Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's Earnings Call covering Second Quarter Fiscal Year 2024 Results. At this time, all participants are in listen-only mode. Later, there will be an opportunity for questions. I'd now like to turn the call over to Mr. Nathan Rutledge.

Thank you. Good morning, and thank you for joining us for Booz Allen's second quarter fiscal year 2024 earnings call. We hope you had an opportunity to read the press release we issued earlier this morning. We have also provided presentation slides on our website and are now on Slide 2. With me today to talk about our business and financial results are Horacio Rozanski, our President and Chief Executive Officer; and Matt Calderone, Executive Vice President and Chief Financial Officer. As shown in this disclaimer on Slide 3, please keep in mind that some of the items we will discuss this morning are forward-looking and may relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from forecasted results discussed in our SEC filings and on this call. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements and speak only as of the date made. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. 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 second quarter fiscal year 2024 earnings release and slides. It is now my pleasure to turn the call over to our CEO and President, Horacio Rozanski. We are now on Slide 4.

Thank you, Nathan, and good morning, everyone. Thank you for joining the call. Today, Matt and I have the privilege of discussing with you another quarter of Booz Allen's market-leading performance. But before we get to that, I would like to open this call as I have done several times in the past, by putting our work in the context of world events. On October 7, the world was shocked by a murderous terrorist attack perpetrated by Hamas on the people of Israel. We at Booz Allen stand in mourning and solidarity with Israel, the victims, and their families. We pray for the safe return of all the hostages and would stand side by side with the U.S. government in condemnation of Hamas in support of Israel's defense and in the protection of all civilians. In the intervening weeks, Booz Allen has done what we do best. We have conducted listening sessions, creating spaces to support our colleagues in mourning or afraid for both our Israeli and Palestinian loved ones living in the region. We have launched a match giving campaign. And importantly, we have supported our U.S. client's missions. Because this is personal for me too. I have felt the warm embrace of the entire Booz Allen community. I am so proud and grateful to each one of my colleagues for showing the best of Booz Allen at a time of crisis and loss. This morning, I felt it was important to share this with you for two reasons. First, because these horrendous events remind us of the urgency of our work, bringing leading-edge technology to critical missions, in the hope of preventing and deterring things like this from ever happening. And second, because our internal response is yet another reminder of the unique culture and people of Booz Allen. They are the unshakable foundation for our exceptional performance, decade after decade. So, turning now to performance. Our second quarter of fiscal year 2024 was outstanding. Our Booz Allen team once again delivered industry-leading organic revenue growth, a strong bottom line, and record backlog. On our last earnings call, we emphasized the importance of having a strong second quarter. Our results show we succeeded. We built resiliency in the business and enter the second half of the fiscal year with significant momentum even as the uncertainty about the federal budget persists. We now expect to exceed our original plan for this fiscal year. As a result, we are pleased to announce an increase to our top- and bottom-line guidance for fiscal year 2024. Matt will take you through it, and also deep-dive on our performance in a few minutes. My goal for today is to connect our performance with our strategy and longer-term financial objectives. We are halfway through the three-year investment thesis outlined in late 2021 and deep into the implementation of VoLT. So this seems like a good moment to pause, to take stock and to offer a self-appraisal of our progress. I'll begin by going back to what we said at our Investor Day in October 2021. At that point, we saw an extraordinary opportunity. We expected emerging technologies, such as AI, cyber, 5G and quantum to rapidly transform how our government operates over this decade. And we said our first-mover advantage positioned us to maximize this opportunity to accelerate our growth, to take our industry leadership to the next level and to drive outstanding shareholder value. At that time, we also laid out a multi-year investment thesis centered on growing adjusted EBITDA by about 50% from $840 million in fiscal year 2021 to approximately $1.2 billion to $1.3 billion in fiscal year 2025. We envisioned a path to accomplish this goal that included above-market organic revenue growth in the range of 5% to 8% annually, adjusted EBITDA margins in the mid-10% with continued investment capacity for future growth, and $3.5 billion to $4.5 billion in total capital deployment, prioritizing small- to mid-size strategic acquisitions. Simply put, we are ahead of our expected pace at the midpoint of our investment thesis period. Our organic revenue growth of 9% in fiscal year 2023 and 15.7% in the first half of fiscal year '24 is well above the target range. And we have done this while investing in the business and maintaining margins above our original expectation. Our extraordinary organic performance has put us on a path to achieve our adjusted EBITDA target with far less capital deployment than we initially thought would be required. Today, we are pleased to reaffirm the adjusted EBITDA range of $1.2 billion to $1.3 billion by fiscal year 2025. And importantly, we expect to reach our goals while building an even stronger balance sheet. As of now, we are decreasing our baseline capital deployment expectations to $2 billion to $3.5 billion, which is approximately $1 billion less than we had initially anticipated. This provides us with the additional balance sheet capacity to create shareholder value over the next 18 months and beyond. As the world, the financial markets, and the federal budget become more volatile in the coming years, we are positioning Booz Allen to serve clients with distinction while investing in future growth avenues. These are the keys to growing and rewarding our talent and creating superior shareholder value. Moreover, these outstanding results demonstrate our VoLT growth strategy is working. VoLT stands for Velocity, Leadership, and Technology. And over the past 18 months, we moved rapidly to implement. Booz Allen needed to transform itself to gain the speed and scale required to serve our clients' evolving needs. To do this, we aim to get faster in our decision-making and operations. We also set out to build and scale leading positions that transfer missions through the use of new technologies. Today, our aspirations are becoming a reality. Let me offer two examples. First, the meteoric rise of AI proves our readiness to deliver greater speed and scale. As great power competition demands accelerated adoption of AI across every facet of the federal government, we are positioned to respond to our clients' complex needs. Earlier this month, we hosted some of you at our Helix Center for Innovation. We showed you how we are combining our exceptional talent, diverse ecosystem of innovation partners, and trusted frameworks to create differentiated AI solutions. We can rapidly tailor our proven solutions to insert AI into a range of critical missions, from empowering the warfighter at the edge to improving health outcomes. And we see significant opportunities ahead to expand and deepen our impact as we continue integrating AI with other technologies. The second example of VoLT's successful implementation is how we continue to transform our existing businesses to stay at the leading edge. We got on cyber business and our recent $1.86 billion award of Thunderdome illustrate this very well. Through this work, we combined our historical strengths in cyber tradecraft and mission understanding with our ability to leverage key commercial technologies into scalable solutions. Thunderdome puts Booz Allen at the center of DISA's effort to implement a zero-trust architecture across the Department of Defense's complex technical infrastructure. This is a critical task, demanding all of Booz Allen's and our tech partners' talent and ingenuity. As we continue to scale this work, we expect it to create opportunities to extend elements of this solution across the whole federal government and beyond. This is VoLT in action. To close, I am extremely proud of the progress we have made towards our ambitious goals over the past 18 months. The results we share today increased Booz Allen's resilience as our market and federal budget environment grow more uncertain. We are taking our leadership position to a new level and increasing our impact across the most critical and enduring missions. The amazing people of Booz Allen work relentlessly on behalf of our clients and our nation. Their passion to make the world better and safer fills me with optimism about the future. It invigorates my belief that we can empower people to change the world. And with that, Matt, over to you.

Thank you, Horacio, and thanks to all of you for joining our call. The Booz Allen team delivered another exceptional quarter. Our success across the portfolio in shaping demand and capturing opportunities, in hiring and deploying talent onto contracts, and most important, in serving our clients' mission sets us up very well for the remainder of this fiscal year and beyond. Booz Allen prides itself on delivering for our clients, our people and our shareholders, quarter after quarter and year after year. We are proud to be in a position today to raise our fiscal year 2024 guidance. Our team continues to build both momentum and resiliency for the long term. And as Horacio noted, we are ahead of where we expected to be against the adjusted EBITDA dollar goal in our three-year investment thesis. Now, let's dive into the specifics of our second quarter performance. Please turn to Slide 6. Total revenue for the quarter grew 16% year-over-year to approximately $2.7 billion. Organic revenue was up 14.8% year-over-year. Revenue excluding billable expenses increased 14.1% year-over-year to approximately $1.8 billion. Our exceptional top-line performance continues to be driven by strong demand for our services and solutions and steady headcount growth. Our business continues to exhibit strength across the portfolio. Across all markets, we are seeing the results of our leaders embracing the VoLT strategy. Our Defense business is driving, with revenue up approximately 24% compared to the second quarter of last fiscal year. Growth in this market is broad-based. We continue to bring technology and tradecraft to critical national missions. Our Civil business revenue was up roughly 17% year-over-year, with strong performance across the board. Our Intelligence business grew 4% year-over-year and has almost entirely absorbed the roll-off of a large classified contract. We had a number of significant new wins in the first half of the year and are very encouraged by the progress our leaders have made in hiring clear talent and evolving this portfolio. Finally, our Global Commercial business, which accounted for 1% of revenue in the quarter, declined approximately 45% year-over-year, reflecting the divestiture disclosed last fiscal year. Moving onto bookings. The award environment remains robust. The second quarter is historically our strongest for bookings. This quarter, net bookings totaled approximately $6.4 billion. This includes $1.1 billion of the $1.86 billion Thunderdome contract award, and the full value of the recently awarded $1.6 billion DMAC contract. Our second quarter book-to-bill was 2.41 times, in line with the same period a year ago. And our trailing 12-month book-to-bill was 1.29 times. Total backlog as of September 30 grew to a record $35 billion, up 10.1% year-over-year. Funded backlog increased 14.7% to $6.3 billion. Unfunded backlog dipped 2.4% to $10.1 billion, and priced options grew 16.6% to $18.6 billion. Looking forward, we continue to execute on a rich pipeline of opportunities. Our fiscal year 2024 qualified pipeline is up 35% compared to this time last year and stands at $26.2 billion. In sum, we have both the award and the pipeline to support our near-term and medium-term growth objectives. Turning now to headcount, Booz Allen grew to more than 33,000 people strong at the end of September. Client staff headcount was 11.2% higher on a year-over-year basis. Total headcount increased 10.3%. Hiring, onboarding and deploying talent onto contracts continues to be a top priority. These efforts have yielded a 4% increase in client staff since the beginning of the fiscal year, and we remain in a growth posture. Therefore, today, we are well-positioned to exceed our full year target of 3% to 5% client staff headcount growth. Moving now to the bottom line. We earned $291 million in adjusted EBITDA in the second quarter. This is 1.6% higher than the second quarter last year and in line with our expectations for the quarter. Our principal focus remains on EBITDA dollar growth. Our adjusted EBITDA margin of 10.9% was approximately 150 basis points lower than the same period a year ago. On a year-over-year basis, margins in the quarter were diluted by a higher billable expense ratio and a small shift in contract mix towards cost-reimbursable work due to the rapid growth in our Defense business. We continue to manage costs and execute contracts exceptionally well, which allows us to both deliver financial results in the near term and invest for the long term. This year, we do expect a slightly flatter pattern of quarterly margins compared to recent years. Second quarter net income was roughly flat year-over-year at $171 million. This was in line with our expectations for the quarter. Adjusted net income declined 4.9% year-over-year to $169 million. Diluted earnings per share grew 0.8% year-over-year to $1.29. Adjusted diluted earnings per share declined 3.7% year-over-year to $1.29. Moving now to the balance sheet. We ended the second quarter with $557 million of cash on hand. This includes proceeds from the successful investment-grade bond offering that we executed in August. Free cash flow for the quarter was negative $64.3 million. The result of $47.4 million used for operating activities, and $16.9 million of CapEx. Note that in July, we paid out the previously discussed settlement with the Department of Justice. Excluding that payment, operating cash flow was up almost 12% year-over-year. Collections were solid for the quarter, but cash outflows remained high due to our rapid growth and continued investments in the business. Our net debt at the end of the second quarter was approximately $2.9 billion. And our net leverage ratio was approximately 2.7 times adjusted EBITDA. Turning to Slide 8. During the second quarter, we returned approximately $143 million of capital to shareholders. This included approximately $81 million in share repurchases at an average price of $116.98 per share and $62 million in quarterly cash dividends. Today, I am pleased to announce that our Board has approved a quarterly dividend of $0.47 per share, that will be payable on December 4, to stockholders of record as of November 15. As Horacio noted, September 30 marked both the midpoint of our current fiscal year and the halfway point of our three-year investment thesis. Our leadership team could not be prouder of our performance to date. On our last call, we highlighted three things that would be key to our full year performance: second quarter bookings, second quarter headcount growth, and the potential for a government shutdown. Our bookings and headcount growth in the quarter exceeded expectations, but there is still uncertainty about government funding beyond November. Thus, our updated guidance incorporates both the momentum we have built and the strong possibility of a multi-week government shutdown. We have built the assumption of a two to four-week partial government shutdown into our guidance ranges. On this front, we continue to hope for certainty but plan for volatility. It is significant that we are raising full year guidance even with this assumption of a multi-week partial government shutdown. Let me now take you through our updated fiscal year 2024 guidance. Please turn to Slide 9. At the top line, we now expect revenue growth of 11% to 14%. 10% to 13% of which will be organic. And we do expect billable expenses will decline in the second half. Our adjusted EBITDA margin guidance is unchanged. We still expect margins to be in the high 10% to 11% range. As I noted earlier, we anticipate our margin profile for the full year will be flatter than it has been in recent years, even with our traditional ramp-up of investment in talent and capability building in the second half. We are raising our adjusted EBITDA dollar guidance to between $1.115 billion and $1.145 billion, or approximately 10% to 13% growth year-over-year. We are increasing our adjusted diluted earnings per share guidance to a range of $4.95 to $5.10 per share. We are maintaining our operating cash flow guidance at between $160 million and $260 million. This includes the impact of higher interest payments, connected to our recent bond issuance. We now expect capital expenditures of approximately $85 million, and free cash flow to be in the range of $75 million to $175 million. In sum, our business is strong and our VoLT strategy is working. Our management team is excited about the momentum we feel, the great work we're doing, and the value we're creating for our people, our clients, and our investors. With that, operator, let's open the line for questions.

Thank you. Our first question comes from Mariana Perez Mora at Bank of America.

Good morning, everyone.

Good morning.

So, my question is around AI. It was really impressive to see all the applications that you have on AI at the edge. And I'd like you to discuss how much growth you see there. And how dependent is this expansion or the timing of this on a budget situation?

Well, Mariana, it's good to hear an Argentinian accent this early in the morning and not be the only one. Well, I think, as you know from the conversations we had at Helix a couple of weeks ago, our business this year is forecasted, our AI business, in the $500 million to $700 million range and we see significant growth over the coming years. And that growth is broad-based. We talk a lot and we talk on these calls about the work we're doing in Defense, but our work in Intelligence and our work across the Civil agencies on AI is also growing well. And as you saw, we have some unique solutions that are the product of our talent, some frameworks that are proprietary to Booz Allen, and work we do with commercial partners to bring dual-use technology into these missions. That, I think, sets us apart. So, we are very bullish about the future. To your question about budgets, clearly, we are looking very closely at what's happening on the Hill. As Matt pointed out, we are, at this point, making into our guidance the potential for a government shutdown. We hope it won't happen, but we need to be realistic about that. And we need to be realistic about the fact that, if the budget compresses in the future, the competition for resources across every federal agency will increase. Now, having said that, from our perspective, VoLT has put us in the middle of key enduring missions where we're bringing unique capabilities, and that's why we're both raising guidance and reaffirming that we're ahead of pace to deliver on our multi-year investment thesis. So, we feel really good about where we are.

How much of your growth is insulated from budget certainty in the near term? In other words, what kind of upside do you have in the near term if a budget is established early next year?

It's challenging to make exact predictions. We've tried to reflect that in our approach, which is why our guidance is presented as a range rather than a specific figure. This year's range is broader than in the past to consider various scenarios. One key point to highlight is that the budget passed last December allowed us to address a lot of existing demand in the business. That’s a significant reason for our current growth and the success we've experienced. In my long tenure here, I can confidently say this has been one of the best first halves I've witnessed, possibly the best since our IPO, or even in my 30-plus years at Booz Allen. There is clear momentum in the business, and we're building resilience in anticipation of potential funding challenges, but we’re fully accelerating our efforts.

Thanks so much.

Sure.

Thank you. One moment for our next question. Our next question comes from the line of Bert Subin from Stifel.

Great, good morning. Just to follow up to Mariana's question there, at your AI event, you provided data around the headcount and sales expectations just for the business across Booz. Those expectations indicated lower utilization of your AI workforce, just relative to your broader client-facing staff. How quickly should we expect revenue utilization to rise across AI? And how does that make you think about the growth opportunity beyond FY '24? Horacio, I know you said you're bullish, but is that something that can flip pretty quickly?

Sure, I’ll go first. As you noted, we’ve structured our business from a revenue standpoint and shared information about our number of AI practitioners. However, it’s important to clarify that our AI practitioners also engage in non-AI projects and vice versa. Currently, our AI team may be utilized less than other parts of the business due to our significant investments in that area. Many individuals are focused on building capabilities, fostering innovation, and developing our AI governance framework. We anticipate considerable growth not only from these staff members but also from a broader group we are training and upskilling in technology. Additionally, it’s worth mentioning that during the AI event, we emphasized how AI is increasingly being incorporated into larger procurement processes, which has led to notable success. We are observing a trend where various components, not just AI but also Cyber, Digital, and hardware engineering and integration, are combined. Considering the complexity of our mission problems, AI is essential for enabling solutions, Cyber is necessary for protection, and everything must be integrated within software, network systems, and often hardware products as well. Therefore, we should not view AI in isolation; it is having a much wider impact across our business and is being integrated into our overall technology framework.

Let me add two small points to what Matt said, which very much resonates. One point is, if you look at the level of investment that we're putting into AI, it's relatively modest to the success that we're having. And a lot of that is because we start early on these technologies, and we wait and we plan and we position. So that the ones that go exponential, we can, like AI has, we can stay ahead of the trend and we are still ahead of the game there, and that's really exciting. And then the second point, I'll point you back at the intergalactic level to the power of our single P&L, and the ability to really manage resources as an institution as opposed to in small buckets, which gave us the opportunity to flex our workforce in a way that is pretty unique to Booz Allen and that gives us all the growth that we're talking about.

Super helpful, Horacio and Matt. Just a follow-up for you, Matt, maybe thinking more about the cost structure. Maybe not directly related to AI, but partially your G&A expense at least as a percentage of your sales continues to fall, and is growing certainly much slower than your sales growth. Can we expect that to be an engine for future margin expansion, or is that something that normalizes over time?

It could generate more margins, but really this has been intentional over the past few years. We're shifting costs and investment from the infrastructure into the business. I mean, as Horacio said, relative to some of the hyperscalers, our investment in AI is modest, but we're investing a lot of money there. So, it has been a very intentional structured effort led by all of our business leaders to become as efficient as possible on the corporate side so we can invest in the business and in growth and in the capabilities our clients want.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Sheila Kahyaoglu from Jefferies.

Thank you. Good morning, Horacio and Matt. Thanks so much for that introduction and the Helix visit as well. When we think about your organic growth, just to start on that, organic growth, 15% in the first half, really great results, Defense, up 24%, another acceleration. How much of that is due to improving DoD outlays? And maybe if you could remind us your expectations across the different customer bases for the year in terms of the top line?

Hi, Sheila, good morning. I'll start; Matt might want to add. I'll say the following. When you look across the entirety of our business, Defense, Civil and Intel, 24%, 17%, 4%-plus growth while absorbing changes in the contract portfolio, it's really broad-based. We are hitting on all cylinders across all of these. It's not one program, it's not one piece, it's not one dynamic. I think, in general, it's attributable to VoLT. VoLT is giving us both momentum and resiliency. The momentum is evident in the numbers and in the fact that we're raising guidance while accounting for the potential for a government shutdown. And the resiliency is equally important, because to your point, I mean, we do see increased uncertainty in the funding picture. At this point, we continue to see clients moving aggressively against our key priorities in other cycles like this. We have seen clients maybe pull back in anticipation. And perhaps it's because of the missions we support, perhaps it's because of the geopolitical dynamics and the uniqueness of our offerings that we're still seeing that. But we are both growing fast and running tightly so that we can create the environment in which we can continue to both invest and protect our workforce if the budgets get tight or get interrupted for a period of time. So, we're excited about where we are across all the markets, in Defense, in particular. Like I said, I mean, every part of our Defense business is growing nicely. It's the only way to get to 24%, and it has really transformed to grow along the lines of bringing technology to mission.

Yeah. Sheila, obviously, 10% to 15% organic growth for the year, we're growing above market, clearly. But as Horacio said, it's the quality of the underlying growth and the depths of that that really has us excited because it gives us not just momentum but the resiliency to ride out potential dislocation from a budgetary environment.

And Matt, just another follow-up for you, if I may. Can you talk about the accounts receivable balance in terms of the cash? How we should expect sort of working capital improvements from here on that balance? And also the impact revenues, how we should see that progression?

Sure, I will address that in a few parts. First, we've discussed the positives and negatives regarding cash in several calls. On the positive side, we're definitely generating more profit, our capital expenditures have decreased, and our collections have improved. However, there are challenges as well. The Department of Defense settlement, increased cash taxes resulting from our growth, and higher interest expenses are concerns. Additionally, our rapid growth means we're using more working capital to support it. For instance, we are required to pay small businesses within 30 days and, as we grow, we generally pay them faster than we collect from our customers. Regarding our outstanding receivable balance, you seem to be asking about the unbilled receivables on our balance sheet, which you've inquired about before. A significant portion of that is related to past-year audits. We are collaborating with the Defense Contract Audit Agency and the Defense Contract Management Agency to resolve this. It will likely be a multi-year process, but things are progressing positively. At this moment, we cannot predict when or how that will be resolved.

And just on the revenue line, I think that you called out $18 million from the reduction at the provision. So, those should be conceived as positive as you sort of retrieve those payments, is that how to think about it?

Yes. This is particularly related to the changes we made to our reserve in connection with our 2022 audit and its results. There will be ups and downs over the next few quarters and a couple of years as we work through this. It was a positive quarter, but we are not making any predictions about future quarters.

Got it. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Louie DiPalma from William Blair.

Horacio, Matt, and Nathan, good morning.

Good morning.

Hello, Louie.

Horacio and Matt, you forecast lower capital deployment through fiscal '25. Has your VoLT and your venture capital program been so successful and selling prices so high that you are no longer interested in another Liberty-sized acquisition? And are you signaling more stock buybacks with the extra capital now?

Yeah, Louie, thanks for the question. I'll start; I'm sure Horacio will want to comment. I mean, obviously, when we put the investment thesis in place two years ago, the world was a different place. It was a different interest rate environment; the M&A market was much more robust and less political and macroeconomic risk. Strategic M&A very much remains a priority for us. It's an important tool in rounding out our ability to bring technology to mission at scale. To your question, we're getting a lot of value out of our venture investments, but they don't tend to not be at the kind of scale that you get from Liberty. So, explicitly, I would absolutely do the Liberty acquisition again. And we're looking for the next one. We've got a sizable pipeline of small to mid-sized tuck-ins that we're prosecuting. And the range of $2 billion to $3.5 billion can still accommodate a significant amount of M&A activity over the next 18 months. I think we've only deployed slightly over $1.2 billion in the first 18 months. We're going to remain patient, disciplined as always in our approach, but that we can meet the adjusted EBITDA target in the investment thesis for deploying less capital than anticipated, really is a testament to our organic performance. And it just gives us a lot of flexibility to create additional value for shareholders. So, I would not read into this any change in our strategy; it's just a reflection of where we are.

Great. Thanks.

Thank you. One moment for our next question. Our next question comes from the line of Cai von Rumohr from Cowen.

Thanks so much, and good quarter. So, Matt, you mentioned that you booked $1.1 billion of the $1.8 billion on the Thunderdome. What did you guys book on the $630 million Space Force award and the $1.7 billion CDC award?

Yeah. So, Cai, I believe I said in our remarks, we booked all of the DMAC award, CDC, and I believe we booked all of the Space award as well. Thunderdome is going to be incrementally awarded. So, we only booked $1.1 billion out of the $1.85 billion there.

Got it. And can you comment about near-term bookings prospects? You know...

It's always hard...

Are there still significant contracts available, or should we expect more task orders?

It's a combination, Cai. It's always hard to predict quarter-by-quarter because, as you know, these things can slip in terms of awards and then the protest environment creates some uncertainty. Looking ahead, I don't think we're going to have a historically stellar quarter next quarter. There are a couple of large awards that may or may not happen. We don't have a significant amount of recompete risk in the portfolio in the next 12 months. So, as you know, this is why we talk about LTM more than each individual quarter. And the LTM of almost 1.3 times, and more importantly, our qualified pipeline, which is up 35% year-over-year, says we're really in good shape from a demand perspective.

Yeah. Cai, just to give a little color on that. I've had the chance to both talk to clients about needs and talk to our team about the work that we're going after, and I would say the demand picture for technology into core mission is actually accelerating, not slowing down. And so, as Matt said, while it's almost impossible to predict bookings on any given quarter, the demand picture absent significant budget disruption is very strong.

Well, last year you had a 0.1 book-to-bill, so it was particularly weak. Is that going to be the norm that we get this very strong second quarter, which we got this year? And then we should look for a very, very weak, near-zero Q3, or is there any opportunity that Q3 could be a little bit better, clearly below 1, but better?

I think I'll start. I'm sure Matt will want to provide more details on this. First of all, I believe that this quarter, which is the last quarter of the government fiscal year, tends to be the strongest for Booz Allen because of how outlays occur and how money is allocated through the budgeting cycle. This has always been the case and continues to be true. As you have seen over the past few years, the other quarters tend to be less predictable since they depend on when large contracts are awarded. That process changes every year, so I wouldn't directly compare last year to this year. However, as Matt mentioned, we have a substantial pipeline, exceeding $26 billion. We hope some of these projects will be awarded this year, but either way, we have the necessary backlog to continue growing. We have the team in place to support this growth, and we have the momentum to achieve our goals.

If you examine our leading indicators and historical measures, we're in an excellent position. On the demand side, we've discussed not only the backlog in the book-to-bill, which reflects past performance, but also the proposal pipeline that indicates future opportunities. On the supply side, by the end of the quarter, our client staff headcount increased by over 11%, more than 4% sequentially in the first half of the year, which exceeds our usual target growth rate of 3% to 5%. We're managing the business effectively, but there's considerable volatility present. That's what we're preparing for, which is why we've factored in a two- to four-week assumption regarding a potential partial government shutdown. To put this in perspective, the last shutdown of this magnitude, from 2018 to 2019, cost us about $0.02 to $0.03 at the bottom line. However, that shutdown occurred during the holidays, was limited in scope, and happened when we were a smaller organization, allowing us enough time to recover lost billing hours, which we successfully did. Therefore, we anticipate the impact this time to be three to four times greater. In context with our overall guidance, we've raised our top-line by 4%, adjusted EBITDA by 4%, and EPS by 3%, in addition to the government shutdown assumption, which puts us in a strong position.

Terrific. Thank you very much.

Thank you. Our next question comes from Matt Akers from Wells Fargo.

Yes, good morning. This is Eric Yan on for Matt. Just wondering if you see the headcount kind of shifted with FocusedFox running off. Maybe that's around end of September. I think it's about like 400 people on the program. Do you know how many you were able to retain and shift to other work and how many are lost?

We have nearly fully managed the impact of the contract loss, as I mentioned earlier. There is only a small team remaining engaged in essential tasks for that Booz Allen contract. Initially, we had around 400 personnel dedicated to that contract, and we retained over half, reallocating many to critical projects. Looking at the bigger picture, we aimed for a headcount increase of 3% to 5% this year; currently, we are at 4%, and I'm quite optimistic about the results for this quarter. This is why I noted that we are probably going to surpass the 3% to 5% target. Historically, that growth has been essential for achieving our organic growth goals.

Okay, thanks. Just one more on the Section 174, with the updated guidance from IRS. Do you see an impact from that going forward?

No.

Thank you. At this time, I would now like to turn the conference back over to Horacio Rozanski for closing remarks.

Thank you, Gigi. And thank you all for your questions and for being here this morning. I hope Matt and I successfully conveyed how excited we are about both the momentum and the resilience we see in our business. And also of the opportunities that are ahead for our people, for our clients, and for all of our investors. If you'll indulge me for a moment, I'd like to close the call by calling out our annual innovation publication called Velocity, which is now available on our website. And this year, it's fully centered on artificial intelligence. In this year's Velocity, you get to hear from Booz Allen experts and from our industry partners on the ubiquity of AI, its transformative capabilities, how harnesses it for good, and a lot more. So, I hope you'll enjoy reading it. And we would love to hear your feedback. And on that note, thank you again for joining, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.