Operator:

Ladies and gentlemen, thank you for standing by. Welcome to Accenture's Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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, Katie O'Conor. Please go ahead.

Julie Sweet:

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's been an excellent partner for these last five years, and our three other extraordinary leaders who are stepping down in the next two quarters, Jean-Marc, Ellyn, and Paul. Each have given over 36 years of service and demonstrated strong stewardship in developing outstanding successors, including Angie, who you all know from her former role as Head of Investor Relations, who will succeed KC on December 1. As always, we are executing a smooth leadership transition to the next generation with our strong bench of great leaders. Now, on to 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 client spending developed differently than we expected at the beginning of the fiscal year. And these conditions continue, with clients prioritizing large-scale transformations, 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 or what we call reinventions. We're also leveraging our deep technology expertise and ecosystem partnerships and our learning machine and culture that gives us the agility to shift to new areas of demand, including, for example, GenAI while continuing to invest at scale for future growth. Here is 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, including another 23 clients with quarterly bookings greater than $100 million, bringing the total of such clients with these bookings to 92 year-to-date, seven 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 ramps, 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, GenAI, which is comprised of smaller projects as our clients primarily are in experimentation mode, and this quarter we hit two important milestones. With over $900 million in new GenAI bookings this quarter, we now have $2 billion in GenAI 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 GenAI in FY 2023. Leading in GenAI positions us to help our clients take the actions needed to reinvent and to benefit from GenAI, which frequently means large-scale transformations. We are 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 in 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 our geographic markets in Q3 across 12 acquisitions, 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 FY 2023. As a learning organization and talent creator, we continue to invest in our people with approximately 13 million training hours this quarter. This averages 19 hours per person, representing an increase predominantly due to GenAI as we continue to prepare our workforce for the infusion of GenAI 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 and AI workforce from 40,000 to 80,000 by the end of FY 2026. We continue 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 for the quarter, up 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 to Managing Director and 64 to Senior Managing Director, reflecting our commitment to providing vibrant career paths. We are recognized as a Top 10 Place to Work in 10 countries, representing more than 70% of our people, number two in Argentina, Brazil, and the Philippines, number four in Singapore, number five in Costa Rica, Finland, and Indonesia, number seven in the US, and number 10 in Chile on the Great Place to Work list of Best Workplaces and number two on Business Today's Best Companies to Work For in India. And in recognition of our strong brand, we are proud to earn the number 20 position on Kantar BrandZ's prestigious Top 100 Most Valuable Global Brands list, our highest rank to date, with an 11% increase in brand value to $81.9 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, 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 Udacity to scale our technology learning and training services and to help our clients reskill and upskill their people. Udacity is a critical part of our LearnVantage digital learning platform, which we announced last quarter as a new area of growth for the future. Building on our expertise in customer-focused consulting, we invested to help drive our clients' growth agendas. We acquired Unlimited, an award-winning customer engagement agency with a deep understanding of human behavior as evidenced by its proprietary human understanding lab and AI-powered data insights platform. We acquired The Lumery 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 GemSeek in Bulgaria, a leading customer experience analytics provider helping global businesses understand customers through insights, analytics, and AI-powered predictive models. And we closed MindCurv, a global digital -- a cloud-native digital [indiscernible] experience and data analytics company specializing in composable software, digital engineering, and commerce services. Now, let's turn to scaling and hot industries. We acquired Cognosante, 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 SirfinPA, 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. And we invested in Teamexpat, focusing on testing integration for lithography systems in the semiconductor industry, another attractive industry segment. Our investment in Flo Group, a leading European consultancy and Oracle business partner, who specializes in global supply chain logistics is helping us scale in supply chain, also a major growth area. Finally, we're scaling in attractive geographic markets. We acquired CLIMB, a technology-based consultancy based in Japan, where we continue to experience very strong revenue growth. Over to you, KC.

Julie Sweet:

Thank you, KC. As I mentioned earlier, we're seeing more of the same in terms of the demand environment. Now let me give a little context on 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 at the heart of reinvention, the ability to use GenAI at scale varies widely with clients on a continuum. With those which have strong digital cores genuinely 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 applications and data to the cloud, building a new cognitive layer, implementing modern ERP and applications across the enterprise to a strong security layer. And nearly all clients are finding it difficult to scale GenAI 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, rescale and upscale 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 enable scaled investment in their digital cores and all these capabilities, particularly in data foundations. In short, GenAI is acting as a catalyst for companies to more aggressively go after cost, build the digital core, and truly change the ways they work, which creates significant opportunity for us. And this is why clients are coming to us. We are able to help our clients with this AI 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 through Industry X and our relevance across the functions of the enterprises and 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 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 partnering with Currys, 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 a new cloud platform using pre-built and customized solutions to create a powerful digital core. This unified data foundation allows us to deploy automation and 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, reducing energy consumption by transitioning to a more efficient cloud infrastructure. Now, Currys' employees will be empowered to serve their customers better by offering high-touch experiences, both online and in-stores. We're working with Independence Health Group, IHG, a leading health organization headquartered in Southeastern Pennsylvania on a transformation journey to modernize end-to-end 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 immediate improvements in existing business processes. This will lay the foundation to leverage advanced technology and generative AI to proactively manage members' health. We are also helping reskill and retrain their operations staff, creating opportunities for employee development. With this reinvention, Independence continues its ongoing efforts to increase service quality, 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 Macy's, an iconic American retailer with a technology modernization effort. As a strategic technology execution partner, we will migrate their mainframe systems to a cloud platform, a move that will enhance their operational efficiency and scalability. This will allow Macy's 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's 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 capabilities and streamline activities 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's position as a 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, GenAI, and embedded security. This will enable use cases such as quality inspections, safe workplace management, and behavior monitoring to improve operations and customer experience. Whether it's enabling safe communication on building sites, creating a fan experience while handling crowds and busy venues, or supporting vital devices and clinician workflow in healthcare, Virgin Media O2 can now offer businesses a range of flexible, secure, and affordable solutions that 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 in the digital core. We saw continued very strong double-digit growth in our security business this quarter. We are partnering with the US Navy to enhance its cybersecurity 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 Navy networks to help safeguard digital assets and mission operations. Together, we will help ensure the US Navy can combat evolving cyber threats, protect our sailors at sea, and defend American interests around the world. Once clients have a strong foundation, they can explore new opportunities to drive growth and efficiencies with GenAI. We are helping a leading global food and beverage company who already built a strong digital core as part of its reinvention journey to now leverage the power of generative AI to create new value. Together, we developed a digital shelf console pilot, a GenAI engine that accelerates content creation for e-commerce and optimizes it to drive sales. The engine empowers marketers to audit and customize 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 they scale, this enables the company to produce more targeted content with significant time and cost efficiency, increase sales, and transform customer experiences. We have partnered with National Australia Bank, one of the country's largest financial institutions to strategically implement and scale generative AI to create material value at speed, enhance relationship-driven customer service, and drive operational efficiencies. We worked on a methodical build of a secure and robust GenAI platform built within the bank's existing strategic data platform with the creation of 200 generative AI use cases in backlog. To date, over 20 use 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 co-created a methodology for delivering GenAI projects from experiments to scalable deployment, ensuring each stage delivers tangible business benefits. While doing so, National Australia Bank and Accenture are putting safety at the core of the approach through responsible AI and risk policies alongside developing in-house AI expertise and literacy. One of the areas of richest opportunities for our clients is customer experience transformation, which uses the unique capabilities of Song across creative customer insights and deep technology expertise. Song grew mid-single digits this quarter. We are helping Saudia Airlines, the national flag carrier of Saudi Arabia, to launch an innovative digital platform to transform the travelers experience. Powered by GenAI, the platform will provide a one-stop solution enabling customers to seamlessly plan their journeys, book flights, and modify their trips in just a few words, all while providing a personalized and conversational experience. The platform is continuously evolving and will integrate more services over time. This modernization will support Saudia Airlines' vision of redefining the standards of travel in 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 create a software center of excellence to optimize quality, cost pressures, and delivery times. This center of excellence will manage four key workstreams, advanced driver assistance systems, in-vehicle infotainment, electrical and electronics, and powertrain. By leveraging our expertise and strategic partnerships, we are empowering them to strengthen and evolve its in-vehicle software, providing advanced functions and services throughout the vehicle's lifecycle. This enables the company to drive innovation, enhance 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 while investing in leadership for the future. Back to you, KC.

Katie O'Conor:

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?

Tien-Tsin Huang:

Thank you so much, and congrats to KC and Angie. I'm excited for both of you guys. I just wanted to ask upfront, just for Julie, maybe you mentioned stronger growth next year. Hoping you can just elaborate on that at a high level. I know there's a lot of moving pieces. On one hand, you have a big backlog, a lot of large deals. You have strong inorganic growth, but on the other hand, the sector is struggling with this weak discretionary spend, and there's uncertainty with global elections in the second half of the year. So just -- I know you can't give formal guidance until next year. I know consensus is at, what, 6%? Can you just give us maybe just some high-level considerations that are worth underlining as we're recasting our outlook for next year? Thank you.

KC McClure:

Yes, maybe I'll just add, Tien-tsin, just 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 you see that in our growth rate, a clear uptick in 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, Tien-tsin, will return to growth and that we haven't had growth in consulting type of work since Q2 of last year.

KC McClure:

I'll let Julie talk about -- 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 it's a differentiator of ours, to be able to invest and approach the market as whenever we see something that we want to execute. And that remains unchanged. And we've been able -- and you've seen us do that over all the different business cycles. And importantly, when we do that, we're able to continue all parts of our capital allocation in terms of share buybacks and dividends as well. So, from a financial standpoint, we have a very strong balance sheet. We have the ability to continue to flex up and down as we see fit from a capital allocation standpoint, Tien-tsin.

Tien-Tsin Huang:

That's perfect. I know you've been able to amplify the growth of what you bought. So, that's why I asked. Thank you.

Operator:

Your next question comes from the line of Dave Koning from Baird. Please go ahead.

KC McClure:

Yes. No, that's a great question. So, in terms of our cash, you said that we started the year at $9 billion, and now we're little bit -- we are about $5.5 billion. And we do have some debt. It's very small, as you mentioned, for a company of our size. We do have a -- we had a credit facility that we put in right during the pandemic, and we continue to have a credit facility. It's about $5.5 billion. It's a 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 operation.

KC McClure:

Yes, sure. So I'll just obviously keep my comments to this year, to 2024, but -- and maybe I'll just point out where we are and what we are continuing to assume. So we stated last quarter that we'd be at 10 basis points of operating margin expansion and we reconfirmed that, Dave, for the full year, again this quarter, and we feel confident in our ability to do that. So if you look at -- we run our business to operating margin. If you look at 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. What I think is really important for us is that, we've been able to operate our business with rigor and discipline in how we run ourselves in an operation -- in efficient operations of Accenture and be our own best credential as we absorb kind of higher selling costs, which you would expect. We're looking at our record $60 billion of bookings and also the continued pressure and pricing that we've had across the business. So with that, we feel really good. And if you look at it, we grew 1% in quarter one. As an example, we were able to do 20 basis points of margin expansion. We 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.

KC McClure:

Thank you.

Operator:

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

KC McClure:

Yes. Maybe I will give you the -- I'll talk a little bit about the numbers. In terms of, it is a record bookings for managed services. As Julie's -- and as we've been talking, it is obviously based on the larger transformational deals that we're doing. Well, those larger transformational deals, just to be clear, Bryan, they do have both consulting and outsourcing -- excuse me, managed services type of work with them. They do have, as you would expect, a larger portion of managed services type of work. So when you see what we were able to do this year, we're already at 92, seven more than last year. And we did have a very strong managed services bookings, as you noted, in Q3. We don't really do a breakout in terms of extensions or new, but there's always -- we always have a healthy mix, I would say, of both. That's what we strive to over rolling four quarters in our business always and no difference there.

Bryan Keane:

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. Thanks.

Bryan Keane:

Thank you.

Operator:

Your next question comes from the your next question comes from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.

Julie Sweet:

So, 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 we 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 -- while it's still small, are working on GenAI. And then being very focused on efficiencies. And then finally network. So, really across the board what I would say is the industry was challenged. We have been just focused on going to where they need help and you're seeing that result in our results. And then on strategy and consulting, again, it's all about being focused on what do our clients need. And so, we've pivoted many more people, for example, toward cost and strategy. So cost takeout is a big theme, and 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, right? It's about 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 context. And so, I'd say cost takeout and move the cloud data platforms wrapped around with industry and 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.

KC McClure:

Yes, I think, it's -- in terms of what the real driver is, it's the larger deals that have a little bit of both in those -- both components of a sector and cyclical and what you're talking about. So it really is just based on the larger deal.

Rod Bourgeois:

Got it. Thank you.

Bryan Bergin:

Hi. Good morning and congrats KC and the other leaders on the retirements and appointments. First question I wanted to ask on the consulting existing revenue-base performance, can you just talk about how base business runoff kind of progressed within the minus 1% local currency performance? I heard your comment on the 4Q consulting or just returning to growth. I'm trying to understand if that's a reflection of sustainable stabilization 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.

Bryan Bergin:

Okay. And then bookings, obviously, very solid here. Can you just comment on pipeline and any bookings expectations worth calling out for 4Q?

Bryan Bergin:

Thanks.

Operator:

Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead.

Julie Sweet:

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.

Julie Sweet:

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 U.S. or what the EU has been doing as well. 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:

Okay. That question comes from the line of Keith Bachman from BMO. Please go ahead.

Julie Sweet:

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

Julie Sweet:

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.

Operator:

Good morning. Thank you for standing by, welcome to Accenture's Second Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer session. [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, Katie O'Conor. Please go ahead.

Julie Sweet:

Thank you, Katie and everyone joining, and thank you to our 742,000 people around the world who work every day to deliver 360 degree value for all our stakeholders. I'm pleased with our performance in an uncertain macro. Our results highlight the benefit of the deep trust our clients have in us, our capabilities to do the most complex work at the heart of their businesses, the privileged position we hold within the ecosystem and our ability to invest for the next waves of growth. We continue to see momentum in the quarter and how we are executing on our strategy to be the trusted reinvention partner of our clients, with a record 39 clients with quarterly bookings greater than $100 million. These large transformational wins position us to capture more growth as spending increases. We also had over $600 million in new GenAI bookings taking us to $1.1 billion in GenAI sales in the first-half of the fiscal year, expanding our early lead in GenAI, which is core to our clients reinvention. We now have over 53,000 skilled data and AI practitioners against our goal of doubling our data and AI workforce from 40,000 to 80,000 by the end of fiscal year 2026. We are laser-focused on the needs of our clients and this focus is reflected in our bookings of $21.6 billion, representing our second highest quarter on record. This included $10 billion of bookings in North America, our highest ever. We continue to take market-share with revenues of $15.8 billion for the quarter, flat compared to last year and slightly above the midpoint of our range. As we turn the page on the calendar year, we saw another turn of the dial unconstraining spending by our clients, including spending on our services, particularly in parts of EMEA and North America. This was evident in the composition of our new bookings, which came in differently than expected. We see clients continuing to prioritize investing in large-scale transformations which convert to revenue more slowly, while further limiting discretionary spending particularly in smaller projects. We also saw continued delays in decision-making and a slower pace of spending. We are pleased that despite these conditions our focused efforts to return to growth resulted in North America and CMT, showing improvement over last quarter. We are running our business with rigor and discipline and we remain on-track with the business optimization actions we announced last year to reduce structural costs to create greater resilience. We delivered adjusted EPS growth of 3%, we continue to invest significantly in our business to drive additional growth in highly strategic areas with $2.1 billion of capital deployed across our geographic markets in Q2 in 11 acquisitions, bringing the total investment in acquisitions to $2.9 billion in H1 across a total of 23 acquisitions. We also continue to invest in learning for our people with approximately $10 million -- 10 million training hours in the quarter, representing an average of 14 hours per person. In recognition of the 360 degree value we create, we are proud that we earned the number one position in our industry for the 11th year in a row and number 33 overall in Fortune’s list of the World's Most Admired Companies. We ranked number one in our industry and number three overall on the JUST Capital CNBC list of America's Most Just Companies. And we have been recognized by Ethisphere as one of the World's Most Ethical Companies for the 17th year in a row. An important part of our growth strategy is to use our strong balance sheet to invest in order to scale higher-growth areas and expand into new growth areas. We have a strong track-record of delivering on this strategy. Here are some highlights from the quarter. In North America, we invested in supply-chain, an area with significant reinvention ahead with the additions of inside sourcing in [indiscernible] and on-process technology. We acquired Navisite site to help clients across multiple cloud providers enterprise applications and digital technologies, modernize their digital core, and in Song, we acquired Work & Co to help our clients drive growth by designing and bringing digital brand strategies to market and operationalizing world-class digital products at scale. In EMEA, we are investing to help clients build their digital core and drive growth. In the UK, we invested in 6point6, which will help our clients transform their digital capabilities and modernize their legacy systems. We also acquired in the UK, Redkite with its full stack data expertise that will help our clients accelerate their performance with data driven intelligence and AI. And in Germany we added Vocatus, which will accelerate our clients' growth strategies using behavioral economics modeling to develop pricing strategy and sales concepts for B2B and B2C models. Similarly, in good markets our acquisitions position us to drive our clients' growth agendas by expanding our capabilities in marketing and customer experience with Rabbit's Tale in Thailand and [GIC] (ph) in Singapore, helping clients in Indonesia, capitalize on their fast-growing digital economy. Our ability to invest to fuel our organic growth is a competitive advantage and as our clients continue to transform, we announced earlier this month that we will invest $1 billion over the next three years in Accenture LearnVantage, which will provide comprehensive technology learning and training services to help our clients re-skill and upskill their people. Our investment includes the acquisition of Udacity, a digital education pioneer, which we expect to close by the summer. Once closed, we will have revenue in the zone of $100 million annually. These services are highly strategic and they enhance our position as a reinvention parts are of choice, because talent is at the top of the agenda for CEOs. For example, we are helping Merck, a global biopharmaceutical company known as MSD outside of the United States and Canada launching groundbreaking Generative AI training program for their employees to create world class digital leaders. As a renowned thought leader in the biopharmaceutical market, Merck has long-lead the way in investing in its people and helping them build the skills and expertise needed to develop breakthrough therapies. Digital, data, analytics and AI play a pivotal role in discovering, developing, manufacturing, and providing access for patients to medicines and vaccines. By once again investing in its people, Mark will be able to continue delivering on its promise to use the power of leading-edge science to save and improve lives around the world. Over to you KC.

Julie Sweet:

Thank you, KC. Let me give a little more color on the demand environment, all strategies continue to lead to technology and reinvention. Our clients are navigating an uncertain macro-environment due to economic, geopolitical and industry-specific conditions. And in response, we are seeing them thoughtfully prioritize larger transformations, building out their digital core to partnering, to improve productivity, to free-up more investment capacity to focus on growth and other initiatives with near-term ROI. Our focus on being at the center of our client's business doing their most complex transformational work provides us with resilience see overtime, as demonstrated by the fact that our top 100 clients have been clients for over 10 years. There is now near universal recognition of the importance of AI, which is the heart of reinvention. The ability to use AI at scale, however, varies widely with clients on a continuum with those which have strong digital cores generally seeking to move more quickly, while most clients are coming to grips with the investments needed to truly implement AI across the enterprise and nearly all are finding it difficult to scale, because the AI technology is a small part of what is needed. To reinvent using technology, data and AI you must have the right digital core, 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 and function in order to unlock the value. And many clients need to first find more efficiency to enable scaled investment in all these capabilities, particularly in their data foundations. We are able to help our clients with this AI 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 through Industry X. And our relevance across the functions of the enterprises in 13 industries. Our privileged position in the technology ecosystem has perhaps never been more important. Generative AI is rapidly evolving and still in the early stages of maturity and adoption. And we are working closely with our ecosystem partners to help our clients understand the right data and AI backbone that is needed and how to achieve tangible business value. I will now bring to life the complex work we are doing at the heart of our clients' businesses. Building on the back of a long trusted partnership, we are working with Mondelez International, a world-leader in snacking with well-known brands like Oreo, belVita and Cadbury. To continue to drive growth and be an industry-leader. Having laid the foundations of a strong shared services modeled model powered by leading technology platforms and data and AI foundation we are now working on an ambitious reinvention of their digital core. We will design and implement a single cloud-based platform. We'll also modernizing the finance function and transforming their supply-chain planning and warehouse management capabilities. This will enable faster availability of products for customers to have more sales growth and maximum profitability. This new digital core will also allow Mondelez to further reinvent how they satisfy customers through the adoption of new technologies like Generative AI. Cloud continues to be the foundation of the digital core. Our cloud business grew high-single digit this quarter as clients do work across the cloud continuum from migration to modernization, to new business models to working at the intelligent edge. For example, we're helping Riyadh Air, a digitally native airline based in Saudi Arabia, become the world's first fully cloud-based airline. We will equip the brand-new airline with a cloud-only infrastructure enhanced cyber security and AI driven operations. Our capabilities will ensure that Riyadh Air’s digital core is future-proof and remains legacy free, enabling the airline to use cutting-edge technologies such as cloud, data and AI to scale quickly and deliver a seamless and more personalized travel experience for its customers and employees. This will also help the company to scale as it plans to operate over 100 destinations by 2030. We are partnering with Belden, a global networking solution organization on a cloud transformation program that will help them become a platform business. Unlocking the power of edge, data and AI to drive new business opportunities and enhance the customer experience. This platform will be powered by edge to cloud technology, allowing them to collect and analyze real-time data from industrial environments and improve operational efficiencies. This will provide valuable data driven insights to Belden and to their clients in industries where real-time insights are crucial. This reinvention will enable them to break-down operational technology silos, allowing them to become a key player in the digital twin domain. We will also help enable this new service in the market, this strategic partnership will support Belden's reinvention from a product company into a data engineering and insights company that leverages the power of platforms. We are focused on helping our clients, leverage the power of AI quickly, generating tangible business value, leveraging our investment in differentiated tools that accelerate results. Our AI Navigator has helped clients across industries outline their value case, AI architecture and AI solutions and our recently-announced AI switchboard is already helping clients with the complex new need for integration across LLM models. For example, one of the largest [indiscernible] companies is currently testing the switchboard to compare how the same prompt would be interpreted by different models and how they perform before deciding on which model to use. Ultimately an enterprise-wide AI rotation requires a strong data foundation, we are working with Telstra, Australia's leading telecommunications and technology company on a radical simplification and modernization of its data ecosystem, accelerating its efforts to become AI powered. We are modernizing and consulting over 50 disparate enterprise data sources into a small integrated set forming Telstra's governed and secure data and AI core, allowing Telstra to rapidly scale bespoke Generative AI capabilities in the future. Our work will also support the company's efforts to develop responsible ethic and secure market leading AI frameworks, while helping their teams provide quicker, more effective and more personalized customer interactions. One of the areas of riches opportunities for our clients is customer experience transformation, including with Generative AI, which uses the unique capabilities of Song across creative customer insights and deep technology expertise. Song grew low-single digits this quarter, we continue to help clients reimagine marketing to drive growth. We're helping ExxonMobil, an energy super major transform and optimize its end-to-end fuels marketing operations to drive future growth. With our global capabilities, our managed services will leverage our SynOps platform to drive automation and deliver measurable efficiencies across the fuels marketing business. We are strengthening our partnership with Best Buy, a leading consumer electronics retailer across multiple fronts to reimagine the customer experience, optimize costs and drive growth. By leveraging data and Generative AI, we are helping to transform their contact center operations and improve customer and employee experience. We are also pleased to have entered into an agreement with Best Buy for lifecycle management of our own Accenture devices in North America and our creating a joint offering end-to-end field service advice support for clients. We have already applied this new offering to a major TV provider, marking our first entry into this new market. These strategic initiatives underscore our commitment to helping Best Buy, achieve superior customer experiences, operational efficiencies and growth. Security is essential to reinvention, moving beyond IT to protecting the core assets of the business and evolving the critical role of security as technologies change. We saw very strong double-digit growth in our security business this quarter. We are working with one of the largest electric utility holding companies in the United States to integrate their operational technology into a seamless unified cyber security solution. Together, we will enhance our security capabilities by implementing advanced monitoring and response, vulnerability management and security automation. This will help reduce the risk of secure of cyber events in their grid environment protecting critical infrastructure serving tens of millions of people. We continue to see strong demand for digital manufacturing and engineering services. Industry X grew double-digits in Q2. We're working with Indo Count Industries Limited, a global leader in the home textile space on digital transformation to simplify operations, support its ambitious growth plans and maximize e-commerce opportunities. We will build a cloud-enabled digital core, powered by data and analytics that will help standardize, digitize and automate processes and operations. From supply chain to logistics to manufacturing, the new platform will enable more efficient inventory management, quality standardization optimal energy consumption and better customer experiences. Together we will reinvent their operations and help expand our business in India, Middle-East and North America, the UK and Europe. And we continue our support for corporate green transformation by promoting carbon footprint compliance to the calculation and visualization of greenhouse gas emissions. To create a market where consumers can choose environmentally conscious products and services [indiscernible] visualize the carbon footprint of each product is necessary. For example we're assisting, Matsumoto Precision, a precision machine parts processing company based in Japan to gain more detailed insight into the sustainability of their projection and achieve their decarbonization goal. We implemented a solution through our manufacturing platform that uses individual manufacturing performance information to record and report the CO2 emission on a per product basis. This will allow Matsumoto Precision to enhance understanding of the environmental impact of their business and contribute more effectively to the realization of a decarbonized society. Back to you, KC.

Katie O'Conor:

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.

Tien-Tsin Huang:

Hi. Thank you. Good morning to all of you. Julie, just a big picture, maybe two simple of a question, but just curious to get your thoughts on where we are in the cycle for IT services spend, because we've been doing sector softness for quite some time now, Accenture has done well, you have very large deal activity come through, short-term cycle stuff is always little pressured as you said, where are we in terms of seeing maybe things bottoming or short-cycle discretionary spend returning?

Tien-Tsin Huang:

Yes. No, I'm confident that Accenture will be there to catch-all that like you said, but maybe as my follow-up with the GenAI bookings any trends on deal size. And in confidence that, that some of these early bookings will convert to become a part of this whole large $100 million plus deal activity across more pull-through from GenAI, that question makes sense.

Operator:

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

KC McClure:

Yes. Hi, Bryan. Thanks for your question. And you're right, you're obviously your math is correct, that that would be what our guidance would say. In terms of visibility, look, it's really no different than what we have anytime in the past in this part of the year for our full-year guidance. Obviously, we are not forecasting that the whole year we just have the back-half of the year, there's no difference in visibility as it relates to what we've done in any other time of the year -- any other year at this time. And we do our same at analysis and outlook to provide you with our guidance of the 1% to 3%.

Julie Sweet:

Yes, so there is two things. So first of all, it's about prioritization. Right? So their overall constrained on spending. So, you make choices as opposed to it being additive. So they are not able to allocate extra budget, they're prioritizing their budget. So you're seeing more of a substitution right now as opposed to, hey, we need to do this, let's add to the budget and that's tied to the uncertain macro, that's putting people constraint. I had one banker say, if the corporates have put themselves on a diet, given the macro. Right? The second thing, Bryan is, you have to remember that you can't just jump to the great data foundation. You need to be in the cloud. You've got to have modern platforms. And so what you should read into the higher clients -- the clients during these higher bookings rate is that, they're doing the big transformations oftentimes to be ready to put in the data foundation, right? There's only still 40% of workloads are in the cloud. 20% of those roughly haven't been modernized. Many of our clients haven't put in the platform, if you don't have the major ERP platforms that are modern, you don't create a data foundation to fuel GenAI in isolation. So you've got to build the digital core. And as we've said, there's a lot more to go. And that's what's driving these larger complex transformations like, people will not like to do these big transformations in a sense of the other big, they're hard, they're complicated and they need to do them in order to ultimately be able to use the AI, not just in a part of the business or as a proof-of-concept, but really to transform and get the value they now see and so it's -- again, you can't jump to AI, you've got to put all the pieces, and a lot of clients aren't there yet. Which is our opportunity.

KC McClure:

Thanks, Bryan.

Operator:

Your next question comes from the line of James Faucette from Morgan Stanley. Please go-ahead.

Julie Sweet:

Yes, so maybe just -- let me just start with like the strategy around capturing the growth opportunity from GenAI. So, this is the same playbook that we have used in every wave of new technology evolution. When we went from mainframe to client-server then to cloud and Software as a Service and then to RPA and AI driven automation when you saw things like myWizard and SynOps. We have the same strategy, the strategy starts with, we want to be the first-mover to help our clients use the technology. And that's why what we're doing with our investments of $3 billion to create solutions for them and you see that coming through with our sales in Generative AI, which, as I've said on earlier, are the fastest we've ever seen in sort of these new technologies where there's a lot of interest and we're the leader. So we want to be the first-mover in helping our clients use it. The second part of our strategy is to be the first-mover in using the technology itself to serve our clients. And we did that would like the digital, with AI automation, with all of our platforms. And with that said, it's a proven formula, because if we invest big to be early and be the first-mover, then we're positioned to capture all the opportunity in our -- with our clients, because they need to adapt it and transform. And as I just went through, that requires a lot the digital core, then you've got to actually use it to change new ways of working to upskill your talent and build new capabilities like responsible AI. When we are able to be the first-mover, which we are already starting now to use GenAI and how we deliver, that enhances our competitive position. It makes us more differentiated and, of course, it also then allows our clients overtime the more we use the GenAI to achieve the results they need at a lower cost, which frees up their investment capacity to do the massive reinvention. And of course, we are in the best positioned to be their partner as they reinvest in using the tech and AI to [Technical Difficulty] lot of the digital core that's got to-be-built, you can't jump that step. It's not a magic technology. But then as you build it, you then have to go function by function to change the ways you work to actually get the productivity and the growth. So we really see this as being kind of the next decade of what our clients are going to be focused on and we are positioning ourselves to be their partner and be the first-mover in both places.

James Faucette:

Great. Thanks for the color to both of you. And then quickly KC, just in terms of that investment. How do we think about like how that affects the margin expansion. I mean typically one, you're doing acquisitions, there a little bit of time before you can start to get people to the same type of trajectory as Accenture on margin expansion, but just trying to get a sense of how we should think about that impacting as well?

James Faucette:

Super helpful. Thank you.

Bryan Bergin:

Hi, good morning. Thank you. So Julie, I'm curious just based on your conversations with leaders, what might be the catalyst here to have clients release spending programs and kind of lean back into shorter cycle work. As economic data generally holds up, are we just in a slower for longer backdrop or just kind of hoping that you can share some color on how you're thinking about a recovery internally and what enterprises really are watching and waiting for?

KC McClure:

Yes. And just a reminder that everything that we're talking about in terms of giving guidance. I know all of you know this, but just as a reminder, our fiscal year-ends on August. Right? So there -- it's a little bit over halfway through the calendar year.

Julie Sweet:

Yes, what I'd say is, this is this is more about -- like we think of this as like prior technology waves. Right? Each one has been a little bit faster in terms of that, but especially when you look at kind of where our clients are on the continuum of building out that digital core, there is a lot to go and you really need that to fully realize it. So we see this is more like our prior kind of the way these things have evolved in the past. Right now, that's what we see.

Operator:

Your next question comes from the line of Dave Koning from Baird. Please go-ahead.

Julie Sweet:

We certainly are seeing -- obviously, our clients have invested in more technology internally at our advice. Right? We've said to them during the pandemic with technology being so important, they should be building up their technologies. So there is clients, they've got a lot of clients, not all of it, because it really depends on your positioning to some of our clients, that's really not the differentiator. So they want a smaller IT and they've got others who built it up and it really depends on where they are. But sure, I mean, we certainly got clients doing more -- doing more in-house as part of it and we've got other clients outsourcing more. So like, it's really all over the map, because it's very company specific as to what makes sense for their strategy.

KC McClure:

Yes. So, there's really four things that every year are the same, that really influence our tax rate. And just really is how those things come together. There are geographic mix of income, any settlements from previous years, any increase that we need to do on prior year tax liabilities, and lastly, the impact of our equity on our tax rate. So these four things really are confluences the same every year, depending on how they fall. That's going to influence where we land on our tax rate. And so, we -- this year we saw them favorably in aggregate. So we're able to keep our 2 point range, but drop by 1%.

Julie Sweet:

Thank you.

Jamie Friedman:

Hi. Good morning, everyone. I have a really big picture question. I'm curious, Julie, how you feel about Accenture’s role in the broader context of technology like software and cloud? And I realize in your prior very thoughtful answer about technology architectures. That was a great structure as was your innovation session back on February 16th. But it does seem like other parts of tech are doing better than services. So I'm just interested in your perspective on services in the context of broader tech spending?

KC McClure:

That's right. An. I think just as a reminder, even with all that we still have the record spend with us with $40 billion of bookings for the first half of the year.

Katie O'Conor:

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

Ashwin Shirvaikar:

Thank you. Hi, Julie. Hi, KC.

Ashwin Shirvaikar:

Going back to -- Hey. Going back to the question of bookings, are clients actually visiting existing bookings ones that they sign maybe last year and at times prior, relooking at them using the lens of applying sort of rapidly evolving GenAI capabilities. To what extent is that happening and then that kind of implies, obviously -- can we can reuse those past bookings and backlog as an indicator of future growth and how soon that can layer-in?

Ashwin Shirvaikar:

Got it. And then the other question was on LearnVantage and Udacity, I thought that was a particularly interesting deal. If you could walk us through maybe the mechanics of that deal? And every company is investing in talent care, there seems to be a bit different approach maybe. Can you just talk about the rationale, the downstream impact and so on?

Ashwin Shirvaikar:

Got it.

Operator:

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

Operator:

Thank you all for standing by. Welcome to Accenture's First Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Katie O'Conor, Managing Director, Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Katie and everyone joining, and thanks to our 743,000 people around the world for their incredible dedication and commitment every day, which is how we are able to consistently deliver 360 degree value for all our stakeholders. I am pleased that we delivered on our commitments this quarter, while continuing to invest significantly in strategic areas to drive the next waves of growth, including extending our early leadership in generative AI, and we did so against a macro backdrop that continues to be challenging. Starting with our financial results. Our bookings were $18.4 billion, representing 12% growth in local currency. We had 30 clients with quarterly bookings greater than $100 million in the quarter and over half were in North America, representing the trust our clients have in us to be at the center of their major programs, spending and ongoing reinvention. We delivered revenues of $16.2 billion for the quarter, at the top-end of our FX adjusted range, representing growth -- 1% growth in local currency. We continue to take market share. As expected, we continue to see lower discretionary spend, which particularly impacts our consulting type of work as well as slower decision making and our CMT industry group continues to be challenged. We remain on track with the business optimization actions we announced in March to reduce structural costs to create greater resilience. And finally, we expanded adjusted operating margin by 20 basis points and delivered adjusted EPS growth of 6%, while continuing to invest in our business and our people. Turning now to our investments. We closed 12 acquisitions this quarter for a total of $788 million in strategic areas across our geographic markets. In North America, we are continuing to build out our new growth area of capital projects, an $88 billion addressable market in North America, which we entered in August with the acquisition of Anser Advisory. In Q1, we added Comtech, a consulting and program management company for infrastructure projects in Canada. We also invested in the next digital frontier with our supply chain acquisition of The Shelby Group. We expanded our cloud capabilities with the acquisitions of Ocelot Consulting and Incapsulate. And we invested in digital marketing in the healthcare industry with the acquisition of ConcentricLife. In EMEA, we expanded our cybersecurity capabilities with the acquisition of Innotec in Spain, enhanced our business process services in the insurance industry with the acquisition of ON Service GROUP in Germany, and invested in digital healthcare and talent with the acquisitions of Nautilus Consulting and The Storytellers in the UK. Finally, in Growth Markets, we are focused on the cloud opportunity with the acquisition of Solnet in New Zealand, along with cybersecurity with the acquisition of MNEMO in Mexico, and on digital marketing services with the Song acquisition of SIGNAL in Japan. Our ability to invest at scale to fuel our organic growth is a competitive advantage. For example, in EMEA, we are focusing on pivoting our CMT business. We are investing with Vodafone to create a strategic partnership to commercialize its market-leading shared services operations and unlock new sources of growth and efficiency, enhance speed to market and new customer opportunities for their operating companies and partner markets. Together, we plan to create a new data and AI-driven shared services model and a scaled, commercially-driven and more efficient organization with higher-quality services and enhanced speed to market for its portfolio of offerings. The new unit will utilize Accenture's world-class technology, transformation and managed services such as its digital solutions and platforms and deep AI expertise. It will also tap into our well-known learning capabilities to continuously create new skilling and career paths for our -- for its people. This move speaks to Vodafone's ambition to work in new ways, reduce structural complexity, reinvent their company and the industry. And of course, we continue to invest in learning for our people with approximately 8 million training hours in the quarter, representing an average of 12 hours per person. Turning to generative AI, our growth and investments. We continue to take an early leadership position in GenAI, which will be an important part of the reinvention of our clients in the next decade. Last quarter, we shared that we had sold approximately 300 projects with $300 million in sales in all of FY '23. Demand continued to accelerate in Q1 with over $450 million in GenAI sales. As you know, we are investing $3 billion in AI over three years. For many of our clients, 2023 was a year of generative AI experimentation. We are now focusing on helping our clients in 2024 realize value at scale. We are excited about the recent launch of our specialized services to help companies customize and manage foundation models. We're seeing that the true value of generative AI is to deliver on personalization and business relevance. This is driven by context and accuracy, data readiness along with foundation model choices and customization are some of the most important steps and decisions that companies will make in the next year as they pursue value. Our clients are going to use an array of models to achieve their business objectives. Our proprietary switchboard allows a user to select the combination of models to address business context or factors like cost or accuracy. And we will offer rigorous training and certification programs to organizations using these new services to customize and scale GenAI solutions and transform every link in their value chain. We are also investing in AI acquisitions. For example, we recently announced our intent to acquire Ammagamma, an Italy-based firm that helps companies advance their uses of AI and generative AI technologies. With this acquisition, we will add 90 experienced AI professionals, many specializing in generative AI along with the expertise that includes engineering, mathematics, economics, historians, philosophers and designers, who will join our growing network of professionals in our advanced center for AI. And we are progressing towards our goal of doubling our deeply skilled data and AI practitioners from 40,000 to 80,000, with an additional 5,000 practitioners as of Q1. Finally, a few additional highlights of the 360 degree value that we created this quarter. We recently achieved our highest brand value and rank to date on Interbrand's prestigious Best Global Brands list, increasing to $21.3 billion and ranking number 30. We jumped from number 17 to number 10 on the 2023 World's Best Workplaces list by Fortune and Great Place to Work. This recognition is particularly noteworthy, because it is based on feedback from our people. We were recognized for the seventh year in a row on the Wall Street Journal list of Best-Managed Companies for excellence in customer satisfaction, employee engagement and development, innovation, social responsibility, and financial strength. And we also received the top score for social responsibility and are among the top 10 for customer satisfaction. We continue to lead in our ability to attract people with different backgrounds, different perspectives, and different lived experiences. Our success is reflected in the top score on the Human Rights Campaign Corporate Equality Index in the U.S. for the 16th consecutive year for leading equitable workplace policies, practices and benefits for LGBTQ+ people. And today, we are proud to present an update to our 360-degree value reporting experience, which is available on our website, because we believe that transparency builds trust and helps us all make more progress. Over to you, KC.

Julie Sweet:

Thank you, KC. As we begin our second quarter, we remain laser-focused on creating value for our clients. The pace of spending continues to be impacted by the macro environment. Our business in the UK in particular, in Q1, saw even greater challenges than we expected last quarter. The fundamentals of our industry remain unchanged. All strategies continue to lead to technology and companies need to reinvent every part of their enterprise using tech, data and AI to optimize operations and accelerate growth. To do so, they must build a digital core. Strategy and consulting, which brings our deep industry and functional expertise is critical to how we differentiate by helping our clients ensure they drive business value from their digital core. We are continuing to see significant demand in areas like cloud migration and modernization, modern ERP and data and AI, including GenAI, platforms and security, all of which represent areas of great opportunity and is still early with more digital core to be built in the future than has been done to date. Let me bring to life the significant opportunities still ahead with examples from the quarter. Our cloud momentum continued in Q1 with strong double-digit growth, reflecting the ongoing significant market opportunity. We estimate only 40% of enterprise workloads are in the cloud, of which only 20% or so are modernized, an 80% opportunity remaining. Clients are continuing to prioritize the digital core as evidenced by strong demand for cloud migration. We're working with a leading insurance provider to continue their cloud transformation. Together, we are migrating hundreds of applications to a cloud-based platform, enabling the company to exit their data centers by 2025. To date, we have migrated more than half of their apps to the cloud. And this is not just a migration. We are modernizing applications and accelerating automation to integrate disparate data more easily from acquisitions and help the company move into new markets. And we are helping reshape their organizational mindset, drive cultural change and find new ways of working, including the creation of a new IT service model to lead complex transformations with agility and speed. This transformation will reduce legacy complexity and technical debt, enable more cost effective back-office operations, and drive growth and innovation, ultimately helping the company provide more affordable and personalized insurance solutions for families and businesses. And for those clients who have made significant progress on their migration, they are investing to modernize and innovate across the cloud continuum, extending cloud to the edge, unlocking greater value with more opportunities still ahead. For example, we recently announced an expansion of our strategic partnership with McDonald's to help it execute their technology strategy and leverage the company's scale to unlock greater speed and efficiency for customers, restaurant teams and employees. This new work supports McDonald's ambition to connect restaurants worldwide with cloud technology and apply generative AI solutions across McDonald's platforms. Accenture also will support the acceleration of automation innovation and the enhancement of the digital capabilities of McDonald's employees. Accenture's deep understanding of the McDonald's business, industry and technology will help unlock opportunities in their ongoing digital investments as McDonald's reinvents the customer experience and stays ahead of their customers' changing needs. Turning to data and AI. We estimate that less than 10% of companies have mature data and AI capabilities. This is a critical part of building the digital core and we see this embedded in our larger transformations, in work focused on data and AI modernization and in the opportunities of generative AI. We help leaders such as BBVA, a global financial services group, to stay ahead of the curve by continuing to reinvent its business model with GenAI. For example, we are building a GenAI-powered financial coach assistant to help them disrupt customer centricity in the banking industry while they reinvent their digital core to also become even more efficient. This work is a continuation of our ongoing GenAI implementation which is transforming BBVA's operations and digital marketing and is helping employees be more productive. Thanks to its strong digital core, BBVA can continue to reinvent across their enterprise by applying GenAI. We're also helping a global hospitality group to support its content production capability and marketing communications across its hotel brands, tailoring content to guests' evolving needs. This new data-driven content supply chain model will create personalized, flexible and efficient marketing communications content across every customer touchpoint. Spanning both physical and digital communications, this service will be available to all marketing professionals enabling content production management from its initial brief to performance measurement and content optimization. This will increase the effectiveness of its digital marketing programs, drive more traffic to its branded website, and deliver exceptional customer experiences, all while reducing costs. Platforms are a core component of the digital core and are critical to our clients' transformations. We estimate 60% of the opportunity is still ahead as clients upgrade their core platforms. We are working with OCBC Group, a Singapore-based multinational banking and financial services corporation, on a two-year transformation journey to modernize their human resources organization. We will shift key HR functions such as hiring, talent management, and career development to the cloud and create a next-generation HR operating model with enhanced capabilities. Together, we will drive operational efficiency with a strategic focus on future talent readiness, employee experience, and AI-driven decision-making. And by providing a scalable framework to meet evolving business needs, we'll free up HR capacity to provide high-value advisory work and empower business and HR leaders with analytics and insights to facilitate better talent decisions. Security is also essential to a digital core, and we continue to see very strong double-digit growth in our security business this quarter. While the opportunity to continue to grow and expand, we estimate that currently only 36% of business leaders are confident that their organizations are cyber resilient, representing at least 64% of untapped potential. An example of our important work with our clients to build secure organizations is Fortrea, a global contract research organization of about 19,000 people that provides clinical trial and research services for life sciences companies in more than 90 countries. We're working with Fortrea to deliver database outcomes and health-related insights, which require adherence to regional and local industry and government regulations. As they continue to grow and enter new markets, they need a partner to ensure that their cybersecurity program remains resilient and compliant with security best practices. We will co-create, architect, and operate a series of global cybersecurity services and capabilities through our managed services. Our partnership will help Fortrea grow its business, utilizing flexible risk and security strategies. We are focused on helping clients reimagine marketing and their customer experience to drive growth. Song demand continues to remain strong with double-digit growth in Q1. We are collaborating with Peugeot, a French automotive brand, to lead strategic and creative direction for its global communications. The partnership supports Peugeot's ambition to engage a younger audience and become a leader in the electric vehicle market. Accenture Song will manage global communications across all traditional and digital media channels. The first campaign will be a full 360 integrated launch of the all-new electric fastback SUV E-3008 in early 2024. Finally, we continue to see strong demand for digital manufacturing and engineering services. We estimate that only 5% of enterprises have scaled, matured digital capabilities across their organizations. Industry X grew strong double digits in Q1. We are working with a leading global -- a leading German multinational car manufacturer to engineer the next generation of infotainment system. Using our deep industry expertise and software engineering capabilities, we will support the implementation of a new flexible platform that enables the next level of in-car experience with cutting-edge customer features while minimizing complexity and maximizing the software we use across hardware generations. We're working with a global food manufacturer on a total enterprise reinvention strategy to modernize its supply chain, reduce operating costs, and position it for the future. We will transform key supply chain processes such as planning, procurement, manufacturing, and distribution. AI and intelligent automation will optimize end-to-end supply chain operations and achieve greater efficiency and agility. It will also help the company leverage data for better decision making and implement portfolio optimization to ensure the right assets are focused on for investment to maximize returns and minimize risks. This self-funded program is expected to generate significant productivity gains with ongoing savings fueling further capability builds and bottom-line growth. Back to you, KC.

Katie O'Conor:

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?

Jason Kupferberg:

Good morning, guys. Happy holidays. I just wanted to start with a question on the revenue guidance for Q2. The midpoint there would suggest 1 point of deceleration, but we do have an easier comparison, and there was a return to positive growth in consulting bookings. So, just hoping you can help us reconcile that and then maybe comment on the second half reacceleration that is continuing to be implied in the guide, maybe slightly steeper than previously thought. Thank you.

Jason Kupferberg:

Okay. That's helpful. And just as a quick follow-up, what should we expect in terms of second quarter bookings for consulting and management -- managed services year-over-year? I know managed services has a particularly tough comp. Thanks again.

Operator:

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

KC McClure:

Yeah. So maybe just a couple of things on that. So I think, conversion can be really mainly impacted by the mix, right? So, the mix of deals that we have. So, let's just start with, overall, we haven't seen any change in the conversion based on the mix of work. So, strategy and consulting which converts faster than with operations. There's been no change within those different parts of our business, no change in the conversion. What we have talked about, and we've been consistent, that there's really been -- there's no change over the last 90 days in our discretionary spend environment, and that is consistent with our expectations. So -- and we haven't been reliant, and we're not reliant on a change in that macro to get to our full-year guidance. So, what does that mean? Hopefully you guys can hear me. The lower -- a little trouble in the line. Okay. Is that there -- as we have lower discretionary spend, that does impact the conversion, Tien-Tsin, as you know, but we have factored that all into our guidance.

KC McClure:

Yeah. I'm going to maybe give a little bit of color and then I'll certainly hand it over to Julie. Just more from a financial perspective, I think -- and as you know this really well, but our competitive advantage really is our investment capacity that allows us to pivot to higher areas of growth. And we can do that and invest through every cycle, and you've seen us do that. And I really think that is clearly a differentiator for us. You see that with our strong start this quarter. Julie talked about the 12 acquisitions, $800 million of spend, and we have five more that we've announced for Q2. All of that, and we're reconfirming op margin expansion of 10 basis points to 30 basis points. I think it's important to see that in terms of our strategy, we're continuing to do this to really fuel organic growth. And lastly, I think one of the parts that really distinguishes us is our capital allocation framework, which is durable yet flexible. So, we're able to flex up and do inorganic to the degree that we see that we'd like to, while at the same time, continuing to increase our return to our shareholders. So, I think it's really, really great.

KC McClure:

And then, I'll just add, Tien-Tsin, that you heard me mention in guidance, that we are going to do now more than 2% in organic contribution for this year.

Tien-Tsin Huang:

Yeah. No, I'm sure you'll amplify the growth of what you buy. Just wanted to check on that. That's helpful. Thank you.

Operator:

Your next question comes from the line of Ashwin Shirvaikar from Citi. Please go ahead.

Julie Sweet:

Great. And happy holidays to you, too. Great question. So first, with respect to -- on your first point around what's happening in the market on client budgets is what I would say is that we're having lots of discussions that are pretty similar to what we've been talking about, which is, how do you prioritize in a more cautionary environment? So, we'll really know how that will play out in January as always because this is when we -- they finalize. But what I'd say is it's a consistent thing I've been talking about, which is in a cautionary environment, in a tough macro, we're helping clients prioritize. And they're in the things that we talked about in the script again today, things like building the digital core. It's using the technology to drive both growth and cost. And I would just say on the macro side, right, is that, our clients, we recognize you cannot cut yourself to growth. And if you think about the examples that I used in today's script, most of them were both cost and growth, right? Because that is what our clients are focused on, is how are they going to grow revenue despite whatever the environment is. And that, of course, is our unique capabilities to be able to do both. And then, with respect to GenAI, so first of all, I just want to say $450 million in sales this quarter, we're very pleased with. I mean, it demonstrates we are leading here. All of last year, it was $300 million. And to your point, the conversations are changing. You have examples like BBVA, which we talked about earlier in my script, where we're starting to use it at scale. Our clients want to get out of proofs of concept to material value, and we're super well positioned. Why? GenAI is not plug and play. It is not just technology. In fact, it's closer to any other technology. Think about cloud, that's farther away from the heart of the business. In order to scale, you have to deeply understand the technology, which is still rapidly changing, and the business value. And this is Accenture's leadership position, right? We have strategy. We have consulting, deep industry and functional expertise. We're the biggest partner with every major player. We're working with them at a product level and we can bring those two things together. So, think of 2024 as being the shift for our clients from experimentation to scale, and we believe we're at the best position to lead that shift to value.

KC McClure:

Yeah. Maybe just in terms of the quarter performance, operations came in as expected. As we talked about at the beginning of the year, Ashwin, we do have some impacts in CMT that impact operations, and so we'll see that growth may fluctuate as we go throughout the year. As part, though, of our overall guidance for the full year of managed services continuing to be mid-single to high-single-digit growth for the year.

Ashwin Shirvaikar:

Got it. Thank you both.

Operator:

Your next question comes from the line of Bryan Bergin from TD Cowen. Please go ahead.

Julie Sweet:

Yeah. So, look, we're -- as KC said earlier, we're operating kind of the same environment we have for the last few quarters, right? Discretionary spend is down. And we're right in the middle of the budget cycle, so next quarter, we'll have a much better view of what's there. But if you sort of look around in the environment, there aren't a lot of green shoots on the economic side. And obviously, the volatility on the geopolitical side continues. And so, as KC said, we're not planning right now for kind of a change in the macro, which means that we're not planning for a change in discretionary spending. We just don't see that being meaningfully different as we go into 2024. And obviously, we'll update you. But that's why when you think about the question earlier on revenue conversion, our level of smaller deals is just down. It's going to stay down for a while, which means that how revenues going to -- how sales are going to bleed into revenue is going to be consistent with what we've been seeing. So -- and then, you want to comment?

Bryan Bergin:

Okay. That's helpful. And then, just a clarification around the M&A. So first, I don't know if you mentioned M&A in the first quarter, the contribution to growth, and we're saying greater than 2% for the full year. Just to be clear, that's just rounding around 2% or upwards of 3%? Thanks.

Julie Sweet:

Right. And if we get close to 3%, we'll talk about that. But right now it's more than 2%.

Julie Sweet:

Right. Because we gave you guidance, so it's down definitely more than 2%. And remember, we only do deals that we think are good deals. So, what we see right now is a lot of good deals that is going to get us to above 2%. And if that -- we have a lot of financial flexibility, so if that changes, we'll update if it gets above 3%.

Julie Sweet:

Happy holidays.

Operator:

Your next question comes from the line of Dave Koning from Baird. Please go ahead.

KC McClure:

Yeah. Hey, Dave. Thanks for the question. So, as you know, we run our business to operating margin, which we did 20 basis point expansion this quarter. And I will mention that if I didn't already, that the 10 basis point to 30 basis point that we have for the year, we might see more variability as we go throughout the quarters. But now back to gross margin, you're right, we did see expansion this quarter, but it's really hard to look at that in isolation. And why is that? Well, there's various things that can go in and out of gross margin in terms of increased or decreased spend. So, for example, one would be acquisitions. There's a lot of -- some of the investment acquisitions, some of that spend will go into gross margin, and that can be lumpy as we go throughout. As you know, it also depends on where people spend their time. So for example, you saw that, yes, we had improvement in gross margin, but then we also had increased sales and marketing costs, which is a result of people spending more time out in the market selling to create the $18.4 billion in sales that we have. So that's why -- again, we look at those components, but really at the end of the day, we always continue to run our business to op margin.

KC McClure:

Yeah. So, I think, obviously when you do -- what you're just kind of talking about is a bit of the math. What I would tell is give you the year-over-year way we look at it in terms of our guidance, right? So, we had 1% growth this quarter with strong bookings, right, 1% revenue growth with strong bookings. We see Q2 shaping up the same way year-over-year. And again, just reinforcing that we do see fuel in our sequential growth in the back half of the year based on the transformation deals that we have signed. That's no different than what we talked about at the beginning of the year. We've layered in then the sales that we expect as we go throughout. And that -- there's no difference to how we're doing our range that gets us to the 2% to 5% range. I would say at the top end of our range, again, as we said, last quarter, just when we said guidance, that when -- to get to the top end of our guidance range, you would see S&C reconnecting with growth would be one thing that we'd see. And you would probably also see the mid- to high-single digits that we've been referencing consistently in managed services be more like high-single digits. So hopefully that helps, Dave.

Julie Sweet:

Thank you.

Bryan Keane:

Hi, guys. Good morning. I just wanted to ask on the clarification on the UK market in particular. I know the economy has been weak there for a couple years. So -- and I know it's been a call out for kind of the quarter. What exactly happened in the UK? And then, what's the outlook for that?

KC McClure:

Yeah. Maybe just also, Bryan, just for context, it's about 6% of our overall business, a little bit more than $4 billion that we have in the UK.

KC McClure:

Yeah. I don't want to really guide to the quarter because 10 basis points or 20 basis points on a quarter, that's spend, Bryan, as you know. That's kind of big and small in terms of the dollar amount that we're talking about. So, we're going to guide overall to the full year of 10 basis points to 30 basis points for the full year. And I just wanted to point out that we might have some periods where it's just a little bit more variable than what you've seen us do over the years.

KC McClure:

Thanks, Bryan.

Darrin Peller:

Hey, thanks guys. Just want to touch on headcount growth. I mean, it's still -- I think it's still a bit decelerating. And so, what are the expectations going forward, I mean, just given the backdrop of an acceleration on the revenue in the second half of the year? And then, Julie, maybe we could just touch on the linearity of the business one more time. Just if we could revisit the mix of the kind of business you're seeing now and the revenue per head you'd expect, or maybe just directionally, what you'd anticipate based on the mix we're seeing and what demand is for?

Julie Sweet:

And Darrin, in terms of just demand, right, so I'd kind of anchor to, first of all, we're seeing demand for transformational deals. So, in an environment like this, the thing that I look at most is, are we continuing to have our clients do more than $100 million of bookings, right, which is in our industry, we are a real standout here. And what does that mean? That means that we continue to be at the heart of where clients are spending to do material transformations. That's where you want to be so that you're positioned when inevitably discretionary spending, the pace goes back up, the macro changes, you want to be at the heart. So, at times like this, that's what I'm really looking at. And that's where you're seeing -- I will tell you, this is one of the most exciting times in the market. Like you just take what we are announcing today on McDonald's. I talked about in the script, right? Incredible company, technology driven. We've been their long-time partner. Just expanded the partnership to take it all the way to the edge and reinvent their restaurants and their crew experience. This is going to be really cutting work at the edge, because that's where we're starting to see the leaders in cloud go, and we're leading there. Those are the kinds of things that then you see how they're going to expand. There's so much opportunity still in these big areas of cloud, of data, and AI. But cloud itself, yes, we've done a lot of migration. There's still more migration to go, but even more importantly, you've got to take it all the way to the edge. So, from a demand perspective, we continue to see the transformations that move the needle for cost and growth, and that's what we're expecting. From a mix perspective, we're not seeing a big change between managed services and consulting. The mix we're seeing is that in this environment, you're seeing less of the smaller deals, which convert to revenue faster, and more on the larger deals. And that's been around for a while, and that's what you're going to continue to see. And we are laser-focused on making sure we are winning in the reinvention, the transformation, and at the same time massively pivoting to GenAI, right? And our clients have so much work to do to be able to use GenAI, but you can see the momentum in our business, right, from that change from $300 million of all of last year to $450 million in a quarter. And I'll just remind you, that's not the pull-through. That's not data. We are very pure because we really want to be sharing with all of you where is GenAI in the market. So, we're pretty excited about where we are today and what's ahead.

Julie Sweet:

Well, we have a good -- a really strong strategy in consulting business. And so, we're very positive about that business growing. But beyond that, I think, Darrin, we're not going to start to predict growth rates. But in the meantime, it is a huge differentiator. Nobody has that combination that we have, and that is what is driving the resilience of our business to be at the core of our clients' agenda. Thanks so much, Darrin.

Katie O'Conor:

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

James Faucette:

Great, thank you so much. I want to just ask a couple of follow-up questions to those that have already been asked. First on the inorganic contribution, appreciate that it's going to be better than 2%. Can you talk a little bit about whether that increased activity is -- or how you would balance that increased activity between just better valuations and more opportunities from a purely financial perspective in the market versus it sounds like some of the acquisitions you're doing, you're just trying to push into new strategic areas, and just wondering how you're balancing those strategic imperatives versus perhaps a little better valuations?

James Faucette:

That's great color. I appreciate that. And similarly, just on bookings activity and AI contribution, there are clear acceleration in the AI level of activity, et cetera. When you're talking to clients and that kind of thing, how are they thinking about AI budget allocation versus other initiatives, et cetera, right now? Are they looking at it as, "Hey, this is an incremental investment that we need to be making given the pace of change in technology," or are they trying to really use that spend or have that spend be to offset some other projects maybe that they're going to curtail a little bit sooner? Just trying to think about as that continues to build, how we should think about it being incremental versus substitutive within a lot of the budgets.

Operator:

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

Operator:

Thank you for standing by. Welcome to Accenture's Fourth Quarter Fiscal 2023 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Katie O'Conor, Managing Director, Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Katie, and everyone joining us. And thank you to the approximately 733,000 Accenture people, who have worked hard to be at the center of our client's business across our fiscal year ‘23. Our laser focus on creating 360-degree value for our clients and all our stakeholders is reflected in our overall strong results for the year. With record bookings of $72 billion, we had a record 106 clients with quarterly bookings greater than $100 million in FY ‘23, up from 100 last year. We now have 300 Diamond clients, our largest client relationships, an increase of 33 from last year, demonstrating yet again the depth and breadth of our capabilities and the trust our clients have in us. We delivered revenues of $64 billion for the year, representing 8% growth in local currency, while continuing to take market share. We expanded adjusted operating margin by 20 basis points and delivered adjusted EPS growth of 9%, while continuing to significantly invest in our business and our people with capital deployed of over $2.5 billion across 25 acquisitions, $1.3 billion in R&D assets, platforms, and industry solutions, and $1.1 billion invested in the training and development of our people. And we generated free cash flow of $9 billion, allowing us to return over $7 billion of cash to shareholders. And we are delivering a little ahead of schedule on our business optimization actions we announced in March to reduce structural costs to create greater resilience. We also continue to attract, retain, and inspire outstanding people through our talent strategy. We're making progress toward our commitment to Net Zero by 2025, and we invested in our communities to help ensure we have vibrant places where we work and live. I will give more detail a little later in the call. Taking a step back, coming off two fiscal years of double-digit growth and a truly extraordinary FY ‘22, we are very pleased with our FY ‘23 results and the moves we have made to optimize our business. We are also rapidly taking an early leadership position in gen AI, which will be an important part of the reinvention of our clients in the next decade. Last quarter, we shared that we had sold 100 projects with roughly $100 million in sales over the prior four months. Demand accelerated in Q4 with another approximately $200 million in gen AI sales to bring our total to over $300 million for the year. We also are embracing the use of gen AI in our own delivery of services and the way we work across Accenture. As we reflect on how our market has developed over the last year, we and our clients have had to navigate a macro environment that is tougher than we anticipated at the beginning of FY ‘23. While it's played out differently across markets and industries, we have seen greater caution globally, with lower discretionary spend, slower decision-making, and in particular for us, a significant impact from the challenges the comm, media, and tech industries have faced. For example, in Q4, where we grew 4% in local currency, if we exclude CMT, we grew 7% globally, 6% in North America, 9% in Europe, and 8% in growth markets. Against that backdrop, as we enter FY ‘24, we remain laser focused on creating value for our clients. While the pace of spending has changed, the fundamentals have not. All strategies continue to lead to technology. And companies will need to reinvent every part of their enterprise using tech, data, and AI to optimize operations and accelerate growth. To do so, they must build a digital core. We are continuing to see significant demand in areas like cloud migration and modernization, modern ERP and data and AI, and the emergence of gen AI in particular, all of which represent areas of great opportunity. And it's still early. For example, we estimate that only 40% of workloads are in the cloud today, only one-third of clients have modernized their ERP platforms, and less than 10% have what we define as mature data and AI capabilities. We believe helping build a strong digital core and then using it to reinvent will be the drivers of our growth. Our ability to advise, shape, and deliver value-led transformation, leveraging the breadth of our services and industry expertise from strategy and consulting, to technology, to our managed services across industries and geographic markets, along with our privileged position with our ecosystem partners, is what makes Accenture unique. And you can see this unique positioning in the number of our Diamond clients, clients who turn to us for large-scale transformation. Over to you, KC.

Julie Sweet:

Thank you, KC. Let me now bring to life for you the demand we saw from our clients this quarter as they build their digital core and reinvent. We saw this demand across markets and industries. Our cloud momentum continued with very strong double-digit growth in Q4, as clients prioritized building a strong and secure foundation for reinvention. We're partnering with a multinational financial services company on a cloud-based transformation to deliver enhanced, personalized, and secure customer experiences, and to increase employee productivity. Together, we're developing an integrated hosting strategy that unifies their hybrid multi-cloud landscape and lays the foundation for their digital transformation over the next decade. This partnership enables innovative solutions across all bank functions and is backed by a trusted and secure foundation that supports advanced workloads and complex AI and data solutions. Working from a compliant cloud platform will safeguard the customer data, privacy, and financial assets, positioning the organization to stand out for its innovation and customer focus. And we are supporting a U.S.-based energy company on a total enterprise reinvention strategy to unify different technologies and business processes around a common digital core. We'll help leading the deployment of a cloud-based IT platform that integrates customer management, finance, HR, supply chains, asset management, and operations, improving the ability to assess and optimize operational performance. We also are helping manage and integrate the responsibilities and activities of the vendors involved in the project, standardize data from legacy applications, and enable company employees to understand and manage the new processes and technologies. Data-driven decision-making will be improved, allowing the company to cultivate better collaboration within their business, helping them operate more efficiently and better serve their customers. We are partnering with Coca-Cola Bottlers Japan to accelerate their path to becoming a world-class bottler and data-driven organization. The partnership includes establishing an innovative joint venture of significant scale of approximately 870 people that will accelerate transforming their digital core, optimizing their enterprise operations, leveraging the power of cloud, data, and AI to increase the value delivered from their core business functions. In support of their broader strategic business plan, Accenture will provide specialized talent, industry expertise, and leading-edge technology automation and managed services to help Coca-Cola Bottlers Japan adopt a strategy of continuous enterprise reinvention. Data and AI are an important part of building the digital core, and we see that work both embedded in our larger transformations, as you just heard, and in work focused on data and AI modernization. Accenture Federal Services is helping the defense health agency operate and enhance the Joint Medical Common Operating Picture platform by implementing data synchronization across multiple network domains and near real-time collaboration and information sharing, we will provide a comprehensive picture into Department of Defense medical assets. This increases visibility into unit health, equipment, and supplies and allows for faster and more informed decision-making. We are a strategic partner for the Saudi Data and AI Authority to boost the Kingdom's transformation to a data-driven economy and help the Kingdom become a world leader in generation and deployment of AI technology. We're working closely with Sadiya to support cutting-edge research, promote digital innovation in public life, and boost national capabilities and talent. We're especially pleased with the double-digit growth we have in the Middle East, a small, but growing part of our business. Security is essential to a digital core, and we had very strong double-digit growth in our security business in Q4. We're working with a major energy network in the U.K. on the transformation of its cybersecurity systems. We will provide an entire managed service for their cybersecurity capability, including migration to a more powerful security platform, continuous and active threat monitoring, and response services, as well as security tools management. Our solutions will help provide improved security, reduce exposure to potential global security threats, and ultimately better safeguard the safe delivery of gas to millions of U.K. homes and businesses. As clients continue to reimagine and prioritize the customer experience, Song delivered strong double-digit growth in Q4. We are helping smart Europe, maker of the next generation of smart vehicles, products, and services of the iconic brand from smart Automobile Company -- Co Limited., a joint venture between Mercedes-Benz and Geely. We are helping them reinvent car shopping by creating an ecosystem that supports a seamless, fully digital-driven buying experience. By putting data at the core, the system allows personalization of the customer journey, makes recommendations based on real-time data, and includes enhanced offerings such as extended insurance coverage. It will help smart Europe reposition its brand and support the launch of its intelligent, fully electrical car lines. We also continue to see demand for our supply chain in Industry X capabilities, the next digital frontier, which grew strong double-digits in Q4. In Industry X, we are partnering with a global chemical and materials company on a digital transformation of their manufacturing core and commercial capabilities. Through our Industry X capabilities, we have built a unified connected worker platform for operators, maintenance technicians, and job planners, along with a cloud-based data lake to help generate insight from disparate sources of manufacturing data. The program is already live in dozens of manufacturing sites and is expected to create significant revenue growth over the next few years for our clients. And in supply chain, we have partnered with a large global food and beverage conglomerate to strengthen supply chain resilience, so consumers have continued access to their products in stores and online. By creating a digital twin of its supply chain, we will develop stress test models to help identify supply disruptions with the highest risk before they occur. Across these examples, you can see our unique capabilities of both being a technology powerhouse, along with our industry and functional expertise from strategy and consulting to technology, to managing services -- managed services to help our clients reinvent. Now let's turn to generative AI. As a reminder, last quarter we announced a $3 billion investment in AI. While still in the early stages, gen AI technology is maturing rapidly and we believe it will be a significant source of value for us and our clients over time. We now have about 300 projects and I want to share a little color in how this demand is coming through. We have projects across all our industries with banking, public service, consumer goods, and utilities leading an activity. Clients are doing a variety of different types of work from strategy and use case implementations to tech enablement, to scaling, to model customization, tuning and training, to talent and responsible AI. For example, we're working with a multinational telecom company, Telefonica Brazil, also known as Vivo, to deliver a generative AI solution that helps its agents respond quicker to landlords' queries about property rental for network towers. The application quickly reads landlords' queries and proposes a set of actions to help fulfill requests, reducing the time it takes agents to respond. It also structures the response with a set of relevant answers to increase the response quality and ensure all queries are answered in a helpful manner. The solution has already reduced agent response time by 30% and increased the user experience score by 66%. Some of the key ingredients of our success in gen AI are

Katie O'Conor:

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?

Tien-Tsin Huang:

Hey, thank you. Good morning, Julie and Casey, I just wanted to dig in first on CMT, if you don't mind. Just curious there if the challenges are -- have changed at all, has it isolated just a few clients or is it more broad-based? And what's the strategy here to turn demand around? Are you seeing any green shoots there? Thanks.

Tien-Tsin Huang:

Understood on that one. Thank you. Just my quick follow-up on gen AI, I know the sales doubled there and you went through a lot of good detail. I'm just curious, is it -- are the deal sizes getting larger? Is it pulling through more large projects from what you've seen recently? I'm just curious how that might evolve here as we get into the new fiscal year?

Tien-Tsin Huang:

Yes. No, it should bode well for Accenture. Thank you.

Operator:

We’ll go next to the line of James Faucette with Morgan Stanley.

KC McClure:

Yes. Thanks, James, for the question. I will -- maybe I'll start with, just kind of giving you a little bit of color on what we're seeing on managed services as it relates to guidance and just maybe broader guidance kind of overall. So I'll just start with our full-year, right? So we started with our full-year guidance, which is 2% to 5% growth for the year. I think the key part, as Julie mentioned, is that we expect that we're going to build as we go throughout the year. And you can see that in our range for Q1, which starts negative 2 and has 2 at the top end of our range. And then if you look at Q1, for the most part, what we are reflecting in our Q1 guidance is really more the same across the various dimensions of our business that we saw in Q4. And -- but we have a backdrop of a tougher compare in the first quarter of FY ’24, that's our toughest compare for the full-year. And then if you look at the full year, maybe three things to add. From a macro, we're not assuming that there's an improvement in the discretionary spend environment or the macro as we look at the year. The second on your -- to get to the type of work question, we're going to build as we go throughout the year and we see consulting for the full-year being at low-single-digit. And managed services is going to be a healthy mid to high-single-digit growth for the full-year. And then, depending on how the revenue builds, the last point would be on operating margin. We do expect to see more variability in the quarters as we go through fiscal ‘24 on our way to 10 basis points to 30 basis points of expansion for the year. So hopefully that gave you a little bit of color. Julie, if you want to talk a little bit more about specifics in managed services?

James Faucette:

Got it. And then just as a quick follow-up, can you talk a little bit about your inorganic strategy, just what contribution has been, and particularly in light of the increased capital return program for ‘24, if we should anticipate that that will have any impact on what you guys historically have done from an inorganic contribution? Thanks.

Julie Sweet:

Yes. And, look, on our inorganic strategy remember that the way we think about it is, can we get into new areas through our inorganic, like what we did with Anser Advisory and Industry X, which is capital products. It's basically we're very small there before the acquisition, that's an $80 billion addressable market. So that's an acquisition to start to grow there. We think about it as being important to invest in our industry and functional expertise. So in France this year, we -- this last quarter, we did an insurance acquisition in strategy and consulting. And we think about it in terms of scale. So we bought a data and AI practice in terms -- in India this quarter. And so as we are pivoting to the higher areas of growth right now, a real advantage we have is the ability to leverage our investment capacity in order to do that pivot. And of course we're -- right now, we're kind of assuming 2%, but we have the ability to do more if we have the right opportunities. And so we really do think about this as a huge competitive advantage in our industry, in our ability to drive growth and to be in the hot areas of the market.

Operator:

We'll go next to the line of Lisa Ellis with MoffettNathanson.

Julie Sweet:

Yes. Thanks, Lisa. So just in terms of -- just as a reminder, so we -- when we announced our business optimization program, we said it would be about $1.5 billion, and that would go through FY ‘24. So we still are saying $1.5 billion through FY ‘24. As it relates to next year, right, we expect to incur approximately $450 million. We were -- we did record $1.1 billion in FY ‘23, which is a little bit more than we expected to do in ‘23. So we were able to get a bit more into the P&L in last fiscal year '23. And I'm happy to go through the impacts on EPS, but you saw that it will be a $0.56 impact on EPS for ‘24, and I'm happy to go through some of the questions that you have. Yes. And also as we go throughout the year, the two -- we take the business optimization out of our results as we go throughout the quarters, so that doesn't -- that's not their driver for why we'll have more margin variability as we go throughout the year. And we'll see how it plays out. It really depends on the countries and different things that we have to go through in terms of process and procedures. And so we're not giving an update as we go throughout the year on the full-year estimate, but we're not breaking that up by quarter.

Julie Sweet:

Sure. I mean, what I would say is that overall -- first of all, the large transformational programs include managed services, but they also include building, like so putting new modern ERP programs in place, right? So it's not only kind of managed services just to kind of set the stage for that. And just as you think about the fundamentals, because we think of the transformation deals, managed services are often a way to pay for them. They're often also a way to go faster and modernize, but we really look at those transformational programs in the round. So when you think about the fundamentals that our clients are facing, there is more reinvention ahead than they have done so far. So huge opportunity ahead. And you see that in where they are in the cloud journey, only 40% workloads, right? We estimate less than 10% of our clients are mature in data and AI. Only a third have put in the modern ERP programs. And so as you think about what they have to do, managed services will continue to play a huge role in paying for it and in actually modernizing much of it, as well the other big implementations. We do see, however, right, when you kind of go to the market-- and by the way, that's why we're super well positioned, right? Our strategy is to be that partner and then reinvention begets more, right? So you first build the digital core and then you've got a lot of work on top of that. And that is our growth strategy. Now, if you come to what we're seeing in the market, right? So always best to hear from what's going on in the ground. Last week, I was very busy and I was with about 20 different CEOs and they had three messages, right? Tech is super important, that's number one. Number two, they already have major programs underway and they know they need to do a lot more. But number three is they're feeling cautious about the macro and we've already seen that in the small deals. But they're asking us to help them save money and be more focused right now, even on the bigger programs. And so what I would say is and that's reflected in our guidance is that, the macro is having an effect on the pace of spending right now. Now, again, plays into our strengths in terms of being able to be the reinvention partner, being able to really think about the journey and positions us super well as they navigate that macro. But that is -- the reality is that there is this sense of caution and it's bleeding over to kind of overall, overall demands.

Lisa Ellis:

Great. Thank you. Thanks a lot.

Keith Bachman:

Hi, thank you very much. I wanted to ask -- go back to M&A if I could start with you, Julie. You're guiding to 2 points of M&A contribution to your full-year guidance which is consistent with sort of the past years, but the number here much bigger. 2 points is meaningfully than what it was even three or four years ago in terms of, A, the capital required to do those deals; and B, the integration therefore of the head count? And I just wanted to hear your, kind of, philosophically, it doesn't seem like 2 points can continue on for perpetuity, but just how do you think about any, kind of, balance sheet constraints or also the integration required to make sure the people side of the business -- because again, implicitly the deals are getting larger. And then as part of that, could you just speak to -- do you look at the same size deals or do you need to kind of flex up a little bit in terms of looking at larger opportunities? And then I have a follow up. Sorry about the background noise.

Julie Sweet:

And what I would say is that I'm really proud that how we do M&A is a core competency of Accenture, right? So we've now been on this journey. I helped start it when I was the general counsel. I remember that was -- I came in and they were like, we kind of need to increase this and I've done a lot of that in my prior life and what you see is that, as we've grown, we've continued to build the capabilities. We have a very mature machine around integration, but we also have an operating model where we have leaders close to the acquisitions, doing the integration. And they really do vary from very small to larger ones. We've done over $1 billion and we could do even bigger ones with our capital. The point is that, we know how to integrate and we've been doing this now for many, many years.

KC McClure:

Yes. Thanks, Keith. Really what I would say is managing supply and demand. As you know, it's a core competency of ours and we're going to manage our supply skills based on wherever we see the growth. So we didn't expect that we would need to add a lot of people in -- from Q3 to Q4 as we said and that's exactly what happened. And so we're going to continue to hire for the skills that we need and we're going to focus on the automation and as Julie mentioned, the lot of re-skilling of our people.

Darrin Peller:

Thanks, guys. I just wanted to ask in terms of visibility that you'd say you have now in the environment relative to prior years on the outlook side. I mean, has anything changed and just maybe if you could reiterate for us where you're seeing the pockets of strength in a little bit more of a specific manner around example that customers need right now that might be -- that might buck the trend of what you typically see in a downturn macroeconomically. Just curious kind of what's fighting through the demand weakness no matter what just because it's really mission critical right now. Thanks again.

Julie Sweet:

Yes. And then in terms of demand, it's exactly what we've been talking about. The number one area of demand is building that digital core. So you've got clients like the financial service client I mentioned in the script that's not in the cloud at all and is basically needing to migrate to the cloud, right? Then you've got those who are in the cloud but they haven't modernized their ERP. You saw a lot of examples of that. Then you've got security, right? Absolutely has to happen. And then lots of focus on now on data and AI, particularly for those who've already been investing, so they're in the cloud, they've got their modern ERP, and now they want to really accelerate AI. So what's not happening, right, is discretionary spend globally as we saw throughout the year, starting in North America, people are not doing smaller systems integration. They're not doing smaller strategy and consulting, they're prioritizing and focusing on larger deals. And even there, there's prioritizing, especially depending on the industry where you've got more challenges to say, can we -- we've got a lot underway, we're cautious about the environment, so help us Accenture cut costs, so we can afford all of the reinvention ahead of us and help us prioritize what we start next. And that's kind of the overall, sort of, more cautious spending. But I just want to reemphasize, nothing has changed about the fact that our clients have more ahead of them than behind them in terms of building the digital core and then using it to reinvent. And we're the only one in our industry that can both build the technology and at this scale have the industry and the functional expertise to then be positioned to help them use that technology to reinvent. So we are super optimistic about this industry in our position.

Julie Sweet:

I'm sure -- my team are going to love the luxury of a few more months. You know, so thank you for that, I'm going to tell them that. See you guys, you've had a few more months. So look, as I talked a little bit about in our script, we're still learning. Remember, these are like, you know, a million dollar sort of things. We're starting tom, you know, look at our -- work it in our own delivery. So it's going to take a few more quarters till I've really got a well-informed view of that. But what I will say is, gen AI is an amazing technology. It's going to do great things. And what I tell all my clients, can't use it unless you're in the cloud, have data, and you've, you know, modernized your core. So that's our opportunity.

Operator:

And we'll go next to the line of Jason Kupferberg with Bank of America.

Julie Sweet:

Yes. So, Jason, let me just kind of give you a little bit more color on guidance, right? So, as we mentioned, we're not assuming in our guidance any improvement in the macro discretionary spend, but we're going to pivot two years of growth. So the macro is going to be kind of this, you know, it's not going to help us or hurt us this year is kind of what really essentially what we're saying. In terms of, you know, color, I'll kind of stick to what we have in the type of work, maybe is the best way of thinking about it. And again, I think just consulting, it's going to build as we go throughout the year. And overall, I think, it's important to know that we are going to build in this environment. We're going to build as we go throughout the year.

Julie Sweet:

Yes, sure. So let me just talk about maybe a little bit of bookings. You know, in bookings, we're going to start with the fourth quarter. I mean, if did come in a little bit lighter than we expected, and they can be lumpy, and we saw some deals, kind of, push out. Of the quarter, when it came to small deals, we didn't see any change in the discretionary spend environment. And just to reiterate that we're really pleased with the 21 clients that we had, over $100 million. Julie talked about that, if just reinforces our strategy to be the client's transformational partner of choice and to be at their core. And lastly, as it relates to ‘23, you know, we look at bookings that we're rolling for quarters and I mentioned this on managed services, but just overall we're at a 1.1 book to bill, which I'm really pleased about for the fourth quarters. And then for next year, looking at ‘24 Q1, you're right, it's seasonally a little lighter for us. However, we have a solid pipeline and we do expect that FY ’24 Q1 bookings will reflect growth over FY ’23 Q1.

Katie O'Conor:

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

Bryan Keane:

Hi, guys. Good morning. Wanted to just follow up on strategy and consulting. I know that that was an area that we were hoping at one point during the year that it was going to turn back to positive growth by the fourth quarter. And then I know we didn't think that was going to happen as of last quarter. So I'm just curious, as we go through the year into fiscal year '24, when do you think S&C might turn towards positive growth?

Bryan Keane:

Got it. I'll leave it there because I know we're at the end of the call. Thanks so much.

Julie Sweet:

All right. In closing, I really do want to thank again all of our people and our managing directors what they do every day, which is truly extraordinary and gives us a lot of confidence in the future. And I want to thank all of our shareholders for your continued trust and support. I assure you, we are working hard every day to continue to earn it. Thank you.

Operator:

Thank you for standing by. Welcome to Accenture's Third Quarter Fiscal 2023 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Katie O’Conor, Managing Director, Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Katie and thank you to everyone joining today, and thank you to our people around the world for their dedication and commitment, which is how we are able to consistently deliver 360 degree value for all our stakeholders, our clients, our people, our shareholders, our partners and our communities. Turning to the quarter, I will start with the financials. While the macro environment continues to be uncertain overall, in Q3 we delivered solid revenue and sales with very strong profitability and very strong free cash flow, while continuing to significantly invest in our business. Now getting into the highlights, we had bookings of $17.2 billion, including 26 clients with quarterly bookings greater than $100 million, bringing the total year to date 85, which is 11 more than the same time last year. We delivered revenues of $16.6 billion, representing 5% growth with North America growing 2%, Europe at 7% and growth markets at 9%, all in local currency, bringing us to $48.1 billion of revenue at 10% growth fiscal year to date. Revenues were impacted by lower than expected small deal sales, especially in strategy and consulting and systems integration and lower than expected results in the communications, media and high-tech industry group for the quarter. Excluding [CMT] (ph), our business grew 8% globally, 7% in North America, 9% in Europe and 10% in growth market in local currency. We expanded adjusted operating margin by 20 basis points, grew adjusted EPS 14% over last year and delivered free cash flow of $3.1 billion. And over the past 11 quarters we have operated at 91% or higher utilization, leveraging our digital enterprise to connect our sales, staffing, hiring and skill needs to make proactive real time decisions. We are on track with the business optimization actions to lower costs in fiscal 2024 and beyond, while continuing to significantly invest in our business with five acquisitions in strategic areas this quarter, bringing the total investment in acquisitions year to date to $1.3 billion. We invested in Cloud, Data and AI with the acquisition Nextira in North America, Objectivity in the UK and Einr in Norway. We also invested in sustainability with the acquisition of Green Domus in Brazil and in modern ERP services with Bourne Digital in Australia. We continued to take market share growing about two times the market. Now turning to other aspects of the 360 degree value we delivered this quarter. We continue to invest in learning for our people with 9 million training hours in the quarter, representing an average of 13 hours per person, giving them the skills to grow as our clients' needs evolve. We're incredibly pleased that we were recognized as a top 10 place to work in seven countries. Argentina, Brazil, Chile, India, Mexico, the Philippines and the U. S. Collectively, these countries represent nearly 70% of people. Vibrant communities are important for our business success and digital scaling helps ensure vibrant communities thrive. In collaboration with L'Oreal and our NGO partner, [Shambu] (ph) Foundation, we are supporting women in India to build digital literacy skills alongside the technical skills needed to access jobs in the beauty industry. Together, we have collectively created sustainable livelihoods for 2,500 women across 10 states in India, accelerating equality, delivering social impact in the community and continuing our commitment to embed diversity and inclusion in everything we do. Finally, this year we are proud to earn the number 22 position on [Brand Z's] (ph) prestigious top 100 most valuable global brands list, our highest rank today. Over to you KC.

Julie Sweet :

Thank you, KC. As we look at demand in our larger deals, we continue to see two common themes that I've highlighted before. First, the rapid rise of generative AI interest among our clients highlights yet again that all strategies lead to technology, particularly cloud, data, AI and security. And second, companies remain focused on total enterprise reinvention as they execute compressed transformation to achieve lower costs, stronger growth, more agility and greater resilience faster. Now let me give you more color on the quarter to bring this to life. Starting with the digital core, our cloud momentum continues with very strong double-digit growth in Q3 as clients priorities building a strong and secure foundation for reinvention. We have been working with ENI, a global energy company for more than 30 years. Now we are helping them as they continue their hybrid cloud transformation and embark on a total enterprise reinvention strategy with a focus on sustainability, digital transformation and security. We are managing their IT infrastructure and telecommunications integration and helping implement new operating models, all hosted in the ENI green data center, one of the largest data bunkers in the industry to securely hold the company's data. The ENI green data center houses one of the most powerful nongovernmental supercomputers in the world, enabling the highest use of data across the value chain from exploration and production to the energy of the future. New operating models will help exploit the full value of data, AI and cybersecurity for faster adoption of new business processes. This transformation is the first step toward creating a secure digital core that will accelerate ENI's energy transition, drive innovation in AI and R&D and build even greater resilience. Clients are also working with us to do multifaceted compressed transformation that utilize all of our deep industry and functional expertise in our SNC services, along with our outstanding technology services. We are helping DuPont, a global multi-industrial specialty products company with a compressed transformation to standardize their finance processes and achieve operational excellence. Building on our trusted relationship of over 35 years, we are now supporting our client with its strategic pivot to innovation-based growth across electronics, sustainable water and protection solutions, industrial technologies and next-generation automotive. We've been supporting their transformation to an agile cloud-based IT infrastructure to maximize data access, drive efficiency and modernize their landscape. Our work with DuPont is focused on achieving greater resilience, reducing costs and increasing revenue growth and shaping its portfolio through M&A with industry-leading innovation for long-term success. With companies expanding their digital footprint and cyber risk widening security continues to rise in importance as a fundamental part of the digital core with very strong double-digit growth in Q3. We are working with a food and beverage company to strengthen their cybersecurity and prevent vulnerabilities along the supply chain. Building on previous operations transformation work, we are now providing managed security services, which will cover perimeter security, detection and response as well as threat intelligence and monitoring dark web activities. We also will provide day-to-day identity, data and privacy management, helping provide a holistic security approach for our client. We're helping a global universal bank future-proof their cryptographic landscape and corresponding risks for over 1,000 applications, procedures and data. Based on the analysis, we will develop and implement an end-to-end mitigation strategy, including evaluation of solution vendor strategies, mitigation principles as well as change management procedures. We will also design and implement post-quantum methods and new architecture blueprints, which will help scale the solution, all to help the bank achieve post-quantum computing readiness. Our Managed Services continued to grow double digits in Q3, demonstrating the relevance of our approach to run, digitize and transform our clients' operations. We're providing a global health care and insurance company with managed services to help run its complex claims and membership processes. As part of our long-standing relationship with the company, we will improve the efficiency and quality of these tasks and simplify the customer journey, ensuring members can easily access the support they need when they need it. Its employees will now have more time to focus on boosting customer satisfaction by better serving its millions of customers around the world. A new cost solution has also been introduced to determine fair and accurate pricing for the company when purchasing services and products from vendors to reduce costs across the business. We recently worked with a major media brand to launch a streaming platform that will help attract new subscribers, expanding their content portfolio and power-targeted broadcasting and advertising offerings, all while lowering costs. We helped engineer aspects of the new platform from the content supply chain to the player experience, ensuring that customers have a seamless viewing experience across all devices and platforms and enabling the company to use data insights to continually enhance its platform. We delivered the program as part of a managed services arrangement, demonstrating the industry and engineering innovation that we bring to help clients reinvent their business with cloud, data and AI. As clients continue to reimagine and prioritize customer experience, Song experienced strong double-digit growth again in Q3. We are partnering with Virgin Media O2, a British media and telecommunications company to reimagine their customer experience. Accenture Song will design a new, more predictive and personalized customer journey, enabled by an AI-powered cloud-based digital core. Customer care journeys will be omnichannel, combining customer calls, chat and instant messaging to increase first-time resolution and upselling, leading to greater customer satisfaction. We also will deploy our managed services capabilities to support contact center activity using AI to provide timely agent assistance and route calls intelligently to drive precision and reduce call volume. Our work will help build brand loyalty supporting Virgin Media O2's mission to be a more customer-first business. We see continued demand for our Industry X capabilities, which grew strong double [indiscernible]. We are working with one of the world's leading consumer products companies on a transformation of its manufacturing practices to achieve energy savings. We are developing a comprehensive program to collect and analyze energy consumption data from their production plans and use data-driven analytics to identify energy savings and greenhouse gas reduction opportunities. We are also helping to track energy efficiency gains and deliver value through operational improvements in the manufacturing process. As clients progress on their total enterprise reinvestment journeys, talent is at the forefront. We are working with an international consumer goods and services provider in the European market on a digital transformation of its core human resources organization and talent acquisition processes. We will design and implement an approach that includes program management, process design, training and development and additional services. Together, we will create greater efficiencies in the human resources function, leading to a data-driven culture focused on better employee experiences. Now stepping back, our strategy is to be at the center of our clients' business and help them continuously reinvent themselves to reach new levels of performance and to set themselves apart as leaders in their industries. And our clients are at different starting points. All are interested in AI, and particularly generative AI. But most recognize the work ahead of them to get their data, people and processes ready for AI. To reinvent requires a strong modern digital core. And as they embark on this journey, clients are looking to us for unmatched global scale, deep industry and functional knowledge, breadth of services from strategy and consulting to technology to managed services. With that context, I want to turn to generative AI and AI more broadly. No previous technology wave has captured the intention of leaders and the general public as fast as gen AI. We are now embarking on the age of AI, and companies will need to reinvent how they operate with AI at the core. And it is also early. Think of it as the cloud over a decade ago. Foundation models and products based on them are still maturing with many products announced but fewer at the general availability stage and ready for wide deployment. And with our position as the largest partner with most of the major technology companies, we are at the center of helping our clients navigate their choices in the evolving landscape. We've been investing in AI for years. And so while it is early days, we see generative AI as a key piece of the digital core and a big catalyst for even bigger and bolder total enterprise reinvention going forward. In fact, in a survey of global executives that we completed just last week, 97% of executives said gen AI will be transformative to their company and industry and 67% of organizations are planning to increase their level of spending in technology are prioritizing investments in data and AI. Our approach to AI is clear. Just as we have successfully done with cloud, we are investing to take an early lead and position for the opportunity ahead. Last week, we announced a $3 billion investment in AI, a big step to accelerate our clients' reinvention journey, which includes us doubling our data and AI workforce from 40,000 to 80,000 strong, including the expansion of our center for advanced AI that today has over 1,600 generative AI experts bringing new assets such as our AI navigator for enterprise to life and developing new GenAI-powered industry solutions. And across this all, we are leading with responsible AI to be the most trusted source in helping our clients mitigate the risks as they drive value. And this isn't just about tomorrow. We have sold over 100 generative AI products -- projects over the last four months. Let me give you a flavor of these across a few industries. We are working with Mitsui Sumitomo Insurance, a Japan-based subsidiary of MS&AD Insurance Group Holdings to improve customer service by using generative AI and simplify operations for accident response. The generative AI solution will draw from the company's knowledge base, including policy causes and related laws and regulations, which will generate appropriate response plans in a timely manner, dramatically improving the accuracy and speed of explanations to customers. We're working with a global broadcast company to explore how generative AI can be used to drive audience engagement and growth through deeper and more personalized customer experiences. Together, we recently launched testing that leverages generative AI and large language models to explore how we can automatically create content for the company's customer-facing platforms. The content will help enhance engagement, grow the consumer base across new coverage areas and channels. We believe it will demonstrate how generative AI can be used to create content at scale for a wide variety of experiences and events. We are working with [Linda Basel] (ph) Industries, a leader in the chemicals industry to increase its enterprise data and analytic capabilities and help unlock new value. We will develop a strategic data-led digital transformation program across multiple parts of their business and embed new capabilities in areas like sustainability, customer data, digital manufacturing and generative AI to drive more insightful and predictive decision-making. Companies are coming to us for help with the strategy in the business case to understand how and where to apply AI, and gen AI specifically, to get their digital core in shape, to help assess which ecosystem partners and models to use, to rewire their processes to be AI-driven, to upgrade and reskill their talent with new ways of working and to navigate the risks and challenges responsibly. In short, we believe clients need our full range of services and we are well positioned to be the leading trusted AI partner for the enterprise as they move from exploration to experimentation to reinvention. Over to you, KC.

Katie O’Conor:

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?

Lisa Ellis:

Hey, good morning. Thanks for taking my question. Let's dive in on the Strategy and Consulting. I know it was a high single-digit decline this quarter just looking back at your comments from last quarter. I think that came in a little bit softer than you expected, but then also called out many new projects coming in related to gen AI and other technologies. Can you just talk a little bit about kind of what's changed, what that evolution looks like and kind of what's your confidence level in the time horizon that we'll see Strategy and Consulting improve over the next couple of quarters? Thank you.

KC McClure:

Yes. Great. Thanks, Julie. Yes. So let me just kind of maybe step back and look at Q4 and the overall guidance for the full year. So first, I did mention this, but I just want to -- just reiterate that we are on track for our business optimization actions. So we're going to do about $800 million of cost for the full year 2023. Additional color is that, for Q4, as we look at bookings, we think they'll be about the same as what we did in Q3 of this year and have about the same complexion. Julie talked a bit about small deals. What I will tell you in terms of our revenue guidance for Q4, which is 2% to 6%. At the top end of our revenue guidance, that reflects some improvement in small deal performance, while the bottom end allows for some further deterioration. And we commented also in our scripts about CMT. And so, within our overall range of 2% to 6%, we do allow for CMT to get a little bit worse. And then lastly, to bring it on home as it relates to North America, because these two factors do impact North America performance in the context of our overall 2% to 6% range for the quarter. North America, which was 2% growth this quarter, it would likely be flat around the midpoint of our guidance range and it reflects a slight decline at the bottom of our range. And as Julie mentioned, obviously, we will give you more color, as I always do on next year when we get into September, and we'll see how Q4 plays out.

Julie Sweet:

Sure. Yes. And I think another good analogy actually, maybe even less so than the offshore is more about like SaaS, right? Because you remember when we talked about when SaaS came, what would be the opportunities. And there was a lot of worry about how SaaS would interrupt IT services. And obviously, it's been just a huge opportunity. So I think, Lisa, if you think about this, so obviously a big opportunity for us to help our clients. We see it as two other areas of opportunities. So the first is help our clients, big opportunity. The second is, the opportunity for us to improve the delivery of services to our clients, right? Now what is -- and that, we think, is a huge opportunity for us. So think about it first. In context of Managed Services every year, right, we have to find at least 10% of productivity. So we talk a lot about our platform, things like myWizard and that. That's all AI-enabled. Like just year-to-date in operations, not using gen AI, right, we have automated 13,000 jobs and then we've reskilled those people and redeployed them. Our business model requires us to get at least 10% productivity year in and year out. As we're kind of getting to the maturity of automation and AI before generative AI, we see generative AI as our ability to continue to give at least that 10% productivity year in and year out. So in the managed services area, we see that more as the ability to continue doing what we have to do as kind of the next generation of technology. Where we're super excited is in software development that is more around our systems integration and our big transformations around platforms because while we do automate there, we think gen AI may provide a real opportunity to do even more. And remember, our strategy is to deliver compressed transformation. So the more that we can find ways to deliver faster and less costly, that's going to be a big differentiator. So we're leaning in hard. At the same time, these technologies are [indiscernible] early. And so for example, we're doing a lot of experimentation now. It's really good for things like documentation, but complex integrations, being able to use them for highly architectured systems, which is what our large enterprises do. GenAI isn't there yet, right? So think it's going to take some time. We also don't yet know the cost. And one of the things we are really -- a lot of clients are looking at for us to help them with the business case because most of the studies, including our own, are all about what potentially uses of it. But because these products aren't out yet, we know that -- it's much more expensive to use gen AI, it's much more energy efficient. And so the actual ROI, so there's the art of the possible, but what's actually the return, it's still really early days. So we're very excited that we can get new kinds of productivity, particularly on things like consulting and systems integration but it's early days yet. And we are leaning in because we think it's a big opportunity for us to differentiate. And that's why we are investing $3 billion over the next three years because we think this is like another cloud first moment where we were out early, we invested at scale. The last thing I would say is, there's also an opportunity for us to use it in our own enterprise. And of course, we like -- part of our strategy is to be our own best credential. And we're prioritizing it, using it wherever we think we can use it for us and then take it to market to help our clients. So overall, we think that like prior big changes, right, first, the change to cloud, right, and before that to servers, that it always creates new opportunities as long as you have the ability to invest, like we do, you've got leading partnerships, we've just announced yesterday expanded partnerships with all of the three big cloud providers; and you have that agile innovation mindset that says embrace change and move fast.

Operator:

We'll go next to the line of Ashwin Shirvaikar of Citi.

Julie Sweet:

Good morning, Ashwin.

Julie Sweet:

Yes.

Julie Sweet:

Sure. So just a few things, Ashwin. So first of all, the most important thing right now just as a framework is, stay close to our clients, and really understand. And the thing is, our clients do need ways to get value in the short term as well as to transform. And so, we're working hard on finding new ways to get value to them faster. That's where the gen AI, for example, comes in. And so, over the next quarter, we're going to be developing new opportunities, new campaigns, new ways of pushing out our investments in gen AI to help us address the small deal pressure that we're seeing. We don't have a crystal ball that is going to say what the economy is going to do, how fast clients are going to get comfortable. Because you remember, we saw this over this quarter to more industries, including industries that are doing well. There's just a level of caution right now. And so, how we're looking at it is certain things we can't control, focus on not only doing the big large transformational deals, but finding new ways to develop returns faster, which is why the work we're doing on gen AI is so important. And you're seeing that kind of early focus with 100 projects in four months. So we're going to keep doing that. Secondly is, stay focused on those transformational deals, right? This provides a base level of resilience in our business. So we've got to absolutely try to do -- maximize the small deals, but it is really important that we continue to be the transformation partner of choice. And that is where bringing together all of these services and making sure that we've got the right proposition is super important. So that is a core part of our strategy. And so that's really how we're thinking about it.

Julie Sweet:

Let me just take the second one first, right, is, again -- and we've been talking about this for years, right, because AI has been such a big part of our strategy and automation, right, is that we will continue to manage it just like I talked about in my last answer, like where we've already automated 13,000 jobs this quarter and we've reskilled. And so, we will continue to manage that headcount as a result of AI in the way that we've been doing it for years. So no real change in that because we have a digital enterprise system that looks at what we need and sales. And what's really core is that we can reskill people as they are being freed up, and then we can adjust how much we have to hire. And of course, with attrition that in our industry is high relative to other industries, it gives us a lot of flexibility over time to get that people hiring right. So that's how I would think about it. And then for the way that we're going to hire, we saw a year-over-year increase of about 3% over last year. 11 consecutive quarters of 91% utilization. So you should just expect that every quarter we're going to manage carefully that headcount based on where we see the growth and to do that well. And I think we've proven our ability to do that.

Ashwin Shirvaikar:

Got it. Thank you.

Tien-Tsin Huang :

Hi. Thank you so much. Good morning, guys. I just want -- I think you went through the small deal outlook to Lisa and Ashwin's question. So how about large deals? Can that momentum continue? I think you're up from about 17 to 26 large deals year-over-year. So just curious about...

Tien-Tsin Huang :

Yes. So yes, -- no, I'm just going to ask that, how does that look going into the fourth quarter here? And are signed deals converting on time. My follow-up to that.

KC McClure:

No, I think that's it.

Julie Sweet:

Tien-Tsin, that's a great clever way to try to get us to talk about more of the future. But what I would say is, we've got a great track record of investing and getting a great return. And so, we think that it's going to pay off well.

Julie Sweet:

Thank you.

Jason Kupferberg:

Hi. Thanks, guys. Just wanted to start actually picking up a little bit on Tien-Tsin's question around the larger deals. It sounds like that's going to persist the strength there in Q4. And I think that will be at least a few quarters in a row at that point of those larger deals showing relative strength. Can you just talk just qualitatively about to what extent those provide a foundation for top line growth in fiscal 2024? I would assume that those deals generally ramp to full run within, what, two to three quarters or so?

Julie Sweet:

If said another way, if small deals don't come back. We're going to have -- that's an important part of sort of understanding, which is why we want to see how Q4 works out before we look at next year.

KC McClure:

Yes. So let me just talk about overall Managed Services. Yes, we're very pleased overall with our Managed Services bookings, right? They were up 9% this quarter and they're up 22% on a year-to-date basis. So we're very pleased with the bookings overall and the result of revenue, which continue to be very strong. We also have a very strong book-to-bill with the trailing of 1.1. And when I talked about Q4, Jason, we'll have about the same complexion of bookings in terms of the breakout of type of work. And I would -- and I will highlight just the continued strength within our bookings of our operations business, which, again, Julie had a lot of great examples in her script. It really is around when clients are focusing on digitizing their core, cutting costs of operations business is a differentiator and obviously very strategic.

Operator:

We'll go next to the line of Bryan Keane with Deutsche Bank.

Julie Sweet:

Well, Bryan, I think in general, we think gen AI is going to go faster than, say, cloud, right, which took more like a decade. I would focus on -- so first of all, we're being very rigorous when we talk about gen AI, because we're really saying like what are the actual gen AI. The big growth, we think, is going to be in all the companies that then have to get their data done faster. And we're not lumping that together. And so, I don't know what others are going to do, but we're really being very pure in saying like, "Hey, this is pure gen AI." And if you think about where companies are, our research shows like only 5% to 10% of companies are mature right now with data and AI, and they're the ones that are really going to be able to use gen AI at scale. About -- we just had this research done that came in last week that hasn't been published yet. About 50% of companies have not started on their data or AI journey and everything in between -- some are good in data but not AI. They're having a hard time to scale. So where we think growth is going to come particularly next year, the bigger growth is going to be not in like the pure gen AI, but it's going to be in helping companies finish getting their end-of-life data migrated to the cloud. Because you need your data in the cloud, right? It's going to come in the data strategy and the -- all the governance and getting it architected while some of the stuff around gen AI gets sorted out. So for example, like cost is not there yet. And how do you take data from one cloud and there's cost to take it and put it another cloud. All of that, we're going to be working with our clients and our technology partners to really create the right business cases. But the growth we think in the near term is going to be from accelerating the digital core. And that's why we feel really good about the bigger transformational deals continuing next year because there's so much work to do.

Julie Sweet:

It's really early. I mean, there's a lot of companies popping up as we know, and we're going to continue to scan. But one of the great things that we have is the ability to train, right? We've already trained in the last quarter another 1,000 people in gen AI. And by the way, since 2019, we have been requiring all of our 700,000 people to take a course on AI. So we have a really good baseline. And so, we think that it's going to be a lot like when we move to digital, a lot of organic. And this is where we're so competitively well positioned because we have great credentials in how we have trained our own table to rotate.

Operator:

We'll go next to the line of Rod Bourgeois of DeepDive Equity Research.

KC McClure:

Yes. Rod, so let me just comment on pricing and what we're seeing. So just let me start with as a reminder, when we talk about pricing that we define that as contractility or the margin on the work that we sell. And so what we're seeing in pricing is after five quarters of consecutive improvement in pricing, we mentioned last quarter that it's stabilized. And this quarter, we see the pricing is lower in some areas of our business. I continue to be very pleased with how we are managing pricing, particularly navigating the more challenging wage environment that we've experienced over the last few years. So very pleased with how we're performing in pricing and our overall contract profitability that we have this year. .

Julie Sweet:

Yes. Look, on our consulting on the systems integration side, it's really more a tale about the small deals, right? So what we're seeing is that, sort of some of the small things versus the bigger, so a lot of the big transformations are continuing. So that's -- we're not seeing -- I mean, basically anything around the digital core, moving to cloud, all of that's going really well at the bigger levels. It's more about starting new projects right now. And so -- which is why we expect that demand to come back when people are less cautious.

Katie O’Conor:

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

James Faucette:

Thanks very much. Just a couple of follow-up questions from me here. First, on AI and AI-related projects. How do you envision pricing, project constructs, terms and statements of work to change with the introduction of and adoption of generative AI generally?

James Faucette:

Got it, got it. And then you mentioned, in reference to generative AI, like the [B&A] (ph) opportunities are pretty small right now and really nascent. But how are you thinking about B&A more generally going forward? Should we expect ongoing sustained and pretty stable levels of inorganic contribution? And -- or should we expect there to be some changes as expectations and emphasis shifts a little bit more to AI.

James Faucette:

That’s great color. Thank you so much.

Operator:

Thank you. And this conference will be available for replay beginning at 10 a.m. Eastern Time today and running through September 28 at midnight. You may access AT&T replay system at any time by dialing (866) 207-1041 and entering the access code of 4564655. International participants may dial (402) 970-0847. Those numbers again are (866) 207-1041 or (402) 970-0847 with the access code of 4564655. That does conclude our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.

Operator:

And ladies and gentlemen, thank you for standing by and welcome to the Accenture’s Second Quarter Fiscal 2023 Earnings Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to Katie O’Conor, Managing Director and Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Katie and thank you to everyone joining today and thank you to our 738,000 people around the globe for your incredible work and commitment to our clients, which has resulted in our delivering another strong quarter of financial results and the broader 360-degree value we continue to create for all our stakeholders. Let me share a few highlights of value we created in our continued disciplined execution. I am very pleased with our record bookings for Q2 at $22.1 billion, our highest ever including 35 clients with quarterly bookings greater than $100 million, our second highest quarter on record for such bookings, representing the continued trust that our clients have in us. We delivered revenues of $15.8 billion, representing 9% growth in local currency, bringing us to $31.6 billion of revenue at 12% growth through H1 and we continued gaining market share, growing approximately 2x the market. We continued our inorganic investments with six acquisitions in strategic areas, including cloud with the acquisition of SKS in Europe, which will expand our specialized technology consulting and regulatory capabilities, enabling us to better serve our financial services clients; security with the acquisition of Morphus in Brazil, a cyber defense risk management, cyber threat intelligence service provider; and supply chain with the acquisition of Inspirage in the U.S., which will enhance our technology capabilities to accelerate innovation for clients through emerging technologies such as touchless supply chain and digital twins. We also continued our investment in our people with 10.3 million training hours, a 12% increase year-over-year. We are optimizing our business to lower costs in fiscal year 2024 and beyond, while continuing to invest in our business and our people to capture the significant growth opportunities ahead. KC will be giving you more detail on these actions. Finally, we believe our focus on creating 360-degree value differentiates us in our market. We earned the number one position in our industry for the 10th year in a row and number 32 overall on Fortune’s list of the World’s Most Admired Companies. We ranked number one in our industry and number four overall on the JUST Capital list of America’s Most JUST Companies. And we have been recognized by Ethisphere as one of the world’s most ethical companies for the 16th year in a row. I am very pleased that our results demonstrate once again that our strategy to be the execution partner of choice for transformation, lead in the five forces and have a diverse business across markets, industries and services continues to allow us to lead and take market share. And in a world in which all strategies lead to technology, we have distinguished ourselves in our impact to the market. Over to you, KC.

Julie Sweet:

Thank you, KC. I will start with the overall demand environment, which is more of the same. We believe that the ongoing volatility and uncertainty in the macro environment is making it even clearer to clients that they need to change more, not less. And that two of the five key forces of change that we have identified for the next decade, the need for total enterprise reinvention and the ability to access, create and unlock the potential of talent are critical to succeed in the near, medium and long-term. We see two common themes. First, all strategies continue to lead to technology, particularly cloud, data, AI and security. This is reflected in the latest market estimates, which are down slightly, but are still hovering around 5%. And second, companies remain focused on executing compressed transformations to achieve lower cost, stronger growth, more agility and greater resilience faster. We remain laser focused on pivoting to our clients’ changing needs and being relevant across the enterprise from the frontline to core operations to corporate functions. Our ability to advise, shape and deliver value-led transformations, leveraging the breadth of our services from strategy and consulting to our strategic managed services across all industries and geographic markets is what differentiates Accenture. Now, I will give you more color on the quarter and in particular, how total enterprise reinvention and talent are critical to our clients. For example, we are helping Shionogi & Co. Limited, a Japanese pharmaceutical company with a compressed transformation to improve its business process efficiency and create a more agile organization. We will enter into a joint venture with the company that will provide managed services capability to oversee back office functions such as human resources, finance and accounting, public relations, facility management, procurement and marketing. The joint venture will also be charged with the management of the pharmacovigilance function from safety management operations to post-marketing operations to regulatory compliance. As part of this transformation, we will upscale over 400 employees, enabling them to play a greater role in the growth and development of the wider business, hence demonstrating the value of all our services from strategy and consulting, our deep industry knowledge to technology and operations coming together to enable the clients transformation. I would like to take a moment to recognize Egawa-san, our Head of the Japan market unit and our extraordinary people in Japan for how they are consistently creating value for our clients with double-digit revenue growth for each of the past 5 years. As clients focus on building their digital core with a modern cloud-based infrastructure, our cloud business continues to grow very strong double-digits. For example, we are working with the state of Missouri to replace its legacy applications and infrastructure with a modern ERP in the cloud, introducing new capabilities in finance, supply chain management, human capital management, payroll and budgeting. As the current ERP system no longer fully meets the business needs of the state, they are looking for a modern system that is efficient, scalable and flexible, all delivered by a best-in-class implementation partner. This compressed transformation, one of the earliest and most complex ERP implementations for any state will help reduce operating expenses, provide opportunities for upskilling and improve customer experience and services. We are partnering with minority and women-owned businesses on this transformation and we will bring in apprentices, the program’s lifecycle part of our shared commitment with the state of Missouri to foster diversity and inclusion. With our cloud-first strategy, our approach has been to help clients migrate to the cloud and then partner with them on their journey to grow and innovate in the cloud. Our cloud growth is driven by both migration and clients who are moving forward on this journey, such as Enel, one of our largest utilities clients who has taken their mass migration to cloud a few years ago to the next level, changing their operating model, tools and talent and largely automating IT operations. We are now helping them accelerate the modernization of their application landscape, reduce greenhouse gas emissions by up to 80%, support a significant acquisition and divestment agenda and pivot to platform-based business model for integrated retail delivery beyond meter services, grid and renewable energy. Using cloud as their operating systems is helping this market leader manage increasing levels of complexity by bringing together data, AI and applications to optimize their operations and accelerate growth. A strong and secure digital core also is essential to total enterprise reinvention. We are seeing continued very strong demand for our security services, which experienced another quarter of very strong double-digit growth. We are working with Empresas CMPC SA, a Chilean pulp and paper company and a cybersecurity transformation of their plant operations. We will implement a security program across its 48 industrial sites focused on threat detection, management and response as well as governance and workforce training. Through our global and local Industry X capabilities, we will help strengthen the company’s cybersecurity expenses through continuous monitoring of its physical locations and equipment. We continue to lead in managed services, which experienced strong growth again this quarter at 16%. Managed services are strategic for our clients, because they enable clients to move faster, leveraging our digital platform expertise and talent as well as delivering cost efficiencies. And our clients are turning to Accenture because of the depth and breadth of our industry, functional and technology expertise that we bring together into the transformation journey. Our approach to managed services is to both run and transform and run and modernize. We deliver cost savings as table stakes. For example, we are partnering with the UK’s Department for Work and Pensions, which is responsible for welfare pensions and child maintenance policy to modernize its legacy systems, eliminating backlogs and delivering a better experience for citizens and employees. We developed a cloud-based intelligent optimization platform that combines robotic process automation, AI, analytics and machine learning to provide bots as a service to create the equivalent of a virtual workforce available 24/7. With routine tests now automated, the organization has already saved 2.4 million human hours, which can be reallocated to more complex higher value tasks. Let me pause to thank our global H&PS colleagues for their amazing contributions as evidenced by 14 consecutive quarters of double-digit growth. As our clients continue to prioritize cost optimization as well as growth in Vigilance, Song is more relevant than ever. In Song, which grew strong double-digits this quarter, clients are focused on more capital efficient growth that creates efficiency, drive short-term growth and optimizes existing assets with clear outcomes and shorter time horizons to keep up with the pace of change with customers and technology. We have moved quickly to help clients seize new opportunities in contact centers, not only for enhanced customer service, but also customer acquisition and growth. We are working with a global biopharmaceutical leader in North America to reinvent digital marketing at scale. Driven by data and using technologies integrated with SynOps, the company will be able to create, produce and deliver consistent world class content that informs and educates healthcare providers and patient communities around the world, helping to deliver innovative health services. We are working with the Prada Group, the Italian luxury fashion player, to offer its customers an entirely new customization experience through an online 3D configurator. Accenture Song created a digital twin of Prada’s iconic show called America’s Cup, which allows shoppers to fully customize it from material to color to trim across the overlay, lining, sole and other parts. With more than 50 million possible configurations, more than any web platform could handle, this innovative approach allows customers to see high resolution 3D models of their custom builds with the same quality and fidelity as a physical shoe. Song solution to online product customization is fully scalable to the cloud. It gives Prada the flexibility to apply the same strategy to other products, ensuring the outstanding experience that their shoppers expect. As I continue to move across the enterprise, industries and markets, I want to also highlight Industry X, which grew very strong double digits again this quarter, and which we believe is the next digital frontier where our digital engineering capabilities are advancing sustainability services. For example, we are working with Recharge Industries, a battery research and production company in Australia, to help design and engineer one of the world’s largest lithium-ion battery facilities. Once built, the facility will generate up to 30-gigawatt hours of storage capacity per year. Finally, moving to the metaverse and the ongoing tech revolution. We’ve talked about the importance of artificial intelligence in building the digital core for our clients. While generative AI has recently burst into the popular imagination, at Accenture, we’ve been working with the technology from its earliest stages and are already applying it at clients. For example, we’re working with a multinational bank to transform how it manages high volumes of post-trade processing e-mails every day. We are leveraging a generative AI solution as it is built to understand the context of e-mails with high accuracy. It automatically routes large numbers of e-mails, daily to relevant teams and draft responses with recommended actions and related information. Our work will help reduce manual effort and risk, boost worker efficiency and improve interactions with customers. And finally, on that note, we will release our Tech Vision 2023 on March 30. The 4th and 5th key forces of change we have identified for the next decade at a metaverse and ongoing tech revolution. And this year’s tech vision is particularly relevant and actionable as our clients face a rapidly changing landscape in which generative AI, metaverse cloud, science, tech and other technologies are driving more opportunities for change and reinvention. This year’s vision will explore how these technologies and more are blending the physical world and the virtual world into a shared reality, creating a huge opportunity for our clients and for Accenture. Now turning to our business outlook. For the third quarter of fiscal ‘23, we expect revenues to be in the range of $16.1 billion to $16.7 billion. This assumes the impact of FX will be about negative 3.5% compared to the third quarter of fiscal ‘22 and reflects an estimated 3% to 7% growth in local currency. For the full fiscal year ‘23, based upon how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in U.S. dollars will be approximately negative 4.5% compared to fiscal ‘22. For the full fiscal ‘23, we now expect our revenue to be in the range of 8% to 10% growth in local currency over fiscal ‘22, which assumes an inorganic contribution of 2%. We expect business optimization actions to impact fiscal ‘23 GAAP operating margin by 120 basis points and EPS by $0.96. We expect our anticipated gain on our investment in Duck Creek Technologies to impact EPS by $0.39. Our guidance for full year fiscal ‘23 excludes these impacts. For adjusted operating margin, we expect fiscal year ‘23 to be 15.3% to 15.5%, a 10 to 30 basis point expansion over fiscal ‘22 results. We expect our adjusted annual effective tax rate to be in the range of 23% to 25%. This compares to an effective tax rate of 24% in fiscal ‘22. We expect our full year adjusted earnings per share for fiscal ‘23 to be in the range of $11.41 to $11.63, or 7% to 9% growth over fiscal ‘22 results. For the full fiscal ‘23, we now expect operating cash flow to be in the range of $8.7 billion to $9.2 billion, property and equipment additions to be approximately $700 million and free cash flow to be in the range of $8 billion to $8.5 billion, $300 million higher than our previous guidance. Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of 1.1. Finally, we continue to expect to return at least $7.1 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. Katie?

Operator:

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.

KC McClure:

Yes. Thanks, Tien-Tsin. So we do feel good about our pipeline even after our record bookings this quarter. And our sales outlook for the next quarter, Q3 is solid. We expect to have slightly lighter bookings than what we’ve had compared to the record quarter that we just had.

Tien-Tsin Huang:

Good. Glad to hear. Very encouraging. So given that, given both your comments and the optimization, I’m just trying to think about is it more playing offense versus defense? So I’m just trying to think about – I know a lot of your clients are going through similar optimization efforts as well. How does this one fit given that? And should we still think about this within the 10 to 30 basis points of typical margin expansion that we think about sort of philosophically? Or could this be incremental?

Tien-Tsin Huang:

Awesome. That’s great. Great results then. Thank you.

Operator:

And our next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.

Julie Sweet:

Well, let me just start with the type of projects. I mean what we’ve been seeing over the last several quarters is just a laser focus on cost, right? So most programs, clients want to see a shorter return on investments, right, more focused on cost. They love cost and growth, but it has to be, in most cases, a shorter return on the investment. At the same time, it’s important that not all industries are in the same place, right? So if you’ve got industries like, say, in the high-tech area, and some spots on retail, for example, cost optimization is very dominant, right? If you have – you’ve got some of the other less affected industries, say, insurance, energy, it’s – everyone wants to be more resilient and lower cost. But they are really trying to deal with their technical debt, they are thinking about growth, how do you reimagine the customer experience. And so I would say a common theme is that in this kind of an environment, everyone does want to be optimizing costs, but where they are focusing is different by industry is what I would say first. And then just to your first part of your question about are you seeing changes in decision making and I’d let KC talk to you about the yields in our pipeline because you all saw, in general, seeing a trend toward these larger deals. So there is – and we talked about this in the last couple of quarters, we’re seeing less of the smaller deals in SMC and to some extent, SI, particularly in North America, where we’re seeing more caution. North America had record sales this quarter. But in areas tending towards the bigger transformational deals, not the smaller SNC and to some extent, SI deals. And those – that transformational pipeline, which is our strategy, right, like if you think about it, what have we been trying to drive for the last few years? We want to be at the center of our clients’ business, we want to be able to be relevant, really help them transform and then be well positioned to continue to be that partner. And I would just say, Enel in my script, is a great example of that. I mean they are hugely innovative utility. They were very early in cloud. We help them get to the cloud. And now they are modernizing and once again being super innovative. That’s exactly the way we want to work with our clients, be their core and then be there for their next big transformation. Maybe, KC, if you want to just comment on the yields real quick.

James Faucette:

Thank you. That’s really helpful. And then just quickly, on D&A, it seems like we’ve seen a little bit of a deceleration there. How are you thinking about D&A going forward? And what was inorganic contribution in the quarter and how should we think about that for the year? Thanks.

James Faucette:

Great. Thank you.

Bryan Keane:

Hi, guys. Good morning. Wanted to just ask about…

Bryan Keane:

Good morning. I just wanted to ask about the communications, media and technology group that did come in at flat local currency and is kind of a standout versus the others. Can you just talk a little bit about what’s happening there and what the outlook might be?

Bryan Keane:

Got it. Got it. And I was just trying to reconcile in my head the strong bookings, but the actions also taken to lower costs in fiscal year ‘24. What does that signal, I guess, for the demand environment in fiscal year ‘24? Should we expect slightly lower growth rates than typical as a result of the actions taken?

Bryan Keane:

Okay. Great. That’s really helpful. Congrats.

Operator:

And our next question comes from the line of Lisa Ellis with MoffettNathanson. Please go ahead.

KC McClure:

Yes, sure. Thanks, Lisa. So maybe I’ll just first start with just looking back over the last two previous quarters. We added 28,000 people in the previous quarters. So let’s first start there. And you’re right, Lisa, when you take a look at what we were able to accomplish this quarter, first of all, we had record bookings. We drove 9% – 9.3% revenue growth, and we had 91% utilization of our people, right? So we have the skills and all the people we needed to deliver to the demand in the market. And if I look – answering your question, looking forward, we sequentially did not add headcount from Q1 to Q2. We see that being about the same in Q2 to Q3. And then looking forward, based on the outlook that we have now, we do see that we would add additional heads in the fourth quarter.

Julie Sweet:

Sure. In fact, I was just at a client this week where we are helping them really transform their whole IT department. And one of the things they want from us is our myWizard platform, which is a great way of explaining how over the last several years, we have built a platform that integrates the best-in-class technology. So, we didn’t write our own code, right. We use the best technologies. And the way it uses AI, for example, is that when a ticket comes in to address something, an IT issue, AI looks at it, identifies whether or not it’s been a problem solved before, in some cases, can solve the problem, in other cases, routes it to the right people. And then it learns from every ticket. So, in the past, when we have talked about – with you about why is it – how do you think about revenue and people, we said, look, we have already been breaking that for years now because we are using so much technology and AI in how we are delivering all of our technology jobs. The same thing is true, for example, with testing, which is incredibly automated, using different technology, including AI. We are continuing to use AI in the way we run our business, for example, in how we look at our accounts payable and receivables and finding ways where we can optimate to have better efficiencies there. We are using it today in the way we are delivering our consulting services as well and definitely very much so in how we look at sales and being able to predict based on lots of factors. Should we be running after the sale or not, or can we show the data that these – this is not the right kind of sale, we are not the right fit. So, we have increasingly been using AI, both in how we deliver services as well as in how we run ourselves. Of course, our SynOps platform for operations is also AI-enabled. It’s one of the reasons why clients turn to us because it’s helping them digitize faster. They are not having to build these things. So, long-term, we see these technology changes, things like generative AI is playing to our strengths because to use these technologies, it requires deep understanding of the industry, the use cases, the process changes. When people talk about the new kinds of generative AI, which we are super excited about, being like a co-pilot to human beings, the entire process has to be changed in order to make that work. You have got to up-skill the people and you have to be able to do all of that in a very responsible way. So, we are already working with. There has been a lot of demand to understand this. And in understanding it, understanding actually how hard it is to be able to implement at scale in an enterprise versus, I am assuming you are – we are all having fun playing with it, but how you build that into an enterprise is very different and a great opportunity, and we are partnering with all the major players to help them take the technology go from technology to implementation to impact.

Julie Sweet:

Thanks Lisa.

David Togut:

Thank you. Good morning. Could you delve into demand trends in the financial services vertical in a little greater depth, especially given the evolving banking crisis we have seen in the last month or so, particularly with some of the regional banks struggling? And maybe as part of that, if you could just remind us of your profile within bank-related IT services, smaller banks versus regionals and money centers.

David Togut:

It does. Thanks so much.

Jason Kupferberg:

Good morning. Thanks guys. I just wanted to ask about Q3 bookings. If you can discuss consulting versus managed services, just expectations there? I mean I think the year-over-year comparison for consulting at least gets a bit easier.

Jason Kupferberg:

Okay. Understood. And then just on the cost side, what’s the estimated savings from the cost takeout program? And I know the charges will aggregate to $1.5 billion, but I just wanted to understand kind of what the fully annualized run rate of savings is? And are you essentially reinvesting the savings? I mean I know at least for this year, we are not changing the underlying margin guidance. So, just wanted to get a picture of how much of this is being reinvested, or are you essentially just offsetting some other headwinds around wage inflation, etcetera?

Jason Kupferberg:

Yes. Alright. So, just…

Jason Kupferberg:

We love the consistency. Thank you.

Operator:

And our next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.

KC McClure:

Yes. Maybe I will just talk a little bit about what you are seeing in terms of headcount, Darrin, and what we are recording in revenue in terms of how we are generating our revenue. And Julie, if you want to add in, you certainly can. But in terms of what you are seeing is we have been very focused on hiring, balancing our supply, demand to what we need to both sell and drive the revenue to meet our client demand and continue to take market share. And part of what you are seeing throughout the year is we have been continuing – you have heard us talk about us really focusing on continued strong pricing. Again, reminder, that when we talk about pricing, it’s the margin on the work that we sold. And that has been improving over the last five quarters. It’s not stable, which we are really happy with. And so some of that is part – there is a part of that that’s helping to drive our revenue production as well.

Darrin Peller:

That actually makes a lot of sense. One follow-up on that and related is the cyclicality of business is it’s not surprising, you would see some of the smaller deals get impacted first by pause or concern among enterprise spending. When we think about the larger transformational side, the pipeline is longer. The sales cycle is longer there. So, having that strong still is probably not – if you do – given how well you guys execute, it’s not shocking, I guess. But on the same side, the magnitude of strength was better than I think we expected. And so looking ahead, what in your experience, cyclically, when do you see that sort of slow down if the economy does take a step down?

Darrin Peller:

Yes. Awesome. Alright. Thanks Julie. Thanks KC.

Operator:

Thank you. And that last question comes from the line of Bryan Bergin with TD Cowen. Please go ahead.

Julie Sweet:

Vendor consolidation is certainly a part of what’s going on in the market, but there are some industries that did that a long time ago in some clients. So, I am not – I don’t have the numbers off hand of what we have in our 35 clients. But I am not seeing that as sort of the big driver of our growth. Right now, we are often telling clients who like basically need to get revenue faster, but more – it’s interesting, the vendor consolidation for many of our clients is less about cost and more that a lot of the industries, like say, consumer goods, telecom where they have lots of different countries. It’s very hard to move to a platform business and sort of build things consistently if you have a ton of different vendors, right, because you want the stuff done in the same way. And so the – it’s interesting the vendor consolidation play for many is more about how do we actually implement a strategy of kind of moving to global platforms being able to have a single approach to data, super hard to do if you have got 50 vendors to 100 vendors. So, I would just say it’s tied to exactly the kind of strategies that we are advising clients on, but no big theme for us.

KC McClure:

Yes. No, there is nothing unusual.

Julie Sweet:

Thank you. So, in closing, I want to thank all of our shareholders for your continued trust and support in all our people for what you are doing for our clients and for each other every day. Thanks everyone for joining.

Operator:

Thank you for standing by. Welcome to the Accenture's First Quarter Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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, Katie O'Conor. Please go ahead.

Julie Sweet:

Thank you to everyone joining us today and especially to our people around the world for their extraordinary work and commitment to our clients, which resulted in delivering another strong quarter of financial results and the broader 360-degree value we continue to create for all our stakeholders, our clients, our people, our shareholders, our partners and our communities. Let me share a few highlights of this 360-degree value and our continued disciplined execution. We delivered strong bookings of $16.2 billion, with 24 clients with quarterly new bookings over $100 million, demonstrating our clients’ continued commitment to transformation and our ability to understand and anticipate our clients' needs, whether for growth, cost optimization or resilience and our ability to deliver compressed transformations. We delivered revenues of $15.7 billion, representing 15% revenue growth in local currency, with double-digit growth in each market. We estimate that we are growing more than 2x the market, while delivering margin expansion of 20 basis points. We continue to invest in our people, with 10.4 million training hours this quarter, representing an average of 15 hours per person, providing learning opportunities and upscaling to enable us to pivot as our clients' needs evolve. We earned the number one position on the Refinitiv Diversity and Inclusion Index for the third time in the past five years and a top score on the Workplace Pride Global Benchmark, recognizing Accenture as the leader in our industry. We believe our unwavering commitment to diversity and inclusion is both the right thing to do and an essential element of our business strategy and strong financial performance. We have reached 97% renewable electricity, closing in on our goal of 100% by the end of 2023. Our own progress in sustainability is important to our ability to lead in helping our clients harness this key force of change and in attracting top talent. Finally, I want to congratulate our more than 1,200 new promotes to Managing Director, 119 new appointments to Senior Managing Director and the more than 90,000 people we promoted around the world in Q1 overall, reflecting our commitment to providing vibrant career paths. Over to you KC.

Julie Sweet:

Thanks, KC. We remain laser-focused on staying close to our clients, advising them how to navigate the macro, providing the right solutions to enable compressed transformations and adjusting to their changing needs. Let me give some further color on what we're seeing in the market and how we see the demand environment shaping up. Over the last quarter, as we can all read, the economic estimates for 2023 continue to decline. While the latest industry estimates for 2023's technology spending continue to show robust growth of 5% or so, we will see how the market evolves as clients finalize 2023 budgets. So what does today's market mean for our clients? We believe that the current macro is making it even clearer to clients that they need to change more, not less, and that two of the five key forces of change that we have identified for the next decade

Katie O'Conor:

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

Bryan Keane:

Happy holidays. Really good results, strong results here. The one area that was a little softer was the Strategy & Consulting area, and I think you guys called that out as expected. Just thinking about Strategy & Consulting that you knew it was going to be a little bit softer, and it's becoming a little bit softer. Is that just more the move towards the cost agenda versus growth and just thinking about what we can expect there going forward?

Julie Sweet:

Yes. Bryan, maybe -- I want to maybe say -- to make sort of two points. So first of all, specifically on S&C, I think it's important to understand we really have a tale of two worlds. So our S&C work is growing high single-digit to low double-digit when it's tied to areas around cloud, enterprise and industry platforms, talent, cost reduction, everything tied to building to the core. So underneath our results, like that's growing great. The other world, right, is S&C that's tied to things like ad spend, creative marketing strategy and campaigns and other sort of front-office initiatives are contracting, right? And that's, of course, the strength of Accenture, is that we've got a very broad range of services even within the Strategy & Consulting as well as a broad range of industries. And so while the -- at the top line, you saw it 3% this quarter, there'll be a slight decline next quarter, underneath that, you've got a lot of strength in everything that's really driving our results. And I think that's really important to just understand. But then, I want to take a step back and just maybe comment on the demand environment. KC just mentioned kind of the impact in S&C and smaller deals. So first of all, like we're obviously super pleased with Q1, right? Great growth, and we're really happy with how we're seeing the year start. Now at the same time, what do we see over the last 90 days, what we saw what everybody saw, right, which was the macros continue to have uncertainty and you've got GDP estimates declining over the past 90 days. And on the one hand, our clients clearly are remaining ambitious, right, they're committed to revamping their business. And you see that in the 24 clients with quarterly new bookings over $100 million, right, which is an increase over this time last year. At the same time, they're more and more focused on cost and resilience. And many are having to make pretty hard choices, right, because the macro affects the industries differently. So you've got some industries, retail consumer goods, that are much more challenged than say, energy. But at the same time, and we talked about starting to see this last quarter, kind of regardless of industry, as the macro uncertainty has increased, right, they're being a little bit more cautious. So we're seeing some delays in decision-making. We see changes in the pace of spending, and we're seeing some pausing of the smaller deals. And all of this impacts the smaller deals more than the bigger deals because we're continuing to see that big transformation focus. So that impacts our revenue and profit build over the year, which is part of what we're seeing in S&C in the second quarter with the decline. And then, I just want to remind everyone that this is exactly the environment that you see the strength of Accenture. It is because we are so broadly diverse. I mean you saw it in the examples in my script, all around the world, all around industries. But who else could be in Asia doing border security, in the U.S., working with the state of Missouri on a talent and tech implementation; in Europe, working with a European grocer doing IT modernization, cost reduction and customer experience? Just moving around the world, you're back into Asia, working with a telecom operator, digitizing their platform, creating a new customer experience. And so, you just continue to see that our strategy that we've had for decades to be across industries, a global footprint and depth and breadth of services. I mean Managed Services is on fire because we could digitize faster, get that compressed transformation, help them access the talent and lower cost. So back to you, Bryan.

Tien-Tsin Huang:

Okay. Just to – and good morning. I just add to the Bryan's last question here, just as on the visibility side, especially in consulting relative to Managed Services. And given, Julie, what you just said there, any change in your thinking on mix of growth across Consulting versus Managed Services, asking for both, I guess, bookings as well as revenue here?

Julie Sweet:

Yes, and we're going to continue to focus our Strategy & Consulting expertise on these platform and cloud-led transformation.

KC McClure:

Yes. Sure. So I'll talk a little bit about on the attrition point, and then we can get into kind of what we're seeing overall in our cost and our visibility in that regard. So attrition was down to 13%, and I think all of you know, but there's a structural pattern of attrition that typically comes down from Q4 to Q1. This year came down at a tick more, and we're really pleased with that. And that means we have to hire fewer replacement people, it means less recruiting costs, and you saw that in our improvement in G&A this quarter, and it's less ramp up for new hires. And so Tien-Tsin, in terms of visibility of what we see, I mean, we expect to continue to hire for the specific skills that we need. With upskilling, we may not need to hire as many people as we go throughout the year. But we have a very deep -- and we have a very deep competency in our supply and demand balancing and we're always focused on. And in terms of profit, let me talk a little bit about what we're seeing in operating margin. So operating margin, we're pleased with the 20 basis point expansion that we have in Q1 and really pleased to be confirming our 10 to 30 basis points expansion for the year. And as I said last quarter, we'd be pleased to land anywhere within the 10 to 30 basis point range. But let me give you a little bit more color about what we're seeing in Q2 and then just the visibility, as you ask, about the rest of the year. So I mentioned last quarter, we may see more variability in the quarters as we get through fiscal '23. And as I mentioned in the script, that is exactly playing out. Now, there's a few reasons for that. So in Q2 overall, the first thing, and I think all of you know, it's a structurally lower profit quarter just to begin with, in part because of the holidays. As well as for us, it's when most of our compensation increases kick in. So while we've planned for those comp increases, it does take some time to work through our P&L. And then in addition, in Q2, the impact of the changes of smaller deal volumes that Julie described, it's going to impact Q2 revenue. And that -- when you take everything into consideration, that's why we expect the Q2 operating margin decline in Q2 and potentially for the first half of the year. And so with that, then the math shows that most of our margin expansion will be in the back half of the year. And how -- why is it that we see that? We have a strong pipeline, as I mentioned. We have continued strong pricing improvements in our pipeline. And as always, we have some simple, but important levers on how we run our business. We are going to in addition to pricing, focused on cost efficiencies and delivery efficiencies within how we run our contracts. We're going to manage supply and demand, as we always do, with even more rigor and discipline. And we're going to continue to work on digitizing and cost-effective running the operations of Accenture.

Lisa Ellis:

I wanted to ask, Julie, a bit about the progress on compressed transformations. I think you started using that phrase about two years ago sort of in the earlier days of the pandemic. And now as you're working with clients looking out into 2023, can you just give some color on sort of like how far they are along in the compressed transformation? Is this -- do we -- are we still only in the third or fourth inning? Or a lot of your clients sort of in full rollout mode and we've got a couple of years left? Just trying to get a sense for sort of that big push we've seen, how far through the process are we? How much of this sort of sustained growth can we expect going forward?

Lisa Ellis:

Okay. Good. Then a quick one on M&A. I think you highlighted, KC, about close to $700 million in this past quarter in M&A. Can you guys just give a little more color on what you're seeing in the environment? Have you seen some of the private valuations come in? And are you seeing sort of an uptick in activity in that space?

Operator:

Your next question comes from the line of Dave Koning from Baird. Please go ahead.

KC McClure:

Yes. So, overall -- let me say first, Happy Holidays. It's good to talk to you. In terms of overall, our strategic priorities, as you mentioned, and you're right, you would expect in a quarter where we grew 15%, we did have higher growth overall in terms of what we have in our strategic priorities. They would -- in total, they did grow at a faster pace than the rest of Accenture at 15%, which is the intent overall of our strategic priority. And so -- which does account for the majority of our revenue.

David Koning:

Yes. Got you. And just one quick follow-up. You mentioned in Consulting, I think Tien-Tsin asked, you mentioned in Consulting, I think, bookings being down. Was that sequentially or year-over-year? And is that on a constant currency basis?

Operator:

Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead.

Julie Sweet:

So a few things, right? So first of all, since the pandemic began, we've been very focused on building scale in markets around cloud, data and AI because that's so critical to building the digital core. So last quarter, we bought something in the Nordics, for example, that was all about getting scale. We bought something in France around mainframes because that's a very specific skillset that is relevant to moving some industries like financial services off of these core systems. And so we'd expect to continue to invest there. And we did this quarter, for example, with eLogic and with Sensis, these were acquisitions that we did this quarter, all in sort of the cloud and cloud platform technology space. Data and AI solutions will continue to be important. And again, we try to focus both on scale and getting scale in market. So we made a really exciting acquisition in Japan this quarter around data and AI solutions because we see that such a big market for us and we see a lot of interest, and it was just a great company. So, if you think about what clients are focused on building their digital core, that's going to continue to be a focus. The next digital frontier, so supply chain, digitizing supply chain and manufacturing, so we made a couple of acquisitions there this quarter, MacGregor, Stellantis. And so really, we keep very close to our strategy, which is tied to clients. They want reinvention across the enterprise, so continuing to build areas like in the digital frontier, making sure we've got scale and all of the capabilities needed across the digital core will continue to be a focus.

KC McClure:

Yes. Thanks for the question. And you're right, we do have industry-leading DSO, and we continue to have industry-leading DSOs. So let's talk about what we're seeing this quarter. So we had 48 days this quarter. And I think as you know, we do have a structural uptick every year from Q4 to Q1. And this is about a day of higher uptick than we would traditionally have, but it's nothing that we're concerned about. And we do feel really good about our DSO coming down by the end of the year. As I mentioned in our free cash flow guidance at the beginning of the year, we did allow for a couple of days uptick in DSO, and that's what we still expect. And maybe I'll talk a little bit about the free cash flow. So when you take a look at that in free cash flow and our expectations, overall for free cash flow for the year, you heard me reiterate the free cash flow guidance for the year. So that allows for us to have a few days uptick in DSO. And so, we're still really -- feel that the $1.1 billion is a really very strong free cash flow guidance, and it takes into account and increased DSO for the year.

Bryan Bergin:

I wanted to follow up on the growth outlook and a little bit of the client behavior. So I'm curious if you've seen any actual change in backlog or prior book sales being deferred or potentially coming out there? So I hear you on the macro uncertainty, and I'm curious if their incidence of clients actually taking work out versus more so dragging on new bookings?

Julie Sweet:

Yes -- no. And really I think what's important is that regardless of industry or country, the focus still is on transformation, right? There is nobody saying, "I'm going to change less," right? Unfortunately, the companies are having -- sometimes are having a harder time, right, doing what they'd like to do because they're under pressure. And again, that's where our relationships really matter because we're the trusted partner, right? And if you got to know that whatever you are going to spend money on, it's going to have to deliver value, it's a flight to quality, right? And so, we've seen that since the early days of the pandemic, and it continues in this environment. And remember, that the idea of total enterprise reinvention is things are connected. Like I gave the example of the European grocer, right? One company that can transform IT, do an ad strategy, provide personalized customer experience and lower overall cost, right, that is not easy to do, and it requires industry expertise and expertise in many parts of the enterprise. And that's really where our resilience comes from. And by the way, also our ability to pivot, right, to pivot, and that particular one started as a cost play, and we were able to show the client how not only could they reduce cost, but they could actually drive more growth by connecting these things and understanding the intersections. And that's what we're focused on, right? We always start with what do our clients need. And right now, they need to be more efficient, they need to do more with less, they need to optimize what they have and we're investing. And I will tell you that one of the things that's so critical are assets and solutions. Because I was just doing or earlier this week, and I always ask the client what do you think about what you've seen, and they're like, it's amazing like you have this myWizard platform, it's got data, it's got AI, it's stuff that we can even begin to build, and you not only have it built but it's been used in thousands of clients. So that's the kind of place where our ability to invest, not just now, but over the last decade, really matters to clients. And compared to anybody out there, right, the amount of money that we're putting in acquisitions and solutions is really tremendous in driving value for our clients.

Julie Sweet:

By the way, my CEO of Europe and my CEO of Growth Markets like that out to their friends in North America as well. So, a little good-natured competition there, but KC, why don't you...

Julie Sweet:

Yes, on North America, I mean, they had unbelievable growth last year on a huge book of business. So growing anywhere in the high single digit to double digit again this year is quite impressive. I mean their growth was 26% last year. So, we are very pleased with kind of the growth we see ahead.

Operator:

Okay. That question comes from the line of Ashwin Shirvaikar from Citi. Please go ahead.

KC McClure:

Yes, sure. Hi, Ashwin, nice to speak with you. So just in terms of what we expect for hiring, first of all, as you know, our ability to manage supply and demand is a core competency of ours, and we're always focused on it. And so, we did hire about -- we added about 17,000 people this quarter, as you mentioned. And we will continue to hire for the specific skills that we need. I think I made reference to that earlier, which means we may not need to hire as many people as we go throughout the year, but we'll balance that as we go through. And on wage inflation, I'll just go back to what we said when we set guidance, we did see wage inflation continuing. We do have comp increases that are kicking in that we've planned for, of course, and included in our pricing. But they are higher than they've been, and that's a statement across all industries, all geographies. And of course, that we're no different in that regard.

KC McClure:

Yes. I think here's the way I would look at it. In terms of when you look at Managed Services and Consulting, as a broad statement, you have more the benefit of Managed Services is that you have already sold a fair amount of work, right? So while they are longer deals and they made the deals that you sell in that quarter may turn into revenue a little shorter than they would in A consulting sale, for example, which is typically a shorter duration, you have more work already sold as you go into a quarter. So there's a terrific benefit to that, which is why we like this diversity, right? We have that as well as in Consulting. They do -- the length and shape of them really do vary. And when you look at it overall, Ashwin, if you go back, and I know you followed us for a long time, and just look at our mix, of Managed Services to Consulting, it doesn't really change the bookings, really don't change much as you go throughout our history, in terms of the percent -- the proportion of each.

Operator:

That does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Accenture's Fourth Quarter Fiscal 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Managing Director, Head of Investor Relations, Ms. Angie Park. Please go ahead.

Julie Sweet:

Thank you, Angie, and everyone joining us today. And thank you to our 721,000 people around the globe for delivering a truly extraordinary year. We measure our success by both our financial results and the broader 360-degree value we create for all our stakeholders, our clients, people, shareholders, partners and communities. Strong financial results allow us to deliver more 360-degree value. Let me share a few highlights of this extraordinary year. In FY '22, we delivered record bookings of $72 billion. As our clients continue to execute compressed transformations, we had 100 clients with quarterly bookings greater than $100 million compared to $72 million last fiscal year. We delivered revenues of $62 billion, representing a record 26% growth in local currency, adding $11 billion in revenue for the year. We continue to take significant market share growing more than 2x the market. Our financial results reflect our commitment to creating value for our clients every day, which is why they are turning to us as their trusted partner across the enterprise. We now have 267 Diamond clients, our largest client relationships compared to 229 last fiscal year. We expanded operating margin by 10 basis points and had EPS growth of 22% over adjusted FY '21 EPS, demonstrating our ability to grow profitably and at scale. We achieved this profitable growth while continuing to invest significantly in our business and people with $3.4 billion deployed across 38 acquisitions that are well balanced across markets, services and strategic priorities; $1.1 billion invested in R&D assets, platforms and industry solutions, including growing our portfolio of patents and pending patents to more than 8,300; and $1.1 billion invested in the training and development of our people to grow the skills needed to serve our clients. We continue to offer an employee value proposition that includes providing vibrant career paths and opportunities for our people with approximately 157,000 promotions and over 40 million training hours while expanding our workforce by almost 100,000 and achieving 47% women as we continue our progress towards gender parity by 2025. We believe our unwavering commitment to diversity, broadly defined and inclusion is an essential element of our ability to deliver market-leading financial results because our diversity and inclusiveness makes us smarter, more innovative and more attractive to top talent. We achieved over 85% renewable electricity powering our offices and centers around the world on our way to 100% by 2023. We prioritize creating value around the world and the communities where we work and live, both through investments and job creation and through our direct support of meaningful local initiatives, including our apprenticeship programs in the U.S., UK, Switzerland and Latin America and our growing partnership with Youth Business International, which will help an additional estimated 240,000 young entrepreneurs, ages 18 to 35, build skills and success in a digital future on top of the 370,000 young entrepreneurs already supported through this partnership in many different communities throughout the world. This year, we are proud to achieve our highest brand value and rank to date on BrandZ's prestigious Top 100 Most Valuable Global Brands list, increasing 28% to over $82 billion and ranking number 26. Over to you, KC.

Julie Sweet:

Thank you, KC. We succeed by being close to our clients, understanding and anticipating their needs, helping them from strategy to execution with the best solutions for their businesses, whether for growth, cost optimization or both and resilience. And it all starts with technology. With the breadth and depth of our existing capabilities, combined with our incredible learning organization, we are able to pivot as necessary, positioning us to serve our clients' changing needs and capture new market opportunities all while being laser-focused on our own operational excellence. I will give some color on the demand we are seeing. First of all, against the backdrop of the current macroeconomic environment, we delivered $18.4 billion in new bookings in Q4, a year-over-year increase of 31% in local currency. While industries and markets are being affected differently, there are two common themes

Angie Park:

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

Lisa Ellis:

Good stuff here. Just a question about the outlook for fiscal '23. Can you elaborate a bit further on what underlying macroeconomic outlook that you have embedded in guidance above and beyond the 6 points of FX translation. And maybe the broader question is sort of how, if at all, are you seeing the rising rate environment inflation sort of escalating dynamics of what we've been seeing all year long affecting your business?

Julie Sweet:

Maybe I'll add, Lisa, is that -- when we think about the macro environment, what we're really thinking about is what do our clients need, right? So as -- so -- and I talked a little bit about this last quarter, right, is this environment affects different industries differently. So, you've got those who are really tied to the supply chain disruption and the inflation continuing to focus on cost. But you also see that as the uncertainty increases. So over the last 90 to 120 days, you saw changes in the estimates around the GDP growth for 2023, it makes all clients really think about, okay, what's my resilience? Is there more that I can do? Can I take advantage of the environment to push through deeper cost cuts that require you to change behaviors? And so we really think about the environment as what does that mean we need to do to help our clients and how do we continue to pivot. And it's very similar if you think about what we did in the early days of the pandemic, where we've pivoted a lot to, for example, cloud using all of our learning organization. So that's the focus. So it's always an opportunity to better serve our clients.

KC McClure:

Sure. And so Lisa, as you mentioned, we feel really good about our bookings in Q4. It was our second highest bookings ever our highest also being this year in the second quarter. What I really liked about it was driven by broad-based demand. So across all markets and our services, and we peel it back. We had good book-to-bill in all dimensions of our business. And with outsourcing a record of almost $10 billion, and that was almost $1.3 billion more than what we did for our last record. And we do continue to see a strong pipeline going into the year, even with those the second best record bookings. But I will say that as we often do, we have seasonally lower bookings in quarter one and we are seeing that again this year.

Tien-Tsin Huang:

Just tacking on what Lisa just asked there with this larger book-to-bill in outsourcing relative to consulting. Is the shift to larger deals, does that tell you or should it tell us anything about client priorities? And I'm curious if that changes or even improves your visibility overall for fiscal '23, given you have so much more in the way of larger deals in the backlog.

KC McClure:

Yes. And maybe Tien-Tsin, I'll just add in terms of -- if you just look at our bookings this year from an outsourcing type of work compared to consulting type of work compared to our history over the last few years, there's really no difference, right? We actually have a slight percentage uptick in what we closed out this year in consulting type of work looking versus outsourcing. So there's no real difference in our mix.

KC McClure:

Yes. So, I'll take the inorganic point, and then I'll hand it over to Julie to give some more color. So, first of all, there's no change overall to our capital allocation strategy, right? So, we will continue to use V&A to fuel our organic growth. And so, you'll see the 2.5%, Tien-Tsin, is an inorganic contribution. It's generally in the zone of what we've done in previous years. And so maybe I'll also just take a chance to talk about what that means in terms of how we're going to invest in our business next year and how that relates to how we're seeing our profit because I think it's really important to point out that we're really proud of what we accomplished this past year in '22, where we did 10 basis points of expansion. And Tien-tsin, we were continuing to invest at scale in our business, right? And also in our people, particularly this year with managing wage inflation. So as we look through next year, we expect to continue to invest in our business. We expect wage inflation to continue. It's across all industries and across the globe. And for us, it's going to vary by geography by scale. And we will navigate that like we did this past year with a focus on pricing, which we all know can lag compensation a bit. But I just want to point out that we did see the benefit of improved pricing in our P&L in '22. And so again, we're going to do all of this while changing the mix of people in our contracts, the use of technology to absorb the higher investments that we're making organically and the higher investments that we're making in our people. But -- so it's really important that we continue on our investment profile. And with that, like I'd be really happy next year to land anywhere within the 10 to 30 basis points of op margin expansion. And I would say that based on how we're going to invest throughout the year, there's a bit more potential for us to have a more variability in the quarters as we go throughout fiscal year '23 on our way to 10 to 30 basis points of expansion for the year.

Operator:

Thank you. Our next question will come from the line of Keith Bachman with BMO. Please go ahead.

Julie Sweet:

Well, I'll let KC start, and then I'll add on.

Julie Sweet:

Great. And Keith, what I would just say is that -- remember, our focus is helping our clients create value within whatever environment that they are operating in, right? So -- and which is very different depending on your industry. So like pick right now, providers in the U.S., right? They are focused on cost cutting because they went through a tough time with COVID, they're behind in digitization, so they're investing there. And they have to because they're facing one of the most difficult labor markets they've ever had to now sort of resistance and difficulty in automating before. That is a completely different that a global consumer company like Unilever, we talked about in our script, who's reinventing everything that been on this journey for a few years, looking to the next thing, right? And they're dealing with supply chain disruptions, right, cost inputs. And so, that is how we continue to succeed is by understanding the depth of difference in our industry. We're using knowledge that we had from other industry to now accelerate what the providers are doing because they're now implementing SaaS solutions to connect their patients that we've been doing for years in retail, right, and in banking and in lots of other industries. So that our outlook for the year reflects our confidence that we are going to continue to be able to use that knowledge, stay close to our clients and deliver on what they need.

KC McClure:

Yes. Thanks, Keith. So, as you know, when we set our guidance, we always first start with looking at the ratio. So the ratio that we have in our free cash flow guidance is a very strong $1.1 billion free cash flow to net income ratio. So, we're happy with that. We also are allowing in that guidance a bit of an uptick in DSO from our current level. And then also, we are assuming we are going to have the FX impact of 6% that will obviously impact our free cash flow as well. And as you know, it's not unusual for us to start guidance at the beginning of the year with a free cash flow guidance range, that's below where we delivered the previous year.

Bryan Keane:

Obviously, a lot of folks are asking about the macro. So just curious how the macro has changed for you guys over the last three months and how that's influenced your business because it doesn't really show up much in results? So just curious how you would frame that?

Bryan Keane:

Got it. Yes. Yes, I was just looking at Europe, in particular, up 26% in local currency, given all the concerns around Europe. It's just a pretty amazing number. It doesn't seem to have come off much from the growth rates you've been putting up.

KC McClure:

Yes. And maybe, Brett, I'll give you a little bit of color on that as it relates to Q1. Let me give you a peel back a little bit on the revenue outlook that we have for the first quarter -- and when we look at the markets, we see all the markets for the first quarter within that 10% to 14% revenue range that we gave. They all have the potential to be double digits, and that includes Europe. And then also for the consulting type of work in Q1, we see a high single-digit to low double-digit growth range within that 10 to 14. And I would peel back consulting a little bit for you, too. Within consulting, we see the detect portion of consulting the systems integration, we'll have continued strong demand and S&C, we expect to be in lower single digits.

KC McClure:

I would say, Brian, that in terms of looking at the back half of the year, I mean, that's no different than the way it is, honestly, every year. We talked a lot about what we just mentioned on how we look at the macro in the market. But the back half of the year, we always -- it's always less certain at this time of the year than obviously the first quarter and the first half. Again, it's no different than what we have experienced every year.

KC McClure:

It is. It is.

Julie Sweet:

Thanks.

Operator:

Thank you. Our next question comes from James Faucette with Morgan Stanley. Please go ahead.

Julie Sweet:

Well, as you know, our -- we have a very deep competency in supply and demand. And actually, over the course of the last couple of years, we continue to innovate. We have an incredible what we call integrated talent control tower that is able to predict earlier and earlier in our sales cycle, where the skills will be needed and what type of skills. And so for us, this is just normal business, right? And keep in mind, technology demand is really incredible, right? I mean you saw that in our results. All strategies lead to technology. And we're super pleased with not only our performance there, but what we're seeing ahead as clients continue to build the digital core as fundamental to all of their other strategic needs. And our talent supply chain is able to see that, predict it, understand the skills and keep moving forward.

KC McClure:

So let me just remind you that when I'm talking about pricing in my answer, I'm talking about the margin on the work that we've sold. And I'm really pleased that we've continued to see improvements in pricing. And we are seeing the benefits. I mentioned this earlier, but I'll just repeat it. We are seeing the benefits come through in our P&L. And we continue to focus on improvements in pricing as we enter into fiscal year '23. So I'm really I'm really pleased with the progress we've made.

Jason Kupferberg:

KC, I just wanted to pick up on your comment on one of the prior questions around -- I think you said strategy and consulting, up in the low single-digit range in Q1. So Curious if that's the same kind of range you anticipate for the full year fiscal '23? And is that below corporate average level, just reflective of the more kind of discretionary nature and growth-oriented nature of those services?

Jason Kupferberg:

Okay. Understood. Maybe just turning to the supply side for a second. It looks like attrition was unchanged in Q4 versus Q3. And wondering what you're expecting there in fiscal '23 as well as what you're expecting for wage inflation relative to 2022 and whether or not some of the broader layoffs across other parts of the tech industry, is that taking some of the pressure off some of your supply metrics at all?

Julie Sweet:

Yes. And look, I would just say to you that technology skills are in demand by both companies as well as our competitors because technology is at the core of strategy. And so, we're expecting to have a continued tight labor market, and we continue to expect us to really excel because despite that market, as you know, even this last year, we added 100,000 people. So, I don't -- the fact that there has been some layoffs in certain markets isn't really, I think, going to change much.

Operator:

Thank you. And that question will come from the line of Bryan Bergin with Cowen. Please go ahead.

KC McClure:

Yes. So, I'll maybe just start with the overall outlook that we have read. You can see that we started with 8 to 11. I already gave the color on that. So -- and within that, obviously, we have a strong start at 10% to 14% growth. And in terms of really what that looks like for the rest of the year, I mean we'll continue to give guidance like we typically do as we progress through FY '23. I mean, as Julie mentioned, we see continued strong demand in our technology -- our areas of technology. And other than that, we don't really give any more guidance and kind of view on revenue outlook than what I've already shared.

Bryan Bergin:

Okay. Okay. And then it looks like just on M&A, it looks like you did close on more in 4Q than you had initially anticipated. So how should we think about the planned spend in fiscal '23 for M&A underlying the 2.5% growth contribution? And then just how do you start off the year in 1Q? What's the inorganic assumption in that outlook?

Julie Sweet:

Yes, it's probably worth reminding that last Q1, we had Umlaut and Novetta, which were both very large acquisitions come in, in Q1. So probably just good to remind everyone that's part of what's driving the Q1 S&C results too. Great. So before we wrap up, I do want to mention that Angie Park, who has been our Head of Investor Relations for the past six years, has been promoted to become the CFO for our really outstanding technology services business. Angie has been an absolutely incredible Head of IR and we're particularly grateful for how she has helped lead us through some of the most turbulent times in the history of Accenture. I know from speaking to our investors and analysts how much they've appreciated Angie's steady hand, her commitment to transparency and connection. And I know we'll all miss her in this role, but are extremely excited to see her start the next chapter of what has already been an incredible career. So thank you very much, Angie. And I am also pleased to welcome Katy O'Connor who will become our new Head of Investor Relations. She's got incredible experience. She's held many finance roles during her 25 years at Accenture. So please join me in welcoming Katy and I know she's looking forward to getting to know all of you in the days ahead. In closing, I do want to thank again all of our people and our managing directors for what you're doing every day. Our people, our actions and our results in FY '22 have positioned us to be very strongly going into FY '23 and create even more 360-degree value. And finally and very importantly, thank you to all of our shareholders for your continued trust and support. Thank you.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to Accenture's Third Quarter Fiscal 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Angie Park, Managing Director and Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Angie. And thank you everyone for joining. And thank you to our 710,000 people around the globe for their extraordinary work and commitment to our clients, which resulted in delivering another very strong quarter of financial results and creating significant 360 degree value beyond our financials for all our stakeholders. Here are a few highlights of the 360 degree value we created this quarter. Starting with our people, we continue to invest in their skills and they completed 10.6 million training hours, which averages to 16 hours per person this quarter. We are incredibly pleased to be recognized as a top 10 Great Place to Work for 2022 in countries representing 76% of our people, Argentina, Brazil, France, India, Japan, Mexico, the Philippines, UK and the United States. Specifically on the US list, we are particularly proud that Accenture jumped 38 spots in one year to rank number six. Overall, this is the 14th consecutive year that Accenture has been recognized by great place to work. Also a particular note in India, not only were we ranked number 10 by Great Place to Work, Business Today recognized Accenture in India as number four of the best companies to work for marking our 11th consecutive year on the list. All these recognitions reflect a tangible demonstration of our commitment to our people. The strong demand for our people and services and trust from our clients are once again seen in our strong bookings of $17 billion which represents 15% growth in local currency. Compressed transformation continues with another 18 clients with bookings over $100 million, bringing the total year-to-date to 74, which is 20 more than the same time last year. We had revenue growth of 27% in local currency, continuing to take significant market share growing nearly three times the market while delivering margin expansion of 10 basis points. Our ongoing investment in our communities was reflected this quarter, and how we are leveraging our expertise in digital learning and collaboration, partnering with UNICEF’s Generation Unlimited on the new passport to earning platform program to equip 10 million young people ages 15 to 24 with digital skills across 10 countries to prepare them for work. This program went live this quarter in India, the first and largest country of the 10. As always, well as always, we are staying close to our clients and our ecosystem partners to help them succeed today, and to anticipate the needs of the future. And our very strong financial results this quarter reinforced the trust our clients and partners have in our ability to do so. Over to you, KC.

Julie Sweet:

Thank you, KC. As we shared at our recent Investor and Analyst Day, we believe there are five forces that our clients must harness over the next decade and that in turn will drive our growth. Total enterprise reinvention, talent, sustainability, the Metaverse continuum and the ongoing tech revolution. Today, we continue to see strong demand across our markets, services and industries, which is being driven primarily by two of these five forces. Total enterprise reinvention, which involves transformation of every part of every business, leveraging technology, with new ways of working and engaging with customers and employees, and new opportunities for growth and talent, which requires every business to be able to access talent, be a talent creator, not just a talent consumer and to unlock the potential of their people. Compressed transformation continues with our clients seeking to execute bold programs in accelerated timeframes, often spanning multiple parts of the enterprise at the same time, when in the past, they may have taken a more sequential approach. This desire for speed with strong execution is driving our growth as clients partner with us because of the breadth and depth of our capabilities, the insights that come from our scale, global footprint and our deep functional industry and cross industry expertise. And they partner with us because they trust us. And because we are trusted partners with the technology ecosystem, which are also critical to our clients transformation. While the current macroeconomic environment affects industries and markets differently. The common theme across our clients is that all strategies whether for growth, cost or resilience, lead to technology, particularly cloud data and AI, and our clients turn to us to be able to effectively use technology to achieve their goals. Let me bring this demand environment to life. We help our clients execute total enterprise reinvention by helping them build their digital core, optimize operations and accelerate growth. Cloud Data and AI are fundamental to a strong digital core. We are working with the Clorox company, a leading multinational manufacturer and marketer of homecare, household and health and beauty products for consumers, as well as products and technologies for professional customers. The company is undertaking a broad digital transformation that will touch every aspect of the enterprise. We will help the company modernize business processes, streamline their operating model, leverages advanced data and analytic insights and establish a future ready technology foundation to deliver new levels of customer and consumer experiences, accelerate go- to-market activities and enable a more agile and resilient supply chain so they can lead and shape the consumer goods industry. We are helping new look, a global fashion retailer migrate its existing ecommerce platform to the cloud and strengthen its technology foundation to enable a seamless experience across stores, online, mobile and social media. AI and machine learning will create greater efficiency, increased sales and provide the flexibility to scale for growth and overcome industry disruption. The company is committed to infusing sustainability into their transformation roadmap, using innovation as an accelerator toward their own 2040 sustainability targets, all of which promises to keep the company in step with the store of the future, the speed of the fashion industry and the demands of their stakeholders. And as we build the digital course of our clients, security is more important than ever. Our integrated capabilities from identity to threat intelligence to manage security services to incident response are critical as our clients respond to increasing risks and expand their digital footprint. We are helping a large healthcare services provider assess their cybersecurity and business resilience levels. With much of their growth coming through mergers and acquisitions, technology and security have become more challenging to manage with multiple security providers, data centers and environments. We help design a cloud strategy and secure their backups in the cloud with an end-to-end cybersecurity approach that will provide flexibility as they continue to acquire more companies. We are also providing a managed security service from cyber resilience to threat intelligence to monitor their infrastructure and their security products, improving their ability to protect against future attacks. Our clients value our unique combination of capabilities from strategy and consulting to technology to manage services, because it enables us to deliver holistic solutions and expands their access to digital talent. We are helping INFRONEER Holdings, a Japan based infrastructure construction services company, digitally transform operations in finance and HR through a data driven approach. Through our managed services capabilities in our SynOps platform, we will help the company shift to intelligent operations by standardizing and automating key business processes, driving efficiency and productivity, reducing operating costs and providing greater opportunity for their people to focus on high value and strategic growth areas such as business design and digital experience. Shifting to the next digital frontier in the enterprise, our industry X capabilities are digitizing engineering and manufacturing to reimagine the products our clients make and how they make them and to build a greater resiliency, productivity and sustainability. We are partnering with a German multinational corporate manufacturer of luxury vehicles to develop an in-car software platform that will power the Central Intelligence Unit for personalized driver interaction information, convenience functions and entertainment. The platform provides a continuous flow of customer data to the automaker, enabling it to enhance vehicle functionality and create the superior customer experience, the automaker is renowned for. We are helping Albras, the largest producer of primary aluminum in Brazil to increase its productivity, energy efficiency and minimize greenhouse gas emissions by creating a new smelter control system operated over a new IoT architecture that utilizes cloud platforms for data storage and machine learning. Data insights will enable better visibility of gas emissions around the clock, allowing operations to be proactively managed, leading to increase energy efficiency and operational safety, as well as additional sustainability strategies to reduce their carbon footprint. Sustainability, one of the five forces shaping the next decade continues to be a growing priority area for our clients. And they value our ability to help them achieve their sustainability goals as part of their larger transformation such as the Albras example and directly as part of sustainability focused engagements, such as the work we are doing for Pos Malaysia Berhad, the national operator running Malaysia's largest post and parcel delivery network, we are helping Pos Malaysia Berhad to embrace a data driven approach to reducing emissions, cutting waste and upgrading its employees’ digital skills, best-in- class solutions for environmental, social and governance benchmarking, plus a sustainability implementation roadmap and skills for the future program will lead to dramatic reductions in direct waste and Scope 1 and 2 carbon emissions along with rapid progress and workforce upskilling. We continue to build our capabilities in this area both organically and inorganically. We are pleased that this quarter we announced three new sustainability acquisitions; Greenfish, akzente and Avieco, extending our reach and enhancing our ability to deliver deep skills and expertise to clients in ESG measurement and non-financial reporting, net zero strategy and regulation and real time data analytics. Our unmatched ability to access, create and unlock talent is valued by our clients as a key component of their compressed transformations, such as Pos Malaysia Berhad. In other cases, we help provide our clients access to talent through our managed services, and we help them become talent creators by having their shared services groups join Accenture where they can benefit from our ability to transform, upskill and provide new career pathways. For example, we are working with BNL a leading Italian banking group and subsidiary at BNP Paribas on a compressed transformation just 18 months from start to finish that will leverage our SynOps platform, maximize our clients’ existing talent and reduce total cost of ownership. We will consolidate data to provide deeper analytic insights and a better customer experience with tailored services and faster fulfillment times for customer requests. As part of this transformation, more than 500 people from their team will move to Accenture, where we will leverage their industry specific skills while also providing opportunities for professional development, enabling BNL to focus on strategic growth and benefit from this upskilling. We also do work with our clients that is primarily focused on their talent agenda. For example, we're collaborating with a large utility who is creating 1000s of clean energy jobs in areas like renewable electricity generation, energy saving homes and buildings and sustainable transportation. They're doing so for unemployed, underemployed and low to middle income residents. We are developing a recruitment, employment and tracking platform that matches people’s skills, with available positions leveraging AI and market insights. This solution reduces hiring time, improves the candidate experience and unlocks talent potential to create jobs for the underrepresented residents who need the most. We are uniquely positioned to help our clients drive cost efficiencies and their growth agenda. As you may have seen Accenture Interactive will now go-to-market as Accenture Song to reflect the fundamental change in the way companies must engage with customers, and the incredible speed at which they need to operate and innovate. Song is uniquely operating at the intersection of creativity, technology and intelligence. To help our clients reinvent connections and meaningful experiences, including sales, commerce, marketing, new business platforms, and the Metaverse continuum. We are helping a North American multi brand retailers scale their digital business and accelerate growth while reducing operational costs up to $100 million over the next five years. Together, we are designing and implementing a new multiproduct platform to improve the customer experience and enable the use of data and insights to drive increased engagement and better business performance overall. While still very early, we are seeing our clients look to take advantage of the Metaverse, another of the five forces. For example, we are collaborating with an international property developer, MQDC to develop their business model and design their customer experience in the Metaverse. As you can tell, this continues to be an exciting time for Accenture as the depth and breadth of our business allows us to help our clients with innovative and impactful work. Back to you, KC.

Angie Park:

Thanks KC. I would ask that you each key 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?

Tien Huang:

Thank you so much. Good morning. Really good results here. I want to ask on the -- let me ask bookings, which came in line with your expectations. In the book-to-bill and a quarter look like more a like pre-pandemic levels on tough comps. So, KC, I heard the strong pipeline comment. Just wondering, can we expect book-to-bill above 1.0 but maybe below the 1.1 or higher that we saw during the pandemic, just trying to better understand how the pace of bookings might be changing here beyond the comp?

Tien Huang:

Got it. So balance across the two, which is great. So maybe my quick follow up that everyone's been asking us. So I thought I'd ask you guys, Julie, specifically here maybe for you just how recession ready is Accenture, right? With what the stock market is telling us? How's Accenture different or maybe similarly positioned to what we've seen in past down cycles? Any quick comments on them? Thank you.

Operator:

We will next go to the line of Lisa Ellis with MoffettNathanson.

Julie Sweet:

Yes, sure, Lisa. I mean, usually we see an uptick in attrition from Q2 to Q3. We actually also see seasonally another uptick in Q4, which we'll expect to see. So this is kind of in line with prior patterns. And again, it's primarily driven by India at the lower end of our pyramid, which is highly competitive. At the same time, we're able to hire for the demand we see. And so, and also, as we've commented before, our overall executive retention, which is the people who are driving our business every day, it continues to be high. So not a lot of change and these are really seasonal upticks.

Julie Sweet:

So, I mean, at the core of our businesses, how we manage supply and demand, right, and so we're, our ability to, we do have high attrition, right? So our ability to not for example, when I say high attrition, meaning our industry has higher, high attrition, and so our ability to not hire to replace that attrition, right. So our core competency is managing supply and demand. And we have an ear to the ground with our clients, but we also have a lot of analytics around what we're seeing in open demand, what we're seeing in our pipeline. So we manage our business with great rigor and discipline, and we'll continue to do that throughout the cycle and of course, I just want to make sure we're not walking past an incredible quarter from revenue and a booking. And as KC said, we see continued strong demand going into the next quarter with another strong bookings quarter and another strong revenue quarter.

Jason Kupferberg:

Good morning, guys. I just wanted to start with a clarification on the full year EPS guidance, it sounds like you're now absorbing an extra $0.29 of headwind, relative to where you were last quarter or the $0.15 from exiting Russia and the $0.14 from incremental FX headwind. Is that accurate?

Jason Kupferberg:

Right. So you're still maintaining the lower half of the EPS guidance from last quarter, despite absorbing an extra $0.29. Okay. I just wanted to make, okay.

Jason Kupferberg:

That's right.

Jason Kupferberg:

Of course. And I guess it's encouraging to hear that there doesn't seem to really be much change at all in the demand environment. Obviously, there's been a lot of worry and wonder about that. But can you maybe just talk to us about like nuances of how client conversations have been evolving over the past three months? Any change in clients decision making patterns or clients doing more recession preparation on their end?

Operator:

And our next question is from Ashwin Shirvaikar.

KC McClure:

Yes, sure. Ashwin, happy to and so just in terms, I'll start with the last part first, in terms of just our mix, right, we and I'm not going to guide anything into next year. But if you just look historically, at our mix, it can move around 1% or 2% between consulting and outsourcing. But it's generally been as , three years in the zone of like about 55% consulting and about 45% outsourcing, So that and we're seeing the same this year. So that's the first point. And then in terms of consulting, we are really pleased with our performance to date. And as you know, when we, I gave you some -- I gave guidance for consulting for Q4, but just a reminder, there are book-to-bill is really strong for the year in consulting. And anything is as you know, over one around one book-to-bill consulting, we consider strong, we also look at it over trailing four quarters, right. So but I -- we will give guidance for you in September of -- in September for next year. And that's where we can give you some sense of what the outsourcing is, consulting type of work will be next year. But now, you can look at our patterns and see it's about 55%, 45%.

KC McClure:

Yes, I'll let Julie talk about the strategy. But just to recap what I did say, you're right, we had previously said we thought it would be about $4 billion. We now think it is going, we’ve done $2.2 billion to date, 27 transactions year-to-date. We now think it will be about $2.5 billion. And that's because there's about $ billion, Ashwin, that is going to go into next year because of required regulatory approvals. So that really is the biggest difference between the $2.5 billion and $4 billion that we talked about.

Operator:

Our next question is from Bryan Keane with Deutsche Bank.

Julie Sweet:

And we're not seeing any weakness in those results. And so we continue to really stay close to our clients. There's, as I talked a little bit about earlier, there's a shift in focus in many of the more impacted industries, and across the board around things like energy efficiency, right. And so our strengths in, for example, manufacturing and sustainability is helping us drive conversations and helping our clients get more energy efficient, for obvious reasons, given the background in Europe, supply chain, lots going on in supply chain, as you think about what we're doing there, we're doing everything from helping them have greater insight. So we're working with a food retailer, for example, to understand how they can anticipate disruptions better and earlier using data and analytics. So supply chain is a big topic. And then costs because everyone's anticipating, it leads to continuation of the inflationary environment that we're seeing globally. And so cost becomes a big focus. So it's today, again, all roads lead to not just technology data and AI, but how do you use it to transform the business? Which is our sweet spot, right? That is what we do. We partner with the technology companies and our clients to help them use these technologies to get results. And that's what we're doing today. And that's the environment that we're seeing our clients need.

KC McClure:

Okay. Yes, so we were -- we were pleased that we did see, again, improvement, Bryan in our pricing. And again, reminder that pricing, when we talked about pricing, it's the margin on the work that we sold. And we really need to continue to focus on that, which is what we are doing to offset what we're continuing to see in wage inflation in our business, which as we all know is in all industries, it really is across the globe. So and we are seeing some improvement coming from pricing in our P&L. So I'm pleased with that. And at the same time, as you would expect, we're changing the mix of people on our contracts, and also using technology to help offset the impact of wage increases. So again, very focused on pricing. That's the biggest lever that we have but there -- that they all of these improvements together are still lagging the compensation increases. But we're still very, very satisfied.

Bryan Bergin:

Hi, good morning. Thank you. Follow through on bookings, any changes in bookings profiles as it relates to contract duration? And are you seeing any uptick in the interest of clients to sell captive operations here? I'm curious if that type of transaction is picked up.

Julie Sweet:

Yes. And I'd say on the captive side, it's more of a steady, kind of, it's been steady. I don't think I'd say picked up or not picked up. It's been steady for the last couple of years.

Julie Sweet:

Yes. I think a couple of things, I start with the rebranding is really more around reflecting what we’re doing today in Accenture Interactive and that brand was kind of old because it started a decade ago, right where, and it doesn't really reflect kind of the particularly post pandemic, which is really a complete use of technology, bringing in creative using data and AI and moving very, very fast. So this is where you've got examples like we've given in the past, like a Jaguar Land Rover, where they're using managed services to personalize experiences, and they're moving very, very quickly. And so Song just really captures better what, in fact, we are doing there. And from an operational perspective, it's just a natural evolution to bring together some of the brands that we've acquired over the years as you know, we built Accenture Song through a very deliberate, M&A strategy. And so I think it bit more of just kind of the natural evolution.

Operator:

Very good. That will come from James Faucette with Morgan Stanley.

KC McClure:

James, thanks for the question. I will just make just focus on the key metrics that we look at. And we report every quarter as it talks about our people and the usage of our people, clients. We're at 91%, which is really in the zone of utilization that we like to be in, it's a little running a little bit hot throughout the past year and a half since pandemic and we're at 91%. So that's a very healthy range that we're good with.

KC McClure:

Maybe I'll just anchor to what we saw this quarter. And I can hand it over to Julie to give a little bit of color on that. But we did see all 13 industries this quarter have double digit revenue growth, right. And when we talked about bookings, we had strength across all of our markets, services and industry.

James Faucette:

All right, thanks for that color. Well, thanks everyone. Great. Thanks James. All right. In closing, we really appreciate everyone for joining us today. And thank you again to all of our people and our leaders for another outstanding quarter in every dimension from our financial results to our 360 degree value beyond our financials. And thank you to all of our shareholders for your continued trust and support. We'll work hard every day to continue to earn it all the best.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Accenture's Second Quarter Fiscal 2022 Earnings. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Angie Park, Managing Director, Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Angie, and thank you, everyone, for joining. I would like to begin by honoring the incredible bravery of the Ukrainian people in the face of the unlawful invasion by Russia and extending our deep sympathy and concern over the horrific losses of life. While these words don't feel adequate to capture what is happening, we are taking actions to help in the small ways we can, which I will share more about later in the call. Turning now to the quarter. I will start by thanking our almost 700,000 people around the world for your incredible dedication and work to create 360-degree value for our clients and all our stakeholders. Thank you to our clients who are making bold moves to transform and putting their trust in us to help them. Finally, thank you to our technology ecosystem partners we work with every day to innovate and create more value for our clients. Now a few highlights from the quarter. We had record bookings of almost $20 billion and continued improved pricing, which refers to contract profitability or margin on the work that we sell across the business with 36 clients with bookings over $100 million. We had record revenue growth of 28% in local currency, bringing total revenue added through H1 to $6.2 billion, which is what we added in all of FY '21. And our EPS grew 25% year-over-year with flat operating margin and continued significant investment in our business and our people. Our workforce grew by 24,000 people, demonstrating again our ability to attract top talent at the scale needed by our clients. We were the top scoring company on the Bloomberg Gender-Equality Index out of more than 400 organizations globally. We were recognized in Ethisphere's World's Most Ethical Companies for the 15th year in a row and by JUST Capital for the sixth consecutive year. Our people completed another 9.2 million training hours this quarter. And we continue to gain market share, growing more than 3x the market. With such an exceptional quarter, I would like to particularly recognize and thank the incredibly strong delivery teams that underlie these results. Our clients know that our commitments are backed by the outstanding work our people do every day, working side-by-side with them, from shaping the future to building the best systems and platforms to creating amazing new experiences and brands to running critical functions for our clients and everything in between. Before handing over to KC, let me pause to reflect on the current macro environment. It was almost exactly 2 years ago that we did earnings only 8 days after the pandemic was declared. Then, as now, the world faced incredible uncertainty. We are all watching the events unfold in Ukraine, and there are many potential scenarios which are difficult to predict. While the circumstances are very different, our focus is the same

Julie Sweet:

Thank you, KC. Let's begin with the demand environment. We are experiencing double-digit growth in all parts of our business across all markets, industries and services. All our growth priorities, Applied Intelligence, Cloud, Industry X, Intelligent Operations, Intelligent Platform Services, Interactive, Security and transformational change management all are growing double digits. Many of our clients are taking on bold transformation programs, often spanning multiple parts of the enterprise in an accelerated time frame, which we call compressed transformation, as they recognized the need to transform every part of their enterprise with technology, data and AI and new ways of working. What is also clear is that the sheer speed at which an enterprise now needs to move and the breadth of the expertise required to transform demands partnerships. For example, our wide range of managed services from Intelligent Operations to application development and maintenance to Cloud, infrastructure and security, our strategic capabilities that enable our clients to digitize faster, access hard-to-hire talent, transform more quickly due to our deep expertise and achieve outcomes from greater efficiency to improved customer satisfaction, to enhance security, to faster development, to higher growth. Our managed services are unique because they combine our strong strategy and consulting capabilities to anticipate and shape the future and be at the cutting-edge of industry, function and technology. We also see our clients looking for partners who can create 360-degree value, upskilling our people, focusing on enhancing diversity and building in sustainability, which is our focus. Stepping back, when you think about the extraordinary growth we are experiencing and how we navigated the pandemic, we believe our commitment to create 360-degree value for all our stakeholders and our unmatched diversity of people, services, industries, functions, markets, ecosystem partners and investments, together with our leadership and technology, have made us both relevant to the world's largest companies and resilient. I will now bring to life how we are partnering with our clients with a snapshot of the range of solutions we are bringing across industries and across the enterprise. Let's start with enterprise functions. In chemicals and natural resources, we are expanding our relationship with a leading chemical manufacturer to carve out one of their business units serving the automotive industry to better focus on sustainable solutions. As part of this carve-out, we will build the backbone of this new entity with a cloud-based infrastructure, ERP platforms and Intelligent Operations managed services for technology, HR and finance, all in just over 1 year. This compressed transformation will create new value, reduce operating costs by up to 30%, enhance portfolio flexibility and enable future growth in new areas. In consumer goods and services, we are working with a large multinational personal care corporation to build an integrated digital core with standardized processes, IT enterprise platforms and instant access to consolidated data in the cloud, which will enable a more efficient and flexible supply chain and digital order processing. This will provide more time to sell, reduce human error, create a better customer experience and deliver a stronger bottom line. We will also streamline financial operations, leading to greater agility and cost benefits to remain competitive in any environment and delight their consumers. Now I will turn to our solutions helping transform the core operations of our clients. In high tech, we are supporting Airbus, a leading aircraft manufacturer in several areas of their business, including digital design, manufacturing and services. With our acquisition of umlaut, we're also helping Airbus engineering and manufacturing teams to develop the new A350F. At the same time, we will also onboard and manage training for new frontline employees using a realistic digital twin pilot, optimizing onboarding time and significantly reducing the learning curve of shop floor workers without disturbing production. In Banking & Capital Markets, we are helping BBVA, a global financial services firm, synchronize and speed up its digital journey. With the power of analytics, AI and automation, we will create an intelligent data-driven banking operation with greater agility and productivity, lowering costs by up to 30% by leveraging our strategic managed services, improving their customer experience and becoming an integral part of their talent strategy to provide new growth opportunities, upskilling and security opportunities. This builds on our work with this digital leader that spans over 25 years, including international expansion, capital market strategy and digital sales and services. In Health, we are helping Highmark Health, a national blended health organization to make Health care more personalized and proactive through the power of technology and data. By leveraging the cloud and operational hub, we'll bridge business units, consolidate enterprise data, provide faster insights and personalize the customer experience with the flexibility to evolve as needs change. By maximizing its key asset data, Highmark Health will see faster time to market, reduce operational costs and increase innovation and most importantly, better health outcomes. And we are helping clients accelerate their growth agenda. In consumer goods and services, we are collaborating with Del Monte, the iconic fresh and packaged food company, to establish effective B2B2C and direct-to-consumer commerce platforms. We will transition and scale their existing platforms into a one commerce ecosystem to make it easier to create and launch new products, driving significant growth in their e-commerce revenue. We are helping with clients to help shape and deliver on the significant emerging opportunity of the Metaverse. We've been an early innovator in this area backing -- going back a number of years, investing in R&D, our people and our own metaverse, One Accenture Park, all of which positions us to help our clients accelerate their Metaverse strategies and initiatives. In communications and media, we are helping Telstra, Australia's leading telecommunications company, to deploy 5G connectivity and technology to deliver immersive fan experiences at Melbourne's Marvel Stadium. From booking a seat to parking, to engaging with a match, fans will soon be able to experience a new augmented reality stadium experience before, during and after they attend the game. And if you missed the release yesterday, please be sure to read our new technology vision, which is titled, Meet Me in the Metaverse, and is available on our website. And we are building the digital cores of our clients from replatforming in cloud to building core systems as described in many of the examples above, to helping them secure their enterprise as the security landscape widens. In Life Sciences, we are working with Merck, a global pharmaceutical leader to create robust intangible value across the organization, which will help enable growth, accelerate the development of life-changing therapies for patients around the world. We will develop a more flexible and responsive IT infrastructure in the cloud, leveraging data and analytics and product-centric methodologies to power innovation, insight and speed. At the same time, we are cultivating IT talent through a new operating model that drives upskilling, diversity and development. Also in Life Sciences, we are expanding our partnership with an international drug wholesale company, which advances development and delivery of health care products, including life-saving cancer treatments and COVID vaccines around the world to support their suite of cybersecurity towers by creating an integrated delivery model to increase resilience, accountability, collaboration and feedback across monitoring, engineering, data protection, risk and compliance and identity while also reducing costs. And we are helping our clients...

Julie Sweet:

I'm sorry?

Julie Sweet:

Has the call dropped?

Julie Sweet:

Sorry about that, everyone. I just want to make sure, confirm that we're good. Apologies. If you can hear me, we heard the call apparently dropped. We're good. Okay. So let's go back to we're helping our clients put sustainability in their core. We are helping a leading steel and mining company move to low-carbon steelmaking and employ decarbonization technologies. As an end-to-end partner supporting the company's ambitious decarbonization program, we will help standardize and implement the technical solution among its sites. I would now like to briefly comment on how Accenture as a company and our people have mobilized to support our Ukrainian colleagues and provide humanitarian aid. When people ask me what makes Accenture special, our actions like these are what come to mind. While we do not have operations or people who work in the Ukraine, we have many Ukrainians who work for us, particularly in Poland. For their extended families who are in Ukraine, we quickly put in place Ukrainian language telehealth and other remote support services. And for those family members who are leaving the Ukraine, we are providing the settlement assistance. I also am proud of our people who have volunteered to drive refugees from the border to help get them settled. With a decade of experience helping refugees, we knew that not-for-profit organizations operating in Ukraine and the border countries providing humanitarian relief would have an initial immediate need for cash. We are currently donating $5 million in cash to these organizations. In addition, our people have donated nearly $1.5 million in our employee giving program, and we are providing 100% match funding. Our people also have sprung into action to anticipate the next needs of refugees. In Poland, we are piloting the first addition of an Accenture Academy for women refugees from Ukraine to build their technology skills starting in cybersecurity. Finally, as we've shared, we are discontinuing our business in Russia. We are working to support our nearly 2,300 employees there, and we want to thank them for their dedication and commitment to Accenture over the years. Back to you, KC.

A - Angie Park:

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

Lisa Ellis:

Good stuff here. And yes, Julie, we could hear you the whole time. I don't think the call dropped. Can you talk a little bit about, given you guys are very global and very much on the front lines with major corporations, how -- what impact or changes are you seeing companies start to make with the work they're doing with Accenture in response to the macroeconomic environment, meaning to deal with inflation or supply chain challenges or sanction enforcement or anything like that? What are some of these -- are you seeing -- starting to see some conversations going, some shifts or interest in doing different types of programs with you?

Lisa Ellis:

Got it. Okay. Okay. And then maybe my follow-up, KC, for you. I'll ask the inevitable margin question. It looked like -- I know Julie made a comment about contract pricing being up. It looks like gross margins are up, but SG&A also was up a bit, and then you're coming in at the lower end of your margin expectation. Can you just talk a little bit about the drivers there, what's going on in the underlying cost base?

Operator:

Our next question comes from the line of Brian Keane with Deutsche Bank.

Julie Sweet:

Thanks, Bryan. It's really too early to see that. We're seeing clients staying very focused on their business and what we're doing with them.

Julie Sweet:

Yes. Thanks, Bryan. It's really, I think, a combination of things, right, but let's just always start with our clients. Prepandemic, what we saw were clients much more into -- they did transformation quite sequentially, right? The pandemic was a major shock. You saw the leaders who are kind of coming into that saying we've got to go even faster. And you saw a bunch of companies saying, we need to leapfrog, right? We need to move online. We need to do digital transformation. And that meant that we saw companies starting to take on -- not sequential transformation, but what we call compressed transformation, where they're, at the same time, doing manufacturing as well as sales. And you saw that in some of the examples that I gave today where you've got entirely new backbones being created across multiple enterprise functions, where you've got both new platforms being put into place and manufacturing. And they're doing that in order to lead because of what they see in the business. And when you think about who is able to help navigate, because you don't do that kind of transformation with like a different partner for every transformation, right? Accenture is very distinctive in our industry because we are able to transform every part of the enterprise. And that's one of the things I was trying to emphasize. Like we can do -- we're going to finance in HR, right? We've got the growth agenda, sales, marketing and service, right? We've been investing for a decade in Industry X, which is really taking off. We talked about the digital frontier. And so you have in Accenture a partner that can do that. And you see that over the course of the last 2 years in the record numbers compared to prepandemic of clients with over $100 million in bookings. And it's really -- it's recognizing, it's representing that level of demand. And we're quite unique. Like we've talked about this for years, right? All of our different services, our deep industry knowledge. And when you're moving fast, you need a partner that really can span the enterprise and has that deep knowledge of the industry. And that is, of course, driving the growth, right? Because we are capturing the momentum in every part of the enterprise that's happening now.

Tien-Tsin Huang:

Great results here. Just wanted to clarify your assumptions on the really strong outlook. Can we assume that your approach towards guidance is similar to the approach you took at the onset of the pandemic? And are you assuming any slowdown in Europe in your guide? I know there's a lot of questions we're giving on macro within Europe, so figured I'd just ask it here.

Tien-Tsin Huang:

Okay. Great. Look, we trust your outlook. I just want to make sure I understood the approach here. Just my quick follow-up, just the 36 clients, over $100 million, big number. I'm just curious if the pipeline for larger deals, how does that look from here your ability to replenish? I know we're in March now, but just curious what you're thinking on larger deals looking ahead here.

Julie Sweet:

Yes. And Tien-Tsin, the only one thing I want to add maybe back to your last question is, we are doing exactly what we did at the pandemic, which is we're calling it like we see it, right? So we'll update every quarter. And we've got -- we're really close to the clients, right? And as we said at the beginning, it is too early. So we're not trying to build in, be overly conservative or overly optimistic. Like we really just call it down the fairway. And next quarter, we'll update and we'll go from there.

Jason Kupferberg:

Just wanted to ask about the bookings, obviously, extremely strong here. I was just curious on the consulting and outsourcing side. How much above your internal expectations did they come in? And how should we think about book-to-bill in the back half of the year? I know year-to-date, it's nicely elevated at 1.2x. So should we just expect some normalization there in the back half?

Jason Kupferberg:

Okay. All right. Understood. And then can you just remind us which countries within Central and Eastern Europe you have the most meaningful headcount, obviously, excluding Russia? But I know you mentioned Poland earlier, but just so we have a broader picture of the headcount distribution in the region?

Operator:

Our next question comes from the line of Keith Bachman with Bank of Montreal.

Julie Sweet:

I love that you look at it over the long term because that's how we do. And so, the way we think about growth isn't about, is it double digit or not, right? We've had a very enduring and I think it served us well, belief that we should be growing more than the market, right? And so that is what we focus on, is that we are always continuing to take market share. And that is an enduring commitment that we sort of -- that we anchor to. Now, the way we do that is that we stay very close to clients so that we know not only what they need today, but also, we can anticipate what they need tomorrow, right? And that's really important. So yesterday, for example, we talked about the Metaverse continuum where we have been investing for a decade. We think the Metaverse and Web3 is as significant as when, in 2013, we called that every business would be a digital business. And that will be a huge transformation over the next decade that will also be part of -- sort of next waves of growth. At the same time, it's really important to look at where we are now, which is still extraordinarily early in the digital transformation of every part of the enterprise, right? We estimate, for example, that only about 30% of workloads have been -- have moved to the cloud. And once you get to the cloud, that's when you actually use those technologies to grow and innovate. You saw that in some of the examples that we gave today where you're having the cloud piece, but then you're figuring out how to use the data and the AI to really transform. When you look at replatforming on the leading SaaS platform, similarly, extraordinarily early. So, everyone feels, right, the big focus on digital because that was the wake-up call from the pandemic. But the actual transformation and just putting in the foundation is still very early stages, and then it's what you do on that foundation. Then if you look at from a technology development point of view, let's take manufacturing and supply chain. Many of the technologies have that are advanced have only been introduced in the last couple of years, right, the advanced cloud-based technologies. And so, technology itself, like there's still new functionality that doesn't even exist in some of the major platforms that's still being created. And so, we consider the manufacturing and supply chain as the next digital frontier. And of course, that was a big play for us, which we've been doing for the last decade because it's a move from IT to OT as you think about the budgets that we're accessing, right? And so overall, like as much as we feel there's so much going on, you still have many, many companies who’ve not started the compressed transformation. You're very early in the platforming of what's today, let alone the next things that we can already see like Web3.

KC McClure:

Yes. So in terms of wage inflation, I will -- it's really a pretty similar case to what we've discussed last quarter. So maybe it just kind of goes back through that again. So obviously, it's occurring in all the industries, and it's across the globe. And our clients have also obviously experienced this as well in this very tight labor market. But for us, as it relates to wage inflation, we see for our business that we're going to continue to have wage increases in the market for certain skills, and that's going to continue to vary by geography. And we're also looking at have the Consumer Price Index and any increases there and how that might potentially spill over into inflation at the lower end of our pyramid. And so we're focusing on pricing to absorb our higher labor costs. And again, as it relates to pricing, what we're seeing is that it's going to take some time, Keith, for the improved pricing, which we did have in the second quarter, again, on our record bookings. We see that flow through -- see that flow through our P&L. We did see some of that impact in the second quarter, but that obviously lags the impact of compensation increases.

Operator:

Our next question comes from Ashwin Shirvaikar with Citi.

KC McClure:

Yes. Maybe I'll just state some facts and you can -- yes, so Ash, we're about halfway through the year. And we did have a lot of acquisitions closed in Q1. You're right, we did have less close in Q2. But acquisition closing, they can be lumpy. We can't always control the timing. So we've deployed $1.8 billion of acquisition spend year-to-date. We continue to expect about $4 billion of acquisition spend in FY '22. But of course, we're only going to do deals that make sense. And so it could be plus or minus the $4 billion. And we'll update you next quarter. But let me...

Ashwin Shirvaikar:

No doubt. I agree with that. And I wanted to ask a broader question. This has unfortunately been asked in a few different ways. But I think you captured it well in your takeoff sentence when you mentioned an incredibly high level of uncertainty. But I believe that since the compressed transformation move started, this is probably the first major test of secular trend versus cyclical uncertainty. And I know you're calling outlook like you see it. But is this time different? Can the strength of secular overcome cyclical challenges?

Operator:

Our next question comes from the line of Surinder Thind with Jefferies.

Julie Sweet:

Interesting question. I would say that our clients really focus on skills. They don't focus on degrees. And so, what they're looking for are the skills. And that's a broader trend. In fact, we predicted that 3 years from now, Chief Human Resources officers will all be talking about skills. And as part of this trend, you need to be -- not a consumer, but a creator of talent, understand skills and then be able to reskill.

Julie Sweet:

I wouldn't think about the arbitrary opportunity. We pay market-relevant pay. And it's the focus on skills. Even if you look at our -- the way we draft our recruiting thing, it is about skills. And so, there isn't something that because you've got a 2-year degree versus a 4-year degree, now you're paid less. It's about skills. So, there's a market price for these skills. So, I wouldn't think of it as labor arbitrage.

Julie Sweet:

What I would say is since the time of the pandemic, when we had this global shock, right, we continued to evolve our ability to move work and be flexible. And so, our focus is really on that agility and making sure that we have the right kinds of talent, both geographically dispersed, but also the ability to move talent around.

Operator:

Our last question will come from the line of Brian Essex with Goldman Sachs.

Julie Sweet:

I'm talking about talent all the time with our clients. And I'd say that it's slightly different than what your focus is. Here are the two big things, which are all around accessing talent. So, in accessing talent, means you have to be able to attract and retain it, and you've got to be able to get it at scale. So the bigger focus is around what does it take to attract and retain in a hybrid work environment. And so more companies are focused on where they did -- they used to want everybody in the office, having more of a hybrid model, and that has knock-on cost effects as you decrease your real estate. And so that's been a big focus. But the actual -- the thing we talk to clients about is it's more about how do you attract people who today, all of our research shows that if you're not having to be there in a frontline worker, you want some combination, and then that does have costs. And so that's a huge focus around talent. The second piece on access, if you look at the way our managed services are being driven, it is really 2 big things. One is it's faster to digitize because you use our platforms. And the second is the access to hard-to-get talent, right? And so let's just take security. We have 10,000 security professionals who do everything from threat assessment to the rebuilding and designing platforms to managed services. And in today's world, with the security landscape broadening, right, that access to that kind of talent is incredible. And so just the real focus is on access and what does it take to access it, including through partnerships. And those are the kinds of conversations that we have.

Julie Sweet:

Yes. Well, listen, I was just at CERAWeek, which is the world's largest energy conference for a couple of days just last week, so I spent a lot of time with everyone in the energy sector. And I think rather than looking at it historically, let's look at it like what are people talking about now. So first of all, despite the increases in prices, say, in oil and gas, no one is saying, "Hey, now we've got to let up on cost." In fact, the exact opposite. Because the oil and gas industry, in fact, the entire energy industry has a major challenge ahead of investing to move to sustainable energy solutions. And so what I would say is that there is an absolutely laser focus on continuing what that industry had to do during the pandemic because how it was fit and focus on cost and now accelerate innovation and moving to sustainable energy solutions. And that's where we gave the example today of how we're helping in decarbonization. We announced this week what we're doing with Ecopetrol and AWS around water management, right? And so we're playing -- we're obviously very well situated. We have a deep, deep expertise in utilities and oil and gas and the entire energy sector in -- at their core both enterprise as well as in the grid, at the refinery and then helping really create those sustainable solutions. We see this as a major opportunity for our clients that we want to help them on.

Operator:

Ladies and gentlemen, this conference will be available for replay after 10:00 a.m. Eastern today through June 23. You may access the AT&T replay system at any time by dialing 1-866-207-1041 and entering access code 6300496. International participants may dial 402-970-0847. That does conclude our conference for today. We thank you for your participation and for using AT&T conferencing service. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Accenture First Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Ms. Angie Park, Managing Director and Head of Investor Relations. Please go ahead.

Julie Sweet:

Thank you, Angie, and thank you everyone for joining us. I would like to start by thanking our 674,000 people around the world for your extraordinary work and commitment to our clients. Our results again, this quarter reflect how you are living our purpose every day to deliver on the promise of technology and human ingenuity. As more and more companies embrace compressed transformation, our clients are turning to us as their trusted partner, as reflected in our outstanding growth of 27% this quarter. We added 15 new diamond clients bringing the total to 244. Diamond clients are our largest relationships. And to give some context, we added 13 diamonds in all of FY '21. We also had record bookings of $16.8 billion, 30% growth year-over-year with 20 clients with bookings over $100 million. And we expanded operating margin 20 basis points in Q1 with adjusted EPS growth of 28%. While we continue to invest in our business and people, including $1.7 billion in acquisitions, and in just the first quarter, we invested $250 million in learning for our people, with 8.6 million training hours for approximately 14 hours per person. The extraordinary demand we see in the market reflects the imperative of digital transformation. Companies are making critical decisions about who will be their strategic partners. And they are selecting us because of our talented people, our deep industry and technology capabilities, and our commitment to both create value and lead with value. We predicted back in 2013 that every business would be a digital business. And we have executed a clear strategy to rotate our business to anticipate and be ready to serve our clients. And when the pandemic hit, we were ready with capabilities that scale reflected in 70% of our revenue at that time being from digital cloud and security, with strong relationships with the world's leading technology companies, which in some cases go back decades, with a focus on growing our people through learning, allowing us to rapidly re-skill, with an unwavering commitment to inclusion and diversity and equality and caring for our people professionally and personally, making us a talent magnet in a tight labor market, adding 50,000 talented individuals in Q1. And it is our breadth of capabilities across strategy and consulting interactive technology and operations, which is unique in our industry that allows us to work side by side with our clients to deliver results. And we believe our goal to create 360 degree value for our clients, people, shareholders, partners and communities is an essential part of our success. Certainly our commitment to creating vibrant career paths for our people is an important part of this value and we just completed our annual promotion process. I want to congratulate our 1,030 new promotes to Managing Director, 143 new appointments to Senior Managing Directors and the more than 90,000 people we promoted around the world in Q1 overall. Today we launched our 360 value reporting experience, a new way to show our progress and the value we create in all directions for all of our stakeholders. More on that later. KC, over to you.

Julie Sweet:

Thank you, KC. Starting with the demand environment, as we expected across industries and the globe, technology continues to be the single biggest driver of change, accelerating, disrupting and creating new opportunities. More companies are embracing compressed transformation underpinned by cloud and digital and are moving to build their digital core and use technology to transform how they operate and to find new ways to compete and grow as you would expect for 27% revenue growth. We are seeing broad based demand across all markets, services and industries with double-digit growth across all our strategic growth priorities, including Applied Intelligence, Cloud, Industry X, Interactive, Intelligent Operations, Intelligent Platform Services, Security and Transformational Change Management. Let me bring this demand to life. First, compressed transformation is occurring across the globe and the key enabler is the cloud across the continuum from public to hybrid to increasingly the edge, and the move to leading SaaS platforms along with the convergence of cloud and data. For example, we are working with a leading global supplier of tires and mobility solutions to migrate to the cloud, modernize its IT platforms, use data to accelerate growth and value and shift to a digital supply chain. We created a state-of-the-art system to track inventory, sales, warranty information and returns, all in the cloud, all in real time and have already helped to increase customer satisfaction 35% with improved cost optimization and increased revenue up next. We're also helping Mount Sinai Health System, New York City's largest academic medical system transform, modernize and increase its resilience by migrating its clinical systems, non-clinical systems and clinical data to a stable, secure cloud based infrastructure to proactively detect and prevent threats, adapt to business and regulatory changes, together with a potential to save millions over the next 5 years, savings that can be reinvested to fund strategic innovative programs and help rescale teams. Our deep industry expertise is helping companies find new solutions and path to growth and helping their customers. For example, we are collaborating with Opay, a leading Finnish Financial Group to use automation, advanced analytics and other emerging technologies to increase business agility, reduce cost, and deliver enhanced customer and employee experiences. Opay will adopt the Intelligent Automation Platform, Accenture myWizard to enable the company to extract greater value from its technology investments. We are working with TUGA, a leading utilities provider in Germany to create and operate a game changing meter-to-cash IT platform in the cloud. It will help reduce operating costs by up to 40%, accelerate time to market and free up resources for energy transition and innovations like smart metering, helping customers make environmentally conscious decisions and energy providers stay responsive and reliable. And as we talked about last quarter, our Sustainability Services are focused on helping our clients across industries move from commitment to action at scale. We see these services is critical to our clients agendas. I'm pleased to announce that we have signed an agreement to acquire Zestgroup, a Dutch sustainability services company with 140 employees that specializes in energy transition services and sourcing renewables and other clean energy sources. We look forward to welcoming them and working together to help clients move at speed to achieve net zero carbon. We continue to help our clients to enter the next digital frontier of Industry X. We're excited to have completed the acquisition of umlaut and are seeing the power of our combination already. Together we're working with a global technology leader to transform from a traditional engineering platform to a more agile model based engineering platform that uses simulation and analysis from design and development all the way through the product lifecycle. We were also working with an American wireless operator to help improve daily operations and transform their network security by combining our deep security risk assessment and communications industry skills. Of course, growth is at the heart of every client's agenda and Interactive is helping our clients capture new growth with their customers with our unique combination of creativity, technology, data, AI and industry expertise. For example, we are applying our digital global capabilities to help Capri Holdings Limited, a global fashion luxury group consisting of the iconic brands Versace, Jimmy Choo and Michael Kors, translate its rich in-store luxury shopping experience to a digital experience that aligns with shifting customer behaviors and accelerate sustainable growth. As a strategic partner with Volkswagen Group, a German motor vehicle manufacturer, we're helping Audi and VW to pave the way for sustainable growth through precise continuous commerce and rich experiences along the entire car buying journey. We are combining the power of AI of predictive analytics to deliver the right experiences at the right time to accelerate revenue growth through an expanded digital commerce ecosystem. We're also working with VLI, a Brazilian logistics solutions company and Trato [ph] its new platform business to provide a digital one stop shop for self employed truckers to enhance their growth, to improve logistics by offering options for more profitable freight products as well as to provide them access to critical services such as insurance, loans and health care, all by combining data [ph] analytics and AI. We see an increasing demand to create the platforms that power the digital products and experiences our clients seek for their customers. We're helping CLO, a leader in electronic payments in Latin America become more competitive by migrating to the cloud, which will accelerate new product development and enables cutting edge technologies. This will make it easier to launch innovative products, reduce time to market by two-thirds and lower costs, all while enhancing their customers experience. And of course security is critical to all our clients. We were proud to be selected by the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency, CISA in the U.S., America's risk advisor defending against today's threats, with advanced cyber services to help the Department of Homeland Security protect federal, civilian and executive branch systems against cyber attacks like ransomware, botnets and malware campaigns. Even as companies undergo compressed transformation, exponential technology changes continue. We are investing to anticipate the future and we are working with our clients to innovate and take advantage of emerging technologies to compete and win. Our R&D is powered by Accenture Labs and Ventures and extends across every part of our business so that we can quickly translate research into real results for our clients. For example, we are working with ESPN to explore how emerging technologies can enable new ways for fans to experience sports at the ESPN edge innovation center, leveraging the years of early investments we've made in extended reality. We've been a key participant in shaping the innovation in enterprise, blockchain technologies across the globe, with applications in financial markets, supply chain and digital identity, which now are creating value for our clients. From partnering with the Digital Dollar Foundation to explore a U.S central bank digital currency to working with Hong Kong Exchanges and Clearing Limited to build a new integrated settlement platform using digital asset modeling language, Smart Contract. And while the metaverse has recently burst into the public eye, we've been an early innovator in applying the technology. In fact, we often innovate on cutting edge technologies by deploying them at Accenture first. We are proud to have the largest enterprise metaverse to what we call the Nth Floor and are deploying over 60,000 virtual reality headsets and have created one Accenture Park, a virtual campus for onboarding and immersive learning, including meeting rooms and collaborative experiences. Our VR environments provide our people with a human connection and learning experiences in an immersive digital world. We are also working with clients to help explore and shape their early forays into the metaverse through new digital experiences enabled by virtual reality and responding to their interests in new products enabled by NFTs, or non-fungible tokens, new ways to conduct commerce as the metaverse takes shape. Many of these client examples reflect our goal to create 360 degree value. This goal reflects our growth strategy, our purpose, our core values and our culture of shared success. It is also how we operate Accenture and we measure our success by how well we are achieving this goal for all our stakeholders. And today, we are proud to present our new 360 degree value reporting experience, a new way to share our progress, which is available on our website. With this comprehensive digital tool, you'll find all our reporting and data in one place, measuring how we're doing. We've expanded our ESG reporting with three additional ESG framework, the Sustainability Accounting Standards Board, SASB, the Task Force on Climate-related Financial Disclosures, TCFD and the World Economic Forum International Business Council WEF, IBC metrics, while continuing to report against the Global Reporting Initiative GRI standards, the UNGC 10 principles and the Carbon Disclosure Project, CDP because we believe that transparency builds trust and helps us all make more progress. Back to you, KC.

Operator:

Of course. [Operator Instructions] And the first question comes from the line of Tien-tsin Huang from JPMorgan. Please go ahead.

Julie Sweet:

Hi, I think we were -- Tien-tsin, we are having a little trouble hearing you, but I think I got it. You want to know what drove our over delivery -- are the over delivery $600 million?