Accenture plc — Q1 FY2022 10-Q Summary
Reporting period: Three months ended November 30, 2021; comparison is the three months ended November 30, 2020. Financial statements are unaudited. Amounts below are U.S. dollars.
Business context and key results
Accenture provides strategy and consulting, interactive, technology and operations services across North America, Europe and Growth Markets. Management cited very strong demand as clients continued digital transformation initiatives.
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $15.0 billion | $11.8 billion | +27% reported and in local currency |
| Operating income | $2.43 billion | $1.89 billion | +29% |
| Operating margin | 16.3% | 16.1% | +20 basis points |
| Net income attributable to Accenture plc | $1.79 billion | $1.50 billion | +19% |
| Diluted EPS | $2.78 | $2.32 | +20% |
| Operating cash flow | $531 million | $1.60 billion | Down $1.07 billion |
| Cash and cash equivalents | $5.64 billion | $8.17 billion at Aug. 31, 2021 | Down $2.53 billion |
Gross margin was 32.9%, down from 33.1%. The effective tax rate was 24.4%, versus 23.4%; management attributed the increase principally to adjustments to prior-year tax liabilities, partly offset by geographic earnings mix and share-based payment tax benefits. Cash dividends were $0.97 per share, compared with $0.88 a year earlier.
Revenue mix, bookings and material changes
- Revenue rose across all geographic markets: North America +26% in local currency, Europe +28%, and Growth Markets +30%.
- Consulting revenue increased 33% in U.S. dollars (32% in local currency); outsourcing increased 21% in both measures.
- New bookings were $16.8 billion, up 30%, including $9.4 billion consulting and $7.4 billion outsourcing; prior-year bookings were $12.9 billion.
- Operating margin expansion reflected strong revenue growth and lower sales and marketing expense as a share of revenue, partly offset by labor costs, greater subcontractor use and acquisition-related costs. Utilization was 92%, versus 93%.
- Q1 FY2021 included a $120 million gain on the Duck Creek Technologies investment and related $23 million tax expense. The after-tax gain increased prior-year diluted EPS by $0.15; excluding it, prior-year EPS was $2.17.
Cash, debt and capital allocation
Operating cash flow was lower mainly because of a larger increase in client receivables and contract assets and higher compensation payments, partly offset by higher net income. Investing activities used $1.91 billion, including $1.74 billion for acquisitions and investments, net of cash acquired. Accenture completed individually immaterial acquisitions for total consideration of $1.75 billion, net of cash acquired.
Financing activities used $1.07 billion, including $613 million of dividends and approximately $845 million of share purchases. The company said it intended to continue using a significant portion of operating cash for repurchases during the remainder of FY2022. At November 30, 2021, total debt was approximately $65 million, including current debt; the filing reported $4.53 billion of borrowing facilities, with no borrowings under them, and no commercial paper outstanding. It had $718 million of letters of credit outstanding.
Management stated that working capital and general funding needs should be met from operating cash flows and, if needed, borrowing facilities and future market financing. Remaining performance obligations were approximately $23 billion; the company expected to recognize about 65% in FY2022 and a further 19% in FY2023. The filing notes that many client contracts are terminable on short notice, so bookings are not fully represented in this measure.
Outlook, risks and contingencies
- Management expected FY2022 annual effective tax rate of 23.0%–25.0%. Assuming exchange rates remained within recent ranges, it estimated full-year U.S.-dollar revenue growth would be about 3% lower than local-currency growth. The filing excerpt provides no specific overall FY2022 revenue-growth guidance.
- Management said hiring and compensation costs were rising amid strong demand, and pricing improvements were lagging those cost increases. Failure to match skills to demand, recover compensation costs, manage attrition or effectively deploy and integrate employees could pressure growth and margins. Annualized attrition, excluding involuntary terminations, was 17%, up from 9%.
- Other cited risks include COVID-19 and economic uncertainty, competition, client demand and technology changes, cybersecurity, foreign exchange, tax matters, acquisitions and integration, and legal and regulatory exposure. Management reported no material changes to the risk factors in its FY2021 10-K.
- Accenture disclosed a putative class action relating to the Starwood/Marriott reservation-database security incident. It said it considers the suit without merit and does not currently expect losses to materially affect results or financial condition. Management also said other legal matters and guarantee exposures were not expected to have a material effect; no significant guarantee payments had been required to date.
Important facts for investors to verify
- Whether strong bookings convert to revenue, particularly given contract termination rights and the distinction between bookings and remaining performance obligations.
- Whether cash conversion improves as receivables and contract assets grow, and how acquisition spending affects liquidity and returns.
- Whether compensation inflation, subcontractor use, attrition and utilization affect gross margin and operating margin in coming quarters.
- How acquisition integration, goodwill growth and amortization affect future earnings; goodwill rose to $12.40 billion from $11.13 billion at August 31, 2021.
- Progress against the stated tax-rate outlook and exposure to currency movements, tax adjustments and the disclosed litigation.