Accenture plc — Q3 FY2022 Form 10-Q
Reporting period: Quarter and nine months ended May 31, 2022. Accenture is a global professional services company providing consulting and outsourcing services across North America, Europe and Growth Markets. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $16.16bn | $13.26bn | $46.17bn | $37.11bn |
| Operating income | $2.60bn | $2.12bn | $7.10bn | $5.66bn |
| Net income attributable to Accenture plc | $1.79bn | $1.55bn | $5.21bn | $4.49bn |
| Diluted EPS | $2.79 | $2.40 | $8.11 | $6.96 |
| Operating margin | 16.1% | 16.0% | 15.4% | 15.3% |
| Gross margin | 32.9% | 33.2% | 32.0% | 32.1% |
Q3 revenue grew 22% in U.S. dollars and 27% in local currency; nine-month revenue grew 24% and 27%, respectively. Q3 bookings were $17.0bn, up 10% in U.S. dollars (15% local currency); nine-month bookings were $53.3bn. Consulting grew faster than outsourcing: Q3 local-currency growth was 30% and 23%, respectively. Remaining performance obligations were approximately $24bn; Accenture expects to recognize about 40% in FY2022 and 36% in FY2023.
Cash, debt and liquidity: Cash and equivalents were $6.70bn at May 31, versus $8.17bn at August 31, 2021. Nine-month operating cash flow was $5.75bn, down from $6.54bn; investing cash outflow was $2.85bn and financing cash outflow was $4.21bn. Cash declined $1.46bn over the period. Long-term debt, including current portion, was approximately $60m. The company had $4.78bn in borrowing facilities, with no borrowings outstanding, and $885m of letters of credit outstanding. Management stated that expected funding needs should be met by operating cash flows and, if needed, borrowing facilities and future market activity.
For the nine months, Accenture paid $1.84bn in dividends and spent approximately $3.51bn on share purchases. Q3 shareholder returns were reported by management at $5.4bn, including $3.5bn of share purchases and $1.8bn of dividends.
Changes versus comparable periods
- Q3 diluted EPS increased 16%; the $96m Russia-business disposal loss reduced Q3 EPS by $0.15. Revenue and operating results were the main drivers of EPS growth.
- Nine-month operating cash flow fell $788m, mainly reflecting changes in operating assets and liabilities, including receivables and contract assets, partly offset by higher net income.
- Gross margin declined 0.3 percentage points in Q3 and 0.1 points for the nine-month period, as higher compensation and subcontractor costs outweighed lower non-payroll costs. Operating margin nevertheless expanded slightly.
- Compared with the prior nine-month period, other income declined, primarily due to lower investment gains. The prior-year period included a $271m Duck Creek investment gain ($230m after tax), which added $0.36 to diluted EPS.
Outlook, commentary and risks
- Management described Q3 demand as very strong across geographies, industries and work types, supported by client digital transformation, cloud, security, modernization, analytics and automation needs.
- For FY2022, management expected an effective tax rate of 23.5%–24.5%. Assuming exchange rates remained within recent ranges, it estimated U.S.-dollar revenue growth for the full year would be about 4.5 percentage points below local-currency growth.
- Inflation and faster compensation increases were pressuring delivery costs. Management cited pricing, workforce mix and technology as mitigants, while noting their impact lagged compensation increases. Utilization was 91%, versus 93% a year earlier; annualized attrition was 20%, versus 17%.
- Accenture disposed of its Russia business in Q3, recording a $96m non-operating loss. Management said the conflict had not materially affected results to date, but escalation or broader disruption could adversely affect the business. Accenture reported no business in Ukraine or Belarus.
- Principal disclosed risks include economic and political uncertainty, inflation, foreign-exchange volatility, cybersecurity and data-protection failures, competition, client demand, talent retention and matching skills to demand, acquisition integration, tax changes, and legal and regulatory exposure.
- In a Marriott-related data-security lawsuit, the court partly granted class certification in May 2022; Accenture is appealing and says it believes the claims are without merit. Management did not expect the matter to have a material financial effect. Other legal matters and guarantees were also assessed as not expected to be material.
Important facts for investors to verify
- Whether revenue growth, bookings and remaining performance obligations convert into sustained future growth.
- Whether compensation inflation, utilization and attrition affect margins and delivery capacity.
- How currency movements affect reported revenue and earnings relative to local-currency growth.
- Whether operating cash flow recovers as receivables and contract assets grow, alongside acquisition spending and shareholder distributions.
- The effect of the Russia disposal, the Marriott litigation and other disclosed legal or guarantee exposures.
- Progress against the stated FY2022 tax-rate outlook and the assumptions underlying the currency estimate.