Q2 2021 Accenture PLC Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to Accenture second.
Second 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. If you'd like to ask a question it and at any time during today's call. Please press one and 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 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 second quarter fiscal 2021 earnings announcement as the operator, just mentioned and Angie Park, managing director head of Investor Relations on today's 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, we issued a short time ago, Let me quickly outline the agenda for today's call Julie will begin with an overview of our results KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the second quarter. Julie will then provide a brief.
Date on our market positioning before KC provides our business outlook for the third quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap up and the call.
Some of the matters, we'll discuss on this call, including our business outlook are forward looking and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on form 10-K, and quarterly reports on form 10-Q and other SEC.
Filings these risks and uncertainties could cause actual results to differ materially from those expressed and 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 and our news release and Investor Relations section of our website at Accenture Dot com as always ex interest and has no obligation to update them.
Information presented on this conference call now, let me turn the call over to Julie.
Thank you Angie and thank you everyone for joining US today, we are proud to announce outstanding financial results for the second quarter and fiscal 'twenty, one and our return to pre COVID-19 level financial results a quarter earlier than we expected and with a tough compare.
Let's first go back 12 months ago on March 19, and only eight days. After the pandemic was declared when we were altogether to announce our outstanding fiscal year 'twenty Q2 financial results.
Results you may not remember because at the time, we were all focused on the go forward potential impact of the pandemic.
In Q2 of fiscal year, 'twenty, we had 8% revenue growth and local currency are then highest bookings ever of $14 2 billion and strong underlying profitability and free cash flow.
And we also announced that 18 clients that quarter had bookings over $100 million.
With this backdrop of fiscal year 'twenty Q2.
The significance of this Q2's results and fiscal year 'twenty, one becomes even more clear.
We have delivered five 4% revenue growth and local currency, which includes a reduction of two percentage points from a decline in revenue from Reimbursable travel costs.
Meaning apples to apples five 4% is and the zone of fiscal year 'twenty Q2 revenue when you exclude the travel costs related revenue.
We have delivered bookings of $16 billion, beating our previous record set in Q2 last year by $1 8 billion and we have delivered strong profitability and free cash flow.
This quarter 18 clients had bookings over $100 million and we continue to take market share faster than pre COVID-19.
And in each one we have accelerated our investment and DNA with approximately $1 $1 billion of capital deployed and we are increasing our programmatic BNA investment to at least $2 billion for FY 'twenty, one from the $1 $7 billion, we previously communicated.
And for the last 12 months, we have remained consistent we gave guidance every quarter, which we met or beat we deliberately invested and our people and preserved our talent to continue to serve our clients as demand came back and we continue to significantly invest in our.
<unk> and our communities and throughout we have lived our core values, including maintaining without pause our commitment to make more progress on diversity and inclusion and sustainability.
These financial results reflect these choices the strength of our core values and the power of our laser focus on creating client value and being a trusted partner.
As well as our incredibly talented people strong ecosystem relationships and the resilience of our growth strategy as well as the substantial investments we have made year in and year out since we set out to be the leader and digital cloud and security and continuous innovation.
They also reflect the operational rigor and discipline that long has been a hallmark of our success.
I want to thank our people for their hard work and continued dedication to our clients and for delivering on our commitments T C over to you.
Thank you Julie and thanks to all of you for taking the time to join US on today's call. We were very pleased with our overall results and the second quarter, which exceeded our expectations and reflect strong momentum across our business. We are particularly pleased with our record new bookings and strong revenue growth, which demonstrate our.
<unk> position and the market as a trusted partner to deliver value for our clients.
Based on the strength of our second quarter results and the confidence and the second half of the fiscal year.
And increasing all elements of our full year outlook, which I'll cover in more detail later and our call.
Now let me begin by summarizing a few of the highlights for the quarter.
Revenues grew five 4% and local currency and continue to include a reduction of approximately two percentage points from a decline in revenues from Reimbursable travel costs.
Q2 revenues were nearly $140 million above our guided range driven by broad based over delivery across all dimensions markets services and industries as our business built back even faster than anticipated.
We also continued to extend our leadership position with growth significantly above the market.
We saw broad improvement and industry trends and approximately 50% of our revenues came from seven industries that were less impacted by the pandemic, which in aggregate accelerated this quarter to low double digit growth at.
At the same time, we saw continued improvement from clients and highly impacted industries, which collectively represent over 20% of our revenues and declined mid single digits.
Operating margin was 13, 7% and increase of 30 basis points for the quarter and 40 basis points year to date, reflecting strong underlying profitability as we continue to invest and our business and our people, including the onetime bonus we just announced.
We continue to benefit from lower spend on travel meetings and events.
And we delivered very strong EPS of $2 and <unk> up 10% over fiscal 'twenty after adjusting both years for gains and investment.
And finally, we generated significant free cash flow of $2 4 billion and the quarter and $4 billion year to date.
We continue to execute on our strategy strategic capital allocation objectives, with roughly $3 $1 billion returned to shareholders via dividends and share repurchases year to date, we've made investments of $1 1 billion and acquisitions, primarily attributed to 19 transactions and the first half of the year.
And we expect to invest at least $2 billion and acquisitions this fiscal year.
With that let me turn to some of the details starting with new bookings.
New bookings were a record at $16 billion.
Representing a $13 billion, the 13% growth and U S dollar over previous record and.
Q2 of last year.
We had very strong overall book to Bill of one three and the quarter and $1 two year to date.
<unk> bookings were $8 billion of.
A record high with a book to Bill of one two.
Outsourcing bookings were also a record and $8 billion with a book to Bill of one four <unk>.
Similar to last quarter, our bookings were driven by growth technology services and operations.
We were pleased with the strength of our bookings and strategy and consulting with a book to bill of one to.
Turning now to revenues revenues for the quarter were $12 1 billion, and 8% increase and U S dollars and five 4% and local currency, including a reduction of approximately 2% from a decline and revenues from Reimbursable travel costs.
Total revenue for the quarter were $6 4 billion up 4% U S dollars and up 1% local currency, including a reduction of approximately 3% from a decline in revenues from Reimbursable travel costs.
Outsourcing revenues were $5 6 billion up 14% and U S dollars and 11% and local currency.
Taking a closer look at our service dimensions, both operations and technology services grew double digits as.
As expected strategy and consulting services declined high single digits.
And we expect strategy and consulting to return to growth and Q3.
Turning to our geographic markets the industry dynamics, and I mentioned earlier continue to play out and a similar manner across all three markets.
And North America revenue growth was 7% and local currency and.
And Europe revenue grew 3% and local currency driven by mid single digit growth and Italy, and the UK and.
And growth markets, we delivered 6% revenue growth and local currency driven by double digit growth and Japan.
Moving down the income statement gross margin for the quarter was 29, 7% compared with 32% for the same period last year.
Sales and marketing expense for the quarter was nine 4% compared with 10, 4% for the second quarter last year.
General and administrative expenses was seven 6% compared to $6 <unk>.
Six 6% compared to six 4% for the same quarter last year.
Operating income was $1 7 billion and in the second quarter, reflecting a 13, 7% operating margin up 30 basis points compared with Q2 last year.
Before I continue as a reminder, and Q2 last year, we recognized and investment gain which impacted our tax rate and increased EPS by <unk> seven and this.
Order, we again recognized and investment gain which impacted our tax rate and increased EPS by 'twenty one.
The following comparisons exclude these impacts and reflect adjusted results.
Our adjusted effective tax rate for the quarter was 17, 5% compared with the adjusted effective tax rate of 17, 1% for the second quarter last year.
Adjusted diluted earnings per share or $2.03 compared with an adjusted EPS of $1 and 84, <unk> and the second quarter last year. This reflects a 10% year over year increase.
And Dave Service Outstanding were 34 days compared to 38 days last quarter, and 39 days and the second quarter of last year.
Free cash flow for the quarter was $2 4 billion.
Resulting from cash generated by operating activities of $2 5 billion net of property and equipment additions of $93 million.
Our cash balance at February 28 was $9 2 billion.
Compared with $8 4 billion at August 31.
With regards to our ongoing objective to return cash to shareholders and our second quarter, we repurchased or redeemed $4 6 million shares for $1 2 billion.
And and average price of $255 29 per share as of February 28, we had approximately $5 billion of share repurchase authority remaining.
Also in February we paid a quarterly cash dividend of <unk> 88 per share for a total of $561 million. This represented a 10% increase over last year.
And our board of directors declared a quarterly cash dividend of 88 per share to be paid on May 14, a 10% increase over last year.
So at the halfway point of fiscal 'twenty, one we feel really good about our results to date and our positioning for the remainder of the year realizing that the pace of recovery is hard to accurately predict now let me turn it back to Julie.
Thank you Casey.
Let me start with the environment, we continue to see compressed transformation, where companies have to simultaneously transform multiple parts of their enterprise and reskill their people and what previously would have been sequential program.
They are doing so to re platform their businesses and the cloud address cost pressures build resilience and security adjust their operations and customer experiences and find new sources of growth.
Covid has hit a giant fast forward button to the future and we believe the demand to innovate and unprecedented speed and scale with rapid adoption of cloud AI and other disruptive technologies is accelerating.
For digital leaders, we see them no longer strictly competing for market share, but to build their vision of the future faster than the competition and for digital laggards. They are determined to not simply catch up but to leapfrog will COVID-19 has accelerated the demand. The reality is that the extent of.
Transformation ahead is enormous and.
The move from approximately 20% to 80% in the cloud alone is a huge undertaking and it is just the start as companies will then continue to invest to grow and innovate on their new cloud foundations.
Which leads me to the role we are playing in Q2, our engines of growth across Accenture have lowered to life to meet these needs of our clients and we see strong momentum going into Q3.
I will share some color and examples.
We called the once in a digital era of re platforming of businesses and to the cloud and September 2020, when we created Accenture cloud first to bring industry cloud and state of the art changed management and transformation together.
We saw this quarter strong double digit growth and cloud overall as well as the subset of Accenture cloud first which growth was even higher.
Intelligent platform services, which is essential to building the digital core of our clients is back to high single digit growth as companies resume this critical aspect of their transformation.
Applied intelligence with our data and AI solutions and security, both sizable but still and the early stages of the scale. We expect long term both had strong double digit growth and Q2.
Operations grew double digits as companies seek to digitize their enterprises, leveraging our deep industry and functional expertise and AI driven sin ops platform.
Interactive improved and grew high single digits as companies continue to shift to digital channels need cost efficiencies around sales and marketing to invest and new capabilities.
More data driven marketing campaigns and compete for customers and employees on the experience they provide.
Industry X, which is helping diversify our sources of revenue and the enterprise grew strong double digits driven by the need for product and engineers to accelerate the time to market, a smarter and more sustainable products and the need to enhance the efficiency and flexibility of manufacturing facilities and the ability to.
<unk> machines and operate remotely.
These engines of growth are multi service, bringing the best of Accenture strategy, and consulting and interactive technology and operation services together to create value. We are distinctive because no. Other competitor has our scale and breadth of services, which allows us to seamlessly serve.
And the different dimensions of compressed transformations. We also are able to give our clients speed and cost levers through our managed services to digitize using our assets and platforms and address cost pressures.
Furthermore, our distinctive capabilities and industry innovation and investment are clear Differentiators are strong strategy and consulting practitioners bring deep industry expertise to all functions of the enterprise and help bring together our services to deliver to our.
And often informed by cross industry insights such as for payments and Omnichannel engagement.
Our ability and commitment to consistently invest and acquisitions R&D and our people is unmatched in our industry and our clients know that through our investments and focus on innovation, we will help future proof them.
Such as our innovation and emerging technologies like the work Accenture labs is doing testing applications using neuromorphic computing, where circuits are modeled after systems and the human brain and nervous system to deliver new AI capabilities.
And our 360 degree value strategy, which seeks to bring talent upskilling diversity and inclusion and sustainability to our work is resonating with our clients as they seek to make progress as they transform.
Two great examples of compressed transformation strong leaders and our 360 degree value strategy are AIG and should sito, we're partnering with AIG, a leading global insurance organization to help them drive their AIG 200 program, which is designed to achieve underwrite.
And excellent modernize their operating infrastructure enhance user and customer experience and become a more unified company.
This quarter, we acquired Aig's shared services operations, which we will transform to serve AIG to create a modern digital shared services platform with end to end processes that will improve the user experience using our <unk> platform and consistent with our 360 degree value strategy.
<unk>, we are investing and upskilling, our new employees.
We have entered into a strategic partnership with Shiseido, a leading global beauty company headquartered in Japan.
Just say Joe has launched a fundamental business transformation aiming to become a global leader and premium skin and beauty by 2030 under its new medium to long term strategy when 2023 and beyond we are partnering with shiseido to accelerate digital transformation and create personalized and seamless customer.
<unk>.
Experiences.
Design develop and implement a cloud based system that will help and adult processes that enable continuous financial reporting better forecasting accuracy and more precise inventory manage management.
We are helping them use AI analytics and automation to create new business value and helping their employees gained high level digital skills.
We are working with Specsavers, the UK based leader in Optometry Audiology and other health care services to re imagine and transform their entire organization through our living systems approach, we are leveraging new ways of working and agile fenders foundations to capture efficiencies and reduce costs.
While positioning the company for growth and diversification to drive business resilience.
With our managed security services, we are helping our central bank and Asia strengthen their resilience against cyber threats built and the flexibility to securely grow their payment transactions from millions to billions at speed and scale.
Our industry X team is helping formula one relaunch, it's F. One and TV Grand Prix racing product by using the cloud based Accenture video solution live streams from 'twenty, trackside and onboard cameras and a growing range of connected devices, we are continuously innovating to embedded.
Diligence and their platforms to deliver the best possible viewer experience.
Now, let me turn to Accenture is greatest and undeniable competitive advantage, our nearly 537000 people.
They are at the heart of our outstanding results.
Fundamental to our core values is to care deeply for our people and we placed significant importance and providing a meaningful employee experience.
For almost every person around the world living and working during the pandemic has been challenging to help our people succeed both professionally and personally during this time, we have put in place. Many programs. For example, we are partnering with bright horizons and the U S through development of and innovative program for school age.
Children to receive Procter and for their virtual studies and homework.
We have extended telemedicine to parents of our employees in India.
And we are providing industry, leading mental wellness programs, including thriving mines, a holistic wellbeing program that teaches us about the science behind stress and how to recharge. Your brain battery. We are proud that more than 160000 Navarre people have completed the program with impressive.
Results, including nearly nine out of 10 participants reported feeling significantly better able tau and handle challenges and the workplace.
Equally important is our focus on vibrant career paths, we have maintained pay increases bonuses and promotions both in our normal December time period, as well as and added rounded promotions and February enabling us to promote and total at the same level as the prior year.
Additionally, we will expand our regular mid year promotions. This coming June to include managing directors, a first and our company's history as one more way, we continue to create new opportunities for our people.
And today, we are announcing a special onetime bonus for all of our people below managing director to recognize the contributions and dedication to our clients during this difficult year.
Continuous learning also it's a defining feature feature of Accenture, we continued to invest and our people and their market, leading skills with a 28% increase and training hours and 25% increase and hours per person just this quarter.
And coming back to our ability to attract talent, we know that people want to work for companies that not only create value, but also lead with values.
And we are proud of this quarter to have been named for the 14th consecutive year on Ethisphere world's most ethical companies list and for the 19th consecutive year. Unfortunately world's most admired companies.
Our strategic decision to preserve our talent last year, including our recorders recruiters provided a strong base to meet the surge in demand we have experienced Ricky.
Recruiting hiring and managing supply and demand has always been a core competency and we are confident and our ability to attract talent and continue to meet the increased demand we increased hiring approximately 50% both year over year and since last quarter and we've.
On boarded over 100000 people virtually over the last 12 months with new innovative approaches.
I would like to recognize the extraordinary leadership and efforts of our chief leadership, and human Resources Officer, Ellyn shook and her out standing team around the globe for how they have helped to care for our people throughout the pandemic.
Guided us through health and safety of Covid.
Are ensuring that we are continuously.
Reskilling, our people and have helped us manage and.
And realize the incredible expansion of our talent to meet the needs of our clients.
Over to you KC for a look ahead.
Thanks, Julie let me now turn to our business outlook for the third quarter fiscal 'twenty, one we expect revenue to be and the range up.
12, five five to $12 95 billion. This assumes the impact of FX will be about positive four 5% compared to the third quarter of fiscal 'twenty and reflects an estimated 10% to 13% growth and local currency.
For the full fiscal year 'twenty, one based upon how the rates have been trending over the last few weeks. We continue to expect the impact of FX on our results and U S dollars will be approximately positive 3% compared to fiscal 'twenty.
The full fiscal 'twenty, one we now expect our revenue to be in the range of six 5% to eight 5% growth and local currency over fiscal 'twenty, including approximately negative 1% from a declining revenues from Reimbursable travel based on a 2% reduction the first half of the year and no material impact and the second.
Half of the year.
For operating margin, we now expect fiscal year 'twenty, one to be 15% to 15, 1% of 30 to 40 basis point expansion over fiscal 'twenty results. We continue to expect our annual adjusted effective tax rate to be and the range of 23% to 25%.
This compares to an adjusted effective tax rate of 23, 9% and fiscal 'twenty.
For earnings per share, we now expect full year diluted EPS for fiscal 'twenty, one to be and the range of $8 67.
To $8 85.
We now expect adjusted full year diluted EPS to be and the range of $8 32 to.
And to $8 50.
Our 12% to 14% growth over adjusted fiscal 'twenty results.
For the full fiscal 'twenty, one we now expect operating cash flow to be and the range of seven.
765 to $8 5 billion property and equipment additions to be approximately $650 million and free cash flow to be and the range of seven to seven and a half a billion.
Our free cash flow guidance continues to reflect a very strong free cash flow to adjusted net income ratio of one three to $1 45.
And finally, we now expect to return at least $5 8 billion and increase of $500 million 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 that we can take your questions. Angie. Thanks, KC I would ask that you each keep to one question and a follow up to <unk>.
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 you'd like to ask a question. Please press one and then zero on your telephone keypad and you may withdraw your question at any time by repeating the one zero command.
We're using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time and one moment. Please for your first question.
Your first question comes from the line of Tien Tsin Huang from Jpmorgan. Please go ahead.
Hey, Thanks terrific results here I can't remember I was thinking and the last time you guys raised your margin outlook, especially against the strong bookings and investments like cloud first you talked about plus this one time bonus to employees et cetera. So what's different this time.
To allow you to do that to raise margins modestly against some some good momentum here and I'll ask my follow ups together with those switches.
Given the big bookings thinking about contract execution do you feel good about sort of the level of.
Expectations, you need to deliver here.
To keep this momentum going.
But a lot of hard work into.
Driving up the bookings here, but.
And I'm curious if there's anything different to consider here with contract execution looking ahead. Thanks.
And.
Okay. Thanks.
Tien tsin, so in terms of operating margin.
Let me just cover with you what the driver of this year of our 30 to 40 basis points of operating margin expansion and you are right. It is unusual for us to expand our operating margin halfway through the year.
And so and <unk>.
And our guidance for the year is obviously continued healthy margin expansion and the back half. That's in addition tension to the 40 basis points that we've already done year to date and and as I mentioned, which does include the impact of the onetime bonus that we're doing for employees below managing.
Erector.
And I'll, just maybe highlight a few things in terms of drivers for the.
For the expansion this year.
As always we first look to strong revenue growth, so and we have that again this year and that's coming along with increased contract profitability. We do have increased contract profitability coming through and our.
Gross margin and the first half of the year and Thats really where the first lever that we always look at.
Within this year uniquely.
And are a couple of things one is utilization. So we are.
Getting some additional margin expansion this year based on our higher utilization rate, we talked about that last quarter that we're looking to.
And that's on a more normal levels. It did go up this quarter and we're still working on that but clearly in the first half of the year and into the second half there will be some.
And benefit to operating margin expansion on that.
And the second part is due to the lower travel events and meetings all spend this year. So we are going to benefit from that overall for the full year.
And that benefit really is and the first half of the year.
And as the baseline last year and the back half.
As you know, we really didn't travel or have meetings. So.
Not a benefit that we'll have and the back half of the year.
And I think.
Overall, the key thing, though and operating margin.
Is that we always look to drive strong underlying profitability.
We want to ensure that we're investing first and our business because we want to drive long term shareholder value and.
So that's really the critical part that we're able to continue to invest and our business and and our people and and acquisition.
But while the same time expanding operating margin significantly.
Yes, and Tianjin and why don't I take the I'll take the question about execution, we're very confident about our ability to execute and let me just remind you that.
One of the things that's really benefiting US is just our absolute excellent performance when the pandemic started and we had to move all of our people from our centers, while our clients are having to move remotely and Youll recall I shared that we close the books for 70 public companies and we did so without missing a beat that we.
On average pre pandemic and new release every 15 minutes 24 hours a day on the technology say seven days a week and we have continued with that.
Execution and in fact, one of the things that we believe is driving our growth is that we enhanced.
Our standing with our clients because of how we've been able to execute while at the same time, we help many of them move online. So we feel very good our our centers and our people across the globe in terms of delivery are just amazing and I should thank them.
At the end of the day, that's what really matters for our people and you really just have exceptional people.
Yes, it's Bob.
Your next question comes from the line of Lisa Ellis from Moffat Nathanson. Please go ahead.
Hey, good morning, and nice results here and.
Julie I wanted to kind of rewind the clock back to early 2020, which obviously feels like you know and to go now, but when you reorganized accenture to pivot to more focus on the geographies and geographic expansion.
And you know now that we're a year plus and then the dust settle a little bit can you just kind of bring us back to that and Rick.
What's on what's working well would that pivot, what's working and maybe less well and has been more challenge and you expected and what's different about.
Operating and in growth markets.
And just realizing that those that that.
But the growth markets.
Important part of the growth store growth central going forward. Thank you.
Sure Great question.
One of the things that we look back on internally as a leadership team was that we actually were very bold and and our and our ambition and my first year as CEO to actually put that new model and place only six months into the fiscal year and change our P&L and the middle of the fiscal year, and we look back and up and use it as a less.
And as to speed matters, because as you think about our execution. During the last 12 months, we did so with the new leadership team and a new way of working and what it really demonstrate was we made the right strategic move driving the move from industry to geography, where a few things and.
Remember what we what we did was we also put digital everywhere. So we we simplified because digital was now the core of our business, but the first thing is what we call the client proximity imperative.
We had such scale and all of our markets, we wanted to put our leaders.
Closer to our clients while at the same time.
You know really enhancing the ability to move innovation around the world and we did that by massively simplifying.
And so we at the one hand, where we made a geographic P&L, but and the other hand, and we made critical changes to actually make it easier to move innovation around the world.
And secondly, we felt as if.
The ability to simplify and then have teams come together across our services would really unlock value and of course, you did that before we had COVID-19, but we've seen the acceleration of the need for that because our clients are really looking for the ability to bring outcomes and so.
Just think about the work that we are doing right and right now like I take.
BBVA, which you may know it is a customer centric global financial services company headquartered in Spain.
And we've worked with them to me.
And they wanted to increase their digital sales and that brings together operations are all of our interactive capabilities like paid media search engine optimization analytics and marketing operation plus our deep industry experience and with our support over the last 12 months they've grown their digital sales more than.
50% and they saw an increase and digital customers by more than 50%.
<unk> to bring those services together seamlessly to deliver those outcomes is really been enabled by that growth model that both simplified recognized at the core of our business is now digital cloud and security.
And enable us to really meet the needs of the client globally in terms of growth markets and there's really nothing different there I mean, the geographic model helps us Paul focus on the opportunity and each of the markets. While at the same time really connecting the innovation and and being able to serve global clients better.
Terrific. Thanks, maybe my quick follow up maybe for Casey a follow up on <unk> question.
I know you said here, yes, youre running a little hot on utilization right now and you commented on that as well last quarter I am curious, though with the shift to remote work.
One do you think that shift is going to remain more permanent and and will it allow you to actually maintain a higher level of utilization on a more permanent basis.
Yes.
So thanks, Lisa for the question, Yes, I will just reiterate we are trying to.
And we're working to get it back our utilization back into a more normal ranges.
Tick up this quarter and Thats really is tied to the increased demand that came back hotter than we expected right. So, but we continue to believe that the right answer for our people, it's the lower back into a more normal historical ranges.
And in terms of the structural is there a structural change and our belief is that over time, there's really not a structural change and.
And utilization there is probably some increase right now due to remote working but we don't see.
On a go forward.
And the long term structural change in our.
And our utilization rate, yeah, and just to remember at least like we have a very important value proposition that includes being able to do continuous learning but also.
The right level of time to do strategic thinking for example, and to come together around important initiatives and so that's why we believe that over time, we really should get back into kind of a more normal regardless of where people are working from.
Terrific. Thank you thanks a lot.
Your next question comes from the line of Ashwin <unk> from Citi. Please go ahead.
Thank you.
Julie Casey congratulations visa tremendous results.
And just.
And I hate to keep bringing the margin again and again, but.
One thing that did not necessarily hear you explicitly call out was pricing each one might expect given sort of a price for value component and given the pivot and.
And as you primarily due.
Digital cloud and and.
And security.
And also <unk>.
The shortage of resources.
It was also going to be my follow up question.
Is that attrition has picked up but still below historical levels I see all the steps you took.
Towards employee health and wellness, eventually and Tony nutrition, but as demand accelerates across the industry do you expect inflation to return to historical mid upper teens type levels.
Yes so.
Thanks.
Ashwin for the question, so I'll cover the pricing point and I'll hand, it over to Julie to talk about attrition and so maybe let's start with context overall and.
And what we're seeing and the overall market and the business environment. So as we've been saying and we continue to see that the business environment does remain competitive and.
And in some areas, we experienced pricing pressure.
But we are seeing signs of stability.
And so that's probably the first key point.
In terms of the pricing that we have across our different markets are or services as you know the pricing can vary.
And just depending on what it is that we're selling and and what markets that we're doing that.
Commercial arrangement, but what is important and what stays the same and but we always look to make sure that we are doing a smart commercial arrangement that benefits, both our clients and Accenture and Thats a key part of our 360 degree value.
But as it relates to what we're actually delivering and terms of profitability I do want to highlight that within our.
Operating margin and within growth gross margin, we have expanded the delivery of clients.
Client profitability and contract profitability. So that's a key part of operating margin expansion for the year and.
Joe you wanted to talk about the trends and yeah.
Look I think it's.
I think we were.
We'd expect that we're going to go back to sort of industry norms on nutrition, Although we will always work hard and not do that right and we do believe that we're benefiting right now from the way we.
Cared for and our people and the decisions, we made to preserve our talent and invest and keeping them through the lower demand there and so.
Certainly.
We're tuned as a company to be able to grow and recruit.
At this level and at the more normal levels as you said and the higher teens.
Thank you good isn't.
Your next question comes from the line of Brian Kim from Deutsche Bank. Please go ahead.
Hi, guys and congratulations from me as well.
And just thinking Julie about about this more structurally longer term.
Is this growth rate.
And the back half growth rate, obviously, being really strong and the back half double digit growth.
And applied for both the third and the fourth quarter.
And I'll have the pandemic change things that this could be maybe more sustainable than just kind of Bob.
One time pick up and growth and maybe the growth could be I know, we've talked about the past, 5% to 8% constant currency growth just wondering if that debt.
And that Formula has potentially changed and the future due to the pull forward of some of the digital transformation from the pandemic.
So we knew someone was going to try to get us to look ahead for next year, but.
Michael.
And you got me, but we're not going to but let me just.
So instead of trying to look ahead to next year and thinking about an issue, but maybe just focus on how we are looking at our business right. Now. So if you think about the last six years. When we started digital we rotated our business. So that now the core of our business digital cloud security.
And all of our services, meaning not just and that's something from a technical perspective, and so think about what we have built our engines of growth as the core of our business, which is what we went through when you think about cloud industry X <unk> applied intelligence.
Operation and the things, we went through and our script today and so we have these engines of growth, which we continue to invest and and I think what's really important the way we think about our businesses.
For example, cloud we already scaled and he told you last quarter. It was $12 billion and FY 'twenty, but it's growing double digits because we're at the very early stages of it.
And when you think about Accenture cloud first we brought together all of our services from strategy and consulting to experience to cloud industry experience because not only are companies having to migrate to the cloud, but they need to create value like we're working with an American Entertainment company, where.
We're helping them you leverage the cloud to accelerate the time to market of new video services right. So it's not about the migration it's about the value.
Think about our business is having built these engines of growth some of which already have massive scale and are continuing and then others like industry Act you know industry acts as the way that we're going to continue to diversify our revenue sources for resilience over the long term, we made and it.
Two acquisitions this quarter and.
<unk> solutions, and Myrtle and consulting group to help build our manufacturing and supply chain.
We're going to continue to invest there we think about that as the next interactive right in terms of building. These.
And this new area and we are at.
Amazing tipping point right now, where we're seeing an acceleration of digitization in manufacturing and and product engineering.
And so we continue to think about how do we.
Both make sure these growth engines and going but never have to have another rotation, because we're always investing and I I mean.
The last point I would just say is.
Our capacity to invest and acquisition has been a huge differentiator in building the business we have today.
Being the core of our business is now these engines of growth and we continue to execute on that and.
All of our major strategic areas and the next scale plays and I'd call out. The two we made this quarter and cloud for example, and Infinity works and eating out.
Got it got it.
And just give you a quick follow up you know will travel and Reimbursable as well that will that go up.
To the norms of previous past and I'm, just trying to figure out if and if some of that obviously some of that travel work doesn't have to continue until the model slightly changes on that sell them upfront.
Yes.
That's a great question, Brian So let me just first tell you what we've assumed as it relates to kind of our revenue so.
We do not have in our revenue guidance.
And increase and travel.
And from travel related expenses.
Obviously, we're continuing to meet with our clients and do well and.
Engage with them as you can see from our record bookings and a really strong revenue growth.
But we don't have any of that and we don't have that significantly but embedded in our revenue.
And in terms of.
For the rest of the year, we'll continue to see.
Where we are with the travel and.
And events and meetings as we go through throughout the rest of the year and into next year, It's really kind of too early to tell Joanna if you want to add anything.
I would agree I mean look I'm, having lots of conversations with companies who are just trying to figure this out rate will travel.
Well it will it actually explode once people feel safe because they need to reconnect with it structurally you know shift and I would say that it's really we think it's too early and you know companies are really kind of all over the map and hopefully we'll have a lot better sense as that as we get through the next six months and we see.
<unk> variance and how and how comfortable people are but it's still it's still pretty unclear.
Got it thanks for taking the questions.
Yeah.
Your next question comes from the line of Dave Koning from Baird. Please go ahead.
Yeah, Hey, guys, Thanks, nice job and I.
Yes. My first question outsourcing growth was the strongest I think in six years, and that's really not on and an easy comp yet either you had a pretty normal Q2 of last year in terms of growth and I'm wondering is there something within outsourcing that is kind of a step function change to just a better level than normal or there's something happening there that's.
Triggering growth and such a stable part of your business typically.
Well you know.
It's a great question and this really is a big driver of how well we're doing now because in this when you have compressed transformation, where the companies need to do.
Do so much at the same time.
Really sharp focus on what do I need to do how do I source, the talent right and that that conversation has absolutely.
Gone faster, but also how can I digitize every part of the organization and what Accenture has which is very unique is this investment we've been making for years and the.
Platform for example, and operations and and technology things like My Wizard and might concerto, which builds in best of class AI machine learning a rapid testing and and these are platforms that we continuously invest and and so when you wouldnt be happening is here is that.
We're helping them digitized and we're helping them focus on what do they really need to have in house versus can leverage in order to go faster, but one thing I want to be really really clear about.
And although our strategy and consulting business continued to have a high single digit decline it was better than we expected strategy and consulting is absolutely essential to all of these results, including outsourcing because what we're bringing to them right.
Not simply Oh wait till it's a lower cost.
Increase is in sales through our marketing operations like the BBVA example, I gave right its manufacturing.
And at AIG, which I talked about its insurance rate as well as deep process skills is helping them transform the ways, they're working by being integrated with us where we're bringing modern ways of working and digital and so this is what distinguishes us as a company.
Many for our clients it's not for.
And for you guys at the type of work outside outsourcing versus consulting, which is basically managed services project work for our clients. It's our ability to bring all these services together, which is why I emphasize that each of the examples I gave in my script and I gave me and many more really are pulling all of these things together for an outcome.
And when Youre going to compress transformation, that's more important and her.
Great. Thanks, that's great and I guess my just quick follow up every vertical accelerated in the quarter, except for resources and so I'm just wondering on that vertical specifically that got a little worse, but that it's really easy comps and the back half and anything to call out there and momentum kind of reaccelerate in the future.
Yeah. Thanks, Dan So resources it came in and the zone that we expected it to and I just point out a couple of things. So we've talked about the industry is more impacted by the pandemic and and resources clearly has one of those which is and energy and I continue to be a.
Under pressure and I would also say that our clients and the chemicals industry also.
And feeling some pressure as well.
But we've seen stability and our utilities portfolio, which is good and you know go forward. If we look into Q3, we do see and improvement.
And the resources growth rate.
Yeah and by the way this is where industry acts is gonna be so critical.
For example, we're working with for it with a North America and one of the largest oil integrators in the world and re imagining their plants from both the health and safety.
Security and efficiency perspective, I was just and our brand New Ot Security lab and Houston last week, Yes, I actually did go on a business trip and <unk> and a big focus of Ot security is across all of our both process and discrete manufacturing.
There, obviously as an industry set of industries, they've been impacted but if you think about where we're focused and how we're gonna help them from efficiency and safety and security, it's great and we're well positioned.
Great. Thanks, guys.
Your next question comes from the line of James Faucette from Morgan Suddenly. Please go ahead.
Great. Thank you very much and wanted to go back to one of the comments you made in the prepared remarks in terms of increasing your programmatic DNA and I'm wondering if you could just give us a little color of how we should think about contribution from that specific areas of focus.
And if durability et cetera, just trying to understand how youre, how youre thinking about that initiative, which seems really important.
Yes. So thanks for the question, you're absolutely right I mean, our ability to invest significantly in our business and that includes VNA.
Is a key competitive advantage and I would just say we've been at this for a long time to your point, it's been a core part of our strategy. Since 2013 on average we've done about 20% of our operating cash flow to VNA and our updated guidance of about up to 2 billion of at least 2 billion puts us in that same day.
So, but it's not just being able to acquire a successful integration and so you can see that that typically provides about 2% of inorganic contribution and this year, it's going to be more and.
Two and a half a percent so.
And we really are very focused on that as a key part of our strategy and we will look to.
And to continue to invest and as we've said we can always.
We can do more than the $2 billion, if the opportunity presents itself up and it is a key part of our investment portfolio.
Thanks and just.
Turning operationally for my follow up question.
Give some color on how much of the strong demand that you're seeing is driven by your partner network this year and and wait.
Are you seeing more most strength, there and and I guess, how you think about that part of.
Business generation evolving over the next.
A few quarters and periods.
With our ecosystem partners are absolutely essential to our growth.
Called them out and our script, we're really proud to be the number one and number two partner with all of the major.
And ecosystem partners and what we uniquely bring is because of the strength of our relationships. We can really bring integrated value proposition to our clients and so those relationships are very high priority and a two and and important to our future growth.
Thanks for that Julie Thanksgiving. Thank you.
Operator, we 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.
Question on the outsourcing and operational strength. So you highlighted the AIG shared services deal. This quarter have you seen a pickup and captive acquisition opportunities that you've acted upon here over the last several quarters and I am curious how we should think about this mix contributing to your outperformance and the pipeline going forward.
Well, we've shared in prior prior calls that we do see more interest and captives and we're starting to see us execute on some of them, but I think it's too early to say, whether that's going to be a big part of the mix or not.
You know for the for the reasons I've talked about.
We can go in and help digitize cash.
Casey do you want to add anything.
Yeah, I would just say.
And what we see in terms of the mix.
For <unk>, we still see.
Double digit growth and outsourcing and.
And for the full year I think the wind up at high single to low double digit positive growth and Turkey to give you some plus and the mix.
Okay I appreciate that and then just on <unk> and financial services. So those both clearly had outsized performance in the quarter can you just talk about the key contributors underlying those too.
Yes, So we were really pleased with <unk> and.
And financial services growth this quarter Hfcs and continues to be.
Growth that we've seen and public service and the work that we've been doing George.
Not just only but clearly led by one of the work that we're doing with this COVID-19 COVID-19 space and and in financial services.
We're pleased that.
We do have strength in our banking capital markets and that's a that's a statement globally as it relates to.
Particularly and not only and our business and.
In Europe, but all over including North America, So very strong performance and both of those and we expect that to continue yeah and it's you know it's the things that are it's cloud right. You know, there's big movement to cloud and digital experience. It's more like the example, I gave and BBVA. It it's basically.
All the trends that we've talked about.
Saying out really across the industry and financial services.
Is one of the less and more moderate impacted industries and they are investing.
Thank you very much.
Great well.
Thank you all again for joining today and.
Thank you again to all of our incredible people around the globe and as always I, just want to and by thanking our shareholders for your continued trust in us may everyone stay well and healthy.
Ladies and gentlemen, and that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.
Yeah.
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