Information Technology: Accenture Q4FY24: In-Line Performance; Guides 3-6% Growth In FY25

In-line performance: Accenture (ACN) reported revenue of USD16.4bn, up 2.6% YoY (5% LC) in Q4. Revenue growth was above the mid-point of the company’s guidance of 2-6% in LC. For FY24, revenue grew 1.2% YoY to USD64.9bn (2% LC) and was at the mid-point of the guided range of 1.5-2.5% growth in LC. Seven of the 13 industries, including public service, industrial, software and platforms, health, high-tech, energy, and life sciences, grew in a mid-single digit or higher in Q4. Consulting revenue grew 0.7% YoY to USD8.3bn (3% LC), whereas revenue from Managed Services/Outsourcing grew 4.6% YoY to USD8.2bn (7% LC). Organic revenue improved, showing a slightly positive growth in Q4. ACN posted fairly strong double-digit growth in Security, double-digit growth in Industry X, and high single-digit growth in Cloud and Song, during Q4. Strategy and Consulting, and Technology reported mid-single-digit growth, while Operations grew in a low single-digit in Q4. New bookings stood at USD20.1bn (21.1% YoY; book-to-bill: 1.2x). Consulting bookings stood at USD8.6bn (up 1.2% YoY; book-to-bill: 1x), and Managed Services bookings stood at USD11.6bn (up 41.5% YoY; book-to-bill: 1.4x). The company reported USD1bn worth of new bookings in Gen AI in Q4 (total USD3bn in FY24 vs. USD300mn YoY) and achieved USD900mn in revenue in FY24 (vs USD100mn in FY23). Adj OPM increased by 10bps YoY to 15% in Q4. Quarterly annualized voluntary attrition stood at 14% in Q4, similar to the QoQ/YoY attrition. Total headcount increased by 24,103 QoQ to 774,303 (3.2% QoQ/5.7% YoY).

Weakness in Financial Services persists: Q4 revenue growth was led by Health and Public Services (11% in LC YoY), Products (6%), CMT (5%), and Resources (3%), whereas Financial Services declined 2% YoY LC. Geography-wise, North America grew 6% YoY in LC, driven by growth in Public Services and Industrial; EMEA grew 2% on the back of growth in Public Services and Life sciences, partially offset by decline in Banking and Capital Markets; and Growth markets grew 9% led by growth in Banking and Capital Market, Software and platforms, and Industrials.   

Guides to 3-6% LC revenue growth in FY25: ACN has guided to LC revenue growth of 3-6% in FY25 (includes inorganic contribution of slightly more than 3%). The guidance assumes positive 1.5% forex impact on reported USD revenue. It expects GAAP operating margin to expand by 80-110bps to 15.6-15.8%. Adjusted operating margin, which excludes USD438mn of business optimization costs in FY24, is expected to expand by 10-30bps to 15.6-15.8%. It expects Q1FY25 revenue at USD16.85-17.45bn (2-6% LC range), assuming a positive 1.5% forex impact. The company expects OCF and FCF at USD9.4-10.1bn and USD8.8-9.5bn, respectively, in FY25.

Earnings Call KTAs: i) Management highlighted that the demand environment has not seen much change, and remains cautious. ACN is well positioned to capitalize on growth opportunities when market conditions improve. ii) Consulting and Managed Services are expected to grow in a low-to-mid single-digit in FY25. iii) Management highlighted that organic revenue saw an improvement in Q4 with slightly positive growth, and the trend is expected to continue in FY25. Management indicated that the top end of the guidance assumes more of the same discretionary spending environment, while the lower-end assumes further deterioration in discretionary spending over what is observed in FY24. iv) With USD1bn in new Gen AI bookings in Q4, the company has closed USD3bn bookings in FY24 and achieved USD900mn in revenue in FY24. Bookings and revenue from Gen AI are expected to register healthy growth, as clients execute large implementations. v) It has invested USD6.6bn on 46 acquisitions in FY24. It is investing into capital projects (USD440bn TAM, growing at 5%), Health (USD70bn TAM, growing at 6%), and Europe public services (USD46bn TAM, growing at 5% annually) through M&As for the next wave of growth. It plans to invest USD3bn on M&As in FY25. vi) ACN has ~57,000 skilled data and AI practitioners as against its goal of doubling its data and AI workforce, from 40,000 to 80,000 by the end of FY26. vii) It has 33/125 clients with quarterly bookings greater than USD100mn in Q4FY24/FY24, respectively.