Booz Allen Hamilton Holding Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended March 31, 2021. The filing also reports fourth-quarter results; this is an annual report, not a standalone Q4 filing. Financial figures are in U.S. dollars.
Business context
Booz Allen provides management and technology consulting, analytics, digital, engineering, mission operations, and cybersecurity services. It operates as one reportable segment. Approximately 97% of FY2021 revenue came from work for U.S. government end clients, and 93% was earned as prime contractor. The company had approximately 27,700 employees.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $7.859 billion | $7.464 billion |
| Operating income / margin | $754.4 million / 9.6% | $669.2 million / 9.0% |
| Net income | $609.0 million | $482.6 million |
| Diluted EPS | $4.37 | $3.41 |
| Net cash from operations | $718.7 million | $551.4 million |
| Free cash flow (non-GAAP) | $631.5 million | $423.3 million |
- Revenue rose 5.3%; operating income rose 12.7%. Management attributed growth to sustained client demand, hiring, higher first-half utilization, and increased billable expenses. Lower travel and meeting costs and other cost controls supported margin improvement.
- Revenue excluding billable expenses, a non-GAAP measure, was $5.533 billion, up from $5.165 billion. Adjusted EBITDA was $839.7 million, with a 10.7% margin on revenue and 15.2% on revenue excluding billable expenses.
- Cash and equivalents were $991.0 million; working capital was $1.345 billion. Total liquidity was approximately $1.5 billion, including $499.1 million available under the revolving credit facility.
- Total debt was $2.357 billion, up from $2.186 billion; cash-adjusted net debt was approximately $1.366 billion. The company reported compliance with its debt covenants. $1.0 billion of variable-rate debt was hedged with interest-rate swaps.
- Total backlog reached $24.032 billion, up 15.9% year over year. Funded backlog was $3.510 billion; unfunded backlog and priced options comprised the remainder. Remaining performance obligations were $6.7 billion; management expected to recognize approximately 70% within 12 months and 85% within 24 months, subject to funding and other contingencies.
Material changes and unusual items
- Defense revenue increased to $3.899 billion from $3.569 billion; civil revenue rose to $2.185 billion from $2.019 billion. Intelligence revenue declined to $1.571 billion from $1.614 billion, and global commercial revenue fell to $203.7 million from $261.6 million.
- Cost of revenue grew 8.2%, faster than revenue, partly reflecting salaries, benefits, incentives, and headcount. General and administrative expense was nearly flat, while billable expenses increased 1.2%.
- The effective tax rate fell to 8.1% from 16.7%, primarily due to a $76.8 million tax benefit from remeasuring FY2021 losses intended to be carried back under the CARES Act. The company recognized a $273.4 million long-term income-tax receivable related to the carryback. Management expects the effective tax rate to rise from FY2021 levels.
- Other expense included a $13.2 million loss on extinguishing the prior 5.125% notes. In August 2020, the company issued $700 million of 3.875% senior notes due 2028 and redeemed $350 million of the prior notes.
- Quarterly FY2021 fourth-quarter revenue was $1.979 billion, operating income $171.0 million, net income $199.2 million, and diluted EPS $1.43. The quarter’s net income included the annual tax benefit described above.
- FY2021 operating cash flow improved 30.3%, mainly from collections growth exceeding revenue growth and lower disbursements. Investing cash use included a $74.2 million strategic minority investment. Share repurchases totaled $293.4 million and dividends paid were $181.1 million.
Outlook, risks, and contingencies
- The filing provides no specific numerical revenue or earnings guidance. Management said it was developing its next long-term growth strategy and planned to share details during FY2022. It expected cash, operating cash flow, and available revolver capacity to cover anticipated needs for the next 12 months.
- COVID-19 continued to affect work locations, travel, billable expenses, and employee deployment. The company withheld revenue recognition for certain potentially unreimbursed costs under CARES Act provisions and did not expect the unreimbursed fees to materially affect future earnings. Reimbursement provisions were limited and scheduled to end after September 30, 2021.
- Key exposure is U.S. government spending and appropriations: changes in budgets, mission priorities, shutdowns, contract delays, insourcing, contract terminations, bid protests, or failure to win task orders could affect revenue and backlog conversion. Backlog, particularly unfunded backlog and priced options, is not guaranteed revenue.
- Contract profitability depends on labor utilization, hiring and retention, security clearances, contract mix, cost estimates, and performance. Revenue recognition involves estimates of costs to complete contracts and variable fees.
- Government audits and investigations remain significant. The company recorded a $263.2 million liability for estimated adjustments to claimed indirect costs; open audit years after FY2011 remain subject to resolution. The DOJ’s civil investigation and an SEC investigation related to the same matters remained unresolved, and the company could not estimate potential costs or losses. The DOJ closed its criminal investigation on May 12, 2021, after fiscal year-end.
- Other risks include cybersecurity and classified-information exposure, complex government-contracting rules, substantial debt and variable interest rates, and implementation of new financial management systems and cost-accounting changes, which could entail added costs or audit adjustments.
- After year-end, the company agreed to acquire Liberty IT Solutions for $725 million, subject to adjustments and regulatory approval; closing was expected in FY2022’s first quarter. The board declared a $0.37-per-share quarterly dividend in May 2021.
Important facts for investors to verify
- How much of backlog growth converts into funded work and revenue, and whether expected performance-obligation conversion occurs on schedule.
- Resolution, potential financial impact, and legal costs of the ongoing civil/SEC investigations and government indirect-cost audits; monitor changes to the $263.2 million reserve.
- Underlying earnings and future tax rate apart from the CARES Act carryback benefit and other tax credits.
- Debt repayment, interest-rate exposure, covenant headroom, and the cash and financing requirements of the Liberty IT Solutions acquisition.
- Whether COVID-related work restrictions, employee availability, and any unreimbursed costs remain immaterial as management expected.