Good morning. Thank you for standing by and welcome to the Booz Allen Hamilton's Earnings Call covering Third Quarter Results for Fiscal Year 2021. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. I would now like to turn the call over to Mr. Rubun Dey.

Thank you. Good morning and thank you for joining us for Booz Allen's third quarter 2021 earnings announcement. We hope you have had an opportunity to read the press release that we issued earlier this morning. We have also provided presentation slides on our website and are now on Slide 2.

Thank you, Rubun. And good morning, everyone. Thanks for joining the call. Today Lloyd and I will take you through our third quarter results and the dynamics that drove them and we will put the results in the context of the successful culmination of our three-year investment thesis and the strength of our business in the near and long-term. As you saw in our press release, we had a mixed quarter. Our revenue grew more slowly than expected. Conversely, our bottom line results, profit margins and cash flow are excellent and ahead of expectations. Since the beginning of our fiscal year, we have described three macro environmental factors that created uncertainty about our second half; the outcome of election, the status and outlook for the federal budget and the course of the COVID-19 pandemic. Let me talk specifically about how those are playing out on the demand front, on the supply front and the impact on revenue and profits. Underlying demand for our services and solutions remains quite strong. In the third quarter, we saw delays in some procurement in the intelligence market largely due to the pandemic and in the civil market; we saw movement to the right on awards and even some pull back on funding which we believe is due to turmoil surrounding the Presidential election.

Thanks Horacio and good morning, everyone. As we approach the end of our 2021 fiscal year, a year of unprecedented challenge, we're proud of how well our people have consistently executed on our clients most important missions. As Horacio mentioned earlier in outlining our 2021 annual operating plan, we identified three major sources of uncertainty. The November election, the budget outlook and the COVID-19 pandemic. After an exceptional top line performance in the first half held by unusually strong staff utilization, we expected slower growth in the second half as PTO trends began to normalize. We also anticipated the potential for a slowdown in award activities following the November Presidential election. We factored these elements into the annual guidance we provided at the end of the second quarter. However, we did not correctly anticipate the timing and magnitude of the top line impact of those dynamics. Our cost management efforts to-date enabled us to hold the lines at adjusted EBITDA.

Thanks Lloyd. Operator, please open the lines.

our first question comes from Carter Copeland of Melius Research. Your line is open.

Just two quick ones from me. One of these seems sort of strange to ask, but given the importance on the top line I guess it's important to know how it work. On the PTO impact to the extent, there's unused PTO for the staff on the year and you rolled that forward to next year. I realized you're not guiding for next year yet. But how should we think about, is there an impact of shifting some of that productivity impact into the following year that we should we mindful of as we think about next year's growth?

I'll start, Carter. As we said, there were three main reasons for slower growth in Q3 and one of those is definitely tied to lower productivity than what we were running in the first half. If you look at the reasons for that, not only is entire PTO driven by lower available labor. But also lower staff utilization. So we definitely saw a snap back with productivity faster than what we expected. We think as things normalize, it will go back to as we said in our prepared remarks historic levels and we think that will occur over the next couple of quarters.

Yes, I guess my question is Lloyd. Is there a way for thinking mathematically about it is there a way for to go beyond normalized because you've got built up balances of PTO then suddenly need to get burned down, if you know what I mean? So I guess I'm just asking what normalize mean I suppose.

Yes, I mean for the balance of this year. We think its $50 million range and we're not at the moment seeing it any different than what we said or what we're seeing occur for the balance of this fiscal year.

Okay. And then on the headcount impact of the getting out of the program. The strategic decision to get out of defense program. Can you quantify how big that was?

Yes, it impacted about 300 of our folks most of which we redeployed onto other programs in our portfolio. But as we also indicated, we expect that it will continue to grow overtime. With regard to the divestiture that was about 120 people tied in our army account.

Okay, thanks for the color, Lloyd.

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

So switching from sales to margin rate, Lloyd just your thoughts on the margin run rate clearly very strong here point higher for the year. Is that a new sort of base off of which you guys could improve this new efforts that you're making in new lines of business or maybe talk about the pressure perhaps as some of this COVID rolls off and people start to travel again and you start to spend all money.

Sure so, we're very pleased with our margin performance year-to-date. From our perspective it's a combination of strong execution of the portfolio as well as proven management of discretionary expenses. We didn't get here as you appreciate, overnight. It's been work in progress. But we believe that the things and the dynamics that have contributed to this will remain which is solid contract performance, management among allowable and also as we've made comments in our prepared remarks lower billable expense. Going forward, we're going to continue to invest long-term and in terms of hiring, rewarding our people, the infrastructure improvements that we mentioned and investing in capabilities. So we believe that the mid-to-high 10 range is sustainable and we're going to continue doing things that got us in this position.

Jon, I'll just add couple of quick points. First one is, in some ways the margin percentage can be tied to the volatility of the billable expenses because as you know most of our margin comes from our labor. Having said that, I agree completely with Lloyd that our focus is on EBITDA dollar growth and that has been solid. It's been running ahead of revenue and even revenue its billable growth and that is conservative effort becoming more efficient and we're going to keep on that.

Thanks very much.

Our next question comes from Cai von Rumohr of Cowen. Your line is open.

To go back to PTO, do you allow employees to carry PTO over from one year to the next or do they use it or lose it?

We have a couple of programs, we have a use it or lose it by the end of this fiscal year and then on accrual basis, it sort of grows with the level and seniority of the individual. So portion of it will go away by the end of March.

Got it and then cyber clearly is a priority we had the Russian hack, Biden is basically putting $9 billion to update Federal IT infrastructure. Could you give us some color? I mean you say you're Ranked # 1 by Frost & Sullivan. But obviously you've got - any color you can give us on your business. Therefore example your position in the intel business which isn't covered by Frost & Sullivan. And maybe some metrics like what percent of your employees roughly are involved in cyber. And given the focus, I apologize the long question. How come we have the slip in the cyber program given the increasing priority?

Let me try and start with that. I think Lloyd will probably want to chime in on your multi-part question, Cai. The first thing I would say is, our position in cyber is in fact even stronger in the intelligence community than it is broadly across the government or the commercial sector. The work that we do in intelligence is in some ways the crown jewel. Our cyber programs, we are very bullish on the medium term, long-term outlook for our entire cyber business including commercial which is why and we can talk later about the Tracepoint investment as a part of that. It's actually difficult to break down the specific numbers of how many people do this and how many people do that? Which is why we don't do it because we approach cyber from an all-admission approach. We look at the intersections between cyber and cloud, cyber and AI, cyber and 5G, cyber and intelligence and so forth. On the specific contract that you were asking about, what actually happened is, that contract was actually burning at a faster rate than it was programmed to do because of - frankly because of the increasing the attack surface from so many people in the government working from home and alike and there was an expectation that the last administration would ramp up the funding to keep up with that and the last minute they chose not to do so. We believe that is temporary as you pointed out. The Biden administration is looking to make investments in cyber. We're talking to lot of our clients about the remediation from SolarWinds and so we see a lot of opportunity in that space and we're pursuing that opportunity very aggressively.

Thank you very much.

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

I wanted to carry through on the cyber question. But maybe a little bit more on the commercial market. It's always been a little surprising to me that companies haven't utilized yourselves or other government contractors, cyber offerings more given you were the ones who were actually doing cyber for the US government and for the Department of Defense and the intel community presumably you've got some of the best capabilities in the world. So curios if you could talk about that dynamic if you think that nation states sponsored type attacks increase the commercial opportunity and how that could play out?

We do Gavin. I think as we talked about in the prepared remarks, we're actually shifting our global commercial focus more back to the US and much more double down on cyber for this very reason. I think as the adversaries get more sophisticated and as clients get more sophisticated the demand for what we do grows. Quite frankly when we first go into commercial cyber, I think we were so far ahead of many of our clients that it was hard for them to consume, the type of cyber services, cyber capability that we could offer. Our clients are moving very fast or catching up. A lot of them are super sophisticated and so that's why we see significant opportunity and increase in demand. The Tracepoint investment is directly related to our desire to be more involved in incident response. We do a good level of incident response but that is a business that has evolved towards needing to have channel with insurance companies where early players obviously when an incident happens and so forth and Tracepoint does a spectacular job of that and we believe that, their ability to access our channel and our expertise can create real synergies and acceleration.

Great, that's helpful. And then just coming up in your three-year plan and they're not guiding. I imagine it's difficult to predict the priorities - or how the priorities of the new administration will play out. What's your anticipation of what budgets will look like over the next few years and what that means for your top line growth relative to the last few years of elevated budget growth? Thanks.

Sure. I think it's trying to predict too far out with the new administration just coming in and everything else is beyond what we should try to do. We are thinking in general that budgets are not going to grow as fast in the next few years as they grew in the last few years and so this is why we continue to invest and double down on these key technologies and capabilities that I talked about before cloud, cyber, AI, 5G because we believe that demand for those types of services will remain strong and in fact accelerate even as the overall budget gets potentially more constrained than it's been in the past and we believe that on two dynamics. One is because you can actually save a lot of money by implementing these technologies right and two, which is we'll focus on so far. You can enhance mission success again some of these very critical missions that. They're not going away if anything are becoming more important.

Great. Thank you.

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

Was wondering if you could talk to the hiring plans and sort of reaccelerates your headcount growth and how that may influence continued margin expansions as part of your sort of next three-year plan? Thank you.

Sure I'll start. We have always pride ourselves on being a people first business, our employee value proposition plays into that. And we clearly are going to accelerate, pick up the pace from where we ended in Q3. There are couple of reasons we're confident that we're going to get there. The first as I mentioned is our employee value proposition the constant of the work that we provide to our clients. The second, more of a mechanical point, over 30% of our come from our existing workforce. So have familiarity with Booz Allen understand what we're doing and accelerates the recruiting process. This is critically important because the labor market as we often appreciate was very competitive, pre-pandemic and in the midst of COVID as it remained so. So we're going to be even more so on the levers that we've historically done and then also increase the pipeline as I've mentioned. On a margin basis, this investment is going to put a little bit of downward pressure on where we are currently and this is historically what we've done in the fourth quarter anyway, which is really ramping up our people, our bench as we go into the next fiscal year. But even with that being said, we still are confident we're going to end up in the mid-to-high tens with margin.

One other things I just to add - one last thought on this is, that I think is really interesting a good way about the fiscal year that we're about to end. Is we have managed to lower our overall cost position while increasing our investment in people? And I think that tells you how we're thinking about the business, what our priorities are and what we think about for the future.

Thank you for that. My second question, could you speak to the most promising areas in the civil business under the Biden administration and discuss how your current portfolio lines up against those and maybe the areas where you have to position yourselves slightly different in order to capitalize on them. Thank you.

Sure. I'll give you maybe a bird eye view on that. The largest part of our civil portfolio has been our health business and it continues to be - we saw during the Obama year significant investment by the country and significant agenda against healthcare access. We expect some version of that to reaccelerate under the Biden administration and that scenario where again I think Booz Allen is in a very good position to assist our clients, should things move in that direction. Our citizen's services business is going to be underpinning the overall digital transformation of our civil government which is also something that's being talked about not just from a cyber perspective but from the ability to move online. Many of the services that we citizens demand and are now expecting to see online. We need to think to step back and think about what role, we think we can play, if there's a significant environment agenda that has - we have a digital play into that. We need to consider whether we need or want a broader play in that area. But that is again under our consideration and as we think about our strategy. These are the kinds of questions we're asking ourselves but I keep coming back. We don't want to underpin all infrastructure, all technology. We want to leverage new technology into some of these areas of expansion and continue to be viewed by all of our clients as the people who insert new technology, new thinking, commercial best practices into their missions.

Thank you very much.

Our next question comes from Joseph Denardi of Stifel. Your line is open.

Lloyd, can you speak to M&A a bit maybe the nature of your pipeline, is that still a priority for capital deployment? Would you characterize the pipeline as smaller opportunities or larger and maybe just kind of your level of comfort in using equity to finance anything there? Thank you.

Sure, we believe as we said our balance sheet is certainly a strategic asset uncoupled with our strong generation of cash really puts us in a good position to not only pursue M&A opportunities but also as we did this quarter the uptick with the dividend and the increased authorization with our share repurchase program. Specifically regarding M&A, our pipeline has been growing consistent with the capabilities Horacio and I long talked about. Software systems development, AI, digital, data analytics and we're looking at a variety of opportunities and different ways to deploy that capital as we did with the Tracepoint investment. These are all different maturation points increasingly these are opportunities that we've cultivated which is been really good and consistent with the individual market strategies and where we think increased demands going to come with our clients. So as you know we have a pretty high bar, we have historically looked for capability tuck-ins. I'd characterize them as that's very much consistent with what we've always said. But I'm very pleased with the volume and remained confident that the inorganic contribution will pick up overtime.

Okay that's helpful. And then Horacio, can you just update us on the classified intel business or customer set there. Maybe how that's going with the semi recent leadership changes at this point and visibility you have been to - that customer again being a driver of growth for you all? Thank you.

Sure. It's always difficult on these calls to talk our intel business in any detail. But let me say the following, we're seeing more pick up in both proposal, opportunity and even some really interesting awards albeit small. Again the use of technology to help drive those missions. I think if we have fallen behind a little bit on that part of the business. Is we were not implementing or absorbing these new technologies into that business as quickly as we were in our defense and our civilian portfolio and that has changed? over hand with some old contracts that frankly we were going to out of one way or the other and so the numbers as you see them right now reflect that mix shift that is working its way through the system. But I'm very optimistic about where that business is going. I think once the awards that we are expecting finally stop moving to the right and get awarded. I think in the next year see that business - I'd like to see for sure see that business return to a healthy growth rate. It's a good business and we do some really just extraordinary work there for our clients and our clients value it, which is really where it all begins for us. Is if our client value, we need to figure how to do more of it, how to do better and how to grow the business overtime.

Thank you.

Our next question comes from Louie DiPalma of William Blair. Your line is open.

Horacio, you've demonstrated a leadership in dating analytics in addition to AI and in 2018, you announced that you won a very strategic $885 million eMAPS contract or Machine Learning and Data Analytics. We have heard that there will be an eMAPS sequel contract that is significantly larger than the existing eMAPS contract something in the $1.5 billion range. And I was wondering because I thought your existing eMAPS contract had a five-year duration. Are they re-competing your existing contract and is the DoD happy and satisfied with your existing performance with machine learning, data analytics and AI in general? Thanks.

Let me answer the sort of the last question first and work my back to the front of your question. The answer is yes. Across all of our work, we continue our leadership on AI, on data analytics, on machine learning and on being able to deliver those kinds of capabilities to mission, eMAPS being one of those examples our work at the J demonstrates that and so many other places. I don't want to speak specifically about any one contract on this call. But I will say this, it is not unusual for contracts to run out of ceiling ahead of the five-year timeline and I think that is in some ways a demonstration that there's so much value being created that was originally expect a ceiling that was originally expected to last five years. Sometimes gets work through in three or four. Again not because the clients see so much value that the missions that expands and then recomplete will come along and the recomplete will be larger to accommodate. Call it the higher annual burn rate in the contract and so, we have a good number of contracts in our portfolio some very large ones that actually will get competed early and almost every time it's because again there's been mission expansion because of the quality of the services being provided in the contract not because the client is dissatisfied with the services.

Thanks Horacio, that's all I had. That was very helpful.

Our next question comes from Seth Seifman of J.P. Morgan. Your line is open.

This is actually Ben on for Seth. I guess I wanted to go back to the questions about revenue. The high end of the guidance for this year implies another quarter of growth at about 3% in Q4. I guess how should we think about the trajectory of organic growth beyond this year. It sounds like some of the issues are going to last couple of quarters. So any color you can give on that. And then is it still reasonable to think about getting to inorganic growth rate that was something closer to the original guidance for this year as you moved past some of these headwinds?

The balance of the year as we said in our prepared remarks. There are couple of dynamics that would have to be less than what we're expecting. Certainly the impact of billable expenses that we have launched that were focused on revenue ex-billable expenses that has an impact on revenue as you know. So that is not as much of a headwind than what we're expecting that sort of helps a lot and then the productivity topic that we talked about, where we're seeing a normalization with available labor and PTO usage. If that were to slow down or feather down like we had originally expected we could see that become a contribution to getting toward the high end of the range. And then lastly, the one that Horacio and I feel we have a fair amount of control on is recruiting. If we execute in a manner that we expect to, it will slowly build back up and would also be a tailwind to pushing us to the top end of the range. I think it's too early to get into looking out beyond the next couple of quarters and as we've said, we expect this to be a building process. But at the appropriate time we'll give guidance as to what FY 2022 is going to look like.

let me build on that and leave you with three thoughts perhaps. The first one is, as we've discussed during this whole call. We view our business as very robust with lots of opportunities in the pipeline. Timing is a bit uncertain but we're well positioned to win in the market and the medium and long-term trends we believe are in our favor. Point number two as Lloyd said, we expect top line performance to be a little choppy for the next couple of quarters potentially into the early quarters of next year. But we have some work to do both around capturing the opportunities that are out there and ramping them up as quickly as our clients will allow us and hiring aggressively against them and we are all over that. And then the last point that I don't want to lose is, how strong our bottom line performance has been, how solid it is even with some volatility at the top line and the expectation that will also continue overtime.

Great, thank you.

There are no further question. I'd like to turn the call back over to Horacio Rozanski for any closing remarks.

Thank you everyone for your questions. I hope the discussion today gives you a deeper understanding of the dynamics driving our third quarter performance and our areas of focus going forward both in the near and in the long-term. As an institution that has evolved and succeeded for more than a century. Booz Allen is constantly striving to improve and we are especially focused on living up to our purpose, empowering people to change the world. So on that note, I'd like to close today by calling attention to our recently released environmental, social and governance impact report. It is another way for us to convey our firm's aspirations, our vision and our impact. Today our stakeholders have broad expectations for transparency. Our clients and our investors, non-profits and community partners, regulators and suppliers and especially our employees. They all want to understand a company's values and performance as a corporate citizen. Our 2020 EGS impact report takes a fresh approach to providing that transparency. It's informed by our stakeholders and is aligned to the GRI standards. The world's most widely used standards for corporate sustainability reporting. It's a snapshot in time and will evolve as we mature the governance and measurement of our corporate impact. If you haven't yet seen it, the report is called The Future Can't Wait and it is available on our website. I invite you to take a look. Once again thank you for your time and your participation this morning and have a great day.

Ladies and gentlemen. This does conclude the conference. You may now disconnect. Everyone have a great day.