Q3 2024 Booz Allen Hamilton Holding Corp Earnings Call

Good morning, and thank you for standing by and welcome to Booz Allen Hamilton's earnings call covering third quarter fiscal year 2024 results.

This time all participants are in a listen only mode. Later, there will be an opportunity for questions I'll now like to turn the call over to Mr. Nathan Rutledge.

Brian Ruttenbur: Thank you good morning, and thank you for joining us for Booz Allen's third quarter fiscal year 2024 earnings call.

Brian Ruttenbur: You've had an opportunity to read the press release, we issued earlier this morning.

Brian Ruttenbur: We have also provided presentation slides on our website and are now on slide two.

Brian Ruttenbur: With me today to talk about our business and financial results Arent, Russia, Rozanski, our president and Chief Executive Officer and.

And Matt Calderon, Executive Vice President and Chief Financial Officer.

Matt Akers: 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.

Matt Akers: Certainties and other factors that may cause our actual results to differ materially from forecasted results discussed in our SEC filings. It on this call.

All forward looking statements are expressly qualified in their entirety by the foregoing cautionary statements and speak only as of the date made.

Matt Akers: 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.

Matt Akers: During today's call. We will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.

Matt Akers: We include an explanation of adjustments and other reconciliations for non-GAAP measures to the most.

Matt Akers: Comparable GAAP measures in our third quarter fiscal year 2024 earnings release and slides.

Matt Akers: It is now my pleasure to turn the call over to our CEO and President Russia Rozanski, we are now on slide four.

Horacio D. Rozanski: Thank you Nathan.

Horacio D. Rozanski: And good morning, everyone. Thank you for joining us.

Matt Akers: Matt and I are very excited to share excellent financial results with you today.

Matt Akers: Booz Allen's record breaking fiscal year continues.

Matt Akers: Our best first half has now extended into our strongest three quarter. So growth since our firm went public in 2010.

Matt Akers: I am so proud of our team.

Matt Akers: Thanks to their efforts, we have achieved the strategic and operational momentum we aim for under our bold strategy.

Matt Akers: Our financial performance has been remarkably consistent.

Matt Akers: This quarter, we continue to deliver industry, leading double digit organic revenue growth.

Matt Akers: We remain ahead of pace on our multiyear investment theses and again expect to exceed our guidance for the fiscal year.

Matt Akers: Given the continuing uncertainty in the market.

Matt Akers: From ongoing budget debates geopolitical conflicts and the upcoming election, our clear focus remains to accelerate momentum and increase resiliency.

Matt Akers: Across our institution.

Matt will take you through the full details of the quarter and our outlook for the rest of the fiscal year.

Matt Akers: For the remainder of my remarks, I will focus on putting our continued success in the context of our bolt strategy.

Matt Akers: Let me begin with a little historical context.

Matt Akers: 2024 is booz Allen's 110th year.

Matt Akers: Since our earliest days, we have embraced continual transformation as an imperative for relevance in the market and long term growth.

Matt Akers: From World War II.

Matt Akers: The Apollo missions to the advent of digital government Booz Allen anticipated. The next waves of change early and transform to meet the needs of each moment.

Matt Akers: Our goal has always been to.

Matt Akers: To stay a step ahead of our clients' requirements and help them drive their own transformation.

Matt Akers: Our firm has outperformed the market for decades because of four primary differentiators.

Matt Akers: Our ability to anticipate and adapt.

Matt Akers: Our capacity to invest and innovate.

Matt Akers: Our position on <unk>.

Speaker Change: He called National emissions.

Speaker Change: And most important.

Speaker Change: Most important our exceptional talent.

Speaker Change: All of these factors hold true today.

Speaker Change: The current iteration of our century long transformation journey is called vault, which stands for velocity leadership and technology.

Speaker Change: We have been implementing this program for the past 24 months.

Speaker Change: The strategic aim, so fault or to get faster and elevate our client impact, which in turn accelerate our growth and drive exceptional shareholder value.

Speaker Change: Our third quarter results demonstrate a few important things about our strategic progress.

Speaker Change: First.

Speaker Change: We have built resilience and driven momentum into the business, even as the external environment remains dynamic and uncertain.

Speaker Change: Second we have strengthened our leadership position in the market how should we transform missions of national importance with emerging technologies.

Speaker Change: And third.

We are gaining speed and efficiency in how we operate and grow our workforce.

Speaker Change: In sum.

Speaker Change: Our volt strategy is working.

Speaker Change: As examples let's look at key missions, we are transforming the amazing people who do this work.

Speaker Change: First China.

Matt Akers: The National Defense strategy described China as Dod's pacing challenge.

Matt Akers: Why is the top priorities to strengthen the USD taryn submission.

Matt Akers: This year geographic scale of this mission, which encompasses nearly half of the Earth's surface creates.

Matt Akers: Creates urgency and unique complexity for our clients.

Matt Akers: Through years of investments in the right technologies talent and partnerships, we are more prepared than ever to help our clients translate urgency into speed at scale.

Matt Akers: Today, we have more than 600 employees in the Indo Pacific region working across various aspects of this mission.

Matt Akers: We have also forward deployed our innovation ecosystem.

Matt Akers: This provides our clients with faster more direct access to emerging technologies.

Our client focus is on accelerating readiness supporting allies, and partners and bringing AI and cyber to key mission priorities.

Matt Akers: While there is much work to do we are already having impact.

A relevant public example is our recent win of a small but strategic contract to build a private <unk> network for the United States Navy in Guam.

Brian Ruttenbur: This work will leverage our early investments and expertise in <unk> edge.

Brian Ruttenbur: Hedge computing and zero trust to support secure communications operations and logistics on the islands.

Finally, I'll note that our first focus on the pacing challenge is not limited to our growing presence in the Asia Pacific.

Brian Ruttenbur: Leveraging our lessons from Ukraine, and other conflicts we are considering how to tailor our solutions across all of our sectors.

Speaker Change: And given the scale and complexity of the China Mission. We are also engaging our network of technology partners to mountain all of nation approach.

Matt Akers: In short we are deeply committed to helping our clients defend U S interests.

Matt Akers: Because as you said long term priority for our nation. It will be a long term priority for Booz Allen.

Matt Akers: Pivoting next to our health business.

Matt Akers: For more than a decade Booz Allen has been at the heart of many federal healthcare transformations.

Matt Akers: For example, we have worked to modernize garam benefits delivery for our veterans implement health reform and accelerate our life saving drugs are safely brought to market.

Matt Akers: Through the strength of artwork across these and many other missions.

Matt Akers: <unk> portfolio has crossed the 2 billion dollar annual revenue thresholds.

Matt Akers: Today building on that success, we are poised to help our country transform the future of public health.

Matt Akers: Our recent win of the data and with organization and accelerated our contract or the Mac at this.

Matt Akers: Centers for disease control, you said tremendous opportunity to improve data interoperability across the public health ecosystem.

Matt Akers: Our year, so innovating at the VA and our early investments in cloud machine learning gender or if you have AI and cyber positioned us well to win this work.

Matt Akers: Now <unk> is playing an integral role in helping to CVC unlock the power of data at scale. So our country can better prepare for and respond to critical public health emergencies.

Matt Akers: I have just described a small sample of the work we do at the center of the missions that matter most.

More broadly we are leading the way in redefining intelligence collection implementing zero trust and preparing for a post quantum world.

Matt Akers: We are also focused on accelerating U S space superiority by harnessing data to speed decision, making and mission outcomes.

Matt Akers: To that end, we recently made the venture investment in a company called Lv, though to leverage their leading edge imagery capabilities as new data collection sources for our clients.

Matt Akers: The strategic importance of all of these missions, coupled with our outstanding execution build resilience in our business.

And our relentless implementation of volt drives our momentum.

Today, we are exactly where we want to be as we leave our purpose to empower people to change the world.

Matt Akers: Because more than anything our core we are a company of purpose driven professionals.

Matt Akers: People joined Booz Allen because they have a passion for doing world changing work.

Matt Akers: People stay at Booz Allen, because we invest in them and provide unique opportunities to solve tough challenges inside essential missions.

Matt Akers: Simply put our people catalyze the potential of Booz Allen.

Matt Akers: So my final point and our success with vault <unk> to a record headcount growth over the past six quarters.

Matt Akers: This is the result of intentional and focused efforts of our recruiting and business leaders to transform our talent acquisition processes.

Matt Akers: We are hiring onboarding and moving our talent to the missions. They are passionate about faster than at any time in our history.

Matt Akers: These process improvements combined with our increased investment in talent create the conditions to grow our head count that speed.

Matt Akers: This is crucial to accelerating our overall growth, which allows us to continue to invest and outpace the market.

Matt Akers: It is incredibly gratifying to see how vault is fully what went into our business and evidenced in the results we share today.

Matt Akers: We recognized that the hiring market and other macroeconomic conditions have improved in recent months.

Matt Akers: Even in a strong market.

Matt Akers: Our outperformance head count gains and new opportunity capture or the outcome of the purposeful empowerment of our leaders to take action in alignment with our strategy.

And with that Matt.

I'll turn the call over to you.

Matt Akers: Thank you Raphael and thanks to all of you for joining our call today.

Matt Akers: I will start by saying that I'm incredibly proud of the financial performance, we are reporting today.

Matt Akers: Our third quarter results are further proof that our bold strategy is working.

Matt Akers: Booz Allen continues to build momentum.

Matt Akers: We are investing in cutting edge technologies.

Matt Akers: Hiring the right people building critical partnerships and winning work at scale.

Matt Akers: These strengths are the source of confidence and resilience in our business.

Matt Akers: As Roger noted we've now recorded the strongest first three quarters of our fiscal year since our IPO.

Matt Akers: Our performance has been remarkably consistent.

Matt Akers: On the supply side on the demand side and in how we are operating the business.

Roger Smith: Based on this performance. We are ahead of pace against our three year investment thesis and we are especially pleased to raise our fiscal year 2024 guidance again today.

Roger Smith: Now, let's dive into the details please turn to slide six.

Roger Smith: Total revenue for the quarter grew 12, 9% year over year to approximately $2 6 billion.

Organic revenue was up 12, 8% year over year and.

Roger Smith: And revenue, excluding billable expenses increased 13% year over year to approximately one 8 billion.

Roger Smith: This exceptional top line performance was fueled by our strategic position in the market robust demand for our services and solutions and our ability to attract and retain talent.

Roger Smith: Taking it now sector by sector.

Roger Smith: Our defense business continues to excel.

Roger Smith: Revenue was up roughly 17% compared to the third quarter of the last fiscal year.

Roger Smith: This performance is strong and broad based.

Our team remains focused on accelerating access to data and decision, making tools and providing next generation solutions to war fighters on critical missions across the globe.

Roger Smith: Our civil business is also growing fast.

Roger Smith: Up roughly 18% year over year with double digit growth across the portfolio.

Roger Smith: Booz Allen is unleashing the power of data to.

Roger Smith: To achieve better and faster mission outcomes for our civil government clients.

Roger Smith: From health and life Sciences.

Roger Smith: To infrastructure and climate.

Roger Smith: As anticipated the pace of growth in our intelligence business slowed in the third quarter.

Roger Smith: Revenue declined 2% year over year.

Roger Smith: Our <unk> leaders are winning exciting new work in key mission areas and have had success retaining critical talent.

Roger Smith: People, who can now support cyber missions across the firm.

Roger Smith: This business is on a strong vector for the future.

Roger Smith: Finally, our global commercial business, which represented 2% of revenue in the quarter was down about 22% year over year.

Roger Smith: This reflects divestitures disclosed last fiscal year and overall softness in the commercial cyber consulting market.

Operator: Good morning, and thank you for standing by, and welcome to Booth Allen Hamilton's earnings call covering the third quarter fiscal year 2024 results. At this time, all participants are in a listen only mode.

Roger Smith: Moving onto bookings on slide seven.

Roger Smith: The award environment is strong and our market leaders are doing an outstanding job shaping and winning work consistent with our volt strategy.

Operator: Later, there will be an opportunity for questions. I'd now like to turn the call over to Mr. Nathan Rutledge. Thank you.

Roger Smith: Despite uncertainty about the near and long term budget environment, our government clients and the people of Booz Allen remained laser focused on meeting the country's urgent mission needs.

Brian Ruttenbur: Good morning, and thank you for joining us for Booz Allen's third quarter fiscal year 2024 earnings call. We hope you've had an opportunity to read the press release we issued earlier this morning. We have also provided presentation slides on our website, and we 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, our Executive Vice President and Chief Financial Officer. As shown in the disclaimer on slide 3, please keep in mind that some of the items we will discuss this morning are forward-looking and may relate to future events, future financial performance, and involve known and unknown risks. Thank you. All forward-looking statements are expressly qualified in their entirety by the foregoing 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.

This quarter net bookings totaled nearly $1 9 billion.

Roger Smith: Our third quarter book to Bill was 0.72 times, our best third quarter book to Bill since fiscal year 2018.

Roger Smith: Our trailing 12 month book to Bill was 141 times, well above our trailing five year average.

Roger Smith: Total backlog as of December 31.

Roger Smith: Stands at $34 3 billion.

Up 14, 2% year over year.

Roger Smith: Funded backlog grew 15, 4% to $5 2 billion.

Roger Smith: Unfunded backlog declined nine 2% to $9 2 billion and priced options were up 29, 3% to $19 9 billion.

Roger Smith: In some demand is strong.

Roger Smith: We have a solid foundation to remain the industry's organic growth leader.

Roger Smith: Turning now to head count.

Brian Ruttenbur: 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 for non-GAAP measures. The most comparable gap measures in our third quarter fiscal year 2024 earnings release in FIBES. It is now my pleasure to turn the call over to our CEO and President, Horacio Rozanski. We are now on number five. Thank you, Nathan. And good morning, everyone.

Roger Smith: Booz Allen includes out calendar year 2023, with nearly 34000 people.

Total head count is up eight 6% year over year.

And clients that head count is up nine 2%.

Roger Smith: We efficiently deploy our people on contract and ensure they are empowered to succeed.

Roger Smith: This people centric culture, including continuous investments in our employees.

Their commitment to Booz Allen.

Roger Smith: And in turn makes them ambassadors to future talent.

Thank you for joining us today. Matt and I are very excited to share excellent financial results with you today. Booz Allen's record-breaking fiscal year continues. Our best first half has now extended into our strongest three quarters of growth since our firm went public in 2010. I am so proud of our team.

Roger Smith: Since the start of the fiscal year client staff has increased more than 6%.

Brian Ruttenbur: Exceeding our expectations as well as the 3% to 5% target we had set for the year.

Brian Ruttenbur: This level of client staff growth combined with our healthy bookings.

Brian Ruttenbur: Positions us well for the next fiscal year.

Brian Ruttenbur: Moving now to the bottom line we.

Brian Ruttenbur: We earned $291 million and adjusted EBITDA in the third quarter.

Thanks to their efforts, we have achieved the strategic and operational momentum we aim for under our Volt strategy. And our financial performance has been remarkably consistent. This quarter, we continue to deliver industry-leading, double-digit organic revenue growth. We remain ahead of pace on our multi-year investment. And again, we expect to exceed our guidance for the fiscal year, given the continuing uncertainty in the market. From ongoing budget debates, geopolitical conflicts, and the upcoming election, our clear focus remains to accelerate momentum and increase resilience across our institutions. Matt will take you through the full details of the quarter and our outlook for the rest of the fiscal year. But I will begin with a little historical comment. 2024 is Booz Allen's 110th year in business.

Brian Ruttenbur: This is $19, 1% higher than the third quarter last fiscal year.

Brian Ruttenbur: Our adjusted EBITDA margin of 11, 3% was roughly 60 basis points higher than for the same period a year ago.

Brian Ruttenbur: As you May recall, we manage the business on an annual basis.

We indicated last quarter that we anticipated a somewhat flatter quarterly margin profile than in recent years.

Brian Ruttenbur: This pattern played out as we expected in the third quarter.

Brian Ruttenbur: Booz Allen pursues complex work that sits at the center of our clients' mission and at the top of the technical stack.

Brian Ruttenbur: This requires us to invest ahead of the market.

Brian Ruttenbur: The quality of our work coupled with our ability to get scale out of the business, even as we ramp up investment.

Brian Ruttenbur: Allows us to consistently deliver superior financial results.

Brian Ruttenbur: Third quarter net income was $146 million.

Brian Ruttenbur: The year over year increase of 374, 6% and net income is primarily a result of the legal reserve of $124 million recorded in the third quarter of last fiscal year.

Since our earliest days, we have embraced continual transformation as an imperative for relevance in the market and long-term growth, from World War II to Apollo to the advent of digital government. Booz Allen anticipated the next waves of change early and transformed to meet the needs of its clients. Our goal has always been to stay a step ahead of our clients' requirements and help them drive their own transformation. Our firm has outperformed the market for decades because of four primary differentiators: our ability to anticipate and adapt, our capacity to invest and innovate, our position on critical national missions, and most importantly, our exceptional talent. All these factors hold true today.

Brian Ruttenbur: This is partially offset by an increase in our provision for income taxes associated with the reversal of an uncertain tax position related to section 174.

Brian Ruttenbur: Adjusted net income increased 29, 4% year over year to $184 million.

Brian Ruttenbur: This excludes the impact of the legal reserve and the increase in our provision for income taxes.

Brian Ruttenbur: Due to the same factors diluted earnings per share grew 382, 6% year over year to $1 11.

Brian Ruttenbur: And adjusted diluted earnings per share increased 31, 8% year over year to $1 41.

Moving now to the balance sheet, we ended the third quarter with $602 million of cash on hand.

Brian Ruttenbur: Free cash flow for the quarter was $211 million, the result of $234 million of cash from operating activities.

Matt Akers: $23 million of Capex.

The current iteration of our century-long transformation journey is called Volt, which stands for Velocity, Leadership, and Technology. We have been implementing this program for the past 24 months. The strategic aims of VOLT are to get faster and elevate our client impact, which in turn will accelerate our growth and drive exceptional shareholder value. Our third quarter results demonstrate a few important things about our strategic program. First,

Matt Akers: Collections were strong for the quarter and included some payments we expected to receive in the fourth quarter.

Cash outflows remain consistent with our outsized growth and sizeable investments in our people and capabilities.

Matt Akers: Our net debt at the end of the third quarter was approximately $2 8 billion.

Matt Akers: And our net leverage ratio was approximately two five times adjusted EBITDA for the trailing 12 months.

Matt Akers: Turning to capital deployment on slide eight.

We have built resilience and driven momentum into the business, even as the external environment remains dynamic and uncertain. Second, we have strengthened our leadership position in the market as we transform missions of national importance with emerging technologies.

Matt Akers: We returned close to $156 million of capital to shareholders in the third quarter.

This included approximately $94 million in share repurchases at an average price of $123 52 per share.

Matt Akers: And $62 million and quarterly cash dividends.

We have gained speed and efficiency in how we operate and grow our work in some areas. Our whole strategy is work. As-salamu alaykum wa rahmatullahi wa barakatuh.

Today I am pleased to announce that our board has approved a <unk> increase to our quarterly cash dividend.

Roger Smith: This dividend of <unk> 51 per share will be payable on March 1st to stockholders of record.

Let's look at two key missions we are transforming and at the amazing people who do this work. PRESS CHINA The National Defense Strategy describes China as DOD's pacing challenge, and it outlines the top priorities to strengthen the U.S. deterrence mission. The sheer geographic scale of this mission, which encompasses nearly half of the Earth's surface, creates both urgency and unique complexity for our clients. Through years of investment in the right technologies, talent, and partnerships, we are more prepared than ever to help our clients translate urgency into speed at scale. Today, we have more than 600 employees in the Indo-Pacific region working on various aspects of this mission.

Roger Smith: As at February 12.

Roger Smith: Now for a look ahead.

On our last call, we updated our full year guidance to incorporate both the momentum we had built and a strong possibility of a two to four week government shutdown.

Roger Smith: Our revised guidance reflects the strength of our third quarter and the continued momentum of the business.

Roger Smith: While there is still uncertainty about government funding, we now believe that our multi week government shutdown is significantly less likely to occur in our current fiscal year.

Roger Smith: Thus, we are no longer including a material shutdown related contingency in our guidance.

Roger Smith: Let me now take you through our updated fiscal year 2024 guidance. Please.

Roger Smith: Please turn to slide nine.

Roger Smith: At the top line, we now expect revenue growth of 14% to 15%.

We have also forward deployed our innovation ecosystem. This provides our clients with faster, more direct access to emerging technologies. Our client focus is on accelerated readiness, supporting allies and partners, and bringing AI and cyber to key mission priorities. While there is much work to do, we are already having a. A relevant public example is our recent win of a small but strategic contract to build a private 5G network for the United States Navy in Guam. This work will leverage our early investments and expertise in 5G, Edge Computing, and Zero Trust to support secure communications, operations, and logistics on the island.

Roger Smith: 13% to 14% of which will be organic.

Roger Smith: We are raising our adjusted EBITDA guidance to between 1.1, $5 5 billion and $1 175 billion.

Roger Smith: Which equates to approximately 14% to 16% growth year over year.

Roger Smith: This implies an adjusted EBITDA margin of around 11%.

Roger Smith: We are also increasing our <unk> guidance to a range of $5 25.

Roger Smith: To $5 40 per share.

Roger Smith: This is driven by the increase in EBITDA.

Roger Smith: And a modest decrease in our <unk> tax rate, which we now expect to be between 22% to 23%.

Finally, I'll note that our first focus on the pacing challenge is not limited to our growing presence in the Indo-Pacific. Leveraging our lessons from Ukraine and other countries, we are considering how to tailor our solutions across all of our And given the scale and complexity of the China mission, we are also engaging our network of technology partners to mount an all-of-nations, In short, we are deeply committed to helping our clients defend the U.S. Because this is a long-term priority for our nation, it will be a long-term priority for Booz Allen, pivoting next to our health. For more than a decade, Booz Allen has been at the heart of many federal healthcare transformations.

Roger Smith: We are raising our guidance for net cash provided by operating activities to be between $200 million and $275 million.

Roger Smith: This range includes a roughly $25 million increase in our estimated fiscal year 2020 for cash taxes related to section 174.

Roger Smith: And finally, we still expect capex of roughly $85 million.

Roger Smith: And we now expect free cash flow to be in the range of $115 million to $190 million.

Roger Smith: In closing our business is performing exceptionally well.

Roger Smith: We have just delivered the best three quarters since Booz Allen's IPO with remarkably consistent performance, even in the midst of geopolitical and macroeconomic uncertainties.

Roger Smith: This is a real testament to the quality of our leadership and the power of our volt strategy.

For example, we have worked to modernize care and benefits delivery for our veterans, implement health reform, and accelerate how life-saving drugs are safely brought to market. Through the strength of our work across these and many other areas, our health portfolio has crossed the $2 billion annual revenue threshold. Today, building on that success, we are poised to help our country transform the future of public health. A recent win of the Data Modernization Accelerator Contract, or DMACC, at the Centers for Disease Control is a tremendous opportunity to improve data interoperability across the public health economy.

Roger Smith: Our firm is on a sustainable quality growth path.

Roger Smith: Energy at Booz Allen is palpable.

Roger Smith: Our people are excited about the work they do.

Roger Smith: The impact they have.

Roger Smith: The strong performance, we have delivered and the many opportunities that lie ahead.

Roger Smith: With that I'll.

Roger Smith: Operator, let's open the line for questions.

Thank you and as a reminder to ask a question simply press star one one to get into Q1 moment for our first question.

Speaker Change: It comes from the line of Sheila <unk> with Jefferies. Please proceed.

Speaker Change: Good morning, Good morning, Raphael, Matt phenomenal quarter, good morning, Sheila Thank you.

Our years of innovating at the VA and our early investments in cloud, machine learning, generative AI, and cyber positioned us well to win this award. Now Booz Allen is playing an integral role in helping the CDC unlock the power of data at scale so that our country can better prepare for and respond to critical public health emergencies. I've just described a small sample of the work we do at the center of the Missions That Matter movement. But more broadly, we are leading the way in redefining intelligence. Implementing Zero Trust. I'm preparing for a post-quantum world.

Sheila Jefferies: Really amazing just wanted to maybe think about the growth trajectory.

In terms of my question starting with dental.

Sheila Jefferies: Double digit growth for eight quarters now.

Sheila Jefferies: Can you give us a little bit more detail about what's driving that and then how much of that is related to public health and the <unk> program.

Sheila Jefferies: This is driven in the next phase of that program.

Sheila Jefferies: Hello.

Sheila Jefferies: I take that one.

Sheila Jefferies: Great headlined by the way, but let me start by maybe framing the whole performance and then I'll be happy to go down into civil.

Sheila Jefferies: The firm wide level.

Sheila Jefferies: These have been the best three quarters and we're on track for the best fiscal year since going public in 2010 and frankly.

To that end, we recently made a venture investment in a company called Albedo to leverage their leading-edge imagery capabilities as new data collection sources for our clients, considering the strategic importance of all these missions. Coupled with our outstanding execution, build resilience in us, and our relentless implementation of VOLT drives our momentum. Today, we are exactly where we want to be as we live our purpose to empower people to change the world.

Sheila Jefferies: Go back further than that and.

Sheila Jefferies: This is as good as I've ever seen.

Sheila Jefferies: And the performance has been remarkably consistent and if anything we've been positively surprised by the strength of our talent acquisition and retention.

Program, which really is you know fuels our revenue is available which is the most important part.

Sheila Jefferies: It does feel like I said organic growth leader, we're in this virtual circle of excellent work.

Sheila Jefferies: Allowing us to capture exceptional talent.

Sheila Jefferies: Which deliver great results for our clients, which deliver great resource for our shareholders, which allow us to invest in the next wave of technologies.

Sheila Jefferies: And so on and so forth so.

Because, more than anything, at our core, we are a company of purpose-driven professionals. People join Booz Allen because they have a passion for doing world-changing work. People stay at Booz Allen because we invest in them and provide unique opportunities to solve tough challenges inside the central mission. Simply put, our people catalyze the potential of Booz Allen.

Sheila Jefferies: In short volt, which is our commitment to strategy is working.

Sheila Jefferies: And we are creating resilience and momentum in the business, even as we see the reality of an uncertain budget.

Sheila Jefferies: And funding and political season ahead.

Sheila Jefferies: Ahead of us and so really at the firm wide. So let me talk about civil and I'll come back.

Our civil business has been a star in our portfolio for US you said <unk>.

Sheila Jefferies: Multiple years.

So my final point in our success with Volt connects to our record headcount growth over the past six quarters. This is the result of intentional and focused efforts by our recruiting and business leaders to transform our talent acquisition process. We are hiring, onboarding, and moving our talent to the missions they are passionate about faster than at any time in our history. These processes...

The early years of that amazing Ron It really was driven around public health and some specific.

Sheila Jefferies: Agencies.

Sheila Jefferies: In there, but really as we look at the business now.

Sheila Jefferies: We are a leader in digital transformation.

Sheila Jefferies: We're a leader in cyber Andi and AI and that is broad based across the entire portfolio. So while as I said in our health business now has crossed the.

Combined with our increased investment in talent, this creates the conditions to grow our headcount at speed. This is crucial to accelerating our overall growth, which allows us to continue to invest and outpace the market. It is incredibly gratifying to see how Volt is fully woven into our business and evident in the results we share today. We recognize that the hiring market and other macroeconomic conditions have improved in recent months, but even in a strong market, our outperform, Headcount gains, and new opportunity capture are the outcome of the purposeful empowerment of our leaders to take action in alignment with our strategy. And with that, Matt, I'll turn the call over to you.

Sheila Jefferies: $2 billion, Mark and certainly the larger part of this business all elements from citizen services to law enforcement. It's all really working together are coming together to produce the results.

Sheila Jefferies: You see in.

Sheila Jefferies: You didn't ask but the same is true in defense and we really see real momentum on growth opportunity also building.

Sheila Jefferies: In our National Security business, So I guess, maybe to close out.

Mark Zuckerberg: Little bit on and bring it all together.

Mark Zuckerberg: <unk> hundred 10 years young is Booz Allen this business is as vibrant today as it's ever been.

Mark Zuckerberg: Thank you for that and I think we'd like the panel.

Mark Zuckerberg: Jeremy just another one for you.

Mark Zuckerberg: Related to the top line, but your margins are question.

Ahead of your long term targets, essentially and Theres been a lot of discussions about the government.

Contracting differently. So do you think the government is paying a premium certainly is just given the service offering.

Matt Akers: Thank you, Horacio, and thanks to all of you for joining our call. I will start by saying that I am incredibly proud of the financial performance we are reporting today. Our third quarter results are further proof that our bullet strategy is working and Booz Allen continues to build momentum. We are investing in cutting-edge technology, hiring the right people, building critical partnerships, and winning work at scale. These strengths are the source of confidence and resilience in our business.

Mark Zuckerberg: Yes, and no I mean, I do think that that we and we've done this for yes, we operate at the top of the market in terms of the capabilities that are required or the talent, we need to bring the investment we need to make and so that will over time.

Mark Zuckerberg: Create higher economics.

Mark Zuckerberg: That is not true whenever it procurement for sure about it on average there is some truth to that statement I do think that the reason on the margin front that we're ahead.

Matt Akers: As Horacio noted, we have now recorded the strongest first three quarters of a fiscal year since our IPO. Our performance has been remarkably strong, on the supply side, on the demand side, and in how we are operating. Based on this performance, we are ahead of pace against our three-year investment thesis. And we are especially raising our fiscal year 2024 guidance again today. Now let's dive into the details. Please turn the slides.

Mark Zuckerberg: Based on our three year investment thesis is that we knew this was going to be a heavy investment period.

Mark Zuckerberg: I don't think we fully anticipate it how much efficiency, we could create in the business to be able to invest from inside that efficiency and reinvest in the business from there.

Mark Zuckerberg: This allowed us to preserve.

Mark Zuckerberg: Margins, even as we invest in talent and capabilities and in positions that I think hopefully will fuel the next round of growth.

Matt Akers: Total revenue for the quarter grew 12.9% year-over-year to approximately $2.6 billion. Organic revenue was up 12.8% year over year, and revenue excluding billable expenses increased 13% year over year to approximately $1.8 billion.

Great. Thank you.

Mark Zuckerberg: Okay. Thank you one moment for our next question. Please.

Mark Zuckerberg: Next question comes from the line of Bert <unk> with Stifel. Please proceed.

Mark Zuckerberg: Hey, good morning, and thank you for the questions.

Matt Akers: This exceptional top-line performance was fueled by our strategic position in the market, robust demand for our services and solutions, and our ability to attract and retain elite talent. Going sector by sector, our defense business continues to excel. Revenue was up roughly 17% compared to the third quarter of the last fiscal year.

Mark Zuckerberg: I'm wondering if maybe just good morning.

Mark Zuckerberg: Can you just to follow up on some of your comments there.

Mark Zuckerberg: Around the business positioning and growth.

Mark Zuckerberg: Senior staff head count rise about 10% year over year.

Mark Zuckerberg: Organic growth is now in the teens levels relative to that 5% to 8% longer term expectation.

Roger Smith: As you think about that expectation does that continue to be your view towards how the business should grow over time or is something in your mind be it.

Matt Akers: And this performance is strong and broad. Our team remains focused on accelerating access to data and decision-making tools and providing next-generation solutions to warfighters for critical missions across the globe. Our civil business is also growing, up roughly 18% year-over-year with double-digit growth across the portfolio. Booz Allen is unleashing the power of data to achieve better and faster mission outcomes for our civil government clients in Health and Life Sciences. Infrastructure and Climate, as anticipated. However, the pace of growth in our intelligence business slowed in the third quarter. Revenue declined 2% year over year.

Roger Smith: Or the geopolitical risk backdrop accelerated how you think those can grow over the medium and long term.

Roger Smith: I think what Youre seeing right now as I said is the strength of our talent acquisition process the ability to make investments in people and the culture that keeps people here coupled with a good.

Roger Smith: Environment out there and its unique positioning that we have around bringing technology.

Roger Smith: <unk> I don't think that is a one quarter or two quarter or three quarter deal. I think this is something that if you extend it back it goes back at least a decade or more and if you extend it forward I think this unique positioning.

Matt Akers: Our Intel leaders are winning exciting new work in key mission areas and have had success retaining critical talent, people who can now support cyber missions across. This business is on a strong vector. Finally, our global commercial business, which represented 2% of revenue in the quarter, was down about 22% year-over-year. This reflects divestitures disclosed last fiscal year and overall softness in commercial cyber consulting. Moving on to bookings on slide seven. The award environment is strong, and our market leaders are doing an outstanding job shaping and winning work consistent with our Volt strategy despite uncertainty about the near and long-term budget environment. Our government clients and the people of Brazil remain laser-focused on meeting the country's urgent mission needs. This quarter, net bookings totaled nearly $1.9 billion.

Mark Zuckerberg: Is going to continue to allow us to outperform the market.

Mark Zuckerberg: That leads to the next question, which is what is what is the market and how long will this type of market sustain.

Sustain I mean, I think we are.

Mark Zuckerberg: Honestly very.

Mark Zuckerberg: We appreciate the uncertainty in the funding environment.

As you know running out in March.

Mark Zuckerberg: Election year political season.

Mark Zuckerberg: That that is going to add uncertainty.

Mark Zuckerberg: To all of these and we're watching that closely one thing that is different this time than we've seen in the last couple of years.

Mark Zuckerberg: Yes, typically when you have this level of uncertainty.

Mark Zuckerberg: Clients begin to pull back early because they are worried about the run rate.

Mark Zuckerberg: Post CR and into the future, we're not seeing that.

Mark Zuckerberg: Should we be seeing our clients be very focused on mission very focus on investing in technology to bring to mission and that is driving our growth today. Obviously, it's for the sake of Booz Allen, we want that to continue but I think I did for the sake of the country. This is a good thing.

Matt Akers: Our third quarter book-to-bill was 0.72 times, our best third quarter book-to-bill since fiscal year 2018. Our trailing 12-month book-to-bill was $1.41 billion, well above our trailing five-year average. Total backlog as of December 31st stands at $34.3 billion.

Mark Zuckerberg: Got it okay. Thanks, Thanks for IPO and Matt sure.

Mark Zuckerberg: Hello up for you on the.

Matt Akers: The capital side of things you mentioned your net leverage now at two five times on a trailing basis. If we look at that chart that you highlighted in the earnings presentation, you've been pretty balanced in how you've been allocating capital over the last couple of years.

Matt Akers: Top 14.2% year-over-year. Funded backlog grew 15.4% to $5.2 billion. Unfunded backlog declined 9.2% to 9.2 billion dollars. The price options were up 29.3% to $19.9 billion.

We've been starting to hear indications the M&A market is maybe getting a little better in terms of where seller expectations are clearly where interest rates are going.

Matt Akers: As you think about M&A, perhaps becoming a larger share of that capital allocation strategy can you just talk about what you would look for an M&A and what you're not doing today that would be of interest to grow into inorganically.

Matt Akers: In sum, demand is strong. We have a solid foundation to remain the industry's organic growth. Turning now to headcount... Booz Allen closed out calendar year 2023 with nearly $34,000. Total headcount is up 8.6% year-over-year, and client staff headcount is up 9.2%. We efficiently deploy our people on contracts and ensure they are empowered. This people-centric culture, including continuous investments in our employees, furthers their commitment to Booz Allen and, in turn, makes them ambassadors for future talent. Since the start of the fiscal year, client staff has increased more than 6%, exceeding our expectations, as well as the 3% to 5% target we had set for the year. This level of client-staff growth, combined with our healthy bookings, positions us well for the next fiscal year. Moving now to the bottom, we earned $291 million in adjusted EBITDA in the third quarter.

Bert: Yes, thanks Bert.

First our strategy is changing from a capital deployment and M&A perspective, I think we've always been biased to M&A.

Bert: Over share repo, but the right M&A alright, that's strategic.

Bert: And that really helps us fill a gap in capability of our business model, we don't need to buy for scale.

Bert: <unk> you had mentioned as the numbers indicate.

Bert: We're growing.

Bert: 13% to 14% organically this year, we don't need scale, but we're looking for are.

Unique and oftentimes niche capabilities or business models that will help us accelerate into some of these waves of technology.

Bert: R&D areas, where we think for example outcome based contracting may may emerge. So I've heard the same commentary Bert.

Bert: <unk>.

Bert: We are seeing indications that more assets and potentially assets of scale will come to market.

Bert: <unk>, leading indicator is off as always.

Bert: How many bankers are asking me to lunch.

Bert: My dance card is full particularly.

Bert: Particularly from New York bankers, which typically indicate.

Bert: That more assets of scale coming to market I am not sure that we're seeing yet enough data points to call. It that prices have come down, but I certainly hope they will.

Matt Akers: This is 19.1% higher than the third quarter last year, and just an EBITDA margin of 11.3% is roughly 60 basis points higher than for the same period a year ago. As you may recall, we manage the business on an annual basis. We indicated last year that we anticipated a somewhat flatter quarterly margin profile than in recent years. This pattern played out as we expected in the third quarter.

Bert: Thank you both appreciate it.

Bert: Okay. Thank you one moment for our next question. Please.

Bert: And it comes from the line of Mariana Perez Mora with Bank of America. Please proceed.

Bert: Good morning, everyone.

Well.

Bert: First question.

Bert: My first question is about China. So you mentioned in your prepared remarks all of these like this.

Bert: Okay.

Bert: And the mission and the role that boost filing could play there what are the opportunities to surround that Peter because you recently announced this collaboration with <unk> like how you can play with the primes item blade directly with the government on how large that opportunity could be.

Matt Akers: Booz Allen pursues complex work that sits at the center of a client's mission and at the top of the technical stack. This requires us to invest ahead of the curve. The quality of our work, coupled with our ability to get scale out of the business, even as we ramp up investment, allows us to consistently deliver superior financial results. Third quarter net income was $146 million. The year-over-year increase... 374.6% in net income, is primarily a result of the legal reserve of $124 million recorded in the third quarter of last year. This is partially offset by an increase in our provision for income tax, associated with the reversal of an uncertain tax position related to Section 172. Adjusted net income increased 29.4% year-over-year to $184 million. This excludes the impact of the legal reserve and the increase in our provision for income tax.

Jesse: It's a great question Jesse.

Jesse: Key.

Jesse: Strategic initiative to bring together.

All the information that <unk> complement there would need to operationalize.

Jesse: In.

Jesse: And it is therefore, an important deterrent and deterrent to.

Jesse: To aggression so.

Jesse: We're very committed to it we're a significant part of it we worked closely with the <unk> on a number of initiatives that feed.

Jesse: <unk> <unk> and into other efforts that ultimately may or may not integrate together into it but are all part and parcel of the same thing which is how do you create full domain awareness.

Jesse: How do you create a decision cycle.

Booz Allen: That takes advantage of all of the data available on that accelerates inside of a potential potential adversaries decision cycle that is something that that booz Allen is very good that our understanding of the mission our ecosystem of partners that bring technology at scale and that the at scale part is the crucial part.

Matt Akers: Due to the same fact, the looted earnings per share grew 382.6% year-over-year to $1.11 billion, and adjusted diluted earnings per share increased 31.8% year over year to $1.41. Moving now to the balance, we entered the third quarter with 602 million dollars of cash on hand, and free cash flow for the quarter was 211.

Booz Allen: Here and frankly, our ability to co create with them to build pipelines of solutions are a big part of it.

Booz Allen: And this is really what volt has been all about doing that fast doing that at scale and bringing the right technology and Thats what were focused on it.

Matt Akers: The result of $234 million of cash from operating activities, plus $23 million of capital. Collections were strong, and included some payments we expected to receive in the fourth quarter. Cash outflows remain consistent with our outsized growth and sizable investments in our people and capabilities. Our net debt at the end of the third quarter was approximately $2.8 billion.

Booz Allen: Great. Thanks, so much for the color and then my follow up question just about headcount. So we see all these like great increases in head count on the clients' staffing, but I'm curious if you could discuss a little bit about the clearance is how they are performing and also postponed them you were able to be really flexible.

Brian Ruttenbur: And really I don't know.

Brian Ruttenbur: Hi, Joel to adapt to these like we more remote working.

Matt Akers: And our net leverage ratio was approximately 2.5 times adjusted EBITDA for the trailing 12%. Turning to capital deployment on slide 8, we returned close to $156 million of capital to shareholders in the third quarter. This included approximately $94 million in share purchases at an average price of $123.52 per share and $62 million in quarterly cash.

How are the customer appetite to these like remote remote working solutions.

Brian Ruttenbur: We go back to business normal anymore.

Matt Akers: Yes, Brian it's Matt I'll take it.

I don't think we're seeing any material improvements in the processing of clearances.

Matt Akers: And maybe on the margins in certain areas, but but nothing that.

As material from a firm wide perspective to your second question.

Matt Akers: Today, I am pleased to announce that our board has approved a 4 cent increase in our quarterly cash dividend. This dividend of 51 cents per share will be payable on March 1st to stockholders of record as of February 21st. Now for a look ahead. On our last call, we updated our full-year guidance to incorporate both the momentum we had built and the strong possibility of a two-to-four-week government shutdown. Our revised guidance reflects the strength of our third... and the continued momentum of the business. While there is still uncertainty about government funding, we now believe that a multi-week government shutdown is significantly less likely to occur in our current fiscal year. Thus, we are no longer including a material shutdown-related contingency in our guide.

Matt Akers: We have tried to.

Matt Akers: And our clients.

<unk> advantage of a lot of lessons learned through Covid.

Matt Akers: About remote work about flexibility.

About the opportunities to combine and recombine, how people interact and engage in different ways.

Matt Akers: We learned a lot for example about remote hiring.

Matt Akers: How to make our hiring process more efficiently through COVID-19 and that is <unk>.

Absolutely carried forward through to today. So we are seeing that our clients are more receptive to alternate work arrangements, we really pride ourselves on our flexibility as Rocco said.

Rocco: Undoubtedly the labor market has gotten a little looser.

Rocco: In the last 12 to 18 months and Thats been helpful. But our performance really is intentional and we talk a lot about remarkable consistency.

Rocco: In the business it has been particularly true on the labor side or on the supply side.

Matt Akers: Let me now take you through our updated fiscal year 2024 guide. Please turn to slide 9. On the top line, we now expect revenue growth of 14 to 15 percent, 13 to 14 percent of which will be organic.

Rocco: Tricia is down meaningfully employee satisfaction is up.

Rocco: Which we care a lot about.

Rocco: Our average monthly applications are on pace to double year over year and a lot of that is technology enabled.

Rocco: And we've seen an almost 60% increase in referrals employer for us over the last three years and I think thats in many ways the best indication of.

Matt Akers: We are raising our adjusted EBITDA guide to between 1.155 billion and 1.175 billion dollars, which equates to approximately 14 to 16% growth, year over year. This implies an adjusted EBITDA margin of around 11%. We are also increasing our ADEPT to a range of $5.25 to $5.40 per share. This is driven by the increase in EBITDA and a modest decrease in our ADEPT tax rate, which we now expect to be between 22 to 23. We are raising our guidance for net cash provided by operating activities to be between $200 million and $275 million. This range includes a roughly $25 million increase in our estimated fiscal year 2024 cash tax. Related to Section 178.

Rocco: Our employee value proposition and the fact that our employees are are willing and eager to recommend us as a place to work and employer of choice to their networks. So.

Rocco: The short answer to your question is yes, the longer answer is it requires a lot of work and it's been very intentional.

Rocco: Perfect. Thanks, so much.

Rocco: Thank you.

Rocco: For our next question.

And he comes from the line of Cai von <unk> with Cowen. Please proceed.

Rocco: Yes, thanks, so much so a great quarter.

You talked about I mean.

Rocco: Intel was down not unexpectedly with focus Fox, but you talk about that looking good.

Rocco: Give us some color on what you see where you see it going from here have we passed the bottom.

Rocco: And secondly, you didn't talk much about global commercial and this is the first quarter. It wasn't basically flat to down sequentially had a nice uptick.

Matt Akers: And finally, we still expect CapEx at roughly $85 million, and we now expect free cash to be in the range of $115 million to $190 million. In closing, our business is performing exceptionally well. We have just delivered the best three quarters since Booz Allen's IPO. It's remarkably consistent performance, even in the midst of geopolitical and macroeconomic uncertainty.

Rocco: So are we seeing something of a turn there.

Rocco: I'll start we go a little commercial for a moment and then spend more time on National security if that's okay Cai.

Cai: Our global commercial business. This is really a small part of the portfolio.

Cai: The numbers this.

Cai: This quarter are still reflect.

Cai: Divestitures and softness in the commercial consulting side of the market, which I think is echoed by everything we see what's happening in the consulting industry in general.

Matt Akers: This is a real testament to the quality of our leadership and the power of our Volt strategy. Our firm is on a sustainable quality growth path. Energy at Booz Allen is strong. Our people are excited about the work they do and the impact they have.

Cai: At this point.

Cai: Our incident response business there is <unk>.

Cai: <unk> has accelerated its doing really great and it's an important part.

Cai: Of the offering but we really like about commercial is its connectivity to the rest of our business. If you think about our national cyber platform.

Operator: The strong performance we have delivered and the many opportunities that lie ahead. With that, operator, let's open the line for questions. Thank you. And as a reminder, to ask a question, simply press star 11 to get in the queue. One moment for our first question, which comes from the line of Sheila Kahyaoglu with Jeffreys.

Sheila Jefferies: <unk> look at the entire attack surface of the United States and they don't care, if it's private or public or the intersection and so having this presence that cuts across makes us a valuable partner to our government clients as well.

Booz Allen: To support them.

Booz Allen: Here, but again, it's a small part of the portfolio on their national Security front.

Sheila Kahyaoglu: Please proceed. Good morning. Good morning, Horacio and Matt. A phenomenal quarter. Thank you. It is really amazing. Just wanted to maybe think about the growth trajectory, in terms of my question, starting with civil, you know, double-digit growth for eight quarters now. Can you give us a little bit more detail about what's driving that? And then how much of that is related to public health and the T4NG program? And what is BOOS doing in the next phase of that program? Sheila, I take that one.

Brian Ruttenbur: You explained already why the numbers are what they are this quarter, what we're seeing into the future.

Brian Ruttenbur: He is a business that has repositioned against the true technology side.

Brian Ruttenbur: <unk>.

Brian Ruttenbur: <unk> intelligence.

Sheila Jefferies: There's a lot more AI space.

Sheila Jefferies: Growing a significant part.

Sheila Jefferies: All of our business our clients now look to us to create unique solutions.

Sheila Jefferies: And and they trust us to help them scale.

And a great headline, by the way. But let me start by maybe framing the whole performance, and then I'll be happy to go down into civility. You know, at the firmware level, These have been the best three quarters, and we're on track for the best fiscal year since going public in 2010, and, frankly, I go back further than that, and this is as good as I've ever seen. And the performance has been remarkably consistent, and if anything... We've been positively surprised by the strength of our talent acquisition and retention program, which really, as you know, fuels our revenue available, It does feel like, as an organic growth leader, we're in this virtual circle of excellent work, allowing us to capture exceptional talent, which delivers great results for our clients, which delivers great results for our shareholders, which allows us to invest in the next wave of technologies, and so on and so forth.

Sheila Jefferies: Those solutions, that's we've spoken before that Matt just talked about.

Sheila Jefferies: That business always so you said a little bit rate limited by the speed at which we can clear people or transfer clearances, if they already have them.

Sheila Jefferies: But even with that we anticipate the growth accelerating and building others, who they were.

Some really interesting work they have some great.

Sheila Jefferies: Pipeline and the talent is staying.

Sheila Jefferies: Including some of the cyber talent that we talked about in the past is staying at Booz Allen and getting redeployed and redistribute it against some of these key mission priorities.

Sheila Jefferies: Terrific and a second one.

Sheila Jefferies: The whole industry has benefited from a much looser labor environment, but you talked about that youre doing much better than you ever have in terms of taking people from hire to putting them onto the mission maybe give us some color in terms of what youre doing there to get that improvement.

So, you know, in short, VOLT, which is our commitment to strategy, is working, and we are creating resilience and momentum in the business, even as we see the reality of an uncertain budget, and funding, and political season ahead of us. And so really, across the firm, so let me talk about civil, and I'll come back. You know, our civil business has been a star in our portfolio for, as you said, multiple years. In the early years of that amazing run, it really was driven around public health and some specific agencies.

Brian Ruttenbur: I'll start I guess.

Brian Ruttenbur: That's also being close to these high credit to this goes this is all done under the leadership of Kristine Martin Anderson, our COO and then she assembled a team from all of our enterprise operations on the markets.

Brian Ruttenbur: To work these problem.

Brian Ruttenbur: <unk> to maximum effect.

Brian Ruttenbur: We used to have.

Brian Ruttenbur: First of all the first thing we identified.

Is that the time.

Brian Ruttenbur: We were not taken full advantage of the people that were applying because we were too stove piped in our approach.

Brian Ruttenbur: We have now built much more using both technology and process much more cross functional cross market view of these so easiest way to explain it is the the runner up for a position.

But really, as we look at the business now, we are a leader in digital transformation. We're a leader in cyber and in AI, and that is broad-based across the entire portfolio. So while, you know, as I said, our health business now has crossed the $2 billion mark, and it's certainly the larger part of this business. All elements, from citizen services to law enforcement, are all really working together or humming together to produce the results that you see and you didn't ask, but the same is true in defense, and we really see real momentum and growth opportunity also building in our national security business. So, you know, I guess maybe to close out a little bit and bring it all together. 110 years young is Booz Allen.

Brian Ruttenbur: It doesn't get lost in the system becomes all of that knowledge positions that person for another similar opportunity and again that allows us to mine our incoming down pipeline.

Brian Ruttenbur: Much more once we do that we have gotten a lot better at shortening the cycle from the time, we want to extend an offer to the time. It person can join that has been a lot of small changes, but each one of those significant.

Brian Ruttenbur: So that has been shortened and then we're really very focused both for our incoming talent for our existing talent, how about giving them full access to the opportunity set that exists right here right now that helps attrition because people stay longer if they can change change obviously, if they want to.

This business is as vibrant today as it's ever been. No, thank you for that. And I knew you'd like the title. In terms of just another one for you, somewhat related to the top line, but your margins are pushing, you know, ahead of your long-term targets, essentially. And there's been a lot of discussions about the government, you know, contracting differently. So do you think the government is paying a premium for booze, just given the service offering? Yes and no.

Mark Zuckerberg: But it really helps our new folks are we used to have these rule of thumb that it took 60 days to get somebody fully available once they came through the door that created fictional bill ability issues when we were hiring.

Roger Smith: Significantly like we are now we have shatter that expectation I don't I couldn't tell you what the actual number is today, but in terms of reaching full availability, but it is a fraction.

Mark Zuckerberg: What it used to be when you put all of that together that drives employee satisfaction drives economics.

I mean, I do think that we, and we've done this for years, operate at the top of the market in terms of the capabilities that are required, the talent we need to bring, the investment we need to make. And so that will, over time, you know, create higher economics. That is not true on every procurement, for sure. But on average, there is some truth to that statement.

Mark Zuckerberg: It frankly allows us to recruit with a somewhat.

Mark Zuckerberg: To run this business high growth with a somewhat smaller bench. So so it's all to the good that he saw intentional and then coupled with all the training that we're doing and all the things that we're doing to Upskill people.

Mark Zuckerberg: And to keep them here I think thats why youre seeing what youre seeing so it's not and I agree with you. The market is it a little easier than it was 18 months ago, two years ago, but I do think that part of the issue. So all of these changes that we've made happen again allowed us to outperform the labor market.

I do think that the reason on the margin front that we're ahead of pace on our three-year investment thesis is that we knew this was going to be a heavy investment period. I don't think we fully anticipated how much efficiency we could create in the business to be able to invest from inside that efficiency and reinvest in the business from there. This has allowed us to preserve margins, even as we invest in talent and capabilities and in positions that I think, hopefully, will fuel the next round of growth. Great, thank you.

Mark Zuckerberg: If I could just add two things to what Ross to Rogers said.

Mark Zuckerberg: We typically talk about supply and demand separately and that in the short run more more supply constrained, but obviously the two work in sync. So part of the reason that we're able to deploy people quickly on jobs. There are a lot of work out there right.

Mark Zuckerberg: Book to Bill for the LTM is now over one four times.

Mark Zuckerberg: So.

Operator: Thank you. One moment for our next question, please. Now the question comes from the line of Bert Sobin with Stifel. Please proceed. Hey, good morning, and thank you for joining us. Hornenberg.

Mark Zuckerberg: We have sold an awful lot of work there is tremendous demand for our employees both internally in our internal marketplaces are also you mentioned an externally.

And the hiring marketplace and that's why as Raphael said, our bench is actually at the lower end of what we've seen historically and why we are continuing to step.

Mark Zuckerberg: On the gas from.

Operator: Good morning, Horacio. Just to follow up with some of your comments there, you know, around the business positioning and growth. You've seen your staff headcount rise about 10% year over year, and organic growth is now in the teens levels relative to that 5-8% longer-term expectation. As you think about that, I think...

Mark Zuckerberg: From a talent acquisition standpoint, the other point I'd make is.

Mark Zuckerberg: This remarkable consistency we've seen not.

Mark Zuckerberg: Not just over the last nine months really I think that 18 from a labor standpoint has broken some of the historic norms and I think.

Mark Zuckerberg: Has tended to even out some of the peaks and values Valley's we've seen utilization and we are very consistently adding 150 200 heads every month and it just makes it allows the system to work on a more regular basis.

Does that continue to be your view toward how the business should grow over time, or is there something in your mind, be it AI or the geopolitical risk backdrop, accelerating how you think food can grow, you know, over the medium and long term? You know, I think what you're seeing right now, as I said, is the strength of our talent acquisition process, the ability to make investments in people and a culture that keeps people here, coupled with a good environment out there and this unique positioning that we have around bringing technology to mission. I don't think that it is a one-quarter, two-quarter, or three-quarter deal.

Mark Zuckerberg: Great answer thank you.

Mark Zuckerberg: Thank you and one moment for our last question.

Mark Zuckerberg: When it comes from Matt Akers with Wells Fargo. Please proceed.

Matt Akers: Hey, guys. Good morning, Thanks for the question good morning.

Matt Akers: A follow up I guess, one more on the hiring is there a head count growth number baked into your long term, 5% to 8%.

Matt Akers: Again, a growth number and based on what Youre seeing do you think.

Matt Akers: Into 2025, maybe we still come in ahead of that based on some of the strength you talked about.

I think this is something that, if you extend it back, goes back at least a decade or more, and if you extend it forward, I think this unique positioning is going to continue to allow us to outperform the market. That leads to the next question, which is what is the market and how long will this type of market sustain? I mean, I think we are honestly very, you know. We appreciate the uncertainty in the funding environment, CRs running out in March, election year, and political season, that is going to add uncertainty to you in just a few moments. We're not seeing that yet.

Matt Akers: Yes, Thanks, Matt.

Matt Akers: Hi, This question together with a piece of it Sheila asked.

Matt Akers: We have said historically that for us to hit our growth targets we have.

Sheila Jefferies: Aspire to have our LTM book to Bill in the one two to one three range and our head count in let's say the mid single digits and obviously, we're ahead of the Mark on both measures our LTM book to Bill is 141 times and our.

Annualized head count growth is above 9% on the client staff and if you look just over the first nine months were above 6%, which again is above historic targets and above our expectations.

Sheila Jefferies: Annualized head count growth is above 9% on the client staff and if you look just over the first nine months were above 6%, which again is above historic targets and above our expectations.

We're actually seeing our clients be very focused on the mission, very focused on investing in technology to bring about the mission, and that is driving our growth today. Obviously, for the sake of Booz Allen, we want that to continue, but I think for the sake of the country, this is a good thing.

Sheila Jefferies: For this year. So we're not getting ahead of guidance, it's Rasia said.

We are acutely aware of some of the political and macroeconomic uncertainty, but theres a lot of momentum in the business.

Matt Akers: Feel very comfortable with where we are hey, Matt.

Matt Akers: I Love the fact that we're getting all these questions about talent I think this is the most important topic and then so I'll just maybe take us slightly to her and I Hope you don't mind.

Matt Akers: Okay. Thanks. Thanks, Horacio. And Matt, just a quick follow up for you on the... capital side of things. You mentioned your net leverage now two and a half times, and that's on a trailing basis. If we look at that chart that you highlighted in the earnings presentation, you've been pretty balanced on how you've been allocating capital over the last couple of years. We've been starting to hear indications the M&A market is maybe getting a little better in terms of where seller expectations are and clearly where interest rates are going. As you think about M&A perhaps becoming a larger share of that capital allocation strategy, you just talked about what you would look for in M&A and what you're not doing today that would be of interest to grow into inorganically.

Speaker Change: But there's a natural tendency to look at companies like ours.

Speaker Change: A collection of contracts.

Speaker Change: And I do think in this call proves that missed this a little bit of the point because what we are is really a collection of people in fact more than a collection an intentional team.

Speaker Change: Team purposeful team of people, who serve clients leveraging contracts and so while the contracts are not important is really the strength of the talent base that we focus on to drive this business forward and I think that has served us well and will continue to.

Matt Akers: Thanks, that's great color and I guess, one more for Matt.

Matt Akers: Cash taxes.

Matt Akers: Why did the section 174 impact go up and then also I think there's a bill going through to try to repeal that is is there a way to think about how much you guys could get back if that happened as they kind of $200 million potentially you could get.

Matt Akers: Yeah, thanks, Bert. First, our strategies. From a capital deployment and M&A perspective, I think we've always been biased to M&A over share repo, but the right M&A, right? That's strategic. And that really helps us fill a gap in a capability or a business model. We don't need to buy for scale. As Horacio mentioned, as the numbers indicate, you know, we're growing 13 to 14% organically this year. We don't need scale.

Matt Akers: Yes, Thanks, Matt.

Matt Akers: Three things happened this quarter with taxes.

Matt Akers: Which are pretty straightforward and one of which is little more complex.

Matt Akers: Why don't I go through them in turn and in doing so I will answer your explicit question.

Matt Akers: What we're looking for are unique and oftentimes niche capabilities or business models that will help us accelerate into some of these waves of technology or into areas where we think, you know, for example, outcome-based contracts may emerge. I think we are seeing indications that more assets and, potentially, assets of scale will come to market. My leading indicator is always how many bankers are asking me to lunch. And my dance card is full, particularly from New York bankers, which typically indicates that more assets of scale are coming to market. I'm not sure that we're seeing enough data points yet to call it that prices have come down, but I certainly hope so.

Matt Akers: First we thought about $11 million benefit related to a foreign tax credit once we <unk>.

Sheila Jefferies: While our 'twenty three tax returns.

Mark Zuckerberg: This is largely what drove us to reduce our full year <unk> tax rate to 22% 23%.

Mark Zuckerberg: Now second getting to 174, two things happened.

Mark Zuckerberg: Increased.

Mark Zuckerberg: Our estimated 2000 and for cash taxes related to 174 by about $125 million from 100 million to $125 million.

Sheila Jefferies: And that's really because we completed a thorough contract by contract analysis of the 174 impact.

Sheila Jefferies: We baked that $25 million into our our cash guidance and.

Sheila Jefferies: And then lastly, based both on the contract with you as well as.

Sheila Jefferies: The increased clarity from the IRS that we all received on the scope of 174, we've reversed an uncertain tax position that we began recording last Q4, and there was a knock on effect to that.

Matt Akers: Thank you both. I appreciate it. Thank you. One moment for our next question, please. And it comes from the line of Mariana Perez Mora with Bank of America. Please proceed. Good morning, everyone. My first question is about China.

Sheila Jefferies: Okay.

Sheila Jefferies: The tax position.

Sheila Jefferies: Where we had increased our GAAP taxes.

Sheila Jefferies: We decreased our GAAP tax provision beginning in Q4 last year.

Operator: So you mentioned in your PPR remarks all this like defense focus on China and the mission and the role that Busan could play there. What are the opportunities around that, too? Because you recently announced this collaboration with LHX, like how you can play with the primes, how you can play directly with the government, and how large that opportunity could be. It's a great question.

Sheila Jefferies: We actually reverse that this quarter, we adjusted both of those out.

Sheila Jefferies: To provide a better.

View of what are our steady state tax rate would be.

Sheila Jefferies: So.

Sheila Jefferies: That's the explicit reason, maybe we did a contract by contract review.

Sheila Jefferies: If you take a step back.

Sheila Jefferies: It's just simply the size of our growth rate and we're investing consistent with that growth is what drove our one.

Jesse, too, said it was a strategic initiative to bring together all the information that a COCOM commander would need to operationalize, you know, and this is, therefore, an important deterrence and deterrent, too, to aggression. So we're very committed to it. We're a significant part of it. We work closely with the CDAO on a number of initiatives that feed into JADC2 and into other efforts that ultimately may or may not integrate together into it but are all part and parcel of the same thing, which is how do you create full domain awareness, how do you create a decision cycle that takes advantage of all of the data available and that accelerates inside of a potential adversary's decision cycle? That is something that Booz Allen is very good at.

Sheila Jefferies: 74 tax.

Sheila Jefferies: Tax expectations out for.

Sheila Jefferies: For this year.

Sheila Jefferies: With respect to what's happening on the hill and we're obviously tracking it.

Sheila Jefferies: Yeah.

Sheila Jefferies: Over time, you would expect it to be completely reversed did it come in the form of refund or credits I don't think we know.

Sheila Jefferies: At this stage, how whether they will happen and if so how would you how would be implemented but ultimately we will get all that cash back in.

Sheila Jefferies: That will be used to to further our capital deployment objectives.

Sheila Jefferies: Just to make one quick point as we close off.

Sheila Jefferies: Matt said, this but I just want to.

Sheila Jefferies: Double click on it.

Matt Akers: <unk> hundred 74.

Matt Akers: Topic as complex to say the least.

Matt Akers: I just want to make it clear.

Matt Akers: Outperformance that we had this year was almost entirely driven by exceptional top line performance exceptional margin performance and really good cost management that has to deliver the results that youre seeing through the first nine months.

Our understanding of the mission, our ecosystem of partners that bring technology at scale, and that the at scale part is the crucial part here. And frankly, our ability to co-create with them and to build pipelines of solutions is a big part of it. And this is really what Volt has been all about, doing that fast, doing that at scale, and bringing the right technology, and that's what we're focused on. Great, thanks so much for the color.

Paul: Got it thank you Paul.

Thank you and this concludes the Q&A period.

Paul: I will turn back to Horacio Rozanski for final comments.

Thank you Carmen. Thank you all for your questions.

Paul: Joining us this morning.

Paul: Before we close I allow me to take a moment to publicly express.

And my follow-up question is about heads. So we see all these great increases in headcount and client staffing. But I'm curious if you could discuss a little bit about the clearances, how they are performing. And also, post-pandemic, you were able to be really flexible and really, I don't know, agile to adapt to these remote working. How is the customer appetite for these remote working solutions as we go back to business as normal in the post-pandemic world? Matt, I'll take it. I don't think we're seeing any material improvements in the processing of clearances.

Paul: My deepest gratitude.

Paul: To each and every one of our incredibly colleagues.

Paul: The collective efforts of the nearly 34000 people of Booz Allen.

Paul: The exceptional results that Matt and I have the privilege of discuss with you today.

Paul: We're very proud of you Booz Allen.

Paul: We thank you for the passion and the commitment that you bring everyday.

Paul: And for the World changing work.

That you do.

And on that note.

Paul: Thank you again for joining us this morning and have a great day.

Paul: And with that thank you all for joining you may now disconnect.

Matt Akers: It may be on the margins in certain areas, but nothing that is material from a firm-wide perspective. To your second question, you know, we have tried to, and our clients have tried to, take advantage of a lot of COVID-19, about remote work, about flexibility, about the opportunities to combine and recombine how people interact and engage in different ways. We learned a lot, for example, about remote hiring and how to make our hiring process more efficient through COVID. And that has absolutely carried forward through to today. So we are seeing that our clients are more receptive to alternate work arrangements. We really pride ourselves on our flexibility.

Paul: Okay.

Paul: [music].

Paul: Okay.

Paul: Okay.

Paul: [music].

Sure.

Paul: [music].

Paul: Okay.

Paul: [music].

Matt Akers: And as Horacio said, undoubtedly, the labor market has gotten a little looser in the last 12 to 18 months, and that's been helpful. But our performance really is intentional, and we talk a lot about remarkable consistency in the business. It has been particularly true on the labor side or on the supply side. Artrition is down, meaningfully, employee satisfaction is up, which we care a lot about. Our average monthly applications are on pace to double year over year.

Matt Akers: And a lot of that is technology enabled, and we've seen an almost 60% increase in referrals, employer referrals, over the last three years. And I think that's, in many ways, the best indication of our employee value proposition and the fact that our employees are willing and eager to recommend us as a place to work and employer of choice to their networks. So the short answer to your question is yes. The longer answer is it requires a lot of work, and it's been very intentional. Perfect. Thanks so much. Thank you. One moment for our next question, and it comes from the line of Cai von Rumohr.

Operator: With Cowan, please proceed. Yes, thanks so much. So, great quarter. You talked about, I mean, Intel was down, not unexpectedly, with FocusFox. But you talked about that looking good.

Operator: Give us some color on where you see it going from here. Have we passed the bottom? And secondly, you didn't talk much about global commerce.

Operator: And this is the first quarter where it wasn't basically flat to down sequentially; it had a nice uptick. So are we seeing something of a turn there? Um, you know, I'll start with global commercial for a moment and then spend more time on national security, if that's okay, Cai. Um, you know, our global commercial business is really just a small part of the portfolio. Uh, the numbers... This quarter still shows divestitures and softness in the commercial consulting side of the market, which I think is echoed by everything we see, and what's happening in the consulting industry in general. At this point, our incident response business there has accelerated, it's doing really great, and it's an important part of the offering. What we really like about commercial is its connectivity to the rest of our business. If you think about our national cyber platform, adversaries look at the entire attack surface of the United States, and they don't care if it's private or public or at the intersection.

And so having this presence that cuts across makes us a valuable partner to our government clients as we support them, here, against the true technology side of intelligence. There's a lot more AI space is growing as a significant part of our business; our clients now look to us to create unique solutions, and they trust us to help them scale those solutions. We've spoken before Matt just talked about that business is always a little bit rate limited by the speed at which we can clear people or transfer clearances if they already have them. But even with that, we anticipate growth and acceleration and building their city. They want some real interesting work.

They have some great pipeline, and the talent is staying, including some of the cyber talent that we talked about in the past is staying at Booz Allen and getting redeployed and redistributed against some of these key mission priorities. Terrific. And a second one, you know, the whole industry has benefited from a much looser labor environment. But you talked about that you're doing much better than you ever have in terms of taking people from higher positions and putting them on the mission. Maybe give us some color in terms of what you're doing there to get that improvement. I'll start, I guess. Matt's also been close to this.

Credit for this goes to Christine Martin-Anderson, our COO, and she assembled a team from all of our enterprise operations and the market to work this problem together to maximum effect. We used to have, you know, first of all, the first thing we identified was that at the time, we were not taking full advantage of the people that were applying because we were too stovepiped in our approach. We have now built much more, using both technology and process, a much more cross-functional, cross-market view of this. So, the easiest way to explain it is that the runner-up for a position doesn't get lost in the system; all of that knowledge positions that person for another, similar opportunity.

And again, that allows us to mine our incoming talent pipeline much more. Once we do that, we have gotten a lot better at shortening the cycle from the time we want to extend an offer to the time a person can join. There have been a lot of small changes, but each one of those is significant. So that has been shortened. And then we're really very focused both for our incoming talent and for existing talent on giving them full access to the opportunity set that exists right here, right now. That helps attrition because people stay longer if they can change jobs if they want to. But it really helps our new folks. We used to have this rule of thumb that it took 60 days. Tobey Sommer, Ron Epstein, Robert Spingarn, Jon Raviv, Tim McHugh, or what it used to be.

And when you put all of that together, that drives employee satisfaction, it drives economics. It frankly allows us to recruit with a somewhat, you know, run this business at growth with a somewhat smaller bench. So it's all for the good, and it's all intentional. And then, coupled with all the training that we're doing and all the things that we're doing to upskill people and keep them here, I think that's why you're seeing what you're seeing. So it's not, and I agree with you, the market is a little easier than it was 18 months ago or two years ago. But I do think that part of this is that all of these changes that we've made have, again, allowed us to outperform the labor market. And Kyle, if I could just add two things to what Horacio said. We typically talk about supply and demand separately, and in the short run, we're more supply constrained.

Matt Akers: But obviously... work in sync. So part of the reason that we're able to deploy quickly on jobs. There's a lot of work out there, right? Our book to bill for the LTM is now over 1.4 times. So we have sold an awful lot of work. There is tremendous demand for employees, both internally in our internal marketplace, as Horacio mentioned, and externally, in the hiring marketplace. And that's why, as Horacio said, you know, our bench is actually at the lower end.

Matt Akers: These are all people that we've seen historically and why we are continuing to step up on the gas from a talent acquisition standpoint. This remarkable, And not just over the last nine months; really, I think the last 18 from a labor standpoint have broken some of the historic norms and I think have tended to even out some of the peaks and valleys we see in utilization. I mean, we are consistently adding 150, 200 heads every month, and it just makes this – it allows the system to work on a more regular basis. Great answer!

Operator: Thank you. Thank you. And one moment for our last question, and it comes from Matt Akers with Wells Fargo. Please proceed. Hey, guys. Good morning.

Matt Akers: Thanks for the question. Follow up, I guess one more on the hiring. Is there a headcount growth number baked into your long-term 5% to 8% organic growth number? And based on what you're seeing, do you think, I guess, into 2025, maybe we'll still come in ahead of that based on some of the strengths you've talked about? Yeah, thanks, Matt. Tie this question together with a piece of what Sheila asked. You know, we have said historically that for us to hit our growth target, we aspire to have our LTM book-to-bill in the 1.2 to 1.3 range and our headcount in, let's say, the mid-single digits. And obviously, we're ahead of the mark on both measures. Our LTM book-to-bill is 1.41 times.

Matt Akers: And our annualized headcount growth is above 9% on the client staff. And if you look just over the first nine months, we were above 6%, which you know again is above historic targets and above our expectations, and we feel very comfortable with where we are. Hey, Matt. I love the fact that we're getting all these questions about talent.

I think this is the most important topic. And so I'll just maybe take us on a slight detour, and I hope you don't mind. But you know, there's a natural tendency to look at companies like ours as a collection of contracts. And I do think, and this call proves it, that misses a little bit of the point because what we are is really a collection of people. In fact, more than a collection, an intentional, team, purposeful team of people who serve clients leveraging content. And so while the contracts are not important, it's really the strength of the talent base that we focus on to drive this business forward.

And I think that has served us well and will continue to. Thanks. That's a great call.

Matt Akers: And I guess one more for Matt on cash taxes. Why did the Section 174 impact go up? And also, I think there's a bill going through to try to repeal that. Is there a way to think about how much you guys could get back if that happens? Is it kind of a few hundred million that you guys could potentially get?

Matt Akers: Yeah, thanks, Matt. Three things happened this quarter with taxes, two of which are pretty straightforward, and one of which is a little more complex, so why don't I go through them in turn, and in doing so, I'll answer your explicit question. First, we saw an about $11 million benefit related to a foreign tax credit, and filed our 23 tax returns. This is largely what drove us to reduce our full-year ADEPT tax rate. 22-23%. Now, second, when you get to 174, two things happen. We increased our estimated 24 cash taxes related to 174 by about $125 million.

Matt Akers: $100 million, $225 million. And that's really because we've completed a thorough contract by contract analysis of the 174 impact, and we baked that $25 million into our cash guidance. And then lastly, based both on the contract review as well as the increased clarity from the IRS that we all received on the scope of 174, we rehearsed on a certain tax position that we began recording last Q4, and there was a knock-on effect to that tax position where we had decreased our gap tax provision beginning in Q4 last year. We actually reversed that this quarter. We adjusted both of those out to provide a better view of what our state's state tax is.

Matt Akers: That's the explicit reason we did a contract by contract. If you take a step back, it's just, it's simply the size of our growth, right, and we're investing consistent with that growth. That's what drew us to our 174 tax. Tax Expectations Out for this year. With respect to what's happening on the Hill, we're obviously tracking it. You know, over time, you'd expect it to be completely reversed. Does it come in the form of a refund or credits? I don't think we know at this stage whether it will happen and, if so, how it would be.

Matt Akers: Ultimately, we would get all that cash back, and that will be used to further our capital deployment objectives. Just to make one quick point as we close off, and Matt said this, but I just want to double click on it because this is 174, and the topic is complex, to say the least. I just want to make it clear that the outperformance that we had this year was almost entirely driven by exceptional top-line performance, exceptional margin performance, and really good cost management that has delivered the results that you're seeing through the first nine months.

Matt Akers: Thank you both. Thank you. And this concludes the Q&A answer period. I will turn back to Horacio Rozanski for final comments.

Thank you, Carmen. Thank you all for your questions and for joining us this morning. Before we close, allow me to publicly express my deepest gratitude to each and every one of our incredible colleagues. The collective efforts of the nearly 34,000 people at Booz Allen produced the exceptional results that Matt and I have the privilege of discussing with you today. We're very proud of you, Booz Allen.

Operator: We thank you for the passion and the commitment that you bring every day and for the world-changing work that you do. And on that note, thank you again for joining us this morning. Have a great day! And with that, thank you all for joining us. You may now disconnect. Thank you for watching!