Correlations between employee growth and a company’s financial performance in the public market are not always clear, but the relationship between the two certainly exists.
Regardless of whether they are a government provider of technology and services or a manufacturer of defense equipment and systems.
Here’s a snapshot of how Booz Allen Hamilton and L3Harris Technologies explained the human capital landscape in their latest earnings calls with investors on Friday.
Booz Allen Hamilton
Part of CEO Horatio Rozanski’s opening remarks to analysts included the following sentence: “Today I am also pleased to share that we have passed the 30,000 Booz Allen employee milestone.”
This line is important for a company like Booz Allen, which directly ties the hiring and placement of people to clients to the firm’s revenue and profit growth. The number of customer-facing staff at 27,208 was up 4.2% year-over-year for the fiscal second quarter ended Sept. 30.
During Booz Allen’s fiscal second quarter call, Rozanski acknowledged this fact that companies in every industry face — managing costs in this an environment of high inflation is a priority to provide an opportunity for other investments.
In the context of Booz Allen, such investments include investments in talent and technology where the company wants to become a leading integrator for government agencies.
The way Booz Allen emphasizes the speed aspect of its long-term strategy, called VoLT, may also explain how the firm thinks about adaptation and deployment, which has been a priority for Christine Martin Anderson since she became chief operating officer in June.
“One of the things that we’re all focusing on Christine is not just hiring, but the process of going from being hired to getting someone fully paid, which is a process that, frankly, has taken too long a lot of time at Booz Allen,” Rozansky said. good wheel.”
The McLean, Va.-based technology integrator also has some cushion against the effects of inflation, given that the nature of its business is largely 75% cost-plus or time-and-materials. Chief Financial Officer Matt Calderone said that for the most part, “we can pass those (earnings) on” to customers.
“We see it every year. When wages go up, and we’re certainly seeing that this year more than last year,” Calderone said.
For those wondering: Booz Allen has yet to announce an EverWatch integration completed that $440 million acquisition in mid-October after he had to defend it against a Justice Department antitrust suit.
Second-quarter revenue of $2.3 billion was 9.2% higher year-over-year, while profit increased 6% year-over-year to $285.9 million in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Booz Allen raised its full-year sales growth forecast to 8% to 10%, up from its previous guidance of 5% to 9%. Revenue in fiscal 2022 was $8.36 billion.
The firm also raised its adjusted EBITDA to a range of $975 billion to $1.015 billion, up from a prior range of $950 million to $1,000 million. Adjusted EBITDA margin is expected to fall in the high 10% to low 11% range, compared to the previous forecast of mid to high 10%.
Salary is the first and foremost area most of us think about when considering companies investing in their employees, of which L3Harris has approximately 47,000 in the US and around the world.
Benefits are the second-biggest cost item for companies in the labor category, and are now also under a different microscope amid nearly 8% inflation at a four-decade high.
During L3Harris’ third-quarter call on Friday, CEO Chris Kubasik noted that the company’s focus on staffing in 2023 will impact earnings, but that the moves are necessary.
L3Harris will receive a larger pool of merit increases and is keeping health insurance co-pays the same as last year, Kubasik said on the call, which coincides with the company’s current open enrollment period.
“These (actions) cost money and myself and the management team have made a decision that we are going to spend more money on labor and that creates a margin headwind that we will try to reduce. to find a way to take over,” Kubasik told analysts. “But I’d rather make that investment now, keeping the workforce engaged, motivated and focused on the programs they support.”
In its accompanying third quarter investor letter, L3Harris said it has hired nearly 6,000 new employees and about 850 new college graduates so far this calendar year.
The letter also acknowledges the reality of L3Harris’ own industry and many other sectors in 2022: a tightening human capital market, compounded by rising wages and higher attrition across skill levels, in part due to increased labor mobility.
“The management team has been very focused on keeping the workforce engaged and motivated,” Kubasik said. “I think we can all agree that in the last couple of years we have found new ways of working. The downsizing has been tough for, I think, every company, but it seems like this industry in particular seems to have stabilized a little bit.”
As for supply chain dysfunctions Kubasik and his colleagues in the industry have often said that the situation has improved, he said, but it still hasn’t recovered in the way that L3Harris expected. Inflation is also factored into the company’s assumptions for 2023.
Melbourne, Fla.-headquartered L3Harris now sees 2022 earnings down 2% year-over-year, down from a previous forecast of 1% growth, which Kubasik said represents more “delay versus loss of sales”.
The company also lowered its operating margin forecast to 15.5%, down from a previous range of 16 to 16.25%.
Third-quarter sales were up 3% year-over-year to $4.2 billion.