Good morning. Thank you for standing by and welcome to the Booz Allen Hamilton Earnings Call covering Third Quarter Results for Fiscal Year 2022. At this time, all participants are in a listen-only mode. Later there will be an opportunity for questions. I would now like to turn the call over to Ms. Laura Adams.

Thank you. Good morning and thank you for joining us for Booz Allen's third quarter fiscal year 2022 earnings announcement. We hope you’ve had an 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 two. I am Laura Adams, Chief Accounting Officer and Interim Head of 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, Chief Financial Officer and Treasurer. As shown on the disclaimer on Slide three, please keep in mind that some of the items we'll 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 services and other factors discussed in today's earnings release and set forth under the forward-looking statements disclaimer included in our third quarter fiscal 2022 earnings release and in our SEC filings. We caution you not to place undue reliance on any forward-looking statements 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 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 third quarter fiscal year 2022 earnings releases and slides. It is now my pleasure to turn the call over to our CEO, Horacio Rozanski. We are now on Slide four.

Thank you, Laura and good morning, everyone. I hope that you and your families have been able to stay safe and healthy through the current COVID-19 wave and thank you for joining the call. Today, Lloyd and I will share our third quarter results in the context of our fiscal year 2022 guidance and our multi-year investment thesis. We will also describe the underlying dynamics of our business and the progress we are making on our Vault strategy. To set the context, let's go back to our October Investor Day, where we outlined our Vault strategy and associated goals. As a reminder, Vault stands for Velocity, Leadership and Technology. It is a strategic program Booz Allen has launched to capitalize on our first mover advantage in helping the federal government transform core missions through the use of new technologies. Over the next few years, we look to grow faster by building scaled positions in critical areas, such as national cyber and digital battle space. We are in the early stages of this journey, but are already making strides, seeing strong progress. As part of Vault, we have set new multi-year financial goals that deliver both strong profit growth and continued investment in our business. Our investment thesis centers on growing adjusted EBITDA dollars from $840 million in year 2021 to $1.2 billion to $1.3 billion in fiscal year 2025. That's approximately a 50% increase. We expect this increase to be accomplished through 5% to 8% annual organic revenue growth, adjusted EBITDA margins in the mid-teens and $3.5 billion to $4.5 billion in total capital deployment that prioritizes strategic acquisitions. Our expectations for fiscal year 2022 were consistent with these goals. Gross revenue growth in the 7% to 10% range and adjusted diluted earnings per share in the range of $4.10 to $4.30. We also said this fiscal year growth pattern would look different from recent years, with slower revenue growth in the first half and significant acceleration in the second half. As you saw in our press release, our bottom line numbers are on track with our expectations and we are reaffirming our guidance. Our revenue growth in the third quarter was lighter than we expected and while we forecast strong fourth quarter revenue growth, we're lowering our full fiscal year 2022 revenue outlook to account for a slower pace. Lloyd will take you through the quarter results on our updated guidance in greater depth. There were several factors that contributed to the revenue dynamics for the quarter. On the positive side, we continued to win the right kind of work and hire the right people as reflected in our backlog growth and headcount increases over the last 12 months. Conversely, the translation of those positives into revenue growth was slower than historical standards, driven by a number of factors, including a protracted continuing resolution, a higher dollar value of awards on protest, delayed awards and slower ramp up on sold contracts, lower staff productivity due in large part to the Omicron variant surging during the quarter and lower than anticipated billable expenses. These dynamics impacted our entire portfolio and some pockets of our defense business were especially hard hit, due in part to the number of larger work delayed and a greater proportion of billable expense in their revenue base. Looking ahead, we see some of these challenging dynamics continuing into the coming months. As a result, we are taking a three-pronged approach to proactively manage through this environment. First, we are addressing those business areas where we see the greatest funding uncertainty. Second, we are continuing to control costs in order to deliver on our commitments to both grow adjusted EBITDA and invest in our business. And third, we are doubling down on areas of significant growth opportunity, shifting resources across the portfolio by leveraging our unique operating model and single P&L. In short, we continue to lean into growth while managing tightly in the face of greater market volatility. Before turning the call over to Lloyd, let me return to the longer term outlook and the progress we have made in our business so far. As we look ahead, we remain on track to deliver strong growth in adjusted EBITDA through fiscal year 2025, supported by continued revenue growth, stable adjusted EBITDA margins, and strategic deployment of capital. Our confidence in the future is predicated on our belief that we have the right strategy and the proven ability to execute in both good times and challenging ones. Several accomplishments from the last few months underscore these points. First, we continue to win the right kind of work at the center of national priorities where innovation can help the government transform the way the mission is executed. Our clients from the Department of Veterans Affairs to the Air Force are looking to Booz Allen for expertise in areas such as DevSecOps, AI and the commercialization of new technologies to advance their missions. Second, we are making key investments that differentiate our service to clients. For example, last December, as part of our ramp-up on national cyber, we announced the opening of our carrier-grade 5G lab in Central Maryland. The lab offers a state-of-the-art testing environment for secure cyber-resilient 5G solutions. Similarly, as we advance our work on digital battle space, we are significantly expanding our footprint in Honolulu. This investment deploys into the INDOPACOM region some of our most advanced capabilities to expand our support of several high-priority client missions. Third, we are successfully using acquisitions as strategic accelerators. Liberty and Trace Point continue to deliver the strategic and financial value we expected. Integration is going well, and we are extremely pleased with the upside these acquisitions create. In addition, we continue to build our acquisition pipeline. And fourth, and perhaps most importantly, we continue to strengthen our team and ensure we have the focus and resiliency to support our clients as they too manage through a volatile environment. I am extremely proud of our workforce for achieving complete compliance with our COVID vaccination requirement. Our purpose and values are at the core of everything we do. So we believe that prioritizing the health and safety of all our employees is the right thing to do for our institution, our clients, and our communities. Furthermore, a fully vaccinated workforce allows us to better serve our clients, supports safer in-person collaboration, and is critical to entering a post-pandemic phase. Together, always together, the people of Booz Allen are forging ahead with relentless focus on our clients' missions and our growth strategy. This is what delivers the consistent results that create long-term shareholder value. And with that, I'll give the floor to Lloyd for more details on the third quarter, the fiscal year, and our investment thesis. Lloyd, over to you.

Thank you, Horacio. As we near the end of fiscal year 2022, a year marked by many twists and turns, we have continued to build on our underlying fundamentals, which have supported our expectations for second half performance outpacing first half. And while top line growth and cash did not deliver at the levels we anticipated, we are delivering the bottom line results we need to invest in our business and our people to achieve our long-term growth initiatives. With three quarters now completed and greater visibility into the fourth quarter, we are seeing some transitory changes at the macro level that are impacting overall market performance. Expanding on what Horacio said, just as we believed that we were turning the corner on the pandemic's impacts and reverting to more predictable business patterns, we were hit by Omicron, which led to another spike in PTO resulting in staff utilization rates not normalizing as we had anticipated. This, coupled with an overhang effect from the continuing resolution, has impacted our ability to convert strong demand into top line growth. We factored some of this uncertainty into our fiscal year 2022 guidance, but we did not fully anticipate the impact of a second wave on utilization, nor did we foresee the delays in translating wins into revenue generation. I will get into more detail shortly when I give updated guidance. Now for the details of the third quarter, please turn to Slide five. At the top line, revenue increased 6.6% year-over-year to $2 billion, which includes approximately $117 million from inorganic contributions. Revenue, excluding billable expenses, grew 6.2% year-over-year to $1.4 billion. Revenue growth was slower this quarter for the following three reasons. First, funding delays resulting in slower ramps on new work and existing work. Second, lower staff utilization, resulting from an uptick in PTO taken over the holiday period due, in part, to a rise in COVID cases and the inclusion of the New Year’s Eve holiday in this quarter's results. And third, billable expenses continue to be pressured by slower travel patterns and the timing of material purchases getting pushed to the right. Taken together, these factors are largely timing issues that we believe will dissipate as we return to more normal business rhythms. Now let me walk through the market level performance. Starting with defense, revenue declined by 2.2% year over year and has been trending down quarter over quarter. Since defense is roughly 50% of our business portfolio and largely comprised of cost reimbursable work, the macro factors and subsequent top line impacts I noted were especially impactful in this market. More specifically, to expand on what Horacio said, our army account was hit the hardest by some of these dynamics, where our performance was impacted by budgetary challenges, slowness in ramp-up, and some losses. Going forward, our defense leadership is doubling down on addressing these issues by growing headcount, managing utilization and aggressively deploying talent to capture the value opportunities, including hyper-growth initiatives such as our digital battle space platform. In civil, revenue grew by 25.3% year-over-year, of which 5.1% was organic, marking our second consecutive quarter of strong double-digit growth. Our results reflect solid performance across the portfolio, particularly in health, where we see strong alignment with the administration's priorities, which are yielding important wins. Additionally, Liberty continues to strengthen our unique market position as we prepare to leverage integrated capabilities in the areas of cloud, DevSecOps, and API development to pursue additional market share across our broader portfolio. In intelligence, we recorded our second consecutive quarter of growth at 0.8% year-over-year. This continued improvement in performance reflects our ability to hire ahead of growing demand and capitalize on our mission expertise and advanced technological offerings to secure key recompetes and new work opportunities. This positions us for multiyear growth in key areas, including digital modernization, artificial intelligence, and high-end data analytics. Lastly, global commercial revenue grew 26.7% compared to the prior year period. Performance was driven by growing demand in our US commercial cyber business and contributions from Tracepoint, where we are seeing strong cross-selling momentum and early synergies. We are now on Slide Six. Net bookings for the third quarter were approximately $797 million, up 29% over the prior year period, translating to a quarterly book-to-bill of 0.39 times and a trailing 12-month book-to-bill of 1.28 times. Total backlog grew approximately 19.2% year-over-year to $27.8 billion. Funded backlog grew 11.7% to $4 billion. Unfunded backlog grew 57.7% to $9.4 billion, and price options grew 4.4% to $14.3 billion. These results underscore continued demand and strong alignment to our clients' core missions in the areas of artificial intelligence, cyber, and digital modernization, to name a few, and further our position as a trusted partner and market leader. Looking ahead, as we continue to pursue larger and more technically complex bids, we anticipate that ongoing protests will become part of the normal business cycle, which we are increasingly factoring into our operating plan. Pivoting to headcount, as of December 31, we had approximately 29,500 employees, an increase of approximately 1,900 year-over-year or 6.8%. The labor market for tech and tech-adjacent talent remains highly competitive, but we are pleased that we continue to successfully execute on our hiring and retention strategies, a reflection of our appeal as an employer of choice. This resulted in a third consecutive quarter of mid-single digit headcount growth, consistent with our expectations. Moving to the bottom line, adjusted EBITDA for the quarter was $222 million, up 8% from the prior year period. Adjusted EBITDA margin on revenue was 10.9% compared to 10.8% in the prior year period. The increase in adjusted EBITDA margin was driven by three factors. First, profitable contract-level performance and mix, which includes inorganic contributions. Second, prudent cost management, and third, a return to billing for fee within Intel, which had a $2 million negative impact on the prior year period under the Cares Act, a tailwind that will taper off after this quarter. Third quarter net income decreased 10.8% year-over-year to $129 million. Adjusted net income was $137 million, down 5.5% year-over-year. Diluted earnings per share decreased 7.8% to $0.95 from $1.03 the prior year period, and adjusted diluted earnings per share decreased 1.9% to $1.02 from $1.04. Both GAAP and non-GAAP metrics were impacted by higher effective tax rate following the release of an income tax reserve of $10.2 million in the prior year period related to the Aquilent acquisition, as well as higher interest expense, partially offset by a lower share count due to our share repurchase program. Our non-GAAP metrics exclude certain acquisition costs and the non-cash gain of $7.1 million from the spinoff of SnapAttack during the quarter. Turning to cash, cash from operations was $21 million in the third quarter down from $233 million in the prior year comparable period. Operating cash performance is volatile from quarter to quarter, and the decline this period was more pronounced due to some of the factors impacting top line growth, coupled with higher disbursements. As we have done before, we are focused on our working cash management and cash collection efforts to continue improving our operating cash performance and reinforce our strong balance sheet. Year-to-date, we have generated $481 million in operating cash flow and $430 million in free cash for a free cash conversion rate nearing 100%, supporting our strong balance sheet positioning and capital deployment priorities. Please turn to Slide Seven. During the quarter, we deployed approximately $139 million inclusive of $50 million in quarterly dividends and $83 million in share repurchases. Today we are also pleased to announce that the board has increased our quarterly dividends by $0.06 to $0.43 per share payable on March 2 to stockholders of record on February 11. This marks our ninth consecutive fiscal year of increasing our quarterly dividend, a testament to our fundamental strength and promise to continue growing our dividend even in a more challenging operating environment. With one quarter left in this fiscal year, we remain committed to a patient, disciplined capital allocation strategy, leveraging our strong balance sheet position to deploy capital in an accretive manner, creating near and long-term shareholder value. As we have said in October, our capital deployment priorities remain focused on strategic M&A to enhance growth while sustaining a healthy dividend and opportunistically repurchasing shares. Let me now walk you through how the puts and takes from the quarter translate into updates to our full-year fiscal 2022 guidance. Please move to Slide Eight. Despite lighter revenue and operating cash challenges this quarter, we are proud of our team's efforts to manage the business, controlling what we can in spite of another wave of macro environmental challenges. These efforts have enabled margin expansion with solid adjusted EBITDA performance throughout this fiscal year as we reinforce the strength of our fundamentals and balance sheet in preparation to execute on our investment thesis. In the fourth quarter, we are laser-focused on executing against our operational priorities. We will continue to aggressively hire ahead of demand capitalizing on our strong portfolio of new work opportunities to sustain long-term organic growth. We will efficiently manage the business by investing in our people and technology to lead the next wave of innovation. And lastly, we will continue to build our M&A pipeline and acquire businesses that meet our disciplined criteria to serve as strategic accelerators. Our revised guidance reflects these efforts. In addition to the third quarter performance and trends I just outlined, let me run through the numbers. For the full fiscal year, revenue growth is now expected to be in the range of 5.7% to 7.2%. At the midpoint, our revised guidance range reflects $100 million to $220 million of revenues tied to the uncertainties we outlined earlier. They break down as follows. $30 million to $80 million tied to funding delays and resulting slowness in deploying staff on unsold and funded work. $20 million to $40 million tied to an incremental step down in staff utilization due largely to the continuing pandemic in PTO usage and $50 million to $100 million from lower pandemic-related travel and the timing of materials purchase getting pushed to the right. As a reminder, the inclusion of the New Year’s Eve holiday and minor differences in the costing of labor related to the implementation of our NextGen financial management system will become tailwinds in the fourth quarter, adding roughly 175 basis points to the top line. On the bottom line, we now expect adjusted EBITDA margin for the fiscal year to be approximately 11%. This increase reflects our considerable control over our cost structure and margin levers even in times of uncertainty. We are reaffirming our adjusted diluted earnings per share guidance to be between $4.10 and $4.30. The adjusted EBITDA guidance is based on an effective tax rate of 22% to 24%, $134 million to $137 million weighted average shares outstanding, and interest expense of $92 million to $95 million. We now expect operating cash to be between $700 million and $750 million. The incremental step down follows our expectations for lower top line growth and accounts for the $56 million of one-time payments in connection with the Liberty acquisition, which we had anticipated, being able to make up through a combination of working capital management and operating performance. As I mentioned, we will remain laser-focused on optimizing our working capital to return to the strong level of cash conversion we have historically delivered to position us ahead of future growth initiatives. And finally, we continue to expect capital expenditures to be between $80 million to $100 million. As we move towards our investment thesis, I remain confident in our team's ability to manage through these times of uncertainty as we have proven our ability to do over the years. We will continue to execute on our near-term growth objectives and remain confident in the long-term trajectory of the business, upholding our role as the industry leader and meeting the high standards our shareholders have come to expect. With that, over to you, Laura.

Thank you, Lloyd. Operator, please open the line.

Our first question comes from Sheila Kahyaoglu with Jefferie. Your light is open.

Good morning, Horacio, Lloyd, Laura. Thank you. Horacio, you stated you're addressing business areas with the greatest funding uncertainty and Lloyd, you mentioned efforts within defense and the army specifically. Defense remained down 2% in the quarter. How do we think about specifically within that decline and what are the other areas leading to that decline and how do you think about the return to growth there?

Hey, Sheila. Good morning. Thanks for the question. I think to put things in context, as we mentioned in the prepared remarks, the volatility in the market driven by both COVID and some funding issues, both with the CR and just some slowness in terms of getting funding on contracts is affecting our portfolio and particularly affecting our defense business. And we're not going to try to predict the precise timing on when those issues are going to abate. Instead, we are really working through them. If I take a step back, I would say, as a firm and certainly in our defense business, we are on strategy and the fundamentals are actually strong. If you look at the work that we're winning and you can see the backlog numbers and then the record backlog and the increases in funded backlog, they tell a really good story about that and the quality of the work underneath that is very, very strong. We're hiring strongly across all of our markets, including defense, and we are managing through this volatility to deliver on the investment thesis. So the job for all of us and in our defense portfolio is first to address these performance issues that we have in certain pockets of the business. Lloyd talked about our army business that's been hard hit by some of these dynamics and we are doing that. We need to control costs, and we are doing that and you see that in our bottom line numbers across the entire business, to make sure that we are delivering on these adjusted EBITDA dollar targets that we have in our investment thesis. And then importantly, we need to double down on growth and in the defense portfolio, there are some really strong areas of growth around some of our classified work, around some of our space work, and around digital battle space and all things related to the digital transformation of the department, both at headquarters and at the edge. So, I look at all of that and, accepting and managing through the near-term volatility, I think that in the medium term, we are very much on track to continue to be the leader and to continue to grow.

No that's super helpful. And then maybe one more broadly, you guys have been the growth leaders in this space. There's no doubt about that. But organic growth revenue implied for fiscal 2022 is more in the range of 2% to 4% and below your 5% to 7% target for 2023 to 2025. So how do we kind of think about this re-acceleration to mid-single-digit growth and the implied high single-digit organic growth guidance for Q4? I know you addressed a lot of these during your Analyst Day too.

Yeah, I'll start. So, Sheila, as we said in our prepared remarks, it's a combination of three factors that have us in that 2% to 4%, the funding delays, the lower staff utilization, and lower billable expenses. That being said, we're laser-focused on the things that are in our control. We said that our operational priority was bringing in talent and we're doing that, hiring 3.6% year-over-year organic and 6.8% year-over-year overall. We're winning work. Our backlog is up 19% year-over-year. The trailing 12 months are at 1.28 times. So we're winning work that we want to win. We're engaged with our clients on topics that are forward-leaning, but we do face these challenges, and we feel that the path through this volatility is really to focus on the things that are in our control, which is winning work and hiring the best talent.

Our next question comes from Gavin Parsons with Goldman Sachs. Your line is open.

Guys, I appreciate all the detail and the revenue headwinds and all the color and everything you've said, but I'm kind of having deja vu to 3Q of last year and we've had delays and procurements toward slippage, pullback, and funding, etcetera. I appreciate COVID has persisted much longer than any of us would've thought, but basically, it's been over a year now where you haven't grown organically. So I'm just curious, how do you get confidence that there isn't actually a structural change in customer behavior and the way they're thinking about spending?

Gavin? I appreciate the question and here's what I would say. First of all, I talk to a lot of clients about this, and when I listen to them about where their mission priorities are, what we are doing and how we're aligned to that, I feel very strongly that, like I said, we're on strategy and the underlying fundamentals are good. Typically, in our business, as you know, if you take headcount growth from some level of wage increase that gives you a sense for how much we're going to grow and especially if we're not demand constrained and you can see the backlog numbers, we're not. So we have confidence that in the, I call it the medium term, we are in very good shape positioned to continue to grow and to be the growth leader in the market. And we are, I think we've come to terms with the reality that there's more volatility and more unpredictability in some of these variables around COVID and around funding than perhaps we anticipated, but put all together. I go back to the point that Lloyd made, which is the underlying fundamentals in the business are strong. We're focused on them. And we're focused on delivering at the bottom line where we have control over the cost structure to make sure we deliver our investment thesis.

Gavin, I would just add like yourself. I had a déjà vu moment as well because many of the dynamics that we were grappling with a year ago we’re still grappling with. I think, we expected that in early October, things were going to open up again along, came Omicron and definitely had an impact on our workforce. We expected that this far into the administration that things would start to flow, but we're still seeing slowness and ramp-up, and that's just the environment we're in now. We're not making excuses. Like Horacio and I have said, we are focused on the operational items that are in our control. It's playing out with strong bottom line results which we're very proud of, but we're going to have choppiness at the top line and we're just going to keep staying on strategy and executing as well as we have up to this point.

I appreciate that insight. That definitely feels like the need is there and the budget is already there too. And maybe on margins, just kind of continuing to outperform there. You've obviously, the longer-term investor day target is 10.5. I think you've got tailwinds from mix shift and cost containment that you outlined at the Investor Day, partially offset by investment growth. Are you managing to a 10.5% number, or is there upside to that if you can kind of continue to outperform on mix shift and cost containment?

Yeah, we're not managing to mid-10s. In fact, we're very pleased with 10.9% for this quarter because really, it speaks to our operational performance, our discipline around cost control, and solid fundamentals. We have an expectation of ourselves to continue that going forward. The raise to approximately 11% is a reality of that, that we're seeing really good mix shift in terms of our contract types. The discipline that we've had means we're going to stay focused on that as well as the core business fundamentals that we've talked about, and given that volatility that we're experiencing. So that's what we're moving to. That's why we’re confident about being around for the full year. But it's really the fundamentals that we've been focused on that’s gotten us to 10.9% at this point.

Thank you. Our next question comes from Colin Canfield with Barclays. Your line is open.

So growth in substance is pretty well documented at this point, trading you to services names. Can you just talk about how this is impacting the valuation of your M&A pipeline, both on kind of a public and private basis?

I'll start. We are experiencing continued growth in our M&A opportunities in key areas such as cyber security, data analytics, system software development, and engineering and science. These opportunities are primarily mid to small size. With our robust balance sheet and capacity, we are not observing significant increases in valuations in these specific sectors. However, we are improving our ability to develop opportunities based on our relationships and industry knowledge, which has somewhat shielded us from the broader rise in valuations that typically occurs in auction situations. So far, we have not encountered a significant spike in valuations.

Got it. And then going back to your comment at the start Horacio, you mentioned scaled cyber. Can you just update us on where Booz Allen Hamilton stands in terms of scale and kind of where scale matters the most in terms of your underlying business areas? Thanks.

Sure. I think you've heard me say this in the past. I actually really like our positioning throughout the portfolio. Across all three of our major market areas, we've deployed our innovation agenda and positioned ourselves strongly as players in all of these key technologies from, we’ve talked before about the fact that we've been ready as having the largest cyber workforce in North America, the strongest AI footprint in DOD. Some of the work we're doing about 5G these days is both breakthrough and growing. We are looking to invest in areas like INDOPACOM, as I mentioned in the prepared remarks, and continuing to work the intersection of, for example, AI, 5G, and cyber, which we believe will drive another wave of growth. And from a scale standpoint, we spent the last really decade amassing a talent base that actually gives us a lot of flexibility to go into these areas and to really focus on where the growth is going to be. So, Lloyd mentioned our civil portfolio, for example, is very strongly positioned. We're very well aligned to the domestic agenda for the country, and we look forward to continuing to grow well there while we pursue growth also in defense and intelligence.

Thank you. Our next question comes from Matt Akers with Wells Fargo. Your line is open.

Hi, good morning, everybody. Thanks for the question. Could you just touch on your recent spin-out of Mozi and Snap Attack? Why are those businesses outside of Booz and are there any other parts of your business that you're looking to potentially buy back?

Sure. I'll start. I think I go back to Vault and this notion of Velocity, and that is informing a lot of our thinking about how we want to manage the portfolio going forward and honestly, in both directions. So, with Liberty and with Trace Points, we made two acquisitions that are really good accelerators for our growth, and they're playing out frankly above our expectations at this point. We're very pleased, not just with the financial returns that they're driving, but with the strategic positioning that they're allowing. By the same token, as we looked at the entire portfolio in some of these areas, we created solutions and we have unique IP. We asked ourselves if we were the right player by ourselves to capitalize on the growth in those commercial markets, and we came to the conclusion that those businesses would grow better, faster with a different investor base and with partners. We remain involved as minority owners in those businesses because we believe in them and we're excited to see where that will take us and frankly, we're learning a lot about how to both make venture investments and the minority partners in these fast-growing entities and then how do we take advantage of all that IP and those market positions that are getting created to drive growth into the core of our defense, Intel, and civil markets. Again, I think the future is bright on that front.

That's great. Thanks. And then, I guess maybe once for Lloyd, just on the free cash flow guidance change and I know you mentioned kind of the lower top line, but I think the EBITDA kind of dollars guidance is not that different. Is it more just a collections timing kind of thing, or any more detail you could give there?

Yeah. Matt, cash definitely was lighter due to some of the headwinds we talked about in revenue, but specifically around cash, we had lower collections. Some of that was just due to revenue being a little bit lower, funding delays, and the New Year’s celebration falling in Q3. At the same time, we had higher disbursements and payroll expenses. So, the incremental impacts from about $35 million of collection slips and the increase in payroll expenses. That being said, we're still focused on our 100% cash conversion for the year. And I also sort of offer the following context. This year, we had the Liberty acquisition as well as added interest from the June bond issuance, and that's kind of offset some of the operational improvements that we've made. And that being said, as you heard in my prepared remarks, we're laser-focused on this. We expect it to improve going forward as we sort of work through these near-term headwinds, if you will.

Thank you. Our next question comes from Cai von Rumohr with Cowen. Your line is open.

Yes, thanks so much. So, as you probably know, the defense was down about 3% to 4% for the quarter itself. So are you seeing any signs that this bookings environment that's been so slow is changing in any way? And secondly, what about protests? How big are they, and any expectation that some of those things are going to be adjudicated?

Cai, I can start. I think we, as we mentioned in our defense business, have seen some slowdown on some bookings getting pushed to the right. Some contracts are experiencing slower ramp-up. Our overall protest backlog or the amount of contracts that are under protest that therefore is not in our backlog is at an all-time high. Having said that, things are moving along, as I said, clients do have the urgency. I think over time, some of these will normalize, and we're certainly watching closely. The continuing resolution has affected our defense business more than we would have expected, and to a degree, I worry about that, but I frankly worry about the impact of the share on mission and then compounded by the COVID PTO and the fact that the Omicron variant drove a record number of cases inside Booz Allen. All of that is the volatility that we are talking through, but I take us back to the underlying fundamentals. We are focused on the things our clients are focused on. The backlog is strong, our Book-to-bill for the last 12 months is strong, and we're hiring the right people. So we believe that over time, some of these will normalize and we're going to continue focusing on the things we can control.

Hey, Cai. I would just add that for the most part, our Book-to-bill pattern is consistent. The 0.39 times for this quarter is comparable to what we saw last year at this point. And in the trailing 12 months of 1.28, we feel is pretty strong regarding demand signal. We are still going to see volatility, though. Some of these larger procurements, as they come through, depending upon protest resolution timing, which certainly is moving all over the place, is going to continue to impact the traditional pattern of our Book-to-bill. But we're winning incumbent work at 90% and new work to grow 60%. So on the demand signals, we're still feeling pretty good.

Thanks so much. Regarding the receivables, your days sales outstanding were high at the end of the first quarter due to the implementation of the ERP system. They improved in the second quarter, but now they've increased to about 73 days, which I believe is a sector high. What is causing this increase, and what steps are you taking to address it? Where do you think you can improve?

Yeah, we, too, I think Matt’s question – we’re focused on getting it down. It's a function of really being diligent and disciplined on collections; really continuing to balance that out with our disbursements. And the team’s on it. Cash will be volatile in this current environment, but we expect to see improvement going forward. So, no excuses, we're on it. And I expect that we'll do better going forward.

Thank you. Our next question comes from Matt Sharpe with Morgan Stanley. Your line is open.

Horacio and Lloyd, good morning gentlemen. On the M&A front, just given the shorter cycle nature of your current business mix and sort of the sensitivities to budget disruptions. Is there any desire to either acquire companies with relatively deeper backlogs or somewhat longer cycle business models? And then related to that, how has the Liberty IT acquisition fared in this CR environment in the surge in COVID-19 cases?

So, I think looking at our M&A strategy, it's consistent with Vault and with all the things that we have said we're looking to deploy between $3.5 billion and $4.5 billion between now and 2025, with a focus on things that can be strategic accelerators for us. So are there positions, technologies, unique opportunities to move faster, to develop things faster? Liberty and Tracepoint were really good examples of that. And we're building a pipeline of opportunities that really mirrors that; it's either a unique technology or a technology-mission intersection that really accelerates on our priorities. And especially around either national cyber or digital battle space, we're going to be very diligent and very assertive in terms of generating that pipeline. Liberty has done very well since the acquisition. It’s a good – the integration is going well. The teams have found lots of points of touch where we are working together, both in their core markets around health and beginning to expand across other parts of our portfolio from a COVID CR standpoint. They reflect the rest of the business, and because they're more civil-oriented, they're seeing more of the dynamics that we see in the civil market, as opposed to the more difficult dynamics we saw most recently in defense. But again, they’re a great team. They’re a great acquisition for us and they’re a pattern for us to continue to follow. I think they don't have much to add, but your question around backlog to ride through some of the short-term cycles, obviously when we're doing due diligence, it's a variety of areas we're looking at - talent, pipeline positioning, you name it. So it's certainly in the mix, but to Tracepoint, we're not leading with that. It's still on strategy; our confidence on integration is adherence to Vault and achieving our updated investment thesis. But yeah, for sure, we're looking at what upside a company has, strengthened by their talent, and the list goes on and on.

Got it; and then I just want to touch on a recent win you had with the Thunder Do Zero Trust Environment prototype. What does the path forward for that program or that contract look like for Booz beyond the prototype days? And while the award itself was seemingly modest, there is certainly touted as a fairly significant step forward for zero trust. So just any thoughts on that contract and its path forward itself, and then more broadly on zero trust and the opportunity associated with it.

I think it's a, obviously, we're very pleased with both the win and the opportunities ahead. And I think to put it in context, right, it, it hits right at the intersection of the type of work we want to do where we're driving leading-edge thinking and leading-edge capabilities. We have demonstrated leadership on zero trust across both our commercial and our federal markets. And that is translating into wins across the portfolio. We are excited that we're beginning to see that not just in more of our traditional places where we want that work but allowing it to expand further. So I, as I said at the top of the call, we are on strategy, we're winning this kind of work that has great opportunity for us to expand, to go forward and to help the department and more broadly the federal government transform missions through the use of new technologies. That's what we're all about. And that's what we intend to do.

Thank you. Our next question comes from Seth Seifman with JP Morgan. Your line is open.

Okay. Thanks very much. And good morning everyone. I hadn't quite appreciated maybe the contribution that Tracepoint was making in the quarter. And so I saw how much the acquisition revenue went out from Q2 to Q3. Can you kind of break out what was Liberty versus what was Tracepoint?

Yeah, Liberty was a little over $100 million; it's ahead of our annualized estimates while Tracepoint contributed north of $300 million, probably less than $350 million. Tracepoint added around $12 million. So we're pleased with how well both integrations are going, really winning new work already ahead of pace. Great integration with both companies. So, those things I think are definitely contributing to the financial outcomes and contributions we're seeing.

Right. Okay. And then if we assume that those are at a similar pace in the fourth quarter, it implies a decent size step-up in the sales, excluding those acquired businesses. And we'll still have a CR in place for half a quarter and still have a situation here and I think starting to see some folks come back to the office, including here in New York, but still have some of this disruption. And so I guess, what gives you confidence about that as we think about what the base of sales is going to be for 2023 growth, and then, given just the near-term choppiness in the environment, how should we think about maybe the initial growth rate for fiscal '23 versus the longer term target?

Yeah, I mean, Seth, we're not going to get into giving guidance for '23, but I will say normally at this year when we're updating guidance, I'm narrowing it. And I think because of many of the factors that are contributing to the volatility I think it's pretty obvious it's a challenge to do that. So with the headwinds that we articulate that we're working on with the range of 5.7% to 7.2% we feel pretty confident that we're going to end up in that range. And it really points back to what we need to continue to be focused on, which is bringing in the talent and getting them utilized as fast as possible. I think those fundamentals give us confidence that we're going to build the momentum in Q4, and it's going to carry over into '23 as to what that range in '23 is going to be. Let me get to that in May, but at this point, we're feeling good about our guidance for this fiscal year.

Yeah, Seth, if I would just come back to the point that we are very focused on the fundamentals and the things we can control. We are trying to drive strong growth in the areas where the opportunities are still there. We are hiring the right people, we're winning the right work, we're managing costs. And ultimately we are committed to working hard to drive against our investment thesis and to implement Vault. I think on that note we are well positioned to continue to drive growth.

Thank you. Our last question comes from Robert Spingarn with Melius Research. Your line is open.

Well, good morning. Without asking about fiscal '23, I thought I'd maybe take another angle of this, but Lloyd, you said the funding delays were about a $30 million to $80 million pressure in the guide down, I'm assuming Q4 pressure. If we annualize that or extend, is that a fairly good proxy for what happens if the CR goes the full fiscal year?

I wish I could do that, but I think if anything, we've learned over the last two years, speculating on that isn't a great move. Like we're playing the game for what we can see and then chipping away at it to get the successes. We had growth in the second half; we are growing and it's really back to the fundamentals that are giving us strong bottom-line performance. But this is here to stay, and we're on top of it, and our great team pointed out in this prepared remarks. Everyone's pulling as hard as they can. I'd also remind you that what we did share is that we are focused on EBITDA dollar growth as a part of our investment thesis, and we believe we're on track to deliver on that.

Yeah, I'll just resound the point that Lloyd made – we are focused on growth and we are driving growth. And while we accept the volatility in the market and we're going to work through it, we are not pulling back from our desire and our ability to drive. Obviously, if the CR clears, that'll be better than if it doesn't, but we are singularly focused on driving this business.

Well, Horacio, on that note. This is either for you or for Lloyd, but I'm going to imagine you took a close look at the NDAA and the plus-ups there. And while maybe they are a little greater for the investment accounts than for Booz, how do we think about Booz's benefit from those plus-ups when we finally get them?

I think they play to a lot of our strengths. If you look at it, there's elements of that that will strengthen our ability to deploy in Cyber, 5G, AI Cloud, and even Quantum. So these are all areas where we believe we've built a unique position of leadership. We keep coming back to the fundamentals are strong. We don't find ourselves in that sense demand-constrained. The speed at which these wins get on contract and then we can put people against them where the near-term challenges reside. But when you look beyond that, we are aligned with the key priorities of the department and excited to support them.

Thank you. And there are no further questions at this time. I'd like to turn the call back to Horacio Rozanski for closing remarks.

I'll be brief because we went a little over time. Thank you all for your questions and for joining us this morning. I hope this discussion gave you a deeper understanding of the dynamics that are underlying our performance and how we are managing through them. As a result, why we are confident that we can deliver on both near and long-term financial goals, and that's driven by three things: we believe we have the right strategy, we have a track record of performance, and most importantly, we do have a great team. Thank you again, stay safe and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect everyone. Have a great day.