Booz Allen Hamilton Holding Corporation (BAH) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presented mixed signals: strong technology investments and optimism in defense and cyber sectors contrast with flat civil business and competitive pricing pressures. While full-year guidance is positive, the lack of immediate growth and cautious ramp-up in new contracts tempers enthusiasm. The Q&A highlighted uncertainties and management's non-committal stance on short-term performance, suggesting a balanced sentiment. This leads to a neutral prediction for the stock price movement, as positive long-term strategies are countered by short-term challenges and market uncertainties.
Key Financial Performance
Gross Revenue $2.9 billion, an 8% decline year-over-year. Adjusting for a one-time reduction to provision for claim costs in the prior year, gross revenue was down about 5% year-over-year. The decline is attributed to disruptions in the civil portfolio and slower funding and procurement cycles.
National Security Portfolio Revenue Up 5% year-over-year, exclusive of discrete items from the prior fiscal year. Growth attributed to strong performance in defense and intelligence programs.
Civil Business Revenue Down 22% year-over-year, exclusive of prior year discrete items. Expected to decline in the low 20% range for the full fiscal year. Decline due to procurement gaps, pricing pressures on large procurements, and a challenging market environment.
Funded Backlog Down 6% year-over-year. Decline attributed to slower pace of contract funding and procurement cycles.
Adjusted EBITDA $324 million, down 11% year-over-year. Adjusted EBITDA margin was 11.2%, 40 basis points lower than the prior year. Decline due to mix shift away from higher-margin civil business and slower funding environment.
Net Income $175 million, down 55% year-over-year. Decline driven by lower profitability, unrealized investment gains, tax planning initiatives in the prior year, and higher interest expense.
Adjusted Net Income $183 million, down 21% year-over-year. Decline attributed to lower profitability and other factors.
Diluted Earnings Per Share (EPS) $1.42, down 53% year-over-year. Decline due to lower profitability, prior year benefits from investment gains and tax planning, and higher interest expense.
Adjusted Diluted EPS (ADEPS) $1.49, down 18% year-over-year. Decline attributed to lower profitability and other factors.
Free Cash Flow $395 million, driven by $421 million in cash from operations and $26 million in CapEx.
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Operating Highlights
AI capabilities: Focus on maximizing AI capabilities and commercial technology partnerships to revolutionize delivery and reignite growth in the civil business.
Thunderdome product: Becoming the standard for Zero Trust, met all government milestones 2 years ahead of schedule, and won the 2025 Cybersecurity Breakthrough Award.
Edge technology: Developing modular detachment kits, exquisite tactical gear, and combining own tech with commercial products to empower and protect warfighters.
National security portfolio: 90% of $7.2 billion gross bookings were in national security, including major wins like the $1.2 billion Shadow Raptor task order and three other awards valued over $800 million each.
Civil business: Operating in a challenging market with delayed growth due to procurement environment issues and funding cuts.
Cost reduction: Reducing costs by accelerating AI in internal operations, simplifying the operating model, and reducing senior ranks to save $150 million annually.
Outcome-based contracting: Transitioning to outcome-based contracts and productizing IP to provide cost savings and margin expansion.
Focus on growth areas: Doubling down on cyber, AI, warfighting tech, critical national security programs, and tech ecosystem partnerships.
Restructuring: Taking bold actions to adjust cost structure, improve agility, and align with growth vectors.
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Risk or Challenges
Civil Business Challenges: The civil business is operating in a challenging market, with a significant slowdown in procurement activities and funding. This has led to delays in growth and a decline in revenue, with expectations of a low 20% revenue decline for the year. Fixed-price contracts in this segment are also putting downward pressure on margins.
National Security Portfolio Friction: While the national security portfolio is stronger, there are frictions in the funding process, including shorter funding increments and slower ramp-ups in new contract wins. This has created challenges in fully capitalizing on growth opportunities.
Procurement and Funding Environment: The overall procurement and funding environment has not normalized, with slower funding cycles, longer lead times for new initiatives, and smaller funding increments. This has negatively impacted the company's ability to reaccelerate growth.
Government Shutdown Impact: The government shutdown has introduced additional friction, with an estimated $30 million revenue loss and $15 million profit loss for October. A prolonged shutdown could exacerbate these losses.
Cost Structure and Workforce Adjustments: The company is reducing costs by cutting $150 million annually, including workforce reductions and simplifying operations. These actions, while necessary, may have short-term negative impacts on morale and operational efficiency.
Pricing Pressures on Recompetes: There is an expectation of pricing pressures on large recompete contracts, which could further impact revenue and profitability.
Civil Agency Prioritization Shifts: Civil agencies are reevaluating priorities, leading to uncertainty and delays in contract awards and funding.
Mix Shift Away from Civil Business: The shift away from the higher-margin civil business to other segments is putting downward pressure on overall margins.
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Guidance & Outlook
Revenue Expectations: Revenue for fiscal year 2026 is expected to be between $11.3 billion and $11.5 billion, reflecting a reduction in guidance due to slower-than-expected funding and procurement trends.
Adjusted EBITDA Margins: Adjusted EBITDA margins are expected to be in the mid-10% range for fiscal year 2026, translating to an adjusted EBITDA dollar range of $1.19 billion to $1.22 billion.
Adjusted Diluted Earnings Per Share (ADEPS): ADEPS is projected to be between $5.45 and $5.65 per share for fiscal year 2026.
Free Cash Flow: Free cash flow is expected to be between $850 million and $950 million for fiscal year 2026.
National Security Portfolio Growth: Revenue in the national security portfolio, including defense and intelligence businesses, is anticipated to grow in the mid-single-digit range for fiscal year 2026.
Civil Business Revenue Decline: Revenue in the civil business is expected to decline in the low 20% range for fiscal year 2026 due to procurement delays and funding challenges.
Cost Restructuring Impact: The company plans to reduce costs by $150 million annually, with full impact expected in fiscal year 2027, while having a modestly negative impact on revenue for cost-plus contracts.
Government Shutdown Impact: The government shutdown is estimated to result in a $30 million revenue loss and $15 million profit loss if it extends through October 31, with similar impacts expected for each additional month of shutdown.
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Shareholder Return Plan
Quarterly Dividend: $0.55 per share, payable on December 2 to stockholders of record as of November 14.
Share Repurchase: $208 million in share repurchases at an average price of $107.15 per share, repurchasing nearly 2% of outstanding shares in the quarter.
Increase in Share Repurchase Authorization: Board approved an increase of $500 million to share repurchase authorization, bringing available capacity to approximately $880 million as of September 30.
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Key Q&A
Q:Are you receiving signs and indications that the funding environment for the defense and intel business is improving and getting back to normal?
A:Horacio Rozanski explained that the national security business is in a stronger environment compared to the civil business, which is facing significant challenges. However, there is still friction due to the government shutdown and potential continuing resolution environment. They are not anticipating a fast ramp-up on significant wins, but rather a slower ramp-up below historical levels. The company is focusing on staying nimble and reacting to short- and medium-term changes.
Q:What is assumed in the guidance for the federal civilian business for the rest of the year?
A:Matthew Calderone stated that the civil portfolio is expected to remain flat for the year, with no additional cuts or new awards observed in the last quarter. The guidance assumes stabilization in the civil business, but with a competitive procurement environment and pricing pressure on large programs. Kristine Anderson added that the environment remains slow with few new large bids, but there are productive conversations with the administration about new approaches to core missions.
Q:Was there stabilization in the civil business from the September quarter relative to the June quarter?
A:Kristine Anderson confirmed that the civil business has been steady since earlier reductions in the year. Matthew Calderone added that there were no new decrements, but also no significant on-contract growth or plus-ups in Q2.
Q:Is the profitability profile of the civil portfolio still around 13% margins, and defense and intel in the 8%-10% range?
A:Matthew Calderone confirmed that this range is roughly accurate, noting that the civil portfolio has a higher proportion of fixed-price contracts.
Q:How does Booz Allen think about aligning its sales force and workforce as it restructures the business?
A:Horacio Rozanski emphasized the flexibility of Booz Allen's single P&L operating model, which allows the company to respond quickly to market changes. He highlighted the importance of partnerships with tech companies and the integration of commercial technology into missions as key strategies for long-term growth.
Q:Does the math of civil being down 10%, defense and intel accelerating to mid-single digits, and organic growth of 0%-2% for 2027 make sense?
A:Matthew Calderone stated that while there is momentum in the national security portfolio and stabilization in the civil business, he would not necessarily straight-line the math as presented. He emphasized medium-term optimism and significant building blocks for growth.
Q:What would you tell an investor considering going short next quarter?
A:Matthew Calderone declined to provide investment advice, emphasizing that the company does not manage for the quarter but focuses on medium- and long-term growth.
Q:How much of the new guidance is already in backlog, and how much depends on new contracts?
A:Matthew Calderone explained that the guidance is based on current burn rates and trends, with no significant new wins required. However, some uncontracted growth and new wins are necessary, and the situation remains volatile.
Q:How are conversations with customers about on-contract growth?
A:Horacio Rozanski and Kristine Anderson described productive conversations, particularly in the national security space and growth areas like cyber. However, they have not made aggressive assumptions about immediate growth due to the current environment.
Q:What are the expectations for the cyber portfolio in the next 2-3 years?
A:Horacio Rozanski expressed strong optimism about the cyber business, citing its unique position in national security, the growing attack surface due to AI, and increasing demand from commercial customers. He believes Booz Allen has one of the most powerful cyber businesses globally.
Q:Is total backlog still a good leading indicator of demand and growth?
A:Matthew Calderone stated that while total backlog is a good long-term indicator, funded backlog is more relevant in the short term. He noted that funding has improved but not normalized, and the company is cautious about the pace of ramp-up for new awards.
Q:How does Booz Allen determine growth investment allocation while targeting profitability and headcount cuts?
A:Horacio Rozanski explained that the company balances short-term profitability with medium- and long-term growth investments. The $150 million cost reduction initiative is aimed at freeing up resources for growth opportunities. Matthew Calderone added that the dynamic environment presents significant investment opportunities, which drive the cost actions.
Q:Does the margin hold in the civil business despite significant changes in demand?
A:Kristine Anderson acknowledged pricing competition due to fewer bids and more aggressive pricing but noted that the use of technology to innovate delivery should help preserve margins.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about what they would tell an investor considering going short next quarter. Matthew Calderone explicitly stated that he is not in the business of giving investment advice, avoiding a direct response to the query.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI ML
AI adoption
AI hardware
AI war
AI wave
AUSA investor
AWS venture
Agency intelligence
Army National
Award provider
Beautiful Bill
Bill prioritization
Breakthrough Award
Cybersecurity Breakthrough
Darensbourg disclaimer
Deltek cyber
Director Head
Directorate win
Dome approach
Intelligence
Slide
action environment
cut
cyber AI
depth
edge technology
environment term
friction
funding
future
pace
security portfolio
statement today
strength
success
tech edge
vector
war fighter
BAH Transcript
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Booz Allen Hamilton Holding Corporation (BAH) Q3 2026 Earnings Call Transcript
Unknown1-23
The earnings call summary indicates mixed signals with reduced revenue guidance, civil business decline, and uncertain government impact, despite positive contract activity and partnerships. The Q&A reveals optimism in AI and defense but lacks concrete civil sector recovery details. The strategic plan shows potential but is overshadowed by fiscal challenges and cost restructuring impacts. The overall sentiment leans negative due to weaker guidance, civil sector setbacks, and limited clarity on recovery, likely leading to a stock price decline of -2% to -8%.
Booz Allen Hamilton Holding Corporation (BAH) Q2 2026 Earnings Call Transcript
Unknown10-24
The earnings call presented mixed signals: strong technology investments and optimism in defense and cyber sectors contrast with flat civil business and competitive pricing pressures. While full-year guidance is positive, the lack of immediate growth and cautious ramp-up in new contracts tempers enthusiasm. The Q&A highlighted uncertainties and management's non-committal stance on short-term performance, suggesting a balanced sentiment. This leads to a neutral prediction for the stock price movement, as positive long-term strategies are countered by short-term challenges and market uncertainties.
Booz Allen Hamilton Holding Corporation (BAH) Q1 2026 Earnings Call Transcript
Unknown7-25
The earnings call shows mixed signals: strong AI business growth and positive strategic partnerships, but concerns over civil business revenue decline and uncertain funding environment. Management's optimistic guidance and cash flow benefits are tempered by unclear responses on key issues and a lack of specific guidance, leading to a neutral sentiment.
BAH Slides
BAH Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
