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Accenture PLC (NYSE:ACN)
Q3 2018 Earnings Conference Call
June 28, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, we'd like to thank you for standing by, and welcome to Accenture's Third Quarter Fiscal 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, with instructions being given at that time. If you should require any assistance throughout today's call, please depress *0 and one of us will be with you immediately. And, as a reminder, today's conference call will be recorded. I would now like to turn the conference over to our host and facilitator, as well as our Managing Director, Head of Investor Relations, Angie Park. Please go ahead.

Angie Park -- Managing Director, Head of Investor Relations

Thank you, Steve, and thanks, everyone, for joining us today on our Third Quarter Fiscal 2018 Earnings Announcement. As the operator just mentioned, I'm Angie Park, 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 for the third quarter. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the fourth quarter and full fiscal year 2018. We will then take your questions before Pierre provides a wrap-up at the end of the call.

As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursements or net revenues. Some of the matters we'll discuss on this call, including our business outlook, are forward-looking, and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed on 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 on 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.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thank you, Angie, and thanks, everyone, for joining us today. Accenture had a truly outstanding third quarter. We delivered excellent results from new bookings and revenues to operating margin, EPS, and cash flow, and we gained significant market share once again. The durability of our performance demonstrates the relevance of our growth strategy and our ability to continue delivering strong results and returns for shareholders, while at the same time investing significantly in new growth opportunities to strengthen our position for the long term.

Here are a few highlights from the quarter. We delivered record new bookings of $11.7 billion, we grew revenues 11% in local currency to $10.3 billion, and our growth continues to be well balanced across the dimensions of our business. We delivered earnings per share of $1.79 on an adjusted basis, a 19% increase. Operating margin was 15.7%, an expansion of 20 basis points on an adjusted basis. We generated very strong free cash flow of $1.8 billion, and we returned approximately $1.6 billion in cash to shareholders through share repurchases and the payment of our semiannual dividend.

So, we are entering the fourth quarter with excellent momentum in our business and I feel confident that we are very well positioned to deliver our business outlook for the year. Now, let me hand over to David, who will review the numbers in greater detail. David, over to you.

David P. Rowland -- Chief Financial Officer

Thank you, Pierre, and thanks to all of you for taking the time to join us on today's call. As you heard in Pierre's comments, we're extremely pleased with our results in the third quarter, which once again reflect strong momentum across every dimension of our business. Based on the strength of our third-quarter results and the strong confidence and visibility we have in our fourth quarter, we will be increasing key elements of our full-year outlook, which I'll cover in more detail later in our call. Importantly, both our third-quarter results and our updated outlook for the full year reflect very strong execution against all three financial imperatives for driving superior shareholder value, which I covered in some detail at our Investor/Analyst Day in April.

So, before I get into the details of the quarter, let me summarize the major headlines of our third-quarter results. Net revenue increased more than $1.4 billion, reflecting growth of 11% local currency and representing the third consecutive quarter of double-digit growth. The strong top-line growth exceeded our expectations and reflected strong and balanced growth across all operating groups and geographic areas, with several growing double digits. Growth continues to significantly outpace the market, reflecting both our leadership position in the New and the durability of our diverse yet highly focused growth model.

Operating margin of 15.7% expanded 20 basis points compared to adjusted operating margin last year, consistent with our expectations, and reflected strong underlying profitability, which allowed us to invest at scale in our people and our business. And, we delivered very strong EPS of $1.79 on an adjusted basis, up 18% over fiscal '17 adjusted EPS. And, our free cash flow of $1.8 billion reflected both our strong profitability and excellent VSOs. We continue to execute our strategic capital allocation objectives, with year-to-date investments of over $450 million in acquisitions and roughly $3.8 billion returned to shareholders via dividends and share repurchases.

With that said, let me turn to some of the details, starting with new bookings. New bookings were $11.7 billion for the quarter, the highest level of new bookings in our history, and represents 15% growth in local currency. Consulting bookings were $5.9 billion with a book-to-bill of 1.0 and outsourcing bookings were $5.8 billion with a book-to-bill of 1.3. Our new bookings were extremely well balanced across the dimensions of our business. Accenture Interactive, Accenture Applied Intelligence, Accenture Industry X.0, as well as Cloud and Security, were all important themes and represented roughly 60% of our total new bookings.

Turning now to revenues, net revenues for the quarter were $10.3 billion, an increase of 16% USD and 11% in local currency, reflecting a foreign exchange tailwind of roughly 5% compared to the 5.5% impact provided last quarter. This result was approximately $200 million above the upper end of our FX adjusted range. Consulting revenues for the quarter were $5.7 billion, up 18% in USD and 12% in local currency, and our outsourcing revenues were $4.6 billion, up 14% in USD and 10% in local currency.

Looking at the trends in estimated revenue growth across our business dimensions, the overriding theme was strong and balanced growth across all business dimensions. We saw an uptick in Strategy and Consulting Services, which grew high single digits, while both Application Services and Operations posted double-digit growth. And, the New, including Digital Cloud and Security, continued to deliver very strong double-digit growth reflecting many of the market themes and key points of differentiation, which we discussed at our Investor/Analyst Day.

I'd like to also highlight the strong demand for Intelligent Platform Services, which continued to be an important contributor to our growth. As you know, Intelligent Platform Services brings together our industry, functional, and next-generation application capabilities powered by our innovation architecture to drive mission-critical programs for our clients, and these services primarily relate to deploying next-generation technologies in SAP, Oracle, Microsoft, Salesforce, and Workday.

Taking a closer look at our operating groups, Communications, Media, and Technology led all operating groups with 18% in local currency, reflecting continued strong momentum in many parts of the business, especially Software and Platforms and Communication and Media, which both posted double-digit growth, as well as double-digit growth across all three geographies. Resources grew 12% in the quarter, driven by strong double-digit growth in Energy and Chemicals and Natural Resources. We continue to see strong demand for our services across all geographies with double-digit growth in North America and the growth markets and strong growth in Europe.

Products delivered its 12th consecutive quarter of double-digit growth with 11% growth in the quarter, led by Industrial and Consumer Goods, Retail, and Travel Services. Growth was strong across all geographies with double-digit growth in both Europe and the growth markets. Financial Services grew 8% in local currency, reflecting strong growth in both Banking and Capital Markets and Insurance. Growth was strong across all three geographies, led by double-digit growth in the growth markets. Finally, H&PS grew 7%, driven by double-digit growth in Public Service. We continue to be pleased with double-digit growth in Europe and the growth markets and solid growth in North America.

Moving down the income statement, gross margin for the quarter was 32.2% compared to 32.8% in the same period last year, sales and marketing expense for the quarter was 10.7% compared to 11.1% for the third quarter last year, and our general and administrative expense was 5.7% compared to 6.2% for the same quarter last year. We have two items impacting metrics this quarter. As a reminder, in Quarter 3 last year, we recorded a settlement charge related to the termination of our U.S. pension plan. In this quarter, we recorded charges of $122 million related to tax law changes, which increased our Quarter 3 tax rate by 7.6% and decreased diluted earnings per share by $0.19. The following comparisons exclude those impacts where applicable and reflect adjusted results.

Operating income was $1.6 billion in the third quarter, reflecting a 15.7% operating margin, an increase of 20 basis points compared to adjusted operating margin in Quarter 3 last year. Our adjusted effective tax rate for the quarter was 26.8% compared to an adjusted effective tax rate of 26.6% for the third quarter last year. Adjusted diluted earnings per share were $1.79 compared to an adjusted EPS of $1.52 in the third quarter last year, and this reflects an 18% increase over last year's result. Day services outstanding were 39 days compared to 40 days last quarter and 41 days in the third quarter of last year. Our free cash flow for the quarter was $1.8 billion, resulting from cash generated by operating activities of $2 billion net of property and equipment additions of $174 million. Our cash balance at May 31st was $3.9 billion compared with $4.1 billion at August 31st.

With regards to our ongoing objective to return cash to shareholders, in the third quarter, we repurchased or redeemed 4.7 million shares for $720 million at an average share price of $153.60 per share. At May 31st, we had approximately $1.4 billion of share repurchase authority remaining. Finally, as Pierre mentioned, on May 15th, 2018, we made our second semiannual dividend payment for fiscal '18 in the amount of $1.33 per share, bringing total dividend payments for the fiscal year to approximately $1.7 billion. So, in summary, we're extremely pleased with our outstanding third-quarter results and now focused on Quarter 4 and closing out a strong year. Now, let me turn it back to Pierre.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thank you, David. At our Investor and Analyst Conference in April, we provided an update on our strategy of building differentiated capabilities for the digital world, applying innovation at scale and ensuring that we anticipate the impact of the next wave of technology disruption for our clients. Our excellent results for the third quarter demonstrate that we continue to execute this strategy very well. The end-to-end capabilities we have built at scale and in an industry context are unique in the marketplace. Our ability to integrate these services, from strategy and consulting to digital technology operations and cybersecurities, enables us to deliver targeted business outcomes for clients. Our rapid rotation to the New -- Digital Cloud and Security -- continues to drive significant growth for Accenture. Revenues in the New again grew at a very strong double-digit rate in the third quarter and accounted for about 60% of total revenues for the first time, highlighting that the New has now become the core of our business.

Digital transformation is now a clear imperative for our clients and we are uniquely positioned to deploy digital services end to end at scale across industries and geographies. With Accenture Applied Intelligence, we are bringing together our capabilities in data analytics and artificial intelligence combined with our deep understanding of industries and business functions to help clients reimagine their core processes. With Bepensa, a Coca-Cola bottler in Mexico, we are leveraging the Accenture Insights platform to mine the data from 2 billion transactions a year to provide a holistic view of the business, better serve its 300,000 daily customers, and significantly increase market share.

We are also gaining significant traction with Accenture Industry X.0, where we are reinventing manufacturing with smart connected products and services using advanced technologies, including the Internet of Things, connected devices, and digital platforms. We are helping BSA Group, the Italian manufacturer, expand beyond products into digital services. BSA is rolling out connected services ranging from maintenance alerts to in-depth analytics across an install base of 20,000 industrial machines, driving new revenue streams as well as significant cost savings. And, we continue to build our Industry X.0 capabilities. This month, we announced our agreement to acquire design affairs, a design firm based in Germany that specializes in smart products and services for manufacturers. This complements very well our acquisition of Mackevision in the second quarter.

Accenture will remain the partner of choice for the world's leading companies on large-scale, mission-critical transformation programs, and our ability to mobilize and integrate end-to-end services to deliver value and business outcomes is clearly setting us apart in the marketplace. We are helping Dow DuPont with the post-merger integration of Dow Chemical and DuPont as well as preparations for their planned spinoffs. We are expanding the scope of our services to include substantial work in digital, strategy, and management consulting with the goal of enabling each of the future companies with the distinctive capabilities needed to lead in their respective markets.

Turning now to the geographic dimension of our business, I'm just very pleased that we again delivered strong growth in the third quarter across all three of our geographic regions with double-digit growth in most of our major markets. Starting in North America, we delivered 11% growth driven by further acceleration in the United States. In Europe, revenues grew 9% in local currency driven by strong double-digit growth in Germany, Italy, Ireland, France, and Spain. And, in growth markets, I'm delighted that we delivered another exceptional quarter, with 17% growth in local currency, led once again by very strong double-digit growth in Japan as well as double-digit growth in Australia, Brazil, and Singapore.

Before I hand it back to David, I want to take a moment to touch on Accenture's role in helping to solve important societal challenges. Trust and responsibility are increasingly critical in evaluating companies as a potential partner, employer, or investment, and at Accenture, we feel a responsibility to encourage the use of emerging technologies as a positive force for the economy and the broader society. For example, we are using blockchain and biometrics to support ID 2020, which is helping to solve the challenges of identity faced by more than $1.1 billion people around the world. In Japan, we used artificial intelligence and machine learning to create a revolutionary system to dispatch emergency vehicles more quickly, ultimately saving lives.

And, I'm particularly proud of the work our people do across the Accenture Labs in Bangalore, Dublin, San Francisco, and Sophia Antipolis to use cutting-edge technology in innovative ways through our Tech for Good initiative, like our A.I. smartphone solution that helps the blind navigate the world and lead more productive lives. Creating innovative solutions that improve the way the world works and lives is our mission at Accenture, and quite simply, the right thing to do. With that, I will turn the call over to David to provide our updated business outlook. David, again, over to you.

David P. Rowland -- Chief Financial Officer

Thank you, Pierre. So, let me now turn to our business outlook. For the fourth quarter fiscal '18, we expect net revenues to be in the range of $9.8 billion to $10.05 billion. This assumes the impact of FX will be about flat compared to the fourth quarter of fiscal '17 and reflects an estimated 7% to 10% in local currency. For the full fiscal year '18, 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 positive 3% compared to fiscal '17. For the full fiscal '18, we now expect our net revenues to be in the range of 9.5% to 10% in local currency over fiscal '17.

For operating margin, we continue to expect full fiscal '18 to be 14.8%, consistent with adjusted fiscal '17 results. We now expect our annual effective tax rate to be in the range of 27% to 28%. The increase in our guidance from last quarter is primarily due to the $122 million tax charge that I mentioned earlier. The charge includes two components: An additional $41 million provisional charge related to the adoption of the U.S. Tax Act as well as an $81 million expense from a non-U.S. tax law change. Excluding the impact of these tax law changes, we now expect our adjusted annual effective tax rate to be in the range of 22.5% to 23.5%.

For earnings per share, we now expect our diluted EPS for fiscal '18 to be in the range of $6.26 to $6.31. Excluding the impact of tax law changes, we now expect adjusted full-year diluted EPS to be in the range of $6.66 to $6.71, or 13% to 14% growth over adjusted fiscal '17 results. For the full fiscal '18, we now expect operating cash flow to be in the range of $5.5 billion to $5.8 billion, property and equipment additions to be approximately $600 million, and free cash flow to be in the range of $4.9 billion to $5.2 billion. Finally, we continue to expect to return at least $4.3 billion through dividends and share repurchases and continue to expect to reduce the weighted average diluted shares outstanding by about 1% as we remain committed to returning a substantial portion of our cash to our shareholders. With that, let's open it up so we can take your questions. Angie?

Questions and Answers:

Angie Park -- Managing Director, Head of Investor Relations

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. Steve, would you provide instructions for those on the call?

Operator

Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please depress *1. You will hear a tone indicating that you have placed yourself in a queue and all questions will be pulled in the order they are received. Our first question will come from the line of Jason Kupferberg of Bank of America. Please go ahead.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, guys. How are you?

David P. Rowland -- Chief Financial Officer

Good morning, Jason. How are you?

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Good, thanks. Great set of constant currency results here, obviously. So, we're just continuing to get a lot of questions around FX, just given some of the recent moves. I wanted to just get some of your initial thoughts. If FX spot rates today or in recent weeks were to, in theory, hold going forward, how should we think about the potential FX headwind to revenue and EPS next year, just so we can start to get our models calibrated?

David P. Rowland -- Chief Financial Officer

Yeah, this will be the only comment I'll make relative to next year quantitatively, by the way, but I don't mind saying this because it's just really an extrapolation of the math. As we do our analysis -- so, looking at the rates that we used as a basis for the FX impact that I just provided for this year -- if those rates were to hold constant as we do our analysis, it would create a headwind of about 2%, so it would have a negative 2% impact on our results next year.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Okay, both top and bottom line?

David P. Rowland -- Chief Financial Officer

Yeah, essentially.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Okay, great. So, just as my follow-up, obviously, really good to see the constant currency top-line raise for this year. Is most all of that organic? I know you did announce a couple of additional acquisitions since the last earnings call, but it didn't seem like there'd be enough time left in this year for them to contribute much. So, are we still thinking 2.5%-ish for M&A contribution in fiscal '18?

David P. Rowland -- Chief Financial Officer

Yeah, the beat, if you will, in Quarter 3 was 100% organic, and therefore, that's the basis for us raising our guidance for the year. There is no change in our view on inorganic for the full year. We still think we'll end the full year with it making about a 2.5% contribution, and against that 2.5% contribution for the year, it was a little higher than that in the first half of the year, it's a little lower than that in the second half of the year, and averages to about 2.5% for the year.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Okay. Well, nice job. Thanks for the comments.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Our next question will come from the line of Tien-tsin Huang of JPMorgan. Please go ahead.

Tien-tsin Huang -- JPMorgan Chase -- Managing Director

Good morning.

David P. Rowland -- Chief Financial Officer

Good morning, Tien-tsin.

Tien-tsin Huang -- JPMorgan Chase -- Managing Director

Good morning. Good revenue acceleration here. So, on the revenue front, I'll ask if there are any callouts on what surprised you -- perhaps Strategy Consulting accelerating. Just curious what drove the -- I think you said $200 million above the FX adjusted range to the top line of the guidance.

David P. Rowland -- Chief Financial Officer

The good news is that the additional revenue was really broad-based. Literally, every operating group delivered above their expectations. As you might guess, the strongest over-delivery came from the three operating groups with the double-digit growth -- so, CMT, Products, and Resources were the biggest contributor to the strong revenue performance. As you also alluded to -- and, I called out in my script -- Strategy and Consulting combined was also quite strong, high single digits, and we were very pleased with that. But, it was -- really, the over-delivery from a top-line standpoint was broad-based and I think it aligns with the fact that we had such strong, broad-based, record-setting new bookings that underpinned that, and just reflective of the strong momentum in the market overall.

Tien-tsin Huang -- JPMorgan Chase -- Managing Director

Sure, good. So, my follow-up, quickly, is just on the outsourcing bookings -- that 1.3x book-to-bill. So, what's the -- are larger deals back? Just curious of anything chunky that contributed to that, or if there's anything unusual.

David P. Rowland -- Chief Financial Officer

Yeah, as you would expect, we had some larger deals in there. We had a couple larger deals in particular. I think the total number of deals more than $100 million -- I didn't say it, but it was...I think it was 12, if I'm remembering that correctly, and so, that is in the zone, probably, on the high end of what we see in a typical quarter. I don't know that big deals are back, necessarily, because we've always had a good flow of big deals, but as we look at our pipeline going forward, what we call our mega pipeline actually looks really good. And, actually, I'm being told that we had 13 deals over $100 million, not 12.

Tien-tsin Huang -- JPMorgan Chase -- Managing Director

Off by one. Yup, that's in the zone. Thank you, sir.

David P. Rowland -- Chief Financial Officer

Thank you, Tien-tsin.

Operator

Bryan Bergin of Cowen. Please go ahead.

Bryan Bergin -- Cowen and Company -- Director

Hi, good morning. Thank you. I wanted to ask on the headcount growth versus revenue growth. Can you comment on whether you're seeing any change in the inflection of the resource requirements that you need for this high level of growth due to better automation traction of the Platform business? And then, can you just give us some color on the pickup penetration?

David P. Rowland -- Chief Financial Officer

Yeah. So, our headcount growth did grow at a pace below our revenue growth, and we have seen that several quarters if you look over the last eight quarters or so. Certainly, there's the potential for that trend to be more common as we look forward, both as it relates to the productivity efficiencies that we will drive into the business, including through technology, and as well, we are always constantly focused on pricing improvement and increasing the revenue yield per head in our revenue. And so, it is a part of our strategy of extracting more value from our business for our shareholders and our employees, and in a perfect world, we would see a higher revenue yield per head going forward, and our challenge is to achieve that through the mix of our services, the pricing, et cetera.

On the attrition front, there's not anything we're particularly concerned about. The attrition did tick up, but we feel very good about our ability to attract the talent in the marketplace that we need. We are an employer of choice, certainly, in our sector. We have no issues recruiting the people that we need in the market, and we also are quite pleased with our overall retention, including retention of critical skills, even with what was a slight tick-up in overall attrition. So, we don't have any particular concerns there.

Bryan Bergin -- Cowen and Company -- Director

Okay, thanks. And then, on the H&PS segment, have you seen improvement in those healthcare contracts that you cited last quarter? Anything around the contract profitability? Thank you.

David P. Rowland -- Chief Financial Officer

Yeah, very pleased with the H&PS profitability, as we were all the operating groups. Every single operating group -- if you look at this concept of underlying profitability that we talk about sometimes at the Accenture level, which is the underlying profitability above and beyond our reported profitability where we'll use the headroom to invest in our people and our business. Every single one of our operating groups had really strong improvement in underlying profitability. Now, underneath that, they had investments, et cetera, that are reflected in the operating margin numbers that we report, but we were quite pleased with all our operating groups, and H&PS included, which did show sequential improvement in profitability, and that is as we expected and as we signaled in the first half of the year.

Bryan Bergin -- Cowen and Company -- Director

Thanks.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Jamie Friedman of Susquehanna Financial Group. Please go ahead.

David P. Rowland -- Chief Financial Officer

Good morning, Jamie.

Jamie Friedman -- Susquehanna Financial Group -- Analyst

Hi, thank you. Good morning, guys. Good set of results here. I'm sorry if I don't have the greatest connection, but David, I wanted to ask you -- in your prepared remarks, I thought you said something that was new -- at least, new to me -- where you decomposed the bookings. It was the Industry X.0 and the Interactive. I thought you said 60%. If you wouldn't mind just repeating that if you have that there, that would be helpful.

David P. Rowland -- Chief Financial Officer

It was a subtle change, and frankly, the intent was to -- we talk about the New so much that I was just taking the opportunity to remind people what are the components of the New, so I called out the five components by name, and the only intent was, again, to remind the components of the New, especially as we have changed some of the terminology as we've evolved Digital to talk about Accenture Interactive, Accenture Applied Intelligence, and Accenture Industry X.0. And, the New overall -- so, those five components in aggregate -- represented about 60% of our total bookings, and that's consistent with the comment that Pierre made, where, from a revenue standpoint, the New represents approximately 60% of our revenues at this point as well.

Pierre Nanterme -- Chairman and Chief Executive Officer

Maybe I can jump on this one because nobody's asking me any questions. They're all for you, David, so I'm jumping on it. You mentioned that we have evolved the terminology, but of course, it's more than the terminology, and the reality is that we are constantly evolving the content of our capabilities in the New. Accenture Interactive has been there since day one. No change. We continue growing, developing, and scaling.

We have Accenture Mobility around enterprise apps and connected platforms. We've evolved now to Industry X.0 to build a capability totally focused on smart and digital manufacturing, same thing we've been doing with Accenture Analytics. We upgraded this year to Accenture Applied Intelligence by adding on top of the analytics machine learning and applied intelligence. So, it's important for all of you to understand that almost every year or every couple of years, we will always significantly improve, upgrade what we're calling the New to make sure we are always ahead of the curve and bringing innovation at the heart of our existing capabilities.

Jamie Friedman -- Susquehanna Financial Group -- Analyst

Thanks, Pierre. And then, I did have one for you, Pierre, which was with regard to the growth in Strategy Consulting and Application Services, is it fair to think of those as lead indicators for the company, or would that be an exaggeration?

Pierre Nanterme -- Chairman and Chief Executive Officer

No, I think for us, it's important to be growing Strategy, Management Consulting, and Intelligent Platforms -- so, the added-value part of our system integration -- because it's demonstrating that what we are selling is highly differentiated, is more at the high end of the value chain of our services, and of course, it is important in the context of contributing to our margin, and ultimately, profitability.

So, I'm very pleased that we moved Strategy Consulting to high single digits. I think this is a good place to be, and it's the demonstration that our services are more and more differentiated with that piece, which is clearly around industry-specific solutions and very cutting-edge consulting work. Same with Application Services. The system integration piece is on fire, right? And, especially with what we're calling the Intelligent Platforms. So, all these new digital artificial intelligence analytics-rich platforms where we are leading with all of them to be next in the marketplace, and again, it's a significant contributor to our rotation to the New. So, it's a sign of good health. You're absolutely right.

Jamie Friedman -- Susquehanna Financial Group -- Analyst

Thank you.

Operator

James Schneider, Goldman Sachs. Please go ahead.

David P. Rowland -- Chief Financial Officer

Hey, good morning, Jim.

James Schneider -- Goldman Sachs -- Managing Director

Hey, good morning, David. Just a question on the CMT. That continues to be very strong there, and the growth, you think, could be accelerated even further. Could you give us a sense about what the components of that growth are and what kind of work you're seeing there that maybe you didn't see a year or two ago? Is there anything incremental on that front?

Pierre Nanterme -- Chairman and Chief Executive Officer

I'll take this.

David P. Rowland -- Chief Financial Officer

Go ahead, Pierre.

Pierre Nanterme -- Chairman and Chief Executive Officer

CMT -- we talked a lot about CMT these last years. Needless to say, it's a set of industries under massive transformation. If you take the different components -- high-tech, telecom, and what we're calling software and platforms -- software and platforms are the driving force of the growth in terms of CMT because these companies are investing massively in the context of leading in the market. So, here, the business is to support the leaders providing -- you know the names -- the leading platforms in the marketplace. So, we're supporting them in supporting their growth, and we are an enabler of that growth.

On the other side of the spectrum, you will find telecom. Telecom is more transformational. These companies are facing significant challenges, and you know now they're embarking on some massive M&A consolidation. And so, a lot's happening, including they're all launching new networks. We're moving from the third to the fourth to the fifth-GV, you put the fiber on top of it, so they need to continue investing, and again, they need people like us to support their transformation as well as being an enabler of their network implementation.

And then, in between, you have the high-tech, and high-tech companies, again, are not only CMT companies, but they're enablers of many industries in providing the equipment, providing the technology, and I'm extremely pleased with the progress we're making in high-tech across the board, especially with some recent excellent progress we have made with aerospace and defense, where we decided to focus on a very promising industry, and with the focus we put as administration on this industry, it is a good contributor to our overall growth. So, three different segments with three different sets of issues that we are the enabler of that change, that transformation, and ultimately, their leadership in the marketplace.

James Schneider -- Goldman Sachs -- Managing Director

Thanks, that's helpful. And then, regarding the tax rate, David, I know you said you wouldn't talk about fiscal '19, but can you maybe just talk about your overall tax rate -- your overall tax planning, how that's evolved over the last few quarters or so, and whether you think that there's any kind of change to what you've previously said about the tax rate on a go-forward basis given all of that context?

David P. Rowland -- Chief Financial Officer

First of all, it goes without saying that the tax environment continues to be highly complex and fluid, if not even volatile, perhaps. And so, it is a significant effort with a lot of talented people that stay on top of our tax planning and all of the matters and policy progression and all the tax jurisdictions around the world. You're right -- I'm not going to comment on FY '19 beyond what I have said previously. I would prefer that we just give one update in September when we provide guidance.

There's basically two statements that I've made -- or, that we've disclosed -- just to remind you. So, one thing that we disclosed that I've commented on is the accounting change on income tax effects of intercompany transfers, the ASU 2016-16, and we've disclosed that in isolation, that would have about a 3.5% impact on our tax rate, and so, that's one item that we've called out which is in our future. Now, that impact would be in isolation, and obviously, there are other elements of our tax planning that we're constantly working on, and so, that's not to imply necessarily that that would be the ultimate impact, but that item alone will have that impact, and of course, the other item that we called out, obviously, is the U.S. tax reform, and previously, we had said that that would create modest upward pressure on our tax rate. And so, those are really among a longer list of items that we're focused on, those are the two things that we've talked about the most and that we've had disclosures on.

James Schneider -- Goldman Sachs -- Managing Director

Thank you.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Harshita Rawat of Bernstein. Please go ahead.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Hi, good morning. Thank you for taking my question. So, Pierre, it does appear that we are in one of the strongest enterprise IT demand environments in many years. Do you have a sense of whether this is cyclical in tax-reform-related uptick, or is this more structural in nature because IT is, again, perceived to be more of an investment area versus a budget that needs to be managed?

Pierre Nanterme -- Chairman and Chief Executive Officer

I tend to believe it's more structural than something which is more cyclical or on the short term, and for many reasons. First, it's incredibly pervasive across all the industries. So, when you look at our rotation to the New, it's amazingly consistent across all our industries, whether you're taking the B2C, and now the B2B. Same thing -- it's amazingly consistent across the world. When you look at the rotation to the New from the U.S., to Europe, to Brazil, Australia, and Japan, you see the same level of demand across the world. So, it's something which is extremely significant. Next, when you look at this IT revolution -- and, let's call that digital revolution -- it's coming through waves. So, it's not one thing. It is now a continuous flow of new technologies coming one after the other to change the game.

So, we started with some basic internet technology solutions, more on the B2C. Now, we're moving to look at it everything connected. If you look at this, that would be a big market in itself -- so, what we're calling the Internet of Things, but, everything connected. Then, you move to the artificial intelligence at large. Everybody would believe we are more at the very beginning of this wave than anything else. Then, the blockchain. We took it the last three years and incubated it. Now, it's starting to pick up, and by the way, we have put our act together, we have made significant investments, and now, we're taking a position of leadership in this blockchain technology.

And, it's not enough. You move into immersive realities, virtual realities, and then you have the new IT and the new ways of developing systems -- DevOps, Agile -- and then, I can continue with quantum computing. So, look at the series of incredible digital technology disruptions. Where, in the past, probably, you would have one for 40 years, now, you have one every 18 months. So, I tend to believe we are in a true fourth industrial revolution based on digital, and it's something which is going to be more secular than cyclical.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Great, thank you. And, just as a follow-up, against this context of this growing IT demand environment, is there any change in your thinking about your continued ability to hire and retain talent in this tightening labor market?

Pierre Nanterme -- Chairman and Chief Executive Officer

We have no issue to make it. I know the data -- when you look at this and you take it to your microscope, you will see some tick-up in the attrition, but we are in the zone, as David said rightfully. The reality is are we able to attract the best talent in the marketplace? Sometimes, we call them iconic talent from the outside. The answer is yes. Are we retaining our best managing directors? We have, and we have now 7,000 managing directors. The level of attrition is incredibly low in the ranks of our managing directors. Every day, we have people willing to join Accenture.

And, finally, our brand is attractive, and the brand is attractive because of the success of the rotation to the New and the pivot we've been executing to be now perceived -- it's not a perception, it's a reality -- as a highly innovative company accommodating multiple cultures in the same company, from designers, to business scientists, to the more classic programmers and developers, and to people extraordinarily knowledgeable in leading and cutting-edge IT. Plus, all the effort we made to make Accenture what we call a truly human -- Tech for Good, what I mentioned in my script.

All of this is creating an environment which I tend to believe is very attractive. Evidence is recently, we won many awards in terms of the best place to work, most attractive place to work, and I'm very pleased that you're giving me the opportunity to mention that, that we're not only the best place to work for everybody, but as well, with a great sense of diversity in it. So, we have received many recognition for women, for LGBT, and I'm extremely pleased that we are attractive for everybody, as we should. All the talent, all the background, all the different gender, and all the diversity, and we have a good brand supporting that.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Perfect. Thank you very much for taking my question.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thank you.

Operator

Rod Bourgeois of DeepDive Equity. Please go ahead.

David P. Rowland -- Chief Financial Officer

Good morning, Rod.

Rod Bourgeois -- DeepDive Equity -- Head of Research and Consulting

Hey, good morning. Good to talk to you guys. Hey, within the Intelligent Platforms business, where you work on ERP systems, can you talk about which ERP platforms are contributing the most to your growth? And also, perhaps, the software market trends that are catalyzing your demand in that ERP services space?

Pierre Nanterme -- Chairman and Chief Executive Officer

As you know, Rod, we're working with all the usual suspects from a platform standpoint. So, I would mention the names you all know in the leading platform, from SAP, Oracle, Microsoft, Salesforce, and Workday, to mention the names everybody would know. All these platform providers -- these are the rotation to the New. So, the ones that were not in the cloud are now in the cloud, and all of them, as they have added features in terms of analytics, in terms of artificial intelligence insight -- that's why now, we're calling them at Accenture "Intelligent Platforms," because they are not anymore the old ERP we knew. They are ERPs in the cloud, rich in terms of new functionalities, analytics, and artificial intelligence.

So, this market has been very good for Accenture. We've been driving excellent growth from our -- let's call that the ERP business or Intelligent Platform business. We are, again, the partner of choice, and the market is vibrant as well because many clients have been waiting for the new platforms to arrive, to upgrade and move, and I believe that we are more at the beginning of this wave of replacing the old ERP with the new one because it's going to drive lots of benefits in terms, again, of leveraging the cloud, leveraging analytics, and leveraging artificial intelligence. So, we have a very strong position. We organized our capabilities in our operating group as well as in Accenture technology to have at-scale capabilities to support all these leading platforms, and we are getting a very good return.

Rod Bourgeois -- DeepDive Equity -- Head of Research and Consulting

That's helpful. And, just a quick follow-up -- can you give any color on the relative contributions of the components of New to your overall growth? I'm particularly interested in your view on which component in the New has the most future potential to evolve with success akin to the Accenture Interactive business. So, as an example, is IoT the best candidate for future growth potential, or is something else catching your attention there?

Pierre Nanterme -- Chairman and Chief Executive Officer

I would say all our new babies have the potential to grow successfully for many years. Now, in the family, some are already operating at scale -- grown up. You mentioned Accenture Interactive, now three years in a row No. 1 in Advertising Age as the fastest-growing and largest digital expense agency. By the way, I'm pleased that you gave me the opportunity to mention to your group that we won seven awards at the Cannes Lions with an acquisition we made in Dublin with a company called Rothco. So, we are in the interactive game big-time, we are winning -- not only awards, but as well, big clients.

So, with Accenture Interactive, it's scaled to lead in the world. It's more mature than the others. Next, I would mention, certainly, Cloud as well is more scaled to lead. These two are scaled to lead. Then, Applied Intelligence is, as well, at a very significant scale, but the name of the game for us is to infuse the latest cutting-edge artificial and algorithmic technologies in that unit we're calling Applied Intelligence. And then, we have two with big potential to grow because they are not yet operating at the same scale. I'm thinking about Accenture Security, where we have put together all our cybersecurity capabilities, and it's growing -- David would say "strong double digits." I would probably add "hyper-strong double digits" just to give you a sense that it's a bit more than strong double digits.

And, the last one we launched was Industry X.0 that I mentioned, which is all the digital applied to manufacturing. This is clearly, for us, a significant investment we're going to make this year and in the coming three years because it's all about replicating to the B2B industries the success we have with the B2C, and we're making good progress, and I'm pleased. And, more to come because every year, we're going to launch new capabilities in the New when they will mature.

Rod Bourgeois -- DeepDive Equity -- Head of Research and Consulting

It sounds like you don't have a favorite baby; you love all of them.

Pierre Nanterme -- Chairman and Chief Executive Officer

I mean, this is the way we are in France. We love all of them.

Rod Bourgeois -- DeepDive Equity -- Head of Research and Consulting

Thank you, guys.

David P. Rowland -- Chief Financial Officer

Thanks, Rod.

Operator

Bryan Keane of Deutsche Bank. Please go ahead.

Bryan Keane -- Deutsche Bank -- Managing Director

Yeah, hi, guys. Congrats on very solid results here. Just wanted to follow up on the bookings and the strength in the bookings. Was that a lot of renewals in there, or is that new business that pushed that higher? And then, just thinking about the pipeline now, does it become a little more depleted since you had such a big quarter this quarter?

David P. Rowland -- Chief Financial Officer

So, there's a lot of new business in the $11 billion-plus bookings -- $11.7 billion -- in the quarter. You don't get to that number with a disproportionate or unusual level of renewals. The other part of the question was with pipeline -- yeah, any time we have a bookings quarter that large, obviously, it has some impact on the pipeline, but having said that, we have had a lot of replenishment even during the quarter, so we feel good about our pipeline, but yet, as you can imagine, we're very focused on our pipeline replenishment as we think about turning the page into fiscal '19 and, let's say, the next challenge of growth. So, we always have work to do on our pipeline. We feel good about it, but we're always focused on expanding it.

Bryan Keane -- Deutsche Bank -- Managing Director

Okay. And then, just wanted to follow up on the fourth-quarter revenue guidance. I know top line was strong and 11% constant currency this quarter. I think the guidance implies something like 7% to 10% constant currency for the fourth quarter, which is a tad below the strength this quarter. Just thinking about that growth considering the strong bookings. Is that just a little bit of conservatism built in there -- or, another possibility is some of the M&A business that's falling off is causing a little lower growth rate than we saw in the third. Thanks so much.

David P. Rowland -- Chief Financial Officer

I don't know if it's conservatism. 11% growth is really outstanding, and frankly, as well, the upper end of our range at 10% is also outstanding. And so, as we always say, we have a three-point range. You never like the bottom part of the range, and of course, we're always focused on being as high in the range as we possibly can. To the extent we were to deliver at the upper end of the range, we would continue to gain massive share in the marketplace. That level of growth would be outstanding and we would be very pleased with that at the upper end of the range. So, I wouldn't say -- there's not the intent to be conservative. There's the intent to have a reasonable range, and again, the upper half of the range is quite strong.

Bryan Keane -- Deutsche Bank -- Managing Director

Okay, great. Thanks.

Angie Park -- Managing Director, Head of Investor Relations

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

Operator

Okay. Our last question will come from the line of Brian Essex, Morgan Stanley. Please go ahead.

Brian Essex -- Morgan Stanley -- Executive Director

Great, thank you for taking the question.

David P. Rowland -- Chief Financial Officer

Hi, Brian.

Brian Essex -- Morgan Stanley -- Executive Director

Hey, how are you? I was just wondering if maybe you can unpack the digital a little bit. I get a lot of questions in terms of what's maybe migrational in nature, and Pierre did a great job differentiating the ERP part of the equation, but you've also had some great stories on truly transformational digital projects. I think Pierre had one in his prepared remarks on the operational side. The operations team has some great supply chain examples, particularly in the beverage market. How much of the digital would you say is truly transformational versus more migrational in nature, where you're just taking an application and putting it into a new operating environment?

Pierre Nanterme -- Chairman and Chief Executive Officer

It's getting more and more transformational. You're right -- the first waves, you always fight to catch the low-hanging fruit. Let's put it that way. And, the low-hanging fruit, for instance, would be I'm taking my current applications, no change, no transformation, and I move them to the cloud just to benefit from the cost difference with the classic infrastructure, what you're calling the migration. So, we've seen some of the journey to the cloud. You're taking the existing, you lift and drop to the cloud, and you're making the benefits. You still have some of this work, of course, but what I found very interesting is indeed, the market is shifting -- at least, with us and our clients -- to using digital as more transformational.

For instance, when you move or change from the existing ERP to a new ERP in the cloud, and then you're using the analytics and apply the artificial intelligence features in order to drive more value in the company in terms of forecasting, for instance, or other activities, then it is more transformational. As we speak, we're working in some very large organizations in CMT, again, in the context of aerospace and defense, to deploy these new digital platforms from engineering services to production to post-sales end to end with 3D features in it, and so forth. It's truly transformational, and it's not just low-hanging fruit or simple migration.

So, we see more and more now -- as the market is maturing and as the leaders are understanding better the power of the digital transformation -- the shift from simple migration to drive the easy cost to more profound digital transformation to win the big prize. So, from the low-hanging fruit to the big prize, this is the difference with the migration to the transformation. We see more of those.

Brian Essex -- Morgan Stanley -- Executive Director

Great, that's very helpful. One quick follow-up for David. David, I think last quarter, you said you might come in a tick under $1 billion for M&A. Do you still have that outlook, or does that change at all for the remainder of the year?

David P. Rowland -- Chief Financial Officer

Yeah, it is -- our current view is that we'll land somewhere in the range of $650 million to $750 million of invested capital. We're fine with that. We're not in the business of just trying to do deals for the sake of doing deals. We want to do the right deals, and so, that's going to be the level that we're going to be at this year, but we are committed to that being an important part of our strategy going forward, and as we've said, up to 25% of our operating cash flow is our strategic capital allocation model objective. We always have an active pipeline, and that's true today, and so, it's something that we continue to focus on as an important part of our strategy.

Brian Essex -- Morgan Stanley -- Executive Director

Super helpful. Thank you for squeezing me in.

David P. Rowland -- Chief Financial Officer

Great, thank you.

Operator

We'll now turn the conference back over to our host and panelists for any closing remarks.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thanks a lot again to all of you for joining us on today's call. In closing -- and, I'm sure you heard that throughout the call -- we and I feel very good about where we are. We feel confident in our ability to finish the year strong. We believe that with the highly differentiated capability we have built in the New, our continued investments across Accenture, and the disciplined management of our business, we are extremely well positioned to continue driving profitable growth and delivering value for our clients, our people, and our shareholders. We look forward to talking with you again next quarter, and in the meantime, if you have any questions, please feel free to call Angie and the team. All the best, and thanks again for joining and supporting Accenture.

Operator

Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's panel, we'd like to thank you for your participation in today's earnings call and thank you for using our service. Have a wonderful day. You may now disconnect.

Duration: 64 minutes

Call participants:

Angie Park -- Managing Director, Head of Investor Relations

Pierre Nanterme -- Chairman and Chief Executive Officer

David P. Rowland -- Chief Financial Officer

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Tien-tsin Huang -- JPMorgan Chase -- Managing Director

Bryan Bergin -- Cowen and Company -- Director

Jamie Friedman -- Susquehanna Financial Group -- Analyst

James Schneider -- Goldman Sachs -- Managing Director

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Rod Bourgeois -- DeepDive Equity -- Head of Research and Consulting

Bryan Keane -- Deutsche Bank -- Managing Director

Brian Essex -- Morgan Stanley -- Executive Director

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