Q1 2023 Booz Allen Hamilton Holding Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good morning, Thank you for standing by and welcome to Booz Allen Hamilton's earnings call come first quarter fiscal year 2023 results.
At this time all participants are in a listen only.
Okay.
Later, there will be an opportunity for questions.
I'd now like to turn the call over to Mr. Nathan Rutledge.
Yeah.
Thank you operator.
Good morning, and thank you for joining us for Booz Allen's first quarter fiscal year 2023 earnings call.
First I'd like to introduce myself.
Nathan Rutledge, the new director and head of Investor Relations for Booz Allen.
I'm excited to be here and for the opportunity to serve you.
I look forward to working with you all.
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 on slide two.
With me today to talk about our business and the financial results are Russia, Rozanski, 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 are forward looking and may relate to future events or future financial performance and involve known and unknown risks uncertainties and other factors that may cause.
Our actual results to differ materially from forecasted results discussed in our filings with the SEC and on this call.
All forward looking statements are expressly qualified in their entirety by the foregoing cautionary statements speak only as of the date made.
Except as required by law, we undertake no obligation to update revise publically any forward looking statements, whether as a result of new information future events or otherwise.
During today's call. We will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.
We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal year 2023 earnings release and slides.
It is now my pleasure to turn the call over to our CEO and president ratio Rozanski.
Here on slide four.
Thank you Nathan and welcome to the team.
And good morning, everyone. Thank you for joining the call.
This morning.
Lloyd and I are happy to share strong results for the first quarter of fiscal year 2023.
During our May earnings call, we said the pattern of growth for this fiscal year would.
Would be predicated on growing momentum in the first half.
To mitigate the likelihood of uncertainties in the second half.
Our first quarter results demonstrate that we are building the strategic momentum and operational resilience required.
To meet our expectations for this fiscal year and achieve our multi year financial objectives.
Revenue growth for this quarter was excellent and we grew across all markets.
The bottom line was consistent with our plans for the year.
In short we are on track.
Both towards this year's guidance.
Endorse our multi year goal of growing adjusted EBITDA to one two to $1 3 billion by fiscal year 2025.
Lloyd will walk you through the quarter's results on our full year outlook in depth.
But before we go on.
I'd like to pause a moment to share some upcoming leadership changes.
After 20 years with Booz Allen <unk> Caron data.
Precedent of our global defense sector is retiring effective October 31.
Karen has had an impressive career at Booz Allen.
To include the initial standup of our strategic innovation group.
These are people of our civil and commercial businesses.
And for the past five years heading up our largest business sector.
Karen its leadership on creativity have had a tremendous impact on our firm and our clients.
We are grateful for all of her contributions.
And we wish her well.
I am very excited to announce that executive Vice President Judy Dawson.
Currently ahead of our National security sector will transition to the role of precedent of global defense.
Julie's outstanding leader, who we credit with repositioning and driving growth and performance across our national security sector.
With decades of experience across all our markets.
Judy brings to her new role both the experience and the vision to accelerate our defense business in line with our volt strategy.
Additionally.
I am pleased to share that we have named executive Vice President Tom Pfeifer.
The new precedent of the National security sector.
Tom has been at Booz Allen for over three decades and has.
It's a track record of igniting growth everywhere he has been.
Working closely with Judy for the past two years, Tom has been instrumental in driving growth across our national security portfolio.
I am excited by both the depth and breadth of talent that we Havent Booz Allen and the opportunities that these natural transitions create for our leaders.
Our team is tested in these markets and we will undoubtedly continue to deliver exceptional results for our clients and for the farmer.
Now back to the business at hand.
Let me take a few moments to discuss how our strategic momentum and operational resilience position us for success.
In terms of strategic momentum, we continue to advance the agenda, we discussed at our Investor Day last October .
Our evolved strategy, which stands for velocity leadership and technology is both our future and our presence.
We're leaning forward across a broad array of mission and technology opportunities prime for hyper growth.
Because they are central to our clients are having.
We're leveraging our strategic first mover advantage and our ability to invest and deploy capital to bring digital innovation to mission challenges and help our clients transform at speed.
National Cyber is a good example of one of the hyper growth mission areas, where we're leaning forward.
For well over two decades, we have been innovating with intelligence community on cyber Tradecraft.
We're gaining traction as we now extend that expertise horizontally across the entire cyber domains to a broader set of defense and civilian missions.
From responding to changing policy to outpacing morphing threats.
We continue to expand our position on cyber missions.
For example.
So the solutions that integrate leading edge commercial technology.
With our unique understanding of our clients' operational environments.
We're helping agencies implement zero trust architectures.
In response to the White house guidance to strengthen cyber security.
And our team is very excited about winning new cyber work at NASA This quarter.
The cypress contract built on our longstanding support of mass emissions.
Through this work we are deploying our intelligence great trade pressed to deliver differentiated next generation cyber defense solutions.
Across all of NASA.
Another area of increasing momentum you saw refreshed innovation agenda.
Which includes both internal initiatives and a broad mix of external partnerships and investments.
Earlier this month, we announced the launch of Booz Allen ventures.
$100 million corporate venture capital arm that further codifies, our ongoing commitment to invest in companies innovating in defense.
Machine learning cyber and other leading edge technologies.
This is a natural extension of our texts touting and partnership network.
We have used to bring dozens of companies with innovative technologies onto critical government programs.
Client and overall market feedback on these efforts reinforce the value we can bring by bridging between mission requirements and the startup community.
Shifting now to operational resiliency.
We have knowledge volatility in the external environment is likely to increase over the coming months.
The combination of high inflation newco with waves continued geopolitical instability and the potential for an acrimonious political season are becoming more real.
As we have done in the past, we look to take advantage of our flexible operating model and to focus relentlessly on the things we can control.
Along those lines last may I outlined four operational priorities for the year.
Let me describe our progress across these agenda.
First.
We said we must hire aggressively.
To fully capitalize on our backlog and growing pipeline.
In the first quarter, we saw sequential acceleration in our hiring which we believe will continue through the summer.
Our employee value proposition continues to attract the type of talent, we want and we need to serve our clients.
Also importantly.
Under the leadership of our Chief operating Officer, Kristine Martin Anderson, we are making significant progress in driving efficiencies and speed into the entire talent acquisition lifecycle.
This includes getting new highest ramped up more quickly on client work upon joining the firm.
These improvements will enable faster growth of our workforce, while also enhancing the experience of our counted as journeys to become Booz Allen's employees.
Second.
We said, we must continue our track record of winning work aligned to our clients' highest mission priorities.
Demand remained strong across the portfolio as our clients look to us to help them innovating their missions and navigate this time of historic economic geopolitical and technological change.
With a budget in place through the end of the government fiscal year, we are experiencing a very robust procurement season.
Which we expect to continue through the summer.
Third.
We said, we will continue to manage the business tightly to enable investment in our talent and strategic priorities, while delivering on our bottom line commitments.
Our leaders are effectively controlling costs and executing the business fundamentals with precision.
As shown in our bottom line results for this quarter.
This enables our future growth.
By supporting our hyper growth businesses, our innovation agenda and most of all our people.
And fourth.
We must deploy capital in a way that creates maximum value and driving our strategy forward.
In the past few months, we have remained active in building our M&A pipeline focusing on acquisitions that will accelerate our volt strategy.
I firmly believe that strategic M&A like our proposed acquisition of ever watch increases both innovation and competition.
And that the interest of the government the strategic acquirers are fully aligned.
We remain disciplined and committed to deploying capital in a manner consistent with our investment thesis.
So in closing.
We are off to a strong start.
And our first quarter results demonstrate we are on track.
To deliver on our full fiscal year and multiyear financial goals.
We are building momentum under volt, while focusing on key priorities that will accelerate our growth and reinforce our resiliency both in the near and medium term.
Every day.
Watching our talented colleagues lead win work.
Served clients and managed this business with such skill on accuracy.
It gives me great confidence.
And it is because of them.
We have the results, we're able to discuss with you today.
With that Lloyd over to you to take us through the financials in depth.
Thank you Horacio and good morning, everyone.
Our first quarter performance reflects our focus on growing the business profitably as we seek to grow adjusted EBITDA dollars by approximately 50% through fiscal year 2025.
These results were supported by top line that exceeded our expectations as we deliver on our goal to achieve industry, leading organic revenue growth.
Our disciplined strategy across the business drove robust margins, while we continue to optimize our balance sheet and create capital deployment opportunities that will deliver meaningful value to our shareholders.
Importantly, our approach is working and we remain confident in our ability to continue delivering exceptional operational and financial performance, which keeps us on track to execute against our long term financial objectives.
Let's now turn to our first quarter results on slide six.
At the top line total revenue increased 13, 1% for the first quarter to $2 $2 billion organic revenue grew approximately 8% to $2 1 billion with approximately $103 million of inorganic contributions.
Revenue, excluding billable expenses also grew nine 9% year over year to one $6 billion.
These results highlight our ability to convert sustained demand for our services and solutions by efficiently hiring and deploying our growing talent base.
And as expected our billable expense mixes normalizing towards the mid point of our 29% to 31% target range.
Which was primarily due to an increase in material purchases this quarter.
At the market level, we are pleased with the momentum and growth across all of our markets. We believe that our mission expertise and leading edge capabilities will continue to support durability of demand and provides visibility into future growth prospects as we continue to shape and execute the right type of work aligned to that.
Hyper growth areas, we want to compete it.
Revenue growth for the first quarter was led by our civil business, which grew approximately 28% year over year, approximately 12% of which was organic this marked our second consecutive quarter of double digit organic growth. These results reflect solid performance across the portfolio, particularly in <unk>.
Health.
Where we see strong alignment with the administration's priorities, which continues to yield exciting new wins.
And with Liberty now fully integrated into our civil market. We are looking forward to further leveraging our combined capabilities relationships and mission expertise to pursue additional opportunities and grow our market share.
In defence revenue grew by approximately 5% over the prior year period, reflecting our second consecutive quarter of positive revenue growth as we continue to build momentum across the entire portfolio.
Demand remains strong and we continue to double down on our hiring efforts as we ramp up recent contract wins and quickly deploy talent towards capturing high value opportunities.
Across defense and all of our markets, we remain steadfast and positioning ourselves to be the leading digital solutions provider to the U S government transforming the way they adopt and integrate new technologies.
Horacio described our progress on national fiber.
We also continued to innovate the digital battle space to bring differentiated scaled solutions to the joint Warfighting mission.
We view each of these platforms as growth accelerators for our markets and look forward to updating you along their journey.
And similarly within Intel we continue to see momentum built with revenue growing by approximately 8% over the prior year, marking our fourth consecutive quarter of positive growth.
Despite a few larger awards shifting to the right we remain energized by the pace and volume of award activity, including our pipeline of opportunities that we expect will provide exciting new growth prospects this fiscal year.
And lastly, and global commercial which accounts for roughly 3% of our total portfolio revenue grew by approximately 45% of which 20% was organic.
Now onto slide seven for details on our demand signals.
Net bookings for the first quarter were approximately $1 6 billion.
Translating to a quarterly book to Bill of <unk>, 72 times and a trailing 12 month book to Bill of 121 times.
This quarterly book to Bill number reflects our ongoing expectations for Choppiness and quarterly book to Bill results as we pursue larger and more technically complex bids which is why we continue to point to our strong trailing 12 months book to Bill results.
Better indicator of sustained demand.
Total backlog grew approximately six 8% year over year to $28 6 billion.
Funded backlog grew 15, 1% to $4 billion.
Unfunded backlog grew 10, 7% to $10 billion.
And priced options grew two 3% to $15 billion.
Looking ahead with a budget in place and funding available we have already seen the release of large awards and RFP submission value and volume were both up over the prior year and.
In addition, we continue to work in close collaboration with our clients to indicate their desire to issue awards before the government fiscal year end.
With each of these integral parts in motion we are optimistic in our ability to continue translating strong demand signals into topline growth.
Pivoting to head count as of June 30, we had approximately 29300 employees an increase of approximately 750 year over year or two 6% most of which was organic growth.
Clients that head count grew approximately 975 year over year.
Or three 8%.
As our IPO emphasized successful execution of our hiring strategy as a top operational priority and meeting the shifting needs of our business.
Accordingly, we continue to be laser focused on head count growth and retaining our talent to keep pace with our plan, allowing us to deliver another year of mid single digit growth.
Moving to the bottom line adjusted EBITDA was $253 million in the first quarter up six 1% from the prior year period.
Our adjusted EBITDA margin of 11, 2% is approximately 70 basis points lower than the same period a year ago.
Margins benefited from strong profitable contract level performance and mix, which was more than offset by higher indirect costs, reflecting our growing talent base and increased salaries.
In addition, higher Unallowable spin and billable expense mix, both of which we forecasted would normalize as we return to pre pandemic business patterns weighed on the results in the quarter.
As we move through the duration of this fiscal year, we expect a similar seasonality to our margin performance, which factors into our expectation that our billable expense mix will remain near the midpoint of our 29% to 31% range, while unallowable spend will pick up incrementally both of which were.
Weigh on margins.
First quarter net income increased 49, 9% year over year to $138 million adjusted net income was $151 million up three 4% year over year.
Diluted earnings per share increased 53, 7% to $1 <unk> from <unk> 67 in the prior year period and.
And adjusted diluted earnings per share increased five 6% to $1 13 from $1 seven.
Both GAAP and non-GAAP metrics were impacted by higher interest and DNA expenses.
These increases were partially offset by a lower share count due to share repurchases made in line with our disciplined capital deployment strategy.
Free cash flow for the quarter was negative $59 million. The result of cash used in operating activities of negative $46 million and capital expenditures of $14 million.
Cash from operations was seasonally light as strong collections were offset by higher disbursements and onetime payroll items associated with administrative staffing changes completed last quarter and other businesses transactions.
Incremental to the quarter was approximately $50 million of collections that shifted into the second quarter due to system outages and corresponding payment delays at one of our primary government payment agencies, all of which has since been received.
We ended the first quarter with a strong cash balance of nearly $500 million.
And a $1 billion untapped revolver.
Turning to slide eight during the first quarter, we returned $116 million of capital to shareholders, consisting of $58 million of share repurchases at an average share price of $83 50.
And $59 million and quarterly cash dividends.
Net debt at the end of the quarter was approximately $2 3 billion and our net leverage ratio was approximately two four times, reflecting our strong balance sheet.
We continue to look for opportunities to optimize our capital structure as it will provide us with the capacity to deliver against our capital deployment plans and create accretive long term value for our shareholders.
Today. We are also pleased to announce that the board has approved a quarterly dividend of <unk> 43 per share payable on August 31 to stockholders of record on August 15, as well as an increase of $400 million to our share repurchase authorization, bringing our remaining available capacity to.
<unk> 1 billion.
Turning to guidance, please move to slide nine.
Today, we are reaffirming our fiscal year 2023 guidance.
As we discussed last quarter. The first half second half dynamics, we provided are still the guiding framework for our full fiscal year growth expectation.
We expect revenue growth to be between 5% and 9% inclusive of inorganic contributions.
We expect adjusted EBITDA in the range of $950 million and $1 billion and adjusted EBITDA margins in the mid to high 10% range.
We expect operating cash flow to be between $850 million and $950 million, which excludes our expectations for approximately $550 million of cash tax headwinds this fiscal year.
As detailed on slide 10, let me break our cash taxes down into three components.
First approximately $200 million is associated with our forecasted pretax income and annual effective tax rate.
Second.
Approximately $200 million.
Associated with strategic planning initiatives undertaken in prior fiscal years, we expect to receive tax refunds in future years related to the strategic tax planning initiatives.
And third the remaining approximately $150 million is associated with section 174, while we believe that it could be deferred or repeal we're basing our assumptions on the prevailing legislation.
Taken together for fiscal year 2023, $350 million of cash tax payments are associated with timing or one time headwinds that we do not expect to repeat borrowing.
Barring future tax planning initiatives that we may execute we will start making cash tax payments against these items starting in our second fiscal quarter, but expect our operating cash flow performance will still follow a normal cadence to previous years.
As shown on slide 11, we expect adjusted diluted earnings per share of between $4 15.
And $4 45 based on an effective tax rate of 23% to 25% and $131 million to 133 million average weighted shares outstanding.
If our share price keeps pace with the performance of the most recent quarter. We expect the reduction in share count will net near the high end of our guided range.
And finally <unk>.
We expect capital expenditures to remain in the range of $90 million to $110 million as we continue to meaningfully invest in our infrastructure and technology.
In closing I'll reiterate that we are very pleased with our first quarter performance.
<unk> continues to be on a solid path to execute on our long term objectives of delivering strong organic growth and driving superior shareholder value.
Our management team is excited about the momentum we have already generated to meet our multiyear financial goals.
With that Nathan let's open the lines for questions.
Thanks Lloyd operator, please open the line for questions.
Thank you.
Two question you will need to press star one one on your telephone.
That you please limit yourself to one question and one follow up.
Please.
Sure Ross.
Okay.
Sure.
With Jefferies. Your line is now open.
Thank you good morning Raphael Mike.
Good morning, Sheila.
Thank you.
I wanted to ask a specific question actually just on the civil growth given it was so robust that 12%.
How do you guys think about the drivers of that whether it's touch up and delay procurements or new contracts that you also mentioned some new health care. When there maybe if you could talk about that and how Liberty has helped contribute to our increase in market share.
Sure why don't I start.
You say well, we're very pleased excuse me with the growth of the entire portfolio.
In this quarter it gives us the momentum.
And the operational resilience that we're looking for to navigate both this year and the multiyear.
Financial envelope that we have created and again I mean, I think first quarter demonstrates both at the top on the bottom line.
We are very much on track all three markets group.
In the quarter pretty robustly and health.
What's the standout entitled Civil, but the entire civil business.
Is growing quite well.
Health has been a very solid.
The double digit grow our organically for now quite some time.
And the drivers there are our unique position in some of these accounts in terms of helping them drive the digital transformation.
All of those businesses, which positions us against procurements I think in a very unique way and we continue to capture both share and share of mind really in the minds of our clients as they look to transform those organizations, but in addition to that our what we call citizen services, which is everything around.
The.
Treasury IRS.
And that entire portfolio has now a very robust pipeline that is looking really good because they again are those agencies are looking for the same kinds of federal of digital transformation.
Efforts that we are positioned against and then lastly, we are focusing.
Third leg of our civil stool around really issues so domestic resilience.
And climate change that.
But I think that are clearly beginning to get significant traction. So when you put it altogether.
Going back to the notion of volt, we are focusing on the hyper growth areas, where we believe the greatest opportunities are going to be and I think again first quarter demonstrates we are on track Hey, Sheila. This is Lloyd it's the only thing I would add to your Liberty question. It really has been a strategic accelerators.
<unk> said previously that's our strategy when it comes to M&A and financially we saw a $92 million from Liberty Inorganically as a contribution so it's really <unk>.
Integrating well and we're on pace to have a solid year.
That's super helpful guys I'll get back in the queue. Thank.
Thank you.
Thank you.
Our next question comes from Noah <unk> with Goldman Sachs. Your line is now open.
Hey, good morning, guys. Its Kevin persons how are you.
Hi, Kevin Good morning.
Okay.
I appreciate all the color on the hiring environment I just wanted to ask for a little bit of an update there it looks like you're well on track.
Target of mid single digits for the year.
Are you seeing any impact.
Less tight labor market Tech industry can you talk a little bit more about just the traction your initiatives are having and how that's going.
Sure Yes.
I think we're very much on track towards our targets there and we are seeing really sequential almost month over month, increasing momentum and increasing growth on our hiring continues to be a competitive labor market.
We are.
Getting into a lot of talent we see.
Pre COVID-19 levels of attrition, but overall, we're we're gaining ground because our value proposition continues to be very strong the type of work, we do the way in which we do it and the suite of compensation of benefits that we offer our employees is very much competitive with really everybody in the market and differentiate it really for most.
People in the market in.
In terms of color I would point you to a couple of things that have me excited.
One is we've seen in the last few months the return of a few senior leaders, we had lost to others. So we didn't want to lose.
Who now are coming back perhaps after seeing whether the grass is recent greener on the other side and I think that speaks well to our value proposition and the sustainability of that proposition.
Through market changes and then the second thing that has me excited is our chief operating Officer, Kristine Martin Anderson, who is driving an agenda that is really looking to improve the candidate experience, but also shortened the cycle from when we need a person to when that person becomes available. There is a number of things we can do to really get from <unk>.
Need to revenue if you will.
<unk>, which is obviously good for us, but it's also good for the country. There's nobody wants to start a job slowly everybody wants to hit the deck running so I think all of that positions us well for the year and beyond.
Got it I appreciate it and then maybe just a clarification on cash taxes and it sounds like.
Some of the 200 million headwind this year as.
Possibly reverse in the future I mean is your expectation that you are.
Go forward cash tax rate will be 23% to 25% and the <unk>.
Headwind this year.
<unk> in future periods.
You got it right Kevin.
And between 23% and 25% going forward and the $200 million associated with our strategic planning initiatives in prior years, we will come back to US I can't tell you now exactly when it will come back to us, but it will we expect come back to us.
Okay. Thank you both.
Thank you.
Our next question comes from Colin Canfield with Barclays. Your line is now open.
Hey, good morning.
On the margin drivers in the quarter.
A couple of moving pieces that we talked about the Investor day.
Roughly 10, 5% 10%.
So that FY 'twenty, sorry, FY 'twenty five target, but then we get a quite good quarter. So maybe if you could talk about the level of investment that you saw in this quarter.
Is that kind of unfolds over a multiyear period.
Sure well, let's start with how happy I am with the fact that we're out of the gates with 11.2 and it really is a reflection of continued solid contract performance and quite frankly, the business has opened up.
We're seeing it in all bill spend in billable expense mixed start to normalize and in addition to that higher.
Higher indirect spend.
We are in the early stages of investment, particularly around fiber platform as you heard in our prepared remarks and digital battle space. So at this point investment really is I would characterize it as.
Organizing our leadership recruiting the right leaders.
Things of that sort.
Where that will put us over the course of the year is how I've guided which is mid to high teens. So we will see some more investment over the course of the year, but.
Guidance range that I provided so far is what I would use going forward and also just close it out.
It's also kind of back to our normalized pattern, where in the first half of the year.
We do see higher margin performance, but in the second half of the year, where we typically invest in our people infrastructure and technology.
I'll just add one quick point, which is that our our northstar financially is EBITDA dollar growth.
We're looking at a year, where we're trying to deliver 952 1 billion and then accelerate in future years to get to the ultimate goal of one two to one three.
$1 billion and so as Lloyd pointed out we are managing.
Cost, we're managing the business and ultimately we are we're keeping a close eye on margin, but ultimately we want to grow with the dollars, which really starts with organic revenue growth and everything else that we're doing.
Got it and then maybe one more on capital allocation, but if you could talk about kind of the desire to get capital intensity within capital allocation.
Obviously, you kind of the cyclical head count backdrop that we think about weaker commercial Ikea, helping you guys, but at the same time.
The argument that we're entering a structurally impaired demographic environment. So.
And then if we think about how that affects capital allocation.
And especially kind of the.
The head count.
<unk> dynamic.
Okay.
Wyatt names.
I'll start.
I am pleased with the fact that we feel we've got the right levers in terms of allocating capital.
For the benefit of our shareholders in the near mid and long term.
And with those levers it gives us a great deal of flexibility.
To do that.
This particular quarter, a $58 million in repos 59 million and quarterly dividend.
And the fact that we've got a growing pipeline of strategic M&A opportunities.
Really sets us up I think to deploy against what we've stated for the long term objective obviously when we look at some of the M&A opportunities we have to take into account the talent base and the cultural integration.
That comes even well before sort of what the financial implications.
Implications are but that goes hand in hand, with how we think about our M&A opportunities.
So far so good case of Liberty and we had a really.
Good experience, there and we're looking to replicate future deals along those lines.
Got it thanks for the color.
Thank you. Our next question comes from Cai von <unk> with Cowen. Your line is now open.
Hi, Ron Miller. Your line is now open please check your mute button.
Yes, thank you very much and good quarter.
So.
Most of your peers are talking about the fact that.
Bookings have been slow, but we have a very robust FY 'twenty two budget and so we're expecting a particularly strong seasonally fourth quarter of the fiscal year. This current quarter could you comment do you agree with that that's also normally your strongest quarter.
And could you update us on the two large contracts that were protested.
<unk> I think the MGA and the classified defense contract that status.
Hey, Kai it's Lloyd I'll start.
What we have historically seen as our traditional quarterly book to Bill pattern.
Really starting to change in light of these larger procurements that can be awarded.
At any point in our fiscal year. So when you look at our Q1 of <unk> 72 times.
Really.
<unk> not having one of these larger procurements hit as you saw in our Q4 of last fiscal year that being said, we internally look at the trailing 12 months of 121 times as the better indicator as to the demand signals we're seeing.
Strong demand signals, particularly with our backlog up six 7%.
Well as continue.
Continued growth in that regard.
As two things shifting with the exception of one or two.
Contracts were not really seeing a lot of things shifting at this point in the year and I would say that as we look toward next quarter are we really seeing.
As you pointed out is continuing today.
Really strong quarter.
Quarter for Us and we're already seeing larger awards being released an uptick in rfps.
Growing indications that our.
Our clients are going to move out before the end of the government fiscal year.
As to.
The large protests.
It's approximately $1 1 billion in.
In total.
As you know we are.
In an environment that is heavily protested.
We are optimistic that the things that are under protest will ultimately we will prevail.
But it's a it's sort of.
An environment as you know we're heavily protested.
Thank you very much and you mentioned ever watch Doj as you know is challenging.
Post acquisition I think there are certain that if you bought ever watch you'd have a quasi monopoly with this important customer could you comment what is your response to that and what is the status of the proposed acquisition.
Guy why don't I take that one thank you for asking that question I'll start by saying this is important as part of all the be involved is around velocity.
And then just the notion that the right acquisitions accelerate our ability to bring the right capabilities to our clients in our environment, where our clients need to move faster and need us to help them move faster and so we look at acquisitions, including ever watch through that lens.
And we do believe strongly standby the statement that ever watch is not if the consummating that acquisition would not just be good for Booz Allen it would actually be good for our clients.
For a sort of a further reading I would point you to we filed our answer.
Last Friday to the Doj claim and.
I'm not a lawyer so I'm just going to let you read that answer I think it's very well done and it sounds for retail.
Thank you.
Our next question comes from Bert Susan with Stifel. Your line is now open.
Hey, good morning, good morning.
Rusty just for you you talked about cyber in the beginning in your prepared remarks, and most of your peers often talk about their own differentiation in cyber.
What do you think booz is doing differently here, that's ultimately going it gets you to that one two to $1 3 billion an EBITDA target.
Just wondering if you could you could highlight why do you think youll have an advantage on the cyber front.
Yeah.
Thank you for that question I would characterize our position as one of the first mover advantage, we have been working with intelligence community on some of the toughest cyber challenges going on for decades.
I can point you to Mike Mcconnell, who was former director of it as Hey, Joe Booz Allen's mid nineties.
And since then we've been building both the position of the capabilities on the workforce.
Now, it's a few months old, but I think it was rated us the largest hyper workforce.
In North America.
That we clearly both have the scale and they know how.
Our national type of our platform allows us to do is take that very unique trade craft and make it available in the correct ways more broadly across the set of missions that deeply require it certainly you know as you know in D O D cyber.
Cyber is now one of five Warfighting domains.
And the ability to serve those missions.
With that unique trade craft is going to serve us well also and I think you've seen decent in some of the releases because of our unique position we tend to attract unique partners, both large and small highly innovative companies that have.
Tremendous.
New capabilities that I think are going to be very significant.
This fight and then the last point I would make around cyber is because of both the breadth and the depth of our efforts, we're able to attract a unique workforce.
That that once you come here wants to be at Booz Allen and conserve again, not just against our traditional clients, but he's talking to the prepared remarks about the cypress contract that NASA and a number of other opportunities that are in the pipeline.
But I think again position Booz Allen uniquely both in terms of breadth scale and depth.
In a way that nobody else can do.
Just a follow up to that you mentioned five sort of dimensions of the battle space, Obviously space itself has sort of come into the conversation more over the last couple of years.
You want some contracts with NASA can you talk about whats your sort of growth aspirations with beef agency that are.
There are significant I think theres clearly an opportunity to use technology in a different way.
To transform our position in space. This is both around being able to aggregate data from all of these space collection systems and providing them to the warfighter in unique ways. That's a lot of what our digital battle space.
Capability is about work that we are already doing in space that can be transformed by some of the work that we're doing and then really some of these intersections because we talk about five warfighting domains, but theyre not separate from each other so space and cyber for example, do connect both of your question was are tightly linked and we have a unique capacity and.
<unk> to bring those two perspectives together.
In a way that really will will benefit both the department of defense in the nation.
Thanks Roger.
Sure.
Thank you.
Our next question comes from Matt Akers with Wells Fargo. Your line is now open.
Hi, good morning, Thanks for the question.
I wanted to follow up on <unk> point about ever watch.
We.
Or kind of regulatory pressure around M&A.
Curious how you see that.
Kind of across the companies that you look at risks are.
And sort of if that shapes third the shift toward a little bit more M&A that you've talked about.
Yes, I guess I'll I'll.
Reiterate we feel that M&A for us as a strategic accelerator is very much consistent with vault and is a top capital deployment priority. So.
We.
Expect to continue building the pipeline.
And we expect to you know.
Continue to be successful.
Down that path, we have a strategy around vault that we are following.
I'll reiterate I really do believe that the right acquisitions or both.
For Booz Allen certainly, but also good for our clients and ultimately increased competition.
Got it thanks again to clarify on the cash tax.
Kind of the incremental $200 million is that something that they are still sort of.
Tax planning efforts that may be shift and possibly be better or is that that 200 kind of pretty solid at this point.
Yeah, it's pretty solid at this point.
We over the years in our tax planning strategies really created some positive tailwind.
And.
The IRS is looking at our amended returns and we expect that it's going to come back to is this just a timing matter.
Thank you.
Thank you. Our next question comes from Rocco Barbero with Jpmorgan. Your line is now open.
Hey, good morning.
Good morning.
Are you guys able to provide an update on your visibility to the second into the second half where theres a little more caution on the last call.
Hum.
Our guidance for the year five to nine.
Really took into account a number of elements that.
Have yet to play out.
Certainly.
When we come up on the mid term elections.
That could have an impact.
Certainly the next Covid variant.
Terms of the productivity of our workforce are the geopolitical conflicts that are going on.
So we've got a little bit more uncertainty in the back half, but how we've tried to capture that it's having a little bit wider guidance range for the year five to nine.
As we got approach the second half will have a little bit I hope clarity.
As to where things are going to break, but again to reiterate horacia has a comment at the beginning but really building nice momentum certainly in this quarter, we're looking to do the same.
In the second quarter and that will.
We believe help us sort of navigate the uncertainty in the in the back half of the year.
Great. Thank you very much sure.
Thank you.
Our next question comes from.
Mariana Perez Mora with Bank of America. Your line is open.
Marianna Your line is open please check your mute button.
Our next question comes from Tobey Sommer with <unk>. Your line is now open.
Thank you along the same lines as the back half of your fiscal year. What are you hearing and assuming for a budget in fiscal 'twenty three out of the U S government.
Does your <unk>.
Guidance assume movement, there or a continuing resolution.
I think our.
Our guidance assumes increased volatility which.
Ultimately says we are not trying to predict.
Exactly what will happen I think a continuing resolution is quite possible in the current environment. We certainly saw that at the beginning of this year.
And so as I mentioned in the prepared remarks, we are focused on what we can control.
And what we can control is our ability to hire people and get them on contract as quickly as possible.
Our ability to continue to win the right kind of work that is consistent with vault.
Our desire to manage costs, so that we can both invest and.
Provide some resilience against the volatility the inflationary pressures in the environment.
And ultimately continue to pursue strategic M&A. So.
When you put all of that together I feel really good about the first quarter because it demonstrates that we are both building.
Momentum on Brazil is against this year and the potential volatility in the second half, but more broadly against the timeframe of our entire investment thesis and the fact that volt is working.
Thank you for that.
Wanted to ask a follow up on ever watch.
I wanted to get your sense for exactly how important. This is this dispute is it seems like the Doj has sort of defining.
Defining our contract as a market.
And.
What the outcome of this in this sort of regulatory approach can mean to your ongoing strategy to be more active in terms of acquisitions.
I think so.
Hugh.
No we're talking about a relatively small contract that's at the center of.
All of these I again, I would point you to the answer we filed last Friday.
As a sort of a comprehensive view about our view of sort of what are what is the right way to proceed and why we believe acquisitions like ever watch are both good for us and.
And good for our clients and so at this point, we continue to build that pipeline, we continue to prioritize strategic acquisitions.
And we hope to prevail on this one but this is our strategy and it's really around increasing our velocity.
Yes.
Thank you.
This concludes the question and answer session I would now like to turn the conference back over to Horacio Rozanski for closing remarks.
Thank you very much. Thank you all for your questions. This morning and for joining us.
Close on a bit of a personal reflection.
Next week I'll celebrate my 30 <unk> anniversary.
With Booz Allen and and you know.
I'm a reflection when you think about what what kept you here a whole career.
Whereas perhaps that wasn't the original intention when I joined in the early nineties and I come back.
Two there are many factors, but the central one for me has been the people of Booz Allen to people that have an opportunity.
To work with them and on these earnings calls lower than I have the honor of representing the collective achievements of our colleagues. There's now over 29000 people at Booz Allen and they you know they really are our greatest asset and as you heard on this call given the work that we do.
Many people think of them and I think of them as a national asset.
As well.
And through some really volatile in trying times.
Our people have continued to persevere and they've shown unwavering commitment to our clients' missions, so our communities and personal to me to each other.
There are catalysts for change their passion for doing good is inspirational and healing.
And the impact of their work shows not only in the results. We discussed today, but also in the lasting change they make to our clients' missions and to our nation and even the world.
Dr. Martin Luther King one said.
That only when it's dark enough can you see the stars.
And in the current environment. These days, we are living in moments at a time scan indeed feel very dark.
Our people are Booz Allen stars, if you will or the guide or the guiding light for all of us their best proof points of our firms fundamental strength and resilience.
Because they live our purpose and values each and every day. So if you'll allow me today I'd like to just close with a simple. Thank you.
Thank you to the people, whose Alan for all you do.
Each and every day and for what you've done for me over 30 years.
And to those of you on this call again, thank you for being here and thank you for joining us have a great day and a great rest of the summer.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
For participating you may now disconnect.
Yeah.
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