Booz Allen Hamilton Holding Corporation (BAH) Earnings

Management highlights

### Leadership Updates - New CFO Troy Lahr joined the company this month, bringing over 25 years of financial leadership experience across the defense industry, most recently as CFO of Sierra Space and previously CFO of Boeing's defense, space and security business. - COO Christine Martin-Anderson has assumed the additional role of President, recognizing her 20+ years of growth leadership at the firm. ### Strategic Transformation Progress - FY26 was the most challenging year for Booz Allen as a public company, marked by unprecedented civil segment headwinds and broad market changes. Management executed strong cost discipline while continuing to invest in future growth, and profitability exceeded revised expectations. - Outcome-based contracting growth: OTA proposal submissions increased nearly 90% year-over-year, and OTA awards increased approximately 50% year-over-year. - Accelerated development of differentiated tech offerings across core growth vectors, including the VELOC cyber suite and Edge Extend product lines. - Built a new opportunity pipeline via strategic partnerships with NVIDIA, AWS, Andreessen Horowitz portfolio companies, and Booz Allen Ventures. ### 2027 Strategic Agenda - Accelerate organic and inorganic growth in cyber and defense tech, with a focus on monetizing the company's large intellectual property portfolio. - Integrate AI and agentic AI across all operations, existing client work, new opportunities, and internal infrastructure. - Accelerate go-to-market for next-generation technologies including physical AI, quantum computing, 6G, and AI RAN. - Maximize value from the company's unique network of tech partnerships and venture capital investments. ### Operational Priorities for FY27 - Capture significant existing growth opportunities in cyber and defense tech. - Drive profit growth by scaling product offerings and expanding go-to-market capacity. - Become a leader in new outcomes-based procurement models and opportunities. - Accelerate momentum in the civil segment by capturing existing pipeline and integrating new tech into critical client missions. ### Cyber Growth Initiatives - Demand for AI-enabled cyber solutions is growing rapidly, driven by the increasing speed and scale of AI-driven cyber attacks. Management is compressing the product launch timeline for the VELOC agentic cyber suite, moving all four planned releases from an 18-month timeline to H1 FY27 to meet current market demand, with products already in customer beta testing. - Recent acquisition of DeFi Security scales commercial cyber product sales and expands market reach. - Key development areas include automated adversarial emulation of the cyber kill chain for threat research and next-generation defense, and AI-enhanced zero-trust capabilities to contain adversary movement after compromise.

Guidance

- Full fiscal year 2027 revenue is guided to a range of $11.2 billion to $11.7 billion, with the impact of recent divestitures and acquisitions roughly netting out. Growth is expected to be weakest in the first quarter, with sequential improvement throughout the year. - National security segment is expected to grow mid-single digits, while the civil segment is expected to decline by high single digits for the full year, with the largest declines in the first half due to challenging year-over-year comparisons. - Adjusted EBITDA is guided to a range of $1.24 billion to $1.29 billion, implying a full-year adjusted EBITDA margin of approximately 11%, consistent with FY26 performance. - Adjusted diluted EPS is guided to a range of $6.00 to $6.35. The guidance does not include potential unrealized gains from strategic venture investments, which contributed 11 cents per share to adjusted EPS in FY26. - Full year free cash flow is guided to a range of $825 million to $925 million, which includes estimated expenditures for the new Reston headquarters. The guidance does not include the previously disclosed $170 million IRS refund, which is now expected to be received in FY2028.

Segment performance

Full fiscal year 2026 gross revenue was $11.2 billion, a year-over-year decline driven by weakness in the civil business segment. Full year adjusted EBITDA was $1.2 billion, with an adjusted margin of 11%, and adjusted diluted EPS was $6.51. Full year free cash flow was $951 million, and ending backlog was over $38 billion, with a trailing 12 month book-to-bill of 1.1x. Fourth quarter fiscal year 2026 total revenue was $2.8 billion, a 6.4% year-over-year decline. - National Security segment: Grew 1.6% year-over-year, driven by strong demand for intelligence work. This segment is expected to drive overall company growth in fiscal 2027, with projected mid-single digit full year growth. In Q4 2026, the segment won $1.7 billion in new contracts, and is positioned to expand margins as higher growth cyber and defense tech areas outperform. - Civil segment: Declined 23% year-over-year, driven by comparison headwinds from the PTEMS contract roll-off and run rate reductions on Treasury Department contracts. The segment is expected to decline by high single digits for full fiscal 2027, with the largest declines concentrated in the first half of the year, despite a Q4 2026 book-to-bill of 1.2x.

Risks & headwinds

- Ongoing procurement shifts toward outcome-based contracting create continued near-term uncertainty, as large-scale market change creates implementation friction even as the shifts create long-term opportunity for the firm. - 2027 is a U.S. presidential election year, which creates uncertainty around federal budget timelines, including potential continuing resolutions or delayed budget passage that can impact revenue recognition and funding. - Re-competes in the civil segment are consistently smaller and have shorter performance periods than the contracts they replace, which creates pressure on near-term revenue growth for the segment. - Funding remains choppy compared to historical norms, even with recent improvement, with incremental funding often approved in short increments rather than full multi-period awards. - The civil segment still faces headwinds from last year's contract reductions, particularly at the Treasury Department and DHS budget challenges, and new award volume has not yet been sufficient to fully offset exiting contract declines.

Analyst Q&A

• Q: How is Booz Allen transitioning to revenue growth decoupled from headcount growth, and how should investors interpret the improving funded backlog trend? /

  A: Over time, productivity improvements from operational changes, the shift to outcome-based and fixed-price contracts, and IP monetization will drive a divergence between revenue growth and headcount growth, leading to faster profit growth than headcount growth. The 50% year-over-year increase in OTA awards and 90% increase in OTA pipeline confirms this trend is accelerating. Funding dynamics have improved steadily quarter-over-quarter over the past year, giving management confidence that wins will translate to revenue more reliably than in FY26. (307 characters)

• Q: What is the pace of contract adjudications across end markets, and have last year's reputational issues with the IRS impacted Booz Allen's ability to bid for new agency work? /

  A: Both funding and award pacing have improved markedly since January 2025, after the government shutdown, with civil bidding activity now robust after months of very low activity last year. Management states it has made significant progress on reputational matters, is in productive contact with all customers, and lets work product speak for itself. The guidance's projection of mid-single digit national security growth reflects that no material lasting impact exists, and re-compete win rates remain consistently high. (352 characters)

• Q: What upside and downside scenarios drive the FY27 revenue guidance range, and what is the expected shape of growth throughout the year? /

  A: Guidance reflects the most likely budget and demand scenarios, and does not include extreme tail cases such as a full $1.5 trillion defense budget. While national security demand is strong and expected to pick up in the second half, the first half will face significant comp headwinds in the civil segment. Overall growth will be negative in the first half, with sequential improvement throughout the year, leading to stronger growth in the second half as civil demand gains momentum. (321 characters)

• Q: How is the mix of fixed-price vs cost-plus contracts evolving, and what impact does this have on FY27 margin expectations? /

  A: Booz Allen is seeing a steady shift toward fixed-price and outcome-based contracts, particularly in the national security portfolio, accelerated by recent White House executive orders and expected OMB guidance pushing government customers toward this model. Margins are generally higher on well-executed fixed-price work. For FY27, margin headwinds from civil segment decline and increased R&D investment in cyber and defense tech are offset by cost reductions, better execution, and a favorable business mix, leading to a stable 11% full-year margin outlook. (368 characters)

• Q: How much of the $150 million annualized cost reduction target is retained by the firm, and when will the full benefit be realized? /

  A: Approximately 40% of cost reductions are retained by Booz Allen, with the remaining 60% increasing competitiveness in cost-plus contracts by lowering bid prices. Only one-third of the full annual benefit was realized in FY26, with the remaining two-thirds of the savings set to flow through to results in FY27. Management is using the retained savings to fund accelerated organic and inorganic investment in high-growth areas like cyber and defense tech. (309 characters)