Q2 2024 Booz Allen Hamilton Holding Corp Earnings Call
Good morning, Thank you for standing by and welcome to Booz Allen Hamilton's earnings call covering second quarter fiscal year 2024 results.
At this time all participants are in listen only mode. Later, there will be an opportunity for questions I'd now like to turn the call over to Mr. Nathan Rutledge.
Thank you good morning, and thank you for joining us for Booz Allen's second quarter fiscal year 2024 earnings call.
We hope you've had an opportunity to read the press release issued earlier this morning, we.
We have also provided presentation slides on our website and are now on slide two.
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.
As shown in this claimer 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.
Differ materially from forecasted results discussed in our SEC filings and on this call.
All forward looking statements are expressly qualified in their entirety by foregoing cautionary statements speak only as of the date made.
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.
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 second quarter fiscal year 2024 earnings release and slides. It is now my pleasure to turn the call over to our CEO and President, Russia or was that escape.
Now on slide four.
Thank you Nathan.
And good morning, everyone. Thank you for joining the call.
Today, Matt and I have the privilege of discussing with you.
Another quarter of Booz Allen's market leading performance.
But before we get to that.
I would like to open this call as I have done several times in the past.
By putting our work in the context of world events.
On October seven.
World was shocked by murderous terrorist attack perpetrated by Hamas on the people of Israel.
We at Booz Allen.
Standard morning, and solidarity with Israel, the victims and their families.
We pray for the safe return of all the hostages.
And would stand side by side with a U S government.
Condemnation of Hamas.
In support of Israel defense and in the protection of all civilians.
In the intervening weeks.
Booz Allen has done what we do best.
We have conducted listening sessions.
Creating space to support our colleagues in morning, or afraid for both our Israeli and Palestinian loved ones living in the region.
We have launched a match giving campaign.
And importantly, we have supported our U S clients missions.
Because this is personal for me too.
I have held the warm embrace of the entire Booz Allen community.
I am so proud.
And so grateful to each one of my colleagues for showing the best of Booz Allen.
At a time of crisis and loss.
I'm just wondering I felt it was important to share this with you for two reasons.
First.
Because these horrendous events remind us of the urgency of our work, bringing leading edge technology to critical missions.
In the hope of preventing and deterring things like this from ever happening.
And second because our internal response is yet another reminder of the unique culture and people of Booz Allen.
They are the Unshakable Foundation.
Our exceptional performance.
Decade after decade.
So turning now to performance.
Our second quarter of fiscal year 2024 was outstanding.
Our Booz Allen team once again delivered industry, leading organic revenue growth a strong bottom line and record backlog.
On our last earnings call, we emphasized the importance of having a strong second quarter.
Our results show we succeeded.
We built resiliency in the business and enter the second half of the fiscal year with significant momentum.
Even though the uncertainty about the federal budget persists.
We now expect to exceed our original plan for this fiscal year.
As a result, we are.
We're pleased to announce an increase to our top and bottom line guidance for fiscal year 2024.
Matt will take you through it.
And also deep dive on our performance in a few minutes.
My goal for today.
Is to connect our performance with our strategy and longer term financial objectives.
We are halfway through a three year investment theses outlined in late 2021 and deep into the implementation of volt.
So this seems like a good moment to pause to take stock and to offer itself up price all of our progress.
I'll begin by going back to what we said at our Investor Day in October 2021.
At that point, we saw an extraordinary opportunity.
We expected the emerging technologies, such as AI, cyber <unk> and quantum two.
To rapidly transform how our government operates over this decade.
And we said our first mover advantage positioned us to maximize this opportunity to accelerate our growth.
Our industry leadership to the next level.
And to drive outstanding shareholder value.
At that time, we also laid out a multiyear investment thesis centered on growing adjusted EBITDA by about 50%.
From $840 million in fiscal year 2021 to approximately one two to $1 3 billion in fiscal year 2025.
We envision the path to accomplish this goal that included above market organic revenue growth in the range of 5% to 8% annually.
Adjusted EBITDA margins in the mid teens, we continue the investment in capacity for future growth and.
And three and a half to $4 $5 billion in total capital deployment prioritizing small to mid size strategic acquisitions.
Simply put we.
We are ahead of our expected pace at the mid point of our investment thesis period.
Our organic revenue growth of 9% in fiscal year, 2023, and 15, 7% in the first half of fiscal year 'twenty four is well above the target range.
And we have done this while investing in the business and maintaining margins above our original expectation.
Our extraordinary organic performance has put us on a path to achieve our adjusted EBITDA target with far less capital deployment than we initially thought would be required.
Today, we are pleased to reaffirm the adjusted EBITDA range of one two to $1 3 billion by fiscal year 2025.
And importantly, we expect to reach our goals, while building, an even stronger balance sheet.
As of now.
We are decreasing our baseline capital deployment expectations to two to $3 5 billion.
Which is approximately $1 billion less than we had initially anticipated.
This provides us with the additional balance sheet capacity to create shareholder value over the next 18 months and beyond.
As the world financial markets and the federal budget become more volatile in the coming years, we are positioning booz Allen to serve clients with distinction while investing in future growth avenues.
These are the keys to growing a rewarding our talent and creating superior shareholder value.
Moreover.
These outstanding results demonstrate our vault growth strategy is working.
Bolt stands for velocity leadership and technology and over the past 18 months, we move rapidly to implement.
Booz Allen needed to transform itself to gain the speed and scale required to serve our clients' evolving needs.
To do this we aim to get faster in our decision making in operations.
We also set out to build and scale, leaving positions that transfer emissions through the use of new technologies.
Today.
Our aspirations are becoming a reality.
Let me offer two examples.
First the meteoric rise of AI proves our readiness to deliver a greater speed and scale.
As great power competition demand accelerated adoption of AI across every facet of the federal government, we are positioned to respond to our clients' complex needs.
Earlier this month, we hosted some of you at our Helix center for innovation.
We showed you how we are combining our exceptional talent diverse ecosystem of innovation partners and prostitute frameworks to create differentiated AI solutions.
We can rapidly tailor our proven solutions to insert AI into a range of critical missions.
From empowering the warfighter at the edge to improving health outcomes.
And we see significant opportunities ahead to expand and deepen our impact as we continue integrating AI with other technologies.
The second example.
Successful implementation is how we continue to transform our existing businesses to stay at the leading edge.
We as Alan Cyber business on our recent $1 $86 billion award of Thunder Dome illustrate these very well.
Through this work, we combined our historical strengths in cyber trade craft and mission understanding.
With our ability to leverage key commercial technologies into scalable solutions.
<unk> dome, which booz Allen at the center of Dcs effort to implement a zero trust architecture across the department of Defense's complex technical infrastructure.
This is a critical task demanding all of Booz Allen's and our tech partners talent and ingenuity.
As we continue to scale. These work, we expected to create opportunities to extend elements of the solution across the whole federal government and beyond.
This is evolved.
In action.
To close.
I am extremely proud of the progress we have made towards our ambitious goals over the past 18 months.
The results, we shared today increased booz Allen's resilience ISR market and federal budget environment grow more uncertain.
We are taking a leadership position to a new level and increasing our impact across the most critical and enduring missions.
The amazing people of Booz Allen.
Work relentlessly relentlessly on behalf of our clients and our nation.
Their passion to make the world better and safer fills me with optimism about the future.
It Invigorates my belief.
We can empower people to change the world.
And with that Matt.
To you.
Thank you Horacio.
And thanks to all of you for joining our call.
The Booz Allen team delivered another exceptional quarter.
Our success across the portfolio.
In shaping demand and capturing opportunities.
And hiring and deploying talent onto contracts.
And most important and serving our clients' mission.
Sets us up very well for the remainder of this fiscal year.
And beyond.
Booz Allen prides itself on delivering for our clients our people and our shareholders.
Quarter after quarter and year after year.
We are proud to be in a position today to raise our fiscal year 2020 for guidance.
Our team continues to build both momentum and resiliency for the long term.
And as Rajiv noted we are ahead of where we expect it to be against the adjusted EBITDA dollar goal in our three year investment thesis.
Nathan Rutledge: Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering second quarter fiscal year 2024 results. At this time, all participants are in listen only mode. Later, there will be an opportunity for questions. I'd now like to turn the call over to Mr. Nathan Rutledge. Thank you. Good morning, and thank you for joining us for Booz Allen's second quarter fiscal year, 2024 earnings call. We hope you had an opportunity to read the press release, be issued earlier this morning.
Now, let's dive into the specifics of our second quarter performance.
Please turn to slide six.
Total revenue for the quarter grew 16% year over year to approximately $2 7 billion.
Nathan Rutledge: We have also provided presentation slides on our website and our now on slide too. With me today to talk about our business and financial results, our Horacio Rozanski, our president and chief executive officer, and Matt Calderone, executive vice president and chief financial officer. As shown in 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.
Organic revenue was up 14, 8% year over year.
Revenue, excluding billable expenses increased 14, 1% year over year to approximately $1 8 billion.
Our exceptional top line performance continues to be driven by strong demand for our services and solutions and steady head count growth.
Our business continues to exhibit strength across the portfolio.
Cross all markets, we are seeing the results of our leaders embracing devote strategy.
Our defense business is thriving with revenue up approximately 24% compared to the second quarter last fiscal year.
Nathan Rutledge: We will discuss uncertainties and other factors that may cause our actual results to different materially from forecasted results discussed in our SEC filings and on this call. All forward looking statements are expressly qualified in their entirety by forgoing cautionary statements and speak only as of the date made. 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.
Growth in this market is broad based.
We continue to bring technology and trade craft to critical national missions.
Our civil business revenue was up roughly 17% year over year.
With strong performance across the board.
Our intelligence business grew 4% year over year and is almost entirely absorb the roll off of a large classified contract.
We had a number of significant new wins in the first half of the year and are very encouraged by the progress our leaders have made in hiring cleared talent.
Nathan Rutledge: During today's call, we will also discuss some non-GAP financial measures and other metrics, which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliation of our non-GAP measures to the most comparable GAP measures in our second quarter fiscal year 2024 earnings release and slides.
And evolving this portfolio.
Finally, our global commercial business, which accounted for 1% of revenue in the quarter declined approximately 45% year over year.
<unk> the divestitures disclosed last fiscal year.
Horacio Rozanski: It is now my pleasure to turn the call over to our CEO and president, Horacio Rozanski, we are now on slide four. Thank you Nathan and good morning everyone. Thank you for joining the call. Today, Matt and I have the privilege of discussing with you another quarter of whose talents market living performance.
Moving onto bookings the.
The award environment remains robust.
The second quarter is historically, our strongest for bookings.
This quarter.
Net bookings totaled approximately $6 4 billion.
This includes $1 1 billion of the $1 $86 billion Thunder contract award and the full value of the recently awarded $1 6 billion D Mac contract.
Horacio Rozanski: But before we get to that, I would like to open this call as I have done several times in the past by putting our work in the context of world events. On October 7, the world was shocked by a murderous terrorist attack perpetrated by Hamas on the people of Israel. We at Booz Allen stand in mourning and solidarity with Israel, the victims and their families. We pray for the safe return of all the hostages and withstand side by side with the US government in condemnation of Hamas in support of Israel's defense and in the protection of all civilians.
Our second quarter book to Bill was 241 times in line with the same period a year ago.
And our trailing 12 months book to Bill was 129 times.
Total backlog as of September 30th grew to a record $35 billion.
Up 10, 1% year over year.
Funded backlog increased 14, 7% to $6 3 billion.
Unfunded backlog dipped two 4% to $10 $1 billion in.
In priced options grew 16, 6% to $18 6 billion.
Horacio Rozanski: In the intervening weeks, Booz Allen has done what we do best. We have conducted listening sessions, creating spaces to support our colleagues in mourning or afraid for both our Israeli and Palestinian loved ones living in the region. We have launched a match giving campaign, and importantly, we have supported our U.S. Client submissions. Because this is personal for me too, I have felt the warm embrace of the entire Booz Allen community. I am so proud and so grateful to each one of my colleagues for showing the best of Booz Allen at the time of crisis and loss.
Looking forward, we continue to execute on our rich pipeline of opportunities.
Our fiscal year 2024, our qualified pipeline is up 35% compared to this time last year.
<unk> stands at $26 2 billion.
In sum, we have both the award and the pipeline to support our near term and medium term growth objectives.
Turning now to head count.
<unk> grew to more than 33000 people strong at the end of September.
Client staff head count was 11, 2% higher on a year over year basis.
Total head count increased 10, 3%.
Horacio Rozanski: This morning I felt it was important to share this with you for two reasons. First, because this horrendous events remind us of the urgency of our work, bringing leaving edge technology to critical missions, in the hope of preventing and deterring things like this from ever happening. And second, because our internal response is yet another reminder of the unique culture and people of Booz Allen. They are the unshakeable foundation for our exceptional performance, decade after decade.
Hiring onboarding and deploying talent onto contracts continues to be a top priority.
These efforts have yielded a 4% increase in client staff since the beginning of the fiscal year.
And we remain in a growth posture.
Therefore today, we are well positioned to exceed our full year target of 3% to 5% client staff head count growth.
Moving now to the bottom line.
We earned $291 million and adjusted EBITDA in the second quarter.
This is one 6% higher than the second quarter last year and in line with our expectations for the quarter.
Horacio Rozanski: So turning out to performance. Our second quarter of fiscal year 2024 was outstanding. Our Booz Allen team once again delivered industry leading organic revenue growth, a strong bottom line and record backlog. On our last earnings call, we emphasized the importance of having a strong second quarter. Our results show we succeeded. We built resiliency in the business and entered the second half of the fiscal year with significant momentum, even as the uncertainty about the federal budget persists. We now expect to exceed our original plan for this fiscal year. As a result, we are pleased to announce an increase to our top and bottom line guidance for fiscal year 2024.
Our principal focus remains on EBITDA dollar growth.
Alright, and adjusted EBITDA margin of 10, 9% was approximately 150 basis points lower than the same period a year ago.
On a year over year basis margin for the quarter were diluted by higher billable expense ratio.
And a small shift in contract mix towards cost Reimbursable work due to the rapid growth in our defense business.
We continue to manage costs and execute contracts exceptionally well.
Which allows us to both deliver financial results in the near term and invest for the long term.
This year, we do expect a slightly flatter pattern of quarterly margins compared to recent years.
Second quarter net income was roughly flat year over year at $171 million.
Horacio Rozanski: Matt will take you through it and also deep dive on our performance in a few minutes. My goal for today is to connect our performance with our strategy and longer term financial objectives. We are halfway through the three year investment thesis outlined in late 2021 and deep into the implementation of all.
This was in line with our expectations for the quarter.
Adjusted net income declined four 9% year over year to $169 million.
Diluted earnings per share grew.
Zero, 8% year over year to $1 29.
Adjusted diluted earnings per share declined three 7% year over year to $1 29.
Horacio Rozanski: So this seems like a good moment to pause to take stock and to offer a self-appraisal of our progress. I'll begin by going back to what we said at our investor day in October 2021. At that point we saw an extraordinary opportunity. We expected emerging technologies such as AI, cyber, 5G and quantum to rapidly transform how our government operates over this decade. And we said our first mover advantage positioned us to maximize its opportunity to accelerate our growth, to take our industry leadership to the next level and to drive outstanding shareholder value.
Moving now to the balance sheet.
We ended the second quarter with $557 million of.
Cash on hand.
This includes proceeds from the successful investment grade bond offering that we executed in August.
Free cash flow for the quarter was negative $64 3 million.
The result of $47 $4 million used for operating activities.
$16 $9 million of Capex.
Note that in July we paid out the previously discussed settlement with the department of Justice.
Excluding that payment operating cash flow was up almost 12% year over year.
Horacio Rozanski: At that time, we also laid out a multi-year[inaudible] Scenters on growing adjusted EBDA by about 50 percent from $840 million in fiscal year 2021 to approximately $1.2 to $1.3 billion in fiscal year 2025. We envision the path to accomplish this goal that included above market organic revenue growth in the range of 5 to 8 percent annually, adjusted EBDA margins in the mid-tenths, we continued investment capacity for future growth, and 3.5 to $4.5 billion in total capital deployment prioritizing small to mid-size strategic acquisitions.
Collections were solid for the quarter, but cash outflows remain high due to our rapid growth and continued investments in the business.
Our net debt at the end of the second quarter was approximately $2 9 billion.
And our net leverage ratio was approximately two seven times adjusted EBITDA.
Turning to slide eight.
During the second quarter, we returned approximately $143 million of capital to shareholders.
This included approximately $81 million in share repurchases at an average price of $116 98 per share.
Horacio Rozanski: Simply put, we are ahead of our expected pace at the mid-point of our investment thesis period. Our organic revenue growth of 9 percent in fiscal year 2023 and 15.7 percent in the first half of fiscal year 24 is well above the target range. And we have done this while investing in the business and maintaining margins above our original expectation. Our extraordinary organic performance has put us on a path to achieve our adjusted EBDA target with far less capital deployment than we initially thought would be required.
And $62 million and quarterly cash dividends.
Today I am pleased to announce that our board has approved a quarterly dividend of <unk> 47 per share that will be payable on December 4th.
To stockholders of record as of November 15th.
As Ralph noted September 30, Mark with the mid point of our current fiscal year and the halfway point of our three year investment thesis.
Our leadership team could not be prouder of our performance to date.
On our last call, we highlighted three things that would be key to our full year performance.
Horacio Rozanski: Today, we are pleased to reaffirm the adjusted EBDA range of $1.2 to $1.3 billion by fiscal year 2025. And importantly, we expect to reach our goals while building an even stronger balance sheet. As of now, we are decreasing our baseline capital deployment expectations to $2.2 to $3.5 billion, which is approximately $1 billion less than we had initially anticipated. This provides us with the additional balance sheet capacity to create shareholder value over the next 18 months and beyond.
Second quarter bookings.
Second quarter head count growth and the potential for a government shutdown.
Our bookings and head count growth in the quarter exceeded expectations, but there is still uncertainty about government funding.
Beyond mid November.
Thus our updated guidance incorporates both the momentum we have built.
And the strong possibility of a multi week government shutdown.
We have built the assumption of a two to four week partial government shutdown into our guidance ranges.
Horacio Rozanski: As the world, the financial markets and the federal budget become more volatile in the coming years, we are positioning Booz Allen to serve clients with distinction while investing in future growth avenues. These are the keys to growing and rewarding our talent and creating superior shareholder value. Moreover, without standing results, demonstrate our bold growth strategy is working. Bold stands for velocity, leadership, and technology. And over the past 18 months, we move rapidly to implement.
On this front, we continue to hope for certainty.
But plan for volatility.
It is significant that we are raising full year guidance, even with this assumption.
Or a multi week partial government shutdown.
Let me now take you through our updated fiscal year 2020 for guidance.
Please turn to slide nine.
At the top line, we now expect revenue growth of 11% to 14%.
10% to 13% of which will be organic.
And we do expect billable expenses will decline in the second half.
Horacio Rozanski: Booz Allen needed to transform itself to gain the speed and scale required to serve our clients' evolving needs. To do this, we aim to get faster in our decision-making and operations. We also set out to build and scale leading positions that transform missions through the use of new technologies.
Our adjusted EBITDA margin guidance is unchanged.
We still expect margins to be in the high 10% to 11% range.
As I noted earlier, we anticipate our margin profile for the full year will be flatter than it has been in recent years, even with our traditional ramp up of investment in talent and capability building in the second half.
Horacio Rozanski: Today, our aspirations are becoming our reality. Let me offer two examples. First, the mediatic rights of AI proves our readiness to deliver a greater speed and scale. As great power competition demands accelerated adoption of AI across every facet of the federal government, we are positioned to respond to our client's Needs Earlier this month, we hosted some of you at our Helix Center for Innovation. We showed you how we are combining our exceptional talent, diverse ecosystem of innovation partners and trusted frameworks to create differentiated AI solutions.
We are raising our adjusted EBITDA dollar guidance to between 1.15 billion and $1 $145 billion.
Or approximately 10% to 13% growth.
Year over year.
We are increasing our EPS guidance to a range of $4 95.
To $5 10 per share.
We are maintaining our operating cash flow guidance at between $160 million and $260 million.
This includes the impact of higher interest payments connected to our recent bond issuance.
Horacio Rozanski: We can rapidly tailor our proven solutions to insert AI into a range of critical missions from empowering the world fighter at the edge to improving health outcomes. And we see significant opportunities ahead to expand and deepen our impact as we continue integrating AI with other technologies.
We now expect capex of approximately $85 million.
And free cash flow to be in the range of $75 million to $175 million.
In sum our business is strong and our growth strategy is working.
Our management team is excited about the momentum we feel the great work, we are doing and the value, we're creating for our people our clients and our investors.
Horacio Rozanski: The second example of what's successful implementation is how we continue to transform our existing businesses to stay at the leading edge. Booz Allen Cyber Business and our recent $1.86 billion dollar award of ThunderDome illustrate this very well. Through this work, we combined our historical strengths in cyber trade craft and mission understanding with our ability to leverage key commercial technologies into scalable solutions. ThunderDome puts Booz Allen at the center of this as effort to implement a zero trust architecture across the Department of Defense's complex technical infrastructure.
With that operator, let's open the line for questions.
Thank you.
A reminder to ask a question. Please press star one one on your telephone.
For your name to be announced to withdraw your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Mariana Perez Mora from Bank of America.
Good morning, everyone.
Horacio Rozanski: This is a critical task demanding all of Booz Allen's and our tech partners talent and ingenuity. As we continue to scale this work, we expected to create opportunities to extend elements of this solution across the whole federal government and beyond.
So good morning, good morning around AI, you, what's really impressive to see all the obligations that you have on AI at the edge and I'd like you to these guys how much growth you see bear and how dependent is this expansion of the timing of that yet.
Horacio Rozanski: This is vault in action.
Two please.
Well, it's good to have.
Horacio Rozanski: To close, I am extremely proud of the progress we have made towards our ambitious goals over the past 18 months. The results we share today increase Booz Allen's resilience, a fair market and federal budget environment grow more uncertain. We are taking our leadership position to a new level and increasing our impact across the most critical and enduring missions. The amazing people of Booz Allen work relentlessly, relentlessly on behalf of our clients and our nation. Their passion to make the world better and safer fills me with optimism about the future.
<unk>, Argentina and accident. This early in the morning, not be the only one.
Well I think as you as you know from the conversations we have the helix a couple of weeks ago, our business. This year as forecasted our AI business in the $500 million to $700 million.
Range, and we see significant growth over the coming years.
Horacio Rozanski: It invigorates my belief that we can empower people to change the world.
And that growth is broad based we talked a lot and we talk on these calls about the work we're doing in defense.
But our work in intelligence and our work across the civil agencies on AI is also growing well.
S.
You saw we have some unique solutions that are the product of our talent some frameworks.
That are proprietary to Booz Allen and work, we do with commercial partners to bring dwell use technology.
Matthew Calderone: And with that, Matt, over to you. Thank you, Rossio, and thanks to all of you for joining our call. The Booz Allen team delivered another exceptional quarter. Our success across the portfolio in shaping demand and capturing opportunities, in hiring and deploying talent onto contracts, and most important in serving our clients' mission, sets us up very well for the remainder of this fiscal year and beyond. Booz Allen prides itself on delivering for our clients, our people, and our heroes. Golders, Quarter After Quarter, and Year After Year.
Into those missions that I think set us apart. So we are very bullish about the future.
Your question about budgets.
Clearly we are looking very closely at what's.
Happening on the Hill.
As Matt pointed out we are at this point baking into our guidance the potential.
For a government shutdown, we hope you won't happen, but we need to be realistic about that and we need to be realistic about the fact that if budgets compress in the future.
The competition for resources across every federal agency will will increase now having said that.
Matthew Calderone: We are proud to be in a position today to raise our fiscal year 2024 guidance. Our team continues to build both momentum and resiliency for the long term. Please turn to slide 6. Total revenue for the quarter grew 16% year-over-year to approximately $2.7 billion. Organic revenue was up 14.8% year-over-year. Revenue excluding billable expenses increased 14.1% year-over-year to approximately $1.8 billion. Our exceptional top-line performance continues to be driven by strong demand for our services and solutions and steady head count growth.
From our perspective bolt has put us in the middle of key enduring missions.
We're bringing unique capabilities and Thats why were both raising guidance and reaffirming that we're ahead of pace to deliver on our multiyear investment thesis.
So we feel really good about where we are.
And how much of your growth is insulated from in the near term from these budget certainty. So.
Otherwise how much upside do you have in the near term if you will.
But yet.
Got it.
Early next year.
It's hard to predict precisely we've tried to incorporate that in the way. We that's why guidance is a range as opposed to and it really is a broader range of these years than it's been in the past.
To accommodate more scenarios I think maybe the other thing to point you.
Two is the fact that because of the budget passed last December we saw.
Matthew Calderone: Our business continues to exhibit strength across the portfolio. Across all markets, we are seeing the results of our leaders embracing the vote strategy. Our defense business is thriving with revenue up approximately 24% compared to the second quarter last fiscal year. Growth in this market is broad-based. We continue to bring technology and trade craft to critical national missions. Our civil business revenue was up roughly 17% year-over-year with strong performance across the board.
The ability to work against a lot of latent underlying demand.
In the business.
And that's why we're growing as well as for growing now and we've had the success.
So we've had I mean this has really.
Been around for a long time is probably the best first half I've seen at least since the IPO.
Possibly best first half we've had in my 30 plus years have Booz Allen so.
Clearly there's momentum in the business we're building resilience.
And their business in anticipation of funding challenges, but we are a pedal to the metal.
Matthew Calderone: Our intelligence business grew 4% year-over-year and has almost entirely absorbed the roll-off of a large classified contract. We had a number of significant new wins in the first half of the year and are very encouraged by the progress our leaders have made in hiring clear talent and evolving this portfolio. Finally, our global commercial business, which accounted for 1% of revenue in the quarter, declined approximately 45% year-over-year, reflecting the divestitures disclosed last fiscal year.
Thanks, so much.
Sure.
Thank you one moment for our next question.
Our next question comes from the line of Bert Subban from Stifel.
Great. Good morning, just to follow up tomorrow on his question there.
<unk> AI an event you provided data around head count and sales expectations just for the business across Booz.
There is an expectations indicated lower utilization of your AI workforce, just relative to your broader client facing staff. How quickly should we expect revenue revenue utilization to rise across AI and how does that make you think about the growth opportunity beyond FY 'twenty for Horacio I know you said you are bullish but is that something that can.
Matthew Calderone: Moving on to bookings, the award environment remains robust. The second quarter is historically our strongest for bookings. This quarter net bookings totaled approximately $6.4 billion. This includes $1.1 billion of the $1.86 billion ThunderDome contract award and the full value of the recently awarded $1.6 billion DMACT contract. Our second quarter book to bill was 2.41 times in line with the same period a year ago and our trailing 12 months book to bill was 1.29 times.
Flip pretty quickly.
Okay.
Deborah I'll take it first.
Look I think we showed you as you said.
We arranged the business from a revenue perspective and told you how many.
Practitioners we have.
Purely apples to apples.
Because we have a project to shares that are supporting Ontario projects and vice versa.
Matthew Calderone: Total backlog as of September 30th grew to a record $35 billion, up 10.1% year-over-year. Funded backlog increased 14.7% to $6.3 billion. Unfunded backlog dipped to 2.4% to $10.1 billion and priced options grew to 16.6% to $18.6 billion. Looking forward, we continue to execute on a rich pipeline of opportunities. Our fiscal year 2024 qualified pipeline is up 35% compared to this time last year and stands at $26.2 billion.
Our folks are probably less utilized than the rest of the business because we're investing a significant amount in that business. There are a lot of folks who are building capabilities supporting innovation.
Driving our AI governance model.
Et cetera.
But we see significant growth there not just from those staff, but from a broader set of staff that we're training.
And upscaling from a technology perspective, the other thing I'll mention it's relevant both to your question and hand. It to Marianna is we also highlighted at the year end event, the extent to which AI is not being bundled into large procurements and the success were having when that in fact happens.
<unk>, we're seeing not just for AI for Ciber for digital.
Matthew Calderone: In sum, we have both the awards and the pipeline to support our near-term and medium-term growth objectives. Turning out a headcount, Booz Allen grew to more than 33,000 people strong at the end of September. Client staff headcount was 11.2% higher on a year-over-year basis. Total headcount increased 10.3%. Hiring, onboarding, and deploying talent onto contracts continues to be a top priority. These efforts have yielded a 4% increase in client staff since the beginning of the fiscal year, and we remain in a growth posture.
For some of the hardware engineering and integration that we do that is bundled together because if you think about our complex mission problem requires AI to enable it.
<unk> to protect it you got to integrate it into our software and network system oftentimes it has to be integrated into some type of.
Your hardware.
Product so.
I would just think about your AI from a traditional perspective, it really is having a much broader impact across the base of our business and is being integrated.
Into the technology stacks, we have writ large.
Let me add two small points to what Matt said, which is very much resonates.
Matthew Calderone: Therefore, today we are well positioned to exceed our full-year target of 3-5% client staff headcount growth. Moving now to the bottom line, we earned $291 million in adjusted EBITDA in the second quarter. This is 1.6% higher than the second quarter last year and in line with our expectations for the quarter. Our principal focus remains on EBITDA's dollar growth. Our adjusted EBITDA margin of 10.9% was approximately 150 basis points lower than the same period a year ago.
Sure.
One point is if you look at the <unk>.
The level of investment that we're putting into AI.
Is relatively modest to the success that we're having in a lot of that is because we start early on these technologies and we wait.
And then we plan and we position so that the ones that go exponential weekend like AI has we can stay ahead of the trend and we are still.
Ahead of the game, there and that's really exciting and then the second point I'll point you back at the inter galactic level through the power of our single P&L.
Matthew Calderone: On a year-over-year basis, margins in the quarter were deluded by a higher bill of expense ratio and a small shift in contract mix toward cost-reimbursable work due to the rapid growth in our defense business. We continue to manage costs and execute contracts exceptionally well, which allows us to both deliver financial results in the near term and invest for the long term. This year we do expect a slightly flatter pattern of quarterly margins compared to recent years.
And the ability to really manage resources as an institution as opposed to in small buckets, which gave us the opportunity to flex our workforce in a way that is pretty unique to booz Allen and that gives us all the growth that we're talking about.
Super Helpful. Ross CEO and Matt just a follow up for you, Matt maybe thinking more about the cost structure.
Maybe not directly related to AI, but partially.
Your G&A expense at least as a percentage of your sales continues to fall and.
And is growing certainly much slower than your sales growth can.
Can we expect that to be.
Matthew Calderone: Second quarter net income was roughly flat year-over-year at $171 million. This was in line with our expectations for the quarter. Adjusted net income declined 4.9% year-over-year to $169 million. Deluded earnings per share grew 0.8% year-over-year to $1.29. Adjusted deluded earnings per share declined 3.7% year-over-year to $1.29. Moving now to the balance sheet, we added the second quarter with $557 million of cash on hand. This includes proceeds from the successful investment grade bond offering that we executed in August.
An engine for future margin expansion or is that something that normalizes over time.
Yes.
It could generate more margins, but.
Really this has been intentional over the past few years near we're shifting.
Cost investment from the infrastructure into the business.
Ross you said.
Relative to some of the Hyperscale scalar is our investment in AI is modest, but we're investing a lot of money there.
So it has been a very intentional structured effort.
Led by all of our business leaders to become as efficient as possible on the corporate side. So we can invest in the business and in growth and in the capabilities our clients want.
Thank you.
Thank you one moment for our next question.
Matthew Calderone: Free cash flow for the quarter was negative $64.3 million. The result of $47.4 million used for operating activities and $16.9 million of cash. X. Note that in July we paid out the previously discussed settlement with the Department of Justice. Exploding that payment, operating cash flow was up, almost 12% year over year. Collections were solid for the quarter, but cash outflows remained high due to our rapid growth and continued investments in the business. Our net debt at the end of the second quarter was approximately $2.9 billion in our net leverage ratio with approximately 2.7 times adjusted EBITDA.
Our next question comes from the line of Sheila Cohea glue from Jefferies.
Thank you good morning, Raphael, Matt Thanks, so much.
For that introduction and the helix as well when.
When we think about your organic growth just to start on the organic growth of 15% in the first half really great results defense up 24%. Another acceleration how much of that is due to improving DSD outlays and maybe if you could remind us your expectations across the different customer basis for the year.
In terms of the top line.
Hi, Sheila good morning, I'll start.
Matt might want to add.
I will say the following when you look across the entirety of our business defense civil and Intel, 24% and 17%.
Sure.
Matthew Calderone: Turning to slide 8, during the second quarter we returned approximately $143 million of capital to shareholders. This included approximately $81 million in share of purchases at an average price of $116.98 per share and $62 million in quarterly cash dividends.
Plus percent growth while absorbing.
Yeah.
Changes in the contract portfolio.
It's really broad based we are hitting on all cylinders across all of these it's not one program is not one piece, it's not one dynamic I think in.
In general it's attributable to volt.
Volt is giving us both momentum.
Matthew Calderone: Today, I am pleased to announce that our board has approved a quarterly dividend of $0.47 per share that will be payable on December 4 through stockholders of record as of November 15th. As Rossio noted, September 30th marked both the midpoint of our current fiscal year and a halfway point of our three-year investment thesis. Our leadership team could not be prouder of our performance to date.
And resiliency the momentum is evident in the numbers.
And the fact that we're raising guidance, while accounting for the potential.
For for a government shutdown and the resiliency is equally important because to your point I mean, we do see increased uncertainty in the funding picture.
At this point, we continue to see clients moving.
Aggressively against our key priorities in other cycles like this we have seen clients may be pulled back.
Matthew Calderone: On our last call, we highlighted three things that would be key to our four-year performance. Second quarter bookings, second quarter headcount growth and a potential for a government shutdown. Our bookings and headcount growth in the quarter exceeded expectations, but there is still uncertainty about government funding beyond mid-Ov. Thus, our updated guidance incorporates both the momentum we have built and the strong possibility of a multi-week government shutdown. We have built the assumption of a two-to-four-week partial government shutdown into our guidance ranges. On this front, we continue to hope for certainty but plan for volatility. It is significant that we are raising full-year guidance, even with this assumption of a multi-week partial government shutdown.
Anticipation.
Perhaps it's because of the missions we support.
Perhaps it is because of the geopolitical dine.
Dynamics.
And the uniqueness of our offerings that we are still seeing that.
But we are both growing fast in brining tightly so that we can create the environment in which we can continue to both invest and protect our workforce if.
The budgets get tight or get interrupted.
For a period of time. So we're excited about where we are across all the markets in defense in particular like I said I mean every part of our defense business.
Is growing nicely as the only way to get the 24% than it is really transformed to grow along the lines of bringing technology to mission.
No that's super helpful. Just say Sheila.
I mean, 10% to 13% organic growth for the year are growing above market.
Matthew Calderone: Let me now take you through our updated fiscal year 2024 guidance. Please turn to slide 9. At the top line, we now expect revenue growth of 11 to 14 percent. 10 to 13 percent of which will be organic. And we do expect billable expenses will decline in the second half. Our adjusted EBITDA margin guidance is unchanged. We still expect margins to be in the high 10 to 11 percent range. As I noted earlier, we anticipate our margin profile for the full year will be flatter than it has been in recent years, even with our traditional ramp-up of investment and talent and capability building in the second half.
Clearly, but as Rajeev said, it's the quality of the underlying growth in the depths of that that really as excited because it gives us not just momentum, but the resiliency to ride out potential.
Dislocation from a budgetary environment.
And Matt just another follow up for you. If I may can you talk about the accounts receivable balance in terms of that.
How we should expect sort of working capital improvements from here on that balance and also the impact to revenues.
How we should see that progression.
Sure.
Yes, I'll take that.
Couple of parts first and we've talked about the puts and takes on cash for a couple of calls now on the <unk>.
Matthew Calderone: We are raising our adjusted EBITDA dollar. Guidance to between 1.115 billion and 1.145 billion dollars, or approximately 10% to 13% growth year-over-year. We are increasing our 8F's guidance to a range of $4.95 to $5.10 per share. We are maintaining our operating cash flow guidance at between 160 million and 260 million dollars. This includes the impact of higher interest payments connected to our recent bond issuance. We now expect CAPEX of approximately 85 million dollars and free cash flow to be in the range of $75 million to $175 million.
Positive side, we're certainly generating more profit.
Our Capex has declined.
And we've improved collections.
But there are headwinds.
The Doj settlement obviously.
Higher cash taxes, driven by our growth and 174 higher interest expense.
And as you mentioned our outsized growth.
Consuming working capital to support it I mean, just to give you.
One example, you're required to pay small businesses within 30 days.
And so.
As we are growing.
We're typically paying them faster than where we're collecting.
With respect to our outstanding receivable balance.
I think you are getting at the question of some of the Unbilled receivables on our balance sheet.
You've asked that previously we are working.
A meaningful portion of that is tied up.
Matthew Calderone: In sum, our business is strong and our both strategy is working. Our management team is excited about the momentum we feel, the great work we are doing, and the value we are creating for our people, our clients, and our investors.
Alright.
In past your audits.
Working with DCA the CMA.
Both well and quickly to try to resolve that it's going to be likely a multi year process.
But things are going well and at this time we have.
No ability to project whats.
Operator: With that, operator, let's open the line for questions. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by when we compile the Q&A roster.
When and how that will be resolved.
And just on the revenue line I think you called out $18 million.
From the reduction of the provision so that.
Those should be complete this positive thank you sort of Ritchie.
Is that how to think about it.
Yes, I mean that in particular has to do with.
A change to our Red reserve, we made relative to our 'twenty two audit.
Mariana Perez-Mora: Our first question comes from the line of Mariana Perez-Mora from Bank of America.
And the results of a 22 audit, but theyre going to be puts and takes over the next couple of quarters.
Horacio Rozanski: Good morning everyone. So my question is around AI. It was really impressive to see all the applications that you have on AI at the edge. And I'd like you to discuss how much growth you see there and how dependent is this extension or the timing of this on a budget situation. Well, Mariana, it's good to hear our Argentina accent this early in the morning, not be the only one. Well, I think, as you know, from the conversations we have the Helix a couple of weeks ago, our business this year is forecasted our AI business in the $500 to $700 million range.
A couple of years as we work to resolve these so it was a positive this quarter.
Not making any predictions about future quarters got it. Thank you.
Okay.
Thank you one moment for our next question.
Our next question comes from the line of Louie Dipalma from William Blair.
<unk>, Matt and Nathan good morning.
Good morning, Larry.
Yeah, and Matt you forecast lower capital deployment through fiscal 'twenty five has your vote and your venture capital program been so successful and selling prices. So high that you are no longer interested in another.
Horacio Rozanski: And we see significant growth over the coming years. And that growth is broad-based. We talk a lot and we talk on these calls about the work we're doing in defense. But our work and intelligence and our work across the civil agencies on AI is also growing well. And as you saw, we have some unique solutions that are the product of our talent, some frameworks that are proprietary to Booz Allen and work we do with commercial partners to bring dual use technology into these missions that I think set us apart.
Liberty sized acquisition and are you signaling more stock buybacks with the extra capital now.
Yes. Thanks for the question I'll start I'm sure Horacio want to comment.
I mean, obviously when we put the investment thesis in place two years ago. The world was different place it was a different interest rate environment.
The market was much more robust.
Political and macroeconomic risk.
Horacio Rozanski: So we are very bullish about the future. Dear question about budgets. Clearly, we are looking very closely at what's happening on the hill. As Matt pointed out, we are at this point, making into our guidance the potential for a garden shutdown. We hope it won't happen, but we need to be realistic about that. And we need to be realistic about the fact that if budgets compress in the future, the competition for resources across every federal agency will increase.
Strategic M&A very much remains a priority for us it's an important tool in rounding out our ability to bring technology to mission at scale to your question, we're getting a lot of value out of our venture investments, but they don't tend to not be at the kind of scale that you get from a liberty.
Specifically I would absolutely do the Liberty acquisition again.
And we're looking for the next one we got a sizable pipeline of small to mid sized tuck ins that we're prosecuting in the range of two to $3 5 billion can still accommodate a significant amount of M&A activity over the next 18 months I think we've only deployed slightly over $1 2 billion in the first 18 months.
Horacio Rozanski: Now, having said that, from our perspective, Volt has put us in the middle of key enduring missions where we're bringing unique capabilities. And that's why we're both racing guys. We have guidance and reaffirming that we're a head of phase to deliver on our multi-year investment thesis. So, you know, we feel really good about where we are. And how much of your growth has insulated from in the New York term, from this budget certainty.
We're going to remain patient disciplined as always in our approach, but that we can meet the adjusted EBITDA target in the investment thesis, while deploying less capital than anticipated really is a testament to our organic performance.
And it just gives us a lot of flexibility to create additional value for shareholders. So I would not read into this any change in our strategy. It's just a reflection of where we are.
Great. Thanks.
Sure.
Thank you.
Horacio Rozanski: So, Seth, otherwise, how much upside do you have in the New York term, if you want to have a budget? Could it like early next year? You know, it's hard to predict precisely. We try to incorporate that in the way we, you know, that's why guidance is arranged as opposed to, you know, and it's really it's a broader range these years and it's been in the past to accommodate more scenarios. I think maybe the thing to point you to is the fact that, you know, because the budget passed last December, we saw, you know, the ability to work against a lot of latent underlying demand in the business.
One moment for our next question.
Our next question comes from the line of Cai von <unk> from Cowen.
Thanks, so much and good quarter.
So Matt you mentioned that you booked a $1 1 billion of the one eight on the Thunder Dome. What did you guys book on the 630 million space for So award in the $1 7 billion CDC Award.
Yes.
I believe I said in our remarks, we booked all of the <unk> or CDC and I believe we booked all of the space Award as well.
Third element is going to be.
Horacio Rozanski: And that's why we're growing as well as we're growing now and we've had the success that we've had. I mean, this is really, you know, I've been around for a long time as you know, probably the best first half. I've seen, at least since the IPO, possibly the first half we've had in my 30 plus years at the balance. So clearly, there's there's momentum in the business we're building resilience in the business in anticipation of funding challenges. But we are failed to the metal.
Incrementally awarded so we only booked 1.1 of the 185 there.
Mariana Perez-Mora: Thanks so much. Sure. Thank you.
Got it and can you comment about near term bookings prospects.
Operator: One moment for our next question.
Yes, it's always harder big contracts still out there or are we looking at more task orders.
It's a combination Cai, it's always hard to predict quarter by quarter, because as you know.
These things can slip in terms of awards and then the protest environment creates some uncertainty.
Looking ahead I don't think we're going to have it.
Historically stellar quarter next.
Next quarter.
There are a couple of large awards that may or may not happen.
Bert Souben: Our next question comes from the line of Bert Souben from Stevele. Great. Good morning.
We don't have a significant amount of recompete risk in the portfolio in the next 12 months so.
Horacio Rozanski: Just to follow up tomorrow on this question there. At your AI and event, you provided data around headcount and failed expectations just for the business across booze. Those expectations indicated lower utilization of your AI workforce just relative to your broader client facing staff. How quickly should we expect revenue, revenue utilization to rise across AI and how does that make you think about the growth opportunity, you know, beyond FY 24. Horacio, I know you said you're bullish, but is that something that can flip pretty quickly?
This is why we talk about LTM more than each individual quarter and the LTM of almost one three times and more importantly.
Our qualified pipeline, which is up 35% year over year.
Says, we're really in good shape from a demand perspective.
Just to give you a little color on that I've had the chance to talk to clients about needs and talk to our team about their work hour.
Going after and I would say the demand picture for technology into core mission is actually accelerating not slowing down and so smart said, while it's almost impossible to predict.
Horacio Rozanski: Yeah, but I'll take it first. Look, I think we showed you, as you said, you know, we we ranged the business from a revenue perspective and told you how many. AI practitioners we have. It's not purely apples to apples because we have AI object practitioners that are sporting on AI projects and vice versa. Our AI folks, you know, are probably less utilized than the rest of the business because we're investing a significant amount in that business.
Bookings on any given quarter the demand picture absent significant budget disruption is very strong.
Well last year, you had a 0.1 book to Bill was particularly weak is that going to be the norm that we get this very strong second quarter, which we got this year and then we should look for a very very weak near zero Q3 or is there any opportunity to Q3 could be a little bit.
Horacio Rozanski: There are a lot of folks who are building capabilities, supporting innovation, and driving our AI governance model, etc. But we see significant growth there, not just from those staff, but from the broader set of staff that we're training and upskilling from a technology perspective. The other thing I'll mention, it's relevant both to your question and to Marianas, is we also highlighted at the AI and the event the extent to which AI is not being bundled into large procurements, and the success we're having when that in fact happens.
Better clearly below one but better.
I think that I'll start I'm sure Matt will want to.
Do color on this one but I think on the first.
First of all I think this quarter the last quarter of the government fiscal year or the second quarter for Booz Allen is always the strongest.
Because of just the way in which outlays happen in the way money is obligated through the budgeting cycle. So so that will that has always been the case that continues to be.
Horacio Rozanski: Increasingly, we're seeing not just REIbed for cyber, for digital, for some of the hardware engineering integration that we do that is bundled together, because you think about a complex mission problem, it requires AI to enable it, cyber to protect it, you gotta integrate it into a software and network system, oftentimes it has to be integrated into some type of your hardware product. So I wouldn't just think about your AI from a traditional perspective, it really is having a much broader impact across the base of our business and is being integrated into the technology stacks we have writ large.
As you've seen over the last few years the rest of the.
The quarters are actually less predictable because they are predicated on when will these big jobs get awarded it.
And that process.
It really changes every year. It is really I would not take last year and translate into this year directly.
As Matt said, there's a lot in the pipeline.
It is over $26 billion in the pipeline so.
Could some of those things hit this year, we were at this quarter, we would like them to.
But either way, we certainly have the backlog necessary to continue to grow we have the people.
Horacio Rozanski: Let me add two small points to what Matt said, which is very much resonating. One point is, if you look at the level of investment that we're putting into AI, it's relatively modest to the success that we're having, and a lot of that is because we start early on these technologies and we plan and we position so that the ones that go exponential, we can like AI has, we can stay ahead of the trend and then we are still ahead of the game there, and that's really exciting.
Here to continue to grow and we have the momentum to to get that done yes.
Our leading indicators and by historical measures we're in as good a shape as we've almost ever been right on the demand side, we talked about.
Not just the backlog and the book to Bill, which is looking backwards, but the proposal pipeline looking forwards on the supply side.
At the end of the quarter, our consulting our clients that head count was up over 11% more than 4% sequentially.
For the first half of the year.
Horacio Rozanski: And then the second point, I'll point you back at the intergalactic level to the power of our single PNL, and the ability to really manage resources as an institution, as opposed to in small buckets, which give us the opportunity to flex our workforce in a way that is pretty unique to Booz Allen and that gives us all the growth that we're talking about.
Which puts US ahead of the pace that we've typically wanted to be in a 3% to 5% head count growth.
And we're managing the business really well.
Theres a lot of volatility out there right and I think thats.
Yes, that's what we're preparing for.
And that's why we built in two to four week.
Assumption of a partial government shutdown just to just to quantify that.
Matthew Calderone: Super helpful Rossio and Matt, just to follow up for you Matt, maybe thinking more about the cost structure, maybe not directly related to AI but partially, your G&A expense, at least as a percentage of your sales, you know, continues to fall and is growing certainly much slower than your sales growth. Can we expect that to be, you know, an engine for future margin expansion, or is that something that normalizes over time?
For you.
We said the last shutdown.
<unk>, which was in 2018 to 2019.
Cost us about two to three <unk> at the bottom line.
<unk>.
That shutdown remember occurred over the holidays was limited in scope and was at a time when we were smaller.
In size in aggregate and we had a meaningful amount of time to make up lost billing hours, which we did so.
Matthew Calderone: It could generate more margins but, you know, really this has been intentional of the past few years. You know, we're shifting cost and investment from the infrastructure into the business. I mean, as Rossio said, you know, relative to some of the hyper scale that scalers our investment AI is modest, but we're investing a lot of money there, so it has been a very intentional structured effort led by all of our business leaders to become as efficient as possible on the corporate side so we can invest in the business and in growth and in the capabilities our clients want.
We're assuming the impact this time will be three to four times that so again.
Put that in the context of our overall guidance raised top line, 4% adjusted EBITDA, 4% and EPS, 3% plus the government shutdown assumption, we're just in a great spot.
Operator: Thank you. One moment for our next question.
Sheila Kahyaoglu: Thank you.
Terrific. Thank you very much.
Yeah.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Our next question comes from the line of Matt <unk> from Wells Fargo.
Matthew Calderone: Our next question comes from the line of Sheila Kahyaoglu from Jeffries. Thank you. Good morning, Horacio, Matt. Thanks so much and for that introduction and the helix visit as well. When we think about your organic growth, just to start on that organic growth 15% in the first half, really great results, defense of 24% and other acceleration. How much of that is due to improving DOD outweighs and maybe you could remind us your expectations across the different customer bases for the year in terms of the top line.
Hi, good morning.
Eric Chen on for Matt.
Just wondering if you see the head count.
Kind of shifted.
We focus Fox running off.
Maybe thats around end of September.
I think is about 400 people on the program.
Do you know how many you were able to retain and shifts to other words and how many are lost.
Yes, we've almost completely absorbed as I said in my prepared remarks, the impact of that contract loss. There is just the.
Matthew Calderone: Hi, Sheila. Good morning. I'll start. Matt might want to add. I'll say the following, you know, when you look across the entirety of our business, defense civil and intel, 24% 17% 4% growth while absorbing, you know, the changes in the contract portfolio. It's really robust. We are hitting on all cylinders across all of this. It's not one program. It's not one piece. It's not one dynamic. I think in general, it's a tribute of all to volt.
The small team.
Left doing mission critical work on that contract from Booz Allen.
We had about we said would be about 400 people on that.
<unk>, we kept more than half.
And redeployed.
Many of them to mission critical.
Activities, but pulling.
Pulling up we said we wanted to grow head count 3% to 5% this year, we're at 4%.
Really encouraged by the numbers im seeing even for this quarter.
So that's why I said in the script, we're likely to exceed the 3% to 5% range and historically thats been what we need to maintain.
Matthew Calderone: Volt is giving us both momentum and resiliency. The momentum is evident in the numbers. And in the fact that we're raising guidance while accounting for the potential for government shutdown. And the resiliency is equally important because to your point, I mean, we do see increased uncertainty in the funding picture. At this point, we continue to see clients moving aggressively against our key priorities. In other cycles like this, we have seen clients maybe pull back in anticipation.
Our organic growth objectives.
Okay. Thanks.
I guess one more on this.
Section 174.
The updated guidance from IRS.
Do you see an impact from that going forward.
No.
Okay. Thanks.
Thank you.
This time I would now like to turn the conference back over to Horacio Rozanski for closing remarks.
Matthew Calderone: It perhaps is because of the missions we support. Perhaps is because of the geopolitical dynamics and the uniqueness of our offerings that that we're still seeing that. But we are both growing fast and running tightly so that we can create the environment in which we can continue to both invest and protect our workforce. If the budgets get tight or get interrupted for a period of time. So, you know, we're excited about where we are across all the markets in defense in particular.
Thank you Gigi and thank you all for your questions and for being here. This morning, I Hope, Matt and I successfully conveyed.
How excited we are about both the momentum and the resilience we see in our business and also of the opportunities that are ahead for our people for our clients and for all of our investors.
If you'll indulge me for a moment.
To close the call by calling out our annual innovation publication called velocity, which is now available on our website and this year is fully center than artificial intelligence.
Matthew Calderone: Like I said, I mean, every part of our defense business is growing nicely. The only way to get to 24% and it is really transformed to grow along the lines of bringing technology to mission. No, that's super helpful. It's 10 to 13% of organic growth for the year. We're growing above market clearly. But as Rossi said, it's the quality of the underlying growth and the depth of that that really has excited because it gives us not just momentum, but the resiliency to ride out potential dislocation from the budgetary environment.
This year is velocity.
You get to hear from Booz Allen experts and from our industry partners on the ubiquity of AI, it's transformative capabilities out to harnesses for good and a lot more so I hope you'll enjoy reading it and we would love to hear your feedback.
And on that note. Thank you again for joining and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Matthew Calderone: And that just another follow-up for you, if I may, can you talk about the accounts receivable balance in terms of the cash, you know, how we should expect sort of working capital improvements from the year on that balance and also the impact for revenues, how we should see that progression. Sure. I'll take that in a couple parts. First, and we've talked about the puts and takes on cash for a couple calls now.
Okay.
[music].
Matthew Calderone: On the positive side, we're certainly generating more profit, our cat-bex is declined, and we've improved collections. But there are headwinds, the DOJ settlement, obviously higher cash taxes driven by our growth in 174. Or higher interest expense. And as you mentioned, our outsized growth, we are consuming more than capital to support it, just to give you one example required to pay small businesses within 30 days. And so as we're growing, we're typically paying them faster than we're collecting.
Matthew Calderone: With respect to our outstanding receivable balance, I think you're getting at the question of some of the unbuilt receivables on our balance sheet, because you've asked that previously. We are working a meaningful portion that is tied up in past your audits. We're working with DCA, DCMA, both well and quickly to try to resolve that. It's going to be likely a multi-year process, but things are going well. And at this time, we have no ability to project what's when and how that will be resolved.
Matthew Calderone: And just on the revenue line, I think the queue called out 18 million from the reduction of the provision. So those should be conceived as positives as you sort of retrieve those payments. Does that have to think about it? Yes, I mean, that in particular has to do with a change to our reg reserve, we made relative to our 22 audit. And the results of a 22 audit, but they're going to be put in takes over the next couple quarters in couple years as we work to resolve these. So it wasn't positive this quarter. We're not making any predictions about future quarters. Got it. Thank you.
Operator: One moment for our next question.
Louis D. Palmer: Our next question comes from the line of Louis D. Palmer from William Blair. Horacio, Matt, and Nathan, good morning. Morning, Louis.
Matthew Calderone: And Matt, you forecast lower capital deployment through fiscal 25 has your vault and your venture capital program been so successful and selling prices so high that you are no longer interested in another liberty. [inaudible] Thank you. One moment for our next question.
Kai von Rumer: Our next question comes from the line of Kai von Rumer from Cowlin. Thanks so much and good quarter. So Matt, you mentioned that you booked 1.1 billion of the 1.8 on the Thunderdome. What did you guys book on the 630 million Space Force award in the 1.7 billion CDC award? Yes, I believe I said that remarks. We booked all of the DMACC award in CDC and I believe we booked all of these Space Award as well.
Kai von Rumer: Thunderdome is going to be incrementally awarded, so we only booked 1.1 of the 1.8 five there. Got it. And can you comment about near-term bookings prospects? You know, it's always a big contract still out there or are we looking at more task orders? It's a combination. Kai, it's always hard to predict quarter by quarter because, you know, these things can slip in terms of awards and then the protest department creates some uncertainty.
Kai von Rumer: Yeah, looking ahead, I don't think we're going to have a, you know, historically stellar quarter next quarter. There are a couple of large awards that may or may not happen. We don't have a significant amount of recompete risk in the portfolio in the next 12 months. So, you know, this is why we talk about LTM more than each individual quarter in the LTM of almost 1.3 times and more importantly, our qualified pipeline, which is up 35% year-over-year, says we're really in good shape from a demand perspective.
Kai von Rumer: Now, Kai, just to give a little call around that, I've had the chance to talk to clients about needs and talk to our team about the work that we're going after. And I would say the demand picture for technology into poor mission is actually accelerating, not slowing down. And so, as Matt said, while it's almost impossible to predict bookings on any given quarter, the demand picture absence significant budget disruption is very strong.
Kai von Rumer: Well, last year you had a .1 book to build, so it was particularly weak. Is that going to be the norm that we get, you know, this very strong second quarter, which we got this year? And then we should look for a very, very weak, you know, near zero Q3, or is there any opportunity that Q3 could be a little bit better, clearly below one, but better. You know, I think that I'll start, I'm sure Matt will want to do a call around this one, but I think on the first of all, I think that this quarter, you know, the last quarter of the government fiscal year, the second quarter for Buzal, and it's always the strongest, because of just the way in which outlets happen and the way of money is obligated through the budgeting cycle.
Kai von Rumer: So that has always been the case that continues to be. As you've seen over the last few years, the rest of the quarters are actually less predictable because they're predicated on when will these big jobs get awarded, and that process really changes every year. It is really, I would not take last year and translate into this year directly. As Matt said, there's a lot on the pipeline. It is over 26 billion dollars in the pipeline.
Kai von Rumer: So, could some of those things hit this year? We would at this quarter, we would like them to. But either way, we certainly have the backlog necessary to continue to grow. We have the people here to continue to grow and we have the momentum to get that done. Yeah, Kai, if you look at our leading indicators, and by historical measures, we're in as good a shape as we've almost ever been right on the demand side.
Kai von Rumer: We talked about not just the backlog in the book to bill, which is looking backwards, but the proposal pipeline looking forward on the supply side. You know, at the end of the quarter are consulting or client staffing staff headcount was up over 11% more than 4% sequined for the first half of the year, which puts us ahead of the pace that we've typically wanted to be in of 3 to 5% headcount growth.
Kai von Rumer: And we're managing the business really well, but there's a lot of volatility out there, right? And I think that's, that's what we're preparing for. And that's what we built in the 2 to 4 week assumption of a partial government shutdown. Just to quantify that for you, you know, we said the last shutdown of this scale, which was in 2018 to 2019. Cost us about 2 to 3 cents at the bottom line.
Kai von Rumer: But that shutdown remember occurred over the holidays, it was limited in scope, and was at a time when we were both smaller in size in aggregate, and we had a meaningful amount of time to make up lost billing hours, which we did. So we're assuming the impact this time will be 3 to 4 times that. You know, so again, put that in the context of our overall guidance, we raised top line 4% adjusted to 4% and EPS 3% plus the government shutdown assumption. We're just in a great spot.
Horacio Rozanski: Terrific. Thank you very much. Thank you.
Operator: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced to withdraw your question, please press star 11 again.
Matthew Akers: Our next question comes from the line of math actors from Wells Fargo. Hi, good morning. This is Eric Ken from Matt. Just wondering if you see the head count kind of shifted with focus box running off. Maybe that's around end of September. I think it's about like 400 people on the program. Do you know like how many you were able to retain and shift to other work and how many are lost?
Matthew Akers: Yeah, we've almost completely absorbed, as I said, my prepared remarks, the impact of that contract loss. There's just a small team left doing mission critical work on that contract from Brudalen. We said we have about 400 people on that contract. We kept more than half and redeployed many of them to mission critical activities, but pulling up. We said we wanted to go ahead count 3 to 5% this year. We're at 4% and I really encourage by the numbers I'm seeing even for this quarter. So that's why I said in the script, we're likely to exceed the 3 to 5% range. And historically, that's what we need to maintain our organic growth objectives. Okay, thanks.
Matthew Calderone: I guess one more on the section 174 with the updated guidance from IRS. Do you see an impact from that going forward? No. Okay, thanks. Thank you.
Horacio Rozanski: At this time, I would now like to turn the conference back over to Horacio Rozanski for closing remarks. Thank you. Thank you all for your questions and for being here this morning. I hope Matt and I successfully convey how excited we are about both the momentum and the resilience we see in our business and also of the opportunities that are ahead for our people, for our clients and for all of our investors.
Horacio Rozanski: If you'll indulge me for a moment, I'd like to close the call by calling out our annual Innovation Publication called Velocity, which is now available on our website. And this year is fully centered on artificial intelligence. And this here's Velocity. You get to hear from Booz Allen experts and from our industry partners on the ubiquity of AI. It's transformative capabilities, how to harness it for good, and a lot more. So I hope you'll enjoy reading it. And we would love to hear your feedback. And on that note, thank you again for joining. And have a great day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.