Accenture : Fourth Quarter Fiscal 2022 Earnings Conference Call Transcript

Accenture

Fourth Quarter Fiscal 2022

Financial Results

Conference Call Transcript

Thursday, September 22, 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 fourth quarter and full 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 both the fourth quarter and full fiscal year. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the first quarter and full fiscal year 2023. 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 everyone joining us today. And thank you to our 721,000 people around the globe for delivering a truly extraordinary year. We measure our success by both our financial results and the broader 360-degree value we create for all our stakeholders, our clients, people, shareholders, partners and communities. Strong financial results allow us to deliver more 360-degree value.

Let me share a few highlights of this extraordinary year. In FY '22, we delivered record bookings of $72 billion. As our clients continue to execute compressed transformations, we had 100 clients with quarterly bookings greater than $100 million compared to 72 last fiscal year. We delivered revenues of $62 billion, representing a record 26% growth in local currency, adding $11 billion in revenue for the year.

We continue to take significant market share growing more than two times the market. Our financial results reflect our commitment to creating value for our clients every day, which is why they are turning to us as their trusted partner across the enterprise. We now have 267 Diamond clients, our largest client relationships, compared to 229 last fiscal year. We expanded operating margin by 10 basis points and had EPS growth of 22% over adjusted FY '21 EPS, demonstrating our ability to grow profitably and at scale.

We achieved this profitable growth while continuing to invest significantly in our business and people with $3.4 billion deployed across 38 acquisitions that are well balanced across markets, services and strategic priorities; $1.1 billion invested in R&D assets, platforms and industry solutions, including growing our portfolio of patents and pending patents to more than 8,300; and $1.1 billion invested in the training and development of our people to grow the skills

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needed to serve our clients.

We continue to offer an employee value proposition that includes providing vibrant career paths and opportunities for our people with approximately 157,000 promotions and over 40 million training hours while expanding our workforce by almost 100,000 and achieving 47% women as we continue our progress towards gender parity by 2025.

We believe our unwavering commitment to diversity, broadly defined, and inclusion is an essential element of our ability to deliver market-leading financial results because our diversity and inclusiveness makes us smarter, more innovative and more attractive to top talent. We achieved over 85% renewable electricity powering our offices and centers around the world on our way to 100% by 2023.

We prioritize creating value around the world and the communities where we work and live, both through investments and job creation and through our direct support of meaningful local initiatives, including our apprenticeship programs in the U.S., U.K., Switzerland and Latin America and our growing partnership with Youth Business International, which will help an additional estimated 240,000 young entrepreneurs, ages 18 to 35, build skills and success in a digital future on top of the 370,000 young entrepreneurs already supported through this partnership in many different communities throughout the world.

This year, we are proud to achieve our highest brand value and rank to date on BrandZ's prestigious Top 100 Most Valuable Global Brands list, increasing 28% to over $82 billion and ranking #26. Over to you, KC.

KC McClure

Thank you, Julie, and thanks to all of you for joining us on today's call. We were very pleased with our results in the fourth quarter, which completes another outstanding year for Accenture. Once again, our results continue to provide strong validation of our leadership position in the marketplace, the relevance of our services to our clients and our ability to consistently deliver on our shareholder value proposition, including both our financial results and creating 360-degree value for all our stakeholders.

So let me begin by summarizing a few highlights from the quarter across our three financial imperatives. Revenue grew 22.4% in local currency, driven by double-digit growth across all markets, services and industries. We once again extended our leadership position with growth estimated to be more than two times the market, which refers to our basket of publicly traded companies.

Operating margin was 14.7%, an increase of 10 basis points for the quarter. We continue to drive margin expansion while making significant investments in our people and our business. We delivered very strong EPS of $2.60, which represents 18% growth compared to EPS last year. And finally, we delivered free cash flow of $3.6 billion, driven by superior DSO management.

Now let me turn to some of the details. New bookings were $18.4 billion for the quarter, our second highest ever with a book-to-bill of 1.2. Consulting bookings were $8.4 billion with a book-to-bill of 1. Outsourcing bookings of $9.9 billion were a record with a book-to-bill of 1.4.

We were very pleased with our strong bookings this quarter, which reflects 22% growth in U.S. dollars and 31% growth in local currency, including 26 clients with bookings over $100 million in the quarter.

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Turning now to revenues. Revenues for the quarter were $15.4 billion, a 15% increase in U.S. dollars and 22.4% in local currency. Consulting revenues for the quarter were $8.3 billion, up 14% in U.S. dollars and 22% in local currency. Outsourcing revenues were $7.1 billion, up 16% in U.S. dollars and 23% in local currency.

Taking a closer look at our service dimensions. Technology services grew very strong double digits, Operations grew strong double digits and Strategy and Consulting grew double digits. Turning to our geographic markets. In North America, revenue growth was 18% in local currency, driven by double-digit growth in Public Service, Software and Platforms and Consumer Goods, Retail and Travel Services.

In Europe, revenues grew 26% in local currency, led by double-digit growth in Industrial, Banking and Capital Markets and Consumer Goods, Retail and Travel Services. Looking closer to the countries, Europe was driven by double-digit growth in Germany, The U.K., Italy and France.

In Growth Markets, we delivered 26% revenue growth in local currency, driven by double- digit growth in Banking and Capital Markets, Consumer Goods, Retail and Travel Services 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 32.1% compared with 33.3% for the same period last year. Sales and marketing expense for the quarter was 10.2% compared with 11.3% for the fourth quarter last year. General and administrative expense was 7.1% compared to 7.4% for the same quarter last year.

Operating income was $2.3 billion in the fourth quarter, reflecting a 14.7% operating margin, up 10 basis points compared with Q4 last year. Our effective tax rate for the quarter was 24.6% compared with an effective tax rate of 25% for the fourth quarter last year.

Diluted earnings per share were $2.60 compared with EPS of $2.20 in the fourth quarter last year. Days service outstanding were 43 days, compared to 44 days last quarter and 38 days in the fourth quarter of last year. Free cash flow for the quarter was $3.6 billion, resulting from cash generated by operating activities of $3.8 billion, net of property and equipment additions of $177 million.

Our cash balance at August 31 was $7.9 billion compared with $8.2 billion at August 31 last year. With regards to our ongoing objective to return cash to shareholders. In the fourth quarter, we repurchased or redeemed 2.1 million shares for $605 million at an average price of $293.23 per share.

Also in August, we paid our fourth quarterly cash dividend of $0.97 per share for a total of $614 million. And our Board of Directors declared a quarterly cash dividend of $1.12 per share to be paid on November 15th, a 15% increase over last year, and approved $3 billion of additional share repurchase authority.

Now I would like to take a moment to summarize our outstanding year. We were extremely pleased with our performance in fiscal year '22, greatly exceeding almost all aspects of our original outlook that we provided last September. We delivered $71.7 billion in new bookings, reflecting 21% growth in U.S. dollars, hitting 100 clients with quarterly bookings of $100 million, which positions us well as we begin FY '23.

We added significant scale with a record $11 billion in incremental revenue, almost double

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what we added in fiscal '21. Revenue of $61.6 billion for the year reflects growth of 26% in local currency. Operating margin of 15.2% reflects a 10 basis point expansion over FY '21. We were extremely pleased that we were able to deliver within our original guided range, particularly with the continued significant investment in our business and people, including higher wages.

Earnings per share were $10.71, reflecting 22% growth over adjusted FY '21 EPS, which is our highest growth in over a decade, reinforcing our ability to grow at scale profitably. As a reminder, we adjusted earnings last year to exclude gains on an investment. Free cash flow of $8.8 billion was significantly above our original guided range, reflecting a very strong free cash flow to net income ratio of 1.3.

And with regards to our ongoing objective to return cash to shareholders, we exceeded our original guidance for capital allocation by returning $6.6 billion of cash to shareholders while investing approximately $3.4 billion across 38 acquisitions. In addition to these excellent financial results, let me turn to the 360-degree value we are creating for all our stakeholders.

Through our partnership with Save the Children, we are preparing young people for a more sustainable and inclusive future by skilling an estimated 70,000 people to drive social and environmental change. For more information on the 360-degree value we are creating, please go to the Accenture 360-degree Value Reporting Experience, which reflects new information each quarter.

So again, FY '22 was a truly extraordinary year and we are now focused on delivering in fiscal '23. And now let me turn it back to Julie.

Julie Sweet

Thank you, KC. We succeed by being close to our clients. Understanding and anticipating their needs, helping them from strategy to execution with the best solutions for their businesses, whether for growth, cost optimization or both and resilience. And it all starts with technology.

With the breadth and depth of our existing capabilities, combined with our incredible learning organization, we are able to pivot as necessary, positioning us to serve our clients' changing needs and capture new market opportunities all while being laser-focused on our own operational excellence.

I will give some color on the demand we are seeing. First of all, against the backdrop of the current macroeconomic environment, we delivered $18.4 billion in new bookings in Q4, a year-over-year increase of 31% in local currency. While industries and markets are being affected differently, there are two common themes: all strategies lead to technology, particularly cloud, data, AI and security, which are fundamental to a strong digital core. Our cloud business is now $26 billion and grew 48%, with Cloud First being the biggest driver of the growth.

Companies are also seeking to execute compressed transformations, the second theme. These mean bold programs on accelerated time frames often spanning multiple parts of the enterprise at the same time. Managed services have become increasingly strategic as companies seek to move faster and leverage our digital platform and talent, and they are turning to Accenture because of our excellence across the enterprise. We are unmatched in terms of breadth and depth of capabilities and industry coverage.

We continue to see a growing number of companies embrace the need to harness the five key forces of change that we have identified for the next decade: Total enterprise reinvention,