Booz Allen Navigates Shutdown, Raises EBITDA Outlook

Date of Call: Jan 23, 2026

Financials Results

• Revenue: $2.6B, down about 6% YOY adjusting for government shutdown impacts
• EPS: $1.63 per diluted share, up roughly 12% YOY; Adjusted diluted EPS up about 14% YOY to $1.77
• Operating Margin: Adjusted EBITDA margin of 10.9%

Guidance:

• Revenue for FY26 expected between $11.3B and $11.4B, impacted by prolonged government shutdown.
• Adjusted EBITDA expected between $1.195B and $1.215B.
• ADEPS guidance raised to a range of $5.95-$6.15 per share.
• Free cash flow expected between $825M and $900M.

Business Commentary:

Cost Reduction and Business Resilience:

• Booz Allen Hamilton executed a cost reduction program, decreasing their run rate spend by approximately $150 million.
• The company successfully navigated the longest government shutdown in history, which pushed some procurements and funding actions, estimated to have a cumulative impact of about $50 million on revenue and $20 million on profit for the full fiscal year.
• The cost actions and shutdown were managed with disciplined cost management, ensuring the business's resilience and capacity to invest in growth.

Transition to Outcome-Based Contracting:

• The company is advancing its transition to outcome-based contracting and product sales, exemplified by the divestiture of a portion of its DARPA business.
• Booz Allen's work on the Thunderdome program transitioned the majority of existing task orders to include a fixed-price component, with recent awards of nearly $100 million in fixed-price work.
• This shift aims to create cost savings for the government and support the company's margin expansion over the medium to long term.

Growth in National Security and Cyber Capabilities:

• Booz Allen's national security portfolio, including defense and intelligence businesses, grew about 4% year-over-year after adjusting for the government shutdown's impact.
• Strong demand was observed for technologies within national security missions, such as a $99 million contract with the Navy's Military Sealift Command.
• The expansion of cyber capabilities is aligned with the increasing need for AI and ML adoption for cyber defense use cases, exemplified by the launch of Velox Reverser.

Partnerships and Strategic Investments:

• The company announced a partnership with Andreessen Horowitz (A16Z), committing up to $400 million in A16Z’s late-stage venture fund.
• This partnership aims to co-create unique commercial tech for national security, public safety, and healthcare missions, leveraging Booz Allen's track record in delivering transformational technology.
• The focus on strategic investments and partnerships with Silicon Valley companies aims to drive innovation and accelerate growth in key technology areas.

Pipeline Growth and Future Outlook:

• Booz Allen's qualified pipeline for fiscal year 2027 stands at nearly $53 billion, up 12% year-over-year.
• This growth is broad-based, with the national security pipeline up 12% and civil up 10% year-over-year.
• The improvement in the demand outlook and pipeline growth is attributed to strong execution, strategic investments, and a focus on high-demand technology areas like AI and cyber defense.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed confidence and optimism, stating 'our performance this quarter and our progress against our three priorities gives me confidence that we are on track operationally and strategically.' They noted 'strong execution,' 'record year-end backlog,' 'qualified pipeline...12% higher,' and 'demand outlook has improved.'

Q&A:

• Question from Colin Canfield (Cantor): As we think about the end market expectations for FY27, is it fair to characterize defense and intelligence as growing with civil flat? And when do you expect the downdrafts to lift on civil in FY27?
  Response: National security growth remains good; civil business is beginning to reignite with double-digit pipeline growth and signs of on-contract activity, though multi-year comps will be challenging.

• Question from Colin Canfield (Cantor): As we think of the multi-year civil setup, how do you think about the level of cuts this year as an opportunity over a multi-year period?
  Response: Civil missions are evolving towards AI-enabled data platforms; delivery track record and specific areas like healthcare, FAA, and Homeland Security present future opportunities.

• Question from Gautam Khanna (TD Cowen): Was wondering if you could talk about the cost reduction plan. How much of that is yet to unfold? And how much was realized in the quarter?
  Response: Cost actions are done, with full impact on profitability felt next fiscal year; Q3 saw little impact, Q4 will see more, resetting margin structure for growth vectors.

• Question from Gautam Khanna (TD Cowen): Could you talk a bit about how things have picked up with respect to pace of contract award activity?
  Response: Funding and awards picked up in December (more than twice Oct/Nov combined) and January started strong, with focus on AI, cyber, defense tech, and co-creating with partners.

• Question from Sheila Kahyaoglu (Jefferies): How much do you think was tied to the shutdown, and how do we even start thinking about a return to growth in that market?
  Response: Civil business has been a year of reset; pipeline is growing, on-contract growth and awards are beginning to unlock, signaling a potential turn.

• Question from Sheila Kahyaoglu (Jefferies): As you think about the way you sell to the government, maybe what are one or two biggest changes you've done to transition the business a bit more?
  Response: Increased commercial partnerships (e.g., A16Z) and driving outcome-based/ fixed-price contracting with customers, expecting bottom-line growth to outpace top line.

• Question from Scott Mikus (Melius Research): Should we expect organic revenue growth to outpace headcount growth going forward? And is that enough to offset pricing pressures on civil recompetes?
  Response: Yes, business is being run more efficiently with technology leverage, revenue and profit per employee increased, a trend expected to continue.

• Question from Scott Mikus (Melius Research): Does the cash tax benefit from this year and change in tax rate impact the expected $170M cash tax refund in fiscal 2027?
  Response: No, but there are other cash tax headwinds next year; the $170M refund is expected, with some tax credit benefit recurring longer-term.

• Question from John Goddin (Citi): What are thoughts on how a company prepares for the possibility of a larger defense budget, like $1.5 trillion?
  Response: Company is already positioned for priorities like cyber, AI, space, and defense tech; investments are aligned, and agility has been built to respond to budget changes.

• Question from Seth Seifman (JPMorgan): Where do you think you can end the year on funded backlog? And will that be enough to allow for growth in fiscal 2027?
  Response: Awards are accelerating; focus is on building momentum for FY27, with strong December/January funding and pipeline supporting growth.

• Question from Seth Seifman (JPMorgan): Are there places in the business where you see increased competition from new players or commercial competitors?
  Response: Competitive set has evolved; company leverages unique tech ecosystem partnerships (e.g., AWS, NVIDIA) to create opportunities and solutions.

• Question from Jonathan Siegmann (Stifel): Just in the past, you’ve highlighted tactical selling and on-contract growth as a challenge. I wanted to clarify whether this has normalized for the entire portfolio or is still below trend.
  Response: Encouraging signs in funding and pipeline; on-contract growth remains important, with a trend toward smaller, more frequent funding.

• Question from Jonathan Siegmann (Stifel): Can you maybe level set what, if anything, we might hear about the company’s role publicly on Golden Dome?
  Response: Active in pursuing space opportunities; expects significant growth in aligned areas, doubling down on growth vectors where mission priorities and capabilities align.

• Question from Tobey Sommer (Truist): Is civil an area that you think would be a source of fiscal restraint if defense growth is very substantial?
  Response: Civil missions are enduring; focus areas may change with administration, but company is agile to respond to reprogrammed funding priorities.

• Question from Tobey Sommer (Truist): Do you expect to utilize the balance sheet more to affect change in the portfolio? And could you talk about the EO and share repurchase?
  Response: Capital deployment priorities unchanged: strategic M&A in growth vectors, strong dividend, share repurchases opportunistic; EO does not negatively apply to Booz Allen.

Contradiction Point 1

Civil Business Recovery and Outlook

The expected timing and nature of civil business recovery shifts from uncertain to defined.

Will defense and intelligence grow with civil remaining flat in FY27, and when do you expect civil downdrafts to lift? - Colin Canfield (Cantor)

2026Q3: The civil business is beginning to reignite, with a double-digit pipeline increase and some movement in work activity... Growth is expected in AI, cyber, defense tech, and commercial partnerships. - [Kristine Martin Anderson](COO)

What assumptions are made regarding the -21% civilian guidance for the rest of the year? - Louie DiPalma (William Blair & Company L.L.C., Research Division)

2026Q2: The civil business is expected to decline in the low 20% range for the year... Growth is anticipated over the medium term. - [Matthew Calderone](CFO), [Kristine Anderson](COO)

Contradiction Point 2

Overall Growth Prospects for FY27

The expectation for near-term organic growth shifts from not being linear to being more defined as a return to growth.

Are defense and intelligence sectors expected to grow while civil remains flat in FY27, and when do you anticipate the civil sector's downdrafts will end? - Colin Canfield (Cantor)

2026Q3: Growth is expected in AI, cyber, defense tech, and commercial partnerships..." "Revenue and profit per employee have increased, a trend expected to continue. - [Kristine Martin Anderson](COO)

Is the strategy logical, can the business grow next year, and if not, when is growth expected? - Colin Canfield (Cantor Fitzgerald & Co., Research Division)

2026Q2: Growth is not expected to be linear... The timing of return to overall growth is not specified, but there are significant building blocks for medium-term optimism. - [Matthew Calderone](CFO), [Horacio Rozanski](CEO)

Contradiction Point 3

Nature and Timing of Civil Business Reset

Contradiction on whether the civil downturn was a gradual shift or a sudden reset.

How do you view the potential for multi-year civil contracts to offset this year's downdrafts and create opportunities for Booz Allen Hamilton over time? - Colin Canfield (Cantor)

2026Q3: Civil has changed, with a delay due to cuts... The focus has shifted... This remains a strength. - [Kristine Martin Anderson](COO)

How much of a headwind remains for civilian revenue, and how quickly can you hire and deploy technical talent requiring clearances? - Mariana Perez Mora (BofA Securities)

2026Q1: The Civil business is now very stable after the Q1 reset. - [Kristine Martin Anderson](COO)

Contradiction Point 4

Timing of Funding Acceleration and Contract Awards

Contradiction on the expected timing of a funding and award pipeline acceleration.

How has the pace of contract award activity increased? - Gautam Khanna (TD Cowen)

2026Q3: Funding and award activity picked up in December (more than twice October/November combined) and January has started strong. - [Kristine Martin Anderson](COO)

Do you expect the usual September funding flush this year amid current uncertainties? - Gautam J. Khanna (TD Cowen)

2026Q1: The company is still planning for an acceleration in funding... Timing remains the key variable. - [Kristine Martin Anderson](COO)

Contradiction Point 5

Characterization and Timing of Civil Business Recovery

Contradiction on whether civil spending has normalized or if recovery is still below trend with challenges ahead.

For FY27, is it accurate to expect growth in defense and intelligence with civil remaining flat, and when will the civil downdrafts subside? - Colin Canfield (Cantor)

2026Q3: The civil business is beginning to reignite, with a double-digit pipeline increase and some movement in work activity... Growth is expected in AI, cyber, defense tech, and commercial partnerships. - [Kristine Martin Anderson](COO)

Could you discuss the low double-digit decline in civil for fiscal 2026, including the catalysts for stability and improvement and when you expect it? - Sheila Kahyaoglu (Jefferies)

2025Q4: The civil decline is due to agencies slowing spending on large tech contracts post-reviews. Recovery hinges on three factors... Procurement is expected to pick up in the second half as agency agendas solidify, leading to growth. - [Kristine Martin Anderson](COO)