Booz Allen Hamilton Holding Corporation (NYSE:BAH) Q3 2025 Earnings Call Transcript

Booz Allen Hamilton Holding Corporation (NYSE:BAH) Q3 2025 Earnings Call Transcript January 31, 2025

Booz Allen Hamilton Holding Corporation misses on earnings expectations. Reported EPS is $1.45 EPS, expectations were $1.48.

Operator: Good morning and thank you for standing by. Welcome to Booz Allen Hamilton’s Earnings Call covering Third Quarter Fiscal Year 2025 Results. [Operator Instructions] I’d now like to turn the call over to the Head of Investor Relations, Dustin Darensbourg.

Dustin Darensbourg: Thank you. Good morning and thank you for joining us for Booz Allen’s third quarter fiscal year 2025 earnings call. We hope you’ve had an opportunity to read the press release we issued earlier this morning. We have also provided presentation slides on our website and are now on Slide 2. With me today to talk about our business and financial results are Horacio Rozanski, our Chairman, Chief Executive Officer and President; and Matt Calderone, Executive Vice President and Chief Financial Officer. As shown on the disclaimer on Slide 3, please keep in mind that some of the items we will discuss this morning are forward-looking and may relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from forecasted results discussed in our SEC filings and on this call.

All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements and speak only as of the date made. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. During today’s call, we will also discuss some non-GAAP financial measures and other metrics, which we believe provide useful information for investors. We include an explanation of adjustments and other reconciliations of our non-GAAP measures to the most comparable GAAP measures in our third quarter fiscal year 2025 earnings release and slides. Numbers presented maybe rounded and as such, may vary slightly from those in our public disclosure.

It is now my pleasure to turn the call over to our Chairman, CEO and President, Horacio Rozanski. We are now on Slide 4.

Horacio Rozanski: Thank you, Dustin. Welcome to the team. We’re glad to have you on board and good morning, everyone. Thank you for joining the call. This morning, Matt and I are excited to share excellent financial results for the third quarter of fiscal year 2025, including double-digit growth at both the top and bottom lines. Booz Allen continues to achieve the strategic and operational momentum we aim for this fiscal year. This performance is particularly important in the current industry environment. Consistent with many other presidential transitions, we see some agencies taking time to assess and align priorities with their new agendas. This creates some slowing and uncertainty in the procurement environment as funding shifts in line with those priorities.

Q&A Session

We anticipated this adjustment period and have managed our business accordingly. We are running our operations tightly. This is reflected in the strong results we are discussing today. And because of our unique business model, we are able to accelerate investments in priority growth areas. Much of the new administration’s agenda relies in the ability to apply advanced technologies to move faster, disrupt outdated processes and protect our nation’s technological supremacy. We believe VoLT, which stands for velocity, leadership and technology, has positioned us to capture this moment. In a few minutes, Matt will take you through the full details of the quarter and our outlook for the rest of the fiscal year. But first, I would like to put our optimism for the future into some additional context.

For more than a century, Booz Allen has continuously anticipated and catalyzed change for our clients and our business. Our institution’s journey aligns with some of the most significant moments in our nation’s history. This includes winning World War II and the space race and the successive waves of change driven by the dawn of the digital age. Booz Allen has always been prepared for the technological, societal and geopolitical changes that shape the times. We anticipate the trends that define our future and move our business to the center of that change. Today, in Booz Allen’s 20th presidential transition, we believe we are on the precipice of another transformative era. We know from experience that large-scale change always includes a period of uncertainty and disruption.

We also know that these times create major opportunities. The work Booz Allen has done over the last decade and accelerated through VoLT has positioned us as the advanced technology company delivering outcomes at the center of our nation’s most important missions. We have a truly unique vantage point for understanding and driving the changes that will bring better, faster innovation into government. Our tax scouting function has been key to identifying the technologies that shape the future. We accelerate the journey from breakthrough to outcome in areas like advanced manufacturing, quantum cryptography and autonomy. For decades, we have invested in disruptive technologies that are changing the world. We made early bets in cloud, cybersecurity, space and AI that are now core to essential missions.

And our venture fund and commercial partnerships help bring leaving dual-use technologies into civil, defense and national security missions to achieve faster, more effective outcomes. Let me share a few examples that further highlight how Booz Allen is well positioned for this moment. We now have the largest AI business in the federal government and one of the largest cyber businesses in the world. We are developing and delivering trusted, secure and responsible AI across missions, including for the Defense Department’s largest data platform. And with Thunderdome, we have also built and deployed the largest integrated zero-trust solution at scale. We are developing and operating premier space systems built with scalable, secure, AI-powered data solutions to support national security missions.

Over the past two decades, we have driven massive modernization of technology at the VA. This has accelerated outcomes for our veterans, including faster claims processing and benefits delivery and reduce fraud, waste and abuse. Using an outcomes-based acquisition model, we designed, built and continue to operate recreation.gov. It’s advanced technical infrastructure delivers a customer experience on par with the most successful commercial platforms. And we are delivering digital battle space technologies to significantly improve real-time situational awareness for war fighters, even in the most disrupted environments. This is the power of VoLT. This is the power of Booz Allen. We also recognize the importance of partnerships to generate speed to outcomes.

With Allen’s ability to collaborate with a network of innovative commercial technology partners helps speed the impact of emerging and dual-use technologies. For example, we know that in the most challenging national security environment in half a century, we need to move faster. We must push boundaries and disrupt long-standing barriers to innovation. We recently announced an expanded partnership with Palantir Technologies to co-create solutions to help the U.S. maintain superiority against its adversaries. In only 45 days, our teams created a prototype with the capacity to rapidly accelerate integrated war fighting operations. This solution is already being tested in large-scale exercises. It will improve collaboration and combined mission planning for the U.S. and our allies and partners.

Last week, we also announced an expanded partnership with Amazon Web Services to jointly invest, create and collaborate, to accelerate outcomes across U.S. federal missions. We will jointly develop and deliver enterprise solutions at scale in areas like cloud migration, cybersecurity and generative AI. This partnership is a force multiplier. We are co-investing to build on top of our technology platforms and create new solutions to existing problems and capability gaps. I’m tremendously excited about the potential of our ongoing collaboration with both of these companies. And with others, we are not ready to announce quite yet. As we put it altogether, we find ourselves in an excellent position to support the priorities of the new administration.

First, our multiyear effort to become faster at everything allows us to match the velocity of change underway. Second, we are one of the few technology companies able to both innovate and deliver at scale. We have long been advocates of maximizing dual-use commercial technologies and increasing the use of AI to generate efficiencies. The combination of our own technology, our highly productive partnerships across tech and our extraordinary people give us the edge on speed to outcome. And third, speaking of outcomes. For quite some time now, we have prepared and advocated for a move towards outcome-based contracting as a model to create both efficiency and faster impact across the missions we support. We expect this trend to accelerate in the current environment.

For all these reasons and more, I am excited about what’s ahead. Booz Allen is the advanced technology company known for speed to outcomes. From the Pacific to Orbit and here at home, we are investing in the technologies and the talent necessary to succeed in the coming years and decades. And as the new administration’s priorities and team continue to take shape, we look forward to the opportunity to work with them to help enhance our national security and how our government serves our citizens. And with that, Matt, I’ll turn the call over to you.

Matt Calderone: Thank you, Horacio, and good morning, everyone. I’m really pleased with our third quarter performance. We had a number of objectives for the quarter, and we delivered on all of them. Our leaders simultaneously delivered very strong results, improved the efficiency of our business, maintained momentum into the future and continue to accelerate the core elements of our VoLT strategy that are squarely in line with the changed agenda of the new administration: innovation, efficiency, AI, dual-use technology and generating speed outcome. Here are the headlines for the quarter. We delivered about 14% top line growth, roughly 13% organic, with solid performance across all three sectors. We ran the business efficiently, generating $332 million in adjusted EBITDA at an 11.4% adjusted EBITDA margin.

We maintained a 1.41x trailing 12-month book-to-bill. This is our highest at calendar year-end in the last 6 years. And we continue to deploy capital to generate long-term value for shareholders, including almost $150 million in share repurchases. Based on this performance, we are tightening towards the upper end of our guidance ranges for this fiscal year. We are poised to deliver another year of double-digit growth in revenue and adjusted EBITDA. And as we approach our final quarter of our 3-year investment thesis, we are positioned to exceed our target of $1.2 billion to $1.3 billion of adjusted EBITDA, almost entirely through organic performance. Booz Allen remains a premier compounder and continues to deliver outstanding performance year after year.

I’m exceptionally proud of what our Booz Allen’s team has accomplished, and excited about the potential we see for the future. I’ll now cover our quarterly results in more detail. Please turn to Slide 6. In the third quarter, revenue increased roughly 14% year-over-year to $2.9 billion. Organic revenue grew about 13% year-over-year, and revenue excluding billable expenses, was up 12%. We continue to see solid growth across all of our government and commercial markets. Our defense business had another stellar quarter, with 19% year-over-year revenue growth. Our intelligence business continued to accelerate, posting 11% growth over the prior year period. And our civil business grew at a healthy 8% rate year-over-year. Pivoting now to demand, please turn to Slide 7.

Net bookings for the third quarter totaled $1.1 billion. Our quarterly book-to-bill was 0.37x, right in line with our 5-year average of 0.4x for the third quarter. We maintained a trailing 12-month book-to-bill of 1.41x, our highest third quarter trailing 12-month book-to-bill in 6 years. Our current backlog of $39 billion is our highest ever at this point in the year. Our total backlog is up 15% year-over-year. Looking forward, as Horacio noted, we expect the industry will see a short-term slowdown of funding and award activity as the new administration and Congress establish their agenda and as federal government agencies pivot to enact it. This occurs with all presidential transitions, and the incoming team clearly is working at a brisk pace.

Typically, the short-term effect on procurement and contracts is more pronounced for civilian agencies. We have prepared for this by building momentum, flexibility and resilience into our business model. And looking past this, we are bullish about how our strategy aligns with the change agenda of the incoming administration. We are aggressively leaning into this opportunity. We believe we have the backlog, proposal pipeline for next fiscal year and most important, the technology, the commercial relationships and the innovative ideas for change needed to remain on a strong growth vector. Transitioning now to head count, in the third quarter, we placed a heavy focus on improving productivity of existing staff, both to provide a more robust employee experience, and to give us more operating flexibility going forward.

This focus worked, but it did result in us maintaining a roughly flat client staff head count for the quarter. Booz Allen finished the third quarter with total client staff head count of over 32,000, a 6% increase from a year ago. Since the start of the fiscal year, total client staff head count has grown 4.4%. This puts us in good shape relative to our full year target of 3% to 5% client-facing head count growth. Going forward, we aim to increase head count at a consistent pace to support the ramp-up of recent wins and to meet our growth aspirations. On the bottom line, we delivered $332 million in adjusted EBITDA in the third quarter, a 14% improvement over the prior year quarter. Our third quarter adjusted EBITDA margin was 11.4%, up 10 basis points year-over-year.

For our fiscal year-to-date, adjusted EBITDA margin was 11.1%. I am really pleased with how we are operating the business, which affords us the flexibility to react to this evolving environment. Working down the P&L, our net income was $187 million, 28% higher year-over-year. Adjusted net income grew 7% year-over-year to $198 million. Diluted earnings per share increased to $1.45 per share, up about 31% year-over-year. Adjusted diluted earnings per share grew to $1.55 per share, up approximately 10% year-over-year. This increase in ADEPS was driven by our overall profitability as well as a reduction in share count, which was partially offset by a higher tax rate compared to the prior year. Turning now to the balance sheet. We ended the third quarter with $454 million of cash on hand, net debt of approximately $2.9 billion and a net leverage ratio of 2.3x adjusted EBITDA for the trailing 12 months.

Free cash flow for the quarter was $134 million, the result of $151 million of cash from operations, less $17 million of CapEx. Moving now to capital deployment on Slide 8. In the third quarter, we deployed a total of $228 million to generate value for shareholders. This included $149 million in share repurchases at an average price of $157.74 per share. This brings our total repurchase activity to 2.3% of outstanding shares since the beginning of the fiscal year. In addition, we have deployed $65 million in quarterly dividends, $9 million in strategic investments through our corporate venture capital fund and $4 million related to the Par government acquisition. Today, we are pleased to announce that our Board of Directors has approved a $0.04 increase to our quarterly dividend.

This dividend of $0.55 per share will be payable on March 4 to stockholders of record as of February 14. Our Board has also approved an increase of $500 million to our share repurchase authorization, bringing our available capacity to approximately $1 billion. Our balance sheet remains strong, providing us the capacity and the flexibility to opportunistically deploy capital to create shareholder value. Now for a look ahead, please turn to Slide 9 for our updated guidance. We are tightening towards the upper end of our guided ranges across all principal metrics for fiscal year 2025. At the top line, we now expect revenue growth of 12% to 13%, almost all of which is organic. We are narrowing our adjusted EBITDA guidance to a range of $1.31 billion to $1.33 billion.

The impact of our recently announced $15.9 million settlement with the Department of Justice, net of insurance reimbursements will be immaterial for the year. This implies an adjusted EBITDA margin of about 11%. Additionally, we are raising our ADEPS guidance to a range of $6.25 to $6.40 per share. This includes an anticipated $15 million gain from the expected close of the sale of SnapAttack, in which we have a minority investment, in the fourth quarter. Lastly, we now expect operating cash flow of between $950 million and $1.025 billion and free cash flow in the range of $850 million to $925 million. In closing, I am bullish about the state of our business. Booz Allen has maintained its momentum and built the flexibility to rapidly adapt and thrive in an evolving environment.

As Horacio said, we have navigated 20 presidential administration transitions, and we are approaching this one with both ideas and optimism. While the transition phase for a new presidential administration always creates a period of recalibration, we view this transition as a unique opportunity. Booz Allen is always on the side of change, and we look forward to continuing to bring change to government. We are the clear leader in advanced technology for the federal government, driving speed to outcome better than anyone else.

Operator: And I will now turn the call back over to the Chairman, CEO and President, Horacio Rozanski.

Horacio Rozanski: Thank you, Carmen. Before we begin Q&A this morning, I hope you allow me to take a moment to acknowledge the tragic air collision that took the lives of 67 people yesterday in our nation’s capital. We grieve for the victims and for their families. For those of us who live in the D.C. area, D.C. is both a big city and a small town, and we all know someone who’s personally affected by the tragedy. So I wanted to take a moment to, again, acknowledge the loss. May all the victims’ memories be for a blessing. Thank you for listening for allowing me to do this. Carmen, let’s begin Q&A, please.

Operator: [Operator Instructions] It comes from the line of Mariana Perez with Bank of America.

Mariana Perez: Good morning, everyone. So my first question is going to be about hiring. I understand that you are preparing for this uncertainty as the government and the agencies also adjust to what they are going to do, what they have to do in awarding. But you guys have been preparing for this change towards technology, towards outcomes for a long time. You launched your VoLT strategy 4 years ago. And the way – I am going to oversimplify it, but the way I think about those inefficiencies is just putting that on full speed. So how do you think about investing towards being prepared to absorb most of that opportunity on head count and hiring, and how much you prepared to be just like, I don’t know, brace for impact, and how the government absorbs this impact near-term uncertainty type of thing?

Horacio Rozanski: You know us too well. So let me take a minute to unpack what you say – you said because I really agree with everything you pointed out. Let’s start with the short term. As we expected and we talked about it on the last call, we are seeing some of the short-term disruption that is not atypical of a presidential transition. And especially with a fast-moving agenda, again, we expected it and we’re seeing it. Some agencies are already full speed ahead. Some agencies are taking a little time for the new team to come in and reevaluate. At this point, we have not seen immaterial impact on our business. But we – because we anticipated this, we are managing the business accordingly, financially, operationally and strategically.

At the financial level, we have a really strong balance sheet. It gives us a lot of opportunity to invest in different ways and be prepared to take advantage of the potential churn in the industry. At the operational level, as you pointed out, this is the time to run the business tightly so that we can actually create investment capacity as the priorities begin to clarify and accelerate. And then strategically, as you pointed out, VoLT has prepared us for this. We are fast, we’re flexible and we are in the middle of driving technology to outcome and create change. So we’re uniquely positioned. I will tell you, we have already a dozen big ideas that we are shaping, that are very much in line with what we believe is the administration’s intent and priorities.

And we’ve even begun some of these discussions with some clients. So while we’re managing the business, I think, prudently to create investment capacity, we’re very excited about the future.

Mariana Perez: And then, I’m curious if you could discuss, on the other side of the world, right, not the customers and the contracting officers and the agencies, but like how the commercial companies also prepare to a government that’s expected to be willing to work with them? Have you seen those companies retail to you to also have this type of partnerships to also be able to offer their commercial technologies to a government that is not the easiest customer to deal with?

Horacio Rozanski: Absolutely. No, I think you’re right on, on that, too. We’ve been talking about this, and we’ve been doing it for quite some time. We have an active partnership program. We’ve talked in the prepared remarks about a couple of the most recent things, but our CVC, our venture fund was aimed at bringing all of these through the scouting process. We have brought probably hundreds of companies to our clients so that they can get faster on the mission. It is hard for the commercial sector to operate here. And in some ways, it probably will continue to be. The value that we bring is twofold. One is we do understand this environment, which is why they want to work with us. We understand the clients. We understand the process.

But really importantly, we have unique technology that they need because when you put it all together, like we did with Palantir in the Pacific, like we’re doing with AWS on autonomy. When you put it all together, there are massive technology investments. And what we have done, you can actually create things that actually drive outcomes. I’ve talked, for example, in the past about the fact that most cloud providers assume that everybody is sitting on fiber and they’re going to be connected 24/7. And then when you enter the world in which we live, it’s anything but disconnected, impaired communications, where an adversary is actually trying to get you disconnected. It’s a very different operating environment. We have already built technology around, for example, software-defined radio networks, AI-defined radio that actually allows you to travel the spectrum differently and either keep connected or manage the disconnection, back to connection, back to disconnection.

Those are the kinds of things that allow us to co-create with the commercial sector extraordinarily well, and it leverages their investments that they’ve already made, our investments that we’ve already made and our clients are excited. The number of clients that really believe in this value proposition already is great. And as you point out, the system is not prepared for it, and the new administration is going to hopefully accelerate some of the changes that are necessary for this to really operate at speed.

Mariana Perez: And last one, short one. But near term, where are we like, I don’t know, starting the quarter, and we have seen like a lot of like uncertainty around contracting with executive orders, passing some like contracts and everyone reviewing what they have in and out. What are your expectations for book-to-bill in the fourth quarter?

Matt Calderone: Yes, Mariana, I’ll take that. It’s Matt. As Horacio said, we’ve seen essentially no impact on our contracts to date because of the executive orders, even the one that was rescinded related to grant and loan programs. We are seeing some slowdown in the procurement environment. We had a good pipeline for the quarter. So how those 2 things net out, I think, remains to be seen. But as you can imagine, as Horacio referenced, agencies are taking some time to adjust to the new administration priorities. And quite frankly, the government workforce is adjusting to the new environment that they’re in. And so we’re seeing some slowdown or potential disruption there. And I think that’s going to be true industry-wide. So this quarter, it remains to be seen. We’re really bullish about next year. Even absent all the big ideas that Horacio mentioned, our pipeline for next year is in a really good spot.

Horacio Rozanski: Yes. I would only add, Mariana, you were sitting on a lot of backlog and a lot of opportunity that is playing out right now. And as Matt pointed out, the pipeline is strong and the funding environment is probably going to be strong. I think the administration needs to budget, especially in the national security side to move these priorities forward. And so our expectation is, regardless of what happens over the next, whatever, 60 days, that this is going to be a market in which Booz Allen, in particular, can really thrive.

Mariana Perez: Thank you so much.

Operator: Thank you. [Operator Instructions] And it’s from the line of Gautam Khanna with TD Cowen. Please proceed.

Gautam Khanna: Yes. Good morning guys.

Horacio Rozanski: Good morning.

Matt Calderone: Good morning.

Gautam Khanna: I was wondering if you could expand upon your comments on headcount additions and the planning there. Are you expecting to ramp up headcount more so than what happened in the December quarter, in the March and June quarters, just given the environment you described?

Matt Calderone: That’s the plan. I think we – it’s a dynamic environment. We will see how it plays out. I mean just to give you some parameters, our billability in the third quarter was about 1% higher than it was in the first quarter. So, that’s equivalent to what, 330 FTEs. And in fact, our billability in December was the highest it’s been on record. Honestly, a bit too high from my liking. We probably cleared the bench perhaps too aggressively. So, we are ramping up the hiring engine, particularly around a bunch of the large wins that we have enjoyed this year, and we will see how it plays out. And I don’t think you are going to see the kind of headcount growth you saw in Q4 last year, but we are bullish both about the supply and demand side. We have built a lot of momentum.

Horacio Rozanski: I would also say this, I mean and this is going to make your guys’ lives a little bit harder, and I apologize for that, but it’s actually good for the business. We have gotten a lot faster in the way we can recruit and deploy. And so we can really compress the acceleration, deceleration process of our recruiting by a lot. For example, we are using artificial intelligence in different ways. So, now we get, call it, 1,000-plus resumes a day. They are read the same night in which the resumes come in and deploy it against the potential opportunities out there. We didn’t have that capability 2 years ago. And so the ramp up and the ramp down of our recruiting pipeline operating differently. And so again, this is getting faster, being flexible, like Matt said, this is a very dynamic environment.

And so I think week-by-week, we are going to be matching supply and demand tightly as we see things evolve. The good news is that the opportunities that we see in the horizon really begin to mature and crystallize. We can ramp into them at a different speed than we could have a couple of years ago.

Gautam Khanna: Yes. That’s helpful commentary. And I was wondering also, just to expand on the prior questioner’s question. Are you actually seeing a slowdown that has started since the new administration has taken, but at any specific customers with respect to the pace of awarding task orders or contract award adjudication? Have you actually seen any firm evidence of a slowing or is this more on the con…?

Horacio Rozanski: Let me offer it in two pieces. First of all, there is clearly slowdown in some agencies. The good news for us is we have a very, very small exposure to those agencies. So, we are acknowledging what’s out there without seeing any material impact on our business. And then in some of the other agencies, I think I mentioned that even in October, in anticipation of things, some of the timelines for award had lengthened in some of the civil agencies. That pattern continues. It has not compressed. It has not lengthened. It’s just – there is a little bit of a wait-and-see attitude that began even in the last administration, since that this was going to be an administration transition after the election regardless.

And so that has continued. But overall, like Matt said, our trailing book-to-bill is 1.4, which for us is extremely high. Backlog is strong. The demand condition right now is solid. On the supply side, we are really good. The business is running well. But we have acknowledged, I think probably more than anybody else, the immediate challenges associated with the presidential transition and those are playing out.

Gautam Khanna: Thank you, guys.

Horacio Rozanski: Sure.

Operator: Thank you. Our next question is from Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu: Good morning Horacio and Matt. Thank you so much for the time. Maybe just a little bit more specific on just your growth trajectory. When we think about intel, it outperformed civil for the first time in a while, obviously, easier comps and Thunderdome ramping up as the largest zero-trust program in the Federal government. So, maybe if you could just talk about how you expect intel to progress from here and how the Thunderdome ramp is going?

Horacio Rozanski: Well, I will start, but then I need to let Matt, probably complete the thought. I think what has me really excited about our intel business is under Tom Pfeifer’s leadership, we have really pivoted that business in two directions. One is we are bringing a lot more technology to the actual intelligence function, a lot more AI, a lot more use of data platforms in a different way. But secondly, and I think this is going to be the most important driver of our growth over time, is this is now very much a cyber and space focused business. Cyber will continue to be a significant investment area for our clients, we believe. But space is, I think where we are going to see a lot of important acceleration. And I think again, as you think about the administration’s agenda, we are really well positioned on the space front in ways we wouldn’t have been a couple of years ago to continue to see the growth over the medium and long-term.

Matt Calderone: Sheila, it’s playing out the way we anticipated and foreshadowed that our civil business is still going to grow. But perhaps in the short run, not to the extent that the other markets will grow or still has grown in the past. What’s interesting is behind that, for us, you talked about these dozen or so big ideas, and that list keeps growing. What’s fascinating about that list, there are a lot of them in civil, a lot of them that involve one or more commercial partnerships. And increasingly, we are finding we are pulling technology and capabilities and solutions from our defense and intel clients into civil, both for opportunities around efficiency, or if you think even about the EO that named drug cartels as terrorist organizations, a lot of the technology and capabilities we built up over years in the intel and defense communities, how they can put over to civil.

So, it’s a dynamic time in our civil business, but it’s a really exciting time. And I think as I look across the list of big ideas, you probably have more there than anywhere else. And we are prepared to – and are engaging the administration about ideas for change.

Sheila Kahyaoglu: Maybe if I could just follow-up there. Can you quantify at all that what Thunderdome contributes on an annualized basis and when it sort of – how long it reaches that run rate for? And then on civil, how do you think about – how do either do you think about the revenue growth rate under this administration versus the prior, does it change at all?

Matt Calderone: I will take the Thunderdome question. It’s growing at the pace we anticipated. We are having a lot of success, most importantly driving impact for clients, and that’s translating into more people – more clients adopting the Thunderdome solution. In terms of civil, I don’t know, Horacio, do you want to take that?

Horacio Rozanski: No. Go ahead.

Matt Calderone: Okay. I think as I have said, we are excited about the opportunities for change. The vast majority of our portfolio in civil is an area of real mission importance. As Horacio mentioned, we have seen – of the agencies we are seeing the most, that are seeing the most churn related to the new EOs and direction of the administration, we don’t have large positions there. So, we are excited about the medium to long-term in the civil business. I think growth may look more different. There is a lot of opportunity for outcome-based work there. We have been talking about that, Sheila, as you know, for 12 months to 18 months, and positioning for that. We think about ways to make the VA more efficient or the IRS is more efficient, to bring AI there. So, I think we may continue to see some short-term disruption. We have talked about that in the civil business, but the team is leaning into opportunities aggressively.

Sheila Kahyaoglu: Okay. Got it. Thank you.

Operator: Thank you. Our next question comes from the line of Tobey Sommer with Truist. Please proceed.

Tobey Sommer: Thank you. I was wondering if you could drill down into the civil clients in maybe describe what areas of civil or agencies that you are seeing a change in behavior? And I know the executive orders have come sort of maturing [ph] this month. But any sort of contours you could give us would be helpful. Thank you.

Horacio Rozanski: Sure, Tobey. I mean as you know, the core of our civil business rests on the healthcare side with a very strong emphasis on the VA treasury and with the modernization of systems across treasury and especially the IRS and then broadly across the DHS and especially law enforcement. And again, if you look at those areas and you read the same things that I read probably and you talk to probably some of the same people that I talk to, those are areas that I think are ripe for both opportunity, transformation, investment and acceleration. And so that’s what our team is really focused on. We moved away from a civil business that allowed 1,000 flowers to bloom across all of the smaller agencies quite a while back.

And I am glad we did, because those are the agencies that I think are seeing right now, the most near-term disruption. Now again, even in the larger agencies, when there is a change in philosophy, when there is a change in strategy, there is an immediate impact where people come in and say, wait, let’s pause and take a look. As you saw, there was a significant pause that then was partially reversed on grants and funding of grants and things like that, where Booz Allen has no, almost zero or zero business. And so it had no impact on us, but I can see how that has a greater impact. So, like we said before, are we going to see some awards that maybe are under consideration now taking a little longer to get awarded, well, we have already begun to see that, and I don’t expect that will shorten in the immediate term.

We see some things get canceled and some things get started. This is probably what my sixth presidential transition since I joined Booz Allen. The answer to that is almost certainly, yes, because we have seen that in every other one of those. But at the end of the day, that is a very short-term phenomenon and we are not focused on that. We will manage that. We will navigate that. We are doing well already there. Our real focus is once things get going in earnest and continue to accelerate, we are able to match that acceleration pace. The history of Booz Allen is we actually do better in every administration transition because we can match better than anybody else, the opportunity set. And especially now as an advanced technology company, with the largest AI business, the largest cyber business, a strong space presence, largest quantum or I don’t know if it’s the largest, but the leading quantum business.

You put all of that together and you say we are really well positioned to take advantage of opportunities as we – as things get underway and we move past the immediate transition.

Tobey Sommer: Thank you for that Horacio. As a follow-up, if I could. With respect to the offer for internal government employees to resign, is there a threshold of percentage decline in internal government staff at your agency customers, whereby if it’s large enough, it could signal increased outsourcing to you and others in the marketplace? Just curious how you are thinking about that because I guess we will have some sense for what the results are in about a week.

Horacio Rozanski: Sure. I mean as you know, we are not in the outsourcing business. And in this tough augmentation business, we are in the business of bringing technology to bear [ph], and that’s what we are focused on is those types of opportunities. That’s where we think both in the near and in the medium-term, the growth is going to be the investment is going to come. The efficiencies are going to be realized. And so we are full speed ahead on generating those types of opportunities and positioning them for them.

Operator: Thank you. [Operator Instructions] And it comes from the line of Louie DiPalma with William Blair. Please proceed.

Louie DiPalma: Good morning. For Horacio and Matt, and Dustin, good morning. For Horacio and Matt, your previous long-term revenue guidance that you still mentioned in your slide deck was 5% to 8%. And I know you aren’t going to give a fiscal 2026 guidance, but should that range be considered a reasonable benchmark in this new era of slower procurement?

Matt Calderone: I will take that one. Historically, we have said that if our book-to-bill was above 1.2 and our headcount is in the 3% to 5% range, we are looking at mid to upper-single digit organic growth. And if not, probably bias towards the high end of that. So, we got a lot of momentum in the business. I think your question is hard to parse, right, because we are talking about a short-term recalibration for the procurement environment over the medium to long-term, and that will start with when the administration really lands and they get a new budget passed, and we begin to see areas that they are going to invest in. We haven’t talked about Iron Dome, for example, which is an area we are really excited about. The money is going to start to flow.

And so I wouldn’t read much into this quarter or next. I think it’s going to be a period of recalibration. And the answer to your long-term question is, we are really bullish about where we are headed. We see a lot of opportunity. As Horacio said, we have been preparing for this moment. We have been talking about VoLT for the past 3 years and the tenants of VoLT are squarely in line with what the administration wants to do AI, speed, dual-use technology, driving efficiency. So, this is an opportunity. And you heard it in our prepared remarks, but I will just say, my experience is Booz Allen is always better when we are on offense, and our team is on offense. And I think that’s what you and our investors would expect, is we are going to create the future.

There is a reason why our mission statements says, we are empowering people to change the world, and we are embracing this change in going forward.

Louie DiPalma: Great. Thanks. And I guess for either of you, do you, in general view this period of DOGE cost-cutting as different from the 2011 era of sequestration? And this one would probably be for Matt. Do you expect certain un-priced options that are in your backlog to go away or perhaps just be replaced with other work as priority shift?

Horacio Rozanski: Louie, why don’t I take the first part of it. The – I actually think this is qualitatively different from the sequestration time period in that the – there, they started with a lower – first of all, it came up all of a sudden because they had created the BCA caps as a way to force themselves to agree. And then when they couldn’t agree, it’s some most they put their gun to the proverbial head and then the gun went off. And as a result of that, this was this unprecedented takedown of across-the-board funding that was irrespective of priority investment areas of need. This to me reads completely differently. If I listen to the conversation that is happening around DOGE, this is about creating efficiencies and then deciding how that is going to be invested for the American people.

And in that sense, our expectation is that a lot of what is going to be created in the form of efficiencies will be reinvested as investments in technology that will drive future outcomes. We are in a geopolitically, very difficult environment where, as you heard me say, is not – we are just not moving fast enough. I think there is a possibility to accelerate that there is a real desire in the department, both by the incoming team and by the existing professionals there to accelerate things. And this should enable that, both from a funding and a process perspective, there is a real need to think about immigration differently. There is a real need to think about space differently. And any success at creating efficiencies, I think will unlock the possibility of really creating that faster, which for us spells both impact and opportunity.

And so that’s why we came into 2011, recognizing that this was going to be a multiyear period of difficulty. I will remind you that even then, we decided to double down and invest as opposed to retrench, but we knew that was going to be a multiyear period. We think this is a much shorter period of adjustment followed by a real clear set of opportunities and priorities we can pursue.

Matt Calderone: If I could just add to that, Louie, the dominant contracting force in that period was low price technically acceptable. Now, it’s all about outcome-based and innovation and speed. It could not be more different in terms of what the changes are trying to affect and how we expect it’s going to play out. Back then, it was all about who can get as low as possible to supply the same amount of service. This is the antithesis of that.

Louie DiPalma: Great. And like recently, when there have been shifting priorities or contract losses like focus flakes [ph] or the recent VA contract, you have been able to shift your talent to other short-staffed, high-growth programs. And in terms of Horacio’s answer and your answer, Matt, you seem to suggest that DOGE is more of a shift of priorities rather than just across-the-board sequestration type cost cutting. Do you expect, with VoLT, that you are going to be able to have the same type of versatility and be able to shift employees to align to the new priorities quickly?

Horacio Rozanski: Absolutely. And I think we may be able to do even more. I think first of all, we have – our overall business model based on the single P&L has always been an asset at times like this, and it’s going to be a fundamental asset. Now second, as I mentioned before, we are using new tools and new technologies to do everything faster inside Booz Allen. And we can understand, for example, if somebody is coming off a contract, we now use AI to understand where would their skill set be best matched and we can make that transition happen. Not quite in milliseconds yet, but certainly, infinitely faster than we could have in the past. But maybe third and most importantly, we are really leaning in. And like I said, we are looking for opportunities.

We are talking about opportunities. We are focusing on those, and we are beginning to invest as we speak on the – in the areas that we believe will turn into opportunities. We are not standing still. And so if there are contract shifts, I am really proud of this workforce and their versatility and their value. And I am really bullish about our ability to redeploy them to where it makes the most sense.

Louie DiPalma: Great. Thanks everyone.

Horacio Rozanski: Sure.

Operator: Thank you. Our next question is from Matt Akers with Wells Fargo. Please proceed.

Matt Akers: Hey. Good morning guys. Thanks for the question. Maybe one for Horacio, I mean – so I guess some news last week out of China on AI with DeepSeek. Just curious if you have heard any kind of reaction from your clients that maybe more urgency to kind of accelerate investment in AI, and just curious, just sort of where we stand in kind of the AI kind of arms race with China?

Horacio Rozanski: Yes. I think – I spend a fair amount with our AI team on this topic. And it won’t surprise you that we have been tracking this development for the last year. So, while the sort of the announcement had some element of surprise, it was not totally out of the blue. The – here is what I would say. First of all, there is a real opportunity here to rethink at least some elements of how AI is deployed. And there are some capabilities that DeepSeek showed that actually demonstrate that by distilling and doing a number of things, you can actually really lower the cost of deployment than use of AI, you can put it in a much smaller compute footprint. And again, as you think about edge and all the things we worry about, there is a lot of things to think about there.

The second point is it demonstrates how dynamic this field is and how, if you will, ephemeral leadership could be in an area like this, and I think it’s going to keep everybody on our toes to ensure that we continue to stay on top of it, which is again, I take you back to the V involved. This is why we focused on speed because this is how fast things are changing. And then third, I will say this, I mean again, when China does something like this, it’s a moment of pause, not just for our clients, but really for all of us for a couple of reasons. First of all, I think it’s – we all need to take some time to examine some of the claims because there are some opacity in some of the claims that I think we still need to shred the ground truth.

But secondly, it’s already been reported in the press that if you ask certain questions, you get some funny answers coming out of DeepSeek. We don’t know in these models, what is also behind underneath that. And so the deployment of models where we don’t have complete understanding of their providence and what may be in there is something that again, creates an intersection between AI and cyber, also something we have been talking about for a couple of years, that we really need to be very thoughtful about. These are the kinds of things we are talking to our clients about. These are the kinds of areas where I think Booz Allen’s leadership, if anything, will expand and accelerate. So, you and I could geek out on this role for the next half an hour, but I will park it there.

Matt Akers: That’s great. Thanks. And then I guess I wanted to ask about capital deployment. You guys have sort of laid out what the strategy, kind of the priorities are. But your stock is like 30% off of where it was pre-election. I think you have talked about being comfortable up to a little bit higher leverage level than where you are now. Just curious if at some point it makes sense to maybe do something more aggressive with buybacks just given that opportunity?

Matt Calderone: Yes. Thanks Matt. I think if you look – we bought back about $500 million in shares over the first nine months. So, as is often true, we are doing things sort of our own way and quietly, but we have retired 2.3% of our share count over the first three quarters. You are right. I mean our balance sheet is strong, right. Our net leverage is 2.3x. So, we have deployed almost $1 billion worth of capital over the last 12 months while still de-levering, and that gives us a lot of flexibility to generate value in different ways. And as Horacio and I have said, we are really bullish about Booz Allen’s prospects in the new environment. So, we will continue to deploy capital aggressively and flexibly to create shareholder value in lots of ways.

Matt Akers: That’s great. Thank you.

Operator: Thank you. And now I will turn the call back to Horacio Rozanski for final remarks.

Horacio Rozanski: Thank you, Carmen. Thank you all for your questions and for taking time with us this morning. Before we close, I want to take a minute to, once again, this is my favorite thing to brag about the amazing people of Booz Allen. They are at the heart of the work that we do and the outcomes that we deliver for our clients each and every day. As we closed out our 110th anniversary in December, our people delivered yet one more achievement that makes me proud and it’s worth highlighting. In 2024, our employee giving campaign raised a record $2.6 million in support of nearly 2,500 non-profits. This is the highest level of employee participation ever. And it demonstrates the care that people at Booz Allen take for each other and for one of the communities, and it is really one of the countless reasons why I am still here, after 30-some years, why I am so proud to be here every day and work with these amazing people who truly are empowered to change the world.

And on that note, thank you again all of you for joining us, and have a great day.

Operator: And this concludes today’s conference call. Thank you all for participating and you may now disconnect.