Q2 2020 Earnings Call
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The matters will discuss on this call, including our business outlook, our fourth black films and effect are subject to known and unknown risks and uncertainties, including but not limited to that's 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, and other SEC filings.
These risks and uncertainties could cause actual results to differ materially from those expressed in this call.
During our call 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 gap in our news release or in the Investor Relations section of our web site at Accenture Dot com.
As always Accenture assumes no obligation to update the information presented on this conference call now let me turn the call every digitally.
Thank you Angie and thank you everyone for joining US today, we're very pleased to announce our outstanding financial results for the second quarter and first half of fiscal 20.
I want to start by thanking our leadership team and all of our people for their dedication to our clients and to delivering on our commitment.
And it is because of our leaders and people that I have absolute confidence in our ability to adapt and successfully navigate the unprecedented global health crisis. The world is now facing.
I'm incredibly proud of how our leadership team and people have rallied in the face of this crisis and worked 24 seven to ensure the safety and well being of each other and to continue to serve our clients at this time of great need.
Casey and I know that you were keenly interested in understanding how the Corona virus is impacting accenture and our people.
First we're going to cover our starting point Casey will take you through Q2 results and I'll give you color on the strength of our business and our growth strategy as we exited H one.
Then I will specifically address the current environment in light of the krona virus and how we're managing the impacts.
Finally, Casey will give you our updated business outlook.
Casey over to you to go through our strong Q2 results.
Thank you Jolie and thanks to all of you for taking the time to join us on today's call.
Let me start by saying that we were very pleased with our overall financial results in the second quarter, which were aligned with our expectations and completed a very strong first half of the year.
Both our Q2 and each one results demonstrate the power of our highly differentiated growth strategy.
The key and 10 of our growth strategy is to create door ability and our revenue range at a level that is consistently above the market taking share and strengthening our position as a leader.
Against this objective we've created a unique footprint that includes scale and leadership and the worlds largest and most critical geographic markets and industries. This footprint along with our highly relevant offering.
From strategy and consulting to operations.
Is key to being a market leader and helping our clients the world's leading companies rotate to the NIM.
Now let me begin by summarizing a few of the highlights for the quarter.
Revenue growth of 8% and local currency was at the top end of our guided range for the quarter and reflected growth in 12 of our 13 industry groups with five grown double digit.
Revenue continued to be driven by strong double digit growth and digital cloud and security related services and broad based growth across our business dimensions.
We continue to expand our leadership position with growth, we estimated to be more than two times the market.
Operating margin was 13.4% increase of 10 basis points for the quarter and 20 basis points year to date.
Reflecting strong underlying profitability as we continue to invest in our business and in our people to position us for long term market leadership.
We delivered very strong EPS of $1.91 cents.
Which represents 10% growth compared to last year and includes a 1% FX headwinds.
And finally, we generated significant free cash flow of 1.4 billion in the quarter and 2.1 billion year to date, we continued to execute on our strategic capital allocation objectives with roughly 2.7 billion returned to shareholders via dividends and share repurchases year to date.
And we've made investments of 584 million in acquisitions, primarily attributed to 17 transactions and the first half of the year.
And we continue to.
Expect to invest up to 1.6 billion and acquisitions this fiscal year.
With that let me turn to some of the details starting with new bookings.
New bookings were a record at 14.2 billion for the quarter in surpassed our previous all time high by 1.3 billion.
We had very strong overall book to Bill of 1.3 in the quarter and 1.1 year to date.
Consulting bookings were 7.2 billion a record high with a book to Bill of 1.2.
Outsourcing bookings were also record at 7 billion with a book to Bill of 1.4.
We were very pleased with our new bookings, which represent 22% growth in local currency and reflect our unique position in the market and continued strong demand for our services.
Bookings 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 in the quarter.
Turning now to revenues revenues for the quarter or 11.1 billion, a 7% increase in us dollars and 8% in local currency.
Consulting revenues for the quarter were 6.2 billion up 7% in us dollars, an 8% in local currency.
Outsourcing revenues were 5 billion up 6% in us dollars, 8% and local currency.
Looking at the transit estimated revenue growth across our dimensions strategy consulting services posted strong high single digit growth.
Technology services grew mid single digits and operations continued its trend of double digit growth.
Taking a closer look at our operating groups.
HCP Athleta, all operating groups with 15% growth in local currency driven by double digit growth in both health and public service.
Double digit growth in North America was driven by our U.S federal business.
And we also had double digit growth in growth and the growth markets.
Products grew 10%, reflecting continued strength and our largest operating group with double digit growth and life sciences consumer goods and services as well as retail.
We're very pleased with a double digit growth in both North America and growth markets.
Communications media technology delivered 5% growth, reflecting continued double digit growth in software platforms, we had strong growth overall and the growth markets and solid growth in both North America in Europe.
Resources grew 5% in the quarter driven by double digit growth in energy.
With double digit growth and chemicals in Europe, and the growth markets.
Overall, we saw double digit growth in the growth markets and strong growth in Europe.
Finally financial services grew 3% this quarter with solid growth in insurance.
We continue to see modest growth in banking and capital markets globally with strong growth in North America and in the growth markets.
And continued declines and banking capital markets in Europe.
Overall in financial services, we continued to see double digit growth in the growth markets and strong growth in North America, partially offset by contraction in Europe.
Turning to the geographic dimensions of our business in North America, we delivered 11% revenue growth in local currency driven by double digit growth in the United States.
In Europe revenues grew 2% in local currency with double digit growth in Germany, Italy in Ireland offset by a decline in the UK.
And we delivered another very strong quarter in in growth markets with 11% growth in local currency led by Japan, which again had very strong double digit growth as well as double digit growth in Brazil.
Moving down the income statement.
Gross margin for the quarter was 30.2% compared with 29.2% for the same period last year.
Sales and marketing expense for the quarter was 10.4% compared with 9.8% for the second quarter last year.
General and administrative expense was 6.4% compared to 6.2% for the same quarter last year.
Operating income was 1.5 billion and the second quarter, reflecting a 13.4 operating margin up 10 basis points compared with Q2 last year.
Our effective tax rate for the quarter was 17.1% consistent with the effective tax rate for the second quarter last year.
Diluted earnings per share or $1.91 cents, an increase of 10% from EPS of $1.73 cents in the second quarter last year.
They service outstanding were 39 days compared to 43 days last quarter, and 40 days and the second quarter of last year.
Free cash flow for the quarter was 1.4 billion, resulting from cash generated by operating activities of 1.5 billion net of property and equipment additions of 165 million.
Our cash balance at February 29 was 5.4 billion compared with 6.1 billion elegant 31.
With regards to our ongoing objective to return cash to shareholders.
The second quarter, we repurchased or redeemed 1.7 million shares for $970 million, an average price of $206.73 per share as of February 29, We had approximately 2.8 billion of share repurchase authority remaining.
Also in February we paid our second quarterly cash dividends of 80 cents per share for a total of $511 million.
This represented a 10% increase over the equivalent quarterly rate last year.
And our board of directors declared our third quarterly cash dividends up 80 cents per share to be paid on may 15th.
Also a 10% increase of the equivalent quarterly rate last year.
So at the halfway point of fiscal 20, we have delivered very strong results.
Even in the current environment, we remain extremely focused on achieving our long standing financial objectives.
Turning faster than market and taking share.
Generating modest margin expansion, while at the same time invest and get scale for long term market leadership.
Generating strong free cash flow.
And returning cash to shareholders.
Now, let me turn it back to Julie.
Thank you Casey.
So as we reflect and where we are for the first half we delivered record bookings of $24.5 billion revenue growth of 8% in local currency 20 basis points of operating margin expansion and 8% increase in earnings per share and $2.7 billion in cash rich.
Turning to our shareholders, which means we exited H one in a clear position of strength.
Delivering outstanding results, taking market share and continuing to successfully execute our growth strategy.
In each one we continue to see how our unique business model, which spans services from strategy and consulting to operations resonates with our clients, who seek speed to value and our unparalleled digital and technology capabilities ecosystem partnerships.
Deep industry and functional expertise and incredibly talented people are making the difference.
Let me give you color on the demand we saw from our clients in Q2 and each one overall.
This quarter, we had eight teen clients with new bookings over $100 million and operations hit a milestone of 25 consecutive quarters of double digit growth.
Let me double click on operations.
First of all congratulations to the entire operations team on this remarkable achievement.
In operations, where we continue to lead the market at nearly twice the size of our largest competitor we have unparalleled capabilities to create value for our clients by delivering tangible business outcomes at speed by leveraging our sin ops operating engine.
This engine uses a truly unique approach combining data applied intelligence and emerging technologies with human expertise to reinvent business processes and enable intelligent operations.
It allows our clients to reduce costs and to achieve technology enabled enterprise transformation faster by using our engine rather than investing to build their own.
Our operations capabilities span the enterprise from finance HR marketing procurement supply chain and digital manufacturing to industry specific offerings, such as banking and insurance operations Health came health claims operations and trust and safety, which is doing the vital where.
Work of helping to keep the internet safe.
And the power of our operation services also comes from our unique business model, which allows us to bring multidisciplinary teams to create new value for our clients.
For example, Accenture was recently named agency of record for Kimberly Clarks Baby and child care segment, a huge win for Accenture interactive and their drogafive creative team combining creative talent with our unparalleled operations compete capabilities was.
Key to our success, enabling us to deliver customized local market driven experiences powered by data and technology.
And we are so proud the Drogafive was just recently named by fast company as one of the world's most innovative companies.
Our industry expertise across our 13 diverse industry groups also continues to be a core competitive advantage, allowing us to bring deep industry and cross industry knowledge, coupled with our technology, including our ecosystem relationships and applied intelligence.
Capabilities to help our clients tap into new opportunities for growth.
For example for Kate.
The Japanese telecom operator, we are leveraging our data and analytics capabilities, the ADW us platform and knowledge of the industry to grow their core business by improving customer retention and expanding services for existing customers.
At the same time with our broad industry expertise, we are uniquely positioned to partner with KBB.
To help transform their business by expanding beyond telecom and to the banking insurance electricity in automotive sectors.
Finally.
As always let me highlight how our continuous innovation approach is driving our business.
Last year, we launched living systems, a new approach to I T and business transformation.
Living systems is an innovation multiplier that creates value for our clients through a series of transformations, including organizational technological and talent in an agile way well efficiently managing applications and infrastructure for our clients it fundamentally shifts.
ITD be measured by business outcomes, rather than traditional metrics. This offering continues to gain momentum in the marketplace across multiple industries.
For example, we're partnering with Cortiva the major global Agra Science company to enhance its performance through our living systems approach, we leveraged Accentures My Wizard platform and analytics to enable cortiva innovative product driven I T organizations will activating savings that funded essential prop.
Our next during its first year as a public company.
Innovation is core to our growth strategy and is in the DNA of Accenture.
We just released our Accenture technology vision for 2020, marking the 20th anniversary of this annual thought leadership piece on the most important technology trends for the next few years.
This is where we first predicted in 2013 that every business would be a digital business and today digital is everywhere. It is the core of our business and our clients business.
This year's research explores how enterprises need to think differently and reimagine their fundamental business and technology approaches in a responsible human centered way in order to deliver on the full promise and value of digital.
Finally, we are incredibly proud that eat the sphere recently recognized us as one of the world's most ethical companies for the 13th consecutive year and Fortune included Accenture under loose to best companies to work for in the US for the 12 consecutive year breaking his number 41 of significantly.
A number 61 last year.
Let me now turn to the current of Iris.
We currently have two priorities, the safety and well being of our people and continuing to serve our clients at this time of critical need.
In addition to our exceptional leaders in people and strong financial hand.
We are well positioned to address the impacts of the growing global health crisis due to five key factors.
First our global Management Committee already operates our business as a virtual team we do not have a headquarters our top leaders are spread across the globe and Accenture has operated this way as a management team for over three decades, and so mobilizing to address the.
No one has been seamless.
Second.
We have a standing crisis management Committee, which is led by our Chief operating Officer Yoda bar one of our most experienced leaders.
As designed we were able to quickly activate our protocols and a team of our most senior leaders, who under the leadership of Yeo and with support from across Accenture has done what can only be called a truly remarkable job.
We've had these protocols in place, which we have tested and we tested for years through real and simulated crises and they are focused in our people business continuity facilities management and financial impact among other things.
While we have not plans for a global pandemic the ability to trigger these protocols and then adapt for this unprecedented situation is allowing us to move rapidly.
For example, we have restricted travel and asked people to work remotely from home where possible.
As of today globally, we have already enabled a very significant percentage of our people to work from home, including 60% approximately 60% of our people in our centers in India and the Philippines.
And to give you a bit more color on how our crisis management team is operating some of our work cannot be done from home given the nature of the work and some employees do not have the ability to work from home.
And these cases, we've reduced the density of the people in our offices and centers and instituted extra hygiene procedures and social distancing protocols.
We are working closely with our clients every step of the way as they also adapt to remote working environment and to date have not experienced any material service interruptions.
Third we are deeply experienced in working virtually and already have deployed at scale in the normal course in our business collaboration technologies and infrastructure for remote working.
For example, we're the largest user of teams by Microsoft in the World.
And in the last few weeks as we rapidly ramp more people working remotely from home teams audio usage has almost doubled from our typical 16 million minutes per day to almost 30 million minutes per day.
We are using our deep experience of working together virtually across accenture and with our clients to help adapt how we work together from home.
For.
Our strong corporate functions and investments we've made to digitize Accenture has always been key to our attracting and retaining talent and operating accenture with rigor and discipline.
Our top notch professionals and finance HR operations geographic services marketing and communications and CIO enabled by these significant investments in our own digitization are making the critical difference and how we're responding with agility to the crisis and we are deeply grateful.
For their educate for their dedication and hard work.
Finally, as our record bookings in Q2 demonstrate our services are highly relevant to our clients are rotation to the new over the last several years now at over 60% of our business, our deep client relationships with the world's leading companies in our unique business model.
We will enable us to help our clients succeed in this uncertain period and continue to position us strongly the long term.
With that I'll turn it over to Casey to provide our updated business outlook Casey. Thanks, Julie before I get into our business outlook I would like to provide some context. The corona virus crisis is rapidly evolving and has created a significant amount of uncertainty.
Our third quarter in full year guidance reflects our assumptions as of today based on the best information we have regarding the potential effect of the current embarks on our business.
There are a number of factors that we may not be able to accurately predict including the duration and magnitude of the impact.
As well as those factors described in the quarterly filing we made earlier today.
I would also like to point out that our guidance assumes a higher degree of impact to our financial results in Q3.
With some improvement in the business environment in the fourth quarter.
Either due to an improved situation.
Or our clients, having adjusted to operating in a new environment.
With that said, let me now turn to our business outlook.
For the third quarter fiscal 20, we expect revenues to be in the range of 10.75 to 11.15 billion.
This assumes the impact of FX will be about negative 1.5% compared to the third quarter of fiscal 19 and reflects an estimated negative 2% to positive 2% growth in local currency.
For the full fiscal year 20 based on how the rates have been trending over the last few weeks. We now expect the impact of FX on our results in us dollars will be approximately negative 1.5% compared to fiscal 19.
For the full fiscal 20, we now expect our revenues to be in the range of 3% to 6% growth in local currency over fiscal 19.
Our operating margin, we now expect fiscal year 20 to be 14.7% to 14.8% at 10 to 20 basis point expansion over 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% fiscal 19.
For earnings per share, we now expect full year diluted EPS for fiscal 20 to be the range of $7 in 48 cents to $7 in 70 cents or 2% to 5% growth over fiscal 19 results.
For the full fiscal 20, we now expect operating cash flow to be in the range of 6.15 to 6.65 billion property and equipment additions to be approximately $650 million.
Free cash flow to be in the range of $5.5 billion to $6 billion.
Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1 to 1.2.
Finally, we continue to expect to return at least 4.8 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 that we can take your questions Angie focusing fee I would ask each keep to one question in a follow up to allow as many participants as possible to ask the questions. Operator would you provide instructions for those on the call. Yes. Thank you ladies and gentlemen, if you do wish US a question. Please press one that then.
So on your Touchtone phone, you'll hear a tone in the can you've been placed in Q. If you wish to remove yourself from Q U can press one zero again.
Our first question is going to come from the line of hedging the phone. Please go ahead.
Great. Thanks, Thanks, so much hope everyone is.
Safe and healthy I wanted to ask on the.
Ask on your commitment to protect earnings if they recession is.
As longer than than expected and curious what levers relievers you have.
There might be different than the credit crisis.
On to protect margins if demand.
Couple of weaker than expected. Thanks.
Yes, thanks to engine and.
Thanks for taking time to call in today. So we we talk about margin expansion and earnings. We've all heard me talk about in the context of a few lever. So let me talk about that as it relates to how we're running our business now and how we think about that.
As we go forward in the in this environment. So I'll start with pricing Weve, you've always heard me talk about how earnings expansion really starts with pricing. So if we look at where we were pre crisis. The first half of the year, our pricing and Q2 was relatively stable. So in this environment. We're fortunate to have our Klein executive.
If you have long standing relationship with our clients.
And they know how to help our clients navigate this uncertainty, but they also know how to ensure that we're making the right arrangements for both them and for US. So we still have a focus on pricing. The second thing that we've talked about in terms of margin expansion is how we're going to continually invest intent.
And that continues to be with what I consider we consider our competitive advantage for us.
So even we'll be able to continue to expand margins, while we invest in our business and you've heard me say today that we continue to expect to invest up to $1.6 billion.
In acquisitions this year, we've already committed.
1.1 billion through to date, so we have the ability to invest another $500 million.
In acquisitions should those opportunities arise so were to continue to invest and we're also going to continue to invest in our people.
We're going to make sure that we have the capabilities our clients need.
Both today and the future and we are going to invest for their people can develop the skills that they will need for today and for tomorrow.
In terms of what is a specific margin lever to engine that we would have now I'll just point to.
The health that we will get from not not traveling right. So even in a virtual organization like ours, you heard journal Julie talk about the status of how often and how much we use team.
We still with 500000 people have significant travel costs.
And we do see that decreasing as a result at the current environment and that is something that is unique during this time period that does help support our margin expansion.
Got it another makes sense on the travel Port point, maybe maybe just a quick follow up really helpful comments around your business continuity. Just curious does your guidance reflect any sort of maybe inability to deliver against.
The bookings in your sign contracts I'm, just curious if theres any sort of plans there anything specific that we should be aware of on the on the continuity side. It sounds like not but just wanted to make sure.
Yes. So so let me maybe take that take a second just explain how we arrived at our guidance overall until we will talk about a lot of the continuity. The continuity question that you have to engine. So I think first of all its important to to step back and take a look at our trajectory for our year prior to the credit virus.
As you heard Julian I talk we exited H, one with very strong momentum and we were on a path to be the top end of our previous annual guidance range of 6% to 8% and at a minimum we would have been reconfirming all the other elements in our guidance.
But obviously things are different and let's talk a little bit about how we arrived at our guidance.
And it really affect.
Reflects how we manage our business today.
So we took a look at our business from an industry a geography.
Type of work specifically the various services that we offer and then we analyzed the potential impacts from these unprecedented circumstances such as you know.
Working from working remotely this scale for us and for our clients and the fact that there will be more impacts and various industries and others.
And then based on those impacts we recently estimated what we saw today.
As being the impact in our business in the second half of the year.
So as a result of that we lowered the top end of our previous guidance range from 8% to 6% as you have seen and given the uncertainty tension. We also as you saw broaden our three point range broaden Trythree point range for the full year and also for point range for Q3.
There is an important thing that's on the other side of the travel discussion that we just talked about as relates to margin debit card, Texas the impact of lower.
Lower travel on our revenue that's really important as you look at our lowered guidance range for the year. So one of the importance is the importance of that on revenue is.
I understand that we will have a significant decline and our travel reimbursement revenue.
And for the full year that could be a full percent.
So really its could be as much as 2% in the second half a year of the year. So that is really reflected in the guidance range, where we said or accident.
Negative two to positive 2%.
And also it's important to understand that that is disproportionately weighted to our consulting type of work probably as you would expect and lastly, before I hand, it over the Jolie I do want to just mentioned probably the most important thing as we continued to be laser focus on our clients. During this time.
As Julie mentioned in her script, we're clearly the fabric of our clients business now more than ever doing mission critical work. We are an integral part of their operations and we're partnering with them.
They need.
We know that the fundamental drivers our business will continue to create tremendous opportunity for us in the long term and we're very confident and our positioning in the market.
So thanks for let me take little bit timed us maybe expand a bit on guidance because I thought it was important given the environment and I handed over to Julie to talk about.
Neely.
Sure I am really what I wanted to take you through contingent makes where the question because clearly.
The way we've updated guidance is we're expecting that our business is going to evolve differently for the next two quarters a for a whole host of reasons rate. So I think maybe what might be most helpful. As to kind of give you. Some color on what's really happening on the ground with our clients and there's really three sets of activity.
Is right now right. So the first is our clients are focused as a first priority on the safety of their people an adjusted to the need to have remote working right, which for many of our clients is very new and we're helping many of our clients make that adjustment. So for example, we have a client.
Who asked us literally to go and we partner with Microsoft to do this to go from zero people using teams in five days it will be six theres their entire 61000 workforce right. So in five days zero to 61000, right and so as we look at it our clients are very much focused on how to adjust.
To remote working and thats easier or harder depending on the nature of the industry and the kind of work and at the same time is responding to the crisis you have our clients for example in the public sector.
We are having to respond not only for their own workforces, but to what they need to do for the public. So for example, with working working with some of our public sector clients to deploy more virtual agents that are pre configured with Covance 19 advice to continue to free up capacity to add to the more critical.
Questions and our call center right. So the first is safety of their own people and adjusting to this new environment, where they have to have remote working and and make decisions about that.
The second activity are really focused on mission critical services rate that of course it varies by company, but if you look at the work that we're doing with our clients were working very closely to them on mission critical services like we do the settlement of services trades major banks, we do.
Payroll services, we support many different health care services, we're doing trust and safety services services, keeping the internet safe right. So there's a big focus in this first phase.
On mission critical services, working together with our clients being able to do that in some cases remote in some cases.
Continuing to go into the centers and then the third thing that's going on with our clients in parallel of course is the assessment of the impact on both the global health crisis, and the disruption in the economy and what's been happening with the travel restrictions the restrictions and people needing to stay at home.
In some cases sheltering in place now as you might imagine that assessment occurs along two vectors.
It comes at the intersection of industry technology and geography.
As well as the individual circumstances of the of the client right and so to give you some sense of the variety right I have a client in utility energy.
Utility industry that is of course dealing with the macro environment, but in my discussions with the the CEO. Just this week. The first question was how do you feel accenture about your cobot 19 arrangements because you do a lot of work for US and then we went right back to our usual touch point on the ERP system that we're putting together, which they.
Consider to be mission critical for how they operate right.
The other side of the spectrum you have.
A client in the industry and automotive industry that has been hard hit we're executing our strategy beautifully there because we're helping them with enterprise transformation right, they're making choices in this environment given what they're facing so in that case for example, they said look our HR transformations.
Michael we may need to and are likely to postpone the finance transformation and they're working with us.
There are other partners as they make the essential choices you would expect in this environment right. If you go to a consumer goods.
Client that is expense.
Less expectation of of significant impact rate, our conversations with them or help us understand your.
How youre going to adjust and can we move even faster because we think is a competitive advantage and putting in place ERP system that we're helping them do and then of course you have something like travel were what what is critical at this time. She is she is very very significantly different than many of the other industries for the.
Vs reasons right. So as you as you think about our guidance, we're thinking about how the impact is varying looking at industry geography, and understanding the work and anchored of course in that much of the work that we do for our clients is mission critical are critical to their agenda.
Yes.
That's great. Thanks helpful. Thank you.
Thank you.
Our next question then it's going to come from line of Ashwin Shirvaikar from Citi.
Please go ahead.
Thank you.
Hi, Julie Casey Angie.
Morning.
And I hope will you and be into mixed venture keen Merck being revenues tough tough times.
It seems based on and thanks for the very detailed answer directly to the previous question from changing it seems clients are beginning to this foreign but still possibly quite considerably internally focused.
Some specifically interested in a couple of 80.
For example, before will be the year two elements of interactive.
Perhaps might not work, so well with social this distancing norms, how would something like that be affected and then secondly, the conversion of bookings into the news.
It needs and knowledge transfer anything that we might need travel how would that be impacting sports are you looking at different.
Pace conversion.
Sure.
It's interesting because accenture interactive that has some of our most creative minds, they're probably.
Best suited in fact in thinking very creatively about how to stay connected.
Many of those as you as you May know as you think about how they were virtually often do work in studios and so they were virtually with our clients as well.
At this point we are.
Really just focusing on how to adapt the virtual environment and keep them and keep people connected and so.
From an extent your perspective, we feel very confident.
In our workforce being able to adjust and then of course working with our clients to help them.
Do so.
With respect to knowledge transfer that's a great that the great question and as you might imagine because we are so familiar with how to do virtual what we've done is rapidly look at and is one of the first things. We do how do you do knowledge transfer remotely some of it is already there and to be honest we.
Have a lot of that and oftentimes our clients have wanted to do it on site, even though we said it could be done much more efficiently and one other things you should.
Recognized is that.
This is really going to be helping accelerate also the digital transformation of our clients freight because.
Our clients for example, some of whom we wouldn't have allowed us to work from home now who are giving us permission, who don't themselves work remotely who aren't using collaboration technologies are now being forced to end the upside for them is really the opportunity to accelerate the cultural change and the digital transfer.
Operation, So a knowledge chance on knowledge transfer Drs or your specific question, we have put in place new ways of doing that but based on thinking that actually in this case, we've already done if you think about Sep one of the first things we did Sep Oracle any of our systems is that we've looked at all of our methodology is obvious.
Fair methodologies today.
Do involve being on site and so we're converting them and pushing matter crowd out across our workforce and helping our clients understand it rapidly doing testing of those methodologies and so at some point of course is limitations you do need to be able to get together for some pieces of it and of course.
Remember today, we have people working in offices as do our clients for essential work and so on balance right Weve rapidly move to use all of our knowledge to be able to convert to help our clients do that to change our methodologies.
And then you know as we continue forward depending on the duration in the magnitude you know our expectation today is we will get into a rhythm that continues to allow the essential things to happen over time.
Thank you for that and then the second question is with regards to sort of be.
Underlying assumptions color for the new operating needs.
Due to what extent you and this might mean, it's too early but good what I've seen that are you able to sort of.
Make assumptions about some of these secondary impacts for example.
Looking on the work that goes basis basis financial services companies might be.
As it did become might be affected because of age solar on in the elite resources that a number of examples of profitability being affected their supply chains things like did not how do you think into that.
I mean, our guidance in case, you can add anything you'd like you know at this point.
We are.
We're giving you the guidance we see over the next six months based on the best information, we have today right and as you said it's early.
No it to speculate how some of this may.
Play out on the individual industries. So we.
And it's just it's quite early.
Okay.
Thank you.
Thank you. Thank you very much.
And our next question is going to come from line of Lisa Ellis from Moffettnathanson. Please go ahead.
Hey, Thank you and thanks for them.
Transparency in what you're seeing on the ground.
So of course, it's in perfect and it's still very early but the best reference points. Many investors have for understanding how accentures business reacts to this sort of sudden shock is looking back at the financial crisis.
However of course, you now have Accenture interactive you now have accenture operations people big pieces of business that are very different can you just kinda give your perspective, whether you like it or not I guess that.
That comparison is probably being made so.
How do you how you think about how this situation might be different door similar to what we saw 10 10 plus year. So thank you.
Sure.
Well.
But at a macro level of course through some real differences in that.
Several years ago that was about an economic crisis and today because of the global health crisis, you're dealing with.
Circumstances that are quite different in terms of.
Globally clients, having to move to work from home and what that does in terms of just the adaptational, they're making the cessation of commerce and retail et cetera, and many communities and so.
What I would say as you kind of start with this isn't just an economic crisis, which one would never have spot that they would say that as they look back at the financial crisis, but you're really dealing with two things right. So if you think even about how we expect the situation to evolve.
And then I'll come to how we are different as we enter into this but you'd expect what we're expecting is that right now.
You know as clients are very focus in adapting to not just the economic disruption, but as I said in those three buckets of things having to adjust how they're working right Thats why our guidance assumes that there will be an improvement in the business environment in Q4, either because the situation is better or.
Because simply clients in our cells are adjusting to working together, but I would say as you think about today that is a very different circumstances than the financial crisis.
But as we look at that we can't imagine a better positioned company to address it for all the reasons that we talk about this thing though is the nature of our services today right as you saw it with our results in each one.
We'll go back to what we've been focusing on we've been focusing on.
Our building the digital core of our clients, which is moving to the cloud having the right systems all of which this current crisis actually points out to our very critical right and in the first wave of that you're just seeing it in the demand for us to help them, you know increase or improve the.
Capture deploy collaboration technologies and so on.
The second thing, we've been helping them with his optimize their operations rate and the ability to use technology, not only to reduce costs, but to be more productive and what you are seeing even now we're where we already having sort of inbound things about can you help us.
Achieved more savings through technology in the shorter term. So we have very relevant offerings and what's really interesting right. If you go back to the financial crisis in operations that business was very different it was much more around labor arbitrage with some analytics on top of it today as I talked about earlier.
Earlier, our business in operations, our business in living systems starts fundamentally with technology platforms that we have built so that as our clients are making decisions do they invest themselves to build something or should they leverage here. The current crisis actually makes.
Those those investments we've been making for years.
Even more attractive in relevant because clients will have in less investment capacity they'll need to move fast and they've got to address the challenges and so the final area is around accelerating the growth agenda and this is where you know accenture interactive is critical I mean, just think about what's happening right now people.
Our staying home and they're getting online and they can't go to stores the it opportunities.
Over time to engage differently with your customers to establish different relationships are going to be very important and accenture interactive is at the core right of customer experience.
Very relevant so.
We knew coming out of each one you see the strength of that but as you think about what's actually happening and of course, it's still early days, but we could see whats going.
Our services, we believe will be even more relevant right as we get through the first period, where we need to and I just want to be clear at the ended the day, we have to serve our clients and we need to help them adjust we need to make sure their mission critical services are done or.
You know are continuing and then help them evaluate how to navigate grow and addresses and that will be very different in different industries in companies and we are very this is where our relationships matter. So much 95 of our top hundred clients, we had been there for.
Over 10 years, right and so I feel very.
Very confident and I think we are in a very significant position of strength as we go into this chapter and maybe one thing I'd. Just add is one thing that I would say that we do expect that we committed that we saw coming out of the last crisis that we also believe will will where we're well positioned.
This time again is taking market share. So when we came out of the loss financial crisis, we did take market share and that is our expectation that we are as we look long term that we'll have tremendous opportunities for us over the long term by staying close to our clients.
Thank you again, maybe my follow up is on the talent side I mean, Youre 500000 people are the most critical asset of extend sure.
Can you just remind us I mean, it looks like headcount slowed a little bit in this last quarter, but it's still running close to 7%. So just as you think about this kind of southern shop can you just remind us how you manage you know we.
Rebalancing the types of skills and.
Level of level of head count you need.
In a very rapidly changing environment, what levers you're pulling just around.
Slowing hiring et cetera.
Sure. Thanks. Thanks, It's a great question. So first of all just philosophically, we will we are not ever going to be shortsighted.
Here and as you said our people are really our competitive advantage and we are the envy of the industry and so as we look at this we do a couple of things first of all we're obviously slowing recruiting but we're still recruiting like for example in Italy, and we all know the situation than there were still.
Recruiting for security right now because as our clients have been moving to home they need greater health and security services and just you know a shout out to our HR team.
Rapidly turned our onboarding into entirely virtual so that we can continue to recruit the critical services our clients need to during this time when obviously, we cannot have people coming to the office.
The second thing that we do is we look at where we need skills and the our in our ability to pivot people because of course.
Where great learning organization right and so the one of the first things. We always do is where is the demand and what can we do we've trained over 300000 people in the last couple of years, just on new ITC and so part of what we will be doing I'm a significant part is making sure that we would that we also our age.
Able to adapt you know for example, Tom if you just look at the digital the need for digital workplace.
In this week alone, we took 600 people and spun them up and train them on all the skills they need to be deploying these technologies like teams because our clients rapidly needed that for the demand and so in our first in its first phase our focus is of course.
Slowing down our in our recruiting except where we need the critical skills and then deploying our people at the demand and we won't be shortsighted.
Wonderful thank you.
Thank you.
Our next question then will come from the line of Bryan Keane from Deutsche Bank. Please go ahead.
One moment please.
[music].
Next question Frank Please go ahead.
That's not a moment.
But if we go to the next the next person Keith. Please can you guys chairman.
Yes, Hi, Brad right.
Hey, guys I'm not sure what the issue is there.
Just want to ask about the guidance is the guidance about what what the quarter looks like so far in March and then straight lining that forward or is there an estimate on what kind of deterioration you will see and then thinking you mentioned a little bit I assume most of the guidance reduction is in consulting and not outsourcing. Thanks.
Yes, so somebody to let me start with the second part of your question first so.
As we look to what we think the back half of the year will be by type of work.
We do think that consulting could be low single digit positive or negative and remember that also factors in our that they get more disproportionate impact of the.
Lower travel reimbursement revenue, Brian and the back half of the year outsourcing will will will be low to mid single digit positive both types of work right now as you've seen our high single digit growth. So we ended the year, we do see consulting at low to mid single digit growth for the full year and outsourcing.
At mid to high single digit.
And you know.
What I would just get in terms of other color on our guidance.
So it's an overall point is look we've done the risk profile as you know it's higher than normal we've provided our guidance in that context based on what we've seen today as a leadership team. We're working with these relevance we can't our clients and as we've always said, it's our job to try to deliver as high as we can the range, but I think it's also important to note that in.
This environment, we believe it's reasonably possible that we completely land anywhere in this range. So our guidance does take into consideration what we see today, but Brian the environment remain fluid and can volpe differently from our assumptions.
Okay, and then just a quick follow up on on staffing.
Thinking about staffing issues. It is essentially are seeing any impact to the guidance due to you're not able to get on companies sites.
So just trying to think about the supply side issue of the guidance versus the demand issue.
Yes, I mean.
Obviously, we've got it sort of client by client and by the way our legal department is doing an amazing job right now because as you might imagine many of our contracts didnt, even contemplate ever working from home right and so they've been working client by client sort of 24 seven to evaluate that but it's just a mix and so I'd just tell you you know our guidance.
It is kind of take into account all of these different factors and thats.
Where we updated into.
Okay stay safe thanks, so much.
Thank you operator, we have time for one more question and then Julie will wrap up the call.
Thank you.
Next question, then we will come from the line of Bryan Bergin from Cowen. Please go ahead.
Hi, Brian Hi, Hi, good morning, Thank you.
I wanted to just to clarify some comments you made on the remote operations I heard 60% in India in Philippines curious can you move that to a higher level or is that currently the Max and then just as far as the global makes the workforce, how you're thinking about the ability to deliver remotely on the total base of operations and where do you think that will go to ultimately.
Well so.
You know enough in the Philippines, we're probably about where we are expect to be in India, we're still adding but again.
It really depends on the nature of the work and so we wouldn't expect it to be much higher than that because some of the work. If you think about bands with the need for power what our employees can do in some and you know at their conditions and then like sort of be availability the bandwidth on some of the things that take more bandwidth.
So it's going to go a little bit higher in India, but I think we're in a pretty good position around the world. You know it varies me looking in Italy, where at an 85% to 90% in.
Spain, 90% and so globally, it's actually much higher right because of the nature of the workforce. So you really have to look at nature of the work you know.
In country by country, but.
As my as my Stat of 16 million minutes, a day to 30 million minute today.
Sorry, I would so we've mobilized very quickly.
Okay, and then just as far as demand and the guidance can you just discuss clients what you're seeing in their spending priorities understanding it's fluid power quite considering spend across those new areas versus traditional IP areas here I'm going to crisis and really just trying to understand what's built into the guide across those two channels or whether you want.
To break it down by how you formulated the guide by industry verticals or regions, just trying to understand at one layer of deps down on the guidance assumptions.
Let me Yeah, I mean I wanted to take that we did take a look as I mentioned, we Brian we did take a look at different geographies as jogger fees. The led the geography and our guidance. We also look through the lens of industries I mean, we and we did take a look at which ones will be more severely impacted in our view I'd put up you know as Julie talked about.
Yup.
We did mentioned travel is small part of it ventures business, it's about 3% of our revenue it had already been but in decline even before coming into this.
Crisis. So that's one industry, although it's not a big part we have important clients. There. So I think part of our revenues but.
Travel somewhat as an industry, we talked last quarter about industrial.
Being a little bit under pressure in North America in Europe, We do think that's about Thats about 7% of Accentures revenue and we do think that will be continue to be affected.
Go forward.
And.
I'd say within high Tech, where we have our space and defense business.
That obviously will be continue to be impacted as well. So maybe that gives us a little bit of color on some of our industry.
Thank you.
Right.
Thank you again for joining us on today's call as we navigate the current environment. It is important to remember that we will continue to invest in our business in our people for the long term the fundamentals of our business are strong and we plan to emerge even stronger.
I cannot emphasize enough my gratitude for the extraordinary efforts of our leaders and our people around the world to both take care of each other and continue serving our clients, which they've done even as they are concerned for their own health and the health of their loved ones and communities.
I also want to think our clients for placing their trust in us our investors for their continued confidence in our ecosystem partners for their shared commitment to our clients.
Perhaps what is most unprecedented about the situation. We face is how universal. The tragedy is that is unfolding around the world. It truly affects us all and I hope that each of you and your family and friends are healthy and continue to be well.
Thank you.
Oh.
Thank you.
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