Booz Allen Hamilton (BAH) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue and revenue excluding billable expenses grew by 12.7% compared to the second quarter last year, driven by sustained client demand and hiring [17] - Adjusted EBITDA for the second quarter was $192 million, up 17% year-over-year, with an adjusted EBITDA margin of 10.5%, up 38 basis points [19] - Net income and adjusted net income increased by 23.3% and 17.9% to $114.3 million and $114.8 million respectively, primarily due to revenue growth and margin expansion [20] - Adjusted diluted earnings per share rose by $0.13 to $0.81, with a decline in weighted average diluted shares outstanding by 2.3 million shares compared to the previous year [20] Business Line Data and Key Metrics Changes - Defense & Civil, representing roughly three-quarters of the business, showed strong growth, particularly in systems integration and digital transformation [11] - The intelligence market experienced strong demand, but revenue growth was constrained by the need for highly cleared talent [12] - Global commercial, which represents 3% of the business, is expected to be flat this year after three years of approximately 25% growth [13] Market Data and Key Metrics Changes - Total backlog as of September 30th was $22.9 billion, a 7.2% increase year-over-year, marking a new record for the firm [18] - Funded backlog increased by 4.8% to $4.4 billion, while unfunded backlog grew by 12.3% to $5.4 billion [18] Company Strategy and Development Direction - The company has transformed into a more technically capable and innovative firm, focusing on capturing demand driven by the shift from a hardware to a software economy, encapsulated in its Vision 2020 strategy [9] - The firm aims to increase adjusted diluted earnings per share from about $2 in fiscal year 2018 to about $3.30 in fiscal year 2021, with strong performance in the second quarter indicating progress towards this goal [10] - The company is developing premier offerings in Artificial Intelligence, expecting continued strong growth in demand as federal agencies integrate AI into their missions [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the market position and the ability to sustain growth despite potential budget constraints, emphasizing the importance of client demand for technology adoption [27] - The company raised its fiscal year 2020 guidance for revenue, operating cash, and adjusted diluted earnings per share, reflecting strong performance in the first half [23] Other Important Information - The company announced a 17% off-cycle quarterly dividend increase, reinforcing its commitment to dividend growth as part of its investment thesis [22] - Capital expenditures for the quarter were $33 million, aimed at investing in facilities, infrastructure, and technology to support growth [21] Q&A Session Summary Question: Visibility into future growth in a less bullish budget environment - Management feels confident about the market position and believes that client demand for technology will continue to drive growth despite budget uncertainties [27] Question: Bookings realization compared to expectations - The booking environment is strong, with record backlog reported, and the challenge remains in sourcing and deploying talent quickly [30] Question: Headcount growth and revenue growth delta - There is typically a delay in deploying new hires, which can lead to a difference between headcount growth and revenue growth [34] Question: AI adoption and market size - AI is seen as both a key component of traditional business and a significant future opportunity, with ongoing efforts to monetize intellectual capital [36] Question: Impact of protests on bookings - The company has minimal amounts tied up in protests and is not significantly impacted by contract protests [42] Question: Capital deployment priorities - The company remains patient and disciplined in capital deployment, evaluating all options to maximize shareholder value [44] Question: Margin dynamics with new contracts - The company has seen margin expansion due to a shift towards higher-margin, technically focused work [51] Question: Performance in the commercial business - The global commercial business has experienced lumpiness due to contract wind-downs, but long-term drivers remain strong [62]