Booz Allen Hamilton (BAH) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Gross revenue for the third quarter totaled $2.6 billion, representing a roughly 10% decline year-over-year and a 7% decline on a revenue ex-billable basis [18] - Adjusted EBITDA for the third quarter was $285 million, translating to an adjusted EBITDA margin of 10.9% [22] - Third-quarter net income was $200 million, a 7% increase year-over-year, while adjusted net income increased by about 9% to $215 million [22] Business Line Data and Key Metrics Changes - The national security portfolio declined about 1% year-over-year, but grew approximately 4% when adjusting for the impact of the government shutdown [19] - The civil business experienced a significant decline of about 28% year-over-year, with expectations for stability in the remainder of the fiscal year [19] - Net bookings for the third quarter totaled $888 million, resulting in a quarterly book-to-bill ratio of 0.3 times [20] Market Data and Key Metrics Changes - Funded backlog fell 10% year-over-year, but ended the calendar year with a record year-end backlog of over $38 billion, up about 2% from the prior year [21] - The qualified pipeline for fiscal year 2027 stands at nearly $53 billion, which is 12% higher than the fiscal year 2026 pipeline at the same point last year [21] Company Strategy and Development Direction - The company is focusing on three priorities: reducing costs, accelerating the transition to outcome-based contracting and product sales, and concentrating investments on growth vectors like cyber, national security, partnerships, and AI [6][11] - A new partnership with Andreessen Horowitz (A16Z) aims to co-create unique commercial technology for national security and public safety, with Booz Allen committing to deploy up to $400 million in A16Z's late-stage venture fund [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's operational and strategic trajectory, anticipating continued demand for national security technology and expertise [27] - The company expects quarter four funding to improve over quarter three but remain slower than usual, tightening revenue guidance to between $11.3 billion and $11.4 billion [26] Other Important Information - The company recognized a $7 million pre-tax gain from the divestiture of DARPA's Cedar work, which is excluded from non-GAAP adjusted income [23] - The board of directors approved a quarterly dividend of $0.59 per share, payable on March 2nd [25] Q&A Session Summary Question: End market expectations for FY27 - Management indicated that the national security business is expected to grow, while civil may remain flat, with signs of improvement in the civil sector [29] Question: Cost reduction plan - The cost reduction actions have been completed, with some impact expected in Q4, but the full effect will be felt in the next fiscal year [33][34] Question: Funded backlog and growth in fiscal 2027 - Management noted that awards are beginning to accelerate, with strong funding activity observed in December and January, positioning the company for growth [47] Question: Increased competition from new players - The competitive landscape has evolved, with a focus on leveraging unique relationships with tech companies to create opportunities [48] Question: Tactical selling and on-contract growth - Management acknowledged the importance of matching customer needs with solutions, noting encouraging signs in funding and pipeline growth [50]