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Accenture plc (NYSE:ACN)
Q2 Fiscal Year 2019 Earnings Conference Call
March 28, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Accenture's Second Quarter Fiscal 2019 Earnings 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. Should you require assistance during the call, please press *0. As a reminder, today's 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, Trish, and thanks, everyone, for joining us today on our Second Quarter Fiscal 2019 Earnings Announcement. As Trish just mentioned, I'm Angie Park, Managing Director and Head of Investor Relations. On today's call, you will hear from David Rowland, our Interim Chief Executive Officer, and KC McClure, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call.

David will begin with an overview of our results. KC will take you through the financial details, including the income statement and balance sheet along with some key operational metrics for the second quarter. David will then provide a brief update on our market positioning before KC provides our business outlook for the third quarter and full fiscal year 2019. We will then take your questions before David provides a wrap-up at the end of the call.

Some of the matters we'll discuss on this call, including our business outlook, are forward-looking, and as such, are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call.

During our call today, we will reference certain non-GAAP financial measures which we believe provide useful information for our investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release or in the Investor Relations section of our website at Accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to David.

David P. Rowland -- Interim Chief Executive Officer

Thank you, Angie, and thanks so much to all of you for joining on today's call. Before we get into the quarter, I want to take a moment to acknowledge Pierre and how important he was to Accenture throughout his decades-long career and his leadership as Chairman and CEO. From a personal standpoint, it is certainly a different feeling doing an earnings call without him, but as you'll hear in our comments, I'm confident that Pierre would have been really pleased with all that we accomplished in the second quarter and the first half of fiscal '19.

With that said, we delivered outstanding results in the second quarter and I want to share some of the highlights. We delivered record new bookings of $11.8 billion. We grew revenues 9% in local currency to $10.5 billion with continued double-digit growth across many parts of the business. We delivered earnings per share of $1.73, a 9% increase on an adjusted basis. Operating margin was 13.3%, an expansion of 20 basis points. Our free cash flow was outstanding at $1.2 billion and we continue to return substantial cash to shareholders through share repurchase and dividends, including $2.7 billion on a year to date basis. Today, we announced a semiannual cash dividend of $1.46 per share, which will bring total dividend payment for the year to $2.92 per share, a 10% increase over last year.

So, with the first half of the year behind us, I feel very good about the broad base strength of our financial results and the momentum we see across the business as we enter the second half. Later, KC will mention that we're raising key elements of our business outlook and I'm confident in our ability to deliver another strong year.

Now, it gives me great pleasure to hand over to our new CFO, KC McClure, who will review the numbers in greater detail. Over to you, KC.

KC McClure -- Chief Financial Officer

Thank you, David. It is both an honor and a privilege to follow in your footsteps and serve as Accenture's CFO.

Let me start by saying that we were extremely pleased with our overall financial results in the second quarter which were aligned with our expectations and position us very well to achieve our full year financial guidance. Our second quarter results continue to provide strong validation of the relevance of our offerings and capabilities to our clients, and our ability to manage our business in a dynamic environment both to deliver significant value to our clients, our people, and our shareholders.

With that said, let me summarize the highlights in the context of our three financials imperatives. Strong revenue growth of 9% in local currency reflects the consistency and durability of our growth model. We're being a leader across many dimensions of our market, and this has resulted in a growth level that we estimate at more than 2 times the rate of the market. We had double-digit growth in three of our operative groups and in the Growth Market. Broad base momentum continued with growth in 12 of the 13 industry groups and in each of the components of the new: Digital, cloud, and security. We estimate these grew strong double digits.

Operating margin of 13.3% reflects 20 basis points of expansion both for the quarter and on a year to date basis. This level of margin expansion is driven by strong underlying profitability, which importantly allows us to continue to make significant investments in our people and in our business. And we delivered EPS of $1.73, which represents 9% growth on an adjusted basis compared to last year, even with a headwind of approximately 4%.

And finally, we delivered free cash flow of $1.2 billion in the quarter and $2.2 billion year to date, which puts us on a very strong trajectory to achieve our guidance for the full year. We continue to execute on our strategic capital allocation objective with roughly $2.7 billion returned to shareholders via dividends and share repurchases year to date. And we have made investments of $515 million in acquisitions primarily attributed to 15 transactions in the first half of the year. We continue to expect to invest up to $1.5 billion this fiscal year.

Now, let me turn to some of the details starting with new bookings. New bookings were $11.8 billion for the quarter, a record high, with a book to bill of 1.1. Year to date bookings of $22 billion is aligned to our expectations for the first half of the year. Consulting bookings were $6.7 billion, also a record high, with a book to bill of 1.2. Outsourcing bookings were $5.1 billion with a book to bill of 1.1. We were very pleased with our new bookings which were broad-based and aligned with our strategic areas of focus. They reflect our continued differentiation in the market and the high level of trust our client's place in us to partner with them in driving critical worth and supporting their strategy to adopt and implement new technologies. The dominant driver of our bookings in the quarter continue to be high demand for digital, cloud, and security-related services, which we estimate represented approximately 65% of our new bookings.

Turning now to revenues. Revenues for the quarter were $10.5 billion, a 5% increase in US dollars and 9% in local currency, above the top end of our previously guided range. Consulting revenues for the quarter were $5.8 billion, up 6% in US dollars and 9% in local currency Outsourcing revenues were $4.7 billion, up 5% in US dollars and 9% in local currency.

Looking at the trends in estimated revenue growth across our business dimensions. Strategy and Consulting services and Technology services both posted strong high single-digit growth. Operations are continuing its trend of double-digit growth. And, as previously mentioned, the New continued to deliver strong double-digit growth.

Taking a closure look at our operating groups. Resources led all operating groups with 22% growth in local currency driven by continued strong double-digit growth across all three industries and all three geographies. Communications, Media, and Technology grew 12% reflecting continued strong double-digit growth in Software and Platforms, which was the primary contributor to overall double-digit growth in North America and the Growth Market and strong growth in Europe. The product, our largest operating group, delivered its 15th consecutive quarter of double-digit growth at 10%. Demand continued to broad-based across all three industries and all three geographies. H&PS grew 3% driven by solid growth in Public Service as well as double-digit growth overall in both Europe and the Growth Market. We saw a slight contraction in North America, which reflects some continued pressure in our US Federal business where we expect improvement in the second half of the year.

Finally, Financial Services grew 2% as expected and the trends remain consistent with the last quarter with double-digit growth in Insurance and a slight contraction in Banking and Capital Market. Overall for Financial Services, we saw double-digit growth in the Growth Market and modest growth in North America partially offset by contraction in Europe. We continue to expect improved growth rates in our Financial Services business in the second half of the year.

Turning to the geographic dimensions of our business, I am very pleased that we again delivered strong growth in all three of our geographic regions. In North America, we delivered 8% revenue growth in local currency driven by continued strong growth in the United States. In Europe, revenues grew 6% in local currency with double-digit growth in Italy, France, and Ireland, as well as high single-digit growth in the UK. And we delivered another very strong quarter in Growth Market with 16% growth in local currency led by Japan which again had very strong double-digit growth. We had double-digit growth in Brazil, China, and Singapore as well.

Moving down the income statement. Gross margin for the quarter was 29.2% compared with 28.9% for the same period last year. The market expense for the quarter was 9.8% compared with 10.1% for the second quarter of last year. General and Administrative expense was 6.2% compared to 5.7% for the same quarter last year. Operating income was $1.4 billion in the second quarter reflecting a 13.3% operating margin up 20 basis points compared with Q2 last year.

As a reminder, in Q2 of last year, we recognized a charge related to US tax law changes. The following comparisons exclude the impact and reflect adjusted results. Our Effective Tax Rate for the quarter was 17.1% of the period with an Adjusted Effective Tax Rate of 15.1% for the second quarter of last year. Diluted earnings per share were $1.73 compared with adjusted EPS of $1.58 in the second quarter of last year. This reflects a 9% year over year increase.

DSOs were 40 days compared to 42 days last quarter and 40 days in the second quarter of last year. Free cash flow for the quarter was $1.2 billion resulting from cash generated by operating activities of $1.4 billion net of property and equipment additions of $140 million. Our cash balance at February 28th was $4.5 billion compared to a $5.1 billion at August 31st.

With regards to our ongoing objective to return cash to shareholders. In the second quarter, we repurchased or redeemed 6.7 million shares for $1 billion at an average price of $149.46 per share. As of February 28th, we had approximately $4.5 billion of share repurchase authority remaining. As David mentioned, our board of directors declared a semi-annual dividend of $1.46 per share, representing a 10% increase over the dividend we paid in May last year. This dividend will be paid on May 15, 2019. As a reminder, the beginning of the first quarter of fiscal 2020 we will move from a semi-annual to a quarterly dividend payment schedule.

So, at the halfway point of fiscal '19, we feel really good about our results to date and our positioning to deliver on our full-year business outlook. We continue to be extremely focused on achieving our financial objectives which are: Growing revenues faster than the market; Delivering consistent, modest margin expansion and strong earnings growth while investing at scale for market leadership and generating strong cash flow, which is both invested in the business and returned to shareholders through disciplined and smart capital allocation.

With that, let me turn it back to David.

David P. Rowland -- Interim Chief Executive Officer

Thank you, KC. As I reflect on our second quarter and year to date results, I think they say a lot about the important attributes that truly differentiate Accenture as a market leader. Of course, the overarching headline is the consistency and durability of our strong financial performance which KC described very well in her comments. But I think it is equally important to understand how closely aligned our results are with our strategic priorities because what drives the results is just as important as the outcome.

So, I want to take a few minutes to describe how our results clearly reflect our strategy in action. First, the foundation of our growth strategy is to drive strong moment in the New and that has certainly been the case so far this year with continued double-digit growth across Digital Cloud and Security even as these businesses have reached significant scale and now represent the majority of what we do. With Accenture Interactive, we continue to lead a significant disruption in the market leveraging our position as the world's largest provider of digital marketing services with award-winning capabilities to help leading brands transform their customer experience. In fiscal '19, we have invested significantly in this area and have announced six acquisitions so far this year to further enhance our scale and differentiation in high priority markets.

In Applied Intelligence, we've also made significant investments to scale the business and strengthen our distinct positioning which combines advanced analytics and artificial intelligence with our deep understanding of industries and business functions. We currently have more than 20,000 people focused on Applied Intelligence, including 6,000 deep in artificial intelligence and data science. We have developed more than 250 proprietaries, industry-specific assets significantly differentiate us in the market. We're making excellent progress with Industry X.0 which is using advanced digital technologies to help clients transform their cooperation from R&D and engineering to production and aftermarket support. We're building a market leading capability with more than 10,000 people supporting Industry X.0 and we continue to expand our capabilities in dozens of innovation centers in our global network from Munich to Tokyo to Detroit. We're also rapidly scaling Accenture Security where we made further progress this year in building a market-leading cybersecurity business. Today, we're one of the leading providers in this market growing double digits year to date with revenues we estimate will be well above $2 billion in fiscal '19.

The second pillar of our strategy is Accenture Technology which we believe represents the strongest technology capability in our industry. So far this year, we've sharpened our focus on three key areas within Accenture Technology that powered growth across our business. First, you've heard us talk about intelligent platform services where we are a global leader partnering with the largest players, SAP, Microsoft, Oracle, Salesforce, and Workday. This business continues to account for about 40% of our total revenues and has grown double digits so far this year.

Intelligent Software Engineering Services is the next area of focus where we are leveraging the capabilities of more than 30,000 engineering professionals to deliver products and custom systems in a time of accelerating technology disruption. We believe the demand for custom cloud-based applications will grow significantly in the coming years and we are well positioned to meet that demand. And with Intelligent Cloud and Infrastructure services, we're a leading integrator for cloud partners such as Microsoft Azure, Amazon Web Services, and Google Cloud Platform, providing clients with powerful differentiated solutions as they accelerate the adoption of cloud-enabled technologies.

Accenture Operations is the third pillar of our strategy and we continue to lead the market with new and innovative approaches to help clients drive top-line growth and efficient and intelligent operations. During the second quarter, we introduced SynOps, our unique approach to orchestrating data, applied intelligence, and digital technologies with human expertise to reinvent business processes and enable intelligent operations. Accenture Operations has contributed double-digit growth so far this year and in fact, has been a consistent market leader with double-digit growth for 7 consecutive years.

And to complete the picture, we have continued to invest in growing our Strategy and Consulting capabilities which are the foundation of our deep and differentiated expertise. In the first half alone, we've scaled key growth areas in Strategy and Consulting with the addition of more than 400 new managing directors through promotions and external hires. I was so delighted that Accenture was recognized just last week among the top companies in the Forbes ranking of American Management Consulting Firms receiving more five-star rating than any other company.

Of course, what makes Accenture truly special is our ability to combine our capabilities across these strategic areas of focus to drive large scale transformational change for our client and you see strong evidence of this in the $22 billion of new bookings we've generated so far this year. Underpinning all of these strategic pillars are Accenture's unique position in the ecosystem, our relentless focus on innovation, and the significant capacity we have to invest strategically and at scale.

In summary, our strong financial performance is the direct result of our ability to continue executing our growth strategy with a high level of focus and precision in all we do. Finally, our results underscore the strength and depth of our leadership team and the resiliency of our organization. Accenture has always been a collection of extremely talented individual leaders who are motivated first and always by the power of the team. That certainly is evident in our second quarter and year to date results.

Before I had it over to KC, I want to provide a brief update on our CEO's succession. As you would expect, our board continues to execute a very rigorous and comprehensive process which is going very well. Given the strength of our leadership bench, our expectation is that we will name an internal candidate and that the process will be completed by the end of this fiscal year.

With that, I will turn it over to KC to provide our updated business outlook. KC?

KC McClure -- Chief Financial Officer

Thanks, David. Before I turn to our business outlook, let me clarify that our European revenues growth this quarter was 7% in local currency, not 6%.

With that, let me turn to our business outlook. For the third quarter of fiscal '19, we expect revenues to be in the range of $10.8 to $11.1 billion. This assumes the impact of FX will be about -4.5% compared to the third quarter of fiscal '18 and reflects an estimated 5.5%-8.5% growth in local currency. For the full fiscal year '19, based on how the rates have been trending over the last few weeks, we continue to assume the impact of FX on our results in US dollars will be about -3 compared to fiscal '18. For the full fiscal '19, we now expect our revenues to be in the range of 6.5%-8.5% growth in local currency over fiscal '18.

For operating margin, we continue to expect fiscal '19 to be 14.5%-14.7%, a 10-30 basis point expansion over fiscal '18 results. We now expect our annual effective tax rate to be in the range of 22.5%-23.5% which 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 $7.18-$7.32 or 7%-9% growth over adjusted fiscal '18 results.

For the full fiscal year '19, we now expect operating cash flow to be in the range of $5.85 billion to $6.25 billion. Property and equipment additions to be approximately $650 million and free cash flow to be in the range of $5.2 billion to $5.6 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.1 to 1.2.

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 our cash to our shareholders.

With that, let's open it up so we can take your question. Angie?

Questions and Answers:

Angie Park -- Managing Director, Head of Investor Relations

Thanks, KC. 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. Trish, would you provide instructions for those on the call?

Operator

Certainly. Ladies and gentlemen, if you'd like to ask a question, please press *1 on your phone. You will hear a tone indicating that you have been placed in the queue. You may remove yourself from the queue at any time by pressing the # key. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, press *1 at this time.

And our first question is from the line of Tien-Tsin Huang with JP Morgan. Please, go ahead.

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

Good morning.

David P. Rowland -- Interim Chief Executive Officer

Good morning. Good luck to your team tonight, by the way.

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

Thanks for making me nervous already. I can't wait to watch. Thanks for that. So, good results, obviously. I was just surprised by the strength in Growth Markets year to date because it's been growing in the mid-teens. Just curious if this is sustainable or could we see more balanced growth across the geos based on what we've seen in bookings?

David P. Rowland -- Interim Chief Executive Officer

Well, you know Growth Markets has been a great story for us and as we have highlighted several times, the real strength of the Growth Markets has been what has been an amazing story led by our leader Agawasan in Japan. In Japan, we do have a very broad-based durable business which reflects all of the elements of our strategy which are constructed to create some durability. There are other important markets in the Growth Markets as well, though. For example, interestingly if you look at Brazil, which is a market that even in the backdrop of some macro challenges in our Brazil business, has been very strong.

You look at China, for example, this quarter where we also had double-digit growth which is not material in the context of Accenture overall, but yet it is an important part of that Growth Market story. So, if you're asking me would I expect that we will grow forever at the rates of growth that we've been at recently in Growth Markets? I wouldn't necessarily make that assumption, but we are extremely well positioned in the Growth Markets. Ultimately, the measure that we hold ourselves against is that we continue to grow significantly faster than the market and take share. I think we are well positioned to do that in the Growth Markets going forward.

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

I've got you. Just my follow up on the CEO succession. Until that is completed, can we expect business as usual? Will you still be active in M&A and whatnot?

David P. Rowland -- Interim Chief Executive Officer

It is absolutely business as usual. The statement that I've made, and our leadership team has embraced is that we don't hit the pause button at all. So, we continue to move forward. We operate and I'm executing the responsibilities in the same way that Pierre would have executed them if he was on the call today. So, no pause. We continue to drive our business forward.

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

Okay. Great. Thank you, guys.

David P. Rowland -- Interim Chief Executive Officer

Thank you.

Operator

We will move to the line of Jason Kupferberg with Bank of America. Please, go ahead.

Jason Kupferberg -- Bank of America -- Analyst

Good morning, guys. Congratulations on the rebound in Consulting. I think it was even stronger than most had expected. Clearly, it can be lumpy from quarter to quarter, but I think the book to billing consulting was the best in the past three years. So, can you just maybe go a little bit deeper into which specific areas within Consulting and which geographies performed particularly well? Based on the pipeline, do you expect the book to bill for consulting and overall to remain north of 1.0 in the second half?

KC McClure -- Chief Financial Officer

Hi, Jason. Thank you for questions. We were very pleased with our Consulting bookings this quarter that was very broad-based across all parts of the business and all geographies. In terms of what was driving the demand, we spoke a lot about it. David carried a lot of the conversation in these areas of our business. It was across first all the areas of the New. So, we estimated that our bookings in the New were about 65% of our overall bookings and that continues as well in Consulting. If you look at also the power of what we're seeing in our Intelligent platform business which includes a significant portion of work in Consulting as well, which is across Salesforce, Microsoft, Workday --

David P. Rowland -- Interim Chief Executive Officer

Oracle.

KC McClure -- Chief Financial Officer

Oracle. Thank you, David. So, that was also a very strong driver of our growth in Consulting. As it relates to going forward, we feel really comfortable about the pipeline. As we look at the back half of the year, we always have work to do for the back half of the year to close our pipeline. But we feel pretty well positioned as we sit here today with our pipeline in Consulting.

David P. Rowland -- Interim Chief Executive Officer

It's one of the important parts about what differentiates Accenture. Because when you look at our strategic areas of focus, as I outline in my script, the common thread across all of that is that many of them are enabled by a strong strategy and consulting practice that is deep in both industry skills and differentiation, but also in functional skills and differentiation. That is part of in model that we talk about at Accenture. Of course, the consulting and strategy capability underpins that and really in many ways is the tip of the spear for most of the pillars of our strategy. As I mentioned, we continue to invest significantly in building that capability and staying ahead of the market.

Jason Kupferberg -- Bank of America -- Analyst

Okay. That all makes sense. Can you just clarify how much of the 50 basis point revenue guidance raise here was organic? Can you just make a couple of update comments on financial services? I know you talked about last quarter about it getting back to mid-single digits in the second half. Is that still the expectation and would that be more of a Q4 event just given the comparison gets easier?

KC McClure -- Chief Financial Officer

As it relates to organic and inorganic, we still see our inorganic growth rate for the full fiscal year to be about 1.5%. We are at about 1.5% now, Jason, for the first half of the year. As we look at our inorganic guidance for the back half of the year, we look at a few things. First of all, our pipeline and then the timing of when we estimate the deals in our pipeline would close and provide revenue this year. We also, obviously, do some risk adjustment on those numbers overall. So, as we sit here today, we are seeing that inorganic growth is still about 1.5%. So, there's no change to our guidance overall for the year as it relates to inorganic.

As it relates to Financial Services. We do see an uptick still in the back half of the year. So, we were very pleased with Financial Service's booking which came in as expected but was very strong across all of the elements of our Financial Services business, including banking, capital markets, as well as insurance and across all of our geographies. So, that bodes well for what we had anticipated seeing and we continue to anticipate seeing, which is an uptick in the back half of the year for Financial Services.

As it relates to what quarter that will happen in the back half of the year, it really just depends, Jason, on the pace and the scale of that uptick as proceed throughout the back half of the year.

Jason Kupferberg -- Bank of America -- Analyst

Okay. Understood. Thank you, guys.

David P. Rowland -- Interim Chief Executive Officer

Thank you.

Operator

And we will go to the line of Jim Schneider with Goldman Sachs. Please, go ahead.

David P. Rowland -- Interim Chief Executive Officer

Good morning, Jim.

KC McClure -- Chief Financial Officer

Hey, Jim.

Jim Schneider -- Goldman Sachs -- Analyst

Good morning, David and KC. How are you? Thanks for taking my question. I was wondering if you could maybe talk a little bit back to the Q4 call last year. I think you called out some macro risks to the business at that point, Brexit, trade tensions, etcetera. Can you give us an update on what clients are saying about those potential risks and how it kind of is impacting, if at all, your outlook for the rest of the year? And to the extent, any of that materialized in terms of client activity?

David P. Rowland -- Interim Chief Executive Officer

So, when you look at the risks that we've talked about, which include Brexit and includes the trade disputes among others, really those risks still exist today. So, our view of the macro environment and the potential for some slow down in overall economic growth, that has not changed at all. Having said that, consistent with what we have said before, for global companies to operate in this volatile, dynamic environment is the new norm but it has been the new norm for several years. As so, as we talk to our client, they continue to focus on driving their business forward. The two themes remain the same. Our clients continue to focus on investing in digitizing their business both for top-line growth, differentiation in the market, but also as a way to create operating efficiency in the business.

So, we believe that companies continue to be on their front foot looking to invest in digiting the business. And the other theme that continues to be at play, maybe incrementally stronger, is the whole focus on strategic cost management and cost rationalization. Which is always aimed at creating a capacity to invest more in the New. I think as we talked about last time, all of that really plays to our strength because where companies are investing is in these areas of new services, which of course is where we have put 100% of our focus.

We also commented on the last call that we continued to see client budgets grow. I think we said last quarter they would grow in '19 maybe at a slightly lower level but in the same range as what we had seen the previous year. We haven't seen anything that changes our point of view on that. And of course, the best illustration of that is the $11.8 billion in booking that we just posted. And so, the market is always challenging. There is nothing different about it today than it was a year ago. The market is never easy. It's always challenging. But as I talk to our C-suite executives and our clients, there is the willingness and a desire to invest and drive the business forward. That has not changed.

Jim Schneider -- Goldman Sachs -- Analyst

That's helpful color. Thanks. And maybe as a follow-up, David, I think in your prepared remarks you talked about going after custom cloud applications to give you an opportunity. If it's in the commentary to me, I'm curious was that concentrated in one or two different verticals or whether it is broader based? Is it financial or something else? And maybe you could talk about how differentiated you feel that strategy is in the market relative to some of your traditional competitors?

David P. Rowland -- Interim Chief Executive Officer

It is absolutely broad-based. And it is an interesting point of view to share and an interesting trend that we see in the market that is quite different from what you might have expected three to four years ago where everyone was talking about package, package, package. You think about it, it's easy to understand. As strong at the functionally is in the next generation packages and platforms that companies are embracing. Really to get the full power of the data, the artificially intelligence, the machine learning. There is the need to do a lot of custom app software development in the cloud to really exploit all the advantage of the broader landscape of new technology and new platforms. I see that with our own company and I see that with so many of our companies that I meet with.

So, these are not, as you would expect, large scale individual projects, but it's a rapid pace of quick development of custom apps in order to really exploit and take advantage of the power of data, artificial intelligence, machine learning. All of those things require customization for individual companies. So, I think it is broad-based and pervasive. And it's kind of the art if you will behind the power of the technology and really customize it to the needs of a particular company.

Jim Schneider -- Goldman Sachs -- Analyst

Thank you.

David P. Rowland -- Interim Chief Executive Officer

You're welcome.

Operator

We will turn now to Edward Caso with Wells Fargo. Please, go ahead.

Edward Caso -- Wells Fargo -- Managing Director

Good morning. Congratulations on a strong quarter here. I was wondering if you -- It looks like you are targeting another billion dollars in acquisitions in the back half. Can you sort of help us in what areas you're focused and how they may be changing? Thanks.

KC McClure -- Chief Financial Officer

Yeah. Right, Ed. So, our guidance for the full year is up to $1.5 billion. So, given where we are, it would be about $1 billion if we get to the up to the range. In terms of what we are looking at, it should be no surprise that it's really aligned with our important strategic growth areas. I'll just point to what we've already done to date. You see a mix of various things. Obviously, very much in the New with acquisitions that we've done in the past in Accenture Interactive. We've also done acquisitions in Industry X.0 as well as very specific industry plays that tied to these new technologies both in Products and in Financial Services, just to point out a few.

So, it really is a key part of our strategy and the demand in the areas that we look at are no different than what we do overall in our business which is really tied to leading in the New and finding disruptive technologies and acquisitions in those areas of the business.

David P. Rowland -- Interim Chief Executive Officer

Just to add to what KC said. Just using what we've announced as of today, we've done roughly about 7 acquisitions in Accenture Interactive. We've done three in Industry X.0. We've done four in Technology. If you look at Technology, three of those were directly tied to deepening our skills in the platforms. I think there were a couple in Oracle and one SAP, as an example. There was another one around Data and Analytics. And then we had several vertical specific acquisitions. Several in Financial Services, as an example. And so, I think that's a good representation of we are all about investing in the New. So, that's a good roadmap for our acquisition strategy as well as our highest growth, highest priority verticals. That's a good roadmap going forward just as it has been in the past.

Edward Caso -- Wells Fargo -- Managing Director

My other question is just seeking some help in translating strength in Consulting to outsourcing. How high is the linkage still between those two? Or is Consulting really more contained and less of a link than it used to be to Outsourcing? Thank you.

KC McClure -- Chief Financial Officer

Yeah. Ed, I don't think there's really any significant difference in terms of the linkage that we've seen. If you take a look at what we do in our Consulting business, obviously, it first starts with Strategy which can project that are specific to Strategy but also oftentimes serve as the beginning for an end to end solution for our clients. That's no different than what we have seen in the past. As we look at the Consulting frontend capabilities that we have, we're in a management consulting space and we connect that to, for example, the Intelligent Platform space, which leads into Outsourcing as well. There is still that very same connection that we've had in the past. So, we don't really see any big difference, Ed, in terms of what you would think about as it relates to Consulting and Outsourcing both as it relates to doing end to end services here at Accenture.

Edward Caso -- Wells Fargo -- Managing Director

Thank you.

David P. Rowland -- Interim Chief Executive Officer

Thank you.

Operator

And we will open the line of Joseph Foresi with Cantor Fitzgerald. Go ahead.

Joseph Foresi -- Cantor Fitzgerald-- Analyst

Hi. My first question is it seems like you've sort of hit second gear in digital. I know in some of your literature you have talked about going from the consumer to more of the enterprise part of it. Could you describe a little bit more about the strength of this demand? Because I think it is surprisingly strong late in what we would consider the cycle. And maybe where you think it's coming from?

David P. Rowland -- Interim Chief Executive Officer

Yeah. First of all, when we look at Digital as we define it, there's really not any aspect of our Digital business that we consider late in the cycle. So, let's just start there. If you look at Accenture Interactive, which is the business that relatively speaking is the most mature within our business. Accenture Interactive, if you look at the G2000 and if you look at the rate of adoption of the power of digital and really reimagining and recreating customer experiences and all of the analytics and revenue enhancement and all the other offerings that go around that. The rate of adoption, while we are several years into that cycle, there is still a lot of runway in that business going forward. I don't think you would find any G2000 company that would tell you that they think they are kind of done with that. That is an ongoing process and so that has a lot of potential going forward.

Of course, we're constantly investing and kind of reimagining in our business to find the next growth curve which is exactly what we are doing in Interactive as we speak. If you look at Industry X.0, I think that it's widely recognized that the potential of Industry X.0 is massive. But yet, very, very early cycle in terms of the adoption. So, if you look at the kinds of things that we are doing, Digital Services Factory for manufacturing companies. When you look at the adoption of intelligent products or connected smart products, digitizing the manufacturing process is a way to accelerate time to market. Again, that is very early adoption and I think if you look at applied intelligence, I don't think you would find any company that says that they think they have arrived in terms of fully exploiting the power of data, artificial intelligence, machine learning, etcetera. I could continue on.

Accenture Security. Companies have a big agenda, multiyear agenda, to really deal with all that is required to fully secure the enterprise, their customer data, relationship, etcetera. And so, we look at this as a longer cycle and a cycle where we are still early innings if you want to use the baseball game analogy. So, we think there is a runway when you look at the elements of our Digital business.

Joseph Foresi -- Cantor Fitzgerald-- Analyst

Got it. And then my second question, I know this is kind of strange but we get this occasionally from investors. I think most people think that the overall economy is maybe late cycle. I'm wondering with all the digital work, do you believe it is more discretionary than it has been in the past? The last cycle Accenture did very well and held in very well. I'm wondering what your thoughts would be assuming that we eventually hit the end of the road on that side as well? Thanks.

David P. Rowland -- Interim Chief Executive Officer

Yeah. I'll what we observed and then perhaps we'll see how this plays out. Our observation is that with the pace of disruption in global business, with the pace at which industries are getting disrupted, companies are getting disrupted, there is a recognition -- We believe, we see among companies that you can not afford to hit the pause button. You can not afford to slow down. And I think that when we hit the eventual soft spot, what you will see is companies doubling down more and pushing harder on the operational efficiency and cost rationalization agenda in order to fuel what is the lifeblood, which is constantly reimagining, reinventing, and investing in growth, continuing up this adoption curve of the power of the new technology. And so, what we believe is that there is going to be resiliency in company's willingness to invest in their definition of the New because to do otherwise would just fundamentally jeopardize the existence of the enterprise going forward. We'll see the extent to which that plays out, but that is the observation that we have.

Joseph Foresi -- Cantor Fitzgerald-- Analyst

Thank you.

David P. Rowland -- Interim Chief Executive Officer

You're welcome.

Operator

And we will open the line of Darrin Peller with Wolfe Research. Please, go ahead.

Andrew Bauch -- Wolfe Research -- Analyst

Hey, guys. This is Andrew Bauch on behalf of Darrin Peller.

David P. Rowland -- Interim Chief Executive Officer

Good morning, Andrew.

Andrew Bauch -- Wolfe Research -- Analyst

Hey. How are you? I wanted to dig into the HP&S briefly. I know last quarter you highlighted some challenges on the federal side due to budget uncertainty. I am just wondering if you could provide just a little bit more color on what's happening here and some insights on some expectations for the rest of the year?

KC McClure -- Chief Financial Officer

Sure. Happy to do that. Nice to meet you. In terms of H&PS and the US Federal business, consistent with what we said last quarter, our Federal business is really going through a natural cycle of a few contracts winding down. So, we do see improvement in our US Federal business in the back half of the year and that will also be part of the increase in our H&PS business improving in the back half of the year. I'll give you a little bit of color since you talked about budgets. The partial government shutdown that we experienced this quarter was not material at the Accenture level for either the quarter nor will it be for the year. As it relates to the H&PS, it was about 2% of an impact on the quarter, but we do not expect it to be material at all for the H&PS business for the full year.

Andrew Bauch -- Wolfe Research -- Analyst

Got it. Thank you. And then I just wanted to touch on Accenture Interactive one more time. Obviously, over the last couple of years, the growth rate would imply that you are taking some meaningful share in the digital agency. I just wanted to get a better understanding of how the competitive environment has evolved over time and if you are seeing more push back from the incumbents building out their own digital practices and so on?

David P. Rowland -- Interim Chief Executive Officer

I would say there is really no change. I think when you look at the Accenture and the competitors that have been part of the disruption. I think about Deloitte Digital, PWC digital. IBM has a business that is focused on this space to some extent. I think this is an attractive market. It's a top of the c-level agenda discussion. So, I think companies continue to invest and attempt to compete. So, I think those companies that have been successful at disrupting and really bringing technology and industry depth and differentiation, the consulting and strategy, and then also the ability to operate. What I just described, we think that is unique to Accenture. But the other companies are competing hard. I think the incumbents intend to try to rotate to look more like the disrupters in the market but that is a difficult thing to do because when you look at the things that are relevant to Accenture Interactive, some of these things at the core are capabilities that we've built over decades.

So, to build a front end consulting and strategy practice, for example, is tough to do. To have the technology capability and D&A to underpin that business is tough to do. To have the operations capability. So, one of our big offerings in operations now is Accenture Interactive Operations. You don't just create that overnight. So, we think that we are well positioned in that market going forward. But it is an attractive market and we don't underestimate any of the competitors.

Andrew Bauch -- Wolfe Research -- Analyst

Got it. Thank you so much for the color.

David P. Rowland -- Interim Chief Executive Officer

You're welcome.

Operator

We will open the line of Lisa Ellis with MoffettNathanson. Please go ahead.

Lisa Ellis -- MoffettNathanson -- Partner

Hey, guys. So, a question about Hybrid Cloud. I think one of the most striking trends across the IT landscape this year is the emergence of strong hybrid cloud growth, meaning with a strong on-premise and more private component to it. I'd love some color just on how as you are evolving your cloud business how you are evolving it to reflect that trend which arguably gives some hope to the Legacy incumbent data center outsources who have more of an incumbent position within the private space?

David P. Rowland -- Interim Chief Executive Officer

Lisa, are you just having fun with me asking me a deep technology question?

Lisa Ellis -- MoffettNathanson -- Partner

Come on, David. You had to read the first part of the script today. You've got to --

David P. Rowland -- Interim Chief Executive Officer

I'll channel Paul Daugherty. But in all seriousness. As always, the way you characterized it is exactly right. And I will say that Accenture's position really from the very beginning was that the cloud adoption would evolve to be more of a hybrid environment. We've had the belief from the earliest days of discussion about cloud adoption and that is exactly the way it has played out. There are a lot of things that influence the need to do that. Part of it is an issue around a client's comfort or willingness to put certain data and certain apps on the public cloud. Of course, there is also the opportunity to exploit the power of public cloud which exceeds the potential power of any private cloud with all of the capabilities and the machine learnings and artificial intelligence capabilities that are embedded in many of the cloud offerings.

So, I guess I could just say that is the definite trend. There is a lot of work that we do for our clients in helping them think through their cloud migration strategy. So, if anybody thinks that is behind us, I would say to the contrary. In fact, again, I was just with one of our client's CEOs two weeks ago and the first thing he wanted to talk about was cloud migration strategy and it was all around the context of this hybrid cloud and the private versus the public. And then the public the strategy across the range of very strong providers. So, it is a dynamic going forward and it is exactly the approach that every single company is taking in their adoption of the power of the cloud.

Lisa Ellis -- MoffettNathanson -- Partner

Terrific. And my follow up is maybe for you, KC. Can you comment a little bit on how revenue per head and also contract duration are trending? The reason I'm asking is that looking at the longer-term trends, headcount growth has moderated a little as has the longer-term trend on the book to bill. But that's not consistent with your revenue growth which has remained very strong. So, I'm just wondering if you could comment on some of those second-order drivers?

KC McClure -- Chief Financial Officer

Sure. So, in terms of the length or converge, we haven't really seen any change at all in our book to revenue conversion rates. As it relates to the revenue per head, Lisa, I'll first start with that we have a focus on pricing. What we've been able to do in areas where we have invested for differentiation, is we have seen pricing improvement in those parts of our business. And so, that continues to be a very strong focus of ours and we have made progress and continue to make progress in that area. Always more work to do in that space, but it really first starts with pricing. That gives us the most leverage as it relates to getting productivity out of our payroll.

Then if you take a look at our overall payroll expense which is the large bulk of our cost structure. We are very focused on making sure that we have the most efficient use of our payroll directed at our clients and recovering what is the right and proper rate for that work in the marketplace. So, we have been making progress on that. It is something that we continue to be focused on. It' a never-ending job, but we are pleased with the progress that we're making and you do see that coming through. Not only in or revenue per head as a real driver of our operating margin expansion.

Lisa Ellis -- MoffettNathanson -- Partner

Terrific. Thank you. Thanks, guys.

David P. Rowland -- Interim Chief Executive Officer

Thank you, Lisa. I appreciate it.

Angie Park -- Managing Director, Head of Investor Relations

Hey, Trish. We have time for one more question and then David wraps up the call.

Operator

Okay. Our final question then will be from Harshita Rawat from Bernstein. Please, go ahead.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Hi. Good morning. Thank you for taking our question. Hi, can you hear me?

David P. Rowland -- Interim Chief Executive Officer

Yes. Hello. Good morning.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Good morning. So, I wanted to ask about artificial intelligence automation. Both of which have been meaningful areas for you, both in terms of efficiency and also from a client perspective. Could you perhaps talk about where are we in the journey of AI potentially breaking the linearity between headcount and revenue in your business? And on the other side, from a client, IT demand perspective, is it now a meaningful and past behavior and if so in what regard?

David P. Rowland -- Interim Chief Executive Officer

Yeah. First of all, I think when you look at the adoption of artificial intelligence and automation and specifically what I said earlier, I think any company that you could talk to would tell you that they are early in that cycle. And so, I think from a market standpoint, in terms of the work that we do for our clients in that area, I would say artificial intelligence is still an early cycle. When you talk about automation, I would say that the adoption rate of that is higher although still relatively early cycle. When you look at the connection to the relationship between headcount and revenue with Accenture, I'm not going to predict the timing with which we would see a direct impact of that. Clearly, as we do multi-year financial planning and we think about the evolution of our business and our own economic model, we see some potential for a different dynamic there. But the pace and timing I just wouldn't want to predict.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Great. Thank you.

David P. Rowland -- Interim Chief Executive Officer

All right. Thank you.

Thanks, again, to everyone for joining us on today's call. As you can tell, at this point in fiscal '19 we are very pleased with our financial results and the momentum in our business. With our highly differentiated growth strategy and management of the business, we are very confident in our ability to continue driving profitable growth and delivering significant value for our clients, our people, and our shareholders. We look forward to talking with you again next quarter. In the meantime, as always, if you have any questions feel free to reach out to Angie and her team. Have a great day.

Operator

Ladies and gentlemen, that does conclude today's conference. Today's conference will be available for replay later on and instructions will follow. Thank you for your participation and for using ATT teleconference service. You may now disconnect.

Duration: 63 minutes

Call participants:

Angie Park -- Managing Director, Head of Investor Relations

David P. Rowland -- Interim Chief Executive Officer

KC McClure -- Chief Financial Officer

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

Jason Kupferberg -- Bank of America -- Analyst

Jim Schneider -- Goldman Sachs -- Analyst

Edward Caso -- Wells Fargo -- Managing Director

Joseph Foresi -- Cantor Fitzgerald-- Analyst

Andrew Bauch -- Wolfe Research -- Analyst

Lisa Ellis -- MoffettNathanson -- Partner

Harshita Rawat -- Sanford C. Bernstein -- Analyst

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