Booz Allen Hamilton Q3 Earnings Call Highlights

Booz Allen Hamilton (NYSE:BAH) reported third-quarter fiscal 2026 results that management said were in line with the company’s revised full-year guidance issued in October, despite what executives described as a prolonged government shutdown and a slower funding and awards environment.

Management highlights and leadership transition

Chairman, CEO and President Horacio Rozanski opened the call by acknowledging the planned transition of Chief Financial Officer Matt Calderone, who is leaving the company on February 1 after more than 23 years. Rozanski said Kristine Martin Anderson, the company’s Chief Operating Officer, will serve as interim CFO in addition to her COO duties while the company searches for a permanent successor.

Rozanski reiterated three priorities the company outlined in October: reducing costs, accelerating a shift toward outcome-based contracting and product sales, and focusing investment on what management called “proving growth vectors” such as cyber, national security, partnerships, and artificial intelligence.

Cost actions and shutdown impacts

Executives said Booz Allen executed the cost-reduction program it previously disclosed, while also navigating what they called the “longest government shutdown in history.” Rozanski said the company supported employees affected by the shutdown so they could return to customer missions when contracts restarted.

Calderone said the shutdown delayed procurements and funding actions and that the company estimates these disruptions will have a cumulative impact of about $50 million on revenue and $20 million on profit for the full fiscal year. He added that in the national security portfolio (defense and intelligence), the shutdown caused approximately $60 million in billable expenses to shift from the third quarter into the fourth quarter.

On costs, Calderone said the company completed actions during the quarter that reduced run-rate spending by approximately $150 million, with most of the profitability benefit expected next fiscal year rather than in the third quarter. In Q&A, management said the cost actions are essentially complete, with limited impact expected in Q4 and “the full weight” expected next fiscal year.

Quarterly financial performance

For the third quarter, Calderone reported gross revenue of $2.6 billion, down roughly 10% year-over-year, and down 7% on a revenue ex-billables basis. He attributed the decline to shutdown impacts, including both lost work and timing shifts. Adjusting for those impacts, he said gross revenue was down about 6% year-over-year, which he described as roughly in line with expectations.

Results differed by market, according to management:

• National security declined about 1% year-over-year, but grew about 4% when adjusting for shutdown-related billable expense timing.
• Civil declined about 28% year-over-year, which Calderone said was anticipated.

Profitability improved versus expectations. Calderone said Adjusted EBITDA was $285 million, representing an Adjusted EBITDA margin of 10.9% for the quarter and also 10.9% through the first three quarters. He said the company expects margins to step down in the fourth quarter due to typical spending patterns and a catch-up in billable expenses.

Net income was $200 million, up 7% year-over-year, while adjusted net income was $215 million, up about 9%. Diluted EPS was $1.63, up roughly 12%, and adjusted diluted EPS was $1.77, up about 14%. Calderone attributed the EPS increases primarily to a lower effective tax rate and a lower share count, partially offset by lower operating profit and slightly higher interest expense.

Calderone also noted a $7 million pre-tax gain from the divestiture of DARPA SETA work, which was excluded from non-GAAP adjusted income and adjusted EPS.

Demand, backlog, and pipeline

Management described awards as “seasonally light” and said the shutdown delayed some funding and shifted award activity into later periods. Third-quarter net bookings were $888 million, resulting in a quarterly book-to-bill ratio of 0.3x and a trailing 12-month book-to-bill of 1.1x.

Calderone said funding was down 32% year-over-year, which contributed to funded backlog falling 10%. However, he said the company ended the calendar year with a record total backlog of over $38 billion, up about 2% from the prior year, and saw a “meaningful pickup” in funding activity in December as customers worked through shutdown-related delays.

Looking ahead, Calderone said Booz Allen’s qualified pipeline for fiscal 2027 stood at nearly $53 billion as of December 31, up 12% from the prior year’s level at the same point. He said pipeline growth was broad-based, with national security up 12% and Civil up 10%.

Cash flow, capital deployment, and updated guidance

Booz Allen ended the quarter with $882 million in cash and a net leverage ratio of 2.5x adjusted EBITDA for the trailing 12 months. Free cash flow for the quarter was $248 million, which included $261 million of cash from operations and $13 million of capital expenditures.

Capital deployment in the quarter totaled $195 million, including $125 million in share repurchases at an average price of $95.16, $67 million in dividends, and $3 million of strategic investments through Booz Allen Ventures. The board approved a quarterly dividend of $0.59 per share, payable March 2 to stockholders of record as of February 13.

For the full fiscal year 2026, interim CFO Kristine Martin Anderson said the company is tightening expectations toward the lower end of its revenue range due to shutdown impacts and adjusting cash flow accordingly, while narrowing the EBITDA range and increasing adjusted EPS guidance. Updated targets include:

• Revenue: $11.3 billion to $11.4 billion
• Adjusted EBITDA: $1.195 billion to $1.215 billion
• Adjusted EPS: $5.95 to $6.15
• Free cash flow: $825 million to $900 million

In Q&A, executives said they were seeing improved funding activity in December and early January, pointed to double-digit pipeline growth in both national security and Civil, and discussed a continued push toward fixed-price and outcome-based work, including efforts tied to the Thunderdome Zero Trust program. They also described ongoing work with commercial technology partners, including a recently announced partnership with Andreessen Horowitz and a commitment to deploy up to $400 million into its late-stage venture fund over the life of the fund.

About Booz Allen Hamilton (NYSE:BAH)

Booz Allen Hamilton Holding Corporation is a publicly traded management and technology consulting firm headquartered in McLean, Virginia. The company provides a wide range of professional services and solutions in strategy, analytics, digital transformation, engineering and cyber security. Its expertise spans from supporting federal civilian agencies to defense, intelligence and homeland security organizations, as well as select commercial industries.

Key offerings include data analytics and artificial intelligence applications, software development and modernization, systems integration, and cyber risk management.