Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report, and Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended March 31, 2025, which provides additional information on comparisons of fiscal 2025 and 2024.
The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Item 1A. Risk Factors” and “Introductory Note — Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Our fiscal year ends March 31 and, unless otherwise noted, references to years or fiscal are for fiscal years ended March 31. See “— Results of Operations.”
Overview
Booz Allen is an advanced technology company, building products and solutions for government and business. We are a leader at the forefront of the nation’s technology ecosystem. Our approximately 31,500 employees build tech for a diverse base of federal government and commercial customers, both domestically and in select foreign locations. By investing in emerging technologies, talent, and new business models, including partnerships with leading technology companies, venture investments, and the development of military grade products, we are accelerating the delivery of tech solutions.
Non-GAAP Measures
We publicly disclose certain non-GAAP financial measurements, including Revenue, Excluding Billable Expenses , EBITDA and Adjusted EBITDA , because management uses these measures for business planning purposes, including to manage our business against internal projected results of operations and measure our performance. We view Adjusted EBITDA as a measure of our core operating business, which excludes the impact of the items detailed below, as these items are generally not operational in nature. These non-GAAP measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring ite ms. In addition, we use Revenue, Excluding Billable Expenses because it provides management useful information about the Company's operating performance by excluding the impact of costs such as subcontractor expenses, travel expenses, and other non-labor expenses incurred to perform on contracts. Billable expenses generally have lower margin and thus are less indicative of our profit generation capacity. Management believes this metric provides useful information about our business.These supplemental performance measurements may vary from and may not be comparable to similarly titled measures by other compani es in our industry. Revenue, Excluding Billable Expenses, EBITDA and Adjusted EBITDA are not recognized measurements under accounting principles generally accepted in the United States (“GAAP”) and when analyzing our performance, investors should (i) evaluate each adjustment in our reconciliation of revenue to Revenue, Excluding Billable Expenses , net income to EBITDA and Adjusted EBITDA, and (ii) use Revenue, Excluding Billable Expenses, EBITDA and Adjusted EBITDA in addition to, and not as an alternative to, revenue and net income, as measures of operating results, each as defined under GAAP. We have defined the aforementioned non-GAAP measures as follows:
• Revenue, Excluding Billable Expenses represents revenue less billable expenses.
• EBITDA represents net income before income taxes, interest expense, net and other income (expense), and depreciation and amortization.
• Adjusted EBITDA represents net income before income tax expense, interest expense, net and other income (expense), and depreciation and amortization and before certain other items, including the change in provision for claimed costs for historical rate years, financing transaction costs, DC tax assessment adjustment, the reserve associated with the U.S. Department of Justice (the “DOJ”) investigation disclosed in Note 20, “Commitments and Contingencies,” to the consolidated financial statements contained within our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, the insurance recoveries related to the settlement of that matter, and other corporate expenses. The Company prepares Adjusted EBITDA to eliminate the impact of items it does not consider indicative of ongoing operating performance due to their inherent unusual, extraordinary or non-recurring nature or because they result from an event of a similar nature.
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Below is a reconciliation of our most directly comparable GAAP measures to our non-GAAP measures, Revenue to Revenue, Excluding Billable Expenses and Net income to EBITDA and Adjusted EBITDA , calculated and presented in accordance with GAAP:
Fiscal Year Ended
March 31,
(Amounts in millions)
(Unaudited)
Revenue, Excluding Billable Expenses
Revenue
Less: Billable expenses
Revenue, Excluding Billable Expenses *
EBITDA and Adjusted EBITDA
Net income
Income tax expense
Interest expense, net and other income (expense)
Depreciation and amortization
EBITDA
Change in provision for claimed costs (a)
Financing transaction costs (b)
DC tax assessment adjustment (c)
Legal matter reserve (d)
Other corporate expenses (e)
Insurance recoveries (f)
Adjusted EBITDA
* Revenue, Excluding Billable Expenses includes $113 million of revenue and $18 million revenue for fiscal 2025 and
2024 respectively, resulting from the reduction to our provision for claimed costs (see note (a) below).
(a) Represents the reduction to our provision for claimed costs for years prior to fiscal 2025 recorded during the second quarters of fiscal 2025 and 2024, which resulted in a corresponding increase to revenue, as a result of the Defense Contract Audit Agency's findings related to its audits of our claimed costs for multiple fiscal years. See Note 19, “Commitments and Contingencies,” to the consolidated financial statements in the Company's Form 10-K for the fiscal year ended March 31, 2025 for further information.
(b) Reflects expenses associated with debt financing activities incurred during the second quarter of fiscal 2024.
(c) Reflects the impact (specifically the revenue from recoverable expenses) 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”). See Note 13, “Income Taxes,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024 for further information.
(d) Reserve associated with the U.S. Department of Justice's investigation of the Company. See Note 20, “Commitments and Contingencies,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024 for further information.
(e) In fiscal 2026, other corporate expenses consist primarily of nonrecoverable costs associated with employee severance from cost management and restructuring initiatives, transaction costs associated with a divestiture, and acquisition related costs associated with the acquisition of Defy Security, which closed in the first quarter of fiscal 2027. See Note 20, “Supplemental Consolidated Financial Information,” to the consolidated financial statements for further information. In fiscal 2025 and fiscal 2024, other corporate expenses consist primarily of acquisition related costs from the acquisitions of PAR Government Systems Corporation (“PGSC”) and EverWatch Corp. ("EverWatch").
(f) Reflects insurance recoveries from claims related to the Company’s fiscal 2024 settlement as described in Note 20, “Commitments and Contingencies,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Factors and Trends Affecting Our Results of Operations
Our results of operations have been, and we expect them to continue to be, affected by the following factors, which may cause our future results of operations to differ from our historical results of operations discussed under “—Results of Operations.”
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U.S. Political, Budget and Regulatory Environment
The U.S. continues to face an uncertain and evolving budgetary and regulatory environment, and we expect this uncertainty will continue. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the spending priorities of the U.S. government.
The U.S. government continues to drive changes in the structure and priorities of U.S. government agencies and continues to review spending across U.S. government agencies to ensure it aligns with the administration’s priorities of maximizing governmental efficiency and productivity. We have been, and will continue to be, subject to these reviews, and we have had, and may in the future have, certain of our contracts impacted, reduced or canceled as a result of these reviews. We have also experienced price adjustments and renegotiations prior to option exercise of certain of our contracts as a result of these reviews and may in the future continue to experience such adjustments. Further, we are, and may in the future be, subject to customer mandates to formulate additional methods by which to achieve efficiencies in providing our services, and we remain in ongoing discussions with various U.S. government departments and agencies in relation to cost reductions and other potential contract modifications. There can be no assurance that these reviews will not ultimately have a material adverse impact on our business and financial performance.
The administration has put in place a number of executive orders and actions that have and could continue to affect our business. U.S. government agencies are also undertaking their own independent reviews of their contract portfolios and reviewing future procurements in response to recent executive orders focused on efficiency in government procurement. At the same time that the scrutiny is increasing, there have been reductions in personnel at U.S. government agencies with which we do business. These reductions in personnel, along with the changing regulatory environment, have led to a slowed procurement environment, with delays in the granting of new contract awards, increased willingness by agencies to not spend government money, delays in the processing of payments by government payment offices, as well as increased processing times for security clearances and other governmental consents. This slowed procurement environment has resulted in a substantial reduction in the ordinary end of government fiscal year funding surge when compared to prior fiscal years and, in the aggregate, has resulted in negative impacts to our business and financial performance.
We have observed preparatory steps by the U.S. government to implement two specific executive orders that are intended to (i) simplify and accelerate the procurement process through a review and restructuring of the Federal Acquisition Regulation (“FAR”), and its supplements and (ii) modernize defense acquisitions by promoting commercial solutions, innovative acquisition authorities, and other existing streamlined processes. The FAR Council, the body responsible for issuing and maintaining the FAR, substantially completed Phase 1 of FAR reform efforts at the end of September 2025. The Office of Federal Procurement Policy and FAR Council have solicited feedback on these efforts and will turn next to the formal rulemaking process. Likewise, in early November 2025, the Secretary of War announced and released an associated memorandum regarding a new acquisition strategy and directing certain reforms addressing Department of War purchases of military weapons. The Secretary’s accompanying memorandum and strategy outline a number of actions focused on rebuilding the Defense Industrial Base, elevating and empowering the acquisition workforce, maximizing acquisition flexibility, developing high performance systems, and improving effective lifecycle risk management. While the impact of the aforementioned changes remains uncertain, the new acquisition strategy and streamlined procurement processes have the potential to have impacts on our business.
On Nove mber 12, 2025, the President signed into law the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026, which funded the U.S. government under a short-term continuing resolution through January 30, 2026. Appropriations for the U.S. government’s fiscal year 2026 were delayed, with Congress enacting partial appropriations legislation in multiple tranches, such appropriations ultimately covering a majority of federal agencies. However, a comprehensive appropriations agreement for the full year has not been reached for all agencies, and certain portions of the government have been funded through continuing resolutions or remain subject to funding uncertainty, including the Department of Homeland Security, for which funding has been provided only on a partial basis, while certain components, including its immigration enforcement operations, remain subject to funding uncertainty. As a result, uncertainty regarding federal funding levels persists. A prolonged government shutdown could have a negative impact on our business, financial condition and operating results.
On December 18, 2025, the National Defense Authorization Act was signed into law, which included a number of reforms that may also impact our business. Although the final bill did not adopt more narrow commercial preferences or expand the statutory definition of contractors who qualify as nontraditional contractors, it did exempt contractors who meet that definition from certain burdensome compliance requirements. The continued focus on removing barriers to new entrants and any related future legislation could reduce the likelihood of direct awards to companies like Booz Allen and effect our competitive position.
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On January 7, 2026, the President signed an executive order, “Prioritizing the Warfighter in Defense Contracting”, that, among other things, limits stock buybacks and the payment of dividends by certain defense contractors. This executive order directs the Secretary of War to identify defense contractors that are underperforming on their contracts, not investing their own capital into necessary production capacity, not sufficiently prioritizing United States Government contracts, or whose production speed is insufficient as determined by the Secretary, and that have, during the period of underperformance or insufficient prioritization, investment, or production speed, engaged in any stock buy-back or corporate distribution. If the Company is identified pursuant to this executive order, it may have a negative impact on our dividends, stock buyback programs, and our ability to attract and retain talented executives. Compliance with the requirements of this executive order may be complex, costly and time-consuming, and our subcontractors may not have the necessary resources to ensure compliance. In addition, certain Senators have introduced legislation that would go beyond this executive order by instituting, absent a waiver, a blanket prohibition on such dividends, buybacks, and executive compensation above certain levels. This proposed legislation far exceeds the framework contemplated by the executive order and would introduce significant administrative for us and other companies that could be subject to such legislation.
On April 30, 2026, the President signed an executive order, “Promoting Efficiency, Accountability, and Performance in Federal Contracting,” which directs federal agencies, subject to certain exceptions, to increase the use of firm-fixed price contracts for new awards to the maximum extent consistent with law. Additionally, agencies are directed, to the maximum extent practicable and consistent with law, to seek to modify, restructure, or renegotiate, their top ten highest-dollar-value contracts issued on an other-than-fixed price basis. The Company is supportive of the recent focus by the administration on the increased usage of fixed-price and outcomes-based contracting (we refer to firm fixed price contracts where we deliver a specific outcome for a predetermined price as “outcomes-based contracting”). Compared to time-and-materials and cost-reimbursable contracts, outcomes-based contracting generally offers higher margin opportunities because we receive the benefits of any cost savings, but can involve greater financial risk because we bear the impact of any cost overruns. Additionally, we believe outcomes-based contracting results in more efficient contracting outcomes and potential savings for the U.S. government.
See “Item 1A. Risk Factors—Industry and Economic Risks and —Legal and Regulatory Risks” for additional discussion of risks to the company related to our industry and the political, budget and regulatory environment.
Sources of Revenue
Substantially all of our revenue is derived from services provided under contracts and task orders with the U.S. government, primarily by our customer staff and, to a lesser extent, our subcontractors. Funding for our contracts and task orders is generally linked to trends in budgets and spending across various U.S. government agencies and departments. We provide services under a large portfolio of contracts and contract vehicles to a broad customer base, and we believe that our diversified contract and customer base lessens potential volatility in our business; however, a reduction in the amount of services that we are contracted to provide to the U.S. government or any of our significant non-U.S. government customers could have a material adverse effect on our business and results of operations.
Contract Types
We generate revenue under the following three basic types of contracts:
• Cost-Reimbursable Contracts. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract, up to a ceiling based on the amount that has been funded, plus a fixed fee or award fee. As we increase or decrease our spending on allowable costs, our revenue generated on cost-reimbursable contracts will increase, up to the ceiling and funded amounts, or decrease, respectively. We generate revenue under two general types of cost-reimbursable contracts: cost-plus-fixed-fee and cost-plus-award-fee, both of which reimburse allowable costs and provide for a fee. The fee under each type of cost-reimbursable contract is generally payable upon completion of services in accordance with the terms of the contract. Cost-plus-fixed-fee contracts offer no opportunity for payment beyond the fixed fee. Cost-plus-award-fee contracts also provide for an award fee that varies within specified limits based upon the customer’s assessment of our performance against a predetermined set of criteria, such as targets for factors like cost, quality, schedule, and performance.
• Time-and-Materials Contracts. Under contracts in this category, we are paid a fixed hourly rate for each direct labor hour expended, and we are reimbursed for billable material costs and billable out-of-pocket expenses inclusive of allocable indirect costs. We assume the financial risk on time-and-materials contracts because our costs of performance may exceed negotiated hourly rates. To the extent our actual direct labor, including allocated indirect costs, and associated billable expenses decrease or increase in relation to the fixed hourly billing rates provided in the contract, we will generate more or less profit, respectively, or could incur a loss.
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• Fixed-Price Contracts. Under a fixed-price contract, we agree to perform the specified work for a predetermined price. To the extent our actual direct and allocated indirect costs decrease or increase from the estimates upon which the price was negotiated, we will generate more or less profit, respectively, or could incur a loss. Some fixed-price contracts have a performance-based component, pursuant to which we can earn incentive payments or incur financial penalties based on our performance. Fixed-price level of effort contracts require us to provide a specified level of effort (i.e., labor hours), over a stated period of time, for a fixed price.
The amount of risk and potential reward varies under each type of contract. In the aggregate, the contract type mix in our revenue for any given period will affect that period's profitability. As described above in “U.S. Political, Budget and Regulatory Environment,” we expect the recent executive order directing agencies, subject to certain exceptions, to increase usage of fixed-price contract will result in an overall change in our contract type mix over time. Changes in contract type as a result of re-competes and new business could influence the percentage/mix in unanticipated ways. See “Item 1A. Risk Factors—Industry and Economic Risks.”
The table below presents the percentage of total revenue for each type of contract for the respective periods shown:
Fiscal Year Ended
March 31,
Cost-reimbursable
Time-and-materials
Fixed-price
Contract Portfolio and Revenue Mix
We provide services to our customers through a large number of single award contracts, contract vehicles, and multiple award contract vehicles. Most of our revenue is generated under indefinite delivery/indefinite quantity (“IDIQ”) contract vehicles, which include multiple award government wide acquisition contract vehicles (“GWACs”) and General Services Administration (“GSA”) Multiple Award Schedule Contracts (“GSA schedules”) and certain single award contracts. GWACs and GSA schedules are available to all U.S. government agencies. Any number of contractors typically compete under multiple award IDIQ contract vehicles for task orders to provide particular services, and we earn revenue under these contract vehicles only to the extent that we are successful in the bidding process for task orders. No single task order under any IDIQ contract represented more than 4% of our revenue in fiscal 2026. No single definite contract accounted for more than 1% of our revenue in fiscal 2026.
We generate revenue under our contracts and task orders through our provision of services as both a prime contractor and a subcontractor, as well as from the provision of services by subcontractors under contracts and task orders for which we act as the prime contractor. As shown in the table below, the majority of our revenue was generated by contracts and task orders for which we served as the prime contractor; and roughly 25% of revenue was generated by services provided by our subcontractors.
Fiscal Year Ended
March 31,
% Revenue As:
Prime Contractor
Subcontractor
Total Revenue
Revenue generated by services provided by our subcontractors:
The mix of these types of revenue affects our operating margin. Substantially all of our operating margin is derived from direct customer staff labor as the portion of our operating margin derived from fees we earn on services provided by our subcontractors is not significant.
Contract Backlog
We define backlog to include the following three components:
• Funded Backlog. Funded backlog represents the value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
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• Unfunded Backlog. Unfunded backlog represents the value of orders (including exercised optional orders) for services under existing contracts for which funding has not been appropriated or otherwise authorized.
• Priced Options. Priced contract options represent 100% of the value of all future contract option periods under existing contracts that may be exercised at our customers’ option and for which funding has not been appropriated or otherwise authorized.
Our backlog does not include contracts that have been awarded but are currently under protest and also does not include any task orders under indefinite delivery/indefinite quantity (“IDIQ”) contracts, General Services Administration (“GSA”) Multiple Award schedule contracts (“GSA schedules”) or other master agreement contract vehicles, except to the extent that task orders have been awarded to us under those contracts.
The following table summarizes the value of our contract backlog as of the respective periods shown:
Fiscal Year Ended
March 31,
Backlog:
(In millions)
Funded
Unfunded
Priced options
Total backlog
Our total backlog consists of contractual values which is inclusive of remaining performance obligations, and potential contract value from unexercised option periods and other unexercised optional orders. As of March 31, 2026 and March 31, 2025, the Company had $10.7 billion and $9.5 billion of remaining performance obligations, respectively, and we expect to recognize approximately 65% of the remaining performance obligations as of March 31, 2026 as revenue over the next 12 months, and approximately 75% over the next 24 months. The remainder is expected to be recognized thereafter. We also expect to recognize revenue from a substantial portion of funded backlog as of March 31, 2026, within the next twelve months. However, given the uncertainties discussed below, as well as the risks described in “Item 1A. Risk Factors,” we can give no assurance that we will be able to convert our backlog into revenue in any particular period, if at all. Our backlog includes orders under contracts that in some cases extend for several years. The U.S. Congress generally appropriates funds for our customers on a yearly basis, even though their contracts with us may call for performance that is expected to take a number of years to complete. As a result, contracts typically are only partially funded at any point during their term and all or some of the work to be performed under the contracts may remain unfunded unless and until the U.S. Congress makes subsequent appropriations and the procuring agency allocates funding to the contract.
We view growth in total backlog as a key measure of our potential business growth. Total backlog increased by 3% from March 31, 2025 to March 31, 2026. Additions to funded backlog during fiscal 2026 and 2025 totaled $11.1 billion and $12.2 billion respectively, as a result of the conversion of unfunded backlog to funded backlog, the award of new contracts and tas k orders under which funding was appropriated, and the exercise and subsequent funding of priced options. We report internally on our backlog on a monthly basis and review backlog upon occurrence of certain events to determine if any adjustments are necessary.
We cannot predict with any certainty the portion of our backlog that we expect to recognize as revenue in any future period and we cannot guarantee that we will recognize any revenue from our backlog. The primary risks that could affect our ability to recognize such revenue on a timely basis or at all are: program schedule changes, contract modifications, and our ability to assimilate and deploy new customer staff against funded backlog; cost-cutting initiatives and other efforts to reduce U.S. government spending, which could reduce or delay funding for orders for services; and delayed funding of our contracts due to delays in the completion of the U.S. government's budgeting process and the use of continuing resolutions by the U.S. government to fund its operations. In addition, the amount of our funded backlog is also subject to change due to these factors. In our recent experience, the slowed procurement environment and reductions in contract value have had a negative effect on our ability to convert backlog to revenue as of March 31, 2026, and could have additional impacts in the future to our business and financial performance.
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Seasonality
The U.S. government's fiscal year ends on September 30 of each year. We have historically experienced higher bid and proposal costs in the months leading up to the U.S. government's fiscal year end as we pursue new contract opportunities being awarded shortly after the U.S. government fiscal year end as new opportunities are expected to have funding appropriated in the U.S. government's subsequent fiscal year. We may continue to experience this seasonality in future periods, and our future periods may be affected by it. While not certain, changes in the government's funding and spending patterns have altered historical seasonality trends, supporting our approach to managing the business on an annual basis.
Seasonality is just one of a number of factors, many of which are outside of our control, which may affect our results in any period. See “Item 1A. Risk Factors.”
Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies, including the critical policies and practices listed below, are more fully described and discussed in the notes to the consolidated financial statements. We consider the following accounting policies to be critical to an understanding of our financial condition and results of operations because these policies require the most difficult, subjective or complex judgments on the part of our management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition and Cost Estimation
We perform under various types of contracts, which include cost-reimbursable-plus-fee contracts, time-and-materials contracts, and fixed-price contracts. We recognize revenue for each performance obligation identified within our customer contracts when, or as, the performance obligation is satisfied by transferring the promised goods or services. On certain contracts, principally time-and-materials and cost-reimbursable-plus-fee contracts, revenue is recognized using the right-to-invoice practical expedient as we are contractually able to invoice the customer based on the control transferred.
Certain of our contracts contain award fees, incentive fees or other provisions that may increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and may be based upon customer discretion. Management estimates variable consideration as the most likely amount that we expect to achieve based on our assessment of the variable fee provisions within the contract. We evaluate unfunded amounts as variable consideration in estimating the transaction price. We include the estimated variable consideration in our transaction price to the extent that it is probable that a significant reversal of revenue will not occur upon the ultimate settlement of the variable fee provision.
We recognize revenue for fixed-price contracts using a contract cost-based input method and require an Estimate-at-Completion (“EAC”), which management uses to review and monitor the progress towards the completion of our performance obligations. Under this process, management considers various inputs and assumptions related to the EAC, including, but not limited to, progress towards completion, labor costs and productivity, material and subcontractor costs, and identified risks. Estimating the total cost at completion of performance obligations is subjective and requires management to make assumptions about future activity and cost drivers under the contract. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the profitability of our contracts. If the estimate of contract profitability indicates an anticipated loss on a contract, we recognize the total loss at the time it is identified.
For further detail on our contract types and processes, including when a contract is deemed to exist, contract modifications, as well as other specifics, see Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements contained within this Annual Report on Form 10-K.
Provision for Claimed Costs
U.S. government contracts and subcontracts are subject to extensive legal and regulatory requirements. From time to time and in the ordinary course of business, agencies of the U.S. government, including the DCAA, audit the Company’s claimed costs and conduct inquiries and investigations of our business practices with respect to government contracts to determine whether the Company's operations are conducted in accordance with these requirements and the terms of the relevant contracts.
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The Company recognizes a reserve for estimated adjustments to historical claimed costs in respect of the years subsequent to fiscal 2011, based primarily on historical audit results. As audits of the periods subsequent to 2011 are completed, our estimates of adjustment to claimed costs for these periods could change. Any such change could materially impact our reported revenue, operating income, net income and basic and diluted earnings per common share.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements contained within this Annual Report on Form 10-K for information related to our adoption of new accounting standards and for information on our anticipated adoption of recently issued accounting standards.
Segment Reporting
We report operating results and financial data in one operating and reportable segment. We manage our business as a single profit center in order to promote collaboration, provide comprehensive functional service offerings across our entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding served markets and functional capabilities is discussed for purposes of promoting an understanding of our complex business, we manage our business and allocate resources at the consolidated level of a single operating segment. See Note 19, “Business Segment Information,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with GAAP and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements and notes of the Company include its subsidiaries, and the joint ventures and partnerships over which the Company has a controlling financial interest. The Company uses the equity method to account for investments in entities that it does not control if it is otherwise able to exert significant influence over the entities’ operating and financial policies.
The Company’s fiscal year ends on March 31 and unless otherwise noted, references to fiscal year or fiscal are for fiscal years ended March 31. The accompanying consolidated financial statements present the financial position of the Company as of March 31, 2026 and 2025 and the Company’s results of operations for fiscal 2026, fiscal 2025, and fiscal 2024.
Certain amounts reported in the Company's prior year consolidated financial statements have been reclassified to conform to the current year presentation.
Results of Operations
The following table presents items from our consolidated statements of operations for the respective periods shown:
Fiscal Year Ended March 31,
Fiscal 2026
Versus
Fiscal 2025
Fiscal 2025
Versus
Fiscal 2024
(In millions)
Revenue
Operating costs and expenses:
Cost of revenue
Billable expenses
General and administrative expenses
Depreciation and amortization
Total operating costs and expenses
Operating income
Interest expense, net
Other income (expense)
Income before income taxes
Income tax (benefit) expense
Net income
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Fiscal 2026 Compared to Fiscal 2025
Revenue
Revenue decreased 6% to $11,217 million, primarily driven by the impact of a slowed procurement and funding environment, including the government shutdown that occurred in the third quarter of fiscal 2026. These factors drove a decrease in headcount, as well as a decline in billable expenses. I n addition, the change in revenue was positively impacted by a $122 million reduction to our provision for claimed costs recorded during fiscal 2025.
Cost of Revenue
Cost of revenue includes direct labor, related employee benefits, and overhead. Overhead consists of indirect costs, including indirect labor relating to infrastructure, management and administration, and other expenses. Cost of revenue as a percentage of revenue was 47% and 45%. Cost of revenue decreased 2% to $5,305 million, primarily due to decreases in salaries and related benefits due to overall headcount reductions. The principal factors that affect our costs are the increases or decreases in labor and employee related costs as we are awarded contracts, task orders, and additional work under our existing contracts, and the hiring of people with specific skill sets and security clearances.
Billable Expenses
Billable expenses include direct subcontractor expenses, travel expenses, and other expenses incurred to perform on contracts. Billable expenses as a percentage of revenue were 31% and 32%. Billable expenses decreased 9% to $3,450 million, primarily attributable to decreases in the use of subcontractors driven by customer demand and timing of customer needs, partially offset by increases in other direct expenses as compared to the prior year.
General and Administrative Expenses
General and administrative expenses include indirect labor of executive management and corporate administrative functions, marketing and bid and proposal costs, legal costs, and other discretionary spending. General and administrative expenses as a percentage of revenue was 11% and 10%. General and administrative expenses increased 2% to $1,266 million. The year over year change, which was relatively flat, was primarily related to an insurance recovery of $115 million recognized in general and administrative expenses in fiscal 2025 as described in Note 20, “ Commitments and Contingencies ,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024, partially offset by decreases in salaries and related benefits, primarily due to overall headcount reductions.
Depreciation and Amortization
Depreciation and amortization includes the depreciation of computers, leasehold improvements, furniture and other equipment, and the amortization of internally developed software, as well as third-party software that we use internally, and of identifiable long-lived intangible assets over their estimated useful lives. Depreciation and amortization expense decreased 1% to $163 million.
Operating Income
Operating income decreased 25% to $1,033 million, reflecting decreases in operating margin from 11% to 9%. Operating income was driven by the same factors noted above.
Interest Expense, net
Interest expense, net increased 10% to $184 million, primarily due to an increase of $37 million in bond interest expense related to the $650 million Senior Notes due 2035 (issued in March of fiscal 2025), partially offset by a decrease in interest expense on the Company’s term loan due to lower rates year over year. In addition, higher cash balances following the bond issuance noted above drove an increase in interest income year over year.
Other Income (expense)
Other income (expense) decreased 24% to $13 million, primarily due to higher realized gains in fiscal 2025, partially offset by higher unrealized gains in fiscal 2026.
Income Tax Expense
Income tax expense decreased 96% to $11 million. The effective tax rate decreased to 1.3% in fiscal 2026 from 23% in fiscal 2025. The decrease in tax expense was primarily driven by a reduction in the income tax reserve related to the completion of the IRS examination procedures and the tax benefit recognized in the third quarter as a result of a higher-than-estimated research and development tax credit and additional foreign derived intangible income deductions.
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Liquidity and Capital Resources
As of March 31, 2026, our total liquidity was $2.2 billion, consisting of $728 million of cash and cash equivalents and $1.5 billion available under the Revolving Credit Facility. In the opinion of management, we will be able to meet our liquidity and cash needs through a combination of cash flows from operating activities, available cash balances, and available borrowing under the Revolving Credit Facility. If these resources need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities.
The following table presents selected financial information for the respective periods shown:
Fiscal Year Ended
March 31,
(In millions)
Cash and cash equivalents
Total debt
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Total (decrease) increase in cash and cash equivalents
Historically, we have been able to generate sufficient cash to fund our operations, mandatory debt and interest payments, capital expenditures, and discretionary funding needs. However, due to the trends and developments described above under “—Factors and Trends Affecting Our Results of Operations”, it may be necessary to borrow under our Credit Agreement to meet cash demands in the future. While the timing and financial magnitude of these possible actions are currently indeterminable, we expect to be able to manage and adjust our capital structure to meet our liquidity needs. Our expected liquidity and capital structure may also be impacted by investments and acquisitions that we could pursue. We anticipate that cash provided by operating activities, existing cash and cash equivalents, and borrowing capacity under our Revolving Credit Facility will be sufficient to meet our anticipated cash requirements for the next twelve months, which primarily include:
• operating expenses, including salaries;
• working capital requirements to fund both organic and inorganic growth of our business;
• capital expenditures which primarily relate to the purchase of computer s, business systems, furniture and leasehold improvements to support our operations;
• the ongoing maintenance around all financial management systems;
• commitments and other discretionary investments, including potential capital calls for venture capital investments;
• debt service requirements for borrowings under our Credit Agreement and interest payments for the Senior Notes due 2028, Senior Notes due 2029, Senior Notes due 2033, and Senior Notes due 2035; and
• cash taxes to be paid.
From time to time, we evaluate conditions to opportunistically access the financing markets to secure additional debt capital resources and improve the terms of our indebtedness. Some of the possible uses of our remaining excess cash at any point in time may include funding strategic acquisitions and investments, debt repayment, further investment in our business and returning value to stockholders through share repurchases, quarterly dividends and special dividends.
Cash Flows
Operating Cash Flow
Net cash provided by operations was $1.0 billion in both fiscal 2026 and fiscal 2025. Operating cash flow was consistent with the prior year as lower tax payments were partially offset by the $115 million in insurance recoveries received in fiscal 2025.
Investing Cash Flow
Net cash used in investing activities was $300 million in fiscal 2026 compared to $218 million in the prior year . The increase in net cash used for investing was primarily due to investments in venture and other investment funds, partially offset by acquisition related payments from the Company’s acquisition of PAR Government Systems Corporation in the prior year.
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Financing Cash Flow
Net cash used in financing activities was $898 million in fiscal 2026 compared to $460 million in the prior year. The increase in net cash used over the prior year was primarily due to no new debt being issued in fiscal 2026, while fiscal 2025 included net proceeds of $644 million associated with the Company’s issuance of its 5.95% Senior Notes due 2035, an increase in dividends paid of $8 million, partially offset by a decrease in share repurchases of $214 million.
Capital Structure and Resources
Our stockholders’ equity totaled $1,105 million as of March 31, 2026, an increase of $102 million compared to stockholders’ equity of $1,003 million as of March 31, 2025. The increase was primarily due to net income of $851 million and stock-based compensation expense of $69 million, partially offset by $591 million in treasury stock resulting from the repurchase of shares of our Class A Common Stock and $277 million in aggregate quarterly dividend payments.
The Company paid $2.24 in dividends per share to stockholders of record in fiscal 2026. On May 22, 2026, the Company announced a regular quarterly cash dividend in the amount of $0.59 per share. The quarterly dividend is payable on June 26, 2026 to stockholders of record on June 10, 2026.
The following table summarizes the cash distributions recognized in the consolidated statement of cash flows for the respective periods shown:
Fiscal Year Ended
March 31,
(In millions)
Recurring dividends (1)
(1) Amounts represent recurring dividends that were declared and paid for during each quarter of fiscal 2026, 2025, and 2024, respectively.
On December 12, 2011, the Board of Directors initially approved a share repurchase program, which was subsequently increased from time to time, and most recently increased by $500 million to $4,085 million on October 22, 2025. The Company may repurchase shares pursuant to the program by means of open market repurchases, directly negotiated repurchases or through agents acting pursuant to negotiated repurchase agreements. During both fiscal 2026 and 2025, the Company purchased 5.6 million shares of the Company’s Class A Common Stock for an aggregate of $561 million and $764 million, respectively. As of March 31, 2026, the Company had approximately $684 million remaining under the repurchase program.
Any determination to pursue one or more of the above alternative uses for excess cash is subject to the discretion of our Board of Directors, and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, restrictions that may be imposed by applicable law, our contracts, and our Credit Agreement, as amended, and other factors deemed relevant by our Board of Directors.
Indebtedness
Our debt totaled $3.9 billion and $4.0 billion as of March 31, 2026 and 2025, respectively. The total outstanding debt balance is recorded in the accompanying consolidated balance sheets net of unamortized discount and debt issuance costs of $24 million and $28 million, respectively, as of March 31, 2026 and 2025. Our debt is comprised of our Credit Agreement and four separate and distinct tranches of our Senior Notes, which all bear interest at specified rates. See Note 10, “Debt,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information and specifics on the material terms of our debt.
As of March 31, 2026 and 2025, Booz Allen Hamilton was contingently liable under open standby letters of credit and bank guarantees issued by its banks in favor of third parties that totaled $3 million and $4 million, respectively. These letters of credit and bank guarantees primarily support insurance and bid and performance obligations. As of both March 31, 2026 and 2025, approximately $1 million of these instruments reduced our available borrowings under the Credit Agreement. The remainder is guaranteed under a separate $3 million facility, of which $1 million and less than a million were available to the Company at March 31, 2026 and 2025, respectively. See Note 18, “Commitments and Contingencies,” to our consolidated financial statements contained within this Annual Report on Form 10-K for further information.
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The Company occasionally borrows under the Credit Agreement’s revolving credit facility for our working capital needs. There were no borrowings during the fiscal year ended March 31, 2026, and during the fourth quarter of fiscal 2025, we borrowed $200 million on this revolving credit facility, which was subsequently repaid with the proceeds from our latest offering of Senior Notes in the same quarter. As of March 31, 2026 and March 31, 2025, respectively, there was no outstanding balance on the Revolving Credit Facility. See Note 10, “Debt,” to the consolidated financial statements contained within our Annual Report on Form 10-K for the fiscal year ended March 31, 2025 for further information about our latest offering of Senior Notes that was completed in fiscal 2025.
Commitments and Contingencies
We are subject to a number of reviews, investigations, claims, lawsuits, and other uncertainties related to our business. For a discussion of these items, refer to Note 18, “Commitments and Contingencies,” to our consolidated financial statements.
Summarized Financial Information
The Senior Notes due 2033 and Senior Notes due 2035 were issued by Booz Allen Hamilton pursuant to the respective Indenture, among Booz Allen Hamilton, the Company and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the respective Supplemental Indenture and are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by the Company pursuant to the respective Indenture.
The tables below present the summarized financial information as combined for the Company and Booz Allen Hamilton as of March 31, 2026, after the elimination of intercompany transactions and balances between the Company and Booz Allen Hamilton and excluding the subsidiaries of both entities that are not issuers or guarantors of the Senior Notes due 2033 and Senior Notes due 2035, including earnings from and investments in these entities. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under Regulation S-X and is not intended to present our financial position or results of operations in accordance with GAAP.
Summarized Statements of Financial Condition
(in millions)
March 31, 2026
Intercompany receivables from non-guarantor subsidiaries
Total other current assets
Goodwill and intangible assets, net of accumulated amortization
Total other non-current assets
Intercompany payables to non-guarantor subsidiaries
Total other current liabilities
Long-term debt, net of current portion
Total other non-current liabilities
Summarized Statement of Operations
(in millions)
Fiscal Year Ended
March 31, 2026
Revenue
Revenue from non-guarantor subsidiaries
Operating income
Operating loss from non-guarantor subsidiaries
Net income
Net income attributable to the Obligor Group
