Booz Allen sees $900M DOD AI win as starting point

Booz Allen Hamilton is touting an almost $900 million task order it won to build an AI environment for the Defense Department as a starting point for more growth in that emerging market.

The Defense Department has made one of its first large-scale contract awards for artificial intelligence services to Booz Allen Hamilton and the firm is touting this as a significant footprint for a burgeoning AI business.

During Booz Allen's first quarter earnings call Monday, CEO Horacio Rozanski said the firm has booked a five-year, $885 million task order to build an open systems architecture for DOD to apply AI and machine learning techniques in how it uses intelligence data across multiple systems.

Known as "Enterprise Machine Learning Analytics and Persistent Services," the order also aims to help DOD, intelligence agencies and other federal agency partners deploy neural and deep neural networks that can automatically learn and recognize patterns in data.

But Booz Allen sees the award and launch of the eMAPS initiative as merely the beginning of more AI initiatives, as Rozanski described to investors on the call.

"As we look at procurements in general, especially coming out of DoD, it’s clear that artificial intelligence is an area of focus and an area of investment," Rozanski said. "Our clients have been wanting to do that for quite some time and frankly, they haven't had the funding to do that. But the funding is now available and they're investing.

"This concept of artificial intelligence, algorithmic warfare, is going to be part of the equation for DoD for quite some time and we're very excited to be a part of it."

The award of the eMAPS order comes as DOD is preparing to release an AI strategy and is standing up its Joint Artificial Intelligence Center, which launched in June. DOD is also putting more financial resources toward AI, according to a Govini study released in December.

Govini, a public sector contracting analytics firm, found DOD spending on AI, cloud computing and big data climbed 32 percent over five years to $7.4 billion for fiscal year 2017. AI represented a bulk of that increase and is one "technical cornerstones" of DOD's technology strategy, Govini's report says.

More movement on AI procurements is one facet of Booz Allen's optimism about the current government services market landscape. As he did in a May earnings call and at Booz Allen's investor day in June, Rozanski reiterated on Monday his belief that this is the best market environment he has seen within the past five years.

Agencies have more funds to spend through the end of this fiscal year from the omnibus bill passed in March, but the prospect of a continuing resolution still looms if lawmakers cannot finalize appropriations bills before the Sept. 30 deadline which comes right before the midterm elections.

"To some degree, our clients have become more sophisticated at managing through turbulent budgetary processes," Rozanski said. "Our clients are obviously monitoring that and they understand it but they know how to manage around these kinds of things. My sense of the market is our clients have been looking to invest in the future, have been looking to modernize and upgrade a number of things."

For its fiscal first quarter ended June 30, Booz Allen posted a book-to-bill ratio of 1.64 to measure contracts added to its backlog versus drawdowns from it to recognize revenue. A reading above 1 typically is a sign of future revenue growth. That first quarter ratio is Booz Allen's highest since its 2010 initial public offering.

Revenue for the quarter climbed 8.1 percent year-over-year to $1.65 billion. The firm is holding to its full fiscal year sales outlook of $6.55 billion-$6.67 billion, which would register growth of 6 percent-8 percent.

During its June 6 investor day event, Booz Allen issued a three-year outlook for the first time since the IPO that forecasts 6-to-9 percent sales growth in each year over its next three fiscal years.

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