Q3 2023 Accenture plc Earnings Call
Yes.
Thank you for standing by welcome to Accenture as a third quarter fiscal 2023 earnings call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question. Please press. One then zero on your Touchtone phone should you require assistance during the conference. Please press star Zero and an operator will assist you offline.
As a reminder, today's conference is being recorded I would now like turn the conference over to our host Katy O'connor managing director head of Investor Relations. Please go ahead.
Thank you operator, and thanks, everyone joining us today on our third quarter fiscal 2023 earnings announcement <unk>.
As the operator, just mentioned I'm Kimi O'connor 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 third quarter Julia.
I'll then provide a brief update on our marketing position and our market position before KC provides our business outlook for the fourth quarter and full fiscal year 2023. We will then take your questions before Julie provides a wrap up at the end of 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 the other.
Our SEC filings these risks and uncertainties could cause actual results to differ materially from those expressed in the call.
During our call today, we will reinforce 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 Dot 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.
Thank you Katie and thank you to everyone joining today and thank you to our people around the world for their dedication and commitment which is how we are able to consistently deliver 360 degree value for all our stakeholders our clients our people our shareholders our partners and our communities.
Turning to the quarter I'll start with the financials, while the macroeconomic environment.
It continues to be uncertain overall in Q3, we delivered solid revenue and sales with very strong profitability and very strong free cash flow, while continuing to significantly invest in our business now getting into the highlights we had bookings of $17 2 billion, including 26 clients with quarterly bookings greater than 100.
Bringing the total year to date to 85, which is 11 more than the same time last year, we delivered revenues of $16 6 billion, representing 5% growth with North America growing 2% Europe at 7% and growth markets at 9% all in local currency, bringing us to 48 1 billion.
Revenue at 10% growth fiscal year to date.
Revenues were impacted by lower than expected small deal cells, especially in strategy and consulting and systems integration and lower than expected results in the communications media and high Tech industry group for the quarter.
Excluding CMT, our business grew 8% globally, 7% in North America, 9% in Europe , and 10% in growth markets in local currency.
We expanded adjusted operating margin by 20 basis points grew adjusted EPS, 14% over last year and delivered free cash flow of $3 $1 billion and over the past 11 quarters, we have operated at 91% or higher utilization leveraging our digital enterprise to connect.
Our sales staffing hiring and skill needs to make proactive real time decisions we.
We are on track with the business optimization actions to lower costs in fiscal 'twenty, 'twenty, four and beyond while continuing to significantly invest in our business with five acquisitions in strategic areas. This quarter, bringing the total investment in acquisitions year to date to one 3 billion.
We invested in cloud data and AI with the acquisition of Nextera in North America objectivity in the U K and <unk> in Norway.
<unk> invested in sustainability with the acquisition of Green Domas in Brazil, and in modern ERP services with born digital in Australia.
We continued to take market share growing about two times the market.
Now turning to other aspects of the 360 degree value. We delivered this quarter, we continue to invest in learning for our people with 9 million training hours in the quarter, representing an average of 13 hours per person, giving them the skills to grow as our clients' needs a ball. We're incredibly pleased that we were recognized as a top 10 place to work in <unk>.
Seven countries, Argentina, Brazil, Chile, India, Mexico, the Philippines, and the U S. Collectively these countries represent nearly 70% of our people.
Vibrant communities are important for our business success and digital skilling helps ensure vibrant communities thrive in collaboration with L'oreal and our NGL partner Shambhu Foundation, we're supporting women in India to build digital literacy skills alongside the technical skills needed to access jobs in the beauty industry.
Together, we have collectively created sustainable livelihoods for 2500 women across 10 states in India, accelerating a quality delivering social impact in the community and continuing our commitment to them that diversity and inclusion in everything we do.
Finally, this year, we are proud to earn the number 22 position on brands. These prestigious top 100, most valuable global brands lift our highest shrink today.
Or do you Casey.
Thank you Julie and thanks to all of you for taking the time to join US on today's call. We are pleased with our third quarter results and we are on track to deliver or exceed all aspects of our guidance provided in September on an adjusted basis.
Now, let me summarize a few of the highlights for the quarter.
Revenues grew 5% local currency driven by high single or double digit growth in seven of our 13 industries, while we've been highlighting the pressures in our CMT industry group all year. This quarter. The revenue was lower than expected with a decline of 8% in local currency.
We delivered adjusted EPS in the quarter of $3.19, reflecting 14% growth over EPS last year adjusted.
Operating margin was 16, 3% an increase of 20 basis points over Q3 last year and includes continued significant investments in our people and our business.
Finally, we delivered free cash flow of $3 1 billion and returned $1 5 billion to shareholders through repurchases and dividends year to date, we've invested $1 3 billion in acquisitions, primarily attributed to 20 transactions with those high level comments, let me turn some of the details starting with new bookings.
New bookings were $17 2 billion for the quarter representing growth of growth of 4% in local currency with an overall book to bill of one data we.
We were very pleased with our 26 clients with quarterly bookings over $100 million.
Consulting bookings were $8 9 billion with a book to Bill of one <unk>.
Managed services were $8 3 billion with a book to Bill at 1.1.
Turning now to revenues revenues for the quarter were $16 6 billion, a 3% increase in U S dollars and 5% in local currency, reflecting a foreign exchange headwind of approximately two and a half per cent compared to the approximately 3.5% headwind provided in our business outlook last quarter.
So all the revenues for the quarter were $8 7 billion a decline of 4% in U S dollars and 1% local currency, we see the same level of consulting decline in Q4.
Managed services revenues were $7 9 billion up 10% in U S dollars and 13% in local currency.
Taking a closer look at our service dimensions technology services grew high single digits operations grew double digits, and we expect high single digit growth in Q4.
Strategy and consulting declined high single digits this quarter and we see declines continuing in Q4.
We regarding our market share we extended our leadership position with growth estimated to be about two times the market, which refers to our basket of publicly traded companies now as a reminder, we assess market growth against our investable basket, which is roughly two dozen of our closest global public company competitors, which represents.
A third of our addressable market, we use a consistent methodology to compare our financial results adjusted to exclude the impact of significant acquisitions.
Through the date of their last publicly available results.
Turning to our geographic markets in North America revenue growth was 2% in local currency driven by growth in public service for our U S Federal business health and utilities.
These increases were partially offset by declines in communications and media high Tech software and platforms and banking and capital markets.
In Europe revenue grew 7% local currency led by growth in banking and capital markets Industrial and public service revenue growth was driven by Italy, Germany and France.
And gross markets, we delivered 9% revenue growth in local currency driven by growth in public service Campbell chemicals, and natural resources and banking and capital markets.
Revenue growth was driven by Japan.
Moving down the income statement.
Margin for the quarter was 33, 4% compared with 32, 9% for the same period last year.
Sales and marketing expense for the quarter was 10, 5% compared to 10, 3% for the third quarter last year.
General and administrative expense was six 5% compared to six 5% for the same quarter last year.
Before I continue I want to note that in Q3, we recorded $347 million and costs associated with our business optimization actions, we announced last quarter, which decreased operating margin by 210 basis points and EPS by <unk> 42 cents. This quarter. We also recognized a gain in our <unk>.
<unk> and Duck Creek technologies, which impacted our tax rate and increased EPS by 38 cents.
The following comparisons exclude these impacts and reflect adjusted results.
Adjusted operating income was $2 7 billion in the third quarter and adjusted 16, 3% operating margin an increase of 20 basis points from operating margin in the third quarter of last year.
Our adjusted effective tax rate for the quarter was 24% compared with an effective tax rate of 27, 1% for the third quarter last year.
Adjusted Diluting earnings per share were $3 19, compared with diluted EPS of $2.79 in the third quarter last year.
Days service outstanding were 42 days compared to 42 days last quarter and 44 days in the third quarter of last year.
Free cash flow for the quarter was $3 1 billion, resulting from cash generated by operating activities of $3 3 billion net of property and equipment additions of $142 million.
Our cash balance at May 31 was $8 5 billion compared with 7.9 billion at August 31st with regards to our ongoing objective to return cash to shareholders in the third quarter, we repurchased or redeemed two 8 million shares for $789 million at an average price of $279 65 per share as of May 30 <unk>.
First we had approximately $3 5 billion of share repurchase authority remaining.
Also in May we paid a quarterly cash dividend of $1 12 per share for a total of 708 million. This represents a 15% increase over last year.
And our board of directors declared a quarterly cash dividend of $1 12 per share to be paid on August 15th a 15% increase over last year.
So in closing we remain committed to delivering on our long standing financial objectives growing faster than the market and taking share.
Generating modest margin expansion and stronger earnings while at the same time investing at scale for long term market leadership.
Generating strong free cash flow and returning cash to shareholders now.
Now, let me turn it back to Joel Thank you Casey.
As we look at demand in our larger deals we continue to see two common themes that I've highlighted before first the rapid rise of generative AI interest among our clients highlights yet again that all strategies lead to technology, particularly cloud data AI and security and second companies remain focused on.
Total enterprise reinvention as they execute compress transformations to achieve lower costs stronger growth more agility and greater resilience faster.
Now, let me give you more color on the quarter to bring this to life.
Starting with the digital core our cloud momentum continues with very strong double digit growth in Q3 as clients prioritize building a strong and secure foundation for reinvention, we had been working with Eni a global energy company for more than 30 years now, we're helping them as they continue their hybrid cloud transformation and embark on a total.
Enterprise reinvention strategy with a focus on sustainability digital transformation and security, we are managing their it infrastructure and telecommunications integration and helping implement new operating models all hosted in the Eni Green data center, one of the largest state of bunkers in the industry to securely hold the company's data.
The Eni Green datacenter houses one of the most powerful non-governmental supercomputers supercomputers in the world, enabling the highest use of data across the value chain from exploration and production to the energy of the future New operating models will help exploit the full value of data AI and cyber security for faster adoption of.
New business processes. This transformation as a first step towards creating a secured digital core that will accelerate eni's energy transition drove innovation in AI in R&D and build even greater resilience clients, who are also working with us to do multi faceted compressed transformation that utilize all of our.
Deep industry and functional expertise and our SMC services, along with our outstanding Technology services, we're helping Dupont, a global multi and dessert industrial specialty products company.
With a compressed transformation to standardize our finance processes and achieve operational excellence building on our trusted relationship of over 35 years. We are now supporting our client with its strategic pivot to innovation based growth across electronics sustainable water and protection solutions industrial technologies and next generation automotive.
We have been supporting their transformation to an agile cloud based infrastructure to maximize data access drive efficiency and modernize their it landscape. Our work with Dupont is focused on achieving greater resilience, reducing costs and increasing revenue growth and shaping its portfolio through M&A with industry.
Leaning innovation for long term success.
With companies expanding their digital footprint and cyber risk widening security continues to rise in importance as a fundamental part of the digital core with very strong double digit growth. In Q3, we are working with a food and beverage company to strengthen their cyber security and prevent vulnerabilities along the supply chain building on previous operations.
Transformation work, we are now providing managed security services, which will cover perimeter security detection and response as well as threat intelligence and monitoring dark web activities. We also will provide day to day identity data and privacy management, helping provide a holistic security approach for our client.
We are helping a global universal bank future proof their cryptographic landscape and corp, corresponding risks for over 1000 applications procedures and data.
<unk> on the on the analysis, we will develop and implement an end to end mitigation strategy, including evaluation of solution vendor strategies mitigation principals as well as changed management procedures. We will also design and implement post quantum message you architectural blueprints, which will help scale the solution all to help the bank.
[noise] achieved post quantum computing readiness.
Our managed services continued to grow double digits in Q3, demonstrating the relevance of our approach to run digitize and transform our clients' operations.
We are providing a global health care and insurance company with managed services to help run its complex claims in membership processes as part of our long standing relationship with the company, we will improve the efficiency and quality of these tasks and simplify the customer journey, ensuring members can easily access the support they need when they need it its employees will now have more.
More time to focus on boosting customer satisfaction by better serving its millions of customers around the world a new cost solution has also been introduced to determine fair and accurate pricing for the company when purchasing services and products from vendors to reduce costs across the business.
We recently worked with a major media brands to launch a streaming platform that will help attract new subscribers expanding their content portfolio and power targeted broadcasting and advertising offerings.
All while lowering costs, we helped engineer aspects of the new platform from the content supply chain to the player experience ensuring that customers have a seamless viewing experience across all devices and platforms and enabling the company to use data insights to continually enhance its platform. We delivered the program as part of a managed services arrangement.
Demonstrating the industry and engineering innovation, we help to bring to help clients reinvent their business with cloud data and AI.
As clients continue to re imagine and prioritize customer experience song experienced strong double digit growth again in Q3, we are partnering with Virgin media owe to a British media and telecom can easily telecommunications company to re imagine their customer experience Accenture song will design, a new more predictive and personal.
<unk> customer journey enabled by an AI powered cloud based digital core customer.
Customer care journeys will be omnichannel, combining customer calls chat and instant messaging to increase first time resolution and upselling, leading to greater customer satisfaction. We also will deploy our managed services capabilities to support contact center activity using AI to provide timely agent assistance and route calls intelligently to drive.
Precision and reduce call volume our work will help build brand loyalty supporting Virgin media owe tooth mission to be a more customer first business.
We see continued demand for our industry X capabilities, which grew strong double digits.
We are working with one of the world's leading consumer products companies and a transformation of its manufacturing practices to achieve energy savings. We are developing developing a comprehensive program to collect and analyze energy consumption data from their production plans and use data driven analytics to identify energy savings and greenhouse gas reduction opt.
<unk>, we are also helping to track energy efficiency gains and deliver value through operational improvements in the manufacturing process.
As clients progressing their total enterprise reinvention journeys talent that the boyfriend.
We are working with an international consumer goods and services provider in the European market on a digital transformation of its core human resources organization and talent acquisition processes, We will design and implement an approach that includes program management process design training and development and additional services together, we will create greater.
<unk> sees in the human resources function, leading to a data driven culture focused on better employee experiences.
Now stepping back our strategy is to be at the center of our clients' business and help them continuously reinvent themselves to reach new levels of performance and to set themselves apart as leaders in their industries.
And our clients are at different starting points.
All are interested in AI, and particularly generative that but most recognize the work ahead of them to get their data people and processes ready for AI.
To reinvent requires a strong modern digital core and as they embark on this journey clients are looking to us for unmatched global scale deep industry and functional knowledge breadth of services from strategy and consulting to technology to managed services.
With that context, I want to turn to generative AI and AI more broadly no previous technology wave has captured the attention of leaders and the general public as fastest Gen. AI. We are now embarking on the age of AI and companies will need to reinvent how they operate with AI at the core.
And it is also early I think of it is the cloud over a decade ago Foundation models and products based on them are still maturing with many products announced but fewer at the general availability stage and ready for wide deployment and.
And with our position as the largest partner with most of the major technology companies. We are at the center of helping our clients navigate their choices in the evolving landscape.
We've been investing in AI for years and so while it is early days, we see generative AI is a key piece of the digital core any big catalyst for even bigger and bolder total enterprise reinvention going forward in fact in a survey of global or get executives that we completed just last week, 97% of exam.
I could have said Jenny I will be transformative to their company and industry and 67% of organizations planning or planning to increase their level of spending in technology are prioritizing investments in data and AI.
Our approach to AI is clear just as we have successfully done with cloud we are investing to take an early lead and positioned for the opportunity ahead.
Last week, we announced a $3 billion investment in AI, a big step to accelerate our clients' reinvention journey, which includes us doubling our data and AI work force from 40000 to 80000 strong including the expansion of our center for advanced AI that today has over 1600 generative AI experts.
Bringing new assets, such as our AI navigator for enterprise to life and developing new Gen. AI powered industry solutions and across this all we are leading with responsible AI to be the most trusted source in helping our clients mitigate the risks as they drive value.
And this just isn't just about tomorrow, we have sold over 100 generative AI products projects over the last four months, let me give you a flavor of these across a few industries.
We're working working with Mitsui Sumitomo insurance, a Japan based subsidiary of M. S. N. A D insurance group holdings to improve customer service by using generative AI and simplify operations for accident response degenerative AI solution will draw from the Companys knowledge base, including policy causes and related laws and.
Patients, which will generate appropriate response plans in a timely manner dramatically improving the accuracy and speed of explanations to customers.
We're working with a global broadcast company to explore how generative AI can be used to drive audience engagement and growth through deeper and more personalized customer experiences together, we recently launched testing that leverages generative AI and large language models to explore how we can automatically create content for the company's customer facing platforms. The <unk>.
<unk> will help enhance engagement grow the consumer base across new coverage areas and challenge it telling us we believe it will demonstrate how degenerative AI can be used to create content at scale for a wide variety of experiences and events where.
We are working with Linda L. Bustle industries, a leader in the chemicals industry to increase its enterprise data and analytics capabilities and help unlock new value. We will develop a strategic data led digital transformation program across multiple parts of the business and embed new capabilities in areas like sustainability customer data.
Digital manufacturing and generative AI to drive more insightful and predictive decision making.
Companies are coming to us for help with the strategy and the business case to understand how and where to apply AI and Jenny I, specifically to get their digital shorn, Kate digital core and shape to help assess which ecosystem partners and models to use to reward their processes to be AI driven to upgrade and reskill their talent.
With new ways of working and to navigate the risks and challenges responsibly.
Sure, we believe clients need our full range of services and we are well positioned to be the leading trusted AI partner for the enterprise as they move from exploration to experimentation to reinvention over to you Casey Thanks Julie.
Now turning to our business outlook for the fourth quarter of fiscal 'twenty. Three we expect revenues to be in the range of $15 75 billion to $16 three 5 billion.
This assumes the impact of FX will be about flat compared to the fourth quarter of fiscal 'twenty, two and reflects an estimated 2% to 6% growth in local currency for.
For the full fiscal 'twenty three based upon how the rates have been trending over the last few weeks. We now expect the impact of FX on our results in U S dollars will be approximately negative 4% compared to fiscal 'twenty two.
For the full fiscal 'twenty three we now expect revenue to.
To be in the range of 8% to 9% growth in local currency over fiscal 'twenty, two which assumes an inorganic contribution of about 2% we.
We continue to expect business optimization costs of $800 million in fiscal 'twenty three to reduce EPS by <unk> 96.
The gain on our investment in Duck Creek technologies will increase EPS by 38, our guidance for full year 'twenty three excludes these impacts for adjusted Op margin. We now expect fiscal year 'twenty three to be 15, 4%, a 20 basis point expansion over fiscal 'twenty to results. We now expect our adjusted.
Annual effective tax rate to be the range of 23, 5% to 24, 5%. This compares to an effective tax rate of 24% in fiscal 'twenty two.
We now expect our full year adjusted earnings per share for fiscal 'twenty three to be in the range of $11 52.
To $11 63.
Or 8% to 9% growth over fiscal 'twenty to results.
For the full fiscal 'twenty three we continue to expect operating cash flow to be in the range of $8 7 billion to $9 2 billion. We now expect property and equipment additions to be approximately $600 million and free cash flow to be in the range of $8 1 billion to $8 6 billion, our free cash flow guidance reflects a very strong free cash flow to net.
Income ratio of one one to 1.2 finally, we continue to expect to return at least $7 $1 billion through dividends and share repurchases as we committed as.
As we remain committed to returning a substantial portion of our cash to our shareholders with that let's open it up so we can take your questions Katie.
Thanks, KC I would ask that you each keep to one question and a follow up to allow as many participants as possible to ask a question operator would you provide instructions for those on the call.
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We'll go to the line of Lisa Ellis with Moffett Nathanson.
Hey, good morning, Thanks for taking my question.
Let's dive in on the strategy and consulting I know it was a high single digit decline this quarter that just looking back at your comments from last quarter I think that came in a little bit softer than you expected, but then you also called out.
Ah many new projects coming in related to jet AI and other technologies can you just talk a little bit about kind of what's changed what that evolution looks like and kind of what's your confidence level in the time horizon that we'll see strategy and consulting improve over the next couple of quarters. Thank you.
Sure. Thanks, Lisa So I'll first give some color on that so.
The big difference in our expectations from last quarter, and where we are where we ended up really was all in the small deals and we saw a.
Further they came in lower than expected and we saw that extend to Europe and the growth markets now that was both an SMC and systems integration, but that's the big reason that we have a difference in sort of where we thought we would be this quarter.
Now our job is to continue to pivot to higher you know where there is higher growth and we're working on that and digital manufacturing supply chain data and AI, but that will take a little time on what we're seeing is that you know there's a lot of extensions going on in small deals, but it's the newer small projects well.
At the same time, we continue to have very strong.
Bookings and interest and huge opportunity and transformation. So I think our clients are kind of holding back on the small stuff and doing the bigger stuff, which obviously converts to revenue.
Differently, but you see where strategy and consulting makes a big difference there like Dupont example, that I gave in the script, where you have to have so much you know.
So much expertise in the industry as well as the functions as well as technology. What that means is that it's going to take a little while for the turnaround and we're not going to go to next year, because we really want to see how Q4 evolves and Casey will give a little bit of color on how we are thinking about our Q4.
And what I would also say is that things like Gen. AI are a big opportunity, but it is early so we did in the last four months 100 projects that represents about $100 million in sales that's kind of the average size of those projects, where it is and so we're going to continue to pivot there but it.
It takes a little bit of time, so why don't I, let Casey give you a little color on how we're thinking about Q4, yeah. Great. Thanks. Thanks, Julie So let me just kind of maybe step back and look at Q4.
The overall guidance for the full year. So first I did mentioned this but I just want to.
Just reiterate that we're on track for our business optimization actions. So we're going to do about 800 million of costs for the full year 'twenty three.
Additional color is that for Q4 as we look at bookings, we think there'll be about the same as what we did in Q3 of this year and have about the same complexion.
Joey talked a bit about small deals what I will tell you in terms of.
Our revenue guidance for Q4, which as you know is 2% to 6%.
At the top end of our revenue guidance that reflects some improvement in small deal performance while.
While the bottom and allows for some further deterioration.
And we and we commented also in our scripts about CMT and so within our overall range of 2% to 6%.
We do allow for CMT to get a little bit worse.
And then lastly to bring it all home as it relates to North America, because there's two factors do impact North America performance in the context of our overall, 2% to 6% range for the quarter.
North America, which was 2% growth this quarter it would likely be flat around the midpoint of our guidance range.
And it reflects a slight decline at the bottom of our range.
You know and as Julie mentioned, obviously, we will give you more color as they always do.
Next year, when we get into September and we'll see how Q4 plays out.
Terrific. Thank you.
And then maybe for my follow up maybe a more strategic question I mean, Julie talked a lot about Jedi in the prepared remarks.
Particularly around the revenue opportunities are that youre seeing in your clients, but can you.
Your view on how you see Jenny I impacting the it services industry overall light.
A lot of people make an analogy to sort of the impact of offshoring on the industry and sort of other big sort of step function changes to the operation and the kind of composition in the way of it services is done can you kind of give your latest perspective on that how you see it affecting accenture and your industry more broadly thank you.
Sure, Yeah, and I think another good analogy actually maybe even lesser than the offshore is more about SaaS right because you'll remember when we talked about when when SaaS came what would be the opportunities and there was a lot of worry about how SaaS wood.
Interrupt it services and obviously, it's been just a huge opportunity.
Lisa just thinking about this so obviously big opportunity for us to help our clients we see it as.
Two other areas of opportunity so this.
The first is help our client big opportunity. The second is the opportunity for us to improve the delivery of services to our clients right. Now what is that we think is a huge opportunity for us. So think about it first in context of managed services every year.
You're right we have to find at least 10% of productivity. So we talk a lot about our platform things like my Wizard and that that's all AI enabled like.
Just year to date in operations not using Gen. AI right. We have automated 13000 jobs and then we re skilled those people and we deployed them our business model requires us to get at least 10% productivity year in and year out as we're kind of getting to the maturity.
Of automation and AI before generative AI, we see generative AI as our ability to continue to give at least that 10% productivity year in and year eight year out. So in the managed services area, we see that more as the ability to continue doing what we have.
Have to do is kind of the next generation of technology, where we're super excited is in software development that is more around R.
Our systems integration and our big transformations around platforms, because while we do automate there we think Jenny I may provide a real opportunity to do even more and remember our strategy is to deliver compressed transformation. So the more that we can find ways to deliver.
Faster and less effect.
Costly that's going to be a big differentiator. So we're leaning in hard at the same time. This technologies are really early.
So for example, we're doing a lot of experimentation now it's really good for things like documentation, but complex integrations being able to use them for highly architecture.
Our systems, which is what our large enterprises do Jenny I isn't there yet right. So we think it's going to take some time. We also don't yet know the cost and one of the things. We are really you know a lot of clients are looking at us for us to help them with the business case, because most of the studies, including our own are all about.
What's potentially uses of it but because these products aren't out yet we know that it's much more expensive to use gen. AI, it's much more energy efficient and so the actual ROI. So theres the art of the possible, but what's actually the return it's still really early days. So we're very excited that we can get.
New kinds of productivity.
Particularly on things like consulting and systems integration, but it's early days, yet and we are leaning in because we think it's a big opportunity for us to differentiate and that's why we are investing $3 billion over the next three years because we think this is like another cloud first moment, where we were out early we invested.
At scale. The last thing I would say is there's also an opportunity for us to use it in our own enterprise and of course, we like you know part of our strategy is to be our own best credential and we're prioritizing it using it wherever we think we can use it for us and then take it to market to help our clients. So overall, we see.
That like prior Big change is right first the change to cloud freight and before that to servers that it always creates new opportunities as long as you have the ability to invest like we do you've got leading partnerships, we just announced yesterday expanded partnerships.
With all of the three big cloud providers and you have that agile innovation mindset that says embrace change and move fast.
Thank you.
We'll go next to the line. We'll go next to the line of Ashwin <unk> of Citi.
Okay.
Thank you and good morning.
I guess.
Neither.
Hi can you hear me.
Yes.
Oh, Okay sorry.
Hoping that you could.
I'll provide a little bit more information I know you said that you can comment specifically on on fiscal 'twenty four.
After.
Hum.
And in September as you normally do but.
It seems to be one of the primary questions that people are asking so more about the framework of how youre going about the planning process.
For that just given that there are so many moving parts when.
When we kind of think of macro and it think of AI, Let me think a head cold and the tough comps in the first half.
Maybe you can just kind of a framework that for us.
And that'll be quite hopeful.
Sure. So just a few things ashwin. So first of all most important thing right now just as a framework is stay close to our clients right and really understand and the thing is our clients do need ways to get value in the short term as well as to transform and so we're working.
Hard on finding new ways to get value to them faster, that's where the journey I. For example comes in and so you know over the next quarter, we're going to be developing new opportunities new campaigns, new ways of pushing out our investments in gen AI to help us address this.
Small deal pressure that we're seeing we don't have a crystal ball that was going to say, what the economy's going to do how fast you know clients are going to get.
Comfortable because you remember we saw this over this quarter beat more industries, including industries that are doing well, there's just a level of caution right now and so how we're looking at it is there are certain things we can control focus on.
Not only doing the big large transformational deals, but finding new ways to develop a returns faster which is why the work. We're doing on Gen. AI is so important and you're seeing that kind of early focus with 100 projects in four months.
So we're going to keep doing that secondly is stay focused on the large transformational deals right. This provides a base level of resilience in our business. So we've got to absolutely tried to do maximize the small deals but it is really important that we continue to be the transformation partner of.
Choice and that is where.
Bringing together all of these services and making sure that we've got the right proposition is super important so that is a core part of our strategy and so that's really how we're thinking about it.
Thank you for that and I guess the next question is with regard to hiring expectations in the near term aspect to that in the longer term. So let me ask both.
Near term just kind of given what you said with regards to macro and so on and of course the.
Head count cuts are.
And a couple of quarters back what should we expect in the next one or two quarters and the longer term question is.
With AI do you think that head count growth be associates from Rev growth trends overtime.
So let me just take the second one first rate is again.
And we've been talking about this for years right. So because AI has been such a big part of our strategy and automation right is that we will continue to manage it just like I talked about.
You know my last answer like where we've already automated 13000 jobs this quarter and we re skilled and so we.
We will continue to manage that head count as a result of AI in the way that we've been doing it for years. So no real change in that because we have a digital enterprise system that looks at you know what we need in sales and what's really core is that we can re skill people as they.
We are being freed up and then we can adjust how much we have to hire and of course with attrition that in our industry is high relative to other industries. It gives us a lot of flexibility over time to get that you know people hiring right. So that's how I would think about it and then.
And then for the way that we're going to hire.
We saw a year over year increase of about 3% over last year 11 consecutive quarters of 91% utilization. So you should just expect that every quarter, we're going to manage carefully that head count based on where we see the growth.
And you know and to do that well and I think we've proven our ability to do that.
That's right and I would just add just maybe on Q4 in particular as Julie.
<unk> talked about we did not add any heads really between any people between Q2 and Q3, which is what we expected and then Q4, we don't really see a need to grow our overall head count as we continue to focus on the automation of re skilling that Julie talked about.
Got it.
Thank you.
Well go next to the line of Tien Tsin Huang with Jpmorgan.
Thank you so much good morning, guys I just wanted to I know you went through this mobile outlook too.
And asking a question so how about large deals.
Momentum continues to grow up from 17 to 20.
Alright, six large deals year over year.
So.
Just curious to get a large deal.
Gentlemen, Houston is continuing yep.
Yes, sorry.
Alright.
Doug go ahead.
How does that look going into the fourth quarter here.
Bill.
On time.
Yeah. So.
As Casey said earlier, our bookings are going to be about the same and that includes a lot of momentum in large deals right. So you know we saw 26.
Clients with bookings over 100 million. This quarter were ahead of last year by 11 at this point, we can see continue to see that momentum and we're actually really excited about the demand there right because as you can imagine.
You know things like Jenny I are just accelerating the ability to say hey, we got we have to do bigger deals and by the way that may be impacting some of what we're seeing on the smaller deals because we do see more excitement about.
Because the thing is the problem with Gen. AI for most companies is if you don't have the data you can't use it and so that gets you right back to the big transformations of your digital core QC anything to add no.
Yeah.
So on the AI front, you did mentioned I think the club first.
Oh Gee draw that parallel when you guys I think that was three years ago. You did a 3 billion dollar club first investment that has paid off very well for you. So I'm curious do you expect a similar return here on the three building you're putting in.
How should we measure it that or is it going to perhaps.
Differently in terms of the returns.
Tien Tsin, that's a great clever way to try to get us to talk about more of the future, but what I would say is we've got a great track record of investing and getting a great return and so we think that that it's going to pay off well.
Yes.
And of the coincidence of similarity there. Thank you guys.
Okay.
We'll go next to the line of Jason Kupferberg of Bank of America.
Hey, Thanks, guys just wanted to start actually picking up a little bit on <unk> question around the larger deals it sounds like that's going to persist the strength there in Q4, and I think that'll be at least a few quarters in a row at that point of those larger deals showing relative strength can you just talk qualitatively about to what extent those provide a foundation.
For topline growth in fiscal 'twenty, four I would assume that those deals generally ramp to full run rate within two to three quarters or so.
So in terms of what you should think about on our larger deals. They really do it really does vary in terms of how they fill in over the quarters going into next year and sometimes depending on what the work is particularly a managed services and these larger deals. They can go out multiple they can go out to another fiscal year, so, but that's no real change in what.
We have experienced in terms of how the bookings fill in by the by the what I would say the sales category five what Youre seeing is that we do have we do have a good foundation as we look out right and we've got a good foundation throughout this year, if everything that we've been booking in the transformational deals, but what it really does also matter I should get into.
The year and then into closer to the quarters is how do you fill it with some of the smaller bookings.
Right.
It said another way, it's small deals don't come back we're going to have.
That's an important part of sort of understanding which is why we wanted to see how Q4 works out before we look at next year.
Totally understand totally understand.
Let me switch over to bookings just for a follow up and by the way. Thank you for the level set.
Not too surprising.
Tiny fraction of your total bookings given how it's still early days, but I wanted to actually ask on the managed services bookings just curious versus your internal expectations. How those came in in the quarter I know they can be pretty lumpy, but it does seem like looking ahead to Q4 that managed services bookings will slow a bit on an LTM basis.
Just based on some of the commentary that you provided around Q4 bookings mix.
Yeah. So let me just talk about overall managed services. We're very pleased overall with our managed services bookings right they were up.
9% this quarter and are up 22% on a year.
Year to date basis. So we're very pleased with our bookings overall and the result of revenue, which continue to be very strong. We also have a very strong book to bill with a trailing one dot one and what I talked about Q4 adjacent well have about the same complexion of of of bookings.
Terms of the breakout of type of work and I would and I will highlight just the continued strength within our bookings of our our operations business, which again has really had a lot of great. Examples in our script it really is around.
Clients are focusing on digitizing their cord cutting costs of operations businesses.
The differentiator and it's obviously very strategic.
Thanks Casey.
Well go next to the line of Bryan Keane with Deutsche Bank.
Hi, guys good morning.
Also just kind of a follow up on generative AI and the understanding and timing.
I get that it's early but the big question everybody's asking is how long will it take before it moves the needle in bookings and revenue is that.
A couple of years out still or is that the time frame and the rapid pace of the use of that technology should push it earlier than our normal technology with.
Well, Brian I think in general we think Jennie O is going to go faster than say cloud right, which took more of like a decade.
But I would focus on so first of all we're being very rigorous when we talk about gen. AI, because we're really seeing like what are the actual Jenny I. The big growth. We think is going to be in all of the companies that then has to get their data done faster and we're not lumping that together and so I don't know what others are going to do but we're really beat.
A very pure and saying like Hey, this is pure Gen AI and if you think about where companies are our research shows like only 5% to 10% of companies are mature right now with data and AI and they're the ones that are really going to be able to use gen. AI at scale about we just had this research done that came in last week that hasnt been published yet.
About 50% of companies have not started on their data or AI journey and everything in between as you know some are good and data, but not a either having a hard time scale. So where we think growth is going to come particularly next year. The bigger growth is going to be not unlike the pure gen AI, but it's going to be in helping companies you know fin.
<unk> getting their end of life data.
<unk> migrated to the cloud because you need your data in the cloud right, it's going to come in the data strategy.
And the you know all the governance and getting it architected, while some of the stuff around Jenny I get sorted out. So for example, it cost is not there yet and how do you take data from one cloud and there's cost to take it and put it another cloud all of that we're going to be working with our clients and our technology partners to really create the right.
Business cases, but the growth we think in the near term is going to be from accelerating the digital core and that's why we feel really good about the bigger transformational deals continuing next year, because there's so much work to do.
No. That's that's helpful. And then just as a follow up are there M&A.
M&A opportunities of scale.
To grow in general of AI or is it still early in the days there. So there's not really a lot of M&A you can do.
And it's really early I mean, theres a lot of companies popping up as we know and we're going to continue to scan, but you know one of the great things that we have is the ability to train right. We've already trained you know in the last quarter. Another thousand people in Gen AI and by the way since 2019, we have been requiring all of our 700000 people.
To take a course on a so we have a really good baseline and so we think that it's going to be a lot like when we moved to digital a lot of organic and this is where we are so competitively well positioned because we have great credentials and how we have trained our own people to rotate.
Great. Thanks, so much.
We'll go next to the line of Rod bourgeois of deep dive equity research.
Hey, guys, Hey, you, sometimes comment about pricing and contract profitability. So I wanted to ask if you could provide an update on pricing and contract terms, particularly on a like for like basis in both consulting and outsourcing.
Yes, Hey, Brad So let me just comment on pricing and what we're seeing so just let me start with as a reminder, when we talk about pricing as we define that as contract profitability or the margin on the work that we sell and so what we're seeing in pricing is after five quarters of consecutive improvement.
<unk> and pricing, we mentioned last quarter that it's stabilized and this quarter, we see that pricing is lower in some areas of our business.
I continue to be very pleased with how we are managing pricing, particularly navigating that more challenging wage environment that we've experienced over the last few years. So very pleased with how we're performing in pricing at our overall contract profitability that we have this year.
Okay, Great and then maybe just to wrap up.
Consulting business is slow.
<unk> from here can you talk about what demand themes have slowed the most and maybe the outlook for those themes I mean, maybe across your various solution areas like cloud and ERP and security and data or are there certain of those themes that have had.
Slowed the most thanks.
Yeah. If you look on our consulting on the systems integration side, it's really more a tale about the small deals right.
So what we're seeing is that sort of some of the small things versus the bigger so a lot of the big transformations are continuing so that's you know we're not seeing I mean basically anything around the digital core moving to cloud all of that's going really well at the bigger levels, it's more about starting new projects.
Right now and so you know, which is why we expect that demand to come back when things when people are less cautious.
Okay. Thank you.
Operator, we have time for one more question and then Julie will wrap up the call.
Thank you and that will come from the line of James Faucette with Morgan Stanley .
Thank you very much just a couple of follow up questions wrong from me here.
First on.
Related quality projects.
Ian Weissman object ponds drugs.
Bombs and statements of work to change with the introduction of.
And adoption of general do they are generally.
I mean, we're not anticipating any any big changes in those areas.
Got it got it and then you mentioned you know and referenced the general debate.
The BNA opportunities are pretty small right now and really nice, but how are you thinking about it.
More generally going forward.
Should we expect ongoing sustained and stable levels of inorganic contribution and.
Or should we expect there to be some some changes.
Expectations and emphasis shifts a little bit more to AI.
Well a couple of things so first of all no shift in how we view inorganic which is a core part of our business model right. So we expect to get about 2% of our revenue growth from this year from inorganic and you know this has been a stable part of our strategy and I just want to be.
Clear that the shift to AI is is just you know let's go back to total enterprise reinvention what are clients doing they are reinventing every part using tech data and AI. So you know when you look at our growth priorities cloud. Both you know the move to the cloud, but also cloud based platforms all grow.
You know very significantly right at the at the top level overall and so it's about building a digital core and then the opportunity to take AI is to then reinvent the processes and the ways of working which is by the way a huge opportunity for accenture, because we're not just about the technology.
Our strength is in being able to do all of that so I think it's really important that it's not an emphasis shifts on AI. It's a rapidly accelerated opportunity because companies who were kind of resistant or not focused on it are now focusing on it. So I think that's important and then the last piece is no.
We will it's our focus is now not going to suddenly in M&A be around just data and AI and in fact, we think that there's going to be much more organic because there isn't a lot out there, but we use AI right to scale things like.
Consulting.
Industry expertise digital expertise, we've done that for digital manufacturing supply chain. We also use it to get into new areas. So I'm Super excited that yesterday, we announced that we acquired answer advisors.
Which is a primarily U S focused North America focused company and capital projects, that's a really small business today in the U S and we just acquired a great company with 900 professionals in a market that has an 88 billion dollar addressable market in North America growing really well, that's a whole new area of net new <unk>.
Growth for our North America business. So we use our ability to invest right to scale, great things and continuously seed new areas of growth for Accenture and you've seen us do that over and over again, we did it with song we did it with industry X in digital.
Factoring we're now in supply chain and we're moving into capital projects. So that is just a huge advantage as you think about not just the next couple of years, but growth over the decade for Accenture.
That's great color. Thank you so much.
Great well thanks, everyone in closing I want to thank all of our shareholders for your continued trust and support and all our people for it you are doing for our clients and for each other every day. Thanks, everyone for joining look forward to being back together in a quarter.
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