Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Accentures first quarter fiscal 2020 earnings conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session and 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 Andrew Park. Please go ahead.
Thank you operator, and thanks, everyone for joining us today on our first quarter fiscal 2020 earnings announcement.
As operator, just mentioned and Angie Park, managing director head of Investor Relations I todays call, you'll hear from its really sweet our chief Executive Officer in KC Mcclure, our Chief Financial Officer.
We hope you've had an opportunity to review the news release issued a short time ago. Let me quickly outlined the agenda for today's call Julie will begin with an overview of our result, [laughter] Casey will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics first quarter. Julie will then provide.
Got a brief update on our market positioning before Casey provides our business outlet for the second quarter and full fiscal year 2020. We will then take your questions before Julie provides a wrap up.
Call.
I'm in the matters will discuss on this call, including our business outlook are forward looking an asset 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 in quarterly report on Form 10-Q .
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 provides useful information for investors. We include reconciliations of non-GAAP financial measures, where appropriate to gap in our news release or in the Investor Relations section of our website <unk> Dot com.
All Dollarssix interesting no obligation to update the information presented on this conference call now, let me turn the call it predicts usually.
Thank you and GE and thanks, everyone for joining US today, we are very pleased to announce strong financial results for the first quarter, continuing our momentum physically or 19.
We are especially pleased with our revenue growth of 9% in local currency well ahead of the market, which is broad based across all dimensions of our business.
We also delivered strong profitability and again return substantial cash to our shareholders.
Our strong results across industries, and geographic markets reflect the diversity and scale of Accentures business around the world.
Very well positioned to continue creating value for all our stakeholders.
We're off to a great starting Q1, and we feel confident in our ability to deliver another strong year in fiscal 2000.
Now, let me hand, it over to Casey, who will review the numbers.
Thank you Joe happy holidays to all of you and thanks for taking the time to join US on today's call. We were very pleased with our Q1 results, which were strong across all dimensions of our business and position us well to achieve our full year business outlook. Once again broad based strength of our results demonstrates.
The durability of our business the relevance of our services in the marketplace and our scale and leadership and the worlds largest and key geographic markets.
Our results reflect very strong execution against our three financial imperative for driving superior shareholder value.
Revenue growth of 9% in local currency was well above the top end of our got a branch for the quarter.
Growth was broad based across all dimensions of our business, but the majority of industries growing at a single high single or double digit rate.
Results continued to be driven by strong double digit growth in digital.
Allowed and security related services.
And our 9% growth represents continued market share gains as we extend our leadership position.
Operating margin was 15.6% for the quarter, an increase of 20 basis points importantly, we delivered this expansion while investing significantly in our people and in our business to position us for long term market leadership.
We delivered very strong area of $2, a nine cents, which represents 7% growth, which includes an FX headwind of about 2%.
And finally, we delivered free cash flow of 692 million and returned 1.2 billion to shareholders through repurchases and dividends.
We also invested 110 million in acquisitions in the quarter to bolster our skills and capabilities and strategic high growth areas of our business.
And we expect to invest up to 1.6 billion in acquisitions this fiscal year.
Now, let me turn to some details for the quarter.
New bookings were 10.3 billion.
Consulting bookings were 6 billion with a book to Bill of 0.9.
Outsourcing bookings were 4.3 billion with a book to Bill of 0.9.
This quarter, our bookings continued to be well balanced across the dimensions of our business and continued to be dominated by high demand for digital cloud and security related services, which we estimate represented more than 65% of our new bookings.
Overall Q1 bookings landed in the range that we expected and followed our historical pattern of lower bookings and the first quarter. As you know quarterly bookings can be lumpy and looking forward, we have a strong pipeline and expect strong bookings in Q2.
Turning now to revenues revenues for the quarter were 11.4 billion, a 7% increase in us dollars and 9% in local currency.
Consulting revenues for the quarter were 6.4 billion up 7% in us dollars and 9% in local currency.
Outsourcing revenues were 4.0, excuse me 5.0 billion up 7% in us dollars and 9% and local currency.
Looking at the transit estimated revenue growth across our dimensions.
Technology services.
Strategy in consulting services, both posted strong high single digit growth and operations continued its trend up double digit growth.
For the 24th consecutive quarter.
Taking a closer look at our operating groups H.M.P.S. grew 13% local currency driven by double digit growth in both health and public service, including double digit growth in North America in growth markets and strong growth in Europe .
Products grew 12%, reflecting continued strength in our largest operating grip with double digit growth in life Sciences, and consumer goods retail and travel services.
We continue to see strong demand for our services across all three geographies.
Resources grew 7% in the quarter with double digit growth in energy and strong growth in utilities overall, we saw double digit growth in both Europe and growth markets.
Communications media and technology delivered 7% growth, reflecting continued double digit growth in software and platforms with double digit growth in Europe and strong growth in growth markets.
Finally financial services grew 6% this quarter.
Insurance again grew double digits, and we saw continued improvement in banking and capital markets globally.
Overall financial services delivered double digit growth in growth markets and strong growth in North America, partially offset by contraction in Europe .
We expect to see continued challenges and banking capital markets in Europe , and the near term.
Turning to the geographic dimension of our business.
Im very pleased with a continued demand across all three of our geographic markets, which illustrates the diversity of our business, which continues to serve us well.
In North America, we delivered 9% revenue growth in local currency driven by double digit growth in the United States.
In Europe revenue grew 7% in local currency with double digit growth in Italy, Germany, and Ireland and high single digit growth in France.
And we delivered another very strong quarter in growth markets with 13% growth in local currency led by Japan, which again had very strong double digit growth. We also had double digit growth in Brazil in Singapore.
Moving down the income statement.
Gross margin for the quarter was 32.1% compared with 31.1% for the same period last year.
The marketing spend for the quarter was 10.5% compared to 10.1% for the first quarter last year.
General and amazed and administrative expenses were 6.1% compared to 5.6% for the same quarter last year.
Operating income was 1.8 billion for the first quarter, reflecting a 15.6% operating margin up 20 basis points compared with quarter, one last year.
Our effective tax rate for the quarter was 23.6% compared with an effective tax rate of 19.8% for the first quarter last year.
Diluted earnings per share were $2, a nine cents compared with EPS of $1.96 cents and the first quarter last year.
Day service outstanding were 43 days compared to 40 days last quarter and 42 days in the first quarter of last year.
Free cash flow for the quarter was 692 million, resulting from cash generated by operating activities of 787 million net of property and equipment additions of 95 million.
And our cash balance at November Thirtyth was 5.8 billion compared with 6.1 billion at August 31st.
With regards to our ongoing objective to return cash to shareholders.
In the first quarter, we repurchased or redeemed 3.8 million shares for 729 million at an average price of $189.65 per share.
Never Thirtyth, we had approximately 3 billion of share repurchase authority remaining.
Also in November we paid our first quarterly cash dividends of 80 cents per share for total of 508 million.
This was that this represents a 10% increase over the equivalent quarterly rate last year and our board of directors declared our second quarterly cash dividends of 80 cents per share to be paid on February 14th also a 10% increase over the equivalent quarterly rate last year.
So in summary, we were very pleased with our Q1 results and we are off to a good start in fiscal 2000.
Let me turn it back to Jolie.
Thank you Casey.
Our first quarter performance reflects continued strong demand for services as well as the disciplined execution of our growth strategy.
Accenture is uniquely positioned to partner with our clients to successfully achieve transformation across the enterprise.
We have unparalleled technology capabilities in ecosystem partnerships.
Industry and function expertise a focus on continuous innovation digital at scale, adding credibly talented people.
We create value for our clients from building out their digital core to helping them innovate across their growth agenda and realized significant value from optimizing their operations.
The new digital cloud and security is now our core accounting for about 65% of total revenues and we are focused on continuous innovation across these services.
In cloud for example.
We have more than 300 patents and pending patent application. We have 90000 cloud professionals and are the leading global partner of Amazon Web services, Google Cloud platform and Microsoft the door and I'm very pleased that we just launched my NAV a groundbreaking new platform.
Help clients accelerate their cloud transformation.
Identifying the right cloud solutions can be complicated. So the key is stimulating stimulating and testing scaled up model to quantify value and build the business case, giving clients confidence in the potential benefits to they can move forward quickly.
This is just another great example of our continuous innovation mindset, and how we drive speed to value for our clients.
Over the past human Ivan spending time in many of our key geographic markets around the world meeting with our clients are people in our ecosystem partners.
We have scale.
Three major market and we're the leader number one in both North America in Europe , and number three in growth markets, where we continue to rapidly gain market share as an example, we've reached scale in China with more than 17000 people and this is a key strategic market risks in our global client.
Let me double click on our major market.
Our eighth largest countries as we move around the world.
Yes.
The UK, Italy, Germany, France, and Spain in Europe , and Japan, and Australia in the growth market.
These countries account for nearly 80% of our revenues and they all generate a billion dollars a more an annual revenue.
Also our home to more than 85% of our 200 diamond clients, our largest relationships with the world's leading companies.
Our extensive global presence has always positioned us uniquely in the market to deliver best in class global programs for the largest multinational company.
And today it has created yet another competitive advantage, which is the ability to create value.
In scale by leveraging our global expertise.
Alert to the local context.
Leveraging our global network of more than 100 innovation hub that we build over the last few years, we can bring innovation from every corner of the world to our clients.
And while the scene of transformation is common across the globe.
Please out at the intersection of industry technology and geography.
We see growing and significant differences by country, while at the same time, our global footprint gives us the opportunity to leverage our learnings and our talent from around the world to accelerate outcomes for our clients.
Let me bring this to life with a few examples from our resources business.
The ways in which energy is produced.
And distributed are changing dramatically.
But the shape and pace at the change and the opportunities for Accenture are different around the world.
In Europe , we're working with clients in France, and Italy to help them succeed in the transition to a low carbon economy.
For us GE, the French multinational utility company, we are teaming with Salesforce and velocity in which we have a minority investment on a global unified CRM platform for more than 15000 employees.
The new platform gives us a common intelligent view of its customers across more than 70 countries and empowers employees to strengthen customer relationships and provide personalized recommendations to support rgs, new zero carbon transition strategy for the Fortune Global 500.
In Italy, we are collaborating with no which operates the largest gas transmission network in Europe to identify internet of things technologies on the Microsoft absorbed platform leveraging connected devices as well as machine learning artificial intelligence and advanced analytics to optimize.
The monitoring and meat.
Energy infrastructure to make smarter and more sustainable as well as more efficient.
In the United States, we're working with southern company gas and electric utility, which is building the first new nuclear reactor in the US 30 years.
Partnering with Southern company Accenture built a new cloud based construction work management system on the Amazon Golf club platform from scratch and just six months.
This enabled southern company to expand and accelerate plant construction as it strive to bring this clean carbon free energy production online for 500000 homes and businesses.
Let me pause for a moment and take a step back.
Each of these examples demonstrate the power of our unique business model, which spans services from strategy to operation with digital and technology at the core.
This enables us to create the multidisciplinary teams that are needed to not just creative vision of transformation.
But to execute and scale and gives our clients confidence that they will achieve real value.
If you think about the environment our clients are navigating.
Unprecedented change the need for speed and major investments to drive their enterprise transformation.
Our unique model and capabilities give us an incredible competitive advantage to be the partner of choice for the world's leading.
Now, let me turn to eccentric greatest undeniable strength, which is our people.
During the first quarter the number of Accenture people surpassed 500000.
Significant milestones.
I want to thank each and every one of them for their incredible commitment and dedication to serving our clients.
As always we continue to strengthen our leadership team, which now includes more than 8000 managing director.
Delighted that earlier this month, we promoted 787, new managing directors and senior managing directors.
Including a record 260, new women managing directors accounting for 36% promotions to this level.
And before I turn it back to Casey I, just want to mention some of the great recognition. We recently received for our long term success and cutting edge capabilities.
We are especially proud that drogafive.
Which joined Accenture Interactive last April was named agency of the decade by at week, which characterize drogafive as a dominating creative for.
Interbrand ranked Accenture number 31 on a list of top global brands, our highest ranking ever.
Our brand value increased 14% for the second year in a row and I want to recognize Amy Poehler, our chief marketing officer her team and all our people that it's great work to continue lease strengthen the accenture brands.
With that I'll turn it over to Casey to provide our updated fiscal 20 business outlook Casey. Thanks, Jolie now, let me turn to our business outlook for the second quarter fiscal 20, we expect revenues to be in the range of 10.85 to 11.15 billion.
This assumes the impact of FX will be about negative 1% compared to the second quarter fiscal 19, and reflects an estimated 5% to 8% growth and local currency.
For the full fiscal year 20 based on how the rates have been trending over the last few weeks. We continue to expect the impact of FX on a result in us dollars will be approximately negative 1% compared to fiscal 19.
For the full fiscal 20, we now expect our revenue to be in the range.
6% to 8% growth in local currency over fiscal 19.
For operating margin, we continue to expect fiscal year 20 to be 14.7% to 14.9% a 10 to 30 basis point expansion of our fiscal 19 results.
We continue to expect our annual effective tax rate to be in the range of 23.5% to 25.5%.
This compares to an effective tax rate of 22.5% in fiscal 19.
For earnings per share, we now expect full year diluted EPS for fiscal 20 to be in the range of $7.66 to $7, an 84 cents for 4% to 7% growth over fiscal 19 results.
Full fiscal 20, we continue to expect operating cash flow to be in the range of 6.35 to 6.75 billion property and equipment additions to be approximately 650 million in free cash flow to be in the range of 5.7 to 6.1 billion.
Finally, we continue to expect to return at least 4.8 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to our shareholders with that let's open it up so we can take your questions Angie.
Thanks, Casey I would ask each keep to one question and a follow up to allow as many participants is possible asked the question operator would you provide instructions for those on the call.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press one none zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if you're using the speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you May press one zero at this time than one moment. Please for your first.
Question.
Your first question comes from the line of Lisa Ellis from Moffettnathanson. Please go ahead.
Hi, good morning, guys and.
Happy holidays.
Just wanted to ask question on acquisitions, I think Casey you mentioned, you're expecting to spend up to about 1.6 billion on acquisitions. This year can you just give a little bit more color on.
The expected contribution to revenue growth this year from acquisitions and then also what your you know what your focus areas are for M&A. Thank you, yes, yes sure. So.
Happy holidays to you to Lisa.
Certain of our expected contribution to revenue at full fiscal year 20 from inorganic we we continue to expect it to be about 2%, which was in the line of what we also had last year and in terms of focus areas of handed over to Julie Great. Let me give you color I am happy holidays to Lisa and thanks for joining.
Yes.
So our acquisition strategy continues to be centered really around three focused sales force focus areas. The first is scaling in the hot skill areas, where we see a big market opportunity. The second is continuing to add skills and capabilities in the new and then the third.
It is deepening our industry and functional expertise and as you might imagine acquisitions don't always fit exactly into one of those three they often cross those so let me just give you like a little bit a sense of just the three that we just.
Announced in the last few months, if you start in the U.S.
We.
Announced that we're buying we're acquiring clarity insights, which is a leading provider of data science.
And applied intelligence capabilities, they're very focused on three industries healthcare and financial banking capital markets and insurance, which are priority areas for us globally and in particular in the U.S.
And at the same time, they bring with them accelerators that will help us bring more speed to value for our clients and they're focused on one of our most important market. So they are helping us scale, where we already have scale, but it's a very hot area in applied intelligence, because it really crosses our services net.
If you move around the world and go to Europe .
Silvio, which we announced and expect to close actually just in a couple of days, which is headquartered in London. There a company that's focused on supply chain in manufacturing and particularly solutions on S&P and Desso systems, which are both important partners and so they are very much a part of our industry.
XTO strategy and at the same time, providing scale and functional expertise in core areas for us.
Sep Desso systems and supply chain.
And then if you move again around the world to China, where I was just there are few weeks ago. We're really excited about future move automotive I actually spent a few hours there myself really touching and feeling the work that they're doing in their digital and mobility service provider for the automotive industry in China, Inc.
Credibly advanced rate working with leading automakers, there and what's so exciting is not only does this acquisition help us really partner with our clients in China, but they are advanced services in what they're doing with the connected car, it's something we'll be able to leverage.
And bring is innovation all around the world because we have important clients, who are not only operating in China, but in the U.S. and Europe and so thats just sort of gives you a flavor and as you can probably tell him.
So enthusiastic about what our team is delivering here because it's very much targeted at on making an impact close to clients in our markets around the world, but also bringing us skills that we can leverage around the world.
Terrific. Thank you then maybe just for my follow up I know this is the time of year, you're in a lot of discussions with clients around your 2020 programs with them. What are you seeing that's going to be different about 2020 in terms of the types work, you're doing with clients compared to 29 team. Thanks.
It's very much more of the same in the sense of enterprise wide transformation.
And then a focus on innovation, particularly around the growth and agenda, and then continuing to optimize operations.
And that really that's been the theme and it continues to be the theme in fact, I think that September onest I've met with over 100 C suite executives.
And I'm very confident of.
That we have a pull on the demand and that we have the capabilities they need.
Your next question comes from the line of drill Super easy from Cantor Fitzgerald. Please go ahead.
Hi, I'm wondering if we don't we could talk about the cadence on bookings I know that weve.
And you said many times in the pass it can be lumpy, we saw a little bit light ending I guess or this quarter. So maybe you could talk about how you see the cadence and what we should expect from a seasonality perspective.
Sure Hey, Joe Thanks for joining yes, you're right you've heard us talk.
About I mean, you know us very well you know that our history of bookings you do see Lumpiness I think really the most important thing.
We.
That's within that is that we're very pleased with that demand for our services in the marketplace.
And if you think about that in the backdrop of bookings. So we're coming off a quarter Q4, which was a record bookings quarter and that was a record by more than 1 billion.
We had strong bookings came in the range that we expected in quarter, one right and we talked about that last quarter, we tend to have a seasonally lower quarter in Q1. So again this met our expectations.
And it very importantly, we have a strong pipeline and we see strong bookings in quarter two.
And I think the other part on demand that's important and.
And you saw this in our results in the first quarter as well is that we had broad based demand in our revenue right and we far exceeded the upper end of our guidance by more than $160 million. So you'll see that bookings demand in the demand in the market coming through our bookings both in terms of what we've done last quarter.
Bookings coming in the range that we expected this quarter strong pipeline with strong bookings expected in quarter, two as well as broad based over delivery of our expected range and the first quarter and revenue, which allowed us to increase our revenue rate for the year.
Got it and then maybe you could talk a little bit about your expectations from a demand perspective across the verticals and the geographies.
Particularly interested in financial services, and what's going on with the European banks.
But any color you know from a very high level across those chosen verticals would be very helpful and happy holidays as well.
Hi, Joe This is joy.
Happy holidays, so maybe just kind of going across let me just start with financial services rates on the financial services side as you say in Europe continues to be a challenging market in the industry and for us and so we expect that we're going to continue to face challenges there, particularly in the UK.
Right.
But overall, our financial services business. If you look at North America, and the growth from our market remains robust right, but we continue to expect challenges in Europe .
If you just look at Adam and take it up alleged across the dimensions of our business in our industry's North America delivered very strong results. We are seeing continued momentum there.
Very strong business in Europe , and so while we've got.
Pockets of pressure in financial services and the other area I would call out in Europe is we have seen pressure in industry and automotive.
But otherwise Europe remains.
Strong business and in fact 12 out of 13 of our industries this quarter had positive growth.
And then the growth markets keep keep being strong really across across the board.
The only other place of pressure that I would call out was in North America. We did also see not surprisingly some pressure in industry and automotive.
Your next question comes from the line of tune Jun Wang from JP Morgan. Please go ahead.
Thanks, Good morning, good revenue acceleration here I wondering first ask on gross margin expansion and actually is one of the.
Largest increases we've seen us sometimes just with model here would you attribute.
Large expansion to and then same thing on US today, that's been goes up should we assume that that's driving some prospecting and.
In deal pursuit costs, given your positive comments on consult on bookings.
Yes.
So thanks, Thanks for the question and Hello to engine in terms of how we look at our business as you all know we first while we start with looking at operating margin.
And because the way our payroll costs works as you well know to engine based on activities that we have people doing from quarter to quarter and the demand that we see in the marketplace.
You can see differences and the different segments. Our income statement. So as it relates to the gross margin increased this quarter. It is tied to the sales and market what's happening in sales and marketing, where we have more people out working our pipeline. So that will help our gross margin and then you will see the offsetting impact.
Sales and marketing and you're right that does tie in to the statements. We made of having continued to have very strong pipeline. Okay. Thats helpful. Just real quick you don't just on the consulting revenue growth that has been improving here and I guess widening the gap to your consulting bookings growth for pad and what explains the.
Faster conversion. Thanks for the second question appreciate it yes, yes, so we really haven't seen any change in conversion to engine of our of our overall bookings just overall to revenue.
That can be within a range and that can vary so if as we look at what we've done in consulting bookings, we feel very good with our bookings for the quarter as well as our pipeline.
See also strong bookings in quarter, two as well it consulting and if you look at what are our production of our bookings in relation to revenue.
We look at that over a prolonged period of time and so we're still in the zone that we like which is a book to bill ratio of about one point, though.
Yes, Hi, Loulo nice to talk to you and I would say as we talked about last quarter.
The revenue side, we're very pleased with mid to high single digit growth you're going to some quarter through mid you have some quarters here in the high growth. That's the zone, we want to being because the context, where our strategy consulting business you need to look look at it in the context of our overall business.
Big drivers of growth or the fact that we can bring together these multi disciplinary team to drive enterprise wide transformation right that is our huge competitive.
Advantage, it's the demand that we see in the market right and it's our ability to actually go from strategy. The operation to field. These teams that really is what is it drives big growth in our business and of course that at the core we've got the digital technologies. So we look at our strategy.
Insulting business in the context of the needs. We are trying to fulfill for our clients, which are very much around these multidisciplinary teams that span our services, which frankly nobody else can do right at our scale.
Your next question comes from the line of Darrin Peller from Wolfe Research. Please go ahead.
Thanks, guys.
I'm going to see the headcount where it is right now and so quickly comment on.
Our thoughts on talent management and going forward from this kind of a level your ability to higher what you need which you've always been obviously extremely strong at.
And then maybe just comment on the linearity in the model now maybe looking forward given where you are around the new in the type of revenue.
Sure.
But with our philosophy right around people and size because.
Every time, we hit a milestone it's always can you keep doing it are you able to.
Kit the people and so first of all our philosophy is that.
We can continue to grow in size as long as were what are people are doing is the high value work that drives our financial objective right and so we're very focused on what our people are doing versus how many people we have because the size part of it is about our ability.
Manage and we're really good at that right like over the years, we've made the adjustments we've done the things we need to do to focus on our clients in our people and so the big focus for us is on.
What are what are people are doing which ties to the demand that we see in the market right. We are early innings of digital transformation enterprise wide transformation. We are constantly seeing new emerging Tech for example, I would take some great work with who Glock in Japan, where we're putting in one of it.
One of them a significant early examples of using block chain to drive their business are creating a platform that allows their customers to access other financial products, that's very new cutting edge right. We're still at the beginning so we see the demand for these new high value services still still quite.
Early then you look at the model itself is we don't see the model today as being linear I mean, one of the things that people often talk about as well you continuing to grow but underneath that is we've been automating we've been using people and their talents differently. I mean, we often talk about the automation front in our API.
Ration business, where there we we actually didn't let people go we automated and an upscale them to do the higher value work, but not just in operation you looking at our other assets. So we are constantly we don't have a linear model today, because we are constantly doing what we're doing for our clients is leverage.
During technology to change the mixture of how we are using tack and our people to again continue to focus on the at the higher value services and so.
We are.
Hopefully that gives you kind of the color for how we think about our model.
Yes, I know that is helpful. Just quick follow ups on pricing I mean again it seems like as you've trained your people to do the higher part of the the food chain, you're able to pass that through any any changes on that pattern or as pricing held off just given competition is also picked up for digital thanks, guys. Yes. So.
Pricing the environment for pricing remains competitive right and that's that's always the nature of the work that we do now within that we are able to see pricing differentiation in areas, where we are differentiated where we've invested and we do continue to see that we have pricing improvement in some areas.
Our business continuing in this quarter.
It's a constant focus for us and that really is the key part of the key first lever to really driving our margin expansion is pricing. So we are always we always have been and we'll always continue to be focused on driving pricing that the right value for the clients and Fourk Center.
Your next question comes from the line of Hershey to ROA from Bernstein. Please go ahead.
Hi, Good morning. Thank you for taking my question I wanted to ask about industry, Oh, it's relatively new business for you in somewhat early innings.
So can you talk about the joining interactive which was a new business for you. Many many years ago and now huge revenue contribution. So can you talk about that journey the lessons that and how you plan to go about scaling indices estado. Thank you.
Thanks, I should invest the it's a great question and we often internally talk about the analogies because as you'll remember with Accenture interactive that was a great that growth came from a mixture of ball inorganic and organic and very much fueled though by the power of Accenture. So even as we were bringing in.
As we've been bringing in skills and capabilities that we didnt have traditionally like a drogafive and before them monkeys and Kalorama. These creative agencies the value proposition for our clients is to take these other capabilities and prepare them with the traditional strengths of Accenture for example, and.
Building digital platforms and that is what has been able to drive the growth in Accenture interactive and as we look at.
Industry ex Dido. This is an opportunity for us to serve areas of the company that we serve today, but not as much at scale, just like with Accenture interactive we weren't as relevant to the CMO and as we are today once we've built accenture interactive as well as new business creation and.
Accenture and industry ex Dido well of course, we have served and we have practice.
It's still significant practices in manufacturing and supply chain industry ex Dido is really about.
The digitization of manufacturing the creation of connected products and then also these digital platforms in engineering around the software and well again, we're in just like Accenture interactive when we began were in parts of these what we're doing is we're adding the complementary skills.
That will allow us to take the power of Accenture and really scale and bring all of that to our clients who themselves are going through a whole change because manufacturing is now being digitizing and it's the it's the convergence of IP with operating technology and we expect.
To grow industry ex Dido as we have with Accenture interactive through a combination of organic and inorganic. So you saw us last year by companies like mine tribe and pillar in the U.S., which are all about connected products, we saw that future move acquisition I just.
Mentioned in China, which is about automotive and connected services Silvio and London, which is just the recent and that's really about digitizing manufacturing leveraging our ecosystems, but at the same time, we're building on.
The scaled digital and technology capabilities, which is what our clients need to do as we all go through which we see this transformation to digitize. These areas of the company that haven't been digitized and the same way that you have the customer front end.
Thank you very much.
Your next question comes from the line of David Koning from Baird. Please go ahead.
Maybe my first question just when we look back at some of the metrics you've given around the new.
In the percent of total revenue when we go back a couple of years. It looks like that was growing 20% to 30% in some of the legacy was declining maybe low double today. It looks like the new might be growing low to mid teens in legacy is actually kind of improve to maybe slightly declining im just wondering that pace of change what what might be.
Driving that.
And if thats, even the right way to think about it.
Yes, Hey, Dave so.
In terms of looking at the new I think really what.
But you're touching on is the growth rates that we've had.
Over the last few years and we continue to have very strong growth rates in the new and as you look at that scale right of our of our business, where you would anticipate that even we have very strong growth rates would slow a bit but again very very strong just based on scale and if you look at.
The other portion of our business, let's call it the non new or the core wait we continue to see that that is.
Stabilizing it's been decreasing as a about a mid single digit rate and Thats by design, that's our strategy.
And but it's been pretty consistent over the last few quarters.
Great. Thanks, and just one quick follow up just on accounting there was an other income line in Q1 that was about 11 million positive. This quarter last year that line was about 25 to 35 million negative all through the year was there a onetime item in Q1 and does that more normalized the rest of the year.
Yeah. So.
We did have this quarter, a small benefit below operating income where we had we indeed do have non operating income this quarter as opposed to what you saw in quarter one of last year, which was not income it non operating income non operating expense.
So as a reminder, last year, we adopted a new revenue.
New accounting standard that require that we marked our investments at fair market value and while we don't have a large investment portfolio. What you will see a davis from time to time that may cause a little bit more variability and what we have in non operating income and not operating expense.
And this quarter, we did have a gain in non operating income on some of our investments and not that was offset by some FX losses as well, but it was a net gain this quarter and non op and not operating areas and it will fluctuate probably slightly more than it has in the past really just because of that accounting change.
Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead.
Hi, guys good morning.
Just wanted to ask about the beat on the upside surprise.
For you guys was it in consulting.
In particular, because I know a lot of investors were concerned consulting was weakening and actually it strengthens. So just trying to figure out if that also surprised you guys or was there something else that created the upside.
Yes so.
We were really pleased overall with our revenue growth rate for this quarter.
Brian and obviously at 9% growth, which was like as you mentioned, a b to $160 million higher than we expected, but the other thing that we were very pleased with is the fact that it was also a broad based over delivery now if I had to.
Point out two areas in particular, I'd point to health and public.
The public service, particularly in North America, which was strong both in the health industry as well in the public sector industry and that's that's a statement overall for North America, including our federal practice.
And then also products that continue to have very soon and life sciences, as well as consumer goods retail and travel.
And so what you'll see us so we do and we continue expect Brian that we will have.
For the full year consulting in the mid to high single digits growth.
Outsourcing also in the mid to high single growth rate, yes, and when I was just as this is really that.
But again as I talked about earlier, although obviously, we look at strategy consulting Tech services in operations separately on report on that.
Remember that our focus really has been because of the demand we see in the market on our unique business model that brings these services together.
And so it's not so much you can't really for us the way we manage our business is not that weight. There is a big surprises strategy consulting because.
These give you the answer around industries in clients because.
A lot of our work is actually bringing all of these services together to meet the needs we're seeing in the market and so while we do.
Report this to give you that insight into the types of work.
When we are thinking about what's happening it's much more focused is only focused on clients what are their needs and how are we bringing these services together and that really is the power of Accenture is that we're able to bring these services together and if you think about what our clients need right now I mean.
As I said I literally in the last four months almost four months spent.
Tie in with over 100 C suite executives and top of mind for them is the importance of making sure the gun to get value.
And that's why they they.
Want to partner with US is because we're bringing the teams and were able to really give them confidence in outcomes and were able to point to the execution, we've done with other clients and demonstrate the value and that we're bringing that learning and I think particularly as we see this.
Inflection in the marketplace moving from.
Pilots in use cases to at this enterprise wide transformation multiyear programs, it's more important than ever that we're able to bring these services together for our clients.
That's helpful and just as a follow up on Europe , but it was up 7% constant currency make thats up from four last quarter.
Again, a lot of investor concern around Europe can you guys are showing an acceleration there you talked about I think 12 of 13 industries showed improvement so I guess I'm a little surprised to hear about that improvement can you just talk about broadly what's going on in Europe , and why you are seeing that improvement.
And I will maybe just reiterate a couple that the pointing in some of that you also mentioned so we were pleased with our our business in Europe . This quarter and we did have broad base growth and it wasn't 12 of third 12 of the 13 industries and importantly, with high single to double digit growth and nine out of the 13.
And so thats really important to us and Thats something that we're very focused on and we're very proud of the overall broad based nature of our business in Europe and the diversity that we have I think you'll see have been and continues to provide.
Some durability in that market now as we've mentioned we do continue to have a focus on banking capital markets to Europe , and Thats, particularly in the UK. So we do have some more work to do in that area and as also as Julie mentioned, we do have some.
Some pressure and industrials in the automotive as well in Europe , but I just would point back to the double digit growth that we had in Italy, Germany, and Ireland as well and so we're very focused on continuing in that market to drive the transformation that Jolie list was talking about.
That she sees and talks with all the C suite about it and her travel throughout the world.
Your next question comes from the line of Ashwin Shirvaikar from Citi. Please go ahead.
The JV you mentioned, Joe the five so I'm going to take to help on that one.
Obviously accenture spent many years drilling the various parts of that business, stating the expanding from the technology part creative.
Joe The fire. We recently won the Kimberly Clark childcare account and based on our checks year increasingly going head on the tradition of agencies for what I'd call Vhone shooting match.
Can you speak to what you're seeing there specifically and whether you think you're missing any pieces. So you can go in total accounts and and what the traction you currently have that is.
Sure well Kimberly Clark is a great example of what we see is the demand in the market which is.
Fourq a company to bring together not only world class creative but the digital capabilities well as the advisory capabilities to truly transform the customer experience right and you hear that term now a lot we believe where the.
Only company today that actually has all of the capabilities that are needed in order to deliver a very different customer experience and so while I know you you think of it as going up straight against the agencies. We think what we think about it is with the key.
Clients are looking for is not just the creative agency and you see that an industry is as the industry. The broader creative industry is also expanding into these capabilities.
The fact of the matter is.
It is very difficult to have creative.
Equally difficult have depth and breadth in the digital and technology capabilities that our clients need and so we believe that our competitive advantage here is to have.
Such strong creative capabilities, coupled with like just unparalleled digital and technology capabilities at a huge scale in every major market because remember accenture interactive we built around the world right.
And we've got it and I was in the studios in a in China, We Havent in Australia at across Europe .
As well as the U.S. So we're extremely proud of the work that Accenture interactive under the leadership of Brian will pull but his entire team have done that is powered by the rest of Accenture right. All of these skills and capabilities that is very hard.
For anyone to replicate in our view.
Got it makes sense.
The second question is say mentioned the.
The mental elements so non linearity in the model in the prior question on head Count Devaney thoughts.
What's the longer term impact on margins and cash flow if I can extend that question to those could those metrics.
Yes, so so ashwin in terms of how we think about those two elements right.
In terms of margin I think it's important to just point out that we always continue look for more modest margin expansion, but more importantly to us is that we're doing more than just the modest margin expansion as you well know that we that goes to our bottom line. We are doing more underlying margin expansion. So that we can infer.
Fast at scale, and our and our people and in our business for long term market leadership. So that's a key part and our free cash flow that continues to be of that Theres no change. There I mean this year, you'll see that we manage that part of our business by looking at free cash flow to net income ratio right.
And this year again, it's 1.1 to 1.2 and as you think about that why won't guide for that long term freak strong free cash flow will continue to be an anchor of how we run accenture.
Okay, and operator, we have time for one more question and then Julie will wrap up the call.
Okay. Your final question comes from the line of Bryan Bergin Bergen from Cowen. Please go ahead.
Hi, Good morning. Thank you I wanted ask a question on how the mix of your client counterparts have changed so if we think about enterprise budgets can you give me a sense how your revenue stream currently maps across the organization, whether its CIO of CMO budget world for local initiatives and the reason I ask this diverse diversify the business. So much over the last several years I'm just really curious.
How this has evolved and how you really are mapping across the various budgets now today.
Well I guess, what I'd say is.
If you think about what we're doing with respect to.
Example, accenture interactive.
That work is almost always a combination of marketing plus CIO, often plus the business units right because the work is not.
Really is around customer experience and so where the budget sits really varies by company and some companies you will have budget fit with the Chief Digital officer right. So what we our focus is less on the specific budgets in more how are we serving the different needs of the.
Enterprise. So if you just and you and remember we go back to really we think about it in three things have building the digital core so 40% of our business growing double digit today is in our intelligent platform services, our five big platforms, because that's all about nexgen platforms right. Similarly, our cloud.
Businesses. There then we have the.
Optimizing operations, so you've got to $6 billion scaled business growing high single digit to double digits, right, which is all about optimizing and.
Making sure that within the function as well as industries, they've got access to the best technologies into most efficient way.
And then on top of that you have the growth agenda like Accenture interactive, which is $10 billion, we announced last quarter.
With strong growth as well as the new areas like connected products and services and so we continue to focus. So there are big next focus area is industry ex Dido, which is growing on our historic work in manufacturing and supply chain to the new and really going after that part of the enterprise.
Hi, guys, along with the market because that's not digitize as fast as say customer experience and that's really how we think about the business.
Okay. That's helpful. And then just lastly, I heard your inorganic 2% you expect for fiscal 2000 was a close for that for Q1 as well happy holidays.
Yeah happy holidays to to Brian I mean, we we look at that over a full year. So I would say you know 2% inorganic for the full year is is the number that I would continue to focus on.
Okay. Thanks, Glenn so thanks, everyone again for joining us on today's call. We're very pleased with our strong start in fiscal 20, as you've just heard and we are well positioned to achieve our updated business outlook for the year.
We will stay laser focused on continuing our current momentum capturing the opportunities in the marketplace and creating value for our clients and all of our stakeholders I want to wish you all our investors and analysts and everyone at Accenture and your families. All the best for the new year.
And finally I want to thank each of our people around the world you are what makes accenture unique and special I'll see everyone on the road.
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