Booz Allen Hamilton Q2 2024 Earnings Call Transcript

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Provided by Quartr
October 27, 2023

There are 9 speakers on the call.

Operator

Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's Earnings Call covering SEC. I'd now like to turn the call over to Mr. Nathan Rutledge.

Speaker 1

Thank you. Good morning and thank you for joining us for Booz Allen's Q2 fiscal year 2024 earnings call. SEC. We hope you had an opportunity to read the press release we issued earlier this morning. We have also provided presentation slides on our website and are now on Slide 2.

Speaker 1

With me today to talk about our business and financial results are Horacio Rozanski, our President and Chief Executive Officer SEC and Matt Calderon, Executive Vice President and Chief Financial Officer. As shown in the disclaimer on Slide 3, SEC. 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 SEC. We will now begin the call to discuss our financial results SEC filings and on this call. All forward looking statements are SEC.

Speaker 1

We are expressly qualified in their entirety by foregoing cautionary statements and speak only as of the date made. SEC. Except as required by law, we undertake no obligation to update or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise. During today's call, we will also discuss some non GAAP financial measures and other metrics, which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliations SEC.

Speaker 1

We are pleased to announce that our non GAAP measures are in our Q2 fiscal year 2024 earnings release and slides. It is now my pleasure to turn the call over to our CEO and President, Horacio Rozanski. We are now on Slide 4.

Speaker 2

Thank you, Nathan, and good morning, everyone. Thank you for joining the call. Today, Matt and I have the privilege of discussing with you another quarter of Booz Allen's market leading performance. But before we get to that, I would like to open this call as I have done several times in the past by putting our work in the context of world events. On October 7, the world was shocked by a murderous terrorist attack SEC.

Speaker 2

We pray for the safe return of all the hostages SEC. And we stand side by side with the U. S. Government in condemnation of Hamas, SEC. In the intervening weeks, We have conducted listening sessions, creating spaces to support our colleagues in mourning We're afraid for both our Israeli and Palestinian loved ones living in the region.

Speaker 2

We have launched a Match Giving campaign. And importantly, we have supported our U. S. Clients' missions. Because this is personal for me too, I'm so grateful to each one of my colleagues for showing the best of Booz Allen at a time of crisis SEC and loss.

Speaker 2

This morning, I felt it was important to share this with you for two reasons. 1st, because these horrendous events remind us of the urgency of our work, bringing leading edge technology to critical missions in the hope of preventing and deterring things like this from ever happening. And second, because our internal response is yet another reminder of the unique culture and people of Booz Allen. SEC. They are the unshakable foundation for our exceptional performance decade Our Q2 of fiscal year 2024 was outstanding.

Speaker 2

Our Booz Allen team once again On our last earnings call, we emphasized the importance of having a strong second quarter. Our results show we succeeded. We built resiliency in the business and enter the second half of the fiscal year with significant momentum, Even as the uncertainty about the federal budget persists, we now expect to exceed our original plan for this fiscal year. As a result, we are pleased to announce an increase to our top and bottom line guidance for fiscal year 2024. Matt will take you through it and also deep dive on our performance in a few minutes.

Speaker 2

My goal for today is to connect our performance with our strategy and longer term financial objectives. We are halfway through the 3 year investment thesis outlined in late 2021 and deep into the implementation of Vault. So this seems like a good moment to pause to take stock and to offer a self appraisal of our progress. I'll begin by going back to what we said at our Investor Day in October 2021. SEC.

Speaker 2

At that point, we saw an extraordinary opportunity. We expected emerging technologies such as AI, Cyber, 5 gs and Quantum to rapidly transform how our government operates over this decade. And we said our 1st mover advantage positioned us to maximize this opportunity to accelerate our growth, At that time, we also laid out a multi year investment thesis centered on growing adjusted EBITDA by about 50% $840,000,000 in fiscal year 2021 to approximately $1,200,000,000 to $1,300,000,000 in fiscal year 2025. We envisioned the path to accomplish this goal that included above market organic revenue growth in the range of 5% to 8% annually, adjusted EBITDA margins in the mid-10s, we continued investment capacity for future growth and $3,500,000,000 to $4,500,000,000 in total capital Simply put, we are ahead of our expected pace at the midpoint of our investment thesis period. Our organic revenue growth of 9% in fiscal year 2023 and 15.7% in the first half of fiscal year twenty twenty four Our extraordinary organic performance has put us on a path to achieve our adjusted EBITDA target Today, We are pleased to reaffirm the adjusted EBITDA range of $1,200,000,000 to $1,300,000,000 by fiscal year 2025.

Speaker 2

As of now, we are decreasing our baseline capital deployment expectations to $2,000,000,000 to $3,500,000,000 which is approximately $1,000,000,000 less than we had initially anticipated. This provides us with the additional balance sheet capacity SECURITIES. As the world, the financial markets SEC. We are positioning Booz Allen to serve clients with distinction while investing in future growth avenues. Moreover, these outstanding results demonstrate our Vault growth strategy is working.

Speaker 3

V. O. L.

Speaker 2

T. Stands for velocity, leadership and technology. And over the past 18 months, we moved rapidly to implement. Booz Allen needed to transform itself to gain the speed and scale required to serve our clients' evolving needs. To do this, we aim to get faster in our decision making and operations.

Speaker 2

We also set out to build SECURITIES and scale leading positions that transform missions through the use of new technologies. Today, Let me offer 2 examples. 1st, the meteoric rise of AI proves our readiness to deliver at greater speed and scale. As great power competition demands accelerated adoption of AI across every facet of the federal government, We are positioned to respond to our clients' complex needs. Earlier this month, we hosted some of you at our Helix Center For Innovation.

Speaker 2

We showed you how we are combining our exceptional talent, diverse ecosystem of innovation partners and trusted frameworks to create differentiated AI solutions. We can rapidly tailor our proven solutions to insert AI into a range of critical missions from empowering the warfighter at the edge to improving health outcomes. And we see significant opportunities ahead The second example of Vault's successful implementation is how we continue to transform our existing businesses to stay at the leading edge. Booz Allen's cyber business and our recent $1,860,000,000 award of Thunderdome illustrate this very well. Through this work, we combined our historical strengths in cyber tradecraft and mission understanding With our ability to leverage key commercial technologies into scalable solutions.

Speaker 2

Thunderdome puts Booz Allen at the center of DISA's effort As we continue to scale this work, we expect it to create opportunities to extend elements of this solution I am extremely proud of the progress we have made our ambitious goals over the past 18 months. The results we shared today The amazing people of Booz Allen work relentlessly, SEC. Relentlessly on behalf of our clients and our nation. Their passion to make the world better and safer fills me with optimism about the future. And with that, Matt, over to you.

Speaker 4

Thank you, Horacio, and thanks to all of you for joining our call. The Booz Allen team delivered another exceptional quarter. Our success across the portfolio SEC. In shaping demand and capturing opportunities, in hiring and deploying talent onto contracts, and most important, Booz Allen prides itself on delivering for our clients, our people and our shareholders quarter after quarter and year after year. We are proud to be in a position today to raise our fiscal year 2024 guidance.

Speaker 4

Our team continues to build both momentum and resiliency for the long term. And as Horacio noted, SEC. We are ahead of where we expected to be against the adjusted EBITDA dollar goal in our 3 year investment thesis. Now let's dive into the specifics of our 2nd quarter performance. Please turn to Slide 6.

Speaker 4

Total revenue for the quarter grew 16% year over year to approximately $2,700,000,000 14.1 percent year over year to approximately $1,800,000,000 Our exceptional top line performance continues to be driven Our business continues to exhibit strength across the portfolio. Across all markets, we are seeing the results SEC. Our defense business is thriving with revenue up approximately 24% 2nd quarter last fiscal year. Growth in this market is broad based. We continue to bring technology and tradecraft SECURITIES.

Speaker 4

Our Civil business revenue was up roughly 17% year over year sector performance across the board. Our intelligence business grew 4% year over year SEC. We had a number of significant new wins in the first half of the year SEC. And are very encouraged by the progress our leaders have made in hiring clear talent and evolving this portfolio. Finally, our Global Commercial business, which accounted for 1% of revenue in the quarter declined approximately 45% year over year, Reflecting the divestitures disclosed last fiscal year.

Speaker 4

Moving on to bookings, The award environment remains robust. The 2nd quarter is historically our strongest for bookings. This quarter, net bookings totaled approximately $6,400,000,000 This includes $1,100,000,000 of the $1,860,000,000 Our 2nd quarter book to bill was 2.41 times, in line with the same period a year ago. SEC. Unfunded backlog dipped 2.4 percent to $10,100,000,000 and priced options grew 16.6% $18,600,000,000 Looking forward, we continue to execute on a rich pipeline of opportunities.

Speaker 4

Our fiscal year 2024 qualified pipeline is up 35% compared to this time last year Client staff headcount was 11.2% higher on a year over year basis. Total headcount increased 10.3%. Hiring, onboarding and deploying talent onto contracts continues to be a top priority. These efforts have yielded a 4% increase in client staff since the beginning of the fiscal year SEC. Therefore, today we are well positioned to exceed our full year target of 3% to 5% client staff headcount growth.

Speaker 4

Moving now to the bottom line, we earned $291,000,000 in adjusted EBITDA in the Q2. This is 1.6% higher than the Q2 last year and in line with our expectations for the quarter. Our principal focus remains on EBITDA dollar growth. Our adjusted EBITDA margin of 10.9% SEC. Was approximately 150 basis points lower than the same period a year ago.

Speaker 4

On a year over year basis, margins in the quarter SEC. We're diluted by higher billable expense ratio and a small shift in contract mix towards cost reimbursable work due to the rapid growth in our defense business. We continue to manage costs and execute contracts exceptionally well, 2nd quarter net income was roughly flat year over year at $171,000,000 This was in line with our expectations for the quarter. Adjusted net income declined 4.9% year over year to $169,000,000 Diluted earnings per share grew 0.8% year over year $1.29 Adjusted diluted earnings per share declined 3.7% year over year $1.29 Moving now to the balance sheet. We ended the 2nd quarter $557,000,000 of cash on hand.

Speaker 4

This includes proceeds from the successful investment grade bond offering SEC filings that we executed in August. Free cash flow for the quarter was negative $64,300,000 the result of $47,400,000 used for operating activities and $16,900,000 of CapEx. Note that in July, we paid out the previously discussed settlement with the Department of Justice. Excluding that payment, operating cash flow was up almost 12% year over year. Collections were solid for the quarter, but cash outflows remain high due to our rapid growth and continued investments in the business.

Speaker 4

Our net debt at the end of the second quarter was approximately $2,900,000,000 and our net leverage ratio SECURITIES with approximately 2.7 times adjusted EBITDA. Turning to Slide 8. During the Q2, we returned approximately $143,000,000 of capital to shareholders. $62,000,000 in quarterly cash dividends. Today, I am pleased to announce that our Board has approved a quarterly dividend of $0.47 per share that will be payable on December 4 to stockholders of record SEC filings as of November 15.

Speaker 4

As Rothio noted, September 30 marked both the midpoint of our current fiscal year and the halfway point of our 3 year investment thesis. Our leadership team could not be prouder our performance to date. On our last call, we highlighted 3 things that would be key to our full year performance: 2nd quarter bookings, 2nd quarter headcount growth and the potential for a government shutdown. Our bookings and headcount growth in the quarter exceeded expectations, but there is still uncertainty about government funding SEC filings with our expectations beyond mid November. Thus, our updated guidance incorporates both the momentum we have built SEC.

Speaker 4

We have built the assumption of a 2 to 4 week partial government shutdown into our guidance ranges. On this front, we continue to hope for certainty, It is significant that we are raising full year guidance even with SEC. Let me now take you through our updated fiscal year 2024 guidance. Please turn to Slide 9. At the top line, we now expect revenue growth of 11% to 14%, 10% to 13% of which will be organic.

Speaker 4

And we do expect billable expenses will decline in the second half. Our adjusted EBITDA margin guidance is unchanged. We still expect margins to be in the high 10% 11% range. As I noted earlier, we anticipate our margin profile for the full year will be flatter than it has been in recent years, Even with our traditional ramp up of investment in talent and capability building in the second half. We are raising our adjusted EBITDA dollar guidance to between $1,115,000,000 $1,145,000,000 We are maintaining our operating cash flow guidance at between $160,000,000 $260,000,000 We now expect CapEx of approximately $85,000,000 SEC.

Speaker 4

And free cash flow to be in the range of $75,000,000 to $175,000,000 Our management team is excited about the momentum we feel, the great work we are doing and the value we are creating for our people, our clients and our investors. With that, operator, let's open the line for questions.

Operator

Thank you. Our first question comes from the line of Mariana Perez Mora from Bank of America.

Speaker 5

Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 2

So my

Speaker 5

question is around AI. It was really impressive to see all the applications that you have on AI at the Edge. And I'd like you to discuss how much growth you see there and how dependent is this expansion or the timing of this on a budget situation.

Speaker 2

It's good to hear an Argentine accent this early in the morning, not be the only one. Well, I think as you know from the conversations we had with Helix a couple of weeks ago, our business this year is and SEC filings. We forecasted our AI business in the $500,000,000 to $700,000,000 range, and we see significant growth over the coming years. And that growth is broad based. We talk a lot and we talk on these calls about the work we're doing in defense, But our work in intelligence and our work across the civil agencies on AI is also growing well.

Speaker 2

And as you saw, we have some unique solutions sectors that are the product of our talent, some frameworks that are proprietary to Booz Allen and work we do with commercial partners to bring dual use technology into these missions, that I think set us apart. So we are very bullish about the future. To your question about budgets, Clearly, we are looking very closely at what's happening on the Hill. As Matt pointed out, we are SEC. At this point, making into our guidance the potential for a government shutdown.

Speaker 2

We hope it won't happen, but we need to be realistic about that. And we need to be realistic about the fact that if budgets compress in the future, the competition for resources across every federal SEC. Now having said that, from our perspective, Vault has put us in the middle of key enduring missions, Where we're bringing unique capabilities and that's why we're both raising guidance and reaffirming that we're ahead of pace to deliver on our multiyear investment thesis. So we feel really good about where we are.

Speaker 5

And how much of your growth is insulated from in the near term from this like budget certainty? So SEC Otherwise. How much upside do you have in the near term if you were to have a budget, could it like early next year?

Speaker 2

It's hard to predict precisely. We've tried to incorporate that in the way we that's why guidance is More scenarios. I think maybe the thing to point you to is the fact that because the budget passed last December, we saw the ability to work against a lot of latent underlying demand In the business, and that's why we're growing as well as we're growing now and we've had the success We've had I mean, this is really, I've been around for a long time, as you know, probably the best first half I've seen, at least since the IPO, Possibly the first half we've had in my 30 plus years at Booz Allen. So clearly, there's momentum in the business. We're building resilience in the business in anticipation of funding challenges, but we are a pill to the metal.

Speaker 5

Thanks so much.

Operator

Our next question comes from the line of Burt Soudin from Stifel.

Speaker 6

Great. Good morning. Just to follow-up to Mariana's question there. At your AI end event, you provided data around headcount and sales expectations Just for the business across Booz. Those expectations indicated lower utilization of your AI workforce just relative to your broader client facing staff.

Speaker 6

How quickly should we expect revenue utilization to rise across AI? And how does that make you think about the growth opportunity beyond FY24? Horacio, I know you said you're bullish, but is that something that can flip pretty quickly?

Speaker 2

Yes, Deborah, I'll take it first.

Speaker 4

Look, I think we showed you, as you said, we ranged the business from a revenue perspective and told you how many AI practitioners we have. It's not purely apples to apples, because we have AI practitioners that are supporting non AI projects and vice versa. Our AI folks are probably less utilized than the rest of the business because we're investing a significant amount in that business. There are a lot of folks who are building capabilities, supporting innovation, driving our AI governance model, etcetera. But we see significant growth there, Not just from those staff, but from the broader set of staff that we're training, in upskilling from a technology perspective.

Speaker 4

The other thing I'll mention, it's Relevant both to your question and to Marianna's is we also highlighted at the AI and event the extent to which AI is now being bundled into large procurements SEC and the success we're having when that in fact happens. Increasingly, we're seeing not just for AI, but for cyber, for digital, For some of the hardware engineering integration that we do that is bundled together because you think about a complex mission problem It requires AI to enable it, cyber to protect it. You got to integrate it into a software and network system. Oftentimes it has to be integrated into some type of So I wouldn't just think about AI from a traditional perspective. It really is having a much broader impact across the base of our business and is being integrated into the technology stacks we have writ large.

Speaker 2

Let me add 2 small points to what Matt said, which is very much resonates. One point is, we if you look at the level of investment that we're putting into AI, It's relatively modest to the success that we're having and a lot of that is because we start early on these technologies and we wait And we plan and we position so that the ones that go exponential, we can like AI has, we can stay ahead of the trend and we are still Ahead of the game there and that's really exciting. And then the second point, I'll point you back at the intergalactic level to the power of our single P and L And the ability to really manage resources as an institution as opposed to in small buckets, which give us the opportunity to flex our workforce in a way that is pretty unique to Booz Allen and that gives us all the growth that we're talking about.

Speaker 6

Super helpful, Rossio and Matt. Just a follow-up for you, Matt. Maybe thinking more about the cost structure, maybe not directly related to AI, but partially, Your G and A expense, at least as a percentage of your sales, continues to fall and is growing certainly much slower than your sales growth. Can we expect that to be an engine for future margin expansion? Or is that something that normalizes over time?

Speaker 4

It could generate more margins, but really this has been intentional over the past few years. We're shifting cost investment from the infrastructure into the business. I mean as Rossio said relative to Some of the hyperscalers are investment in AI is modest, but we're investing a lot of money there. So it has been a very intentional structured effort led by all of our business leaders to become as efficient as possible on the corporate side, so we can invest in the business and in growth and in the capabilities our clients want.

Operator

Our next question comes from the line of Sheila Kahyaoglu from Jefferies.

Speaker 3

Thank you. Good morning, Horacio, Matt. Thanks so much and for that introduction and the Helix visit as well. When we think about your organic growth, just to start on that, organic growth, 15% in the first half, really great results, Defense up 24% another acceleration. How much of that is due to improving DoD outlays?

Speaker 3

And maybe if you could remind us your expectations cross the different customer bases for the year in terms of the top line.

Speaker 2

Hi, Sheila. Good morning. I'll start. Matt might Want to add, I'll say the following. When you look across the entirety of our business, defense, civil and intel, 24%, 17%, 4 plus percent growth, while absorbing the changes in the contract portfolio.

Speaker 2

It's really broad based. We are hitting on all cylinders across all of this. It's not one program. It's not one It's not one dynamic. I think in general, it's attributable to Volt.

Speaker 2

Volt is giving us both momentum SEC. While accounting for the potential for a government shutdown and the resiliency is equally important because To your point, I mean, we do see increased uncertainty in the funding picture. At this point, we continue to see clients Moving aggressively against our key priorities, in other cycles like this, we have seen clients maybe pull back In anticipation, it perhaps is because of the missions we support, perhaps is because of the geopolitical dynamics and the uniqueness of our offerings that we're still seeing that. But we are both growing fast and running tightly so that we can create the environment in which we can continue to both invest and protect our workforce If the budgets get tight or get interrupted for a period of time, so we're excited about where we are across all the markets in defense in particular like I said, I mean every part of our defense business is growing nicely. It's the only way to get to 24% and it is really transformed To grow along the lines of bringing technology to mission.

Speaker 3

No, that's super helpful color.

Speaker 4

Yes, this is Sheila. 10% to 13% organic growth for the year. We're growing above market, clearly. But as Rossio said, it's the quality of the underlying growth and the depth of that that really has us excited because it gives us not just momentum, but the resiliency To ride out potential dislocations in the budgetary environment.

Speaker 3

And Matt, just Another follow-up for you, if I may. Can you talk about the accounts receivable balance in terms of the cash? How we should back sort of working capital improvements from here on that balance and also the impact to revenues, how we should see that progression?

Speaker 4

Sure. I'll take that in a couple parts. First, and we've talked about the puts and takes on cash SEC. For a couple of calls now. On the positive side, we're certainly generating more profit.

Speaker 4

Our CapEx has declined and we've improved collections. But there are headwinds, the DOJ settlement, obviously, higher cash taxes driven by our growth in 174, higher interest expense. And as you mentioned, our outsized growth, we are consuming working capital to support it. I mean, just to give you We're typically paying them faster than we're collecting. With respect to our outstanding receivable balance, Yes.

Speaker 4

I think you're getting at the question of some of the unbilled receivables on our balance sheet, because you've asked that previously. We are working A meaningful portion of that is tied up or with in past year audits. We are working with DCA and DCMA both well and quickly to try to resolve that. It's going to be likely a multiyear process, But things are going well. And at this time, we have no ability to project what's when and how that will be resolved.

Speaker 3

And just on the revenue line, I think the Q called out $18,000,000 from the reduction of the provision. So that those should be conceived as positives as you sort of retrieve those tenants. Is that how to think about it?

Speaker 4

Yes. I mean that in particular has to do with, a change to our reg reserve we made relative to our 2022 audit And the results of the 2022 audit, but there are going to be puts and takes over the next couple of quarters and couple of years as we work to resolve these. So it was a positive this quarter. We're not making any predictions about future quarters.

Speaker 3

Got it. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Louie DiPalma

Speaker 7

Horacio and Matt, you forecast lower capital deployment through fiscal 2025. Has your vault You are no longer interested in another Liberty sized acquisition. And are you signaling more stock buybacks

Speaker 4

Yes, Louis, thanks for the question. I'll start. I'm sure Horacio will want to comment. I mean, obviously, when we put the investment thesis in place 2 years ago, the world was a different place. It was different interest rate environment.

Speaker 4

M and A market was much more robust SECURITIES and less political and macroeconomic risk. Strategic M and A very much remains a priority for us. It's an important tool in rounding out our ability to bring technology to mission at scale. To your question, we're getting a lot of value out of our venture investments, but they don't tend to not be at the kind of scale that you get from a Liberty. So explicitly, I would absolutely do the Liberty acquisition again, And we're looking for the next one.

Speaker 4

We've got a sizable pipeline of small to midsize tuck ins that we're prosecuting In the range of $2,000,000,000 to $3,500,000,000 can still accommodate a significant amount of M and A activity over the next 18 months. I think we've only deployed slightly over $1,200,000,000 in the 1st 18 months. We're going to remain patient disciplined as always in our approach, but that we can meet the adjusted EBITDA target in the investment thesis while deploying less capital than anticipated really is a testament to organic performance. And it just gives us a lot of flexibility to create additional value for shareholders. So I would not read into this any change in our strategy.

Speaker 4

It's just a reflection of where we are.

Operator

Our next question comes from the line of Cai von Rumohr from Cowen.

Speaker 8

Thanks so much and good quarter. So Matt, you mentioned that you booked $1,100,000,000 of the $1,800,000,000 on the Thunderdome. What did you guys book on the $630,000,000 Space Force award and the $1,700,000,000 CDC award.

Speaker 4

Yes. I believe I said in the remarks, we booked all of the DMACC award TC and I believe we booked all of the Space Award as well. Thunderdome is going to be incrementally awarded. So we only booked 1.1 of the 1.85 there.

Speaker 8

Got it. And can you comment about near term bookings prospects?

Speaker 2

Is there

Speaker 8

big contracts

Speaker 4

It's a combination, Cai. It's always hard SEC. To predict quarter by quarter, because as you know, these things can slip in terms of awards and then the protest environment creates some uncertainty. Yes, Looking ahead, I don't think we're going to have a historically stellar quarter next quarter. There are a couple of large awards that may or may not happen.

Speaker 4

We don't have a significant amount of recompete risk in the portfolio in the next 12 months. So, this is why we talk about LTM our qualified pipeline, which is up 35% year over year, says we're really in good shape from a demand perspective.

Speaker 2

Just to give a little color on that, I've had the chance to talk to clients about needs and talk to our team about the work that we're Going after, I would say the demand picture for technology into poor mission is actually accelerating, not slowing down. And so As Matt said, while it's almost impossible to predict bookings on any given quarter, the demand picture absent significant

Speaker 8

Well, last year you had a 0.1 book to bill, so it was particularly weak. Is that going to be the norm that we get this very strong second quarter, which we got this year? And then we should look for a very, very weak near 0 Q3 or is there any opportunity that Q3 could be a little bit better, Clearly below 1, but better.

Speaker 2

I think that I'll start. I'm sure Matt will want to Do color on this one. But I think on the first of all, I think this quarter, the last quarter of the government fiscal year, the Q2 for Booz Allen is always SEC. Because of just the way in which outlays happen and the way money is obligated Through the budgeting cycle. So that will that has always been the case, that continues to be.

Speaker 2

As you've seen over the last few years, the rest of The quarters are actually less predictable because they're predicated on when will these big jobs get awarded. SEC. And that process, it really changes every year. It is really I would not take last year and translate into this year Directly, as Matt said, there's a lot on the pipeline. It is over $26,000,000,000 in the pipeline.

Speaker 2

So Could some of those things hit this year? We would this quarter, we would like them to. But either way, we certainly have the backlog necessary To continue to grow, we have the people here to continue to grow and we have the momentum to get that done. Yes, Cai, if you look at

Speaker 4

our leading indicators, I mean by historical measures, we're in as good a shape as we've almost ever been, Right. On the demand side, we talked about not just the backlog and the book to bill, which is putting backwards, but the proposal pipeline looking forwards. On the supply side, at the end of the quarter, our consulting or client staff headcount was up over 11%, more than 4% for the first half of the year, which puts us ahead of the pace that we've typically wanted to be in of 3% to 5% headcount growth. SEC. And we're managing the business really well.

Speaker 4

But there's a lot of volatility out there, right? And I think that's what we're preparing for. And that's why we built in the 2 to 4 week assumption of a partial government shutdown. Just to quantify that We said the last shutdown of the scale, which was in 2018 to 2019, cost us about $0.02 to $0.03 at the bottom line. But that shutdown, remember, occurred over the holidays, was limited in scope It was at a time when we were both smaller in size in aggregate and we had a meaningful amount of time to make up lost billing hours, which we did.

Speaker 4

So We're assuming the impact this time will be 3 to 4 times that. So again, put that in the context of our overall guidance where we raised top line 4 adjusted EBITDA 4% and EPS 3% plus the government shutdown assumption. We're just in a great spot.

Operator

To withdraw your question. Our next question comes from the line of Matt Acker from Wells

Speaker 7

Fargo. Hi, good morning. This is Eric Yan on for Matt. Just wondering if you see the headcount kind of shifted with Focus Fox running off. Maybe that's around end of September.

Speaker 7

I think it's about like 400 people on the program. Do you know like how many you were able to retain and shift to other work and how many are lost?

Speaker 4

Yes, we've almost completely absorbed, as I said in my prepared remarks, the impact of that contract loss. There's just a small team left doing mission critical work on that contract from Booz Allen. We had about we said we had about 400 people on that contract. We kept more than half and redeployed Many of them to mission critical activities, but pulling up, we said we wanted to grow headcount 3% to 5 6% this year. We're at 4% and I'm really encouraged by the numbers I'm seeing even for this quarter.

Speaker 4

So that's why I said in the script, we're likely going to

Speaker 7

Okay. Thanks. I guess one more on the Section 174

Operator

At this time, I would now like to turn the conference back over to Horacio Rozanski for closing remarks.

Speaker 2

Thank you, Gigi, and thank you all for your questions and for being here this morning. I hope Matt and I successfully conveyed How excited we are about both the momentum and the resilience we see in our business and also of the opportunities that are ahead for our people, SEC. Thank you for our clients and for all of our investors. If you'll indulge me for a moment, I'd like to close the call by calling out our annual innovation publication called Velocity, which is now available on our website. And this year is fully centered on artificial intelligence.

Speaker 2

In this year's velocity. You get to hear from Booz Allen experts and from our industry partners on the ubiquity of AI, its transformative capabilities, how to harness it for good and a lot more. So I hope you'll enjoy reading it and we would love to hear your feedback. And on that note, thank you again for joining and have a great day.

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Key Takeaways

  • Strong Q2 performance with 16% total revenue growth to $2.7 billion; organic revenue up 15.7% year-over-year driven by defense (+24%) and civil (+17%) gains.
  • Booz Allen raised FY24 guidance, now expecting 11%–14% revenue growth and $1.115 billion–$1.145 billion in adjusted EBITDA, while reaffirming the FY25 EBITDA target of $1.2 billion–$1.3 billion.
  • The Vault strategy—focusing on velocity, leadership and technology—continues to fuel growth, with AI business forecast at $500 million–$700 million this year and innovations showcased at the Helix Center.
  • Q2 net bookings reached $6.4 billion (2.41x book-to-bill) and the FY24 qualified pipeline is up 35% YoY, complemented by an 11.2% increase in client-staff headcount, providing resilience against a possible government shutdown.
  • Net debt stood at ~$2.9 billion (2.7x leverage) at quarter end, free cash flow guidance is $75 million–$175 million, and the quarterly dividend was raised to $0.47 per share, with disciplined M&A and capital deployment plans.
AI Generated. May Contain Errors.
Earnings Conference Call
Booz Allen Hamilton Q2 2024
00:00 / 00:00