Aug 1, 2012
Executives
Curt Riggle - Director of IR Ralph Shrader - President and CEO Samuel Strickland – EVP, CFO Horacio Rozanski – COO, EVP
Analysts
Carter Copeland - Barclays Capital George Price - BB&T Capital Markets Edward Caso – Wells Fargo Securities Brian Gesuale – Raymond James William Loomis - Stifel Nicolaus & Company Michael Lewis – Lazard Capital Markets Matt Lipton – Morgan Stanley Timothy McHugh - William Blair & Company George Price – BB&C Capital Markets
Operator
Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering first quarter fiscal 2013 results.
(Operator Instructions) I would now like to turn the call over to Mr. Curt Riggle.
Curt Riggle
Thank you, Shania, and thank you all for joining us today for Booz Allen's first quarter fiscal 2013 earnings announcement. I'm Curt Riggle, Director of Investor Relations.
And with me to talk about our financial results this morning is Ralph Shrader, our Chairman, Chief Executive Officer, and President, and Sam Strickland, Executive Vice President and Chief Financial Officer. We hope you've had an opportunity to read the press release on our first quarter earnings that we issued earlier this morning.
We have also provided presentation slides on our website and are now on slide one. On today's call, Ralph will provide you with an overview of our business performance, recent developments, and strategic positioning.
Sam will then discuss our financial results in detail including our income statement, balance sheet, cash flow, and backlog. Ralph will talk about what the future holds for our business.
And Sam will discuss our earnings guidance for fiscal 2013, which began on April 1st, 2012. As shown on the disclaimer on slide two, please keep in mind that some of the items we will discuss this morning will include statements that may be considered forward-looking.
And therefore are subject to known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. Those risks and uncertainties include among other things, general economic conditions, the availability of government funding for our company's services, and other factors discussed in today's release and set forth under the forward-looking statements disclaimer included in the fiscal 2013 first quarter earnings' release in our SEC filings.
We caution you not to place undue reliance on any forward-looking statement that we may make today. And remind you that we assume no obligation to update or revise the information discussed on this call.
During today's call, we will also 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 fiscal 2013 first quarter slides. It is now my pleasure to turn over to our CEO, Ralph Shrader, and he will start on slide three.
Ralph Shrader
Thank you, Curt. And good morning and thank you all for joining us today.
Here today on the conference table in front of me is a crystal ball. I used it in a speech I gave some 12 years ago at the height of the dot.com, which was entitled, No Crystal Ball Decision Making in E-Time.
With the so called fiscal cliff looming for our nation and the questions that Sam, Curt, and I keep getting about whether sequestration is going to happen, I thought it would be useful to have it on hand to consult for this morning's Q&A session. But all kidding aside, I'm not going to try to predict the course of political or economic events.
And that’s the key reason our top line guidance does not extend beyond September 30th at this point. What I can tell you is this.
Booz Allen is not going to sit on the sidelines and watch and wait for things to sort out. We are determined to be out in front and to shape our destiny.
That means in our operating business, every Booz Allen leader and employee is committed to impress our clients, win work over our competitors, and make sure our firm remains the best company to work for. Our board and finance team is committed to insure that we have a capital structure that is optimized for today's environment, one that creates value for our stockholders.
Despite the challenging macro-environment, we continue to grow earnings this quarter demonstrating our commitment and ability to manage our cost base and continue to improve our margins. Here are the headlines.
First quarter revenue was $1.43 billion, down slightly from $1.45 billion in the prior year period. That income for the quarter increased to $61.9 million from $51.1 million in the prior year.
Adjusted EBITDA increased 10.4% to $135.6 million. And adjusted diluted earnings per share increased by 12.2% to $.46 per share.
Total backlog ended the quarter at $10.23 billion as of June 30th, 2012, which was a decrease in total backlog from the prior year's $11.21 billion. We are very pleased with the growth in funded backlog, which grew to $2.58 billion compared to $2.45 billion as of June 30th of 2011.
Today we are announcing that our board of directors has declared our third regular quarterly cash dividend in the amount of $.09 per share. And the board approved terms to refinance the company's debt and declared a special cash dividend of $6.50 per share.
We believe the special dividend declared by our board returns values to our stockholders. And is a prudent use of capital at this time when the debt market is very favorable, historically cheap in fact, and we believe the stock market has quite frankly been undervaluing our stock.
After completing this transaction, we will still have sufficient cash on hand and availability under our credit facilities to weather business uncertainties. And to pursue an opportunistic acquisition strategy in this period of potential industry consolidation.
Booz Allen is committed to running a successful and exemplary business, which we are the consultant of choice to our clients, the employer of choice for the best people, a good corporate citizen, and a good investment for those of you who invest in our equity or debt. Evidence of our success in winning and performing important work can be found in some of the major contract awards and task orders we have recently won.
A $12 million award from the Federal Highway Administration for technical support and assistance and deploying new innovations in transportation systems. A series of major awards totaling over $300 million were support to the United States Navy Space and Naval Warfare Systems Command, the system center Pacific and Atlantic in areas such as cyber, intelligence systems, infrastructure protection, and C4I.
An IDIQ contract with a ceiling of $20 billion from the National Institute of Health for services and solutions with a chief information office. A $73 million contract from the Department of Energy for scientific, engineering, and technical support to DOE's Advanced Research Projects Agency for energy.
Then a number of new engagements with commercial financial institutions and healthcare providers. These are just a few of the important new and re-competed contracts we've won in the past quarter.
The demand for our services and the satisfaction of our clients remains very high. And every day, we're seeing an impressive number of new opportunities coming in the door in the form of task orders and requests for proposals.
Summer is high season. It is our selling season.
And we've taken a number of steps to insure that our senior managers and contract staff have the time and support to write impactful and winning proposals. In that regard, we've deferred until after October various administrative responsibilities related to internal projects and reports, performance assessments, and training so our people aren't distracted or burdened by things that can wait because our client deliverables and proposals can't wait.
Recognizing and rewarding our people and giving back to our communities is always in season. While incentive compensation was lower this past year in line with our lower growth rate, all of our eligible senior managers received a bonus payment in June.
And staff members below that level received performance recognitions awards totaling $8.5 million in the past year. Both at work and at play, our Booz Allen teams have opportunities to connect.
Our employee based softball, biking, running, soccer, and rowing teams are in high gear. And families in the middle Atlantic area are looking forward to Booz Allen day at Kings Dominion in September.
Our community involvement is also in high season as we organize teams across the country to support the international coastal cleanup, which we are focused on expanding last year's 400 person, 23 location effort. Our people are donating supplies and packing back to school backpacks for children in need.
And helping the next generation of students involved in science, technology, engineering, and math to stem disciplines at the Naval Academy's cyber camp. An innovative program to bring together our people development and community service goals, Booz Allen senior associates undertook pro-bono projects for nine major charities, including the National Trust for Historic Preservation, the Pentagon Memorial Fund, Catholic Charities, and Homes for Troops.
These projects delivered valuable strategic planning, information technology, and board development strategies to the non-profit organizations while building the leadership skills of our next generation stars. Above all, superbly serving our clients, helping government agencies, commercial companies, and international organizations succeed is the highest calling at Booz Allen.
That many of our clients are challenged by today's economic and political conditions inspires us to work even harder on their behalf. I'll talk more about the futures, specifically about how I believe Booz Allen will rise above the competition after Sam provides a more detailed discussion of our financial performance.
Samuel Strickland
Good morning, and thank you for joining us. Ralph talked about Booz Allen's absolute focus on helping clients succeed and how we're managing our business to insure success for clients, our people, our community, and our investors.
We are proud that in these challenging market conditions, we've continued to deliver on our promised earnings' growth and continue to continue to deliver value to our stockholders. As Curt mentioned in his opening summary, in addition to GAAP results, Booz Allen also reports certain non-GAAP measures such as adjusted operating income, adjusted net income, adjusted EBITA, adjusted diluted earnings per share, and free cash flow.
We believe these metrics provide better insight into our operational results because they remove the effects of non-recurring or unusual items. Now let's turn to slide four for a closer look at our first quarter of fiscal 2013 in which we saw a slight decrease of 1% in our top line revenue over the prior year period.
The modest decrease in revenue was primarily the result of a decrease in revenue attributable to billable expenses, which negatively impacted revenue by 1%. And a lower rate of indirect expenses under cost reimbursable contracts, which also negatively impacted revenue by 1%.
The negative impact on revenue attributable to these two factors was partially offset by continued modest growth in consulting staff direct labor. The lower rate of indirect expenses is primarily attributable to the cost reduction and actions the company implemented in early 2012.
It's important to note this last point that our consulting hours rose modestly during the first quarter, which is a good thing, just not enough to offset these reductions. It's also important to point out our continued improvement in other measures below the top line despite very challenging conditions in the government sector.
In the first quarter of fiscal 2013, operating income increased to $114.7 million from $98.1 million in the prior year period. And adjusted operating income increased to $120.3 million from $109.1 million in the prior year period.
The improvement in adjusted operating income was primarily driven by more effective deployment of staff. More broadly, we have continued our laser like focus on cost management, including a slower deployment of internal investment dollars in the first quarter.
The management of our indirect expenditures relative to our top line revenue including the cost savings that resulted from our restructuring discussed in our February call all contributed to the reduction in indirect cost mentioned in our earnings release. The slower spending on indirect cost is beneficial.
And is part of our management strategy to maintain flexibility within our operations. And avoid cost overruns that could negatively impact our bottom line.
In the first quarter of fiscal 2013, net income increased to $61.9 million from $51.1 million in the prior year period. And adjusted net income increased to $66 million from $58 million in the prior year period.
Adjusted EBITA increased 10.4% to $135.6 million in the first quarter of 2013 compared with $122.9 million in the prior year period. In the first quarter of fiscal 2013, diluted earnings per share increased to $.43 per share from $.37 per share in the prior year period while adjusted diluted earnings per share increased to $.46 per share compared to $.41 per share in the prior year period.
Now on to cash. We continue to build a strong cash position in the first quarter.
And I will talk about our use of cash in just a moment. But first, let's go through the basic numbers.
Our day sales outstanding were 69 days for the quarter ended June 30, 2012. Net cash provided by operating activities in the first quarter of fiscal 2013 was $74 million compared to $53.8 million in the prior year period.
Free cash flow was $70.1 million in the first quarter compared to $36.2 million in the prior year period. Free cash flow in the period benefited from an increase from cash in operations and a decrease in capital spending in the period, which is primarily related to the reduced capital outlays associated with the lease hold improvements that we completed last winter.
As we discussed on several previous earnings calls, we continue to evaluate all options for the use of our cash. And we have been fortunate that our excellent cash position, credit worthiness, and current low interest rates have given us opportunities and great flexibility to operate our business well and create value for our stockholders.
In December, 2011, Booz Allen's board of directors approved a share repurchase program. At this point and time, we have not exercised the option to repurchase any shares.
As Ralph indicated in his remarks and as detailed in our press release, Booz Allen's board of directors authorized and declared a cash dividend in the amount of $.09 per share, the third regular quarterly dividend issued by the company. Additionally, the board declared a special cash dividend of $6.50 per share.
Turning to slide five, the special dividend as a result of the refinancing transaction that included establishment of a new credit facility with $1.7 billion in senior secured debt, which was used to finance $964.9 million of current debt. And pay fees and expenses associated with the transaction.
The remaining funds plus $254.4 million of cash on hand will be used to fund the special dividend. The new senior secured credit facilities also include a revolving credit facility of $500 million.
Both the quarterly dividend and the special dividend are payable on August 31st, 2012 to shareholders of record, at the close of business on August 13th, 2012 for the special dividend, and August 14th, 2012 for the quarterly dividend. The timing with special dividend is primarily related to the fact that we are in an extremely favorable credit environment with interest rates at historic lows.
This in addition to possible rate changes made this a compelling time to return cash to our shareholders. We believe the ongoing generation of earnings combined with a reduced weighted average cost of capital will create value for shareholders into the future.
As we take this action, our business remains financially strong. We continue to generate substantial cash.
And we have the cash on hand and borrowing power to make the investments we need to make the business including possible acquisitions. In that regard, we are seeing the consolidation in the market that we had anticipated.
As we've said in the past, we are open to evaluating potential opportunities and we continue to be so inclined. Our focus would be on companies that are a cultural fit and bring us additional client access and/or enhance our capabilities.
Our just announced dividend payment in refinancing leaves us the ability to pursue inorganic growth options ideally in the $100 to $200 million range. And finally, on the basic numbers, let's finish up with backlog.
Our total backlog at the end of the first quarter was a strong $10.23 billion. While this was down from the prior year, which is a reflection of general caution in the government procurement markets by our clients, our funded backlog went up.
And that's a good sign. Funded backlog as of June 30, 2012 was $2.58 billion compared to $2.45 billion as of the year ago period.
I'd like to turn back to Ralph who will talk briefly about Booz Allen's strategic positioning and differentiation. And then I will finish the formal part of our presentation with guidance for fiscal 2013.
We are now on slide six.
Ralph Shrader
Thank you, Sam. Well, the table here in the conference room this morning is certainly crowded.
In addition to the usual financial exhibits and earnings notes, there's the crystal ball I mentioned earlier to help with your question about politics in the economy. And we also have a gyroscope sitting here.
You know, just last month, I spoke at the Northern Virginia Technology Council's Titans of Technology event. My theme was leading from the center.
And I used the gyroscope to illustrate what I meant by leading from the center. As external conditions pitch and swing, the center of a gyroscope remains balanced and in control.
I described Booz Allen's gyroscope built around the precepts of client service, core mission, core values, and culture. And how this has enabled our firm to stay strong and centered despite dramatic changes in the external market and internally as well as we changed our ownership structure and spun off a historical part of our business, took the firm public, and faced the current market downturn.
I've had the privilege to lead Booz Allen for 13 years through the dot.com boom and bust, the global recession at the beginning of the 21st century, and the rise of threads from terrorism and cyber-attacks. The future will be different.
But it will be no less dramatic, and Booz Allen is prepared for it. No one knows what will happen in the United States, Europe, Asia, or the Middle East this year or the year after.
But Booz Allen is ready for what's next. We're investing resources and deploying leaders to business areas that are growing.
And we believe will continue to grow in government, commercial, and international, such as health, finance, and intelligence surveillance reconnaissance. We're building capabilities and advancing thinking in areas such as cyber, cloud based services, engineering services, and enterprise effectiveness and efficiency.
A lot of companies in our industry are targeting some of these areas too. You don’t need a crystal ball to see where the demand is.
And here's where Booz Allen is different. It's our focus on helping clients with their most important missions and our passion for their success.
Like the gyroscope, our minds are always spinning. Our talented people are always seeking the next breakthrough idea and the best solution, working harder, and thinking smarter.
Always, we're focused and centered on how to use technology and apply new ideas in the most effective and strategic way. That strong center, which enables us to move forward with precision and stability will continue to serve us well.
And serve our clients, our people, communities, and investors well. I'd like to turn back to Sam to talk about our forecast.
And then we look forward to taking your questions.
Samuel Strickland
Thank you, Ralph. We are now on slide seven.
As we said, I don’t know that our industry has faced a more difficult and unpredictable period since the piece dividend era in the early 1990's. We have taken steps to ensure that Booz Allen has the flexibility and financial resources to perform well no matter what comes with the election, the debate over sequestration and tax rates.
But the important point here is that we don’t know, nor does anyone else know how and when those issues will be resolved even with Ralph's crystal ball. And so for that reason, we are being cautious in our updated guidance for fiscal 2013.
At the bottom line for the full year, we are forecasting diluted earnings per share to be in the range of $1.40 to $1.50 per share. And adjusted diluted earnings per share on the order of $1.60 to $1.70 per share.
Now by way of explanation, we are adjusting our full year diluted earnings per share forecast downward by $.11 from our prior guidance to reflect the interest expense from the new credit facility. For GAAP diluted earnings per share, we are adjusting our full year outlook by $.11 for the additional interest expense, by $.05 for the write off or original issue discount and debt issue costs on extinguished debt, and by $.06 attributable to the requirement under GAAP to use the two class method of allocating earnings for the purpose of calculating earnings per share.
The reason we need to use the two class method of allocating earnings is because of provisions in our annual incentive plan that was adopted in October, 2010 stipulating that we will distribute non-forfeitable dividends to unvested restricted shares. We are providing top line guidance for only the first half of our fiscal year, which we expect to have revenue growth that is flat to down low single digits.
We would like to offer something more than that and extending further in the year. But given the significance of the unknown, it would compromise our credibility and we aren't willing to do that.
As I've said before, our overall EPS outlook reflects our confidence in our ability to manage our business with agility and precision as illustrated by the cost restructuring actions taken in the fourth quarter of fiscal 2012, which we believe will continue to translate into improvements in operating margins. These EPS estimates are based on fiscal 2013 estimated average diluted shares outstanding of approximately 144 million shares.
Curt Riggle
Thank you Sam and Ralph. And thank you all for listening to our summary results and outlook.
Our Chief Operating Officer, Horacio Rozanski and Senior Vice President and Controller, Kevin Cook are here with Ralph and Sam to answer your questions as well. So Shania, can you please provide instructions for those on the call?
Operator
(Operator instructions). Your first question comes from the line of Carter Copeland-Barclays Capital.
Please proceed.
Carter Copeland-Barclays Capital
Hi, Good Morning guys.
Kurt Riggle
Good Morning.
Carter Copeland-Barclays Capital
Just a quick sort of clarification Sam, I’m not sure if I understand the math here. You talked about the topline impact from a decrease in billable expenses on cost reimbursable contracts, but by my math the cost plus revenues would have been up 3% year-over-year.
Can you help me explain how those two go together?
Samuel Strickland
Let me back up and say, that if you take a look at our revenue, billable expenses and that is across both cost plus in terms of materials contract, because T&M contracts you get reimbursed your actual cost there. Billable expenses as you’ll see on the income statement are actually down 1%.
And Carter you remember from when we were going public, we’ve always had a hard time forecasting our billable expenses, you know, that precisely, so coming within 1%. So that 1% drop in billable expenses translate directly into a 1% drop in our gross revenue.
Now, in addition to that, because we are exercising better control of our indirect cost this year, than we did at this time last year, we also had a 1% drop in our revenue from our cost-plus contracts. That’s because the requirement that we have to recognize revenue in our cost-plus contract based on our actual indirect rates, as opposed to what’s called our provisional billing rights.
So, we’re actually running slightly below our cost targets for the year in the first quarter, and as we mentioned that’s intentional, to make sure that we have the flexibilities as we get into the back half of the year. But that cost control did reduce our revenue on our cost-plus contracts, and that revenue would measure at the total topline, it reduced gross revenue by another 1%.
I’ll also point out that this time last year we had for the first quarter last year we also had our State Mobile Transportation business, which we sold in July of last year. That actually accounted for another 1% decrease in gross revenue.
So, there’s a couple of things we’ve overcome there to keep it at a -1% growth.
Carter Copeland-Barclays Capital
That’s very helpful, thank you for that. And as a followup, in the prior quarters you’ve talked about, just in very general terms about all of your, you know, the growth profile in all of your major markets.
It would sound like (X) the transportation business, you would have been flat. How did that compare across the various market segments?
Samuel Strickland
In general, we were up modestly, and they balanced out, but I think we still had growth in all three markets.
Carter Copeland-Barclays Capital
Okay, I think I understand what you’re saying. And lastly just – I didn’t catch it as you said it the first time.
The impact of the two class method of EPS calculation, what was that on the full year EPS?
Samuel Strickland
$0.05, I’m sorry $0.06
Carter Copeland-Barclays Capital
$0.06, okay great. Thanks.
Samuel Strickland
The two class method allocated earnings is a particularly esoteric, and some might say bizarre approach, but that’s generally accepted accounting principles for you.
Operator
Your next question comes from the line of George Price-BB&T Capital Markets. Please proceed.
George Price-BB&T Capital Markets
Hi, thanks very much for taking the questions. First thing I wanted to just kind of clarify.
You mentioned continuing to see modest growth and consulting staff later hours. But you have consulting staff headcount down year-over-year for the past couple quarters.
I assume this mainly reflects higher utilization. Can you kind of discuss that a bit more and address any other factors that I’m missing?
Samuel Strickland
Our utilization, as we’ve said – or our billability, pick your term, and I think as we’ve mentioned that our operating margin improvement was directly related to our improved deployment of staff. So, you go back in each of the last couple of years, again George as you know, we’re going into, I think Ralph mentioned this, into the selling season.
Of course selling season takes folks away from client work. So, past years we would start ramping up our staff in the spring in order to be able to both deliver on a direct labor line, and do the marketing and selling that was necessary in the September quarter.
That then would lead to new work that would start October 1st. This year we’ve taken a much more cautious approach, given the uncertainties of the back half.
So we did not ramp staff up as we have in the past few years. As a result of having fewer (XO) staff, of course the staff you have on hand, that utilization and billability goes up.
So it was a conscious management decision as we try and position ourselves to get ready for what’s next. We feel like we have the ability to add staff quickly if the revenue materializes as we hope.
But by the same token given the profile we have now, we feel like that gives us maximum flexibility as we go into the second half.
George Price-BB&T Capital Markets
Okay. And then just to kind of follow up, segue into my next question which is.
You mentioned that you deferred until October various internal projects and training to focus on the selling and proposal season that you just discussed. Net-Net, does that represent any incremental cost, you know, reduction efforts on your part, or is it basically a one-for-one tradeoff there?
And related to that, can you give some more collar – I guess it’s somewhat obvious, but maybe if you could give some more collar on what really makes the current selling and demand environment warrant that kind of move, maybe versus prior years?
Samuel Strickland
Well, go back to my earlier comments again, we did not ramp up staff as quickly this year as we have in the past couple of years, right? So, when you have fewer available staff of course, you have to then prioritize what those staff are doing.
And we’re prioritizing those staff’s efforts around client delivery, and what we call our “Tactical Selling Program”. You know, making sure that we get the proposals and the marketing done, so that we can capture new revenue before the September 30th deadline, basically the end of the clients fiscal year.
George Price-BB&T Capital Markets
Okay, thank you.
Operator
Your next question comes from the line of Edward Caso – Wells Fargo Securities. Please proceed.
Edward Caso – Wells Fargo Securities
Hi, Good Morning. Can you talk a little bit about your GNA pace?
Obviously it’s down very nicely both year-over-year and more so sequentially. Is this sort of a new run rate level based on your rips earlier in the year and your sale of your state local business a year ago?
Or is there going to be something unique in this quarter? Trying to get a feel for some other run-rate either on a percentage basis or a dollar basis?
Samuel Strickland
Well, again on a quarterly basis there is a cyclicality to it on a quarterly basis. The answer to your question though, as we look at it for the year, we would expect it to be down.
On a quarterly basis you would expect it to be up slightly in the second quarter, again you’re in the tactical selling marketing bid proposal season. So, then that would continue on, it would be up slightly in the third quarter, and generally it would be down in the fourth quarter.
But a lot of it depends on how the year shapes up. So, what we want – We do not manage the business on a quarterly basis, we manage it on an annual basis.
But we do try and make certain that we don’t dig ourselves a hole in the first couple of quarters. So, just to summarize that, yes it’s certainly down for the first quarter.
We would expect a slight increase in the second quarter compared to the first quarter, but it should be down compared to last year’s second quarter. And then overall for the year it should be down slightly as well because of the cost actions we’ve taken.
Edward Caso – Wells Fargo Securities
Okay. My other question is around interest expense and hedging.
Could you help us out here a little bit on a run-rate basis, you know, call it the December quarter, what your expense number will be including all you’re amortization cost. And then, I assume at this point in time everything is floating and that there’s no hedges against it, and I was curious that if you hedged out this to a fix rate, how much more – how much higher the interest rate would be?
Samuel Strickland
Let me take the second question first. You know our debt has been floating since we’ve had it basically.
And the hedge market is something that we keep a very close eye on. You know, to the point that essentially we’re taking a look weekly to see what we should be doing there.
And certainly as we look at the hedge rates, there doesn’t seem to be any indication within the markets that you’re going to see a pop in interest rates, let’s call it in the near term. So, we have not hedged it at this point.
We’ll continue to evaluate that and I think the last time I looked the cost for hedging five years, which would certainly be ample for use, was well less than 1%. I’m looking at Kevin Cook, our controller.
Kevin Cook
And we would also not hedge the full amount of the debt given the amortization schedule on paying off the principle over time, so.
Samuel Strickland
To answer your question, we will do what’s prudent. But as we look right now, you know, we’ll keep an eye on it, we’ll make a good business decision, but we haven’t done anything yet.
Edward Caso – Wells Fargo Securities
And the interest expense on a run-rate basis would be approximately what?
Samuel Strickland
I have not quaternized it at this point. I think we had something on order – as I said it’s $0.11 a share for the year, so you can spread that over the last seven months of the year.
Edward Caso – Wells Fargo Securities
Thank you.
Operator
Your next question comes from the line of Brian Gesuale with Raymond James. Please proceed.
Brian Gesuale – Raymond James
Yeah, good morning, guys. I wanted to talk a little bit about headcount plans, you know, your total headcount’s down a little over 6% year over year, your consultant headcount down 2 or 3%, can you talk maybe about what your hiring plans are as visibility improves, what turnover’s been and maybe anything in relationship to open [inaudible] or anything that we can look at in terms of overall headcount plans over the next year or two?
Horacio Rozanski
Brian, hi. It’s Horacio here.
I’m going to give Sam a little bit of a break and take this one. The – you know, in general, we have moved to a much more just-in-time recording environment, so we’re not thinking of hiring plans over the next six months or a year or two years, but rather, responding to the market as we see it.
I think, as Sam pointed out, over the last six to eight months, what we have focused on has been trying to get capacity and demand very, very tight and very close together. And we feel like now we are where we want to be in that regard.
So as we see demand evolve, we can move very rapidly to our capacity if it’s warranted. You know, at sort of our height of recruiting, we can hire around 200 people a week.
So we’re not sitting here worried that we’re going to be caught with a lot of demand that we cannot fill, we’re most interested in creating a level of stability for ourselves, for our workforce, for you. And so we’re, you know, we’re in a good place, availability is sort of where we need it to be and we’ll continue to watch it and evolve it and if we see the need, the opportunity will go fast.
There’s some parts of our market, as you can imagine, that are very turbulent, there are other parts of our market that are growing very well and those places we are hiring very aggressively. Ralph talked about some of the areas where we’re seeing growth and opportunities, cyber and ISR, cloud and engineering services and those areas we’re hiring pretty aggressively and in other areas we’re not seeing the demand, we’re essentially allowing the combination of just natural attrition and the business cycle to trim us back.
Brian Gesuale – Raymond James
Great, that’s very helpful. And maybe a follow-up, Sam, I think you mentioned some opportunities for inorganic growth.
I’m wondering if you could just elaborate on that and maybe provide a little color in terms of areas you might explore?
Samuel Strickland
The – well, and I think we have mentioned, first, as you know, we have not made an acquisition, so we have not been inquisitive focusing instead on organic growth, but that said, there is a consolidation that seems to be going on in the industry and we felt like it would make good sense for us to keep an eye on what was going on to take a look at those companies that would fit well with us culturally and that would position us well when we come out of this market as markets have up periods and down periods and what we’re trying to do now is make sure we’re well positioned to get through the current environment and also well positioned to grow significantly once the market improves. So in that sense, we’re looking at acquisitions in our growth areas as Horacio just mentioned in terms of the areas where we’re currently investing to see if there’s something available that might provide us with better client access or provide us with better capabilities or enhanced capabilities or additional capabilities or both.
So those are the areas that we’re taking a look at.
Brian Gesuale – Raymond James
Okay. Terrific.
Thanks so much for taking my questions.
Samuel Strickland
Sure.
Operator
Your next question comes from the line of Bill Loomis with Stifel Nicolaus. Please proceed.
William Loomis - Stifel Nicolaus & Company
Hi, thank you. Good morning.
Just on the interest once again, Sam, maybe if you can give us a weighted average rate on all the new debt, including any estimated fees and amortization that’s included in that interest rate?
Samuel Strickland
Bill, let’s see. I’ve got, in my head, the $0.11 per share, I think the weighted average rate is going to be somewhere in the 5% range.
I haven’t sat down and modeled that out. We have a 725 million Term Loan A at LIBOR plus 2.75.
It will probably – if you look at one month LIBOR, it’s roughly 0.25 so you can assume 3% on that, at least currently. And on the other Term Loan B, it’s 1 billion 25, and it’s 1% floor plus 350 basis points, so 4 ½.
And there is some, I think Curt has a slide on the sources and uses, that’s Slide 5, that talk about some of the other terms. We did have 1% OID on the Term Loan B.
William Loomis - Stifel Nicolaus & Company
Okay. And then you talked about slower deployment of investment dollars in the first quarter.
What were you referring to there when you say investment dollars because obviously you’re not talking about B&P, right?
Sam Strickland
No, B&P clearly, you spend whatever you do on B&P. Really, I think what we’re talking about there is just a focus on billable work and a, you know, pushing off some of the indirect capability building that we might do at this point in time.
So that’s really what we’re talking about. You know, you take our indirect pools, our indirect – I call it capacity, and you know, we’ll allocate that between – the proposal between marketing and between what we call strategic investment, which is capability building, strategic market [inaudible].
So what we’re saying there is we’re being very caution there a head of a time when we do know what’s going to happen in the second half and in the fiscal 2014. So you know, we’re not talking about major cutbacks here, we’re talking about just being more prudent than we – more prudent – more cautious than we were say in the last couple of years in the first quarter.
William Loomis - Stifel Nicolaus & Company
Okay, and just quickly on the 830 roughly of new awards in the quarter, if you can confirm that was the awards, how much of that was new versus re-compete?
Sam Strickland
I do not have that. I don’t know that we’ve disclosed that in the past.
That’s not a number that – but I – there is – I don’t believe it’s a significantly different trend. Was that your question?
William Loomis - Stifel Nicolaus & Company
Okay, thank you.
Operator
Your next question comes from the line of Michael Lewis with Lazard Capital. Please proceed.
Michael Lewis – Lazard Capital Markets
Good morning. Thank you.
Ralph, I was wondering, you’ll have to pull out your crystal ball for this, but where are you seeing the most pronounced slowdowns or delays across the operation? Are you seeing them – are you seeing more risk in the intel side, defense, federal stability inside the business?
Ralph Shrader
Well, I mean, first of all, I think that it’s fair to say that the entire government spectrum of contracting right now is impacted by the uncertainty. So when we’re looking at the market, we can see individual transactions, but we don’t see trends per se in terms of business.
What we’re seeing in the way of trends is, is virtually all of our clients are asking us to hold back. They’re saying things like, you know, let’s not spend on that just yet, let’s wait and see what happens and everything else.
So this caution is, you know, it’s what’s there. But if you were to look at the various segment itself, I think, you know, the trend line year over year that we’ve already seen says the intel stuff is actually going very strong and a lot of our challenge in intel is more on the side of finding qualified people to do all the stuff that needs to be done.
I think our DoD business is hanging in there nicely and you know, appears to be, again, I would say holding it’s own. We’ve seen a decline in the civil sector where the programs there seem to be slowing down, the pace seems to be slowing down and I think, you know, characterization would be maybe intel a bit up, DoD pretty much the same and civil a little bit down.
Michael Lewis – Lazard Capital Markets
That’s very helpful. And then Sam, if I may, what is the current level of your bid submitted pending approval?
Samuel Strickland
I’d say that is not a number that we disclose, it’s a number that we track, but I’ll have to tell you that it’s not a number we have an awful lot of confidence in simply because it’s a – it’s truly just an estimate. So we feel like we have ample both bids submitted and bids in the pipeline to meet our future growth commitments.
But we said, you know, gosh, trying to make that number truly meaningful is pretty hard, right, because clients put out, as you know, in an IDIQ, they’ll put out a ceiling and the ceiling sounds like a big number but then the question is, how much do you get underneath that. So it’s just not a number that we ever felt like we had as much confidence in that we could actually make it a publically-available number.
Michael Lewis – Lazard Capital Markets
Okay.
Samuel Strickland
You know, it’s – we felt like by building a reputation for putting our numbers out and meeting our numbers, that was probably going to be the best thing we could do over the long term.
Michael Lewis – Lazard Capital Markets
That’s fair. Thank you, sir.
Operator
Your next question comes from the line of Glenn Fidor with Morgan Stanley. Please proceed.
Matt Liption – Morgan Stanley
Good morning guys, it’s Matt Liption for Glen here. My question is on the selling season here, you know, you’ve mentioned multiple times that we are in the middle of summer, and this is the big time for you guys.
Given the kind of hold back that Ralph just mentioned, are we going to still expect to see funded back log ramp like it has historically over the next two quarters?
Samuel Strickland
We believe so.
Ralph Shrader
That’s where the crystal ball comes in.
Samuel Strickland
And again – right, that’s where the crystal ball comes in. So, you know the government fiscal year ends September 30, and I think the government is structured so that it deploys all its money by September 30.
While we certainly see caution in our clients, we do believe that that trend will continue, so we are expecting a ramp up in our back log as of September 30th at this point in time.
Ralph Shrader
Let’s look at it though from the point of view of what it is that we’re doing as a business, and that is in years past we’re not only out their with this active selling we’re doing this year just like we’re doing this year, but we are actually hiring ahead of demand, and this year what we’re saying is, we’re not hiring ahead of that demand, so while we have the expectation that we will still be able to do all the good things that we have done in the past, we are being conservative when we actually do the hiring which is being reflected in the fact that our utilization of availability is higher now and we’re not exactly, you know, in that mode of bringing in people until we actually have the work in the door. So, there’s optimism there, but there is also conservatism behind it that says we will wait until we see some of these things materialize before we act on them.
Matt Liption – Morgan Stanley
Great, thank you, and then just a follow up – I think I will be the first on to ask about the special dividend, just curious if you could give us some more color on how those discussions went, or was it a decision to pay the dividend today as opposed to kind of preserving access to that capital for future growth?
Sam Strickland
Well, you know, we have been talking both with the investment community and with our board over the last several quarters about what to do with our, you know, our capital, our cash generation capability, and our debt structure, and as we took a look we had a significant amount of cash available, we felt like, particularly, in a lower growth environment we would continue, as you know, low growth actually generates more cash than [inaudible] because you don’t have, you know, the growing demand for working capital. So, in that scenario we felt like it made sense given the historically cheap debt that we – that we get money back to the share holders.
So, we went through that, we’ve discussed that for a few quarters now and felt that the time was right, and it felt like the time was right from our business outlet perspective – the time was right from an investment community perspective, and the time was right from, you know, a debt availability supply standpoint. Now, you know, I hate to tell you because we took a look and we felt like that the – frankly, the investment community has not – you know, we wanted our shareholders as much as we think is appropriate given our, you know, our actual performance.
If you look at our – both our revenue metrics and our, you know, net income metrics since we went public, they’re up substantially from, you know, the year before we went public, and yet before we announced, you know, the attention the week before we announced it, we were exploring the dividend, you know, the stock price is actually down. So, we just sound like when we put all of those factors together it made sense to do it at this time.
I will say that it is an expression of confidence on behalf of management and the board that why a lot of folks are concerned about the environment that we are going into, we feel that we have the ability to manage through this, you know, and be that our bottom line commitment – you know, we will do that by managing our cost consistent with our revenue profile. And I – look, we’re not – you know, we don’t expect the, you know, bottom to fall out of the industry, you know, even this morning, I guess, I was glad but not surprised to see that the, you know, the legislature and the executive branch got together and said, geesh, let’s have this continued resolution for six months just to cut out any shenanigans, and that certainly will add stability to the fiscal policy which will, you know, will help our clients – we of course would love to have seen a five year solution, but I’m sure that is just not practical in today’s environment.
So, you know, this is a big market for a big player in the market, we have an outstanding brand, we’ve got a very diversified business – I mean, even though it’s not going to be the 20% growth here, but we’re feeling pretty comfortable.
Matt Liption – Morgan Stanley
Great, thank you
Operator
Your next question comes from the line of Timothy McHugh with William Blair & Company, please proceed.
Timothy McHugh - William Blair & Company
Yes, thanks. Most of the questions might have been asked, but one question is can you give us your thoughts – you talked a quarter or two about kind of saving the some of the cost savings from reason initiatives and having that in you back pocket, if you will, in case revenue comes in lower than expected.
And then you said – you explained why, but from – because of some of the past through costs and the lower indirect costs, and the lower end direct cost revenue is, at least in the first half, is a little lower. Do you still have as much in your back pocket, if you will, or is – should we think about a lower amount that is trying to get in our standing of with how much cushion I guess is still – that you have available.
Ralph Shrader
Well, what I can say is if you look at our bottom line guidance, the only change from the last guidance, and I guess, with what we put out in connection with our annual earnings release for fiscal ’12, which ended March 21st – the only change in that guidance is related to the debt refinancing. Right, and the debt refinancing and the dividend, I guess the dividend is what created the two class, not that [inaudible] earnings for purposes of calculating earnings per share – that’s a phrase that I have been practicing in case you haven’t noticed.
I’m sorry, I didn’t mean to be flip, but – so, what I’m saying is that we – look, our bottom line out look has not changed, but for the debt we’re structuring and the dividend. So, operationally we’re pretty much where we thought we were going to be.
Clearly, the lower indirect expense rates that we were experiencing the first quarter is an indication that we are holding back until we see how the rest of the year develops – so, I would say that our cushion is neither greater nor smaller, it’s, you know, where we thought we were going to be.
Timothy McHugh - William Blair & Company
Okay, thank you.
Ralph Shrader
Sure.
Operator
Your next question comes from the line of George Price with BB&T Capital Markets, please proceed.
George Price - BB&T Capital Markets
Hi, I just had a couple of follow ups, thanks for letting me hop on. The first thing is I know that you’re not giving guidance for the second half of fiscal ’13 – I was just wondering if the plan was to give guidance for the second half when you abort the next quarter, or possibly, you know, would you consider making updates, you know, before that time and under what circumstances.
Samuel Strickland
Well, as I look over Ralph’s crystal ball, it looks a little foggy on that subject George, but as a practical matter, I think we just have to see what would develop. You would assume that we would be announcing second quarter some time in the, you know, late October, early November time frame, and we’ll see what is going on at that point in time.
Ralph Shrader
We’ll give guidance the first half at that point.
Samuel Strickland
Yes, that’s right.
George Price - BB&T Capital Markets
Okay, and then just on pricing, if you maybe comment a little bit more on what you’re seeing on the pricing side, and maybe, you know, if you talk about growth from the different areas of your business, maybe you can talk about pricing in the different areas – you know, what kind of pricing are you seeing in order to keep existing business in order to win away new business – you know, how’s the market evolving on that side? Thank you.
Horacio Rozanski
I’ll try to take that, the – this is Horacio – we are – there’s increase pricing pressure across the environment that I think we’ve seen for the last couple of years. There’s a move to low price, technically acceptable work in a lot of our contracts.
Some of that is, I think, in some ways a reaction to [inaudible] from the government to the extreme amount of protesting that we’re seeing, so I think some of it is frankly industry driven. At the end of the day, that has forced us to get a lot smarted on how we deploy our talent, and manage our people and our staffing through the cycle of a contract.
It use to be that you could win a contract, put staff in place in year one, and then just let that go on autopilot until the expiration of the contract, and then look at it at that point when we have now a very robust resource management capability that allows us to introduce talent, and move our talent around, make it more efficient, and also make sure that the pricing – or else we go into re-competes is what it need to be to match the client’s requirements. So, we’re totally seeing pressure, we’re seeing ourselves evolve and get much more sophisticated in a way with price and delivered value to the client, then – and I think that is sort of it, the reality – we believe that in the areas of core mission, we’re growing, we’re focusing, we’re driving the business of the areas where quality and value are going to dominate the kind of low price discussion in the areas that are more peripheral where the services are less valuable and less important are the areas where the government is going to exercise much more – what do you call it, pricing diligence on their side.
And so, that’s both, the reason and the driver for our strategy.
George Price - BB&T Capital Markets
Okay, great, thanks again for taking my questions.
Operator
That is all the time we have for questions. I would like to turn the call over to Dr.
Ralph Shrader for closing remarks.
Ralph Shrader
Well, thank you very much, and thank all of you for joining us here this morning. I would just like to close by re-enforcing that while we totally can’t predict the course of political economic events, Booz Allen is just not going to sit on the sideline and watch and wait for things to sort out.
We are very much determined to be out in front, then to shape our own destiny. That means that our operating business, every Booz Allen leader and employee is committed to impress our clients, to win work over our competitors, and make sure that our firm remains the absolute best company to work for.
Our board and our finance team is committed to ensure that we have the best capital structure for today’s environment, and that we return value to our stockholders. We are confident that we will accelerate out of this business cycle with a strength and resilience that comes from being a leader for over 98 years.
And with that I thank all of you this morning for your time and your participation.
Operator
This concludes our conference for today, you may disconnect.