Booz Allen Hamilton Holding Corp (BAH) 2013 Q1 法說會逐字稿

Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering first quarter fiscal 2013 results. At this time all lines are in a listen-only mode. Later there will be an opportunity for questions. I would now like to turn the call over to Mr. Curt Riggle.

Thank you, Shanae, and thank you all for joining us today for Booz Allen's first quarter fiscal 2013 earnings announcement. I'm Curt Riggle, Director of Investor Relations, and with me to talk about our financial results this morning is Ralph Shrader, our Chairman, Chief Executive Officer and President, and Sam Strickland, Executive Vice President and Chief Financial Officer. We hope you have had an opportunity to read the press release on our first quarter earnings that this we issued earlier this morning. We also provided presentation slides on our website and are now on slide one.

On today's call Ralph will provide you with an view overview of the business performance, recent developments and strategic positioning. Dan will discuss our financial results in detail, including income statement, balance sheet, cash flow and backlog. Ralph will talk about what the future for our business, and Sam will discuss our earnings guidance for fiscal 2013, which began on April 1, 2012.

As shown on the disclaimer on slide two, please keep in mind that some of the items we will discuss this morning will include statements that may be considered forward-looking and therefore are subject to known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. Those risks and uncertainties include, among other things, general economic conditions, the availability of government funding for our Company's services, and other factors discussed in today's earnings release and set forth under the forward-looking statements disclaimer included in the fiscal 2013 first quarter earnings release and in our SEC filings. We caution you not to place undue reliance on any forward-looking statement that we may make today, and remind you that we assume no only obligation to update or revise the information discussed in this call.

During today's call we will also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our fiscal 2013 first quarter slides.

It is now my pleasure to turn over to our CEO, Ralph Shrader, and he will start on slide three.

Thank you Curt. And good morning and thank you all for joining us today. Here today on the conference table in front of me is a crystal ball. I used it in a speech I gave some 12 years ago at the height of the dot-com boom, which was entitled "No Crystal Ball Decision Making in E-Time."With the so called fiscal cliff looming for our nation and the questions that Sam, Curt and I keep getting about whether sequestration is going to happen I thought it would be useful to have it on hand to consult for this morning's Q&A session. But all kidding aside, I'm not going to try to predict the course of political or economic events, and that's thekey reason or top line guidance does not extend beyond September 30 at this point.

What I can tell you is this; Booz Allen is not going to sit on the sidelines and watch and wait for things to sort out. We are determined to be out in front and to shape ourdestiny. That means in our operating business every Booz Allen leader and employee is committed to impress our clients, win work over our competitors, and make sure our firm remains the best company to work for. Our Board and finance team is committed to ensure that we have a capital structure that is optimized for today's environment, one that creates value for our stockholders.

Despite the challenging macroenvironment, we continued to grow earnings this quarter, demonstrating our commitment and ability to manage our cost base and continue to improve our margins. Here are the headlines.

First quarter revenue was $1.43 billion, down slightly from 1.5 -- $1.45 billion in the prior year period. Net income for the quarter increased to $61.9 million from $51.1 million in the prior year. Adjusted EBITDA increased 10.4% to $135.6 million. And adjusted diluted earnings per share increased by 12.2% to $0.46 per share.

Total backlog ended the quarter at $10.23 billion as of June 30, 2012, which was a decrease in total backlog from the prior year's $11.21 billion. We are very pleased with the growth in funded backlog, which grew to $2.58 billion compared to $2.45 million as of June 30, 2011.

Today we are announcing that our Board of Directors has declared our third regular quarterly cash dividend in the amount of $0.09 per share, and Board approved terms to refinance the Company's debt and declared a special cash dividend of $6.50 per share. We believe the special dividend declared by our Board returns values to our stockholders and is a prudent use of capital at this time when the debt market is very favorable -- historically cheap, in fact -- and we believe the stock market has quite frankly been undervaluing our stock.

After completing this transaction, we will still have sufficient cash on hand and availability under our credit facilities to weather business uncertainties and to pursue an opportunistic acquisition strategy if this period of potential industry consolidation. Booz Allen is committed to running a successful and exemplary business in which we are the consultant of choice to our clients, the employer of choice for the best people, a good corporate citizen, and a good investment for those of you who invest in our equity or debt.

Evidence of our success in winning and performing important work can be found in some of the major contract awards and task orders we have recently won. A $12 million award from the Federal Highway Administration for technical support and assistance in deploying new innovations in transportation systems. A series of major awards for $300 million for support to the United States Navy Space and Naval Systems Command [for] systems [center] Pacific and Atlantic in areas such as cyber, intelligence systems, infrastructure protection and C4I.

An ID/IQ contract with a ceiling of $20 billion from the National Institute of Health for services and solutions for the Chief Information Office. A $73 million contract from the Department of Energy for scientific engineering and technical support to DOE's Advanced Research Projects Agency for Energy. And a number of new engagements with commercial financial institutions and healthcare providers.

These are just a few of the important new and recompeted contracts we won in the past quarter. The demand for our services and the satisfaction of our clients remains very high, and every day we are seeing an impressive number of new opportunities coming in the door in the form of task orders and requests for proposals.

Summer is high season. It is our selling season, and we have take and number of steps to ensure that our senior managers and contract staff have the time and support to write impactful and winning proposals. In that regard we have deferred until after October various administrative responsibilities related to internal projects and reports, performance assessments and training, so our people aren't distracted or burdened by things that can wait, because our client deliverables and proposals can't wait.

Recognizing and rewarding our people and giving back to our communities is always in season. While incentive compensation was lower this last year, in line with the lower growth rate, all of our eligible senior management received a bonus payment in June, and staff below that level received performance recognition awards totaling $8.5 million in the past year.

Both at work and at play our Booz Allen teams have opportunities to connect. Our employee base the softball, biking, running, soccer and rowing teams are in high gear, and families in the Middle Atlantic area are looking forward to Booz Allen Day at King's Dominion in September.

Our community involvement is also in high season, as we organize teams across the country to support the International Coastal Cleanup for which we are focused on expanding last year's 400 person, 23 location effort. Our people are donating supplies and packing back to school back packs for children in need and helping the next generation of students involved in science, technology, engineering and math -- the STEM disciplines -- at the Naval Academe's Cyber Camp.

An innovative program to bring together our people development and community service goals, Booz Allen senior associates undertook pro bono projects for nine major charities, including the National Trust for Historic Preservation, the Pentagon Memorial Fund, Catholic Charities, and Homes for Troops. These projects delivered valuable a strategic planning, information technology, and board development strategies to the nonprofit organizations while building the leadership skills of our next generation stars.

Above all, superbly serving our clients -- helping government agencies, commercial companies and international organizations succeed -- is the highest calling at Booz Allen. At many of our clients are challenged by today's economic and political conditions inspires us to work even harder on their behalf.

I will talk more about the future, specifically about how I believe Booz Allen will rise above the competition, after Sam provides a more detailed discussion of our financial performance.

Good morning, and thank you for joining us. Ralph talked about Booz Allen's absolute focus on helping clients succeed and how we are managing our business to ensure success for clients, our people, our community, and our investors. We are proud that in these challenging market conditions we have continued to deliver on our promised earnings growth and continued to deliver value to our stockholders.

As Curt mentioned in his opening summary, in addition to GAAP results, Booz Allen also reports certain non-GAAP measures such as adjusted operating income, adjusted net income, adjusted EBITDA, adjusted diluted earnings per share, and free cash flow. We believe these metrics provide better insight into our operational results because they remove the effects of nonrecurring or unusual items.

Now, let's turn to slide four for a closer look at our first quarter and fiscal 2013, in which we saw a slight decrease of 1% in our top line revenue over the prior year period. The modest decrease in revenue was primarily the result of a decrease in revenue attributable to billable expenses, which negatively impacted revenue by 1%. And a lower rate of indirect expenses under cost reimbursable contracts, which also negatively impacted revenue by 1%.

The negative impact on revenue attributable to these two factors was partially offset by continued modest growth in consulting staff direct labor. The lower rate of indirect expenses is primarily attributable to the cost reduction actions the Company implemented in early 2012. It is important to note this last point, that our consulting hours rose modestly during the first quarter, which is a good thing, just not enough offset these reductions. It is also important to point out our continued improvement in other measures below the top line, despite very challenging conditions in the government sector.

In the first quarter of fiscal 2013 operating income increased to $114.7 million from $98.1 million in the prior year period. And adjusted operating income increased to $120.3 million from $109.1 million in the prior year period. The improvement in adjusted operating income was primarily driven by more effective deployment of staff.

More broadly, we have continued our laser like focus on cost management, including a slower deployment of internal investment dollars in the first quarter. The management of our indirect expenditures relative to top line revenues, including the cost savings that resulted from our restructuring discussed in our February call, all contributed to the reduction in indirect costs mentioned in our earnings release. The slower spending on indirect costs is beneficial and is part of our management strategy to maintain flexibility within our operations and avoid cost overruns that could negatively impact our bottom line.

In the first quarter of fiscal 2013 net income increased to $61.9 million from $51.1 million the prior year period, and adjusted net income increased to $66 million from $58 million in the prior year period. Adjusted EBITDA increased 10.4% to $135.6 million in the first quarter of 2013 compared with $122.9 million in the prior year period.

In the first quarter of fiscal 2013 diluted earnings per share increased to $0.43 per share from $0.37 per share in the prior year period, while adjusted diluted earnings per share increased to $0.46 per share compared to $0.41 per share in the prior year period.

Now on to cash. We continue to build a strong cash position in the first quarter, and I will talk about our use of cash in just a moment. But first let's would through the basic numbers. Our days sales outstanding were 69 days for the quarter ended June 30, 2012. Net cash provided by operating activities in the first quarter of fiscal 2013 was $74 million, compared to $53.8 million in the prior year period.

Free cash flow was $70.1 million in the first quarter, compared to $36.2 million in the prior year period. Free cash flow in the quarter benefited from an increase in cash from operations and a decrease in capital spending in the period, which is primarily related to the reduced capital outlays associated with the lease [hold] improvements that we completed last winter.

As we have discussed on several previous earnings previous earning calls, we continually evaluate all options for the use of our cash, and we have been fortunate that our excellent cash position, credit worthiness and current low interest rates have given us opportunities and great flexibility to operate our business well and create value for our stockholders. In December 2011 Booz Allen's Board of Directors approved a share repurchase program. At this point in time we have not exercised the option to repurchase any shares.

As Ralph indicated in his remarks, and as detailed in our press release, Booz Allen's Board of Directors authorized and declared a cash dividend in the amount of $0.09 per share, the third regular quarterly dividend issued by the Company. Additionally the Board declared a special cash dividend of $6.50 per share.

Turning to slide five. The special dividend is the result of the refinancing transaction that included establishment of a new credit facility with $1.75 billion in senior secured debt, which was used to finance $964.9 million of current debt and pay fees and expenses associated with the transaction. The remaining funds plus $254.4 million of cash on hand will be used to fund the special dividend. The new senior secured credit facilities also include a revolving credit facility of $500 million.

Both the quarterly dividend and the special dividend are payable on August 31, 2012, to shareholders of record at the close of business on August 13, 2012, for the special dividend and August 14, 2012, for the quarterly dividend. The timing of the special dividend is primarily related to the fact that we are in an extremely favorable credit environment with interest rates at his historic lows. This, in addition to possible tax rate changes, made this a compelling time to return cash to our shareholders. We believe the ongoing generation of earnings, combined with a reduced weighted average cost of capital, will create value for shareholders into the future.

As we take this action our business remains financially strong. We continue to generate substantial cash, and we have the cash on hand and borrowing power to make the investments we need to run the business, including possible acquisitions. In that regard, we are seeing the consolidation in the market that we had anticipated. As we have said in the past, we are open to evaluating potential opportunities and we continue to be so inclined. Our focus would be on companies that are a cultural fit and bring us additional client access and/or enhance our capabilities. Our just announced dividend payment and refinancing leaves us the ability to pursue inorganic growth options, ideally in the $100 million to $200 million range.

And finally, on the basic numbers let's finish up with backlog. Our total backlog at the end of the first quarter was a strong $10.23 billion. While this was down from the prior year, which is a reflex of general caution in the government procurement markets by our clients, our funded backlog went up, and that is a good sign. Funded backlog as of June 30, 2012, was $2.58 billion compared to $2.45 billion as of the year-ago period.

I would like to turn back be to Ralph, who will talk briefly about Booz Allen's strategic positioning and differentiation. And then I will finish the formal part of our presentation with guidance for fiscal 2013. We are now on slide six.

Thank you, Sam. Well, the table here in the conference room this morning is certainly crowded. In addition to the usual financial exhibits and earnings notes, there is the crystal ball I mentioned earlier to help with your questions about politics and the economy. And we also have a gyroscope sitting here. Just last month I spoke at Northern Virginia Technology Council's Titans of Technology event. My theme was leading from the center, andI used a gyroscope to illustrate what I meant by leading from the center.

As external conditions pitch and swing, the center of a gyroscope remains balanced and in control. I describe Booz Allen's gyroscope, built around the precepts of client service, core mission, core values and culture, and how this has enabled our firm to stay strong and centered despite dramatic changes in the external market. And internally as well, as we change our ownership structure and spun off a historical part of our business, took the firm public, and faced the current market down tun. I have had the privilege to lead Booz Allen for 13 years, through the dot-com boom and bust, through global recession at the beginning of the 21st century, and rise of threats from terrorism and cyber attacks.

The future will be different, but it will be no less dramatic, and Booz Allen is prepared for are it. No one knows what will happen in the United States, Europe, Asia or the Middle East, this year or the year after. But Booz Allen is ready for what is next.

We are investing resources and deploying leaders to business areas that are growing and we believe we will continue to grow, in government, commercial and international, such as health, finance and intelligence, surveillance, reconnaissance. We are building capabilities and advancing thinking in areas such as cyber, cloud based services, engineering services, and enterprise effectiveness and efficiency. A lot of companies in our industry are targeting some of these areas too. You don't need a crystal ball to so see where the demand is. But here is where Booz Allen is different.

It's our focus on helping clients with their most important missions, and our passion for their success. Like the gyroscope, our minds are always spinning, our talented people are always seeking the next breakthrough idea and the best solution, working harder and thinking smarter. Always we are focused and centered on how you to use technology and apply new ideas in the most effective and strategic way. That strong center, which enables us to move forward with precision and stability, will continue to serve us well, and serve our clients, our people, communities and investors well.

I would like to turn back to Sam to talk about our forecast, and then we look forward to taking your questions.

Thank you, Ralph. We are now on slide seven.

As we said, I don't know that our industry has faced a more difficult and unpredictable period since the peace dividend era in the early 1990s. We have taken steps to ensure that Booz Allen has the flexibility and financial resources to perform well, no matter what comes of the election, the debate over sequestration, and tax rates. But the important point here is that we don't know, nor does any one else know, how and when those issues will be resolved, even with Ralph's crystal ball. And so for that reason we are being cautious in our updated guidance for fiscal 2013.

At the bottom line, for the full year we are forecasting diluted earnings per share to be in the range of $1.40 to $1.50 per share, and adjusted diluted earnings per share on the order of $1.60 to $1.70 per share. Now, by way of explanation, we are adjusting our full year diluted earnings per share forecast downward by $0.11 from our prior guidance to reflect the new interest expense from the new credit facility.

For GAAP diluted earnings per share adjusting our full year outlook by $0.11 for the additional interest expense, by $0.05 for the write-off of original issue discount and debt issue costs on extinguished debt, and by $0.06 attributable to the requirement under GAAP to use the two class method of allocating earnings for the purpose of calculating earnings per share. The reason we need to use the two class method of allocating earnings is because of provisions in our annual incentive plan that was adopted in October of 2010 stipulating that we will distribute nonforfeitable dividends to unvested shares.

We are providing top line guidance for only the first half of our fiscal year, which we expect to have revenue growth that is flat to down low single digits. We would like to offer something more than that and extending further in the year, but given the significance of the unknown it would compromise our credibility, and we aren't willing to do that.

As I said before, our overall EPS outlook reflects our confidence in our ability to manage our business with agility and precision, as illustrated by the cost restructuring actions taken in the fourth quarter of fiscal 2012, which we believe will continue to translate into improvements in operating margins. These EPS estimates are based on fiscal 2013 estimated average diluted shares outstanding of approximately 144 million shares.

Thank you, Sam and Ralph, and thank you all for listening to our summary of results and outlook. Our Chief Operating Officer Horacio Rozanski, and Senior Vice President and Controller, Kevin Cook, are here with Ralph and Sam to answer your questions as well. Shanae, can you please provide instructions for those on the call.

(Operator Instructions). Your first question comes from the line of Carter Copeland with Barclays. Please proceed.

Good morning, guys.

Good morning.

Just a quick clarification, Sam. I'm not sure I understand the math here. You talked about the top line impact from a decrease in billable expenses on cost reimbursable contracts, but by my math the cost plus revenues would have been up 3% year-over-year. Can you help me explain how those two go together?

The -- well, let me back up and say that if you take a look at our revenue, billable expenses -- and that is across both cost plus and time and materials contracts, because T&M contracts you get reimbursed your actual costs there. Billable expenses, as you will see on the income statement, are actually down 1%. And, Carter, you remember from when we were going public, we have always had a hard time forecasting our billable expenses that precisely, so coming within 1%. So that 1% drop in billable expenses translates directly into a 1% drop in our gross revenue.

Now, in addition to that, because we are exercising better control over indirect costs this year than we did at this time last year, we also had a 1% drop in our revenue from our cost-plus contracts. And that is because the requirement that we have to recognize revenue in our cost-plus contracts based on our actual indirect rates as opposed to our -- what is called our provisional billing rates. So we are actually running slightly below our cost targets for the year in the first quarter, and as we mentioned that is intentional to make sure that we have the flexibility as we get into the back half of the year. But that cast control did reduce our revenue on our cost-plus contracts, and that revenue, when measured at the total top line, it reduced gross revenue by another 1%.

I will also point out that this time last year we had -- for the first quarter last year we also had our state and local transportation business, which we sold in July of last year. That actually accounted for are another 1% decrease in gross revenue. So there has been a couple of things we overcome there to keep it at a minus 1% growth.

That's very, very helpful, thank you for that. And as a follow-up, in the prior quarters you have talked about -- just in very general terms about all of your -- the growth profile in all of our major markets. It would sound like ex the state and local transportation -- or ex the transportation business, you would have been flat. How did that compare across the various market segments?

I think we were -- in general we were up modestly -- obviously they balanced out, but I think we still had growth in virtually in all three markets.

So -- okay, I think I understand what you are saying. Lastly, just -- I didn't catch it as you were said it the first time. The impact of the two class method of calculation, what was that on the full year EPS?

$0.05 -- I'm sorry, 0.06.

$0.06.

Yes.

Okay, great. Thank --

The two class method of allocating earnings is a particularly esoteric and some might say bizarre approach, but that is Generally Accepted Accounting Principles for you.

The next question comes from the line of George Price with BB&T Capital Markets. Please proceed.

Hi, thanks very much for taking my questions. First thing I wanted to just kind of clarify, you mentioned continuing to see modest growth in consulting staff labor hours, but you have consulting staff head count down year-over-year for the past couple of quarters. I assume this mainly reflects higher utilization. Can you kind of discuss that maybe a bit more and address any other factors that are missing?

Well, it reflects higher utilization, as we have said -- or higher billability to pick your term. I think as we mentioned that our operating margin improvement was is directly related to our improved deployment of staff. If you go back in each of the last couple of years -- again, as you know, we are going into -- I think Ralph mentioned this -- into the selling season. Of course, selling season takes folks away from client work. So past years we would start ramping up our staff in the spring in order to be able to both deliver on the direct labor line and do the marketing and selling that was necessary in the September quarter. That then would lead to new work that would start October 1.

This year we have taken a much more cautious approach, given the uncertainties of the back half, so we did not ramp staff up as we have in past few years. As a result of having fewer excess staff, of course, the staff you have on hand, that utilization and billability goes up. So it was is a conscious management decision as we try and position ourselves to get ready for what is next. We feel like we have the ability to add staff quickly if the revenue materializes as we hope, but by the same token, given the profile we have now, we feel like that gives us maximum flexibility as we go into the second half.

Okay. And then just to kind of follow up, segue into my next question, which is you mentioned that you deferred until October various internal projects and training to focus on the selling and proposal season that you just discussed. I guess, net-net does that represent any incremental costs reduction efforts on your part, or is it a basically kind of a one for one tradeoff there? And related to that, can you give some more color -- I guess it is somewhat obvious, but maybe if you can give some more color on what really makes the current selling and demand environment warrant that kind of move, maybe versus prior years?

Well, go back to my earlier comments, again, we did not ramp up staff as quickly this year as we have in the past couple of years. So when you have fewer available staff, you have to then prioritize what those staff are doing. And we are prioritizing those staff efforts around client delivery and what we call our tactical selling program, making sure that we get the proposals in, the marketing done so that we can capture new revenue as before the September 30 deadline --basically the end of the client's fiscal year.

So the answer to your question, what we would hope is that rather than doing assessments, our staff are doing the marketing. Again, in the past when we may have had more staff capacity, we could of course do both. This year we are prioritizing very, very carefully, and we are telling our staff, okay, these are the things we want you to focus on; tactical selling, client delivery. So we are taking the other stuff and setting it aside until we get better insight into the fiscal year.

Okay. Thank you.

Your next question comes from the line of Edward Caso with Wells Fargo Securities. Please proceed.

Hi, good morning. Can you talk a little bit about your G&A pace. Obviously it is down very nicely, both year-over-year and more so sequentially. Is this a new run rate level based on your rips earlier in the year and your sale of your state and local business a year ago? Or is there something unique in this quarter? Trying to get a feel for the run rate, either on a percentage basis or a dollar basis.

Again, on a quarterly basis -- there is a cyclicality on a quarterly basis. The answer to your question though, as we look at it for the year, we would expect it to be down. On a quarterly basis you would expect it to be up slightly in the second quarter. Again, you are in the tactical selling, marketing, bid, proposal season. So -- and then it -- that would continue on. It would be up slightly in the third quarter and generally be down in the fourth quarter. But a lot of it depends on how the year shapes up.

So what we -- we do not manage the business on a quarterly basis. We manage it on an annual basis, but we to try and make certain that we don't dig ourselves a hole in the first couple of quarters. So just to summarize that, yes, it is certainly down for the first quarter. We would expect a slight increase in the second quarter compared to the first quarter, butit should be down compared to last year's second quarter. And then overall for the year it should be down slightly as well because of the cost actions we have taken.

Great. My other question is around interest expense and hedging. Could you just help us out here a little bit on a run rate basis -- call it the December quarter -- what your interest expense number will be, including all of your debt amortization costs. And then I assume at this point in time all -- everything is floating and that there is no hedges against it? And I was curious that if you hedged out this to a fixed rate, how much more -- how much higher the interest rate would be?

Let me take the second question first. Our debt has been floating since we have had it basically, and the hedge market is something that we keep a very close eye on,to the point that essentially we are taking a look weekly to see what we should be doing there. And certainly as we look at the hedge rates, there doesn't appear to be any indication within the markets that you going to see a pop in interest rates, let's call it, in the near term. So we have not hedged it at this point. We will continue to evaluate that, and I think the last time I looked, the cost for hedging five years, which would certainly be ample for us, was well less than 1%. I'm looking at Kevin Cook, our Controller.

And we would also not hedge the full amount of the debt, given the amortization schedule and our paying off the principle over time.

So, George, to answer your question, we will do what is prudent, but as we look right now it -- we'll keep an eye on it, we'll make a good business decision, but we haven't done anything yet.

And the interest expense on a run rate basis would be approximately what?

Well, I have not quarterized it at this point. I think we had something on the order -- well, as I said, it is $0.11 a share for the year, so you know you can spread that over the last seven months of the year.

Thank you.

Your next question comes from the line of Brian Gesuale with Raymond James. Please proceed.

Good morning, guys. Wanted to talk a little bit about head count plans. Your total head count is down 6% year-over-year. Your consultant head count down 2% or 3%. Talk maybe about what your hiring plans are as visibility improves, what turnover has been, and maybe anything in relationship to open recs or anything that we can look at in terms of overall head count plans over the next year or two?

Brian, hi, it's Horacio. I will give Sam a little bit of a break andtake this one.

The -- in general we have moved to a much more just in time recruiting environment, so we are not thinking of hiring plans over the next six months or a year or two years, but rather responding to the market as we see it. I think as Sam pointed out, over the last six to eight months we have focused has been trying to get capacity and demand very, very tight and very close together. And we feel like now we are where we want to be in that regard, and so as we see demand evolve, we can move very rapidly to capacity if it is warranted. At our height of recruiting we can hire around 200 people a week. So we are not sitting here worried that we are going to be caught with a lot of demand that we cannot fill.

We are most interested in creating a level of stability for ourselves, for our workforce, for you. And so we are in a good place. Billability is where we need it to be, and we will continue to watch it and evolve it, and if we see the need and the opportunity we will go fast. There is some parts of our market, as you can imagine, that are very turbulent. There are other parts of our market that are growing very well, and those places we are hiring very aggressively. Ralph talked about some of the areas where we are seeing growth and opportunity in cyber and ISR, cloud, engineering services, and in those area we are hiring pretty aggressively. And in other areas where we are not seeing the demand, we are essentially allowing the combination of just natural attrition and then the business cycle to trim us back.

Great, that is very helpful. And maybe a follow-up. Sam, I think you mentioned some opportunities for inorganic growth. Wondering if you could just elaborate on that, and maybe provide a little color in terms of areas that you might explore?

The -- I think we have mentioned -- first, as you know, we have not made an acquisition, so we have not been inquisitive focusing instead on organic growth. That said, there is a consolidation that seems to be going on in the industry, and we felt like it would make good sense for us to keep an eye on what was going on, to take a look at those companies that would fit well with us culturally, and that would position us well as when we come out of these markets.

Markets have up periods and down periods, and what we are trying to do now is make sure we are well positioned to get through the current environment, and also well positioned to grow significantly once the market improves. So in that sense we are looking at acquisitions in our growth areas, has Horacio just mentioned, in terms of the areas where we are currently investing to see if there is something available that might provide us with better client access or provide us with better capabilities or enhance the capabilities or additional capabilities or both. So those are the areas that we are taking a look at.

Okay. Terrific. Thanks so much for taking my questions.

Your next question comes from the line of Bill Loomis with Stifel Nicolaus. Please proceed.

Hi, thank you. Good morning. Just on the interest expense again, Sam, maybe if you could give us a weighted average on all the new debt, including any estimated fees and amortization that is included in that interest rate.

Bill, I have in my head the $0.11 per share. I think the weighted average rate is going to be some where in the 5% range. Kevin is that -- I'm looking at Kevin. I haven't sat down and modeled that out.

Bill, there is - we have a $725 million term loan A at LIBOR plus 2.75. It'll probably -- if you look at one month LIBOR, it is roughly 0.25, so you can assume at least3% on that at least currently. And on the other term loan B it is a $1.25 billion, and it's 1% floor plus 350 basis points, so 4.5%. And there is some -- I think Curt has slide on the sources and uses -- that is slide five -- that talks about some of the other terms. We did have 1% OID on the term loan B.

Okay. And then you talked about slower deployment of investment dollars in the first quarter. What were you referring to there when you say investment dollars, because obviously you are not talking about B&P, right?

No, B&P, clearly you spend whatever you do on B&P. I think what we are talking about there is just a focus on billable work and pushing off a bit some of the indirect capability building that we might do at this point in time. So that is really what we are talking about.

We take our indirect pools, our indirect -- I call it capacity, and we will allocate that between bid and proposal, between marketing and between what we call strategic investment, which is capability building, strategy market [thrust]. So what we are saying there is we are being very cautious there ahead of a time when we do know what is going to happen in the second half and in fiscal 2014.

So we are not talking about major cutbacks here. We are talking about just being more prudent than we -- more cautious than we were, say, in the last couple of years in the first quarter.

Okay. And just quickly on the 830 roughly of new you awards in the quarter, just if you could confirm that was the awards -- howmuch of that was new versus recompete?

I do not have that. I don't know that we he have disclosed that in the past. That is not a number that -- but there is -- I don't believe it as significantly different trend, Bill, if that is your question.

Thank you.

Your next question comes from the line of Michael Lewis with Lazard Capital. Please proceed.

Good morning. Thank you, everyone. Ralph, I was wondering -- you will have to pull ought your crystal ball for this, but whereare you seeing the most pronounced slowdowns or delays across the operation? Are you seeing them -- are you seeing more are risk in the intel side, defense, that federal civilian side of the business?

Well, I mean, first of all, I think that it is fair to say that the entire government spectrum of contracting right now is impacted by the uncertainty. When we are looking at the market, we can see individual transactions, but we don't see trends per se in terms of business. What we are seeing in the way of trends is that virtually all of our clients are asking us to hold back. They are saying things like let's not spend on that just yet. Let's wait and see what happens and everything else. So this caution is what is there.

But if you were to look at the various segments itself, I think the trendline year-over-year that we have already seen says the intel stuff is actually going very strong, and a lot of our challenge in intel is more on the side of finding qualified people to do all of the stuff that needs to be done. I think our DOD business is hanging in there nicely andappears to be -- again, I would say holding its own. We have seen a decline in the civil sector, where the programs there seem to be slowing down, the pace seems to be slowing down. And I think characterization would be maybe intel a bit up, DOD pretty much the same, and civil a little bit down.

That's very helpful. And then, Sam, if I may, what is the current level of our bids submitted pending approval?

I would say that is not a number that we disclose. It is a number that we track, but I will have to tell you that it is not a number we have an awful lot of confidence in simply because it is truly just an estimate. So we feel like we have ample both bids submitted and bids in the pipeline to meet our future growth commitments. But we said, gosh, trying to make that number truly meaningful is pretty hard.

Because clients put out -- as you know, on an ID/IQ they will put out a ceiling, and the ceiling sounds like a big number, but then question is how do you get underneath that? So it is just not a number that we ever felt like we had as much confidence in that we could actually make it a publicly available number. So I -- we felt like by building the reputation for putting our numbers out and meeting our numbers, that was probably going to be the best thing we could do over the long-term.

That's fair. Thank you, sir.

The next question comes from the line of Glenn Fodor with Morgan Stanley. Please proceed.

Good morning, guys. It is Matt Lipton in for Glenn here. My question is on the selling season here. You'vementioned multiple times that we are in the middle of summer and this is the big time for you guys. Given the kind of hold-back that Ralph just mentioned, are we still going to expect to see funded backlog ramp like it has historically over the next two quarters?

We believe so.

That is where the crystal ball comes in.

Right, that is where the crystal ball comes in. So as you know, the government fiscal year ends September 30, and I think the government is structured so that it deploys all of its money by September 30. While we certainly see caution in our clients, we do believe that trend will continue. So we are expecting a ramp up in our are backlog as of September 30 at this point in time.

Let's look at it, though, from the point of view of what it is that we are doing as a business, and that is that in years past we not only were out there with the active selling we are doing this year, just like we are doing this year, but we actually are hiring ahead of demand. And this year what we are saying is we are not hiring ahead of that demand, so while we have the expectation that we will still be able to do all of the good things we done in the past, we are being conservative in terms of when we actually do the hiring, which is being reflected in the fact that our utilization of billability is higher now, and we are not exactly in that mode of bringing in people until we have actually got the work in the door.

So there is optimism here, but there's also conservatism behind it that says that we will wait until we see some of these things materialize before we act on them.

Great. Thank you. Just a follow-up -- I will be the first one to ask the special dividend. Just curious if you could give us more color on how those discussions went, what was the discussion to pay the dividend today as opposed to kind of preserving access to that capital for future growth?

Well, we have been talking both with the investment community and with our Board over the last several quarters about what to do with our cap, our cash generation capability, and our debt structure. And as we took a look, we had a significant amount of excess cash available. We felt like particularly in a lower growth environment we would continue -- as you know, low growth actually generates more cash than high growth, because you don't have a growing demand for working capital.

So with that scenario, we felt like it made sense given the historically cheap debt, that we give money back to the shareholders. So we went through that. We have discussed that for a few quarters now and felt like the time was right, and it felt like the time was right from our business outlook perspective, the time was right from an investment community perspective, and the time was right from a debt availability, debt supply standpoint.

Now, I have to tell you, because we took a look and we felt like frankly the investment community has not rewarded our shareholders as much as we think appropriate given our actual performance. If you look at our revenue metrics and our net income metrics since we went public, they are up substantially from the year before we went public, and yet before we announced the intention -- before the announcement we were exploring the dividend, the stock price is actually down. So we just felt like when we put all of the factors together, it made sense to do it at this time.

I will say that it is an expression of confidence on behalf of management and the Board that while a lot of folks are concerned about the environment we are going into, we feel like we have the ability to manage through this and meet our bottom line commitments. And we will do that by managing our costs consistent with our revenue profile. And look, we are not -- we don't expect the bottom to fall out of the industry.

I -- even this morning, I guess, I was gladdened but not surprised to see that the legislature and the executive branch got together and said, gee, let's have this continuing resolution for six months just to cut out any shenanigans, and that certainly will add stability to the fiscal policy which would help our clients. We, of course, would love to have seen a five year solution, but I'm sure that is not practical in today's environment.

So this is a big market. We are big player in the market. We have got an outstanding brand. We have a very diversified business. It is not going to be the 20% growth years, but we are feeling pretty comfortable.

Great. Thank you.

Your next question comes from the line of Tim McHugh with William Blair & Company. Please proceed.

Yes, thanks. Most questions of mine have been asked, but one question is can you give us your thoughts -- you talked a quarter or two about kind of saving some of the cost savings from recent initiatives and having that in your back pocket, if you will, in case revenue comes in lower than expected. And then you said -- you explained why, because of some of the pass-through costs and lower indirect costs revenue is -- at least in the first half is a little lower. Do you still have as much in your back pocket, if you will, or should we think of a lower amount? I'm just trying to get an understanding of how much, I guess, cushion is still -- that you have available?

What I can say is that if you look at our bottom line guidance the only change from the last guidance, and I guess that we put out in connection with our annual earnings release for fiscal 2012 that ended March 31, the only change in that guidance is related to the debt refinancing. And the debt refinancing and the dividend. I guess the dividend is what created the two class method of ail electoral allocating earnings for purposes of calculating earnings per share. That is the phrase I have been practicing in case you haven't notice. I'm sorry, I didn't mean to be flip.

But what I'm saying is that we -- look, our bottom line outlook has not changed, but for the debt restructuring and the dividend. So operationally we are pretty much where we felt we were going to be. Clearly, the lower indirect expense rates that we are experiencing in the first quarter is an indication that we are holding back until we see how the rest of the year develops. So I would say that our cushion is neither greater nor smaller. It is where we thought we were going to be.

Okay. Thank you.

Sure.

Your next question comes from the line of George Price with BB&T Capital market. Please proceed.

Hi. I just had a couple of follow a couple of follow-ups. Thanks for letting me hop on. The first thing is I know you are not giving guidance for the second half of fiscal 2013. I was just wondering if the plan was to give guidance for the second half when you report the next quarter, or are possibly would you consider making updates before that time? Under what circumstances?

Well, as I look over, Ralph's crystal ball looks a little cloudy on that subject, George. As a practical matter I think we just have to see what would develop. You would assume that we would be announcing second quarter sometime in the -- I guess, late October, early November time frame, and we will see what is going on at that point in time.

We will give guidance for the first half at that point.

That's right.

Okay. And then just on pricing, if you would maybe comment a little more on what you are seeing on the pricing side, and maybe as you talked about growth in the different area of business, maybe you can talk about pricing in the different areas. We are kind of price -- are what kind of pricing are you seeing in order to keep existing business, in order to win away new business? How is the market evolved on that side? Thank you.

I will try to take that. This is Horacio. We are -- there is increased pricing pressure across the environment. I think we seen that for the last couple of years there is a move to low price, technically acceptable work in a lot of our contracts. Some of that is I think in some ways a reaction from the government to the extreme amount of protesting that we are seeing. So I think some of it is frankly industry driven.

At the end of the day that has forced us to get a lot smarter about how we deploy our talent and manage our people and our staffing through the cycle of the contract. It used to be that you could win a contract, put staff in place in year one, and then just let that go on auto pilot until the expiration of the contract, and then deal with it at that point. We have now a very robust resource management capability that allows us to introduce talent and move our talent around, make it more efficient and also make sure that the pricing as we go in to recompetes is what it needs to be to match the client's requirements.

So we are clearly seeing pressure. We are seeing our sales evolve and get much more sophisticated in the way we price and deliver value to the client, and I think that sort of is it. The reality -- we believe that in the areas of core mission, where we are growing, where we are focusing, where we are driving the business, are the areas where quality and value are going to dominate. The kind of low price discussion in the area that are more peripheral, where the services are less valuable and less important, are the areas where the government is going to exercise much more, call it, pricing diligence. And so that is both the reason and the driver for our strategy.

Okay, great. Thanks again for taking my questions.

That is all the time we have for questions. I would like to turn the call over to Dr. Ralph Shrader for closing remarks.

Thank you very much, and thank all of you for joining us here this morning. I would just like to close by reinforcing that while we clearly can't predict the course of political economic events, Booz Allen is just not going to sit on the sideline and watch and wait for things to sort out. We are very much determined to be out in front and to shape our own destiny.

That means in our operating business every Booz Allen leader and employee is committed to impress our clients, to win work over our competitors, and make sure our firm remains the absolute best company to work for. Our Board and finance team is committed to ensure that we have the best capital structure for today's environment, and that we return value to our stock holders. We are confident we will accelerate out with the strength and resilience that comes from being a leader for over 98 years.

So with that, I thank all of your this morning for your time and participation and look forward to getting together again in the future. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.