Booz Allen sees AI investments 'faster than we expected'

Federal investments in artificial intelligence and other technologies under the automation umbrella have been slow to start but have become more prominent across many agencies as they are pressing forward on their larger IT modernization umbrella.

Much of that is for agencies to use automation technologies in their business and operations so those functions become more efficient. But Booz Allen Hamilton’s chief executive also points to what is happening outside the U.S. that is accelerating advances in AI: particularly the widely-touted “Great Power Competition” that includes Russia, China and others.

“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,” CEO Horacio Rozanski said during Booz Allen’s first quarter earnings call Monday.

That is affecting the current state of play inside the U.S. government regarding AI.

“AI is going to be a multi-billion dollar area of investment for the federal government going forward," Rozasnki told analysts.

“We have begun to see investment in this arena faster than we expected it, we were investing ahead of 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 (and) machine learning has exploded throughout the federal government in terms of need,” Rozanski added.

There is certainly movement among U.S. defense and intelligence agencies given what others are doing abroad. The Defense Department in February released its AI strategy that includes a Joint Artificial Intelligence Center to coordinate those efforts across the military. DOD officials also have a strong view that the much-talked about “JEDI” cloud computing infrastructure is a key enabler of the military’s AI future.

Booz Allen was awarded an almost $900 million task order in July of last year to work with DOD on rolling out AI technologies and techniques to the military, intelligence agencies and others.

The AI push inside government is not just limited to big procurements nor just in the national security space. In May, the Health and Human Services Department awarded a $49 million contract vehicle to 57 companies including Booz Allen for help to roll out AI and automation tools in back office functions.

“Think about (other) parts of the government that need to seasonally stand up very large call centers and then they bring them down when the season ends, those are areas that are ripe for machine intelligence to actually accelerate the opportunity,” Rozanski said.

Back to Booz Allen itself: the company’s plan for its current fiscal year that started April 1 centered on starting out the first half with aggression and entering the second half with more conservatism in the event of any government funding disruptions.

That includes both business pursuits and hiring to support growth. Total headcount hit 26,384 employees as of the June 30 end of Booz Allen’s first quarter: the highest ever-recorded number of employees for the government services company at the end of a quarter.

“We are pedal to the metal on hiring this quarter… and assuming conditions allow we will continue to execute strongly against our hiring for the balance of the year,” Rozanski said on the call. “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.”

Their revenue growth depends on it to some extent. First quarter sales did climb 10.8 percent from the prior year period to $1.83 billion.

Book-to-bill for the quarter hit 1.29 and that ratio on a trailing 12-month basis is 1.4: meaning the company adds contracts faster than it draws down from them to recognize revenue. Funded backlog increased 13.7 percent to $3.2 billion.

Rozanski said he is “cautiously optimistic” about the new federal budget agreement reached last week given that appropriations bills to fund agencies are still on Congress’ to-do list before the current federal fiscal year ends Sept. 30.

Keep in mind that many civilian agencies including the Homeland Security Department were shut down during December and much of January because of disagreements over funding for them.

“I don't expect that to happen this year,” Rozanski said of a possible shutdown. “I am optimistic that all of the positive momentum will translate, but we're looking at it very closely.”

“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.”