Booz Allen Hamilton Holding Corporation (BAH) Earnings Call Transcript & Summary

So thank you all for being here. We're moving into our afternoon session. We're delighted to have with us Booz Allen. And from Booz, we have Matt Calderone, their CFO. And before we begin, I'm not going to recite the whole thing, but just to remind you, there will be forward-looking remarks made in the Reg FD. So anyway. So Matt, welcome. Thanks so much for doing this. Really appreciate it. I don't know if you have any opening comments that you wanted to make.

Sure. I mean conferences like this are always fun because there are people in Booz Allen and folks that are relatively new to the stock or to the industry. Booz Allen, it's an interesting year in fact, it's Booz Allen's 110th anniversary. Not a lot of companies can say that. And it's a company that is one that, obviously, you'll get to be 110 years old, if you don't have a sense of mission and purpose and stewardship but also the ability to create and change and innovate and be entrepreneurial. So Booz Allen is going to be a $10 billion company this year. hard to believe. We are the premier company in bringing technology to solve mission problems at scale for the U.S. federal government with signature positions in artificial intelligence, cyber defense and digital transformation. We're well diversified across defense, civil and intelligence community clients and a wide base of contracts. And as I said upfront, we have a spirit of entrepreneurship and creativity in the institution that's really rooted in our consulting legacy. We're not a consulting firm anymore. But a lot of that -- the elements of that business model still exist in terms of our ability to get inside clients, understand their challenges, bring creative solutions to bear to solve them and increasingly work to solve them at scale. We are, I would say, the organic growth leader in the industry. If you look longitudinally, that's the root of our business model and our value proposition to investors. And we've coupled that more recently with the ability to deliver consistent value through effective use of the balance sheet, be it through a very consistent dividend policy, fairly regular, share buybacks and then M&A, which has been accretive, but somewhat episodic. So that's the Booz Allen story. We've got a lot of momentum in the business, having a great year. We just guided to 13% to 14% organic growth for the year. We're building resilience through strength. I'm sure you have a lot of questions about the budget that no none of us can answer, but we'll attempt to do so. Then we got a lot of momentum.

So the big question I always get is like -- they've ever since you guys went public, you've grown faster than your peers. So what's the transformation of Booz over the past 100 years or like what's the secret sauce that allows you to do that?

Secrets sauce. I'm not going to go all the way back to 100 years. But is -- Ross and I were joking, it's my 25th anniversary. I actually started on the commercial side of the business. We've become people that tell stories about the old days. I think, as I mentioned in my opening remarks, the terms change, right? So what drives longitudinal advantage has to be almost cultural and business model oriented in my mind. It is the roots of being a consulting firm. It's being entrepreneurial. It's being innovative, being creative at the point of solving a mission problem. Now the tools we brought to bear have changed over time. Flashback 15 years ago, where we were the McKinsey of government. We've transitioned, Cai, as you know, from a place in 2012 where 30% of our workforce had a technical background to now we're approaching 70. We are not just selling what's still the lifeblood of Booz Allen, which is the $5 million, $10 million, $20 million, $25 million task orders, but we've sold $7 billion contracts in the last year. So we're coupling our ability to do small-scale strategic innovative work with doing work at scale, but it's still that sense of entrepreneurship of mission focus of our ability to collaborate across the institution to bring to bear AI, cyber, digital, mission expertise, that's the root of our success.

So how important is the fact that what our understanding is your sort of pay is structured sort of like a partnership or everyone at a certain level, it gets paid more or less the same.

Yes, that's right. We have -- all of our incentive-based comp is based on overall firm performance. So we have not only -- not just 1 P&L, but -- and this is what we call senior associates and above. So say, give or take, the top 2,000 people in the institution, their bonus, our bonus, it all scales up or down based on the firm performance only. And so how that manifests itself is there really is no incentive in a meaningful way toward resources. We just -- I spent yesterday in -- Monday and yesterday in firm-wide executive talent management meetings with all of our top leaders, overview in the top 250. And I wouldn't say it was a seamless discussion, but it was a discussion that was very much geared towards hey, what's best for this person and what's best for the business? I had this cyber expert in the Intel community. Can we transition her over to the Civil environment where we see a ton of opportunity and that happens at our level, but it happens more importantly, throughout the institution on a daily basis.

So one of the things I've always noticed that's different about Booz is that the strategy is get on big multi-award IDIQs and user consulting heritage to win task orders. And I actually checked preparing for the conference that you've gone from 33% of total FY '17 revenues like to 58%. It's like pretty much a straight line. So what's the strategy there? Is that number going to continue to go up that you're kind of moving more towards more big IDIQs?

I think they're just -- two things that are driving that. I wouldn't say it's been a strategy. It's been a natural evolution of how we're pursuing work and how the market's headed. One, as you know, we're seeing a lot of consolidation of contracts. Bit large, broader scope, longer duration. We think that, that trend plays in our favor, perhaps wouldn't have 10 years ago. But given the breadth of our technical capabilities, if you're putting out a 5-year procurement that's mission focused, you're going to want to have access to world-class cyber, digital, AI and engineering capabilities. And you want a trusted partner that can help you make those capabilities drive mission impact at scale, and that's a relatively limited set. So as we've grown and as we've grown in our ability to pursue and win large jobs, I think that's a natural extension of that. But certainly, we view IDIQs as a source of growth. I mean we always say internally, selling starts today, you win the contract. Many of these large vehicles, it's a question I get often -- does it always translate to revenue? And most of them have to actually do the work, right? Because the government -- even our big ThunderDome contract, right? We've got to prove that out. We've got to sell it not just within DISA but to the various services and commands and it's got to work. So we think that plays -- it's a natural extension of our legacy because it's really just an aggregation of a lot of small task orders under 1 big broader scope.

And yes, so it's like as I recall, like about 13% of your work are sort of single-award contracts. And most of them are all Intel. So I mean, I've always noticed that for the most part, you don't see Booz getting the headline of winning the $3 billion EDITS or 1 of those contracts, it seems a little bit below the radar because of the types of things you're going after. Is that going to change?

It's beginning to change. I'd say it's yes and, right? We've gone from small to large. We're getting more single-award vehicles, ThunderDome, CDC DMAC. Some of the recent large wins we've had. Work with Space Force, et cetera. But we're comfortable working in both environments because in award world where you win based on value, we think that we bring more value than anyone else in the industry.

Got it. And so like third quarter, you grew a little under 13%. You hiked the guide to 14% to 15% that really works out to 10% to 13% in the fourth quarter. What are the drivers by sectors that get us there?

So we've seen, as you know, strong double-digit growth in both Defense and Civil. this year. It depends a lot of the macro trends that others we've seen in the services space, the pacing [ throughout of ] China, the need or decision advantage more work on Mission Systems. The integration of cyber into the OT environment, increasingly, at least interest in applying AI to solve mission problems at scale. And as you know, we have under the CDAO, the largest AI contract in the Defense space there. In the Civil space, it's been a continuation of the push for modernization, which has been a priority with President Biden and previous President Trump. We've grown some of our franchise positions in the VA on a big new job done at CDC to expand our position there. And we're doing an increasing amount of work in CBP and elsewhere. So I would say that's been broad-based. And in Intel, we talked a lot publicly about the loss of F2. But excluding that, there's a lot of momentum underneath that contract -- sorry, underneath that business. We've won -- I'm not sure we won anything, it had a big headline number. But the breadth of work that we're selling in the Intel space has us really encouraged. So we're seeing fairly broad-based growth across all 3 sectors. Once F2 works its way through the comp set, I think you'll see our Intel business not necessarily growing at the same pace as Defense and Civil, but growing at a reasonable [indiscernible].

Got it. So you mentioned hiring and employment employee deployment improvement as a plus for growth. And can you elaborate? Because I was interested that you said, well, used to take us of 60 days to get a new hire billable. Like what's that number today? And where can it go?

Yes. So to maybe take your question up a level. We've demonstrated over the last 7 quarters, I think, very consistent robust growth in headcount, and that's been both from a hiring perspective. The volume of people we're hiring we're seeing almost double the number of applicants that we did at this time last year on a monthly basis to our time to get them billable, and we've dropped that, as you said, from, give or take, 60 days to the 30- to 45-day range. We're also seeing a significant uptick in employee referrals and a meaningful decline in attrition, right? So both sides of the labor equation have stabilized. We're hiring more consistently and there's less friction in the system, and we're losing fewer of our current talent, and that's driven really we termed -- we chose this term intentionally in the earnings call, remarkably consistent performance on the labor -- on the supply side this year. And hopefully, some of those trends are enduring. I think we and our government clients have also learned some of the lessons from COVID, both in terms of more flexible work arrangements for us, how we do remote hiring. Flash back to 2018 and '19, we were still holding a lot of hiring events, big conference rooms like this. It's hard to believe, right? And it's just so much more efficient to hire the way that we're hiring now using technology and the ability to do remote screening and things of that nature.

Got it. So everyone in the sector is basic -- I mean, I've been shocked followed the sector for over 10 years and like -- it's like never been better in terms of easy to get folks, attrition rates are kind of really way down. So if you think about that time from hire date and when they're billable, if it's now 30 to 45 days, can it get better? Or is that as good as it gets?

That's a good question. I'll have to ask Kristine Martin Anderson, our Chief Operating Officer of that question. I think there's always going to be -- let me put it a different way. You don't want your bench to be 0, right? I mean you want to have an available bench like any service business, particularly given as you know, our history of tactical selling. So we're always hiring people not just for jobs where we have the -- we call it, sold and funded rec, but in advance of where we think demand may go. A lot of these large jobs, you either have a contingent hires, you're hiring a cyber expert in advance of thinking you're going to win something. So in the aggregate, it can get below 30 days, probably, but I'm not sure -- I would want to I think our bench. We said on the call, I said on the call, it remains at the lower end of historic norms right now, which is we're absorbing people fairly efficiently, and we hope to continue at pace.

Got it. Also said you expect adjusted EBITDA margin to be more level across the quarters than in prior years. I mean -- so I always don't get surprised because many companies, the fourth quarter is the good 1 with yours. It's like ah, but so why is it more level? I mean, is it just -- why? How come?

Yes. So as you know, typically, our seasonal pattern is, Q2 is our best margin quarter in Q4 is our most challenging. I think I said in Q2, we did anticipate if relatively flatter profile this year, and we still expect that to play out. It really has to do with the timing of when we're incurring certain costs, but recoverable and unrecoverable. And when we have sort of some full year visibility into what our cost profile is going to look like. As you know, in our business, where a lot of our work is cost recoverable. How you think about balancing that across the year matters. But that's why we've always said, and I know it's harder to judge from the outside. But we manage it on a full year basis. So we feel very comfortable with our guide in the approximately 11% range. I think it's the right level for this business, given where we are.

Got it. So the guide for -- it's 11%, but your margin has moved up over time. I think you've been trying to focus a little bit more on technology, bleeding edge type stuff where you can make more money with labor utilization improving, can that 11%? Is that as good as it gets? Or is there any opportunity to improve it?

Yes, I don't want to get ahead of guidance for next year. I think as I said, we're comfortable at this number. In our investment thesis, we guided to the mid-10s, I think we're comfortable at 11% for where we are now. If you look at what are the elements that will drive margins higher. I mean, as you know, government is a very efficient buyer. Fixed-price jobs typically have a higher margin and T&M and the 2 of them were significantly higher margin than cost plus. So are we going to shift to our portfolio? Or is the government going to shift their buying to more of a fixed-price model? Perhaps. I think a lot of us have talked about outcome-based contracting for a long time, particularly with some of the efficiencies that AI can produce, you think that, that may be in the cards. We know that clients are experimenting on this -- around this -- the edges on this in a small scale. We're not ready to call that in a meaningful way. So that's, let's call it, from the -- in the contract level profitability. And then institutionally, we are getting scale out of the business. more than we'd anticipated. I think that's largely what's driven our margins up over the past 5 years. We do anticipate continuing to get scale out of the business. The question is, do we reinvest that into our people and into growth or do we drop it to the bottom line. I think we have some optionality there.

So when you look at your numbers, I can't remember the exact number, but I think it was like your gross margin has been basically flat as a pancake, it's 53.5%, something like that. It's just like -- and it's all been basically SG&A coming down. So is this a leverage model? So like if your growth slows, it's harder to improve what profit I would assume -- but if you basically continue the good growth, there should be opportunity to improve the profitability?

Sorry, I said, yes, we are getting scale out of the business too. And the question is, what do you do with that scale? And we've been reinvesting in capabilities and solutions that our clients need, investing a lot in AI. We've also been reinvesting in higher wages for our workforce, particularly as we transition to become a more technical workforce and that's helped drive our attrition rate down as well as dropping some of that to the bottom line. So we do think that we will continue to get scale out of the business, assuming we continue to grow at the pace we are.

So theoretically that gives you the opportunity to get those higher?n So what are the...

Look, they also have other offsetting things. I mean some of these larger jobs, technology jobs, may have a higher billable expense ratio or DCs, which tend to be lower margin. So that's not why we're not making a long-term call, but we are getting scale out of the business.

So I guess you've made the point that when you look at your mix of business by client that Civil tends to have a higher percentage of firm fixed, and basically, you go to Intel, it's cost plus, so that the hierarchy is the higher-margin Civil, Defense, Intel. How does that mix look going forward? Because it looks like Intel has grown a little bit more slowly than the others. And it's Civil in the current budget environment, still going to be able to grow as fast as it's grown.

We see a lot of potential in all 3 sectors, as I talked about. Intel, we're still working through, we're heading in Q4 of absorbing the loss of F2 this quarter. But both Civil and Defense are growing almost 20% this year. Are we going to maintain that rate next year? That's a little heavy. We'll get -- we'll talk more about that in May. But we see significant potential in both of those businesses. And Intel, as I said, they've hit bottom in the second derivative is very positive. So I mean, if your question is, are we going to get some margin lift just from mix shift, I'm not sure I assume that.

Why not? I mean it looks like the revenue expense...

That's the 45% of our business, right? Civil is 35%. So it's...

Well, I mean, I guess, the lowest margin is -- I mean the simple math, the lowest margin is Intel. It's coming off the bottom, but it doesn't have the momentum because you still are anniversarying but the NSA contract. So I would assume the revenue mix continues to shift somewhat towards Civil and Defense versus Intel.

Yes, it's funny. Yes, and if you actually look -- I mean, Civil business is growing faster than the other 2 sectors, since FY '19. But if you look at our contract mix, its 19% to 20% where we are now, it's almost exactly the same. We got cost pluses and if -- this 53% in both views.

So we haven't talked much about the commercial, international. It's smaller. It basically was kind of fading away. And then this last quarter, it kind of looks like it started to come back. Where is that going?

Take those in 2 parts. We've exited our international business. And that was largely a business that was built on the back of us supporting allies in the region doing "commercial rates." But as you know, in the Middle East, there's the line between commercial and government clients are relatively fungible, but supporting a lot of the modernization in the Middle East that I think we'd all hoped with -- would happen. So that's done. What's left is a commercial cyber business doing high-end, commercial cyber consulting and incident response that is a really nice business. You've been following us for a long time, Cai. So 1 point, we talked about commercial as another leg of the stool. I think now characterized it as a nice piece of the puzzle, it's a very nice part of the business. It's got a lot of natural synergies and connections with our government cyber business. If you think about threat vectors and the attack surface and even a lot of these nation-state gangs that are the same folks that are holding up a regional hospital network are the ones that are going after some of our government assets. And we all heard what Director Ray said a couple of weeks ago about the current state of U.S. infrastructure. So it's -- we're actually bringing the commercial business we're connecting more than we ever have with our government cyber folks, zero trust. The work we're doing in Thunderdome, there's some natural applications in the commercial space. So we like that business for what it is. It's a nice piece of the puzzle. In commercial cyber, mainly for U.S. clients or U.S. clients that have offices overseas.

And is it growing, is it likely to grow in line? I mean it's not big enough to really make a huge difference, but it's higher margin. So if it grow...

It's higher margin. I think there are 2 pieces to it. Our incident response portion of our business has grown meaningfully this year. Commercial cyber, no different than a lot of the commercial consulting firms has struggled given some of the sort of macro effects.

Got it. So if we look at your potential bids, I mean, you had -- you basically had a 0.7 book-to-bill in the third quarter which is huge for you guys because that's seasonally not so hot. So what you're like about a 1.4% trailing 12. Is that too high?n I mean...

Did we sold too much work? Is it...

What's your target and...

I mean, It's going to sound flippant, but our target is typically sell as much as you can. I mean historically, what we've said is for us to meet our numbers in our investment thesis, right? So let's say, high single-digit growth, we need 3% to 5% head count growth on an annualized basis and 1.2 to 1.3x book-to-bill. We're ahead of pace on both metrics. We feel like we're well positioned for next year. But next year is also going to be -- I'm sure you have questions about that, one, with a lot of uncertainty. So taking a step back, and I joked about selling as much as possible. Our view has always been as you know, the way our business lines up with the government fiscal year, it comes in the middle of ours. So strong first half on certain second half and in all years, but particularly this one, where there is some uncertainty about what the funding and political environment is going to look like. We have told our folks just keep going. Sell as much as you can, hire as much as you can, build as much as you can. We have an internal mantra, resilience through strength.

So what sort of impact would election outcomes have? I mean, does it really matter if it's -- I mean there are obviously multiple potentials, either you get a Trump or a Biden who got -- who has the Senate, et cetera.

So as you said, we've demonstrated the ability to grow above market in under different political administrations. And historically, if you look back Republican tend to spend more than Democrats do, when they have a White House, right? I mean Clinton, Obama, were the 2 presidents where we saw a retrenchment in federal government spending. And we believe we have positioned our work. We're focusing on what we call missions of national importance, right? So whether it's [ operations inside ] of China or AI or cyber, in these longer-term signature contracts that theoretically should be immune -- more immune to the whims of different political administrations. But -- and you've seen this in our business, too, when there's uncertainty about direction, that's when things tend to in the services business get gummed up for a bit, right? So historically, the outgoing administration their priorities have really kept funding going for, let's say, 6 months to a year until the new administration takes in and then there's a period of changeover. And to the extent weather and how that changeover happens, I think this year, there's more uncertainty around that than perhaps in transitions passed.

Right, right. So what are the -- when you step back, what do you see the greatest challenges facing the nation, the government that you guys address? What are the key drivers to your business?

I think there's 3. From a mission standpoint, certainly our Defense and Intel clients are all focused on the pacing threat of what's happening in the Indo-Pacific. Not to downplay what's happening in Europe or in Middle East, all of which are important, but that's the principal focus of most of our clients, that's one. Two is just the pace and the impact of these ways of technical change and what it does, not just to mission, but to the tools you have to solve it and the need to integrate across technologies, being commercial or homegrown, AI and cyber. I mean, it's not just each of these as a one-off, right? And Cai, I think you came to our end of that -- and we had a brief discussion about the intersection between AI and cyber and that in and of itself is just an extraordinarily challenging topic. So it's -- how do I understand what's the next wave? What's the current wave, how does it impact me? How do I integrate it what does it mean? Is it something I have to defend or attack or protect or utilize? And then I think in the near term, there's a lot of interest in AI. Folks don't know exactly what it means in most parts of the government and in certain parts, image classification, battlespace management, they're perhaps further advanced than others. There's a lot of interest in AI, folks don't know that -- no different than what we're seeing in the commercial world. We're in the early experimentation stages in most parts.

So at your AI demo last fall, you highlighted Booz is the leader, was like 7% of your workforce, I can't remember the exact metrics. So basically, how do you feel you stack up because you say you're the leader. I mean, everyone here, Defense IT companies, they're all talking about man, I got AI, I got AI. I mean, everyone has AI. But so where is your position? And do you think the gap, if you feel there is a gap, is that gap widening? Is it narrowing? How should I think about where that goes?

It's a good question. So what we said at our event was we estimate about $550 million to $750 million of our revenue, so give or take, 5% to 7% is directly related to AI, number one. Number two, we have over 2,000 AI professionals using a fairly narrow definition. And number three, the halo effect of when AI is a meaningful requirement on a large procurement is significant that we are much more likely to win, at least we were at the time in October when we had the event. We have 2 of the 3 largest AI contracts in the federal government, right, that work with CDAO, Advana and our eMAPS work. I think what that has given us is a couple of flywheel jobs, how much to build a base of experience about how to make AI relevant, which is really the question, right, at scale, number one, and number two, to train a group of practitioners that have actually deployed AI in an operational environment. And that's the advantage. Is it growing? Is it shrinking? I don't know, there's a lot of experimentation, as you said. But we feel very good about our positioning. And we always say, we don't do AI in a lot. We do -- our focus is not AI in a lab, it's AI in operational environment, and we have experience doing that. And that, for our clients that mission relevance and getting out of the theoretical. This is not ChatGPT, this is -- we've used AI to solve this specific problem in this specific way, it has a lot of sway. How lasting is it? We hope it's lasting, but that's -- it's a competitive world out there, as you said.

So the next question is, so what other capabilities are your clients interested in? Or do you expect them to be interested in over the next 12 to 18 months?

We talked about it, right, AI, cyber, a lot of interest in space and our specialty really is in the data, main around space, both management of thing, unmanned. I mean I don't think there's any magic to it. We're doing a lot of work at the intersection, as I said, of some of these technologies, AI and cyber AI mission. There's emerging interest in quantum, the role that the Intel business has historically played for us, our Intel business has been as a place where we incubate exquisite cutting-edge technologies because of the nature of the Intel community, typically will invest ahead of when things become broadly applicable. That's certainly true from a quantum perspective, I see a lot of interest there. A lot of interest in 5G, although it's not, I would say, a material part of our business, a lot of interest. We're doing a quantum is the big question, right? Quantum and encryption and when or if is that going to happen?

So I guess, next, my favorite question. So the DOJ investigation is now over. And since it started, you went from 57 to 60 days to 65 to 68. Now the matter is behind you. can the DSOs get back to 57 to 60 days?

Yes. So let me unpack that a little bit. First, obviously, we can talk about the outcome, but glad to have the DOJ settlement behind us as are our regulators as are the clients -- our clients. So we've been working furtively and well with our regulators, DCMA and DCAA to do 2 things. One is to get back -- because what has happened is basically all of our order activity had stopped since FY '12, to get back to what I'm calling -- we call normal course let's say, FY '22 to beyond, that's normal course audit activity. That's going exceptionally well. We had a good result on our FY '22 audit that -- call it -- pumped us to drop our reserve 2 quarters ago. Not always easy. We argue and we fight and whatnot, but we and our regulators have devoted significant resources we're getting back to normal course, which is great because I think we and they share the same objectives of transparency and no surprises and what have you. So that's working its way through the system. And then there is -- we're calling the backlog, which is really FY '12 through FY '21, a 10-year period. We started working on that as well. As you can imagine.

What to do work on in that...

The audits from FY '12 that [indiscernible], we are going through the process with our regulators of how to address that and they've begun some of those audits. You can imagine auditing activity. It's now over a decade old is challenging. Again, really appreciate the spirit with which that's happening. And I'm getting to answer your question. As a result of that, us not being audited, we do have, let's say, 5 to 6 days worth of DSO is tied up in receivables, long-term receivables related to those past audits that at some point will clear. Now will they turn into cash? And we were be able to bill against them? Will that be offset in part or in full by the results of these audits. I don't think -- we don't know that yet. That's going to be likely I would say, 2 years before we know. So the way I would think about it is there's a 5- to 6-day permanent tax on our DSOs sitting there until that backlog is completed. I want to make it very clear, we are not expecting or projecting necessarily any cash inflow but it's just sitting on the books, and then the other -- the remainder is just we need to get better, and that's been a focus of mine. We had a good cash quarter, last quarter. But as I said, we're not spiking the football on the 45-yard line. We've made progress, but there's a ways to go.

Right, right. So what does the DOJ settlement mean in terms of legal fees? I mean, I know you haven't disclosed it, but I mean just notionally, presumably, they're lower. Is that anything that sort of has a noticeable impact? Or is it doesn't really matter?

Yes, it shouldn't have a material impact.

So if you do get back toward the 60 days, what sort of -- so what kind of cash flow conversion do you think you can get?

So there's no reason why we can't get to 100% 105% free cash flow conversion. We've been there historically. There's been noise in our numbers the last couple of years because of the DOJ matter because of 174, which as we all know is systemic and because of a couple -- some other tax matters that are working their way through the system. But that's been our objective, that is our objective, we will get back there.

How big is 174 for you? And what does it do if it goes away?

So we originally estimated it would be $140 million last year and $100 million this year. When we actually did our detailed contract analysis, in part, given the growth in the business it ended up being $155 million last year and $110 million this year. So that's why when we raised the cash flow guidance last quarter but $28 million in the midpoint. That didn't include the additional $25 million we're going to have to pay for $174 million. So it was really a $53 million raise. But so we have -- we will have paid in $265 million cumulatively over the last fiscal year and this one.

And then if the legislation changes, do you just I mean, basically, you go for a rebate or you just basically -- like Lockheed was saying, we're just going to not stop paying our taxes and use it that way.

Yes. We've had early discussions about, I think, our instinct is more along Lockheed's path that we just take a credit against future taxes. But I'll take that problem.

So basically, it sounds like cash flow should be getting better. What's your M&A pipeline look like? And how -- I mean you guys have been, I'd say -- we've been much more open in terms of cash deployment on special dividends. If you go back, you've done dividends, you've on repurchase, you've done big acquisitions, you've done venture investments. Where do we go in terms of cash?

Where we go -- so I would say our M&A priorities haven't changed. We still look, first and foremost, can we find strategic long-term accretive M&A. I didn't find it last year. We were close on a couple of things. We said publicly, smaller deals we do have a robust pipeline. I think -- and I know you've heard from others that we certainly anticipate we're beginning to see a more supply in the market of let's say, more midsized assets coming out with maybe a little bit more interest rate stability in advance of the election. But we're going to be patient and disciplined, and I know that's hard to model, Cai. And that's why we've -- you're right, over time, we've had a balanced approach. But if you look at any given year, it's the -- we've talked about 1 direction or another. We don't need to buy for scale. We're not looking for financial arbitrage per se, obviously, we want good value and things that are accretive. We're looking for M&A that will really advance us in 1 of these technology areas or increasingly have a business model that we think we can leverage. So those are hard to come by, but we're leaning into it.

Terrific. So we're right pretty much at the hour. So are there any final comments you want to make in terms of what people should take away about Booz?

I appreciate that, and I appreciate you having me. It's been a great event. As I said at the beginning, we've got a lot of momentum. We feel good about where we're positioned strategically, and we have a business model that's very much built on resilience through strength. So that's our mantra. We are, as we said in the call, we got our pedal to the floor. It's a good environment. I'm sure you've heard that from others. And we look forward to talking about where we're going to be next year on earnings call in May.

Terrific. Thank you very much. That was great.

Thank you.