Accenture plc - Class A (ACN) — Q1 2025 Earnings Call Transcript

Thank you, operator, and thanks everyone for joining us today on our first quarter fiscal 2025 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 Angie Park, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results. Angie 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 an update on our market positioning before Angie provides our business outlook for the second quarter and full fiscal year 2025. 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 in the 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 nearly 799,000 people around the world for their extraordinary work and commitment to our clients, which resulted in a strong quarter of financial results, creating 360-degree value for all our stakeholders. I am very pleased with our performance this quarter, as we delivered on our strategy to position Accenture for strong growth in fiscal year 2025. Here are a few highlights of the 360-degree value we created. Our clients continue to prioritize large-scale transformations, and we are their reinvention partner of choice, as reflected in our bookings of $18.7 billion, including 30 clients with quarterly bookings greater than $100 million. We grew 8% in local currency this quarter with revenue of $17.7 billion, approximately $240 million above the top end of our guided range, and continue to take market share on a rolling four-quarter basis against our basket of our closest global publicly traded competitors, which is how we calculate market share. We had another milestone quarter in GenAI with $1.2 billion in bookings and approximately $500 million in revenue. Operating margin was flat compared to adjusted operating margin last year. EPS grew 10% over Q1 adjusted FY24 EPS. While we continue to invest in our business and our people with $242 million deployed primarily across five acquisitions and with approximately 14 million training hours this quarter designed to help us bring the latest in solutions and technology to our clients, provide our people with marketable skills, and reinvent our services using GenAI. This averages 19 hours per person. We increased our data and AI workforce to approximately 69,000, continuing progress against our goal of 80,000 by the end of fiscal year 2026. We are proud to be recognized by Fortune as one of the world's best workplaces, jumping from #10 to #6. This recognition is important, as it is based on feedback from our people around the world. An essential part of our strategy is having access to the best people and being an attractive workplace is critical to our success. And in recognition of our strong brand, we are proud to earn our highest brand value to date on Interbrand's Prestigious Best Global Brands List, increasing to $21.9 billion and ranking #31. We continue to invest in creating and maintaining thriving communities, which our long-term growth depends on. This quarter, among other things, Accenture has partnered with the NGO Instituto PROA in Brazil to help transform the lives of low-income youth by providing them with digital skills to enter the workforce. I am very pleased with our results this quarter and our return to broad-based growth due to our strategy to be our client reinvention partner of choice. We also have a resilient business model with diversity across markets, industries, and the types of work our clients come to us for, both consulting type of work and managed services. Over to you, Angie.

Thank you, Julie, and 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 results in the first quarter, which exceeded our expectations and reflects momentum across our business. We are particularly pleased with our strong revenue growth, which was broad-based across geographic markets, industry groups, and consulting and managed services, demonstrating we are a leader in the market as a trusted reinvention partner for our clients. Based on the strength of our first quarter results, we are increasing our full year revenue outlook, which I will cover in more detail later in our call. So let me begin by summarizing a few highlights in the quarter. Revenues grew 8% in local currency above the top end of our guided range, with six of our 13 industries growing double digits, and we continue to take market share. We delivered EPS in the quarter of $3.59, reflecting 10% growth over adjusted EPS last year. Operating margin was 16.7% for the quarter, consistent with adjusted Q1 results last year, and includes significant investments in our people and our business. Finally, we delivered free cash flow of $870 million and returned $1.8 billion to shareholders through repurchases and dividends. We also invested $242 million, primarily attributed to five acquisitions in the quarter. With those high-level comments, let me turn to some of the details starting with new bookings. New bookings were $18.7 billion for the quarter, representing 1% growth in both U.S. Dollars and local currency, with an overall book-to-bill of 1.1. Consulting bookings were $9.2 billion with a book-to-bill of 1.0. Managed services bookings were $9.5 billion with a book-to-bill of 1.1. Turning now to revenue. Revenues for the quarter were $17.7 billion, a 9% increase in U.S. Dollars and 8% in local currency, approximately $240 million above the top end of our guided range. The foreign exchange impact for the quarter was approximately positive 1% compared with the positive 1.5% estimate provided last quarter. Consulting revenues for the quarter were $9 billion, up 7% in U.S. Dollars and 6% in local currency. Managed services revenue was $8.6 billion, up 11% in both U.S. Dollars and local currency, driven by double-digit growth in technology-managed services, which includes our application-managed services and infrastructure-managed services, and high single-digit growth in operations. Turning to our geographic markets, in the Americas, revenues grew 11% in local currency. Growth was led by industrial, software and platforms, banking and capital markets, and consumer goods, retail, and travel services. Revenue growth was driven by the United States and Argentina. In EMEA, revenues grew 6% in local currency, led by growth in public service, life sciences, and health, partially offset by a decline in banking and capital markets. Revenue growth was driven by the United Kingdom and Italy, partially offset by a decline in France. In Asia Pacific, we delivered 4% revenue growth in local currency, driven by growth in utilities, industrial, and health, partially offset by a decline in chemicals and natural resources. Revenue growth was led by Japan, which represents approximately half of Asia Pacific, partially offset by declines in Singapore and Australia. Moving down the income statement, gross margin for the quarter was 32.9% compared to 33.6% for the first quarter last year. Sales and marketing expense for the quarter was 10.2% compared with 10.5% for the first quarter last year. General and administrative expense was 6% compared to 6.4% for the same quarter last year. Before I continue, I want to note that in Q1 of last year, we recorded $140 million in costs associated with our business optimization actions, which decreased operating margin by 90 basis points and EPS by $0.17. Following comparisons exclude these impacts and reflect adjusted results. Operating income was $2.9 billion in the first quarter, reflecting a 16.7% operating margin consistent with adjusted operating margin in Q1 of last year. Our effective tax rate for the quarter was 21.6% compared with an effective tax rate of 23.2% for the first quarter last year. Diluted earnings per share were $3.59 compared with adjusted EPS of $3.27 in the first quarter last year, reflecting 10% growth over adjusted EPS in Q1 last year. Days services outstanding were 50 days compared to 46 days last quarter and 49 days in the first quarter of last year. Free cash flow for the quarter was $870 million resulting from cash generated by operating activities of $1 billion, net of property and equipment additions of $152 million. Following the completion of our $5 billion inaugural debt offering, our cash balance at November 30th was $8.3 billion compared with $5 billion at August 31st. With regards to our ongoing objective to return cash to shareholders, in the first quarter, we repurchased or redeemed 2.5 million shares for $898 million at an average price of $355.03 per share. As of November 30th, we had approximately $5.9 billion of share repurchase authority remaining. Also, in November, we paid a quarterly cash dividend of $1.48 per share for a total of $926 million. This represented a 15% increase over last year and our Board of Directors declared a quarterly cash dividend of $1.48 per share to be paid on February 14th, a 15% increase over last year. So in summary, we are very pleased with our Q1 results, and we are off to a strong start in FY25. And now, let me turn it back to Julie.

Thank you, Angie. Starting with the demand environment, we saw more of the same. Our clients are focused on reinvention, which means large-scale transformations. We do not currently see an improvement in overall spending by our clients, particularly on smaller deals. When those market conditions improve, we will be well-positioned to capitalize on them, as we continue to meet the demand for the critical programs our clients are prioritizing. As expected, building the strong digital core required for reinvention was a strong driver of our growth this quarter. GenAI continues to be a catalyst for reinvention across the enterprise and building out the data foundation necessary to capitalize on AI, as an increasing part of that growth. Themes around achieving both cost efficiencies and growth continue across the demand we're seeing. Through the examples from Q1, you can see both our strategy to be the reinvention partner of choice and how we are bringing together our services, our ecosystem relationships, and our scaled investments in cutting-edge platforms like SynOps and GenWizard, as well as technologies like GenAI to drive value for our clients. We are helping our clients build their digital core, including in the cloud, which saw double-digit growth this quarter. Accenture Federal Services is working with the U.S. Air Force, the nation's military service air branch, on a cloud monetization journey to manage its complex IT environment so that military personnel can maintain their competitive edge. We will develop a multi-cloud ecosystem using services from multiple providers to create a robust, secure, and integrated infrastructure. This will enhance how different systems and devices work together and communicate to quickly implement cutting-edge tools and technologies. We also provide managed services that foster collaboration and enable personnel to quickly make data-driven decisions about their cloud usage and costs while adapting to changing mission requirements. This partnership will enable the U.S. Air Force to get the most out of their cloud investments to achieve real-time cross-cost transparency, accelerated cost savings, increased efficiency, and improved agility. Our industry expertise is critical to building the right digital core. We are partnering with the BCC ICCREA Group, Italy's largest cooperative banking group, through a joint venture with its IT subsidiary on a reinvention journey to help over 100 affiliated banks grow. Our managed services will modernize the IT platform and migrate applications to the cloud, enhancing resiliency, stability, and service quality. We will also consolidate data and build an integrated cloud platform for advanced analytics and AI, strengthening their digital core. GenAI will be applied to increase internal IT efficiency and reduce customer response time on digital interaction channels. We will expand digital offerings, employee onboarding, and payments using our suite of shared finance services solutions. A change management communications program will offer targeted upskilling and reskilling opportunities to ensure employees use new technologies and methodologies effectively. Together we will help BCC ICCREA Group reduce costs and drive innovation, enabling the banking group to be more competitive and bring new products and services to market faster. Security is an absolutely essential component of every company's digital core, and we again saw very strong double-digit growth. We are the partner-of-choice in part because we bring both the understanding of cross-industry threats and industry-specific threats with our deep experience across 13 industry groups. We are supporting a leading aircraft manufacturer and its cybersecurity across aerospace and defense on critical infrastructure and production systems. We will provide managed services and solutions for their cybersecurity capability, leading to a more powerful and secure program, bringing security by design and industrial assets and the extended enterprise. Our solutions will help provide improved security and meet regulatory compliance. We are also helping with the digitization of manufacturing and supply chains. Industry X grew double digits this quarter. We are continuing to evolve our long-time partnership with a global leader in tire manufacturing to revolutionize the way factories operate and to reduce time-to-market for new products, accelerating innovation. We will build a hybrid data foundation in the cloud, integrating millions of data points. We will also implement advanced analytics, AI, and digital twin technologies to optimize operations processes such as quality checks. This will enable the company to trace the root cause of a failed batch of tires back to a machine or process in minutes instead of days. Predictive maintenance will pinpoint what parts of their process or machinery may be impacting quality and productivity, preventing costly downtimes. Engineering teams will benefit from machine learning and simulation tools to generate and optimize the design of new products. We will also implement new ways of working to attract tech-savvy talent and cultivate a learning culture where employees in over 100 factories are upskilled on the AI-powered tools. The company will look to increase growth opportunities and support their digital-first strategy, all while remaining competitive in the market. We are partnering with PUMA India, a leader in sports lifestyle products, to reinvent their supply chain and distribution network. This will meet the ever-evolving customer demand for order delivery in a highly competitive, omni-channel market where quick commerce is becoming the norm. We will use data and AI to identify and set up localized fulfillment centers, optimizing their size and location based on customer sales. Digital twins of these facilities will simulate various process designs and physical automation scenarios to identify bottlenecks. This will help redefine warehouse layouts and improve material flow for more efficient order and return processing, delivering orders up to 70% faster with express delivery for online orders expected to double. Supply chain costs are also expected to decrease by up to 10%, and additional features like solar power and EV charging stations at fulfillment centers will further reduce costs and support sustainability goals. PUMA India will be the first amongst sports brands in the region to build this type of cutting-edge operating model, enhancing customer loyalty to drive future growth. We are reinventing all things customer through Song, which grew high single digits this quarter. We have the ability to integrate creative, data and AI, tech, and strategy while leveraging our industry and operations expertise to unlock marketing as a growth enabler for our clients while delivering efficiencies. We are helping Spotify optimize its advertising business by finding opportunities to drive efficiency as it scales globally. Our marketing operations managed services support their ad operations under a single roof, touching a significant amount of their ad revenue across 150 markets. We've infused automation across their operational workflows to help significantly reduce the time and effort required to launch advertisers' campaigns, getting them to market more quickly to help ensure revenue realization and advertiser satisfaction. We continue to expand beyond ad operations, actively launching new capabilities across analytics and insights, data integrity and enrichment, customer support, and more. Our partnership helps Spotify to focus on its core competencies so it can achieve long-term relevance and growth in an increasingly competitive market. We are collaborating with CaixaBank, a leading financial group in Spain, on their plan to enhance customer and employee experiences. We will increase productivity and efficiency by leveraging AI and GenAI to build multiple solutions, such as the bank's chatbot, which has significantly reduced response times and improved the quality of answers for clients, and an employee assistant tool that utilizes natural language conversations and solution searches. We will also build a customer service claim solution that analyzes documents and supports agents and lawyers in proposing the right responses, reducing processing time, and assisting specialized teams. This will help CaixaBank reinvent with GenAI, and we are creating real value from GenAI across industries and countries. We are partnering with Vale, a Brazilian mining and logistics company, to transform its environmental licensing program, speeding up permit applications and expanding its sustainability goals. We created Smart Licensing, an end-to-end licensing management platform that uses GenAI to scan application materials and environmental studies to promote compliance with regulatory and environmental requirements. This creates actionable summaries, reducing internal document reviews from days to minutes. We've trained over 500 people to use Smart Licensing and established a change management team to combine previously segmented teams, helping Vale plan and execute more efficiently while further reducing environmental impact. We are partnering with Indosat, a Digital Telecommunications Company and its subsidiary, Lintasarta, a leading provider of data communication, Internet, and IT services to launch Indonesia's first sovereign AI cloud platform. This will accelerate their AI-driven digital transformation and support the country's vision of becoming a digitally empowered nation by 2045. The collaboration will initially focus on AI solutions for Indonesia's financial services sector, one of the key pillars of the country's economy. Accenture's AI refinery platform will provide scaled AI capabilities with pre-built solutions that have a modular architecture to meet clients' needs wherever they are in their AI journey, significantly reducing time to value. This partnership will help Indonesian companies to drive reinvention by harnessing the power of scaled GenAI, propelling innovation, operational efficiency, and sustainable growth in a competitive market. Talent continues to be at the top of the agenda for CEOs and governments, and our LearnVantage services position us to be able to help clients invest in their workforce. Our partnership with S&P Global, a leading provider of financial data analytics and ratings, is driving GenAI innovation across the financial services industry, empowering their workforce to adopt GenAI at scale to enhance productivity and deliver revenue growth. They are equipping nearly 40,000 of their employees with the necessary skills, leveraging Accenture LearnVantage Services, a comprehensive GenAI learning program. This program includes curated and customized content to drive AI fluency and address the industry's evolving talent requirements. Finally, a quick look at how we're continually using our investments and acquisitions to drive our future growth. To continue to scale LearnVantage, we acquired awarded solutions in the U.S., which expands our learning offerings tailored to the unique needs of the network leaders, network operations and performance engineers, and IT professionals in the telecom space. To enable us to scale faster in health, a $70 billion adjustable market growing approximately 6%, we acquired consus.health, a leading German healthcare management consultancy. Health is an industry still early in digitalization, and our investments are positioning us for the continued growth we see over the next several years. Supply chain continues to be early in digitalization, and we are investing to continue to drive growth. This quarter, we acquired Camelot, an international SAP-focused management and technology consulting firm from Germany with specific strengths in supply chain, data, and analytics and Joshua Tree Group in the U.S., a supply chain consulting firm specializing in distribution center performance. Back to you, Angie.

Thank you, Julie. Now, I will discuss our business outlook. For the second quarter of fiscal 2025, we anticipate revenues between $16.2 billion and $16.8 billion. This projection accounts for an estimated negative impact of approximately 2.5% from foreign exchange compared to the second quarter of fiscal 2024 and indicates a local currency growth of 5% to 9%. For the entire fiscal year 2025, considering recent currency trends, we expect a foreign exchange impact of roughly negative 0.5% on our results in U.S. Dollars compared to fiscal 2024. We now forecast a local currency revenue growth of 4% to 7% over fiscal 2024 for the entire year, including an inorganic contribution slightly above 3%, with expectations of about 4% growth in the first half and around 2% in the second half. We also plan to invest approximately $3 billion in acquisitions this fiscal year. For operating margin, we expect it to be between 15.6% and 15.8% for fiscal year 2025, indicating an expansion of 10 to 30 basis points over the adjusted results from fiscal 2024. We anticipate our annual effective tax rate to fall between 22.5% and 24.5%, compared to an adjusted effective tax rate of 23.6% in fiscal 2024. Our projected diluted earnings per share for fiscal 2025 is expected to range from $12.43 to $12.79, which represents a growth of 4% to 7% over adjusted fiscal 2024 results, in line with our improved revenue outlook and revised foreign exchange assumptions. For the full fiscal year 2025, we expect operating cash flow between $9.4 billion and $10.1 billion, with property and equipment additions around $600 million and free cash flow estimated between $8.8 billion and $9.5 billion. Our free cash flow guidance suggests a free cash flow to net income ratio of 1.1 to 1.2. Lastly, we plan to return at least $8.3 billion through dividends and share repurchases as part of our commitment to returning a significant portion of our cash to shareholders. Now, let’s open the floor to questions. Katie?

Thanks, Angie. 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 good morning. It's really encouraging to see the revenue come in here above the guidance range. I think it's the widest margin in nearly two years. Julie, you said that the demand environment is more or less the same. So I'm curious what you attribute this new pattern to and if market conditions are maybe improving underneath here. Any comments?

Thanks, Tien-Tsin. This is the strategy we’ve been discussing for the past few quarters. Last year, when we noticed a decline in spending, especially on smaller deals, we shifted our focus to securing more major partnerships, aiming to increase the number of deals over $100 million each quarter. Last year, we completed 125 such deals. The intention was to target the demand for larger projects, positioning ourselves for significant growth in 2025 as those deals start to materialize. What you're witnessing is a direct result of our agility last year; when the market shifted, we adapted quickly. As you know, these larger deals are complex and not easily finalized in a short time, yet we effectively responded to the demand. We have emphasized that the market conditions remain unchanged. The success we're seeing stems from the strategy we've implemented, which we're capable of executing due to our mix of consulting and managed services. This aligns with what we mentioned last quarter about returning to strong growth through this strategy. These programs are critically important. Therefore, when spending rebounds and the market improves, we will be well-positioned to capitalize on that opportunity.

Yes. No, the last point is important, short-term stuff comes back. Hope you should see that pretty quickly as well on top of this. So good, thanks. And my follow up, just have to ask it, I get a lot of questions on the U.S. federal government and Accenture's exposure there. I think it's about 8% of revenue based on some of your annual report disclosures. So just curious, given some of the change in administration and the discussion around efficiency, have your expectations? Or are you going to change your strategy here on the U.S. federal government side? Any comments there would be terrific. Thanks for the time.

We are really excited about our core strengths in the federal sector, which focus on driving efficiencies and ensuring national security. We are collaborating with U.S. federal agencies to secure critical infrastructure and improve citizen services. Our work spans important agencies, and we believe we are exceptionally well positioned to support the federal government in its mission to ensure security, assist citizens, and enhance efficiencies, particularly regarding cloud technology, data, and AI. We anticipate a growing demand for commercial solutions within the federal government, and we are uniquely equipped for this opportunity due to our robust government expertise combined with commercial and private sector offerings. We are leaders among major ecosystem partners, as highlighted by our ongoing cloud modernization efforts with the U.S. Air Force. The majority of our projects are vital to the federal government’s operations, presenting a significant opportunity for us to collaborate with the new administration, as we have with past administrations and federal leaders, focusing on driving these key initiatives forward. We are confident in our position to aid the government in achieving this agenda.

Awesome, thank you.

Good morning guys. Happy holidays. I know that last quarter, you indicated the high end of the initial revenue guide. For this fiscal year, did not require any material improvement in consulting. Just wondering if that's still the case as you're now raising the top end a little bit? Or are you now assuming any improvement in consulting since you're almost four months into the new fiscal year?

Good morning, Jason. I'll take that. With the revenue increase to 4% to 7% for the full year, there is no change from what we previously shared. At the higher end of the range, we expect similar performance, while at the lower end, we anticipate a bit more deterioration. So, no change there.

Yes. And our over delivery, I mean, we're very pleased, obviously, with consulting and managed service growth this quarter. And these large deals came in a little bit better, which is how we over delivered and are now raising the guidance.

Great to hear. And then I'm just looking at the net headcount added cumulatively over the past two quarters. I think we're almost 50,000. That was a pretty big step up from what the prior trend looked like. So can you give us any sense of how much of that was from acquisitions versus organic? And I guess is there any reason to not look at this accelerated hiring as kind of a bullish indicator?

So let me take that question. And as it relates to the net people added that we had in Q1. So we did add about 24,000 people in the first quarter, which is really reflective of the momentum that we see in our business. And managing supply and demand is a core competency of ours. And what you see is the continued high utilization rates at around 90%. Looking ahead, we'll continue to hire for the demand that we see and the skills that we need. And I'll give you a little bit more context that the hiring that we saw this quarter, similar to last was that it was concentrated in India.

Yes. I would like to emphasize that our guidance reflects organic momentum. At the high end of our guidance for the year, we expect to achieve a range of organic growth between 1 to 4. This indicates a positive trend as we are hiring, and while some of this growth stems from acquisitions, we are indeed experiencing organic momentum in our business.

Thanks for the comments.

Hi guys. Congrats on the solid result. And Happy holidays. Kind of asking the guidance question a little bit differently. The 4% to 7% constant currency revenue guide for the fiscal year 2025 is a touch below just the first quarter number of 8% on a constant currency basis. So just trying to think about if there is any reason why the growth would decelerate off the first quarter level as we get more into fiscal year 2025?

Hi Bryan, happy holidays to you as well. Let me explain our guidance for the full year and the adjustment to 4% to 7%. We had a strong start in Q1 and solid guidance in Q2, which was widespread and driven by our organic growth. As you heard from Julie, the macro environment remains unchanged. I want to emphasize that we continue to expect an inorganic contribution of just over 3%. We provided details on how this will play out: we anticipate around 4% in the first half and about 2% in the second half, which should clarify our outlook for organic growth this year. We will continue to see organic growth throughout this fiscal year. We're just one quarter in, with three more to go. As Julie mentioned, we're executing our strategy, and you can rely on us to keep that up.

Got it. Got it. That's helpful. And then maybe you guys could just talk a little bit about the industry group, the Financial Services. A lot of times, that kind of leads out of economic slowdowns. But it sounds like Banking & Capital Markets was a little bit softer, but some other areas of strength and just trying to figure out where that is in the industry right now because we're kind of getting mixed messages from some of the other IT service providers. Thanks so much.

Yes, it varies by market. We are seeing different results across markets. Specifically, we are pleased to note that the U.K. is showing signs of recovery as we make adjustments there. In the U.S., the situation is somewhat better, while in EMEA it is somewhat worse, leading to a mixed outlook regarding interest rates and expectations. This is probably not surprising. Recent developments in the U.S. may have added to this complexity. We observe strong interest in Banking & Capital Markets, particularly concerning areas like GenAI, but there is still a lot to consider about future interest rate movements. Overall, while things are improving, the picture remains mixed across regions.

Yes. And just as a reminder, Bryan, as we look at Financial Services overall, we exited Q4 last year with a minus 2%, and we saw the uptick in the first quarter at 4% globally, which reflects the dynamics that Julie was just describing, which really plays to our strength, as you think about the diversity of our business across markets and industries.

Great. Thanks again.

Thank you for the great results. Can we discuss your expected visibility into budgets and their timing this year? Earlier this year, you mentioned that this typically occurs around January and February, although that timeline has shifted slightly. Do you still expect that level of visibility during that period? Also, will we have a clearer understanding of whether discretionary spending is likely to increase? Additionally, could you share any insights on your discussions regarding AI for next year? The bookings numbers look strong, which is encouraging. Are there any specific areas where you’ve seen incremental improvements? Thank you.

Yes, we will have a clearer understanding of client budgets in January and February, which is when we get the most visibility. We plan to report more on this in the next quarter. We do expect to gain that insight during these months. Regarding AI, in my discussions with around 30 CEOs over the last two months, I've noticed a strong interest in AI, though clients are at very different stages. For example, one bank is still exploring the basics of GenAI and hasn't moved to the cloud, while another is fully cloud-based and eager to adopt GenAI quickly. It's difficult to generalize since the overall spending environment remains consistent, and those keen to invest in AI are focusing on prioritizing their spending rather than increasing it. The biggest opportunities will come when companies feel confident enough to invest more, improve their data infrastructure, and fully embrace AI. Currently, spending seems to be more about prioritization within existing budgets. We will see how things unfold in January and February, which is why we aim to capture our fair share of those budgets.

That's really helpful. When we consider the hiring opportunities, you mentioned India, but we've heard that many customers are beginning to focus more onshore. Could you elaborate on the current mix? For a while, there was a trend towards offshore for better price optimization. Where do we stand on that now? Are you observing any signs of a shift back to nearshore or onshore? Thanks again, great job.

There isn't a significant trend to note at this time. Our focus remains on the G2000 companies, many of which are global. These firms are primarily seeking to optimize the right skills, as the use of locations like India is increasingly driven by skill availability rather than labor cost advantages that were more prominent a decade ago. Today, it's essential to obtain these skills on a large scale. At Accenture, we are continually enhancing our offerings, which sometimes include language capabilities, especially as we engage in further transformation and explore new sectors within enterprises. We maintain a global network with 100 centers worldwide, including recent expansions into underserved areas in the U.S., such as a newly opened center in the Bronx. Our initiatives are designed to be sophisticated, recognizing our role as part of our clients' integrated talent strategies. The core focus continues to be on obtaining the right skills at the right time zone and price, with a persistent emphasis on skill sets.

Great. Thanks, Julie, thanks Angie.

Good morning. Thanks for taking my question. Julie, understand that your outlook, and you’re not really seeing any differences on macro side, and your outlook looks sort of idiosyncratic growth. But can you maybe discuss a little bit about when you talk with clients, what's the sort of range of outcomes for discretionary increases in the 2025 budget outlook? And how big a factor are rates specifically as a macro impact when they're thinking about that? And do you think that changes materially given the Fed message yesterday?

The rates definitely vary by industry. For capital-intensive sectors or those focused on growth through acquisitions, there are many factors to consider in determining the range. It’s still early to draw conclusions based on recent messages, and there has been a lot of speculation. Our business thrives on change, whether it’s positive or negative. When clients face new challenges due to higher rates, they often seek opportunities to reduce costs. If the rates support initiatives like capital projects, we have a dedicated business for that. We pride ourselves on the strong relationships we build with our clients; our top 100 clients have been with us for over a decade. We know their needs and continuously assess how to support them through changes. This adaptability is a key strength of Accenture, making us relevant in both growth and cost management.

That's helpful. Thank you. And then with respect to the AI work, you talked about some of the context of the client conversations you're having. But quantitatively, are you seeing any kind of major changes in terms of the size and scope of the individual projects? And what are clients saying about sort of their pivot, or when they might pivot to sort of larger, more transformative projects within GenAI?

Yes, we are beginning to see some developments in this area. Clients who have invested in their digital infrastructure, including security and data over the years, are now starting to scale, and we're witnessing those partnerships grow. For clients where we’ve assisted in demonstrating success and scaling in certain parts of their business, but they lack a solid data foundation or are not transitioning to the cloud, our focus is on how we can expedite that. As we discussed in our examples today, many organizations are building their data foundations in conjunction with migrating to modern cloud platforms. Consequently, we are observing an acceleration in the data initiatives, which are crucial for leveraging GenAI.

Thank you.

Hi everyone. Great job. My question is about the fiscal Q2 guidance. Traditionally, Q2 tends to be a relatively flat quarter sequentially. However, you are projecting a decline of approximately $1 billion to $1.5 billion this quarter. I understand that part of this may be related to a few hundred million in foreign exchange impacts. Was there anything in Q1 that may have naturally shifted in Q2 this year, or is there a sequential trend that appears unusual?

Yes, David, happy holidays and good morning. Our Q2 guidance of 5% to 9% is strong based on our current insights. There’s nothing specific in Q2 that stands out as unusual. Additionally, our strong performance in the first quarter was largely due to larger deals coming in better than we anticipated. This ongoing trend reinforces our confidence in raising our full-year guidance. So, there’s nothing significant to highlight for Q2.

Got you. Yes. You definitely crushed Q1. And then, I guess, one just a nerdy kind of financial question, but now that you fully have like the debt in place, should we think about a sequential pickup in interest expense? I think it was $30 million in Q1. Does that go to like $50 million in Q2 or something like that?

Yes, that is correct. There are certain factors we observe in our income below operations. The net interest income was lower due to average lower cash balances and also because of lower interest rates. Additionally, we had interest expense from our long-term debt. All of these elements have been incorporated into the guidance we provided.

Gotcha. Thanks guys. Great job.

Thank you very much. I would like to ask a follow-up about capital structure and allocation. It seems you are still committed to pursuing both acquisitions and returning capital. Last year, we raised some debt to support those priorities. What is the current status regarding that? Do you believe we are in a strong cash position and can continue this approach, or should we anticipate further reductions in debt and debt raising for capital allocation priorities in the next couple of years?

Yes. Hi James. Nice to talk to you. Why don't I start? We were pleased to execute our inaugural bond offering of $5 billion, which we did in October. And when we step back, it was really a routine review of our capital structure where we tap the long-term debt market to increase our liquidity for general corporate accounting purposes, and what it does is ultimately it optimizes our capital structure and reduces our cost of capital. That said, let me just reinforce for you, there is no change to our capital allocation strategy, which also includes how we look at and use G&A.

And this year, we are going back to more of a business as usual. We think it's going to be somewhere around $3 billion. But as we've always said, if there are opportunities or not, we've got the balance sheet. So we could raise debt, but there's no strategy to increase debt. But we might, if we had the right opportunities. I mean, last year, we had a great opportunity to double down on strategic acquisitions, and it served us well as we've gone into this year. But this year, we are back to kind of standard around $3 billion, which is kind of the right percentage. So we'll communicate as we go. We always have that flexibility. And I think that's the strength if you think about Accenture is having a strong balance sheet and to have the flexibility to go after opportunities in the market that drive long-term growth. And that's how we think about the decisions about whether or not to do debt or not.

That's great information. I wanted to ask about the consulting bookings, as I'm seeing nice growth and acceleration in that area. I'm curious if you can provide some insights into the trends in consulting bookings, considering the diversity of Accenture's customer base. Is there a shift towards focusing on cost control instead of revenue generation or evaluating new technologies, particularly regarding AI? Any insights you can share about the current state of those consulting bookings would be appreciated.

Yes. It's important to remember that we are offering multiservice solutions to our clients. For instance, our managed services in security include industry consulting to ensure comprehensive execution. A significant aspect of our reinvention involves process improvement. There are two primary themes that our clients express when they come to us: they desire cost efficiency, which is a priority across all industries, and they seek growth or improved outcomes, such as faster time to market. A prime example is our work with CaixaBank, which emphasized both speed to market and efficiency. This focus not only differentiates us but also allows us to leverage our resources, like Song, which is centered on customer understanding and industry knowledge. Therefore, cost efficiency and growth are the key themes.

Great. Thank you so much.

Hi, good morning. Many thanks and happy holidays to everyone. My first question I wanted to ask is around pricing dynamics. And you've indicated that the macro backdrop is fairly steady. You're gaining share through skills, and I wanted to ask specifically about some of the legacy areas such as application maintenance, maybe the BPO work. One of your competitors suggested that pricing is pretty challenging because there aren't enough deals and a lot of folks chasing those deals, but could you specifically address what you're seeing as pricing dynamics during the quarter? Any changes?

It's a very competitive market, and we've mentioned this every quarter. We've observed lower pricing across the business, which has been fairly consistent. It makes sense considering that clients have constrained spending, especially on smaller deals, so that expectation aligns with the situation. However, I want to emphasize that our Application Managed Services is not considered legacy if approached the way we do. We offer our clients experienced talent, full-stack engineers, and innovative tools like GenAI and a platform called GenWizard. Clients are turning to us to update their old applications while also reducing costs. The work we're doing in this regard is quite advanced. We refer to our approach as "run to the new," where we assist clients in managing their existing applications to transition to newer solutions. We view this as a vital component of modernizing their digital core, and it's not about legacy. The same applies to our operations business.

Yes, that makes a lot of sense. Thank you, Julie. My follow-up question is about some recent discussions with software companies, which suggest that Europe has softened in the last 30 to 45 days. This aligns with what I've read in the news regarding the situation in Europe. Have you noticed any changes in the dynamics affecting Europe or a shift in your outlook regarding European demand over the next year? That's all from me. Thank you again, and happy holidays.

Thanks. Our perspective on European demand over the next year is reflected in the increase of our guidance. We're aware of the challenges in Europe compared to the Middle East. This is evident in our relative growth rate. However, we are confident in our strong business presence in EMEA and our relevance to our clients. We are optimistic about the demand environment, which is fully incorporated in the guidance increase we shared. Thank you. Can we have the next question?

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

Hey guys. Good morning. Happy holidays. I wanted to ask on the service lines here. Can you comment on performance across strategic consulting, tech services, and operations?

Yes, everything was strong this quarter.

Yes. Bryan, the thing that I would add to that is we did see broad-based growth. And if you look at it from a consulting and a managed services type of work perspective, we had mid-single-digit growth in consulting and 11% growth in managed services. And as you think about the rate that we have for the year, which is 4% to 7% underneath that, we see consulting now in the mid-single range growth and managed services in the mid-to-high range growth.

Okay. And then a follow-up here on the workforce and contract profitability. So you know the most headcount was added across India. Can you just comment on what you're seeing there as far as wage inflation dynamics, just given most services companies and GCCs have been leaning in, and particularly amid the competitive pricing environment? Just talk about the levers you have here to mitigate gross margin pressure.

Yes, I'll start, Bryan. No real change in terms of the market dynamics of what we see reflected around wage inflation. And of course, we are always paying market-relevant pay based upon the skills and the locations of our people. And we continue to see that the same, and then as it relates to pricing, as Julie mentioned, it continues to be highly competitive. At the same time, as you know of us, right, we are managing that. We're focused on pricing as well as on our differentiation, and we're focused on cost and delivery efficiencies in our business and how we operate.

All right. Understood. Happy holidays.

Thank you, Bryan.

Good happy holiday. Well, in closing, I want to thank all of our shareholders for your continued trust and support and all of our people for what you do every single day. I wish everyone a very happy and healthy holiday season. Thank you for joining us today, and we look forward to being back here in a quarter. So thanks, everyone.