Accenture PLC

NYSE:ACN

Earnings Call Analysis

Q4 Growth and Record Bookings Position for Strong FY '25

In a challenging market, the company delivered strong Q4 results with a 5% revenue growth in local currencies, driven by key industries such as public service and high tech. Adjusted operating margins rose slightly to 15%, while EPS increased to $2.79. Annual highlights include record bookings of $81 billion (a 14% increase in local currency), with significant gains in digital transformation and GenAI projects. For FY '25, the company anticipates 3-6% revenue growth and EPS between $12.55 and $12.91. Free cash flow is expected to range from $8.8 billion to $9.5 billion, reflecting strong operational performance and continued strategic investments.

Quarterly Revenue and Earnings Growth

During the fourth quarter, the company reported revenues of $16.4 billion, marking a growth of 3% in U.S. dollars and 5% in local currency. The revenue was split between two primary segments: Consulting revenues were $8.3 billion, reflecting a marginal rise of 1% in U.S. dollars and 3% in local currency, while Managed services recorded revenues of $8.1 billion, demonstrating a stronger growth of 5% in U.S. dollars and 7% in local currency.

Segmental Revenue Insights

The growth was observed across different business dimensions. Technology services and strategy consulting experienced mid-single-digit growth, and operations saw low single-digit improvements. The geographic distribution was robust as well, with North America growing by 6% in local currency, driven by public service and industrial sectors. The EMEA region had a modest growth of 2%, thanks to public service and life sciences sectors, while growth markets excelled with a 9% increase driven by banking, software platforms, and industrial sectors, primarily in Argentina and Japan.

Detailed Financial Performance

The gross margin was very stable at 32.5%, slightly up from the previous year's 32.4%. Sales and marketing expenses fell from 10.8% to 10.7%, while general and administrative expenses saw a minor uptick from 6.7% to 6.8%. Adjusted operating income was $2.5 billion with a 15% operating margin, increasing by 10 basis points year over year. Adjusted diluted earnings per share rose to $2.79 from $2.71. Despite these improvements, days sales outstanding marginally increased to 46 days.

Strong Cash Flow and Shareholder Returns

The company generated a free cash flow of $3.2 billion, originating from $3.4 billion in operating activities, offset by $214 million in property and equipment additions. The cash balance stood at $5 billion, down from $9 billion the previous year. They returned substantial cash to shareholders, repurchasing 2.1 million shares amounting to $628 million and paying $808 million in dividends. Going forward, the Board declared a new quarterly dividend of $1.48 per share, a 15% increase from the previous year, and approved an additional $4 billion in share repurchase authority.

Annual Performance and Future Outlook

For the full fiscal year, revenues reached $64.9 billion, up 2% in local currency. The year ended with record bookings of $81.2 billion, growing by 13% in U.S. dollars and 14% in local currency. There were significant investments in strategic acquisitions, totaling $6.6 billion, alongside $1.2 billion allocated to R&D and $1.1 billion to learning and development. Adjusted EPS for the year was $11.95, a 2% increase. Cash flow remained strong with $8.6 billion in free cash flow, $7.8 billion of which was returned to shareholders.

Guidance for FY '25

Looking ahead to FY '25, revenue is expected to grow between 3% to 6% in local currency, with an operating margin of 15.6% to 15.8%, reflecting a 10 to 30 basis point expansion over the adjusted results from FY '24. The effective tax rate will range between 22.5% to 24.5%. Diluted earnings per share are projected to land between $12.55 and $12.91, marking a 5% to 8% growth over the adjusted FY '24 results. Free cash flow is forecasted between $8.8 billion and $9.5 billion, reflecting a free cash flow to net income ratio of 1.1 to 1.2. The company also plans to return at least $8.3 billion to shareholders through dividends and share repurchases.

Earnings Call Transcript 2024-Q4

[Operator]

Thank you for standing by. Welcome to Accenture's Fourth Quarter Fiscal 2024 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded.

And I will now turn the conference over to our host, Katie O'Conor, Managing Director, Head of Investor Relations. Please go ahead.

[Catherine O'Conor, executive]

Thank you, operator, and thanks, everyone, for joining us today on our fourth quarter and full fiscal 2024 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; KC McClure, our current Chief Financial Officer; and Angie Park, our incoming 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 fourth quarter and full fiscal year. Julie will then provide a brief update on our market positioning before Angie provides our business outlook for the first 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 as 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 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.

[Julie T. Sweet, executive]

Thank you, Katie, and everyone joining, and thank you to our 774,000 people around the world who have worked every day to be at the center of our clients' business and deliver 360-degree value for all our stakeholders. Our performance this year clearly demonstrates the resilience and agility of our business model, the power of our scale and reinvention in action.

FY '24 was marked by a challenging market environment, and we have rapidly shifted to where our clients are buying, large reinventions that utilize the scale of Accenture's expertise and ecosystem relationships. And we have yet again put reinvention into action at Accenture with our significant investment and early leadership in what we believe will be the most transformative technology of the next decade, GenAI.

As a result, over the last 4 quarters, we have successfully positioned Accenture for strong growth in FY '25. When market conditions improve, we will be well positioned to capitalize them.

In FY '24, we continued to deliver on our enduring shareholder value proposition to grow faster than the market and take share, deliver earnings growth and margin expansion, while investing in scale with strong free cash flow, disciplined capital allocation and significant cash return to shareholders.

Turning to our results and the foundation for growth we have built for FY '25. With our clients prioritizing large-scale transformations, we doubled down on our strategy to be the reinvention partner of our clients. Our success is reflected in our full fiscal year bookings of $81 billion, representing 14% growth in local currency, including 33 clients with quarterly bookings greater than $100 million in the fourth quarter, bringing the total of such bookings to 125 for the year, 19 more than last year.

We are proud to now have 310 Diamond clients, our largest client relationships, an increase of 10 from last year, expanding our base of deep client relationships and the vantage point we have on the market.

We delivered revenues of $65 billion for the year, representing 2% growth in local currency, while continuing to take market share on a rolling 4-quarter basis against our basket of our closest global publicly traded competitors, which is how we calculate market share.

We expanded adjusted operating margin by 10 basis points and delivered adjusted EPS growth of 2%, while continuing to significantly invest in our business and our people with $6.6 billion in strategic acquisitions, $1.2 billion in R&D and $1.1 billion in learning and development.

We generated free cash flow of $8.6 billion, allowing us to return $7.8 billion of cash to shareholders.

We completed the business optimization actions we announced in March 2023 to reduce structural costs. For the full fiscal year, we had $3 billion in new GenAI bookings, including $1 billion in Q4. And for the full fiscal year, we had nearly $900 million in revenue.

The magnitude of this achievement is seen in the comparison to FY '23, where we had approximately $300 million in sales and roughly $100 million in revenue from GenAI. This was an area where our clients continue to buy small deals, and we focus on accelerating our growth here.

We have continued to steadily increase our data and AI workforce, reaching approximately 57,000 practitioners against our goal of 80,000 by the end of FY '26. We invested on our people to continue to develop their marketable skills and to help us reinvent our services using GenAI. Our people had approximately 44 million training hours this year, representing an increase of 10%, predominantly due to GenAI training.

In addition to being a talent creator through our investment in learning, our talent strategy to succeed over the next decade is to have the best access to talent and to unlock the potential of our talent through, among other actions, ensuring our people feel they are net better off for working at Accenture across 4 dimensions: marketable skills; working for a purpose; well-being, financial, mental and physical; and relationships where our people feel they belong and can thrive.

In addition, our leadership in the market requires that we lead in innovation, which in turn requires access to broad pools of talent to provide the variety of prospective observations and insights, which are essential to continuously innovate.

These strategies depend on us fostering a diverse and inclusive workplace, and our superior execution of these strategies is demonstrated by our global recognition for the third year with the #1 spot on the FTSE Global Diversity and Inclusion Index, an objective measurement of over 15,000 organizations, and our recent achievement of having 50-50 gender equality in our advanced technology centers in India, which have over 220,000 people.

Our long-term growth depends on thriving communities, and we continue to successfully create value in the communities where we operate, such as our work helping address the United Kingdom's digital inclusion gap partnering with Tech She Can on a new program, Regenerative AI, that aims to empower people and socioeconomically disadvantaged communities across the country to build their digital skills.

Finally, I want to acknowledge how proud we are to have earned the #2 spot on TIME's World's Best Companies list and the top spot on the World's Best Management Consulting Firms list by Forbes.

Over to you KC.

[Kathleen McClure, executive]

Thank you, Julie, and thanks to all of you for joining us on today's call. We're very pleased with our results in the fourth quarter, which were aligned to our expectations and reflect improvement across all dimensions of our business. We continue to invest for long-term market leadership, while delivering significant value for our shareholders. So let me begin by summarizing a few highlights for the quarter.

Revenue grew 5% in local currency, driven by mid-single-digit growth or higher in 7 of our 13 industries, including public service, industrial, software and platforms, health, high tech, energy and life sciences. We had growth in all 3 markets, all 3 services as well as return to growth in consulting type of work for the first time in 6 quarters. Organic revenue improved as well to slightly positive growth, and we continue to take market share.

Adjusted operating margin was 15%, an increase of 10 basis points over Q4 last year. We continue to drive margin expansion, while making significant investments in our business and our people.

We delivered adjusted EPS of $2.79, which represents 3% growth compared to adjusted EPS last year.

And finally, we delivered free cash flow of $3.2 billion and returned $1.4 billion to shareholders through repurchases and dividends.

With those high-level comments, let me turn to some of the details. New bookings were $20.1 billion for the quarter, representing 21% growth in U.S. dollars and 24% growth in local currency, with an overall book-to-bill of 1.2. Consulting bookings were $8.6 billion with a book-to-bill of 1. Managed services were $11.6 billion with a book-to-bill of 1.4.

Turning now to revenues. Revenues for the quarter were $16.4 billion, above the midpoint of our guided range, reflecting a 3% increase in U.S. dollars and 5% in local currency. Consulting revenues for the quarter were $8.3 billion, up 1% in U.S. dollars and 3% in local currency. Managed services revenue were $8.1 billion, up 5% in U.S. dollars and 7% in local currency.

Taking a closer look at our service dimensions, technology services and strategy and consulting both grew mid-single digits, and operations grew low single digits.

Turning to our geographic markets. In North America, revenue grew 6% in local currency, driven by growth in public service and industrial. In EMEA, revenue grew 2% local currency led by growth in public service and life sciences, partially offset by a decline in banking and capital markets. Revenue growth was driven by Italy and the United Kingdom, partially offset by a decline in France.

In growth markets, revenue grew 9% in local currency, led by growth in banking and capital markets, software and platforms and industrial. Revenue growth was driven by Argentina and Japan.

Moving down the income statement. Gross margin for the quarter was 32.5% compared with 32.4% for the same period last year. Sales and marketing expense for the quarter was 10.7% compared with 10.8% for the fourth quarter last year. General and administrative expenses were 6.8% compared to 6.7% for the same quarter last year.

Before I continue, I want to note that results in Q4 of FY '24 and FY '23 include costs associated with business optimization actions, which impacted operating margin and EPS. The following comparisons exclude these impacts and reflect adjusted results.

Adjusted operating income was $2.5 billion in the fourth quarter, reflecting a 15% adjusted operating margin, up 10 basis points compared with Q4 last year. Our adjusted effective tax rate for the quarter was 26.2% compared with an adjusted effective tax rate of 27.4% for the quarter last year.

Adjusted diluted earnings per share were $2.79 compared with adjusted EPS of $2.71 in the fourth quarter last year. Days service outstanding were 46 days compared to 43 days last quarter and 42 days in the fourth quarter of last year.

Free cash flow for the quarter was 32 -- was $3.2 billion, resulting from cash generated by operating activities of $3.4 billion, net of property and equipment additions of $214 million. Our cash balance at August 31 was $5 billion compared with $9 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 $628 million at an average price of $303.07 per share. Also in August, we paid our fourth quarterly cash dividend of $1.28 per share for a total of $808 million. And our Board of Directors declared a quarterly cash dividend of $1.48 per share to be paid on November 15, a 15% increase over last year, and approved $4 billion of additional share repurchase authority.

Now I'd like to take a moment to summarize the year. Our fiscal '24 results illustrate the diversity and durability of our business as well as our ability to continue to manage our business with rigor and discipline. We delivered record bookings of $81.2 billion, reflecting 13% growth in U.S. dollars and 14% growth in local currency, with a record 125 quarterly client bookings over $100 million, which positions us well as we begin FY '25. Revenue of $64.9 billion for the year reflects growth of 2% local currency.

Before I continue, I want to note that results for the full fiscal year '24 and fiscal '23 include costs associated with business optimization actions, and fiscal '23 results also reflect a gain on our investment in Duck Creek technologies, which impacted operating margin, our tax rate and EPS. The following comparisons exclude these impacts and reflect adjusted results.

Adjusted operating margin of 15.5%, a 10 basis point expansion over FY '23. Adjusted earnings per share were $11.95, reflecting a 2% growth over adjusted FY '23 EPS.

Free cash flow of $8.6 billion reflected a very strong free cash flow to net income ratio of 1.2. And with regards to our ongoing objective to return cash to shareholders, we returned $7.8 billion of cash to shareholders, while investing approximately $6.6 billion across 46 acquisitions.

In closing, we feel good about how we manage our business, while navigating a challenging macro environment in FY '24, and we remain committed to delivering on our enduring shareholder value proposition while creating 360-degree value for all our stakeholders.

And now back to you, Julie.

[Julie T. Sweet, executive]

Thank you, KC. Our FY '24 growth was driven by our clients seeking to reinvent using tech, data, AI and new ways of working. Reinvention requires a strong digital core. In FY '25, a significant driver of our growth will continue to be helping our clients with digital transformation, including building out their digital core and then using it to drive productivity and growth.

We see the advent of GenAI and its tremendous potential acting as a catalyst for reinvention. Our clients turn to us for our unique combination of services across strategy, consulting, song, Industry X, technology and operations. Our strategists and deep industry, functional, customer and technology consultants work hand-in-hand with our clients and across services to shape and deliver these reinventions.

Our investments in our advanced platforms, our assets and solutions, our process expertise, the insights from our scale and diversification and our ability to both design and build the solutions, combined with our managed services, are key differentiators for us.

At the same time, we see AI as the new digital. Like digital, AI is both the technology and a new way of working, and the full value will only come from strategies built on both productivity and growth. And it will be used in every part of the enterprise.

We believe the introduction of GenAI signifies a transformative era that is set to drive growth for us and our clients over the next decade, much like digital technology has in the last decade and continues to do so. As part of that, we expect that the work to prepare enterprise data, which is the fuel for AI, will be an increasing part of our growth.

To accomplish reinvention and take advantage of AI, businesses need to focus on talent, their ability to access the best people at the right time, place and cost; the ability to be a talent creator to keep their people market relevant; and their ability to unlock the potential of their talent is critical. We see talent as a top C-suite agenda item.

Today, our managed services are an important part of our clients' long-term talent strategy. Our ability to harness AI is helping them close talent gaps. And our strong expertise across talent, change, HR and organizations differentiates all our services.

Our launch of LearnVantage, which provides comprehensive technology learning and training services, helps our clients reskill and upskill their people, so they can be a talent creator.

Let me give you a few examples of the types of reinventions we are doing. In financial services, banking and insurance are on their reinvention journey, while retirement services, a $15 billion global addressable market growing at about 6%, has lagged behind.

We have invested to grow our capabilities and talent to capture this next wave of growth. We are working with TIAA, the largest U.S. provider of lifetime income, to accelerate the transformation of the company's retirement recordkeeping capabilities and operations. Leveraging the power of AI, automation in the cloud, we are helping the company implement new technologies, making recordkeeping processes more efficient over time and easier for their customers.

Through this strategic partnership, we are supporting parts of TIAA's recordkeeping operations, including back-end processes and technology. For example, retirement plan sponsors will experience faster plan changes, and participants will find it easier to initiate account openings and investment selections.

Together, we are making retirement planning more accessible, efficient and personalized for individuals and clients, helping TIAA meet its mission of a more secured retirement for more Americans.

Today, we work with 75% of the world's largest communication services providers. With our strong industry and technology expertise, we are modernizing a global telecom's core IT operations to drive growth. Through our managed services program, we are consolidating IT vendors, increasing productivity by an estimated 60% and reducing cost by half.

We are also infusing our GenAI tools to enhance the software development life cycle and automate manual tasks, such as resolving technical issues with customer orders, invoices or service availability. Now this will free up employees to focus on strategic growth initiatives and improve the overall customer experience.

We are also implementing new ways of working, and then we'll train and upskill the team to use the new GenAI tools more effectively, helping to create more profitable outcomes for the company. These changes will create a stronger management framework and prepare the company for expansion into new markets.

Security continues to be one of the fastest-growing parts of our business, reaching $9 billion in revenue this year, representing 23% growth. We are partnering with the Kuwait government Central Agency for information technology to revolutionize the security posture of its public services and national critical infrastructure.

We are implementing and managing a scalable platform powered by GenAI, enabling the agency to act on evolving cyber threats up to 60% quicker than with traditional technologies, including detection response and containment models.

In the past, security analysts manually research threats with limited information before handing the incident to the impacted government entity, losing valuable time as its attack progressed. But now using a new platform, when analysts open a potential incident, they can quickly drill down into details about the users, systems under attack, type of attack and more with just one click.

Thanks to GenAI's ability to process significant amounts of data and automatically elaborate context. As a threat is detected, we are supporting our experts in making faster decisions with confidence as we progressively onboard over 60 government entities and while we also develop local talent.

The strategic collaboration underscores our commitment to safeguarding Kuwait's digital assets and empowering the nation's journey towards enhanced cybersecurity resilience.

A key area for companies to seek reinvention is in marketing, where the potential to use tech, data and creativity to drive growth, drive tangible outcomes for the enterprise. We are very proud to be working with HP, an American multinational information technology company and a new global partnership to develop the right data sets, technology and creative for their B2B powerhouse business and brand that fulfills their goal to move away from the traditional agency model to true marketing capability transformation to significantly improve the impact, efficacy and efficiency of their marketing investment with the ability to drive tangible business results.

In every industry, there is a challenge or opportunity that GenAI can now uniquely solve. Our deep understanding of both the industry and the technology positions us to be the best at creating real value from GenAI with our clients.

For example, in insurance, companies can't typically process 100% of their coverage submissions. This creates a bottleneck for revenue growth. The ability to leverage GenAI to read 100% of submissions allows insurance companies to better assess risk as well as quote and write more policies and do it all more quickly and cost effectively.

Utilizing a new set of solutions we created, we're working with QBE Insurance Group, a multinational insurance company headquartered in Sydney, to scale industry-leading AI-powered underwriting solutions, replicated across multiple lines of business to help the company to make faster and more accurate business decisions.

A series of Board, executive level and all employee learning sessions were conducted to help drive the design and build those solutions that analyze new business submissions for completeness, appetite check and risk evaluation insights. They can now process 100% of submissions received from brokers, greatly accelerating market response time.

After 9 months in market, these solutions are winning multiple industry innovation awards, and early results indicate an increase in both quote to bind rate and premium. This collaboration will enable QBE Insurance Group to identify and select risk more effectively, improve broker and customer experience and support growth.

We are collaborating with a major integrated downstream energy provider to drive significant improvements in safety, sustainability and operational performance with 3 new GenAI powered solutions. We aim to continue to improve safety by using proactive insights from GenAI to inform planners of potential incidents instead of reactively waiting for specific warning signs to appear. This means 90% faster data access, reducing planning time from hours to minutes per test.

Another solution will help detect methane leaks in real time and prioritize their resolutions. We also helped build a smart solution for operators and process engineers to drive custom insights to optimize refinery performance and reduce downtime. The energy provider is on a path to set a new industry standard for innovation in refinery operations.

One of the most powerful impactful uses of GenAI today across industry is in consumer experience transformation. We are working with Mondelez International, a world leader in snacking with well-known brands like Oreo, belVita and Cadbury, to transform their marketing organization with GenAI to help drive consumer behavior. As part of this program, we're standing up a refreshed operating model with a primary focus on upskilling their employees in GenAI technologies.

We are also helping enable a new capability to scale content creation and generate personalized text, images and videos across markets. This means exceptional creative can be developed in hours, not weeks, allowing content to be catered to consumers quickly as demands change.

The strong digital core we established also allows the company to collect and process real-time data using GenAI to create new contextualized insights that can be easily accessed, shared and used by decision makers across the company. This work will increase the effectiveness and efficiency of messaging to create more impactful experiences.

Now let's turn to our acquisitions. Over the last decade, we have built a finely tuned acquisition capability, becoming known in the market as a good home, with approximately 70% on average of our acquisitions sole sourced. While our ability to identify and evaluate our acquisitions is critical, it is our ability to integrate them successfully that has made our acquisition capabilities so formidable.

As we look forward, we are excited about the opportunity to better serve our clients and differentiate in the market to the acquisitions we've made this last fiscal year. As a reminder, we do acquisitions ultimately to drive our organic growth. Our global footprint, deep client relationships across industries as well as strong ecosystem gives us a unique perspective on growth opportunities.

We use acquisitions to scale quickly in growth areas, to build new skills in adjacent markets and to deepen our technology, industry and functional expertise. Over the years, acquisitions have built major areas of growth like what we call Song today in our security practice. Here are a few examples of where we are investing now to lead in the next waves of growth.

Starting with capital projects, an over $440 billion addressable global market growing approximately 5%. In FY '22, globally, we had approximately $300 million in capital projects revenue. We entered the U.S. market in FY '23 with the acquisition of Anser Advisory.

Since the beginning of FY '24, we expanded our reach into Canada with Comtech in Q1. And this Q4, we acquired BOSLAN in EMEA. We recognized over $800 million in revenue on capital projects this fiscal year '24.

Health is an industry still early in digitization, where we see significant opportunity over the next decade. It is a $70 billion addressable global market growing approximately 6%. This year, we added Cognosante in the U.S., creating a new federal health portfolio in our federal service business.

We also acquired Nautilus Consulting in the U.K., a digital consultancy specializing in electronic patient records. And we announced our intent to acquire consus.health, a health care consultancy in Germany that offer services ranging from medical strategy and patient management to procurement and logistics, infrastructure management and construction planning services.

And in Europe, public service, an industry that is early in digitization with significant investment allocated for transformation, our acquisitions are accelerating our growth and setting us up to take share in a $46 billion market that is growing approximately 5%.

We acquired Arns, Aris in Germany, a technology services provider supporting the public sector transformation across Europe. In Italy, we acquired Intellera Consulting, one of Italy's main professional services providers operating the public administration and health care sectors, and Customer Management IT and SirfinPA jointly owned consultancies, supporting the public sector and specializing in justice and public safety.

Now it gives me great pleasure to hand over to Angie Park, who'll become our new CFO on December 1, who will take us through our guidance for FY '25. Angie?

[Angie Park, executive]

Thanks, Julie.

Now let me turn to our business outlook. For the first quarter of fiscal '25, we expect revenues to be in the range of $16.85 billion to $17.45 billion. This assumes the impact of FX will be approximately positive 1.5% compared to the first quarter of fiscal '24 and reflects an estimated 2% to 6% growth in local currency.

For the full fiscal '25, 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 positive 1.5% compared to fiscal '24.

For the full fiscal '25, we expect our revenue to be in the range of 3% to 6% growth in local currency over fiscal '24, which includes an inorganic contribution of a bit more than 3%. And we expect to invest about $3 billion in acquisitions this fiscal year.

For operating margin, we expect fiscal year '25 to be 15.6% to 15.8%, a 10 to 30 basis point expansion over adjusted fiscal '24 results.

We expect our annual effective tax rate to be in the range of 22.5% to 24.5%. This compares to an adjusted effective tax rate of 23.6% in fiscal '24. We expect our full year diluted earnings per share for fiscal '25 to be in the range of $12.55 to $12.91 or 5% to 8% growth over adjusted fiscal '24 results.

For the full fiscal '25, we expect operating cash flow to be in the range of $9.4 billion to $10.1 billion, property and equipment additions to be approximately $600 million and free cash flow to be in the range of $8.8 billion to $9.5 billion. Our free cash flow guidance reflects a free cash flow to net income ratio of 1.1 to 1.2.

We expect to return at least $8.3 billion through dividends and share repurchases as we remain committed to returning a substantial portion of cash to our shareholders.

Finally, as part of our routine review of our capital structure, we expect to tap the long-term debt market in the near term to increase our liquidity for general corporate purposes as we look to optimize our capital structure and reduce our cost of capital. We expect to raise a modest amount of debt.

In connection with that, there would be no change to our capital allocation strategy, which includes how we look at and use D&A or our strong credit ratings and our net leverage will remain low. We have incorporated a potential for long-term debt into our guidance, including the interest expense.

With that, let's open it up, so that we can take your questions. Katie?

[Catherine O'Conor, executive]

Thanks, Angie. [Operator Instructions] Operator, would you provide instructions for those on the call?

[Operator]

[Operator Instructions] We'll go to the line of Tien-Tsin Huang of JPMorgan.

[Tien-Tsin Huang, analyst]

Really strong bookings. I wanted to think about how that translates into revenue visibility. If you don't mind, I know Accenture doesn't normally talk about ACV, but can you maybe comment on the current relationship between ACV and TCV and how that's evolving?

It seems really important to us as we think about revenue and visibility. Duration looks like it's up, but you also have a lot of large deals converting as well. So can you comment on that?

[Angie Park, executive]

Tien-Tsin, it's Angie. So let me cover guidance because maybe it will help to paint a picture of how we're thinking about the full fiscal year. I think it's really important. Let's start with how we ended Q4. If you think about the 5% growth that we posted in the fourth quarter, what we highlighted was that we did have slight growth in organic, which is important as we exit the year.

And as you just talked about, over the last few quarters, we've really pivoted our business to what our clients are buying, which are the large transformation deals. And what that does is it positions us better than compared to the same time last year on the revenue that we've already sold.

From an inorganic contribution, I do want to highlight that, overall, we expect a bit over 3% for the year, which would imply with our guidance of 3% to 6%, that on the bottom end of the range, organic is flat. And then at the top end of the range, we're growing 3% in organic growth.

And then as you peel it back and you look at the revenue growth that we see, it is broad-based, and we saw that coming out of Q4, we see it across the market and across all of our industry groups. And then as -- when you look at it by type of work as well, what we see right now is that both consulting and managed services would be low to mid-single-digit growth rates for the year.

And so stepping back with the color and how we're looking at our guidance, we're very pleased with how we have set ourselves up and positioned ourselves for fiscal '25.

[Julie T. Sweet, executive]

Yes. And so Tien-Tsin, what that means is we're not commenting specifically on ACV and TCV because as you said that isn't. But the way to think about the confidence level and going to the year, right, is that we told you that we had a strategy to have more megas.

We've shared with you that we had 19 more of these bookings than last year, $100 million or more. So you can see there's a big quantum. And so as you think about going into the year, we've got a bigger base of revenue coming from these larger deals coming online than we did going into fiscal year '24.

And so that's really how we're trying to help you all think about it is by being clear about that strategy and how -- and the quantum of that, and that's how we then think about the year. So hopefully, that gives you some more insights together with the view on the guidance.

[Tien-Tsin Huang, analyst]

No, it does and it's very reasonable as well, just to say that loud out. Just on the acquisition side, Julie, I think I asked it last quarter, so I'll ask again. I know you've been very busy. I like the examples that you gave around the productivity you're getting from some of the deals and the examples you gave again.

But how about just overall appetite this year? Are you still seeing good opportunities? Could we see a step-down or a pause in the short term? Anything else to add?

[Julie T. Sweet, executive]

Yes. So what I would say is, as Angie just said, our inorganic plan for the year, in terms of -- if you think about revenue guidance, we kind of -- we're going into the year with nearly 3%, and we think we'll -- right now, the plan for is a little bit above 3% is what we're seeing for fiscal year '25. And that reflects an expected plan right now of about $3 billion of deployed capital. So a step down from last year and probably more back-end loaded as we look at our pipeline.

Now obviously, we always have the ability to flex up or down. We only tie it to the opportunities in the market. But that's how we're seeing this year as we think about our investments.

[Operator]

We'll go next to the line of James Faucette with Morgan Stanley.

[Unknown Analyst]

This is Antonio on for James. I wanted to actually dig into the technology segment. I know cloud is a big component of this. Could you talk through how clients spend on these cloud migration projects has been trending over the last 90 days? And how we should think about cloud growth going into fiscal year '25? And then I have a follow-up after.

[Julie T. Sweet, executive]

Antonio, I'm not going to think about it the last 90 days. It is just think about sort of where we've been and where we think we're going, right? So in cloud, you still have a lot of migration that's happening, but on more of the high-performance compute applications. So things like mainframe, right? So -- and you also still have some clients who are very, very early in their cloud journey.

And one of the things I talked about in the script, for example, was retirement services. That's an entire segment where they're very, very early in the cloud journey. And so at the same time, you've got companies that are very early, just starting their cloud journey.

You have those who are farther along who are now getting to the harder applications like mainframe. And then we still have a lot of modernization because what happened in the pandemic is people who were trying to get to the cloud to get the infrastructure savings have not yet done the modernization. And that modernization, of course, feeds into all the things we do, right, brings the industry and the functional expertise.

And so as we look going into FY '25, we continue to see those strengths. So we expect that cloud is going to continue to be a significant driver of growth, but on all of those dimensions, right? And the high-performance compute as well requires very deep industry knowledge. Doing mainframe in the context of health is very different than the context of banking. So hopefully, that helps you.

[Unknown Analyst]

Got it. No, that's helpful. And then I wanted to ask on the organic headcount. It actually looks like that ticked up quite a bit. Could you comment on your hiring strategy and in what geographies you're sort of looking to shape that?

[Angie Park, executive]

Yes. Why don't I start, and then Julie and any additional comments as well. So as you can see, I want to start with how we're exiting the year. We saw slight organic growth in Q4, and we see that momentum into FY '25.

You will have also seen that we added about 24,000 people this year in Q4, which is reflective of the momentum that we see in the business. And as always, right, looking ahead, we will always hire for the skills and the demand that we see.

And just more broadly, I would just remind us that as you think about us as a business, our core competency is balancing supply -- managing supply and demand. And you see that through our utilization rates, which continue to be in the 92% range.

[Julie T. Sweet, executive]

And we're hiring -- from a talent strategy, right, we are hiring primarily in India. So a lot of that hiring is technology in India and, of course, also addresses -- we are refreshing our pyramid at this time. So you've got kind of the new college graduates coming in.

So there's really no change in our talent strategy. We hire all over the world. And in technology, which is a big driver of the growth that we're seeing now and going into FY '25, that is a lot of hiring in India.

[Operator]

We'll go next to the line of Jason Kupferberg with Bank of America.

[Jason Kupferberg, analyst]

I wanted to pick up on the commentary about the consulting outlook for fiscal '25. You said up low to mid-single digits. I think that's very consistent with the exit rate of 3% coming out of fiscal '24. So does that imply that you are not building much of a discretionary spending recovery into this initial F '25 guide?

[Angie Park, executive]

Yes. Jason, let me just give you a little bit of color on that as you think about the types of work and the question that you just asked. If you think about our range overall, so we're at 3% to 6% for the full year. And what this assumes is at the top end, we see more of the same, right, in terms of the discretionary spending environment. While at the bottom end, it allows for further deterioration in the discretionary spend environment over what we experienced in FY '24.

[Jason Kupferberg, analyst]

Okay. That's very helpful. And then maybe one for Julie. I just wanted to get your broad take on the macro backdrop. I guess, what are decision makers telling you right now versus 3 months ago? What are they waiting to see to open the discretionary budget a little bit more?

[Julie T. Sweet, executive]

Well, the environment is really more of the same, and that environment has been kind of a cautious environment. Right now, they're going into budget season. So as always, we'll really see in January and on February, but there hasn't been much of a change, right?

The macro is kind of the same. Obviously, there's some events going to come up in the fall that people are thinking about. But there's not a big tone change, right?

And I think -- because if you look at the macroeconomic environment, FY '25, it is going to click down in the U.S., maybe a little bit better in Europe. But overall, not a lot of improvement.

So we're not hearing -- I'm not hearing from CEOs, and I'm talking to them almost every day, some big like, "Hey, now we're ready to go spend more," right, in discretionary spending. So it's really just more of the same.

And by the way, one of the changes that we made this last fiscal year '24 was normally we do for decades, our big promotion period was in December,and then a small one in June. And so in fiscal year '24, we switched these, right? We said we have a lot more visibility in our business in January or February because that's where budgets are set. So we did that this past year and had a really big promotion, a very nice promotion, I would say, not really big, but very nice promotion in this past June. We've now permanently shifted that promotion cycle.

So we will do our big promotion cycle in June and our smaller one in December to better match when our clients are setting their budgets and we have better visibility. And that's what we're seeing. Again, the justification for that is clear that we'll really know IT spending and spending on our services in the budgets in January, February.

[Operator]

We'll go next to the line of Keith Bachman with BMO.

[Keith Bachman, analyst]

I wanted to revisit on M&A, if I could, and just get some clarification. In FY '24, you spent, as you noted, $6.6 billion, which was up about 160% year-over-year. And if we sort of do the math on what your normalized multiples are to revenue, looks like you're starting the year of FY '25 with 3 points of M&A help. And so I just want to understand, is that the right way to think about it?

And then Julie, you had indicated that you plan to spend $3 billion more in M&A this year. And it will be, as you said, back-end weighted. But I'm just struggling why M&A is that $3 billion number is even second half weighted? Why M&A isn't 4% or more for the year?

[Angie Park, executive]

Keith, let me just start with peeling back our inorganic contribution a bit. As we look at the deals that we closed in '24, it's nearly 3% contribution, right? And so with the back-end loaded approach in our capital deployed, we do see a bit over 3%, and that's just the math.

[Julie T. Sweet, executive]

Yes, it's just timing, right? It's not quite 3% going in because a lot of this closed at the end of Q4, right? And so it's just timing, right? And it's the way we see our pipeline developing, right, because we have a view of what we're going to -- we think we're going to spend in Q1 and Q2 and how that rolls in.

[Keith Bachman, analyst]

Okay. Let me transition to bookings then. As you think about FY '25, and I know you don't guide to bookings, it's more of an output, but any puts and takes that you want us to think about in terms of the book-to-bill ratio in FY '25 that might be higher or lower? Any kind of cadence there? And if you don't mind, was there an M&A help in the August quarter bookings as well -- or signings, excuse me?

[Angie Park, executive]

Why don't I start? In terms of the way to think about our bookings, we were super pleased with the $81 billion of bookings that we had for the year, which was 14% growth, which included the 125 quarterly client bookings over $100 million. And so I think that, that we were super pleased with. And you saw that in our book-to-bill and our growth rate in managed services, which was driven by our large transformation deals.

For us, over time of our 4 trailing quarters, we're always looking for our consulting book-to-bill to be 1.0 or better and for our managed services to be 1.2 or better, and nothing has changed there.

[Julie T. Sweet, executive]

Yes. And there was nothing in M&A about our bookings in Q4.

[Operator]

We'll go next to the line of Bryan Keane with Deutsche Bank.

[Bryan Keane, analyst]

Julie, I just want to ask about GenAI. I think bookings were up almost about $300 million in the third quarter sequentially, up about $100 million this quarter. Anything about the cadence there of GenAI and fall through there that you can help us understand?

[Julie T. Sweet, executive]

Sure. So yes, so we ended with $3 billion bookings for the year, and we'd expect in FY '25 another healthy increase. There is clear demand. We're starting to see more of our clients move from proof of concept to sort of larger implementations, which is important. So the size of those bookings is kind of -- is clicking up.

And also we're continuing to see kind of at least every other one has got data pull-through, and even that's kind of moving up. So we're kind of going into the year. We'd see -- we'd expect another healthy increase in our bookings and our revenue from that, and also that data will continue to kind of be a bigger and bigger part of that building out of the digital core because one of the biggest limitations on using GenAI today and why it's going to take a while is our client needs data and our clients have a lot of work to do on data, which is, of course, a big opportunity for us.

[Bryan Keane, analyst]

Got it, got it. And then just a clarification on the guide. I know the fourth quarter organic growth was positive, and we're talking about fiscal year '25 revenue guide of 3% to 6% on a constant currency basis. And if you back out the acquisitions, I think you guys said on the low end, we're talking about flat organic growth.

That would be a slight step down from the fourth quarter, which is -- would be a little surprising given some of the momentum that you guys are seeing in bookings and in headcount growth. So just wanted to make sure I understood what that low end might imply and why would there necessarily be a step down from where the fourth quarter kind of ended.

[Julie T. Sweet, executive]

Yes. No, and the way we're thinking about it, right, we're going into the year with momentum. We had executed on the strategy around the bigger deals. So we have a stronger base of revenue. We've got the acquisitions. And so on the bottom end of the range, what we would see, the most likely reason to be there is if there was a deterioration in the discretionary spend environment, right? So we're trying to just kind of give some flexibility.

We're not seeing that, right? We sell more of the same this quarter. And so as we kind of go into the year, at the top end of the range, it's the current environment going forward. And at the bottom of the range, if you were to ask me today what is that mostly accommodated is if there was a deterioration in spending, right, so -- because of kind of the way we've positioned ourselves.

[Operator]

We'll go next to the line of Dan Dolev with Mizuho.

[Dan Dolev, analyst]

Great results and great guidance here. Two questions on GenAI. Are you seeing more of your conversations being less replacement and reallocation and purely incremental on GenAI? And then I have a follow-up.

[Julie T. Sweet, executive]

Yes. Well, I think it starts with we're not seeing a change in what our clients are spending on IT, right? So -- but what we are seeing is the continued trend of trying to save money on IT to free up the spending on areas of GenAI.

So on the one hand, right now, we haven't seen a change in overall spending. We'll see what the budgets come in January, February, but we're not expecting a big change.

But what we also are seeing is that as they're saving money, they want to invest it in things like GenAI and data. So that's really the dynamic that's going on, save to invest, but we haven't seen signs of overall change.

[Dan Dolev, analyst]

Got it. And then a quick follow-up on margins. Can you maybe touch on the GenAI services margin, how it stands versus your traditional business? I think that would be really helpful for investors.

[Julie T. Sweet, executive]

Are you -- you mean are GenAI margin and sort of -- is that different from when we're doing GenAI versus other project technology?

[Dan Dolev, analyst]

Correct. GenAI services versus your traditional consulting business.

[Julie T. Sweet, executive]

I wouldn't -- look, GenAI is still a small part of our business, and I wouldn't really think about it as having a particularly different margin profile at this time. And as you probably heard in our -- in my script that a lot of times, we're starting to embed GenAI in our larger deals. And so we're not really thinking about it as a sort of a separate way. So I wouldn't think about it too differently than our usual business.

[Operator]

We'll go next to the line of Jim Schneider with Goldman Sachs.

[James Schneider, analyst]

Very helpful commentary on the client outlook on limited discretionary spend. But can you maybe help us understand or unpack, when you talk to them, what are they looking for to release discretionary spend? Is it more macro factors, whether that be relates -- rates, election or regulatory?

Or is it more micro factors tied to their IT budgets? And if it's the latter, what are the things they're looking for in terms of getting increased clarity on those priorities going into 2025?

[Julie T. Sweet, executive]

Sure. It's a good question. And it's really -- overall, there is a sense of the macro, right, because if you look at the -- a lot of our clients are global. If you look at the macroeconomic, there isn't a big change.

There's -- kind of going into next year, the U.S., which is a big market, it looks like it's going to be down a little bit. Europe's up a little bit, but still not great. And so kind of you start with they're not seeing a big change in the macro.

But then you really have to look at it industry by industry because each industry has factors. So for example, in the energy industries, they're super focused on how much investment they have to do and the change -- the shift in climate change and renewables. So there's a big appetite for major investment. So there's no catalyst that says, "Oh, like, I've got a ton of thought." They've got a lot of big investments, right?

If you look at consumer goods, where a lot of the consumer goods companies are not able to get pricing, they've got to get up volume, which means they've got to drive down their -- they've got to improve their efficiency and their manufacturing costs, and that takes big investments because manufacturing, our latest research says 2/3 of the journey in digitization is still to come. And so those are big investments.

And so I can kind of take you through industry by industry. The reality is, and this obviously good growth for us, the digitization journey is still very early in many, many industries. That's like -- public service is another great example. So they've got big transformations going.

And at the end of the day, if you're a big enterprise, the deals that are smaller, right, they do not move the needle. And when you've got big investments, that's where they're focused because they see now the potential of things like GenAI. And everyone's, like, "We've got to get going." That's really what's driving it.

So that's why we're not having a bunch of discussions about, "I can't wait to unlock that spending." Our discussions are entirely on, "Help us move faster with our bigger transformations." That's really what we're focused on.

[James Schneider, analyst]

That's very helpful. And then maybe as a follow-on, you referenced several verticals there. Can you maybe, as you prospectively look into fiscal '25, call out maybe 1 or 2 verticals where you expect the most improvement and maybe 1 or 2 where you see potential risk of deterioration?

[Angie Park, executive]

Yes. Jim, I think that as we look across FY '25 in our overall guide of 3% to 6%, we see broad-based growth across -- it's really broad-based across all of our industries as well as our services end markets.

[Catherine O'Conor, executive]

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

[Operator]

And that will come from Bryan Bergin with TD Cowen.

[Bryan Bergin, analyst]

On GenAI, can you give us a sense of the size of some of the largest individual programs have reached?

And then as it relates to internal productivity progress, maybe comment on any of the service lines where you're seeing the earliest impacts as it relates to productivity or any metrics that you can share in more advanced programs?

[Julie T. Sweet, executive]

Sure. I don't want to start giving tons of data on this. But you went from deals that were -- in GenAI that were, on average, kind of sub-$1 million, right, that you've now got some that are above $10 million, right? So that's still the smaller end because you're sort of moving into production and scale. But you're starting to see these things move from POCs to larger bookings.

And then with respect to internal productivity and our guidance, of course, takes into account what we're seeing. As I've been talking about is that the first area that we anticipate -- remember, we're trying to embrace GenAI fastest because we think it's a big differentiator with our clients.

And so in our managed services is where we're seeing the most because that's where we have platform. So you all remember we used to talk about myWizard. Now we talk about GenWizard, right?

But what we're seeing is that the technology and the productivity is like similar ways before. So if you go back to 2015, 2016, when we first introduced myWizard, right? So it's not really different than the kinds of productivity that we've been experiencing.

And here, of course, there's an added wrinkle in that GenAI, in order for us to use it with our clients, they have to allow us to use it and they have to prioritize. And they have a lot of other areas where they want to use GenAI that's not necessarily in their technology productivity where there are already many of our clients are using our platforms, they're using AI, et cetera.

So there's a lot of factors that kind of go into the pace of how quickly we can use it, even if we're ready to use it now in many places. So hopefully, that's helpful because it is a little bit different in that sense because our clients have to prioritize where they want to use GenAI, too.

[Bryan Bergin, analyst]

Okay, okay. That's helpful. And then I appreciate your commentary on the capital returns on the balance sheet and understanding this has overall been a tougher environment, while M&A outlay has been on the upper end.

But just curious how we should be thinking about the potential magnitude of leverage in the model going forward, just any guardrails we should consider.

[Angie Park, executive]

Yes. And a couple of things that I would say around that. We indicated that it's going to be modest. We'll maintain our strong credit ratings, and net leverage will be low. And so -- and included in our guidance that we provided you, we have also allowed for the potential for the interest expense and in our overall guidance, which is in addition to the variability that we may see in operating margin throughout the year.

[Julie T. Sweet, executive]

Great. Well, thank you, everyone, for joining us. Before I wrap up, I want to thank KC, who's been an amazing partner and friend these last 5 years. They've been quite some 5 years, as we all know, just a few things in the environment that we've gotten together work with. And so I'm really excited for KC and her next chapter. And KC, would you like to say a few words?

[Kathleen McClure, executive]

I would. Thanks, Julie. I just want to offer my sincere thanks to the investor and analyst community for the decade plus of counsel and support. It's really meant a lot to me. It's really been appreciated. Thanks a lot, and best wishes to all of you.

[Julie T. Sweet, executive]

So I want to thank everyone for joining us and thank all of our people for what you do every day, allowing us to create 360-degree value and giving us a lot of confidence in our success in FY '25. And thanks again, KC, and welcome Angie to your new role, and we'll see you all in the next quarter.

[Angie Park, executive]

Thank you.

[Operator]

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