Q3 2020 Accenture PLC Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Accentures third quarter fiscal 2020 earnings conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. If you ever question at anytime during the call. Please press one then zero one.
Again for questions. Please press one than zero, if you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would now like turn the conference over to your host managing director head of Investor Relations Andrew Park. Please go ahead.
Thank you, Greg and thanks, everyone for joining us today on our third quarter fiscal 2020 earnings announcement as Greg just mentioned Easypark managing director head of Investor Relations I today's call, you'll hear from Chile speed, our Chief Executive Officer, and KC Mcclure, Our Chief Financial Officer, We hope you've had now.
So to the to review the news release, we issue.
On the go let me quickly outlined the agenda for today's call Julie will end with an overview of our result, Casey will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics <unk> third quarter.
Julie will then provide a brief update on our market positioning before Casey provides our business outlook for the fourth quarter and full fiscal year 2020. We will then take your questions before Julie provides a wrap up at the end the call.
The matters will discuss on this call, including our business outlook are forward looking in a set 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 FCC filings.
These risks and uncertainties could cause actual results to differ materially from those expressed in this call.
During our call today, we'll 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 gap in our news release for in the Investor Relations section of our website at Accenture Dot com as always is interesting no obligation to update info.
Amazing presented on this conference call now, let me turn the call leverage Julie.
Thank you Andy and thank you everyone for joining us.
Since our last earnings call. The World has continued to face unprecedented challenges health economic and social and throughout Q3, we saw rapidly deteriorating economic conditions globally.
I am proud of and want to thank our people and our leaders around the world for coming together in Q3 to continue to deliver on our commitment to our shareholders. Our clients are people in our communities in the face of this crisis.
Before turning to our delivery on these commitments, let me provide a bit more color on the context within days of our earnings call on March 19th we continue to quickly mobilize our people to work from home and during the quarter, we had approximately 95% of our people unable to work remotely.
For all of April and May other than China, virtually every country in which we operate was in locked down.
In addition, as you may remember in January we announced that as of March 1st we were implementing a new growth model and making a leadership changes we seamlessly implemented this new model demonstrating our agility at massive scale, which is a testament to the talent of our over 500000 people.
And the strength of our leadership team.
So in terms of delivering on our commitments to our shareholders. We delivered Q3 revenues in line with the range. We provided only eight days after the global pandemic was declared and we hit a new milestone of approximately 70% in the new digital which is digital cloud and security.
We delivered $11 billion and new bookings, a 6% increase over Q3 last year, which demonstrates the relevance of our services and our ability to sell in a remote everything world.
We continue to invest in our business for the long term closing, an additional $742 million and strategic acquisitions for a total of $1.3 billion year to date.
We delivered operating margin expansion of 10 basis points, and we continued to strengthen our balance sheet closed in the quarter was $6.4 billion in cash.
In terms of delivering on our commitments to our clients our clients rely on us for mission critical work 95 of our top 100 clients been with us for over 10 years, because we are a trusted partner and during this time, we deepened that trust yet again big.
Cause of our ability to deliver seamlessly, including how we transitioned our people from the delivery centers in India, and the Philippines to work from home without service interruption.
For example, we closed the books on time for more than 70 public companies in operations and we continued our pre crisis track record in technology with a round. The clock go lives on new leases every 15 minutes on average in bulk technology.
In operations, we were able to execute entirely remote knowledge transfer with great success.
In terms of delivering on our commitments to our people we continue to invest in training and development and the continuous we scaling of our people. We are on track to deliver at the same training hours as last year, well pivoting completely to a digital learning experience builds on our platform excel.
Sure connected learning.
We continue to promote people mid year, although at a reduced level compared to last year to ensure that our very best talent continues to build a vibrant career and is recognized and reward.
In terms of delivering on our commitments to our communities. We believe strongly in our responsibility to contribute to the wellbeing of our communities. In addition to our teams who have supported our health and public service clients with extraordinary Kobin 19 related work. We also wanted to make a unique pro bono.
Contribution the leveraged our strength.
In addition to our many local activities. We're very proud that we are helping put people back to work around the world with the people plus work connect platform that we created together with Lincoln Financial group's service now and Verizon.
This platform as a global online employer to employer initiative to bring together at no cost companies that have laid off our furlough people with organizations in urgent need of workers.
Designed by CHF rose, including our own extraordinary feature ROE Ellyn shook accenture built the platform and only 14 days. The response has been overwhelming as more than 1300 organizations across approximately 80 countries have engaged with currently about.
2000 positions already on the platform, what's your balance between open needs and availability.
With that over to you Casey.
Thank you Julie and thanks to all of you for taking the time to join US on today's call. We're pleased with our third quarter results, which were aligned with our expectations and reflect the diversity into our ability of our growth model across geographies industries and services. Our results continue to reinforce the relevance of our offerings and capabilities in the market to deliver.
Value for our clients importantly, these results illustrate expenditures unique ability to manage our business and deliver significant value to our shareholders in a very uncertain environment.
Before I get into the details let me summarize the major headlines of our third quarter results, which reflect continued strong execution against our three financial imperative.
Revenue grew 1.3% in local currency at the top end of our guided range. This includes a reduction of approximately 2% from a decline in revenues from Reimbursable travel costs.
Taking a look at revenues through an industry lens the diversity of our portfolio continues to serve us well.
Approximately 50% of our revenues came from seven industry that were less impacted front the pandemic and in aggregate grew high single digits with double digit growth in software platform life Sciences and public service.
At the same time as we expected we saw pressure from clients in highly impact in industries, which include travel retail energy, Hi, tech, including aerospace and defense and industrial.
Well per well performance very to this group collectively were represents over 20% of our revenues and declined high single digits.
Given this is the first quarter results since the onset of the pandemic, let me share a bit more color on how it shaped our quarter.
We had strong momentum coming into the quarter, which continued through March.
We began to see the impacts in our business in April and May as a result of clients postponing work, reducing existing volumes and deferring decisions on new work.
These impacts were more pronounced astrachan consulting.
We did not however, see an uptick in cancellations over typical levels.
In addition, we experienced very little revenue impact from meeting to ship to remote working as we continue to successfully deliver services to our clients.
Operating margin was 15.6% an increase of 10 basis points, both for the quarter in year to date as we continue to demonstrate our ability to drive sustainable margin expansion.
This result continues to reflect the absorption of significant investments in our people and our business as we further strengthened our leadership position in the market.
We're also benefiting from significant lower spend a non billable travel meetings that event.
And finally, we delivered very strong free cash flow at 2.6 billion in the quarter, which also while also continuing all elements of our capital allocation program, including returning roughly 1.1 billion to shareholders via dividends and share repurchases.
We've made investments of 1.3 billion acquisitions, primarily attributed to 29 transactions here today and.
And we continue to expect to invest up to 1.6 billion an acquisition this fiscal year.
With that let me turn to some of the details starting with new bookings.
New bookings were $11 billion for the quarter, we're reflecting growth of 6% in local currency and 4% in us dollars.
Consulting bookings were 6.2 billion up 5% a local currency at 3% in us dollars with a book to Bill from one.
Outsourcing bookings were 4.8 billion up 8%, a local currency and 5% U.S. dollar with a book to Bill one.
We were very pleased with our new bookings, which continue to be dominated by high demand for digital cloud and security related services, which we estimate represented approximately 70% of our new bookings in the quarter.
Looking forward, we expect strong bookings in Q4.
The fact that we delivered $11 billion a bookings in this environment with growth over last year with much of these sales closed virtually while at the same time building a very strong pipeline speaks to both our agility and the strength of our client relationships.
Turning now to revenues.
Revenues for the quarter were 11 billion, a 1% decrease in us dollars and a 1.3% increase in local currency, reflecting a foreign exchange headwind of roughly 2.5% compared to the 1.5 estimated impact provided in our guidance last quarter.
This result was at the top end of our FX adjusted range.
Consulting revenues for the quarter were $6 billion down 4% in us dollars and down 2% in local currency, which includes a reduction of approximately three percentage points from a decline in revenues from Reimbursable travels.
Outsourcing revenues were 5 billion up 3% in us dollars and up 5% in local currency.
Taking a closer look at our service dimensions technology services grew mid single digits operations grew low single digits and Stratagen consulting declined mid single digits.
Additionally, digital cloud and security related services grew high single digits.
Turning to our geographic markets in North America, we delivered 2% revenue growth in local currency driven by double digit growth and public service life Sciences, and software platforms and high single digit growth and banking capital markets growth is offset by declines in chemicals, and natural resources and high Tech.
Europe revenue declined 2% local currency, we saw double digit growth in four industries, including software platforms chemical natural resources health and life Sciences.
Growth was offset by declines in consumer goods retail and travel Hi Tech and banking capital markets.
Looking coat close or the country's Europe was driven by high single digit growth in Italy, and mid single digit growth in Germany offset by continued declines in the UK as wealth declined to Spain, France.
In growth markets, we delivered 5% revenue growth in local currency driven by double digit growth and six industries with particular strength software platforms public service and chemicals and natural resources.
Growth is offset by decline in consumer goods retail and travel.
From country perspective growth markets was led by Japan, which again had strong double digit growth.
Moving down the income statement gross margin for the quarter was 32.1% compared with 31.8% for the same period last year.
Sales and marketing expense for the quarter was 10.2% compared with 10.7% for the third quarter last year.
General and administrative expense was 6.3% compared to 5.6% for the same quarter last year.
Operating income was $1.7 billion third quarter, reflecting a 15.6% operating margin up 10 basis points compared with Q3 last year.
Our effective tax rate for the quarter was 25.5% compared with an effective tax rate of 25.6% for third quarter last year.
Diluted earnings per share were $1.90 cents compared to EPS of $1.93 cents in the third quarter last year.
Day service outstanding were 41 days compared to 39 days last quarter at 39 days for the third quarter of last year.
Free cash flow for the quarter was 22.6 billion, resulting from cash generated by operating activities up 2.7 billion net of property and equipment additions of 150 million.
Cash balance at May 31st was 6.4 billion compared with 6.1 billion at August 30 Onest.
With regards to our ongoing objective to recurrent return cash to shareholders.
And the third quarter, we repurchased or redeemed 3.7 million shares for $627 million at an average price of $107 at 54 cents per share.
As of May 31st we had approximately 1.9 billion of share repurchase authority remaining.
Also in Bay, we paid our third quarterly cash dividend of 80 cents per share for totaled 509 million. This represents a 10% increase of the equivalent quarterly rate last year and our board of directors declared our fourth quarterly cash dividend of 80 cents per share to be paid on August 14, also a 10% increase of the equivalent rate last year.
Yeah.
So in so in summary, we delivered to the expectations we provided in March.
Looking ahead, we remain laser focused on capturing growth opportunities in the market and delivering value for our clients.
As you know and expect of off we will operate with rigor and discipline, while continuing to invest in our business and our people for long term market leadership.
We entered the crisis in a position of strength and we're driving our business to emerge even stronger.
We remain committed to delivering significant value to our clients our people and our shareholders. As we continue to navigate this very uncertain environment now, let me turn it back to Julie.
Thanks Casey.
We look forward, we are starting to see the overall business environment improves with more engagement with many of our clients.
However, the high level of uncertainty persists and it is too early to predict when the pandemic and economic conditions will improve.
Now working from home is highly efficient and I am connecting personally with more clients around the world than ever before.
I first want to share our perspective on the crisis in house demand is shaping up based on what I'm hearing from Ceos, and then bring it to life.
Hi, This is unique in two ways first it is created the largest ever change in human behavior at scale and almost instantaneously requiring companies to fill new demand trends change, how they engage with customers and adapt quickly too volatile mark.
At conditions, all of which require a strong digital foundation.
Just as they also face massive cost pressures.
Second the pandemic is happening during a period of exponential technology change, which was already driving entirely new ways of doing business.
In our future systems research last year, we identified the top 10% of companies in terms of tech adoption depth and culture or at the leaders are performing twice as well as the bottom 25%.
We believe cobot immediately widened that gap.
We see the leaders doubling down on their investments, while the laggards recognize it's easy to accelerate the pace of their transformation.
Companies are turning to Accenture as the trusted partner with deep industry experience and to help and the ability to help them create investment capacity and change at scale.
To execute with multidisciplinary teams spanning strategy and consulting to operation.
And trust matters more than ever making our strong client relationships and reputation of critical advantage.
This is reflected in our Q3 bookings, which include 11 clients over $100 million.
And importantly is reflected in our strong pipeline as we look ahead to Q4.
Let me highlight some of the transformational deals in our Q3 bookings to bring to life, what our clients need and how we're able to deliver.
Leveraging our intelligent platform services for a major global beverage companies seeking to drive growth, we will be implementing Sep S. Four Hannah to support business simplification and better engagement with customers and consumers through real time data.
We're also providing ongoing IC modernization and application maintenance leveraging our my wizard asset to lower costs and improve user experience.
I see modernization overall continues to be an area of high demand.
Leveraging our industry X capabilities. Another area, where we are seeing increased demand, we will be helping Airbus reduce cost by up to 15% in speed time to market by modernizing their legacy product lifestyle lifecycle management system.
We are implementing and enabling digital platform built with that so systems a leader in Threed designed to help the company reinvent how they design build and support new aircraft products and components.
Leveraging operations, we extended our strategic partnership with Microsoft to provide them with credit and collection services collecting over $120 billion and cash annually across 170 countries in 30 languages.
By commodity combining the market, leading AI powered assets in our sin ops platform like intelligent collections with Microsoft Zohr and power platform technologies and by simplifying global process and policies, we will drive significant day one savings.
And lower the marginal cost of growth.
At the same time, we will deliver top tier performance.
This is an example of why we continue to be the market leader in business process services powered by our ecosystem relationships.
Operations is an area, where we are seeing a significant increase in demand.
Each of these deals create tangible value in both cost efficiency and business outcomes, leveraging our mix of services and deep industry and functional expertise, which accenture is uniquely able to bring to our clients.
I also want to touch on another area of demand, where we are seeing even more significant growth post coded across industries.
Cloud migration and cloud based data and innovative business models have quickly accelerated.
Amazon Web services, Microsoft to sewer and Google cloud platform as well as Alibaba cloud in China, and Oracle cloud infrastructure OCI.
Companies are looking to more quickly reduce cost and capture the innovation of the cloud as well as provides the foundation for better access to data for new business outcomes and models.
Examples from our Q3 sales include working with a global pharmaceutical company to consolidate multiple data sources on ADW S to drive faster product development.
Working with a major global insurance company to migrate over 30% of their business applications to his sewer and just 18 months.
Working with a leading Asian bank to build digital banking services on GCP.
Working with one of the largest dairy companies in China to migrate in modernize their customer and omni channel Commerce systems using Alibaba cloud.
And working with the European telecommunications provider on a living systems.
Modernization, which includes the migration of their Oracle state to OCI.
With cloud our ability to green industry, and cross industry insights to our clients and World class change management for the in value due to our strong strategy consulting capability is a major competitive advantage.
Given the events of the last week.
I do want to pause and take a moment to talk about a core part of who we are as a company.
We have an unwavering commitment to inclusion and diversity and a quality for all.
We have zero tolerance for racism bigotry and heat of any time.
We live this commitment everyday because it is the right thing to do and because becoming the most inclusive and diverse company in the world has been critical to our strategy.
Since 2014, when we doubled down on inclusion and diversity and created our digital business. We have delivered 9% compound annual revenue growth in local currency.
We are a talent magnet.
In part because the most talented people want to work at a company that not only creates value, but also needs with values.
We have made progress with respect to our people of color, but not enough.
We are determined to use this moment in the U.S. as another moment of change for us.
This month lead this month, we announced our commitment to take our next set of actions, which includes setting external goals in the us for increasing overall representations and managing directors for African American Black. Hispanic American Latin next communities similar to how we have set.
Public schools for gender globally.
We also are adding new mandatory training that will help our people identify speak up against and report racism.
And we are committed to take similar actions globally.
Now I'll turn it over to Casey to provide our updated business outlook Casey Thanks, Julie before I get into our business outlook as I did last quarter I would like to remind you that given the current event virus pandemic. There are number of factors that we may not be able to accurately predict including the duration and magnitude.
Of the impact the pace the recovery as well as those described in the quarterly filing we made earlier today now with that said, let me turn to our business outlook for the fourth quarter fiscal 20, we expect revenues to be the range of $10.6 billion to $11.0 billion. This assumes the impact of ex FX will be approximately negative one.
Compared to the fourth quarter fiscal 19, and reflects an estimated negative three to positive 1% growth and local currency and includes approximately negative 2% from the decline in revenues from Reimbursable travel.
For the full fiscal year 20 based on how the rates have been trending over the last few weeks. We continue to expect the impact of FX on our results in us dollars will be approximately negative 1.5% compared to fiscal 19.
For the full fiscal 20, we now expect revenue to be in the range of 3.5% to 4.5% growth in local currency over fiscal 19.
For operating margin, we now expect fiscal year 20 to be 14.7%, a 10 basis point expansion over fiscal 19 results.
We now expect our annual effective tax rate to be in the range of 23.5% to 24.5%.
This comparison effective tax rate of 22.5% and fiscal 19.
For earnings per share, we now expect full year diluted EPS for fiscal 2000 to be in the range of $7.57 to $7.70 or 3% to 5% growth over fiscal 19 resolved.
For the full fiscal 20, we now expect operating cash flow to be the range of 6.45 to 6.95 billion property and equipment additions to be approximately $650 million and free cash flow to be the range of 5.8 to 6.3 billion.
Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.2 to 1.3.
Finally, we continue to expect retired at least 4.8 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 up so we can take your questions over to Angie.
Thanks, Casey I would ask each key one question and a follow up to allow as many.
Possible to ask the question Brad would you provide instructions for those on the call. Thank you, ladies and gentlemen, if you'd like to ask a question. Please press one than zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if you're using the speakerphone. Please pick up a handset before pressing the numbers. Once again, if you have a question.
Please press one than zero at this time and one moment. Please for your first question.
Your first question comes from the line of two in June Wang from JP Morgan. Please go ahead.
Hi, Thanks, so much great execution here just on the.
I want to hone in on the strong bookings comment for the fourth quarter can you maybe give us a little bit more on.
The type of work you're doing consulting was outsourcing, but also with quoted specific work versus.
Versus transformational and maybe also Julie you I think last quarter, you mentioned or.
Talk about appliance adapting to a new normal has that happened or is that venture really driving or just adapting to demand than that.
Mark as you called it.
Yes, so so maybe I'll start and then Julie can.
Waiting on on demand so tend to thanks for your question.
In terms of strong bookings, maybe I'll just talk a little bit about what maybe if I can take us opportunity talked about guidance overall and now ill hit on the bookings point as well so.
Yes.
In terms of what we're taught what we're looking out for the fourth quarter right in terms of both.
Our revenue and our bookings I.
I want to put some context into our guidance. Obviously it continues to be an uncertain environment and in revenue. We always aim for the top portion of our guided range, but as we said last quarter. This quarter. The entire range is a play.
And if I put the context of Q4 and to what we experienced in Q3, we had stronger momentum coming into the third quarter and.
And that carry through in March.
And we began to say the impacts of the the pandemic on our business in April may and so as we think about Q4 as relates to what we saw in Q3 at the top end of our revenue guided range.
Implies a improve performance ever what we saw in April in May.
As of the bottom end of our revenue guidance for the fourth quarter it stabilized and so as it relates specifically to your question on bookings, we were able to grow very strong pipeline. During the same time and we do see that we have the potential for strong bookings in the fourth quarter.
Lets you will give you a little bit our view on that on the color as it relates to what we're seeing in demand and the market.
Sure.
Being kind of consulting and outsourcing we saw sort of similar patterns in Q3, and this we have lowered sales.
In Stratagen consulting in Q3, and we're going to have some lower sales.
Where we sort of expect to that.
As we continue.
But if you step about lets just look at demand rates in the whole set of demand that started in Q3 that will continue into Q4 in some areas.
Around a few things so health and public sector right. So we saw us surge and need in health and public sector. For example, we became we pioneered in the comp for the Commonwealth of Massachusetts in the US working with partners in health and Salesforce that first contracting tracing application and.
Operation, which we've now taken too.
For example, the state of California, we're working with Salesforce and to be less that work will continue you saw us working around the world doing things like using our industry in technology expertise to set up virtual agents like in India, with my Gov, and Microsoft and incentive for virtual.
You know you go to Brazil, we worked with Microsoft to set up on telemedicine.
For a major hospital there that we work in the trends around telemedicine and the need to support citizens through the endemic will continue we believe and whats important there is not simply to it does this isn't about technology right. This is about taking all of our insights from the needs of.
Health and public sector in supporting citizens reef with technology with ecosystem partners and quite honestly innovating remotely right. The work that we've been doing and that'll continue you also see the supply chain really being an area of big focus so weve worked with to known a multinational food products company.
Who supply chain was immediately disrupted severely and leveraging analytics.
Became essential for them to give them in near real time data around their supply chain to avoid disruptions to that kind of work supply chain is going we've been doing it is going to continue and of course clients are now moving from the immediate needs in leveraging the.
Assets in tools and Inder standing that we have to thinking longer term because of course, what you have is completely different trends and uncertainty and so how do you really connect everything from understanding the customer all the way back to manufacturing and that's why you start to see the demand in digital man.
Factoring supply chain and we expect on customer side to that to can continue.
Then finally, the all the whole area of online. So we worked with the global retailer has been investing for years and omni channel we've been piloting curbside pickup before the crisis 100 stores and 48 hours, we took them to 1400 stores and so we're beginning to really talk about with.
Other retailers, who are behind right, we talked about that becomes the laggards in the leaders rate to how are they going to be adjusting it now if you take.
A step back to engine on the Big picture rate, we do three big things Weve build digital core and I talked about in my script I'll cloud is accelerating security is accelerating we just bought Symantec's managed service built a business. We're now one of the largest and leading providers in the world.
Threat landscape is expanded and that we're seeing tons of demand and security Hudson demand in data and applied intelligences data is so necessary, but on the other hand intelligent platform services, which as we've shared in the past is about 40% of our business in pre crisis was.
Growing double digits that moderated in Q3, and we'll see further moderation in Q4, we expect.
As clients have to take a step back refocused prioritize we're helping them shape that but the demand long term is absolutely there and you saw that on our bookings that we talked about for.
The Esfour hundred because implementation in Q3, where we are act that we're doing so to drive growth as well as efficiencies and so while we continue to see that moderating. We really do you see that is being very much affected by the industries that are most severely impacted but also as clients.
Frankly are taking a step back to figure out how theyre going to accelerate in any what sequence their digital core building in the area of optimizing operations, which is the second big thing we view our operations business is seeing surge in demand we talked about this last quarter, we where we'd had double digit growth.
For 25 consecutive quarters.
I see some crisis the related impacts in this quarter, but as the need for digital transformation that has accelerated the ability to use our digital a platform signups to drive cost efficiencies and to get better data faster rate is really take.
Having that business have another new surgeon demand as we look at our pipeline.
And then also the digital manufacturing as I've referred to and then finally on the growth agenda side Accenture interactive rate an incredible business, we had $10 billion at having significant growth. It was significantly impacted in Q3 as companies focused more on shoring up.
They had as opposed to.
Thinking about the next generation of customer experience et cetera, We're now seeing those conversations begin again and what's really interesting there is that the b to b companies like the industrials, who had there have a traditional field sales model, we're able to get can.
Acted with remote work, but they weren't online right and so we think theres going to be a real surge over time and we're starting to have those conversations about how you move online.
In general to your question around kind of remote working look we've enabled lots of companies to work remotely right whether it was.
Based on Defense company on G suite 100000 people to the NH as hospital system with teams over 1 million people companies are really adapted.
And where we have the advantages because we've been so remote.
And because of the where global company and have a strong tradition of working with our clients around the globe. We've just adapted very quickly and you see that in our strong bookings.
You know, which was higher than last year's Q3 and in what we expect in Q4.
Great Thats good stuff good color.
[music].
I'll get back into queue. Thank you.
Thanks.
Your next question comes from the line of Lisa Ellis from Moffettnathanson. Please go ahead.
Hi, Good morning, good to hear your voice is just a follow on on Pingtans question. I mean, you obviously recorded solid revenue and three Q solid growth in bookings have a strong pipeline again for Fourq Q.
At the same time, W. yohji downgraded its economic outlook to nearly a 5% decline for the year.
So which is pretty terrible.
So I'm just trying to.
Okay.
Can you provide color on how those two things in those two trends reconcile meaning are you seeing that businesses either a have not made with visions yet to their overall IP budgets to reflect a week or longer term economic outlook or more optimistically be they have but they have.
Actually we allocated more dollars into ITD be to drive these digital transformations or or is it that you're picking up share I mean, I guess, maybe just some color on compare you you.
Reconcile those two those two dynamics. Thank you.
Yes sure.
Remember what we're guiding to is is.
Really.
A modest growth it would reflect the economic conditions right. So what we're seeing in Q4 is we're seeing our business stabilize at what is a much lower level right than pre crisis with at the high end of the range starting to to tick up in improve freight so that is what.
Really as you say like Vic Thats, how you reconcile that right and as I just went through with Tianjin. There are parts of our business that are accelerating like cloud and security and operations, but a big part of our business. Our intelligent platform services business, which is 40% was growing double digit moderated in Q3.
And we expect to further moderation.
Reflecting the economic conditions cut clients sort of taking a step back and saying hattaway sequence and so.
And so with but when you look at what's happening VIP budgets. All the analysts are telling us and we're seeing it is too is that they are declining but theyre focusing on the digital transformation that's needed to navigate right. So like the supply chain examples where you have to do this this is why Lisa.
Our position is so important right now because what we can uniquely do is provide cost savings while we transform when we talk about IP monetization and managed services rate, we're doing managed services and we talked about this in prior quarters called lives.
I think systems, where we're taking down the cost, but we're helping them have devops and agile at scale to get their product releases faster. We are seeing deals like if you look at the one I highlighted them S&P. It had two components for the for the global beverage company right. It was replatforming.
But it also had a managed service component that was modernizing and cutting their costs and to what we're seeing is this flight to accenture for flight to quality, because we can deliver a flight to the ability to increase investment capacity decreased cost but.
Still modernize like what we do with operations.
And so of course, we're going to be impacted by we've got severely impacted is with two businesses that industries that of course, we're getting were feeling all of those effects, but we believe our results.
Don't know it nobody else is come yet are taking share in this environment.
Terrific. Thank you and then maybe my follow on is just on the talent side.
Can you provide I mean, I know, you're an environment, where attrition just dropped to a 11% not surprisingly given the environment.
Utilization has also slowed down a little bit but of course year, continuing as you said to maintain promotions maintain higher end can you just remind us of how you see how you manage talent through this type of environment.
So you emerge with a stronger bench on the other side. Thanks.
Sure I mean, it's a great question is something we really focus on because our competitive advantage is phenomenal talent and the underlying fundamentals of the market the need to digitally transform and of our business remain strong and so we're very focused on preserve.
Serving that great talent, and our strategic capabilities, because we have everything from strategy and consulting to operations and so thats been our principle. So we're pulling the usual leavers of.
Less hiring except in specific areas of replacing subcontractors, we don't needed. We continued to promote but we moderated the promotions, but it's important that we're delivering still on it we've delayed some start dates as you would do as you would imagine the second.
Thing. We're doing is we did just put it in this new growth model and we were able in a more simplified organization to identify efficiencies. So we're going after some cost structural.
Increases that are helping and then as we move forward, we'll do things like were in our annual performance process and so the pace of how we do our kind of businesses usual managing out of our.
Of our lower performers is another lever that we can pull as we look forward and with what we're really focused on is making sure like say for intelligent platform services business. Yes. It is moderating, but we know is an absolute critical part of our business. So we're doing a lot of upscaling and I think this.
To give you a number that I am I think if so phenomenal.
Since the beginning of March right, when we hit co bid and we saw the shift in demand in technology, we have we skilled.
37000 people in hot areas like cloud since the beginning of March and these are in sort of 15 to on average 15 to 20 hour.
Hi, jewels of re skilling to pivot, we've taken our strategy and consulting people and pivoted to some of the needs for operations and the public sector. Because again those are also require those insights and the resiliency of a business like ours, because we're in multiple industries multiple.
Types of work and we're able to kind of seamlessly move people.
Who are used to working in these multi dimensional teams anyway and by the way our people love it because they get great new opportunities. So we feel really good about how we're managing it and and to your point Lisa We think we're going to come out much stronger because of how we're delivering for our people.
Terrific great color. Thank you thanks, guys.
Your next question comes from the line of Dave Koning from Baird. Please go ahead.
Yeah, Hey, guys. Thank you and congrats but my question.
New really didnt decelerate that much and maybe that it just is.
It's a function of exactly you're talking about some of these newer products doing well, while some of the older. The older part decelerated more as the economy comes back eventually do you think the new kind of just gets to just a higher level of growth and then the older service. The older services just stay at a lower level I mean does that is that really.
But what we're seeing now.
But I mean look I, you sort of look at it.
I will start with like the where in the big shock right I mean, the how fast the economy went down the need that every business is now a health business and so all of these so I don't read too much into.
Corridors sort of response in terms of now new versus legacy other than.
The impact of what's happening to have to move to online everything and remote will absolutely requiring is requiring and thats, what we see in our public pipeline and acceleration of building. The digital foundation, which means companies are going to have to make more choices and this is.
Why we used to tell you our theory was in a financial crisis that the rotation to the new right would make us more resilience and Thats what is absolutely. The facts rate. So is that we've seen what's happened you have to be more digital and that and that's going to thats going to stay.
And that will no doubt have some effects on where you're spending the money, but it's part of what's driving what we're doing now with our managed services.
And helping modernize those for our clients in a more cost effective way to to get our clients to the new and a lot of what we're doing now is taking all of our learning capabilities in building that in for our clients to help them rotate their talent.
Which they need to do as well.
Great. Thanks, and one quick numbers question, the new reporting on on segments with the Chicos the margins in the growth markets have been very high this year and specifically in Q3 with very high think 21%.
Is there something changing in the environment that allows those margins to be higher is that is that going to continue.
Or maybe it's just a short term blip.
Yes. Thanks for the question right. This is a first time that we have provided operating income by market and the way I would just say to take a look at operating income across our markets.
Dave would be the very same way that you thought about it as it relates to the operating groups like you're going to have we'd have variations by markets. Just like we did throughout the year should operating groups, it's really going to be impacted by the services that we do and that market. The mix of industries that we have any type of economic impacts that are.
Wrapping in a specific market as well as maybe investments that we're making particular to that geography.
So I think thats the lens I would look at operating income would be the same as as we've always historically done against operating groups and we manage obviously to overall et cetera operating income as it relates specifically to the growth markets, we have very strong performance.
And our Japanese business, which is a major growth driver and overall our contract performance and profitability is very strong in the growth markets.
Great. Thanks, guys.
Your next question comes from the line of Hershey to ROA from Bernstein. Please go ahead.
Hi, Good morning, Julie Casey.
My question is we've seen in this environment that many companies.
Adding to the tank work from home policies as a margin driver longer term given the higher productivity. This scene.
Network environment.
Is this something you're seeing looking at and more broadly what is being some of the positives and negatives surprises.
Working environment. Thank you.
Yeah I think.
I'll start drilling can certainly weight and I think what are the things that cutting you asked about margin is unique in this environment is what I would say that and we're taking full advantage or this is the fact that.
We are really not traveling particularly for non billable.
Hence in meetings.
And so we are using as we're taking full advantage of that and making sure that we continue then to use that extra capacity to invest in our business to preserve our talent while at the same time, giving margin expansion. So I think for US that's the that's probably the bigger change within this environment.
We have.
Obviously moved.
We've always been able to work from hub to great degree.
Within our centers, we have been able to make that change as well this quarter, but at that but that's not really going to be a significant increase or decrease in March it ended up itself.
Yes, as you look as it relates to ourselves is complicated brand like in our operations businesses, a 24, seven and re run ships and we get to have the advantage of you know sort of using.
Assets over and over so I mean, it's a it's not a straightforward sort of discussion around that but maybe let's just take a step back what are the realities rate.
Were opened 30% of our offices now, but we're not putting a lot of people back in the office and neither our clients around the globe because we're dealing with an ongoing health situation and so whether you like it or not right remote working is going to be here to stay at a pretty high level for some time.
And so we and our clients are focused on understanding where does that make sense.
I was just talking a technology company.
So today, where what they've said is look everything's working pretty well, except R&D not because R&D needs to be in the office, but they're just struggling to collaborate as well right and so you know company by company earlier in our learning I.
I give a lot of advice to Ceos about this because there is some who got really excited about lets get rid of all our real estate.
Back in the Ninetys, we pioneered remote working great and we called it Hoteling and we in particularly in the U.S.. We took out a lot of real estate, because we said our people are a client sites and and there are they could be home and what we found impact fact over the last five years. When I was running North America, we started gradually to expand the foot brand again because.
As there is a benefit of bringing people together as well that we've proved you can innovate remotely as gave some of those examples but I would say, it's going to be cautious as respect to sort of driving our business would it has helped.
As Ceos really understand is some of the areas in some industries that have resisted say finance and accounting in certain areas, saying no. We need to have the teams together is to recognize that they can really rethink, but what should they do in house, what can they rely on a partner like accenture how to get them.
Right balance both from an expertise and the cost perspective, but just as much. This idea of legit, leveraging others for digital transformation and you're going to see more of that thinking I mean, when you move to the cloud you're basically saying you have this important permanent third party partners that are running your business.
Great and so how digital transformation.
Happens at speed going forward is really going to be this weaving of partners together, which is why the fact that were so trusted really helps us in this environment.
Great. Thanks very much.
Your next question comes from the line of Edward Castle from Wells Fargo. Please go ahead.
Hi, Good morning can you talk a little bit more about your consulting bookings how much of the while the sort of the solid quarter.
You expect.
That you had in the quarter was related to the.
Responding to the cobot crisis, and I'm not sure I heard it intend Gentris response to 10 Jim's question, but does the strong awards outlook for Q4, how does that split out between consulting and.
Outsourcing thank you.
Yes, Hey, it's nice to talk to you in terms of what we're guiding to in Q4, we.
Overall stronger bookings I'll leave it that in terms of.
We don't.
Really going to give a sense our guide to the overall fourth quarter.
And I think you know just in terms of what was in our consulting bookings.
No.
Truly provided a lot of color we had as we talked about our overall bookings were 70% in the new which is digital to move to the cloud.
Security was really important in this current environment right as well as other digital area. So.
And our Joel if theres anything else and additionally, what add on.
Now as I said, our bookings were kind of sort of split between outsourcing and consulting sort of similar as yes pattern, yes, or no change there.
In the quarter ending the quarter that's right.
And my other question it's around utilization.
Went down a few points here as you felt bottom yet on utilization, where we're sort of picking up.
Information that you guys you doing some lay offs and so forth and wondered if you've been able to sort of stabilize the utilization yet.
Yes, maybe I'll just quickly on utilization, yes, we did do it ticked down in Q3.
Ed It's nothing that were concerned about it was really a bed, particularly at operations at our and our centers as we moved during the time that we move to where you work from home as well as there were some elements minor elements of work from home restrictions.
But.
That said it was within the though that we expected and we continue to deliver for our clients in that time money.
Yes, and with respect to managing as I've said before we've identified some rural areas of efficiencies and so that has obviously head count allocations to it which maybe what you're calling layoffs, we really see it is as focusing on our cost structure and then otherwise are managing.
Our supply and demand as I went through before pretty ordinary course, we don't see it some extraordinary workforce actions.
And remember that Q4 guidance builds that in that we think were either stabilizing to slightly up in terms of our business environment. Because if you look at our guidance. We're pretty pleased I mean Q3 had a great strong March we don't have that in Q4 and.
So we do see our business, either stabilizing or slightly up yet and that just another fact on that as you saw from our in our head count went up sequentially, 1% right. So for the quarter were up over 6% for the year.
Great Hey, Greg Thank you.
Great. Thanks, Ed and greatly have time for one more question and then Julie will wrap up the call. Okay that question comes from the line of Bryan Bergin from Cowen. Please go ahead.
Hi, Good morning. Thank you I wanted to ask on bookings conversion can you comment on clients willingness to ramp up some of these large projects in this environment. I'm curious you are seeing any extension of the period between signings and project startups and how that might impact near term outlooks.
Well I mean, our outlook includes kind of what we're seeing in its a little bit all over the map right. You've got some clients want to go faster right because they need the savings faster you have other clients too.
Maybe having a slower ramp up so I'd say, it's mixed yes, and I think maybe in terms of our outlook you know maybe add extra to us and if we look at our Q4 revenue guidance I would think theres really kind of.
What would put us at the top versus what would put us at the bottom criteria to swing factors, one would be really how the industry that industry dynamic that we talked about how that continues to play out and then how the strategy consulting work.
Evolves in the quarter.
Okay.
Just on your comments on digital can you give us a sense on how those underlying components performed interactive relative to cloud insecurity and any quantification that.
Well, we don't we don't normally quantify but as I told you earlier Ray we we had accenture interactive pre crisis had been significantly growing and it was significantly impacted in Q3.
And that that.
Primarily around industries and kind of focus so you've got that and then.
Whereas you sort of look at cloud that really was up in security was up and remember intelligent platform services came down. So those are kind of the big components that we normally kind of give you.
You know a sense of yes, so just just.
I don't know actually said for.
When we talked about the industry dynamic that I talked about earlier that really plays out the same way with Accenture interactive there was growth in Accenture interactive and the less impacted industries right and they had also similar dynamic on the areas that had more pressure this industry as a more pressure. This quarter you know they have some declines.
Yes.
Great well. Thank you everyone before I wrap up I did want to give a special shout out to five you have an ASO, who leads our Italian business to his leadership team and all of our people in Italy. As you all saw Italy was actually in lockdown in the entire three months of the quarter and it was an extraordinary.
Called.
Time, and yet they delivered 8% revenue growth in local currency in Q3, because these states so close to our clients and to each other and I just thought it deserved a very special mention.
As I wrap up.
We really believe that Accenture is uniquely positioned today to help our clients succeed in the current environment, both because of what we do as well as how we do it we are committed to shared success with our clients people shareholders and communities to living our core values.
And to being a trusted leader in responsible business.
Thank you to our people and leaders for how you come together every day to deliver on our commitments and especial. Thank you to our shareholders for your continued trust and support.
Be well, everyone and thank you for joining.
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