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Booz Allen Hamilton (NYSE:BAH)
Q2 2018 Earnings Conference Call
Nov. 6, 2017 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Thank you for standing by and welcome to Booz Allen Hamilton's earnings call covering Q2 results for fiscal 2018. At this time, all lines are on a listen-only mode. Later there will be an opportunity for questions.

And now I'd like to turn the call over to Mr. Curt Riggle.

Curt Riggle -- Vice President, Investor Relations

Great. Thank you. Good morning and thank you for joining us for Booz Allen's Q2 fiscal 2018 earnings announcement. We hope you've had an opportunity to read the press release that we issued earlier this morning.

We've also provided presentation slides on our website, and I'm now on slide one.

I'm Curt Riggle, Vice President, Investor Relations and with me to talk about our business and financial results are Horacio Rozanski, our President and Chief Executive Officer and Lloyd Howell, Executive Vice President, and Chief Financial Officer.

As shown on the disclaimer on slide two, please keep in mind that some of the items that 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. These 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 earnings release and set forth under the forward-looking statements disclaimer included in our Q2 fiscal 2018 earnings release and in our SEC filings. We caution you not to place undue reliance on any forward-looking statements that we may make today and remind you that we assume no obligation to update or revise the information discussed on this call.

During today's call, we will also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our Q2 fiscal 2018 slides.

Now, my pleasure to turn the call over to our CEO Horacio Rozanski. We're now on slide three.

Horacio Rozanski -- Chief Executive Officer, President and Director

Thank you, Curt. Good morning everyone and thank you for joining us. Before we begin, I would like to take a moment to acknowledge the tragic events in San Antonio yesterday. San Antonio is near and dear to the Booz Allen family with a large number of our staff and our clients in the area.

And so, our hearts go out to the victims and their families and the entire community.

This morning Lloyd and I are very pleased to report another quarter of strong financial results capping six months of excellent operational performance of Booz Allen. In May we told you that we have a great deal of confidence about the future because of the firm's operational strength and strategic positioning in the market. Today, with our first half result in hand we feel even more confident that we have created the conditions for sustainable quality growth over the long term. We have never been closer to our clients.

We're anticipating client needs and advancing their missions. We're pivoting to where the most attractive opportunities are and we are winning new businesses. As always, we're addressing head on any near-term challenges. We pride ourselves with managing the firm with discipline and foresight so that each year we can achieve our annual objectives and do value for the future.

I would like to focus my remarks today on two key drivers of Booz Allen's long-term performance – our differentiated position in the market and our capacity to attract talent. As you know, we launched our Vision 20-20 growth strategy five years ago because we understood that Booz Allen had to adapt to continue meeting client demands in an increasingly technology-centered world. Now we are positioned precisely where the market demand is greatest, the point where technology meets mission. Our clients recognize that solving their toughest problems requires new ideas and new technology and because of our consulting heritage, mission know-how and advanced technology, they turn to Booz Allen to develop and implement the right solutions.

So, for example, we deliver secure agile development of scale for large enterprises. We have enabled through early client adoption of our district defense technology, a step change in how information security is managed. We're improving intelligence analysis and collection with advanced data science and with the acquisition of Morphick which we will describe later on, we now offer clients an adaptive technology platform that identifies and stalls cyber attacks.

With this level of innovation, skill, and experience, our firm holds a competitive advantage. Booz Allen differentiation is separating us from the pack and generating the industry-leading organic revenue growth that we currently deliver. Most importantly, we believe that our exceptional people, agility, and integration of capabilities create growth that is sustainable and will continue to accelerate.

Now, moving on to the other long-term performance driver that I want to highlight today. Booz Allen is demonstrating tremendous capacity to attract and retain people with the unique skill sets required to maintain our market position. In this Q2 alone our headcount increased by 771. We have long said that growing our talent base both in number and the range of skills is essential to our growth strategy.

We could not be more pleased with the progress we've made. As of September 30th, we have nearly 1500 more people at Booz Allen than a year ago. We are prevailing in a very competitive market for labor because of what we offer the 24,000 plus women and men who work here – opportunities to do meaningful mission-critical work, to solve problems and push technology to new frontiers, to collaborate with a great diversity of colleagues, grow professionally, learn and advance.

Finally, before turning the call over to Lloyd, I want to touch on one other topic, something that speaks to the purpose and values of our firm which are also central to attracting and retaining clients and talent. As you know, since August our country has endured its worst hurricane season in years. The storms have affected hundreds of our employees in Texas and Florida, throughout the southeast and a few in Puerto Rico. What has been remarkable though not surprising to me is how the people of Booz Allen rallied to meet the challenge.

I had the privilege to be in Houston to meet with the team a few weeks after hurricane Harvey and was inspired by both the resilience and their service to the community. During the storm, several of our colleagues worked search rescue and helped at emergency shelters. Afterwards, our office in Houston and San Antonio formed teams to volunteer to clean up flooded houses of colleagues and others. One of our client teams has worked round the clock managing the federal government's DisasterAssistance.gov website.

Since late August, more than 4.5 million people have registered for Disaster Relief Assistance through the site. At the Federal Emergency Management Agency, we have also provided technical assistance to evacuation planning, supported the deployment of emergency communications vehicles and provided geospatial imagery and data to help define damaged zones. And from across our firm, as far away as Asia and the Middle East, the people of Booz Allen contributed to a fundraising campaign for six organizations helping with disaster relief and recovery. Roughly $350,000 was donated in just five weeks between employee donations and a match from Booz Allen.

I shared these details not because it made a difference to our Q2 numbers but because I believe the purpose and values demonstrated by our people during that time are absolutely central to our differentiation. They define who we are, they matter in the markets for both business and talent and they are therefore critical to our success today and in the future.

So, with that, Lloyd, over to you.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Thanks, Horacio. I'll pivot now to our Q2 results and how they fit into our expectations for the rest of the year. As the numbers clearly show, we had another great quarter. Booz Allen continues to grow on an organic revenue basis as well as in terms of capabilities, talent, and clients.

We are capturing opportunities in every market we serve and with a robust pipeline, record high backlog, and increased headcount, it's clear that we are setting ourselves up for continued momentum.

Furthermore, we have demonstrated our commitment to building shareholder value through not only consistent performance in revenue growth but also cash generation and capital deployment. Let me take you through the details.

Please turn to slide four. Revenue increases in the Q2 were primarily driven by continued strong demand from clients which led to headcount gains and increased direct labor. Revenue excluding billable expenses continues to accelerate. For the quarter it increased 7.5% and total revenue was up 10.6%. Billable expenses remains at about 31% of revenue.

As Horacio mentioned, we knocked it out of the park on hiring in Q2. One of our main areas of focus right now is moving our newest colleagues on the contracts as efficiently as possible even as we maintain our momentum on hiring. The need for that focus is abundantly clear when you look at our backlog and book to bill. Total backlog is up 22% year over year to a new record of 16.7 billion.

Increases span every category – 7.7% for funded backlog, 17.1% for unfunded and 31.6% for priced options. At 3.6 billion our funded backlog is bigger than it has ever been. Because our Q2 coincides with the government fiscal yearend, it is typically our strongest for bookings. Our Q2 book to bill at 2.7 times is our second highest ever.

Moving to the bottom line numbers. Our income and earnings benefited from revenue gains and improved contract profitability. However, we are experiencing some headwinds on our adjusted EBITDA margin. Specifically, billable expenses were higher than expected.

There was increased spending associated with onboarding a large number of new employees and we saw incremental higher legal expenses as expected. Two of those factors resulted from our accelerating top-line growth but the headwind still gives us reason to maintain some caution about the second half of the year. For the full fiscal year, we do not expect that all of our above planned top line growth will fall to the bottom line even as we remain confident about the fundamental strength of the business and our performance vis-à-vis competitors.

For the Q2, operating income was up 7.5% compared to the same period last year and adjusted operating income increased 3.7%. Both were driven primarily by the factors I mentioned – revenue growth and improved contract profitability – partially offset by the increased spending. Adjusted operating income for fiscal year 2018 excludes the 2017 add-back of 3.4 million in costs related to debt refinancing transactions.

Net income for the quarter grew nearly 13% to 70.9 million and adjusted net income increased just over 3% to 71.3 million. EBITDA and adjusted EBITDA grew 7.7% and 5% respectively compared to the prior year quarter due to the same factors that drove increases in operating income and adjusted operating income. Adjusted EBITDA margin was 9.2% and [Inaudible] for the quarter was 48 cents.

Let's turn to cash and capital deployment. I'm now on slide five. In the Q2 our cash generation remained strong. We saw an improvement in cash from operations over the previous quarter thanks to healthy conversion of revenue and easing of the ways at one of the government's main payment centers.

Capital expenditures in Q2 were 16.5 million higher than the same period last year because of continuing leasehold improvements to update our office spaces. We found that making these updates helps us attract and retain the talent we need and many of these leases allow for tenant improvement reimbursements after project completion or corresponding rent reductions.

We are now projecting 70 to 80 million in Cap-Ex for the full fiscal year and we still expect to convert about 100% of adjusted net income to free cash flow in this fiscal year. As Horacio and I have emphasized in the past, Booz Allen is committed to generating near and long-term shareholder value through revenue growth, operational excellence, and effective capital deployment. We intend to use the strength of our cash generation and balance sheet overall as meaningful value creation tools. We closed the quarter with a healthy cash balance of 330 million after paying approximately 25 million in dividends and repurchasing about 3.5 million shares.

Year to date our strong balance sheet has allowed us to deploy nearly 220 million to deliver value to shareholders in the form of regular dividends and share repurchases plus announced our acquisition of Morphick.

The acquisition which closed last week fits squarely into our strategy for growth in the commercial market where demand for cyber as a managed service is rapidly growing. It is also consistent with our disciplined approach to acquisitions. We remain focused on tuck-ins in the areas of engineering, digital solutions, analytics and cyber, technical capabilities that we fuse together with our consulting prowess and mission knowledge to create the best solutions for clients.

Taken together, the regular dividend, share repurchases, and acquisitions demonstrate our commitment to near and long-term value creation for investors as well as our flexible approach to capital deployment. As we have said in the past, we deploy capital based on available capacity, market conditions and opportunities for internal and external investments. We plan to continue this flexible capital deployment strategy. Our strategy has not changed.

In support of this approach, our Board of Directors last week approved a 200-million increase in our share repurchase authorization. We now have the flexibility to repurchase additional shares worth up to roughly 300 million as conditions warrant.

In closing, let me move to our dividend announcement and guidance which you'll see on slide six. In recognition of our strong performance through September and our confidence about the future, the company announced this morning a regular dividend of 17 per share. It's payable on November 30th, to stockholders of record on November 14th.

We are also affirming our guidance for the full fiscal year. We project that revenue will grow 4% to 7% with an expectation that we will reach the top end of that range given our excellent first half performance. Our bottom line guidance also remains unchanged due primarily to the uncertainties and headwinds I described earlier. We expect diluted earnings per share to be $1.80 to $1.90 and adjusted diluted earnings per share to be $1.83 to $1.93.

I'll conclude there and turn it back to Curt to kick off Q&A.

Curt Riggle -- Vice President, Investor Relations

Great. Thanks, Lloyd. And, Candace, if you could give some instructions for the Q&A [Inaudible] open that process.

Questions and Answers

Operator

Ladies and gentlemen, if you have a question at this time, you may press star and then the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. In order to provide everybody opportunity to ask questions, we ask that you please limit yourself to one question with one follow-up. And our first question comes from Edward Caso of Wells Fargo.

Your line is now open.

Edward Caso -- Wells Fargo -- Analyst

Great. Good morning. Congrats on the results here. Can you help us dissect the organic portion of both your revenue growth and your headcount growth? Thanks.

Horacio Rozanski -- Chief Executive Officer, President and Director

Hey, good morning and I guess I'll start. The good news is on both we are very much on strategy. So, the types of things that we are seeing uptake on other things that Lloyd and I both mentioned on the call around digital services, around cyber, around engineering and solutions up roughly two-thirds of the hires that we are talking about have a technical background. More than half of them have a security clearance.

So, these are the people that we need to continue to drive our growth rate. The other element that we talked about in the last call and continues is that at the broadest level in terms of our largest markets that we serve, most of our business is growing. So, we see growth across defense, across our intelligence business, across our civil business, strong double-digit growth in global commercials. So, the portfolio is growing across the board and the same can be said when you look at the pipeline and you look at backlog and the book to bill and everything else, it is pretty broad-based.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Ed, I would just add that our growth is really a function of client demand, as Horacio just mentioned. The headcount growth, when you look at it, we had 300 or so folks join us for the Aquilent acquisition. So, 1200 on top of that. Our acquisition really represents in the case of Aquilent less than 2% of the growth that we're experiencing.

And this is across the entire portfolio. Clearly, defense and intelligence markets are off to a great start. We're ever well positioned with of our clients and that gives us a lot of optimism about the entirety of the fiscal year.

Edward Caso -- Wells Fargo -- Analyst

Great. Thank you. My other question is around the legal fees. Sort of order of magnitude of meaningful, is it a penny, two penny, it's a [Inaudible]? Also, I noticed in your 10Q this morning there was a mention about the SEC now being noted in the litigation section.

Is that sort of normal course of business or is this something we should be focused on?

Horacio Rozanski -- Chief Executive Officer, President and Director

Thanks for the question. Very much normal course. The DOJ investigation is continuing and this morning we don't have a substantive update as is common in matters like this and you've seen it in the queue. We've been in contact with other agencies and that includes the SEC.

They recently informed us of an informal investigation and we believe that covers the same subject matter that the DOJ is looking at and of course we have an excellent legal team and they're continuing to cooperate with the government to bring all of this to an appropriate resolution and because we're in the early stages really on today's call, that's pretty much all we are prepared to say on this topic. What we really want to do today is spend as much time as possible describing you the business, the strategy and where we're going.

On the legal cost portion of your question, we're not going to comment on cost related to the DOJ investigation at this time.

Operator

Thank you. And our next question comes from Tim McHugh of William Blair. Your line is now open.

Trevor Romeo -- William Blair -- Analyst

Hi. Good morning, guys. This is actually a Trevor Romeo on for Tim today. Thanks for taking the questions.

Horacio Rozanski -- Chief Executive Officer, President and Director

Good morning.

Trevor Romeo -- William Blair -- Analyst

First of all, I guess just on the billable expenses in this quarter, I think they were the highest figures of a percentage of revenue that we've seen in a while. Could you just give us any more detail on what's driving that higher and do you view 31% as more of a one-off this quarter or is that kind of culture to the sustainable level going forward?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Thanks, Trevor. We are still are seeing billable expenses for the year being in the range of 29% to 31%. They were higher this quarter primarily due to some of the small business [Inaudible] that were tied to our defense market. It's really difficult for us to estimate billable expenses quarter to quarter.

So, the range from our perspective still remains 29% to 31%.

Trevor Romeo -- William Blair -- Analyst

Okay, got it. Thanks. And then I guess there's a follow-up. Your growth has been really strong lately but if you had to sum up, I guess, the biggest challenge to maintaining growth going forward, is it kind of being able to continually hire enough people to support the backlog or is it risk to the budget environment or, I guess, what would you say as the biggest risk to growth going forward.

Thanks.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

From my perspective, it remains a very challenging labor market that we source and attract the candidates that have the technical capabilities. So far this year we've been successful in doing. As I said in previous calls and at conferences, that really is the governor on what will end up in our forecasted range for the year. And assuming that we're still going to maintain a great delivery, get closer and closer to our client's mission remains the challenge that day in day out we feel we're successfully meeting that challenge.

Operator

Thank you. And our next question comes from Cai von Rumohr of Cowen & Co. Your line is now open

Cai von Rumohr -- Cowen & Co. -- Analyst

Yes. Thank you very much. So, Morphick, could you give us some color, how big is it, how much did you pay, how profitable is it?

Horacio Rozanski -- Chief Executive Officer, President and Director

Let me start on the strategic front and try and frame it this way. We did not buy Morphick as a financial play. We bought it as a strategic play. We see a significant opportunity as we continue to delve into managed services, especially in our commercial markets to start but we believe this is an opportunity coming to all of our clients because things like [Inaudible], very sophisticated [Inaudible] testing and [Inaudible] the ability to scan networks using bold data science and machine intelligence.

These are the things clients want to buy and buying them on a managed services basis is one of the ways that we see evolving. So, we were in the process of building our own capability and we found in Morphick the ability to leapfrog this platform building approach by a couple of years. So, that's why we did it. In terms of the financials, they're are really not material to our financials and we're not going to be disclosing any details around it because it's small acquisition with great strategic potential.

Cai von Rumohr -- Cowen & Co. -- Analyst

Okay, thank you. And you didn't change your official guidance and yet with the type of organic growth you had this quarter, the only way you stay under 7 is if you decelerated some point in the second half. You didn't change your share count and yet you bought 3.5 million shares. And it looks like the tax rate would be more toward the lower end given what you booked this quarter.

Maybe comment with a little more color if you could on the guide and you mentioned the revenues toward the top end but kind of some of the other elements.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Sure. As your question has implied, we're very pleased with the strong first half of the year that we're having and in my prepared remarks we do see ourselves ending up at the top end of that range and given the fact that we've been able to onboard 771 folks so far this year, that gives us a lot of confidence. When you look at the bottom end of the range, again, in my prepared comments there are a few headwinds where we don't expect it to come completely down to the bottom. That being said, the range forecasted for the year still remains and we feel we're going to end up within that.

I don't want to speculate on a quarter by quarter basis as to what changes when we get further into the year and when we feel it is appropriate to change the guidance, we will do so but right now we're very happy with the performance of the year. As I also mentioned at the beginning, this fiscal year we do see [Inaudible] with the second half of the year. We're off to a great start and we are setting for that to continue.

Operator

Thank you and our next question comes from Jon Raviv of Citi. Your line is now open.

Jon Raviv -- Citigroup -- Analyst

Hi, good morning. Question is following up on that line of thought. JUST can you outline some of the headwinds more specifically you see in fiscal second half? For instance, where is the top line not flowing to the bottom line? Is it more on the billable side or it will be on the higher end of that 29% to 31%? Is it [Inaudible] you're coming up with legal fees and [Inaudible]? Where is the top [Inaudible] not flowing to the bottom line?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Yeah, as I said in my prepared remarks, billable expenses were high this quarter. So, that gives us [Inaudible] not knowing exactly where they will end up but what we do expect it to be within the 29% to 31%. Onboarding, the cost associated with onboarding the number of people that we have, it takes time to get them deployed and utilized at our targeted rates. So, that is also one of the headwinds that we're grappling with.

Then, as in the previous question, we're not going to comment on legal costs today but they're elevated as expected.

Jon Raviv -- Citigroup -- Analyst

Got it. And then following up on that. Can you talk a little bit about the margin profile and the backlog? Sometimes we see when backlog growth really accelerates or sales growth accelerates, there's a tendency to see some lower margin for various reasons. What do you see in terms of margin profile and your backlog in a new business you're winning and can just [Inaudible] wrap into the notion of cost plus [Inaudible] price [Inaudible] cost plus is up a little bit? And then one more.

How does that all fit into the mid-nines that you've talked about in this period of accelerating growth when it comes to adjusted EBITDA margins?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Sure. When you look at our backlog, overall it is a very healthy 22%. The fixed price portion of that has also increased. So, on a margin basis, we are optimistic that we're going to see some improvement in that over time as that backlog converts.

In terms of the overall margin profile, fundamentally we believe this is what growth looks like. We're focused on creating long-term value for our shareholders. We're growing the top and the bottom line and we're also generating and deploying cash. So, my comments in the past about being able to achieve this growth, targeting the mid-nines is still what we want to move out with going forward.

We believe that's going to give us accelerated growth that are revenue [Inaudible] and I think over time we'll be able to expand on that margin given the three forms of mixed shift that I've spoken to in the past-contract type, global commercial market and then also the type of work that leverages the technical capability that we've been investing in over the past five years.

Operator

Thank you and our next question comes from Ronald Epstein of Bank of America/Merrill Lynch. Your line is now open.

Christine Sun -- Bank of America / Merrill Lynch -- Analyst

Hey, good morning, guys. This is Christine [Inaudible] calling in for Ron. Can you discuss your progress in pursuing global commercial clients? From my understanding, this has historically been a higher margin than the rest of your business. And a follow-up to that is for your mid-nines margin target, what is your embedded expectation for growth in your commercial business.

Horacio Rozanski -- Chief Executive Officer, President and Director

So, let me start. We are very pleased with the growth in our global commercial business, both our presence here and in the [Inaudible] region and our initial forays into Southeast Asia and Singapore all going well. They're all finding the right kinds of clients around a cyber first strategy. We feel like we are not posting good numbers but creating a portfolio of blue-chip clients that will be the key to future growth.

We are attracting talent and I think it's in some ways also allowing us to retain talent in our core government business that sees an opportunity to travel back and forth and both learn things there that are of great value to our government clients but also enhance our careers, enhance [Inaudible] without having to leave Booz Allen. So, across the board, it is a very good story with good economics. It is a small part of our business, as you know. So, it's not the largest contributor to our financial right now but it's doing very well and we expect it to continue to contribute.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

On the economic side, we see 2.5 to 3 times better margins commercially than we do with our federal clients and over the past two years that business has grown 22% and 23% respectively. We're very excited about that growth continuing. The Morphick accusation is an example of our confidence in that. So, it's roughly 2.5% of the entire portfolio.

We will continue to invest and grow that business.

Christine Sun -- Bank of America / Merrill Lynch -- Analyst

Great and a follow-up to that. With the higher book to bill in the quarter and your accelerating growth and your backlog, does that factor in another 20% plus growth in commercial for the year?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

No, I wouldn't subscribe to that math. Our commercial business is a small part of our portfolio. Given the historic growth that we've seen, we still feel very confident about its prospects going forward. The majority of the backlog is due to our federal business and it excludes about 280 million in protests.

So, we don't include that in the backlog but the majority of that is due to our federal market.

Operator

Thank you and our next question comes from Krishna Sinha of Vertical Research Partners. Your line is now open.

Krishna Sinha -- Vertical Research -- Analyst

Hi. Thanks. So, historically on the share repurchase, I guess when your shares are more fully valued, you kind of back away from share repurchases. Obviously, this quarter you did a lot more as your share price was depressed but now your share price is back up over $38.

So, can you just talk about how you're going to prioritize that going forward from this point?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Sure. Our capital deployment strategy, as I mentioned in my prepared remarks, is really based on a disciplined flexible strategy. And with that, we have, in addition to share repurchases, acquisitions, regular recurring dividends and when appropriate, a special as a part of that strategy. Over the past quarter, we did purchase 2.5 million shares for 120 million and we asked the board to authorize 200 bringing out total amount to 300.

That we will utilize as market conditions dictate. So, again, flexible strategy, the share repurchase authorizations at a level that provides us that flexibility and we believe creates near and long-term value creation for our shareholders.

Krishna Sinha -- Vertical Research -- Analyst

Okay and then on the margin side, billables are expected to remain at 29% to 31%, sounds like that's your legal expense, the cost of revenue is going to remain somewhat stable. If I just look at this from a labor perspective, you're adding a lot of headcount which I think increases your direct labor. So, that should be an accelerant to your margins. Am I thinking about the math right or are you guys deploying more solutions and therefore direct labor on contracts is not a one-to-one correlation with your margin anymore? Can you just talk about that dynamic like how does the headcount increase translate to margin?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Sure. You're close. It's really the decline in the cost associated with new labor that we're bringing on board and with 4800 contracts, each of which has unique circumstances, how quickly we can deploy and utilize the folks coming on board, there is a timing of the cost. So, with that, that is really what is impacting the margins.

Operator

Thank you and our next question comes from Rob Spingarn of Credit Suisse. Your line is now open.

Rob Spingarn -- Credit Suisse -- Analyst

Good morning. [Inaudible] with this big rise in backlog, just a couple of questions. You've really been at least in backlog and revenues [Inaudible].

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

I'm sorry, you broke up and you're asking your question.

Rob Spingarn -- Credit Suisse -- Analyst

Let me try that again. So, the [Inaudible] strength in your backlog expansion, revenue expansion, I understand some of that's billables and maybe a little bit of non-organic but at the end of the day you're at the high end of the range in the industry and I want to understand a little better why we see such variability across companies. Some guys are flat, couple are still negative on organic growth or low single digits and you're much stronger than that. And as a follow-up to that is there any element of army readiness or frankly any readiness campaign across your services.

As we think about Russian deterrence, North Korea missile defense in general. are you supporting that agency more? Are there specifics here that you can [Inaudible] your higher growth? Thank you.

Horacio Rozanski -- Chief Executive Officer, President and Director

Love that question, I have to say. I don't want to comment on the industry. Let me talk about us. We started five years ago with this premise that the technology revolution was going to have a significant impact on our clients.

So, through Vision 20-20 we began to invest in innovation, we began to invest in advanced capabilities, we looked for ways and it took us a while to make sure that that was tightly coupled and married to traditional knowledge of our clients' missions, our client relationships, and our consulting expertise. So, this was not to be an appendage. It was to transform the way we position ourselves in the market and with our clients. Because of that, we did not focus on very larger acquisitions.

We focused on [Inaudible] that Lloyd talked about that actually gave us better capability, faster, and we went from, for example, a budding presence in [Inaudible] development to being one of the few people who can do secure agile development at scale into the hundreds of [Inaudible] in a program if we need to fill those. Those are the things that we believe are driving our growth. When you delve into our backlog and you look at specific programs, we're winning work now that is more differentiated that it's been really in my career at Booz Allen. And, again, this is because we are driving a strategy, we've been very disciplined for the last five years doing that, we have begun now to complement that with enhancements to employ value proposition, recognizing that the people that we're bringing in are also highly sought after not just in our industry but outside our industry and it's creating this really great energy inside the firm and brings success, as you know.

So, we're very optimistic. That's why we can talk about accelerating growth. That's why we can talk about differentiation. That's why we can talk about adding unique value to our clients.

So, I think that's what drives what we are and where we're going to be. As both Lloyd and I have alluded, growth comes with its own set of challenges. The market isn't a perfect market and we're by no means a perfect firm where everything clicks all the time but on the whole and on the main I could not be prouder of the work that our colleagues at Booz Allen have done to get us here and where they can take us.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

As I suggest [Inaudible] a couple of other points, we feel that we've got 24,000 salespeople. They are with our clients, they get real-time information about our clients' missions, agendas, what they would like to do and we feel that we skate quicker to the putt than most. And we invest in our people. So, through our Chief Personnel Officer Betty Thompson, the programs that we have in place to cultivate, train, develop, we believe provides us with an excellent workforce that really provides value-added offerings and support.

So, my biases are really toward our people and the fact that we seek to find the best people, deploy the best people against our clients' most important missions.

Operator

Thank you and the next question comes from Rayna Kumar of Evercore ISI. Your line is now open.

Rayna Kumar -- Evercore ISI -- Analyst

Good morning. Can you [Inaudible] on your businesses ...

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

I'm sorry, Rayna, you're fading in and out.

Rayna Kumar -- Evercore ISI -- Analyst

Could you hear me better now?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Yeah, I can. Thank you.

Rayna Kumar -- Evercore ISI -- Analyst

Can you quantify pricing trends in the Q2 across your businesses and then how we should think about pricing for the remainder of the fiscal year?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Generally speaking, pricing is slightly moving away from the low price technically acceptable environment we found ourselves in the past couple of years. I think that's true across most of our markets. So, there has been a marked improvement in pricing. We feel that clients in the current environment are that much more sophisticated and aligning the appropriate pricing with the capability support that they're seeking and that has played to our advantage.

That being said, it's still a very competitive environment and every single case that we submit certainly has a degree of pricing pressure to it but in general, we have seen pricing begin to improve a bit.

Rayna Kumar -- Evercore ISI -- Analyst

That's very helpful. Thank you.

Operator

Thank you and our next question comes from Sheila Kahyaogolu of Jefferies. Your line is now open.

Sheila Kahyaogolu -- Jefferies -- Analyst

Hi. Good morning everyone.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Morning.

Sheila Kahyaogolu -- Jefferies -- Analyst

I kind of wanted to follow up on revenue growth because it has been so stellar versus the competition. So, maybe if you could give us a bit more specifics on what's driving it, what agencies or are you seeing that you're adding more scope on existing contracts or adding more volume with existing agencies that you've done with the workforce. So, if you could elaborate on that in some sort of way.

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Sheila, I appreciate the question. The truth of the matter is our growth is pretty broad-based at this point, not exactly everywhere at the same pace but we run a portfolio. So, on any given quarter, any given year, the growth will come from slightly different place but at the end of the day, as I said before, this isn't in our view about "Okay, we're supporting this one agency and we're doing right here." This is about we have built a unique set of capabilities and market positions that we actually can drive successfully across all of our businesses. So, to give you an example, Veterans Affairs has been a place that has embraced agile development earliest.

In fact, you'll remember we made [Inaudible] in Charleston that was really centered on that premise. The really exciting thing is that then we took that understanding, that capability and a lot of that talent and we're presenting that across all of our markets. Especially in the defense market, some agencies have not moved as fast or [Inaudible] perhaps we would like them do or they would like do. So, having these capabilities available, having, as Lloyd said, 24,00 people who both understand what we do and understand what the clients need and make the match not just around big contracts but at a tactical level.

Sometimes things start as two and three people and then they become 20 or 30 or 200 or 300. So, that's really what's underlying a lot of this growth is developing these capabilities, hopefully, help the market and then having the ability to systematically move them through our client base to the places that they're most needed and where they don't exist. So, that is [Inaudible] Booz Allen. I don't know that we are inventing anything there but I do believe that it's hard to do and we do it particularly well.

With 480 plus contracts that comprise our portfolio, we believe we're winning more than losing and at any point in time it changes but year over year it has been growing. I think the other side of the coin is our clients. We are closest clients range between GS15 and senior executive service too. They're long-tenured career civil professionals and we have over many years developed relationships, cultivated relationships with them.

So, it's with vagaries of political change and what not and our business we feel is resilient against that and at times of change, historically we've been able to do very well but, to just echo Horacio's point, it's across the entirety of our portfolio. It's not concentrated to any one market or any one contract. We tend to look at as a very diverse portfolio that we try to optimize.

Sheila Kahyaogolu -- Jefferies -- Analyst

Thank you. And just one more, if I may. In terms of the labor comment earlier, can you just talk about is there risk from tightening in the market? Are you seeing any sort of wage inflation?

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

We are seeing wage inflation and you can't go after highly skilled, high-demand candidates and not experience that. That may be our first indication where we want to be. We're also seeing, back to my previous pricing comment, our clients recognizing that. They want access to the same type of labor pool that we do.

So, whether it's cybersecurity, digital or analytics, they are now willing to move modestly away from low price technically acceptable but every day we're in a dogfight again both in sector as well as in other industries for this type of talent.

Sheila Kahyaogolu -- Jefferies -- Analyst

Thank you.

Operator

Thank you. And our final questions comes from Carter Copeland of Melius Research. Your line is now open.

Carter Copeland -- Melius Research -- Analyst

Hey, good morning, gentlemen. Nice results. Two quick ones just on talent. I've wondered a) if you could speak to trends you see in an attrition just thinking about the growth suffers [Inaudible] behind a head count move and then the second one relates the comments around getting talent onboarded through your organization on the new contracts.

Are you seeing anything unique there that is related to your comment or is this just a typical process of getting new [Inaudible].

Horacio Rozanski -- Chief Executive Officer, President and Director

Hey, Carter, welcome back. on both of those questions, first of all, we are not seeing anything unique in terms of putting people on contracts. The reality is we did onboard a lot of people and, as Lloyd pointed, there's a time lag between getting them in the door and getting them to their target billability. So, that's what we're observing that is what [Inaudible] looks like and it's something we both are very familiar with and very comfortable with.

We are continuing to aggressively look for the right kind of talent in the market and when we find it, we are not going to be shy because we know and when you look at our backlog and everything else, I think you can feel confident that there's enough work for them to do albeit through a ramp-up period. On attrition, we feel good about the environment inside Booz Allen. As you know, we don't comment on the specific numbers but more importantly we started over the last 18 months to reemphasize our purpose and values to have a lot of [Inaudible] conversation about how each part of our business contributes to that, about how each piece of work that we do really empowers people to change the world. And that has some [Inaudible] level of energy internally that we haven't had in awhile.

And obviously growth helps, it's always a lot more fun when you're growing and that allows us to bring in new people. We've talked about in the past that a large percentage of our hires come from employee referrals and when you get a unique talent that, for example, is admired on campus they're excited they're coming to Booz Allen and they're telling their friends how great it is here, that does not hurt our ability to bring in additional talent and to repeat a bit of a virtuous circle. So, on the talent front, we can't stand still, it's a very competitive market but I really love what we are.

Carter Copeland -- Melius Research -- Analyst

Great. Thanks, guys.

Horacio Rozanski -- Chief Executive Officer, President and Director

Welcome.

Operator

Thank you. And that concludes our question and answer session. I'd like to turn the conference back over to Horacio Rozanski for closing remarks.

Horacio Rozanski -- Chief Executive Officer, President and Director

Thank you very much. Thank you all for your questions and for joining us today. I would like to briefly close firstly recognizing the leaders at Booz Allen who are really making all of this happen and who are putting themselves out there with clients and with our people all the time to drive both our purpose and our values and ultimately our successes and enterprise and also recognize the 24,000 people of Booz Allen because it is their hard work and their dedication the drives our performance and it ultimately will allow us to empower people to change the world. Lloyd and I are truly privileged to call them colleagues and to come brag about them and represent them on this call each quarter.

So, with that, thank you again and have a good day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Duration: 53 minutes

Call participants:

Curt Riggle -- Vice President, Investor Relations

Horacio Rozanski -- Chief Executive Officer, President and Director

Lloyd Howell -- Chief Financial Officer, Treasurer and Executive Vice President

Edward Caso -- Wells Fargo -- Analyst

Trevor Romeo -- William Blair -- Analyst

Cai von Rumohr -- Cowen & Co. -- Analyst

Jon Raviv -- Citigroup -- Analyst

Christine Sun -- Bank of America / Merrill Lynch -- Analyst

Krishna Sinha -- Vertical Research -- Analyst

Rob Spingarn -- Credit Suisse -- Analyst

Rayna Kumar -- Evercore ISI -- Analyst

Sheila Kahyaogolu -- Jefferies -- Analyst

Carter Copeland -- Melius Research -- Analyst

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