Q1 2020 Earnings Call
Good morning, Thank you for standing by and welcome to Booz Allen Hamilton earnings call covering first quarter results for fiscal year 2020.
At this time all participants are in a listen only mode.
Later, there will be an opportunity for questions.
I'd now like to turn the call over to Mr. Nick VC.
Thank you good morning, and thank you for joining us for Booz Allens first quarter 2020 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, the vice President of Investor Relations and with me to talk about our business and financial results are Rossier Demski, our president and Chief Executive Officer, and Lloyd Howell Executive Vice President and Chief Financial Officer.
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 first quarter fiscal 2020 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'll also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.
We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal year 2020 slides.
It is now my pleasure to turn the call over to our CEO Rossier event and we are now on slide five.
Thank you Nick and good morning, everyone.
Thanks for joining the call.
Lloyd and I are pleased to share another set of very strong quarterly results. This morning.
On our last earnings call just nine weeks ago.
We discussed Booz Allen's outstanding fiscal year 2019 performance on highlighted that we aim to emulate outperformance this fiscal year.
We also increased the financial goals in our investment thesis, which takes us through fiscal year 2021, having essentially jumped a year ahead on our three year time horizon.
In sum, we affirmed our confidence in our business going forward.
We also provided clear guidance on how we plan to execute this fiscal year with a relatively aggressive first half and a more conservative second half.
The operational and financial performance, we have reported today aligns precisely to that plan.
The fact that we are delivering on an ambitious front loaded plan exactly as we said we would is further proof of the strength of our institutions.
We are differentiated in the market.
We are effectively managing costs across the business.
And our people are serving clients with dedication and excellence.
This morning, I'll focus on these three drivers of our sustained momentum.
I will also touch on the federal budget before handing over to Lloyd who will run through the quarters results on our outlook going forward.
As you know our investment thesis begins where our unique position in the market.
This is the differentiation we have created by implementing our vision 2020 growth strategy over the past six years.
Clients notes today as a company that operates at the intersection of technology and mission.
By coupling consulting expertise and mission knowledge with technical capability, we are helping them transform their organizations meet today's challenges and prepare for the future.
Demand for the capabilities, we have built is strong and growing.
On our relentless focus on innovation gives us confidence that we will be well positioned to capture rising demand.
In fact as I detailed in May.
We believe demand for our services and solutions will be sustained for years to come by the global strategic environment and the ongoing digital Revolution.
Translating a differentiated market position into strong financial performance and value for our shareholders requires exceptional management and efficient execution across the business.
Our first quarter results show that on this front, we are firing on all cylinders.
Credit for that strong performance goes to all the news our leaders and our broader team.
Who are serving clients with passion and commitment.
Market, leading organic revenue growth continues to translate to excellent bottom line performance.
We're capturing lots of work, attracting and retaining talent and efficiently delivering on contracts.
Adjusted EBITDA margin remains very healthy.
And solid cash generation and strategic management of our balance sheet continues to support our capital allocation goals.
In short.
We're running the business with a high standards that investors and clients expect from Booz Allen.
And frankly that we demand of ourselves.
Fundamentally we are a people business.
The high caliber of our work breasts on their diverse expertise and the passion for working together on really tough problems.
I believe that the opportunity to work in a culture that values. Its people and provides opportunities to make a world a better place is what draws people to our firm and keeps them here.
There are many things to be proud of in our first quarter numbers.
And we are especially pleased to have hit a major milestone.
At the end of the first quarter Booz Allen was larger than it's ever been.
With 26384 talented professionals.
It's their work.
Across missions industries clients and across the globe that quarter after quarter defines both who we are and how we succeed.
I couldn't be more proud of the entire team.
As we celebrate this milestone.
Getting off to a strong start is always important.
But it was particularly important this year.
Given that we were coming to the end of a two year budget deal.
We are encouraged by the progress Congress and the administration are making.
Towards a new two year budget deal.
While much work remains to ensure that the federal agency funding is approved by September Thirtyth.
We are pleased that things appear to be moving in a positive direction.
As it relates to Booz Allen our leaders will continue to execute on our plan for another industry, leading fiscal year and our Q1 results have increased our confidence that we can achieve the ambitious financial goals, we have set for the full year.
We are also on track to deliver on the updated financial goals in our investment thesis.
Centered around 66% growth in earnings per share for fiscal year 2018 to fiscal year 2021.
Lloyd Let me turn the call over to you for a more in depth look at our financial performance.
Thanks, our CEO and thanks to everyone for joining us on the call. This morning.
Our first quarter results have set the stage for an aggressive first half of fiscal year 2020.
Our strategy is working and we are firmly on track to continue delivering industry, leading operational and financial performance.
Let's go through the numbers, please turn to slide six.
Starting at the top line revenue and revenue, excluding billable expenses grew by 10.8% and 8.9% respectively.
Compared to the first quarter last year. The increases were due to continued strength in client demand head count growth and slightly elevated billable expenses compared to the prior year period.
Our growth remains strong and well diversified across our core U.S. government markets.
Turning to slide seven book to Bill for the quarter was 1.29 times and our trailing 12 month figure is 1.4 times.
We continue to see a strong award environment and robust proposal activity.
Total backlog as of June Thirtyth was $19.9 billion, 16.2% higher than the prior year funded backlog and $3.2 billion increased by 13.7%.
Unfunded backlog at $4.4 billion grew 5.1% and priced options increased 21.5% to $12.3 billion.
The backlog and book to Bill numbers again show that we are not demand constrained and they support our expectations of continued above market revenue growth.
Head count as of the end of the first quarter was a record as our CEO mentioned up by 1800, 26, or 7.4% year over year and by 315 since the end of March.
We continue to aggressively hire to maximize our growth potential and we're on track to meet our targeted 5% head count growth for the full fiscal year.
We are encouraged by the rate at which we grew our team this quarter. We plan for an aggressive first half and our colleagues have done an incredible job hiring in the areas that are immediately impactful for our clients.
It's clear that in an extremely competitive labor market talented people want to work at Booz Allen.
Moving to the bottom line adjusted EBITDA for the first quarter was $199 million up 12% compared to last year adjusted EBITDA margin for the quarter was 10.9%.
Our strong first quarter adjusted EBITDA margin was driven by many of the same factors that drove our margin performance in fiscal year 2019, including continued strong contract performance and efficient management of our business.
And as we've previously said our adjusted EBITDA margins are also benefiting from our ongoing shift towards higher margin technically focused work.
These results show that the business is set up to translate topline growth into profit even as we continued to invest in our business and our people.
This is a strong position to be in and gives us great confidence in the future.
First quarter net income and adjusted net income grew 12.7% and 12.4%, respectively to $117.4 million and $117.7 million respectively.
Both increased primarily due to our revenue growth and higher margins.
This translated to an 11% increase in first quarter adjusted diluted earnings per share to 83 cents.
Our weighted average diluted shares outstanding declined 3.6 million shares compared to one year ago.
Turning to cash we generated $51 million and operating cash for the quarter, an increase of $78 million over the same quarter last year.
Im pleased that this quarters performance was seasonally strong due to our focus on cash collections in a variety of other working capital initiatives.
We remain focused on driving process improvements in areas, we can control and the cash collection cycle in coordination with our government partners.
Capital expenditures for the quarter were $27.3 million as we continue to invest in facilities infrastructure and technology.
This includes new secure and retrofitted space and technology to support an increasingly technical workforce, new business line and continued growth outside the Washington Metro area.
Please turn to slide eight.
During the first quarter, we continued to execute on our disciplined efficient capital allocation strategy that aims to deliver both near and long term shareholder value.
We returned $41 million to shareholders through dividends and share repurchases during the quarter.
While our capital deployment priorities remain unchanged, we continuously evaluate all our options consistent with our commitment to deploy the remaining $1 billion through fiscal year 2021 in line with our investment thesis in a way that maximizes value for shareholders.
The strength of our cash position and balance sheet support this commitment.
Today, we're also announcing that the company has authorized a quarterly dividend of 23 cents per share payable on August thirtyth to stockholders of record on August 14.
Lastly, ill discuss our outlook.
One quarter end, our guidance remains unchanged as shown on slide nine.
For the full fiscal year, we continue to expect revenue growth between six and 9% adjusted EBITDA margin in the low teens adjusted diluted earnings per share of between $2.90 and $3.05 and operating cash flow of $400 million to $450 million.
In closing I'll reiterate that we are extremely pleased with our first quarter performance.
Booz Allen is on a strong path the entire management team is excited about the momentum we have generated to meet our multi year financial goals.
Our OSU back to you.
Thanks Lloyd.
Each quarter. These calls are rightly focused in our financial performance.
But we don't want to overlook another aspect of our institutional strength important to both internal and external stakeholders.
So before we move to DNA I want to speak briefly about Booz Allen's corporate citizenship.
Particularly the impact we have in the communities where we operate.
In fiscal year 2019, our people logged more than 88000 hours of volunteer service for more than 900 nonprofit organizations across the globe.
That's roughly a 30% increase from the prior year.
In addition, we as a firm continued to support many well known organizations that assist military veterans and their families promote stem education advanced healthcare and build community resilience, especially through the cycle recovery.
Our commitment to service is deep and enduring.
Which is why we established and support the independent Booz Allen Foundation, even as we continue to use our own corporate citizenship programs.
I am constantly inspired by the generosity and passion in service of our people.
Allow me to share just a few examples.
We recently became the inaugural corporate donor to the hiring our heroes military spouse Fellowship program.
Our funding will send 100 spouses to six week internships that help them relaunch careers after a more deployment.
Other corporate donors are now joining the effort, which will create a strong pipeline of opportunities on sustainability for this innovative program.
In May we continued our tradition of funding the annual conference for the tragedy assistance program for survivors.
Taps supports families of those who died in the line of duty.
Without provides nearly all the volunteers for national fuel the USA here in DC.
This event provides a day of an evening of care for children, while their parents received grief counselling and mentoring.
Also this spring.
At Timo, our consultants donated their time and expertise in a pro Bono project for the John F. Kennedy Center for the performing Arts.
The project is only the latest we've done in support of the Kennedy Center and it focuses on helping them further operationalize the strategic growth plan that Booz Allen we worked on a couple of years ago.
Finally, I'll mention national volunteer amount.
In April we said a big goal impact of firmly challenge of serving 5000 volunteer hours.
We easily surpassed it recording more than 7200 hours over 30 days.
Our winning office was Fox River in Southern Maryland.
Our roughly 400 colleagues their local remarkable 946 hours in support of several organizations, including Special Olympics, the girl Scouts on the Ocean Conservancy.
The challenge with such a success that we are doing again this summer.
And we fully expect to our door April performance.
There are countless other examples I could share.
Each demonstrates booz Allen's purpose.
To empower people to change the world.
So in closing I will recognize and thing that people have this from one more time.
You define what it means to be Booz Allen.
Through not only the impactful work you do but also the deep care you show for the people and communities around you.
With that Nick.
Let's open the lines for questions.
Thanks, Shannon Please open the line.
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Our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open.
Thank you and good morning, guys good quarter.
You haven't you're hiring would would be front end loaded with a budget deal coming together could you maybe provide some clarity on how you think about executing on hiring throughout the remainder of the year.
Sure Sheila good morning.
You know couple of thoughts first of all on the budget itself we are.
Cautiously optimistic because of the progress that has been made but as you know.
There are still a road ahead going from where we are now to fully appropriated dollars against all of the major agencies hopefully by October Onest.
So we continue to watch that closely but we are optimistic that all of that will work.
As it should as it relates to our hiring I'm actually very happy about the hiring not just this quarter, but if you go and look back over the last 12 months for example, our north of 7% headcount growth, it's actually very healthy for us.
And we intend to continue we are pedal to the metal and hiring this quarter as we said we would.
And assuming conditions allow we will continue to execute strongly against our hiring for the balance of the year, we have a strong value proposition to our propel and we're finding even though it's a competitive market great people to bring onto the firm and we don't intend to solve.
Got it and maybe just as a follow up to that the Raphael you mentioned a number of.
Comments in your prepared remarks with regards to employee engagement does make it easier to hire professionals do you find that your competitors do that or do they have more difficulty and adding headcount.
I'll speak to us.
Good.
I meant absolutely everywhere, they said about having a culture that makes people to value that makes peoples passions aligned with their workday and that both at what we do with clients on the missions that we support and our is our effort moving closer to the mission.
And what we do for our communities. All these part of the value proposition that is very attractive you know a loss can be said about millennials my experience with millennials in particular is that they are very passionate about making a difference and they're very mission focused and so.
I find that we can attract unique technical balance because we have this combination of a great culture, a great mission and the great engagement program, both internal and external and as I said before that we intend to continue all of that.
Thank you thanks.
Sure.
Our next question comes from Jon Raviv with Citi. Your line is open.
Hey, Thanks, good morning.
Just following up on the first question.
If we do get some dollars appropriated around October one where do you expect that to manifest and how you're thinking about the year.
The chance to sort of.
Keep on the accelerator in the second half a bit more or or is this going to be investments or potentially upside to the growth and or the low tens margin for the year. Thank you.
I'll start John .
Certainly having a budget deal in place is beneficial to the sector and certainly to Booz Allen, we are increasingly close and getting closer to our clients' mission.
No no let down.
In that the demand is strong and as you see from our Q1 results were not demand constrain.
As it relates to the margin are off to a very strong third roughly in line with what we did last year.
Q1 is that by 19.
And we're going to continue to push forward.
When we gave guidance in the low tens, we still believe that.
As where were going to end up sustainable, we're very happy to be able to sustain that level of profitability.
And frankly, we remain ahead of where we thought we would be when you think about our investment thesis that we talked about probably a year ago.
And then when you also mentioned that on the capital deployment front, you're always evaluating all the options for the remaining plan in terms of cash coming in historically takedown M&A a bit but can you just sort of reevaluate or just sort of revisit what all the options are and what kind of approaches are working with what you might be considering going forward as the market continues to shift around.
Sure.
In our capital deployment strategy, we're very pleased with it.
And just to remind everyone. We're committed to a 1.4 billion.
Capital or return to maximize our shareholders over the three year period and were on track with that.
We've got a very disciplined and efficient.
Strategy.
It has for lovers share repurchases.
Capability tuck in.
And regular and special dividends.
We see many M&A opportunities every fiscal year.
We have.
Strategy that we believe is working for us.
And so we're always looking for assets pure capability plays as best we can fine.
We will continue to do so going forward.
Thank you.
Thank you. Our next question comes from and where Kissel with Wells Fargo. Your line is open.
Great. Good morning, Thank you and congrats on the quarter.
Can you talk a little bit about your commercial business in your 10-Q, it looks like it was barely up year to year.
And what the prospects and sort of what's going on underneath the covers thanks.
Hey, good morning, it's Ross here.
The portfolio is doing well commercial global commercial it's about 4% of our total revenue base as you well now.
It's a small business by the standards. So there is a valid it was Alan and so one or two contracts.
Changing dynamics will move around the number if it if you look at the longer term trend, it's been a strong growth business.
Non growing rapidly close to 30% for a couple of years and we are confident in the long term prospects of our global commercial business, even if from quarter to quarter, there will be some volatility.
Can you.
The other question is on the award activity does it capture that large almost billion dollar fee eight award that God Repro tested I guess in May and what are the prospects for the September quarter do you sense.
Jonathan typical spike up thanks.
Sure.
Our backlog goes there's always this is very conservative does not.
Capture that V.A. award that under protest.
Then as far as looking forward.
You know typically.
For those of you who have.
Looked at us as a seasonality too.
Our backlog that closely mirrors the government fiscal year.
I just want to put on something that Lloyd said before.
We're very pleased with the market we are not demand constrain.
Our growth prospects are at this point, largely driven by our willingness and ability to attract and absorb the right kind of people that give us sustainable growth and that's what we're focused on the book to Bill number this quarter shows about more broadly.
We are winning in the market in the places, where we really want to win.
Great. Thank you.
Our next question comes from Gavin Parsons with Goldman Sachs. Your line is open.
Hey, good morning, everyone.
Good morning.
Yeah.
The men are being growth not be demand constrain being a big subject as one of the you may begin to collect customer environment and sentiment.
Budget deal or not a lot of your hardware appears when talking about accelerated demand pulled forward contracts. So I wanted to maybe get your sense of whether or not there is just more confidence and just kind of the the general budget environment from the customer whether deal or no deal if they feel.
I'm more confident than adding up on contract growth are exercising options are spending money.
So the dynamic I'll take EM totally will want to add the dynamic.
He is one where now for.
Frankly more than a couple of years.
Theres been funding in the system to invest in critical capabilities are they yearend earnings call I talked about.
The dynamics around grape our competition and how that was shifting to the defense investment priority some more broadly across the government how the digital revolution.
What's coming into the federal government and driving significant change and those are two of the underlying drivers of demand and Thats, why we don't feel where demand constrained close to our clients missions.
This type of work is and will continue to be in high demand, obviously budget stability and budget certainty accelerates that improves that makes it less choppy and gives our clients the continent to plan even longer term, but if you look at our numbers and talked about the whats in the queue.
Our defense business, our civil business, both growing around 13% this quarter, our national security business also great deal of demand obviously, the supply constraints there because of the classification issue are the greatest.
But a very strong.
Showing and the strong potential do continue yeah I'd just add that you know when you look at our.
Backlog performance.
Our latest trailing 12 month book to Bill at 1.4, and then for the quarter at 1.29 times.
Really I think speaks to the environment that we're working in.
The strong start to the summer selling season.
We've got a record Q1 backlog totaled up 16.
Percent funded but also by a healthy amount of 14%.
Great and then also maybe if you could talk a little bit about just the current state of AI investment and the government, where do you think that could be in five to 10 years and what booz is doing to position for that thank you.
Thank you for that question.
So so let me start that I talked before about for example, let's start with the great power competition I think it's been widely reported that our.
Competitors for lack of a better term are investing heavily in technology and AI is one of those areas.
China is on the record say that they want to be the global leader for that technology.
And ER the U.S. at this point is competing very heavily for that we see I I I talked about it maybe a year ago.
When we won a very large.
Operationally I contract.
We have begun to see investment in this arena faster than we expected. It we were investing ahead of time on that for the last two or three years, but in the last year to 18 months the notion Oh artificial intelligence algorithmic warfare machine learning.
Yes exploded throughout the federal government in terms of need a if you talk about the fans that they are but if you talk about other parts of the government think about parts of the government that need to seasonally stand up very large call centers and then they bring it down when when the season.
And those are areas that are ripe for machine intelligence to actually accelerate.
The opportunity and we are very well positioned because of the investments that we're making now just in talent.
Which are quite significant but also in building platforms and architectures that will allow us to monetize our intellectual capital in different ways as part of what we talk about us option value. They have me very encouraged AI is going to be a multibillion dollar area of investment for the federal government going forward, then booz Allen ease and wants to be at the center about.
Great. Thanks very much.
Thank you.
Our next question comes from Cai von Rumohr with Cowen and company. Your line is open.
Yes, thank you very much.
So at your Investor Day.
When you laid out your three year goals, you talked of improving profitability and a mix shift towards more fixed price business and yet you know your fixed price was down and your cost plus business was up very strongly in the first half and yet you delivered.
Oh, very satisfactory profitability, maybe explain why that happened.
Sure. Okay. This is Ben.
An effort for some time, it's been underway what we believe we're seeing is all that hard work by our our team is really paying off.
We see the margin performance really resulting from.
Three factors, one being strong contract performance.
We're also managing the business more efficiently than than ever.
And we continue to.
Shifting to our capabilities and the work that we're providing toward TEGNA people focused.
But were the combination to that certainly kicked in last fiscal year and we believe is sustainable this fiscal year. So.
We see our or underperformance the still being in the low turns we're very happy to have that profitability and then also 10% at the top line.
We believe that we can remain in that posture throughout the rest of the year.
Terrific. Thank you and so normally in the past you haven't hired as aggressively as you have now in the first.
Quarter end, you tend to hire more in the second half with the associated pressure on the margins. What's your plan for this year I mean, you've talked about near term continuing to be aggressive, but do you feel there is likely to be enough business that we could see another 7% plus headcount lift in the fourth quarter or.
Things like the two sort of decelerate a bit thanks.
Well for this year I was three actually started in fourth quarter of last year.
If you look back at Q4, you will see that we had a positive.
Net hiring a quarter and that momentum certainly flowed into Q1 of this year, our Austrian I've always maintained that we want to.
Consistently higher and deploy our strong candidate across the business. So we feel that we're off.
To a great start and then if you refer back to our prepared remarks as well as parati as previous comment.
Oh, we're not demand constrained and we've had our foot on the accelerator when it comes to talent for quite some time and we expect that to continue.
The beginning of the year, we forecasted 5%.
What we're shooting for Oh, we're off to a good start and at the moment that still remains our target.
Thank you.
Our next question comes from Carter Copeland <unk> millions research your line is open.
Hey, good morning, gentlemen.
Correct.
Just one quick follow up on the capital deployment discussion I know you highlighted all the levers Lloyd but.
Obviously, just sort of going through the numbers in the in the queue. You know that share repurchase is very minimal and I wondered.
Do you think back to the levers you talked about is there any purposeful about that or is this the normal sort of ebbs and flows and how you you know you see.
You know your various capital deployment opportunities. Thanks here I mean, we we are always looking to maximize shareholder value given what.
The market presents those Carter and.
I would say you know the ebbs and flows of the market and still with an eye toward how do we maximize shareholder value.
Okay.
Thank you.
Our next question comes from Tobey Sommer with Suntrust. Your line is open.
Thanks, So just wanted to ask a question about your your long term growth and kind of differentiator to be able to.
Higher into pockets of future demand, such as AI and machine learning that you've talked about already.
Is there anything that could change in the market.
That would trigger you to press those investments more now and are there any new areas.
That you see on the horizon that you could add to.
Beyond the teams in pockets that we've discussed already.
I ask myself that question all the time and I think the answer has to be yes.
I look at the market and from our perspective.
You want to drive.
Differentiation uniqueness in the market from a position of strength and that's where we are now we're in this pay off period provision 2020, we are where we want to be one quarter into.
Fiscal year.
And we're driving across all fronts.
We have an innovation agenda that is very robust.
It began six or seven years ago before innovation was cool.
And we have been driving it relentlessly and he's got a pipeline. It's got certain things that are already deployed we've talked about those in the past like recreation Doug.
Like different Japan, we have other things that are a little bit upstream like some of our solutions work around they are high and things that are further upstream and will continue to be bought our goal. This is why we don't talk about these things individually, we talk about him as a portfolio.
Our goal is to drive that portfolio to create both unique differentiated revenue a unique story around booz Allen with our clients as the combination of these platforms and our Dal and create solutions and ultimately unique and differentiated financial performance because we believe that these investments actually carry the potential for much higher margin higher profitability. So that's that's our goal. We're added were added every quarter, we're accelerating as much as we can these things take time and we're going to take the time that's necessary.
Thank you as you look at your business in sort of from a civil and defense perspective are you seeing a different cadence in tempo to award activity and business wins.
And I ask that in the context of just looking at simple Treasury outlays and seeing that defense is tracking ahead of civil and wondering whether that's manifesting itself in your business.
I honestly don't see at that level, we see very robust demand.
Across the war lots of great opportunities I need to question of positioning for the right ones and the definition of the right ones are the ones not just that we can win or the wants to give us the kinds of economic that Lloyd was talking about before and most importantly, the ones that leverage our depreciation. So these are sustainable wins, where we win not just the new work, but the recompetes after that.
Thank you very much.
Our next question comes from Robert Spingarn with Credit Suisse. Your line is open.
Hi, good morning.
Learning harass you on the back of that and we talk about this every quarter, but you've had outstanding growth here. The backlog expansion. This tremendous it sounds like Lloyds looking for another strong September bookings quarter.
Could you could we probe a little bit into what that differentiation is or at least the parts that actually translate into sector high.
Backlog in revenue growth.
You know I.
Obviously, you guys see yourself as best in class and the numbers support that but can we get a little more tangible here why are you outpacing the others.
I'll speak about Austin, why do I think we are winning up you know I'm out talking to clients regularly and our conversation with our clients is about.
What are their major opportunities to drive mission in a different way.
And to use technology to accelerate any times leap frog.
Where they are on their mission.
And that conversation tends to lead.
Two things that have been done before and that's frankly, where we excel when we bring a capability that might have worked elsewhere.
According to over two plays that haven't seen it before or completely re imagine emission.
Based on leveraging a new capability, we're doing for example, some recruiting work.
For one of the note there are services and we're bringing our open source.
Understanding to help them understand what is the tenor on the tone in a local market of how potential recruits are looking out that service.
That is the kind of thing that is unique to us that we bring together that I don't I assume others, though because we win.
Work like that regularly and that fuels our growth and again I think that's what makes it sustainable what makes it sustainable is that we're not going to rest on our laurels is that we never compete for a recompete with the same proposal. We have five years earlier, it's a new approach a new thinking.
To push their mission forward and frankly by the way in a supply constrained environment that is what excites people and I honestly think thats what brings and keeps people here is the opportunity not just to work in these great missions, but actually bought bonds.
So you talk about that being sustainable and so really brings up the next part of the question which is.
While we do have some visibility here from a 2021 budget.
The second half of that budgets kind of flat when we look at the site and when we look at the on EM.
It is kind of flattish from here on out.
And so how do you think about your longer term growth opportunity in a flattening budget or again, if we go back to what you just said the end market growth really doesnt necessarily drive your growth.
You know, we outgrow the market for as long as I can remember so what's really important to us is our clients having.
A reasonable level of certainty about their ability to invest because.
Then we can work and we will take share and in the course of doing that as we always have I mean, we like I said, we've always fight outpaced the market and we intend to continue to do that.
And last thing is are there a couple of the major contracts, we should be on the lookout for as we progressed through the fiscal year.
You know, we don't talk about individual contracts on these calls where we talk about the entirety of their portfolio because our portfolio is constructed such that no single contract actually drives the future of the firm so.
Look across all of it look at the kinds of wins that we're having and to the extent that you can ask questions about what what is that work not just the size of it because I think thats what drives our uniqueness our sustainability.
Okay. Thank you.
Thank you.
Our next question comes from Joseph Denardi with Stifel. Your line is open.
Yes, thanks, good morning.
Yes, I guess, you sound a little bit more cautious than optimistic in terms of the the budget outlook. So can you just talk a little bit about what some of the risks are over the next few months that that you're kind of monitoring thanks.
Oh sure I mean, I don't claim to have a crystal ball around any of these I'm out talking to clients on a up on the hill trying to understand.
Our people are thinking about it and talking to experts who live in that world for a lot longer than we have and it's a complex process that can be they're going to have hiccups, along the way I'm thinking about last year there was a.
Budgeted there was a budget deal that was everything else and then the Roes.
You know come January a shutdown I don't expect that to happen. This year I don't I am optimistic that all of the positive momentum.
We'll translate Oh, but we're looking at it very closely and as it relates to US. This is why we are running the year the way we are.
Very strong first quarter, hopefully a very strong first half so that if things are great and the second half will continue on and if there's.
Turbulence, we will be well prepared to deal with it.
Got it and then.
Just lastly, any update.
Kind of on district defend or some of the other opportunities you guys talked about as part of your.
Option value investment strategy, and then anything on the legal front to updates on thank you.
No updates on the legal front, we continue to do work with the government and that process is ongoing.
As it relates to our option value portfolio. The portfolio is moving forward as I've said repeatedly any part of that portfolio could actually be a real needle mover for the firm in the medium to long term and we don't expect every part of the portfolio to succeed, but we're investing we're managing it very closely.
And I'm actually very excited about the progress that we're making on all fronts.
Thank you.
Our next question comes from Tim Mchugh with William Blair. Your line is open.
Thanks, most of mine have been answered or asked but just wanted to follow up on the contract mix type theirs.
Been a gradual trend and then a more meaningful step towards cost Reimbursable I guess as part of the mix. This quarter. I guess you were asked earlier about the margins I just wanted to ask I guess, what's driving that mix shift is that a particular.
A part of your client base or type of work you're doing that's driving that mix shift. Thanks.
Yes, Tim it is the.
Sort of an outcome of a variety of factors Oh, our defense part of our portfolio, but having a strong performance ER and.
As you may be aware many of the contracts I suppose we contract types in that market are cost plus the timing materials.
From our analysis that was contributed to the to the modest shift.
Okay. Thanks.
Sure.
Thank you. This concludes the question answer session I would now like turn the conference back over to harassing over Dansky for closing remarks.
Thank you everyone. Thanks for your time for the dialogue and for your questions. This morning.
Our firm as you can tell is off to another great start this fiscal year and they pay off period for vision 2020 continues.
So on behalf of the people, whose Alan I would like to thank our shareholders for their continued support and confidence.
We are forging ahead with excitement about the future.
Especially about the positive difference, we can make in the world and in our communities.
Have a great day and enjoy the rest of the summer.
Ladies and gentlemen. This concludes today's conference. Thank you for joining and have a wonderful day.