Prompt:
Human: You can access this announcement on the Investor Relations page of our website www.
aam.com and through the PR Newswire services.
You can also find supplemental slides for this conference call on the Investor page of our website as well.
For additional information, we ask that you refer to our filings with the Securities and Exchange Commission.
Information regarding these non-GAAP measures, as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.
With that, let me turn things over to AAM's Chairman and CEO, David Dauch.
Joining me on the call today are Mike Simonte, AAM's President; and Chris May, AAM's Vice President and Chief Financial Officer.
To begin my comments today, I'll review the highlights of our second quarter 2021 financial results.
Next, I'll touch on some exciting business development news in the quarter, including announcements with the Chinese EV OEM deal and our recent communication about GM's Oshawa plant.
And lastly, we'll discuss the ongoing and unprecedented challenges within the supply chain and our financial outlook.
After Chris covered the details of our financial results, we will then open up the call for any questions that you may have.
AAM delivered strong operating performance in the second quarter of 2021 navigating industry production volatility stemming from the continuity of supply challenges.
These challenges were greater than we originally anticipated at the beginning of the quarter, but our team did an excellent job in managing these obstacles resulting in solid financial results.
AAM sales for the second quarter 2021, were $1.28 billion, up approximately 149% compared to $515 million in the second quarter of 2020.
The increase in our revenues on a year-over-year basis primarily reflects the recovery from COVID-19 related industry shutdowns that we experienced last year.
North American industry production was up approximately 130% according to third party estimates.
Light truck production was up 150% year-over-year.
And volumes of our core platforms increased significantly year-over-year.
Inventory levels on key light truck programs that we support remain well below normal levels.
Consumer demand for light trucks remains robust and our OEM customers are building them as fast as possible.
We believe the demand environment for these products, combined with the lack of inventory should lead to an extended recovery through 2022 which will certainly benefit AAM.
AAM's adjusted EBITDA in the second quarter 2021 was $222.6 million or 17.3% of sales.
This compares to a loss of $52.1 million last year.
In addition to benefiting from higher production levels, our intense focus on optimizing the business and flexing our cost structure over the past several quarters greatly contributed to our performance in the quarter.
We remain committed to driving efficiency and managing factors underneath our control.
AAM's adjusted earnings per share in the second quarter of 2021 was $0.29 per share compared to a loss of $1.79 in the second quarter of 2020.
And as for cash, I'm very excited about our cash flow generation in the quarter.
We generated adjusted free cash flow of over $136 million compared to an outflow of approximately $162 million in the second quarter of 2020.
Our operating performance and commitment to efficient capital spending drove this high level of free cash flow.
Additionally, we prepaid over $140 million of term loans in the second quarter.
And since the fourth quarter of 2020, to the second quarter 2021, we have paid down approximately $360 million of long-term debt.
As we previously stated, we are committed to reducing our debt and strengthen our balance sheet this year.
We are delivering on that goal.
We achieved 2.5 times net leverage ratio in the second quarter.
It is this management team's focus to further strengthen AAM's balance sheet.
On the business front, we are very excited to announce that we will be supplying electric vehicle components to NIO, supporting their next generation of e-Powertrain program.
And for those of you who don't know who NIO is, NIO is a leading Chinese electric vehicle OEM and a pioneer in China’s electric vehicle market.
We continue to see good growth opportunities to support electric vehicles with drive units and a wide range of sub-assemblies and components.
This applies with both existing and new customers.
Today's announcement clearly underscores AAM’s technology in electric vehicle propulsion and our commitment to excellence within this space.
We are very eager to support this new customer.
Electrification dialog with multiple global OEMs continues to be very constructive as manufacturers are intensely focused to support this transformation.
We see plenty of opportunities over the next several years as our state-of-the-art technology, engineering, compact design and new product offerings are attracting strong global interest.
Our engineering teams are rapidly developing next-generation technology, while supporting the launch of multiple new electrification programs globally.
Our technology, innovation, and focus on customer service, our strong value propositions, allowing OEMs to compete to win business with both traditional and start up OEMs. It's our goal to be the supplier of choice when it comes to the electric drive units, sub-assemblies and components.
Clearly, these are very exciting times for AAM.
Having said that, we continue to deliver on our theme of securing the future by protecting the core.
We are very pleased to reiterate that AAM will be the sole supplier of front, rear pick-up axles for the production at GM's Oshawa facility.
This development demonstrates our high quality products and on-time delivery capabilities, as well as our strong relationship with General Motors.
We look forward to supporting GM as they expand their production of the successful full-sized trucks to meet consumer demand and rebuild their inventories.
In the quarter, we completed an acquisition which specializes in producing powdered metal components.
And as we mentioned before, we will do smart, quick-return, bolt-on acquisitions that will complement our core business, drive synergies, and provide solid financial returns.
This was a compelling high value purchase which should immediately benefit AAM as also part of our long-term lightweighting component strategy.
Finally, we are recognized as GM overdrive award winner in 2020.
We are very grateful for this award as it demonstrates our commitment to the continuity of supply, while addressing an unfortunate industrial fire last year.
Operational excellence is a core value for AAM and will certainly benefit us and provide us the competitive advantage going forward.
Before I transition to Chris, I want to talk about our current operating environment and our financial guidance.
The stress on the value chain stemming from shortages and semiconductors, labor, steel, shipping containers, port delays, and rising commodity prices is unprecedented.
Second quarter 2021 was a challenging environment with the semiconductor challenges causing the production volatility that we saw in our schedules.
These headwinds are continuing and schedules will remain volatile.
We believe the second quarter 2021 still to be the trough of this issue and the semiconductor availability to improve in the second half of the year.
However, we expect supply chain challenges related to this and other constraints to continue into 2022.
For AAM, we will continue to work diligently with our customers and our extended supply base to protect continuity of supply and support our customers.
Let's discuss our financial guidance.
Although there is continued operating uncertainty, especially with the availability of semiconductors, we are maintaining our guidance for revenue and raising the low end of our EBITDA range.
We are also raising our adjusted free cash flow outlook.
Our guidance is as follows.
Our revenue will be $5.3 billion to $5.5 billion.
Adjusted EBITDA $875 million to $925 million.
And adjusted free cash flow of $350 million to $425 million.
Aside from the impact of the semiconductor issue and metal market challenges, operationally, our business is running very, very well.
We are focused on managing our costs and expenses, while ensuring operational and capital efficiency to optimize our business.
And as I've mentioned before, these fundamentals should support strong margin opportunities as we return to normal operating conditions.
At AAM, we have two over achieving priorities and both are equally important.
First, we're focused on the here and the now.
That means operational excellence, strong cost management, and an unwavering commitment to support our customers.
We have continued to demonstrate these qualities and manage factors that we can control, leading to strong free cash flow generation, and yes, a stronger balance sheet.
Second, we're focused on our future.
We will continue to make investments in R&D to develop the next generation of electrified products and lightweighting of components to drive profitable future growth.
Our engineering teams are developing creative solutions to offer solid value propositions to our customers.
This is demonstrated by a high interest in our electric vehicle products.
And for us, our breadth and depth in drive chains provides us with a competitive advantage in not only technology development, but also an understanding of the OEMs, what the OEMs want from the propulsion system.
Clearly these are very exciting times and the future is very bright for AAM.
And with that, let me turn things over to Chris May.
I will cover the financial details of our second quarter results with you today.
I will also refer to the earnings slide deck as part of my prepared comments.
So, let's go ahead and begin with sales.
In the second quarter of 2021 AAM sales were $1.28 billion compared to $515 million in the second quarter of 2020.
Slide seven, shows a walk of second quarter 2020 sales to second quarter 2021 sales.
First, we add back the impact of COVID-19 from second quarter of 2020 of approximately $947 million.
Then, we account for the unfavorable impact of the semiconductor shortage which we estimate to be approximately $162 million in the second quarter of 2021.
Other volume mix and pricing was negative by $99 million.
Metals and FX accounted for an increase in sales of $82 million.
During the last several quarters, we have continued to see an increase in the primary index related inputs to metal-based materials that we purchase.
You may recall, we hedged this risk with our customers by passing through the majority of index related changes.
The metal portion of this column reflects those elevated pass-throughs on a year-over-year comparison.
Now, let's move on to profitability.
Gross profit was $190 million or 14.8% of sales in the second quarter of 2021, compared to a loss of $99 million in the second quarter of 2020.
Adjusted EBITDA was $222.6 million in the second quarter of 2021 or 17.3% of sales.
This compares to a loss of $52.1 million in the second quarter of 2020.
You could see a year-over-year walk down of adjusted EBITDA on slide eight.
We benefited from the contribution margin on the increase in net sales from last year as we continued to experience positive improvements in performance.
As a result, the short notice production schedule changes and receipt of long lead inventory items such as steel, our raw, whipped, and finished goods inventories increased in this quarter.
This drove a $16 million benefit from inventory absorption timing, which should reverse out in the second half of the year as we anticipate reducing inventories during that timeframe.
As we mentioned, throughout the quarter, our schedules were more volatile than expected, but we were able to close the latter part of the quarter on a strong note.
Now, let me cover SG&A.
SG&A expense including R&D in the first quarter of 2021 was $86 million or 6.7% of sales.
This compares to 14.3% of sales in the second quarter of 2020 as revenues rapidly declined last year due to COVID-19 related shutdowns.
AAM's R&D spending in the second quarter of 2021 was $30 million compared to $32 million in the second quarter of 2020.
We will continue to focus on controlling our SG&A costs, while at the same time, continue to invest in key technologies and innovations, with an emphasis on electrification.
This emphasis includes an appropriate level of funding to be successful and meet our objectives, but also include, smartly utilizing current resources from traditional products to support new technology development in a cost effective manner.
We do expect R&D to increase in the second half of the year as we are positioning to launch and pursue more electric vehicle business.
We continue to experience significant customer interest in our new products and technology.
Now, let's move on to interest and taxes.
Net interest expense was $47.3 million in the second quarter of 2021 compared to $51.6 million in the second quarter of 2020.
We expect this favorable trend to continue as we benefit from continued debt reduction.
In the second quarter of 2021, we recorded income tax expense of $2.4 million compared to a benefit of $43.9 million in the second quarter of 2020.
As we continue into 2021, we expect our effective tax rate to be approximately 15% to 20%.
We would expect cash taxes to be in the $30 million to $40 million range.
Taking all these sales and cost drivers into account, our GAAP net income was $16 million or $0.13 per share in the second quarter of 2021, compared to a loss of $213.2 million or a loss of $1.88 per share in the second quarter of 2020.
Let's now move to cash flow and the balance sheet.
Net cash provided by operating activities for the second quarter of 2021 was $167.1 million compared to an outflow of $142.5 million last year.
Capital expenditures, net of the proceeds from the sale of property plant equipment for the second quarter of 2021 was $41 million.
Cash payments for restructuring acquisition-related activity for the second quarter of 2021 were $16 million.
The net cash inflow related to the recovery from the Malvern fire we experienced in September of 2020 was $5 million in the quarter.
However, we anticipate the Malvern fire to have a neutral cash impact for the full year as the timing of cash expenditures and cash insurance proceeds align over time.
In total, we would expect $50 million to $65 million in restructuring and acquisition costs in 2021.
This is no change from prior guidance.
Reflecting the impact of this activity, AAM generated adjusted free cash flow of $136.1 million in the second quarter of 2021.
From a debt leverage perspective, we ended the quarter with net debt of $2.6 billion and LTM adjusted EBITDA of $1 billion, calculating a net leverage ratio of 2.5 times at June 30.
This continues the trend of a declining leverage ratio and marks the achievement of a critical goal for 2021 to reduce our leverage by a full turn or more this year.
Speaking of AAM's strong free cash flow generation, we prepaid over $140 million on our term-loans in the quarter.
Subsequent to the end of the second quarter, we redeemed an additional $100 million on our 6.25% notes due in 2025.
We continue to expect to strengthen AAM's balance sheet by reducing our gross debt and lowering future interest payments.
As of today, we have paid down approximately $350 million in our term loans and notes in 2021 alone.
Before we move on to the Q&A portion of the call, let me close out my comments with some thoughts on our 2021 financial outlook.
We raised the lower end of our adjusted EBITDA range and we increased our outlook for adjusted free cash flow.
Our outlook is based on the latest and best information we have regarding our customer production schedules, including the reduction in GM truck production we are experiencing this week.
We continue to assume our customers will prioritize building full-size pickup trucks and SUVs is going forward.
But the uncertain backdrop related to semiconductors remains, thus the ranges we have provided.
The revision to our free cash flow range is a result of focused and efficient capital spending, restructuring and cost reduction initiatives, year-over-year margin growth and working capital optimization.
Our strong financial results will be used to reduce debt and support our research and development initiatives to solidify our position for future profitable growth AAM continues to focus on building long-term shareholder value and success.
We are focused on our future in electrification.
We continue to allocate more engineering and financial resources to technology development to provide compelling high value products to OEMs and drive our future profitable growth.
You are now beginning to see tangible results with the new business award announcements we are making.
We will continue to secure business on our legacy core platforms that will yield strong cash flows well into the future.
And let's not forget our passion to run an efficient highly focused organization that centers around performance optimization, strong cost structure, and the delivery of best-in-class results.
The second quarter of 2021 continues a theme of managing factors under our control in a difficult operating environment.
There are plenty of near-term challenges and uncertainties as it relates to the supply chain in the second half of 2021.
But that stated, this management team is experienced and confident in navigating these obstacles.
We have reserved some time to take questions.
So, at this time, please feel free to proceed with any questions you may have.
 Assistant:

Chosen response:
compname reports q2 earnings per share of $0.13.
q2 adjusted earnings per share $0.29.
q2 earnings per share $0.13.
q2 sales $1.28 billion versus refinitiv ibes estimate of $1.16 billion.
american axle - targeting sales in range of $5.3 - $5.5 billion for 2021.


Prompt:
Human: Joining the call today are Tom Ferguson, Chief Executive Officer; Philip Schlom, Chief Financial Officer; and David Nark, Senior Vice President, Marketing Communications and IR.
Those risks and uncertainties include, but are not limited to, changes in customer demand and response to products and services offered by the company, including demand by the power generation markets, electrical transmission and distribution markets, the industrial markets and the metal coatings markets; prices and raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process; changes in the political stability and economic conditions of the various markets that AZZ serves, foreign and domestic; customer-requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing and availability of experienced management and employees to implement the company's growth strategies.
In addition, AZZ's customers and its operations could potentially be adversely impacted by the ongoing COVID-19 pandemic.
Suffice it to say that we feel a lot better about this first quarter call than we did at this time last year.
Overall, sales improved 7.8% versus the prior year to $230 million, although up 14.6% when adjusted for the divestitures.
Metal Coatings turned in another excellent quarter with sales up 7.3% to $128 million and Infrastructure Solutions up 8.3% to $102 million and over 23% up when adjusted for the divestiture of SMS. The higher volumes resulted from strong operational performance and improved activity in most of our served markets.
I will get into the details of this as we go along.
We are pleased to have completed another strong quarter of performance.
We continue to generate strong cash flow during the first quarter, while also returning capital to our shareholders.
We generated net income of $22.3 million and earnings per share of $0.88 per diluted share, both representing over 300% improvement versus the prior year's first quarter.
Our businesses leverage the realignment actions taken last year to improve operating margins, while maintaining their focus on providing outstanding quality and service to our customers.
We also benefited from lower interest expense while incurring a 25.5% tax rate for the quarter.
In line with our strategic commitment to value creation, we've repurchased over 125,000 shares for $6.3 million and distributed $4.2 million in dividends.
In Metal Coatings, we posted sales of almost $128 million while achieving operating margins of 24.7%, resulting in operating income being up over 25% from the previous year.
The margin improvement was primarily due to driving operating efficiencies and productivity, while realizing improved pricing in the face of rising zinc, labor and energy costs.
We remain committed to delivering on the investments made in our Surface Technology business, and we're pleased to see most customers beginning to return to pre-COVID levels of demand.
Our Metal Coatings team continues to demonstrate their ability to perform and deliver great results.
Our Infrastructure Solutions segment, which was severely impacted by the COVID pandemic, particularly in the first quarter of last year, demonstrated its resilience as they improved sales to $102 million or up over 23% when considering the impact of the SMS divestiture.
The team delivered operating income of $9.6 million or 9.4%, up dramatically versus prior year.
The segment benefited from its realignment actions from last year, while building on synergistic opportunities between EPG and WSI.
They are focused on strategic selling initiatives and are well positioned to deliver a strong fiscal year 2022.
For fiscal year 2022, while COVID continues to generate some uncertainty in certain sectors, with our strong performance in the first quarter and due to seeing more opportunities than risk the balance of this year, we are tightening and raising our guidance.
We anticipate sales to be in the range of $855 million to $935 million and earnings per share at $2.65 to $3.05.
Metal Coatings is continuing to focus on sales growth, including leveraging our spin galvanizing operations at several sites, operational execution and customer service as labor and operating expenses due to material cost inflation are increasing.
Our Infrastructure Solutions segment has seen more normalized business levels and entered Q2 with some momentum in their bookings activity.
Our WSI business is seeing good results from the expanded Poland facility, although globally, the business continues to experience some intermittent project delays due to COVID outbreaks at certain customer sites.
The electrical platform is focused on operational execution and growing its e-house and switchgear businesses.
We anticipate continuing to benefit from low interest rates and should experience a lower tax rate for the remainder of the year.
For fiscal year 2022, AZZ will continue to execute on our strategic growth objectives to drive shareholder value.
Our commitment to superior customer service is unwavering.
Our ability to generate strong cash flow is based on initiatives to drive operational excellence, manage costs, ensure pricing discipline and emphasis on receivables collection within our operating platforms.
We are confident that our businesses remain vital to improving and sustaining infrastructure.
So we are actively working to position our core businesses to provide sustainable profitability long into the future.
In the first quarter of our fiscal year 2022, we reported improved sales of $229.8 million, 7.8% higher than the prior year first quarter where we had sales of $213.3 million.
Net income for the quarter was $22.3 million, an increase of $16.8 million compared with the $5.5 million in net income for the first quarter of fiscal 2021.
The company's earning per share was $0.88, more than 4 times the $0.21 earned and generated during the first quarter of last year.
For the first quarter gross margins, they were 25.2%, a 540 basis point improvement over the first quarter of 2021.
The improvement was a result of our businesses most impacted by the pandemic returning to more normal operations and continued strength in our Metal Coatings segment.
First quarter operating income of $30.7 million improved $16.4 million or up 114.5% compared with the prior year.
Our operating margin was 13.4%, 670 basis points better than the 6.7% recorded in prior year's first quarter.
Interest expense for the quarter of $1.7 million was 35.6% lower as we realized interest savings on our $150 million senior notes that we refinanced last year an upsized by $25 million.
First quarter income tax expense was $7.6 million, an effective tax rate of 25.5%.
The current quarter effective tax rate was significantly improved over the 45.8% effective tax rate realized in the first quarter of last year, driven mainly by our improved earnings in the current quarter.
At this time, without consideration of the potential impact of tax law changes, we estimate our full year tax rate will be roughly 23%.
Next, I'll cover the results of operations within our Metal Coatings and Infrastructure segments.
Our Metal Coatings segment generated first quarter sales of $127.7 million, a 7.3% increase over the $119 million reported in the first year -- first quarter of last year.
Metal Coatings segment operating income of $31.6 million was $6.5 million or 25.9% higher than the first quarter of 2021.
Metal Coatings operating margins were 24.7%, 360 basis points improved over fiscal 21's first quarter and 60 basis points improved over the first quarter of fiscal year 2020.
The business continues to thrive and has effectively managed rising cost of labor, zinc, energy and most other consumable costs with operating efficiencies, increased productivity and value pricing.
In addition, the business segment is benefiting from the January 2021 purchase and full integration of Acme Galvanizing in Wisconsin.
Our Infrastructure Solutions segment generated sales of $102.1 million, $7.8 million or 8.3% increased over the $94.3 million in sales during the first quarter of last year.
On a pro forma basis, excluding sales related to our divestiture of Southern Mechanical Services from our Industrial platform, Infrastructure Solutions segment year-over-year sales increased 23.4%.
Our Industrial Platform sales improved year-over-year as personnel are now able to access customer locations.
However, this market continues to work through stricter cross-border requirements when traveling to customer locations to perform their field services.
As a result of strong actions taken by the management team during the early stages of the pandemic last year, operating income for this segment increased to $9.6 million for the first quarter as compared to the $1 million loss in the first quarter of last year.
We believe the actions to divest non-core businesses in FY '20 and '21 as well as making some difficult personnel decisions during fiscal '21 will continue to benefit the Infrastructure Solutions segment on a go-forward basis.
The Infrastructure Solutions segment generated gross profits of $22.3 million, which reflected a $9.7 million increase over prior year.
Gross margins were 21.8%, well above the 13.3% realized during last year's first quarter.
I will now turn to our balance sheet and liquidity.
Net cash provided by operating activities for the three months ended May 31 was $11.1 million compared to net cash used in operations of $11.2 million in the prior year first quarter.
The increase in cash provided by operating activities in the current quarter is primarily attributable to strong net earnings.
The company, due to cyclicality in certain platforms of our business, typically draws cash during the first quarter and generates positive cash flows remainder of the year.
This first quarter was no different as we observed a net decrease in cash of $2.4 million.
However, current quarter use of cash represented a $7.8 million improvement compared with the first quarter of the prior fiscal year.
Capital spending in the first quarter was $7.5 million compared with $10.8 million investing capital during the first quarter of the prior year.
Our current capital expenditure estimate of $35 million is consistent with the past couple of years.
At May 31, our outstanding debt was $185 million compared with $219 million outstanding at the end of the first quarter last year.
During the past quarter, we continued to generate strong cash flows that allowed us to continue to reduce debt.
During the quarter, we continue to repurchase shares under our November 2020 $100 million share repurchase program.
During the first quarter, we invested in repurchasing $6.3 million or 126,000 shares of our common stock.
We declared and will pay a quarterly dividend.
Lastly, this week we entered into a new five year credit facility with our bank group.
Our previous arrangement was to expire in March 2022.
Our credit facility capacity range is $600 million with the following transaction highlights.
We reduced our revolver from $450 million to $400 million to reduce costs associated with unused line fees.
We increased our accordion to $200 million from $150 million to retain full capacity.
We improved pricing levels of borrowing by 12.5 basis points and reduced unused line fees by 7.5 basis points.
We retained our leverage ratios at 3.25 to 1 and our interest coverage ratio at 3 to 1.
We are excited with the banks we have partnered with and look forward to improving our utilization of our credit facility as we remain active with acquisition opportunities, and we continue to repurchase shares of our common stock under our $100 million existing buyback program.
We remain well within all boundaries of our existing debt covenants and continue to strengthen our liquidity and we'll continue to evaluate our capital structure as we further execute and implement upon our strategic plans.
Here are some key indicators that we are paying particular attention to.
For the Metal Coatings segment's galvanizing business, we are carefully tracking fabrication and construction activity, material and labor cost inflation and progress of infrastructure legislation.
For the Surface Technologies platform, we are primarily focused on expanding our customer base and benefiting from improved operational performance.
For Infrastructure Solutions, we are off to a decent start with turnaround and outage activity having returned to a more normal level.
And the fall season currently looking to be good as long as international customers aren't impacted by further COVID-related restrictions.
The Electrical Platform is benefiting from T&D and utility spending and growing data center and battery energy storage activity.
Finally, for corporate, we have completed the strategic review of Infrastructure Solutions and are now focused on pursuing specific areas of opportunity.
As we have noted previously, we are having regular meetings with the board, and we anticipate being able to provide more detail in October.
We remain committed to our growth strategy around Metal Coatings and achieving 21% to 23% operating margins with galvanizing performance being quite steady as we continue to improve Surface Technologies.
We will remain acquisitive, particularly in galvanizing.
For Infrastructure Solutions, we will continue to focus on profitable growth in our core businesses.
Our segments -- business units should benefit from more normal turnaround and outage seasons and a solid market for transmission and distribution, utility and data center, e-houses and switchgear.
 Assistant:

Chosen response:
compname reports results for first quarter of fiscal year 2022 generates earnings per share of $0.88 and revises guidance.
compname reports results for first quarter of fiscal year 2022; generates earnings per share of $0.88 and revises guidance.
q1 earnings per share $0.88.
q1 sales $229.8 million versus refinitiv ibes estimate of $223.7 million.
sees fy sales $855 million to $935 million.


Prompt:
Human: Joining in the Q&A after Bob and Mike's comments will be Jacob Thaysen, President of Agilent's Life Sciences and Applied Markets Group; Sam Raha, President of Agilent's Diagnostics and Genomics Group; and Padraig McDonnell, President of Agilent CrossLab Group.
You will find the most directly comparable GAAP financial metrics and reconciliations on our website.
Core revenue growth excludes the impact of currency and the acquisitions and divestitures completed within the past 12 months.
The Agilent team delivered another excellent quarter to close out an outstanding record-setting 2021.
At $6.32 billion for fiscal 2021, revenues are almost $1 billion higher than last year.
Full year core growth is up 15% on top of growing 1% last year.
The strength is broad-based for the three business units, all growing more than 10% core for the year.
Our full year operating margin was up 200 basis points.
Earnings per share are $4.34 or up 32%.
Let's now take a closer look at our strong finish to 2021 and review Q4 results.
Our momentum continues as orders increase faster than revenue in Q4.
And at the same time, we delivered our fourth straight quarter of double-digit revenue growth.
At $1.66 billion, revenues are up 12% on a reported basis.
Our core revenues grew 11%, exceeding our expectations.
This is on top of 6% core growth last year.
Our Q4 operating margin is 26.5%.
This is up 160 basis points from last year.
EPS is $1.21, up 23% year-over-year.
Our earnings growth also exceeded our expectations.
We continue to perform extremely well in Pharma, our largest market, growing 21%, driven by our Biopharma business.
Total pharma now represents 36% of our overall revenue.
This compared to 31% of our revenues just two years ago.
The strong growth in our Chemical and Energy business continues as we delivered 11% growth in the quarter.
This is on top of growing 3% in Q4 of last year.
PMI numbers are positive and we expect that chemical and energy will continue its strong growth trajectory into fiscal 2022.
In Diagnostics and Clinical, revenues grew 11% on top of growing 1% last year as testing volume started to recover.
On a geographic basis, our results are led by strong performance in the Americas and China.
Our business in the Americas grew 15% on top of 5% last year.
China grew 8% core on top of strong 13% growth in Q4 of last year.
China order growth outpaced revenue growth for the third quarter in a row.
Now, looking at a performance by business unit, the Life Sciences and Applied Markets Group generate revenue of $747 million.
LSAG is up 11% of both the reported and a core basis.
LSAG's growth is broad based and led by strength in liquid chromatography and cell analysis.
The Pharma and Chemical Energy markets were particularly strong for new instrument purchases.
Our cell analysis business crossed $100 million revenue mark in the quarter for the first time.
During the quarter, the LSAG team announced a new high mobility LC/Q-TOF and enhancements to our VWorks automation software suite.
These new well received offerings are used to improved analysis of proteins and peptides to speed development of new protein-based therapeutics.
The Agilent CrossLab Group posted revenue of $572 million.
This is up reported 10% and 9% core.
Growth is broad based, driven by strength in service contracts and on-demand services as well as our chemistries and supplies.
Our focus on increasing connect rates continues to pay off for us.
The strong expansion of our installed base in 2021 and increasing connect rates bodes well continued to strengthen our ACG business moving forward.
Our ability to drive growth and leverage our scale produce operating margins of roughly 30%, not more than 200 basis points from the prior year.
The Diagnostics and Genomics Group delivered revenue of $341 million, up 16% reported and up 13% core.
Our NASD oligo business led the way with robust double-digit growth in the quarter and achieved full year revenues exceeding $225 million.
We expect another year of strong double-digit growth as the team continues to do a great job of increasing throughput with existing capacity.
The expansion of our Train B oligo manufacturing facility in Frederick, Colorado is proceeding as planned.
We expect this additional capacity to come online by the end of calendar year 2022.
Moving on from our other business group updates, there are several other significant developments for Agilent this quarter.
We announced our commitment to achieving net zero greenhouse gas emissions by 2050.
We believe our approach delivers the same rigorous sustainability that'd be applied to everything else we do.
We also believe these actions are not only the right thing to do, but fundamental to achieving long-term success.
Our sustainable leadership continues to be primarily recognized as well.
You may have seen that Investor's Business Daily recently named Agilent to its Top 100 ESG Companies list.
We're also a company where diversity and inclusion represent a company priority and is a core element of our culture.
During the quarter, we achieved recognition by Forbes as one of the World's Best Employers and as a Best Workplace for Women.
While the Agilent team has a strong track record of delivering above-market growth and leading customer satisfaction, we're always looking to do more.
To further accelerate growth and strengthen our focus on customers, we are implementing a new One Agilent commercialization, combining for the first time all customer-facing activities under one leader.
The new organization brings together and strengthens our sales, marketing, digital channel and services team.
The new enterprise level commercialization is led by Padraig McDonnell.
Padraig will continue to lead the Agilent CrossLab Group as Business Group President as well as serves Agilent's first ever Chief Commercial Officer.
The way I'd like to characterize this move is to say we are doubling down on the success we've achieved with ACG, applying a holistic customer-focused approach to all aspects of our business.
We're also moving the chemistries and supplies division to LSAG.
This close organizational alignment between instrument and chemistries development will further accelerate our progress on instrument connect rates for chemistries and consumables.
We believe that structure of follow strategy and that this new organizational structure will further enhance our customer focus and the execution of our growth strategies.
Looking ahead to the coming year, we are in a strong position to continue to deliver on our build and buy growth strategy.
Agilent's business remains strong.
We enter the new year with a robust backlog and have multiple growth drivers, coupled with the proven execution excellence of the Agilent team.
A year ago to our Agilent Investor Day, we raised our long-term annual growth outlook to the 5% to 7% range, while reaffirming our commitment to annual operating margin improvement and double-digit earnings per share growth.
We are now one year in and well on our way to achieving these long-term goals.
Bob will provide more details, but for fiscal 2022, our initial full year guide calls for a core growth in the range of 5.5% to 7%.
We expect to continue our top line growth as we launch market-leading products and services, invest in fast-growing businesses and deliver outstanding customer service.
My confidence in the unstoppable One Agilent team and our ability to execute and deliver remains firmly intact.
This is our formula for delivering solid financial results, outstanding shareholder returns and continued strong growth.
We are very pleased with our performance in 2021 but not satisfied.
As I tell the Agilent team, the best is yet to come for our customers, our team and our shareholders.
I will now hand the call off to Bob.
In my remarks today, I'll provide some additional details on revenue and take you through the income statement and some other key financial metrics.
I'll then finish up with our initial outlook for the upcoming year and for the first quarter.
As Mike mentioned, we had very strong results in the fourth quarter.
Revenue was $1.66 billion, reflecting reported growth of 12%.
Core revenue growth at 11% was a point above our top end guidance range.
Currency accounted for 0.8% of growth, while M&A contributed half a point of growth during Q4.
And as expected, COVID-19-related revenues were roughly flat sequentially and resulted in just over a point headwind to the quarterly revenue growth.
Late in the quarter, we did see transit times that were in certain cases greater than anticipated, resulting in some revenues being deferred into Q1.
Our results were driven by a continuation of outstanding momentum in Pharma and in Biopharma in particular, while Chemical and Energy and Diagnostics and clinical also delivered strong results for us.
Our largest market, Pharma, grew 21% during the quarter against a tough compare of 12% last year.
The Small Molecule segment delivered mid-teens growth, while Large Molecule grew 30%.
Pharma was a standout all year, growing 24% for the full year after growing 6% in 2020.
And in FY '22, we expect our Pharma business to grow in the high-single digits.
Chemical and Energy continue to show strength growing 11% with instrument growth in the mid-teens during the quarter.
This impressive performance was against a 3% increase last year.
The C&E business grew 12% for the year after declining 3% in 2020.
Growth was driven by continued momentum in chemicals and engineered materials and we expect our C&E business to continue to grow solidly next year in the high-single digits.
Diagnostics and Clinical grew 11% with all three groups growing nicely during the quarter.
While the largest dollar contributor to this market is DGG, driven by our pathology-related businesses, the LSAG business continues to penetrate the clinical market and drive growth with strong performances by Cell Analysis and Mass Spec.
We saw mid-teens growth in the Americas and strong growth in China, albeit off a small base.
For the year, the Diagnostics and Clinical business grew 15% for the year after declining slightly by 1% in 2020.
And we expect to continue to grow in the mid to high-single digits in 2022.
Academia and Government, which can be lumpy and represents less than 10% of our business, was up 1% in Q4 versus a flat growth last year.
Most research labs continue to remain open globally and increase capacity to pre-pandemic levels.
China came in at low-single digits, while the Americas and Europe were roughly flat.
For the year, we grew 7% after declining 4% last year.
We expect this market will continue to improve slightly in fiscal year 2022 and expect growth of low to mid-single digits.
Food was flat during the quarter against a very tough 16% compare.
Europe and the Americas grew while China declined.
For the year, food grew 13% after growing 7% in 2020.
Looking forward, we expect food to return to historical growth rates in the low-single digits.
And rounding out the markets, Environmental and Forensics declined 2% in the fourth quarter off of 5% decline last year as growth in Environmental was overshadowed by a decline in Forensics.
For the year, we grew 5%, off a 2% decline in 2020.
And looking forward, like Food, we expect Environmental and Forensics to grow in the low-single digits in the coming year.
For Agilent overall, on a geographic basis, all regions again grew in Q4, led by Americas at 15% China grew 8% in Europe grew 4%.
And for the year, Americas led the way with 21% growth, followed by China at 13% and Europe at 12%.
Now let's turn to the rest of the P&L.
Fourth quarter gross margin was 55.9%, up 90 basis points from a year ago.
Gross margin performance, along with continued operating expense leverage, resulted in an operating margin for the fourth quarter of 26.5%, improving 160 basis points over last year.
Putting it all together, we delivered earnings per share of $1.21, up 23% versus last year.
And during the quarter, we benefited from some additional tax savings, resulting in a quarterly tax rate of 13% and our full year tax rate was 14.25%.
Our share count was 305 million shares as expected.
And for the year, earnings per share came in at $4.34, an increase of 32% from 2020.
We continued our strong cash flow generation, resulting in $441 million for the quarter, an increase of 17% versus last year.
For all of 2021, we generated almost $1.5 billion in operating cash and invested $188 million in capital expenditures.
During the quarter, we returned $195 million to our shareholders paying out $59 million in dividends and repurchasing roughly 830,000 shares for $136 million.
And for the year, we returned over $1 billion to shareholders in the forms of dividends and share repurchases.
And we ended the year with $1.5 billion in cash and $2.7 billion in outstanding debt and a net leverage ratio of 0.7 times.
All in all, a great end to an outstanding year.
Now let's move on to the outlook for fiscal 2022.
While we are still dealing with the pandemic and we have the additional challenges around logistics and inflationary pressures, we enter the year with strong backlog and momentum.
For the full year, we're expecting revenue to range between $6.65 billion and $6.73 billion, representing reported growth of 5% to 6.5% and core growth of 5.5% to 7%, consistent with our long-range goals.
And this incorporates absorbing roughly 0.5% headwind associated with COVID-related revenues with the majority of that impact coming in Q1.
We're expecting all three of our businesses to grow, led by DGG.
We expect DGG to grow high-single digits with the continued contribution of NASD in cancer diagnostics.
We expect ACG to grow at high-single digits with both services in our chemistries and supplies businesses growing comparably while LSAG is expected to grow in mid-single digits.
We expect operating margin expansion of 60 to 80 basis points for the year as we absorb the build-out costs of Train B at our Frederick, Colorado NASD site.
And in helping you build out your models, we're planning for a tax rate of 14.25%, consistent with current tax policies and $305 million fully diluted shares outstanding.
All this translates to a fiscal 2022 non-GAAP earnings per share expected to be between $4.76 to $4.86 per share, resulting in double-digit growth.
And finally, we expect operating cash flow of approximately $1.4 billion to $1.5 billion and capital expenditures of $300 million.
This capital investment represents an increase over 2021 as we continue our focus on growth, bringing our NASD Train B expansion online and expanding consumables manufacturing capacity for our Cell Analysis and Genomics businesses.
We have also announced raising our dividend by 8%, continuing an important streak of dividend increases and providing another source of value to our shareholders.
Now let's move on to our first quarter guidance.
But before I get into the specifics, some additional context.
Lunar New Year is February 1 this year, a shift from last year when it was in mid-February.
As a result, we expect some Q1 revenue to shift to the second quarter of this year as customers shut down ahead of the holiday.
In addition, as I mentioned, we do expect to see the largest impact of COVID-related revenue headwinds in the first quarter.
We estimate these two factors will impact our base business growth by 2 to 3 points and roughly equal in impact.
For Q1, we are expecting revenue to range from $1.64 billion to $1.66 billion, representing reported and core growth of 5.9% to 7.2%.
Adjusting for the timing of Lunar New Year and COVID-related headwinds, core growth would be roughly 8% to 10% in the quarter.
First quarter 2022 non-GAAP earnings are expected to be in the range of $1.16 to $1.18.
In conjunction with the new One Agilent commercial organization Mike talked about, we will be reporting under the new structure starting in Q1.
In addition, we'll be providing a recast of certain LSAG and ACG historical financials to account for the segment changes after the filing of our Annual Report on Form 10-K in December.
I am extremely proud of what the Agilent team achieved in 2021 and look forward to another strong performance in 2022.
With that for me, back to you for Q&A.
Bethany, if you could please provide instructions for the Q&A now.
 Assistant:

Chosen response:
q4 non-gaap earnings per share $1.21.
sees q1 revenue up 5.9 to 7.2 percent.
sees q1 revenue $1.64 billion to $1.66 billion.
sees fy revenue $6.65 billion to $6.73 billion.
q4 revenue rose 11 percent to $1.66 billion.
sees q1 non-gaap earnings per share $1.16 to $1.18.
fiscal year 2022 non-gaap earnings guidance of $4.76 to $4.86 per share.


Prompt:
Human: As some of you know, our Head of Investor Relations, Rubun Dey, recently left the company to pursue other opportunities.
Our Vice President and Chief Accounting Officer, Laura Adams, has stepped in as Interim Head of Investor Relations, which she will oversee while also maintaining her ongoing role.
Laura has been a finance executive with the firm for over a decade, overseeing many areas of corporate finance, including governance, financial and treasury oversight and risk mitigation.
She has played a vital role for me and our leadership team in our strategic decision-making around our capital allocation and M&A plans and our investment thesis more recently.
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 second quarter fiscal year 2022 slides.
We are now on Slide 4.
Laura, it's great to have you play a more public role on these calls, because you have been a leader on our finance team and integral to the quarterly earnings process for many years.
I have personally relied on your expertise for as long as I've been CEO.
Lloyd and I, along with several of our Booz Allen colleagues were excited to be in New York City earlier this month to share our new investment thesis and our strategy for growth.
It was great to see so many of you in person, and we hope you took away from that event a deeper understanding of our strategy, business and multi-year financial goals.
Today, we will continue the conversation in the context of our second quarter results for the fiscal year.
And we will show how Booz Allen is already setting up to accelerate into the financial goals described in our investment thesis.
I'm also pleased to share an update on our future of work rollout.
Before diving into the second quarter results, I want to briefly recap a few points from our Investor Day, starting with VLT; velocity, leadership and technology.
VLT is the strategic framework that will accelerate our growth and create exceptional shareholder value.
Through VLT, we will capitalize on future market opportunities and leverage our positioning to deploy talent and capital against the nation's highest priorities.
As part of our new strategy, we also told you about the opportunities we see for hyper growth in the areas of digital battle space and national cyber, among others.
And then those of you who attended AUSA a week later, saw some of our differentiated technology solutions that are transforming national missions.
Specifically, demos of Rainmaker and a few of our Edge solutions are excellent examples of how we are leading in our market.
Fueled by the investments we have made during Vision 2020, Booz Allen holds first-mover advantage at key intersections of technology and mission.
The overall strategy is important because it's what creates our strong financial performance year-to-year.
And on Investor Day, we were pleased to present our new investment thesis.
It's the multi-year outlook that will frame our quarter-to-quarter performance going forward.
At the core of these thesis is accelerating growth in adjusted EBITDA dollars through fiscal year 2025.
We expect adjusted EBITDA to increase by about 50% from $840 million in fiscal year 2021 to $1.2 billion to $1.3 billion in fiscal year 2025.
Broadly, we expect this increase to be driven by above market organic revenue growth, continued strong margins and capital deployment that prioritizes strategic acquisitions.
To be more specific, our path to 50% adjusted EBITDA growth includes financial expectations of 5% to 8% annual organic revenue growth, adjusted EBITDA margins in the mid-10s and $3.5 billion to $4.5 billion in total capital deployment during the period.
The leadership team and I are confident that we can accelerate growth and achieve the goals in our investment thesis.
We have the right strategy.
And more importantly, the right team is in place to drive our business.
This quarter's results demonstrate that Booz Allen is already positioned for acceleration.
So let me shift now to an overview of the second quarter.
As we have said since fiscal year 2022 begun, this year's growth pattern looks different from recent fiscal years with slower revenue growth in the first half and significant acceleration expected in the second half.
These pattern is primarily due to three factors.
First and most important, a ramp-up in hiring.
Second, productivity and time of dynamics tied to the pandemic that create challenging comps in the first half.
And third, full inclusion of revenue from acquisitions.
These factors contribute to choppiness at the top-line.
And with our second quarter results now final, you can see that the first half of the fiscal year played out just as we expected.
For the full six months, revenue growth was in the low-single-digits.
We are pleased to report that across bottom line metrics we outperformed in the first half with strong profit margins driving EBITDA and ADEPS growth.
Book-to-bill for the second quarter was strong, reflecting a significant year-over-year increase in bookings and cash generation was exceptional.
Our latest results demonstrate several key things about our business at the midpoint of the fiscal year.
We are not demand constraint, as shown in our backlog and book-to-bill performance.
Hiring, which is our top operational priority, rapidly accelerated over the first two quarters.
We continue to attract and retain the talent we need in a very competitive market, and we aim to keep our momentum going.
Our team is managing the business extraordinarily well, which can be seen especially in the bottom line metrics.
We are well underway with making strategic acquisitions and successfully integrating them, with our acquisition of Tracepoint last month being the most recent example.
We're already seeing lift from combining Tracepoint's channel access and incident response expertise with Booz Allen's cyber consulting and managed services offerings.
And while we did face headwinds from comps and a slow ramp up on some contracts, we continue to manage through them.
Taken together, our first half results and the strong operational performance behind them point to acceleration through the rest of the fiscal year.
To achieve our second half objectives, we are focused on a set of priorities that are critical to our success.
Let me walk through them.
Our top priority remains recruiting.
We must continue strong hiring to execute our growing backlog.
Second, we will maintain operational excellence in managing the business.
Third, we will continue to capture key market opportunities.
Fourth, we will capitalize on the upside presented by our acquisitions of Liberty and Tracepoint.
And fifth, we will continue to invest in our people and differentiated solutions to drive growth beyond this fiscal year.
Lloyd and I are confident Booz Allen will continue to make progress on these objectives.
And today, we are pleased to reaffirm guidance for the full fiscal year.
We believe that our growing momentum will both deliver another successful year and accelerate our business into the years covered by our new investment thesis.
Lloyd will share more details on our results and fiscal year 2022 guidance in a few minutes.
Before giving him the floor, I want to provide an update on the implementation of our future of work program.
As you may recall, we believe we can offer our people increased flexibility in the way we work with the expectation that many of our people will work in a hybrid model.
It makes up telework and purposeful in-person collaboration.
We have plans to launch future of work and reopen all our offices on September 7, but those plans have to be delayed.
It just was not safe at the time given the summer wave of COVID driven by the Delta variant.
Since then, case metrics have improved and we are implementing a vaccination policy consistent with the federal government's mandate, requirements and timeline.
We're making excellent progress in our vaccination rates.
And earlier this month, we began a phase reopening of offices that have remained closed, and we expect to have all offices open by November 22.
We are excited to now be in the position to safely engage more broadly with clients and colleagues in-person.
Our people did an extraordinary job staying connected over the past 19 months.
But just like Investor Day, there are times when being face-to-face is best.
Our future of work program provides the flexibility to come together with purpose when and where it makes the most sense.
With the opportunity to see more of our teams, clients, investors and other Booz Allen stakeholders in-person, I'm feeling energized and confident about the future.
And my optimism is enhanced by the strong performance we delivered in the first half and how it sets us up for acceleration for the rest of the fiscal year and well beyond.
And with that, Lloyd, over to you to take us through the financials in depth.
Our overall objective with Investor Day was to once again demonstrate Booz Allen's commitment to long-term profitable growth.
Leveraging our VLT strategy, we will make the internal investments and strategic acquisitions required to drive and execute that growth.
In our view, the first half of fiscal year 2022 was an inflection point.
As we move into the second half of the fiscal year and move past the direct and indirect influences of COVID over the last 19 months, we are entering the next leg of the firm's multi-year journey.
As Horacio noted, we closed out the first half of the fiscal year with top-line performance in line with our expectations and prior guidance and with bottom-line performance well ahead.
This gives us great confidence in our plan for the full fiscal year.
Our large backlog, strong bookings and proposal activity signals continued client interest and strong demand for our work.
Our hiring engine is now firing on all cylinders, positioning us to drive growth in the second half of the fiscal year.
We closed on the acquisitions of Liberty and Tracepoint.
As we have noted, we anticipated early year choppiness in our top-line results as we move into a post-COVID operating rhythm, which played out as we expected.
Our strong balance sheet position and favorable market conditions have allowed us to take advantage of a number of opportunities, including attractive levels of debt financing, M&A and share repurchases.
As a reminder, we had forecast constrained low-single-digit top-line growth in the first half with an acceleration through the fiscal year, driven by three dynamics: a ramp up in contracts and hiring, normalizing staff utilization and time off usage, growing contributions from acquisitions.
I will speak to these in more detail when I address our guidance.
With that, let me walk you through the second quarter results.
At the top-line, in the second quarter, revenue increased 4.3% year-over-year to $2.1 billion.
Revenue excluding billable expenses grew 3.6% to $1.5 billion.
Revenue growth was driven by inorganic contributions and solid operational performance, offset from higher than normal staff utilization in the comparable prior year period.
Now, let me step through performance at the market level.
In defense, revenue declined by 0.6%, primarily due to a significant materials purchased in billable expenses and unusually high staff utilization in the prior year period, a headwind felt throughout most of our markets.
Defense also saw some slowness in ramp ups on both new and existing work, while ongoing protests continue to create uncertainty on the timing of programs starts.
In the first six months, revenue increased 1.8%.
In civil, revenue grew by 16.4% led by strong performance in our health business and the addition of Liberty.
Liberty's contributions so far is slightly outpacing our previously forecasted range of $300 million to $340 million of annualized revenue.
We remain exceptionally pleased with Liberty's performance and contribution to Booz Allen and are well underway with plans to fully integrate it with our broader health and digital business.
We are feeling momentum across this entire market as we continue to capture key opportunities aligned to the government's priorities.
In the first six months, revenue increased 11.2%.
In intelligence, we recorded 0.8% revenue growth this quarter.
Our portfolio reshaping efforts have started to yield critical wins, and we are excited to see this business return to growth.
For the full first six months, revenue declined 2.9%, but we believe this will continue to turnaround in the second half of the fiscal year.
Lastly, revenue and global commercial declined 5.7% compared to the prior year quarter.
We continued to strategically shift focus to our U.S. commercial cyber business and anticipate growth in the back half of the fiscal year as we accelerate hiring to capitalize on the strong demand and additive growth in the business from Tracepoint.
In the first six months, revenue declined 17.2%.
Our book-to-bill for the quarter was 2.03 times, while our last 12 month's book-to-bill was 1.28 times.
Total backlog grew 18% year-over-year, resulting in backlog of $29 billion, a new record.
Funded backlog grew 9.7% to $4.9 billion, unfunded backlog grew 54.7% to $9.5 billion and priced options grew 4.4% to $14.6 billion.
We are proud of our bookings performance in the second quarter, which continues to demonstrate we are not demand constrained, and our ability to win and convert on work aligned with our core capabilities and clients' most critical missions.
Pivoting to headcount, as of September 30, we had approximately 29,200 employees, up by about 1,600 year-over-year or 5.8%.
In the first half of the fiscal year, we added approximately 1,500 employees.
As we have previously noted, the competition for talent, particularly technical talent, remains fierce.
Still, we have successfully executed our hiring and retention strategies.
As Betty Thompson highlighted at Investor Day, those strategies focused on fostering a strong people-centered culture and effective talent systems that support individual pursuits as well as business needs.
Accelerating headcount growth remains a top operational priority for this fiscal year and will be key as we move into the next multi-year period of our investment thesis.
We expect to continue building on our progress through the second half of the fiscal year.
Moving to the bottom line, adjusted EBITDA for the quarter was $270 million, up 18.1% from the prior year period.
Adjusted EBITDA margin on revenue was 12.8% compared to 11.3% in the prior year period.
The increase in adjusted EBITDA margin was driven by three factors.
First, profitable contract level performance and mix, which includes the inorganic contributions into our results.
Second, prudent cost management.
And third, a return to a billing for fee within intel, which had a $7 million negative impact on the prior year period under the CARES Act.
As we move through the fiscal year, we expect billable expenses and unallowable spend to ramp up, with billable expenses which are currently near the low end of our historical 29% to 31% range, expected to move toward the midpoint of that range by the fiscal year end.
Second quarter net income increased 14% year-over-year to $155 million.
Adjusted net income was $170 million, up 19% from the prior year period, primarily driven by the same factors driving higher adjusted EBITDA.
Diluted earnings per share increased 16% to $1.14 from $0.98 the prior year period.
And adjusted diluted earnings per share increased 22% to $1.26 from $1.03.
These increases to our non-GAAP metrics were primarily driven by better operating performance, the inclusion of Liberty, a lower effective tax rate and a lower share count due to our share repurchase program.
Cash from operations was $470 million in the second quarter compared to $426 million in the prior year period.
This increase was driven primarily by continued strong cash management, fueled by consistent operational performance.
Capital expenditures for the quarter were $21 million, up approximately $3 million from the prior year period, driven by investments for future growth.
We still expect capital expenditures to land within our forecast range for the fiscal year.
During the quarter, we paid out $50 million for our quarterly dividend and repurchased $106 million worth of shares at an average price of $83.31 per share.
We also acquired the remaining stake in Tracepoint, a promising digital forensics and incident response business.
As you may recall, we took a minority stake in Tracepoint last December.
And the partnership has proven so fruitful that we completed the purchase in September.
In total, including the close of the Tracepoint acquisition, we deployed $285 million during the quarter.
Today, we are announcing that our board has approved a regular dividend of $0.37 per share payable on December 2 to stockholders of record on November 15.
As our actions and performance demonstrate, we remain committed to preserving and maximizing shareholder value through a disciplined balanced capital allocation posture.
Turning now to guidance.
Please move to Slide 8.
Before I address the numbers, I want to highlight our continued expectations for a distinct first half, second half dynamics this fiscal year.
Let me walk through the puts and takes of this second half ramp, starting with the top-line perspective.
First, we expect year-over-year comparables in staff utilization to normalize in the second half of the fiscal year.
As a reminder, in fiscal year 2021, staff utilization trended roughly 300 basis points above typical levels in the first half of the year before starting to normalize in the third quarter.
Second, we expect that our ramp on both contracts and hiring will translate into growth as we move through the fiscal year.
Strong customer interest and proactive demand signals give us confidence that any near-term slowness in the acquisition process is likely temporary, not withstanding any unforeseen disruptions in government funding.
On the other hand, from a supply perspective, our efforts to improve hiring, in some cases ahead of demand, have paid off.
Third, our growing Liberty business will fully contribute in the second half of the fiscal year relative to a partial first half.
Lastly, minor timing differences in our costing of labor, resulting from the implementation of our new financial management systems.
Putting it all together, we still forecast significant acceleration from our first half performance ramping through the fourth quarter, barring any major disruption such as a prolonged government shutdown or other dynamics outside of our control.
Regarding adjusted EBITDA margins, we exercise considerable control over our cost structure and margin levers.
We traditionally take a conservative approach to cost management early in the fiscal year and prioritize investments in our people, infrastructure and long-term growth objectives as we move throughout the fiscal year.
Given the slowness we noted in the government's contracting process, we have maintained a tighter grip on our cost levers into this fiscal year.
However, we still expect to make those same investments in the second half of the fiscal year, which will pressure back half adjusted EBITDA margins.
Taking these factors into consideration, we are reaffirming our fiscal year 2022 guidance.
We expect revenue growth to be between 7% and 10% inclusive of Liberty and Tracepoint.
We expect adjusted EBITDA margin in the mid-10% range.
Let me reiterate that we expect to make investments in our people and our technology in the second half of the fiscal year to support our multi-year growth aspirations.
That said, given our strong first half results, we expect to finish near the top end of our current guidance.
We expect adjusted diluted earnings per share to be between $4.10 and $4.30 based on an effective tax rate of 22% to 24%, 134 million to 137 million weighted average shares outstanding and interest expense of $92 million to $95 million.
We expect operating cash flow near the low end of our prior $800 million to $850 million range, which is inclusive of approximately $56 million of cash payments related to the Liberty transaction.
And finally, we expect capex in the $80 million to $100 million range.
Finally, I would like to round out the conversation by looking to the future and our new investment thesis, which Horacio recapped in his remarks.
As we continue to position ourselves for a post-COVID operating environment, we believe that our actions and performance throughout the remainder of fiscal year '22 will put us on the right trajectory to accelerate our growth and execute on our investment thesis.
We are truly excited for the future of this firm and all we can accomplish for both our clients and our investors.
Operator, please open the lines.
 Assistant:

Chosen response:
compname reports quarterly adjusted earnings per share $1.26.
qtrly earnings per share $1.14.
qtrly adjusted earnings per share $1.26.
booz allen hamilton holding - qtrly revenue increase of 4.3% over yoy to $2.1 billion.
co reaffirms its previously provided fiscal 2022 guidance.


Prompt:
Human: I'm Laura Adams, chief accounting officer and interim head of 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, chief financial officer, and treasurer.
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 are now on Slide 4.
Today, Lloyd and I will share our third quarter results in the context of our fiscal year 2022 guidance and our multi-year investment thesis.
We will also describe the underlying dynamics of our business and the progress we are making on our VoLT strategy.
To set the context, let's go back to our October Investor Day, where we outlined our VoLT strategy and associated financial goals.
As a reminder, VoLT stands for velocity, leadership, and technology.
It is a strategic program Booz Allen has launched to capitalize on our first mover advantage in helping the federal government transform core missions through the use of new technologies.
Over the next few years, we look to grow faster by building scaled positions in critical areas such as national cyber and digital battlespace.
We are in the early stages of this journey, but are already making strides and seeing strong progress.
As part of VoLT, we have set new multi-year financial goals that deliver both strong profit growth and continued investment in our business.
Our investment thesis centers on growing adjusted EBITDA dollars from $840 million in fiscal year 2021 to $1.2 billion to $1.3 billion in fiscal year 2025.
That's approximately a 50% increase.
We expect this increase to be accomplished through 5% to 8% annual organic revenue growth, adjusted EBITDA margins in the mid-10s, and $3.5 billion to $4.5 billion in total capital deployment that prioritizes strategic acquisitions.
Our expectations for fiscal year 2022 were consistent with these goals.
Gross revenue growth in the 7% to 10% range and adjusted diluted earnings per share in the range of $4.10 to $4.30.
We also said this fiscal year growth pattern would look different from recent years, with slower revenue growth in the first half and significant acceleration in the second half.
Our revenue growth in the third quarter was lighter than we expected.
And while we forecast strong fourth quarter revenue growth, we're lowering our full fiscal year 2022 revenue outlook to account for a slower pace.
Lloyd will take you through the quarter results and our updated guidance in greater depth.
There were several factors that contributed to the revenue dynamics for the quarter.
On the positive side, we continue to win the right kind of work and hire the right people, as reflected in our backlog growth and headcount increases over the last 12 months.
Conversely, the translation of those positives into revenue growth was slower than historical standards, driven by a number of factors, including a protracted continuing resolution; a higher dollar value of awards under protest; delayed awards and slower ramp-up on sold contracts; lower staff productivity due in large part to the omicron variant surging during the quarter; and lower-than-anticipated billable expenses.
These dynamics impacted our entire portfolio and some pockets of our defense business were especially hard hit due in part to the number of large awards delayed and a greater proportion of billable expenses in their revenue base.
Looking ahead, we see some of these challenging dynamics continuing into the coming months.
As a result, we are taking a three-pronged approach to proactively manage through this environment.
First, we are addressing those business areas where we see the greatest funding uncertainty.
Second, we are continuing to control costs in order to deliver on our commitments to both grow adjusted EBITDA and invest in our business.
And third, we are doubling down on areas of significant growth opportunity shifting resources across the portfolio by leveraging our unique operating model and single P&L.
In short, we continue to lean into growth while managing tightly in the face of greater market volatility.
Before turning the call over to Lloyd, let me return to the longer-term outlook and the progress we have made in our business so far.
As we look ahead, we remain on track to deliver strong growth in adjusted EBITDA through fiscal year 2025, supported by continued revenue growth, stable adjusted EBITDA margins, and strategic deployment of capital.
Our confidence in the future is predicated in our belief that we have the right strategy and the proven ability to execute in both good times and challenging ones.
And several accomplishments from the last few months underscore these points.
First, we continue to win the right kind of work at the center of national priorities where innovation can help the government transform the way the mission is executed.
Our clients from the Department of Veterans Affairs to the Air Force are looking to Booz Allen for expertise in areas such as DevSecOps, AI, and the commercialization of new technologies to advance their missions.
Second, we are making key investments that differentiate our service to clients.
For example, last December, as part of our ramp-up on national cyber, we announced the opening of our carrier-grade 5G lab in Central Maryland.
The lab offers a state-of-the-art testing environment for secure, cyber-resilient 5G solutions.
Similarly, as we advance our work on digital battlespace, we are significantly expanding our footprint in Honolulu.
This investment deploys into the INDOPACOM region some of our most advanced capabilities to expand our support of several high-priority client missions.
Third, we are successfully using acquisitions as strategic accelerators.
Liberty and Tracepoint continue to deliver the strategic and financial value we expected.
Integration is going well, and we are extremely pleased with the upside these acquisitions create.
And in addition, we continue to build our acquisition pipeline.
And fourth, and perhaps most importantly, we continue to strengthen our team and ensure we have the focus and resiliency to support our clients as they too manage through a volatile environment.
I am extremely proud of our workforce for achieving complete compliance with our COVID vaccination requirement.
Our purpose and values are at the core of everything we do, so we believe that prioritizing the health and safety of all our employees is the right thing to do for our institution, our clients, and our communities.
Furthermore, a fully vaccinated workforce allows us to better serve our clients, supports safer in-person collaboration, and is critical to entering a post-pandemic phase.
Together, always together, the people of Booz Allen are forging ahead with relentless focus on our clients' missions and our growth strategy.
This is what delivers the consistent results that create long-term shareholder value.
And with that, I'll give the floor to Lloyd for more details on the third quarter, the fiscal year and our investment thesis.
Lloyd, over to you.
As we near the end of fiscal year 2022, a year marked by many twists and turns, we have continued to build on our underlying fundamentals, which have supported our expectations for second half performance outpacing first half.
And while top line growth and cash did not deliver at the levels we anticipated, we are delivering the bottom line results we need to invest in our business and our people to achieve our long-term growth initiatives.
With three quarters now completed and greater visibility into the fourth quarter, we are seeing some transitory changes at the macro level that are impacting overall market performance.
Expanding on what Horacio said, just as we believe that we were turning the corner on the pandemic's impacts and reverting to more predictable business patterns, we were hit by omicron, which led to another spike in PTO, resulting in staff utilization rates not normalizing as we had anticipated.
This, coupled with an overhang effect from the continuing resolution, has impacted our ability to convert strong demand into top line growth.
We factored some of this uncertainty into our 2022 fiscal year guidance, but we did not fully anticipate the impact of the second wave on utilization, nor did we foresee the delays in translating wins into revenue generation.
I will get into more detail shortly when I give updated guidance.
At the top line, revenue increased 6.6% year over year to $2 billion, which includes approximately $117 million from inorganic contributions.
Revenue, excluding billable expenses, grew 6.2% year over year to $1.4 billion.
Revenue growth was slower this quarter for the following three reasons: first, funding delays resulting in slower ramp on new work and existing work; second, lower staff utilization resulting from an uptick in PTO taken over the holiday period, due in part to a rise in COVID cases and the inclusion of the New Year's Eve holiday in this quarter's results.
And third, billable expenses continued to be pressured by slower travel patterns and the timing of material purchases getting pushed to the right.
Taken together, these factors are largely timing issues that we believe will dissipate as we return to more normal business rhythms.
Now let me walk through the market level performance.
Revenue declined by 2.2% year over year and has been trending down quarter over quarter.
Since defense is roughly 50% of our business portfolio and largely comprised of cost reimbursable work, the macro factors and subsequent top line impacts I noted were especially impactful in this market.
More specifically, to expand on what Horacio said, our Army account was hit the hardest by some of these dynamics, where our performance was impacted by budgetary challenges, slowness, and ramp-ups, and some losses.
Going forward, our defense leadership is doubling down on addressing these issues by growing headcount, managing utilization, and aggressively deploying talent to capture the highest value opportunities, including hyper growth initiatives such as our digital battlespace platform.
In civil, revenue grew by 25.3% year over year, of which 5.1% was organic, marking our second consecutive quarter of strong double-digit growth.
Our results reflect solid performance across the portfolio, particularly in health, where we see strong alignment with the administration's priorities, which are yielding important wins.
Additionally, Liberty continues to strengthen our unique market position as we prepare to leverage integrated capabilities in the areas of cloud, DevSecOps, and API development to pursue additional market share across our broader portfolio.
In Intelligence, we recorded our second consecutive quarter of growth at 0.8% year over year.
This continued improvement in performance reflects our ability to hire ahead of growing demand and capitalize on our mission expertise and advanced technological offerings to secure key recompetes and new work opportunities.
This positions us for multiyear growth in key areas, including digital modernization, artificial intelligence and high-end data analytics.
Lastly, global commercial revenue grew 26.7% compared to the prior-year period.
commercial cyber business and contributions from Tracepoint, where we are seeing strong cross-selling momentum and early synergies.
We are now on Slide 6.
Net bookings for the third quarter were approximately $797 million, up 29% over the prior-year period, translating to a quarterly book-to-bill of 0.39 times and a trailing 12-month book-to-bill of 1.28 times.
Total backlog grew approximately 19.2% year over year to $27.8 billion.
Funded backlog grew 11.7% to $4 billion.
Unfunded backlog grew 57.7% to $9.4 billion.
And price options grew 4.4% to $14.3 billion.
These results underscore continued demand and strong alignment to our clients' core missions in the areas of artificial intelligence, cyber and digital modernization, to name a few and further, our position as a trusted partner and market leader.
Looking ahead, as we continue to pursue larger and more technically complex bids, we anticipate that ongoing protests will become part of the normal business cycle, which we are increasingly factoring into our operating plan.
As of December 31, we had approximately 29,500 employees, an increase of approximately 1,900 year over year or 6.8%.
The labor market for tech and tech-adjacent talent remains highly competitive, but we are pleased that we continue to successfully execute on our hiring and retention strategies, a reflection of our appeal as an employer of choice.
This resulted in a third consecutive quarter of mid-single-digit headcount growth, consistent with our expectations.
Moving to the bottom line.
Adjusted EBITDA for the quarter was $222 million, up 8% from the prior-year period.
Adjusted EBITDA margin on revenue was 10.9% compared to 10.8% in the prior-year period.
The increase in adjusted EBITDA margin was driven by three factors: first, profitable contract level performance and mix, which includes inorganic contributions; second, prudent cost management; and third, a return to billing for fee within Intel, which had a $2 million negative impact on the prior-year period under the CARES Act, a tailwind that will taper off after this quarter.
Third quarter net income decreased 10.8% year over year to $129 million.
Adjusted net income was $137 million, down 5.5% year over year.
Diluted earnings per share decreased 7.8% to $0.95 from $1.03 the prior-year period.
And adjusted diluted earnings per share decreased 1.9% to $1.02 from $1.04.
Both GAAP and non-GAAP metrics were impacted by a higher effective tax rate following the release of an income tax reserve of $10.2 million in the prior-year period related to the Aquilent acquisition, as well as higher interest expense partially offset by a lower share count due to our share repurchase program.
Our non-GAAP metrics exclude certain acquisition costs and the noncash gain of $7.1 million from the spin-off of SnapAttack during the quarter.
Cash from operations was $21 million in the third quarter, down from $233 million in the prior year comparable period.
Operating cash performance is volatile quarter-to-quarter, and the decline in this period was more pronounced due to some of the factors impacting top line growth, coupled with higher disbursements.
As we have done before, we are focused on our working cash management and cash collection efforts to continue improving our operating cash performance and reinforce our strong balance sheet.
Year to date, we have generated $481 million in operating cash flow and $430 million in free cash flow for a free cash flow conversion rate nearing 100% and supporting our strong balance sheet positioning and capital deployment priorities.
During the quarter, we deployed approximately $139 million, inclusive of $50 million in quarterly dividends and $83 million in share repurchases.
Today, we are also pleased to announce that the Board has increased our quarterly dividend by $0.06 to $0.43 per share, payable on March 2 to stockholders of record on February 11.
This marks our ninth consecutive fiscal year of increasing our quarterly dividend, a testament to our fundamental strength and promise to continue growing our dividend, even in a more challenging operating environment.
With one quarter left in this fiscal year, we remain committed to a patient, disciplined capital allocation strategy, leveraging our strong balance sheet position to deploy capital in an accretive manner, creating near- and long-term shareholder value.
As we have said in October, our capital deployment priorities remain focused on strategic M&A to enhance growth while sustaining a healthy dividend and opportunistically repurchasing shares.
Let me now walk you through how the puts and takes from the quarter translate into updates to our full year fiscal 2022 guidance.
Please move to Slide 8.
Despite lighter revenue and operating cash challenges this quarter, we are proud of our team's efforts to manage the business, controlling what we can in spite of another wave of macro environmental challenges.
These efforts have enabled margin expansion with solid ADEPS performance throughout this fiscal year as we reinforce the strength of our fundamentals and balance sheet in preparation to execute on our investment thesis.
In the fourth quarter, we were laser-focused on executing against our operational priorities.
We will continue to aggressively hire ahead of demand, capitalizing on our strong portfolio of new work opportunities to sustain long-term organic growth.
We will efficiently manage the business by investing in our people and technology to lead the next wave of innovation.
And lastly, continue to build our M&A pipeline and acquire businesses that meet our disciplined criteria to serve as strategic accelerators.
Our revised guidance reflects these efforts in addition to the third quarter performance and trends I just outlined.
Let me run through the numbers.
For the full fiscal year, revenue growth is now expected to be in the range of 5.7% to 7.2%.
At the midpoint, our revised guidance range reflects $100 million to $220 million of revenues tied to the uncertainties we outlined earlier.
They break down as follows: $30 million to $80 million tied to funding delays and resulting slowness in deploying staff on sold and funded work; $20 million to $40 million tied to an incremental step down in staff utilization due largely to the continuing pandemic and PTO usage; and $50 million to $100 million from lower pandemic-related travel and the timing of material purchase getting pushed to the right.
As a reminder, the inclusion of the New Year's Eve holiday and minor timing differences in the costing of labor related to the implementation of our next-gen financial management system will become tailwinds in the fourth quarter, adding roughly 175 basis points to the top line.
On the bottom line, we now expect adjusted EBITDA margin for the fiscal year to be approximately 11%.
This increase reflects our considerable control over our cost structure and margin levers even in times of uncertainty.
We are reaffirming our adjusted diluted earnings per share guidance to be between $4.10 and $4.30.
We now expect operating cash to be between $700 million and $750 million.
The incremental step-down follows our expectations for lower top line growth and accounts for the $56 million of onetime payments in connection with the Liberty acquisition, which we had anticipated being able to make up through a combination of working capital management and operating performance.
As I mentioned, we will remain laser-focused on optimizing our working capital to return to the strong level of cash conversion we have historically delivered to position us ahead of future growth initiatives.
And finally, we continue to expect capital expenditures to be between $80 million to $100 million.
As we move toward our investment thesis, I remain confident in our team's ability to manage through these times of uncertainty as we have proven our ability to do over the years.
We will continue to execute on our near-term growth objectives and remain confident in the long-term trajectory of the business, upholding our role as the industry leader in meeting the high standards our shareholders have come to expect.
With that, over to you, Laura.
Operator, please open the lines.
 Assistant:

Chosen response:
qtrly revenue $2.03 billion, up 6.6%.
qtrly earnings per share $0.95.
qtrly adjusted diluted earnings per share $1.02.
booz allen hamilton - experienced slower than expected revenue growth in q3 due to factors related to covid-19 pandemic, u.s. governmental budget uncertainty.
sees 2022 revenue	growth of 5.7% – 7.2%.
sees 2022 adjusted earnings per share $4.10 - $4.30.