Accenture plc Q1 2026 earnings call

Thank you, Operator, and thanks to everyone for joining us today on our first quarter 2026 earnings announcement. As the Operator mentioned, I'm Alexia Quadrani, Executive Director, Head of Investor Relations. On today's call, you will hear from Julie Sweet, our Chair and Chief Executive Officer, and Angie Park, our Chief Financial Officer. We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results. Angie will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the first quarter. Julie will then provide a brief update on our market positioning before Angie provides our business outlook for the second quarter and full year fiscal 2026.

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 risk and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our annual report and 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 the call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We'll 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 call. Now, let me turn the call over to Julie.

Thank you, Alexia and everyone, for joining this morning. Apologies in advance for my voice. I am getting over a seasonal cold, and my voice is not quite cooperating. I really wanted to start today by thanking our nearly 784,000 people around the world for your extraordinary work and your commitment to our clients, which enabled us to deliver another strong quarter. Let me begin by sharing that we are very proud to have earned the number four spot on the Great Place to Work list of the world's best workplaces, our highest-ever ranking on this prestigious list. This recognition reflects our strategy to be the most client-focused, AI-enabled Great Place to Work for reinventors. It is especially meaningful because it is based on feedback from our people worldwide. Our ability to attract and retain great talent is one of our most important competitive advantages.

Before handing over to Angie, I will briefly highlight the value we delivered this quarter, the importance of our partnership strategy, and this quarter's strategic acquisitions. We are very pleased with our results as we continue executing our strategy to help our clients reinvent every part of their enterprise, reflected in our bookings of $20.9 billion, including 33 clients with quarterly bookings greater than $100 million. We delivered revenue of $18.7 billion, growing 5% in local currency at the top of our guided range, with broad-based growth across markets and both types of work. And we continue to strengthen our competitive position by taking significant market share on a rolling four-quarter basis against our basket of our closest global publicly traded competitors, which is how we calculate market share.

Adjusted operating margin expanded by 30 basis points year over year, and we delivered adjusted EPS growth of 10% compared to Q1 last year. We continue to invest significantly to execute our talent strategy to rotate our workforce. We have nearly reached our goal of 80,000 AI and data professionals, and our people participated in approximately eight million training hours this quarter, with a significant focus on building advanced AI technology and industry skills. Advanced AI is increasingly embedded in our large transformation programs, either enabling future enterprise use or being implemented directly as part of our solutions. Our strong leadership in advanced AI is a clear competitive advantage as clients select us to help them capture the value of this technology now and over time and to build the readiness required to adopt it effectively across the enterprise. Momentum in the adoption of enterprise AI continues.

Our advanced AI bookings this quarter were $2.2 billion, nearly doubling from Q1 last year and also up from Q4. Revenue reached another milestone this quarter at approximately $1.1 billion. As we think about the advanced AI opportunity ahead, as you know, we were the first in our industry to share our bookings and revenue from advanced AI, which we define as Gen AI, Agentic AI, and Physical AI, and does not include data, classical AI, or RPA. We introduced the metrics in Q3 FY23, just months after Gen AI burst onto the scene, initially to size the reality of the opportunity and to demonstrate our early leadership. At that time, bookings were about $100 million across roughly 100 projects, and revenue was immaterial. We have measured it consistently since that time.

To date, we have now delivered approximately $11.5 billion in bookings across 11,000 projects with revenue of $4.8 billion. This will be the last quarter in which we share these specific metrics. The demand for AI is both real and rapidly maturing. We've now reached a point where advanced AI is being embedded in some way across nearly everything we do, and many of our clients are focusing on moving beyond standalone proofs of concept or initiatives. We're shifting to more scaled end-to-end solutions that integrate multiple forms of AI, and it has become less meaningful to isolate the data specifically for advanced AI as it does not reflect how the demand is evolving on the ground, the full scope of our AI work, or the value we're creating. Now, turning to our partnership strategy. Our partnership strategy is grounded in client demand.

Demand for reinvention remains strong, with our clients continuing to prioritize larger transformational programs focused on building their digital core and driving both efficiency and growth. Technology is front and center for every client, and the 60% of our revenue in Q1 from work we do with our top 10 ecosystem partners continued to outpace our overall growth. Given the importance of the broader technology ecosystem to our clients, we plan to continue providing insight into the role our top partners play in our growth by maintaining the metric we introduced at the end of FY25, the percentage of our revenue tied to work with our top 10 ecosystem partners and its growth relative to our overall growth as it provides a clear view into our largest, most important partnerships.

We also plan to continue to share our partnership strategy and how we're growing new businesses with an expanded group of partners. Most of our clients operate with a network of ecosystem partners to meet their enterprise needs. They rely on us to help integrate those partners and expect us to be the leader with the most relevant players across their enterprises, including new and emerging players. As a result, it is important that in addition to our top 10, we work with a broad set of partners that play important roles across enterprises. Many of these support specific functions such as digital manufacturing, product engineering, core banking and insurance, supply chain and finance, while others are helping clients advance their AI and data capabilities. Our partnerships are critical to our clients reinventing all parts of their enterprises.

Together, they represent meaningful opportunities for growth and further strengthen our ability to deliver comprehensive end-to-end solutions. Over the past year, in response to client demand, we've been expanding and, in some cases, forming new partnerships with emerging AI and data companies. And we will play a key role in helping our clients use these technologies, including creating new solutions and integrating and leveraging the synergies with their existing ecosystems. These evolving partnerships, which are laid out in our earnings presentation, are a significant competitive advantage for us. Turning now to our strategic acquisitions. Earlier this week, we announced an agreement to acquire a 65% majority stake in DLB Associates, a U.S.-based leader in AI data center engineering and consulting in the rapidly growing data center professional services market, an estimated $12 billion addressable market expected to double by 2030.

Along with our FY25 acquisition of UK-based Soben, this meaningfully expands our capital projects capabilities and presence in the high-growth data center consulting market. It also positions us to capture growth not only through the work we do with helping our clients use AI, our primary business, but also in the opportunity created by the companies building the infrastructure to power AI. And this quarter, we also invested $374 million primarily in six strategic acquisitions. We're scaling our capabilities with SIPAL, Integrated Product Support Business in Italy, which brings deep defense and aerospace engineering expertise for mission-critical programs, and Total eBiz Solutions in Southeast Asia, which adds AI, cloud, and digital workplace innovation that strengthens Avanade's position in the region. And we're scaling new growth areas with NeuraFlash in the U.S., a Salesforce and advanced AI leader whose agentic solutions expand our reach into the mid-market.

Aidemy in Japan, which enhances LearnVantage with AI learning and reskilling capabilities to help clients build AI-ready workforces. Decho in the U.K. and Ranger Data in the U.S., which strengthen our Palantir and advanced AI capabilities. In summary, we are pleased with how we delivered a quarter and continue to strengthen our foundation for long-term growth. Over to you, Angie.

Thank you, Julie, and thanks to all of you for joining us on today's call. We are very pleased with our first quarter results, with revenue at the top of our guided range, as well as strong adjusted margin expansion, Adjusted EPS growth, and Free Cash Flow. These results reflect the execution of our strategy to be the reinvention partner for our clients. We continue to invest for long-term market leadership while delivering significant value for our shareholders. Now, let me summarize a few highlights for the quarter. Revenues grew 5% in local currency, reflecting nearly 4% organic growth, and were broad-based across geographic markets and types of work. Excluding the 1% impact from our federal business, our revenues grew approximately 6% in local currency in Q1.

Adjusted operating margin was 17%, an increase of 30 basis points compared to Q1 results last year and continues to include significant investments in our business and our people. We delivered adjusted EPS in the quarter of $3.94, which represents 10% growth compared to EPS last year, and finally, we delivered free cash flow of $1.5 billion and returned $3.3 billion to shareholders through accelerated repurchases and dividends this quarter. We also invested $374 million, primarily attributed to the six acquisitions in the quarter. With those high-level comments, let me turn to some of the details, starting with new bookings. New bookings were $20.9 billion for the quarter, representing 12% growth in U.S. dollars and 10% growth in local currency, with an overall book-to-bill of $1.1. Consulting bookings were $9.9 billion, with a book-to-bill of $1.0.

Managed Services bookings were $11.1 billion, with a book-to-bill of 1.2. Turning now to revenues. Revenues for the quarter were $18.7 billion, at the top of our guided range, reflecting a 6% increase in U.S. dollars and 5% in local currency and a foreign exchange impact of 1.4%. Consulting revenues for the quarter were $9.4 billion, at 4% in U.S. dollars and 3% in local currency. Managed Services revenues were $9.3 billion, at 8% in U.S. dollars and 7% in local currency, driven by high single-digit growth in technology managed services, which include application managed services and infrastructure managed services, and mid-single-digit growth in opperations. Turning to our geographic markets. In the Americas, revenue grew 4% in local currency. Excluding the 2% impact from our federal business, Americas grew 6% in local currency in the quarter.

Growth was led by banking and capital markets, industrials, and software and platforms, partially offset by a decline in public service. Revenue growth was driven by the United States. In EMEA, we delivered 4% growth in local currency, led by growth in banking and capital markets, insurance, and life sciences. Revenue growth was driven by the United Kingdom and Italy. In Asia-Pacific, revenue grew 9% in local currency, led by growth in banking and capital markets, communications and media, and public service. Revenue growth was led by Japan and Australia. Before I move on, I want to briefly update you on the business optimization actions we initiated last quarter and completed in Q1 as part of executing our talent strategy. This quarter, we recorded $308 million in costs, primarily related to employee severance, bringing the total for these actions over the past six months to $923 million.

Our business optimization costs impacted operating margin, tax rate, and EPS. The following comparisons exclude these impacts and reflect adjusted results. Now, moving down the income statement. Gross margin for the quarter was 33.1%, compared with 32.9% for the same period last year. Sales and marketing expense for the quarter was 10%, compared with 10.2% for the first quarter last year. General and administrative expense was 6.1%, compared to 6% for the same quarter last year. Adjusted operating income was $3.2 billion in the first quarter, reflecting a 17% adjusted operating margin at 30 basis points compared with results in Q1 last year. Our adjusted effective tax rate for the quarter was 23.9%, compared with an effective tax rate of 21.6% for the first quarter last year. Adjusted diluted earnings per share were $3.94, compared with diluted EPS of $3.59 in the first quarter last year, reflecting 10% growth.

Days Services Outstanding were 51 days, compared to 47 days last quarter and 50 days in the first quarter of last year. Free Cash Flow for the quarter was $1.5 billion, resulting from cash generated by operating activities of $1.7 billion, net of property and equipment additions of $157 million. Our cash balance at November 30th was $9.6 billion, compared with $11.5 billion at August 31st. With regards to our ongoing objective to return cash to shareholders, in the first quarter, we accelerated our share buybacks and repurchased or redeemed 9.5 million shares for $2.3 billion at an average price of $245.32 per share. Also, in November, we paid a quarterly cash dividend of $1.63 per share, a 10% increase over last year for a total of $1 billion. So, in summary, we are very pleased with our Q1 results, and we are focused on delivering Q2 in the year.

Before I turn it back to Julie, let me provide an update on our commercial models. Our large base of fixed-price work continues to grow and is a strong foundation for how we believe our commercial models will continue to evolve. In FY25, about 60% of our work was fixed-price, which is up about 10 points over the last three years. This reflects the increasing role of our proprietary platforms over a long period of time and clients wanting greater certainty in cost and delivery. This is where our scale, experience, and strong financials matter, and now, back to you, Julie.

Thank you, Angie. Starting with the demand environment, clients continue to prioritize their most strategic and large-scale transformational programs, which convert to revenue more slowly but position us at the center of their reinvention agendas. The pace of overall spending and discretionary spend in our market is at the same levels we have seen over the last year. We are delivering strong results and taking market share in this environment because reinvention is critical to our clients, and our clients know we deliver real reinvention with real outcomes. Let me turn to four strategic growth areas that are essential for enterprises to use technology, AI, and data to achieve these outcomes. First, the digital core. Cloud, data, and platform modernization remain foundational to every reinvention. When companies tell us they want to use AI, they quickly realize that AI is only as powerful as the data underneath it.

Most organizations have mountains of data spread across systems, stored in different formats, often unreliable or incomplete. Before AI can create value, underlying data and the processes connected to it need to be simplified, cleaned, connected, and properly governed. We help clients manage all their data wherever it may be and turn it into something they can access and use to make decisions, train models, and uncover insights. We modernize their data platforms and make sure the data flows securely and consistently across the business so people can trust it and use it with confidence. We also use AI to improve data quality at scale. In the age of AI, data isn't just an input; it's the advantage. That's why we continue to see at least one out of every two advanced AI projects lead to a data project, and we're the partner that helps our clients unlock it.

For example, Essity, a global leader in hygiene and health, is making advanced AI, including agentic AI, core to how they run their business, starting with procurement and finance, setting the foundation for company-wide reinvention. We are helping Essity build a cloud-based data and AI platform that combines Accenture's deep industry and functional expertise with our ability to scale advanced AI. We're starting in high-volume parts of the business, processing hundreds of thousands of purchase orders a year, where the opportunity for double-digit productivity gains is strong. This foundation positions Essity to move decisively beyond pilots and reinvent end-to-end processes, unlocking new pathways to value and long-term growth. Security remains one of our fastest-growing businesses, growing very strong double digits this quarter. As cloud, data, and AI connect more of the enterprise, the threat landscape expands quickly.

We are using AI to detect threats earlier, respond faster, and simplify complex environments. Companies cannot scale AI unless they can do so safely, and this continues to be an important growth engine. Building on our long-standing relationship, we are partnering with one of Saudi Arabia's leading financial institutions to build a robust internal cyber defense capability that is designed to protect the bank, meet rising regulatory expectations, and enable the launch of modern, sustainable digital services. We help the bank move from limited visibility to a far more advanced security position, expanding threat detection, reducing incident response times, and are helping to improve their national cyber maturity scores. We are also helping the bank achieve the full regulatory audit readiness, a critical requirement for trust and future growth.

Now, with Accenture's deep cybersecurity expertise, we will bring in specialized talent, strengthen governance, and help with upskilling to accelerate their progress. With the stronger foundation and the internal capability to maintain it, the bank can now introduce new services with far greater confidence and is well-positioned for its next phase of innovation. Accenture Song grew mid-single digits this quarter. Song continues to help B2B and B2C clients drive growth by improving how they connect with and shape the customer's experience, the marketing that first reaches them, the website or store where they buy, the service when they need help, and the digital products they use every day by bringing together design, creative, data, technology, and industry expertise to reinvent marketing, commerce, service, and digital products.

One example is our partnership with Virgin Media O2, one of the U.K.'s leading telecom providers, where we didn't just modernize technology. We worked together to transform the entire customer experience and how work gets done. By rebuilding their digital core and embedding advanced AI, nearly 10,500 service agents now work on a unified cloud platform with connected data and workflows. More than 300 customer journeys have been redesigned, simplifying processes and bringing the full customer context into a single view. These changes are helping agents resolve issues faster and more accurately, contributing to a 35% increase in net promoter scores in some areas and same-day resolution, improving from approximately 65% two years ago to nearly 90% today. A cultural shift is also underway, upskilling teams to enhance their customer-first mindset, turning service calls into opportunities to improve customer loyalty and trust.

This kind of change takes strategy, process, and talent working in sync, with Accenture Song bringing it all together to design experiences that resonate at scale so that Virgin Media O2 can drive innovation and set a new benchmark for customer service excellence. We also continue to grow in the core value chain of many industries through our Industry X offerings, growing mid-single digits this quarter. Manufacturing and engineering remain early in their digital transformation journeys. Digital twins, predictive analytics, robotics, and other AI-enabled technologies are creating new levels of efficiency and resilience. Those same strengths are now propelling our capital projects work, where clients need us to design, build, and commission critical infrastructure and extend Accenture deeper into their core value chains. Take North America's transit sector. Agencies are facing mounting pressure to modernize aging infrastructure and meet growing ridership needs, efforts that require delivering multi-year, multi-billion-dollar capital programs.

Partnering with one of the largest public transit agencies, we're applying our infrastructure and capital projects expertise to help transform how these critical programs are managed, spanning a vast network of subway stations, maintenance facilities, bus garages, and administrative offices. By bringing together multiple data sources across their construction portfolio, we are helping to enable more informed decision-making, supported by rigorous project controls, advanced scheduling, cost and risk management, and safety and financial oversight to improve efficiency, transparency, and forecasting, just as we do in manufacturing. As a result, the agency is strengthening its daily transit operations and supporting safer, more reliable service for millions of riders. Now, let me share how we're seeing demand evolve with the work we're doing in advanced AI. It is early innings, which means there is significant opportunity ahead. Technology is rapidly evolving.

While enterprise adoption at scale is nascent, demand continues to grow, and IDC estimates that the total addressable market for advanced AI is expected to grow more than 40% through 2029, from roughly $20 billion today to over $70 billion. We are seeing a steady increase in demand. Over the last nine quarters, we've seen about 100 incremental clients initiate advanced AI projects with us each quarter. But most have a lot of work to do before they will be able to scale across the enterprise, and it is still a relatively small part of our client base, over 1,300 clients to date out of 9,000 clients. So we see lots of opportunity to help those who have initiated and to expand in our existing clients, as well as attract new clients. Clients increasingly understand that advanced AI is not a quick fix.

Adopting it successfully requires foundational work to deliver P&L impact and other critical outcomes. This is why our clients and the broader ecosystem are turning to us to help bridge the gap between powerful technology and achieving real, measurable results. The real opportunity is not proving AI works. It is making it work everywhere. Scaling AI means working with all forms of AI and means embedding it across critical processes so it transforms outcomes. For example, we are partnering with Bristol Myers Squibb, a global biopharmaceutical leader, to transform how therapies move from discovery to market by embedding AI at scale across the organization. Drawing on its deep life sciences experience, BMS is using AI to accelerate innovation and expand its impact for patients. We are also establishing early leadership in agentic AI with the scale of our deployments working across the ecosystem.

We have built an extensive library of over 3,000 reusable agents, reflecting our deep industry and functional expertise. These agents have been used in real client environments, giving us a unique foundation of proven solutions to help clients move faster and with more confidence. Over to you, Angie.

Thanks, Julie. Now, let me turn to our business outlook. For the second quarter of fiscal 2026, we expect revenues to be in the range of $17.35 billion-$18 billion. This assumes the impact of FX will be approximately positive 3.5% compared to the second quarter of fiscal 2025. Our Q2 guidance reflects an estimated 1%-5% growth in local currency, including about a 1% impact from our federal business. For the full fiscal 2026, based upon how the rates have been trending over the last few weeks, we continue to assume that the impact of FX on our results in US dollars will be approximately positive 2% compared to fiscal 2025. For the full fiscal 2026, we continue to expect revenue to be in the range of 2%-5% growth in local currency over fiscal 2025, including an estimated 1% impact from our federal business.

Excluding the impact of federal, our revenue is expected to be an estimated 3%-6%. This year, we continue to expect an inorganic contribution of about 1.5%, and we continue to expect to invest about $3 billion in acquisitions this fiscal year, with the potential to do more. For adjusted operating margin, we continue to expect fiscal year 26 to be 15.7%-15.9%, a 10-30 basis point expansion over adjusted fiscal 25 results. We continue to expect our annual adjusted effective tax rate to be in the range of 23.5%-25.5%. This compares to an adjusted effective tax rate of 23.6% in fiscal 25. We continue to expect our full-year adjusted diluted earnings per share for fiscal 26 to be in the range of $13.52-$13.90, or 5%-8% growth over adjusted fiscal 25 results.

Due to slightly higher business optimization costs in the quarter, which were $58 million above our original Q1 estimates, we now expect GAAP EPS of $13.12-$13.50. For the full fiscal 26, we continue to expect operating cash flow to be in the range of $10.8 billion-$11.5 billion, property and equipment additions to be approximately $1 billion, and free cash flow to be in the range of $9.8 billion-$10.5 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.2. We continue to expect to return at least $9.3 billion through dividends and share repurchases, an increase of $1 billion, or 12%, from fiscal 25. Our board of directors declared a quarterly cash dividend of $1.63 per share to be paid on February 13th, a 10% increase over last year.

We remain committed to returning a substantial portion of our cash generated to our shareholders. With that, let's open it up so that we can take your questions. Alexia.

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