Q2 2022 Accenture PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Accenture second quarter fiscal 2022 earnings.
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 MS. Angie Park, managing director head of Investor Relations. Please go ahead.
Thank you operator, and thanks, everyone for joining us today on our second quarter fiscal 2022 earnings announcement.
Operator, just mentioned I'm, Andrew Park, managing director head of Investor Relations on today's call you will hear from Julie Sweet, our chair and 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 update on our market positioning before KC provides our business outlook for the third quarter and full fiscal year 2022.
Then take your questions. Unfortunately provides a wrap up at the end of the call.
The matters, we'll discuss on this call, including our business outlook are forward looking and et cetera 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 at our annual report on Form 10-K , and quarterly reports on Form 10-Q , and other SEC filings these risks and.
Certainties that 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 for US Investor Relations section of our website at Accenture Dot com as always Accenture seems no obligation to update the informed.
<unk> presented on this conference call now, let me turn the call over to Julie.
Thank you Angie and thank you everyone for joining I would like to begin by honoring the incredible bravery of the Ukrainian people in the face of the unlawful invasion by Russia, and extending our deepest sympathy and concern over the horrific losses of life well. These words don't feel adequate to capture what is happening we are taking actions to help in the small ways, we can which I.
We'll share more about later in the call.
Turning now to the quarter I will start by thanking our almost 700000 people around the world for your incredible dedication and work to create 360 degree value for our clients and all our stakeholders. Thank.
Thank you to our clients, who are making bold moves to transform and putting their trust in us to help them. Finally, thank you to our technology ecosystem partners. We work with every day to innovate and create more value for our clients now.
Now a few highlights from the quarter, we had record bookings of almost $20 billion and continued approved improved pricing, which refers to contract profitability or margin on the work that we sell across the business with 36 clients with bookings over $100 million.
We had record revenue growth of 28% in local currency, bringing total revenue added through H, one to $6 $2 billion, which is what we added in all of FY 'twenty one.
And our EPS grew 25% year over year with flat operating margin and continued significant investment in our business and our people.
Our workforce grew by 24000 people demonstrating again, our ability to attract top talent at the scale needed by our clients.
We were the top scoring company on the Bloomberg gender equality index out of more than 400 organizations globally. We were recognized in Egypt spheres world's most ethical companies for the 15th year in a row and by just capital for the sixth consecutive year.
Our people completed another $9 2 million training hours this quarter, and we continued to gain market share growing more than three times the market.
With such an exceptional quarter I would like to particularly recognize and thank the incredibly strong delivery teams that underlie. These results our clients know that our commitments are backed by the outstanding work. Our people do every day working side by side with them from shaping the future to building the best systems and platform.
Arms to creating amazing new experiences and brand to running critical functions for our clients and everything in between.
Before handing over to Casey.
Let me pause to reflect on the current macro environment.
It was almost exactly two years ago that we did earnings only eight days after the pandemic was declared.
Then as now the world faced incredible uncertainty.
We are all watching the events unfold in Ukraine, and there are many potential scenarios, which are difficult to predict.
While the circumstances are very different our focus is the same on the wellbeing of our people.
Serving our clients and staying close to their evolving needs and helping our communities.
We emerged from the pandemic, even stronger and more relevant company and we will use this strength to successfully navigate this environment and fulfill these same three goals over to you KC.
Thank you Julie and thanks to all of you for taking the time to join US on today's call we.
We were extremely pleased with our overall results in the second quarter, which exceeded our expectations with record new bookings of almost $20 billion.
$2 8 billion higher than our previous record set last quarter.
Our results reflect very strong double digit revenue growth across all dimensions of our business, which reinforced the relevance of our offerings and capabilities in the market to deliver value for our clients.
We had a very strong Q2 and first half of the year.
While we know the environment is uncertain given the ongoing conflict in Ukraine.
We always call it as we see it and based on the best information. We have today, we are increasing key elements of our full year guidance.
Which I will cover in more detail later in our call now.
Now let me begin by summarizing a few of the highlights for the quarter.
Revenues grew 28% local currency, increasing $3 billion over Q2 last year and nearly $300 million above the top end of our guided range.
Driven by broad based over delivery across all markets services and industries with all 13 industries growing double digits. We also continued to extend our leadership position with growth estimated to be more than three times, the market, which refers to our basket of publicly traded companies.
We delivered EPS in the quarter of $2.54, reflecting 25% growth over adjusted EPS last year and operating margin of $13. Seven was consistent with Q2 of last year and 10 basis points expansion year to date reflects continued significant investments in our pea.
People in our business.
Finally, we delivered free cash flow of $2 billion and returned $2 3 billion to shareholders through repurchases and dividends.
We have made investments of $1 8 billion in acquisitions, primarily attributed to 21 transactions in the first half of the year.
And we continue to expect to invest approximately $4 billion in acquisitions this fiscal year.
With that let me turn to some of the details.
New bookings were a record at $19 6 billion for the quarter representing growth of 22% in USD over very strong Q2 last year with an overall book to Bill of one three.
Consulting bookings were $10 9 billion a record high with a book to Bill of one three.
Outsourcing bookings were also a record at $8 7 billion with a book to Bill of one three.
We were very pleased with our new bookings, which were driven by both technology services and strategy and consulting as well as 36 clients with bookings over $100 million.
Turning now to revenues.
Revenues for the quarter were $15 billion or 24% increase in U S dollars and 28% in local currency.
Consulting revenues for the quarter or $8 3 billion up 29% in U S dollars and 34% in local currency.
Outsourcing revenues were $6 7 billion up 19% in U S dollars and 23% in local currency.
Taking a closer look at our service dimensions strategy and consulting technology services and operations all grew very strong double digits.
Turning to our geographic markets in North America revenue growth was 26% in local currency driven by double digit growth in software platforms consumer goods retail and services travel services and public service.
In Europe revenues grew 31% local currency led by double digit growth in consumer goods retail and travel services industrial and banking and capital markets.
Looking closer at the countries Europe was driven by double digit growth in the U K.
Germany, France and Italy.
In growth markets, we delivered 30% revenue growth in local currency driven by double digit growth in consumer goods retail and travel services banking and capital markets and public service.
From a country perspective growth markets was led by double digit growth in Japan, Australia and Brazil.
Moving down the income statement gross margin for the quarter was 31% compared with 29, 7% for the same period last year.
Sales and marketing expense for the quarter was nine 4% consistent with the second quarter last year.
General and administrative expense was 7% compared to six 6% for the same quarter last year.
Operating income was $2 $1 billion in the second quarter, reflecting a 13, 7% operating margin consistent with Q2 last year.
Before I continue as a reminder, we recognized an investment gain in Q2 last year, which impacted our tax rate and increased EPS by <unk> 21 says that.
The following comparisons exclude this impact and reflect adjusted results.
Our effective tax rate for the quarter was 19, 2% compared with an adjusted effective tax rate of 17, 5% for the second quarter last year.
Diluted earnings per share or $2 54 comp.
Compared with an adjusted diluted EPS of $2.03 in the second quarter last year.
Days service outstanding were 41 days compared to 42 days last quarter and 34 days in the second quarter of last year.
Free cash flow for the quarter was $2 billion, resulting from cash generated by operating activities of $2 2 billion net of property and equipment additions of $165 million or.
Our cash balance at February 28 was $5 5 billion compared with $8 2 billion at August 31.
With regards to our ongoing objective to return cash to shareholders.
In the second quarter, we repurchased or redeemed $4 6 million shares for $1 $7 billion and an average price of $369 19 per share as of February 28, we had approximately $4 6 billion of share repurchase authority remaining.
Also in February we paid a quarterly cash dividend of 97 per share for a total of $617 million.
This represents a 10% increase over last year.
And our board of directors declared a quarterly cash dividend of 97 cents per share to be paid on may 13th.
10% increase over last year.
So at the halfway point of fiscal 'twenty, two we have delivered very strong results.
Now, let me turn it back to Julie.
Thank you Casey let's.
Let's begin with the demand environment, we're experiencing double digit growth in all parts of our business across all markets industries and services all our growth priorities applied intelligence cloud industry ex intelligent operations intelligent platform services interactive security and transformational change management all are growing double digits.
Many of our clients are taking on bold transformation programs, often spanning multiple parts of the enterprise and an accelerated timeframe, which we call compressed transformation as they recognize the need to transform every part of their enterprise with technology data and AI and new ways of working.
What is also clear is that the sheer speed at which an enterprise now needs to move and the breadth of the expertise required to transform demands partnerships.
For example, our wide range of managed services from intelligent operations to application development and maintenance to cloud infrastructure and security our strategic capabilities that enable our clients to digitize faster <unk>.
Access hard to hire talent.
<unk> transformed more quickly due to our deep expertise and achieve the outcomes from greater efficiency to improved customer satisfaction to enhance security to faster development to higher growth.
Our managed services are unique because they combine our strong strategy in consulting capabilities to anticipate and shape, the future and be at the cutting edge of industry function and technology.
We also see our clients looking for partners, who can create 360 degree value upskilling their people focusing on enhancing diversity and building in sustainability, which is our focus.
Stepping back when you think about the extraordinary growth, we are experiencing and how we navigated the pandemic, we believe our commitment to create 360 degree value for all our stakeholders.
And our unmatched diversity of people services industries functions markets' ecosystem partners and investments together with our leadership in technology have made us both are relevant to the world's largest companies and resilient.
I will now bring to life, how we are partnering with our clients with a snapshot of the range of solutions, we are bringing across industries and across the enterprise.
Let's start with enterprise functions.
In chemicals and natural resources, we are expanding our relationship with a leading chemical manufacturer to carve out one of their business units, serving the automotive industry to better focus on sustainable solutions as part of this carve out we will build the backbone of this new entity with a cloud based infrastructure ERP platforms.
In intelligent operations managed services for technology, HR and finance all in just over one year. This compressed transformation will create new value reduce operating costs by up to 30% enhanced portfolio flexibility and enable future growth in new areas.
In consumer goods and services, we are working with a large multinational personal care corporation to build an integrated digital core with standardized processes.
Enterprise platforms and instant access to consolidated data in the cloud, which will enable a more efficient and flexible supply chain and digital order processing.
This will provide more time to sell reduce human error create a better customer experience and deliver a stronger bottom line.
We will also streamline financial operations, leading to greater agility and cost benefits to remain competitive in any environment and delight their consumers.
Now I will turn to our solutions, helping transform the core operations of our clients.
And high Tech, we are supporting Airbus, a leading aircraft manufacturer in several areas of their business, including digital design manufacturing and services.
With our acquisition of <unk>, we were also helping Airbus engineering and manufacturing teams to develop the new 800 850 F. At.
At the same time, we will also onboard and manage training for new frontline employees using a realistic digital twin pilot optimizing onboarding time and significantly reducing the learning curve of shop floor workers without disturbing production.
In banking and capital markets, we are helping BBVA, a global financial services firm synchronized and speed up its digital journey with the power of analytics AI and automation, we will create an intelligent data driven banking operation with greater agility and productivity lowering costs by up to 30%.
By leveraging our strategic managed services, improving their customer experience and becoming an integral part of their talent strategy to provide new growth opportunities upskilling and security opportunities.
This builds on our work with this digital leader that spans over 25 years, including international expansion capital market strategy and digital sales and services.
In health, we are helping Highmark health, a national blended health organization make health care more personalized and proactive to the power of technology and data by leveraging the cloud an operational hub will bridge business units consolidated enterprise data provide faster insights and personalize the customer experience.
<unk> with the flexibility to evolve as needs change by maximizing its key asset data Highmark health will seek faster time to market reduce our operational costs and increased innovation and most importantly, better health outcomes.
And we are helping clients accelerate their growth agenda in.
In consumer goods and services, we are collaborating with del Monte the iconic fresh in packaged food company to establish effective b to b to C and direct to consumer commerce platforms, we will transition and scale their existing platforms into a one commerce ecosystem to make it easier to create and launch new products.
Driving significant growth in their e-commerce revenue.
We are helping with clients to help shape and deliver on the significant emerging opportunity of the meta versus we've been an early innovator in this area backing going back a number of years investing in R&D, our people and our own meta versus one Accenture park, all of which positions us to help our clients accelerate their <unk> strategy.
<unk> and initiatives.
In communications and media, we are hoping Telstra, Australia's leading telecommunications company to deploy five G connectivity and technology to deliver immersive fan experiences at Melbourne Marvel Stadium from.
From booking at sea to parking to engaging with the match fans will soon be able to experience a new augmented reality stadium experience before during and after they attend the game.
And if you missed the released yesterday, please be sure to read our new technology vision, which is titled meet me in the meta versus and is available on our website.
And we are building the digital cores of our clients from re platforming and cloud to building core systems as described in many of the examples above to helping them secure their enterprise as a security land escape widens.
In life Sciences, we are working with Merck, a global pharmaceutical leader to create robust intangible value across the oriented organization, which will help enable growth and accelerate the development of life changing therapies for patients around the world, We will develop a more flexible and responsive it infrastructure in.
The cloud leveraging data and analytics and product centric methodologies to power innovation insight and speed.
At the same time, we are cultivating talent through our new operating model that drives upskilling diversity and development.
Also in life Sciences, we are expanding our partnership with an international drug wholesale company, which advances development and delivery of health care products, including life saving cancer treatments in Kobe vaccines around the world to support their suite of cyber security towers by creating an integrated delivery model to increase.
Zillionths accountability collaboration and feedback across monitoring engineering data protection risk and compliance and identity, while also reducing costs.
And we are helping our clients but.
I'm sorry, the call dropped.
Okay.
As a culture up garbage Hugo hi, sorry about that everyone.
I just want to make sure to confirm that we're good.
Sure.
Apologies if you can hear me, we heard the call apparently dropped for good. Okay. So let's go back to we're helping our clients put sustainability in their core we are helping a leading steel and mining company moved to low carbon steelmaking and employed de carbonization technologies as an end to end partner.
Supporting the company's ambitious Decarbonization program, we will help standardize and implement the technical solution among its sites.
I would now like to briefly comment and how Accenture as a company and our people.
Have mobilized to support our Ukrainian colleagues and provide humanitarian aid.
When people ask me what makes Accenture special our actions like these are would come to mind well.
While we do not have operations, our people who work in the Ukraine, we have many Ukrainians who work for us, particularly in Poland.
For their extended families who are in Ukraine, we quickly put in place Ukrainian language telehealth and other remote support services.
And for those family members, who are leaving the Ukraine, we are providing these settlement assistance.
I also I'm proud of our people who have volunteered to drive refugees from the border to help get them settled.
With a decade of experience, helping refugees, we knew that not for profit organizations operating in Ukraine, and the border countries, providing humanitarian relief would have an initial immediate need for cash. We're currently donating $5 million in cash should these organizations. In addition, our people have donated nearly one.
$5 million in our employee giving program and we are providing 100% match funding.
Our people also have sprung into action to anticipate the next needs of refugees in Poland. We are piloting the first edition of an Accenture Academy for women refugees from Ukraine to build their technology skills, starting in cyber security.
Finally, as we've shared we are discontinuing our business in Russia, we are working to support our nearly 2300 employees there and we want to thank them for their dedication and commitment to accenture over the years back to you Casey.
Thanks, Julie before I get into our business outlook I would like to provide some context as events are rapidly evolving and there is significant amount of uncertainty our third quarter and full year guidance does not include any assumption for a significant escalation or expansion of economic disruption or the car.
<unk> current scope now.
Now, let me turn to our business outlook.
For the third quarter of fiscal 'twenty, two we expect revenues to be in the range of $15 seven to $16, one 5 billion.
This assumes the impact of FX will be about negative four compared to the third quarter of fiscal 'twenty, one and reflects an estimated 22% to 26% growth in local currency.
For the full fiscal year 'twenty two 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 negative 3% compared to fiscal 'twenty one.
For the full fiscal 'twenty two we now expect our revenues to be in the range of 24% to 26% growth in local currency over fiscal 'twenty, one which continues to assume an inorganic contribution of about 5%.
For operating margin, we now expect fiscal year 'twenty two to be 15, 2%, a 10 basis point expansion over fiscal 'twenty one results.
We continue to expect our annual effective tax rate to be in the range of 23% to 25%. This compares to an adjusted effective tax rate of 23, 1% in fiscal 'twenty one.
For earnings per share, we now expect our full year diluted EPS for fiscal 'twenty two to be in the range of $10 61 to $10 81.
Our 21% to 23% growth over adjusted fiscal 'twenty one results.
For the full fiscal 'twenty two we now expect operating cash flow to be in the range of $8 seven to $9 2 billion property and equipment additions to be approximately $700 million and free cash flow to be in the range of 8 billion to $8 5 billion, our free cash flow guidance continues to reflect a very strong.
Free cash flow to net income ratio of one one to one point too.
Finally, we now expect to return at least $6 5 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, Casey it like asset each keep to one question and a follow up to allow as many participants as possible to ask questions. Operator would you provide instructions for those on the call.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
You may withdraw your question at any time by repeating the one zero command.
Our first question comes from the lineup Lisa Ellis with Moffett Nathanson. Please go ahead.
Hey, good morning, guys and they're good stuff here and yes that Julien we can hear you the whole time I don't think the call dropped.
Hi.
I'll go a little bit about giving you guys are very global and very much on the front lines with major corporations.
What impact or changes are you seeing.
Companies start to make with the work they're doing with Accenture in response to the macroeconomic environment, meaning to deal with inflation or supply chain challenges or sanction enforcement or anything like that what are some of these.
Are you already seeing starting to see some conversations going from some shifts or interest in doing different types of programs with you. Thank you.
Thanks Lisa.
Great question is where we're targeting our clients all the time and I guess, let me just start with.
I think the experience of the pandemic has just built in more of a sense of resilience and agility and so we're seeing really a lot of what I call calm in response to the macro environment. I mean, the reality is that it's very early and while there are lots of like.
<unk> around what could happen with inflation, what could happen with supply chain.
People are not overreacting and instead, what I'd say is they are remaining very focused on the priorities. They had before the crisis because as you talk about inflation is already a reality right and we're already living Madden so for inflation, depending on the industry like for example, consumer goods there has been a.
A lot of focus on growth and cost right with cost being even higher up because youre seeing that you can't push through all of the and price increases all of the increases in inputs of course as you think about the potential scenarios around like disruption of agriculture and so on.
We could see that potentially going higher but it's too early to tell and instead companies are saying look we've got to make sure that we're on pace and we're executing on.
At the same as I think about energy prices our supply chain is if anything there's just been an increased focus on we need to think as much about resilience right as cost in supply chain and we absolutely have to digitize. So we've got more insight and so I think the trends there.
We were already seeing to address things coming out of the pandemic the changing economic environment around inflation are simply being focused on even more and this premium on are we building an agility and are we going at the right pace you know that's really the nature of the car.
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Got it okay. Okay, and then maybe my follow up Casey for you I'll ask the inevitable.
Margin question. It looked like I know Julie you made a comment about contract pricing being up it looks like gross margins are up.
But SG&A also was up a bit and then you're coming in at the lower end of your margin expectation can you just talk a little bit about the drivers there what's going on.
And the underlying cost base. Thank you.
Yes sure. Thanks, Lisa So let me first start with we were really pleased with our performance in operating margin. So we've expanded 10 basis points for the first half of the year and were flat in the second quarter.
And really that was driven by revenue growth as we mentioned with that had improved pricing on our record bookings. So very pleased with profit. This quarter included the 25% growth that we delivered in EPS and so that's you know maybe just peel that back a bit so.
We're in a hyper growth environment, where we're hiring at elevated levels to meet this demand. So at the same time as you know we're navigating wage inflation.
So Lisa we remained very focused on pricing.
It's going to take some time for the improved pricing, which lives compensation to flow through our P&L, but we did see some impact of that in this in this second quarter result, but I think probably more importantly, it's really.
Ah.
Very important that we significantly invest in our people and our business and we're doing so at even higher levels than last year. So we're all we're absorbing that also in our up margin as well as the step up that we've talked about in our acquisition spend so just in summary, we're halfway through the year were 10 basis points of margin expansion, we think will continue that lead.
We'll have margin expansion in the back half of the year.
Really pleased with that and that would mean, an EPS growth, which is stellar at 21% to 23% growth for the year.
Thank you thank you and congrats again thanks.
Thank you. Our next question comes from the line of Brian Queen with Deutsche Bank. Please go ahead.
Hi, guys. Congratulations on these great results are.
Two questions I guess, the first one is given the disruption to some of the digital engineering ICU service firms in Asia, and Europe is since Youre seeing additional demand from clients looking to other vendors.
Thanks, Brian .
Really too early to see that we were seeing clients staying very focused on you know their business and what we're doing with them.
Got it and the other thing that jumped out at me is the.
The three X growth rate versus the market.
I think typically accenture has been more of a two X.
In recent years. So can you just talk to us about why the expansion and share gains that's happened over just recently here.
Yes, Thanks, Brian .
It's a it's really I think a combination of things right, but let's just always start with our clients.
Pre pandemic, what we saw where clients much more into yeah. They did transformation quite sequentially. The pandemic was a major shock you saw the leaders who are kind of came into that saying we've got to go even faster and you saw a bunch of companies, saying, we need to leapfrog right, we need to move online we do digital.
Formation and that meant that we saw companies starting to take on not sequential transformation, but we we called compress transformation, where they're at the same time doing manufacturing as well as sales and you saw that in some of the examples that I gave today, where you've got.
Not entirely new backbones being created across multiple enterprise functions, where you've got both new platforms being put into place and manufacturing and theyre doing that and we're in order to lead because of what they see in the business and when you think about we know who is able to help navigate because you don't do that kind of track.
Inspiration with like a different partner for every transformation right Accenture is very distinctive in our industry. Because we are able to transform every part of the enterprise and that's one of the things I was trying to emphasize that we can do we're going to finance and HR right. We've got the growth agenda sales marketing and <unk>.
<unk>, we've been investing for a decade in industry X, which is really taking off we've talked about the digital frontier and so you have in Accenture a partner that can do that and you see that over the course of the last two years in the record numbers compared to pre pandemic of clients with.
Over 100 million in bookings and it's really.
It's recognizing it's representing that level of demand and were quite unique like we've talked about this for years right all of our different services, our deep industry knowledge and when you're moving fast you need a partner that really can span the enterprise and has that deep non.
<unk> of the industry and that is of course driving the growth rate because we're capturing the momentum.
In every part of the enterprise that's happening now.
Great. Thank you.
Thank you. Our next question comes from the line of Tien Tsin Huang.
With J P. Morgan. Please go ahead.
Yeah.
Okay. Thank you so much great results here just wanted to clarify your assumptions on though.
On the really strong outlook can we assume that your approach towards guidance is similar to the approach you took at the onset of the pandemic and are you assuming any slowdown in Europe in your guide I know there's a lot of question you were giving on a macro within Europe . So.
That's good to hear.
Yeah. So thanks Tien tsin. So let me just cover what we're assuming in our in.
In our guidance, so maybe I'll first start with.
Our guidance does take into account the revenue impact of discontinuing our business in Russia, and the cost to wind that down.
Now with respect to the broader risk our guidance, we're calling it like we see attendance. So the same way that we did we always do we did it during the pandemic and today, we don't see a significant disruption in our business.
No. It's still very early and it's difficult to predict so our guidance does not take into account any significant escalation.
Or expansion of economic disruption or the conflicts current scope now as it pertains to to Europe .
We're not seeing a significant disruption in our business.
Europe , you've seen that reflected as well in a very strong bookings and revenue growth.
And for the back half of the year, our guidance continues to assume a very strong double digit growth including in Europe .
Okay.
Oh, great well could trust your Chris your outlook I, just wanted to make sure I understood.
The approach here just my quick follow up just the 36 clients over $100 million pick number.
I'm just curious if the pipeline for larger deals.
Does that look from here your ability to replenish and we're.
We're in March now, but just curious what youre thinking on larger deals here.
Thanks.
So I'll comment on the pipeline Tien tsin.
We only want to add anything else, but we continue to feel good about our pipeline, even with another quarter of record bookings.
Just completed we were very pleased with our bookings obviously in Q2 and for the first half of the year.
But you know bookings can be lumpy from quarter to quarter. So you know we focus on the trailing 12 months book to Bill as I know many of you do too, but we overall still feel really good about our pipeline.
Yeah, and Tien tsin, the only window when I add maybe back to your last question is.
We are doing exactly what we did at the pandemic, which is we're calling it like we see it right. So we'll update every quarter and you know.
We've got we're really close to the clients or eight and as we said at the beginning it is too early so were not trying to build in be overly conservative or overly optimistic like we really just call. It down the fairway and next quarter, we'll update and we'll go from there.
Okay.
I understand the approach I appreciate it guys. Thank you.
Thanks.
Thank you. Our next question comes from the line of Jason Jason Kupferberg with Bank of America. Please go ahead.
Great guys just wanted to ask about the bookings obviously extremely strong here on I was just curious on the consulting and outsourcing side.
How much above your internal expectations did they come in and how should we think about book to bill in the back half of the year I know year to date, it's a nicely elevated at one two times. So should we just expect some normalization there in the in the back half.
Yeah, Hey, Jason I would say that our bookings a record bookings did come in higher than we expected that was a broad based over delivery across all markets, all services and industries as well as consulting and outsourcing type of work and again, we look at an overall book to Bill as I just mentioned to Bryan.
Trailing 12, 12 months of either three or four quarters of time. So we feel good about where we are in and our positioning and our pipeline and our bookings to date as we head into H two.
Okay, Alright, understood and then can.
Can you just remind us which countries within central and Eastern Europe , you have the most meaningful head count, obviously, excluding Russia, but I know you've mentioned Poland earlier, but just so we have a broader picture of the head count distribution in the region.
So our Poland and Romania would be the.
The sort of the two where we've got delivery centers, we don't have big local market, but.
Poland and Romania.
Thank you.
Okay.
Thank you. Our next question comes from the line of Keith Bachman with Bank of Montreal. Please go ahead.
Hi, many thanks, Julia I wanted to direct this to you and the nature of the question is I wanted to get your view.
About the durability of double digit growth.
Not focused on this year. So our model goes back to 2006 torque sensors, so to 2006 to 2021 Accenture.
Accenture grew on average by about eight points, which include some M&A.
Half of those years, where we're in the double digit range half or not.
And so just trying to think and I think investors are really focused on phenomenal year that you're in.
Having this year.
So a very difficult compare including five points of M&A and B.
A lot of companies, including my firm came out of Covid and said, we need to do a lot of things differently. So stressing all tried to fix our it infrastructure.
And you know may have created some pull in because things were going to do over the next five years. Many firms are doing over the next one year. So I wanted to get you with that as a context, how do you see as you look out through 2023 and beyond how do you view accenture abilities of sustained double digit growth.
Okay, well, if I went to the thanks I love that you look at it over a long term because that's how we do and so the way we think about growth isn't about is a double digit or not right. We've had a very enduring and I think it's served us well.
Belief that we should be growing.
More than the market rate and and so that is what we focus on is that we're always continuing to take market share and that you know is an enduring commitment that we sort of that we anchor to now the way. We do that is that we stay very close to clients. So that we know not only.
What they need today, but also we can anticipate what they need tomorrow right and that's really important. So yesterday for example, we talked about the meta versus continuum, where we have been investing for a decade. He thinks the meta versus and web three is as significant as when.
2013, we called that every business would be a digital business and that will be a huge transformation over the next decade that will also be part of sort of next waves of growth at the same time, it's really important to look at where we are now which is still extraordinary early in the digital transformation.
<unk> of every part of the enterprise, where we estimate for example that only about 30% of workloads have been have moved to the cloud and once you get to the cloud. That's when you actually use those technologies to grow and innovate and you saw that in some of the examples that we gave today, where you're having the cloud piece, but then.
And you're figuring out how to use the data and the AI to really transform.
When you look at re platforming on the leading SaaS platform. Similarly, extraordinarily early so everyone feels right. The big focus on digital because that was the wake up call from the pandemic, but the actual transformation and just putting in the foundation is still very early stages and then it's.
What you do on that Foundation, then if you look at from a technology development point of view, let's take manufacturing and supply chain. Many of the technologies have really that our advance have only been.
<unk> introduced in the last couple of years right. The advanced cloud based technologies and so technology itself, but there is still new functionality that doesn't even exist in some of the major platforms that still being created and so we consider the manufacturing and supply chain is the next digital frontier and of course.
That was a big play for us, which we've been doing for the last decade, because it's a move from IC to O T. As you think about the budgets that were accessing right and so overall like as much as we feel you know.
There's so much going on you still have many many companies who have not started the compressed transformation you're very early in the platforming of what's today, let alone. The next things that we can already see like web three.
Okay.
Well. Thank you Casey I'll make mine my follow up a bit more poignant.
Question, just wanted to try to understand.
The operating margin comments that you made before.
And specifically our wage is wage inflation impacting that negatively.
Influencing.
Some of the comments you made about potential for operating margin expansion this year.
Yes, so evident so in terms of wage inflation I will.
It was really pretty similar Keith to what we discussed last quarter. So maybe just kind of just kind of go back through that again. So obviously, it's occurring in all the industries and it's across the globe.
Our clients are also obviously experienced this as well in this very tight labor market, but for us as it relates to wage inflation, we see for our business that we're going to continue to have wage increases in the market for certain skills and that's going to continue to vary by geography.
And we're also looking at.
How the consumer price index, and any increases there and how that might potentially spillover into inflation.
At the lower end of our pyramid, and so were focusing on pricing to absorb our higher labor costs and again as it relates to pricing what we're seeing is that.
It's going to take some time keys for the improved pricing, which we did have in the second quarter at again on a record bookings.
You'll see that flow through to see that flow through our P&L, we did see some of that impact.
In the second quarter.
But that always obviously lags the impact of compensation increases.
And they're not just going to add.
And I just wanted to know that I'm very happy with where we are in profitability. I mean, if you think about what we are navigating right hyper growth has increased costs from all the recruiting we did a big step up in acquisitions last year were absorbing that dilution. This year right we've increased significantly the.
Investments in our business, which are all about driving growth today, but also tomorrow right.
We're in an unprecedented.
Labor market with wage inflation, which we are absorbing and still delivering at you know 10 10 basis points of operating margin expansion. So I feel really good about where we are as a company. Both for this year and all the things that we're doing to position ourselves to continue to grow.
And market leading ways.
Okay. Many thanks.
Thank you Kate.
Thank you. Our next question comes from Ashwin <unk> with Citi. Please go ahead.
Thank you Casey good morning, and congratulations on the quarter and outlook.
<unk>.
I wanted to start with the M&A question a.
I believe there was no M&A since the last earnings perhaps I missed this smaller deal or two.
Is that just cork of timing.
Is it that you just recently did larger deals and integrating them like there'd be other factors.
Hey.
Oh Beth.
Maybe I'll just take it back so that you can do it yes.
Ashwin, we're about halfway through the year and we did have a lot of acquisitions closed in Q1, we you're right. We did have less close in Q2.
But you know the acquisition closing that can be lumpy, we can't always control the timing. So we've deployed $1 8 billion of acquisition spend year to date, we continue to expect about $4 billion.
Of acquisition spend in FY 'twenty, two but of course, we're only going to do deals that makes sense and so it could be plus or minus 4 billion and now we will update you next quarter, but let me.
And I did say I wish we could manage it sort of like say, we're going to do this many and then we're gonna absorbed but it really is just about timing goes up and down and also we have a lot of rigor and discipline, where are we going to do deals that we believe it right. So we're not trying to manage in any way to a quarter. We've got a capital allocation. If we can do that.
With great deals, we're going to do it and so that's kind of that's the approach I will take the opportunity just to say you know one of the ones. We did announce we did close to this quarter, but one of the ones, we announced I'm Super excited about which is a S. D Dot tech, which is in the network space 1600 people.
In France, and it's important because as you think about what's happening in Digitization are increasing move into really leading in network is is important and it's just another great example of how we use acquisitions to accelerate our strategic growth priorities. It's an important part of Accenture cloud first.
No doubt.
With that.
And I wanted to ask a broader question of this has and.
Unfortunately been asked in a few different ways, but I think you've captured rather New York takeoff sentence, but you mentioned the incredibly high level of uncertainty, but I believe that since.
Compressed transformation me started.
Well I believe the first major cast a secular trend versus cyclical uncertainty and I know you are calling out looked like and seek but is this time different can be strength of secular overcome cyclical challenges.
Let's be all roads to dealing with the types of things that may come out of this crisis other than perhaps the military scenarios right, whether it's more inflation the need for energy conservation due to higher energy energy pricing.
Is the disruption in supply chain agriculture.
All roads lead to some combination of technology and human ingenuity, right, which is what we bring together and so you know you've got great solutions like managed services to accelerate both cost take out and finding new ways to grow new ways to access markets.
Right, you've got energy efficiency, that's going to come from technology improvements.
And so.
As you think about what we do great where the company that's going to be able to help companies navigate these macro trends and so we really believe that the technology.
The importance of technology, and then being able to apply it to get tangible outcomes is going to be critical and so we believe will be resilient through this through whatever this is going to be as well.
Understood. Thank you for that.
Thank you. Our next question comes from the line of surrendered Bend with Jefferies. Please go ahead.
Thank you.
First question I would like to ask is just about talent.
We did acquire it more globally.
Obviously in the earlier announcement about the Princess ship program or the expansion of it in the U S.
Can you talk a little bit about <unk>.
As you build out the bottom base of the pyramid for delivery.
How does something like that impacts like bill rates or the clients willing to willingness to accept bill rates when you're using <unk>.
Individuals with non four year degrees and so forth.
I eat it.
Interesting question I would say that our clients really focus on skills. They don't focus on degrees.
And so what they're looking for are the skills and that's a broader trend in fact, we predicted that three years from now chief Human resources officers will all be talking about skills and it's part of this trend of you need to be not a consumer but a creator of talent understand skills, and then be able to reskill.
Fair enough.
In.
Does that also impacted your cost as well or are you able to employ them at AAD.
Our cost base I guess, how should I think about the arbitrage opportunity there.
Banks are willing to pay for that.
I I wouldn't think about the arbitrary opportunity, we pay market relevant pay and it's the focus on skills. Even if you look at our.
The way we draft R R.
Our recruiting thing it is about and skills and so.
You know there isn't something that because you've got a two year degree versus a four year degree now you're paid less its about its about skills. So theres a market price for these skills.
That's helpful.
If it is labor arbitrage.
Got it and then as a follow up question.
Just a big picture longer term question just about the delivery model.
Due to current geopolitical events, maybe change your perception of where you may want to operator expand too there has generally been the trend of last few years.
A much more global delivery. Obviously, you guys are very global but in terms of just trying to get as much talent in every country everywhere.
Ed.
Kind of changed the way that you might be thinking about delivery whether it's.
Being more concentrated in certain regions or areas, you're avoiding other regions and areas.
You know what I would say is since the time of the pandemic. When we had the global shock, where we continue to evolve our ability to move work and be flexible and so are our focus is really on that agility and making sure that we have the you know the right <unk>.
A talent.
Both geographically.
Geographically dispersed, but also the ability to move talent around.
Thank you.
Thank you our next question.
Operator, we have time for one more question and then Julie will wrap the call.
Thank you.
Our last question will come from the line of Brian Essex with Goldman Sachs. Please go ahead.
Great. Thank you for taking the question Echo my congratulations on the results for the quarter.
I guess I wanted to follow up to last to the last question, maybe a little different angle focused on the supply side. So.
I guess with that in mind Julia are you seeing.
Post pandemic era, or hopefully coming out of the pandemic.
Companies are used to operating in a in a hybrid world more agnostic to where work is performed.
Any any trends that you're overarching trends that you can call out either by skill level or by geography, where they might specifically.
I would love to focus it on how they're managing costs.
Are they looking to shift work to particular geographies do you see demand in particular geographies are there certain trends that you can call out with regard to the scaling of labor forces in particular geographies that are there are notable where you might see some cost benefit or.
Better ability to supply to meet demand.
Yes.
No I'm talking about talent, all the time with our clients and I'd say that slightly different than what your focus is that here the two big things, which are all around.
Around accessing talent. So in accessing talent means you have to be able to attract and retain it.
And you've got to be able to get it at scale. So the bigger focus is around what does it take to attract and retain in our hybrid work environment and so more companies are focused on where they did they used to want everybody in the office, having more of a hybrid model and that has knock on cost effects as you decrease your.
Real estate and so that's been a big focus but the actual the thing we talk to clients about is it's more about how do you attract people who today all of our research shows that if you're not having to be there in a frontline worker you want some combination and then that does have costs and so that's a huge focus.
<unk> around talent the second piece on access if you look at the way our managed services are being driven it is really two big things one is that.
It's faster to digitize because use our platforms and the second is the access to the hard to get talent right and so let's just take security. We have 10000 security professionals, who do everything from threat assessment to the rebuilding and designing platforms to managed services.
And in today's world with the security landscape broadening right that access to that kind of talent is incredible and so just you know the real focus is on access and what does it take to access it including through partnerships and those are the kinds of conversations that we have.
Got it that's super helpful and maybe just one quick follow up on resources.
What have you seen historically I know we've got you know we've got accelerating energy prices oil in particular, what have you seen historically with regard to follow on for alternative projects and greater investment in energy.
Energy sector in particular in response to prices you know how how high has it been correlated particularly on the discretionary side and maybe your experience in terms of how you're seeing fall through was spend in that sector.
Well listen I was just at Cera week, which is the world's largest energy conference for a couple of days just last week. So I spent a lot of time with everyone in the energy sector and I think rather than looking at it historically, let's look at it like what are people talking about now so first of all despite the increases in prices say in oil and gas.
Gas no one, saying Hey, now we got to let up on costs in fact, the exact opposite because the oil and gas industry. In fact, the entire energy industry has a major challenge ahead of investing to move to a sustainable energy solutions and so what I would say is that there is a absolutely laser focus on.
Continuing what that industry had to do during the pandemic because habit was sit in focus on cost and now accelerate innovation and moving to sustainable energy solutions and that's where we gave you. Examples today of how were helping and de Carbonization, We announced this week, what we're doing with equal patrol and AWS surround.
Water management right and so we're playing we're obviously very well situated we have a deep deep expertise in utilities and oil and gas in the entire energy sector in at their core.
Enterprise as well as you know in the grid at the refinery and then helping really create the sustainable solutions. We see this is a major opportunity.
For our clients that we want to help them on.
Great.
Great. Thank you very much I'm going to close the call now thanks, everyone for joining us and thank you again to our incredible people and to our shareholders for your continued.
Please make sure to join us for our virtual Investor and Analyst day on Thursday April 7th we're looking forward to being back together thanks, everyone.
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