Booz Allen Hamilton Holding Corp (BAH) 2018 Q1 法說會逐字稿

Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering the first quarter results for fiscal 2018. (Operator Instructions) I'd now like to turn the call over to Mr. Curt Riggle.

Thank you. Good morning, and thank you for joining us for Booz Allen's First Quarter Fiscal 2018 Earnings Announcement. We hope you've had the opportunity to read the press release that we issued earlier this morning. We have also provided presentation slides on our website and are now on Slide 1.

I'm Curt Riggle, Vice President, Investor Relations. And with me to talk about our business and financial results are Horacio Rozanski, our President and Chief Executive Officer; and Lloyd Howell, Executive Vice President and Chief Financial Officer.

As shown on the disclaimer on Slide 2, please keep in mind that some of the items that 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 to differ in future periods materially from our 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 our first quarter fiscal 2018 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 obligation to update or revise the information discussed on this call.

During today's call, we will also use some non-GAAP measures and other metrics, which we believe provide useful information for investors. We include explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our first quarter fiscal 2018 slides.

It's now my pleasure to turn the call over to our CEO, Horacio Rozanski.

Thank you, Mr. Riggle. And good morning, everyone. Thanks for joining us. Today, Lloyd and I will take you through our first quarter results and as always, put them in the context of our expectations for the full year. We are seeing, shaping and capturing a lot of opportunity in the market and are very pleased to report another quarter of solid performance by the people of Booz Allen.

Our financial success reflects continued focus on 3 imperatives: creating and maintaining enduring partnerships with clients; managing operations with discipline and foresight; and driving sustainable quality growth by investing in innovation and advanced capabilities, combining them with our consulting and mission expertise and scaling them across our client base.

As we highlighted at Investor Day, our fundamental strength is grounded in several key differentiators, first and foremost, our culture and our people, but also our capacity for reinvention, our sales channels, agility and integration. Each of those dimensions contributes in important ways to meeting the client business and strategic imperatives I just mentioned. Together, they help us prevail in a competitive marketplace and therefore, lead our industry in organic revenue growth.

We intend to maintain our position as the organic growth leader in FY '18. We set in place an ambitious plan for the year and our first quarter results are right in line with it. We delivered growth to the top and bottom lines, expanded our talent base and achieved excellent book-to-bill and record backlog.

Before I go any further, let me address the Department of Justice investigation that we disclosed on June 15. We do not have new information to share today. But I will underscore that resolution of this matter is of great importance to our institution and of course, to our shareholders.

We have a talented team dedicated to this matter and we are cooperating with the government. The rest of the firm remains focused on running the business. Because the DOJ investigation is ongoing, there are and will remain limits to what we can say about it. The key points are these: We continue to believe that the DOJ is focused on certain elements of the company's cost accounting and indirect cost-charging practices with the U.S. government.

We do not believe our GAAP accounting or financial reporting practices are the focus of the investigation. Our firm has not been charged with any wrongdoing and we are working with the government to reach an appropriate resolution. The time line for resolution remains uncertain. But given the complexity of cost accounting issues and the fact that we are still in the early stages of the investigation, we believe it is more likely to be years than months.

We're staying close to our clients, as we always do, and keeping lines of communication open to all stakeholders, including employees, strategic partners, regulators and investors. Today, we do not believe there has been any negative impact to our client relationships, nor is there any indication of negative impact on our ability to perform on existing contracts, bid on new ones or recruit and retain talent.

In sum, the investigation is an important matter that we are taking very seriously. But it will progress on its own time line and in its own space. It will be handled by a dedicated team of legal and financial experts with the support of experienced outside counsel. The vast majority of our firm, meanwhile, continues to focus on solving problems for clients, supporting their missions and advancing the priorities that fueled our return to growth and have positioned Booz Allen for a bright future.

Now before I turn the call over to Lloyd, I want to highlight an important story that underlies our quarterly numbers and our expectations for the year. About 2 years ago, you may recall we begun talking about FY '16 as an inflection point in our business, the year when Booz Allen pivoted from revenue contraction to revenue growth.

That pivot did not happen by accident or by market forces alone. We created it with our Vision 2020 strategy by investing over a number of years in an innovation agenda and a range of advanced capabilities that we knew would be in high demand from clients.

Since 2016, our business has been broadly growing with particular strength in our federal civil business, along with double-digit increases in global commercial. We saw opportunity in a stable civil market and took it, producing impressive growth in several areas, including Health, Veterans Affairs, Treasury, Transportation and Homeland Security.

Now we see the same kind of opportunity in a stabilized defense and intelligence market. And as was the case in the civil business, we are well positioned for it because we have augmented our substantial mission expertise with advanced capabilities in engineering, digital solutions, cyber and analytics.

The market is signaling demand, pricing is more rational, and operationally our people are doing a great job executing against a large backlog of work. In the first quarter of this year, defense and intelligence were significant engines for growth and we expect that trend to continue throughout FY '18. Our federal civil business is also expected to continue expanding this year.

And when you package that with another strong performance in global commercial, we believe we will achieve the acceleration that we forecast at the revenue, excluding billable expenses, line. We are very excited about the future and the opportunities available across our markets. We intend to make the most of them for the benefits of our firm, our people, our clients and of course, our investors.

And with that, Lloyd, the floor is yours.

Thank you, Horacio. I'll start by adding just briefly to your comments about our growth trajectory. As most on this call have heard me say before, we manage our business as a portfolio. And one of the key tenets of our strategy has been to systematically scale capabilities that are fueling growth across the portfolio.

We innovate and incubate solutions in our Strategic Innovation Group and elsewhere, deploy them first to 1 or 2 clients, demonstrate their value, and then share them with more and more clients so that additional missions can benefit.

That model is working. It created substantial growth in our civil business as we saw and shaped opportunities there. And we are doing the same thing now with great success in the defense and intelligence markets.

Our performance in the first quarter is testament to the continued hard work and focus of leaders and teams across our firm. Strategically, we are growing the business and expanding the portfolio as planned. And operationally, we are humming along, executing on contracts, boosting productivity, managing costs, hiring and retaining talent and securing contract wins.

Let me take you through the specifics. Please turn to Slide 4. Revenue, excluding billable expenses, grew 5.2% and total revenue increased 5% compared to Q1 last year. As you know, we've been focused on growing revenue ex billables, where most of our profitability is generated. The growth there reflects another quarter of strong direct labor generation and productivity to meet client demand.

Billable expenses were up 4.5%. But as a percentage of revenue, they dipped a bit as expected. Our continued headcount growth is helping to drive revenue. As the quarter ended, we had 930 more people on staff than a year ago. And during the quarter, we added just over 150 professionals to our talent base. We are pleased with the progress we're making in attracting talent to the firm and we'll continue to aggressively recruit and hire throughout FY '18 because we've been so successful in winning work.

Our book-to-bill of 1.3x is the highest for a first quarter since our IPO, and total backlog hit a record at just over $14 billion as of June 30. That's 17% higher than a year ago and continued growth in unfunded backlog and priced options.

We believe the small decline in funded backlog as compared to last year is a timing issue. Keep in mind that the omnibus spending bill was not signed until May of this year versus December of 2015. We expect that there will be some unevenness in the timing of funding as the change in administrations continue to play out and budget and policy priorities are legislated. And we believe the large increases in unfunded backlog and priced options are a great sign for the future.

Moving to the bottom line. Compared to the first quarter of last year, operating income and adjusted operating income increased 7.9% and 6.9%, respectively, due primarily to revenue growth. Net income increased 17.3% to $79.5 million and adjusted net income increased 15.4% to $79.9 million.

The increases were primarily driven by the same factors as operating income and adjusted operating income, respectively, as well as a decrease in income tax expense associated with the adoption of a new accounting standard, ASU 2016-09. Adoption of this standard resulted in the recognition of a $6.9 million excess tax benefit attributable to stock-based compensation awards that vested or were exercised in the first quarter. This reduced our effective tax rate for the quarter by 5.7 percentage points.

Excluding the impact of the new standard, our Q1 tax rate would have been 40.2%, about the same as the prior year quarter. As a result of the tax benefit recognized, we now anticipate our full year effective tax rate will be in the range of 37% to 38%. This range includes the tax benefits realized in the first quarter as well as qualification for certain tax credits as we have seen in prior years.

Going forward, there could be fluctuations to both our income tax expense and effective tax rate, depending on how many options are exercised during the remainder of the fiscal year. We are unable to provide estimates of future impacts to tax expense or our effective tax rate due to difficulties in predicting the future exercise of options.

First quarter EBITDA and adjusted EBITDA each grew 7.7% to $155 million when compared to Q1 of last year. The increase was driven by the same factors as operating income and adjusted operating income, respectively. And adjusted EBITDA margin was 10.4% compared to 10.1% for the first quarter last year. This increase was due to a modest decline in billable expense as a percentage of revenue, higher billability and decreased spending relative to historic seasonal norms.

As in past years, we expect many of these factors to normalize over the course of the year. ADEPS for the quarter was $0.53, which includes a roughly $0.04 tax benefit associated with the new accounting standard.

Turning to the balance sheet and capital deployment. I'll start with cash. The first quarter was typically -- has typically been our lightest for operating cash with bonus payments occurring in June. Operating cash in Q1 was down compared to last year due to a number of factors, including a onetime tax payment of $13.6 million that was a condition of our purchase of Aquilent, and an increase in accounts receivable, which is reflected in the higher DSO number.

The increase in accounts receivable is driven by revenue growth as well as the normal timing delay associated with the conversion of revenue growth to cash. We also have experienced some temporary delays in collections due to a process change at one of the government's large payment centers.

Turning to capital expenditures. They were $5 million higher in Q1 than in prior year quarter due to leasehold improvements to updating existing office space as well as a minor timing difference in outlays. We continue to expect $60 million to $70 million of CapEx for the full year, which is slightly more than in FY '17.

For the full fiscal year, we remain confident that we will have strong cash generation and we are on track to convert about 100% of adjusted net income to free cash flow in FY '18.

We ended Q1 with a healthy cash balance of $337 million. During the quarter, we paid approximately $25 million in dividends and repurchased about 1 million shares. We have approximately $221 million remaining under our current share repurchase authorization and our capital deployment strategy has not changed.

Excellent operational performance, accelerating revenue growth, strong cash generation and expanding balance sheet capacity all create opportunities for shareholder value creation. Our goal, as we said in May, is to deploy at least 100% of free cash flow to support acquisitions, share repurchases and/or incremental dividends as opportunities warrant.

Finally, I'll touch on our business outlook for the year, which has not changed significantly from the last time we spoke to you. Our core government market continues to signal demand, particularly in the areas that we have long targeted for growth, namely digital solutions, cyber, analytics and engineering.

Federal agencies have funded -- funding in place and are moving forward with top priorities and Booz Allen is focused on moving to where the best opportunities are. That's the agility we always talk about and the benefit of our single P&L. Our pipeline remains healthy. And we are right now in the middle of our busiest season for bid and proposal, including tactical selling.

For the full year, we continue to expect accelerated growth at the revenue ex billables line. As we've said previously, in the near-term, we expect adjusted EBITDA to grow at roughly the same pace as revenue, excluding billable expenses. And we're targeting a stable to slightly higher adjusted EBITDA margin in the mid-9s.

Margin expansion is possible over the medium to long-term due to changing contract mix, growth in our global commercial business and by shifting more of our portfolio to high-margin work that integrates analytics, cyber, digital and engineering solutions with our mission knowledge and consulting expertise.

Given the fundamental strength of our business, our solid first quarter performance and continued confidence going forward, the company announced today that it has authorized a regular dividend of $0.17 per share payable on August 31 to stockholders of record on August 14.

As shown on Slide 6, we are updating our FY '18 guidance this morning. The guidance does not reflect any cost we will incur this year in connection with the DOJ investigation because at this early stage, we can't reasonably estimate the cost.

Today's update to our diluted and adjusted diluted earnings per share guidance solely reflects the roughly $0.04 tax benefit realized in the first quarter. For the fiscal year 2018, we continue to expect revenue will increase to 4% to 7%. At the bottom line, we expect diluted earnings per share to be $1.80 to $1.90 and adjusted diluted earnings per share to be $1.83 to $1.93.

I'll conclude there and turn it back to Curt to kick off Q&A.

Great. Thanks, Lloyd. And Kayleigh, if you could give instructions for the Q&A and open up the lines for questions?

(Operator Instructions) Our first question comes from the line of Robert Spingarn with Credit Suisse.

So nice results. Horacio, I wanted to ask you, now we're about 6 months into this new administration, do you have a better sense at this point for their inclination toward funding government services in the markets you're in? Obviously, your book-to-bills have been very good and your business is growing. I want to get a sense of if there are any behavioral changes, positive or negative, that we might see in the not-too-distant future.

It's a great question. As I look at it and as we've been thinking about it, there's -- with any administration change comes some changes in the priority set and we are beginning to see that. The reality for us is that we see more opportunity than challenge as the priorities evolve based on our broad-based positioning across the market and our capacity to move people around and move talent around to meet requirements.

We're staying very close to our clients. Our day-to-day clients are really focused on mission and not on the political dynamic. And they have really learned to operate in this environment in a way that we -- it signals demand and opportunity for us. And we're feeling very good, as you can see from Lloyd's guidance and the results for the quarter.

Okay. And then speaking more toward the quarter, and I think you touched on this or Lloyd touched on this a moment ago, just the earnings cadence for the year. Are we -- given the guidance, sounds like we're going earn a little more in the first half than the second half? Is that the traditional spending pattern that you're expecting?

Sure. What I said at the end of last year, which I believe is playing out this year, is that we're on track for our full year guidance. It's seasonally strong because of the certainty or clarity with the budget through the remainder of this fiscal year, government fiscal year.

We see that as contributing to our performance over the course of the year. We will, like everyone else, watch what will come in October, but we factored that into our 4% to 7% forecast for this year. So we remain on track. We're seeing a strong quarter, and we see the rest of the trends also remaining strong.

And then last thing I'd ask you is just how the competitive environment is evolving with regard to pricing, other firms perhaps reaching into your markets as people do try to broaden their aperture a bit. What are you seeing there?

I'll take that. The client environment is, from our perspective, quite strong. We're spending a fair amount -- as you know, we stay very close to our clients. We really try and understand where they are, what they're thinking and how we can best help with their missions.

At a competitive level, pricing is becoming a little more rational. I think there is obviously parts of this market -- and we've talked about market bifurcation for a long time, and we are seeing that come through, where parts of this market are very price-sensitive because the services that are provided are largely commoditized and parts of this market are more differentiated. And through Vision 2020, we've spent really the bulk of the last 5 years looking to get us positioned for the more differentiated parts of the business.

And so from my perspective, we're well positioned. There's people always trying to come into this market because it's a good market. We have built a series of alliances and partnerships through our innovation agenda so that we are also a channel to market for new ideas and really disruption through technology as opposed to being at the receiving end of that, and I'm optimistic.

I would just add that with our Vision 2020 strategy, we consciously made a decision to pivot our portfolio to more of a technical solution set of capabilities. And our clients are rewarding us for that. So what we're seeing with the bifurcation is pricing that we had hoped would occur.

And with more confidence in the overall budget environment, we believe our organic growth is a reflection of that. So make no mistake, it remains a highly competitive market, no matter what part of our portfolio. But we believe our strong performance is reflective of how well we're competing.

Our next question comes from the line of Cai Von Rumohr with Cowen and Company.

So you guys have called out defense and intel as 2 areas where we're seeing growth pick up. Should we expect them to grow faster than civil, given it looks to me like Aquilent is predominantly a civil business?

No, I don't think we intended to send that message. Our civil business is excellent and is doing very well. Our global commercial business is excellent and doing very well and so is our defense and intelligence business.

I think what we're seeing is really opportunity across the board, not necessarily in every little nook and cranny of the federal government or every little aspect of our business. But at the broad range, what we're seeing is really a broader range of opportunity.

And when we've been talking about acceleration of revenue ex billables, that's what we were hoping to see, a continued strong performance in our civil business and the opportunity to capture growth in defense and intelligence and the acceleration there. And for the moment, that's how it's playing out.

And I think what's underneath that, as Lloyd pointed out, is the differentiated capabilities that we build, the innovation agenda we invested in and the ability to put that together with Booz Allen's traditional strength in mission expertise and historic consulting prowess. And you put all of that together, and it creates a set of conditions that allow us to help clients fulfill their missions, in my view, better than anybody.

Cai, I would just add that with Aquilent though, it is indeed true that it had a primarily civil focus. We are integrating Aquilent to have application across our portfolio. And I'm happy to say that both Aquilent as well as our previous acquisitions are truly integrated into our business and are being applied across the entirety of the portfolio. That's always been our intent, capability tuck-ins, and we are pleased with the results to date.

Just a quick follow-up. You mentioned that it might take years and not months to settle the DOJ investigation. That seems a little surprising. But maybe you could kind of give us some more color on that comment.

As I said in the comments, these are complex topics. It takes a while for an investigation like this to ramp up and get up to speed. Beyond that, DOJ will manage it as they see fit and we will cooperate and assist and we'll go from there. We would love to see this resolved as quickly as possible. But it will take however long it takes.

Our next question comes from the line of Tim McHugh with William Blair.

Just a quick follow-up on that. You mentioned the guidance doesn't include costs associated with this. Are there operating costs in terms of the legal fees or any internal investigation you've done that's any significance? Or are you -- I guess I'll leave it there.

So thanks, Tim, for the question. We are at such an early stage in the investigation that I'm just not able to reasonably estimate the expected amount or range of the cost.

We are working very closely with the government. And once our legal team has more information, we certainly intend to reflect that appropriately with the cost for FY '18. But at this point, Tim, we're just at such an early stage that it would be inappropriate for me to kind of put something in place.

Okay. And then can you elaborate a little on funded? I know you mentioned the timing of when the, I guess, continuing -- or the budget cut pushed through this year. But is there anything else you're seeing that's influencing that? And how long until I expect -- or you expect that to start to improve?

Sure. The short answer is no. As you are aware, we have a very conservative approach to what we put into our backlog. It's approximately $400 million or so of protests that is also contributing to the dip. But over the remainder of the year, we expect that to normalize. And beyond that, there's no other dynamic in the market that we're seeing with our clients so far.

Our next question comes from the line of Jon Raviv with Citi.

Lloyd, could you just talk a little bit about margin cadence and sustainability? I know you mentioned some first half heaviness for second half lightness. But then also longer term, you talked about near-term flattish margin, mid- to long-term margin expansion opportunity. Is there anything you can do to accelerate that time frame? Or to what extent is that in your control?

Sure. We are certainly comfortable with our organic growth, given that we see margins being in the mid-9s. Now we are working through 3 forms of mix shift to get that margin expansion: global commercial, the fixed price contracts, capabilities that we have invested in. We think that those 3 forms of mix shift are going to allow us to expand margin while achieving the growth and the return to our shareholders.

So we are working as aggressively as we can. But given the previous comments that we had around competition, the improvement in the pricing environment, we think in the mid- to long-term that we will get there and overall, our business remains very strong.

And is there a way to think about any kind of long-term financial goals, multiyear financial goals? And how is management being incentivized towards those goals? And are there any changes that have gone through recently or any changes on tap there that are aligned to that mid- to long-term margin expansion?

We're always looking to increase the value of Booz Allen. And we're looking to leverage all of the aspects of our capital deployment as well as investment in the business going forward to achieve that.

And in terms of margins, as I just commented on, we do see, in the mid- to long-term, expansion based on the 3 forms of mix shift. Our previous investments in our capabilities have proven to be the right thing. And we still believe that with strong demand focused on our clients' missions that we're going to be able to achieve those longer-term goals.

Our next question comes from the line of Krishna Sinha with Vertical Research.

So last quarter, you bought back, I think, $39 million in shares. This quarter, you bought back another $48 million. Can you just talk about how much of that is opportunistic as opposed to just the balanced capital deployment plan you'd laid out and maybe you can expect to do this steady amount of buybacks going forward?

Sure. Thanks for the question. Our capital deployment strategy has always been based on flexibility with opportunity. And we intend to deploy at least 100% of our free cash flow going forward. Share repurchases is certainly one of several levers that we have at our disposal. But certainly, acquisitions and dividends are there as well.

We are going to look at what lever to pull at the right time. And that has always been a part of our capital deployment strategy. And so at this point, it remains one of our levers and we intend to apply the appropriate lever going forward.

Let me try and connect part of what you're asking to the last question from Jon. We're looking at a business that has already strong TSR and is on track to accelerate its TSR. And that is the combination of all 3 of the factors that Lloyd has been talking about. Our accelerating organic revenue growth is a source of value for shareholders.

For sure, in the medium-term, as our mix continues to shift, margin expansion will then add to that. And more in the near-term, we are looking for ways to deploy free cash flow in order to generate value for shareholders. Now so when you put it all together, we're actually quite bullish about our ability to generate value for shareholders now, in the mid-term and certainly many years out.

Okay. And then just on SG&A, it was quite low, 12.6% of sales this quarter. That's like 200 basis points below where it normally is. Can you just talk about what's driving that and what can we expect for operating cost going forward?

We, from time to time, see changes in our SG&A. We had lower spending in this quarter. We've applied, starting last year into this year, more discipline around our spending. And so what we're seeing in terms of that performance is a reflection of that.

(Operator Instructions) Our next question comes from the line of Sheila Kahyaoglu with Jefferies.

Just a follow-up on Rob's question from earlier. Was wondering if you've seen any change with the new administration just on emphasis in particular markets, if you could comment on that.

I'm sorry, you broke up when you made reference to a specific market. Could you repeat the question?

Just on any change in what areas that they're requesting, what sort of demand signals are they sending out, just this administration versus the last one?

We're still in early days. As you know, many of the roles and positions have not yet been filled at the working level by our clients. I would say the majority of our clients are seeing sort of robust increases, requests and requirements for missions. Certainly, around defense and intelligence, we're seeing strength there. The VA, we're seeing strength there. The health accounts, in general, as we describe them, Homeland Security.

There are some of the more -- some of the regulatory agencies, maybe Department of Agriculture, Education, Labor and so forth, are seeing some constraints as we have referenced in prior calls, though we don't have significant positions there or at the State Department. So when we look at it in its totality, I guess, our summary continues to be more opportunity than challenge.

And our ability to move resources and talent from places where the mission is getting deemphasized to places where the mission is growing is at the core of our success. That agility has allowed Booz Allen to stay the organic growth leader in our industry through thick and thin and continues to fuel opportunity today.

I would just add that what we have seen building in the previous administration carried on into this one is still strong demand around cybersecurity, digital, systems development, engineering. All of the capabilities that is a part of our Vision 2020 strategy, we have been investigating and hiring against.

And you can see in our headcount growth a reflection of that. So many of the people that we're bringing onboard have capabilities and expertise and experience in those areas. And we're seeing the strong demand by the government as a reflection of that.

And then just to pick up on that comment about digital solutions, is there any way you could size that business today or where it stands? And what are the growth drivers? Is that within the civil business? Is that within commercial? You could comment there.

Yes, the demand signals are across the entirety of our portfolio. Several of our most recent acquisitions are a reflection of that. We have not broken out by capability what the percentage is of our portfolio or the growth of that.

But suffice it to say that that is one of the areas that we have been growing. The folks that we're bringing onboard have many of the capabilities that we're looking for, especially in light of a solutions-based approach to the market. And so digital is one of several capabilities that have been growing nicely for us.

Just to build on that, we're talking about agile development, which is growing across the government. We are talking about cloud and mobile and ability to also move data science and analytics to the cloud. We are talking about finding ways to protect that from a cybersecurity standpoint.

And I think the differentiating point and the reason that we don't break out numbers is that what makes Booz Allen unique is we couple those skill sets with our expertise in consulting and with our deep understanding of the mission.

And so we actually can get -- we talk about digital solutions, let me emphasize the solutions point, we get to places where we believe our clients are really getting results for their money, which is driving more demand and keeps us coming back.

Our next question comes from the line of Brian Ruttenbur with Drexel Hamilton.

Just a couple questions. First of all, on the investigation, have you been excluded from any bidding activity during this process? I know we're early on and I didn't know if any customers have come to you and said, "You're down-selected, but we can't pick you because of this investigation." Can you talk a little bit about that? And then I have a follow-up.

We're staying very close to our clients as we always do. At this point, we have not seen any impact from the investigation or our ability to bid or be selected for contracts.

Okay. And then as a follow-up, can you talk about your reserves for any investigations or investigator-related costs? Just talk about that if you have any accounting reserves and how you could access those along the way. And have you had anything like this in the past in the Booz Allen history, where you've had civil investigations where you've had to pay out?

I'll take that, Brian. It is really premature. We can't estimate at this time. So we're just not there. There are certainly a broad range of possible outcomes. The accounting rules are clear on when to reserve. And we will be in compliance with that. But at this point, we're just such an early stage of the investigation that it's really premature.

And we have a follow-up from the line of Jon Raviv with Citi.

Sorry to follow up on the investigation, just wanted to get some idea. Is it possible for you to at all cordon off or draw a circle around where some of the issues might be? Is it company-wide, a particular office, a particular group? Just give a sense for how broad or not broad this might be.

We're at the early stages of the investigation. We are in dialogue with the Department of Justice. But we are not in a position at this point to go beyond what we've already shared in the 8-K and on this call.

And at this time, I'd like to turn the call back to Mr. Rozanski for closing comments.

Well, thank you, everyone, for your time and for your questions this morning. Booz Allen has opened the year with a solid performance and we're moving forward with a lot of energy and confidence about the state of the market and especially about the value that we bring to clients. Passionate service to clients and a desire to change the world for the better are what motivate our people.

Lloyd and I are honored to represent them quarter-after-quarter. And we, along with every other leader in this firm, are committed to making this institution stronger for the future. Thank you once again for joining the call, and I hope you enjoy the rest of your summer.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.