Earnings Call: Q3 2016

Jun 23, 2016

Welcome to Accenture's Third Quarter Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and 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 our host, Casey McClure. Please go ahead. Thank you, Roxanne, and thanks, everyone, for joining us today on our Q3 fiscal 2016 earnings announcement. As Roxanne just mentioned, Casey McClure, Managing Director, Head of Investor Relations. With me today are Pierre Nontorme, 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 1st for the Q3. Pierre will then provide for the 4th quarter key operational metrics, excuse me, for the 3rd quarter. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the Q4 and full fiscal year 2016. We will then take your questions before Pierre provides a wrap up at the end of the call. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursements or net revenues. 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 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 Pierre. Thank you, Casey, and thanks, everyone, for joining us today. We are very pleased with our Q3 financial results and the strong momentum we have built in our business. I am particularly pleased that we again delivered double digit revenue growth in local currency, gaining significant market share. Our results clearly demonstrate that we are executing our strategy very well, further differentiated Accenture in the marketplace. Here are a few highlights from the quarter. We delivered strong new bookings of $9,100,000,000 bringing us to $26,400,000,000 for the year to date. We generated very strong revenue growth of 10% in local currency. Operating margin was 15% from 5%, an expansion of 10 basis points from adjusted operating margin in the Q3 last year. We delivered earnings per share of 1 point $4.1 up 8% from adjusted EPS in the Q3 last year, which generated strong free cash flow of $1,500,000,000 and we returned $1,200,000,000 in cash to shareholders through share repurchases and dividends. So we have delivered excellent subquarter results. And as we enter the Q4, I feel very good about our business and I am confident in our ability to deliver our business outlook for the year. Now let me hand over to David. David, over to you. Thank you, Pierre, and thanks to all of you for joining us on today's call. As you heard in Pierre's comments, our Q3 results were strong across almost every dimension of our business. Once again, our results demonstrate the power of our highly differentiated growth strategy, which is built on 5 businesses, delivered in an industry relevant context and focused on being the market leader in helping our clients rotate to the new. Looking at our results at a high level, there are a few major themes which I think are important to note. 1st, 10% local currency growth marks the 7th consecutive quarter of double digit growth. These results were a strong indication of the durability of our growth model, which is underpinned by our focus on achieving market leading scale across our key industries and geographic markets. This is best illustrated by our broad based growth in the 3rd quarter, which reflected double digit growth in 8 industries and 8 geographic markets. And strong double digit growth in the New, especially in digital related services continue to be a key driver of our results. 2nd, operating margin of 15.5%, 10 basis points higher than last year's adjusted results was consistent with our objective to deliver modest margin expansion while investing significantly in our people and our business. Our profitability agenda is enabled by our drive to achieve fit for purpose economics across each of our 5 businesses. We're pleased with our progress year to date, which has yielded 10 basis points of operating margin expansion and 10% growth in EPS on an adjusted basis, while at the same time creating the capacity to make important investments for long term market leadership. 3rd, as expected, we generated strong free cash flow in the quarter of $1,500,000,000 and returned roughly $1,200,000,000 to shareholders through repurchases and dividends. We're well positioned to deliver free cash flow in excess of net income for the full year. And importantly, we continue to invest to acquire scale and capabilities in key growth areas, investing roughly 8 $35,000,000 across 11 acquisitions through the 3rd quarter. So we're very pleased with our results in quarter 3, which let's get let's get into the details starting with new bookings. New bookings were $9,100,000,000 for the quarter, consulting bookings were $4,900,000 with a book to bill of 1.1, outsourcing bookings were 4.2 also with a book to bill of 1.1. We're very pleased with our overall new bookings, particularly in consulting, which represented the 2nd highest new bookings quarter following the record set in quarter 2. Looking at bookings by business, our new bookings results were highlighted by strong demand in operations, which had an estimated book to bill of 1.4. Strategy and consulting services combined had an estimated book to bill above 1.0, well within our target book to bill range. And application services had a book to bill of 1.0. Across the board, digital related services continue to be a significant driver. Additionally, we had 10 clients with new bookings in excess of 100 $400,000,000 in new bookings reflecting 9% growth in local currency. Turning to revenues, net revenues for the quarter were $8,400,000,000 a 9% increase in USD and 10% in local currency reflecting a foreign exchange headwind of slightly less than 2%. Our consulting revenues for the quarter were $4,600,000,000 up 12% in USD and 14% in local currency and our outsourcing revenues were $3,800,000,000 up 4% in USD and 6% in local currency. The trends in revenue growth across our business dimensions were very similar to last quarter. Strategy and consulting services combined posted another quarter of strong double digit growth. Operations again had double digit growth and application services grew high single digits. And across those four businesses, digital related services were a significant contributor to growth with estimated growth in the range of 30%. Taking a closer look at our operating groups, products led all operating groups with 16% growth reflecting strong overall momentum in the business. Growth continued to be broad based with double digit growth across all industries and geographies. H and PS grew 12% in the quarter, driven by very strong growth in North America and the growth markets, as well as in the Health business. We're also pleased with strong growth in Public Service, especially in North America and the Growth Markets. Financial Services also grew 12% led by very strong growth overall in Banking and Capital Markets with solid growth across all other dimensions. Communications, Media and Technology delivered strong growth of 8%, which was consistent with our expectations. From an industry perspective, electronics and high-tech as well as media and entertainment continued their strong double digit growth. Communications revenue was flat, driven by modest declines in Europe and North America offset by double digit growth in the growth markets. Lastly, resources grew 1% in the quarter. The 2 divergent trends within resources continued with utilities again delivering strong double digit growth across all three geographic regions, while energy and chemicals and natural resources remain challenged due to cyclical headwinds. Moving down the income statement, gross margin for the quarter was 31.9% compared to 32.5% in the same period last year. Sales and marketing expense for the quarter was 11.1% compared with 11.3% for the Q3 last year. General and administrative expense was 5.3% compared to 5.8% for the same quarter last year. As a reminder, in Q3 of last year, we recorded a non cash settlement charge as a result of an offer to former employees to receive a voluntary lump sum cash payment from our U. S. Pension plan. The following comparisons exclude the impact and 10 basis points compared with quarter 3 last year. Our effective tax rate for the quarter was 26.5% compared with an effective tax rate of 25.7% in the Q3 last year. Net income was $950,000,000 for the 3rd quarter compared with net income of $889,000,000 for the same quarter last year. Our diluted earnings per share were 1.41 dollars compared with EPS of $1.30 in the Q3 last year, reflecting 8% year over year growth. Turning to DSOs, our day services outstanding were 41 days compared to 39 days last quarter and 37 days in the Q3 of last year. Free cash flow for the quarter was $1,500,000,000 dollars resulting from cash generated by operating activities of $1,600,000,000 net of property and equipment additions of $94,000,000 Moving to our level of cash, our cash balance at May 31 was $3,500,000,000 compared with $4,400,000,000 at August 31. Turning to some other key operational metrics, we ended the quarter with global headcount of over 375,000 people. Our utilization was 91% compared to 90% last quarter and attrition, which excludes involuntary terminations, was 15%, up 2% from quarter 2 and consistent with the same period last year. With regards to our ongoing objective to return cash to shareholders, in the Q3, we repurchased or redeemed 4,300,000 shares for $478,000,000 at an average price of 100 and $12.44 per share. As of May 31, we had approximately $5,900,000,000 of share repurchase authority remaining. Finally, as Pierre mentioned, on May 13, 2016, we made our 2nd semiannual dividend payment for fiscal 2016 in the amount of $1.10 per share, bringing total dividend payments for the fiscal year to approximately $1,400,000,000 So with 3 quarters in the books, we're very pleased with our results and we're now focused on quarter 4 and closing out a strong year. Let me turn it back over to Pierre. Thank you, David. Our very strong results in the Q3 demonstrate that we are executing the right growth strategy and that we are providing highly relevant services to our clients. We are benefiting from the investments we've made to rotate our business to the new digital, cloud and security related services, which together now account for approximately 40% of our total revenues. Let me share a few example of how we are leading in the new. We continue to see strong demand for our digital capabilities And we were very pleased that Accenture Interactive was recognized by Advertising Age Magazine as the largest and fastest growing provider of digital marketing services. Through Accenture Interactive, we are bringing our unique combination of design and customer experience capabilities to 70 companies in the Fortune Global 100. In cloud, we are focused on building strong platforms for key industries such as our life science cloud for R and D. This truly innovative solution to collect, share and analyze clinical data is now being used by 7 top pharma companies, including Pfizer, Merck, GSK and Lilly to accelerate drug development and improve patient outcome. In security, we're expanding our capabilities with the acquisition of Maglan, a cybersecurity company based in Israel with strong expertise in cyber defense. And we just opened a new Accenture lab in Israel that is dedicated to cyber R and D, in threat intelligence, incident response and Internet of Things Security. This is all about helping clients become more resilient in today's digital world. We continue to see strong demand from clients to help them with their most complex mission critical issues. In Accenture's strategy, we have developed a unique approach to help clients make sustainable improvement in their enterprise wide performance. We are now a leader in this space with a totally new zero based methodology, which we have delivered with excellent results at many consumer good companies, including Unilever and Mondelez. We are now taking this approach to clients in health care, retail and financial services. We continue to invest across our business to drive growth and further differentiate Accenture in the marketplace. During the quarter, we announced 2 acquisitions. We are taking a majority stake in IMJ, one of the Japan's leading digital agency, and we acquired OPS Rules, an analytics consulting company to expand our capabilities in machine learning, supply chain and operations analytics. We continue to collaborate with leading players in the tech ecosystem to further strengthen our capabilities in cutting edge technologies. We work with IPsoft, a market leader in artificial intelligence, to launch a new practice focused on its virtual agent platform, which is called Amelia. Our new practice will help clients leverage artificial intelligence to realize efficiency gains and generate new growth opportunities. And we continue to invest to drive even more innovation and productivity in our global delivery network. We launched a new intelligent automation platform called Accenture MyWizard to deliver smarter and more efficient application services. We are already using MyWizard with more than 200 clients to drive productivity improvements. Turning to the geographic dimension of our business. I continue to be very pleased with the strong and balanced growth we are driving across all three of our geographic regions and especially in our largest markets. In North America, we delivered 11% revenue growth in local currency, driven by double digit growth once again in the United States, bringing us to 8 quarters in a row of double digit growth in the U. S. In Europe, we delivered 12% revenue growth in local currency. I'm particularly pleased that almost all of our largest markets generated double digit growth, including the United Kingdom, Switzerland, Italy, Spain, Germany and France. And in Growth Markets, we grew revenues 6% in local currency, led primarily by double digit growth in Japan as well as strong double digit growth in China, India and Mexico. Before I turn it back to David, I want to reflect on a couple of Accenture core strengths that are particularly important to our future growth. The first is our portfolio of intellectual property. Over the years, we have made a significant investment and now have more than 5,000 patents and patent pending applications in areas such as artificial intelligence, cybersecurity, drones, virtual agents, Internet of Things and other platforms. Our intellectual property is an important asset which drives differentiation and value in the marketplace. 2nd, in our brand, and I am proud that Accenture was just ranked number 38 on Brand Z, top 100 most valuable global brands, our highest ever on this list. Again, our brand strengthens our unique positioning in the marketplace and drives significant competitive advantage. It reflects the trust our clients place in us and enables us to attract top talent. So with the first three quarters of the year behind us, I'm very pleased with our performance. We have very good momentum in our business and I feel confident that we are well positioned to deliver strong fleet carrier 16. With that, I will turn the call over to David to provide our updated business outlook. David, over to you. Thank you, Pierre. Let me now turn to summarize our business outlook. For the Q4 of fiscal expect revenues to be in the range of $8,250,000,000 to $8,500,000,000 This assumes the impact of FX will be negative 1% compared to the Q4 of fiscal 2015 and reflects an estimated 6% to 9% growth in local currency. For the full fiscal year 2016, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results will be negative 4.5% compared to fiscal 2015. For the full fiscal 2016, we now expect our net revenue to be in the range of 9.5 percent to 10.5% growth in local currency over fiscal 2015. For operating margin, we now expect fiscal year 2016 to be 14.6%, a 10 basis point expansion over adjusted fiscal 2015 results. As a reminder, we closed our Navitaire transaction last quarter, which lowered the full year FY 2016 tax rate by approximately 1.5% and increased diluted earnings per share by $0.74 Our guidance for fiscal 2016 excludes the impact of this transaction. We continue to expect our adjusted annual effective tax rate to be in the range of 24% to 25%. For earnings per share, we now expect full year diluted EPS for fiscal 2016 to be in the range of $5.29 to $5.33 or 10% to 11% growth over adjusted fiscal 2015 results. Turning to cash flow, for the full fiscal 2016, we continue to expect operating cash flow to be in the range of 4.1 $1,000,000,000 to $4,400,000,000 property and equipment additions to be approximately $500,000,000 and free cash flow to continue to be in the range of 3.6 dollars to $3,900,000,000 Finally, we continue to expect to return at least $4,000,000,000 through dividends and share repurchases and also continue to expect to reduce the weighted average diluted shares outstanding in the range of 1.5% as we remain committed to returning a substantial portion of cash to our shareholders. With that, let's open it up so that we can take your questions. Our first question is from Bryan Keane, Deutsche Bank. Please go ahead. Hi, guys. Good morning. Operating margin guidance to start the year, I think was 10 to 30 basis points, which has kind of been your historical practice. This year, it sounds like you guys will only do 10 basis points expansion. Just want to make sure I understand why the low end this year? And does that change anything going forward about your historical typical practice of 10 to 30 basis points of expansion? Yes. So Brian, if you look at the 10 to 30 as you well know and the others know that has been kind of our target range for many years now. And if you look at our results over the last 5 years, we've kind of covered the full scope of that range, including having been at 10 basis points expansion at least once, if not twice in that period and I think 1 year being at 30 basis points. So we've covered the expanse of that range and so coming in at 10 basis points this year isn't inconsistent with kind of our historical performance. Having said that, if you look at where we are year to date, we're at 10 basis points of expansion through the 1st three quarters. And so, at this point based on what we see, it just feels very clear to us that we are trending in that direction. I think the important point to note and this is different about this year versus other years where we've been at 10 basis points of expansion is that we embarked on a journey especially a few years ago to really raise our game in the investments that we're making in our business including but not limited to the significant capital investments that we've made in acquisitions which also flow through our P and L. So when you look at the 10 basis points, it really is a direct intention of what we're trying to accomplish by positioning our business for the long term, by positioning by investing at a scale that is truly differentiated in our sector and positions us for long term leadership. And so we're actually very pleased with the 10 basis points of expansion and that it on one hand supports we believe double digit growth in EPS, But on the other hand, underneath it, it represents significant investments that we're making in our business and our people. And the last comment that I'll make is that, if you were to look at our underlying margin expansion, excluding the investments, the underlying margin expansion is quite healthy and would compare very favorably to what we've done in any previous year. So we feel great about focus that we've had on investing. Okay, great. And then just a quick follow-up. At the Analyst Day, I think you mentioned the potential to hire around 100,000 gross heads. It doesn't look like you guys are on track for that. I just was looking for an update maybe on gross hires for the fiscal year. Thanks so much and congrats on the quarter. Thank you, Brian. I think last year, we commented that our hiring was going to be over 100,000. This year, it will be less than 100,000 and I might add that we are quite pleased with that result. We view that as a positive outcome in the way we are able to, let's say, moderate our headcount growth in recent quarters while at the same time supporting continued strong top line growth. I mean that's an equation that we like. Thanks so much. Yes. Thank you. Our next question comes from the line of David Grossman, Stifel Financial. Please go ahead. Good morning, David. Hi, good morning. Thank you. I was wondering if we could just kind of look at the overall business. Recently, we've talked favorite consulting growth versus outsourcing. Can you help us understand whether that trend continues at the same rate or whether that's beginning to equalize? Yes. If you look at our business and indeed these are after few years, all the industries in all the markets are under significant transformation. They want to transform their business and the different industry to what we call rotate to the new in all the digital space. They want as well to improve their operational efficiency and they want to implement new capabilities. So at the end of the day, if you look at the nature of the transformation of our industries, they are more related to consulting type of services. And this is the nature of the demand because of the unique nature of the transformation in the industries. If you look back a few years ago, where outsourcing was going a bit stronger, it was absolutely linked to the fact that you have less need for true industry transformation, any innovative play and the industries were more looking for straightforward efficiency gains. And to some extent to a great extent, the natural answer we provided at Accenture to straightforward efficiency gain through around the outsourcing, reliable arbitrage, more productivity, tackling the cost in operation and in IT. So I feel this natural shift from a bit of outsourcing, a bit less of outsourcing to a bit more of consulting is reflecting the true nature of the transformation in the industries. And by the way, we feel extremely good about our positioning in this rotation, if you will, based on our industry knowledge, based on the investments we made in rotating to the new, but based on the fact that we still have significant capabilities at great scale to tackle the cost efficiency programs from our clients. So no real material change in the pace, Pierre, of how that's migrating to the market? We see that trend continuing. Yes. Yes. I mean, definitely, we see that trend continuing. I mean, you have cycle. We are in front of us a cycle of transformation for all the reasons we all know around the call. And I guess this cycle will continue as long as the industries will be in these transformational things. All right. Very good. Thanks. Just one quick follow-up is I wonder if you could just quickly contrast your comment about IP and how you view IP at Accenture versus perhaps how a product company views IP? Yes, I mean, very pleased. I mean, for us, IP very important and that's why I wanted in that call to put the attention on our IP portfolio. This is not something we've been talking a lot. We have so many things to discuss with all of you. But we've been very active from an IP standpoint and especially as again we are in a phase of reinvention and in a phase of innovation. Reinvention, innovation equal intellectual property building. And for us, we are building intellectual property in many things. And you're right, it's more than products or sometimes we feel that IP equals software or application product. And IP could be behind processes, operating models. There are a lot of things you can methodologies, approaches, part of solutions and this is all what we do. And I was quite impressed recently when I've been reviewing our IP portfolio with our 5,000 patents or patent pending activities and I felt that it would be good for me to share that with all of you as again an element where Accenture is quite on top of its game in order to drive innovation and to protect more important our innovation inside Accenture for the benefits of our clients and for the benefits of our investors. Very good. Thank you. Thank you. Our next question is from the line of Joseph Foresi, Cantor Fitzgerald. Please go ahead. Hi. My first question here is what are the challenges in growing digital at this point? Do you think the growth rate can keep up there? And are you finding enough talent and maybe even some color on the margins in that business would be great? Good question. So far so good. It's every day we're working on it at Accenture. And as you see we've been extraordinarily active these last few years, certainly 3, 4 years. Every day we are taking actions. These actions are very broad, if you will. In order to lead in the new, as you need skills and capabilities. And we've been very active from a talent standpoint all the credit to our operating group leads, but as well to Helene Schuk, I would like to recognize during the call here our Chief HR Officer leading all our talent agenda and we are very active. I would like as well to recognize Roxanne Taylor from a brand standpoint because brand is absolutely key in attracting talents. And that's why I wanted as well in that call to put some emphasis on the brand because it's very important in our strategy to attract talent. Of course, we've been very active from an acquisition standpoint. You've seen us raising our gain this last 4 years and this is our objective to continue with that pace moving forward as long as we could find relevant companies, relevant acquisitions that will bring their capabilities. But we need to continue as well to invest from an organic standpoint. We developed our own platforms. I'm thinking about the Accenture Cloud Platform. I'm thinking about Accenture Quality Platform in Analytics, in Marketing and so forth. So we are very active across the patch of digital. Of course, as you will see for our digital is covering interactive, mobility, analytics, cloud, security. We are even now considering the next play and think about artificial intelligence. So, so far I feel good. You're right to ask the question. It's a kind of everyday commitment from Accenture to invest in the new and to lean in the new and I'm pleased with the momentum we are creating and I see that continuing. Okay. And then just as my follow-up, to go back to the margin question, with acquisition activity kind of being strong over the last couple of years and you needing to invest in digital, which is obviously growing very well and driving the business, should we expect a moderation in that 10 to 30 basis points typical margin expansion target? Or is that still the case going forward? Because it seems like you're in a heavy investment mode and I'm just wondering sort of how to think about that going forward? Thanks. Well, first of all, certainly I'm not going to provide guidance on this call and I'll come back to that question if I can just ask for your patience. I'll come back to that question in more detail at the Investor Analyst Day in October. What I will say is that our focus on investing at scale doesn't end this year. This is a cycle that we're in. But I'll also tell you that as I mentioned the last 2 investment Analyst Days and I referenced again in the script, we are very focused on this journey of managing our business in a fit for purpose way, which is really our platform for creating underlying profitability improvement in our business to both support our ambition for higher investments, but also support our ambition for margin expansion as a way to support our goals to grow EPS. And I would say as a general rule, the economic leverage that we have in our model hasn't changed and in fact I might say in some ways we have new and exciting opportunities as we think about this move to a fit for purpose focus and how we manage and drive our business. But I'll get more specific on all of that in October. Thank you. Thank you. Our next question is from the line of Jason Kupferberg, Jefferies. Please go ahead. Good morning, guys. Good morning. Hey, David. Just wanted to get a quick clarification on one of the answers you gave to, I think it may have been Brian's question about headcount growth this year and new hires. And it sounded like you were kind of alluding to nonlinear dynamics perhaps between headcount growth and revenue growth, if I heard you correctly. And I just wanted to clarify that because it looks like billable headcount year to date has actually grown faster than revenue, but I just wanted to clarify what you were referencing there? Yes. Well, what I was referencing was first of all just the fact that we will hire fewer people this year than we did last year is one point. The second thing I was referencing is that if you look at our sequential growth in headcount in recent growth quarters, it's certainly moderated over let's say the prior 7, 8 quarters and probably beyond. The third thing I was referencing although I didn't it specifically is that it is true if you look at our headcount growth in the Q3 year over year, it was at a rate above our revenue, but that rate above our revenue was less than what you've seen in recent quarters. And so there's without getting overly specific, there are 3 things that factor into that. One would be our focus on automation as an example in the mix although as we've said that that is early days, but yet a big focus for us going forward. Things like chargeability are in the mix, things like attrition levels are in the mix when you consider the hiring number and of course the revenue yield that we're getting per billable head is also in the mix and that can be influenced by things like the mix of work that we're doing across the five business, mix of work by geography and it can also include pricing. So all of those things are kind of in the mix and in some way all of those are contributing to what has been a more moderate growth sequentially in our headcount and that's really all I was pointing out. Yes. Okay. No, that's super helpful. And maybe just to pick up on that point around utilization. I think you've been running at 90% plus for 7 straight quarters after never having been at those levels prior to last fiscal year. So do you feel like this is a new normal and that we're unlikely to see this slip up below 90%? And would it also be fair to say that you're kind of maxed out at this 90%, 91% range? Or could there be further headroom depending on how the revenue mix evolves over time? Yes, I guess I won't declare that it's maxed out. I mean there are things that could work in our favor going forward that could influence that metric further. If you look at kind of our historical norm, we are kind of at the higher level of that range for sure and we are running hot and I think that reflects the activity in the market. We could come down a click or 2 in different quarters and a lot of times that happens with periods in the year where we tend to bring on we have we have a lot of our new joiners, campus hires that will start with us in the Q4 and early in the fall. So the simple answer is that no doubt we are running at a very high level of utilization reflecting the dynamics that we see in the market. But we're in a zone right now that we feel very comfortable managing, but it could also be a click lower and we wouldn't be worried about that. Okay. I appreciate the comments. Thanks. Thank you. We have a question from the line of Lisa Ellis, Bernstein. Please go ahead. Good morning, Lisa. Hi. Good morning, David. I have a question. In the market, it looks like and you're seeing the demand for the new digital security services, cloud services is if anything accelerating. And yet, as I guess a number of folks now called out, a lot of your forward indicators are have decelerated a bit, headcount growth, the pace of M and A even though it's still elevated has slowed down since last year. So just can you just comment on kind of like that disconnect or how you're thinking about that? Because if anything, it seems like the demand is accelerating, not decelerating out there. Yes. I'm going to pick up and good morning, Liza. On the point you're mentioning around deceleration of some of our capability, when you're talking about acquisitions, it might very well be that we're going to make less transactions than last year, a few. I think we but on the other end, we will certainly deploy a bit more capital than last year because we expect to close the year with a bit more than $1,000,000,000 being deployed. So I guess it's so we are not slowing down at all our acquisitions agenda at least in terms of volume of capital deployed. And by the volume of capital deployed, it means the capabilities we are bringing back in Accenture. So I do not see on digital anything in Accenture which would reflect a kind of slowing down of our appetite to grow, of our appetite to invest and of our appetite to accelerate in the new. From an Econ standpoint, I will let David comment again. Yes. I guess, Lisa, one thing I would point out is that, I mean really to get underneath your question you would have to get into the more granular details of our business which are not practical for us to get in externally. But let me just make the point that as the business is rotating overall, we are also rotating a lot of talent within our headcount. And so what is not apparent by simply looking at the overall numbers is the talent rotation that has taken place and I can assure you that our pace of investing and acquiring headcount and the digital related services agenda as part of that has not slowed down at all. In fact, I would say the demand for talent in the new and talent and digital related talent is one example, but also including cloud and security and our business has never been higher. And it is as Pierre referenced earlier for Ellen Shook, I mean that is job number 1 for her is managing the talent supply side to fuel the new and I think our pace of activity is not slowing. If anything, our appetite for that talent is increasing, but it's underneath the overall number that we communicate. So, I mean, we feel like our indicators are positive indicators right now. Yes, clear. To build on this because this is a very important question you're raising. Coming back to talent, I know that we have a lot of questions regarding the total headcount. And I guess and we're watching that very carefully with David to see that we've been able to grow more our revenues with a little bit less hiring of people, which on balance we would all recognize is a good direction. If you look from a Managing Director standpoint, so all about the leadership of Accenture, I just would like to reconfirm that this year in 2015 or 2016 we promoted much more managing directors than ever this last 4 years. And I think from a recruiting of leaders, managing directors, we've never been so active in the market in recruiting new leaders. So it's important to segregate the leadership we are hiring and promoting at scale because the leaders are driving the business from the total headcount which we all expect will continue to grow less a bit less than our revenues moving forward due to the factor of automation and productivity in our operations. Terrific. Thank you. That's great color. Thanks a lot. Thank you, Lisa. And our next question is from Dave Koning, Baird. Please go ahead. Yes. Hey, guys. Thanks for taking my question. I guess, first of all, the digital business, you talked about it's about 40% of revs growing about 30%. That would imply that the other 60% may be flattish to down. Maybe you can talk a little bit about that. And then is this kind of the formula that digital keeps growing in that range and that the rest of the business is more flattish? Is that kind of the formula going forward? The formula going forward is very simple. We want to grow. That our goal in life is to grow and to grow more than the market. In order to grow more than the market, we believe at Accenture and this is at the heart of our strategy that it's going to be by leading in the digital related services. But to be clear, we want to make Accenture the leading professional services companies in digital related services. This is what we're working on these last few years and we will continue moving forward. We have evidence that this rotation to the new is happening at bit scale. Now so the most significant part of our growth will come from digital related services because this is our strategy, 1st. And second, this is where the demand is. Now that being said, we want to continue making our core, if you will, extremely competitive in the marketplace. I just mentioned in the call that we invested in our new intelligent delivery platform called Accenture My Wizard, which is bringing a lot of success in Accenture. So of course, we're growing much less in the core than in the new, which is exactly reflecting our strategy. Now the core is still positive, growing less, but it's still positive. And I believe that on the core, Accenture is growing more than the competition at the end of the day, which has always been our value proposition is to grow more than the market in the new and much more and is to grow more than the market in the remaining core which is what we do of course at a much lower level and lower pace, but still positive, right David? It is. And David, let me just also just clarify some subtleties in the way we talk about digital related services in the new just to remind you and the others as well. So we initially started talking about digital related services which was defined specifically to include Accenture Interactive, Mobility and Analytics. And digital related services is what I referenced was growing in the range of 30%. Following introducing digital related services several quarters ago, we rolled forward kind of evolved that to talk about the new, which includes digital related services, cloud related services and security. With the New, we commented that it is now about 40% of our revenues. We did not comment on the growth rate for the New. But I will say that digital related services of the 3 components of the New is the fastest growing. So that helps you as well. We talk about the new and digital related services and it's important to just reinforce the understanding of the definitions. Got you. Okay, that's helpful. And then I guess the one other question, the growth markets grew 6 percent and then North America and Europe were more like 11% to 12%. I would have thought a few quarters ago that maybe China and Brazil, the gap would have been the slower growth would have happened, but it actually seems like now that gap, the growth markets are growing quite a bit slower than the others. Maybe you can just comment on that a little bit. Yes, I mean happy to comment. I guess fact of the matter is growth markets are growing lower than the other 2, maybe just because the other 2 are growing exceptionally well. And especially Europe at 12%, which of course is a remarkable achievement. Now when you look at the gross market, needless to say that it's a mixed bag of very different situations when we're talking our growth markets. I mean first, we're extremely pleased that we continue with our double digit growth with Japan. By the way, I don't know and maybe we'll provide information. How many quarters now we've been growing double digits in Japan, but it's starting to be spectacular. And of course, it's a very large market for Accenture, not only for the group, but still what we're going to calling the growth market, but for Accenture as a whole. So I'm extraordinarily pleased with the turnaround we've been driving in Japan, with the momentum we are making in Japan and with the acquisition we have made of IMJ in order to accelerate the rotation to the new in Japan. I'm very pleased with the new momentum we are creating in China this year together with India and Mexico. Now as you know in the growth markets there are 2 factors impacting the growth market. 1st is these markets are more vulnerable to the commodity markets at large in terms of energy and natural resources. We have there are significant countries very dependent on natural resources and energy. And of course they are affected by the commodity price going down. And accordingly, we are affected with this factor. 2nd is the situation in Brazil. I will we all know what's happening in Brazil. So our growth has been slowing down in a market which is very important for Accenture. That being said, and I love being public on this because I would like to recognize the incredible leadership of Roger Ingold and now Leonardo Framile leading our practice in Brazil where we're doing more than resisting. And when I say more than resisting, it means on a year to date standpoint, we are growing in Brazil, which is probably according to any standards a remarkable achievement. Now of course, we're growing less in Brazil than we used to grow in the past. So on balance, it's a 6% is reflecting very different dynamics. This is what it is something I like a lot in Accenture. Is our diverse portfolio of businesses where indeed when you look at the growth markets when Brazil is a bit under pressure all commodity markets we benefit from growth elsewhere And on balance, the 7% is pretty good from my perspective. Yes. If you isolated chemicals and natural resources and energy and then looked at the underlying growth in growth markets, it'd be very similar to what we've seen in the other areas. It has that unique dynamic as well as the other points Pierre mentioned. Got you. Great. Well, thank you. Thank you. And our next question is from the line of Jim Schneider, Goldman Sachs. Please go ahead. Good morning, Jim. Good morning. Thanks for taking my question. I was wondering if you can maybe talk a little bit about Financial Services. It's an area where you've talked about previously being driven by transformation and that pace continues to be pretty strong. Can you maybe give us any sense about whether you're seeing any tone change from your financial services customers either in banking or elsewhere in terms of the overall IT spending outlook and that would suggest that we are seeing any slowdown in that pace of change, change driven services in particular? Yes. I'm probably going to take this one David from my prior role. It seems that all my life I will comment on Europe and Financial Services. But very happy to do. I mean, first, let's start with the beginning. We're pleased with where we are with Financial Services overall. If you look the results we posted this last few quarters, we had a good momentum in Financial Services. 2nd, it's an industry which is ongoing some significant flotation to the new for obvious reasons. It's a B2C industry and we have a lot of activities in term of rotating to the new and creating digital capabilities in Financial Services. This is as well an industry where we see a lot of potential in what we're calling automation, if you will, to create more automated processes, bringing virtual agent to provide financial advisory services. So that's the part which is creating some momentum. However, on the other side of the coin, if you will, it's an industry which is still under pressure, especially in Europe for all sorts of reasons. Negative interest rates have been good, especially in that industry for their commercial business. The regulatory constraints are high as you know with all especially in Europe with all the Basel legislation and all the constraints which has been put on the banks. And so the profitability of the banks been affected these last few years. So at the same time they need to rotate to the new, but at the other but at the same time they need to work on their cost. So there is a bit of this story with our financial services clients investing in the new, but being extremely cautious about their cost play. That's why after this kind of good momentum we have in Financial Services, we might see some moderation of our growth with our verticals in Europe a bit. Nothing we are over worried about because we believe the potential is still there, but it's an industry which is under cost pressure. That's helpful. And then maybe one for David. DSOs edged back up to 41%, and I guess kind of been have been on a little bit of an upward trajectory over the last 4, 6 quarters. Can you maybe give us a sense about whether that says anything about the overall cash flow trends for the business and whether that in fact is a longer term trend? Yes. I would say, I mean just to be completely transparent, it was a little higher than I would have wanted in the quarter, but yet we still generated very strong cash flow. We are very focused on managing our DSO and I'm hopeful that we will see it click down at the end of the Q4. As I've said before, well, first of all, even at the levels that we're at, as you know, you hear us say all the time, we're still very much industry leading. I do think that we are in the zone of what I think could be a reset kind of new normal and let's say in that 40 day plus or minus kind of zone. And so we'll continue to focus on it as one of our key operational priorities and I'm hopeful we can continue to manage it kind of in that zone. Thank you. All right. Thank you. Roxanne, we have time for one more question and then Pierre will wrap up the call. Great. So that last question is from the line of Tien Tsin Huang, JPMorgan. Please go ahead. Good morning, Tien Tsin. Good morning. Good morning. Forgive the noise, I'm at the airport. No problem. Just a couple of quick ones. Just what David, what exactly is driving the revenue raise in the guidance here? What areas specifically are running better than expected? Yes, well really I mean the revenue raise is just a reflection of If you do the mathematical extension of that, you get to the If you do the mathematical extension of that you get to the 9.5% to 10.5% range. I think in terms of what's driving it of late, products is very, very hot right now. And the thing that is impressive about products which also happens to be our largest operating group is that their growth is broad based across every industry in that operating group as well as each of the 3 geographic areas. And so I would say that what is driving us to a strong close to the year if you will and hence raising the revenue a half a point on the upper end, you would start with products and the strong story there. Health and Public Service is another strong story, very good growth in the Q3 and very strong momentum as we look to the Q4. I would say our business in North America is another source of momentum. If I had to name, let's say, 3 big drivers, I would pick those 2 operating groups in North America. And then, of course, underneath that, as Pierre covered very well is just the ongoing continued momentum in digital and the new which we certainly will continue into the Q4. So those are some of the big themes in terms of driving what we hope will be a good strong close to the year. Okay. That's helpful to hear. Thanks. Just I guess also wanted to follow-up, I think it was David Grossman's question on IP and software and how the deconsolidation of Dub Creek that action there, how does that fit the strategy of owning IP and platforms? Any comments? Thanks. Yes. A bit on what I said before. So we're working on our IP from again from a process standpoint, a methodology standpoint, from part of solution standpoint and of course in the context of working with our partners. And it might very well be that we are creating IP on top of some market solutions, which is where we are making the bridge with your question around software, not software. We are in our business, we are working with software companies. And the job of Accenture for many years has been to bring an industry expertise, an industry wrapper on top of these solutions. And on this wrapper, we are bringing we're working on protecting our own IP when appropriate and when possible. This is where at Accenture we make the bridge with the software providers. The software providers are all our friends and we're working with the best possible companies and they are coming to Accenture. That's why we are a good partner to bring industry expertise and this is on the industry expertise and whopper we could be LIP. Pierre, you want to comment on Duck Creek? You also asked about Duck Creek and how that fits in with our strategy. Yes. And Duck Creek is clearly a good illustration of what we are doing. DocReg is a fantastic company, an excellent solution. We certainly believe this is one of the best in the marketplace in policy administration, in insurance policy administration in some markets including the United States. We wanted to invest more in the CRIC to establish an even stronger leadership in the different markets of the CRIC. And we believe that the right way of doing it was to partner with someone who would bring some strength in terms of investing together with us, in that case, APAC's partner. And we're very pleased that Accenture together with APAC will be able to investing behind DocQuic and move DocQuic solution to the next level and establish a stronger leadership. This is all about the new Accenture. At Accenture, we will look always at all the ways to invest, to bring the right solution, to be smart, to be thoughtful and mindful about our capital allocation, and at the end of the day, to lead in the markets and to lead in the new. Okay. Okay. Thanks again for joining us on today's call. And let me close with a few thoughts, Raffit, on Accenture's long term performance, but which I believe unites all of us, investors, analysts, Accenture leaders and all of our people. Next month on July 19, we will celebrate the 15th anniversary of Accenture's IPO. And we have performed extremely well over the years by continually reinventing our business. Since our IPO, we have delivered compound annual growth of 8% in revenues and 14 percent in adjusted EPS, creating significant value for our shareholders, for our clients and for our people. So I want to thank all of you for the support you've been bringing to Accenture over so many years. We look forward to talking with you again next quarter.