Ladies and gentlemen, thank you for standing by. Welcome to the Accenture's First Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instruction will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Managing Director, Head of Investor Relations, Ms. Angie Park. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today on our first quarter fiscal 2021 earnings announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our Chief Executive Officer; and KC McClure, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results. KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the first quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the second quarter and full fiscal year 2021. We will then take your questions before Julie provides a wrap-up at the end of the call. Some of the matters we'll discuss on this call, including our business outlook are forward-looking, and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our news release or in the Investor Relations section of our website at accenture.com. As always, Accenture assumes no obligation to update the information presented on this conference call. Now, let me turn the call over to Julie.

Today, we are very pleased to announce strong financial results for our first quarter. I will begin by thanking our 514,000 people for their hard work and dedication to delivering value for our clients, which is what these results represent. Last quarter, I shared that as we began our fiscal year 2021, we were turning a page, no longer navigating a crisis, but facing a new reality with a laser focus on delivering value to our clients at this time of great need and on returning to pre-COVID growth rates by the second-half of our fiscal year. I also shared how we began fiscal year 2021 stronger than pre-crisis. Our results in Q1 made clear how we have strengthened our market position, as well as our ability to pivot our business with agility. Not only have we delivered a strong quarter, but we took exciting new actions to continue to strengthen our market position for FY 2021 and the future. Let's start with our financial results. We delivered revenue growth of 2% in local currency, well ahead of our guidance with broad-based improvement across the globe. We continue to extend our leadership position with our growth estimated over the trailing four quarters to be more than four times the market, which refers to our basket of publicly traded companies. We delivered exceptionally strong new bookings of $12.9 billion, a 25% increase over Q1 last year, including 16 clients with over $100 million in bookings. We continued to invest substantially in our business, including closing 10 acquisitions this quarter in strategic areas, such as Cloud, Intelligent Operations and Industry X. And as KC will walk through, we delivered strong profitability and returned substantial cash to shareholders. Now, let me highlight the actions we've taken in Q1 to better serve our clients,…

Thank you, Julie. Happy holidays to all of you, and thanks for taking the time to join us on today's call. We were very pleased with our overall results in the first quarter, which exceeded our expectations and represent a positive first step to achieving our full-year objectives. The focused execution of our strategy continues to extend our leadership position in the marketplace, as we deliver significant value to our clients and our shareholders in an uncertain and volatile environment. So let me begin by summarizing a few of the highlights of the quarter. Revenues grew 2% in local currency and continue to include a reduction of approximately 2 percentage points from a decline in revenues from reimbursable travel costs. Q1 revenues were more than $200 million above our guided range, driven by broad-based over-delivery across markets, services and industries. We also continue to extend our leadership positions with growth significantly above the market. The diversity of our business continues to serve us well, and the industry trends remain consistent with the last few quarters. Approximately 50% of our revenues came from seven industries that were less impacted by the pandemic, and in aggregate continue to grow high single digits, with continued double-digit growth in public service, software platforms and life sciences. At the same time, we saw continued pressure but at a more moderate level from clients in highly impacted industries, which include: travel, energy, high-tech, including aerospace and defence, retail and industrial. While performance varied, this group represents over 20% of our revenues and declined low double digits. Our operating margin was 16.1% for the quarter, an increase of 50 basis points. We delivered expansion while making significant investments in our business and our people to extend our market leadership. We continue to benefit from lower spend on…

Thank you, KC. Let me start with the environment. We saw in Q1 a broad base increase in demand that is faster than we anticipated 90 days ago. This means that as our clients have the confidence and ability to spend, they are turning to Accenture. But the uncertainty and volatility of the biggest health, economic and social crisis in our lifetimes remains, particularly as the world continues to face a deepening health impact pre-widespread vaccination. From an overall demand perspective, the trends that we discussed last quarter are continuing. Companies need to accelerate their digital transformation across their enterprises and move to the cloud, address cost pressures, build resilience and security, adjust their operations and customer engagement to a remote everything environment and changing expectations and find new sources of growth. What is becoming even more clear however, is that we are in an era of compressed transformation, in which the winners by industry will be those who are earliest to replatform their businesses in the cloud, and have the digital core and new ways of working that allows them to continuously improve their operations and find new sources of growth, which for most leading companies is requiring them to simultaneously transform multiple parts of their enterprises and their talent. For the pre-COVID digital leaders, they are racing to widen the gap, and for the digital laggards, they are racing to leapfrog. We are uniquely positioned to help the leaders and the laggards because of the depth and breadth of our capabilities. We bring the trust, experience, speed and scale that are essential to achieve compressed transformation. Now let's bring some of these demand trends to life through the lens of our Q1, and look at our own broad-based improvement. First, replatforming to the cloud. In fiscal year '20,…

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

Thanks, KC. I would ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. Operator, would you provide instructions for those on the call?

Thank you. [Operator Instructions] Your first question comes from the line of Lisa Ellis from MoffettNathanson. Please go ahead.

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

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

Terrific. Thank you.

Your next question comes from the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

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

Yes. So let me just talk a little bit about what drove our overperformance in Q1, and how that impacts our view of Q2 and H2, Tien-Tsin. So, when you look at Q1, we were obviously very pleased with our performance, and we have rather significant over-delivery against our expectations. And that was really driven by broad-based over-delivery, in all three of our markets, in all of our industry groups and all of our services all did a bit better. And as I mentioned in our script, when you take a look at the industries and the higher impacted industries, which represent over 20% of our revenues, they did improve from Q4 of a decline of mid-teens to low double digits. And as Julie talked quite a bit about the fact that that was really driven broad-based by our strong demand in cloud. And so that is an area that performed better than we expected. But if you also look at the lower impacted industries, which are 50% of our revenue, they continue to grow high single digits like Q4, but they actually did improve also within that sense. And so let me maybe connect this a little bit to how we did our sales this quarter. So we had a very strong start to the year, as you could see in our sales of $12.9 billion, which is about $2.5 billion more than what we've done in the last two quarter ones, last two fiscal years. And when you peel that back, Tien-Tsin, you can see that it was really driven by all categories of our sales side, so the large, which Julie highlighted that we have 16 clients over $100 million in sales, but all the way through and significantly driven by an improvement in our smaller deals,…

And, Tien-Tsin, let me just kind of give you a little more color from the clients’ perspective, because -- and this is what I talked a little bit about in my script, right?. If you just sort of remember, pre-COVID, we said we were in the early innings of transformation with the beginning of the decade, it’d be enterprise-wide, right? COVID hits, technology becomes the lifeline. And you really see companies understanding kind of the two truths of our world, right? There is - every business is now a technology business and exponential technology change is going to continue, right? And now it's about the speed. And this is why we're seeing what I'm calling compressed transformation, where you continue to see companies say we are going to take on this transformation more broadly. So look at the example of Takeda. They're both moving to the cloud, improving their data and making sure that they're getting near-term business value. You take a Halliburton, cloud, finance, supply chain. So there's this speed of change and we see that in the confidence. We're nine months in now. The first part of the crisis, people were getting their footing, getting back up and running. And it's interesting, we did some research in July across 10 markets and nearly 80% of the executives that we surveyed said that they were planning on investing in digital transformation. And that was up from 50% in May. And we're continuing just to see this recognition of the need to get there faster. And then what's important to understand is that, all of this is happening, though, in the context of the cost pressures, the changing expectations. And this is where a decade and in some cases multiple decades of investment from Accenture has put us in a very unique position, because no other company in our industry can simultaneously do operations and that help a company reduce their supply chain in their finance function and reduce costs and digitize. At the same time, we're helping them migrate to the cloud and give them that view, which because all of this has interdependencies. You want to get end-to-end process change. And we have literally been building these capabilities for years and years. And this is where the scale and the breadth matter.

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

Your next question comes from the line of Matthew O'Neill from Goldman Sachs. Please go ahead.

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

Sure. So, Matthew, thanks for the question. So maybe just take, let's just first start why our companies having to accelerate faster to the cloud. And there's a few clear reasons. So first of all, there's a cost pressure, because when they move to the cloud, there's immediate savings just in the migration and there's obviously to get that kind of savings. Second, the cloud is really important for resilience and security. And in this current environment in particular, you can see why that matters. The crisis really exposed the vulnerabilities of a lot of the on premise IT estates. And then that has been compounded, of course, by the expansion of the threat surface through more remote working. And so the resilience and security of the cloud is also an immediate driver as to the need to do that. What I would say is probably most important and really the rapid acceleration is the need for the power of the cloud to enable the data driven transformations. And so you saw that in the example that we gave, with Takeda, where they're changing the customer experience, which requires near real time access to data in order to personalize and to be able to actually do that. And what I think is very unique, I know is very unique about Accenture is that this is where our strategy and consulting capabilities are so important, because the reason to go to the cloud is not simply cost and resilience and security, it's about the business value. And here's how we're helping clients get early business value. And you have to deeply understand the industry, the patients, the customer, and also what data is valuable among all of the data and which workloads go first. And so, it really is driven by…

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

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

Thanks so much. Really helpful. Thinking about that in the context of sort of experience and outcome. I'll jump back in the queue.

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

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

Yes, thanks. We were really pleased with our bookings this quarter. As I mentioned, they did grow 25%, and as you just pointed out, and I mentioned as well, we did have a stronger Q1 than we had in the last two years. If you peel that back it's really because the demand, again, which was very broad-based. It was really also driven by cloud, which we've talked a lot about Industry X security. So they're also aligned to our strategic priorities. If you look at it, what drove the strength in bookings, again, broad base, when you look at it by type of work. We have particular strengths in outsourcing, that really was up quite a bit with very strong book-to-bill. But, within the 16 clients that we booked over $100 million, they were represented, what I liked about that is by outsourcing as well as consulting type work, it was a nice mix, all five of our industry groups were in there too. So again, it points to very broad-based. And if you look at the services, again, no surprise based on cloud, security and Industry X tech services, very strong. And I mentioned, I just want to highlight again, that we are pleased with our progress in strategy and consulting, they had a 1.1 book-to-build in the quarter. So, overall, we felt really pleased. And as it relates to kind of what we see ahead, we feel very good about our pipeline. And if you're taking on the question about conversion or revenue yield in bigger deals, we did see that our bookings were strong across all parts of our sales, large all the way through, but particularly to the smaller deals, and they do yield more revenue in the current quarter. So that's also true. And then as you see -- when you look really at our duration, it's not that the duration of the bookings in themselves have changed, it's really more of the services that are in the mix. So, as we have more strategy and consulting bookings coming online, they obviously tend to be of a shorter duration. So nothing's really changed in the duration of each of our individual services. It's really more of the mix of the bookings within each quarter.

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

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

Sure, great question. So let me just start with, we have been investing in cloud for a decade, which is a very hard to replicate. And so we start with a $12 billion business that is growing strong double digits. So we would expect to continue to take market share there. And in this environments, where you have a rapid acceleration, and you're moving mission critical workloads, we would expect to continue to differentiate, because of our decades of experience and our relationships with the world's leading technology ecosystem players. So cloud will continue to be a big trend. Think about Industry X, and we've talked about this now for some time, it's kind of the next Accenture Interactive. And as you know, we've been investing in Industry X for some time. The COVID, what we're seeing the early signs of is that like in other areas, Industry X is we think going to accelerate over the next couple of years, because that was still a newer part of the enterprise that was being digitized the manufacturing and operations space. But as we now need to have like, a lot of health concerns about can you do manufacturing in a more contactless way, the supply chains have been disrupted. And so we have said, for some time Industry X is going to be the next growth engine. And the early signs are is that it's likely to be accelerating as well. So we'll see how that continues to play out. And remember, Accenture Interactive is an ongoing growth engine. I mean, we have three big platforms. You have the move to the cloud, which then has the data and the business value innovation on top. So it's not just moving there, it's everything that comes. And so that is an…

Thank you.

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

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

Yes, so in each two so kind of a whole six months, it was a low single digit decline, and now we're in a low positive growth rate. And it's building momentum. So, for example, we're helping a big European bank with their digital sales, new things. So everyone's now starting to kind of reconnect with new experiences.

Got it. And then just on the other strategic priority on security, low double digit growth, is that about the right growth rate for that, too? Or does that also accelerate as we get into the back-half when we see the pickup in the growth rates?

Look, I think on security, we're super pleased with that about double digit growth. So, whether it's going to be low or strong, it'll probably ebb and flow. But the consistency of that double digit growth in security has been impressive to-date, and we continue to see that to be the trajectory. Thanks.

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

Okay, that question comes from the line of James Faucette from Morgan Stanley. Please go ahead.

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

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

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

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

Thanks.

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

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