Business context and reporting period
Accenture plc’s unaudited Form 10-Q covers the first quarter of fiscal 2024, the three months ended November 30, 2023, compared with the three months ended November 30, 2022. Accenture provides professional services across consulting and managed services in North America, EMEA and Growth Markets.
Financial performance and position
- Revenue: $16.22 billion, up 3% in U.S. dollars and 1% in local currency. New bookings were $18.4 billion, up 14% in U.S. dollars and 12% in local currency.
- Profit and margins: Operating income was $2.56 billion versus $2.59 billion; GAAP operating margin was 15.8% versus 16.5%. Excluding $140 million of business optimization costs, operating margin was 16.7%. Net income attributable to Accenture plc was $1.97 billion versus $1.96 billion. Diluted EPS was $3.10 versus $3.08; adjusted EPS excluding the optimization costs was $3.27.
- Cost and tax: Gross margin improved to 33.6% from 32.9%, primarily reflecting lower labor and subcontractor costs. Sales and marketing expense rose to 10.5% of revenue from 9.8%. Effective tax rate was 23.2%, compared with 23.3%.
- Cash flow: Operating cash flow was $499 million versus $495 million. Investing cash outflow was $855 million, including $788 million for acquisitions and investments; financing cash outflow was $1.55 billion. Cash declined $1.90 billion during the quarter to $7.14 billion.
- Liquidity and debt: Current assets were $23.06 billion and current liabilities $17.28 billion. Balance-sheet current and long-term debt and bank borrowings totaled approximately $147 million. Separately, Accenture reported $100 million of commercial paper outstanding and $5.12 billion of total borrowing facilities; $1.10 billion of letters of credit and the commercial paper reduce facility availability. Management said funding needs are expected to be met by operating cash flows and, if necessary, borrowing facilities and future financing.
- Capital returns: Accenture returned about $2.0 billion to shareholders, including $1.19 billion of share purchases and $810 million of dividends. The quarterly dividend was $1.29 per share.
Material changes versus prior period
- Revenue growth was uneven: EMEA rose 2% in local currency and Growth Markets 5%, while North America declined 1%. Communications, Media & Technology fell 11% in local currency; Health & Public Service rose 12%.
- Consulting revenue declined 2% in local currency, while managed services revenue grew 5%. Management cited slower client spending, especially on smaller, shorter-term consulting engagements, and lower pricing across the business.
- Reported operating margin declined 70 basis points, but increased 20 basis points to 16.7% excluding business optimization costs. Diluted EPS increased modestly on a reported basis; excluding those costs, EPS was $3.27.
- New bookings increased faster than revenue. Remaining performance obligations were approximately $26 billion, unchanged from August 31, 2023; the company expects to recognize about 60% in fiscal 2024 and another 20% in fiscal 2025. Many client contracts are terminable on short notice, and bookings are not equivalent to these obligations.
Outlook, commentary, risks and unusual items
- Management described continued economic and geopolitical uncertainty, slower client spending in some areas and especially weaker demand in Communications, Media & Technology. It said that if exchange rates remain within recent ranges, fiscal 2024 U.S.-dollar revenue growth is expected to be approximately equal to local-currency growth. The filing provides no specific full-year revenue or EPS guidance in the text presented.
- Accenture expects approximately $450 million of business optimization costs in fiscal 2024, primarily employee severance, following $1.1 billion recorded in fiscal 2023; the expected total for the program is approximately $1.5 billion. Timing and actual costs may vary.
- Key stated risks include economic uncertainty and client demand, competition and pricing, foreign exchange fluctuations, attracting and matching talent to demand, cybersecurity and data protection, acquisitions and integration, and legal and regulatory exposure.
- Accenture is defending a Marriott-related data security class action; it said it believes the case is without merit and does not currently expect a material effect. The U.S. Department of Justice is investigating a matter involving Accenture Federal Services’ submissions and implementation of federal security controls. Accenture is cooperating and said it cannot estimate the timing or potential cost of resolution.
- Other notable items: Accenture completed individually immaterial acquisitions for $782 million, net of cash acquired. It reported no material change in risk factors from its fiscal 2023 Form 10-K and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether bookings convert into revenue as expected, considering client cancellation rights and slower consulting demand.
- Progress against fiscal 2024 optimization-cost expectations and the effect on reported versus adjusted margins and EPS.
- Revenue trends by geography and industry, especially North America and Communications, Media & Technology.
- Operating cash conversion, acquisition spending, share repurchases and dividend funding.
- Developments in the Marriott litigation and the DOJ investigation, including any change in the company’s assessment of potential exposure.