Q1 2021 Booz Allen Hamilton Holding Corp Earnings Call
Good morning, Thank you for expanded by and welcome to Booz Allen Hamilton earnings call corporate first quarter results for fiscal year 2021.
At this time all participants are in a listen only mode. Later, there will be up opportunity for question Oh, not like to turn the call over to Mr. William.
Thank you. Good morning, Thank you for joining us for Booz Allen's first quarter 2021 for anything else.
We hope you got an opportunity to read the press release that we issued earlier this month.
We've also provided presentation slides on our website in are now it's like too.
I'm, all Yates interim head of Investor Relations and with me to talk about her business and financial results or else you ever Dansky, our president and Chief Executive Officer.
And Lloyd Howell Executive Vice President Chief Financial Officer, and Treasurer.
As shown on the disclaimer on slide three please keep in mind that some of the items. We won't discuss this morning will include statements that may be considered forward looking and therefore are subject to known and unknown risks and uncertainties, which may cause our actual results in the future periods to differ materially from forecasted results.
Those risks and uncertainties include among other things general economic conditions, the availability of government funding for our company services and other factors discussed in todays earnings release and set forth under the forward looking statements disclaimer included in our first quarter fiscal 2021 earnings release and RCC.
Filings.
We caution you not to place undue reliance on any forward looking statements that we may make today and remind you that we assume no obligation to update or revise the information discussed on this call.
During today's call. We will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.
We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal year 2021 slot. It's now my pleasure to turn the call over to our CEO Ross you ever Dansky, we're now on slide five.
Thank you well.
And welcome to the earnings calls good morning, everyone. Thanks for joining us.
I would like to start this morning, and it's somewhat unconventional way.
But one that is very much in keeping with our culture of Booz Allen.
At the start of every leadership meeting, we usually take a moment to focus on an aspect of our purpose in values.
Today, we'd like to do the same here.
Well its purpose is to empower people to change the world.
To empower people.
To change the world.
And to US it's not a tag line.
It's a statement the guides, our thinking and our actions.
In recent weeks.
Prompted by the horrific killings, Oh, George Floyd, Briana, Taylor and I'm not I'm sorry.
There has been a reckoning in our country about deep seated racial in equity.
And then long overdue acknowledgment of the pain felt into black community.
Inside our firm.
We have encouraged open direct.
And at times very difficult conversations about racism and injustice.
Thousands of US how participated in a virtual all hands.
Many more joined team meetings and listening sessions.
And communicated with us through emails and one on one discussions with me.
Another senior leaders.
Our colleagues sub offer deeply personal stories.
Ideas feedback.
<unk> action.
And a real passion for change.
I'd personal level.
I have learned.
And I have grown through each interaction.
Hi, I'm deeply grateful for the honesty, how did trust that people have extended to me.
And I still either of these from I'm committed to doing more.
Because we're not booz Allen.
We say that black lives matter.
We're not making a political statement.
We're making a statement about our values.
You know the June.
Our from commented publicly to taking action along six dimensions.
Our race and social equity agenda has both internal and external elements.
The six points are as follows.
Number one.
We will undertake an independent assessment of our business practices affect people off color.
Second.
We will intensify our efforts on accountability to increase representation of people of color at all levels.
Third.
We have already increased personal time in space as well as resources.
Our employees mental health.
Fourth.
We are accelerating diversity and inclusion learning opportunities for all employees.
We're making race and social Justice a major element of our corporate philanthropy.
And six.
Was that one has a unique voice and unique capabilities.
And combined with our talents, we will use them towards on social justice to work with our community partners.
What we heard from our people what I heard from our people.
Is that they want booz Allen to be a sustained catalyst for change.
And with that in mind, we have crafted a comprehensive agenda that will endure and we'll have all of us we learn.
It's not just the right thing to do.
And not just Oh this moment.
Our purpose and values demand that we take action today and into the future.
Lloyd.
You have been a leader in this effort.
Offering guidance and insights that have been crucial to shaping our agenda.
I know you want to have your voice through this conversation.
So let me turn the floor over to you.
Thanks.
The past few months I've been challenging for our country and our firm.
Well I eat smart 32 years.
[music].
Right.
My family.
I mean it.
And just like with all family.
Difficult conversations are needed.
This is one of the time.
I'm proud to be part of one of the most diverse leadership team in corporate America today.
Our board of directors.
<unk> than most.
This is clearly affirmed that cares about people.
And about diversity and inclusion.
What is also clear that we have work to do.
Inside Booz Allen and throughout Society.
Alright, and social equity agenda acknowledges that.
It says that the be airports for change in the world, We must start by ensuring that every person at our firm field empowered.
But those who have been margin.
No they had the boys.
I see that the table and an opportunity to thrive.
I have experience from at the place of opportunity and I believe that it can be a force for good in the world.
That's what do me here all those years ago called me back after a short stay on Wall Street, and that's kept me at our firm.
Furthermore.
This is an issue all of our stakeholders care about.
From employees and client.
Our strategic partners and investors.
I look forward to the progress we can be.
And to continuing the journey with you Horacia.
And the rest of my colleagues.
Thank you Lloyd I.
I couldn't agree more.
And thanks again for your leadership.
Northern I felt strongly that we needed to begin our earnings call on this topic because the outstanding performance that we discussed with you our analysts or investors year after year.
Rests on the foundation of our people.
Our purpose.
And our passion.
Let's turn out to said business performance.
As you saw in the press release, we have another excellent first quarter.
The besides just operating well and we continue to support our clients investing our people and managed through the complexity of the covert 19 pandemic.
Despite all the things that are different and more challenging than in a typical year.
Our team has delivered another strong start.
Our people continue to demonstrate their value to clients missions and this institution in these truly unprecedented times.
It is my highest priority.
Share by every member of the board and the leadership team.
To make them feel support it.
And to endeavor to keep him safe as they do their critical work.
Three months into the fiscal year.
Our financial results aligned with our expectations for the full year.
Across all the key metrics were pleased with our performance.
You'll recall from our main earnings call that we forecast a strong first half any more uncertain second half.
At this point.
Yeah, no into the back half of the year remain.
First we do not know how the pandemic, what progress or affect our people clients and business over the full fiscal year.
Second it's still too early to tell how they federal appropriations process will play out this fall.
I'm third.
And it's unclear what budget related impact November selection may have.
Despite decent knows we are affirming our guidance for the fiscal year, we are looking for opportunities to use our strong balance sheet I'll say strategic asset.
Turning now to the pandemic and Booz Allen's response I.
As we've said before we see it evolving in city faces.
The first phase emergency response was from late January through April.
Now and for most of this fiscal year, we expect to be in phase two.
The period when they virus is still circulating.
And there was no proven treatment or vaccine.
We continue to emphasize tell they work.
With more than 80% of our billable work being done remotely.
And we have collaborated closely with clients to put hundreds Oh safe return plans in place for those horse work requires them to be at it facility.
Also we're pleased that a significant portion of the hundred million dollars. We set aside in response to the pandemic remain available.
Throughout the year, we will continue supporting our people and investing in health and safety programs.
During the first quarter.
Our leaders executed the business, well recruiting and hiring talent managing contracts, winning new opportunities developing our capabilities and making progress on our option value portfolio.
Our defense in civil markets.
Representing three quarters of our business continued to deliver robust growth.
The intelligence market has been more affected by the pandemic.
But it's showing positive signs in terms of our recruiting and opportunity pipeline.
And in global commercial we continued to see strength in our cyber oriented work.
Across all markets, we're positioned at the intersection of mission and technology, where demand is robust.
Our book to Bill ratio will say first quarter record.
And we're especially excited about the content and quality of the work.
Significant awards across the portfolio.
Showed that we've invested in the right capabilities to support our government I see it scales new technologies into mission.
For example.
Under a nearly 1 billion dollar recompete win.
We will help the army expanded use of virtual reality and artificial intelligence tools in critical learning.
The program.
Called emergent threat training and readiness capability or 82 our C.
His deliver that basis worldwide.
We are extremely proud of this work.
Yes, it helps protect forward deployed soldiers from emerging threats.
A second example.
He started work on the joint artificial intelligence center or Jake.
Where we are helping to source and integrate the best AI technologies into priority de missions.
The contract announced in May.
How about Operationalizing AI at scale.
And represents our biggest most strategic went to date.
Spanning a portfolio of about 78 projects across multiple federal agencies.
And finally.
I would mention a significant digital transformation when that the IRS.
Under a contract Cold Enterprise case management solution integrate our services.
We are building on enterprise wide case management platform that will help mother, nice IRS systems reduce costs improve efficiency and vastly improve service the taxpayers.
These programs and many other opportunities in our pipelines.
We'll continue to show Booz Allen I was it premier provider of mission critical technologies to federal agencies.
Even as we continue to execute our business exceptionally well.
Our leadership team is position for the future.
We intend to take all that we have learned to revision 2020.
And throughout this pandemic and applied going forward.
Through our innovation agenda, we continue to develop core and option value technologies that we know clients need to advance their mission.
We're strengthening our IP infrastructure.
Including modernization of our financial systems.
These technology investments supports teller work create efficiencies enable growth.
And prepare us for emerging business needs.
We're also preparing for increased volatility in the economy financial markets and budget outlook.
We have spoken about those in terms of challenges, but they also present opportunities.
We're actively scanning and plan to be aggressive in deploying capital at the right time.
To maximize value for our firm and our shareholders.
In sum.
From a position of strength, we're laying the groundwork for continued growth and market leadership.
This approach has been the key to our institutions success for more than a century.
We believe it is also the core oh by the value proposition to investors today.
And with that Lloyd over to you for more in depth look at our first quarter results.
Thanks.
I'm tremendously proud not only of our performance in the first quarter.
But also the dedication and determination exhibited by our people.
Their commitment to our farm.
Sure.
And our client Michigan.
Unwavering.
You have risen to the challenge of operating in an unprecedented environment.
And our very strong start to fiscal year 2021.
Confident that we can meet our goals for the full year.
We are now in the final year of art.
<unk>.
And remain committed to maximizing shareholder value in both near and long term.
Our first quarter result maintained our consistent record of strong financial performance.
Additionally, we continue to grow our headcount and had a record first quarter book to Bill <unk>.
Well for the full year.
We continue to invest in our people capability in technology.
Repairing booz Allen for fiscal year 2022 and beyond.
And.
We have the balance sheet right to take advantage of potential future market volatility well augmenting our operating performance with opportunistic capital deployment.
I will now cover our first quarter results.
Turning to slide.
Starting at the top line revenue and revenue looting billable expenses increased 7.2% and 10.5% respectively compared to the same quarter last year.
Growth continues to be fueled by strong demand for services and solution.
Particularly in our defense and civil business.
And an increase in headcount to meet that demand.
It also reflects.
First in transitioning most of our work to remote delivery and now we're required to see you portion of it back onto Booz Allen for client site.
Revenue growth this quarter was impacted by lower than typical billable.
Primarily due to cobot night <unk>.
We anticipate continued volatility in billable expenses, because the timing and magnitude of things like travel.
<unk> purchasing.
Contractors and other direct costs remain uncertain.
However, as we've said in the.
Revenue in leading billable, but that's where we generate most of our profit and therefore the metric we focused on internally.
Turning to slide seven our book to Bill was 2.2 time Inc. first quarter record our trailing 12 month figure is now 1.4 times revenue.
We continued to augment our traditional foundation of diversified.
All awards by pursuing larger and more complex the that by their nature Cog ordered a quarter of volatility in book to Bill.
And the casing point.
During our first quarter, we booked several large award.
Moving those her I feel mentioned, which helped increase total backlog by <unk> percent to a record high $23 billion.
Funded backlog was up 8% to $3.4 billion unfunded backlog grew 9% to $4.7 billion and cried options.
The 1%.
$14.8 billion.
Today Cobot 19 has not slowed down the award environment.
This is a credit to our client and contracting officers. They continue to issue request for proposals and award in a remote we're setting.
Pivoting to head count.
As of June Thirtyth, we had 27381 employee.
Up 997 year over year for 3.8%.
For the quarter, we added 208 employees.
We have adapted well to remote hiring in our head count continues to be buoyed by lower than typical attrition, which we attribute in part to the pandemic resilient program you put in place on April 1st.
For the year, we remain in a growth posture and intend to increase headcount to meet seeing demand.
Moving to the bottom line.
The EBITDA for the first quarter was $213 million up 7% year over year.
On our last fall, we estimated that our inability to build for B on shift work performed in our defense and intelligence market.
Would create a negative impact of approximately <unk> million dollars per month.
The actual impact for the first quarter was about $12 million.
After accounting for the impact our increase in adjusted EBITDA was driven by.
Strong contract level performance.
And effective cost management.
First quarter adjusted EBITDA margin was 10.9% the same as the first quarter last year.
Two factors were at play.
Lower than expected billable expenses improved adjusted EBITDA margin on revenue, but this was more than offset by unbilled be in our defense and intelligence market.
The impact to earnings and margin going forward will depend mainly on the pace at which this work continues to fully transitioned back on site.
Whether any modifications were made to the cares that due to expire after September thirtyth.
As noted previously the potential that did the will not be recovered is reflected in our guidance range.
First quarter net income and adjusted net income grew 10% year over year to 129.3 and $129.9 million respectively.
They lose it earnings per share rose, 11% 92 cents.
While adjusted diluted earnings per share increased 12% to 93 cents.
These increases were primarily due to our revenue growth.
Interest expense.
Lower tax rate and reduced share count due to our share repurchase program.
Turning to cash we generated $140 million, an operating cash during the first quarter increased a 175% over the prior year.
Cash ended the quarter at $621 million.
Good strength in cash flow was primarily due to our effective working capital management and lower interest expense.
Good night Union has not materially impacted cash collections as the virtual invoicing process continues to run smoothly.
Capital expenditures for the quarter were $20 million.
This reflects a shift away from facilities investment towards technology and tools needed to support the virtual work environment.
Additionally, we continue to modernize our corporate infrastructure.
That's a Ross you mentioned, we are approaching the implementation of a next generation financial system capable of supporting us through a period of dynamic future growth.
Please turn to slide eight.
Our robust operating performance and prudent capital management have resulted in a strong well capitalized balance sheet.
During the first quarter, we continued to execute a disciplined value enhancing capital allocation strategy.
In the quarter, we repurchased $76 million worth of shares at an average price at $72 per share.
Including dividends, we returned a total of $119 million to shareholders during the quarter.
We continue to see the strength of our balance sheet it'd be source of strategic advantage.
Particularly as we enter it period of potential uncertainty for industry and for the broader economy.
In times of volatility well capitalized firms such as ours can create incremental value through opportunistic acquisition or timely return of capital to shareholders.
In our investment thesis, we set a 1.4 billion dollar deployment target over the three year period ending fiscal year.
This remains our objective and while we anticipate being more aggressive in deploying capital towards attractive opportunity.
We will not artificially bias or deployment strategy to meet this objective.
We will remain disciplined.
We maximize opportunities for our firm and our shareholders.
Lastly, today, we're announcing that the company has authorized a quarterly dividend of 31 cents per share payable on August 28 stockholders of record on August 14th.
Before opening the line for question I'll briefly touch on our view of the rest of the year and our guide.
Please move to slide nine.
With one quarter behind us our guidance remains unchanged.
We continue to expect revenue growth between mix and 10% adjusted EBITDA margin of approximately 10% and adjusted diluted earnings per share between $3.40.
$3.60.
Hey, that's guidance based on 136 million 240 million weighted average shares outstanding any tax rate in the range of 20% to 23%.
We are forecasting operating cash to be between 550 million and $600 million in capital expenditures to be between 80 million in $100 million.
As expected we had an excellent start to the year and our strong first quarter set this up well for the second half.
The uncertainties, we face or industry wide concern.
We expect demand is there any turbulent well as we have in the past.
And we'll be looking for strategic opportunities to unharmed significant potential of our balance sheet.
In closing we are extremely proud of our first quarter and continue to work towards realizing the three year goals captured in our investment thesis.
Our from look forward to maintaining its record as an industry leader this year and beyond.
With that well, let's open the lines for questions.
Thank you operator, please open the line.
Thank you Sir.
As a reminder to ask a question he would need to press star one on your telephone.
During the question press the pound key.
Please standby, while we compile the kuni roster.
I sure first question comes from Sheila Kahyaoglu from Jefferies. Please go ahead.
Hi, good morning, everyone and thank you.
Hi, Rasia or avoid I know, it's only been two months since your last earnings call that I just wanted to touch upon how you're seeing the government we accept that in the face tier which seems have you had mentioned will go on for some time, whether it's their thought process on the demand environment and how that's changing or how to operate in a more virtual environment and opportunities for Europe.
Yeah.
She like this morning interest here, what am I start and I'm sure lawyer will want to widen.
Well, let me first acknowledge the hardship that pandemic is causing on on people on our clients really on the entire country.
I've been in discussions with several senior clients and I've been impressed by how thoughtful and how focused they are.
They are thinking about the total force, meaning there are people and our people together and we're working in partnership through the safe return process.
Our goal for US you know arc to protect the health and safety of our people to several clients and to maintain our financial strength and.
And resilience and thanks to all of these combined efforts by the government and by Booz Allen a world operating a pretty pandemic level. So essentially.
You look out the demand environment. It continues to be very strong how you saw it in our book to Bill we have a very healthy pipeline.
Our clients, we don't see in some pockets things might be moving to the right a little bit but by and large are they the demand environment continues to be very strong and and clients are anything any even more focused.
I'm, bringing technology to bear.
To tackle these issues are they have moved to Telework just like we have a work talking about remote delivery for the long run.
And these has also on Earth some needs in their networks in their systems for cyber security for cloud for a number of things. So only no I think we're going to continue to see.
Just kind of focus and just kind of moving going forward.
Good morning, Sheila I would just that a couple more point on the demand side, we've seen about 20 million New contract awards in March.
Existing contracts that are little bit related we've got about 30 million in cobot related opportunities that we're pursuing.
As you heard in our prepared remarks on a recruiting front.
Albeit.
The volume lower than we had hoped.
Again to the pandemic, we're winning we're winning a warrant talent, we're able to source recruit non board and deploy.
Our people and I think we're getting better and better at that the payment offices are operating well.
Hang on invoices. So I think the government has responded well to the pandemic and we've kept pace with.
Sure. Thank you for that color and then maybe as a follow up just on your last point.
As long as you guys mentioned in the opening remarks, it's very clear you care about your people I'm, just thinking about hiring and consulting hiring headcount grew 4% in a very tough virtual environment. That's actually in line with your two year average so pretty good all things considered just wanted to see what you're seeing in terms of hiring and attrition.
I'll start the the and the hiring right I think everyone the labor market as well there so.
Though we had done a modest amount free pandemic. It really went full bore in the midst of it.
I would say the candidate however, acclimated well as as our hiring managers and our recruiting.
If there's any challenge it we value our culture. So much. So now that we've added a 4% or workforce. We have colleague now that haven't physically thoughts or their colleagues. So we're working through virtual.
Social hours things of that or maintain that but I'd say the machinery is working well and were remain optimistic of keeping pace throughout the year.
The only thing I will add to that is just to say that all the work that we've done a both on our social justice agenda and before that on pandemic response, I think I see if anything strengthen our value proposition both inside Booz Allen and our brands <unk> say sun employer. So.
We have reason to believe that we will continue to see the level of success going forward.
Thank you very much.
Thank you.
Next question comes from Jon Raviv from Citi. Please go ahead.
What it would also it's going on for John I'm still fine.
Marks talking about balance sheet need they didn't take advantage of mothballs holdups should have a bit more color, Tom Sawyer scanning what sort of capabilities.
And then also little bit color on on sort of size so sedan.
Yes.
When I start and I'm sure again lawyer will.
Want to add a as you pointed out you know we were looking at opportunities in the market very assertively or balance sheet is very strong.
Our strategy is now clearly any focus and so we know we're looking for its mostly tuck ins that allow us to bring in unique technologies and unique solutions to clients that accelerate.
Our growth the pipeline is beginning to build.
Nicely. After you know a some fits and starts at the beginning of the pandemic and we intend to scam things assertively, we're not going to deviate from the level of discipline, we normally brain, but we are prepared to take advantage of volatility.
In in asset prices.
And and ensure that we are capturing what we need.
Oh I'm John no.
Uh huh.
He said continuing to look at option to maximize value for our shareholders in the near mid and long term.
Certainly capability tuck in or or a part of that.
So we look at over 100 opportunities every year, we're on pace or do that this fiscal year, albeit the environment is a pretty uncertain, but our deployment and our use of the balance sheet is certainly we see as a strike.
Got it appreciate the color and if you just a little bit more Paul I'm, what I'm in terms of your ability to integrate and subcontract AI versus develop it differently.
I think within your portfolio now that you could develop or or you feel that you need to add so the capabilities.
At your own solutions for customers.
I you know I think we look at a high I say abroad enterprise Oh products services technologies.
And people and were our work is to make sure that AI scales through the federal government.
And creates real value, it's clear in demonstration projects on into lab that this technology offers great problem is about US you know going from the life to the field under scaling process.
You say major challenge, which were trying to accelerate Oh, we do that through our own people and capabilities, we do that by investing an option value like marazzi.
We do that by building partnerships like our unique partnership with Nvidia.
And so forth and we will continue.
Tom just back to ensure that Booz Allen is the one company that can really help the governments. So.
Scale. These technology. So we're very excited about our work with the Jake we're very excited about the over 70 programs that we have going on right now and we see this has a growth area are willing to the future.
If we talk fishing.
Sure here.
Thank you on next question comes from Carter Copeland from.
<unk> research. Please go ahead.
Hey, good morning, guys I hope you're all well.
Harass you had two questions for you one when you look at each two tier you to T E T two RC and and the Jake.
Can you give us any sense of as part of that broader AI effort. What those kinda represented of your kind of near term pipeline. When you think about you know what what you wanted to go capture and the success you had there relative to you know what what the opportunities may be.
And then secondly on.
Two of your option value a investments both the district defend and Rick Dot Gov. Just in the context of what you know I would assume is a very high.
Demand a background for Ah for those those sorts of capabilities and offerings right. Now you know how that changes or informs your you know investment case on those thanks.
Sure how you threw a lot of me Carter, So if I don't answer any part of it just.
Come back and Reask, it, but let me start with a high a they eat into Rcs a program that is it's a recompete win over program that you should be called global threat mitigation program. If it was actually the first 1 billion dollar win.
At Booz Allen. So it was you know significant because of the body was also significant because of the they weren't the underlying work and the underlying work is to protect troops into battlefield from emerging threats or originally about I.E.D.. So now a that has grown to a broader range of oh threats.
And so what we're using his AI and ER virtual learning and a number of technologies to make sure that our clients can in fact moved fast her down or deploying training, sometimes sound range on many places and especially in this environment.
Very fast a they Jake when we've talked about before.
There's other things in the pipeline that make me very optimistic that again, we are getting traction on artificial intelligence.
As a premier provider its core to our strategy not just AI about being a company that brings these new technologies to bear in the federal government in a way that are implementable into the mission.
So whether it's that whether its cloud adoption in a different way.
We want to be that that catalyst for technological change inside the government than our clients are giving us that opportunity and again I I see more of that.
In the future with regards to the option value portfolio. Its its continues to progress.
Nicely or you can imagine that regular gabi itself gave us some concern earlier in the year, because it's primarily a site around the national parks.
And we weren't sure you know its its tourism related and when the tourism industry has been hit very hard but in fact people have turned to the national parks are quite a bit and so we are seeing good momentum there are better than we anticipated.
Going into the year district, we continue to develop that technology and there's increased.
Interest in it because it allows for first safer remote delivery a safer teller work.
But also mod see ink on the context of all of the AI wins.
And are directed energy a initiative is also progressing very nicely. So I think all in all you know they I would leave you with our strategy is working.
We remain in a growth posture and everything we're doing less hopefully some some opportunities I get created by our balance sheet makes me optimistic about where we're going.
Great. Thanks for the color.
Sure.
Thank you. My next question comes from Edward Caso from Wells Fargo. Please go ahead.
Hi, good morning, Congrats on another solid quarter.
I was trying to get a little bit more details on your exposure to the and intelligence community. You said it was about 25% of revenue was curious how much of the.
Revenue is being covered now by section 36, 10, either others. It said, 8% to 12% of thought powers can you can you provide some kind of a number like that thanks.
Ed you know it it would be difficult for us do that the impact that we're seeing a as we mentioned in the last fall really that around <unk>.
And without that we had expected that the 6 million per month.
In actuality, it's a little bit less than that large part because other client Oh outboard telework a approvals, we back or that will continue to evolve longer we get into the year.
But ah that's the most significant impact we're seeing as it relate to our.
National Security were.
Yes. My other question is on the ability to hire I I think I heard your comments say that you're.
Had started virtual hiring but you're now ramping it up the other companies <unk> said that they've been doing it before they seemed like it was a natural flow. So I didn't know if you're a little behind the competition on hiring or through this new model and also a given the work that you to assume a higher percentage.
Clearances are required or.
Is there any sort of friction in the clearance process that slowed your ability to hire and deploy.
Sure on the virtual point, we've always had that as a component of our recruiting. It. Obviously now is a larger component to the recruiting for all in a virtual world. So we're not seeing that were behind the at all in fact or for the type of now is that we've done a sourcing.
And pursuing a we're very pleased with ER or are performing up to this point as it relates to the care community, that's always a challenging that a candidate.
I would they remain so even in this environment that being said the government is still conducting background investigations and.
On on par with the usual timing or even where given the situation. We're in a that's always going to remain a headwind.
Typically for a certain level the classification, but the overall recruiting performance, we're very pleased with the the results today.
Thank you.
Thank you.
Our next question comes from Cai von Rumohr from Cowen. Please go ahead.
Yes. Thank you very much so terrific Q2 book.
Terrific first quarter bookings.
Any of that vigor reflective of snips from the fourth quarter or pull forwards from the second quarter and given that the second quarter is usually their strongest I think you do about two times or you know should we still look for the second quarter to be no very very strong.
Sure no since this quarter steel summer.
Yeah, you know thank you for that Guy you know.
Let's look at our bookings in two part first on a tactical.
Sales dimension, we are on or on a.
In that category. So we are winning work that we expected both in terms of Recompete as well as new work in that one contribution to our outstanding performance in Q Q1, or the other part as we had said previously is we are pursuing larger opportunity.
And it's going to introduce volatility because the timing of which is a little bit less third.
Several of those that Iraq highlighted in his opening comments.
Came to fruition or whether it was gonna be Q2 or Q1, a only the government can decide but are they stayed true to their timing of award and we were very pleased to.
So when as it relates to Q2 as you know I'm. It coincides with the end of the government fiscal year, we're in the mix the heavy procurement season.
We are performing well and we were the fact that we'd be on par with our usual cyclicality of our of our booking for me get used to.
Terrific and then on the issue of M&A one of your competitors made the point it wouldn't do any deals in the current environment, because it's extremely difficult to do due diligence on virtual basis do you feel the same and would you do any deals before.
It is behind us.
Hi, I will start I I don't think we feel the same way. We you know, but we are known to be conservative undisciplined in our approach we are going to be conservative undisciplined our approach but.
We have transitioned to virtual work I think better than most and that's not just in our service appliances in the way we work internally and so I feel that if if the opportunity presented itself, we would not boss were delayed.
Because we are in the middle of the pandemic.
Terrific. Thank you very much.
Sure.
Thank you.
Our next question comes from the line of Gavin Parsons from Goldman Sachs. Please go ahead.
Hey, good morning.
Morning, Kevin.
Just wanted to touch on margins a little bit them in.
Lowest fixed price mix in a long time and a lot of covert impact. Obviously you mentioned some of the pieces that helped US just wanted to can I ask higher level. You know is there a natural margin ceiling or how much further it can you expand and then in the quarter, specifically did you turn off any investment or R&D just because.
As of uncertainty, but it doesn't sound like it.
Yeah. We're you know we are very pleased with our margin performed by the unprecedented operating environment.
You May recall, you know, we believe we've gotten here through a lot of operational excellence.
Executing the business well our business leaders are sensitive in cognizant of not only the topline but.
But the bottom line when it comes the job profitability and so.
All of that we believe has contributed to our performance or today. You know we are going to continue to operate the business well.
I'd be forecasted for the year, we expect to and they're around approximately 10%.
The normal rhythm to our business where are the seasonal spending in the second half is higher and we have a bit of a dip in billability a in the second half.
But beyond that we're on pace to the land, where we expected in how we forecast.
We have not.
Done anything unusual to the business as it relate to not investing a as we said at our year end close we're investing in our people are going to continue to do that and the normal rhythm of our business is that the business produces opportunity to investing or we can.
After it.
Closely and we pulled the trigger if it if it has merit, but that no different than any other year or that we're we're working for us. So at the end of the day. It really has been the operational excellence and execution by our business leaders.
Got it that's helpful.
And then you know as a hypothetical obviously, it's it's difficult to forecast the longer term trajectory the budget with all the uncertainty we have today in the fiscal deficit in the election, but if you take a look at the last budget downturn, where you. Obviously you guys outperformed the end market does seem like your end market was more impacted on the.
Broader defense or government budget on average so just curious if we have a budget downturn going forward, whether or not you think today that kind of <unk> you know the government I T and market might be relatively less impacted than say it was last time during a budget downturn. Thanks.
I guess I'll try and take that Oh Oh.
I'll say first that my Crystal ball or if it's a little cloud and this morning.
But I also that following you know we remain on the growth posture.
What I believe.
Is that there's opportunity to continue to help our clients make this transformation towards digital endorse this new technologies and that if anything and they tight budget those are going to become more important because of the efficiencies that they create and so we're well positioned I believe asset company to capture ups.
Side from effectiveness, but also capture upside from efficiency S., we help our clients make this transition and that's why to your earlier question Lloyd said, what we said, which is we continue to invest in our business and in our people and we're going to drive forward. Our goal is always to outpace the end market.
And we've been doing that for a long time through ups and downs and we intend to do the same.
Makes sense. Thank you.
Thank you.
I show next question comes from Matt acres from Barclays. Please go ahead.
Hey, good morning, guys.
Thank you could touch on the the impact from the cares that a lot you work how that.
Sort of trended as you move to the quarter and it into July and also how fast.
10 of over the whole period people might be able to return to some of those locations. They may not have been able to offset.
Sure I'm you know we add it back.
<unk> impact would be a international security account.
Largely around the inability.
Invoice for fee and we estimated at the time.
<unk> million per month headwind or the reality is that came in a little bit less than that a large part because our client we're approving of up to support them with with Delaware well, we also had shifted.
Many of them in the sector to a shift work arrangement to continue to support those critical mission.
You know like are obvious crystal ball.
Mind is equally cloudy, yet to how long or at what rate or the government will you'll make adjustment.
But we're in heavy discussions with our clients.
And as a with any uncertainty or involving the virus, we just need to remain agile.
At the end the day, we built and this through our forecast.
And we still expect a finished at approximately 10% on margin or by the end of the year, but as it relates to the care that that's been the impact of to that point as we said in her prepared remarks, we're going to come up on the September Thirtyth, and we'll see what adjustments at that time or the government makes or.
Uh huh.
Great. Thanks, It and then I guess, one other I think last quarter. You had mentioned you paid time off as maybe a variable.
Later part of a year and if I look at kind of your productivity just like revenue per employee clearly cycle is pretty strong I guess can you just to touch on how your employees are managing why there was a productive quarter and at that meeting can be a little bit of the headwind.
Yeah.
Sure I'll start and I'm sure her I still want to jump and our employees have been great.
We're talking about seamless transition to a virtual environment not losing much of anything around productivity.
Everyone's been running 100 plus percent.
In March.
And I think from a numerical standpoint, you see what result that was able to yield.
At the same time, everyone run the risk of burnout.
And so we had been encouraging our people to take care of themselves physically mentally.
Part of our constant communication with our books and through our leaders.
And we've seen a modest uptick in people you're getting take Pts we actually seek people come back recharge that we'll continue to be our messaging.
Ross you said 100 million resiliency fun is in place.
And we fully intend to take advantage of that and the benefit of our employees, but everyone's been extremely productive, but now we're shifting to making sure that everyone's taking care of themselves at the same time.
I don't have much too I haven't done echoing Lloyds shout out to our people, especially you know this has been hard on people without a doubt and especially young families or people, who are taking care of elderly relatives and yet they have not skipped a beat.
We're working hard at we're looking for ways to support them into the fall, we're being asked creative and innovative.
As we possibly can and our team has responded really well to the fact that we're in it together.
Yes.
Great. Thanks that.
Thank you.
I sure next question comes from Joseph Denardi from Stifel. Please go ahead.
Hey, good morning.
Boy It I think this for you when you look across your three government customers to sense, a Intel and civil can you just talking about.
How you look at your market share within each one of those customers.
And then what what are realistic markets year is buys for eight years from now just in the context of if we do see kind of a tougher budget environment your ability to grow just a from continuing to gain share. Thank you.
Yeah, Joe it's a it's a great question, but its a.
Alan or answer because the metrics by which.
You would traditionally look its share or that perverted as we try to see opportunities in Brazil. So case in point the government now bundling more and more different capability.
Albeit you know within a market and so if you're trying to define in terms of capability, it's not exact and it frankly internally, it's not a metric that our business leaders are focused on by proxy our win rate or a at the same level as we exit.
Like funny.
For Recompete for winning at 90% for new were slightly over 60%.
And simply put her wedding someone's, losing so I like the fact that our win rate or or sustaining we have traditionally update the market from inorganic growth perspective, now were off their great start, but Ah I I struggled today to break it down in terms of.
No share percentage, just given now the calculation would be a bit.
Cloudy.
I think the only thing I will add as you know they last time, we looked at days were essentially single digit market share across all of our primary end markets and so I I don't think we are confident if anything the expansion of work that we're doing around capabilities around option value and so forth I think opens.
New available markets.
To us so I believe you know this notion that we're in a growth posture needs to be with us and that we're going to invest in this business through the upturn, but also through the downturn since the overall budget.
Picture is I think what's going to make booz Allen continued to succeed overtime.
That's helpful and her US you know you mentioned earlier that that's kind of the value proposition to buy t. modernization should become more compelling to your customer.
And in a more constrained budget environment can you just talked about the level of confidence you have that the customer will actually recognize that and kind of act rationally from a budget standpoint, because I'm not sure that historically, that's always been the case, whether you think.
Budget management and spending were investments are actually.
More appropriate move will be different going forward than it has in this past. Thank you.
Sure you know I will tell you over the last decade, or maybe a result, though they increase challenges in terms of budgets in Congress and and and all of that.
Alright clients have become more sophisticated about how they prioritize and how they manage that they used to be.
You know when one sequestration came online if you want to go all the way back there our clients.
Started in the way that frankly, many companies start with these discussions which is cuts across the board and so forth, but very quickly moved to prioritizing what was most needed what what's most important and then cutting some things that were less important.
More deeply.
I think that it's now a skill set that seem to muscle memory over a they especially the larger federal agencies that we serve and so I would expect that that will be the approach and again I say, if I take that probably booz Allen lens.
First of all you know I think we have a broad range of of technology capabilities that will help them do that and then secondly, the combination that were so broad across the government that are bit single CNL business small actually allows us to flex quickly. It's what I think gives me some level of confidence that you know should there be a change in into budget.
Sure, we will whether or not wells.
Helpful. Thank you.
Thank you.
This concludes our kinase session at this time I like to turn the call over to Horacia was on ski President and CEO for closing remarks.
Oh, Thank you very much and thanks, everyone for your time and for your questions. This morning, that's always a lower than I are proud to represent the people whose alan.
That's another fiscal year gets under way, it's our people skills are pad their passion, they're values that power our from quarter after quarter end year after year.
And because of them I'll say it again, we look to the future we confidence.
So until next time, I hope, you're probably stay safe and remain healthy habits.
Have a great day [laughter].
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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