Q2 2021 Booz Allen Hamilton Holding Corp Earnings Call
Good morning, Thank you for standing by and welcome to Booz Allen Hamilton earnings call covering second quarter results for fiscal year 2021 at.
At this time all participants are in the listen only mode. Later, there will be an opportunity for questions.
I like to turn the call over to Mr. Ruben day.
Thank you good.
Good morning, and thank you for joining us for Booz Allen's second quarter 2021 earnings announcement.
We hope Youve had an opportunity to read the press release that we issued earlier this morning.
We have also provided presentation slides on our website and are now on slide two.
I'm Rubin day head of Investor Relations and with me to talk about our business and financial results. Our grass you ever that scale, 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 will 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 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 today's earnings release and set forth under the forward looking statements disclaimer included in our second quarter fiscal 2021 earnings release.
And in our SEC 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 second quarter fiscal year 2021 slides.
It is now my pleasure to turn the call over to our CEO Ross you are with that we're now on slide five.
Thank you Dylan and welcome to our team.
We're glad to have you on board.
Hi, Good morning, everyone. Thank you for joining the call.
Lloyd and I are excited to announce Booz Allen's fiscal year 2021 second quarter results. This morning.
Our firm's performance in this very challenging year has been truly outstanding.
And we are proud to discuss the collective accomplishments over the more than 27000 professionals, who work every day in support of our clients each other.
This institution.
As you saw in our press release this morning.
We delivered excellent second quarter results across all metrics.
The numbers support our three year investment thesis objectives, and our growth plan.
Well this fiscal year.
What our fiscal year open.
Only weeks into the disruptions of gold at 19.
We remain committed to flawless execution.
Even amid uncertainty.
And that's exactly what we have delivered.
Strong growth at the top and bottom lines.
The profit margin, but its above historical norms.
Strong cash generation.
And continued success in recruiting talent building, our pipeline and capturing opportunities.
Our goal for the second quarter was fueled by continued strength in our defense and civil businesses.
This reflects the value clients place on our offerings.
Dorothy.
Our intelligence business will stabilize in the first half of this fiscal year.
Despite facing unique challenges due to the pandemic.
We have a new leader in place and feel confident about future growth.
And finally in global commercial.
We expect a modest decline this fiscal year.
Driven by overall economic conditions.
Looking at the first half of the fiscal year.
Our financial results showed up to date.
Yeah, I wouldn't have successfully navigated the complexities of course at 19.
We continued to execute against a proven strategy.
Meet operational adjustments as needed.
Oh supported our people in new ways. So they could focus on clients critical missions.
Our unique combination of the right strategy operating mole people and culture.
We needed it first half performance that exceeded even our own expectations.
And so today, we are pleased to narrow our guidance range for fiscal year 2021 revenue and raised guidance for full year adjusted EBITDA margin.
Adjusted diluted earnings per share.
And operating cash.
No we will walk through our performance and updated guidance in more detail in a few minutes.
First.
I'll talk briefly about where our management team is focused on both near and long term.
Let's start with the near term.
Since our fiscal year began we have talked with you about the three areas of uncertainty in the second half.
First.
The course and impacts of COVID-19 in the fall and winter.
Especially now I've seen sections are spiking again across the country.
Second.
The potential for funding disruption after the current continuing resolution expires December 11th.
I'm thered be.
The outcome of any implications of next week's election.
These macro variables are major sources of uncertainty for both our country and our industry.
But based on our operating and financial performance in the first half I'm.
On the strength of our balance sheet.
I believe we've got one is well positioned to outperform our market despite the potential turbulence in the coming months.
As I noted last quarter.
We believe these dynamics and the macro environment could create opportunities for us well.
This year, we anticipated and planned for increased volatility in the economy financial markets and federal budget outlook.
This allows us to scan the market from a position of strength.
Looking for opportunities to build our business for strategic partnerships investing capabilities deploy capital and so on.
That's always the overriding objective is to maximize value for our firm and our shareholders.
Well, that's a segue.
Let me shift to the long term.
Here at Booz Allen our work is never done.
Beyond the excellent operational performance of our team.
Our business leaders are making great progress on several future oriented initiatives.
For example.
We continue to shape, our portfolio of business towards high value work, where emerging technologies to meet needs at the center of clients missions.
Our strategic review is progressing and we expect to share results with you next summer.
We continue to develop and deploy our option value initiatives.
We are constantly evaluating and strengthening our employee value proposition, including making good progress against a race and social equity agenda, we shared with you last quarter.
And we are modernizing and investing in our <unk> and financial infrastructure.
To support new ways of working new business lines and additional growth.
Taken together.
These efforts are designed to make our farm, even stronger and more successful in the years to come.
Staying focused on the future while at the same time.
Managing unexpected disruptions.
Normal ups and downs with business cycles used to job every.
Every leader and his firm.
Having said that.
None of this.
None of this.
Would be possible without the entire Booz Allen team.
They deserve tremendous credit for our first half performance.
Our position of strength as we head into what could be a challenging few months.
And our continued progress on strategic initiatives.
So before I turn the call over to Lloyd.
Let me close with a few words directly to my colleagues who are listening.
You'll remember back in April.
Without pandemic resilience fund, we made a safe bet.
You bet the farm have your back.
You would have the firm's back.
You would give booz Allen and our clients your very best.
And then the last seven months.
You've done that.
And then some.
You invented new ways of working practically overnight.
You continue to go into critical client facilities with masks and older White precautions.
To make sure important missions got done without interruption.
You came up with creative ways to connect with each other and built community.
You showed courage.
People ask for help and to give help to those who need.
And you executed all business functions with great precision and skill.
Truth is.
Well weve faced together in 2020.
Simply unthinkable.
A year ago.
As problem solvers, you have risen to the challenge you have persevered through it all.
And that's great I wish we knew used to be.
You have exceeded our expectations.
So on behalf of the entire leadership team.
A new front door external stakeholders. Please.
I accept our gratitude.
We are in it together on our firm he's better for it.
Thank you.
For all you have done.
Oh, you will continue to do.
Without Lloyd Oh.
Over to you.
Thanks, Ross you <unk> and good morning, everyone. Let me start by echoing your thanks to our colleagues. This spring has truly rallied to meet the challenges of Twentytwenty. It's.
It shows in the financial results, we're announcing this morning and in many other ways, but numbers can easily capture.
We're now halfway through our fiscal year and extraordinary six month period for the country as well as our company.
In these challenging times, our clients have continued to rely on booz Allen's leadership and capabilities in support of their missions.
Hi, I'm enormously proud of our performance.
Our outstanding second quarter results maintain and build on our first quarter performance showcasing our reliability and execution.
Consistent with our position as the industry leader, we continue to see robust organic growth with head count expanding in total backlog, reaching a new record high.
Our balance sheet is exceptionally strong and this gives us great confidence that our firm can manage any potential challenges in the next few months.
Thanks to our prudent financial management.
You also have the ability to take advantage of opportunities as they emerge.
Whether in the debt equity or M&A markets.
I will now run through our second quarter results. Please turn to slide six.
Starting at the top line.
Revenue and revenue, excluding billable expenses increased 11% and 10.6% respectively compared to the same quarter last year the.
The primary driver of our growth was ongoing demand for our services. We benefited from staff utilization above historic norms that was driven by fewer peto days taken by our employees.
Turning to head count we ended the quarter with 27638 employees.
654, or 2.4% year over year and up 257 since the end of June.
Challenging labor market, we are pleased with our performance to date.
On slide seven you will see that total backlog increased 7% to $24.6 billion.
Funded backlog was up 2% to $4.5 billion unfunded backlog grew 15% to $6.2 billion in priced options rose, 6% to $13.9 billion.
Our book to Bill for the quarter was 1.8 times in our last 12 month book to Bill was 1.2 times.
Quarterly number is lower than our recent second quarters, and frankly slightly lower than our expectations. That's.
That said, we expect continued volatility with our quarterly book to Bill pattern as we continue to pursue larger and more technically complex bids.
First half book to Bill was 2.0 times in line with our historical norm our.
Our bookings expectation for the full fiscal year remains unchanged with a number of large award opportunities in our second half pipeline.
Year to date COVID-19 has not slowed the award environment.
Well credit is due to the diligence of our team at Booz Allen you must also acknowledge the efforts of our clients in contracting officers many of whom continue to work remotely through the busy government year end procurement season.
Moving to the bottom line, but.
Adjusted EBITDA for the second quarter was $228 million.
19% year over year adjusted EBITDA margin was 11.3% our highest quarterly result since 2015. These.
These increases in adjusted EBITDA and adjusted EBITDA margins were driven by top line growth.
Long contract level performance.
Ongoing cost management efforts and reductions in certain types of expenses like travel and meetings.
These were partially offset by our inability to bill for the on shift work performed in our defense and intelligence markets.
In the quarter the negative impact was approximately $7 million going forward, we expect unbilled speed to hobby negligible impact to earnings as the majority of the fact is that a return to clients like offices or are expected to do so shortly.
Second quarter net income and adjusted net income grew 19% and 25% year over year to 136 million and $143 million respectively.
Diluted earnings per share increased 23% to 98 cents, while adjusted diluted earnings per share increased 27% to one dollar in three cents. These increases were primarily due to revenue growth and adjusted EBITDA margin improvement.
Support from lower interest expenses and reduced share count due to our share repurchase program.
Transitioning to cash we generated $426 million in operating cash during the second quarter, an increase of 97% over the prior year.
This represents the strongest quarterly operating cash results since our IPO.
Cash ended the quarter at $1.3 billion.
Operating cash flow performance was primarily due to the overall growth of the business working capital management and lower cash taxes due to the carryover of R&D credits, we clean at the end of last year.
Lower cash disbursements also contribute to the second quarter performance, driven by cost management and lower expenses attributable to coated.
Capital expenditures for the quarter were $18 million. This year, we continue to prioritize technology and tools that enable a virtual work environment.
Also we are nearing implementation of our next generation financial system.
Which will support the company's growth into the future.
Please turn to slide eight.
During the quarter, we repurchased $30 million worth of shares at an average price of $76 per share.
Including dividends, we returned a total of $73 million to shareholders.
We are exiting the second quarter with $1.3 billion in cash on the balance sheet.
We continue to view, our balance sheet as a strategic asset, especially in times of volatility.
We are committed to preserving and maximizing shareholder value through patient disciplined capital allocation.
We see ourselves is well placed to quickly capitalize upon opportunities as they may arise over the coming months.
In our investment thesis, we set a 70% to 80% eat EPS growth target over a three year period, ending this fiscal year supported by $1.4 billion in capital deployment.
We are well positioned to meet our eight at school organically as reflected in our updated fiscal year guidance.
As a result, while deploying the remainder of our capital target remains our objective, we will remain patient and disciplined toward our deployment strategy to meet this objective.
Today, we are announcing that the company has authorized a quarterly dividend of 31 cents per share payable on December 2nd to stockholders of record on November 16th.
On August 24th we issued $700 million in senior notes that are due in 2028, we.
We used the proceeds to pay down our $350 million in senior notes due in 2025 and to strengthen our balance sheet, while meaningfully reducing the interest rate.
Before opening the line for questions.
Let me touch on our view of the rest of the year end our guidance. Please move to slide nine.
We're very pleased to be raising our expectations for the fiscal year, even with ongoing uncertainties related to <unk> 19, the federal budget and next week's election.
This improved outlook is the product of several things are excellent first half performance the fundamental strength of our institution and our competence in the skill and agility of our leaders and teams throughout.
Throughout the rest of the fiscal year, we'll make operational adjustments as needed and stand ready to jump on opportunities that emerge.
Let me run through the numbers.
For the full fiscal year, we are tightening our revenue range and expect growth between seven and 9%.
We now expect adjusted EBITDA margin for the year to be in the low to mid 10% range.
We have raised and narrowed the range for adjusted diluted earnings per share to be between $3.60 and $3.75. The eight EPS guidance is based on a 136 million to 140 million weighted average shares outstanding and a tax rate in the range of 20.
He did 23%.
On operating cash we are forecasting between 600 million and $650 million for the full year.
And finally, our outlook for capital expenditures is unchanged at 80 million to $100 million.
As we look into our fiscal years second half and prepare for an eventual return to normalcy, we will spend a portion of the funding that you previously set aside we're weathering the pandemic.
We expect to hire aggressively to sustain our growth and plan to reward our talent for their impressive execution to date.
We will also implement our new financial system that further supports our business leaders.
In short, we will continue to invest in our people and our long term growth initiatives.
Our updated guidance reflects the traditional seasonality of some of our expenses and anticipated returns to more typical patterns of labor utilization.
Ongoing strategic investments and the deeper mentioned uncertainty around coated the election, and the overall budget and funding environment.
The next few months will be difficult to navigate however, as our new guidance indicates we remain confident in our ability to adapt execute and win rugs.
Regardless of the environment.
In closing we are extremely proud of our second quarter results. Despite the challenges we all now be daily our people have responded with energy and dedication.
As we head into the second half entire management team is excited about our continued success in focused on maintaining our industry leadership for the remainder of the year and beyond.
With that Rubin, let's open the lines for questions.
Thank you Sir.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question. Please press the pound key.
Due to the essence of time, we ask that you. Please limit yourselves to one question and one follow up.
Please stand by while we compile the <unk> roster.
I sure. Our first question comes from the line of Sheila Kahyaoglu from Jefferies. Please go ahead.
Thank you good morning, Raphael, Mike Ross, Yes, we always appreciate your opening remarks. So thank you very much and it's evident in the company's performance maybe thank you Sheila.
Question for you, we're obviously, what's driving profitability increases not only in the quarter, but your three year framework can you talk about them the option value programs or have they not been embedded into the near term outlook.
A great question and thank you for finally, I'll, let me say that maybe a little bit of context, and then I'll go deeper into that question.
I couldn't be more pleased with the performance of the business in the first half, especially.
Under the current circumstances I think it speaks to certainly that the commitment that our clients have to the mission.
To the brains on the heart, but our people brought forward.
And I think it also speaks to the fact that we have both an operating model and the strategy.
Oh that that works well in good times, but really can shine in challenging times I think that's what we're beginning to see a in that context over the last three years. So its lloyd always pointed out it's really being disciplined execution operational excellence.
And the ability to drive the business towards this vision 2020 target of mission technology intersection at the center or what is most important to our clients that has really driven both our growth and our profitability. Then I think that's what continues.
To drive it today I'm excited about the options value portfolio, there's a number of initiatives there, we're making good progress across the portfolio.
And I think we'll we'll have more to say about that in the future I will tell you US an anecdote for example, we were concerned going into the year.
About rectal golf because its a tourism.
Driven business you talked about the national parks, it's been the one area of tourists and that has really done well and so we have in fact leapfrog it a little bit of what we expected.
To see in in terms of of both growth and profitability in that program, but having said that the option value portfolio still is very small.
Portion of our business.
And one where we are optimistic we'll we'll grow and become more relevant in the coming years right. Now this is really being driven by the excellent performance of the team.
Thank you very much.
Thanks.
Thank you next question comes from the line of Carter Copeland from Melia Research. Please go ahead.
Hey, good morning.
Just a couple of couple of quick ones Horacio just I'm wondering if you could speak to kind of what this ongoing environment is revealing in terms of trends around retention and any challenges around hiring or if that's all going you know as as usual despite the challenge and then as.
As a follow up a second question in terms of commercial and your comments there do you expect a bounce.
In that portion of the business next year is that just going to take longer as we sort our way out on the back end of Cowen.
Oh, I get started I, Oh, Lord might want to jump in as well quarter on on your first question [laughter] I'll say nothing it's business as usual at this point everything has had to be reinvented.
Retooled to to match the current environment, we saw some decreases in attrition Oh, sorry sold off of the environment I Oh, We're obviously pleased.
With those and it's it's a challenging labor market continues to be I know some sectors of the economy or don't look this way, but the talent that we look for especially the technology talent is still in very high demand.
And I'm pleased with our performance through the first six months. So I think weve hired a lot of great people again, the lot of the right people.
People to help us grow our business.
And ER and I think the future looks bright as it relates to the talent pool that we are looking for I think what weve done frankly over the last six months, if anything has strengthened our brand.
In developed markets and I think that will pay dividends are not just now but in the out years.
What was your said Oh, sorry global commercial.
So you know we expected going into this year to be challenging for our global commercial business. Both in our international which is mostly middle east footprint and our U.S. domestic footprint.
I think we what happened in the international business or in some way. So it's been a little more dire than we expected.
Especially given the disruptions in Beirut, where a lot of our talent we sites.
And that's a business that is in transition for us, but having said that the results in the U.S., which is largely a cyber business have been potentially better than we expected. So when you put it altogether.
I think that that business is balancing itself in the right direction, it's still only about 3%.
Although our.
Total revenue base by they play an important strategic role unimportant branding role to the overall portfolio and and that's that's we've always said that margins are also strong.
That's great. Thank you for the color I feel.
Course.
Thank you.
Next question comes from the line of Matt Sharpe from Morgan Stanley. Please go ahead.
Hey, good morning, gentlemen, and nice quarter.
Thank you Raphael.
Listens for you with Saatchi, becoming a top priority for the <unk> Booz Allen strengths and systems integration. How are you thinking about the opportunity there could we see this up potentially emerge as a option value initiative for the company and are there any other emerging areas within that the idea.
Broader federal government that you see is potentially rising to that sort of option value initiatives levels.
Company.
Sure, Matt just to be sure you're asking about fiveg.
Yes, Sir.
Okay, great absolutely youre, breaking up a little bit I think Lloyd is feeling a little lonely here and they keep on a section, but [laughter] I'll get started.
Oh I'll get US started I I think the answer is absolutely I think fiveg is emerging outside important.
Set of technology, it's really a family of technologies is not one thing it's not just millimeter wave and that family of technologies is sobi increased importance not just in the commercial market, but across the government, including DLD.
There's cyber implications or five g. there's.
Operational implications for Fiveg, there was the ability to move both processing any information to the edge in a way that that it would advantage.
Many missions and Ah I am proud of the fact that you know much like everything else in our innovation agenda. We sold these relatively early we began to position for it and we have some really interesting work going on across the government that in my mind begins to define us.
Just a thought leader in this area much like we're a thought leader in AI and by the way. These two technologies ultimately do traveled together so.
So more to think about that more to say about that if you ask me is that a big part of the portfolio. They're not we're not scaling there is like we have scaled on AI already.
But I think the future is bright and and I think we're well positioned.
Great. Thank you.
Sure.
Thank you.
Our next question comes from the line of Kevin.
From Goldman Sachs. Please go ahead.
Hey, good morning.
Good morning.
Morning.
Roger maybe a bit of a higher level question in the past you said your your your growth is not constrained by demand, but kind of more so by our ability to hire and then ramp up the work I'm. Just curious when you think about growth pacing or may be planning for growth.
You say, we want to grow 6% to 10%. This year and then we'll hire to make that happen or is it you know we think we can hire and integrate enough people to grow six to 10, so that's our target.
Uh huh.
That's a really good question I think the answer is yes.
You know, we're going out to 79 were proud of the fact that we're going to have a strong growth here in the middle of the pandemic and with very strong profitability.
I think that's sort of the broader.
Answer to the question should we still see very strong demand signals for the type of work that.
We are doing for the type of capability that we bring.
To our clients, we are being choosy. If you will in terms of both the work that we choose to pursue on the people that we're hiring to make sure that they are consistent with.
With this intersection Oh.
Core mission.
Your shoes and next generation technology, because we believe that is both the most promising and the most resilient.
Part of the market aftermarket experiences some turbulence and so the numbers that we're putting out are not the very most we could possibly grow if we were more.
Sort of if were less discriminate about the work that we're doing and these are the numbers. They gave us both excellent financial performance in the near term, but we believe sustainability into the medium and long term.
Cool and then following on that just in looking at backlog growth over the last few years and just a lot of that being driven by priced options do those price options have a finite life that you need to execute on with it within a certain timeframe or or or funding expires and I'm just kind of thinking about that in the context of.
You know maybe a more challenged budget environment ahead, where you know that the contracting officers might have to make more difficult decisions on what to fund.
Well I'll jump in here.
We see priced options as a leading indicator and a couple of different ways, one our clients confidence regarding what they'd like to do more.
Lastly, I'd like to turn on and then secondly, their satisfaction with fees Allen and our delivery up to that point.
The timing of them is really dictated by the contract or the underlying contract. So there's some variability depending upon the period of performance, but by and large the if you look at the unfunded and priced options portions of our backlog they tend to convert anywhere between 60 and 70%.
Well funded obviously at or near 100.
So that's where I see was always said, we don't feel demand constrained at all in fact, you know well.
This quarter indicates with an increase of 24.6 billion.
We've got the work and then turns to can we attract onboard and deployed a bit.
Talents to convert that backlog.
Got it thank you.
Thank you.
Our next question comes from the line of.
From William Blair. Please go ahead.
Right right.
Good morning.
Where do you want to.
During during the quarter you announced.
Snap attacking followed your your previous internal development Oh My God.
If you experience.
Significant excess <unk> types of internal.
Internal development efforts.
Yeah double down on internal R&D, and the defense Department and the overall federal government growing more receptive to this type of.
Okay fair amount versus traditional procurement.
Oh I think the short form of the answer is yes.
It is yes with the following color to it.
Yeah, there's we've been talking for quite some time about the fact that the digital assets, whether it's data or software are becoming a bigger part of the value that is created a in for our clients and so the you know world and we've been part of the.
Digital transformation that is sweeping through a the federal government.
And and the government and D. in particular are trying to think hard about how to procure.
These types of capabilities and these types of assets in a way that they can do it faster more reliable even more repeat up Lee.
Because these moves at digital speed.
And I think you know Booz Allen is honestly or maybe even a little bit modestly doing a great job across the board not just in terms of coming up with our own.
Proprietary solutions by partnering with other technology firms to make sure that their proprietary solutions can actually admission value.
It's this intersection of mission and technology, where we excel is the ability to take not just one piece of software or want technology, but it portfolio to solve a meaningful mission.
Mission problem, you know whether it is say a cyber defense of critical infrastructure, whether he's using AI to improve.
Customer service or to improve intelligence production, it's never really one thing it's a combination.
We have a number of things running side that combination.
Technology is such a small C can play a both an important role in it.
I don't think that mission, but also give us an additional layer of differentiation. So that's you know that's how we look at it it's in the overall context. So supposed to you know we have this one piece of software or at least one unique capability.
Sounds good thanks.
Sure.
Thank you. Our next question comes from the line of Cai von Rumohr from Cowen. Please go ahead.
Yes, Thank you and Oh rasco terrific results as usual.
So so Lloyd Ah you have terrific revenue growth and yet this is the sixth quarter in a row that.
For your head count growth has decelerated, 2.4% that's way below where your revenues are worth.
Where does that have to be to kind of keep the revenue more or less in the range you're talking about and what are you doing to hire that and what has to be a very tough environment.
Yeah, well. Thank you Guy first let me say, we're very pleased with our ability to worsen attract the talent that we have and particularly given the unique circumstances, but.
I think we're all facing into from an arithmetic standpoint, even at 2.4%.
With the combination of increased salary I'm, a broader base of stuff that's available.
And frankly utilization rates that are unprecedented or conversion of that certainly places us in our forecasted range of 7% to 9% or works never done.
We know that we're going to have to remain as aggressive in diligence and finding this technical staff.
We're working closely with our business leaders are recruiting engine to increase the yield but given how we forecasted the rest of the remainder of the year.
Confident that we'll be able to bring on the right the right talent.
Terrific and the second question is your DNA ratios are really terrific and you mentioned that you know there is a benefit to covert in terms of less travel and less meeting expense can you talk a little bit about you know the net benefits of Cove it.
To your PML.
Yeah, you know, it's it's it's a great question. So awkward one to answer without sounding callous regarding the impact that it's had on our workforce and people are the bottom line financially is bad or people are not taking pts.
So as they were pretty coded that translates into higher utilization as you mentioned in your question. There are savings on travel conferences meals other discretionary expenses and ultimately we're seeing a reduction in overhead.
Hi. This is we feel we're well positioned from a DNL perspective for the balance of the year and I certainly as we weigh into the uncertainties that Ross you're not talked about.
Our resilience program that we stood up at the beginning of the year you still have a significant portion that remains the right through that.
The next spike if it comes to that.
And again a lot in terms of.
The current environment regarding telework.
Heard in my prepared around Capex or investment.
In our infrastructure. So we see a strong CNL, which will give us the strength and resiliency as we navigate the next few months.
Thank you hi, if I can jump in I would connect actually your two questions into in the following way.
It you know they they the strength of the first half and the the way in which we manage the business with focus on with discipline.
Actually allows us to do two things in the second half one we're happy to raise eight EPS guidance.
Of course, but two it also frees up resources for us to recruit more aggressively to invest in key capabilities more aggressive and to position us for future growth.
Even more aggressively than we would have otherwise.
Terrific. Thank you.
Thank you.
Thank you. Our next question comes from the line of Matt acres from Barclays. Please go ahead.
Hey, good morning, guys. Thanks for the question.
But maybe one for you Lloyd I was wondering if you could just comment on free cash flow kind of beyond fiscal 21, I'm sure you don't want to give guidance yet for.
22, but just thinking of this year. There is you know working capital benefit potentially from some one time items around the cares act that maybe don't repeat next year. So maybe if you could just talk about confidence and ability to grow free cash flow beyond 21, and kind of what the moving pieces are there.
Sure. Thank you I'm going to keep my comments ER. So this fiscal year, but let me say that I couldn't be pleased with our ability to generate cash.
It really has been helped by onetime events, but also artwork.
Our core cash growth and effective working capital has really been the underlying story and what we see now is that elections were very high.
We saw less in cash taxes that were paid.
Payables and then a reduction in the disbursement <unk> CTO medical travel and corporate Oh salaries we.
We expect in the second half for that to normalize a bit.
So when you look at what we are forecasting in terms of operating cash flow.
For the year.
How we get to the 600 to 650 <unk>.
I believe that with the improvements that we've made over the past couple of years that they truly are now institutionalized we're always never satisfied. So we'll be looking for ways to continue to improve on that but I didn't get teased us up well for the future.
Okay. Thanks, and then I guess I apologize if I missed this earlier, but the.
I guess the run rate impact you're seeing now following employees.
Already the you're just getting reimbursement cost person.
Profit I think that was like a 6 million a month run rate earlier in the I can you give us a lot. They what that is at this point.
Are you, referring to our inability to invoice for fee tied to the big carriers yet.
Oh, yes. So we had originally forecasted I think it was a.
Five to 7 million per month, and we saw in Q1 that was more like 4 million per month in Q2, it dropped off.
Even more and that's really a function of books returning to support their clients and their space as well as our space originally in a shift work arrangement.
So as we said in our prepared remarks, we don't see that being significant going forward.
We're in close discussions with our clients in contracting officers to make sure. We're both saying it the same way, but all credit due to our clients and our people to.
To manage that.
Great. Thank you.
Thank you. Our next question comes from the line of Jon Raviv from Citi. Please go ahead.
Hey, good morning, guys. It's gone cancel that morning. Thanks for the question just talk a little bit about your underlying health portfolio with respect to the capabilities you have there and how they're positioned to address any potential a shift in spending priorities and they kind of giving out back a little bit to capital deployment.
The types of capabilities you guys are looking for and can add opportunistically.
Oh, I guess I'll start out you know we were no.
Nothing in our civil business, primarily is an outstanding health business, a that is really a l. either a in this industry, especially in helping our clients drive their digital transformation.
Which is of course, a major issue affecting health care. It also has a tremendous level of actual health expertise on on the science side on the PD me always your side on the on the care delivery side, and then down insurance payment.
And then and so forth and so it's been called to help already a assets Ur cobot has.
Redrawn day, the healthy environment or around the nation and it will continue.
To do so so we we see continued.
Continued growth and opportunity in our health portfolio.
Certainly over the over the many coming years EPS. This is a national priority together with the other national priorities we support.
And I think I can remember the second question was I think it was for you.
They see a capital deployment I'm John Yeah, we continue to deploy capital as we say in a patient and disciplined manner. Both in the short medium and long term it with a balance sheet that we view as a strategic asset.
Really tease us up well our priorities around capital deployment I haven't changed.
Regarding M&A are you as we've always said you gotta traditional focus on capability tuck ins on todays environment. We're looking at a lot of potential deals and we're leaning forward in trying to source additional deals but holding the.
The bar high the nature of the companies that we're looking at as it has always been our technical in nature.
Supporting the areas that Weve long focused on.
And cyber security most recently by digital and so forth and I don't see that changing clients are demanding more and more support in those areas and then rounding out our capital deployment strategy. It of course that includes share repurchases and dividends. So we're looking at.
All options, we maintain that given the increase in volatility and the strength of our balance sheet that all to yourself well to meet our capital deployment objectives.
Got it thanks for the color.
Thank you.
Our next question comes from the line of Dan.
JP Morgan. Please go ahead.
[music].
Hey, good morning, everyone.
Morning, Bonnie.
I wanted to kind of ask about the election, that's coming up in just a couple of days here I mean, how have you kind of prepared for you know the outcome of the election.
So.
Change in administration and leadership in Washington, and maybe how do you kind of think about how you approach the back half of the year. If there is no.
A change in leadership for for your customers.
The <unk>, let me start and then maybe low it will went out of the swell a they you know that we've been looking we look very closely at their priorities are that that both campaigns are talking about how they're thinking about the future.
Our country, what a new administration or a second term.
What looked like and of course, there's differences and those are widely reported and we are aware of those but you know there's also some issues and that what we when we talk to our clients are top of mind to them and I will not change the cyber security you are critical infrastructure integrated <unk>.
Paul just in the last couple of days. So you probably saw the headlines about nation state attacks on hospital networks in this country as koby cases and hospitalization surge.
Fiveg, we talked a little bit about before on the rise of China and the technological competition.
With China or the important so they I ask the transformative force both the national Defense and <unk>.
In Civil Society over the coming years, they need to digitally transform.
Our government both for effectiveness of mission, but also for efficiencies.
And then that's just they they wait tops then you get into the direct energy and space and so many other issues those issues are here to stay.
Yeah on what's Allen has been working for many years now to be a thought leader and a driver of creation of value inside the mission across all those issues and so and then Sam. So so that's what we're focused on we're focused on making sure that we're working with our clients directly on the <unk>.
Most important problems directly on their most resilient and sustained problems and that we are real value.
To those and that's always been our approach to it if a you know they will know more about the election next week of course, but come what May we are we're very focused on serving our clients against our most durable challenges and like I said, making a real difference for them.
I would just add that given our years of experience decades. This is not a new dynamic to our business.
There are a lot of the reasons that for US you just pointed to but just the pragmatics of what a transition should it come to that looks like a government doesn't pivot on a dime and a lot of the programs that we currently support to Ross's point are increasingly tied to their missions, which is public.
Yeah agnostic.
In cases, where we have seen a <unk>.
A party transition.
With our single piano, our portfolio, where we have a very robust civil federal business, if the agenda, where to ship or we have a history of also shifting resources to where the puck is going to be so to speak. So we feel that we've got a very resilient model.
Eight years of experience and relationships with our clients to allow us to ride through any transition that may occur.
Great. Thanks.
Thank you.
Our last question comes from the line of Joseph Denardi from Stifel. Please go ahead.
Thanks, Seth good morning blank Warningly yeah. Good morning, I believe you mentioned in your prepared remarks that QQ bookings were lower than expected, but the expectation for full year bookings and still in Texas can you just explain that a little bit like what happened in the quarter that you weren't expecting and then when should we.
Assume that you guys kind of return to industry, leading book to Bill in order to support a industry leading organic growth.
Sure well first thing Joe is as harassing I've always maintain a we're not a demand constrained at all.
Timing of.
Bookings is really a consequence of these increased number of large awards that will.
We'll come and go depending upon different timing than what we've seen in our historic pattern. So in Q1, we had.
A big a couple of wins that bumped up book to Bill those larger procurements didn't come to pass in Q2.
But you know we don't see that as a problem as much as just a timing issue. So.
We feel that we've got plenty of demand a strength in the market that's.
That's really going to over time keep us in the pole position. If you will in terms of our topline performance and the challenge is always going to be can we bring on the talent.
The so the backs of these larger pursuits and supports our clients.
Okay. That's helpful. And then I think the initial expectation to start the year was that co bid would would weigh on margins and that contributed to the initial 10% guidance now given where you are is that largely because it's cold but has not been impactful and how should we think about kind of the margin head.
When that you all face next year, assuming we get back to a more normal environment can you continue to grow margins office higher base. Thank you.
Sure I mean, well, we're very pleased with or margins, especially in the.
This sort of unprecedented.
Time, but I think there are a couple of drivers that have gotten us there certainly our topline growth in contract global performance.
Back that in this time is we're seeing very high employee utilization, which is also driving margin and then the management of Allowables and other discretionary cost that I've talked about a lot a lot lower you know we are always have maintained.
We're interested in top and bottom line growth and we see margins as a means to that and not the and and.
And so we're expecting over time and I think it was a national debate now around the virus and its impact and then we will eventually return to something that's a new normal sort of pre covance, but the timing of which is hard to really estimate well for the balance of this fiscal year our report.
Yes, the low to mid and we feel very confident that we'll be able to finish the year in that range.
Okay. Thank you.
Make sure.
This concludes activity session at this time I would like to turn the call back over to Mr., Horacio Rozanski, President and CEO for closing remarks.
Oh, Thank you everyone for the conversation.
This morning.
Went through November.
And with it comes not only an election and the holiday season.
Well actually also a meaningful anniversary for our firm.
Tuesday November 17th.
Marks 10 years since our initial public offering.
When Booz Allen Hamilton shares opened at $17 a share.
I'll never forget going out on the road in December of 2010, with our former CEO and CFO, Ralph Shrader and Sam Strickland.
To tell potential investors. This story Oh This company that was founded in 1914.
I reflected on this recently.
Things come to mind.
The first is just how transformative the last decade has been.
Through our vision 2020 strategy, we carefully positioned ourselves right at the intersection of technology on mission.
And over 10 years this market differentiation significantly expanded our revenues our profit margins and our earnings EPS you saw this morning.
In fact for many investors perspective total shareholder returns adjusted for reinvested dividends.
Being in excess of 900% over the decade.
The second point I reflected on what's how much Booz Allen has not changed.
Since our IPO.
The core of this institution.
Our commitment to clients and two people our purpose our values.
They carry through history, because each generation of leaders used to store Oh These fundamentals.
These qualities set the standard for success led Booz Allen.
And are the foundation of our financial strength.
So as we celebrate this incredible journey I want to conclude today's call by thanking our analysts and our investors for your insights on support over the last decade.
And I'm, especially grateful to the also view who've been following us since the IPO.
We have learned from each interaction with you.
And the past 10 years have made us a better for.
And I've said this morning, our work is never done.
So with energy and optimism Booz Allen will strive in the coming directly.
To continue building on this public record.
So thank you again for joining us this morning have a great day and happy Halloween.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Disconnect.
[music].