What Booz Allen Hamilton (BAH) Said on Its Q2 Earnings Call

Key Points

• Q2 revenue fell 3.9% to $2.8 billion, largely due to lower billable expenses, but profitability improved: adjusted EBITDA rose to $313 million, adjusted EPS increased 18% to $1.76, and free cash flow reached $263 million.
• National security growth offset significant civil-market weakness. National security revenue grew 1% year over year, with a pipeline up more than 20%, while civil revenue declined 15% because of smaller follow-on contracts and delayed procurements.
• Booz Allen maintained its fiscal 2027 revenue outlook of $11.3 billion to $11.6 billion and raised its adjusted EBITDA, EPS and free-cash-flow guidance, supported by investments in AI, cybersecurity, defense technology and the Ultra Mission Solutions acquisition.

Booz Allen Hamilton NYSE: BAH said it remained on track with its fiscal 2027 expectations after reporting second-quarter revenue that declined year over year, while profitability, earnings per share and free cash flow increased.

Chairman and Chief Executive Officer Horacio Rozanski said the company faced federal budget uncertainty during the quarter but continued to see demand for advanced technology across government customers. He highlighted cybersecurity and defense technology as key growth areas, citing the need for capabilities related to artificial intelligence, autonomy, cyber defense and modernization of critical systems.

“Booz Allen is on track with the expectations we set for this fiscal year,” Rozanski said, pointing to profitability, cash generation and continuing investment in the company’s strategic transformation.

Second-Quarter Financial Results

Revenue for the fiscal second quarter declined 3.9% from the prior year to $2.8 billion. Chief Financial Officer Troy Lahr said the reduction was largely driven by a 10.6% decline in billable expenses. Revenue excluding billable expenses, where the company generates nearly all of its profit, was down less than 1% year over year.

Adjusted EBITDA was $313 million, representing an 11.3% margin, up 10 basis points from the prior-year period. Adjusted diluted earnings per share rose 18% to $1.76, aided by profit growth, a lower share count and a lower tax rate. Lahr said adjusted EPS also benefited from a $10 million earn-out related to the company’s DARPA divestiture.

Free cash flow totaled $263 million in the quarter, supported by collections. Days sales outstanding increased 10 days year over year to 82 days. Lahr said the company expects DSO to remain elevated relative to historical levels because of the Defy acquisition, though DSO would have been slightly lower year over year excluding the effects of Defy and the recently acquired Ultra Mission Solutions business.

• Second-quarter revenue: $2.8 billion, down 3.9% year over year.
• Adjusted EBITDA: $313 million, with an 11.3% margin.
• Adjusted diluted EPS: $1.76, up 18% year over year.
• Free cash flow: $263 million.
• Total backlog: Nearly $41 billion, up 2% year over year.
• Funded backlog: $5.7 billion, up 5% year over year.

National Security Growth Offsets Civil Pressure

The company continued to describe its markets as bifurcated. Its national security business grew 1% year over year in the second quarter, or 6% excluding lower billable expenses. Lahr said the business has significant funded backlog to execute and that the company has increased hiring to support demand. The qualified national security pipeline was up more than 20% from a year earlier, he said.

National security funded backlog increased nearly 10%, according to Lahr. The company recorded a 1.5-times book-to-bill ratio in the quarter, benefiting from a large classified award, while trailing 12-month book-to-bill was 1.1 times.

By contrast, civil revenue declined 15% year over year. President and Chief Operating Officer Kristine Martin Anderson said the decline reflected recompetes transitioning to follow-on contracts with smaller funding levels and scope, as well as fewer new program starts. She said the company expects pressure in civil to ease in the second half, with revenue flat to slightly down sequentially in the third and fourth quarters.

Anderson said the company has largely moved through the affected recompete transitions and has no significant recompetes remaining in the fiscal year. She cited demand for agentic software development, SI-ready data platforms, cybersecurity and data systems across financial integrity, public safety, infrastructure and healthcare missions. However, she said some larger procurements continue to move to the right, delaying the timing of awards and ramp-ups.

Cyber, Defense Technology and Contracting Strategy

Rozanski emphasized that Booz Allen is investing in cyber products and defense technology as it shifts toward more technology- and solutions-driven offerings. He said the company’s Vellox agentic cyber product suite combines cyber tradecraft with proprietary technology, including a counter-SI product called Guile.

According to Rozanski, Guile reduced attack success rates by more than 95% in testing at scale and is in private beta with government and commercial customers. He cautioned that Vellox remains in an early stage, with its larger potential expected to play out over years rather than quarters.

The company acquired Ultra I&C Mission Solutions in August for $729 million, inclusive of certain adjustments. The acquisition adds software-centric, hardware-enabled defense products, particularly in command, control, communications, battle management and related areas. Lahr said Ultra is expected to deliver strong revenue growth and margins above 20%, while its contribution to the fiscal-year guidance was described as modest.

Booz Allen is also increasing its exposure to firm-fixed-price and outcome-based contracts. Anderson said the national security business’s firm-fixed-price mix increased by three percentage points year to date. Rozanski said the company expects the proportion of fixed-price and outcome-based work to continue rising, supporting the company’s goal of having profit grow faster than revenue over time.

Updated Fiscal 2027 Outlook

Booz Allen maintained its fiscal 2027 revenue outlook at $11.3 billion to $11.6 billion, representing growth of 1% to 3%. The guidance incorporates Ultra Mission Solutions and assumes national security revenue growth will accelerate in the second half, producing mid-single-digit growth for the full year.

The company raised the low end of its adjusted EBITDA forecast to a range of $1.26 billion to $1.29 billion. It also increased adjusted EPS guidance to $6.50 to $6.70, reflecting the first-quarter CVC gain, the DARPA earn-out and a lower expected tax rate. Free cash flow is now expected to be between $850 million and $925 million.

Lahr said second-half margins are expected to decline from first-half levels because of normal seasonality, lower civil volumes and investment timing. He added that the company intends to maintain a balanced capital allocation strategy, prioritizing deleveraging during the Ultra integration while continuing dividends, modest share repurchases and selective investments.

About Booz Allen Hamilton (NYSE:BAH)

Booz Allen Hamilton Holding Corporation is a management and technology consulting company that provides services primarily to governments, defense and intelligence organizations, and commercial clients. The company helps organizations address complex challenges involving strategy, technology modernization, cybersecurity, data and analytics, artificial intelligence, engineering, and mission operations.

Its government-related work spans defense, national security, intelligence, civil government, and health markets.

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