Earnings Call: Q1 2019

Dec 20, 2018

Ladies and gentlemen, thank you for standing by, and welcome to Accenture's First Quarter Fiscal 20 19 Earnings Conference 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. 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 Q1 2019 earnings announcement. As Greg just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from Pierre Nunterm, our Chairman and Chief Executive Officer and David Rowland, 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. Pierre will begin with an overview of our results. David will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the Q1. Peter will then provide a brief update on our market positioning before David provides our business outlook for Q2 and full fiscal year 2019. We will then take your questions before Pierre 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 Pierre. Thank you, Angie, and thanks, everyone, for joining us today. We are very pleased with our Q1 results, continuing our strong momentum from fiscal year 2018. We again delivered revenue growth significantly ahead of the market, solid new bookings and expanded operating margin while investing significantly in the business. We continue to see excellent demand for our services, especially in digital, cloud and security as well as new technologies, confirming the relevance of our growth strategy and the differentiated solutions we bring to our clients. Here are a few highlights for the quarter. We delivered new bookings of $10,200,000,000 We grew revenues 9.5% in local currency to $10,600,000,000 with continued broad based positive growth, including double digit growth in many parts of our business. We delivered earnings per share of $1.96 a 9% increase. Operating margin was 15 point 4%, an expansion of 20 basis points. We generated strong free cash flow of $950,000,000 and we returned more than $1,700,000,000 in cash to shareholders through share repurchases and dividends. So, we are off to a strong start in fiscal year 2019. I feel very good about the momentum in our business, and I am confident in our ability to deliver our updated business outlook for the year. Now let me hand over to David, who will review the numbers in greater detail. David, over to you. Thank you, Pierre. Happy holidays to all of you and thanks for taking the time to join us on today's call. Building further on Pierre's comments, let me start by saying that we were very pleased with our overall results in the Q1, which came in as expected and position us extremely well to achieve our full year objectives. Before getting into the results of the quarter, I want to remind you that both our quarter one results and the FY 2018 comparisons reflect of the new revenue and pension accounting standards, which impact our revenues and operating margin percentage in an immaterial way. In addition, as we previously discussed, we adopted the accounting standard for income taxes on intercompany transfers and the impact is reflected in both our results and our business outlook. With that said, let me begin as I normally do by summarizing a few of the important highlights for the quarter. Strong revenue growth of 9.5% in local continues to reflect broad based momentum in our business and once again demonstrates the durability of our growth model with double digit growth in 3 of our 5 operating groups and in both North America and the growth markets. We estimate that our growth continued to significantly outpace the market, underpinned by strong organic growth of over 8% in local currency. Our operating margin of 15.4% expanded 20 basis points compared with last year and reflects strong underlying profitability, which continues to allow us to invest at scale in our people and our business. And we delivered very strong EPS of $1.96 up 9% compared to last year even with an FX headwind of approximately 2%. Regarding cash flow, we generated significant free cash flow of $950,000,000 while at the same time returning roughly $1,700,000,000 to shareholders through repurchases and dividends. We're also pleased that we invested a little over $200,000,000 in the quarter to acquire 9 companies to bolster our skills and capabilities in strategic high growth areas of our business. And we continue to expect to invest up to $1,500,000,000 in acquisitions during fiscal 2019. With that said, let me turn to some of the details starting with new bookings. Our new bookings were $10,200,000,000 for the quarter. Consulting bookings were $5,900,000,000 with a book to bill of 1.0 dollars and our outsourcing bookings were 4 point $3,000,000,000 with a book to bill of 0.9. This level of new bookings was in the range we expected and follows our typical pattern of lower new bookings in the Q1, which then build throughout the year. Looking forward, we feel good about our pipeline and are encouraged by our new bookings potential in the Q2. Turning now to revenues. Revenues for the quarter were $10,600,000,000 a 7% increase in USD and 9.5% in local currency and at the top end of our guided range. Consulting revenues for the quarter were $6,000,000,000 up 8% in USD and 10% in local currency and outsourcing revenues were $4,600,000,000 up 7% in USD and 9% in local currency. Before I comment on the underlying growth drivers, I want to mention that we've made some minor changes to our business dimensions, which we do from time to time as our business evolves. For fiscal 2019, we have renamed application services to technology services and expanded the definition to include infrastructure outsourcing, which was previously included under Accenture Operations. These changes were made to reflect the synergies between our Infrastructure and Cloud Services business and our Application Services business, and the revised name of Technology Services simply reflects the broader scope. So now looking across the business dimensions, we were especially pleased with the balanced growth in the Q1. Both strategy and consulting services combined and technology services grew at very healthy high single digit rate and operations continued its trend of double digit growth. And the new, including digital, cloud and security related services continued very strong double digit growth as well. I would also like to highlight the continued strong demand for intelligent platform services, which grew double digits and was an important contributor to our growth. As a reminder, these services primarily relate to deploying next generation technologies in SAP, Microsoft Oracle Salesforce and Workday, where we continue to be the number one service provider for all of these important partners. Taking a closer look at our operating groups, Resources led all operating groups with 21% growth in local currency, driven by continued double digit growth all three industries and all three geographies. Communications, Media and Technology grew 14%. Continued strong momentum was driven by double digit growth in software and platforms, which was the primary contributor to overall double digit growth in North America and the growth markets. Products delivered its 14th quarter of double digit growth with 10% growth in the quarter, driven by broad based demand across all three industries and all three geographies. H and PS grew 5%, driven by strong growth in Public Service as well as double digit growth in both Europe and the Growth Markets. As expected, we saw modest overall growth in North America, which reflects some continued pressure in our U. S. Federal business. Finally, Financial Services grew 1%, which is the range we expected, reflecting strong 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 a contraction in Europe. We expect growth in the same range in quarter 2 before seeing improved growth rates in the second half of the year. Moving down the income statement, gross margin for the quarter was 31.1% compared with 31% for the same period last year. Sales and marketing expense for the quarter was 10.1 percent consistent with the Q1 last year. Our general and administrative expense was 5.6 percent compared to 5.7 percent for the same quarter last year. Operating income was $1,600,000,000 in the first quarter, reflecting a 15.4 percent operating margin, up 20 basis points compared with quarter 1 last year. Our effective tax rate for the quarter was 19.8% compared with an effective tax rate of 20.5% for the Q1 last year and diluted earnings per share were $1.96 compared with EPS of $1.79 in the Q1 last year and this reflects a 9% year over year increase. Day services outstanding were 42 days compared to 39 days quarter and 43 days in the Q1 of last year. Our free cash flow for the quarter was $950,000,000 resulting from cash generated by operating activities of $1,000,000,000 net of property and equipment additions of $78,000,000 Our cash balance at November 30 was $4,400,000,000 compared with $5,100,000,000 at August 31. With regards to our ongoing objective to return cash to shareholders, in the Q1, we repurchased or redeemed 4,900,000 shares for $788,000,000 at an average price of $162.01 per share. At November 30, we had approximately $5,200,000,000 of share repurchase authority remaining. Also in November, we paid a semiannual cash dividend of $1.46 per share for a total of $933,000,000 This represented a 13 percent a $0.13 per share or $0.10 increase over the dividend we paid in May. Let me say that again. This represented a $0.13 per share or 10% increase over the dividend we paid in May. So in summary, we're off to a very good start in fiscal 2019 and working hard to sustain our strong revenue growth, profitability and cash flow for the remainder of the year. Now let me turn it back to Pierre. Thank you, David. Our strong first quarter performance demonstrate that our strategy of building highly differentiated capabilities for the digital world, applying innovation at scale and anticipating the next waves of technology disruption continues to position us as the market leader. We continue to leverage the unique leadership position we have built in the new digital, cloud and security services. Our revenues from the new again grew at a very strong double digit rate in the Q1 and accounted for more than 60% of total revenues. While the new had become the core of our business, we continue to invest and innovate to capture new growth opportunities. You may recall that at this time last year, we launched new digital capabilities in Industry X. 0, Applied Intelligence and Accenture Interactive. We are making excellent progress in all of these areas. And today, I want to update you on our strong position in Applied Intelligence. Applied Intelligence, we bring together our capabilities in analytics, machine learning and artificial intelligence, combined with our deep understanding of industry disruptions to help clients become data driven and invent new business models to create superior value. Today, we have more than 20,000 people focused on applied intelligence, including 6,000 with deep expertise in artificial intelligence and data science. We are as well leveraging our unique position in the ecosystem and working with all the leading providers of artificial intelligence technologies, enabling us to bring cutting edge solutions to our clients. And we recently launched new partnerships in artificial intelligence with Amazon, Google and Microsoft. Applied intelligence also comes to life through our new innovation architecture and our global network of studios, labs and innovation centers, where we co innovate with clients to accelerate the development and delivery of leading edge industry specific solutions. And our intellectual property in this area, which now includes approximately 1500 patents, is an important asset that further differentiates us. In addition, we continue to make significant investments in applied intelligence. In the last two quarters, we acquired Congetics, a U. S. Company in big data and machine learning. And through Accenture Ventures, minority investment in Rupjar, a data intelligence company focused on security and Quantexa, a data analytics and specializing firm in fraud detection. Of course, Accenture Applied Intelligence benefits significantly from synergies across all our businesses to bring clients end to end value propositions. For Schumbeerts, we are combining the industry expertise of Accenture's strategy with the data and artificial intelligence capabilities of Accenture Applied Intelligence to improve the productivity of their people, repair by utilization and asset turnaround. With innovative video analytics, artificial intelligence and machine learning, we are significantly reducing the time machine spend offline for repairs, driving higher returns on investments. At the same time, with the breadth and scope of capabilities we have built across Accenture and our unique ability to combine them at scale in an industry context, we remain the partner of choice for our clients' largest and most complex transformation program. We are working with Sprint on an enterprise wide digital transformation to co create new customer experiences and optimize our digital marketing and operations. The changes have driven a substantial increase in customers buying their phone digitally, significantly higher customer satisfaction and 1,000,000 of dollars in operational cost savings. Turning now to the geographic dimension of our business. I am very pleased that in the first quarter, we again delivered strong growth in all three of our geographic regions and gained significant market share. In North America, we delivered 10% revenue growth in local currency, driven primarily by double digit growth in the United States. In Europe, revenues grew 6% in local currency, with double digit growth in Italy and Ireland as well as mid to high single digit growth in the United Kingdom, Germany and Spain. And I'm just delighted that we delivered another excellent quarter in growth markets with 17% growth in local currency. Japan again led the way with very strong double digit growth, and we had double digit growth in Brazil, in China and in Singapore as well. Before I turn it back to David, as you know, the capabilities we are building in the New, along with our highly skilled and diverse talent and disciplined management are absolutely key to our long term and durable success. And I'm particularly proud of some recent recognition we received for leadership in these areas. The Wall Street Journal ranked Accenture in the top 10 on their management top 250 list. And the journal editors also named Accenture as one of just 7 companies to do everything well. They consider us a leader in the way we manage Accenture across the board. In addition, we were recognized by multiple industry analysts as a leader in the IoT services, which underpin our Industry X. 0 business, demonstrating that we also have the pioneering capabilities to continue differentiating Accenture into new and driving future growth. With that, I will turn it over to David to provide our updated business outlook. David, over to you again. Thank you, Pierre. Let me now turn to our business outlook. For the Q2 of fiscal 2019, we expect revenues to be in the range of $10,100,000,000 to $10,400,000,000 This assumes the impact of FX will be about negative 4% compared to the Q2 of fiscal 2018 and reflects an estimated 6% to 9 growth in local currency. For the full fiscal year 2019, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in USD, we now assume the impact of FX on our results in USD will be about negative 3% compared to fiscal 2018. For the full fiscal 2019, we now expect our revenues to be in the range of 6% to 8% growth in local currency over fiscal 2018. For operating margin, we continue to expect fiscal year 2019 to be 14.5% to 14.7%, a 10 to 30 basis point expansion over fiscal 2018 results. We continue to expect our annual effective tax rate to be in the range of 23% to 25%, and 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 $7.01 to 7 point operating cash flow to be in the range of $5,750,000,000 to $6,150,000,000 and property equipment additions to be approximately $650,000,000 and free cash flow to be in the range of $5,100,000,000 to $5,500,000,000 Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1 to 1.2. Finally, we continue to expect to return at least $4,500,000,000 through dividends and share repurchases as we remain committed to returning a substantial portion of cash to our shareholders. With that, let's open it up so we can take your questions. Angie? Thanks, David. I would ask that you each keep to one question and a follow-up to allow as many participants to ask a question. Greg, would you provide instructions for those on the call? Your first question comes from the line of Tien tsin Huang from JPMorgan. Please go ahead. Hi, good morning everyone. Hi, good morning, Tien Tsin Huang. Always good to hear from you. Happy holidays. Just the gross margin I want to start out with, if that's okay. It looks like it's expanding now a couple of quarters, which is encouraging. And I know you managed operating margin, but what's driving the better gross margin here? Can we infer that pricing and contract profitability are in a good place? Yes. So there's overall, there's really three things that drive our operating margin overall and really all three things apply to gross margin as well. So you just mentioned that you start with contract profitability and we are pleased with the progression of our contract profitability. And we've also been very pleased with the progression of our pricing. You know Tien Tsin that we have invested substantially in our strategic areas of focus to build what we think is significant differentiated capability in the marketplace. I'm referring to the components of the new. And as we said before, in those areas where we have significant differentiation and where there's high demand, then we tend to get some pricing power. And of course, beyond the contract profitability and pricing, we have been very efficient in how we have managed our overall payroll efficiency as well as our non payroll expenses. And so and I know I speak for Pierre, I think our organization has done a particularly good job in recent quarters and certainly this quarter we just closed in driving our profit objectives. That's great. And I'll for my quick follow-up, I'll ask I think I asked this last quarter as well. The financial services piece, you mentioned the same thing you said last quarter, you're looking for second half growth improvement. Do you still feel good about that? Has that changed at all? Have you replenished the pipeline? Yes. I mean, no change with what we said in the prior quarter. FS delivered as expected. So we expected a lower Q1 and certainly as well the same in Q2. But we have the pipeline and we have the committed bookings, which are making us comfortable enough that in the 2nd part of the year, Q3 and Q4, FX will get back to their mid single digit growth we would expect from them. Thank you. Thanks for the clean results at year end. Thank you, Tien tsin. Happy holidays. Thank you. Your next question comes from the line of James Friedman from Susquehanna. Please go ahead. Hi. Thank you and happy holidays as well. Dave, in your prepared remarks, you had called out some changes in the definitions of business dimensions, the operations and technology services. I just wanted to check that in the fact sheet the presentation of the growth is adjusted. So it says double digit growth in operations, high single digit growth in technology services. Is that contemplated in those changes? Yes, it is. It is reflected in those numbers. Okay. And then, I guess I'll go to the operating group for my follow-up. So resources, great to see the continued performance here for a couple of quarters again. I'm just getting questions from clients about the potential cyclicality of that OG or is this more secular? What's going on that is growing so quickly? [SPEAKER JOSE RAFAEL FERNANDEZ:] Yes. Resources, I mean, the good news is, if you look at, I mean, the 3 industries making resources, they are all growing double digit in Q1, and we're pleased with that. Oil, mining, chemical, oil and gas, utilities. So it's broad based. So we are not dependent on one industry in resources to another. And we love that. Probably, if there is a word David and I we love the most is broad based and because it's making our model more durable. If you look at this, what's hot as we speak, again, all what we are calling the intelligent platform services around the SAP, all the other platforms. So in resources, you have what we anticipated as well and discussed with you a few quarters ago, the next wave of ERP implementation to take the benefits of these new platforms. As well, digital is starting to kick more and more in this B2B business, if you will, or B2B2C business because in utilities and oil and gas, of course, they have a B2C business where you need to provide a digital experience. So they are becoming more digital. They are becoming more intelligent platform services driven. And we're starting to expand more of our industry X.0 services. I'm talking about things such as asset virtualization and digital twins as well as the new 3 d platforms in order to reinvent all the supply chain and the production of these large companies. So I feel, again, absent oil price massive drop. So if we are staying in the zone, we might be more in a kind of what you're calling secular or maybe a structural part of the reinvention of these industries. Yes, that was a lot. Okay, thank you very much. Happy holidays. Happy same day again. Your next question comes from the line of Rod Bourgeois from DeepDive Equity. Please go ahead. Hello, Rod. Hi there. Hey, thanks for the call here. Hey, I wanted to talk about the change of the calendar and the New Year budget and all the macro uncertainties that are swarming around. Do you feel you have good visibility into your clients' discretionary spending plans as we move into the New Year budget? And I guess more specifically, as you look at those client budgets, are you seeing clients' priorities shifting in any significant way, to respond to the heightened macro concerns that are out there? I mean, frankly, from a macro standpoint, we talked a lot. I think the last during the last call, I already signaled all this volatility, uncertainty of the environment. This is what it is. Frankly, nothing has really changed. If you look at these macro uncertainties, it's all about the trade, it's all about the economic growth, it's all about the Brexit, that's still there. So frankly, the clients we are working with, which are all leaders in their industries and all, I would call them, the best brand and sometimes the global giants, I'm referring to our 180 plus diamond clients, they are figuring out this environment. There is nothing really new for them or for us in what's happening. Their budget has been set. And the pattern on the budget is pretty clear. It's all the traditional legacy commoditizing services going to be under big pressure. And the budget are being reallocated to the new or to what we are calling the new at large. Everything is digital. The cloud prospects are very good. Security services, I would add what we're calling intelligent platforms. So all these waves of new platform with deep analytics, artificial intelligence, and this is what it is. So what outages is probably or what we have read, the budget will continue to grow, maybe to a lesser extent than last year, but it will continue to grow, that the reallocation between commoditizing IT services and digital might be even more dramatic. You need to be in the right side of the fence, I. E. I. We, with 60% of our revenues in the New, we believe we are in the right side of the fence. That's why we're growing 9.5%. Great. And as a follow on to that, I mean, as you look at the new calendar year, will there be any meaningful changes in your mix? In other words, could outsourcing accelerate relative to consulting or vice versa or any of the sub segments that might make a meaningful change in mix as you look at the pipe for next year? No. I mean, there's nothing about 2019 specifically that would influence the mix trend that you've seen now for several quarters. So I think that trajectory of an stronger growth with our consulting type of work. Stronger growth with our consulting type of work, I think that continues. Got it. Thanks guys. Thank you. Your next question comes from the line of Brian Essex from Morgan Stanley. Please go ahead. Hi, good morning and thank you for taking the question. Hey, good morning. Happy holidays. I was wondering if I could dig into healthcare a little bit. I think that was a little softer this quarter than last. Maybe what's happening behind the scenes there and how you see that unfolding throughout the rest of the year? Yes. Actually, we are you mentioned healthcare specifically, and I assume that's what you meant as opposed to H and PS. If you look at Yes, H and PS in general, yes. Okay. So if you look at H and PS overall, then really the story is pretty clear and maybe the best point to share is the fact that if you look at our H and PS business absent the impact of the cycle that our U. S. Federal business is going through. So if you look at the rest of the public service business and if you look at health, absent the U. S. Federal business, H and PS is growing upper single digits really right at almost touching double digit growth. And so actually, we're quite pleased with the performance of our health and public service business. If you look at the health business specifically, we've seen continued strong trends in the payer side of the business. And at the same time, in the most recent quarter, we've seen some green shoots and signs encouraging signs on the provider part of the business as well. We have double digit growth in H and PS in both Europe and Growth Markets. And again, really if you look at North America, it's really a story of the U. S. Federal business going through kind of a natural cycle as contracts wind down and reconnecting with growth. But overall, absent that, H and PS is doing quite well. Got it. That's super helpful. And maybe for a quick follow-up, David, if you could give us a little bit of color on the tax rate. I think that was little bit better of benefit than we expected in the quarter. You held your guidance for the year. And I think previously in previous quarters, you'd noted potential for upward pressure there. Maybe if we can kind of like fine tune our expectations on the tax rate? Really nothing there wasn't anything unusual in quarter 1 relative to what we said when we provided annual guidance. And of course, we haven't changed our annual guidance. And so quarter 1 played out as we expected and again our annual guidance has remained unchanged. So the things that influence our tax rate this year, 4 of which we've talked about continually over the years is geographic mix of income, changes in prior year tax liabilities, final determinations and then tax impacts on equity compensation. And then in addition to those 4 that we've traditionally talked about, we have the U. S. Tax reform, which we've said previously, statement remains true today that it would have modest upward pressure. And then we have the adoption of the new tax standard Regarding intercompany transfers, and again, that is exactly as we stated, it has about a 3% headwind in our tax rate in 2019 and going forward. And then of course, how that plays out in any particular year is based on all of those factors coming together. And so this year, all of that is reflected in our tax rate. Very helpful. Thank you. Thank you. Your next question comes from the line of David Togut from Evercore ISI. Please go ahead. Good morning. Happy holidays. Thank you, David. Good morning. In our recent surveys of bank CEOs, they're calling out their 2019 tech spending priorities as being online and mobile banking, security and payments. We know you're very strong in security, but can you talk about what you're offering the banks in terms of online and mobile banking payments and kind of how that ties into your second half recovery plan from a revenue growth standpoint? We are very active in mobile banking. So to be honest, I couldn't be more pleased with the different activities you're mentioning because they resonate pretty well with what we are doing, security payment and mobile first mobile banking. It's the new wave after the big wave we had before on risk and regulatory management where there have been a lot of investments so far. Mobile everything being mobile, we are certainly among the best references in the market. Unfortunately, they are not public as we speak. Maybe next time, I mean, the next earning, we'll try to make some public. And so you will see what we are doing and it is pretty spectacular. More or less with most of our clients truly omni channel from physical to digital with a focus on mobile first mobile banks. Security, as you know, it's an area where we decided to invest 2 or 3 years ago with Accenture Security. And Accenture Security is doing strong double digit, as David would say, which is growing big in my own term. And payment is the bread and butter of the bank. You're right absolutely right to mention that it's certainly the activity which is more subject to disruption by the new players, the FinTech and others and the platforms as well given all the payments. So indeed, we are very active to look at what are the strategies for the banks in order to face the new competition of the big platforms as well as the fintech. So we are well equipped to provide a good response to our clients on these three areas. Understood. And as my follow-up, I'd like to ask about your Industry X. O solutions, especially what type of demand you're seeing for Industry X. O as the trade war grows and as global companies are trying to manage complex supply chains? Strong demand. Again, if you're looking at what we're calling the new, you have digital, you have cloud and you have security. In digital, you have 3 main activities Accenture Interactive doing extremely well in digital marketing, strong double digit. You had Applied Intelligence, I decided to focus on because artificial intelligence, as we speak, in the name of the game. And I wanted to make sure with all of you about the investments we are making and the leadership we have established in analytics, machine learning and artificial intelligence. X.0 we launched exactly a year ago and make that public, growing extremely fast. So I would say that Pori's strong double digit will not reflect what we are talking about. It's extremely fast on the back of the reinvention of the supply chain in manufacturing from R and D to production to post sales. I mentioned in the heavy equipment, Industry.0 soon to talk about the digital twins, which is as well the new way to do manufacturing in the X.0 world, I'm talking about the virtualization of the assets, and I'm talking about the implementation of the new platforms, 3 d analytic rich. I'm talking about our partners such as Dassault, of course, but as well Siemens and other platform, Dassault Systemes, Siemens and other platforms we're working with, including general electric products in some industries in the U. S. So we are well equipped in the different markets. These are three examples, but we're going to come back to you with an update on X. 0. Maybe in 2 or 3 quarters, where things would have been built to a larger scale. But today, I mentioned that we are already recognized as the leader in IoT services, Internet of Things Services, which are a significant part of X.0 by multiple analysts, and I'm delighted with that. Thank you. Thank you, Dan. Your next question comes from the line of Harshita Rawat from Bernstein. Please go ahead. Hi. Good morning. Good morning. Good morning. Thank you for taking my question. My question is in bookings growth. And I know you called out the Q1 tends to be a seasonally low quarter in terms of bookings, but bookings growth was on a year over year basis was also weak. And I know you talked about the macro environment earlier and it does appear that 2019 enterprise IT demand environment while still being robust could be weaker versus 2018. So my question is, is the weak bookings growth this quarter primarily reflecting seasonality or is there any macro impact there, especially on consulting type of engagements, which are often leading indicators in the case of a slowdown? Yes, I would say that in our case, it's more seasonality. Again, we have seen this isn't the case every year, but certainly most years, we tend to see softer bookings in the Q1. I think also when you look at our Q1 bookings, it's important to look at them in the context of what we've done in the 6 months or the 2 quarters previously, where we had, I believe, our largest and second largest bookings quarters in our history in those two quarters or to say it differently over a 6 month period, we had a record level of bookings. And so I think that's at play as well as you kind of rebuild and reestablish the pipeline. I also made the comment in the script and so I'll just say it again that we are pleased with our pipeline. And as we look at the Q2, in particular, we're very encouraged with our bookings potential as we look at the Q2. Thank you very much. Thank you. Your next question comes from the line of Bryan Bergin from Cowen. Please go ahead. Hi, thank you. Happy holidays. Sure. Same to you. I wanted to ask on talent competition start. You had a nice reduction in attrition. Can you give us some color on what you're seeing around the wage inflation environment, particularly in the U. S? And then how that's comparing to other key regions for you? I don't I think the talent market and the some areas of the new where the supply is tight, it is it's a competitive market. Having said that, one of the hallmarks of Accenture is that we have established ourselves and have been and continue to be a real magnet for talent in the marketplace. And I think that there's three reasons behind that. The first is that people in the marketplace know that Accenture is the leader in the new. So we are working in the areas that are the most attractive to the most attractive people in the marketplace. The second thing is that talent is attractive to market leaders and companies that have demonstrated superior performance. And certainly, we've done that over the years. And then the third thing, and this is something that Pierre talks about from time to time and it's an important part of Accenture is our culture and our values and the environment that people work in, how we treat them and how we value what they do. And those are the three things that really make Accenture distinctive. We have no issue attracting talent and don't expect that to be an issue going forward. Okay. Thank you. And then my follow-up, around the Interactive business and M and A strategy, can you remind us how you see your services comparing the traditional model? And then are there aspects of that traditional advertising model that you would be interested in building or building up further organically or through acquisition? I said before that probably the world we like the most with David is world based. The world we hate the most is traditional. And no, we have no appetite to build anything traditional, anything legacy, anything that has been doing by the industry for 50 years. All the hypothesis being serious again, if you will. I was serious, by the way, but be even more serious on this is our point is to be part of the disruption of this industry. And we want to be a disruptor. And by being a disruptor, we want to be a digital native marketing and experience provider from design to what we have today, design, production, commerce, campaign including programmatic and of course analytics and artificial intelligence to capture the preferences and to make the campaign more impactful. We will always look to look at things that's going to be either more creative or more new, if you will. But the point is, if it's too traditional, it's going to commoditize. And if it's commoditizing, this is not the market we want to be in. Okay. Thank you. Thank you, David or Brian, excuse me. Your next question comes from the line of David Grossman from Stifel Financial. Please go ahead. Good morning, David. Good morning. So just first, I have a question on the business segments outside of the New. Can you give us any sense for what the growth trends are in that segment of your business back of the envelope, our math suggests declines. And if that math is right, are you seeing any leading indicators that would suggest that business is plateauing? And also perhaps you could address just kind of what the margin trends are and then kind of non new as well? Yes. I mean, the math is clear. It is contracting and I think that math is clear. We've talked about it previously. In terms of the margin trends, as we've also mentioned is that that tends to be the common characteristic is that that's the most commoditized part of the marketplace. And as you can imagine, therefore, there is significant competition and pricing pressure. And at the end of the day, to some extent, we are disrupting that part of our business intentionally. We're disrupting it by focusing our efforts on growing in the new. And then for those legacy services, if you will, we are, again, using new technology to even reinvent those and in some cases to automate the way those things are done as one form of disrupting that part of our business. And so all our focus is on the new and the rest of the business will continue to evolve the way it evolves. Okay, got it. Thanks for that. And then just secondly, it appears that you've executed a fairly healthy pace of acquisitions year to date. So given that pace and that we're early in the year, should we reconsider the contribution that you'll get from inorganic growth this year? Yes. At this point, with only 1 quarter in the books, it's really too early to adjust the number. And so there's a lot that it's hard to predict the timing of acquisition flows for the remaining 3 quarters. So right now, we still see about 1.5%, which is what I said on last quarter's call. Obviously, we'll provide an update at the end of the second quarter. But right now, I think in terms of about 1.5. In the Q1, it was just below that. So I mentioned that our organic growth, which is very important to us, was just over 8%, and then the balance of that, by definition, below 1.5% was inorganic. Okay, got it. Thanks very much and have a great holiday. Thank you. Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead. Hello, Bryan. Hi, guys. Good morning. Just want to ask, if we do fall into an economic slowdown, can you talk a little bit about the resilience of the business model and what you guys would expect and what you've seen in the past from changes in economic conditions? Yes. And I'm very pleased to comment on that because during the Investor and Analysis Day or many earnings call, you probably heard me and David using a lot durability, sustainability of our business model, being able to resist over a cycle of downturn. So again, I mean, when it's raining hard, either you watch the rain or you build an umbrella. At Accenture, we decided to build an umbrella. And what the umbrella is made of, if you will, probably 7 key elements, which I truly believe are making Accenture more resilient and more durable across different cycles. I mean, very rapidly, I would say the number one is the quality of our client portfolio. We have this diamond client approach more than 182, I think 182 to be even more specific, but 180 plus anyway. And it's all the best brand, companies operating at scale with a global footprint and they know how to deal with the economic conditions. So first, working with the right clients. 2nd and maybe even the most important is all what we discussed during that call to be in the right services. For us, it's the new versus traditional IT. Today, it's very clear that the clients are allocating more budget to the new and the traditional IT will suffer even more. With more than 60% of our revenue in the new growing strong double digit, we are building the new services which are on demand. 3 is the balanced growth. I mean, you see 2 of our 3 regions in double digit growth. At Saint FS, Europe would have been at 10% double digit growth. We have 8 of our 13 industries strong high single to double digit growth. So we have this balanced growth, which I think is making us resilient. Next is the diversified portfolio of businesses, strategy, consulting, digital, technology, operations. And then you can move even in digital, interactive, X.0, applied intelligence, Accenture Security. We have certainly one of the portfolio in professional services, which is on one hand the most diversified, but which as well is creating more synergies than any other portfolio. Finally, the disciplined management of the cost. I think we demonstrated last year between H1 and H2 in 2018, the ability of Accenture in less than a quarter to fix our challenge in term of cost with discipline and then to make that resilient as you could see with our profitability in Q1. And finally, and for me it's absolutely critical, doing all of this while keeping our investment capacity intact in order to be able to invest what we do more than our competitors who might be impacted in the long term in new growth and to seize new growth opportunities when maybe competition will have to stop their investments. So these seven elements are clearly for me the backbone of our durability and of our resilience and we're working hard on these seven attributes if you will. No, that's super helpful. Thanks. And as a follow-up, just on Financial Services, there's a lot of folks seeing weakness in Capital Markets and in Europe. Can you just talk about maybe what you guys are seeing exactly there? Maybe how it might be different than the market because you guys are expecting a rebound in 3Q and a lot of other IT folks can be a little bit more hesitant on calling a rebound in that business? Thanks. Yes. I mean, good question because indeed, as David said, banking and capital market been slightly negative, so it's not the right place to be. Now the proof of all of this is do we have the pipeline and do we have the committed bookings. So the hard facts making us more comfortable about that rebuild. Reality is, and especially in Europe, that we have the pipeline and we have the committed bookings as we speak and we will continue to build, that's making us comfortable enough to predict a rebound in the 2nd part of the year. So it's really based on the facts we see in our pipeline and in our booking, especially in the areas which has been mentioned before, the new platforms, the mobile first online banking, the transformation. It's still a lot on risk and compliance and regulatory management, fraud management. So, yes, we look at this extremely carefully, as you might imagine, and we have the element in the pipeline and the bookings which are making us comfortable enough. Great. Happy holidays guys. Same to you. Happy holidays. Thank you. Your next question comes from the line of Dave Koning from Baird. Please go ahead. Yes. Hey, guys. Thank you. And I guess my first question, just the growth markets have been incredibly strong and pretty stable right around kind of 14% to 17% now for maybe 6 quarters. Historically, there was some more volatility there. Sometimes they would slow down, sometimes they would be really strong. Do you think those will be volatile in the future still? Or is there something about it now that can kind of maintain the mid teens ish growth for a long time? Growth markets, I'm certainly not going to suggest that we're going to comment on mid teens growth over the long term. But again, many of the things that Pierre has been talking about in terms of being diversified and broad based, we see that in our growth markets model as well. When you talk about growth markets at Accenture, while we have a lot of great stories, for us, it really starts with Japan. And when you look at the business that we have built in Japan, which in the context of the Japanese market is a reflection of the Accenture strategy in the sense that it's diversified across several industries and it represents the full scope of the services that we provide from consulting to operations, that creates some resiliency for all the reasons that Pierre mentioned in a Japanese context. And so that will give us some resiliency and durability over time. Japan is not the other the only store. We have other important markets. If you think about our business in Australia, you go to Latin America, even in the context of challenging macro conditions in Latin America, we actually have had very strong growth in Latin America, again, for all the reasons that Pierre has mentioned in terms of our go to market strategy and what we're doing to be relevant to our clients, leverage our investments and to have durability in our model. So I'm not going to guide to a double digit percentage, but we feel very good about our growth markets business. Pierre? Yes. And you give me the opportunity. If you look at Japan, we moved directly to the positioning in the new to become the number 1 in digital related services in Japan, not number 1 in the market overall, but number 1 in this specific segment. Because as well in Japan, we didn't have any traditional IT services creating a kind of drag. So we jumped rapidly to the target positioning. And imagine that, right David, we have 20 consecutive quarters of double digit growth in Japan, 20 is just fabulous. And in Brazil, we say, how are you growing double digit in Brazil with terrible economic conditions? Because in Brazil, we are the number 1. We are the market leader. And when times are tough, you remember the flight to quality. I would use the same comparison with flight to leadership. When times are tough, clients are going to the leader with all the characteristics we have and the values. But maybe in closing, because I know we're starting to be a bit late, but we can have one question. I would like to take this opportunity to recognize a fabulous leader of Accenture, Gianfranco Cassati. Leadership means a lot. Gianfranco C. Cassati is leading the growth markets and he is providing more than an exceptional leadership in growing this market. So hats off for Gianfranco Kasady. And we have Egawasa in Japan. What has been done these last 4 years with Egawa san is absolutely second to none. So when you have great leaders and the best in the industries, you have good results. Okay. Greg, we have time for one more question and then Pierre will wrap up the call. Okay. That question comes from the line of Lisa Ellis from Matti Nathanson. Please go ahead. Hi. Good morning, Lisa. We're going to let you bring us home. All right. I had a question actually about the work Accenture is doing in cloud, which tends to get less focus, I guess, than digital. Can you just characterize a bit like what the mix or focus of Accenture's cloud work is across public, private, hybrid, etcetera? And then also as cloud begins to sort of enter, I guess, Phase 2, and how much run activity are you seeing in cloud? Yes, I mean, very good question. And indeed, there are so many deep dives we could do with you guys. And we need more time, Angie, next time. But if I look at the cloud, which frankly is growing again double digit at Accenture, We didn't talk about cloud because it seems to be already old stories in the new, but you're absolutely right, Liza, it's super spot on now. Our activities are around, 1, what we're calling journey to the cloud, supporting our clients moving from on premise to the cloud and with the cloud in the mix of the hybrid public private. And we're working with all our partners, I would say, especially, certainly, Amazon and Azure on this journey to the cloud and others, but it's activity number 1. Activity number 2, because you have synergies, is all is related to SaaS solution. We are number 1 with the SaaS providers, especially with salesforce.com. Again, more than strong double digit with salesforce.com this quarter. And all this software as a service, cloud native solution are getting more and more traction, salesforce.com, Workday and few others as well. And 3 is the cloud infrastructure. And that's why we decided to move our infrastructure from operations to technology because we see unique synergies between these three elements of software as a service, cloud based, we could run with our infrastructure services. And that's why we have now all of this in a single place and organization around Accenture Technology to drive more synergies. So you're absolutely right, but our growth in cloud is very big, right, David? Yes, absolutely. This quarter. And we have very strong prospect in the cloud moving forward. Thank you. And then just a super quick follow-up because I think important as we're going into 2019 and everyone is getting a bit concerned about discretionary IT spending in the macro environment. On the digital side of your business, which is now approaching 50%, directionally, how much of the funding for digital comes from outside the IT budget? Is it like half or more than half or a quarter, just directionally? Hard to say. Frankly, it's I don't know, David, if you'd have a point of view on this. I think it's quite hard to provide probably a direction on this. Yes. We let us maybe come back to that in the right public form, but we'll come back and try to give some insight on that maybe on our next call. Wonderful. Thanks guys. Happy holidays. A bit more analytics to make sure we're providing an accurate answer. So we're going to use some machine learning and applied intelligence in this to provide the right answer. Okay, great. Thank you. Holidays. Thanks a lot. Happy holidays, guys, and thanks for running a little long. I know it's late in the year. So thank you. Okay. Thank you. I mean, thanks again for joining us on today's call. And thanks again for all your good questions because this is the opportunity for David and I indeed to provide more insight around our strategy, and it's so important for you, for us and for our clients. I mean, with the Q1 being us, I feel very good about where we are as we build on first the strong momentum in our business. We enhanced our leadership in the new and we continued driving growth ahead of the market. So we're pleased with all of this. We have the momentum And I guess we're up for a strong start and a good year at Accenture. Of course, I want to wish all our investors and analysts and everyone at Accenture a very happy holiday season and all the best for the New Year. We look forward to talking with you again next quarter. In the meantime, of course, if you have any questions, feel free to call Angie and her team. All the best and enjoy the holiday season and a happy new year. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT and T Executive Teleconference. You may now disconnect.