Accenture plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Revenues for the third quarter of fiscal 2023 increased 3% in U.S. dollars and 5% in local currency compared to the third quarter of fiscal 2022. Revenues for the nine months ended May 31, 2023 increased 4% in U.S. dollars and 10% in local currency compared to the nine months ended May 31, 2022. During the third quarter of fiscal 2023, revenue growth in local currency was strong in Growth Markets and Europe and modest in North America. We experienced local currency revenue growth that was very strong in Health & Public Service and Resources, strong in Products and solid in Financial Services, partially offset by a decline in Communications, Media & Technology. Revenue growth in local currency was very strong in managed services, partially offset by a slight decline in consulting during the third quarter of fiscal 2023. In the third quarter of fiscal 2023, pricing, which we define as the contract profitability or margin on the work that we sell, was lower in some areas of our business. In our consulting business, revenues for the third quarter of fiscal 2023 decreased 4% in U.S. dollars and 1% in local currency compared to the third quarter of fiscal 2022. Consulting revenues for the nine months ended May 31, 2023 decreased 1% in U.S. dollars and increased 4% in local currency compared to the nine months ended May 31, 2022. The decline in consulting revenue in local currency for the third quarter of fiscal 2023 was driven by a modest decline in North America, partially offset by modest growth in Growth Markets, while Europe was flat. Our consulting revenue continues to be driven by helping our clients accelerate their digital transformation, including moving to the cloud, embedding security across the enterprise and adopting new technologies. In addition, clients continue to be focused on initiatives designed to deliver cost savings and operational efficiency, as well as projects to accelerate growth and improve customer experiences. While we continue to experience demand for these services, we are seeing a slower pace and level of client spending, especially for smaller contracts with a shorter duration. In our managed services business, revenues for the third quarter of fiscal 2023 increased 10% in U.S. dollars and 13% in local currency compared to the third quarter of fiscal 2022. Managed services revenues for the nine months ended May 31, 2023 increased 11% in U.S. dollars and 16% in local currency compared to the nine months ended May 31, 2022. Managed services revenue in local currency for the third quarter of fiscal 2023 was driven by very strong growth in Growth Markets and Europe and strong growth in North America. We continue to experience growing demand to assist clients with application modernization and maintenance, cloud enablement and managed security services. In addition, clients continue to be focused on transforming their operations through data and analytics, automation and artificial intelligence to drive productivity and operational cost savings. As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations. While a significant portion of our revenues are in U.S. dollars, the majority of our revenues are denominated in other currencies, including the Euro, Japanese yen and U.K. pound. There continues to be volatility in foreign currency exchange rates. Unfavorable fluctuations in foreign currency exchange rates have had and could in the future have a material effect on our financial results. If the U.S. dollar weakens against other currencies, resulting in favorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be higher. If the U.S. dollar strengthens against other currencies, resulting in unfavorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be lower. The U.S. dollar strengthened against various currencies during the three and nine months ended May 31, 2023 compared to the three and nine months ended May 31, 2022, resulting in unfavorable currency translation and U.S. dollar revenue growth that was approximately 2.5% and 5.5% lower, respectively, than our revenue growth in local currency. Assuming that exchange rates stay within recent ranges for the remainder of fiscal 2023, we estimate that our full fiscal 2023 revenue growth in U.S. dollars will be approximately 4% lower than our revenue growth in local currency. People Metrics Utilization Workforce Annualized Voluntary Attrition 91% 732,000 13% consistent with the third quarter of fiscal 2022 compared to approximately 710,000 as of May 31, 2022 compared to 20% in the third quarter of fiscal 2022 Utilization for the third quarter of fiscal 2023 was 91%, consistent with the third quarter of fiscal 2022. We hire to meet current and projected future demand. We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions, given that compensation costs are the most significant portion of our operating expenses. Our workforce, the majority of which serves our clients, increased to approximately 732,000 as of May 31, 2023, compared to approximately 710,000 as of May 31, 2022. The year-over-year increase in our workforce reflects people added in connection with acquisitions and hiring for specific skills. For the third quarter of fiscal 2023, annualized attrition, excluding involuntary terminations, was 13%, down from 20% in the third quarter of fiscal 2022. We evaluate voluntary attrition, adjust levels of new hiring and use involuntary terminations as a means to keep our supply of skills and resources in balance with changes in client demand. Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 In addition, we adjust compensation in order to attract and retain appropriate numbers of qualified employees. For the majority of our people, compensation increases became effective December 1 st of fiscal 2023. Given the overall inflationary environment, compensation has increased faster than in prior years. We strive to adjust pricing as well as drive cost and delivery efficiencies, such as changing the mix of people and utilizing technology, to reduce the impact of compensation increases on our margin and contract profitability. Our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to: match people and skills with the types or amounts of services and solutions clients are demanding; recover or offset increases in compensation; deploy our employees globally on a timely basis; manage attrition; and/or effectively assimilate new employees. Operating Expenses The primary categories of operating expenses include Cost of services, Sales and marketing and General and administrative costs. Cost of services is primarily driven by the cost of people serving our clients, which consists mainly of compensation, subcontractor and other payroll costs, and non-payroll costs on managed services contracts. Cost of services includes a variety of activities such as: contract delivery; recruiting and training; software development; and integration of acquisitions. Sales and marketing costs are driven primarily by: compensation costs for business development activities; marketing- and advertising-related activities; and certain acquisition-related costs. General and administrative costs primarily include costs for people that are non-client-facing, information systems, office space and certain acquisition-related costs. Gross margin (Revenues less Cost of services as a percentage of Revenues) for the third quarter of fiscal 2023 was 33.4%, compared with 32.9% for the third quarter of fiscal 2022. Gross margin for the nine months ended May 31, 2023 was 32.3% compared with 32.0% for the nine months ended May 31, 2022. The increase in gross margin for the third quarter of fiscal 2023 and nine months ended May 31, 2023 was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel. Sales and marketing and General and administrative costs as a percentage of revenues were 17.0% for the third quarter of fiscal 2023 and 16.8% for the nine months ended May 31, 2023, compared with 16.8% for the third quarter of fiscal 2022 and 16.6% for the nine months ended May 31, 2022. For the third quarter of fiscal 2023 and nine months ended May 31, 2023, compared to the same period in fiscal 2022, Sales and marketing costs increased 20 and 30 basis points, respectively, due to higher selling and other business development costs as a percentage of revenues. For the third quarter of fiscal 2023 and nine months ended May 31, 2023, compared to the same period in fiscal 2022, General and administrative costs were flat and decreased 10 basis points, respectively, as a percentage of revenues. During the three and nine months ended May 31, 2023, we recorded $347 million and $591 million in business optimization costs, respectively, primarily for employee severance. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Operating margin (Operating income as a percentage of Revenues) for the third quarter of fiscal 2023 was 14.2%, compared with 16.1% for the third quarter of fiscal 2022. Operating margin for the nine months ended May 31, 2023 was 14.3%, compared with 15.4% for the nine months ended May 31, 2022. The business optimization costs recorded during the three and nine months ended May 31, 2023 reduced operating margin by 210 and 130 basis points, respectively. Excluding these costs, operating margin for both the three and nine months ended May 31, 2023 increased 20 basis points to 16.3% and 15.6%, respectively. Other Income (Expense), net During the three and nine months ended May 31, 2023, we recorded a gain of $253 million related to our investment in Duck Creek Technologies. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Effective Tax Rate The effective tax rates for the third quarter of fiscal 2023 and 2022 were 22.2% and 27.1%, respectively. The effective tax rates for the nine months ended May 31, 2023 and 2022 were 22.1% and 23.8%, respectively. Absent the business optimization costs of $347 million and $591 million and related reduction in tax expense of $80 million and $132 million, as well as an investment gain of $253 million and related tax expense of $9 million, our effective tax rates for the three and nine months ended May 31, 2023 were 24.0% and 22.7%, respectively. Earnings Per Share Diluted earnings per share were $3.15 for the third quarter of fiscal 2023, compared with $2.79 for the third quarter of fiscal 2022. Diluted earnings per share were $8.62 for the nine months ended May 31, 2023, compared with $8.11 for the nine months ended May 31, 2022. The $267 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $0.42 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for the third quarter of fiscal 2023. Excluding these impacts, diluted earnings per share were $3.19 for the third quarter of fiscal 2023. The $459 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $0.72 and the $244 Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for the nine months ended May 31, 2023. Excluding these impacts, diluted earnings per share were $8.96 for the nine months ended May 31, 2023. Non-GAAP Financial Measures For fiscal 2023, we have presented effective tax rates and diluted earnings per share excluding the business optimization costs and investment gain, as well as operating income and operating margin excluding the business optimization costs, as we believe doing so facilitates understanding as to the impact of these items and our performance in comparison to the prior periods. While we believe that this non-GAAP financial information is useful in evaluating our operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP. New Bookings Three Months Ended Percent Increase (Decrease) U.S. Dollars Percent Increase (Decrease) Local Currency (in billions of U.S. dollars) May 31, 2023 May 31, 2022 Consulting $ 8.9 $ 9.1 (2) % 1 % Managed Services (1) 8.3 7.8 6 9 Total New Bookings $ 17.2 $ 17.0 2 % 4 % Amounts in table may not total due to rounding. (1) Previously referred to as our outsourcing business. Nine Months Ended Percent Increase (Decrease) U.S. Dollars Percent Increase (Decrease) Local Currency (in billions of U.S. dollars) May 31, 2023 May 31, 2022 Consulting $ 27.7 $ 29.4 (6) % (1) % Managed Services (1) 27.9 23.9 17 22 Total New Bookings $ 55.6 $ 53.3 4 % 10 % (1) Previously referred to as our outsourcing business. We provide information regarding our new bookings, which include new contracts, including those acquired through acquisitions, as well as renewals, extensions and changes to existing contracts, because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. New bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large managed services contracts. The types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues. For example, managed services bookings, which are typically for multi-year contracts, generally convert to revenue over a longer period of time compared to consulting bookings. Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. New bookings involve estimates and judgments. There are no third-party standards or requirements governing the calculation of bookings. We do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years. New bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations. The majority of our contracts are terminable by the client on short notice with little or no termination penalties, and some without notice. Only the non-cancelable portion of these contracts is included in our remaining performance obligations disclosed in Note 2 (Revenues) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Accordingly, a significant portion of what we consider contract bookings is not included in our remaining performance obligations. Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Results of Operations for the Three Months Ended May 31, 2023 Compared to the Three Months Ended May 31, 2022 Revenues by geographic market, industry group and type of work are as follows: Three Months Ended Percent Increase (Decrease) U.S. Dollars Percent Increase (Decrease) Local Currency Percent of Revenues for the Three Months Ended (in millions of U.S. dollars) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Geographic Markets North America $ 7,721 $ 7,614 1 % 2 % 47 % 47 % Europe 5,615 5,350 5 7 34 33 Growth Markets 3,228 3,195 1 9 19 20 Total $ 16,565 $ 16,159 3 % 5 % 100 % 100 % Industry Groups (1) Communications, Media & Technology $ 2,880 $ 3,223 (11) % (8) % 17 % 20 % Financial Services 3,138 3,079 2 5 19 19 Health & Public Service 3,266 2,917 12 14 20 18 Products 4,968 4,806 3 6 30 30 Resources 2,311 2,134 8 12 14 13 Total $ 16,565 $ 16,159 3 % 5 % 100 % 100 % Type of Work Consulting $ 8,693 $ 9,032 (4) % (1) % 52 % 56 % Managed Services (2) 7,872 7,126 10 13 48 44 Total $ 16,565 $ 16,159 3 % 5 % 100 % 100 % Amounts in table may not total due to rounding. (1) Effective June 1, 2022, we revised the reporting of our industry groups for the movement of Aerospace & Defense from Communications, Media & Technology to Products. Prior period amounts have been reclassified to conform with the current period presentation. (2) Previously referred to as our outsourcing business. Revenues The following revenues commentary discusses local currency revenue changes for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022: Geographic Markets • North America revenues increased 2% in local currency, led by growth in Public Service for our U.S. federal business, Health and Utilities. These increases were partially offset by declines in Communications & Media, High Tech, Software & Platforms and Banking & Capital Markets. Revenue growth was driven by the United States. • Europe revenues increased 7% in local currency, led by growth in Banking & Capital Markets, Industrial and Public Service. Revenue growth was driven by Italy, Germany and France. • Growth Markets revenues increased 9% in local currency, led by growth in Public Service, Chemicals & Natural Resources and Banking & Capital Markets. Revenue growth was led by Japan. Operating Expenses Operating expenses for the third quarter of fiscal 2023 increased $650 million, or 5%, compared to the third quarter of fiscal 2022, and increased as a percentage of revenues to 85.8% compared to 83.9% during this period. The increase as a percentage of revenues is primarily due to business optimization costs of $347 million recorded during the third quarter of fiscal 2023. Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Operating expenses by category are as follows: Three Months Ended (in millions of U.S. dollars) May 31, 2023 May 31, 2022 Increase (Decrease) Operating Expenses $ 14,205 85.8 % $ 13,556 83.9 % $ 650 Cost of services 11,036 66.6 10,844 67.1 191 Sales and marketing 1,739 10.5 1,661 10.3 78 General and administrative costs 1,084 6.5 1,051 6.5 34 Business optimization costs 347 2.1 — — 347 Amounts in table may not total due to rounding. Cost of Services Cost of services for the third quarter of fiscal 2023 increased $191 million, or 2%, over the third quarter of fiscal 2022, and decreased as a percentage of revenues to 66.6% from 67.1% during this period. Gross margin for the third quarter of fiscal 2023 increased as a percentage of revenues to 33.4% over 32.9% during the third quarter of fiscal 2022. The increase in gross margin was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel compared to the same period in fiscal 2022. Sales and Marketing Sales and marketing expense for the third quarter of fiscal 2023 increased $78 million, or 5%, over the third quarter of fiscal 2022, and increased as a percentage of revenues to 10.5% over 10.3% during this period due to higher selling and other business development costs. General and Administrative Costs General and administrative costs for the third quarter of fiscal 2023 increased $34 million, or 3%, over the third quarter of fiscal 2022, and remained flat as a percentage of revenues at 6.5% during this period. Business Optimization Costs During the third quarter of fiscal 2023, we recorded business optimization costs of $347 million, primarily for employee severance. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Operating Income and Operating Margin Operating income for the third quarter of fiscal 2023 decreased $244 million, or 9%, from the third quarter of fiscal 2022. Operating margin for the third quarter of fiscal 2023 was 14.2%, compared with 16.1% for the third quarter of fiscal 2022. The business optimization costs reduced operating margin by 210 basis points. Excluding these costs, operating margin for the third quarter of fiscal 2023 increased 20 basis points to 16.3%. Operating income and operating margin for each of the geographic markets are as follows: Three Months Ended May 31, 2023 May 31, 2022 (in millions of U.S. dollars) Operating Income Operating Margin Operating Income Operating Margin Increase (Decrease) North America $ 1,241 16 % $ 1,380 18 % $ (139) Europe 632 11 694 13 (62) Growth Markets 486 15 530 17 (43) Total $ 2,359 14.2 % $ 2,603 16.1 % $ (244) Amounts in table may not total due to rounding. Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Operating Income and Operating Margin Excluding Business Optimization Costs (Non-GAAP) Three Months Ended May 31, 2023 May 31, 2022 (in millions of U.S. dollars) Operating Income (GAAP) Business Optimization (1) Operating Income (Non-GAAP) Operating Margin (Non-GAAP) Operating Income (GAAP) Operating Margin (GAAP) Increase (Decrease) North America $ 1,241 $ 96 $ 1,338 17 % $ 1,380 18 % $ (42) Europe 632 166 798 14 694 13 104 Growth Markets 486 84 571 18 530 17 41 Total $ 2,359 $ 347 $ 2,706 16.3 % $ 2,603 16.1 % $ 103 Amounts in table may not total due to rounding. (1) Costs recorded in connection with our business optimization initiatives, primarily for employee severance. We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during the third quarter of fiscal 2023 was similar to that disclosed for revenue for each geographic market. In addition, during the third quarter of fiscal 2023 each geographic market’s operating income was unfavorably impacted by business optimization costs. The commentary below provides insight into other factors affecting geographic market performance and operating income for the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022: • North America operating income decreased as revenue growth was more than offset by lower consulting contract profitability as well as higher selling and other business development costs as a percentage of revenues. • Europe operating income increased primarily due to revenue growth. • Growth Markets operating income increased primarily due to revenue growth, partially offset by an increase in selling and other business development costs as a percentage of revenues. Interest Income Interest income for the third quarter of fiscal 2023 was $82 million, an increase of $73 million over the third quarter of fiscal 2022. The increase was primarily due to higher interest rates. Other Income (Expense), net Other income (expense), net primarily consists of foreign currency gains and losses, non-operating components of pension expense, as well as gains and losses associated with our investments. During the third quarter of fiscal 2023, other income (expense), net increased $211 million over the third quarter of fiscal 2022, primarily due to higher gains on investments. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Loss on Disposition of Russia Business We recorded a loss from the disposal of our business in Russia of $96 million during the third quarter of fiscal 2022. Income Tax Expense The effective tax rates for the third quarter of fiscal 2023 and 2022 were 22.2% and 27.1%, respectively. Absent the business optimization costs of $347 million and related reduction in tax expense of $80 million, and the investment gain of $253 million and related tax expense of $9 million, our effective tax rate was 24.0% for the three months ended May 31, 2023. The lower effective tax rate for the third quarter of fiscal 2023 was primarily due to lower tax expense from changes in the geographic distribution of earnings and higher benefits from adjustments to prior year tax liabilities. Earnings Per Share Diluted earnings per share were $3.15 for the third quarter of fiscal 2023, compared with $2.79 for the third quarter of fiscal 2022. The $267 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $0.42 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for the third quarter of fiscal 2023. Excluding these impacts, diluted earnings per share were $3.19 for the third quarter of fiscal 2023. For information regarding our earnings per share calculations, see Note 3 (Earnings Per Share) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 The increase in diluted earnings per share was due to the following factors: Earnings Per Share Q3 FY22 As Reported $ 2.79 Higher revenue and operating results 0.12 Loss on disposition of Russia business recorded in fiscal 2022 0.15 Lower effective tax rate (excluding loss on disposition of Russia business) 0.09 Higher non-operating income (excluding loss on disposition of Russia business) 0.04 Lower share count 0.01 Higher net income attributable to noncontrolling interests (0.01) Q3 FY23 As Adjusted $ 3.19 Gain on an investment, net of tax 0.38 Business optimization costs (0.42) Q3 FY23 As Reported $ 3.15 Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Results of Operations for the Nine Months Ended May 31, 2023 Compared to the Nine Months Ended May 31, 2022 Revenues by geographic market, industry group and type of work are as follows: Nine Months Ended Percent Increase (Decrease) U.S. Dollars Percent Increase (Decrease) Local Currency Percent of Revenues for the Nine Months Ended (in millions of U.S. dollars) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Geographic Markets North America $ 22,742 $ 21,598 5 % 6 % 47 % 47 % Europe 15,988 15,460 3 12 33 33 Growth Markets 9,397 9,112 3 14 20 20 Total $ 48,127 $ 46,171 4 % 10 % 100 % 100 % Industry Groups (1) Communications, Media & Technology $ 8,745 $ 9,119 (4) % 1 % 18 % 20 % Financial Services 9,104 8,869 3 9 19 19 Health & Public Service 9,290 8,334 11 15 19 18 Products 14,353 13,797 4 10 30 30 Resources 6,634 6,052 10 16 14 13 Total $ 48,127 $ 46,171 4 % 10 % 100 % 100 % Type of Work Consulting $ 25,416 $ 25,747 (1) % 4 % 53 % 56 % Managed Services (2) 22,710 20,424 11 16 47 44 Total $ 48,127 $ 46,171 4 % 10 % 100 % 100 % Amounts in table may not total due to rounding. (1) Effective June 1, 2022, we revised the reporting of our industry groups for the movement of Aerospace & Defense from Communications, Media & Technology to Products. Prior period amounts have been reclassified to conform with the current period presentation. (2) Previously referred to as our outsourcing business. Revenues The following revenues commentary discusses local currency revenue changes for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022: Geographic Markets • North America revenues increased 6% in local currency, led by growth in Public Service for our U.S. federal business, Health and Utilities. These increases were partially offset by a decline in Communications & Media. Revenue growth was driven by the United States. • Europe revenues increased 12% in local currency, led by growth in Industrial, Banking & Capital Markets and Public Service. Revenue growth was driven by Germany, Italy and France. • Growth Markets revenues increased 14% in local currency, led by growth in Banking & Capital Markets, Public Service and Chemicals & Natural Resources. Revenue growth was led by Japan. Operating Expenses Operating expenses for the nine months ended May 31, 2023 increased $2,158 million, or 6%, compared to the nine months ended May 31, 2022, and increased as a percentage of revenues to 85.7% compared to 84.6% during this period. The increase as a percentage of revenues is primarily due to business optimization costs of $591 million recorded during the nine months ended May 31, 2023. Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32 Operating expenses by category are as follows: Nine Months Ended (in millions of U.S. dollars) May 31, 2023 May 31, 2022 Increase (Decrease) Operating Expenses $ 41,230 85.7 % $ 39,072 84.6 % $ 2,158 Cost of services 32,577 67.7 31,415 68.0 1,161 Sales and marketing 4,852 10.1 4,530 9.8 322 General and administrative costs 3,210 6.7 3,126 6.8 83 Business optimization costs 591 1.2 — — 591 Amounts in table may not total due to rounding. Cost of Services Cost of services for the nine months ended May 31, 2023 increased $1,161 million, or 4%, over the nine months ended May 31, 2022, and decreased as a percentage of revenues to 67.7% from 68.0% during this period. Gross margin for the nine months ended May 31, 2023 increased to 32.3% over 32.0% during the nine months ended May 31, 2022. The increase in gross margin was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel compared to the same period in fiscal 2022. Sales and Marketing Sales and marketing expense for the nine months ended May 31, 2023 increased $322 million, or 7%, over the nine months ended May 31, 2022, and increased as a percentage of revenues to 10.1% over 9.8% during this period due to higher selling and other business development costs. General and Administrative Costs General and administrative costs for the nine months ended May 31, 2023 increased $83 million, or 3%, over the nine months ended May 31, 2022, and decreased as a percentage of revenues to 6.7% from 6.8% during this period. Business Optimization Costs During the nine months ended May 31, 2023, we recorded business optimization costs of $591 million, primarily for employee severance. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Operating Income and Operating Margin Operating income for the nine months ended May 31, 2023 decreased $202 million, or 3%, compared with the nine months ended May 31, 2022. Operating margin for the nine months ended May 31, 2023 was 14.3%, compared with 15.4% for the nine months ended May 31, 2022. The business optimization costs reduced operating margin by 130 basis points. Excluding these costs, operating margin for the nine months ended May 31, 2023 increased 20 basis points to 15.6%. Operating income and operating margin for each of the geographic markets are as follows: Nine Months Ended May 31, 2023 May 31, 2022 (in millions of U.S. dollars) Operating Income Operating Margin Operating Income Operating Margin Increase (Decrease) North America $ 3,375 15 % $ 3,715 17 % $ (340) Europe 1,895 12 1,970 13 (75) Growth Markets 1,627 17 1,414 16 213 Total $ 6,897 14.3 % $ 7,099 15.4 % $ (202) Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Operating Income and Operating Margin Excluding Business Optimization Costs (Non-GAAP) Nine Months Ended May 31, 2023 May 31, 2022 (in millions of U.S. dollars) Operating Income (GAAP) Business Optimization (1) Operating Income (Non-GAAP) Operating Margin (Non-GAAP) Operating Income (GAAP) Operating Margin (GAAP) Increase (Decrease) North America $ 3,375 $ 273 $ 3,648 16 % $ 3,715 17 % $ (67) Europe 1,895 207 2,102 13 1,970 13 132 Growth Markets 1,627 111 1,738 18 1,414 16 324 Total $ 6,897 $ 591 $ 7,488 15.6 % $ 7,099 15.4 % $ 389 (1) Costs recorded in connection with our business optimization initiatives, primarily for employee severance. We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during the nine months ended May 31, 2023 was similar to that disclosed for revenue for each geographic market. In addition, during the nine months ended May 31, 2023 each geographic market’s operating income was unfavorably impacted by business optimization costs. The commentary below provides insight into other factors affecting geographic market performance and operating income, including the impact of foreign currency exchange rates where significant, for the nine months ended May 31, 2023 compared with the nine months ended May 31, 2022: • North America operating income decreased as revenue growth was more than offset by higher labor costs, including an increase in selling and other business development costs as a percentage of revenues. • Europe operating income increased due to revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates. • Growth Markets operating income increased primarily due to higher contract profitability and revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates. Interest Income Interest income for the nine months ended May 31, 2023 was $177 million, an increase of $155 million over the nine months ended May 31, 2022. The increase was primarily due to higher interest rates. Other Income (Expense), net Other income (expense), net primarily consists of foreign currency gains and losses, non-operating components of pension expense, as well as gains and losses associated with our investments. During the nine months ended May 31, 2023, other income (expense), net increased $176 million over the nine months ended May 31, 2022, primarily due to higher gains on investments, partially offset by foreign currency exchange losses. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements." Loss on Disposition of Russia Business We recorded a loss from the disposal of our business in Russia of $96 million during the nine months ended May 31, 2022. Income Tax Expense The effective tax rates for the nine months ended May 31, 2023 and 2022 were 22.1% and 23.8%, respectively. Absent the business optimization costs of $591 million and related reduction in tax expense of $132 million, and the investment gain of $253 million and related tax expense of $9 million, our effective tax rate was 22.7% for the nine months ended May 31, 2023. The lower effective tax rate for the nine months ended May 31, 2023 was primarily due to lower tax expense from changes in the geographic distribution of earnings and higher benefits from adjustments to prior year tax liabilities, partially offset by lower tax benefits from share-based payments. Earnings Per Share Diluted earnings per share were $8.62 for the nine months ended May 31, 2023, compared with $8.11 for the nine months ended May 31, 2022. The $459 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $0.72 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for the nine months ended May 31, 2023. Excluding these impacts, diluted earnings per share were $8.96 for the nine months ended May 31, 2023. For information regarding our earnings per share calculations, see Note 3 (Earnings Per Share) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 The increase in diluted earnings per share was due to the following factors: Earnings Per Share FY22 As Reported $ 8.11 Higher revenue and operating results 0.46 Loss on disposition of Russia business recorded in fiscal 2022 0.15 Higher non-operating income (excluding loss on disposition of Russia business) 0.10 Lower effective tax rate (excluding loss on disposition of Russia business) 0.09 Lower share count 0.07 Higher net income attributable to noncontrolling interests (0.02) FY23 As Adjusted $ 8.96 Gain on an investment, net of tax 0.38 Business optimization costs (0.72) FY23 As Reported $ 8.62 Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Liquidity and Capital Resources As of May 31, 2023, Cash and cash equivalents was $8.5 billion, compared with $7.9 billion as of August 31, 2022. Cash flows from operating, investing and financing activities, as reflected in our Consolidated Cash Flows Statements, are summarized in the following table: Nine Months Ended (in millions of U.S. dollars) May 31, 2023 May 31, 2022 Change Net cash provided by (used in): Operating activities $ 6,115 $ 5,751 $ 364 Investing activities (1,255) (2,852) 1,597 Financing activities (4,165) (4,210) 45 Effect of exchange rate changes on cash and cash equivalents (49) (154) 105 Net increase (decrease) in cash and cash equivalents $ 646 $ (1,465) $ 2,110 Amounts in table may not total due to rounding. Operating activities: The $364 million increase in operating cash flows was primarily due to higher net income as well as higher collections on net client balances (receivables from clients, contract assets and deferred revenues), partially offset by higher spending on certain compensation payments. Investing activities: The $1,597 million decrease in cash used was primarily due to lower spending on business acquisitions and higher proceeds from the sale of businesses and investments. For additional information, see Note 5 (Business Combinations) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Financing activities: The $45 million decrease in cash used was primarily due to a decrease in the net purchases of shares as well as an increase in net proceeds from share issuances, partially offset by an increase in cash dividends paid. For additional information, see Note 7 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 1, “Financial Statements.” We believe that our current and longer-term working capital, investments and other general corporate funding requirements will be satisfied for the next twelve months and thereafter through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities. Substantially all of our cash is held in jurisdictions where there are no regulatory restrictions or material tax effects on the free flow of funds. Domestic cash inflows for our Irish parent, principally dividend distributions from lower-tier subsidiaries, have been sufficient to meet our historic cash requirements, and we expect this to continue into the future. Borrowing Facilities As of May 31, 2023, we had the following borrowing facilities, including the issuance of letters of credit, to support general working capital purposes: (in millions of U.S. dollars) Facility Amount Borrowings Under Facilities Syndicated loan facility $ 3,000 $ — Separate, uncommitted, unsecured multicurrency revolving credit facilities 1,755 — Local guaranteed and non-guaranteed lines of credit 246 — Total $ 5,001 $ — Under the borrowing facilities described above, we had an aggregate of $1,028 million of letters of credit outstanding as of May 31, 2023. We have a short-term commercial paper financing program backed by our $3 billion syndicated credit facility. As of May 31, 2023, we had no commercial paper outstanding. Table of Contents ACCENTURE FORM 10-Q Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36 Share Purchases and Redemptions The Board of Directors of Accenture plc has authorized funding for our publicly announced open-market share purchase program for acquiring Accenture plc Class A ordinary shares and for purchases and redemptions of Accenture plc Class A ordinary shares and Accenture Canada Holdings Inc. exchangeable shares held by current and former members of Accenture Leadership and their permitted transferees. Our share purchase activity during the nine months ended May 31, 2023 is as follows: Accenture plc Class A Ordinary Shares Accenture Canada Holdings Inc. Exchangeable Shares (in millions of U.S. dollars, except share amounts) Shares Amount Shares Amount Open-market share purchases (1) 9,623,466 $ 2,647 — $ — Other share purchase programs — — 13,935 4 Other purchases (2) 2,486,767 675 — — Total 12,110,233 $ 3,322 13,935 $ 4 (1) We conduct a publicly announced open-market share purchase program for Accenture plc Class A ordinary shares. These shares are held as treasury shares by Accenture plc and may be utilized to provide for select employee benefits, such as equity awards to our employees. (2) During the nine months ended May 31, 2023, as authorized under our various employee equity share plans, we acquired Accenture plc Class A ordinary shares primarily via share withholding for payroll tax obligations due from employees and former employees in connection with the delivery of Accenture plc Class A ordinary shares under those plans. These purchases of shares in connection with employee share plans do not affect our aggregate available authorization for our publicly announced open-market share purchase and the other share purchase programs. We intend to continue to use a significant portion of cash generated from operations for share repurchases during the remainder of fiscal 2023. The number of shares ultimately repurchased under our open-market share purchase program may vary depending on numerous factors, including, without limitation, share price and other market conditions, our ongoing capital allocation planning, the levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic and/or business conditions, and board and management discretion. Additionally, as these factors may change over the course of the year, the amount of share repurchase activity during any particular period cannot be predicted and may fluctuate from time to time. Share repurchases may be made from time to time through open-market purchases, in respect of purchases and redemptions of Accenture Canada Holdings Inc. exchangeable shares, through the use of Rule 10b5-1 plans and/or by other means. The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice. Off-Balance Sheet Arrangements In the normal course of business and in conjunction with some client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients with respect to certain matters. To date, we have not been required to make any significant payment under any of the arrangements described above. For further discussion of these transactions, see Note 10 (Commitments and Contingencies) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Significant Accounting Policies See Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.” Table of Contents ACCENTURE FORM 10-Q Item 3. Quantitative and Qualitative Disclosures About Market Risk 37