Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering Fourth Quarter and Full Fiscal Year 2022 Results. 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 Ms. Laura Adams. Please go ahead.

Thank you. Good morning and thank you for joining us for Booz Allen's fourth quarter and full fiscal year 2022 earnings call. 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 2. I'm Laura Adams, Senior Vice President and Treasurer and Interim 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 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 are forward-looking, which may relate to future events or our 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 SEC. 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 new 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 fourth quarter fiscal year 2022 earnings release and slides. It is now my pleasure to turn the call over to our CEO and President, Horacio Rozanski. We are now on Slide 4.

Thank you, Laura, and good morning, everyone. Thank you for joining the call. Before we begin, I'd like to take a moment this morning to acknowledge the tragic events continuing to unfold in Ukraine, and share how Booz Allen is responding. As millions of people fleet a country or are displaced, the need for humanitarian assistance and protection grows more acute every day. In response, we committed to provide aid through an employee giving campaign and company match. Our employees' engagement in the campaign has been tremendous, and I am grateful for their generosity and compassion. From a mission perspective, our teams in Europe and the U.S. are supporting our clients across a broad range of areas. They are working around the clock to deliver critical capabilities and insights to our clients, true to our purpose. They are working relentlessly to change the world. I'm thankful for their dedication, the extraordinary power of their work, and the difference they're making to our teams supporting these missions. On behalf of the entire leadership team, thank you. Thank you for the work you're doing and the sacrifices you are making to serve our clients and the nation. It's an honor to call you our colleagues. Today, and always, our thoughts remain with the Ukrainian people, and we hope for a peaceful and just resolution to the conflict soon. This morning, Lloyd and I are pleased to report our results for fiscal year 2022. In a year marked by exceptional volatility, Booz Allen committed to a new growth strategy and multiyear financials, invested in our future and managed the business with precision and skill. I am extremely proud of the work and the impact our leaders and our entire team have made. Their talent and dedication underpin the results we shared with you…

Thank you Horacio and good morning everyone. We are pleased to share our fourth quarter and full year results for fiscal year 2022. Our performance highlights our strong business fundamentals and demonstrates our ability to meet expectations and accelerate growth as we exit fiscal year 2022, with broad-based momentum across all aspects of our business. Before walking you through our results, I want to frame the conversation and the context of our investment thesis, which is centered around growing adjusted EBITDA dollars by 50% through fiscal year 2025. To achieve this objective, we defined long-term financial targets at our Investor Day that will guide us. First, 5% to 8% annual organic revenue growth. Second, adjusted EBITDA margins stabilizing in the mid-10s and lastly deploying between $3.5 billion and $4.5 billion in capital. As you see our results exemplify our teams' disciplined and deliberate actions to execute against these long-term objectives to drive superior shareholder value in the face of operational challenges we have navigated over the past couple of years. Let me open with a few highlights from our fourth quarter result for fiscal year 2022. Revenue growth of approximately 13% compared to the prior year period represents our strongest quarter of growth since before the pandemic. Specifically, we reported growth across all of our markets with double digit growth in three of the four markets, underpinned by our fourth consecutive quarter of mid single digit headcount growth as we capitalized on strong demand signals resulting in a record fourth quarter book-to-bill of 1.66 times. Adjusted EBITDA margin was 9.2% a decrease of approximately 60 basis points in the quarter though, still contributing to 50 basis points of expansion for the full fiscal year. This marks an exceptional year of margin performance. We maintained strong contract execution and recognize cost…

Thank you, Lloyd. Operator, please open the lines.

Thank you. Our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Good morning, Horacio and Lloyd. Thank you for the time. So congratulations on like the inflection in revenue growth. You guys have been talking about it for a few quarters now, what drove that? It seems like things came together all at the same time, whether it was the eMAPS contract being awarded the recompete strong civil growth, and how do we think about that 5% to 9% revenue growth for 2023 in terms of the business segments or verticals?

Hey, Sheila, good morning. Thanks for the question. Let me maybe take a step back and frame last year into this year and beyond if that’s okay and I’m sure Lloyd is going to want to add to it. I think we went into last year. We’re very pleased with the results obviously, but having said that, there was a fair amount of volatility in the environment that I don’t think we fully captured in our guidance a year ago. And so we’ve been thinking about that and making sure that, that we are doing that into this year and beyond. As you look throughout the years sequentially, we hired really well. We won a lot of work and really all of our markets began clicking on the growth posture that we expect them to have. And that needs to continue for sure into FY 2023. If you look at FY 2023 guidance, we’re trying to do two things. One is we’re trying to be respectful of the fact that the volatility in the environment that we saw last year will not abate this year. And so we need momentum in the first half because we expect the second half to be somewhat more volatile. To reach this 5% to 9% growth rate, we’re really focused on organic growth and on organic growth across all of our markets, not one versus the other and the priorities are what I mentioned before, we need to hire, we need to win work, we need to continue to manage our cost base, so that we can be sure we have the resources to reward our talent and retain our talent. And then we really need to make smart capital deployment decisions, so that we can actually make acquisitions this year that will propel growth into the future. If I look at it all together and maybe to wrap up the – my part of the answer to this question is to say, we’re on track on the multi-year investment thesis, because we are really focused on organic growth and we’re able to deliver it.

Sheila, thanks for the question. As it pertains to guidance, there are a couple dynamics we wanted to stay true on. One is that we’re well positioned. We wanted to capitalize on the strong momentum and we wanted to stay true to our investment thesis. And last October what we said was we were focused on adjusted EBITDA dollars. So as we exited 2022, our range of $950 million to $1 billion says to us that we’re on track. And when you look at each of the ranges for the components, you also notice that it’s a little bit broader than what we historically have done. And we attempted to take into account all those elements that Horacio mentioned that in previous years, we probably didn’t get quite right. We identified them, but not the impact. So the 5% to 9% in revenue from our perspective is returning to that organic growth objective being the leader in the sector that we have been in the past. The margin of mid to high 10s, as I said in my prepared comments really is a reflection of returning to a more normalized environment. Some of the dynamics with billable expense, probably shifting a bit, being more of a headwind, same with unallowable costs and the opportunity to invest in the business areas that we highlighted last October. Cash, the operations are generating solidly. So our range of $850 million to $950 million, excluding cash tax payments we feel is really going to give us the flexibility to do what we need to do. And the cash taxes are really a timing issue. I mean, this year $400 million of it is really going to be income tax expenses with a higher tax rate, effective tax rate and $150 million for that Section 174 legislation. And then lastly with ADEPS $4.15 to $4.45 also reflection of higher tax rate, a bump up in interest expense, and the diluted shares outstanding. And just as a reminder, this is why we’re focused on adjusted EBITDA dollars. We recognized last year that we were going to have some things impacting the bottom line that we’re going to be outside our control. So we think the guidance is on track. It’s consistent with our investment thesis and we’re off to a good start.

Thank you both for that. Just one follow-up Lloyd that $400 million of cash taxes, it seems one time in nature. What do cash taxes normalize to in terms of the cash tax rate going forward?

Yes. This year we’re going to have at its headwinds. We suspect that the point in the future it’ll come back to us. So we felt that bridging it for everyone today so that we don’t have to revisit it in the future. You’ll see sort of what the dynamic is. So a little bit of a crystal ball Sheila in terms of where it actually will normalize, but certainly the upward trend – there’s an upward trend to it.

Okay. Thank you.

Thank you. Our next question comes from Gavin Parsons with Goldman Sachs. Your line is open.

Hey, good morning.

Good morning, Gavin.

Lloyd, if I could just stay on the cash taxes for a minute there. Could you give a little bit more detail just on what exactly is driving that given, it looks like that’s almost double your GAAP tax rate. I mean, is that something that you’ve underpaid over the last few years or are you prepaying for the next few years?

Yes. You’re exactly right. In the past, we underpaid and so again, back to my answer to Sheila expected to come back. So it’s really a timing issue. We’ve had a pretty strong strategy around taxes over the years and payments comparatively were lower in the last two years due to the implementation of our strategic tax initiatives. So we do expect normalization as the benefits from our ongoing initiatives are recognized.

Got it. And I know you said it's a bit of a crystal ball, but is this the cumulative amount of underpayment? Or do you think you still have some to go in the future?

Probably some more to go in the future, but it is what it is right now.

Okay. Thank you. That's helpful. And then maybe on headcount growth. I know 4Q is not typically the strongest hiring quarter, but maybe if you could discuss why headcount didn't grow sequentially in the quarter and what you're assuming for headcount growth in fiscal 2023?

Why don't I start? I mean, obviously, this is our top operational priorities to attract and retain the right people in the business. And we feel we're doing very well against that if I'm not mistaken, we're at 5.7% over – year-over-year headcount growth for FY 2022. We always started to get the mid-single-digit headcount growth and to meet our organic growth requirements. We'll do the same thing in 2023. The Q4 numbers, as you pointed out, first of all, that's not typically our strongest hiring quarter. But the other thing is, as we continue to control costs and make sure that we're doing the right thing there, there's – what you don't see in the numbers is a shift from non-billable staff to billable staff that happened throughout the quarter as we hire more in one area and when we manage down some costs in the other area.

Okay. Thank you both.

Thank you. Our next question comes from Louie DiPalma with William Blair. Your line is open.

Good. Good morning, Horacio, Lloyd, Laura and Megan. And congrats, Kristine, on your appointment.

Thank you. Thank you for that. We're very excited about that.

For the eMAPS recompete, is the ceiling double the previous ceiling? And was the original contract expected to end in 2023?

The ceiling is expanding greatly. I haven't done the math precisely, but I think there's at least $0.5 billion of new ceiling in there as the mission, the scope continues to expand and frankly, the impact of our work makes our clients need and want more, as you know, we were expecting this to be done earlier in the year, but it's we're poised to ramp up there. I think it underlies why we are confident the growth of our defense business this year. And again, it is obviously financially important, but it's also strategically important because this is the type of work we want to do. At the center of the mission, driving both mission priorities and technology into core key missions that are going to need and are going to be transformed by it. And I think we've pointed out this may be the largest single task order in the history of Booz Allen, so we're excited about that.

Great, Horacio. And it seems that you're investing significantly in this area. You established the partnerships with Synthetaic and Reveal. And following this successful renewal, I was wondering how are your other data analytics programs progressing such as during your Analyst Day you highlighted project Rainmaker with the Army, and you've also highlighted your Advana platform that you co-developed with the DoD. I was wondering broadly how all of your initiatives with AI are progressing. Thanks.

Thank you for remembering what we talked about at Investor Day with such clarity, Louie. Sometimes we – it's hard to tell if people are going to remember everything we talk about, so I'm really appreciative of your attention to all of this. I think this all falls into the rubric, generally speaking, of digital battle space, and the work that we are doing to knit all of these legacy systems and new technologies in the department to give the warfighter a decision advantage. And that's Advana is more of a headquarters play on that, Rainmakers, data fabric that is supposed to go headquarters to the edge. A lot of the work that we're doing in digital battle space is around building the IP and IC that would allow us to have a unique position in this notion of creating the data fabric that connects all of the systems and gives the warfighter what they need from a data perspective. And then on top of that, we want to make sure that we're building the AI tools, resources, algorithms to make that information valuable real-time. A couple of the small investments that you described are all under the rubric of the work that we're doing in the CTO office to make sure that we're really scanning what's happening in the commercial markets, what are the new technologies, the new thinking and how do we make sure that DoD has access to that real-time. So we're talking about one a company that does synthetic data because, as you know, you need that to build these models and to train them all faster algorithm compression so that we can actually push that to the edge and the like. So we're obviously very bullish on that. This is one of the areas we're talking about for VoLT for hyper growth that will fuel not just 2023 but 2024, 2025 and well beyond.

Sounds good. Thanks, Horacio.

Thank you.

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

Hi. Good morning. Thanks for the question. I guess a couple more on the revenue kind of walk year-over-year. Is it possible to size how big the Middle East, South Africa business was? And then I guess for EverWatch, can you say how big that was? And just to verify, you're not including that in the guidance yet? Or are you?

Yes. I'll start. I mean on the Middle East business, it's small. It's not going to shake up the financials in any kind of way. I'll never watch. I really can't give you much more today until we close and we remain confident that we're going to get there. It's not included in the guidance that I provided earlier.

Got it. Okay. And then I guess just on debt interest up a little bit in fiscal 2023. You guys have a little bit of variable rate debt. Just is there a chance a change in your sort of thoughts on fixed versus variable rates debt or maybe hedging going forward given some of the moves in interest rates here that we're seeing.

Yes. No, it's top of mind for sure. Today, it's 67%, 33%, fixed to floating. We're looking at it in light of interest rate movements and it will also be part of how we think about our future financing certainly in the near and the midterm.

Okay, got it. Thank you.

Thank you. Our next question comes from Cai von Rumohr with Cowen. Your line is open.

Yes. Thank you so much. So book-to-bill was, if you take out the acquired backlog looks like it was about one-four. Could you give us some color on the demand trends you're seeing now, and also your funded book-to-bill was pretty anemic, not quite as bad as CACI’s and any trends you're seeing are things starting to continuing to pick up as we go into the current quarter?

Yes, I'll certainly start, Cai. As we've been saying for quite some time, even though I may not have felt like it previously, the overall market and the demand signals have been pretty solid. I think we did see some program slippage. I think others talked about that too. But with the budget in place, we're seeing a pretty robust RFP season. As you can see in our disclosure, our win rates for recompetes still holding at 90% for new work in the low 60s, our dialogues with our clients are both existing tasking and future tasking is also pretty robust. And you also saw a pickup in price options, which we see as a leading indicator to our client satisfaction with Booz Allen, but also their confidence about what they'd like to do going forward. Then lastly, the pipeline is extremely robust, backlogs up 22% year-over-year. And so we feel good about all of that. In terms of the mix of funded and unfunded, over the years that sort of ebbs and flows and it's really a function of timing. And as clients sort of think about their priorities and maybe shift a little bit, average contract side tends to be about five years. And so we've got large – increasingly larger and larger technical work. And so we're going to see some of that bump around, but I think you nailed it in you're opening question. We really internally look at the trailing 12 months and if it's north of 1.2, we're feeling pretty good and to be at close to 1.4 times that just further tells us we've got strong demand signals.

Yes. If I can build in just in a couple directions so what Lloyd is saying, as we've always – we've been saying for a while, we're not demand constrained. We appreciate the volatility in the environment, which is why we're really focused on the first half of this year on building momentum. And from a growth perspective, I was reflecting the other day on the fact that we are fast approaching 30,000 people, fast approaching $30 billion in backlog so the number 30 is pretend something good for us in the long. And it speaks to the growth that we both have been able to generate, and we aspire to create under Vault. And then my prepared remarks, I try to take you through some of the leadership changes, organizational priorities and investments that we're making to ensure that this acceleration of organic growth that we're talking about in 2023 continues into 2024 and 2025.

Thanks so much. So turning the headcount, I mean, your head count was up, but how far was it up organically and it was down sequentially. So are you having any trouble hiring? And so I mean, you said you're not demand constrained, but are you supply constrained?

Yes. I think we have consistently said it's a tight labor market that remains true today and into the future. We thought 2.8 organic growth in our headcount. And we're very pleased with that, just given the tightness in the market. As Horacio said, we did have some staff departures, but actually that was a part of deliberate cost synergies that also sort of nudged it down sequentially. So what are we doing about it, got a very aggressive referral program. We're increasingly reaching out to our traditional and non-traditional sources. The overall pipeline of candidates has been growing and because of our culture and because of the recognition we've gotten widely, we are seen as an employer of choice. So we remain optimistic that back to targeting mid single-digits this fiscal year that we're going to get increasingly closer to that. But it still remains a very tight labor market.

Yes. Cai, as you know, this topic of talent is near and dear to my heart, it has always been. I would say, there's three things, we're laser focused on. The first one, as Lloyd said, we're controlling costs in large to make sure that we have the resources to reward our people, to retain our people to compensate in a very tight labor market. Two, we are continuing to invest in our environment and in our culture, the people are now able to return to the office in a much more flexible way. We're hearing really good things about that. And again, the culture of Booz Allen has always been a differentiator. And three, ultimately, the work that we are doing keeps people here, wants people to come here. I open the call today, talking a little bit about the work that we're doing to support the U.S. government on what's happening in Ukraine. That's the type of work that makes the people working on it proud, but it makes us proud and it makes people want to come to Booz Allen to be part of those missions.

Thank you very much.

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

Hey, good morning. Can you just discuss your organic guidance in the context of the multi-year growth target cadence? You said that you're on track for your investment objective, but you're underperforming the mid of the previous organic growth target of 6.5%. Then as we think out, kind of on a multiyear period, what sort of hiring do you need to accelerate or what sort of hiring do you need to see to accelerate above this year's organic guide? Thanks.

Yes, we're looking at a 4% to 8% range organically, the midpoint of which is significantly north of our exit and 2022. And to Cai's question, if we're able to hit mid single-digits in terms of bringing on the talent. We think the conversion of our very strong backlog puts us solidly in that space. So momentum is building, we feel good about the demand signals as I mentioned earlier. We're going to continue to make recruiting and onboarding our top operational priority which will put us, we believe in those ranges.

Got it. And then with respect to the 1% inorganic growth contribution this year, can you just talk a little bit about the valuation framework that you're looking at in terms of your capital's deployment strategy? Is there a good payback period to think about or if you think about out your Investor Day targets, kind of what's the updated inorganic placeholder we should be considering for adjust EBITDA?

Yeah, the 1% is a reflection of our past commentary on M&A. Liberty has been fully integrated as of April as well as Tracepoint. So this year we saw about $340 million of contribution from those guys to our overall performance. So on a go-forward basis we're obviously looking at the financials, but our priority around M&A is strategically going to accelerate our growth. We have strong cultural alignment and then do the financials make sense. And in the case of Liberty and Tracepoint, both of those were great case studies as to how we get there or where we want to be.

Our next question comes from Seth Seifman with JP Morgan. Your line is open.

Hey, good morning. Thanks very much.

Good morning,

Good morning, Lloyd, can we dig into this tax issue a little bit more because when I look in the 10-K it doesn't look like the cash tax payments have been lagging significantly behind the GAAP. And then if I think about this year's cash tax payment, let's put aside the R&D issue, which nobody knows if that's going to stick around or not, but even putting that aside, it's like a 50% tax rate. And so when you think about like, where should it go going forward? And it seems like maybe, it's still going to be elevated or moving north or something like that, I guess. Can you help us level set there a little bit more?

Yeah, you know, the timing of our past tax strategies has put us in the 22% to 24% range. Going forward, we expect it to be at the upper end of that 24%. So in the past years, we were successful in having – managing our taxes for the long term and able to drive the tax rate down, obviously pending legislation and things of that sort, we're seeing it going in the other direction. So I take push back a little bit on the 50%. The effective tax rate is more in that 23% to 25%, but we've got these additional dynamics as it pertains to the legislation that bumps it up.

Okay. Just to understand the tax rate, like if we cash taxes would be $400 million, if not – let's put aside the R&D issues, cash taxes would be $400 million without that?

Correct, correct.

Okay. Yeah. Okay. And pretax income was something like $750 million or so?

Yeah, we've got in terms of our operating cash we've got $850 million to $950 million which back to my prepared remarks, really to us indicates that the operations are solidly generating what we would expect.

Okay. And so if we think to the out years, should we think if the GAAP tax rate is 24% that your cash taxes should be in line and there would be really no changes on the – or no inflows or outflow showing on the cash flow statement or the cash taxes might be different.

Yeah. I think you got it right. I mean, that is true. But we're also going to see some things come back to us given our strategies that we've had. So we really see that the timing of payments is really the dynamic that we're grappling with. And we wanted to disclose that to you also, that you you're able to sort of model it and understand it.

Okay, great. Thanks. Thanks very much.

Thank you. And that's all the time we have for questions. I'd like to turn the call back to Horacio for any closing remarks.

Thank you very much. Thank you all for your questions this morning and for joining us. I hope in the last hour we gave you the additional insight you need to be able to see how well we're doing both delivering financially and transforming strategically under vault. We are undergoing a lot of plan change and I am very proud of that. But maybe in closing, the important thing is also to talk about what doesn't change. And the top thing that does not change at Booz Allen is our purpose and our values. We're now almost 30,000 strong and the people of Booz Allen and are as committed as always to empowering each other and everybody around us to change the world, and to live our values out loud. And that makes being recognized by Forbes as number three, among the Top 500 best employers for diversity, particularly meaningful. The diversity of our workforce, it reflects our values, and it enables us to attract and retain exceptional talent. I believe that diversity of perspectives, ideas, and experiences are key to achieving the visions that Lloyd and I described for you today. And I'm extremely optimistic about the future of Booz Allen. And in large part, because I get to experience the passion and the quality of our people first-hand each and every day, so once again, thank you for being with us today and have a great day.

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