This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Ladies and gentlemen, thank you for standing by and welcome to Accenture's third quarter fiscal 2021 earnings call. At this time, all participants are in a listen only mode. Later, we will conduct the question and answer session. If you would like to place yourself in the question queue, please press one then zero at this time. If you should require assistance during the call, Please press star then zero. And 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.
spk05: Thank you, Operator, and thanks, everyone, for joining us today on our third quarter fiscal 2021 earnings announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our Chief Executive Officer, and Casey McClure, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results. KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the third quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the fourth quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap-up at the end of the call. Some of the matters we'll discuss on this call, including our business outlook, our forward looking, and as such, are subject to known and unknown risks and uncertainties. including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call. During our call today, we will reference certain non-GAAP financial measures which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release or in the investor relations section of our website at Accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Julie.
spk04: Thank you, Angie, and thank you, everyone, for joining us. We had another outstanding quarter. reflecting our laser focus on creating 360-degree client value and the importance of our scale, experience, industry knowledge, and trust to the world's leading companies and governments as they continue to digitally transform their enterprises. We had a record 20 clients with bookings over $100 million and a total of $15.4 billion in bookings, We delivered 16 percent revenue growth in local currency, 3 percent above the top of our guided range, with outstanding profitability and free cash flow. We estimate that we continue to take significant market share. Our growth was broad-based across geographic markets and industries, with 11 out of 13 industries growing double digits this quarter, and reflects our ability to bring together our unmatched breadth of services from strategy and consulting to interactive technology and operations, to create the solutions which achieve the value at speed that makes a difference to our clients. We continue to meet our clients' strong demand, adding a net 32,000 talented people this quarter alone. We offer an employee value proposition that allows us to attract top talent, develop our people with world-class training, and provide them with vibrant career paths. We are pleased with our record 117,000 promotions year-to-date, including almost 1,200 promotions to managing director. And while delivering these results, we have raised the bar again in terms of investments. We now expect to invest about $4 billion in strategic acquisitions this fiscal year, with 39 acquisitions closed or announced year-to-date. This includes announcing this quarter two acquisitions with purchase prices over $1 billion each, the acquisition by Accenture Federal Services of Novetta in the U.S., an advanced analytics company, which we expect to close in August, and of Umlaut, a world-class engineering services company headquartered in Germany, which we expect to close in Q1. These 39 acquisitions are well-balanced, with 10 in North America, 17 in Europe, and 12 in growth markets. Our level of investment demonstrates as well how scale, experience, and trust matters. Scale in terms of our financial capacity, experience in terms of our track record of the successful integration of approximately 200 companies since 2013, and the trust we have earned in the market that attracts leading companies to want to join the Accenture family. We invest in acquisitions to scale in areas where we see a big market opportunity, to add skills and new capabilities, and to further deepen our industry and functional expertise, all to drive continued innovation and the next waves of growth. Finally, because we believe strongly in our commitment to shared success with our communities, we recently announced that we would donate $100 for every one of our then 540,000 employees or $54 million to urgently address the needs of our communities due to the pandemic, including $25 million for India. Kasey, over to you.
spk06: Thank you, Jolie, and thanks to all of you for taking the time to join us on today's call. As you heard in Jolie's comments, we are extremely pleased with our results in the third quarter, which continue to reflect very strong momentum across all dimensions of our business. Based on the strength of our third quarter results, and the confidence we have in our fourth quarter to continue to extend our market leadership position, we are increasing our full-year outlook, which I will cover in more detail later in the call. Before I get into the details, let me summarize the major headlines of our third quarter results, which reflect continued superior execution against our three financial imperatives. Revenue increased nearly $2.3 billion reflecting growth of 16% in local currency. Results were approximately $300 million above the top end of our guided range, driven by broad-based overperformance across the business, with double-digit growth in all three markets, four of five industry groups, and in technology services and operations. As we expected, both strategy and consulting and the resources industry group returned to growth, These results demonstrate the power of our business model and our unique ability to seamlessly integrate our services at scale. We estimate that our growth continues to significantly outpace the market. Operating margin was 16%, an increase of 40 basis points for the quarter. Importantly, we no longer have the margin expansion tailwind from lower travel as we anniversary the benefit of the comparative quarter. We continue to absorb significant investments in our people and our business, as we are always focused on positioning our business for the future. And we delivered very strong EPS of $2.40, up 26% over fiscal 20. Finally, we delivered strong free cash flow of $2.2 billion in the quarter and $6.2 billion year-to-date, while also continuing all elements of our capital allocation program including returning roughly $1.4 billion to shareholders this quarter via dividends and share repurchases. We've made investments of $1.5 billion in acquisitions through Q3, and we now expect to invest about $4 billion in acquisitions this fiscal year, which does not include the UMLAD acquisition, which we anticipate to close in FY22. I want to take a moment to highlight that as you can see from our results and guidance this year, we are able to step up our acquisition spend and continue to expand operating margin. And while I won't comment on the specifics of FY22 until September, based on our current line of sight, you should think of next year's inorganic contribution in the range of 4%. And we expect modest margin expansion as we continue to run our business with rigor and discipline. With that, let me turn to some of the details starting with new bookings. New bookings were $15.4 billion for the quarter with a very strong book-to-bill of 1.2. Consulting bookings were $8 billion with a book-to-bill of 1.1. Outsourcing bookings were $7.4 billion with a book-to-bill of 1.2. We were very pleased with our new bookings, which represent 39% growth in U.S. dollars and reflect a record 20 clients with bookings over $100 million. Each service dimension, strategy and consulting, technology services, and operations delivered double-digit bookings growth in local currency. Turning now to revenues. Revenues for the quarter were $13.3 billion, a 21% increase in U.S. dollars and a 16% increase in local currency. Consulting revenues for the quarter were $7.3 billion, up 21% in U.S. dollars and 16% in local currency. outsourcing revenues were $6 billion, up 20% in U.S. dollars and up 16% in local currency. Taking a closer look at our service dimensions, operations grew very strong double digits, technology services grew strong double digits, and strategy and consulting grew high single digits. Turning to our geographic markets, in North America, revenue growth was 18% in local currency, driven by double-digit growth in public service, software and platforms, and consumer goods, retail, and travel services. In Europe, revenues grew 14% local currency. We saw double-digit growth in consumer goods, retail, and travel services, and industrial, and high single-digit growth in banking and capital markets. Looking closer at the countries, Europe was driven by double-digit growth in the UK, Italy, and Germany. In growth markets, we delivered 15% revenue growth in local currency, led by double-digit growth in consumer goods, retail, and travel services, banking and capital markets, and public service. From a country perspective, growth markets was led by double-digit growth in Japan and Brazil. Moving down the income statement, growth margin for the quarter was 33.2% compared with 32.1% for the same period last year. Sales and marketing expense for the quarter was 10.6% compared with 10.2% for the third quarter last year. General and administrative expense was 6.6% compared to 6.3% for the same quarter last year. Operating income was $2.1 billion in the third quarter, reflecting a 16% operating margin of 40 basis points compared with Q3 last year. Our effective tax rate for the quarter was 25% compared with an effective tax rate of 25.5% for the third quarter last year. Diluted earnings per share were $2.40 compared to EPS of $1.90 in the third quarter last year. Days service outstanding were 36 days compared to 34 days last quarter and 41 days in the third quarter of last year. Free cash flow for the quarter was $2.2 billion, resulting from cash generated by offering activities of $2.4 billion, net of property and equipment additions of $158 million. Our cash balance at May 31st was $10 billion, compared with $8.4 billion at August 31st. With regards to our ongoing objective to return cash to shareholders, in the third quarter, we repurchased or redeemed 3 million shares for $835 million and an average purchase price of $276.98 per share. As of May 31st, we had approximately $4.2 billion of share repurchase authority remaining. Also, in May, we paid a quarterly cash dividend of 88 cents per share for a total of $559 million. This represents a 10% increase over last year. And our board of directors declared a quarterly cash dividend of 88 cents per share to be paid on August 13th, also a 10% increase over last year. So, in summary, we are extremely pleased with our results to date. and are now focused on Q4 and closing out a very strong year. Now let me turn it back to Jolie.
spk04: Thanks, Casey. I'll start with the environment. The dynamics in the market we are seeing are not only a recovery from the lower spending pattern at the onset of the pandemic, but a more sustained growth in demand as companies race to modernize and accelerate their digital initiatives with compressed transformation. Pre-COVID, Our research showed a digital achievement gap with leaders growing 2x faster than laggards, and we estimate that gap has now widened to five times with leaders stepping up their investment in technology and innovation and leapfroggers taking accelerated steps to catch up. Cloud is an even more critical enabler as companies are increasing their focus on enterprise-wide transformations and rapidly moving to digital and cloud-powered models. These needs of our clients are driving strong momentum in our business, with an acceleration of continued strong double-digit growth across applied intelligence, cloud, Industry X, intelligent operations, and security, with interactive and intelligent platform services returning to strong double-digit growth this quarter. These strategic priorities are multi-service and are powered by our unparalleled technology ecosystem relationships. Let me share some color to bring this demand to life. I want to particularly highlight cloud, which continues to have very strong double-digit growth rates, as well as the subset of Accenture Cloud First, where growth was even stronger and has exceeded our expectations when we formed Cloud First last September. With our Cloud First services, we are helping agencies served by CONCIP, Italy's national procurement agency, to deliver on Italy's national recovery and resilience plan. We're developing and running industry-specific cloud-based platforms to standardize and improve their efficiency and speed, reducing the time to launch new contracts, and ultimately providing much-improved services for Italy's citizens. We are using our intelligent platform services to help DuPont, a company with a rich history of business reinvention, reimagine its financial structure to coordinate operations across its large geographic footprint. After going through a strategic and deliberate restructuring through M&A, we will now help DuPont implement a central finance processing suite that will help them to consolidate their multiple financial systems and chart of accounts into one and close the books faster. This will provide real-time review of results for all of the business units, all in the cloud, giving DuPont more agility, speed, and certainty in a complex and volatile market. We are helping Jaguar Land Rover transform its global marketing model to deliver a more personalized customer experience with creativity and technology at its core. We were selected for our technology capabilities, data-led performance, and experience-led approach. We will use the strength of the experience, creative, and digital capabilities of Interactive and the marketing delivery capabilities of Operations with our Synapse platform which we already use as part of Jaguar Land Rover's warranty operations. Synapse will deliver AI-powered insights and highly automated production around the world. Security is top of mind for our clients as the threat landscape expands. Our very strong double-digit growth is driven by the breadth and depth of our services from advisory to cyber defense to managed security. For example, Facing ever-increasing cyber threats and continued financial pressures as a result of COVID-19, Accenture is helping a UKI bank by bringing together the full breadth of these capabilities to provide innovative solutions to support the bank's future security strategy. Across many of these examples are our implied intelligence services. We were excited this quarter to announce Accenture Federal Services Agreement to acquire Novetta, an advanced analytics company serving U.S. federal organizations that is demonstrating what's possible with analytics, machine learning, cyber, and cloud engineering. This will augment our already strong capabilities and scale in these critical areas, providing even more diversification across our federal business, specifically in the national security space, which is seeing substantial growth. I want to give a special recognition to our colleagues serving the public sector around the world throughout the pandemic. Your seven consecutive quarters of double-digit growth reflect your absolute commitment to the important missions of governments serving their citizens. Turning now to Industry X, our digital engineering and manufacturing services. We believe that product development, design engineering, big digital transformation frontier. The impact of COVID-19 is accelerating the need to transform these core operations. And for nearly a decade, we have been investing to build the unique capabilities and ecosystem partnerships to combine the power of data and digital with traditional engineering services. We are very pleased with the announcement of our agreement to acquire Umlaut, which will add more than 4,200 industry-leading engineers and consultants across 17 countries and expand our capabilities across a range of industries, including automotive, aerospace and defense, telecommunications, energy, and utilities. Some recent examples of our Industry X services include helping a German telecom company continuously develop and enhance their Internet television service by utilizing embedded engineering in their set-top boxes and managing new features on the platform, helping a large media conglomerate accelerate their primary revenue streams in digital products and advertising with our product and platform engineering expertise to design, build, test, and deploy new products, services, and features, and working with the global automotive OEM to execute online remote software updates for their in-car computer systems to allow seamless deployment of new software versions. We are also working with an American multinational manufacturer of confectionery, pet food, and other food products to deploy a digital twin platform to optimize production in its manufacturing facilities, improve margins, and reduce waste. We're working with a large electric company in Japan to help bring their power plants into the future by digitizing their operations and standards across each department. And with a large oil and gas company, to build their internal digital capabilities to substantially reduce time to market for new digital solutions that extends to its customers while supporting the company's key safety and sustainability goals throughout the use of a digital factory. Taking a step back, the examples I have provided today all require deep industry knowledge and innovation. Our breadth and depth across industries enables us to tailor industry solutions while bringing cross-industry expertise as we help our clients facing industry convergence and by using the lessons of other industries. We were proud this quarter that Fast Company recognized us for our innovation across multiple initiatives in its World Changing Ideas Awards. Our cross-industry expertise is one of the powerful sources of our ability to innovate. For example, using our deep banking industry and technical expertise, we rapidly developed for a commercial bank, which was not a traditional small business administration lender, a program under the U.S. Paycheck Protection Program that allowed them to make loans to thousands of small businesses struggling with the impacts of the pandemic. We then pivoted to apply this approach to stand up Facebook's Small Business Grants Program for black-owned businesses, enabling the distribution of 10,000 grants to Black-owned businesses in the US. This grants program is an important part of Facebook's overall commitment to invest $200 million in building programs and tools for Black-owned businesses. Finally, let me turn to our incredible people. Their health and safety remain our top priority. We are supporting our people by facilitating vaccinations, including standing-up clinics in many of our offices, such as in India, where already 50,000 of our people, their families, and contractors have been vaccinated. We have been focused on taking the lessons as an almost 100% remote workforce during the pandemic to a new way of working, moving from a remote or hybrid model to an omni-connected experience. People will work in the office, from home, and at client sites, and it is likely many of our clients will be doing the same. So our approach focuses on the experience of connecting to continue to serve our clients in a differentiated way and create an environment that our people feel a sense of belonging. The rich diversity and ingenuity of our people, from our board of directors to our new hires, helps us deliver 360-degree value for the benefit of all. We now have more than 250,000 women representing approximately 46% of our workforce. As you may recall, shortly after the murder of George Floyd in the US, on this call, I shared with you our commitment to take three actions in the US, setting external goals to increase representation, training our people, and making a bigger impact in our communities. One year later, I am pleased to report that we not only took each action, but have made measurable progress, including increasing our representation, having 95% of our US people complete our new anti-racism training, and making substantial new investments in our communities. You can find a full progress update on our website because we believe transparency and accountability are hallmarks of good governance and essential to building trust. As we see the rise or continuation of all kinds of hate crimes against diverse communities, including violence against Asians, the LGBTI community, antisemitism, and Islamophobia, I want to reaffirm my and Accenture's unwavering commitment to equality and justice for all and zero tolerance for racism, bigotry, and hate of any kind. Casey, back to you.
spk06: Thanks, Jolie. Let me now turn to our business outlook. For the fourth quarter of fiscal 21, we expect revenues to be in the range of $13.1 to $13.5 billion. This assumes the impact of FX will be positive 4% compared to the fourth quarter of fiscal 20 and reflects an estimated 17 to 21% growth in local currency. For the full fiscal year 21, based upon how the rates have been trending over the last few weeks, we continue to expect the impact of FX on our results in U.S. dollars will be approximately positive 3.5% compared to fiscal 20. For the full fiscal 21, we now expect our revenue to be in the range of 10 to 11% growth and local currency over fiscal 20, including approximately negative 1% from a decline in revenues from reimbursable travel, based on a 2% reduction the first half of the year and no material impact in the second half of the year. Importantly, organic revenue is the driver of the increase to our updated guidance, as we still expect the inorganic contribution to remain at about 2.5% for the full year. For operating margin, we now expect fiscal year 21 to be 15.1% of 40 basis point expansion over fiscal 20 results. We now expect our annual adjusted effective tax rate to be in the range of 23 to 24%. This compares to an adjusted effective tax rate of 23.9% in fiscal 20. For earnings per share, we now expect full-year diluted EPS for fiscal 21 to be in the range of $9.07 to $9.16. We now expect adjusted full-year diluted EPS to be in the range of $8.71 to $8.80, or 17% to 18% growth over adjusted fiscal 20 results. For the full fiscal 21, We now expect operating cash flow to be in the range of $8.65 to $9.15 billion, property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $8 to $8.5 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.4 to 1.5. Finally, we continue to expect to return at least $5.8 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to our shareholders. With that, let's open it up so that we can take your questions.
spk05: Angie? Thanks, Casey. 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?
spk03: Thank you. Ladies and gentlemen, if you wish to ask a question, please press 1, then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1, 0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. One moment for our first question. And that comes from the line of Lisa Ellis with Moffett Nathanson. Please go ahead.
spk07: Hey, good morning, and thank you. Great results here. A couple questions. One is a little more tactical, one more strategic. The first one, in bookings, Casey, can you just remind us, one, how acquisitions are or are not reflected in bookings? And then on a related note, is the composition of your bookings changing at all? I'm just specifically thinking about these big, you know, 100 million plus transformation programs. Are you seeing... a notable change in duration or anything like that. Just trying to understand the bookings number a little bit, and then I'll follow up. Thank you.
spk06: Okay, great. Thanks, Lisa. So let me just decompose bookings a little bit. So we were really pleased with our bookings this quarter, right, $15.4 billion. And, again, that grew 39% in U.S. dollars. Really strong book-to-bill, 1.2%. And in terms of when you look at it, there was very strong bookings in both consulting and outsourcing, as well as all three geographic markets. And if you look at specifically in our V&A, which also was represented across all of those dimensions, there would be a slight impact in our bookings based on the backlog that we bring in from those acquisitions, but it's not overall significant. But let me just peel it back in terms of when you look underneath that 15.4, I'd say there's really kind of three things I'd point out. First was that there was really a good mix of all categories of our sales. As Julie mentioned, we had a record 20 clients, over 100 million of sales, and that, as you know, positions us really well for the future. But if you go all the way down through the categories, all the way through our smaller deals, they represented very well, and that can help us with revenue in the current quarter. The second thing that I would point out is that our bookings were very broad-based across all of our services, and that included strategy and consulting. And the third thing was that it was aligned to our strategic priorities, as we pointed out, you know, driven by cloud, industry X, and security, for example. So, you know, with those points, I'll hand it back to you to ask the second question or if there's any other color that you want.
spk07: Terrific. Thank you. The second one, maybe, Julie, this is for you. I just wanted something to comment on acquisitions. You know, this is – Obviously, you've upticked acquisitions, made a couple of bigger ones than Accenture has historically done. Can you just talk about, you know, is this just kind of opportunistic or has something kind of shifted in terms of your willingness to do larger acquisitions or specific market opportunities you're going after? Thank you.
spk04: Sure, Lisa. And so we've always said we have the capacity to do larger acquisitions, but we're very disciplined about, you know, what we will acquire. And so these were, you know, opportunities that were very aligned to our strategic priorities. So, you know, Novetta being both investment in public sector, but primarily all about you know, advanced analytics, machine learning, cyber, and cloud engineering. And also, importantly, diversification for our federal business because they are in the national intelligence space. And Umlaut is in, you know, engineering, which was just an opportunity. It's a company that we know very well that really is giving us an opportunity to accelerate our scale in Industry X. And we've seen the digitization of manufacturing and engineering be a major priority post-COVID. Now, we've been investing for nearly a decade in this space. We predicted this would happen, as you can see by the amount of work that we're already doing. And this was a great opportunity for a company that we know well. And our strategy continues to be We're going to make acquisitions to scale and big market opportunities, to add new skills and opportunities. As you know, that we built a lot of interactive through acquisitions. For example, those were new skills and capabilities. And then to deepen industry and functional knowledge. And so this is a continuation of that. And, you know, I think the advantage we have is our financial capacity to make investments and to increase our investments for the benefit of our clients and all of our stakeholders when we see the right opportunities and we're going to continue to have that discipline around making strategic acquisitions.
spk07: Terrific. Good stuff. Thank you.
spk03: Thank you. Our next question comes from the line of Ashwin Trivikar with Citi. Please go ahead.
spk01: Hey, thanks, and great quarter. Congratulations on that from me as well. The question I had is about the momentum that you are seeing in the business, and it seems to have actually accelerated from what you were seeing in the past quarters. I wanted to ask you with regards to whether this, changes how you think about managing the business in the interim in order to continue to deliver what you're seeing from a demand perspective, particularly as we see attrition go up and so on. And that's an across-the-board statement, not just an Accenture statement. So any thoughts with regards to how you're thinking of delivery.
spk06: Yeah, Ashlyn, I'll take this and maybe I'll frame up a few things for you and hand it over to Julie as well. So let me just maybe frame up how we're thinking about, you mentioned the demand, you know, and overall our business and think about the quarter and our year-to-date from a financial perspective. And, you know, these results are really exceptional when you think about it in the context of our historical performance. So I'll start there. I mean, Clearly we're benefiting from an easier compare and a strong market demand, and we see that continuing. But even with that, bookings at $44 billion growing 25% year-to-date, and that's off a base of record sales through Q3 of last year. And then you couple that with 54 clients with bookings over $100 million through Q3, which is more in the first nine months of this year than than the whole of last year, FY20 and FY19. And I mentioned that as you talk about things in different ways we may need to manage differently, just to talk about the scale in our bookings. If you look at the scale in revenue, we grew a record $2.3 billion in revenue this quarter year over year. And you think about our industries, where we're clearly the leader with the breadth and depth of industries. We had 11 of those 13 growing double digits. And as I mentioned before in our guidance, The increase in our full-year outlook, it's driven by organic revenue, given that inorganic is contribution staying pretty much the same. And then you end that all with profitability, 40 basis points expansion this quarter. We had very strong profitability, and we're no longer benefiting from a travel tailwind, and we continue to invest at scale in our business and our people. You know, with that, let me hand it over much more to Julie to round out some of the questions you had on demand and attrition.
spk04: Yeah, so, Ashwin, it's a great question around, you know, managing our business. And so I want to just take you all back to right before the pandemic. I remember back then. And on March 1st, we put in a new growth model. We called it the Next Gen Growth Model. And that was designed – for helping us manage our business as we saw the scale increasing, right? And that change in growth model was focused on being able to have more of our leaders closer to our clients. We changed the P&L, as you recall, to the geographic. And so we've already put in place a model that is designed to allow us to continue to scale And so this, for us, was anticipated, and it's exciting to see how we are very uniquely positioned as our clients' needs have accelerated, because that's what's driving the demand, right? The needs of our clients have accelerated post-COVID to do compressed transformation, and we have the right operating model in place. As we think about attrition, you know, it's ticked up to pre-COVID levels in the in a hot market, although not the highest we've ever seen. And so, as you said, it's an industry phenomenon, and we're comfortable. I mean, our core competency is about managing our supply and demand, but more importantly, our core competency is being a great company to work for. And as you saw with our numbers this quarter, we hired net 32,000 incredible people And that is just a testimony to our ability to attract great talent as well as, you know, continue to train our people. We've trained over 100,000 people since the pandemic started pivoting to the areas of our clients' needs. So we feel good, you know, about it. And, of course, this is what you expect from us. So we'll continuously improve.
spk01: Thanks for that. All good points, and I agree. I guess the next question is with regards to, you know, and ordinarily I don't, you know, focus on a particular acquisition, but this umlaut just seems to be, I have to ask, is this the first of many as you expand into a much bigger engineering services type presence? You know, because that is a relatively massive end market So, you know, just strategically, how are you thinking of this?
spk04: Well, so the big picture, we believe that the digital engineering and manufacturing space is the next frontier for our clients, right? There's been a lot and there's still a lot to do. with respect to the front office and the back office, for lack of a better term. Our clients are building a digital core, they're transforming operations, and they're trying to find new ways of growth. But the areas that have been not as digitized over the last several years as companies have pivoted has been in core operations, manufacturing and supply chain. Now, we predicted this just as we predicted back in 2013 that someday every business would be a digital business. And so we've been investing. We've already made, I don't know, seven, eight, nine acquisitions over the last several years to build these capabilities. And you saw that with all the examples that we did in the script. And so this is about rapidly scaling with some of the best engineers in the world and because we see the market opportunity, but most importantly, the need from our clients. And so you should expect that we'll continue to build these both organically and inorganically, but obviously this is a great add in terms of scale for us.
spk01: Great. Thank you. Congratulations.
spk03: Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.
spk02: Thanks, guys. Good morning. I'm wondering if you can estimate for us perhaps how much the acceleration in all this enterprise digital transformation has enhanced your structural organic revenue growth profile relative to pre-pandemic levels, because it certainly sounds like this trend continues to have legs.
spk04: Yeah, I mean, I think the way to think about it is that you know, we're taking market share and we're really well positioned to capture the, you know, the growth that's available because of the needs of our clients. And so, you know, you're obviously seeing that uptick in organic growth and, you know, we think this will be sustained demand I think it's too early and we're not going to kind of back into sort of giving sort of a view of FY22, but what we would say is we do believe that what you're seeing right now in demand isn't just like a recovery because spending decreased, but actually sustained demand and that we are incredibly well positioned to capture that because clients are looking for outcomes. and the breadth of our services, you know, they're turning to us because we can give them solutions, not just individual services. They want the innovation that we're bringing, you know, the things like our Synapse platform. They are very appreciative and focused on the fact that we care about the 360-degree value so that we're helping, you know, improve their own skills as well as, you know, achieving their goals. And finally... You know, and I think something that is really critical right now and why we are so well positioned is they see us a company that creates value and leads with values. And so trust really matters when you are doing major transformation. And, you know, I'll give you one example. We've had over 80 clients in the last 12 months just come and sit down with us to learn more about our diversity supplier program. Because it really matters to them and they see us as a leader, right? These are the things that make us an incredibly attractive and trusted partner. And so we think that, you know, this is really an enduring differentiation at a time when, you know, there's going to be sustained demand for compressed transformation.
spk02: Okay. Understood. Just a quick two-part follow-up here. Your thoughts on Q4, book to bill, and... what were the areas of the business that surprised you most in terms of revenue this quarter? Because obviously the overall upside was quite significant. Thank you.
spk06: Yes. Jason, just in terms of how we think about the fourth quarter, I mean, so obviously we've had 44 billion of bookings here to date. And even with that, we still have a strong pipeline and we feel good about our position for Q4 as it relates to bookings. Yeah. And in terms of You know, what did better, you know, as I mentioned earlier, it really was broad-based. Every part of our business did a bit better.
spk02: Okay. Thanks for the comments.
spk03: Thank you. Our next question comes from the line of Rod Bourgeois with Deep Dive. Please go ahead.
spk09: Hey, guys. Hey, I just wanted to ask about the margin outlook here. given the increased acquisition contribution that you'll be digesting in fiscal 22, I'd just like to ask about the margin levers that you'll be able to pull in order to still achieve overall operating margin expansion. And also, I guess, besides digesting this added acquisition content, are you also needing to spend more on people costs given the war for talent that's out there? So, Question about margin levers and also the investments in people. Thanks.
spk06: Thanks, Rod. So maybe I'll start with the second one first. So, yeah, in terms of for the people side of it, obviously there's a lot of demand in the market. We're in a hot market right now, and historically, you know, we've seen wages increase, and that varied by skills and geographies, and that's happening now. But you see that... Rod's flowing through our results already to date and through our guidance. So, you know, it's really up to us to manage our business with rigor and discipline, as we always do. You know us well. You know, managing our pyramid, increasing the use of automation, and just overall delivery efficiencies. You know, so that's the first part. On wages, that's really stop rating margin. And just coming back to the same point on V&A, you know, so let me just give you a little bit more color, you know, on V&A. coupled with what I talked about a little bit earlier. And, of course, I'm not going to give any specific guidance for FY22 until September. But we do expect to have a higher level of inorganic contribution next year, probably around something closer to 4%. And that's really due to the fact that we're deploying about $4 billion in FY21, a larger portion that's closer to the later part of the year. and we expect to benefit from more of that revenue at FY22. We also expect at this time to deploy somewhere around $4 billion in FY22. That's including UMWOT, which we expect to close next year, early in the year. And of course, as Julie said, we've always said we have an ability to do more, but that's our line of sight today. And it's up to us to manage all the levers that we have at our disposal to continue within the parameters of clients and our overhead and structural costs to make sure that we continue to drive modest margin expansion while investing at scale in our business and our people.
spk09: Great. And then just a quick follow-up on the revenue progression that's happening. Clearly, this is a big industry recovery. Some of that's cyclical, some of it's secular. And you have certain COVID-impacted verticals that are coming back online. I guess as we head into the next fiscal year, Are there, on the other side, are there any revenue contributions that will taper as the COVID crisis ends? Is there any sort of lumpy work that might taper off as you head into the next fiscal year amidst all of the other momentum that's happening in the business?
spk04: I mean, there's nothing material. I mean, think about the public sector, for example. We did a lot of COVID surge work, but now you've got the fiscal stimulus that's around the world, and you see the digitization of the public sector, like we gave the example of Concept in Italy. So there's nothing material that we think will be difficult, you know, to manage, because you're seeing really, and you see that in the results, kind of across industries, there's this need to digitize. So nothing material that we think to mention.
spk09: Thank you.
spk03: Thank you. Our next question comes from the line of Brian Bergen with Cowan. Please go ahead.
spk10: Good morning. Thank you. I'm curious. Over the last two to three quarters, have you seen a notable change in clients' appetite for pricing increases as broader transformation demand has ramped up?
spk06: Yeah, so let me talk to you a little bit about what we're seeing in terms of pricing overall. So just importantly, as a reminder, we talk about pricing. We define it as the contract profitability or margin on the work that we sell, Brian. And as always, the environment remains competitive. And in many areas of our business, we did see pricing was lower. And that's really based on a combination of the fact that the market's competitive and and disciplined investments that we're making. And so all of that is baked into our operating margin guidance for the year.
spk10: Okay. And then one on Accenture Operations. I'm curious if you're seeing any change in the size and scope of engagements that clients are outsourcing to. Can you just comment on some of the strength or the drivers of the continued strength that you've shown in that business?
spk04: Yeah, it's a great question. It's not so much about the size. It's really about the intent. I mean, what you're seeing is clients really saying, in a world where I've got to digitize the entire enterprise, right, what can, you know, where do I want to focus my own resources and leadership and where can I leverage Accenture and their investments? And this is where we really got ahead of the market, right, where we developed Synapse. And what we're providing them is both cost efficiencies but really outcomes of actual insights that come from being able to digitize. And then you add on top of that where we have more clients thinking about having us take over. We have a strong pipeline and taking over more people. because we are such a great employee value proposition. And so they're starting, you know, when we think about the future of work, think about it, we're seeing more of our clients really see it as a combination of their own employees, automation or bots, and then partners like Accenture that really integrate with their own employees. And we're just a leader here. And so it's more about the trends of the need to digitize that is what you're seeing reflected, you know, digitized at speed.
spk10: All right. Thank you.
spk03: Thank you. Our next question comes from the line of Brian Keene with Deutsche Bank. Please go ahead.
spk08: Hi, guys. Congrats on the results. I want to ask about strategy consulting. It had been a laggard, but saw that it moved positively into high single digits. Just a little bit on the outlook there. Do you continue to see that maybe reach some of the demand you're seeing in some of your other industry groups?
spk06: Yeah. Hey, Brian. Thanks for the question. You're right. We were very pleased with the acceleration to high single digits in the quarter in strategy consulting, which is what we expected. In terms of how we look at just consulting overall type of work, go forward. We see it being strong double-digit for the fourth quarter and the second half of the year. That would mean we've rounded up really kind of in a strong double-digit growth perspective.
spk04: And Brian, as a reminder, because I remind you all, every single quarter, right, clients aren't focused on, is it strategy and consulting or technology or operations? They are looking for outcomes. And what makes us so unique is is that all of these things, whether it's cloud or intelligent operations or marketing transformation, bring together our services and with more confidence and certainty. And that's really how we think about it.
spk08: Got it. And then just as a follow-up, you know, the increase in M&A, just curious on how you guys are thinking about, you know, capital allocation, in particular the dividends and the share repurchase. Does that change at all with a little more M&A?
spk06: Obviously, I'll give you specifics in September, Brian, for next year, but overall our capital allocation framework really remains intact.
spk04: I mean, you should all just think about this as we're going to deliver on our commitments and we are investing to drive the next waves of growth and we are taking advantage of our ability to do so in this market.
spk08: Great. Thanks so much.
spk05: Last question. Operator, we have time for one more question, and then Julie will wrap up the call.
spk03: Thank you. And that question will come from Tinjin Huang with J.P. Morgan. Please go ahead.
spk00: Hey, thanks so much. Amazing results. Sorry if this was already asked. I had to jump off earlier. Just on the record number of deals, over 100 million, I'm just curious how the pipeline is for such deals going forward. Is there an opportunity to replenish? Just what is the What do you see out there in terms of large-deal potential from here?
spk06: Yeah, hey, Tingen, we still have a strong pipeline overall, and that includes in the large-deal category.
spk00: Okay, good. And then just on the four-point organic contribution, I heard that for next year. How about on the margin impact there? I think, Casey, you mentioned that there will be a little bit of impact on the margins. You'll still be able to expand. Just wanted to make sure I heard that correctly.
spk06: Thanks. Yeah. So what I did say is that we do expect inorganic contribution next year, about 4%. And our line of sight now is about $4 billion of capital spent next year, 22. But we expect modest margin expansion to continue in 22.
spk00: Okay. Very good. Appreciate that, guys. Well done.
spk04: Great. Thank you. Great, Tianxin. Okay, in closing, we really appreciate everyone joining us today. We believe that we are unique because of both what we do and how we do it, and we're a company that, as I shared before, creates value and leads with values. I want to thank all of our people and our leaders for what you're doing every day. And finally, I want to thank all of our shareholders for your continued trust and support. We'll make sure to earn it every day. Be well.
spk03: Ladies and gentlemen, this conference will be available for replay after 10 a.m. Eastern today through September 23rd. You may access the AT&T replay system at any time by dialing 1-866-207 1041 and entering access code 1334620. International participants may dial 402-970-0847. Those numbers again are 1-866-207-1041 and 402-970-0847 with access code That does conclude our conference for today. We thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.
Disclaimer