Accenture : Third Quarter Fiscal 2022 Earnings Conference Call Transcript

Accenture

Third Quarter Fiscal 2022 Financial Results

Conference Call Transcript

Thursday, June 23, 2022 / 8:00 a.m. Eastern

CORPORATE PARTICIPANTS

Angie Park- Managing Director, Head of Investor Relations Julie Sweet - Chair and Chief Executive Officer

KC McClure - Chief Financial Officer

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Angie Park

Thank you, operator. And thanks, everyone, for joining us today on our third 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'll 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 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 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 the 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.

And thank you to our 710,000 people around the globe for their extraordinary work and commitment to our clients, which resulted in delivering another very strong quarter of financial results and creating significant 360° value beyond our financials for all our stakeholders.

Here are a few highlights of the 360° value we created this quarter.

Starting with our people, we continue to invest in their skills, and they completed 10.6 million training hours, which averages to 16 hours per person this quarter.

We are incredibly pleased to be recognized as a top ten Great Place to Work for 2022 in countries representing 76% of our people - Argentina, Brazil, France, India, Japan, Mexico, the Philippines, UK and the United States. Specifically on the US list, we are particularly proud that Accenture jumped 38 spots in one year to rank number six. Overall, this is the 14th consecutive year that Accenture has been recognized by Great Place to Work. Also of particular note, in India, not only were we ranked number ten by great place to work, Business

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Today recognized India -- Accenture in India -- as number four of the best companies to work for, marking our 11th consecutive year on the list. All of these recognitions reflect a tangible demonstration of our commitment to our people.

The strong demand for our people and services, and trust from our clients are once again seen in our strong bookings of $17 billion, which represents 15% growth in local currency. Compressed transformation continues with another 18 clients with bookings over $100 million, bringing the total year to date to 74, which is 20 more than the same time last year.

We had revenue growth of 27% in local currency, continuing to take significant market share, growing nearly three times the market while delivering margin expansion of 10 basis points.

Our ongoing investment in our communities was reflected this quarter in how we are leveraging our expertise in digital learning and collaboration, partnering with UNICEF's Generation Unlimited on the new Passport to Learning platform program to equip 10 million young people ages 15 to 24 with digital skills across 10 countries to prepare them for work. This program went live this quarter in India, the first and largest country of the ten.

As always, we are staying close to our clients and our ecosystem partners to help them succeed today and to anticipate the needs of the future. And our very strong financial results this quarter reinforce the trust our clients and partners have in our ability to do so.

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 delivered very strong overall results in the third quarter reflecting very strong double digit revenue growth across all dimensions of our business, as well as continued operating margin expansion as we continue to invest at scale in our business and our people.

We continue to lead the industry with these results demonstrating the relevance of our services and our trusted client and ecosystem partnerships. We continue to deliver on our shareholder value proposition including both our financial results and creating 360-degree value for all our stakeholders.

Let me summarize a few of the highlights of the quarter across our three financial imperatives.

Revenue grew 27% in local currency and were above the top end of our guided range, driven once again by broad based over delivery across all markets, services and industries with all 13 industries growing double digits. We once again extended our leadership position, adding an incremental $9 billion in revenues year to date, with growth estimated to be nearly three times the market, which refers to our basket of publicly traded companies.

Operating margin of 16.1% for the quarter was an increase of ten basis points. We continue to drive margin expansion while making significant investments in our people and our business. We delivered EPS of $2.79, which represents 16% growth over fiscal 2021 results and includes $0.15 or 6% negative impact related to the disposition of our business in Russia.

Finally, we delivered free cash flow of $2.9 billion and returned $1.6 billion to shareholders through repurchases and dividends. We have made investments of $2.2 billion in acquisitions, primarily attributed to 27 transactions year to date. And we now expect to invest about $2.5

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billion in acquisitions this year with another $1 billion that we expect to close in Q1 given required regulatory approvals.

With that, let me turn to some of the details. New bookings were $17 billion for the quarter with an overall book-to-bill of 1.0. Consulting bookings were $9.1 billion, with a book-to-bill of 1.0. Outsourcing bookings were 7.8 billion with a book-to-bill of 1.1.

We were very pleased with our bookings this quarter, which represent our second highest ever, and were aligned to our expectations. Our bookings reflect 15% growth in local currency and 18 clients with bookings over 100 million. Looking forward, we continue to have a strong pipeline.

Turning now to revenues. Revenues for the quarter were $16.2 billion, a 22% increase in US dollars and 27% local currency, reflecting a foreign exchange headwind of 5% compared to the 4% headwind provided in our business outlook last quarter. Adjusting for the actual foreign exchange impact, we were $160 million above our guided range. Consulting revenues for the quarter were $9 billion, up 24% in US dollars and 30% in local currency. Outsourcing revenues were $7.1 billion, up 19% in US dollars and 23% local currency.

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

Turning to our geographic markets - In North America, revenue growth was 23% in local currency driven by double digit growth in Consumer Goods, Retail and Travel Services, Public Service, Software & Platforms, and Communications & Media.

In Europe, revenues grew 30% in local currency, led by double digit growth in Industrial, Consumer Goods, Retail & Travel Services, and Banking & Capital Markets. Looking closer at the countries, Europe was driven by double digit growth in Germany, the UK, 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 and Australia.

Moving down the income statement. Gross margin for the quarter was 32.9%, compared with 33.2% for the same period last year. Sales and marketing expense for the quarter was 10.3%, compared with 10.6% for the third quarter last year. General & Administrative expense was 6.5% compared to 6.6% for the same quarter last year.

Operating income was $2.6 billion in the third quarter, reflecting a 16.1% operating margin, up 10 basis points compared with Q3 last year. Our effective tax rate for the quarter was 27.1%, compared with an effective tax rate of 25% for the third quarter of last year.

Diluted earnings per share were $2.79, including a $0.15 or 6% negative impact related to the disposition of our business in Russia, compared with diluted EPS of $2.40 in the third quarter last year. Days Services Outstanding were 44 days compared to 41 days last quarter. and 36 days in the third quarter of last year. Free cash flow for the quarter was $2.9 billion, resulting from cash generated by operating activities of $3.1 billion, net of property and equipment additions of $195 million. Our cash balance at May 31st was $6.7 billion, compared with $8.2 billion at August 31st.

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With regards to our ongoing objective to return cash to shareholders - In the third quarter, we repurchased or redeemed 3.1 million shares for $972 million at an average price of $313.43 per share. As of May 31st, we had approximately $3.7 billion of share repurchase authority remaining. Also in May, we paid a quarterly cash dividend of $0.97 per share for a total of $614 million. This represents a 10% increase over last year, and our Board of Directors declared a quarterly cash dividend of $0.97 per share to be paid on August 15th, a 10% increase over last year.

Finally, turning to the 360° value we are creating for all our stakeholders, we were very pleased to be ranked number 13 on 3BL Media's 100 Best Corporate Citizens in the United States report, which recognizes outstanding ESG transparency and performance against the Russell 1000, which are the largest companies in the US equity market. For more information on the 360° values we are creating, go to the Accenture 360° Value Reporting Experience, which reflects new information each quarter.

So, in summary, we are extremely pleased with our results to date and are now very focused on Q4 and closing out another very strong year. Now, let me turn it back to Julie.

Julie Sweet:

Thank you, KC.

As we shared at our recent Investor and Analyst Day, we believe there are five forces that our clients must harness over the next decade and that, in turn, will drive our growth.

Total Enterprise Reinvention, Talent, Sustainability, the Metaverse Continuum, and the Ongoing Tech Revolution. Today, we continue to see strong demand across our markets, services and industries, which is being driven primarily by two of these five forces. Total enterprise reinvention, which involves transformation of every part of every business, leveraging technology with new ways of working and engaging with customers and employees, and new opportunities for growth -- and talent, which requires every business to be able to access talent, be a talent creator, not just a talent consumer, and to unlock the potential of their people.

Compressed transformation continues with our clients seeking to execute bold programs in accelerated time frames, often spanning multiple parts of the enterprise at the same time, when in the past, they may have taken a more sequential approach. This desire for speed with strong execution is driving our growth as clients partner with us because of the breadth and depth of our capabilities, the insights that come from our scale, global footprint, and our deep functional industry and cross industry expertise. And they partner with us because they trust us and because we are trusted partners with the technology ecosystem, which are also critical to our clients' transformations.

While the current macroeconomic environment affects industries and markets differently, the common theme across our clients is that all strategies, whether for growth, cost or resilience, lead to technology, particularly cloud data and AI. And our clients turn to us to be able to effectively use technology to achieve their goals.

Let me bring this demand environment to life. We help our clients execute total enterprise reinvention by helping them build their digital core, optimize operations, and accelerate growth. Cloud, data and AI are fundamental to a strong digital core. We are working with the Clorox Company, a leading multinational manufacturer and marketer of home care, household