Accenture : Second Quarter Fiscal 2022 Earnings Conference Call Transcript

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Accenture

2nd Quarter Fiscal 2022 Conference Call

Conference Call Transcript

March 17, 2022/ 8:00 a.m. Eastern

CORPORATE PARTICIPANTS

Angie Park - Managing Director, Head of Investor Relations

Julie Sweet - Chair & Chief Executive Officer

KC McClure - Chief Financial Officer

Accenture Q2 Fiscal 2022 Conference Call

March 17, 2022 / 8:00 a.m. Eastern

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Angie Park

Thank you, operator, and thanks everyone for joining us today on our second quarter fiscal 2022 earnings announcement. As the operator just mentioned, I'm Angie Park, Managing Director, Head of Investor Relations.

On today's call you will hear from Julie Sweet, our Chair and Chief Executive Officer, and KC McClure, our Chief Financial Officer.

We hope you've had an opportunity to review the news release we issued a short time ago. Let me quickly outline the agenda for today's call. Julie will begin with an overview of our results, KC will take you through the financial details, including the income statement and balance sheet, along with some key operational metrics for the second quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the third quarter and full fiscal year 2022. We will then take your questions, before Julie provides a wrap- up at the end of the call.

Some of the matters we'll discuss on this call, including our business outlook, are forward- looking and, as such, are subject to known and unknown risks and uncertainties including, but not limited to, those factors set forth in today's news release and discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties could cause actual results to differ materially from those expressed in this call.

During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures, where appropriate, to GAAP in our news release or in the Investor Relations section of our website at Accenture.com.

As always, Accenture assumes no obligation to update the information presented on this conference call.

Now, let me turn the call over to Julie.

Julie Sweet

Thank you, Angie, and thank you everyone for joining.

I would like to begin by honoring the incredible bravery of the Ukrainian people in the face of the unlawful invasion by Russia and extending our deep sympathy and concern over the horrific losses of life. While these words don't feel adequate to capture what is happening, we are taking actions to help in the small ways we can, which I will share more about later in the call.

Turning now to the quarter, I will start by thanking our almost 700,000 people around the world for your incredible dedication and work to create 360° value for our clients and all our stakeholders. Thank you to our clients who are making bold moves to transform and putting their trust in us to help them. Finally, thank you to our technology ecosystem partners, who we work with every day to innovate and create more value for our clients.

Now a few highlights from the quarter:

Accenture Q2 Fiscal 2022 Conference Call

March 17, 2022 / 8:00 a.m. Eastern

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• We had record bookings of almost $20 billion and continued improved pricing, which refers to contract profitability or margin on the work that we sell, across the business, with 36 clients with bookings over $100 million;
• We had record revenue growth of 28% in local currency, bringing total revenue added through H1 to $6.2 billion, which is what we added in all of FY21;
• We had EPS growth of 25% year over year with flat operating margin and continued significant investment in our business and our people;
• Our workforce grew by 24,000 people, demonstrating again our ability to attract top talent at the scale needed by our clients;
• We were the top-scoring company on the Bloomberg Gender-Equality Index out of more than 400 organizations globally;
• We were recognized on Ethisphere's World's Most Ethical Companies for the 15th year in a row and by JUST Capital for the 6th consecutive year;
• Our people completed another 9.2 million training hours this quarter;
• And we continued to gain market share, growing more than 3 times the market.

With such an exceptional quarter, I would like to particularly recognize and thank the incredibly strong delivery teams that underlie these results. Our clients know that our commitments are backed by the outstanding work our people do every day, working side-by-side with them-from shaping the future, to building the best systems and platforms, to creating amazing new experiences and brands, to running critical functions for our clients and everything in between.

Before handing over to KC, let me pause to reflect on the current macro environment. It was almost exactly two years ago that we did earnings only 8 days after the pandemic was declared. Then, as now, the world faced incredible uncertainty. We are all watching the events unfold in Ukraine, and there are many potential scenarios which are difficult to predict. While the circumstances are very different, our focus is the same-on the wellbeing of our people, serving our clients and staying close to their evolving needs, and helping our communities. We emerged from the pandemic an even stronger and more relevant company, and we will use this strength to successfully navigate this environment and fulfill these same three goals.

Over to you KC….

KC McClure

Thank you, Julie, and thanks to all of you for taking the time to join us on today's call.

We were extremely pleased with our overall results in the second quarter, which exceeded our expectations, with record new bookings of almost $20 billion … $2.8 billion higher than our previous record set last quarter. Our results reflected very strong double-digit revenue growth across all dimensions of our business which reinforce the relevance of our offerings and capabilities in the market to deliver value for our clients.

We had a very strong Q2 and first half of the year. While we know the environment is uncertain given the ongoing conflict in Ukraine … we always call it as we see it… and based on the best information we have today, we are increasing key elements of our full-year guidance, which I will cover in more detail later in our call.

Now, let me begin by summarizing a few of the highlights for the quarter.

Accenture Q2 Fiscal 2022 Conference Call

March 17, 2022 / 8:00 a.m. Eastern

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• Revenues grew 28% in local currency, increasing $3.0 billion over Q2 last year, and nearly $300 million above the top end of our guided range, driven by broad-based over delivery across all markets, services and industries, with all 13 industries growing double-digits. We also continued to extend our leadership position with growth, estimated to be more than 3 times the market, which refers to our basket of publicly traded companies.
• We delivered EPS in the quarter of $2.54, reflecting 25% growth over adjusted EPS last year. And, operating margin of 13.7% was consistent with Q2 of last year and 10 basis points expansion year-to-date, and reflects continued significant investments in our people and our business.
• Finally, we delivered free cash flow of $2.0 billion and returned $2.3 billion to shareholders through repurchases and dividends. We have made investments of $1.8 billion in acquisitions primarily attributed to 21 transactions in the first half of the year. And, we continue to expect to invest approximately $4 billion in acquisitions this fiscal year.

With that, let me turn to some of the details.

New bookings were a record at $19.6 billion for the quarter, representing growth of 22% in USD, over a very strong Q2 last year, with an overall book-to-bill of 1.3.

• Consulting bookings were $10.9 billion, a record high, with a book-to-bill of 1.3.
• Outsourcing bookings were also a record at $8.7 billion, with a book-to-bill of 1.3.

We were very pleased with our new bookings, which were driven by both Technology Services and Strategy & Consulting, as well as 36 clients with bookings over $100 million.

Turning now to revenues…

Revenues for the quarter were $15.0 billion… a 24% increase in USD and 28% in local currency.

• Consulting revenues for the quarter were $8.3 billion, up 29% in USD and 34% in local currency.
• Outsourcing revenues were $6.7 billion, up 19% in USD and 23% in local currency.

Taking a closer look at our service dimensions. Strategy & Consulting, Technology Services, and Operations all grew very strong double-digits.

Turning to our geographic markets…

• In North America, revenue growth was 26% in local currency, driven by double-digit growth in Software & Platforms, Consumer Goods, Retail & Travel Services and Public Service.

Accenture Q2 Fiscal 2022 Conference Call

March 17, 2022 / 8:00 a.m. Eastern

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• In Europe, revenues grew 31% in local currency, led by double-digit growth in Consumer Goods, Retail & Travel Services, Industrial, and Banking & Capital Markets. Looking closer at the countries, Europe was driven by double-digit growth in the UK, Germany, France, and Italy.
• In Growth Markets, we delivered 30% revenue growth in local currency driven by double- digit growth in Consumer Goods, Retail & Travel Services, Banking & Capital Markets and Public Service. From a country perspective, Growth Markets was led by double-digit growth in Japan, Australia and Brazil.

Moving down the income statement…

Gross margin for the quarter was 30.1%, compared with 29.7% for the same period last year.

Sales and marketing expense for the quarter was 9.4%, consistent with the second quarter last year.

General and administrative expense was 7.0% compared to 6.6% for the same quarter last year.

Operating income was $2.1 billion in the second quarter, reflecting a 13.7% operating margin, consistent with Q2 last year.

Before I continue, as a reminder, we recognized an investment gain in Q2 last year which impacted our tax rate and increased EPS by $0.21. The following comparisons exclude these impacts and reflect adjusted results.

Our effective tax rate for the quarter was 19.2%, compared with an adjusted effective tax rate of 17.5% for the second quarter last year.

Diluted earnings per share were $2.54, compared with adjusted diluted EPS of $2.03 in the second quarter last year.

Days Services Outstanding were 41 days, compared to 42 days last quarter and 34 days in the second quarter of last year.

Free cash flow for the quarter was $2.0 billion, resulting from cash generated by operating activities of $2.2 billion, net of property and equipment additions of $165 million.

Our cash balance at February 28th was $5.5 billion, compared with $8.2 billion at August 31st.

With regards to our ongoing objective to return cash to shareholders…

In the second quarter, we repurchased or redeemed 4.6 million shares for $1.7 billion, at an average price of $369.19 per share. As of February 28th, we had approximately $4.6 billion of share repurchase authority remaining.

Also, in February, we paid a quarterly cash dividend of $0.97 per share, for a total of $617 million. This represented a 10% increase over last year. And, our Board of Directors declared a

Accenture Q2 Fiscal 2022 Conference Call

March 17, 2022 / 8:00 a.m. Eastern