Booz Allen CEO: Years may pass before DOJ probe resolved

Booz Allen Hamilton indicates it might be “years” before a Justice Department investigation is resolved but they report no impact on bidding for and winning new business.

Booz Allen Hamilton remains tight-lipped about the Justice Department’s investigation that the contractor first disclosed in June but executives did shed some light Monday on how long that could take.

Speaking on its first quarter earnings call, Booz Allen CEO Horacio Rozanski told investors the DOJ probe into the firm’s cost accounting and indirect cost charging practices “is more likely to be years than months.”

“The timeline for resolution remains uncertain… given the complexity of cost accounting issues and the fact that we are still in the early stages of the investigation,” Rozanski said. "We do not believe our GAAP accounting or financial reporting practices are the focus."

Rozanski also told analysts on the call that Booz Allen has not been charged with any civil or criminal offense to date. Booz Allen has also “not seen any impact from the investigation on our ability to bid or be selected for contracts,” he added.

Shares in Booz Allen traded nearly 4 percent lower in the 12 p.m. Eastern time hour and have fallen 17 percent since the probe was disclosed. But some Wall Street analysts have not changed their current outlook on the firm’s stock as investment bank Drexel Hamilton kept its rating on Booz Allen’s stock at “Hold” and Cowen & Co. reiterated its “Buy” rating.

McLean, Va.-based Booz Allen also reiterated revenue guidance for its current fiscal year at $6.03 billion-$6.2 billion, which indicates sales growth of between 4 percent and 7 percent from the $5.8 billion posted in the firm’s prior fiscal year. Booz Allen fiscal year ends March 31.

First quarter revenue of $1.49 billion missed Wall Street’s $1.52 billion forecast, while earnings of 53 cents per share topped the analyst consensus 49 cents outlook. Booz Allen also recorded a 1.3 book-to-bill ratio for the firm’s all-time record since its 2010 initial public offering.

During the call, Rozanski sounded unconcerned about the impacts of shifting budget priorities and vacancies in politically-appointed positions seven months into the Donald Trump administration. The firm’s defense and intelligence agency customers in particular are seeing “robust increases, requests and requirements for missions,” Rozanski said.

“Some of the regulatory agencies… are seeing some constraints though we don’t have significant positions there or the State Department,” Rozanski added. He cited the departments of Agriculture, Education and Labor as examples of agencies as facing budget constraints.

Close to 72 percent of Booz Allen’s fiscal 2017 revenue came from work for defense and intelligence agencies with about 28 percent in civil, the firm said in its Investor Day presentation last year. The firm’s civilian portfolio includes the departments of Homeland Security, Health and Human Services, Veterans Affairs, Treasury and Justice.

Defense, Homeland Security and the VA are cabinet departments Trump sought large increases for in his fiscal year 2018 budget blueprint. The Treasury and Justice have been proposed for 4-percent cuts each with HHS due for an 18-percent reduction. Trump's budget blueprint also includes 21-percent cuts for both Agriculture and Labor, with 14 percent on Education.

Booz Allen also increased its full-year earnings forecast to $1.83-$1.93 per share from the previous $1.79-$1.89 outlook issued in May. Booz Allen noted its FY 2018 guidance does not include any anticipated costs related to the DOJ probe as the firm “is not able to reasonably estimate such costs,” according to an investor presentation from the Monday call.

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