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Operator
Ladies and gentlemen, thank you for standing by, and welcome to Accenture's First Quarter Fiscal 2018 Earnings Call.
(Operator Instructions) As a reminder, today's call is being recorded.
Your hosting speaker today, Managing Director, Head of Investor Relations, Angie Park.
Please go ahead.
Angie Park
Thank you, Kevin, and thanks, everyone, for joining us today on our first quarter fiscal 2018 earnings announcement.
As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations.
With me today are Pierre Nanterme, our Chairman and Chief Executive Officer; and David Rowland, our Chief Financial Officer.
We hope you've had an opportunity to review the news release we issued a short time ago.
Let me quickly outline the agenda for today's call.
Pierre will begin with an overview of our results.
David will take you through the financial details, including the income statement and balance sheet for the first quarter.
Pierre will then provide a brief update on our market positioning before David provides our outlook for the second quarter and full fiscal year 2018.
We will then 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, including our business outlook, are forward-looking and, as such, are subject to known and unknown risks and uncertainties, including, but not limited to, those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings.
These risks and uncertainties could cause actual results to differ materially from those expressed in this call.
During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for 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 Pierre.
Pierre Nanterme - Chairman & CEO
Thank you, Angie, and thanks, everyone, for joining us today.
We had an excellent first quarter, and I'm extremely pleased with our results.
We delivered strong and broad-based revenue growth across all dimensions of our business and gained significant market share once again.
Our strategy continues to differentiate Accenture in the marketplace.
And we are seeing very strong demand for our services, particularly in digital, cloud and security.
Here are a few highlights for the quarter.
We delivered very strong new bookings of $10 billion.
We generated revenues of $9.5 billion with 10% growth in local currency.
We delivered very strong earnings per share of $1.79, a 13% increase.
Operating margin was 15.6% consistent with the first quarter last year.
We generated strong free cash flow of nearly $900 million.
And we returned more than $1.4 billion in cash to shareholders through share repurchases and dividends.
So we are off to a strong start in fiscal year '18, and I feel very good about the continued momentum in our business.
Now let me hand over to David, who will review the numbers in greater detail.
David, over to you.
David P. Rowland - CFO
Thank you, Pierre.
Happy holidays to all of you, and thanks so much for joining us on today's call.
Building further on Pierre's comments, we were very pleased with our quarter 1 results, which position us well to achieve our full year business outlook, especially as it relates to our strong and broad-based top line growth.
Once again, these results demonstrate the durability and resiliency of our growth model and the high degree of relevance and differentiation of our capabilities in the marketplace.
Before I get into the details of the quarter, let me summarize a few of the important highlights.
Starting with net revenues.
We expanded our business by approximately $1 billion in the quarter with 10% growth in local currency.
The diversity and durability of our growth model was evident with strong and extremely well-balanced growth across all 5 operating groups and all 3 geographic areas, with double-digit growth in 4 operating groups and in both Europe and Growth Markets.
Strong double-digit growth in digital, cloud and security continue to be the dominant driver of our growth, and it was pervasive across the business.
And we estimate that our 10% growth significantly outpaced the market as we continue to gain share and strengthen our position as a leader in "the New".
With respect to our profitability, our operating margin of 15.6% in the quarter was consistent with quarter 1 of last year and continues to reflect a significant level of investment in our business.
And we delivered very strong EPS of $1.79, which was up 13% compared to last year.
Looking at cash generation and capital allocation.
Our free cash flow of $872 million in the quarter was consistent with our expectations and supports our ongoing objective to invest in our business while returning significant cash to our shareholders.
We invested roughly $130 million primarily attributed to 2 acquisitions and returned approximately $1.4 billion in share repurchases and dividends.
And we continue to expect to invest approximately $1.1 billion to $1.4 billion in acquisitions during fiscal '18.
With that said, let me turn to some of the details starting with new bookings.
New bookings were $10 billion for the quarter, reflecting 19% growth in local currency over last year.
Our consulting bookings were $5.9 billion with a book-to-bill of 1.1 and represented an all-time high.
Outsourcing bookings were $4 billion with a book-to-bill of 0.9.
Once again, our new bookings were well balanced across the business.
And we were especially pleased with strong bookings in North America and overall in strategy and consulting -- in our strategy and consulting business combined.
Strong demand continued for digital, cloud and security, which we estimate represented more than 60% of our new bookings.
It's also noteworthy that we had 13 clients with new bookings in excess of $100 million in the quarter.
Now turning to revenues.
Net revenues for the quarter were $9.5 billion, a 12% increase in USD and 10% local currency reflecting a foreign exchange tailwind of roughly 2%.
Our net revenues were $170 million above the upper end of our previously guided range as a result of stronger-than-expected performance across every dimension of our business.
The consulting revenues for the quarter were $5.2 billion, up 13% in USD and 11% in local currency.
Outsourcing revenues were $4.3 billion, up 11% in USD and 9% in local currency.
Looking at the trends in estimated revenue growth across our 5 business dimensions.
Growth was led by Application Services and Operations, which both posted double-digit growth.
We also saw an uptick in strategy and consulting services combined which grew mid-single digits.
And as I mentioned earlier, we continue to deliver strong double-digit growth in digital, cloud and security by leveraging the significant investments we've made in recent years to build highly differentiated capabilities.
Looking at our operating groups.
Financial Services led this quarter with 11% growth in local currency, reflecting strong growth in both banking and capital markets and insurance.
Growth was strong across all 3 geographies, including double-digit growth in Europe and the Growth Markets.
Communications, Media & Technology grew 10% in the quarter, representing their strongest growth rate in 7 quarters, driven by continued strong double-digit growth in software and platforms, and we delivered double-digit growth in both North America and the Growth Markets, and we're particularly pleased with return to strong growth in Europe.
Products delivered its 10th consecutive quarter of double-digit revenue growth with 10% growth, led by double-digit growth in consumer goods, retail and travel services as well as industrial.
We continue to see strong demand for our services in Europe and the Growth Markets both of which grew double digits.
Resources built further on the momentum established in the second half of last year and delivered a strong quarter at 10% growth.
The highlight of the quarter continued to be strong double-digit growth in chemicals and natural resources.
And we were also pleased with continued signs of stabilization in energy, resulting in positive growth in the quarter.
Finally, H&PS grew 8% reflecting significant improvement over growth rates in fiscal '17.
We saw strong growth in both health and public service, led by double-digit growth in both Europe and the Growth Markets and strong growth in North America.
Gross margin for the quarter was 32.1% consistent with the same period last year.
Sales and marketing expense for the quarter was 10.5% compared with 10.4% for the first quarter last year.
General and administrative expense was 5.9% compared to 6% for the same quarter last year.
Operating income was $1.5 billion for the first quarter, reflecting 15.6% operating margin consistent with quarter 1 last year.
Our effective tax rate for the quarter was 20.5%, compared with an effective tax rate of 20.4% for the first quarter last year.
Diluted earnings per share were $1.79 compared with EPS of $1.58 in the first quarter last year.
And again, this reflects a 13% year-over-year increase.
Days services outstanding were 43 days compared to 39 days last quarter and 44 days in the first quarter of last year.
Free cash flow for the quarter was $872 million, resulting from cash generated by operating activities of $1 billion net of property and equipment additions of $133 million.
Our cash balance at November 30 was $3.7 billion compared with $4.1 billion at August 31.
With regards to our ongoing objective to return cash to shareholders, in the first quarter, we repurchased or redeemed 4 million shares for $563 million at an average price of $139.69 per share.
At November 30, we had approximately $2.6 billion of share repurchase authority remaining.
Also in November, we paid a semiannual cash dividend of $1.33 per share for a total of $854 million.
This represented a $0.12 per share or 10% increase over the dividend we paid in May.
So in summary, we're very pleased with our quarter 1 results and we're off to a good start in fiscal '18.
Now let me turn it back to Pierre.
Pierre Nanterme - Chairman & CEO
Thank you, David.
Our very strong results in the first quarter demonstrate that we continue to execute our strategy very well and are clearly benefiting from the substantial investments we have made to build differentiated services and further enhance our competitiveness.
I am especially pleased with our continued rotation to "the New" digital, cloud and security, which, again, grew at a very strong double-digit rate this quarter.
We have been particularly successful with Accenture Digital, nearly tripling the annual revenue from this business since we launched it 4 years ago.
And we have expanded our capabilities to help our clients with their digital transformations.
Now given the increasing importance of artificial intelligence, automation, machine learning and other innovative technologies, we are evolving Accenture Digital to be even more relevant to our clients and drive even greater differentiation in the marketplace.
Going forward, Accenture Digital will be focused on 3 big areas: Accenture Interactive, Accenture Industry X.0, and Accenture Applied Intelligence.
Let me bring this to life for you.
We'll start with Accenture Interactive, which is all about serving the CMO and the marketing function, helping the world's leading brands transform the customer experience.
We are working with Maserati to do just that across all of its channel, leveraging our expertise in data-driven marketing, digital analytics and creative services.
We are also strengthening our end-to-end marketing capabilities for CMOs by investing to scale intelligent marketing operations.
This capability, which is part of Accenture Operations, combines platforms, analytics and artificial intelligence to run marketing campaigns as a seamless managed service.
Second, Accenture Industry X.0 focuses on the digital reinvention of manufacturing and production, helping clients create smart, connected products and services using advanced technologies, including the Internet of Things, connected devices and digital platform.
A great example is how we are partnering with Schneider Electric to create a digital services factory to build and scale new services in predictive maintenance, asset monitoring and energy optimization.
By combining real-time analytics with connected technologies on an IoT platform, we are helping anticipate customer needs and reducing the time to launch new services at scale by 80%.
And to give our clients hands-on experience, we are operating industrial IoT innovation centers, including one near Munich, where we're working with clients to design and prototype digital solutions that will improve engineering, manufacturing and production.
We plan to open new centers soon in the U.S. and Asia.
The third area, Accenture Applied Intelligence, brings together the capabilities we have built in advanced analytics and artificial intelligence.
Increasingly, we're embedding artificial intelligence into the core of our clients' businesses across every function and process.
And given our technology independence, Accenture holds a unique positioning in the tech ecosystem.
And we're working with all the leading providers of artificial intelligence technologies, including Microsoft, SAP, Google and Amazon, to bring the best solutions to our clients.
We are working with the leading European insurance company to use analytics and artificial intelligence to understand what the customers want and deliver a personalized experience.
Our solution across marketing, claims processing and customer service is enhancing customer loyalty and making a significant bottom line impact.
We also continue to invest in this area with our acquisition of Search Technologies to expand our expertise in Big Data and enterprise search, and our investment in Pactera which helped companies generate value from data more quickly.
Of course, we continue to work with clients on their largest and most complex transformation programs, delivering services end-to-end across our 5 businesses to drive business outcomes.
With Marriott International, we're working at the heart of one of their most important business imperatives, the integration of Starwood, including the massive data migration.
We are also leveraging key elements of our innovation architecture to help Marriott achieve its goal to enhance the travel experience and accelerate growth.
And today, we are very proud to be a flagship innovation partner for Marriott.
Turning to the geographic dimension of our business.
I am very pleased that we delivered strong revenue growth in all 3 of our geographic regions.
In North America, we delivered 7% growth in local currency, driven by the United States.
In Europe, we had another excellent quarter with growth of 11% in local currency, driven by strong double-digit growth in Germany, France and Italy as well as high single-digit growth in Spain.
And I am extremely pleased with our performance in Growth Markets, where we delivered 16% growth in local currency, led once again by very strong double-digit growth in Japan as well as double-digit growth in Australia, Singapore and Brazil.
Before I turn it back to David, I want to mention that the digital capabilities we have built along with our highly differentiated talent in "the New" are absolutely key to the successful execution of our strategy.
That is why I am pleased we continue to receive recognition by industry analysts in key areas ranging from the strengths of our execution capabilities in digital strategy and consulting to our digital experience services in design, content and co-innovation as well as for our overall market leadership in digital services.
I am also pleased Accenture was recognized by Fortune as a company changing the world and by JUST Capital for our leadership in environmental sustainability and in the training and development of our people.
I truly believe Accenture is a magnet for top talent in "the New", not only because of the work we do for clients but because our culture supports employees who want to make a difference in the community where we live and work.
So with that, I will turn the call over to David to provide our updated business outlook.
David, over to you.
David P. Rowland - CFO
Thank you, Pierre.
Let me now turn to our business outlook.
For the second quarter of fiscal '18, we expect revenues to be in the range of $9.15 billion to $9.4 billion.
This assumes the impact of FX will be about positive 4.5% compared to the second quarter of fiscal '17 and reflects an estimated 6% to 9% growth in local currency.
For the full fiscal year '18, based upon how the rates have been trending over the last few weeks, we now assume the impact of FX on our results in U.S. dollars will be positive 2.5% compared to fiscal '17.
For the full fiscal '18, we now expect our net revenues to be in the range of 6% to 8% growth in local currency over fiscal '17.
For operating margin, we continue to expect fiscal '18 to be 14.9% to 15.1%, a 10 basis point to 30 basis point expansion over adjusted fiscal '17 results.
We now expect our annual effective tax rate to be in the range of 22% to 24%.
This range does not include the impact from the U.S. tax legislation.
Before I move on, let me add some additional comments on our view of the new tax legislation.
Our current assessment is that we do expect to record a noncash expense in fiscal '18, which could be up to $500 million, to reflect the impact of lower tax rates on our U.S. deferred tax assets.
Beyond this expense, we expect the impact to our fiscal '18 tax rate to be minimal.
For earnings per share, adjusting for the updated net revenues, FX and tax assumptions, we now expect full year diluted EPS for fiscal '18 to be in the range of $6.48 to $6.66 or 10% to 13% growth over adjusted fiscal '17 results.
For the full fiscal '18, we continue to expect operating cash flow to be in the range of $5 billion to $5.3 billion, property and equipment additions to be approximately $600 million and free cash flow to be in the range of $4.4 billion to $4.7 billion.
Finally, we continue to expect to return at least $4.3 billion through dividends and share repurchases, and also continue to expect to reduce the weighted average diluted shares outstanding by about 1% as we remain committed to returning a substantial portion of our cash to our shareholders.
With that said, let's open it up so that we can take your questions.
Angie?
Angie Park
Thanks, David.
(Operator Instructions) Kevin, would you provide instructions for those on the call.
Operator
(Operator Instructions) Our first question is from the line of Tien-tsin Huang, JPMorgan.
Tien-tsin Huang - Senior Analyst
I guess I'll hone in on the Consulting book-to-bill metric, like you said it was the highest you've seen.
Wouldn't that imply acceleration for the Consulting segment here in the short- to mid-term?
Maybe you can update us on that, and just growth across Consulting and outsourcing and if that's changed for the fiscal year?
David P. Rowland - CFO
Yes.
I mean, let me start by saying that we are very, very pleased with our Consulting bookings, obviously, in the first quarter.
We do see good momentum in the business.
We're pleased with our pipeline.
And in fact, if you look at our bookings, overall, we expect to have another strong bookings quarter in quarter 2. So if you look at momentum, really, broadly across our business, including Consulting, but not limited to, Consulting, we're very, very positive.
Perhaps your question really was getting at, therefore, why didn't we raise guidance further perhaps?
And on one hand, we have a lot of reasons to be optimistic.
We see -- clearly see momentum in our business and -- but on the other hand, it's just 1 quarter in the books.
And as we normally do, we want to have a little bit more visibility to the full year before we significantly change guidance.
We feel, obviously, very comfortable, with taking the low end of the previous guided range off the table.
And we're -- we will see where we end in quarter 2. And at that point, we will reevaluate the upper end of the range.
But overall, very comfortable with our business and feel very good about the momentum.
Tien-tsin Huang - Senior Analyst
That makes perfect sense.
Just my quick follow-up, and I'll just ask the obligatory question around acquisitions and the contribution to revenue or even bookings if you have that in the quarter from acquisition?
David P. Rowland - CFO
Okay.
Thanks, Tien-tsin.
For the full year, our view of acquisitions hasn't changed.
We expect the revenue contribution, the inorganic, to be in the 2.5% to 3% range.
Now that will be heavier or higher in the first half of the year, where in the first half of the year the impact is in the 3% to 3.5% range.
And certainly in the first quarter, let's say, it was probably more toward the upper end of that 3% to 3.5% range.
And in the second half of the year, it will be lower in the 2% of 2.5% range.
So 2.5% to 3% for the full year, higher in H1, a little bit lower in H2.
We continue to focus, obviously, on acquisitions as an essential part of our strategy.
We did have a lower level of acquisitions in the first quarter.
There's nothing you should read into that.
It's driven by market dynamics and the timing and kind of lumpiness of the way the pipeline evolves in acquisitions.
We continue to focus on investing $1.1 billion to $1.4 billion this year, heavily focused on "the New" and acquiring critical capabilities to further support that part of our business, which is growing at such a high rate.
Operator
Our next question is from the line of Bryan Keane, Deutsche Bank.
Bryan Keane - Research Analyst
Just looking at Strategy and Consulting, that was kind of a key segment that we saw last year kind of decline through the year.
And I think it was flat in the fourth quarter on a constant currency basis.
And then it's bounced back here to mid-single digits.
Also, I heard positive bookings comments about Strategy and Consulting.
So maybe you can just talk about a little bit on the turn here we've seen in Strategy/Consulting?
David P. Rowland - CFO
Let me make a comment or two, and then Pierre may want to add some comments or not depending on what I say.
So first of all, let me just remind you, when we had this discussion last year, we noted for the group that all of our businesses are subject to going through ebbs and flows and cycles.
We commented on the fact that in fiscal '15 and '16, we had consistent double-digit growth in Consulting and Strategy services combined.
We mentioned last year that Application Services and Operations were very hot.
And we also talked about the fact that our Strategy and Consulting practitioners really play 2 roles, one role is to serve our clients in delivering Strategy and Consulting services specifically, but the other role is to really bring the full scope of Accenture services and offerings to the client.
So they have a dual role of both selling the full suite of Accenture's capability to drive transformation as well as, let's say, business-specific services.
So in that context, as we indicated, these service -- these parts our business can go through kind of natural ebbs and flows.
We're at a point in time now where if you look at the transformation that a lot of industries just continue to go through, if you look at the high level of growth in "the New", we are at a point where the convergence of factors were such that the demand for those services, was just higher in quarter 1, it was fairly broad based.
And it was heavily, heavily focused on "the New".
In fact, the growth rate for Consulting and Strategy in "the New" was much higher than the average growth rate of mid-single digits that I commented on.
Pierre, let me just see if there's anything you'd want to add to that.
Pierre Nanterme - Chairman & CEO
Yes, sure.
Complementing just what you said, I clearly see 3 main drivers for our Strategy and Consulting growth.
I think, of course, the number one is pretty obvious is, there is a strong and stronger demand around digital strategies and digital transformations in all industries and across the world, I mean, number two, there is still the same appetite today for rationalization.
You know our thesis around the evolution of industries, digitalization is on one hand, rationalization on the other hand.
In terms of rationalization as an illustration, we have great success with our, what we're calling, BBZ, budget-based-0 kind of approach, which is all about rationalizing operations and cost to make our client more effective.
And three, is clear rebound in what I would call the platform business.
And by platforms I'm thinking about SAP, I'm thinking about Microsoft, I'm thinking about salesforce.com as an illustration, clearly, "the New" platforms, cloud-enabled, are creating demand for our technology services, but as well are driving demand for consulting services, because you have to significantly transform the organization as well as the processes.
Bryan Keane - Research Analyst
Okay.
Very helpful color.
Just one quick follow-up.
When thinking about the 10% in constant currency revenue growth rate, I know that's up from 8% in constant currency last quarter.
Just trying to think about the 2 big dimensions.
Did "the New" growth portion accelerate -- that caused that acceleration or did just the core growth business improve?
David P. Rowland - CFO
The primary driver of our growth in the quarter continues to be "the New".
So the big story continues to be underpinning that 10% is just very, very strong growth in "the New".
Operator
And our next question is from the line of Lisa Ellis of Bernstein.
Lisa Dejong Ellis - Senior Analyst
So can you guys comment on, as you are now in close of the calendar year and you're doing your discussions for calendar '18 with clients, what the underlying growth rate is looking like in their overall IT budgets?
I mean, we talk a lot about this shift into "the New".
But I am curious what the dynamic is with overall growth?
I highlight that just because in our recent CIO surveys, we're actually seeing a material uptick in actually overall budget growth.
I'm curious if you guys are sort of seeing a similar thing as you look into calendar '18.
Pierre Nanterme - Chairman & CEO
Yes.
Thanks, Lisa, for your question.
And indeed, I've been reading carefully the report you provided regarding your CIO survey.
And I could only subscribe to the conclusion you have made from this survey, indeed, there is an increase in the budget.
But, as you know, the investments, I mean, they continue to shift from the legacy to "the New", to use our own terminology.
And on the legacy, the demand is still around rationalizing the application and rationalizing the infrastructure, which is creating a good demand on our cloud services as illustration or good demand as well.
And we have good results this year on our Application Outsourcing business, which is part of our Application Services.
And indeed, we see a shift of the budget to digital technologies at large, including the digital technologies in the IT shop, but that would extend to the digital technology in the marketing budget as well.
And all of this is increasing as, I think, we're moving in digital from what I would qualify this last couple of years, the proliferation of the POC, the proof of concept.
So the prototypes that have been proliferating across the different organization, and now we are moving to the industrialization of the deployment of the digital capabilities.
And of course, it's creating strong demand to Accenture services because we organize our capabilities exactly to support the industrialization of digital services.
Lisa Dejong Ellis - Senior Analyst
Terrific.
And then, David, my follow-up is for you.
Would -- could you give a little color on free cash flow numbers.
I just noticed those are -- actually free cash flow is a little bit down year-on-year, quarter-to-quarter.
And also your guidance for the year, and the midpoint of the guidance is -- doesn't have growth year-on-year despite the strong earnings growth outlook.
David P. Rowland - CFO
Yes, I mean, as I said, I don't think there's anything particular to point out on our free cash flow guidance.
The first quarter played out pretty much exactly as we had expected.
It's typical that we have an uptick in DSO in the first quarter from the fourth quarter and that played out as expected in the range that we had expected.
And we continue to track well for our free cash flow for the full year.
Again, one of the things that you know, Lisa, we comment on is the relationship between free cash flow and net income.
And our free cash flow range continues to indicate that we have a model where the free cash flow exceeds our net income.
So we feel very good about it.
I mean, we've -- we work hard every day on DSOs and other aspect of our cash flow to try to land as high in the range as possible.
But we feel good about the range that we started here with and reconfirmed just a few minutes ago.
Operator
And next, we have Moshe Katri, Wedbush.
Moshe Katri - MD and Senior Equity Research Analyst
Can we talk a bit about digital cloud and platforms.
I'm assuming it's north of 50% of revenues.
Maybe some color on that?
And you did indicate double-digit growth, maybe some more color on that.
Is growth accelerating?
Or are we still at the same level that we've seen a year or maybe 2 years ago?
Pierre Nanterme - Chairman & CEO
Yes, I mean, very pleased to comment on this.
I mean, first, what we're calling "the New" digital, cloud, security services, [UID] platforms, I'm fine with that.
We see a continued momentum in the services we have built these last few years; interactive, what we call, mobility, analytics, clouds and security.
This is very strong, and we continue to enjoy a good growth.
But in addition, we don't stand still.
And this is what I wanted to communicate, especially in this call to all of you, is the new ways of digital technologies and innovations are coming extremely rapidly.
And so what we want is to make sure we stay ahead of the curve, and so we could provide to our clients, at scale, the services in these new technologies.
And that's why we are launching the 3 new services that's going to join Accenture Digital.
I am thinking about Accenture Applied Intelligence, so bringing the artificial intelligence and machine learning on top of our existing analytics business.
So the analytics business has a good momentum.
And we are adding artificial intelligence and machine learning to accelerate this momentum and accelerate growth.
We're doing a very similar thing by the creation of Accenture Industry X.0, where we're bringing "the New" capabilities we've developed in terms of engineering, production on the internet manufacturing, if you will, around the digital manufacturing platforms and all the IoT and connected devices world to, again, sustain and accelerate our momentum in that space.
And the last one is around what we're calling, intelligent marketing campaign in Accenture Interactive.
Again, Accenture Interactive has an excellent momentum, as we speak, in the existing services, mainly design, content production and commerce production as well.
And we are adding intelligent marketing operations.
So we are adding on top of the good momentum an accelerator, if you will, with "the New" capabilities we are launching.
So I am very comfortable that we'll continue to drive excellent double-digit growth in this part of our business.
David P. Rowland - CFO
And if I could just add -- let me just add one comment just on the quantitative side.
And call out that our revenues in "the New" now represent approximately 55% of our total revenue stream.
One of the things that Pierre and I were looking at yesterday is -- and of course, we have been managing this for many quarters now is just how pervasive that is across our business.
I mean, literally every industry, every geographic market, you see a level of rotation to "the New" that is, let's say, in the range of 50% or higher and 55% overall.
And I think that that's important for a number of reasons, not the least of which is that supports an essential element of our strategy, which is to create durability and resiliency in our revenue.
And that's an illustration -- one illustration of how our model is working to do that.
Moshe Katri - MD and Senior Equity Research Analyst
Thanks.
And just as a follow-up to this.
Our surveys are talking about the fact or indicating the fact that average project sizes in this area are starting to pretty much scale and increase pretty significantly, just given the fact that we're getting to a point where you're seeing the typical enterprise buyer kind of connecting the front end to the back end legacy backbone systems.
Are you seeing that as well?
And obviously, from your perspective, that could be kind of a multi-year phase as well.
Pierre Nanterme - Chairman & CEO
No doubt the digital projects are getting bigger.
And they are getting bigger just consistent with the transition as mentioned before.
We have this phase where clients are investing in smaller projects that qualified in term of prototyping or proof-of-concept type of project.
You are testing the thing.
Now we passed that phase where we have evidence that the digital transformation is driving growth and value for the different industries and clients are shifting to industrialize the digital capabilities.
You've seen more and more the creation of what we are calling -- or clients are calling, digital factories, digital hub.
That's exactly what we're doing with Schneider Electric, illustrated a few minutes ago.
So the projects are getting bigger in average as digital technologies are maturing and are scaling.
So it's a very good trend.
And of course, it is supporting our double-digit growth in digital-related services.
Operator
Next question is from the line of Rod Bourgeois, DeepDive Equity.
Rod Bourgeois
I want to talk a little bit about -- the growth definitely came in strong, want to talk about the margins for a second.
Your operating margin was equal to the year-ago quarter.
But I know, there's a lot of moving parts underneath that margin results, particularly since you're reporting a GAAP margin and essentially absorbing all of those acquisition investments.
So can you share the main puts and takes on your margin trend when you compare this year to last year?
And I want to know, are there certain underlying factors that are meaningful headwinds year-to-year and certain factors that are meaningful tailwinds?
David P. Rowland - CFO
Okay, great.
Very good question.
So first of all, it's -- I think you started with -- let me just, again, say that our operating margin can, in fact, vary quarter-to-quarter.
That's the typical pattern in our business for a variety of reasons.
Let me also reiterate that irrespective of what our margin was in quarter 1, which we were pleased with, we feel very comfortable that we're on the trajectory of delivering 10 basis points to 30 basis points of expansion for the full year while also meeting on our management objective, which is to invest at significantly higher levels than the rate of our revenue growth and then covering that by real underlying expansion in our margin.
As it relates to quarter 1, there are probably two or three things that I would point out, none of which are too much of a surprise in terms of the normal flow of our business.
The first thing I would highlight is that quarter 1 of last year was an extremely strong quarter for us.
You may remember, Rod, that quarter 1 of last year, we reported 40 basis points of expansion.
And so some of what you're seeing in our first quarter result is compared against a very strong quarter last year.
I think, if I was to just point two other things in our results in the first quarter, one thing is, as you alluded to and I confirmed, we did have a very high level of investments flow through our P&L in the first quarter, which I think you and others would expect, given many reasons, including the $1.7 billion of acquisitions that we invested in last year.
And I would say, in general, our investments are probably on balance higher in the first half of the year this year than the second half of the year.
The other thing that we called out is that we did see some of our operating groups had lower consulting contract profitability.
But again, as you know us well, our contract profitability ebbs and flows at different points in time in our business.
And we expect that consulting contract profitability improves as we progress through the year.
So those are some things, I would say, the tough -- the higher compares.
So really I would say we delivered a consistent level of very high profitability that we reported quarter 1 last year, and the rate of investment growth was much higher than the rate of revenue growth.
Rod Bourgeois
All right, very helpful.
On a somewhat related note, I want to ask about your trend in your sole-source business.
In our research, we're seeing some reasons for sole-source activity to increase, but some other factors that could put some pressure on that.
So I would love to know when you net all the trends together, what's the net impact on sole-source signings activity kind of on a weighted average basis across your business?
So can you say where your sole-source percentage is now and whether it's heading up or down?
David P. Rowland - CFO
Yes.
I mean, we have had -- we track this every quarter and, frankly, we have an amazing level of consistency in the sole-source deals as a percentage of the total.
It continues to run in the range of about 70%.
So really, Rod, we've seen -- we haven't seen a significant change in that pattern.
Pierre -- I think, Pierre, you wanted to add something?
Pierre Nanterme - Chairman & CEO
Yes.
I'm going to give some color on this because you're giving me the opportunity to give you an information we didn't mention in the script.
And when you talk about sole-source, I think it does relate to the quality and the deepness of the trusted relationships we have developed with our clients over many, many years.
And I am very pleased to share with all this group that we have now 169 diamond clients.
I am mentioning this number because many of you, you know how important are these diamond clients in the Accenture Strategy, including in the economic model.
It's a record high of diamond clients at Accenture, 169, including the best brands across all the world.
And the deepness and the kind of relationship we've been developing for many, many years are as well driving this sole-source project because sole-sourced project are directly correlated to the trust and the confidence our clients are putting in Accenture.
Operator
Our next question is from the line of Jason Kupferberg, Bank of America.
Jason Alan Kupferberg - MD in US Equity Research & Senior Analyst
So just wanted to start with a question on Digital, which obviously is the biggest part of "the New".
We've estimated that the Interactive business might be upwards of maybe half of Digital.
So any commentary around that?
And just a general update on the growth trajectory of Interactive and the competitive positioning you see there versus the digital and the traditional ad agencies as the lines continue to blur there.
Would love to hear about that.
Pierre Nanterme - Chairman & CEO
I mean, I couldn't be more pleased to comment on Accenture Interactive, which I would qualify as the darling of Accenture.
And I want to take this opportunity to recognize Brian Whipple for the amazing job he has been doing in providing leadership on Accenture Interactive.
And Accenture Interactive has been creating not long ago and, as you know, for 2 years in the row, we've been around as the leading company in digital marketing, but advertising [age] in term of size, in term of growth, we have an amazing momentum.
I was very pleased to announce in my presentation that we're now the agency of record for Maserati.
It means something for us because it means that indeed we are now a key player in the agency world.
We are gaining massive market share.
We are becoming certainly a leader in digital marketing solutions.
And we have 3 major segments so far in Accenture Interactive, all the digital design was filled, all the digital content production.
And you remember that some years ago we acquired a company called avVenta being the basis for that.
And in all commerce, e-commerce solutions with Acquity, you remember the acquisition we made in the U.S., and very pleased with the acquisition of Altima we made in France as well, which is going to boost our equity -- digital equity business.
And we are adding now this intelligent marketing campaign, where we're going to use analytics and artificial intelligence.
So that's the kind of fourth growth engine we are adding in Accenture Interactive.
And so I am extremely comfortable that we will continue to gain market share and to grow significantly with Accenture Interactive.
And I am very pleased by the way that to lead our intelligent marketing campaign, we're going to welcome a very prominent and iconic leader from the industry, Nikki Mendonça, who is going to join Accenture soon to lead that business.
I couldn't be more pleased.
Jason Alan Kupferberg - MD in US Equity Research & Senior Analyst
Okay.
Terrific.
So Accenture along with pretty much everyone else in the space is seeing this real bifurcation in growth between "the New" versus the legacy service offerings.
And I'm just wondering if you guys think that, that may lead to some acceleration in industry consolidation, perhaps including larger deals and not just tuck-ins that have been more of the norm across the industry in recent years?
Pierre Nanterme - Chairman & CEO
It's a good question.
So let me start by -- I'm going to talk for David on this because David has got a very strong point of view on the topic, and always telling me that the big transaction in professional services failed at 100%, which is quite a significant percentage, if you will.
So are we going to see that?
I don't know.
This is not our game at Accenture.
Our game is to drive organic growth on top of acquisition of very specific companies with very specific and differentiated capabilities.
And then what Accenture is offering to these companies we're acquiring is our unique access to the best brand in the world and our unique geographic footprint.
That's the combo we're bringing.
You imagine when these companies are joining Accenture with access to 169 diamond clients, the best brands in the world.
So I tend to trust David, I always trust David, 100% of the big transaction in professional services and consolidation failed.
Jason Alan Kupferberg - MD in US Equity Research & Senior Analyst
Okay.
Well, trusting David has worked so far.
So you may as well (inaudible)
Pierre Nanterme - Chairman & CEO
I always trust David.
He is the best (inaudible) of the industry.
Operator
Next question is from the line of Brian Essex, Morgan Stanley.
Brian Lee Essex - Equity Analyst
There's a lot of conversation about "the New", certainly worth highlighting.
I was wondering if maybe I could follow on a question, I think, that Bryan had asked.
We've seen some better-than-expected results, particularly recently, from traditional on-premise hardware vendors.
Kind of driving the debate for on-premise workload computing environment and what's going on in that space, what are you seeing, and are you seeing stabilization in the core and stabilization within legacy contracts as well?
Or do you have any insight into what's going on there?
Or do you view that as maybe an anomaly in the market?
Pierre Nanterme - Chairman & CEO
What I can share with you is indeed our view on these platforms market.
As you know, we are working with all the major players in the ecosystem.
I am thinking about SAP, Oracle, Microsoft, salesforce.com, Workday, to mention a few.
If you take what probably you would call the legacy players and not the -- I mean the cloud natives, such as salesforce.com and Workday, they had a kind of period, especially SAP and Oracle, of pause where they were facing this transition from on-premise to cloud-enabled platforms.
And then what you've been seeing is they put their act together in a very strong way.
And if you take just SAP, they launched S/4HANA, and then on top of HANA their in-memory analytics tools.
They are putting now Leonardo, which is bringing more intelligence and artificial intelligence on top of it.
And all of this now is cloud-enabled.
And you heard that partnership between SAP and Azure to provide the SAP solution on the cloud.
And now this is what we've seen in our services that our services on these platforms are growing significantly.
And so to a great extent, I don't believe that these have any more the terminology of legacy players.
I think they have been able to transition in "the New" and now they could compete in cloud ERP solution, likewise the salesforce.com or the Workday.
So I am very impressed with the rotation they have been driving in their business to move from on-premise legacy to cloud-as-a-service business.
Brian Lee Essex - Equity Analyst
Great.
And then maybe if I could touch on -- as a follow-up on question that Lisa, I think, had asked with regard to budgets.
I mean, our CIO survey is also pointing to a better spend next year.
But that was a 3Q survey that was prior to tax reform.
With the -- are you having any -- or do you have any incremental color for next year, if there is any sensitivity to a lift from reform and potential upside to what you have initially had in terms of conversations with your customers?
Pierre Nanterme - Chairman & CEO
No, I [couldn't] mention.
I mean, you -- there are many analysts who have been providing information as well you are driving CIO surveys, and they are all very consistent that the budget would increase with shift from legacy to digital.
That for me -- I mean to be honest with $10 billion bookings in Q1, it would [hard not to] (inaudible) the demand out there.
Angie Park
Kevin, we have time for one more question and then Pierre will wrap up the call.
Operator
That question is from the line of David Grossman, Stifel Financial.
David Michael Grossman - MD
David, sorry if I missed this, but I think you mentioned the tax reform had minimal impact on fiscal '18 EPS.
Can you provide us with any parameters that may help us understand the potential impact of tax reform beyond this fiscal year?
David P. Rowland - CFO
Yes.
So just, I guess, reconfirm to ensure I was clear in the remarks I made in the script.
Again, we expect our tax rate this year, again, to be in the 22% to 24% range and that does not include the impact of the U.S. tax legislation.
Again, our current assessment is that the impact on the effective tax rate will be minimal other than a noncash expense for fiscal '18, which could be up to $500 million, which reflects the impact of lower tax rates on our U.S. deferred tax assets.
I didn't say it in the script, but let me also add that we do not expect an impact on our tax cash payments this year.
So having said that, over time on an ongoing basis, the legislation could modestly impact our ongoing effective tax rate by imposing taxes on our intercompany transactions and limiting our ability to deduct certain expenses.
And so the specific answer to your question beyond what I said about '18 is that on ongoing basis, we think it could modestly impact our ongoing effective tax rate and essentially you've got the lower rate which is, let's say, offset essentially or closely offset by the loss of certain deductions.
And then the other thing in the mix as well is the tax imposed on intercompany transactions.
But in the mix, we see a modest impact over time.
David Michael Grossman - MD
So that's a modest impact either plus or minus, is that it?
David P. Rowland - CFO
I would say more likely a modest upward pressure than downward.
David Michael Grossman - MD
Got it.
Great, thanks for that.
And just one very quick follow-up.
So just an addition -- so you've done a great job of using acquisitions to accelerate your ability to reach scale around change in the marketplace.
So if in fact that's an accurate observation, given that the guidance for a slower pace of acquisitions for this year, should we assume that your recruiting and training infrastructure is now at a point that you can better satisfy end market demand?
Or are there other dynamics that play in that equation?
David P. Rowland - CFO
I would say that the -- I wouldn't -- I understand that if you just look at it purely numerically, you would say that we're -- we have a lower rate of acquisitions.
I wouldn't say that -- what I would say is that this year's estimate of 1.1 to 1.4 is entirely consistent with our strategic objective.
It just so happens that last year the nature of the opportunities in the marketplace was such that we went above what would be our typical strategic range.
That could happen at any time in the future.
And so it's not a slowdown as much as it was last year.
It was just above our strategic range, and this year we're guiding at 1.1 to 1.4, which is right consistent with our strategic objective, and we'll see how the year plays out.
Pierre Nanterme - Chairman & CEO
All right, I think it's time, right Angie, to wrap up the call.
Thanks, again, for joining us on today's call.
So in closing, and with the first quarter now behind us, as you probably heard from David and I, we feel very good about where we are.
And I'm personally confident that we are very well positioned to continue gaining market share, driving profitable growth and delivering value for both our clients and all our stakeholders.
I want to wish you, our investors and analysts, and everyone at Accenture a very happy holiday season and all the best for the New Year.
We look forward to talking with you again next quarter.
In the meantime, if you have any questions, as always, please feel free to call Angie and the team.
All the best.
Happy New Year.
I'll talk to you next year.
Operator
Thank you.
Ladies and gentlemen, that does conclude your conference.
We do thank you for joining while using AT&T Executive TeleConference.
You may now disconnect.
Have a good day.