Q4 2021 Booz Allen Hamilton Holding Corp Earnings Call
Good morning, Thank you for standing by and welcome to Booz Allen Hamilton earnings call covering fourth quarter and full year results for fiscal year 2021. At this time all participants are in a listen only mode.
Later, there'll be an opportunity for questions I'd now like to turn the call over to Mister Rubin day.
Thank you.
Good morning, and thank you for joining us for Booz Allen fourth quarter and full fiscal year 2021 earnings announcements.
We hope you've 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 inside too.
I'm Ruben day head of Investor Relations and with me to talk about our business and financial results are Haraszti, Arizona.
Our president and Chief Executive Officer, and Lloyd, how executive Vice President Chief Financial Officer and treasure.
As shown on the disclaimer on 5.3.
Please keep in mind that some of the items you will discuss this morning will include statements that may be considered forward looking and therefore subject to known and unknown risks and uncertainties.
Which may cause our actual results and feature periods to differ materially from forecasted results.
Those risks and uncertainties include among other things.
General economic condition.
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 fourth quarter of fiscal year 21 earnings release.
And in our S U T violence.
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 revised 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 reconciliation of our non-GAAP measures. The most comparable gap measures and our fourthquarter fiscal year 2021 slides.
It is now my pleasure to turn the call over to our C. O ferocity of Rozanski, we are now inside but.
Thank you Robin.
And good morning, everyone. Thanks for joining the call.
Northern I are proud to announce booz Allen's results for fiscal year 2021. This morning.
Another stellar performance by the people of our firm.
The past year was unlike any other in these companies hundred and 7 year history.
That simple fact.
And all the complexity sums up.
Makes the results were reporting this morning.
Older more impressive.
But before diving into our latest results on our outlook for the current year.
I want to highlight but the fiscal year and on March 31st.
Also marked it closed of the 3 year period cover the in our investment feces.
When we first share their theses in June of 2018.
We committed to 50 per cent growth in adjusted diluted earnings per share over 3 years.
We said that growth would be driven by a unique position in the market.
And the combination of industry, leading organic revenue growth.
Adjusted EBITDA margin expansion.
A robust capital deployment.
With our fiscal year 2021 results now final.
Was that 1 has significantly exceeded our 3 year financial objectives.
Arabs nearly doubled over the period.
$2.3.90 in fiscal year 2021.
Average annual revenue growth.
Was above the midpoint of the 629% range. We originally provided.
Adjusted EBITDA margin was about 10% in each of the 3 years.
And we deployed $1.3 billion in capital.
The majority of which was achieved through increased dividends and robust share repurchase program.
During the 3 year period, we navigated through significant budget uncertainty.
Including the longest government shutdown we've ever experienced.
And turbulent presidential transition period.
And it once in a century pandemic.
And throughout.
We continue to invest in our people.
Especially when we set aside $100 million in response to the pandemic to support our employees and help the most vulnerable in our communities.
All the while we also continue to invest in our key technologies and develop elements of our option value portfolio.
So the story of the last 3 years is certainly about outstanding financial performance.
But more importantly.
As we look to the future.
It is the basis for our optimistic outlook onto the business.
Over the last decade.
We further differentiated Booz Allen is Brandon market position.
To the point that today.
Federal and commercial clients rely on us for advanced technology solutions that deliver both speed and mission scale.
And are unique combination of consulting expertise mission knowledge innovation and technology.
Serve such as strategic accelerator.
For both our firm and our clients.
I've said many times.
Was that a little learns on the balls continuously.
Our next strategy and long term financial outlook.
Which we plan to share with you in the fall will build ambition 20 twenties growth and transformation.
We are very comfortable with our direction of travel.
As we anticipate the opportunities of the next decade.
The most recent example of our confidence in our strategic direction.
Is our agreement to acquire Liberty solutions LLC.
As we discussed when we announced it on may 4th.
This acquisition is directly on strategy.
Liberty is an exceptional company with highly skilled talent.
Trusted client relationships closeness tuition.
A solid growth trajectory.
And digital transformation capabilities that ultimate Booz Allen extensive set of offerings.
The transaction is expected to close in this quarter subject to customary closing conditions.
And we look forward to officially welcoming deliberately team.
To the Booz Allen family.
Let's turn now to the fourth quarter and the full fiscal year financial results released this morning.
Lower than I are proud of the team's performance in an unprecedented ear.
On all metrics, we have met or exceeded the updated guidance. We provided at the end of January.
For the full year.
Organic revenue growth was strong.
Albeit slower than recent years due to the pandemic and some delays in funding and awards after the election.
We also delivered excellent bottom line results full year earnings profit margins and cash flow are all ahead of expectations.
And that's the market began to stabilize post transition.
Our team did a great job in capturing opportunities.
Driving a record book to build in the fourth quarter and ear and backlog of $24 billion.
Underlying demand for our services and solutions remains robust.
With our defense and civil businesses, delivering excellent organic growth in fiscal year 2021.
While the intelligence and global commercial continued to reshape their portfolios.
Load will go into greater depth about market dynamics in a few minutes.
Next.
I am pleased to report that the department of Justice has closed the criminal investigation that we first disclosed in June 2017.
The civil Doj and SEC investigations remained pending.
And we continue to cooperate with the government to bring those matters to an appropriate resolution.
Let's shift now to how we are thinking about their business in the year ahead.
As we opened fiscal year 2022, we are very focused on instead of near and midterm priorities.
First and foremost.
To fully benefit from our strong backlog on demand pipeline, we need to accelerate a recruiting efforts.
Second.
We must capitalize from the reshape portfolios in intelligence and commercial to drive growth in both businesses.
Third we will carefully manage that transition to a post kobe the environment by investing in our people and the advanced capabilities, we need for the future.
Fourth.
Having launched our next generation financial system on April 1st, we're making strong progress and we'll keep focused on a seamless implementation.
And fifth.
Up on clothes of the Liberty acquisition.
We will work closely together on a smooth and successful integration.
As we look further out we're also focused on positioning for growth beyond the current fiscal year.
Our overriding goal is to accelerate into the next wave of changes in our market.
For monetizing the option value portfolio.
To investing in new areas like low code 5 G AI or quantum.
To finalizing our strategic review.
Who's Allen is committed to being a leader in ensuring our clients can scale new technologies into their emissions.
Faster than ever.
Turning out specifically to our fiscal year 2022 outlook.
Lloyd will walk you through the guidance in a few minutes.
But I will note that the growth pattern will be different from recent years.
This is due to a number of factors from productivity and BTL trends to the Liberty acquisition and the timing of hate come gains.
We expect these factors together to produce a revenue profile with low single digit growth in the first half.
Followed by significant acceleration in the second half.
We plan to the full year.
And that's our guidance indicates we expect another year of significant revenue growth in FY twenty-two.
Continued excellence in operational performance is also expected to produce strong EBITDA growth.
Continued cash generation and strategic capital deployment.
So to sum up.
I am excited and optimistic about the coming year and beyond.
Our clients have clear priorities and the ability to marshal resources towards them.
We have an exceptional team.
An exceptional team tested unsuccessful through good times and challenging ones.
Our balance sheet is strong.
Our unwavering commitment to people over the past year has bolster our already strong brand in the market for talent.
And all of us are committed to and focused on serving clients with excellence.
And living our purpose and our values.
So while we may still see some choppiness.
And we have work to do when hiring in the coming months.
I have tremendous confidence in our team's ability to deliver growth.
In the near and the long term.
And with that.
I will turn the call over to Lloyd.
For the full financial results on the outlook for fiscal year 2022.
Thanks are arceo and good morning, everyone.
Let me start by echoing Horacia his comments on the clothes out of our investment thesis.
Last quarter, Mark the end of a 3 year period with Atf's growth of 96%.
And increase that was primarily driven by strong organic revenue growth and sustained margin expansion.
This performance resulted from investments related to vision 2020, and our early positioning and core areas of rising demand for our clients.
Booz Allen has proven its ability to outperform competitors.
Even in some of the toughest macro environments.
Moving forward, we will keep a sharp focus on positioning Booz Allen for long term success.
Building on the excellent performance of the last 3 years.
As we look back over the past year, we're proud of the resilience and dedication shown by our people.
In close collaboration with our clients.
They're excellent work resulted in another strong year of operational and financial performance.
As we begin fiscal year, 2022, and anticipate moving toward a post pandemic operating rhythm we expect some choppiness.
But we have clear operational focus areas.
Our confidence in our continued success is grounded in our record of consistent performance and the strong foundation, we have built to deliver on near and long term objectives.
Let's turn to our fiscal year 2021 results. Please turn to slide 6.
At the top line revenue increased 5.3% for the full year $279 billion.
Revenue, excluding billable expenses grew 7.1% to $5.5 billion. This organic top line growth largely reflect strong execution on sustained demand for our services.
Helped by higher than normal staff utilization in the first half of the year.
As a reminder, in January we adjusted our revenue guidance to a range of 482, 6%.
Due to 3 factors first programmatic shifts in the presidential transition period.
Second he snapped back to more typical PTO usage.
And third lower expectations for billable expenses as a percentage of revenue, which landed in the low end of our 29% to 31% range.
These factors played out in the fourth quarter as expected.
Let me step through the market performance.
Revenue growth for the full year was led by our defense and civil businesses, which grew 9% and 8% respectively.
And defense growth slowed in the second half of the year due to the factors I noted earlier, however, underlying long term demand for our services and solutions remains strong.
Evidenced by recent business wins and continued tactical sales execution.
Grossman, our civil business also slowed in the second half of the year.
This was largely related to a pause on a large cyber program due to funding availability, which occurred in the third quarter and continued into the fourth quarter.
Given the importance and criticality of this program for the client we believe work will ramp up again in the coming quarters.
Revenue from our intelligence business declined 3% for the full year.
<unk> focused effort to reshape that portfolio continues and we are pleased with the results so far.
We expect to see our intelligence business return to growth in this fiscal year as we ramp up recent contract wins. Furthermore, the pandemic related headwind, we faced and fiscal year 2021, and inability to bill for fee will continue to abate as more and more of our employees returned to work Ah client facilities.
Lastly, revenue in global commercial which accounted for approximately 3% of our total revenue in fiscal year 2021.
Declined 22% year over year.
The drop was primarily driven by our decision to exit from parts of our middle East business due to market dynamics and geopolitical trends and to focus strategically on our usb's fiber business.
Please turn to slide 7.
We are pleased with our excellent book, the Bill performance for the quarter and the full year.
Book to Bill of 138 times was a fourth quarter record, resulting in a full year book to Bill of 142 times.
Total backlog grew 16%, yielding our largest ever fiscal year end backlog of $24 billion.
Funded backlog grew 3% $235 billion unfunded backlog grew 35% $261 billion and price options grew 13% to $14.4 billion.
Throughout the year the team did a great job sustaining our historical when rates for Recompete, new work, even as we navigated the pandemic in a presidential transition period.
As we've noted previously we continue to augment our traditional foundation of diversified smaller awards by pursuing larger and more complex bids that by their very nature cause quarter to quarter volatility and book to Bill.
Ah record backlog speaks to ongoing robust demand for our services.
The quality of our people and our closest to clients missions.
Pivoting to head count as of March 31.
We had 27727 employees.
Up by 554 year over year or 2%.
Excluding the impact of our contract divestiture in the third quarter head count would've been up to 4%.
As a rasia emphasize we are focused on accelerating headcount growth to meet strong demand signals and execute our backlog.
Moving to the bottom line.
Just that EBITDA for fiscal year, 2021 was $840 million.
11.4% from the previous year.
This increase was driven primarily by our top line growth strong cost management and lower than expected billable expense mix and what was truly an anomalous year.
As a result are adjusted EBITDA margin for the full year was 10.7%.
Full year net income diluted EPS and a depth also grew significantly.
Net income increased 26% year over year, $2.609 million.
Adjusted net income was $542 million up 21% from the previous year.
Diluted earnings per share increased 28% to $4.37.
From $3 and 41 the year prior.
And adjusted diluted earnings per share increased 23% to $3.90.
From $3 an 18.
The year prior.
These increases were primarily driven by strong operating performance.
A lower effective tax rate and a lower share count and fiscal year 2021, due to our share repurchase program.
Regarding our effective tax rate during the fourth quarter, we recognize the tax benefit under the cares at that allowed tax loss carry back to prior tax years.
As a result, we recognized approximately $77 million and Remeasurement tax benefit this quarter, which we excluded from adjusted net income and adjusted diluted earnings per share.
Turning to cash we put a plan in place 3 years ago to improve cash generation.
We are extremely proud of our team's performance this year, which we see as the culmination of this multi year effort.
We generated $719 million and operating cash during fiscal year 2021.
Representing 30% growth over the previous year.
That put us above the top end of our forecast that range and we ended the year with $991 million of cash on hand.
Strong cash performance was largely driven by collections growth in excess of revenue growth.
Higher cash taxes on the year were offset by relatively liked disbursements related to operating in the COVID-19 environment.
Capital expenditures for the year totaled $87 million in line with our expectations as we continue to invest in infrastructure and technology to support virtual work.
April was a key month for us as we went live with our new Nexgen financial system.
Our year end report enclosed went smoothly and we have not encountered any material issues to date.
As can be expected, we experienced a few minor issues, which were addressed properly.
We have already been reaping the benefits in the form of increased data access and improved productivity.
We expect this to translate in the cost savings over time.
Which will be reinvested to help drive future growth.
I want to thank all of my colleagues, who work tirelessly to make this a seamless and successful transition.
I will touch on this topic again in our outlook for fiscal year 2022.
Please turn to slide 8.
In fiscal year 2021, we continue to execute on a prudent capital allocation strategy designed to deliver both near and long term shareholder value.
We returned approximately $181 million to shareholders through quarterly dividends, which included a 19% year over year dividend increase in the fourth quarter.
This was the eighth consecutive fiscal year of double digit growth in our quarterly dividend.
We also repurchase 4.1 million shares $4.318 million during the fiscal year with 2.3 million shares repurchase for $185 million in the fourth quarter.
In combination with our third quarter investment and trace point, we deployed a total of $571 million in capital and fiscal year 2021.
Going forward R capital allocation priorities remain unchanged.
Reinvesting in our business, securing our quarterly dividend strategic acquisitions and share repurchases.
Today, we're also announcing that our board has approved a regular dividend of 37 per share payable on June 30th 2 stockholders of record on June 15th.
Dividends remain an important component of our strategy to create value for shareholders.
Lastly, I want to briefly touch on our recently announced acquisition of Liberty It solutions.
This transaction upon clothes will be our largest acquisition to date and will be immediately accretive to revenue growth adjusted EBITDA margin.
And adjusted diluted earnings per share.
For us this transaction represents exactly what we look for in acquisitions.
Cultural strategic and financial fit.
As we look ahead, we are focused on 3 objectives first.
Smooth as successful integration second continued hiring to help scaleup liberties recent wins.
And third maintaining excellence and contract delivery.
As our Osteo noted we're excited about the acquisition in the long term value it will create for our shareholders and the people of both Booz Allen and Liberty.
We look forward to sharing updates in the months to come.
Turning to guidance, please move to slide 9.
Fiscal year 2021 was certainly a year of unprecedented challenges for our people and clients. This resulted in several puts and takes to our fiscal year 2021 financial results, which influence year over year comparisons as we move into fiscal year 2022.
Most of these factors are temporary in nature.
However, we expect them to constrain top line growth for the next couple of quarters.
Before an acceleration into the back half of the fiscal year.
Let me step through these factors.
First there is a natural ramp up that needs to occur in both execution of work on recently, 1 contracts and on recruiting and hiring.
As Roxio noted we're focused on both of those priorities.
They take time to ramp up which creates a momentum built towards the back half of the year.
Second we saw unusually high productivity in the first half of fiscal year 2021.
Driving up revenue growth, then slowing growth in the second half as theft utilization and PTO trends normalized.
This dynamic will create challenging comps and the first half of fiscal year 2022.
Third we expect PTO trends to have an ongoing impact for the next few months.
Although we executed a successful 1 time PTO buyback program in the fourth quarter, we know that many of our employees still have elevated balances due to the pandemic.
With vaccinations, increasing and some are on the way, we expect and have been encouraging people to take well deserve time off.
Lastly, our implementation of the new financial system will result in minor timing differences in the costing of labor.
We do not expect this dynamic to materially impact our full year results.
However, we do forecast approximately 50 basis points of revenue growth headwinds and each of our second and third quarters.
Recovered through a roughly 100 basis points tailwind in the fourth quarter.
Putting it altogether.
We expect organic top line growth in the low single digit range and the first half of fiscal year 2022.
With a significant ramp into the third and fourth quarters.
From an EBITDA perspective, a return to a more normal indirect spending patterns and bilbo expense mix post pandemic will drive some volatility in our quarterly margin profile.
Now, let me take you through our fiscal year 2022 guidance.
We expect total revenue to grow between 7 and 10%.
Which is inclusive of a partial your contribution from our announced Liberty acquisition, assuming a first quarter of 2022 close.
The various between the top and bottom end of our revenue growth outlook will largely depend on the successful execution and timing of our hiring and onboarding.
We expected adjusted EBITDA margin to remain in the mid 10% range.
We expect adjusted diluted earnings per share to be between $4.10.
And $4.30.
This range reflect strong organic growth incremental DNA expense related to our new financial system.
A higher effective tax rate and 20 to 24 cents of anticipated accretion former acquisition of Liberty.
This guidance is based on 134, 2.137 million weighted average shares outstanding and a tax rate in the range of 22% to 24%.
We expect operating cash flow to be between 808 hundred $50 million largely driven by our operational performance.
Lower cash tax payments and contributions from Liberty.
And finally, we expect capex to be between 80 and 100 million.
As we continue to invest in infrastructure and technology.
In closing we are extremely proud of our fiscal year 2021 performance.
I want to thank our clients an entire booz Allen family for managing through a complex year.
We have once again demonstrated our ability to effectively manage the business invest in our people and deliver strong returns to our shareholders.
We did all of this while weathering a tough macro environment, which gives us confidence in our strategy and positioning to succeed.
Any market condition.
With that Ruben.
Open the lines for questions.
Thanks light.
Greater things open the lines.
Thank you as a reminder to ask a question UNAIDS Press star 1 on your telephone.
Target question.
Please stay involved with some volunteer Naval officer.
Our first question comes from Robert Spingarn with.
Police you May proceed with your question.
Hi, good morning, and thank you.
<unk> a question on a couple of areas.
Opportunity.
The New administration has talked about raising the IRS budget pretty significantly and that's a big customer through I think long term customer.
Could that present.
An opportunity for more work and then I wanted to ask a similar question on cyber.
Good morning.
I think we are very excited about the opportunities we see in front of us across the board.
On your specific question.
We are definitely working with the IRS they've been declined 430, 40 years, and we do a lot of great work with them around the digital transformation.
Around fraud detection around 500, a number of other things so.
We see Upsized there for sure, but we're going to see upside across the entirety of the portfolio.
On the demand side, you saw the book to build numbers.
They are stellar for the quarter.
And more importantly that type of work that we are winning.
If you look at our defense.
Business the digital transformation of the Department of Defense is accelerating and I believe that you was at Booz Allen Us a real partner in making that happen in the intelligence community. We're doing some amazing work around cyber around AI around <unk>.
In across receivables page beyond the IRS, we've talked about health we've talked about.
Liberty.
I'm very excited about what what's going on in the possibilities for for growth in the near on the medium term.
Okay and then it's just a quick 1 from Lloyd how should we think about wage inflation risks at this point and if it happens multiyear fixed price contract are you limited in how quickly you can pass that through.
We don't think so.
Historically, let's say past 5 years certainly is these higher solution it solution capabilities have been in demand.
Clients have been willing to accept higher compensated folks in the labor categories as well as with the Escalations tied to that.
So from a fixed price standpoint.
We manage our contracts well, we have the right to risk mitigation oversight in place.
And have not experienced any.
Unfortunate.
Results of.
And executing those types of contracts.
Thank you both very much.
Thank you.
Thank you our next question.
Sequel Man keeping Morgan you May proceed with your question.
Okay. Thanks very much.
Morning.
Good morning morning.
And as the first question I Wonder if you could talk about.
Popped in in hiring that's coming in the first half should we should we think about that as being sort of.
Commensurate with kind of revenue growth.
That were looking for and then just the environment in terms of.
Firing accounted.
In this kind of labor market that were you know, whether it's things have become any tougher or easier.
Why don't I start Lloyd might want to.
As well.
I'll take it back to last fall and in the middle of the pandemic.
We have a number of operating priorities and we are operating is very high productivity levels. So while hiring is always a priority of booz Allen it probably wasn't top 3.
<unk>, we shifted that stands.
Really.
Winter months, and we are now very focused.
On that so I fully expect our hiring to ramp up strongly.
And we'll get through the numbers, we want to get too probably by the second half of the year.
There are some choppiness us we.
Accelerate into it but.
It's a question of timing not a question of there's no structural issue.
Ah Hi look further out.
Into the fall and beyond I've been talking to a lot of people.
And.
Both in our industry and across industries about what they view of the market is postponed emig and I think everybody is thinking about how the labor market is going to change, but frankly, I think booz Allen is somewhat out in front.
On those conversations.
We have a very strong talon brand that was if anything burnished over the last year with everything that we did that we described the prepared remarks too.
So for our people to have challenging conversations to get us to the place where we are today, we're having really good discussions with some of our clients about the opportunity for more flexibility and to distribute.
Our labor force differently and support.
Of them and there's more receptivity to those discussions and there was.
Brief and demick, and we are imagining new ways of working that leverage our footprint differently that give people more flexibility that I think all of which is going to put us in it even better said not just for this year about beyond.
We look to attract the right kind of talent to our farm.
The only point I would add is that.
Ramping up our head count is going to take some time.
So to speak to harass his comment about choppiness and we've built that into our guidance range.
So if you look at the 4% to 7%.
Organic portion of the 7% to 10%.
Where we will end up within that is really a timing.
Of of the head count game.
But we're confident our leaders are on it.
And we expect to do well.
Great great. Thanks.
That's helpful. And then just a follow up leg with a quick numbers question. If I just look at what seems to be embedded ahead, P&L guidance and take the EBITDA and you take out the interest expand for the taxes and it looks like maybe you can convert about.
78% to 75%.
Dodge operating cash flow, but it looks like it really convert more like 90%.
Is the difference there just cash versus book taxes or is there a significant working capital reduction that you are looking for something else involving timing.
No we don't see any differences from how we've operated the business in the past.
It's really probably just a function of timing.
But we expect strong conversion as we always have.
And as you have seen historically, our cash generation has been really well.
Okay. Thanks very much.
Thank you. Thank you. Our next question comes from David Johnson.
Barclays You May proceed with your question.
Thanks morning, guys.
Good morning morning.
I guess just to put up fire point on the hiring question.
What what do you have embedded in.
4.7% organic revenue growth Lloyd what are you have embedded for for head count gains in this year.
Yes, we every year, we go into it targeting mid single digits, but as for us and I said last quarter.
It's going to take some time to crank up to that point, so our commentary about first half buildup.
Into sort of hitting our stride in the second half is reflective of this buildup, but we expect.
He goes every year to improve on what we how we exited 21 and we are targeting with single digits.
Okay and.
From an absolute EBITDA margin stand plan looks like X Liberty.
The guidance for this year in beds about 4% to 5%.
Just did EBITDA growth.
Do you still see this as a longer term mid to high single digit.
Absolute EBITDA.
Growth kind of company.
We do we do.
We've been consistently adding to our portfolio.
Capabilities.
Certainly in higher demand clients are rewarding us for that.
And we see the profitability also improving the execution of the work.
Being stronger and stronger year over year, So we definitely see us remaining in that range going forward.
David just to build our Footstock what would you say we were.
Guiding 2 a year of strong growth in FY twenty-two what the top line and we are confident in our ability to continue to drive high margins on.
Drive EBITDA dollar growth as a result.
Thanks very much.
Thank you. Our next question comes from Harbor room with talent. We proceed with your questions.
Yes. Thanks, so much so could you give us some more details on liberty, you're assuming 24 cents of accretion, but what are you assuming for the single point revenue number when exactly do you expect to close it what's the amortization.
Give us some details on that please.
Sure.
As you May recall, we paid $725 million.
The numbers I'm about to run through our assuming an all cash.
Financing.
We expect to close.
And the first quarter of this fiscal year.
We expect.
A partial year contribution of 300 to 340 million annualize.
From Liberty.
The adjusted EBITDA contribution will be somewhere between 46 and 50 million.
And they adjusted diluted EPS, which you said is somewhere between 20 and 24.
Okay and.
So may be turning to book to Bill you had very strong book to Bill and what traditionally is not such a hot quarter almost 2 times, what you'd normally too could you give us some color on what the bookings outlook is like now that we're starting to fill some of the slots.
And the federal government, how does queue to look how to skew excuse me how does the June quarter and the September quarter look normally september's the peak, but given us some color there if you could.
Okay I'll start.
<unk>.
B as you know, we've been saying for quite a while but we're not demand constrained and in fact.
We see a very good marketing front of us.
Something shifted to the right from our third quarter of last year to our fourth quarter of last year, and we share some of those views with all of you. Although lost earnings call and I think the book to build numbers that we're putting up on it and part of that dynamic and in part. The fact that the team has really done a spectacular job capturing competitive work.
Right in the center of our strategy the things we've all been.
Wanting to do.
That gives me optimism and confidence that we are on strategy on on trend to continue to capture opportunity I'll stay by the administration Romps up.
The pipeline as strong.
The types of work that we're going after is exciting.
You might have seen the announcements on.
<unk> for example in the Army I mean, there's a lot of really good work that was Allen is bringing into our portfolio that positions us in the center of the digital transformation of their partner on a catalyst of all of our clients. So.
We see a lot of room to run and.
A lot of room to grow on the demand side.
Okay. Thank you very much.
Thank you and our next question comes from Greg online that Jeffrey you May proceed with the question.
Good morning.
Just had touch on commercial I mean, I know, it's relatively small, but you talk about kind of the shift away from the middle East and focus on the U S. But just in light of the colonial pipeline attack what type of activity are you seeing in that business either from inquiries or just the overall.
Pipeline.
We're excited about or seeing.
Both in.
Our own business and and this investment we've made in price point, we are seeing demand.
Driven by an environment that is increasingly more challenging for our commercial clients and David was Allen.
As a serious player with unique capabilities to help them, especially against some of these more sophisticated.
Types of attacks. So we're well positioned in R. U S commercial business center those cyber security as we said we made some.
Transitions out of some of our work in the Middle East and we see growth in the year ahead.
And then just as a follow up just guidance I mean to Bilbo expenses kind of return to a normalized range and should we think of those as kind of the same cadence as revenue, where you kind of have a ramp in the second half.
Yeah, I mean it.
It's hard to.
Truly forecast Bill will expenses, but we do expect that to start to move.
More to the middle of our range, which has historically been 29% to 31%.
So we certainly see the momentum picking up throughout the year and expect that when we get to the second half of the year it'll be.
Maybe pre pandemic slightly less than prevent demick levels.
Thank you.
Thank you. Our next question comes from that acres with Wells Fargo. You May proceed with your question.
Hey, good morning, guys. Thanks for the question.
I was wondering if there's a way to think about kind of like a normalized or maybe like that.
Second half kind of exit.
Margin right for the business, just just trying to get a feel for once we get through some of this noise in the first half.
Liberty.
Kind of a way to think of the ongoing profitability.
Yeah.
We did our best reflect that in the guidance.
And a half.
We think that captures sort of the annual kinda puts and takes that we'll see as things start to return to normal.
So.
We have it.
I am not going to try to give you a quarter by quarter sort of exes.
I have I think really captures are strong margins and we're really happy about that.
Got it okay. Thanks, and then I guess, just kind of a broader question on M&A I mean, it sounds like Liberty It really kind of hit all the things you were looking for but as I guess still a little bit kind of out of character to do a deal the size for booze, So I guess that.
Imply anything in terms of what the future mix of capital deployment could be yours is really just kind of a 1 off.
Instance, where it was just a great asset really fit well.
I guess the way I would correct rice, our posture towards M&A is we've said over the last year, we increasingly be view, our balance sheet as a strategic asset we have a lot of strength there we have the ability to deploy.
Capital.
Against strong opportunity.
And we're not in a rush we have an approach were disciplined and I believe it's an approach that will actually create value for our shareholders in the near on the long term.
And.
Importantly from a strategy standpoint, they talk about the acceleration of digital transformation.
<unk> M&A when done right as a strategic accelerator for us.
The ability to leapfrog some of our own development and scaling of some of our own capabilities.
To get they are a couple of years faster liberties to good example of that we have.
We're always in the market looking for things that will let us do that and to the extent that we find them to the extent that they make sense strategically financially and culturally.
We will we will do more.
Got it thank you.
Thank you and the next question comes from Gavin Parsons of Goldman Sachs. You May proceed with your question.
Good morning.
Her arceo when I think about your revenue outgrowth in unique capabilities.
Over the last few years Pearson scaled up whole refocused R&D the required more.
Technologies, and so on and so forth so from a from a qualitative standpoint do you feel like you've been able to maintain and your capability gap relative to peers and then from a quantitative standpoint do you think you can continue to outgrow revenue by a similar magnitude as you have in the past.
All the short form of the answer Gabonese, yes.
Do both.
So I can stop there I can give you a little more.
The.
Honestly I am very proud of what the team has done an even during the pandemic year, we continue to invest we're always in front.
It's an exciting time to be at Booz Allen.
We are having discussions with clients and light discussions with our happy for about not just some of these technologies, but how they really can transform mission and we're doing this not just at the working level, but very senior level.
In these agencies and because we're having this discussion is because we are confident that we understand what our clients needs to do we continue to invest in the next generation of technology is not just the current generation.
So while we're slate scaling cloud we're working on locally.
While we're working on Syver, we're thinking about 5 <unk> on quantum on the the impact on cyber we're already.
Either on AI, and we continue to if anything extend that gap so.
There's no birthright here you have to show up every day and make it happen for your clients for your people on the contracts for our investors and we're very focused on that.
I am very optimistic.
Yes, it was very clear and so I'm gonna definitely appreciate the the detail.
And then when I think about it.
Fact of Covid this year on revenue and margins last year yet.
With a tailwind in the first half of the year, but then the bills headwind in the second half and maybe some some margin puts and takes as well shall we think of.
This year is still having a margin headwind.
From.
Elevated medical expenses and is there.
What is what is the net revenue impact of Covid. This year, so the tailwind or headwinds. Thanks.
Yeah, we haven't itemized.
In terms of the dollar amount, but this is what I would I would offer you.
Certainly in the first half of the year.
We expect an allowable to remain low.
Expect a return to average.
Cares Act is.
Sunsetting, so we expect to be able to invoice for fee going forward.
So there will be over the course of the year this sort of shift from the bill the midst of COVID-19 to sort of pre COVID-19.
Dynamics.
And then what I would say on the revenue side.
But I think you've heard and harasses commentary.
We're not demand constrained.
This this is all about us bringing on the talent to convert the strong backlog performance.
Just solid client execution, so that's our top operational priority and we'll work through the Choppiness, we spoke about this morning, but.
We remain very optimistic.
Thanks very much.
Thank you our next question Muslim Toby Summerwood towards security can we received with your question.
Thanks.
Could you help us reconcile.
The high priority that cyber holds for your customers with.
The contract you have that kind of put on hold because of funding.
Because it seems like in most circumstances cyber might.
Without funding and something else may lose thanks.
Toby I think this is.
An unexpected slowdown in funding.
Towards the end of last year and.
With the transition of administration people still coming in priority is being realigned we believe like you that the direction of travel east towards fully funding.
Those areas and.
Excuse me on prioritizing them.
But it's a process and it's a process.
Has its own timing and we are very close to our clients on these we're working with them.
Every day, we want to make sure they get.
And not just the amount, but the quality of the work that they need and we will continue to do that.
Within the civil space.
The President's budget request is.
Pretty pretty exciting.
Where do you see the biggest opportunities for growth within your civil book and is the company adequately sized or could we assume that.
In your answer you would direct just proportionate amount of your head count growth that direction.
I think we're always looking for opportunities to grow and that's you know 1 of the things how about our operating mall.
That allows us to do that is to single P&L and the ability to shift resources.
So we're making these decisions dynamically and almost daily others clearly opportunities in our health business.
And.
Health care access.
Significant priority.
We've talked before about the IRS, but our entire citizen services.
Portfolio.
Is being transformed by digital technologies and we're in the midst of that.
Our work out.
DHS is has opportunity an upside, especially around cyber security. So I believe we're well positioned and civil is obviously an area of interest in an area of strength for us, but I believe I could tell you a similar story about intelligence and about defense.
Our positioning for.
For the coming months, we have work to do we're on it.
And our teams are doing really well.
Thank you.
Thank you. Our next question comes from Ron I've seen with Bank of America May I proceed with your question.
Hey, yeah.
Good morning.
Beverly Tempe represents about 70% of current revenues.
Correct.
And that's down from almost 80% if you go.
Back to.
2013.2014 timeframe.
If we think about the bill broke up at the beginning of the question. We're having a hard time hearing you do mine starting from the top again sorry.
Yeah sure does that better can you hear me better.
Yes, yet.
Sure.
So.
Defense and Intel represents about 70% of the of the current revenues.
And that's down from maybe 80% if you go back.
6.7 years ago.
What do you see that.
Where do you see the split between defense versus civil 5 to 10 years from now, particularly in light of.
Some of the M&A, you've done already with Liberty and some of the emerging technologies.
We don't honestly think about the business that way.
We are going we have a robust presence across the entirety of the federal government, we pick and choose and curate the agencies on the places that we serve to the places where we believe what we do.
We'll add the most value to clients.
And then we dynamically manage the business as they priorities.
Ah merge and change over time.
So I don't know that I could tell you exactly where our business is going to be 5 years from now on the market breakdown. What I can tell you is that our ambition. Our expectation is I would ask the digital transformation accelerates Booz Allen will accelerate with it will stay out in front and across all of the clients that are really in the.
Think of it be a defense intelligence and civil Who's Allen will be a meaningful scale presses an innovator.
And then and maybe 1 follow on if I if I may.
Could you discuss the competitive dynamics right now with the defense budget flattening.
Alright, it seems like the defense budget might not necessarily go down but it seems like we're kind of a maybe an inflationary growth environment for awhile.
I think what you've heard us say that that was in some ways are anticipation for the next.
Few years and I think what we tried to do I know, what we've tried to do.
Is to really be position us the digital innovate are so digital integrator around all of these technologies that are going to be in high demand.
Even in any agency.
A flattening budget doesn't mean that everything gross at the same rate. Some things are going to get prioritizing continues to grow I think we're all position.
Against those some areas are probably not going to grow us macho may even decline in order to fund.
The priorities and I think our job is to a stay very close to our clients and understand that as quickly as they do.
And I believe we are doing a good job of that and be to make sure that our operating model and the flexibility in our operating model gives us an edge as we migrate from from place to place in order to.
To capture the growth areas. So that's why when you started osama lot sum it all up.
Are strong organic growth is always above market and we have an expectation to continue.
To grow well above market.
On the back of all of those things.
Great. Thank you.
Thank you and that concludes our Q&A session I would now like to turn will call back over to Horacia or is asking for any further remarks.
Thank you. Thank you all for your questions. This morning.
I hope this discussion put FY 21 results in context, and it added to your perspective about F Y 22 and beyond.
Before I close.
I would like to acknowledge that may is military appreciation month.
And have Booz Allen.
Our partnership with our military clients.
Is the source of deep pride.
And a big part of our purpose.
So on behalf of the entire leadership team of our firm I want to thank all who currently sir.
And all who have served in the armed forces and that includes thousands of our colleagues.
Your service and your sacrifice are deeply appreciated by all of us on by a grateful nation.
And with that have a great day everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.