Good morning and thank you for standing by and welcome to Booz Allen Hamilton's Earnings Call covering Fourth Quarter and Full Year Results for Fiscal Year 2019. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. I'd now like to turn the call over to Mr. Nick Veasey.

Thank you. Good morning and thank you for joining us for Booz Allen's fourth quarter and full fiscal year 2019 earnings announcement. We hope you've had an opportunity to read the press release that we issued earlier this morning. We've also provided presentation slides on our Web site and are now on Slide 2. I'm Nick Veasey, Vice President 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 and Chief Financial Officer. As shown on the disclaimer on Slide 3, 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 our 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 fourth quarter fiscal 2019 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 fourth quarter fiscal 2019 slides. It is now my pleasure to turn the call over to our CEO, Horacio Rozanski. And we are now on Slide 5.

Thank you, Nick, and good morning, everyone. Lloyd and I are pleased to report today outstanding results for fiscal year 2019. The people of Booz Allen excelled on all fronts serving clients with talent and dedication leading our firm in exciting new directions and delivering financial performance that exceeded even our own expectations. As a result, we enter fiscal year 2020 on April 1st with a great deal of momentum and optimism about the future. This morning, I’ll summarize our performance against the investment thesis we presented last June. I will also talk about the medium-term strategic outlook and highlights of fiscal year 2019. Then Lloyd will take you through the numbers in detail, including our guidance for this fiscal year. The headline as we close the books on fiscal year 2019 is that Booz Allen in essence jumped a year ahead on the three-year horizon as we saw it last June. We said at the time that our investment thesis has three parts. It begin with our differentiated market position operating right where our clients need us the most at the intersection of consulting, mission and technology. We said we believe this unique positioning would drive 50% ADEPS growth to about $3.00 per share by fiscal year 2021 and that we aim to achieve this through a combination of organic revenue growth, margin expansion and efficient capital deployment. We also pointed to the potential for additional growth or option value from the new capabilities and business lines we’ve been investing in. Against that backdrop, in year one of our three-year period, we delivered 39% ADEPS growth to $2.76 for fiscal year 2019. If you look across all the key metrics, our performance improved against what were already very strong results in fiscal year 2018. This allows us to update…

Thanks, Horacio, and good morning, everyone. I have the pleasure today of presenting another exceptional quarter of performance to round off a year that again produced industry leading organic revenue growth and record earnings. When we presented our investment thesis almost a year ago, we set ourselves ambitious three-year financial goals; 50% ADEPS growth driven by a combination of annual revenue growth of 6% to 9% and 10 to 30 basis point of margin expansion over the three-year period and a cumulative $1.4 billion of capital deployment including dividends over the same timeframe. Thanks to the unique market position we occupy, a favorable market environment and the hard work of our people, we are further along in our three-year journey than we thought we would be at this point. For the full year, as Horacio noted, we outpaced our guidance for both the top and bottom line. Growth in revenue, excluding billable expenses, of just over 9% and adjusted EBITDA margin performance well ahead of our expectations enabled us to deliver adjusted diluted earnings per share of $2.76 for fiscal year 2019, just $0.24 shy of our $3.00 ADEPS goal for fiscal year 2021. These results show that our strategy and operational execution position the business to take maximum advantage of a favorable market environment in fiscal year 2019. Our outperformance in year one sets a new foundation for the remaining two years of our investment thesis horizon and we anticipate will enable us to end fiscal year 2021 further along in our growth trajectory than we initially thought. As Horacio noted, this means that we are in a position today to update our three-year ADEPS goal to 66% ADEPS growth from fiscal year 2018 through fiscal year 2021. Our continued confidence in the business and the strength of our…

Great. Brian, please open the lines.

Thank you, sir. [Operator Instructions]. Our first question will come from the line of Carter Copeland with Melius Research. Your line is now open.

Hi. Good morning, gentlemen. Hope you had a good holiday?

Good morning. You too.

Hi, Carter.

Horacio, I wondered if I could just sort of ask you a high level question about sort of comments you alluded to in your opening remarks and it’s just around the evolution of the firm’s growth posture. Back when you kicked off Vision 2020, you were sort of investing in growth when growth wasn’t there. But now a lot of your comments and what you’re seeing in the market shows you that the customer is embracing growth in kind of a new way. So when you think about what it is you’re investing in whether it’s verticals or dollars or whatever, can you give us some color on where you may be shifting focus to or from or if there are places that you can accelerate your efforts? It seems to be a bit different than where we were a few years ago and I wondered if you could kind of give us some color on how that’s evolving?

Thanks, Carter, for that question. I guess the way I would answer it is when we launched Vision 2020 we were clearly investing way ahead of demand. And that was challenging because it’s hard to sustain, if you will, the desire to continue to do that. We’re now in the payoff period of Vision 2020 where the demand is there, where we are well positioned to capture what we have prepared for. If you think about everything from AI to open architecture to digital, we’re there; directed energy, we’re there; integrating all of these multi-domain warfare technologies and tactics, we’re there. That’s what we have been preparing to do. And as a result we’re looking at industry leading revenue growth for at least the next couple of years, we’re looking at being able to take that with strong margins through to the bottom line and to deliver for our shareholders what we had hoped and we intend as we do that to continue to double down on these technologies and on being the technology translator for our clients as they seek more of these to counter threats and to improve their missions.

Do you see more areas like the ones you mentioned to – that are significant that three years from now we’ll be talking about in the same way?

A lot of I think where we’re going to be evolving to with the conversations we’ve begun to have a year ago in June at Investor Day around what we call option value, the idea that we can monetize intellectual capital in different ways and take these new technologies in new ways creating platforms for AI, not just AI services, creating new value at higher margins on directed energy. I think these are the kinds of things we’re going to be talking about over the next couple of years. But at the same time I don’t want to minimize that the value that we are creating already in our core business at historically high margins at industry leading revenue rates, we expect and intend to see that continue. And as we build the option value portfolio, we’re doubling down on all the things that are working.

Okay, great. Thanks. I’m good with the follow up and let somebody else ask. Thanks, guys.

Thank you.

Thank you. Our next question will come from the line of Jon Raviv with Citi. Your line is now open.

Hi. Good morning, everyone. So you raised your FY '21 numbers but you’re sticking with the $1.4 billion of deployment, so it means there’s some excess cash somewhere. Can you talk about your plans for that related to it and seems CapEx is certainly consuming some, so can you help us think about that strategy and the payback periods for that sort of spending?

Sure. We’re very happy with what we’ve been able to do in terms of cash generation. And when it comes to our capital deployment, we’ve got a strong position that’s driven by a combination of our performance, our operating performance as well as our balance sheet growth. We also feel that our deployment strategy is disciplined and provides as we said in our prepared remarks value for our shareholders both the near and long term. We’re going to continue to be focused on the levers that we’ve long talked about; share repurchases, our regular occurring dividends, capability tuck-ins and the possibility of a special. That has really allowed us to leverage our balance sheet strength where we’ve got ample capacity to meet our investment thesis goals going forward. So from cash generation to capital deployment, we feel that our strategy is working and we’re very pleased with the result to date. When it comes to CapEx, we said that we expect to be around 100 million for the next couple of years, again, focused on investing in our infrastructure, our facilities as well as long overdue IT modernization efforts. We feel this is a smart investment as we continue to grow and provided the financial performance, the returns that we’ve given and we feel that from a CapEx standpoint the return is going to continue to fuel that growth.

And just to confirm, Lloyd, on the call you said 120 for FY '20.

That’s correct.

Okay. And then just a quick follow up just thinking about FY '20, can you just help us bridge to the bottom line number, the EPS number just given the elements you’ve given us? I know that the margin outlook isn’t precise and I know that the FY '19 had some one-timers flowing through margins. So maybe sort of level set us on which numbers we should be starting from as you think about margin going into FY '20?

Sure. As we said in our investment thesis, we’re very focused on growing ADEPS and given the performance that we’ve had in FY '19, we feel that we’re well on track with our investment thesis. Starting at the top line, the 6% to 9% growth range again is consistent with what we see occurring in the market given Horacio’s comments about the entire year. We feel that that is demonstrating above market growth and then allows us to provide the ADEPS performance at the bottom line. On the margins, we’re well ahead from the mid-9. We’re very pleased with 10.1% that we produced in FY '19 and we expect to hold that going forward. That then with smart tax improvements that we’ve been able to achieve will allow us to reach the ADEPS range of $2.90 to $3.05.

Thank you very much.

Thank you. Our next question will come from the line of Sheila Kahyaoglu with Jefferies. Your line is now open.

Thanks. Good morning guys and thank you. Just to Carter’s question, Horacio, maybe we could follow up. How do we think about as your focus changes, how does hiring change? How does that change who you’re targeting as employees and what does that have in terms of wage implications and maybe it changes your overall contract structure?

Hi, Sheila, great question. We’ve been on this path of hiring an increasingly more technical workforce now for several years. I talked a year ago about the statistics and they show that the growth in our technical workforce is faster than the overall growth rate. As you heard from Lloyd, this year we added over 1,400 net new employees. Again, the predominant characteristic is people who can integrate technology, especially the leading edge technologies with all of our mission knowledge and all of our consulting expertise to drive real results for clients. That is shaping our work and is being shaped by what we’re selling. If you look into our pipeline, a lot of our pipeline is around taking new technology and integrating it into clients’ missions in different ways because we’ve been at it longer, because we have now scale in all of these things we feel that that’s a differentiated position in the market. It allows us even to attract a new set of partners and collaborators from industry, especially from the commercial sector that wouldn’t have a pathway into the federal sector. We talk about our partnership with NVIDIA. We’ve talked about many of the Silicon Valley companies that we work with. All of that together creates a unique position. Our clients have been willing to cover the reality that these folks operate at higher salaries. The fact that a lot of our contracts are cost plus in this sense is actually very positive and we feel good about our ability to both maintain pricing, as Lloyd talked about, sustain historically high margins while at the same time continuing to grow rapidly this direction.

Great. Thank you. And then, Lloyd, one for you. Cash flow guidance is relatively weak relative to higher EPS growth. How do we think about maybe cash flow growth from here and closer in line to what your net income is growing?

Yes. Sheila, we’re pleased with our ability to improve upon our cash generation. The improvements that we’ve made over the course of FY '19 we feel really kicked in, especially over the fourth quarter. We’re expecting to be up to 450 million in FY '20 and that excludes the tax benefit that we received in FY '19. That being said, we think we’re on pace to be at the same levels if not slightly above in FY '20.

Great. Thank you.

Thank you. Our next question will come from line of Cai von Rumohr with Cowen & Company. Your line is now open.

Yes. Thank you very much. So your G&A as a percent of sales spiked up to 15.3%, that’s considerably higher than it’s been in past quarters. Was that investment growth? Why was that so high? And what should we be looking for going forward into fiscal '20? Thanks.

Sure. Cai, we manage on an annual basis and the increase that you make reference is really related to salary and related benefits for our workforce.

Well, is it therefore going to continue in fiscal '20? What sort of G&A to sales ratio should we look for? You’ve been going around 13.8 something like that. Are we going to be in that area?

Yes, it’s really related to the increase in headcount that we’ve been able to achieve with over 1,400 folks added. That’s what we believe is contributed to the slight increase, but as Horacio mentioned, we’re going to continue to focus on an overall workforce increase around 5% and I think the resulting ratio will be reflective of that.

Great. And last one is if we take the midpoint of your guidance, the individual items of your guidance for fiscal '20, it looks like you should do about $3.10 not $2.90 to $3.05. Am I missing something there?

No, we’re very happy with our guidance at this point. Really feel that it reflects the confidence in our market position. And with ADEPS growth of 8% year-over-year at the midpoint we believe that we’re certainly on track with our investment thesis.

Okay, great. Thank you.

Thank you. Our next question will come from the line of Edward Caso with Wells Fargo. Your line is now open.

Hi. So following up on Cai’s question here, can you level set us on the net interest expense for assumption in F '19? Obviously you’ve raised 400 million not deployed yet. You’ve got active share repurchase maybe at a more aggressive pace this year as well embedded in the guide. So if you could level set us on interest? Thanks.

Sure. We feel that we’re going to maintain the interest given today we’re at 52% fixed rate versus two years ago we were at zero. So we’re focused on maintaining that given where rates are today.

Can you offer the dollar number or dollar range that’s implied in your guidance?

No.

Okay. My other question is, the clients are begging you for innovation and you talked a lot about innovation, but the contracting process still seems to fight that. What are you doing – are your clients changing behavior or what are you doing to sort of facilitate the adoption of innovation?

Ed, we’re seeing a shift in some places. I think as you know the client community is not monolithic and some contracting shops lean forward into new contracting approaches into being able and willing to apply the flexibility that’s available to them. We’re seeing OTA as one example of how that manifests itself but that’s not the only way which we’re doing it. We’re seeing clients do bakeoffs around prototypes and choose best of breed and we’re leaning into the types of clients that are really valuing innovation and looking for them inside each agency, inside each department and finding them. And that’s what’s fueling both the growth but also the differentiation that allows us to sustain by margins, to sustain unit growth rates and to attract the right people that then allows us to start that virtuous circle, if you will, all over again. I can’t say every client is there. I don’t think that would be the right characterization, but there are certainly enough clients there and enough clients underway there to paint for us a very bright picture about the future.

Great. Thank you.

Thank you. Our next question will come from the line of Joseph DeNardi with Stifel. Your line is now open.

Yes, thanks. Good morning. Horacio or Lloyd, can you just talk about kind of the degree of competition that you typically see across the business, maybe if you want to talk about the pipeline or the backlog? How much of the business is maybe you and one to two competitors three to four and then more than five ballpark? Thank you.

I’ll be honest, we don’t look at the business that way and because a lot of these procurements are complex and teams get formed, sometimes you’re teaming with somebody who wants procurement and you’re then competing head-on another one. The environment remains very competitive. And our clients benefit from that and they benefit the pricing and they benefit in the quality of the work that they end up getting. I feel very confident that we have carved for ourselves a unique place in this market around all of the things that we’ve been talking about this morning. So while we will go into procurements oftentimes with several competing themes, we tend to prevail on the strength of the uniqueness of our solution, on the strength of having done something like that before as opposed to this being our first time and ultimately on the quality of the delivery that either will add to that or will come from that that then doesn’t just like you win the job, but also win the recompete. So again, it all goes back to this notion of not how many competitors by how differentiated are you when you go resend your answer to the client.

I would just add that we remain focused on our backlog. And in '19, it was up around 20%; in '20, it was up 28%. So from our perspective, we are not demand constrained. It really goes back to competing in a tight labor market which we’ve been able to do with over 1,400 folks added to the team in '19.

Okay. And sorry if you addressed this earlier, but can you just quantify maybe the cadence through the year in terms of what the upside could be if you get a budget passed maybe sooner than you’re expecting? Thanks for the questions.

So let me do a qualitative view on that because we don’t do quarter-by-quarter guidance. But what we have said is we are planning to be relatively more aggressive in the first half. If you look at us, typically we come out of the blocks in the first quarter conservative, we typically come out flattish on hiring and we build up throughout the year. This year we’re trying to come out of the blocks harder with a stronger hiring in the first quarter and the first half. And if we have a budget and everything is great in the second half, we’ll continue that trend. And if things are a little bumpier than that, we will hopefully have built enough momentum to deliver on all the commitments for the year in spite of that.

Thank you. Our next question will come from the line of Gavin Parsons with Goldman Sachs. Your line is now open.

Hi. Good morning, everyone.

Good morning.

Lloyd, a second ago you mentioned that the funded backlog is up almost 30% year-over-year. If you look back at the last couple of years, the unfunded and priced options have pretty significantly outgrown funded and this is the first year where you really saw funded kind of gain traction. Is that a direct result of price dropping through to unfunded, dropping through to funded? So should we look back at the historical total book to bill and think of that as translating through to funded and giving you more visibility and growth going forward or is that the wrong way to think about it?

No, the right way to think about is looking at the trailing 12 months when it comes to book to bill. That’s what we’re focused on. Typically, the quarter-to-quarter just track the seasonality that the government procurement cycle is under. I think it’s great that fund is up 28%. And as I said in previous calls, we looked at price option really as a leading indicator in terms of our client demand not only for conducting the work, but also demand for Booz Allen to support it. So book to bill of around 1.5 is great. The backlog being up, as I mentioned a minute ago. Going into '19, the pipeline value wise is up 20%. So again, we’re not constrained by demand from our perspective. It’s really competing in this tight labor market.

So in essence you could grow 6 to 9 without maintaining a 1.5 book to bill?

No. Again, if we’re bringing in headcount around 5%; that provides us with a conversion that will put us in that 6% to 9% range. The 1.5 because as we look at it really just over the course of the year, do we have the demand there to do that conversion. But for our model, we really remain focused on our people, invest in our people, development and training programs and so that really fuels the top line growth from our perspective.

Makes sense. So then maybe can you just help with how much kind of the investment in both headcount and CapEx, how much of those going toward future wins B&P versus kind of scaling and ramping up that what you’ve already won?

Yes, we don’t break it down that way. Basically our investment which you saw in Q4 is really aimed at our people, our people program, the recruitment of the talent in this tight labor market and that has given us momentum we believe going into FY '20. On the investments that we’ve had around our infrastructure, IT and facility is really hand-in-hand with that people focus. In today’s job market, our workforce is looking for an environment where they could be highly collaborative, our facility upgrades facilitate that and then we want to work with the latest and greatest technology in order to support our clients and our IT monetization efforts are aimed at that.

Let me just add. Our proposal pipeline is also up over last year this time. So we’re not trading all; growing our backlog, growing our client portfolio with growing our people. We’re actually doing both.

Great. Thank you.

Thank you. Our next question will come from the line of Tobey Sommer with SunTrust. Your line is now open.

Thanks. Are there new areas that you’re investing in thematically if I think back to the areas of investment that you focused on for Vision 2020? Wondering if there are new ones on the horizon that you’re investing in today and maybe winning contracts in two, three years? Thanks.

Sure. I think it’s – let me put it into two buckets. One bucket, as I mentioned before, is the option value portfolio where we’re investing in taking intellectual capital that we have but we think has high growth potential into the future and building a business model around it that would potentially deliver completely different economics. So I’ll use artificial intelligence as one example. Inside our core business we are seeing tremendous pipeline and a lot of growth in the traditional services model where we’re taking our intellectual capital to our clients in the form of labor hours. People working on some of the major projects that you see mentioned in the press, building the algorithms, building the models that actually allow AI to do better intelligence, to do better defense of our troops, to do fraud detection and so forth. At the same time, we are investing on trying to figure out if we can create software-as-a-service, AI-as-a-service type environment that would actually have different economics and that could actually be sold as part of the complete solution to the client together with the labor hours. And then that’s the kind of thing that has me very excited about the future. We have amazing intellectual capital that needs to get monetized in different ways so that we can continue to invest and advance new technologies. At the same time, we’re looking at Quantum, we’re looking at 5G, which is not tomorrow it’s today and a number of other things. So we’re always looking at what’s next in the horizon and pulling those things forward into clients as soon as we can.

Thanks. And when I think about the business model growing organically 6% to 9% the top line headcount a little bit lower than that, could you just talk about margins and where they can go because your initial three-year look at an annual margin expansion target and you kind of shifted to talking about the low 10s. Thanks.

Sure. We’re very pleased with our ability to be in the low 10s and from our perspective we’re ahead of where we thought we would be somewhat in 60 days. We’re always going to be focused on strong operating performance and cost management. We were able to do that very well in FY '19 and that produce the results that we saw finishing up at 10.1. In the long run we believe margins are going to be driven by our growth in our commercial business as well as the option value investments that Horacio spoke to. So we think it’s sustainable in the low 10s and that’s our goal for FY '20 through '21?

Thank you. Our next question will come from the line of Tim McHugh with William Blair. Your line is now open.

Hi, guys. Thanks. Just first I guess maybe on the two recompetes you said you actually didn’t win that you thought you would win. Is there any trend or similarity or anything you learned I guess as you think back to why you didn’t win them as we think forward? Thanks.

No. These things go driven by several factors in today’s environment; contracts are getting bundled, we lose some things as we’re chasing different types of new work consistent with our strategy and we’re always actively shaping the portfolio. Bottom line is our pipeline is up by 20%. We remain very confident going forward.

Okay. And then I guess on the Middle East, it was mentioned briefly some disruption I guess within the global commercial piece. I assume – I guess maybe elaborate but I assume that’s just related to some of the headlines we’re seeing about scrutiny out of Saudi Arabia, but can you elaborate and how meaningful is that to global commercial as we think forward?

Sure. A couple of issues. One – and these are industry issues, not just Booz Allen issues. The pattern of cash collections in that part of the world tends to lead to higher DSOs and we’re both aware of that and managing that closely. The geopolitical implications that we talked about in terms of the headlines, it has some secondary effect. So, for example, it takes longer to get export licenses now than it used to and we need to look at that very carefully because a lot of our work is under export licenses. And we and all companies are being judicious in terms of the work that we take on to make sure that it aligns with our values and that it is long-term sustainable. Having said that, global commercial in its totality is only 4% of our portfolio and our work in the Middle East is well less than half of that. And when you look at the totality of our global commercial business, it has been growing upwards of 25% now for several years. Our work, especially in the U.S., continues to grow very robustly. We’re very excited about it and we see great potential for continued growth and continued margins into the future.

Thank you.

Thank you. And I’m showing no further questions in the queue. So now it is my pleasure to hand the conference back over to Mr. Horacio Rozanski, President and Chief Executive Officer, for any closing comments or remarks.

Thank you very much and thanks everyone for your questions. I hope Lloyd and I have conveyed our pride in the firm’s performance, our confidence about our market position and our optimism about the future. The great team of professionals we have the privilege to lead is serving clients exceptionally well and expanding our business into exciting new areas. It’s on the strength of their talent, their focus and values that this institution continues to thrive. So we look forward to continued growth and success in fiscal year 2020. Thank you again for joining us today and enjoy the rest of the day.

Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude our program and we may all disconnect. Everybody, have a wonderful day.