Booz Allen Hamilton Holding Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the three months ended June 30, 2023. Results are compared with the three months ended June 30, 2022. The company provides consulting, technology, analytics, engineering, mission operations and cyber services; approximately 98% of quarterly revenue came from U.S. government customers.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $2,654.5 million | $2,249.6 million | +18.0% |
| Operating income | $234.4 million | $207.2 million | +13.1% |
| Operating margin | 8.8% | 9.2% | Down 0.4 percentage points |
| Net income attributable to common stockholders | $161.4 million | $138.3 million | +16.7% |
| Diluted EPS | $1.22 | $1.03 | +18.4% |
| Adjusted EBITDA | $307.0 million | $252.6 million | +21.5% |
| Adjusted EBITDA margin on revenue | 11.6% | 11.2% | Up 0.4 percentage points |
| Net cash used in operating activities | $71.5 million | $45.6 million | Cash use increased |
| Free cash flow | $(82.0) million | $(59.4) million | Cash use increased |
Revenue growth reflected headcount growth, demand and lower attrition, plus approximately $36 million from the EverWatch acquisition. Headcount was approximately 32,600, up about 3,300 year over year. Management cited strong contract-level performance, while the DOJ-related reserve and higher billable expenses and G&A weighed on reported operating margin. Adjusted figures are non-GAAP measures; the company’s definitions and reconciliations are in the filing.
Balance sheet, liquidity and capital allocation
- At June 30, 2023, cash was $209.6 million and total debt was $2.878 billion, versus $404.9 million and $2.812 billion, respectively, at March 31, 2023. Debt less cash was approximately $2.668 billion.
- Management reported total liquidity of approximately $1.1 billion: $209.6 million cash plus $923.7 million available on the revolving credit facility. The $1.0 billion facility had a $75 million balance at quarter-end; that borrowing was repaid early in Q2 FY2024.
- Interest expense rose 43.9% to $35.5 million, primarily due to higher interest rates. The Term Loan A rate was 6.45% at June 30; $550 million of interest-rate swaps hedged variable-rate exposure.
- Operating cash use reflected working-capital needs, including a $325.4 million increase in accounts receivable, and seasonal bonus payments. Cash and cash equivalents fell $195.2 million during the quarter.
- The company repurchased 1.0 million shares in open-market transactions for $100.1 million, paid $63.0 million in dividends and declared a $0.47-per-share quarterly dividend. Approximately $755.9 million remained under the repurchase authorization at June 30.
Changes, backlog and outlook
- Total backlog was $31.3 billion at June 30, up 9.3% year over year; funded backlog was $4.9 billion, unfunded backlog $9.0 billion and priced options $17.3 billion. Backlog is not a guarantee of revenue and can depend on future appropriations, task orders and option exercises.
- Remaining performance obligations were $8.0 billion, versus $7.9 billion at March 31. The company expects to recognize approximately 75% over the next 12 months and 85% over the next 24 months.
- Management expects cash from operations, cash on hand and revolving-credit availability to meet anticipated cash needs over the next 12 months. The filing provides no specific revenue or earnings guidance.
- On July 27, 2023, after quarter-end, the company amended its credit agreement, including removing collateral and most subsidiary-guarantee requirements and modifying certain covenants. The holding company provided an unsecured guarantee of the borrower’s obligations.
Material items, risks and contingencies
- DOJ settlement: In July 2023, the company agreed to pay $377.5 million to resolve the DOJ civil investigation and related False Claims Act action concerning certain cost-accounting and indirect-cost practices for April 2011–March 2021. The full amount was accrued at June 30, including a $27.5 million reserve increase in the quarter; the settlement was paid with cash and revolving-credit borrowings. The agreement contains no admission of liability and releases specified claims. The SEC notified the company on July 27 that it had concluded its investigation without recommending enforcement action.
- The company expects additional legal costs related to the investigation and related matters, but said it could not reasonably estimate the longer-term amount or potential insurance reimbursements. It also recorded approximately $333.4 million for estimated adjustments to claimed indirect costs.
- Other government audits and investigations remain, including matters involving labor time reporting, procurement integrity and classified-information access. Management did not expect currently ongoing matters to materially adversely affect financial condition or results, but outcomes are uncertain. A DC tax dispute could result in potential future tax expense of approximately $39.4–$59.7 million, net of federal benefit; IRS audits also affect certain refund claims.
- Key business risks include U.S. government funding delays or reductions, shutdowns and continuing resolutions, contract awards and backlog conversion, competition, talent availability and retention, cost inflation, contract execution and estimation, and government audits and compliance requirements.
Most important facts for investors to verify
- Confirm the $377.5 million settlement payment, its financing mix and the resulting post-quarter debt and cash balances.
- Track operating cash flow and collections, particularly receivables growth and the timing of working-capital reversals.
- Monitor funded backlog and new awards separately from unfunded backlog and priced options, and assess conversion to revenue.
- Assess reported margins alongside the DOJ reserve, legal costs, acquisition-related adjustments and management’s non-GAAP reconciliations.
- Review ongoing government-contract audits, the DC tax appeal and any subsequent developments in legal costs or insurance recovery.