Accenture plc
Q1 2008 Earnings Call Transcript

Published: 20 Dec 2007

[Operator:]

Welcome to Accenture's first quarter fiscal year 2008 conferencecall. (Operator Instructions) I would now like to turn the conference over to your host,Managing Director of Investor Relations, Mr. Richard Clark. Please go ahead.

[Richard Clark:]

Thank you, operator, and thanks everyone for joining ustoday on our first quarter fiscal 2008 earnings announcement. As the operatorjust mentioned, I'm Richard Clark, Managing Director of Investor Relations.With me this afternoon are Bill Green, our Chairman and Chief ExecutiveOfficer; Pamela Craig, our Chief Financial Officer; and Steve Rohleder, ourChief Operating Officer. We hope you've had an opportunity to review the news releasewe issued a short time ago. Let me quickly outline the agenda for today's call.Bill will begin with an overview of our results. Pam will take you through thefinancial details, including the income statement and balance sheet, and Stevewill add some operational perspective. Pam will then provide our businessoutlook for fiscal year 2008, and Bill will close the presentation before wetake questions. As a reminder, when we discuss revenues during today's call,we're talking about revenues before reimbursements or net revenues. Some of thematters we'll discuss on this call are forward-looking, and you should keep inmind that these forward-looking statements are subject to known and unknownrisks and uncertainties that could cause actual results to differ materiallyfrom those expressed or implied by such statements. Such risks and uncertainties include, but are not limitedto, general economic conditions and those factors set forth in today's pressrelease and discussed under the Risk Factors section of our Annual Report onForm 10-K and other SEC filings. Accenture assumes no obligation to update theinformation presented on this conference call. During our call today we will reference certain non-GAAPfinancial measures, which we believe provide useful information for investors.You can find reconciliations of those measures to GAAP on the InvestorRelations section of our website, at accenture.com. So now, let me turn the call over to Bill.

[Bill Green:]

Thank you, Richard, and thanks everyone for joining ustoday. We turned in another outstanding performance in the quarter as weexpected. We have built a strong foundation for our business that continues toserve us well. We have a great momentum going into the start of the year. We have a highly diversified and durable yet flexible business,and we are positioned at the core of our clients needs for high performance. Weare driving our business with discipline and confidence, and are focused on theexcellent opportunities we see before us. Here are some of the highlights from the quarter. Wedelivered record quarterly revenues of $5.7 billion with 19% growth in the USdollars and 12% growth in local currency. We achieved record EPS for thequarter of $0.60. Our $5.9 billion in new bookings this quarter was anothermajor achievement. We remain confident going forward with our bookings momentumand our revenue targets. As you know, we continued returning cash to shareholdersthrough share buybacks and dividend payments. During the quarter, our Board alsoauthorized an additional $3 billion of share repurchases. We continue to keep a very close eye on global economictrends, developments in the capital markets, and other issues which may affectour business. But our first quarter results demonstrate rich opportunities forthe right services. We remain committed to and excited about extending ourindustry leadership position. We also continue to benefit from our long-term clientrelationships and our position as a central part of our clients businesses. Ourdeep specialized industry knowledge and experience and our focus on businessoutcomes stand alone in today's market. Now, I'll turn it over to Pam who will provide more detailon our financial performance.

[Pam Craig:]

Thank you, Bill. Happy Holidays to you all and thanks forlistening today. I am pleased to tell you more about our outstanding results inthe first quarter of fiscal 2008. Once again, our quarterly revenues hit a newhigh, our earnings were strong and our bookings were in line with our outlook. Let me take you through some detail behind the numbers inour income statement, balance sheet and cash flow. All figures are GAAP, exceptthe items that are not part of the financial statements or that arecalculations. Net revenues for the first quarter were $5.7 billion above ourguided range of $5.4 billion to $5.6 billion and a new quarterly high. Netrevenues increased 19% in US dollars and 12% in local currency over the firstquarter of last year. We had very strong revenue generation, and even withoutthe large FX impact for the quarter, we were at the top of our guided annualrange of 9% to 12% in local currency. Consulting revenues were $3.5 billion, an increase of 19% inUS dollars and 12% in local currency. Outsourcing revenues were $2.2 billion,an increase of 20% in US dollars and 14% in local currency. Moving down the income statement. Gross margin was 30.1%consistent with the same period last year. SG&A costs for the quarter were$970 million or 17.1% of net revenues compared with $817 million or 17.2% ofnet revenues for the first quarter of last year, reflecting continued goodmanagement of our SG&A costs. Operating income for the quarter increased 19% to $726million, reflecting a 12.8% operating margin, up from $610 million, alsoreflecting a 12.8% operating margin last year. Our effective tax rate for the quarter was 34.6%. Incomebefore minority interest for the quarter was $506 million compared with $406million for the first quarter last year, an increase of 25%. Diluted EPS were a quarterly record of $0.60, an increase of30% over diluted EPS of $0.46 in the first quarter last year. About two-thirdsof this increase is attributable to higher business volume. The rest is due toa combination of additional below the operating income line income, a lower taxrate and a lower share count. Now, let's turn to some key parts of our cash flow andbalance sheet. Free cash flow for the quarter was a negative $120 million,resulting from cash used in operating activities of $31 million and propertyand equipment additions of $89 million. The first quarter is typically our seasonally lowest freecash quarter. This quarter was further impacted by a payment of $143 million, representinga final determination of reorganization liabilities. As a reminder, at the timeof our incorporation, we established these reorganization liabilities. And afterthis item, $294 million remains primarily in other current liabilities on ourbalance sheet. This item had no impact on our quarterly income statement. First quarter fiscal '08 free cash flow also reflects higherworking capital as a result of higher revenue production and the impact of DSOmovement. Turning to DSOs, our day services outstanding were 37 days.This represents an increase of 6 days from the fourth quarter last year. As westated last quarter, the yearend level of 31 days was unusually low, and webelieve that a DSO level that continues to be in the 30s is strong. Our total cash balance at November 30th was $2.47 billioncompared with $3.31 billion at August 31st. Cash, combined with $205 million offixed-income securities, classified as investments on our balance sheet, was$2.68 billion at November 30th compared with $3.61 billion at August 31st. Wecontinue to return cash to shareholders through dividend payments and sharerepurchase, which I will describe in more detail momentarily. Total debt at November 30th was $8 million compared with $26million at August 31st. In connection with the adoption of FIN 48, new guidancerelated to accounting for uncertain income tax position, we recorded severalbalance sheet reclassifications. The most significant was a $757 millionreclass from current income taxes payable to non-current income taxes payable,as the new guidance requires us to record these balances in non-currentliabilities unless we are certain that the amounts will settle in less than 12months. There was also a $16 million adjustment to retained earningsrelated to differences in calculating tax reserves under the new guidance. Our balance sheet metrics remain strong for the firstquarter. Our return on invested capital was 67%. Our return on equity was 71%. Andour return on assets was 18%. Before I turn things over to Steve, I will comment on sharerepurchases and dividend activity. During the quarter, we repurchased orredeemed 16.3 million shares for $619 million, including $238 million forapproximately 6.7 million shares repurchased in the open market. The averageprice of shares repurchased and redeemed in the quarter was $37.98 a share. AtNovember 30th, we had $4.1 billion of share repurchase authority remaining. Also, last month we paid our third annual cash dividend toAccenture Limited Class A and Accenture SCA Class I common shareholders. Thedividend payment of $0.42 per share was $0.07 more than the dividend we paidlast year, representing an increase of 20%. Finally, let me comment on the size of our public float.Using what we believe to be the most conservative method of calculation, ourpublic float at the end of the quarter was approximately 67%, which excludesall outstanding founder shares. All in all, it was a great quarter any way youlook at it. Now Steve will give you some more detail on our operations.

[Steve Rohleder:]

Thank you, Pam. Hi, everyone, and thanks for joining ustoday. We're up to a strong start in FY '08 with record revenuesfor the quarter and solid growth across all dimensions of our business. Wecontinue to make progress and implementing our strategy, and we are focused onachieving profitable growth in every aspect of our operations. We're very proudof our first quarter results, including the progress we've made in expandingour business during the quarter. Let me take you through some of the highlights, startingwith our operating groups. All five operating groups recorded their highest-everquarterly revenues with products, resources and CHT, exceeding 20% revenuegrowth in US dollars and achieving double-digit growth in local currency. I know many of you are interested in financial services, soI'll point out that revenues and financial services grew 17% in US dollars and9% in local currency in the quarter, driven by outsourcing in EMEA and the Americas.Financial services, products and resources also delivered strong operatingmargin, while CHT operating margin was affected by one consulting contract withprofitability challenges in the quarter. A key highlight of the quarter is the investment we'remaking in expanding our industry skills and offerings. A great example is inpublic service, where we're adding new capabilities for defense clients throughthe acquisitions of Gestalt and MAXIM Systems. These acquisitions give us newand distinctive capabilities in the fast growing area of military command andcontrol support services, which represents a significant new businessopportunity for us. Turning to the geographic regions, the diversity of ourbusiness is a competitive advantage and was an important driver of ourperformance in the quarter. We're executing on our strategy of gaining marketshare in developed countries and expanding into new and emerging markets. In the Americas,revenues grew 11% in US dollars and 9% in local currency. Results were drivenby growth in the United Statesand Canada.And in Latin America, four of our six key countries had exceptionally stronggrowth, including Brazil andArgentina. In EMEA revenues increased 25% in US dollars and 14% inlocal currency with continued upturn in the UKand double-digit growth in France,Italy, Spain and the Netherlands. Revenue growth in Asia Pacific was exceptional, with anincrease of 29% in US dollars and 21% in local currency, driven by strongresults in Japan, Australia, Singaporeand China.We've set out to expand our business in emerging markets, and in Q1 wedelivered strong results against this objective. Turning to the growth platforms, the depth and breadth ofskills and capabilities we offer clients really sets us apart in thismarketplace. In management consulting, we saw strong demand across all fiveservice lines, most notably in human performance where we're helping clientstransform their workforces, source new talent and increase overallproductivity. We also expanded our capabilities in management consulting.I was in India a few weeksago to open up a new management consulting centre of excellence in Delhi. Through this centre,and three others that we plan to open in India, which will serve both ourglobal clients and our domestic business, we'll deliver a wide range ofservices such as data analytics, workforce optimization and supply chainstrategies. In outsourcing, we're seeing demand for applicationoutsourcing as well as BPO. Growth is being driven by demand for finance andaccounting, learning and procurement services. And we've also expanded ourvertical industry BPO offerings in health administration and inpharmaceuticals. In systems integration and technology, we're still seeingstrong demand for ERP, and the breadth and depth of our SAP and Oracle skillsis a major advantage for us. Our technology consulting business continues togrow in double-digits with strong demand for Microsoft Technology Services. We expanded our technology consulting capabilities throughthe acquisition of Corliant. This acquisition willhelp us deliver against the growing demand for network consulting services, includingadvanced IP network solutions, which represent a high growth opportunity forour business. We also continue to invest in the expansion of our globaldelivery network, ending the quarter with more than 75,000 people, a 41%increase over Q1 last year. While GDN headcount was strong in Asia Pacific, especiallyin India and the Philippines, we also expanded our capabilitiesby adding new talent in the Americasand EMEA. Our global delivery network is in a class by itself and continues tobe a major competitive advantage for us. Finally, let me turn to a few operational metrics. Bookingswere $5.9 billion, including consulting bookings of $3.4 billion andoutsourcing bookings of $2.5 billion. Our solid new bookings reinforce ourconfidence in our ability to drive revenue growth in FY '08. Turning to people management, we continue to recruitaggressively, ending the quarter with over 175,000 employees. Utilization was83%, in line with our expectations, and attrition improved slightly to 17%. Managing supply and demand is one of my top priorities. By continuouslytracking and carefully managing a number of levers, including utilization,attrition, recruiting and training, and then balancing them against marketdemand, we're able to maximize our operational performance. In closing, we built a business model that is second to nonewith specialized capabilities across virtually every major industry sector andgeography, as well as across a full range of management consulting, systemsintegrations and technology, and outsourcing services. As a result, we're wellpositioned to continue our growth trajectory throughout fiscal year '08. And with that, let me turn it back to Pam for our businessoutlook.

[Pam Craig:]

Thank you, Steve. As a reminder, each quarter we provide an update on ourannual outlook for the full fiscal year. We also provide outlook for the nextquarter for revenues. For the second quarter, we expect revenues to be in therange of $5.5 billion to $5.7 billion, which assumes an FX lift ofapproximately 7%. Now, let's turn to the full fiscal year. We continue totarget new bookings in the range of $24 billion to $26 billion. We continue toexpect our revenue growth to be in the range of 9% to 12% in local currency. Wecontinue to expect operating margin for the full year to be in the range of12.8% to 13.1%. Given the seasonality of our business, fluctuations,quarter-to-quarter should be expected. We now expect our annual effective tax-rate to be in therange of 32% to 34%, a decrease of 1% from our previously communicated range.We are now increasing our outlook for EPS for the year by $0.15 to a range of$2.36 to $2.41. This reflects the strong results delivered in the first quarterand updated estimates including a lower annual effective tax-rate for the restof the year. To complete the annual outlook for fiscal 2008, we nowexpect operating cash flow to be in the range of $2.27 billion to $2.47billion. Property and equipment additions to be $420 million and free cash flowto be in the range of $1.85 billion to $2.05 billion. This is a decrease of$150 million from our prior outlook and reflects the previously mentionedreorganization liability resolution, which arose in the first quarter. In summary, our first quarter results reflect those of ahealthy business on a path for continued growth and profitability. We have aportfolio that is broad based, across industry segments, across the differenttypes of work we do and across all the geographies where we do business. Weremain confident that we will continue to maintain and expand our strongpresence in the markets we serve. So here is Bill to close before we take your questions.

[Bill Green:]

Thank you, Pam. Let me recap quickly before we take yourquestions. First of all, we're absolutely delighted with our performance in thefirst quarter and we continue to execute against our growth agenda. We achievedrecord quarterly revenues and EPS, our balance sheet remains extremely strongdespite challenges in some sectors of the economy, demand for our servicescontinues to be robust and we see tremendous opportunities to [insist] clients. We continue to expand on our capabilities to differentiateAccenture from our competitors. And we sustain the momentum that we haddeveloped in 2007 as we expected we would. Now let's go ahead and open it up for some questions.

[Operator:]

(Operator Instructions). And our first question comes fromthe line of Andrew Steinerman with Bear Stearns. Please go ahead.

[Andrew Steinerman -Bear Stearns:]

Hi there. Could you just give some comment about IT budgetprocess? Is it coming along in a normal fashion? Obviously you are very clearthat its ramping, your services are strong and obviously not solely depends onIT budgets, but

[Bill Green:]

Yeah Andrew this is Bill. I would say

[Andrew Steinerman -Bear Stearns:]

And

[Pam Craig:]

Yes. As you, I'm so sorry Andrew that our gross margin of30.1% was consistent with last year. This is a good result. First of all, as westated previously, we did implement larger salary increases this year and gotthat covered in our pricing in the first quarter. And also utilization levelsare slightly lower than we were last year and we think this is a more healthy level.So, these were the two primary things that we were addressing in the firstquarter and you see that reflected in the margin. Now, I'm never going to giveup, as I know you won't on gross margin. So, we are going to continue to lookfor the leverage in our pricing and in contract profitability.

[Andrew Steinerman -Bear Stearns:]

It sounds great. Thanks so much.

[Operator:]

And our next question is from Rod Bourgeois with Bernstein.Please go ahead.

[Rod Bourgeois -Bernstein:]

Great, just to look at the demand environment, just two setsof questions on thing that might be reading indicators. Are you seeing anyevidence of above normal levels of deals getting cut midstream as companystruggle with the economy that's our there? And then also

[Bill Green:]

Rod, this is Bill. We've spent a lot of time, I mean

[Rod Bourgeois -Bernstein:]

Okay great. And then Pam on the $0.15 of increase in yourfiscal '08 EPS guidance

[Pam Craig:]

Yeah, I mean, you can think of it this way, Rod. Roughly athird of it, is from the first quarter and the good results in the firstquarter and I broke down some of that before that which is primarily fromoperations, but also that there was a gain in the below the operating incomeline item and so, I think that flow through. In term of looking at it for therest of the year, it's a combination of operations, of a lower annual effectivetax rate and an updated estimate on share account.

[Rod Bourgeois -Bernstein:]

Okay, great. Thank you guys very much.

[Operator:]

And then we'll go to the line of Adam Frisch with UBS.Please go ahead.

[Adam Frisch:]

Thanks guys. Great quarter and you faced some pretty highconcern there. When I look at outsourcing bookings over the last years, it’sbeen okay, they haven't been stellar maybe one quarter a couple of years ago,they were great, but for the most part they have been okay, nothing likeconsulting strength. The growth has been a lot higher. Great result, but whatis it due to? Is it due to expansion of the contracts once you get in there orwhat? And

[Steve Rohleder:]

Yeah. Adam, it's Steve. I think it is a result of a numberof extensions that we experienced in some of our foundation in diamond clients.And so, I think that's just a result of us expanding our footprint in theoutsourcing world within the clients' environment. There are a number of deals in our pipeline as well that Ithink support the guidance that Pam has put out there. So, in spite of some ofthe doom and gloom that's been put out in the outsourcing world, there arestill a significant number of opportunities. Frankly, we're being a little bitmore selective in specific areas of outsourcing when it comes to going aftersome of these deals. So, there is no shortage of opportunities out there. We aregoing to continue to be selective about the ones we go after.

[Adam Frisch:]

And the expansion of deals that you're already working on

[Steve Rohleder:]

Yes.

[Adam Frisch:]

They are included. Okay.

[Steve Rohleder:]

Yes.

[Adam Frisch:]

And

[Steve Rohleder:]

Yes.

[Adam Frisch:]

Most of them would be higher on the margin side too.

[Steve Rohleder:]

Yeah. Depending on whether it's a new area or an extensionof an existing area.

[Adam Frisch:]

Okay.

[Steve Rohleder:]

It depends.

[Adam Frisch:]

Okay. Two questions for Pam. First

[Pam Craig:]

We're projecting, Adam, that it will continue to go downmodestly.

[Adam Frisch:]

Anything, anymore color than that?

[Pam Craig:]

Well, we have not previously provided guidance on ourweighted average share. They were at 839 at the end of the quarter. And, as Isaid, it will continue to go down modestly with share buybacks, and also thatwill be slightly offset by the issuances.

[Adam Frisch:]

Got it. Okay. And then just last question on, I know you dida couple of acquisitions recently, I know they've been small. But

[Pam Craig:]

No.

[Adam Frisch:]

No. Okay. Great! Thanks again, guys. Good quarter.

[Bill Green:]

Thanks, Adam.

[Operator:]

Thank you. And we'll go to the line of Julio Quinteros withGoldman Sachs. Please go ahead.

[Julio Quinteros -Goldman Sachs:]

Thanks, guys. Steve, just to kind of go back through thepoints that you made about the areas that you're really focused on to kind ofcontinue to sort of balance supply/demand and all the other issues in themodel. If you can kind of walk us through where you feel like you have the mostleverage, whether it's utilization, whether it's recruiting, whether it'sheadcount, just kind of give us a better feel for the individual levers thatyou look at to, to help you manage the overall business?

[Steve Rohleder:]

Okay. Yeah, Julio. Let me actually expand it out of thesupply/demand management area, because I think it's important to note some ofthe other levers that we're continuing to watch. Pam alluded to the pricinginitiative that we got and the progress we made in Q1. We're going to continueto focus on that. We've made some very good progress. I think we've got somemore work to do to continue to institutionalize that, put some tools in thehands of our senior executives, and really drive pricing into our D&A.That's one area. SG&A is another area. I think that on the G&A front,I think we made some great progress in moving people to lower cost locations inour corporate functions. I think we also did a great job this quarter in termsof our consolidated procurement initiative in driving down costs there. Wherewe have some opportunity is to drive down our cost of sales. I think it's safeto say that we have some inefficiencies there that I think we can improve on.So, I think that there is some expansion there. The third area is chargeability and you touched on it. Ithink that while we're running kind of at the target, last year we were at 86.And I said this I think we're running too high. We brought that down to allowour people to go to training, to allow them to work on some investmentopportunities that we have. There are pockets of the firm that we are workingto get the chargeability up a notch or too. But, while I think we will makeprogress there, I know we'll make progress there, I think the key is thatyou're not going to see much leverage from that. And then, the final one is just delivering on what we say,we're going to deliver and making sure that our contracts are performing to theprofitability targets that we have and I do believe that there is someexpansion capability there. So, hopefully that helps.

[Julio Quinteros -Goldman Sachs:]

Yeah, that's helpful. On that profit comment, you made somecomment about the communications, and I think it was high-tech area, havingsome profitability issues, was that just cost overruns or is there somethingelse going on there in terms of the profit impact?

[Steve Rohleder:]

Yeah. No, it's just sort of a one-time thing that we did arealignment with one of our contracts. We continue the relationship with theclient and we continue to be honored to work there and do well. But it was abig one and it was something we sorted through in the quarter.

[Julio Quinteros -Goldman Sachs:]

Okay. And then, finally, Bill, you made a comment in theprevious question, I believe, about an acceleration in some services thatyou're seeing now as some of your clients come to you for some issues relatedto short-term cost improvements. Can you just elaborate on what those types ofservices are?

[Bill Green:]

Yeah. I would say I did, in the last four weeks, probably 20CEO one-on-ones, mostly in the United States. And in every one of those sessions,there were opportunities to expand our work and deliver more value to theclient. But some industries that are challenged, people that might have beentaking a longer term view are sitting here at the beginning of 2008, and theyare saying, I know we're going to do this transformation, that's a three yearjourney. But there is a thing called sort of the high impact near-term returnsand people are saying, can we drive short-term cost reduction and use some ofthe benefits of that to fund the longer term transformation. And so, I would say my comment was about, you see a littlemore of that in some areas of financial services as you'd expect. And then,other than that it's probably just with companies that have a challenge in oneindustry or another. But there's a time when the short-term cost reductionthing, if you think about the time of the year we're on, people are looking at2008 and saying

[Julio Quinteros -Goldman Sachs:]

With 43% of your headcount in global delivery network now

[Bill Green:]

Well, I'm relaxed about it. There hasn't been anything thatcomes up that we don't have the horses and the capability and the "beenthere, done that" experience to do. And so, I think, at the end of day itsmanaging a portfolio of services across a fairly diverse company. But luckily,we're at critical mass in every country we operate around the globe. So, it'sjust a matter of different offerings than it would be anything else.

[Julio Quinteros -Goldman Sachs:]

Great! Thank you.

[Operator:]

And next, we'll go to the line of Moshe Katri with Cowen andCompany. Please go ahead.

[Moshe Katri:]

Thanks. Listening to the collage, it feels as if managementis even, maybe, a bit more bullish compared to about a month ago when theAnalyst Day took place. Is that the right impression? And then, maybe, you cantalk about

[Bill Green:]

Well, I mean

[Moshe Katri:]

And then finally, this is a question to Steve

[Steve Rohleder:]

Okay, in the basis AO area. We've been really pleased withthe productivity of that group. Frankly, I wish I had about three times thesize because I think the market is there and we're now looking at opportunitiesto expand that work force even more aggressively than we have in the past. So, I'm pleased with the level of sales and bookings of thatgroup has generated. We've limited the growth to the USand the UK.I'd like to expand it beyond there frankly. We got some plans on the tableright now, to move more aggressively into Q2 and Q3 in that area. So overall, MosheI'm really pleased with what we've done.

[Moshe Katri:]

Great, congratulation for the quarter!

[Steve Rohleder:]

Thank you.

[Operator:]

Okay. And we go to the line of Bryan Keane with Credit Suisse.Please go ahead.

[Bryan Keane:]

Yeah, hi thanks. Bill, when you say

[Bill Green:]

Well, I give you a couple of examples. If you are inobviously certain areas of banking, I look in what can we do achieve theshort-term cost improvements. I mean, that's sort of like goes without sayingand its something they do periodically and given the current environment thatwe're in right now. People are focused on that. You read about it everyday.Then you go to sort of the sectors, right? You, for instance, pharmaceuticals

[Bryan Keane:]

And then Steve

[Steve Rohleder:]

Yeah. I'll start with insurance. We had kind of steadygrowth in the Americasand Asia Pac, but the big growth in insurance came in EMEA. If you look at theother two industries capital markets and banking actually I just observed thenumbers for Q4 and looking at how we've grown those two industries, they bothgrown in double-digits in the Americasover the last two quarter. So, I think we're holding our own. Make no mistake about it.It’s very, very competitive out there. We've also seen a shift quite frankly oran adjustment, if you will to more outsourcing opportunities, which suites usfine. We just basically our cognize of that and we have deploy the resources toaddress that part of the market. So, we're going continue to push in a market. We've got agreat leadership team you met here at Analyst Day. And I think that team isgoing to go after the market in a very aggressive very creative way. They'regoing to be selective about the deals they go after and they're going to bevery focused on driving profitable growth in that segment.

[Bill Green:]

Yeah. Let me just draft and just because I think if you'dstand back and look at it you have hundreds of what we call

[Bryan Keane:]

So

[Bill Green:]

Well, there are two things. I think, one is

[Bryan Keane:]

All right. Thank you very much.

[Steve Rohleder:]

Thanks, Bryan.

[Operator:]

All right. And we'll go to the line of Tien-Tsin Huang fromJP Morgan. Please go ahead.

[Tien-Tsin Huang:]

Thanks. Pam maybe can you walk us through the change in thecash flow guidance? It looks like its being revised down by a roughly theamount of “reorg liability”. So, I just want to make sure, I'm not missinganything there, since

[Pam Craig:]

Well, we did a pretty detailed study of the free cash flowTien-Tsin. And

[Tien-Tsin Huang:]

Okay. It sounds like there's conservatism among the workingcapital after a pretty good performance last year.

[Pam Craig:]

Well, the DSO's in the 30s is incredibly strong, as youknow. It's industry-leading and we're very proud of that. And, I believe, ourpeople will continue to maintain that. But yeah, we have that in there.

[Tien-Tsin Huang:]

Okay, understood. Then, I guess, Steve, I know I ask this, Ithink, almost every quarter, but

[Steve Rohleder:]

Yeah. I mean

[Tien-Tsin Huang:]

Got it. So

[Steve Rohleder:]

I am. Yes, I am.

[Tien-Tsin Huang:]

Okay. Thank you. Happy Holidays.

[Steve Rohleder:]

You too.

[Pam Craig:]

Same to you.

[Operator:]

Thank you. And we'll go to the line of Julie Santoriellowith Morgan Stanley. Please go ahead.

[Julie Santoriello -Morgan Stanley:]

Thank you. Good afternoon. A question on bookings

[Pam Craig:]

I'll go ahead.

[Bill Green:]

You go ahead.

[Pam Craig:]

Julie, this is Pam. I think, first of all, as you know,bookings are lumpy, and particularly outsourcing bookings are lumpy. So, eventhough the book-to-bill on outsourcing this quarter was 1.1, we're stilltargeting 1.2 for the year. Bill, do you want to add some color.

[Bill Green:]

Yeah. No, I guess I would just say we look hard at this,right? And, obviously, because of the economy we're in and the stuff that youguys are saying, now we look doubly hard at it. Importantly, when we stand backand look at it, we remain confident with the bookings momentum that we have andthe revenue targets that we have for the company that are the yield out ofthose bookings. And one of the things I wish to talk about is activity,right? Which I know is hard for people to metric and quantify. But the activityin terms of, like the buzz in terms of

[Julie Santoriello -Morgan Stanley:]

Thanks. And would we naturally expect over the course of theyear

[Bill Green:]

I mean, as Pam said about lumpiness, in one quarter twooutsourcing things can make a real dramatic difference. And whether they happenin Q2 or Q3 or Q4, I think it's hard to put a finger on that. I do think thereare reasons that consulting demand continues to be good. I think there arereasons that the consulting bookings for the quarter were good. If you talkabout short-term cost reduction, I mean

[Julie Santoriello -Morgan Stanley:]

Okay, great. And just one quick clarification on for thosecustomers that have started down this path of looking for a quick cost savingstype of things

[Bill Green:]

No, absolutely not. It has to do with rationalizing ofstrategy, our people putting their investments in the right place. They focusedon the most profitable offerings. In certain industries it has a lot to do withcustomer service because a major cost in the certain industries is the costthat it takes to maintain the certain level of customer service. And thequestion is

[Julie Santoriello -Morgan Stanley:]

That's helpful. Thank you.

[Operator:]

All right. And we'll go to the line of Pat Burton with Citi.Please go ahead.

[Pat Burton:]

Hi. Congratulations on the quarter. Outstanding numbers inthis environment. My question relates to the operating margin outlook. As theyear plays out

[Pam Craig:]

Hi, Pat. It's Pam. Our annual guidance for operating marginwas 12.8% to 13.1%, which is a 10 to 40 basis point improvement over the lastyear or so. We certainly expect to do at least as well as we did this quarter.

[Pat Burton:]

Will that come from the G&A side or the sales andmarketing? I know you've been making progress on both of those areas.

[Steve Rohleder:]

Yeah. Pat, this is Steve. I kind of went through about fourdifferent levers that I look at. I do think that we can get more efficient onthe sales side. I think, the G&A side, we've got some targeted goals thatwe want to hit. We hit them in Q1. I think we're well on our way for the restof the year as well. But, it's a combination of that. It's a combination ofpricing, chargeability in certain areas around the world, and really, gettingour projects to deliver on the original deal economics consistently across theplace.

[Pat Burton:]

Thanks.

[Operator:]

Okay. And we will go to the line of [Elizabeth Berkley withArete Research]. Please go ahead.

[Elizabeth Berkley -Arete Research:]

Yes. Good afternoon. Just on the outsourcing business. Maybecould you just summarize where you are trying to drive higher outsourcinggrowth? You've talked about this at the last quarter. Can you just talk aboutthe focused areas for driving higher growth in that business? And then alsotalk about

[Bill Green:]

Yeah. Elizabeth,let me start with the outsourcing question that you had in terms of specificactions in focus areas where as one. Obviously, application outsourcing is alarge piece of our business and we are continuing to push very aggressively notonly with new clients, but with existing clients there. One of the emerging areas that we are focusing on to roundthat our service offerings is infrastructure outsourcing. We’ve had some greatexamples of being able to go into existing clients and provide infrastructureoutsourcing services. We continue to compete toe-to-toe with a number oforganizations out there in this area. And we think it's a great growth area forus to marry technology and some of our outsourcing skills. And then in the BPOarea that I would separate that into two buckets, if you will one is in thefinance and accounting, learning and procurement areas, where we are continuingto push and seeing some very strong growth. And then on the vertical BPO side, we've talked a lot aboutin past earnings calls about where our BPO business is going and the focus onthe vertical offerings that we have. I think this time I tried to highlight thefact that we've taken an existing area and expanded it. And I think that's an important point as we look at howwe're really going to expand the vertical BPO business. I think our focus isgoing to be on adjacent businesses not necessarily going into brand new onesbecause the cost of investment is lower, and frankly the ability to drivefinancial results is very much quicker.

[Steve Rohleder:]

Yeah. Let me answer the second part of your question. Ithink there's been an interesting phenomenon and that a couple of things havebeen going on in the market in the last sort of three to four months. One issome of the new entrance in the outsourcing business are starting to stub theirtoes. And those are people that sold sort of cost based deals and they're havingdelivery issues or service level issues associated with the cost. The other thing that's happened is as people have gottenmore experienced with this, they understand the power of the transformationalproposition as opposed to the cost based one. And so, I find that people are alot more tuned in to

[Elizabeth Berkley -Arete Research:]

Can I just ask a quick follow-up on the share buybackpolicy? Because you bought back 6.7 million shares in the open market. And

[Pam Craig:]

Yeah, this is Pam. We have a normal course share buybackprogram from active founders that we use quarterly and we continue to executethat every quarter. We also look for opportunities to buyback in the openmarket when we think the price is right. And, as you know, we did that in thispast quarter. At the Analyst Day, about a month ago I did go through someanalysis of what we call the '09 overhang or the shares that come due in '09and we'll be happy to get into more detail with you on that offline.

[Elizabeth Berkley -Arete Research:]

Okay, alright. Thank you.

[Richard Clark:]

Operator, we have time for one more question.

[Operator:]

Right and that will be from the line of Tim Fox withDeutsche Bank. Please go ahead.

[Tim Fox:]

Hi, thank you. Good afternoon. One question, I guess a multipart, in your discussion earlier talking about some of the possible shorterduration impact hit contracts. I just wondered

[Steve Rohleder:]

Tim, this is Steve. On the outsourcing thing I think we'vebeen pretty public about the fact that we as you pointed out. We've seenoverall duration go down and while that's happen we look at that, but we alsolook at the contracts yield for our outsourcing projects and we haven't seenany drop in that number. So, and I think, frankly, it’s safe to say that theyhave stabilized. We had seen that over the last 12 to 18 months and I think thetimeframe right now is petty stable. On the consulting side, we've not seen any change regardlessof whether its customer segmentation work in the retail area or work for in thecapital asset management area for utilities or any of the consulting, straightconsulting work we have typically its not time sensitive in terms of sixmonths, 12 months whatever its time sensitive in terms of the business outcomethat our clients are asking for. And frankly, that hasn't varied much in mytenure here. So, there hasn't been much change and to your question on whetherit would impact our outlook, frankly what we have in our pipeline, how that'stime phased and the probability of what we've got in there impacts our outlookmore than anything.

[Bill Green:]

Yeah I would just add that, our consulting isn’t pickylittle job, I mean

[Tim Fox:]

Okay, great. And just one other, maybe for Steve just 41%growth, I think it was year-over-year on your global footprint. Just wondered

[Steve Rohleder:]

The attrition is in line with our expectations. We did gothrough a raise across the board in India that was consistent withwhere we felt we had to be from a market standpoint. We began to recoup that inthe marketplace. Our hiring plans are driven specifically came by the market.And it’s difficult to say are your hiring plans harder or softer, moreaggressive, less aggressive in Indiabecause we don't look at it that way. What we look at it is the global deliverynetwork and what is the demand for our services across the 30 to 35 centersthat we have there. But our hiring in India basically for the quarter asI've looked at it is consistent with what our demands going to be.

[Tim Fox:]

Thank you. Great quarter!

[Steve Rohleder:]

You bet. Thanks.

[Pam Craig:]

Thank you.

[Bill Green:]

Well, let me just say a couple of things in closing. Firstof all, we completed the first quarter of 2008 with great confidence and withgreat momentum. We remain committed to expanding our capabilities,strengthening our global franchise and increasing our competitivedifferentiation. In short, we are committed to winning and driving futuregrowth and profits. Durability, diversity, differentiation of our businessservice well, I think you can see that. We support this with operating discipline and theflexibility required to execute for our clients and for our shareholders. And lastly, our performance reflects the continued effort bymore than 175,000 men and women of Accenture, to continue our break away fromthe competitive pack. Our emphasis on high performance shapes every singlething that we do. So again, thanks for joining us today. We appreciate yourcontinued support and we wish you happy holiday.

[Operator:]

And ladies and gentlemen, this conference will be availablefor replay today at 9.45 pmuntil January 02, 2008at midnight. You may accessthe AT&T Executive Playback Service at any time by dialing 1-800-475-6701and entering the access code of 897991. International participants may dial1-320-365-3844. Again those numbers are 1-800-475-6701 and 1-320-365-3844 withthe access code of 897991. This does conclude our conference for today. Thank you foryour participation and for using AT&T Executive Teleconference service. Youmay now disconnect.