Booz Allen Hamilton Holding Corp Q1 FY2025 Earnings Call

Good morning, and thank you for standing by. Welcome to Booz Allen Hamilton's Earnings Call covering First Quarter Fiscal Year 2025 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. Matt Calderone.

Thank you. Good morning, everyone, and thanks for joining the call. I would like to begin by introducing Lindsay Joyce. Lindsay has been a trusted advisor and core member of the Booz Allen finance team for nearly a decade. She joined the firm to help me establish our corporate development function and has since had a variety of roles in corporate and business finance. Lindsay is now a Vice President at Booz Allen, leading both Investor Relations and Financial Planning and Analysis. Lindsay, welcome, and over to you.

Thank you. Good morning, and thank you for joining us for Booz Allen's first quarter fiscal year 2025 earnings call. We hope you've 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 to talk about our business and financial results are Horacio Rozanski, our Chairman, Chief Executive Officer and President, and Matt Calderone, Executive Vice President and Chief Financial Officer. As shown in the 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 our 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 first quarter fiscal year 2025 earnings release and slides. Numbers presented may be rounded and, as such, may vary slightly from those in our public disclosure. It is now my pleasure to turn the call over to our Chairman, CEO and President, Horacio Rozanski. We are now on Slide 4.

Thanks, Lindsay. It's great to have you on these calls, and good morning everyone. Matt and I are proud to share with you another quarter of strong momentum and double-digit top-line growth. Today, I'll begin with an overview of the first quarter in the context of our fiscal year and the investment thesis. Then, I'll describe how VoLT strategically positions us for continued growth and helps us attract exceptional talent. And finally, I'll share our priorities for the remainder of the fiscal year before turning it over to Matt for an in-depth look at our first quarter fiscal 2025 results. Beginning with performance, we built significant momentum in the quarter delivering double-digit organic revenue growth. Our bottom-line performance was comparatively softer due to a combination of operational and non-operational factors, which Matt will describe momentarily. Leading indicators for the business remain strong; headcount for the quarter was robust, cash flow was ahead of our own internal expectations, and our 1.72x book-to-bill was excellent. So, when looking at the full picture, we believe we are on track to meet our fiscal year 2025 guidance and achieve the high end of our investment thesis goals. Booz Allen's momentum shows beyond our financials. It is evident in the quality of the work we win, the innovative capabilities we deliver, and the exceptional talent we attract. This is because VoLT is working. VoLT, which stands for Velocity, Leadership and Technology, has put us at the center of the tech transformation taking place across national priority missions. Our ability to help clients utilize dual-use and leading-edge technologies faster and at scale is a powerful differentiator. At this time of historic challenge and change for our nation, Booz Allen is an innovation accelerator. This morning, let me share three examples that demonstrate this. The first is actually from one of the missions we have supported the longest, space. Space encompasses civilian, intelligence and defense missions. Today, Booz Allen's space business is more than $0.5 billion and growing. We have been a trusted US space partner since the beginning, more than 60 years, from our nation's response to Sputnik, to Apollo, to the Hubble Space Telescope. And we continue to help NASA launch the future and inspire the world, working on trajectories as we did 55 years ago using leading-edge analytics. We are the overarching system-of-systems integrator for Artemis, the mission to go back to the moon and create a lunar outpost for a flight to Mars. Importantly, and over the past year, Booz Allen has won several strategic contracts that position us to support and protect vital national security interests in space. Two weeks ago, I had the opportunity to spend time with our Colorado Springs teams and visit the United States Space Operations Command to discuss opportunities to modernize our nation's space capabilities. Coincidentally, while I was there, our team successfully uploaded and made operational what we believe is the first large language model in space onboard the International Space Station's National Lab. This intersection of AI and space is one of the next frontiers. And just as Booz Allen is a leading provider of AI to the federal government, we are on the cutting edge of this effort, too. The second example of VoLT in action is our long-standing work in Europe and our growing footprint supporting one of the most dynamic combatant commands, United States European Command, or EUCOM. Booz Allen has been a trusted partner supporting efforts in Europe for more than 30 years. Over the past 10 years, our work has grown nearly six-fold, from about 150 to more than 800 professionals. This growth accelerated to support our country's efforts during Russia's invasion of Ukraine. Through VoLT, we have the right people and solutions at the right time to help EUCOM leverage cutting-edge data science to speed decision making at the highest levels. That is why we are particularly proud to have won a critical recompete to continue our work supporting US missions across the continent. My third and final example for how VoLT is driving our momentum is our recent acquisition of PAR Government Systems Corporation. PAR is an original creator and leading engineering partner for preeminent software products and solutions, enabling tactical support that spans ground, air and space missions. This acquisition strategically augments Booz Allen's capabilities in situational awareness, mission readiness and detecting and defeating drone threats. It will help accelerate our ability to deliver mission-critical solutions to our nation's warfighters on the tactical edge. These examples from across the globe and beyond show how VoLT moves us forward and helps ensure we remain a vital partner in missions of national importance in the face of ongoing change. So, if VoLT is the engine powering our momentum, our people are the fuel that makes us go. Our people bring unmatched mission expertise and technological innovation to every project. And this is why I always speak about our people and not our contracts as the real key to our success. Booz Allen stays vibrant by attracting the best talent like Bill Vass, whom we welcomed last month as our new Chief Technology Officer. Bill brings more than 40 years of technology leadership and experience spanning industry and government. He will help Booz Allen accelerate our leadership in injecting dual-use tech into our clients' missions faster and at scale. Bill, welcome. And on the other end of the spectrum, we are building our pipeline of future stars through our summer internship program, which we call Summer Games. This year, we have 128 exceptional students participating in the program. Our interns collaborate on challenge projects in the areas of capability development, process improvement and social good. We believe good ideas come from every level in this firm, from our newest colleagues to our longest serving. This fits with Booz Allen's purpose to empower people to change the world. And that starts with empowering our own people, whether consultants, engineers, scientists, analysts, cyber professionals, and of course, summer interns. I am so, so proud of this team and want to thank again all of my Booz Allen colleagues, past, present and future. Returning to the here and now, today our collective focus is on the operational priorities we laid out in May. First, we will take full advantage of our record proposal pipeline. This includes continuing to win new work and recompetes, launching programs quickly, and hiring excellent people to build the depth of our expertise. Second, we will continue to manage the business tightly to drive efficiency and effectiveness across all our functions. We have opportunities to improve margin while we continue to mitigate growing budgetary uncertainty in an election year. And third, we will continue to implement VoLT at full speed by building the next-generation technology solutions and market positions, securing breakthrough technology partnerships, and maturing our internal capabilities. So in summary, we remain optimistic about our growth prospects even in an uncertain budgetary scenario and a contentious election environment. We believe in the fundamental strength of the business we have built and feel confident about the future. At 110 years young, Booz Allen is as vibrant and exciting as ever. And with that, Matt, over to you for a deep dive into our financial performance.

Thank you, Horacio. As you noted, Booz Allen continued to build momentum in the first quarter. Our VoLT strategy is working, and our work is increasingly at the center of the government's technology transformation. We are poised to keep growing and to deliver another strong fiscal year. For the quarter, on the positive side, our team once again delivered double-digit organic revenue growth. Cash performance was solid and, most important, our leading indicators were strong. On the demand side, we had key wins that yielded an excellent book-to-bill and record backlog. On the supply side, we continued to add the talent needed to support our growth objectives. Our bottom-line performance, however, was a bit softer than we anticipated. This was due to a number of individually small operational and non-operational factors that added up over the quarter. As we said previously, we managed the business for the full fiscal year. We have both the demand side and supply side momentum, as well as the operating levers available to us to meet our fiscal year 2025 objectives and achieve the top end of our investment thesis. I'll now cover our first quarter results in more detail. Please turn to Slide 6. Total revenue for the quarter grew about 11% year-over-year to $2.9 billion. Organic revenue was up 10.6% year-over-year and revenue excluding billable expenses increased 8.4%. Taking a look at the market breakdown. Our defense business continues to thrive, up 16% from the prior-year quarter. Our defense leaders won both recompetes and takeaway opportunities in missions of true national importance. Our civil business continues to perform well. Total revenue grew 12% year-over-year, and this performance was broad-based. As expected, revenue in our intelligence business declined about 3% year-over-year. We continue to expect this business to demonstrate solid growth for the full fiscal year. Turning to Slide 7, we are pleased with both the scale and the quality of the work that our teams are capturing. We came out of the gate strong in the quarter, taking full advantage of our robust proposal pipeline. Net bookings for the first quarter were $5 billion and our quarterly book-to-bill was 1.72x. This yielded a trailing 12-month book-to-bill of 1.43x, our highest in five years. Total backlog as of June 30 hit an all-time record of $36 billion, up 16% year-over-year. And at the end of the first quarter, our qualified pipeline for the remainder of fiscal year 2025 stood at $55 billion. This is up 32% from a year ago. In short, we have the backlog and the pipeline necessary to fuel future growth. Moving now to headcount. Booz Allen closed the quarter with more than 35,000 people. We increased client staff headcount by more than 700 in the quarter, including 200 skilled professionals who joined Booz Allen through the PAR acquisition. This translated to 7.7% client staff growth year-over-year, ahead of our full-year goal of 3% to 5%. We continue to recruit and hire aggressively to match our demand-side momentum. Turning now to the bottom line. We generated $302 million in adjusted EBITDA in the first quarter, down 1.6% from the prior-year period. Our adjusted EBITDA margin was 10.3%, down 130 basis points year-over-year. Our profitability came in lower than expected due to a combination of factors. On the operational side, slightly softer contract-level profitability, lower utilization and back-weighted client staff hiring during the quarter. And on the non-operational side, slightly higher expenses on a year-over-year basis. Some of these items are non-recurring and others are timing-related and are expected to normalize over the course of the fiscal year. Working down the P&L, our net income was $165 million, 2.4% higher year-over-year. Adjusted net income declined 7% year-over-year to $180 million. Diluted earnings per share increased 4% year-over-year to $1.27 per share. Adjusted diluted earnings per share decreased 6% year-over-year to $1.38. These results include both a higher interest expense from our inaugural investment-grade bond offering and a higher tax rate than last fiscal year, moderately offset by a lower diluted share count. Moving now to the balance sheet. We ended the first quarter with $298 million of cash on hand, net debt of $3 billion, and a net leverage ratio of 2.7x adjusted EBITDA for the trailing 12 months. Free cash flow for the quarter was $20 million. Cash from operating activities improved to $52 million due to strong collections. CapEx in the quarter was $32 million and includes $16 million of previously accrued expenditures that were paid in the first quarter. Our balance sheet is strong. This gives us flexibility in how we operate the business and deploy capital to generate value. Turning now to capital deployment on Slide 8. We are committed to using our cash generation and balance sheet strength to drive superior value for our shareholders. In the first quarter, we deployed a total of $251 million. This includes roughly $156 million of capital returned to shareholders through almost $90 million in share repurchases, at an average price of $149.74 per share and $66 million in quarterly cash dividends. It also includes approximately $93 million for acquisition of PAR in June. We believe this acquisition will increase the value we deliver to clients and accelerate our financial performance. We anticipate that PAR will add $80 million to $90 million in revenue for the balance of this fiscal year and will be mildly accretive to earnings. We also made $2 million of strategic investments through our corporate venture capital program, including our recently announced investment in Quindar, an early-stage commercial space technology company. Finally, I'll note that our Board has approved a quarterly dividend of $0.51 per share, which will be payable on August 30 to stockholders of record as of August 14. Now for the look-ahead. We believe we have the momentum and operating flexibility to deliver strong top- and bottom-line performance for the full fiscal year. Please turn to Slide 9, as I run through our fiscal year 2025 guidance. At the top-line, we expect revenue growth of 8% to 11%. We expect to deliver adjusted EBITDA dollars in the range of $1.26 billion to $1.3 billion. This implies an adjusted EBITDA margin of about 11% for the full year. While we previously indicated a flatter quarterly margin profile for fiscal year 2025, we now expect a moderately ascending profile over the remaining three quarters. Our adjusted diluted earnings per share guidance range is between $5.80 and $6.05 per share. Lastly, we expect operating cash flow between $825 million and $925 million, and free cash flow between $725 million and $825 million. In closing, I am extremely proud that in the final year of our three-year investment thesis, we are positioned to deliver at the top-end of our target range for adjusted EBITDA, almost entirely through organic performance. We continue to build our business for the future and are forging ahead with confidence. With that, operator, let's open the line for questions.

Thank you. One moment for our first question. It comes from Mariana Pérez Mora with Bank of America. Please proceed.

Good morning, everyone, and a special welcome to Lindsay.

Thanks, Mariana. Good morning.

My first question is about the PAR acquisition. Could you describe the potential you can unlock from this company's leading position with WinTAK and TAK, along with their install base, and how you plan to leverage that with Booz Allen's talent, customer intimacy, and reputation? What synergies can we expect from this acquisition, and when might they materialize?

Thanks for that question, Mariana. We're very happy with the PAR acquisition. Sometimes big innovators come in small packages, and this is one of those cases where we were able to find a company and close a transaction that really focuses on doing some really innovative edge-type work for the warfighter. That fits so well into our entire digital battlespace platform and what we're trying to do about integrating information and bringing it together from multiple sources, ultimately using artificial intelligence to filter it and giving the warfighter the information they need at the time they need it in the place they need it. So, this really will help augment and knit together a number of things that we are doing, and so it's very exciting. The basis for this acquisition is not cost reduction. As you said, it's really revenue synergies. And like we've always been saying, this acquisition fits the perspective of strategic acceleration. We're looking for companies that will take what we're doing and allow us to leapfrog both our competitors and our own efforts to be able to move faster and implement VoLT faster.

Thank you. And the second one, to Matt, what makes you confident that you can achieve the EBITDA margin for the year in this trend? What are the key milestones that you'll be looking throughout the year to make sure that you can, or what efforts are you making sure you put in place to achieve the 11% versus the low-10%s that you printed in the quarter?

Hey, Mariana, since I'm on a roll, let me give some context and then I'll turn it over to Matt, if that's okay. The primary view that we have is, of course, we are very happy with the top-line growth in the quarter. We're not as happy with the bottom-line results in this quarter, although as Matt pointed out, this is largely driven by timing and one-offs. So, the underlying profitability of the business remains very strong. What gives us the most confidence is the strong momentum that we see in the business. You see it in our book-to-bill, which is exceptional. You see it in our hiring, which is exceptional. You see it in PAR, which is a great small acquisition for us. When we put all of that together, we are confident that we can achieve the objectives for FY '25 and then deliver at the top end of our investment thesis. And I think what's really important is, aside from all of these numbers, we continue to invest in the things that are making VoLT accelerate us because VoLT is working. We're winning not just a lot of work, but the type of work we want, and I'm sure we'll talk more about that. We're attracting exceptional technical talent that probably wouldn't have happened to Booz Allen five years ago. We are positioning strategically to keep bringing leading-edge technology to missions of national importance, which is both an accelerator in the near term, but also gives us resiliency at a time of political uncertainty, budgetary uncertainty, and the like. So against that frame, I'll turn it over to Matt.

Yeah, thanks, Horacio. And just to add to that, Mariana, we've talked about this in the past. We manage the business for EBITDA dollars, not margin. So, our focus is on how do we drive profit dollars up, and then margin will increase as a result. But to take you through first, sort of what drove the miss in Q1, profit was impacted by a number of factors, both operational and non-operational that were individually small, but they added up over the quarter. And as Horacio mentioned and I said in the prepared remarks, a significant portion of these were timing-related or non-recurring. Just to go deeper, on the operational side, contract-level profitability was a touch soft, but the primary driver was a combination of lower client staff utilization and quite frankly, the pattern of when and how we added client staff over the quarter when they started billing that cost us about 1.5% in revenue ex-billable growth for the quarter on a year-over-year basis and obviously an equivalent amount of profit dollars. Then, on the non-operating side compared to Q1 last year, we saw higher expenses in a couple of areas, including M&A, a busy quarter, legal and regulatory expenses. But that said, our utilization metrics improved over the quarter and continue to trend up. And most important, we have the headcount we need to meet our fiscal year growth aspirations and really set us up well for the out years as well. So, we're confident we have both the momentum and the operating levers, if needed, to deliver another really strong year on the bottom line.

Thank you very much.

Thank you. One moment for our next question, please. And it comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed.

Good morning, Horacio, Matt, and Lindsay. Thank you so much. So maybe just to continue on that topic, Matt and Horacio, I know you're going to get a lot of questions on this margin. Matt, I don't know if you're willing to quantify that 130-basis-point contraction year-over-year. How much of that was just timing of the hiring and client utilization versus contract structure and M&A fees, etc.?

Yeah, Sheila. So, as I just said, the timing of when we added staff and they became billable as well as utilization costs about 1.5% on revenue ex-billable. So, you can do the math and in terms of what that meant from a profit side. I would say, second, contract-level profitability was a little bit soft and then we probably had an equivalent amount on the non-operating side in terms of these one-time and timing-related activities.

Okay. Sorry if I missed that 1.5%. And then, Horacio, maybe a bigger picture question for you. I think the defense business and civil have been home runs, double-digit growth, lapping difficult comps. So, how are you thinking about the runway of each of those customer segments for the remainder of the year?

Sure. I think the good news about the momentum is that it is really broad based across the portfolio. Our defense business, as I mentioned, won a couple of critical recompetes and really won some exceptionally important new work in the Pacific that we are very excited about, allowing us to bring technology to a set of missions that we care very much about that the country cares deeply about. So, we see strong momentum and strong performance in our defense business really throughout the year, absent some major disruption, which will be industrywide, nationwide as a result of budgetary pressures in the fall or whatnot. When you go to our civil business, civil, as you said, has had tremendous growth for a long time. I think this is the 10th consecutive quarter of double-digit growth in our civil business. They won one key recompete. We had the extension of our CDM program, which is great news. They have some critical recompetes in front of them that they're preparing for. We're well positioned by, and they're all centered around bringing technology to key missions. So, these are places where we can't predict the future, but Booz Allen is very well positioned. Our intelligence business, even though in the quarter it showed a decline, actually the underlying momentum in that business is really strong. They won some really important work. This is the last quarter of the sort of the tough comp from last year because of the FocusedFox issue that we've talked about extensively. We see this business growing over the course of the year. But again, importantly, we have transitioned a lot of this business in the last couple of years, first under Judi Dodson, then under Tom Pfeifer, from delivering excellent intelligence analysis to delivering extraordinary technology that accelerates intelligence analysis for the nation. So, again, this is a business that is sourcing critical talent and doing good things. We expect momentum and growth across the entirety of our markets for the year.

Thank you.

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

Hey, good morning.

Good morning, Burt.

Good morning.

Hey, Horacio, Matt. So, the bookings in the quarter were, I would say, unusually strong. If you look at the last few years, sort of in the 1.0% maybe sort of that range in the first quarter and you were closer to 2.0% in this quarter. Obviously, some good momentum, and I imagine, Matt, some of the comments you made around utilization was just sort of, I guess, now you're going to be getting ready to pursue some of that work. As we think about the second quarter, that's typically your strongest booking quarter over 2.0% on quarterly book-to-bill. Was there some pull forward there? Or do you think that momentum just keeps building on the award side?

Thanks for the question, Bert. The way to think about it is there's really strong underlying demand, strong momentum and a good budget right now. Based on those fundamentals, you would expect to see a good demand quarter this quarter. Our tactical sales engine is second to none, as you know, and our ability to take advantage when clients have money in their budgets and missions that matter to them makes it easy to help them and sell hard against it. I wouldn't say there was any pull forward, if anything, there was some stuff left over from the prior year that took longer to realize. I think what the exact number is going to be this year is driven by a number of factors. Even if we win a lot of work, the large contracts tend to get protested, and your guess is as good as ours as to when something comes off protest. But the reality is we have ample demand, we have ample ceiling, and we have the headcount to deliver against our commitments for the year.

Got it. Maybe just a follow-up on that point. You mentioned recompetes earlier, Horacio, and you said you've seen some pretty good momentum there in terms of winning your recompetes. You highlighted last quarter that this was a higher-than-average recompete year. Can you just give us a sense for where we stand? Are you through some of the larger ones you've been watching, or are those still out in front of you?

Yes, I believe so. As you know, we've developed a highly desirable portfolio characterized by the quality of our work and the growth of our underlying contracts. When a recompete arises, it typically offers additional scope and significant increases in ceilings. We've successfully navigated several of these instances. There are a few remaining this year that we aim to deliver on and win. Importantly, our overall pipeline is robust. As Matt mentioned, we are actively pursuing a $55 billion pipeline, which represents a 32% year-over-year increase. The demand conditions are very strong, and we plan to continue maximizing our wins.

Thanks, Horacio, and welcome, Lindsay.

Thank you.

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

Yes. Thank you so much. So, Matt, you kind of explained what the factors were. I guess, I'm kind of interested to know why the factors were. Why did you lose the 1.5%? Because of the timing and utilization? Because basically, you've been talking about using AI so that you've basically been doing better there until this quarter. And then secondly, you mentioned the regulatory legal M&A expenses. Those are presumably timing. And how should we think as we look at the next quarter? I mean, are we going to see more of this sort of delay, so the second quarter is sort of still a little disappointing, or does it get a big snap back? And thirdly, and I apologize for all these questions, PAR, you said, is accretive, but if you look at their 10-K, it looks like this business has a gross margin of about 6%. So, how does it become accretive on your numbers? Thanks.

Thank you, Cai. I’ll address these points one at a time, and if I overlook any, please remind me. First, regarding utilization, as Bert mentioned, it was influenced by several factors, including both the pursuit of and preparation for a substantial proposal pipeline, along with some notable new wins. We encountered some one-time contract issues, such as delays in funding for Ukraine and increased military leave. To be honest, we could manage the business with a bit more efficiency. Although we've been in a substantial investment phase, we’re still focused on investments, and our market leaders are aware of what needs to be done. When we look at staffing additions throughout the quarter, interim numbers typically aren’t significant, but in Q1 last year, we brought on a lot of staff early in the quarter, while this year, staff additions—both from the PAR acquisition and organic growth—occurred later in the quarter. This contributed to the 1.5% figure. However, as I noted earlier, utilization has been improving, and we’re optimistic about its progress. Regarding non-operational factors, many of these issues stem from timing or are one-off occurrences. I won’t delve into Q2 specifics, but we are confident in our ability to achieve our targets for the entire fiscal year. Regarding PAR, we’ve received numerous inquiries about this. Since PAR is a public company, they had to publicly report their financials. It is likely that their performance will reflect differently under our approach. We anticipate that it will be slightly accretive this year, which is acceptable for the first year post-acquisition. Furthermore, as Horacio mentioned, we believe we can not only drive additional revenue but also enhance margins by integrating our AI and digital services with their offerings, such as the TAK unit that supplies information to warfighters on the front lines. I hope I addressed all three questions.

Yes, you did. Thanks so much, Matt.

Thank you. One moment for our next question. And it's from the line of Matt Akers with Wells Fargo. Please proceed.

Yes. Hey, good morning, guys. Thank you for the question.

Hey, Matt.

Matt, I wonder if you could comment anymore just on how would you think about modeling the quarters for the rest of the year, because we've got some of these costs going away after Q1. I know you got an easier compare in the intel business. So, I think you commented on the revenue ramp, but just any further color you can provide there?

No, I think we provided the right amount of color and you're thinking about it the right way, Matt. Obviously, we anticipate profit and margins to be moderately ascending over the remaining three quarters now. As you mentioned, our comps will change.

Yes, got it. Okay. And I guess any thoughts on free cash flow? A decent start to the year. Last couple of years you haven't been positive in Q1. Just any thoughts on working capital, where that goes from here, or just how you're doing there?

Yeah, we had a good start. I think collections were particularly strong. As we've talked about this for the past couple of calls, we aspire to return to a free cash flow conversion rate of 100% or greater and run a good vector to get there.

Thank you. One moment for our next question, and it's from the line of Robert Spingarn with Melius Research. Please proceed.

Hi. This is Scott Mikus on for Rob Spingarn. Matt, you mentioned lower contract profitability in the quarter. I was just wondering if you could provide color on that. Was it more concentrated in defense, civil, or intel contracts?

No, it was just slightly lower than we anticipated. It was spread across the business, with no one factor that we're particularly worried about.

Scott, we've been on this trend for years and we've been anticipating it. We view ourselves as a primary digital player that can bring information together at speed, at scale, to the warfighter from headquarters to the edge. That is an important role that I believe Booz Allen is uniquely positioned to play because of our relationship with tech companies, our track record doing it, and our own leadership in some leading-edge technologies like AI, and cyber. We need to have the ability to persistently look at an environment that's in conflict, understand and anticipate threats, and take them on in ways that are effective to the type of threat. That work translates into the work we're doing across the globe.

Thanks for taking the question.

Thank you.

And thank you. And that's all the time we have for Q&A today. Thank you all to who participated, and I will pass it back to Horacio Rozanski for his final comments.

Thank you. And thank you all for your questions and for joining us this morning. I hope this discussion gave you a deeper understanding of our performance and why we feel confident we will deliver on our near- and long-term goals. Last month, a few of us had the great honor to ring the bell at the New York Stock Exchange, and it was a great moment in our company's long history and it really reflected our enduring presence and enduring impact. We talked about the future and how we're shaping our own future and the foresight and the agility that has kept us relevant and vibrant for 110 years and looking for 110 years more. This event was a testament to our incredible team and to the clients and to the shareholders who have put their trust in Booz Allen to continue to develop exceptional performance, and for that, we are forever grateful. And with that, have a great day and a great rest of the summer.

And thank you all for participating in today's conference. You may now disconnect.