Booz Allen Hamilton Holding Corporation — Form 10-Q
Reporting period: Three and nine months ended December 31, 2023 (fiscal Q3 and first nine months of fiscal 2024). Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context and performance
Booz Allen provides consulting, technology, analytics, engineering, digital, mission operations, and cyber services. It reports one operating segment and had approximately 33,800 employees at quarter-end. The U.S. government accounted for 98% of revenue in both the quarter and year-to-date period.
Management attributed growth primarily to strong demand and continued headcount growth. Total employee headcount increased by approximately 2,700 year over year. Revenue mix remained predominantly cost-reimbursable contracts; fixed-price contracts carry greater risk of cost overruns.
Key financial results
| Metric | Three months ended Dec. 31, 2023 | Year-over-year change | Nine months ended Dec. 31, 2023 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $2,569.8 | +12.9% | $7,890.6 | +15.6% |
| Operating income | $247.6 | +322.2% | $749.0 | +52.9% |
| Operating margin | 9.6% | 2.6% prior year | 9.5% | 7.2% prior year |
| Net income attributable to common stockholders | $145.6 | $31.0 prior year | $477.8 | $340.2 prior year |
| Diluted EPS | $1.11 | $0.23 prior year | $3.62 | $2.54 prior year |
| Interest expense | $46.6 | +45.4% | $126.8 | +49.1% |
| Effective tax rate | 29.8% | 25.6% prior year | 24.7% | 23.3% prior year |
Billable expenses were $799.9 million for the quarter and $2,437.0 million year to date. Revenue excluding billable expenses, a company-defined non-GAAP measure, was $1,769.9 million for the quarter and $5,453.6 million year to date. Adjusted diluted EPS was $1.41 for the quarter and $4.17 year to date, versus $1.07 and $3.55, respectively, in the prior-year periods.
Cash flow, debt and liquidity
- Operating cash flow: $115.1 million for the first nine months, down from $365.7 million. Management cited the $377.5 million DOJ settlement payment and working-capital movements; accounts receivable increased to $1,968.1 million from $1,774.8 million at March 31, 2023.
- Free cash flow: $64.5 million year to date, versus $314.3 million in the prior-year period. For the quarter alone, free cash flow was $210.9 million versus $116.9 million; quarterly operating cash flow was $234.0 million versus $138.6 million.
- Cash and debt: Cash was $601.8 million and total debt was $3,421.1 million at December 31, 2023, compared with $404.9 million and $2,812.1 million at March 31, 2023. The $1.0 billion revolving facility had no outstanding balance at quarter-end; $998.6 million was available.
- Liquidity: Management reported total liquidity of $1.6 billion and expects cash, operating cash flow, and revolving-credit availability to cover anticipated requirements for the next 12 months.
- Capital returns: The company repurchased 2.5 million shares for $272.8 million during the first nine months and paid $186.8 million in dividends. Approximately $583.2 million remained under the repurchase authorization at December 31. A quarterly dividend of $0.51 per share was announced in January 2024.
Material changes, outlook and notable items
- Year-to-date revenue included an $18.3 million favorable reduction in the estimated provision for claimed indirect costs following DCAA audit findings for fiscal 2022. The estimate remains subject to negotiation with the contracting officer.
- Comparisons of GAAP operating income and earnings benefited from the prior-year DOJ reserve: $124.0 million was recorded in fiscal Q3 2023, compared with $27.5 million in fiscal Q1 2024. The company settled the DOJ civil matter for $377.5 million, paid in fiscal Q2 2024; the settlement included no admission of liability. The SEC closed its related investigation without recommending enforcement action.
- In fiscal Q3, the company reversed a $656.2 million reserve for uncertain tax positions related to Section 174 research and development capitalization, with a corresponding reduction in deferred tax assets, and reversed $5.3 million of related accrued interest. It also reversed approximately $31.7 million of related deferred tax assets, increasing tax expense. Uncertain tax reserves were $106.8 million at December 31, down from $769.8 million at September 30, 2023.
- The company issued $650 million of 5.95% senior notes due 2033 in August 2023. Term Loan A had a 6.71% rate at December 31. Interest-rate swaps with $550 million notional value hedge a portion of variable-rate exposure. The company reported compliance with debt covenants.
- Remaining performance obligations were $8.8 billion at December 31, up from $7.9 billion at March 31. Management expects approximately 75% to be recognized as revenue within 12 months and 85% within 24 months. Total backlog was $34.3 billion, up 14.2% year over year; it includes unfunded work and unexercised options and is not assured of conversion to revenue.
- The filing provides no specific revenue, earnings, or margin guidance. Key risks include U.S. government budget and appropriations delays, shutdowns, contract funding and award timing, audits and investigations, competition, recruiting and retention, contract cost estimates, and the ability to convert backlog into funded work. Management said it does not expect currently ongoing audits, reviews, investigations, or litigation to have a material adverse effect, but outcomes remain uncertain.
Investor verification priorities
- Assess how much of the reported earnings improvement reflects the prior-period DOJ reserve comparison, the $18.3 million indirect-cost estimate benefit, and the Section 174 tax adjustments; compare GAAP results with the company’s non-GAAP reconciliations.
- Monitor operating cash conversion, receivables and working capital, particularly against revenue growth and the lower year-to-date operating cash flow.
- Track debt and interest costs, including variable-rate exposure, the new 2033 notes, and use of revolving-credit capacity.
- Verify backlog conversion, funding and task-order awards; distinguish funded backlog and remaining performance obligations from unfunded backlog and priced options.
- Follow resolution of indirect-cost audits and the DC tax appeal; the company disclosed potential future tax expense of $40.4 million to $64.9 million if specified tax positions for fiscal years 2013–2020 are resolved adversely.