8-K: Booz Allen Hamilton Reports Q3 FY26 Results

Booz Allen Hamilton announced third-quarter fiscal 2026 results, reporting a 10.2% revenue decrease year-over-year but strong profitability and an increase in Adjusted Diluted EPS.

Summary

• Revenue for the third quarter of fiscal 2026 declined 10.2% year-over-year to $2.6 billion, or approximately 6% excluding the impact of a government shutdown.
• Adjusted EBITDA for Q3 FY26 was $285 million, a 14.2% decrease year-over-year, with an Adjusted EBITDA Margin on Revenue of 10.9%.
• Adjusted Diluted Earnings Per Share (EPS) rose 14.2% to $1.77 in Q3 FY26.
• Net Income increased 7.0% to $200 million for the third quarter.
• The company reported a record Q3 backlog of $38 billion, representing a 1.5% increase year-over-year.
• The quarterly book-to-bill ratio was 0.3x, while the trailing twelve-month book-to-bill ratio was 1.1x.
• Free cash flow for Q3 FY26 was $248 million, an 85.1% increase compared to the prior year.
• Booz Allen Hamilton repurchased 1.1% of its outstanding shares in the third quarter.
• The company updated its fiscal year 2026 guidance, raising Adjusted Diluted EPS to $5.95 $6.15 (from $5.45 $5.65) and adjusting Free Cash Flow to $825 $900 million (from $850 $950 million).
• Revenue growth guidance for FY26 was narrowed to (5.0 6.0)% from (4.0 6.0)%.
• A strategic partnership with Andreessen Horowitz (a16z) was announced, including a $400 million capital commitment.

Sentiment

Score: 6

Explanation: While revenue declined significantly due to external factors (government shutdown, slower funding), the company demonstrated strong profitability, increased Adjusted Diluted EPS, robust free cash flow, and a growing backlog. The updated guidance shows a mixed picture with improved EPS outlook but slightly weaker revenue and FCF. The strategic partnership with a16z is a notable positive for future growth.

Positives

• Adjusted Diluted EPS increased 14.2% year-over-year to $1.77 in Q3 FY26.
• Net Income increased 7.0% year-over-year to $200 million in Q3 FY26.
• Free cash flow significantly increased by 85.1% to $248 million in Q3 FY26.
• Record Q3 backlog of $38 billion, a 1.5% increase year-over-year, indicating future revenue potential.
• Demand is strengthening across Civil and National Security portfolios.
• Strong profitability maintained with an Adjusted EBITDA margin of 10.9%.
• Repurchased 1.1% of outstanding shares in the third quarter, returning value to shareholders.
• Updated FY26 Adjusted Diluted EPS guidance increased to $5.95 $6.15, partly driven by a $0.50 tax benefit.
• Announced a strategic partnership with Andreessen Horowitz (a16z) with a $400 million capital commitment, positioning for future technology acceleration.
• A regular quarterly dividend of $0.59 per share was declared, representing a 7% increase.

Negatives

• Revenue decreased 10.2% year-over-year to $2.6 billion in Q3 FY26.
• Revenue excluding billable expenses declined 6.7% to $1.8 billion in Q3 FY26.
• Adjusted EBITDA decreased 14.2% to $285 million in Q3 FY26.
• Adjusted EBITDA Margin on Revenue decreased by 50 basis points to 10.9% in Q3 FY26.
• The quarterly book-to-bill ratio was 0.3x, indicating bookings were significantly lower than revenue for the quarter.
• Total headcount decreased to 31,600 as of December 31, 2025, from 35,900 as of December 31, 2024.
• Revenue from the Civil sector decreased significantly by $280 million (27.7%) in Q3 FY26.
• Updated FY26 Revenue Growth guidance narrowed to (5.0 6.0)% from (4.0 6.0)%, indicating a slightly worse revenue outlook.
• Updated FY26 Free Cash Flow guidance decreased to $825 $900 million from $850 $950 million.
• A prolonged government shutdown and slower funding environment impacted revenue and hiring.

Risks

• Any issue that compromises relationships with the U.S. government or damages professional reputation, including negative publicity.
• Changes in U.S. government spending, including reduction efforts, increased insourcing, and shifts in expenditures away from supported agencies or programs.
• U.S. government shutdowns and delayed long-term funding of contracts.
• Failure to comply with new and existing U.S. and international laws and regulations.
• Ability to compete effectively in the competitive bidding process and delays or losses of contract awards caused by competitors' protests.
• The loss of U.S. government GSA Schedules or 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 recover expenses.
• Ability to realize the full value of and replenish backlog, generate revenue under contracts, and the timing of revenue receipt.
• Internal system or service failures and security breaches, including those resulting from cyber attacks on networks or internal systems.
• Misconduct or other improper activities from employees, subcontractors, or suppliers, including improper access, use, or release of sensitive information.
• Failure to maintain strong relationships with other contractors, or the failure of contractors to meet their obligations.
• Inherent uncertainties and potential adverse developments in legal or regulatory proceedings, which may result in materially adverse judgments, settlements, or penalties.
• Risks related to a possible recession and volatility or instability of the global financial system.
• 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 realize expected benefits.
• 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 updated its fiscal year 2026 guidance. Revenue is now expected to be between $11.3 billion and $11.4 billion, with revenue growth projected at (5.0 6.0)%. Adjusted EBITDA is forecast to be $1,195 $1,215 million, maintaining a mid-10% margin. Adjusted Diluted EPS guidance increased to $5.95 $6.15, while Free Cash Flow guidance was adjusted to $825 $900 million. The guidance assumes an adjusted effective tax rate of 16-19% and average diluted shares outstanding of 122-123 million, including a $235 million cash tax benefit from new S174 rules.

Management Comments

• "Booz Allen's third quarter results are on track and reflect disciplined execution in a dynamic environment. We remain focused on building and delivering tech that works for the most important U.S. missions."
• "We continue to invest and accelerate our growth strategy as we position for the future."
• "Booz Allen's leading technology is aligned with the nation's highest priorities. I am confident we are on track to accelerate our growth and deepen our impact on America's security and prosperity."

Industry Context

The results reflect the challenging U.S. government contracting environment, marked by a prolonged government shutdown and a slower funding environment, which impacted revenue and hiring across the sector. Despite these headwinds, the company's focus on high-value technology work in National Security and Civil portfolios, coupled with disciplined cost management, allowed for strong profitability and cash flow generation. The strategic partnership with a16z highlights a broader industry trend of defense contractors seeking to leverage private sector technology investment and innovation to enhance capabilities in areas like AI and cyber, aligning with national priorities.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks. It focuses solely on Booz Allen Hamilton's performance against its own prior periods and internal guidance.

Stakeholder Impact

• Shareholders: Positive impact from increased Adjusted Diluted EPS, robust free cash flow, share repurchases, and a 7% increase in quarterly dividend. Potential long-term benefits from the a16z partnership.
• Employees: Negative impact from a decrease in total headcount (35,900 to 31,600) and nonrecoverable costs associated with employee severance from cost management and restructuring initiatives.
• Customers (U.S. Government): Continued focus on delivering advanced technology solutions for critical defense, civil, and national security priorities.
• Creditors: Net Leverage Ratio of 2.5x indicates a manageable debt level, supported by strong free cash flow.

Next Steps

• Payment of a regular quarterly dividend of $0.59 per share on March 2, 2026, to stockholders of record on February 13, 2026.
• Continue to invest and accelerate growth strategy.
• Focus on building and delivering tech for U.S. missions.

Key Dates

Recommendation

The filing presents a mixed bag of results. While revenue declined significantly due to external factors like government shutdowns and a slower funding environment, the company demonstrated strong operational execution leading to increased Adjusted Diluted EPS and robust free cash flow. The strategic partnership with a16z is a positive long-term indicator for technology acceleration. However, the revenue decline and reduced headcount are concerns. The updated guidance shows an improved EPS outlook but a slightly weaker revenue and free cash flow forecast. Given the external headwinds impacting revenue but internal strengths in profitability and strategic investments, a "hold" recommendation is appropriate as the company navigates a dynamic environment, with potential for future upside if revenue trends improve.

Keywords

Government Contracting, Defense, National Security, Consulting, Technology Solutions, Cybersecurity, AI, Booz Allen Hamilton, Federal Sector, Public Sector, IT Services, Management Consulting, Financial Results, Earnings, Backlog, Adjusted EBITDA, EPS, Free Cash Flow, Capital Allocation, a16z, Andreessen Horowitz