Q2 2025 Accenture PLC Earnings Call
Speaker Change: Good day and welcome to Accenture's second quarter of fiscal 2025 earnings conference call. All
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Speaker Change: Please note, today's event is being recorded. I would now like to turn a conference over to Katie O'Connor, managing director and head of investor relations. Please go ahead.
Speaker Change: Thank you operator and thanks everyone for joining us today on our second quarter fiscal 2025 earnings announcement as the operator just mentioned I'm Katie O'Connor managing director head of investor relations.
Speaker Change: On today's call, you will hear from Julie Sweet, our Chair and Chief Executive Officer and Angie Park, 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.
Speaker Change: Angie will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the second quarter. Julie will then provide a brief update on our market positioning before Angie provides our business outlook for the third quarter and full fiscal year 2025. We will then take your questions before Julie provides a wrap-up at the end of the call.
Speaker Change: 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 10K and quarterly reports on form 10Q and other SEC filing.
Speaker Change: As always Accenture assumes no obligation to update the information presented on this conference call now, let me turn the call over to Julie.
Julie Sweet: Thank you Katie and everyone. Joining this morning, and thank you to our more than 800000 people around the world for their extraordinary work and commitment to our clients, which resulted in a very strong quarter, creating 360 degree value for all our stakeholders starting with our quarter. We are very pleased with our results as we continued to deliver on our strategy to return to strong growth in FY <unk>.
Julie Sweet: 25, I will share some highlights from the quarter and then turn to an update on new developments. Since we were together in December in our federal business in the current environment more broadly.
Julie Sweet: Our clients continue to prioritize large scale transformations, and we had a reinvention partner of choice as reflected in our bookings of $29 billion, including 32 clients with quarterly bookings greater than $100 million. We grew eight 5% in local currency with revenue of $16 7 billion at the top end of our guided range and.
Julie Sweet: We continue to take market share on a rolling four quarter basis against our basket of our closest global publicly traded competitors, which is how we calculate market share.
Julie Sweet: We had another milestone quarter, and Jenny I with $1 $4 billion of new bookings and approximately $600 million in revenue operating.
Julie Sweet: Operating margin contracted 20 basis points compared to adjusted operating margin last year, and we delivered EPS growth of 2% over Q2, FY 'twenty for adjusted EPS.
Julie Sweet: We continue to invest significantly in our business to drive additional growth and highly strategic areas with over $215 million deployed primarily across six strategic acquisitions and we invested in our people with approximately 15 million training hours. This quarter designed to help us bring the latest in solutions and technology to our clients provide our people with marketable skills.
Julie Sweet: And we inventor services do you think Jenny I, we increased our data and AI workforce to approximately 72000 and continuing progress against our goal of 80000 by the end of FY 2020 six we can.
Julie Sweet: Continue to invest in creating and maintaining thriving communities, which is a component of our long term growth strategy. This quarter in India, We launched a transformative hospitality skilling program in collaboration with our client Marriott International which compares disadvantages for entry level jobs in the hospitality sector, including training for digital skills because.
Julie Sweet: We help our clients execute on some of their most important priorities and we need to attract and retain the best people recognition of Accenture isn't ethical and admired company is critical our clients confidence and to attract these great talent. We are pleased that we have been recognized by Ethisphere as one of the world's most ethical.
Julie Sweet: As for the 18th year in a row and for the third consecutive year, we ranked number one in our industry and among the top five overall and just capitals America's most just companies. In addition, thanks to our client partners and the wider business community. We earned the number one position in our industry for the 12th year in a row and number 30 overall.
Julie Sweet: Our highest.
Julie Sweet: Unfortunate list of the world's most admired companies now are two updates first accenture federal services.
Julie Sweet: Federal represented approximately 8% of our global revenue and 16% of our macro America's revenue in FY 'twenty four as you know that the new administration has a clear goal to run the federal government more efficiently. During this process. Many new procurement actions have slowed which is negatively impacting our sales and revenue. In addition recently the general services administration.
Julie Sweet: Jason has instructed all federal agencies to review their contracts with the top 10 highest paid consulting firms contracting with the U S government, which includes Accenture Federal services. The GSA is guidance was to terminate contracts that are not deemed mission critical by the federal way that the relevant federal agencies, while we continue to believe our work for federal clients is mission critical.
Julie Sweet: We anticipate ongoing uncertainty as the government's priorities evolve in these uncertain assessments unfold based on our significant experience across federal and commercial clients, we see major opportunities over time for us to help consolidate modernize and reinvent the federal government to drive a whole new level of efficiency.
Julie Sweet: Second in recent weeks, we are seeing an elevated level of what was already significant uncertainty in the global economic and geopolitical environment, marking a shift from our first quarter FY 'twenty five earnings report in December at the same time, we believe the fundamentals of our industry remains strong and we are very well positioned with our clients because all strategies continue to.
Julie Sweet: Lead to reinvention to new ways of working tech data and AI.
Julie Sweet: Confident in executing our strategy to help clients. We embed as you would expect we are laser focused on bringing tremendous value to our clients our strengths lie in our agility as the markets. We operate in changes utilizing our deep client and ecosystem relationships and our leading position in Jennie O and technology more broadly we are also.
Julie Sweet: So well diversified across markets industries and types of work, which enables us to continue to lead in a changing market context as we've done before.
Julie Sweet: Do you have any.
Julien: Thank you Julien.
Speaker Change: To all of you for taking the time to join US on today's call. We were very pleased with our results in the second quarter, particularly our continued strong topline growth, which was once again broad based across geographic markets industry groups and consulting and maintenance services. Let me begin by summarizing a few highlights from the quarter revenues.
Speaker Change: Grew eight 5% in local currency, which was at the top end of our guided range with nine of our 13 industries growing high single digit or higher.
Speaker Change: And we continue to take market share, we delivered EPS in the quarter of $2.82, reflecting 2% growth over adjusted EPS last year.
Speaker Change: Operating margin of 13, 5% for the quarter decreased 20 basis points compared to adjusted Q2 results last year and includes significant investments in our people and our business.
Speaker Change: We delivered free cash flow of $2 $7 billion and returned $2 $4 billion to shareholders through repurchases and dividends in the first half of the year, we have invested almost $500 million primarily attributed to 11 acquisitions.
Speaker Change: With those high level comments, let me turn to some of the details starting with new bucking.
New bookings were $20 $9 billion for the quarter, a 3% decrease in U S dollars and flat in local currency with an overall book to Bill of one <unk> three <unk>.
Speaker Change: <unk> bookings were $10 $5 billion with a book to Bill of one three managed services bookings were $10 4 billion with a book to Bill of one to.
Speaker Change: Turning now to revenues revenues for the quarter were $16 $7 billion, a 5% increase in U S dollars and eight 5% in local currency the foreign exchange impact for the quarter was approximately negative 3% compared with a negative 2.5% estimate provided last quarter.
Speaker Change: Yeah.
Speaker Change: Consulting revenues for the quarter were $8 3 billion up 3% in U S dollars and 6% in local currency.
Speaker Change: Services revenue were $8 4 billion up 8% in U S dollars and 11% in local currency driven by double digit growth in technology mean, it services, which include application managed services and infrastructure services and high single digit growth in operations turn.
Speaker Change: Each of our geographic markets in the Americas revenues grew 11% in local currency growth was led by banking and capital markets Industrial health and consumer goods retail and travel services revenue growth was driven by the United States.
Speaker Change: In EMEA, we delivered 8% growth in local currency led by growth in public service life Sciences, and consumer goods retail and travel services revenue growth was driven by the United Kingdom.
Speaker Change: In Asia Pacific revenue grew 1% in local currency driven by growth in insurance and utilities, partially offset by a decline in chemicals and natural resources revenue growth was led by Japan, partially offset by a decline in Singapore moving.
Speaker Change: Moving down the income statement gross margin for the quarter was 29, 9% compared to 39% for the second quarter of last year.
Speaker Change: Sales and marketing expense for the quarter was 10, 1% compared with 10, 3% for the second quarter of last year.
Speaker Change: General and administrative expense was six 3% compared to $6 nine for the same quarter last year.
Speaker Change: Before I continue I want to note that in Q2 of last year, we recorded $115 million and costs associated with our business optimization actions, which decreased operating margin by 70 basis points and EPS by <unk> 14 cents.
Speaker Change: The following comparisons exclude these impacts and reflect adjusted results.
Speaker Change: Operating income was $2 $2 billion in the second quarter, reflecting a 13, 5% operating margin at 20 basis point decrease from adjusted operating margin in Q2 of last year, our effective tax rate for the quarter was 24% compared with an adjusted effective tax rate of 18, 8% for the second quarter last.
Speaker Change: Sure.
Speaker Change: Diluted earnings per share were $2.82 compared with adjusted diluted EPS of $2 77 in the second quarter of last year, reflecting 2% growth.
Speaker Change: <unk> services outstanding were 48 days compared to 50 days last quarter and 43 days in the second quarter of last year.
Speaker Change: Free cash flow for the quarter was $2 7 billion, resulting from cash generated by operating activities of $2 $9 billion net of property and equipment additions of $171 million.
Speaker Change: Our cash balance at February 28 was $8 5 billion compared with $5 billion at the end.
Speaker Change: August 31st.
Speaker Change: With regards to our ongoing objective to return cash to shareholders in the second quarter, we repurchased or redeemed 4 million shares for $1 $4 billion at an average price of $361 16 per share.
Speaker Change: As of February 28, we had approximately $5 billion of share repurchase authority remaining.
Speaker Change: Also in February we paid a quarterly cash dividend of $1 48 per share for a total of $929 million.
Speaker Change: This represented a 15% increase over last year.
Speaker Change: And our board of directors declared a quarterly cash dividend of $1.48 per share to be paid on may 15th 15% increase over last year.
Julie Sweet: And now let me turn it back to Julie.
Julie Sweet: Thank you Angie.
Speaker Change: Starting with the demand environment, our clients continue to be focused on reinvention and Jenny I as a catalyst for reinvention.
Speaker Change: Focus on building the digital core with more AI being built in which is driving our growth and in areas such as the customer and core operations, including supply chain and industry acts.
Speaker Change: Our clients the twin themes of achieving both cost efficiency and growth continue the number of clients embracing Jenny I is increasing significantly and we're starting to see some tangible examples of scale and data and AI.
Speaker Change: Partnering with Telstra, Australia's leading telecommunications company to create a new joint venture to accelerate its data and AI Road map and fast track the business into a new era of AI driven reinvention to the joint venture we will work together to simplify and modernize their data systems and set up a comprehensive AI foundations to deploy advanced AI solutions across their organs.
Speaker Change: Station valued.
Speaker Change: While you're driving AI use cases have been identified across the business that are suitable for scaling and will enhance network resilience deliver seamless connectivity and better customer experience using our AI refinery platform will re imagine business processes by implementing Identic AI specialized AI tools will support their employees too.
Speaker Change: Work smarter and faster and teams to operate more efficiently and effectively. In addition, we will help evolve Telstra is data and AI Academy, the companywide Upskilling initiative, leveraging our learning and development programs, helping to build data and AI fluency in future critical skills across its workforce building until shows globally, leading responsible AI practices the JV.
Speaker Change: It's designed to sustain and improve on this by identifying and modifying mitigating AI risks or building trust and adoption as it scales AI across the organization.
Speaker Change: This partnership with Telstra illustrates to clients, but there are creative ways to accelerate their own use of data and AI clients in Australia from banking retail and utilities are working with us to design their own innovative in ways to jumpstart the reinvention them with data and AI.
Speaker Change: Continued to see our clients building their digital core as a foundation for reinvention increasingly asking us to incorporate emerging technologies like AI as well as data into this work cloud saw double digit growth this quarter in security had very strong double digit growth.
Speaker Change: We are working together with the multinational food processing company to help reinvent themselves as a data driven organization revolutionizing. Their enterprise. This concludes the end to end supply chain and frontline sales function to support rapid growth are.
Speaker Change: Our unique partnership model uses our library of AI, and Jenny I assets to quickly deliver productivity with the potential of generating over a half a billion dollars in value to self fund their reinvention. The savings are reinvested into an ongoing build out of a robust digital core which becomes a foundation to support and enable any new technologies process.
Speaker Change: As their systems the company may adopt in the future for example, the companies using journey is forecast in the inventory risk and generate next best action recommendations saving them millions of dollars annually.
Speaker Change: Excess inventory on a product is selling slower than expected in our region Jenny I tools proactively prompted unemotional sale or halt production before the inventory resulted in a margin loss in another instance in AI based communication platform is deployed that eliminates up to five different language barriers between supervisors and frontline workers and plants reducing costly.
Speaker Change: Erez from its communications and delays with many households, having at least one of their products. This company's commitment to ongoing transformation will position them to continue to build design and run a future ready enterprise, we think work and drive innovation.
We are helping one of the world's largest auto manufacturers not a nicer security operations to protect the company's critical I T systems and stay ahead of the rapidly evolving security landscape.
Speaker Change: We will implement a modern threat detection and response platform that will enable the company to integrate its data across the enterprise identifying cyber threats and responding to incidents faster we were building a new Gen. AI security engine on the Accenture as my security platform, which will help automate cloud migration task moving the threat detection capabilities in the legacy platform to the new.
Speaker Change: New one without interruption.
Speaker Change: It is expected to increase the company's operational excellence enhanced cyber resiliency increased risks visibility and drive a significant improvement in efficiency with the new platform. The company will be able to better safeguard digital assets, including information critical to automotive design and manufacturing.
Speaker Change: The collaboration will help better protect the company its partners and customers setting the stage for advanced AI Smart manufacturing and increased innovation.
To capture the value of technologies like generative AI companies need a digital core and now to stay ahead and truly scale AI companies also need what we call our cognizant digital brain and always on and always learning system as we shared on our Tech vision 2025.
Speaker Change: Our industry expertise is critical to building the digital core and digital brain, a deep knowledge of the processes today and how they can be and reinvented for tomorrow is key our proven track record of digital transformation and our ability to bring experience in strategy consulting industry process and technology services and decades of experience.
Speaker Change: Managed services for our clients allows us to truly reinvent using AI, including digital agents to create transformational value at scale.
Speaker Change: We are deepening our partnership with Repsol.
Speaker Change: Leading multi energy company and a client for more than a decade to advance its digital program and scale agenda Kei reinventing key business operations to drive sustainable growth.
Speaker Change: Over the past three years, we have built a secure cloud based digital core with a unified data Foundation now we will use our AI refinery platform to deploy customized AI agents across functions, such as planning forecasting and customer service, making processes more dynamic and less complex employees will be able to work more efficiently and provide.
Speaker Change: Customers with accurate personalized products and services for example, AI agents can analyze available data to offer timely and relevant bundled energy solutions enhancing <unk> position as an integrated provider, we will upskill employees in AI and digital technologies to an expanded training program to support adoption. We are also exploring.
Speaker Change: Digital twins, and robotic solutions to enhance plant maintenance and other tasks and in industrial and logistics centers Repsol is positioning itself as an early adopter of AI in the energy sector, increasing efficiency boosting productivity and promoting new ways of working to better serve customers.
Speaker Change: The transformation and Digitization of manufacturing is an important area of growth in industry X grew high single digits this quarter.
Speaker Change: We are working with key on a global leader in supply chain solutions to use AI powered digital twins to create smarter safer and more adaptable warehouses that can evolve with the world around them and handle nearly any supply chain challenge, marking the next digital frontier picture a busy warehouse during peak shopping season workers' navigating their aisles.
Speaker Change: Thereabouts forklifts loading and unloading freight now imagine robots working seamlessly with human teams to fulfill orders faster and more safely. We are making this a reality by creating digital versions of physical assets, such as conveyors, and forklifts and integrating autonomous robots with human workers on an AI driven platform that accurately simulate.
Speaker Change: <unk> is a complex factory processes to help ensure safety and avoid disruptions before robots hit the factory floor. We are also predicting and adapting to real world challenges as they happen such as how events like Black Friday sales, our product going viral might affect warehouse operations adjusting robot brains in real time, but these investments with these <unk>.
Speaker Change: Dan Smith warehouse workers responsibilities will evolve as they work alongside AI systems, making them more desirable candidates for higher skilled roles.
Speaker Change: Song grew double digits this quarter as more clients seek to reinvent customer and experience we have a unique ability to integrate creative data and AI tech and strategy, while leveraging our industry and operations expertise to online marketing and sales as a growth enabler for our clients while delivering efficiencies.
Speaker Change: We are partnering with a multinational conglomerate in the communications industry to streamline and optimize their media strategy and operations, but our mobile division, we've implemented a new digital platform with a unified data foundation, which will provide transparency and real time access to expedite campaign position.
Speaker Change: The company will also reduce the number of media agencies to a single partner Accenture song to maximize media spend outcome ex inches marketing operations managed services will leverage automation and AI to increase efficiencies and manual routine tasks, which will allow employees to focus on more strategic work. These changes will also allow the company to ship.
Speaker Change: From focusing solely on media related data to incorporating broader insights to make more strategic and informed decisions that benefit the entire company such as predicting customer content preferences, which can drive more efficient media placement in sales.
Speaker Change: Talent continues to be at the top of the agenda for Ceos and governments and reinvention requires working in new ways and the development of new skills.
Speaker Change: Advantaged positions us to help to be able to help clients develop talent and skills to drive future growth.
Speaker Change: Our clients are using learn vanished strengthen learning development turbocharging. The learner experience. For example, we are bridging the skills gap and creating certification pathways for learners using learn vantage in the kingdom of Saudi Arabia. This will fast track their careers and support their adoption of journey II and a big box retailer has accelerated learning opportunities for.
Entry level to highly technical skill sets.
Speaker Change: And understanding of current industry skills by Wil needs by role and empowered employees with guided learning based on the skills they need for their role.
Speaker Change: Finally, a look at how we continue to execute on our execute on our goal to strategically deploy two 3 billion in DNA. This fiscal year we.
Speaker Change: We are investing in our industry acts and supply chain capabilities with their acquisitions this quarter of Alex and stuff in AG in Germany. We also acquired IGT IQ T group in Italy, and managed services provider, which will help utility providers build and modernized integrated electricity and water networks.
Speaker Change: To continue to lead and Jenny I, we acquired have space in depth, Denmark to help our clients in the Nordics region leverage and scale AI to make better more informed decisions faster and.
Speaker Change: And to enable us to scale faster in financial services, we acquired Altice consulting in the U K, a leader in consulting and digital transformation.
Speaker Change: Also this quarter, we purchased a digital twin technology platform for banks from precipitate a Singapore based Fintech company with deep expertise in banking technology transformation back to U N G.
Speaker Change: Thanks, Julie before I get into the details of our outlook as Julie mentioned, we have seen an elevated level of uncertainty, including in our federal business.
Speaker Change: Cause this change is very recent our revenue guidance range for both Q3 and the full year reflects our best view based on what we see today, which may evolve differently from our estimates and assumptions.
Speaker Change: With that said, let me turn now to the business outlook for.
Speaker Change: For the third quarter of fiscal 'twenty, five we expect revenues to be in the range of $16 nine to $17 5 billion.
Speaker Change: This assumes the impact of FX will be about negative 0.5% compared to the third quarter of fiscal 'twenty four and reflects an estimated 3% to 7% growth in local currency.
Speaker Change: The full fiscal year 'twenty five.
Speaker Change: Based upon how the rates have been trending over the last few weeks, we continue to assume the impact of FX on our results in U S dollars will be approximately negative <unk>, 5% compared to fiscal 'twenty four but.
Speaker Change: The full fiscal 'twenty five we now expect our revenue to be in the range of 5% to 7% growth in local currency over fiscal 'twenty four.
Speaker Change: We continue to expect an inorganic contribution as a bit more than 3% with about 4% in the first half and about 2% in the second half.
Speaker Change: And we now expect to invest about $2 billion to $3 billion in acquisitions this fiscal year for.
Speaker Change: For operating margin, we now expect fiscal year 'twenty five to be $15 six to 15, 7% a 10 to 20 basis point expansion over adjusted fiscal 'twenty four results we.
Speaker Change: We continue to expect our annual effective tax rate to be in the range of 22, 5% to 24, 5%. This compares to an adjusted effective tax rate of 23, 6% in fiscal 'twenty four.
Speaker Change: We now expect our full year diluted earnings per share for fiscal 'twenty five to be in the range of $12 55 to $12 79, or 5% to 7% growth over adjusted fiscal 'twenty four results.
Speaker Change: For the full fiscal 'twenty five we continue to expect operating cash flow in the range of nine 4% to $10 1 billion property and equipment additions to be approximately $600 million and free cash flow to be in the range of eight 8% to $9 5 billion. Our free cash flow guidance continues to reflect our free cash flow to net income right.
Speaker Change: So of one one to one that's.
Speaker Change: Finally, we continue to expect to return at least $8 3 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to shareholders.
Speaker Change: As we move into the second half of the year, we remain laser focused on managing our business with rigor and discipline.
Speaker Change: With that let's open it up so we can take your questions.
Speaker Change: Thanks Angie.
Speaker Change: 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.
Speaker Change: Absolutely if you're going to ask a question. Please press Star then one on your telephone keypad.
Speaker Change: Your question has already been addressed I would like to remove yourself from queue. Please press Star then two.
Speaker Change: Our first question today comes from Jason Kupferberg with Bank of America. Please go ahead.
Jason Kupferberg: Good morning, guys. Thanks for all of this so I just wanted to start outside of U S. Federal for the other 92% of the business can you just clarify to what extent you are not seeing clients hit the pause button at all on new initiatives any change in pace of converting pipeline to backlog our backlog into revenue can certainly appreciate that.
Speaker Change: Your tone is a little bit more cautious maybe the visibility isn't quite as high but are you seeing tangible signs of any pause in client activity at this point in time.
Jason Kupferberg: Hi, Jason Good morning, and thanks for your question and for US There's really we've seen no change overall.
Speaker Change: Overall.
Speaker Change: Yeah, and I mean as you can imagine.
Speaker Change: Some of these changes are relatively recent and so we're in a lot of discussion.
Speaker Change: In some cases, there's discussions are about accelerating particularly when in the cost discussions right like can we go a little faster to.
Speaker Change: Get to our programs for places where were contracting.
Speaker Change: And we are at the heart of many of the discussions where businesses are trying to process. What this might mean.
Speaker Change: So, but you know we're not seeing any pauses now.
Speaker Change: Okay. So we got to watch and wait on that so let's go to U S. Federal just for a minute can you just clarify for us what the growth rate was in U S. Federal revenue in the quarter and what you're assuming for the second half of the year and U S. Federal.
Speaker Change: Okay. So why don't I take that because I think it's important to give a little bit of context on on our Q3, and our full year guidance and certainly as it relates to Q2, specifically for federal we really don't provide that during the year and as you know we provide that at the end of the year.
Speaker Change: So let me just start with and could they do you think this is important when you think about we were really pleased with the quarter, our second quarter and the first half of the year and for the second quarter. We did deliver revenue at the top end at the top end of our range and we're very pleased that we were.
Speaker Change: That we were able to update our guidance to 5% to 7% by taking off the bottom.
Speaker Change: So and why is that so pleased with how our business is positioned with the larger deals coming online, which was a very deliberate part of our strategy and then as you think about Q3 and the full year. It includes our current estimates and assumptions as the potential impacts of federal and the overall environment.
Speaker Change: And then if I just break apart organic and inorganic from an inorganic contribution we continue to expect a bit over 3% with H to about 2%, which is consistent with what we shared last quarter in our assumptions and then for the year what that means is from an organic perspective, we now expect.
Speaker Change: 2% to 4% and organic growth for the year.
Speaker Change: And by type of work to provide that context as well consulting we continue to expect to be in the mid single digit range growth and we now see managed services at high single digits.
Speaker Change: Okay.
Speaker Change: Yeah and then.
Speaker Change: Thank you.
Operator: Thank you and our next question comes from Tien Tsin Huang with Jpmorgan. Please go ahead.
Speaker Change: Hey, Thank you so much so great to hear from me, Julie and Angie just.
Operator: Maybe a loss instead of demand I want to ask on the margin outlook.
Operator: And the change there how much of that is organic versus inorganic in terms of the change and is it just.
Operator: You're almost getting questions. Their cost is it costs you more to do business with good cost execution here going up is there a pricing change what more can you share.
Operator: Sure and as it relates.
Operator: Thank you Tien tsin as it relates to inorganic or capital deployed we've updated we may be a bit lighter at $2 billion to $3 billion, but relative from a margin profile.
Operator: No change there and.
Operator: So let me just step back a little bit less.
Operator: This quarter.
Operator: We are decreasing our gross margin.
Operator: No even behind the subcontractor costs and the impact of our business optimization actions, which reduced severance costs in Q2 of last year and as you know this fluctuates quarter to quarter, which is really why we manage to overall operating margin.
Operator: And as you think about our operating margin for the year based upon where we are we now expect a 20 basis points expansion for the year, well continuing to invest significantly in our business and our people and like we're seeing the variability in the operating margin throughout the year that we expected. So what are we focused on.
Operator: On pricing, which this quarter was relatively stable, how we deliver our contracts and how we run our business, which includes managing supply and demand and digitizing and making our own operations more efficient. So we feel really good about our full year guidance of 10 to 20 basis points, which includes EPS growth at five.
Speaker Change: 5% to 7%, Yeah, and Tien Tsin, we always update we typically update about this time, we just don't see we didn't see the 30 basis points, it's a super competitive market. So our pricing is relatively stable as we've been talking about it it's a competitive market. So.
Speaker Change: Got it that's all clear thanks for going through that just my follow up.
Speaker Change: I think Jason that's about sort of already is there maybe to ask it differently is there a way to frame the real revenue at risk No mission critical.
Speaker Change: Maybe hard to.
Speaker Change: Do you find it here on the call, but is there anything that you can share in terms of whats really at risk or not at risk thinking about duration or is it really more of an issue of replenishing works et cetera, just trying to get a better understanding of visibility there. Thank you.
Sure. So Tien tsin, what I would say is what.
Speaker Change: What we've been clear about is the guided range were giving for the quarter and for the year reflects our best view of the impact that's coming from both the slowing of our new procurement actions and the assessments of the work that we're doing and so we don't get into.
Speaker Change: Two different pieces of it but.
Speaker Change: Okay.
Speaker Change: She's saying the range of outcomes and that's reflected in the range I mean, it is 8% of our business. We have lots of other parts of our business that are about that size that we are always looking at you know estimates and assumptions and so this is our best view of it today and the range reflects it.
Speaker Change: Got it now if your view is better than mine and glad to see the bottom in the range of ticking up here. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you and our next question comes from Bryan Keane of Deutsche Bank. Please go ahead.
Bryan Keane: Hey, guys. Thanks for taking the questions I guess my first one is Julie just thinking about how budgets were set in.
Bryan Keane: Our conversations maybe changed from January February to March could you give us some color on that.
Bryan Keane: Yeah, I'd I'd start with as we went into this calendar year, we did not see kind of like kind of across the board a meaningful increase in budgets for our services. So we saw more of the same which is consistent with what we've been talking about and as we.
Bryan Keane: Went into the budget.
Bryan Keane: The budgets were set you know it was kind of more of the same and you know it's pretty early right now in terms of processing right. What just happened and there's a lot of different things that can happen right. So we you know you sometimes see clients re prioritizing like maybe they'll go faster on the cost cutting than on some of the building and that.
Bryan Keane: And it's it's you know even those congress that kind of a conversation super early right.
Bryan Keane: So what we are seeing though is a continuation that you know these conversations always turn to okay. We gotta go faster, we gotta go bigger and this theme around cost and growth because that's really the unique way that we can help.
Bryan Keane: So you know one of the examples that I gave in the script around.
Bryan Keane: A major manufacturer of food supplies is all about like you know when you are better managing inventory and supply chain, that's both driving growth and at the same time you know.
Bryan Keane: Self funding Big transformation program, So I think right now.
Bryan Keane: If you think about just what is the impact of an elevated level of uncertainty. It's the same thing as what we've been seeing like more desire to do larger transformation and are you now and while we're at it because I'm sure. The question will come you know discretionary spending this quarter Q2 was overall.
Bryan Keane: We're all about the same still constrained there were some pockets of improvement for example in banking and capital markets in the Americas, but again going into the calendar year discretionary spending was overall about the same you know constrained and particularly in small deals that we've been seeing so yeah, that's kind of where we are and I would just.
Speaker Change: As Julie Thanks for that I would just add that you know as you think about our guidance for the full year as well and what it assumes is discretionary spend does not have to improve at the top end of the range. While it continues to allow for further deterioration at the bottom.
Speaker Change: Yes, Andrea as my follow up I was going to ask if you take the midpoint of that third quarter constant currency revenue you get to about five it implies fourth quarter revenue range looks a little wider than usual and maybe maybe a couple of points lower than the third quarter. So just kind of what's built in or are you building in a little bit of a.
Speaker Change: Slowdown in organic growth in that fourth quarter or is that just some level of elevated uncertainty that goes into the fourth quarter number. Thanks. So much.
Speaker Change: Got it.
Speaker Change: Brian Your math is right. So you know we have seen an elevated level of uncertainty and so we spoke about that and you are correct that you know as you think about our inorganic contribution and a bit more than 3% for the full year. It was roughly 4% in the first half we're expecting about 2% in the second half which means.
Speaker Change: Importantly that our organic growth for the full year is now 2% to 4%.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thanks.
Speaker Change: And our next question comes from the program with Baird. Please go ahead.
Speaker Change: Yeah, Hey, guys. Good job in I guess my my first question wholesome public services typically is kind of flattish sequentially in Q2, it was down about 5% sequentially.
Speaker Change: And I guess kind of asking Jason's question to US is some of that U S. Federal or are there other parts of health and public services that was weaker than normal I'm, just trying to understand that.
Speaker Change: Hi, David Good morning, and nothing to read into that there were said, we didn't see any material impact.
H M. P S. It just ebbs and flows.
Speaker Change: Over the quarters, and so nothing to nothing to really comment there.
Speaker Change: Okay, and just as a follow up I think you might've mentioned pricing was pretty stable I looked back the last seven quarters, you called pricing is being down a bit I mean are we starting to get back to a more stable environment for pricing.
Speaker Change: So as you think about our pricing we did comment that it was relatively relatively stable. The market continues to be very competitive and so what you can count on us to do is we're always focused on it and just as a reminder, pricing as the contract profitability or margin on the work that we sell.
Speaker Change: Yeah, great. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: And our next question today comes from James Fawcett with.
James Fawcett: Morgan Stanley. Please go ahead.
James Fawcett: Great. Thank you very much.
James Fawcett: As we talked about the little bit of the slowdown that you've seen in recent weeks.
Speaker Change: How would you characterize it geographically or industry vertical just trying to get a little more color there and what do you think those customers are looking for.
Speaker Change: In terms of their proceed or continue to pause or hesitation type of decision making.
Speaker Change: Thanks, James I wanted to be clear, we haven't seen a slowdown in the last few weeks, what we commented on which I think is you know kind of everyone's well aware of is in the last few weeks, there's been an elevated level of what was already a significant uncertainty.
Speaker Change: And there's a couple of big themes around that obviously tariffs and that's a global discussion that is not just on Americas discussion and also consumer sentiment, which is a little bit more of an Americas discussion and so we're really just commenting on what I think we're all seeing and that's only been in the last few.
Speaker Change: Two weeks and so we're already of course in the heart of the discussions of clients globally, who are talking about it and you're seeing you know for example, and you know in Europe. There was an announcement of like major spending in areas like defense, where we've been investing in our rail position and by the way I do want to shout out to my U K team hopefully.
Speaker Change: I'll have you noticed that the U K Ah is back and we're driving our revenue and it's a great example of how we address challenges by leveraging our ability to invest we've done a lot of acquisitions there. The agility the use of data and AI, which are all driving the repositioning that you are starting to now see in the.
Speaker Change: Okay. So again, we have a lot of diversification of our business and when you think about the Americas and the agenda now in federal with respect to Consol.
Speaker Change: Consolidating modernizing and reinventing the federal government, we're incredibly well positioned because we've been driving already a lot of efficiency in the federal government with the work we've been doing for decades, and we're now bringing that reinvention that we've been doing now for a few years those commercial solutions, we've got the ability.
Speaker Change: To bring that to the federal government as they move forward with their agenda. So diverse you know the conversations global.
Speaker Change: Lots of opportunities that depend on the market and we have a really strong position and you know just flag again, the 32 clients this quarter, who did over $100 million of bookings.
Speaker Change: That's great and great clarification I appreciate that and then wanted to touch quickly on your AI in an AI.
Speaker Change: Initiatives et cetera.
Speaker Change: Can you give a little bit of color of how that's developing with your software partners what kinds of.
Speaker Change: Proven through adjustments in go to market that may entail.
Trying to get a sense for how you're working with a broader ecosystem to really drive results.
James Fawcett: Well James the ecosystem is absolutely critical here and this is where decades of relationships really matter because.
Speaker Change: This is Jenny is a new technology the adoption of AI more broadly is new it wasn't being adopted as much and so we work so closely with our our partners and the client really in three way conversations and work in order to reinvent and do that this is.
Speaker Change: Not that we're not we're not taking things off the shelf and say here go do this and as you know we are the leader in ecosystem with our ecosystem partners and that has been a major differentiation factor when you look at our growth, particularly in these in these large deals where the.
Speaker Change: Some is absolutely at the heart of it.
Speaker Change: And by the way I'm I'm I'm glad that you look you commented on the journey I because I think it's important as we think about how journey is developing that we don't walk pass it in each one we did $1 $1 billion in revenue and last year in FY 'twenty four we did $900 million for the entire year, so you're starting to see.
Speaker Change: See you know the the leadership that we have and Jenny I really come through on the revenue side.
Thank you.
Speaker Change: Thank you and our next question today comes from Bryan Bergin.
Speaker Change: Please go ahead.
Speaker Change: Hi, Good morning, Thank you Julia opening feeling well.
Speaker Change: I want to start on bookings can you can you just give us a sense on <unk> bookings, how they landed relative to your plan understanding just elevated uncertainty may extend signings I'm just curious if that did in fact play out in <unk> and can you comment how you feel you're set up for the second half in bookings.
Speaker Change: Well this is.
Speaker Change: Just as a reminder, that elevated uncertainty has been in the last few weeks and so you know no no impact on our bookings.
Andrew: And Andrew do you want to add anything.
Andrew: And so for US we were pleased with our bookings this quarter of $29 billion and importantly, our book to Bill was one three and again reinforcing and being the partner of choice for our clients with 32 clients with quarterly bookings over $100 million.
Andrew: So we feel really good about that.
Andrew: Okay.
Andrew: And then on the workforce could you comment on how you're managing that mix of subcontractors versus employees and is that higher sub con mix in the quarter, just some form of a transition component as you've taken actions on bench across the organization or are there certain service types, where you're having a lean a little bit more on that suck on mix.
Speaker Change: Brian I think that if you think about our subcontractor and our workforce mix certainly that can fluctuate quarter to quarter based upon the work that we're doing for our clients and as it relates to this quarter you saw that we added about two a little bit over 2000 people in Q2 and as always.
Speaker Change: What we are all about managing our supply and demand, including through the use of technology and re skilling and so for US you know and as you think about our workforce over all subcontractors can fluctuate and at the same time, we focus on is our utilization, which continues to be 91%, which is exactly the range that we <unk>.
Speaker Change: Ian.
Speaker Change: Okay understood. Thank you.
Speaker Change: Thank you.
Operator: And our next question is coming from Keith Bachman of BMO capital markets.
Speaker Change: Go ahead.
Speaker Change: Yes. Good morning, Thank you perhaps.
Speaker Change: Perhaps I'll ask my two just concurrently since they're on similar veins on the first one one of the previous questions was asking about AI.
Speaker Change: More from the demand side or revenue side and I wanted to go back to the supply side and delivery side and well.
Speaker Change: I think it's still really early in the life and the life of Gen. II because most of the work is actually still tests not influencing.
Speaker Change: But are you seeing any changes in the nature.
Speaker Change: Of your economic relationship with your customers in other words our customers.
Speaker Change: I'm asking for some of the savings or is there any change in that narrative on how all the supply side and economic relationship broadly speaking with your customers.
Speaker Change: May unfold as Jen AI matures a little bit.
Speaker Change: And then the second part of the question is I wanted to just jump into song for a bit and sort of the same type of question.
Speaker Change: The last day with with Adobe.
Speaker Change: Their user group conference and there's tremendous efficiency gains associated with.
Speaker Change: Both Mark and creativity of just Julia any comments I know you mentioned song had double digit growth, which is quite impressive.
Speaker Change: How do you see the durable growth rate a song and so that's it for me and jewelry all the best to you in particular.
Speaker Change: Thanks Keith.
Speaker Change: You know I think in the first question.
Speaker Change: You know what we've been seeing with Jenny I is what we've seen in the past when we have new technologies like you know I take you back to 2015, when we first announced our my Wizard, which we now called Gen. Wizard is we've introduced Gen AI and that was that major shift that occurred with respect to automd.
Speaker Change: <unk>, which by the way is still relevant.
Speaker Change: And so that's where we are not seeing a different change we've been continuously remember like particularly on the managed service side, our contracts assume that there's going to be more efficiency driven from technology journey is allowing that to kind of.
Speaker Change: You'll go up over time, but like the way that the model's working is just very similar to what we've seen with prior.
Speaker Change: Waves of big efficiencies from technology, So, we're not seeing new patterns evolve there.
Speaker Change: And of course, we're really our strategy is to lead in both helping our clients use generic but also to lead in our own use of journey II.
Speaker Change: And at the same time it is still early in the technology is still expensive. So you know you have to get to the right ROI and in terms of you know when do you use it it requires our clients to have foundations in place. This isn't just sort of push a button and we can have Jenny I.
Speaker Change: And so we you know we should expect that you know and remember that this is still a very very early.
Speaker Change: In the in the technology cycle.
Speaker Change: Excuse me with respect to song.
Speaker Change: One of the big areas that we're helping our clients on is build the data foundation in order to use the journey I, because those efficiencies that youre seeing and as you know where I'm adobe's a major partner.
Require the right data foundation and they require really the reinvention of processes, we've seen that in our own marketing, where we've been using a gen take AI, but we you know you had to completely change the way that you're doing marketing and so songs durability is being at the heart of building the digital core.
Speaker Change: And helping them do the reinvention, while leading in our own use of journey II, which is what we continue to be focused on so I feel.
Speaker Change: Very good about song and importantly, our diversification as we want to be relevant to all parts of the enterprise and the growth agenda, which is what song positions US in addition to our entire <unk>.
Speaker Change: The ability to be at the core operations and at the enterprise. So I'm really very pleased with how our strategy to be relevant across the enterprise continues to give us resilience in the market.
Julie Sweet: Thank you Julie.
Julie Sweet: Thanks Bill.
Julie Sweet: And we're very fortunate very helpful. Jonathan.
Julie Sweet: Our partners. Please go ahead.
Julie Sweet: Great. Thanks for taking our questions I want to clarify the change in the revenue outlook. Your original outlook contemplated status quo with the high end of the outlook is that still the case and is that index of what youre seeing today with the elevated uncertainty, but not necessarily any sort of slowdown.
Julie Sweet: Hi, Jonathan Thanks for the question and yes, that's correct, so with with our assumptions the range of five to seven which we raised.
Julie Sweet: For the full year is that discretionary spend does not have to improve at the top end of the range and while at the bottom of the range. It allows for further deterioration.
Julie Sweet: Okay.
Julie Sweet: Thanks for that color and then on the pricing front, it's good to hear about the pricing stability, you're seeing despite the competitive environment. How do we think through the timing in which would take stable pricing to flow through the P&L, especially it looks like were still digesting some of the pricing headwinds, we've been seeing or last few quarters.
Julie Sweet: Did you think about pricing you know it does take time for it to layer in and certainly it depends on the mix of the deals that we're selling as well so we'll see that come through over time.
Julie Sweet: I appreciate that.
Julie Sweet: Thank you.
Speaker Change: Operator, we have time for one more question and then Julie will wrap up the call.
Speaker Change: Thank you. Our final question comes from Darrin Peller of Wolfe Research. Please go ahead.
Darrin Peller: Guys, Thanks, and Julia I, just want to wish you a good that.
Speaker Change: She progressed as well.
Speaker Change: When we think about what we're seeing in terms of the larger transformational contracts that benefited that are benefiting you. So much this year despite.
Speaker Change: Slower discretionary or not a real improvement in discretionary yet.
Speaker Change: Just remind us again, where you are on that if I'm going to get bookings was a question before it was up.
Speaker Change: Or maybe it was more or less flat year over year, but your book to Bill was cool very strong on the screen. So just help us understand what you're seeing in terms of the most transformational contracts right now that could give us room, despite sort of whatever outcomes all around the discretionary and then one quick follow up Julian when we spoke last you talked about how there.
Speaker Change: There was so much in terms of like waiting by executive C. I O Ceos and others on tariffs and some of the policies you talked about earlier.
Speaker Change: If we do get some resolution on that in the next couple of months April 2nd could be a good day for the administration in terms of explaining.
Speaker Change: How much have you heard from your customers on how much. They are just really waiting there is pent up demand budget, just help us understand that a little more for Jeff.
Speaker Change: Sure so on the on the demand side.
Speaker Change: The 32 clients with bookings over 100 million.
Speaker Change: <unk> continued to show that we're executing on that strategy, but what clients want to buy a larger transformational deals they want the reinvention and we continue to execute on that too again, because that's like.
Speaker Change: We're going where the demand is right. So that same sort of view of continuing to make sure having those larger deals that we'll continue to layer in is the strategy and really no change there because that's the demands right and we need to be focused on where clients are buying.
Speaker Change: And then Oh.
Speaker Change: What I would say on the.
Speaker Change: How how things might layer in.
Speaker Change: Ceos are actually focused on how do I succeed regardless of the level of uncertainty. So the conversations we're having are not hey, you know what happens if the tariffs.
Speaker Change: This gets resolved et cetera, it's okay.
Speaker Change: We have a higher level of uncertainty than we did 90 days ago and so how do we then reinvent faster right what do we need to shift to it.
Speaker Change: Ceos and this is not from this this has been going on for now for a few years right. There in bracing that their responsibility is to grow regardless of what has been in my tenure as CEO in the last six years, a series of a lot of different events and that's why as we think about our own business right.
Speaker Change: We continue to anchor on the you.
Speaker Change: You know the characteristics that have allowed us to be the leader over these different cycles that the deep client relationships, our top hunter clients, we've been with them for over 10 years, the diversification of geographies industries I don't want to give a shout out to all my industry teams you know the industry groups all had broad based growth, but it will.
Speaker Change: Laos us for that diversification as well as types of work and then the all important ecosystem relationships and our leadership in Gen AI and technology. Those are the building blocks of our resilient business and we all our Ceos and ourselves have to be agile to <unk>.
Speaker Change: Exceed in whatever market and that is what our range reflects the fact that we took the bottom off of the range reflects our belief in our resilient model.
Speaker Change: As we as we continue to navigate.
Speaker Change: Thats really helpful. Jerry just a quick follow up would be on an AI again on deep C. J.
Speaker Change: Just given the developments I mean has there been more of an emphasis around it just given the ability to use even more efficient systems or just help us understand in terms of I know you've said before 10% of customers you might actually have the infrastructure ready to.
Speaker Change: We still have a lot of work to do to prepare as they've been in a.
Speaker Change: Celebration and the momentum or is it the same as it was the last couple of quarters.
Thank you Daniel.
Speaker Change: Thank you very much we are seeing increasing numbers of clients embracing Gen AI and really that is in our view deep because it's an interesting development. It's an example of the ongoing technology development, but the reason they're embracing it is that they're seeing the proven value in that.
Speaker Change: That is why we continue to grow because we're the ones in our client base, helping our clients get to that value and you saw that in a lot of the examples we've been giving so client theres, an increasing number of clients embracing it as companies are seeing it and there is no you know view that you can sit back right.
Speaker Change: And wait on this and that.
Speaker Change: That two years in is very evident in our conversations with clients.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Well. Thank you again for joining before we wrap up I have two updates first as many of you know last month I did announce that I have recently been diagnosed with breast cancer I just want to let everyone know I'm feeling good my treatment is on track and my prognosis continues to be excellent I've received so many well wishes including on this call.
Speaker Change: And I just want to thank everyone for all of their support it has meant a lot I also want to thank Kitty O'connor, our head of Investor Relations. She has been an amazing partner to me and to Casey and to now an <unk> for the last three years. We've asked her to take on a very important new role as the CFO of Avnet our joint.
Speaker Change: <unk> with Microsoft I know, we're all going to Miss her in this role.
Speaker Change: And we're super excited to see Katie take on this.
Speaker Change: <unk> next chapter of her very impressive career. So thank you very much Katie and I'm also very pleased to welcome Alexia <unk>, who will become our new head of Investor Relations Alexia joins us from the Walt Disney Company, where she was the executive Vice President of Investor Relations and shareholder services and prior to that she has.
Speaker Change: Spent over 20 years as an equity analyst at JP Morgan and she's really looking forward to getting to know all of you in the days ahead, and where I'm Super happy to welcome her to Accenture and finally in closing I want to thank all of our shareholders for your continued trust and support.
Speaker Change: We are working every day to continue to earn that trust and finally, a huge thank you to all of our people for what Youre doing every day and I will speak with all of you next quarter. Thanks again for joining.
Speaker Change: Thank you.
Speaker Change: Thank you. The conference has now concluded and we thank you all for attending today's presentation.
Speaker Change: I just want your lines will have a wonderful day.
Speaker Change: [music].