Booz Allen Hamilton Holding Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended March 31, 2023. Although the request metadata refers to “2022 Q4,” this filing is an annual report for FY2023, not a standalone quarterly report.
Business context and reporting period
Booz Allen provides consulting, analytics, digital, engineering, mission operations, and cybersecurity services. It reports as one operating segment. Approximately 97% of FY2023 revenue came from contracts whose end client was a U.S. government agency or department; 95% was earned as a prime contractor. The company employed approximately 31,900 people at year-end.
Management identified FY2023 as the first year of its VoLT growth strategy, focused on velocity, leadership, and technology. FY2023 revenue growth reflected higher headcount and utilization, as well as acquisitions.
Financial and operating metrics
| Metric | FY2023 | FY2022 | Change or context |
|---|---|---|---|
| Revenue | $9.259 billion | $8.364 billion | +10.7% |
| Operating income | $446.8 million | $685.2 million | -34.8%; operating margin 4.8%, versus 8.2% |
| Net income attributable to common stockholders | $271.8 million | $466.7 million | -41.8% |
| Diluted EPS | $2.03 | $3.44 | Down year over year |
| Adjusted operating income (non-GAAP) | $899.6 million | $827.5 million | Excludes specified items, including the DOJ reserve |
| Adjusted EBITDA (non-GAAP) | $1.014 billion | $935.1 million | Adjusted EBITDA margin on revenue: 11.0%, versus 11.2% |
| Operating cash flow | $602.8 million | $736.5 million | Down 18.2% |
| Free cash flow (non-GAAP) | $526.7 million | $656.6 million | Operating cash flow less capital expenditures |
General and administrative expense rose 32.3% to $1.533 billion, including a $350 million DOJ-related reserve. Billable expenses increased 13.5% to $2.809 billion, faster than revenue, partly reflecting subcontractor use and client-related expenses. Interest expense rose 29.8% to $119.9 million, primarily due to higher rates. The effective tax rate was 26.3%, versus 22.8%.
At March 31, 2023, cash and cash equivalents were $404.9 million, total debt was $2.812 billion, and available revolving credit capacity was $998.7 million; management reported total liquidity of approximately $1.4 billion. Operating cash flow decreased partly due to higher cash taxes associated with required capitalization of research and development costs under Section 174. Capital expenditures were $76.1 million.
Total backlog was $31.202 billion, up 6.7% from $29.247 billion: funded backlog was $4.619 billion, unfunded backlog $9.519 billion, and priced options $17.064 billion. Remaining performance obligations were $7.9 billion; management expects to recognize approximately 75% within 12 months and 85% within 24 months. Backlog, particularly unfunded amounts and options, is not guaranteed revenue.
Material changes versus FY2022
- Revenue increased 10.7%, supported by headcount growth, higher utilization, and approximately $62.9 million of EverWatch revenue contribution. Client staff headcount grew to approximately 29,100 from 26,300.
- Operating income and net income declined substantially, primarily reflecting the $350 million DOJ reserve, alongside inflationary pressure, higher unallowable spending, and increased legal and other business costs.
- Cash from operations fell 18.2%; cash and cash equivalents declined to $404.9 million from $695.9 million. The company cited Section 174-related tax payments, higher interest expense, and investment in employees and the business.
- Debt remained approximately $2.8 billion. A September 2022 refinancing established a new Term Loan A and extended the term loan and revolving facility maturity to September 2027; the new term loan carried a 5.97% rate at March 31, 2023.
- The company acquired EverWatch for approximately $445.1 million and divested its MENA management consulting and commercial Managed Threat Services businesses. Reported other income included gains on divestitures and a business deconsolidation.
Outlook, commentary, risks, and unusual items
- Outlook: The filing provides no specific revenue, earnings, or margin guidance. Management said existing cash, operating cash flows, and revolver availability should meet anticipated cash requirements for the next 12 months. It expects to pursue VoLT investments and adjust capital allocation as needed.
- DOJ and SEC matters: The DOJ’s criminal investigation was closed in 2021, but its civil investigation and settlement discussions continued. The company recorded an additional $226 million in FY2023, bringing its reserve to $350 million; it estimated reasonably possible losses of $350 million to $378 million. The SEC is conducting an investigation the company believes relates to the DOJ matter. Outcomes and final settlement terms remain uncertain.
- Government audit exposure: The company recorded $326.7 million for estimated adjustments to claimed indirect costs; years after FY2011 remained subject to audit and resolution. Adverse audit findings could result in repayments, withheld payments, penalties, or restrictions on government contracting.
- Tax uncertainty: The company recorded approximately $470.9 million of increases in current-year potential unrecognized tax benefits, principally associated with Section 174 research and development capitalization and related credits. The filing also notes a possible $40.2 million to $59.3 million tax exposure, net of federal benefit, if certain contested D.C. tax positions are resolved adversely.
- Principal business risks: Dependence on U.S. government budgets and appropriations, debt-ceiling or shutdown disruptions, contract awards and protests, backlog conversion, competition, inflation and labor availability, security clearances, cybersecurity incidents, and compliance with extensive government contracting rules. Variable-rate debt adds interest-rate exposure, partly hedged with swaps.
- Unusual item: FY2023 GAAP operating results include the $350 million DOJ reserve. Non-GAAP adjusted measures exclude it; investors should assess those reconciliations alongside GAAP results.
- Assurance: The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective at March 31, 2023.
Important facts for investors to verify
- Progress and final cost of the DOJ matter, including any settlement, and developments in the related SEC investigation.
- Potential outcomes and timing of government indirect-cost audits and the adequacy of the $326.7 million provision.
- Conversion of backlog into funded, profitable revenue, especially unfunded backlog and priced options; compare reported backlog with remaining performance obligations.
- Whether revenue growth and workforce expansion can support margins as subcontractor costs, wages, inflation, and interest expense evolve.
- Cash generation, Section 174 tax effects, debt servicing capacity, variable-rate exposure, and compliance with debt covenants.
- EverWatch integration and acquisition valuation, and the financial effects of completed divestitures.