Booz Allen Hamilton Holding Corp. - 10-Q Summary (Q3 FY2026)
Business Context and Reporting Period
This filing covers the quarterly period ended December 31, 2025 (Q3 of Fiscal Year 2026). Booz Allen Hamilton is an advanced technology company providing AI, cyber, and technology solutions primarily to U.S. federal government customers. The company operates as a single reportable segment with approximately 31,600 employees as of the period end.
Key Financial Metrics
| Metric | Q3 2025 (3 Months) | Q3 2024 (3 Months) | YTD 2025 (9 Months) | YTD 2024 (9 Months) |
|---|---|---|---|---|
| Revenue | $2,620 million | $2,917 million | $8,434 million | $9,005 million |
| Operating Income | $230 million | $291 million | $770 million | $1,095 million |
| Net Income | $200 million | $187 million | $646 million | $742 million |
| Diluted EPS | $1.63 | $1.45 | $5.22 | $5.73 |
| Operating Margin | 8.8% | 10.0% | 9.1% | 12.2% |
| Effective Tax Rate | (7.0)% | 24.7% | (1.6)% | 24.0% |
| Cash from Operations (YTD) | $801 million (vs. $790 million YTD 2024) | |||
| Total Debt | $3,940 million (as of Dec 31, 2025) | |||
| Liquidity | $1.9 billion ($882M cash + $1.0B revolver) |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 10% in Q3 and 6% YTD compared to the prior year. This was driven by a slowed procurement environment, a government shutdown in Q3, and reduced billable expenses. A $122 million favorable adjustment to the provision for claimed costs in the prior year also impacted the comparison.
- Cost Management: Operating costs decreased, with billable expenses down 18% in Q3. The company initiated cost reduction actions in Q3 targeting approximately $150 million in annual savings, including $25 million in severance charges recorded in the quarter.
- Tax Benefit: The effective tax rate turned negative (a benefit) due to a $57 million tax benefit recognized in Q3 from a change in estimate regarding R&D credits and Foreign Derived Intangible Income deductions, alongside the completion of IRS examination procedures.
- Backlog: Total backlog increased 2% to $38.5 billion. However, funded backlog decreased to $4.2 billion from $4.7 billion, reflecting the challenging funding environment.
Outlook, Risks, and Unusual Items
- Regulatory Environment: The company faces uncertainty from U.S. government budget reviews, Executive Orders focused on procurement efficiency, and potential government shutdowns. A new Executive Order signed in January 2026 limits stock buybacks and dividends for underperforming defense contractors, which could impact capital allocation.
- Divestiture: The company completed the sale of a group of contracts in November 2025, recognizing a $7 million pre-tax gain.
- Lease Commitments: Entered into two 15-year lease agreements for new headquarters in Reston, Virginia, with estimated undiscounted payments of $222 million, commencing in fall 2027.
- Capital Allocation: Despite revenue headwinds, the company continued share repurchases ($486 million YTD) and paid dividends ($205 million YTD). A new quarterly dividend of $0.59 per share was declared in January 2026.
- Management Changes: The Chief Legal Officer announced plans to retire in April 2026.
Investor Verification Checklist
- Backlog Conversion: Verify the ability to convert the $10.1 billion unfunded backlog into revenue given the slowed procurement environment and potential funding delays.
- Tax Rate Sustainability: Assess whether the negative effective tax rate is a one-time benefit or indicative of future tax positions, specifically regarding the IRS examination resolution and R&D credits.
- Cost Reduction Execution: Monitor the realization of the targeted $150 million in annual cost savings and the impact of severance charges on future operating margins.
- Executive Order Impact: Evaluate the risk of the January 2026 Executive Order on defense contractors restricting future share buybacks and dividends if the company is deemed underperforming.
- Government Shutdown Exposure: Review the sensitivity of revenue and cash flow to potential future government shutdowns or continuing resolutions.