Ladies and gentlemen, thank you for standing by. Welcome to Accenture's Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Managing Director, Head of Investor Relations, Katie O'Conor. Please go ahead.

Thank you, operator, and thanks everyone for joining us today on our third quarter fiscal 2024 earnings announcement. As the operator just mentioned, I'm Katie O'Conor, Managing Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our Chair and Chief Executive Officer and KC McClure, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short-time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results. KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the third quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the fourth quarter and full fiscal year 2024. 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 as discussed in our Annual Report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release, or in the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Julie.

Thank you, Katie, and everyone joining. And thank you to our 750,000 people around the world who work every day to deliver 360-degree value for all our stakeholders. Before we get into the quarter, I want to thank KC, who's been an excellent partner for these last five years, and our three other extraordinary leaders who are stepping down in the next two quarters, Jean-Marc, Ellyn, and Paul. Each have given over 36 years of service and demonstrated strong stewardship in developing outstanding successors, including Angie, who you all know from her former role as Head of Investor Relations, who will succeed KC on December 1. As always, we are executing a smooth leadership transition to the next generation with our strong bench of great leaders. Now, on to the quarter. I am pleased this quarter to bring to life yet again the resilience and agility of our business, as our actions to remain laser-focused on our clients' needs and quickly adapt to market conditions can be seen in our results, which are building a foundation for stronger growth as we go into Q4 and next fiscal year. As you know, this fiscal year, our client spending developed differently than we expected at the beginning of the fiscal year. And these conditions continue, with clients prioritizing large-scale transformations, which convert to revenue more slowly, while limiting discretionary spending, particularly in smaller projects, with delays in decision-making and a slower pace of spending as well. In response, we have moved quickly to adjust by leveraging our unique strengths, our end-to-end services, including deep industry and functional expertise that enable these large-scale transformations or what we call reinventions. We're also leveraging our deep technology expertise and ecosystem partnerships and our learning machine and culture that gives us the agility to shift to…

Thank you, Julie. And thanks to all of you for taking the time to join us on today's call. We are pleased with our Q3 results, which were in line with our expectations and reflect continued investment at scale. We continue to serve as a trusted partner for our clients, while running our business with rigor and discipline. Now, let me summarize a few of the highlights for the quarter. Revenues grew 1.4% local currency with mid-single digit growth or higher in seven of our 13 industries, including public service, industrial, high-tech, life sciences, energy, utilities, and health. We also continue to see improvement in our CMT industry group. And we continue to take smart share. As a reminder, we assess market growth against our investable basket, which is roughly two dozen of our closest global public competitors, which represents about a third of our addressable market. We use a consistent methodology to compare our financial results to theirs, adjusted to exclude the impact of significant acquisitions to the date of their last publicly available results on a rolling four-quarter basis. Adjusted operating margin was 16.4%, an increase of 10 basis points over Q3 last year, and includes continued significant investments in our people and our business. Finally, we delivered free cash flow of $3 billion and returned $2.2 billion to shareholders through repurchases and dividends. Year-to-date, we've invested $5.2 billion across 35 acquisitions. With those high-level comments, let me turn to some of the details, starting with new bookings. New bookings were $21.1 billion for the quarter, representing 22% growth in US dollars and 26% growth in local currency, with an overall book-to-bill of 1.3. Consulting bookings were $9.3 billion with a book-to-bill of 1.1. Managed services bookings were $11.8 billion with a book-to-bill of 1.5. Turning now to…

Thank you, KC. As I mentioned earlier, we're seeing more of the same in terms of the demand environment. Now let me give a little context on how we're executing our strategy to be the reinvention partner of choice and why we're uniquely positioned to be helping our clients on AI. It is important to remember that while there is a near universal recognition now of the importance of AI, which is at the heart of reinvention, the ability to use GenAI at scale varies widely with clients on a continuum. With those which have strong digital cores genuinely seeking to move more quickly, while most clients are coming to the realization of the investments needed to truly implement AI across the enterprise, starting with a strong digital core from migrating applications and data to the cloud, building a new cognitive layer, implementing modern ERP and applications across the enterprise to a strong security layer. And nearly all clients are finding it difficult to scale GenAI projects because the AI technology is a small part of what is needed. To reinvent using technology, data, and AI, you must also change your processes and ways of working, rescale and upscale your people, and build new capabilities around responsible AI, all with a deep understanding of industry, function, and technology to unlock the value. And many clients need to first find more efficiencies to enable scaled investment in their digital cores and all these capabilities, particularly in data foundations. In short, GenAI is acting as a catalyst for companies to more aggressively go after cost, build the digital core, and truly change the ways they work, which creates significant opportunity for us. And this is why clients are coming to us. We are able to help our clients with this AI rotation…

Thanks, Julie. Now turning to our business outlook. For the fourth quarter of fiscal 2024, we expect revenues to be in the range of $16.05 billion to $16.65 billion. This assumes the impact of FX will be about negative 2% compared to the fourth quarter of fiscal 2023 and reflects an estimated 2% to 6% growth in local currency. For the full fiscal year 2024, based upon how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in US dollars will be negative 0.7 compared to fiscal 2023. For the full fiscal 2024, we now expect our revenues to be in the range of 1.5% to 2.5% of growth in local currency over fiscal 2023, which assumes an inorganic contribution approaching 3%. We continue to expect business optimization actions to impact fiscal 2024 GAAP operating margin by 70 basis points and EPS by $0.56. For adjusted operating margin, we continue to expect fiscal 2024 to be 15.5%, a 10 basis point expansion of fiscal 2023 results. We now expect our adjusted annual effective tax rate to be in the range of 23.5% to 24.5%. This compares to an adjusted effective tax rate of 23.9% in fiscal 2023. We now expect our full year adjusted earnings per share for fiscal 2024 to be in the range of $11.85 to $12, or 2% to 3% growth over fiscal 2023 results. For the full fiscal 2024, we continue to expect operating cash flow to be in the range of $9.3 billion to $9.9 billion, property and equipment additions to be approximately $600 million, and free cash flow to be in the range of $8.7 billion to $9.3 billion. Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of 1.2. Finally, we continue to 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. 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. [Operator Instructions] Your first question comes from the line of Tien-tsin Huang from JPMorgan. Please go ahead.

Thank you so much, and congrats to KC and Angie. I'm excited for both of you guys. I just wanted to ask upfront, just for Julie, maybe you mentioned stronger growth next year. Hoping you can just elaborate on that at a high level. I know there's a lot of moving pieces. On one hand, you have a big backlog, a lot of large deals. You have strong inorganic growth, but on the other hand, the sector is struggling with this weak discretionary spend, and there's uncertainty with global elections in the second half of the year. So just -- I know you can't give formal guidance until next year. I know consensus is at, what, 6%? Can you just give us maybe just some high-level considerations that are worth underlining as we're recasting our outlook for next year? Thank you.

Sure, and thanks for the question, Tien-tsin. So, let's just anchor on our strategy for growth and what you're seeing in three quarters into the year, because obviously, expectations at the beginning of this year were different in terms of how things develop with spending. So, what did we do? We leaned into what do clients need, and they need these reinventions, they need these big, large-scale transformations. And so, what you've seen us to do is, like, you've got to go with what the clients need, and that's what they're buying. And so, we have accelerated our leaning into these large transformation deals, which is why you see that we have seven more than last year at this time of clients with bookings of over $100 million. Now, these convert to revenue more slowly, but as we're accelerating, you'll know that they ramp up and they will start to layer in. And we are very uniquely positioned in this market to be able to do these large-scale transformations because they require the combination of services, everything from the ability to help them move faster through our managed services, our industry expertise. Everyone wants to do that with the eye towards GenAI, so even though the transformations are often in preparation for GenAI, they want to work with the partner who really understands GenAI, and so how do we get there faster. And so, as you think about the reinvention strategy, that's a strategy we've been executing for a couple of years, and we uniquely can lean in, and that -- you're seeing the results of that this quarter with the acceleration of -- compared to last year, of clients with that level of bookings and those, of course, then ramp next year. The second is, our leaning into where…

Yes, maybe I'll just add, Tien-tsin, just how we feel just within this fiscal year. So, we're very pleased with where we landed in Q3. When you look to Q4, we do have, and you see that in our growth rate, a clear uptick in our growth rate for the fourth quarter. And I think importantly included in that is the expectation that our consulting type of work in Q4, Tien-tsin, will return to growth and that we haven't had growth in consulting type of work since Q2 of last year.

Good. No, thank you both for that. I'll be less wordy with my follow-up. Just on the inorganic piece, can this pace continue?

I'll let Julie talk about -- add on here. But in terms of our -- let's talk about capital allocation. And we've always said this, we have the ability, and I think it's a differentiator of ours, to be able to invest and approach the market as whenever we see something that we want to execute. And that remains unchanged. And we've been able -- and you've seen us do that over all the different business cycles. And importantly, when we do that, we're able to continue all parts of our capital allocation in terms of share buybacks and dividends as well. So, from a financial standpoint, we have a very strong balance sheet. We have the ability to continue to flex up and down as we see fit from a capital allocation standpoint, Tien-tsin.

Yes, Tien-tsin, and I think we'll make the decision as we go into next year as to what level we want to drive for next year. So, I think we'll comment next quarter.

That's perfect. I know you've been able to amplify the growth of what you bought. So, that's why I asked. Thank you.

Thanks.

Your next question comes from the line of Dave Koning from Baird. Please go ahead.

Yes. Hey, guys. Thanks so much. One thing I noticed, debt was up to $1.6 billion or so. Sequentially, it was the highest. Really, in 20 years, you've almost had no debt, and you have a lot of cash. So, I guess, what's the strategy around borrowing money now? And maybe it's just geographic cash positions, too.

Yes. No, that's a great question. So, in terms of our cash, you said that we started the year at $9 billion, and now we're little bit -- we are about $5.5 billion. And we do have some debt. It's very small, as you mentioned, for a company of our size. We do have a -- we had a credit facility that we put in right during the pandemic, and we continue to have a credit facility. It's about $5.5 billion. It's a five-year credit facility and what you just see, Dave, is that we're just exercising some of that credit facility, kind of normal treasury operation.

Okay. And maybe just as a follow-up, margins this year up at the lower end of kind of normal and certainly scale, just the growth this year being a little slower, maybe the acquisitions. And just as we kind of look forward, the margin puts and takes, how should we think that with acquisition spending maybe a little higher, does the next few quarters remain kind of putting a little pressure on margins or how should we think of just the moving parts of margins going forward?

Yes, sure. So I'll just obviously keep my comments to this year, to 2024, but -- and maybe I'll just point out where we are and what we are continuing to assume. So we stated last quarter that we'd be at 10 basis points of operating margin expansion and we reconfirmed that, Dave, for the full year, again this quarter, and we feel confident in our ability to do that. So if you look at -- we run our business to operating margin. If you look at gross margin and overall what we've been saying on pricing and just importantly, when we talk about pricing, we mean the margin on the work that we sell. What I think is really important for us is that, we've been able to operate our business with rigor and discipline in how we run ourselves in an operation -- in efficient operations of Accenture and be our own best credential as we absorb kind of higher selling costs, which you would expect. We're looking at our record $60 billion of bookings and also the continued pressure and pricing that we've had across the business. So with that, we feel really good. And if you look at it, we grew 1% in quarter one. As an example, we were able to do 20 basis points of margin expansion. We grew 1% this quarter, and we were able to do 10 basis points of margin expansion. So we feel good about the way we run our business with rigor and discipline.

Great. Thanks and nice bookings.

Thank you.

Thank you.

Your next question comes from the line of Bryan Keane from Deutsche Bank. Please go ahead.

Hi, guys. Good morning and congrats, KC. A great run at Accenture. You were awesome. So, I want to ask on managed services on the bookings, the $11.8 billion, that was an outsized number. How much of that is new bookings versus renewals? And maybe give us some flavor on what caused that spike in growth.

Yes. Maybe I will give you the -- I'll talk a little bit about the numbers. In terms of, it is a record bookings for managed services. As Julie's -- and as we've been talking, it is obviously based on the larger transformational deals that we're doing. Well, those larger transformational deals, just to be clear, Bryan, they do have both consulting and outsourcing -- excuse me, managed services type of work with them. They do have, as you would expect, a larger portion of managed services type of work. So when you see what we were able to do this year, we're already at 92, seven more than last year. And we did have a very strong managed services bookings, as you noted, in Q3. We don't really do a breakout in terms of extensions or new, but there's always -- we always have a healthy mix, I would say, of both. That's what we strive to over rolling four quarters in our business always and no difference there.

Yeah. And just maybe a little color, Bryan. As you think about this idea of reinvention, Virgin Media O2 was a great example, because there, right, we have a combination using our Edge platform to provide -- help O2 provides -- Virgin Media O2 to provide these new services. And at the same time, we're supporting it with our customer operations, supporting their growth so that they can scale. And right now, clients, of course, they're looking for growth, they're also looking for transformation and efficiency. The other thing I'd say is, this is a great example of how we're embracing GenAI. You've heard us talk in the past about our myWizard platform, which helps in our managed services. We now -- that's become Gen Wizard and we're seeing that our embracing -- early embracing of using Gen AI where it's ready to be used has been a real differentiator in our technology managed services. So, we're very focused on helping our client, who move faster using our expertise and leverage our digital investments in order for them to transform and reinvent faster and you're seeing that focus.

Got it. And just a follow-up, just looking at some of the dimensions breakout, when I look at operations being flat, just any call-outs for that. I know it was negative last quarter, so it's turned a little bit here, but just trying to understand the growth there and the prospects. Thanks.

Yes, no, it's -- we're really pleased that it's, that ticked up this quarter and it's a very strategic part of our business. Think about it really is like sort of two-ways, right? So we remain number-one in our industry in finance and accounting and we're embracing again GenAI there to help differentiate our platform. And so, there's a focus that we're seeing in our clients as they're saying, okay, we need to -- we really understand how much more we need to digitize and we need to do that in the enterprise, they're excited about our ability over-time. Again, it's very early days still in Gen AI over-time to help build our -- we're building our SynOps platform, we're building in GenAI and that helps them have less to build-in in their enterprise side by partnering with us. And so that's -- we think a really great differentiator. And then we continue to diversify into areas that are in the core of our business, whether -- core of our industries for our clients, whether it's claims and underwriting and insurance, or supply-chain for consumer goods and industrial or core banking in the financial services. So we feel really good about the business and kind of continue -- and its continued prospects.

Thank you.

Thanks, Bryan.

Your next question comes from the your next question comes from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.

Hey guys, and very best wishes to KC as well. Julie, you mentioned that the demand environment is sort of more of the same. At the same time, it appears you've seen some growth mending in certain key areas. I'm particularly interested in the growth improvement in the CMT vertical and in strategy and consulting. Can you talk about what's enabling those growth improvements and a sense of the outlooks for CMT and S&C? Thanks.

So, really want to compliment our entire team on the work that they're doing with our clients in CMT. So, as we've been talking about that for now for a little while and we start to see things like the Virgin Media O2 deal. So our teams are working with our clients on what do they need. And they're focused on getting rid of technology debt, because that's critical in order to use some of these new technologies. They're focused on using the new technologies. So we have a number of clients that -- while it's still small, are working on GenAI. And then being very focused on efficiencies. And then finally network. So, really across the board what I would say is the industry was challenged. We have been just focused on going to where they need help and you're seeing that result in our results. And then on strategy and consulting, again, it's all about being focused on what do our clients need. And so, we've pivoted many more people, for example, toward cost and strategy. So cost takeout is a big theme, and particularly for our strategy. We are seeing a lot of growth still in things like implementing modern ERP platforms with the focus on the digital core. And again, at Accenture, it's not just technology, right? It's about we're the number one player with all of these technology ecosystem players, but our clients want to do it faster. They need the industry expertise. And so, you saw a number of examples in the script about how we're putting in these platforms and we're doing so within an industry context. And so, I'd say cost takeout and move the cloud data platforms wrapped around with industry and functional expertise, that's where we're seeing the growth. And we just continue to remain laser focused on more people, more focus, working with the clients on what they need to buy.

Great. Thanks for that. And you're seeing revenue mix incrementally shift into managed services, and I'm curious if you think some of that mix shift towards managed services is due to secular forces, or are you purely seeing that mix shift as just a cyclical phenomenon?

Yes, I think, it's -- in terms of what the real driver is, it's the larger deals that have a little bit of both in those -- both components of a sector and cyclical and what you're talking about. So it really is just based on the larger deal.

So just think about Accenture is very uniquely positioned in this market. Clients are prioritizing large scale transformations. And doing those and getting the efficiencies and moving faster, managed services is a highly strategic component of being able to do that. And this is where Accenture, with such scale in both strategy, in both consulting type of work with managed services is really able to lean into what are clients buying now.

Got it. Thank you.

Your next question comes from the line of Bryan Bergin from TD Cowen. Please go ahead.

Hi. Good morning and congrats KC and the other leaders on the retirements and appointments. First question I wanted to ask on the consulting existing revenue-base performance, can you just talk about how base business runoff kind of progressed within the minus 1% local currency performance? I heard your comment on the 4Q consulting or just returning to growth. I'm trying to understand if that's a reflection of sustainable stabilization potentially and really gauge whether you're reaching a point where the new consulting bookings conversion should more than offset the existing base runoff moving ahead.

Yes. So, Brian, in terms of what we'll give -- what we'll talk about is really is what I just mentioned on Q4. I guess -- and I understand what you mean by a base runoff. We don't really think of it that way. We kind of look at it as maybe our terms will be whether we have booked and backlog and what are we already -- and what's new coming in from these sales. And so, I get -- so just kind of going with those two points, the way we evaluate and we talk about it, Brian, is from a year-over-year basis, looking at both the components of what we've already sold for the next quarter and then what we see in our pipeline and how we see those sales will convert to revenue, that's how we kind of assess what we think that we will be overall. And again, very pleased that consulting -- we do feel that and see that it will return to growth. And I think it's a milestone that we haven't had in a number of quarters, so we'll pleased with that. And we'll comment on anything else for next year, next year, I mean in September.

Okay. And then bookings, obviously, very solid here. Can you just comment on pipeline and any bookings expectations worth calling out for 4Q?

Yes. Overall, we feel good about our pipeline. And we don't put -- we don't give guidance to next quarter bookings. But we feel good.

Thanks.

Thank you.

Your next question comes from the line of James Faucette from Morgan Stanley. Please go ahead.

Great. Thank you very much. I wanted to follow up on the acquisition activity. It's obviously been really robust, providing a lot of good opportunities. Can you give us any sense collectively across the acquisitions you've been doing and maybe what you are looking at in terms of what the growth rates of those businesses are generally or collectively when you do the acquisitions? And I know there's a target to accelerate those, how the growth rates tend to change as those companies are absorbed into [index center] (ph), even if directionally.

Yes, I mean, I think in terms of -- make sure I'm answering your question is, when we look at overall at our acquisitions, they all come with -- they're typically higher growth business cases that we have from the companies that we buy and we have a base case that comes with the organization and we assess that growth rate. And then we obviously put in pretty significant synergy cases that are -- without going through kind of metrics that are a pretty high bar for those acquisitions to deliver to, along with a broader center. And that's why integration is so important in what we do, because we're not just having a great business case, that is maybe half of what you need to do, but the key really is in how you integrate to deliver to that, and we have a very strong track record. And so, what you'll see is, you could just maybe get the sense to your question, is look at how many we've done over the last five years and you can see how we've been able to continue to grow our business throughout that time. And it is really continuing to fill our organic growth.

Got it. And then quickly, one of the areas where you've leaned in on and was mentioned in the prepared remarks is the government and healthcare sector, really strong growth there obviously. How should we be thinking about that as a long-term or medium-term potential grower in that segment and any -- and how are you thinking about the investment needed to continue to drive that? Thanks.

Thanks. We feel really good about that vertical. Obviously there's a lot of transformation that's going on in public service. You see health is a big driver, defense is a big driver. There's a lot of infrastructure support, whether it's IRA in the U.S. or what the EU has been doing as well. And of course, a lot of the digital transformation hasn't happened in the public service and health, And so, we see that now being the time and you're seeing that in the results. So we feel very confident and we think about the investment like we do all our industries. I mean, remember, we have 13 industry groups. We have -- the diversification is a key part of both our resilience and our growth strategy. And so, at any given time, we're investing differently depending on the growth trajectory. And as we called out this quarter, we've been investing significantly in public service, because we see the next several years this being a big growth area and we're making those investments now.

Operator, we have time for one more question, and then Julie will wrap up the call.

Okay. That question comes from the line of Keith Bachman from BMO. Please go ahead.

Hi. Many thanks. And first, Casey and Paul, special congratulations as you make the transition. I wanted to ask a question, and I'll just make it concurrently in the interest of time. And Julie, I think I'll direct this to you. Number one, on BPO, one of your competitors just talked pretty openly about pricing's been under pretty material duress as of late, and I wondered if you would echo that? And I'm really curious as to why. Why do you think pricing has been under duress? And how do you think about impacting future growth? And then the second area that I wanted to ask about is, Song. Thank you for the comment on mid-single digit growth. And I'm really interested how you think GenAI will impact over your digital agency over the next 12 to 24 months. And the reason I ask the question is, we also spend a lot of time with companies like Adobe that have significant -- generative AI is going to have a significant impact on digital agencies. And some of the agencies are talking about seat reductions because of the value associated with generative AI. And I'm just wondering if you could comment on how you think generative AI will impact the growth potential of Song. And that's it for me. Many thanks.

Great. KC, why don't you quickly cut pricing, and then I'll do Song.

Keith, I would say just in terms of pricing, and we've been commenting on this for quite some time. You are correct in that, we've had overall in our entire business continued pricing pressure. So, I mean, that's the way I would reflect on that statement -- on your question [indiscernible].

Yes, it's overall is a tight market, So that's what you normally see. On Song, here's where we are so unique, because our business is not an agency business, right? The agencies are part of an incredibly differentiated value proposition where you have creative and technology and digital and by the way managed services. And so, we see this as a huge opportunity because we are embracing it as fast as possible to help our clients get value, but we put it together with all of these other services. So we were happy to see the uptick in growth this quarter with Song and long term where we really think it's great. And remember, this is our playbook, right? We embrace technology. We've done it in every wave. We've done it when we did managed services. Remember in 2015, we had SynOps and myWizard. Our business is to help our clients be more efficient and grow. That is what we do. And we use technology in how we deliver it. And we help them use technology and how they operate. And so, we see GenAI as yet another way that we're going to embrace it. We're going to be fast. And we're going to do what we do for clients. And that is a very exciting opportunity, so we feel really good about our Song business. Great. So, thanks everyone for the questions and the time today. In closing I want to again, as always, thank all of our shareholders for your continued trust and support, and all of our people for what you're doing for our clients and for each other every day. Thanks so much for joining.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.