埃森哲 (ACN) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Accenture's First Quarter Fiscal 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Managing Director, Head of Investor Relations, Ms. Angie Park. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today on our First Quarter Fiscal 2021 Earnings Announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our Chief Executive Officer; and KC McClure, our Chief Financial Officer.

We hope you'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. Julie will begin with an overview of our results. KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the first quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the second quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap-up at the end of the call.

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

Today, we are very pleased to announce strong financial results for our first quarter. I will begin by thanking our 514,000 people for their hard work and dedication to delivering value for our clients, which is what these results represent.

Last quarter, I shared that as we began our fiscal year '21, we were turning a page, no longer navigating a crisis, but facing a new reality with a laser focus on delivering value to our clients at this time of great need and on returning to pre-COVID growth rates by the second half of our fiscal year. I also shared how we began fiscal year '21 stronger than pre-crisis. Our results in Q1 made clear how we have strengthened our market position as well as our ability to pivot our business with agility. Not only have we delivered a strong quarter, but we took exciting new actions to continue to strengthen our market position for FY '21 and the future.

Let's start with our financial results. We delivered revenue growth of 2% in local currency, well ahead of our guidance, with broad-based improvement across the globe. We continue to extend our leadership position with our growth estimated over the trailing 4 quarters to be more than 4x the market, which refers to our basket of publicly traded companies. We delivered exceptionally strong new bookings of $12.9 billion, a 25% increase over Q1 last year, including 16 clients with over $100 million in bookings. We continue to invest substantially in our business, including closing 10 acquisitions this quarter in strategic areas, such as cloud, intelligent operations, and Industry X.0. And as KC will walk through, we delivered strong profitability and returned substantial cash to shareholders.

Now let me highlight the actions we have taken in Q1 to better serve our clients, attract the best talent, and extend our leadership as a responsible business and trusted partner. We created Accenture Cloud First with a planned $3 billion 3-year investment to help clients in what has become a once in a digital era replatforming of global business in the cloud.

We launched our new purpose, our growth strategy to deliver 360-degree Value to our clients and our largest and most significant new brand campaign in a decade.

In our annual cycle in December, we promoted 605 Managing Directors with a record 39% women; and I appointed 63 Senior Managing Directors, including a record 29% women. I'm excited to announce today that we met our previous goal of 25% women Managing Directors globally by the end of 2020, and have raised the bar again, setting a new goal of 30% by the end of 2025. With 45% women overall, we are on track to meet our goal of 50-50 gender equality by 2025.

We set external goals in the U.S., U.K. and South Africa to achieve greater race and ethnicity representation overall and among Managing Directors in these countries by 2025. We remain the only major professional services company in our industry, around the world, public or private, to set these types of external goals and to have our level of transparency. We believe our diversity and commitment to inclusion and equality have been and will continue to be critical to our success and a differentiator in attracting the best talent.

And building on our long-standing and well recognized commitment to the environment, we announced industry-leading goals for 2025 to achieve net 0 emissions, move to 0 waste and plan for water risk.

As you can see, we have been busy moving forward in our new reality. KC, over to you.

Thank you, Julie. Happy holidays to all of you, and thanks for taking the time to join us on today's call.

We were very pleased with our overall results in the first quarter, which exceeded our expectations and represent a positive first step to achieving our full year objectives. The focused execution of our strategy continues to extend our leadership position in the marketplace as we deliver significant value to our clients and our shareholders in an uncertain and volatile environment.

Now so let me begin by summarizing a few of the highlights of the quarter. Revenues grew 2% in local currency and continued to include a reduction of approximately 2 percentage points from a decline in revenues from reimbursable travel cost. Q1 revenues were more than $200 million above our guided range, driven by broad-based over-delivery across markets, services, and industries. We also continue to extend our leadership position with growth significantly above the market.

The diversity of our business continues to serve us well, and the industry trends remain consistent with the last few quarters. Approximately 50% of our revenues came from 7 industries that were less impacted by the pandemic, and in aggregate, continue to grow high single digits with continued double-digit growth in Public Service, Software Platforms, and Life Sciences.

At the same time, we saw continued pressure, but at a more moderate level, from clients in highly impacted industries, which include: Travel; Energy; High Tech, including Aerospace and Defense; Retail and Industrial. While performance varied, this group represents over 20% of our revenues and declined low double digits.

Our operating margin was 16.1% for the quarter, an increase of 50 basis points. We delivered expansion while making significant investments in our business and our people to extend our market leadership. We continue to benefit from lower spend on travel and events. And we delivered very strong EPS of $2.17, up 8% over fiscal '20, after adjusting both years for gains on an investment.

And finally, we delivered significant free cash flow of $1.5 billion and returned $1.3 billion to shareholders through repurchases and dividends. We also invested approximately $500 million in acquisitions, and we expect to invest at least $1.7 billion in acquisitions this fiscal year.

With those high-level comments, let me turn to some of the details, starting with new bookings. New bookings were $12.9 billion for the quarter, reflecting an overall book-to-bill of 1.1. Consulting bookings were $6.6 billion with a book-to-bill of 1.0. Outsourcing bookings were $6.3 billion with a book-to-bill of 1.2. We were very pleased with our bookings this quarter, which grew 25%, driven by both technology services and operations. We were also pleased with the strength of our bookings in strategy and consulting with a book-to-bill of 1.1. Looking forward, we continue to feel very good about our pipeline.

Turning now to revenues. Revenues for the quarter were $11.8 billion, a 4% increase in U.S. dollars and 2% in local currency, including a reduction of approximately 2% from a decline in revenues from reimbursable travel costs. Consulting revenues for the quarter were $6.3 billion, a decline of 1% in U.S. dollars and a decline of 2% in local currency, including a reduction of approximately 3% from a decline in revenues from reimbursable travel cost. Outsourcing revenues were $5.4 billion, up 9% in U.S. dollars and 8% in local currency.

Taking a closer look at our service dimensions. Operations grew double digits, technology services grew mid-single digits and strategy and consulting services declined low double digits.

Turning to our geographic markets. The industry dynamics that I mentioned earlier continued to play out in a similar manner across all 3 markets. In North America, revenue growth was 4% in local currency. In Europe, revenue declined 1% in local currency. We saw mid single-digit growth in Italy, with the U.K. improving to flat. In growth markets, we delivered 3% revenue growth in local currency, led by high single-digit growth in both Japan and Australia.

Moving down the income statement. Gross margin for the quarter was 33.1% compared with 32.1% for the same period last year. Sales and marketing expense for the quarter was 10.4% compared with 10.5% for the first quarter last year. General and administrative expense was 6.6% compared to 6.1% for the same quarter last year. Operating income was $1.9 billion for the first quarter, reflecting a 16.1% operating margin, up 50 basis points compared with Q1 last year.

As a reminder, last year, in fiscal '20, we recognized an investment gain which impacted our tax rate and increased EPS by $0.08 in the quarter. This year, in Q1, we again recognized investment gain which impacted our tax rate and increased EPS by $0.15. The following comparisons exclude these impacts and reflect adjusted results.

Our adjusted effective tax rate for the quarter was 23.7% compared with an adjusted effective tax rate of 23.9% for the first quarter last year. Adjusted diluted earnings per share were $2.17 compared with adjusted diluted earnings per share of $2.01 for the first quarter of last year. Days service outstanding were 38 days compared to 35 days last quarter and 43 days in Q1 of last year. Free cash flow for the quarter was $1.5 billion, resulting from cash generated by operating activities of $1.6 billion, net of property and equipment additions of $93 million. Our cash balance at November 30 was $8.6 billion compared with $8.4 billion on August 31.

With regards to our ongoing objective to return cash to shareholders. In the first quarter, we repurchased or redeemed 3.3 million shares for $769 million at an average price of $229.98 per share. At November 30, we had approximately $5.8 billion of share repurchase authority remaining. Also in November, we paid a quarterly cash dividend of $0.88 per share for a total of $558 million. This represents a 10% increase over last year. And our Board of Directors declared a quarterly cash dividend of $0.88 per share to be paid on February 12, a 10% increase over last year.

So in summary, we were very pleased with our Q1 results, and we're off to a good start in fiscal '21. Now let me turn it back to Julie.

Thank you, KC. Let me start with the environment. We saw in Q1 a broad-based increase in demand that is faster than we anticipated 90 days ago. This means that as our clients have the confidence and ability to spend, they are turning to Accenture. But the uncertainty and volatility of the biggest health, economic, and social crisis in our lifetimes remains, particularly as the world continues to face a deepening health impact pre-widespread vaccination.

From an overall demand perspective, the trends that we discussed last quarter are continuing. Companies need to accelerate their digital transformation across their enterprises and move to the cloud, address cost pressures, build resilience and security, adjust their operations and customer engagement to a remote-everything environment and changing expectations and find new sources of growth.

What is becoming even more clear, however, is that we are in an era of compressed transformation in which the winners by industry will be those who are earliest to replatform their businesses in the cloud and have the digital core and new ways of working that allows them to continuously improve their operations and find new sources of growth, which for most leading companies, is requiring them to simultaneously transform multiple parts of their enterprises and their talent. For the pre-COVID digital leaders, they are racing to widen the gap; and for the digital laggards, they are racing to leapfrog.

We are uniquely positioned to help the leaders and the laggards because of the depth and breadth of our capabilities. We bring the trust, experience, speed and scale that are essential to achieve compressed transformation. Now let's bring some of these demand trends to life through the lens of our Q1 and look at our own broad-based improvement.

First, replatforming to the cloud. In fiscal year '20, our cloud revenue was approximately $12 billion with low double-digit growth, which accelerated in Q1 with significantly higher double-digit growth, driven by Accenture Cloud First. In fact, across low to highly impacted industries and all geographic markets, we saw strong double-digit growth. The race to replatform to the cloud and create new business value is clear across all our services.

Our clients need our deep technical and engineering skills and our unmatched set of relationships with the world's leading technology ecosystem companies which are critical partners to us and to our clients. We were pleased that in Q1, industry analysts recognized us as the leading systems integrator for each of AWS, Azure and Google Cloud platform as well as the leading multi-cloud managed services provider. Fundamental to accelerating our clients' replatforming in the cloud, however, are our leading strategy and consulting capabilities, which give us the industry and functional insights to move rapidly and achieve early business value.

For example, we are working with Takeda, a global value-based R&D-driven biopharmaceutical leader, to modernize their technology platforms, including moving 80% of applications to the cloud, accelerate data services and establish an internal engine for innovation while equipping employees with new skills and ways of working and reducing their carbon footprint. The business impact is illustrated by the plans for Takeda's plasma-derived therapies business unit, which is harnessing the power of the cloud and these data services to create state-of-the-art, digitally connected, donation centers and modernize the donor experience, optimizing the plasma collection process and contributing to the goal of increasing plasma collection and manufacturing by at least 65% by 2024.

We are working with the Norwegian Healthnet to create a health analytics platform which is using the power of the cloud to analyze and interpret data and ultimately improve patient outcomes by reducing research turnaround times and access to data from months to a matter of minutes or days.

And we are working with Generali, a major player in the global insurance industry, to help replatform approximately 70% of its IT footprint to the cloud to improve service quality, innovate and build a set of new cloud-ready core insurance applications for emerging markets while achieving a sustainable reduction in its total cost of ownership and helping to upskill its workforce.

In Intelligent Platform Services, which returned to low single-digit growth this quarter, we saw building momentum fueled by our clients rotating to software as a service as well as new digital platforms.

In a quick trip around the world, we see this compressed transformation playing out: From the rapid transformation of the finance functions of Nickel Bank, a subsidiary of BNP Paribas and a fast-growing neobank in France, with the implementation of leading software as a service and ERP solutions; to the cloud-based marketing transformation of a global bank with a large U.S. footprint with a SaaS implementation across its worldwide private banking network; to one of the largest implementations in the chemicals industry of a modern digital ERP system hosted on the cloud for Indorama Ventures, a world-class chemicals company with global operations headquartered in Asia, that will provide a single source of information globally, and cloud-based solutions to enhance its operations, employee development capabilities and customer and supplier experiences.

So that's the cloud. Now let's turn to digitizing operations across the enterprise. In operations, which returned to double-digit growth this quarter, we are helping our clients transform by digitizing their operations with our SynOps platform, increasing agility and reducing cost. Operations is a service that enables us to continue diversifying our value to clients by expanding across functions and industries. We have an unmatched global footprint, ability to invest, and innovation engines powered by the broader Accenture.

We were excited to welcome to the Accenture family this quarter N3, an Atlanta-based B2B sales firm with more than 2,000 employees that combines specialized talent in AI and machine learning, to enable smarter, more efficient sales interactions and drive sales growth in virtual environments.

The power of Accenture's breadth and depth comes together at Halliburton, a leading provider of products and services to the Energy industry and a leader in driving true enterprise-wide transformation enabled by digital and technology. Last quarter, we shared how we are helping Halliburton move to cloud-based digital platforms. This quarter, we announced that we are teaming with Halliburton to accelerate its digital supply chain transformation and support digitization within Halliburton's manufacturing function to improve service levels and business outcomes. We will leverage SynOps, which we already use as part of Halliburton's digital transformation of its finance and accounting function, and our strategy and consulting expertise.

In Industry X.0, we are digitizing manufacturing and operation and creating intelligent products and platforms. In fiscal year '20, Industry X.0 was approximately $3 billion and grew low double digits, which has continued in Q1. We see COVID deepening the need to transform manufacturing in a contactless world with disrupted supply chains and greater cost pressures.

One of our latest wins was as CNH industrial, the manufacturer of capital goods across the agriculture, construction equipment and commercial vehicle sectors, where we are improving the global operating model to develop smart connected products and services that will grow revenue while building a digitally enabled workforce and enhancing security and sustainability.

Finally, let's look at the trends around new ways of engaging customers, patients, citizens, and employees. In interactive, which is all about the business of experience, the crisis had a significant impact due to severe disruptions in industries like travel and retail and due to our clients being focused on shoring up their experience -- of their businesses rather than the next generation of experiences. This quarter, we saw building momentum with a return to low single-digit growth from a low single-digit decline in H2 of FY '20 as clients focused on creating new experiences in the new environment.

For example, Accenture Federal Services is working with the Federal Retirement Thrift Investment Board to reimagine retirement services for the digital age and improve the customer experience for a retirement savings plan serving 6.1 million civilian employees and members of the Armed Services with over $644 billion in assets.

I want to take a moment to talk about another bold move we made this quarter. In October, we simultaneously launched a new purpose, our growth strategy to deliver 360-degree Value to our clients; and a new brand campaign created by our own Droga5 team that joined our family in 2019. Our new purpose is to deliver on the promise of technology and human ingenuity.

Our purpose is what we are uniquely able to do, and our growth strategy is our action plan to bring this purpose to life. Our strategy to deliver 360-degree Value to our clients is a direct response to the rising demand we see for talent transformation and help achieving responsible business goals. We define 360-degree Value as delivering the financial business case, experiences and unique value a client may be seeking; and striving, where possible, to partner with our clients to achieve greater progress on inclusion and diversity, reskill their employees and achieve their sustainability goals. At the heart of this strategy is embedding responsible business by design into our work for clients in addition to our own operations.

Our new brand, Let There be Change, captures our purpose and the depth and breadth of Accenture's expertise. Together, our purpose, strategy, and brand better reflects Accenture's unique role in helping companies reimagine and rebuild differently for the benefit of all.

Over to you, KC, for a look ahead.

Thanks, Julie. Before I get into our business outlook, as I did last quarter, I would like to remind you that given the coronavirus pandemic, there are a number of factors that we may not be able to accurately predict, including the duration and magnitude of the impact, the pace of the recovery as well as those described in our most recent quarterly filings. Now with that said, let me turn to our business outlook.

For the second quarter of fiscal '21, we expect revenues to be in the range of $11.55 billion to $11.95 billion. This assumes the impact of FX will be about positive 3% compared to the second quarter of fiscal '20 and reflects an estimated 1% to 4% growth in local currency and includes a reduction of approximately 2 percentage points from a decline in revenue from reimbursable travel cost. The entire range for Q2 reflects the continued build-back of our business over Q1.

For the full fiscal year '21, based on how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in U.S. dollars will be approximately positive 3% compared to fiscal '20. For the full fiscal '21, we now expect our revenues to be in the range of 4 point -- excuse me, 4% to 6% growth in local currency over fiscal '20, including approximately negative 1% from a decline in revenues from reimbursable travel based on the 2% reduction the first half of the year and no material impact in the second half of the year.

For operating margin, we continue to expect fiscal '21 to be 14.8% to 15.0%, a 10 to 30 basis point expansion over fiscal '20 results. We continue to expect our annual adjusted effective tax rate to be in the range of 23% to 25%. This compares to an adjusted effective tax rate of 23.9% in fiscal '20.

For earnings per share, we now expect our full year diluted EPS for fiscal '21 to be in the range of $8.17 to $8.40. We now expect adjusted full year diluted EPS to be in the range of $8.02 to $8.25 or 8% to 11% growth over adjusted fiscal '20 results.

For the full fiscal '21, we now expect operating cash flow to be in the range of $6.65 billion to $7.15 billion, property and equipment additions to be approximately $650 million and free cash flow to be in the range of $6 billion to $6.5 billion. Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of 1.1 to 1.2. Finally, we continue to expect to return at least $5.3 billion through dividends and share repurchases as we remain committed to returning a substantial portion of cash to our shareholders.

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

Thanks, KC. (Operator Instructions) Operator, would you provide instructions for those on the call?

(Operator Instructions) Your first question comes from the line of Lisa Ellis from MoffettNathanson.

I would just ask my 2 right upfront. Looking at the utilization number, 93% in the quarter, I peeked back, and that is the highest number you've reported in more than 10 years. So 2 questions, 1 more strategic and 1 more kind of numbers related on that.

I guess, first, can utilization be structurally higher now with the shift to remote work, and so we should expect these kinds of levels going forward? Or are you kind of getting to the point that you're labor-constrained and you're going to be ramping hiring and that number will come down a bit? That's the more, I guess, strategic question.

And then maybe for KC. Was higher utilization the primary driver of the 100 basis point increase in gross margins? Or is that also being affected by the reduction in travel costs?

Okay. Lisa, thanks for your question. So maybe I'll start with your second question first, just on gross margin. So we did have expansion in gross margin and there were a few drivers to that. The first is contract profitability was up this quarter. And in contract profitability, we did benefit from lower travel, so that does help our contract profitability overall. So that is the first thing that I would say benefited our gross margin. And you do see that -- the fact that we have higher utilization also does help our gross margin as well. So both of those points were included in drivers of our gross margin.

And when you look at utilization, we did have a very high productivity this quarter. It did click up in parts -- and that was pretty broad-based, and that was also driven by our over-delivery of Q1 revenue. We continue to recruit throughout the summer and obviously into this quarter. You can see that our headcount is up sequentially. And so we don't see any issues meeting demand and attracting talent.

And to your point on is there a structural change from working remotely? The answer is really no. We were just able to get more productivity out of all of our groups this quarter. And looking forward, we do think that's going to kind of ease back into kind of a more normal range, which still is very high productivity, but not continuing at these levels.

Your next question comes from the line of Tien-Tsin Huang from JPMorgan.

Good results here. I want to just ask about the outlook here and what's changed over the last 90 days. I know you received -- looking at revenue, while your up $200 million over your guidance. You overcame low double-digit declines in strategy, in consulting. From a macro standpoint, we got, what, vaccines have been approved and cases are up, but your bookings are strong again. So I'm just trying to think here, you seem really well set up for the second half to be quite strong, even if strategy and consulting comes back slowly. So do you feel more confident in the outlook for strategy and consulting? Or is the composition of work just changing versus what you thought maybe 90 days ago? Any thoughts on that?

Yes. So let me just maybe talk a little bit about what drove our overperformance in Q1 and how that impacts our view of Q2 and H2, Tien-Tsin. So when you look at Q1, we were obviously very pleased with our performance, and we had rather significant over-delivery against our expectations. And that was really driven by broad-based over-delivery. In all 3 of our markets, in all of our industry groups, in all of our services, all did a bit better.

And as I mentioned in our script, when you take a look at the industries, and the higher-impacted industries, which represent over 20% of our revenues, they did improve from Q4 of a decline of mid-teens to low double digits. And as Julie talked quite a bit about, the fact that, that was really driven broad-based by our strong demand in cloud. And so that is an area that performed better than we expected. But if you also look at the lower-impacted industries, which are 50% of our revenue, they continue to grow high single digits like Q4, but they actually did improve also within that zone. And so let me maybe connect this a little bit to how we did our sales this quarter.

So we had a very strong start to the year, as you can see in our sales, of $12.9 billion, which is about $2.5 billion more than what we've done in the last 2 quarter 1s the last 2 fiscal years. And when you peel that back, Tien-Tsin, you can see that it was really driven by all categories of our sales side. So the large, which Julie highlighted, that we had 16 clients over $100 million in sales, but all the way through and significantly driven by an improvement in our smaller deals, which came in better than we expected, and that can help us with revenue yield in the current quarter.

So when I take a look at that, that's what happened with Q1. And then when you look at that compared to 90 days ago, obviously, that's better. And when you look at -- then what -- for Q2, we obviously have a better outlook for Q2 than we did 90 days ago with our 1% to 4% growth range. Really important to note that all of points in that range are an improvement over Q1. So we continue to build back our business from the lows of H2. And we would be really pleased with anywhere that we land in that range.

Now when you look at the second half of the year, we haven't changed our views on the second half of the year from 90 days ago. And just to be very specific, we still see that we would have high single-digit to low double-digit growth in the back half of the year. And just as a reminder, the 4 factors that we talked about last quarter that were going to drive that, remained the same.

And just very briefly, they are, first, that we continue to expect an improvement in the macroeconomic environment. We don't see another -- we're not anticipating another macroeconomic shock that's built into our guidance. We expect to see more of a benefit from the significant transformational deals that we sold last year. And then, at the same time, to your question, we do expect strategy and consulting to reconnect with growth, and our performance in Q1 and our outlook for Q2 do encourage us even more on that statement this quarter.

And the fourth thing is that we have the benefit of an easier compare. That obviously remains the same. And we are also still going to anniversary the reimbursable revenue headwind. That's 2%, the first half of the year. And that won't be a headwind in the back half of the year.

So of course, we're still meeting with our clients. You can see that by the fact that we were able to book $27 billion in the last 2 quarters. But we are not planning on having significant increases in revenue related to travel in the back half of the year.

So hopefully, that gives you a sense of how we see the business compared to what was stay the same now from 90 days ago, which is our outlook in H2. But obviously, we're very pleased with the improvement in performance in Q1 and outlook for Q2 than we had 90 days ago.

Yes. And Tien-Tsin, let me just kind of give you a little more color from the clients' perspective because -- and this is what I talked a little bit about in my script, right? Is if you just remember, pre-COVID, we said we were in the early innings of transformation with the beginning of the decade, it'd be enterprise-wide, right? COVID hits, technology becomes a lifeline, and you really see companies understanding kind of the 2 truths of our world, right? There is -- every business is now a technology business, and exponential technology change is going to continue, right?

And now it's about the speed. And this is why we're seeing what I'm calling compressed transformation, where you continue to see companies say, "We are going to take on this transformation more broadly." So look at the example of Takeda. They're both moving to the cloud, improving their data, and making sure that they're getting near-term business value. You take a Halliburton, right, cloud, finance, supply chain, right?

So there is this speed of change, and we see that in the confidence. We're 9 months in now, right? The first part of the crisis, people were getting their footing, getting back up and running. And it's interesting, we did some research in July across 10 markets, and nearly 80% of the executives that we surveyed said that they were planning on investing in digital transformation, and that was up from 50% in May, right? And we're continuing just to see this recognition of the need to get there faster.

And then what's important to understand is that all of this is happening, though, in the context of the cost pressures, the changing expectations. And this is where a decade and, in some cases, multiple decades of investment from Accenture has put us in a very unique position because no other company in our industry can simultaneously do operations that help a company redo their supply chain and their finance function and reduce costs and digitize. At the same time, we're helping them migrate to the cloud and give them that view, right, which -- because all of us has interdependencies, right? You want to get end-to-end process change. And we have literally been building these capabilities for years and years, and this is where the scale and the breadth matter.

No, it's very clear. I appreciate the sort of complete answer, guys, here. And it seems like the outlook is set up pretty well here.

Your next question comes from the line of Matthew O'Neill from Goldman Sachs.

I was hoping we could drill down a little bit deeper into Accenture Cloud First. I think it's just 90 days since the formal announcement. Curious -- understanding a lot of the sort of anecdotes in the prepared remarks around Takeda, Halliburton, et cetera. But where you're seeing the most immediate needs to deploy the $3 billion that you identified for investment, earliest and first?

And sort of mirroring that, where the greatest demand is coming from the client side. Understanding there's kind of a broad-based, I think, COVID-driven catalyst to potentially get off the fence and move one's business to become fully digital, cloud, et cetera, et cetera.

Sure. So Matthew, thanks for the question. So maybe just take -- let's just first start why are companies having to accelerate faster to the cloud? And there's a few clear reasons. So first of all, there's a cost pressure because when they move to the cloud, there's immediate savings just in the migration and there's an obvious need to get that kind of savings.

Second, the cloud is really important for resilience and security. And in this current environment in particular, you can see why that matters. The crisis really exposed the vulnerabilities of a lot of the on-premise IT estates. And then that has been compounded, of course, by the expansion of the threat surface through more remote working. And so the resilience and security of the cloud is also an immediate driver as to the need to do that.

But what I would say is probably most important in really the rapid acceleration is the need for the power of the cloud to enable the data-driven transformations, right? So you saw that in the example that we gave with Takeda, where they're changing the customer experience, which requires near real time access to data in order to personalize and to be able to actually do that.

And what I think is very unique -- I know is very unique about Accenture, is that this is where our strategy and consulting capabilities are so important because the reason to go to the cloud is not simply cost and resilience and security, it's about the business value. And here's how we're helping clients get early business value. And you have to deeply understand the industry, the patients, the customer, and also what data is valuable among all of the data and which workloads go first.

And so it really is driven by all of these things at once, which is why our capabilities around change management, around talent transformation and leadership are important, because by the way, everybody now wants to go hire cloud talent in this thing, and so -- and it's not going to be enough available. So our ability to reskill, which you saw in each of these examples that we gave in the script, like Generali and Takeda, is also critical. So that's sort of the big picture.

Now when you think about where are we going to do investment? We talked about we did 10 acquisitions this quarter. Four of them were in cloud. They were in each of our 3 markets. And they were about building scale, for the most part, in more markets. And so as we think about the acquisition strategy, which will be a big component of the $3 billion, it's about building scale in markets around the world as well as acquiring niche capabilities.

The second big area of that $3 billion investment, though, is creating more and more of the assets that will allow our clients to move quickly. Everything from the myNav asset that we've talked about that does a fast diagnostic with benchmarks to help clients figure out what kind of a strategy to have and how to get value to the my green navigate -- advisor that helps you figure out your -- the reduction in carbon, to the industry blueprints that we're creating and the solutions that are repeatable, like in digital manufacturing, on the cloud. So this will be an important part of our continued investment.

And again, it really comes right back to no other company has both these deep engineering and infrastructure skills, the deep relationships and then the strategy and consulting capabilities to actually move industries to the cloud to create business value solutions. And you don't build that overnight, right? We have been building our strategy and consulting business for decades. We have been an early adopter for cloud for decades. And let's not forget, we're our own best credential when it comes to all of these capabilities.

That's really helpful and interesting. I guess as a quick follow-up. I was just curious, you mentioned in the strip Droga5 acquisition, and more broadly, Accenture Interactive. And wondering if there's significant sort of cross-sell and upsell opportunity as you integrate more assets, like a Droga5, and present a more comprehensive suite to both existing and new clients for things that they might not have maybe originally known or thought of Accenture for, first and foremost. Is that a part of the equation here?

Absolutely. And when you think about Accenture Interactive, like we are doing amazing work like our own brand and purpose work, right? And for ourselves, we are, again, our best credential. But what these capabilities bring is we're actually embedding them in all of our services. Our clients come to us for outcomes, and experience is a really important part of it.

Again, when you think about the work we're doing with Prudential that we talked about last quarter, that was fundamentally a different way of engaging with the customer. Takeda, a different way of engaging with the donor, right? The researchers in the Norway example, about how they're going to engage. We are embedding this experience and how to do that in all of our work. And so that's why I often talk about -- I know you all look at our services separately, our 4 services, our clients look at our outcomes. And what differentiates us is our ability to embed the business of experience across Accenture as well as going to market, of course, like a Drago5, that continues to do amazing pure work in terms of brand, for example.

Really helpful, thinking about that in the context of sort of experience and outcome.

Your next question comes from the line of Bryan Bergin from Cowen.

I wanted to ask on bookings. Was there anything pulled forward in bookings relative to your prior expectation? Or do you still anticipate a building cadence for the year? And then can you comment on bookings conversion pace? Considering the outperformance you've had the last 2 quarters, I'm just curious how you're seeing the pace of these larger transformational engagements.

Yes. Thanks. We were really pleased with our bookings this quarter. And as I mentioned, they did grow 25%. And as you just pointed out, and I mentioned as well, we did have a stronger Q1 than we had, had in the last 2 years. And if you peel that back, it's really because the demand, again, which was very broad-based, it was really also driven by cloud, which we've talked a lot about; Industry X.0; security. So they're also aligned to our strategic priorities.

If you look at it by what drove the strength in bookings? Again, broad-based. When you look at it by type of work, we have particular strength in outsourcing, that really was up quite a bit with very strong book-to-bill. But within the 16 clients that we booked over $100 million, they were represented, what I liked about that is, by outsourcing as well as consulting type work. It was a nice mix. And then all 5 of our industry groups are in there, too. So again, it points to very broad-based. And if you look at the services, again, no surprise, based on cloud, security and Industry X.0, tech services, very strong. And I mentioned and I just want to highlight again that we're pleased with our progress in strategy and consulting that had a 1.1 book-to-bill in the quarter. So overall, we felt really pleased.

And as it relates to kind of what we see ahead, we feel very good about our pipeline, right? So -- and if you -- taking on the question about conversion or revenue yield and bigger deals, we did see that our bookings were strong across all parts of our sales, large all the way through, particularly, to the smaller deals. And they do yield more revenue in the current quarter, so that's also true.

And then as you see, when you look really at our duration, it's not that the duration of the bookings in and of themselves have changed. It's really more of the services that are in the mix. So as we have more strategy and consulting bookings coming online, they obviously tend to be of a shorter duration. So nothing's really changed in that duration of each of our individual services, it's really more the mix of the bookings within each quarter.

Yes. And so next quarter, we expect a very nice -- very strong quarter in bookings.

Okay. And then just over the last several years, you've had special businesses here that competitors have not been able to grow faster than the market. I'm thinking about operations and interactive specifically as critical growth engines. From here, do you anticipate a rotation of the growth engines? So is Cloud First and Industry X.0, are those the new engines that you expect to drive above market? I'm just curious how you consider those now relative to competitors that are also heavily investing in those areas, and doing so earlier today than they did around interactive before.

Sure. Great question. So let me just start with, we have been investing in cloud for a decade, which is very hard to replicate. And so we start with a $12 billion business that is growing strong double digits. So we would expect to consider -- to continue to take market share there. And that in this environment, where you have a rapid acceleration and you're moving mission-critical workloads, we would expect to continue to differentiate because of our decade of experience and our relationships with the world's leading technology ecosystem players. So cloud will continue to be a big trend.

Think about Industry X.0, and we've talked about this now for some time, kind of the next Accenture Interactive. And as you know, we've been investing in Industry X.0 for some time. The COVID -- what we're seeing the early signs of, is that, like in other areas, Industry X.0 is, we think, going to accelerate over the next couple of years because that was still a newer part of the enterprise that was being digitized in the manufacturing and operations space. But as we now need to have like lot of health concerns about can you do manufacturing in a more contactless way, the supply chains have been disrupted. And so we have said for some time, Industry X.0 is going to be the next growth engine. And the early signs are is that it's likely to be accelerating as well. So we'll see how that continues to play out.

And remember, Accenture Interactive is an ongoing growth engine. I mean, we have 3 big platforms, right? You have the move to the cloud, which then has the data and the business value innovation on top. So it's not just moving there, it's everything that comes. And so that is early innings. We're at 20% into the cloud. But it's not just about the move, right, it's our unique ability to create business value, to access the data, and you're seeing that in the examples of what we're doing, and it depends on where you are on that journey. So that is an ongoing platform for waves and waves of future growth.

The second being, everything we do around intelligent operations, our operations business, our ability to move to modern digital platforms like what we talked about in IPS today. So that, again, provides -- we're early innings in the digitization of operations. And then Accenture Interactive, the business of experience, that's an ongoing thesis in terms of that will always have to continue to evolve.

And so we see that the impact of the COVID crisis, we're starting to move out of that and building momentum. We continue to expect that to be a growth engine. And once again, this is where you can't make up for quickly the scale that we've achieved because we've been investing for years in creating these capabilities. And then finally, you have this area of Industry X.0; and as I mentioned, security and data, which will all continue to be growing engines for us.

Your next question comes from the line of Bryan Keane from Deutsche Bank.

Congrats on these solid results. I wanted to ask on interactive, just trying to understand the trajectory there. What did it kind of do in the fourth quarter? Did it even turn negative growth? And then now it's at low single, so does it kind of move up from here? I know there's been a lot of questions before around interactive given would that business be weaker during kind of a slowdown, and it looks like it's hanging in there. So just curious on the trajectory, where it was last quarter and kind of what you expect it to do throughout the year.

Yes. So in H2, so kind of the whole 6 months, it was a low single-digit decline, and now we're in a low positive growth, right? So -- and it's building momentum. So for example, we're helping a big European bank with their digital sales, new things. So everyone is now starting to kind of reconnect with new experiences.

Got it. Got it. And then just on the other strategic priority on security, low double-digit growth. Is that about the right growth rate for that, too? Or does that also accelerate as we get into the back half, when we see the pickup in the growth rates?

Look, I think on security, we're super pleased with that -- of that double-digit growth. So whether it's going to be low or strong, it will probably ebb and flow. But the consistency of that double-digit growth in security has been impressive to date, and we continue to see that to be the trajectory.

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

Okay. That question comes from the line of James Faucette from Morgan Stanley.

I wanted to ask, you mentioned that you have some targets for M&A this year. Can you talk a little bit about -- from a spend perspective, can you talk a little bit about what you're seeing from a valuation perspective? And how we should expect those to contribute to growth in the coming fiscal year -- or during the current fiscal year and beyond? And what kind of areas you're targeting more specifically.

Yes. Thanks. So in terms of our V&A, we expect to spend at least $1.7 billion, and there's no change to what we started out with for the -- at the beginning of the year of the 2% expectation of revenue, of additional revenue growth, for this year. And it's aligned to really a lot of our -- all of our strategic priorities that we went through.

And then thinking about that, and I realize like that's consistent with what you've said before. But I'm just wondering how we should project that then into the future. Is this kind of the right level of acquisitions for Accenture? Or should we expect that to grow? Or do you think we're in a peak period? Just trying to think about that part of the capital allocation.

Yes, sure. So we've always aimed for around 20%, 25% of our operating cash flow in our capital allocation program to be for V&A. But we've always had the ability, and we continue to have the ability, to do more should any opportunity arise. So there's really no change to how we view V&A in our capital allocation.

Okay. So thank you, everyone, for joining us on today's call. We're very pleased with our strong start in fiscal '21.

Thank you again to our incredible people across the globe, and thank you to our shareholders for your continued trust. Best wishes to all for a safe, healthy, and joyful holiday season.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.