Booz Allen Hamilton Holding Corporation

Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering first quarter fiscal year 2023 results. At this time, all participants are in . There will be an opportunity for questions. I'd now like to turn the call over to Mr. Nathan Rutledge.

Thanks, operator.

Good morning, and thank you for joining us for Booz Allen's first quarter fiscal year 2023 earnings call. First, I'd like to introduce myself. I'm Nathan Rutledge, the new director and head of investor relations for Booz Allen. I'm excited to be here and for the opportunity to serve you. I look forward to working with you all. We hope you 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. With me today to talk about our business and the financial results are Horacio Rozanski, President and Chief Executive Officer, and Lloyd Howell, Executive Vice President and Chief Financial Officer. 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, uncertainties, and other factors that may cause our actual results to differ materially from forecasted results discussed in our filings with the FCC and 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. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of due 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 of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal year 2023 earnings release and slides. It is now my pleasure to turn the call over to our CEO and President, Horacio Rozanski. We are on slide four.

Thank you, Nathan, and welcome to the team. And good morning, everyone. Thank you for joining the call. This morning, Lloyd and I are happy to share strong results for the first quarter of fiscal year 2023. During our May earnings call, we said the pattern of growth for this fiscal year would be predicated on growing momentum in the first half to mitigate the likelihood of uncertainties in the second half. Our first quarter results demonstrate that we are building the strategic momentum and operational resilience required to meet our expectations for this fiscal year and achieve our multi-year financial objectives. Revenue growth for this quarter was excellent, and we grew across all markets. The bottom line was consistent with our plans for the year. In short, we are on track both towards this year's guidance and towards our multi-year goal of growing adjusted EBITDA to $1.2 to $1.3 billion by fiscal year 2025. Lloyd will walk you through the quarter's results and our full year outlook in depth. But before we go on, I'd like to pause a moment to share some upcoming leadership changes. After 20 years with Booz Allen, Karen Dayhut, president of our global defense sector, is retiring effective October 31st. Karen has had an impressive career at Booz Allen, to include the initial stand-up of our strategic innovation group, leadership of our civil and commercial businesses, and for the past five years, heading up our largest business sector. Karen's leadership and creativity have had a tremendous impact on our firm and our clients. We are grateful for all her contributions and we wish her well. I am very excited to announce that Executive Vice President Judy Dodson, currently the head of our national security sector, will transition to the role of President of Global Defense. Judy is an outstanding leader who we credit with repositioning and driving growth and performance across our national security sector. With decades of experience across all our markets, Judy brings to her new role both the experience and the vision to accelerate our defense business in line with our Volt strategy. Additionally, I am pleased to share that we have named Executive Vice President Tom Pfeiffer as the new president of the national security sector. Tom has been at Booz Allen for over three decades and has a track record of igniting growth everywhere he has been. Working closely with Judy for the past two years, Tom has been instrumental in driving growth across our national security portfolio. I'm excited by both the depth and breadth of talent that we have at Booz Allen and the opportunities that these natural transitions create for our leaders. Our team is tested in these markets and will undoubtedly continue to deliver exceptional results for our clients and for the firm. Now back to the business at hand. Let me take a few moments to discuss how our strategic momentum and operational resilience position us for success. In terms of strategic momentum, We continue to advance the agenda we discussed at our Investor Day last October. Our VOLTS strategy, which stands for Velocity, Leadership, and Technology, is both our future and our present. We're leaning forward across a broad array of mission and technology opportunities primed for hypergrowth because they are central to where our clients are heading. We're leveraging our strategic first mover advantage and our ability to invest and deploy capital to bring digital innovation to mission challenges and help our clients transform at speed. National cyber is a good example of one of the hypergrowth mission areas where we're leaning forward. For well over two decades, we have been innovating with the intelligence community on cyber tradecraft. We're gaining traction as we now extend that expertise horizontally across the entire cyber domain to a broader set of defense and civilian missions. From responding to changing policy to outpacing morphing threats, we continue to expand our position on cyber missions. For example, through solutions that integrate leading-edge commercial technology with our unique understanding of our clients' operational environments We are helping agencies implement zero-trust architectures. This is in response to the White House guidance to strengthen cybersecurity. And our team is very excited about winning new cyber work at NASA this quarter. The Cypress contract builds on our longstanding support of NASA missions. Through this work, we are deploying our intelligence-grade tradecraft to deliver differentiated next generation cyber defense solutions across all of NASA. Another area of increasing momentum is our refreshed innovation agenda, which includes both internal initiatives and a broad mix of external partnerships and investments. Earlier this month, we announced the launch of Booz Allen Ventures, a $100 million corporate venture capital arm that further codifies our ongoing commitment to invest in companies innovating in defense, AI, machine learning, cyber, and other leading-edge technologies. This is a natural extension of our tech scouting and partnership network that we have used to bring dozens of companies with innovative technologies onto critical government programs. Client and overall market feedback on these efforts reinforce the value we can bring by bridging between mission requirements and the startup community. Shifting now to operational resiliency. We acknowledge volatility in the external environment is likely to increase over the coming months. As the combination of high inflation, new COVID waves, continuing geopolitical instability, and the potential for an acrimonious political season are becoming more real. As we have done in the past, we look to take advantage of our flexible operating model and to focus relentlessly on the things we can control. Along those lines, last May I outlined four operational priorities for the year. Let me describe our progress across this agenda. First, We said we must hire aggressively to fully capitalize on our backlog and growing pipeline. In the first quarter, we saw sequential acceleration in our hiring, which we believe will continue through the summer. Our employee value proposition continues to attract the type of talent we want and we need to serve our clients. Also importantly, under the leadership of our Chief Operating Officer, Christine Martin Anderson, we are making significant progress in driving efficiencies and speed into the entire talent acquisition lifecycle. This includes getting new hires ramped up more quickly on client work upon joining the firm. These improvements will enable faster growth of our workforce while also enhancing the experience of our candidates' journeys to become Booz Allen employees.

Second,

We said we must continue our track record of winning work aligned to our clients' highest mission priorities. Demand remains strong across the portfolio as our clients look to us to help them innovate in their missions and navigate this time of historic economic, geopolitical, and technological change. With the budget in place through the end of the government fiscal year, we are experiencing a very robust procurement season, which we expect to continue through the summer. Third, we said we will continue to manage the business tightly to enable investment in our talent and strategic priorities while delivering on our bottom line commitments. Our leaders are effectively controlling costs and executing the business fundamentals with precision, as shown in our bottom line results this quarter. This enables our future growth by supporting our hypergrowth businesses, our innovation agenda, and most of all, our people. And fourth, we must deploy capital in a way that creates maximum value and drives our strategy forward. In the past few months, we have remained active in building our M&A pipeline focusing on acquisitions that will accelerate our bold strategy. I firmly believe that strategic M&A, like our proposed acquisition of EverWatch, increases both innovation and competition, and that the interests of the government and strategic acquirers are fully aligned. We remain disciplined and committed to deploying capital in a manner consistent with our investment thesis. So in closing, we are off to a strong start and our first quarter results demonstrate we are on track to deliver on our full fiscal year and multi-year financial goals. We're building momentum under Volt while focusing on key priorities that will accelerate our growth and reinforce our resiliency, both in the near and medium term. Every day, watching our talented colleagues lead, win work, serve clients, and manage this business with such skill and accuracy gives me great confidence. And it is because of them that we have the results we're able to discuss with you today. With that, Lloyd, over to you to take us through the financials in depth.

Thank you, Horacio, and good morning, everyone. Our first quarter performance reflects our focus on growing the business profitably as we seek to grow adjusted EBITDA dollars by approximately 50% through fiscal year 2025. These results were supported by a top line that exceeded our expectations as we deliver on our goal to achieve industry-leading organic revenue growth. Our disciplined strategy across the business drove robust margins. While we continue to optimize our balance sheet, and create capital deployment opportunities that will deliver meaningful value to our shareholders. Importantly, our approach is working and we remain confident in our ability to continue delivering exceptional operational and financial performance, which keeps us on track to execute against our long-term financial objectives. Let's now turn to our first quarter results on slide six. At the top line, total revenue increased 13.1% for the first quarter to $2.2 billion. Organic revenue grew approximately 8% to $2.1 billion with approximately $103 million of inorganic contributions. Revenue excluding billable expenses also grew 9.9% year over year to $1.6 billion. These results highlight our ability to convert sustained demand for our services and solutions by efficiently hiring and deploying our growing talent base. And, as expected, our billable expense mix is normalizing toward the midpoint of our 29% to 31% target range, which was primarily due to an increase in materials purchases this quarter. At the market level, we are pleased with the momentum and growth across all of our markets. We believe that our mission expertise and leading-edge capabilities will continue to support durability of demand and provide visibility into future growth prospects as we continue to shape and execute the right type of work aligned to the hyper-growth areas we want to compete in. Revenue growth for the first quarter was led by our civil business, which grew approximately 28% year over year, approximately 12% of which was organic. This marked our second consecutive quarter of double-digit organic growth. These results reflect solid performance across the portfolio, particularly in health, where we see strong alignment with the administration's priorities, which continues to yield exciting new wins. And with Liberty now fully integrated into our civil market, we are looking forward to further leveraging our combined capabilities, relationships, and mission expertise to pursue additional opportunities and grow our market share. In defense, Revenue grew by approximately 5% over the prior year period, reflecting our second consecutive quarter of positive revenue growth as we continue to build momentum across the entire portfolio. Demand remains strong, and we continue to double down on our hiring efforts as we ramp up recent contract wins and quickly deploy talent towards capturing high-value opportunities across defense and all of our markets. We remain steadfast in positioning ourselves to be the leading digital solutions provider to the U.S. government, transforming the way they adopt and integrate new technologies. Horacio described our progress on national cyber. We also continue to innovate the digital battle space to bring differentiated, scaled solutions to the joint warfighting mission. We view each of these platforms as growth accelerators for our markets and look forward to updating you along their journeys. And similarly, within Intel, we continue to see momentum build with revenue growing by approximately 8% over the prior year, marking our fourth consecutive quarter of positive growth. Despite a few larger awards shifting to the right, we remain energized by the pace and volume of award activity, including our pipeline of opportunities that we expect will provide exciting new growth prospects this fiscal year. And lastly, in global commercial, which accounts for roughly 3% of our total portfolio, revenue grew by approximately 45%, of which 20% was organic. Now on to slide seven for details on our demand signals. Net bookings for the first quarter were approximately $1.6 billion, translating to a quarterly book-to-bill of 0.72 times and a trailing 12-month book-to-bill of 1.21 times. This quarterly book-to-bill number reflects our ongoing expectations for choppiness in quarterly book-to-bill results as we pursue larger and more technically complex bids, which is why we continue to point to our strong trailing 12-month book-to-bill results as a better indicator of sustained demand. Total backlog grew approximately 6.8% year over year to $28.6 billion. Funded backlog grew 15.1% to $4 billion. Unfunded backlog grew 10.7% to $10 billion. And priced options grew 2.3% to $15 billion. Looking ahead, with a budget in place and funding available, we have already seen the release of large awards and our RFP submission value and volume are both up over the prior year. In addition, We continue to work in close collaboration with our clients who indicate their desire to issue awards before the government fiscal year end. With each of these integral parts in motion, we are optimistic in our ability to continue translating strong demand signals into top-line growth. Pivoting to headcount, as of June 30, we had approximately 29,300 employees. an increase of approximately 750 year over year, or 2.6%, most of which was organic growth. Client staff headcount grew approximately 975 year over year, or 3.8%. As Horacio emphasized, successful execution of our hiring strategy is a top operational priority in meeting the shifting needs of our business. Accordingly, We continue to be laser focused on headcount growth and retaining our talent to keep pace with our plan, allowing us to deliver another year of mid single digit growth. Moving to the bottom line, adjusted EBITDA was $253 million in the first quarter, up 6.1% from the prior year period. Our adjusted EBITDA margin of 11.2% is approximately 70 basis points lower than the same period a year ago. Margins benefited from strong profitable contract level performance and mix, which was more than offset by higher indirect costs, reflecting our growing talent base and increased salaries. In addition, higher unallowable spend and billable expense mix, both of which we forecasted would normalize as we return to pre-pandemic business patterns, weighed on the results in the quarter. As we move through the duration of this fiscal year, We expect a similar seasonality to our margin performance, which factors into our expectation that our billable expense mix will remain near the midpoint of our 29% to 31% range, while unallowable spend will pick up incrementally, both of which will weigh on margins. First quarter net income increased 49.9% year-over-year to $138 million, Adjusted net income was $151 million, up 3.4% year-over-year. Diluted earnings per share increased 53.7% to $1.03 from $0.67 in the prior year period. And adjusted diluted earnings per share increased 5.6% to $1.13 from $1.07. Both GAAP and non-GAAP metrics were impacted by higher interest and DNA expenses. These increases were partially offset by a lower share count due to share repurchases made in line with our disciplined capital deployment strategy. Free cash flow for the quarter was negative $59 million. The result of cash used in operating activities of negative $46 million and capital expenditures of $14 million. Cash from operations was seasonally light as strong collections were offset by higher disbursements and one-time payroll items associated with administrative staffing changes completed last quarter and other businesses' transactions. Incremental to the quarter was approximately $50 million of collections that shifted into the second quarter due to system outages and corresponding payment delays at one of our primary government payment agencies, all of which has since been received. We ended the first quarter with a strong cash balance of nearly $500 million and a $1 billion untapped revolver. Turning to slide eight, during the first quarter, we returned $116 million of capital to shareholders consisting of $58 million of share repurchases at an average share price of $83.50 and $59 million in quarterly cash dividends. Net debt at the end of the quarter was approximately $2.3 billion, and our net leverage ratio was approximately 2.4 times, reflecting our strong balance sheet. We continue to look for opportunities to optimize our capital structure, as it will provide us with the capacity to deliver against our capital deployment plans and create accretive long-term value for our shareholders. Today, we are also pleased to announce that the Board has approved a quarterly dividend of 43 cents per share, payable on August 31 to stockholders of record on August 15, as well as an increase of $400 million to our share repurchase authorization, bringing our remaining available capacity to approximately $1 billion. Turning to guidance, please move to slide nine. Today, we are reaffirming our fiscal year 2023 guidance. As we discussed last quarter, the first half, second half dynamics we provided are still the guiding framework for our full fiscal year growth expectations. We expect revenue growth to be between 5% and 9%, inclusive of inorganic contributions. We expect adjusted EBITDA in the range of $950 million and $1 billion. and adjusted EBITDA margins in the mid to high 10% range. We expect operating cash flow to be between $850 million and $950 million, which excludes our expectations for approximately $550 million of cash tax headwinds this fiscal year. As detailed on slide 10, let me break our cash taxes down into three components. Approximately $200 million is associated with our forecasted pre-tax income and annual effective tax rate. Second, another approximately $200 million is associated with strategic planning initiatives undertaken in prior fiscal years. We expect to receive tax refunds in future years related to these strategic tax planning initiatives. And third, The remaining approximately $150 million is associated with Section 174. While we believe that it could be deferred or repealed, we are basing our assumptions on the prevailing legislation. Taken together, for fiscal year 2023, $350 million of cash tax payments are associated with timing or one-time headwinds that we do not expect to repeat. barring future tax planning initiatives that we may execute. We will start making cash tax payments against these items starting in our second fiscal quarter, but expect our operating cash flow performance will still follow a normal cadence to previous years. As shown on slide 11, we expect adjusted diluted earnings per share of between $4.15 and $4.45, based on an effective tax rate of 23% to 25% and 131 million to 133 million average weighted shares, outstanding. If our share price keeps pace with the performance of the most recent quarter, we expect the reduction in share count will net near the high end of our guided range. And finally, we expect capital expenditures to remain in the range of 90 to $110 million as we continue to meaningfully invest in our infrastructure and technology. In closing, I'll reiterate that we are very pleased with our first quarter performance. Booz Allen continues to be on a solid path to execute on our long-term objectives of delivering strong organic growth and driving superior shareholder value. Our management team is excited about the momentum we have already generated to meet our multi-year financial goals. With that, Nathan, let's open the line for questions.

Thanks, Floyd. Operator, please open the line for questions.

Thank you. To ask a question, you will need to press star 1-1 on your telephone. We ask that you please limit yourself to one question and one follow-up. Please stand by.

Thank you. Good morning, Horacio and Lloyd. And congratulations. Thank you. I wanted to ask a specific question, actually, just on the civil growth, given it was so robust, up 12%. You know, how do you guys think about the drivers of that, whether it's catch-up and delayed procurements or new contracts? But you also mentioned some new health care wins. So maybe if you could talk about that and how Liberty has helped contribute to your increase in market share.

Sure. Why don't I start? As you say, we're very pleased with the growth of the entire portfolio in this quarter.

It gives us the momentum and the operational resilience that we're looking for to navigate both this year and the multi-year financial envelope that we have created. Again, I think the first quarter demonstrates both at the top and the bottom line that we are very much on track. All three markets grew. in the quarter pretty robustly, and health was to stand out inside of civil, but the entire civil business is growing quite well. Health has been a very solid, close to double-digit grower organically for now quite some time, and the drivers there are a unique position in some of these accounts in terms of helping them drive the digital transformation of those businesses, which positions us against procurements, I think, in a very unique way. And we continue to capture both share and share of mind, really, in the minds of our clients as they look to transform those organizations. But in addition to that, what we call citizen services, which is everything around the Treasury, IRS, and that entire portfolio, has now a very robust pipeline that is looking really good because, again, those agencies are looking for the same kinds of digital transformation efforts that we are positioned against. And then lastly, we are focusing the third leg of our civil stool around really issues of domestic resilience and climate change that I think are clearly beginning to get significant traction. So when you put it all together, you know, going back to the notion of old, we are focusing on the hypergrowth areas where we believe the greatest opportunities are going to be. And I think, again, first quarter demonstrates we're on track.

Hey, Shiel, this is Lloyd. The only thing I would add to your Liberty question, it really has been a strategic accelerator, as we've said previously. That's our strategy when it comes to M&A. And financially, we saw $92 million from Liberty inorganically as a contribution. So it's really integrating well, and we're on pace to have a solid year.

That's super helpful, guys. I'll stay back in the queue and hop off. Thank you.

Thank you.

Our next question comes from Noah Popenak with Goldman Sachs. Your line is now open.

Hey, good morning, guys. It's Gavin Parsons. How are you?

Hi, Gavin. Good morning. Hi.

Appreciate all the color on the hiring environment. I just wanted to ask for a little bit of an update there. It looks like you're well on track for the target of mid-single digits for the year. Are you seeing any impact of a less tight labor market in the tech industry? Can you talk a little bit more about just the traction your initiatives are having and how that's going?

Sure. As you point out, I think we're very much on track towards our targets. And we are seeing really sequential, almost month over month, increasing momentum and increasing growth on our hiring. It continues to be a competitive labor market. We are getting in a lot of talent. We see pre-COVID levels of attrition. But overall, we're gaining ground because our value proposition continues to be very strong, the type of work we do, the way in which we do it. and the suite of compensation and benefits that we offer our employees is very much competitive with really everybody in the market and differentiated really from most people in the market. In terms of color, I would point you to a couple of things that have me excited. One is we've seen in the last few months the return of a few senior leaders that we had lost to others that we didn't want to lose who now are coming back perhaps after seeing whether the grass is risen greener on the other side. And I think that speaks well to our value proposition and the sustainability of that proposition through market changes. And then the second thing that has me excited is our Chief Operating Officer, Christine Martin-Anderson, is driving an agenda that is really looking to improve the candidate experience but also shorten the cycle from when we need a person to when that person becomes billable. There's a number of things we can do to really get from need to revenue, if you will, faster, which is obviously good for us, but it's also good for the candidates. Nobody wants to start a job slowly. Everybody wants to hit the deck running. I think all of that positions us well for the year and beyond.

I appreciate it. Maybe just a clarification on cash taxes. It sounds like some of the $200 million headwind this year could possibly reverse in the future. Is your expectation that your go-forward cash tax rate will be 23% to 25%, and the headwind this year could reverse in future periods?

Yeah, you got it right, Gavin. We're staying between 23% and 25% going forward, and the $200 million associated with our strategic planning initiatives in prior years will come back to us. I can't tell you now exactly when it will come back to us, but it will, we expect, come back to us. Okay.

Thank you both. Thank you.

Our next question comes from Colin Canfield with Barclays. Your line is now open.

Hey, good morning. Can you explain to us the margin drivers in the quarter? So a couple of moving pieces that we talked about. The investor day, you know, called a roughly 10.5%, mid-10% guide for that FY25 target, but then we get 11.2% in the quarter. So maybe if you could talk about the level of investment that you saw in this quarter and how that kind of unfolds over a multi-year period.

Sure. Well, let's start with how happy I am with the fact that we're out of the gates with 11.2. And it really is a reflection of continued solid contract performance. And quite frankly, as the business has opened up, we're seeing an unallowable spend and billable expense mix start to normalize. In addition to that, higher indirect spend. We are in the early stages of investment. particularly around cyber platform, as you heard in our prepared remarks and digital battle space. So at this point, investment really is, I would characterize it as organizing our leadership, recruiting the right leaders, things of that sort. I think where that will put us over the course of the year is how I've guided, which is mid to high tens. So we will see some more investment over the course of the year, but A guidance range that I've provided so far is what I would use going forward. And also, just to close it out, it's also kind of back to our normalized pattern, where in the first half of the year, we do see higher margin performance. But in the second half of the year, it's where we typically invest in our people, infrastructure, and technology.

I'll just add one quick point, which is that our North Star financially is EBITDA dollar growth. And, you know, we're looking at a year where we're trying to deliver $950 to a billion and then accelerate in future years to get to the ultimate goal of $1.2 to $1.3 billion. And so, as Lloyd points out, we are managing cost, we're managing the business, and ultimately we are keeping a close eye on margin, but ultimately we want to grow EBITDA dollars, which really starts with organic revenue growth and everything else that we're doing.

Got it. And then maybe one more on capital allocation. But if you could talk about kind of the desire to get capital intensity within capital allocation, you know, obviously kind of the cyclical headcount backdrop that we think about weaker commercial IT hiring helping you guys. But at the same time, you know, you can make the argument that we're entering a structurally impaired demographic environment. So then if we think about, you know, how that affects capital allocation and especially kind of, you know, the headcount departure dynamics.

I'll start. You know, I'm pleased with the fact that we feel we've got the right levers in terms of allocating capital and for the benefit of our shareholders in the near, mid, and long term. And with those levers, it gives us a great deal of flexibility to do that. This particular quarter, $58 million in repos, $59 million in quarterly dividends, and the fact that we've got a growing pipeline of strategic M&A opportunities really sets us up, I think, to deploy against what we've stated for the long-term objective. Obviously, when we look at some of the M&A opportunities, we have to take into account the talent base and the cultural integration and That comes even way before what the financial implications are. But that goes hand-in-hand with how we think about our M&A opportunities. And so far, so good. In the case of Liberty, we had a really good experience there, and we're looking to replicate future deals along those lines.

Got it. Thanks for the call.

Thank you. Our next question comes from Kai Von Rumer with Cowen. Your line is now open. Kai Von Rumer, your line is now open.

Please check your mute button.

Yes, thank you very much and good quarter. Most of your peers are talking about the fact that bookings have been slow, but we have a very robust FY22 budget, and so we're expecting a particularly strong seasonally fourth quarter of the fiscal year this current quarter. Could you comment, do you agree with that? That's also normally your strongest quarter. And could you update us on the two large contracts that were protested, the billion one, I think, the NGA and the classified defense contract, that status? Thanks.

Hey, Kai, it's Lloyd. I'll start. You know, what we have historically seen as our traditional quarterly book-to-bill pattern is really starting to change in light of these larger procurements that can be awarded at any point in our fiscal year. So when you look at our Q1 of 0.72 times, that's really a result of not having one of these larger procurements hit, as you saw in our Q4 of last fiscal year. That being said, we internally look at the trailing 12 months of 1.21 times as the better indicator as to the demand signal. And we're seeing strong demand signals, particularly with our backlog up 6.7%, as well as continued growth in that regard. As to things shifting, with the exception of one or two contracts, we're not really seeing a lot of things shifting at this point in the year. And I would say that as we look toward next quarter, we're really seeing, as you point out, it continuing to being a seasonally strong quarter for us. And we're already seeing larger awards being released, an uptick in RFPs, and strong indications that our clients are going to move out before the end of the government fiscal year. As to the large protests, it's approximately 1.1 billion in total. As you know, we are in an environment that is heavily protested. We are optimistic that the things that are under protest will ultimately prevail. But it's sort of an environment, as you know, where it's heavily protested.

Thank you very much. And you mentioned EverWatch. DOJ, as you know, is challenging your proposed acquisition. I think they're asserting that if you bought EverWatch, you'd have a quasi-monopoly with an important customer. Could you comment, what is your response to that, and what is the status of that proposed acquisition?

Kai, why don't I take that one? Thank you for asking that question. I'll start by saying this is important. As part of Volt, the V in Volt is around velocity, and it's the notion that the right acquisitions accelerate our ability to bring the right capabilities to our clients in our environment where our clients need to move faster and need us to help them move faster. We look at acquisitions, including EverWatch, through that lens. And we do believe and strongly stand by the statement that EverWatch is not, if the consummating that acquisition would not just be good for Booz Allen, it would actually be good for our clients. For a sort of a further reading, I would point you to, we filed our answer last Friday to the DOJ claim. And I'm not a lawyer, so I'm just going to let you read that answer. I think it's very well done and it stands for itself.

Thank you.

Our next question comes from Bert Subin with Stifel.

Your line is now open.

Hey, good morning. Morning. Horacio, just for you, you talked about cyber in the beginning in your prepared remarks, and most of your peers also talk about their own differentiation in cyber. What do you think Booz is doing differently here that's ultimately going to get you to that $1.2 to $1.3 billion in EBITDA targets? I'm just wondering if you could highlight why you think you'll have an advantage on the cyber front.

You know, thank you for that question. I would characterize our position as one of first mover advantage. We have been working with the intelligence community on some of the toughest cyber challenges going on for decades. I can point you to Mike McConnell, who was former director of NSA, joined Buzella in the mid-'90s. And since then, we've been building both the position, the capabilities, and the workforce. which now it's a few months old, but I think was rated as the largest cyber workforce in North America, that we clearly both have the scale and the know-how. What our national cyber platform allows us to do is take that very unique tradecraft and make it available in the correct ways more broadly across a set of missions that deeply require it. Certainly, as you know, in DOD, Cyber is now one of five warfighter domains, and the ability to serve those missions with that unique tradecraft is going to serve us well. Also, and I think you've seen this in some of the releases, because of our unique position, we tend to attract unique partners, both large and small, highly innovative companies that have tremendous new capabilities that I think are going to be very significant to this fight. And then the last point I would make around cyber is because of both the breadth and the depth of our efforts, we're able to attract a unique workforce that wants to come here, wants to be at Booz Allen, and can serve, again, not just against our traditional clients, but I talked in the prepared remarks about the Cypress contract at NASA and a number of other opportunities that are on the pipeline. But I think, again, position Booz Allen uniquely both in terms of breadth scale, and depth in a way that nobody else can do.

Just to follow up to that, you mentioned five sort of dimensions of the battle space. Obviously, space itself has sort of come into the conversation more over the last couple of years. You've won some contracts with NASA. Can you talk about what your sort of growth aspirations with space agencies are?

They're significant. I think there's clearly an opportunity to use technology in a different way to transform our position in space. This is both around being able to aggregate data from all of these space collection systems and providing them to the warfighter in unique ways. That's a lot of what our digital battle space capability is about, work that we are already doing in space that can be transformed by some of the work that we're doing. And then really some of these intersections because, you know, we talk about five warfighting domains, but they're not separate from each other. So space and cyber, for example, to connect both of your questions, are tightly linked. And we have a unique capacity and capability to bring those two perspectives together in a way that really will benefit both the Department of Defense and the nation.

Thanks, Rafael.

Sure.

Thank you. Our next question comes from Matt Akers with Wells Fargo. Your line is now open.

Hi, good morning. Thanks for the question. I wanted to follow up on Kai's point about EverWatch and, you know, it was always, you know, kind of regulatory pressure around M&A. You know, curious how you see that kind of across the companies that you look at risks are and sort of if that shapes, you know, sort of the shift toward a little bit more M&A that you've talked about.

Yeah, I guess I'll... reiterate you know we feel that M&A for us is a strategic accelerator is very much consistent with Volt and it's a top capital deployment priority so we expect to continue building the pipeline and we expect to you know continue to be successful down that path you know we have a strategy around Volt that we are following and I'll reiterate, I really do believe that the right acquisitions are both good for Booz Allen, certainly, but also good for our clients and ultimately increase competition.

Got it. Thanks. I guess to clarify on the cash tax, kind of the incremental $200 million, is that something that there are still sort of tax planning efforts that may be shift and possibly be better, or is that 200 kind of pretty solid at this point?

Yeah, it's pretty solid at this point. You know, we, over the years, you know, our tax planning strategies really created some positive tailwinds. And, you know, the IRS is looking at our amended returns, and we expect that it's going to come back to us. It's just a timing matter. Okay.

Thank you.

Thank you. Our next question comes from Rocco Barbaro with JP Morgan. Your line is now open.

Good morning. Good morning. Are you guys able to provide an update on your visibility to the second half where there is a little more caution on the last call?

You know, our guidance for the year five to nine really took into account a number of elements that have yet to play out. Certainly when we come up on the midterm elections, that could have an impact. Certainly the next COVID variant in terms of the productivity of our workforce, the geopolitical conflicts that are going on. So, you know, we've got a little bit more uncertainty in the back half, but how we've tried to capture that It's having a little bit wider guidance range for the year, five to nine. As we approach the second half, we'll have a little bit, I hope, clarity as to where things are going to break. But again, to reiterate Horacio's comment at the beginning, we're really building nice momentum, certainly in this quarter. We're looking to do the same in the second quarter. And that will, we believe, help us sort of navigate the uncertainty in the back half of the year.

Great. Thank you very much. Sure.

Thank you. Our next question comes from Mariana Perez Mora with Bank of America.

Your line is open. Mariana, your line is open. Please check your mute button. Our next question comes from Toby Sumber with Truist. Your line is now open.

Thank you. Along the same lines as the back half of your fiscal year, what are you hearing and assuming for a budget in fiscal 23 out of the U.S. government, and does your guidance assume movement there or a continuing resolution?

You know, I think our guidance assumes increased volatility which ultimately says we are not trying to predict exactly what will happen. I think a continuing resolution is quite possible in the current environment. We certainly saw that at the beginning of this year. And so, you know, as I mentioned the prepared remarks, we are focused on what we can control. And what we can control is our ability to hire people and get them on contract as quickly as possible. our ability to continue to win the right kind of work that's consistent with Volt, our desire to manage costs so that we can both invest and provide some resilience against the inflationary pressures in the environment, and ultimately continue to pursue strategic M&A. So when you put all of that together, I feel really good about the first quarter because it demonstrates that we're both building momentum and resilience against this year and the potential volatility in the second half, but more broadly against the timeframe of our entire investment thesis and the fact that Volt is working.

Thank you for that. And I wanted to ask a follow-up on EverWatch. I want to get your sense for exactly how important this is, this dispute, because it seems like the DOJ is sort of defining a contract as a market, and what the outcome of this and this sort of regulatory approach can mean to your ongoing strategy to be more active in terms of acquisitions.

You know, I think, as you probably know, we're talking about a relatively small contract that's at the center of all of this. Again, I would point you to the answer we filed last Friday as a sort of comprehensive view about our view of sort of what is the right way to proceed and why we believe acquisitions like EverWatch are both good for us and good for our clients. And so at this point, we continue to build a pipeline. We continue to prioritize strategic acquisitions And we hope to prevail on this one, but this is our strategy, and it's really around increasing our velocity.

Thank you.

This concludes the question and answer session. I would now like to turn the conference back over to Horacio Rozanski for closing remarks.

Thank you very much. Thank you all for your questions this morning and for joining us. Close on a bit of a personal reflection. Next week, I'll celebrate my 30th anniversary with Booz Allen. And, you know, it's a time of reflection when you think about what kept you here a whole career where perhaps that wasn't the original intention when I joined in the early 90s. And I come back to there are many factors, but the central one for me has been the people of Booz Allen, the people that had an opportunity to to work with and on the earnings calls, Lloyd and I have the honor of representing the collective achievements of our colleagues. There's now over 29,000 people at Booz Allen and they, you know, they really are our greatest asset and as you heard on this call, given the work that we do, many people think of them and I think of them as a national asset as well. And through some really volatile and trying times, our people have continued to persevere And they've shown unwavering commitment to our clients' missions, to our communities, and personal to me, to each other. Their catalyst for change, their passion for doing good is inspirational and healing. And the impact of their work shows not only in the results we discussed today, but also in the lasting change they make to our clients' missions and to our nation and even the world. Dr. Martha Luther King once said that Only when it's dark enough can you see the stars. And in the current environment, these days, we're living in moments that at times can indeed feel very dark. And our people, our Booz Allen stars, if you will, are the guiding light for all of us. They're best proof points of our firm's fundamental strength and resilience because they live our purpose and values each and every day. So if you'll allow me today, I'd like to just close with a simple thank you. Thank you to the people of Booz Allen for all you do each and every day and for what you've done for me over 30 years. And to those of you on this call, again, thank you for being here and thank you for joining us. Have a great day and a great rest of the summer.

This concludes today's conference call. Thank you for participating. You may now disconnect.