8-K: Booz Allen Hamilton Reports Q2 FY26 Results, Cuts Outlook

Booz Allen Hamilton announced second quarter fiscal 2026 results, showing revenue and profit declines, leading to a downward revision of its full-year fiscal 2026 guidance.

Summary

• Q2 FY26 Revenue declined 8.1% year-over-year to $2.9 billion (4.7% decline excluding prior year change to provision for claimed costs).
• Net Income decreased 55.1% to $175 million.
• Adjusted Net Income decreased 21.5% to $183 million.
• Adjusted EBITDA decreased 11.0% to $324 million, with Adjusted EBITDA Margin on Revenue at 11.2% (down 40 basis points).
• Adjusted Diluted EPS decreased 17.7% to $1.49.
• Free cash flow was $395 million, down from $563 million in the prior year.
• Record Q2 backlog of $40 billion, a 2.9% increase year-over-year.
• Quarterly book-to-bill ratio of 1.7x and trailing twelve-month book-to-bill ratio of 1.1x.
• Full-year fiscal 2026 guidance for revenue, Adjusted EBITDA, Adjusted Diluted EPS, and Free Cash Flow has been lowered.
• The civil business is experiencing delayed recovery due to ongoing procurement challenges.
• The national security portfolio (Defense & Intel) showed solid growth, up 4.8% year-over-year (excluding prior year change to provision for claimed costs).
• Repurchased 2.7% of outstanding shares in the first half of the fiscal year.
• A regular quarterly dividend of $0.55 per share was declared.

Sentiment

Score: 3

Explanation: The company reported significant declines in revenue, net income, and EPS, and substantially lowered its full-year guidance. While national security segments show strength and backlog increased, the overall financial performance and outlook are negative, reflecting a challenging market and operational headwinds, particularly in the civil sector.

Positives

• Solid growth across the national security portfolio (Defense & Intel), up 4.8% year-over-year (excluding prior year change to provision for claimed costs).
• Record Q2 backlog of $40 billion, representing a 2.9% increase year-over-year.
• Strong quarterly book-to-bill ratio of 1.7x.
• Maintained solid EBITDA margins of 11.2% despite revenue decline.
• Repurchased 2.7% of outstanding shares in the first half of the fiscal year, demonstrating commitment to shareholder returns.
• Increased share repurchase authorization by $500 million.
• Declared a regular quarterly dividend of $0.55 per share.
• Strong balance sheet with 2.5x Net Leverage.
• Anticipated $235 million cash tax benefit due to new S174 rules under the One Big Beautiful Bill.

Negatives

• Revenue declined 8.1% year-over-year to $2.9 billion (or 4.7% excluding prior year change to provision for claimed costs).
• Net Income decreased 55.1% to $175 million.
• Adjusted Net Income decreased 21.5% to $183 million.
• Adjusted EBITDA decreased 11.0% to $324 million.
• Adjusted Diluted EPS decreased 17.7% to $1.49.
• Free cash flow decreased 29.8% to $395 million compared to $563 million in the prior year.
• Full-year fiscal 2026 guidance significantly lowered across all key metrics (Revenue, Adjusted EBITDA, Adjusted Diluted EPS, Free Cash Flow).
• Top and bottom-line performance was below forecast.
• The civil business is experiencing delayed recovery due to ongoing procurement challenges.
• Overall headcount decreased to 32,500 as of September 30, 2025, from 35,800 as of September 30, 2024.
• Net cash provided by operating activities decreased 28.3% to $421 million.

Risks

• Any issue that compromises relationships with the U.S. government or damages professional reputation, including negative publicity concerning government contractors in general or the company in particular.
• Changes in U.S. government spending, including a continuation of efforts by the U.S. government to reduce spending, increased insourcing by certain U.S. government agencies, and shifts in expenditures away from agencies or programs that the company supports, as well as associated uncertainty around the timing, extent, nature and effect of such efforts.
• U.S. government shutdowns as well as delayed long-term funding of contracts.
• Failure to comply with new and existing U.S. and international laws and regulations.
• Inability to compete effectively in the competitive bidding process and delays or losses of contract awards caused by competitors' protests of major contract awards received by the company.
• The loss of U.S. government GSA Schedules or the company's position as prime contractor on government-wide acquisition contract vehicles (GWACs).
• Variable purchasing patterns under certain U.S. government contracts and changes in the mix of contracts including the ability to accurately estimate or otherwise recover expenses, time, and resources for contracts.
• Inability to realize the full value of and replenish backlog, generate revenue under certain contracts, and the timing of receipt of revenue under contracts included in backlog.
• Internal system or service failures and security breaches, including, but not limited to, those resulting from external or internal threats, including cyber attacks on the network and internal systems or on customers' network or internal systems.
• Misconduct or other improper activities from employees, subcontractors or suppliers, including the improper access, use or release of the company's or customers' sensitive or classified information.
• Failure to maintain strong relationships with other contractors, or the failure of contractors with which the company has entered into a sub or prime-contractor relationship to meet their obligations.
• Inherent uncertainties and potential adverse developments in legal or regulatory proceedings, including litigation, audits, reviews, and investigations, which may result in materially adverse judgments, settlements, withheld payments, penalties, or other unfavorable outcomes including debarment, as well as disputes over the availability of insurance or indemnification.
• Risks related to a possible recession and volatility or instability of the global financial system, including the failures of financial institutions and the resulting impact on counterparties and business conditions generally.
• Risks related to a deterioration of economic conditions or weakening in credit or capital markets.
• Risks related to pending, completed, and future acquisitions and dispositions, including the ability to satisfy specified closing conditions for pending transactions and to realize the expected benefits from completed acquisitions and dispositions.
• Risks inherent in the government contracting environment.
• Risks related to indebtedness and credit facilities which contain financial and operating covenants.

Future Outlook

Booz Allen Hamilton has updated its fiscal year 2026 guidance, lowering expectations across all key metrics. Revenue is now projected to be between $11.3 billion and $11.5 billion, representing a decline of 4.0% to 6.0%. Adjusted EBITDA is expected to be $1,190 million to $1,220 million, with Adjusted EBITDA Margin on Revenue in the mid-10% range. Adjusted Diluted EPS is forecast at $5.45 to $5.65, and Free Cash Flow is anticipated to be $850 million to $950 million. The company expects a $235 million cash tax benefit due to new S174 rules under the One Big Beautiful Bill.

Management Comments

• "Our second quarter results reflect a bifurcated market. We are winning work and demand is strong for our leading cyber, AI, and warfighting technologies."
• "We remain focused on accelerating future growth while building advanced tech that keeps America safe and strong."
• "I am deeply committed to ensuring Booz Allen is an essential player in driving America's technological superiority. I remain very optimistic about the future of our company."

Industry Context

The company's performance reflects a 'bifurcated market' within the government contracting sector, where demand for advanced technology in national security (cyber, AI, warfighting) remains strong, but the civil business faces headwinds from a 'funding slowdown' and 'delayed recovery' due to procurement challenges. This indicates a selective spending environment within the U.S. government, favoring critical defense and intelligence initiatives over other civil agency projects.

Legal Proceedings

• The filing references a reduction to the provision for claimed costs for years prior to fiscal 2025, recorded during the second quarter of fiscal 2025, resulting from the Defense Contract Audit Agency's findings related to its audits of claimed costs for multiple fiscal years.
• The filing reflects insurance recoveries from claims related to the company's fiscal 2024 settlement.
• The filing mentions the impact of the company's unfavorable ruling from the District of Columbia Court of Appeals related to contested tax assessments from the District of Columbia Office of Tax and Revenue (DC OTR).
• General risk of inherent uncertainties and potential adverse developments in legal or regulatory proceedings, including litigation, audits, reviews, and investigations, which may result in materially adverse judgments, settlements, withheld payments, penalties, or other unfavorable outcomes including debarment, as well as disputes over the availability of insurance or indemnification.

Stakeholder Impact

• Shareholders: Negative impact due to significant declines in net income, EPS, and free cash flow, coupled with a lowered full-year guidance. Share repurchases and consistent dividends offer some mitigation.
• Employees: Headcount decreased from 35,800 to 32,500, indicating potential job reductions or slower hiring, with "nonrecoverable costs associated with employee severance from a cost management initiative and restructuring of the Civil business" explicitly mentioned.
• Customers (U.S. Government): Continued strong demand for cyber, AI, and warfighting technologies in national security, but civil business customers face procurement challenges and delayed recovery.
• Suppliers/Subcontractors: Potential impact from reduced revenue and procurement slowdowns, especially in the civil sector.

Next Steps

• Pay regular quarterly dividend of $0.55 per share on December 2, 2025, to stockholders of record on November 14, 2025.
• Continue accelerating future growth and building advanced technology in cyber, AI, and warfighting.
• Focus on reaccelerating growth and profitability.

Key Dates

Recommendation

The company reported substantial declines in key financial metrics for Q2 FY26, including revenue, net income, Adjusted EBITDA, and Adjusted Diluted EPS. Furthermore, the full-year fiscal 2026 guidance was significantly lowered across the board, indicating a deteriorating outlook. While the national security segment shows some resilience and backlog is up, the overall performance is below forecast, and the civil business faces persistent challenges. The reduction in headcount and explicit mention of severance costs suggest internal restructuring in response to these headwinds. These factors point to significant operational and financial pressures, warranting a 'sell' recommendation for investors given the negative trend and revised expectations.

Keywords

Booz Allen Hamilton, BAH, Q2 FY26 Earnings, Government Contracting, National Security, Cyber, AI, Warfighting Technology, Defense, Intelligence, Civil Business, SEC Filing, Financial Results, Guidance Revision, Backlog, Book-to-Bill, Share Repurchase, Dividend, Free Cash Flow, Adjusted EBITDA, Diluted EPS