Accenture plc — Form 10-Q Summary
Reporting period: Second quarter and six months ended February 28, 2021; fiscal year ends August 31. Unaudited results are compared with the corresponding prior-year periods. Amounts below are in U.S. dollars.
Financial results
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $12.09B | $11.14B | $23.85B | $22.50B |
| Operating income | $1.65B | $1.49B | $3.54B | $3.26B |
| Net income attributable to Accenture plc | $1.44B | $1.23B | $2.94B | $2.59B |
| Diluted EPS | $2.23 | $1.91 | $4.55 | $4.00 |
| Gross margin | 29.7% | 30.2% | 31.4% | 31.1% |
| Operating margin | 13.7% | 13.4% | 14.9% | 14.5% |
- Revenue rose 8% in U.S. dollars and 5% in local currency for the quarter; six-month growth was 6% and 4%, respectively. Favorable currency translation boosted U.S.-dollar growth, while lower reimbursable travel costs reduced revenue by approximately 2% in both periods.
- Quarterly revenue growth in local currency was strongest in Health & Public Service and Financial Services, and in outsourcing. Resources declined. Outsourcing revenue grew 11% in local currency for the quarter; consulting grew 1%.
- Quarterly gross margin fell year over year, reflecting higher labor costs, including a one-time bonus for employees below managing director level; lower travel costs partly offset the pressure. Operating margin improved. For the six-month period, both gross and operating margins improved.
- Six-month operating cash flow was $4.14B, compared with $2.32B; investing cash outflow was $0.89B and financing cash outflow was $2.55B. Cash and cash equivalents were $9.17B at February 28, up from $8.42B at August 31, 2020.
- At February 28, total long-term debt and bank borrowings were approximately $68M. The company had $3.33B of borrowing facilities, with no borrowings outstanding, and $543M of letters of credit. Lease liabilities are reported separately.
Changes, outlook, and management commentary
- New bookings were $16.0B in the quarter versus $14.2B a year earlier; six-month bookings were $28.9B versus $24.5B. Remaining performance obligations were approximately $21B, with about 54% expected to be recognized as revenue in fiscal 2021 and 25% in fiscal 2022. Many client contracts are terminable on short notice, and bookings are not wholly reflected in performance obligations.
- Management said demand remained strong in several industries, including Public Service, Software & Platforms, Banking & Capital Markets, and Life Sciences. Some clients continued to delay or reprioritize work, particularly in Travel and Energy and primarily for consulting.
- COVID-19 continued to affect operations and client demand. The company maintained a largely remote workforce and was planning phased returns to offices, guided by employee safety and client needs. Utilization was 94%, versus 91% a year earlier; headcount was approximately 537,000, versus 509,000.
- The company estimated that, assuming exchange rates stayed within recent ranges, fiscal 2021 U.S.-dollar revenue growth would be about 3 percentage points higher than local-currency growth. It expected a fiscal 2021 annual effective tax rate of 23%–25%.
- Investment gains related to Duck Creek Technologies contributed $151M in the quarter and $271M for six months to other income. Management reported diluted EPS excluding the after-tax investment gains of $2.03 for the quarter and $4.20 for six months, compared with $1.84 and $3.85, respectively, in the prior-year periods.
- The company paid $1.12B in dividends and spent approximately $1.95B on share purchases during the six months. Management expected to continue using a significant portion of operating cash flow for share repurchases during the remainder of fiscal 2021. A quarterly dividend of $0.88 per share was declared after quarter-end.
Risks and contingencies
- Management cited risks from the pandemic, uncertain economic and political conditions, changes in client demand, competition and pricing pressure, workforce skills and costs, cybersecurity, foreign exchange, taxes, acquisitions, and legal matters. The filing reported no material changes to the risk factors in the prior annual report.
- Accenture is defending a putative class action concerning the Starwood reservation-database security incident. The court largely denied Accenture’s motion to dismiss in October 2020; management said it considers the lawsuit without merit and does not currently expect a material financial effect.
- Management stated that other litigation and guarantees were not expected to have a material effect. Potential liability under expressly limited third-party performance guarantees was approximately $881M, most of which management said could be recovered from the relevant third parties.
Investor verification points
- Assess how much revenue and EPS growth came from currency translation and Duck Creek investment gains versus underlying operations.
- Monitor consulting demand, outsourcing bookings, and exposure to weaker Travel, Energy, and Resources markets, as well as the effects of COVID-19.
- Track labor-cost and one-time-bonus effects on gross margin, alongside the sustainability of lower travel and selling costs.
- Review cash conversion, acquisition spending, share repurchases, and dividend commitments against operating cash flow.
- Follow developments in the Starwood-related litigation and any changes in the company’s stated contingency assessments.