Accenture plc — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended February 28, 2022. Accenture is a global professional services company operating across North America, Europe and Growth Markets. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to billions where indicated.
Financial performance
| Metric | Q2 FY2022 | Six months FY2022 |
|---|---|---|
| Revenue | $15.05 billion; up 24% in U.S. dollars and 28% in local currency year over year | $30.01 billion; up 26% in U.S. dollars and 28% in local currency |
| Operating income and margin | $2.06 billion; 13.7% margin, unchanged year over year | $4.50 billion; 15.0% margin, versus 14.9% |
| Net income attributable to Accenture plc | $1.63 billion, versus $1.44 billion | $3.43 billion, versus $2.94 billion |
| Diluted EPS | $2.54, versus $2.23 reported; prior-year EPS was $2.03 excluding an investment gain | $5.32, versus $4.55 reported; prior-year EPS was $4.20 excluding investment gains |
| Gross margin | 30.1%, versus 29.7% | 31.5%, versus 31.4% |
| Bookings | $19.6 billion, up 22% in U.S. dollars and 26% in local currency | $36.4 billion |
For Q2, consulting revenue increased 29% in U.S. dollars and outsourcing revenue increased 19%. Growth was strong across geographic markets, industries and work types. Management cited client digital transformation demand, including cloud, security, modernization, data and automation initiatives. Remaining performance obligations were approximately $25 billion at February 28, 2022, up from $23 billion at August 31, 2021; the company expected to recognize about 56% in fiscal 2022 and another 24% in fiscal 2023. Many client contracts are terminable on short notice, so these obligations exclude substantial cancellable work.
Cash flow, balance sheet and capital returns
- Six-month operating cash flow was $2.69 billion, down from $4.14 billion. Management attributed the decline chiefly to higher receivables and contract assets and compensation payments, partly offset by higher net income.
- Investing cash outflow was $2.19 billion, including $1.85 billion net for acquisitions and investments. Financing cash outflow was $3.11 billion, including $2.54 billion of share purchases and $1.23 billion of dividends. Cash declined by $2.70 billion to $5.47 billion from August 31, 2021.
- At February 28, 2022, current assets were $19.19 billion and current liabilities $15.54 billion. Total current and long-term debt was approximately $61 million. The company had $4.60 billion of borrowing facilities, with no borrowings, and no commercial paper outstanding; $771 million of letters of credit were outstanding.
- Accenture returned approximately $3.8 billion to shareholders in Q2 through share purchases and dividends. It paid $0.97 per share in dividends during each of the two quarters and declared another $0.97 dividend for payment in May 2022. Management intended to continue significant share repurchases during the remainder of fiscal 2022.
Changes, outlook and risks
- Compared with Q2 FY2021, reported revenue rose 24% and operating income rose 25%; operating margin was unchanged. Q2 FY2021 included a $151 million pre-tax Duck Creek Technologies investment gain, which added $0.21 to diluted EPS. Excluding that gain, Q2 FY2022 diluted EPS growth was 25% versus the adjusted prior-year amount.
- For the six-month period, reported revenue increased 26% and operating income 27%. The prior-year period included $271 million of investment gains, net of which management estimated a $0.35 benefit to diluted EPS. The effective tax rate was 22.0% for the six months, compared with 20.4% reported in the prior-year period; management forecast a fiscal 2022 annual effective tax rate of 23%–25%.
- Management described demand as very strong and pricing as improving, but noted compensation and subcontractor costs were rising. Utilization was 92%, down from 94%; annualized attrition excluding involuntary terminations was 18%, up from 12%. The workforce increased to about 699,000, including acquisition-related additions. Management said its ability to match skills to demand, retain employees and recover compensation increases through pricing could affect growth and margins.
- The U.S. dollar’s strength reduced reported revenue growth relative to local-currency growth by about 4 percentage points in Q2 and 2 points for the six-month period. Assuming exchange rates stayed within recent ranges, management estimated full-year U.S.-dollar revenue growth would be about 3 points below local-currency growth.
- On March 3, 2022, after quarter-end, Accenture announced it would discontinue its business in Russia. Russia generated $44 million of Q2 revenue and $84 million for the six months; the company said Russia was not a material portion of its business. Management warned that escalation or expansion of the Ukraine conflict, sanctions or related economic disruption could materially adversely affect results.
- Other disclosed risks include economic and political uncertainty, foreign exchange volatility, cybersecurity and data protection, competition, client demand, staffing and delivery execution, acquisitions and integration, taxes, and legal and regulatory matters. The filing reported no material change to previously disclosed risk factors. Management said the Marriott/Starwood data-security lawsuit was without merit and did not expect it to materially affect results or financial condition; it also assessed other reasonably possible legal losses as not material.
Important facts for investors to verify
- Whether strong bookings and remaining performance obligations convert to revenue, given client termination rights and the exclusion of cancellable work.
- Whether labor-cost inflation, attrition and lower utilization affect margins despite pricing actions; monitor hiring, retention and utilization.
- Whether working-capital movements, especially receivables and contract assets, normalize and support operating cash flow.
- How currency movements and the Russia business discontinuation affect reported growth, costs and outlook.
- Whether the forecast 23%–25% fiscal 2022 tax rate and planned share repurchases remain consistent with subsequent results and cash needs.