Accenture plc Q3 2026 earnings call

Thank you, operator, and thanks everyone for joining us today on our third quarter 2026 earnings announcement. As the operator just 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 earnings release, which 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 third quarter. Julie will then provide a brief update on the market positioning before Angie provides our business outlook for the fourth quarter and full year fiscal 2026.

We will take your questions before Julie provides a wrap-up at the end of the call. We're also pleased to announce that we will host our Investor Day in New York City on October 14th. More details to come. Some of the matters we'll discuss on this call, including our business outlook, are forward-looking and as such, are subject to known and unknown risks and uncertainties, including, but not limited to, those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed 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 these 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. Let me turn the call over to Julie.

Thank you, Alexia, and everyone joining us this morning. Thank you to our more than 798,000 people for your extraordinary work. Before Angie takes you through the detailed numbers, I will give you some color on the quarter and on the progress we're making on our growth strategy. In Q3, we delivered strong results with broad-based revenue growth across geographic markets, industry groups, and types of work, and once again took significant market share, underscoring the relevance of our services and our strong competitive position. To put our performance in context, we added approximately $1 billion in revenue in Q3 over FY 2025 and $3.4 billion year-to-date over the same period last year. We also delivered strong margin expansion, EPS growth, and free cash flow while continuing to invest in our business and our people.

This quarter, we had 30 clients with quarterly bookings over $100 million, bringing us to 104 of such bookings year-to-date, a 13% increase over the same period last year. This is one of the best indicators of the depth of our client relationships and the scale of the reinvention programs we are helping deliver. I also want to give you context on two factors that impacted our results this quarter. First, we were impacted by the conflict in the Middle East. We saw a revenue impact of approximately $100 million compared to our expectations, which was all consulting type of work, split evenly between the direct impact on our Middle East business and indirect effects outside of the region.

In the last few weeks of the quarter, we saw this indirect impact globally in products and to a lesser degree in resources, mostly in discretionary spend. Sales in the Middle East were impacted by approximately $400 million and also in EMEA due to longer decision-making. Second, a couple of our large managed services opportunities moved into FY 2027 for company-specific reasons. On acquisitions, because of the exciting OT cybersecurity acquisitions we announced today, which I'll talk about in a moment, we now expect to deploy approximately $9 billion of capital this year based on the anticipated closing dates of the acquisitions. We are also adding important capabilities in other strategic areas of growth, including our recently announced acquisitions of Alfahealth, a service-led digital health platform in Italy, and Whalar, a leading creator and social agency in the Americas.

I am also thrilled to congratulate our approximately 124,000 people who were promoted this fiscal year, a 30% increase over last year, including more than 900 who were promoted to managing director. Our people make the difference in our ability to deliver our results and value to our clients. All in all, we are pleased with how we're executing in this environment. Let's turn to how we're executing our growth strategy to be the reinvention partner of choice for our clients and the leader in the widespread adoption of AI. I want to provide a few examples of how we're capturing new areas of demand in the age of AI, what we're doing to expand our total addressable market, and the areas where we are shifting to more non-FTE commercial models over time.

We believe that AI will be a tailwind for us and our industry as it scales, because it is a catalyst for reinvention and is creating new opportunities for growth and efficiency for our clients and for us. We are building a stronger foundation every quarter for us to win as AI adoption scales. Let me walk you through some examples. We are starting to see clients who have more advanced digital cores move to larger AI transformation programs. You can see this demand in several significant AI-focused wins across multiple industries and markets, which we publicly announced with companies like BT Group, Mitsubishi Chemical, NSK, Piraeus, Stellantis, TEPCO, Vodafone, and the Women's Tennis Association. The major theme of all of these programs is that we are moving clients from using AI to running on AI.

We are also seeing more clients move from pilots to production, and all of this is happening even as AI is still in the early innings. This quarter, we saw another 100 clients initiate advanced AI projects with us. We have announced a number of expansions of partnerships with our top 10 ecosystem partners in AI and data, and our revenue growth from these partners continues to outpace our overall growth. We are also on track to more than double our bookings from our key emerging AI and data partners compared with FY 2025, including Anthropic, Databricks, Gemini, Mistral AI, Nvidia, OpenAI, Palantir, and Snowflake. We are deepening these partnerships around specific areas of opportunity where we can combine their technology with Accenture's industry, functional, and delivery expertise.

Now, let's talk about our big move in OT security to create a platform-led growth business with a non-FTE commercial model. This morning, we announced that we are acquiring a majority stake in Dragos, a leading platform for operational technology or OT, cybersecurity, and all of runZero, a leading vulnerability and exposure assessment firm, and NetRise, a leader in device security. Together, these acquisitions will create a first of its kind OT security platform that lets clients see threats, find vulnerabilities, and fix them before it becomes a crisis. Cyber is a key enabler for AI. We cannot have an AI revolution without critical infrastructure, and you cannot have those without OT security, which is where today the world is most vulnerable. The urgency is real.

AI and geopolitical risk are accelerating the need for cybersecurity adoption for the operational technology that underpins critical infrastructure and industrial operations, such as power grids, pipelines, manufacturing, distribution facilities, and data centers. Dragos, which is the anchor of our strategy, has strong ecosystem relationships with our top ecosystem partners, including AWS, CrowdStrike, Microsoft, Palo Alto, and ServiceNow, which we will leverage to scale. Our expansion into the OT cyber platform business builds on our strong foundation of cybersecurity services, including OT. We have grown our services organically and inorganically over the last decade from roughly $700 million in FY 2016 to $10 billion in fiscal 2025, a 35% CAGR over the period, four times that of Accenture's over the same period. This investment more than triples our total addressable market in OT security, which is growing double digit.

We are also expanding our total addressable market by going after a new exciting customer segment, the mid-market. We estimate that the mid-market, which we look at as companies with between $300 million and $3 billion of revenue, is a $240 billion addressable market for us, growing high single digits. That is why we are launching a new business next week called Accenture Edge. This business will embed Accenture's large enterprise expertise and ecosystem relationships in business solutions designed specifically for the mid-market. We see that companies in this segment face many of the same technology, data, AI, cybersecurity, and productivity challenges as large enterprises, but they often need solutions that are faster to deploy, more repeatable, and right-sized for their scale.

This segment is also an important priority for our ecosystem partners, which see strong demand and want to partner with us because we can bring scale, consistency, and delivery quality to a fragmented services market. Accenture Edge will also include seamless integration with Accenture's joint venture with Microsoft, Avanade. Avanade will continue to serve as the provider of Microsoft Platform Services to mid-market clients, bringing deep cloud and security and AI expertise to help companies adopt AI at speed and scale. Together, these actions show how we are building a strong foundation for us to win in AI, expanding our addressable market across new growth areas and client segments, and evolving towards more non-FTE revenue over time. We believe this positions Accenture well for our next phase of growth. Over to you, Angie.

Thank you, Julie, and thanks to all of you for taking the time to join us on today's call. We are pleased with our third quarter results, with revenue above the midpoint of our guided range with strong profitability and robust free cash flow. We delivered these results while continuing to invest in long-term market leadership and returning significant cash to shareholders. Based upon these results, we are on track to deliver or exceed all aspects of our guidance provided in September. Let me summarize a few highlights from the quarter. Revenues grew 3% in local currency with growth across geographic markets, industry groups, and types of work. Excluding the 1% impact from our federal business, revenues grew about 4%.

We continue to take 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. Operating margin expanded 20 basis points to 17% compared to Q3 results last year. This was achieved while making significant investments in our people and our business. EPS grew 9% in the quarter to $3.80 compared to EPS last year. Finally, we delivered free cash flow of $3.6 billion and returned $2.2 billion to shareholders through repurchases and dividends. Nine months into the fiscal year, we invested $3 billion, primarily in 13 acquisitions. With those high-level comments, let me turn to some of the details, starting with new bookings.

New bookings were $19.3 billion for the quarter, a 2% decrease in US dollars and 3% in local currency, with an overall book-to-bill of 1.0. In Q3, consulting bookings were $10.3 billion with a book-to-bill of 1.1. In managed services, bookings were $9.1 billion with a book-to-bill of 1.0. Turning now to revenues. Revenues for the quarter were $18.7 billion, a 6% increase in US dollars and 3% in local currency. Consulting revenues for the quarter were $9.3 billion, up 4% in US dollars and 1% in local currency. Managed services revenues were $9.4 billion, up 8% in US dollars and 5% in local currency, driven by mid-single-digit growth in technology managed services, which include application managed services and infrastructure managed services, and high single-digit growth in operations.

Turning to our geographic markets. In the Americas, revenues grew 1% in local currency. Growth was led by software and platforms, high tech and industrials, partially offset by a decline in public service. Revenue growth was driven by the United States. Excluding the about 1.5% impact from our federal business, Americas grew approximately 3%. In EMEA, we delivered 4% growth in local currency, led by growth in public service and software and platforms. Revenue growth was driven by the U.K. and Italy, partially offset by a decline in Germany and in the Middle East. In Asia Pacific, revenue grew 8% in local currency, driven by growth in public service, banking and capital markets, and insurance. Revenue growth was driven by Japan, Australia, and Singapore.

Moving down the income statement, gross margin for the quarter was 32.8% compared to 32.9% for the third quarter last year. Sales and marketing expense for the quarter was 9.7% compared with 9.9% for the third quarter last year. General and administrative expense was 6.1% compared to 6.1% for the same quarter last year. Operating income was $3.2 billion in the third quarter, reflecting a 17% operating margin, a 20 basis point increase from operating margin in Q3 last year. Our effective tax rate for the quarter was 24.2% compared with an effective tax rate of 24% for the third quarter last year. Diluted earnings per share grew 9% to $3.80 compared with diluted EPS of $3.49 in the third quarter last year.

Day services outstanding were 48 days compared to 46 days last quarter and 47 days in the third quarter of last year. Free cash flow for the quarter was $3.6 billion, resulting from cash generated by operating activities of $3.8 billion net of property and equipment additions of $186 million. Our cash balance at May 31st was $10.2 billion compared with $11.5 billion at August 31st. With regards to our ongoing objective to return cash to shareholders. In the third quarter, we continued to accelerate our share buybacks and repurchased or redeemed 6 million shares for $1.2 billion at an average price of $198.84 per share. As of May 31st, we had approximately $3.2 billion of share repurchase authority remaining.

Also, in May, we paid a quarterly cash dividend of $1.63 per share for a total of $1 billion. This represented a 10% increase over last year. Our board of directors declared a quarterly cash dividend of $1.63 per share to be paid on August 14th, a 10% increase over last year. In year to date, we have returned $8.2 billion in cash to shareholders, which is $1.3 billion more than the same time last year, demonstrating our commitment to shareholder returns. In closing, we remain focused on executing our business and capturing new opportunities for growth while continuing to invest to strengthen our relevance in the age of AI for long-term market leadership. Now let me turn it back to Julie.

Thank you, Angie. When I look at the breadth of work we signed just this quarter across industries and parts of the enterprise, it is staggering. The reason is that we are truly the only company that can cover, at scale, everything from the AI and technology foundation to reinventing nearly every part of the enterprise. We bring a track record of delivering results for decades and deep trusted relationships, as seen in the fact that 195 of our top 200 clients have been clients for more than 10 years. We are working with McDonald's, one of the world's most iconic restaurant brands, serving more than 70 million customers every day as we support key elements of their ongoing transformation. Together, we've partnered across the enterprise with a particular focus on finance and people modernization and customer loyalty.

This foundation is helping McDonald's become faster, more innovative, and efficient as they continue to grow and stay competitive. Stay tuned for the next Reinvented with Accenture episode on CNBC in the coming weeks, featuring McDonald's Chairman and CEO, Chris Kempczinski, on how McDonald's is continuing to reinvent for the future. Let's double-click on demand in the quarter. We saw a few major themes. Clients continued to invest in the foundations needed to scale AI. This includes strengthening their digital core through cloud, data security, and operating model transformation. A lot of our reinvention work today is helping clients get ready for AI, data remains a critical enabler with at least one out of every two advanced AI projects continuing to lead to a data project.

Second, clients continue to look to reinvent faster, leverage our proprietary platforms and expertise, and achieve greater efficiencies and growth, including through managed services across the enterprise. We're seeing the nature of these programs with managed services evolve, with clients asking for more consulting and AI expertise within them. Exactly the shift we have been positioning for. Bath & Body Works is a great example of our work in managed services. A global leader in personal care and home fragrance, Bath & Body Works is one of America's most iconic retail brands. They have a strong growth agenda built around their core product lines, brand modernization, and expanded distribution. Delivering on that requires a smarter, more scalable operating model underneath it.

We're expanding our partnership to make that possible, consolidating fragmented operations across critical business functions into a unified managed services model with agentic AI embedded throughout and humans in the lead. The result is automation replacing manual effort, faster speed to market, and significant cost savings and productivity gains that Bath & Body Works can reinvest directly into growth. Another area of strong demand are the AI enablers we've been investing in from capital projects to data centers to LearnVantage to cybersecurity, one of our largest AI enablers. As I mentioned earlier, OT security is one of the hottest areas driven by AI cyber threats and geopolitical risk. We are seeing that demand in our services business as clients look to protect the physical infrastructure that keeps their operations and communities running.

For example, we're helping one of the largest electric utilities in North America secure its electrical grid, protecting power infrastructure that serves more than 10 million people. As utilities modernize and connect more devices across the grid, the cyber threat landscape is expanding rapidly. Operational technology environments like substations and transmission networks have historically had little visibility into cyber activity, making threats harder to detect and slower to resolve. Building on a decade-long cybersecurity partnership, we are extending our work beyond traditional IT into the physical infrastructure. Sensors will be embedded at substations, connecting them to a centralized security operations center for continuous monitoring, and automation will turn raw data into actionable insights. The result is a more secure, resilient grid, protecting the homes, hospitals, and businesses that depend on it every day.

Finally, clients with more advanced digital cores are starting to take on larger AI programs. Exciting green shoots. These large-scale AI programs are complex, to make advanced AI work, deep industry and functional knowledge is needed in addition to technology and AI expertise. A great example is BT Group, one of our U.K. clients where our long-standing relationship is expanding into a new AI partnership for BT Business, the division which provides the connectivity backbone for U.K. businesses and public services. BT Business manages networks at massive scale and a threat environment that is evolving faster than traditional operating models can keep up with. We're embedding AI directly into the core of how they operate, building on their existing network intelligence, customer data, and service management platform.

AIOps capabilities with autonomous agents will detect, route, and resolve incidents with self-healing that accelerates how quickly issues are resolved. The result will be fewer disruptions, faster resolution, and a more resilient network, positioning BT Business to lead the next generation of AI-powered managed services to its customers. As we look at the opportunity to scale AI, we're a partner of choice because we're delivering tangible results. For example, Cox Communications, the largest private broadband company in the U.S., worked with us to drive growth and efficiency across marketing, sales, and service. Together with a leading large language model provider and hyperscaler, we built an AI engine that validates and enriches leads, generates personalized campaign content, and automates brand and legal validations.

In B2B sales and marketing, conversion rates increased and drove net new revenue. Lead accuracy jumped from 13%-97%. Campaign speed to market improved by 55%, and marketing content teams are 40% more productive, with capacity freed to drive further growth. This is what AI ROI looks like in practice. Not a pilot, but a production-grade commercial engine delivering results at scale. Banco Bradesco, one of Brazil's largest financial institutions, is another great example of delivering tangible ROI from AI. Competing in the country's biggest lending market, new and used vehicle financing, their ambition was to grow deliberately at scale without sacrificing risk discipline. Two fragmented platforms meant slower decisions, inconsistent experiences, and limited ability to compete at speed in a market where dealers and customers expect instant answers.

Together, we built a single unified platform that orchestrates the entire journey from dealer portal and customer origination through government database checks, credit validation, and loan processing. All of it works seamlessly in real time across many integrations with and for the bank. Bradesco grew its vehicle financing portfolio 7.3% quarter-over-quarter, with the unified platform a key enabler of that performance. With that, over to you, Angie.

Thanks, Julie. Let me turn to our business outlook. Given the macro uncertainty, we expect more of the guided range to be in play for Q4. For the fourth quarter of fiscal 2026, we expect revenues to be in the range of $17.75 billion to $18.4 billion. This assumes the impact of FX will be approximately negative 0.5% compared to the fourth quarter of fiscal 2025 and reflects an estimated 1%-5% growth in local currency. As it relates to our federal business, we expect to anniversary the headwind and get back to growth in the fourth quarter. Moving to full fiscal year 2026. Based upon how the rates have been trending over the last few weeks, we assume the impact of FX on our results in US dollars will be positive 2% compared to fiscal 2025.

For the full fiscal 2026, we now expect our revenue to be in the range of 3%-4% 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 4%-5%. We continue to expect an inorganic contribution of about 1.5%. With our exciting announcement to expand into the OT security software market that we have just made, assuming those transactions close this fiscal year, we now expect to invest approximately $9 billion in acquisitions this fiscal year, and we continue to have a pipeline of attractive acquisitions for FY 2027. For adjusted operating margin, we now expect fiscal year 2026 to be 15.8%, a 20 basis point expansion over adjusted fiscal 2025 results.

We now expect our annual adjusted effective tax rate to be in the range of 24%-25%. This compares to an adjusted effective tax rate of 23.6% in fiscal 2025. We now expect our full-year diluted adjusted earnings per share for fiscal 2026 to be in the range of $13.78-$13.90, or 7%-8% growth over adjusted fiscal 2025 results. For the full fiscal 2026, we continue to expect operating cash flow to be in the range of $11.5 billion to $12.2 billion, property and equipment additions to be approximately $700 million, and free cash flow to be in the range of $10.8 billion to $11.5 billion. Our free cash flow guidance reflects a very strong free cash flow to net income ratio of 1.3.

We now expect to return at least $9.5 billion through dividends and share repurchases as we continue to return a substantial portion of cash to our shareholders. Finally, as part of our routine review of our capital structure, including taking into account our elevated M&A outlook for FY 2026, we expect to access the long-term debt market to increase our liquidity for M&A spend and general corporate purposes as we look to optimize our capital structure and reduce our cost of capital. In connection with that, we expect to maintain a strong investment-grade credit rating with a low net leverage ratio. With that, let's open it up so that we can take your questions. Alexia?

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