Accenture plc - Class A (ACN) — Q4 2022 Earnings Call Transcript

Thank you, operator, and thanks, everyone, for joining us today on our fourth quarter and full fiscal 2022 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 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 both the fourth quarter and full fiscal year. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the first quarter and full fiscal year 2023. We will then take your questions before Julie provides a wrap-up at the end of the call. Some of the matters we'll discuss on this call, including our business outlook, are forward-looking and 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 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. 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, Angie, and everyone joining us today. And thank you to our 721,000 people around the globe for delivering a truly extraordinary year. We measure our success by both our financial results and the broader 360-degree value we create for all our stakeholders: our clients, our people, shareholders, partners, and communities. Strong financial results allow us to deliver more 360-degree value. Let me share a few highlights of this extraordinary year. In FY '22, we delivered record bookings of $72 billion. As our clients continue to execute compressed transformations, we had 100 clients with quarterly bookings greater than $100 million compared to $72 million last fiscal year. We delivered revenues of $62 billion, representing a record 26% growth in local currency, adding $11 billion in revenue for the year. We continue to take significant market share, growing more than 2x the market. Our financial results reflect our commitment to creating value for our clients every day, which is why they are turning to us as their trusted partner across the enterprise. We now have 267 Diamond clients, our largest client relationships compared to 229 last fiscal year. We expanded operating margin by 10 basis points and had EPS growth of 22% over adjusted FY '21 EPS, demonstrating our ability to grow profitably and at scale. We achieved this profitable growth while continuing to invest significantly in our business and people with $3.4 billion deployed across 38 acquisitions that are well balanced across markets, services, and strategic priorities; $1.1 billion invested in R&D assets, platforms, and industry solutions, including growing our portfolio of patents and pending patents to more than 8,300; and $1.1 billion invested in the training and development of our people to grow the skills needed to serve our clients. We continue to offer an employee value proposition that includes providing vibrant career paths and opportunities for our people with approximately 157,000 promotions and over 40 million training hours while expanding our workforce by almost 100,000 and achieving 47% women as we continue our progress towards gender parity by 2025. We believe our unwavering commitment to diversity, broadly defined, and inclusion is an essential element of our ability to deliver market-leading financial results because our diversity and inclusiveness make us smarter, more innovative, and more attractive to top talent. We achieved over 85% renewable electricity powering our offices and centers around the world on our way to 100% by 2023. We prioritize creating value around the world and the communities where we work and live, both through investments and job creation and through our direct support of meaningful local initiatives, including our apprenticeship programs in the U.S., UK, Switzerland, and Latin America and our growing partnership with Youth Business International, which will help an additional estimated 240,000 young entrepreneurs, ages 18 to 35, build skills and success in a digital future on top of the 370,000 young entrepreneurs already supported through this partnership in many different communities throughout the world. This year, we are proud to achieve our highest brand value and rank to date on BrandZ's prestigious Top 100 Most Valuable Global Brands list, increasing 28% to over $82 billion and ranking number 26. Over to you, KC.

Thank you, Julie, and thanks to all of you for joining us on today's call. We were very pleased with our results in the fourth quarter, which completes another outstanding year for Accenture. Once again, our results continue to provide strong validation of our leadership position in the marketplace, the relevance of our services to our clients, and our ability to consistently deliver on our shareholder value proposition, including both our financial results and creating 360-degree value for all our stakeholders. So let me begin by summarizing a few highlights from the quarter across our three financial imperatives. Revenue grew 22.4% in local currency, driven by double-digit growth across all markets, services, and industries. We once again extended our leadership position with growth estimated to be more than 2x the market, which refers to our basket of publicly traded companies. Operating margin was 14.7%, an increase of 10 basis points for the quarter. We continue to drive margin expansion while making significant investments in our people and our business. We delivered very strong EPS of $2.60, which represents 18% growth compared to EPS last year. And finally, we delivered free cash flow of $3.6 billion, driven by superior DSO management. Now let me turn to some of the details. New bookings were $18.4 billion for the quarter, our second highest ever with a book-to-bill of 1.2. Consulting bookings were $8.4 billion with a book-to-bill of 1. Outsourcing bookings of $9.9 billion were a record with a book-to-bill of 1.4. We were very pleased with our strong bookings this quarter, which reflects 22% growth in U.S. dollars and 31% growth in local currency, including 26 clients with bookings over $100 million in the quarter. Turning now to revenues. Revenues for the quarter were $15.4 billion, a 15% increase in U.S. dollars and 22.4% in local currency. Consolidated revenues for the quarter were $8.3 billion, up 14% in U.S. dollars and 22% in local currency. Outsourcing revenues were $7.1 billion, up 16% in U.S. dollars and 23% in local currency. Taking a closer look at our sales dimensions: technology services grew very strong double digits, operations grew strong double digits, and strategy and consulting grew double digits. Turning to our geographic markets. In North America, revenue growth was 18% in local currency, driven by double-digit growth in public service, software and platforms, and consumer goods, retail, and travel services. In Europe, revenues grew 26% in local currency, led by double-digit growth in industrial, banking and capital markets, and consumer goods, retail, and travel services. Looking closer at the countries, Europe was driven by double-digit growth in Germany, the UK, Italy, and France. In growth markets, we delivered 26% revenue growth in local currency, driven by double-digit growth in banking and capital markets, consumer goods, retail and travel services, and public service. From a country perspective, growth markets were led by double-digit growth in Japan and Australia. Moving down the income statement. Gross margin for the quarter was 32.1% compared with 33.3% for the same period last year. Sales and marketing expense for the quarter was 10.2% compared with 11.3% for the fourth quarter last year. General and administrative expense was 7.1% compared to 7.4% for the same quarter last year. Operating income was $2.3 billion in the fourth quarter, reflecting a 14.7% operating margin, up 10 basis points compared with Q4 last year. Our effective tax rate for the quarter was 24.6% compared with an effective tax rate of 25% for the fourth quarter last year. Diluted earnings per share were $2.60 compared with EPS of $2.20 in the fourth quarter last year. Days sales outstanding were 43 days compared to 44 days last quarter and 38 days in the fourth quarter of last year. Free cash flow for the quarter was $3.6 billion, resulting from cash generated by operating activities of $3.8 billion, net of property and equipment additions of $177 million. Our cash balance at August 31 was $7.9 billion compared with $8.2 billion at August 31 last year. With regards to our ongoing objective to return cash to shareholders, in the fourth quarter, we repurchased or redeemed 2.1 million shares for $605 million at an average price of $293.23 per share. Also in August, we paid our fourth quarterly cash dividend of $0.97 per share for a total of $614 million. And our Board of Directors declared a quarterly cash dividend of $1.12 per share to be paid on November 15, a 15% increase over last year, and approved $3 billion of additional share repurchase authority. Now, I would like to take a moment to summarize our outstanding year. We were extremely pleased with our performance in fiscal year '22, greatly exceeding almost all aspects of our original outlook that we provided last September. We delivered $71.7 billion in new bookings, reflecting 21% growth in U.S. dollars, hitting 100 clients with quarterly bookings of $100 million, which positions us well as we begin FY '23. We added significant scale with a record $11 billion in incremental revenue, almost double what we added in fiscal '21. Revenue of $61.6 billion for the year reflects growth of 26% in local currency. Operating margin of 15.2% reflects a 10 basis point expansion over FY '21. We were extremely pleased that we were able to deliver within our original guided range particularly with the continued significant investment in our business and people, including higher wages. Earnings per share were $10.71, reflecting 22% growth over adjusted FY '21 EPS, which is our highest growth in over a decade, reinforcing our ability to grow at scale profitably. As a reminder, we adjusted earnings last year to exclude gains on an investment. Free cash flow of $8.8 billion was significantly above our original guided range, reflecting a very strong free cash flow to net income ratio of 1.3. And with regards to our ongoing objective to return cash to shareholders, we exceeded our original guidance for capital allocation by returning $6.6 billion of cash to shareholders while investing approximately $3.4 billion across 38 acquisitions. In addition to these excellent financial results, let me turn to the 360-degree value we are creating for all our stakeholders. Through our partnership with Save the Children, we are preparing young people for a more sustainable and exclusive future by skilling an estimated 70,000 people to drive social and environmental change. For more information on the 360-degree value we are creating, please go to the Accenture 360-degree value reporting experience, which reflects new information each quarter. So again, FY '22 was a truly extraordinary year and we are now focused on delivering in fiscal '23. And now let me turn it back to Julie.

Thank you, KC. We achieve success by being close to our clients, understanding their needs, and supporting them from strategy to execution with the best solutions for their businesses, whether it's for growth, cost optimization, or both. This process begins with technology. Our wide-ranging capabilities, combined with our robust learning organization, allow us to adapt as needed, enabling us to meet our clients' evolving requirements and seize new market opportunities while maintaining a strong focus on operational excellence. In terms of demand, we reported $18.4 billion in new bookings in Q4, representing a 31% year-over-year increase in local currency. While various industries are experiencing different impacts, two prevalent themes emerge: all strategies emphasize technology, especially cloud, data, AI, and security, which are essential for a strong digital core. Our cloud business has reached $26 billion, growing by 48%, with Cloud First being the primary growth driver. Furthermore, companies are looking to implement accelerated transformations that involve bold programs across multiple enterprise areas simultaneously. Managed services have become crucial as organizations aim to progress quickly and utilize our digital platform and talent, and they are choosing Accenture for our exceptional expertise across the board. We continue to witness a rising number of companies recognizing the need to leverage the five key forces of change we have identified for the next decade: total enterprise reinvention, talent, sustainability, the Metaverse Continuum, and the ongoing tech revolution, all of which will drive our growth. To illustrate this demand, let's discuss total enterprise reinvention. We assist our clients in transforming every aspect of their businesses through technology, from building a digital core to optimizing operations for agility, efficiency, and resilience, thus accelerating their growth initiatives. Although we're still in the early stages, leading companies are beginning to systematically revamp multiple parts of their enterprises—from migrating to the cloud and adopting new working methods to digitizing manufacturing, rethinking shared services, and creating entirely new business models. Unilever, one of the largest consumer goods companies globally, exemplifies a company at the forefront of total enterprise reinvention. Together, we are establishing a new industry standard by revolutionizing technology delivery with state-of-the-art automation, executing large-scale cloud migration, and shifting toward technology solutions that align with their growth strategy. They have transitioned from a matrix structure to an organization centered around five distinct business groups, each charged with their strategy, growth, and profitability on a global scale. Currently, we are aiding them in developing a B2B marketplace that will support millions of small retailers in emerging markets, fostering what the company refers to as shared prosperity. Within just 12 months, we have launched in seven markets, implemented a cloud-native, scalable commerce platform powered by data and advanced analytics, and are managing front-end back-office operations and campaigns in collaboration with the Accenture Song team. Our relevance spans various roles across industries, from the boardroom to CFOs, business unit leaders, and factory GMs. We comprehend the connections across the enterprise, positioning us uniquely to assist our clients in concurrently driving growth, efficiency, cost reduction, and increased resilience. For instance, we are helping Lupin Limited, a global pharmaceutical company, become an intelligent enterprise by enabling its data-driven transformation journey. A new digital platform will make enterprise data accessible to enhance efficiencies, granting decision-makers real-time visibility into integrated data across 100 countries and 15 manufacturing and research facilities. This consolidated overview of global business operations and performance will assist the company in navigating supply chain disruptions and accelerating product innovation and time to market, supporting its mission to provide affordable healthcare worldwide. We observe sustained demand for our industry capabilities, focusing on digitizing engineering and manufacturing, which represents the next digital frontier. Industry X revenues rose by 38% in FY '22, totaling $7 billion. We are helping EDF, a French multinational utility, digitize the construction of a nuclear power station that will deliver low carbon energy for over 6 million homes in the U.K. As part of total enterprise reinvention, our Industry X team has transformed EDF's digital construction methods, implementing a global digital factory model on a secure cloud infrastructure to drive cost efficiency. Traditional construction methods that relied on paper and blueprints are being digitized, while AI will consolidate information from millions of supplier guides. Digital dashboards will offer real-time data visibility across all systems, and digital twins will identify areas for automation across power plants, enhancing safety, efficiency, and quality. Leveraging our nuclear construction expertise alongside cutting-edge cloud, digital, and AI capabilities, we are supporting EDF in delivering one of Europe's largest capital projects and advancing its mission to help Britain achieve net-zero emissions. Furthermore, our operational services, which have grown to $9 billion with a 19% increase in FY '22, play a crucial role in total enterprise reinvention for our clients by expediting digitization, access to digital talent, and cost reduction. For example, we are working with one of the world's largest commercial vehicle manufacturers to create an independent finance operation, utilizing our extensive expertise in finance and accounting. Through our managed services, we will implement a new platform supported by SynOps. Automation, data, and analytics will enable real-time decision-making while digitizing processes to enhance efficiency and the user experience, ultimately resulting in substantial cost cuts and improved decision-making. As our clients build their digital foundations, the importance of security has never been greater. With over $6 billion in revenue and 45% growth, our integrated security capabilities—from identity to threat intelligence to managed security services and incident response—are vital as clients face increasing risks in an expanding security landscape. We are collaborating with an Asian multinational conglomerate to provide comprehensive managed security services, including a security operations center and an all-encompassing security solution to detect, monitor, and address global threats 24/7. We will also manage tools to continually monitor end-user devices to identify and respond to cyber threats like ransomware and malware, conducting regular threat-hunting endeavors to uncover new hacking methods. This approach will ensure timely detection and defense against cyberattacks across business units, deliver proactive threat intelligence, reduce false alarms by 90%, and minimize emergency incidents to under 1% of the total. As we progress from total enterprise reinvention to the other five forces, let’s discuss talent. Our clients turn to us to help them access, cultivate, and unlock talent potential. We partnered with Sky, one of Europe's leading media and entertainment companies, to enhance its employee experience within human resources operations in the hybrid work era. By migrating to a Software-as-a-Service multi-platform human capital management solution, all in the cloud, employees will benefit from self-service solutions that are accessible anytime and anywhere, along with access to real-time data and dashboards in one location. This solution encompasses all aspects of people management, including recruiting, onboarding, performance management, learning, compensation, benefits, and payroll integration. Employees will have a comprehensive view of their work experiences at their fingertips, empowering them to advance their careers and enhance their performance. Now, turning to sustainability, with $1 billion in revenues in FY '22, we are confident that clients will increasingly seek our sustainability services in the coming decade. We worked with Swisscom, the leading communications, IT, and entertainment firm in Switzerland, to develop a climate strategy aimed at reducing emissions and assisting customers in cutting emissions by 1 million tons of carbon by 2025, which corresponds to 2% of Switzerland's total emissions. We are leveraging technologies like cloud, data, AI, 5G, and IoT to achieve faster, higher-capacity data transmission alongside remote management and control of connected devices. Furthermore, we are assisting the company in exploring strategies to incorporate technologies within the emerging Scope 4 classification, which can further decrease customer-related carbon emissions, allowing Swisscom to make a positive environmental impact and offer its customers a wider array of green products and services. Next, let's discuss the metaverse and ongoing technological revolutions. We continue to invest proactively to meet our clients' needs and have over a decade of experience in metaverse-related capabilities. We expect to onboard more than 150,000 new team members through Accenture's initiatives, employing our expertise to assist our clients, as we see the Metaverse Continuum offering greater opportunities during this digital transformation wave, which is still in its infancy. For example, we are aiding Tokyo Land Corporation, a leading Japanese leasing, construction, and retail real estate company, in harnessing the metaverse to enhance customer experiences through digital twin technology, which employs computer-generated imaging to create online walkthroughs of condominiums, significantly improving in-person model returns. Customers will be able to visualize properties online, including various home equipment options, allowing the company to attract more buyers and increase sales while lowering marketing costs and minimizing the environmental footprint from the construction, operation, and removal of model rooms. Looking ahead, we will establish ongoing interactions with customers throughout the real estate lifecycle and develop new collaborative digital businesses such as purchasing furniture, home appliances, and ordering renovation services. As we maintain our focus on innovation and navigate the ongoing tech revolution, we continue investing in our future. For instance, in Q4, we made a significant investment in Pixel, a leader in innovative earth imaging space technology. Back to you, KC.

Thanks, Julie. Now let me turn to our business outlook. For the first quarter of fiscal '23, we expect revenues to be in the range of $15.2 billion to $15.75 billion. This assumes the impact of FX will be approximately negative 8.5% compared to the first quarter of fiscal '22 and reflects an estimated 10% to 14% growth in local currency. For the full fiscal year '23, based upon how the rates have been trending over the last few weeks, we currently assume the impact of FX on our results in U.S. dollars will be approximately negative 6% compared to fiscal '22. For the full fiscal '23, we expect our revenues to be in the range of 8% to 11% growth in local currency over fiscal '22, which includes an inorganic contribution of about 2.5%. For operating margin, we expect fiscal year '23 to be 15.3% to 15.5%, a 10 to 30 basis point expansion over fiscal '22 results. We expect our annual effective tax rate to be in the range of 23% to 25%. This compares to an effective tax rate of 24% in fiscal '22. For earnings per share, we expect full year diluted EPS for fiscal '23 to be in the range of $11.09 to $11.41 or 4% to 7% growth over fiscal '22 results. For the full fiscal '23, we expect operating cash flow to be in the range of $8.5 billion to $9 billion, property and equipment additions to be approximately $800 million, and free cash flow to be in the range of $7.7 billion to $8.2 billion. Our free cash flow guidance reflects a free cash flow to net income ratio of 1.1. Finally, we expect to return at least $7.1 billion through dividends and share repurchases as we remain committed to returning a substantial portion of our cash to shareholders. With that, let's open it up so that 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 stuff here. Just a question about the outlook for fiscal '23. Can you elaborate a bit further on what underlying macroeconomic outlook you have embedded in guidance above and beyond the 6 points of FX translation? And maybe the broader question is sort of how, if at all, are you seeing the rising rate environment and inflation sort of escalating dynamics of what we've been seeing all year long affecting your business?

Great. Thanks, Lisa. So yes, let me give you a little bit of color around our guidance assumptions. So our revenue range of 8% to 11% for fiscal '23 includes a 2.5% inorganic contribution, and that's compared to about 5% that we did in '22. And that would represent then about 8.5% organic growth at the upper end of our range. And so, we continue to see really strong demand for our services, Lisa. And as you've seen, the most recent estimate for IT Services continues to show the growth for our industry will be about 5%. So anywhere in our range, it will show us continuing to take share. But at the same time, while our growth is not directly correlated with GDP, we read the same things that you do. And the latest GDP estimate for most of the world's largest economies are lower in 2023 than 2022. So again, we're calling for double-digit growth at the top part of our range. Another year of double-digit growth, which would have us adding significant scale, yet again on top of our current $62 billion business. When we consider the macro environment, our primary focus is on understanding the needs of our clients. This environment impacts different industries in various ways. Some are heavily affected by supply chain disruptions and ongoing inflation, which forces them to concentrate on cutting costs. As uncertainty rises, clients are reevaluating their resilience and exploring ways to implement deeper cost reductions that necessitate changes in behavior. Over the past 90 to 120 days, we've seen shifts in GDP growth estimates for 2023, prompting clients to ask how they can adapt and seize opportunities in this situation. Our approach is to determine how we can assist our clients and remain flexible in our strategies. This is reminiscent of our initial response during the pandemic, where we shifted towards leveraging cloud capabilities and extensive learning resources. Our goal is to continually find ways to better serve our clients.

Okay. Yes. Great insight. I just have a quick follow-up on bookings. I understand that they can be quite variable from one quarter to the next, and this quarter's overall number was remarkably strong, maintaining that 1.12 book-to-bill ratio. However, was there an unusual shift in the mix towards outsourcing and away from consulting? Can you provide any clarification on that? Or is it simply part of the normal fluctuations we see each quarter?

Sure. And so Lisa, as you mentioned, we feel really good about our bookings in Q4. It was our second highest bookings ever, our highest also being this year in the second quarter. What I really liked about it was driven by broad-based demand across all markets and our services, and we peel it back. We had good book-to-bill in all dimensions of our business. And with outsourcing a record of almost $10 billion, and that was almost $1.3 billion more than what we did for our last record. And we do continue to see a strong pipeline going into the year, even with those the second best record bookings. But I will say that as we often do, we have seasonally lower bookings in quarter one and we are seeing that again this year.

Just tacking on what Lisa just asked there with this larger book-to-bill in outsourcing relative to consulting. Is the shift to larger deals, does that tell you or should it tell us anything about client priorities? And I'm curious if that changes or even improves your visibility overall for fiscal '23, given you have so much more in the way of larger deals in the backlog.

Yes, we have larger deals, which provide more visibility due to their size. Clients are currently focused on where they can achieve good time to value and are prioritizing significant initiatives instead of managing numerous small pilots. This emphasis often leads to a focus on larger transformation deals, which aligns with what we refer to as total enterprise reinvention. Our upcoming research shows that 68% of CFOs report having three or more transformation programs either currently underway or about to begin simultaneously. This indicates that more companies are engaging in the systematic transformation we've discussed since the pandemic's onset, aiming for quicker implementation, which in turn results in larger programs. The main impact for us is not just visibility, but also how these deals convert to revenue.

Yes. In terms of our bookings this year, when comparing outsourcing work to consulting work, there is really no difference from our history over the last few years. In fact, we actually saw a slight increase in the percentage of consulting work we closed this year compared to outsourcing. So overall, our mix hasn't changed significantly.

Very good. That's really helpful. I have a follow-up on margins if you don't mind. I'm thinking about investment priorities, both organic and inorganic. I know this year there's a lower inorganic growth assumption. Is there any update on the balance? I noted that you mentioned 48% growth in cloud for the year, and I recall the $3 billion investment you made in your Cloud First strategy. It seems like that investment yielded a good return. Should we expect more investments like that at this point in the cycle? I'm interested in your thoughts on the balance between organic and inorganic investing.

I'll address the inorganic aspect and then pass it to Julie for further details. First, there is no change to our overall capital allocation strategy. We will continue to use acquisitions to support our organic growth. The 2.5% mentioned is an inorganic contribution, which aligns with our previous years' performance. Additionally, I want to highlight our plans for next year's investments and how they relate to our profits. We're proud of our achievements in the past year, where we saw a 10 basis point expansion. We will continue to invest significantly in our business and in our employees, especially this year as we manage wage inflation. Looking ahead, we expect to keep investing, and wage inflation will continue globally, varying by geography and scale. We will handle this by focusing on pricing, which may lag behind compensation. It's important to note that we successfully benefited from improved pricing in our financials last year. We aim to adjust our workforce in our contracts and leverage technology to manage higher investments in both our operations and our people. Maintaining our investment approach is crucial. For next year, I would be pleased to achieve an operating margin expansion within the range of 10 to 30 basis points. Depending on our investments throughout the year, we may experience more variability in quarterly performance as we work toward that expansion.

Yes. I want to emphasize that we believe it is very important to continue investing at higher levels in our business each year, and that's our commitment. We think a significant reason for our success is that we maintain our investment through every cycle.

I wanted to start by asking about the outlook, particularly regarding bookings. Julie, could you provide any directional comments on this? I understand you've offered revenue guidance in constant currency, and considering the backlog runoff from the tremendous bookings you've reported, the revenue guidance seems quite reasonable, perhaps a bit conservative. However, as you mentioned in your prepared remarks, you achieved record bookings this year, while your clients are experiencing more significant economic challenges. Could you share any insights on the book-to-bill ratio, growth rates, or any parameters we should consider when thinking about bookings this year? It appears that the trajectory for bookings may differ from revenue growth.

Well, I'll let KC start, and then I'll add on.

Yes. So, Keith, let me provide more detail on how we anticipate revenue breakdown for the year. For the full year 2023, we expect consulting revenue growth to fall within the 8% to 11% range that we previously outlined, noting that this includes a 6% headwind from foreign exchange. We project consulting revenue will grow by high single digits to double digits, while outsourcing is expected to exceed double digits. Regarding our bookings outlook, even though we do not provide specific guidance on bookings, our perspective remains unchanged. We aim for a book-to-bill ratio of over one over a rolling four-quarter period.

Great. Keith, I want to emphasize that our primary goal is to assist our clients in creating value regardless of their operating environment, which varies significantly by industry. For instance, currently, U.S. healthcare providers are concentrating on cost-cutting after facing challenges during COVID and are lagging in digitization, prompting them to invest in this area. They are compelled to do this due to one of the toughest labor markets they’ve ever encountered, which adds to the existing challenges of automation. This situation is entirely different from that of a global consumer company like Unilever, which we mentioned earlier. Unilever is on a path of reinvention, having been on this journey for several years while addressing issues like supply chain disruptions and rising costs for materials. Our success comes from deeply understanding the unique challenges across different industries. We are leveraging insights gained from other sectors to expedite the advancements providers are making as they adopt SaaS solutions for connecting with their patients, a practice we have long employed in retail, banking, and various other fields. Our outlook for the year reflects our confidence in our ability to utilize this knowledge, maintain close relationships with our clients, and meet their needs.

Okay. Okay. My follow-up is then focused on free cash flow. The free cash flow guidance is a touch certainly lighter than what we had modeled and I think Street had modeled your margins continue to move higher. So I was just wondering what the puts and takes that you might want to call out with the free cash flow guidance for the year. And then I will see the floor. Many thanks.

Yes. Thanks, Keith. So, as you know, when we set our guidance, we always first start with looking at the ratio. So the ratio that we have in our free cash flow guidance is a very strong $1.1 billion free cash flow to net income ratio. So, we're happy with that. We also are allowing in that guidance a bit of an uptick in DSO from our current level. And then also, we are assuming we are going to have the FX impact of 6% that will obviously impact our free cash flow as well. And as you know, it's not unusual for us to start guidance at the beginning of the year with a free cash flow guidance range that is below where we delivered the previous year.

Obviously, a lot of folks are asking about the macro. So just curious how the macro has changed for you guys over the last three months and how that's influenced your business because it doesn't really show up much in results? So just curious how you would frame that?

As KC mentioned earlier, our guidance for the year incorporates the latest estimates for 2023 GDP, which have declined over the past three months. We consider this factor, particularly in terms of how it impacts our ability to assist our clients in navigating their strategies. For instance, we are currently working with a consumer goods client to explore ways to reduce marketing expenses while increasing effectiveness, as they seek growth despite marketing being one of their largest expenditures. Additionally, it's important to leverage this opportunity to inspire cultural and behavioral shifts as they contemplate their next steps. Overall, our guidance reflects the broader economic landscape, even though it's not a simple one-to-one correlation.

Got it. Yes. Yes. I was just looking at Europe, in particular, up 26% in local currency, given all the concerns around Europe. It's just a pretty amazing number. It doesn't seem to have come off much from the growth rates you've been putting up.

Yes. We're very proud of our European team because they are really close to our clients.

Yes. Brian, let me provide some insights regarding our Q1 revenue outlook. We anticipate that the revenue for the first quarter will fall within the 10% to 14% range we previously provided, with all markets showing potential for double-digit growth, including Europe. Additionally, for consulting work in Q1, we expect growth to be in the high single-digit to low double-digit range within that same 10% to 14% bracket. Specifically for consulting, the demand for the detect segment, particularly systems integration, remains strong, while S&C is expected to experience growth in the lower single digits.

No, that's really helpful and then just a quick follow-up, just thinking on KC on visibility. How has visibility changed at all, if at all, for Accenture? When you look out further on in the quarters as we get to Q4, it's obviously almost 12 months away, so it's probably a little bit hard to figure out exactly the right growth rates, but just thinking about the visibility of the business.

In discussing the latter half of the year, Brian, it’s important to note that this uncertainty is a common theme we experience yearly. We have previously mentioned how we assess the macro environment in the market. Generally, the second half of the year comes with more uncertainty compared to the first quarter and the first half, and this pattern aligns with our past experiences.

Clients are mostly on a calendar year, so they will set their budgets and we will have more information about that in January. It's really the same as always.

It is. It is.

Got it, great. Congrats on the results.

Thanks.

Thank you.

Appreciate all the commentary today as usual. Looking at kind of the supply and how you're managing your own employees, et cetera, how does the shift in client priorities manifest itself in where and how your services are being delivered? And how is that influencing your talent strategy right now around pace of hiring, where you hire, et cetera?

Well, as you know, we have a very deep competency in supply and demand. And actually, over the course of the last couple of years, we continue to innovate. We have an incredible what we call integrated talent control tower that is able to predict earlier and earlier in our sales cycle, where the skills will be needed and what type of skills. And so for us, this is just normal business, right? And keep in mind, technology demand is really incredible, right? I mean you saw that in our results. All strategies lead to technology. And we're super pleased with not only our performance there, but what we're seeing ahead as clients continue to build the digital core as fundamental to all of their other strategic needs. And our talent supply chain is able to see that, predict it, understand the skills and keep moving forward.

That's great. And then turning to pricing, just wondering what the tone and tenor of pricing conversations have been? How those have progressed. And how are you building in? Or how should we think about what's being built into your formulation of outlook around magnitude of potential uplift to revenue from pricing versus margins, et cetera?

So let me just remind you that when I'm talking about pricing in my answer, I'm talking about the margin on the work that we've sold. And I'm really pleased that we've continued to see improvements in pricing. And we are seeing the benefits. I mentioned this earlier, but I'll just repeat it. We are seeing the benefits come through in our P&L. And we continue to focus on improvements in pricing as we enter into fiscal year '23. So I'm really pleased with the progress we've made.

KC, I wanted to follow up on your earlier comment regarding strategy and consulting, which you mentioned is expected to be in the low single-digit range in Q1. Are you anticipating the same range for the entire fiscal year '23? Is this below the corporate average, indicating the more discretionary and growth-focused nature of those services?

Yes, thanks, Jason. Regarding Q1, there are a few key points to note. First, we face a challenging comparison. Second, the reduction in inorganic contributions also affects the Strategy and Consulting segment. As Julie mentioned, many of our Strategy and Consulting professionals are concentrating on larger transformational deals, which tend to generate different revenue outcomes that will come in later in the year.

Okay. Understood. Maybe just turning to the supply side for a second. It looks like attrition was unchanged in Q4 versus Q3. And wondering what you're expecting there in fiscal '23 as well as what you're expecting for wage inflation relative to 2022 and whether or not some of the broader layoffs across other parts of the tech industry are taking some of the pressure off some of your supply metrics at all?

Yes. I'll start, Jason, with the last part. I'm really pleased with our ability to grow profitably at scale while managing wage inflation in fiscal year 2022. As we mentioned earlier, we do expect wage inflation to persist, and we have incorporated that into our guidance.

Technology skills are highly sought after by both our company and competitors because they are central to strategic development. We anticipate that the labor market will remain tight, but we believe we will continue to perform well. In fact, despite the current market conditions, we added 100,000 employees last year. Therefore, I don't think the recent layoffs in certain sectors will significantly impact our situation.

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

I wanted to start on the growth outlook. Can you just give us a sense on how you're thinking about the second half trajectory just in the fiscal '23 range, just given significant uncertainty? Just curious how you went about building that second half forecast. And then just within the year, are you expecting the strategic priorities to hold the double-digit growth? So across Song and Cloud First and Next, or are any of those a little bit more exposed to potential slowdown and uncertainty?

Yes. I'll start with our overall outlook. We began with a range of 8 to 11, and I've already touched on that. We have a solid start with growth between 10% and 14%. As we look at the rest of the year, we'll continue to provide guidance as we move through fiscal year '23. As Julie mentioned, we see strong ongoing demand in our technology areas. Beyond that, I won't provide any further guidance or insights on revenue outlook apart from what I've already shared.

Yes. I think it's essential for us to continuously consider both the short term, this fiscal year, and the long term, focusing on the five forces of change for the next decade. This includes total enterprise reinvention and our investments in sustainability. We recently made an important acquisition in Carbon Intelligence, which focuses on consulting for carbon neutrality strategies. The Metaverse Continuum, though still small, shows us as the leading enterprise user of our own onboarding process, and there is significant interest in that area. We are already making investments and addressing the ongoing technology revolution. Therefore, as you evaluate our results, keep in mind that we are investing now and in the future while looking at the demand projected over the next decade.

Yes, we spent $3.4 billion for the year in 2022 because we secured some regulatory approvals that we were uncertain about. You'll notice that while we will continue to provide our inorganic outlook annually, the 2.5% refers to a full year. We don't typically break that down by quarter since it can vary significantly. We will not provide the capital allocation amount as we enter 2023, as it can change by the end of the year, but you will see regular updates each quarter.

Yes, it's probably worth reminding that last Q1, we had Umlaut and Novetta, which were both very large acquisitions come in, in Q1. So probably just good to remind everyone that's part of what's driving the Q1 S&C results too. Great. So before we wrap up, I do want to mention that Angie Park, who has been our Head of Investor Relations for the past six years, has been promoted to become the CFO for our really outstanding technology services business. Angie has been an absolutely incredible Head of IR and we're particularly grateful for how she has helped lead us through some of the most turbulent times in the history of Accenture. I know from speaking to our investors and analysts how much they've appreciated Angie's steady hand, her commitment to transparency and connection. And I know we'll all miss her in this role, but are extremely excited to see her start the next chapter of what has already been an incredible career. So thank you very much, Angie. And I am also pleased to welcome Katy O'Connor who will become our new Head of Investor Relations. She's got incredible experience. She's held many finance roles during her 25 years at Accenture. So please join me in welcoming Katy and I know she's looking forward to getting to know all of you in the days ahead. In closing, I do want to thank again all of our people and our managing directors for what you're doing every day. Our people, our actions, and our results in FY '22 have positioned us to be very strong going into FY '23 and create even more 360-degree value. And finally and very importantly, thank you to all of our shareholders for your continued trust and support. Thank you.