Accenture : Third Quarter Fiscal 2020 Transcript

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Accenture

3rdQuarter Fiscal 2020 Conference Call

Conference Call Transcript

June 25, 2020 / 8:00 a.m. Eastern

CORPORATE PARTICIPANTS

Angie Park-Managing Director, Head of Investor RelationsJulie Sweet-Chief Executive Officer

KC McClure-Chief Financial Officer

Accenture Q3 FY20 Conference Call

June 25, 2020 / 8:00 a.m. Eastern

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PRESENTATION

Angie Park

Thank you, Greg, and thanks everyone for joining us today on our third-quarter fiscal 2020 earnings announcement. As Gregjust mentioned, I'm Angie Park, Managing Director, Head of

Investor Relations.

On today's call you will hear fromJulie Sweet, our 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 third quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the fourth quarter and full fiscal year 2020. 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, butnot 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 us.

Since our last earnings call, the world has continued to face unprecedented challenges-health, economic and social-and throughout Q3 we saw rapidly deteriorating economic conditions globally.

I am proud of and want to thank our people and our leaders around the world for coming together in Q3 to continue to deliver on our commitments to our shareholders, our clients, our people and our communities in the face of this crisis.

Before turning to our delivery on these commitments, let me provide a bit more color on the context. Within days of our earnings call on March 19th, we continued to quickly mobilize our people to work from home and during the quarter we had approximately 95% of our people

Accenture Q3 FY20 Conference Call

June 25, 2020 / 8:00 a.m. Eastern

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enabled to work remotely. For all of April and May, other than China, virtually every country in which we operate was in lockdown.

In addition, as you may remember, in January we announced that as of March 1st, we were implementing a new growth model and making leadership changes. We seamlessly implemented this new model, demonstrating our agility at massive scale, which is a testament to the talent of our over 500,000 people and the strength of our leadership team.

So, in terms of delivering on our commitments to our shareholders:

• •we delivered Q3 revenues in line with the range we provided only 8 days after the global pandemic was declared, and we hit a new milestone of approximately 70% in the New, which is digital, cloud and security,

• •we delivered $11 billion in new bookings, a 6% increase over Q3 last year, which demonstrates the relevance of our services and our ability to sell in a remote everything world,

• •we continued to invest in our business for the long term, closing an additional $742 million in strategic acquisitions for a total of $1.3 billion year-to-date,

• •we delivered operating margin expansion of 10 basis points, and

• •we continued to strengthen our balance sheet, closing the quarter with $6.4 billion in cash.

In terms of delivering on our commitments to our clients:

Our clients rely on us for mission-critical work. Ninety-five of our top 100 clients have been with us for over 10 years because we are a trusted partner, and during this time we have deepened that trust yet again because of our ability to deliver seamlessly, including how we transitioned our people from the delivery centers in India and the Philippines to work from home without service interruption. For example, we closed the books on time for more than 70 public companies in Operations, and we continued our pre-crisis track record in Technology with around the clock go lives on new releases every 15 minutes, on average. In both Technology and Operations, we were able to execute entirely remote knowledge transfer with great success.

In terms of delivering on our commitments to our people:

We continue to invest in training and development, and the continuous reskilling of our people. We are on track to deliver the same training hours as last year, while pivoting completely to a digital learning experience built on our platform, Accenture Connected Learning.

We continued to promote people mid-year, although at a reduced level compared to last year, to ensure that our very best talent continues to build a vibrant career and is recognized and rewarded.

In terms of delivering on our commitments to our communities:

We believe strongly in our responsibility to contribute to the well-being of our communities. In addition to our teams who have supported our health and public service clients with extraordinary COVID-19 related work, we also wanted to make a unique pro bono contribution that leveraged our strengths.

Accenture Q3 FY20 Conference Call

June 25, 2020 / 8:00 a.m. Eastern

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In addition to our many local activities, we are very proud that we are helping put people back to work around the world with the People + Work Connect platform that we created together with Lincoln Financial Group, ServiceNow and Verizon. This platform is a global online employer-to-employer initiative to bring together, at no cost, companies that have laid off or furloughed people with organizations in urgent need of workers. Designed by CHROs, including our own extraordinary CHRO, Ellyn Shook, Accenture built the platform in only 14 days. The response has been overwhelming, as more than 1,300 organizations across approximately 80 countries have engaged, with currently about 400,000 positions already on the platform, which are balanced between open needs and availability.

With that, 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 are pleased with our third-quarter results, which were aligned with our expectations, and reflect the diversity and durability of our growth model across geographies, industries, and services. Our results continue to reinforce the relevance of our offerings and capabilities in themarket to deliver value for our clients. Importantly, these results illustrate Accenture's uniqueability to manage our business and deliver significant value to our shareholders in a very uncertain environment.

Before I get into the details, let me summarize the major headlines of our third-quarter results, which reflect continued strong execution against our three financial imperatives:

• •Revenue grew 1.3% in local currency, at the top end of our guided range. This includes a reduction of approximately 2% from a decline in revenues from reimbursable travel costs.

  Taking a look at revenues through an industry lens, the diversity of our portfolio continues to serve us well. Approximately 50% of our revenues came from seven industries that were less impacted from the pandemic and in aggregate grew high single digits, with double-digit growth in Software & Platforms, Life Sciences, and Public Service. At the same time, as we expected, we felt pressure from clients in the highly impacted industries which include Travel, Retail, Energy, High Tech including Aerospace and Defense, and Industrials. While performance varied, this group collectively represents over 20% of our revenues and declined high single digits.

  Given this is the first quarter of results since the onset of the pandemic, let me share a bit more color on how it shaped our quarter. We had strong momentum coming into the quarter, which continued through March. We began to see the impacts in our business in April and May as a result of clients postponing work, reducing existing volumes, and deferring decisions on new work. These impacts were more pronounced in Strategy & Consulting. We did not, however, see an uptick in cancellations over typical levels. In addition, we experienced very little revenue impact from needing to shift to remote working as we continued to successfully deliver services to our clients.

• •Operating margin was 15.6%, an increase of 10 basis points both for the quarter and year to date, as we continue to demonstrate our ability to drive sustainable margin

Accenture Q3 FY20 Conference Call

June 25, 2020 / 8:00 a.m. Eastern

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expansion. This result continues to reflect the absorption of significant investments in our people and our business as we further strengthen our leadership position in the market. We are also benefitting from significantly lower spend on non-billable travel, meetings and events.

• •And finally, we delivered very strong free cash flow of $2.6 billion in the quarter while also continuing all elements of our capital allocation program, including returning roughly $1.1 billion to shareholders via dividends and share repurchases. We have made investments of $1.3 billion in acquisitions, primarily attributed to 29 transactions, year-to-date. And, we continue to expect to invest up to $1.6 billion in acquisitions this fiscal year.

With that, let me turn to some of the details starting with new bookings.

New bookings were $11.0 billion for the quarter, reflecting growth of 6% in local currency and 4% in USD.

• •Consulting bookings were at $6.2 billion, up 5% in local currency, and 3% in USD, with a book-to-bill of 1.0.

• •Outsourcing bookings were $4.8 billion, up 8% in local currency, and 5% in USD, with a book-to-bill of 1.0.

We were very pleased with our new bookings, which continued to be dominated by high demand for digital, cloud and security-related services which we estimate represented approximately 70% of our new bookings in the quarter. Looking forward, we expect strong bookings in Q4.

The fact that we delivered $11 billion of bookings in this environment with growth over last year, with much of these sales closed virtually, while at the same time building a very strong pipeline, speaks to our agility and the strength of our client relationships.

Turning now to revenues…

Revenues for the quarter were $11.0 billion, a 1% decrease in USD and a 1.3% increase in local currency, reflecting a foreign-exchange headwind of roughly 2.5%, compared to the 1.5% estimated impact provided in our guidance last quarter. This result was at the top end of our FX-adjusted range.

• •Consulting revenues for the quarter were $6.0 billion-down 4% in USD and down 2% in local currency, which includes a reduction of approximately 3 percentage points from a decline in revenues from reimbursable travel.

• •Outsourcing revenues were $5.0 billion-up 3% in USD and up 5% in local currency.

Taking a closer look at our service dimensions…

Technology Services grew mid single digits, Operations grew low single digits, and Strategy & Consulting declined mid single digits.

Accenture Q3 FY20 Conference Call

June 25, 2020 / 8:00 a.m. Eastern