Q1 2027 Booz Allen Hamilton Holding Corp Earnings Call

July 24, 2026

Speaker #1: Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering Q1 fiscal year 2027 results. At this time, all participants are in a listen-only mode.

Operator: Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering Q1 fiscal year 2027 results. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. I would now like to turn the call over to the Head of Investor Relations, Dustin Darensbourg. Please go ahead.

Speaker #1: Later, there will be an opportunity for questions. I would now like to turn the call over to the Head of Investor Relations, Dustin Darensbourg. Please go ahead.

Speaker #2: Good morning, and thank you for joining us for Booz Allen's Q1 fiscal year 2027 earnings call. We hope you've had an opportunity to read the press release we issued earlier this morning.

Dustin Darensbourg: Good morning. Thank you for joining us for Booz Allen's Q1 fiscal year 2027 earnings call. We hope you have had an opportunity to read the press release we issued earlier this morning. We have also provided presentation slides on our website and are now on slide two. With me today to talk about our business and financial results are Horacio Rozanski, our Chairman and Chief Executive Officer, Kristine Martin Anderson, President and Chief Operating Officer, and Troy Lahr, Executive Vice President and Chief Financial Officer. As shown in the disclaimer on slide three, some of the items we will discuss this morning are forward-looking and may relate to future events, and as such, involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from forecasted results discussed in our SEC filings and on this call.

Speaker #2: We have also provided presentation slides on our website and are now on slide 2. With me today to talk about our business and financial results are Horacio Rozanski, our chairman and chief executive officer; Christine Martin-Anderson, president and chief operating officer; and Troy Lahr, executive vice president and chief financial officer.

Speaker #2: As shown in the disclaimer on slide 3, some of the items we will discuss this morning are forward-looking and may relate to future events and, as such, involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from forecasted results discussed in our SEC filings and on this call.

Dustin Darensbourg: As shown in the disclaimer on slide three, some of the items we will discuss this morning are forward-looking and may relate to future events, and as such, involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from forecasted results discussed in our SEC filings and on this call.

Speaker #2: During today's call, we will also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our Q1 fiscal year 2027 earnings release and slides.

Dustin Darensbourg: During today's call, we will also discuss some non-GAAP financial measures and other metrics which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our Q1 fiscal year 2027 earnings release and slides. It is now my pleasure to turn the call over to our Chairman and CEO, Horacio Rozanski, who are now on slide four.

Speaker #2: It is now my pleasure to turn the call over to our Chairman and CEO, Horacio Rozanski, who is now on slide 4.

Speaker #3: Thank you, Dustin. And good morning, everyone. Thank you for joining the call. Today, Christine, Troy, and I will share Booz Allen's results for Q1 of fiscal year 2027.

Horacio Rozanski: Thank you, Dustin. Good morning, everyone. Thank you for joining the call. Today, Kristine, Troy, and I will share Booz Allen's results for Q1 fiscal year 2027. On our May earnings call, we described what we expected for the year ahead. We said we needed to focus on strong execution in a challenging macro environment. We said our civil and national security portfolios would continue to have different trajectories, with our growth coming from national security. We said we will continue accelerating our transformation and investing organically and inorganically in the areas that will drive our future growth. One quarter in, our results are consistent with that view. Our revenues reflect the dynamics we expected. Through exceptional execution, we delivered solid profitability, and we continue to invest and transform.

Speaker #3: On our May earnings call, we described what we expected for the year ahead. We said we needed to focus on strong execution in a challenging macro environment.

Speaker #3: We said our civil and national security portfolios would continue to have different trajectories, with our growth coming from national security. And we said we would continue accelerating our transformation and investing organically and inorganically in the areas that will drive our future growth.

Horacio Rozanski: We said our civil and national security portfolios would continue to have different trajectories, with our growth coming from national security. We said we will continue accelerating our transformation and investing organically and inorganically in the areas that will drive our future growth. One quarter in, our results are consistent with that view. Our revenues reflect the dynamics we expected. Through exceptional execution, we delivered solid profitability, and we continue to invest and transform.

Speaker #3: Q1 in, our results are consistent with that view. Our revenues reflect the dynamics we expected. Through exceptional execution, we delivered solid profitability. And we continue to invest and transform.

Speaker #3: On today's call, I will discuss our results and how we are transforming in the context of the current environment. Then, Christine will cover our business trajectory, and Troy will walk through our financial results and outlook.

Horacio Rozanski: On today's call, I will discuss our results and how we are transforming in the context of the current environment. Kristine will cover our business trajectory, and Troy will walk through our financial results and outlook. Let me begin by framing the environment. Overall, it remains dynamic and uneven. We are encouraged that funding continues to improve. In Q1, funding was up 17% year over year. This is driving our momentum as we help our customers advance their critical mission priorities. At the same time, we are in a midterm election year. Historical precedent suggests this will complicate the budget process and create some funding uncertainty, particularly towards the end of the government fiscal year and into our H2. In parallel, the government is fast-tracking implementation of procurement reform to make fixed price contracts the default approach.

Speaker #3: Let me begin by framing the environment. Overall, it remains dynamic and uneven. We are encouraged that funding continues to improve. In Q1, funding was up 17% year over year.

Speaker #3: This is driving our momentum as we help our customers advance their critical mission priorities. At the same time, we are in a midterm election year.

Horacio Rozanski: This is driving our momentum as we help our customers advance their critical mission priorities. At the same time, we are in a midterm election year. Historical precedent suggests this will complicate the budget process and create some funding uncertainty, particularly towards the end of the government fiscal year and into our H2. In parallel, the government is fast-tracking implementation of procurement reform to make fixed price contracts the default approach.

Speaker #3: Historical precedent suggests this will complicate the budget process and create some funding uncertainty, particularly towards the end of the government fiscal year and into our second half.

Speaker #3: In parallel, the government is fast-tracking implementation of procurement reform to make fixed-price contracts the default approach. This is necessary and positive for the long term.

Horacio Rozanski: This is necessary and positive for the long term, it could also lead to near-term delays in awards as customers adjust how they buy and structure work. Taken together, these environmental dynamics require us to continue executing with discipline and agility and to stay focused in what we know and what we can control. Against that near-term backdrop, the broader direction of the market is clear. Technological change is happening at a blistering pace, reshaping mission needs and making the threat landscape more complex and adaptive. To stay ahead and maintain advantage, our customers need to bring advanced tech into their missions faster, and they need the tech to work. Simply put, our strategic agenda is aligned to meet this moment. We are investing and moving with urgency in the areas we believe will drive our next phase of growth.

Speaker #3: And it could also lead to near-term delays in awards, as customers adjust how they buy and structure work. Taken together, these environmental dynamics require us to continue executing with discipline and agility.

Speaker #3: And to stay focused on what we know and what we can control. Against that near-term backdrop, the broader direction of the market is clear.

Speaker #3: Technological change is happening at a blistering pace, reshaping mission needs and making the threat landscape more complex and adaptive. To stay ahead and maintain advantage, our customers need to bring advanced tech into their missions faster, and they need the tech to work.

Horacio Rozanski: Technological change is happening at a blistering pace, reshaping mission needs and making the threat landscape more complex and adaptive. To stay ahead and maintain advantage, our customers need to bring advanced tech into their missions faster, and they need the tech to work. Simply put, our strategic agenda is aligned to meet this moment. We are investing and moving with urgency in the areas we believe will drive our next phase of growth.

Speaker #3: Simply put, our strategic agenda is aligned to meet this moment. We are investing and moving with urgency in the areas we believe will drive our next phase of growth.

Speaker #3: Our priorities include accelerating our cyber and defense tech growth vectors; advancing our next wave of tech investments—including autonomy and physical AI; quantum, 6G, and AI RAM; and maximizing the value of our unique partnerships and venture investments.

Horacio Rozanski: Our priorities include accelerating our cyber and defense tech growth vectors, advancing our next wave of tech investments, including autonomy and physical AI, quantum, 6G, and AI RAN, and maximizing the value of our unique partnerships and venture investments. We continue to make strong progress across these priorities. Let me give you a few examples, beginning with cyber. Agentic AI has fundamentally changed the cyber threat environment in 2026. We are in a new era where offensive cyber tools are becoming autonomous, making attacks faster, more persistent, and more dangerous. Our nation needs defenses that can keep up with the pace of these threats. As a leader in cyber, Booz Allen is well-positioned to capture this growing demand across government and commercial markets. We continue to move quickly to expand Vellox, our suite of agentic cyber products. Vellox combines our deep understanding of real-world tradecraft and our AI expertise.

Speaker #3: We continue to make strong progress across these priorities. Let me give you a few examples, beginning with cyber. Agentic AI has fundamentally changed the cyber threat environment in 2026.

Speaker #3: We are in a new era, where offensive cyber tools are becoming autonomous, making attacks faster, more persistent, and more dangerous. Our nation needs defenses that can keep up with the pace of these threats.

Horacio Rozanski: We are in a new era where offensive cyber tools are becoming autonomous, making attacks faster, more persistent, and more dangerous. Our nation needs defenses that can keep up with the pace of these threats. As a leader in cyber, Booz Allen is well-positioned to capture this growing demand across government and commercial markets. We continue to move quickly to expand Vellox, our suite of agentic cyber products. Vellox combines our deep understanding of real-world tradecraft and our AI expertise.

Speaker #3: As a leader in cyber, Booz Allen is well-positioned to capture this growing demand across government and commercial markets. We continue to move quickly to expand The LOKS, our suite of agentic cyber products.

Speaker #3: The locks combine our deep understanding of real-world tradecraft and our AI expertise. We are seeing a high level of customer engagement today, and we expect cyber to continue to drive near- and long-term growth.

Horacio Rozanski: We are seeing a high level of customer engagement today, we expect cyber to continue to drive near and long-term growth. Shifting to defense tech, the mission set is different, the urgency is just as clear. Within this growth vector, we are rapidly building, scaling, and operationalizing advanced technologies for the war-fighting mission. From soldier-worn tech and battle management systems to resilient communications and autonomy, Booz Allen is building and integrating products and solutions to deliver battlefield advantage. This need for speed is central to our recently announced agreement to acquire Ultra I&C Mission Solutions. This acquisition will help us expand and scale our defense tech product line and accelerate our growth. Ultra Mission Solutions has a proven product portfolio that spans command and control software, ruggedized edge compute, and encryption management. These products are highly complementary to our own defense tech products.

Speaker #3: Shifting to defense tech, the mission set is different, but the urgency is just as clear. Within this growth vector, we are rapidly building, scaling, and operationalizing advanced technologies for the warfighting mission.

Speaker #3: From soldier-worn tech and battle management systems to resilient communications and autonomy, Booz Allen is building and integrating products and solutions to deliver battlefield advantage.

Speaker #3: This need for speed is central to our recently announced agreement to acquire Ultra-INC Mission Solutions. This acquisition will help us expand and scale our defense tech product line and accelerate our growth.

Horacio Rozanski: This need for speed is central to our recently announced agreement to acquire Ultra I&C Mission Solutions. This acquisition will help us expand and scale our defense tech product line and accelerate our growth. Ultra Mission Solutions has a proven product portfolio that spans command and control software, ruggedized edge compute, and encryption management. These products are highly complementary to our own defense tech products.

Speaker #3: Ultra-Mission Solutions has a proven product portfolio that spans command and control software, ruggedized edge compute, and encryption management. These products are highly complementary to our own defense tech products.

Speaker #3: By combining our portfolios and sales channels, we believe we will bring more differentiated and scaled products to market faster. Just as important, this is a team and a business we know well. We have partnered with Ultra for years and have seen firsthand the strategic fit of our culture and technologies.

Horacio Rozanski: By combining our portfolios and sales channels, we believe we will bring more differentiated and scaled products to market faster. Just as important, this is a team and a business we know well. We have partnered with Ultra for years and have seen firsthand the strategic fit of our cultures and technologies. We expect to close the transaction in Q2. Beyond cyber and defense tech, we are also investing in building in the areas where emerging technologies and mission requirements are beginning to converge. Quantum, an area where we have been investing for over a decade, is a good example. One of our focus areas is post-quantum cryptography, or PQC. Recent executive orders and OMB guidance are accelerating the timeline for agencies to understand their exposure and prepare for migration.

Speaker #3: We expect to close the transaction in the second quarter. Beyond cyber and defense tech, we're also investing and building in the areas where emerging technologies and mission requirements are beginning to converge.

Horacio Rozanski: Beyond cyber and defense tech, we are also investing in building in the areas where emerging technologies and mission requirements are beginning to converge. Quantum, an area where we have been investing for over a decade, is a good example. One of our focus areas is post-quantum cryptography, or PQC. Recent executive orders and OMB guidance are accelerating the timeline for agencies to understand their exposure and prepare for migration.

Speaker #3: Quantum, an area where we have been investing for over a decade, is a good example. One of our focus areas is post-quantum cryptography, or PQC.

Speaker #3: Recent executive orders and OMB guidance are accelerating the timeline for agencies to understand their exposure and prepare for migration. We have already been working with early adopters in government and industry to help with their transitions to PQC.

Horacio Rozanski: We have already been working with early adopters in government and industry to help with their transitions to PQC, and we are well-prepared to scale as demand increases. Last but not least, our industry partnerships and VC investments are important accelerators on all our priorities. We continue to go to market with long-term partners like NVIDIA, AWS, and Shield AI, and we are creating differentiated offerings with multiple companies in our venture portfolio. In closing, I hope you will take three things away from my remarks this morning. One, we are on track with the expectations we laid out in May. Two, the environment remains dynamic, and we are executing exceptionally well against the things we can control. Three, we are accelerating our transformation in the areas that matter most to our future growth. With that, Kristine, over to you to discuss the trajectory of the business.

Speaker #3: And we are well prepared to scale as demand increases. And last but not least, our industry partnerships and VC investments are important accelerators on all our priorities.

Speaker #3: We continue to go to market with long-term targets like NVIDIA, AWS, and Shield AI, and we are creating differentiated offerings with multiple companies in our venture portfolio.

Speaker #3: In closing, I hope you'll take three things away from my remarks this morning: One, we are on track with the expectations we laid out in May.

Horacio Rozanski: In closing, I hope you will take three things away from my remarks this morning. One, we are on track with the expectations we laid out in May. Two, the environment remains dynamic, and we are executing exceptionally well against the things we can control. Three, we are accelerating our transformation in the areas that matter most to our future growth. With that, Kristine, over to you to discuss the trajectory of the business.

Speaker #3: Two, the environment remains dynamic, and we are executing exceptionally well against the things we can control. And three, we are accelerating our transformation in the areas that matter most to our future growth.

Speaker #3: And with that, Christine, over to you to discuss the trajectory of the business.

Speaker #2: Thank you, Horacio, and good morning to all of you. Our results continue to reflect the dynamics of a bifurcated market. Our civil and national security portfolios face very different conditions and remain on different trajectories.

Kristine Martin Anderson: Thank you, Horacio. Good morning to all of you. Our results continue to reflect the dynamics of a bifurcated market. Our civil and national security portfolios face very different conditions and remain on different trajectories. In civil, we are in a transition. Near-term revenue is affected by a few factors we have previously discussed. We are still absorbing the prior year contract reductions and Treasury impacts. Last year's slower award environment also led to fewer new starts to offset programs that are ramping down in H1. While our recompete win rate remains strong, the new contracts are generally smaller in scope and have shorter periods of performance. Together, this creates tough comps in H1. Even with near-term pressures, we are seeing improving leading indicators that will impact civil later in the year. Demand is strengthening, and we are winning work.

Speaker #2: In Civil, we are in a transition. Near-term revenue is affected by a few factors we have previously discussed. We are still absorbing the prior-year contract reductions and Treasury impacts.

Speaker #2: Last year's slower award environment also led to fewer new starts to offset programs that are ramping down in the first half. And while our recompete win rate remains strong, the new contracts are generally smaller in scope and have shorter periods of performance.

Kristine Martin Anderson: Last year's slower award environment also led to fewer new starts to offset programs that are ramping down in H1. While our recompete win rate remains strong, the new contracts are generally smaller in scope and have shorter periods of performance. Together, this creates tough comps in H1. Even with near-term pressures, we are seeing improving leading indicators that will impact civil later in the year. Demand is strengthening, and we are winning work.

Speaker #2: Together, this creates tough comps in the first half. Even with near-term pressures, we are seeing improving leading indicators that will impact Civil later in the year.

Speaker #2: Demand is strengthening, and we are winning work. Looking ahead, we are ramping up our wins, continuing to expand the pipeline, pulling our defense tech and cyber solutions through civil agencies, and building on our excellent track record advancing civil missions through technology.

Kristine Martin Anderson: Looking ahead, we are ramping up our wins, continuing to expand the pipeline, pulling our defense tech and cyber solutions through civil agencies, and building on our excellent track record advancing civil missions through technology. Shifting to our national security portfolio. This business grew in Q1 and is expected to continue building momentum over the fiscal year. Demand remains strong, and funded backlog was up 23%. Now we are converting that demand into growth by ramping up new work quickly and getting our technology into missions at speed. We are confident national security is well-positioned. Our technologies align directly with the nation's highest priorities, including homeland defense, warfighter readiness, cyber, and US technology leadership. As Horacio discussed, this is especially true in our defense tech and cyber growth vectors, where we continue to expect significant acceleration as we scale our product offerings.

Speaker #2: Shifting to our national security portfolio, this business grew in the first quarter and is expected to continue building momentum over the fiscal year. Demand remains strong, and funded backlog was up 23%.

Speaker #2: Now, we're converting that demand into growth by ramping up new work quickly and getting our technology into missions at speed. We are confident that national security is well-positioned.

Kristine Martin Anderson: Now we are converting that demand into growth by ramping up new work quickly and getting our technology into missions at speed. We are confident national security is well-positioned. Our technologies align directly with the nation's highest priorities, including homeland defense, warfighter readiness, cyber, and US technology leadership. As Horacio discussed, this is especially true in our defense tech and cyber growth vectors, where we continue to expect significant acceleration as we scale our product offerings.

Speaker #2: Our technologies align directly with the nation's highest priorities, including homeland defense, warfighter readiness, cyber, and U.S. technology leadership. As Horacio discussed, this is especially true in our defense tech and cyber growth vectors.

Speaker #2: We continue to expect significant acceleration as we scale our product offerings. I'd now like to discuss the progress we're seeing in the shift to outcomes-based contracting.

Kristine Martin Anderson: I'd now like to discuss the progress we're seeing in the shift to outcomes-based contracting. Building on the recent executive order, the government has released additional guidance that accelerates the move to fixed-price contracts. We are pleased to see the implementation getting underway and believe it will create better alignment between cost, accountability, and mission impact. It will also give us more flexibility in how we deliver, which creates the opportunity to bring greater value to our customers and support stronger financial performance over time. We have been advocating for this change and are leaning in to help our customers with these transitions. At the same time, we are already seeing some shifts toward more flexible, commercially-oriented buying models. For example, our pipeline of other transaction authority, or OTA opportunities is up 18% year over year this quarter.

Speaker #2: Building on the recent executive order, the government has released additional guidance that accelerates the move to fixed-price contracts. We are pleased to see the implementation getting underway.

Speaker #2: And I believe it will create better alignment between cost, accountability, and mission impact. It will also give us more flexibility in how we deliver, which creates the opportunity to bring greater value to our customers and support stronger financial performance over time.

Kristine Martin Anderson: It will also give us more flexibility in how we deliver, which creates the opportunity to bring greater value to our customers and support stronger financial performance over time. We have been advocating for this change and are leaning in to help our customers with these transitions. At the same time, we are already seeing some shifts toward more flexible, commercially-oriented buying models. For example, our pipeline of other transaction authority, or OTA opportunities is up 18% year over year this quarter.

Speaker #2: We have been advocating for this change, and are leaning in to help our customers with these transitions. At the same time, we are already seeing some shifts toward more flexible, commercially oriented buying models.

Speaker #2: For example, our pipeline of Other Transaction Authority, or OTA, opportunities is up 18% year over year this quarter. We have also been positioning Booz Allen Technology Solutions on government marketplaces, including Tradewinds, Aeris, and Platform One.

Kristine Martin Anderson: We have also been positioning Booz Allen technology solutions on government marketplaces, including Tradewinds, ERIS, and Platform One. These channels give customers faster, more flexible ways to buy proven technology and create new pathways to scale our products to mission. Before I hand off to Troy, I'd like to describe how we are injecting AI and agentic capabilities across our business. I'll start with our internal operations. We are using AI to increase productivity and create efficiencies in how we pursue new business, hire and develop our talent, and build products. Most importantly, we are continuing to embed AI in our tech to enable greater mission impact. For example, we built a multi-agent system to transform intelligence collection. The system can rapidly provide context, recommend and adjust collection plans, and coordinate tasking across sensors.

Speaker #2: These channels give customers faster, more flexible ways to buy proven technology and create new pathways to scale our products to mission. Before I hand off to Troy, I'd like to describe how we are injecting AI and agentic capabilities across our business.

Speaker #2: I'll start with our internal operations. We are using AI to increase productivity and create efficiencies in how we pursue new business, hire and develop our talent, and build products.

Kristine Martin Anderson: I'll start with our internal operations. We are using AI to increase productivity and create efficiencies in how we pursue new business, hire and develop our talent, and build products. Most importantly, we are continuing to embed AI in our tech to enable greater mission impact. For example, we built a multi-agent system to transform intelligence collection. The system can rapidly provide context, recommend and adjust collection plans, and coordinate tasking across sensors.

Speaker #2: Most importantly, we are continuing to embed AI in our technology to enable greater mission impact. For example, we built a multi-agent system to transform intelligence collection.

Speaker #2: The system can rapidly provide context, recommend and adjust collection plans, and coordinate tasking across sensors. This reduces manual coordination and helps analysts manage increasingly complex sensor environments.

Kristine Martin Anderson: This reduces manual coordination and helps analysts manage increasingly complex sensor environments, enabling faster, more actionable intelligence. Across our defense tech portfolio, we are operationalizing AI at the edge. Forward-deployed war fighters need advanced tech that works in environments where connectivity, bandwidth, and power are limited. Booz Allen's products are built for these conditions. We are integrating edge computing and AI capabilities to enable faster decision-making and more autonomous operations in contested environments. We expect AI-enabled delivery combined with products and outcomes-based contracting to help us deliver more value to customers and drive bottom-line growth. To wrap up, while the environment remains dynamic, our operational priorities are clear, and we are executing against the plan that we laid out in May. We are maximizing our cyber and defense tech growth vectors, scaling our product offerings, leaning into the transition to outcomes-based contracting, and building momentum in civil.

Speaker #2: Enabling faster intelligence. And across our defense tech portfolio, we are operationalizing AI at the edge. Forward-deployed warfighters need advanced tech that works in environments where connectivity, bandwidth, and power are limited.

Speaker #2: Booz Allen’s products are built for these conditions. We are integrating edge computing and AI capabilities to enable faster decision-making and more autonomous operations in contested environments.

Speaker #2: We expect AI-enabled delivery, combined with products and outcomes-based contracting, to help us deliver more value to customers and drive bottom-line growth. To wrap up, while the environment remains dynamic, our operational priorities are clear, and we are executing against the plan that we laid out in May.

Kristine Martin Anderson: We expect AI-enabled delivery combined with products and outcomes-based contracting to help us deliver more value to customers and drive bottom-line growth. To wrap up, while the environment remains dynamic, our operational priorities are clear, and we are executing against the plan that we laid out in May. We are maximizing our cyber and defense tech growth vectors, scaling our product offerings, leaning into the transition to outcomes-based contracting, and building momentum in civil. With that, Troy, I'll turn it over to you.

Speaker #2: We are maximizing our cyber and defense tech growth vectors, scaling our product offerings, leaning into the transition to outcomes-based contracting, and building momentum in Civil.

Speaker #2: With that, Troy, I'll turn it over to you.

Kristine Martin Anderson: With that, Troy, I'll turn it over to you.

Speaker #1: Thanks, Christine, and good morning, everyone. Our results today, particularly profitability and cash flow, highlight our strong operational execution across the portfolio, building on the momentum that we saw at the end of last fiscal year.

Troy Lahr: Thanks, Kristine, and good morning, everyone. Our results today, particularly profitability and cash flow, highlight our strong operational execution across the portfolio, building on the momentum that we saw at the end of last fiscal year. We're operating with discipline, investing for the future, and driving long-term growth. With that, I will now walk through our Q1 performance in more detail. In line with our expectations, Q1 revenue declined 4.2% year over year to $2.8 billion. Revenue ex billable expenses was down 3.8% versus the prior year. Our National Security business grew 1% year over year in the Q1. We see healthy demand signals across the National Security portfolio, and we are beginning to accelerate hiring as funding continues to show signs of improvement.

Speaker #1: We're operating with discipline, investing for the future, and driving long-term growth. With that, I will now walk through our first quarter performance in more detail.

Troy Lahr: With that, I will now walk through our Q1 performance in more detail. In line with our expectations, Q1 revenue declined 4.2% year over year to $2.8 billion. Revenue ex billable expenses was down 3.8% versus the prior year. Our National Security business grew 1% year over year in the Q1. We see healthy demand signals across the National Security portfolio, and we are beginning to accelerate hiring as funding continues to show signs of improvement.

Speaker #1: In line with our expectations, first quarter revenue declined 4.2% year over year, to $2.8 billion. Revenue ex-billable expenses was down 3.8% versus the prior year.

Speaker #1: Our national security business grew 1% year over year in the first quarter. We see healthy demand signals across the national security portfolio, and we are beginning to accelerate hiring as funding continues to show signs of improvement.

Speaker #1: We still expect National Security to grow mid-single digits for the fiscal year, with stronger growth expected in the back half of the year as we ramp up new work.

Troy Lahr: We still expect National Security to grow mid-single digits for the fiscal year, with stronger growth expected in the H2 of the year as we ramp up new work. Consistent with our expectations, our Civil business declined 16% year over year, driven by the roll-off of some larger contracts and fewer new program starts. We expect a sequential double-digit decline in Civil revenue next quarter due to some contracts that are ending. Also, as previously discussed, some recompetes that we won are transitioning to follow-on contracts that are smaller in size and scope, creating near-term comp headwinds. We expect these H1 dynamics to gradually ease into the H2 of the year. Turning to profitability. We delivered results above our expectations in the Q1. Adjusted EBITDA was $334 million at an adjusted EBITDA margin of 11.9%, up 130 basis points year over year.

Speaker #1: Consistent with our expectations, our civil business declined 16% year over year, driven by the roll-off of some larger contracts and fewer new program starts.

Speaker #1: We expect a sequential double-digit decline in civil revenue next quarter, due to some contracts that are ending. Also, as previously discussed, some re-competes that we won are transitioning to follow-on contracts that are smaller in size and scope, creating near-term comp headwinds.

Troy Lahr: Also, as previously discussed, some recompetes that we won are transitioning to follow-on contracts that are smaller in size and scope, creating near-term comp headwinds. We expect these H1 dynamics to gradually ease into the H2 of the year. Turning to profitability. We delivered results above our expectations in the Q1. Adjusted EBITDA was $334 million at an adjusted EBITDA margin of 11.9%, up 130 basis points year over year.

Speaker #1: We expect these first-half dynamics to gradually ease into the second half of the year. Turning to profitability, we delivered results above our expectations in the first quarter.

Speaker #1: Adjusted EBITDA was $334 million, at an adjusted EBITDA margin of 11.9%, up 130 basis points year over year. The strong performance was driven by continuously improving contract execution, favorable timing of investment spending, and early shifts to outcome-based, fixed-price contracting.

Troy Lahr: The strong performance was driven by continuously improving contract execution, favorable timing of investment spending, and early shifts to outcome-based fixed price contracting. We saw solid performance across all markets. Adjusted diluted earnings per share increased 22% year over year to $1.81. Adjusted EPS also benefited from a $19 million pre-tax unrealized gain on one of our venture investments. On cash flows, free cash flow in the Q1 was $261 million, driven by another strong collections quarter and favorable timing. From a working capital perspective, days sales outstanding, or DSO, was up 7 days year over year to 80 days due to revenue recognition treatment due to the nature of the Defy business. As a result, we expect our DSO to remain elevated relative to our historical level.

Speaker #1: We saw solid performance across all markets. Adjusted diluted earnings per share increased 22% year over year to $1.81. This increase was driven by profit growth, a lower tax rate, and a reduced share count.

Speaker #1: Adjusted EPS also benefited from a $19 million pre-tax unrealized gain on one of our venture investments. And on cash flows, free cash flow in the first quarter was $261 million, driven by another strong collections quarter and favorable timing.

Troy Lahr: Adjusted EPS also benefited from a $19 million pre-tax unrealized gain on one of our venture investments. On cash flows, free cash flow in the Q1 was $261 million, driven by another strong collections quarter and favorable timing. From a working capital perspective, days sales outstanding, or DSO, was up 7 days year over year to 80 days due to revenue recognition treatment due to the nature of the Defy business. As a result, we expect our DSO to remain elevated relative to our historical level.

Speaker #1: From a working capital perspective, day sales outstanding, or DSO, was up seven days year over year to 80 days, due to revenue recognition treatment related to the nature of the deferred business.

Speaker #1: As a result, we expect our DSO to remain elevated relative to our historical level. Moving to demand and leading indicators, we had robust bookings during the quarter, with a book-to-bill of 1.5 times.

Troy Lahr: Moving to demand and leading indicators. We had robust bookings during the quarter with a book-to-bill of 1.5 times. Our trailing 12-month book-to-bill is 1.1 times. Total backlog at the end of the Q1 was over $39 billion, up 3% year over year. Importantly, funding showed further signs of improvement in the Q1, with our funded backlog increasing 15% year over year to $4.7 billion. Finally, on capital deployment and the balance sheet, we deployed a total of $447 million in the Q1, which consisted of $324 million for the Defy acquisition and also for multiple venture investments, and $123 million in shareholder returns via quarterly dividends and share repurchases. From a balance sheet perspective, we ended the quarter with $540 million of cash on hand and total liquidity of $2 billion.

Speaker #1: Our trailing 12-month book-to-bill is 1.1 times. Total backlog at the end of the first quarter was over $39 billion, up 3% year over year.

Speaker #1: Importantly, funding showed further signs of improvement in the first quarter, with our funded backlog increasing 15% year over year, to $4.7 billion. And finally, on capital deployment and the balance sheet, we deployed a total of $447 million in the first quarter, which consisted of $324 million for the DEFI acquisition, and also for multiple venture investments.

Troy Lahr: Finally, on capital deployment and the balance sheet, we deployed a total of $447 million in the Q1, which consisted of $324 million for the Defy acquisition and also for multiple venture investments, and $123 million in shareholder returns via quarterly dividends and share repurchases. From a balance sheet perspective, we ended the quarter with $540 million of cash on hand and total liquidity of $2 billion.

Speaker #1: And $123 million in shareholder returns via quarterly dividends and share repurchases. From a balance sheet perspective, we ended the quarter with $540 million of cash on hand, and total liquidity of $2 billion.

Speaker #1: Our net leverage ratio at the end of the quarter was 2.7 times adjusted EBITDA for the trailing 12 months. We're very excited about the Ultra Emission Solutions acquisition and expect this to close during our second quarter. We'll provide an update on the next earnings call.

Troy Lahr: Our net leverage ratio at the end of the quarter was 2.7 times adjusted EBITDA for the trailing 12 months. We are very excited about the Ultra Mission Solutions acquisition and expect this to close during our Q2. We will provide an update on the next earnings call. Our healthy balance sheet and strong cash flow generation provides us with the ability to drive shareholder value through flexible and opportunistic capital deployment. Now turning to our outlook on slide seven. We are reaffirming our guidance for the year across all metrics as we are still early in the year and remain cautious on the funding and award environment. To provide some context around the shape of the year, we continue to expect our growth to be back half-weighted, consistent with our remarks on the prior earnings call.

Speaker #1: Our healthy balance sheet and strong cash flow generation provide us with the ability to drive shareholder value through flexible and opportunistic capital deployment. Now, turning to our outlook on slide 7.

Troy Lahr: Now turning to our outlook on slide seven. We are reaffirming our guidance for the year across all metrics as we are still early in the year and remain cautious on the funding and award environment. To provide some context around the shape of the year, we continue to expect our growth to be back half-weighted, consistent with our remarks on the prior earnings call.

Speaker #1: We are reaffirming our guidance for the year across all metrics, as we are still early in the year and remain cautious on the funding and award environment.

Speaker #1: To provide some context around the shape of the year, we continue to expect our growth to be back-half-weighted, consistent with our remarks on the prior earnings call.

Speaker #1: We will see some pressure in Q2 on growth and profitability, largely due to sequential headwinds in the Civil business. We expect continued growth in our National Security portfolio throughout the year, but with a significant ramp-up in the second half.

Troy Lahr: We will see some pressure in Q2 on growth and profitability, largely due to sequential headwinds in the civil business. We expect continued growth in our national security portfolio throughout the year, with a significant ramp-up in the H2. Finally, from a margin perspective, we continue to expect approximately 11% margins for the year. This implies a step-down in margins for the rest of the year, particularly in Q2, due to the end of some higher-margin civil programs and back-loaded investment spending. To sum up, we are proud of our performance this quarter and are encouraged by our leading indicators and the solid start to the year. While this remains a very dynamic environment, we are focused on driving transformation, supporting our customers' critical missions, and creating value for shareholders. With that, operator, let's open the line for questions.

Speaker #1: Finally, from a margin perspective, we continue to expect approximately 11% margins for the year. This implies a step down in margins for the rest of the year, particularly in Q2, due to the end of some higher-margin civil programs and backloaded investment spending.

Speaker #1: To sum up, we are proud of our performance this quarter, and are encouraged by our leading indicators and the solid start to the year.

Troy Lahr: To sum up, we are proud of our performance this quarter and are encouraged by our leading indicators and the solid start to the year. While this remains a very dynamic environment, we are focused on driving transformation, supporting our customers' critical missions, and creating value for shareholders. With that, operator, let's open the line for questions.

Speaker #1: While this remains a very dynamic environment, we are focused on driving transformation, supporting our customers' critical missions, and creating value for shareholders. With that, operator, let's open the line for questions.

Speaker #2: Thank you so much. And as a reminder, to ask a question, simply press star 11 to get in the queue and wait for your name to be announced.

Operator: Thank you so much. As a reminder, to ask a question, simply press star one one to get in the queue and wait for your name to be announced. To remove yourself, press star one one again. One moment for our first question. Comes from Jonathan Siegmann with Stifel. Please proceed.

Speaker #2: To remove yourself, press star 11 again. One moment for our first question. It comes from Jonathan Sigman with Stiefel. Please proceed.

Speaker #3: Good morning, team. Thanks for taking my question.

Jonathan Siegmann: Good morning, team. Thanks for taking my question.

Speaker #4: Hey, John. Good morning. I appreciate the opening comments on the balance of accelerated funding, but some of the uncertainty is still in the second half.

Horacio Rozanski: Hey, Jonathan. Good morning.

Jonathan Siegmann: Appreciate the opening comments on the balance of accelerated funding, but some of the uncertainty still in the H2. The funded awards and backlog were real positive. A little more comments on how you're approaching guidance. Are there any anticipated new company-specific effects that may make the H2 uncertain? Just to confirm, the acquisitions you're not including, if I understand correctly? Thank you.

Speaker #4: But the funded awards and backlog were real positives. Could you provide a little more commentary on how you're approaching guidance? Are there any anticipated new company-specific effects that may make the second half uncertain?

Speaker #4: And just to confirm, the acquisitions you're not including, if I understand correctly. Thank you.

Speaker #3: Sure, John. I'll start, and I think Troy might want to jump in behind me. But just to take it from the top, we're very happy with the first quarter—very solid.

Horacio Rozanski: Sure, John. I'll start, and Troy might want to jump in behind me. Just to take it from the top, we're very happy with the Q1. Very solid performance, driven by both great execution and a really good selling quarter, the forward indicators, as you point out, are good. It is a dynamic environment. To give you a sense of what we're tracking, there's four things right now in Congress, all of which have an impact on our industry. The NDAA, a potential CR, potential reconciliation bill, a potential supplemental. These and how they play out will probably shape whether the funding dynamic continues to be as good as it's been. We are cautious about it. This early in the year, we're not going to update guidance.

Speaker #3: Performance was driven by both great execution and a really good selling quarter. The forward indicators, as you point out, are good. It is a dynamic environment. To give you a sense of what we're tracking...

Horacio Rozanski: To give you a sense of what we're tracking, there's four things right now in Congress, all of which have an impact on our industry. The NDAA, a potential CR, potential reconciliation bill, a potential supplemental. These and how they play out will probably shape whether the funding dynamic continues to be as good as it's been. We are cautious about it. This early in the year, we're not going to update guidance.

Speaker #3: There are four things right now in Congress, all of which have an impact on our industry: the NDAA, a potential CR, a potential reconciliation bill, and a potential supplemental. These, and how they play out, will probably shape whether the funding dynamic continues to be as good as it’s been.

Speaker #3: We are cautious about it, and so this early in the year, we're not going to update guidance. By the time we get to the next quarter, we'll both have a better read on those things.

Horacio Rozanski: By the time we get to the next quarter, we'll both have a better read on those things. Also, we will include into our guidance in October what's happening with Ultra and some of those numbers. In terms of tailwinds to the business, we feel very good about our cyber business. Agentic AI is changing the game, and Booz Allen is right in the middle of it with a great set of offerings that have good traction. Defense tech is really good, some of the wins that we've had in the core business really are beginning to ramp up. I take it all together, and I think cautious optimism is the right place to be.

Speaker #3: And also, we will include into our guidance in October what's happening with Ultra and some of those numbers. In terms of tailwinds to the business, we feel very good about our cyber business.

Speaker #3: Agentic AI is changing the game, and Booz Allen is right in the middle of it, with a great set of offerings that have good traction.

Speaker #3: Defense tech is really good, and then some of the wins that we've had in the core business really are beginning to ramp up. So I take it all together, and I think cautious optimism is the right place to be.

Speaker #1: Yeah. And, John, I would just add that on guidance, it's still early in the year. As you said, book-to-bill was strong.

Troy Lahr: Yeah. Jon, I would just add that just on guidance, it's still early in the year. As you said, book to bill was strong, the funded backlog was strong. We'll look to roll in Ultra as we close that acquisition. We're starting to see signs of improvement. It remains a choppy environment, but overall, we feel comfortable with the guidance right now.

Speaker #1: The funded backlog was strong, and we'll look to roll in Ultra as we close that acquisition. So we're starting to see signs of improvement.

Speaker #1: It remains a choppy environment, but overall, we feel comfortable with the guidance right now.

Speaker #3: Thank you very much.

Jonathan Siegmann: Thank you very much.

Speaker #2: Thank you. Our next question is from Colin Canfield with Canter. Please proceed.

Operator: Thank you. Our next question is from Colin Canfield with Cantor. Please proceed.

Speaker #4: Hey, thank you for the question. Maybe if you could talk about funded bookings in the quarter, and essentially kind of what you've seen, this upcoming quarter, kind of what you've seen already between national security and civil, and how you expect the funded bookings to progress through the year between both of those segments.

Colin Canfield: Hey, thank you for the question. Maybe if you could talk about funded bookings in the quarter. Excuse me, this upcoming quarter, what you've seen already between national security and civil, how you expect the funded bookings to progress through the year between both of those segments. Thanks.

Speaker #4: Thanks.

Speaker #5: Thanks. Funding itself is up overall across the whole business, pretty evenly—about 18% year over year in civil, and in national security. I think you saw that a lot of our bookings this quarter were weighted toward national security, and our overall funded backlog is up quite a bit, at 15%.

Kristine Martin Anderson: Thanks. Funding itself is up overall, across the whole business pretty evenly, about 18% year-over-year in Civil and in National Security. I think you saw that a lot of our bookings this quarter were weighted toward National Security, and our overall funded backlog is up quite a bit at 15%. Most importantly, I think we're also seeing good pipeline growth still, and a steady award environment right now and a steady funding environment. As Horacio mentioned, it can be a bit choppy. We're looking forward to see that as all of these macro issues work out, how it plays out later in the year. So far strong.

Speaker #5: So, we are seeing, most importantly, I think, we're also seeing good pipeline growth still, and a steady award environment right now, and a steady funding environment.

Speaker #5: And as Horacio mentioned, it can be a bit choppy, so we're looking forward to seeing that as all of these macro issues work out, kind of how it plays out later in the year.

Speaker #5: But so far, strong.

Speaker #4: Got it, got it. And then maybe if you could talk a little bit about further portfolio shaping within defense and intelligence—or, excuse me, national security—what are the key technologies and capabilities that the team views as most attractive, that they can add?

Colin Canfield: Got it. Maybe if you could talk a little bit about further portfolio shaping within Defense and Intelligence or excuse me, National Security. What are the key technologies and capabilities that the team views as most attractive that they can add? How does the team think about what do they view as the key modes in Civil that they view as most attractive? Thank you.

Speaker #4: And then, how does the team think about what they view as the key modes within Civil that they view as most attractive?

Speaker #4: Thank you.

Speaker #3: You know, I think that we are transforming the business at a very fast speed. This has been the focus. The financial implication of that is an acceleration of profit growth—profit dollar growth, not margins, but dollar profit growth.

Horacio Rozanski: I think we are transforming the business at a very fast speed. This has been the focus. The financial implication of that is acceleration of dollar profit growth, not margins, but dollar profit growth, and a healthy reinvestment so that we can continue to accelerate the business dynamic. Inside of that, on cyber, I would point you to the fact that we have a pretty complete stack that really helps with this moment. Our zero trust capabilities business and opportunities are quite significant across both government and Commercial markets. Behind that is the Vellox suite, which is an agentic suite that gives us a real head start in what's really the next-generation cyber products. Even behind that, we're already testing a set of things we're not ready to talk about yet with customers and hearing very good reports.

Speaker #3: And a healthy reinvestment so that we can continue to accelerate the business dynamic. Inside of that, on cyber, I would point you to the fact that we have a pretty complete stack that really helps with this moment.

Speaker #3: Our Zero Trust capabilities, business, and opportunities are quite significant across both government and commercial markets. Behind that is the Velox Suite, which is an agentic suite that gives us a real head start in what's really the next generation of cyber products.

Horacio Rozanski: Our zero trust capabilities business and opportunities are quite significant across both government and Commercial markets. Behind that is the Vellox suite, which is an agentic suite that gives us a real head start in what's really the next-generation cyber products. Even behind that, we're already testing a set of things we're not ready to talk about yet with customers and hearing very good reports.

Speaker #3: And then even behind that, we're already testing a set of things we're not ready to talk about yet with customers, and hearing very good reports.

Speaker #3: So, we feel very good about where we are on cyber. On defense tech, the Ultra acquisition should point you to the areas we're most interested in.

Horacio Rozanski: We feel very good about where we are on cyber. On defense tech, the Ultra acquisition should point you to the areas we're most interested in. C3BM and autonomy being the primary areas. We see a lot of complementarity there. As Kristine pointed out in her remarks, we are uniquely positioned to help the warfighter at the edge. That's just not just on land, it's really across all domains. We see both real need by the warfighter, real need, real demand, and very good positioning ourselves. More broadly, AI, we're using AI to transform our entire business. I know there's a market perception that the AI is a headwind for us.

Speaker #3: C3BM and autonomy being the primary areas—we see a lot of complementarity there. And as Christine pointed out in her remarks, we are uniquely positioned to help the warfighter at the edge.

Horacio Rozanski: As Kristine pointed out in her remarks, we are uniquely positioned to help the warfighter at the edge. That's just not just on land, it's really across all domains. We see both real need by the warfighter, real need, real demand, and very good positioning ourselves. More broadly, AI, we're using AI to transform our entire business. I know there's a market perception that the AI is a headwind for us.

Speaker #3: And that's not just on land. It's really across all domains. And we see both real need by the warfighter—real need, real demand—and very good positioning for ourselves.

Speaker #3: And then, more broadly, AI—we're using AI to transform our entire business. I know there's a market perception that AI is a headwind for us.

Speaker #3: And I think we understand where that's coming from, but we believe we're in a different place because we've been investing in AI, building the right partnerships, and positioning ourselves, really, for over a decade now.

Horacio Rozanski: I think we understand where that's coming from, but we believe we're in a different place because we've been investing in AI, building the right partnerships, and positioning ourselves really for over a decade now. I'll point you to really our agentic AI and our physical AI positions, both of which are creating new demand, creating differentiation, giving us significant awards, and the fact that we have this partnership ecosystem, excuse me, across both startups and hyperscalers, put us in what I think is a great position to capture some of this new demand and make AI real in the mission in a way that is secure, in a way that is governable, and in a way that gives the warfighter the advantage they need.

Speaker #3: And I'll point you to, really, our agentic AI and our physical AI positions, both of which are creating new demand, creating differentiation, giving us significant awards. And the fact that we have these partnership ecosystems—excuse me—across both startups and hyperscalers puts us in what I think is a great position to capture some of this new demand and make AI real in the mission in a way that is secure, in a way that is governable, and in a way that gives the warfighter the advantage they need.

Horacio Rozanski: I'll point you to really our agentic AI and our physical AI positions, both of which are creating new demand, creating differentiation, giving us significant awards, and the fact that we have this partnership ecosystem, excuse me, across both startups and hyperscalers, put us in what I think is a great position to capture some of this new demand and make AI real in the mission in a way that is secure, in a way that is governable, and in a way that gives the warfighter the advantage they need.

Speaker #5: Yeah. I would also just add that, in addition to those mature technologies that we've been working on for a while, our investments are now beginning to pay off.

Kristine Martin Anderson: Yes. I would also just add that, in addition to those mature technologies that we've been working for a while, our investments are now beginning to pay off. We are expanding our quantum business and driving acceleration there. This quarter, we actually won our largest pure quantum win, and now have won quantum work across commercial, national security, and civil. That's kind of on the come. In addition to that, we've been productizing our AI RAN investments, especially at the edge. This quarter, we also won an award specific to AI RAN to bring 6G to edge missions. Those investments are continuing. Lastly, but not least, the agentic software development that we have developed, that we're continuing to refine that offering and that pipeline has been expanding quite nicely also in civil.

Speaker #5: We are expanding our quantum business and driving acceleration there. This quarter, we actually won our largest pure quantum contract and now have quantum work across commercial, national security, and civil sectors.

Speaker #5: So that's kind of on the come. In addition to that, we've been productizing our AI RAN investments, especially at the edge. And this quarter, we also won an award specific to AI RAN to bring 6G to edge missions.

Kristine Martin Anderson: In addition to that, we've been productizing our AI RAN investments, especially at the edge. This quarter, we also won an award specific to AI RAN to bring 6G to edge missions. Those investments are continuing. Lastly, but not least, the agentic software development that we have developed, that we're continuing to refine that offering and that pipeline has been expanding quite nicely also in civil.

Speaker #5: So those investments are continuing. And then, lastly but not least, the agentic software development that we have developed—we're continuing to refine that offering, and that pipeline has been expanding quite nicely.

Speaker #5: Also in civil.

Speaker #4: That's great. Thank you.

Colin Canfield: That's great. Thank you.

Speaker #2: Thank you. Our next question is from Gavin Parsons with UBS. Please proceed.

Operator: Thank you. Our next question is from Gavin Parsons with UBS. Please proceed.

Speaker #6: Thank you. Morning.

Gavin Parsons: Thank you. Morning.

Speaker #3: Morning.

Horacio Rozanski: Morning.

Gavin Parsons: Appreciate all the color on unfunded backlog. Anything abnormal one-timey pull forward in there, or is that a good representation of the funding momentum that you're talking about?

Speaker #6: I appreciate all the color on funded backlog. Anything abnormal, one-timey pull-forward in there, or is that a good representation of the funding momentum that you're talking about?

Speaker #4: Yeah, thanks, Gavin. No, so there's really no funding pull-forward. I think it's just the improving environment that Christine and Horacio have talked about.

Troy Lahr: Yeah. Thanks, Gavin. No. There's really no funding pull forward. I think it's just the improving environment that Kristine and Horacio have talked about. No, I would say clean quarter all around.

Speaker #4: So no, I would say a clean quarter all around.

Speaker #6: Okay, great. And then just on the national security growth, any way to—I know you guys have consolidated kind of defense and intel—but any way to parse, are there subcategories that are declining and others that are growing?

Gavin Parsons: Okay, great. Just on the national security growth, any way to, I know you guys have consolidated kind of defense and intel, but any way to parse, are there subcategories that are declining and others are growing and those lap, and once those headwinds lap, it's just a natural visible return to growth? Any way to think about kind of the subcategories there that drive the acceleration?

Speaker #6: And once those headwinds lap, it's just a natural, visible return to growth? Or is there any way to think about the subcategories there that drive the acceleration?

Speaker #3: I guess what I would offer to you is, we see the most growth potential, especially both at the top, but really especially at the bottom line, as we've been saying, on cyber and defense tech.

Horacio Rozanski: I guess what I would offer to you is we see the most growth potential, especially both at the top, but really especially at the bottom line, as we've been saying on cyber and Defense Tech, which really cut across all of our businesses. Kristine pointed out, we have meaningful cyber work in civil and some of our Defense Tech products span the entire portfolio, but they really are mostly going at National Security, and those are, I think, the brightest spots. Beyond that, our space business is doing well and we see good upside there. Everything that we're doing around bringing edge capability to the warfighter, especially in what is right now a very active operational environment, is important. I don't know.

Speaker #3: Which really cut across all of our businesses, as Christine pointed out. We have meaningful cyber work in civil, and some of our defense tech products span the entire portfolio, but they really are mostly going at national security.

Speaker #3: And those are, I think, the brightest spots. Beyond that, our space business is doing well, and we see good upside there. But really, everything that we're doing around bringing edge capability to the warfighter, especially in what is right now a very active operational environment, is important.

Horacio Rozanski: Beyond that, our space business is doing well and we see good upside there. Everything that we're doing around bringing edge capability to the warfighter, especially in what is right now a very active operational environment, is important. I don't know.

Speaker #3: So, I don't know. And, by the way, let me just point out, the reason we decided to put Intel and Defense together is because that's really how we're running the business now.

Horacio Rozanski: By the way, let me just point out, the reason we decided to put intel and defense together is because that's really how we're running the business now. If you think about space, Defense Tech, cyber, those capabilities, those products, and those solutions really cut across the entire National Security spectrum. To try and create a distinction without a difference we did not think was helpful. I think this is a better way to describe the business to all of you.

Speaker #3: If you think about space, defense tech, and cyber, those capabilities, those products, and those solutions really cut across the entire national security spectrum. And so, to try and create a distinction without a difference, we did not think was helpful.

Speaker #3: I think this is a better way to describe the business to all of you.

Speaker #5: Yeah, one part that I would call out for you is that we actually need to accelerate hiring a bit. We're a little bit behind.

Kristine Martin Anderson: One part that I would call out for you is that we actually need to accelerate hiring a bit. We're a little bit behind. Right now some supply constraints, particularly around hiring those with clearances. We're addressing that now. That's another dynamic that you would see. That cuts across, but it's particularly related to clearances.

Speaker #5: Right now, there's some supply constraint, particularly around hiring those with clearances, and so we're addressing that now. That's another dynamic that you would see.

Speaker #5: But that cuts across, though it's particularly related to clearances.

Speaker #6: Great. That's helpful. Thank you.

Gavin Parsons: Great. That's helpful. Thank you.

Speaker #2: Thank you. Our next question is from Louis De Palma with William Blair. Please proceed.

Operator: Thank you. Our next question is from Louis DiPalma with William Blair. Please proceed.

Louis DiPalma: Horacio, Kristine, Troy, and Dustin, good morning and happy Friday.

Louie DiPalma: Horacio, Kristine, Troy, and Dustin, good morning and happy Friday.

Speaker #1: Horacio, Christine, Troy, and Dustin, good morning, and happy Friday.

Speaker #4: Hey, Louis.

Horacio Rozanski: Hey, Louis.

Speaker #5: Hey.

Louis DiPalma: Related to AI, can you discuss your eMAPS 3 renewal for, I think it was $2.7 billion?

Louie DiPalma: Related to AI, can you discuss your eMAPS 3 renewal for, I think it was $2.7 billion?

Speaker #1: Related to AI, can you discuss your EMAPS III renewal for—I think it was $2.7 billion?

Speaker #3: You know, here's what I can say. We are very proud of the support of those critical missions. We are very proud that this was, as you know, a continuation of something where we started early—bringing AI and those types of capabilities into the missions that we support.

Horacio Rozanski: Here's what I can say. We are very proud of the support of those critical missions. We are very proud that this was, as you know, a continuation of something where we started early, bringing AI and those types of capabilities into the missions that we support. This being the largest award in the history of the company, I think it demonstrates that we continue to bring real value to our customers in places where they really need us the most.

Speaker #3: And this being the largest award in the history of the company, I think it demonstrates that we continue to bring real value to our customers in places where they really need us the most.

Speaker #4: Yeah, Louis, I would just add, I think it's indicative of the national security portfolio in general. When you look, funded backlog was up 23%.

Troy Lahr: Yeah, Louis, I would just add, I think it's indicative of the national security portfolio in general. When you look, funded backlog was up 23%. National security funding is 18%. We're feeling comfortable about the solutions that we're bringing, and I think that that was highlighted this quarter and reflective in some of these awards.

Speaker #4: National security funding is 18%. So, we're feeling comfortable about the solutions that we're bringing, and I think that was highlighted this quarter and reflected in some of these awards.

Speaker #1: Makes sense. I also have a more long-winded question that's a bit more high-level, as there's been a shift in the perspective of whether cybersecurity vendors are AI winners or losers following the threat posed by generative AI that, Horacio, you mentioned at the onset.

Louis DiPalma: Makes sense. I also have a more long-winded question that's more high level. As there's been a shift in the perspective of whether cybersecurity vendors are AI winners or losers following the threat posed by generative AI that, Horacio, you mentioned at the onset. This past week, OpenAI reported about an unprecedented cyber incident with Hugging Face, and we've seen the stock prices for many of the cybersecurity vendors, and many of which you're partnered with, such as Palo Alto Networks and CrowdStrike. These stock prices have rebounded by over 100% from their lows over the past three months.

Louie DiPalma: Makes sense. I also have a more long-winded question that's more high level. As there's been a shift in the perspective of whether cybersecurity vendors are AI winners or losers following the threat posed by generative AI that, Horacio, you mentioned at the onset.

Speaker #1: But this past week, OpenAI reported an unprecedented cyber incident with Hugging Face, and we've seen the stock prices for many of the cybersecurity vendors—many of which you're partnered with, such as Palo Alto Networks and CrowdStrike—react.

Louie DiPalma: This past week, OpenAI reported about an unprecedented cyber incident with Hugging Face, and we've seen the stock prices for many of the cybersecurity vendors, and many of which you're partnered with, such as Palo Alto Networks and CrowdStrike. These stock prices have rebounded by over 100% from their lows over the past three months.

Speaker #1: These stock prices have rebounded by over 100% from their lows over the past three months. So with that context, back in October of 2024, which seems so long ago, Horacio, you and Lindsay Joyce, you hosted an analyst day at the Helix DC demo center in which you showcased Booz Allen's cybersecurity solutions and highlighted how Booz Allen has one of the largest collections of cybersecurity talent of any company in North America.

Louis DiPalma: With that context, back in October of 2024, which seems so long ago, Horacio, you and Lindsay Joyce, you hosted an analyst day at The Helix DC demo center in which you showcased Booz Allen cybersecurity solutions and highlighted how Booz Allen has one of the largest collections of cybersecurity talent of any company in North America. I'm wondering, are you seeing the cybersecurity demand associated with agentic AI, and are you able to take advantage of this asset? Also related to this, what are you doing with OpenAI and Anthropic on the cybersecurity side? I think you tweeted or posted on X that you're involved in Project Glasswing with Anthropic, and you put out a press release with OpenAI. Can you provide more detail on your cybersecurity posture? Thanks.

Louie DiPalma: With that context, back in October of 2024, which seems so long ago, Horacio, you and Lindsay Joyce, you hosted an analyst day at The Helix DC demo center in which you showcased Booz Allen cybersecurity solutions and highlighted how Booz Allen has one of the largest collections of cybersecurity talent of any company in North America.

Speaker #1: So I'm wondering, are you seeing the cybersecurity demand associated with agentic AI? And are you able to take advantage of this asset? And also related to this, what are you doing with OpenAI and Anthropic on the cybersecurity side?

Louie DiPalma: I'm wondering, are you seeing the cybersecurity demand associated with agentic AI, and are you able to take advantage of this asset? Also related to this, what are you doing with OpenAI and Anthropic on the cybersecurity side? I think you tweeted or posted on X that you're involved in Project Glasswing with Anthropic, and you put out a press release with OpenAI. Can you provide more detail on your cybersecurity posture? Thanks.

Speaker #1: I think you tweeted or posted on X that you're involved in the project Glasswing with Anthropic, and you put out a press release with OpenAI.

Speaker #1: But can you provide more detail on your cybersecurity posture? Thanks.

Horacio Rozanski: Thanks, Louis, for that question. I almost feel like the answer should be yes. I should stop there, but let me try and give you some color. First of all, we've come a long way since 2024. Our business in cyber really lives at the intersection of our exquisite trade craft that we have honed over a very long period of time and a set of AI capabilities we have invested in for over a decade. We believe we have a jump start on this market. If you look at the environment as it's happening, there's been a series of things that began with not really even with Mythos, but before that, with the Chinese release of something called Villager, all the way now. We are seeing this acceleration in both concern.

Speaker #3: Thanks, Louis, for that question. I almost feel like the answer should be yes, and I should stop there. But let me try and give you some color. First of all, we've come a long way since 2024.

Speaker #3: Our business in cyber really lives at the intersection of our exquisite tradecraft that we have honed over a very long period of time.

Speaker #3: And a set of AI capabilities we haven't invested in for over a decade. So, we believe we have a jumpstart on this market.

Horacio Rozanski: We believe we have a jump start on this market. If you look at the environment as it's happening, there's been a series of things that began with not really even with Mythos, but before that, with the Chinese release of something called Villager, all the way now. We are seeing this acceleration in both concern.

Speaker #3: If you look at what's in the environment as it's happening, there's been a series of things that began not even with Mythos, but before that, with the Chinese release of something called Villager.

Speaker #3: All the way now, and we are seeing this acceleration in both concern, and concern is turning into demand, both in the private sector market especially, but also in our government clients.

Horacio Rozanski: Concern is turning into demand, both in the private sector market especially, but also in our government clients. We believe we're well positioned to both help and to capture significant demand from that. As I mentioned before, the way we're thinking about it is, on the part that we can discuss here, it comes in three pieces in the stack. First of all, zero trust is going to become an essential part of this because it is going to be virtually impossible to totally keep these agentic attacks out of the network. What you want to do is to minimize the blast radius if and when that happens to any organization. Again, Booz Allen, as you know, through some of our contracts, has been a leader in zero trust in government, and that capability is portable to the private sector and in high demand.

Speaker #3: And we believe we're well positioned to both help and to capture significant demand from that. As I mentioned before, the way we're thinking about it is, on the part that we can discuss here, it comes in three pieces in the stack.

Speaker #3: First of all, zero trust is going to become an essential part of this, because it is going to be virtually impossible to totally keep these agentic attacks out of the network.

Horacio Rozanski: First of all, zero trust is going to become an essential part of this because it is going to be virtually impossible to totally keep these agentic attacks out of the network. What you want to do is to minimize the blast radius if and when that happens to any organization. Again, Booz Allen, as you know, through some of our contracts, has been a leader in zero trust in government, and that capability is portable to the private sector and in high demand.

Speaker #3: So what you want to do is to minimize the blast radius if and when that happens to any organization. And again, Booz Allen, as you know, through some of our contracts, has been a leader in zero trust in government.

Speaker #3: And that capability is portable to the private sector and in high demand. Above that, everything needs to get identified on the defense side to catch up to the offense side.

Horacio Rozanski: Above that, everything needs to get agentified on the defense side to catch up to the offense side. We began releasing Develop Suite. We have a second product out in market now called Ranger, which is really the product that helps a company begin to understand, remediate, and solve vulnerability issues across our network at AI speed instead of the traditional speed. Beyond that, there's additional products coming, some of which are specifically capable of taking on an AI attack. We believe Booz Allen, like I said, is very well positioned against all of that.

Speaker #3: We began releasing the Velox suite. We have a second product out in the market now called Ranger, which is really the product that helps a company begin to understand, remediate, and solve vulnerability issues across our network.

Speaker #3: AI speed instead of the traditional speed. And beyond that, there are additional products coming, some of which are specifically capable of taking on an AI attack.

Speaker #3: And so we believe Booz Allen, like I said, this is very well against all of that. I think the way we're going to see that is it's going to be both significant demand and growth in our traditional businesses, but really a very an acceleration of the productized and solutionized part of our offering, which will then drive margins and bottom line growth faster than top line growth, which has been one of the themes but I, like I said, I feel very good about that.

Horacio Rozanski: I think the way we're going to see that is going to be both significant demand and growth in our traditional businesses, but really an acceleration of the productized and solutionized part of our offering, which will then drive margins and bottom line growth faster than top line growth, which has been one of the themes. Like I said, I feel very good about that. On your last point, we are partnering with all of the major players and bringing something pretty unique. We do have Mythos in our lab, and we're using it extensively. We're working in all of the frontier models. I think Booz Allen is a recognized leader in this, and it's time for us to fully capture the upside that comes from this market.

Horacio Rozanski: Like I said, I feel very good about that. On your last point, we are partnering with all of the major players and bringing something pretty unique. We do have Mythos in our lab, and we're using it extensively. We're working in all of the frontier models. I think Booz Allen is a recognized leader in this, and it's time for us to fully capture the upside that comes from this market.

Speaker #3: And then, on your last point, we are partnering with all of the major players and bringing something pretty unique. We do have Mythos in our lab, and we're using it extensively.

Speaker #3: We have a lot of different—We're working in all of the frontier models, and I think Booz Allen is a recognized leader in this. It's time for us to fully capture the upside that comes from this market.

Speaker #1: Hey, thanks, Horacio. Thanks, everyone.

Troy Lahr: Okay, thanks, Horacio. Thanks, everyone.

Louie DiPalma: Okay, thanks, Horacio. Thanks, everyone.

Speaker #2: Thank you. Our next question is from Scott Michaels with Melios Research. Please proceed. Scott, your line is open. All right, I'm going to move on.

Operator: Thank you. Our next question is from Scott Mikos with Melius Research. Please proceed. Scott, your line is open. All right.

Scott Mikos: Can you hear me?

Scott Mikus: Can you hear me?

Speaker #2: Yes, we can hear you now. Thank you.

Operator: Yes. We can hear you now. Thank you.

Speaker #1: Sorry about that. Good morning, Horacio, Christine, and Troy. Quick question—just what were the acquired sales and backlog from the DeFi acquisition in the quarter?

Scott Mikos: Sorry about that. Good morning, Horacio, Kristine, and Troy. Quick question, just what were the acquired sales and backlog from the Defy acquisition in the quarter?

Scott Mikus: Sorry about that. Good morning, Horacio, Kristine, and Troy. Quick question, just what were the acquired sales and backlog from the Defy acquisition in the quarter?

Speaker #4: Yeah.

Troy Lahr: Yeah.

Horacio Rozanski: The way to think about Defy is that there's some portfolio shaping done between the end of last year and the beginning of this year, that it roughly offsets. We sold some parts of the portfolio that are roughly the same size as what we acquired in order to make sure that we had clean runways into work that was really important to us. The way we've been thinking about it is certainly at the top line, more of a net zero. Obviously Defy has better ultimate margins than the business we divested. For the purposes of both the quarter and everything else, I don't think that they changed the impact a whole lot.

Speaker #3: Just to, you know, the way to think about DeFi is that there was some portfolio shaping done between the end of last year and the beginning of this year. That roughly offsets—we sold some parts of the portfolio that are roughly the same size as what we acquired—in order to make sure that we had a clean runway into work that was really important to us.

Speaker #3: And so the way we've been thinking about it is, certainly at the top line, more of a net zero. And then maybe, obviously, DeFi has better ultimate margins than the business we divested, but for the purposes of both the quarter and everything else, I don't think that they changed the math.

Speaker #3: A whole lot.

Speaker #4: Yeah, I would just add that the DeFi acquisition—the impact was not really material. Everything you're seeing in the numbers is really reflective of the core business around national security and civils, how we think about it.

Troy Lahr: Yeah. I would just add that the Defy acquisition, the impact was not really material. Everything you're seeing in the numbers was really reflective of the core business around national security and civil, is how we think about it.

Speaker #1: Okay, all right, that's helpful. And then the Senate's version of the NDAA includes language that potentially restricts defense contractors from returning capital to shareholders unless they get a waiver.

Scott Mikos: Okay. All right. That's helpful. The Senate's version of the NDAA includes language that potentially restrict defense contractors from returning capital to shareholders unless they get a waiver pending a qualified investment plan. The scope of the language seems very broad. Just based on what you're hearing on the Hill, would that apply to government services providers such as Booz Allen? Just how are your conversations going with people on the Hill about that?

Scott Mikus: Okay. All right. That's helpful. The Senate's version of the NDAA includes language that potentially restrict defense contractors from returning capital to shareholders unless they get a waiver pending a qualified investment plan. The scope of the language seems very broad. Just based on what you're hearing on the Hill, would that apply to government services providers such as Booz Allen? Just how are your conversations going with people on the Hill about that?

Speaker #1: Pending the qualified investment plan, the scope of the language seems very broad. Just based on what you're hearing on the Hill, would that apply to government services providers such as Booz Allen?

Speaker #1: Just how are your conversations going with people on the Hill about that?

Speaker #3: You know, we're having a lot of conversation. The language will probably change and get refined, and we'll get clarity on the questions. But you're asking—all I can say for us is we're looking forward to investing in the technologies that have been described, that will both bring advantage to the warfighter and create real shareholder value for us.

Horacio Rozanski: We're having a lot of conversation. The language will probably change and get refined, and we'll get clarity on the questions that you're asking. All I can say for us is we're looking forward to investing in the technologies that I've been describing that will both bring advantage to the war fighter and create real shareholder value for us. At the current time, all of the avenues for capital deployment remain open.

Speaker #3: And that, at the current time, all of the avenues for capital deployment remain open.

Speaker #4: Yeah, Scott, I would just add from a capital deployment standpoint, we maintain a very balanced strategy. You saw the strong cash generation this quarter—that does give us a lot of flexibility.

Troy Lahr: Yeah. Scott, I would just add from a capital deployment standpoint, we maintain a very balanced strategy. You saw the strong cash generation this quarter. That does give us a lot of flexibility. We're still returning cash to shareholders via dividends in the buybacks. Longer term, we'll focus on acquisitions and M&A. Right now, we're looking to integrate the Ultra Mission Solutions business. Strong cash generation, and we're deploying it.

Speaker #4: So we're still returning cash to shareholders via dividends and buybacks. And then longer term, we'll focus on acquisitions and M&A. But right now, we're looking to integrate the Ultra Emissions Solutions business.

Speaker #4: But strong cash generation, and we’re deploying it.

Speaker #1: All right, thank you.

Scott Mikos: All right. Thank you.

Scott Mikus: All right. Thank you.

Speaker #2: Thank you. One moment for our next question. It's from Matt Akers with BNP Paribas. Please proceed.

Operator: Thank you. One moment for our next question. It's from Matt Akers with BNP Paribas. Please proceed.

Speaker #5: Hey, good morning, guys. Thanks for the question. I wanted to follow up on some of your comments on fixed-price contracts. I think you said in the opening remarks that's becoming more of the default option for the government.

Matt Akers: Hey, good morning, guys. Thanks for the question. I wanted to follow up on some of your comments on fixed price comments, contracts. I think you said in the opening remarks that's becoming more of the default option for the government. How far do you think that goes? I think fixed price has been maybe half as big as kind of your cost-plus contracts in the past. Could that get to be kind of more of an equal mix? If so, what does that mean for margins, and how do you make sure that you kind of size the risk appropriately on those fixed price contracts?

Speaker #5: So, how far do you think that goes? I mean, I think fixed price has been maybe half as big as, kind of, your cost-reimbursable contracts in the past.

Speaker #5: Could that get to be kind of more of an equal mix? And if so, what does that mean for margins and how do you make sure that you kind of size the risk appropriately on those fixed price contracts?

Speaker #6: Yeah, thanks for that question. I mean, the administration's made pretty clear that the default should be firm fixed-price contracting or outcomes-based contracting, and with a directive that all new contracts, unless they get approved, have to be firm fixed price.

Kristine Martin Anderson: Yeah. Thanks for that question. The administration's made pretty clear that the default should be firm fixed price contracting or outcomes-based contracting. With a directive that all new contracts, unless they get approved, have to be firm fixed price. It's early. We are seeing a shift, but we're also still seeing some cost-plus contracts that have come out. I think the deadline was just a week ago or so. There is some work that won't be able to be definitized. I think we have in our plan some shift. I would say that right now it's a little bit ahead of that, but it's a little early to tell exactly what proportion will shift over. For work that's already underway, there's another year before some of the additional tasking on existing work needs to convert.

Speaker #6: So it's early. We are still seeing that shift, but we're also still seeing some cost-plus contracts that have come out.

Speaker #6: I think the deadline was just a week ago or so. And then there is some work that won't be able to be definitized. I think we have, in our plan, some shift.

Kristine Martin Anderson: I think the deadline was just a week ago or so. There is some work that won't be able to be definitized. I think we have in our plan some shift. I would say that right now it's a little bit ahead of that, but it's a little early to tell exactly what proportion will shift over. For work that's already underway, there's another year before some of the additional tasking on existing work needs to convert. Far it looks like that conversion will happen, and we have included that in our planning.

Speaker #6: And I would say that right now it's a little bit ahead of that, but it's a little early to tell exactly what proportion will shift over.

Speaker #6: And then, for work that's already underway, there's another year before some of the additional tasking on existing work needs to convert. So far, it looks like that conversion will happen, and we have included that in our planning.

Kristine Martin Anderson: Far it looks like that conversion will happen, and we have included that in our planning.

Speaker #3: Yeah, I'll just add by saying that, first of all, we welcome this direction of travel. We've been advocating for it. We think outcome-based is certainly good for the government, but it also gives us the ability to run the business in a way that we can both maximize impact and value to the government.

Horacio Rozanski: Yeah, I'll just add by saying that first of all, we welcome this direction of travel.

Kristine Martin Anderson: Yeah.

Horacio Rozanski: We've been advocating for it. We think outcome-based is certainly good for the government, but it also gives us the ability to run the business in a way that we can both maximize impact and value to the government. In some cases, provide better pricing, and over time, if we're operating efficiently, earn a bigger return on that. We are preparing for it, we're planning for it, and we're working on it, and the early indications are positive, but it is not going to be an overnight thing because as Kristine said, even with the new directive, contracts don't turn over overnight, and there's a lot of work to do. Yeah. Thank you. That's helpful. And then on the Ultra acquisition, I may have missed this, but what's the revenue run rate you're expecting from that? And just any thoughts on how capital allocation shifts after that?

Speaker #3: In some cases, provide better pricing. And, over time, if we're operating efficiently, earn a bigger return on that. So, this is what we are preparing for.

Horacio Rozanski: We are preparing for it, we're planning for it, and we're working on it, and the early indications are positive, but it is not going to be an overnight thing because as Kristine said, even with the new directive, contracts don't turn over overnight, and there's a lot of work to do.

Speaker #3: We're planning for it and we're working on it. The early indications are positive, but it is not going to be an overnight thing because, as Christine said, even with the new directive, contracts don't turn over overnight.

Speaker #3: And there's a lot of work to do.

Speaker #5: Yeah, thank you. That's helpful. And then, on the Ultra acquisition— I may have missed this, but what's the revenue run rate you're expecting from that?

Matt Akers: Yeah. Thank you. That's helpful. And then on the Ultra acquisition, I may have missed this, but what's the revenue run rate you're expecting from that? And just any thoughts on how capital allocation shifts after that? Are you focused on de-levering after that deal, or do you think there's more flexibility?

Speaker #5: And just any thoughts on how capital allocation shifts after that? Are you focused on delivering after that deal, or do you think there's more flexibility?

Horacio Rozanski: Are you focused on de-levering after that deal, or do you think there's more flexibility?

Speaker #4: Yeah, thanks, Matt. I would say what we said is that really, when it comes to revenue, we see strong double-digit growth. I think that's going to continue for the next several years.

Troy Lahr: Yeah. Thanks, Matt. I would say what we said is that really when it comes to revenue, we see strong double-digit growth. I think that that's going to continue for the next several years. EBITDA margins are well above the 20%. Beyond that, we're not going to get into the specifics around revenue. We will update guidance next quarter, so you'll see that. Overall, comfortable with how that business is looking. Looks like a very high-quality asset. We like what we're seeing there. I would say, just reiterate from a capital deployment standpoint, we'll still be returning cash back to shareholders via the dividends and the buybacks. We do have sufficient liquidity and access to the bond markets. I would say over time, we'll look to de-leverage the balance sheet following the Ultra acquisition.

Speaker #4: EBITDA margins are well above 20%. Beyond that, we're not going to get into the specifics around revenue. We will update guidance next quarter.

Speaker #4: So you'll see that. But overall, we're comfortable with how that business is looking. It looks like a very high-quality asset, so we like what we're seeing there.

Troy Lahr: Overall, comfortable with how that business is looking. Looks like a very high-quality asset. We like what we're seeing there. I would say, just reiterate from a capital deployment standpoint, we'll still be returning cash back to shareholders via the dividends and the buybacks. We do have sufficient liquidity and access to the bond markets. I would say over time, we'll look to de-leverage the balance sheet following the Ultra acquisition.

Speaker #4: I would say, just to reiterate from a capital deployment standpoint, we'll still be returning cash to shareholders via dividends and buybacks. We do have sufficient liquidity and access to the bond markets.

Speaker #4: I would say, over time, we'll look to deleverage the balance sheet following the Ultra acquisition.

Speaker #5: Great, thank you very much.

Horacio Rozanski: Great. Thank you very much.

Matt Akers: Great. Thank you very much.

Speaker #4: Thanks, Matt.

Troy Lahr: Thanks, Matt.

Speaker #2: Thank you. Our next question is from Seth Seifman with JP Morgan. Please proceed.

Operator: Thank you. Our next question is from Seth Seifman with JP Morgan. Please proceed.

Speaker #1: Hey, thanks very much, and good morning. I'm going to ask first on the civil side of the business. Given the type of sequential decline you're looking for in the second quarter, it looks like we'll need kind of a nice bounce back in the third quarter, probably.

Seth Seifman: Hey, thanks very much. Good morning. I wanted to ask first on the civil side of the business, given the type of sequential decline you're looking for in Q2, it looks like we'll need a nice bounce back in Q3, probably, in order to be in that kind of high single digits for the year. Is that something that you have visibility to now, and how do your comments about the risks around the midterm and the CR for H2 play into that civil outlook?

Speaker #1: In order to be in that kind of high single digits for the year, is that something that you have visibility to now? And how do your comments about the risks around the midterm and the CR for the second half play into that civil outlook?

Speaker #6: Yeah, thanks for the question. And while the civil business has been challenged recently, we do remain committed to it. It's a very, very important mission, and we have very deep expertise in those missions, and we bring a lot to the table.

Kristine Martin Anderson: Thanks for the question. While the civil business has been challenged recently, we do remain committed to it. It's very important missions, we have very deep expertise in those missions, and we bring a lot to the table. We expect civil to be down in the high single digits this year. It'll be an improvement from last year. There are some dynamics that I mentioned in my opening comments around the things already announced around reductions in contracts and at Treasury, and others, then also the smaller recompetes which really kick in next quarter. Also, the number of awards that did not happen last year. It was quite anemic in the award environment. The new ramp just comes in a little bit later. Yes, the tailwinds for the expanding customer base, improved funding, and improved pipeline are important.

Speaker #6: We expect Civil to be down in the high single digits this year. It'll be an improvement from last year. There are some dynamics that I mentioned in my opening comments around the things already announced, including reductions in contracts at Treasury and others.

Speaker #6: And then also the smaller recompetes, which really kick in next quarter, and also the number of awards that did not happen last year, right?

Kristine Martin Anderson: Also, the number of awards that did not happen last year. It was quite anemic in the award environment. The new ramp just comes in a little bit later. Yes, the tailwinds for the expanding customer base, improved funding, and improved pipeline are important. We're still kind of coming through a transition year.

Speaker #6: It was quite anemic in the award environment, and then the new ramp just comes in a little bit later. So yes, the tailwinds from the expanding customer base, improved funding, and improved pipeline are important.

Speaker #6: But we're still kind of coming through a transition year.

Kristine Martin Anderson: We're still kind of coming through a transition year.

Speaker #1: Right. Okay. Okay. Thanks. And then, just following up on the last question about the contract type mix — I mean, for most of the time that I guess we have data, and most of the time that I’ve been looking at the company, the fixed price proportion has been kind of in either the high teens or sort of low 20s.

Seth Seifman: Right. Okay. Thanks. Then, maybe just following up on the last question about the contract type mix. Most of the time that, I guess, we have data and most of the time that I've been looking at the company, the fixed price proportion has been in the either high teens or sort of low twenties. When you think about this evolution, are we at a place where by the time we're exiting this year, that's going to be a meaningfully higher number that's outside of what we've seen in the past, whether that's high twenties or thirties or something like that?

Speaker #1: When you think about this evolution, are we at a place where, by the time we're exiting this year, that's going to be a meaningfully higher number?

Speaker #1: That's outside of what we've seen in the past, whether that's the high 20s or 30s, or something like that?

Speaker #4: Yeah, thanks, Seth. I'll just say that, as Christine said, I think it's early on. I think we're optimistic about the trends that we're seeing.

Troy Lahr: Yeah. Thanks, Seth. I'll just say that, as Kristine said, I think it's early on. I think we're optimistic about the trends that we're seeing. There's always variations quarter-to-quarter, so I don't want to get ahead and start speculating how it's going to evolve. We like what we're seeing now, and we'll continue to monitor it. I think that that's a positive for this company. We know how to execute on those contracts. You saw that this quarter. We're comfortable, we're feeling good where we are, but we'll keep you posted.

Speaker #4: There are always variations quarter to quarter, so I don't want to get ahead of ourselves and start speculating on how it's going to evolve. But we like what we're seeing now.

Speaker #4: And we'll continue to monitor how to execute on those contracts. You saw that this quarter, so we're comfortable. We're feeling good where we are, but we'll keep you posted.

Speaker #1: Great. Great. Thanks very much.

Seth Seifman: Great. Thanks very much.

Speaker #2: Our next question is from Toby Summer with Truist Securities. Please proceed.

Operator: Our next question is from Tobey Sommer with Truist Securities. Please proceed.

Speaker #5: Thank you. In the industry, clients at the federal level have talked about procuring software and hardware directly from vendors, as opposed to through integrators.

Tobey Sommer: Thank you. In the industry, the clients in the federal level have talked about procuring software and hardware directly from the vendors as opposed to through integrators. Last night, Oracle got a big DoD contract. To what extent does this impact the company at all? I understand it would not really have a profit impact, but I'm curious if there's an influence in the P&L.

Speaker #5: And last night, Oracle got a big DoD contract. To what extent does this impact the company at all? And I understand it would not really have a profit impact, but I'm curious if there's an influence in the P&L.

Speaker #3: You know, we have not yet seen the shift in the way one could hypothesize it will affect the business. If the shift took place, the billable expenses would go down, and so you would see a bigger gap in the revenue, expendables, and the gross revenue number.

Horacio Rozanski: We have not yet seen the shift in the way one could hypothesize it'll affect the business. If the shift took place, the billable expenses would go down, so you would see a bigger gap in the revenue ex billables and the gross revenue number. As you said, ultimately, we view that as a potential positive in terms of reducing some of the volatility quarter to quarter in the top-line numbers, no real meaningful impact in terms of how we prosecute the business. In fact, every time one of the large hyperscalers gets a contract like that, we're in conversations with them because the reality is that, especially in some of these key missions that are most important, the ones that are growing the most, call it the last mile, gets more and more complex to execute.

Speaker #3: As you said, we view that ultimately, we view that as a potential positive in terms of reducing some of the volatility quarter to quarter in the top-line numbers, and no real meaningful impact in terms of how we prosecute the business.

Speaker #3: In fact, every time one of the large hyperscalers gets a contract like that, we're in conversations with them because the reality is that, especially in some of these key missions that are most important—the ones that are growing the most—call it the last mile, it gets more and more complex to execute. Having these models and having these capabilities available to the warfighter at the edge, for example, becomes something that is going to be essential to unlocking the demand.

Horacio Rozanski: In fact, every time one of the large hyperscalers gets a contract like that, we're in conversations with them because the reality is that, especially in some of these key missions that are most important, the ones that are growing the most, call it the last mile, gets more and more complex to execute.

Horacio Rozanski: Having these models and having these capabilities available to the war fighter at the edge, for example, becomes something that is going to be essential to unlocking the demand. Again, here's a place where Booz Allen is shining, we expect will continue to shine. Whether the contract is such that the, call it a cloud buy, gets done through us or directly, is really not that significant to the value that we're bringing, to the differentiation that we're bringing, and to our capacity to affect mission.

Speaker #3: And again, here’s a place where Booz Allen is shining, and we expect we’ll continue to shine. Whether the contract is such that the—call it a cloud buy—gets done through us or directly is really not that significant to the value that we’re bringing.

Speaker #3: To the differentiation that we're bringing into our capacity to affect mission.

Speaker #6: And it's not all that common that the software buys what actually comes directly through us. Cloud for sure. And there are a bunch of other the majority are billable expenses are a subcontractors, etc.

Kristine Martin Anderson: It's not all that common that the software buys what actually comes directly through us. Cloud, for sure, and the majority of our billable expenses are subcontractors, et cetera. Again, we don't mind them buying direct, but we have not really seen any impact so far.

Speaker #6: So again, we don't mind them buying direct, but we have not really seen any impacts so far.

Speaker #5: I appreciate that. And then for the calendar third quarter or end of the federal fiscal year, is there an opportunity for a better than normal book-to-bill in what is seasonally already a strong quarter, because of the way the Pentagon has to kind of obligate a bunch of O&M or RDT&E funds or risk a minor clawback?

Tobey Sommer: Appreciate that. For the calendar Q3 or end of the federal fiscal year, is there an opportunity for a better than normal book-to-bill in what is seasonally already a strong quarter because of the way the Pentagon has to kind of obligate a bunch of O&M funds or risk of a minor clawback?

Speaker #3: You know, we're not going to get in front of ourselves. I think, at this point, the team is executing really well on both capturing demand and executing against that demand.

Horacio Rozanski: We're not going to get in front of ourselves. I think at this point, the team is executing really well on both capturing demand and executing against that demand, making sure that what we deliver is of very high quality and trying to make sure that we continue to focus on dollar profit growth, especially as the portfolio starts to shift and maybe over time accelerates towards fixed price. I think we're, like I said, cautiously optimistic around some of these dynamics, but we'll just have to see.

Speaker #3: Making sure that what we deliver is of very high quality, and trying to make sure that we continue to focus on dollar profit growth, especially as the portfolio starts to shift and, maybe over time, accelerates towards fixed price.

Speaker #3: And I think we're, like I said, cautiously optimistic around some of these dynamics, but we'll just have to see.

Speaker #5: Thank you.

Tobey Sommer: Thank you.

Speaker #2: Thank you. Our next question comes from the line of Sheila Kayoglu with Jefferies. Please proceed.

Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed.

Speaker #7: Good morning, guys, and thank you so much. Maybe just on the funded backlog of 15%. How should we think about the Q2 to Q4 implied growth rate of 1% to 7%?

Sheila Kahyaoglu: Good morning, guys, and thank you so much. Maybe just on the funded backlog up 15%, how do we think about just the Q2 to Q4 implied growth rate of 1% to 7%? Are there any specific new wins in that backlog that translate into revenues in the next three quarters? If there are programs that you'd like to call out.

Speaker #7: Are there any specific new wins in that backlog that translate into revenues in the next three quarters? If you could, are there programs that you'd like to call out?

Speaker #4: Yeah, Sheila, I would just say from a program standpoint, we're feeling good about where we are. There's no one program that we're specifically focusing on to hit those growth rates that we talked about.

Troy Lahr: Yeah, Sheila, I would just say from a program standpoint, we're feeling good about where we are. There's no one program that we're specifically focusing on to hit those growth rates that we talked about. I think you're seeing increased confidence with the funding, with the backlog. Again, both businesses are improving. Again, we're starting to see those signs. It's still a choppy environment, but no one program that we're focused on here. I think that highlights the strength of this business and the diversification, which gives us confidence in the outlook.

Speaker #4: I think you're seeing increased confidence with the funding, with the backlog. Again, both businesses are improving, so we're starting to see those signs.

Speaker #4: It's still a choppy environment, but no one program that we're focused on here. I think that highlights the strength of this business and the diversification.

Speaker #4: Which gives us confidence in the outlook.

Speaker #7: Okay. And then maybe just on the employees down 7% or headcount down 7% in the first quarter, I know some of it is clearances, and you guys plan to ramp in the next three quarters.

Sheila Kahyaoglu: Okay. Maybe just on the employees down 7%, or the headcount down 7% in the Q1. I know some of it is clearances, and you guys plan to ramp in the next three quarters. I guess, how do we think about whether it's AI or a fixed-price contract changing that relationship between revenues and headcount for Booz? Thanks.

Speaker #7: I guess, how should we think about whether it's AI or fixed price contracts that's changing the relationship between revenues and headcount for Booz? Thanks.

Speaker #6: Yeah, I think part of the decline is really related to the decline in Civil, right? So overall, that’s what we’ve been seeing for the past couple of quarters.

Kristine Martin Anderson: Yeah, I think part of the decline is really related to the decline in civil, so overall, that we've been seeing for the past couple of quarters. We are still hiring, and the portfolio is shifting in who we're hiring. Like I said, we do have some work to do to accelerate the hiring, particularly for cleared personnel. The disconnect between the changes to the model, I would say, are more driven by changes in delivery and changes in the portfolio than anything else.

Speaker #6: We are still hiring, and the portfolio is shifting in what we're hiring and who we're hiring. Like I said, we do have some work to do to accelerate the hiring, particularly for cleared personnel.

Speaker #6: The disconnect between the model and the changes to the model, I would say, are more driven by changes in delivery and changes in the portfolio.

Speaker #6: Than anything else.

Speaker #7: Got it. Thank you so much.

Sheila Kahyaoglu: Got it. Thank you so much.

Speaker #2: Thank you. Our last question comes from John Godin with Citi. Please proceed.

Operator: Thank you. Our last question comes from Jon Godin with Citi. Please proceed.

Speaker #4: Hey guys, thanks for taking my question. I'll keep it to one question at the end here, but perhaps a bigger-picture one. Horacio, can we just talk about capital allocation?

Jon Godin: Hey, guys. Thanks for taking my question. I'll keep it to one question at the end here, but perhaps a bigger picture one. Horacio, can we just talk about capital allocation? You mentioned some things in the venture fund paying off. There's an interesting M&A deal that you guys are also focused on. Of course, shareholder returns. I was hoping we could just kind of check through all of these and kind of discuss the complete capital allocation picture here. Of course, the valuation multiple is quite low, and I'm just curious how you think of capital allocation as a tool to maybe regain prior valuation levels. Thanks.

John Godyn: Hey, guys. Thanks for taking my question. I'll keep it to one question at the end here, but perhaps a bigger picture one. Horacio, can we just talk about capital allocation? You mentioned some things in the venture fund paying off. There's an interesting M&A deal that you guys are also focused on. Of course, shareholder returns. I was hoping we could just kind of check through all of these and kind of discuss the complete capital allocation picture here. Of course, the valuation multiple is quite low, and I'm just curious how you think of capital allocation as a tool to maybe regain prior valuation levels. Thanks.

Speaker #4: You mentioned some things in the venture fund paying off. There's an interesting M&A deal that you guys are also focused on, and of course, shareholder returns.

Speaker #4: I was hoping we could just kind of check through all of these and discuss the complete capital allocation picture here. Of course, the valuation multiple is quite low.

Speaker #4: And I'm just curious how you think of capital allocation as a tool to maybe regain prior valuation levels. Thanks.

Speaker #3: Sure. Thank you for that. We believe that the way to accelerate shareholder value is ultimately to grow the business at the top line and to grow the business faster at the bottom line.

Horacio Rozanski: Sure. Thank you for that. We believe that the way to accelerate shareholder value is ultimately to grow the business at the top line and to grow the business faster at the bottom line. We continue really laser-focused on that. If you think about it from a capital allocation standpoint, we look first to make investments that will make that promise a reality as quickly as possible. We are, as you know, have always been very thoughtful and measured around M&A. We continue to be thoughtful and measured around M&A, but if we see something that is going to be an accelerant, especially to cyber and defense tech, we will continue to make relatively smaller acquisitions in that space. Beyond that, as Troy has pointed out, we have strong balance sheet and we have significant cash generation.

Speaker #3: And so we continue to be really laser-focused on that. So, if you think about it from a capital allocation standpoint, we look first to make investments that will make that promise a reality as quickly as possible.

Speaker #3: We are, as you know, and have always been, very thoughtful and measured around M&A. We continue to be thoughtful and measured around M&A, but if we see something that is going to be an accelerant, especially to cyber and defense tech, we will continue to make relatively smaller acquisitions in that space.

Horacio Rozanski: We continue to be thoughtful and measured around M&A, but if we see something that is going to be an accelerant, especially to cyber and defense tech, we will continue to make relatively smaller acquisitions in that space. Beyond that, as Troy has pointed out, we have strong balance sheet and we have significant cash generation.

Speaker #3: Beyond that, as Troy has pointed out, we have a strong balance sheet and significant cash generation. So I don't think, from our perspective, that this is an either-or, where either we make tucking acquisitions or we return capital to shareholders.

Horacio Rozanski: I don't think from our perspective that this is an either/or, where either we make tuck-in acquisitions or we return capital to shareholders. I think that we can have a very balanced approach that gives us the opportunity to really do both as it makes sense. Ultimately, the focus of this management team is the ongoing transformation of the business, the strong execution quarter in and quarter out, and the ability to differentiate ourselves by driving unique value to every customer that we serve. I really believe that if we do that consistently, if we do that with clarity, and if we communicate to you all of these things, that I think the market will realize the true value of Booz Allen over time. Beyond whatever tactical moves we make in any given quarter on capital allocation, that's the North Star, that's the real pathway here.

Speaker #3: I think that we can have a very balanced approach that gives us the opportunity to really do both as it makes sense. But ultimately, the focus of this management team is the ongoing transformation of the business, strong execution quarter in and quarter out, and the ability to differentiate ourselves by driving unique value to every customer that we serve.

Horacio Rozanski: I really believe that if we do that consistently, if we do that with clarity, and if we communicate to you all of these things, that I think the market will realize the true value of Booz Allen over time. Beyond whatever tactical moves we make in any given quarter on capital allocation, that's the North Star, that's the real pathway here.

Speaker #3: I really believe that if we do that consistently—if we do that with clarity, and if we communicate to you all of these things—then I think the market will realize the true value of Booz Allen over time. Beyond whatever tactical moves we make in any given quarter on capital allocation, that's the North Star; that's the real pathway here.

Speaker #4: Appreciate the thoughts, and thanks for squeezing me in.

Jon Godin: Appreciate the thoughts, thanks for squeezing me in.

John Godyn: Appreciate the thoughts, thanks for squeezing me in.

Speaker #3: Sure.

Horacio Rozanski: Sure.

Speaker #2: Thank you. And this concludes our Q&A session. I will pass it back to Horacio Rozanski for closing comments.

Operator: Thank you. This concludes our Q&A session. I will pass it back to Horacio Rozanski for closing comments.

Speaker #3: Thank you, Carmen. Thank you, everyone, again, for joining us today and for your very thoughtful questions. I hope that Christine, Troy, and I provided you with a clear sense of how we're advancing the strategy, how we're executing the business, and how we remain focused on accelerating growth over the coming quarters and in the near and medium term.

Horacio Rozanski: Thank you, Carmen. Thank you everyone again for joining us today and for your very thoughtful questions. I hope that Kristine, Troy, and I provided you with a clear sense of how we're advancing the strategy, how we're executing the business, and how we remain focused on accelerating growth over the coming quarters and in the near and medium term. I want to take a moment as we close here to really thank our team. Everybody at Booz Allen is fully committed to the missions that we support, to driving the company, and to creating shareholder value. To all of you Booz Allen people that are listening today, thank you for who you are and for everything we do. The future is bright for Booz Allen because of all of you. With that, thank you again for joining us, and have a great rest of the summer.

Speaker #3: I want to take a moment, as we close here, to really thank our team. Everybody at Booz Allen is fully committed to the missions that we support, to driving the company, and to creating shareholder value.

Horacio Rozanski: I want to take a moment as we close here to really thank our team. Everybody at Booz Allen is fully committed to the missions that we support, to driving the company, and to creating shareholder value. To all of you Booz Allen people that are listening today, thank you for who you are and for everything we do. The future is bright for Booz Allen because of all of you. With that, thank you again for joining us, and have a great rest of the summer.

Speaker #3: So, to all of you Booz Allen people that are listening today, thank you for who you are and for everything we do. The future is bright for Booz Allen because of all of you.

Speaker #3: And with that, thank you again for joining us, and have a great rest of the summer.

Operator: This concludes our conference. Thank you for participating, and you may now disconnect.

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