Good morning and thank you for standing by, and welcome to Booz Allen Hamilton's Earnings Call covering Third Quarter Fiscal Year 2024 Results. At this time, all participants are in a 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 third 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 two. 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 three, 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 third 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 four.

Thank you, Nathan, and good morning, everyone. Thank you for joining us. Matt and I are very excited to share excellent financial results with you today. Booz Allen's record-breaking fiscal year continues. Our best first half has now extended into our strongest three quarters of growth since our firm went public in 2010. I am so proud of our team. Thanks to their efforts, we have achieved the strategic and operational momentum we aim for under our VoLT strategy. Our financial performance has been remarkably consistent. This quarter, we continue to deliver industry-leading double-digit organic revenue growth. We remain ahead of pace on our multi-year investment thesis and again, expect to exceed our guidance for the fiscal year. Given the continuing uncertainty in the market, from ongoing budget debates, geopolitical conflicts and the upcoming election, our clear focus remains to accelerate momentum and increase resiliency across our institution. Matt will take you through the full details of the quarter and our outlook for the rest of the fiscal year. For the remainder of my remarks, I will focus on putting our continued success in the context of our VoLT strategy. Let me begin with a little historical context. 2024 is Booz Allen's 110th year. Since our earliest days, we have embraced continual transformation as an imperative for relevance in the market and long-term growth. From World War II to the Apollo missions to the advent of digital government, Booz Allen anticipated the next waves of change early and transformed to meet the needs of each moment. Our goal has always been to stay a step ahead of our clients' requirements and help them drive their own transformations. Our firm has outperformed the market for decades because of four primary differentiators. Our ability to anticipate and adapt. Our capacity to invest and innovate. Our position on critical national missions. And most important, our exceptional talent. All these factors hold true today. The current iteration of our century-long transformation journey is called VoLT, which stands for Velocity, Leadership, and Technology. We have been implementing this program for the past 24 months. The strategic aims of VoLT are to get faster and elevate our client impact, which in turn accelerates our growth and drives exceptional shareholder value. Our third-quarter results demonstrate a few important things about our strategic progress. First, we have built resilience and driven momentum into the business, even as the external environment remains dynamic and uncertain. Second, we have strengthened our leadership position in the market as we transform missions of national importance with emerging technologies. And third, we have gained speed and efficiency in how we operate and grow our workforce. In sum, our VoLT strategy is working. As examples, let's look at two key missions we are transforming and at the amazing people who do this work. First, China. The National Defense Strategy describes China as DoD's pacing challenge, and it outlines the top priorities to strengthen the U.S. deterrence mission. The sheer geographic scale of this mission, which encompasses nearly half of the Earth's surface, creates both urgency and unique complexity for our clients. Through years of investment in the right technologies, talent, and partnerships, we are more prepared than ever to help our clients translate urgency into speed at scale. Today, we have more than 600 employees in the Indo-Pacific region working across various aspects of this mission. We have also forward deployed our innovation ecosystem. This provides our clients with faster, more direct access to emerging technologies. Our client focus is on accelerated readiness, supporting allies and partners, and bringing AI and cyber to key mission priorities. While there is much work to do, we are already having an impact. A relevant public example is our recent win of a small but strategic contract to build a private 5G network for the United States Navy in Guam. This work will leverage our early investments and expertise in 5G, edge computing, and zero trust to support secure communications, operations, and logistics on the island. Finally, I'll note that our firm's focus on the pacing challenge is not limited to our growing presence in the Indo-Pacific. Leveraging our lessons from Ukraine and other conflicts, we are considering how to tailor our solutions across all of our sectors. And given the scale and complexity of the China mission, we are also engaging our network of technology partners to mount an all-of-nation approach. In short, we are deeply committed to helping our clients defend U.S. interests. Because this is a long-term priority for our nation, it will be a long-term priority for Booz Allen. Pivoting next to our health business. For more than a decade, Booz Allen has been at the heart of many federal healthcare transformations. For example, we have worked to modernize care and benefits delivery for our veterans, implement health reform, and accelerate how life-saving drugs are safely brought to market. Through the strength of our work across these and many other missions, the health portfolio has crossed the $2 billion annual revenue threshold. Today, building on that success, we are poised to help our country transform the future of public health. Our recent win of the Data Modernization Accelerator contract at the Centers for Disease Control is a tremendous opportunity to improve data interoperability across the public health ecosystem. Our years of innovating at the VA and our early investments in cloud, machine learning, generative AI, and cyber positioned us well to win this work. Now Booz Allen is playing an integral role in helping the CDC unlock the power of data at scale so our country can better prepare for and respond to critical public health emergencies. I've just described a small sample of the work we do at the center of the missions that matter most. More broadly, we are leading the way in redefining intelligence collection, implementing zero trust, and preparing for a post-quantum world. We are also focused on accelerating U.S. space superiority by harnessing data to speed decision-making and mission outcomes. To that end, we recently made a venture investment in a company called Albedo to leverage their leading-edge imagery capabilities as new data collection sources for our clients. The strategic importance of all these missions, coupled with our outstanding execution, builds resilience in our business, and our relentless implementation of VoLT drives our momentum. Today, we are exactly where we want to be as we live our purpose to empower people to change the world. Because more than anything, at our core, we are a company of purpose-driven professionals. People join Booz Allen because they have a passion for doing world-changing work. People stay at Booz Allen because we invest in them and provide unique opportunities to solve tough challenges inside essential missions. Simply put, our people catalyze the potential of Booz Allen. So, my final point in our success with VoLT connects to our record headcount growth over the past six quarters. This is the result of intentional and focused efforts of our recruiting and business leaders to transform our talent acquisition processes. We are hiring, onboarding, and moving our talent to the missions they are passionate about faster than at any time in our history. These process improvements, combined with our increased investment in talent, create the conditions to grow our headcount at speed. This is crucial to accelerating our overall growth, which allows us to continue to invest and outpace the market. It is incredibly gratifying to see how VoLT is fully woven into our business and evident in the results we share today. We recognize that the hiring market and other macroeconomic conditions have improved in recent months. Even in a strong market, our outperformance, headcount gains, and new opportunity capture are the outcome of the purposeful empowerment of our leaders to take action in alignment with our strategy. And with that, Matt, I'll turn the call over to you.

Thank you, Horacio, and thanks to all of you for joining our call today. I will start by saying that I am incredibly proud of the financial performance we are reporting today. Our third quarter results are further proof that our VoLT strategy is working and Booz Allen continues to build momentum. We are investing in cutting-edge technologies, hiring the right people, building critical partnerships, and winning work at scale. These strengths are the source of confidence and resilience in our business. As Horacio noted, we have now recorded the strongest first three quarters of a fiscal year since our IPO. Our performance has been remarkably consistent on the supply side, on the demand side, and in how we are operating the business. Based on this performance, we are ahead of pace against our three-year investment thesis, and we are especially pleased to raise our fiscal year 2024 guidance again today. Now let's dive into the details. Please turn to slide six. Total revenue for the quarter grew 12.9% year-over-year to approximately $2.6 billion. Organic revenue was up 12.8% year-over-year, and revenue excluding billable expenses increased 13% year-over-year to approximately $1.8 billion. This exceptional top-line performance was fueled by our strategic position in the market, robust demand for our services and solutions, and our ability to attract and retain elite talent. Taking it now sector by sector, our defense business continues to excel. Revenue was up roughly 17% compared to the third quarter of the last fiscal year. And this performance is strong and broad-based. Our team remains focused on accelerating access to data and decision-making tools and providing next-generation solutions to warfighters on critical missions across the globe. Our civil business is also growing fast, up roughly 18% year-over-year with double-digit growth across the portfolio. Booz Allen is unleashing the power of data to achieve better and faster mission outcomes for our civil government clients, from health and life sciences to infrastructure and climate. As anticipated, the pace of growth in our intelligence business slowed in the third quarter. Revenue declined 2% year-over-year. Our Intel leaders are winning exciting new work in key mission areas and have had success retaining critical talent, people who can now support cyber missions across the firm. This business is on a strong vector for the future. Finally, our global commercial business, which represented 2% of revenue in the quarter, was down about 22% year-over-year. This reflects divestitures disclosed last fiscal year and overall softness in the commercial cyber consulting market. Moving on to bookings on slide seven. The award environment is strong and our market leaders are doing an outstanding job shaping and winning work consistent with our VoLT strategy. Despite uncertainty about the near and long-term budget environment, our government clients and the people of Booz Allen remain laser-focused on meeting the country's urgent mission needs. This quarter, net bookings totaled nearly $1.9 billion. Our third quarter book-to-bill was 0.72 times, our best third quarter book-to-bill since fiscal year 2018. Our trailing 12-month book-to-bill was 1.41 times, well above our trailing five-year average. Total backlog as of December 31st stands at $34.3 billion, up 14.2% year-over-year. Funded backlog grew 15.4% to $5.2 billion. Unfunded backlog declined 9.2% to $9.2 billion. And priced options were up 29.3% to $19.9 billion. In sum, demand is strong. We have a solid foundation to remain the industry's organic growth leader. Turning now to headcount. Booz Allen closed out calendar year 2023 with nearly 34,000 people. Total headcount is up 8.6% year-over-year, and client staff headcount is up 9.2%. We efficiently deploy our people on contracts and ensure they are empowered to succeed. This people-centric culture, including continuous investments in our employees, furthers their commitment to Booz Allen and in turn makes them ambassadors to future talent. Since the start of the fiscal year, client staff has increased more than 6%, exceeding our expectations as well as the 3% to 5% target we had set for the year. This level of client staff growth, combined with our healthy bookings, positions us well for the next fiscal year. Moving now to the bottom line. We earned $291 million in adjusted EBITDA in the third quarter. This is 19.1% higher than the third quarter last fiscal year. Our adjusted EBITDA margin of 11.3% is roughly 60 basis points higher than for the same period a year ago. As you may recall, we manage the business on an annual basis. We indicated last quarter that we anticipated a somewhat flatter quarterly margin profile than in recent years. This pattern played out as we expected in the third quarter. Booz Allen pursues complex work that sits at the center of our client's mission and at the top of the technical stack. This requires us to invest ahead of the market. The quality of our work, coupled with our ability to get scale out of the business even as we ramp up investment, allows us to consistently deliver superior financial results. Third quarter net income was $146 million. The year-over-year increase of 374.6% in net income is primarily a result of the legal reserve of $124 million recorded in the third quarter of last fiscal year. This is partially offset by an increase in our provision for income taxes associated with the reversal of an uncertain tax position related to Section 174. Adjusted net income increased 29.4% year-over-year to $184 million. This excludes the impact of the legal reserve and the increase in our provision for income taxes. Due to the same factors, diluted earnings per share grew 382.6% year-over-year to $1.11, and adjusted diluted earnings per share increased 31.8% year-over-year to $1.41. Moving now to the balance sheet. We entered the third quarter with $602 million of cash on hand. Free cash flow for the quarter was $211 million, the result of $234 million of cash from operating activities plus $23 million of CapEx. Collections were strong for the quarter and included some payments we expected to receive in the fourth quarter. Cash outflows remained consistent with our outsized growth and sizable investments in our people and capabilities. Our net debt at the end of the third quarter was approximately $2.8 billion, and our net leverage ratio was approximately 2.5 times adjusted EBITDA for the trailing 12 months. Turning to capital deployment on slide eight. We returned close to $156 million of capital to shareholders in the third quarter. This included approximately $94 million in share purchases at an average price of $123.52 per share and $62 million in quarterly cash dividends. Today I am pleased to announce that our Board has approved a $0.04 increase to our quarterly cash dividend. This dividend of $0.51 per share will be payable on March 1st to stockholders of record as of February 12th. Now for a look ahead. On our last call, we updated our full year guidance to incorporate both the momentum we had built and the strong possibility of a two to 4-week government shutdown. Our revised guidance reflects the strength of our third quarter and the continued momentum of the business. While there is still uncertainty about government funding, we now believe that a multi-week government shutdown is significantly less likely to occur in our current fiscal year. Thus, we are no longer including a material shutdown related contingency in our guidance. Let me now take you through our updated fiscal year 2024 guidance. Please turn to slide nine. At the top line, we now expect revenue growth of 14% to 15%, 13% to 14% of which will be organic. We are raising our adjusted EBITDA guidance to between $1.155 billion and $1.175 billion, which equates to approximately 14% to 16% growth year-over-year. This implies an adjusted EBITDA margin of around 11%. We are also increasing our ADEPS guidance to a range of $5.25 to $5.40 per share. This is driven by the increase in EBITDA and a modest decrease in our ADEPS tax rate, which we now expect to be between 22% to 23%. We are raising our guidance for net cash provided by operating activities to be between $200 million and $275 million. This range includes a roughly $25 million increase in our estimated fiscal year 2024 cash taxes related to Section 174. And finally, we still expect CapEx of roughly $85 million, and we now expect free cash flow to be in the range of $115 million to $190 million. In closing, our business is performing exceptionally well. We have just delivered the best three quarters since Booz Allen's IPO, with remarkably consistent performance, even in the midst of geopolitical and macroeconomic uncertainties. This is a real testament to the quality of our leadership and the power of our VoLT strategy. Our firm is on a sustainable, quality growth path. The energy at Booz Allen is palpable. Our people are excited about the work they do, the impact they have, the strong performance we have delivered, and the many opportunities that lie ahead. With that, operator, let's open the line for questions.

Thank you. It comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed.

Good morning. Good morning, Horacio and Matt. Phenomenal quarter.

Good morning, Sheila. Thank you.

Really amazing. Just wanted to maybe think about the growth trajectory in terms of my question, starting with civil. Double-digit growth for eight quarters now. Can you give us a little bit more detail about what's driving that? And then how much of that is related to public health and the T4NG program, and what Booz is doing in the next phase of that program?

I'll take that one, and great headline, by the way. Let me start by framing the overall performance, and then I'm happy to go into civil. At the firm-wide level, these have been the best three quarters, and we're on track for the best fiscal year since going public in 2010. Frankly, I can say this is as good as I've ever seen. The performance has been remarkably consistent, and we've been positively surprised by the strength of our talent acquisition and retention program, which fuels our revenue capabilities, the most important part. As an organic growth leader, we're in a virtuous cycle where excellent work allows us to capture exceptional talent, delivering great results for our clients and shareholders, which in turn allows us to invest in new technologies. In short, our commitment to strategy, VoLT, is working, creating resilience and momentum in the business despite an uncertain budget and funding landscape. Now, regarding civil, our civil business has been a star in our portfolio for multiple years. In the early years of this impressive run, it was driven by public health and specific agencies. Today, we’re a leader in digital transformation, cyber, and AI across the entire portfolio. While our health business has surpassed the $2 billion mark, making it a significant part of our operations, all sectors, from citizen services to law enforcement, are working together to produce these results. You didn’t ask, but the same can be said for defense, where we see real momentum and growth opportunities in our national security business. To wrap it up, Booz Allen, now 110 years old, is as vibrant today as it has ever been.

Thank you for that, and I knew you'd like the title. In terms of just another one for you, somewhat related to the top line, but where your margins are pushing ahead of your long-term targets, essentially, and there's been a lot of discussions about the government contracting differently. So, do you think the government is paying a premium for Booz just given the service offering?

Yes and no. I believe that we operate at the top of the market regarding the necessary capabilities, the talent we need to acquire, and the investments we need to make. This will, over time, lead to better economic outcomes. While this may not apply to every procurement, it holds some truth on average. I think the reason we're ahead of schedule on our margin targets is that we anticipated this period would require significant investment, but we didn't fully predict how much efficiency we could generate within the business. This efficiency has enabled us to preserve our margins, even as we invest in talent, capabilities, and roles that I hope will drive our next wave of growth.

Great. Thank you.

Thank you. One moment for our next question, please. The question comes from the line of Bert Subin with Stifel. Please proceed.

Hey, good morning, and thank you for the question.

Good morning, Bert.

Good morning. Horacio, I want to follow up on your comments regarding the business's growth positioning. You've experienced a 10% increase in headcount year-over-year, and organic growth is now in the teens, compared to the longer-term expectation of 5% to 8%. As you reflect on that outlook, do you still believe this is how the business should grow over time, or have factors like AI or geopolitical risks influenced your perspective on Booz's growth potential in the medium to long term?

What you are seeing now is the effectiveness of our talent acquisition process, our commitment to investing in people, and a culture that promotes retention, all combined with a favorable external environment and our distinctive ability to integrate technology with mission objectives. This isn't just a short-term trend; if we look back, it has been developing for at least a decade, and I believe it will continue to support our strong performance in the market going forward. This raises the question of the market's sustainability and how long it will last. We are aware of the uncertainty in the funding landscape, especially with fiscal constraints looming in March and the upcoming election season contributing to this unpredictability. We are monitoring these factors closely. However, unlike previous years of uncertainty where clients would typically start to reduce spending due to concerns about future budgets, we are seeing the opposite. Our clients remain committed to their missions and are focused on investing in technology that enhances these missions, which is fueling our growth. For Booz Allen's sake, we hope this trend continues, and it also serves the nation's interests well.

Got it. Okay. Thanks Horacio. And Matt, just a quick follow-up for you on the capital side of things. You mentioned your net leverage now at 2.5 times, and that's on a trailing basis. If we look at that chart that you highlighted in the earnings presentation, you've been pretty balanced in how you've been allocating capital over the last couple of years. We've been starting to hear indications the M&A market is maybe getting a little better in terms of where seller expectations are and clearly where interest rates are going. As you think about M&A perhaps becoming a larger share of that capital allocation strategy, can you just talk about what you would look for in M&A and what you're not doing today that would be of interest to grow into inorganically?

Yeah. Thanks, Bert. First, our strategy isn't changing from a capital deployment and M&A perspective. I think we've always been biased to M&A over share repurchase, but the right M&A, right, that's strategic and that really helps us fill a gap in a capability or a business model. We don't need to buy for scale. As Horacio mentioned, as the numbers indicate, we're growing 13% to 14% organically this year. We don't need scale. What we're looking for are unique and oftentimes niche capabilities or business models that'll help us accelerate into some of these waves of technology or into areas where we think, for example, outcome-based contracting may emerge. So, I've heard the same commentary, Bert. I think we are seeing indications that more assets and potentially assets of scale will come to market. My leading indicator is always how many bankers are asking me to lunch. My dance card is full, particularly from the New York bankers, which typically indicates that more assets of scale are coming to market. I'm not sure that we're seeing yet enough data points to call it that prices have come down, but I certainly hope they will. Thank you, Bert. Appreciate it.

Thank you. One moment for our next question, please. And it comes from the line of Mariana Perez Mora with Bank of America. Please proceed.

Good morning, everyone.

Hola, Maria. Good morning.

My first question is about China. You mentioned in your prepared remarks the defense focus on China and the role that Booz Allen could play there. What are the opportunities around JADC2? Since you recently announced this collaboration with LHX, how can you engage with the primes and work directly with the government, and how significant could that opportunity be?

It's a great question. JADC2 is a key strategic initiative to bring together all the information that a co-com commander would need to operationalize. And it's therefore an important deterrent to aggression. So, we're very committed to it. We're a significant part of it. We work closely with the CDAO on a number of initiatives that feed into JADC2 and into other efforts that ultimately may or may not integrate together into it, but are all part and parcel of the same thing, which is how do you create full domain awareness? How do you create a decision cycle that takes advantage of all of the data available and that accelerates inside of a potential adversary's decision cycle? That is something that Booz Allen is very good at. Our understanding of the mission, our ecosystem of partners that bring technology at scale, and the at-scale part is the crucial part here. And frankly, our ability to co-create with them and to build pipelines of solutions are a big part of it. And this is really what VoLT has been all about, doing that fast, doing that at-scale and bringing the right technology. And that's what we're focused on.

Great. Thanks so much for the color. And my follow-up question is about headcount. So, we see all these great increases in headcount and the client staffing, but I'm curious if you could discuss a little bit about the clearances, how they are performing. And also, post-pandemic, you were able to be really flexible and really agile to adapt to these remote working. How are the customers' appetite to these remote working solutions as we go back to business as normal in the post-pandemic world?

Yeah. Mariana, it’s Matt. I'll take it. I don't think we're seeing any material improvements in the processing of clearances. It may be on the margins in certain areas, but nothing that is material from a firm-wide perspective. To your second question, we have tried to, and our clients, take advantage of a lot of the lessons learned through COVID about remote work, about flexibility, about the opportunities to combine and recombine how people interact and engage in different ways. We learned a lot, for example, about remote hiring and how to make our hiring process more efficiently through COVID. That has absolutely carried forward through to today. So, we are seeing that our clients are more receptive to alternate work arrangements. We really pride ourselves on our flexibility. And as Horacio said, undoubtedly, the labor market has gotten a little looser in the last 12 to 18 months, and that's been helpful. But our performance really is intentional. And we talk a lot about remarkable consistency in the business. It has been particularly true on the labor side or on the supply side. Our attrition is down meaningfully. Employee satisfaction is up, which we care a lot about. Our average monthly applications are on pace to double year-over-year, and a lot of that is technology-enabled. And we've seen an almost 60% increase in referrals, employer referrals, over the last three years. And I think that's, in many ways, the best indication of our employee value proposition and the fact that our employees are willing and eager to recommend us as a place to work and employer of choice to their network. So, the short answer to your question is yes. The longer answer is it requires a lot of work, and it's been very intentional.

Perfect. Thanks so much.

Thank you. One moment for our next question. And it comes from the line of Cai von Rumohr with Cowen. Please proceed.

Yes, thanks so much. So, great quarter. You talked about, I mean, Intel was down, not unexpectedly, with FocusedFox. But you talk about that looking good. Give us some color on where you see it going from here. Have we passed the bottom? And secondly, you didn't talk much about global commercial. And this is the first quarter. It wasn't basically flat to down sequentially. It had a nice uptick. So, are we seeing something of a turn there?

I'll start with global commercial for a moment, and then spend more time on national security, if that's okay, Cai. Our global commercial business is really a small part of the portfolio. The numbers this quarter still reflect divestitures and softness in the commercial consulting side of the market, which I think is echoed by everything we see what's happening in the consulting industry in general. At this point, our incident response business there has accelerated. It's doing really great, and it's an important part of the offering. But what we really like about commercial is its connectivity to the rest of our business. If you think about our national cyber platform, adversaries look at the entire attack surface of the United States, and they don't care if it's private or public or at the intersection. And so, having this presence that cuts across makes us a valuable partner to our government clients as we support them here. But again, it's a small part of the portfolio. On the national security front, you explained already why the numbers are what they are this quarter. What we're seeing into the future is a business that has repositioned against the true technology side of intelligence. There's a lot more. AI space is growing as a significant part of our business. Our clients now look to us to create unique solutions. And they trust us to help them scale those solutions. We've spoken before, and Matt just talked about that business always is a little bit rate-limited by the speed at which we can clear people or transfer clearances if they already have them. But even with that, we anticipate the growth accelerating and building. They want some really interesting work. They have some great pipeline, and the talent is staying, including some of the cyber talent that we talked about in the past is staying at Booz Allen and getting redeployed and redistributed against some of these key mission priorities.

Terrific. And a second one, the whole industry has benefited from a much looser labor environment. But you talked about that you're doing much better than you ever have in terms of taking people from higher to putting them onto the mission. Maybe give us some color in terms of what you're doing there to get that improvement.

I'll begin. Matt has also been closely involved in this. The credit for this goes to Kristine Martin Anderson, our COO, who brought together a team from all our enterprise operations and markets to collaboratively tackle this issue. Initially, we realized we weren't fully utilizing the applicants due to our fragmented approach. We have now created a more integrated and comprehensive system using both technology and process. The simplest way to illustrate this is that runner-up candidates no longer get overlooked; their knowledge positions them for similar future opportunities. This enhances our ability to access our incoming talent pipeline significantly. As a result, we have improved the timeframe from when we decide to make an offer to when an individual can start, implementing many small but impactful changes. Additionally, we are dedicated to providing both new and existing staff with full access to all current opportunities, which helps retain employees longer since they can change roles if they wish. Previously, it took about 60 days for a new hire to become fully billable, which created challenges when hiring at the current scale. We have drastically reduced that timeframe, and I can't pinpoint the exact current number for achieving full billability, but it is much shorter than before. Altogether, this fosters employee satisfaction and enhances our operations. It also allows us to grow the business with a smaller workforce. All of this is intentional, and combined with the comprehensive training and upskilling we provide, that’s contributing to our current success. While I agree the market has become more favorable than it was 18 months to two years ago, I believe these changes have significantly helped us outperform the labor market.

I want to add two points to what Horacio mentioned. We usually discuss supply and demand separately, and in the short term, we are experiencing more supply constraints, although both elements influence each other. One reason we can deploy people quickly on projects is due to the significant amount of work available. Our book-to-bill ratio for the last twelve months is now over 1.4 times, indicating that we have secured a substantial amount of work. There is a strong demand for employees, both within our internal marketplace and in the external hiring market, which is why our bench is currently at the lower end of historical levels, prompting us to intensify our talent acquisition efforts. Additionally, the consistency we have observed in the labor market over the last nine months, and really the last 18 months, has altered some historical trends and has smoothed out the peaks and valleys in utilization. We are consistently adding 150 to 200 employees each month, which allows the system to function more effectively.

Great answer. Thank you.

Thank you. And one moment for our last question. And it comes from Matt Akers with Wells Fargo. Please proceed.

Hey, guys. Good morning. Thanks for the question.

Good morning.

Good morning, Matt.

So, I have a follow-up, I guess one more on the hiring. Is there a headcount growth number baked into your long-term 5% to 8% organic growth number? And based on what you're seeing, do you think, I guess, into 2025, maybe we still come in ahead of that based on some of the strengths you've talked about?

Yeah. Thanks Matt. And I'll actually tie this question together with a piece of what Sheila asked. We have said historically that for us to hit our growth targets, we aspire to have our LTM book-to-bill in the 1.2 to 1.3 range and our headcount in, let's say, the mid-single digits. And obviously, we're ahead of the mark on both measures. So, our LTM book-to-bill is 1.41 times and our annualized headcount growth is above 9% on the client staff. And if you look just over the first nine months, we're above 6%, which, again, is above historic targets and above our expectations for this year. So, we're not getting ahead of guidance. As Horacio said, we're acutely aware of some of the political and macroeconomic uncertainty, but there's a lot of momentum in the business. And we feel very comfortable with where we are.

Hey, Matt. I love the fact that we're getting all these questions about talent. I think this is the most important topic. And so, I'll just maybe take us on a slight detour, and I hope you don't mind. But there's a natural tendency to look at companies like ours as a collection of contracts. And I do think, and this call proves it, that misses a little bit of the point. Because what we are is really a collection of people, in fact, more than a collection, an intentional team, purposeful team of people who serve clients leveraging contracts. And so, while the contracts are not important, it's really the strength of the talent base that we focus on to drive this business forward. And I think that has served us well and will continue to.

Thanks. That's a great color. And I guess one more for Matt on cash taxes. Why did the Section 174 impact go up? And also, I think there's a bill going through to try to repeal that. Is there a way to think about how much you guys could get back if that happens? Is it kind of a few hundred million that potentially you could get?

Thank you, Matt. We experienced three key developments regarding taxes this quarter, two of which are straightforward and one a bit more complex. Let me address them in order and respond to your question. First, we gained about $11 million from a foreign tax credit when we submitted our 2023 tax returns. This is primarily why we lowered our full-year ADEPS tax rate to between 22% and 23%. Second, concerning Section 174, we raised our estimated cash taxes for 2024 related to this by about $125 million, increasing from $100 million. This adjustment was due to a detailed analysis we conducted on a contract-by-contract basis regarding Section 174's impact, and the additional $25 million has been factored into our cash guidance. Lastly, based on our contract review and the clearer guidance from the IRS regarding Section 174, we reassessed a certain tax position that we began recording last Q4. As a result, we reversed a previous decrease in our GAAP tax provision that we made in Q4 of last year. We adjusted both figures to offer a clearer picture of our steady state tax rate. The rationale behind these changes was our contract-by-contract review and the overall growth we're experiencing. This growth is driving our expectations for increased Section 174 taxes this year. Regarding developments in Washington, we are monitoring the situation closely. Over time, we anticipate that it will be fully reversed, but we are unsure at this stage if it will materialize as a refund or credits and how that would be implemented. Ultimately, we expect to receive all that cash back, which would support our capital deployment objectives.

Just to make one quick point as we close off, and Matt said this, but I just want to double click on it because this 174 topic is complex, to say the least. I just want to make it clear that the outperformance that we had this year was almost entirely driven by exceptional top line performance, exceptional margin performance, and really good cost management that has delivered the results that you're seeing through the first nine months.

Got it. Thank you both.

Thank you. And this concludes the Q&A answer period. I will turn back to Horacio Rozanski for final comments.

Thank you, Carmen. Thank you all for your questions and for joining us this morning. Before we close, allow me to take a moment to publicly express my deepest gratitude to each and every one of our incredible colleagues. The collective efforts of the nearly 34,000 people of Booz Allen produce the exceptional results that Matt and I have the privilege of discussing with you today. We're very proud of you, Booz Allen. We thank you for the passion and the commitment that you bring every day and for the world-changing work that you do. And on that note, thank you again for joining us this morning and have a great day.

And with that, thank you all for joining. You may now disconnect.