Booz Allen Hamilton Holding Corporation

Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering third quarter results for fiscal year 2021. At this time, all participants are in a listening mode. Later, there will be an opportunity for questions. I now turn the call over to Mr. Ruben Day.

Thank you. Good morning, and thank you for joining us for Booz Allen's third quarter 2021 earnings announcement. We hope you've had an opportunity to read the press release that we issued earlier this morning. We have also provided presentation slides on our website and are now on slide two. I'm Ruben Day, 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. As shown on the disclaimer on slide three, Please keep in mind that some of the items we will discuss this morning will include statements that may be considered forward-looking and therefore are subject to known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. Those risks and uncertainties include, among other things, general economic conditions, the availability of government funding for our company's services, and other factors discussed in today's earnings release and set forth under the forward-looking statements disclaimer included in our third quarter fiscal 2021 earnings release and in our SEC filings. We caution you not to place undue reliance on any forward-looking statements that we may make today and remind you that we assume no obligation to update or revise the information discussed on this call. 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 third quarter fiscal year 2021 slide. It is now my pleasure to turn the call over to our CEO, Horacio Roszanski. We are now on slide five.

Horacio Roszanski Thank you, Ruben. And good morning, everyone. Thanks for joining the call. Today, Lloyd and I will take you through our third quarter results and the dynamics that drove them. And we will put the results in the context of the successful culmination of our three-year investment thesis and the strength of our business in the near and long term. As you saw in our press release, we had a mixed quarter. Our revenue grew more slowly than expected. Conversely, Our bottom line results, profit margins and cash flow are excellent and ahead of expectations. Since the beginning of our fiscal year, we have described three macro environmental factors that created uncertainty about our second half. The outcome of the election, the status and outlook for the federal budget and the course of the COVID-19 pandemic. Let me talk specifically. about how those are playing out on the demand front, on the supply front, and the impact on revenue and profits. Underlying demand for our services and solutions remains quite strong. In the third quarter, we saw delays in some procurements in the intelligence market, largely due to the pandemic. And in the civil market, we saw movement to the right on awards and even some pullback on funding which we believe is due to the turmoil surrounding the presidential election. These shifts in procurements and funding were greater than we anticipated and greater than we normally experience during a change in administrations. We expect these dynamics to be temporary, with a return to more typical market rhythms over the next six to nine months. Secondly, on the demand side, I'll note the reduction in billable expenses in comparison to our third quarter last year. We have said previously that billable expenses are unpredictable and not a significant source of profitability. The third quarter drop-off was partially due to COVID and is another dynamic that may last for a couple more quarters. Turning now to the supply side, there were two factors in play. The first was a fast return to more historical productivity rates. During the first half, we spoke of meaningful jump in productivity because of high retention and low use of paid time off. We always knew that was temporary. Our expectation was that we would see a gradual shift to typical patterns as COVID vaccines rolled out. Instead, we saw a quick snapback to more normal, albeit lower, productivity levels in November. Early indication is that our fourth quarter productivity levels may remain closer to historical norms. Also in the third quarter, the combination of lower than desired recruiting rates and the strategic divestiture of a small defense contract led to a sequential decline in headcount. As productivity climbed in the first half, We were comfortable with slower headcount growth. But with the snap back to normal levels, we need to accelerate recruitment. We have already ramped up and expect to see improvement in three to six months. Shifting to our other key metrics, let me highlight the strength of our margins, bottom line, and cash flow. While the reduction in billable expenses helps margins, Our overperformance at the bottom line and in cash flows is primarily driven by our strong execution of the business. Despite the challenges of the past year, our team has remained focused on the fundamentals that drive our performance. High-quality client delivery, smart capture of new business, targeted cost management, and continued investment in our differentiators, especially our people. As a result, we have made our business leaner and more competitive, enhanced our brand in the market for talent, and doubled down on our growth drivers, all while delivering outstanding value to shareholders and strengthening our balance sheet. We expect both the headwinds and tailwinds I just described to be with us for the next few months, and that is reflected in our updated full-year guidance, which Lloyd will talk through in detail. In addition, noting our confidence in the business, we are pleased to announce a six cent increase in our quarterly dividend and an increase in our share repurchase authorization, which will continue to support our ongoing share repurchase program. We are proud that through all the challenges of COVID, social unrest, natural and manmade disasters, budget uncertainty, and the most difficult election and post election period in our lifetimes, Booz Allen is on track to deliver another year of growth and value creation. And we also know we have some work to do. As the fourth quarter gets underway, the leadership team has prioritized four specific areas. Converting a rich opportunity pipeline into awards and revenue as quickly as the market permits. ramping up recruiting to take full advantage of growth opportunities, continuing to reshape our intelligence portfolio to drive growth, and maximizing value creation from our very strong balance sheet by deploying capital against strategic opportunities such as our recent investment in TracePoint and other levers of shareholder value creation. After that summary of our near-term performance and priorities, Let me take the discussion up a level and put it in a fuller context. My leadership team and I are confident and optimistic about the direction of our business and the meaningful difference our people continue to make in support of client missions. COVID vaccinations are underway, a federal budget is in place, and the new administration has hit the ground running. We view these as important stabilizing forces in the overall economy and in our market. The President has nominated an experienced team of leaders to execute the business of government. They have clear agendas and understand the value of using technology to accelerate mission. Inside Bruce Allen, even as we focus on day-to-day operational excellence, we continue to plan for the long term. Our overriding objective is to expand and strengthen our unique market position at the intersection of technology, mission, and consulting. We do that by staying close to our clients, anticipating what they will need next, and investing in the right talent and capabilities to advance missions. The investments we've made to grow and reshape our portfolio over many years are both driving today's performance and bolstering our prospects for the future. For example, we believe we are the largest provider of artificial intelligence services to the federal government, with 60% year-over-year revenue growth in our AI services portfolio, albeit from a small base. This is an addressable market that we expect to increase tenfold in the next five years and we are in the pole position to shape it. We also support key federal agencies that form the epicenter of U.S. cybersecurity across the civil, defense, and intelligence domains. With our ranking by Frost and Sullivan as the leading provider of cybersecurity services in North America, we view ourselves as uniquely positioned to both help the nation and capture opportunity in this critical area. The new administration is already signaling renewed focus on cyber in the wake of the SolarWinds attack. We're also building scale and depth in 5G and in the next generation tech stack. A 5G network requires the integration of hardware, software, IoT devices, security, analytics, and mission insight, which plays to our strengths and our brand in the federal market. We're standing up a 5G lab to support research and development. We have partnerships with leading 5G technology companies, and we are prototyping integrated capabilities. These key technology areas and others, from edge computing to digital warfare, to cloud solutions and open data platforms, to immersive technology and human performance, they all inform our thinking as we develop our next strategy. We continue to make good progress and look forward to sharing our strategy with you later this year, along with an updated multi-year financial outlook. I'll make one final important point before giving the floor to Lloyd. With less than one quarter remaining in the three-year time horizon of our investment thesis, we are on track to deliver greater than 80% growth in ADEPs, against an already ambitious 50% goal we originally set in June of 2018. Even in the most turbulent times, our firm has translated its differentiated market position into high quality performance and shareholder value, as expected of an industry leader. On the strength of this performance, and with our purpose and values as a guide, We will continue to succeed and strengthen this institution over the short, medium, and long term. Lloyd, over to you for additional perspective on the third quarter and our outlook ahead.