What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-19 compared with 2023-06-22 · 112 added, 281 removed, 207 unchanged (66% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations 22

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.

Revenues for the first quarter of fiscal 2024 increased 3% in U.S.

dollars and 1% in local currency compared to the first quarter of fiscal 2023.

During the first quarter of fiscal 2024, revenue growth in local currency was solid in Growth Markets and modest in EMEA, partially offset by a slight decline in North America.

We experienced local currency revenue growth that was very strong in Health & Public Service, strong in Resources, slight in Products and flat in Financial Services, partially offset by a significant decline in Communications, Media & Technology.

Revenue growth in local currency was solid in managed services, partially offset by a modest decline in consulting during the first quarter of fiscal 2024.

The business environment is competitive, and we have been experiencing lower pricing across the business.

We define pricing as contract profitability or margin on the work that we sell.

In our consulting business, revenues for the first quarter of fiscal 2024 were flat in U.S.

dollars and decreased 2% in local currency compared to the first quarter of fiscal 2023.

The decline in consulting revenue in local currency for the first quarter of fiscal 2024 was driven by modest declines in North America and EMEA, while Growth Markets 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.

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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.

In our managed services business, revenues for the first quarter of fiscal 2024 increased 6% in U.S.

dollars and 5% in local currency compared to the first quarter of fiscal 2023.

Managed services revenue in local currency for the first quarter of fiscal 2024 was driven by very strong growth in Growth Markets and EMEA, while North America was flat.

We continue to experience growing demand to assist clients with application modernization and maintenance, cloud enablement and cybersecurity-as-a-service.

In addition, clients continue to be focused on transforming their operations through technology, data and AI, and leveraging our digital platforms and talent 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.

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dollars may be lower.

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.

dollar weakened against various currencies during the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, resulting in favorable currency translation and U.S.

dollar revenue growth that was approximately 1.5% higher than our revenue growth in local currency.

Assuming that exchange rates stay within recent ranges for the remainder of fiscal 2024, we estimate that our full fiscal 2024 revenue growth in U.S.

dollars will be approximately 4% lower than our revenue growth in local currency.

dollars will be approximately equal to our revenue growth in local currency.

People Metrics

Annualized Voluntary Attrition

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.

consistent with the first quarter of fiscal 2023

compared to approximately 738,000 as of November 30, 2022

compared to 13% in the first quarter of fiscal 2023

Utilization for the first quarter of fiscal 2024 was 91%, consistent with the first quarter of fiscal 2023.

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.

Our workforce, the majority of which serves our clients, increased to approximately 743,000 as of November 30, 2023, compared to approximately 738,000 as of November 30, 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.

For the first quarter of fiscal 2024, annualized attrition, excluding involuntary terminations, was 11%, down from 13% in the first quarter of fiscal 2023.

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.

In addition, we adjust compensation to provide market relevant pay based on the skills of our people and locations where we operate.

We also consider a variety of factors, including the macroeconomic environment, in making our decisions around pay and benefits.

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.

ACCENTURE FORM 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations 23

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.

Our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to:

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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:

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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.

Gross margin (Revenues less Cost of services as a percentage of Revenues) for the first quarter of fiscal 2024 was 33.6%, compared with 32.9% for the first quarter of fiscal 2023.

The increase in gross margin for the first quarter of fiscal 2024 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 16.9% for the first quarter of fiscal 2024 compared with 16.5% for the first quarter of fiscal 2023.

For the first quarter of fiscal 2024 compared to the same period in fiscal 2023, Sales and marketing costs increased 70 basis points due to higher selling and other business development costs as a percentage of revenues.

For the first quarter of fiscal 2024 compared to the same period in fiscal 2023, General and administrative costs decreased 20 basis points as a percentage of revenues.

During the three months ended November 30, 2023, we recorded $140 million in business optimization costs, 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 first quarter of fiscal 2024 was 15.8%, compared with 16.5% for the first quarter of fiscal 2023.

The business optimization costs recorded during the three months ended November 30, 2023 reduced operating margin by 90 basis points.

Excluding these costs, operating margin for the three months ended November 30, 2023 increased 20 basis points to 16.7%.

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.

The effective tax rates for the first quarter of fiscal 2024 and 2023 were 23.2% and 23.3%, respectively.

The business optimization costs of $140 million and related reduction in tax expense of $34 million for the three months ended November 30, 2023 had an immaterial impact on our effective tax rate.

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

ACCENTURE FORM 10-Q

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.

Diluted earnings per share were $3.10 for the first quarter of fiscal 2024, compared with $3.08 for the first quarter of fiscal 2023.

The $106 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $0.17 for the first quarter of fiscal 2024.

Excluding these impacts, diluted earnings per share were $3.27 for the first quarter of fiscal 2024.

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.

For fiscal 2024, we have presented operating income, operating margin, effective tax rate and diluted earnings per share 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.

ACCENTURE FORM 10-Q

Management’s Discussion and Analysis of Financial Condition and Results of Operations 24

Three Months Ended Percent

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(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

Dollars Percent

(in billions of U.S.

dollars) May 31, 2023 May 31, 2022

dollars) November 30, 2023 November 30, 2022

Consulting $ 8.6 $ 8.1 6 % 5 %

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Total New Bookings $ 18.4 $ 16.2 14 % 12 %

(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.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations 25

Results of Operations for the Three Months Ended May 31, 2023 Compared to the Three Months Ended May 31, 2022

Results of Operations for the Three Months Ended November 30, 2023 Compared to the Three Months Ended November 30, 2022

Revenues by geographic market, industry group and type of work are as follows:

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(in millions of U.S.

dollars) May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

dollars) November 30, 2023 November 30, 2022 November 30, 2023 November 30, 2022

Geographic Markets (1)

North America $ 7,563 $ 7,623 (1) % (1) % 47 % 48 %

Europe 5,615 5,350 5 7 34 33

EMEA 5,804 5,313 9 2 36 34

Growth Markets 2,858 2,812 2 5 18 18

11 unchanged sentences

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.

(1) Effective September 1, 2023, we revised the reporting of our geographic markets for the movement of our Middle East and Africa market units from Growth Markets to Europe, and the Europe market is now referred to as our EMEA (Europe, Middle East and Africa) geographic market.

Prior period amounts have been reclassified to conform with the current period presentation.

(2) Previously referred to as our outsourcing business.

The following revenues commentary discusses local currency revenue changes for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022:

The following revenues commentary discusses local currency revenue changes for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023:

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.

• North America revenues decreased 1% in local currency, due to declines in Communications & Media, Software & Platforms and Banking & Capital Markets.

These decreases were partially offset by growth in Public Service.

The decline in revenues was driven by the United States.

• EMEA revenues increased 2% in local currency, led by growth in Public Service and Banking & Capital Markets.

These increases were partially offset by a decline in Communications & Media.

Revenue growth was driven by Italy, Austria and France, partially offset by a decline in the United Kingdom.

• Growth Markets revenues increased 5% in local currency, led by growth in Chemicals & Natural Resources, Public Service, and Banking & Capital Markets.

Revenue growth was driven 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.

Operating expenses for the first quarter of fiscal 2024 increased $505 million, or 4%, compared to the first quarter of fiscal 2023, and increased as a percentage of revenues to 84.2% compared to 83.5% during this period.

The increase as a percentage of revenues is primarily due to business optimization costs of $140 million recorded during the first quarter of fiscal 2024.

ACCENTURE FORM 10-Q

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(in millions of U.S.

dollars) May 31, 2023 May 31, 2022 Increase

dollars) November 30, 2023 November 30, 2022 Increase

Operating Expenses $ 13,659 84.2 % $ 13,155 83.5 % $ 505

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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.

Cost of services for the first quarter of fiscal 2024 increased $215 million, or 2%, over the first quarter of fiscal 2023, and decreased as a percentage of revenues to 66.4% from 67.1% during this period.

Gross margin for the first quarter of fiscal 2024 increased as a percentage of revenues to 33.6% over 32.9% during the first quarter of fiscal 2023.

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 2023.

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.

Sales and marketing expense for the first quarter of fiscal 2024 increased $160 million, or 10%, over the first quarter of fiscal 2023, and increased as a percentage of revenues to 10.5% over 9.8% during this period due to higher selling and other business development costs as a percentage of revenues.

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.

General and administrative costs for the first quarter of fiscal 2024 decreased $10 million, or 1%, from the first quarter of fiscal 2023, and decreased as a percentage of revenues to 6.4% from 6.6% 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.

During the first quarter of fiscal 2024, we recorded business optimization costs of $140 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.

Operating income for the first quarter of fiscal 2024 decreased $28 million, or 1%, from the first quarter of fiscal 2023.

Operating margin for the first quarter of fiscal 2024 was 15.8%, compared with 16.5% for the first quarter of fiscal 2023.

The business optimization costs reduced operating margin by 90 basis points.

Excluding these costs, operating margin for the third quarter of fiscal 2023 increased 20 basis points to 16.3%.

Excluding these costs, operating margin for the first quarter of fiscal 2024 increased 20 basis points to 16.7%.

Operating income and operating margin for each of the geographic markets are as follows:

Three Months Ended

May 31, 2023 May 31, 2022

November 30, 2023 November 30, 2022

(in millions of U.S.

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North America $ 1,257 17 % $ 1,310 17 % $ (53)

Europe 632 11 694 13 (62)

EMEA (1) 824 14 727 14 97

Growth Markets (1) 485 17 556 20 (72)

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Amounts in table may not total due to rounding.

Prior period amounts have been reclassified to conform with the current period presentation.

ACCENTURE FORM 10-Q

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Three Months Ended

May 31, 2023 May 31, 2022

November 30, 2023 November 30, 2022

(in millions of U.S.

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North America $ 1,257 $ 46 $ 1,303 17 % $ 1,310 17 % $ (7)

Europe 632 166 798 14 694 13 104

EMEA (2) 824 71 894 15 727 14 168

Growth Markets (2) 485 23 508 18 556 20 (49)

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(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.

(2) Effective September 1, 2023, we revised the reporting of our geographic markets for the movement of our Middle East and Africa market units from Growth Markets to Europe, and the Europe market is now referred to as our EMEA (Europe, Middle East and Africa) geographic market.

Prior period amounts have been reclassified to conform with the current period presentation.

We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during the first quarter of fiscal 2024 was similar to that disclosed for revenue for each geographic market.

In addition, during the first quarter of fiscal 2024 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 first quarter of fiscal 2024 compared with the first quarter of fiscal 2023:

• North America operating income was relatively flat year-over-year as a decline in consulting revenue and lower contract profitability was offset by lower labor costs.

• EMEA operating income increased primarily due to managed services revenue growth in local currency and the positive impact of foreign currency exchange rates which resulted in an increase in U.S.

dollar revenues.

• Growth Markets operating income decreased as revenue growth was more than offset by lower contract profitability and 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.

Interest income for the first quarter of fiscal 2024 was $102 million, an increase of $57 million over the first quarter of fiscal 2023.

The increase was primarily due to higher cash balances and interest rates.

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.

The effective tax rates for the first quarter of fiscal 2024 and 2023 were 23.2% and 23.3%, respectively.

The business optimization costs of $140 million and related reduction in tax expense of $34 million for the three months ended November 30, 2023 had an immaterial impact on our effective tax rate.

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.

Excluding these impacts, diluted earnings per share were $3.19 for the third quarter of fiscal 2023.

Diluted earnings per share were $3.10 for the first quarter of fiscal 2024, compared with $3.08 for the first quarter of fiscal 2023.

The $106 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $0.17.

Excluding these impacts, diluted earnings per share were $3.27 for the first quarter of fiscal 2024.

For information regarding our earnings per share calculations, see Note 3 (Earnings Per Share) to our Consolidated Financial Statements under Item 1, “Financial Statements.”

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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:

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Higher revenue and operating results 0.14

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

Higher non-operating income 0.05

Lower share count 0.01

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Q1 FY24 As Adjusted $ 3.27

Gain on an investment, net of tax 0.38

Business optimization costs (0.17)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations 28

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

Dollars Percent

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 %

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.

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.

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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

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.

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

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)

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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

(Non-GAAP) Operating

Income (GAAP) Operating

Margin (GAAP) Increase

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.”

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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

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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.

As of November 30, 2023, Cash and cash equivalents was $7.1 billion, compared with $9.0 billion as of August 31, 2023.

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

Three months ended

(in millions of U.S.

dollars) May 31, 2023 May 31, 2022 Change

dollars) November 30, 2023 November 30, 2022 Change

Net cash provided by (used in):

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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.

The $3 million increase in operating cash flows was primarily due to higher net income, partially offset by changes in operating assets and liabilities.

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.

The $73 million increase in cash used was primarily due to higher spending on business acquisitions.

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.

The $125 million decrease in cash used was primarily due to a decrease in the net purchases of shares, 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.”

3 unchanged sentences

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:

As of November 30, 2023, we had the following borrowing facilities:

(in millions of U.S.

dollars) Facility

Amount Borrowings

dollars) Credit Facilities

Syndicated loan facility (1) $ 3,000

2 unchanged sentences

Total $ 5,122

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.

Amounts in table may not total due to rounding.

(1) This facility, which matures on April 24, 2026, provides unsecured, revolving borrowing capacity for general corporate capital purposes, including the issuance of letters of credit and short-term commercial paper.

Borrowings under this facility will accrue interest at the applicable risk-free rate plus a spread.

We continue to be in compliance with relevant covenant terms.

The facility is subject to annual commitment fees.

As of November 30, 2023, we had $100 million of commercial paper outstanding and backed by this facility, with a weighted-average effective interest rate of 5.4%.

Under the borrowing facilities described above, we had an aggregate of $1,099 million of letters of credit outstanding as of November 30, 2023.

We also had $100 million of commercial paper outstanding as of November 30, 2023.

The amount of commercial paper and letters of credit outstanding reduces the available borrowing capacity under these facilities.

ACCENTURE FORM 10-Q

3 unchanged sentences

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:

Our share purchase activity during the three months ended November 30, 2023 is as follows:

Accenture plc Class A

10 unchanged sentences

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.

(2) During the three months ended November 30, 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.

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis