Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Booz Allen Hamilton Holding Corp | bah123117exhibit991.htm |
| 8-K - 8-K - Booz Allen Hamilton Holding Corp | fy2018q38kearningsrelease.htm |
Fiscal Year 2018, Third Quarter
FEBRUARY 5, 2018
EARNINGS CALL
PRESENTATION
HORACIO ROZANSKI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LLOYD HOWELL
CHIEF FINANCIAL OFFICER AND TREASURER
CURT RIGGLE
VICE PRESIDENT INVESTOR RELATIONS
1
CALL
PARTICIPANTS
DISCLAIMER
2
Forward Looking Safe Harbor Statement
Certain statements contained in this presentation and in related comments by our management include “forward‐looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Examples of forward‐looking statements include information concerning Booz Allen’s preliminary financial results, financial
outlook and guidance, including forecasted revenue, Diluted EPS, Adjusted Diluted EPS, future quarterly dividends, and future improvements in operating margins, as
well as any other statement that does not directly relate to any historical or current fact. In some cases, you can identify forward‐looking statements by terminology
such as “may,” “will,” “could,” “should,” “forecasts,” “expects,” “intends,” “plans,” “anticipates,” “projects,” “outlook,” “believes,” “estimates,” “predicts,” “potential,”
“continue,” “preliminary,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward‐looking
statements are reasonable, we can give you no assurance these expectations will prove to have been correct.
These forward‐looking statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements
expressed or implied by these forward‐looking statements. A number of important factors could cause actual results to differ materially from those contained in or
implied by these forward‐looking statements, including those factors discussed in our filings with the Securities and Exchange Commission (SEC), including our Annual
Report on Form 10‐K for the fiscal year ended March 31, 2017, which can be found at the SEC’s website at www.sec.gov. All forward‐looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made
and, except as required by law, we undertake no obligation to update or revise publicly any forward‐looking statements, whether as a result of new information, future
events or otherwise.
Note Regarding Non‐GAAP Financial Data Information
Booz Allen discloses in the following information Revenue, Excluding Billable Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted
Net Income, Adjusted Diluted EPS, and Free Cash Flow which are not recognized measurements under GAAP, and when analyzing Booz Allen’s performance or liquidity
as applicable, investors (i) evaluate each adjustment in our reconciliation of revenue to Revenue Excluding Billable Expenses, operating income to Adjusted Operating
Income, net income to Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Diluted Earnings Per Share, and net cash provided by operating
activities to Free Cash Flow, and the explanatory footnotes regarding those adjustments, each as defined under GAAP, (ii) use Revenue, Excluding Billable Expenses,
Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, and Adjusted Diluted EPS in addition to, and not as an alternative to
revenue, operating income, net income or diluted EPS as measures of operating results, and (iii) use Free Cash Flow in addition to and not as an alternative to net cash
provided by operating activities as a measure of liquidity, each as defined under GAAP. The Financial Appendix includes a reconciliation of Revenue, Excluding Billable
Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow to the most directly
comparable financial measure calculated and presented in accordance with GAAP. Booz Allen presents these supplemental performance measures because it believes
that these measures provide investors and securities analysts with important supplemental information with which to evaluate Booz Allen’s performance, long term
earnings potential, or liquidity, as applicable and to enable them to assess Booz Allen’s performance on the same basis as management. These supplemental
performance and liquidity measurements may vary from and may not be comparable to similarly titled measures by other companies in Booz Allen’s industry. With
respect to our expectations under “Fiscal 2018 Full Year Outlook,” reconciliation of Adjusted Diluted EPS guidance to the closest corresponding GAAP measure is not
available without unreasonable efforts on a forward‐looking basis due to our inability to predict our stock price, equity grants and dividend declarations during the
course of fiscal 2018. Projecting future stock price, equity grants and dividends to be declared would be necessary to accurately calculate the difference between
Adjusted Diluted EPS and GAAP EPS as a result of the effects of the two‐class method and related possible dilution used in the calculation of EPS. Consequently, any
attempt to disclose such reconciliation would imply a degree of precision that could be confusing or misleading to investors. We expect the variability of the above
charges to have an unpredictable, and potentially significant, impact on our future GAAP financial results.
HIGHLIGHTS
KEY PERFORMANCE INDICATORS
• Maintaining position as the government services industry organic revenue growth leader (1)
– Accelerating growth in Revenue, Excluding Billable Expenses compared to the prior year period
– Raising full‐year revenue and Adjusted Diluted EPS guidance
• Experiencing strong client demand for innovative technology solutions
– Highest Q3 book‐to‐bill since our IPO
– Near‐record backlog
• Prevailing in a competitive market for skilled labor
– Strong year‐over‐year net headcount growth of more than 1,700
– 52% of our people doing client work are technologists or sit in technology roles, compared to
43% four years ago
• Delivering strong capital returns
– Returned $275 million to shareholders in the first three quarters through share repurchases
and dividends
3
(1) Industry consists of CACI, CSRA, Engility Holdings, Leidos, ManTech, and Science Applications International Corp.
KEY FINANCIAL RESULTS
THIRD QUARTER FISCAL YEAR 2018 PRELIMINARY RESULTS
4
(1) Comparisons are to prior fiscal period
TH I R D QUART E R ( 1 ) Y E A R TO DAT E ( 1 )
Revenue $1.5 billion 6.8% Increase $4.5 billion 7.4% Increase
Revenue, Excluding
Billable Expenses
$1.1 billion 8.3% Increase $3.2 billion 7.0% Increase
Net Income $69.8 million 25.5% Increase $220.2 million 18.3% Increase
Adjusted Net Income $70.2 million 24.1% Increase $221.5 million 13.5% Increase
Adjusted EBITDA $134.8 million 10.0% Increase $432.2 million 7.5% Increase
Diluted EPS $0.47 27.0% Increase $1.47 19.5% Increase
Adjusted Diluted EPS $0.48 26.3% Increase $1.49 14.6% Increase
Total Backlog
$16.7 billion
23.2% Increase
TAX REFORM IMPACT
SIGNIFICANT TAX RATE BENEFIT AND CASH TAX SAVINGS
• ~8 cents added to ADEPS in the third quarter of fiscal 2018 due predominately to the ~$11 million
reduction of income tax expense realized from the enactment of the new tax law
• Anticipate significant cash savings in coming years, and a majority of the benefit from our lower income
tax expense will drop to the bottom line, which will present additional opportunities to invest in our
people and capabilities, as well as return value to investors
5
E X P EC T F I S C A L 2 0 1 8 E F F E C T I V E TAX RAT E ~ 3 3 TO 3 4% ;
E X P EC T F I S C A L 2 0 1 9 OF ~ 2 5 TO 2 7%
Previous Fiscal 2018 Effective Tax Rate Guidance 37% ‐ 38%
Puts and Takes:
‐ Federal statutory tax rate (1) ‐ ~3.5%
‐ State and local income taxes, net of federal tax + ~0.5%
‐ Tax credits and other discrete items (2) ‐ ~0.5%
Revised Fiscal 2018 Annual Effective Tax Rate (3) 33% ‐ 34%
Fiscal 2019 Expected Effective Tax Rate (4) 25% ‐ 27%
NOTES:
1) The 21% federal statutory tax rate will
predominately apply to the last three months
of our fiscal 2018, resulting in an estimated
lower blended federal statutory rate of ~31.5%
2) Includes additional ~$1 million of income tax
benefit realized during the third quarter of
fiscal 2018 due to the new accounting standard
adopted early this year for treatment of stock‐
based compensation
3) Excludes any one‐time, non‐cash impacts due
to the revaluation of our deferred taxes and/or
any benefits we may realize from the
completion of tax accounting method changes
under the new law
4) Fiscal 2019 rate will reflect the 14% decline in
federal statutory tax rate, offset by ~2‐4% rate
impact on state and local taxes and other
qualifying credits due to the new tax law
CAPITAL ALLOCATION
6
DELIVERING STRONG CAPITAL RETURNS THROUGH FLEXIBLE CAPITAL
DEPLOYMENT STRATEGY
• Strategy remains unchanged:
‐ Convert approximately 100 percent of Adjusted Net Income to Free Cash Flow
‐ Aim to deploy at least 100 percent of Free Cash Flow to support acquisitions, share
repurchases, and/or incremental dividends as opportunities warrant
• Deployed approximately $300 million fiscal year‐to‐date as of December 31
– Paid $199 million to repurchase 5.7 million shares
– Paid $76 million of quarterly common dividends
– Closed acquisition of high‐end cyber managed service firm, Morphick
• Raised quarterly dividend by 12% to $0.19
• Ended Q3 with a healthy cash balance of approximately $290 million and remaining
repurchase authorization of $271 million
FINANCIAL OUTLOOK
RAISING FULL YEAR GUIDANCE
1) These EPS estimates are based on fiscal 2018 estimated average diluted shares outstanding of approximately 148.0 million shares and assume an
effective tax rate in the range of 33 percent to 34 percent, which reflects changes in U.S. tax law. The estimated average diluted shares outstanding
used for purposes of our revised guidance has been updated from approximately 149.5 million used in prior guidance, which excluded certain
estimated legal expenses, to reflect the net effect of the repurchase of shares during fiscal year 2018.
7
F I SCAL 2018 FUL L YEAR OUTLOOK
Revenue Growth in the Range of 5.5 to 7.5 Percent
Diluted EPS (1) $1.86 ‐ $1.94
Adjusted Diluted EPS (1) $1.87 ‐ $1.95
APPENDIX
8
NON-GAAP FINANCIAL INFORMATION
• “Revenue, Excluding Billable Expenses" represents revenue less billable expenses. We use Revenue, Excluding Billable Expenses
because it provides management useful information about the Company's operating performance by excluding the impact of
costs that are not indicative of the level of productivity of our consulting staff headcount and our overall direct labor, which
management believes provides useful information to our investors about our core operations.
• “Adjusted Operating Income” represents Operating Income before: (i) adjustments related to the amortization of intangible
assets resulting from the acquisition of our Company by The Carlyle Group, and (ii) transaction costs, fees, losses, and
expenses, including fees associated with debt prepayments. Booz Allen prepares Adjusted Operating Income to eliminate the
impact of items it does not consider indicative of ongoing operating performance due to their inherent unusual, extraordinary
or non‐recurring nature or because they result from an event of a similar nature.
• “Adjusted EBITDA” represents net income before income taxes, net interest and other expense and depreciation and
amortization and before certain other items, including transaction costs, fees, losses, and expenses, including fees associated
with debt prepayments. “Adjusted EBITDA Margin” is calculated as Adjusted EBITDA divided by revenue. Booz Allen prepares
Adjusted EBITDA and Adjusted EBITDA Margin to eliminate the impact of items it does not consider indicative of ongoing
operating performance due to their inherent unusual, extraordinary or non‐recurring nature or because they result from an
event of a similar nature.
• “Adjusted Net Income” represents net income before: (i) adjustments related to the amortization of intangible assets resulting
from the acquisition of our Company by The Carlyle Group, (ii) transaction costs, fees, losses, and expenses, including fees
associated with debt prepayments, and (iii) amortization or write‐off of debt issuance costs and write‐off of original issue
discount, net of the tax effect where appropriate calculated using an assumed effective tax rate. Booz Allen prepares Adjusted
Net Income to eliminate the impact of items, net of taxes, it does not consider indicative of ongoing operating performance
due to their inherent unusual, extraordinary or non‐recurring nature or because they result from an event of a similar nature.
• "Adjusted Diluted EPS" represents diluted EPS calculated using Adjusted Net Income as opposed to net income. Additionally,
Adjusted Diluted EPS does not contemplate any adjustments to net income as required under the two‐class method as
disclosed in the footnotes to the condensed consolidated financial statements.
• "Free Cash Flow" represents the net cash generated from operating activities less the impact of purchases of property and
equipment.
9
NON-GAAP FINANCIAL INFORMATION
10
(a) Reflects amortization of
intangible assets resulting from the
Acquisition for the three and nine
months ended December 31, 2016.
(b) Reflects debt refinancing costs
incurred in connection with the
refinancing transaction
consummated on July 13, 2016.
(c) Reflects the combination of
Interest expense and Other income
(expense), net from the condensed
consolidated statement of
operations.
(d) Periods related to fiscal 2017
reflect the tax effect of adjustments
at an assumed effective tax rate of
40%. Beginning in the third quarter
of fiscal 2018 with the Tax Cuts and
Jobs Act (the "2017 Tax Act"),
adjustments are reflected using an
assumed effective tax rate of 36.5%.
(e) Excludes an adjustment of
approximately $0.6 million and $1.9
million of net earnings for the three
and nine months ended
December 31, 2017, respectively, and
excludes an adjustment of
approximately $0.6 million and $2.0
million of net earnings for the three
and nine months ended
December 31, 2016, respectively,
associated with the application of
the two‐class method for computing
diluted earnings per share.
FINANCIAL RESULTS – KEY DRIVERS
Third Quarter 2018 – Below is a summary of Booz Allen’s results for the fiscal 2018 third quarter and the key factors driving those
results as compared to the third quarter of fiscal 2017:
• Revenue increased by 6.8% to $1.50 billion primarily due to increased client demand which led to increased client staff
headcount, and an increase in direct labor. Total headcount increased more than 1,700 from December 31, 2016, and 522 as
compared to September 30, 2017.
• Revenue, Excluding Billable Expenses increased 8.3% to $1.06 billion primarily due to increased client demand which led to
increased client staff headcount, and an increase in direct labor.
• Operating Income increased 9.2% to $118.1 million and Adjusted Operating Income increased 8.2% to $118.1 million.
Increases in both were primarily driven by the same factors driving revenue growth as well as improved contract profitability.
• Net income increased 25.5% to $69.8 million. Adjusted Net Income increased 24.1% to $70.2 million. These increases were
primarily driven by the same factors as Operating Income and Adjusted Operating Income, as well as a decrease in income tax
expense. The Company realized an additional income tax benefit of approximately $11 million during the third quarter of fiscal
2018 driven by the lower federal statutory tax rate as a result of the enactment of the Tax Cuts and Jobs Act on December 22,
2017. The Company also realized an additional income tax benefit of approximately $1 million during the third quarter of
fiscal 2018 due to the adoption of the accounting standard ASU 2016‐09, which relates to share‐based compensation, in the
first quarter of fiscal 2018.
• EBITDA and Adjusted EBITDA each increased 10.0% to $134.8 million due to the same factors as Operating Income and
Adjusted Operating Income.
• Diluted EPS increased to $0.47 from $0.37 in the prior year period and Adjusted Diluted EPS increased to $0.48 from $0.38 in
the prior year period. The increases were primarily driven by the same factors as Net Income and Adjusted Net Income, as
well as a lower share count in fiscal 2018 as a result of share repurchases.
• As of December 31, 2017, total backlog was $16.7 billion, an increase of 23.2% compared to December 31, 2016. The
increase reflects continued backlog improvement across all categories, with total backlog at a near record level. Funded
backlog increased 3.8%, while unfunded backlog and priced options increased 30.7% and 27.3%, respectively.
11
FINANCIAL RESULTS – KEY DRIVERS
Nine Months Ended December 31, 2017 – Booz Allen’s cumulative performance for the first three quarters of fiscal 2018 has
resulted in:
• Net cash provided by operating activities was $246.9 million as compared to $283.0 million in the prior year period. The
decrease in cash from operations is primarily the result of higher cash taxes paid during fiscal 2018 due to a benefit
received in the prior year and the continued residual impact on cash collections due to changes in the processing of
payments at one of the Company’s customer payment centers. Free Cash Flow declined $68.6 million from the prior year
period due to the same factors affecting cash provided by operating activities, as well as an expected increase of $32.5
million in capital expenditures related to on‐going leasehold improvements to update existing office space.
12