0001628280-25-046176
SEC filingMD&A highlights an 8% revenue decline and 48% operating income drop, driven by a slowed procurement environment and prior-year insurance recoveries.
For the three months ended September 30, 2025, Booz Allen reported revenue of $2,890 million, an 8% decline from $3,146 million in the prior-year period. The decrease was primarily driven by headcount reductions stemming from a slowed procurement environment and continued U.S. government and regulatory uncertainty. Additionally, the prior-year period included a $122 million benefit from a reduction to the provision for claimed costs, which did not recur. Cost of revenue as a percentage of revenue increased to 46% from 43%, reflecting higher relative labor costs despite absolute decreases in salaries due to headcount reductions. Billable expenses decreased 5% to $918 million, mainly due to lower subcontractor usage.
General and administrative expenses surged 37% to $308 million, largely because the prior-year period included $115 million in insurance recoveries; excluding that, G&A decreased. Operating income fell 48% to $283 million, and operating margin contracted from 17% to 10%. Net income declined 55% to $175 million, with the effective tax rate for the quarter increasing slightly to 24.9% from 24.0%.
The MD&A does not provide segment-level financial data. The overall business is heavily reliant on U.S. government contracts across civil, defense, and national security. Recent restructuring actions focus on the Civil business, indicating underperformance in that area. The slowdown in contract awards and funding has affected all segments uniformly, with no segment-specific breakout available.
Management's outlook is cautious, citing a prolonged slowdown in government procurement, potential further impacts from Executive Orders, and a government shutdown. To counter headwinds, the Company initiated cost reduction actions in October, targeting approximately $150 million in annual savings through employee severance and restructuring of the Civil business. No formal quantitative guidance is provided. Total backlog increased 3% year-over-year to $40.2 billion, with funded backlog of $5.44 billion. However, management notes that conversion of backlog to revenue faces risks from delayed funding and contract modifications. The Company expects existing liquidity of $1.8 billion (including $816 million cash) and operating cash flows to meet near-term needs.
Cash and cash equivalents decreased to $816 million from $885 million at March 31, 2025, primarily due to share repurchases and dividend payments. Total debt stood at $3.96 billion (net of $25 million unamortized debt issuance costs), including a $1.485 billion Term Loan and $2.5 billion in Senior Notes. Shareholders' equity was $996 million, slightly down from $1.003 billion. The company maintains a $1.0 billion revolving credit facility with no outstanding balance.
Remaining performance obligations (RPO) surged to $12.1 billion from $9.5 billion at year-end, with 65% expected to be recognized as revenue within 12 months. The company has recorded $247 million in liabilities for estimated adjustments to claimed costs related to government contract audits. No other material purchase commitments or supply agreements were disclosed.
During the six months ended September 30, 2025, Booz Allen repurchased 3.4 million shares for $377 million. Dividends per share increased to $0.55 quarterly ($1.10 total for the half), up from $0.51. The company repaid $42 million of debt and invested $49 million in capital expenditures (0.8% of revenue). No new buyback authorization was announced.
The company operates as a single reportable segment. Revenue is disaggregated by contract type (cost-reimbursable 60%, time-and-materials 22%, fixed-price 18% for the six months), customer type (defense 53%, intelligence 17%, civil 30%), and prime vs. subcontractor (prime 94%). International revenue is not separately disclosed.
Income tax expense was $3 million for the six months, reflecting a 0.7% effective tax rate due to an $86 million reduction in uncertain tax position reserves from IRS examination. The company also recorded $36 million in severance costs in Q1 related to restructuring of the Civil business. Interest rate swaps with $350 million notional are used to hedge variable-rate debt.
Operating cash flow (CFO) of $540M was lower than net income of $446M (coverage ratio 1.21x), indicating decent cash conversion but impacted by working capital. Major working capital uses included $77M increase in prepaid/other assets and $109M decrease in other liabilities, partly offset by $54M decline in receivables and $78M deferred tax benefit. CFO declined 15.5% YoY from $639M, mainly due to prior year's large accrued comp buildup ($195M) reversing to a $13M decrease.
CapEx of $49M was conservative relative to depreciation of $81M, suggesting low maintenance needs. The company returned $533M to shareholders via buybacks ($395M) and dividends ($138M), exceeding CFO, financed partly by debt and cash.
Investing outflows included $12M for investments, and no acquisitions this period vs $93M last year. Financing activities also included $42M debt repayments and $27M stock issuances.
Overall, cash generation remains solid but is under pressure from working capital swings; capital returns are aggressive relative to operating cash flow.