Q4 2023 Accenture PLC Earnings Call
Yeah.
Thank you for standing by welcome to the Accenture as fourth 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 you will hear an acknowledgment that you've been placed into Q and you can't remove yourself from queue at any time by repeating the onesie all command.
Should you require assistance from an operator during the call. Please press Star then zero and an operator will assist you offline as a reminder, today's conference is being recorded I would now like to 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 for joining us today on our fourth quarter and full fiscal 2023 earnings announcement as the operator, just mentioned I'm Katy 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 <unk>.
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.
Tricks for both the fourth quarter and full fiscal year. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the first quarter and full fiscal year 'twenty 'twenty. Four 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, and Form 10-K, and quarterly reports on Form 10-Q, and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call.
During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures, where appropriate to GAAP in our news release or in the Investor Relations section of our website at Accenture dotcom as always acts.
<unk> assumes no obligation to update the information presented on this conference call now, let me turn the call over to Julie.
Thank you Katie and everyone joining us and thank you to the approximately 733000 Accenture people who've worked hard to be at the center of our clients' business across our fiscal year 'twenty three are laser focused on creating 360 degree value for our clients and all our stakeholders is reflected in our overall strong results.
For the year with record bookings of $72 billion, we had a record 106 clients with quarterly bookings greater than 100 million in FY2023 up from 100 last year. We now have 300 diamond clients, our largest client relationships and in.
Increase of 33 from last year, demonstrating yet again, the depth and breadth of our capabilities and the trust our clients have in us.
We delivered revenues of $64 billion for the year, representing 8% growth in local currency, while continuing to take market share.
We expanded adjusted operating margin by 20 basis points and delivered adjusted EPS growth of 9%, while continuing to significantly invest in our business and our people.
With capital deployed of over $2 $5 billion across 25 acquisitions, $1 3 billion in R&D assets platforms and industry solutions and $1.1 billion invested in the training and development of our people.
And we generated free cash flow of $9 billion, allowing us to return over $7 billion of cash to shareholders.
And we are delivering a little ahead of schedule on our business optimization actions, we announced in March to reduce structural costs to create greater resilience.
We also continued to attract retain and inspire outstanding people through our talent strategy, we're making progress toward our commitment to net zero by 2025, and we invested in our communities to help ensure we have a vibrant places where we work and live I will give more detail a little later in the call.
Taking a step back.
Coming off two fiscal years of double digit growth in a truly extraordinary FY 'twenty. Two we are very pleased with our FY2023 results and the moves we have made to optimize our business.
Also rapidly taking an early leadership position in journey, II, which will be an important part of the reinvention of our clients in the next decade.
Last quarter, we shared that we had sold a 100 projects with roughly $100 million in sales over the prior four months.
Demand accelerated in Q4 with another approximately $200 million in Jennie O sales to bring our total to over 300 million for the year.
We also are embracing the use of Jenny I and our own delivery of services and the way we work across Accenture.
As we reflect on how our market has developed over the last year, we and our clients have had to navigate a macro environment that is tougher than we anticipated at the beginning of FY2023.
Well, it's played out differently across markets and industries, we have seen greater caution globally with lower discretionary spend Florida decision, making and in particular for us a significant impact from the challenges the comm media and Tech industries have faced.
For example, in Q4, where we grew 4% in local currency. If we exclude CMT, we grew 7% globally, 6% and North America, 9% in Europe , and 8% in growth markets.
Against that backdrop as we enter FY 'twenty four we remain laser focused on creating value for our clients.
Well the pace of spending has changed the fundamentals have not all strategies continue to lead to technology and companies will need to reinvent every part of their enterprise using tech data and AI to optimize operations and accelerate growth.
To do so they must build a digital core we.
We're continuing to see significant demand in areas like cloud migration and modernization modern ERP and data and AI and the emergence of Jenny I in particular.
All of which represent areas of great opportunity.
And it's still early for example, we estimate that only 40% of workloads or in the cloud today only one third of clients modernize their ERP platforms and less than 10% of what we define as mature data and AI capabilities, we believe helping build a strong digital core and then.
Using it to reinvent will be the drivers of our growth.
Our ability to advise sheep and deliver value led transformation leveraging the breadth of our services and industry expertise from strategy and consulting to technology to our managed services across industries and geographic markets, along with our privileged position with our ecosystem partners is.
What makes accenture and neat unique and you can see this unique positioning in the number of our diamond clients clients, who turn to us for large scale transformation.
Over to you KC.
Thank you Julie and thanks to all of you for joining us on today's call. We were pleased with our results for the fourth quarter, which were within our guided range and aligned to our expectations completing another strong year for accenture.
Our results reflect the diversity of our business and once again illustrate our ability to run our business with discipline and deliver significant value for our shareholders.
So let me begin by summarizing a few highlights for the quarter.
Revenues grew 4% local currency driven by high single or double digit growth in five of our 13 industries as we called out last quarter, we expected increased pressure in our CMT industry group and we saw declines of 12% in local currency this quarter as Julie mentioned, excluding CMT, our business grew 7% globally, we did.
Livered adjusted EPS in the quarter of $2 71.
Reflecting 4% growth over EPS last year adjusted operating margin was 14, 9% an increase of 20 basis points over Q4 last year and includes significant continued significant investments in our people and our business and finally, we delivered free cash flow of $3 2 billion driven by very strong.
DSO management.
Now, let me turn to some of the details.
New bookings were $16 6 billion for the quarter, a 10% decline in local currency with an overall book to Bill of one consulting bookings were $8 5 billion with a book to Bill of one managed services bookings were $8 2 billion with a book to Bill of one.
Turning now to revenues revenues for the quarter were 16, billion% to 4% increase in both U S dollar and local currency represented continued market share gains now as a reminder, we saw market growth against our investable basket, which is roughly two dozen of our closest global public company competitors, which represent about a third of our addressable.
We used a consistent methodology to compare our financial results and theirs adjusted to exclude the impact of significant acquisitions through the date of our of their last publicly available result on a rolling four quarter basis.
Consulting revenues for the quarter were $8 2 billion a decline of 2% in both U S dollar and local currency.
Managed services revenues were $7 8 billion up 10% in both U S dollars and local currency takes.
Taking a closer look at our service dimensions technology services grew mid single digits operations grew high single digits and strategy and consulting declined mid single digits.
Turning to our geographic markets in North America revenue growth was 1% in local currency driven by growth in public service health and utilities.
These increases were partially offset by declines in communications and media software and platforms banking capital markets and high Tech and.
In Europe revenues grew 7% in local currency led by growth in banking capital markets industrial and public service.
Revenue growth was driven by Germany and France.
In growth markets, we delivered 6% revenue growth in local currency driven by growth in chemicals, and natural resources industrial and energy revenue growth was driven by Japan move.
Moving down the income statement gross margin for the quarter was 32, 4% compared with 32, 1% for the same period last year.
Sales and marketing expense for the quarter was 10, 8% compared with 10, 2% for the fourth quarter last year.
General and administrative expense was six 7% compared to seven 1% for the same quarter last year.
Before I continue I want to note that in Q4, we recorded 472 million in costs associated with our business optimization actions, which decreased operating margin by 290 basis points and EPS by 56 cents and also impacted our tax rate. The following comparisons exclude these impacts and reflect adjusted results.
Adjusted operating income was $2 4 billion in the fourth quarter, reflecting a 14.9% adjusted operating margin and an increase of 20 basis points from operating margin in Q4 last year.
Our adjusted effective tax rate for the quarter was 27, 4% compared with an effective tax rate of 24, 6% for the fourth quarter last year.
Adjusted diluted earnings per share were $2.71 compared with EPS of $2 60 in the fourth quarter last year.
Days service outstanding were 42 days compared to 42 days last quarter and 43 days in the fourth quarter of last year.
Free cash flow for the quarter was $3 2 billion, resulting from cash generated by operating activities of $3 4 billion net of property and equipment additions of $180 million.
Our cash balance at August 31st was $9 billion compared with $7 9 billion at August 31 last year.
With regards to our ongoing objective to return cash to shareholders in the fourth quarter, we repurchased or redeemed $3 2 million shares for $1 billion.
And average price of $312 35 per share.
Also in August we paid our fourth quarterly cash dividend of $1 12 per share for a total of $706 million.
And our board of directors cleared a quarterly cash dividend of $1.29 per share to be paid on November 15th% to 15% increase over last year and approved $4 billion of additional share repurchase authority.
Now I'd like to take a moment to summarize a year as we've navigated a challenging macro environment and successfully executed our business to deliver or exceed all aspects of our original guidance that we provided last September on an adjusted basis, we delivered seven D $2 $2 billion of new bookings.
Reflecting 5% growth in local currency.
Revenue of $64 1 billion for the year, reflecting strong growth at 8% local currency and reflecting continued market share gains.
Before I continue for the full year, we recorded $1 1 billion in costs associated with business optimization actions, which decreased operating margin by 170 basis points and EPS by $1 28 sets.
We also recognized a gain on our investment in Duck Creek technologies, which impacted our tax rate and increased EPS by <unk> 38 the.
The following comparisons exclude these impacts and reflect adjusted results.
Adjusted operating margin of 15, 4%, a 20 basis point expansion over FY 'twenty two.
Adjusted earnings per share was $11 67, reflecting 9% growth over FY 'twenty two EPS.
Free cash flow of $9 billion was significantly above our original guided range, reflecting a very strong free cash flow to net income ratio of 1.3.
And with regards to our ongoing objective to recurrent term cash to shareholders. We exceeded our original guidance for capital allocation by returning $7 2 billion of cash to shareholders, while investing approximately $2 5 billion across 25 acquisitions.
In closing, we remain committed to delivering on our enduring shareholder value proposition, while creating 360 degree value for all our stakeholders clients our people our shareholders partners and our communities and now let me turn it back to Julie Thank.
Thank you Casey let.
Let me now bring to life for you the demand we saw from our clients this quarter as they build their digital core and reinvent we saw this demand across markets and industries. Our cloud momentum continued with very strong double digit growth in Q4 as clients prioritize building, a strong and secure foundation for reinvention.
We're partnering with a multinational financial services company on a cloud based transformation to deliver enhanced personalized and secure customer experiences and to increase employee productivity together with developing an integrated hosting strategy that unifies their hybrid and multi cloud landscape and lays the foundation there.
Digital transformation over the next decade.
This partnership enables innovative solutions across our bank functions and is backed by a trusted and secure foundation that supports advanced workloads and complex AI and data solutions working from a compliant cloud platform or safeguard the customer data privacy and financial assets positioning the organization to stand.
Out for its innovation and customer focus.
And we are supporting our U S based energy company and a total enterprise reinvention strategy to unify different technologies and business processes around a common digital core will help leading the deployment of our cloud based <unk> T platform that integrates customer management finance HR supply.
Change asset management and operations, improving the ability to assess and optimize operational performance.
We also are helping manage and integrate the responsibilities and activities of the vendors involved in the project standardized data from legacy applications and enable company employees to understand and manage the new processes and technologies.
Data driven decision, making will be improved, allowing the company to cultivate better collaboration within their business, helping them operate more efficiently and better serve their customers.
We're partnering with Coca Cola bottlers, Japan to accelerate their path to becoming a world class bottler and data driven organization.
The partnership includes establishing an innovative joint venture of significant scale of approximately 870 people that will accelerate transforming their digital core optimizing their enterprise operations leveraging the power of cloud data and AI to increase the value delivered from their core business functions.
In support of their broader strategic business plan Accenture will provide specialized talent industry expertise and leading edge technology automation and managed services to help Coca Cola bottlers, Japan adopt a strategy of continuous enterprise reinvention.
Data and AI are an important part of building the digital core and we see that work both embedded in our larger transformations as you just heard and in work focused on data and AI modernization.
Accenture Federal services is helping the defense Health agency.
Operate and enhance the joint medical common operating picture platform.
By implementing data synchronization across multiple network domains and near real time collaboration and information sharing we will provide a comprehensive picture into department of defense medical assets. This increases visibility into unit health equipment and supplies and allows for faster and more informed.
Decision, making.
We are a strategic partner for the Saudi data and AI authority to boost the kingdom's transformation to a data driven economy and help the kingdom become a world leader in generation and deployment of AI technology.
We're working closely with the diet to support cutting edge research promote digital innovation in public life and boost national capabilities and talent.
We're especially pleased with the double digit growth we have in the middle East a small but growing part of our business.
Security is essential to a digital core and we had very strong double digit growth in our security business in Q4.
We're working with a major energy network in the U K on the transformation of its cyber security systems.
We will provide an entire managed service for their cyber security capability, including migration to a more powerful security platform.
Tenuous and active threat monitoring and response services as well as security tools management or.
Our solutions will help provide improved security reduce exposure to potential global security threats, and ultimately better safeguard the safe delivery of gas to millions of UK homes and businesses.
As clients continue to re imagine and prioritize the customer experience selling delivered strong double digit growth in Q4.
We are helping smart Europe maker of the next generation of smart vehicles products and services of the iconic brands from Smart Automobile Company limited a joint venture between Mercedes Benz and Geely.
We are helping them reinvent car shopping by creating an ecosystem that supports a seamless fully digital driven buying experience.
By putting data at the core the system allows personalization of the customer journey makes recommendations based on real time data and includes enhanced offerings such as extended insurance coverage. It will help smart Europe reposition its brand and support the launch of its intelligent fully electrical car lines.
We also continue to see demand for our supply chain in industry X <unk> capabilities. The next digital frontier, which grew strong double digits in Q4.
In industry X, we are partnering with a global chemical and materials company on a digital transformation of their manufacturing core and commercial capabilities.
Through our industry X capabilities, we have built a unified connected worker platform for operators maintenance technicians and job planets, along with a cloud based data lake to help generate insight from disparate sources of manufacturing data. The program is already live in dozens of manufacturing sites and is expected to create significant revenue.
Growth over the next few years for our client.
And in supply chain, we have partnered with a large global food and beverage conglomerates to strengthen supply chain resilience. So consumers have continued access to their products in stores and online by.
By creating a digital twin of its supply chain, we will develop stress test models to help identify supply disruptions with the highest risk before they occur.
Across these examples you can see our unique capabilities of both being a technology powerhouse along with her industry and functional expertise from strategy and consulting to technology to managing services managed services to help our clients reinvent.
Now, let's turn to generative AI as a reminder, last quarter, we announced a $3 billion investment in AI, while still in the early stages Jenny I technology is maturing rapidly and we believe it will be a significant source of value for us and our clients overtime.
We now have about 300 projects and I want to share a little color and how this demand is coming through with.
We have projects across all our industries with banking public service consumer goods and utilities leading in activity.
Clients are doing a variety of different types of work I'm strategy and use case implementations to tech enablement to scaling to model customization tuning and training to talent and responsible AI.
For example, we're working with a multinational telecom company Telefonica, Brazil also known as vivo to deliver a generative AI solution that helps its agents respond quicker to landlords queries about property rental contracts for network tariffs.
The application quickly leads landlords queries and proposes a set of actions to help fulfill requests reducing the time. It takes Asians to respond. It also structures. The response with a set of relevant answers to increase the response quality and ensure all queries are answered in a helpful manner. The solution has already reduced agent response time by 30 <unk>.
Sent and increase the user experience score by 66%.
Some of the key ingredients of our success and Jenny I R burst ecosystem partnerships.
As always we are starting with deep relationships and leadership in the ecosystem and the hyperscale or as to the model builders to the startups and academics. It is important to emphasize that we are early in the maturity of Jenny I for enterprise and our depth experience and insight on these plant birds is essential to guiding our clients.
Second talent, we start with a deep technical knowledge and understanding of AI in journey, II and blend that with our industry and functional expertise to know how to reinvent across the enterprise, including processes and operating models, bringing together the depth and breadth of our expertise and that is where it.
Center is different building the bridge from as is to the future.
And we have already trained approximately 600000 of our people in the fundamentals of AI now with generative AI the pace and impact is growing rapidly and we are now taking a further step to equip more than 250000 people and using new AI tools, equitably sustainably and without bias and.
With investments in our AI Academy focus on deep AI and Jennie O specialization. We are also progressing towards our goal of doubling our deeply skilled they deny practitioners from 40000 to 80000.
Third responsible AI is essential.
At Accenture, we have an industry, leading responsible AI compliance program, which is embedded in how we use and deliver AI and we're using the experience and lessons learned by us to help our clients build out their own responsible AI program, which is necessary to address the risks and get the full value from AI.
Finally, we have breath embracing Jenny I across our services developing new cutting edge tools and solutions embedding Jr. Jenny I and the way we work.
Our approach takes into account, where the technology is today the need to deploy it responsibly and the recognition that we do work in highly complex environments.
While all companies want to explore and understand Jenny I. What we find is that clients who are more mature digitally I want to go faster, while others would like to test the waters with the proofs of concept and synthetic data and others prefer to wait until they have built more of their modern digital core the extent and pace of this generative a progression will become more clear over the coming.
Quarters as the technology in the market continue to mature and progress.
Now turning to our people who have made all of this happen.
Core to our success is our ability to attract and retain and inspire our outstanding talent.
Essential to our success is our robust talent strategy and in particular, our ability to attract diverse talent and our net better off approach to retaining our great talent. We continue to lead in our ability to attract people with different backgrounds different perspectives in different lived experiences. These differences ensure that we have have and attract the cognitive.
Diversity to deliver a variety of perspective observations and insights which are critical to drive the innovation needed to reinvent.
Our success is reflected in our being the top scoring company in the Bloomberg gender equality index for the second year in a row and we also earned the number one position on the affinity global diversity and inclusion index for the fourth time in six years. This index ranks over 15000 organizations globally and identifies the top 100.
Publicly traded companies with the most diverse and inclusive workplaces.
Our talent strategy includes inspiring and retaining our best talent through our net better off approach, we want our people to feel their net better off for working at Accenture.
This strategy has four dimensions, focusing on people feeling healthy and well physically emotionally and financially feeling connected with a sense of belonging filling their work is purpose and filing feeling they are continuing to build market relevant skills. This year. For example, our people participated in approximately 40 million training hours and we were.
A recipient of the Brandon Hall Gold award for best benefits wellness and well being programs.
Building on our long standing commitment to the environment. We are pleased to have hit a significant milestone on our path to net zero approaching staying 100% renewable electricity across all of our Accenture offices.
I will wrap up with a comment on our work in communities vibrant communities are important to our business success and therefore, we continue to prioritize creating value in these communities around the world. For example, Accenture is helping to welcome refugees recognizing how they enrich our communities with their courage strength and talent in June 2023.
And World Refugee day, we committed to partner with organizations to help skill and support an estimated 16000 refugee job seekers and migrants and to hire 100 refugees in Europe over the next three years back to you Casey. Thanks, Julie now, let me turn to our business outlook for.
For the first quarter of fiscal 'twenty four we expect revenues to be in the range of $15 85 to $16 45 billion. This assumes the impact of FX will be approximately positive two 5% compared to the first quarter of fiscal 'twenty, three and reflects an estimated negative 2% to positive 2%.
Growth in local currency.
For the full fiscal year 'twenty four based upon how the rates have been trending over the last few weeks. We currently assume the impact of FX on our results in U S dollars will be flat compared to fiscal 'twenty three.
For the full fiscal 'twenty four we expect our revenue to be in the range of 2% to 5% growth in local currency over fiscal 'twenty, three which includes an inorganic contribution of about 2%.
We expect business optimization actions to impact fiscal 'twenty for GAAP operating margin by 70 basis points and EPS by 56 the.
The following guidance for full year fiscal 'twenty 'twenty four excludes these impacts.
For adjusted operating margin, we expect fiscal year 'twenty four to be $15 five to 15, 7% a 10 to 30 basis point expansion over adjusted fiscal 'twenty three results.
We expect our annual adjusted effective tax rate to be in the range of $23 five to five 5%. This compares to an adjusted effective tax rate of 23, 9% in fiscal 'twenty three.
We expect our full year adjusted earnings per share for fiscal 'twenty four to be in the range of $11 97 to $12 32.
Our 3% to 6% growth over adjusted fiscal 'twenty three results for.
For the full fiscal 'twenty four we expect operating cash flow to be in the range of 9.3 to 9.9 billion property and equipment additions to be approximately $600 million and free cash flow to be in the range of eight 7% to $9 3 billion.
Our free cash flow guidance reflects a free cash flow to net income ratio of 1.2.
Finally, we expect to return at least $7 7 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to our shareholders.
And 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.
Thank you once again for questions. Please press 110 zero on your Touchtone phone, you'll hear an acknowledgment that you've been placed in Q and you can't remove yourself from Q by repeating that one zero command.
Once again for questions, It's one and then zero.
Our first question will come from the line of Tien Tsin Huang with Jpmorgan.
Thank you good morning, Julien Casey I, just wanted to dig in first on CMT. If you don't mind, just curious the challenges or have changed at all isolated just a few clients or is it more broad based and what's the strategy here to turn demand around are you seeing any.
Green shoots there.
Yeah, great. Thanks, Tien tsin.
So it is it is broad based I mean, we have you know we're seeing it broad based across the globe.
And across clients.
And we continue to see those challenges so.
We do think that it's going to we do know that it's going to develop a little bit differently based on markets. You know the challenges in the U S are more difficult or more focused on both technology and the technology companies and Toms, whereas Europe , it's a little different than <unk>.
Collection and so over the course of the year, we expect that the improvement will come at a little different pace, depending on the markets.
And in terms of our how we're addressing it its really two fold. So first of all we're going to continue to pivot within that industry to areas like helping.
Within the confines of how much they're spending you know trying to help them cut costs working on things like customer service investing in more network capabilities and what we're also doing is pivoting our business to the higher areas of growth and you see that with.
Acquisitions like we did answer technologies in industry X in the U S. We did flu Terra in India and data and AI and so we've got a lot of areas of growth and you can see that when you take out CMT with the how the rest of our business is growing and it's just going to take a little time to make that pivot in that.
Why what you're seeing in our guidance is that we're going to build over the year as the actions, we're taking to continue to pivot the business a play out.
Understood on that one. Thank you just my quick follow up on <unk>.
I know the sales doubled.
You went through a lot of good detail I'm. Just curious is it are the deal sizes getting larger or is it pulling through more large projects from from what you've seen recently I'm just curious how that might evolve here as we get into the <unk>.
The new fiscal year.
Sure. So at this point and remember when we when we give you Jenny I numbers were being very clear. It's pure journey. So we're not like you know sort of talking about data and all of those things. So the real journey I projects right now are still in that sort of million dollar ish on average you know range.
And we expect that's going to continue for a while right. That's what we're seeing because theres a lot of experimentation now what it's doing though is leading clients to look harder at well where do I go faster right in terms of the digital core and so we started seeing a tick up for example.
Ample and data migration right, but it is still extremely early but that's how we think it's going to play out.
Over even the coming year right as people get more excited about it and it also points out the challenges, but keep in mind that imply implementing Jenny I, it's not like it's like it's not easy entire environment need to be set up it's quite complex actually so it.
Really plays into our strength of being able to help them understand how you know what it takes where there are gaps are and then how to take the next step on the journey to get there even as you know we see clients being cautious they're really focused on help us save money. So we can take those next steps.
Should bode well for Accenture. Thank you.
Thanks.
We'll go next to the line of James Faucette with Morgan Stanley .
Great. Thank you very much wanted to kind of go up on a couple of questions. Here you know one of the other really good.
It seems like it's a little bit is being managed services can you talk to.
What's happening there.
And you know one of the things that we're also seeing as is or hearing some.
Some variation in demand right now, especially geographically, maybe with Europe , being a little weaker but the other markets being a little stronger.
Can you just give us color on Nashville, we're seeing and what's happening geographically.
Yeah.
For the question I will maybe I'll start with just kind of give you a little bit of color on what we're seeing on managed services as it relates to guidance and just maybe broader guidance.
Kind of overall, so I'll just start with our full year right. So we start with our full year guidance, which is 2% to 5% growth for the year I think a key part as Julie mentioned is that we expect that we're going to build as we go throughout the year and you can see that in our range for Q1, which starts to negative two and has two at the top end of our range and then.
As you look at Q1.
For the most part what we are reflecting of our Q1 guidance is really more of the same across the various dimensions of our business that we saw in Q4.
And.
But we have a backdrop of a tougher compare you know and in the first quarter of FY 'twenty four that's our toughest compare for the full year and then if you look at the.
Full year, maybe three things to add from.
From a macro we're not assuming that there's an improvement in the discretionary spend environment or the macro as we look at the year.
The second on your you know to get to the type of work question, we're going to build as we go throughout the year and we see consulting for the full year being at low single digit and managed services is going to be a healthy mid to high single digit growth for the full year.
And then depending on how we revenue build the last point would be on operating operating margin. We do expect to see more variability in the quarters as we go through fiscal 'twenty four.
On our way to 10 to 30 basis points of expansion for the year. So hopefully that gave you a little bit of color Julian I want to talk a little bit more about specifics of managed services and and what I would say a managed services managed services continue to be really important for our clients because it's both a cost play, but also a faster digitization play, but it will play out a little bit. So for example at excel.
Sure right, we've got you know.
<unk> safety and <unk> and other managed services in the CMT and so you know that's going to affect some of our results depending on the quarter and the compare and how things kind of roll out. So that's why what we're thinking about next year will be somewhere in the mid to mid to high single digits, but we don't see a.
It'll issue around managed services in fact, we think there are really strategic.
Priority for many of our clients, but it will play out a little bit differently based on industries, we see less of it based on sort of market per se because clients really need the managed services.
Got it and then just a quick follow up can you talk a little bit about your and organic strategy.
What contribution has been and in particular in light of the.
Increased capital return program for 'twenty or.
We should anticipate that that will have any impact on what you guys. Historically have gained from inorganic contribution. Thanks.
Yeah.
Sure in terms of inorganic contribution for 'twenty three it was about 2% as the inorganic contribution and for 'twenty for James We're considering another about 2% and 24.
And look on our inorganic strategy you know remember that the way we think about it is you know.
Can we get into new areas through our inorganic like what we did with answer advisory and industry Ax, which is capital products. It's a it's basically we're very small there before the acquisition that's an $80 billion addressable market. So that's an acquisition to start to grow. They are we think about it as being important to <unk>.
Invest in our industry and functional expertise. So you know in France. This year. We this last quarter, we did an insurance.
Acquisition, you know in strategy and consulting.
And we think about it in terms of scale. So we bought a data and AI practice in terms of.
In India this quarter.
And so as we are pivoting to the higher areas of growth right now.
Real advantage, we have is the ability to leverage our investment capacity in order to do that pivot and of course, you know we're right now we're kind of assuming 2%, but we have the ability to do more if we have the right opportunities and so we really do think about this as a huge competitive advantage in.
Our industry and our ability to drive growth and to be in the hot areas of the market.
Okay.
Great. Thank you so much.
We'll go next to the line of Lisa Ellis with Moffett Nathan.
Hey, good morning, Thanks for taking my question.
I might start on the business optimization program can you just give a little bit more detail in terms of.
What are you know where exactly you are you know was completed and what remains in 2024, and maybe a little bit of more detail on how we should expect that impact to.
Sequentially throughout fiscal 'twenty, four and then just remind us whether that's been the end of it and we should expect to kind of move back toward.
Toward GAAP reporting at the end of 'twenty four thank you.
Yeah. Thanks, Lisa So just in terms of just as a reminder, so we when we announced our business optimization program. We said it would be about $1 5 billion and that would go through FY 'twenty. Four so we still are saying $1 5 billion through FY 'twenty four.
As it relates to next year right, we expect to incur approximately $450 million, we were we did.
Record.
$1 1 billion in FY, 'twenty, three which is a little bit more than we expected to do in 'twenty. Three so while we were able to get a bit more into the P&L and last fiscal year 'twenty three.
And I'm happy to go through the the impact on EPS, but.
But you saw that it will be a 56 cent impact on EPS for 24.
And happy to go through the questions that you have.
Yeah and in and also you know as we go throughout the year, though to you you know we take the business optimization out of our results.
Our results.
As we go throughout the quarters, so that doesn't that's.
The other driver for why we will have more margin variability as we go throughout the year and we will see how it plays out it really depends on the countries and different.
Things that we have to go through in terms of process and procedures and so we're not giving out our update as we go throughout the year on.
On the full year estimate, but we're not breaking that out by quarter.
Got it okay. Okay, great. Thank you.
And then maybe my follow up just a quick.
A quick follow up on the managed services question or maybe just.
But taking a step back Julia I think over the last few quarters as we've been seeing some of the softness in strategy and consulting and the shorter duration discretionary work you've been highlighting pretty consistently that it is not really bled over into the larger transformation programs that I just wanted to kind of ask if you could.
Can you update us on the latest you're seeing on that given that we saw a little bit of a slowdown in some of the managed services bookings this quarter. Thank you.
Sure I mean, what I would say is that you know overall first of all the large transformational programs include managed services, but they also include him you know building like so putting new modern ERP programs in place right. So it's not only you know kind of managed services just to.
Kind of set the stage for that and just as you think about the fundamentals them because we think of the transformation deals managed services are often a way to pay for them. They're often also a way to go go faster and modernize but we really look at those transformational programs in the round. So when you think about the.
<unk> that our clients are facing them there.
There is more reinvention ahead than they have done so far so huge opportunity ahead and you see that in you know where they are in the cloud journey only 40% workloads rate, we estimate less than 10% of our clients are mature and data and AI only a third have put.
In the modern ERP programs and.
And so as you think about how what they have to do managed services will continue to play a huge role in paying for it in and actually you know modernizing much of it as well the other big.
Mentation.
We do see however, right when you kind of go to the market and by the way that's why we're super well positioned with our strategy is to be that partner and then reinvention begets more right. So you've you first build the digital core and then you've got a lot of work on top of that and that is our growth strategy now if you come to what we're seeing in them.
Market rate, so always best to hear from you know what's going on in the ground last call last week I was very busy and I was with about 20 different Ceos and they had three messages right Tech is super important.
Number one number two they already have major programs underway and they know they need to do a lot more but number three is they're feeling cautious about the macro and we've already seen that in the small deals, but you know, they're asking us to help them save.
Save money and be more focused right now even on the bigger programs and so what I would say is you know and that's reflected in our guidance is that the macro is is having an effect on you know the pace of spending right now now again plays into our strength.
In terms of being able to be at the reinvention partner being able to really think about the journey and positions us super well as they navigate that macro.
But that is the reality is that there is this you know sense of caution and it's bleeding over to kind of overall overall demands.
And Lisa maybe I'll just add you know bookings can be lumpy, particularly in managed services and as you know we look at bookings and book to Bill over Rolling four quarters, and our government services to be 1.2 or above and that's exactly where we are on a four quarter basis.
Great. Thank you thanks a lot.
We'll go next to the line of Keith Bachman with BMO.
Hi, Thank you very much.
M&A, if I could start with you Julie.
You're guiding to two points of M&A.
Contributing to your full year guidance, which is consistent with sort of the past years that the number you're much bigger viewpoints.
Equally different than what it was even three or four years ago in terms of a the capital required to do the deals and B.
The integration therefore of the head count just wanted to hear your kind of philosophically.
It doesn't seem like two points can continue on for perpetuity, but just how do you think about any kind of balance sheet constraints or also the integration required to make sure. The people side of the business because again implicitly the deals are getting larger.
And then as part of that could you just speak to do you look at the same size deals or do you need to kind of flex up a little bit in terms of looking at larger opportunities and then I have a follow up sorry about the background noise.
Probably Keith Thanks, I'll handle the capital allocation part and I'll hand, it over to Julie So just from a capital allocation.
Standpoint, Julie referenced this a little bit earlier, but you know our capital allocation framework is really durable, but it's also very flexible. So we've been able to continue to return a significant portion of our cash through dividends and share repurchases while over the time, we've been flexing at various times the amount of money that we spend the VNA and we can continue.
New without.
Work, so just again as a focus we had but 80% of our free cash flow returned to shareholders through devers dividends and repurchases in FY 'twenty, three and we actually have a $500 million half a billion dollar increase in our guidance baked in for next year. So it just shows that our cap.
<unk> capital allocation framework can flex as needed while still doing a great return.
And what I would say is that you know I'm really proud that how we do M&A is a core competency of Accenture right. So we've now been on this journey I Hope started when I was the general counsel I remember that was you know I came in and they were like we kind of need to increase this and I've done a lot of that in my prior in my prior life, and you know and and.
What you see is that as we've grown we've continued to build the capabilities. We have a very mature machine around integration, but we also have an operating model, where we have leaders you know close to the acquisitions doing the integration and they really do vary from very small to larger ones. We've done over 1 billion in.
No we could do even bigger ones with our capital. The point is that we know how to integrate and we've been doing this now for many many years.
Okay fair enough.
My follow up is just how do you think about the head count or expenses through the year.
You just kind of finishing off your rig.
Do you think about head count as we are.
Through FY, 'twenty, four and I'm really thinking on an organic basis excluding.
The M&A, let me thanks, and that's it for me.
Yeah. Thanks Keith.
You know really what I'd say is managing supply and demand as you know, it's a core competency of ours and we're going to manage our supply skills based on wherever we see the growth. So we didn't expect that we would need to add a lot of people are in from Q3 Q4, as we said and that's exactly what happened and so we're going to continue to hire for the skills that we need.
Where to focus on the automated automation and as Joey mentioned, a lot of re skilling of our people.
Okay.
Thank you we'll go next to the line of Darrin Peller with Wolfe Research.
Thanks, guys I just wanted to ask in terms of visibility that you say you have now in the environment relative to prior years on the outlook side.
Has anything changed and just maybe if you could reiterate for us where you're seeing the pockets of strength and a little bit more of a specific matter around examples that customers need right now.
That might be that might buck the trend of what you towards you typically see in a downturn macroeconomically just curious kind of whats fighting through the demand weakness no matter, what just because it's really mission critical right now thanks again.
Yeah, great. Thanks, Thanks, Darren in terms of you know visibility right as we sit here at the beginning of a new fiscal year.
We're really confident that we're taking all the right steps to successfully deliver for a full year and as you know well, we always aim for the top part of the range, but you know.
Just like every other year at this time the back half of the year is less certain because.
Because we'll know we'll know more when the budgets are set which is really in the back which is in the H two of our year, but as we mentioned we are going to build throughout the year and why do we say that well first of all we are confident in the steps that were taken at jewelry highlighted many examples to prove it to the higher growth areas and we expect that we'll see that.
Come through in the back half of the year and that's also backed up by the investments that we'll make.
The second part is that we do have the revenue from the larger scale transformations. There. It is out there right and so we just need to layer in some of the new growth area of work that will we will get to you as we approach the back half of the year and the last part as you are aware I mean, we do have the benefit of easier comparison in the back half.
Yeah, and then in terms of demand in terms of demand it's exactly what we've been talking about the number one area of demand is building that digital core so you've got clients like the financial service client I mentioned in the script, it's not in the cloud at all and it was basically meeting to migrate to the cloud right. Then you've got those who are in the cloud, but they have.
<unk> modernized their ERP you saw a lot of examples of that then you've got security right absolutely has to happen and then lots of focus on now on data and AI, particularly for those who've already been investing so they're in the cloud they've got their modern ERP and now they want to really accelerate AI. So what's.
Not happening right is discretionary spend globally as we saw throughout the year starting in North America people are not doing smaller at systems integration, they're not doing smaller as strategy and consulting they're prioritizing and focusing on larger deals and even there there is prioritizing, especially depending on the <unk>.
History, where you've got more challenges to say you know can we we've got a lot underway, we're cautious about the environment. So help us accenture cut costs. So we can afford all of the reinvention ahead of us and help us prioritize what we start next and that's kind of the overall sort of.
More cautious spending, but I just want to reemphasize nothing has changed about the fact that our clients have more ahead of them than behind them in terms of building the digital core and then using it to reinvent and we're the only one in our industry that can both build the technology and.
At this scale have the industry and the functional expertise to then be positioned to help them use that technology to reinvent. So we are super optimistic about this industry and our position.
That makes sense Julian just I guess as a follow up without the ramp time, you know you talked about $1 billion of investment in AI last time.
We've obviously seen some evidence of success, but early days, though so when now that you've had the luxury of a few more months.
The ramp up you would expect to see that really become a much much bigger part of the business can you just quickly touch on that again this is around it.
Thanks.
Sure My team are going to love the the luxury of a few more months you know so thank you for that I'm going to tell them that you guys. You had a few more months so like as I as I talked a little bit about in our script. We're still learning remember these are like.
A million dollar sort of things, we're starting to you know look at art work it in our own delivery. So it's going to take a few more quarters until till I've really got a well informed.
<unk> of that but what I will say is Jenny I is you know, it's an amazing technology, it's going to do great things and what I'd tell all my clients can't use it unless you're in the cloud have data and you modernize your core so that's our opportunity.
Thanks Scott.
And well go next to the line of Jason Kupferberg with Bank of America.
Good morning, guys. Thanks for taking the question I wanted to pick up on your earlier comment I think you said that you're not assuming any improvement in discretionary spending and the overall environment. There during F. 'twenty four or so I know you guys said that you start the year with a relatively conservative approach to guidance certainly served you quite well in fiscal.
23, so against that backdrop can you tell us a little bit about what you're thinking regarding growth for each of the three big ones. The main change in F. 'twenty four.
Yeah. So Jason let me just kind of give you a little bit more color on guidance right. So as we mentioned we're not in.
Not.
Assuming in our guidance any improvement in the macro discretionary spend but we're going to pivot to the ears of growth. So you know the macro is going to be kind of this you know.
I can help us or hurt us. This year is kind of what really essentially what we're saying and in terms of you know color I'll kind of stick to what we have and the type of work maybe it's the best way of thinking about it and again I think just consulting it's going to build as we go throughout the year and our overall I think it's important to know that we are going to.
Build in this environment, we're going to build as we go throughout the year.
Okay, Okay, and then just on bookings.
Any thoughts on the first quarter or the full year I know there are some seasonal elements. We typically consider in the November quarter. Thank you.
Yeah sure. So let me just talk about maybe a little bit of a bookings.
No in bookings, but maybe start with the fourth quarter I mean, it it to come in.
A little bit lighter than we expected and you know they can be lumpy and we saw some deals kind of push out of a quarter. When it came to small deals we didn't see any change in the discretionary spend environment and I'll just reiterate that we're really pleased with the 21 clients that we had over 100 million Julie talked about that it just reinforces our strategy to be the clients transformational partner of choice.
And to be up a core and lastly, as it relates to twenty-three you know we look we look at bookings over a rolling four quarters and I mentioned this on managed services, but just overall, we're at a one one.
Book to Bill, which I'm really pleased about for the fourth quarters and then for next year looking at 'twenty four Q1, you're right. It's it's seasonally a little wider for US. However, we have a solid pipeline and we do expect that FY 'twenty four Q1 bookings will reflect growth over FY2023 Q1.
Thank you.
Yes.
Operator, we have time for one more question and then Julie will wrap up the call.
Thank you and that question will come from the line of Bryan Keane with Deutsche Bank.
Okay.
Mr. King Your line is open.
Yeah.
Hi, guys good morning.
Wanted to just follow up on strategy and consulting I know that that was an area that we were hoping it at.
At one point during the year that it was going to turn back to positive growth by the fourth quarter and then I know we we.
Didn't think that was gonna happen as of last quarter. So I'm just curious as we go through the year.
Into fiscal year 'twenty for when do you think Essent see my mic turned towards positive growth.
Yeah. Thanks, Bryan So look in terms of our full year range at the top end of our full year range, which again always where we try to be it does reflect us and reconnecting with growth and that clearly is our goal now when you know really the pace is going to different by market right. So it's hard to tell exactly when it will be throughout the year of course, we'll update.
So as we go through and you know in North America, our biggest market will be a bit more challenged.
Got it got it I'll leave it there because I know we're at the end of the call. Thanks, so much.
So much take care.
Alright in closing I really do want to thank again, all of our people and our managing directors what they do every day, which is truly extraordinary and gives us a lot of confidence in the future and I want to thank all of our shareholders for your continued trust and support I assure you. We are working hard every day.
To continue to earn it thank you.
Okay.
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