Booz Allen Hamilton Holding Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended March 31, 2020. Although the request metadata says “2019 Q4,” this filing reports FY2020; the filing also provides unaudited fourth-quarter results.
Business context
Booz Allen provides consulting, analytics, digital, engineering, mission operations and cybersecurity services. It operates as one reportable segment. The U.S. government accounted for 96% of FY2020 revenue; 92% of revenue came from work performed as prime contractor. Defense represented 47% of revenue, intelligence 22%, civil government 27%, and global commercial clients 4%. The Navy/Marine Corps was the largest single client at 13%.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $7.464 billion | $6.704 billion | +11.3% |
| Operating income | $669.2 million | $602.4 million | +11.1% |
| Operating margin | 9.0% | 9.0% | Flat |
| Net income | $482.6 million | $418.5 million | +15.3% |
| Diluted EPS | $3.41 | $2.91 | +17.2% |
| Net cash from operations | $551.4 million | $499.6 million | +10.4% |
| Capital expenditures | $128.1 million | $94.7 million | +35.3% |
| Free cash flow (company-defined) | $423.3 million | $404.9 million | +4.5% |
Revenue growth reflected sustained client demand, higher consulting headcount and increased billable expenses, including subcontractor costs. Operating income also benefited from strong contract performance. Billable expenses grew faster than revenue, rising 14.7%; cost of revenue rose 9.0%. The effective tax rate fell to 16.7% from 18.8%, largely reflecting $38.4 million of recognized research and development credits, net of reserves.
FY2020 fourth-quarter revenue was $1.970 billion versus $1.780 billion in the prior-year quarter; operating income was $149.1 million versus $135.1 million, and net income was $138.9 million versus $89.6 million.
Cash and cash equivalents were $741.9 million, working capital was $1.001 billion, and total liquidity was approximately $1.1 billion, including $399.1 million available on the revolving facility. Total debt was $2.186 billion, up from $1.760 billion; cash less debt was approximately negative $1.444 billion. The company reported compliance with its debt covenants. Stockholders’ equity was $856.4 million.
Material changes and operating indicators
- Total backlog reached a record $20.729 billion, up 7.3% year over year. Funded backlog was $3.415 billion, unfunded backlog $4.518 billion, and priced options $12.796 billion; unfunded amounts and options carry greater realization risk.
- Remaining performance obligations were $6.3 billion, versus $5.8 billion a year earlier. The company expected more than half to be recognized over the following 12 months and about three-quarters over 24 months.
- Headcount increased to approximately 27,200 from 26,100. Win rates were 61% on new contracts and 90% on recompetes, compared with 60% and 83% in FY2019.
- Cost-reimbursable contracts rose to 57% of revenue from 53%; fixed-price contracts declined to 20% from 23%. This mix matters because fixed-price work can carry greater cost-overrun risk.
- Debt increased following a $400 million delayed-draw borrowing and a $100 million revolving-facility draw. The November 2019 Term Loan B refinancing reduced its applicable margin and extended its maturity to November 2026. The $350 million 5.125% Senior Notes mature in 2025.
Outlook, risks and unusual items
- COVID-19: The company reported approximately $10 million of related FY2020 expenses, including transition costs, reduced billability in March and potentially unrecoverable contract costs. It expected about $6 million per month of fee on certain ready-workforce contracts might not be reimbursed or could exceed reimbursement. Management said the duration and overall effect were uncertain and expected to continue affecting operations. Most services were planned to be delivered by telework where feasible.
- Near-term outlook: Management expected available cash, operating cash flow and revolving capacity to meet anticipated cash needs for the next 12 months. Capital expenditures were expected to decrease in FY2021 versus FY2020, subject to COVID-related adjustments. No specific revenue or earnings guidance was provided in the filing text.
- Government cost claims and investigations: A $224.6 million liability was recorded for estimated adjustments to claimed indirect costs, up from $195.3 million. DOJ was conducting a civil and criminal investigation into cost accounting and indirect-cost charging; the SEC had also notified the company of an investigation it believed related. The company was cooperating but could not reasonably estimate the potential costs or loss. Related shareholder litigation remained unresolved or stayed.
- Taxes: Uncertain tax position reserves rose to $56.1 million from $11.5 million, including approximately $45 million associated with research and development credits. The company also disclosed contested District of Columbia tax assessments and related positions without reserves, which management did not expect to have a material adverse effect.
- Other: FY2020 included $2.7 million in supplemental COVID-related employee benefits and $1.1 million in transaction expenses, which the company excluded from certain non-GAAP measures. FY2019 benefited from an $11.2 million reduction in long-term disability-plan expense. The filing identifies contract-estimate judgments, government spending and appropriation risk, audits and regulatory compliance, cyber and security threats, staffing, and debt and variable-rate exposure as significant risks.
Key facts for investors to verify
- Whether the $224.6 million claimed-indirect-cost provision adequately reflects audit outcomes, and how the DOJ and SEC investigations progress.
- How much of backlog—especially unfunded backlog and priced options—converts to funded work and revenue, and on what schedule.
- The duration and financial impact of COVID-19, including reimbursement for unavailable workforce and the disclosed potential monthly fee shortfall.
- Debt service, covenant headroom and refinancing or interest-rate exposure, including the transition away from LIBOR and the effectiveness of $1 billion in interest-rate swaps.
- The sustainability of revenue growth and margins as subcontractor and billable expenses rise, and whether tax benefits supporting the FY2020 effective tax rate recur.