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EARNINGS CALL PRESENTATION Fiscal Year 2017, Third Quarter JANUARY 30, 2017 Innovation Center Washington D.C.
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HORACIO ROZANSKI PRESIDENT AND CHIEF EXECUTIVE OFFICER LLOYD HOWELL CHIEF FINANCIAL OFFICER AND TREASURER CURT RIGGLE VICE PRESIDENT INVESTOR RELATIONS 1 CALL PARTICIPANTS
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DISCLAIMER Fo rward Look ing Sa fe Harbor S ta tement Ce r t a i n s t a tement s con ta ined i n t h i s presen ta t i on and i n re l a t ed comment s by our management i n c l ude “ fo rward ‐ l ook ing s t a tement s ” wi th in t he mean ing o f t he Pr i va te Secu r i t i e s L i t i g a t i on Re fo rm Ac t o f 1995 . Examp le s o f f o rward ‐ l ook ing s t a tement s i n c l ude i n fo rmat i on conce rn ing Booz A l l en ’ s pre l im ina ry f i nanc i a l r e su l t s , f i nanc i a l out look and gu idance , i n c l ud ing f o reca s ted revenue , D i l u ted EPS , and Ad ju s ted D i l u ted EPS , f u tu re qua r te r l y d i v i dends , and f u tu re improvement s i n opera t i ng marg in s , as we l l as any othe r s t a tement t ha t does not d i re c t l y re l a t e t o any h i s to r i c a l or cu r ren t f a c t . I n some ca se s , you can i den t i f y f o rward ‐ l ook ing s t a tement s by t e rm ino logy such as “may , ” “w i l l , ” “ cou ld , ” “ shou ld , ” “ fo reca s t s , ” “expec t s , ” “ i n tends , ” “p l ans , ” “an t i c i pa te s , ” “p ro j e c t s , ” “ou t l ook , ” “be l i e ve s , ” “e s t ima te s , ” “p red i c t s , ” “po ten t i a l , ” “ con t i nue , ” “p re l im ina ry , ” or t he nega t i ve o f the se t e rms or othe r comparab l e t e rm ino logy . A l though we be l i e ve t ha t t he expec ta t i ons re f l e c t ed i n t he f o rward ‐ l ook ing s t a tement s a re r ea sonab le , we can g i ve you no as su rance the se expec ta t i ons wi l l prove t o have been co r rec t . These f o rward ‐ l ook ing s t a tement s re l a t e t o f u tu re even t s or our f u tu re f i nanc i a l per fo rmance and i n vo l ve known and unknown r i s k s , unce r t a i n t i e s and othe r f a c to r s t ha t may cause our ac tua l r e su l t s , l e ve l s o f ac t i v i t y , per fo rmance or ach ievement s t o d i f f e r mate r i a l l y f rom any f u tu re r e su l t s , l e ve l s o f ac t i v i t y , per fo rmance or ach ievement s exp res sed or imp l i ed by the se f o rward ‐ l ook ing s t a tement s . A number o f impor t an t f a c to r s cou ld cause ac tua l re su l t s t o d i f f e r mate r i a l l y f rom those con ta ined i n or imp l i ed by the se f o rward ‐ l ook ing s t a tement s , i n c l ud ing those f a c to r s d i s cus sed i n our f i l i n g s wi th t he Secu r i t i e s and Exchange Commi s s i on ( SEC ) , i n c l ud ing our Annua l Repor t on Form 10 ‐K f o r t he f i s c a l yea r ended March 31 , 2016 , wh i ch can be f ound a t t he SEC ’ s webs i t e a t www.sec . gov . A l l f o rward ‐ l ook ing s t a tement s a t t r i bu tab l e t o us or per sons ac t i ng on our beha l f a re exp re s s l y qua l i f i ed i n t he i r en t i re t y by t he f o rego ing cau t i ona ry s t a tement s . A l l such s t a tement s speak on l y as o f t he da te made and , excep t as requ i red by l aw , we under take no ob l i ga t i on t o upda te or rev i se pub l i c l y any f o rward ‐ l ook ing s t a tement s , whethe r as a re su l t o f new i n fo rmat i on , f u tu re even t s or othe rw i se . No te Rega rd i ng Non ‐GAAP F inanc i a l Data I n fo rmat i on Booz A l l en d i s c l o se s i n t he f o l l ow ing i n fo rmat i on Ad ju s ted Opera t i ng I n come , Ad ju s ted EB ITDA , Ad ju s ted EB ITDA Marg in , Ad ju s ted Net I n come , Ad ju s ted D i l u ted EPS , and F ree Cash F low wh i ch a re not recogn i zed measu rement s under GAAP , and when ana l y z i ng Booz A l l en ’ s per fo rmance or l i qu id i t y as app l i cab l e , i n ve s to r s shou ld ( i ) eva lua te each ad ju s tment i n our reconc i l i a t i on o f Opera t i ng and Net I n come t o Ad ju s ted Opera t i ng I n come , Ad ju s ted EB ITDA , Ad ju s ted EB ITDA Marg in , and Ad ju s ted Net I n come , and ne t ca sh prov ided by opera t i ng ac t i v i t i e s t o f r ee ca sh f l ows , and t he exp l ana to ry f oo tno te s rega rd i ng those ad ju s tment s , and ( i i ) use Ad ju s ted EB ITDA , Ad ju s ted EB ITDA Marg in , Ad ju s ted Net I n come , Ad ju s ted Opera t i ng I n come , and Ad ju s ted D i l u ted EPS i n add i t i on to , and not as an a l t e rna t i ve t o opera t i ng i n come , ne t i n come or D i l u ted EPS as a measure o f opera t i ng re su l t s wi th ca sh f l ow i n add i t i on t o and not as an a l t e rna t i ve t o ne t ca sh gene ra ted f rom opera t i ng ac t i v i t i e s as a measure o f l i qu i d i t y , each as de f i ned under GAAP . The F inanc i a l Append i x i n c l udes a reconc i l i a t i on o f Ad ju s ted Opera t i ng I n come , Ad ju s ted EB ITDA , Ad ju s ted EB ITDA Marg in , Ad ju s ted Net I n come , Ad ju s ted D i l u ted EPS , and F ree Cash F low t o t he most d i re c t l y comparab l e f i nanc i a l measure ca l cu l a t ed and presen ted i n acco rdance wi th GAAP . Booz A l l en presen t s the se supp lementa l per fo rmance measures because i t be l i e ve s t ha t the se measures prov ide i n ve s to r s and secu r i t i e s ana l y s t s wi th impor t an t supp lementa l i n fo rmat i on wi th wh i ch t o eva lua te Booz A l l en ’ s per fo rmance , l ong t e rm ea rn ing s po ten t i a l , or l i qu i d i t y , as app l i cab l e and t o enab l e them t o as se s s Booz A l l en ’ s per fo rmance on t he same bas i s as management . These supp lementa l per fo rmance and l i qu i d i t y measu rement s may va ry f rom and may not be comparab l e t o s im i l a r l y t i t l ed measures by othe r compan ie s i n Booz A l l en ’ s i ndus t r y . With re spec t t o our expec ta t i ons under “F i s ca l 2017 Fu l l Yea r Out look” on s l i de 7 , reconc i l i a t i on o f Ad ju s ted D i l u ted EPS gu idance t o t he c l o se s t co r re spond ing GAAP measure i s not ava i l ab l e wi thou t unreasonab le e f fo r t s on a f o rward ‐ l ook ing bas i s due t o our i n ab i l i t y t o pred i c t our s tock pr i ce , equ i t y g ran t s and d i v i dend dec l a ra t i ons dur ing t he cour se o f f i s c a l 2017 . Pro je c t i ng f u tu re s tock pr i ce , equ i t y g ran t s and d i v i dends t o be dec l a red wou ld be neces sa ry t o accu ra te l y ca l cu l a t e t he d i f f e rence be tween Ad ju s ted D i l u ted EPS and GAAP EPS as a re su l t o f t he e f f e c t s o f t he two ‐ c l a s s method and re l a t ed pos s i b l e d i l u t i on used i n t he ca l cu l a t i on o f EPS . Consequen t l y , any a t tempt t o d i s c l o se such reconc i l i a t i on wou ld imp l y a deg ree o f prec i s i on t ha t cou ld be con fu s i ng or mis l ead ing t o i n ve s to r s . We expec t t he va r i ab i l i t y o f t he above cha rges t o have an unpred i c t ab l e , and po ten t i a l l y s i gn i f i c an t , impac t on our f u tu re GAAP f i nanc i a l r e su l t s . 2
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EXECUTING AGAINST OUR STRATEGY TO DELIVER SUSTAINABLE QUALITY GROWTH ANOTHER STRONG PERFORMANCE BY BOOZ ALLEN HAMILTON • Making excellent progress against FY17 objectives: –Differentiating ourselves in the market through offerings that blend consulting and mission understanding with innovative technology –Executing against our large backlog by hiring and deploying additional talent –Operating with efficiency and agility while continuing to invest in growth • Delivering organic growth that leads the industry, is sustainable, and positions Booz Allen for stronger performance in future years • Confident about the state of our business • Continuing to aggressively pursue opportunities in Federal and Global Commercial markets • Delivering value to all stakeholders – from clients, to employees, to shareholders 3
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FINANCIAL OVERVIEW WE REMAIN ON A SOLID GROWTH PATH • Executing with discipline –Achieving the objectives of our annual plan –Executing with foresight and agility in line with our long‐term strategy • Vision 2020 strategy is producing year‐over‐year results –Revenue growth –Headcount gains –Portfolio evolution 4
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KEY FINANCIAL RESULTS FISCAL YEAR 2017 PRELIMINARY RESULTS Comparisons are to prior fiscal year period 5 Y EAR TO DAT E TH I R D QUART E R Gross Revenue $4.2 billion 6.0% Increase $1.4 billion 7.4% Increase Net Income $186.2 million 18.5% Decrease $55.6 million 48.6% Decrease Adjusted Net Income $195.1 million 5.4% Increase $56.6 million 8.4% Decrease Adjusted EBITDA $402.0 million 4.0% Increase $122.5 million 1.1% Increase Diluted EPS $1.23 18.5% Decrease $0.37 47.9% Decrease Adjusted Diluted EPS $1.30 4.8% Increase $0.38 7.3% Decrease Total Backlog $13.5 billion 12% Increase
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CAPITAL ALLOCATION RETAIN CAPITAL FLEXIBILITY TO MAXIMIZE LONG‐TERM RETURN TO SHAREHOLDERS • Our cash position continues to improve • Going forward, we expect to use a range of tools, including: –Supporting organic revenue growth with capability‐focused acquisitions that align to our growth strategy –Effectively managing debt –Returning excess cash to shareholders in the form of dividends – regular and special – and share repurchases • Quarterly dividend increased by 13% to $0.17 • Authorized to repurchase up to ~$300M of additional shares of common stock (1) (1) Previous share repurchase authorization of $180M increased by $230M to $410M. Approximately $300M Remaining. 6
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FINANCIAL OUTLOOK REVISING FULL‐YEAR GUIDANCE 1) Full Fiscal Year 2017 Estimated Weighted Average Diluted Share Count of 150 million shares; assumes an effective tax rate of 39.1% 7 F I S C A L 2 0 1 7 F U L L Y EAR OUT LOOK Revenue Growth in the Range of Four to Six Percent Diluted EPS (1): $1.65 ‐ $1.69 Adjusted Diluted EPS (1): $1.70 ‐ $1.74
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DIGITAL SOLUTIONS BUSINESS AN INTERCONNECTED SET OF HIGH‐DEMAND CAPABILITIES Including systems delivery, digital, cloud, and mobile • Building a differentiated business on three pillars –Mission understanding –Technical depth –Consultative approach • SPARC and now Aquilent provide innovation and scalability • Demonstrated growth in past two years –Headcount will reach approximately 4,000 with Aquilent acquisition –Number of digital projects has grown to 350 firm‐wide • The further we get into implementing our strategy, the more certain we are that it is the right one 8
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APPENDIX
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NON-GAAP FINANCIAL INFORMATION • "Adjusted Operating Income" represents operating income before: (i) adjustments related to the amortization of intangible assets, and (ii) transaction costs, fees, losses, and expenses, including fees associated with debt prepayments. 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 before income taxes, net interest and other expense and depreciation and amortization and before certain other items, including transaction costs, fees, losses, and expenses, including fees associated with debt prepayments. “Adjusted EBITDA Margin” is calculated as Adjusted EBITDA divided by revenue. Booz Allen prepares Adjusted EBITDA and Adjusted EBITDA Margin 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 before: (i) adjustments related to the amortization of intangible assets, (ii) transaction costs, fees, losses, and expenses, including fees associated with debt prepayments, (iii) amortization or write‐off of debt issuance costs and write‐off of original issue discount, and (iv) release of income tax reserves, 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. • "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 financial statements. • "Free Cash Flow" represents the net cash generated from operating activities less the impact of purchases of property and equipment. 10
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NON-GAAP FINANCIAL INFORMATION 11 (a) Reflects amortization of intangible assets resulting from the acquisition of our Company by The Carlyle Group. (b) Reflects debt refinancing costs incurred in connection with the refinancing transaction consummated on July 13, 2016. (c) Release of pre‐acquisition income tax reserves assumed by the Company in connection with the acquisition of our Company by The Carlyle Group. (d) Reflects tax effect of adjustments at an assumed marginal tax rate of 40%. (e) Excludes an adjustment of approximately $0.6 million and $2.0 million of net earnings for the three and nine months ended December 31, 2016, respectively, and excludes an adjustment of approximately $1.5 million and $3.0 million of net earnings for the three and nine months ended December 31, 2015, respectively, associated with the application of the two‐class method for computing diluted earnings per share. (Amounts in thousands, except share and per share data) 2016 2015 2016 2015 Adjusted Operating Income Operating Income 108,124$ 105,116$ 355,086$ 340,076$ Amortization of intangible assets (a) 1,056 1,056 3,169 3,169 Transaction expenses (b) — — 3,354 — Adjusted Operating Income 109,180$ 106,172$ 361,609$ 343,245$ EBITDA, Adjusted EBITDA & Adjusted EBITDA Margin Net income 55,590$ 108,055$ 186,237$ 228,577$ Income tax expense (benefit) 37,025 (20,146) 117,489 58,871 Interest and other, net 15,509 17,207 51,360 52,628 Depreciation and amortization 14,410 16,148 43,588 46,617 EBITDA 122,534 121,264 398,674 386,693 Transaction expenses (b) — — 3,354 — Adjusted EBITDA 122,534$ 121,264$ 402,028$ 386,693$ Revenue 1,404,638 1,307,663 4,222,213 3,981,421 Adjusted EBITDA Margin 8.7 % 9.3 % 9.5 % 9.7 % Adjusted Net Income Net income 55,590$ 108,055$ 186,237$ 228,577$ Amortization of intangible assets (a) 1,056 1,056 3,169 3,169 Transaction expenses (b) — — 3,354 — Release of income tax reserves (c) — (47,667) — (47,667) Amortization or write‐off of debt issuance costs and write‐off of original issue discount 669 1,307 8,236 3,910 Adjustments for tax effect (d) (690) (945) (5,904) (2,832) Adjusted Net Income 56,625$ 61,806$ 195,092$ 185,157$ Adjusted Diluted Earnings Per Share Weighted‐average number of diluted shares outstanding 150,607,259 149,900,925 150,143,851 149,501,458 Adjusted Net Income Per Diluted Share (e) 0.38$ 0.41$ 1.30$ 1.24$ Free Cash Flow Net cash provided by operating activities 65,959$ 92,310$ 283,042$ 180,997$ Less: Purchases of property and equipment (15,411) (16,267) (30,554) (45,829) Free Cash Flow 50,548$ 76,043$ 252,488$ 135,168$ (Unaudited) (Unaudited) Three Months Ended December 31, Nine Months Ended December 31,