Earnings Call: Q3 2020

Jun 24, 2020

Ladies and gentlemen, thank you for standing by. Welcome to Accenture's Third Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Managing Director, Head of Investor Relations, Angie Park. Please go ahead. Thank you, Greg, and thanks, everyone, for joining us today on our Q3 fiscal 2020 earnings announcement. As Greg just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our Chief Executive Officer and Casey McClure, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results. KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the Q3. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the Q4 and full fiscal year 2020. We will then take your questions before Julie provides a wrap up at the end of the call. Some of the matters we'll discuss on this call, including our business outlook, are forward looking and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10 ks and quarterly reports on Form 10 Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call. During our call today, we will reference certain non GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non GAAP financial measures, where appropriate, to GAAP in our news release or in the Investor Relations section of our website at accentra.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Julie. Thank you, Angie, and thank you everyone for joining us. Since our last earnings call, the world has continued to face unprecedented challenges, health, economic and social. And throughout Q3, we saw rapidly deteriorating economic conditions globally. I am proud of and want to thank our people and our leaders around the world for coming together in Q3 to continue to deliver on our commitments to our shareholders, our clients, our people and our communities in the face of this crisis. Before turning to our delivery on these commitments, let me provide a bit more color on the context. Within days of our earnings call on March 19, we continued to quickly mobilize our people to work from home and during the quarter we had approximately 95% of our people enabled to work remotely. For all of April May, other than China, virtually every country in which we operate was in lockdown. In addition, as you may remember, in January, we announced that as of March 1, we were implementing a new growth model and making which is a testament to the talent of our over 500,000 people and the strength of our leadership team. So in terms of delivering on our commitments to our shareholders, we delivered Q3 revenues in line with the range we provided only 8 days a digital which is digital, cloud and security. We delivered $11,000,000,000 in new bookings, a 6 percent increase over Q3 last year, which demonstrates the relevance of our services and our ability to sell in a remote everything world. We continue to invest in our business for the long term, closing an additional 742 strategic acquisitions for a total of $1,300,000,000 year to date. We delivered operating margin expansion of 10 basis points and we continued to strengthen our balance sheet, closing the quarter with $6,400,000,000 in cash. In terms of delivering on our commitments to our clients, our clients rely on us for mission critical work. 90 5 of our top 100 clients have been with us for over 10 years because we are a trusted partner. And during this time, we have deepened that trust yet again because of our ability to deliver seamlessly, including how we transitioned our people from the delivery centers in India and the Philippines to work from home without service interruption. For example, we closed the books on time for more than 70 public companies in operations and we continued our pre crisis track record in technology with around the clock go lives on new releases every 15 minutes on average. In both technology and operations, we were able to execute entirely remote knowledge transfer with great success. In terms of delivering on our commitments to our people, we continue to invest in training and development and the continuous re skilling of our people. We are on track to deliver the same training hours as last year, while pivoting completely to a digital learning experience built on our platform, Accenture Connected Learning. We continue to promote people mid year, although at a reduced level compared to last year, to ensure that our very best talent continues to build a vibrant career and is recognized and rewarded. In terms of delivering on our commitments to our communities, we believe strongly in our responsibility to contribute to the well-being of our communities. In addition to our teams who have supported our health and public service clients with extraordinary COVID-nineteen related work, we also wanted to make a unique pro bono contribution that leveraged our strength. In addition to our many local activities, we are very proud that we are helping put people back to work around the world with the People Plus Work Connect platform that we created together with Lincoln Financial Group, ServiceNow and Verizon. This platform is a global online employer to employer initiative to bring together at no cost companies that have laid off or furloughed people with organizations in urgent need of workers. Designed by CHROs, including our own extraordinary CHRO, Ellen Shook, Accenture built the platform in only 14 days. The response has been overwhelming as more than 1300 organizations across approximately 80 countries have engaged with currently about 400,000 positions already on the platform, which are balanced between open needs and availability. With that, over to you, Casey. Thank you, Julie, and thanks to all of you for taking the time to join us on today's call. We are pleased with our Q3 results, which were aligned with our expectations and reflect the diversity and durability of our growth model across geographies, industries and services. Our results continue to reinforce the relevance of our offerings and capabilities in the market to deliver value for our clients. Importantly, these results illustrate Accenture's unique ability to manage our business and deliver significant value to our shareholders in a very uncertain environment. Before I get into the details, let me summarize the major headlines of our 3rd quarter results, which reflect continued strong execution against our 3 financial imperatives. Revenue grew 1.3% in local currency at the top end of our guided range. This includes a reduction of approximately 2% from a decline in revenues from reimbursable travel costs. Taking a look at revenues through an industry lens, the diversity of our portfolio continues to serve us well. Approximately 50% of our revenues came from 7 industries that were less impacted from the pandemic and in aggregate grew high single digits with double digit growth in software and platforms, life sciences and public service. At the same time, as we expected, we saw pressure from clients in highly impacted industries, which include travel, retail, energy, high-tech including aerospace and defense and industrials. While performance varied, this group collectively represents over 20% of our revenues and declined high single digits. Given this is the Q1 results since the onset of the pandemic, let me share a bit more color on how it shaped our quarter. We had strong momentum coming into the quarter, which continued through March. We began to see the impacts in our business in April May as a result of clients postponing work, reducing existing volumes and deferring decisions on new work. These impacts were more pronounced in strategy and consulting. We did not, however, see an uptick in cancellations over typical levels. In addition, we experienced very little revenue impact from needing to shift to remote working as we continue to successfully deliver services to our clients. Operating margin was 15.6%, an increase of 10 basis points both for the quarter and year to date as we continue to demonstrate our ability to drive sustainable margin expansion. This result continues to reflect the absorption of significant investments in our people and our business as we further strengthen our leadership position in the market. We are also benefiting from significant lower spend on non billable travel, meetings and events. And finally, we delivered very strong free cash flow of $2,600,000,000 in the quarter, which also while also continuing all elements of our capital allocation program, including returning roughly $1,100,000,000 to shareholders via dividends and share repurchases. We've made investments of $1,300,000,000 acquisitions, primarily attributed to 29 transactions year to date. And we continue to expect to invest up to $1,600,000,000 in acquisitions this fiscal year. With that, let me turn to some of the details starting with new bookings. New bookings were $11,000,000,000 for the quarter, reflecting growth of 6% in local currency and 4% in U. S. Dollars. Consulting bookings were 6,200,000,000 dollars up 5% in local currency and 3% in U. S. Dollars with a book to bill of 1. Outsourcing bookings were 4,800,000,000 dollars up 8% in local currency and 5% U. S. Dollars with a book to bill of 1. We were very pleased with our new bookings, which continue to be dominated by high demand for digital, cloud and security related services, which we estimate represented approximately 70% of our new bookings in the quarter. Looking forward, we expect strong bookings in Q4. The fact that we delivered $11,000,000,000 of bookings in this environment with growth over last year, with much of these sales closed virtually, while at the same time building a very strong pipeline speaks to both our agility and the strength of our client relationships. Turning now to revenues. Revenues for the quarter were $11,000,000,000 a 1% decrease in U. S. Dollars and a 1.3% increase in local currency, reflecting a foreign exchange headwind of roughly 2.5% compared to the 1.5% estimated impact provided in our guidance last quarter. This result was at the top end of our FX adjusted range. Consulting revenues for the quarter were $6,000,000,000 down 4% in U. S. Dollars and down 2% in local currency, which includes a reduction of approximately 3 percentage points from a decline in revenues from reimbursable travels. Outsourcing revenues were 5,000,000,000 dollars up 3% in U. S. Dollars and up 5% in local currency. Taking a closer look at our service dimensions. Technology services grew mid single digits, operations grew low single digits and strategy and consulting declined mid single digits. Additionally, digital cloud and security related services grew high single digits. Turning to our geographic markets. In North America, we delivered 2% revenue growth in local currency, driven by double digit growth in public service, life sciences and software and platforms, and high single digit growth in banking and capital markets. Growth is offset by declines in chemicals and natural resources and high-tech. In Europe, revenue declined 2% local currency. We saw double digit growth in 4 industries, including software and platforms, chemical and natural resources, health and life sciences. Growth was offset by declines in consumer goods, retail and travel, high-tech and banking capital markets. Looking closer at the countries, Europe was driven by high single digit growth in Italy and mid single digit growth in Germany, offset by continued declines in the UK as well as declines in Spain and France. In Growth Markets, we delivered 5% revenue growth in local currency, driven by double digit growth in 6 industries with particular strength in software and platforms, public service and chemicals and natural resources. Growth is offset by decline in consumer goods, retail and travel. From a country perspective, growth markets was led by Japan, which again had strong double digit growth. Moving down the income statement. Gross margin for the quarter was 32.1% compared with 31.8% for the same period last year. Sales and marketing expense for the quarter was 10.2% compared with 10.7% for the Q3 last year. General and administrative expense was 6.3% compared to 5.6% for the same quarter last year. Operating income was $1,700,000,000 in the 3rd quarter, reflecting a 15.6% operating margin, up 10 basis points compared with Q3 last year. Our effective tax rate for the quarter was 25.5 percent compared with an effective tax rate of 25.6% for the Q3 last year. Diluted earnings per share were $1.90 compared to EPS of $1.93 in the Q3 last year. Days service outstanding were 41 days compared to 39 days last quarter and 39 days in Q3 of last year. Free cash flow for the quarter was $2,600,000,000 resulting from cash generated by operating activities of $2,700,000,000 net of property and equipment additions of 150,000,000 Our cash balance at May 31 was $6,400,000,000 compared with $6,100,000,000 at August 31. With regards to our ongoing objective to return cash to shareholders, in the Q3, we repurchased or redeemed 3,700,000 shares for $627,000,000 at an average price of $107.54 per share. As of May 31, we had approximately $1,900,000,000 of share repurchase authority remaining. Also in May, we paid our 3rd quarterly cash dividend of $0.80 per share for a total of $509,000,000 This represents a 10% increase of the equivalent quarterly rate last year. And our Board of Directors declared our 4th quarterly cash dividend of $0.80 per share to be paid on August 14th, also a 10% increase of the equivalent rate last year. So in summary, we delivered to the expectations we provided in March. Looking ahead, we remain laser focused on capturing growth opportunities in the market and delivering value for our clients. As you know and expect of us, we will operate with rigor and discipline while continuing to invest in our business and our people for long term market leadership. We entered the crisis in a position of strength and we are driving our business to emerge even stronger. We remain committed to delivering significant value to our clients, our people and our shareholders as we continue to navigate this very uncertain environment. Now let me turn it back to Julie. Thank you, Casey. As we look forward, we are starting to see the overall business environment improve with more engagement with many of our clients. However, the high level of uncertainty persists and it is too early to predict when the pandemic and economic conditions will improve. Now working from home is highly efficient and I am connecting personally with more clients around the world than ever before. I first want to share our perspective on the crisis and how demand is shaping up based on what I'm hearing from CEOs and then bring it to life. Crisis is unique in 2 ways. First, it has created the largest ever change in human behavior at scale and almost instantaneously, requiring companies to fill new demand trends, change how they engage with customers and adapt quickly to volatile market conditions, all of which require a strong digital foundation just as they also face massive cost pressures. 2nd, the pandemic is happening during a period of exponential technology change, which was already driving entirely new ways of doing business. In our future systems research last year, we identified that the top 10% of companies in terms of tech adoption, depth and culture or the leaders are performing twice as well as the bottom 25%. We believe COVID immediately widened that gap. We see the leaders doubling down on their investments, while the laggards recognize the need to accelerate the pace of their transformation. Companies are turning to Accenture as the trusted partner with deep industry experience and the ability to help them create investment capacity and change at scale and to execute with multidisciplinary teams spanning strategy and consulting to operations. And trust matters more than ever, making our strong client relationships and reputation a critical advantage. This is reflected in our Q3 bookings, which include 11 clients over $100,000,000 and importantly is reflected in our strong pipeline as we look ahead to Q4. Let me highlight some of the transformational deals in our Q3 bookings to bring to life what our clients need and how we're able to deliver. Leveraging our intelligent platform services for a major global beverage company seeking to drive growth, we will be implementing SAP S4HANA to support business simplification and better engagement with customers and consumers through real time data. We are also providing ongoing IT modernization and application maintenance, leveraging our MyWizard asset to lower costs and improve user experience. IT modernization overall continues to be an area of high demand. Leveraging our industry X capabilities, another area where we are seeing increased demand, we will be helping Airbus reduce costs by up to 15% and speed time to market by modernizing their legacy product lifecycle management system. We are implementing and enabling a digital platform built with Dassault Systems, a leader in 3 d design to help the company reinvent how they design, build and support new aircraft products and components. Leveraging operations, we extended our strategic partnership with Microsoft to provide them with credit and collection services, collecting over $120,000,000,000 in cash annually across 170 countries in 30 languages. By combining the market leading AI powered platform technologies, and by simplifying global processes and policies, we will drive significant day 1 savings and lower the marginal cost of growth. At the same time, we will deliver top tier performance. This is an example of why we continue to be the market leader in business process services powered by our ecosystem relationships. Operations is an area where we are seeing a significant increase in demand. Each of these deals create tangible value in both cost efficiency and business outcomes, leveraging our mix of services and deep industry and functional expertise, which Accenture is uniquely able to bring to our clients. I also want to touch on another area of demand where we are seeing even more significant growth post COVID across industries. Cloud migration and cloud based data and innovative business models have quickly accelerated. Amazon Web Services, Microsoft Azure and Google Cloud Platform, as well as Alibaba Cloud in China and Oracle Cloud Infrastructure or OCI. Companies are looking to more quickly reduce costs and capture the innovation of the cloud as well as provide the foundation for better access to data for new business outcomes and models. Examples from our Q3 sales include working with a global pharmaceutical company to consolidate multiple data sources on AWS to drive faster product development, working with a major global insurance company to migrate over 30% of their business applications to Azure in just 18 months, working with a leading Asian bank to build digital banking services on GCP, working with 1 of the largest dairy and working with a European telecommunications provider on a living systems IT modernization, which includes the migration of their Oracle estate to OCI. With cloud, our ability to bring industry and cross industry insights to our clients and world class change management for speed and value due to our strong strategy and consulting capability is a major competitive advantage. Given the events of the last weeks, I do want to pause and take a moment to talk about a core part of who we are as a company. We have an unwavering commitment to inclusion and diversity and equality for all. We have 0 tolerance for racism, bigotry and hate of any kind. We live this commitment every day because it is the right thing to do and because becoming the most inclusive and diverse company in the world has been critical to our strategy. Since 2014, when we doubled down on inclusion and diversity and created our digital business, we have delivered 9% compound annual revenue growth in local currency. We are a talent magnet in part because the most talented people want to work at a company that not only creates value, but also leads with values. We have made progress with respect to our people of color, but not enough. We are determined to use this moment in the U. S. As another moment of change for us. This month, we announced our commitment to take our next set of actions, which includes setting external goals in the U. S. For increasing overall representation and managing directors for Hispanic American, Latinx communities, similar to how we have set public goals for gender globally. We also are adding new mandatory training that will help our people identify, speak up against and report racism, and we are committed to take similar actions globally. Now, I'll turn it over to KC to provide our updated business outlook. KC? Thanks, Julie. Before I get into our business outlook, as I did last quarter, I would like to remind you that given the coronavirus pandemic, there are a number of factors that we may not be able to accurately predict, including the duration and magnitude of the impact, the pace recovery, as well as those described in the quarterly filing we made earlier today. Now with that said, let me turn to our business outlook. For the Q4 fiscal 2020, we expect revenues to be in the range of $10,600,000,000 to $11,000,000,000 This assumes the impact of FX will be approximately negative one compared to the Q4 of fiscal 2019 and reflects an estimated negative 3% to positive 1% growth in local currency and includes approximately negative 2% from the decline in revenues from reimbursable travel. For the full fiscal year 2020, based on how the rates have been trending over the last few weeks, we continue to expect the impact of FX on our results and U. S. Dollars will be approximately negative 1.5% compared to fiscal 2019. For the full fiscal 2020, we now expect revenue to be in the range of 3.5% to 4.5% growth in local currency over fiscal 2019. For operating margin, we now expect fiscal year 2020 to be 14.7%, a 10 basis point expansion over fiscal 2019 results. We now expect our annual effective tax rate to be in the range of 23.5 percent to 24.5 percent. This compares to an effective tax rate of 22.5% in fiscal 2019. For earnings per share, we now expect full year diluted EPS for fiscal 2020 to be in the range of $7.57 to $7.70 or 3% to 5% growth over fiscal 2019 results. For the full fiscal 2020, we now expect operating cash flow to be in the range of $6,450,000,000 to $6,950,000,000 property and equipment additions to be approximately $650,000,000 and free cash flow to be in the range of $5,800,000,000 to $6,300,000,000 Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.2 to 1.3. Finally, we continue to expect to return at least $4,800,000,000 through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to our shareholders. With that, let's open up so we can take your questions. Over to Angie. Thanks, KC. I would ask that you each keep one question and a follow-up to allow as many participants as possible to ask a question. Brad, would you provide instructions Your first question comes from the line of Tien Tsin Huang from JPMorgan. Please go ahead. Thanks so much. Great execution here. Just on the I want to hone in on the strong bookings comment for the Q4. Can you maybe give us a little bit more on the type of work you're doing, consulting versus outsourcing, but also what's COVID specific work versus transformational? And maybe also, Julie, you I think last quarter you mentioned or talked about clients adapting to a new normal. Has that happened? Or is Accenture really driving or just adapting to demand in this uncertain market as you called it? Yes. So maybe I'll start and then Julie can weigh in on demand. So Tien Tsin, thanks for your question. In terms of strong bookings, maybe I'll just talk a little bit about what maybe if I could take this opportunity to talk about guidance overall and I'll hit on the bookings point as well. So in terms of what we're looking at for the Q4, right, in terms of both our revenue and our bookings, I want to put some context into our guidance. Obviously, it continues to be an uncertain environment. And in revenue, we always aim for the top portion of our guided range. But as we said last quarter, this quarter, the entire range is at play. And if I put the context of Q4 into what we experienced in Q3, we had strong momentum coming into the Q3, and that carried through in March. And, we began to see the impacts of the pandemic on our business in April, May. And so as we think about Q4 as it relates to what we saw in Q3, at the top end of our revenue guided range, it implies an improved performance over what we saw in April May. And at the bottom end of our revenue guidance for the Q4, it means we stabilized. And so as it relates specifically to your question on bookings, we were able to grow very strong pipeline during the same time. And we do see that we have the potential for strong bookings in the Q4. I'll let Julie give you a little bit of view on that on the color as it relates to what we're seeing in demand in the market. Sure. I mean, as between kind of consulting and outsourcing, and Q3 and we're going to have some lower sales in Q4. We sort of expect that as we continue. But as you step about, let's just look at demand, right? So the whole set of demand that started in Q3 that will continue into Q4 in some areas around a few things. So health and public sector, right? So we saw a surge in need in health and public sector. For example, we became we pioneered in the for the Commonwealth of Massachusetts in the U. S. Working with partners in health and sales force, the first contracting tracing application and operation, which we've now taken to 3 states, for example, the state of California where we're working with Salesforce and AWS. That work will continue. You saw us working around the world doing things like using our industry and technology expertise to set up virtual agents like in India with myGov and Microsoft engaged, we set up a virtual agent. You go to Brazil, we worked with Microsoft to set up on telemedicine for a major hospital there. That work and those trends around telemedicine and the need to support citizens through the pandemic will continue, we believe. And what's important there is, it's not simply this isn't about technology, right? This is about taking all of our insights from the needs of health and public sector and supporting citizenry with technology, with the ecosystem partners and quite honestly innovating remotely, right, the work that we've been doing and that will continue. You also see the supply chain really being an area of big focus. So we've worked with Danone, a multinational food products company whose supply chain was immediately disrupted severely and leveraging analytics, it became essential for them to give them a near real time data around their supply chain to avoid disruption. So that kind of work supply chain is going we've been doing and it's going to continue. And of course, clients are now moving from the immediate needs and leveraging the assets and tools and understanding that we have to thinking longer term because of course what you have is completely different trends and uncertainty. And so how do you really connect everything from understanding the customer all the way back to manufacturing. And that's why you start to see the demand in digital manufacturing, supply chain and we expect on the customer side to that to continue. Then finally, the whole area of online. So we worked with a global retailer who'd been investing for years in omnichannel. We've been piloting curbside pickup before the crisis 100 stores and in 48 hours we took them to 1400 stores. And so we're beginning to really talk about with other retailers who are behind, right? We talked about the laggards and the leaders, right, to how are they going to be adjusting it. Now if you take a step back, Hing Jin, on the big picture, we do 3 big things. We build digital core. And I talked about in my script how cloud is accelerating. Security is accelerating. We just bought Symantec's managed service business. We're now one of the largest and leading providers in the world. The threat landscape has expanded and that we're seeing tons of demand in security, lots of demand in data and applied intelligence as data is so necessary. But on the other hand, intelligent platform services, which as we've shared in the past is about 40% of our business and pre crisis was growing double digits. That moderated in Q3 and we'll see further moderation in Q4, we expect, as clients have to take a step back, refocus, prioritize, we're helping them shape that. But the demand long term is absolutely there and you saw that in our bookings that we talked about for the S4HANA implementation in Q3 where we are at we're doing so to drive growth as well as efficiencies. And so while we continue to see that moderating, we really do see that as being very much affected by the industries that are most severely infected, but also as clients frankly are taking a step back to figure out how they're going to accelerate and in what sequence their digital core building. In the area of optimizing operations, which is the second big thing we do, our operations business is seeing surge in demand. We talked about this last quarter where we had double digit growth for 25 consecutive quarters. Obviously, some crisis related impacts in this quarter. But as the need for digital transformation has accelerated the ability to use our digital platform, Synops, to drive cost efficiencies and get better data faster, right, is really taking having that business have another new surge in demand as we look at our pipeline. And then also the digital manufacturing as I referred to. And then finally on the growth agenda side, Accenture Interactive, right, an incredible business. We hit $10,000,000,000 and it's having significant growth. It was significantly impacted in Q3 as companies focused more on shoring up what they had as opposed to thinking about the next generation of customer experience, etcetera. We're now seeing those conversations begin again. And what's really interesting there is that the B2B companies like the industrials who had their have a traditional field sales model were able to get connected with remote work, but they weren't online, right? And so we think there's going to be a real surge over time, and we're starting to have those conversations about how you move online. In general, to your question around kind of remote working, look, we've enabled lots of companies to work remotely, right? Whether it was an aerospace and defense company on G Suite, 100,000 people to the NHS hospital system with teams over a 1000000 people, companies have really adapted. And where we have the advantage is because we've been so remote and because of the we're a global tradition of working with our clients around the globe, we've just adapted very quickly. And you see that in our strong bookings, which will be higher than last year's Q3 and then what we expect in Q4. Great. That's good stuff. Good color. I'll get back in the queue. Thank you. Thanks. Your next question comes from the line of Lisa Ellis from MoffettNathanson. Please go ahead. Hi, good morning and good to hear your voices. Just a follow on on Tien Tsin's question. I mean, you obviously recorded solid revenue in 3Q, solid growth in bookings, have a strong pipeline again for 4Q. At the same time, the WEO just downgraded its economic outlook to nearly a 5% decline for the year, so which is pretty terrible. So I'm just trying to ask, can you provide color on how those two things and those two trends reconcile? Meaning, are you seeing that businesses either, A, have not made revisions yet to their overall IT budgets to reflect a weaker longer term economic outlook? Or more optimistically, be they have, but they have actually reallocated more dollars into IT to drive these digital transformations? Or is it that you're picking up share? I mean, I guess, maybe just some color on kind of how you reconcile those two dynamics? Thank you. Yes, sure. Lisa, remember what we're guiding to is really a modest growth that would reflect the economic conditions, right? So what we're seeing in Q4 is we're seeing our business stabilize at what is a much lower level, right, than pre crisis with at the high end of the range starting to tick up and improve, right? So that is what's really, as you say, like that's how you reconcile that, right? And as I just went through with Tianjin, there are parts of our business that are accelerating like cloud and security and operations, But a big part of our business, our intelligent platform services business, which is 40% was growing double digit, moderated in Q3 and we expected further moderation, reflecting the economic conditions, clients sort of taking a step back and saying, how do I sequence? And so, and so but when you look at what's happening, the IT budgets, all the analysts are telling us and we're seeing it as 2, is that they are declining, but they're focusing on the digital transformation that's needed to navigate, right? So like the supply chain examples where you have to do this. This is why, Lisa, our position is so important right now because what we can uniquely do is provide cost savings while we transform. When we talk about IT modernization and managed services, right, we're doing managed services and we talked about this in prior quarters called living systems where we're taking down the costs, but we're helping them have DevOps and Agile at scale to get their product releases faster. We are seeing deals like if you look at the one I highlighted on SAP, it had 2 components for the global beverage company, right? It was replatforming, but it also had a managed service component that was modernizing and cutting their costs. And so what we're seeing is this flight to Accenture for flight to quality because we can deliver, a flight to the ability to increase investment capacity, decrease costs, but still modernize like what we do with operations. And so of course, we're going to be impacted, right? We've got severely impacted as we went through businesses that industries that, of course, we're feeling all of those effects. But we believe our results, we don't know if nobody else has come yet, are taking share in this environment. Terrific. And then maybe my follow on is just on the talent side. Can you just provide I mean, I know you're in an environment where attrition just dropped to 11%, not surprisingly given the environment, utilization is also down a little bit, but of course you're continuing, as you said, to maintain promotions, maintain hiring. Can you just remind us of how you manage talent through this type of environment, so you emerge with a stronger bench on the other side? Thanks. Sure. I mean, it's a great question and something we really focus on because our competitive advantage is phenomenal talent. And the underlying fundamentals of the market, the need to digitally transform and of our business remain strong. And so we are very focused on preserving that great talent and our strategic capabilities because we have everything from strategy and consulting to operations. And so that's been our principle. So we're specific areas of replacing subcontractors. We don't need it. We continue to promote, but we moderated the promotions, but it's important that we're delivering still on it. We've delayed some start dates, as you would imagine. The second thing we're doing is we did just put in this new growth model and we were able in a more simplified organization to identify efficiencies. So we're going after some cost structural decreases that are helping. And then as we move forward, we'll do things like we're in our annual performance process. And so the pace of how we do our kind of business as usual managing out of our lower performers is another lever that we can pull as we look forward. And what we're really focused on is making sure, say, for our Intelligent Platform Services business, yes, it's moderating, but we know it is an absolute critical part of our business. So we're doing a lot of upskilling. I mean, I think this I'm going to give you a number that I think is so phenomenal. Since the beginning of March, right, when we hit COVID and we saw the shift in demand, in technology, we have reskilled 37,000 people in hot areas like cloud since the beginning of March. And these are in sort of on average 15 to 20 hour modules of reskilling to pivot. We've taken our strategy people and pivoted to some of the needs for operations in the public sector because again those are also require those insights. And the resiliency of a business like ours because we're in multiple industries, multiple types of work and we're able to kind of seamlessly move people who are used to working in these multidimensional teams anyway. And by the way, our people love it because they get great new opportunities. So we feel really good about how we're managing it. And to your point, Lisa, we think we're going to come out much stronger because of how we're delivering for our people. Terrific. Great color. Thank you. Thanks, guys. Your next question comes from the line of Dave Koning from Baird. Please go ahead. Yes. Hey, guys. Thank you and congrats. My question, the new really didn't decelerate that much and maybe that just is a function of exactly what you're talking about, some of these newer products doing well, while some of the older part de celerated more. As the economy comes back eventually, do you think the new kind of just gets to just a higher level of growth and then the older services just stay at a lower level? I mean, is that really what we're seeing now? I mean, look, if you sort of look at it, I always just start with like the we're in this big shock, right? I mean, how fast the economy went down, the need that every business is now a health business and so all of these. So I don't read too much into a quarter's sort of response in terms of now new versus legacy other than the impact of what's happening to have to move to online everything and remote will absolutely require and is requiring and that's what we see in our pipeline, an acceleration of building the digital foundation, which means companies are going to have to make more choices. And this is why we used to tell you our theory was in a financial crisis that the rotation to the new, right, would make us more resilient. And that's what is absolutely the facts, right. So is that we've seen what's happened. You have to be more digital and that's going to stay. And that will no doubt have some effects on where you're spending the money. But it's part of what's driving what we're doing now with our managed services and helping modernize those for our clients in a more cost effective way to get our clients to the new. And a lot of what we're doing now is taking all of our learning capabilities and building that in for our clients to help them rotate their talent, which they need to do as well. Great. Thanks. And one quick numbers question, the new reporting on segments with the geos, the margins in the growth markets have been very high this year and specifically in Q3 was very high, I think 21 percent. Is there something changing in the environment that allows those margins to be higher? Is that going to continue? Or maybe it's just a short term blip? Yes. Thanks for the question. Right. This is the first time that we have provided operating income by market. And the way I would just say to take a look at operating income across our markets, Dave, would be the very same way that you thought about it as it relates to the operating groups. Like you're going to have we're going to have variations by markets just like we did throughout the years in operating groups. It's really going to be impacted by the services that we do in that market, the mix of industries that we have, any type of economic impacts that are happening in a specific market as well as maybe investments that we're making particular to that geography. So I think that's the lens I would look at operating income would be the same as we've always historically done against operating groups. And we manage obviously to overall Accenture operating income. As it relates specifically to the growth markets, we had very strong performance in our Japanese business, which is a major growth driver. And overall, our contract performance and profitability is very strong in the growth market. Great. Thanks, guys. Your next question comes from the line of Harshita Rawat from Bernstein. Please go ahead. Hi, good morning. Julie, Casey, my question is, we are seeing in this environment that many companies study to rethink work from home policies as a margin driver longer term, given the higher productivity they've seen in this remote working environment. Is this something you're seeing, looking at? And more broadly, what has been some of the positives and negatives surprises in this new working environment? Thank you. Yes. I think, I'll start and Julie can certainly wait in. I think one of the things that's kind of you asked about margin and unique in this environment is, what I would say that and we're taking full advantage of this is the fact that we are really not traveling particularly for non billable events and meetings. And so we are using we're taking full advantage of that and making sure that we continue then to use that extra capacity to invest in our business to preserve our talent, while at the same time giving margin expansion. So I think for that's probably the bigger change within this environment. We have obviously moved we've always been able to work from home to a great degree. And within our centers, we have been able to make that change as well this quarter. But that's not really going to be a significant increase or decrease in margin in and of itself. Look, as it relates to ourselves, it's complicated, right? Like in our operations business, it's a 20 fourseven. We run shifts and we get to have the advantage of sort of using assets over and over. So I mean, it's not a straightforward sort of discussion around that, but maybe let's just take a step back. What are the realities, right? We're open 30% of our offices now, but we're not putting a lot of people back in the office and neither are our clients around the globe because we're dealing with an ongoing health situation. And so whether you like it or not, right, remote working is going to be here to stay at a pretty high level for some time. And so we and our clients are focused on understanding where does that make sense. I was just talking to a technology company yesterday where what they've said is, look, everything's working pretty well except R and D, not because R and D needs to be in the office, but they're just struggling to collaborate as well, right? And so company by company are learning. I give a lot of advice to CEOs about this because there's some who got really excited about let's get rid of all our real estate. Back in the 90s, we pioneered remote working, right? And we called it hoteling and particularly in the U. S, we took out a lot of real estate because we said, oh, our people are at client sites and they're or they could be home. And what we found, in fact, over the last 5 years when I was running North America, we started gradually to expand the footprint again because there's a benefit of bringing people together as well. Now we've proved you can innovate remotely. I gave some of those examples, but I would say it's going to be cautious. As respect to sort of driving our business, what it has helped CEOs really understand is some of the areas in some industries that have resisted, say, finance and accounting in certain areas, say, no, no, no, we need to have the teams together, is to recognize that they can really rethink like what should they do in house, what can they rely on a partner like Accenture, how to get the right balance both from an expertise and a cost perspective, but just as much this idea of leveraging others for digital transformation. And you're going to see more of that thinking. I mean, when you move to the cloud, you're basically saying you have this important permanent third party partners that are running your business, right? And so how digital transformation happens at speed going forward is really going to be this weaving of partners together, which is why the fact that we're so trusted really helps us in this environment. Great. Thanks very much. Your next question comes from the line of Edward Caso from Wells Fargo. Please go ahead. Hi, good morning. Can you talk a little bit more about your consulting bookings? How much of the sort of the solid quarter do you expect that you had in the quarter was related to the responding to the COVID crisis. And I'm not sure I heard it in Tien Tsin's response to Tien Tsin's question, but the strong awards outlook for Q4, how does that split out between consulting and outsourcing? Thank you. Yes. Hey, Ed, nice to talk to you. In terms of what we're guiding to in Q4, we see an overall stronger bookings. I'll leave it at that in terms of we don't really give a sense or guide to the overall 4th quarter. And I think just in terms of what was in our consulting bookings, Julie provided a lot of color. We had as we talked about our overall bookings were 70% in the New, which is digital to move to the cloud. Security was really important in this current environment, right, as well as other digital areas. So, I don't know, Julie, if there's anything else in addition you want to add on. No. And as I said, our bookings were kind of sort of split between outsourcing and consulting sort of similar as to past patterns overall. Yes. No change there. In the quarter. Yes, in the quarter. That's right. And my other question is around utilization. It went down a few points here. Have you found bottom yet on utilization? We're sort of picking up information that you guys are doing some layoffs and so forth and wondered if you've been able to sort of stabilize the utilization yet? Yes. Maybe I'll just quickly on utilization. So did do a tick down in Q3. It's nothing that we're concerned about. It was really a bit particularly in operations in our centers as we moved during the time that we moved to work from home as well as there were some elements, minor elements of work from home restrictions. But that said, it was within the zone that we expected and we continue to deliver for our clients in that time of need. Yes. And with respect to managing, as I said before, we've identified some real areas of efficiencies. And so that has obviously headcount implications to it, which maybe is what you're calling layoffs. We really see it as focusing on our cost structure and then otherwise are kind of managing our supply and demand as I went through before, pretty ordinary course. We don't see some extraordinary workforce actions. And remember the Q4 guidance builds that in and that we think we're either stabilizing to slightly up in terms of our business environment. Because if you look at our guidance, we're pretty pleased. I mean Q3 had a great strong March. We don't have that in Q4. And so we see do see our business either stabilizing or slightly up. Yes. And then just another fact on that, as you saw from our our headcount went up sequentially 1%, right? So for the quarter, we're up over 6% for the year. Great. Hey, Greg. Thank you. Great. Thanks, Ed. Greg, we have time for one more question and then Julie will wrap up the call. Okay. That question comes from the line of Bryan Bergin from Cowen. Please go ahead. Hi, good morning. Thank you. I wanted to ask on bookings conversion. Can you comment on clients' willingness to ramp up some of these large projects in this environment? I'm curious you're seeing any extension of the period between signings and project startups and how that might impact near term outlooks? Well, I mean, our outlook includes kind of what we're seeing and it's a little bit all over the map, right? You've got some clients who want to go faster, right, because they need the savings faster. You have other clients who if you look at our Q4 revenue guidance, I would think there's really kind of what would put us at the top versus what would put us at the bottom is probably 2 swing factors. 1 would be really how the industry that industry dynamic that we talked about, how that continues to play out and then how the strategy and consulting work evolves in the quarter. Okay. And then just on your comments on digital, can you give us a sense on how those underlying components performed interactive relative to cloud and security? Any quantification there? Well, we don't normally quantify, but as I told you earlier, Ray, we had Accenture Interactive pre crisis have been significantly growing and it was significantly impacted in Q3. And that's primarily around industries and kind of focus. So you've got that. And then whereas you sort of look at cloud, that really was up and security was up. And remember, intelligent platform services came down. So those are kind of the big components that we normally kind of give you a sense of. Yes. I would say just to add on to what Julie said. When we talked about the industry dynamics that I talked about earlier, that really plays out the same way with Accenture Interactive. There was growth in Accenture Interactive and the less impacted industries, right? And they had also similar dynamic on the areas that had more pressure, the industries had more pressure this quarter, they have some declines. Great. Well, thank you everyone. Before I wrap up, I do want to give a special shout out to Fabio Venaso, who leads our Italian business to his leadership entire entire 3 months of the quarter and it was an extraordinarily difficult time. And yet they delivered 8% revenue growth in local currency in Q3 because they stayed so close to our clients and to each other. And I just thought it deserved a very special mention. As I wrap up, we really believe that Accenture is uniquely positioned today to help our clients succeed in the current environment, both because of what we do as well as how we do it. We are committed to shared success with our clients, people, shareholders and communities to living our core values and to being a trusted leader in our commitments. And a special thank you to our shareholders for your continued trust and support. Be well everyone and thank you for joining. Ladies and gentlemen, that does conclude your conference for today. Thank you