Accenture plc - Class A (ACN) — Q3 2019 Earnings Call Transcript

Thank you, Greg. And thanks everyone for joining us today on our third quarter fiscal 2019 earnings announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call you will hear from David Rowland, our Interim Chief Executive Officer, and KC McClure, 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. David will begin with an overview of our results. KC will take you through the financial details including the income statement and balance sheet along with some key operational metrics for the third quarter. David will then provide a brief update on our market positioning before KC provides our business outlook for the fourth quarter and full fiscal year 2019. We will then take your questions before David provides a wrap-up at the end of the call. 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 our 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 David.

Thank you, Angie. And thanks so much to all of you for joining us on today's call. Accenture delivered another strong quarter, and I couldn't be more pleased with our overall performance as we continue to execute our growth strategy and create significant value for all of our stakeholders: our clients, employees, and shareholders. We again delivered revenue growth well ahead of the market, as well as strong profitability and free cash flow, while continuing to make substantial investments for long-term market leadership. Here are a few highlights for the quarter: We delivered new bookings of $10.6 billion, which was in the range we expected. We generated record revenues of $11.1 billion at the top of our guided range with 8.4% growth in local currency. We delivered earnings per share of $1.93, an 8% increase compared to adjusted earnings per share last year. Operating margin was 15.5%, an expansion of 20 basis points. Our free cash flow was very strong at $2 billion. We returned $1.4 billion in cash to shareholders through our share repurchases and the payment of our semi-annual dividend. So, all-in-all, it was another strong quarter by any measure. Looking forward, I feel very good about our business and our ability to deliver a strong fourth quarter and, in doing so, to complete what will be another truly outstanding year for Accenture. Now let me hand it over to KC to review the numbers in greater detail. KC?

Thank you, David, and thank you all for joining us on today's call. Let me start by saying we were very pleased with our third quarter results, which were in line with our expectations and were strong across many dimensions of our business. Once again, our results demonstrate the power of our highly differentiated growth strategy. As we have often stated, a key intent of our growth strategy is to create durability in our revenue growth at a level that is consistently above the market, taking share and strengthening our position as a leader. Against this objective, we have created a unique footprint that includes scale and leadership in the world's largest and most critical geographic markets and industries. This footprint, along with our highly relevant offerings delivered within our end-to-end service model, is key to being a market leader in helping our clients rotate to the new. Our third quarter and year-to-date results are an illustration of our growth model in action and based on the strength of our results and the confidence and visibility we have in our fourth quarter, we are increasing key elements of our full-year outlook, which I will cover in more detail later in the call. Importantly, our results and updated guidance reflects very strong execution against our three financial imperatives for driving superior shareholder value. Revenue growth of 8.4% in local currency in the third quarter continued to be driven by strong double-digit growth in all three areas of the new including digital, cloud, and security-related services. This strong top-line growth was broad-based with several areas growing double digits or high single digits. Revenues landed in the range we expected, and importantly, we did see the anticipated improvement in financial services and the U.S. Federal business. Operating margin of 15.5% expanded 20 basis points for the quarter and reflects strong underlying profitability allowing us to invest at scale in our people and in our business. And we delivered very strong EPS of $1.93, which represents 8% growth compared to adjusted EPS last year even with an FX headwind of over 4%. And we have record free cash flows for both the quarter of $2 billion and year-to-date of $4.2 billion, which reflects both our strong profitability and our excellent DSO management. We are well positioned to deliver free cash flow in excess of net income for the full year. We continue to execute against our strategic capital allocation objectives with year-to-date investments and acquisitions of approximately $1.1 billion and over $4.1 billion returned to shareholders via dividends and share repurchases. Now, let me turn to some of the details starting with new bookings. New bookings were $10.6 billion for the quarter, consolidated bookings were $6 billion with a book-to-bill of 1; outsourcing bookings were $4.6 billion with a book-to-bill of 0.9. This quarter, our bookings continued to be well balanced across the dimensions of our business, and the dominant driver of our bookings in the quarter continued to be high demand for digital, cloud, and security-related services, which we estimate approximated 65% of our new bookings. Overall, Q3 bookings landed in the range we expected. As you know, quarterly bookings can be lumpy, which you've seen in our year-to-date results. And that is consistent with our historical pattern. Looking forward, we have a very strong pipeline and we expect strong bookings in Q4. Turning now to revenues. Revenues for the quarter were $11.1 billion, a 4% increase in U.S. dollars, an 8.4% in local currency and were at the top of our previously guided range. Consulting revenues for the quarter were $6.2 billion, up 3% in U.S. dollars and 7% in local currency. Outsourcing revenues were $4.9 billion, a 5% increase in U.S. dollars and 10% in local currency. Looking at the transit estimated revenue growth across our business dimensions, technology services posted strong high single digit growth, strategy and consulting services grew mid-single digits, and operations continued its trend of double-digit growth. Taking a closer look at our operating groups: Resources grew 19% in local currency, delivering its seventh consecutive quarter of double-digit revenue growth. Continued momentum was driven by double-digit growth across all three industries and all three geographies. Products grew 8%, reflecting continued strength in our largest operating group. Demand continued to be broad-based across all three industries and all three geographies. Communications media, and technology grew 7%, reflecting continued strong double-digit growth in software platforms, and we had strong balance growth across all three geographies. Health & Public Services delivered 6% growth in line with our expectations. Europe was double-digit growth, and we were very pleased with the strong growth in North America which reflected strong growth in our U.S. federal business. Finally, as expected, we saw an uptick in financial services this quarter with 4% growth. Insurance again grew double digits across all geographies, and we saw some improvement in banking capital markets globally, including in Europe. Overall, financial services delivered double-digit growth in growth markets, strong growth in North America, partially offset by contraction in Europe. Turning to the geographic dimensions of our business, I am very pleased with the continued demand across all three of our geographic regions. In North America, we delivered 9% revenue growth in local currency driven by continued strong growth in the United States. In Europe, revenues grew 5% in local currency with double-digit growth in Italy and Ireland as well as mid single-digit growth in the U.K. And we delivered another very strong quarter in growth markets with 13% growth in local currency led by Japan, which again had very strong double-digit growth. We had double-digit growth in China and Brazil as well. Moving down the income statement, gross margin for the quarter was 31.8% compared with 31.2% for the same period last year. Sales and marketing expense for the quarter was 10.7% compared with 10.3% for the third quarter last year. General and administrative expenses were 5.6% compared to 5.5% for Q3 of last year. Operating income was $1.7 billion in the third quarter, reflecting a 15.5% operating margin, up 20 basis points compared with Q3 last year. As a reminder, in Q3 of last year, we recognized a charge related to tax law changes. The following comparisons exclude the impact and reflect adjusted results. Our effective tax rate for the quarter was 25.6% compared with an adjusted effective tax rate of 26.8% for the third quarter last year. Diluted earnings per share were $1.93 compared with adjusted EPS of $1.79 in Q3 of last year. DSO was 39 days compared to 40 days last quarter and 39 days in the third quarter of last year. Free cash flow for the quarter was $2 billion, resulting from cash generated by operating activities of $2.1 billion net of property and equipment additions of $140 million. Our cash balance at May 31 was $4.8 billion compared with $5.1 billion at August 31. And with regards to our ongoing objective to return cash to shareholders, in the third quarter, we repurchased or redeemed 2.8 million shares for $488 million at an average price of $173.95 per share. At May 31, we had approximately $4.1 billion of share repurchase authority remaining. Finally, as David mentioned on May 15, 2019, we made our second semi-annual dividend payment for fiscal '19 in the amount of $1.46 per share bringing the total dividend payments for the fiscal year to approximately $1.9 billion. So, in summary, we are very pleased with our third quarter results and are now focused on Q4 in closing out another strong year. With that, let me turn it back to David.

Thank you, KC. Our strong results for the third quarter and year-to-date demonstrate that we continue to execute our growth strategy extremely well. In particular, we continue to benefit from our leadership position in 'the New,' where revenues again grew at a double-digit rate with broad-based growth across all components of 'the New' including Accenture Interactive, applied intelligence, cloud, and security. As KC mentioned, our third quarter and year-to-date performance is powered by our unique leadership footprint in the marketplace with breadth and scale across the most strategic geographies, industries, and capabilities, and this provides for durability and consistency in our performance and uniquely positions us to deliver seamless outstanding service to our global clients. While there are many positive aspects of our third quarter results, today, I want to focus on Accenture Technology, which is the largest part of our business overall and also accounts for the majority of our revenues in 'the New.' So, in many ways, Accenture Technology is really the engine of our strong leadership position in 'the New.' We believe Accenture has the strongest and most innovative technology capability in our industry, with scale and leadership in all the areas that are most relevant to our clients. To date, all companies are digital businesses, and certainly, Accenture is a digital technology company at our core with advanced capabilities such as data and analytics, automation, artificial intelligence, and machine learning. Last quarter, I highlighted three key focus areas in Accenture Technology that powered growth in our business. And today, I'd like to dig a little deeper. First, in intelligent platform services, we apply our digital capabilities, innovation, and industry expertise on top of the leading core platforms: SAP, Microsoft, Oracle, Salesforce, and Workday to help clients drive large scale enterprise-wide transformation. We are proud to be a leading partner of all the key players, and we see continued strong demand for intelligent platform services, which again grew at a double-digit rate in quarter three and accounts for about 40% of our total revenues. As one example, we're helping a leading fashion retailer with a global implementation of SAP S/4HANA that leverages myConcerto. Our proprietary AI-powered development platform, myConcerto, brings together our deep industry knowledge and differentiated tools and methodologies to help clients innovate and accelerate platform implementation. Our work is driving greater synergies across the retailer's global brands and building a strong foundation for future growth. The second area, intelligent software engineering services, is focused on developing and delivering the custom systems that our clients are increasingly demanding. With more than 30,000 people, we have one of the largest teams of specialized software engineers and architects solving the most challenging problems in agile and creative ways using data, the cloud, artificial intelligence, and other new technologies. As an example, we're helping Swisscom, Switzerland's leading telecom company, transform into a digital service provider by leveraging our proprietary digital omnichannel platform with AI, machine learning, and analytics. We are increasing the precision and personalization of the customer experience across all their channels. And third, in intelligent cloud and infrastructure services, we provide clients with powerful differentiated solutions from cloud strategy and migration to managed services and cloud security. We are the leading partner of Microsoft Azure, Amazon Web Services, and Google Cloud Platform, which are often at the heart of our clients' agendas to adopt new and leading technologies and rotate their own businesses to 'the New.' To date, Accenture has worked on more than 25,000 cloud computing projects for clients, including 80% of the Fortune Global 100, and we have more than 77,000 people trained in cloud technology. A good example is our work with Del Monte Foods to unlock innovation and streamline their operations by migrating hundreds of servers and critical SAP Enterprise-wide applications to the cloud in less than four months. They're benefiting from a more agile operating environment, real-time customer insights, and a 35% reduction in IP costs, freeing up resources to grow the core business. There are three common threads that run through all of these areas in technology: one is innovation, and in fact, technology is at the heart of our innovation agenda. A great illustration is our AI-powered Microsoft myWizard platform, which you've heard us mention many times previously, which differentiates our service delivery by improving clients' business performance with superior productivity and predictability. We continue to leverage our unique innovation architecture, which integrates our capabilities from research, ventures, labs, innovation centers, and delivery centers. Second is our powerful ecosystem relationships as the largest independent provider of technology services. While scale is certainly a factor, it's also our ability to co-innovate with our partners delivering outcomes and value at speed in 'the New' and looking to the next new that differentiate us in the marketplace. And the final piece that underpins our technology leadership and is pervasive across everything we do is our unmatched industrialized global delivery capability, which uniquely positions Accenture to deliver large-scale complex programs. Let me now switch gears and comment on our continued commitment to invest for long-term market leadership, including operating investments related to assets and solutions, talent and innovation, as well as capital investments to acquire critical skills and capabilities in strategic high growth markets. So far this year, we've deployed approximately $1.1 billion in capital on acquisitions with the majority focused in 'the New' and especially Accenture Interactive where we've completed nine deals so far this year. I'm particularly pleased with the acquisition of Droga5, by far our biggest of the year, which is a large New York-based creative agency that significantly strengthens our capabilities to design, build, and run customer experiences that grow brands and businesses. Before I hand it back to KC, I want to take a moment to acknowledge some of the external recognition we've received. Accenture rose to number 28 on Brandz list of top 100 most valuable brands. And we also achieved our highest ranking ever on Forbes list of the top global brands and we had our highest ever double-digit increases in brand value on both lists. I'm also very pleased that we were named for the first time in Fast Company rankings for innovation. First, in the category of world's most innovative companies and second for world-changing ideas. And finally, Accenture was ranked number one on Barron's new list of the most sustainable international companies. Before I close, I want to briefly mention that our CEO succession process is going very well. As I said last quarter, we expect to complete the process by the end of this fiscal year. With that, I'll turn it over to KC to provide our updated business outlook. KC?

Thanks, David. Let me now turn to our business outlook. For the fourth quarter of fiscal '19, we expect revenues to be in the range of $10.85 billion to $11.15 billion. This assumes the impact of FX will be about negative 2% compared to the fourth quarter of fiscal '18 and reflects an estimated 5% to 8% growth in local currency. For the full fiscal year '19, based on how the rates have been trending over the last few weeks, we continue to assume the impact of FX on our results in U.S. dollars will be approximately negative 3% compared to fiscal '18. For the full fiscal '19, we now expect our revenues to be in the range of 8% to 9% growth in local currency over fiscal '18. For operating margin, we now expect fiscal '19 to be 14.6%, a 20 basis point expansion over fiscal '18 results. We continue to expect our annual effective tax rate to be in the range of 22.5% to 23.5%. This compares to an adjusted effective tax rate of 23% in fiscal '18. For earnings per share, we now expect full year diluted EPS for fiscal '19 to be in the range of $7.28 to $7.35 or 8% to 9% growth over adjusted fiscal '18 results. For the full fiscal '19, we continue to expect operating cash flow to be in the range of $5.85 billion to $6.25 billion, property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $5.2 billion to $5.6 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1 to 1.2. And we continue to expect to return at least $4.5 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?

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

Thank you. Good morning, David. Good morning KC.

Good morning, Ashwin.

I want to start with a question on bookings. Generally, with the book-to-bill lower than one, can you detail a bit? Particularly when I looked at the comment it says 65% of bookings are in the New, which implies a third is from legacy services. Is this what sort of there you have a need to provide clients with higher productivity requirements? Is this a plan we should be looking at more carefully in the future because that's what FX bookings growth and in the New were the growth, is that a visibility question we should be asking with regards to a higher cloud component or higher agile development component? Does that also bring with it low visibility?

Okay. Thanks Ashwin. Let me just cover a lot of the questions there. You have booking, so maybe I will first start with, as I mentioned, bookings really were in the range that we expected and they were quite well balanced. And we'd like that they are about 65% in the New. So just as a reminder, that's well for covering up so long bookings can be lumpy by quarter. So you see that in our results this year where we had really strong bookings, record bookings in Q2. But there are historical patterns; we've always had some lumpiness and variability quarter-to-quarter of bookings. So as it relates to what we're seeing, the second half is really playing out largely as expected. We'd like our position where we are year-to-date. It really is where we anticipated that we would be at this time of the year. And so looking forward and talking about your visibility question. Now, based on the strength of our pipeline and the visibility that we do have, we do see strong bookings in Q4. There's not really an element of the New impacting visibility, we like that we have the majority of our bookings in the New. And we feel that we're really well positioned based on where we are to date with what we can see for Q4 bookings to be well positioned for next year. And I think that really just points to, as you were talking about, our offerings, the relevance of our offerings and our capabilities in the marketplace.

Got it. With the expected improvement in financial services, it's encouraging to see that progress. Looking ahead, should we expect this to continue growing?

We are pleased with the increase in financial services this quarter, which aligned with our expectations. We are particularly happy with the strong growth in North America and the sustained double-digit growth in growth markets. Although Europe experienced a contraction, we observed improvements in banking capital markets. As for the outlook for the remainder of the year, we anticipate that the second half will outperform the first half in financial services, which is consistent with our predictions. We are already seeing the beginning of this trend in the third quarter.

Good morning guys. How are you?

Good morning, Tien-tsin. How are you?

I'm good. Let me ask on the margin side. It looks like gross margin drove the raise in margin guidance. Is that correct? And what would you attribute that to: favorable mix, pricing, contracts, execution, a little bit bumping up overall?

Yes. Hi, Tien-tsin. As you know, we really do run our business first of all to operating margin. So that's really how we manage the business. And the first thing that we do look at within gross margin is how contract profitability is performing. And overall for both the quarter and for the year, we're happy with our improvement in contract profitability. And that really just all starts with pricing, right. So as we have more and more of our work in the new and in areas where we see strong demand and where we have highly differentiated skills, we do see that we're able to price at a better rate than in other areas. So you'll see that that is part of what's driving our gross margin, which is, in fact, a part of driving operating margin. It's also important to note that even within gross margin, we do have our investments, and that's really key for what we're doing. So again, that's why we run our business operating margin, but from quarter-to-quarter, we are also absorbing investments in our people, in our business, in our gross margin as well.

Got it. That's healthy. Regarding Ashwin's questions about the slight fluctuations in bookings, can we simplify this by saying it's just normalization, especially considering the strong performance we had last quarter and the time needed to replenish the pipeline? Bookings were quite strong last quarter.

Yes, Tien-tsin, I want to clarify something since this became a bit of a distraction in the first quarter. We are very pleased with the demand environment, which is evident in our revenue growth year-to-date and the growth we see in our new offerings. We also have a strong pipeline as we concluded the third quarter, which supports our confidence in achieving strong bookings in the fourth quarter. To be clear, we are not worried about bookings; they can vary by quarter and are often influenced by the timing of when large deals close. For instance, some of our major deals might close in June rather than a few weeks earlier in May, but that doesn't impact the overall health of our business or the demand we are experiencing. We remain very encouraged by the demand environment. As KC mentioned, bookings have always had some variability, and I focus on our confidence in the fourth quarter rather than the fact that third quarter bookings were $10.6 billion.

Okay. Message delivered. Thank you.

Hi, guys. Good morning and congrats on the solid results. I just want to ask about strategy and consulting. I know you in the past had hovered around mid single digits; then it bumped up a little bit when the New accelerated into double digits. And then now, I think it decelerated a tad into mid-single digits. So can you just talk a little bit about maybe the ups and downs of that business and the slight deceleration we saw in the quarter?

Yes. Thanks, Bryan. So, overall, as you mentioned, we do feel good about our business in strategy and consulting. And we do feel good about mid-single-digit growth. And we did have very solid bookings this quarter as well. And as you mentioned, the growth will ebb and flow from quarter to quarter. And really, as we look at our strategy and consulting business, just a reminder that there's really kind of a dual purpose of what we're trying to accomplish there. First of all, is just a main objective of the role of delivering strategy and consulting work to our clients. But then also, it's really to bring, as you know, the full scope of our end-to-end services. A lot of the overall transformation work and any of the larger scale deals in the pipeline that we may have are also led by and brought by our strategy and consulting business. So in that context, as we stated before, we see strategy and consulting combined; if it's in the mid, the high single digits, and that will ebb and flow by quarter, we think that's reflective for us.

Okay. Helpful. And as a follow-up, I want to ask about the acquisition. It sounds like it's been about $1.1 billion capital deployed in acquisitions. Can you just talk about how much you plan to spend in acquisitions as we go into next year? Are we still thinking a point or two of acquisitions kind of as a revenue contribution is kind of the right metric to think about?

Yes. Maybe I'll just give some of that financial data and David can talk a little bit more on that. So overall for this fiscal year, we think that we will probably spend based on where we are today very closer to $1.3 billion in acquisitions for acquisitions. And overall for this year, we believe based on what we've seen in the pipeline that we have in front of us and the deals we've already closed, we think the revenue for the inorganic revenue contribution this year will be closer to 2%, probably closer to 1.5% that we had previously mentioned.

In terms of our future plans, our inorganic strategy or acquisition strategy continues to serve as a key driver for organic growth. This focus remains a strategic objective as we move forward. Looking at our achievements year-to-date, I am pleased with our execution. Approximately 80% of our efforts are centered around new initiatives. We have completed several deals in the interactive space, as well as in Industry X.0 and applied intelligence. Additionally, we have made several acquisitions within Accenture Technology, particularly in our intelligent platform services to enhance our skills and differentiate our offerings across various platforms. We have also acquired advanced software engineering capabilities in our intelligent software engineering services. Furthermore, we have a few vertical-specific deals in the works, with a notable emphasis on banking and capital markets, which shows the long-term significance of this industry to us. We have made several investments in banking recently, and this will be a vital aspect of our strategy moving forward, so you can expect more of the same in the future.

Good morning. I have a question about the performance of some of your peers over the past few months. One notable observation is that some of the traditional services seem to be declining. Could you elaborate on what is happening there and what trends you are noticing in those traditional services? Thank you.

First of all, from a business trend perspective, we haven't observed any change in the pattern. If you analyze the information we provide, you might conclude that the 35% is declining, perhaps in the single-digit range, which is a trend we've noticed for a while. To clarify, all our growth, by design, comes from transitioning to new services and the success we've achieved in promoting those offerings. In some cases, we're actually accelerating this transition in the interest of our clients. For instance, we're taking some older services, like legacy application maintenance, and introducing new technology to perform that work more innovatively. As a result, you see those older services decline, but that's intentional. You could say we're cannibalizing ourselves in support of our strategy while still delivering value to our clients. Additionally, within the New, although this isn't a direct comment on market demand, many traditional consulting services fit into this category. While there is still demand for some of those classic consulting services, our main opportunity, and where we're concentrating our skills and efforts, is on the strategy and consulting services associated with work in the New. Therefore, classic services receive less focus and consequently less growth, as we are fully committed to the New. The bottom line is that we haven't seen any change in the growth dynamic between non-New and New services, and everything is progressing as we intend with our strategy.

Got it. Okay, terrific. Thank you. That's helpful. And maybe a quick one for KC. It looks like attrition picks back up a little bit this quarter. Can you just comment on what you're seeing on the labor front? Thank you.

Yes. So it is an 18%. It's in the range that we have been before. At least that's the overall 18%, it's not something that we're concerned about. But I would like to say that within that if I peel back a little bit, I do feel really good and we feel really good about the strong retention rates that we have in the areas that David just talked about, a lot of the strategic high-growth areas of our business including strategy and consulting as well as many other components of the New. And maybe just to close out as a reminder, we really have no issues getting the talent that we need. We are really quite a magnet for talent based on the strategy that we have. Our financial performance is attractive, and overall our talent strategy and the experience that we provide to our people, the right workplace and our culture, our strategy, it's really an environment where innovation is at the heart of everything that we do, and that's very attractive to many people in the workplace.

Thanks, Lisa.

Oh, yes. Hey guys. Thank you. And I guess my first question, I know in the details you send out the New has been over 60% now for four quarters, the prior seven quarters it stuffed up every single quarter. And I think you did call it on this call, it's more like 65% now. But is there any reason that that pace of like change into the New seems to maybe be slowing? I know the growth is really good. But is there anything changing at all there?

I don't believe anything has changed. As we continue to discuss the New in the upcoming quarters, I think you'll observe a similar trend regarding its growth as a percentage of our revenue. By the fourth quarter, where we usually finalize the figures we share externally, I anticipate that the usual pattern will continue to develop.

Okay. Now, that's great. And the other thing, just I know it sounds like the environment remains strong and hasn't changed a lot, but the last seven, eight quarters or so have been kind of in the 8% to 11% constant currency. And I think you're kind of guiding 5 to 8 or so in Q4. Is that kind of the typical set the bar to somewhere that's pretty easy to hit and if you execute well you kind of beat that? Or is there something a little different maybe related to the bookings this quarter that you're just trying to be a little more conservative?

I wouldn't say that our guidance range is any different from our usual practice. For the 5% to 8% range for Q4, we typically aim for the upper end, just like we have historically. There’s no significant change in the bookings for Q3 or what we anticipate in Q4. This is simply our standard approach to evaluating the quarter and establishing the revenue expectations we want to share with you.

Hi. Thanks for taking my call here. I wanted to ask about non-linear growth with your headcount now at 481,000 and it seems like a lot more of the digital world is sort of platforms and non-people based solutions. And if you talk about your investments in that area and where you see it maybe going as a percent of revenue? Thank you.

No. We have talked about that before and at the level that I guess is appropriate for us to talk about in this forum, I will say again that certainly, we believe that non-linear growth over time will be more in the mix. You are right that platform based solutions bringing IP to the table solution aids et cetera which I referenced several in my script are increasingly a bigger part of the services industry and increasingly a bigger part of our differentiation. And so, over time, we will be focused even more. And I'm sure we'll become even better at capturing the value of the IP and the solution aids et cetera that we bring to our clients to deliver services and to deliver value to our clients. The pace at which it happens is harder to predict. We're quite comfortable as we look forward in terms of our ability to manage the SaaS talent organization we have. And as we looked out as you would expect, we do over a multiyear horizon; there's not anything about the progression of our headcount that concerns us in terms of executing our business strategy. So non-linear growth that I think will be more in the mix in the industry, and I would expect Accenture would lead the way, but the timing and the slope of the curve I think is still yet to be defined, and we'll see how that plays out.

Okay. Another question, I think in the past you might have given us a view on the FX for the coming fiscal year. I wonder if you could help us out in that department, your initial views on the FX headwind or benefit in FY'20?

Hi, Ed. We won't provide any FY'20 guidance including FX until we get the full FY'20 guidance that we typically do at the end of our fourth quarter.

Hey, there. Good to talk to you guys. I wanted to ask how you're feeling about the trends and valuations that you're paying for acquisitions. Maybe you can talk about how you're performing against your ROI targets, for your average acquisition that you've completed in recent history.

We are very diligent in monitoring the return on investment for our acquisitions. The management team rigorously reviews this with the Finance Committee and the Board every quarter, making it a significant focus. We are pleased with the performance of our portfolio, especially as we have improved in this area over the past few years. Regarding valuations in certain market segments, they have become quite inflated, and we take this into account when analyzing whether to pursue a buy versus build strategy. We will not overpay for an asset in the market, but we also consider strategic value and scarcity of skills available. In such cases, we may decide to pay a bit more. We approach these decisions very thoughtfully. For example, valuation in sectors like applied intelligence and analytics is quite high, and we manage this within our financial objectives. We are open to taking strategic risks where it makes sense, but our primary focus remains on ensuring good valuation as we aim for strong returns in our strategy execution.

Got it. That makes sense. Just a follow-up on the outlook in consulting growth versus outsourcing growth. I was impressed last quarter with the strength in outsourcing growth and it upticked again this quarter, and while consulting slowed a little bit. So is your outlook for growth in consulting versus outsourcing at a similar clip, or do you expect one to look stronger than the other in the next few quarters as you look at what's happening in the pipeline?

I will give you a little bit of color on how we see that playing out in FY'19. So for the fourth quarter, we've been consulting and outsourcing; both are going to be about mid to high single digits growth, and that would put for the full year both consulting and outsourcing at a high single digit growth range.

Thank you, David, for the detailed explanation of the sensor technology. You described the aspects of intelligent platforms, intelligent software engineering, and cloud and infrastructure. I was curious if you could provide an idea of the sizes of the other two, as I understand that intelligent platforms account for 40% of revenue, which is a significant figure.

I don't think we can communicate that externally. And I don't think I want to do that on this particular call, but we take that point, and we have anticipated that we will start to introduce some quantitative numbers behind those parts of our business. But right now, it's a little bit premature to do that. But expect that we will do that as we move forward.

So maybe a different direction then, KC, you commented in your observations about the operating groups that the platforms which David has described in his prepared remarks have populated very well in CMT. Or, you said it was like a driver of growth – software and platforms you said was the driver growth CMT. Can you give us an idea of how we would use the presence of say platforms in the other operating groups? Do they over-index with any of the other operating groups?

Jamie, thanks for that question because that provides a good opportunity to make sure that we're clear with the use of the word platform maybe. So, platforms that David was talking about that we talk about quite a bit, they are pervasive in all parts of our business, all operating groups, in all parts of our business dimensions. So that's what we talk about when we discuss platforms.

And by the way again in that case when we talk about the platforms, it's the work that we do around SAP, Microsoft, Oracle, Salesforce, and Workday and we refer to that as our intelligent platform services business. That's the work we do around those platforms in that context.

Right. So that's all five of those, and that is pervasive everywhere. When I commented specifically Jamie on CMT; CMT has three industry groups that make up the operating group of CMT. One of which is called software and platforms. So I know that it’s the use of the platforms named twice, but that's why I specifically called that out within CMT. But most importantly, the IPF that David talked about, the five platforms that we quantify in IPF, intelligent platform services are pervasive everywhere.

Hey, good morning guys. So just to clarify on the comment about bookings improving in Q4, do you mean in absolute terms? Do you mean the book-to-bill? Do you mean acceleration in year-over-year growth? Would it be all the above?

Yes. It's pretty much all the above. I mean mainly I'm focusing on absolute terms, but it would generally be all the above.

Okay. Got it. And just on Accenture Interactive, obviously, you mentioned all the deal activity there which is quite interesting, wanting to see if we can just get an update on how fast that business is growing organically or the annualized revenue run rate of it. I know you've talked about it in some Investor Days in the past. I know you've been getting a little bit bigger on the agency record side there. So just hoping to get a general update qualitatively and quantitatively on that part?

Yes. The last time we reported, it was for FY'18, and the figure was $8.5 billion. This year, the business has continued to grow at a strong double-digit rate. To put it another way, it's very strong double-digit growth, not in the teens but even higher. That growth is ongoing. While the acquisitions are important and we've successfully executed our growth strategy in the context of this $8.5 billion plus business, the vast majority of that growth is organic. It’s primarily driven by organic development, with strategic acquisitions serving as a catalyst for the organic growth that ultimately contributed to reaching over $8.5 billion.

Greg, we have time for one more question, and then, David will wrap up the call.

Hi, good morning. Thank you. I wanted to follow up on margin question from earlier. So you’ve had solid performance this year. Can you comment on what's being done differently this year to yield that margin expansion, really getting back on track for your model versus last year? Because I think you called that contract profitability earlier, but any other particular factors that are standing out?

Thanks for the question, Bryan. We're really focused, as I mentioned before, on pricing. So we're always focused on pricing and I talked about this a little bit last quarter. That's nothing new, but we continue to really be taking a look at our business in terms of getting the right value for the offerings that we're bringing and pricing out the right way in the marketplace. The benefit for us would also as well as make sure that we're doing the right arrangements for our clients. So I think that's really what I would say is the difference that is yielding probably most of the power within our margins is what we're able to do in pricing.

Okay. That's helpful. And then, just to close out here.. Industry X.0, it seems like peers are also emphasizing connected products in IoT with a pickup in recent deals. Can you give us an update just on that business how you see this space, how you feel about the outlook and then any metrics you can share on that business?

I mean it is central to our strategy. We're super excited about the potential and Industry X. We've said that many times before; it is relative to Accenture Interactive, which still has a big growth proposition in front of it. Industry X is lower on the maturity curve if you will. And so there's a lot of runway in front of Industry X.0. In many ways, it's still relatively immature. But we are working hard to be positioned right at the heart of that wave. And we're well positioned now to be a leader in that way. So we're very focused on it. It is a top short list strategic objective, and we're excited about the market potential.

Thank you.

Alright. Thank you. Okay. So, thanks again for joining us on today's call. And as you can tell, we feel very good about where we are and confident in our ability to finish the year strong. With our highly differentiated capabilities, continued investments across Accenture, and disciplined execution of our growth strategy, we're very well-positioned to continue delivering profitable growth and significant value to all of our stakeholders. We look forward to talking with you again next quarter. And in the meantime, if you have any questions, as always, please feel free to call Angie and her team, and I hope all of you have a great day. Thanks.