transformation programs in the areas of e-commerce, revenue growth management, supply chain, product lifecycle management. We won 16 large deals from this segment in the last year and continue to have a healthy deal pipeline.
The communications vertical grew strongly at 29.2% in constant currency. We see customer experience, IT and network simplification, lean and automated zero-touch operations, time to market and integrated data for digital enterprise as the key themes for clients in this segment. Energy, utility, resources and services segment growth increased further to 17.8% in constant currency. We see continued increased emphasis on digital transformation, especially around customer experience, operational efficiency and associated legacy transformation.
We won four large deals in the last quarter and 18 large deal in FY ’22 from this segment. Growth in manufacturing segment increased to over 50% in constant currency. There were six large deal wins in this segment in the last quarter and 13 wins from last year. We are helping clients across engineering, IoT, supply chain, cloud ERP and digital transformation areas. Hi-Tech growth accelerated further to 20.9% in constant currency. We are seeing an increase in deals based on edge computing, digital marketing and commerce. Cybersecurity is another area of focus for clients due to increased threat perception.
Life sciences vertical grew by 16.2% in constant currency. Clients are driving digital transformation of clinical trials to reduce cycle times to direct data capture, digital patient engagement to accelerate drug discovery and reducing costs. In the last quarter, we were rated as a leader in 11 ratings in the areas of cloud services, big data and analytics, IoT and engineering, modernization and artificial intelligence. We launched the acquisition of oddity, a Germany-based digital marketing and experience and commerce agency. Together with WONGDOODY, this will further strengthen our creative branding and experience design capabilities.
With respect to capital allocation, the Board has proposed a final dividend of INR16 per share, taking the total dividend for financial year ’22 to INR31 per share, an increase of 14.8% over the past year. I want to express Infosys’ support for all the people impacted by the humanitarian crisis in Europe. The company advocates for peace between Russia and Ukraine.
While Infosys does not have any active relationships with local Russian enterprises, we have a small team of less than 100 employees based in Russia, which service a few of our global clients. In light of the prevailing situation, we made a decision to transition these services from Russia to our other global delivery centers. To support these humanitarian assistant initiatives in the region, Infosys has committed $1 million towards Ukrainian relief efforts, and is launching a program [Phonetic] to digitally scale up to 25,000 individuals.
With that, let me hand it over to Nilanjan for his update.
Nilanjan Roy — Chief Financial Officer
Thanks, Salil. Good evening, everyone, and thank you for joining the call.
We navigated yet another year of a challenging environment with strong growth of 19.7% in constant currency, which is highest in a decade. The incremental revenue added this year was higher than the incremental revenue added in the previous three years together. This was backed by broad-based growth across segments and robust growth in our digital portfolio at 41.2% in constant currency.
Operating margin for the fiscal stood at 23%, which was at the midpoint of our guidance band of 22% to 24%. In the backdrop of various supply side pressures, we rolled out various measures to reduce attrition, higher compensation increases, higher promotions, skill-based interventions, etc, in addition to higher subcon. Free cash flow for FY ’22 crossed $3 billion. DSO reduced by four days to 67 days. Capex increased marginally to $290 million on the back of continued focus on optimizing the infra creation-related spend. Consequently, FCF conversion as a percentage of net profit was 103% for FY ’22. FY ’22 EPS grew by 14.3% in dollar terms and 15.2% in INR. Return on equity at 29.1% improved by 1.7% over the prior year.
Coming to quarter four performance, revenue grew by 20.6% year-on-year in constant currency and 1.2% sequentially. Growth was broad-based across verticals and GEOs and was in double digits. Although volume growth remained healthy in quarter four, revenue growth in Q4 was impacted by usual seasonality, slightly COVID impact during the early part of the quarter, and the client-related contractual provisions, which we expect to recover in the future This also impacted quarter four margins.
Mining of large deals — large clients was extremely strong in FY ’22. $100 million client count increased to 38 compared to 32 in FY ’21. We had 12 clients giving $200 million annual revenues compared to seven in FY ’21. We have added 22,000 net employees, including trainees during the quarter, the highest ever in the company’s history as we make headroom to capture the robust demand environment ahead.
Consequently, utilization in quarter four declined to 87%, while onsite effort mix inched up to 24%. Voluntary LTM attrition increased to 27.7%. While LTM attrition continues to increase due to the tail effect, quarterly annualized attrition saw a decline of approximately 5% after a flattening in the previous quarter. Quarter four margins stood at 21.5%, a drop of 200 basis points versus previous quarter.
The major components of the sequential margin movements were as follows: 1.6% RPT impact due to lower calendar working days, client contracted provisions as explained above and other rising percentage; 0.6% impact due to lower utilization as we create capacity for the future; 1% due to higher visa cost, third-party costs and other one-offs, which we benefited in Q3. And these were offset by approximately 1.1% benefit due to salary-related benefits, including lower working days, lead cost [Phonetic] and others.
Quarter four EPS grew by 9.2% in dollar terms and 13.4% in rupee terms on a year-on-year basis. Our balance sheet remains strong and debt free. Consolidated cash and equivalent increased further to $4.9 billion at the end of the quarter. Free cash flow for the quarter was healthy at $761 million and yield on cash balance remained stable at 5.29% in Q4.
In line with our capital allocation policy, the Board has recommended a final dividend of INR16 per share, which will result in a total dividend of INR31 per share for FY ’22 versus INR27 per share for FY ’21, an increase of 14.8% per share for the year. Including the final dividend and recently concluded buyback, over the last three years, we have returned 73% of FCF to shareholders under our current capital allocation policy.
Our accelerated investments in the last few years in strengthening our digital footprint, enhancing large deal capabilities, localization, talent skilling has enabled us to gain consistent market share. With the activation of digital disruptions across industries, we see further scope to engage more closely with clients and capitalize on the expanding market opportunities. We have identified areas of investments, including doubling down our focus on digital portfolio, scaling our cloud offerings and further enhancing our capabilities in emerging technologies. We also remain committed to offer a compelling value proposition to employees through reskilling incentivization and a holistic career growth.
We plan to utilize some of these through aggressive cost optimization and value-led pricing driven by service and brand differentiation. This along with post-pandemic normalization of some expenses like travel, facilities, etc, is reflected in the revised margin guidance for FY ’23 of 21% to 23%. With the pandemic hopefully behind us, we hope to see many of you in person over the next few months.
With that, we can open this call up for questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ankur Rudra from J.P. Morgan. Please go ahead.
Ankur Rudra — J.P. Morgan — Analyst
Hi. Thank you for taking my question. The first question is on the revenue guidance. Last year at this time, Salil, the revenue guidance was a bit lower at the beginning of F ’22. And at the time, you had much stronger, I would say, deal — I would say, at least the order book was a lot stronger. You had a mega deal in the order book and perhaps a stronger exit rate. So, I’m curious to what gives the confidence of giving a slightly higher guidance at the beginning of this year, given maybe a more volatile macro situation?
Salil Parekh — Chief Executive Officer & Managing Director
Hi, Ankur. Thanks for the question. This is Salil. What we see today is the demand environment from what we can see for our client base is strong. We have for the year $9.5 billion in large deals, 40% net new. For the quarter, $2.3 billion, 48%. net new and a strong basis of expansion in dimensions relating to new client work and relating to actual expansion across different strata of clients within client expansion. Given all of those factors, we came to a view that we could see growth in the range of 13% to 15% for this financial year.
Ankur Rudra — J.P. Morgan — Analyst
Understood. Does this bake in any kind of reversal that you alluded to, from the client situation in fourth quarter?
Salil Parekh — Chief Executive Officer & Managing Director
The client situation of the fourth quarter will reverse over some period of time. We will not specify that in this — this is — that reversal in any case is not in the range of a full year will make a huge impact. We see this coming really from the strong demand that we’re seeing within the market, from what we’ve seen in the existing base of business that we have, the expansion within clients that we are seeing, and some of the new client acquisitions that we are witnessing. So putting all of those factors, we came to this view.
Ankur Rudra — J.P. Morgan — Analyst
Thank you. Appreciate the color. Just a follow-up question is on margins. Maybe to start with, could you elaborate the third-party costs, which went up very sharply this quarter and last quarter? Is this the sticky new level given the nature of deals you are signing? And as a connected question, could you elaborate the sort of costs that have been baked into the F ’23 guidance on margins, including the wage inflation levels, the extent of the pace of the reversal of or normalization of the cost base? Thank you.
Salil Parekh — Chief Executive Officer & Managing Director
Yeah. So, I think one of the large deals momentum, which we get is through bundling our services with the software and the allied services, and that gives us a multiplier effect in the client landscape. And that is also — you’ve seen that over the last few years. So, that’s one of the reasons also you’re seeing the cost increase and — has held up from the quarter and in the year going forward.
On a year-on-year perspective, for FY ’23, we don’t call out the wage impact that we all, as Salil said, it would be a competitive compensation hike. We will differentiate high-skill talent and in some cases, it will be more broad based. And of course, around that we have a lot of cost optimization, which we usually do some of them in the year past work, [indecipherable], for instance, the onsite, offshore mix, but subcon became a headwind for us last year and some of these in a way will start going the other way in the following year.
Of course, the rate hikes will hit us early on in the year as well in quarter one itself. So, that will be an initial headwind, but we have seen the overall — we have seen the overall impact of our cost optimization. So, I think we have started the discussions as Salil said in earlier with our clients. Now, of course, this is a much more longer haul. On the T&M side, etc, it happens on renewals, etc. But more SP side — on the SP side of the business, these are much more longer-term discussions. And of course, these are also competitively bid. But I think the discussions have started. All our salespeople have actively engaged in this and looking at the overall demand, the supply crunch on this challenge, we have started making some headway on this.
Ankur Rudra — J.P. Morgan — Analyst
Thank you. And best of luck.
Operator
Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Moshe Katri — Wedbush Securities — Analyst
Hey. Thanks for taking my questions. It would be great if you can give us some more clarity on the client specific contractual provisions that you mentioned. We’re getting a lot of questions on this from investors. How does that impact the revenue numbers for the quarter and then your margin impact as well? I think any clarity is going to be really helpful.
And then just as a follow up. Looking at the margin guidance for fiscal ’23, obviously, we brought down the range, about 100 basis points. Are we assuming a pick up on wage inflation here? And then are we also assuming lower pricing power, which is something that actually did help in terms of levers, I would say, probably for the past six months to 12 months? Thanks a lot.
Salil Parekh — Chief Executive Officer & Managing Director
Moshe, we couldn’t hear you clearly. I heard the first question on the — that client contractual provisions. Just to clarify this, the numbers are very small. These are less than a percentage. So it’s not a big impact overall that people are making it out. So just want to close that out. It’s not a big impact, but it’s less than 1%. But since you are looking at revenue growth and sequentially, I just — we wanted to call it out. What was the larger question?
Moshe Katri — Wedbush Securities — Analyst
The second question had to do with your margin guidance for fiscal ’23. And we’re asking if this actually factors an acceleration in wage inflation into fiscal ’23 and maybe lower pricing power also kind of not factoring into those numbers?
Nilanjan Roy — Chief Financial Officer
Okay. So again, Moshe, we lost bit of it, but I could make out something, you said about wage inflation as well. So yes, in quarter one, we will do a compensation hike as well, both offshore and onsite. And like I said, it will be competitive. We will benchmark this, differentiate it on talent side as well. And that’s something we have seen over the last year has helped us, especially towards people on the higher skills side. So that is working for us. The overall margin guidance reflects a number of events, right? So one is, of course, we talked about the — some of the normalization of the pandemic treatment benefit we had got on travel and facilities. And some of that we think is going to come back as well.
And secondly, of course, we are seeing some of the headwinds in terms of onsite, offshore, which we think we got a large benefit last year. So, we have to see how this opens up in the rest of the year as it rolls out. But on the other hand, with our recruitment engine really kicking up now, subcon costs, we’ve seen has actually plateaued during this quarter. And of course, we think over the rest of the year, we should be able to pull back costs on, for instance, subcon line. Automation remains very core to us, cost optimization every year.
We’re taking out between 3,000 to 4,000 people, automating and putting in bots. And this is the quarter I’m talking about. So, I think we have a very comprehensive plan. And we talked about pricing as well. And 21% to 23% is a reasonable margin band. We think we are comfortable to operate in for next year as well. If you recall, even pre-pandemic, in a way, we were at 21% to 23%, I think we ended FY ’21, which was a year before pandemic at 21.5% [Phonetic] if I’m not mistaken. So, we are in the 21% to 23% and it’s a comfortable range we’re happy to be in.
Moshe Katri — Wedbush Securities — Analyst
Understood. Thanks.
Operator
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Nitin Padmanabhan — Investec — Analyst
Yeah. Hi. Good evening. Just two questions from my side. The first one was on the guidance. So if I understand right, typically, you have very high visibility for the next two quarters. And if I look at the last year net new deal wins, it’s actually lower than the prior year. So, I was just wondering is the mix of much smaller deals which don’t reflect within the overall large deal win numbers that you were talking about? Is that a much higher number? Is that how we should think about it? And second, are there — is it a pipeline of larger deals that could come through, that’s giving the confidence or is it the smaller deals? So that was the first question.
Salil Parekh — Chief Executive Officer & Managing Director
So thanks — thanks for the question. This is Salil. We are not specifying today the different types of deals within the mix. Few points to give some color on it. First, the pipeline that we see today is the largest pipeline we have in terms of large deals. So that gives us a good confidence. Our net new for the year is strong. We have good momentum exiting this year, financial year ’22, which gives us a good foundation for next year. And we see continued traction within clients, as we’re expanding, as we’re consolidating, as we are gaining market share. So, that gives us an added boost. Hopefully, that gives you a little bit more color on that.
Nitin Padmanabhan — Investec — Analyst
Sure. Sure. The second question was in terms of the — how are you seeing onsite wage inflation broadly when you compare the prior year? Do you see that at a much higher level for the industry in the U.S.? Just wanted your thoughts on that.
And finally, any specifics on the Financial Services space, which were relatively softer and Life Sciences, which actually saw a sharp drop for the quarter?
Salil Parekh — Chief Executive Officer & Managing Director
On the wage inflation, outside India, it’s definitely higher than what we were seeing last year. And that will become part of how we factor in our overall compensation increase. Wage inflation numbers in most of the western geographies which are higher today than they were 12 months ago. On Financial Services, while in the quarter, we saw — the Q-on-Q was lower. The overall demand environment remains very strong for us in this segment. We see a good pipeline there. There were significant large deal wins for the year and in the quarter. And we remain confident with the growth in Financial Services. In Life Sciences, conversely, we had, in the previous quarter, several one-time large deals that have come in, and that’s what came through to small, smaller units for us. There was much more volatility in that. The underlying business in Life Sciences, the demand still looks in good shape there.
Nitin Padmanabhan — Investec — Analyst
Sure. Thank you so much and all the best. I will cede the floor.
Operator
Thank you. The next question is from the line of Keith Bachman from BMO Capital Markets. Please go ahead.
Keith Bachman — BMO Capital Markets — Analyst
Yes. Thank you. I wanted to ask a question about what are your assumptions on both attrition and utilization? How should we be thinking about those trends over FY ’23? And specifically, what — if you could corelate it, what’s the impact in terms of your margin guidance that you’ve provided here today of 21% to 23%?
Nilanjan Roy — Chief Financial Officer
Yeah. So I think, firstly, on the utilization, we are still at the higher end at 87.5%. We want to bring this down. Now, having said that, lot of this will happen through the influx of freshers, right? So it’s not a dollar for a dollar in that sense. The utilization will start impacting more freshers who are at a lower profit, but still have a margin headwind. But if you’re looking for a math behind it, there’s no straight correlation because it’s not one for one in that sense in terms of wage cost versus utilization. It’d be at the lower end. So that’s first.
On attrition, yes, we think that this should come down in the following year, the impact of what you’re seeing now, the impact of putting freshers in not only by us, but by the entire industry because it is to a bit on rotational churn issue across the industry and as industry puts in freshers, there’s a new source of supply across the industry as well. And of course, finally, the interventions which we are doing now as well. So that’s all factored into our 21% to 23%. Of course, we are also looking at investments, like Salil said, around cloud, around digital capabilities, and therefore, that’s also baked in into the next year.
Keith Bachman — BMO Capital Markets — Analyst
Okay. Just to clarify and then I will cede the floor. Does attrition come down for the industry or Infosys or both?
Nilanjan Roy — Chief Financial Officer
It will be both. So, I think we are — I don’t think we are in a silo and repo system. We are all interconnected. My attrition is somebody else’s lateral and somebody else’s attrition is my lateral. And therefore, if the industry has to come out of this, it is fundamentally through — volume has to be through freshers. There is no other source of volume. And volume in the industry in the long run has to be only freshers. And therefore, as we start pumping in more freshers, send them for training, put them into the bench, then lead them into production, I think that cycle takes time and you’re seeing all the benefits of this not only with us, you’re also seeing that with the industry as well.
Keith Bachman — BMO Capital Markets — Analyst
Okay. Many thanks. That’s it for me. Cheers.
Operator
Thank you.
Nilanjan Roy — Chief Financial Officer
Thank you.
Operator
Thank you. The next question is from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.
Sudheer Guntupalli — Kotak Mahindra AMC — Analyst
Yeah. Good evening, gentlemen. Thanks for giving me the opportunity. Nilanjan, you made a comment that pre-pandemic, we were at 21.5% margin and our current margin guidance stand is also somewhere around that. So should we read this margin downgrade as more of a structural reset in the company’s aspirational profitability going back to pre-COVID margin levels? Or should we see this more of a one-time downgrade for FY ’23 led by transient supply side pressures?
Nilanjan Roy — Chief Financial Officer
Yeah. So as you know, we only give the margin guidance for the year, 21% to 23%. And 21% to 23%, of course, are the same guidance range, but FY ’23 — FY ’20 was 21.3%. So that’s — we’re not saying we’re going to end up, but a comfortable range we are in for FY ’23, 21% to 23%. So, I think nothing more than that. And we’ve talked about the investments we are going to make not only on a talent, this is a robust demand environment. We don’t want to lose highly skilled talent. So, we are rolling out interventions there and we are rolling out interventions on the sales side, on the marketing side, on the digital cloud. So, these are multiple interventions and we’ve seen the success of that over the last four years, where maybe the results are in front of you. And that’s something which we’ve looked at and baked into the margins for next year.
Sudheer Guntupalli — Kotak Mahindra AMC — Analyst
Sure, sir. An extension of this question. The current exit margin rate in March ’22 and margin downgrade for FY ’23, it gives a bit of a deja vu feel of the exit margin and guidance situation exactly three years ago in March ’19. In fact, we were not staring at so many margin headwinds like we are now, barring a bit of an elevated attrition at that time. So my question is, is it fair to assume that for the next four quarters margins trajectory will trace somewhat of a similar path like during FY ’20, where the current delta and growth will likely take care of the delta and margin headwinds? Or do you see any major divergences in terms of how the pattern may play out over the next four quarters.
Nilanjan Roy — Chief Financial Officer
So, I think you’re step ahead [Phonetic] of me now on this. So, I think, like I said, on the margin side, we know there’s going to be a quarter one impact, right? We know there are no longer-term cost optimizations we can put where shorter term what will happen. So, I think it’s a — it will be a multiple impact of all this. And of course, work will always help. And you’ve seen that the impact of work on our operating leverage also has helped in the past. So it’s a combination of all this.
Sudheer Guntupalli — Kotak Mahindra AMC — Analyst
Thank you, sir. All the best for the future.
Operator
Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.
Diviya Nagarajan — UBS — Analyst
Thanks for taking my question. And congrats on what’s been a great year overall. Looking forward, I think this question has been attempted in different ways by some of the earlier questions that came through. But if you were to kind of think about your guidance on revenue for the full year and think about what are the puts and takes in terms of any delta that you might see on demand, how comfortable do you feel that you have a cushion? I think, if I were to look at your past track record, you’ve taken up guidance pretty much every year consistently, multiple times during the year. Is there room for — is there enough buffer on both sides of the equation? This is my first question.
Salil Parekh — Chief Executive Officer & Managing Director
Hi, Diviya. Thanks for the question. This is Salil. The way we looked at our growth guidance, we really tried to take a look at where is the demand today, where is — what we’ve done with large deals, what we’re seeing across many of our accounts. For example, if you see some of the statistics that we share, number of accounts over 100 million or 50 million, they’ve seen big movements over the last 12 months, 24 months, 36 months. So, we have some view of how that will move in the coming year and then how we are working on a new account, acquisitions and focus.
Those are the things we built in to build the guidance. And that’s the approach we take every year on April — in April, as we look ahead. And then as the world moves, as we get other information, we try to then see how best to communicate, what we’re seeing in the demand environment. It’s the same approach that we’ll follow. So it’s difficult, for example, to say, what does it mean with the cushion or not cushion. Because at this stage, what we see and what we are sharing, which is 13% to 15% on the growth. And then every quarter with the broad-based connections we have with clients and interactions across the industry, we will continue to share what we see with respect to the demand environment.
Diviya Nagarajan — UBS — Analyst
Got it. Got it. And on the margin side, I think you’ve spoken repeatedly about investments and investments of future growth. Could you kind of — if you were to split your margin guide, you’ve taken your guide down roughly by a percent. Could you split it into what would be the contribution of the investments and what is really the contribution of all the other metrics that you talked about that are likely to reverse?
Nilanjan Roy — Chief Financial Officer
Yeah. So we have a lot of, like I say every year, we have headwinds on compensation. We have headwinds on, like I said in the past. But the biggest one, we have headwinds on the stock now this year coming on the travel and the facility side, as things open up. On the other end, we have the cost optimization program, which has been running quite well across all these years, automation, onsite, offshore, subcon again, which was against us.
And then of course, the investments which we are going to make and we will start during the year. This will be behind sales side. This will be behind the native. This will be behind cloud capabilities. This will be behind people incentives on higher skill sides. It’s a combination of all this. So, we’re not really calling out the separate impact. And all of that has been considered overall into the margin factor.
Diviya Nagarajan — UBS — Analyst
Got it. My last question, if I may. So should I assume that your increased visa costs that you’ve had, you’ve almost had like a percent impact in the quarter. The higher visa applications, just to kind of offset some of the subcontracting pressures that you’ve had now with travel opening up in the western markets.
Nilanjan Roy — Chief Financial Officer
Yes. So as I mentioned, the impact was a combination in the margin walk of visa. It was third-party cost and other one-offs, which we enjoyed in quarter three. That was 1% in the margin walk in Q2.
Diviya Nagarajan — UBS — Analyst
Got it. Got it. Thanks. I’ll come for follow up if there is any time. And wish you all the best for the year.
Salil Parekh — Chief Executive Officer & Managing Director
Thanks, Diviya.
Operator
Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.
Pankaj Kapoor — CLSA — Analyst
Yeah. Hi. Thanks for the opportunity. The question, again, is on margins and the investment that you spoke of. I was just wondering, are these similar to the investment that you had done in 2018-’19, so more of one-time kind of investment? Or these are more regular investment, which anyway you will keep doing in the business?
Salil Parekh — Chief Executive Officer & Managing Director
Hi, Pankaj. Thanks for the question. This is Salil. I think the way we are looking at it is, we put in place that strategy a few years ago. We built out deep capability across multiple areas. That was what we did in the first sort of six months, a year or so. We are now seeing, over the last four years, a good impact of that approach. We now want to — we see a tremendous demand environment, which we see across cloud, areas of digital automation and some of the new digital tech companies.
We want to take that and build the capability deeper in those areas. We consider that now a one-time approach in this next few quarters to get it mobilized. It’s not something, which is going to be a continuous new activity for us. And then we want to, again, like we did last time, shift into building capability from the operating business itself. But since we see an inflection point, in what we see as the opportunity set, we want to make sure we take advantage of that, keep our leading position with market share growth that we’ve had over the past three years, four years and try to build on that for the coming three years to five years.
Pankaj Kapoor — CLSA — Analyst
Understand that. And the other question also was on your guidance on the revenue side. What kind of a outlook you’re building in on the macro concerns around what’s happening in the Eastern Europe or even the larger macro worries around the inflation in your end markets? Are you taking any impact of that maybe in the second half of the year? Or the guidance is more on an as-is basis? And in case if there is any incremental deterioration in the macros, that would be probably incremental to whatever the guidance that we have given.
Salil Parekh — Chief Executive Officer & Managing Director
Today, what we see is the points that you mentioned are in the macro environment. But as we look at our demand environment, we don’t see any impact to it. And we don’t have a clear view of how to make an estimate for, let’s say, Q3, Q4, if it will be at what level and so on. Based on that, we have built the guidance today and we will evolve it as we go through. We feel comfortable given what we’re seeing in the environment, that this is the sort of growth that we will see in the range of 13% to 15%. We have not — we don’t see really an impact today in many of those factors in the demand environment today.
Pankaj Kapoor — CLSA — Analyst
Understood. Thank you. And wish you all the best.
Salil Parekh — Chief Executive Officer & Managing Director
Thanks.
Operator
Thank you. The next question is from the line of Vibhor Singhal from PhillipCapital. Please go ahead.
Vibhor Singhal — PhillipCapital — Analyst
Yeah. Hi. Thanks for taking my question. So first couple of questions, again, on the European part. So, my first question is that, as you have already mentioned that our exposure to Russia and the troubled geographies as of now is very limited. But just wanted to pick your brain on — as we understand, as we work for a lot of multinational clients who have operations across countries and in parts of Russia and Eastern Europe as well, so what are the conversations with those clients like? I mean, are they looking to maybe — I mean, is there a possibility of them maybe curtailing down their spend to some extent? Or is there some negativity in the conversation that is creeping in?
And a second, a more longer-term question on the same geography is that over the last two to three years — I mean, in fact, more than that last four years, five years, we have seen Eastern Europe evolve as a destination for hiring for a lot of companies, maybe in data analytics and many other domains. Do you believe this situation — the current war conflict situation has pushed that back by maybe a few quarters or years? Or do you think it’s a temporary situation and once it resolves, the attractiveness of Eastern Europe vis-a-vis hiring for those specific domains will still come back as it was before?
Salil Parekh — Chief Executive Officer & Managing Director
I think I caught both the questions. Can you just repeat your — I’ve understood, first was, is the situation in Ukraine impacting any demand in European clients? Is that the question? Currently, our conversations and discussions with clients in Europe don’t see any impact on the demand environment for us because of this situation. Of course, as we go through the next few quarters and so on, we will see how it plays out depending on the duration and so on.
On the second one, the recruitment situation, the rehab centers, for example, in countries in Eastern Europe and we see that going quite well for us. Today, we have, of course, no center in Ukraine. But the other areas we’ve been expanding in and that has developed quite well, we don’t see today an impact for what we are seeing. There might be obviously impact with centers in Ukraine. So our centers, which are in other geographies, in Eastern Europe, we are seeing good growth in those centers.
Vibhor Singhal — PhillipCapital — Analyst
So if I were to specifically ask countries like Hungary, Poland, Austria, they would continue to remain attractive destinations for us to hire and grow our businesses there?
Salil Parekh — Chief Executive Officer & Managing Director
So, Poland and Romania are the locations where we have centers and we are actively recruiting and scaling up in those locations.
Vibhor Singhal — PhillipCapital — Analyst
Got it. Thanks for taking my questions. And wish you all the best.
Operator
Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon — Macquarie Capital — Analyst
Thank you for the opportunity. Just wanted to clarify on these pass-through costs. Should we not think of this as like a margin tailwind whenever these pass-through costs reduce? Because I assume that customers have the option, let’s say with ServiceNow software, they can procure it themselves. So, I would assume that these are done at zero markup? Would that be correct?
Salil Parekh — Chief Executive Officer & Managing Director
What’s the question?
Nilanjan Roy — Chief Financial Officer
Yes, but these are long-term contracts. And I think the value proposition, which we have is how we bundle services with these software. So it’s just not sort of a one-off sale. I think that’s the proposition with us is that we can integrate this into the cloud, into the vertical stacks, etc, and bundle that to the services, which we have. So that’s the way we look at it.
Ravi Menon — Macquarie Capital — Analyst
But my question was whether what should we assume for the — as a margin for this? Should we assume that this is a margin tailwind? Should we think of this and adjust for the margins accordingly? Assume that this is a zero margin because the client can actually procure that and just ask you to implement it. Correct?
Nilanjan Roy — Chief Financial Officer
But as you see the overall market for software-as-a-service is growing dramatically, right, and that’s something where we can come in and add this value. So it’s just not one client with one software. There are multiple clients. There are horizontal softwares of various kinds as well. So, I think like I said, this is a proposition which we have, which is quite unique for us. So, you just can’t see it as a one-off intervention with one client.
Ravi Menon — Macquarie Capital — Analyst
So are you saying these are software that you own? This is in your intellectual property? I thought this was all third-party items bought for service delivery.
Nilanjan Roy — Chief Financial Officer
No, these are, like I said, these are softwares which are, of course, own by the SaaS vendors, but the bundling of services, which we do with this, that is the value proposition we give to our clients.
Ravi Menon — Macquarie Capital — Analyst
I think I’ll take this offline. That’s fine. Second question is on, if you look at the incremental revenue this quarter, we’ve added about $30 million. Last quarter, we added north of $250 million, if I remember correctly. And this quarter, the increase in pass-through costs is $40 million. So if I adjust for that, your services revenue has actually dropped in a surprisingly strong demand environment. So how should we think about it? I mean, has it — is it that certain projects have come to an end? And this is across the board, right? I mean we’ve seen decline in Life Sciences more than North America and Europe. But it’s — out of this, there is one vertical drag you down or a particular client? I mean, it seems to be revenue — incremental revenues soft across the board. So what — how should we think about that?
Nilanjan Roy — Chief Financial Officer
Yes. So, I think like we said, firstly, volume growth sequentially has been very strong. First point. Second point, if you see our year-on-year, it is 20.6% versus 19.7% for the year, right? Our numbers for exits year-on-year are higher than the average for the year. Number two, our volume were sequentially higher. We’ve added 22,000 people this quarter. And I’m assuming many of these are being hired to look for future demand, right? And that put them into production. So that’s the third signal you’ve got.
So if you could just see from a revenue perspective versus the volume sort of increasing theme, you’ve talked about the seasonality of quarter four. And if you look back over the last five years, six years, we’ve always had a seasonality of revenue versus volume in quarter four because of the working day calendar year impact. We’ve seen some initial part of the COVID leave in the initial part of January impacting us. We’ve had this one-off. We just talked about with the commercial contract for one client. And of course, there are some other puts and takes. So, I think — I don’t think you can just see quarter four in isolation. We won’t have given a guidance of 13% to 15%, which is probably the highest guidance we have ever given at the start of the year from any past, in the last 10 years at least. So, I think all the demand indicators and landmarks are looking very good.
Ravi Menon — Macquarie Capital — Analyst
Hello? I’m sorry, Nilanjan. I think I lost it. I had a technical difficulty here. So one last question on the utilization. You’re talking about cooling it down a little. What would be a good range that we should think about? Would it be coming down to about 85% or so? Would that be sufficient? Or should we think even lower?
Nilanjan Roy — Chief Financial Officer
Yes. So roundabout, 85% is a number, right? It may go up or down in the quarter, but that would be somewhere where we would be more in the comfort range as well.
Ravi Menon — Macquarie Capital — Analyst
All right. Thank you so much. Best of luck.
Operator
Thank you. The next question is from the line of Jamie Friedman from Susquehanna. Please go ahead.
Jamie Friedman — Susquehanna Financial Group — Analyst
Hi. Thank you for taking my question. Nilanjan, I believe that you mentioned in your prepared remarks that you are anticipating that the subcontractor costs are plateauing. I was just wondering why you’re concluding that? Is that Visa related? Or is there something else we should be aware of?
[Technical Issues]
Operator
Members of the management, we cannot hear you.
Nilanjan Roy — Chief Financial Officer
You can hear me. If you could get us [Phonetic], we will now answer.
Operator
Now we can hear you, sir. We cannot hear the answer. May I request you to repeat.
Nilanjan Roy — Chief Financial Officer
Oh, I see. Okay. All right. So like I mentioned, our subcon costs are pretty much plateaued at around 11.1%, 11.3%, I think in this quarter, as a percentage of revenue. However, from an exit — from a headcount perspective, it has actually come down. And one of the reasons for this whole ramp-up of subcons is our recruitment engine actually was a bit behind. So, we were hiring 11,000, 12,000 people each quarter and the balanced demand was being fulfilled by subcon.
With us now getting into this mode of hiring freshers, we added 22,000 people, which were on a exit basis, close to about 7% of the exit headcount already. And therefore, as we look ahead, we will continue to push on the peddle in terms of recruitment and replace many of these subcons either through a replacement system or what we call a program of subcon to hire, which we offer them a full-time employment within the company. So, we’ve been doing that. We have been at the lowest of the industry in 201-’20. So, we know where we have to get that. It may take us some time, a few quarters, but we know that’s the margin lever we can press on.
Jamie Friedman — Susquehanna Financial Group — Analyst
Thank you. And then I believe, Nilanjan, you also had quantified the client contract provision. I’m afraid that the call was a little muffled. Could you repeat the percentage impact if you stated it?
Nilanjan Roy — Chief Financial Officer
Yeah. It’s less than a percentage. And we think over a period of time, this should come back.
Jamie Friedman — Susquehanna Financial Group — Analyst
Got it. Thank you. I’ll jump back in the queue.
Operator
Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Kumar Rakesh — BNP Paribas — Analyst
Hi. Good evening. Thank you for taking my questions. My first question was more around the margin and the guidance, which we have reduced a bit. So is this a reflection of some of the transient impacts, which we are seeing, especially about some of the things which we talked about, supply side constraint and the investments which we are making? Or is there a structural change in some of the cost structure of the deals, which we are making? So while we have strong growth, some of the additional costs which comes along with that through third-party and other things are essentially pushing our margin down.
Nilanjan Roy — Chief Financial Officer
So the last part is I think quite [Phonetic] clear. If you’ve seen actually our large deal strategy, which we announced, I think in FY ’19 or beginning of ’18 and we were doing about $3 billion large deals and that time margins was at 20%. So we went from $3 billion to $6 billion, to $9 billion to $14 billion. So while large deals actually went up, even our margins went up. So some of that impact which people hear. Of course, when we go into large deals in the initial part of the year of the cycle, of course, headwinds are there because clients want cost savings upfront. But once we have the deal tenure, how do we price the deal? So that over a period of time, we are able to take out costs from our various levers, which we have and come closer to the portfolio margins.
So, that’s something we’ve been doing for the last three years, four years, five years, 10 years, 40 years in this industry. I think the impact we’re talking about is much more about the investments we want to make around the — what we’ve seen in the past, etc, what we’ve done. And we think that this robust — the demand environment, we have these capabilities we should invest in as the year progresses. And of course, the usual headwinds, which we talked about, the big, of course, differentiation is the pandemic cost normalizing, right? I mean, I think you all have the numbers in terms of travel and utilization, on-site, offshore. So some of those you already have subcon costs. So, you can start triangulating what is going to come back on return to normal.
Kumar Rakesh — BNP Paribas — Analyst
Got it. Thanks for that. Are large deals — since the report has been steady between $2 billion, $2.5 billion for the last few quarters, I understand a lot of the deal activity is also happening in the smaller size, which is not getting reflected here. So would you give sense on the overall deal size, how that’s been trending? Or would you consider sharing that data on an ongoing basis?
Salil Parekh — Chief Executive Officer & Managing Director
This is Salil. Thanks for that question. I think at this stage, we are not sharing that data outside. Our focus was to share some of the areas, which we have made sort of a change in a few years ago, for example, the digital revenue percentage and the large deal value. What you mentioned, of course, is accurate. We have tremendous activity across all deal sizes. We have a very robust overall pipeline and also a very robust conversion with net new, which also feeds a little bit into the earlier discussion on our revenue growth guidance.
Kumar Rakesh — BNP Paribas — Analyst
Great. One final piece. I think I heard that you talked about 85% fresher hiring, which you have done this fiscal year. Any target which we have set for next fiscal year?
Salil Parekh — Chief Executive Officer & Managing Director
For next year’s campus recruiting, we’ve not communicated that beyond saying that we will do more than 50,000 campus recruits for next year. As we go through the year, we will communicate more on that. But today, we see an active campus recruitment program.
Kumar Rakesh — BNP Paribas — Analyst
Got it. Thanks for that. I’ll fall back in the queue.
Operator
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Sandeep Shah — Equirus Securities — Analyst
Yeah. Thanks for the opportunity. Most of the questions answered. Just wanted to understand the gap between the utilization, including and excluding trainees as big as 700 basis points. And you are adding freshers for last so many quarters. So is it fair to say — and with that, you are also expecting subcontracting cost savings. Is it fair to say second half of FY ’23, margin may have more upward bias to pricing, the lag may also be a tailwind versus first half?
Nilanjan Roy — Chief Financial Officer
Yeah. See, like I said, again, we still have to go through the whole [Indecipherable] etc. Then they go to the banks. They get reskilled on specialty skills, and then they lead them into production. So it takes some time as well, which is why. One is, of course, excluding trainees and including trainees, as well you see the gap. So we have, of course, an increase in the overall trainee count as well between quarter-to-quarter, have not been deployed in projects. But from a margin perspective, I’m not sure this is a big part of the headwind of H1, H2. I think, of course, H1 because of the comps is upfront, one which happens, right, that — and you can go back two years and see that as well. But overall, for the year, at 21%, 23%, we are quite comfortable here.
Sandeep Shah — Equirus Securities — Analyst
Okay. Okay. And just a clarification, Nilanjan, just further to what Ravi has asked. So even if you look at the revenue growth, excluding marginal decline, but at the same time, you are also saying the volumes have gone up. So is it the offshore effort in this quarter has not actually gone down. So why the volume growth is not getting reflected in the revenue growth ex pass-through as a whole? So is it the realization in this quarter is slightly lower?
Nilanjan Roy — Chief Financial Officer
There are some routine puts and takes. I guess one is always if you go back, you will always see the seasonality of working calendar days, right? That’s a straight revenue without volume, correct? Because that’s just the rate cut impact.
The second one is the COVID initially part of the year. The third one is the one contract — this thing, contractual provision which we made for the client. So, I think these are the areas where you’ve not seen that volume benefit flowing into revenue if you’re trying to correlate that. And like Salil also said, we have seen strong sequential quarterly volumes.
Sandeep Shah — Equirus Securities — Analyst
Okay. Okay. Thanks. And all the best.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Salil Parekh — Chief Executive Officer & Managing Director
Thank you. This is Salil. Thank you, everyone, for joining us.
I want to just to reiterate a couple of points we all discussed and mentioned. First, FY ’22 was an extremely strong year for us, close to 20% growth, 23% margin. We’re clearly taking market share and really connecting very strongly with our clients for all the digital and cloud work. As we go ahead, we want to focus on the ever-expanding opportunity set in cloud, digital, data, analytics, automation. And in doing that, we want to make sure that we remain a leader in the pack and continue the market share taking that we’ve been doing.
We also want to focus on our employees with increased engagement and increased methods of working with the compensation increases and career progressions. Putting all of that together, we come to a growth guidance of 13% to 15% for this financial year ’23 and a margin guidance of 21% to 23%. We have a strong outlook. And we look forward to working with our clients and employees for this outlook to be delivered in financial year ’23.
Thank you again, everyone, for joining. And look forward to catching up during any of the one-on-ones in the quarter. Take care.
Operator
[Operator Closing Remarks]