Q3 2023 Booz Allen Hamilton Holding Corp Earnings Call
Speaker 1: The conference will begin shortly.
Speaker 2: Good morning. Thank you for standing by and welcome to the Booz Allen Hamilton's earnings call covering third quarter fiscal year 2023 results. 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. Nathan Rutledge.
Speaker 3: Thanks, operator. Good morning, and thank you for joining us.
Speaker 4: Thanks, operator. Good morning and thank you for joining us for Booz Allen's third quarter fiscal year 2023 earnings call. We hope you 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 2.
Speaker 5: With me today to talk about our business and financial results are Horacio Rozanski, our President and Chief Executive Officer, and Matt Calderon, Executive Vice President and Chief Financial Officer.
Speaker 6: 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.
Speaker 7: discussed in our filings with the SEC and on this call.
Speaker 8: All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements and speak only as of the date made.
Speaker 9: Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker 10: During today's call, we will also discuss some non-GAAP financial measures and other metrics.
Speaker 11: 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 third quarter fiscal year 2023 earnings release and slides. It is now my pleasure to turn the call over to our CEO .
Speaker 12: and President Horacio Rozanski. We are now on slide four. Thank you, Nathan.
Speaker 13: And good morning everyone. Thank you for joining the call.
Speaker 14: Matt and I are very pleased to share exceptional results for the third quarter of fiscal year 2023.
Speaker 15: These results show Booz Allen is gaining momentum.
Speaker 16: We are positioned well for the remainder of this fiscal year and on track to achieve our investment thesis.
Speaker 17: This quarter, we delivered industry-leading double-digit organic revenue growth.
Speaker 18: Our strong demand momentum and continued acceleration in hiring bolster our confidence as we look ahead.
Speaker 19: Given the strength of our performance, we are making positive adjustments to our guidance ranges.
Speaker 20: which Matt will discuss in a few minutes.
Speaker 21: Additionally, and as you may have seen,
Speaker 22: Standard & Poor's upgraded our credit rating to Investment Grade last week.
Speaker 23: This is a reflection of our strong track record of growth and our consistent financial performance.
Speaker 24: Today, Matt and I will discuss these results in the context of our investment thesis.
Speaker 25: I will also update you on the progress we are making on Volt.
Speaker 26: focusing on how we continue to outpace the market through the velocity dimension of our strategy.
Speaker 27: Let's begin with our investment thesis.
Speaker 28: At our investor day in October of 2021, we laid out our plan to grow adjusted EBITDA to $1.2 to $1.3 billion by fiscal year 2025.
Speaker 29: We said we expected to achieve that goal through the combination of industry leading organic revenue growth.
Speaker 30: Strong and stable margins allowing for continuous investment in our people, innovation and infrastructure.
Speaker 31: and capital deployment that prioritizes strategic acquisitions.
Speaker 32: The results of the last several quarters put us on track to achieve our adjusted EBITDA targets.
On balance
we see more momentum on organic growth and profit than we originally anticipated.
And while acquisitions remain the priority,
The pace of M&A has been slower than we originally expected.
We will continue to move strongly on both fronts in the coming quarters.
diving deeper into our current operational performance
Let me highlight the following areas of momentum.
First.
Our hiring results are exceptional.
We grew client staff 7.5% year over year.
and continue to quickly place new hires into billable roles.
Second.
And despite a relatively light book-to-bill ratio this quarter, demand remains strong.
This is reflected in our trailing 12 months book to bill and our robust pipeline.
which includes several large, pending near-term awards.
Additionally,
with the federal budget in place, our clients have clarity on the resources available to invest in their priorities.
further strengthening the demand picture.
And third,
And third, we are operating faster and more efficiently.
by empowering our decision makers and streamlining internal workflows.
As a result,
Even with significant inflationary pressure, our corporate costs are growing well below our revenue growth rate.
Creating additional capacity for investment.
These operational metrics give me confidence of continued momentum in the business.
One additional note on the financials we are reporting today.
In our 10Q, we disclosed we have entered into settlement discussions with the Department of Justice.
related to their investigation into certain elements of our cost accounting and indirect cost charging practices.
We are exploring whether a negotiated resolution to the matter is possible with the DOJ.
In connection with those discussions, we recorded the reserve for $124 million in the third quarter of fiscal year 2023.
At this time, we do not know if or when a settlement might be achieved.
and if achieved, what the total dollar amount might be.
Before turning the call over to Matt.
Let me take a few moments to update you on Vault.
a decade ago.
Booz Allen correctly anticipated that technology would become the dominant force in the success of the federal government's core missions.
We prepare for that evolution.
and establish a unique position in the market.
Today, as the change we saw coming is upon us,
We have first mover advantage and are a recognized leader in driving technology adoption in the government.
In this moment.
When technology has become a catalyst for mission success, speed is key.
Technology, missions and the competitive environment are all changing more rapidly in this next evolution of the market.
In response, the V for velocity in volt
represents our imperative to get faster and stay ahead of the pace of change.
So, in addition to faster decision making and streamlined internal processes,
Velocity.
includes two market-focused dimensions.
The first is leveraging technology to accelerate organic growth.
And the second is using M&A as a strategic accelerator.
Our aerospace business.
helps illustrate the first point on accelerating organic growth.
As an example, earlier this fiscal year, we reported winning the Cyprus contract.
which is transforming how cyber is delivered across the entire NASA Enterprise.
Our investments and experience innovating in the most complex cyber missions
uniquely positioned us to win this work.
We have quickly hired and ramped up on this contract and are now one of the main providers of cybersecurity at NASA.
fully engaged in protecting the space agency's assets and infrastructure.
In other parts of aerospace, we are also leveraging technology to evolve the mission.
We are accelerating digital transformation across the Air Force's weapons, enterprise, and test ranges.
And in today's rapidly evolving threat environment,
We are helping our clients reimagine the future of secure communications on military aircraft platforms.
From exciting new winds to expanding on decades long work, we are inserting new technology across Air Force, Space Force and NASA missions.
And as a result, our aerospace business has accelerated from flat to double-digit organic growth over the past two years.
Let's turn now to the second dimension of velocity.
using M&A as a strategic accelerator.
Everwatch is our most recent example of this.
We are pleased to have completed the acquisition in October and integration is underway.
Through EverWatch, we gained access to classified software development capabilities.
to support national security missions.
faster than we could have built and scaled them on our own.
At a time when mission success or failure is dependent on the right technology.
Acquisitions like EverWatch help us bring innovation to missions at speed.
We continue to build our M&A pipeline with a focus on acquisitions that have potential to accelerate our organic growth.
One final point to close.
In December , I participated in the Reagan National Defense Forum.
with some of our most senior clients, industry colleagues, and legislators.
Our discussions centered largely on how technology is fundamentally redefining the battlefield and what we need to do as a nation to be better prepared to stay ahead of facing threats.
especially China.
these conversations.
Like many, I have with our clients across defense, intelligence, and civil agencies.
Reinforce for me.
that technology has gone from an enabler of missions.
to a catalyst of mission success.
Thus, I believe the investments Booz Allen has made over the past decade.
combined with our continued progress involved and of course, of course our incredible people
uniquely position us to accelerate into the next decade, outpace our competitors, and make the greatest difference.
through the work we do.
for all our clients.
And with that, Matt, over to you to take us through the financial results.
Thank you, Rocio, and good morning, everyone.
As Ferraccio noted, we are extremely pleased with our financial results.
both for the third quarter and for our fiscal year to date.
We remain the industry's organic growth leader and continue to operate the business very well.
We have built excellent momentum toward reaching our fiscal year.
investment thesis objectives.
We expect this momentum to continue given our strategic positioning.
our strong execution, and a positive budget environment through the end of the government fiscal year.
Before discussing our third quarter results in detail, I will highlight a few key areas of our fiscal year-to-date performance.
Over the first three quarters,
We delivered 9.5% organic revenue growth.
This is a result of us winning work aligned with our Volt strategy and hiring, retaining, and efficiently deploying the right talent.
Our adjusted EBITDA margins of 11.5% in this period
Reflect continued strong contract level execution.
and prudent cost management.
We deployed $714 million of capital through three quarters.
a combination of dividends, share of purchases, and the strategic acquisition of EverWatch.
As a result, Booz Allen remains on track to achieve our investment thesis goals and to continue delivering excellent value to our shareholders.
Now please turn to slide six as I discuss our third quarter results in detail.
At the top line,
total revenue in the third quarter grew 12.1 percent year over year.
to 2.3 billion dollars.
Revenue excluding billable expenses grew 11.2% to $1.6 billion.
Almost all of this growth was organic.
as our organic growth accelerated to 11.6% for the quarter.
I am particularly pleased that our revenue growth was driven by double-digit contributions from each of our three federal markets.
in defense
Revenue grew approximately 10% year over year, led by strong performance in our aerospace and joint combatant command accounts.
In civil, revenue grew by approximately 16% year over year.
highlighted by growth in our health account.
and in the mission-critical cyber and digital solutions work we perform across the civil market.
in our intelligence business.
We grew by approximately 14% year over year.
Driven by our National Cyber and Defense Intelligence accounts.
as well as our strong hiring across the board.
At this point, we expect a standalone fiscal year 2024 contribution from EverWatch of between 180 and prize 2016 fiscal year.
and $200 million.
Our global commercial business, which accounted for roughly 3% of our revenue in the quarter, declined approximately 13% year over year.
This reflects the sale of our MENA and managed threat services businesses in the second and third quarters respectively, that streamlined our commercial business and positioned it well for future growth.
On the labor supply side, our client staff headcount grew to 28,269 at the end of the third quarter.
an increase of 1,975 employees year over year.
or 7.5%.
Total headcount, inclusive of corporate staff, increased to 31,130.
This equates to growth of 1,677 employees year over year, or 5.7%.
These figures include the over 400 employees who joined at UBRIZ-Allen from Everwatch in the third quarter.
as well as the approximately 80 employees who left the firm with their MTS divestiture.
The transformation of our talent acquisition lifecycle and improved levels of attrition in the quarter drove this continued acceleration in headcount.
These results show that we continue to attract.
and retain the high-end talent we need.
even in an extremely competitive labor market.
On the demand side,
Net bookings for the third quarter were approximately $197 million.
which translates to a quarterly book-to-bill of 0.09 times.
are trailing 12 months.
Book-to-bill metric remains solid at over 1.2 times.
This is the best indicator of sustained demand as it normalizes for quarter-to-quarter volatility.
We can attribute our relatively light book to bill number this quarter to two factors.
First, seasonality, as this is consistent with our historical bookings pattern, and second, the timing of a few large awards and protest resolutions that were pushed into the fourth quarter.
This timing dynamic includes a large contract award in our intelligence market that Horacio referenced in our last earnings call.
This award, which has meaningful overlap with work we are performing today, is currently under reevaluation.volks.com
In the quarter.
Total backlog grew to $30 billion.
which is approximately 8.2% year over year.
Funded backlog grew 12.4%.
to $4.5 billion.
unfunded backlog grew 7.6 percent
do $10.1 billion.
and priced options.
to 7.5%.
to $15.4 billion.
We are very comfortable that this backlog and the strength of our proposal and award pipeline support our near and medium term growth aspirations.
Consistent with our strong top-line performance, we generated $244 million in adjusted EBITDA in the third quarter, up 9.8% year-over-year.
We ended the quarter with an adjusted EBITDA margin of 10.7%.
down 20 basis points year over year, and in line with our expectations.
Our adjusted EBITDA margin reflects a mix of drivers.
With strong contract level performance, the
and solid cost management offset by a higher billable expense mix.
higher unallowable spend, and the impact of wage inflation on our fixed price and time in materials contracts.
Our net income decreased 76.2% year over year to $31 million.
This was primarily a result of the $124 million legal reserve.
We recorded this quarter in connection with the DOJ matter.
Adjusted net income, which excludes this legal reserve, was approximately $142 million.
Up 4% year over year.
These were driven by our strong operating results.
which were partially offset by higher tax and interest expense compared to the prior year.
Diluted earnings per share decreased 75.8% compared to the prior year period to 23 cents.
primarily as a result of the aforementioned legal reserve.
Adjusted diluted earnings per share, which excludes the legal reserve, increased 4.9% year over year to $1.07.
Turning now to the balance sheet.
We closed the third quarter with a cash balance of $371 million and a $1 billion untapped revolver.
The free cash flow for the quarter was $117 million, the result of $139 million in cash from operating activities, net of $22 million of capital expenditures.
Operating cash was supported by collections that kept pace with our revenue growth but was seasonally light due to acquisition and divestiture related expenses paid out in the quarter.
Now turning to slide 8.
During the third quarter, we deployed $510 million of capital.
This included approximately $440 million connected with the EverWatch acquisition.
$11 million in share purchases at an average price of $96.30 per share.
and $57 million in quarterly cash dividends.
Our net debt at the end of the third quarter was approximately $2.5 billion. And our net leverage ratio... UMostly credit to accommodate you I think.
was approximately 2.5 times.
As Horacio mentioned, we were delighted by last week's news from Standard & Poor's, who upgraded us to Triple B Minus.
and investment grade credit rating.
We look forward to the enhanced flexibility and access to capital markets.
that this upgrade will provide.
and we will continue to be good stewards of our balance sheet.
while deploying capital in a patient and disciplined manner.
To this end, I am pleased to announce that our Board has approved a 4 cent increase to our quarterly dividend.
This dividend of 47 cents per share will be payable on March 1st.
to stockholders of record as of February 10th.
Finally, let me summarize our updated guidance for full fiscal year 2023.
Please turn now to slide 9.
Our excellent performance and sustained momentum through the first three quarters give us confidence and our ability to finish this fiscal year strong.
At the top line, we are increasing our guidance for full fiscal year revenue growth to between 9.5% and 10.5%.
As a reminder, our fourth quarter has one fewer working day.
when compared to the prior fiscal year.
which impacts year-over-year quarterly growth comparisons.
We still expect margins to be in the range of high 10 percent to low 11 percent.
We now expect just an EBITDA
to be between $995 million and $500 million.
and $1 billion, $15 million.
In sync with the increase in our top line guidance.
We are also increasing our ADEP's guidance to a range of between $4.35 and $2.
and $4.50 per share.
We now expect capital expenditures to be between $80 million to $90 million for the fiscal year.
And lastly, our Fiscal Year 2023 Operating Cash Flow Guidance remains unchanged from last quarter.
In closing, let Carrasco, I really want to thank our dedicated employees.
whose relentless focus in the mission is really the root of our outstanding performance.
Because of them, Breton remains on track to achieve our investment thesis goals and to continue to deliver excellent shareholder value.
With that, operator, let's open the line for questions.
Certainly as a reminder to ask a question, please press star one one on your telephone. Please wait for your name to be announced to withdraw your question. Please press star one one again. Please stand by while we compile the Q and a roster.
One moment.
And our first question will come from Sheila.
Cuyego Blue, your line is open.
Good morning, everyone, and Horacio and your opening remarks, you mentioned M&A as a strategic accelerator, and you typically haven't done deals, but you're focused on them now. Can you maybe give us an update on Liberty and TracePoint?
well as Ever Watch given you just closed the books on that one and it seems like the revenue contribution is coming in a lot better there.
Absolutely. So let me start by saying we're very happy with the results of the quarter and particularly happy with the organic performance.
of the business which is really ahead of our expectations at this point on the trajectory of our investment thesis.
And as I mentioned on the opening remarks, we are a little bit behind where we thought we would be at this point.
on the M&A side.
Largely environmental factors, but overall we're very pleased with where we are on the journey and we're on track. And that's really the...
One click down from that, as I mentioned, and I'll work backwards.
EverWatch is finally closed in October . So, we are concentrateing on single reb for integrating it.
There was a little degradation of talent levels while we were waiting for it to close and so we're accelerating their hiring because they have pretty robust demand.
there that we want to meet and and that's where that is.
TracePoint is getting fully integrated into our commercial business. As you know, that is a small acquisition in a small business, but it's an important capability as we do incident response more aggressively across the commercial market.
And then Liberty, which is now fully integrated into our business, has been an extraordinary success and continues to be. It's a big part of our health team. They brought low code, no code capability that is both really valuable.
across the health account, but really increasingly across.
the federal government and We're really pleased with that. So overall We're looking to to do more things that look like Liberty. They're hard to find and We're as Matt always says we're going to be patient and disciplined on this and that's where we're going
Thank you for that. Maybe if I could follow up just on the civil business as a whole, which clearly includes liberty. You mentioned the business is growing at a spectacular mid-teens rate. So what sort of driving that you mentioned, health and cyber mission work, is it a few contracts or is it just…
you're going into new addressable markets there? It's broad base. I think that's a great question. I think that this speaks to really vault and velocity and everything else that we are doing across the business.
This notion of inserting new technology into existing missions really resonates with our clients. It's what they need to do to meet the demands of the moment. I honestly believe it is what's driving this double-digit growth.
that we experienced this quarter and really the broad-based growth across many parts.
of our portfolio. In civil in particular, it's not just health, there's significant elements of our treasury business that are growing very well. And we're happy with what we're seeing. I mean, the civil agencies are focused on digital transformation.
they need to be and we like to believe that we are a catalyst and a partner with them on this journey and that's what underlies our growth opportunity.
Great. Thank you. Thank you.
One moment.
And our next question will come from Bert Subin of STIFL. Your line is open.
Next question will come from Bert Subin of STIFL. Your line is open. Hey, good morning.
Good morning.
Hey, you noted before and you've noted over time into the booth is supply not demand constrained. Now you just grew client staff techs at almost 4% quarter over quarter, which is clearly benefiting sales. Do you have any concern the pendulum starts to swing the other way and utilization becomes a factor?
maybe not this quarter, but as we go further into the calendar year. That's a great question. And here I want to give credit to really our team and operating teams, the work that Christine Martin-Anderson and our people team are doing. They really have
rewire the way we hire against the velocity dimension.
so that we actually can hire faster. And then, and this is the dimension, we really haven't spent as much time before so that we can put people that are hired into billable opportunities faster. And I think we're seeing some benefit.
The other benefit is demand, as I mentioned, is very strong across the board. And so I'm not sure even if we wanted to that we could keep people on the bench very long. So you put all of that together and at least for the moment, because who can predict the long term future, there's a lot of momentum in the business.
business. And we are doing this, we're seeing this dynamic where we're hiring at almost record levels or at record levels and we're placing people on contract fast enough that our billability, our utilization is remaining very, very high. So again, when we talk about confidence and momentum in the business, that's...
I think that's what's underneath a lot of our words. So maybe just for my follow-up, you also mentioned during your prepared remarks, greater clarity for your customers post-budget in late December . Have you noted any acceleration in spending following the passage of the budget? And if you haven't, when would you expect that to start materializing? Could that...
you know, provide some acceleration from the already high growth you're seeing? You know, we have not seen a significant change. I think what we have seen is a steadiness and a confidence that the emissions that they're focused on are going to be supported at least through the balance of...
the current government fiscal year and so I think that's been positive as we've noted and others have you know the award environment isn't the fastest we've ever seen in terms of things moving to the right and protests and all of that.
seems to continue, but against an overall very strong demand backdrop, as you can tell by our numbers, we're obviously not demand constrained, we're doing really well on hiring, and when you put it all together, again, it's a story of momentum that we've seen over the last few quarters and we expect or we hope to continue.
Thank you, Rocio.
Thank you.
One moment.
And our next question will come from Louis De Palma of William Blair. Your line is open.
Good morning Horacio, Matt, Nathan, and Megan.
Morning Louie.
Horacio, near the end of last quarter, you secured a $2.2 billion contract called Morpheus that seems…
pretty strategic in addition to being one of your largest ever awards. Was this?
contract a big driver of your strong organic growth?
in the December quarter and can you provide more detail about what the contract pertains?
We were a little limited in terms of what we can say about that particular contract. I guess what I will say is it's still, it's over peace.
of all of the work that we keep talking about where we're bringing leading-edge technology into existing mission sets.
programs of that size ramped slowly. I think the message I would like you to take away is the growth that we're seeing is broad-based. That's obviously a defense contract. As you can see, both civil and security also posted very strong growth.
We're seeing strong demand across really, I can't say every single part of our business, but lots of aspects of our business. And the team is doing a great job of hiring against that demand, bringing in the right people with the right clearances and the right technical expertise so that we can ramp up and continue the momentum. We're seeing strong demand across really, I can't say every single part of our business, but lots of aspects of our business.
Great. And for Matt, I think you mentioned the possibility of accelerating.
M&A in the future quarters, should we expect acquisitions to be small sub $1 billion type so that they are easily digestible or do you have any aspirations for a much larger transformative acquisition? Thanks, Louie.
Never say never, but I think right now we're more focused on
small to mid-sized tuck-ins that are a strategic accelerant. We're really pleased with our capital deployment to date. Deployed 510 million in the quarter, including EverWatch and...
As Rocio said, they've got some short-term hurdles they need to overcome on the supply side, but from a demand perspective and in terms of long-term strategic value, we really see it as an opportunity for us to transform portions of our intelligence business.
We're working it. We've got a pipeline.
As you know, the M&A market has been relatively slow the past couple quarters for a handful of macroeconomic reasons, but we're going to play the game that's in front of us. And the strength of our balance sheet just gives us a lot of flexibility to do that.
Thanks, Matt, and thanks, Horacia. Thanks, Laurie.
One moment.
next question will come from a Kayvon Remore of Cowen. Your line is open. Hi Kay, good morning. Thanks so much. Yes, good morning guys. So you mentioned you know protests is a reason for the soft bookings.
Could you walk through the large Intel contract? Is that one that you were awarded and now is under protest? And maybe give us some color on some of the others too, if you could. I think generally speaking, this is what I can tell you. I think the contract that you were...
I mentioned briefly last call and Matt talked about it in the prepared remarks, relates to our cyber work.
in the Intel market and has overlap with some of our existing
contract. The award was pulled back and it's been reevaluated so it's not technically under protest.
As you know, because you followed us for a very long time, we generally don't comment on specific procurements while they're under evaluation.
Here's what I can tell you about the protest, about this dynamic in particular and then the broader...
environment. As you know
We're not demand constrained. We have 30 billion dollars in backlog and even with our record hiring
were, uh...
We're still having filled every rec and the place where it's hardest for us to recruit is in clear technical staff for work in the intelligence community And so we still have a lot of open recs there and now a significant volume of open recs I'd ever watch
So our goal ultimately in this area is to retain and grow that workforce and deploy it against the work that is
in front of us. I think we're doing well there. There's more work to do because ultimately we want to continue to grow that workforce as the way we grow the Intel business overall. And then the last point I would make on the protest environment overall that continues to be a slow process.
We have a number of things that have slid to the right as a result of that. I think that we are very optimistic about the awards picture.
in the near term, as we mentioned in the prepared remarks, and we're feeling good about the overall demand picture and the momentum that we have.
One broad follow-up, it seems like there's plenty of money around to make awards but sort of across the industry it seems like the activity is a bit slower. Some of your peers have talked about the lack of contracting officers and as you know the process to become a contracting officer is pretty onerous.
Do you see that as a problem that there are just not enough qualified people to kind of make the awards and that's one of the reasons things are slowing? Yes, to the extent that the contracting workforce in the government has been constrained for a long time and they've been under pressure for a long time.
without a corresponding increase on the
on the headcount that needed to address that from the government side. And that's been a perennial.
I don't know that it is any worse now than it's been in the past. Ultimately from our perspective, you know, I'm sorry I'm saying it again, but the demand picture right now feels very strong.
Got it. Okay, thank you very much. Thank you.
One moment.
One moment.
And our next question will come from Matt Acres of Wells Fargo. Your line is open. If you'd like to read my email.
Good morning. This is Eric from that. Just a quick follow up on book to bill. I know it's more of a timing thing. But was there anything taken out of the backlog? Any cancellations there? Yes.
This is Eric Hien from MAT. Just a quick follow-up on book to bill. I know it's more of a timing thing, but was there anything taken out of the backlog? Any cancellations there? No, nothing meaningful.
I think the top line message is we have the backlog in the award and proposal pipeline we need to meet our near and medium term growth aspirations. And even more important, the capabilities and solutions we're building in line with our Volt strategy are really resonating.
with our clients. So we set it both in stronger quarters like Q2 and lighter quarters like this one that we want to focus on the last 12 months booked to bill.
And if you look back at where we were at the end of Q3, the prior three fiscal years, that was between, let's say, 1.15 and 1.3, and right now we're at 1.22. So we're right in line with where we want to be, and Q4 is shaping up well. Okay, thanks. If I could do one more.
I think we're seeing more military aid packages being sent to Ukraine lately. So just wondering if you're seeing any benefit from all the support money?
I had the pleasure of spending time with our team in Europe .
late last year and just be inspired and amazed by the work that they're doing in support of our government as our government supports.
Ukraine. And so we're well deployed in the middle of that mission, helping drive
intelligence helping drive analysis and
doing really good work. So overall that's you know sort of that's our posture.
It's a posture that is a long-standing team that has pivoted to this mission. There's obviously been some growth on the team as a result of additional mission needs. I would expect that to continue, but I don't see that as a meaningful driver of growth as much as I see it.
as a real demonstration of the great work that Booz Allen people can do as we bring technology to the mission needs.
Okay, got it. Thank you. Thank you.
Okay, got it. Thank you. Thank you. 1 moment.
And our next question will come from Toby Summer of Truist. Your line is open. Your line is open.
Thanks. I wanted to ask a question about the debt ceiling negotiation. As this proceeds,
But do you have seen any risk to the spending patterns in the current fiscal year as procurement officers kind of watch this being bantered about in the news? And are there any analog experiences in history that you would reference as sort of being...
benchmarks or examples of how impacts either emerge or don't? You know, it's really hard to predict what will happen, sort of a second and third order effects of the debt ceiling debate. It's really hard to understand what the first order effects.
I will say this, obviously a protracted fight on that in our view is not good for the country and it's certainly not good for our clients and by extension is not great for us.
I think part of our approach to all of this is, and this is why, is to build
momentum to drive.
the business that's in front of us to grow organically, to have the right people doing the right work at the center of these missions which tends to be more resilient.
to overall sort of external uncertainty. That's what we have done in the past. That's what we are doing now. And that's what gives us confidence that despite the fact that there's that issue, there's next year's government budget and all of that, which are things that we are watching very closely.
Ultimately, we are on track and remain on track to deliver our investment thesis to advance Volt and to be the kind of partner to our clients that they need us to be right now. All right, guys, that's it for our product.
And look, the industry has a lot of experience, unfortunately, with budgetary uncertainty. We have it. Others in the industry have it. And as Horacio said, we've told the team is play the game in front of us. And the best thing we can do is to prepare for uncertainty is to build as strong a business as possible. And we feel like we're well positioned strategically through Volt.
as Rocio mentioned in our client positioning operationally, we're running the business very, very well. I think more discipline than we've ever run it and financially given the strength of our performance and the quality of our balance sheet.
We sort of glossed over it because there's a lot of news in the quarter, but I think being upgraded to investment grade is a reflection of that.
Absolutely. As you look at your principal government customer sets, civil defense and intel, how would you stratify the growth prospects for calendar 23?
And does it sort of purely map against headline budget outlays and growth this year? Or is there a nuance or difference among them?
Well, from my perspective, well, first of all, as you see, we have strong growth across the board right now.
The type of work that we are doing under Volt, the work we're positioned to do again around bringing AI, cyber, digital transformation into existing missions, into expanded mission scopes around space, around Indo-Pacific and China, around some of the key issues.
which at some level are some of the few bipartisan issues remaining, give us confidence that we are doing the right work and in the right place. And at least for the immediate future, the increases in headcount and the speed at which our headcount is, our people are getting on programs.
give us confidence that the business has strength. And that's our approach, and it's not limited to one small piece or another. It's where we believe that's a broad-based view.
confidence that the business has strength. And that's our approach, and it's not limited to one small piece or another. We believe that's a broad-based view.
Sure. And one moment. Our next question.
We'll come from Mariana Perez-Morra from Bank of America. Your line is open, Mariana.
Good morning everyone. Thank you for taking my question. My question is about free cash flow. In order to get your cash from operations ads, you have two instruments. You knowkiying a
outlook, you have to generate more than 200 million net of a fair amount of tax payments. Could you please give us some color on how to bridge to that 200 million plus free cash flow generation? Happy to.
Our cash performance year today has been solid. Again, that's why we reiterated guidance. Thankfully, we took a conservative approach and didn't assume 174 would be repealed. So we anticipate, and you see that in the bridge we provide and we provided in the presentation, manageable early Ame for being capped.
About $140 million this year and we have $175 million of
other cash taxes. So to get to the bridge.
that you described. We're obviously growing and collections are keeping pace with growth.
In Q3, outlays were also up, including a couple of things that...
were temporal, so we feel like we've got the ability to generate cash and invest in the business and hit our targets and the guidance.
Thank you. And then a follow-up to Tavi's question on computer resolution or like this potential...
year-long continual resolution next year. I understand that the right strategy is prepared to the future and not for the headwinds of the process to get to that future, but please help us understand how much of a headwind could be a year-long continual resolution to your organic growth.
At this point, I think it's a little premature to try and speculate what the budget picture will look like next year and how it might play out. I think as Matt pointed out, we and the industry have become very adept at managing through this budget turbulence.
And I think that's ultimately what we are focused on. I think when we get closer, if we know more and there's more clarity, we'll be happy to.
to engage at that time. The one thing I can tell you is our business right now is...
doing well, there's strength on the demand side, there's strength on the supply side, there's strength on the balance sheet, and all of that strength put together give us confidence that within reason we can, we're preparing well to weather a storm and deliver on our investment thesis commitments through FY25. Perfect, thank you very much for the call. Thank you.
And I am showing no further questions at this time. I would now like to turn the conference back to Horacio Rosansky for closing remarks.
Thank you, and thank you all for joining us this morning. As we come to a close on this call, let me first recognize we have a new member of our board of directors. We have three new members here.
As we announced last week, Rory Reid has joined the Booz Allen Board.
Rory is Senior Vice President at Ericsson and the President and CEO of Vonage, which is Ericsson's global cloud communication platform. I'm really excited to have Rory on our board, and I'm already seeing how we benefit from his expertise, both as a technologist.
and as a business leader. And then lastly, I want to take a moment.
to acknowledge and recognize and thank the amazing people of Booz Allen. For sure for their hard work and dedication, because it's that hard work and dedication that delivers the exceptional results we were able to discuss with you today. And also for their generosity.
what they do for the communities in which they live and work and specifically through our ear and giving campaign
Our employees contributed more than $1 million. Think about that. We're more than $1 million to the causes that they are most passionate about. And because of the firm's match, we ultimately gave over $2 million to more than 2,000 nonprofit organizations. And this is the highest impact we have ever made through our year-end campaign.
You know, our people's commitment and service to our communities, to our clients, to each other, they're the core of who we are. They're the core of our purpose and our values. And as I come to work every day, it is really my colleagues that inspire me. So I just want to say once again, thank you. Thank you, Booz Allen. Thank you.
And on that note, thanks again to all of you for joining us, and have a great day. This concludes today's conference. Thank you for participating. You may now disconnect.