Ladies and gentlemen, thank you for standing by and welcome to Accenture’s Second Quarter Fiscal 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Now, I’d like to turn the conference over to your host, Angie Park, Managing Director and Head of Investor Relations. Please go ahead.

Thank you, operator and thanks everyone for joining us today on our second quarter fiscal 2020 earnings announcement. As the operator just mentioned, I am Angie Park, Managing Director, Head of Investor Relations. On today’s call, you will hear from Julie Sweet, our Chief Executive Officer and KC McClure, our Chief Financial Officer. We hope you have had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today’s call. Julie 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. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the third quarter and full fiscal year 2020. We will then take your questions before Julie provides a wrap up at the end of the call. Some of the matters we will 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, we will reference certain non-GAAP financial measures which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release or in the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Julie.

Thank you, Angie and thank you everyone for joining us. Today, we are very pleased to announce our outstanding financial results for the second quarter and first half of fiscal ‘20. I want to start by thanking our leadership team and all of our people for their dedication to our clients and to delivering on our commitments. And it is because of our leaders and people that I have absolute confidence in our ability to adapt and successfully navigate the unprecedented global health crisis the world is now facing. I am incredibly proud of how our leadership team and people have rallied in the face of this crisis and works 24/7 to ensure the safety and well-being of each other and to continue to serve our clients at this time of great need. KC and I know that you are keenly interested in understanding how the coronavirus is impacting Accenture and our people. First, we are going to cover our starting point, KC will take you through Q2 results and I will give you color on the strength of our business and our growth strategy as we exited H1. Then I will specifically address the current environment in light of the coronavirus and how we are managing the impacts. Finally, KC will give you our updated business outlook. KC, over to you to go through our strong Q2 results.

Thank you, Julie and thanks to all of you for taking the time to join us on today’s call. Let me start by saying that we were very pleased with our overall financial results in the second quarter, which were aligned with our expectations and completed a very strong first half of the year. Both our Q2 and H1 results demonstrate the power of our highly differentiated growth strategy. A key intent of our growth strategy is to create durability in our revenue range at a level that is consistently above the market taking share and strengthening our position as a leader. Against this objective, we have created a unique footprint that includes scale and leadership in the world’s largest and most critical geographic markets and industries. This footprint, along with our highly relevant offering, from strategy and consulting to operations, is key to being a market leader in helping our clients the world’s leading companies rotate to the new. Now, let me begin by summarizing a few of the highlights for the quarter. Revenue growth of 8% in local currency was at the top end of our guided range for the quarter and reflected growth in 12 of our 13 industry groups, with 5 growing double-digit. Revenue continued to be driven by strong double-digit growth in digital, cloud and security related services and broad-based growth across our business dimensions. We continue to expand our leadership position with growth we estimated to be more than 2x the market. Operating margin was 13.4%, an increase of 10 basis points for the quarter and 20 basis points year-to-date, reflecting strong underlying profitability as we continue to invest in our business and in our people to position us for long-term market leadership. We delivered very strong EPS of $1.91 which represents 10% growth…

Thank you, KC. So, as we reflect in where we are for the first half, we delivered record bookings of $24.5 billion, revenue growth of 8% in local currency, 20 basis points of operating margin expansion and 8% increase in earnings per share and $2.7 billion in cash return to our shareholders, which means we exceeded H1 in a clear position of strength delivering outstanding results, taking market share and continuing to successfully execute our growth strategy. In H1, we continue to see how our unique business model, which spans services from strategy and consulting to operations, resonates with our clients who seek speed to value and our unparalleled digital and technology capabilities, ecosystem partnerships, deep industry and functional expertise, and incredibly talented people are making the difference. Let me give you color on the demand we saw from our clients in Q2 and H1 overall. This quarter, we had 18 clients with new bookings over $100 million and operations hit a milestone of 25 consecutive quarters of double-digit growth. Let me double click on operations. First of all, congratulations to the entire operations team on this remarkable achievement. In operations where we continue to lead the market at nearly twice the size of our largest competitor, we have unparallel capabilities to create value for our clients by delivering tangible business outcomes at speed by leveraging our SynOps operating engine. This engine uses a truly unique approach combining data, applied intelligence and emerging technologies with human expertise to reinvent business processes and enable intelligent operations. It allows our clients to reduce costs and achieve technology enabled enterprise transformation faster by using our engine rather than investing to build their own. Our operations capabilities span the enterprise from finance, HR, marketing, procurement, supply chain and digital manufacturing to industry specific offerings,…

Thanks, Julie. Before I get into our business outlook, I would like to provide some context. The coronavirus crisis is rapidly evolving and has created a significant amount of uncertainty. Our third quarter and full year guidance reflects our assumptions as of today based on the best information we have regarding the potential effect of the coronavirus on our business. There are number of factors that we may not be able to accurately predict, including the duration and magnitude of the impact as well as those factors described in the quarterly filing we made earlier today. I would also like to point out that our guidance assumes a higher degree of impact to our financial results in Q3 with some improvement in the business environment in the fourth quarter either due to an improved situation or our clients having adjusted to operating in a new environment. With that said, let me now turn to our business outlook. For the third quarter of fiscal ‘20, we expect revenues to be in the range of $10.75 billion to $11.15 billion. This assumes the impact of FX will be about negative 1.5% compared to the third quarter of fiscal ‘19 and reflects an estimated negative 2% to positive 2% growth in local currency. For the full fiscal year ‘20, based on how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in U.S. dollars will be approximately negative 1.5% compared to fiscal ‘19. For the full fiscal ‘20, we now expect our revenues to be in the range of 3% to 6% growth in local currency over fiscal ‘19. For operating margin, we now expect fiscal year ‘20 to be a 14.7% to 14.8%, a 10 to 20 basis point expansion over fiscal ‘19 results. We continue to expect our annual effective tax rate to be in the range of 23.5% to 25.5%. This compares to an effective tax rate of 22.5% in fiscal ‘19. For earnings per share, we now expect full year diluted EPS for fiscal ‘20 to be in the range of $7.48 to $7.70 or 2% to 5% growth over fiscal ‘19 results. For the full fiscal ‘20, we now expect operating cash flow to be in the range of $6.15 billion to $6.65 billion, property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $5.5 billion to $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 $4.8 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to our shareholders. With that, let’s open it up so that we can take your questions. Angie?

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

Yes, thank you. [Operator Instructions] Our first question is going to come from the line of Tien-tsin Huang. Please go ahead.

Good. Thanks so much. I hope everyone is safe and healthy. I want to ask on the – let me ask on your commitment to protect earnings, if a recession is longer than expected, I am curious what levers or levers you have that might be different than the credit crisis in ‘08/09 to protect margins if demand comes in weaker than expected? Thanks.

Yes, thanks Tien-tsin and thanks for taking time to calling today. So we talk about margin expansion in earnings. You have heard me talk about in the context of a few levers. So let me talk about that as it relates to how we are running our business now and how we think about that as we go forward in this environment. So I will start with pricing. You have always heard me talk about how earnings expansion really starts with pricing. So if we look at where we were pre-crisis in the first half of the year, our pricing in Q2 was relatively stable. So in this environment, we are fortunate to have our client executives who have longstanding relationship with our clients and they know how to help our clients navigate this uncertainty, but they also know how to ensure that we are making the right arrangements for both them and for us. So we sill have a focus on pricing. The second thing that we have talked about in terms of margin expansion is how we are going to continually invest and Tien-tsin that continues to be with what I consider, we consider competitive advantage for us. So we will be able to continue to expand margins, while we invest in our business and you have heard me say today that we continue to expect to invest up to $1.6 billion in acquisitions this year. We have already committed $1.1 billion to-date. So we have the ability to invest another $500 million in acquisitions, should those opportunities arise. So we continue to invest, and we’re also going to continue to invest in our people. We’re going to make sure that we have the capabilities that our clients need, both today and in the future, and we are going to invest, so that people can develop the skills that they will need for today and for tomorrow. In terms of what is a specific margin lever, Tien-tsin, that we would have now, I’ll just point to the help that we will get from not traveling, right? So even in a virtual organization like ours, you’ve heard Julie talk about the status of how often and how much we use Teams. We still with 500,000 people have significant travel costs, and we do see that decreasing as a result of the current environment and that is something that is unique during this time period, that does help support our margin expansion.

Got it. That makes sense on the travel point. Maybe just a quick follow-up really helpful comments around your business continuity. Just curious, does your guidance reflect any sort of – maybe inability to deliver against the bookings in your signed contracts? I’m just curious if there is any sort of plans there, anything specific that we should be aware of on the, on the continuity side, it sounds like not, but just wanted to make sure?

Yes, so let me maybe take a second just explain how we arrived at our guidance overall, and Julie will talk about a lot of the continuity question that you had, Tien-tsin. So I think first of all, it’s important to step back and take a look at our trajectory for our year prior to the coronavirus. As you heard Julie and I talk, we exited H1 with very strong momentum, and we were on a path to be at the top end of our previous annual guidance range of 6% to 8%. And at a minimum, we would have been reconfirming all of the other elements in our guidance. But obviously, things are different and let’s talk a little bit about how we arrived at our guidance, and it really reflects how we manage our business today. So we took a look at our business from an industry, geography and a type of work, specifically the various services that we offer, and then we analyze the potential impacts from these unprecedented circumstances, such as you know, working remotely at this scale for us and for our clients and the fact that there will be more impacts in various industries and others. And then based on these impacts, we reasonably estimated what we saw today, as being the impact in our business in the second half of the year. So as a result of that, we lowered the top end of our previous guidance range from 8% to 6% as you have seen, and given the uncertainty, Tien-tsin, we also, as you saw broadened to a 3 point range for the full year and also 4 point range for Q3. There is an important thing that’s on the other side of the travel discussion that we just talked about, as…

Sure. Really, what I want to take you through, Tien-tsin and thanks for the question, because clearly, the way we’ve updated guidance, is we are expecting that our business is going to evolve differently for the next two quarters for a whole host of reasons. So I think maybe what might be most helpful, is to kind of give you some color on what’s really happening on the ground with our clients. And there is really three sets of activities right now, right? So the first is, our clients are focused, as a first priority of the safety of their people and adjusting to the need to have remote working, right which for many of our clients is very new and we’re helping many of our clients make that adjustment. So for example, we have a client who asked us literally to go – when we partnered with Microsoft to do this, to go from zero people using Teams, in five days it’ll be their entire 61,000 workforce, right? So in 5 days zero to 61,000 right. And so as we look at it, our clients are very much focused on how to adjust to remote working, and that’s easier or harder depending on the nature of the industry and the kind of work, and at the same time, is responding to the crisis you have. Our clients for example in the public sector, who are having to respond not only for their own work forces, but to what they need to do for the public. So for example, we’re working with some of our public sector clients, to deploy more virtual agents that are pre-configured with COVID-19 advice to continue to free up capacity, to add to the more critical questions in our call center. So, the first is,…

That’s great. Thanks. Thoughtful. Thank you.

Thank you. Our next question then is going to come from the line of Ashwin Shirvaikar from Citi. Please go ahead.

Thank you. Hi, Julie. Hi, KC. Hi, Angie. Good morning and I hope you and the entire Accenture team are doing well in these kind of tough times. It seems based on and thanks for the very detailed answer to the previous question from Tien-tsin. It seems clients are beginning to respond, but still possibly quite considerably internally focused. So I am specifically interested in a couple of areas. For example, what would be the creative elements of Interactive that perhaps might not look so well with social distancing norms, how would something like that be affected? And then secondly, the conversion of bookings into revenues, it needs the knowledge transfer and things like that which might need travel, how wouldn’t that be impacting what are you looking at different pace of conversion?

Sure. It’s interesting because Accenture Interactive that has some of our creative minds, so probably best suited in fact in thinking very creatively about how to stay connected. Many of those as you may know – as you think about how they work, virtually often do work in studios and so they work virtually with our clients as well. At this point, we are really just focusing on how to adapt the virtual environment and keep them and keep people connected. And so from an Accenture perspective, we feel very confident in our workforce being able to adjust and then of course working with our clients to help them do so. With respect to knowledge transfer, that’s a great question. And as you might imagine, because we are so familiar with how to do virtual, what we have done is rapidly look at, I mean, it’s one of the first things we do, how do you do knowledge transfer remotely. Some of it is already there. And to be honest, we have had a lot of that and oftentimes our clients have wanted to do it onsite even though we said it could be done much more efficiently. And one of the things you should recognize is that this is really going to be helping accelerate also the digital transformation of our clients, right, because our clients, for example, some of whom who wouldn’t have allowed us to work from now who are giving us permission who don’t themselves work remotely who aren’t using collaboration technologies are now being forced to and the upside for them is really the opportunity to accelerate the cultural change and the digital transformation. So on knowledge transfer, to answer your specific question we have put in place new ways of doing that, but it’s based on thinking that in this case we have already done. Do you think about SAP, one of the first things we did, SAP, Oracle, any of our systems is that we have looked at all of our methodologies, obviously, our methodologies today do involve being onsite and so we are converting them and then pushing that out across our workforce and helping our clients understand it. We are rapidly doing testing of those methodologies. And so at some point of course there is limitations. You do need to be able to get together for some pieces of it. And of course just remember, today, we have people working in offices as do our clients for essential work. And so on balance right, we have rapidly moved to use all of our knowledge to be able to convert, to help our clients do that to change our methodologies and then as we continue forward depending on the duration and the magnitude, our expectation today is we will get into a rhythm that continues to allow the essential things to happen over time.

Thank you for that. And then the second question is with regards to sort of the underlying assumptions for the new updated guidance? To what extent are you – and this might just too early, but to what extent are you able to sort of make assumptions about some of the secondary impact say for example, looking on a vertical basis, financial services companies might be – profitability might be affected because the rates are in resources there are number of examples of profitability being affected or supply chains being affected, how are you thinking through that?

I mean our guidance and KC can add anything she’d like. At this point, we are giving you the guidance we see over the next six months, based on the best information we have today. And as you said, it’s early to speculate how some of this may play out on the individual industries and it’s just – it’s quite early.

Thank you.

Thank you very much.

Thank you. And our next question is going to come from the line of Lisa Ellis from MoffettNathanson. Please go ahead.

Hey, thank you and thanks for the transparency in what you’re seeing on the ground. So of course its imperfect and it’s still very early, but the best reference point many investors have for understanding, kind of how Accenture’s business reacts to this sort of sudden shock, is looking back at the financial crisis. However, of course, you now have Accenture Interactive you now have Accenture Operations, big pieces of the business that are very different. Can you just kind of give your perspective, whether you like it or not, I guess that that comparison is probably being made? So how do you think about how this situation might be different or similar to what we saw 10 plus years ago? Thank you.

Sure. Well at a macro level, of course, there are some real differences and that several years ago, that was about an economic crisis and today, because of the global health crisis you’re dealing with circumstances that are quite different in terms of, you know globally, clients having to move to work from home and what that does in terms of just the adaptation that they’re making, the cessation of commerce and retail etcetera in many communities, and so what I would say is, you kind of start with – this isn’t just an economic crisis, which one would never have thought that they would say that, as they look back at the financial crisis. But you are really dealing with two things. So, as you think even about how we expect the situation to evolve and then I’ll come to how we are different, as we enter into this, but you’d expect – what we are expecting is that right now, as clients are very focused in adapting to, not just the economic disruption, but as I said in those three buckets of things having to adjust how they’re working. Right, that’s why our guidance assumes that there’ll be an improvement in the business environment in Q4, either because the situation is better or because simply clients and ourselves, are adjusting to working together. But I would say, as you think about today that is at very different circumstances than the financial crisis, but as we look at it, we can’t imagine a better positioned company to address it for all the reasons that we talk about. This thing though is the nature of our services today. As you saw with our results in H1, if you go back to what have we been focusing on? We’ve been focusing…

Yes. And maybe one thing I’d just add is – one thing that I would say that, we do expect that we saw coming out of the last crisis, that we also believe we’re well positioned this time again, is taking market share. So when we came out of the last financial crisis, we did take market share and that is our expectation that we are – as we look long term, that we will have tremendous opportunities for us over the long-term by staying close to our clients.

Thank you. Then maybe my follow-up is on the talent side. I mean your 500,000 people are the most critical asset of Accenture. Can you just remind us, I mean it looks like headcount slowed a little bit in this last quarter, but it’s still running close to 7%. So, just as you think about this kind of sudden shock, can you just remind us how you manage rebalancing the types of skills and level of headcount you need in a very rapidly changing environment, what levers you’re pulling, just around slowing hiring etcetera? Thank you.

Sure. Thanks. It’s a great question. So first of all, just philosophically we are not ever going to be shortsighted here. And as you said, our people are really our competitive advantage and we are the envy of the industry. And so as we look at this, we do a couple of things. First of all, we’re obviously slowing recruiting, but we’re still recruiting, like for example, in Italy – and we all know the situation there. We’re still recruiting for security right now, because as our clients have been moving to home, they need greater health and security services. And just you know, a shout out to our HR team, we’ve rapidly turned our onboarding into entirely virtual, so that we can continue to recruit the critical services our clients need during this time, when obviously we cannot have people coming to the office. The second thing that we do, is we look at where we need skills and our ability to pivot people because of course, we are a great learning organization right, and so one of the first things we always do is, where is the demand and what can we do, and we’ve trained over 300,000 people in the last couple of years just on new IT. And so, part of what we will be doing – a significant part, is making sure that we also are able to adapt. For example, if you just look at the digital – the need for digital workplace; in this week alone, we took 600 people and spun them up and trained them on all the skills they need, to be deploying these technologies like Teams, because our clients rapidly needed that for the demand. And so in its first phase, our focus is of course, the slowing down on our recruiting, except where we need the critical skills and then deploying our people at the demand and we won’t be shortsighted.

Wonderful. Thank you.

Thank you. Our next question then will come from the line of Bryan Keane from Deutsche Bank. Please go ahead. One moment please. And our next question from Bryan Keane. Please go ahead. Just another moment.

Why don’t we go to the next person in queue, please?

Can you guys hear me?

Sorry, Bryan.

Hey, Bryan.

Hey, guys. I am not sure what the issue is there, just wanted to ask about the guidance. Is the guidance about what the quarter looks like so far in March, and then straight-lining that forward, or is there an estimate on what kind of deterioration you’ll see? And then thinking you mentioned a little bit, I assume most of the guidance reduction is in consulting and not outsourcing? Thanks.

Yes. So let me start with the second part of your question first. So, as we look to what we think the back half of the year will be by type of work, we do think that consulting could be low-single digit positive or negative and remember, that also factors in – as they get a more disproportionate impact of the lower travel reimbursement revenue, Bryan. In the back half of the year, outsourcing will be low to mid single digit positive. Both types of work right now as you have seen are high single-digit growth. So at the end of the year, we do see consulting at low to mid single digit growth for the full year, and outsourcing at mid to high single digit. And what I would just give, in terms of other color on our guidance, just as an overall point. Is that we’ve done the risk profile, as you know, it’s higher than normal. We have provided our guidance in that context, based on what we see today. As a leadership team, we’re going to be as relevant as we can to our clients, and as we’ve always said, it’s our job to try to deliver as high as we can, the range. But I think it’s also important to note that in this environment, we believe it’s reasonably possible that we can land anywhere in this range. So our guidance does take into consideration what we see today, but Bryan, the environment remains fluid and evolve differently from our assumptions.

Okay. And then just a quick follow-up on staffing, thinking about staffing issues, is Accenture seeing any impact to the guidance due to – you’re not able to get on company sites. So just trying to think about the supply side issue of the guidance versus the demand issue?

Yes, I mean obviously we’ve got – its sort of client by client, and by the way our legal department is doing an amazing job right now because – as you might imagine, many of our contracts didn’t even contemplate ever working from home, right, and so they’ve been working client by client sort of 24/7 to evaluate that. But it’s just a mix and so I’d just tell you, our guidance is kind of taking into account, all of these different factors and that’s where we updated it to.

Okay. Stay safe. Thanks so much.

Thank you. Operator, we have time for one more question and then Julie will wrap up the call.

Thank you. Our next question then will come from the line of Bryan Bergin from Cowen. Please go ahead.

Hi, Bryan.

Hi, good morning. Thank you. I wanted to just clarify some comments you made on the remote operations. I heard 60% in India and Philippines, curious, can you move that to a higher level or is that currently the max? And then just as far as the global mix of workforce, how are you thinking about the ability to deliver remotely on the total base of operations and what do you think that will go to ultimately?

Well, so, in the Philippines, we’re probably about where we are expect to be. In India, we’re still adding. But again, it really depends on the nature of the work, and so we wouldn’t expect it to be much higher than that, because some of the work – if you think about bandwidth, the need for power. What our employees can do in some – their conditions and then sort of be availability, the bandwidth on some of the things that take more bandwidth. So it’s going to go a little bit higher in India. But I think we’re in a pretty good position. Around the world, it varies. I mean, look at in Italy we are at 85% to 90%, in Spain, 90%. So globally, it’s actually much higher, right, because of the nature of the workforce. So you really have to look at nature of the work and country by country. But as my stat, at 16 million minutes a day to 30 million minutes a day, so we’ve mobilized very quickly.

Okay. And then just as far as demand and the guidance, can you just discuss clients, what you are seeing in their spending priority, understanding it’s fluid, how are clients considering spend across those new areas versus traditional IT areas here – I mean, the crisis, and really just trying to understand what’s built into the guide across those two channels or whether you want to break it down by how you formulated the guide by industry verticals or regions? Just trying to understanding one layer of depth down on the guidance assumptions?

Why don’t you take that?

We did take a look, as I mentioned we – Bryan, we did take a look at different geographies, the lens of geography in our guidance. We also looked at the lens of industries. And we did take a look at which ones will be more severely impacted in our view, I’d put – as Julie talked about, we did mention, travel is a small part of Accenture’s business, it’s about 3% of our revenue and had already been in decline even before coming into this crisis. So that’s one industry, although it’s not a big part, we have important clients there, so not big part of our revenues, but travel is an industry. We talked last quarter about industrial being a little bit under pressure in North America and Europe. We do think – that’s about 7% of Accenture’s revenue and we do think that will be – continue to be affected, go forward. And I think within high tech, where we have our aerospace and defense business, that obviously will be – continue to be impacted as well. So maybe that gives just a little bit of color on some of our industries.

Thank you.

Alright. Thank you again for joining us on today’s call. As we navigate the current environment, it is important to remember that we will continue to invest in our business and our people for the long-term. The fundamentals of our business are strong and we plan to emerge even stronger. I cannot emphasize enough my gratitude for the extraordinary efforts of our leaders and our people around the world, to both take care of each other and continue serving our clients, which they have done, even as they are concerned for their own health and health of their loved ones and communities. I also want to thank our clients for placing their trust in us, our investors for their continued confidence and our ecosystem partners for their shared commitment to our clients. Perhaps what is most unprecedented about the situation we face is how universal the tragedy is, that is unfolding around the world. It truly affects us all and I hope that each of you and your family and friends are healthy and continue to be well. Thank you.

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