Accenture plc — Q3 FY2023 Form 10-Q
Reporting period: Quarter ended May 31, 2023; comparisons are with the quarter ended May 31, 2022 unless stated otherwise. Financial statements are unaudited. Accenture provides professional services and solutions across three geographic markets.
Financial performance and liquidity
| Metric | Q3 FY2023 | Nine months FY2023 |
|---|---|---|
| Revenue | $16.6 billion; up 3% in U.S. dollars and 5% in local currency | $48.1 billion; up 4% in U.S. dollars and 10% in local currency |
| Operating income | $2.36 billion, down 9%; GAAP operating margin 14.2% | $6.90 billion, down 3%; GAAP operating margin 14.3% |
| Net income attributable to Accenture plc | $2.01 billion, versus $1.79 billion | $5.50 billion, versus $5.21 billion |
| Diluted EPS | $3.15, versus $2.79; adjusted EPS $3.19 | $8.62, versus $8.11; adjusted EPS $8.96 |
| Operating cash flow | Not separately presented for the quarter | $6.11 billion, versus $5.75 billion |
Q3 gross margin was 33.4%, up from 32.9%; nine-month gross margin was 32.3%, up from 32.0%. Excluding business optimization costs, operating margin was 16.3% for the quarter and 15.6% for the nine months, each 20 basis points higher year over year. Adjusted figures are non-GAAP.
Cash and cash equivalents were $8.54 billion at May 31, 2023, compared with $7.89 billion at August 31, 2022. Total debt and bank borrowings were approximately $54 million; lease liabilities were $3.04 billion. Accenture reported $5.00 billion of borrowing facilities with no borrowings outstanding, and no commercial paper outstanding. Nine-month investing cash outflow was $1.26 billion and financing cash outflow was $4.17 billion. Cash dividends paid were $2.12 billion; share purchases were approximately $3.32 billion.
Material changes and business trends
- Growth was led by managed services, up 10% in reported dollars and 13% in local currency in Q3. Consulting revenue declined 4% in reported dollars and 1% in local currency.
- Q3 local-currency growth varied by market: Europe 7%, Growth Markets 9%, and North America 2%. Communications, Media & Technology revenue declined 8% in local currency; Health & Public Service grew 14%.
- New bookings were $17.2 billion in Q3, up 2% in reported dollars and 4% in local currency. Remaining performance obligations were approximately $26 billion, versus $24 billion at August 31, 2022; the company expects to recognize about 37% in the remainder of FY2023 and 35% in FY2024.
- Q3 reported operating margin fell from 16.1% to 14.2%, primarily reflecting $347 million of business optimization costs. Lower labor costs supported gross-margin improvement, while sales and business-development costs rose as a share of revenue.
Outlook, commentary and risks
- Accenture expects approximately $1.5 billion of total business optimization costs: about $800 million in FY2023 and $700 million in FY2024. Costs are primarily severance and other personnel costs, with the remainder related to office consolidation; timing and amounts may vary.
- Assuming exchange rates remain within recent ranges, management estimated FY2023 U.S.-dollar revenue growth would be approximately 4 percentage points below local-currency growth. The filing does not provide a clear full-year revenue-growth target in the supplied text.
- Management cited economic and geopolitical uncertainty, slower client spending on smaller and shorter-duration projects, and reduced demand in Communications, Media & Technology. Pricing was lower in some areas; compensation costs have risen faster than in prior years amid inflation.
- Foreign-exchange movements, demand and pricing, talent availability and costs, cybersecurity, competition, acquisition integration, and legal and regulatory matters are among the disclosed risks. The filing states there were no material changes to the risk factors in the prior annual report.
- Q3 included a $253 million gain on the sale of Accenture’s Duck Creek Technologies investment, which increased adjusted-for tax EPS by $0.38; optimization costs reduced EPS by $0.42. The prior-year comparison included a $96 million loss on disposal of the Russia business.
- Accenture reported various legal matters, including a putative class action relating to the Starwood data-security incident. Management said reasonably possible losses beyond accruals were not expected to materially affect results or financial condition and believes the lawsuit is without merit.
Important facts for investors to verify
- How consulting demand, bookings conversion, and pricing develop, especially in Communications, Media & Technology and shorter-duration engagements.
- Actual restructuring costs, timing, and realized savings compared with the approximately $1.5 billion plan.
- Reported results versus non-GAAP adjusted margins and EPS, including the one-time Duck Creek gain.
- Cash generation and capital allocation, including ongoing repurchases, dividends, and acquisition spending.
- Foreign-exchange effects and developments in the Starwood-related litigation and other contingencies.