Curt Riggle Ralph W. Shrader - Chairman of The Board, Chief Executive Officer, Chairman of Nominating and Corporate Governance Committee and Chairman of Executive Committee, Chairman of The Board of Booz Allen Hamilton Holding Corp, Chief Executive Officer of Booz Allen Hamilton Holding Corp and President of Booz Allen Hamilton Holding Corp Samuel R. Strickland - Chief Financial Officer, Chief Accounting Officer, Chief Administrative Officer, Executive Vice President and Director Kevin Cook Horacio D. Rozanski - President and Chief Operating Officer

Carter Copeland - Barclays Capital, Research Division William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division Robert Spingarn - Crédit Suisse AG, Research Division Brian Gesuale - Raymond James & Associates, Inc., Research Division Timothy McHugh - William Blair & Company L.L.C., Research Division Edward S. Caso - Wells Fargo Securities, LLC, Research Division Suzanne E. Stein - Morgan Stanley, Research Division Jason M. Gursky - Citigroup Inc, Research Division Cai Von Rumohr - Cowen and Company, LLC, Research Division

Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering third quarter results for fiscal 2014. [Operator Instructions] I'd now like to turn the call over to Mr. Curt Riggle. Please go ahead.

Thank you, Stephanie, and thank you, all, for joining us today for Booz Allen's Third Quarter Fiscal 2014 Earnings Announcement. I'm Curt Riggle, Director of Investor Relations, and with me to talk about the business and financial results this morning is Ralph Shrader, our Chairman and Chief Executive Officer; and Sam Strickland, Executive Vice President and Chief Financial Officer. We hope you've had an opportunity to read the press release on our third quarter earnings that we issued earlier this morning. We have also provided presentation slides on our website and are now on Slide 1. As shown on the disclaimer on Slide 2, please keep in mind that some of the items that 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 periods 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's services and other factors discussed in today's earnings release and set forth under the forward-looking statements disclaimer included in our fiscal 2014 third quarter 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 assume no obligation to update or revise the 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 adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our fiscal 2014 third quarter slides. It is now my pleasure to turn it over to our CEO, Ralph Shrader, and he'll start on Slide 3.

Thank you, Curt. Good morning, and thank you, all, for joining us on this last day of January. We had the privilege to start this month by ringing the opening bell at the New York Stock Exchange. On January 2, we kicked off trading on the big board for 2014 and celebrated the start of Booz Allen Hamilton's 100th anniversary year. 100 years ago, Edwin Booz founded our firm and started the management consulting profession. The significant contribution Booz Allen has made to business and government over the past 100 years is something we take great pride in. As investors, I know your interest lies in our future more than our past. And I want to assure you that while we strive always to learn from the past, Booz Allen's management team and our nearly 23,000 employees today are focused on the future. As discussed on our previous earnings calls, we are also investing strongly in the future in capabilities and markets such as cyber, advanced analytics and engineering, health and predictive intelligence -- areas that we believe have future growth potential for us. Today, we are reporting on results for our third quarter fiscal 2014 ended December 31, 2013, and those results are in line with the expectations we shared on our earnings call last fall. During the first half of fiscal 2014, we focused on maximizing productivity of our consulting staff and tightly managing our costs in line with revenue to provide flexibility to respond to a challenging and uncertain market. That fiscal prudence served us well during this current quarter when the federal government shut down for almost 3 weeks back in October. Because Booz Allen's work is focused on our core clients' core missions, essential operations as defined by the government, we were able to keep…

Thank you, Ralph. Good morning, and thank you for joining us. As Ralph said earlier, this past quarter, we saw revenue declines as a result of the government shutdown and an environment of continuing uncertainty while the government operated under a continuing resolution. We also saw income declines in the third quarter as compared to the prior year period. But as I'll talk about this morning, these bottom line results were in line with our expectations as we leveraged some of the financial flexibility we generated as a result of our effective cost management in the first half of our fiscal year. After 9 months, we remain on track for full year results that are consistent with the guidance we provided you last quarter. It seems like I say this every quarter, but I can't emphasize it enough. The reason we're still on track for the full year, even with the challenges we've experienced in the third quarter, is that we carefully manage our business on an annual basis. Any given year has an ebb and flow of events and economic conditions that impact our performance from quarter-to-quarter, and each year is different. But we have developed the skill to manage our business very effectively so that we account for the variances within the year, with the year-end target as the ultimate goal. Before going into greater detail on the first 9 months and the third quarter of fiscal 2014, I want to look back to the prior year, fiscal year 2013, to illustrate how these ebbs and flows vary by year and the challenges of comparing a single quarter with the prior year's quarter. In the first half of 2013, we took action to reduce costs. We also continued to refine processes to manage the business more efficiently in…

Thank you, Sam. Before we move to the question-and-answer session, I want to share some developments coming out of yesterday's Board of Directors' meeting. I've been with Booz Allen for long enough to be a rather learned student of our firm's history. Our history is a history of people, not of products. And the thing that has amazed and impressed me throughout my tenure is how well we hand off the baton, how the next generation of leaders builds on those who came before and takes the firm ably into the future. Yesterday, the board accepted the retirement request of 2 members of our executive management committee: our Chief Financial and Administrative Officer, Sam Strickland; and our Vice Chairman, Mike McConnell, who will both be retiring on June 30 of 2014. Sam will also step down from his positions as Treasurer and on Booz Allen's Board of Directors upon his retirement as of June 30. I'm pleased to report that the board also approved my recommendation for Sam's successor as Booz Allen's Chief Financial Officer. Kevin Cook, who you know as our long-time Controller and Senior Vice President of Finance, who's been on every earnings call since our IPO, will become Booz Allen's CFO and Treasurer on July 1 of this year. Kevin's impact on Booz Allen's business has been significant, most notably in building our finance organization for a strong public company and in creating the firm's shared services organization. I've known and worked with Kevin for more than 20 years and have the utmost confidence in him. To fill Sam's other leadership role, that of Chief Administrative Officer, we have tasked Executive Vice President, Joe Mahaffee, who has been with Booz Allen for more than 25 years and is a proven leader in both line and staff positions.…

Thank you, Ralph and Sam. At this time, our President and Chief Operating Officer, Horacio Rozanski; and Senior Vice President and Corporate Controller and as Ralph just announced, our CFO elect, Kevin Cook, is here with us to help answer your questions. Stephanie, can you please provide instructions for the question-and-answer session of the call?

[Operator Instructions] Our first question comes from Carter Copeland from Barclays.

Congratulations to you, all, on the various new roles and retirements. Wondered if I could ask 2 questions. The first is related to the end market outlook. And obviously, we've had challenges this year with the government spending environment. But as you put together your plan for next fiscal year, can you kind of tell us how you're thinking about when it is that organic revenues may find the bottom given the fact that we now have a budget agreement, we should have a federal budget submitted in regular order? Tell us how you're thinking about that and how it applies to hiring. Just look inside your crystal ball and tell us what that means for the forward look for next year.

Carter, let me jump in here. In terms of our forward look for next year, I think, consistent with our practice last year, we will wait until the -- our annual earnings call, which will be in late May, to cover that. But let me tell you what we're seeing now. Clearly, as a result of the budget agreement and the passage of the spending bills for the government fiscal '14, that certainly improves the environment. That said, it's going to take the government and contract community, as a general rule of thumb, 60 to 90 days to start flowing that down. So when we look internally, we're starting to see some positive signs. We have not yet started to see dollars flow. Now we fully expect that. As you know, there is a high incentive for the government to get that money allocated by September 30, and we expect that to happen. We also believe that we have invested to position ourselves both in terms of market positioning and developing the capabilities required to deliver on that market positioning. We feel like we've made good choices there. As you know, that's been the hallmark of our success for more than 20 years. So I think we are optimistic that between now and September 30, there will be ample awards. We're -- to our thinking, we would like to make certain that we see the start -- the money start flowing before we start providing our expectations for fiscal -- what would be our fiscal 2015.

That's fair. I'm just trying to get a sense of where you think the bottom might be out there, but I can appreciate the fact that it's -- the visibility is still somewhat limited. Just one other quick one on the adjustment to the total backlog in the quarter. You noted that was related to a reduction to 2 particular contract vehicles. Can you provide some color on what that was?

I'm not sure we understand your question, actually. I think the reduction in the contract backlog is really the result that we saw. While we saw a lot of -- we saw a reasonable number of IDIQ awards during the quarter, we didn't see a lot of funding behind that. So I think what you're seeing is that our clients are funding us more on a short-term basis. As a result of that, we're seeing a drop in backlog. And importantly -- or more importantly, we're seeing a drop in the period of performance covered by the backlog. So the clients are doing a bit more short -- or funding it on a shorter period. Now I think what you might be talking about when we described -- and this is disclosure that we've had since we went public. We have 2 large government-wide ordering vehicles. There's IAC and SURVIAC, I guess, although IAC has got a new name. And they are interesting contracts in that clients can allocate money for 3 years. We do go through -- based on a long history of those contracts, there is a fairly standard percentage by which the amounts funded or the amounts awarded is actually overstated. And I think that's just the nature of the contracts. So those are actually 2 contracts where we take a look at the actual award amounts and discount those for what we expect to be generated by those contracts. That said, I think we've checked, and our adjustments for the third quarter have not varied significantly from prior quarters.

Carter, it's Kevin. I just wanted to add that we've won a number of contract vehicles this year; they're multi award. And we're basically waiting for the funding to come through on those, and we would hope to see that between now and the end of September. However, the backlog -- the way we calculate it, it's fairly conservative, in that we don't anticipate any IDIQ revenue in our backlog until we've actually been awarded the task orders. This is a little bit more conservative than some other folks, but we think it's probably the best approach for our investors.

Our next question comes from Bill Loomis with Stifel. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Sam, after working with you for 20 years, congratulations on well-deserved retirement.

Thank you, Bill. I'm looking forward to it. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: And Kevin, congratulations to you. It sounds like Curt didn't believe you were CFO for a little bit.

Certainly shocked, getting used to it. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: So just looking at organic growth though. I know you talked about the material pass-throughs being down with little margin attached to that, and that helps explain some of the organic growth drop. But consulting headcount was down 8% year-over-year, and that's a number that we've seen has been fairly consistent with some of the others historically. Booz has been a market share gainer. What's going on? Why isn't that down 3%? What -- is it some of the programs that you're targeting or some of the investments that are going to pay off down the road?

Bill, it's Horacio. Let me try and take a cut at that. I think over the last year, we have -- we reorganized in the beginning of the fiscal year. We have been running the business much more efficiently. And so the number of billable hours for staff is way up, our billability, therefore, is way up. And so we've been able to really get more -- much more performance out of our existing staff base. And so we actually have been able to fund all of our investment programs, which are running at about the same rate as in prior years even with the reduced headcount. So there's more of a story of efficiency there than there is of a pullback or anything else. And we remain, I think, committed to doing better than the market. Now as you can tell, the market is not great, at least at the moment, and so doing better than the market is still not as well as we would like to do. But certainly, we are leaning forward and looking for opportunities to grow, as Sam said earlier, both organically and inorganically. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: So it sounds like -- and that helps explain some of the margin improvement as well from what you just said. And just a follow-on with what Carter was talking about. In the book-to-bill you had was 0 or slightly negative because you had some write-downs on backlog on those 2 task orders. Was it -- IAC and SURVIAC, were those the 2 vehicles that you mentioned in the press release that you had task order value write-downs? And again, what changed there specifically to take those out of backlog?

Well, yes, those are the 2 that we refer to. But Bill, if you look back, we do that -- we've done that every quarter. Again, it's the nature of those contracts, where clients like to put money on those contracts and then they can reprogram that money. It's contract vehicle allowance for that. So when we took a look at the historical funding and let's call it burns on those contracts -- revenue burns on those contracts, we decided that we needed to discount that. The discount is not much. It's been a couple of years, but it's somewhere in the neighborhood of 7% to 10%, something minor like that. But there wasn't a major adjustment this quarter associated with that. Those adjustments have been in every quarter.

Our next question comes from Robert Spingarn with Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: I'll let go the congratulations to everybody. I wanted -- 2 questions really, one on revenues and bookings and the other on margins. This follows up on what Carter was talking about with regard to the deal and the improved visibility. Since we have a 2-year deal here, should we not have the kind of disruption that we would normally have or that we've had for several years in a row in the fall period as you go through? And essentially, once you get visibility, is it for a longer period this time?

I think that's a safe assumption, Rob. I mean that's certainly what we're counting on. So again, we haven't started to see the flow of awards and the flow of funding at this point. We're witnessing the government sort of get -- gather its forces to get ready to do that because, as you know, there's a strong incentive to get that done by September 30. But we're anticipating with, let's call it a 2-year run, that it should be a much more stable environment for us going forward. Robert Spingarn - Crédit Suisse AG, Research Division: Right. And then on the margin side, and you touched on this last quarter and a little bit today, could you perhaps give us a little bit more granularity on the relative decrease in profit and earnings against the relative decrease in revenues and then how the margin profile should evolve from here sequentially going forward over the next few quarters, just given the big differences that we're seeing?

Well, I think if you take a look, the -- look, we had a choice to make when we had a 16-day government shutdown, and that choice was to lay off our staff or to carry those staff. As a result of that, we, of course, decided that it's Booz Allen's way that we would carry those staff. Yes, that's $30 million reduction in revenue without a corresponding decrease in expenses, so that certainly hurt the quarter. I don't expect the margins for this quarter to be reflective of, let's call it, annual margins going forward. The other thing I'll point out is, consistent with that, as we announced at the end of the second quarter, we were going to build -- we were going to invest in building capability in the back half of the year, and in fact, we have been doing that. If you look at just the way the accounting works on the cost-plus and then the T&M and FFP contracts, of course, when you're spending below your -- let's call it, your average approved indirect rates, when you're spending below that, you tend to get -- you show more profitability on your T&M and FFP contracts. Now you want to make certain that by the end of the year, you're kind of in line with your rates, right? So what you're seeing now, we were very conservative in the first half to make sure that we were well positioned for whatever happened in the back half of the year. Now we feel like we have a handle on it. We're trying to make certain that we're well positioned going into our fiscal '15 and also making sure that we're spending consistent with the annual rates that are inherent in our contract backlog pricing. I don't want to... Robert Spingarn - Crédit Suisse AG, Research Division: No, I got it, Sam.

I'd just -- I didn't want to get technical in the vagaries of government contracts accounting, but that's the dynamic. And that's the trap we kind of fall into with this quarterly reporting -- reporting on quarterly basis and managing on an annual basis. Robert Spingarn - Crédit Suisse AG, Research Division: Well, so that's kind of what I was after. Because when you have -- again, you pass through all this -- the revenue really passes straight through to cost, given that you kept people on. But you've also had some of this infrastructure-type change. So how do we think about the forward margin? Is it an 8% type margin as we go forward when you've gotten past all of these puts and takes?

Well, I think that it's an interesting question. If you -- the way I would look at it is if you sort of eliminate the effects of the government shutdown, then I think where we're going to end up in the year is likely what we'll be looking at for future years. In other words, we don't -- when all the accounting is done for the fiscal year, and of course, we manage this on a fiscal year basis, I think those -- that's the margin you're going to get except for the government shutdown, and of course, we'd look to improve that modestly going forward.

Rob, it's Kevin. Through the 9-month period, we're up 110 basis points at the adjusted EBITDA line. And we would -- if you go back to the IPO, we always talked about 10-basis-point improvement year-over-year. And clearly, we're in a good position to deliver on that this year. Going forward, I think contract mix will play a big part -- how much our commercial and international grows, which will really drive significantly higher margins. So there's a lot of variables that go into that.

Our next question comes from Brian Gesuale with Raymond James. Brian Gesuale - Raymond James & Associates, Inc., Research Division: Congratulations to all of you. I wanted to maybe shift gears a little bit and hit on something, Kevin, that you just touched on. Can you give us an update on the commercial and cyber business? Obviously, it's been in the news, particularly in the retail channel. I know that wasn't an initial industry focus for you guys. But could you maybe just talk about the tempo in that business and give us an update please?

Sure will. It's -- we are feeling that we're gaining traction in both our commercial and international space. We've talked on this call previously about not wanting to talk in depth about it until it gets upsized. But we do feel that relationships that we've been investing in over the last 2 or 3 years are beginning to pay off. You'll hear comments from the commercial market that they're looking for firms that can deliver military-grade cyber. In the commercial world, we're one of the few firms that can do that. And I think as the cyber scenario unfolds going forward, we're well positioned to help commercial and international clients prepare and then weather the storm, if they're attacked. Brian Gesuale - Raymond James & Associates, Inc., Research Division: Okay, great. And then just wanted to -- you guys have always done a very good job on tactical selling and are very close to your clients. Can you talk maybe a little bit -- you started in the initial question talking about clients feeling a little bit more optimistic. Can you put some color around what a bookings cadence could look like, if you expect backlog, when it begins to grow? Maybe talk about some of the headcount numbers. I know you don't hire in advance of business and sit people on the bench, but when some of those kind of key business indicators for you might turn positive.

I can give you a bit of -- it's Horacio -- a bit of a -- sort of historical look plus guesstimate. And if you take it with many grains of salt, I think you'd be well served. The -- historically, what you see is that after the passing of a contingent resolution, it takes about 90 days for the funding to actually become available to clients and it -- because it's got to go through OMB, it's got to get apportioned, it's got to get sanctioned, it's got to move down. And so I think the expression Sam used is the government is marshaling its forces to go after this. And I think that's the general sense. There's an expectation that this will move through in that level of orderly fashion. The other dynamic that we've seen is that more and more gets pushed into the summer and that the heavy-duty selling season begins later and later in the summer and creates a bigger spike into September. And it's not the way we would like to see it and it's probably not the ideal way for the government to do it, but it's the way that they do it given the way the entire -- the entirety of their challenge. And so that's, in general terms, what we are expecting is that it will take 90 days for things to begin to drive forward. The bigger question for us and the place where we place some cautious optimism is on the fact that uncertainty is the killer here. And the -- at some point, you would like to think that the key government personnel will start to feel a little bit more certain about, at least, their 18-month outlook and begin to act that way. But that's going to take time. I mean, they've being shellshocked by what's happened over the last few years. And we've seen contracting shops even now behave very cautiously even though they know the money is at OMB, even though the money is coming. And so far, they're saying, "I can't -- until I have it, I'm not willing to act because I've been burned in the past." So it's going to take a little bit of time for the key government people to get to the place that they can act with more certainty and more confidence.

Our next question comes from Tim McHugh with William Blair & Company. Timothy McHugh - William Blair & Company L.L.C., Research Division: Just wanted to ask about some of, I guess, the sectors within the business. I know you talked, last quarter, I think, about intelligence, starting to see some weakness there -- or catching up to other areas, I guess. Just commercial versus -- or I'm sorry, civil versus defense, any color on the trends, if they varied at all?

We -- well, I think we've seen a continuation of the trends we saw earlier. If you look across the board, the decline in civil, which, by the way, includes the veterans administration, DHS, so forth, is down the least, followed by defense, followed by security. So if you're looking across that -- but we try and talk about that on an annual basis because, again, that's the way we manage the business. So we don't see that changing in the near term, but let's see how the money starts to flow when the weather gets warmer, which I think we all hope it does. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And then you talked -- it sounds like you're a little more interested in acquisitions now at this point -- or I guess, you digested the engineering group, I guess. Is that an area you'd look to continue to invest in? Or are there any particular areas that stand out right now that would be good fit for acquisitions for you guys?

So I think the answer is we have been interested in acquisitions, and we've had a fairly robust screening activity. Our focus going forward, I think, is -- we've identified 3 areas, one of which is, let's call it, systems development, software engineering systems development. Again, we'd be interested in more engineering capability. We, in rough terms, doubled our capability when we bought DSES. And then third area which we would take a look at is around the data analytics. Now that said, we also look at other things that become available on the market. And if we saw something that was outside of those 3 areas but again we felt like it brought real upside and was still consistent with our strategic thrust, then we would do that as well. So we're looking. I think we have been looking since even before the DSES. I have to say, Tim, what we're -- honestly, what we're not looking at is small things, if that makes sense to you, under the theory that we're looking to use our time and energies on something which is going to make a difference. Timothy McHugh - William Blair & Company L.L.C., Research Division: Okay. And one last question. Just the -- obviously, given the environment, you've had to manage the headcount down quite a bit. But I imagine it's not easy on the organization when headcount's -- consulting headcount is down 8%. So what's the morale kind of around that? Is that having an impact on, I guess, turnover levels or kind of, I guess, any other metric you could use to judge that within the consultant base at this point?

It's a great question. The last couple of years have not been fun on the industry. And I think, we -- it was a lot more fun when we were growing at 20%, that's for sure. Having said that, I think what we've focused on internally is the fact that we actually run this business for the long term, that we invest in our future, that we invest in our people. We recently launched a new people mall that takes full advantage of all of the different roles that people play at Booz Allen and fosters the development of more technical capabilities. We've made significant investments in the launch of our -- relaunch of our functional communities. And certainly, the way we behaved during the shutdown, as compared to the way almost everybody else chose to do it, continues to create a sense internally that we really are running this business for the long term, that we care about our people and we care about our clients. And so in that combination, I would say that morale right now is about as good as it can be, given the overall environmental circumstances and frankly, probably better than it's been in a while.

; Our next question comes from Edward Caso with Wells Fargo Securities.

I was hoping you could talk a little bit about your support of the intelligence community, both the 3 letters plus the defense part of it. If you could remind us sort of what percent roughly of revenue that is and maybe what pockets, generically speaking, are strong and what are not. Because we've been picking up fairly mixed signals of late as far as spend pace and so forth out of the intel community.

Well, Ed, as you know, we -- particularly given the way we operate the firm, we try not to get into segment reporting. So I will tell you that, historically and continuing, the intel business is something like mid-20%, and that fluctuates around depending upon ODC levels and so forth. So -- and that's -- and particularly, when it gets down to talking about individual agencies, that's something we've not done and I'm sure that's something that our clients would prefer we not do.

I guess my question is really around types of services. Presumably, cyber is strong. Are other areas weak? Are you -- is that what you're seeing? I'm not looking for agency by agency.

Oh, in terms of the type of services. Well, again, it's always difficult for us to quantify each type of service simply because these are contracts that allow us to provide a variety of services that we have. So I don't -- we haven't seen a particular change in the mix so far.

Okay. My other question is on the pace of payment from the contracting officers -- offices. One of your competitors mentioned that they're being instructed now to pay on terms and they previously been paying before the required limit. Are you seeing that sort of slowing pace of money coming out of the contracting offices?

Ed, it's Kevin. It is a little slower. I think it's a combination of the shutdown and the payment offices struggling to get back on track. And then there is -- as you recall, about a year ago, the government issued an edict that the agencies were supposed to pay small businesses in net 15 instead of net 30. And they actually started paying everybody net 15, assuming that we would then turn around and pay our small business subs quicker as well. And they have -- they did back off of that for a bit. I think they -- I hear that they may be going back to that. But that has contributed a bit to a slowdown.

Great. All the best, Sam, on your retirement.

Thank you. I'm looking forward to it, Ed; enjoyed working with you.

Our next question comes from Suzi Stein with Morgan Stanley.

Can you just touch on the book-to-bill number? Is this just a timing issue? Should this return to kind of a more normal level over the next quarter or 2?

Well, certainly, our hope is that -- traditionally, the third quarter -- again, the government goes through -- the funding goes through a crescendo as of the September 30 quarter. So this quarter, the December quarter, is traditionally the lightest of the 4. And then the March quarter will be a little better, and the June quarter will be a little better. And again, we're back to September quarter is when the mother lode comes through. We fully expect that pattern to continue this year. Clearly, the December quarter, if you think about the shutdown and even the DoD, which declared a lot of folks as critical and therefore kept them working during the shutdown, I think an awful lot of the procurement and finance personnel were, in fact, furloughed. So they're -- they kind of went through a -- not exactly a full stop, but there was a pretty good lull there. And so now they're getting back into it. If you think about the year, you had -- so you had a shutdown, you came out of that and you went into the Thanksgiving holiday. As you came back from that, and you went into the end of December, winter holidays. So those are all things that tend to slow stuff down. So actually, I was pretty pleased that we got it back to 66 days as of December 31. That was -- it's actually rebounding a little faster than I thought it was. And again, generally, our low point for receivables is March 31, and so we're optimistic we can get there in terms of our cash. But in terms of contract awards, again, we would expect that to follow our historical pattern of the January quarter being better than the December quarter and then the June being better than that and then the big quarter being the September quarter.

Our next question comes from Jason Gursky with Citi.

The midpoint of your EPS guidance heading into the fourth quarter here is about $0.30. Now I wanted to give you an opportunity to perhaps address why it would be a bad idea to annualize that number as we move into the next fiscal year. Maybe talk a little bit about the things that are under your specific control that will allow the $0.30 number not to be what we would see as we move into fiscal '15?

So as we've said, we do manage it on a quarterly basis. And so we're managing our spend plans on a quarterly basis. We generally tend to be conservative in the first half to make sure that our top line -- look, as you know, this business is an easy business, when you think in terms of like any business, you have to manage your costs in relation to your revenue, right? So while we have to report on a quarterly basis, we will manage both our spend plans and our investments on an annual basis. So I think that's why, if you take a look at our annual guidance, then -- which we've put out, that gives you a pretty good indication of what we expect to do for the year. And I think that's the number that you need to take a look at for the following year, as opposed to taking 1 quarter, because 1 quarter can be, let's call it, distorted by things like shutdowns or things like snowstorms. We had an interesting situation here that was in the Washington area, where we have a significant amount of our business, where we were closed for about 2 days. So we'll work hard to recover on that. But we've -- one of the reasons we have never provided quarterly guidance is that we don't want to get into the trap of having to manage on a quarterly basis because it just doesn't make sense in our business. So I think the annual number is what you want to focus on.

Jason, it's Kevin. I got to admit I'm sitting here with a smile on my face because, at the end of our second quarter, we cautioned everybody not to take our first half results and multiply by 2 because we were going to invest in the second half. We had the government shutdown. Now we kind of have the opposite question where you're saying, "Well, the $0.30 in the fourth quarter, should we extend that for the year?" As Sam pointed out, we manage annually, and we've been very consistent in hitting our bottom line guidance for the last -- I guess since we have gone public, frankly. So we always encourage people to look at our guidance and use that as a basis for the following year.

Fair enough. I just wanted to make sure that wasn't necessarily the right way to be thinking about it and that you have the same types of flexibility this year that you had -- flexibility going into next year that you had this year and what you're trying to say is that you do. Okay. And then just a quick follow-up. Has there been any significant mix change in your contracts? They were running well above the 10-basis-point EBITDA margin expansion that you've talked about wanting to go down the year-to-date basis thus far. So just any notable change in mix of contracts allowing for that? And is that going to be sustainable?

Jason, it's Kevin. We've had a very consistent contract mix over the last couple of years. You'll see, in some of the non-GAAP measures we provided, I think on Schedule 5 or 6 of the earnings release, where our fixed price percentage of revenue went up slightly in the third quarter. And part of that's attributable -- or most of that's attributable to a contract in our Booz Allen Engineering Services group that converted from combination of cost-plus and T&M over fixed price. So other than that, it's been very consistent over time. And based on the type of work we do, we feel pretty confident that, that mix is going to remain somewhat stable. There is, I think, a desire by the government to move away from T&M and the cost-plus. We've been over 50% cost-plus for as long as I can remember, so we're used to working in that and managing in that environment as opposed to other companies that are seeing their margins get pressured by the move away from T&M.

Our final question comes from Cai von Rumohr with Cowen.

So I guess I have 2. One, we've seen the low price technically acceptable and some of your competitors indicating that maybe we're about to see the pendulum switch the other way. Have you seen any evidence of that?

Well, I think we certainly heard enough talking about that from our client side that they're starting to recognize the pitfalls and starting to recognize just how much that disrupts, let's call it, mission delivery when we go to that. So have we started to see -- the key is more not what they say but what they do, right? So even when they put out best-value proposals, in the past, they've had a tendency to drive it towards low costs technically acceptable. So we're seeing clients talk about it. We're seeing clients start to address it. So I think we're optimistic that, that's going to -- the situation is going to improve over the next -- let's call it, the next 12 months.

And then the last question is kind of the sort of recovery from our current situation. I mean, in one sense, we've seen a perfect storm where you had a request for fiscal '14 that looked unrealistic, and looks like we're going to go into sequester. We had the government shutdown. All of these things really kind of damping down the near term. And now we have a fiscal '14 appropriation. And to your point, they have to spend the money by the end of the year. So that, while it's very difficult to say when we get the snapback, is it your opinion that we have the potential for kind of like an overshoot snapback just because they have to appropriate -- they have to commit the money?

I have to tell you I'm not sure I can define an overshoot snapback. I understand what you're saying, but we'd have to put that in our non-GAAP measures, thoughtfully. No, look, let's see. I think we are going to be interested to see how quickly they get up and running on this. As Horacio mentioned early on, the tendency has been to get more and more into that September quarter. So we're hopeful, of course, that they'll get more and more into the earlier quarters. But we'll just have to see how that rolls out.

I will now turn the call back over to Ralph Shrader for closing remarks.

Well, thank you. Well, I hope we've been able to show that our effective management of Booz Allen's business has kept us on track to deliver our earnings commitment for fiscal 2014. We were able to weather the government shutdown while continuing to deliver solid bottom line performance through 9 months, and we continue to generate strong cash flow. We're cautiously optimistic that the recent budget agreement on Capitol Hill will reduce uncertainty for our clients and improve the business climate going forward. As we described this morning, we continue to invest in the future of Booz Allen's business and are excited about the road ahead while we celebrate our past in a special way during this very important centennial year. I want to thank you all for joining us this morning and wish you a good day. Bye now.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.