Accenture PLC Earnings Call Insights: Consulting Side and Outsourcing Demand

Accenture PLC (NYSE:ACN) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

Consulting Side

Tien-Tsin Huang – JPMorgan: I guess I’ll ask about the Consulting side, the small deal activity. I know Pierre you mentioned last quarter that there were some early signs that that might be getting a little bit better, which it looks like it didn’t materialize. So, just trying to reconcile that to the shortfall in Consulting this quarter; did demand deteriorate, or that it just not improve as much as you thought?

Pierre Nanterme – Chairman and CEO: I guess, indeed, it definitely didn’t improve the way we expected, and we see more softness in that part of the business in consulting smaller deals. So, we expected some improvement, and that indeed didn’t materialize the way we expected.

Tien-Tsin Huang – JPMorgan: So, can we say that demand for the most part is still generally stable then; it just didn’t improve in the quarter, just to clarify?

Pierre Nanterme – Chairman and CEO: I would probably say it didn’t improve, and in that particular segment of the business, it has been probably softening a bit.

Tien-Tsin Huang – JPMorgan: Okay, so a little bit of softening. Fair enough. Curious, my follow-up, any – what are you hearing from your clients as it relates to immigration reform? I guess it just passed in the Senate just a few minutes ago. What are you hearing from clients with respect to that? Is it impacting demand at all, and just generally, what are the implications for Accenture?

David P. Rowland – SVP, Finance: Tien-Tsin, this is David. I’m going to give you the answer that you’re probably expecting, but we really can’t comment on pending legislation. What I can say is, as you know, is that we have a global workforce. Most of the people who work for us in the United States are U.S. citizens and where we use the visa program, we use it where we have to get specialized skills, not otherwise available, and then also leverage our Global Delivery Network. And so, really, that’s our position on this and we really just can’t speculate or comment any further on what may or may not happen with legislation.

 

Outsourcing Demand

Rod Bourgeois – Sanford Bernstein: Pam, best wishes to you as well. Guys, so, your report emphasizes the weakness in Consulting demand, but I want to focus a bit here on the Outsourcing demand environment. The Outsourcing revenue growth was also light versus expectations. So, I guess I’m wondering, did Outsourcing add-on revenues struggle, or did you see new deal ramps struggle or some combination of the two?

Pamela J. Craig – CFO: Rod, it’s Pam. We did see a combination. I mean, first of all, versus our expectations, Outsourcing revenues came in well. And we did, as I mentioned, see – we do see some of the sort of smaller add-on application – work to existing applications that is slowing a bit, but at the same time, we have this real strength in BPO. So it’s a real mix of things. And some of these bigger deals as we mentioned with the duration, those are continuing to ramp up slower.

Rod Bourgeois – Sanford Bernstein: And so, given the ongoing strength in Outsourcing bookings, should Outsourcing revenue growth reaccelerate sometime soon? I know you’re expecting some moderation in growth in Q4, but the bookings would imply that you at least have ingredients in place for that revenue growth to potentially accelerate. So can you give us some insight on how you’re expecting the revenue growth progression in the Outsourcing segment after Q4?

David P. Rowland – SVP, Finance: Rod, this is David. I’m not going to comment in specific terms as we’re really in the middle of planning FY ’14, and we’ll come back in September and give you more specific insight on your question. What I can tell you is that we feel very good about our Outsourcing pipeline. We feel very good about the bookings that we’ve generated, not only this quarter but for the last two or three quarters. We’ve had a large number – if you reflect on what Pam said about the number of builds we had over 100 million this quarter and as well as what we’ve said the last two quarters. We’ve had a lot of large, very good contracts that we closed so far, and we feel very good about the larger contracts that we have in our pipeline and so, on the back of that, we are building a very good base of contracted revenue, and that ultimately gives us confidence going forward in the strength of our Outsourcing business in terms of specifics relative to growth beyond quarter four. We’re just not in a position to comment on that specifically.

Rod Bourgeois – Sanford Bernstein: All right, just a little bit of pushback on that, I mean, I understand you don’t want to get into the next fiscal year, but with the Outsourcing booking strength and the deceleration that’s happening in Outsourcing, is there something happening where duration has ramped up in such a significant way that it’s making the bookings look stronger than the amount of revenue that can be supported by those bookings, or are you actually maybe seeing some things that are getting booked and then they actually fall out of the business and so you’re seeing some fallout in work that you’ve previously booked? I mean, is there something happening along those lines?

David P. Rowland – SVP, Finance: Yeah, just a couple of thoughts to your question. I mean, first of all, and I’ll just work backwards. We have not seen any change in cancellation. So, cancellations are not evident in anything we’ve seen to-date. There’s not any abnormal pattern in that regard. So, we really don’t have a situation where we’re contracting work and then it is being cancelled. The other thing I would say is that, nothing’s changed in our business and in terms of our criteria for reporting bookings, it’s based on having a signed legally binding agreement with our clients that stipulates our services and what the services and the fees will be that we’ll earn over that contract, and so our contracted revenue is solid as it’s been as well. Now, we have had some, over the last two or three quarters, at different periods our new bookings have had the characteristic of longer duration, and that is impacting the conversion of Outsourcing bookings to revenue similar to what we have seen in Consulting, but yet, the contracted revenue that we have resulting from the bookings that we’ve had, we feel very good about.

Pamela J. Craig – CFO: Rob, this is Pam. I’ll just add one comment and that is for smaller Outsourcing bookings there’s a certain amount of that that ends up getting stilled in, in the quarter, right. They’re not these bigger transformational kinds of deals, but more smaller, sometimes add-on kinds of things and that’s the bucket of things that we’ve seen be a little softer.

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