Booz Allen Hamilton (BAH) Q2 2027 earnings review
Booz Allen raises its profit plan, while total sales fall
Booz Allen Hamilton, the government technology and consulting contractor, lifted its earnings plan even as its quarterly sales kept shrinking. Second-quarter revenue fell 3.9% from a year ago, while revenue excluding pass-through costs such as subcontractors dipped just 0.8%. Chief executive Horacio Rozanski raised the full-year profit-per-share outlook, though a lower tax rate assumption and a one-time contract sale gain did most of the work.
| Revenue excluding pass-through costs | $1,957M -0.8% from a year ago |
|---|---|
| Total revenue | $2,778M -3.9% from a year ago |
| Profit per share, excluding one-offs | $1.76 +18.1% from a year ago |
| Full-year profit-per-share outlook | Raised $0.43 middle of the range: $6.60 |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because progress in National Security was offset by a weaker underlying revenue outlook after closing the Ultra acquisition. Work performed by the company's own staff in National Security grew 6%, but keeping the full-year revenue midpoint at $11.45 billion after spending $714 million on acquisitions means the existing business is recovering more slowly than planned.
The question now is whether Booz Allen can deliver the 9% second-half sales growth implied by its full-year plan. Either the newly acquired Ultra business and rising defense work drive a sharp rebound, or flat consulting staff numbers and shrinking civil agency budgets cause another top-line miss. Third-quarter revenue and headcount will tell.
🐂 Bull Case
National Security Service Sales Accelerated
Booz Allen Hamilton tracks revenue excluding billable expenses — the fees it earns from its own staff after stripping out pass-through costs such as subcontractors and travel. Because pass-through bills carry very little profit, this measure shows the underlying demand for the firm's consulting and technology work. In the second quarter, the decline in this core revenue narrowed to 0.8% from 3.8% in the first quarter.
The company reported "National Security accelerating with revenue ex-billables up 5.9%" from a year ago. Total National Security revenue, which combines defense and intelligence customers, edged up 0.6% to $2,076 million because lower subcontractor pass-through costs masked the faster growth in work done by Booz Allen's own staff. That 5.9% gain shows defense and intelligence agencies are spending more on the firm's core services.
What to watch: National Security revenue growth in the third quarter. The company has targeted mid-single-digit growth for this business over the full year, so total National Security revenue must speed up from 0.8% in the first half to roughly 8% in the second half to reach that goal.
Lower Tax Rate Assumptions Lifted the EPS Plan
Booz Allen raised its full-year outlook for profit per share excluding one-offs to $6.50–$6.70, up from $6.00–$6.35. Second-quarter profit per share excluding one-offs rose 18.1% from a year ago to $1.76. However, the presentation notes that net income included "an additional gain of $10 million from an earnout associated with the group of contracts sold in the fourth quarter of fiscal 2026".
Because the company's non-GAAP adjustments did not strip out that $10 million gain, it added about $0.06 per share by our math, leaving clean profit per share at $1.70, up 14.3%. For the full year, most of the $0.43 midpoint increase in the profit-per-share outlook comes from cutting the expected effective tax rate from 20–23% to 16–19%, while operating profit before depreciation (Adjusted EBITDA) rose by just $10 million at the middle of the range.
What to watch: the effective tax rate and non-operating gains in the third quarter. A higher tax rate or the absence of one-time contract sale gains will test whether operating profit alone can support the new earnings range.
Positives this quarter didn't test
Two standing drivers from the company's technology and contracting shift received no new financial detail in the second-quarter release or presentation.
- Cyber and defense tech product sales (Velox and Ranger): chief executive Horacio Rozanski highlighted scaling cyber and defense tech products, but the release gave no revenue or backlog numbers; any future sizing of product revenue would test this driver.
- Shift to fixed-price contracts: fixed-price work made up 20% of revenue in the second quarter, up from 19% a year ago but down from 21% in the first quarter; the third-quarter contract mix table will show if the shift resumes.
🐻 Bear Case
Holding the Revenue Plan Despite Buying Ultra
"Booz Allen is executing exceptionally well and investing in our next phase of growth," chief executive Horacio Rozanski said. During the second quarter, the company closed its acquisition of the Ultra I&C Mission Solutions defense electronics business. By our math from the cash flow statement, Booz Allen paid $714 million in cash for acquisitions in the quarter, and the presentation highlights $795 million of total acquisition and strategic investment spending.
- Full-year revenue outlook midpoint: $11.45 billion, unchanged after closing Ultra
- Implied second-half revenue growth: +8.7% from a year ago by our math, vs -4.1% in the first half
- Net debt: $4,076 million, up 29.6% from a year ago, lifting net leverage to 3.3x from 2.5x
- GAAP operating margin: 8.8%, down 1.0 percentage point from a year ago as G&A rose 1.2 points of revenue
Three months ago, management promised to update the full-year outlook in October to include Ultra's revenue. Yet the company narrowed its revenue plan from $11.2–$11.7 billion to $11.3–$11.6 billion, keeping the middle of the range at $11.45 billion. Leaving the midpoint unchanged after adding a $714 million acquisition means underlying revenue is weaker than previously planned, while GAAP operating profit fell 13.4% partly due to "professional fees associated with the Company's acquisitions".
What to watch: the acquisition footnote in the second-quarter 10-Q filing. It will disclose Ultra's revenue contribution and show how much of the implied 8.7% second-half revenue jump comes from the buyout rather than existing contracts.
Year-End Backlog Additions Slowed From Last Year
Booz Allen's second quarter ends on September 30, which is the end of the US federal government's fiscal year and normally the biggest quarter for contract awards. The company attributed its 3.9% second-quarter revenue drop to "a slowed procurement environment in the prior year which resulted in a slower start to programs in the current year, predominantly from civil customers". Management points to its $40.9 billion total backlog and 1.5x book-to-bill ratio — net contract additions divided by revenue — as proof of momentum.
However, the flow of new contract funding slowed during this year's federal budget flush. Funded backlog — contract work for which the government has already set aside money — grew 5.0% from a year ago to $5,711 million, slowing from 15.2% growth in the first quarter. By our math, Booz Allen added $1,047 million to funded backlog in the quarter, down 24.8% from the $1,393 million added a year ago, while unfunded backlog shrank 2.4%.
What to watch: third-quarter funded backlog conversion into revenue. Because second-quarter net bookings fell 12.1% from a year ago by our math, slower conversion would put the second-half revenue rebound at risk.
Civil Spending Drops and Staff Numbers Shrink
Civil and Commercial revenue fell 15.1% from a year ago and 9.1% from the first quarter to $702 million, marking a seventh straight quarter of year-over-year contraction. That 9.1% quarterly drop was slightly smaller than the double-digit decline management had indicated, so the release called the Civil business "performing in line with expectations".
Even so, the workforce numbers show no staffing ramp yet for the second half. Customer staff headcount — the consultants and engineers who bill time to clients — stood at 28,200 on September 30, down 4.7% from 29,600 a year ago and unchanged from 28,200 at the end of the first quarter despite closing the Ultra acquisition. Cost of revenue rose 1.6 percentage points as a share of sales to 48.0%, while pass-through billable expenses fell 2.2 points to 29.6%.
What to watch: customer staff headcount in the third quarter. Without adding billing staff, Booz Allen will struggle to deliver the 8.7% second-half revenue growth implied by its full-year outlook.
Risks this quarter didn't answer
Four standing concerns from our prior analysis were not addressed in the second-quarter release or presentation.
- Missing growth-area sizing: management still has not disclosed revenue or backlog figures for Cyber, Space, Health, Defy Security or Ultra Mission Solutions.
- Defense and Intelligence split: the two units remain combined inside National Security, hiding whether the larger Defense book has returned to growth.
- Legislative limits on shareholder payouts: the release gave no update on proposed congressional rules restricting defense contractor buybacks and dividends.
- Direct software buying by agencies: pass-through billable expenses fell 10.6% from a year ago, but the release did not separate Civil volume drops from clients buying software directly.
💲 Other KPIs
Operating profit before depreciation, amortization and acquisition fees (Adjusted EBITDA) fell 3.4% from a year ago to $313 million, after rising 7.4% in the first quarter. Its margin on revenue edged up 0.1 percentage points to 11.3%, down from 11.9% in the first quarter, as lower pass-through billable costs offset a 1.6-point rise in direct labor costs.
Free cash flow — operating cash flow minus $31 million of property, equipment and software purchases — dropped 33.4% from a year ago to $263 million. For the first six months, free cash flow is still up 6.7% to $524 million, even as accounts receivable rose 5.9% from a year ago to $2,348 million on slower collections from acquired businesses.
Weighted-average diluted shares fell 2.7% from a year ago to 119.6 million, narrowing from a 3.4% reduction in the first quarter. By our math, the technology consultancy spent $98 million buying back stock in the second quarter, up from $72 million in the first quarter, bringing first-half repurchases to $170 million against $395 million a year ago.
🔮 Guidance
Unchanged at the middle of the range. The firm narrowed its full-year sales plan to $11.3–$11.6 billion, keeping the midpoint at $11.45 billion, or 2.1% growth. By our math, after a 4.1% drop in the first half, the midpoint requires sales to grow 8.7% from a year ago in the second half. Last year, Booz Allen missed its twice-cut revenue plan.
Raised at the low end. Management lifted the bottom of its full-year Adjusted EBITDA range by $20 million, moving the middle of the range up $10 million to $1,275 million, or 3.7% growth. By our math, that leaves $628 million for the second half, up 5.7% from a year ago at a 10.7% margin, down from 11.6% in the first half.
Raised. The middle of the range moved up $0.425 to $6.60, or 1.4% growth for the year, driven by lowering the assumed tax rate from 20–23% to 16–19%. By our math, with $3.57 already earned in the first half, the plan implies $3.03 for the second half, down 14.4% from a year ago when an IRS tax settlement boosted results.
Raised at the low end. Booz Allen lifted the bottom of its free cash flow plan by $25 million, raising the midpoint by $12.5 million to $887.5 million. That $12.5 million increase matches a $20 million cut in planned capital spending to $200 million. By our math, the midpoint implies $363.5 million of free cash flow in the second half, down 21.0% from a year ago.
❓ Key Questions
How much revenue does Ultra add to FY27?
Booz Allen paid $714 million in cash for acquisitions in the second quarter, by our math, yet kept its full-year revenue midpoint at $11.45 billion. Investors need Ultra's revenue run-rate to calculate how much organic sales guidance was cut.
Why did customer staff stay flat after buying Ultra?
Customer staff stood at 28,200 at the end of September, identical to June and down 4.7% from a year ago. How many employees joined from Ultra, and how many staff left the legacy business during the quarter?
What drove the 5.9% National Security ex-billables growth?
Since the company combined Defense and Intelligence into a single National Security line, it is unclear whether the 5.9% growth in revenue excluding billable expenses came from the smaller Intelligence unit or a recovery in the larger Defense book.
Why wasn't the $10M divestiture earnout excluded from Adjusted EPS?
Presentation slide 16 notes a $10 million gain from an earnout on contracts sold in fiscal 2026, which was not removed in the Exhibit 4 non-GAAP reconciliation. Does the raised $6.50–$6.70 full-year Adjusted EPS plan include this gain and Q1's venture gain?