For more than a century, the people of Booz Allen Hamilton have helped clients anticipate and prepare for the future. We pride ourselves on working hard to stay a step ahead—knowing what our clients will need next, helping them understand change, and delivering solutions that advance their missions in light of complex, new requirements.
It should be no surprise, then, that we anticipated the changing dynamics of our own core federal contracting market several years ago and defined how Booz Allen would transform to remain a leader in our industry. We are now well into that transformation under our Vision 2020 growth strategy, and the fiscal year that ended March 31, 2016 was a milestone year.
After 3 years of revenue contraction, we started to grow the top line in fiscal year 2016. We aggressively pursued and won opportunities in an improving market. We broadened the types of work we do for long-standing clients and introduced our advanced capabilities to new clients. We continued to evolve our portfolio of services and products and develop our talent base toward mission-critical work that requires a blend of domain knowledge, consulting expertise, technical skill, and innovation.
These strides demonstrate significant progress toward achieving sustainable, quality growth that benefits clients, investors, and our own people. While we still have more to do to fully realize the value and potential of Booz Allen’s growth strategy, the past year affirmed that we set the right path to the future. In fact, we are building it brick-by-brick.
Leaning Into the Market
Fiscal year 2016 saw improved demand in the market, and we had great success in capturing opportunities across defense, intelligence, and civilian agencies. Although the market remains very competitive, prices stabilized in parts of our core business. Clients tell us they feel more confident about their budgets and are more accustomed to managing through uncertain periods. As a result, they are better able to focus on their missions and plan for the future.
On the strength of our consulting expertise, client relationships, past performance, and substantial recent investments in innovation and advanced technical capabilities, we captured new work and won recompetes in every part of our business. We built a record fiscal year-end backlog of $11.8 billion. Our book-to-bill ratio of 1.45 was our highest since before the Company went public. Our funded and unfunded backlog, representing work over the next 6 to 18 months, is up 8.5 percent from the end of fiscal year 2015, and priced options, representing potential future revenue, increased 45.0 percent.
To capture that backlog, we spent more heavily on bid and proposal activity, marketing, and other indirect costs during fiscal year 2016, which had an impact at the bottom line. Nonetheless, we were pleased to once again deliver financial results that met or exceeded our forecast for the year. Here is a summary:
Gross revenue grew 2.5% to $5.41 billion
Adjusted net income(1) grew 2.6% to $246 million
Adjusted Diluted Earnings Per Share(1) were $1.65, up from $1.60 in fiscal 2015
Adjusted EBITDA(1) margin was 9.4%
Total return to shareholders was 6.7% for the 12 months ending March 31, 2016, compared with 1.8% for the S&P 500 and 0.5% for the Russell 1000.
Advancing Our Strategy
Fiscal year 2016 was the 3rd year of implementing our Vision 2020 strategy. At the heart of our strategy is the differentiation created by combining our consulting heritage and thorough knowledge of clients’ missions with key technical capabilities, including engineering, systems delivery, cyber, digital, and advanced analytics.
We have also expanded our business in the commercial and international markets. And we continue to advance an innovation agenda that has internal and external benefits. It has energized our workforce, forged strategic partnerships with other innovators in academia and the private sector, and created alternative revenue streams in the form of cutting-edge products and solutions.
Of particular note during the past year was our purchase in November, 2015 of the software services unit of SPARC, a Charleston, SC, technology firm. The SPARC team fortifies our already strong systems delivery business and establishes an agile development hub in the South. As with other recent acquisitions, the SPARC purchase demonstrated our approach to mergers and acquisitions in a dynamic industry: We are focused on small capability-based plays that can bolster organic revenue in areas where we see the greatest potential for sustained growth.
The transformation we have undertaken is reflected in the type of work we performed and won during fiscal year 2016. Clients are turning to us for support on their most important priorities, including:
Identifying and mitigating against a broad spectrum of emerging national security threats spanning both physical and cyber risks
Designing secure, advanced communications systems to protect warfighters
Decreasing the large backlog in claims for veterans’ benefits
Enabling health insurance enrollment through the Federally Facilitated Marketplace
Helping auto and drug manufacturers, energy producers, retailers, and others secure their products, infrastructure, and processes from cyber threats
High-quality delivery of our services and expertise on critical missions like these further strengthens our essential partnerships with clients and builds value for shareholders. It also helps us attract and retain the best people—women and men who are passionate about solving problems and making a difference in the world.
Leadership and Board Governance
In February 2016, Chief Financial Officer and Treasurer Kevin Cook announced his retirement and Executive Vice President Lloyd W. Howell, Jr., was named to succeed him as CFO, effective July 1. Lloyd brings to the CFO position more than 24 years of experience at the firm, including leadership in business operations and strategic planning. He has deep familiarity with the firm’s finances, and will lead our effort to accelerate growth at both the top and bottom line through effective capital deployment and investment strategies.
During fiscal year 2016, we further diversified our shareholder base, attracting institutional investors focused on value as well as growth at a reasonable price. After the sale of 26 million shares total in secondary offerings in November 2015 and May 2016, The Carlyle Group owned about 11 percent of outstanding common stock of the Company as of May 27, 2016.
We were pleased to welcome Melody Barnes to Booz Allen’s Board of Directors in October 2015. She is a domestic policy strategist and a Vice Provost and Senior Fellow at New York University and formerly served as Assistant to the President and the Director of the Domestic Policy Council for President Obama. Melody brings a wealth of public policy expertise that will help broaden our perspective on issues important to clients and to our own strategic planning. The Board remains actively engaged with management on our long-term strategy and competitive positioning in an evolving market, as well as risk management and stewardship of shareholder value.
We are particularly proud of the diversity of our Leadership Team and Board of Directors; they are among the most diverse in corporate America today. This diversity reflects and complements the transformation of our firm. But more than that, it underscores our commitment to creating opportunity for our people and demonstrates the importance of diversity to our success.
Commitment to People, Clients, Community
It is a great privilege to represent the work, ideas, energy, and dedication of Booz Allen’s nearly 22,600 talented professionals. Their performance drives our business and creates opportunities for the future.
Ask a Booz Allen strategist or technologist to describe what he or she does and the answer that most often comes back is “I solve problems.” In today’s world, that means bringing together people of varied skills and backgrounds and applying their passions to complex challenges. The people of our firm do that each and every day—in their work and in their communities.
In fiscal year 2016, our Company was again recognized for its excellence by respected publications and associations. The honors included FORTUNE’s Most Admired Companies, Working Mother’s 100 Best Companies, and Forbes’ Most Prestigious Consulting Firms and Top 100 Military Friendly Employers. In addition to serving clients each day, the people of Booz Allen gave more than 66,000 volunteer hours to organizations across the country—work that strengthens communities and assists those in need. For our people, this service is just one more meaningful way to put their values and passions into action.
Thank you, Booz Allen employees and stockholders, for your support as we continue to transform our firm, help clients in new ways, reach for growth, and above all, serve as a positive force in the world. We look forward to building on our success in fiscal year 2017.
RALPH W. SHRADER, PH.D.
Chairman of the Board
HORACIO D. ROZANSKI
President and Chief Executive Officer
(1) These measures are non-GAAP financial measures. For a reconciliation of these measures to GAAP, click here.