Accenture plc - Class A (ACN) — Q2 2015 Earnings Call Transcript

Thank you, and thanks everyone for joining us today on our second quarter fiscal 2015 earnings announcement. As I just mentioned, I am KC McClure, Managing Director, Head of Investor Relations. With me today are Pierre Nanterme, our Chairman and Chief Executive Officer and David Rowland, our Chief Financial Officer. We hope you’ve had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Pierre will begin with an overview of our results. David will take you through the financial details, including the income statement and balance sheet along with some key operational metrics for the second quarter. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the third quarter and full fiscal year 2015. We will then take your questions before Pierre provides a wrap-up at the end of the call. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursement or net revenues. Some of the matters we'll discuss on this call, including our business outlook, are forward-looking and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release or in the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now let me turn the call over to Pierre.

Thank you, KC, and thanks everyone for joining us today. We are extremely pleased with our financial results for the second quarter, continuing our momentum from the first quarter. Our strong performance in the second quarter was again broad-based across the different dimensions of our business and we gained significant market share. Here are a few highlights: let me start with our new bookings of $9.4 billion, our second highest quarterly bookings ever. This brings us to $17 billion for the first half and positions us well for the year. We delivered very strong revenue growth of 12% in local currency with double-digit growth in both consulting and outsourcing. Earnings per share were $1.08, a 5% increase. We expanded operating margin by 30 basis points to 13.6%. Our balance sheet remained very strong ending the quarter with a cash balance of $4.1 billion and we continue to return a substantial amount of cash to shareholders through share repurchases and dividends. Today, we announced a semi-annual cash dividend of $1.02 per share which will bring total dividend payments for the year to $2.04 per share, a 10% increase over last year. So with the first half of the year behind us, I feel very good about our results and the momentum we’re creating in our business and we’ve again raised our revenue outlook for the full fiscal year. Over to you, David.

Thank you, Pierre, and thanks all of you for joining us on today’s call. As you heard in Pierre’s comments, we delivered a very strong second quarter. This is the fourth consecutive quarter of strong and building momentum in our business as we continue to execute a growth strategy that’s clearly resonating in the marketplace. During this period, we’ve gained significant market share by being relevant and responsive to the needs of our clients. Looking more specifically at the second quarter, following a strong start for the year in quarter one, we again delivered on all three imperatives for driving shareholder value. Our 12% growth which continued to be broad-based across almost every dimension of our business reflects the durability of our revenue growth model as we drive growth at scale. Our operating margin of 13.6%, 30 basis points higher than last year demonstrates the success of the actions underway to improve profitability. Our free cash flow of $220 million was consistent with our expectations and keeps us on a trajectory to deliver free cash flow and excess net income for the full year while returning significant cash to shareholders. We were extremely pleased with the second quarter, very strong growth, strong margin expansion and cash flow consistent with our expectations. With that said, let's now turn to some of the details starting with new bookings. New bookings were $9.4 billion for the quarter as Pierre said representing the second highest quarter in our history. Consulting bookings were $4.2 billion with a book-to-bill of 1.1, and outsourcing bookings were $5.1 billion with a book-to-bill of 1.4. On a year-to-date basis, bookings are now just over $17 billion, a very healthy level especially when considering the FX impact and puts us within our target book-to-bill range for both consulting and outsourcing. Taking a closer look at our quarter two bookings, an important theme was the continued strong demand for both digital related services and operations. At the same time, we saw very good demand for both application services and consulting related services. Another important characteristic was the broad-based nature of the uptick in new bookings with sequential improvement in bookings across all operating groups and all three geographic areas. Lastly, we were pleased that we had a record 15 clients with bookings in excess of $100 million which points to the strength of our client relationships and their trust in our ability to drive the most important initiatives on their agenda. Turning now to revenues, net revenues for the quarter were $7.49 billion, an increase of 5% in U.S. dollars and 12% in local currency reflecting a negative 6.5% foreign exchange impact compared to the negative 5% impact provided in our business outlook last quarter. Adjusting for the additional FX headwind we came in well above the top-end of our guided range. Consulting revenues for the quarter were $3.8 billion, up 4% in USD and 11% in local currency. Outsourcing revenues were $3.7 billion, up 6% in USD and 13% in local currency. Looking broadly at the major drivers of revenue growth in the quarter, we saw consistent trends with our most recent quarters. The dominant drivers were strong double-digit growth in digital related services, operations and application services, and it’s also noteworthy that our results reflected an uptick in growth rates in both strategy and consulting services which are now growing at mid-single-digits. Turning to the operating groups, Communications, Media and Technology delivered another quarter of 15% growth, which continues to be broad-based with almost all dimensions growing double-digits. The strongest growth drivers continue to be digital related services, cost rationalization, and several large transformational projects, as well as increasing demand for network related services. H&PS also grew 15% in the quarter driven by significant growth in our health business, particularly in the public sector, driven by our health exchange and Medicaid related projects at U.S. federal and state clients. Digital related services and operations, particularly in BPO, continue to be very significant drivers of growth as well. Products growth of 13% continued to reflect strong and balanced growth across all three geographic regions and most industries. Digital and cost optimization were significant areas of focus for clients in this operating group as well, application services were also a driver as well as very strong overall growth in consulting. Financial services grew 9% led by strong growth in Europe and across all three industries particularly in capital markets and insurance. Digital related services continue to be a major theme as our clients are looking for new and innovative ways to connect with their customers and serve their needs. Additionally, cost optimization and risk and regulatory work continue to be significant areas of focus. Resources grew 6% with growth in all three geographic regions and all industries except energy. Revenues were driven by growth in outsourcing across all industries including energy as clients focus on operational efficiency and cost rationalization. Moving down the income statement, gross margin for the quarter was 29.9% compared with 31.3% for the same period last year down 140 basis points. Sales and marketing expense for the quarter was 10.7% of net revenues compared with 11.7% of net revenues for the second quarter last year down 100 basis points. General administrative expense was 5.6% of net revenues compared with 6.2% of net revenues for the second quarter last year down 60 basis points. Operating income was $1 billion in the second quarter reflecting a 13.6% operating margin up 30 basis points compared with quarter two last year. Our effective tax rate for the quarter was 26% compared with an effective tax rate of 24% in the second quarter last year. Net income was $743 million for the second quarter compared with net income of $722 million for the same quarter last year. Our diluted earnings per share were $1.08 compared with EPS of $1.03 in the second quarter last year. This reflects a 5% year-over-year increase. Turning to DSOs, our days services outstanding continue to be industry-leading; they were 35 days down from 37 days last quarter. Free cash flow for the quarter was $220 million resulting from cash generated by operating activities of $301 million net of property and equipment additions of $82 million. As I mentioned in quarter one, we shifted the timing of a portion of our compensation payments from quarter one to quarter two. While this shift negatively impacted the second quarter, there is no impact to full year cash flow. Moving to our level of cash, our cash balance at February 28th was $4.1 billion compared with $4.9 billion at August 31st last year down $800 million as we’ve returned $1.9 billion to shareholders through repurchases and dividends in the first half of fiscal ’15. Moving to some other key operational metrics, we ended the quarter with a global headcount of about 323,000 people, we now have approximately 226,000 people in our global delivery network. In quarter two, our utilization was 91% consistent with last quarter, attrition which excludes involuntary terminations was 14%, compared to 13% quarter one and 12% in the same period last year. Lastly, we continue to expect at least 90,000 people will join our company in fiscal ’15. Turning to our ongoing objective to return cash to shareholders, in the second quarter we repurchased or redeemed approximately 6.8 million shares for $601 million, at an average price of $87.72 per share. Year-to-date, we purchased 15.2 million for approximately $1.3 billion, at an average price of $83.62 per share. As of February 28, we had approximately $3.7 billion of share repurchase authority remaining. Finally, as Pierre mentioned, our Board of Directors declared a dividend of $1.02 per share representing a 10% increase over the dividend we paid in May of last year. The dividend will be paid on May 15, 2015. So with two quarters in the books, we’ve delivered very strong results and feel positive about how we’re positioned for the remainder of the year. That said, we don’t take anything for granted, we continue to drive our business with rigor and discipline doing everything possible to deliver a strong second half for the year. With that I’ll turn it back to Pierre.

Thank you, David. We are adjusting very well against our growth strategies and taking a leadership position in each of the businesses in our portfolio. The investment we’ve made in assets and solutions, in strategic acquisitions, in attracting talent and in building the skills and capabilities of our people has positioned us very well to capture new growth opportunities. We are driving innovation across Accenture to grow capabilities that are both highly relevant to our clients and highly differentiated in the marketplace. You have heard me mention two important trends, digitization and rationalization that are driving demand for our services and contributing to our growth. We invested ahead of the curve to build a capability that will help our clients respond to these trends. Digitization is all about helping our clients tap into new sources of value and new sources of revenue to create competitive advantage. We are helping clients capitalize on these trends to become the disrupters in the new digital world, not the disrupted. A great example is what we are doing with a leading retailer helping them with a vision to find new ways to attract customers and achieve that goal of quadrupling revenue. We are bringing innovative digital technology to help them move beyond the traditional store model to a multichannel digital strategy. For a global telecommunications provider, we developed a digital strategy underpinned by analytics to significantly upgrade their customer service, while delivering cost savings of almost $100 million. We are also working with our clients to develop innovative products and services based on the Internet of Things. We are helping Visa explore the future of mobile payments to make transactions more convenient even inside a car, leveraging our expertise in digital commerce we built a proof-of-concept to show our consumers in a Connected Car, you can order and pay for it securely. Digital services represent about 20% of our total revenues and grew more than 20% in local currency in the first half of the year. We are seeing demand for digital across all dimensions of the business in every industry and around the world, and we’re clearly benefitting from the investment we have made in this space. In January, we acquired Structure, a Houston based firm that will further enhance our smart grid operations, energy trading and risk management services for utilities and energy clients. In February, we announced the acquisition of Agilex Technologies, a provider of digital solutions for the U.S. federal government. The acquisition enhances our digital capabilities in analytics, cloud and mobility for federal agencies. And earlier this month, we completed the acquisition of Gapso, a Brazilian analytics firm that will expand our advanced analytics capabilities in the supply chain and logistics areas. The second thing, rationalization continues to be top of mind for clients as they look for opportunities to increase productivity and efficiency across their organizations. We have invested to take a leadership position in this space with Accenture operations. And we are the first company to combine business process services with infrastructure and cloud services at scale. We’re working with a leading global airline on a major transformation of its procurement function, including a cloud-based supplier portal. The alliance expects to realize significant cost savings as well as increased standardization and transparency. We are helping a global beverage company to create a global operating hub for finance and accounting, HR, procurement, supply chain, and marketing operations. Our multi-tower BPO services will streamline processes, minimize risk and provide new analytical insights. And we are working with a leading European manufacturer to transform its IT infrastructure. We will migrate existing applications and data services across more than 60 operating companies into a single hybrid cloud environment. We expect to deliver improved services and flexibility, increased automation and a 30% reduction in operating costs. Now turning to the geographic dimension of our business, in the second quarter we again delivered very strong growth across all three of our geographic regions. In North America, we delivered revenue growth of 13% in local currency driven by double-digit growth in the United States where we continue to perform extremely well. In Europe we grew revenues 9% in local currency driven by double-digit growth in many of our largest markets including France, Germany, Spain and the Netherlands. And in our growth markets, we grew revenues 12% in local currency with again strong double-digit growth in three of our largest markets, Japan, Australia, and Brazil. So, as you can see, we have delivered an excellent first half of this fiscal year. Our diverse portfolio of business together with our geographic diversity and our unique ability to integrate our capabilities end-to-end positions us very well to bring innovative services to market leading companies both globally and locally. Looking ahead, based on the successful execution of our growth strategy, I feel confident in our ability to deliver sustainable profitable growth over the long term providing value to our clients, our people, and our shareholders. With that, I will turn the call over to David to provide our updated business outlook for fiscal year ’15. David, over to you.

Thank you, Pierre. Let me turn now to our business outlook. For the third quarter of fiscal ’15, we expect revenues to be in the range of $7.35 billion to $7.6 billion. This assumes the impact of foreign exchange will be a negative 11% compared to the third quarter of fiscal ’14. For the full fiscal year ’15, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in U.S. dollars will be negative 8% compared to fiscal ’14. For the full fiscal ’15, we now expect our net revenues to be in the range of 8% to 10% growth in local currency over fiscal ’14. For the full fiscal year ’15, we now expect new bookings to be in the range of $33 billion to $35 billion reflecting our revised FX assumptions. Before I continue with our business outlook, I’d like to comment briefly on a non-cash item that will be recorded in the third quarter. In May, we expect to record a non-cash settlement charge estimated to be approximately $60 million as a result of a current offer to former employees to receive a voluntary lump sum cash payment from our U.S. pension plan. This will reduce future risk and administrative cost to Accenture. On a GAAP basis for fiscal ’15, the estimated impact of this settlement charge is approximately 20 basis points to operating margin and approximately $0.05 in EPS. We will provide both GAAP and adjusted results for quarter three and year-to-date results. For operating margin on an adjusted basis, we continue to expect fiscal ’15 to be 14.4% to 14.6% a 10 to 30 basis point expansion over fiscal ’14 results. We continue to expect our annual effective tax rate to be in the range of 26% to 27%. For earnings per share on an adjusted basis, we now expect EPS for fiscal ’15 to be in the range of $4.66 to $4.76 or 3% to 5% growth over fiscal ’14 results. Absent the higher FX headwind which impacts EPS by $0.14, our EPS range would have increased by $0.10 to $0.14 driven by high revenue growth. Turning to cash flow for the full fiscal ’15, we now expect operating cash flow to be in the range of $3.85 billion to $4.15 billion reflecting our revised FX assumption. Property and equipment additions continue to be approximately $450 million and free cash flow now to be in the range of $3.4 billion to $3.7 billion. Finally, we continue to expect to return at least $3.8 billion through dividends and share repurchases and also continue to expect to reduce the weighted average diluted shares outstanding by approximately 2% as we remain committed to returning a substantial portion of our cash to our shareholders.

Thanks David. I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. Brad, would you provide instructions for those on the call please?

I was wondering could you provide a little more color on your exposure to digital just give us some sense of what you expect the growth rates to be there and how should we think about that as it relates to bookings as far as the size of the deals and the market contribution? Thanks.

I will take the first part of it and indeed as we’ve communicated recently and even this last year, we earned back in rotating more of our business to what we are calling now digital related services. Digital is positive across the board, this is something we anticipated frankly a few years ago, probably in the range of 29; we invested a lot ahead of the curve. If you remember around what we are calling interactive analytics, cloud and mobility, and now indeed we are significantly benefitting from this wave which is very important that’s why I was pleased and proud to report our position in terms of digital related services. Now at 20% of Accenture revenues in that short period in time and as important and even more important, well above 20% local currency growth for the first half of the year. So needless to say we have a great momentum in that business and indeed it’s covering a large value of opportunities small, medium, and large covering consulting or outsourcing type of work. So digital is positive across different dimensions of our businesses, consulting, outsourcing, across all industries there are more or less around the 20%, some above, a few slightly below, and on balance I guess David will comment good pricing.

Yes and I think, I mean just as it relates to the bookings question and Pierre alluded to this is that, the digital deals do span all sizes. We have larger digital projects and obviously we have a high volume of medium size to smaller projects. And I guess what I would say is that you might think about it in the context of the quarter we just delivered, where we delivered $9.4 billion in bookings with a heavy component of digital. And so, I don’t think that this necessarily changes anything in terms of that dynamic overall.

Yes, just to add a piece of information on this, as you know, we created as well Accenture Digital where we have organized our Accenture Interactive, Accenture Mobility, and Accenture Analytics work and what we aim at through Accenture is to create more and more synergies and integration end-to-end of the three capabilities and that’s a unique differentiator in the marketplace.

I wanted to ask on the bookings side, just the 15 clients that did bookings over $100 million. That was a big number obviously. Can you comment on the types of deals, geographies, maybe pricing any common theme there and does this in any way pull forward bookings for the third and fourth quarter just wondering if the big deal pipeline has been impacted now that you've signed these deals? Thanks.

No, I’ll tell you, I’ll just kind of work backwards. We feel good about our pipeline. I mean obviously, when you have a big bookings quarter you convert a lot of pipeline to bookings. That's a factor. But even with that, we feel very good about our pipeline. We actually feel good about recent movement that we've seen in the larger deal category within our pipeline. Tien-Tsin, I would say just in terms of color on the bookings, I don't know if there are really any dominant themes. It crosses the spectrum of operations including BPO type contracts. There's a flavor of application services in there. And I guess stating the obvious, there's a flavor of Digital in there as well. The thing about our bookings that we were especially pleased with and generally this would apply to the 15 clients is the pervasiveness of the strength of the bookings.

What I appreciate with our results is they are broad-based and so bookings exhibit exactly the same pattern. If you're looking from an operating group standpoint, if you're looking from a geographic standpoint as well, you will see they are extremely well-balanced across the board. So we don't specially benefit this quarter from any outstanding performance of one part of the business compared to the others. It's very well-balanced with, of course, a lot of Digital across the board and this is the kind of balanced growth we appreciate.

Just hoping to get some color on the breakout of consulting and outsourcing and how to think about those on a constant currency basis in the second half of the year? And then my second question is just on gross margins. I know we're solving for operating margins but on the gross margins they were down 140 basis points, I think it's a little more than usual maybe you can just give us some color on the gross margins? Thanks.

Yes. I would say first on your first question in terms of the second half of the year, I would think in terms of mid to high single-digit positive growth for consulting and let’s say probably high single digit positive for outsourcing. So that puts us on a track for the full year of probably mid to high single for consulting again and low double-digit for outsourcing. In terms of the profitability point, at the risk of being redundant, I guess let me just share a few things with you beyond what I said in the script. First of all, we're very pleased with the 30 basis points of expansion. That’s obviously at the upper end of the range what we target and it does reflect a lot of the hard work that our organization has been doing over the last four quarters. What I really focus on when I look at our profitability are a few things. The first thing I focus on is the progression of our contract profitability. And I can tell you that our contract profitability was up compared to the same quarter last year and we continue to be pleased with the progression of contract profitability. The second thing that I look at is the progression of the overall efficiency of our labor cost, both our Accenture personnel and our subcontractors. And we have made really good improvement in our labor cost efficiency for several quarters now and that's in the mix as well when you look at our second quarter results. The third thing I’ll look at is how our organization is doing in managing every dime we spend as if it's our own individually, related to non-payroll expenses. And we've done a very good job with that. And then finally, although this is certainly not last on the list, at the end of the day we are seeking to create headroom in our P&L so that we can invest at sufficient levels to really drive our business growth going forward. And we have a good mix of investments in our results as well. And so we always are talking about in this forum at least we get the questions on the gross margin and the SG&A but those are the things that I really focus on and all of those things were in the right zone relative to my expectations, creating the 30 basis points of expansion. The last thing I'll say is gross margin again includes a lot of things. It's not just contract profitability. It includes recruiting, training, integration of acquisitions, onboarding costs for new hires, etc. So, there is a lot that goes in there that ebbs and flows quarter-over-quarter.

And I guess first of all just high level if we think back the last four quarters have been very good and the prior six quarters before that have been kind of low to mid single-digit growth. And I guess I am wondering is this just kind of a natural ebb and flow of the business that has kind of a nice acceleration after a period of slowdown? And really behind the question is can this higher level of growth now that we’ve seen it for a full year kind of stay sustainable or have that kind of been one-off that allowed revenue to kind of ebb higher that starts to I guess anniversary and starts to slow down a bit just kind of high level just wondering how that plays out over time?

Commenting on the first part of your question and what happened at this last three quarters compared to what happened before. I guess as you know the world has changed significantly and we have put a lot of thought at Accenture on what it takes to be relevant in this new world and to respond to the current needs of our clients and the needs are much more around how we deal with uncertainty, how we deal with volatility, how we bring more flexible solutions, how we provide more productivity and efficiency. And that’s why we come with this and it’s obviously quite simple but this really vision around at the end of the day it’s all going to be digitization of the business for clients on behalf of our clients and the rationalization of their operations. And then we significantly aligned the Accenture strategic agenda and our investments towards these two main trends. And as you know and you’ve seen that recently and we communicated to a lot, we invested in new skills, we invested in new organization with the creation of Accenture Consulting, Accenture Strategy, Accenture Digital, Accenture Technology, and Accenture Operations. We made several strategic acquisitions especially focusing on digital and operations we’re quite very deeply skilled.

So this is what we did this last couple of years and I guess that now we are getting the return on the strategy we set and on the investments we’ve made we are absolutely not complacent with that but to a great extent we have seen the way of pass through to be relevant to our client, we have committed to it and now we are executing seamlessly.

And I guess just one short follow-up just this quarter the resources margin was 12.8%; it hasn’t been under 15% in about six years and just on that line item specifically if something changed a little bit?

Yes, the margins for our operating group can vary from quarter to quarter. We have been diligently working to position our resources business for growth, and I want to acknowledge the team's efforts in this regard. As I mentioned earlier, the current growth in resources is primarily driven by our outsourcing-related services, operations, and application services. You'll notice a slight mix in that area as well. However, I am not overly worried about the profitability for just one quarter. We have strong profit potential in resources moving forward, and over time, we will adjust the necessary factors to return to the appropriate levels.

I was wondering if you could maybe give us a little bit of color on some of the transactional short duration business and how those bookings are tracking and more importantly going forward what inning do you think we’re in cyclically in terms of that improvement?

Well, we’ve definitely seen an increasing volume of the smaller short-term type projects and of course that’s reflected in our consulting growth. And I would say that the drivers of that broadly anchor back to the themes Pierre has talked about so often. You look at the digital space and the nature of the digital work is that it really lends itself to this agile quick turn development and deployment of capability. But also on the cost rationalization agenda, that drives a lot of demand for our strategy practice, for our consulting practice like in the past we’ve referred to as management consulting as an example working with our companies to develop a strategic cost map for cost rationalization and then getting into the implementation of that.

And we see some of that in shorter smaller projects which are contracted in phases over a period of time. So those are the kinds of things that are in the mix; Pierre may add some additional flavor to that. Yes indeed, I think what is interesting to see in the mix of work we are telling is we have at the same time as you know we are quite famous for this large scale transformation program and again this year as mentioned by David we have a few large scale opportunities at times. And at the same time especially with the rise of digital, you have more what I would call higher velocity projects. So I think what we have now in our portfolio of bookings is this large scale transaction which are clearly unique that will favor Accenture as kind of end-to-end combining all our capabilities to deliver transformation plus the higher velocity programs more digital related services driven and this is this mix which I think has impacted on balance the average duration of our bookings.

Yes, does that help Jim?

And then maybe as a follow-up, but just you're doing well on the cost control side with both sales and marketing and G&A dollars down in absolute terms on a year-over-year basis, any color on how much of that is FX versus organic? And then some of the initiatives you're doing to kind of keep those expenses under control?

Yes, we are achieving real cost savings, particularly in areas we have discussed for years. We continuously seek improvements in our sales efficiency and channel costs, making progress in these areas under the leadership of our COO, Jo Deblaere. We also have an ongoing transformation agenda for each of our corporate functions, utilizing the same capabilities we offer to our clients internally. For instance, we are applying BPO concepts across HR and finance, and there is still more potential for growth. This is an ongoing journey for us, similar to that of our clients. We have also achieved real savings in our corporate function costs, which are not related to foreign exchange. We will maintain our focus on this as we move forward.

So this was the second consecutive quarter that you beat your revenue guidance and you’ve reached the year. Can you help us understand whether that was again relative to your guidance was faster backlog conversion or some of the smaller higher velocity projects that you just mentioned? And again I know you said that strength was broad-based across the geographies and verticals. But I am just wondering again relative to kind of where you started the year whether that’s more relevant to a particular vertical or a particular geography?

It's interesting because we analyzed where we performed better than expected, and all five of our operating groups exceeded both our and their initial expectations from the guidance we provided in December. When on a revenue ramp, predicting the slope can be challenging; while we're confident about work activity, we also need to consider factors like resource availability and project timing. Ultimately, all five operating groups showed broad-based improvement. And I would say that it was more in our consulting related services than our outsourcing so consulting came in stronger and part of that again goes back to the digital theme that we talk about as a driver of consulting but also we see more activity across our other consulting type services both strategy and our core consulting business management consulting etc. So it’s really consulting came in better and all five operating groups came in better those were really the drivers. And I do think that the higher volume of smaller contracts is in the mix of everything I’ve said really across the board.

And then just secondly I think you mentioned the EPS impact of currency at the end of your prepared remarks. Could you just repeat what the impact your expectation for the EPS impact is for the year?

So what I specifically mentioned is that there were really two factors that we used to adjust the range. One was the increased revenue, which allowed us to narrow the range to 2 points, and consequently, we narrowed the EPS range. The second factor was foreign exchange, simply put, those two factors. I noted that without the foreign exchange headwind, which affected our EPS by 14 cents, our EPS would have increased by 10 to 14 cents.

And does that include the first quarter impact as well or is that just from the second quarter on?

That's from the second quarter on the revised full year guidance.

Okay, because you had a fairly significant FX impact in the first quarter as well, right?

If you look I mean if you look at where we started the year versus so if you take our initial guidance with where we are now absent the FX headwind, we’ve increased our guidance $0.16 to $0.20.

Okay, got it, great.

Thanks so I’ve got two questions if that’s possible the first is just on…

I was going to say. We’ll judge whether we give you a second question based on the first. Go ahead.

Okay, I’ll go easy then a couple of the companies that I’ve been speaking to in Europe have been suggesting there is incremental pressure from clients for more favorable DSO terms I was wondering if you can just put that in context with the two day move we’ve seen in these results and maybe can you give us some medium-term expectations of where you would like to see DSOs in two to three years’ time?

Yes, I mean there's no doubt that the environment is tougher on commercial terms and conditions and billing and collections are really right in the mix of that. So we've seen that trend certainly. We had always signaled, by the way that the DSO levels that we've had at some point in the recent years past when they have gotten down in the low 30s, that we had always signaled that, that was likely not sustainable overtime and that our DSOs would creep back up to the mid to even high 30 range. And so that pattern has played out exactly as we had expected and anticipated. So we're very comfortable with where we are. I think that by and large if you look at the last few quarters, our DSO has been relatively stable. It was up a little. Now it's down a couple of days. So we're in the range that we expect to be, in the range that we expect to be let's say for the rest of this year. And it's an area that we are always focused on and have been very good at managing our billing and collections. So I would just say that at least for this year, we're in the range of what we expect.

And if you look out two or three years, does the high 30s feel like the right number or is it the type of situation you are just taking every year as it comes?

I mean it's hard to say, I mean I am not going to look out a few years really, I think what we’ve said again is that we could certainly see DSOs creeping up to the mid to upper 30s and that’s where we’re at.

Could you update us David on pricing across consulting and outsourcing and in particular perhaps application, maintenance and development where I think you called out perhaps a year and a half ago some increasing pricing pressure, where do you stand today?

I would say overall we’re pleased with the way our pricing has progressed since the same time last year. We saw actually improvement in our pricing in the second quarter, I would be clear though that the environment continues to be a competitive environment, no doubt. But we have seen some progression in pricing in certain parts of our business and overall we were very pleased with the margin quality of the $9.4 billion bookings. I would say that in application services again to be clear David, when we talk about pricing, we’re talking about the margin percentage on the contracts that we sign and in application services we’ve also seen positive progression in the last six months.

When you talk about improved pricing and I think Pierre mentioned good pricing in digital, are you seeing material pricing increases in digital services currently?

I would say that we see differentiated pricing in digital relative to other parts of our business and I think I’d leave at that, unless Pierre you have any…

Yes, no, no I think digital related services as long as you can bring differentiated solutions especially the ones we invested a lot around is commanding a better price compared to the rest of the portfolio, I mean this is what it is.

You mentioned in your prepared remarks that you're gaining significant market share, could you talk about where you think that’s coming from?

We are definitely gaining market share in all three regions where we operate. This growth is well-balanced, as we have experienced strong double-digit growth in the U.S. for almost four years now. We are likely gaining ground against more traditional competitors, and we are performing on par with leading players in each of our business sectors. Overall, our market share gains are widespread, with 10 out of our 19 industries demonstrating double-digit growth. So I guess that we are gaining market share in many of our industries. I mentioned in Europe as an illustration that we have double-digit growth in Germany, in the Netherlands, and again I am sure we are gaining significant market share given the market over there when you grow in double-digit. So it’s quite wide spread in many again double-digit growth in Japan, in Brazil, in Australia, so in all places where we have double-digit growth we are gaining market share technically so we are pleased with that.

And then could you give us an update on the estimated contribution of acquisitions to fiscal ’15 revenue? I think you were talking about about 1% to 1.5% contribution? Thanks.

Yes, and really no change from what I said last quarter on that.

My question revolves around sort of non-linear growth, headcount 323,000 you're going to add 90 fresh bodies this year. Where do you stand with creating B-pass opportunities and other sort of volume or outcome based contracts? Thanks.

We continue working on this to create more bifurcation between headcount and revenues. I think we may continue some good progress even if we or we feel at the beginning of this journey if you will. But I've been recently in India as an illustration visiting our BPO practice and looking at all the innovations we are bringing especially around automation, especially around robotics and especially around cognitive computing. And if you bring these three capabilities all together we have indeed a unique opportunity it's happening as we speak in our operations in India to bring a level of productivity and efficiency in our business process operations where we start seeing this bifurcation between headcount growth and revenue growth and we might expect some acceleration in ’16 and beyond. So it's still early days regarding the leading edge characteristics of these technologies. But I'm feeling extremely positive and even more importantly Mike Salvino is leading our Accenture Operations business, is feeling extremely confident that we have the tools and techniques to move to the next level of productivity.

And my other question is now that you’re seeing improved local currency growth and everything seems to be clicking. Will you dial back your M&A investments that you had stepped up in recent years?

No. I mean I could elaborate but I think the answer is that. I will elaborate that I mean we will continue to invest to acquire, build and develop differentiated skills and capabilities especially around digital and operations. And we’ve been very successful to do it from now and we will continue with that agenda.

Brad, we have time for one more question and Pierre will wrap up the call.

Look I want to just start off quickly on the resources and then follow-up on Europe on resources again I know you said that obviously there was some timing around margins. But really the growth rate just, even though it's only 6%, it's accelerating a pretty big headwind for you guys. Number one, do you see enough bookings or contracts there to actually continue that acceleration despite oil prices and everything we're seeing in the industry so that could become more and more of maybe a tailwind? And then secondly on Europe, I just wanted to ask about the offshore labor arbitrage opportunity there.

Yes I’ll comment on resources and maybe let Pierre comment on Europe. On resources we do feel good about how the business has been repositioned for sustained growth now going forward. The bookings have been very good in terms of their book-to-bill on a year-to-date basis and that speaks well to the growth opportunities going forward. I think I have mentioned that when you look at resources that had growth in all three geographic areas and in all of the industries except energy but even in energy we actually had very strong double-digit growth in our outsourcing related services, so operations and application services. And so what we’re finding is that even with the pressures in energy, we really are helping our clients with our application services and operations services as they were from their cost optimization cost rationalization agenda and so we think that we are positioned for sustained positive growth in resources even with the recent challenges in energy.

Yes and to add color on this resources recovering many industries, if you take chemicals which is a very important industry for us, we’re growing more than 20%. So when you look at it from a portfolio standpoint, from a European standpoint I mean you're absolutely right to mention that the outsourcing market is vibrant again our clients in Europe are looking for more efficiency and more productivity. And if I look at digital versus digitization versus rationalization probably U.S. would be a bit more on digitization, where Europe would be a bit more on rationalization which is offering a good space for the outsourcing work. And again we benefit from the diversity of our global delivery network and we can come with our clients and we’d like to mention that you need to be sometimes a little bit more balanced and subtle in the way you're driving outsourcing in Europe. With respect to the different nationalities labor market and environment and so the mix it's more that the right sourcing and the smart sourcing with the good mix of onshore, offshore and with benefit of Accenture providing a very diverse global delivery and what will of course resources on an offshore standpoint especially in India and the Philippines, but as well a network of near shore centers which is helping us to get to what we believe is the right sourcing approach for our clients. So, I am feeling extremely confident and based on the result of outsourcing business in Europe is doing well. Thank you to all of you. Thanks a lot for taking the time and participating in our call today. As you’ve seen with half of the fiscal year behind us, it’s clear that we have built strong momentum in our business and it's clear as well that we’re gaining significant market share. We are seeing clearly the return on the investments we’ve made, particularly in digital and operations and we will continue to execute our growth strategy to bring innovative and differentiated services to the marketplace. In closing, I want to thank the 323,000 women and men of Accenture for their dedication, their passion, and their commitment to delivering value for our clients each and every day in the marketplace. Thank you to all of you. We look forward to talking with you again next quarter; in the meantime, if you have any questions, please feel free to call KC, all the best to all of you.