Booz Allen - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 delivered as expected: revenue declined 0.6% YoY to $2.924B while adjusted EPS rose 7.2% YoY to $1.48 on resilient margins and lower share count; book-to-bill was 1.42x and backlog hit a Q1 record $38.3B.
• Versus S&P Global consensus, BAH posted a small EPS beat and slight revenue miss: Adjusted EPS $1.48 vs $1.45*; Revenue $2.924B vs $2.947B*.
• FY26 guidance was maintained on revenue ($12.0–$12.5B), adjusted EBITDA ($1.315–$1.370B), and adjusted EPS ($6.20–$6.55), while free cash flow was raised to $900–$1,000M (from $700–$800M) due to a ~$200M incremental federal cash tax benefit from new S174 rules under the “One Big Beautiful Bill”.
• Defense and Intel were bright spots (Defense +7% YoY, Intel +6%) offsetting Civil (-13%) amid a slower funding/procurement environment; management expects Civil reset effects in Q2 and aims to re-accelerate in 2H.

What Went Well and What Went Wrong

• What Went Well

  • Strong demand and quality of wins: quarterly book-to-bill of 1.42x; total backlog reached a Q1 record $38B, underscoring pipeline quality and positioning in advanced tech missions.
  • Market mix: Defense revenue +7% YoY and Intelligence +6% YoY, reflecting traction in mission-critical tech programs (e.g., TOC‑L $315M award, MDK deployment).
  • Margin resilience and capital returns: Adjusted EBITDA +3% YoY to $311M, margin +30 bps to 10.6%; repurchased ~1.1% of shares and declared a $0.55 dividend.

• What Went Wrong

  • Modest top-line pressure: Revenue -0.6% YoY driven primarily by lower billable expenses; Civil revenue declined 13% YoY amid a slower funding environment and post-transition reviews.
  • Funded backlog softness: Funded backlog ticked down even as total backlog rose; management cited slower funding flows and fewer contracting officers, with timing uncertainty as a near-term risk.
  • Near-term headcount/delivery friction: Customer staff headcount down 5% YoY (7% seq.) reflecting Civil restructuring and supply/demand matching; hiring to ramp as funding normalizes.

Transcript

Speaker 0

Good morning, and thank you for standing by. Welcome to Booz Allen Hamilton's earnings call covering first quarter fiscal year 2026 results. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. I'd now like to turn the call over to the Head of Investor Relations, Dustin Darensbourg.

Speaker 3

Thank you. Good morning, and thank you for joining us for Booz Allen's first quarter fiscal year 2026 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 two. With me today to talk about our business and financial results are Horacio Rozanski, our Chairman, Chief Executive Officer, and President; Matt Calderone, Executive Vice President and Chief Financial Officer; and Kristine Martin Anderson, Executive Vice President and Chief Operating Officer. As shown in the disclaimer on slide three, please note that we may make forward-looking statements on today's call, which involve known and unknown risk, uncertainties, and other factors that may cause our actual results to differ materially from the 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. 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 first quarter fiscal year 2026 earnings release and slides. Numbers presented may be rounded and, as such, may vary slightly from those in our public disclosures. It is now my pleasure to turn the call over to our Chairman, CEO, and President, Horacio Rozanski, who are now on slide four.

Speaker 1

Thank you, Dustin. Welcome, everyone, and thank you for joining the call. Today, Kristine, Matt, and I will share our financial results for the first quarter of fiscal year 2026. The headline for today is that our first quarter performance played out as we expected. Matt will go deeper into our first quarter results in a few minutes. Ahead of that, I would like to frame our results in the context of the current environment and describe how we are accelerating our transformation to take advantage of the next inflection point. As I've said previously, all presidential transitions create some degree of near-term disruption followed by opportunity. The administration is driving fast change, and six months in, the government is still adapting. Agencies are realigning their priorities and, in many cases, restructuring their own operations.

We see overall demand strengthening, but near-term funding continues to move slowly through the procurement environment. While the overall tenor is more positive than it was weeks ago, this adjustment period is still underway, and some uncertainty remains as some missions and contracts are still being reviewed. Our quarterly results reflect these dynamics. Top and bottom line performance matched our expectations, with the brightest spots being book to bill and the resulting record backlog. As we look forward, we expect the full effects of the civil sector reset to manifest in our Q2 financials and intend to return to growth in the back half of this year. Our teams are all in, working with mission owners to ensure that as funding solidifies, Booz Allen can accelerate. As we look ahead, we are moving forward aggressively. We are meeting with senior administration officials and with customers at all levels.

Our technology-based approach resonates loudly with their agendas. They see opportunity to invest in technology, from AI to cyber to quantum, to drive both cost efficiency and mission effectiveness. These discussions have reaffirmed my optimism about the medium and long term. Our vault strategy, which stands for Velocity, Leadership, and Technology, and especially our unique investments and positioning in the technology ecosystem, are among our key differentiators. Having the mission insights to adapt and deploy commercial technology at speed and scale are differentiators for us as well. Other companies can do this too, of course, but none as well as Booz Allen. We hear this from customers and from technology partners regularly. We are using this moment of rapid market transition to move faster ourselves. I believe we are on track to shave years off our transformation timeline.

To drive that acceleration, we are focusing relentlessly on the five priorities I outlined in May. Allow me to summarize that progress. First, we have restructured and reset our civil business in alignment with the existing demand environment. In the first quarter, we acted quickly to right-size our talent, optimize the business, and adapt to short-term challenges. Now, we are focused on returning to growth by capturing opportunities in priority missions. One example is modernization, which we know is important to civilian agencies and across government. In May, we were awarded a $51 million task order with Customs and Border Protection, or CBP. Through this work, we are using our technologies and partnership with AWS to help CBP move to the cloud. This is a meaningful opportunity to inject new tech into a high-priority mission and potentially expand as opportunities arise.

Second, we are reimagining how we deliver our work to prepare for a shift to outcome-based opportunities. We believe this shift will enable greater innovation and generate cost savings for the government. For example, ThunderDome is our proven zero-trust solution for DoD, and we are in the process of expanding its customer base and transitioning parts of it to be outcome-based. ThunderDome is an ideal candidate because it has clearly defined mission outcomes, such as quickly advancing the department's zero-trust architecture goals. We are very proud of the outcomes we've delivered. We met all of these zero-trust standards more than two years ahead of schedule. Third, we are directing resources to the areas that will best position us for growth. Our defense technology group is a great example. Back in April, we consolidated these activities into one team to focus on an area that is primed for growth.

This group is dedicated to rapidly injecting advanced technologies into defense missions that protect and empower our nation's warfighters. Let me describe three examples of the momentum we have built. One, we have successfully deployed our modular detachment kit, or MDK, into live-fire exercises and operations across Europe and Africa. This kit offers unprecedented multi-domain integration that bridges technological gaps by seamlessly fusing sensor and data link information. MDK is revolutionizing tactical command and control, giving our warfighters a clearer understanding of the battle space. Two, we have been building on our tactical assault kit, which is a series of plug-in-ready solutions that can be added to a mobile device and used in the field. We recently added two new tools, CIDEX and GV Streamer, that help users communicate in real time and live-stream full-motion video.

These unique capabilities have been successfully deployed in theater, as well as during hurricane relief efforts, the Super Bowl, and the presidential inauguration. Three, we were just awarded a new $315 million contract with the United States Air Force for our tactical operations center light battle management system prototype, or TOC-L. It's a major program of record in the Department of the Air Force's battle network. It will accelerate information and decision superiority at the edge. We are going to deploy TOC-L to 70 locations around the world, including Europe and the Pacific. Taken all together, these are three examples of how we are growing our business while outfitting warfighters with the tech they need to stay safe, ready, and lethal. The fourth priority focuses on advancing our partnerships across the tech ecosystem.

America needs to maintain global technological supremacy, and our nation's advanced technology ecosystem is the greatest innovation engine in the world. Booz Allen's leading role in this ecosystem is unique. From our partnerships with hyperscalers to our venture investments with startups, we are finding and co-creating next-generation technology and making it work inside our nation's most important missions. In a moment, Matt will share more on how we are accelerating this priority. Finally, we are creating efficiencies in our own business so we can move faster and realize greater shareholder value even in a volatile environment.

We are using AI-assisted tools to build software faster and reimagine our delivery. We are using AI and automation to run the business smartly and more efficiently. We are integrating commercial tech from other companies, and those companies are telling us that we are on the leading edge. We are not just generating speed to outcomes for our customers. We are also doing it for ourselves. In closing, these five priorities demonstrate how we are accelerating Booz Allen's transformation. From AI to cyber to space and supporting our warfighters at the edge, Booz Allen is delivering solutions at the center of America's key missions. I want to thank my colleagues for all that they do. I am so inspired by them every day. I am grateful that our country has them on our side.

Together, we are navigating this time of tremendous change and staying ready to help our nation move faster. With that, Matt, over to you.

Speaker 2

Thank you, Horacio. Good morning, everyone. As Horacio noted, we anticipated a period of short-term disruption and slowdown in funding, followed by real medium to long-term opportunity as the new administration's priorities take hold. We continue to see both these forces play out in different ways and on different timelines across the business. In this environment, we are attacking opportunities with both ideas and optimism. I remain amazed at how quickly Booz Allen can transform and how deeply impactful our work is for the nation. Before diving into the numbers, I want to cover my five takeaways for the quarter. First, the first quarter played out very much as we expected. We delivered growth in revenue ex billables, where most of our profitability is generated, and at the bottom line.

While difficult, we also quickly reshaped our talent base through targeted cost and headcount reductions that were heavily concentrated in our civil business. Second, we are winning deeply technical, high-quality work that is in line with lasting mission priorities. We achieved an excellent quarterly book-to-bill of 1.42 times, and total backlog hit an all-time Q1 record of $38 billion. More important, the type of work we are winning underscores that our pivot to become the premier company bringing advanced technology to mission is working. Third, we deployed a significant amount of capital to generate value for our shareholders. In the quarter, we repurchased just over 1% of our outstanding shares. Fourth, we doubled down on the strategic bets that will propel the business forward.

These include investing in solutions aligned with national priorities, bolstering our talent base, continuing to build mission-ready technology, and strengthening our partnerships with commercial and defense tech companies. We continue to gain momentum in all these areas. As a sign of our conviction, earlier this week, we increased our commitment to Booz Allen Ventures by $200 million. Finally, we saw a meaningful increase in our cash flow outlook. The change in R&D capitalization in the One Big Beautiful Bill will result in roughly $200 million federal cash tax benefit this fiscal year. In addition, based on a negotiated agreement with the IRS on a previously disclosed tax position, we now expect to receive a refund of approximately $170 million next fiscal year. In summary, the first quarter tracked in line with our plan.

We are working aggressively to drive near-term growth in a dynamic funding environment, and we continue to strategically transform our business. I will now cover our first quarter numbers in more detail. For the first quarter, gross revenue was down roughly 1% year over year to $2.9 billion. Revenue, excluding billable expenses, where most of our profitability is generated, grew 2% year over year. We continue to see strong performance in our defense and intel businesses. Revenue for the quarter was up 7% in defense and up 6% in intel compared to the prior year period. As expected, revenue in our civil business was down 13% year over year. Moving to demand, the volume and quality of our sales continued to be strong. We booked $4.2 billion in awards in the quarter, including two awards greater than $500 million.

As a result, our first quarter book to bill was 1.42 times, and our trailing 12-month book to bill was 1.31 times. Our total backlog hit $38 billion, up 11% year over year. At the end of the first quarter, the size of our proposal pipeline was nearly $43 billion. While lower than fiscal year 2025, which was historically high, our current year pipeline is 3% higher than at the same point in fiscal year 2024. We are adding to this pipeline by investing in areas central to the priorities of the current administration, advancing our big ideas for transforming government. And co-creating and selling with our commercial technology partners. As we noted on the last two earnings calls, we are seeing more variability in converting bookings to revenue than we have seen in previous years. Pivoting now to headcount, Booz Allen closed the quarter with roughly 33,000 employees.

As a result of the restructuring actions, our customer-facing staff was down 5% year over year and 7% sequentially. We will continue to effectively match supply and demand in what is a very dynamic environment. Through the balance of the fiscal year, we aim to increase hiring to support the ramp of our significant recent wins, as well as areas where we see demand accelerating. Turning now to profitability. In the first quarter, we generated $311 million in adjusted EBITDA, up 3% from the prior year period. This translated to an adjusted EBITDA margin of 10.6%, up 30 basis points year over year. We continue to run the business efficiently while investing in the advanced technologies, tools, and talent needed to support strategic growth. Working down the P&L, first quarter net income was $271 million.

The year-over-year increase of 64% in net income was primarily a result of a favorable agreement we reached with the IRS in the quarter that is related to strategic tax planning initiatives from prior years. As a result of this agreement, we recognized a one-time income tax benefit of $106 million. This was partially offset by the impact of the one-time costs associated with headcount reductions in the quarter. In addition to this P&L impact, we expect to receive a cash refund of approximately $170 million next fiscal year. Adjusted net income was $184 million, up 2% versus the prior year. This excludes both the one-time income tax benefit and the impact of the one-time headcount reduction costs. Diluted earnings per share grew 70% year over year to $2.16 per share. And adjusted diluted earnings per share increased 7% year over year to $1.48 per share.

Both diluted earnings per share and DADEPS benefited from overall profitability, a reduction in share count, and an unrealized gain from one of our venture investments, which were slightly offset by a higher net interest expense. Moving now to the balance sheet. We finished the first quarter with $711 million of cash on hand, net debt of $3.3 billion, and a net leverage ratio of 2.5 times adjusted EBITDA for the trailing 12 months. Our balance sheet is exceptionally strong. It remains both a key strategic asset and a vehicle for generating incremental shareholder value. Free cash flow for the quarter was $96 million, the result of $119 million of cash from operations, plus $23 million of CapEx. Turning to capital deployment, during the quarter, we deployed a total of $233 million to generate additional value for shareholders.

This included $154 million in share purchases at an average price of $109.42 per share, $70 million in quarterly dividends, and $9 million in strategic investments made through Booz Allen Ventures. I'll note that our board of directors has approved a quarterly dividend of $0.55 per share, which will be payable on August 29th to stockholders of record as of August 14th. I'm really excited that this week we announced the commitment of an additional $200 million to Booz Allen Ventures. Since we launched Booz Allen Ventures in July of 2022, we have deployed the majority of our initial $100 million commitment to 17 exceptional portfolio companies. This includes our investment in Firestorm, a leading attributable drone company that we announced just last week.

With Booz Allen's help, these 17 companies have delivered real mission impact to our customers, performed well above market financially, and driven strategic value for the company. We anticipate that this additional $200 million will be deployed against 20-25 new companies over the next five years. Booz Allen remains committed to ensuring America's technical superiority over its adversaries. Now, please turn to page seven for our full fiscal year outlook. We are only updating our full year guidance to reflect the anticipated federal tax impact on our cash flow from the passage of the One Big Beautiful Bill. We now expect free cash flow to be between $900 million and $1 billion.

As we noted last quarter, we anticipate that revenue and profit growth will be comparatively lower in the first half of our fiscal year, particularly in our second quarter, due to a decrease in the provision for claimed costs in the second quarter last year. Our full year performance will be impacted by the timing of and extent to which we return to a more normalized funding environment. In closing, while the current environment is dynamic, our intent is clear. To manage through this fiscal year with flexibility and discipline and to go on offense, lead with transformative technology, drive mission impact, and re-accelerate growth. We remain confident in our devolved strategy and our ability to continue to generate lasting value for our customers, our people, and our shareholders. With that. Operator, please open the line for questions. Thank you.

As a reminder, to ask a question, simply press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press Star 11 again. One moment for our first question. It is from Louis De Palma with William Blair. Please proceed. Horacio, Kristine, Matt, and Dustin, good morning. Good morning. Hey, Louis. Good morning. Hey. As part of your 1.4 times book-to-bill, you won several, I would say, Palantir/Anduril-esque awards over the past few months under the new administration. You could also call these awards vintage Booz Allen with this Air Force Data Fusion Award. You said that the Department of Defense continues to review contracts. Is it fair to say that there is now a greater appreciation for all of the neat tech that you do bring to the table with all of your commercial tech partnerships?

Is the procurement environment better than it was three months ago? Why do I not start, Louis? I think it is, as you point out, fair to say that the business has stabilized in what is still a very dynamic environment. As we pointed out in the prepared remarks, there are contracts being reviewed. The tech is holding out extraordinarily well. The impact on mission is very strong. We feel very good about that. Our teams are working very closely with each of our customers.

Our longstanding customers understand the value Booz Allen brings and the tech that we are producing and the fact that our technology and the awards you point out—what is really neat about them is these are all awards where Booz Allen is doing work for the warfighter, many times in the kill chain that needs, and the tech needs to work under some of the most extreme conditions. Everybody recognizes that while a lot of people can bring tech, we are the ones that can make it work in those conditions. That is why we are accelerating our transformation. That is why we are so excited about the work that we are winning and why we are spending all of our time really positioning for upside and for opportunities along the lines that you are describing.

As we said, the procurement environment has improved, but is still operating below historical speeds. We are hoping and looking for and staying very close to it to do our part in ensuring that it regains speed. Overall, especially when you look past the immediate term, we feel very optimistic. Thanks. Recently, the Department of Defense's Chief Digital and Artificial Intelligence Office awarded large contracts to many of the language learning model providers from Silicon Valley. With the Trump administration focus on commercial tech, what is the interest from Silicon Valley and these commercial tech providers to partner with you? Secondarily, what are the implications of you partnering with commercial tech with fixed-priced outcome-based contracts? As you know, working with commercial tech companies has been a big part of our strategy now for years.

We work with the smallest of companies, Series A, through our venture fund, all the way to significant partnerships with the hyperscalers. We've been working closely with NVIDIA for seven or eight years. We've been working closely with AWS for years. It makes sense to me that the department is getting more interest and getting more involved with the people that are building the foundational models that are powering the AI revolution. At the same time, they need Booz Allen because we are the ones that make the tech work in mission. That's understood, I believe, by the department, but it's also understood by the commercial tech providers. In our discussions with them, they see us as the best at doing that. They see us as the people they want to partner with.

In many cases, I'm told by very senior people, by my counterparts in these companies, that we are the one partner they would like to have in their portfolio, and we feel the same way about them. I think that from the standpoint of where we go forward, our ability to productize on top of their tech, the department's desire to do more outcome-based, and this entire move towards deploying this technology faster are all positive secular trends for Booz Allen. Great. And for Matt, with fixed-price contracts, is this potentially a win-win for you and the customer? Absolutely. I think we've been talking about our desire to move to more outcome-based and fixed-price contracts for years now. It certainly has the potential to be a win-win for everybody. Great. Thanks, everyone. Thank you. Thank you. Our next question is from Gautam Khanna with TD Cowen. Please proceed. Hi.

Good morning, guys. Good morning. Good morning. I had a couple of questions. First, I was curious if you could comment on the funded backlog trend. It's been down a couple of quarters in a row. I just wanted to square that with the overall book-to-bill. Yeah. I think it's entirely consistent with what we said, which is we're winning work. We've got a lot of positive demand signals, not just from our customers, but from commercial tech partners that we're working with. Funding is a little bit slow. That's why you're seeing a relative decline in funded backlog, but increases in other portions. Does that portend kind of a big catch-up at some point? I mean, at what point is there an absolute level at which we should actually get concerned? I just wonder how do we, at what point does it become a worry issue, if at all?

I think we've said that our year really will hinge on the extent to which the funding environment normalizes. This is an industry-wide issue. We're hearing it not just from companies like ours, but. Even from our venture portcos. So we're not concerned. We got a lot of confidence in the medium term. It's really just the timing issue, Gautam. Yeah. I'll just build on that by saying if you look at the passage of the One Big Beautiful Bill and the amount of money that is being directed towards significant technology investments, both in DOD and across the government, I think it portends that that money needs to be put on contract, needs to be spent for the administration to advance its key priorities. So we fully expect that there will be increases along the line.

The only question in our mind is how quickly do those get turned on? Yeah. Fair enough. I guess I'm also trying to get at typically, we have a September fiscal year-end flush where money has to be allocated. Do you anticipate that same seasonality this time around, given all the noise? Yeah. We're still planning for an acceleration. I mean, there are significant mission needs. As Horacio mentioned, there is also the new funding in the One Big Beautiful Bill. And also with the procurement environment being slow, there's a bit of a backlog for funding needs. But as Matt said, it's really a matter of timing, and we're waiting to see how that plays out. Okay. A question I get frequently from investors is on the headcount targets for the end of the fiscal year for you guys.

I believe it has to be about flat with the year-end, 331. Just if you could talk about any sort of challenges in hiring, are you seeing any, and how comfortable you are with the ability to onboard the people you need to hit the guidance? Yeah. We are very comfortable. We are pacing our hiring to demand. We are not seeing challenges in getting the talent that we need. It's just a matter of timing and matching the hiring with the demand. We're also driving more productivity in our teams using advanced technology and delivery. And we, as Matt said, want to keep switching to an outcomes-based contracting approach. I think taken all together, we're very confident. Yeah. Just about what Kristine said, I think it's important to say we are still hiring, right? We hired almost 1,000 people in the quarter, and attrition remains low.

Large portions of our business, we're winning work and expanding work. As Kristine said, this really is about matching supply and demand. Our focus right now is staying close to customers, driving mission impact, and getting funding on contract, and headcount will follow. Terrific. Last one for me, the Advana contract. There seems to be some relook at that and just wondered if there's any impact to Booz Allen this year or next. I think the immediate form of the answer is I think the department is still thinking through their acquisition strategy for the next period. But at the same time. We're extremely proud of the work that we're doing, the impact that we're having. To my knowledge, Advana is the only scale platform that can do what it can do across the federal government. I think that's widely recognized.

Frankly, we've been able to win work across the government, including in some key civil missions, because what we did in Advana can be replicated. I think overall this is really positive. The other thing that I will say is we've done some interesting work in Advana around populating and bringing AI into those data streams. That knowledge has allowed us to continue to drive AI across the vast majority of our contracts to the place where our AI business is still growing and expected to grow significantly this year. We're engaging in a number of discussions about how do we make that happen faster, and especially given the conversations that we're having this week in Washington around the AI summit and the subsequent executive orders. We see a lot of upside. Thank you, guys. Thank you. Thank you. Thank you.

Our next question comes from the line of Mariana Perez Mora with Bank of America. Please proceed. Good morning, everyone. Good morning. My first question is going to be about Golden Dome. Now that the reconciliation bill actually funded the purpose, and it has been a while since the president announced this, what is the role that Booz Allen could play there, and how much visibility you have on how fast that could play out? Is it more like a data operating system integrator, like what you're doing with TOC-L for the Air Force? Or what else could Booz Allen be exposed to? Mariana, we are very close to what's happening with Golden Dome. As you know, Golden Dome itself got funded to the tune of $25 billion in the reconciliation package. There's about another $24 billion for missile defense that has some overlap or some surrounding things.

There's also intelligence aspects to this. We are very close to everybody who's developing different piece parts. Booz Allen can play a variety of roles, and we're positioning to play a variety of roles. Some are more traditional, aligned to the type of work that we do, especially on cyber and intel. Some are more aligned with other things we've done, like you said, around data platforming and the like. As we've discussed publicly around our brilliance forms approach, we have, if not the one, one of the few meaningful answers to the Booz Midcourse Space Base Interception, where our solution has modeled extremely well. We're excited about all of the possibilities, staying very close to it, and participating in the procurement process as it ramps up. Thank you so much. Two more specific questions about the near term. One about.

Matt, you mentioned in the prepared remarks that civilian work or the civilian revenue was expected to bottom into next quarter. How much of a headwind remains? The second one, Kristine, you mentioned that the challenge on hiring was not attracting that talent, but matching the demand and the ramp-up. Could you please give us some color around how you think about that? How fast can you actually hire talent and actually deploy that talent, especially when you think about more deeply technical roles or roles that need clearances? Thank you. Thank you. I'll start with civil. I mean, our civil business is very stable, even though the environment is really dynamic, and we're still doing excellent work.

Bringing AI into software development, securing some highly visible national events using our public safety tech solutions, stopping fentanyl at the border, speeding veteran benefit eligibility determinations, and our core work that we have in many agencies is still continuing. The one-time reset from the first quarter, now that we have that behind us, is actually quite stable in civil, and we are very confident moving into the medium term. As Matt said, preparing to return to growth in civil. With respect to hiring, I think when I talk about matching, it's not so much technical, worried so much about matching from a technical perspective. We do a great job recruiting across all the technical disciplines that we need. It's more that as civil declined and intel and defense are growing faster, just matching with the security clearances, location, etc., for where the work is growing.

We are actually quite good at this and have done a lot of work last fiscal year in automating a lot of those processes and getting much better matching algorithms and using AI in our hiring and recruiting. That's an area that we're quite confident in, that we can handle that going forward. Thank you so much for the color. Thank you. Our next question is from Colin Canfield with Cantor. Please proceed. Hey, thanks for the question. Maybe talking through the non-operational cash flow building blocks. Starting with cash tax, you suggested $200 million in 2026 and $170 million in 2027. Is it fair to assume that there are continued repeat benefits in 2028 that track to that sort of curve?

If we think about the VC kind of funding tailwind environment, using Albedo as an example, right, where it's already doubled in terms of private valuation, but maybe talking through kind of how we should think about potential tailwinds from that in the 2027 and 2028 time period in terms of a cash flow number or something like a net income number. Thank you. Yeah. Thanks, Colin. I'll take them. Look, we had two really positive cash occurrences in the quarter. First, the passage of the One Big Beautiful Bill that's going to create about a $200 million cash tax benefit for us this year. I will highlight that that's federal cash tax benefit only as we're waiting to see how the states will react and implement.

Second, in Q1, we reached a favorable agreement with the IRS related to strategic tax planning initiatives from prior years around R&D tax credits. We've talked about this for a couple of years now and had approximately $150 million receivable on the books, as well as an uncertain tax position reserve related to this topic. Really positive outcome there. You saw the impact from an accounting standpoint flow through our GAAP P&L this quarter, and we anticipate getting a cash refund of $170 million next. So $200 million in cash this year, $170 million approximately next year. We're still waiting to see what's going to happen from a state perspective on the One Big Beautiful Bill. There will be a small recurring benefit because there's no more $174 million drag in our cash taxes going forward. It's not going to be nearly to the magnitude of $200 million.

We actually haven't quantified that yet, but you'll see some small recurring benefit from a federal cash perspective, cash tax perspective at minimum. On the venture side, look, I'm really pleased with the performance of Booz Allen Ventures and excited about the increase in our commitment. We've been at the forefront of bringing commercial tech to government for decades, and Booz Allen Ventures has been a very natural extension of this commitment to ensuring America's technical superiority over our adversaries. Long-term and near-term, that some of our critical mission gaps in our clients or customers are filled. It's still early, but the fund's financial performance to date is in the top decile of comparable funds. It's all been on paper so far. To your point, we do expect to see some cash tailwinds as gains from these investments are realized.

We're also going to be investing, so I wouldn't build anything in your models, right, because we're upsizing our commitment. We're also going to be seeing the returns from some of our early investments. We continue to grow and innovate with these portcos, whether it's integrating HiddenLayer's products into our commercial cybersecurity and incident response solutions, or building on top of Seek's technology, or bringing Hidden Level onto our programs where we're having real impact at the edge. I think our commitment to Booz Allen Ventures is just another sign of how we're going on offense and how we're accelerating our strategic transformation. Got it. That's great color. I appreciate it.

In terms of quarter to date, do you have a good sense of kind of how much bookings we have quarter to date and kind of what that bridges us to in terms of a potential book-to-bill for the next fiscal quarter? It's still early in the quarter, Colin. As we said a couple of times here. Right now, we're not focused on bookings as much as getting funding and getting things started and ramped up. We've got a really robust pipeline we're excited about. Not just the quantity, but the quality of the things that we have in our pipeline. Whether those are realized this quarter or next quarter is less important to us right now than getting work started. Got it.

And then as long as we're kind of asking multi-part questions here, can you maybe speak to the contracting officer environment and how the Big Beautiful Bill spend getting passed is interacting with the accounts of funding officers in terms of outlays versus awards and that translation of basically freeing up money now alongside what I'd say is a constructive 2025 CR versus waiting for Congress to get back and pass 2026 full regular budgets? Yeah. As we said a couple of times, the funding is moving more slowly. Part of that is having fewer contracting officials to actually move the funding. And some of it is just the, I think, drag from the last quarter of multiple reviews and getting back on solid footing. There is a lot of demand for the work on the mission areas, not just at the One Big Beautiful Bill.

And so we are still planning for that log jam to break. And that will play out over the next few weeks. Got it. Thank you. Thank you. One moment for our next question. It comes from Sheila Kahyaoglu with Jefferies. Please proceed. Good morning, guys, and thank you for the time. And maybe two questions. Hey, guys. Maybe two questions. One on both on headcount, but one long-term and one shorter term. So longer-term big picture, how do we think about headcount as it relates to Booz? Is this administration maybe buying differently than other administrations where Booz has typically been very successful in adding contract scope and work given the work you guys do? But this administration might be more focused on transformational contracts like Golden Dome or whatnot. So does that put you at a disadvantage, and how do you think about that? Why don't I start?

I think it's a combination. I think, as Kristine pointed out, there's a lot of demand on the contracting shops. And so using existing vehicles is the way to accelerate funding onto contracts. And so we expect to see movement there. The fact that we're at record backlog levels and have ample ceiling makes us feel good about that dynamic as things hopefully begin to accelerate shortly. At the same time, as you point out, there's significant new demands against new areas. The Big Beautiful Bill had very targeted funding against new priorities. And those will likely play out as new contracts. Certainly, that's what we're seeing, largely, for example, around Golden Dome, which we were talking about before. I think it's really all of the above on that. As we've been saying for the last couple of calls, the impact on headcount is.

The work needs to be performed differently. I think AI is here and here to stay. Again. We've been preparing for this for years. We both understand the technology, our drivers. Of it, and are using it. Very aggressively into our own programs to both increase the efficiency of the work, make it happen faster, and deliver to the government. Better value. Together with that, I think there's resonance around the fact that some of these contracts to operate that way. Need to move more towards fixed price, towards outcome-based. That should give us, if we continue to be at the leading edge of this, both, again, opportunity to create value, but also opportunity to capture that value through. Upsized margins.

Now, that's going to play out over the medium to long term because, as we were saying, in the near term, there's a lot of things that need to get done right away. Moving something to fixed price or outcome-based. Is an onerous task. Still work to be done, but a lot of optimism both on the demand and the supply side for us. Yeah. I would add that technology has long been the only source of permanent increases in productivity. Our early experience with AI-assisted coding is exactly that in terms of supercharging that effect. As we stand today. There's a lot of tech debt in government. We've had a lot of focus on this on why it takes so long to do transformation and modernization. Our experience so far is that in using some of these AI-assisted tools, we can.

Get through that tech debt a little bit faster. I think what's really exciting is how we can use AI to push the limits because federal missions are so far scaled beyond other missions, and they operate at the limit of technology. Better technology is going to get better mission outcomes. Got it. Maybe to that point, then. When you look at your revenue per employee, it was up 8% in the quarter. How do we think about. That revenue per employee number? How should that trend? Is that a pricing benefit? Maybe. Yeah, I guess, how does that trend and how do we think about headcount to end the year? I'll take that. I think, look, over time, these trends should disconnect our growth algorithm a little bit from headcount growth, right? If you talk about outcome-based contracting or fixed-price contracting.

Empowering our incredible talent with AI-assisted coding and other tools, as Kristine just described, that should make them more productive and therefore revenue per employee go up. In the short term, Sheila, I think. We've talked about this year. Our performance really being predicated on. When and to what extent we see a normalization in funding. I would expect normalization in hiring to follow along with that. In the short run, our folks are being more productive, but the core algorithm is probably going to hold for this year. Headcount stays flat from here? Is this a stable level? We certainly anticipate adding headcount based on when and how funding comes in, right? Got it. Thank you. Thank you. Our last question comes from the line of Jonathan Siegmann with Stifel. Please proceed. Good morning. Thank you very much for taking my question. Good morning. Good morning.

Good morning. There have been various directives and executive orders referencing changing software acquisition, trimming the FAR, and we have already talked about moving to outcome-based contracting. Could you maybe characterize just how you are thinking about what are the, how disruptive are these changes, and what are you most excited about for the long term in this new environment? Are there specific actions that we should be really watching to get a sense of how things are changing? Thank you. Sure. I will get us started. As we have been saying, there are a number of things that we believe are both good for the nation and for the government and therefore good for Booz Allen. Certainly, a rewrite of the FAR is overdue.

The FAR over time has been sort of layer upon layer upon layer to a level of regulatory burden that adds a ton of cost to the entire industry, certainly to Booz Allen, and because it adds it to the entire industry, to the federal government itself. Clearing that out, I think, would give everybody an opportunity to operate faster, more nimbly, and more efficiently, which again benefits everybody. Hopefully that will land relatively soon and will land into a more streamlined environment. The second thing I would say is all of the executive orders, including the ones from this week around accelerating the use of technology and especially accelerating the use of AI, are fundamental. I think you have heard me talk about the fact that we need to move faster, certainly in a geopolitical competition. Our nation needs to move faster.

Some of the things that were talked about even this week, and again, the most recent EOs around streamlining and accelerating data center construction, especially the things around exporting AI around the world, we think are fundamental. Booz Allen has a role to play in that and an opportunity to capture value from it. I could keep going, but certainly outcome-based, we have talked about forever. The more we move to outcome-based, the better for the nation, the better for Booz Allen. We think that this environment of pushing technology faster into mission and removing some of the barriers to that are the things that both excite us the most and give us, over the medium term, the most upside. Thank you. Thank you. This concludes our Q&A session, and I will turn it back to Horacio Rozanski for final remarks. Thank you, Carmen.

Thank you, all of you, for joining us today and for your questions. I hope we gave you a sense of the environment, our near-term performance, but especially of our excitement over the medium term around how our business is evolving and the upside that we see. I am really proud of Booz Allen in this period of change. Booz Allen is the advanced technology company committed to making America stronger, safer, and faster. I am particularly proud of the people of Booz Allen that are making all of this happen. They truly are special, and I am proud to call them my colleagues. With that, thank you. Have a great rest of the summer, and we will talk to you soon. Thank you, everyone, for participating in today's program. You may now disconnect and have a great day, everyone.