The other point I make is this remarkable consistency we’ve seen, not just over the last nine months, but really I think the last 18 from a labor standpoint has broken some of the historic norms and I think has tended to even out some of the peaks and valleys we see in utilization. And we are very consistently adding 150, 200 heads every month. And it just makes this — it allows the system to work on a more regular basis.
Cai von Rumohr: Great answer. Thank you.
Operator: Thank you. And one moment for our last question. And it comes from Matt Akers with Wells Fargo. Please proceed.
Matthew Akers: Hey, guys. Good morning. Thanks for the question.
Horacio Rozanski: Good morning.
Matt Calderone: Good morning, Matt.
Matthew Akers: So, I have a follow-up, I guess one more on the hiring. Is there a headcount growth number baked into your long-term 5% to 8% organic growth number? And based on what you’re seeing, do you think, I guess, into 2025, maybe we still come in ahead of that based on some of the strengths you’ve talked about?
Matt Calderone: Yeah. Thanks Matt. And I’ll actually tie this question together with a piece of what Sheila asked. We have said historically that for us to hit our growth targets, we aspire to have our LTM book-to-bill in the 1.2 to 1.3 range and our headcount in, let’s say, the mid-single digits. And obviously, we’re ahead of the mark on both measures. So, our LTM book-to-bill is 1.41 times and our annualized headcount growth is above 9% on the client staff. And if you look just over the first nine months, we’re above 6%, which, again, is above historic targets and above our expectations for this year. So, we’re not getting ahead of guidance. As Horacio said, we’re acutely aware of some of the political and macroeconomic uncertainty, but there’s a lot of momentum in the business. And we feel very comfortable with where we are.
Horacio Rozanski: Hey, Matt. I love the fact that we’re getting all these questions about talent. I think this is the most important topic. And so, I’ll just maybe take us on a slight detour, and I hope you don’t mind. But there’s a natural tendency to look at companies like ours as a collection of contracts. And I do think, and this call proves it, that misses a little bit of the point. Because what we are is really a collection of people, in fact, more than a collection, an intentional team, purposeful team of people who serve clients leveraging contracts. And so, while the contracts are not important, it’s really the strength of the talent base that we focus on to drive this business forward. And I think that has served us well and will continue to.
Matthew Akers: Thanks. That’s a great color. And I guess one more for Matt on cash taxes. Why did the Section 174 impact go up? And also, I think there’s a bill going through to try to repeal that. Is there a way to think about how much you guys could get back if that happens? Is it kind of a few hundred million that potentially you could get?
Matt Calderone: Yeah. Thanks Matt. Three things happened this quarter with taxes, two of which are pretty straightforward, and one of which is a little more complex. So, why don’t I go through them in turn and answer your explicit question. First, we saw about $11 million benefit related to a foreign tax credit once we filed our 2023 tax returns. This is largely what drove us to reduce our full year ADEPS tax rate to 22% to 23%. Now, second, getting to 174, two things happened. We increased our estimated 2024 cash taxes related to 174 by about $125 million, from $100 million to $125 million. And that’s really because we completed a thorough contract-by-contract analysis of the 174 impact. And we baked that $25 million into our cash guidance.
And then lastly, based both on the contract review as well as the increased clarity from the IRS that we all received on the scope of 174, we rehearsed on a certain tax position that we began recording last Q4, and there was a knock-on effect to that tax position where we had decreased our GAAP tax — we decrease our GAAP tax provision beginning in Q4 last year. We actually reversed that this quarter. We adjusted both of those out to provide a better view of what our steady state tax rate would be. So that’s the explicit reason. We did a contract-by-contract review. If you take a step back, it’s simply the size of our growth, right? And we’re investing consistent with that growth is what drove our 174 tax expectations up for this year. With respect to what’s happening on the Hill, we’re obviously tracking it.
Over time, you’d expect it to be completely reversed. Does it come in the form of a refund or credits? I don’t think we know at this stage how — whether it will happen, and if so, how it would be implemented. But ultimately, we would get all that cash back, and that would be used to further our capital deployment objectives.
Horacio Rozanski: Just to make one quick point as we close off, and Matt said this, but I just want to double click on it because this 174 topic is complex, to say the least. I just want to make it clear the outperformance that we had this year was almost entirely driven by exceptional top line performance, exceptional margin performance, and really good cost management that has delivered the results that you’re seeing through the first nine months.
Matthew Akers: Got it. Thank you both.
Operator: Thank you. And this concludes the Q&A answer period. I will turn back to Horacio Rozanski for final comments.
End of Q&A:
