Earnings Call: Q1 2015

Dec 18, 2014

Welcome to Accenture's First Quarter Fiscal 2014 Earnings Conference Call. At this time, all lines are in a listen only mode. Later, there will be an opportunity for your And as a reminder, conference is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Casey McClure. Please go ahead. Thank you, Tom, and thanks everyone for joining us today on our Q1 fiscal 2015 earnings announcement. As Tom just mentioned, I'm 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 Q1. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the Q2 and full fiscal year 20 15. 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 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 atextension.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 had an excellent Q1 and I'm extremely pleased with our results. Our revenue growth was broad based including strong growth in both consulting and outsourcing as well as double digit local currency growth in 4 of our 5 operating groups. We expanded operating margin, delivered double digit EPS growth and returned substantial to our shareholders. Our very strong results demonstrate that we're executing a growth strategy that is both highly relevant to our clients and highly differentiating for Accenture. David will provide more detail in a moment, but here are a few highlights from the quarter. We delivered new bookings of 7 point $7,000,000,000 in line with our expectations. We grew revenues 10% in local currency gaining significant market share. We delivered outstanding earnings per share of $1.29 a 12% increase. We delivered operating margin of 15%, a 20 basis point expansion. We generated very strong free cash flow of $821,000,000 and continue to have a rock solid balance sheet ending the quarter with a cash balance of $4,500,000,000 And we returned $1,300,000,000 in cash to shareholders through share repurchases and the payment of our semi annual dividend of $1.02 per share, a 10% increase over our previous year. So we are off to a very good start in fiscal year 2015 and we have raised our outlook for revenue growth for the full fiscal year. Now let me hand over to David, who will review the numbers in greater detail. David, over to you. Thank you, Pierre. Happy holidays to all of you and thank you for joining us on today's call. As you heard in Pierre's comments, we delivered a very strong Q1 building further on the momentum that we established in the second half of last year. Just a few months ago at our Investor Analyst Day, I outlined our focus on 3 imperatives for delivering shareholder value. And certainly our quarter one results and the updated guidance that I will provide shortly illustrate our ability to manage and our business in a differentiated way. So before I get into the details, let's look at our results in the context of the 3 imperatives. Starting with durable revenue growth, we expanded our business by over $500,000,000 in the quarter with 10% growth in local currency. We had positive growth across all operating groups with 4 of the 5 achieving double digit growth, strong balanced growth across all three geographic areas and the highest growth rates in over 2 years in both consulting and outsourcing. With respect to sustainable margin expansion, we expanded operating margin by 20 basis points, while at the same time investing in our business. The actions that we put in place during the second half of last year are yielding results. And while optimizing profitability requires an ongoing relentless focus, we're very encouraged by the progress we've made in recent quarters. And finally, regarding strong cash flow and disciplined capital allocation, we generated over $800,000,000 in free cash flow and delivered roughly $1,300,000,000 to shareholders through repurchases and dividends. With that said, let's now turn to some of the details starting with new bookings. New bookings for the quarter were $7,700,000,000 with consulting bookings of $3,900,000,000 and a book to bill of 0.9 dollars and outsourcing bookings of $3,800,000,000 and a book to bill of 1.0 with what we signaled on the September earnings call that bookings would be lighter in quarter 1 and then build throughout the year. We're pleased with the composition of our new bookings, specifically with a portion of our new bookings, which we expect to be recognized as revenues this fiscal year, which improved our revenue visibility and supported increasing our revenue guidance for the full year. We see positive trends in our overall pipeline and are well positioned to deliver a higher level of bookings in the Q2. Turning now to revenues. Net revenues for the quarter were 7 $900,000,000 an increase of 7% U. S. Dollars and 10% in local currency, reflecting a negative 3% FX impact compared to the negative 2% impact provided in our business outlook last quarter. On both an FX adjusted and unadjusted basis, we were well above the top end of our guided range. Consulting revenues for the quarter were 4 point $1,000,000,000 up 4% in USD and 7% in local currency. Outsourcing revenues were $3,800,000,000 up 11% in USD and 14% in local currency. Before I I Accenture Analytics, Accenture Mobility and Accenture Interactive. Operations and Application Services were also highlights in the quarter. Operations generated double digit growth in both BPO and Infrastructure Services and we saw strong growth in Application Services as well. Looking at the operating groups, we were very pleased with the 15% growth in Communications, Media and and Technology. Overall growth was broad based driven by strong double digit growth in both consulting and outsourcing across all three industries America and the growth markets. Digital related services, cost optimization and continued execution of large transformational projects were the primary drivers of growth. In H and PS, the 13% growth in the quarter was led by exchanges and Medicaid related work. Digital related services were also a strong growth driver across H and PS. Financial Services grew 11% led by Banking and Capital Markets globally with particularly strong growth in Europe. Clients continue to be focused on 3 main areas, risk and regulatory, cost optimization and digital related services, especially in distribution and marketing. Products, our largest operating group, delivered 10% growth driven by double digit growth in both consulting and outsourcing and another quarter of broad based strength across all industries industries and geographic areas. Digital and cost optimization were significant areas of focus for clients in this operating group as well and application services was also a the progress we're making in positioning for sustained positive growth in the other three industries, most notably chemicals where we had significant double digit growth. Cost optimization is a dominant theme across resources, which has resulted in strong demand for operations and application services. Moving down the income statement. Gross margin for the quarter was 32.2% compared with 33.3% for the same period last year, down 110 basis points. Sales and marketing expense for the quarter was 11.5 percent of net revenues compared with 12.6% of net revenues for the Q1 last year, down 110 basis points. General and administrative expense was 5.6% of net revenues compared with 6 point 1% of net revenues for the Q1 last year, down 50 basis points. Operating income was $1,200,000,000 for the Our effective tax rate for the quarter was 25.1 percent equal to the effective tax rate for the same period last year. Income was $892,000,000 for the Q1 compared with $812,000,000 for the same quarter last year. Diluted earnings per share were $1.29 compared with EPS of $1.15 in the Q1 last year. This reflects a 12% year over year increase. Turning to DSOs, our day services outstanding continue to industry leading. They were 37 days up from 36 days last quarter. Free cash flow in the quarter was $821,000,000 resulting from cash generated by operating activities of $873,000,000 net of property and equipment additions of 52,000,000 dollars Cash flows in the quarter were positively impacted by a shift in the timing of a portion of compensation payments which were paid in quarter 1 in prior years and beginning this year will be paid in quarter 2, with no impact to full year cash flow. Moving to our level of cash, our cash balance at November 30 was $4,500,000,000 compared with 4 point $9,000,000,000 at August 31 and reflects our share repurchases this quarter in addition to higher dividends we paid in November. Moving to some other key operational metrics. We ended the quarter with a global headcount of about 319,000 people and we now have approximately 218,000 people in our global delivery network. In quarter 1, our utilization was 91%. We've updated the methodology we used to calculate our utilization metric to include all billable headcount. This change increased utilization by about 3% and accounts for the increase from quarter 4. Attrition, which excludes involuntary terminations was 13% compared to 15% quarter 4 and 11% in the same period last year. Lastly, we now expect at least 90,000 people will join our company in fiscal 2015. Turning to our ongoing objective to return cash to shareholders. In the Q1, we repurchased or redeemed approximately 8,400,000 shares for $670,000,000 at an average price of $80.25 per share. At November 30, we had approximately $4,100,000,000 of share repurchase authority remaining. Also in November, we paid a semiannual cash dividend of $1.02 per share for a total of 679,000,000 dollars This represented a 0 point 0 $9 or 10% increase over the dividend we paid in May. So So back to Pierre. Thank you, David. At our Investor and Analyst Conference in October, we provided an update on our growth strategy including the investments we've made and the actions we've taken to make back end differentiated and competitive in the marketplace. And our excellent results this quarter demonstrate the successful execution of our strategy across the different dimensions of our business and that we are growing significantly ahead of the market. Let me share with you a few example of the outcome based work we are doing for our clients as well as some key outcome based work we are doing for our clients as well as some key investments and initiatives we have announced recently. In Suite Executives. A great example is the work we are doing with 1 of the largest banks in Canada, where our industry experts are designing and implementing a global technology strategy to drive 20% ongoing annual savings by optimizing the bank's portfolio of applications. In Accenture Digital, we continue to invest to expand our capabilities in Accenture Interactive to better serve Chief Marketing specializes in creating differentiated customer experiences through digital channels such as apps and e commerce websites. And we are benefiting from the investment we have made to enhance our capabilities in Accenture Analytics. We are working with a European auto company to improve forecasting pricing and promotion for thousands of parts across 18 countries. We are leveraging our expertise in supply chain analytics and the spare part app from our recent I4C acquisition to help our clients drive $65,000,000 in new parts revenue. In Accenture Technology, we just announced a major strategic initiative with Microsoft to drive enterprise cloud adoption. The Accenture Hybrid Cloud solution for Microsoft Azure will provide a new way for our clients to transform to a truly enterprise wide hybrid cloud environment. This unique solution is being co engineered across Accenture, Microsoft and Avanade, our joint venture, to bring new capabilities and innovation to our enterprise clients. In application services, we continue to compete to win by providing our clients with the very best technology services at the most competitive cost. We recently expanded our relationship with a long standing client in resources to drive an IT transformation to enable greater business agility. We are managing more than 200 ERP data and digital applications across a wide range of platforms, leveraging the capabilities of our global delivery network in India, the United States, Spain, Brazil and Costa Rica. And finally, in service across multiple brands and markets. By combining our industry expertise with our strategy, digital analytics and operations capabilities, we are helping transform the company's digital marketing and increase digital sales. I'm also very pleased that in Capital Markets, we signed our second client for Accenture Post Trade Processing, our industry business service to manage securities operation for investment banks, which we created a year ago with Societe Generale as our first client. Turning to the geographic dimension of our business. I'm very pleased with the the percent in local currency. Our business in the United States continues to perform extremely well with strong double digit revenue growth in the quarter. In Europe, despite the continued challenging economic environment, we grew revenues 9 percent in local currency, driven by double digit growth in Germany, Italy, France and Norway. And in our growth markets, we delivered revenue growth of 9% in local currency. I'm very pleased that Brazil is back with strong double digit growth and we continue to perform very well in Japan with another quarter of double digit growth. And I'm also pleased with our strong growth in Australia. So we see very good momentum in our business and have delivered an excellent first quarter on top of a strong second half of fiscal year 'fourteen. At the same time, we are monitoring carefully the macroeconomic environment. The significant fall in global oil prices since last June could boost growth in the global economy, but also creates a more challenging environment for companies in the energy sector and certainly contributes to greater uncertainty and volatility in the marketplace. We continue to operate in a fast changing environment driven by so much disruption. Differentiated services. To capture additional market share and drive sustainable profitable growth, we will continue to leverage our strong client relationship, our deep industry expertise, our unique position in the technology ecosystem, our broad global footprint and even more important the passion of our 319,000 men and women of Accenture. With that, I will turn the call over to David to provide our updated business outlook for fiscal year 2015. David, over to you. Thanks, Pierre. Let me now turn to our business outlook. For the Q2 fiscal 2015, we expect revenues to be in the range of $7,250,000,000 to $7,501,000,000 to $7,501,000,000 dollars This assumes the impact of FX will be a negative 5% compared to the Q2 of fiscal 2014. For the full fiscal year 2015, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in U. S. Dollars will be negative 5% compared to fiscal 2014. For the full fiscal 2015, we now expect our net revenues to be in the range of 5% to 8% growth in local currency over fiscal 2014. For the full fiscal year 2015, we continue to expect new bookings to be in the range of $34,000,000,000 to $36,000,000,000 For operating margin, we continue to expect fiscal year 2015 to be 14.4 percent, a 10 to 30 basis point expansion over fiscal annual effective tax rate to be in the range of 26% to 27%. For earnings per share, we now expect full year diluted EPS for fiscal 2015 to be in the range of $4.66 to $4.80 or 3% to 6 percent growth over fiscal 2014 results. Absent the higher FX headwind, which impacts EPS by $0.14 our EPS range would have increased by $0.06 driven by the higher revenue growth range. Now turning to cash flow. For the full fiscal 2015, we continue to expect operating cash flow to be in the range of $3,950,000,000 to $4,250,000,000 property and equipment additions to be approximately $450,000,000 and free cash flow to be in the range of $3,500,000,000 to $3,800,000,000 Finally, we continue to expect to return at least $3,800,000,000 through dividends and share repurchases and also expect to reduce the weighted average diluted shares outstanding by approximately 2% 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. 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 the question. Tom, would you provide instructions for those on the call please? Thank Our first question today comes from Tien Tsin Huang representing JPMorgan. Please go ahead. Great. Thanks. Good morning. I guess Hey, good morning. Good quarter here. Just on the I guess I'm surprised to see you increase your revenue growth guidance this early in the fiscal year. It seems a little uncharacteristic. It's good obviously, but just sounds like it's due to faster booking conversion, if I heard that correctly. Is that Certainly, the composition of Certainly, the composition of our bookings in the Q1 was an influencer of the 10 percent growth. And as I commented, Tien Tsin, you and others have heard me reference previously what I refer to as annual contract value. So it's the portion of our total bookings or the total contract value that converts to revenue in the fiscal year. And we were very pleased with that number in the first quarter. And really that's been a trend that we've seen really going even to the back half of last year as our growth went from 7 percent as you know in the Q3 to 8% in the 4th quarter. And you've also heard me mention that as important as the larger transformational projects are to us, we also have been focusing our client teams more on thinking about the annual contract value of the work that we sell and deliver to clients. And I think we see some of that reflected in the growth in the Q1 and also in the second half of last year. All right. Good. So, hi, Rishi. Good. So, as my follow-up then just I noticed you didn't update your bookings forecast despite the big FX headwinds. So I know it's a really wide range, but is that effectively a raise in constant currency bookings? Just trying to better tie that to the constant currency revenue comments. Thanks. It is just mathematically it's effectively a range for the reasons you're pointing out. I mean on the bookings front, we feel very good about our pipeline. We are only 1 quarter into the year. We still think that the 34% to 36% range is the right range for us to be focused on. And for that reason, we didn't change it even though the FX did change. Thanks. All right. Thank you, Tien Tsin. We'll go to the line of Edward Caso with Wells Fargo Securities. Please go ahead. Hi. I was hoping you could give us a little bit more color on the impact of oil prices both on the positive side where you think you would see it and also on the negative side within your energy sector? And maybe Ed talk a little bit about what your clients are you seeing them react at this point? Are they reacting already? Thank you. Yes. This is Pierre. I will pick up that one. As we speak and I will recommend as almost as of today, we've not seen we have not yet seen any form of significant impact in our business with what's happening. I believe that this big organization in energy, oil and gas are just watching the situation. It has been very volatile these last few weeks. And I guess our clients and these companies are waiting a bit to understand whether they're going to be some form of stabilization. And when you have some form of stabilization, you can start executing your strategy. But as we speak, we've not seen any different pattern with our clients. And I would characterize my dialogue as being in a watching mode not panicking. Now the energy vertical I believe is about 6%. Is it long term can you give us a sense of what the mix is consulting versus outsourcing? And how quickly if your clients get more nervous it could get dialed back? Yes. If you look at it, I guess it's not going to be very different from the mix of Accenture from consulting and outsourcing standpoint. So indeed a good portion of the business is going to be around outsourcing contract with long term commitment. As you know, we have even some clients where we are doing business process outsourcing operations, a very large and important client where we are doing finance and accounting. So it is a kind of operation which are contracted for long term and which are of course mission critical for the client. So to answer your question, the level of vulnerability would be more around the short term consulting project and so forth, which would be a part of this 6%. Yes. So I guess that would probably impact something like a portion of 3% if you will. Thank you. Thank you. We'll go to the line of Brian Essex with Morgan Stanley. Please go ahead. Good morning and thank you for taking the question. Good morning, Brian. Good morning. I was wondering if you'd circle back a little bit more to ACV and tremendous unless I'm doing my math wrong, tremendous employee headcount growth in the quarter. When I look at that relative to the softer bookings, although it's higher conversion rates, how much visibility do you have in that headcount? And maybe you can help give us a little bit of color in terms of where you're hiring and the mix of hiring, given that revenue per head is coming down a little bit. What is the visibility that leads to that aggressive headcount growth? Yes. Well, first of all, just in terms of visibility and how that influences our supply planning. I mean, first of all, as you know, we are very effective at managing the slots out of our business. It's a core competency of ours and we are managing, adjusting and tuning the supply side including hiring daily if not hourly. Now in terms of the growth in headcount, certainly and I think the tone of the comments hopefully indicated as much, we feel very good about our business. We exited last year with good momentum. That momentum translated into strong growth in the Q1. It translated into a lower dollar value of bookings, but yet a very high quality of bookings with respect to how it will benefit revenue this year. And if you reflect on the guidance that we gave for the Q2, the upper end of that range is 10% growth in local currency. And so what all of that points to is confidence in our business and that underpins what we're doing on the headcount front. Now as it relates to headcount, one of the many but important differentiating characteristics of Accenture is GDN. And we continue to invest heavily in GDN including on the talent side. And so if you look at the recruiting that we did in the Q1, as you can see in the numbers, it's biased towards GDN. But yet, it's important to recognize that we're hiring in just about every geography around the world. And we're hiring meaningful numbers of people in all of our local markets. So I think the headcount just reflects the confidence that we have in our business. Okay. And is there any just as a follow-up, is there any geo in particular that you're particularly excited about? I know at the Analyst Day peers pretty confident about BPO in Europe. Is that actually materializing now? And are you seeing greater traction in those in that geo particularly with regard to BPO and maybe impact to longer term upside downside to your full year forecast? Of course, the country I'm most excited with will be France by no doubt where we had a quarter I would characterize as fabulous based on fact, nothing to do with my nationality of course. But I'm pleased with what's happening. I'm extremely pleased with the sustainability of our performance in the United States. It is very important. It's the largest market of Accenture and it is I would say the global market where things are happening in our industry. This is where things are happening from a digital standpoint, from an innovation standpoint, as well from a disruption standpoint, from an energy standpoint, we can comment all of this. And it's for us all goodness that we are doing so well in the U. S. We are gaining market share and it's been the case now for the last 4 years. So it's not the story of a quarter. I'm extraordinarily impressed with what we are doing in Europe. And I'm mentioning impressed because we all know that the economic context and conditions in Europe are very different from the U. S. And driving 9% local currency growth in the European market is very significant including growth in our most mature market. I mean growing in Italy double digit, growing in France double digit, growing in Germany double digit. It's a big achievement for Accenture. And why we've been able to do that to get back to your first question. Indeed, we have these last couple of years, we have excellent traction in outsourcing, application outsourcing that we've been able to evolve our portfolio of business to BPO. And we have some very landmark deals especially in electric and high-tech in business process outsourcing, but as well as in banking in Italy just to get two illustration explaining France and Italy. And the good news I would say of this quarter from a European standpoint is consulting is back, which is demonstrating that our clients are starting to reinvest in consulting, 1st in digital related services, Couldn't be more pleased with our digital business at Accenture. I would characterize on fire not being emphatic. But as well we see good opportunities again back in big ERP. Very helpful. Thank you. We have a question from Lisa Ellis with Sanford Bernstein. Please go ahead. Hi, guys. Good morning. Good morning, Lisa. Hi. Yes, so can you describe in a little bit more detail? I know you watch the book to bill numbers pretty closely and now 2 quarters in a row like the consulting book to bill has been less than 1. And I know that what you're saying is that that's because the mix of those services are such that they're rolling through quicker. Can you just talk about that? Like what is it the conversion time? Or what exactly is going on under the covers there? Yes. I guess just a couple of thoughts. First of all, as you know Lisa watching our business, the bookings as we've always said, probably said a 1000 times, the bookings can be lumpy across the quarters. And I think some of what you see this quarter is lumpiness. I mean sometimes it's really an insignificant difference as to whether or not we close let's say 1 or 2 larger deals the last week of the quarter or the 1st week of the next quarter. It's really just a timing issue. I will say by the way, if I'll just take this opportunity to point out that in the quarter, we did have 6 clients with bookings over $100,000,000 and that's a healthy number by anyone's standard. But for us, it's a little bit lighter than what we've seen in some quarters in the last 4 to 6. And so that was an influencing factor in the Q1. Nonetheless, we were very pleased with the quality of what we sold As I said, so we don't read anything through in terms of the fact that we had several very strong Last quarter was a little bit lighter. This quarter is how as I characterized it. But yet if you look at our guidance range for the full year and if you just do the math, then that tells you kind of what we're thinking about in terms of kind of on average what our bookings would be for the next three quarters. And course that would put the bookings right back in the sweet spot of our book to bill. So if I go to where you started, we still focus very much on the book to bill metric of 1.0 to 1.1 for consulting and at least 1.2 for outsourcing, but that doesn't mean that we hit it every quarter. And when we don't hit it every quarter, we're not worried about that. We're really focused on how we perform against those metrics really over a kind of a multi quarter period. And I think for this fiscal year, you'll see it play out in a way that the book to bills will look normal to you if you will. Perfect. Thanks. Thank you. Yes. And then just one real quick follow-up. I know you always talk about don't focus on the operating margin number and not the distinction between gross margin versus net because of expenses can kind of fall into different buckets. But in an environment with an increasing mix of consulting, I was sort of surprised to see that the mix that the gross margins continued to decline. I would have I guess thought it would be other way around. Can you just talk a little bit about that dynamic? Absolutely. And I would have been disappointed Lisa had you not asked that question. I could have written it for you. Hey, it's a good question. And at the risk of being redundant, I am just going to anchor back to some of the things I haven't said before, but I'll give you some nuggets for the quarter as well. And so just for the benefit of everyone who's listening, we do really focus on operating margin. And at the end of the day, what we really focus on at the highest level is driving a business so that our payroll cost and our non payroll cost evolve in a way that supports margin expansion. And so if you look at payroll as an example, we're much more concerned about the overall efficiency of the payroll than we are the portion of the payroll that is reflected in sales and marketing versus cost of services at any particular point in time. I think without maybe if I stay at the level that is appropriate, let me just point out a couple of things on gross margin. The first thing is and this is a little bit of the dynamics that you have to understand is that our contract profitability actually was up year over year. So this is not an issue of profitability actually was up year over year. So this is not an issue of it's not an issue, but this is not in gross margin driven by contract profitability pressures in the quarter. Now, so what is it then? Well, we have a lot of other costs that go into gross margin. We have recruiting costs. We're hiring a lot of people in the Q1. We have training costs. When we hire people, we train them. We have types of our investments show up in gross margin. I characterize that what we're focused on is investing in our business while at the same time growing revenue and expanding profits. You have other things like other components of payroll variable comp as you know shows up in gross margin. So there are many factors that show up in gross margin. To your the root of your question, it was not contract profitability. Contract profitability increased and operating margin increased overall at 20 basis points and that's what we're all about. Terrific. Thanks. Okay. Thank you. And we will go to the line of Ashwin Shirvaikar. Please go ahead. Thanks. I guess a couple of questions on revenues. One is with regards to the contribution of acquisitions to this quarter, if you could talk about that? And then related not really a related question, but also a revenue question. How do you get the FX headwind of 5%? And maybe I mean I'm getting 3.5%. You guys do a pretty good job of telling us what the revenue mix is. So I'm kind of wondering if you maybe use FX as a part of being conservative overall given the uncertainty of rates? Yes. So let me just start off with on the inorganic piece. I think last quarter I said that it would be around 1% 1% to 1.5% for the year. And quarter 1 was clearly in that zone, which means the simple extrapolation is that most of our growth was organically driven. And so when you look at the 10 percent in the context of what I just said, it's another indicator of the health of our business. Ashwin, on the FX, we go through a process and it's been a we look we look at the rates on a daily basis in the 2 to 3 weeks leading up to the earnings call. And we look at what the trends are in the most recent 2 to 3 weeks. I mean there's no it's really more it's objectively driven. We don't try to speculate on what rates might do going forward. And if you look at the objective analytics based on the distribution of our currencies and how the rates have trended then you come up with a solid 5%. And I just say it's a solid 5%. Okay. Maybe we could take that one offline. But the second question I have is with regards to margins. And you just went through on the previous question a pretty good description of the various costs and such. But the margin improvement of 20 basis points, I'm kind of curious as you look at it and you look at your forward bookings, what's in your pipeline? In other words, One of the factors that have got to be helping you on a forward looking basis is that your mix has gone from 46% consulting to 50% consulting. But also you're hiring so many people who got to be GDN, which should presumably help margins. My perception has also been based on my checks that the strong digital and mobility type work that comes through is higher margin. So I'm really curious what's on an operating margin basis, what's the offset that gets you to 20 basis points? I'd expect you guys to 30, 40 basis points. Well, the by the way, so that was a statement or a question at the end? The last five words were a question. We again, we are managing our business to drive sustainable margin expansion in the 20 to 30 basis point range. And as part of that, critically important is we're committed to investing in our business, which includes investing in our people. We balance those things in the context of our results to deliver as predictably as we can in that 10 basis point to 30 basis point range and we landed at 20. And so that's it. Okay. Any color on is this start up costs on some of the BPO things you signed? I mean any other color? No. Not really. And yes nothing to add beyond what I said. There's Okay. Yes. Okay. Thanks. Okay. Thank you, Ashwin. Our next question is from Moshe Katri with Cowen and Company. Please go ahead. Thanks. Just not to the horse here going by the discussion on margins. I think it should went out by a couple of 100 basis points I think 200 basis points, 300 basis points. Again, how does it reconcile to say didn't say attrition, I meant to say utilization rates. I think it went up to 91%. How does it reconcile with the gross margin drop during the quarter? Thanks. Yes. Thanks for the question. And that gives me the opportunity to reiterate something that I said in the script, because it's an important point to understand. We so you are aware that starting quarters ago that we with our headcount reporting, we now have billable headcount as a line item. We have aligned the billable headcount with the utilization metric more directly. And as a result of that, so what does that mean? That means that we've now included people in the utilization metric that are typically people who are working on outsourcing contracts that previously were excluded. So they're now included in that metric, which the change increased our utilization to 91%, 3%. Absent that change, the utilization effectively did not change at all, okay? So the utilization is really just we redefined how we report utilization to include all billable headcount, which I think is going to be easier for certainly for us and for the outside world going forward. Understood. And that does make sense. And then just briefly with a survey that looks and as they pointed to a weaker listening sentiment and over its budget cycles in the financial services vertical. Does that sign any I mean is this something that you guys are doing out there? Is there any can you give us any color on that? Moshe, hi, this is Casey. I'm sorry. We're having a tough time hearing you. You're breaking up a little bit. Which vertical were you asking about? FS. FS. Financial Services. Did you just want a little color on Financial Services? What I said was that our survey pointed to weaker spending sentiment and overextended budget cycle in the financial services protocol. And I'm asked if you guys can comment on that. Are you saying any of this in your business? Thanks. Yes. I mean on financial services double digit growth this quarter. When we look at the growth this quarter, the growth was quite well balanced. So when I look at this, I would say things are going well. We had growth in outsourcing, good growth in consulting back again in financial services and anything specific in Financial Services. And these last quarters, we've been driving good growth with that vertical. And we feel good about it including and I'm taking the opportunity as I mentioned in my presentation, we have our 2nd client joining Accenture Post Trade Servicing, the unique capability in BPO where we are providing post rate services. We have such digital last year. We have our second client. So I think our new services are getting even more traction. Okay. Thank you. Thank you. Our next question is from the line of Dan Perlin with RBC Capital Markets. Thanks. Good morning. So I have just a couple of quick ones. Your business now is 20% or more in digital and cloud based solutions. And I'm just wondering more specifically when we think about the types of revenue that you're recognizing within that, is that really what's driving your visibility and improved trajectory? And then ultimately kind of the margin trajectory that we're seeing at the operating line? Or is there something else? And it also seems as though that business is now bigger than your legacy ERP. And I'm wondering if that's given you better visibility into the future? Thanks. Yes. When you look at our drivers for growth and I relate to the presentation we made in the IEA Day, we had 2 +1. Clearly, digital related services are a business where we invested significantly this past 7 years and when we are getting a very significant return. As we mentioned, our digital related services are in the range of the $5,000,000,000 and indeed are growing in excess of 20%. 20%. So indeed, it is an engine for growth. This is what that was supposed to be. We invested a lot organic or through some very targeted acquisitions as you remember, Accordi, the Avanta, more recently I foresee, all this acquisition we made in Australia with Reactive Media and we will continue to do so. And indeed, it is for us very important investment, source of growth because this is where the market is turning to. I mean the second big engine for growth is what we characterize as everything related to rationalization of the operation for our clients, which is resonating very well with our business in operations. And no surprise, our business in operations, this business is growing double digit growth, so in excess of 10%. Here you have 2 clear engines for growth, very sustainable, very strong. Again, when I look at operations, it's not by surprise we invested heavily in some acquisition. If you take procurement, few years ago and more recently Procureon. And the third one when I said 2 plus 1 because this one is more lumpy as David would say is around the large scale transformation programs. Every year we have a number of large scale transactions because this is the specialty of Accenture and we benefit from these 3 engines for growth. So we will continue moving forward to invest both in digital and both in our rationalization capabilities, if you will, especially around application services growing double digit and operations growing double digits. And we will continue having our large scale transformation programs. Okay. The other thing I just wanted to touch on, you mentioned that big ERP is kind of an opportunity you're coming back. And I wanted to make sure there was a kind of, I guess, a clarification point on that. Are you talking about your partnerships now with cloud based ERP implementation? Or is this legacy ERP? And then if it's legacy, can you just talk a little bit about what's the nature behind that now? Would you think that that would be shifting away from that? Thanks. Both. We are extremely pleased with the traction we're getting and I forgot to mention 1. We are already leading on HANA implementation with SAP on a global basis. So the new ERP, ANA based solution cloud enabled and we already are the number 1 in implementing the solution in the marketplace. But we see as well the more classic legacy ERP to support the global expansion on very large clients. And I have in mind 2 or 3 recent situations where we've been winning some very significant ERP in finance and accounting in supply chain to support the transformation and the expansion of leading global groups. And for these groups, you need the more classic, I would say, backbone that might be around Oracle, that might be around SAP or that might be around Microsoft. And we see a few coming back coming back again. And as we speak, at least I have 3 illustration in my mind coming in Europe for very large global group and very large ERP. So we're pleased with that business. Of course, the digital related services are hyper growth, are driving the growth and this is where we are investing. But we're pleased with where we are with our ERP business, which has been stabilizing these last quarters. Excellent. Thank you. Thank you. Our next question is from Jason Kupferberg with Jefferies. Please go ahead. Good morning, guys. Thanks. Good morning, Jason. So maybe just to finally put the gross margin questions to bed. So I think all that extra color around the different buckets of costs on the COGS line was very helpful. But given that there are these other buckets of costs outside of underlying core contract profitability, are you basically telling us that the trend of year over year decline in gross margin will probably continue because of pressure from those other areas? Or do you think that we're closer to sort of a stabilization point in terms of year over year trend in gross margin? And the reason I ask and again I appreciate the focus on operating margin, but just so that we get the models kind of tuned right and it may mitigate the need for other questions like this in the future? Yes. I think and by the way, I appreciate these questions because I know what you're trying to do and connecting the dots. I mean, what I would say is that, I'm not going to comment specifically on gross margin guidance because we really guide to operating margin. But what I'll say is that if you look at contract profitability as a factor, we're all we are forever focused on improving our contract profitability over time. And that will be an objective for the remainder of this year just as it's an objective every year. And so we're always focused in challenging our teams to improve the profitability of the portfolio of contracts that we're doing in our business. When the other thing when you said I think you said it would be a headwind or it would be a drag. It's not again, some of these things are investments. And we wouldn't view that as a negative thing if it's in the context of expanding operating margin. And so I'm not suggesting that we just completely ignore. We do look at the functional areas within our GAAP P and L, but what we're really managing to is operating margin. And if we're expanding contract profitability, let's say investing more or rewarding people more or whatever the element may be in gross margin and at the same time expanding operating margin that's all about by design. We're not solving to expand gross margin. We're solving to expand operating margin. And fundamentally underneath that, we are focused on improving the profitability of the work we do with clients. And then we're also solving for investing in our business and in the context of those things driving operating margin expansion. If we do that that's what's most important. Okay. That all makes sense. And just to shift to the top line, which was obviously really strong here. And you did talk about the increased visibility leading to the uptick in the guidance range. So I know in the past you had given some actual percentages in terms of the percent of your revenue target for the full year that's actually under contract? And I was just wondering if you could give us where you stand on that percentage now versus maybe where you were a year ago? Yes. What I would say, we really got away from giving that number because it was one that we found was creating it was creating more confusion than it was helpful. What I will so I won't give a specific number, but I'll just characterize that we are we have a are very well positioned relative to the revenue are very well positioned relative to the revenue guidance range. Let me put it that way. And again, as we have been focused more and more on annual contract value that certainly gives us better contracted revenue visibility in the fiscal year. Okay. Understood. Thank you. Great. Thank you. Tom, we have time for one more question, then Pierre will wrap up the call. All right. Our final question today will come from the line of Bryan Keane with Deutsche Bank. Please go ahead. Hi, guys. Thanks for getting me in. So in the quarter, the 10% constant currency revenue growth was a few points above the guided range. And for the past few years, we didn't see Accenture really beat its current quarter range much. So I guess what would you point to that caused the upside surprise in the given quarter? Well, truthfully, it was broad based. I think that it wasn't one thing. It was really better performance across our 5 operating groups than what we had assumed even what we had assumed when we provided the guidance as we were working to be at the upper end. And I think as Pierre said, digital the level of growth in digital is just extremely strong. We had assumed it would be strong. It's very strong. Digital, operations, app services, those are all drivers and we saw elements of that across all 5 operating groups. And really you could say across all three areas. So it was broad based. But if there is one to close out for me, standing apart and which is probably overachieving and even taking us by surprise and it's good news is all about digital related services. This is a way we decided to ride. There is a strong plan. We want to take leadership position with Accenture Digital. We are now evaluated by the Gartner as the largest and the number one organization providing digital related services and in excess of 20% growth. It has probably taken us a little bit by surprise and this is the kind of surprise we love. Okay. And then just on the pricing front, I know I think it was 3 quarters ago, you kind of put a scare through the market talking about pricing pressure and application work. It doesn't really seem to be I can't see it in the numbers. So can you just comment that on that? And then just lastly as a bonus question since some last resources. So what are you expecting? Do you expect that vertical to get weaker in your guidance? Or do you expect it to maintain its growth? Thanks so much. Yes, let me just work backwards on resources. Our Chief Executive for resources is still very much focused on driving growth for the year. And we've made a lot of progress and we should acknowledge that team's efforts and what they've done to position the business going forward. So that continues to be our goal, but yet we have a close eye, very close eye on energy obviously. Back up what was the other question? Pricing. Pricing. On pricing pricing is stable. We've actually been pleased with the I think I can say we've been pleased with the pricing trends in the recent few quarters. I'm just going to characterize it as stable with some strength in certain areas of our business, but overall stable, but obviously in an environment that continues to be very, very competitive. Okay. Congrats on the strong quarter. Thank you. Thank you. Thanks a lot for the good question and thanks David as well. So thanks again for joining us on today's call. With the Q1 behind us and given the very strong momentum in our business, I feel confident about the year ahead and our ability to deliver our revised business outlook. Moving forward, we will continue to look at opportunities to invest in differentiated capabilities to position Accenture for growth New Year. We look forward to talking with you again next quarter.