Business Context and Reporting Period
Company: Booz Allen Hamilton Holding Corp (BAH)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal Year ended March 31, 2026
Business Overview: Booz Allen is an advanced technology company providing products and solutions primarily to U.S. government agencies (Defense, Intelligence, Civil) and commercial customers. The company focuses on AI, cybersecurity, defense technology, and digital modernization. It operates as a single profit and loss center with approximately 31,500 employees as of March 31, 2026.
Key Financial Metrics
| Metric | Fiscal 2026 | Fiscal 2025 | Change |
|---|---|---|---|
| Revenue | $11,217 million | $11,980 million | (6)% |
| Operating Income | $1,033 million | $1,370 million | (25)% |
| Net Income | $851 million | $935 million | (9)% |
| Diluted EPS | $6.90 | $7.25 | (5)% |
| Operating Margin | 9.2% | 11.4% | -220 bps |
| Adjusted EBITDA | $1,229 million | $1,315 million | (7)% |
| Free Cash Flow (Operating) | $1,041 million | $1,009 million | 3% |
| Total Debt | $3,940 million | $3,998 million | (1)% |
| Cash & Equivalents | $728 million | $885 million | (18)% |
| Total Liquidity | $2.2 billion | N/A | N/A |
Note: Liquidity consists of cash and cash equivalents plus $1.5 billion available under the Revolving Credit Facility.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 6% primarily due to a slowed procurement environment, a government shutdown in Q3 FY2026, and a resulting decrease in headcount and billable expenses. This was partially offset by a $122 million reduction in the provision for claimed costs recorded in the prior year.
- Margin Compression: Operating margin declined from 11% to 9% due to the revenue headwinds and increased general and administrative expenses (excluding a one-time insurance recovery in FY2025).
- Tax Rate Volatility: The effective tax rate dropped significantly to 1.3% from 23% in FY2025. This was driven by a reduction in the income tax reserve following the completion of IRS examination procedures and the recognition of higher-than-estimated R&D tax credits.
- Backlog Growth: Total backlog increased 3% to $38.2 billion, driven by a rise in unfunded backlog ($10.2 billion) despite a slight decrease in funded backlog ($4.3 billion).
- Contract Mix: Cost-reimbursable contracts remained the largest segment at 59% of revenue, while fixed-price contracts accounted for 19%.
Guidance, Outlook, and Risks
Management Commentary & Outlook
Management anticipates continued uncertainty in the U.S. political, budget, and regulatory environment. Key factors include:
- Procurement Delays: Ongoing delays in government funding and appropriations, including partial funding for agencies like the Department of Homeland Security, continue to impact the conversion of backlog to revenue.
- Executive Orders: New executive orders aim to increase the use of firm-fixed price contracts and limit stock buybacks/dividends for underperforming defense contractors. Management supports the shift to fixed-price/outcomes-based contracting for efficiency but notes the increased financial risk.
- Strategic Focus: The company is pursuing its "VoLT" (Velocity, Leadership, Technology) strategy, investing heavily in AI (400 active projects), cyber, and defense tech products.
Key Risks and Contingencies
- Government Funding: Reliance on U.S. government contracts exposes the company to budget cuts, shutdowns, and changes in mission priorities.
- Regulatory & Audit Risk: The company maintains a $248 million liability for estimated adjustments to claimed costs based on historical DCAA audits. Future audits could result in additional disallowances.
- Cybersecurity: As a major cyber provider, the company faces sophisticated threats. While no material incidents occurred in FY2026, a breach could severely impact reputation and operations.
- Debt Covenants: The company must maintain a consolidated net total leverage ratio. While currently compliant, economic downturns could impact this metric.
Investor Verification Checklist
- Backlog Conversion: Verify the rate at which the $10.2 billion unfunded backlog converts to revenue given the current funding uncertainty.
- Fixed-Price Exposure: Monitor the shift in contract mix toward fixed-price contracts and the associated risk of cost overruns.
- Dividend/Buyback Restrictions: Assess the impact of the January 2026 executive order limiting stock buybacks and dividends for defense contractors on capital allocation.
- Tax Reserve Resolution: Confirm the finality of the IRS examination procedures that drove the FY2026 tax rate to 1.3% to ensure future tax rates normalize.
- Severance Costs: Track the $61 million in severance charges recorded in FY2026 and their impact on future operating expenses.