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Text: I'm Rubun Dey, Head of Investor Relations, and with me to talk about our business and financial results are Horacio Rozanski, our President and CEO; and Lloyd Howell, Executive Vice President, CFO and Treasurer.
During today's call, we will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.
We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our fourth quarter fiscal year 2021 slides.
We are now on Slide 5.
The past year was unlike any other in this Company's 107-year history.
But before diving into our latest results on our outlook for the current year, I want to highlight that the fiscal year end on March 31 also marked the close of the three-year period covered in our investment thesis.
When we first shared our thesis in June of 2018, we committed to 50% growth in adjusted diluted earnings per share over three years.
We said that growth would be driven by our unique position in the market and the combination of industry-leading organic revenue growth, adjusted EBITDA margin expansion, and robust capital deployment.
With our fiscal year 2021 results are now final, Booz Allen has significantly exceeded our three-year financial objectives.
ADEPS nearly doubled over the period to $3.90 in fiscal year 2021.
Average annual revenue growth was above the midpoint of the 6% to 9% range we originally provided.
Adjusted EBITDA margin was above 10% in each of the three years and we deployed $1.3 billion in capital.
The majority of which was achieved through increased dividends and a robust share repurchase program.
During the three-year period, we navigated through significant budget uncertainty, including the longest government shutdown we've ever experienced, a turbulent presidential transition period and a once-in-a-century pandemic.
And throughout, we continued to invest in our people, especially when we set aside $100 million in response to the pandemic to support our employees and help the most vulnerable in our communities.
All the while we also continued to invest in our key technologies and develop elements of our option value portfolio.
So the story of the last three years is certainly of our outstanding financial performance.
But more importantly, as we look to the future, it is the basis for our optimistic outlook on the business.
Over the last decade, we further differentiated Booz Allen's brand and market position to the point that today federal and commercial clients rely on us for advanced technology solutions that deliver both speed and mission scale.
And our unique combination of consulting expertise, mission knowledge, innovation and technology serves as a strategic accelerator for both our firm and our clients.
I've said many times, Booz Allen learns and evolves continuously.
Our next strategy and long-term financial outlook, which we plan to share with you in the fall will build on Vision 2020's growth and transformation.
We are very comfortable with our direction of travel as we anticipate the opportunities of the next decade.
The most recent example of our confidence in our strategic direction is our agreement to acquire Liberty IT Solutions, LLC.
As we discussed when we announced it on May 4, this acquisition is directly on strategy.
Liberty is an exceptional company with highly skilled talent, trusted client relationships, closeness to mission, a solid growth trajectory and digital transformation capabilities that augment Booz Allen's extensive set of offerings.
The transaction is expected to close in this quarter, subject to customary closing conditions.
And we look forward to officially welcoming the Liberty team to the Booz Allen family.
Lloyd and I are proud of the team's performance in an unprecedented year on all metrics we have met or exceeded the updated guidance we provided at the end of January.
For the full-year, organic revenue growth was strong albeit slower than recent years due to the pandemic and some delays in funding and awards after the election.
We also delivered excellent bottom line results.
Full-year earnings profit margins and cash flow are all ahead of expectations.
And as the market began to stabilize post-transition, our team did a great job in capturing opportunities, driving a record book-to-bill in the fourth quarter and year-end backlog of $24 billion.
Underlying demand for our services and solutions remains robust, with our defense and civil businesses delivering excellent organic growth in fiscal year 2021, while the intelligence and global commercial continue to reshape their portfolios.
Lloyd will go into greater depth about market dynamics in a few minutes.
Next, I am pleased to report that the Department of Justice has closed the criminal investigation that we first disclosed in June 2017.
The civil DOJ and SEC investigations remain pending, and we continue to cooperate with the government to bring those matters to an appropriate resolution.
Let's shift now to how we are thinking about the business in the year ahead.
As we opened fiscal year 2022, we are very focused on a set of near- and mid-term priorities.
First and foremost, to fully benefit from our strong backlog and demand pipeline, we need to accelerate our recruiting efforts.
Second, we must capitalize on the reshape portfolios in intelligence and commercial to drive growth in both businesses.
Third, we will carefully manage the transition to a post-COVID environment by investing in our people and the advanced capabilities we need for the future.
Fourth, having launched our next-generation financial system on April 1, we are making strong progress and we'll keep focused on a seamless implementation.
And fifth, upon close of the Liberty acquisition, we will work closely together on a smooth and successful integration.
As we look further out, we are also focused on positioning for growth beyond the current fiscal year.
Our overriding goal is to accelerate into the next wave of changes in our markets.
For monetizing the option value portfolio, to investing in new areas like Low Code, 5G, AI, or quantum, to finalizing our strategic review.
Booz Allen is committed to being a leader in ensuring our clients can scale new technologies into their missions faster than ever.
Turning now specifically to our fiscal year 2022 outlook.
Lloyd will walk you through the guidance in a few minutes.
But I will note that the growth pattern will be different from recent years.
This is due to a number of factors from productivity and PTO trends, to the Liberty acquisition, and the timing of headcount gains.
We expect these factors together to produce a revenue profile with low-single-digit growth in the first half, followed by significant acceleration in the second half.
We plan to the full-year and as our guidance indicates, we expect another year of significant revenue growth in FY'22.
Continued excellence in operational performance is also expected to produce strong EBITDA growth, continued cash generation and strategic capital deployment.
So to sum up, I am excited and optimistic about the coming year and beyond.
Our clients have clear priorities and the ability to marshal resources toward them.
We have an exceptional team, an exceptional team tested and successful through good times and challenging ones.
Our balance sheet is strong.
Our unwavering commitment to people over the past year has bolstered our already strong brand in the market for talent.
And all of us are committed to and focused on serving clients with excellence and living our purpose and our values.
So, while we may still see some choppiness and we have work to do on hiring in the coming months, I have tremendous confidence in our team's ability to deliver growth in the near- and the long-term.
Let me start by echoing Horacio's comments on the close-out of our investment thesis.
Last quarter marked the end of a three-year period with ADEPS growth of 96%, an increase that was primarily driven by strong organic revenue growth and sustained margin expansion.
This performance resulted from investments related to Vision 2020 and our early positioning in core areas of rising demand for our clients.
Booz Allen has proven its ability to outperform competitors even in some of the toughest macro environments.
Moving forward, we will keep a sharp focus on positioning Booz Allen for long-term success, building on the excellent performance of the last three years.
As we look back over the past year, we are proud of the resilience and dedication shown by our people in close collaboration with our clients.
Their excellent work resulted in another strong year of operational and financial performance.
As we begin fiscal year 2022 and anticipate moving toward a post-pandemic operating rhythm, we expect some choppiness, but we have clear operational focus areas.
Our confidence in our continued success is grounded in our record of consistent performance and the strong foundation we have built to deliver on near- and long-term objectives.
Let's turn to our fiscal year 2021 results.
At the top line, revenue increased 5.3% for the full-year to $7.9 billion.
Revenue, excluding billable expenses, grew 7.1% to $5.5 billion.
This organic top line growth largely reflects strong execution on sustained demand for our services, helped by higher than normal staff utilization in the first half of the year.
As a reminder, in January, we adjusted our revenue guidance to a range of 4.8% to 6%, due to three factors: first, programmatic shifts in the presidential transition period; second, a snap back to more typical PTO usage; and third, lower expectations for billable expenses as a percentage of revenue, which landed in the low-end of our 29% to 31% range.
These factors played out in the fourth quarter as expected.
Let me step through the market performance.
Revenue growth for the full-year was led by our defense and civil businesses, which grew 9% and 8%, respectively.
In defense, growth slowed in the second half of the year due to the factors I noted earlier.
However, underlying long-term demand for our services and solutions remained strong, as evidenced by recent business wins and continued tactical sales execution.
Growth in our civil business also slowed in the second half of the year.
This was largely related to a pause on a large cyber program due to funding availability, which occurred in the third quarter and continued into the fourth quarter.
Given the importance and criticality of this program for the client, we believe work will ramp up again in the coming quarters.
Revenue from our intelligence business declined 3% for the full-year.
Our focused effort to reshape that portfolio continues and we are pleased with the results so far.
We expect to see our intelligence business return to growth in this fiscal year as we ramp up recent contract wins.
Furthermore, the pandemic-related headwind we faced in fiscal year 2021 and inability to bill for fee will continue to abate as more and more of our employees return to work at client facilities.
Lastly, revenue in global commercial, which accounted for approximately 3% of our total revenue in fiscal year 2021, declined 22% year-over-year.
The drop was primarily driven by our decision to exit from parts of our Middle East business due to market dynamics and geopolitical trends and to focus strategically on our US-based cyber business.
We are pleased with our excellent book-to-bill performance for the quarter and the full-year.
Book to bill of 1.38 times was a fourth quarter record, resulting in a full-year book to bill of 1.42 times.
Total backlog grew 16%, yielding our largest-ever fiscal year-end backlog of $24 billion.
Funded backlog grew 3% to $3.5 billion.
Unfunded backlog grew 35% to $6.1 billion and priced options grew 13% to $14.4 billion.
Throughout the year the team did a great job sustaining our historical win rates for recompete and new work, even as we navigated the pandemic and a presidential transition period.
As we've noted previously, we continue to augment our traditional foundation of diversified smaller awards by pursuing larger and more complex bids that, by their very nature, caused quarter-to-quarter volatility in book-to-bill.
Our record backlog speaks to ongoing robust demand for our services, the quality of our people and our closeness to clients missions.
Pivoting to headcount, as of March 31, we had 27,727 employees, up by 554 year-over-year, or 2%.
Excluding the impacts of our contract divestiture in the third quarter, headcount would have been up 2.4%.
As Horacio emphasized, we are focused on accelerating headcount growth to meet strong demand signals and execute our backlog.
Moving to the bottom line.
Adjusted EBITDA for fiscal year 2021 was $840 million, up 11.4% from the previous year.
This increase was driven primarily by our top line growth, strong cost management and lower-than-expected billable expense mix and what was truly an anomalous year.
As a result, our adjusted EBITDA margin for the full-year was 10.7%.
Full-year net income, diluted earnings per share and ADEPS also grew significantly.
Net income increased 26% year-over-year to $109 million.
Adjusted net income was $542 million, up 21% from the previous year.
Diluted earnings per share increased 28% to $4.37 from $3.41 the year prior.
And adjusted diluted earnings per share increased 23% to $3.90 from $3.18 the year prior.
These increases were primarily driven by strong operating performance, a lower effective tax rate and a lower share count in fiscal year 2021 due to our share repurchase program.
Regarding our effective tax rate, during the fourth quarter, we recognized a tax benefit under the CARES Act that allowed tax loss carrybacks to prior tax years.
As a result, we recognized approximately $77 million in remeasurement tax benefit this quarter, which we excluded from adjusted net income and adjusted diluted earnings per share.
Turning to cash, we put a plan in place three years ago to improve cash generation.
We are extremely proud of our team's performance this year, which we see as the culmination of this multi-year effort.
We generated $719 million in operating cash during fiscal year 2021, representing 30% growth over the previous year.
That put us above the top end of our forecasted range and we ended the year with $991 million of cash on hand.
Strong cash performance was largely driven by collections growth in excess of revenue growth, higher cash taxes on the year were offset by relatively light disbursements related to operating in the COVID-19 environment.
Capital expenditures for the year totaled $87 million, in line with our expectations as we continue to invest in infrastructure and technology to support virtual work.
April was a key month for us as we went live with our new NextGen Financial System.
Our year-end reporting close went smoothly and we have not encountered any material issues to date.
As can be expected, we experienced a few minor issues, which were addressed promptly.
We have already been reaping the benefits in the form of increased data access and improved productivity.
We expect this to translate into cost savings over time, which will be reinvested to help drive future growth.
I will touch on this topic again in our outlook for fiscal year 2022.
In fiscal year 2021, we continued to execute on a prudent capital allocation strategy designed to deliver both near- and long-term shareholder value.
We returned approximately $181 million to shareholders through quarterly dividends, which included a 19% year-over-year dividend increase in the fourth quarter.
This was the eighth consecutive fiscal year of double-digit growth in our quarterly dividend.
We also repurchased 4.1 million shares for $318 million during the fiscal year, with 2.3 million shares repurchased for $185 million in the fourth quarter.
In combination with our third quarter investment in Tracepoint, we deployed a total of $571 million in capital in fiscal year 2021.
Going forward, our capital allocation priorities remain unchanged, reinvesting in our business, securing our quarterly dividend, strategic acquisitions and share repurchases.
Today, we are also announcing that our Board has approved a regular dividend of $0.37 per share payable on June 30 to stockholders of record on June 15.
Dividends remain an important component of our strategy to create value for shareholders.
Lastly, I want to briefly touch on our recently announced acquisition of Liberty IT Solutions.
This transaction, upon close, will be our largest acquisition to date and will be immediately accretive to revenue growth, adjusted EBITDA margin, and adjusted diluted earnings per share.
For us, this transaction represents exactly what we look for in acquisitions, cultural, strategic and financial fit.
As we look ahead, we are focused on three objectives: first, a smooth and successful integration; second, continued hiring to help scale up Liberty's recent wins; and third, maintaining excellence in contract delivery.
As Horacio noted, we're excited about the acquisition and the long-term value it will create for our shareholders and the people of both Booz Allen and Liberty.
We look forward to sharing updates in the months to come.
Turning to guidance, please move to Slide 9.
Fiscal year 2021 was certainly a year of unprecedented challenges for our people and clients.
This resulted in several puts and takes to our fiscal year 2021 financial results, which influence year-over-year comparisons as we move into fiscal year 2022.
Most of these factors are temporary in nature.
However, we expect them to constrain top line growth for the next couple of quarters before an acceleration into the back half of the fiscal year.
Let me step through these factors.
First, there is a natural ramp up that needs to occur in both execution of work on recently won contracts and on recruiting and hiring.
As Horacio noted, we're focused on both of those priorities.
They take time to ramp up, which creates a momentum build toward the back half of the year.
Second, we saw unusually high productivity in the first half of fiscal year 2021, driving up revenue growth then slowing growth in the second half as staff utilization and PTO trends normalized.
This dynamic will create challenging comps in the first half of fiscal year 2022.
Third, we expect PTO trends to have an ongoing impact for the next few months.
Although we executed a successful one-time PTO buyback program in the fourth quarter, we know that many of our employees still have elevated balances due to the pandemic.
With vaccinations increasing and some are on the way, we expect and have been encouraging our people to take well-deserved time off.
Lastly, our implementation of the new financial system will result in minor timing differences in the costing of labor.
We do not expect this dynamic to materially impact our full-year results.
However, we do forecast approximately 50 basis points of revenue growth headwinds in each of our second and third quarters, recovered through a roughly 100 basis point tailwind in the fourth quarter.
Putting it all together, we expect organic top line growth in the low-single-digit range in the first half of fiscal year 2022 with a significant ramp into the third and fourth quarters.
From an EBITDA perspective, a return to more normal indirect spending patterns and billable expense mix post-pandemic will drive some volatility in our quarterly margin profile.
Now, let me take you through our fiscal year 2022 guidance.
We expect total revenue to grow between 7% and 10%, which is inclusive of a partial year contribution from our announced Liberty acquisition, assuming a first quarter 2022 close.
The variance between the top and bottom end of our revenue growth outlook will largely depend on the successful execution and timing of our hiring and onboarding.
We expected adjusted EBITDA margin to remain in the mid-10% range.
We expect adjusted diluted earnings per share to be between $4.10 and $4.30.
This range reflects strong organic growth, incremental D&A expense related to our new financial system, a higher effective tax rate and $0.20 to $0.24 of anticipated accretion from our acquisition of Liberty IT.
We expect operating cash flow to be between $800 million and $850 million, largely driven by our operational performance, lower cash tax payments and contributions from Liberty IT.
And finally, we expect capex to be between $80 million and $100 million as we continue to invest in infrastructure and technology.
We have once again demonstrated our ability to effectively manage the business, invest in our people and deliver strong returns to our shareholders.
We did all of this while weathering a tough macro environment, which gives us confidence in our strategy and positioning to succeed through any market condition.
Operator, please open the lines.

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sees 2022 adjusted earnings per share $4.10 - $4.30.

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