Booz Allen Hamilton Holding Corp. — Q1 FY2021 Form 10-Q
Business context and period. The filing covers the three months ended June 30, 2020, the first quarter of the company’s fiscal 2021. Booz Allen provides consulting, technology, analytics, engineering, digital, mission operations and cyber services; it reported one operating segment and approximately 27,400 employees. U.S. government customers accounted for 97% of quarterly revenue.
Key financial results
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $1.956 billion | $1.825 billion | +7.2% |
| Operating income / margin | $191.9 million / 9.8% | $179.0 million / 9.8% | Income +7.2%; margin flat |
| Net income | $129.3 million | $117.4 million | +10.2% |
| Diluted EPS | $0.92 | $0.83 | Increased |
| Operating cash flow | $140.4 million | $51.0 million | Increased |
| Free cash flow (company-defined) | $120.4 million | $23.6 million | Increased |
Cost of revenue rose 12.9% to $948.9 million, faster than revenue, and increased to 48.5% of revenue from 46.1%. Billable expenses declined 0.4% to $549.1 million, largely reflecting COVID-related reductions and timing shifts. Adjusted EBITDA was $213.0 million, with a 10.9% margin on revenue; the company’s non-GAAP measures should be considered alongside GAAP results.
Cash and cash equivalents were $620.6 million at June 30, down from $741.9 million at March 31. Total debt was $2.067 billion, versus $2.186 billion at March 31; the company repaid the $100 million revolver balance during the quarter. It had no revolver borrowings at quarter-end and reported approximately $499 million of borrowing capacity. Current assets were $2.244 billion and current liabilities $1.239 billion. The company reported compliance with its debt covenants.
Changes, outlook and risks
- Growth reflected sustained client demand and higher staffing; headcount increased by about 1,000 year over year. Backlog was $23.0 billion, up 15.9% year over year. Remaining performance obligations were $6.3 billion, with more than half expected to be recognized within 12 months; neither backlog nor obligations guarantee future revenue.
- Management said COVID-19 had not significantly affected liquidity to date, but telework, facility restrictions and limits on work that cannot be performed remotely could continue to affect operations. The company withheld revenue recognition for certain ready-workforce fees at risk of non-reimbursement and estimated approximately $2–$4 million per month could go unreimbursed or exceed reimbursements in the near term. CARES Act reimbursements are limited and do not extend past September 30, 2020.
- Management expected existing cash, operating cash flow and revolver availability to cover anticipated needs for the next 12 months. It expected capital expenditures to decrease in the near term and overall in FY2021; no specific earnings or revenue guidance was provided.
- Operating cash flow benefited from collections and management of vendor payments. Financing outflows included $85.9 million of share repurchases, $43.8 million of dividends and $119.5 million of debt repayments. The company declared a further $0.31-per-share quarterly dividend after quarter-end.
- The company continues to face a DOJ civil and criminal investigation concerning cost accounting and indirect charging practices, as well as an SEC investigation it believes relates to the same matters. It cannot reasonably estimate potential costs or losses. Government audits and investigations, including matters involving labor time reporting, procurement integrity and classified-information access, could result in penalties, withheld payments or contracting restrictions.
- Estimated liabilities for claimed indirect costs were $232.5 million at June 30, up from $224.6 million at March 31. Management stated that it had recorded an appropriate provision based on matters known to it. Other risks include U.S. government budget and funding changes, contract awards and backlog conversion, staffing, competition and COVID-19 effects.
Investor verification points
- Track whether reported backlog converts to funded work and revenue, especially given dependence on U.S. government spending.
- Monitor COVID-related unrecognized fees, reimbursements and impacts on employee deployment and contract performance.
- Follow developments in the DOJ and SEC investigations, related litigation and potential legal costs or outcomes.
- Review changes in the claimed-indirect-cost provision, receivables and operating cash conversion.
- Assess debt, interest-rate exposure, share repurchases and dividends against cash generation and liquidity needs.