Booz Allen Hamilton (BAH) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the second quarter, gross revenue was $2.9 billion, an 8% decline year-over-year, and approximately a 9% decline on a revenue ex-billable basis [25] - Adjusted net income was $183 million, down 21% year-over-year, with diluted earnings per share decreasing 53% to $1.42 per share [31] - The funded backlog was down 6% year-over-year, while total backlog reached $40 billion, up 3% year-over-year [27][32] Business Line Data and Key Metrics Changes - The national security portfolio grew by 5% year-over-year, while revenue in the civil business declined by 22% year-over-year [25] - The company anticipates civil business revenue to decline in the low 20% range for the fiscal year, while the national security portfolio is expected to grow in the mid-single-digit range [18][25] Market Data and Key Metrics Changes - The procurement environment remains challenging, with no major procurement actions observed in the civil sector during the second quarter [8] - Gross bookings totaled $7.2 billion in the quarter, with 90% attributed to national security [9][26] Company Strategy and Development Direction - The company is focusing on three strategic areas: reducing costs through AI, doubling down on strengths in key growth areas, and leading the transition to outcome-based contracting [14][16] - The emphasis is on cyber, AI, warfighting technology, and critical national security programs, with a commitment to leveraging partnerships with tech companies [16][61] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment in the current quarter's results and the need to lower guidance due to a lack of normalization in the funding environment [12][22] - The company remains optimistic about medium-term growth, particularly in national security, despite near-term headwinds [5][18] Other Important Information - The company is taking significant actions to restructure and reduce costs by $150 million annually, which will support margins returning closer to historical levels by fiscal year 2027 [23][24] - The board approved a quarterly dividend of $0.55 per share and increased the share purchase authorization by $500 million [32][34] Q&A Session Summary Question: Is the funding environment for defense and intel business improving? - Management noted that while the national security business is stronger, there is still friction in the funding process, and ramp-up on new wins is expected to be slower than historical levels [42][43] Question: What assumptions are baked into the civilian guidance? - Management indicated that they do not anticipate further cuts but expect a competitive procurement environment with pricing pressures [46][47] Question: How strong is the backlog coverage? - Management stated that the current guidance does not rely on significant new wins, and they are anticipating that current trends persist [76][77] Question: How does the company balance growth investment with profitability? - Management emphasized that they are managing for the medium and long term, making investments that are prudent for short-term profitability while focusing on long-term growth [94][96]