Accenture plc (ACN) Q2 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Accenture's Second Quarter Fiscal 2012 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Senior Director of Investor Relations, KC McClure. Please go ahead.

Thank you, Ryan, and thanks, everyone, for joining us today on our Second Quarter Fiscal 2012 Earnings Announcement. As Ryan just mentioned, I'm KC McClure, Managing Director of Investor Relation. With me today are Pierre Nanterme, our Chief Executive Officer; and Pamela Craig, 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. Pam will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the second quarter. Pierre will then provide a brief update on market positioning and progress against our growth strategy. Pam will then provide our business outlook for the third quarter and full fiscal year 2012, and then we will take your questions before Pierre provides a wrap-up at the end of the call. As a reminder, when we discuss revenues during today's call, we're talking about revenues before reimbursements or net revenues. Some of the matters we'll discuss on this call are forward looking, including the business outlook. You should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements and that such statements are not a guarantee of our future performance. Such risks and uncertainties include, but are not limited to, general economic conditions and those factors set forth in today's news release and discussed under the Risk Factor section of our annual review on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. During our call today, we will reference certain non-GAAP financial measures which we believe provide useful information for investors. We include reconciliations of those measures, where appropriate, to GAAP in our news release or on the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now let me turn the call over to Pierre.

Thank you, KC. And thanks, everyone, for joining us today. Our excellent results for the second quarter, including strong top and bottom line growth, demonstrate that our strategy continues to resonate with our clients and that we are running our business with rigor and discipline. Here are a few highlights. We generated new bookings of nearly $8 billion. Revenues were $6.8 billion, up 13% in local currency, with all 5 operating groups and all 3 geographic regions delivering double-digit local currency growth. We delivered very strong earnings per share of $0.97, an increase of 29%. Operating income was $889 million, an increase of 15% over last year. And we continued to have a very strong balance sheet, ending the quarter with a cash balance of $5.6 billion. In addition, I'm very pleased that we just announced a semiannual cash dividend of $0.675 per share, which brings the total dividend payments for the year to $1.35 per share. And given our very strong results for the first half of fiscal year 2012, we are raising our outlook for revenue growth and EPS for the full year. Now let me hand over to Pam, who will review the numbers in greater details. Pam, over to you.

Thank you, Pierre, and thanks to all of you for listening today. I am pleased to share more about Accenture's excellent second quarter financial results for our fiscal '12. New bookings were again strong, just shy of $8 billion. Revenue came in at the top end of the range we guided to last quarter, and EPS for Q2 were very strong. Revenue growth was broad-based across our operating groups and geographic regions, with outsourcing growth higher than consulting for most of those dimensions. Our performance through the first half of the year and into calendar 2012 positions us well to achieve our targets for the full fiscal year. Now let's get to the numbers. Unless I state otherwise, all figures are U.S. GAAP, except the items that are not part of the financial statements or that are calculations. New bookings for the quarter were $7.94 billion and reflect a negative 1% foreign exchange impact compared with new bookings in the second quarter last year. Consulting bookings were $4.05 billion, and outsourcing bookings were $3.89 billion. Let me give you some color on new bookings in the quarter. In management consulting we continued to see strong bookings, reflecting an ongoing client demand for projects that deliver near-term and structural cost takeout, especially in the supply chain. We saw increased demand from clients seeking to drive new revenue through improved sales and marketing effectiveness, and demand also continued for services on large-scale business transformation programs. Turning to technology consulting, our bookings reflect the demand for network transformation, data center consolidation and IT rationalization for both driving cost savings and pushing up the business value from IT. Since its integration, bookings continued to reflect client demand to update and implement enterprise-wide ERP systems. We see growing demand for cloud, which is leading to requests for application re-platforming and for Software-as-a-Service solutions from the leading SaaS technology providers. We are also seeing more demand to leverage data management and analytics, mobility, social and digital technologies. We are expanding our capabilities to meet these growing demands. Turning to outsourcing. In technology outsourcing, we see increasing demand across all geographies, including continued strength in Europe, as clients continue to reduce and make variable their IT operating costs so they can channel more IT investments toward the adoption of emerging technologies. We also see healthy demand to help clients transform and manage their networks and infrastructure operations, as well as virtualize and consolidate their data centers to lower operating costs. BPO bookings in Q2 showed particular strength in the Americas. They reflected good demand both for our horizontal offerings, especially finance and accounting and marketing, and for our industry-specific ones, notably Accenture Credit Services and in health through care management services. Finally, we had bookings of over $100 million at 5 clients. Turning now to revenues. Net revenues for the second quarter were $6.8 billion, an increase of 12% in U.S. dollars and 13% in local currency from the same period last year. As we expected, these revenues reflect the foreign exchange impact of negative 1% compared with Q2 last year. These revenues were at the top end of our guided range of $6.5 billion to $6.8 billion, driven by strong growth in outsourcing. Consulting revenues were $3.8 billion, an increase of 8% in both U.S. dollars and local currency. Consulting revenue growth was strong in the Americas, very strong in Asia-Pacific and slight in EMEA. Outsourcing revenues were $3 billion, an increase of 19% in U.S. dollars and 20% in local currency and were very strong in each of the 3 geographic regions. Now let me give you some highlights of revenue growth in our operating groups. Communications, Media & Technology revenues increased 17% in local currency, with growth that was strong across the CMT industries and geographically. Outsourcing growth was very strong, driven by communications clients' continued focus on improving their operations and also by an increase, part of which is short term related to a contract in Europe. CMT had modest consulting revenue growth overall. The growth was strong in the Americas and Asia-Pacific, reflecting our clients' continued focus on improving operational effectiveness and customer service and on launching new products and services. The Products operating group, our largest, had local currency revenue growth of 16%, driven by strong broad-based growth across most of the products industries around the world. Outsourcing revenue was very strong, driven by notably higher technology outsourcing work versus last year. Led by our retail industry, consulting revenue growth was also strong overall, with the exception of some parts of consulting in EMEA. Resources revenues grew 12% in local currency, with strong growth in our energy and natural resources industries around the world, including some of our priority emerging markets. Strong growth in outsourcing reflected demand for flexible, cost-effective sourcing to meet increased demand in ongoing operations. Consulting growth continued to be driven by programs supporting global operating models and the focus on driving short-term efficiencies. In Financial Services, revenues grew 10% in local currency, reflecting very strong growth in outsourcing across the FS industries. This growth reflects clients' focus on cost takeout and operational effectiveness, and we expect this to remain an even stronger imperative across these industries globally. We did see modest consulting growth overall in Financial Services. This is driven by strong growth in insurance; slight growth in banking led by Asia-Pacific; and partially offset by a decline in capital markets. Health & Public Service revenues also increased 10% in local currency, reflecting very significant growth in health again this quarter, led by consulting in North America and Asia-Pacific. This reflects a strong focus on our health offerings, which Pierre will give you more color on shortly. Our repositioning of our public service business continues to go well. The PS business grew modestly this quarter, including strong growth in Asia-Pacific and was led by demand for our offerings in human services. In summary, our bookings and revenue results reflect continuing strong and more focused demand across the industries we serve. Moving down the income statement. Gross margin was 31.1%, down from 31.7% in Q2 last year, a 60 basis point decrease reflecting lower contract profitability in 2 operating groups, Financial Services and Health & Public Service, partially offset by higher contract profitability in the other 3, Products, CMT and Resources. Sales and marketing costs were $772 million or 11.4% of net revenues compared with $710 million or 11.7% of net revenues for the second quarter last year, a 30 basis point decrease in these costs in relation to revenue. Selling costs were down more than that, which has created some room to invest more in our offerings. General and administrative costs were $454 million or 6.7% of net revenues compared with $435 million or 7.2% of net revenues for the second quarter last year, a 50 basis point decrease in these costs in relation to revenue. Operating income for the quarter increased 15% to $889 million, resulting in a 13.08% operating margin, compared with $772 million or a 12.74% operating margin for the same period last year, a 34 basis point expansion year-over-year in the quarter. We were pleased with these results this quarter as we continue to be focused on managing the business to deliver operating income and modest operating margin expansion in conjunction with revenue growth. Now on operating income and margin for the operating groups. First, on Products, we are pleased with the trajectory of improved products profitability. Second, on Resources, the very strong operating margin results this quarter were driven by more efficient selling costs and improved contract profitability and also reflected a minor onetime upward adjustment. Third, the drop in operating margin in Financial Services reflected impacts from costs related to recent acquisitions, delivery and efficiencies on a few contracts and higher selling costs in relation to revenue. Our effective tax rate for the quarter was 20.5% compared with 26.9% in the second quarter last year. This lower rate in the quarter was due to higher benefits related to final determinations of tax liabilities for prior years, partially offset by increases in tax reserves. Net income was $714 million for the second quarter compared with $566 million for the same quarter last year, an increase of 26%. Diluted earnings per share were $0.97 compared with $0.75 in the second quarter last year, an increase of 29%. This $0.22 increase reflects $0.11 from higher revenue and operating results, $0.08 from a lower effective income tax rate, $0.02 from the lower share count and $0.01 from higher nonoperating income. Free cash flow for the quarter was $772 million rounded, resulting from cash generated by operating activities of $858 million, net of property and equipment additions of $85 million. Turning to some other key operational metrics. We ended the quarter with global headcount of more than 246,000 people, and we now have more than 151,000 people in our Global Delivery Network. In Q2, our utilization was 87%, flat with Q1. Attrition, which excludes involuntary terminations was 12%, also flat with Q1 and down from 14% in Q2 last fiscal year. We continue to expect to hire more than 60,000 people around the world this year. Turning to DSOs. Our days services outstanding were 29 days, down from 32 days last quarter as well as Q2 last year. Across all of these operations mentioned, utilization, attrition, DSOs, our business is performing very well. Finally, I'll comment on our cash and our ongoing objective to return cash to shareholders through share repurchases and dividends. Our total cash balance at February 29 was $5.6 billion and compared with $5.7 billion at the end of August. In the second quarter, we repurchased or redeemed approximately 8.6 million shares for $465 million at an average price of $54.03 per share. Year-to-date, we've purchased 13.9 million shares for $750 million. At February 29, we had $5.5 billion of share repurchase authority remaining. Yesterday, our Board of Directors declared our semiannual cash dividend in the amount of $0.675 per share. This dividend will be paid on May 15, 2012. This is in line with the semiannual dividend of $0.675 we paid in November and represents a $0.225 or 50% increase over the dividend we paid in May of last year. Lastly, we were extremely pleased to learn that Accenture was 1 of 6 companies added last Friday to the S&P 100 index. In summary, our financial results were strong from the top line through the bottom line in the first half of fiscal '12. Our results demonstrate that we are tuned in to the needs of our clients, that we have skills and offerings for services that are in demand and that we are executing with rigor and discipline to meet our financial targets. Now let me turn the call back to Pierre to give you his thoughts on how we are executing on our growth strategy.

Thank you, Pam. Our strong results again this quarter demonstrate that our growth strategy is well aligned with the needs of our clients and that we are leveraging marketplace opportunities to drive growth and gain market share across all the key dimensions of our business. Of course, we are watching macroeconomic trends very closely. And despite the slowdown in the forecast for global economic growth, especially in Europe, there are some positive developments such as early signs of improvement in the U.S. economy as well as progress to stabilize the eurozone sovereign debt situation. In my recent conversations with the CEOs of our clients, it is clear that the marketplace foresees driving the need for large-scale transformation are still here. And in this context, our growth strategy continues to be extremely relevant to our clients. Talking about clients. Over the last 6 months, we have increased the number of Diamond Clients, which are our largest client relationships, across all 5 operating groups. We continue to operate at the heart of our clients' businesses and to increase not only the number of clients we serve, but also the kinds of services we are providing to them. Operational efficiency continues to be a key area of focus for our clients and is driving significant demand for our services. Let me give you 2 examples. We are helping one of the world's leading insurance companies reduce cost through implementation of a large multiyear network transformation program, which includes a cloud-based Voice-over-IP solution. Our services span 25 countries and include infrastructure expense management, service delivery and security services. In health, which is one of our priority industries, we are using our care management BPO services to help one of the largest U.S. health insurers manage their review and authorization of medical services for patients. We are using analytics to help this client drive down the costs of care management and improve the quality of services provided to patients. Technology innovation is another key lever clients are using to capture new growth opportunities and improve the customer experience. Through Accenture mobility services, we are helping one of the world's leading car manufacturers leverage machine-to-machine computing to integrate in-vehicle and mobility technologies. This solution gives drivers access to navigation and other connected services on a pay-per-use basis, generating new revenue opportunities for the manufacturer. We are working with the governments of Australia and Singapore to implement health information exchanges, which are designed to improve the cost, quality and access to health care for citizens. Health Information Exchanges provide medical professionals with access to real-time information that can be used to make more informed decision and provide better services to patients. And through Accenture Analytics and marketing services, we helped a U.S.-based retailer deliver more than $300 million of incremental annual revenue by using predictive analytics to reallocate marketing spend to our impact channels. As you know, geographic expansion is a key element of our growth strategy. And we are taking steps to significantly increase our leadership presence in Asia-Pacific. David Thomlinson, a member of our Global Management Committee, who leads our geographic strategy and operations, has relocated to Shanghai to work with our local leadership to accelerate the execution of our growth strategy in Asia, particularly China. In addition, last month, we opened a new Accenture Technology Lab in Beijing. One of the key areas of focus for the Beijing lab is how to apply Smart Grid technologies to help with those China's growing energy demands, which is a critical priority for China. And of course, we remain focused on our own operational efficiency. It is all about continuing to run Accenture's business with rigor and discipline in order to increase the competitiveness of everything we do and maximize our return to shareholders. With that, let me turn the call back to Pam, who will provide our business outlook for the third quarter and the full fiscal year.

Thank you, Pierre. As we head into the second half of our fiscal '12, we are positioned very well. We are pleased with how we have navigated the macro environment, which, as Pierre mentioned, continues to have significant challenges as well as some brighter spots. We continue to be very focused on overall profitable growth in our broad-based global business and on building market share in the markets we are focused on. I'll now provide our outlook for the next quarter's revenue and an update to our annual outlook for the full fiscal year. So here's how we see it shaping up. For the third quarter, we expect revenues to be in the range of $7.05 billion to $7.25 billion, which assumes a foreign exchange impact of negative 3% for the quarter. For the full fiscal year, we continue to assume a foreign exchange impact of negative 1%. This reflects the rates we've experienced over the past couple of weeks, which have remained consistent with the assumption we provided last quarter. Turning to revenues. Based on the strong delivery and our year-to-date results of almost 14% growth in local currency and how we see the year as a whole, we now expect our fiscal year 2012 revenue to be in the range of 10% to 12% growth in local currency. We expect continued strong growth in outsourcing and continued moderation in consulting growth. We continue to expect bookings to fall within our annual new bookings range of $28 billion to $31 billion for the fiscal year, although we now expect to be in the top half of that range. We continue to expect operating margin to be in the range of 13.7% to 13.9%, a 10 to 30 basis point expansion over last fiscal year. You should expect some fluctuations quarter to quarter, as we've seen in the past. Although the effective tax rate for Q2 and year-to-date was lower, we continue to expect our annual effective tax rate to be in the range of 27% to 28% for fiscal '12 and for the tax rate for Q3 and Q4 to be above the annual range. We now expect earnings per share for the full fiscal year to be in the range of $3.82 to $3.90, up $0.06, primarily reflecting our updated assumption for revenue growth. Finally, we now expect operating cash flow to be in the range of $3.65 billion to $3.95 billion, with property and equipment additions of $450 million, and free cash flow in the range of $3.2 billion to $3.5 billion. We remain committed to return a substantial portion of the cash we generate to shareholders. In fiscal '12, we continue to expect to return at least $3 billion through dividends and share repurchases and to reduce the weighted average diluted shares outstanding by about 2%. We're very pleased with how our people have delivered for our clients and for Accenture in this time of continued uncertainty in the global economy throughout the first half of our fiscal year. We are working hard to continue to drive profitable growth as we help our clients drive critical value in their businesses while at the same time driving value in ours and for our shareholders. Now, Pierre and I are ready to take your questions. KC?

Thanks, Pam. [Operator Instructions] Ryan, would you provide instructions for those in the call, please?

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang for JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: I guess I'll ask something on the outsourcing front. You mentioned, I guess last quarter to us that you're not seeing a shift from consulting to outsourcing and that outsourcing is not growing at the expense of consulting. Is that still the case? I'm just trying to get a better sense of how long this interplay between the 2 might persist. Do you follow my question, Pam and Pierre?

Yes, I think. Just, you do the math, right? The outsourcing is marginally a little bit greater proportion of our business right now, and we see that particularly happening in Financial Services and Communications, Media & Technology. It's been a trend and we expect it to continue to be a trend. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Right, okay. The -- now that makes sense. And the -- I guess, just on the outsourcing growth, as my follow-up: Is it pretty broad-based or driven by certain large deals? And how would you characterize the risk profile, I would ask, on the outsourcing side versus maybe 2, 3 years ago?

Well, it's quite broad-based. We see strong outsourcing growth virtually around the world and pretty much across the operating groups, so this is clearly very good growth. I think in terms of the risk profile, I'll just comment a little bit on our capital committee, it is something that we take very, very seriously in all these deals. I think it's fair to say we're getting better and better at it, and I do not see an increase in the risk profile of our outsourcing work.

Yes, just to add a word on this. I mean definitely, outsourcing is a very relevant response to the clients who have challenges in improving their operational efficiency and their overall performance. And this is true across the patch for all our industries. That's why you can see the kind of acceleration of the demand in outsourcing across the board.

Our next question comes from the line of Rod Bourgeois with Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: First question on demand and then a quick question on the margin front. On the demand front, Pam, you mentioned in your guidance commentary that your outlook assumes moderation in consulting. Is that moderation in the year-over-year growth rate as comparisons get tougher? Or is that moderation in the actual demand environment and seeing some incremental softening there? Can you kind of clarify whether that's a year-over-year growth rate commentary or a demand trend commentary?

It's a year-over-year growth rate commentary. We are expecting that the consulting year-over-year growth rate will be more in the mid-single-digits kind of range next quarter, and so it is very much that. We continue to see very good demand, as you can see in the bookings, being over $4 billion. And the demand environment is -- continues to be robust in most parts of the world. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: Okay, great, that's very helpful. And then on the margin front, I want to focus on the Financial Services vertical there. And I guess there's 2 parts to my question here. Are you seeing any meaningful pricing issues contributing to the margin decline in Financial Services? And did you have any write-off on troubled contracts during the quarter that caused the meaningful drop in the Financial Services margin?

I would say, Rod, that it is more due to the things that I mentioned a few minutes ago in the sense that we did have a couple of nice-sized acquisitions that came online, and so we planned to have some impact from those. We also did have higher selling costs in Financial Services, and I think that's, in large part, due to there is significant transformation going on in that industry, as you know, and so some of that was planned. And we did have, lastly, some delivery inefficiencies, which would probably go into the category of "we need to work on that a bit more" that also contributed. But the first 2 were more of a planned nature. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: Does that mean, looking forward, that the margin should recover after you get past the acquisition cost and then some upfront selling costs on some transformational work?

We do expect that the Financial Services profitability will tick back up.

We will be jumping on this, Rod, because I'm historically Mr. FX, so I still have some personal stake on this. And indeed, as you know and as we communicated, banking, insurance and health are industries where we decided to invest because we see the potential on those industries. So it's not a surprise that you can see the impact of our investments in some of the margin. And so far, we are very pleased with the results of those investments in the term of the acquisitions we made and we announced recently with Duck Creek and with Zenta to form Accenture Credit Services. And of course, the other data point is we're pleased to announce that this quarter, in Q2, Financial Services bookings were $2.1 billion, the highest booking ever in the Financial Services history.

Next question comes from the line of Julio Quinteros, Goldman Sachs.

Just to pick up on Rod's question there but maybe from a different perspective on the contribution. Because you guys are calling out the acquired impact to the margins, is there a way to think about how much is actually helping on the revenue growth side as well?

It did have a good contribution to the revenue growth in Financial Services. I'm not going to give you the exact number, but it was meaningful to that growth.

Okay, got it. And just have a quick follow-up. When we look at the results, hard to argue with 13% to 14% first half growth and mid-teens trailing 12-month bookings at this point in time. But when you look at the implied growth into the back half of the year at their midpoint of the range, it looks like you guys are implying 8.5%. What would -- I mean, at this point, just given where the growth is right now, especially with bookings as strong as they are, why would you guys expect to decelerate in the back half of the year?

Well, it's just more how we see the -- how it's shaping up. And when you think about it, it's more like a 7% to 10%, which is, I think, how we saw the business when we started the year and then consulting was running hotter. And now we see it coming back closer to that level, which is a very, very good level. So the moderation is primarily in consulting, and outsourcing continues to be strong.

Next question comes from the line of Bryan Keane, Deutsche Bank.

I just wanted to drill down on the consulting business, maybe your outlook by region. It sounded like Americas and Asia might have been accelerating, but maybe a little bit of a decel in Europe is expected? Maybe you can just break it down further.

Well, I'm probably -- I'm not going to break it down in terms of numbers, but I think your characterization is fair. Although, we expect moderation to be in the Americas and Asia-Pacific as well as we go forward. But Europe is the one that's lowest in terms of a growth rate right now.

And did Europe deteriorate during the quarter, or it's just -- it's kind of happening to plan? And then just lastly on headcount growth, I noticed sequentially headcount growth didn't grow as much, but you've kept your guidance for at least 60,000 heads for gross hires. So just curious on, is there a timing issue for headcount with this quarter and we should expect it to pick up in the next 2?

All right, so the first question, okay, the headcount was the -- that's the question I've got here. So there's nothing unusual going on with headcount, Bryan. I mean, it's pretty much -- as you know, we manage supply and demand around the world and that's really all that's going on. So the utilization was at 87%. I think we're being tight and rigorous about that, as we always are, and there's nothing unusual there.

Then from a consulting standpoint, I am going to jump on that one. I don't think there is anything in Q2 that was not expected or took us by surprise from a consulting standpoint. I think Pam mentioned in prior quarters that indeed, if you're looking at the world macroeconomic environment, it's public knowledge that Europe is more softer from an economic standpoint compared to the rest of the world. We're watching carefully what's happening especially in the Financial Services sector in some part of Europe. It's not the same story if you are looking at the different countries in Europe. And so what's happening there is more happening as planned, and I don't think there is anything that was unexpected.

Right. And just what's interesting, though, is that the outsourcing demand is quite strong in Europe. So as you can imagine, we're responding to that.

Next question comes from the line of Nate Rozof, Morgan Stanley.

My first question for you is related to the pipeline. I think, after 2 very strong bookings quarter -- last quarter, Pam, you made the comment that there was going to be some work needed to be done in terms of replenishing the pipeline. And now, here we are again with another strong bookings quarter. So I wanted to get your sense on, had you been able to replenish the pipeline? And what was the philosophy of deals moving to the pipeline relative to maybe a quarter ago?

Yes, I -- it's a great question and, as you can imagine, something we are very focused on. And I think we have made some good progress in building the pipeline. We do have some more work to do. And again, with the strong bookings, it was, I think, overall very good. One thing I'll just mention because sometimes this relates a little bit to disability, and I've given you this in the past, is that when we look at revenue under contract, we do have 13% more than we did at this time last year both for the next 2 quarters of the fiscal year, but also for the next 4 quarters. So I think that shows you that we're -- that that's building as well.

Okay, that's terrific. It's good to hear about the visibility. Can you provide any insight in terms of just breaking down into the bookings number a little bit more? Any insight in terms of new wins in that strong bookings number versus renewals and/or any change relative to what's kind of normal at this time of the year?

I don't think there's anything major to point out there, Nate. I mean, I think one of the things that we were of course looking at last year -- sorry, last quarter, was how the calendar year turn was going to go. And we haven't seen anything notably changed that much in terms of clients' budgets and sort of all of that. So I don't think there's really anything big to point out with respect to that.

Our next question comes from the line of Darrin Peller, Barclays.

Pierre, I think you mentioned earlier that, in Europe, you were seeing more outsourcing and I think it's well received, especially just given the historical trends there. So do you think now clients continue to focus on cost takeout? Those historical barriers around cultural factors and labor laws and language are actually really becoming less of a hurdle and you're actually seeing it hit the numbers now, first of all?

Yes, I mean, if you look at this, at the demand, I mean, clearly, operational efficiency is extremely important for all the reasons we know. And again, we feel we are extremely well positioned to provide the right answer to that particular agenda. From a consulting standpoint, from an outsourcing standpoint, we have, I think, all the tools, techniques and offerings to tackle that agenda. But at the same time, we see a growing demand for more innovation and using more the technology innovation to drive either more efficiency but, as well, more the revenue agenda of our clients. And what's interesting to see in the marketplace is, indeed, those 2 activities, and it's not a surprise, are picking up at the same time, and clients are investing to be more efficient as well as they're investing to capture more growth opportunities. And we're very pleased, if you will, with those 2 engines for growth.

And just one follow-up to that. Is it market share also, are you seeing your win rates increase?

I don't think -- I mean, our win rates have been up, as I think back over the last year. And I don't think we saw a significant change this quarter in that.

Okay, but it's been -- it's pretty stable, Pam?

Yes.

Next question comes from the line of Jason Kupferberg, Jefferies. Jason Kupferberg - Jefferies & Company, Inc., Research Division: So I just wanted to ask a question regarding SG&A. I mean, you guys have done such a great job over a long period of time there managing the SG&A cost base. And I wanted to get an idea of how much more upside, if you will, remains there to the extent you see opportunity for further cost takeout, what specific areas that might be in. And part of the reason I ask the question is, the gross margins continue to go down year-over-year, I think it's been about 6 straight quarters. But obviously, you managed the business to operating margins and you've been hitting your goals there, but the SG&A piece of the equation obviously becomes even more important if the gross margins continue to slide. So any color you can give us there would be great.

Yes. I mean, I think you're right, right. I mean, I think philosophically, we are looking to manage SG&A to grow slower than revenue, right? And so that's sort of part of our culture that we're really careful with our cost and really manage all that, manage our cost structure with a lot of rigor and discipline. And so I was pleased to see the improvement in the selling cost. You do know that when we invest in the business, that's typically on the sales and marketing line as well. That's where we have our offerings and our initiatives, so we want to make sure that we can do some things there as well and look to do as much as we can but all within this overall framework of, in the end, delivering modest margin expansion.

And all of this is -- I'm going to jump on this one because it's a kind of mindset, if you will. And probably, you've been hearing me and Pam using a lot "rigor and discipline," which is coming back and coming back. But if we are mentioning that sort, it's only because we mean it. And at the end of the day, rigor and discipline is what you need as a mindset for proper execution. And I think, in that organization, there is a relentless focus on improving productivity and efficiency in everything we do. And there is no reason that will not apply to SG&A as to the rest of our business. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And let me just ask a follow-up on your latest thoughts regarding non-linear growth opportunities at Accenture. You guys now have about 0.25 million employees. And are there some goals you can share with us just in terms of size for your non-linear businesses such as on the Accenture Software side or BPO or other types of IP-based solutions you have in your portfolio? I know you'd talked a bit about this at a past analyst meetings. I wanted to see if there was any update there you could share.

Yes. I mean, at the high level, we are a people-based organization. We will grow our headcount and we love that. We love our people, we love growing base, we're used to that. We know how to hire, train, develop, deploy, and that's part of something we will do and we will continue to do. That being said, it is part of our plan to bring more IPs in our system, if you will, to be more differentiated. That we will continue to be a people-based business and grow that way. From an IP standpoint, indeed, we are pleased with the progress we are making either by leveraging the good technologies from our alliance partners. And we are doing that every day to bring our unit industry expertise or by making some focused investments and strategic investments. I mentioned a few we are doing in each and every industry. So we will continue to be more IP-based and to grow indeed that part of our business as well. But the people-based part will remain important.

Our next question comes from the line of Ashwin Shirvaikar with Citi.

My question is related to the bookings. In the next few quarters, you have obviously very significant ramps related to the contracts that you're signing. You also have a lot of increased headcount coming up, given the relatively flattish headcount this quarter. Are there marginal cash implications in the back half of the year or even slightly beyond that as we look at those ramps?

What do you mean by marginal cash applications?

Is it going to -- because you're obviously ramping your -- ramping large contracts, there is an initial cost involved. Does it have a negative implication for your gross margins...

Yes, I mean, I guess sort of this giant portfolio, thousands of contracts, right. We always have some in their early stages. And that's part of what each operating group manages as they look to deliver each year. So there's nothing unusual there, Ashwin.

Okay, so nothing out of the ordinary, okay. The second question is on Nokia. I guess it's sort of client-specific, and let me take a shot at it even though I know you historically don't answer client-specific questions. You're making buyout offers to the Belgian employees. Is that sort of too early in the process? Is that consistent with your expectations? How's the project growing? I mean, it is Symbian support and we kind of know how Symbian is doing in the market, so a little bit concerned there.

Yes, I mean, as you expected, I think when you asked the question, we're not going to comment specifically on a client contract.

Next question comes from the line of Arvind Ramnani with UBS.

Just a couple of quick questions. You're continuing to see strength in some of your end markets that are having pressures, specifically Financial Services and Europe. So do you feel like the ongoing pressure that your clients are seeing will continue to drive business your way? Or do you think at some point it will catch up with your overall revenue growth?

I think the thing that we see is continued robust demand for outsourcing and Financial Services. And we don't see that letting up.

Great, great. And you also attributed your gross margin pressure to contract profitability. Can you expand on that? Is that driven due to higher contractor costs or due to pressure on bill rates for the contract work?

Well, I mean I think, as I mentioned, it's in Financial Services and in Health & Public Service. And in those cases where there's things that we wish we do better is what we thought -- we referred to as delivery and efficiencies, and that's more where it takes more cost to deliver something than we thought it would.

And just one other quick one. Are you still planning on having your Analyst Day at the -- in April, or is it moved to the fall?

We are not planning to have it in April. And we, at this point, are looking to do it in the fall. And stay tuned, we'll have an update on that.

With results reflecting the cycle of our business, so that's why it's moving to the fall.

Okay, great.

Yes, we think it's better, from the standpoint of our fiscal year.

Great, great. And I mean, I guess -- would that mean you'll provide guidance only when you hold the Analyst Day for the following fiscal year?

Stay tuned on that.

And the final question comes from the line of Joseph Foresi with Janney.

I guess my -- I'm going to try and squeeze 2 even though it's the last 1. But any changes in the spending patterns by clients? Are wallets opening up a little bit here as there's been some macro stability? And what could cause those wallets to shut up?

I mean, as we said, we're looking carefully at the macroeconomic environment. We're talking to our clients every day. We're looking at the analysts' reports no later than this morning, and really, I'm reading all the reports from the economy coming from all around the world. And we are not seeing any significant changing in the current client environment. And we do not see much reason that why things would change, at least things we know.

Right.

Okay. And then lastly, I just want to go back to the first question because it looks like outsourcing is kind of outpacing consulting. Is this -- I mean, is there any linkage at all to the business cycle or [indiscernible] center a part of the cycle where maybe consulting moderates and outsourcing picks up? Or have you been converting those consulting engagements into outsourcing? I'm just trying to get a final feel for that.

Yes, I think there is some, what I would call catalyst effect of some of the consulting going into outsourcing, but we haven't really quantified that. But there's a lot of activity under what we've termed framework agreements in outsourcing. And I think that as we mentioned in the comments, right, this relentless focus on cost takeout and getting more operationally efficient, it just really lends itself to doing that kind of work and really helping clients get more fit. And of course, with the -- what's going on with technology, that's really supporting that, too, because there's opportunities through new -- through these new technologies to make some of these IT costs more variable, and that's, of course, very attractive to clients. I think that's it.

And again, I've seen -- I mean, a lot of your question concerning consulting and outsourcing, and they're all very valid. Again, just a reminder that we've been booking in the range of $4 billion this past 4 quarters in consulting. So we'd like to make sure everybody get, if you're on that call, that we're pleased with where we are with outsourcing, with consulting and we are extremely pleased with where we are in outsourcing. Okay, I think it's time to wrap up the call. Thanks again for joining us today. As you heard, we are very pleased with our strong results in the second quarter and the first half of the fiscal year. We are confident that we will continue to deliver profitable growth, and we are remaining focused on accelerating the execution of our growth strategy. We believe we are well positioned to see the opportunities we see in the marketplace and have raised our business outlook for revenue growth and EPS for the full year. And of course, our strong performance would not be possible without the incredibly talented team of Accenture women and men around the world. I would also like to thank our investors for your continued support. And we look forward to speaking with you again next quarter. In the meantime, if you have any questions, feel free to call KC to make arrangements for a follow-up. Thank you for participating, and all the best.

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