Good morning. Thank you for standing by. And welcome to Booz Allen Hamilton's Earnings Call Covering First Quarter Results for Fiscal Year 2020. At this time, all participants are in a listen-only mode. Later there will be an opportunity for questions.I'd now like to turn the call over to Mr. Nick Veasey.

Thank you. Good morning and thank you for joining us for Booz Allen's first quarter 2020 earnings announcement. We hope you've had an opportunity to read the press release that we issued earlier this morning. We've also provided presentation slides on our website and are now on slide 2.I'm Nick Veasey, Vice President of Investor Relations and with me to talk about our business and financial results are Horacio Rozanski, our President and Chief Executive Officer and Lloyd Howell, Executive Vice President and Chief Financial Officer.As shown on the disclaimer on slide 3, 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 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 first quarter fiscal 2020 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'll also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. We included an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal year 2025 - sic 2020.It is now my pleasure to turn the call over to our CEO Horacio Rozanski and we are on slide 5.

Thank you, Nick, and good morning everyone. Thanks for joining the call. Lloyd and I are pleased to share another set of very strong quarterly results this morning. On our last earnings call just nine weeks ago, we discussed Booz Allen's outstanding fiscal year 2019 performance and highlighted that we aim to emulate that performance this fiscal year. We also increased the financial goals in our investment thesis, which takes us through fiscal year 2021, having essentially jumped a year ahead on our 3 year time horizon.In sum, we affirmed our confidence in our business going forward. We also provided clear guidance on how we plan to execute this fiscal year with a relatively aggressive first half and a more conservative second half. The operational and financial performance we have reported today aligns precisely to that plan.The fact that we are delivering on an ambitious front-loaded plan, exactly as we said we would, is further proof of the strength of our institution. We are differentiated in the market. We are effectively managing cost across the business and our people are serving clients with dedication and excellence.This morning I’ll focus on these three drivers of our sustained momentum. I’ll also touch on the Federal budget before handing over to Lloyd, who will run through the quarter’s results and our outlook going forward.As you know, our investment thesis begins with our unique position in the market. This is the differentiation we have created by implementing our Vision 2020 growth strategy over the past six years.Clients know us today as a company that operates at the intersection of technology and mission. By coupling consulting expertise and mission knowledge with technical capability, we are helping them transform their organizations, meet today’s challenges, and prepare for the future.Demand for the capabilities we have built is…

Thanks, Horacio. And thanks to everyone for joining us on the call this morning. Our first quarter results have set the stage for an aggressive first half of fiscal year 2020. Our strategy is working and we are firmly on track to continue delivering industry-leading operational and financial performance.Let’s go through the numbers. Please turn to slide 6. Starting at the top line, revenue and revenue excluding billable expenses grew by 10.8% and 8.9% respectively compared to the first quarter last year.The increases were due to continued strength in client demand, head count growth, and slightly elevated billable expenses compared to the prior year period. Our growth remains strong and well diversified across our core US government markets.Turning to slide 7, book-to-bill for the quarter was 1.29 times and our trailing 12 month figure is 1.4 times. We continue to see a strong award environment and robust proposal activity. Total backlog as of June 30th was $19.9 billion, 16.2% higher than the prior year.Funded backlog at $3.2 billion increased by 13.7%, unfunded backlog at $4.4 billion grew 5.1%, and priced options increased 21.5% to $12.3 billion. The backlog and book-to-bill numbers again show that we are not demand constrained and they support our expectations of continued above market revenue growth.Headcount as of the end of the first quarter was a record - as Horacio mentioned, up by 1,826 or 7.4% year-over-year and by 315 since the end of March. We continue to aggressively hire to maximize our growth potential and we’re on track to meet our targeted 5% headcount growth for the full fiscal year.We are encouraged by the rate at which we grew our team this quarter. We plan for an aggressive first half and our colleagues have done an incredible job hiring in the areas that are immediately…

Thanks. Lloyd. Each quarter, these goals are rightly focusing our financial performance. But we don’t want to overlook another aspect of our institutional strength important to both internal and external stakeholders.So before we move to Q&A, I want to speak briefly about Booz Allen's corporate citizenship, particularly the impact we have in the communities where we operate.In fiscal year 2019, our people logged more than 88,000 hours of volunteer service for more than 900 non-profit organizations across the globe. That's roughly a 30% increase from the prior year.In addition, we as a firm continue to support many well-known organizations that assist military veterans and their families, promote STEM education, advanced healthcare, and build community resilience especially through disaster recover.Our commitment to service is deep and enduring, which is why we established and support the independent Booz Allen Foundation, even as we continue Booz Allen's own corporate citizenship programs. I am constantly inspired by the generosity and passionate service of our people. Allow me to share just a few examples.We recently became the inaugural corporate donor to the Hiring Our Heroes Military Spouse fellowship program. Our funding will send 100 spouses to six week internships that help them re-launch careers after a move or deployment. Other corporate donors are now joining the effort, which will create a strong pipeline of opportunities and sustainability for this innovative program.In May, we continued our tradition of funding the annual conference for the Tragedy Assistance Program for Survivors. TAPS supports families of those who die in the line of duty.Booz Allen provides nearly all the volunteers for National Field Day USA here in DC. This event provides a day of - an evening of care for children, while their parents receive grief counseling and mentoring.Also this spring, a team of our consultants donated their time…

Thanks. Shannon. Please open the lines.

Thank you. [Operator Instructions] Our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Thank you and good morning, guys. Good quarter.

Thank you.

You highlighted hiring would be front end loaded with the budget deal coming together. Could you maybe provide some clarity on how you think about executing on hiring throughout the remainder of the year?

Sure. Sheila, good morning. You know a couple of thoughts. First of all on the budget itself, we are cautiously optimistic because of the progress that has been made. But as you know, there is still a road ahead going from where we are now to fully appropriated dollars against all of the major agencies, hopefully by October 1st. So we continue to watch that closely, but we are optimistic that all of that will work as it should.As it relates to our hiring, I am actually very happy about the hiring, not just this quarter, but if you go and look back over the last 12 months for example, north of 7% headcount growth is actually very healthy for us and we intend that to continue. We are pedal to the metal on hiring this quarter as we said we would, and assuming conditions allow we will continue to execute strongly against our hiring for the balance of the year.We have a strong value proposition to offer talent. We’re finding, even though it’s a competitive market, great people to bring on to the firm and we don't intend to stop.

Got it. And maybe just as a follow up to that Horacio, you mentioned a number of comments in your prepared remarks with regards to employee engagement. Does this make it easier to hire professionals? Do you find that your competitors do that or do they have more difficulty in adding head count?

You know, I’ll speak to us. I meant absolutely every word that I said, about having a culture that makes people feel valued, that makes people’s passions aligned with their workday and - both at what we do with clients and the missions that we support and our entire effort moving closer to the mission, and what we do for our communities, all these part of the value proposition, that is very attractive.You know a lot can be said about millennials, my experience with millennials in particular is that they are very passionate about making a difference and they’re very mission-focused.And so, I find that we can attract unique technical talent because we have this combination of a great culture, a great mission and the great engagement program both internal and external. And as I said before that we intend to continue all of that.

Thank you. Thanks

Sure.

Our next question comes from Jon Raviv with Citi. Your line is open.

Hey, thanks. Good morning. Just following up on that first question. If we do get some dollars appropriated around October 1, where do you expect that to manifest in how you're thinking about the year?Is there a chance to sort of keep on the accelerator in the second half a bit more or is it going to be an - potentially upside to growth and/or the low tens margin for the year? Thank you.

Absolutely, Jon, you know certainly having a budget deal in place is beneficial to the sector and certainly to Booz Allen. We are increasingly close and getting closer to our client’s mission and I see no, no let down in that. Demand is strong and as you see from our Q1 results, we’re not demand constrained.As it relates to margin, we're off to a very strong start, roughly in line with what we did last year Q1 of FY'19 and we’re going to continue to push forward.When we gave guidance in the low 10%s, we still believe that is where we're going to end up. It's sustainable. We're very happy to be able to sustain that level of profitability, and frankly, we remain ahead of where we thought we would be when you think about our investment thesis that we talked about probably a year ago.

And then - and then Lloyd you also mentioned that on the capital deployment front, you’re always evaluating all the options for the remaining plan in terms of cash coming in, you historically tapped on M&A a bit, but can you just sort of re-evaluate or just sort of revisit what all the options are, and what kind of approaches are working versus what you might be considering going forward as the market continues to shift around?

Sure. Our capital deployment strategy, we’re very pleased with it. Just to remind everyone, we are committed to a $1.4 billion capital return to maximize our shareholders over the 3 year period, and we're on track with that. We’ve got a very disciplined and efficient strategy. It has four levers; share repurchases capability, tuck-ins, and regular and special dividends.We see many M&A opportunities every fiscal year. We have a strategy that we believe is working for us. And so we’re always looking for assets, pure capability plays as best we can find and we'll continue to do so going forward.

Thank you.

Thank you. Our next question comes from Edward Caso with Wells Fargo. Your line is open.

Great. Good morning. Thank you. Congrats on the quarter. Can you talk a little bit about your commercial business? In your 10-Q, it looks like it was barely up year-to-year and what the prospects and sort of what’s going on underneath the covers? Thanks.

Hey Ed, good morning. It's Horacio. The portfolio is doing well, commercial - global commercial is about 4% of our total revenue base, as you well know. It's a small business by the standards of the totality of Booz Allen.And so one or two contracts, changing dynamics will move around the number. If you look at the longer-term trend, it’s been a strong growth business now growing rapidly, close to 30% for a couple of years and we are confident in the long-term prospects of our global commercial business even if from quarter-to-quarter, there will be some volatility.

Can you - and the other question is on the award activity, does it capture that large almost $1 billion VA award that got re-protested, I guess in May, and what are the prospects for the September quarter. Do you sense a typical loss spike up? Thanks.

Sure. Our backlog has - it has always been, it’s very conservative. It does not capture that VA award that's under protest. And as far as looking forward, typically for those of you who have looked at us, there is seasonality to our backlog that closely mirrors the government fiscal year.

I just want to put on something that Lloyd said before. We’re very pleased with the market. We are not demand constrained. Our growth prospects are, at this point, largely driven by our willingness and ability to attract and absorb the right kind of people to give a sustainable growth and that’s what we're focused on. The book-to-bill number of this quarter shows it, but more broadly, we are winning in the market in the places where we really want to win.

Great. Thank you.

Our next question comes from Gavin Parsons with Goldman Sachs. Your line is open.

Hey. Good morning, everyone.

Morning.

Demand now being - or growth now being demand constrained being a big subject, just wanted to maybe get at the kind of customer environment and sentiment, budget deal or not, a lot of your hardware peers have been talking about accelerated demand pulled forward contracts.So I wanted to maybe get your sense of whether or not there's just more confidence in just kind of the general budget environment from a customer whether deal or no deal if they feel more confident in adding of on-contract growth or exercising options or spending money.

So, the dynamic, I'll begin and I am sure Lloyd will want to add. The dynamic that I see is one where now for, frankly more than a couple of years, there has been funding in the system to invest in critical capabilities.At the year end earnings call, I talked about the dynamics around great power competition and how that was shifting the defense investment priorities more broadly across the government, how the digital revolution was coming into the federal government and driving significant change.And those are, to us, the underlying drivers of demand. And that's why we don't feel we're demand constrained close to our client's missions. This type of work is and will continue to be in high demand.Obviously budget stability and budget certainty accelerates that, improves that, makes it less choppy and gives our clients the confidence to plan even longer term. But if you look at our numbers, it talks about the - what's in the Q. Our defense business, our civil business, both growing around 13% this quarter. Our national security business also, great deal of demand. Obviously the supply constrain is there, because of the classification issue are the greatest, but a very strong showing and the strong potential to continue.

And I’d just add that when you look at our backlog performance. Our latest - our trailing-12 months book-to-bill at 1.4 and then for the quarter at 1.29 times, really I think, speaks to the environment that we’re working in.We got a strong start to the summer selling season. We’ve got a record Q1 backlog totals up 16% and fund is up also by a healthy amount of 14%.

Great. And then Horacio, maybe if you could talk a little bit about just the current state of AI investment in the government, where you think that could be in five to ten years and what Booz is doing to position for that? Thank you.

Thank you for that question. So let me start that, I talked before about, for example, let's start with DoD and great power competition, I think it’s been widely reported that our competitors, for lack of a better term, are investing heavily in technology and AI is one of those areas.China is on the record [Technical Difficulty] We were investing ahead time on that for the last two or three years, but in the last year to 18 months, the notion of artificial intelligence, algorithmic warfare, machine learning has exploded throughout the federal government in terms of need.If you talk about defense that's there, but if you talk about other parts of the government, think about parts of the government that need to seasonally stand up with very large call centers and then they bring them down when the season ends, those are areas that are right for machine intelligence to actually accelerate the opportunity and we are very well positioned because of the investments that we're making not just in talent, which are quite significant, but also in building platforms and architectures that will allow us to monetize our intellectual capital in different ways as part of what we talk about as option value that have me very encouraged.AI is going to be a multi-billion dollar area of investment for the Federal government going forward and Booz Allen is and wants to be at the center of that.

Great. Thanks very much.

Thank you.

Our next question comes from Cai von Rumohr with Cowen & Company. Your line is open.

Yes. Thank you very much. So at your Investor Day, when you laid out your three-year goals, you talked of improving profitability and a mix shift toward more fixed price business and yet your fixed price was down and your cost-plus business was up very strongly in the first half, and yet you delivered very satisfactory profitability and maybe explain why that happened?

Sure, Cai. This has been an effort for some time that's been underway and what we believe we're seeing is all that hard work by our team is really paying off. We see the margin performance really resulting from three factors.One being strong contract performance. We’re also managing the business more efficiently than ever and we continue to shift our capabilities and the work that we’re providing toward technically focused type of work. The combination of that certainly kicked in last fiscal year and we believe is sustainable this fiscal year.So we see our larger performance still being in low 10%s. We’re very happy to have that profitability, and then also 10% at the top line and we believe that we can remain in that postures throughout the rest of the year.

Terrific. Thank you. And so, normally in the past, you haven't hired as aggressively as you have now in the first quarter and you tend to hire more in the second half with associated pressure on the margins.What’s your plan for this year? I mean you've talked about near term continuing to be aggressive, but do you feel there is likely to be enough business that we could see another 7% plus headcount lift in the fourth quarter or are things likely to sort of decelerate a bit? Thanks.

Well, for this year. The story actually started in the fourth quarter of last year. If you look back at Q4, you will see that we had a positive net hiring quarter and that momentum certainly flowed into Q1 of this year.Horacio and I've always maintain that we want to consistently hire and deploy our strong candidate across the business and we feel that we're off to a great start. And then if you refer back to our prepared remarks as well as Horacio's previous comments, we're not demand constrained and we've had our foot on the accelerator when it comes to talent for quite some time and we expect that to continue.At the beginning of the year we forecasted 5%. It is what we're shooting for. We’re off to a good start, and at the moment that still remains our target.

Thank you.

Our next question comes from Carter Copeland with Melius Research. Your line is open.

Hey. Good morning, gentlemen.

Hey, Carter.

Just one quick follow-up on that capital deployment discussion. I know you highlighted all the levers, Lloyd. But - I also just sort of gone through the numbers in the Q. The share repurchase is very minimal, and I wondered, do you think back to the levers you talked about, is there any purposeful about that or is this the normal sort of ebbs and flows in how you see your various capital deployment opportunities? Thanks.

Sure. I mean we are always looking to maximize shareholder value, given what the market presents to us Carter, and I would say the ebbs and flows of the market and still with an eye toward how do we maximize shareholder value.

Okay. Thank you.

Our next question comes from Tobey Sommer with SunTrust. Your line is open.

Thanks. So just wanted to ask a question about your long-term growth and kind of differentiated, be able to have - hiring to pockets of future demand such as AI and machine learning that you've talked about already.Is there anything, like a change in the market that would triggering you to press those investments more now and are there any new areas that you see on the horizon that you could add to beyond the themes and pockets that we've discussed already?

I ask myself that question all the time and I think the answer has to be, yes. I look at the market, and from our perspective, you want to drive differentiation uniqueness in the market from a position of strength, and that's where we are now.We’re in this pay off period provision 2020. We are where we want to be one quarter into a fiscal year and we're driving across all fronts. We have an innovation agenda that is very robust. It began six or seven years ago before innovation was cool and we have been driving it relentlessly and it’s got a pipeline. It's got certain things that are already deployed. We've talked about those in the past, like recreation.gov, like District Defend.We have other things that are a little bit upstream like some of our solutions work around AI and things that are further upstream and will continue to be, but our goal. This is why we don't talk about these things individually. We talk about them as a portfolio. Our goal is to drive that portfolio to create both unique, differentiated revenue a unique story around Booz Allen with our clients as the combination of these platforms and our talent create solutions and ultimately unique and differentiated financial performance because we believe that these investments actually carry the potential for much higher margin and high profitability.So that's our goal. We're at it -- we're at it every quarter. We're accelerating as much as we can. These things take time and we're going to take the time that's necessary.

Thank you. As you look at your business in sort of from a civil and defense perspective, are you seeing a different cadence in tempo to award activity in business wins and I ask that in the context of, just looking at simple treasury outlays and seeing that defense is tracking ahead of civil and wondering whether that's manifesting itself in your business?

I honestly don't see it at that level. We see very robust demand across the board, lots of great opportunities, and it's a question of positioning for the right ones, and the definition of the right ones are the ones not just that we can win, but the ones that give us the kinds of economics that Lloyd was talking about before.And most importantly, the ones that leverage our differentiation, so that these are sustainable wins, where we win not just a new work but the re-competes after that.

Thank you very much.

Our next question comes from Robert Spingarn with Credit Suisse. Your line is open.

Hi, good morning.

Good Morning.

Horacio, on the back of that and we talk about this every quarter, but you’ve had outstanding growth here. The backlog expansion is tremendous. It sounds like Lloyd's looking for another strong September bookings quarter.Could you - could we probe a little bit into what that differentiation is or at least the parts that actually translate into sector high backlog and revenue growth? Obviously you guys see yourself as best in class and the number support that, but can we get a little more tangible here, why are you outpacing the others?

I’ll speak about us and why do I think we are winning. You know, I am out talking to clients regularly and our conversation with our clients is about what are their major opportunities to drive mission in a different way, and to use technology to accelerate and at times leapfrog where they are on their mission.And that conversation tends to lead to things that haven't been done before and that's frankly where we excel, when we bring a capability that might have worked elsewhere, port it over to a place that hasn't seen it before or completely re-imagine a mission based on leveraging a new capability.We're doing, for example, some recruiting work or one of the mode there, services, and we're bringing our open source understandings to help them understand what is the tenor and the tone in a local market of how potential recruits are looking at that service. That is the kind of thing that is unique to us that we bring together that I don't - I assume others don't because we win work like that regularly and that fuels our growth.And again I think that's what makes it sustainable. What makes it sustainable is that we're not going to rest in our laurels, is that we never compete for a re-compete with the same proposal we had five years earlier. It's a new approach, a new thinking to push the mission forward.And frankly by the way, in a supply constrained environment, that is what excites people and I honestly think that's what brings and keeps people here. It’s the opportunity to not just to work in these great missions, but actually to advance them.

So you talk about that being sustainable. So really brings up the next part of the question, which is, while we do have some visibility here from a 2021 budget. The second half of that budget is kind of flat. When we look at the FYDP and we look at the O&M, it is kind of flattish from here on out.And so how do you think about your longer-term growth opportunity in a flattening budget or, again, if we go back to what you just said, the end market growth really doesn't necessarily drive your growth?

You know, we outgrow the market for as long as I can remember. So what’s really important to us is our clients having a reasonable level of certainty about their ability to invest because then we can win work.And we will take share in the course of doing that as we always have. I mean like I said, we've always outpaced the market and we intend to continuing to do that.

And last thing is, are there a couple of major contracts we should be on the lookout for as we progress through the fiscal year?

We don't talk about individual contracts on this call, when we talk about the entirety of the portfolio, because our portfolio is constructed such that no single contract actually drives the future of the firm.So look across all of it, look at the kinds of wins that we’re having and to the extent that you can ask questions about what is that we're not just the size of it, because I think that's what drives our uniqueness and our sustainability.

Okay. Thank you.

Thank you.

Our next question comes from Joseph DeNardi with Stifel. Your line is open.

Yeah, thanks. Good morning. Horacio, I guess you sound a little bit more cautious than optimistic in terms of the budget outlook. So can you just talk a little bit about what some of the risks are over the next few months that you're kind of monitoring? Thanks.

Sure. I mean, I don't claim to have a crystal ball around any of these. I am out talking to clients. I'm up on the hill, trying to understand how people are thinking about it and talking to experts who've lived in that world for a lot longer than we have. And it’s a complex process that can be -- that can have hiccups along the way.Think about last year there was a budget - there was a budget deal, there was everything else and then there was -- come January a shutdown. I don't expect that to happen this year. I don't - I am optimistic that all of the positive momentum will translate, but we're looking at it very closely.And as it relates to us, this is why we are running the year the way we are, very strong first quarter, hopefully a very strong first half, so that if things are great in the second half we'll continue on and if there is turbulence, we will be well prepared to deal with it.

Got it. And then just lastly, is there any update kind of on District Defend or some of the other opportunities you guys talked about as part of your option value investment strategy and then anything on the legal front to update us on? Thank you.

No updates on the legal front. We continue to work with the government, and that process is ongoing. As it relates to our option value portfolio, the portfolio is moving forward. As I’ve said repeatedly, any part of that portfolio could actually be a real needle mover for the firm in the medium to long-term, and we don't expect every part of the portfolio to succeed.But we’re investing, we’re managing it very closely, and I'm actually very excited about the progress that we're making on all fronts.

Thank you.

Our next question comes from Tim McHugh with William Blair. Your line is open.

Thanks. Most of mine have been answered or asked, but just wanted to follow-up on the contract mix type. There is been a gradual trend and then a more meaningful step towards cost reimbursable, I guess as part of the mix, this quarter. I guess you were asked earlier about the margin. I just wanted to ask, I guess, what's driving that mix shift. Is that a particular part of your client base or type of work you're doing that's driving that mix shift? Thanks.

Yeah. Tim, it's sort of an outcome of a variety of factors, our defense part of our portfolio has been having a strong performance. And as you may be aware of any of the contract size - saw from the contract size in that market, our cost plus and timely materials and from our analysis, that's what's contributed to the modest shift.

Okay. Thanks.

Sure.

Thank you, this concludes the question-and-answer session. I would now like to turn the conference back over to Horacio Rozanski for closing remarks.

Thank you, everyone. Thanks for your time, for the dialog and for your questions this morning. Our firm, as you can tell, is off to another great start this fiscal year and the pay off period for Vision 2020 continues. So on behalf of the people at Booz Allen, I would like to thank our shareholders for their continued support and confidence. We are forging ahead with excitement about the future, especially about the positive difference we can make in the world and in our communities. Have a great day and enjoy the rest of the summer.

Ladies and gentlemen, this concludes today’s conference. Thank you for joining and have a wonderful day.