Booz Allen Hamilton Holding Corp. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended June 30, 2012. Booz Allen Hamilton Holding Corporation is a leading provider of management and technology consulting services, primarily to the U.S. government (defense, intelligence, and civil markets). The company operates as a single segment and employed approximately 24,100 people as of the period end.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 |
|---|---|---|
| Revenue | $1,432.4 million | $1,446.8 million |
| Operating Income | $114.7 million | $98.1 million |
| Operating Margin | 8.0% | 6.8% |
| Net Income | $61.9 million | $51.1 million |
| Diluted EPS | $0.43 | $0.37 |
| Operating Cash Flow | $74.0 million | $53.8 million |
| Free Cash Flow | $70.1 million | $36.2 million |
| Total Debt (Outstanding) | $955.1 million | N/A |
| Cash and Equivalents | $336.1 million | $228.5 million |
Material Changes vs. Prior Period
- Revenue: Decreased 1.0% year-over-year, driven by lower billable expenses and a reduced rate of indirect expenses on cost-reimbursable contracts due to cost reduction actions. This was partially offset by modest growth in direct consulting staff labor.
- Profitability: Operating income increased 16.9% and operating margin expanded 120 basis points to 8.0%. Improvements were driven by disciplined cost management, lower stock-based compensation, and reduced incentive compensation costs.
- Expenses: General and administrative expenses decreased 8.7% due to reduced professional fees and incentive costs. Billable expenses decreased 3.5% due to lower travel and material costs.
- Backlog: Total backlog decreased 9% to $10.2 billion, though funded backlog increased 5% to $2.6 billion.
Guidance, Outlook, and Subsequent Events
The filing does not provide specific numerical guidance for future periods. However, management highlighted significant subsequent events occurring after June 30, 2012:
- Recapitalization: On July 31, 2012, the company consummated a recapitalization transaction, refinancing its existing debt with a new senior secured credit agreement totaling $1.75 billion in term loans and a $500 million revolving facility.
- Dividends: The Board declared a special cash dividend of $6.50 per share and a regular quarterly dividend of $0.09 per share, payable in August 2012. The net proceeds from the recapitalization were used to fund this special dividend.
- Costs: The company expects to incur one-time charges of approximately $8.0 to $14.0 million related to the write-off of debt issuance costs and original issue discount in the quarter ended September 30, 2012.
- Risks: Management noted risks related to potential automatic sequestration of federal defense spending starting January 2, 2013, and delays in the U.S. government budget process.
Investor Verification Checklist
- Debt Restructuring Impact: Verify the terms of the new credit agreement consummated in July 2012 and the impact of the $8.0–$14.0 million expected write-off on Q3 2012 earnings.
- Dividend Sustainability: Assess the company's liquidity position following the payment of the $6.50 special dividend and the $1.50 special dividend paid in June 2012.
- Government Spending Exposure: Monitor the status of the U.S. federal budget and the potential impact of automatic sequestration on the company's funded backlog and future revenue.
- Legal Contingencies: Review the status of the seven pending suits filed by former officers/stockholders seeking approximately $348.7 million in damages, though management does not currently expect a material adverse effect.
- Backlog Conversion: Track the conversion rate of unfunded backlog to funded backlog to gauge future revenue visibility.