Q4 2025 Booz Allen Hamilton Holding Corp Earnings Call
And thank you for standing by and welcome to Booz Allen Hamilton's earnings call covering fourth quarter fiscal year 2025 results. At this time all participants are in a listen only mode. Later, there will be an opportunity for questions I'd now like to turn the call over to the head of Investor Relations Dusty.
Aaron Berg: And Aaron Berg.
Thank you.
Speaker Change: And thank you for joining us for Booz Allen's fourth quarter fiscal year 2025 earnings call.
We hope you've had an opportunity to read the press release, we issued earlier this morning.
Aaron Berg: We have also provided presentation slides on our website and are now on slide two.
Speaker Change: With me today to talk about our business and financial results are Horacio Rozanski, Our chairman Chief Executive Officer, and President Matt.
Aaron Berg: Matt Calderon, Executive Vice President and Chief Financial Officer.
Speaker Change: And Kristine Martin Anderson, Executive Vice President and Chief operating Officer.
Speaker Change: As shown on the disclaimer on slide three please keep in mind that some of the items. We will discuss this morning are forward looking and may relate to future events or our future financial performance and involve known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from four.
Speaker Change: Casted results discussed in our SEC filings and on this call.
Speaker Change: All forward looking statements are expressly qualified in their entirety by the foregoing cautionary statements and speak only as of the date made.
Speaker Change: Except as required by law, we undertake no obligation to update or revise publicly any forward looking statements, whether as a result of new information future events or otherwise.
Speaker Change: During today's call. We will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors.
Speaker Change: We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our fourth quarter fiscal year 2025 earnings release and slides.
Speaker Change: Number is presented maybe rounded NSX <unk> may vary slightly from those in our public disclosure.
Speaker Change: It is now my pleasure to turn the call over to our chairman CEO and President Horacio Rozanski, we are now on slide four.
Dustin: Thank you Dustin.
Speaker Change: Welcome everyone and thank you for joining the call today.
Speaker Change: Christine Matt and I are proud to share our strong financial results for fiscal year 2025.
Speaker Change: Well as our outlook for fiscal year 2026 and beyond.
Speaker Change: And I'm happy to welcome Christine to the Q&A portion of the earnings call.
Speaker Change: Booz Allen delivered a strong year of topline and bottom line growth in FY 'twenty five.
Speaker Change: We also reached $131 billion to $5 billion of adjusted EBITDA.
Speaker Change: This exceeded the top end over ambitious target range, we set at our Investor day.
Speaker Change: 2021.
Speaker Change: And represent 12% compounded EBITDA growth.
Speaker Change: Nearly all organic over our investment thesis period.
Speaker Change: I am incredibly proud of the people of Booz Allen.
Speaker Change: Their dedication and hard work over the past three years.
Speaker Change: These results are a credit to them.
Speaker Change: Through a changing landscape the remains focused on delivering outcomes.
Speaker Change: I'm, bringing their passion and commitment to America's most essential missions.
Speaker Change: A heartfelt thank you to our colleagues for all you do for our company and for our nation.
Speaker Change: To frame the conversation about fiscal year 2026.
Speaker Change: Let me reiterate what I mentioned on the October earnings call.
Speaker Change: All presidential transitions create some degree of near term disruption followed by opportunity.
Speaker Change: Half a year later.
Speaker Change: We now see that these dynamics are indeed in play at a rate and speed that is beyond what we originally expected.
Speaker Change: As the Trump administration and focuses on reducing government spending.
Speaker Change: Increasing efficiency and re imagining agency missions.
Speaker Change: Booz Allen must once again adapt and accelerate.
Speaker Change: Let me begin by describing the current environment as we experience it.
Speaker Change: The federal government is rethinking agency missions.
Speaker Change: Finding ways to accomplish those missions differently and looking for ways to reduce spending and increase efficiency.
Speaker Change: To get there.
Speaker Change: We are seeing agency reorganizations reductions in government personnel on spending levels as well as contract reviews.
Speaker Change: These are especially acute in civilian agencies and as a result, we are seeing a decrease in the pace of awards in civil.
Speaker Change: As well as run rate changes in some of our contracts.
Speaker Change: At the same time.
Speaker Change: The government is leading initiatives to improve procurement regulations from practices.
Speaker Change: Such is the revision of the federal acquisition regulation or far.
Speaker Change: And we expect to see more contracts move to fixed price and outcome based.
Speaker Change: We also see a focus on massively upgrading legacy systems and rapidly injecting advanced technology into revised missions.
Speaker Change: These present, great opportunities for more impact and increase value to the government as.
Speaker Change: As well as stronger financial performance for Booz Allen.
Speaker Change: Okay.
Speaker Change: In combination. These dynamics are currently impacting booz Allen's view of FY 'twenty six.
Speaker Change: We believe that our defense and National security portfolio will continue to grow this year as we accelerate the injection of AI and commercial technology intermissions.
Speaker Change: In contrast.
Speaker Change: We expect our civil business to decline this year.
Speaker Change: Okay.
Speaker Change: Diving more into civil.
Speaker Change: Our largest contracts have been reviewed.
Speaker Change: We are proud that our solution stood up well.
Speaker Change: Our contracts are mostly intact.
Speaker Change: Their work is excellent.
Speaker Change: And the emissions are critical.
Speaker Change: Having said that.
Speaker Change: The run rate on five large technology contracts has been reduced significantly in support of the administration's desire to reduce spending overall.
Speaker Change: This slowdown coincided with the ending of a large technology contract at the V. A.
Speaker Change: Together this led to a significant number of employees needing to be redeployed simultaneously.
Speaker Change: Under normal circumstances, and as our history shows the dynamism of our business typically allows us to move our highly skilled talent quickly to new opportunities.
Speaker Change: But at a time when procurements are moving much slower than normal this has been challenging.
Speaker Change: As we proactively anticipate continued market and budget dynamics, we have made the decision to restructure and reset our civil business.
Speaker Change: We are making targeted cost and head count reductions to match anticipated demand.
Speaker Change: These are a combination of reductions in bench delayering of management and adjusting our infrastructure to match.
Speaker Change: These decisions are difficult.
Speaker Change: And they are not taken lightly.
Speaker Change: Our actions are very targeted and.
Speaker Change: And we believe that they will preserve and enhance our ability to invest.
Speaker Change: Both in our business and in our people.
Speaker Change: Okay.
Speaker Change: Matt will cover all the details of our FY 'twenty outlook in a few minutes.
Speaker Change: Now, let me talk more about the opportunities on the horizon, especially those being created through our close collaboration with a general services administration or GSA.
Speaker Change: GSA wanted to explore ways they could transform on centralized government procurement.
Speaker Change: They began a contract review exercise looking for efficiencies cost savings and opportunities to bring in new tech like AI.
Speaker Change: We were in the first group of companies to take part in that exercise, which has since expanded to include many more companies in our industry.
Speaker Change: I'm proud to say the GSA on Booz Allen have built a very productive relationship.
Speaker Change: I want to highlight two specific outcomes of our efforts.
Speaker Change: First.
Speaker Change: He got to know us better.
Speaker Change: They now understand the value we deliver across a full range of missions.
Speaker Change: This is important because GSA and the federal acquisition service or pass will be driving an efficiency agenda across government for the foreseeable future.
Speaker Change: Including the consolidation of services and acquisition processes.
Speaker Change: And second we have a unique opportunity to offer fast or thoughts on how to accelerate the move to outcome based procurement and bring adjourn teekay I capabilities to enable these conversions.
Speaker Change: For years I have argued that the move to outcomes was necessary for the federal government.
Speaker Change: GSA and fast understand this and are leading the way.
Speaker Change: We are optimistic that a process that could have taken a decade or more will be accelerated during this administration.
Speaker Change: We believe a more efficient government will buy differently more commercial technology more outcomes streamline processes and greater speed.
Speaker Change: And looking ahead, we anticipate these procurement improvements will set a foundation for a new kind of growth.
Speaker Change: We are committed to moving fast and dose directions.
Speaker Change: So that we can both held these initiatives succeed and be successful ourselves.
Speaker Change: Yeah.
Speaker Change: We're optimistic about the opportunities ahead, because our volt strategy, which stands for velocity viewership on technology is aligned with the changes we are seeing across government.
Speaker Change: We have a leading position in the major technologies that will drive mission acceleration and efficiency.
Speaker Change: Especially AI.
Speaker Change: We have a track record of building successful partnerships with technology firms of all sizes.
Speaker Change: From startups to Hyperscale.
Speaker Change: And we have strong positions and are working nonstop to create value in the areas that matter most.
Speaker Change: From reducing duplication and cost to increasing readiness and Lasalle 84, the warfighters defending our nation.
Speaker Change: Let me provide some color in each area.
Speaker Change: Starting with artificial intelligence, there is significant demand and that demand is only increasing.
Speaker Change: In FY 'twenty five our AI business grew over 30% year over year.
Speaker Change: To approximately $800 million.
Speaker Change: As AI becomes increasingly foundational to how the government operates age.
Speaker Change: Agencies are investing more and moving to our enterprise scale implementation.
Speaker Change: In defense and intelligence AI is now embedded in mission workflows.
Speaker Change: Enabling faster imagery analysis through computer vision.
Speaker Change: And housing decision, making through tailored generative models.
Speaker Change: And delivering autonomous solutions at the tip of the spear.
Speaker Change: With more than a decade of investment enhancement implementation experience Booz Allen is well positioned to lead the next phase of AI transformation across the federal enterprise.
Speaker Change: Next we are strengthening private sector partnerships and are proud of the leader in the advanced technology ecosystem.
Speaker Change: We are building on our proven track record of accelerating the adoption of technologies that produce impactful mission outcomes.
Speaker Change: We recently announced we are combining our expertise in AI and five and six G with Nvidia transformative technologies to accelerate the delivery of edge applications.
Speaker Change: We also continue to invest in early stage technology companies through Booz Allen ventures, we'd.
Speaker Change: We believe that we are stronger together.
Speaker Change: Which is why we will continue developing our technologies and combine our strength with others.
Speaker Change: Lastly, we are continuing to share our big ideas working in partnership with our customers and the private sector.
Speaker Change: For example.
Speaker Change: We are talking to multiple agencies about cloud migration and consolidation.
Speaker Change: We have big ideas for transitioning thousands of data centers to a cloud based architecture to make data more accessible.
Speaker Change: The private sector has already done this and we've seen that it's more efficient cheaper and more secure.
Speaker Change: All of which aligns with the administration's vision.
Speaker Change: Yeah.
Speaker Change: Importantly.
Speaker Change: Making data more readily available is also crucial for our warfighters because it allows us to apply advanced AI tools to increase their readiness and lithology.
Speaker Change: One way we're doing this is by collaborating with United States Army.
Speaker Change: We are building an AI enabled take tactical software system.
Speaker Change: Two more quickly recognize targets and generate cold for fire missions.
Speaker Change: The prototype can reduce the time to respond to threats from 15 minutes to one minute.
Speaker Change: The bottom line is this.
Speaker Change: We understand our customers' mission needs and we have the technical expertise to deliver solutions that not only meet those needs, but also anticipate what's next.
Speaker Change: That gives me great confidence in Booz allens ability to maximize the opportunities ahead.
Speaker Change: And provide the advanced technologies American needs to thrive.
Speaker Change: So in this period of transformation for Booz Allen our nation, we will accelerate by focusing on the following operating priorities for FY 'twenty six.
Speaker Change: We are resetting and restructuring our civil business. So.
Speaker Change: So it returns to growth rapidly after an adjustment period in the coming months.
Speaker Change: We are positioning ourselves to lead the way and capture a major outcome based opportunities.
Speaker Change: This includes re imagining how we deliver our work such as using AI to accelerate software development increase our value and reduce cost to the government.
Speaker Change: We are directing significant resources to the areas that will best position us for growth.
Speaker Change: This includes missions in Indo pay com and space as.
Speaker Change: As well as critical technologies like <unk> quantum and software defined communications.
Speaker Change: We are rapidly advancing our partnerships with established technology firms and new entrants.
Speaker Change: This entails going to market together to provide novel solutions.
Speaker Change: As well as becoming they're scaling partner as they capture demand across our broader markets.
Speaker Change: Okay.
Speaker Change: And finally, we are continuing to create efficiencies in our own business. So we can move faster invest more and realize greater shareholder value even in a volatile environment.
Speaker Change: To wrap things up I hope they will take three things away from my remarks. This morning.
Speaker Change: First and foremost.
Speaker Change: Alan is not standing still to see what happens next we are moving aggressively to lead the way in a changing market.
Speaker Change: Second.
Speaker Change: We are strategically advantaged.
Speaker Change: We have been investing ahead of these changes both in our own positions and in the critical partnerships that will be required.
Speaker Change: And third.
Speaker Change: We're on the side of change we are committed to America's priority missions and to enabling a more nimble and efficient federal government.
Speaker Change: For all these reasons.
Speaker Change: And while recognizing that there are challenges ahead. The people of Booz Allen are energized and we are optimistic.
Speaker Change: We are ready.
Speaker Change: To meet this moment.
Speaker Change: And with that Matt.
Speaker Change: Over to you.
Speaker Change: Thank you Horacio.
Speaker Change: Morning, everyone.
Speaker Change: I also wanted to take a moment to express my sincere appreciation for the hard work and dedication of Booz Allen's people.
Speaker Change: We are in a period of rapid change.
Speaker Change: Technology is changing our emissions are changing and our customers are changing.
Speaker Change: Booz Allen's people continue to lean into this change.
Speaker Change: They are rising to the challenge of transforming Booz Allen and delivering the technology and mission outcomes that this country needs.
Speaker Change: I am confident that Booz Allen will continue to deliver significant value to our customers our nation.
Speaker Change: And our shareholders.
Speaker Change: We said on our most recent earnings call that we anticipated a period of short term disruption and a slowdown in the procurement environment.
Speaker Change: Particularly in our civil business.
Speaker Change: And that this would be closely followed by meaningful new growth opportunities.
Speaker Change: Yeah.
Speaker Change: In his remarks crosshair described both the disruption and the ample opportunity we are experiencing.
Speaker Change: You will see the impact of these two dynamics, which are beginning to overlap and are not playing out evenly across our markets in both our results for the fourth quarter of fiscal year 2025, and our guidance for fiscal year 2026.
Speaker Change: Before we dive into the quarter I'd like to cover the highlights of our overall performance for fiscal year 2025.
Speaker Change: Please turn to page five.
Speaker Change: For the full fiscal year.
Speaker Change: We delivered over 12% revenue growth nearly all of it organic.
Speaker Change: We ran the business sufficiently enabling us to deliver another year of double digit profit growth.
Speaker Change: Our adjusted EBITDA increased 12% to $1.315 billion.
Speaker Change: This yielded an adjusted EBITDA margin of 11%.
Speaker Change: Adjusted diluted earnings per share grew over 15% driven by increased profitability and a lower share count.
Speaker Change: We generated robust free cash flow of $911 million.
Speaker Change: We deployed a total of $1.2 billion of capital to generate shareholder value, including repurchasing about four 3% of our shares outstanding since the beginning of the fiscal year.
Speaker Change: We did this while maintaining a net debt to adjusted EBITDA ratio of 2.4 times.
Speaker Change: And finally as Horacio noted with this performance we exceeded the ambitious multiyear investment thesis targets, we put out at our 2021 Investor day.
Speaker Change: This was done almost entirely through organic performance and leaves us ample balance sheet capacity to generate incremental shareholder returns in the future.
Speaker Change: In summary.
Speaker Change: We delivered yet another excellent fiscal year.
Speaker Change: I will now turn to our fourth quarter performance.
Speaker Change: In the fourth quarter, we delivered solid results.
Speaker Change: For the quarter topline revenue grew 7% year over year to $3 billion.
Speaker Change: Most all of this was organic.
Speaker Change: Revenue, excluding billable expenses was up 6% year over year.
Speaker Change: For the fourth quarter growth was driven by strong performance in our defense and Intel businesses, where revenue was up 14% and 5% respectively versus the prior year.
Speaker Change: Our defense business continues to deliver cutting edge technical and mission outcomes that are critical to the warfighter and to our nation's efforts to deter our adversaries.
Speaker Change: Our Intel business continues to gain momentum as we are solving some of the nation's most challenging technical and intelligence problems.
Speaker Change: We anticipate that both our defense and Intel businesses will continue to exhibit strong organic growth in.
Speaker Change: In fiscal year 2026.
Speaker Change: For the past few quarters, we've described the slowdown in the civil procurement and spending environment.
Speaker Change: Over the last few months these trends accelerated.
Speaker Change: Since the beginning of April we have seen a reduction in run rate on five of our large civil technology projects that we believe will collectively create about a 3% headwind to firm wide revenue for fiscal year 2026.
Speaker Change: As Rajiv noted these forces have limited our ability to redeploy staff in the near term, including talent Rolling off one of our civil contracts that ended last fiscal year. The previously disclosed recompete that we lost at the V. A.
Speaker Change: The impact of this loss now represents an additional approximately 3% headwind to our consolidated top line for FY 'twenty six.
Speaker Change: As a result of these factors year over year revenue in civil was flat in the fourth quarter.
Speaker Change: And we now anticipate that our civil business will see a revenue decline in the low double digits in FY 'twenty six.
Speaker Change: However, we do anticipate our civil business will rebound as a number of big transformation and efficiency initiatives for our civil customers are already beginning to take shape.
Speaker Change: Pivoting now to demand net bookings for the quarter totaled $2.1 billion.
Speaker Change: Bolting in a quarterly book to Bill of 0.71 times in line with historical averages.
Speaker Change: This brought our trailing 12 month book to Bill to 1.39 times.
Speaker Change: Above our trailing five year average of 1.28 times.
Speaker Change: We ended the year with a record year end backlog of $37 billion up 15% year over year.
Speaker Change: Our qualified pipeline for fiscal year 2026 is $53.4 billion.
Speaker Change: This is below our record qualified pipeline for fiscal year 2025, but importantly is higher than our pipeline for fiscal year 2024.
Speaker Change: Given market dynamics in the short term, we anticipate that there will be more variability and converting bookings to revenue than we have seen in previous years.
Speaker Change: That said, we believe we have the backlog the pipeline and the big ideas for customer transformation needed to support our medium and long term growth aspirations.
Speaker Change: On the talent front who's on closed the fiscal year with nearly 36000 employees.
Speaker Change: Our customer facing staff grew four 2% year over year.
Speaker Change: Due to the contract impacts we've described we anticipate that we will see an approximately 7% reduction in Booz Allen staff in the first quarter.
Speaker Change: This is very heavily concentrated in our civil business.
Speaker Change: We are moving aggressively to rightsize, our talent base, both to match immediate contract level demand and to reshape our workforce for the future.
Speaker Change: This decision was painful.
Speaker Change: But by taking this action we have ensured we have both the capacity to invest in growth and the right talent to deliver against future mission needs.
Speaker Change: Turning now to profitability.
Speaker Change: Adjusted EBITDA grew to $316 million up 10, 5% over the prior year quarter.
Speaker Change: This translated to an adjusted EBITA margin of 10, 6% up 30 basis points over the prior year's quarter.
Speaker Change: Working down the P&L, our net income was $193 million, 51% higher year over year.
Speaker Change: And adjusted net income was $203 million up 17% from this time last fiscal year.
Speaker Change: Diluted earnings per share was $1 52 per share a 55% increase from the prior year period.
Speaker Change: Adjusted diluted earnings per share was $1 61 per share up 21% year over year.
Speaker Change: The increase in fourth quarter, eight apps was driven by our overall profitability a reduction in share count and a gain from the close of the sale of snap attack.
Speaker Change: This was slightly offset by higher net interest expense.
Speaker Change: Transitioning to the balance sheet, we ended the fiscal year with $885 million of cash on hand.
Speaker Change: Net debt of $3 $1 billion and our net leverage ratio of 2.4 times adjusted EBITDA for the trailing 12 months.
Speaker Change: During Q4, we executed a $650 million bond issuance.
Speaker Change: This transaction was well received by the credit markets and provides us with additional liquidity and the capacity to Opportunistically deploy capital.
Speaker Change: Free cash flow for the quarter was $194 million. The result of $218 million of cash from operations less $24 million of Capex.
Speaker Change: Moving now to capital deployment.
Speaker Change: During the quarter, we deployed a total of $403 million to generate value for shareholders.
Speaker Change: This included $310 million in share repurchases at an average price of $118 96 per share.
Speaker Change: We also made $23 million in strategic investments, including our recently announced investment in shield AI.
Speaker Change: And finally, we paid $70 million in quarterly dividends.
Speaker Change: Today, we are pleased to announce that our board of directors has approved a quarterly dividend of 55 per share, which will be payable on June 27th to stockholders of record as of June 11th.
Speaker Change: We continue to have a very strong balance sheet.
Speaker Change: This gives us flexibility in how we operate our business.
Speaker Change: And the ability to deploy capital in response to the evolving environment in ways that generate additional value for shareholders.
Speaker Change: Now please turn to page nine we provide our outlook for fiscal year 2026.
Speaker Change: As Raphael acknowledged today's environment is extremely dynamic.
Speaker Change: We have less visibility into the forces that will shape business performance than we typically have at this point in our fiscal year.
Speaker Change: Our fiscal year 2026 outlook is informed by our current assessment of the many factors that will drive performance.
Speaker Change: This includes anticipated growth in our defense and Intel businesses, and our near term reset of our civil portfolio.
Speaker Change: Our fiscal year 2026 guidance is as follows.
Speaker Change: We expect to deliver revenue between 12 billion and $12 5 billion.
Speaker Change: We expect to generate adjusted EBITDA dollars and the range of $1 315 billion to $1.37 billion.
Speaker Change: This implies a full year adjusted EBITDA margin of about 11% on par with fiscal year 2025.
Speaker Change: We expect <unk> to be in the range of $6 20 per share to $6 55 per share.
Speaker Change: This assumes an adjusted effective tax rate between 23, and 25% as well as the marginally higher interest expense.
Speaker Change: It does not assume any impact from our venture investments.
Speaker Change: Lastly, we expect free cash flow to be between $700 million and $800 million.
Speaker Change: As we forecast our growth cadence for the full year, we anticipate that revenue and profit growth will be comparatively lower than the first half, particularly in our second quarter given the strong prior year comps and the impact of the onetime actions. We have described today.
Speaker Change: We then anticipate a meaningful reacceleration in the second half.
Speaker Change: This is based on the strength of our backlog.
Speaker Change: The size of significant recent wins in our opportunity pipeline.
Speaker Change: And the expectation of a meaningful uptick in hiring.
Speaker Change: In closing, we could not be prouder of how we finished fiscal year 2025, the final year of our investment thesis.
Speaker Change: Our results show, our relentless focus on the mission on operational excellence and on generating shareholder value.
Speaker Change: Booz Allen continues to transform.
Speaker Change: While cognizant of the uncertainty in our environment.
Speaker Change: We are excited about our strategic direction.
Speaker Change: Our alignment to the government's mission priorities and our central position in the evolving technology ecosystem.
Speaker Change: We remain very optimistic about the future.
Speaker Change: With that operator, let's open the line for questions.
Speaker Change: Thank you and as a reminder to ask a question simply press star one on your telephone and wait for your name to be announced to remove yourself press star one again.
Speaker Change: One moment for our first question.
Speaker Change: And he comes from the line of Gavin Parsons with UBS. Please proceed.
Speaker Change: Hey, Thanks, guys good morning.
Speaker Change: Good morning.
Speaker Change: In this environment.
Speaker Change: Predictable I guess D scoping and cancellations, how do you get comfortable that you're kind of you've got your arms around the impact and that there's potentially more to come throughout the year.
Speaker Change: Hey, Gavin Thanks for the question, let me try and frame our the entirety of what we see in a try and answer your question from that perspective.
Speaker Change: I'll start by saying you know.
Speaker Change: Very proud of the last year very proud of the last three years and our ability to demonstrate.
Speaker Change: Significant shareholder value creation through what was already a changing environment.
Speaker Change: You know as we look at the World now we are seeing two sets of overlapping dynamics.
Speaker Change: One set of dynamics is as we said in the prepared remarks, our civil business is going through this what we hope we believe will be a one time reset.
Speaker Change: Where most of the reviews have been concluded very positively regarding our technology and our work.
Speaker Change: But what we're facing this deceleration at a time, where procurements are still somewhat frozen. The other side of this dynamic is continued strength in our defense business and growing strength in our intelligence business. So that's sort of one set of dynamics and the other dynamic is while we are.
Speaker Change: C. A M. We have seen especially in civil some of these.
Speaker Change: Ah resets.
Speaker Change: Which by the way it was mostly as we pointed out that the the slowdown in spending against a few technology contracts there have been relatively few and far between call. It 1% of our portfolio that that has been outright canceled and that really tracks to what the 1% of our portfolio that we deem.
Speaker Change: He was actually consulting type programs, which is really legacy work.
Speaker Change: That we were doing.
Speaker Change: So and then the other side of it is we are beginning well first of all and in defense and Intel were were still winning work against the strong procurement environment than even in civil were beginning to see opportunities take shape that we will take.
Speaker Change: Take advantage also so our approach has been to take a you know.
Speaker Change: Significant restructuring in our civil business now so that we are positioned to grow and so that we can invest across the portfolio where again the one P&L.
Speaker Change: Really helps us and because the environment in defense and Intel is so dynamic and there is you know the procurement activity is still strong.
Speaker Change: We're in a position to absorb things there as well and continue a strong growth vector as we see it right now and then ultimately.
Speaker Change: From a strategy standpoint, as we pointed out we believe we are extraordinarily well aligned and well positioned against both a key missions that key technologies in the major major opportunities we see in the horizon.
Speaker Change: Thank you I'll leave it at one I appreciate it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Colin Canfield with Cantor Fitzgerald. Please proceed.
Speaker Change: Maybe if we could talk about some of the comments you made around kind of reset and what your expectation is on the multi year growth environment, maybe just kind of digging into Hollywood.
Speaker Change: Do you think about kind of.
Speaker Change: Defense and civil and kind of where we stand on the reality of that by 45 soft bristles not quite 26 requested.
Speaker Change: What you're hearing from congressional folks and then also maybe Matt if you could talk about kind of how you think about repurchases and what the bogie is for the year.
Speaker Change: So why don't I start with sort of the macro level and then maybe Christine can talk a little bit about each one of our markets.
Speaker Change: And then.
Speaker Change: Matt will cover the back your second question I guess.
Speaker Change: You know I think the way, we see the environment very much matches the way we're seeing the budgetary.
Speaker Change: Environment right I mean are they the the bill that is making its way through the Senate as we speak.
Speaker Change: Has a significant plus up for defense.
Speaker Change: And and at the same time, the the stated priority about reducing spending discretionary spending on some of the civil agencies and actions that have already taken place as is.
Speaker Change: What we are talking about so you know our our our civil business.
Speaker Change: I think that's already gone through the majority of his reviews.
Speaker Change: In defense and Intel are.
Speaker Change: This is what we're seeing.
Speaker Change: <unk> down on priorities around in the Pacific, where as you know Booz Allen has very strong footprint and a lot of growth opportunity in space. Both in programs that are already underway, where we have strong place and opportunities around Golden Dome, where we believe we are unique.
Speaker Change: <unk> and capability to bring to bear and then the defense of the homeland, which is really around.
Speaker Change: The you know, especially the southern border and which is the integration of not just defense, but defense.
Speaker Change: Intelligence analysis, and certainly the civil agencies that are primarily responsible.
Speaker Change: So and then what they're trying to do there is primarily inject technology a lot of commercial technology agenda.
Speaker Change: The discussion has really moved away from weather AI. It was important to national security to how fast can we implement AI in national Security and Booz Allen again has a tremendous track record there.
Speaker Change: Yeah, I would say for our civil business in particular.
Speaker Change: While there have been some slowdowns in contracts. It really reflects the administration's desire to tackle really big challenges really and advancing the tech even faster and we've been very excited about the opportunity to present, our ideas and so we have developed and are in discussions with the government on tens of big ideas and we're getting.
Speaker Change: Really positive responses and it's actually pretty exciting to be asked to extend some successful event.
Speaker Change: Escalations in one niche until others.
Speaker Change: And we were ready right, we had already been piloting about AI assisted coding in Atlantic AI and large software program and that's almost insatiable and its requirements and we were able to lean into the call for efficiencies and move past the pilot to full production across the program. So it's a win win win for US the government and.
Speaker Change: And the Americans that are served by that program and then also in the defense and Intel.
Speaker Change: This is very strong and we are very aligned with the administration's priorities to counter China and protect the homeland and we are anticipating that our counter terrorism expertise will position us really well and against if sophisticated threat and we have also presented a very big bold ideas there as well.
Speaker Change: Our in discussions around them.
Speaker Change: Okay, well I'll take care of your balance sheet capital deployment question.
Speaker Change: Obviously, the balance sheet continues to be a strength of ours, we deployed 1 billion two last year.
Speaker Change: Basically maintain leverage the strength of our organic growth over the past couple of years allowed us to deploy a lot of capital to generate value for shareholder.
Speaker Change: I think we've demonstrated our ability both to deploy capital consistently across the board, but also to be flexible inside the various ah.
Speaker Change: Modalities of capital deployment to deploy where we think we can generate the most value.
Speaker Change: Yeah, we've shown that we will buy back our shares we believe that it's a good value for shareholders.
Speaker Change: We're still committed to M&A.
Speaker Change: More bias to tuck in than ever given how rapidly the technology market is changing and our need to continue to invest to acquire technologies that are leading edge and will advance and accelerate our strategic objectives I do think you'll see us lean in a little bit more on the venture side as well.
Speaker Change: We've gotten tremendous value where.
Speaker Change: We're beginning to see on the financial side.
Speaker Change: But really on the strategic side from our veteran investments.
Speaker Change: It's part of our long term commitment to be a commercial technology accelerator I think that's one of the macro trends that Horacio and Christine referenced where we've really been at the forefront and I think you'll see us accelerate that as well, but you're.
Speaker Change: Committed to deploying capital share share repurchases, obviously is as an important lever there.
Speaker Change: Got it thank you for the color.
Speaker Change: Thank you for your next question.
Sheila: And he comes from Sheila <unk> with Jefferies. Please proceed.
Speaker Change: Good morning, Raphael, Matt and Christine Thank you.
Speaker Change: And maybe if we could start two questions for you guys and you can hear me okay could.
Speaker Change: Can you talk a little louder to little quiet in the room.
Speaker Change: Oh, sorry about that.
Speaker Change: Maybe if we could talk about the low double digit decline for civil in fiscal 'twenty six.
Speaker Change: How do we think about the catalyst for that stability in the business, we're talking about second half and breathing.
Speaker Change: And.
Speaker Change: <unk> is maybe a few points of that how do we think about other programs specifics that are driving it and when do you think about that improvement in civil again.
Speaker Change: Yeah, the vast majority as Horacio mentioned of our civil programs have already been reviewed and I would remark that we werent targeted and that is our view is what we saw was agencies and departments looking at their full portfolio with targets in mind and whether it was on or off the GSA list. This is at.
Speaker Change: The agency, driven and and our tech and our talent fared really well in those reviews, but there has been a short term slowdown in our the actual burn rates as they start to position for some of the transformation objectives that they have and bringing on new tuck in and.
Speaker Change: So our view overall is that to win in that environment, you need three things to be true one the tech needs to be excellent and we have received really high marks for our technical work and the quality of our people second half to have a vision around how that tech will evolve in a direction that makes sense. The commercial tech leaders that come from outside of government.
Speaker Change: And so for example, our cloud our AI assisted coding and Argentic AI, and then recognize and that is already leading to new opportunities.
Speaker Change: And third you have to be willing to convert your contracts the outcome space, particularly in civil and and we've been a long term champion of that shift because we loved that agility and flexibility that you've got in the tech stack and staffing so that so the pivot part really comes from being able to extend dallas capabilities and to accelerate them.
Speaker Change: The missionary.
Speaker Change: I would the only thing I would add to that and I think you know two thoughts first of all I think were Arafat process is we wanted to do a onetime reset and.
Speaker Change: And restructuring of our civil business. So it can regain a growth trajectory as quickly.
Speaker Change: As possible because of the a lot of it is happening in quarter. It may take you now through next quarter or two to work itself through the financials, but we're beginning as Christine said two two.
Speaker Change: To see the opportunities and then the other thing is as with any new administration.
Speaker Change: Uh huh.
Speaker Change: Did the.
Speaker Change: The procurement environment slowed down significantly almost frozen a number of these agencies.
Speaker Change: I asked because you know the below covenant level positions have not been filled and people were waiting to see what the specific agenda, where now that those are beginning to get flushed out we're getting strong indication that our because our tech works and were sold position against the things that they're trying to do that we're going to see growth in the second half.
Speaker Change: Got it and then maybe if you could just talk about your typical revenue algorithm is usually based on head count and some salary composition. So how do we think about the down 7% in Q1 for head Count I think that was total company.
Speaker Change: How do we bridge that to the revenue of flat to up low single digits.
Speaker Change: Yes sure. Thanks.
Speaker Change: So I'll start and you are correct, 7% was with total company, but very heavily concentrated in our civil business I.
Speaker Change: I think.
Speaker Change: Look our business is changing and there are three dynamics, where our three areas where their critical traditional algorithm.
Speaker Change: They look a little different than what the.
Speaker Change: So what we experienced in the past the first we referenced.
Speaker Change: In our prepared remarks, we're actually winning a lot of work right. Our book to Bill last quarter was 0.7 times very much in line with historical averages and.
Speaker Change: Just to give you a dollar figure that's about a little over $2 billion in work we won and.
Speaker Change: And we're actually we want a lot of work this quarter, particularly in our defense and Intel space, We anticipate.
Speaker Change: Our book to Bill this quarter will be in line, if not better than historic norms. So but the first thing we referenced is the conversion of backlog in bookings to near term revenue I think will be a little bit more variable than we've seen in the past just because.
Speaker Change: Theres less consistency in in sort of in your spending actions that's one.
Speaker Change: The second is with the move to outcome based contracting you know we've talked about that for years, we've been very much an advocate for it it's good for us good for the government.
Speaker Change: Over time, you'd expect that to be accretive to margins and then the third is what you referenced which is the traditional head count math I think you've talked about for the majority of our business that's not fixed price.
Speaker Change: Typically the algorithm is head count growth plus a plus 3%.
Speaker Change: Given that the.
Speaker Change: The prepay.
Speaker Change: Preponderance of.
Speaker Change: The headcount reductions we are seeing the R&R isn't our civil business and that is less.
Speaker Change: It's more fixed price, it's less dependent on billing by the hour I'm not sure you're going to see.
Speaker Change: At exact.
Speaker Change: Yeah.
Speaker Change: You're just talking at a hold exactly to historical equations.
Speaker Change: But you know I.
Speaker Change: I think if you break that math a little bit.
Speaker Change: But it's still a very good predictor at our defense and Intel business head count tends to be the best predictor.
Speaker Change: In the near term of what revenue looks like but when you add it all up particularly given the year over year comps from last year.
Speaker Change: We had a strong first half we do expect our first half this year to be a little bit more under pressure, but to see acceleration in the back half, particularly as as hiring picks up and we get through this period of resetting and rebalancing, yes, I would add that we're always hiring right. We every month, we're adding hundreds of employees and we deal.
Speaker Change: Fact that significant head count in the second half of the year and we have really matured our AI enabled advanced tech solution that we use for recruiting and deployment of staff and so we're looking to be even more effective at that this year.
Speaker Change: Got it thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And he is from the line of Ronald Epstein with Bank of America. Please proceed.
Speaker Change: Yeah, Hey, guys I'm on for Maryann it today.
Speaker Change: Travel.
Speaker Change: Many.
Speaker Change: A couple of things.
Speaker Change: Alluded to it a little bit earlier.
Speaker Change: The government's looking for more commercial terms.
Speaker Change: Thanks.
Speaker Change: How do you invest in the right things to do that how are you set up to do that.
Speaker Change: It seemed like in the defense market. The government is looking at.
Speaker Change: Whereas a contract and there is a.
Speaker Change: Bigger push for commercial terms, so and how do you think about it and how does that impact your business.
Speaker Change: Iran.
Speaker Change: I'll I'll start the.
Speaker Change: I think the trend that you're pointing out it's one that we've been tracking for a while and is actually accelerating I think this is why you know we have build partnerships and made investments all the way from hyper scaler to the startups and everything and everyone in between and we've been doing that for a while I think it's fair to say and you'd have to ask them.
Speaker Change: But I think I'll I'll tell you that we are the preferred player in terms of helping.
Speaker Change: These commercial solutions get mission is in a way that they make sense that we have created the capacity and the ability to co create.
Speaker Change: With them I, often talk about the fact that for example, or even edge cloud solutions that have been created for the commercial markets I assume a degree of connectivity that doesn't have any space and doesn't happen under water and doesn't happen in you know EW challenged environments and we have built our own tax.
Speaker Change: On top of their stack to solve those kinds of problems and we are recognized for that so are we actually both having the proponent and welcoming the oven theres notion and then as Mike pointed out.
Speaker Change: More recently, because we have such good relationships with many of these firms.
Speaker Change: They're coming to us more broadly to talk about help us scale. Our help us think about what are all the things we need to do that that will make us bigger and better.
Speaker Change: We're making investments in some of these companies like we've done directly with shield.
Speaker Change: And our our venture portfolio startups is as you know is really performing very well and all of us when I look at all of it.
Speaker Change: This notion of commercial tax being more aggressively utilized in.
Speaker Change: And in defense is it's a net positive to booz Allen given that that we're partnering with them to create those solutions.
Speaker Change: Got it got it and then and then maybe as a follow on.
Speaker Change: Thanks Sheila.
Speaker Change: Getting at this but maybe softer that'd be more direct.
Speaker Change: It does seem like at least perceptions that you guys have a branding issue.
Speaker Change: Every every kind of article that was all about errors in consulting and government.
Speaker Change: Contractors, and so on and so forth.
Speaker Change: See pictures of Booz Allen is on Pops up all over the place.
Speaker Change: Seemingly at least from my vantage point it seems like.
Speaker Change: But that being said why do you think that's the case and what do you do about it about pivoting into maybe a better spotlight and the government.
Speaker Change: You know.
Speaker Change: I think I would say a couple of things about these are first of all I think when when when you're the market leader you're the most interesting to write about and so we have the.
Speaker Change: Uh huh.
Speaker Change: Distinct pleasure of being written about.
Speaker Change: A lot and as you know, we we tend to be relatively humble and quiet about our own communications and we've always wanted our customers do.
Speaker Change: Take the credit for.
Speaker Change: For the win because ultimately you know, it's certainly their decisions, Jamaica and an architect supports them.
Speaker Change: So are.
Speaker Change: We found ourselves in in that reality and they do.
Speaker Change: What we do about it is where we've gotten a lot better to telling our story are I think that's resonated we you know.
Speaker Change: Some of it is what you see in terms of us being in the media more than having a lot more conversations and clarifying our positioning as an advanced technology company.
Speaker Change: And I think that that's working but also that part you don't see is the number of conversations we are having with people across the administration of the relationships that we're building.
Speaker Change: And I think as Christine pointed out this is true certainly in our civil business, but it is true more broadly I think once people start to really interact with the technology that we've built.
Speaker Change: That speaks much louder.
Speaker Change: On a a newspaper article Evercore and so you know where were I think emerging from from bad transition.
Speaker Change: With with our brand ultimately.
Speaker Change: Is gonna be strengthened as a result of Oh all of the scrutiny.
Speaker Change: Got it alright, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Louie Dipalma with William Blair.
Speaker Change: Horacio.
Speaker Change: Matt Kristina and deaths and good morning.
Speaker Change: Hello, and good morning, good morning.
Speaker Change:
Speaker Change: You have several.
Speaker Change: Large AI contracts, including the the joint Warfighter National Mission initiative aimed at two point, Alan and Advanta and it seems these programs have experienced.
Speaker Change: Tremendous success over the years then.
Speaker Change: And very wide adoption or are you still excited about the future of these programs I think you mentioned, how your AI business has grown too.
Speaker Change: Of our 800 million, but.
Speaker Change: With a lot of the scrutiny has there been any any changes to your optimism from your AI business, particularly with the department of defense.
Speaker Change: Oh I'm happy to start with that I. Louis I think the AI is a strength of Booz Allen I think people recognize it and it's the you know and it's more and more embedded you know that there are certain programs that early on where sort of the leaders in terms of implementing AI capabilities.
Speaker Change: AI is now embedded in just about everything that we do and as.
Speaker Change: As I mentioned before we're.
Speaker Change: We're not seeing a I asked the question of well is is good for the mission will it ever get it off the will you know the department of defense adopt AI I think all of those bridges have been crossed the question now is how quickly how do you bring the right technologies, how do you make commercial technology.
Speaker Change: Both safe reliable and secure enough to be able to use it.
Speaker Change: Again, some of these missions and again, we have a track record of doing that that is second to none and then as we look for I would point you to the fact that the move to agenda AI is going to be a really transformational for the global economy for America, and certainly for our National security missions and we have.
Speaker Change: What I believe is a leading position there.
Speaker Change: And we've done some stuff on our own research side that that is really.
Speaker Change: Breakthrough physical AI, which is you know sort of the key to autonomy are the key to digital twins.
Speaker Change: The key to being able to simulate and put AI into the field a lot faster significant.
Speaker Change: Upside there for Booz Allen and then the third area that we've been talking about for a while and I think is starting to get recognized as this topic of either a cereal.
Speaker Change: AI and.
Speaker Change: The reality is.
Speaker Change: All of these malls and all these AI capabilities are tremendous and create a potential new attack surface that and we are at the leading edge of making sure we know how to defend.
Speaker Change: AI malls and AI infrastructure from attack and then that'll take me through the last point, which is you've tracked our cyber business for quite some time I talked before about convergence between cyber and AI, and then cyber and AI in space and again these are <unk>.
Speaker Change: Areas, where we are doing some some really cool leading edge stuff. We you know you probably.
Speaker Change: So that that we have now upgraded our presence in AR AI and space by moving space Lama to the research side of the international space station.
Speaker Change: Again, that's a research project, but he demonstrates both that it can be done and that we know how to do it. So so yes, I am extraordinarily optimistic about the future of AI in Booz Allens ball in it.
Speaker Change: Great and I guess drilling a little deeper with advantage do you expect to continue to be the main delivery partner with Atlanta and Sim.
Speaker Change: Similarly with <unk>.
Speaker Change: <unk> you just mentioned.
Speaker Change: Cyber security and Zero Trust in you are partnering with several commercial vendors. There for these big programs that you are providing your own unique cone and software stack on top of existing commercial offerings do you expect to.
Speaker Change: <unk> to add that value or the D O D.
Speaker Change: And both of those cases, and then many others frankly I think the reason that these programs have been so successful is that we did not start from scratch is that we took the best commercial technology and work that we've done in technology that we built to create a complete solutions that really address.
Speaker Change: Mission needs and and you know I think these programs are standing the test of both the quality of the.
Speaker Change: What they're providing and the impact on.
Speaker Change: <unk> mission and so are we are.
Speaker Change: You know bullish about our ability to continue.
Speaker Change: To work there to incorporate newer and more commercial technology into these missions. So that they can run more efficiently more effectively more cheaply faster and in all of the above and that's we don't stand still so.
Speaker Change: We're we're certainly working at heart.
Speaker Change: I would just add that.
Speaker Change: One of them in particular, but also a number of other large technology programs and we're working actively to convert them to outcome based because I think that you know.
Speaker Change: These programs are ripe given the nature of what we do and as you said the fact that we are increasingly adding on our own technology building under the tech stack of others.
Speaker Change: And playing a foundational role in generating real products and solutions around these.
Speaker Change: Outcome based contracting is the future and we look forward to continuing to work with our customers across the board to drive that across our large technology projects.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, everyone. Thank you.
Speaker Change: Thank you.
Speaker Change: Next question is from Scott makers with Melius Research. Please proceed.
Speaker Change: Good morning, her aceto in the wake of the budget control Act of 2011 and sequestration. There is obviously a lot of consolidation in the industry. It seems like if the government wants to actually drive efficiencies, they probably need to consolidate a lot of contracts. So do you expect this to drive a push or another wave of consol.
Speaker Change: Sedation among the government services providers.
Speaker Change: You know I think this is let me start by saying I mean, if you really look at this industry, it's actually quite fragmented.
Speaker Change: I think if you aggregate it what's the concentration of the top.
Speaker Change: Number of players are in totality amounts of single digit of the of the available market.
Speaker Change: And so when their processes like like this there are people that they share there are people that lose share.
Speaker Change: And there are changes to the industry I think that the significant changes that we are seeing that I spoke to before is you have new defense tech companies coming in very strong.
Speaker Change: To to create and drive solutions that speed that weren't there before and were looking strongly to.
Speaker Change: To align with that but you know as I think as I look at Booz Allen in all of these all I'll I guess I'll I'll make the three points that I made earlier I E. We are being aggressive.
Speaker Change: The fact is we have a strong balance sheet, but more importantly.
Speaker Change: We are not standing still to continue to position and reposition ourselves and drive shareholder value.
Speaker Change: Strategically advantage because a lot of other things that we did under volt are really becoming essential.
Speaker Change: Now to delivering our mission and we are not where I'm just tired of change and looking for ways to.
Speaker Change: To add increasing value to all the missions that we support and so what I look at all of that are you know I.
Speaker Change: This current fiscal year as we've said.
Speaker Change: It's a challenging year, especially in our civil business, but as I look at.
Speaker Change: In the medium and the long term a few quarters out I I am very optimistic that the things that are changing in the environment will actually allow us to be extremely successful.
Speaker Change: Okay, and then thinking about the non client facing head count I think it was down 100 people quarter over quarter and you called out the 7% head count reduction in the first quarter, that's largely in your civil business, but your margin guide is flat year over year.
Speaker Change: Is there upside to the margin or EBITDA guidance, if you reduce that non client facing head count more do you get to keep those savings or do they end up being passed back to the customer.
Speaker Change: Yeah, we've been.
Speaker Change: Aggressively managing the totality of our cost structure.
Speaker Change: I'll remind you that.
Speaker Change: Historically, our solar business because it is more fixed price in nature has been more profitable than the average.
Speaker Change: So we're really pleased that we're able to manage our cost base in a way that we'll maintain margins.
Speaker Change: Even if all we're resetting our civil business.
Speaker Change: But also honestly the capacity to invest and grow because we're continuing to invest ahead.
Speaker Change: Of the business both.
Speaker Change: And building new technologies, and bring an exciting new technical talent.
Speaker Change: And in a lot of the partnerships with commercial and technology and defense technology companies that are Osteo describes so.
Speaker Change: We've been getting a lot leaner over the past few years from getting scale out of the business, we anticipate continuing to do so.
Speaker Change: But I would not anticipate.
Speaker Change: Near term upside in the margins that we talked about long term as we shift to outcome based there is potential there but I.
Speaker Change: I wouldn't expect that the near term.
Speaker Change: Okay. Thanks for taking the questions and enjoy the long weekend.
Speaker Change: Thank you.
Speaker Change: Thank you and this concludes our Q&A session I will turn it back to Horacio Rozanski for final remarks.
Horacio Rozanski: Thank you Carmen and thank you all for your questions and for being here with US. This morning, I hope that Matt and Christine and I conveyed both a sense of our near term priorities and also our optimism about what's ahead for our people for our customers and for our investors.
Speaker Change: We are on the positive side of change, we're strategically positioned for an era of tech driven growth.
Speaker Change: And we're doubling down on what Booz Allen does best which is using advanced technology to keep America strong and safe.
Speaker Change: And I appreciate all of you being part of how we do that and thank you for joining us today.
Speaker Change: And thank you all for participating and you may now disconnect.
Speaker Change: Okay.
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