Accenture : First Quarter Fiscal 2022 Earnings Conference Call Transcript

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Accenture

1st Quarter Fiscal 2022 Conference Call

Conference Call Transcript

December 16, 2021 / 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 Q1 Fiscal 2022 Conference Call

December 16, 2021 / 8:00 a.m. Eastern

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PRESENTATION

Angie Park

Thank you, operator, and thanks everyone for joining us today on our first-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 first quarter. Julie will then provide a brief update on our market positioning before KC provides our business outlook for the second 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 us.

I would like to start by thanking our 674,000 people around the world for your extraordinary work and commitment to our clients. Our results again this quarter reflect how you are living our purpose every day-to deliver on the promise of technology and human ingenuity. As more and more companies embrace compressed transformation, our clients are turning to us as their trusted partner, as reflected in our outstanding growth of 27% this quarter. We added 15 new Diamond clients, bringing the total to 244. Diamond clients are our largest relationships-and to give some context-we added 13 Diamonds in all of FY21. We also had record bookings of $16.8 billion-30% growth year over year, with 20 clients with bookings over $100 million.

And we expanded operating margin 20 basis points in Q1, with adjusted EPS growth of 28%, while we continued to invest in our business and people, including $1.7 billion in acquisitions,

Accenture Q1 Fiscal 2022 Conference Call

December 16, 2021 / 8:00 a.m. Eastern

Revenues grew 27% in local currency, increasing more than $3.2 billion over Q1 last year, and more than $600 million above our guided range-with broad-basedover- delivery across all markets, services and industries, with all 13 industry groups growing double-digits.We continued to extend our leadership position with growth we estimate to be more than five times the market, which refers to our basket of publicly traded companies.

Accenture Q1 Fiscal 2022 Conference Call December 16, 2021 / 8:00 a.m. Eastern

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and in just the first quarter, we invested $250 million in learning for our people with 8.6 million training hours for approximately 14 hours per person.

The extraordinary demand we see in the market reflects the imperative of digital transformation-companies are making critical decisions about who will be their strategic partners… and they are selecting us… because of our talented people, our deep industry and technology capabilities, and our commitment to both create value and lead with values. We predicted back in 2013 that every business would be a digital business and we have executed a clear strategy to rotate our business, to anticipate and be ready to serve our clients… and when the pandemic hit… we were ready… with capabilities at scale reflected in 70% of our revenue at that time being from digital, cloud and security… with strong relationships with the world's leading technology companies, which in some cases go back decades, with a focus on growing our people through learning, allowing us to rapidly reskill, with an unwavering commitment to inclusion and diversity and equality, and caring for our people, professionally and personally, making us a talent magnet in a tight labor market… adding 50,000 talented individuals in Q1.

And it is our breadth of capabilities across Strategy & Consulting, Interactive, Technology and Operations, which is unique in our industry, that allows us to work side-by-side with our clients to deliver results. And we believe our goal to create 360° value for our clients, people, shareholders, partners and communities is an essential part of our success. Certainly, our commitment to creating vibrant career paths for our people is an important part of this value, and we just completed our annual promotion process. I want to congratulate our 1,030 new promotes to managing director, 143 new appointments to senior managing director and the more than 90,000 people we promoted around the world in Q1 overall.

Today, we launched our 360° Value Reporting Experience-a new way to share our progress in the value we create in all directions for all of our stakeholders-more on that later.

KC, over to you.

KC McClure

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

We were very pleased with our overall results in the first quarter, which exceeded our expectations… setting a new bookings record at $16.8 billion, with Consulting bookings exceeding the previous record by more than $1 billion. Our results reflected strong double-digit revenue growth across all dimensions of our business-all markets, services and industry groups. And, we saw improved pricing in many parts of our business. Based on the strength of our first-quarter results, and the demand we see in the market, we are significantly increasing our full-year revenue and EPS outlook.

Now, let me summarize a few of the highlights of the quarter:

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• Operating margin of 16.3% for the quarter was an increase of 20 basis points. We continued to drive margin expansion while making significant investments in our people and our business, including acquisitions. We delivered very strong EPS of $2.78, up 28% over adjusted fiscal '21 results.
• Finally, we delivered free cash flow of $349 million and returned $1.5 billion to shareholders through repurchases and dividends. We also invested approximately $1.7 billion in acquisitions and we continue to expect to invest approximately $4 billion in acquisitions this fiscal year.

With those high-level comments, let me turn to some of the details starting with new bookings.

New bookings were a record at $16.8 billion for the quarter, representing 30% growth in USD, and were $800 million higher than our previous record, with an overall book-to-bill of 1.1.

• Consulting bookings were a record at $9.4. billion, with a book-to-bill of 1.1.
• Outsourcing bookings were $7.4 billion, with a book-to-bill of 1.1.

We were very pleased with our bookings this quarter, which reflected 20 clients with bookings over $100 million. All of our service dimensions, Strategy & Consulting, Technology Services, and Operations, as well as our geographic markets, delivered strong double-digit bookings growth in USD.

Turning now to revenues…

Revenues for the quarter were $15.0 billion… a 27% increase in USD and in local currency.

• Consulting revenues for the quarter were $8.4. billion-up 33% in USD and 32% in local currency.
• Outsourcing revenues were $6.6 billion-up 21% in USD and 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 Public Service, Software & Platforms, and Consumer Goods, Retail & Travel Services.
• In Europe, revenues grew 28% 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 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

Accenture Q1 Fiscal 2022 Conference Call

December 16, 2021 / 8:00 a.m. Eastern

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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 33.1% for the same period last year.

Sales and marketing expense for the quarter was 9.7%, compared with 10.4% for the first quarter last year.

General and administrative expense was 6.9% compared to 6.6% for the same quarter last year.

Operating income was $2.4 billion in the first quarter, reflecting a 16.3% operating margin, up 20 basis points compared with Q1 last year.

Before I continue, as a reminder, we recognized an investment gain in Q1 last year, which impacted our tax rate and increased EPS by $0.15. The following comparisons exclude these impacts and reflect adjusted results.

Our effective tax rate for the quarter was 24.4%, compared with an adjusted effective tax rate of 23.7% for the first quarter last year.

Diluted earnings per share were $2.78, compared with adjusted diluted EPS of $2.17 in the first quarter last year.

Days Services Outstanding were 42 days, compared to 38 days last quarter and 38 days in the first quarter of last year.

Free cash flow for the quarter was $349 million, resulting from cash generated by operating activities of $531 million, net of property and equipment additions of $182 million.

Our cash balance at November 30th was $5.6 billion, compared with $8.2 billion at August 31st.

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

In the first quarter, we repurchased or redeemed 2.4 million shares for $845 million, at an average price of $346.19 per share. At November 30th, we had approximately $5.6 billion of share repurchase authority remaining.

Also, in November, we paid a quarterly cash dividend of $0.97 per share, for a total of $613 million. This represented 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 February 15th, a 10% increase over last year.

So, in summary, we are very pleased with our Q1 results and we are off to a very strong start in FY22.

Now let me turn it back to Julie.

Accenture Q1 Fiscal 2022 Conference Call

December 16, 2021 / 8:00 a.m. Eastern