Booz Allen Hamilton Holding Corporation (BAH) Q4 2012 Earnings Report, Transcript and Summary

Good morning. Thank you for standing by and welcome to the Booz Allen Hamilton's Earnings Conference Call, covering Fourth quarter and Fourth Fiscal Year 2012 Results. At this time, all lines are in listen-only mode. Later, there will be an opportunity for questions. I would now like to turn the call over to Mr. Curt Riggle.

Thank you, Lacie, and thank you all for joining us today for Booz Allen's fourth quarter and full year fiscal 2012 earnings announcement. I am Curt Riggle, Director of Investor Relations and with me to talk about our financial results this morning is Ralph Shrader, our Chairman, Chief Executive Officer and President; and Sam Strickland, Executive Vice President and Chief Financial Officer. We hope you have had an opportunity to review the press release on our fourth quarter and full year earnings that we issued earlier this morning. We have also provided presentation slides on our website and we are now on slide two. On today's call, Ralph will provide you with an overview of our business performance, recent developments and strategic positioning. Sam will then discuss our financial results in detail including our income statement, balance sheet, cash flow and backlog. Ralph will talk about what the future holds for our business and Sam will discuss our earnings guidance for fiscal year 2013, which began on April 1, 2012. As shown in the disclaimer on slide three, please keep in mind that some of the items we will discuss this morning will include statements that may be considered forward looking and therefore are subject to known and unknown risks and uncertainties, which may cause our actual results in future period to differ materially from forecasted results. Those risks and uncertainties include among other things, general economic conditions, the availability of government funding for our company services and other factors discussed in today's earnings release and set forth under forward-looking statements disclaimer included in our fiscal 2012 fourth quarter and full year earnings release and in our SEC filings. We caution you not to place undue reliance on any forward-looking statements that we may make today and remind you that we are assuming no obligation to update or revise any information discussed on this call. During today's call, we will also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. We include an explanation of the adjustments from GAAP and reconciliation of our non-GAAP measures to the most comparable GAAP measure in our fiscal 2012 fourth quarter and full year earnings release and in these slides. It is now my pleasure to turn over to our CEO, Ralph Shrader, and he will start on slide four.

Thank you, Curt. Good morning everyone and thank you for joining us today. On our last earnings call, I said it was an eventful quarter and today I can say the adventure continues. The macro trends in the global economy and in the market for services to our primary client, the U.S. Federal Government are dramatic and dynamic. Against this backdrop, we see continued demand for Booz Allen's expertise from government agency clients that we have served for decades and we are excited about the prospects from new commercials and international clients. We grew revenue, net income, earnings per share and EBITDA for the fourth quarter and full year of fiscal 2012. This is our sixth straight quarter of top and bottom line growth since our IPO in November of 2010 demonstrating our ability to manage our business well despite a challenging market environment. Here are the headlines. Fourth quarter revenue increased to $1.54 billion, from $1.49 billion. Full year revenue increased to more than $5.8 billion, up from $5.6 billion in the prior year. Net income for the year increased to $240 million from $84.7 million in the prior year. Adjusted EBITDA increased 9.8% to $488 million and full year adjusted diluted earnings per share increased by $0.37 to $1.61 per share. Total backlog ended the year at $10.8 billion as of March 31, 2012, which was a slight decrease in total backlog from the prior year's $10.9 billion. We are very pleased with the growth in funded backlog, which grew by 21.2% year-over-year to $2.9 billion, compared to $2.39 billion as of March 31, 2011. Today, we are announcing that our board of directors has declared a second regular cash dividend in the amount of $0.09 per share, and the board declared a special cash dividend of $1.50…

Good morning and thank you for joining us. Ralph talked about the adventure of managing in turbulent times and there is probably not a company or country in the world today that wouldn't wish for a debtless excitement. Yet despite the macro uncertainty Booz Allen is proud of our ability and commitment to control our own destiny by managing our business effectively and efficiently. We are proud of our continued growth, operating margin improvements and strong cash flow. As Curt mentioned in his opening summary, in addition to the GAAP results, Booz Allen also reports certain non-GAAP measures, such as adjusted operating income, adjusted net income, adjusted EBITDA, adjusted diluted earnings per share and free cash flow. We believe these metrics provide better insight into our operational results because they remove the effects of non-recurring or unusual items. With that context, let's turn to slide five for a closer look at our fourth quarter and fiscal 2012, which shows a 3.2% increase in revenue over the prior period. This increase was primarily the result of improved deployment of direct consulting staff against funded backlog under existing contracts and funded backlog under new contracts in all markets as well as an increase in other direct costs. In the fourth quarter of fiscal 2012, operating income increased to $97.5 million from $83.7 million in the prior year period and adjusted operating income increased to $115.4 million from $101.9 million in the prior year period. The improvement in adjusted operating income was primarily driven by growth in revenue and the increased profitability that resulted from decreases in incentive compensation costs, partially offset by un-billable staff compensation cost and unrecoverable expenses. Adjusted operating income excludes a restructuring charge of $11.2 million, net of related revenues associated with one time termination benefits paid to departing…

Thank you, Sam. Booz Allen is committed to being essential to our clients and differentiated from our competitors. We believe our success comes from superbly serving our clients in our their core missions brining innovative thinking to bear on client problems and opportunities and developing the solutions to help clients deliver more and better services to citizens and consumers. In areas ranging from cyber and cloud based services to help finance infrastructure and intelligence surveillance reconnaissance. We are seeing continued demand for our services from our Federal Government client. Our commercial and international businesses are fast gaining traction. We are expanding our office in Abu Dhabi, and have recently obtained our license to operate in Qatar, Kuwait, and Oman. Our service offerings to international clients leverage our cyber and technology based capabilities with a focus on online government services and cloud applications, enterprise resource planning, advanced resistant threat resolution and geospatial systems. We have active commercial clients, we have active commercial assignments helping client increase revenue, achieve efficiencies and manage risk. Our clients include major commercial banks and investments banks, healthcare providers and utilities and some of these engagements will be featured in our annual report coming out next month. A good example of Booz Allen's differentiation can be seen in cyber. In the way we think about the problem and opportunities where we integrate our capabilities and the depth of our cyber talent base. Our thinking about cyber is based on a framework for dynamic defense of government and commercial networks and information assets and the framework has four main components, threat intelligence, incident response, integrated remediation and preemptive response. In January 2012, we formally launched the Booz Allen Cyber Solutions Network, an integrated secured network of cyber centers across the country that bring sophisticated capabilities and tools to…

Thank you, Ralph. We are now on slide nine. As I hope we have conveyed, we are proud of the results Booz Allen has delivered for our fourth quarter and full fiscal year 2012. Given the uncertainty in the second half of Booz Allen's fiscal year, which coincides with the beginning of a new government fiscal year and is followed by the November elections, we are currently providing top line guidance for only the first half of our fiscal year, which we expect to have revenue growth that is relatively flat to low single digits. At the bottom line, for the full year, we are forecasting diluted earnings per share to be in the range of $1.62 to $1.72 and adjusted diluted earnings per share on the order of $1.71 to $1.81 per share maintaining our prior guidance.

Thank you, Sam and Ralph, and thank you all for listening to our summary of results and outlook. Before we take your questions, I would like to note that Ralph will be delivering the keynote address at The Northern Virginia Technology Council, Titans of Technology event on June 13th. Ralph has been Booz Allen's Chairman and CEO for 13 years and he will be talking about leadership during these adventurous times. Our Chief Operating Officer, Horacio Rozanski and Senior Vice President and Controller Kevin Cook are here with Ralph and Sam to answer your questions as well. Lacie, at this point, could you give instructions for those on the call?

[Operator Instructions] Our first question will come from the line of Nathan Rozof with Morgan Stanley. Please proceed.

Hi, good morning gentlemen. Thanks for taking my question. I wanted to start off with just, Ralph, some thoughts from you on the overall demand outlook. I mean, book to bill was obviously strong, total backlog filled the funded backlog was up, which is a good sign, so as we think through the puts and takes in terms of potential for a sequestration continued resolution looming at the end of this year, the early next year, offset by a lot of investment you guys have been making in international as well as the seven key growth areas that you just identified. How should we think about the kind of trajectory of backlog and demand as we move through fiscal ’13?

Well, Nate, my crystal ball is maybe no better than yours. I think there is an awful lot uncertainty out there that we are all expecting. We are in the middle of an election year. A lot of politics going on. We have some pending, shall we say, chaos near the end of the calendar year as a confluence of events certainly conspires there to create some challenges about what the way ahead looks like. Having said that, I think our strategy has been to be prepared, to be ready, to be agile and that’s the reason we took the restructuring that we took at the beginning of the year to put our organization in the right kind of financial shape and whatever and that’s why we have been investing in the areas we have been investing in and its also why our continued focus has been on really the core mission of our clients and while we cannot predict with any certainty, exactly what the budget situation is going to be whether sequestration will occur or not occur, we know that there are a lot of essential functions that are still going to have to be performed by our federal government clients and we want to be in the center of that. We want to be providing the most essential services in the most high quality fashion that can be provided and therefore be very relevant to whatever work is going on. So for that reason, we have a lot of confidence in how we have invested in cyber and cloud and the markets that we have invested in. There is going to be still continued demand out there for Booz Allen service even in turbulent times. As for your reference about commercial and international, these same capabilities are very relevant there. Financial services, healthcare, the kind of things that we are doing in cyber, the kind of things we are doing in cloud, all show increasing demand out there in the marketplace. The work that we are doing in the Middle East has been very productive for us and also shows every indication that there is continued and there is further demand out there that we are now reaching out to serve by expanding our presence in that geography. So all of this is, while we are certainly prepared and know how to manage the business in a very agile fashion, we have some confidence out there that there is going to be continued opportunities for a firm of our caliber and our quality doing the kind of things we do and the way we do them. So I think our expectation is that we will continue to be a key player in this marketplace even in very challenging times.

Thanks, Ralph, and then, Sam, I wanted to just turn to you for my follow up. As we think through return of cash to shareholders, you guys have now employed several different strategies with the buyback authorization, the regular dividend and the one time dividend announced now today. How do you see the return of cash strategy evolving overtime?

It is essentially a continuation of the strategy we follow which is that we will look all of our options. We will continue to think in terms of debt repayment, additional dividends, even acquisitions. I think if anybody is following the industry is aware that there is a coming consolidation. We certainly will look there to see if there is some strategic fits. Certainly, Nate, as you know, we have not been acquisitive in the past, so it would need to be something special but clearly we will continue to take a look at that. So, in essence, the continuation of the policy that we have followed which we believe is both conservative and in the best interest of the shareholders.

And then, just given that you haven’t bought back shares on the buyback authorization. Should we take that as an indication that there is a general preference for dividends over buybacks? And I will stop with that. Thank you.

Well, as they say, action speaks louder than words. So I think certainly to date, that’s been the case. We will continue to evaluate that. That comes down to, there is a special committee the board set up to look at those issues. So we will continue to evaluate that option.

Great, thank you.

Our next question will come from the line of Carter Copeland with Barclays Capital. Please proceed.

Yes, good morning. I have a couple of quick questions. First, I wondered if you might speak to the growth in the quarter and maybe for the full year and I wondered if you might be, you said that you saw growth in all major markets. I wondered if you might give us a little color around what you are seeing in each one of those relative to the other and perhaps quantify or at least speak to the success you are having in commercial and international as a kind of first question.

Hi, it’s Horacio. Good morning. I think you almost answered the question which is, we did see good growth across all the markets, the intelligence market continues to be strong, in the civil markets, some areas of health and financial services were particularly bright stars and across defense, we saw both growth and a transition of the portfolio towards more of the C4ISR type of activities, which as Ralph mentioned are core to our clients missions, an area where we think we can excel and continue to find opportunities. Commercial and international are both, I think Ralph spoke to them, and there is not much to add. We see demand from the kinds of clients that we would like to have in our portfolio in terms of their import to their industries especially financial services and healthcare. In the energy area, we have focused a lot our efforts in the abilities market and we expect the growth there to continue but still we would characterize it as early days and its still at an incubation stage but there is the early returns as sort of what we expected to see and we feel like we are on plan there. Same holds true for international. The work that we are doing is consistent with the capabilities that we thought we will now be able to bring to bear especially around cyber and we are building not just a footprint but the relationships and then ultimately reestablishing a brand that we have had in that region for quite some time. So we feel good about international as well.

So just to clarify and please correct me if I am wrong. It sounds like civil and intel are growing a bit faster than defense markets as we would expect and the commercial and international efforts, although growing are of a very small base and they are not significant to the totals for the entire enterprise. Please correct me if I am wrong.

Carter, this is Sam. Let me just jump in and I think in the past we have talked in terms of commercial and international being less than 2% of the total and we said that we would provide more details on that once it did become significant. It did break through the 2% barrier slightly and it is growing in double digits. We continue to invest heavily but I think it is still, given that magnitude, it is a little early to start breaking that up and talking about that separately.

No, that’s great. The color is helpful and I wanted you to talk a little bit about process and planning as we get closer to what will be your third and fourth quarter around sequestration. We have dealt with elections before and we have dealt with continuing resolutions before but the magnitude of the challenges, it looks like we are headed toward our unique potential severity and so when you look at things like resource planning, headcounts, those sorts of things. How, more specifically, are you planning on these sorts of things for the back half of the year, in terms of hiring and the like?

Well, I can tell you, at this point, it seems like the best we could do would be to guess what’s going to happen. So the thing about these businesses at Booz Allen is to keep your cost as variable as possible as we started reducing our facilities footprint sometime ago trying to ensure that our cost, we minimized our fixed cost. So from our standpoint, we feel like we have turned our cost profile last February when we announced that restructuring. We believe that will carry us through whatever turbulence we are going to see but I think it’s up to firms like ours to aggressively manage your cost base in response to what is happening in the market and certainly we will continue to do that.

I know in the past, we have looked at headcount as a good leading indicator of where the business maybe but as you progress into this environment, does that usefulness go down as you hold that headcount tighter because of the uncertainty in trying to keep your cost more variable?

I think that’s a fair assessment. In the past, as we have gone into the summer bidding proposal season, we would add headcount to be prepared to both support the work while the existing staff turned to marketing and bidding proposal and also to be prepared for the new work that normally comes in by the end of government fiscal year. I think this year we will clearly take a more conservative approach until we see what’s going to shake out around all of the, lets call it political turmoil that we are looking at.

For that question, I don’t know if you saw in today’s journal there is an article, I think it is in the marketplace section where they talk about companies that are doing more hiring from within. Over the last couple of years, we have been building and actually we are quoted in that article, we have been building a capability to deploy more effectively from within. We call it inside first. We have gone from 10% of our hiring from within to north of 30% as the article points out. So we have greater capability to deploy resources across (inaudible) to the places where we grow and so we are using capacity more effectively that we will ever have in the past.

That’s great. Thank you for the color, gentlemen.

Our net question comes from the line of Tim McHugh with William Blair & Company. Please proceed. Timothy McHugh - William Blair & Company: Hi guys, thank you. Just wanted to know if you could elaborate a little more in terms of during the quarter on the new contract wins versus the fairly strong funded backlog. Exactly what you are seeing from high level of (inaudible) versus tougher to win new contracts but you are able to convert of the backlog into funded backlog status. Just correct me if I am wrong and any more color you can give?

Well, I think during the quarter, we held our own. There are two things driving the funded backlog numbers, if you recall. So I would think, this year it is more indicative, it sounds strange, of normal funding pattern last year you may recall, the continued resolution didn’t get lifted until mid-April. So as a result, there was a lot of funding that was let loose between April 15 and September 30. This year, we saw because the continued resolution was lifted in December where we saw kind of a more traditional funding pattern. So that’s part of what gives us confidence around outlook in the first half of our fiscal year, the period from April 1 through September 30 but from our perspective if you look at the traditional business metrics in terms of backlog, in terms of proposals outstanding, in terms of opportunities in the pipeline, it doesn’t look so bad. You could make the case for continued growth. Of course, the issue is, if we are going into such an uncertain market, and its, well I heard lots of opinions I don’t know anybody who has the facts around what will and will not happen and what will and will not get funded. So we feel like we are in good shape from a business development pipeline. We feel like we have gotten our cost structure trimmed up to be prepared to go whichever way these things go. We will take a conservative approach until things do shake out and we feel like our business model enables us to move quickly across the front.

To add a little more color and let Sam catch his breath. You asked a question in terms of is it getting harder to win work? I wouldn’t draw that conclusion. I don’t think that the win rates or the ability to actually win competition has been affected in the quarter in any way shape or form. I think what you are seeing is the uncertainty becoming delays in the awards themselves and procurements that are out there that would get awarded at one point, “slight to the right”, as clients are trying to figure out whether they are going to have funding next year and whether it is worth releasing the work and then the protest process, its long and arduous and so you are seeing that but in terms of our ability to compete and win we feel very good about that. Timothy McHugh - William Blair & Company: Okay, and then my follow up would be on the commercial and international. The theory has been that businesses should, at least in a mature state, deliver much better margins than the traditional government market. Are you seeing that now? Are you in such a growth phase, early growth phase for those businesses that there are not substantially better margins than what you see in the government?

Well, I think you have to look at that from our perspective, we do 50% of our businesses cost plus. We follow a standard cost model. Using standard cost basis, yes the margins are certainly better then, as you point out we are investing in those areas. It is expensive to deploy folks to the Middle East and we have been doing that. It’s the cost of capture in the commercial market, particularly as you are starting up are high as well. So we do see better margins. We are investing and will continue to invest but we are pretty pleased with where we are in terms of the progress we are making and what the margin potential is. Timothy McHugh - William Blair & Company: But those margins can probably get even better as you get more and more scale?

Well, one of our great strengths and Horacio can talk about this, is our strategic selling which is, at Booz Allen you are, because of our collaborative model everybody is talking to get go to bring all of our capabilities to bear. It’s not just to sell what you know but you sell what the firm knows. That model has been incredibly successful for us in the U.S. government market. We now, of course, are bringing that to our commercial and international markets. What that means then is that actually your pure selling costs are lower because you are in there with clients. You are both satisfying their current needs and anticipating their future needs. That makes your business development cost much more efficient once gotten. Timothy McHugh - William Blair & Company: Okay, thank you.

Our next question will come from the line of Bill Loomis with Stifel Nicolaus & Company. Please proceed. William Loomis - Stifel Nicolaus & Company: Hi, thank you and good morning. Sam, just on the backlog, it looks like, I know you had an adjustment in the December quarter as well, I assume around SURVIAC and IATAC but it looks like this one was substantially larger, like $1.4 billion or something? Can you just confirm that? And then what the outlook on it is going forward, why that was done this quarter?

You said $1.4 billion. I think hopefully it was in the neighborhood of $140 million which is still a substantial number. William Loomis - Stifel Nicolaus & Company: Su just to clear that up, Sam, so the backlog was $2.2 billion in the December quarter. It is $10.8 billion this quarter and you had $1.0 book to bill? So that should mean the backlog should be still around $12 billion? So what was the rest of the adjustment?

Yes, we will have to go back and take a look at those numbers, Bill. I will tell you that we did take a look at across our entire backlog list, let’s call it, and made an assessment we had. There is certain work where we are just not seeing the conversion of either unfunded backlog and funded backlog or the exercise of placed options and so we took those down. We again applied judgment to say, what do we think is going to happen there and it is consistent with what we have done in the past. I think again, just given the growth outlooks that we are looking at, I think it was realistic to make the adjustments that we made. William Loomis - Stifel Nicolaus & Company: So it is much broader than just the two contracts cited in the footnote in press release.

Yes. That is exactly right. I think the biggest adjustment on a contract, I am looking at the list, might have been on the $20 million range. Then again, this would be money that on the backlog basis would have been spent over several years. William Loomis - Stifel Nicolaus & Company: And then, just kind of looking at the headcount growth, the staffing headcount was down slightly and I guess that’s in line with the revenue expected over the next couple of quarters. So a couple of questions there. One, why you have had such strong contract awards expect for the December quarter over the last few quarters? Are clients, you mentioned, they are deferring but, for example of the awards this quarter, why aren’t we seeing at least 5% headcount growth given the large amount of awards that Booz Allen has been waiting over the last year? What’s going on with the client decision making process?

If you could talk, Bill, about the uncertainty and that this is sort of uncertainty in filling up before your eyes. The clients are unsure as to what money they are going to have. They are holding on to funds. They are being slow in ramping up, in ramping up tasks but the need is there. So we have taken the posture of maximizing the use of our current capacity and not try to get ahead of the demand because the timing of that demand is a little bit unpredictable. I will point out to you that in a really good month, we can hire 800 to 900 people. We have done it in the past and so we don’t feel like this is constraining our opportunity to capture everything that’s out there but we certainly in the current environment don’t want to get in front of that and build a cost position that would unwise. So we are playing the numbers very conservatively on the capacity side, staying very, very close to the demand and as the awards come we are not finding difficulty in staffing them. So that’s really, to you a sense of our posture. William Loomis - Stifel Nicolaus & Company: Okay, thank you.

Our next question will come from the line of George Price with BB&T Capital Markets. Please proceed. George Price - BB&T Capital Markets: Hi, thanks very much. Several of my questions have been answered but I wanted to follow up on a couple of the things and first of all, congratulations, by the way, on the very strong cash flow. Sam, I wondered if you could help me a little bit, just on the tax benefit impact to revenue and operating profit in the quarter. I just wanted to make sure I understood how to look at that. So that was the $10.1 million that is, that was an error that you recognized in the quarter. So you took this adjustment in this quarter. Was that something, I guess, that you had factored into guidance that you gave last quarter?

Let’s go back and really what we are talking about there, of course, the tax expense was always there. George, I am sure you know that within, under government contracts, state income tax is an allowable cost and frankly we had been, because we were burning off net operating losses, really held over from the Carlisle transaction, we had not been in the position to pay state income tax or any income tax for a number of years. So we should have been including that in our rate base in fiscal 2012 because we were starting to pay state income tax. We picked that up late in the year as opposed to at the beginning of the year, frankly. Now, really, what we were doing is, not that we were adjusting income tax expense but we were reflecting revenue on that fixed steps to the degree, it was related to our cost plus contracts. Now just to put that in context Booz Allen, ever since I have been here, I saw what a process, it’s our partner culture that says first call on earnings is always the shareholders, after that, then it’s the partner culture, the partners would then split up what was left. So that goes back to an earlier time but we have actually followed that basic philosophy for some, well at least for 17 years I have been here and I am sure it went on many years before that. As a result, as we were going through the year, of course, we were making adjustments to partner compensation depending upon how well our performance was because we were absolutely committed to making our numbers enough. As a result of that with additional revenue created by the state income tax, we actually were able to increase our internal compensation pool on the order of $7 million to $8 million. So it’s not that that had a significant, when you look at those two actions together, there was not a significant impact on the quarter. On a net net basis it was something on the order of a penny a share. I would just point out that we ended up a penny above the middle of the outlook that we have chatted about in our last quarterly earnings call. George Price - BB&T Capital Markets: No, that clears it up, I guess. I probably should have started with the question of, if you could quantify the offset in comp expense, so understood. On the fiscal ’13 guidance, I guess if I could ask a little bit more about that, could the relatively flat growth that you are guiding to for the first half of fiscal ‘13, could that potentially encompass a slight decline? Do you still expect the typical seasonality of stronger growth in the back half and maybe how did the EPS trend through the fiscal year, best guess?

As you know, we do not provide quarterly guidance. I will say that if you look on the, if you go back to the traditional patterns, what would normally happen is that in the first quarter we are spending below our target cost rates and what happens there is that for financial reporting purposes we adjust our cost plus revenue down to our actual rates for that quarter. So what that does is that that tends to reduce cost plus revenue in Q1 and which is run from April through June, that also tends to increase cost plus revenue in Q2 running from July through September because we are spending a lot of B&P and marketing money. Now that’s counter-intuitive to folks but you have to understand the dynamic of having 54% of your business under cost plus contracts. Now conversely if you take a look at that because still almost half of our business is T&M and firm fixed price that same spending pattern has a tendency to drive up earnings on the T&M and fixed price contracts in Q1 and of course drive down the earnings on those in Q2 when we are actually spending more B&P and marketing money. So I think without laying up because we do not provide quarterly guidance hopefully folks are getting comfortable with that typical pattern that you see. In terms of the back half the normal patterns would be in the December quarter, October through December, lots of holidays in there and lots of people want to take time off that tends to dampen revenue a bit and then in the fourth quarter there is not a lot of holidays in that quarter and people get back to work. So that’s normally pretty strong revenue and profitability quarter. Now what’s going to happen in the back half of this year? Again, we will just have to wait and see what our clients are going to do. I think what’s clear is that clients are still focused on getting their mission done but where they have the option, they are tending to hold on to their funding because they are just not sure what’s going to happen after September 30. They don’t know, we don’t know. I am not sure anybody does. George Price - BB&T Capital Markets: Okay, great, I appreciate the color. Thank you.

Thank you.

Our nest question will come from the line of Robert Spingarn with Credit Suisse. Please proceed.

Good morning, everyone. I think the first question perhaps is best for Horacio. Horacio, could you describe the procurement environments since the quarter. We have heard that order activity has slowed considerably for many of your peers since the beginning of April. Have you seen this at Booz? And then if you could add in the possibility for the traditional budget flush in the September quarter or is this year too different for that?

At this point, we are not seeing anything different from what we have been talking about in terms of either significant slowdowns, in terms of money not being spent over the summer the way it typically is. We are anticipating the usual increase, as Sam said, in marketing and B&P that we see over the summer as clients try to race to their budget deadlines. So that’s pretty much what we are seeing. There isn’t anything in particular that I could point to that happen since April 1, that isn’t a continuation of an environment and a trend that we have been seeing play out now for several quarters.

Do you think we get that big book to bill in the September quarter? You have done this several years in a row.

I have got to say that, clearly, if the future follows the past, the answer to that would be yes and it seems as if their proposal is being prepared but I just don’t think we know at this point. We are trying to make certain and I think we are trying to convey. We used to have a marketing slogan that said, we helped clients get ready for what’s next and we take that to heart. We feel like we are ready for what’s next. We are just not exactly sure what that’s going to be in terms of funding. So again we have focused on making sure we have our capacity under control, making sure that we have got our headcount under control, our cost as variable as we can make them and we will just have to see how this unfolds. We feel like that given the cost actions we have taken that we will be able to deliver at the bottom line. The question now is going to be what does the second half looks like from the revenue standpoint.

Okay, and then staying on that, now just a couple of quick things, financially, one on debt retirement and the other on guidance. I will start with the guidance. Given that there is so much uncertainty in the second half revenues how do you get to a full year earnings guidance number like you do? Where are the levers? Or should I just consider the dime spread in the guidance a different revenue scenario? Or is there something else that’s levering there?

Again, let’s go back. We took some $80 million out of the business in the last March quarter. We have planned to put a reasonable amount of that back into the growth areas that we talked about earlier and we are doing that. We have also held some of that in reserve. So if God forbid, something bad happens there, then we have got some cost cushion to help us absorb whatever happens at the topline. Now if the government shuts down for 30 days, I think we would all know at that point all that’s lost but we are assuming that we are focused on missions that matter. We do have clients who are mission focused. There is going to be an awful lot that gets done even through all the turbulence but again, I would just want to emphasize we feel like we have done everything we can to get ready to respond. We will just have to see how it unfolds.

Okay. So it sounds like you have got some decent contingency in your number there on the earnings side.

We do.

And then the last thing is, with the decision to go with the special divided and you also discussed some of your forward options on cash deployment. Does this mean that the long ago plan to leverage to around $400 million by, I think it was the end of ’14, that’s the way we had modeled that anyway. Is this something that’s not necessarily in the cards now?

Rob, I will tell you, we will continue to look at all of our options. I think I have said in the past looking at the availability of credit, looking at interest rates, it does seem as if taking advantage of the credit market is a nice way to manage our weighted debt, average cost to capital. So we continue to look at all of those options.

Okay. Thanks very much.

Sure.

That concludes the Q&A portion of the call. At this point, I would like to turn the call back to Ralph Shrader for closing comments.

Well, thank you very much and I thank all of you for taking the time to join us this morning. In closing I would like to summarize, really, why I am confident about Booz Allen’s continued success and that confidence is shared by our leadership team and our board of directors. I think as you heard over the last few minutes, we keep emphasizing the fact that as a company and a corporation, we really believe that we know how to manage this business and that we have put ourselves in a position right now that no matter what contingency plays out, we are in a strong position to take advantage of it. We are investing in areas that we think are high growth areas for us but yet we are not going overboard. We are not over extending. We are playing back and waiting to see what might happen. And I think that gives us a very strong position to be able to approach whatever game plays out as we come to the latter part of this year and puts us in a fine position to be able to take advantage of whatever scenario it is that actually results from the conditions of the extent. Given this, it is easy for me to say that I firmly believe that Booz Allen is an exceptional company and it’s really our agility in the marketplace, the quality of our staff, the deep commitment to excellence, integrity client’s success. We really have the strength, the reputation and resilience that comes from nearly a century in this business. Yet, we don’t rest on our laurels. We remain focused on the future. We have both the perspective of history and the openness to change that enables us to seize new opportunities and deliver value day-after-day to our clients, to our employees, to our communities and to our investors. So thank you very much for being a part of this discussion today.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day, everyone.