Q1 2022 Booz Allen Hamilton Holding Corp Earnings Call
Good morning, Thank you for standing by and welcome to Booz Allen Hamilton's earnings call covering first quarter results.
2022.
At this time all participants are in a listen only mode.
Later, there will be and opportunity for questions I'd now like to turn the call over and Mr. Ruben day.
Thank you.
Good morning, and thank you for joining us for Booz Allen's first quarter fiscal year 2022 earnings announcements.
We hope you've.
For for fertility 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 2.
And I'm Ruben day head of Investor Relations and with me to talk about our business and financial results are Horacio Rozanski, our president and Chief Executive Officer, and Lloyd Howell.
Had no executive Vice President and Chief Financial Officer and Treasurer.
As shown on the disclaimer on slide 3 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.
And for materially from forecasted results.
Those risks and uncertainties include among other things and general economic conditions, the availability of government funding for our company's services and other factors discussed in today's earnings release and set forth under the forward looking statements disclaimer included in our first quarter.
To defer full year 2022 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.
And if at some non-GAAP financial measures and other metrics, which we believe provide useful information for our investors. We include and explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures and our first quarter fiscal year 2022.5.
It is now my pleasure to turn the call over to.
Discuss Horacio Rozanski, we are now on slide 4.
Thank you Ruben and good morning, everyone. Thanks for joining the call.
As always Lloyd and I are pleased to share our latest financial results and to represent the great work of the more than 28000 people of Booz Allen.
You are seeing in addition to discussing our first quarter performance. This morning, I will take a little time to talk about the future of work.
Our industry in fact, the entire economy is transitioning to more in person and work as we recover from the COVID-19 pandemic.
And that Booz Allen and we're excited about the opportunities.
This presents to our people and clients.
After my remarks, I'll give them on the floor to cover the financials in more depth.
Let me start with an overview of the quarter.
On our last call in late May we talked about our near and midterm priorities on our fiscal year 2020.
And it is the outlook.
We said, we expect another year of significant revenue growth with strong earnings growth continued cash generation and strategic deployment of capital.
At the same time, we noted that the pattern for the year would likely look different from recent years with slower revenue growth and the first half and.
And to offer you can't acceleration in the second half.
And as patterns due to several factors, including the recovery from the pandemic the implementation of a new financial system, and our acquisition of Liberty and <unk> solutions.
The results were released this morning are very much and keeping with the expectations we laid.
Laid out.
As such we are pleased to reaffirm our guidance for the full fiscal year.
Operationally, we continue to move back to pre pandemic business rhythms.
And our defense and civil businesses, we are aligned to our government's top priorities have a robot.
And Cigna pipeline and several great wins in the quarter.
These 2 parts of our portfolio represent 3 quarters of our revenue and they continued to deliver solid growth.
And our intelligence business hiring.
Hiring is going well and the portfolio reshaping we have done has yielded some important.
[noise] robustness.
The first quarter decline and revenue was largely due to lower level of expenses.
And we continue to expect the growth year in this business.
Global commercial represents 2% of our revenue.
Continuing declines are tied to our portfolio reshaping and the impact of.
The pandemic.
We do expect to see year over year growth in the second half of the fiscal year.
Taken together, our entire portfolio of business produced low single digit revenue growth year over year as we expected.
The relative.
And with low growth was driven primarily by a return to more normal staff utilization and PTO trends compared to the first quarter of last fiscal year.
And the country was largely and lockdown.
Yes.
At the bottom line.
Adjusted EBITDA adjusted EBITDA margin and adjusted.
<unk> diluted earnings per share were ahead of our expectations.
Book to Bill for the quarter was also strong.
And we're excited about the quality mission Center work, we are winning.
Cash from operations came in light, primarily driven by 1 time costs related to the Liberty.
Transaction.
Lloyds will discuss all the numbers in detail in a few minutes.
As you May remember on our last call. We spoke about a set of near and mid term priorities that are critical to our success.
The main reason for our optimism about the year.
Is the great progress we have made to date.
Let me go through them briefly.
Our top priority is recruiting.
And in the first quarter, we began to see results from our laser focus in this area.
We are seeing sequential month over month growth and believe.
Year, and we will build over the remainder of the year.
Second.
The reshaping of our intelligence and global commercial portfolios continues.
We believe the tactical and strategic moves we are making will yield year over year growth.
And third.
We are very.
And momentum to have completed the Liberty acquisition in mid June.
Our teams are working side by side and everything we have seen since the closing confirms that this was a great deal for Booz Allen and for Liberty.
We are very excited about the strategic opportunities we have to augment each other's strengths.
<unk>.
The Nexgen financial system successfully launch on April 1 and is running very well to the great credit of the team.
After more than 3 years of preparation launching the system and executing the first quarter close without any major disruptions were critical milestones.
On.
The whole firm.
I want to extend a big congratulations and thank you to the Nextgen team for all their hard work.
And fifth.
We continue to invest and our people and capabilities as we carefully manage the transition to a post COVID-19 environment.
Consistent.
And behalf of the GAAP.
Creating the best possible experience for our talent is a constant area of focus for us.
In that vein I'd like to take a few minutes today to share with you how booz Allen is thinking about the future of work.
We are cautiously optimistic that the worst of the pandemic is behind us and the United.
And weeds and most places that Booz Allen and operates.
As such we are preparing to fully reopen our offices the day after labor day.
Provided that health and safety allow it.
As we move towards that reopening we intend to take the best of what we've learned over the past 16 months.
Added to and create ways of working that better serve our talent our clients and their critical missions were parked off.
Going forward, our workforce will have 3 operating models.
First.
We have always had a small group of employees who are purely remote.
Months expect that to continue.
And for that group to remain relatively small.
Second.
We have a group of people, who work full time, our government and our facilities.
And that too will continue.
Although we expect it to proportionately declined from historical levels.
And we have clients have shown a great deal of creativity over the course of the pandemic on.
And based on this experience many are interested and flexible models that better serve their missions, while reducing the number of people who are 100% on site.
The third workforce model is a hybrid.
And we.
Over time for these to be a majority of our people.
Employees and this group will spend less time, and Booz Allen and client offices than previously and.
And instead have a mix of telework and in person collaboration.
This gives people much more flexibility and their personal and family lives while at the same time.
Expect reserving our culture and the close connection to clients are firm and each other.
What is most exciting about the future of work conversations we've been having internally and externally is the opportunity everyone sees for greater flexibility.
Impact.
And the recent expectation that we need to work and new ways.
The technology allows it and the competition for talent simply requires it.
To succeed.
Good day and in the future employers, whether they are and the government or the private sector must foster a workforce that is more distributed.
Mortgage.
And certainly more diverse.
Booz Allen is a leader in this area.
Working with our government clients to help them rethink and reshape the way they accomplished critical missions.
Many clients believe that the reality of today's world and they needs over the next decade.
Demand fundamental change in how federal agencies execute their business on behalf of all of us.
And consistent with who we are we will lean into those change opportunities proactively.
And so on.
As we look towards the fall and beyond our firm has a lot to be optimistic.
Digital excited about.
We are working very hard to take care of our people build our business serve clients and position Booz Allen for the future.
As always our overriding goal is to continue to create near and long term value for our investors.
And all of our stakeholders.
Mystic and without Lloyd.
Over to you.
Thanks, and our Ico and good morning, everyone.
Before I jump into the financials I want to note that this has been a truly busy quarter for us.
A few of the major highlights included closing our acquisition of Liberty and launching the integration process.
Replenishing our.
Ashish through the bond market <unk>.
Investing in Layton III, a highly strategic rapidly growing company and the AI ml space.
Doubling down on our recruiting and hiring efforts with promising results.
Implementing our Nextgen financial system.
And of course.
Of course engaging across the firm on our strategic review and our next investment thesis.
We are energized by the pace of activity and look forward to sharing more and the month to come.
Now onto first quarter performance as.
As we noted in May we expected some early year choppy.
Choppiness and our top line results as we move into a post pandemic operating rhythm however.
However, we were able to maintain strong performance at the adjusted EBITDA and EBITDA Epsilon through disciplined cost management.
Additionally, we are encouraged by our solid bookings performance as.
Well as our pace of recruiting.
Operating cash flow was light of our initial forecasts, but we view most of the moving pieces as either 1 time or transitory.
Altogether today's results are in line with the expectations, we laid out last quarter, and we remain confident and our plan for the fall.
Full fiscal year.
At the top line and the first quarter revenue increased 1.7% year over year to $2 billion Liberty contributed approximately $16 million to revenue growth <unk>.
<unk> revenue, excluding billable expenses grew 1.9% to 1.
$1 billion revenue growth was driven by solid operational performance, primarily offset by higher than normal staff utilization and the comparable prior year period.
Top line performance for the quarter was in line with our expectations as a reminder, we forecast constrained low.
Single digit topline growth and the first half of the year driven by 4 dynamics.
First the need to ramp up on contracts and hiring second a more normalized utilization rate and the first half of this fiscal year compared to the high staff utilization and the first half of fiscal <unk>.
Low <unk> 21, which we believe to be worth roughly 300 basis points of growth.
Third high PTO balances coming into the fiscal year with an expectation that our employees will take more time off and.
And fourth minor timing differences and are costing of labor, resulting from.
Implementation of our new financial system.
As we noted before we expect growth to accelerate throughout the year.
Now, let me step through performance at the market level and.
And defence revenue grew 4.4% with strong growth and revenue ex billable expenses partially.
Year to provide significant materials purchases and the prior year period.
And civil revenue grew 6% led by strong performance and our health business and the addition of Liberty.
We expect momentum to build throughout the year.
As more administration priorities ramp up and we continue to capture opera.
Offset <unk> building on our strong win rates.
Revenue from our intelligence business declined 6.4% this quarter.
Revenue ex billable expenses grew in line with our expectations, but were more than offset at the topline by lower billable expenses.
We are excited by a number of critical.
Opportunity wins and the portfolio and we believe we have the right leadership and strategic direction and place to execute a growth year.
Lastly, revenue and global commercial declined 27, 4% compared to the prior year quarter.
We anticipate year over year growth and the second half.
Recent outcome that is largely dependent on hiring additional talent to capitalize on growing demand as well as moving past challenging prior year comparable and international.
Please turn to slide 5.
Our book to Bill for the quarter was 1.3 times.
Our last 12.
Book to Bill was 1.2 times.
Backlog grew 16, 5% year over year, including Liberty, resulting in backlog of $26.8 billion.
A new record.
Funded backlog grew 1.6% to $3.5 billion.
Unfunded backlog.
<unk>, 91% to $9 billion and.
And priced options declined 3.7% to $14.3 billion.
We are proud of our bookings performance and the first quarter coming off a seasonally strong fourth quarter result.
We believe that the stability of our longer term.
<unk> book to Bill demonstrates continued strong demand for our services as well as the high value placed on our understanding of client missions.
Pivoting to head count as of June 30, we had 28558 employees up.
Up by 1177.
<unk> grew year over year or 4.3%.
Accelerating head count growth to meet robust demand for our services as our top priority for the year we.
We are encouraged by how we close the first quarter and we expect to see progress throughout the year.
Moving to the bottom line adjusted EBITDA.
<unk> for the quarter was $238 million up 11, 8% from the prior year period.
This increase was driven primarily by our ability to again bill for fee within our intelligence business as well as the timing of Unallowable expenses within the fiscal year.
These items along.
Along with continued low billable expenses as a percentage of revenue pushed our adjusted EBITDA margin to 12% we.
We expect billable expenses and unallowable spend to pick up as we move throughout the year.
First quarter net income decreased 29% year over year to <unk>.
$92 million.
Primarily impacted by Liberty transaction related expenses of approximately $67 million.
<unk> net income was $146 million up 12, 3% from the prior year period, primarily driven by the same factors driving higher adjusted EBITDA.
EBITDA.
Diluted earnings per share declined 27% to 67.
And from 90 to the prior year period, and adjusted diluted earnings per share increased 15% to $1 and <unk> <unk> from.
And from 93.
These increases to our non-GAAP.
<unk>, which exclude the impact of the transaction related cost noted were primarily driven by operating performance and a lower share count and this quarter due to our share repurchase program.
Turning to cash cash.
Cash flow from operations was negative $11 million and the first quarter. This decline.
Klein was driven primarily by lower collections largely attributable to timing around receivables associated with the integration of our new enterprise financial system.
As our employees and clients adapt to the new invoicing system, we expect to return to a more typical collections cadence over the coming months.
Operating cash flow was negatively impacted by approximately $67 million of transaction costs paid in the first quarter, which includes approximately $56 million of cash payment at closing of the Liberty acquisition.
These cash payments represent a reallocation of a portion of the.
The overall $725 million purchase price prior to adjustments from investing cash flows into operating cash flows.
Capital expenditures for the quarter were $9 million down.
<unk> and $11 million from the prior year period, driven primarily by lower facility expenses.
<unk>.
We still expect capital expenditures to land within our forecast range for the year.
During the quarter, we issued $500 million of 4% senior notes due 2029 <unk>.
Additionally, we extended the maturity of our term.
Loan a and revolving credit facility to 2026 and increase the size of our revolver by $500 million.
2.1 billion of total capacity.
Those moves are in support of our disciplined capital deployment strategy, we will continue to use our balance sheet as a strategic.
<unk> asset.
Please turn to slide 6.
During the quarter, we paid out $52 million for our quarterly dividend and repurchased $111 million worth of shares at an average price of $83 and <unk> 91 per share and.
In total.
Total, including the close of the Liberty acquisition, we deployed $889 million.
Today, we are announcing that our board has approved a regular dividend of 37 cents per share payable on August 31 to stockholders of record on August 16th.
As our actions this quarter demonstrate we remain committed to preserving and maximizing shareholder value through a disciplined balanced capital allocation posture.
Turning to guidance, please move to slide 7.
Today, we are reaffirming our fiscal year 2022 guidance.
As we discussed last quarter. The first half second half dynamics, we laid out are still the guiding framework for our full year growth expectations.
We expect total revenue growth to be between 7% and 10% inclusive of Liberty.
Our contract and hiring ramp will determine where we land.
Land within that range, we continue to expect revenue growth to accelerate throughout the year.
We expect adjusted EBITDA margin and the mid 10% range.
We expect adjusted diluted earnings per share to be between $4 <unk> and.
And $4.30.
Based on an effective.
Tax rate of 22% to 24% and 134 to 137 million weighted average shares outstanding.
<unk> guidance is inclusive of both Liberty and incremental interest expense from our 500 million dollar bond offering.
We expect operating cash.
Cash flow to grow to $800 million to $850 million inclusive of the aforementioned $56 million of cash payments related to the Liberty transaction.
Due to these 1 time payments, we expect to end the year at the lower end of our range with partial offset through a combination.
<unk> of working capital management and operational performance.
And finally, we expect capex and the $80 million to $100 million range.
In summary, we're starting off the year, just as we expected and look forward to a great year.
Before I conclude.
I would like to thank and congratulate our nexgen and corporate development teams on their tremendous diligence and dedication over the last few months.
We were ambitious and trying to execute both a major acquisition and a companywide rollover of our financial systems in the same quarter.
While it is still early and.
And both processes, we are thankful to our teams for putting us on a path to success with.
With that Ruben, let's open the lines to questions.
Operator, please open the line.
Thank you as a reminder to ask a question you will need to press star 1 of your telephone.
Yeah.
<unk> please.
Please standby, while we compile the Q&A roster.
Our first question comes from Sheila <unk> with Jefferies. Your line is open.
Sure.
Your line is open please check your mute.
Good day.
Our next question is from Carter Copeland Melius Research your line is open.
Hey, good morning, gentlemen.
Hey, Carter.
Horacio.
And I noted.
You spent a lot of time a lot of emphasis is talking about.
The objective on hiring and getting getting head count on through the course of the year I mean, I realize it's always a dynamic situation out there and the job market, but what are you encountering any sort of new challenges here.
And I realize it's a different working environment, but as you as you try to hit those and are those targets for head count additions.
What sort of challenges are you running into and this market.
I think if you look at the numbers.
Things are looking very good we have sequential month over month increasing.
Hiring.
And the team is very focused on this.
Talking about before this is a.
And highly competitive market.
And so the key for us is to continuously renew on.
Sure.
Employee value proposition and make sure.
And that people know why booz.
Allen is the right place to come to work.
You might have seen it and the last couple of weeks.
And we were ready by force Us and number 2 company for diverse talent.
Just this week, we're right. It also by far was on the top company and the country.
Women and D. C are based on surveys of employees.
And.
And that just speaks to the pox and the people at Booz Allen.
Feel strongly about what we're doing how we're doing it and are telling everybody and so.
While we need to keep our foot on the gas I am confident that week and ramp up recruiting to the right levels and we will stay on it.
No Carter I would just add that.
It was the last quarter, we said that.
This was going to create some choppiness, but the reality is we're seeing good momentum for 3% growth year over year, and 3% quarter to quarter and we just have to stay at it and I think the things that we've got underway.
They are beginning to work.
Okay and.
And just a quick 1 on the on the cash flow and obviously, the receivables dynamic and the quarter.
How long in terms of that debt transition and client billing and whatnot do you think that will that will take to kind of.
Correct itself, if you will.
Yes.
We're confident that the solid processes that we put in place or.
Really going to kick in and as it were.
As pointed out in the prepared remarks, it was really due to a 1 time transaction related expenses to Liberty and we see that this year it.
It's going to it's going to turnaround, we're expecting things to begin to improve net.
Quarter and beyond.
Awesome. Thank you gentlemen.
Yes.
Our next question comes from makers with Wells Fargo. Your line is open.
Yes, hi, good morning, guys. Thanks for the question.
Yeah, Hi, Rajeev, you talked about kind of the 3 operating models and people sort of shifting to this.
More of a hybrid model I guess can you talk about and with the financial impact of that and is there opportunity for more profitability.
And there is any sort of cost savings there ultimately kind of flow back to your.
Your customer.
I would put this into our own hotel category.
So a lot to learn down this path and to understand I do believe having said that that.
And that the increased flexibility will do a couple of things for US first of all it allow us to serve clients more effectively and more efficiently hopefully from us.
And the country.
There's some concentration of our business and the Washington Metro area that's temporary.
Adjusted talent market and while we're doing well here.
Boy I mean, our clients and we benefit from being able to bring talent for more across the country and.
And we're doing got it from.
Our team and Charleston, and serving clients here our team.
Liberty.
<unk> has a significant delivery center in Florida, and Thats also working really well. So so I think this flexibility is great for that and I think it's also great for people and to both attract and retain people, which is ultimately the driver of our growth.
And.
And the driver of everything else. So so over time and and the long run I think this will make us more effective more efficient and more profitable with a near term goal is to make us more flexible and M&A.
I would just add from a financial perspective cost savings was not the driver here. It really was what's best for our people.
As well as our clients and as you can see.
With the low capex spend and we feel thats a reflection of the fact that we're emerging from Covid facility spend has been light.
Up a little bit but at the end of the year, we still expect to be within our $80 million to $100 million and Capex.
Got.
Got it thanks, and I guess, if I could even more.
1 of your.
Peers. The other day kind of mentioned they were seeing some some contract delays maybe driven by some protests and is that something you guys are seeing at all or maybe you could just comment about sort of the contract.
And the environment here as we come out of Covid.
Alright.
If things are very robust as you saw on our book to Bill. We are we're back to a very robust book to Bill backlog is record levels.
And the pipeline looks very good we are engaging with clients.
And.
They are very interested and both what we have to say and how we can help them assess.
Right.
This leading edge areas, where new technology meet mission.
To drive change.
Okay. Thank you.
Thank you. Our next question comes from Sharpe with Morgan Stanley. Your line is open.
Yes, good morning, gentlemen.
Especially for taking my question wondering Jordan and just.
Just wanted to touch on Liberty key here for a moment.
And now that you guys and close the deal and been able to get under the Hood a bit so to speak are there any changes to the 200 million dollar revenue synergy target or any other assumptions around the deal.
<unk> and <unk>.
What if anything new have you learned now that you've been able to.
And really get inside the business and take a look.
Let me start by talking a little bit about what the what it feels like on the ground and then I think Lori can address any any financials.
On the I will tell you, we're really really happy.
And then and for clothes, we've really have an opportunity to get to know them better to start to work things together, we have a very detailed integration plan that we're following and it's working well.
We are very comfortable and Fox bullish about what we're going to do together and the market.
And they have a.
And a big growth curve and they are on it.
And we're beginning to see frankly, a number of opportunities outside of the war.
Core client relationships, where.
Mike and defense, where.
What they do especially around low code no code.
And in high demand and we can bring it on.
And integrated.
A great it team so.
All I would say it's again early days.
Too soon to tell about we really like what we're seeing and I personally have really enjoy getting to know these theme and watching what they can do.
On the financial dimension.
I got on Echo <unk>.
His comments were also very comfortable and pleased with how it's playing out and there's no change to.
What we.
<unk> at the beginning in terms of the $200 million and.
We're working very well together and integrations going going well.
Fantastic and then just a quick 1 on your AI.
And the MLP business.
And at this point, you've got 2 of the largest Dod contracts out there and he maps and and shake.
You've also made some.
Some investments in this space E G. The late and not a ideal earlier this quarter can you guys size that business.
The AI ml overall business at Booz and how should we think about growth expectations for this this market going forward.
I'll I'll I guess I'll start again.
The I'll say the following.
We don't view AI athletes on thing and neither do our clients and we view AI as a critical.
Technology can drive, Michigan, and so even in these contracts that have on AI.
Centric scope there.
Their work is not just building algorithms is taking things from the lab to the field which requires.
The large number of things we are seeing AI penetrate.
Areas from not just the ones, we're talking about the cyber or certain intelligence, all big and we're going to see it and space. We believe this is a major wave and we are.
By all accounts.
A leader.
And driving this you saw us do the late and AI invest.
The investment because.
Because we're excited about the technology, they have are uncompetitive and compression algorithms and the ability to bring AI to the edge more efficiently and we intend to not just protect but really expand our leadership position.
Yes.
Fantastic Thanks for the update gentlemen.
Thank you.
Our next question comes from Cowen and <unk> with Cowen Your line is open.
Yes, thanks, so much.
Good results.
So $67 million.
And basically acquisition cost that seems extraordinarily high could you give us some color.
Color.
Why was it so high was it and G&A because if it wasn't G&A and I take it out it looks like the G&A.
What percentage of revenues was down $200 million could you share some light on all those issues.
Sure.
The 67 million about 56.
It.
It was due to a transaction bonus plus advisory fees and retention costs.
So it's not as we said in our prepared remarks.
Really the original share.
The purchase price of $7.25, and then of that amount.
It came out and term.
Yes.
Bonuses and retention.
But I mean, if you if you back all that out of your G&A. It looks like the DNA is is.
Was the G&A is really the ongoing G&A right around 11, 611, and 7 versus 12, 6 last year, so that the G&A.
Actually fundamentally much lower or you know.
Okay.
Yes.
Yes, I'd say at the beginning Kai it's a bit.
Too early from our perspective, it'll be cyclical and will play out over the course of.
The year.
Okay. Thank you.
Terms of share.
Our next question comes from Seth Schiffman with Jpmorgan. Your line is open.
Yes, thanks, very much and good luck.
Everyone.
Quick question.
Apologize if you mentioned this but I think last quarter you guys talked about.
Pause on <unk>.
And a large cyber program and I was wondering if you could update us on on that.
Back to expected levels and you have the.
Future.
Revenue and earnings expectations.
And for that program.
Yes.
Still optimistic.
And that program will receive the funding.
And.
We initiate.
And if youre following sort of the.
Comings and goings on budget discussions clearly cyber security is a priority of this administration and.
And they have.
Devoted.
And of.
The budget to that.
It takes a bit of time for that money to sort of trickle down into the various agencies and departments, but.
Close conversations with our clients they remain.
Domestic that they indeed will receive the net.
Necessary funding on the <unk>.
First of which is in today's environment.
Definitely needed so we're positioned well we've been in touch with our clients throughout the transition and.
And we're expecting at some point this year for things to resume.
Okay, great. Thanks, and then just as a follow up I guess.
And look back in time, maybe before.
For fiscal 'twenty.
You guys kept a lower level.
Cash on the balance sheet and it got pretty high.
And.
And then we had.
The Liberty acquisition I guess, how are you thinking from here.
How much cash you on on kind of keeping.
And reserve in order to.
Have options for M&A versus versus share repurchases as we go through the rest of this year.
Sure I mean pre pandemic.
Plenty and even earlier.
We need about $150 million for working capital needs.
As you pointed out we've been well north of that for some time.
We see that as a strength.
As Horacio and I have been.
Sure and we expect to leverage our balance sheet, not the least of which when it comes to capital deployment will be inorganic.
And Liberty is the most recent example of that.
But we're also have got a pretty disciplined patient capital deployment approach, so whether it's repurchases or regulatory and dividend we will make the call.
As the environment themes, but.
<unk> got a.
<unk> as you point out balance today of about $1.6 billion and cash and we're always looking to deploy that to the benefit of our shareholders and the near mid and long term.
And just puts you on 1 point that Lloyd made which is that we increasingly view M&A as a strategic accelerator for our business.
A healthy if you look at Liberty. If you look at price point, if you look at late and AI, there are allowing us to leapfrog our own development efforts by sometimes by year's end.
And we're excited to do that and to the extent that we can continue to find opportunities like that.
And to take advantage on them.
Great.
And this very much.
Our next question comes from Kevin <unk> with Goldman Sachs. Your line is open.
Thanks, Good morning.
Good morning.
Response, and certainly mentioned cyber budgets or funding.
Obviously those.
Thanks, Craig and but it seems like there've been some pretty big numbers proposed and whether or not whether its part of COVID-19 relief or the latest TNF request, but it feels like those numbers have come and a lot lower.
Why is that is there a will but not a way to fund.
No we're not seeing.
And we're growing and I mean, it's definitely will as Horacio share with you. He has talked to many of our elected officials both sides of the aisle that.
See this is an area of importance.
And I think if anything just sort of a natural friction of.
Making decisions adjudicating the budget.
And then.
The departments and services sort of receiving that that's what we're seeing.
We're not detecting and are conversations any hesitation or lack of momentum or desire and particularly when you're looking every day and the press that a solar winds or another more recent.
Intrusion.
And it's definitely top of mind, so we as.
As I said and their earlier response, we're sticking close to our clients, we're talking to them and engaging on our the possible and once the money begins to flow, what's the best use of that but.
Again.
And what's going to play out over our fiscal year.
And we're on track.
Meet what we guided to.
Got it and then quick clarification on on.
On the Liberty.
Sorry on head count growth does that include the Liberty acquisition.
It does.
So maybe excluding that it looks like question.
It sounded like 1.5%.
I think you said the target for the year was mid single digits to get you into the 4% to 7% organic range.
What do we need to see that pace accelerate at over the next couple of quarters, assuming there is some lag dynamic of head count utilization or headcount growth rate translating into revenue growth.
Sure.
Yes, I mean, we believe we are beginning to see it.
Place already if you would go back to Q4 <unk>.
<unk> and I said coming out of our FY 'twenty, 1 and Q3 that this was going to be operational priority for us we saw it.
Improvement begin and our fourth quarter of last.
Last year that has continued into this year.
And initial indications are it's going to continue to build through.
And through the summer and that'll Tee us up well for second half so.
Happening but.
The very competitive labor market as I think we all know.
And our.
And with leaders are on it and.
We're really beginning to see the results of that I'll just build on that if I say this is our top priority for the year.
And honest and explicit about that and what we need to see is sequential month over month.
Growth recruiting is about momentum is about building.
Ladies and executing on pipelines of candidates.
And that's what we're seeing inside the business. So we remain confident and Thats why we are reaffirming our guidance and saying this morning, we are on track.
Thank you both.
Our next question comes from Joseph <unk> with Stifel. Your line is open.
Joseph <unk>. Your line is open please check your mute button.
Sorry about that and good morning.
Good morning.
Could you just talk a little bit about organic growth expectation.
Pipelines for the year.
Sorry, if I missed that and guidance on what you all are expecting thank you.
And then.
For the year, we said, 4% to 7% and much like my previous comment Joe.
Really it's going to hang on our ability to bring on the necessary talent.
Patients.
We exited last fiscal year on a run rate of about 2%.
So we're off to a good momentum building start to this fiscal year.
But if we do what we expect to do a push us to the upper end of that organic range.
But again, we're not.
Not taking our foot off the accelerator.
That's helpful.
And I'm wondering if you could just follow up on on the maintaining the cash balance where it is and elevated levels and what changed a couple of years ago to lead you all to think that that's the right strategy and then what is the advantage that it offers ingalls and M&A.
And then it allows you to transact more quickly or is it on the buyback side like what is the advantage. It provides you and thank you.
Sure I'll take it back to.
It wasn't as robust as it is now.
You all were Pepper me with questions. Okay, you need to improve on our receivables and collections and that's exactly.
What we did.
We got a lot more efficient with our collections and a lot more efficient with balancing that with payables. So.
And it naturally led to an increase and our cash and then quite frankly with our capital deployment.
We did not sort of a focus on M&A activity at that time, and Horacio and I began to say hey look we're going to maintain our organic growth leadership position and look for ways to add inorganic opportunities to that and so now with the more robust cash position.
<unk>.
Position, we are looking to.
And do more deals.
Liberty is the most recent we are on.
Also I've talked about <unk> point.
And we made there.
And our pipeline of opportunities is continuing to grow and and that's what we really see.
Sort of.
What will be the use of cash going forward.
Great. That's helpful. Thank you.
Sure.
Thank you and our last question is from Tobey Sommer with Trust and Securities. Your line is open.
Thank you.
Wondering if you have.
Learning now that slowdown and kind of.
And hiring that occurred last year is getting ramped up again.
Organic growth has been the hallmark of the company and that was sort of a rare deceleration.
On seemingly.
And the market or at your customers that debt.
And you to slow it down.
And anything that might help you avoid that kind of circumstance and the future.
And Toby I'll start.
And if I take you back.
We're operating the business.
Very very high utilization rates.
And that was driven by the fact that people.
The country was shut down and people are not taking <unk>.
And I'm off and so the extra.
Productivity, if you will the extra available hours almost actually that's new head count and so it didn't make sense.
And on to the metal on that and it didn't make sense to force our team to really drive down that path.
At the time, where we're worried about People's emotional health, we will worry about running the business efficiency and delivering on contracts and so forth and frankly, we have a view that that change and productivity back to normal.
To keep pulse was going to happen this spring not last fall.
And that was the 1 thing we missed right.
And so with the benefit of hindsight and looking forward and maybe we would hedge our bets on little more on when would things to earn and an uncertain environment.
And think about that and a little more carefully I go back.
Back and I say, while we are learning from that and we certainly can always do better.
I am very proud of the way the team performed over the last year.
My confidence and this team is on an all time high in terms of what they can do on what they will do.
And.
Hiring is now back up to really good levels.
And we expect to Tivo, even further which is.
Sorry, if I sound like a broken record, which is why I really do feel and we're now on track and driving the business the way we want them.
The only thing I would add is.
And there.
There was a great deal of learning on the wealth.
Welfare of our people that we have.
We spent a lot of time, whether it's through our $100 million resilience program.
And as the year played out with all the different social matters that we're confronting.
It really allowed us to have a different dialogue.
With our workforce that.
Frankly, we're seeing lower attrition and then we might otherwise so the investment and our workforce I think was another significant learning for US Let me come back 1 more time, and just think and we've talked a lot. This morning about people and the importance of people through our business and the importance.
And so taking care of people in our business and so thats why we are thinking about how do we take the workforce forward and Thats why we are proposing this view that we need to build our workforce going forward and the 3 D meaning more distributed.
More digital and indeed more diverse and.
I think if we focus on that all of the questions about how we build this great workforce for the future how we blow past 30000 people.
And beyond.
And that's going to be the foundation for that.
Thank you for the fulsome answer.
My follow up has to do with the commercial business could you refresh.
Refresh us on what the reorientation of that is and then what your expectations for sort of a growth and margin profile are once that is complete.
Why don't I start.
We made a decision to deemphasize some of our business and the middle East over.
The last.
12 months and emphasize our cyber business.
And.
Center on the North America about serving clients around the world.
I think that was a really good decision I think we're seeing some of the financial implications of that work its way through the.
P&L and the.
This quarter.
And next.
But we expect strong growth and the second half and we expect.
A good year, we're happy about trace point on what were seeing and that investment there.
And and we're bullish about the opportunity of serving clients on cyber security, which as you know is a.
And our main priority.
Thank you.
Thank you. Thank you and I would now like to conference back over to Horacio Rozanski for closing remarks.
I want to thank everyone for your time and for your questions. This morning.
We've opened.
And now here with a solid performance and.
And I hope you can tell we're moving forward with a lot of energy and with confidence both about the state of the market and our plans for the future and.
And in terms of plans for the future we look forward to sharing with you.
And new investment theses and more about our strategic direction of this fall.
And the but in the meantime enjoy the summer be safe and have a great day everyone.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Paul.
[music].
And.
[music].