Booz Allen Hamilton Holding Corporation — Form 10-Q
Reporting period: Third quarter and first nine months of fiscal 2022, ended December 31, 2021. Comparisons are with the same periods of fiscal 2021 unless noted. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless otherwise stated.
Business context and financial performance
Booz Allen provides consulting, technology, analytics, engineering, digital, mission and cyber services. Approximately 97% of revenue came from U.S. government customers. The company reported one operating segment and approximately 29,500 employees at quarter-end.
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $2,030.5; +6.6% | $1,904.0 | $6,125.6; +4.2% | $5,879.7 |
| Operating income | $177.2; -3.8% | $184.3 | $536.8; -8.0% | $583.4 |
| Operating margin | 8.7% | 9.7% | 8.8% | 9.9% |
| Net income | $128.8; -10.8% | $144.4 | $375.8; -8.3% | $409.8 |
| Diluted EPS | $0.95 | $1.03 | $2.76 | $2.93 |
| Interest expense | $23.7 | $20.9 | $69.2 | $60.9 |
Revenue growth was primarily acquisition-driven, with Liberty and Tracepoint contributing approximately $116.8 million in the quarter and $223.1 million for the nine-month period. Management also cited slower ramps on new and existing work, lower staff utilization and pressure on billable expenses. The nine-month adjusted EBITDA was $729.9 million, compared with $646.8 million; adjusted EBITDA margin on revenue was 11.9% versus 11.0%. These non-GAAP measures exclude specified items, including acquisition costs.
Cash flow, liquidity and debt
- Operating cash flow: $481.2 million for the first nine months, down from $799.0 million. Management attributed the decline principally to lower receivable collections, higher disbursements and $85.8 million of acquisition costs paid.
- Free cash flow: $429.5 million for the nine months, versus $744.9 million, defined by the company as operating cash flow less purchases of property, equipment and software.
- Cash and debt: Cash was $642.7 million at December 31, versus $991.0 million at March 31. Total debt was $2,816.3 million, versus $2,356.6 million; net debt was approximately $2,173.6 million.
- Liquidity: The company reported $999.0 million of available capacity on its $1.0 billion revolving facility and said available cash, operating cash flows and revolver capacity should meet anticipated requirements for the next 12 months. It was in compliance with debt covenants.
- Capital returns: Nine-month dividends paid were $151.7 million and share repurchases were $315.1 million. The company announced a $0.43-per-share quarterly dividend payable March 2, 2022, and increased its repurchase authorization to $2.16 billion; approximately $740.3 million remained available under the program as of January 26, 2022.
Material changes, outlook and risks
- Acquisitions and financing: Liberty was acquired for approximately $669.1 million and Tracepoint’s remaining 60% for approximately $120.3 million. Acquisition-related costs totaled $85.8 million for the nine months, and acquired intangible amortization rose materially. The company issued $500 million of 4.0% senior notes due 2029 to help fund Liberty. Preliminary goodwill from the acquisitions was $440.8 million.
- Backlog: Total backlog was $27.8 billion at December 31, up 19.2% year over year and including approximately $2.0 billion acquired. Remaining performance obligations were $7.5 billion; management expected to recognize about 70% over the next 12 months and 85% over the next 24 months. Backlog conversion is not assured, particularly because portions are unfunded or depend on options and future appropriations.
- Government funding and operating risks: The company highlighted potential delays or reductions in U.S. government funding, continuing resolutions, shutdowns, budget constraints, competition, contract protests, audits, staffing and utilization challenges, and COVID-19 impacts, including its employee vaccination policy.
- Investigations and legal matters: The DOJ closed its criminal investigation in May 2021, but related civil/regulatory matters remain, including an SEC investigation and pending audits or investigations concerning labor time reporting, procurement integrity and classified-information access. The company expects additional legal costs but cannot reasonably estimate their long-term amount or potential reimbursements. It does not expect currently ongoing matters to materially affect results, but outcomes remain uncertain.
- Tax contingency: The company is appealing a District of Columbia tax ruling. It paid $8.6 million under protest and recorded it as a long-term tax receivable. An adverse final resolution of the contested positions for fiscal years 2013–2020 could result in approximately $40.2–$55.4 million of future tax expense, net of federal benefits. A tax-law change requiring capitalization of R&D costs beginning in fiscal 2023 could materially reduce operating cash flow if not delayed.
- No quantified company-wide earnings guidance is provided in the supplied filing text. Management stated that liquidity should be sufficient for anticipated needs over the next 12 months.
Key facts for investors to verify
- Whether acquired businesses, hiring and utilization translate into sustained organic growth and margin recovery as acquisition costs and amortization affect reported results.
- Whether backlog converts to funded work and revenue on the expected schedule, given government appropriation and contract-award uncertainty.
- Receivables, collections and operating cash flow trends after the significant nine-month decline.
- Debt and interest-cost trajectory, covenant headroom and capacity to sustain dividends and buybacks alongside acquisition-related leverage.
- Developments in the DOJ/SEC-related matters, government-contract audits, and the DC tax appeal, including any change to estimated exposure or legal costs.