Accenture plc - Class A (ACN) — Q1 2021 Earnings Call Transcript

Thank you, operator, and thanks, everyone, for joining us today on our first quarter fiscal 2021 earnings announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our 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 first quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the second quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap-up at the end of the call. Some of the matters we'll discuss on this call, including our business outlook, are forward-looking, and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed on 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.

Today, we are very pleased to announce strong financial results for our first quarter. I will begin by thanking our 514,000 people for their hard work and dedication to delivering value for our clients, which is what these results represent. Last quarter, I shared that as we began our fiscal year 2021, we were turning a page, no longer navigating a crisis, but facing a new reality with a laser focus on delivering value to our clients at this time of great need and on returning to pre-COVID growth rates by the second half of our fiscal year. I also shared how we began fiscal year 2021 stronger than pre-crisis. Our results in Q1 made clear how we have strengthened our market position, as well as our ability to pivot our business with agility. Not only have we delivered a strong quarter, but we took exciting new actions to continue to strengthen our market position for FY 2021 and the future. Let's start with our financial results. We delivered revenue growth of 2% in local currency, well ahead of our guidance with broad-based improvement across the globe. We continue to extend our leadership position with our growth estimated over the trailing four quarters to be more than four times the market, which refers to our basket of publicly traded companies. We delivered exceptionally strong new bookings of $12.9 billion, a 25% increase over Q1 last year, including 16 clients with over $100 million in bookings. We continued to invest substantially in our business, including closing 10 acquisitions this quarter in strategic areas, such as Cloud, Intelligent Operations and Industry X. And as KC will walk through, we delivered strong profitability and returned substantial cash to shareholders. Now, let me highlight the actions we've taken in Q1 to better serve our clients, attract the best talent and extend our leadership as a responsible business and trusted partner. We created Accenture Cloud First with the planned $3 billion three-year investment to help clients in what has become a once in a digital era replatforming of global business in the cloud. We launched our new purpose, our growth strategy to deliver 360-degree value to our clients and our largest and most significant new brand campaign in a decade. In our annual cycle in December, we promoted 605 Managing Directors with a record 39% women, and I appointed 663 Senior Managing Directors, including a record 29% women. I'm excited to announce today that we met our previous goal of 25% women Managing Directors globally by the end of 2020, and have raised the bar again, setting a new goal of 30% by the end of 2025. With 45% women overall, we are on track to meet our goal of 50-50 gender equality by 2025. We set external goals in the U.S., UK and South Africa to achieve greater race and ethnicity representation overall, and among Managing Directors in these countries by 2025. We remain the only major professional services company in our industry around the world, public or private to set these types of external goals and to have our level of transparency. We believe our diversity and commitment to inclusion and equality have been and will continue to be critical to our success and a differentiator in attracting the best talent. And building on our long-standing and well-recognized commitment to the environment, we announced industry-leading goals for 2025 to achieve net zero emissions, move to zero waste and plan for water risk. As you can see, we have been busy moving forward in our new reality. KC, over to you.

Thank you, Julie. Happy holidays to all of you, and thanks for taking the time to join us on today's call. We were very pleased with our overall results in the first quarter, which exceeded our expectations and represent a positive first step to achieving our full-year objectives. The focused execution of our strategy continues to extend our leadership position in the marketplace, as we deliver significant value to our clients and our shareholders in an uncertain and volatile environment. So let me begin by summarizing a few of the highlights of the quarter. Revenues grew 2% in local currency and continue to include a reduction of approximately 2 percentage points from a decline in revenues from reimbursable travel costs. Q1 revenues were more than $200 million above our guided range, driven by broad-based over-delivery across markets, services and industries. We also continue to extend our leadership positions with growth significantly above the market. The diversity of our business continues to serve us well, and the industry trends remain consistent with the last few quarters. Approximately 50% of our revenues came from seven industries that were less impacted by the pandemic, and in aggregate continue to grow high single digits, with continued double-digit growth in public service, software platforms and life sciences. At the same time, we saw continued pressure but at a more moderate level from clients in highly impacted industries, which include: travel, energy, high-tech, including aerospace and defense, retail and industrial. While performance varied, this group represents over 20% of our revenues and declined low double digits. Our operating margin was 16.1% for the quarter, an increase of 50 basis points. We delivered expansion while making significant investments in our business and our people to extend our market leadership. We continue to benefit from lower spend on travel and events. And we delivered very strong EPS of $2.17, up 8% over fiscal 2020, after adjusting both years for gains on an investment. And finally, we delivered significant free cash flow of $1.5 billion and returned $1.3 billion to shareholders through repurchases and dividends. We also invested approximately $500 million in acquisitions and we expect to invest at least $1.7 billion in acquisitions this fiscal year. With those high-level comments, let me turn to some of the details, starting with new bookings. New bookings were $12.9 billion for the quarter, reflecting an overall book-to-bill of 1.1. Consulting bookings were $6.6 billion with a book-to-bill of 1.0. Outsourcing bookings were $6.3 billion with a book-to-bill of 1.2. We were very pleased with our bookings this quarter, which grew 25%, driven by both technology services and operations. We were also pleased with the strength of our bookings in strategy and consulting, with a book-to-bill of 1.1. Looking forward, we continue to feel very good about our pipeline. Turning now to revenues. Revenues for the quarter were $11.8 billion, a 4% increase in U.S. dollars and 2% in local currency, including a reduction of approximately 2% from a decline in revenues from reimbursable travel costs. Consulting revenues for the quarter were $6.3 billion, a decline of 1% in U.S. dollars and a decline of 2% in local currency, including a reduction of approximately 3% from a decline in revenues from reimbursable travel costs. Outsourcing revenues were $5.4 billion, up 9% in U.S. dollars and 8% in local currency. Taking a closer look at our service dimensions, operations grew double digits, technology services grew mid-single digits, and strategy and consulting services declined low double digits. Turning to our geographic markets. The industry dynamics that I mentioned earlier continue to play out in a similar manner across all three markets. In North America, revenue growth was 4% in local currency. In Europe, revenue declined 1% in local currency. We saw mid-single digit growth in Italy, with the UK improving to flat. In growth markets, we delivered 3% revenue growth in local currency, led by high single digit growth in both Japan and Australia. Moving down the income statement. Gross margin for the quarter was 33.1%, compared with 32.1% for the same period last year. Sales and marketing expense for the quarter was 10.4%, compared with 10.5% for the first quarter last year. General and administrative expense was 6.6%, compared to 6.1% for the same quarter last year. Operating income was $1.9 billion for the first quarter, reflecting a 16.1% operating margin, up 50 basis points compared with Q1 last year. As a reminder, last year in fiscal '20, we recognized an investment gain which impacted our tax rates and increased EPS by $0.08 in the quarter. This year in Q1, we again recognized an investment gain which impacted our tax rate and increased EPS by $0.15. The following comparisons exclude these impacts and reflect adjusted results. Our adjusted effective tax rate for the quarter was 23.7%, compared with an adjusted effective tax rate of 23.9% for the first quarter last year. Adjusted diluted earnings per share were $2.17, compared with adjusted diluted earnings per share of $2.01 for the first quarter of last year. Days service outstanding were 38 days compared to 35 days last quarter and 43 days in Q1 of last year. Free cash flow for the quarter was $1.5 billion, resulting from cash generated by operating activities of $1.6 billion, net of property and equipment additions of $93 million. Our cash balance at November 30th was $8.6 billion, compared with $8.4 billion in August 31st. With regards to our ongoing objective to return cash to shareholders. In the first quarter, we repurchased or redeemed 3.3 million shares for $769 million at an average price of $229.98 per share. At November 30th, we had approximately $5.8 billion of share repurchase authority remaining. Also in November, we paid a quarterly cash dividend of $0.88 per share for a total of $558 million, representing a 10% increase over last year. And our board of directors declared a quarterly cash dividend of $0.88 per share to be paid on February 12th, a 10% increase over the last year. So, in summary, we were very pleased with our Q1 results, and we're off to a good start in fiscal '21. Now, let me turn it back to Julie.

Thank you, KC. Let me start with the environment. We saw in Q1 a broad base increase in demand that is faster than we anticipated 90 days ago. This means that as our clients have the confidence and ability to spend, they are turning to Accenture. But the uncertainty and volatility of the biggest health, economic and social crisis in our lifetimes remains, particularly as the world continues to face a deepening health impact pre-widespread vaccination. From an overall demand perspective, the trends that we discussed last quarter are continuing. Companies need to accelerate their digital transformation across their enterprises and move to the cloud, address cost pressures, build resilience and security, adjust their operations and customer engagement to a remote everything environment and changing expectations, and find new sources of growth. What is becoming even more clear, however, is that we are in an era of compressed transformation, in which the winners by industry will be those who are earliest to replatform their businesses in the cloud and have the digital core and new ways of working that allow them to continuously improve their operations and find new sources of growth, which for most leading companies is requiring them to simultaneously transform multiple parts of their enterprises and their talent. For the pre-COVID digital leaders, they are racing to widen the gap, and for the digital laggards, they are racing to leapfrog. We are uniquely positioned to help both the leaders and the laggards because of the depth and breadth of our capabilities. We bring the trust, experience, speed, and scale that are essential to achieve compressed transformation. Now let's bring some of these demand trends to life through the lens of our Q1, and look at our own broad-based improvement. First, replatforming to the cloud. In fiscal year '20, our cloud revenue was approximately $12 billion with low double-digit growth, which accelerated in Q1 with significantly higher double-digit growth, driven by Accenture Cloud First. In fact, across low to highly impacted industries, and all geographic markets, we saw strong double-digit growth; the race to replatform to the cloud and create new business value is clear across all our services. Our clients need our deep technical and engineering skills, and our unmatched set of relationships with the world's leading technology ecosystem companies, which are critical partners to us and to our clients. We were pleased that in Q1 industry analysts recognized us as the leading systems integrator for each of AWS, Azure and Google Cloud Platform, as well as the leading multicloud managed services provider. Fundamental to accelerating our clients’ replatforming in the cloud, however, are our leading strategy and consulting capabilities, which give us the industry and functional insights to move rapidly and achieve early business value. For example, we are working with Takeda, a global value-based R&D-driven biopharmaceutical leader, to modernize their technology platforms, including moving 80% of applications to the cloud, accelerate data services, and establish an internal engine for innovation, while equipping employees with new skills and ways of working and reducing their carbon footprint. The business impact is illustrated by the plans for Takeda's plasma-derived therapies business unit, which is harnessing the power of the cloud and these data services to create state-of-the-art digitally connected donation centers and modernize the donor experience, optimizing the plasma collection process, and contributing to the goal of increasing plasma collection and manufacturing by at least 65% by 2024. We are working with the Norwegian Health Net to create a health analytics platform, which is using the power of the cloud to analyze and interpret data, and ultimately improve patient outcomes, by reducing research turnaround times and access to data from months to a matter of minutes or days. And we are working with Generali, a major player in the global insurance industry, to help replatform approximately 70% of its IT footprint to the cloud, to improve service quality, innovate and build a set of new cloud-ready core insurance applications for emerging markets, while achieving a sustainable reduction in its total cost of ownership and helping to upscale its workforce. In Intelligent Platform Services, which returned to low single-digit growth this quarter, we saw building momentum fueled by our clients rotating to Software-as-a-Service, as well as new digital platforms. In a quick trip around the world, we see this compressed transformation playing out from the rapid transformation of the finance functions of Nickel Bank, a subsidiary of BNP Paribas, and a fast-growing Neo-bank in France, with the implementation of leading software-as-a-service and ERP solutions, to the cloud-based marketing transformation of a global bank with a large U.S. footprint with a SaaS implementation across its worldwide private banking network, to one of the largest implementations in the chemicals industry of a modern digital ERP system, hosted on the cloud for Indorama Ventures, a world-class chemicals company with global operations headquartered in Asia, that will provide a single source of information globally, and cloud-based solutions to enhance its operations, employee development capabilities, and customer and supplier experiences. So that's the cloud. Now let's turn to digitizing operations across the Enterprise. In operations, which returned to double-digit growth this quarter, we are helping our clients transform by digitizing their operations with our SynOps platform, increasing agility and reducing costs. Operations as-a-service allows us to continue to diversify our value to clients by expanding across functions and industries. We have an unmatched global footprint and the ability to invest in an innovation engine powered by the broader Accenture. We were excited to welcome to the Accenture family this quarter N3, an Atlanta-based B2B sales firm, with more than 2,000 employees, that combines specialized talent in AI and machine learning to enable smarter, more efficient sales interactions and drive sales growth in virtual environments. The power of Accenture's breadth and depth comes together at Halliburton, a leading provider of products and services to the energy industry, and a leader in driving true enterprise-wide transformation enabled by digital and technology. Last quarter, we shared how we are helping Halliburton move to cloud-based digital platforms. This quarter, we announced that we are teaming with Halliburton to accelerate its digital supply chain transformation, and support digitization within Halliburton's manufacturing functions to improve service levels and business outcomes. We will leverage SynOps, which we already use as part of Halliburton's digital transformation of its finance and accounting function, and our strategy and consulting expertise. In Industry X, we are digitizing manufacturing and operations and creating intelligent products and platforms. In fiscal year '20, Industry X was approximately $3 billion and grew low double digits, which is continued in Q1. We see COVID deepening the need to transform manufacturing in a contactless world with disrupted supply chains and greater cost pressures. One of our latest wins with CNH Industrial, the manufacturer of capital goods across the agriculture, construction equipment and commercial vehicle sectors, where we are improving the global operating model to develop smart connected products and services that will grow revenue while building a digitally enabled workforce and enhancing security and sustainability. Finally, let's look at the trends around new ways of engaging customers, patients, citizens, and employees. In interactive, which is all about the business of experience, the crisis had a significant impact due to severe disruptions in industries like travel and retail, and due to our clients being focused on shoring up their experience of their businesses, rather than the next generation of experiences. This quarter, we saw building momentum with a return to low single-digit growth from a low single-digit decline in H2 of FY'20, as clients focus on creating new experiences in the new environment. For example, Accenture Federal Services is working with the Federal Retirement Thrift Investment Board to reimagine retirement services for the digital age and improve the customer experience for a retirement savings plan serving 6.1 million civilian employees and members of the armed services with over $644 billion in assets. I want to take a moment to talk about another bold move we made this quarter. In October, we simultaneously launched a new purpose, our growth strategy to deliver 360-degree value to our clients, and a new brand campaign created by our own Droga5 team that joined our family in 2019. Our new purpose is to deliver on the promise of technology and human ingenuity. Our purpose is what we are uniquely able to do, and our growth strategy is our action plan to bring this purpose to life. Our strategy to deliver 360-degree value to our clients is a direct response to the rising demand we see for talent transformation, and help achieving responsible business goals. We define 360-degree value as delivering the financial business case experiences and unique value a client may be seeking, and striving, where possible, to partner with our clients to achieve greater progress on inclusion and diversity, reskill their employees and achieve their sustainability goals. At the heart of this strategy is embedding responsible business by design into our work for clients in addition to our own operations. Our new brand, Let There Be Change, captures our purpose and the depth and breadth of Accenture's expertise. Together, our purpose, strategy, and brand better reflect Accenture's unique role in helping companies reimagine and rebuild differently for the benefit of all. Over to you, KC, for a look ahead.

Thanks, Julie. Before I get into our business outlook, as I did last quarter, I would like to remind you that given the coronavirus pandemic, there are a number of factors that we may not be able to accurately predict, including the duration and magnitude of the impact, the pace of the recovery, as well as those described in our most recent quarterly filings. Now, with that said, let me turn to our business outlook. For the second quarter of fiscal '21, we expect revenues to be in the range of $11.55 billion to $11.95 billion. This assumes the impact of FX will be about positive 3% compared to the second quarter of fiscal '20, and reflects an estimated 1% to 4% in local currency and includes a reduction of approximately 2 percentage points from a decline in revenue from reimbursable travel costs. The entire range for Q2 reflects the continued build back of our business over Q1. For the full fiscal year '21, based on how the rates have been trending over the last few weeks, we now expect the impact of FX on our results in U.S. dollars will be approximately positive 3% compared to fiscal '20. For the full fiscal '21, we now expect our revenues to be in the range of 4% to 6% growth in local currency over fiscal '20, including approximately negative 1% from a decline in revenues from reimbursable travel, based on a 2% reduction in the first half of the year and no material impact in the second half of the year. For operating margin, we continue to expect fiscal '21 to be 14.8% to 15.0%, a 10 to 30 basis point expansion over fiscal '20 results. We continue to expect our annual adjusted effective tax rate to be in the range of 23% to 25%. This compares to an adjusted effective tax rate of 23.9% in fiscal '20. For earnings per share, we now expect our full-year diluted EPS for fiscal '21 to be in the range of $8.17 to $8.40. We now expect adjusted full-year diluted EPS to be in the range of $8.02 to $8.25, or 8% to 11% growth over adjusted fiscal '20 results. For the full fiscal '21, we now expect operating cash flow to be in the range of $6.65 billion to $7.15 billion. Property and equipment additions to be approximately $650 million, and free cash flow to be in the range of $6 billion to $6.5 billion. Our free cash flow guidance continues to reflect a very strong free cash flow to net income ratio of 1.1 to 1.2. Finally, we continue to expect to return at least $5.3 billion through dividends and share repurchases, as we remain committed to returning a substantial portion of cash to our shareholders. With that, let's open it up so we can take your questions. Angie?

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?

Good morning, guys. Great to hear all of you and happy holidays. I would just ask my two right up-front. Looking at the utilization number of 93% in the quarter, I peeked back and that is the highest number you've reported in more than 10 years. So two questions, one more strategic and one more numbers related on that. I guess, first, can utilization be structurally higher now with the shift to remote work, and so we should expect these kinds of levels going forward? Or are you kind of getting to the point that you're labor constrained and you're going to be ramping hiring, and that number will come down a bit? That's the more, I guess, strategic question. And then maybe for KC, was higher utilization the primary driver of the 100 basis point increase in gross margins? Or is that also being affected by the reduction in travel costs? Thank you.

Okay. Hi, Lisa. Thanks for your question. Happy holidays. So maybe I'll start with your second question first. Just on gross margin. So we did have expansion in gross margin and there were a few drivers to that. The first is contract profitability was up this quarter. In contract profitability, we did benefit from lower travel, so that does help our contract profitability overall. So that is the first thing, I would say, benefited our gross margin. And you do see that the fact that we have higher utilization also does help our gross margin as well. So both of those points were included in drivers of our gross margin. And when you look at utilization, we did have very high productivity this quarter. It did click up in parts and that was pretty broad-based and that was also driven by our over-delivery of Q1 revenue. We did continue to recruit throughout the summer, and obviously into this quarter, you can see that our headcount is up sequentially. And so we don't see any issues meeting demand and attracting talent. And to your point on, is there a structural change from working remotely, the answer is really no. We were just able to get more productivity out of all of our groups this quarter. And looking forward, we do think that's going to kind of ease back into kind of a more normal range, which still is very high productivity, but not continuing at these levels.

Terrific. Thank you.

Hey, thanks. Good morning. Good results here. I want to just ask about the outlook here and what's changed in the last 90 days. I know you received – looking at revenue while you're up $200 million over your guidance, you overcame low double-digit declines in strategy and in consulting. From a macro standpoint, we got what vaccines have been approved and cases are up, but your bookings are strong again. So I'm just trying to think you seem really well set up for the second half to be quite strong, even if strategy and consulting come back slowly. So do you feel more confident in the outlook for strategy and consulting? Or is the composition of work just changing versus what you thought maybe 90 days ago? Any thoughts on that?

Certainly! Let me share some insights about what contributed to our strong performance in Q1 and how this shapes our outlook for Q2 and the second half of the year. In Q1, we were very pleased with our results, which exceeded our expectations significantly. This overperformance was largely due to strong results across all three of our markets, all industry groups, and all services performing better than anticipated. Notably, industries that were more heavily impacted, accounting for over 20% of our revenues, showed improvement from a decline in Q4. Our strong demand in cloud was a significant factor in this recovery. Meanwhile, the industries less affected, which make up 50% of our revenue, continued to demonstrate high single-digit growth similar to Q4, but also showed some improvement. In terms of our sales performance this quarter, we started the year exceptionally well, achieving sales of $12.9 billion, which is roughly $2.5 billion higher than in the previous two first quarters. This growth spanned all sales categories, with notable contributions from large clients, as well as improvements in our smaller deals. Looking forward to Q2, we have a more optimistic outlook than we did three months ago, expecting growth in the range of 1% to 4%, with all points in this range reflecting an improvement over Q1. We are rebuilding our business from previous lows. For the second half of the year, our projected growth remains unchanged from our previous forecast, with expectations of high single-digit to low double-digit growth. The four key factors driving this outlook are the anticipated improvement in the macroeconomic environment, benefits from significant deals sold last year, a reconnection with growth in strategy and consulting, and the easing of revenue headwinds from reimbursable revenues. Overall, while we continue to engage with clients—evidenced by booking $27 billion in recent quarters—we do not expect substantial revenue increases tied to travel in the latter half of the year. This overview should clarify our business outlook compared to our position 90 days ago, and we remain very encouraged by our Q1 performance and Q2 prospects.

Let me provide some insights from our clients' perspective. Pre-COVID, we mentioned that we were in the early stages of transformation as the decade began, and that it would involve the entire organization. When COVID struck, technology became essential. Companies began to realize two key truths: every business is now a technology business, and technological change is accelerating. This has resulted in what I refer to as compressed transformation, with more companies committing to broader transformation efforts. For instance, Takeda is moving to the cloud and enhancing their data for immediate business value, while Halliburton is focusing on cloud solutions, finance, and supply chain. We observe this rapid change reflected in the confidence of our clients. After nine months, during the initial crisis, companies were finding their footing. Research we conducted in July across ten markets revealed that nearly 80% of the executives we surveyed planned to invest in digital transformation, up from 50% in May. This highlights the recognition of the need for speed in their transformation efforts. It's important to note, however, that all of this is taking place amidst cost pressures and evolving expectations. Accenture's decades of investment have positioned us uniquely in the industry, enabling us to simultaneously manage operations while assisting companies in reducing costs in their supply chain and finance functions, all while migrating to the cloud and providing a comprehensive view. The interdependencies involved necessitate an end-to-end process change, and we've been developing these capabilities for many years. This is where our scale and breadth become crucial.

It sounds very clear. I appreciate the complete answer, guys, here, and it seems like the outlook is set up pretty well here. Thank you.

Yes, thank you so much for taking my question. I was hoping we could drill down a little bit deeper into Accenture Cloud First; I think it's just on 90 days since the formal announcement. Curious, understanding a lot of sort of anecdotes in the prepared remarks around Takeda, Halliburton, et cetera. But where you're seeing the most immediate need to deploy the $3 billion that you identified for an investment, earliest and first? And sort of mirroring that, where the greatest demand is coming from the client side, understanding, there's kind of a broad-based, I think COVID-driven catalyst to potentially get off the fence and move one's business to become fully digital cloud, et cetera?

Thank you for the question, Matthew. To start, there are several reasons why companies need to accelerate their migration to the cloud. First, there are cost pressures, as immediate savings can be realized during the migration process. Second, the cloud plays a crucial role in enhancing resilience and security, which are particularly vital in the current environment. The recent crisis has revealed vulnerabilities within many on-premise IT systems, compounded by the increased risks associated with remote working. Additionally, the power of the cloud is essential for driving data-driven transformations. For instance, with Takeda, they are altering the customer experience by requiring near real-time access to data for personalization. What's unique about Accenture is how our strategy and consulting capabilities come into play; the cloud's value extends beyond just cost and security. We help clients achieve early business value by understanding their industry, customers, and valuable data, which informs workload prioritization. Our expertise in change management and talent transformation is critical, especially as the demand for cloud talent grows. This investment strategy involves recent acquisitions focused on building scale across various markets and acquiring niche capabilities, while also creating resources that enable clients to transition quickly. This includes tools like myNav, which provides diagnostics and benchmarks for strategy development, to solutions like industry blueprints that are repeatable in areas such as digital manufacturing on the cloud. Our ongoing investment reflects our unique combination of engineering, infrastructure skills, solid relationships, and strategy consulting capabilities, which we've been developing for decades. We have consistently been early adopters of cloud technology, showcasing our capabilities.

That's really helpful and interesting. I guess, as a quick follow-up, I was just curious; you mentioned in the script Droga5 acquisition and more broadly Accenture Interactive. And wondering if there's significant sort of cross-sell and up-sell opportunity as you integrate more assets like Droga5 and present a more comprehensive suite to both the existing and new clients for things that they might not have maybe originally known or thought of Accenture for first and foremost. Is that part of the equation here?

Absolutely. And when you think about Accenture Interactive, like we are doing amazing work like our own brand and purpose work for ourselves via again our best credential. But what these capabilities bring is we're actually embedding them in all of our services. Our clients come to us for outcomes, and experience is a really important part of it. Again, when you think about the work we are doing with Prudential that we talked about last quarter, that was fundamentally a different way of engaging with the customer. Takeda, a different way of engaging with the donor, the researchers in the Norway example about how they're going to engage. We are embedding this experience, and how to do that in all of our work, and so that's why I often talk about, I know you all certainly look at our services, separately our four services, our clients look at our outcomes. And what differentiates us is our ability to embed the business of experience across Accenture, as well as going to market of course, like a Droga5 that continues to do amazing, pure work in terms of brand for example.

Hi, good morning. Thank you. I wanted to ask on bookings. Was there anything pulled forward in bookings relative to your prior expectation? Or do you still anticipate a building cadence for the year? And can you comment on bookings conversion pace and considering the outperformance you've had the last two quarters? I'm just curious how you're seeing the pace of these larger transformational engagements?

We are very pleased with our bookings this quarter, which grew 25%. We experienced a stronger first quarter compared to the last two years. This growth was driven by broad-based demand, especially in cloud solutions and Industry X security, aligning with our strategic priorities. The strength in bookings came from various types of work, particularly outsourcing, which saw a significant increase with a strong book-to-bill ratio. Among the 16 clients with bookings over $100 million, we had a good mix of outsourcing and consulting work, with contributions from all five industry groups. The services related to cloud, security, and Industry X tech services performed very well. I also want to emphasize our progress in strategy and consulting, which had a book-to-bill ratio of 1.1 this quarter. Overall, we are quite satisfied. Looking ahead, we are optimistic about our pipeline. Our bookings were strong across all segments, with smaller deals yielding more revenue in the current quarter. Regarding the duration of our bookings, it has not changed; rather, it is influenced by the mix of services, as more strategy and consulting bookings tend to have shorter durations.

Yes. And so next quarter, we expect a very nice, very strong quarter in bookings.

Okay. And then just over the last several years, you've had special businesses here that competitors have not that have enabled you to grow faster than the market. I'm thinking about operations and interactive specifically, as critical growth engines. From here, do you anticipate a rotation of the growth engine? So is Cloud First and Industry X, are those the new engines that you expect to drive above market? I'm just curious how you consider those now relative to competitors that are also heavily investing in those areas. And doing so earlier today than they did around interactive before?

Sure, great question. So let me just start with, we have been investing in cloud for a decade, which is very hard to replicate. And so we start with a $12 billion business that is growing strong double digits. So we would expect to continue to take market share there. And in this environment, where you have a rapid acceleration, and you're moving mission-critical workloads, we would expect to continue to differentiate, because of our decades of experience and our relationships with the world's leading technology ecosystem players. So cloud will continue to be a big trend. Think about Industry X, and we've talked about this now for some time, it's kind of the next Accenture Interactive. And as you know, we've been investing in Industry X for some time. The COVID, what we're seeing the early signs of is that like in other areas, Industry X is we think going to accelerate over the next couple of years, because that was still a newer part of the enterprise that was being digitized in the manufacturing and operations space. But as we now need to have like, a lot of health concerns about can you do manufacturing in a more contactless way, the supply chains have been disrupted. And so we have said, for some time Industry X is going to be the next growth engine. And the early signs are it's likely to be accelerating as well. So we'll see how that continues to play out. And remember, Accenture Interactive is an ongoing growth engine. I mean, we have three big platforms. You have the move to the cloud, which then has the data and the business value innovation on top. So it's not just moving there, it's everything that comes. And so that is an early inning, 20% into the cloud, but it's not just about the move, it's our unique ability to create business value to access the data and you're seeing that in the examples of what we're doing. This depends on where you are on that journey. So that is an ongoing platform for waves and waves of instant growth. The second being everything we do around intelligent operations, our operations business, our ability to move to modern digital platforms like what we talked about in IPS today. So that, again, provides we're early innings in the digitization of operations. And then Accenture Interactive, the business of experience that's an ongoing business in terms of that will always have to continue to evolve. And so, we see that the impact of the COVID crisis, we're starting to move out of that and building momentum. We continue to expect that to be a growth engine. And once again, this is where you can't make up for quickly the scale that we've achieved, because we've been investing for years and creating these capabilities. And then finally, you have this area of Industry X, and not to mention security and data, which will all continue to be of growing engines for us.

Good morning, guys, and congrats on the solid results. I wanted to ask on Interactive, just trying to understand the trajectory there. What did it kind of do in the fourth quarter? Did it even turn negative growth? And then now it's at low single, so does it kind of move up from here? I know there's been a lot of questions before on Interactive, given would that business be weaker during kind of a slowdown and it looks like it's hanging in there. So just curious on the trajectory where it was last quarter and kind of what you expect it to do throughout the year?

Yes, so in each two, kind of a whole six months, it was a low single-digit decline, and now we're in a low positive growth rate. And it's building momentum. So, for example, we're helping a big European bank with their digital sales, new things. So everyone's now starting to kind of reconnect with new experiences. Look, I think on security, we're super pleased with that about double-digit growth. So, whether it's going to be low or strong, it'll probably ebb and flow. But the consistency of that double-digit growth in security has been impressive to date, and we continue to see that to be the trajectory. Thanks.

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

Thank you very much. I wanted to ask; you mentioned that you have some targets for M&A this year. From a spend perspective, can you talk a little bit about what you're seeing from a valuation perspective and how we should expect those to contribute to growth in the coming fiscal year or during the current fiscal year and beyond? And what kind of areas you're targeting more specifically?

Yes, thanks. So in terms of our D&A, we expect to spend at least $1.7 billion, and there's no change to what we started out at the beginning of the year, the 2% expectation of additional revenue growth for this year. And it's aligned to really a lot of our all of our strategic priorities that we went through.

And then thinking about that, and I realized look that's consistent with what you've said before. But I'm just wondering how we should project that then into the future? Is this kind of the right level of acquisitions for Accenture? Or should we expect that to grow? Or do you think we're in a peak period? Just trying to think about that part of capital allocation. Thanks.

Yes, sure. So we've always aimed around 20%, 25% of our operating cash flow in our capital allocation program to be for D&A. But we've always had the ability and we continue to have the ability to do more should any opportunity arise. So there's really no change to how we view D&A of our capital allocation. Thanks.

Great. So thank you, everyone, for joining us on today's call. We're very pleased with our strong start in fiscal '21. Thank you again to our incredible people across the globe. And thank you to our shareholders for your continued trust. Best wishes to all for a safe, healthy and joyful holiday season.