Earnings Call: Q4 2015

Sep 24, 2015

Welcome to Accenture's fourth quarter fiscal 2015 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. If you should require assistance during the call, please press star then zero. 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, Ms. KC McClure. Please go ahead. Thank you, Greg. Thanks everyone for joining us today on our fourth quarter and full year fiscal 2015 earnings announcement. As Greg just mentioned, I'm KC McClure, Managing Director, Head of Investor Relations. With me today are Pierre Nanterme, 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 both the fourth quarter and the full fiscal year. Pierre will provide a brief update on our market positioning before David provides our business outlook for the first quarter and full fiscal year 2016. We will 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-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for 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, 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, KC, and thanks everyone for joining us today. We are extremely pleased with our very strong financial results for both the fourth quarter and the full fiscal year. Our excellent fourth quarter performance continues the momentum we have been building in our business all year. For the full year, we delivered strong new bookings, generated record revenues, grew EPS faster than revenues, and generated strong free cash flow, all while continuing to invest in our business and delivering significant value for clients and shareholders. Here are a few highlights for the year. We delivered very strong new bookings of $34.4 billion. We grew revenues 11% in local currency to a record $31 billion. Our growth was broad-based across the business, including double-digit growth in four of our five operating groups and all three geographic regions. We delivered earnings per share of $4.82 on an adjusted basis, a 7% increase. We expanded operating margin 20 basis points to 14.5% on an adjusted basis. We generated free cash flow of $3.7 billion. We returned $3.8 billion in cash to shareholders through share repurchases and dividends. We just announced a semi-annual cash dividend of $1.10 per share, an 8% increase over our prior dividend. I feel very good about what we delivered in fiscal year 2015. Our outstanding performance clearly demonstrates that we continue to provide highly relevant and differentiated services to our clients. 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. Let me start by saying that we were very pleased with our overall results in quarter four, which culminated an extremely strong year for Accenture. Once again, our results reflect our unique position in the marketplace, the relevance of our growth strategy, and our ability to drive our business to produce value for our clients, our people, and our shareholders. As you listen to our prepared remarks, you'll hear continued consistency in the key business drivers and three overriding themes: durability of revenue growth, sustainable margin expansion, and strong cash flow with disciplined capital allocation. Before getting into the details, I'd like to emphasize a few highlights in each of these areas. Revenue momentum continued with very strong local currency growth of 12%, even against our toughest quarterly compare of the year. A key characteristic was our balanced growth across our operating groups, our geographic regions, and our five businesses, which speaks to the durability of our growth strategy. Our rate of growth continued to outpace the market as we gained share in most dimensions of our business. Driving profitable growth with sustainable margin expansion continues to be our focus. In the fourth quarter, our operating margin came in as expected and consistent with last year. For the full year, we delivered 20 basis points of margin expansion on an adjusted basis while investing significantly to position our business for long-term market leadership. Finally, we delivered another quarter of strong cash flow, $1.4 billion in free cash flow to be specific. In terms of capital allocation, it's noteworthy that we closed 11 acquisitions in the quarter, giving us 18 acquisitions for the full year with invested capital of $800 million providing us with scale and capabilities in key growth areas. We finished the year much like we started, with strong broad-based growth underpinned by very good profitability and cash flows. With those summary comments, let me now turn to some of the details, starting with new bookings. New bookings were $8.8 billion for the quarter. Consulting bookings were $4.1 billion, reflecting a book-to-bill of 1.0. Outsourcing bookings were $4.7, with a book-to-bill of 1.3. We're very pleased with the volume of bookings for the quarter, especially considering the FX headwind, which we estimate to be 13% in the quarter. The overall demand for our services remains robust, with the strongest quarterly bookings growth coming from operations, products, Europe, and the growth markets. Across the board, digital-related services continue to be an important driver of our new bookings. We also had 10 clients with bookings in excess of $100 million, bringing the total for the year to 43, which again signifies the unique relationship that we have with many of the largest companies in the world. Turning to revenues, net revenues for the quarter were $7.9 billion, a 1% increase in USD and 12% in local currency, reflecting a negative 10% foreign exchange impact, consistent with the assumption we provided in June. Consulting revenues for the quarter were $4.2 billion, up 4% in USD and 14% in local currency. Outsourcing revenues were $3.7 billion, down 1% in USD and an increase of 9% in local currency. The overriding theme in quarter four continued to be broad-based and balanced growth across our operating groups and geographic regions. We're pleased with revenue performance across all of our business dimensions, with the dominant drivers continuing to be strong double-digit growth in digital-related services and operations. We were also very pleased with our growth in application services and the combined growth for Strategy and Consulting. Taking a closer look at our operating groups, Communications, Media & Technology led all operating groups with 16% growth, the fifth consecutive quarter of double-digit growth. Broad-based growth continued with double-digit growth across all three industries and in all three geographic areas. Financial services delivered their strongest growth of the year at 14%, fueled by double-digit growth in all three industries and in both Europe and the growth markets. H&PS continued their trend of double-digit growth, posting 13% in the quarter. The strength of our H&PS business continues to be very strong growth in both health and public service in North America. Products grew by 10%, led by consumer goods and services, life sciences, and automotive, with very strong growth in Europe and the growth markets. Finally, resources continued to deliver very consistent growth of 6% in the quarter, with positive growth in all three geographic regions and in all industries except energy. Moving down the income statement, gross margin for the quarter was 31.7%, consistent with the same period last year. Sales and marketing expense for the quarter was 11.7% of net revenues, down 10 basis points. General and administrative expense was 6.2% of net revenues, up 10 basis points. Operating margin was $1.1 billion in the fourth quarter, reflecting a 13.9% operating margin, consistent with quarter four last year. Our effective tax rate for the quarter was 27.1%, compared with an effective tax rate of 30.1% in the fourth quarter last year. Net income was $788 million for the fourth quarter, compared with net income of $760 million for the same quarter last year. Diluted earnings per share were $1.15, compared with EPS of $1.08 in the fourth quarter last year. This reflects a 6% year-over-year increase. Turning to DSOs, our day services outstanding continue to be industry-leading. They were 37 days consistent with last quarter. Our free cash flow for the quarter was $1.4 billion, resulting from cash generated by operating activities of $1.5 billion, net of property and equipment additions of $148 million. Moving to our level of cash, our cash balance at August 31st was $4.4 billion, compared with $4.9 billion at August 31st last year, down roughly $500 million, as we've returned $3.8 billion to shareholders through repurchases and dividends in fiscal 2015. Turning to some other key operational metrics, we continue to attract significant talent, hiring more than 100,000 people in fiscal 2015, ending the year with a global headcount of over 358,000 people. We now have approximately 257,000 people in our global delivery network. In quarter four, our utilization was 90%, consistent with last quarter. Attrition, which excludes involuntary terminations, was 14%, compared to 15% in quarter three and in the same period last year. With regards to our ongoing objective to return cash to shareholders, in the fourth quarter, we repurchased or redeemed 6.6 million shares for $664 million at an average price of $100.03 per share. For the full year, we repurchased or redeemed 27.4 million shares for approximately $2.5 billion at an average price of $89.52 per share. This week, our board of directors approved $5 billion of additional share repurchase authority, bringing the total to $7.6 billion. As Pierre mentioned, our board of directors declared a semi-annual cash dividend of $1.10 per share. This dividend will be paid on November 13 and represents an $0.08 per share or 8% increase over the previous semi-annual dividend we declared in March. Before I turn it back over to Pierre, let me just briefly summarize where we landed for the full year across the key elements of our original business outlook provided last September. I'm pleased to say that we successfully managed our business and delivered on every metric in our original outlook. New bookings for the full year landed at $34.4 billion, which was just above the upper end of our guided range when adjusted for the actual FX impact. Net revenues grew 11% for the year in local currency, above the top end of the guided range that we provided at the beginning of the year. Operating margin on an adjusted basis was 14.5%, reflecting 20 basis points of expansion, the midpoint of our guided range. Diluted earnings per share on an adjusted basis were $4.82, which was above the upper end of our original guided range, when adjusted for the actual FX impact. Free cash flow was $3.7 billion in the middle of our original guided range, even with a much higher FX headwind. Finally, we returned $3.8 billion of cash to shareholders, right at our initial objective, through $1.4 billion in dividends and $2.5 billion in share repurchases. In addition, we reduced our weighted average diluted shares outstanding by 2%. Again, we had an extremely strong year by any measure. We're very pleased with the progress we've made in executing our growth strategy, and especially as it relates to the accelerated rotation of our business to digital-related services. Overall, our results demonstrate the durability of our growth, profitability in cash flows, and our ability to manage our business to deliver value for all of our stakeholders. With that, let me turn it back to Pierre. Thank you, David. Our excellent result for the year reflect the successful execution of our strategy across the different dimensions of our business. We are making focused investments in high-growth areas, including more than $2.5 billion in acquisitions over the last three years. These investments are all about building new capabilities to further differentiate Accenture in the marketplace. At the same time, we have aligned our organization around five businesses, Accenture Strategy, Accenture Consulting, Accenture Digital, Accenture Technology, and Accenture Operations. All highly competitive in their own right and synergistic in delivering end-to-end outcomes for our clients. In particular, the new innovative services we have created in Accenture Digital and Accenture Operations have contributed significantly to our growth. In Accenture Digital, we are working with our clients to help them create competitive advantage and tap into new sources of value. In Accenture Analytics, we are using our new Accenture Insights Platform to help Thames Water in the U.K. embrace the Internet of Things to transform decision-making. Our new cloud-based solution monitors and analyzes data in real time from more than 20,000 sensors. With data visualization tools, managers can proactively respond to risk on the network. We are helping one of the largest banks in the Eurozone implement a major digital transformation. We are combining our design capabilities from Fjord, which we acquired two years ago, with our analytics capabilities to create a new and seamless multi-channel customer experience while also driving significant operating efficiencies. In Accenture Operations, we have strong momentum across our infrastructure, business process, security, and cloud services. In procurement, we continue to lead the market building on the capabilities we acquired with Procurian. Let me share two examples. We're helping Glencore Queensland, a division of the global mining company, to enhance its competitiveness. With our category management expertise and cloud-based sourcing, we expect to achieve total cost savings of more than $300 million. We are helping TNT, the express delivery company, to reduce cost and focus on its core business. Leveraging our procurement and finance and accounting capabilities, we expect to drive annual cost savings of more than $100 million. When you look across our entire business, only Accenture has the full range of capabilities to integrate and deliver end-to-end services in an industry context to drive transformation and mission-critical outcomes for our clients. A great example is the work we're doing with Mondelez, the global food and beverage company, to drive growth, increase profitability, and reduce costs. We started this program with Accenture Strategy and our zero-based budgeting approach and are now leveraging our business process capabilities in Accenture Operations. We expect to deliver total savings of more than $1 billion over three years. We continue to invest to further differentiate our capabilities, taking a first-mover position and investing ahead of the curve in fast-growing areas such as cloud and security. Last week, we announced the acquisition of Cloud Sherpas, a global leader in cloud advisory and technology services specializing in Salesforce, ServiceNow, and Google. The addition of 1,100 professionals from Cloud Sherpas will further strengthen our position as the leading enterprise cloud services provider. Last month, we acquired FusionX, a leader in the emerging field of cybersecurity. FusionX elite team of cybersecurity experts works at the C-suite level to help clients test security and see their vulnerabilities through actual replica attacks. This acquisition brings to Accenture the critical ability to help our clients assess and respond to sophisticated cyberattacks. Turning to the geographic dimension of our business. I'm delighted that in fiscal year 2015, we delivered double-digit revenue growth in local currency in each of our three geographic regions. We achieved this result despite the global economic environment that remains sluggish and a geopolitical environment that is quite concerning. In North America, we delivered 13% revenue growth for the year in the United States, where we have now delivered double-digit growth in four of the last five years. We have gained significant market share in the U.S. and are now positioned as the market leader. In Europe, we grew revenues 10% in local currency for the year, driven primarily by Germany, the United Kingdom, Spain, the Netherlands, Italy and France. In growth markets, we delivered revenue growth of 11% in local currency for the year, driven primarily by strong double-digit growth in both Japan and Brazil, with high single-digit growth in Australia. In closing, we created very strong momentum in our business in fiscal year 2015 by leveraging the investment we've made and by accelerating our rotation to new high-growth areas. I'm especially pleased with our performance in digital-related services, which grew approximately 35% for the year to more than $7 billion. With the relevant and differentiated capabilities we have built, along with the continued disciplined management of our business, I am confident in our ability to continue to deliver sustainable, profitable growth. With that, I will turn the call over to David to provide our business outlook for fiscal year 2016. David? Thank you, Pierre. Let me now turn to our business outlook. Starting with the first quarter of fiscal year 2016, we expect revenues to be in the range of $7.7 billion-$7.95 billion. This assumes the impact of FX will be a -8.5% compared to the first quarter of fiscal year 2015 and reflects an estimated 6%-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 currently assume the impact of FX on our results in USD will be -4% compared to fiscal year 2015. For the full fiscal year 2016, we expect our net revenues to be in the range of 5%-8% growth in local currency over fiscal year 2015. For operating margin, we expect the fiscal year 2016 to be 14.6%-14.8%, a 10 to 30 basis point expansion over adjusted fiscal 2015 results. We expect our annual effective tax rate to be in the range of 25%-26%. For earnings per share, we expect full-year diluted EPS for fiscal 2016 to be in the range of $5.09-$5.24 or 6%-9% growth over adjusted fiscal 2015 results. Turning to cash flow. For the full fiscal 2016, we expect operating cash flow to be in the range of $4.1 billion-$4.4 billion, property and equipment additions to be approximately $500 million, and free cash flow to be in the range of $3.6 billion-$3.9 billion. We expect to return at least $4 billion through dividends and share repurchases and also expect to reduce the weighted average diluted shares outstanding by just under 2% as we remain committed to returning a substantial portion of our cash to shareholders. Finally, you may have noticed that I did not provide new bookings guidance for fiscal 2016. Each year, we evaluate our guidance approach to ensure that we're providing appropriate visibility to our expected results. Starting this year, we'll no longer provide new bookings guidance as we believe that it is not the best indicator of future revenue performance and has created confusion in recent years. We'll continue to report actual new bookings results each quarter. With that, let's open it up so that we can take your questions. KC? Thanks, David. I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. Greg, would you provide instructions for those on the call, please? Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star one at this time. One moment please for the first question. Your first question comes from the line of Tien-Tsin Huang from JPMorgan. Please go ahead. Thanks. Good morning. Good revenue growth yet again. Just wanted to ask, I guess, just in hindsight here Right. You guys did 11% revenue growth in fiscal 2015. I think your initial expectation was 4%-7%. What drove the upside versus initial expectations? Just trying to gauge what was strong versus conservatism and sort of how that may reflect in this year's guidance. Yeah. I think just reflecting on 2015, and Pierre, I'm sure will have some reflections as well. The first thing I would start off with is the fact that while we were confident that we were well-positioned for a very attractive market in the digital space, frankly, it's hard, and I'm sure you can appreciate this, Tingen. It would've been hard to bank on and predict 35% growth in our digital-related services business. That clearly was part of the driver. I think secondly, while we also felt very confident in our Accenture Operations business, which is truly distinctive in the marketplace, no doubt about that, the growth rate was higher. We knew it would be strong, but it came in even stronger than we expected. When I reflect on the operating groups, and you may remember, and I won't recount what I said, or recap what I said when we started the year, but I had laid out a view of how we thought the operating groups would emerge. I think clearly when you look at CMT's growth for the year, as proud as we are of that growth, frankly, it would've been tough to predict that level of growth, double-digit growth in all industries and in all three geographic markets. That is kind of a trifecta of stars aligning. On the other end of the spectrum, not to go through every operating group, we were comfortable with our return to growth in resources, but yet there was still some risk as we highlighted. At the end of the day, congratulations to our resources team again, that they reconnected with growth and sustained very solid growth. I think, across the patch, when we talk about consulting in our traditional type of work way, which in our new way of looking at the business includes strategy, consulting, and part of application services related to application development within app services. That part of our business was very strong in 2015 and exceeded our expectations. Yeah. Not much to add. I think clearly, to summarize, we overachieve in three areas, mainly CMT, digital business, and operations, and Accenture Operations significantly more than we expected. Yep. No, that's helpful to hear. I guess as my follow-up, I'll ask just on this year's guidance, just how much is coming from acquisitions. I know you've got Navitaire coming up as well. Can you give us any sort of range on what digital growth might look like in 2016? Thank you. Yeah. Just working backwards, Tien-Tsin, I'll give you a view on digital growth as well as our dimensional growth. I'm going to give that view at IA Day- Okay as we're still working through our view on that. Fair enough. Just to your other question, I'll start with 15. Our inorganic contribution I signaled last quarter was in the range of 1%-1.5%. Our actual inorganic came in roughly at the midpoint of that range. The point being that when you look at our 11% growth for the year, the organic growth was obviously substantial. As we look forward to 2016, we are very proud of the success that we've had in the market with our acquisition activity in the last two quarters in particular. We also have four acquisitions. Pierre mentioned Cloud Sherpas, which had been announced but not yet closed. If you take what we've closed and the four that have been announced, not yet closed, then we would estimate that our inorganic would be, let's say, approaching the range, in the range of about 2%. Of course, that can change depending on the timing of when these four deals, Cloud Sherpas in particular, ultimately gets closed. We would be in that range, so it would be a click up. That's great. See you at IA Day. Thanks. All right. Thank you, Tien-Tsin. Your next question comes from the line of Ashwin Shirvaikar from Citi. Please go ahead. Hi, thanks. Hey, good morning, Ashwin. Good morning. How are you guys? Good. I guess my first question is, clearly, we appreciate the acquisitions that you made over the last few years. We actually wrote about it recently. Is there a flip side to it? Can you talk about the growth rate that you're seeing on your traditional businesses? What sort of impact are you seeing from ERP slowdown, from the flip side of cloud, things like that? Clearly, we have a portion of your revenues growing really fast in digital. You're handling that transition very well, but the flip side is bringing down your overall growth rate, right? Ashwin, let me just mention two things, and then Pierre will want to round this out just in terms of kind of the factual context. Again, I want to point out that the year we just closed, our organic growth would've been about 9.5% roughly. The organic part of our business, that machine, was hitting on all cylinders in 2015 and was a real testament to the power of our growth strategy and this evolution of Accenture to focusing on our five businesses that we've talked about, leveraging the very distinctive channel that we have through our Operating Groups in our largest Geographic Markets. Just that factual point, our organic growth machine is hitting on all cylinders. You mentioned ERP. I'll go ahead and put this out there, that the ERP business, we've always said, that ERP goes through cycles, but yet at the end of the day, it's an attractive business. Our ERP business did stabilize in 2015. It actually grew slightly. Now, as a percentage of our total revenue, it's come down a click in terms of what it represents of Accenture's business because the non-ERP is growing significantly. Nonetheless, the ERP story is not a bad story. I'll just pass it over to Pierre. Reconfirm the element of our acquisition strategy. We are doing acquisitions for three reasons. The first one is to accelerate access to capabilities in the new. What we're calling the new at Accenture is now the combination of digital services, cloud services, security services, or new technologies, if you will, such as cognitive computing, automation, or artificial intelligence. Second is to have access to very deep industry expertise, especially in consulting. That is the rationale for acquisition of Axia, Javelin, companies consulting deep structure, I-TRACK, either deep industry expertise in upstream energy in retail. That is number 2. The number 3 would be to scale faster to take the leadership position in the marketplace. By leadership, we mean the number 1. I'm thinking about Procurian. I'm thinking about Cloud Sherpas. I would put in that category scale to lead, putting more distance between Accenture and the competition. Three reasons why we are doing the acquisition, and then we grow organic on top of this acquisition. Probably one of the best case coming in my mind would be Procurian. We made the acquisition of Procurian. We became the number 1 in procurement services. Since we made this acquisition, we've been scaling faster, and now we are the market leader, and the organic growth of our procurement services, is even higher than the business case we set. Absolutely. I understand that. We are actually fairly consistent with what we've written recently. The second question is just I want to ask about free cash flow growth, in terms of the guidance, looking at the lower end is negative, the upper end is 5% at the upper end, which is a tad slower than your EPS growth. Can you go through the puts and takes with regards to free cash flow growth going forward, how you think about it? Clearly, it's at an impressive absolute level, but I just want to understand how you're thinking of sort of the translation from revenues to profits to cash. Yeah. First of all, I would encourage you and others to look at the absolute amount, because the absolute amount, as you've referenced, I'll use my word, but your thought, I hope, is that it's outstanding. Our operating cash flow, our free cash flow, exceeds net income, which I think is a standard for any company which is indicative of outstanding cash flow. We're in the range of, let's say, a rounded 1.1 of free cash flow to net income. The absolute number is very strong. As we talked about before, there are many puts and takes in our cash flow in any particular year. Changes in DSO as an example. We have allowed for the possibility, not that this is what we're trying to drive our teams to, but we've allowed for the possibility of a slight uptick in DSOs. You also notice that we have allowed for further CapEx spending, which is part of the increase. Beyond that, there are differences in timings. For example, tax cash payments can be very different from one year to the next. There are many swings, but what I would encourage you to focus on is the absolute cash flow, which exceeds net income and is a great indicator of a strong cash-generating company. Okay. Thank you. Your next question comes from the line of Darren Peller from Barclays. Please go ahead. Hello. Thanks, guys. Listen, we heard some commentary around Brazil and some of the emerging markets growing well. I guess when we think of your guidance, and obviously there's a deceleration partly due to just tougher comps, but I imagine some conservatism as well. I guess on top of that, how much is your expectation for Brazil or China or maybe even Russia or some of the other emerging markets that we've seen some slower trends in having an impact on your model? I guess I'm not quite sure we ever heard a contribution to your revenue from China or Brazil, to be honest. Yeah. If you look at it, indeed, we had a good year in some of these markets. Overall, our growth markets, double-digit growth if you look at all the growth markets. Again, you've seen in this growth market some of mature market names. I'm thinking about Japan, and Australia. Now, indeed, we had a very good performance of Brazil last year on back of some very good program in Accenture Operations and our BPO business as well in launching innovative services, especially around Mortgage as-a-Service on back of a small acquisition we made a few years ago called Zenta. Our digital rotation as well, which is happening in Brazil. Likewise, it's happening in other places. That being said, we're looking at the market as you do. We understand that the global economic conditions in Brazil are deteriorating at some pace, and it has been factored in our plan. Okay. Have you ever given any disclosure on how much of a contribution Brazil or China might be to your business? Yeah. We have given that disclosure. I guess we show the revenue number for Brazil. I mean, Brazil is above $1 billion. Yeah. Okay. That's helpful. It's more than $1 billion. It's about $1 billion for Accenture. Yeah It's significant. China? Okay. It's not something that will be over significant. In China. Yeah We are around $0.5 billion. Okay. That's helpful, guys. Just last follow-up question on the digital side, again, growth at 35%, obviously very impressive. All trending to Yeah. Yeah. China, we're about in the range of $300 million, in that range, so about 1% of Accenture. Oh, okay. The CEO is always optimistic. Okay. Very helpful. Just one quick follow-up on the digital side. Again, the 35% growth rate, again, very impressive. It seems like there's enough demand out there for even off a larger base, that kind of trend to continue. I know you said to Tien-Tsin before that, wait for IA Day, but I think it seems like, could it be fair to assume that you can have at least something similar or very strong double-digit growth once again this year? I think that we think in terms of continued strong double-digit growth. 35% is a big number. Yeah. For planning purposes, we consider the scale of the business, but 35% is a big number, and I don't know that we would assume that for planning purposes, not that we wouldn't strive for it. Understood. We will plan for double digits. Yeah. Certainly for double digits. All right. Nice job, guys. Thanks. Thank you very much. Your next question comes from the line of Keith Bachman from BMO Capital Markets. Please go ahead. Good morning, Keith. Hi. Thank you very much. I wanted to ask about pricing. Recently, Cognizant called out, who's normally a fairly deliberate and conservative company, that pricing pressure has increased in a part of their business. While I understand that there isn't perfect overlap in competitive areas between yourself and an Indian-based player like Cognizant, I did want to hear what you're seeing in the pricing environment across the breadth of the businesses, particularly in the application maintenance and application development world, though, specifically. Yeah, I would say that, you may remember it was in our second quarter's call, I mentioned that we were pleased with the progress that we had made in pricing relative to where we were in the previous year. I would say that, relative to those comments, our pricing has remained very stable. I would characterize the environment. It's tough to paint with a broad brush because it really is different depending on which part of our business that you look at. Certainly overall, the environment continues to be competitive. If I had to give an overall characterization, I would say stable, at the levels that we indicated in the second quarter. If you peel it back, you asked specifically about application services, it continues to be a very competitive market, but our pricing is stable. We see other parts of our business where we see some pricing power, and when I say that, I think about Accenture Strategy and Accenture Consulting. Okay. Fair enough. My follow-up question, if I could, is, your global delivery network continues to tick up, which I think is part of the reason why you're able to move your margins. Almost 72% of employment base is in the global delivery network now. Is there a natural resistance point, though, at some level? If we look out over the next couple of years, can that continue to move up where you move, let's say, over 80% of employment bases in the GDN? If you could just talk about any natural resistance points, particularly as you think about digital forming a greater % of revenue, which I would think would be more local headcount. Would like to hear your characterization. Thanks very much. Yeah, we don't think in terms of a natural resistance point. We think that we've got a lot of flexibility for how our global delivery network can continue to evolve. We certainly don't think in terms of any natural resistance point. We drive it as the market evolves, and, as I said, we've got flexibility still in front of us. Yes. When you look from a skills standpoint, you're right to mention that part of the work we're doing in digital-related services could be onshore. However, we are probably one of the largest enterprise app developer in the world. All these developments are being made by our global delivery network, and it's definitely part of digital-related services. I'm thinking about a significant part of our business in analytics as well, being done with our resources, especially in India, and other places. When I think about strong innovations in terms of automation, robotics, Cognitive computing, and artificial intelligence, they are coming a lot from the Philippines and from India as well. I guess, it would be a bit simplistic to see our GDN as a kind of low-cost, low-value kind of capability. Oh. It is a right cost, very high-value workforce. Okay, great. Thank you, guys. Thank you. Your next question comes from the line of Edward Caso from Wells Fargo. Please go ahead. Good morning, Ed. Good morning. Congrats on the quarter. I was curious if how much of a drag that the acquisitions have become to your margin, and this rapid growth in the GDN that was just mentioned, is that providing adequate offset? Yeah. Well, first of all, Ed, I would say that if you look at the performance of our portfolio overall, we're quite pleased with the performance of our portfolio of acquisitions from revenue through profitability, and cash flow. That's something we track very carefully. We review certainly ourselves, but with our board as well each quarter. We believe we have some pretty high hurdles, financial hurdles for the transactions that we do. Having said that, as you know, it certainly wouldn't be unusual for an acquisition to be dilutive in the first year or two possibly. One of our hurdles is the pace at which a deal becomes on par and then accretive. Certainly, in the first couple of years, they can be dilutive. I'll also point out that whereas many other companies in our sector tend to adjust for certain types of acquisition-related costs, the amortization of intangibles, things like performance retention payments at the time of closure, third-party fees, et cetera, we've chosen not to do that. We report our margin all in. To date, our margin expansion commitment has been based on a philosophy that we absorb those as part of our investments, and we drive the business forward. Of course, that's just one part of our investment. We have investments that go well beyond that. The impressive thing about our profit model to date is that when you look at that 20 basis points of expansion underneath that, we are driving significant efficiency across our business to absorb the investments, acquisition and otherwise. That's an important story to understand, so I'm glad you asked that question. My other question is on clarification on pricing. When you talk about stable pricing, sort of what does that mean? We hear that clients are more focused on reducing total cost of ownership. You and your competitors may be able to sustain margin, but you're giving back some volume. Help us understand better what you mean by pricing. Thanks. To remind you and the other listeners, when we talk about price, we've always said very clearly that we're talking about the profit or margin percentage on the work that we sell. It's in that context when I say pricing is stable, it's in that context that I make that statement. When you look at application services as an example, when you look at our margin on work that we are contracting, that is stable. I mentioned other areas where we have sources of some pricing power. I mentioned strategy and consulting. I also say that in the context of the margin. I'll also add that if you were to look at, in that part of our business, people might talk about things like average daily rates. We're also pleased with average daily rate progression in that part of our business as well. Thank you. Thank you. Your next question comes from the line of Lisa Ellis from Bernstein. Please go ahead. Good morning, Lisa. Hi, guys. Good morning. I guess I'll ask directly the question I think many are wondering, which is, what is it are you seeing in the numbers that's causing the implied kind of sharp quarter-on-quarter deceleration in the guide for Q1? If you look at our guide for quarter one, the range is 6%-9% in local currency growth. When I look at quarter one or the full year, maybe, Lisa, let me just expand my comments a little bit. When you look at our guidance, you first of all have to understand what is our assumption on market growth. We assume that the market will continue to grow ± in the 4% range. When you look at our guidance for the year, certainly if you look at our guidance for quarter one, the same would apply. Across that range, but certainly at the upper end of that range, it reflects taking significant market share, continuing to take significant market share, which is our strategic objective. The other thing that you have to consider goes back to some of the discussion that Pierre had, I believe, with Darrin on the growth markets and the risk profile. Also, I think when we look at the macro environment in general, relative to where we were 90 days ago, I would say relative to where we were at this time last year, the volatility and risk in the macro environment has clicked up a notch or two. That's factored in. The other thing that we think about when we look at our guidance is that it's as important, if not more important to look at the absolute $ as it is the percentage, whether it be the first quarter or the full year. If you just look at the full year, before you adjust for the FX headwind, just taking that out and look at the underlying growth, at the upper end of our range, we would be adding about $2.5 billion of revenue, excluding the impact of FX in fiscal 2016, which is a pretty healthy number. We work hard to drive to the upper end of the range, although the range reflects what we think are the range of possibilities. As it relates to the full year, we're early in the year, and as we did last year, we'll adjust as we go. That was more of an answer than your question, but it gave me an opportunity to share some of those thoughts. Terrific. Thank you. Then a little broader question. Taking a step back and just reviewing FY 2015, how has the competitive set that you guys are competing against in deals changed? We've not seen much change in the competitive environment. I think the competition is quite well-established in the different businesses we are operating in, from the consulting and strategy with the usual players. You have the technology with the other players, of course, operations, a different part of our business. I guess the environment is pretty stable with some winners and losers, and we are investing and driving our business to be part of the winners. Not much to say around the competitive environment. It's still the usual suspects. Terrific. Thank you. Thank you. Your next question comes from the line of Sara Gubins from Bank of America. Please go ahead. Hi. Thank you. Good morning. Good morning, Sara. Do you think that your visibility is changing at all, given that a greater portion of growth is coming from digital? I would say that to the extent that digital has a strong consulting concentration, and if you look at the, let's say, the average duration of a consulting contract versus an outsourcing contract, it would be true to say that the duration is shorter for consulting than it is for outsourcing. In that sense, it does give you a different backlog kind of profile going forward. We're very pleased with how our strategy in consulting and the development of new technology that we report within application services, that has been a great story for us, it does change the dynamic as you're alluding to. Great. Separately, could you talk about your hiring plans for next year and the hiring environment overall? Thanks. Yeah. We are still in the midst of finalizing those, I will comment on that as appropriate at IA Day, it's a little premature for me to give you a number at this point. Okay. Thank you. Thank you. Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead. Yeah. Good morning. Just speaking of headcount growth, I think it was up 17% year-over-year. That's the highest I can remember in a long time. Can you just talk about how that translates into revenue? Because I would've guessed it would've pushed a little bit of higher guidance growth rate for the constant currency revenue growth for fiscal year 16. Yeah. First of all, we were really pleased with our recruiting in the fourth quarter. We continue to be, and even more so, a real, I would say, magnet for talent in the marketplace. We had very successful recruiting efforts. As you know, the fourth quarter is typically when we bring on our campus hires, so that's reflected in the number. We manage the supply and demand very carefully. One point is where we start the year, of course, we have to manage our headcount as we progress through the year. We will see how attrition plays out as we evolve through the first half of the year. We'll see how the revenue trajectory progresses, as always, we adjust headcount appropriately. What's that relationship? Shouldn't the relationship be closer to revenue growth for the following year? Well, it depends. It just depends on so many different assumptions. It depends on how we see pricing evolving. It depends on how we see our revenue yield per head evolving. It depends on what we might expect with attrition. It depends on perhaps we hired a disproportionate number of people in quarter 4, we expect to hire less than normal in quarter 1. There's so many factors that go into that. I wouldn't overread the headcount. What I'd focus on is the guidance we gave and the context that I gave for the guidance. Okay, just last quick follow-up. What's the mix between consulting and outsourcing on the growth rate that we should expect between the 5%-8% guidance? I saw consulting's obviously been a little bit stronger than outsourcing. Just want to see if that probably continues for next year. Yeah, we actually see very balanced growth as we have looked at our business plans. We actually see very balanced growth, and we would see, let's say, both consulting and outsourcing in the context of a 5-8 range. We would see both of those kind of being in the same zone. So in the mid-to-high single digits is the potential range for both of them. Okay, super. Thanks for the color. Thank you very much. Appreciate it. Greg, we have time for one more question. Pierre will wrap up the call. Okay. Your final question today comes from the line of Brian Essex from Morgan Stanley. Please go ahead. Good morning, and thanks for taking the question. I was wondering if you could talk a little bit about, I just noticed that the acceleration in the European or EMEA constant currency growth rate was really nice this quarter. You had about a year and a half now of accelerating growth in Europe, and I was just wondering if you could touch on the environment in Europe and what are some of the key drivers to that acceleration so that we can get an idea of how that might be sustainable going forward. Yeah, sure. Thank you. By the way, Jo Deblaere, who's leading our European business, is in the room, and he couldn't be more pleased with your comment on Europe. Great. Yes, we're pleased with where we are because you've seen the growth, and of course, when you understand the overall economic environment in Europe is much different from the one, for instance, you have in the U.S. It's more about us than about the market, of course. I would call probably the same trend. It's fascinating to see that the digital rotation we've seen in Europe is as strong, even slightly stronger than the one we could see in the U.S. It appears that our target clients, mainly the premium brand in the G2000 we are serving in Europe, are really accelerating their investments in term of digital rotation. Second, we had some very significant transactions leveraging Accenture Operations with our business process services. I'm thinking about the finance and accounting, the HR, the procurement as well, and it's been a significant source of growth. Overall, the consulting is back, probably driven as well with the digital-related services. For Europe, again, the clients we are serving more than the GUs are reinvesting with always an eye on rationalization, driving good growth for Accenture Operations, and the other eye on growth and digital, which is driving more business for Accenture Digital, Accenture Strategy, and Accenture Consulting. Of course, the leadership of Jo Deblaere. Great. Maybe just for a follow-up, I know the deal hasn't closed yet, but I think Cloud Sherpas was a great pickup. We know them as a leading cloud broker and a substantial salesforce.com partner. Maybe if you could, to the extent that you can, talk about the rationale behind that deal and where some of the leverage across your platform might come from and any kind of overlap with their current brokerage business. Yeah, sure. Two main reasons. First, you've seen that in the terminology which has been used by Paul Daugherty, our Chief Technology Officer, we're taking a cloud first approach. We are strongly believers that indeed now and even more moving forward, this cloud first agenda will be quite prevalent for our clients, and we want to preempt, to be ahead of the curve or to embrace, whatever you're going to call it, this new cloud first environment. To be a prominent provider in the software and solution as a service environment. Second, when we have defined this positioning for Accenture, the name of the game for us was how to scale more rapidly to take a leadership position, especially around the salesforce.com solution, and Cloud Sherpas was a very relevant opportunity for us to scale rapidly the good capabilities we have. As we speak, we are the leader in providing services for salesforce.com. We are already the leader, and we believe that through this acquisition, they have excellent people, a significant number of these people being certified, which is even more important. We are scaling faster and are taking the leadership in this market, which we believe is going to be very promising in the coming years. Is there a geographical component to that as well, or is it primarily just merging the two capabilities together? Yeah, no, indeed. It's global with a very significant and good footprint in the U.S. It's global and nicely covering two or three of our most significant markets around the world. We should take this leading position not only in one, but certainly in few other markets around the world. Very helpful. Thank you. A very nice fit. Very nice fit for us. Yep. All right. I think it's time to wrap up, KC. Excellent. Thanks to all of you again for joining us on today's call. In closing, I just want to take this opportunity to first thank our clients for the trust they place in Accenture as their business partner. At the same time, I also want to extend my deep and sincere thanks to the men and women of Accenture around the world. Every minute of every day, our people demonstrate an incredible level of commitment to delivering value for our clients and for our company. Finally, of course, I want to thank you, our investors, for your continued support and confidence in Accenture. We look forward to talking with you again next quarter.