0001628280-26-003187
SEC filingRevenue fell 10% YoY due to slowed procurement and government shutdown, but net income rose 7% on tax benefits.
Revenue for the three months ended December 31, 2025 decreased 10% year-over-year to $2.620 billion, driven primarily by a slowed procurement and funding environment, including a government shutdown that occurred in the third quarter of fiscal 2026. Headcount reductions and lower billable expenses (down 18%) contributed to the decline. Operating income fell 21% to $230 million, with operating margin contracting 100 basis points to 9% from 10% in the prior year. Net income, however, increased 7% to $200 million, largely due to a negative effective tax rate of (7.0)% compared to 24.7% last year. The tax benefit resulted from the completion of IRS examination procedures, lower pre-tax income, and higher-than-estimated research and development tax credits and foreign derived intangible income deductions. Cost of revenue as a percentage of revenue increased to 48% from 45%, as labor costs reduced at a slower pace than revenue. General and administrative expenses decreased 7% due to headcount reductions, while depreciation and amortization remained flat.
The MD&A does not provide segment-level financial data. The company operates as a single reportable segment, with all revenue derived from services to U.S. government and commercial clients. The key driver of performance was the external macroeconomic and regulatory environment, including U.S. government budget reviews, executive orders, and a slowed procurement process. The company noted a substantial reduction in the typical end-of-government-fiscal-year funding surge. Contract backlog increased 2% to $38.456 billion, but funded backlog fell 10% to $4.206 billion, reflecting lower new orders and contract modifications. Additions to funded backlog declined to $11.0 billion from $11.8 billion a year ago.
Management highlighted several headwinds and actions. They began cost reduction initiatives in the third fiscal quarter targeting approximately $150 million in annual savings, with $15 million in severance expenses recognized in Q3. The U.S. government's spending reviews, continuing resolution through January 30, 2026, and potential shutdown pose ongoing risks. Executive orders limiting stock buybacks and dividends for some defense contractors could impact capital allocation. However, the company expressed confidence in its liquidity position ($1.9 billion total liquidity) and ability to manage capital structure. Non-GAAP Adjusted EBITDA for the nine months was $920 million, down from $998 million in the prior year. Management expects cash from operations, existing cash, and borrowing capacity to meet near-term needs, but noted potential borrowing under the credit facility if the environment persists.
As of December 31, 2025, Booz Allen Hamilton held $882 million in cash and equivalents, with total debt of $3.9 billion (net of $24 million issuance costs). Shareholders' equity stood at $1.0 billion. The company's debt structure includes a $1.464 billion Term Loan (5.066% rate), $700 million Senior Notes due 2028 (3.875%), $500 million due 2029 (4.000%), $650 million due 2033 (5.950%), and $650 million due 2035 (5.950%). The revolving credit facility of $1.0 billion was undrawn. Cash flow from operations was $801 million for the nine months, with capital expenditures of $62 million (0.7% of revenue).
The company disclosed $10.5 billion in remaining performance obligations (RPO), with 65% expected within 12 months. Notable commitments include a $400 million investment commitment as a limited partner in a venture capital fund, with at least $76 million expected to be funded in Q4 fiscal 2026. Additionally, two 15-year office lease agreements in Reston, VA were signed but not yet commenced, with total undiscounted base lease payments of $222 million. The provision for claimed costs against the U.S. government was $247 million.
During the nine months ended December 31, 2025, Booz Allen repurchased 4.8 million shares for $504 million ($486 million for shares plus $18 million for tax withholdings). Dividends totaled $205 million, or $0.55 per share quarterly. Debt repayments were $63 million, with no new debt issued. The company also recognized a $7 million pre-tax gain on the divestiture of a contract group in November 2025.
The company reports as a single operating segment. Revenue is disaggregated by contract type, customer type, and prime/subcontractor role. For the nine months, revenue by contract type was 59% cost-reimbursable, 22% time-and-materials, and 19% fixed-price. By customer, defense customers contributed 54%, intelligence 17%, and civil 29%. Prime contractor revenue was 94%, with subcontractor at 6%. The civil business saw a decline, partly due to restructuring actions that incurred $36 million in severance charges in Q1 and an additional $25 million in Q3 fiscal 2026.
Operating cash flow of $801M comfortably exceeded net income of $646M, reflecting strong cash conversion. The primary driver was a $214M decrease in accounts receivable, offset by declines in accrued compensation ($19M) and accounts payable ($113M). Capex of $62M was 7.7% of CFO, indicating low capital intensity. Free cash flow (CFO minus capex) of $739M fully covered capital returns of $726M ($521M buybacks + $205M dividends).
Overall, the company generated robust cash from operations despite a slight revenue decline, with working capital management and lower taxes providing a tailwind.