Blog: BOOZ ALLEN HAMILTON HOLDING CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) – Marketscreener.com

The following discussion and analysis is intended to help the reader understand
our business, financial condition, results of operations, and liquidity and
capital resources. You should read this discussion in conjunction with our
condensed consolidated financial statements and the related notes contained
elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report.


The statements in this discussion regarding industry outlook, our expectations
regarding our future performance, liquidity and capital resources, and other
non-historical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the risks and uncertainties
described in our Annual Report on Form 10-K for the fiscal year ended March 31,
2022 filed with the Securities and Exchange Commission on May 20, 2022, or
Annual Report, and under Part II, "Item 1A. Risk Factors," and "- Special Note
Regarding Forward Looking Statements" of this Quarterly Report. Our actual
results may differ materially from those contained in or implied by any
forward-looking statements.

Our fiscal year ends March 31 and, unless otherwise noted, references to years
or fiscal are for fiscal years ended March 31. See “-Results of Operations.”

Overview


We are a leading provider of management and technology consulting, analytics,
engineering, digital solutions, mission operations, and cyber services to U.S.
and international governments, major corporations, and not-for-profit
organizations. Our ability to deliver value to our clients has always been, and
continues to be, a product of the strong character, expertise and tremendous
passion of our people. Our approximately 29,300 employees work to solve hard
problems by making clients' missions their own, combining decades of consulting
and domain expertise with functional expertise in areas such as analytics,
digital solutions, engineering, and cyber, all fostered by a culture of
innovation that extends to all reaches of the company.

Through our dedication to our clients' missions, and a commitment to evolving
our business to address their needs, we have longstanding relationships with our
clients, the longest of which is more than 80 years. We support critical
missions for a diverse base of federal government clients, including nearly all
of the U.S. government's cabinet-level departments, as well as for commercial
clients, both domestically and internationally. We support our federal
government clients by helping them tackle their most complex and pressing
challenges such as protecting soldiers in combat and supporting their families,
advancing cyber capabilities, keeping our national infrastructure secure,
enabling and enhancing digital services, transforming the healthcare system, and
improving government efficiency to achieve better outcomes. We serve commercial
clients across industries, including financial services, health and life
sciences, energy, and technology.

Financial and Other Highlights

During the first quarter of fiscal 2023, the Company generated year over year
revenue growth and increased client staff headcount.


Revenue increased 13.1% from the three months ended June 30, 2021 to the three
months ended June 30, 2022. The increase was primarily driven by a combination
of headcount and salary increases and higher billable expenses, partially offset
by lower staff utilization.

Operating income increased 46.7% to $207.2 million in the three months ended
June 30, 2022 from $141.3 million in the three months ended June 30, 2021, which
reflects an increase in operating margin from 7.1% to 9.2%. The increases in
operating income and operating margin for the three months ended June 30, 2022
were primarily driven by the same drivers benefiting revenue growth, partially
offset by higher unallowable spend.

The Company also incurred incremental legal costs during the three months ended
June 30, 2022 in response to the U.S. Department of Justice investigation and
matters which purport to relate to the investigation, a portion of which was
offset by the receipt of insurance reimbursements. We expect to incur additional
costs in the future. Based on the information currently available, the Company
is not able to reasonably estimate the expected long-term incremental legal
costs or amounts that may be reimbursed associated with this investigation and
these related matters.

We are monitoring the evolving situation related to COVID-19, and we continue to
work with our stakeholders to assess further possible implications to our
business. We could be impacted by the implementation of our Company policy
requiring full COVID-19 vaccinations of all employees, except for employees who
qualify for medical or religious exemptions. Although we cannot currently
predict the overall impact of COVID-19, the longer the duration of the event,
the more likely it is that it could have an adverse effect on our business,
financial position, results of operations, billable expenses, and/or cash flows.
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Non-GAAP Measures


We publicly disclose certain non-GAAP financial measurements, including Revenue,
Excluding Billable Expenses, Adjusted Operating Income, Adjusted EBITDA,
Adjusted EBITDA Margin on Revenue, Adjusted EBITDA Margin on Revenue, Excluding
Billable Expenses, Adjusted Net Income, and Adjusted Diluted Earnings Per Share,
or Adjusted Diluted EPS, because management uses these measures for business
planning purposes, including to manage our business against internal projected
results of operations and measure our performance. We view Adjusted Operating
Income, Adjusted EBITDA, Adjusted EBITDA Margin on Revenue, Adjusted EBITDA
Margin on Revenue, Excluding Billable Expenses, Adjusted Net Income, and
Adjusted Diluted EPS as measures of our core operating business, which exclude
the impact of the items detailed below, as these items are generally not
operational in nature. These non-GAAP measures also provide another basis for
comparing period to period results by excluding potential differences caused by
non-operational and unusual or non-recurring items. In addition, we use Revenue,
Excluding Billable Expenses because it provides management useful information
about the Company's operating performance by excluding the impact of costs that
are not indicative of the level of productivity of our client staff headcount
and our overall direct labor, which management believes provides useful
information to our investors about our core operations. We also utilize and
discuss Free Cash Flow because management uses this measure for business
planning purposes, measuring the cash generating ability of the operating
business, and measuring liquidity generally. We present these supplemental
measures because we believe that these measures provide investors and securities
analysts with important supplemental information with which to evaluate our
performance, long-term earnings potential, or liquidity, as applicable, and to
enable them to assess our performance on the same basis as management. These
supplemental performance measurements may vary from and may not be comparable to
similarly titled measures by other companies in our industry. Revenue, Excluding
Billable Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA
Margin on Revenue, Adjusted EBITDA Margin on Revenue, Excluding Billable
Expenses, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow are not
recognized measurements under accounting principles generally accepted in the
United States, or GAAP, and when analyzing our performance or liquidity, as
applicable, investors should (i) evaluate each adjustment in our reconciliation
of revenue to Revenue, Excluding Billable Expenses, operating income to Adjusted
Operating Income, net income to Adjusted EBITDA, Adjusted EBITDA Margin on
Revenue, Adjusted EBITDA Margin on Revenue, Excluding Billable Expenses,
Adjusted Net Income and Adjusted Diluted Earnings Per Share, and net cash
provided by operating activities to Free Cash Flow, (ii) use Revenue, Excluding
Billable Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted EBITDA
Margin on Revenue, Adjusted EBITDA Margin on Revenue, Excluding Billable
Expenses, Adjusted Net Income, and Adjusted Diluted EPS in addition to, and not
as an alternative to, revenue, operating income, net income or diluted EPS, as
measures of operating results, each as defined under GAAP and (iii) use Free
Cash Flow in addition to, and not as an alternative to, net cash provided by
operating activities as a measure of liquidity, each as defined under GAAP. We
have defined the aforementioned non-GAAP measures as follows:

•"Revenue, Excluding Billable Expenses" represents revenue less billable
expenses. We use Revenue, Excluding Billable Expenses because it provides
management useful information about the Company's operating performance by
excluding the impact of costs that are not indicative of the level of
productivity of our client staff headcount and our overall direct labor, which
management believes provides useful information to our investors about our core
operations.

•"Adjusted Operating Income" represents operating income before acquisition and
divestiture costs, financing transaction costs, and significant acquisition
amortization. We prepare Adjusted Operating Income to eliminate the impact of
items we do not consider indicative of ongoing operating performance due to
their inherent unusual, extraordinary, or non-recurring nature or because they
result from an event of a similar nature.

•"Adjusted EBITDA" represents net income attributable to common stockholders
before income taxes, net interest and other expense and depreciation and
amortization and before certain other items, including acquisition and
divestiture costs, and financing transaction costs. "Adjusted EBITDA Margin on
Revenue" is calculated as Adjusted EBITDA divided by revenue. "Adjusted EBITDA
Margin on Revenue, Excluding Billable Expenses" is calculated as Adjusted EBITDA
divided by Revenue, Excluding Billable Expenses. The Company prepares Adjusted
EBITDA, Adjusted EBITDA Margin on Revenue, and Adjusted EBITDA Margin on
Revenue, Excluding Billable Expenses to eliminate the impact of items it does
not consider indicative of ongoing operating performance due to their inherent
unusual, extraordinary or non-recurring nature or because they result from an
event of a similar nature.

•"Adjusted Net Income" represents net income attributable to common stockholders
before: (i) acquisition and divestiture costs, (ii) financing transaction costs,
(iii) significant acquisition amortization, and (iv) amortization or write-off
of debt issuance costs and debt discount, in each case net of the tax effect
where appropriate calculated using an assumed effective tax rate. We prepare
Adjusted Net Income to eliminate the impact of items, net of tax, we do not
consider indicative of ongoing operating performance due to their inherent
unusual, extraordinary, or non-recurring nature or because they result from an
event of a similar nature. We view Adjusted Net Income as an important indicator
of performance consistent with the manner in which management measures and
forecasts the Company's performance and the way in which management is
incentivized to perform.
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•"Adjusted Diluted EPS" represents diluted EPS calculated using Adjusted Net
Income as opposed to net income. Additionally, Adjusted Diluted EPS does not
contemplate any adjustments to net income as required under the two-class method
as disclosed in the footnotes to the condensed consolidated financial
statements.

•”Free Cash Flow” represents the net cash generated from operating activities
less the impact of purchases of property, equipment, and software.

Below is a reconciliation of Revenue, Excluding Billable Expenses, Adjusted
Operating Income, Adjusted EBITDA, Adjusted EBITDA Margin on Revenue, Adjusted
EBITDA Margin on Revenue, Excluding Billable Expenses, Adjusted Net Income,
Adjusted Diluted EPS, and Free Cash Flow to the most directly comparable
financial measure calculated and presented in accordance with GAAP.





















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                                                                                 Three Months Ended
                                                                                      June 30,
(In thousands, except share and per share data)                                               2022                        2021
                                                                            

(Unaudited)

Revenue, Excluding Billable Expenses
Revenue                                                                               $           2,249,600       $           1,989,066
Less: Billable expenses                                                                             674,266                     555,545
Revenue, Excluding Billable Expenses                                                  $           1,575,334       $           1,433,521
Adjusted Operating Income
Operating Income                                                                      $             207,195       $             141,257
Acquisition and divestiture costs (a)                                                                 5,093                      66,789
Financing transaction costs (b)                                                                           -                       2,348
Significant acquisition amortization (c)                                                             11,087                       2,658
Adjusted Operating Income                                                             $             223,375       $             213,052

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin on Revenue &
Adjusted EBITDA Margin on Revenue, Excluding Billable Expenses
Net income attributable to common stockholders

                                        $             138,284       $              92,102
Income tax expense                                                                                   41,489                      27,352
Interest and other, net (d)                                                                          27,613                      21,803
Depreciation and amortization                                                                        40,102                      27,745
EBITDA                                                                                              247,488                     169,002
Acquisition and divestiture costs (a)                                                                 5,093                      66,789
Financing transaction costs (b)                                                                           -                       2,348
Adjusted EBITDA                                                                       $             252,581       $             238,139
Adjusted EBITDA Margin on Revenue                                                                     11.2%                       12.0%
Adjusted EBITDA Margin on Revenue, Excluding Billable Expenses                                        16.0%                       16.6%
Adjusted Net Income
Net income attributable to common stockholders                                        $             138,284       $              92,102
Acquisition and divestiture costs (a)                                                                 5,093                      66,789
Financing transaction costs (b)                                                                           -                       2,348
Significant acquisition amortization (c)                                                             11,087                       2,658

Amortization and write-off of debt issuance costs and debt
discount

                                                                                                823                         887
Adjustments for tax effect (e)                                                                      (4,421)                    (18,897)
Adjusted Net Income                                                                   $             150,866       $             145,887
Adjusted Diluted Earnings Per Share
Weighted-average number of diluted shares outstanding                                           133,011,088                 136,392,343
Adjusted Net Income Per Diluted Share (f)                                             $                1.13       $                1.07
Free Cash Flow
Net cash used in operating activities                                                 $            (45,634)       $            (10,662)
Less: Purchases of property, equipment and software                                                (13,734)                     (9,008)
Free Cash Flow                                                                        $            (59,368)       $            (19,670)


(a)Represents costs associated with the acquisition and divestiture efforts of
the Company related to transactions for which the Company has entered into a
letter of intent to either acquire a controlling financial interest in the
target entity or divest a portion of our business. Acquisition and divestiture
costs primarily include costs associated with (i) buy-side and sell-side due
diligence activities, (ii) compensation expenses associated with employee
retention, and (iii) legal and advisory fees primarily associated with the
acquisitions of Liberty IT Solutions, LLC ("Liberty"), Tracepoint Holdings, LLC
("Tracepoint"), and EverWatch Corp. ("EverWatch"), as well as the planned
divestiture of our management consulting business serving the Middle East and
North Africa (the "MENA Divestiture").

(b)Reflects expenses associated with debt financing activities incurred during
the first quarter of fiscal 2022.


(c)Amortization expense associated with acquired intangibles from significant
acquisitions. Significant acquisitions include acquisitions which the Company
considers to be beyond the scope of our normal operations. Significant
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acquisition amortization includes amortization expense associated with the
acquisition of Liberty in the first quarter of fiscal 2022.

(d)Reflects the combination of Interest expense and Other income (expense), net
from the condensed consolidated statement of operations.


(e)Reflects the tax effect of adjustments at an assumed effective tax rate of
26%, which approximates the blended federal and state tax rates, and
consistently excludes the impact of other tax credits and incentive benefits
realized.

(f)Excludes adjustments of approximately $0.9 million and $0.5 million of net
earnings for the three months ended June 30, 2022 and June 30, 2021,
respectively, associated with the application of the two-class method for
computing diluted earnings per share.

Factors and Trends Affecting Our Results of Operations

Our results of operations have been, and we expect them to continue to be,
affected by the following factors, which may cause our future results of
operations to differ from our historical results of operations discussed under
“- Results of Operations.”

Business Environment and Key Trends in Our Markets

We believe that the following trends and developments in the U.S. government
services industry and our markets may influence our future results of
operations:


•uncertainty around the timing, extent, nature and effect of Congressional and
other U.S. government actions to approve funding of the U.S. government, address
budgetary constraints, including caps on the discretionary budget for defense
and non-defense departments and agencies, as established by the Bipartisan
Budget Control Act of 2011 ("BCA") and subsequently adjusted by the American
Taxpayer Relief Act of 2012, the Bipartisan Budget Act of 2013, the Bipartisan
Budget Act of 2015, the Bipartisan Budget Act of 2018, and the Bipartisan Budget
Act of 2019, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES
Act"), and the Consolidated Appropriations Act of 2021, and address the ability
of Congress to determine how to allocate the available budget authority and pass
appropriations bills to fund both U.S. government departments and agencies that
are, and those that are not, subject to the caps;

•budget deficits and the growing U.S. national debt increasing pressure on the
U.S. government to reduce federal spending across all federal agencies together
with associated uncertainty about the size and timing of those reductions;

•cost-cutting and efficiency initiatives, current and future budget
restrictions, continued implementation of Congressionally mandated automatic
spending cuts, and other efforts to reduce U.S. government spending could cause
clients to reduce or delay funding for orders for services or invest
appropriated funds on a less consistent or rapid basis or not at all,
particularly when considering long-term initiatives and in light of current
uncertainty around Congressional efforts to craft a long-term agreement on the
U.S. government's ability to incur indebtedness in excess of its current limits,
and generally in the current political environment, there is a risk that clients
will not issue task orders in sufficient volume to reach current contract
ceilings, alter historical patterns of contract awards, including the typical
increase in the award of task orders or completion of other contract actions by
the U.S. government in the period before the end of the U.S. government's fiscal
year on September 30, delay requests for new proposals and contract awards, rely
on short-term extensions and funding of current contracts, or reduce staffing
levels and hours of operation;

•delays in the completion of future U.S. government’s budget processes, which
have in the past and could in the future delay procurement of the products,
services, and solutions we provide;


•changes in the relative mix of overall U.S. government spending and areas of
spending growth, with lower spending on homeland security, intelligence,
defense-related programs as certain overseas operations end, and continued
increased spending on cybersecurity, Command, Control, Communications,
Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR), advanced
analytics, technology integration, and healthcare, including as a result of the
presidential and administration transition;

•the extent, nature and effect of COVID-19, including the impact on federal
budgets, current and pending procurements, supply chains, demand for services,
deployment and productivity of our employees and the economic and societal
impact of a pandemic, and the expected continued volatility in billable
expenses, as well as the impact of our Company policy requiring full COVID-19
vaccinations of all employees, except for employees who qualify for medical or
religious exemptions;

•increased inflationary pressure that could impact the cost of doing business
and/or reduce customer buying power;

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•legislative and regulatory changes to limitations on the amount of allowable
executive compensation permitted under flexibly priced contracts following
implementation of interim rules adopted by federal agencies pursuant to the
Bipartisan Budget Act of 2013, which substantially further reduce the amount of
allowable executive compensation under these contracts and extend these
limitations to a larger segment of our executives and our entire contract base;

•efforts by the U.S. government to address organizational conflicts of interest
and related issues and the impact of those efforts on us and our competitors;


•increased audit, review, investigation, and general scrutiny by U.S. government
agencies of government contractors' performance under U.S. government contracts
and compliance with the terms of those contracts and applicable laws;

•the federal focus on refining the definition of “inherently governmental” work,
including proposals to limit contractor access to sensitive or classified
information and work assignments, which will continue to drive pockets of
insourcing in various agencies, particularly in the intelligence market;


•negative publicity and increased scrutiny of government contractors in general,
including us, relating to U.S. government expenditures for contractor services
and incidents involving the mishandling of sensitive or classified information;

•U.S. government agencies awarding contracts on a technically acceptable/lowest
cost basis, which could have a negative impact on our ability to win certain
contracts;

•increased competition from other government contractors and market entrants
seeking to take advantage of certain of the trends identified above, and an
industry trend towards consolidation, which may result in the emergence of
companies that are better able to compete against us;


•cost cutting and efficiency and effectiveness efforts by U.S. civilian agencies
with a focus on increased use of performance measurement, "program integrity"
efforts to reduce waste, fraud and abuse in entitlement programs, and renewed
focus on improving procurement practices for and interagency use of IT services,
including through the use of cloud based options and data center consolidation;

•restrictions by the U.S. government on the ability of federal agencies to use
lead system integrators, in response to cost, schedule, and performance problems
with large defense acquisition programs where contractors were performing the
lead system integrator role;

•increasingly complex requirements and enforcement and reporting landscapes of
the Department of Defense and the U.S. intelligence community, including
cybersecurity, managing federal health care cost growth, competition, and focus
on reforming existing government regulation of various sectors of the economy,
such as financial regulation and healthcare; and

•increasing small business regulations across the Department of Defense and
civilian agency clients continue to gain traction, agencies are required to meet
high small business set aside targets, and large business prime contractors are
required to subcontract in accordance with considerable small business
participation goals necessary for contract award.

Sources of Revenue


Substantially all of our revenue is derived from services provided under
contracts and task orders with the U.S. government, primarily by our client
staff and, to a lesser extent, our subcontractors. Funding for our contracts and
task orders is generally linked to trends in budgets and spending across various
U.S. government agencies and departments. We provide services under a large
portfolio of contracts and contract vehicles to a broad client base, and we
believe that our diversified contract and client base lessens potential
volatility in our business; however, a reduction in the amount of services that
we are contracted to provide to the U.S. government or any of our significant
U.S. government clients could have a material adverse effect on our business and
results of operations. In particular, the Department of Defense is one of our
significant clients, and the BCA originally required nine automatic spending
cuts (referred to as "sequestration") of $109 billion annually from 2013 to
2021, half of which was intended to come from defense programs, though less than
$1 billion has been cut for defense programs per year under the BCA. Mandatory
sequestrations under the BCA were subsequently extended by the Bipartisan Budget
Act of 2013, the Bipartisan Budget Act of 2015, the Bipartisan Budget Act of
2018, the Bipartisan Budget Act of 2019, the CARES Act and the Consolidated
Appropriations Act of 2021, which did not specify an amount of savings required
to be achieved through sequestration after 2021 but apply an 8.3% reduction in
defense spending in each year from 2021 to 2030. This could result in a
commensurate reduction in the amount of services that we are contracted to
provide to the Department of Defense and could have a material adverse effect on
our business and results of operations, and given the uncertainty of when and
how these automatic reductions required by the BCA may return and/or be applied,
we are unable to predict the nature or magnitude of the potential adverse
effect.
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Contract Types

We generate revenue under the following three basic types of contracts:


•Cost-Reimbursable Contracts. Cost-reimbursable contracts provide for the
payment of allowable costs incurred during performance of the contract, up to a
ceiling based on the amount that has been funded, plus a fixed fee or award fee.
As we increase or decrease our spending on allowable costs, our revenue
generated on cost-reimbursable contracts will increase, up to the ceiling and
funded amounts, or decrease, respectively. We generate revenue under two general
types of cost-reimbursable contracts: cost-plus-fixed-fee and
cost-plus-award-fee, both of which reimburse allowable costs and provide for a
fee. The fee under each type of cost-reimbursable contract is generally payable
upon completion of services in accordance with the terms of the contract.
Cost-plus-fixed-fee contracts offer no opportunity for payment beyond the fixed
fee. Cost-plus-award-fee contracts also provide for an award fee that varies
within specified limits based upon the client's assessment of our performance
against a predetermined set of criteria, such as targets for factors like cost,
quality, schedule, and performance.

•Time-and-Materials Contracts. Under contracts in this category, we are paid a
fixed hourly rate for each direct labor hour expended, and we are reimbursed for
billable material costs and billable out-of-pocket expenses inclusive of
allocable indirect costs. We assume the financial risk on time-and-materials
contracts because our costs of performance may exceed negotiated hourly rates.
To the extent our actual direct labor, including allocated indirect costs, and
associated billable expenses decrease or increase in relation to the fixed
hourly billing rates provided in the contract, we will generate more or less
profit, respectively, or could incur a loss.

•Fixed-Price Contracts. Under a fixed-price contract, we agree to perform the
specified work for a predetermined price. To the extent our actual direct and
allocated indirect costs decrease or increase from the estimates upon which the
price was negotiated, we will generate more or less profit, respectively, or
could incur a loss. Some fixed-price contracts have a performance-based
component, pursuant to which we can earn incentive payments or incur financial
penalties based on our performance. Fixed-price level of effort contracts
require us to provide a specified level of effort (i.e., labor hours), over a
stated period of time, for a fixed price.

The amount of risk and potential reward varies under each type of contract.
Under cost-reimbursable contracts, there is limited financial risk, because we
are reimbursed for all allowable costs up to a ceiling. However, profit margins
on this type of contract tend to be lower than on time-and-materials and
fixed-price contracts. Under time-and-materials contracts, we are reimbursed for
the hours worked using the predetermined hourly rates for each labor category.
In addition, we are typically reimbursed for other contract direct costs and
expenses at cost. We assume financial risk on time-and-materials contracts
because our labor costs may exceed the negotiated billing rates. Profit margins
on well-managed time-and-materials contracts tend to be higher than profit
margins on cost-reimbursable contracts as long as we are able to staff those
contracts with people who have an appropriate skill set. Under fixed-price
contracts, we are required to deliver the objectives under the contract for a
predetermined price. Compared to time-and-materials and cost-reimbursable
contracts, fixed-price contracts generally offer higher profit margin
opportunities because we receive the full benefit of any cost savings but
generally involve greater financial risk because we bear the impact of any cost
overruns. In the aggregate, the contract type mix in our revenue for any given
period will affect that period's profitability. Changes in contract type as a
result of re-competes and new business could influence the percentage/mix in
unanticipated ways.

The table below presents the percentage of total revenue for each type of
contract:


                               Three Months Ended
                                    June 30,
                                               2022       2021
Cost-reimbursable                              53%        56%
Time-and-materials                             24%        25%
Fixed-price                                    23%        19%

Contract Diversity and Revenue Mix


We provide services to our clients through a large number of single award
contracts, contract vehicles, and multiple award contract vehicles. Most of our
revenue is generated under indefinite delivery/indefinite quantity, or IDIQ,
contract vehicles, which include multiple award government wide acquisition
contract vehicles, or GWACs, and General Services Administration Multiple Award
Schedule Contracts, or GSA schedules, and certain single award contracts. GWACs
and GSA schedules are available to all U.S. government agencies. Any number of
contractors typically competes under multiple award IDIQ contract vehicles for
task orders to provide particular services, and we earn revenue under these
contract vehicles only to the extent that we are successful in the bidding
process for task orders.
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We generate revenue under our contracts and task orders through our provision of
services as both a prime contractor and subcontractor, as well as from the
provision of services by subcontractors under contracts and task orders for
which we act as the prime contractor. The mix of these types of revenue affects
our operating margin. Substantially all of our operating margin is derived from
direct client staff labor, as the portion of our operating margin derived from
fees we earn on services provided by our subcontractors is not significant. We
view growth in direct client staff labor as the primary driver of earnings
growth. Direct client staff labor growth is driven by client staff headcount
growth, after attrition, and total backlog growth.

Our People


Revenue from our contracts is derived from services delivered by client staff
and, to a lesser extent, from our subcontractors. Our ability to hire, retain,
and deploy talent with skills appropriately aligned with client needs is
critical to our ability to grow our revenue. We continuously evaluate whether
our talent base is properly sized and appropriately compensated, and contains an
optimal mix of skills to be cost competitive and meet the rapidly evolving needs
of our clients. We seek to achieve that result through recruitment and
management of capacity and compensation. As of June 30, 2022 and 2021, we
employed approximately 29,300 and 28,600 people, respectively, of which
approximately 26,400 and 25,500, respectively, were client staff.

Contract Backlog

We define backlog to include the following three components:


•Funded Backlog. Funded backlog represents the revenue value of orders for
services under existing contracts for which funding is appropriated or otherwise
authorized less revenue previously recognized on these contracts.

•Unfunded Backlog. Unfunded backlog represents the revenue value of orders
(including optional orders) for services under existing contracts for which
funding has not been appropriated or otherwise authorized.


•Priced Options. Priced contract options represent 100% of the revenue value of
all future contract option periods under existing contracts that may be
exercised at our clients' option and for which funding has not been appropriated
or otherwise authorized.

Our backlog does not include contracts that have been awarded but are currently
under protest and also does not include any task orders under IDIQ contracts,
except to the extent that task orders have been awarded to us under those
contracts.

The following table summarizes the value of our contract backlog at the
respective dates presented:

                                           June 30,      June 30,
                                             2022          2021
                                               (In millions)
                         Backlog:
                         Funded           $  4,020      $  3,493
                         Unfunded            9,991         9,029
                         Priced options     14,617        14,295
                         Total backlog    $ 28,628      $ 26,817



Our total backlog consists of remaining performance obligations, certain orders
under contracts for which the period of performance has expired, and unexercised
option period and other unexercised optional orders. As of June 30, 2022 and
March 31, 2022, the Company had $7.5 billion and $7.4 billion of remaining
performance obligations, respectively. We expect to recognize approximately 70%
of the remaining performance obligations at June 30, 2022 as revenue over the
next 12 months, and approximately 85% over the next 24 months. The remainder is
expected to be recognized thereafter. However, given the uncertainties discussed
below, as well as the risks described in "Item 1A. Risk Factors" of our Annual
Report on Form 10-K for the fiscal year ended March 31, 2022, we can give no
assurance that we will be able to convert our backlog into revenue in any
particular period, if at all. Our backlog includes orders under contracts that
in some cases extend for several years. The U.S. Congress generally appropriates
funds for our clients on a yearly basis, even though their contracts with us may
call for performance that is expected to take a number of years to complete. As
a result, contracts typically are only partially funded at any point during
their term and all or some of the work to be performed under the contracts may
remain unfunded unless and until the U.S. Congress makes subsequent
appropriations and the procuring agency allocates funding to the contract.

We view growth in total backlog and client staff headcount as the two key
measures of our potential business growth. Growing and deploying client staff is
the primary means by which we are able to achieve profitable revenue growth. To
the extent that we are able to hire additional client staff and deploy them
against funded backlog, we generally recognize increased revenue. Total backlog
increased by 6.8% from June 30, 2021 to June 30, 2022. Additions to funded
backlog during the twelve
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months ended June 30, 2022 totaled $9.2 billion in comparison to $7.9 billion
for the comparable period in fiscal 2022, as a result of the conversion of
unfunded backlog to funded backlog, the award of new contracts and task orders
under which funding was appropriated, and the exercise and subsequent funding of
priced options. We report internally on our backlog on a monthly basis and
review backlog upon occurrence of certain events to determine if any adjustments
are necessary.

We cannot predict with any certainty the portion of our backlog that we expect
to recognize as revenue in any future period and we cannot guarantee that we
will recognize any revenue from our backlog. The primary risks that could affect
our ability to recognize such revenue on a timely basis or at all are: program
schedule changes, contract modifications, and our ability to assimilate and
deploy new client staff against funded backlog; cost-cutting initiatives and
other efforts to reduce U.S. government spending, which could reduce or delay
funding for orders for services; and delayed funding of our contracts due to
delays in the completion of the U.S. government's budgeting process and the use
of continuing resolutions by the U.S. government to fund its operations. The
amount of our funded backlog is also subject to change, due to, among other
factors: changes in congressional appropriations that reflect changes in U.S.
government policies or priorities resulting from various military, political,
economic, or international developments; changes in the use of U.S. government
contracting vehicles, and the provisions therein used to procure our services
and adjustments to the scope of services, or cancellation of contracts, by the
U.S. government at any time. In our recent experience, none of the following
additional risks have had a material negative effect on our ability to realize
revenue from our funded backlog: the unilateral right of the U.S. government to
cancel multi-year contracts and related orders or to terminate existing
contracts for convenience or default; in the case of unfunded backlog, the
potential that funding will not be made available; and, in the case of priced
options, the risk that our clients will not exercise their options.

In addition, contract backlog includes orders under contracts for which the
period of performance has expired, and we may not recognize revenue on the
funded backlog that includes such orders due to, among other reasons, the tardy
submission of invoices by our subcontractors and the expiration of the relevant
appropriated funding in accordance with a predetermined expiration date such as
the end of the U.S. government's fiscal year. The revenue value of orders
included in contract backlog that has not been recognized as revenue due to
period of performance expirations has not exceeded approximately 5.1% of total
backlog as of June 30, 2022 and any of the four preceding fiscal quarters.

We expect to recognize revenue from a substantial portion of funded backlog as
of June 30, 2022 within the next twelve months. However, given the uncertainties
discussed above, as well as the risks described in Part I, Item 1A, of our
Annual Report on Form 10-K, we can give no assurance that we will be able to
convert our backlog into revenue in any particular period, if at all.

Operating Costs and Expenses


Costs associated with compensation and related expenses for our people are the
most significant component of our operating costs and expenses. The principal
factors that affect our costs are additional people as we grow our business and
are awarded new contracts, task orders, and additional work under our existing
contracts, and the hiring of people with specific skill sets and security
clearances as required by our additional work.

Our most significant operating costs and expenses are described below.

•Cost of Revenue. Cost of revenue includes direct labor, related employee
benefits, and overhead. Overhead consists of indirect costs, including indirect
labor relating to infrastructure, management and administration, and other
expenses.

•Billable Expenses. Billable expenses include direct subcontractor expenses,
travel expenses, and other expenses incurred to perform on contracts.

•General and Administrative Expenses. General and administrative expenses
include indirect labor of executive management and corporate administrative
functions, marketing and bid and proposal costs, and other discretionary
spending.


•Depreciation and Amortization. Depreciation and amortization includes the
depreciation of computers, leasehold improvements, furniture and other
equipment, and the amortization of internally developed software, as well as
third-party software that we use internally, and of identifiable long-lived
intangible assets over their estimated useful lives.

Seasonality


The U.S. government's fiscal year ends on September 30 of each year. While not
certain, it is not uncommon for U.S. government agencies to award extra tasks or
complete other contract actions in the weeks before the end of its fiscal year
in order to avoid the loss of unexpended fiscal year funds. In addition, we also
have historically experienced higher bid and proposal costs in the months
leading up to the U.S. government's fiscal year end as we pursue new contract
opportunities being awarded shortly after the U.S. government fiscal year end as
new opportunities are expected to have funding appropriated in the U.S.
government's subsequent fiscal year. We may continue to experience this
seasonality in future periods, and our future
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periods may be affected by it. While not certain, changes in the government’s
funding and spending patterns have altered historical seasonality trends,
supporting our approach to managing the business on an annual basis.

Seasonality is just one of a number of factors, many of which are outside of our
control, which may affect our results in any period. See “Item 1A. Risk
Factors.”

Critical Accounting Estimates and Policies


Our critical accounting estimates and policies are disclosed in the Critical
Accounting Estimates and Policies section in Part II, "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" of our
Annual Report on Form 10-K for the year ended March 31, 2022. There were no
other material changes to our critical accounting policies, estimates or
judgments that occurred in the quarterly period covered by this report.


Results of Operations

The following table sets forth items from our condensed consolidated statements
of operations for the three months ended June 30, 2022 and June 30, 2021.

                                                                     Three Months Ended
                                                                          June 30,                Percent
                                                                               2022                 2021                  Change
                                                                          

(Unaudited) (Unaudited)

                                                                       (In 

thousands)

Revenue                                                                   $ 2,249,600          $ 1,989,066                      13.1  %
Operating costs and expenses:
Cost of revenue                                                             1,074,973              962,719                      11.7  %
Billable expenses                                                             674,266              555,545                      21.4  %
General and administrative expenses                                           253,064              301,800                     (16.1) %
Depreciation and amortization                                                  40,102               27,745                      44.5  %
Total operating costs and expenses                                          2,042,405            1,847,809                      10.5  %
Operating income                                                              207,195              141,257                      46.7  %
Interest expense                                                              (24,655)             (21,270)                     15.9  %
Other income (expense), net                                                    (2,958)                (533)                    455.0  %
Income before income taxes                                                    179,582              119,454                      50.3  %
Income tax expense                                                             41,489               27,352                      51.7  %
Net income                                                                $   138,093          $    92,102                      49.9  %
Net loss attributable to non-controlling interest                                 191                    -                           NM
Net income attributable to common stockholders                            $   138,284          $    92,102                      50.1  %


NM - Not meaningful.

Revenue

Revenue increased to $2,249.6 million from $1,989.1 million, or a 13.1%
increase, for the three months ended June 30, 2022 as compared to the three
months ended June 30, 2021. The increase was primarily driven by a combination
of headcount growth, salary increases, and higher billable expenses, partially
offset by lower staff utilization. The increase in revenue also includes
approximately $103 million of inorganic contributions related to fiscal 2022
acquisitions. Total headcount as of June 30, 2022 increased approximately 750 as
compared to June 30, 2021.

Cost of Revenue

Cost of revenue as a percentage of revenue was 47.8% and 48.4% for the three
months ended June 30, 2022 and 2021, respectively. Cost of revenue increased to
$1,075.0 million from $962.7 million, or an 11.7% increase, for the three months
ended June 30, 2022 as compared to the three months ended June 30, 2021. The
changes were primarily due to increases in salaries and salary-related benefits
in the three months ended June 30, 2022 of $86.8 million, driven by increased
headcount and annual base salary increases.
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Billable Expenses


Billable expenses as a percentage of revenue were 30.0% and 27.9% for the three
months ended June 30, 2022 and 2021, respectively. Billable expenses increased
to $674.3 million from $555.5 million, or a 21.4% increase, for the three months
ended June 30, 2022 as compared to the three months ended June 30, 2021. The
increase was primarily attributable to an $81.4 million increase in the use of
subcontractors driven by client demand and timing of client needs, as well as
increases in expenses from contracts that require the Company to incur other
direct expenses and travel on behalf of clients as compared to the prior year
period.

General and Administrative Expenses


General and administrative expenses as a percentage of revenue were 11.2% and
15.2% for the three months ended June 30, 2022 and 2021, respectively. General
and administrative expenses decreased to $253.1 million from $301.8 million, or
a 16.1% decrease, for the three months ended June 30, 2022 as compared to the
three months ended June 30, 2021, primarily due to $66.8 million of acquisition
costs incurred during the first quarter of fiscal 2022 associated with our
acquisition of Liberty.

Depreciation and Amortization

Depreciation and amortization expense increased to $40.1 million from $27.7
million, or a 44.5% increase, for the three months ended June 30, 2022 as
compared to the three months ended June 30, 2021, primarily due to increases in
intangible amortization related to the acquisitions in fiscal 2022.

Interest Expense

Interest expense increased to $24.7 million from $21.3 million, or a 15.9%
increase, for the three months ended June 30, 2022 as compared to the three
months ended June 30, 2021, primarily due to increased expense related to the
issuance of the Senior Notes due 2029 (as defined below) in fiscal 2022.

Other Income (Expense), net


Other income (expense), net increased to a $(3.0) million net other expense for
the three months ended June 30, 2022 from $(0.5) million for the three months
ended June 30, 2021, respectively, primarily due to income or losses associated
with our equity method investments.

Income Tax Expense


Income tax expense increased to $41.5 million for the three months ended
June 30, 2022 from $27.4 million for the three months ended June 30, 2021, an
increase of 51.7%. The increase was primarily due to the changes in pre-tax
income as compared to the prior year period. The effective tax rate increased to
23.1% for the three months ended June 30, 2022 from 22.9% for the three months
ended June 30, 2021.


Liquidity and Capital Resources

The following table presents selected financial information as of June 30, 2022
and March 31, 2022 and for the first three months of fiscal 2023 and 2022:

                                                           June 30,         March 31,
                                                             2022             2022
                                                          (Unaudited)
                                                                 (In thousands)
   Cash and cash equivalents                             $   497,828      $   695,910
   Total debt                                              2,783,876        2,800,072

                                                               Three Months Ended
                                                                    June 30,
                                                             2022             2021
                                                          (Unaudited)      (Unaudited)
                                                                 (In thousands)
   Net cash used in operating activities                 $   (45,634)     $ 

(10,662)

   Net cash used in investing activities                     (13,734)       

(676,591)

Net cash provided by (used in) financing activities (138,714)

318,160

   Total decrease in cash and cash equivalents           $  (198,082)     $ 

(369,093)

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To date, COVID-19 has not had a significant impact on our liquidity, cash flows
or capital resources. However, COVID-19 has led to disruption and volatility in
the global capital markets, which, depending on future developments, could
impact our capital resources and liquidity in the future. In the opinion of
management, we will be able to meet our liquidity and cash needs through a
combination of cash flows from operating activities, available cash balances,
and available borrowing under the Revolving Credit Facility. If these resources
need to be augmented, additional cash requirements would likely be financed
through the issuance of debt or equity securities.

From time to time we evaluate alternative uses for excess cash resources once
our operating cash flow and required debt servicing needs have been met. Some of
the possible uses of our remaining excess cash at any point in time may include
funding strategic acquisitions, further investment in our business and returning
value to shareholders through share repurchases, quarterly dividends, and
special dividends. While the timing and financial magnitude of these possible
actions are currently indeterminable, the Company expects to be able to manage
and adjust its capital structure in the future to meet its liquidity needs.

Historically, we have been able to generate sufficient cash to fund our
operations, mandatory debt and interest payments, capital expenditures, and
discretionary funding needs. However, due to fluctuations in cash flows,
including as a result of the trends and developments described above under
"-Factors and Trends Affecting Our Results of Operations" relating to U.S.
government shutdowns, U.S. government cost-cutting, reductions or delays in the
U.S. government appropriations and spending process and other budgetary matters,
it may be necessary from time-to-time in the future to borrow under our Secured
Credit Facility to meet cash demands. While the timing and financial magnitude
of these possible actions are currently indeterminable, we expect to be able to
manage and adjust our capital structure to meet our liquidity needs. Our
expected liquidity and capital structure may also be impacted by discretionary
investments and acquisitions that we could pursue. We anticipate that cash
provided by operating activities, existing cash and cash equivalents, and
borrowing capacity under our Revolving Credit Facility will be sufficient to
meet our anticipated cash requirements for the next twelve months, which
primarily include:

•operating expenses, including salaries;

•working capital requirements to fund both organic and inorganic growth of our
business;

•capital expenditures which primarily relate to the purchase of computers,
business systems, furniture and leasehold improvements to support our
operations;

•the ongoing maintenance around all financial management systems;

•commitments and other discretionary investments;


•debt service requirements for borrowings under our Secured Credit Facility and
interest payments for the Senior Notes due 2029 and the Senior Notes due 2028;
and

•cash taxes to be paid.

Our ability to fund our operating needs depends, in part, on our ability to
continue to generate positive cash flows from operations or, if necessary, raise
cash in the capital markets. In addition, from time to time we evaluate
conditions to opportunistically access the financing markets to secure
additional debt capital resources and improve the terms of our indebtedness.


On March 16, 2022, the Company announced that it had entered into a stock
purchase agreement to acquire EverWatch Corp. ("EverWatch"), a leading provider
of advanced solutions to the defense and intelligence communities for
approximately $440.0 million, subject to customary adjustments. If consummated,
the Company expects to fund the acquisition with cash on hand. The transaction
is subject to satisfaction of customary closing conditions. On June 29, 2022,
the U.S. Department of Justice ("DOJ") initiated a lawsuit seeking to enjoin
consummation of the transaction. In connection with the DOJ's lawsuit, the
Company and EverWatch agreed to delay any closing of the transaction until
October 9, 2022 or the date on which the court denies the DOJ's request for a
preliminary injunction and/or permanent injunction, whichever is earlier. The
DOJ litigation and related delay have introduced an increased level of
uncertainty regarding the ability of the parties to consummate the transaction.
The Company can make no assurances that the transaction will be consummated.

Cash Flows


Cash received from clients, either from the payment of invoices for work
performed or for advances in excess of costs incurred, is our primary source of
cash. We generally do not begin work on contracts until funding is appropriated
by the client. Billing timetables and payment terms on our contracts vary based
on a number of factors, including whether the contract type is
cost-reimbursable, time-and-materials, or fixed-price. We generally bill and
collect cash more frequently under cost-reimbursable and time-and-materials
contracts, as we are authorized to bill as the costs are incurred or work is
performed. In contrast, we may be limited to bill certain fixed-price contracts
only when specified milestones, including deliveries, are achieved. In addition,
a number of our contracts may provide for performance-based payments, which
allow us to bill and collect cash prior to completing the work.
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Accounts receivable is the principal component of our working capital and is
generally driven by revenue growth with other short-term fluctuations related to
the payment practices of our clients. Our accounts receivable reflects amounts
billed to our clients as of each balance sheet date. Our clients generally pay
our invoices within 30 days of the invoice date, although we experience a longer
billing and collection cycle with our global commercial customers. At any
month-end, we also include in accounts receivable the revenue that was
recognized in the preceding month, which is generally billed early in the
following month. Finally, we include in accounts receivable amounts related to
revenue accrued in excess of amounts billed, primarily on our fixed-price and
cost-reimbursable-plus-award-fee contracts. The total amount of our accounts
receivable can vary significantly over time, but is generally sensitive to
revenue levels and customer mix.

Operating Cash Flow


Net cash provided by operations is primarily affected by the overall
profitability of our contracts, our ability to invoice and collect cash from
clients in a timely manner, our ability to manage our vendor payments and the
timing of cash paid for income taxes. Continued uncertainty in global economic
conditions may also affect our business as customers and suppliers may decide to
downsize, defer, or cancel contracts, which could negatively affect the
operating cash flows. Net cash used in operations was $45.6 million for the
three months ended June 30, 2022 compared to $10.7 million in the prior year
period. Strong collections in line with revenue growth were partially offset by
higher disbursements and one time payroll items associated with administrative
staffing changes completed last quarter and other business transactions.

Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 eliminates the
option to deduct research and development expenditures immediately in the year
incurred and requires taxpayers to amortize such expenditures over five years.
We currently anticipate our fiscal 2023 cash from operations will be negatively
impacted by approximately $150 million as a result of this provision, but the
actual impact on the current fiscal year will depend on if and when this
provision is deferred, modified, or repealed by Congress, including if
retroactively, any guidance issued by the Treasury Department regarding the
identification of appropriate costs for capitalization, and the amount of
research and development expenses paid or incurred in fiscal 2023 (among other
factors). This will also have an offsetting impact on deferred tax assets. While
the largest impact will be to fiscal 2023 cash from operations, the impact would
continue over the five year amortization period, but would decrease over the
period and be immaterial in year six.

Investing Cash Flow

Net cash used in investing activities was $13.7 million in the three months
ended June 30, 2022 compared to $676.6 million in the prior year period. The
decrease in net cash used in investing activities was primarily due to the
Company’s acquisition of Liberty in the prior year period.

Financing Cash Flow


Net cash used in financing activities was $138.7 million in the three months
ended June 30, 2022 compared to $318.2 million in the prior year period. The
decrease in net cash used in financing activities was primarily due to net
proceeds in the prior year of $493.7 million from the issuance of the 4.000%
Senior Notes due 2029, partially offset by a decrease in share repurchases of
$50.4 million and a decrease in payments on the Company's Term Loans of $43.9
million over the prior year period.

Dividends and Share Repurchases


On July 29, 2022, the Company announced a regular quarterly cash dividend in the
amount of $0.43 per share. The quarterly dividend is payable on August 31, 2022
to stockholders of record on August 15, 2022.

During the first quarter of fiscal 2023, a quarterly cash dividend of $0.43 per
share was declared and paid totaling $58.9 million. During the first quarter of
fiscal 2022, a quarterly cash dividend of $0.37 per share was declared and paid
totaling $51.6 million.

On December 12, 2011, the Board of Directors approved a share repurchase
program, which was most recently increased by $400.0 million to $2,560.0 million
on July 27, 2022. The Company may repurchase shares pursuant to the program by
means of open market repurchases, directly negotiated repurchases or through
agents acting pursuant to negotiated repurchase agreements. During the first
three months of fiscal 2023, the Company purchased $0.6 million shares of the
Company's Class A Common Stock for an aggregate of $46.9 million. As of June 30,
2022, the Company had approximately $604.7 million remaining under the
repurchase program.

Any determination to pursue one or more of the above alternative uses for excess
cash is subject to the discretion of our Board of Directors, and will depend
upon various factors, including our results of operations, financial condition,
liquidity requirements, restrictions that may be imposed by applicable law, our
contracts, and our Credit Agreement as amended and other factors deemed relevant
by our Board of Directors.
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Indebtedness


As of June 30, 2022, the Credit Agreement provided Booz Allen Hamilton Inc.
("Booz Allen Hamilton") with a $1,225.3 million Term Loan A ("Term Loan A"),
a $379.3 million Term Loan B ("Term Loan B" and, together with Term Loan A, the
"Term Loans"), and a $1,000.0 million revolving credit facility (the "Revolving
Credit Facility") with a sub-limit for letters of credit of $200.0 million
(collectively, the "Secured Credit Facility"). As of June 30, 2022, the maturity
date of Term Loan A and Term Loan B are June 24, 2026 and November 26, 2026,
respectively. Booz Allen Hamilton's obligations and the guarantors' guarantees
under the Credit Agreement (the "Guarantee") are secured by a first priority
lien on substantially all of the assets (including capital stock of
subsidiaries) of Booz Allen Hamilton, Booz Allen Hamilton Investor Corporation,
and the subsidiary guarantors, subject to certain exceptions set forth in the
Credit Agreement and related documentation.

At Booz Allen Hamilton's option, borrowings under the Secured Credit Facility
bear interest based either at LIBOR (adjusted for maximum reserves, and subject
to a floor of zero) for the applicable interest period or a base rate (equal to
the highest of (i) the administrative agent's prime corporate rate, (ii) the
overnight federal funds rate plus 0.50%, and (iii) three-month LIBOR (adjusted
for maximum reserves, and subject to a floor of zero) plus 1.00%), in each case
plus an applicable margin as determined by the pricing grid, payable at the end
of the applicable interest period and in any event at least quarterly. The
applicable margin for Term Loan A and borrowings under the Revolving Credit
Facility ranges from 1.125% to 2.00% for LIBOR loans and 0.125% to 1.00% for
base rate loans, in each case based on Booz Allen Hamilton's consolidated total
net leverage ratio. Unused commitments under the Revolving Credit Facility are
subject to a quarterly fee ranging from 0.175% to 0.35% based on Booz Allen
Hamilton's consolidated total net leverage ratio. Booz Allen Hamilton also
agreed to pay customary letter of credit and agency fees. The applicable margin
for Term Loan B is 1.75% for LIBOR loans and 0.75% for base rate loans.

The Credit Agreement requires quarterly principal payments of 1.25% of the
stated principal amount of Term Loan A until maturity and quarterly principal
payments of 0.25% of the stated principal amount of Term Loan B until maturity.


As of June 30, 2022 and March 31, 2022, Booz Allen Hamilton was contingently
liable under open standby letters of credit and bank guarantees issued by its
banks in favor of third parties that totaled $7.7 million and $8.4 million,
respectively. These letters of credit and bank guarantees primarily support
insurance and bid and performance obligations. For each of June 30, 2022 and
March 31, 2022, approximately $1.0 million of these instruments reduced our
available borrowings under the Revolving Credit Facility. The remainder is
guaranteed under a separate $20.0 million facility of which $13.2 million and
$12.6 million, respectively, was available to Booz Allen Hamilton at June 30,
2022 and March 31, 2022. As of June 30, 2022, we had $999.0 million of capacity
available for additional borrowings under the Revolving Credit Facility.

The Credit Agreement contains customary representations and warranties and
customary affirmative and negative covenants. In addition, Booz Allen Hamilton
is required to meet certain financial covenants at each quarter end, namely
consolidated net total leverage and consolidated net interest coverage ratios.
As of June 30, 2022 and March 31, 2022, Booz Allen Hamilton was in compliance
with all financial covenants associated with its debt and debt-like instruments.

For the three months ended June 30, 2022 and 2021, interest payments of $6.3
million and $4.9 million were made for Term Loan A, respectively, and $2.4
million and $1.8 million were made for Term Loan B, respectively.


Borrowings under the Term Loans and, if used, the Revolving Credit Facility,
incur interest at a variable rate. In accordance with our risk management
strategy, Booz Allen Hamilton executed a series of interest rate swaps. As of
June 30, 2022, we had interest rate swaps with an aggregate notional amount of
$550.0 million. These instruments hedge the variability of cash outflows for
interest payments on the floating portion of our debt. The Company's objectives
in using cash flow hedges are to reduce volatility due to interest rate
movements and to add stability to interest expense (See Note 9 to our condensed
consolidated financial statements).

On June 17, 2021, Booz Allen Hamilton issued $500.0 million aggregate principal
amounts of its 4.000% Senior Notes due July 1, 2029 (the "Senior Notes due
2029") under an Indenture, dated as of June 17, 2021, among Booz Allen Hamilton,
certain subsidiaries of Booz Allen Hamilton, as guarantors (the "2029 Subsidiary
Guarantors"), and Wilmington Trust, National Association (in such capacity, the
"2029 Trustee"), as supplemented by the First Supplemental Indenture, dated as
of June 17, 2021, among Booz Allen Hamilton, the 2029 Subsidiary Guarantors and
the 2029 Trustee. The Senior Notes due 2029 and the related guarantees are Booz
Allen Hamilton's and each 2029 Subsidiary Guarantor's senior unsecured
obligations and rank equally in right of payment with all of Booz Allen
Hamilton's and the 2029 Subsidiary Guarantors' existing and future senior
indebtedness and rank senior in right of payment to any of Booz Allen Hamilton's
and the 2029 Subsidiary Guarantors' future subordinated indebtedness. The net
proceeds from the sale of the Senior Notes due 2029 were used to fund the
acquisition of Liberty and to pay related fees and expenses.

Interest is payable on the Senior Notes due 2029 semi-annually in cash in
arrears on July 1 and January 1 of each year, beginning on January 1, 2022. In
connection with the issuance of the Senior Notes due 2029, the Company
recognized $6.5 million of issuance costs, which were recorded as an offset
against the carrying value of debt and will be amortized to interest expense
over the term of the Senior Notes due 2029.
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On August 24, 2020, Booz Allen Hamilton issued $700.0 million aggregate
principal amount of its 3.875% Senior Notes due 2028 (the "Senior Notes due
2028") under an Indenture, dated as of August 24, 2020, among Booz Allen
Hamilton, certain subsidiaries of Booz Allen Hamilton, as guarantors (the "2028
Subsidiary Guarantors"), and Wilmington Trust, National Association, as trustee
(the "2028 Trustee"), as supplemented by the First Supplemental Indenture, dated
as of August 24, 2020, among Booz Allen Hamilton, the 2028 Subsidiary Guarantors
and the 2028 Trustee. Each of Booz Allen Hamilton's existing and future
restricted subsidiaries that guarantee its obligations under the Secured Credit
Facility or certain other indebtedness guarantee the Senior Notes due 2028 on a
senior unsecured basis. The Senior Notes due 2028 and the guarantees are Booz
Allen Hamilton's and each 2028 Subsidiary Guarantors' senior unsecured
obligations and rank equally in right of payment with all of Booz Allen
Hamilton's and the 2028 Subsidiary Guarantors' existing and future senior
indebtedness and rank senior in right of payment to any of Booz Allen Hamilton's
and the Subsidiary Guarantors' future subordinated indebtedness.

Interest is payable on the Senior Notes due 2028 semi-annually on March 1 and
September 1 of each year, beginning on March 1, 2021, and principal is due at
maturity on September 1, 2028. In connection with the issuance of the Senior
Notes due 2028, the Company recognized $9.2 million of issuance costs, which
were recorded as an offset against the carrying value of debt and will be
amortized to interest expense over the term of the Senior Notes due 2028.

Capital Structure and Resources


Our stockholders' equity amounted to $1,099.1 million as of June 30, 2022, an
increase of $52.4 million, compared to stockholders' equity of $1,046.7 million
as of March 31, 2022, primarily due to $57.6 million in treasury stock resulting
from the repurchase of shares of our Class A Common Stock, and $58.3 million in
quarterly dividend payments for the three months ended June 30, 2022, partially
offset by net income of $138.1 million, stock-based compensation expense of
$13.7 million, and issuance of common stock of $6.1 million during the three
months ended June 30, 2022.

Capital Expenditures

Since we do not own any of our facilities, our capital expenditure requirements
primarily relate to the purchase of computers, management systems, furniture,
and leasehold improvements to support our operations. Direct facility and
equipment costs billed to clients are not treated as capital expenses. Our
capital expenditures for the three months ended June 30, 2022 and 2021 were
$13.7 million and $9.0 million, respectively. The increase in capital
expenditures was primarily driven by the Company's continued investment in its
business, technology, and infrastructure.

Commitments and Contingencies


We are subject to a number of reviews, investigations, claims, lawsuits, and
other uncertainties related to our business. For a discussion of these items,
refer to Note 15 to our condensed consolidated financial statements.

Special Note Regarding Forward Looking Statements


Certain statements contained or incorporated in this Quarterly Report on Form
10-Q, or Quarterly Report, include forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "could," "should," "forecasts," "expects," "intends," "plans,"
"anticipates," "projects," "outlook," "believes," "estimates," "predicts,"
"potential," "continue," "preliminary," or the negative of these terms or other
comparable terminology. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we can give you no assurance
these expectations will prove to have been correct. These forward-looking
statements relate to future events or our future financial performance and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance, or achievements to differ
materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include:

•any issue that compromises our relationships with the U.S. government or
damages our professional reputation, including negative publicity concerning
government contractors in general or us in particular;


•changes in U.S. government spending, including a continuation of efforts by the
U.S. government to decrease spending for management support service contracts,
and mission priorities that shift expenditures away from agencies or programs
that we support, or as a result of the U.S. administration transition;

•efforts by Congress and other U.S. government bodies to reduce U.S. government
spending and address budgetary constraints and the U.S. deficit, as well as
associated uncertainty around the timing, extent, nature and effect of such
efforts;


•delayed long-term funding of our contracts due to uncertainty relating to
funding of the U.S. government and a possible failure of Congressional efforts
to approve such funding and to craft a long-term agreement on the U.S.
government's ability to incur indebtedness in excess of its current limits, or
changes in the pattern or timing of government funding and spending;

•U.S. government shutdowns as a result of the failure by elected officials to
fund the government;

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•failure to comply with numerous laws and regulations, including but not limited
to, the Federal Acquisition Regulation (“FAR”), the False Claims Act, the
Defense Federal Acquisition Regulation Supplement and FAR Cost Accounting
Standards and Cost Principles;


•the effects of COVID-19 and other pandemics or widespread health epidemics,
including disruptions to our workforce and the impact on government spending and
demand for our solutions, as well as the impact of our Company policy requiring
full COVID-19 vaccinations of all employees, except for employees who qualify
for medical or religious exemptions;

•our ability to compete effectively in the competitive bidding process and
delays or losses of contract awards caused by competitors' protests of major
contract awards received by us;

•variable purchasing patterns under U.S. government General Services
Administration Multiple Award schedule contracts, or GSA schedules, blanket
purchase agreements and indefinite delivery/indefinite quantity, or IDIQ,
contracts;

•the loss of GSA schedules or our position as prime contractor on
government-wide acquisition contract vehicles, or GWACs;

•changes in the mix of our contracts and our ability to accurately estimate or
otherwise recover expenses, time, and resources for our contracts;

•changes in estimates used in recognizing revenue;


•our ability to realize the full value of and replenish our backlog, generate
revenue under certain of our contracts, and the timing of our receipt of revenue
under contracts included in backlog;

•internal system or service failures and security breaches, including, but not
limited to, those resulting from external or internal cyber attacks on our
network and internal systems;

•risks related to the operation of financial management systems;

•an inability to attract, train, or retain employees with the requisite skills
and experience;


•an inability to timely hire, assimilate and effectively utilize our employees,
ensure that employees obtain and maintain necessary security clearances and/or
effectively manage our cost structure;

•risks related to inflation that could impact the cost of doing business and/or
reduce customer buying power;

•the loss of members of senior management or failure to develop new leaders;


•misconduct or other improper activities from our employees or subcontractors,
including the improper use or release of our clients' sensitive or classified
information;

•increased competition from other companies in our industry;

•failure to maintain strong relationships with other contractors, or the failure
of contractors with which we have entered into a sub- or prime- contractor
relationship to meet their obligations to us or our clients;


•inherent uncertainties and potential adverse developments in legal or
regulatory proceedings, including litigation, audits, reviews, and
investigations, which may result in materially adverse judgments, settlements,
withheld payments, penalties, or other unfavorable outcomes including debarment,
as well as disputes over the availability of insurance or indemnification;

•failure to comply with special U.S. government laws and regulations relating to
our international operations;

•risks associated with increased competition, new relationships, clients,
capabilities, and service offerings in our U.S. and international businesses;

•risks related to changes to our operating structure, capabilities, or strategy
intended to address client needs, grow our business or respond to market
developments;

•the adoption by the U.S. government of new laws, rules, and regulations, such
as those relating to organizational conflicts of interest issues or limits;


•risks related to pending, completed and future acquisitions and dispositions,
including the ability to satisfy specified closing conditions for pending
transactions, such as those related to receipt of regulatory approval or lack of
regulatory intervention, and to realize the expected benefits from completed
acquisitions and dispositions;

•the incurrence of additional tax liabilities, including as a result of changes
in tax laws or management judgments involving complex tax matters;

•risks inherent in the government contracting environment;


•continued efforts to change how the U.S. government reimburses compensation
related costs and other expenses or otherwise limits such reimbursements and an
increased risk of compensation being deemed unreasonable and unallowable or
payments being withheld as a result of U.S. government audit, review, or
investigation;
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•increased insourcing by various U.S. government agencies due to changes in the
definition of “inherently governmental” work, including proposals to limit
contractor access to sensitive or classified information and work assignments;

•the size of our addressable markets and the amount of U.S. government spending
on private contractors;

•risks related to our indebtedness and credit facilities which contain financial
and operating covenants;


•the impact of changes in accounting rules and regulations, or interpretations
thereof, that may affect the way we recognize and report our financial results,
including changes in accounting rules governing recognition of revenue;

•the impact of ESG-related risks and climate change generally on our and our
clients’ businesses and operations; and

•other risks and factors listed under “Item 1A. Risk Factors” and elsewhere in
this Quarterly Report, as well as those listed under “Risk Factors” in our
Annual Report on Form 10-K for the year ended March 31, 2022.


In light of these risks, uncertainties and other factors, the forward-looking
statements might not prove to be accurate and you should not place undue
reliance upon them. All forward-looking statements speak only as of the date
made and we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

© Edgar Online, source Glimpses

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