Q3 2021 Accenture PLC Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Accenture as third quarter fiscal 2020.
1 earnings call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
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And as a reminder, this conference is being recorded.
I would now like to turn the conference over to our host managing director.
Head of Investor Relations Ms. Angie Park. Please go ahead.
Thank you operator, and thanks, everyone for joining us today on our third quarter of fiscal 2021 earnings announcement as the operator, just mentioned I'm Angie Park, managing director head of Investor Relations on today's call, you'll 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 third quarter. Julie will then provide a brief update.
On our market positioning before KC provides our business outlook for the fourth quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap up at the end 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 in this call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures, where appropriate to GAAP in our news release or in the Investor Relations section of our website at Accenture.
Com as always Accenture assumes no obligation to update the information presented on this conference call now, let me turn the call over to Julie.
Thank you Angie and thank you everyone for joining us we had another outstanding quarter, reflecting our laser focus on creating 360 degree client value and the importance of our scale experience and industry knowledge and trust to the world's leading companies and governments.
As they continue to digitally transform their enterprises.
We had a record 20 clients with bookings over $100 million and a total of $15.4 billion in bookings, we delivered 16% revenue growth in local currency, 3% above the top of our guided range with outstanding profitability and free cash flow, we estimate that we continue.
To take significant market share.
Our growth was broad based across geographic markets and industries with 11 out of 13 industries growing double digits. This quarter and reflects our ability to bring together our unmatched breadth of services from strategy and consulting to interactive technology and operations to create a solution.
<unk>, which achieved the value would speed that makes a difference to our clients.
We continue to meet our clients strong demand, adding a net 32000 talented people. This quarter alone we offer an employee value proposition that allows us to attract top talent and develop our people with world class training and provide them with vibrant career paths. We are pleased with our record 100.
17000 promotions year to date, including almost 1200 promotion to managing director.
And while delivering these results we have raised the bar again in term of in terms of investments. We now expect to invest about $4 billion in strategic acquisitions. This fiscal year with 39 acquisitions closed or announced year to date.
This includes announcing this quarter 2 acquisitions with purchase prices over $1 billion. Each the acquisition by Accenture Federal services of Nevada in the U S and advanced analytics company, which we expect to close in August and of whom Love a World Class Engineering services company headquartered in Germany, which we expect to.
Lows in Q1.
These 39 acquisitions are well balanced with 10 in North America 17 in Europe, and 12 in growth markets.
Our level of investment demonstrates as well how scale experience and trust matters scale in terms of our financial capacity experience in terms of our track record of the successful integration of approximately 200 companies since 2013.
And the trust we have earned in the market that attracts leading companies to want to join the Accenture family, we invest in acquisitions to scale in areas, where we see a big market opportunity to add skills and new capabilities and to further deepen our industry and functional expertise.
All to drive continued innovation and the next waves of growth.
Finally, because we believe strongly in our commitment to share its success with our communities. We recently announced that we would donate $100 for every 1 of our then 540000 employees or $54 million to urgently address the needs of our communities due to the pandemic, including 25.
For India.
Casey over to you.
Thank you Julie and thanks to all of you for taking the time to join us on today's call.
As you heard in Julie's comments, we are extremely pleased with our results in the third quarter, which continued to reflect very strong momentum across all dimensions of our business.
Based on the strength of our third quarter results and the confidence we have in our fourth quarter to continue to extend our market leadership position. We are we are increasing our full year outlook, which I will cover in more detail later in the call.
Before I get into the details let me summarize the major headlines of our third quarter results, which reflect continued superior execution against our 3 financial imperatives.
Revenue increased nearly $2.3 billion, reflecting growth of 16% in local currency.
Bolts were approximately $300 million above the top end of our guided range driven by broad based over performance across the business with double digit growth in all 3 markets 4 of 5 industry groups and in technology services and operations.
As we expected both strategy and consulting and the resources industry group returned to growth.
These results demonstrate the power of our business model and our unique ability to seamlessly integrate our services at scale.
We estimate that our growth continues to significantly outpace the market.
Operating margin was 16% an increase of 40 basis points for the quarter Importantly, we no longer have the margin expansion tailwind from lower travel as we anniversaried the benefit of the compare this quarter.
We continue to absorb significant investments in our people and our business.
We are always focused on positioning our business for the future.
And we delivered very strong EPS of $2.40.
Up 26% over fiscal 'twenty.
Finally, we delivered strong free cash flow of $2.2 billion in the quarter and $6.2 billion year to date, while also continuing all elements of our capital allocation program, including returning roughly $1.4 billion to shareholders this quarter via dividends and share repurchases.
We have made investments of $1.5 billion in acquisitions through Q3, and we now expect to invest about 4 billion in acquisitions. This fiscal year, which is which does not include the unwired acquisition, which we anticipate to close in FY 'twenty 2.
I wanted to take a moment to highlight that as you can see from our results and guidance. This year, we were able to step up our acquisition spend and continue to expand operating margin.
And while I won't comment on the specifics of FY 'twenty 2 until September base.
Based on our current line of sight, you should think of next year's inorganic contribution in the range of 4%.
And we expect margin modest margin expansion as we continue to run our business with rigor and discipline.
With that let me turn to some of the details starting with new bookings.
New bookings were $15.4 billion for the quarter with a very strong book to Bill of 1.2.
Consulting bookings were 8 billion with a book to Bill at 1.1.
Outsourcing bookings were $7.4 billion with a book to Bill of 1.2.
We were very pleased with our new bookings, which represents 39% growth in U S dollars and reflect a record 20 clients with bookings over $100 million.
Each service dimension dredging consulting technology services and operations delivered double digit bookings growth in local currency.
Turning now to revenues revenues for the quarter were $13.3 billion or 21% increase in U S dollars and a 16% increase in local currency <unk>.
Consulting revenues for the quarter were $7.3 billion up 21% in U S dollars and 16% in local currency.
Outsourcing revenues were 6 billion up 20% in U S dollars and up 16% in local currency.
Taking a closer look at our service dimensions operations grew very strong double digits technology services grew strong double digits in strategy and consulting grew high single digits.
Turning to our geographic markets in North America revenue growth was 18% in local currency driven by double digit growth in public service software and platforms and consumer goods retail and travel services.
In Europe revenues grew 14% local currency, we saw double digit growth in consumer goods retail and travel services and industrial and high single digit growth in banking capital markets looking closer at the countries Europe was driven by double digit growth in the U K, Italy and Germany.
In growth markets, we delivered 15% revenue growth in local currency led by double digit growth in consumer goods retail and travel services banking capital markets and public service from a country perspective growth markets was led by double digit growth in Japan and Brazil.
Moving down the income statement gross margin for the quarter was 33, 2% compared with 32, 1% for the same period last year sales and marketing expense for the quarter was 10, 6% compared with 10, 2% for the third quarter last year.
General and administrative expense was 6.6% compared to 6.3 per cent for the same quarter last year.
Operating income was $2.1 billion in the third quarter, reflecting a 16% operating margin up 40 basis points compared with Q3 last year our.
Our effective tax rate for the quarter was 25% compared with an effective tax rate of 25, 5% for the third quarter last year.
Diluted earnings per share were $2.40 compared to EPS of $1.90 in the third quarter last year.
<unk> service outstanding were 36 days compared to 34 days last quarter and 41 day stays in the third quarter of last year.
Free cash flow for the quarter was $2.2 billion, resulting from cash generated by operating activities of $2.4 billion net of property and equipment additions of $158 million.
Our cash balance at May 31 was $10 billion compared with $8.4 billion at August 31.
With regards to our ongoing objective to return cash to shareholders in the third quarter, we repurchased or redeemed 3 million shares for $835 million at an average purchase price of $276.98 per share as of May 31, we had approximately $4.2 billion of share repurchase authority remaining.
Also in May we paid a quarterly cash dividend of 88 per share for a total of $559 million. This represents a 10% increase over last year.
And our board of directors declared a quarterly cash dividend of <unk> 88 per share to be paid on August 13th also a 10% increase over last year.
So in summary, we are extremely pleased with our results to date and are now focused on Q4 and closing out a very strong year now let me turn it back to Julie.
Thanks, Casey I'll start with the environment the dynamics in the market, we are seeing our not only our recovery from the lower spending power pattern at the onset of the pandemic, but a more sustained growth in demand as companies race to modernize and accelerate their digital initiatives with compressed transformation.
Pre Covid, our research showed a digital achievement gap with leaders growing <unk> faster than laggards, and we estimate that GAAP has now widened to 5 times with leaders stepping up their investment in technology, and innovation and lead progress taking accelerated steps to catch up.
<unk> is an even more critical enabler as companies are increasing their focus on enterprise wide transformation and we're rapidly moving to digital and cloud powered models.
These needs of our clients are driving strong momentum in our business with an acceleration of continued strong double digit growth across applied intelligence cloud industry ex intelligent operations and security with interactive and intelligent platform services returning to strong double digit growth this quarter. These.
These strategic priorities are multi service and are powered by our unparalleled technology ecosystem relationships.
Let me share some color to bring this demand to life I want to particularly highlight cloud, which continues to have very strong double digit growth rates as well as the subset of Accenture cloud first where growth was even stronger and has exceeded our expectations. When we formed cloud first last September with our.
Our cloud first services, we are helping agencies served by concept Italy's national procurement agency to deliver on Italy's national recovery and resilience plan would develop in developing and running industry specific cloud based platforms.
Standardize and improve their efficiency and speed, reducing the time to launch new contracts and ultimately providing much improved services for Italy as citizens. We are using our intelligent platform services to help Dupont a company with a rich history of business reinvention, we imagine its financial structure to coordinate our.
Operations across its large geographic footprint.
After going through a strategic and deliberate restructuring through M&A, we will now help Dupont implement a central finance processing suite that will help them to consolidate their multiple financial systems and chart of accounts into 1 and close the books faster. This will provide real time review of results for all of the business.
Units all in the cloud, giving Dupont more agility speed and certainty in a complex and volatile market.
We are helping Jaguar land Rover transform its global marketing model to deliver a more personalized customer experience with creativity and technology at its core.
We were selected for our technology capabilities data late David led performance and experience led approach we will use the strength of the experienced creative and digital capabilities are interactive and the marketing delivery capabilities of operations with our <unk> platform, which we already use as part of Jaguar.
Land Rovers warranty operations set ups will deliver.
Deliver AI powered insights and highly automated production around the world.
Security is top of mind for our clients as the threat landscape expands our very strong double digit growth is driven by the breadth and depth of our services from advisory to cyber defense to managed security.
For example, facing ever increasing cyber threats and continued financial pressures as a result of COVID-19, Accenture is helping a U K I think by bringing together the full breadth of these capabilities to provide innovative solutions to support the bank's future security strategy.
Across many of these examples are our implied intelligence services. We were excited this quarter to announce Accenture Federal services agreement to acquire Nevada, and advanced analytics company, serving U S. Federal organizations that is demonstrating what's possible with analytics machine learning cyber and cloud and.
Earnings.
This will augment our already strong capabilities and scale in these critical areas, providing even more deferred risk diversification across our federal business, specifically in the national security space, which is seeing substantial growth.
I want to give a special recognition to our colleagues serving the public sector around the world throughout the pandemic you were 7 consecutive quarters of double digit growth reflect your absolute commitment to the important mission of government serving their citizens.
Turning now to industry X, our digital engineering and manufacturing services.
We believe that product development design engineering manufacturing and the supply chain makeup the next big digital transformation frontier.
The impact of COVID-19 is accelerating the need to transform these core operations and for nearly a decade, we have been investing to build the unique capabilities and ecosystem partnerships to combine the power of data and digital with traditional engineering services.
We are very pleased with the announcement of our agreement to acquire umlaut, which will add more than 4200 industry, leading engineers and consultants across 17 countries and expand our capabilities across a range of industries, including automotive aerospace and defense telecommunications energy and utilities system.
Recent examples of our industry X services include helping a German telecom company continuously develop and enhance their internet TV service by utilizing embedded engineering and their set top boxes and managing new features on the platform.
Helping our large media conglomerate accelerate their primary revenue streams and digital products and advertising with our product and platform engineering expertise to design build test and deploy new products services and features.
And working with a global automotive OEM to execute online remote software updates for their in car computer systems to allow seamless deployment of new software versions.
We are also working with an American multinational manufacturer of confectionery pet food and other food products to deploy a digital twin platform to optimize production in its manufacturing facilities improve margins and reduce waste, we're working with a large electric company in Japan to help their power plants.
Help bring their power plants into the future by digitizing their operations and standards across each department.
And with a large oil and gas company to build their internal digital capabilities to substantially reduce time to market for new digital solutions that extends to its customers, while supporting the Companys key safety and sustainability goals through the use of a digital factory.
Taking a step back the examples I have provided today all required deep industry knowledge and innovation.
Our breadth and depth across industries enables us to Taylor industry solutions, while bringing cross industry expertise as we help our clients facing industry convergence and by using the lessons of other industries.
We were proud of this quarter that fast company recognized us for innovation across multiple initiatives and its world changing ideas awards.
Our cross industry expertise is 1 of the powerful sources of our ability to innovate.
For example, using our deep banking industry and technical expertise, we rapidly developed for a commercial bank, which was not a traditional small business administration lender a program under the U S. Paycheck protection program that allowed them to make loans to thousands of small businesses struggling with the <unk>.
So the pandemic. We then pivoted to apply this approach to standup Facebooks small business Grant program for Black owned businesses, enabling the distribution of 10000 grants to black owned businesses in the U S. This grants program is an important part of Facebooks overall commit.
Meant to invest $200 million in building programs and tools for black owned businesses.
Finally, let me turn to our incredible people their health and safety remain our top priority. We are supporting our people by facilitating vaccinations, including standing up clinics in many of our offices such as in India. We're already 50000 of our people their families and contractors have been bad.
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We have been focused on taking the lessons as an almost 100% remote work force during the pandemic to a new way of working moving from a remote or hybrid model to an omni connected experience people, who work in the office from home and at client sites and it is likely many of our clients will be doing the same.
And so our approach focuses on the experience of connecting to continue to serve our clients in a differentiated way and create an environment that our people feel a sense of belonging.
The rich diversity and ingenuity of our people from our board of directors to our new hires helps us deliver 360 degree value for the benefit of all.
We now have more than 250000 women, representing approximately 46% of our work force.
As you may recall shortly after the murder of George fluid in the U S. On this call I shared with you our commitment to take 3 actions in the U S setting external goals to increase representation training, our people and making a bigger impact in our communities.
1 year later I am pleased to report that we not only took each action, but have made measurable progress, including increasing our representation, having 95% of our U S people complete our new anti racism training and making substantial new investments in our communities you can find a fee.
We'll progress update on our website, because we believe transparency and accountability are hallmarks of good governance and essential to building trust.
As we see the rise our continuation of all kinds of hate crimes against diverse communities, including violence against Asians, The LGBT community anti Semitism and Islamophobia I want to reaffirm my and Accenture is unwavering commitment to our quality and justice for all.
And cero tolerance for racism, biggish bigotry and hate of any kind.
Casey back to you. Thanks.
Thanks, Julie let me now turn to our business outlook for the fourth quarter of fiscal 'twenty..1 we expect revenues to be in the range of 13, 1 to $13.5 billion. This assumes the impact of FX will be positive, 4% compared to the fourth quarter of fiscal 'twenty and reflects an estimated.
17% to 21% growth in local currency for.
For the full fiscal year 'twenty, 1 based upon how the rates have been trending over the last few weeks. We continue to expect the impact of FX on our results in U S dollars will be approximately positive 3.5% compared to fiscal 'twenty.
For the full fiscal 'twenty, 1 we now expect our revenue to be in the range of 10% to 11% growth in local currency over fiscal 'twenty, including approximately negative 1% from a decline in revenues from Reimbursable travel.
On a 2% reduction the first half of the year and no material impact in the second half of the year.
Importantly, organic revenue is the driver of the increase to our updated guidance as we still expect the inorganic contribution to remain at about 2.5% for the full year.
For operating margin, we now expect fiscal year 'twenty, 1 to be 15, 1%, a 40 basis point expansion over fiscal 'twenty results.
We now expect our annual effective our annual adjusted effective tax rate to be in the range of 23% to 24%. This compares to an adjusted effective tax rate of 23, 9% in fiscal 'twenty.
For earnings per share, we now expect full year diluted EPS for fiscal 'twenty, 1 to be in the range of $9.7 to $9.16.
We now expect adjusted full year diluted EPS to be in the range of $8.71.
$8, 80, or 17% to 18% growth over adjusted fiscal 'twenty results for.
For the full fiscal 'twenty, 1 we now expect operating cash flow to be in the range of $8.6 5% to 9.15 billion property and equipment additions to be approximately $650 million and our free cash flow to be in the range of 8 to $8.5 billion.
Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.4 to 1.5.
Finally, we continue to expect to return at least $5.8 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to our shareholders.
With that let's open it up so that we can take your questions. Angie. Thanks, KC I would ask that you each keep to 1 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 you wish to ask a question. Please press 1 then zero on your telephone keypad.
You may withdraw your question at any time by repeating the 1 zero command.
If youre using a speakerphone, please pick up the handset before pressing the numbers.
1 moment for our first question.
And that comes from the line of Lisa Ellis with Moffett Nathanson. Please go ahead.
Yes.
Hey, good morning, and and thank you great results here a couple of questions..1 is a little more tactical 1 O 1 more strategic I'm. The first 1 in bookings you see can you just remind us 1 how acquisitions are or are not reflected in bookings and then on a related note.
Is the composition of your bookings changing at all I'm, just specifically thinking about these big 100 million plus transformation programs are you seeing any.
A notable change in duration or anything like that just trying to understand the bookings number a little bit mental follow up thank you.
Okay, great. Thanks, Lisa So let me just let me just decompose bookings a little bit so.
We were really pleased with our bookings this quarter or $15.4 billion and again that grew 39% in U S dollars really strong book to Bill 1.2%.
And in terms of when you look at it there was very strong bookings in both consulting and outsourcing as well as all paid geographic markets and if you look at specifically on our DNA, which also was represented across all of those dimensions there'll be a slight impact in our in our bookings are based on the backlog that we bring in from those acquisitions, but it's not over.
They're all significant but let me just peel it back in terms of when you look underneath at $15.4 I'd say, there's really 3 things I'd point out first was that there was really a good mix of all categories of our sales with as Julie mentioned, we had a record 20 clients over $100 million of sales and that as you know positions us really well for the future, but if you.
Go all the way down through the categories, all the way through our smaller deals.
They they represented very well and that can help us with revenue in the current quarter. The second thing that I would point out is that our bookings were very broad based across all of our services and that includes strategy consulting and the third thing was that it was aligned to our strategic priorities as we pointed out driven by cloud industry acts in security for example.
So with those points I would I'll hand, it back to you to ask the second question or if theres any other color Dan.
[laughter] per.
Terrific. Thank you the second 1 maybe Julie this is for you I just wanted hoping to comment on acquisitions. You know this is a.
Obviously, you've picked acquisitions made a couple of bigger ones than Accenture has historically done can you just talk about you know is this just kind of opportunistic or has something kind of shifted in terms of your willingness to do larger acquisitions or specific market opportunities youre going after.
Thank you.
Sure.
And so we've always said we have the capacity to do larger acquisitions, but we're very disciplined about what we will acquire.
And so these were opportunities that we're very aligned to our strategic priorities.
Nevada being bold investment in public sector, but primarily all about.
You know advanced analytics machine learning cyber and cloud engineering and also importantly diversification for our federal business because they are in the national intelligence space and umlaut is in.
Engineering, which was just an opportunity it's a company that we know very well.
That really is giving us an opportunity to accelerate our scale.
In industry acts and we've seen the.
The digitization of manufacturing and engineering be a major priority post COVID-19 and we've been investing for nearly a decade in this in this space we predicted this would happen.
As you can see by the number the amount of work that we're already doing and this was a great opportunity for a company that we know well and you know our strategy continues to be we're going to make acquisitions to scale and big market opportunities to add new skills and opportunities as you know that we rebuilt a lot of.
<unk> through acquisitions for example, those were new skills and capabilities, and then to deepen industry and functional knowledge and so this is a continuation of that and you know I think the advantage. We have is our financial capacity to make investments and to increase our investment.
For the benefit of our clients and all of our stakeholders.
When we see the right opportunities and we're going to continue to.
Have that discipline around making strategic acquisitions.
Terrific. Thank you.
Thank you. Our next question comes from the line of Ashwin.
Schwinn <unk> with Citi. Please go ahead.
Hey, thanks.
And great quarter, congratulations on that that's from me as well.
The question I had is about the momentum that you see.
In the business and it seems to have actually.
Accelerated from what what Youre seeing in the past quarters.
And I wanted to.
I'll ask you with regards to.
Great.
Changes, how you think about it.
Managing the business in the interim.
Hum in order to.
In order to.
Continued day labor.
What do you what youre seeing from a.
From a demand perspective, particularly as we see attrition go up and and so on and that's been across the board statement not just an accenture statements. So any any talks with regards to.
How you're thinking of the annuity.
Yeah, Ashwin I'll I'll take this so maybe I'll frame up a few things for you and I'll hand, it over to Julie as well. So let me just maybe frame up how we were thinking about you mentioned the demand.
And overall, our business and think about the quarter and our year to day from a financial perspective and.
These results are really exceptional when you think about it in the context of our historical performance. So I'll start there I mean, clearly we're benefiting from an easier compare and a strong market demand.
And we see that continuing but even with that booking.
Bookings at 44 billion growing 25% year to date and that's off a base of record sales through Q3 of last year and then you couple that with 54 clients with bookings over 100 million through Q3, which is more in the first 9 months of this year then the whole of last year, 'twenty, FY, 'twenty and FY 19, and I mentioned that.
As you talk about things in different ways, we may need to manage differently just to talk about the scale in our bookings if you look at the scale and revenue.
We grew a record $2.3 billion in revenue this quarter year over year, and you think about our industries, where we're clearly the leader with the breadth and depth of industries. We had 11 of those 13 growing double digits and as I mentioned before in our guidance the increase in our full year outlook, it's driven by organic revenue.
Given that inorganic contribution staying pretty much the same.
And then you know and that all with profitability of 40 basis points expansion. This quarter, we had very strong profitability and we're no longer benefitting from a travel tailwind and we continue to invest at scale in our business and our people. So.
Now, let me hand to hand, it over much more to Julie just to round out some of the questions you had on demand in <unk> and attrition yeah.
So.
Ashwin, it's a great question around <unk>.
Managing our business and so when I just take you all back to right before the pandemic I remember back then and on March 1 we put in a new growth model. We called the next Gen growth model and that was designed for helping us manage our business as we saw the scale.
Increasing right.
That that change in the up in growth model was focused on being able to have more of our leaders closer to our clients. We changed the P&L as you were called to the geographic and so we've already put in place a model that is designed to allow us to continue.
New to scale and so this for US was anticipated and it's exciting to see how we are very uniquely position as our clients' needs have accelerated because that's what's driving the demand rate the needs of our clients have accelerated post COVID-19 to do compress transformation.
And we have the right operating model in place as we think about attrition.
Ticked up to pre Covid letter levels in and are in a hot market, although not the highest we've ever seen and so as you said, it's an industry phenomenon and we're comfortable I mean, our core competency is about managing our supply and demand, but more importantly.
Our core competency is being a great company to work for and as you saw with our numbers. This quarter. We hired net 32000 incredible people and that is just a testimony to our ability to attract great talent as well as continue to.
Train our people we've trained over 100000 people since the pandemic declare a started pivoting to the areas of our clients' needs. So we feel good.
About it and of course. This is what you expect from US So we will continuously improve.
So that's.
All good points and I agree.
I guess the next question is with regards to.
You know and already netted the I don't know.
Focus on a particular acquisition.
It seems to be.
I have to ask is this the first of many as you expand into a much bigger engineering services type presence.
Sure.
Does that is a relatively matthew and market.
So just strategically how are you thinking.
Well, so sort of big picture.
We believe that the digital engineering.
And manufacturing space is the next frontier for our clients trade, there's been there's been a lot and there's still a lot to do.
With respect to you know the front office and the back office for lack of a better term, but right now our clients are building a digital core they're transforming operations and they are trying to find new ways of growth, but the areas that have been not as digitized over the last several years as companies have pivoted has been in core operations manufacturing.
<unk> and supply chain.
Now we predicted this just as we predicted back in 2013 that some day, everybody who would be it would be a digital business and so we've been investing we've already made I don't know 789.
Our acquisitions over the last several years to build these capabilities and you saw that with all the examples that we did in the script and so this is about rapidly scaling with some of the best engineers in the world right, because we see the market opportunity, but most importantly, then.
Need from our clients and so you should expect that we'll continue to build these both organically and inorganically.
But obviously this is a great add.
In terms of scale for us.
Great. Thank you congratulations.
Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.
Thanks, guys. Good morning, I'm wondering if you can estimate for us perhaps how much of the acceleration in all of this enterprise digital transformation has enhanced your structural organic revenue growth profile relative to pre pandemic levels because it certainly sounds like this trend continues to have legs.
Yeah, I mean I think.
The way to think about it is that.
We're taking market share.
And we're really well positioned to capture.
The.
The growth that's available because of the needs of our clients.
And so you're obviously seeing that uptick in inorganic growth and a.
How do we think this will be sustained demand I think it's too early and we're not going to kind of get back into sort of giving sort of a view of FY 'twenty 2 but what we would say is we do believe that that what youre seeing right now in demand isn't just like a R.
Recovery, because spending decreased but actually sustained demand and that we are incredibly well positioned to capture that because clients are looking for outcomes and the breadth of our services. They are turning to us because we can give them solutions not just individual services they want.
The innovation that we're bringing things like our sin ops platform. They are very appreciative and focused on the fact that we care about their 360 degree value. So that we're helping improve their own skills as well as develop achieving their goals and finally.
And I think something that is really critical right now and why we are so well positioned as they see it as a company that creates value and lead with values.
And so trust really matters. When you are doing major transformation and I'll give you..1 example, we've had over 80 clients in the last 12 months, just come and sit down with us to learn more about our diversity supplier program.
Is it really matters to them and they see us as a leader right. These are the things that make us an incredibly attractive and trusted partner and so we think that this is really an enduring differentiation at a time when there's going to be some sustained demand for compress transformation.
Okay understood just a quick 2 part follow up here your thoughts on Q4 book to Bill and what were the areas of the business that surprised you. Most in terms of revenue this quarter, because obviously the overall upside was quite significant.
Thank you.
Yes, Jason just in terms of how we think about the <unk>.
Fourth quarter I mean, so obviously, we've had 44 billion of bookings year to date and even with that we still have a strong pipeline and we feel good about our position for Q4 as it relates to bookings yeah and in terms of you know what did better.
I mentioned earlier it really was broad based every part of our business did a bit better.
Yes.
Okay. Thanks for the comments.
Yeah.
Thank you. Our next question comes from the line of Rod.
Bushwa with deep dive. Please go ahead.
Okay.
Hey, guys, Hey, I just wanted to ask about the margin outlook given the increased acquisition contribution that you'll be.
Digesting in fiscal 'twenty, 2 I, just like to ask about the margin levers that you'll be able to pool in order to still achieve overall operating margin expansion.
And also I guess besides digesting. This added acquisition content are you also needing to spend more on people costs given the war for talent. That's out there. So question about margin levers and also the investments in people. Thanks.
Yeah. Thanks, Rod So I mean, let's start with the second 1 first.
So yeah in terms of.
For the people side of it obviously, there's a lot of demand in a market where in a hot market right now and historically.
We've seen wages increase and that can that vary by skills, and geos and geographies and we and that's happening now, but you see that Robert flowing through our results already to date and through our guidance. So.
It's really up to us to manage our business with rigor and discipline as we always do you know as well managing our pyramid, increasing use of automation and just overall delivery efficiencies.
So that's the first part on wages as it relates to operating margin and just coming back to the same point on V. A day.
So now let me just give you a little bit more color.
You know on DNA.
Coupled with what I talked about a little bit earlier and of course, I'm not going to give any specific guidance for FY 'twenty 2 in total.
Until September, but we do expect to have a higher level of inorganic contribution next year, probably around something closer to 4%.
And that's really due to the fact that we're deploying about $4 billion in FY 'twenty..1 a larger portion of that is closer to the to the later part of the year and.
And we expect to benefit from more of that revenue FY 'twenty..2 we also would expect at this time to deploy somewhere around $4 billion in FY 'twenty, 2 others, including <unk>, which we expect to close next year.
Early in the year.
And of course as Julie said, we always had we've always said we have an ability to do more with that as a line of sight today, but and it's up to us to manage our Charles all the levers that we have at our disposal to continue within.
The parameters of our clients and our overhead and structural cost to make sure that we continue to drive modest margin expansion, while investing at scale in our business and our people.
Great and then just just a quick follow up on the revenue progression. That's happening clearly this is a big industry recovery some of that cyclical some of it's secular and you have certain COVID-19 impacted verticals that are coming back online.
I guess as we head into the next fiscal year are there on the other side are there any revenue contributions that will taper as the Covid crisis ends.
Are there any is there any sort of lumpy work that might taper off as you head into the next fiscal year amidst all of the other momentum that's happening in the business.
I mean, there's nothing material I mean, we think about the public sector. For example, we did a lot of Covid surge work, but now you've got the fiscal stimulus that's around the world and you see the digitization of the public sector. Like we gave the example of concept in Italy. So.
There's nothing material that we think will be difficult to manage because youre seeing really when you see that in the results kind of across industries.
There is there's this need to digitize so nothing material that.
We think to mention.
Thank you.
Thank you. Our next question comes from the line of Brian Bergen with Cowen. Please go ahead.
Good morning, Thank you.
Curious over the last 2 to 3 quarters have you seen a notable change in client appetite for price increases as broader transformation demand has ramped up.
Yeah.
Yes, So let me talk to you a little bit about what we're seeing in terms of pricing overall. So just just importantly, as a reminder, we talk about pricing we defined it as the contract profitability or margin on the work that we sell Brian and as always the environment remains competitive and in many.
Areas of our business, we did see pricing was lower and that's really based on a combination of the fact that the market's competitive and disciplined investments that we're making.
And so all of that is baked into our operating margin guidance for the year.
Okay.
And then 1 on Accenture operations I'm curious, if you're seeing any change in the size and scope of engagements that clients are outsourcing to can you can you just comment on some of the strength or the drivers of the continued strength that you've shown in that business.
Yeah.
It's a great question, it's not so much about that.
The size, it's really about the intent to me what Youre seeing is.
Clients really saying in a world, where I've got a digitize the entire enterprise right.
What Ken where do I want to focus my own resources, and leadership and where can I leverage accenture and their investments and this is where we really got ahead of the market right, where we've developed a sin ops.
And what we're providing them is both cost efficiencies, but really outcomes of actual insights that come from being able to digitize and then you add on top of that where we have.
More clients thinking about having us take over we have a strong pipeline and taking over more people because we are such a great employee value proposition and so they're starting you know when we think about the future of work think about it we're seeing more of our clients really see it as a combination of their own employees.
Automation are bought and then partners like Accenture that really integrate with their own employees and we're just a leader here and so it's more about the trends of the need to digitize.
Is what you're seeing reflected.
Digitize at speed.
Alright, thank you.
Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please go ahead.
Hi, guys. Congrats on the results I wanted to ask about strategy consulting it had been a laggard, but saw that it moved.
Positive way into high single digit just a little bit on the outlook. There do you continue to see.
That maybe reach some of the demand you're seeing in some of your other industry groups.
Yep.
Hey, Brian Thanks for the question you're right. We were very pleased with the acceleration to high single digits in the quarter in strategy and consulting which is what we expected in terms of how we look at I'll just consulting overall type of work go forward, we see it being strong double digit for the fourth quarter in the second half of the year that would mean, we brought up really kind of in a strong.
Double digit growth perspective.
Brian as a reminder, because I remind you all every single quarter right clients arent focused on is at strategy and consulting or technology or operations. They are looking for outcomes and what makes us. So unique is that all of these things, whether it's cloud or Intel it operations or marketing transformation Green.
Together, our services and with more confidence and certainty and that's really how we think about it.
Got it and then just as a follow up the increase in M&A just curious.
And how you guys are thinking about.
Capital allocation and in particular, the dividends and the share repurchase does that change at all with a little more M&A.
Yes.
No.
Obviously, we'll give you I'll give you specifics in September Brian for next year, but overall, our capital allocation framework really remains intact.
I mean, you should all just think about this says we're going to deliver on our commitments and we are investing to drive the next wave of growth and we are taking advantage of our ability to do so in this market.
Great. Thanks, so much.
Okay.
Yeah.
Last question operator, we have time for 1 more question and then Julie will wrap up the call.
Thank you and that question will come from Tien Tsin Huang with Jpmorgan. Please go ahead.
Hey, Thanks, so much amazing results sorry.
This was already asked I got I had to jump off earlier, just on the record number of deals over $100 million I'm just curious how the pipeline is for such deals go.
Going forward is there an opportunity to replenish just what is the.
What do you see out there in terms of large deal potential from here.
Yeah, Hey, Tien tsin, we.
We still have a strong pipeline overall and that includes in the large deal category.
Okay. Good and then just on the 4 point inorganic contribution I heard that for next year, how about on the margin impact there I think Casey you mentioned that there'll be a little bit of impact on margin, you'll still be able to expand just wanting to make sure I heard that correctly. Thanks, yeah. So yeah, we wanted to.
So what I did say is that we do expect our inorganic contribution next year about 4% and we our line of sight now is about 4 billion of capital spend next year 'twenty, 2 but we expect more modest margin expansion to continue.
In 2010.
Okay very good I appreciate that guys.
Well Dan great.
Thank you Craig Kimpton, Okay in closing.
We really appreciate everyone joining us today.
We believe that we are unique because of both what we do and how we do it and we're a company that as I've shared before creates value and leads with values.
I want to thank all of our people and our leaders for what Youre doing every day.
And finally I want to thank all of our shareholders for your continued trust and support will make sure to earn it every day b well.
Okay.
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