Accenture plc — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended February 29, 2024, compared with the corresponding periods ended February 28, 2023. Accenture provides professional services across consulting, technology, operations and related offerings. Unless otherwise stated, dollar amounts below are U.S. dollars.
Financial performance
| Metric | Fiscal Q2 2024 | Year-over-year change | Six months 2024 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $15.80 billion | Flat | $32.02 billion | +1% |
| Operating income (GAAP) | $2.05 billion | +5% | $4.61 billion | +2% |
| Operating margin (GAAP) | 13.0% | 12.3% prior year | 14.4% | Flat |
| Adjusted operating margin | 13.7% | 13.8% prior year | 15.2% | Flat |
| Net income attributable to Accenture plc | $1.67 billion | +$151 million | $3.65 billion | +$160 million |
| Diluted EPS (GAAP) | $2.63 | +10% | $5.73 | +5% |
| Adjusted diluted EPS | $2.77 | +3% | $6.04 | +5% |
- Cash flow: Operating cash flow for the six months was $2.60 billion, down from $2.83 billion. Investing used $3.06 billion, including $2.90 billion for acquisitions and investments, versus $1.26 billion used in the prior period. Financing used $3.42 billion, including $2.51 billion of share purchases and $1.62 billion of dividends.
- Liquidity and debt: Cash and cash equivalents were $5.12 billion at February 29, down from $9.05 billion at August 31, 2023. Current and long-term debt totaled about $183 million on the balance sheet; the company also reported $100 million of commercial paper outstanding. Borrowing facilities totaled $5.14 billion, with $1.04 billion of letters of credit outstanding. Management expects operating cash flows and, if needed, borrowing facilities and future financing to meet funding requirements.
- Margins and costs: Q2 gross margin rose to 30.9% from 30.6%, which management attributed primarily to lower labor costs. Adjusted Q2 operating margin edged down 10 basis points. Selling and marketing costs increased as a share of revenue.
- Balance sheet: Total assets were $51.31 billion and shareholders’ equity was $27.96 billion at February 29. Goodwill increased to $17.95 billion from $15.57 billion, primarily reflecting acquisitions.
Material changes and business trends
- Q2 revenue was flat in both U.S. dollars and local currency. Consulting revenue fell 3%; managed services grew 3%. Six-month consulting revenue declined 2% in local currency, while managed services grew 4%.
- Q2 bookings were $21.6 billion, down 2%; six-month bookings were $40.0 billion, up 4%. The company cautions that bookings fluctuate and are not directly comparable to revenue; many client contracts are terminable on short notice.
- By industry, Q2 Health & Public Service revenue grew 10%, while Communications, Media & Technology declined 8% and Financial Services declined 6%. Growth Markets revenue grew 6% in local currency; EMEA declined 2% and North America was flat.
- Q2 GAAP operating margin benefited from lower business optimization costs than in the prior-year quarter. Excluding those costs, adjusted operating margin was slightly lower year over year.
- Cash returned to shareholders in Q2 was approximately $2.1 billion: $1.3 billion in share purchases and $813 million in dividends. Management said it expects to continue using a significant portion of cash generated from operations for repurchases during the rest of fiscal 2024.
Outlook, commentary and risks
- Management described continuing economic and geopolitical uncertainty and slower client spending, especially on smaller, shorter-duration consulting projects. It also cited competitive conditions and lower pricing across the business.
- Assuming exchange rates remain within recent ranges, management expects full-year fiscal 2024 U.S.-dollar revenue growth to be approximately equal to local-currency growth. The filing text provided here does not state a specific full-year revenue-growth target.
- Remaining performance obligations were approximately $27 billion. Accenture expects to recognize about 51% in fiscal 2024, 26% in fiscal 2025 and the remainder thereafter. This measure excludes cancellable contract amounts and is not equivalent to total bookings.
- Business optimization costs, primarily employee severance, were $255 million in the first half. Accenture expects approximately $450 million of such costs in fiscal 2024, as part of an approximately $1.5 billion program begun in fiscal 2023; actual amount and timing may vary.
- Key risks include uncertain client demand, pricing and contract profitability, foreign-exchange movements, talent supply and retention, competition, cybersecurity and data protection, and acquisition integration. The company reported no material change to its previously disclosed risk factors.
- Accenture is cooperating with a U.S. Department of Justice investigation concerning whether employees provided inaccurate submissions related to a federal security-controls assessment. The company cannot estimate the timing, resolution or reasonably likely cost. In a separate Marriott/Starwood data-security class action, the company is appealing the reinstatement of previously certified classes and says it believes the lawsuit is without merit.
- Management believes other litigation and guarantee exposures are not expected to materially affect results or financial condition. It noted that the potential cost of the DOJ matter cannot currently be estimated.
Important facts for investors to verify
- Whether consulting demand and pricing stabilize, and whether managed-services growth continues to offset consulting weakness.
- Whether bookings convert to revenue as expected, given contract cancellation terms and the company’s stated limitations on bookings and remaining-performance-obligation measures.
- Progress and final costs of the business optimization program, including the expected fiscal 2024 severance costs.
- Cash generation after acquisition spending, dividends and repurchases, and the resulting cash and debt balances.
- Developments in the DOJ investigation and Marriott litigation, including any material change in potential exposure.