Q1 2021 Accenture PLC Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Accenture is first quarter fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time, if you should require system.
During the call. Please press Star then zero as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host.
Managing director head of Investor Relations Ms. Angie Park. Please go ahead.
Thank you operator, and thanks, everyone for joining us today on our first quarter fiscal 2021 earnings announcement as the operator, just mentioned edgy Park, managing director head of Investor Relations.
Todays call you will hear from Julie Sweet, our Chief Executive Officer, and KC Mcclure, Our Chief Financial Officer, We hope you've had an opportunity to review the news release issued a short time ago. Let me quickly outline the agenda for today's call Julie will begin with an overview of our results. He will take you through the financial details, including the income.
Minimum balance sheet, along with some key operational metrics for the first quarter Julie.
Julie will then provide a brief update on our market positioning before Casey provides our business outlook for the second quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap up at the end of the call them as the matters, we'll discuss on this call, including our business outlook are forward looking and as such are subject to net and I know I'm rested.
Risks and uncertainties, including but not limited to those factors set forth in todays news release and disgust not a our report on form 10-K, and quarterly reports on form 10-Q, and other FCC base.
These risks and uncertainties could cause actual results to differ materially from those expressed on this call.
During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release in the Investor Relations section of our website at Accenture Dot Com assay.
As always Accenture assumes no obligation to update the information presented on this conference call now, let me turn the call over to Julie.
Today, we are very pleased to announce strong financial results for our first quarter.
I'll begin by thanking our 514000 people for their hard work and dedication to delivering value for our clients, which is what these results represent.
Last quarter I shared that as we began our fiscal year 21, we were turning a page no longer navigating a crisis, but facing a new reality with a laser focus on delivering value to our clients at this time of great need and non returning to pre cobot growth rates by the second half of our fiscal year.
I also shared how we began fiscal year 21 stronger than the crisis.
Our results in Q1 made clear how we have strengthened our market position as well as our ability to pivot our business with agility.
Not only have we delivered a strong quarter, but we took exciting new actions to continue to strengthen our market position bereft wait 21, and the future, let's start with our financial results, we delivered revenue growth of 2% and local currency well ahead of our guidance with broad based improvement across the.
We continue to extend our leadership position with our growth estimated over the trailing four quarters to be more than four times, the market, which refers to our basket of publicly traded companies.
We delivered exceptionally strong new bookings of $12.9 billion, a 25% increase over Q1 last year, including 16 clients with over $100 million in bookings.
We continue to invest substantially in our business, including closing 10 acquisitions this quarter in strategic areas, such as cloud intelligent operations and industry acts and is Casey will walk through we delivered strong profitability and returned substantial cash to shareholders.
Now let me highlight the actions we have taken in Q1 to better serve our clients attract the best talent and extend our leadership as a responsible business and trusted partner, we created Accenture cloud first with the plan to $3 billion three year investment to help clients in what has become a once in a digital era <unk> Bob.
Forming of global business in the cloud.
We launched our new purpose, our growth strategy to deliver 360 degree value to our clients and our largest and most significant new brand campaign in a decade.
In our annual cycle in December we promoted 605, managing directors with a record 39% women and I appointed 663, senior managing directors, including a record 29% women.
I'm excited to announce today that we met our previous school of 25% women managing directors globally by the end of 2020 and have raised the bar again setting a new goal of 30% by the end of 2025 with 45% women. Overall, we are on track to meet our goal of 50.
50, gender equality by 2025.
We set external goals in the U.S. you pay in South Africa to achieve greater race and ethnicity representations overall and among managing directors in these countries by 2025, we remain the only major professional services company in our industry around the world public or private the said.
These types of external goals and to have our level of transparency, we believe our diversity and commitment to inclusion in a quality have been and will continue to be critical to our success and a differentiator into attracting the best talent.
And building on our long standing and well recognize commitment to the environment, we announced industry leading goals for 2025 to achieve net zero emissions moved to zero waste and plan for water risk.
As you can see we have been busy moving forward in our new reality Casey over to you.
Thank you Joe like happy holidays to all of you and thanks for taking the time to join US on today's call. We were very pleased with our overall results in the first quarter, which exceeded our expectations and represent a positive first step to achieving our full year objectives.
The focused execution of our strategy continues to extend our leadership position in the marketplace as we deliver significant value to our clients and our shareholders and an uncertain and volatile environment.
So let me begin by summarizing a few of the highlights of the quarter.
Revenues grew 2% in local currency and continue to include a reduction of approximately two percentage points from a decline in revenues from Reimbursable travel costs.
Q1 were revenues were more than 200 million above our guided range driven by broad based over delivery across markets services and industry.
We also continued to extend our leadership position with growth significantly above the market.
The diversity of our business continues to serve us well and the industry trends remain consistent with the last few quarters.
Approximately 50% of our revenues came from seven industries that were less impacted by the pandemic and in aggregate continue to grow high single digits with continued double digit growth in public service software platform in.
In life Sciences.
At the same time, we saw continued pressure, but at a more moderate level from clients in a highly impacted industries, which include travel energy, Hi, tech, including aerospace and defense retail and industrial.
Paul performance varied this group represents over 20% of our revenues and declined low double digits.
Operating margin was 16.1% for the quarter, an increase of 50 basis points, we delivered expansion, while making significant investments in our business and our people to extend our market leadership.
We continue to benefit from lower spend on travel and events.
Yeah, we delivered very strong EPS of $2 and 17 sets up.
Up 8% over fiscal 20 after adjusting both years for gains on investment.
And finally, we delivered significant free cash flow of 1.5 billion and returned 1.3 billion to shareholders through repurchases and dividends we.
We also invested approximately 500 million in acquisitions, and we expect to invest at least 1.7 billion in acquisitions this fiscal year.
With those high level comments, let me turn to some of the details starting with new bookings.
New bookings were 12.9 billion for the quarter, reflecting an overall book to Bill of 1.1.
Consulting bookings were 6.6 billion with a book to Bill of 1.0.
Outsourcing bookings were 6.3 billion with a book to Bill of 1.2.
We were very pleased with our bookings this quarter, which grew 25% driven by both technology services and operations.
We were also pleased with the strength of our bookings and Stratagen consulting with a book to Bill of 1.1.
Looking forward, we continue to feel very good about our pipeline.
Turning now to revenues revenues for the quarter were 11.8 billion, a 4% increase in us dollars and 2% in local currency, including reduction of approximately 2% from a decline in revenues from Reimbursable travel costs.
Consulting revenues for the quarter were 6.3 billion a decline of 1% in U.S. dollar and a decline of 2% and local currency, including a reduction of approximately 3% from a decline in revenues from Reimbursable travel costs.
Outsourcing revenues were 5.4 billion up 9% in us dollars and 8% in local currency.
Taking a closer look at our service dimensions operations grew double digits technology services grew mid single digits and strategy and consulting services declined low double digits.
Turning to our geographic markets the industry dynamics that I mentioned earlier continue to play out in a similar manner across all three markets.
In North America revenue growth was 4% in local currency in Europe revenue declined 1% in local currency, we saw mid single digit growth in Italy, with the UK improving to flat.
In growth markets, we delivered 3% revenue growth in local currency led by high single digit growth in both Japan and Australia maybe.
Moving down the income statement gross margin for the quarter was 33.1% compared with 32.1% for the same period last year sales and marketing expense for the quarter was 10.4% compared with 10.5% for the first quarter last year.
General and administrative expense was 6.6% compared to 6.1% for the same quarter last year.
Operating income was 1.9 billion for the first quarter, reflecting a 16.1% operating margin up 50 basis points compared with Q1 last year.
As a reminder, last year in fiscal 20, we recognized an investment gain which impacted our tax rate and increased EPS by eight cents in the quarter.
This year in Q1, we again recognized investment gain which impacted our tax rate increased EPS by 15 cents the.
The following comparisons exclude these impact and reflect adjusted results.
Our adjusted effective tax rate for the quarter was 23.7% compared with an adjusted effective tax rate of 23.9% for the first quarter last year.
Adjusted diluted earnings per share were $2.17 compared with adjusted diluted earnings per share of $2. A one cents for the first quarter of last year.
Day service outstanding work 38 days compared to 35 days last quarter and 43 days in Q1 of last year.
Free cash flow for the quarter was 1.5 billion, resulting from cash generated by operating activities of 1.6 billion net of property and equipment additions of $93 million our.
Our cash balance at November Thirtyth was 8.6 billion compared with 8.4 billion at August 30 Onest.
With regards to our ongoing objective to return cash to shareholders.
And the first quarter, we repurchased or redeemed 3.3 million shares for $769 million at an average price of 229.
Dollars and 98 cents per share.
November Thirtyth, we had approximately 5.8 billion of share repurchase authority remaining.
Also in November we paid a quarterly cash dividend of 88 cents per share for a total of 558 million. This represents a 10% increase over last year.
And our board of directors declared a quarterly cash dividend of 88 cents per share to be paid on February 12.
A 10% increase over last year.
So in summary, we were very pleased with our Q1 results and we're off to a good start fiscal 20 Watt now let me turn it back to Julie. Thank you Casey, let me start with the environment.
We saw in Q1, a broad based increase in demand that is faster than we anticipated 90 days ago.
This means that as our clients have the confidence and ability to spend they are turning to accenture, but the uncertainty and volatility of the biggest health economic and social crisis in our lifetimes remains particularly as the world continues to face a deepening health impact pre widespread vaccination.
From an overall demand perspective, the trends that we discussed last quarter, our continuing companies need to accelerate their digital transformation across their enterprises and move to the cloud address cost pressures build resilience and security adjusted their operations and customer engagement to a remote everything environment and changing expectations.
And find new sources of growth.
What is becoming even more clear. However is that we are in an era of compressed transformation.
In which the winners by industry will be those who were earliest to re platform their businesses in the cloud and have the digital core and new ways of working that allows them to continuously improve their operations and find new sources of growth, which for most leading companies is requiring them to.
Simultaneously transform multiple parts of their enterprises and their talent.
For the pre Cobiz digital leaders they are racing to widen the gap and put the digital Laggards day are racing to leap frog.
We are uniquely positioned to help the leaders and the laggards because of the depth and breadth of our capabilities. We bring the trust experience speed and scale that are essential to achieve compressed transformation.
Now lets bring some of these demand trends to life through the lens of our Q1 and look at our own broad based improvement.
First re platforming to the cloud in fiscal year 20, our cloud revenue was approximately $12 billion with low double digit growth, which accelerated in Q1 was significantly higher double digit growth driven by Accenture cloud first.
In fact across low two highly impacted industries and all geographic markets. We saw strong double digit growth the race to re platform to the cloud and create new business value is clear across all our services.
Our clients need our deep technical and engineering skills, and our unmatched set of relationships with the world's leading technology ecosystem companies, which are critical partners to us and to our clients. We were pleased that in Q1 industry analysts.
Recognize us as the leading systems integrator for each of ADW EPS as door and Google cloud platform as well as the leading multi cloud managed services provider.
Fundamental to accelerating our clients re platforming in the cloud, however, our leading strategy and consulting capabilities, which give us the industry and functional insights to moving rapidly and achieve early business value.
For example, we are working with Takeda global values based R&D, driven biopharmaceutical leader to modernize their technology platforms, including moving 80% of applications to the cloud accelerate data services and establish an internal engines for innovation well.
Equipping employees with new skills and ways of working and reducing their carbon footprint.
The business impact as illustrated by the plans, particularly as plasma derived therapies business unit, which is harnessing the power of the cloud and these data services to create a state of the art digitally connected donation centers and modernize the donor experience optimizing the plasma collection process and.
Moving to the goal of increasing plasma collection and manufacturing by at least 65% by 2024.
We are working within the region health net to create a health analytics platform, which is using the power of the cloud to analyze and interpret data and ultimately improve patient outcome by reducing research turnaround times and access to data from months to a matter of minutes or days.
And we are working with Generali, a major player in the global insurance industry to help re platform approximately 70% of its IP footprint to the cloud to improve service quality innovate and build a set of new cloud ready core insurance applications for emerging markets, while achieving a sustainable reduction.
And its total cost of ownership and helping to upscale its workforce.
In intelligent platform services, which returned to low single digit growth. This quarter, we sell building momentum fueled by our clients clients rotating to software as a service as well as new digital platform.
And a quick trip around the world. We see this compressed transformation playing out from the rapid transformation of the finance functions of nickel Bank, a subsidiary of BNP Paribas and a fast growing growing Neal bank in France with the implementation of leading software as a service in ERP solutions.
To the cloud based marketing transformation of a global bank with a large us footprint with the SAP implementation across its worldwide private banking network.
Two one of the largest implementations in the chemicals industry of a modern digital ERP system hosted on the cloud the indirect ventures.
World Class chemicals company with global operations headquartered in Asia that will provide a single source of information globally and cloud based solutions to enhance its operations employee development capabilities and customer and supplier experience.
So that's the cloud now, let's turn to digitizing operations across the enterprise.
In operations, which returned to double digit growth. This quarter, we are helping our clients transform by digitizing their operations with our Synopsys platform, increasing agility and reducing cost operations is a service that enables us to continue diversifying our value to clients by.
Expanding across functions and industries, we have an unmatched global footprint ability to invest and innovation engine powered by the broader accenture.
We were excited to welcome to the Accenture family this quarter, and three and Atlanta, Atlanta based BTB sales firm with more than 2000 employees that combine specialized talent in AI and machine learning to enable smarter more efficient sales interactions and drive sales growth and virtual environments.
The power of Accenture is breadth and depth comes together at Halliburton.
Leading provider of products and services to the energy industry and a leader in driving.
True enterprise wide transformation enables by digital and technology.
Last quarter, we shared how we are helping halliburton moved to cloud based digital platform.
This quarter, we announced that we are teaming with halliburton to accelerate its digital supply chain transformation and support digitization within halliburton's manufacturing function to improve service levels and business outcomes.
We will leverage Signups, which we already use as part of Halliburton digital transformation of its finance and accounting function and our strategy and consulting expertise.
In each industry X, we are digitizing manufacturing and operations and creating intelligent products and platform.
In fiscal year 20 industry EPS was approximately $3 billion and grew low double digits just continued in Q1.
We see cobot deepening the need to transform manufacturing in a contact less world with disrupted supply chains and greater cost pressure.
One of our latest wins with CNH industrial the manufacturer of capital goods across the agriculture construction equipment and commercial vehicles sectors, where we are improving the global operating model to develop smart connected products and services that will grow revenue while building a digitally enabled workforce and enhancing security.
Sustainability.
Finally, let's look at the trends around new ways of engaging customers patients citizens and employees in AG interactive, which is all about the business experienced the crisis had a significant impact due to severe disruptions in industries like travel and retail and due to our clients being focused on shoring up there.
Variance of their businesses rather than the next generation of experiences.
This quarter, we sell building momentum with a return to low single digit growth from a low single digit decline in age to invest 20 as clients focus on creating new experiences in the new environment.
For example, Accenture Federal services is working with the federal retirement Thrift investment board to Reimagine retirement services for the digital age and improve the customer experience for our retirement savings plan, serving 6.1 million civilian employees and members of the armed services with over $644 billion.
And assets.
I want to take a moment to talk about another bold moves we made this quarter in October we simultaneously launched a new purpose.
Our growth strategy to deliver 360 degree value to our clients and a new brand campaign created by our own Drogafive team that joined our family in 2019.
Our new purpose is to deliver on the promise of technology and human ingenuity.
Our purpose is what we are uniquely able to do in our growth strategy is our action plan to bring this purpose to life.
Our strategy to deliver 360 degree value to our clients is a direct response to the rising demand, we see for talent transformation and help achieving responsible business goals.
We defined 360 degree value as delivering the financial business case experiences and unique value a client may be seeking and striving where possible to partner with our clients to achieve chief greater progress on inclusion and diversity re skill their employees and achieve their sustainability goals.
Paul.
At the heart of this strategy is embedding responsible business by design into our work for clients. In addition to our own operations.
Our new brand, let there be change.
Captures our purpose and the depth and breadth of eccentrics expertise together our purpose strategy in brand better reflect accenture is unique role in helping companies, we imagine and we've built differently for the benefit of all.
Robert Casey for it look ahead.
Thanks Julie.
Before I get into our business outlook as I did last quarter I would like to remind you that given the corona 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 of the recovery as well as those described in our most recent quarterly filings.
Now with that said, let me turn to our business outlook.
For the second quarter fiscal 21, we expect revenues to be in the range of 11.55 to 11.95 billion.
This is James the impact of FX will be about positive, 3% compared to the second quarter fiscal 20 and reflects an estimated 1% to 4% growth in local currency and includes a reduction of approximately two percentage points from a decline in revenue from Reimbursable travel costs.
The entire range for Q2 reflects the continued build back of our business over Q1.
For the full fiscal year 21 based on how the rates have been trending over the last few weeks. We now expect the impact of FX on our results in the U.S. dollars will be approximately positive 3% compared to fiscal 20.
For the full fiscal 21, we now expect our revenues to be in the range of four point excuse me, 4% to 6% growth in local currency over fiscal 20, including approximately negative 1% from a decline in revenues from Reimbursable Tropo based on a 2% reduction in the first half of the year and no material impact and the sell.
Second half of the year.
For operating margin, we continue to expect fiscal 21 to be 14.8% to 15.0% attendant to 30 basis point expansion over fiscal 20 results.
We continue to expect our annual adjusted effective tax rate to be in the range of 23% to 25%. This compares to an adjusted effective tax rate of 23.9% in fiscal 20.
For earnings per share, we now expect our full year diluted EPS for fiscal 21 to be in the range of $8.17 to $8.40.
We now expect adjusted full year diluted EPS to be in the range of $8 in two cents to $8.25 or 8% to 11% growth over adjusted fiscal 20 results.
For the full fiscal 21, we now expect operating cash flow to be in the range of 6.65 to 7.15 billion property and equipment additions to be approximately $650 million and free cash flow to be in the range of six to six and a half billion dollars.
Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of 1.1 to 1.2.
Finally, we continue to expect to return at least 5.3 billion through dividends and share repurchases as we remain committed to returning a substantial portion of cash to our shareholders.
With that let's open it up so we can take your questions. Angie. Thanks, 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.
Thank you, ladies and gentlemen, if youd like to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command. If you are using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one Lin zero at this time and one moment. Please for your first question.
Your first question comes from the line of Lisa Ellis from Moffettnathanson. Please go ahead.
Good morning, guys, great to hear all of you and happy holidays.
I will just ask my two right up front looking at the utilization number 93% in the quarter I Peeked back and that is the highest number you've reported in more than 10 years.
So two questions one more strategic and one more kind of numbers related on that and I guess first.
Can utilization be structurally higher now with the shift to remote work and so we should expect these kinds of levels going forward or or are you going to getting to the point that your labor constrained and you're going to be ramping hiring and that number will come down a bit more I guess strategic question and then maybe for Casey.
With higher utilization the primary driver of the 100 basis point increase in gross margins or is that also being affected by the by the reduction in travel costs.
Thank you.
Okay Hi.
Hi, Lisa Thanks for your question have you all day for you, but maybe I'll start with your second question first.
Just on gross margin. So we did have expansion in gross margin and there are a few drivers to that the first is contract profitability was up this quarter end.
In contract profitability, we did benefit from lower travel so that does help our contract profitability overall.
So that that is the first thing that I would say and benefited our gross margin and you do see that the fact that we have higher utilization also does help our gross margin as well. So both of those points were included and drivers of our gross margin.
And when you look at utilization, we did have a very high productivity. This quarter. It did click up in parts and that was pretty broad based and that was also driven by our over delivery of Q1 revenue.
We did continue to recruit throughout the summer and obviously into the quarter you can see that our headcount is up sequentially.
And so we don't see any issues meeting demand and attracting talent and to your point on is there a structural change from working remotely answers really know we were just able to.
Get more productivity out of all of our groups.
This quarter and looking forward, we do think thats going to kind of ease back into kind of a more normal range, which still is very high productivity, but not continuing at these levels.
Terrific. Thank you.
Your next question comes from the line of Tim Gena Wang from JP Morgan. Please go ahead.
Hey, Thanks. Good morning, good good results here I wanted to just ask about the outlook here in what's changed over the last 90 days I know.
Steve.
Revenue, what you're up 200 million over your guidance you overcame low double digit declines in strategy and income.
And consulting from a macro standpoint, we got what vaccines have been approved and in.
Cases are up but your bookings are strong again, so I'm just trying to think here you seem really well set up for the second half to be quite strong given the strategy and consulting comes back slowly. So do you feel more confident in the outlook for dredging consulting or is the composition of work just changing versus what you thought maybe 90 days ago.
Any thoughts on that.
Yeah. So let me just talk a little bit about what drove our over performance in Q1, and how that impacts our view of Q2 and H to pinch it so.
When you look at Q1, we were obviously very pleased with our performance and we have rather significant.
Over delivery against our expectations and that was really driven by broad based over delivery and all three of our markets and all of our industry groups and all of our services all did a bit better.
And as I mentioned in our script when.
When you take a look at the industry.
And the higher impacted industries, which represent over 20% of our revenues.
They did improve from Q4 of a decline of mid teens to low double digits and as Julie talked quite a bit about the fact that that was really driven by broad based by our strong demand in cloud and so that is an area that performed better than we expected, but if you also look at the lower impacted Andrew.
History, which are 50% of our revenue they continue to grow high single digits like Q4, but they actually did improve also within that said.
So let me maybe connect this a little bit to how we did our sales this quarter. So we had a very strong start to the year you can see in our sales of 12.9 billion, which is about two and a half billion dollars more than what we've done in the last two quarter. Once last two fiscal years and when you Peel that back to enjoy.
You can see that it was really driven by all categories of our.
Our.
Sales to sell five so the large which Julie highlighted that we had 16 clients over $100 million in sales, but all the way through and significantly driven by an improvement in our smaller deals which came in better than we expected and you know that can help us with revenue yield in the current quarter.
Order.
So when I take a look at that that's what happened in Q1, and then when you look at that compared to 90 days ago, Obviously, that's better and when you look at it can then what for Q2, we obviously have a better outlook for Q2 than we did 90 days ago with our 1% to 4% growth rate.
Page.
Really important to note that all of points in that range are an improvement over Q1. So we continue to build back our business from the lows of age too.
And we would be really pleased with anywhere that we land in that range now when you look at the second half of the year, we haven't changed our views on the second half of the year from 90 days ago, and just to be very specific we still see that we would have high single digit to low double digit growth and the.
Back half of the year and just as a reminder, the four factors that we talked about last quarter that we are going to drive that remain the same and just very briefly they are first that we continue expect an improvement in the macro economic environment. We don't see another we're not anticipating another macroeconomic shock thats built into our.
Items.
We expect to see more of a benefit from the significant significant transformational deals that we sold last year.
And at the same time to your question, we do expect Stratagen consulting to reconnect with growth in our performance in Q1, and our outlook for Q2 do encourage off even more on that statement this quarter and the fourth thing is that we have the benefit of an easier compare that obviously remains the same and we are.
We are also still going to anniversary the reimbursable revenue headwind, that's 2% in the first half of the year and.
That won't be a headwind in the back half of the year. So of course, we're still meeting with our clients you can see that by the fact that we were able to book $27 billion in the last two quarters, but.
But we are not planning on having significant increases in revenue related to travel in the back half of the year.
So hopefully that gives you a sense of how we see the business compared to what is stay the same now from 90 days ago, which is our outlook and h. too, but obviously, we're very pleased with the improvement in performance in Q1 and outlook for Q2 than we had 90 days ago and Tinder. Let me just kind of give you a little more color from the clients perspective.
Yes.
And this is what I talked a little bit about in my script right is it just remember pre co bid we.
We said we were in the early innings of transformation with beginning of the decade at the enterprise wide Cove. It hits technology becomes the lifeline and and you really see companies understanding kind of the two truths of our of our world right. There is.
Every business is now a technology business in exponential technology change is going to continue right and now it's about the.
Feed and this is why we're seeing what I would call and compressed transformation, where you continue to see companies say, we are going to take on this transformation more.
More broadly so look at the example of Takeda Theyre, both moving to the cloud.
Get improving their data and making sure that they are getting near term business value you take a halliburton rate cloud finance supply chain right. So there is this this.
This speed of change and we see that in the confidence were nine months in now right. The first part of the crisis people were getting their footing getting back up and running and interesting. We did some research in July across 10 markets in nearly 80% of the executives.
We.
We surveyed said that they were planning on investing in digital transformation and that was up from 50% in may right and we're continuing just to see this recognition of the need to get there faster and then whats important to understand is that all of this is happening though in the contact.
The cost pressures to changing expectations and this is where.
Decade, and in some cases multiple decades of investment from Accenture has put us in a very unique position because no. Other company in our industry can simultaneously do operations and you know that help a company redo their supply chain and our finance function and reduce.
Costs and digitize at the same time, we're helping them migrate to the cloud and give them that view right, which because all of this has inter dependencies rate you want to get end to end process change and we have literally been building these capabilities for years and years and this is where the.
Scale and the breadth matter.
Very clear I appreciate it.
A complete answer guys here and it seems like the.
The outlook is set up pretty well here. Thank you.
Your next question comes from the line of Matthew O'neill from Goldman Sachs. Please go ahead.
Yes. Thank you so much for taking my question.
I was hoping we could drill down a little bit deeper into Accenture cloud first I think it's just on 90 days since the formal announcement curious under.
Understanding a lot of the sort of anecdotes in the prepared remarks around Takeda Halliburton et cetera.
But where you're seeing the most immediate needs to deploy the 3 billion that you identified for investment early.
Earliest in first.
You know sort of mirroring that where the greatest demand is coming from the client side understanding there's kind of a broad based I think coated driven catalyst to potentially get off the fence and move one's business to become fully.
Digital cloud et cetera et cetera.
Sure So Matthew thanks.
For the question. So maybe just take let's just first start why why are companies, having to accelerate faster to the cloud and there's a few clear reason so first of all there's a cost pressure because when they move to the cloud.
Immediate savings just in the migration and there is obviously to get that kind of savings.
Second the cloud.
As really important for resilience and security and you know in this current environment. In particular, you can see why that matters. The crisis really exposed to the vulnerabilities of a lot of the on premise I see US States and then that it's been compounded of course by the expansion of the threats are.
Office through more remote working and so the resilience and security of the cloud is also an immediate driver as to the need to do that but what I would say is probably most important.
And really the rapid acceleration.
The need for the power of the cloud to enable the data driven transformations rate and so you saw that in.
The example that we gave you in with Takeda weather change in the customer experience, which requires near real time access to data in order to personalize and to be able to actually do that and.
What I think is very unique I know, it's very unique about accenture is that.
This is where our strategy and consulting capabilities are so important because the reason to go to the cloud is not simply cost and resilience and security, it's about the business value and here's how we're helping clients get early business value and you have to deeply understand the industry. The patients you know the cost.
Mark and also what data is valuable among all of the data and which workloads go first.
And so it really is driven by all of these things at once which is why our capabilities around change management around talent transformation and leadership are important because by the way everybody net wants to go higher cloud talent in this thing and so and it's not going to be enough available to our ability to.
We skill, which you saw in each of these examples that we gave in the script like Generali.
And Takeda is also critical so thats sort of the Big picture now when you think about when you think about.
Where are we going to do investment we as we talked about we did 10.
We did 10 acquisitions this quarter four of them were in cloud day.
We are in each of our three markets and they were about building scale for the most part in more markets and so as we think about the acquisition strategy, which will be a big component of the $3 billion. It's about building scale in markets around the world as well as acquiring niche capabilities.
The second big area of that $3 billion investment, though is creating.
More and more of the assets that will allow our clients to move quickly everything from.
The mine out of asset that we've talked about that does a fast diagnostic with benchmarks to help clients figure out.
What kind of a strategy to have and how to get value to the migraine navigate adviser that helps you figure out years.
The reduction in carbon.
To the industry blueprints that we're creating and the solutions that are repeatable like in digital manufacturing on the cloud. So this will be an important part of our continued investment and again it really comes right back to no. Other company has both these deep engineering and infrastructure skills.
The deep relationships and then the strategy and consulting capabilities to actually move industries to the cloud to create business value solutions and you don't build that overnight right. We have been building our strategy and consulting business for decades, we have been an early adopter for cloud.
For decades, and let's not forget where our own best credential when it comes to all of these capabilities.
That's really that's really helpful. An interesting I guess as a as a quick follow up I was just curious you mentioned in the script.
Drogafive acquisition and more broadly Accenture interactive.
And you don't.
Wondering if there is significant sort of cross sell and upsell opportunity as you integrate more assets like a drug thats five and present, a more comprehensive suite to.
Existing and new clients for for things that they might not have maybe or.
Originally known or thought of Accenture for first and foremost is that is that is that a part of the equation again.
Absolutely and when you think about Accenture interactive like we're doing amazing work like our own brand and purpose work right.
Net for ourselves we are again, our best credential, but what these capabilities bring is we're actually in bedding them in all of our services our clients come to us for outcomes and experience is a really important part of it again.
When you think about the work we are doing with Prudential that we talked about last quarter that was fundamentally a different way of engaging with the customer to cater to a different way of engaging with the donor rate be.
The day, the researchers and the Norway example, about how they're going to engage.
We are in bedding this experience and how to do that in all of our work and it's and that's why I often talk about I know you sell certain look at our services separately our force services, our clients look at our outcomes.
And what differentiates us is our ability to embed the business of experience across accenture as well as going to market of course like.
Like a drug or five that continues to do amazing pure work in terms of brand for example.
Thanks. Thanks, so much really really helpful thinking about that in the context of sort of experience an outcome I'll jump back in the queue.
Your next question comes from the line of Brian burden from Cowen. Please go ahead.
Hi, Good morning. Thank you I wanted to ask on bookings was there anything pulled forward and bookings relative to your prior expectation or do you still anticipate a building cadence for the year and then can you comment on bookings conversion pace and considering the outperformance you've had the last two quarters I'm just curious how you're seeing the pace of these large.
Transformational engagements.
Yes. Thanks, Yes, we were we were really pleased with our booking.
As I mentioned, there they did grow 25%.
And as you just pointed out and I mentioned as well we did have a stronger Q1 than we've had had in the last two years.
You know if you peel that back its really because the demand again, which was very broad based it was really also driven by cloud, which we've talked a lot about industry access security. So they're also aligned to our you know our strategic priorities.
If you look at it but what drove the strength in bookings. So again broad based when you look at it by type of work, we had particular strength in outsourcing that really was up quite a bit with very strong book to bill but.
Within the 16 clients that we booked over 100 million. They were represented what I'd like to Bob that is by outsourcing as well as consulting type work as a nice mix and all five of our industry groups were in there too so getting it points to very broad based and if you look at the services that no surprise based on cloud security industry ex Tech services.
Very strong and I mentioned that I just want to highlight again that we are pleased with our.
Progress in striving consulting that had a 1.1 book to bill in the quarter. So both.
Overall, we felt really pleased and as it relates to kind of what we see ahead.
We feel very good about our pipeline right. So.
And if you are taking on the question about can.
Conversion, our revenue yield in bigger deals.
So we did see that our bookings were strong across all parts of our sales large all the way through it but particularly to the smaller deals and they do yield more revenue and the interest in the current quarter. So thats also true.
And then as you see when you look really at our duration its not that the duration of the bookings for their self have change it's really more of the services that are in the mix. So as we have more strategy and consulting bookings coming online you know they obviously tend to be of a shorter duration. So nothing's really changed in the duration of.
In each of our individual services, it's really more the mix of the bookings you know within each quarter and so next quarter, we expect a very nice very strong quarter in bookings.
Okay.
And then just sell the last several years, you've had special businesses here that competitors have not been able to grow faster than the market I'm thinking about it operations and interest interactive specifically as critical growth engines from you or do you anticipate a rotation of the growth engine. So it is cloud first and industry X are those the new engines that you.
We expect to drive above market Im just curious how you consider those now relative to competitors that are also heavily investing in those areas and doing so earlier today than they did around interactive before.
Sure Great question. So let me just start with.
We have been investing in cloud for a decade, which is very hard to replicate so we start with the 12 billion dollar business that is growing strong double digits.
So we would expect to consider to continue to take market share there and that in this environment, where you have a rapid acceleration and you're moving mission critical workloads, we would expect to continue to differentiate because of our decade of experience and our relationship.
With the world's leading technology ecosystem players so cloud will continue to be a big trend.
Think about industry acts and we've talked about this now for some time, it's kind of the next.
Accenture interactive and as you know we've been investing in industry X for some time the the Cove. It what we're seeing the early signs of is that like in other areas industry axis, we think going to accelerate over the next couple of years because that was still a newer part of the enterprise.
Yes that was being digitized.
The manufacturing and operations base, but as we now need to have like they have a lot of health concerns about can you do manufacturing in a more contact with sway the supply chains have been disrupted and so we have said for some time industry X is going to be the next growth engine and the early signs are is.
That is likely to be accelerating as well. So we'll see how that continues to play out and remember Accenture interactive is an ongoing growth engine I mean, we have.
Three big platforms right you have the move to the cloud, which then has the data and the business value innovation on top so it's not just moving there is everything that comes in so that is a early innings were at 20% into the cloud, but it's not just about the move right. It's our unique ability to create business value to add.
Access to data and you're seeing that in the examples of what we're doing and it depends on where you are on that journey. So that is an ongoing platform for waves and waves of growth the second being everything we do around intelligent operations, our creations business, our ability to move to modern digital platforms like.
Like what we talked about in IP EPS today. So that again provides we're early innings in the Digitization of operations and then Accenture interactive cuts to the business of experience. That's an ongoing business in terms of that we'll always have to continue to evolve and so we see that.
The impact of the coated prices were starting to move out of that building momentum. We continue to expect that to be a growth engine and once again. This is where you can't make up for quickly the scale that we've achieved because we've been investing four years in creating these capabilities and then finally you have this error.
We have industry acts.
And not to mention security and data, which will all continue to be growing engines for us.
Thank you.
Your next question comes from the line of Brian Kim from Deutsche Bank. Please go ahead.
Good morning, guys and congrats on the solid results I wanted to ask on the interactive just trying to understand the trajectory there what did it kind of due in the fourth quarter did it even turn negative growth and then now it's at low single so does it kind of move up from here.
I know theres been a lot of questions before around interactive given would that business be weaker during kind of the slowdown it looks like it's hanging in there. So just curious on the trajectory where it was last quarter and kind of what do you expect to do throughout the year.
Yes, so in age too so.
So kind of the whole six months it was a low single digit decline and now we're in a low positive growth rates, so and its building momentum so.
So for example, we're helping a big European Bank with their digital sales you know new thing. So everyone is now starting to kind of reconnect with new experiences.
Got it got it and then just on the other strategic priority on security.
Low double digit growth does that is that about the right growth rate for that too as it is or does that also accelerate as we get into the back half when we see the pickup in the growth rates.
Yes.
Look I think on security, we're super pleased with that of that double digit growth. So whether it's going to be low our strong and probably ebb and flow, but the consistency of that double digit growth in security.
Has been impressive to date and we continue to see that to be the trajectory. Thanks.
Operator, we have time for one more question and then Julie will wrap up the call.
Okay that question comes from the line of James Fawcett from Morgan Stanley. Please go ahead.
Thank you very much I wanted to ask you mentioned that you have targets for M&A. This year can you talk a little bit about.
And from a from a spend perspective can you talk a little bit about what you're seeing from a valuation perspective, and how we should expect those to contribute to growth.
In the coming fiscal year or during the current fiscal year and beyond and what kind of areas you're targeting more specifically.
Yes. Thanks.
In terms of our Big day, we expect to spend at least 1.7 billion and there is no change to what we started up.
For the beginning at the beginning of the year of the 2% expectation of.
Revenue of additional revenue growth for this year and you know it's a line to really a lot of our all of our strategic priorities as we went through.
And then.
Thinking about that and I realize like that's consistent with what you've said before but I'm just wondering how we should project that Dan into the futures is this kind of the right level of acquisition for for Accenture or should we expect that to grow or do you think we're in a peak period, just trying to think about that part of the capital allocation. Thanks.
Yes, sure. So we've always aim first around 2020, 25% of our operating cash flow and capital allocation program to be for being day, but we've always had the ability. We continue to have the ability to do more short any opportunity arise. So theres really no change Joe.
How we view Vienna, and our capital allocation. Thanks.
[music].
Okay. So thank you everyone for joining us on today's call. We're very pleased with our strong start in fiscal 21.
Thank you again to our incredible people across the globe and thank you to our shareholders for your continued trust best wishes to offer a safe healthy enjoyable holiday season.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using 18 to teleconference. You may now disconnect.
We're sorry your conference is ending now please hang up.