埃森哲 (ACN) 2024 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Accenture's third quarter fiscal 2024 earnings conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to host Managing Director, Head of Investor Relations, Katie O'Conor.

Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today on our third quarter fiscal 2024 earnings announcement.

As the operator just mentioned, I'm Katie O'Conor, Managing Director, Head of Investor Relations.

On today's call, you will hear from Julie Sweet, our Chair and Chief Executive Officer; and KC McClure, our Chief Financial Officer.

I hope you've had enough you need 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 result.

KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the third quarter.

Julie will be then provide a brief update on our market positioning before KC provides our business outlook for the fourth quarter and full fiscal year 2024.

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 as 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 Julie.

Thank you, Katie, and everyone joining, and thank you to our 750,000 people around the world who work every day to deliver 360 degree value for all our stakeholders.

Before we get into the quarter, I want to thank KC who has been an excellent partner for these last five years and our three other extraordinary leaders who are stepping down in the next two quarters, Mark, Allen, and Paul each have given over 36 years of service and demonstrated strong stewardship and developing outstanding successes, including Angie, who you all know from our former role as Head of Investor Relations, who will succeed KC in December 1.

As always, we are executing a smooth leadership transition to the next generation with our strong bench of great leaders.

Now onto the quarter.

I am pleased this quarter to bring to life yet again, the resilience and agility of our business as our actions to remain laser focused on our clients' needs and quickly adapt to market conditions can be seen in our results, which are building a foundation for stronger growth as we go into Q4 and next fiscal year.

As you know, this fiscal year, our clients' spending develop differently than we expected at the beginning of the fiscal year.

And these conditions continue with clients prioritizing large-scale installations, which convert to revenue more slowly while limiting discretionary spending, particularly in smaller projects with delays in decision making and a slower pace of spending as well.

In response, we have moved quickly to adjust by leveraging our unique strengths, our end to end services, including deep industry and functional expertise that enable these large-scale transformations are what we call reinventions.

We also leveraging our deep technology expertise and ecosystem partnerships, and they're learning machine and culture that gives us the agility to shift to new areas of demand, including, for example, Gen AI while continuing to invest at scale for future growth.

Here's how these strengths and our strategy are demonstrating results three quarters into the fiscal year.

With our clients prioritizing large-scale transformations, we have accelerated our strategy to be the reinvention partner of our clients.

Our success is reflected in our bookings of $21.1 billion includes and another 23 clients with quarterly bookings greater than $100 million, bringing the total of such clients with these bookings to 92 year to date, 7 more than last year at this time.

This focus on being the reinvention partner is an important part of our strategy to return to stronger growth.

As we enter next year as this work ramp the revenue from these large-scale bookings is expected to continue to layer in throughout the year, and we are also well positioned to capture increases in discretionary spend when it comes back because of the strategic positioning these deals bring at our clients.

We also have leaned into the new area of growth, Gen AI, which is comprised of smaller projects as our clients primarily are in experimentation mode.

In this quarter, we had two important milestones.

With over $900 million in new Gen AI bookings this quarter, we now have $2 billion in Gen AI sales year to date, and we have also achieved $500 million in revenue year to date.

This compares to approximately $300 million in sales and roughly $100 million in revenue from Gen AI in FY23.

Leading in Gen AI positions us to help our clients take the actions needed to reinvent and to benefit from Gen AI, which frequently means large-scale transformation.

We're also taking an early lead with an eye toward long-term leadership in this critical technology, which is still in the early stages of maturity and adoption despite its rapid evolution.

We have built our expertise and making strategic acquisitions over the last decade, leveraging a strong balance sheet, and we have used this expertise to expand into new growth areas, scale in hot areas and geographies, and continue to build strength in our industry and functional consulting.

We deployed $2.3 billion of capital across all the actions, bringing the total number of acquisitions to 35 with invested capital of $5.2 billion year to date as compared to $2.5 billion for the entire FY23.

As a learning organization and talent creator, we continue to invest in our people with approximately 13 million in training hours this quarter.

This averages 19 hours per person representing an increase predominantly due to Gen AI as we continue to prepare our workforce for the infusion of Gen AI across our business in the coming years.

We also continue to steadily increase our data and AI workforce, reaching approximately 55,000 skilled data and AI practitioners against our goal of doubling our data in a workforce from 40,000 to 80,000 by the end of FY26.

We continued to take market share on a rolling four quarter basis against our basket of our closest global publicly-traded competitors, which is how we calculate market share with revenues of $16.5 billion and for the quarter of 1.4% in local currency and slightly above the midpoint of our FX adjusted range.

We expanded adjusted operating margin by 10 basis points and delivered free cash flow of $3 billion.

I want to congratulate our 97,000 people we have promoted around the world through June 1, including 702, the Managing Director and 64 to senior managing director reflecting our commitment to proving (technical difficulty) We're recognized as a top 10 places to work in 10 countries representing more than 70% of our people.

Number two in Argentina, Brazil and the Philippines, number four in Singapore and number five in Costa Rica, Finland and then Indonesia, number seven in the US, and then number 10 in Chile and the Great Place to Work list of Best Workplaces and number two in business today's Best Companies to Work For in India.

And in recognition of our strong brand were proud to earn the number 20 position on (technical difficulty) top 100 most valuable global brands list, our highest rank to date with an 11% increase in brand value to $89 billion.

Our scale across strategy, consulting, technology and operations, and our breadth and depth across industries and functions make us uniquely capable of helping our clients reinvent using technology and data AI and new ways of working.

Before turning to KC, I want to give a little more color on our acquisitions this quarter, which yet again demonstrate the strategic importance of both our ability to invest and our expertise in identifying, attracting, and integrating great companies joining Accenture.

Let's start with new areas of growth.

We completed our acquisition of [Audacity] to scale our technology, learning and training services and to help our clients reskill and upskill their people.

Audacity Is a critical part of our learn Vantage digital learning platform, which we announced last quarter as a new area of growth for the future.

Building on our expertise in customer face focus consulting, we invested to help drive our clients' growth agendas.

We acquired [Unlimited] and award winning customer engagement agency with a deep understanding of human behaviour as evidenced by our proprietary human understanding lab and a high-powered data insights platform.

We acquired the [Luminary] in Australia, a marketing technology consultancy that helps leading organizations deliver seamless customer experiences and transform their marketing services.

It provides industry and platform consulting services, including marketing, advisory, and planning, implementation across entire technology stacks, operational excellence, and simplification.

We closed our acquisition of [GeneSeek] in Bulgaria, a lead customer experience analytics provider, helping global businesses understand customers through insights, analytics, and AI powered predictive models.

And we closed [Mind Curve] a global digital -- global cloud native digital experience and data analytics company, specializing in composites, software, digital engineering, and commerce services.

Now let's turn to scaling and hot industries.

We acquired [Cotton Assante] a provider of innovative technology solutions for US federal health, defense, intelligence, and civilian agencies.

With this acquisition, Federal Services is creating a new -- federal health portfolio for its business.

We invested in customer management, IT, and [surface NPA], which will provide the public sector with technology support and justice and public safety in Italy.

We see public service and in particular, health, intelligence, and defense as highly strategic industry focus areas globally for the next several years, focusing testing integration for lithography systems in the semiconductor industry, another attractive industry segment.

Our investment in [Full Group], a leading European consultancy and Oracle business partner specializes in global supply chain logistics is helping us scale and supply chain also a major growth area.

Finally, we're scaling and attractive geographic markets.

We acquired [Clime], technology based consultancy based in Japan, where we continue to experience very strong revenue growth.

Over to you, KC.

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

We are pleased with our Q3 results, which were in line with our expertise patients and reflect continued investment at scale.

We continue to serve as a trusted partner for our clients are running our business with rigor and discipline.

Now let me summarize a few of the highlights for the quarter.

Revenues grew 1.4% local currency with mid-single digit growth or higher in seven of our 13 industry, including quick service, industrial, high-tech sciences, energy, utilities, and health.

We also continue to see improvement in our CMT industry group and we continue to take market share.

As a reminder, we assess market growth against our investable basket, which is roughly [two dozen] of our closes global public competitors, which represents about a third of our addressable market.

We use a consistent methodology to compare our financial results to there's adjusted to exclude the impact of significant acquisitions through the date of their last publicly available results on a rolling four quarter basis.

Adjusted operating margin was 16.4%, an increase of 10 basis points over Q3 last year includes continued significant investments in our people and our business.

And finally, we delivered free cash flow of $3 billion and returned $2.2 billion to shareholders through repurchases and dividends.

To date, we've had invested $5.2 billion across 35 acquisitions.

With those high-level comments, let me turn to some details starting with new bookings.

New bookings were $21.1 billion for the quarter, representing 22% growth in USD and 26% growth in local currency with an overall book-to-bill of

[1.3].

Consulting bookings were $9.3 billion with a book-to-bill of

[1.1].

Managed Services bookings were $11.8 billion with a book-to-bill of

[1.5].

Turning now to revenues.

Revenues for the quarter were $16.5 billion, a 1% decline in USD and a 1.4% a decrease in load currency and slightly above the midpoint of our FX adjusted guidance range as the FX headwind was approximately 2% compared to the 1% headwind estimated at the beginning quarter.

Consulting revenues for the quarter were $8.5 billion, a decline of 3% in USD, the decline of 1% in local currency.

Managed Service revenues were $8 billion, up 2% in US dollars and up 4% local currency.

Taking a closer look at our service matches technology services and strategy and consulting grew low-single digit and operations with Slack.

Turning to our geographic markets in North America, revenue grew 1% local currency, led by growth in public service, partially offset by decline in banking and capital markets.

In AMEA revenues declined 2% local currency, with growth in public service, offset by declines in banking and capital market and communications and media revenue growth in Italy was offset by a decline in France.

In growth markets, revenue grew 8%, local currency led by growth in banking and capital markets and industrial.

Revenue growth was driven by Argentina and Japan, partially offset by decline in Australia.

Moving down the income statement, gross margin for the quarter was 33.4%, consistent with the same period last year.

Sales and marketing expense for the quarter with 10.6% compared to 10.5% for the quarter for the third quarter last year.

General and administrative expense was 6.3% compared to 6.5% for the same quarter last year.

Before I continue, I want to note that in Q3 of FY24 and FY23, we recorded $77 million and $347 million in costs associated with our business optimization actions, respectively.

These costs decreased operating margin by 40 basis points and EPS by $0.08 this quarter and operating margin by 210 basis points and EPS by $0.42 in Q3 of last year.

In Q3 of last year we also recognized a gain on our investment in [Duck Creek] technologies, which impacted our tax rate and increased EPS by $0.38. The following comparisons exclude these impacts and reflect adjusted results.

Adjusted operating income was $2.7 billion in the third quarter, reflecting an adjusted operating margin of 16.4%, an increase of 10 basis points from adjusted operating margin in the third quarter of last year.

Our adjusted effective tax rate for the quarter was 25.5% compared with an adjusted effective tax rate of 24% for the third quarter last year.

Adjusted diluted earnings per share were $3.32 compared with adjusted diluted EPS of $3.19 in the third quarter last year.

[Day] sales outstanding were 43 days compared to 43 days last quarter at 42 days in the third quarter of last year.

Free cash flow for the quarter was $3 billion, resulting from cash generated by operating activities of $3.1 billion, net of property and equipment additions of $124 million.

Our cash balance at May 31 was $5.5 billion compared with $9 billion at August 31 with regard to our ongoing objective to return cash to shareholders.

In the third quarter, we repurchased or redeemed $4.3 million shares for $1.4 billion, an average price of $340, a $0.41 per share.

As of May 31, we had approximately $3.3 billion of share repurchase authority remaining.

Also I may related quarterly cash dividend of $1.29 per share for a total of $811 million.

This represents a 15% increase over last year.

And our Board of Directors declared a quarterly cash dividend of $1.29 per share to be paid on August 15, a 15% increase over last year.

In closing, we feel good about our results in Q3 and are now working hard to deliver Q4.

We remain focused on capturing growth opportunities while continuing to invest in our business for long-term market leadership.

That let me turn it back to Julie.

Thank you, KC.

As I mentioned earlier, we're seeing more of the same in terms of the day demand environment.

Now let me give a little context and how we're executing our strategy to be the reinvention partner of choice and why we're uniquely positioned to be helping our clients on AI.

It is important to remember that while there is a near universal recognition now of the importance of AI, which is the heart of reinvention and the ability to use Gen AI at scale, varies widely with clients on a continuum.

With those which have strong digital course, generally seeking to move more quickly while most clients are coming to the realization of the investments needed to truly implement AI across the enterprise, starting with a strong digital core from migrating up applications and data to the cloud, building a new cognitively layer, implementing modern ERP and applications across the enterprise to a strong security layer.

And nearly all clients are finding it difficult to scale Gen AI projects because the AI technology is a small part of what is needed.

To reinvent using technology data and AI you must also change your processes and ways of working reskill and upskill your people and build new capabilities around responsible AI all with a deep understanding of industry, function, and technology to unlock the value.

And many clients need to first find more efficiencies to enabled scaled investment in their digital corridors in all these capabilities, particularly in data foundations.

In short Gen AI is acting as a catalyst for companies to more aggressively go after cost, build digital core and should we change the way they work, which creates significant opportunity for us.

And this is why clients are coming to us.

We are able to help our clients, but there's a rotation because of our broad services across strategy and consulting, technology, and operations as well as everything customer through [song] and digital manufacturing and engineering to [Industry X] and our relevance across the functions of the enterprises in 13 industries.

Our privileged position in the technology ecosystem has never been more important.

We are working closely with our ecosystem partners to help our clients understand the right data, and the AI [backbone] that is needed and how to achieve tangible business value.

Now let me give you a few examples of the complex work of reinvention and building a digital core.

We are part winning with [Carry] a leading European technology retailer to unlock new growth and cost savings by accelerating its adoption of new technologies.

First, we will move their operations from a legacy data center to new cloud platform using prebuilt and customized solutions to create a powerful digital core.

This unified data foundation allows us to deploy automation in generative AI in key growth areas such as repair centers, customer service, e-commerce, procurement, and in-store experiences, delivering faster, more efficient services to their customers.

The move to a new platform supports the company's sustainability goals for reducing energy consumption by transitioning to a more efficient cloud infrastructure.

Now Carry employees will be empowered to serve their customers better by offering high touch experiences, both online and in-stores.

We're working with independent health group IHG, a leading health organization, headquartered in southeastern Pennsylvania on a transformation journey to modernize and operations improving the way they serve current and future generations of customers.

We will help migrate nearly 2 million members to a new Digital first platform expected to drive the immediate improvements in existing business processes.

This will lay the foundation to leverage advanced technology in generative AI to protect proactively manage members' health.

We are also helping reskill and retain their operations staff, creating opportunities for employee development.

With this reinvention, [independents] continues its ongoing efforts to increase service cloud holiday, improve experiences and enable better health outcomes, positioning them for new areas of growth in the rapidly changing healthcare landscape. [Digital Core] work also requires deep industry expertise as we work with our clients to design the right tech, data, and AI to reinvent their enterprise and their industry.

We are helping [MeeSeeks] an iconic American retailer with the technology modernization efforts.

As the strategic technology execution partner, we will migrate their mainframe systems to a cloud platform to move that will enhance our operational efficiency and scalability.

This will or MeeSeeks to be more agile and enable growth.

We are helping the Central Bank of the United Arab Emirates, the regulatory body responsible for the country's banking and insurance sector with a digital transformation to strengthen the financial system stability and contribute to growth, innovation and diversification in the sector in line with the UAE's National Vision.

Our program will deliver advanced analytics along with AI driven automation to improve supervisory capability and streamline activity for licensed financial institutions by creating best-in-class processes to support regulatory compliance.

We will also modernize the bank's enterprise data management by implementing a single unified portal to provide a holistic view of the financial services ecosystem, all of which will enhance the UAE position as the global financial center.

We are partnering with Virgin Media O2, a leading carrier services provider in the UK to support regional businesses to realize the promise of 5G opening new revenue streams and stimulating growth in the telco market, we will bring to market solutions built on our edge orchestration platform, which combines edge computing data AI and embedded security.

This will enable use cases such as quality inspection, safe workplace management and behavior monitoring to improve operations and customer experience.

Whether it's enabling safe, communication and building sites, creating a fan experience while handling crowds and busy venues are supporting vital devices and clinician workflow and health care, Virgin Media, O2 can now offer businesses a range of flexible, secure, and affordable solutions, the boost efficiency growth and performance.

And with our managed services and customer operations, we can work together with Virgin Media O2 to scale this growth.

Security is a critical part of reinvention and the digital core, we saw continued very strong digital double digit growth in our security business this quarter.

We are partnering with the US Navy to enhance its cyber security operations with cutting edge capabilities that will strengthen its data security posture and support mission readiness.

More than ever data and information are critically important to national security.

Our solution sets are configured to provide defensive cyber operations across 80 networks to help safeguard digital assets emission operations.

Together, we will help ensure the US Navy can combat evolving cyber threats.

Protect sailors at sea and defend American interest around the world.

Once clients have a strong foundation, they can explore new opportunities to drive growth and efficiencies with Gen AI.

We are helping a leading global food and beverage company who already built a strong digital core as part of between invention journey to now leverage the power generative AI to create new value.

Together, we developed the digital [shelf console] pilot Gen AI engine that accelerates content creation for e-commerce and optimizes it to drive sales.

The engine empowers marketers to audit and customized content at scale expected to reduce time to deliver one year's worth of content to just eight working days and save costs of up to 80% quickly and effectively.

Once we scale this enables the Company to produce more targeted content with significant time and cost efficiency, increased sales and transform customer experiences.

We have partnered with National Australia Bank, one of the country's largest financial institutions to strategically to implement and scale generative AI to create material value at speed, enhanced relationship driven customer service and drive operational efficiencies.

We worked on a methodical build with a secure and robust [G&A] platform built within the bank's existing strategic data platform with the creation of 200 generative AI use cases in backlog.

To date, over 20s cases have been tested across the bank with eight of these enterprise grade pilots underway and a number of those scaling and already delivering value.

We also created a methodology for you delivering Gen AI projects from experiments to scalable deployment, ensuring each stage delivers tangible business benefits.

While doing so National Australia, bank and Accenture or putting safety at the core of the approach to responsible AI and risk policies alongside developing in-house AI expertise and literacy.

One of the areas of [Richard's] opportunities for our clients is customer experience transformation, which uses unique capabilities of [songs] across creative customer insights and deep technology expertise.

Songs grew mid-single digits this quarter.

We are helping Saudi airlines, the national flag carrier of Saudi Arabia to launch an innovative digital platform to transform the travellers’ experience.

Powered by Gen AI the platform will provide a one-stop solution, enabling customers to seamlessly plan their journeys book flights and modify their chips in just a few words all while providing a personalized and conversational experience.

The platform is continuously evolving and we'll integrate more services over time.

We are redefining the standards of travel and a digital world.

We continue to see strong demand for digital manufacturing and engineering services.

Industry X grew high single digits in Q3.

We are supporting a large Asia Pacific automobile manufacturer on their reinvention towards software defined vehicles.

We will help accelerate software development and creative software center of excellence to optimize quality, cost pressures and delivery times.

The center of excellence will manage for key work streams, advanced driver assistance systems, in-vehicle infotainment, electrical and electronics and powertrain.

By leveraging our expertise and strong -- and strategic partnerships, we are empowering them to strengthen and evolve it’s in vehicle software, providing advanced functions and services throughout the vehicle's life cycle.

This enables the company to drive innovation, enhanced driver and passenger experiences and realize the full potential of software defined vehicles.

And we will continue to leverage all of our strengths to manage the current macro conditions and constrained spending or investing in leadership for the future.

Back to KC.

Thanks, Julie.

Now turning to our business outlook.

For the fourth quarter of fiscal '24, we expect revenues to be in the range of $16.05 billion to $16.65 billion.

This is the impact of FX would be about negative 2% compared to the fourth quarter of fiscal '23.

This reflects an estimated 2% to 6% growth in local currency.

For the full fiscal year '24 based upon how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in US dollars will be negative [0.7] compared to fiscal '23.

For the full six to '24, we now expect revenue our revenues to be in the range of 1.5% to 2.5% growth in local currency over fiscal '23, which assumes an inorganic contribution approaching 3%.

We continue to expect business optimization actions to impact fiscal '24 gap operating margin by 70 basis points and EPS by $0.56. For adjusted operating margin, we continue to expect fiscal '24 to be 15.5%, a 10 basis point expansion of fiscal '23 results.

We now expect our adjusted annual effective tax rate to be in the range of 23.5% to 24.5%.

This compares to adjusted effective tax rate of 23.9% in fiscal '23.

We now expect our full year adjusted earnings per share for fiscal '24 to be in the range of $11.85 to $12 or 2% to 3% growth over fiscal '23 result.

For the full fiscal 24, we continue to expect operating cash flow to be in a range of $9.3 billion to $9.9 billion, property and equipment additions to be approximately $600 million and free cash flow to be in the range of $8.7 billion to $9.3 billion.

Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of

[1.2].

Finally, we continue to expect to return at least $7.7 billion through dividends and share purchases as we remain committed to returning a substantial portion of our cash to our shareholders.

With that, let's hope products that we can take your questions.

Katie?

Thanks, KC I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question.

Operator, would you provide instructions for those on the call?

(Operator Instructions) Tien-tsin Huang, JP Morgan.

Thank you so much, and congrats to KC and Angie.

I just wanted to ask them upfront just for Julie maybe.

You mentioned stronger growth next year.

Hoping you could just elaborate on that at a high level and those a lot of moving pieces on one hand, you have a big backlog, a lot of large deals.

You have strong inorganic growth.

From the other hand, the sector's struggling with this week-discretionary spend, and there's uncertainty with global elections in the second half year.

So just I know you can't do formal guidance for next year and a consensus is that was 6%.

Can you just give us maybe some high-level considerations that are worth underlining as were recasting our outlook for next year?

Thank you.

Sure.

And thanks for the question, Tien-tsin.

So let's just anchored on our strategy for growth and what you're seeing in three quarters into the year because obviously, expectations at the beginning of this year were different in terms of how things develop with spending.

So what did we do?

We've leaned into what do clients need.

And they need these reinventions.

They need these big, large scale transformation.

And so what you've seen us do is you got to go with what the clients need and that's what they're buying.

And so we have accelerated -- or leaning into these large transformation deals, which is why you see that we have seven more than last year at this time of clients with bookings, we have over $100 million.

Now these convert to revenue slowly.

But as we're accelerating, you'll know that they ramp up and they will start to layer in.

And we are very uniquely positioned in this market to be able to do these large scale transformation because they require the combination of services.

Everything from the ability to help them move faster through our managed services.

Our industry expertise, everyone wants to do that with the high towards Gen AI.

So even though the transformations are often in preparation for Gen AI, they want to work with partners who really understands Gen AI.

And so how do we get there faster?

And so as you think about the reinvention strategy, that's the strategy we've been executing for a couple of years.

We uniquely can lean in and that -- you're seeing the results of that this quarter with the acceleration of -- compared to last year of clients with that level of bookings and those, of course, then ramp next year.

The second is are leaning into where we are seeing growth in smaller deals.

Because remember, the discretionary spending is constrained -- overall spending constraints and particularly in smaller projects.

But whatever we do it?

We see Gen AI as the new growth.

We have an incredible ability to pivot our people.

You can see the specialists and data in AI growing.

Started at 40,000.

We're at 55,000 now, against our goal of 80,000 by the end of '26 were also training our people.

You saw that big increase because we're preparing our people.

You're now doing and transformation.

It may not be Gen AI, but you have to understand Gen AI.

So we're uniquely able to train our people at scale to understand Gen AI.

And how is that translating?

We'll look at our bookings this quarter now getting to $2 billion three quarters into the year as compared to $300 million last year and $500 million in revenue.

So starting to be meaningful rate in terms of the numbers, we were at $100 million for all of last year.

So we expect to continue due to lean into Gen AI.

And what it's doing is very interesting from where we were, say, three quarters ago.

Acting as the catalyst to understand what you have to do.

So I'll finish here and then I'll just, of course, mentioned our ability to invest in inorganic.

But right now from a perspective of like what the end of the pull through restore reprioritizing.

But every other Gen AI project now is leading to some data project.

Because people are understanding, hey, this is a great technology and I'm not ready.

So we feel really good about being very well-positioned as spending increases when it does has increased because of what we're doing.

And then finally, remember, we invest in acquisitions to drive organic growth.

Like that is all about future growth.

And I gave a lot in the script today just help bring to life just how strategic our ability to invest is as we think about future growth.

So not trying to comment at all and FY25, we'll call it like we see it.

But we also want to be clear that our strategy is working and these deals will ramp up.

Yes.

Maybe I'll just add (technical difficulty) how we feel just within this fiscal year.

So we're very pleased with where we landed in Q3.

When you look to Q4, we do have -- and see that in our growth rate, a clear uptick at our growth rate for the fourth quarter.

And I think importantly, included in that is the expectation that our consulting type of work in Q4 will return to growth and that we haven't had growth in consulting type of work since Q2 of last year.

Good.

Thank you both for that. (inaudible) with my follow-up.

Just on the inorganic piece, can this pace continue?

So I'll let Julie talk about your add-on here.

But in terms of our -- let's talk about capital allocation.

And we've always said this, we have the ability -- and I think is a differentiator of ours to be able to invest and approach the market as -- whenever we see something that we want to -- what execute and that remains unchanged.

And we've been able you've seen us do that over all the different business cycles.

And importantly when we do that valuation terms of share buybacks and dividends as well.

So from a financial standpoint, we have very strong balance sheet.

We have the ability to continue to follow up and down as we see fit from a capital allocation standpoint.

And I think we will make the decision as we go into next year as to what level we want to drive for next year.

So I think we'll comment next quarter.

Perfect.

But I know you've been able to amplify the growth before.

So that's why I asked.

Thank you.

David Koning, Baird.

Hey, guys.

Thanks so much.

One thing I noticed.

Debt was up to $1.6 billion or so sequentially was the highest -- in 20 years you almost have no debt and you have a lot of cash.

But I guess what's the strategy around that borrowing money now?

And maybe it's just the geographic cash positions too.

Yes, that's a great question.

So in terms of our cash, so that we started the year at $9 billion and our little bit more about $5.5 billion.

And we do have some debt is very small, as you mentioned, for company of our size.

We've had a credit facility that we put in during the pandemic.

And we continue to have a credit facility.

It's about $5.5 billion at the five-year credit facility.

And what you just see, Dave, is that we're just exercising some of that credit facility kind of normal treasury operations.

And maybe just as a follow-up, margins this year up at the lower end of kind of normal in certain the scale -- the growth this year being a little slower on maybe the acquisitions interest.

As we kind of look forward, the margin puts and takes -- how should we think that with acquisition spend in newer higher?

Does the next few quarters remain kind of putting a little pressure on margins there?

How should we think of just the moving parts of margins going forward?

Yes, sure.

So I'll just obviously keep my comments at this for this year to '24, but on a leverage point out what we are and John, what we are continuing to spend.

So we stated last quarter that we have 10 basis points of operating margin expansion and we reconfirm that day for the full year again this quarter, and we feel confident in our ability to do that.

If you look at we run our business to -- if you look at our gross margin and overall what we've been saying on pricing and just importantly, when we talk about pricing, we mean the margin on the work that we sell.

I think, is really important for us is that we've been able to operate our business with rig discipline and how we run ourselves in an operation -- efficient operations of Accenture and [BR] investor credential on as we absorbed at a higher selling costs, which you would expect.

We're looking at a record $60 billion of bookings.

And also the continued pressure and pricing that we had across our business.

So with that, we feel really good.

And if you look at it, we grew 1% in quarter one.

As an example, we are able to do 20 basis points of margin expansion, which grew 1% this quarter.

And we were able to do 10 basis points of margin expansion.

So we feel good about the way we run our business with rigor and discipline, great banks, and those bookings.

Thank you.

Bryan Keane, Deutsche Bank.

Hi, guys.

Good morning and congrats.

KC, great run.

So I want to add from managed services is on the bookings, the $11.8 billion that was outsized number.

How much of that is new bookings versus renewals?

And maybe give us some flavor on what caused that spike in growth?

Yes.

I'll talk a little bit about the numbers.

In terms of what -- is a record bookings for managed services.

As Julie has been (technical difficulty) we've been talking.

It is obviously based on the larger transformational deals that we're doing is while this larger transformational deals.

Just to be clear, Bryan, they do have both consulting and outsourcing hosted and managed services type with them.

They do have, as you would expect, a larger portion of managers -- managed services type work.

So when you see what we were able to do this year, we are already at 90 to seven more than last year.

And we did have a very strong managed services bookings, as you noted in Q3.

We don't really know do (technical difficulty) breakout in terms of extensions or new.

But there's always -- we always have a healthy mix, I would say, both with it with -- what we strive to over a rolling four quarters and our business always and the difference there.

Yes.

And just maybe a little color, Bryan.

As you think about this idea of reinvention, Virgin Media, O2 is a great example because they're right -- we've the combination we're using our edge platform to provide -- help us to provide -- Virgin Media O2 to provide these new services.

And at the same time, we're supporting it with our customer operations, supporting their growth so that they can scale.

And right now, clients, of course, are looking for growth.

Also looking for transformation and efficiency.

The other thing I'd say is this is a great example of how we're embracing G&A.

I know you've heard us talk in the past about our [my wizard] platform, which helps in our managed services.

We now on that's become gen wizard, and we're seeing that we are embracing -- using Gen AI where it's ready to be used has been a real differentiator later in our technology managed services.

So we're very focused on helping our clients move faster, using our expertise and leverage our digital investments in order for them to transform and reinvent faster.

And you're seeing that that focus.

Got it.

And just a follow-up, just looking at some of the dimensions breakout.

When I look at operations being flat, just any call outs for that?

I know it was negative last quarter, so it's turned a little bit here.

But just trying to understand the growth there and the prospects specs.

Yes.

No, it's and we're really pleased that that ticked up then this quarter, and it's a very strategic part of our business.

Think of that it really is like sort of two ways.

So we remain number one in our industry and finance and accounting.

And we're embracing again, Gen AI bear to help differentiate our platform.

And so there's a focus that we're seeing an appliance as they're saying, okay, we really understand how much more we need to digitize and we need to do that in the enterprise.

They're excited about our ability over time.

Again, very early days still in Gen AI overtime to help build our sales.

We're building our spin-offs platform.

We're building in Gen AI, and that helps them to have less to -- building in their enterprise side by partnering with us.

And so that's -- we think a really great differentiator.

And then we continue to diversify into areas that are in the core of our business, whether a core of our industries for our clients.

Whether it's claims and underwriting and insurance or supply chain for consumer goods and industrial or core banking in that financial services.

So we feel really good about the business and its continued prospects.

Thank you.

Rod Bourgeois, DeepDive Equity Research.

Hey guys.

Very best wishes to KC as well.

Julie, you mentioned that the debate demand environment is sort of more of the same.

At the same time, it appears -- you've seen in our growth mending in certain key areas.

I'm particularly interested in the growth improvement in the CMP vertical and in strategy, and consulting.

Can you talk about what's enabling those growth improvements in a sense of the outlook for CMP and S&C?

Thanks.

So you really want to compliment our entire team on the work that they're doing with our clients in CMT.

So as we've been talking about that for now for a little while and you start to see things like the Virgin Media O2 deal.

So our teams are working with our clients on what do they need.

And they're focused on getting rid of technology debt because that's critical in order to use some of these new technologies.

They're focused on using the new technologies.

So we have a number of clients that's still smaller are working on Gen AI and then being very focused on efficiency and then finally, network.

So really across the board, what I would say is that the industry was challenged.

We have been just focused on going to where they need help you're seeing that result in our results.

And then on strategy and consulting, again, it's all about being focused on what to our clients need.

And so we've pivoted many more people, for example, towards cost in strategy.

So cost takeouts, a big theme in particularly for our strategy.

We are seeing a lot of growth still in things like implementing modern ERP platforms with the focus on the digital core.

And again, at Accenture, it's not just technology.

It's about where we're the number one player with all of these technology ecosystem players.

But our clients want to do it faster.

They need the industry expertise.

And so you saw a number of examples in the script about how we're putting in these platforms and we're doing so within an industry contacts.

And so I would say, cost takeout and move the cloud data platforms wrapped around within this functional expertise.

That's where we're seeing the growth.

And we just continue to remain laser focused on more people, more focus, working with the clients on what they need to buy.

Great.

Thanks for that.

And you're seeing revenue mix incrementally shift into managed services.

And I'm curious if you think some of that mix shift towards managed services is due to secular forces?

Or you purely seeing that mix shift as just a cyclical phenomenon?

Okay.

Yes, I think it's in terms of what the real driver is.

The larger deals that have a little bit of both of those at both components of a secular and cyclical and what you're talking about.

So it really is just based on the larger deals.

So just think about Accenture is very uniquely positioned in this market, clients there prioritizing large-scale transformations and doing those and getting the efficiencies and moving faster, managed services is a highly strategic component of being able to do that.

And this is where Accenture with such scale in both strategy -- [bulk] consulting type of work with managed services is really able to lean into what our clients buying now.

Got it.

Thank you.

Bryan Bergin, TD Cowen.

Hi, good morning and congrats.

First question I wanted to ask on the consulting existing revenue base performance.

Can you just talk about how based business runoff kind of progressed within the minus 1% local currency performance?

I heard your comment on that 4Q consulting or just returning to growth.

Trying to understand that that's a reflection of sustainable -- stable provision potentially and really gauge whether you're reaching a point where the new consulting bookings conversion should more than offset the existing base runoff moving ahead.

Yes.

So Bryan, in terms of what we'll give -- we'll talk about, it's really is what I just mentioned on Q4.

I guess I understand what you mean by based runoff.

We don't really think of it that way.

We kind of look at it is -- maybe our turns will be what do we have booked in backlog and what do we already see what's new coming in from new sales until I get.

So just kind of going with those two points.

The way we evaluate and we talk about it, Bryan, is from a year over year basis, looking at both the components of what we've already sold for the next quarter and then what we see in our pipeline and how we see those sales will convert to revenue, that's how we kind of assess where we think that we will be overall.

And again, very pleased that consulting, we do feel that you would see that it will return to growth.

And I think it's a milestone that we haven't had in a number of quarters.

So we're pleased with that.

I will comment on anything OpEx for next year -- next year.

I mean in September.

Okay.

And then bookings, obviously very solid year.

Can you just comment on pipeline and any bookings expectations worth calling out for 4Q?

Yes, overall, we feel good about our pipeline and we don't book to 00 we don't give guidance to a next quarter bookings, but we feel good.

Thanks.

James Faucette, Morgan Stanley.

Great.

Thanks very much on.

Wanted to follow-up on the acquisition activity.

Obviously been really robust quoting on a lot of good opportunities.

Can you give us any sense collectively across the acquisitions you've been doing and maybe what you are working out in terms of what the growth rates of those businesses generally or collectively when you do the acquisitions?

And I know you reported through -- to accelerate those, how the growth has changes -- those companies are absorbed into (inaudible) even if directional?

Yes, I mean, I think in terms of -- make sure I'm answering your question is, when we look at overall at our acquisitions, they all come with -- they're typically higher growth business cases that we have from the companies that we buy and we have a base case that comes with the organization and we assess that growth rate.

And then we obviously put in pretty significant synergy cases that are -- without going through kind of metrics that are a pretty high bar for those acquisitions to deliver to, along with a broader center.

And that's why integration is so important in what we do, because we're not just having a great business case, that is maybe half of what you need to do, but the key really is in how you integrate to deliver to that, and we have a very strong track record.

And so, what you'll see is, you could just maybe get the sense to your question, is look at how many we've done over the last five years and you can see how we've been able to continue to grow our business throughout that time and it is really continuing to fill our organic growth.

Got it.

And then quickly, one of the areas where you've leaned in on and was mentioned the prepared remarks is the government and healthcare sector, really strong growth there obviously.

How should we be thinking about that as a long-term or medium-term potential grower in that segment and any -- and how are you thinking about the investment needed to continue to drive that?

Thanks.

Thanks.

We feel really good about that vertical.

Obviously, there's a lot of transformation that's going on in public service.

You see health is a big driver, defense is a big driver.

There's a lot of infrastructure support, whether it's IRA in the US or what the EU has been doing as well.

So and of course, a lot of the digital transformation hasn't happened in the public service and health, And so, we see that now being the time and you're seeing that in the results.

So we feel very confident and we think about the investment like we do all our industries.

I mean, remember, we have 13 industry groups.

We have -- the diversification is a key part of both our resilience and our growth strategy and so, at any given time, we're investing differently depending on the growth trajectory.

And as we called out this quarter, we've been investing significantly in public service, because we see the next several years this being a big growth area and we're making those investments now.

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

Keith Bachman, BMO

Hi.

Many thanks.

And first, Casey and Paul, special congratulations as you make the transition.

I wanted to ask a question, and I'll just make it concurrently in the interest of time.

And Julie, I think I'll direct this to you.

Number one, on BPO, one of your competitors just talked pretty openly about pricing's been under pretty material duress as of late, and I wondered if you would echo that?

And I'm really curious as to why.

Why do you think pricing has been under duress and how do you think about impacting future growth?

And then the second area that I wanted to ask about is, Song.

Thank you for the comment on mid-single digit growth.

And I'm really interested how you think GenAI will impact over your digital agency over the next 12 to 24 months.

And the reason I ask the question is, we also spend a lot of time with companies like Adobe that have significant -- generative AI is going to have a significant impact on digital agencies.

And some of the agencies are talking about seat reductions because of the value associated with generative AI.

And I'm just wondering if you could comment on how you think generative AI will impact the growth potential of Song.

And that's it for me.

Many thanks.

Great.

KC, why don't you quickly cut pricing, and then I'll do Song.

Keith, I would say just in terms of pricing, and we've been commenting on this for quite some time.

You are correct in that; we've had overall in our entire business continued pricing pressure.

So, I mean, that's the way I would reflect on that statement -- on your question

(inaudible)

Yes, it's overall is a tight market, So that's what you normally see.

On Song, here's where we are so unique, because our business is not an agency business, right?

The agencies are part of an incredibly differentiated value proposition where you have creative and technology and digital and by the way managed services.

And so, we see this as a huge opportunity because we are embracing it as fast as possible to help our clients get value, but we put it together with all of these other services.

So we were happy to see the uptick in growth this quarter with Song and long term where we really think it's great and remember, this is our playbook, right?

We embrace technology.

We've done it in every wave.

We've done it when we did managed services.

Remember in 2015, we had SynOps and myWizard.

Our business is to help our clients be more efficient and grow.

That is what we do.

And we use technology in how we deliver it.

And we help them use technology and how they operate.

And so, we see GenAI as yet another way that we're going to embrace it.

We're going to be fast and we're going to do what we do for clients.

And that is a very exciting opportunity, so we feel really good about our Song business.

Great.

So, thanks everyone for the questions and the time today.

In closing I want to again, as always, thank all of our shareholders for your continued trust and support, and all of our people for what you're doing for our clients and for each other every day.

Thanks so much for joining.

Ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation and for using AT&T teleconference.

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