Accenture plc — Q1 FY2021 Form 10-Q
Reporting period: Three months ended November 30, 2020; comparative period is the three months ended November 30, 2019. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and results
Accenture provides consulting and outsourcing services. The quarter unfolded amid COVID-19 disruption: approximately 95% of its workforce worked remotely, and substantially all business travel was suspended. Revenue growth improved from flat growth in the second half of FY2020, but remained below the prior-year quarter’s local-currency growth.
| Metric | Q1 FY2021 | Q1 FY2020 | Change / context |
|---|---|---|---|
| Revenue | $11.76bn | $11.36bn | +4% reported; +2% in local currency. Lower reimbursable travel costs reduced revenue by approximately 2%. |
| Operating income | $1.89bn | $1.77bn | +7% |
| Operating margin | 16.1% | 15.6% | +0.5 percentage points |
| Net income attributable to Accenture plc | $1.50bn | $1.36bn | +11% |
| Diluted EPS | $2.32 | $2.09 | Excluding after-tax investment gains: $2.17 vs. $2.01 |
| Gross margin | 33.1% | 32.1% | Improved mainly due to lower non-payroll costs, especially travel |
| Operating cash flow | $1.60bn | $0.79bn | Increased $816m year over year |
| Cash and cash equivalents | $8.59bn | $8.42bn at Aug. 31, 2020 | Quarter-end balance |
Revenue mix and operating trends
- Outsourcing revenue rose 9% reported and 8% in local currency; consulting revenue declined 1% reported and 2% in local currency.
- In local currency, North America grew 4%, Europe declined 1%, and Growth Markets grew 3%. Health & Public Service was particularly strong; Resources declined.
- New bookings were $12.9bn, versus $10.3bn a year earlier: $6.6bn consulting and $6.3bn outsourcing.
- Utilization was 93%, versus 91%; headcount was approximately 514,000, versus 505,000. Attrition excluding involuntary terminations fell to 9% from 14%.
- Remaining performance obligations were approximately $19bn, down from $20bn at August 31, 2020. Accenture expects to recognize approximately 62% in FY2021 and 19% in FY2022. Many contracts are terminable on short notice, and reported obligations exclude cancellable work.
Cash, debt and capital allocation
Operating cash flow was $1.60bn. Investing activities used $446m, including $504m for business acquisitions and investments, net of cash acquired; financing activities used $999m, including $768m of share purchases and $558m of dividends. Cash increased $179m during the quarter.
Long-term debt and current debt/bank borrowings totaled approximately $69m; lease liabilities were $3.36bn and are separate from debt. Accenture reported $3.31bn of borrowing facilities, with no borrowings outstanding and $515m of letters of credit. Management said cash flows and, if needed, borrowing facilities and future market financing should meet funding requirements for the next 12 months and thereafter. The quarterly dividend was $0.88 per share; the board declared another $0.88 dividend payable February 12, 2021. Management intended to continue significant share repurchases during the remainder of FY2021.
Outlook, unusual items and risks
- Accenture did not provide a total FY2021 revenue-growth forecast in the text provided. Assuming exchange rates remain within recent ranges, it estimated FY2021 U.S.-dollar revenue growth would be approximately 3 percentage points higher than local-currency growth.
- Management expected a FY2021 annual effective tax rate of 23.0%–25.0%.
- Gains on the Duck Creek Technologies investment were approximately $120m before tax in Q1 FY2021, compared with $60m a year earlier; related after-tax gains added about $0.15 and $0.08, respectively, to diluted EPS. These gains and lower foreign-exchange losses contributed to higher other income.
- COVID-19 continued to affect client demand and operations. Demand was weaker in areas including Travel, Energy, High Tech, Retail and Industrial, particularly for consulting; demand increased in public service, software and platforms, banking and capital markets, life sciences, digital transformation, cloud and security services. Management cited competitive pricing pressure, especially in consulting.
- Key disclosed risks include economic and pandemic uncertainty, changing client demand, competition and pricing, ability to attract and deploy skilled staff, cybersecurity, foreign-exchange volatility, acquisitions and integration, and tax and legal exposures.
- In the Marriott/Starwood data-security class action, the court largely denied Accenture’s motion to dismiss. Accenture said it believed the suit lacked merit and did not expect losses to materially affect results or financial condition. Management also said other legal matters were not expected to have a material effect.
Most important facts for investors to verify
- Whether local-currency growth and demand trends—especially consulting, outsourcing and industry-level results—persist as pandemic conditions evolve.
- Whether the assumed foreign-exchange environment and the estimated 3-percentage-point currency uplift remain appropriate; this is not a total revenue-growth forecast.
- The quality and timing of the $19bn remaining performance obligations, considering contract termination rights and the exclusions described in the filing.
- Underlying earnings and margins excluding Duck Creek investment gains, and the sustainability of lower travel-related costs.
- Cash deployment among acquisitions, dividends and repurchases, and developments in the Marriott/Starwood litigation.