Booz Allen Hamilton Holding Corporation Q2 FY2026 earnings call

Market Bifurcation

• Civil business is in the most challenging market in a generation with procurement environment not recovered and near-term pipeline not restored. National security portfolio has stronger dynamics but still has funding friction.

Growth Vectors

• Focus on cyber, artificial intelligence, war fighting tech, critical national security programs, and tech ecosystem partnerships. For example, cyber business is differentiated with Thunder Dome product, AI is highly in demand, and edge technology is being developed.

Cost Actions

• Reducing costs by accelerating AI use in internal operations, simplifying operating model, and reducing senior ranks; aiming to take out $150 million of cost on an annualized basis.

Contract Conversion

• Working with customers to convert existing contracts and procure new work using outcome-based contracting models to achieve cost savings and margin expansion.

In the second quarter, the company's performance was bifurcated. The civil business saw revenue down 22% year-over-year, exclusive of prior year discrete items, and is expected to decline in the low 20% range for the full fiscal year. The national security portfolio (defense and intelligence programs) was up 5% year-over-year in the quarter, and is anticipated to grow in the mid-single digit range for the full fiscal year. Of the $7.2 billion of gross bookings in the quarter, about 90% were in the national security portfolio.

Revised Guidance

• Lowered top and bottom line guidance for FY 2026. Now expects revenue between $11.3 billion and $11.5 billion, adjusted EBITDA mid-10% range (between $1.19 billion and $1.22 billion), ADEPS between $5.45 and $5.65 per share, and free cash flow between $850 million and $950 million.
• Assumes current funding and procurement trends persist through fiscal year-end, with on contract and new award growth relative to bookings slower than past years. Estimates ~$30 million revenue and $15 million profit loss related to government shutdown if extended through Oct 31.

Risks

• Continued friction in the overall procurement environment, especially in the civil business with delayed return to growth.
• Impact of government shutdown on revenue and profitability.
• Intense competition in civil procurement leading to pricing pressures on large procurements.

Q: Given the shutdown in your high exposure to the federal civilian agency. Many investors were anticipating a guidance reduction. Are you receiving signs and indications that the funding environment for the defense and intel business is actually improving and getting back to normal?

A: National security business is stronger but still has friction; ramp-up of wins expected but slower than historical. The government shutdown backs things up, and the CR will impact, but national security has significant wins though ramp-up will be slower.

Q: For the rest of the year for the civilian guidance of negative 21%, what is assumed in terms of the government shutdown and further cuts to existing programs?

A: Civil business is stable with no additional cuts seen last quarter, but in a competitive procurement environment with pricing pressure. Having great conversations with administration on key priorities, and civil business is stabilized after significant run rate cuts but environment is slow with few new large bids.

Q: How do we think about the business model for Booz longer term, just given pendulums clearly shift and maybe 3 years from now, it will shift back where we're scrubbing our models for national security exposure and saying Civil will grow again double digits?

A: Booz operates in a single P&L to respond to market fast. Technology trends like injecting commercial tech into missions and outcome-based models will continue. Strong partnership with tech ecosystem gives long-term edge, and will continue to take advantage of broad footprint to go where opportunities are.