Ladies and gentlemen, thank you for standing by. Welcome to the Accenture second quarter fiscal 2019 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. Should you require assistance during the call, please press star then zero. As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Managing Director, Head of Investor Relations, Angie Park. Please go ahead.
Thank you, Trish, Thanks, everyone, for joining us today on our second quarter fiscal 2019 earnings announcement. As Trish just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from David Rowland, our interim Chief Executive Officer, KC 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. David 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 second quarter. David will then provide a brief update on our market positioning before KC provides our business outlook for the third quarter and full fiscal year 2019.
We'll then take your questions before David 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 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-K 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 our 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 accenture.com.
As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to David.
Thank you, Angie, and thanks so much to all of you for joining on today's call. Before we get into the quarter, I want to take a moment to acknowledge Pierre and how important he was to Accenture throughout his decades-long career and his leadership as Chairman and CEO. From a personal standpoint, it's certainly a different feeling doing an earnings call without him, but as you'll hear in our comments, I'm confident Pierre would have been really pleased with all we accomplished in the second quarter and the first half of fiscal 2019. With that said, we delivered outstanding results in the second quarter, and I want to share some of the highlights. We delivered record new bookings of $11.8 billion. We grew revenues 9% in local currency to $10.5 billion with continued double-digit growth across many parts of the business.
We delivered earnings per share of $1.73, a 9% increase on an adjusted basis. Operating margin was 13.3%, an expansion of 20 basis points. Our free cash flow was outstanding at $1.2 billion. We continue to return substantial cash to shareholders through share repurchases and dividends, including $2.7 billion on a year-to-date basis. Today, we announced a semi-annual cash dividend of $1.46 per share, which will bring total dividend payment for the year to $2.92 per share, a 10% increase over last year. With the first half of the year behind us, I feel very good about the broad-based strength of our financial results and the momentum we see across the business as we enter the second half. Later, KC will mention that we're raising key elements of our business outlook, and I'm confident in our ability to deliver another strong year.
It gives me great pleasure to hand over to our new CFO, KC McClure, who will review the numbers in greater detail. Over to you, KC.
Thank you, David. It's both an honor and a privilege to follow in your footsteps and serve as Accenture's CFO. Let me start by saying that we were extremely pleased with our overall financial results in the second quarter, which were aligned with our expectations and position us very well to achieve our full-year financial guidance. Our second quarter results continue to provide strong validation of the relevance of our offerings and capabilities to our clients and our ability to manage our business in a dynamic environment, both to deliver significant value to our clients, our people, and our shareholders. With that said, let me summarize the highlights in the context of our three financial imperatives.
Strong revenue growth of 9% in local currency reflects the consistency and durability of our growth model, where being a leader across many dimensions of our market has resulted in growth level that we estimate at more than two times the rate of the market. We had double-digit growth in three of our operating groups and in the growth markets. Broad-based momentum continued with growth in 12 of the 13 industry groups and in each of the components of the new digital, cloud and security, which we estimate grew strong double digits. Operating margin of 13.3% reflects 20 basis points of expansion both for the quarter and on a year-to-date basis.
This level of margin expansion is driven by strong underlying profitability, which importantly allows us to continue to make significant investments in our people and in our business. We delivered EPS of $1.73, which represents 9% growth on an adjusted basis compared to last year, even with an FX headwind of approximately 4%. We delivered free cash flow of $1.2 billion in the quarter and $2.2 billion year to date, which puts us on a very strong trajectory to achieve our guidance for the full year. We continue to execute on our strategic capital allocation objectives with roughly $2.7 billion return to shareholders via dividends and share repurchases year to date. We have made investments of $515 million in acquisitions, primarily attributed to 15 transactions in the first half of the year. We continue to expect to invest up to $1.5 billion this fiscal year.
Now let me turn to some of the details, starting with new bookings. New bookings were $11.8 billion for the quarter, a record high, with a book to bill of 1.1. Year to date bookings of $22 billion are aligned to our expectations for the first half of the year. Consulting bookings were $6.7 billion, also a record high with a book to bill of 1.2. Outsourcing bookings were $5.1 billion with a book to bill of 1.1. We were very pleased with our new bookings, which were broad-based and aligned to our strategic areas of focus. They reflect our continued differentiation in the market and the high level of trust our clients place in us to partner with them in driving critical work and supporting their strategy to adopt and implement new technologies.
The dominant driver of our bookings in the quarter continue to be high demand for digital, cloud and security-related services, which we estimate represented approximately 65% of our new bookings. Turning now to revenues. Revenues for the quarter were $10.5 billion, a 5% increase in US dollars and 9% in local currency above the top end of our previously guided range. Consulting revenues for the quarter were $5.8 billion, up 6% in US dollars and 9% in local currency. Outsourcing revenues were $4.7 billion, up 5% in US dollars and 9% in local currency. Looking at the trends in estimated revenue growth across our business dimensions. Strategy and consulting services and technology services both posted strong high single-digit growth and operations continuing its trend of double-digit growth. As previously mentioned, the new continued to deliver strong double-digit growth. Taking a closer look at our operating groups.
Resources led all operating groups with 22% growth in local currency, driven by continued strong double-digit growth across all three industries in all three geographies. Communications, media, and technology grew 12%, reflecting continued strong double-digit growth in software and platforms, which was the primary contributor to overall double-digit growth in North America and the growth markets, and strong growth in Europe. Products, our largest operating group, delivered its 15th consecutive quarter of double-digit growth at 10%. Demand continued to be broad-based across all three industries in all three geographies. H&PS grew 3%, driven by solid growth in public service, as well as double-digit growth overall in both Europe and the growth markets. We saw slight contraction in North America, which reflects some continued pressure in our U.S. federal business, where we expect improvement in the second half of the year.
Financial services grew 2% as expected, and the trends remain consistent with last quarter, with double-digit growth in insurance and slight contraction in banking and capital markets. Overall, for financial services, we saw double-digit growth in the growth markets and modest growth in North America, partially offset by contraction in Europe. We continue to expect improved growth rates in our financial services business in the second half of the year. Turning to the geographic dimensions of our business, I am very pleased that we again delivered strong growth in all three of our geographic regions. In North America, we delivered 8% revenue growth in local currency, driven by continued strong growth in the United States. In Europe, revenues grew 6% in local currency, with double-digit growth in Italy, France, and Ireland, as well as high single-digit growth in the U.K.
We delivered another very strong quarter in growth markets with 16% growth in local currency, led by Japan, which again had very strong double-digit growth. We had double-digit growth in Brazil, China, and Singapore as well. Moving down the income statement. Gross margin for the quarter was 29.2%, compared with 28.9% for the same period last year. Sales and marketing expense for the quarter was 9.8%, compared with 10.1% for the second quarter last year. General and administrative expense was 6.2%, compared to 5.7% for the same quarter last year. Operating income was $1.4 billion in the second quarter, reflecting a 13.3% operating margin, up 20 basis points compared with Q2 last year. As a reminder, in Q2 of last year, we recognized a charge related to U.S. tax law changes. The following comparisons exclude the impact and reflect adjusted results.
Our effective tax rate for the quarter was 17.1%, compared with an adjusted effective tax rate of 15.1% for the second quarter last year. Diluted earnings per share were $1.73, compared with adjusted EPS of $1.58 in the second quarter last year. This reflects a 9% year-over-year increase. DSO were 40 days compared to 42 days last quarter and 40 days in the second quarter of last year. Free cash flow for the quarter was $1.2 billion, resulting from cash generated by operating activities of $1.4 billion, net of property and equipment additions of $140 million. Our cash balance at February 28th was $4.5 billion, compared with $5.1 billion at August 31st. With regards to our ongoing objective to return cash to shareholders, in the second quarter, we repurchased or redeemed 6.7 million shares for $1 billion at an average price of $149.46 per share.
At February 28th, we had approximately $4.5 billion of share repurchase authority remaining. As David mentioned, our board of directors declared a semi-annual dividend of $1.46 per share, representing a 10% increase over the dividend we paid in May last year. This dividend will be paid on May 15th, 2019. As a reminder, beginning in the first quarter of fiscal 2020, we will move from a semi-annual to a quarterly dividend payment schedule. At the halfway point of fiscal 2019, we feel really good about our results to date and are positioning to deliver on our full-year business outlook.
We continue to be extremely focused on achieving our financial objectives, which are growing revenues faster than the market, delivering consistent modest margin expansion and strong earnings growth while investing at scale for market leadership and generating strong cash flow, which is both invested in the business and returned to shareholders through disciplined and smart capital allocation. With that, let me turn it back to David.
Thank you, KC. As I reflect on our second quarter and year-to-date results, I think they say a lot about the important attributes that truly differentiate Accenture as a market leader. Of course, the overarching headline is the consistency and durability of our strong financial performance, which KC described very well in her comments. I think it's equally important to understand how closely aligned our results are with our strategic priorities, because what drives the results is just as important as the outcome. I want to take a few minutes to describe how our results clearly reflect our strategy in action.
First, the foundation of our growth strategy is to drive strong momentum in the New, and that has certainly been the case so far this year with continued double-digit growth across digital, cloud and security, even as these businesses have reached significant scale and now represent the majority of what we do. With Accenture Interactive, we continue to lead a significant disruption in the market, leveraging our position as the world's largest provider of digital marketing services with award-winning capabilities to help leading brands transform their customer experience. In fiscal 2019, we have invested significantly in this area and have announced 6 acquisitions so far this year to further enhance our scale and differentiation in high-priority markets.
In Applied Intelligence, we've also made significant investments to scale the business and strengthen our distinct positioning, which combines advanced analytics and artificial intelligence with our deep understanding of industries and business functions. We currently have more than 20,000 people focused on Applied Intelligence, including 6,000 deep in artificial intelligence and data science. We've developed more than 250 proprietary industry-specific assets that significantly differentiate us in the market. We're making excellent progress with Industry X.0, which is using advanced digital technologies to help clients transform their core operations from R&D and engineering to production and aftermarket support. We're building a market-leading capability with more than 10,000 people supporting Industry X.0, and we continue to expand our capabilities in dozens of innovation centers in our global network, from Munich to Tokyo to Detroit.
We're also rapidly scaling Accenture Security, where we've made further progress this year in building a market-leading cybersecurity business. To date, we're one of the leading providers in this market, growing double digits year to date, with revenues that we estimate will be well above $2 billion in fiscal 2019. The second pillar of our strategy is Accenture Technology, which we believe represents the strongest technology capability in our industry. So far this year, we've sharpened our focus on three key areas within Accenture Technology that power growth across our business. First, you've heard us talk about Intelligent Platform Services, where we're a global leader partnering with the largest players, SAP, Microsoft, Oracle, Salesforce, and Workday. This business continues to account for about 40% of our total revenues and has grown double digits so far this year.
Intelligent Software Engineering Services is the next area of focus. Where we're leveraging the capabilities of more than 30,000 engineering professionals to deliver products and custom systems in a time of accelerating technology disruption. We believe that demand for custom cloud-based applications will grow significantly in the coming years, and we're well-positioned to meet that demand. With Intelligent Cloud and Infrastructure Services, we're a leading integrator for cloud partners such as Microsoft Azure, Amazon Web Services, and Google Cloud Platform, providing clients with powerful, differentiated solutions as they accelerate the adoption of cloud-enabled technologies. Accenture Operations is the third pillar of our strategy, and we continue to lead the market with new and innovative approaches to help clients drive top-line growth and efficient and intelligent operations.
During the second quarter, we introduced SynOps, our unique approach to orchestrating data, applied intelligence, and digital technologies with human expertise to reinvent business processes and enable intelligent operations. Accenture Operations has contributed double-digit growth so far this year, and in fact has been a consistent market leader with double-digit growth for seven consecutive years. To complete the picture, we've continued to invest in growing our strategy and consulting capabilities, which are the foundation of our deep and differentiated expertise. In the first half alone, we've scaled key growth areas in strategy consulting with the addition of more than 400 new Managing Directors through promotions and external hires. I was so delighted that Accenture was recognized just last week among the top companies in the Forbes ranking of American management consulting firms, receiving more five-star ratings than any other company.
Of course, what makes Accenture truly special is our ability to combine our capabilities across these strategic areas of focus to drive large-scale transformational change for our clients, and you see strong evidence of this in the $22 billion of new bookings we've generated so far this year. Underpinning all of these strategic pillars are Accenture's unique position in the ecosystem, our relentless focus on innovation, and the significant capacity we have to invest strategically and at scale. In summary, our strong financial performance is the direct result of our ability to continue executing our growth strategy with a high level of focus and precision in all we do. Finally, our results also underscore the strength and depth of our leadership team and the resiliency of our organization.
Accenture has always been a collection of extremely talented individual leaders who are motivated first and always by the power of the team, and that certainly is evident in our second quarter and year-to-date results. Before I hand it over to KC, I want to provide a brief update on our CEO succession. As you would expect, our board continues to execute a very rigorous and comprehensive process, which is going very well. Given the strength of our leadership bench, our expectation is that we will name an internal candidate, and that the process will be completed by the end of this fiscal year. With that, I'll turn it over to KC to provide our updated business outlook. KC?
Thanks, David. Before I turn to our business outlook, let me clarify that our European revenues growth this quarter was 7% in local currency, not 6%. With that, let me turn to our business outlook. For the third quarter of fiscal 2019, we expect revenues to be in the range of $10.8 billion-$11.1 billion. This assumes the impact of FX will be about -4.5% compared to the third quarter of fiscal 2018 and reflects an estimated 5.5%-8.5% growth in local currency. For the full fiscal year 2019, based on how the rates have been trending over the last few weeks, we continue to assume the impact of FX on our results in US dollars will be about -3% compared to fiscal 2018.
For the full fiscal 2019, we now expect our revenues to be in the range of 6.5%-8.5% growth in local currency over fiscal 2018. For operating margin, we continue to expect fiscal 2019 to be 14.5%-14.7%, a 10-30 basis point expansion over fiscal 2018 results. We now expect our annual effective tax rate to be in the range of 22.5%-23.5%. This compares to an adjusted effective tax rate of 23% in fiscal 2018. For earnings per share, we now expect full-year diluted EPS for fiscal 2019 to be in the range of $7.18-$7.32, or 7%-9% growth over adjusted fiscal 2018 results.
For the full fiscal year 2019, we now expect operating cash flow to be in the range of $5.85 billion-$6.25 billion, property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $5.2 billion-$5.6 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1-1.2. We continue to expect to return at least $4.5 billion 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 it up so that we can take your questions. Angie?
Thanks, KC. I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. Trish, would you provide instructions for those on the call?
Certainly. Ladies and gentlemen, if you would like to ask a question, please press star one on your phone. You will hear a tone indicating that you've been placed in queue, and you may remove yourself from the queue at any time by pressing the pound key. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, press star one at this time. Our first question is from the line of Tien-Tsin Huang with J.P. Morgan. Please go ahead.
Hi, good morning.
Hello, Tien-Tsin.
Good morning.
How are you?
Good results.
Good luck to your team tonight, by the way.
Yeah. Thanks for making me nervous already. Can't wait to watch. Thanks for that. Yeah. Good results, obviously. I was surprised by the strength in growth markets, let's say year to date, because it's been growing in the mid-teens. Curious if this is sustainable or could we see more balanced growth across the geos based on what we've seen in bookings.
Well, growth markets has really been a great story for us, and as we've highlighted several times, the real strength of the growth markets has been what has been an amazing story led by our leader, Egawa-san, in Japan. In Japan, we do have a very broad-based, we believe, a very broad-based, durable business, which reflects all of the elements of our strategy, which are constructed to create some durability. There are other important markets in the growth markets as well, though. For example, interesting, you look at Brazil, which is a market that even in the backdrop of some macro challenges, our Brazil business has been very strong. You look at China, for example, this quarter, where we also had double-digit growth, which is not material in the context of Accenture overall, but yet it's an important part of that growth market story.
If you're asking me, would I expect that we will grow forever at the rates of growth that we've been at recently in growth markets, I wouldn't necessarily make that assumption, but we are extremely well-positioned in the growth markets. Ultimately, the measure that we hold ourselves against is that we continue to grow significantly faster than the market and take share. I think we're well-positioned to do that in the growth markets going forward.
Got you. I just want to follow up just on the CEO succession. Until that's completed, can we expect business as usual? Will you still be active in M&A and whatnot?
It is absolutely business as usual. The statement that I've made and our leadership team has embraced is we don't hit the pause button at all. We continue to move forward, we operate, and I'm executing the responsibilities in the same way that Pierre would have executed them if he was on the call today. No pause. We continue to drive our business forward.
Great. Thank you, guys.
Thank you.
We will move to the line of Jason Kupferberg with Bank of America. Please go ahead.
Hey. Good morning, guys, congratulations on the rebound in consulting was, I think, even stronger than most had expected. Clearly, it can be lumpy quarter-to-quarter, but I think the book-to-bill in consulting was the best in the past three years. Can you just maybe go a little bit deeper into which specific areas within consulting and which geographies performed particularly well? Just based on the pipeline, do you expect the book-to-bill for consulting and overall to remain north of 1.0 in the second half?
Yeah. Hi, Jason. Thank you for your question.
Hi.
We were very pleased with our consulting bookings this quarter that were very broad-based across all parts of our business and all geographies. In terms of what was driving the demand, we spoke a lot about it. David carried a lot of the conversation in these areas of our business, but it was across, first, all the areas of the New. We estimated that our bookings in the New were about 65% of our overall bookings, that continues as well in consulting. If you look at also the power of what we're seeing in our intelligent platform business, which includes a significant portion of work in consulting as well, which is across Salesforce, Microsoft, Workday.
Oracle.
Oracle. Thank you, David.
Yep.
That was also a very strong driver of our growth in consulting. As it relates to going forward, we feel really comfortable about our pipeline. As we look at the back half of the year, we always, as you know, have work to do for the back half of the year to close our pipeline, but we feel pretty well-positioned as we sit here today with our pipeline in consulting.
Yeah, it's one of the important parts about what differentiates Accenture, because when you look at our strategic areas of focus as I outlined in my script. The common thread across all of that is that many of them are enabled by a strong strategy and consulting practice, that is deep in both industry skills and differentiation, but also in functional skills and differentiation. That is part of the end-to-end model that we talk about at Accenture. Of course, the consulting and strategy capability underpins that. Really in many ways, it's the tip of the spear for most of the pillars of our strategy. As I mentioned, we continue to invest significantly in building that capability and staying ahead of the market.
Okay. Well, that all makes sense. Can you just clarify how much of the 50-basis point revenue guidance raise here was organic? Then can you just make a couple of updated comments on financial services? I know you talked last quarter about it getting back to mid-single digits in the second half. Is that still the expectation? Would that be more of perhaps a Q4 event just given, I think the comparison gets easier.
Okay. As it relates to organic and inorganic, we still see our inorganic growth rate for the full fiscal year to be about 1.5%. We are at about 1.5% now, Jason, for the first half of the year. As we look at our inorganic guidance for the back half of the year, we look at a few things. First of all, our pipeline and the timing of when we estimate the deals that are in our pipeline would close and provide revenue this year. We also obviously do some risk adjustment on those numbers overall. As we sit here today, we are seeing that inorganic growth is still about 1.5%, there's no change to our guidance overall for the year as it relates to inorganic. As it relates to financial services, we do see an uptick still in the back half of the year.
We were very pleased with financial services bookings, which came in as expected, but were very strong across all the elements of our financial services business, including banking, capital markets, as well as insurance, and across all of our geographies. That bodes well for what we had anticipated seeing and we continue to anticipate seeing, which is an uptick in the back half of the year for financial services. As it relates to what quarter that will happen in the back half of the year, it really just depends, Jason, on the pace and the scale of that uptick as we proceed throughout the back half of the year.
Okay, understood. Thank you, guys.
Thank you.
We will go to line of Jim Schneider with Goldman Sachs. Please go ahead.
Morning, Jim.
Hey, Jim.
Good morning, David and KC. How are you? Thanks for taking my question. I was wondering if you could maybe talk a little bit back to the Q4 call last year. I think you called out some macro risks to the business at that point, Brexit, trade tensions, et cetera. Can you maybe just give us an update on what clients are saying about those potential macro risks, [uncertain]? How it's impacting, if at all, your outlook for the rest of the year, and to the extent any of that has materialized in terms of client activity.
Yeah. When you look at the risks that we've talked about, which includes Brexit and it includes the trade disputes, among others, as you well know, really those risks still exist today. Our view of the macro environment, the potential for some slowdown in overall economic growth, that has not changed at all. Having said that, consistent with what we've said before, for global companies to operate in this volatile dynamic environment is the new norm, but it's been the new norm now for several years. As we talk to our clients, they continue to focus on, for the most part, driving their business forward. The two themes remain the same. Our clients continue to focus on investing in digitizing their business, both for top-line growth, differentiation in the market, but also as a way to create operating efficiency in the business.
We believe that companies continue, for the most part, continue to be on their front foot looking to invest in digitizing the business. The other theme that continues to be at play, maybe incrementally stronger, is the whole focus on strategic cost management and cost rationalization, which is always aimed at creating capacity to invest more in the new. I think as we talked about last time, all of that really plays to our strength because where companies are investing is in these areas of new services, which of course is where we have put 100% of our focus. We also commented on the last call that we continue to see client budgets grow. I think we said last quarter they would grow in 2019, maybe at a slightly lower clip, but in the same range as what we had seen the previous year.
We haven't seen anything that changes our point of view on that. Of course, the best illustration of that is the $11.8 billion in bookings that we just posted. Look, the market is always challenging. There's nothing different about it today than it was a year ago. The market is never easy. It's always challenging. As I talk to our C-suite executives and our clients, there is a willingness and a desire really to invest and drive the business forward, and that's not changed.
That's helpful color. Thanks. Maybe as a follow-up, David, I think in your prepared remarks, you talked about going after custom cloud applications as a significant opportunity. It's interesting commentary to me. I'm curious, was that concentrated in one or two different verticals or whether it's more broad-based? Is it financials or something else? Maybe talk about how differentiated you feel that strategy is in the market relative to some of your traditional competitors. Thank you.
Yeah. It is absolutely broad based, it is an interesting point of view to share, it's an interesting trend that we see in the market, quite different from what you might have expected three to four years ago, where everyone was talking about package. If you think about it's easy to understand, as strong as the functionality is in the next-generation packages and platforms that companies are embracing, really to get the full power of the data, the artificial intelligence, the machine learning, there is the need to do a lot of custom app software development in the cloud, so to speak, to really exploit all of the advantages of the broader landscape of new technology and new platforms. I see that with our own company. I see that with so many of our companies that I meet with.
As you would expect, these are not large-scale, necessarily individual projects, but it's a rapid pace of quick development of custom apps in order to really exploit and take advantage of the power of data, artificial intelligence, machine learning, all of those things that require some customization for individual companies. I think it's broad based and pervasive, it's really just the arc, if you will, behind the power of the technology and really customizing it to the needs of a particular company.
Thank you.
You're welcome.
We'll open the line of Edward Caso with Wells Fargo. Please go ahead.
Good morning. Congrats on a strong quarter here. I was wondering, it looks like you're targeting another $1 billion in acquisitions in the back half. Can you sort of help us in what areas you're focused and how they may be changing? Thanks.
Yes. Right, Ed. Our guidance for the full year is up to $1.5 billion. Given where we are, it would be about $1 billion if we get to the up-to range. In terms of what we're looking at, it should be no surprise that it's really aligned to our important strategic growth areas, and I'll just point to what we've already done to date. You see a mix of various things, obviously very much in the new with acquisitions that we've done in the past and Accenture Interactive. We've also done acquisitions in Industry X.0, as well as very specific industry plays that tie, though, to these new technologies, both in products and financial services, just to point out a few.
It really is a key part of our strategy, and the demand in the areas that we look at are no different than what we do overall in our business, which are really tied to leading in the new, in finding disruptive technologies and acquisitions in those areas of the business.
Just to add to what KC said, just using what we've announced, let's say, really as of today, we've done roughly about seven acquisitions in Accenture Interactive. We've done three in Industry X.0. We've done four in technology. If you look at technology, three of those were directly tied to deepening our skills in the platforms. I think there were a couple in Oracle and one SAP as an example. There was another one around data and analytics. We had several vertical-specific acquisitions, several in financial services as an example. I think that's a good representation of we're all about investing in the New, so that's a good roadmap for our acquisition strategy as well as our highest growth, highest priority verticals. That's a good roadmap going forward, just as it's been in the past.
My other question is just seeking some help on translating strength and consulting to outsourcing. How tight is the linkage still between those two? Is consulting really more contained and less of a link than it used to be to outsourcing? Thank you.
Ed, I just don't think there's really any significant difference in terms of the linkage that we've seen. If you take a look at what we do in our consulting business, obviously it first starts with strategy, which can be projects that are specific to strategy, but also oftentimes serve as the beginning for an end-to-end solution for our clients. That's no different than really what we have seen in the past. As we look at the consulting front-end capabilities that we have, we're in a management consulting space, and we connect that to, for example, the Intelligent Platform space, which leads into outsourcing as well. There is still that very same connection that we've had in the past.
We don't really see any big difference, Ed, in terms of what you would think about as it relates to consulting and outsourcing, both as it relates to doing end-to-end services here at Accenture.
Thank you.
Thank you.
We will open the line of Joseph Foresi with Cantor Fitzgerald. Please go ahead.
Hi. My first question here is it seems like you've sort of hit a second gear in digital, and I know in some of your literature, you've talked about going from sort of the consumer to more of the enterprise part of it. Could you maybe describe a little bit more about the strength of this demand? I think it's surprisingly strong, sort of late in what we would consider the cycle and maybe where you think it's coming from.
Yeah. Well, first of all, when we look at digital as we define it, there's really not any aspect of our digital business that we consider to be late in cycle. I mean, let's just start there. If you look at Accenture Interactive, which is the business that relatively speaking, is the most mature within our business. Accenture Interactive, if you look at the G2000 and if you look at the rate of adoption of the power of digital and really reimagining and recreating customer experiences and all of the analytics and revenue enhancement and all of the other offerings that go around that. The rate of adoption while we are let's say several years into that cycle, there's still a lot of runway in that business going forward.
I don't think you would find any G2000 company that would tell you that they think they're kind of done with that. That is an ongoing process, so that has a lot of potential going forward. Of course, we're constantly investing and kind of reimagining our business to find the next S-curve or the next growth curve, which is exactly what we're doing in Interactive as we speak. If you look at Industry X.0, I think that it's widely recognized that the potential of Industry X.0 is massive, but yet very early cycle in terms of the adoption. So if you look at the kinds of things that we are doing, digital services factories for manufacturing companies, when you look at the adoption of intelligent products or connected smart products, digitizing the manufacturing process as a way to accelerate time to market.
Again, that is a very early adoption, and I think if you look at Applied Intelligence, and I don't think you would find any company that says that they think they've arrived in terms of fully exploiting the power of data, artificial intelligence, machine learning, et cetera, and I could continue on. Accenture Security. Companies have a big agenda, multi-year agenda still, to really deal with all that is required to fully secure the enterprise, their customer data, customer relationships, et cetera. We look at this as a longer cycle, and a cycle where we are still early innings, if you want to use the baseball game analogy. We think there's runway when you look at the elements of our digital business.
Got it. My second question, I know this is kind of strange, but we get this occasionally from investors. I think most people think that the overall economy is maybe late cycle. I'm wondering, with all the digital work, do you believe it's more discretionary than it's been in the past? Last cycle and last downturn, Accenture did very well and held in very well. I'm wondering sort of what your thoughts would be assuming that we eventually hit an end of the road on that side as well. Thanks.
I'll tell you what we believe, what we observe, and then at some point, perhaps we'll see how this plays out. Our observation is that with the pace of disruption in global business, with the pace at which industries are getting disrupted, companies are getting disrupted, there's a recognition, we believe we see among companies that you cannot afford to hit the pause button. You cannot afford to slow down. I think that when we hit the eventual soft spot. What you will see is companies doubling down more and pushing harder on the operational efficiency and cost rationalization agenda because in order to fuel what is the lifeblood, which is constantly reimagining, reinventing, and investing in growth, continuing up this adoption curve of the power of the new technology.
What we believe is that there's going to be resiliency in companies' willingness to invest in their definition of the new, because to do otherwise would just fundamentally jeopardize the existence of the enterprise going forward. We'll see the extent to which that plays out. That is the observation that we have.
Thank you.
You're welcome.
We will open the line of Darrin Peller with Wolfe Research. Please go ahead.
Hey, guys. This is Andrew Bao on behalf of Darrin Peller.
Hello, Andrew.
Hey, how are you? I want to dig into the H&PS briefly. I know last quarter you highlighted some challenges on the federal side due to be it budget uncertainty. I'm just wondering if you could provide just a little bit more color on what's happening here and some insight on expectations for the rest of the year.
Yeah, sure. Happy to do that. Nice to meet you. In terms of H&PS and the U.S. federal business, consistent with what we said last quarter, our federal business is really going through the natural cycle of a few contracts winding down. We do see improvement in our U.S. federal business in the back half of the year, and that will also be part of, obviously, the increase in our H&PS business improving in the back half of the year. As it relates, I'll give a little bit of color since you talked about budgets. The partial government shutdown that we experienced this quarter was not material at the Accenture level for either the quarter nor will it be for the year.
As it relates to H&PS, it was about 2% of an impact in the quarter, we do not expect it to be material at all for the H&PS business for the full year.
Got it. Thank you. Just want to touch on Accenture Interactive one more time. Obviously, over the last couple of years, the growth rate would imply you're taking some meaningful share in the digital agency. Just wanted to get a better understanding of how the competitive environment has kind of evolved over time, and if you're seeing more pushback from the incumbents building out their own digital practices and so on.
I would say there's really no change. I think when you look at the Accenture and let's say the competitors that have been part of the disruption, I think about Deloitte Digital, PwC Digital, IBM has a business that is focused on this space to some extent. I think this is an attractive market. It's a top of the C-level agenda discussion. I think companies continue to invest and attempt to compete. I think that those companies that have been successful at disrupting and really bringing technology and industry depth and differentiation, the consulting and strategy, and then also the ability to operate. What I just described, we think, is unique to Accenture. The other companies are competing hard. I think the incumbents intend to try to rotate to look more like the disruptors in the market.
That's a difficult thing to do because when you look at the things that are relevant to Accenture Interactive, some of these things at the core are capabilities that we've built over decades. To build a front-end consulting and strategy practice, for example, is tough to do. To have the technology capability and DNA to underpin that business is tough to do. To have the operations capability, so one of our big offerings in operations now is Accenture Interactive Operations. You don't just create that overnight. We think that we're well-positioned in that market going forward, but it's an attractive market, and we don't underestimate any of the competitors.
Got it. Thank you so much for the color.
You're welcome.
We'll open the line of Lisa Ellis with MoffettNathanson. Go ahead.
Hi. Hey, guys.
Yes.
A question about hybrid cloud. I think one of the most striking trends across the IT landscape this year is the emergence of strong hybrid cloud growth, meaning with a strong on-premise and more private component to it. I'd love some color just on how, as you are evolving your cloud business, how you are sort of evolving it to reflect that trend which arguably gives some hope to the legacy incumbent data center outsourcers who have more of an incumbent position within the private space.
Yep. Lisa, are you just having fun with me, asking me a deep technology question in front of the whole CEO? Is this a test? I'll channel Paul Daugherty. In all seriousness, as always, the way you characterized it is exactly right. I will say that Accenture's position really from the very beginning, was that the cloud adoption would evolve to be more of a hybrid environment. We've had that belief from the very earliest days of discussion about cloud adoption, and that is exactly the way it has played out. There's a lot of things that influence the need to do that. Part of it is an issue around a client's comfort or willingness to put certain data, certain apps on the public cloud.
Of course, there's also the opportunity to exploit the power of the public cloud, which maybe exceeds the potential power of any private cloud with all of the capabilities, and especially the machine learning and artificial intelligence kind of capabilities that are embedded in many of the cloud offerings. I guess I could just say that that is the definite trend. There's a lot of work that we do for our clients in helping them think through their cloud migration strategy. If anybody thinks that that is kind of behind us, I would say to the contrary.
In fact, again, I was just with one of our client CEOs two weeks ago, and the first thing that he wanted to talk about was cloud migration strategy, and it was all around the context of this hybrid cloud, and the private versus the public, and in the public, the strategy across the range of very strong providers. It is a dynamic going forward, and it's exactly the approach that I think every single company is taking in their adoption of the power of cloud.
Terrific. My follow-up, maybe KC, is for you. Can you comment a little bit on how revenue per head and also contract duration are trending? The reason I'm asking is because just looking at the longer-term trends, head count growth has moderated a little bit, as has the longer-term trend on book-to-bill. That's not consistent with your revenue growth, which has remained very strong. I'm just wondering if you could comment on some of maybe those second-order drivers.
Yeah, sure. First in terms of the length or conversion, we haven't really seen any change at all in our bookings to revenue conversion rates. As it relates on the revenue per head, Lisa, I'll first start with, we have a real focus, obviously, on pricing. What we've been able to do in areas where we have invested for differentiation is we have seen pricing improvement in those parts of our business. That continues to be a very strong focus of ours, and we have made progress and continue to make progress in that area. Again, always more work to do in that space, but it really first starts with pricing. That gives us the most leverage as it relates to getting productivity out of our payroll.
If you take a look at our overall payroll expense, which is the large bulk of what we do. A large bulk of our cost structure is in our payroll. We're very focused on making sure that we have the most efficient use of our payroll directed at our clients and recover what is the right and proper rate for that work in the marketplace. We have been making progress on that. It's something that we continue to be focused on. It's a never-ending job. We are pleased with the progress that we're making, and you do see that coming through, not only in our revenue per head, but as a real driver of our operating margin expansion.
Okay.
Thank you, Lisa. Appreciate it.
Hey, Trish, we have time for one more question, and then David will wrap up the call.
Okay, our final question will be from Harshita Rawat from Bernstein. Please go ahead.
Hi, good morning. Thank you for taking our question.
Harshita.
Hi, can you hear me?
Yes. Hello, good morning.
Good morning. I wanted to ask about artificial intelligence and automation, both of which have been meaningful investment areas for you, both from an internal efficiency and also from a client perspective. Can you perhaps talk about where are we in the journey of AI potentially breaking the linearity between headcount and revenue in your business? On the other side, from a client IT demand perspective, is this now a meaningful investment area? If so, in what verticals?
Yeah. First of all, I think when you look at the adoption of artificial intelligence and automation, consistent with what I said earlier, I think any company that I think you could talk to would tell you that they are early in that cycle. I think from a market standpoint, in terms of the work that we do for our clients in that area, I would say artificial intelligence especially is still early cycle. When you talk about automation, I would say that the adoption rate of that is higher, although still, I would say, relatively early cycle. When you look at then the connection to the relationship between headcount and revenue with Accenture, I'm not going to predict the timing with which we would see a direct impact of that.
Clearly, as we do multiyear financial planning and we think about the evolution of our business and our own economic model, we see some potential for a different dynamic there. The pace and timing, I just wouldn't want to predict. Okay?
Great. Thank you.
All right. Thank you. Okay, thanks again to everyone for joining us on today's call. As you can tell at the midpoint of fiscal 2019, we're very pleased with our financial results and the momentum in our business. With our highly differentiated growth strategy and disciplined management of the business, we're very confident in our ability to continue driving profitable growth and delivering significant value for our clients, our people, and our shareholders. We look forward to talking with you again next quarter. In the meantime, as always, if you have any questions, feel free to reach out to Angie and her team. Have a great day.
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