COMPANIES

Booz Allen prepares for multiple budget outcomes

The market’s next and most important catalyst awaits on Sept. 30, by which time Congress and the White House have to get a new budget agreement in place or else a number of outcomes could arise.

A short-term continuing resolution could be agreed upon to give them more time to hash out a deal. Not doing that or reaching a longer-term spending agreement returns the prospect of automatic sequestration cuts mandated in the 2011 Budget Control Act. Of course, another government shutdown full or partial like the one earlier this year is also on the cards, albeit unlikely.

Booz Allen Hamilton is getting ready for whatever happens. During the firm’s fourth quarter and year-end earnings call Tuesday, CEO Horacio Rozanski blended some optimism and encouragement about the prospects of a new budget deal with a dose of realism based on the disruptions industry and government have seen before.

With the firm’s new 2020 fiscal year having started April 1, Rozanski told analysts on the call that “we have planned for a relatively more aggressive first half and expect to execute a more conservative plan in the second half."

“We are capturing all the opportunity we can, executing against contracts, managing costs and accelerating our hiring so that we can get ahead of any possible disruption after Sept. 30,” Rozanski said. “We are monitoring the political dynamics but remain focused on the things that we can control.”

He did say the market's current backdrop of technology modernization and innovation across agencies are opening opportunities even with possible budget headwinds looming. But Booz Allen's approach to how it is kicking off its fiscal year this time around is somewhat in reverse from prior years.

“Typically we come out of the blocks in the first quarter conservative, we typically come out flattish on hiring and we build up throughout the year,” Rozanski said. “This year, we’re trying to come out of the blocks harder with stronger hiring in the first quarter and the first half.

“If we have a budget and everything is great in the second half, we’ll continue that trend. And if things are a little bumpier than that, we will hopefully have built enough momentum to deliver on all the commitments for the year in spite of that.”

Even with their large defense and intelligence businesses, publicly-traded government services companies including Booz Allen were not immune to the effects of the five-week partial shutdown that closed many civilian agencies Dec. 22-Jan. 25.

McLean, Virginia-based Booz Allen estimated a $20 million hit to revenue for the month of January as a result of the shutdown, while Science Applications International Corp. pegged its lost sales at $10 million per week in a January investor day presentation.

Others noted minimal impacts on the top line in a nod to defense and intelligence agencies that stayed open and funded during the shutdown. All felt the pinch to cash flow due to unpaid invoices that are still working their way through the systems inside agencies.

Here is where Booz Allen is picking up from with respect to its last fiscal year and seeing for the current one. Sales climbed 9 percent to $6.7 billion and adjusted EBITDA margin on revenue hit 10.1 percent -- the percentage of earnings before interest, taxes, depreciation and amortization to total revenue. Booz Allen sees its fiscal 2020 revenue growing in the 6-to-9 percent range and adjusted EBITDA margin in the low-10 percent range.

The book-to-bill ratio for the year was 1.49, a bullish sign that indicates Booz Allen is adding contracts to its backlog faster than drawing down from it to recognize revenue.

That reading is a record on a full-year basis since Booz Allen’s initial public offering in 2010. Total headcount grew year-over-year by 6 percent to 26,069.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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