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Accenture plc (NYSE:ACN)
Q1 2019 Earnings Conference Call
Dec. 20, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Accenture's First Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press *0. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Managing Director and Head of Investor Relations Angie Park. Please go ahead.

Angie Park -- Managing Director, Head of Investor Relations

Thank you, Greg, and thanks, everyone, for joining us today on our First Quarter Fiscal 2019 Earnings Announcement. As Greg just mentioned, I'm Angie Park, Managing Director and Head of Investor Relations. On today's call, you will hear from Pierre Nanterme, our Chairman and Chief Executive Officer, and David Rowland, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call.

Pierre will begin with an overview of our results. David will take you through the financial details, including the income statement and balance sheet along with some key operational metrics for the first quarter. Pierre will then provide a brief update on our market positioning before David provides our business outlook for the second quarter and full fiscal year 2019. We will then take your questions before Pierre 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 or uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call.

During our call today, we will reference certain non-GAAP financial measures which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release or in the Investor Relations section of our website at Accenture.com. As always, Accenture takes 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. We are very pleased with our first-quarter results, continuing our strong momentum from fiscal year '18. We again delivered revenue growth significantly ahead of the market, solid new bookings, and expanded operating margin while investing significantly in the business. We continue to see excellent demand for our services, especially in digital, cloud, and security as well as new technologies, confirming the relevance of our growth strategy and the differentiated solutions we bring to our clients.

Here are a few highlights for the quarter. We delivered new bookings of $10.2 billion. We grew revenues 9.5% in local currency to $10.6 billion with continued, broad-based, positive growth, including double-digit growth in many parts of our business. We delivered earnings per share of $1.96, a 9% increase. Operating margin was 15.4%, an expansion of 20 basis points. We generated strong free cash flow of $950 million and we returned more than $1.7 billion in cash to shareholders through share repurchases and dividends. So, we are off to a strong start in fiscal year '19. I feel very good about the momentum in our business, and I am confident in our ability to deliver our updated 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. Happy holidays to all of you, and thanks for taking the time to join us on today's call. Building further on Pierre's comments, let me start by saying that we were very pleased with our overall results in the first quarter, which came in as expected and positioned us extremely well to achieve our full-year objectives. Before getting into the results of the quarter, I want to remind you that both our Quarter 1 results and the FY '18 comparisons reflect the adoption of the new revenue and pension accounting standards, which impact our revenues and operating margin percentage in an immaterial way. In addition, as we previously discussed, we adopted the accounting standard for income taxes on intercompany transfers, and the impact is reflected in both our results and our business outlook.

With that said, let me begin -- as I normally do -- by summarizing a few of the important highlights for the quarter. Strong revenue growth of 9.5% in local currency continues to reflect broad-based momentum in our business, and once again demonstrates the durability of our growth model with double-digit growth in three of our five operating groups and in both North America and the growth markets. We estimate that our growth continued to significantly outpace the market, underpinned by strong organic growth of over 8% in local currency.

Our operating margin of 15.4% expanded 20 basis points compared with last year and reflects strong underlying profitability, which continues to allow us to invest at scale in our people and our business. And, we delivered very strong EPS of $1.96, up 9% compared to last year even with an FX headwind of approximately 2%.

Regarding cash flow, we generated significant free cash flow of $950 million, while at the same time returning roughly $1.7 billion to shareholders through repurchases in dividends. We're also pleased that we invested a little over $200 million in the quarter to acquire nine companies to bolster our skills and capabilities in strategic high-growth areas of our business, and we continue to expect to invest up to $1.5 billion in acquisitions during fiscal '19.

With that said, let me turn to some of the details, starting with new bookings. Our new bookings were $10.2 billion for the quarter. Consulting bookings were $5.9 billion with a book-to-bill of 1.0, and our outsourcing bookings were $4.3 billion with book-to-bill of 0.9. This level of new bookings was in the range we expected and follows our typical pattern of lower new bookings in the first quarter, which then build throughout the year. Looking forward, we feel good about our pipeline and are encouraged by our new bookings' potential in the second quarter.

Turning now to revenues, revenues for the quarter were $10.6 billion, a 7% increase in USD and 9.5% in local currency, and at the top end of our guided range. Consulting revenues for the quarter were $6 billion, up 8% in USD and 10% in local currency, and outsourcing revenues were $4.6 billion, up 7% in USD and 9% in local currency.

Before I comment on the underlying growth drivers, I want to mention that we've made some minor changes to our business dimensions, which we do from time to time as our business evolves. For fiscal '19, we have renamed Application Services to Technology Services and expanded the definition to include infrastructure outsourcing, which was previously included under Accenture Operations. These changes were made to reflect the synergies between our Infrastructure and Cloud Services business and our Application Services business, and the revised name of "Technology Services" simply reflects the broader scope.

So now, looking across the business dimensions, we were especially pleased with the balanced growth in the first quarter. Both Strategy and Consulting Services combined and Technology Services grew at a very healthy high single-digit rate, and Operations continued its trend of double-digit growth, and the New, including Digital, Cloud, and Security-Related Services, continued very strong double-digit growth as well.

I would also like to highlight the continued strong demand for Intelligent Platform Services, which grew double digits and was an important contributor to our growth. As a reminder, these services primarily relate to deploying next-generation technologies and SAP, Microsoft, Oracle, Salesforce, and Workday, where we continue to be the No. 1 service provider for all of these important partners.

Taking a closer look at our operating groups, Resources led all operating groups with 21% growth in local currency, driven by continued double-digit growth across all three industries and all three geographies. Communications, Media, and Technology grew 14%. Continued strong momentum was driven by double-digit growth in Software and Platforms, which was the primary contributor to overall double-digit growth in North America and the growth markets. Products delivered its 14th consecutive quarter of double-digit growth with 10% growth in the quarter, driven by broad-based demand across all three industries and all three geographies. H&PS grew 5%, driven by strong growth in public service as well as double-digit growth in both Europe and the growth markets.

As expected, we saw modest overall growth in North America, which reflects some continued pressure in our U.S. federal business. Finally, Financial Services grew 1%, which is the range we expected, reflecting strong growth in insurance and slight contraction in banking and capital markets. Overall for Financial Services, we saw double-digit growth in the growth markets and modest growth in North America, partially offset by a contraction in Europe. We expect growth in the same range in Quarter 2 before seeing improved growth rates in the second half of the year.

Moving down the income statement, gross margin for the quarter was 31.1% compared with 31% for the same period last year. Sales and marketing expense for the quarter was 10.1%, consistent with the first quarter last year. Our general and administrative expense was 5.6% compared to 5.7% for the same quarter last year. Operating income was $1.6 billion in the first quarter, reflecting a 15.4% operating margin, up 20 basis points compared with Quarter 1 last year. Our effective tax rate for the quarter was 19.8% compared with an effective tax rate of 20.5% for the first quarter last year. And, diluted earnings per share were $1.96 compared with EPS of $1.79 in the first quarter last year, and this reflects a 9% year-over-year increase.

Day services outstanding were 42 days compared to 39 days last quarter and 43 days in the first quarter of last year. Our free cash flow for the quarter was $950 million, resulting from cash generated by operating activities of $1 billion net of property and equipment additions of $78 million. Our cash balance at November 30th was $4.4 billion compared with $5.1 billion at August 31st.

With regards to our ongoing objective to return cash to shareholders in the first quarter, we repurchased or redeemed 4.9 million shares for $788 million at an average price of $162.01 per share. At November 30th, we had approximately $5.2 billion of share repurchase authority remaining. Also in November, we paid a semiannual cash dividend of $1.46 per share for a total of $933 million. This represented a $0.13-per-share or 10% increase over the dividend we paid in May.

So, in summary, we're off to a very good start in fiscal '19 and working hard to sustain our strong revenue growth, profitability, and cash flow for the remainder of the year. Now, let me turn it back to Pierre.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thank you, David. Our strong first-quarter performance demonstrated our strategy of building highly differentiated capabilities for the digital world, applying innovation at scale, and anticipating the next waves of technology disruption continues to position us as the market leader. We continue to leverage the unique leadership position we have built in the New: Digital, Cloud, and Security Services. Our revenues from the New again grew at a very strong double-digit rate in the first quarter and accounted for more than 60% of total revenues.

Why the New has become the core of our business? We continue to invest and innovate to capture new growth opportunities. You may recall that at this time last year, we launched new digital capabilities in Industry X.0, Applied Intelligence, and Accenture Interactive. We are making excellent progress in all of these areas, and today, I want to update you on our strong position in Applied Intelligence.

With Accenture Applied Intelligence, we bring together our capabilities in analytics, machine learning, and artificial intelligence combined with our deep understanding of industry disruptions to help clients become data-driven and invent new business models to create superior value. Today, we have more than 20,000 people focused on Applied Intelligence, including 6,000 with deep expertise in artificial intelligence and data science. We as well are leveraging our unique position in the ecosystem and working with all the leading providers of artificial intelligence technologies, enabling us to bring cutting-edge solutions to our clients. And, we recently launched new partnerships in artificial intelligence with Amazon, Google, and Microsoft.

Applied Intelligence also comes to life through our new innovation architecture and our global network of studios, labs, and innovation centers, where we co-innovate with clients to accelerate the development and delivery of leading-edge, industry-specific solutions. And, our intellectual property in this area, which now includes approximately 1,500 patents, is an important asset that further differentiates us.

In addition, we continue to make significant investments in Applied Intelligence. In the last two quarters, we acquired Kogentix, a U.S. company in big data and machine learning, and through Accenture Ventures, we made minority investment in Ripjar, a data intelligence company focused on security, and Quantexa, a data analytics and specializing firm in fraud detection. Of course, Accenture Applied Intelligence benefits significantly from synergies across all our businesses to bring clients end-to-end value propositions.

For Schlumberger, we are combining the industry expertise of Accenture's strategy with the data and artificial intelligence capabilities of Accenture Applied Intelligence to improve the productivity of their people, repair data utilization and asset turnaround. With innovative video analytics, artificial intelligence, and machine learning, we are significantly reducing the time machines spend offline for repairs, driving higher returns on investments.

At the same time, with the breadth and scope of capabilities we have built across Accenture and our unique ability to combine them at scale in an industry context, we remain the partner of choice for our clients' largest and most complex transformation problems. We are working with Sprint on an enterprisewide digital transformation to co-create new customer experiences and optimize our digital marketing and operations. The changes have driven a substantial increase in customers buying their phone digitally, significantly higher customer satisfaction, and millions of dollars in operational cost savings.

Turning now to the geographic dimension of our business, I am very pleased that in the first quarter, we again delivered strong growth in all three of our geographic regions and gained significant market share. In North America, we delivered 10% revenue growth in local currency, driven primarily by double-digit growth in the United States. In Europe, revenues grew 6% in local currency, with double-digit growth in Italy and Ireland as well as mid-to-high single-digit growth in the United Kingdom, Germany, and Spain. And, I'm just delighted that we delivered another excellent quarter in growth markets, with 17% growth in local currency. Japan again led the way with very strong double-digit growth, and we had double-digit growth in Brazil, in China, and in Singapore as well.

Before I turn it back to David, as you know, the capabilities we are building in the New along with our highly skilled and diverse talent and discipline management are absolutely key to our long-term and durable success, and I'm particularly proud of some recent recognition we received for our leadership in these areas. The Wall Street Journal ranked Accenture in the top 10 on their Management Top 250 list, and the Journal editors also named Accenture as one of just seven companies to do everything well. They consider us a leader in the way we manage Accenture across the board. In addition, we were recognized by multiple industry analysts as a leader in the IoT services, which underpin our Industry X.0 business, demonstrating that we also have the pioneering capabilities to continue differentiating Accenture in the New and driving future growth. With that, I will turn it over to David to provide our updated business outlook. David, over to you again.

David P. Rowland -- Chief Financial Officer

Thank you, Pierre. Let me now turn to our business outlook. For the second quarter of fiscal '19, we expect revenues to be in the range of $10.1-10.4 billion. This assumes the impact of FX will be about -4% compared to the second quarter of fiscal '18 and reflects an estimated 6-9% growth in local currency. For the full fiscal year '19, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in USD will be about -3% compared to fiscal '18.

For the full fiscal '19, we now expect our revenues to be in the range of 6-8% growth in local currency over fiscal '18. For operating margin, we continue to expect fiscal year '19 to be 14.5-14.7%, a 10- to 30-basis-point expansion over fiscal '18 results. We continue to expect our annual effective tax rate to be in the range of 23-25%, and 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 $7.01-7.25, or 4-8% growth over adjusted fiscal '18 results.

For the full fiscal '19, we continue to expect operating cash flow to be in the range of $5.75-6.15 billion, and property equipment additions to be approximately $650 million, and free cash flow to be in the range of $5.1-5.5 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1-1.2. Finally, 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 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 the one question and a follow-up to allow as many participants to ask a question. Greg, would you provide instructions for those on the call?

Operator

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press *1 on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing #. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press *1 at this time. And, one moment, please, for your first question. Your first question comes from the line of Tien-Tsin Huang from J.P. Morgan. Please go ahead.

Tien-Tsin Huang -- J.P. Morgan Chase -- Analyst

Hi, good morning, everyone.

David P. Rowland -- Chief Financial Officer

Good morning, Tien-Tsin.

Tien-Tsin Huang -- J.P. Morgan Chase -- Analyst

Always good to hear from you. Happy holidays. The gross margin I want to start out with, if that's OK -- it looks like it's expanding now a couple quarters, which is encouraging. I know you manage the operating margin, but what's driving the better gross margin here? Can we infer that pricing and contract profitability are in a good place?

David P. Rowland -- Chief Financial Officer

Overall, there's really three things that drive our operating margin overall, and really, all three things apply to gross margin as well. So, you just mentioned it -- you start with contract profitability, and we are pleased with the progression of our contract profitability, and we've also been very pleased with the progression of our pricing. You know, Tien-Tsin, that we have invested substantially in our strategic areas of focus to build what we think is significantly differentiated capability in the marketplace -- I'm referring to the components of the New -- and as we said before, in those areas where we have significant differentiation and where there's high demand, then we tend to get some pricing power.

And, of course, beyond the contract profitability and pricing, we have been very efficient in how we have managed our overall payroll efficiency as well as our non-payroll expenses, and so -- and, I know I speak for Pierre -- I think our organization has done a particularly good job in recent quarters -- and certainly in this quarter we just closed -- in driving our profit objectives.

Tien-Tsin Huang -- J.P. Morgan Chase -- Analyst

That's great. For my quick follow-up -- I think I asked this last quarter as well -- the Financial Services piece. You mentioned the same thing you said last quarter, that you're looking for second-half growth improvement. Do you still feel good about that? Has that changed at all? Have you replenished the pipeline?

Pierre Nanterme -- Chairman and Chief Executive Officer

Yes, no change with what we said in the prior quarter. FS delivered as expected. We expected a lower Q1, and certainly as well, the same in Q2, but we have the pipeline and we have the committed bookings, which are making us comfortable enough that in the second part of the year -- Q3 and Q4 -- FS will get back to their mid-single-digit growth we would expect from them.

Tien-Tsin Huang -- J.P. Morgan Chase -- Analyst

Thank you. Thanks for the clean results at year end.

David P. Rowland -- Chief Financial Officer

Thank you, Tien-Tsin. Happy holidays.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of James Friedman from Susquehanna. Please go ahead.

Jamie Friedman -- Susquehanna Financial -- Analyst

Hi. Thank you, and happy holidays as well. In your prepared remarks, you had called out some changes in the definitions of business dimensions -- the Operations and Technology Services. I just wanted to check that in the fact sheet, the presentation of the growth is adjusted so it says double-digit growth in Operations, high single-digit growth in Technology Services. Is that contemplated in those changes?

David P. Rowland -- Chief Financial Officer

Yes, it is. It is reflected in those numbers.

Jamie Friedman -- Susquehanna Financial -- Analyst

Okay. And then, I guess I'll go to the operating group for my follow-up. So, Resources -- great to see the continued performance here for a couple of quarters again. I'm just getting questions from clients about the potential cyclicality of that OG, or is this more secular? What's going on that that is growing so quickly?

Pierre Nanterme -- Chairman and Chief Executive Officer

Yes. On Resources, the good news is...the three industries making Resources are all growing double digits in Q1, and we're pleased with that. Chemical Mining, Chemical Oil and Gas, Utilities -- so, it's broad-based. We are not dependent on one industry in Resources to another, and we love that. Probably, if there is a word David and I love the most, it's "broad-based" because it's making our model more durable.

If you look at what's hot as we speak, again, all of what we are calling the Intelligent Platform Services around the SAP or the other platforms, so, in Resources, you have what we anticipated as well and discussed with you a few quarters ago: The next wave of ERP implementation to take the benefits of these new platforms. As well, digital is starting to kick more and more in this B2B business, if you will, or B2B2C business because Utilities and Oil and Gas have caused the other B2C business, where you need to provide a digital experience.

So, they are becoming more digital, they are becoming more Intelligent Platform Services-driven, and we're starting to expand more of our Industry X.0 services. I'm talking about things such as asset virtualization and digital twins as well as the new 3D platforms to reinvent all the supply chain and the production of these large companies. So, I feel -- again, absent a massive price drop -- so, if we are staying in the zone, we might be more in a kind of what you would call secular or maybe a structural part of the reinvention of these industries.

Jamie Friedman -- Susquehanna Financial -- Analyst

That was a lot. Okay, thank you very much. Happy holidays.

Pierre Nanterme -- Chairman and Chief Executive Officer

Happy holidays.

David P. Rowland -- Chief Financial Officer

Same to you, Jamie.

Operator

Your next question comes from the line of Rod Bourgeois from DeepDive Equity. Please go ahead.

David P. Rowland -- Chief Financial Officer

Hello, Rod.

Rod Bourgeois -- DeepDive Equity -- Head of Research

Hi there. Thanks for the call here. I wanted to talk about the change to the calendar in the new year's budget and all the macro uncertainties that are swarming around. Do you feel you have good visibility into your clients' discretionary spending plans as we move into the new-year budget? More specifically, as you look at those client budgets, are you seeing clients' priorities shifting in any significant way to respond to the heightened macro concerns that are out there?

Pierre Nanterme -- Chairman and Chief Executive Officer

Frankly, from a macro standpoint, we talked a lot -- during the last call, I already signaled all the volatility and uncertainty of the environment. This is what it is. Frankly, nothing has really changed. If you look at these macro uncertainties, it's all about the trade, it's all about the economic growth, it's all about the [inaudible]. That's still there. So, frankly, the clients we are working with, which are all leaders in their industries and all, I would call them, the best brands and sometimes the global giants -- I'm referring to our 180-plus diamond clients -- they are figuring out this environment. There is nothing really new for them or for us in what's happening. Their budget has been set, and the pattern on the budget is pretty clear. All the traditional legacy commoditizing services are going to be under big pressure, and the budgets are being reallocated to what we are calling the New at large.

Everything is digital. The cloud prospects are very good. Security Services -- I would add what we're calling Intelligent Platforms. So, all these waves of new platform with deep analytics, artificial intelligence, and this is what it is. So, what's out there is probably -- or, what we have read -- the budget will continue to grow, maybe to a lesser extent than last year, but it will continue to grow. The reallocation between commoditizing IT services and digital might be even more dramatic. You need to be on the right side of the fence. With 60% of our revenues in the New, we believe we are on the right side of the fence. That's why we're growing 9.5%.

Rod Bourgeois -- DeepDive Equity -- Head of Research

Great. And, as a follow-on to that, as you look at the new calendar year, will there be any meaningful changes in your mix? In other words, could outsourcing accelerate relative to consulting, or vice versa, or any of the sub-segments that might make a meaningful change in mix as you look at the pipe for next year?

David P. Rowland -- Chief Financial Officer

No. There's nothing about '19 specifically that would influence the mix trend that you've seen now for several quarters. I think that trajectory of an increasingly higher percentage of our revenue being in the New as well as the trajectory of stronger growth with our consulting type of work -- I think that continues.

Rod Bourgeois -- DeepDive Equity -- Head of Research

Got it. Thanks, guys.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Brian Essex from Morgan Stanley. Please go ahead.

Brian Essex -- Morgan Stanley -- Executive Director

Hi, good morning, and thank you for taking the question.

David P. Rowland -- Chief Financial Officer

Good morning, Brian.

Brian Essex -- Morgan Stanley -- Executive Director

Happy holidays. I was wondering if I could dig into healthcare a little bit. I think that was a little softer this quarter than last. Maybe what's happening behind the scenes there and how you see that unfolding throughout the rest of the year.

David P. Rowland -- Chief Financial Officer

Actually, we are -- you mentioned healthcare specifically, and I assume that's what you meant, as opposed to H&PS.

Brian Essex -- Morgan Stanley -- Executive Director

Yeah, H&PS in general.

David P. Rowland -- Chief Financial Officer

Okay. So, if you look at H&PS overall, really, the story is pretty clear, and maybe the best point to share is the fact that if you look at our H&PS business absent the impact of the cycle that our U.S. federal business is going through -- so, if you look at the rest of the public service business and if you look at health absent the U.S. federal business, H&PS is growing upper single digits, really right at -- almost touching double-digit growth. And so, actually, we're quite pleased with the performance of our Health and Public Service business.

If you look at the health business specifically, we've seen continued strong trends in the payer side of the business, and at the same time, in the most recent quarter, we've seen some green shoots and encouraging signs on the provider part of the business as well. We have double-digit growth in H&PS in both Europe and growth markets, and again, really, if you look at North America, it's really a story of the U.S. federal business going through a natural cycle. It's contracts winding down and reconnecting with growth. But overall, absent that, H&PS is doing quite well.

Brian Essex -- Morgan Stanley -- Executive Director

That's super helpful. Maybe for a quick follow-up, David, if you could give us a little bit of color on the tax rate. I think that was a little bit better of a benefit than we expected in the quarter. You held your guidance for the year, and I think previously, you'd noted the potential for upward pressure there. Maybe if we can fine-tune our expectations on the tax rate.

David P. Rowland -- Chief Financial Officer

Really, there wasn't anything unusual in Quarter 1 relative to what we said when we provided annual guidance, and of course, we haven't changed our annual guidance. Quarter 1 played out as we expected, and again, our annual guidance has remained unchanged. So, the things that influence our tax rate this year -- four of which we've talked about continually over the years -- is geographic mix of income, changes in prior-year tax liabilities, final determinations, and tax impacts on equity compensation.

And then, in addition to those four that we've traditionally talked about, we have the U.S. tax reform, which we've said previously -- statement remains true today -- that it would have modest upward pressure. And then, we have the adoption of the new tax standard regarding intercompany transfers, and again, that is exactly as we stated. It has about a 3% headwind in our tax rate in '19 and going forward, and then, of course, how that plays out in any particular year is based on all of those factors coming together. And so, this year, all of that is reflected in our tax rate.

Brian Essex -- Morgan Stanley -- Executive Director

Very helpful. Thank you.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of David Togut from Evercore ISI. Please go ahead.

David Togut -- Evercore ISI -- Managing Director

Good morning. Happy holidays.

David P. Rowland -- Chief Financial Officer

Same to you, David. Good morning.

Pierre Nanterme -- Chairman and Chief Executive Officer

Hello.

David Togut -- Evercore ISI -- Managing Director

In a recent survey of bank CEOs, they're calling out their 2019 tech spending priorities as being online and mobile banking, security, and payments. We know you're very strong in security, but can you talk about what you're offering the banks in terms of online and mobile banking payments and how that ties into your second-half recovery plan from a revenue growth standpoint?

Pierre Nanterme -- Chairman and Chief Executive Officer

We are very active in mobile banking. To be honest, I couldn't be more pleased with the different activities you're mentioning because they resonate pretty well with what we are doing -- security payments and mobile-first banking. It's the new wave after the big wave we had before on risk and regulatory management, where there have been a lot of investments so far. Everything being mobile -- we are certainly among the best references in the market. Unfortunately, they are not public as we speak. Maybe on the next earnings, we'll try to make some public so you'll see what we are doing, and it is pretty spectacular.

More or less, with most of our clients in banking, we are embarking on the digitalization of their channels so they are truly omnichannel from physical to digital with a focus on mobile-first mobile banks. Security -- as you know, it's an area where we decided to invest two or three years ago with Accenture Security, and Accenture Security is doing strong double-digit, as David would say, which is growing big, in my own term.

And, payment is the bread and butter of the bank. You're absolutely right to mention that's certainly the activity which is most subject to disruption by the new players -- the fintech and others -- and the platforms as well given all the payment, so indeed, we are very active to look at what are the strategies for the banks in order to face the new competition of the big platforms as well as the fintech. So, we are well equipped to provide a good response to our clients on these three areas.

David Togut -- Evercore ISI -- Managing Director

Understood. And, as my follow-up, I'd like to ask about your Industry X.0 solutions, especially what type of demand you're seeing for Industry X.0 as the trade war grows and as global companies are trying to manage complex supply chains.

Pierre Nanterme -- Chairman and Chief Executive Officer

Strong demand. Again, if you're looking at what we're calling the New, you have digital, you have cloud, and you have security. In digital, you have three main activities. Accenture Interactive is doing extremely well in digital marketing -- strong double-digit. You have Applied Intelligence. I decided to focus on it because artificial intelligence as we speak is the name of the game, and I wanted to make sure with all of you about the investments we are making and the leadership we have established in analytics, machine learning, and artificial intelligence. We launched X.0 exactly a year ago and made that public. It's growing extremely fast.

So, I would say that very strong double-digit will not reflect what we're talking about. It's extremely fast on the back of the reinvention of the supply chain in manufacturing from R&D, to production, to post-sales. I mentioned in the heavy equipment, everything we are doing -- and, maybe we'll have a deep dive on Industry X.0 soon -- to talk about the digital twins, which is as well the new way to do manufacturing in the X.0 world. I'm talking about the virtualization of the assets and I'm talking about the implementation of the new platforms -- 3D, analytic-rich -- and I'm talking about our partners such as Dassault, of course, but as well, Siemens and other platforms we're working with, including General Electric in some industries in the U.S.

So, we are well-equipped in the different markets. These are three examples, but we're going to come back to you with an update on X.0 maybe in two or three quarters, where things will have been built to a larger scale. But, today, I mentioned that we are already recognized as the leader in Internet of Things services, which are a significant part of X.0 by multiple analysts, and I'm delighted with that.

David Togut -- Evercore ISI -- Managing Director

Thank you.

David P. Rowland -- Chief Financial Officer

Thank you, David.

Operator

Your next question comes from the line of Harshita Rawat from Bernstein. Please go ahead.

David P. Rowland -- Chief Financial Officer

Good morning, Harshita.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Good morning. Thank you for taking my question. My question is in bookings growth, and I know you called out the first quarter tends to be a seasonally low quarter in terms of bookings, but bookings growth on a year-over-year basis was also weak, and I know you talked about the macro environment earlier, and it does appear the 2019 enterprise IT demand environment -- while still being robust -- could be weaker versus 2018. So, my question is is the weak bookings growth this quarter primarily reflecting seasonality, or is there any macro impact there, especially in consulting type of engagements, which are often leading indicators in the case of a slowdown?

David P. Rowland -- Chief Financial Officer

I would say that in our case, it's more seasonality. Again, we have seen -- this isn't the case every year, but certainly, most years, we tend to see softer bookings in the first quarter. I think also, when you look at our first-quarter bookings, it's important to look at them in the context of what we've done in the six months or the two quarters previously, where we had, I believe, our largest and second-largest bookings quarters in our history in those quarters, or to say it differently, over a six-month period, we had a record level of bookings. And so, I think that's at play as well as you rebuild and reestablish the pipeline.

I also made the comment in the script -- so I'll just say it again -- that we are pleased with our pipeline, and as we look at the second quarter in particular, we're very encouraged with our bookings potential as we look at the second quarter.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Thank you very much.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Bryan Bergin from Cowen. Please go ahead.

Bryan Bergin -- Cowen and Company -- Analyst

Hi, thank you. Happy holidays.

David P. Rowland -- Chief Financial Officer

Sure. Same to you.

Bryan Bergin -- Cowen and Company -- Analyst

I wanted to ask on talent competition to start with. You had a nice reduction in attrition. Can you give us some color on what you're seeing around the wage inflation environment, particularly in the U.S., and how that's comparing to other key regions for you?

David P. Rowland -- Chief Financial Officer

I think the talent market in some areas of the New where the supply is tight is a competitive market. Having said that, one of the hallmarks of Accenture is that we have established ourselves and have been and continue to be a real magnet for talent in the marketplace, and I think that there's three reasons behind that. The first is that people in the marketplace know that Accenture is the leader in the New, so we are working in the areas that are the most attractive to the most attractive people in the marketplace.

The second thing is that talent is attracted to market leaders and companies that have demonstrated superior performance, and certainly, we've done that over the years. And then, the third thing -- and, this is something that Pierre talks about from time to time, and it's an important part of Accenture -- is our culture, and our values, and the environment that people work in -- how we treat them and how we value what they do. Those are the three things that really make Accenture distinctive. We have no issue attracting talent and don't expect that to be an issue going forward.

Bryan Bergin -- Cowen and Company -- Analyst

Okay, thank you. My follow-up -- around the Interactive business and M&A strategy, can you remind us how you see your services compared to the traditional model, and are there aspects of that traditional advertising model that you would be interesting in building up further organically or through acquisition?

Pierre Nanterme -- Chairman and Chief Executive Officer

I said before that probably the word we like the most with David is "broad-based." The word we hate the most is "traditional." We have no appetite to build anything traditional, anything legacy, anything that has been done by the industry for 50 years. All the hypotheses -- being serious again, if you will -- I was serious, but to be even more serious on this, our point is to be part of the disruption of this industry, and we want to be a disruptor.

And, by being a disruptor, we want to be a digital native marketing and experience provider from design, production, commerce, campaign including programmatic, and of course, analytics and artificial intelligence to capture the preferences and to make the campaign more impactful. We will always look at things that are going to be either more creative or more new, if you will, but the point is if it's too traditional, it's going to commoditize, and if it's commoditizing, this is not the market we want to be in.

Bryan Bergin -- Cowen and Company -- Analyst

Okay, thank you.

David P. Rowland -- Chief Financial Officer

Thank you, Bryan.

Operator

Your next question comes from the line of David Grossman from Stifel Financial. Please go ahead.

David P. Rowland -- Chief Financial Officer

Good morning, David.

David Grossman -- Stifel Financial -- Managing Director

Good morning. First, I have a question on the business segments outside of the New. Can you give us any sense for what the growth trends are in that segment of your business -- back-of-the-envelope bar math shows declines, and if that math is right, are you seeing any leading indicators that would suggest that business is plateauing? And also, perhaps you could address what the margin trends are in the non-New as well.

David P. Rowland -- Chief Financial Officer

The math is clear. It is contracting, and I think the math is clear. We've talked about it previously. In terms of the margin trends, as we've also mentioned, that tends to be -- the common characteristic is that that's the most commoditized part of the marketplace, as you can imagine, therefore there is significant competition and pricing pressure. At the end of the day, to some extent, we are disrupting that part of our business intentionally. We're disrupting it by focusing our efforts on growing in the New, and then, for those legacy services, if you will, we are, again, using new technology to even reinvent those, and in some cases, to automate the way those things are done as one form of disrupting that part of our business. And so, all our focus is on the new, and the rest of the business will continue to evolve the way it evolves.

David Grossman -- Stifel Financial -- Managing Director

Okay, got it. Thanks for that. And then, just secondly, it appears that you've executed a certainly healthy pace of acquisitions year to date, so, given that pace and that we're early in the year, should we reconsider the contribution that you'll get from inorganic growth this year?

David P. Rowland -- Chief Financial Officer

At this point, with only one quarter in the books, it's really too early to adjust the number, and so, there's a lot -- it's hard to predict the timing of acquisition flows for the remaining three quarters, so right now, we still see about a point and a half, which is what I said on last quarter's call. Obviously, we'll provide an update at the end of the second quarter, but right now, think in terms of about a point and a half. In the first quarter, it was just below that. So, I mentioned that our organic growth, which is very important to us, was just over 8%, and then, the balance of that -- by definition -- below a point and half was inorganic.

David Grossman -- Stifel Financial -- Managing Director

Okay, got it. Thanks very much, and have a great holiday.

David P. Rowland -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead.

David P. Rowland -- Chief Financial Officer

Hello, Bryan.

Bryan Keane -- Deutsche Bank -- Managing Director

Hi, guys. Good morning. I just wanted to ask -- if we do fall into an economic slowdown, can you talk a little bit about the resilience of the business model, what you guys would expect, and what you've seen in the past from changes in economic conditions?

Pierre Nanterme -- Chairman and Chief Executive Officer

Yes, and I'm very pleased to comment on that because during the investor analysis today or many earnings calls, you've probably heard me and David using a lot "durability" and "sustainability" of our business models, being able to resist over a cycle of downturn. So, again, when it's raining hard, either you watch the rain or you build an umbrella. At Accenture, we decided to build umbrella. What the umbrella is made of, if you will, probably seven key elements, which I truly believe are making Accenture more resilient and more durable across different cycles. Very rapidly, I would say No. 1 is the quality of our client portfolio. We have this "diamond client" approach, more than 180 -- I think 182, to be even more specific -- but, 180-plus, anyway. It's all the best brands -- companies operating at scale with a global footprint that know how to deal with the economic conditions. So, first, working with the right plan.

Second, and maybe even the most important, is all what we discussed during that call: To be in the right services. For us, it's the New versus traditional IT. Today, it's very clear that the clients are allocating more budget to the New and the traditional IT will suffer even more. With more than 60% of our revenue in the New growing strong double digits, we are building the New services which are on demand. Third, the balanced growth. You see two of our three regions in double-digit growth. Absent FX, Europe would have been at 10%-double-digit growth. We have eight of our 13 industries at strong high-single to double-digit growth. So, we have this balanced growth, which I think is making us resilient.

Next is the diversified portfolio of businesses: Strategy, consulting, digital, technology, operations. And then, you can move even in digital: Interactive, X.0, Applied Intelligence, Accenture Security. We have certainly one of the portfolio in professional services, which is, on the one hand, the most diversified, but as well is creating more synergies than any other portfolio. Finally, the disciplined management of the cost. I think we demonstrated last year between H1 and H2 in '18 the ability of Accenture in less than a quarter to face our challenge in terms of cost with discipline, and then to make that resilient, as you could see with our profitability in Q1.

And finally -- and for me, absolutely critical -- doing all of this while keeping our investment capacity intact in order to be able to invest what we do more than our competitors who might be impacted in a downturn and to see new growth opportunities when maybe competition will have to stop their investments. So, these seven elements are clearly, for me, the backbone of our durability and of our resilience, and we're working hard on these seven attributes, if you will.

Bryan Keane -- Deutsche Bank -- Managing Director

That's super helpful. Thanks. And, as a follow-up, just on financial services, there's a lot of folks seeing weakness in capital markets and in Europe. Can you just talk about maybe what you guys are seeing exactly there, maybe how it might be different than the market? Because you guys are expecting a rebound in 3Q, and a lot of other IT folks can be a little more hesitant on calling a rebound in that business. Thanks.

Pierre Nanterme -- Chairman and Chief Executive Officer

Good question, because indeed, as David said, banking and capital market have been slightly negative, so it's not the right place to be. Now, the proof of all of this is do we have the pipeline and do we have the committed bookings? So, the hard facts are making us more comfortable about that rebuild. The reality is -- especially in Europe -- that we have the pipeline, and we have the committed bookings as we speak, and we will continue to build. That's making us comfortable enough to predict a rebound in the second part of the year.

So, it's really based on the facts we see in our pipeline and booking, especially in the areas which have been mentioned before: The new platforms, the mobile-first online banking, the transformation. There's still a lot on risk, compliance, regulatory management, and fraud management. We look at this extremely carefully, as you might imagine, and we have the elements in the pipelines and the bookings which are making us comfortable enough.

Bryan Keane -- Deutsche Bank -- Managing Director

Great. Happy holidays, guys.

Pierre Nanterme -- Chairman and Chief Executive Officer

Happy holidays.

David P. Rowland -- Chief Financial Officer

Same to you. Thank you.

Operator

Your next question comes from the line of Dave Koning from Baird. Please go ahead.

David Koning -- Robert W. Baird -- Analyst

Hey, guys. Thank you. My first question -- just the growth markets have been incredibly strong and pretty stable, right around 14-17% now for maybe six quarters. Historically, there was some more volatility there -- sometimes it would slow down, sometimes it would be really strong. Do you think those will be volatile in the future still, or is there something about it now that can maintain the mid-teens growth for a long time?

David P. Rowland -- Chief Financial Officer

Growth markets -- I'm certainly not going to suggest that we're going to comment on mid-teens growth over the long term, but again, many of the things that Pierre has been talking about in terms of being diversified and broad-based -- we see that in our growth markets model as well. When you talk about growth markets at Accenture, while we have a lot of great stories, for us, it really starts with Japan, and when you look at the business that we have built in Japan, which -- in the context of the Japanese market -- is a reflection of the Accenture strategy in the sense that it's diversified across several industries and it represents the full scope of the services that we provide, from consulting to operations -- that creates some resiliency for all the reasons that Pierre mentioned in the Japanese context. And so, that will give us some resiliency and durability over time.

Japan's not the only story. We have other important markets. If you think about our business in Australia, you go to Latin America -- even in the context of challenging macro conditions in Latin America, we actually have had very strong growth in Latin America -- again, for all the reasons that Pierre has mentioned in terms of our go-to-market strategy and what we're doing to be relevant to our clients, leverage our investments, and to have durability in our model. So, I'm not going to guide to a double-digit percentage, but we feel very good about our growth markets business. Pierre?

Pierre Nanterme -- Chairman and Chief Executive Officer

You have given me the opportunity -- if you look at Japan, we moved directly to be positioned in the New to become the No. 1 in digital-related services in Japan -- not No. 1 in the market overall, but No. 1 in this specific segment. Because as well, in Japan, we didn't have any traditional IT services creating a kind of drive, so we jumped rapidly to the target positioning. Imagine that -- right, David? -- we're 20 consecutive quarters of double-digit growth in Japan. Twenty. It's just fabulous.

And, in Brazil, we're growing double digits with diabolical economic conditions. In Brazil, we are No. 1. We are the market leader. And, when times are tough -- you remember the flight to quality. I would use the same comparison with "flight to leadership." When times are tough, clients are going to the leader with all the characteristics we have and the values.

But, maybe in closing -- because I know we're starting to be a bit late and we still have one question -- I would like to take this opportunity to recognize the fabulous leader of Accenture, Gianfranco Casati. Leadership means a lot. Gianfranco Casati is leading the growth markets, and he is providing more than exceptional leadership in growing these markets, so, hats off for Gianfranco Casati. And, we have Egawa-san in Japan. What has been done these last four years with Egawa-san is absolutely second to none. So, when you have great leaders and the best in the industries, you have good results.

Angie Park -- Managing Director, Head of Investor Relations

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

Operator

Okay. That question comes from the line of Lisa Ellis from MoffettNathanson. Please go ahead.

David P. Rowland -- Chief Financial Officer

Good morning, Lisa. We're going to let you bring us home.

Lisa Ellis -- MoffettNathanson -- Partner

All right! I had a question, actually, about the work Accenture is doing in cloud, which tends to get less focus than digital. Can you just characterize a bit what the mix or focus of Accenture's cloud work is across public, private, hybrid, et cetera? And then also, as cloud begins to enter Phase 2, how much run activity are you seeing in cloud?

Pierre Nanterme -- Chairman and Chief Executive Officer

Very good question, and indeed, there are so may deep dives we could do with you guys. We need more time, Angie, next time. But, if I look at the cloud -- which, frankly, is growing double-digit at Accenture -- we need to talk about cloud because it seems to be already old stories in the New, but you're absolutely right, Lisa, it's super spot-on now. Our activities are around what we are calling "journey to the cloud": Supporting our clients moving from off-premise to the cloud, and with the cloud, in the mix of the hybrid/public/private, and we're working with all our partners, especially Amazon and Azure, on this journey to the cloud and others, but it's activity No. 1.

Activity No. 2 -- because you have synergies -- is all related to SaaS solutions. We are No. 1 with SaaS providers, especially with Salesforce.com. Again, more than strong double digits with Salesforce.com this quarter. And, all these software-as-a-service cloud-native solutions are getting more and more traction on Salesforce.com and a few others as well. Third is the cloud infrastructure, and that's why we decided to move our infrastructure from operations to technology, because we see unique synergies between these three elements of software-as-a-service, cloud-based -- we could run with our infrastructure services, and that's why we now have all of these in a single place and organization around Accenture technology to drive more synergies. So, you're absolutely right, but our growth in cloud this quarter is very big, right, David?

David P. Rowland -- Chief Financial Officer

Yeah, absolutely, double digits.

Pierre Nanterme -- Chairman and Chief Executive Officer

And, we have very strong prospects in the cloud moving forward.

Lisa Ellis -- MoffettNathanson -- Partner

Thank you. And, a super quick follow-up because I think it's important as we're going into 2019 and everyone is getting a bit concerned about discretionary IT spending in the macro environment -- on the digital side of your business, which is now approaching 50%, directionally, how much of the funding for digital comes from outside the IT budget? Is it half, more than half, or a quarter? Just directionally.

Pierre Nanterme -- Chairman and Chief Executive Officer

Hard to say. Frankly...I don't know, David, if we have a point of view on this. It's probably quite hard to provide a direction on this.

David P. Rowland -- Chief Financial Officer

Let us maybe come back to that in the right public forum, but we'll come back and try to get some insight on that, maybe on our next call.

Lisa Ellis -- MoffettNathanson -- Partner

Wonderful. Thanks, guys. Happy holidays.

Pierre Nanterme -- Chairman and Chief Executive Officer

A bit more analytics to make sure we're providing accurate answers. So, we're going to use some machine learning and apply this intelligence to provide the right answer.

Lisa Ellis -- MoffettNathanson -- Partner

Great, thank you. Thanks a lot. Happy holidays, guys, and thanks for running a little long. I know it's late in the year, so thank you.

David P. Rowland -- Chief Financial Officer

Thank you.

Pierre Nanterme -- Chairman and Chief Executive Officer

Thanks again for joining us on today's call and thanks again for all your good questions because this is the opportunity for David and I to provide more insight around our strategy, and it's so important for you, for us, and for our clients. With the first quarter, I feel very good about where we are as we build on, first, the strong momentum in our business. We enhanced our leadership in the New and we continued driving growth ahead of the market. So, we're pleased with all of this, we have the momentum, and I guess we're up for a strong start and a good year at Accenture.

Of course, I want to wish all our investors, analysts, and everyone at Accenture a very happy holiday season and all the best for the new year. We look forward to talking with you again next quarter. In the meantime, of course, if you have any questions, feel free to call Angie and her team. All the best, and enjoy the holiday season and a happy new year.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Duration: 67 minutes

Call participants:

Angie Park -- Managing Director, Head of Investor Relations

Pierre Nanterme -- Chairman and Chief Executive Officer

David P. Rowland -- Chief Financial Officer

Tien-Tsin Huang -- J.P. Morgan Chase -- Analyst

Jamie Friedman -- Susquehanna Financial -- Analyst

Rod Bourgeois -- DeepDive Equity -- Head of Research

Brian Essex -- Morgan Stanley -- Executive Director

David Togut -- Evercore ISI -- Managing Director

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Bryan Bergin -- Cowen and Company -- Analyst

David Grossman -- Stifel Financial -- Managing Director

Bryan Keane -- Deutsche Bank -- Managing Director

David Koning -- Robert W. Baird -- Analyst

Lisa Ellis -- MoffettNathanson -- Partner

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