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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 Chief Executive Officer; and Lloyd Howell, Executive Vice President, Chief Financial Officer and Treasurer.
During todays call, we will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for our investors.
We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal year 2022 slides.
We are now on slide four.
As always, Lloyd and I are pleased to share our latest financial results and to represent the great work of the more than 28,000 people of Booz Allen.
Our industry, in fact, the entire economy is transitioning to more in-person work as we recover from the COVID-19 pandemic.
And at Booz Allen, we are excited about the opportunities this presents to our people and clients.
After my remarks, I will give Lloyd the floor to cover the financials in more depth.
Let me start with an overview of the quarter.
On our last call in late May, we talked about our near and midterm priorities and our fiscal year 2022 outlook.
We said we expect another year of significant revenue growth with strong earnings growth, continued cash generation and strategic deployment of capital.
At the same time, we noted that the pattern for the year would likely look different from recent years with lower revenue growth in the first half and significant acceleration in the second half.
This pattern is due to several factors, including the recovery from the pandemic, the implementation of a new financial system and our acquisition of Liberty IT Solutions.
As such, we are pleased to reaffirm our guidance for the full fiscal year.
Operationally, we continue to move back to pre-pandemic business rhythms.
In our Defense and Civil businesses, we are aligned to our governments top priorities, have a robust pipeline and several great wins in the quarter.
These two parts of our portfolio represent three quarters of our revenue, and they continue to deliver solid growth.
In our intelligence business, hiring is going well, and the portfolio reshaping we have done has yielded some important wins.
The first quarter decline in revenue was largely due to low billable expenses, and we continue to expect a growth year in this business.
Global Commercial represents 2% of our revenue.
Continued declines are tied to our portfolio reshaping and the impact of the pandemic.
We do expect to see year-over-year growth in the second half of the fiscal year.
Taken together, our entire portfolio of business produced low single-digit revenue growth year-over-year, as we expected.
The relatively slow growth was driven primarily by a return to more normal staff utilization and PTO trends compared to the first quarter of first quarter of last fiscal year, when the country was largely in lockdown.
At the bottom line, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings per share were ahead of our expectations.
Book-to-bill for the quarter was also strong.
And we are excited about the quality mission center work we are winning.
Cash from operations came in light, primarily driven by one-time costs related to the Liberty transaction.
Lloyd will discuss all the numbers in detail in a few minutes.
As you may remember, on our last call, we spoke about a set of near and midterm priorities that are critical to our success.
The main reason for our optimism about the year is the great progress we have made to-date.
Let me go through them briefly.
Our top priority is recruiting.
And in the first quarter, we began to see results from our laser focus in this area.
We are seeing sequential month-over-month growth and believe momentum will build over the remainder of the year.
Second, the reshaping of our intelligence and global commercial portfolios continues.
We believe the tactical and strategic moves we are making will yield year-over-year growth.
Third, we are very pleased to have completed the Liberty acquisition in mid-June.
Our teams are working side-by-side and everything we have seen since the closing confirms that this was a great deal for Booz Allen and for Liberty.
We are very excited about the strategic opportunities we have to augment each others strengths.
Fourth, the NextGen financial system successfully launched on April 1st and is running very well to the great credit of the team.
After more than three years of preparation, launching the system and executing the first quarter closed without any major disruptions were critical milestones.
And fifth, we continue to invest in our people and capabilities as we carefully manage the transition to a post-COVID environment.
Consistent with that creating the best possible experience for our talent is a constant area of focus for us.
In that vein, I would like to take a few minutes today to share with you how Booz Allen is thinking about the future of work.
We are cautiously optimistic that the worst of the pandemic is behind us in the United States and most places that Booz Allen operates.
As such, we are preparing to fully reopen our offices the day after Labor Day, provided that health and safety allow it.
As we move toward that reopening, we intend to take the best of what we have learned over the past 16-months and create ways of working that better serve our talent, our clients and the critical missions we are part of.
Going forward, our workforce will have three operating models.
First, we have always had a small group of employees who are purely remote, and we expect that to continue and for that group to remain relatively small.
Second, we have a group of people who work full time at government and our facilities.
And that too will continue, although we expect it to proportionately decline from historical levels.
Our clients have shown a great deal of creativity over the course of the pandemic.
And based on this experience, many are interested in flexible models that better serve their missions while reducing the number of people who are 100% on-site.
The third workforce model is a hybrid.
And we expect overtime for this to be a majority of our people.
Employees in this group will spend less time in Booz Allen and client offices than previously and instead have a mix of telework and in-person collaboration.
This gives people much more flexibility in their personal and family lives while at the same time preserving our culture and the close connection to clients, our firm and each other.
What is most exciting about the future of work conversations we have been having internally and externally is the opportunity everyone sees for greater flexibility.
In fact, there is an expectation that we need to work in new ways because the technology allows it and the competition for talent simply requires it.
To succeed, today and in the future, employers, whether they are in the government or the private sector must foster a workforce that is more distributed, more digital and certainly more diverse.
Booz Allen is a leader in this area, working with our government clients to help them rethink and reshape the way they accomplish critical missions.
Many clients believe that the reality of todays world and the needs of the next decade demand fundamental change in how federal agencies execute their business on behalf of all of us.
And consistent with who we are we will lean into those change opportunities proactively.
And so as we look toward the fall and beyond, our firm has a lot to be optimistic and excited about.
We are working very hard to take care of our people, build our business, serve clients and position Booz Allen for the future.
As always, our overriding goal is to continue to create near and long-term value for our investors and all our stakeholders.
And with that Lloyd, over to you.
Before I jump into the financials, I want to note that this has been a truly busy quarter for us.
A few of the major highlights included closing our acquisition of Liberty and launching the integration process, replenishing our balance sheet through the bond market.
Investing in latent II, a highly strategic, rapidly growing company in the AI ML space.
Doubling down on our recruiting and hiring efforts with promising results.
Implementing our NextGen financial system.
And, of course, engaging across the firm on our strategic review and our next investment thesis.
We are energized by the pace of activity and look forward to sharing more in the months to come.
Now on to first quarter performance.
As we noted in May, we expected some early year choppiness in our top-line results as we move into a post-pandemic operating rhythm.
However, we were able to maintain strong performance at the adjusted EBITDA and ADEPS line through disciplined cost management.
Additionally, we are encouraged by our solid bookings performance as well as our pace of recruiting.
Operating cash flow was light of our initial forecast, but we view most of the moving pieces as either one-time or transitory.
Altogether, today s results are in line with the expectations we laid out last quarter, and we remain confident in our plan for the full fiscal year.
At the top-line, in the first quarter, revenue increased 1.7% year-over-year to $2 billion.
Liberty contributed approximately $16 million to revenue growth.
Revenue excluding billable expenses grew 1.9% to $1.4 billion.
Revenue growth was driven by solid operational performance, primarily offset by higher-than-normal staff utilization in the comparable prior year period.
Top-line performance for the quarter was in line with our expectations.
As a reminder, we forecast constrained low single-digit top-line growth in the first half of the year, driven by four dynamics: First, the need to ramp up on contracts and hiring; second, a more normalized utilization rate in the first half of this fiscal year compared to the high staff utilization in the first half of fiscal year 2021, which we believe to be worth roughly 300 basis points of growth.
Third, high PTO balances coming into the fiscal year with an expectation that our employees will take more time off; and fourth, minor timing differences in our costing of labor, resulting from implementation of our new financial system.
As we noted before, we expect growth to accelerate throughout the year.
Now let me step through performance at the market level.
In defense, revenue grew 4.4%, with strong growth in revenue ex billable expenses, partially offset by significant materials purchases in the prior year period.
In Civil, revenue grew 6%, led by strong performance in our health business and the addition of Liberty.
We expect momentum to build throughout the year.
As more administration priorities ramp up and we continue to capture opportunities, building on our strong win rates.
Revenue from our intelligence business declined 6.4% this quarter.
Revenue ex-billable expenses grew in line with our expectations, but were more than offset at the top-line by lower billable expenses.
We are excited by a number of critical recent wins in the portfolio.
And we believe we have the right leadership and strategic direction in place to execute a growth year.
Lastly, revenue in Global Commercial declined 27.4% compared to the prior year quarter.
We anticipate year-over-year growth in the second half, an outcome that is largely dependent on hiring additional talent to capitalize on growing demand as well as moving past challenging prior year comparables in international.
Our book-to-bill for the quarter was 1.3 times, while our last 12-months book-to-bill was 1.2 times.
Total backlog grew 16.5% year-over-year, including Liberty, resulting in backlog of $26.8 billion, a new record.
Funded backlog grew 1.6% to $3.5 billion.
Unfunded backlog grew 91% to $9 billion and price options declined 3.7% and to $14.3 billion.
We are proud of our bookings performance in the first quarter, coming off a seasonally strong fourth quarter results.
We believe that the stability of our longer-term book-to-bill demonstrates continued strong demand for our services as well as the high value placed on our understanding of client missions.
Pivoting to headcount as of June 30th, we had 28,558 employees, up by 1,177 year-over-year or 4.3%.
Accelerating headcount growth to meet robust demand for our services is our top priority for the year.
We are encouraged by how we closed the first quarter, and we expect to see progress throughout the year.
Moving to the bottom line, adjusted EBITDA for the quarter was $238 million, up 11.8% from the prior year period.
This increase was driven primarily by our ability to again build for fee within our intelligence business as well as the timing of unallowable expenses within the fiscal year.
Those items, along with continued low billable expenses as a percentage of revenue pushed our adjusted EBITDA margin to 12%.
We expect billable expenses and unallowable spend to pick up as we move throughout the year.
First quarter net income decreased 29% year-over-year to $92 million, primarily impacted by Liberty transaction-related expenses of approximately $67 million.
Adjusted net income was $146 million, up 12.3% from the prior year period, primarily driven by the same factors driving higher adjusted EBITDA.
Diluted earnings per share declined 27% to $0.67 from $0.92 in the prior year period.
And adjusted diluted earnings per share increased 15% to $1.07 from $0.93.
These increases to our non-GAAP metrics which exclude the impact of the transaction-related costs noted were primarily driven by operating performance and a lower share count in this quarter due to our share repurchase program.
Turning to cash, cash flow from operations was negative $11 million in the first quarter.
This decline was driven primarily by lower collections largely attributable to timing around receivables associated with the integration of our new enterprise financial system.
As our employees and clients adapt to the new invoicing system, we expect to return to a more typical collections cadence over the coming months.
Operating cash flow was negatively impacted by approximately $67 million of transaction costs paid in the first quarter, which includes approximately $56 million of cash payment at closing of the Liberty acquisition.
These cash payments represent a reallocation of a portion of the overall $725 million purchase price prior to adjustments from investing cash flows into operating cash flows.
Capital expenditures for the quarter were $9 million, down $11 million from the prior year period, driven primarily by lower facility expenses.
We still expect capital expenditures to land within our forecast range for the year.
During the quarter, we issued $500 million of 4% senior notes due 2029.
Additionally, we extended the maturity of our Term Loan A and revolving credit facility to 2026 and increased the size of our revolver by $500 million to $1 billion of total capacity.
Those moves are in support of our disciplined capital deployment strategy.
We will continue to use our balance sheet as a strategic asset.
During the quarter, we paid out $52 million for our quarterly dividend and repurchased $111 million worth of shares at an average price of $83.91 per share.
In total, including the close of the Liberty acquisition, we deployed $889 million.
Today, we are announcing that our Board has approved a regular dividend of $0.37 per share, payable on August 31st to stockholders of record on August 16th.
As our actions this quarter demonstrate, we remain committed to preserving and maximizing shareholder value through a disciplined balanced capital allocation posture.
Please move to slide seven.
Today, we are reaffirming our fiscal year 2022 guidance.
As we discussed last quarter, the first half, second half dynamics we laid out are still the guiding framework for our full-year growth expectations.
We expect total revenue growth to be between 7% and 10%, inclusive of Liberty.
Our contract and hiring ramp will determine where we land within that range.
We continue to expect revenue growth to accelerate throughout the year.
We expect adjusted EBITDA margin in the mid-10% range.
We expect adjusted diluted earnings per share to be between $4.10 and $4.30 based on an effective tax rate of 22% to 24% and 134 million to 137 million weighted average shares outstanding.
ADEPS guidance is inclusive of both Liberty and incremental interest expense from our $500 million bond offering.
We expect operating cash flow to grow to $800 million to $850 million, inclusive of the aforementioned $56 million of cash payments related to the Liberty transaction.
Due to these one-time payments, we expect to end the year at the lower end of our range, with partial offset through a combination of working capital management and operational performance.
And finally, we expect capex in the $80 million to $100 million range.
In summary, we are starting off the year just as we expected and look forward to a great year.
We were ambitious in trying to execute both a major acquisition and a companywide rollover of our financial systems in the same quarter.
With that, Rubun, let s open the line to questions.
Operator, please open the line.

user
booz allen hamilton qtrly earnings per share $0.67.
qtrly earnings per share $0.67.
qtrly adjusted earnings per share $1.07.
reaffirms fiscal 2022 guidance.

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