Accenture plc (ACN) Earnings

Management highlights

Overall Quarterly Performance - Delivered strong broad-based growth across markets, industries and service lines, gaining market share. Added $1 billion in year-over-year Q3 revenue, and $3.4 billion in year-to-date revenue over FY25. - Achieved 20 basis points of operating margin expansion to 17%, 9% EPS growth to $3.80, and $3.6 billion in free cash flow. Returned $2.2 billion to shareholders via dividends and buybacks in Q3, and $8.2 billion year-to-date. - Had 30 clients with Q3 bookings over $100 million, bringing the year-to-date total to 104, a 13% increase over the same period last year. AI Growth Strategy - AI adoption is still in early stages, but demand is growing steadily: 100 additional clients initiated advanced AI projects this quarter, and large enterprise clients with mature digital cores are moving from pilots to full-scale production AI programs. - Expanded partnerships with top AI and data ecosystem partners, including Anthropic, Databricks, NVIDIA, OpenAI, and Snowflake. Bookings from these key partners are on track to more than double compared to FY25, and partner revenue growth outpaces Accenture's overall growth. Strategic Market Expansions - Announced the acquisition of a majority stake in three OT cybersecurity firms (Dragos, Olive Run Zero, NetRise) to create a unified OT security platform. This investment more than triples Accenture's OT security total addressable market (TAM), which is growing double digits, and builds on Accenture's existing $10 billion cybersecurity services business that grew at a 35% CAGR from FY16 to FY25. - Launching Accenture Edge, a new dedicated business for the mid-market (companies with $300 million to $3 billion in revenue), which has a $240 billion TAM growing at high single digits. Accenture Edge will provide pre-built, scalable solutions and integrate seamlessly with Avanade, Accenture's Microsoft joint venture, to pull through partner demand. - Continued targeted acquisitions in other high-growth areas, including Alpha Health (digital health in Italy) and Whaler (social agency in the Americas), bringing the year-to-date acquisition total to 13 transactions. People Investments - Promoted ~124,000 people this fiscal year, a 30% increase over last year, including over 900 promotions to managing director.

Guidance

- For Q4 fiscal 2026, management expects revenue in the range of $17.75 billion to $18.4 billion, with 1% to 5% local currency revenue growth. The full impact of the Middle East conflict headwind seen in the final weeks of Q3 is expected to continue through Q4, leading to a wider range of potential outcomes. - For full fiscal 2026, management revised revenue guidance to 3% to 4% local currency growth over FY25 (4% to 5% excluding the 1% federal business headwind), with an expected 1.5% inorganic contribution from acquisitions. FX is expected to add 2% to reported U.S. dollar revenue growth. - Adjusted operating margin guidance for FY26 is 15.8%, representing 20 basis points of expansion over FY25 adjusted results. Adjusted effective tax rate is expected to be 24% to 25% (up from 23.6% in FY25). - Full-year diluted adjusted EPS guidance is $13.78 to $13.90, representing 7% to 8% year-over-year growth. - Expected full-year operating cash flow of $11.5 billion to $12.2 billion, and free cash flow of $10.8 billion to $11.5 billion, with a free cash flow to net income ratio of 1.3. At least $9.5 billion will be returned to shareholders via dividends and share repurchases in FY26. - Total acquisition investment for FY26 is now expected to be $9 billion, up from prior guidance of $5 billion, following the announced OT cybersecurity acquisitions. Accenture expects to enter FY27 with slightly under 2% inorganic contribution from closed FY26 acquisitions.

Segment performance

By service type: - Consulting: Q3 revenue was $9.3 billion, representing a 4% increase in U.S. dollars and 1% growth in local currency. New bookings were $10.3 billion, with a book-to-bill ratio of 1.1. Consulting revenue contributed 49.7% of total Q3 revenue. - Managed Services: Q3 revenue was $9.4 billion, representing an 8% increase in U.S. dollars and 5% growth in local currency, driven by mid-single-digit growth in technology-managed services and high single-digit growth in operations. New bookings were $9.1 billion, with a book-to-bill ratio of 1.0. Managed services revenue contributed 50.3% of total Q3 revenue. By geographic market (local currency growth): - Americas: 1% revenue growth (3% after excluding a 1.5% headwind from the federal business), led by growth in software and platforms, high-tech, and industrials. - EMEA: 4% revenue growth, led by growth in public service and software and platforms, partially offset by declines in Germany and the Middle East. - Asia Pacific: 8% revenue growth, driven by growth in public service, banking and capital markets, and insurance.

Risks & headwinds

- The ongoing conflict in the Middle East created a $100 million Q3 revenue headwind (all in consulting), split evenly between direct impacts on the Middle East business and indirect impacts on discretionary client spending globally. Indirect impacts started in the final weeks of Q3 and are expected to continue through Q4, adding macro uncertainty to results. - Large deal decision timelines in EMEA were extended by Middle East uncertainty, and two large managed services deals were pushed out to FY27 for company-specific reasons, creating Q3 revenue headwinds that will not be recovered in Q4. - Integration of the three newly acquired OT cybersecurity assets carries some execution risk, though management notes the anchor asset Dragos already has a mature, market-leading platform, with the other two acquisitions adding complementary capabilities to create a unified, ready-to-go customer solution. - All forward-looking guidance is subject to general macroeconomic and geopolitical uncertainty, which could cause actual results to differ materially from management projections.

Analyst Q&A

• Q: Analysts observed a disconnect between strong recent consulting bookings and softer constant currency consulting revenue growth. What is causing this gap, and what Q4 growth do you expect for each segment? /

  A: The $100 million Q3 revenue headwind from the Middle East conflict was entirely concentrated in consulting, which explains the softer revenue growth this quarter. The federal services headwind will sunset in Q4, and consulting is expected to return to low single-digit growth, while managed services will continue mid-single-digit growth. Four consecutive quarters of consulting bookings growth reflect a sustained trend of clients adding more consulting work (including AI integration and change management) to large managed services programs, aligned with Accenture's strategy.

• Q: What is the strategic rationale for the three OT cybersecurity acquisitions, and what risk comes from integrating these assets? Why prioritize OT cybersecurity as an AI enabler? /

  A: OT (operational technology) security is a critical unmet need as AI expands into physical infrastructure; an AI revolution cannot succeed without securing the critical infrastructure that underpins all digital and physical operations, and only 5% of historical cybersecurity spending has gone to OT. Accenture already has a $10 billion cybersecurity services business growing at 35% CAGR, with existing OT experience. Dragos already has a mature leading platform, and the other two acquisitions only add complementary capabilities, so there is minimal integration risk. The combined offering gives clients a single unified solution instead of requiring them to stitch together three separate vendor contracts, creating immediate customer value.

• Q: With acquisition spend raised to $9 billion in FY26, what inorganic growth contribution will this bring to FY27, and what is the long-term strategy for product/non-FTE acquisitions? /

  A: These acquisitions are expected to deliver slightly under 2% inorganic growth contribution to FY27. The acquired OT cybersecurity assets have $208 million in annual recurring revenue growing at 48%, representing a move into a higher-growth category. Accenture will continue to skew M&A toward product/platform opportunities (enabled by current software valuations) that shift the business toward higher-margin non-FTE commercial models, while continuing to make targeted services acquisitions in high-growth AI-enabling areas such as cybersecurity and data centers. The strategy combines acquisition, partnership with ecosystem players, and organic build to expand TAM.

• Q: Is underlying fundamental AI demand still building despite near-term macro headwinds, and can it drive growth acceleration in coming quarters? /

  A: Fundamental AI demand is clearly building every quarter. The number of large $100 million+ bookings is up 13% year-to-date, and average AI project size is growing steadily. Clients with mature digital cores are now moving beyond isolated AI use cases to large-scale enterprise-wide AI transformation programs, which is a key green shoot for future growth. AI remains a long-term tailwind for Accenture as adoption scales.

• Q: What is the continued trend for fixed-price work, and how does it impact margins? /

  A: Fixed-price work remains above 60% of total work and continues to increase gradually, with similar penetration across both consulting and managed services. There is no material difference in margin characteristics between fixed-price and other commercial constructs, and the ongoing shift is already reflected in Accenture's guided 20 basis points of full-year margin expansion.