Accenture plc — Form 10-Q summary
Business context and period: Accenture provides consulting and managed services across Strategy & Consulting, Technology, Operations, Industry X and Song. This unaudited report covers the fiscal quarter and six months ended February 28, 2023; comparisons are with the corresponding 2022 periods. Dollar amounts below are U.S. dollars.
Key financial metrics
| Metric | Three months ended Feb. 28, 2023 | Six months ended Feb. 28, 2023 |
|---|---|---|
| Revenue | $15.81 billion; up 5% reported and 9% in local currency | $31.56 billion; up 5% reported and 12% in local currency |
| Operating income / margin | $1.94 billion / 12.3%, versus $2.06 billion / 13.7%; adjusted margin 13.8% | $4.54 billion / 14.4%, versus $4.50 billion / 15.0%; adjusted margin 15.2% |
| Net income attributable to Accenture plc | $1.52 billion, versus $1.63 billion | $3.49 billion, versus $3.43 billion |
| Diluted EPS | $2.39, versus $2.54; adjusted EPS $2.69 | $5.47, versus $5.32; adjusted EPS $5.77 |
| Gross margin | 30.6%, versus 30.1% | 31.7%, versus 31.5% |
| Operating cash flow | $2.83 billion, versus $2.69 billion |
Adjusted operating margin and EPS exclude business optimization costs and are non-GAAP measures. The quarter included $244 million of these costs; management attributed a $0.30 reduction in diluted EPS to the costs, net of tax.
Revenue, demand and material changes
- Second-quarter local-currency revenue grew 14% in Growth Markets, 12% in Europe and 5% in North America. Managed Services revenue increased 16% in local currency; Consulting increased 4%.
- Second-quarter new bookings were $22.1 billion, up 13% in U.S. dollars and 17% in local currency. Six-month bookings were $38.3 billion, up 5% and 12%, respectively. Bookings are estimates, may vary significantly by quarter and are not equivalent to recognized revenue.
- Remaining performance obligations were approximately $27 billion at February 28, 2023, versus $24 billion at August 31, 2022. Accenture expects to recognize about 52% as fiscal 2023 revenue and a further 24% in fiscal 2024. Many contracts are cancelable, and only non-cancelable portions are included.
- For the quarter, reported operating income declined 6% year over year, while adjusted operating margin was 13.8%, 10 basis points above the prior-year margin. Gross margin improved, principally from lower labor and subcontractor costs; selling and business-development costs as a share of revenue rose.
Cash, liquidity and capital allocation
- Cash and cash equivalents were $6.24 billion at February 28, 2023, down from $7.89 billion at August 31, 2022. Six-month investing cash outflow was $1.26 billion and financing cash outflow was $3.19 billion.
- Six-month financing uses included $2.54 billion of share purchases and $1.41 billion of cash dividends. The company said it expected to continue using a significant portion of operating cash for repurchases during the rest of fiscal 2023.
- Reported debt and bank borrowings totaled about $56 million, excluding lease liabilities. The company had $4.95 billion of borrowing facilities, no facility borrowings and no commercial paper outstanding; $912 million of letters of credit were outstanding.
- Management believes operating cash flows and, if needed, borrowing facilities and capital-market activity will meet funding needs for the next 12 months and thereafter.
Outlook, unusual items and risks
- Accenture initiated a business optimization program expected to cost approximately $1.5 billion: about $800 million in fiscal 2023 and $700 million in fiscal 2024. Expected costs include $1.2 billion for severance and other personnel costs and $300 million for office consolidation. The company anticipates approximately 19,000 employee departures over 18 months; timing and costs may vary with local consultation and regulatory processes.
- Management estimated fiscal 2023 revenue growth in U.S. dollars would be approximately 4.5 percentage points below local-currency growth if exchange rates remained within recent ranges. No clear overall fiscal 2023 revenue-growth guidance is provided in the supplied filing text.
- Expected fiscal 2023 effective tax rate is 22.5%–24.5%; adjusted rate, excluding specified tax effects of optimization costs and an anticipated investment gain, is 23%–25%.
- Management cited economic and geopolitical uncertainty, some slowing in client spending, wage inflation and foreign-exchange volatility. Other stated risks include client demand and technology changes, talent supply and retention, cybersecurity, competition, pricing and delivery efficiency, tax and regulatory matters, and acquisition integration.
- Accenture disclosed a continuing putative class-action lawsuit relating to the Starwood/Marriott data-security incident; it is appealing class certification and says it believes the suit is without merit and does not expect a material effect. Management also believes reasonably possible losses from other legal matters, beyond accrued amounts, will not materially affect results or financial condition.
Important facts for investors to verify
- Whether the planned $1.5 billion optimization program’s costs, timing, employee departures and expected benefits track management’s estimates.
- Whether growth in bookings and remaining performance obligations converts into revenue, given contract cancellation provisions and longer conversion periods for managed-services contracts.
- How currency movements, client spending, wage inflation and labor costs affect reported growth and margins.
- Cash generation and capital allocation, including the pace of share repurchases, dividends and acquisitions.
- Developments in the Marriott litigation and any material changes in contingencies or the risk factors previously reported.