管理層發言
Good morning, and thank you for being here. Welcome to Booz Allen Hamilton's Earnings Call for the First Quarter of Fiscal Year 2026 Results. I will now hand the call over to the Head of Investor Relations, Dustin Darensbourg.
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 2. 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 on the disclaimer on Slide 3, please note that we may make forward-looking statements on today's call, which involve known and unknown risks, 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. We're now on Slide 4.
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 submissions 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. And these discussions have reaffirmed my optimism about the medium and long term. Our VoLT 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. So 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 rightsize 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 made 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 prime 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, Sit(x) and GvStreamer 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. And 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 and 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. So 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. And 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're using AI and automation to run the business smartly and more efficiently. We're integrating commercial tech from other companies, and those companies are telling us that we are on the leading edge. We're not just generating speed to outcomes for our customers; we're 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. So I want to thank my colleagues for all that they do. I'm so inspired by them every day, and I'm grateful that our country has them on our side. Together, we're navigating this time of tremendous change and staying ready to help our nation move faster. And with that, Matt, over to you.
Thank you, Horacio, and 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 excluding 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 1.42x and total backlog hit an all-time Q1 record of $38 billion. More importantly, 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. And 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 1.42x and our trailing 12-month book-to-bill was 1.31x. 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 approximately 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. Throughout 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 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 adjusted diluted earnings per share benefited from overall profitability, a reduction in share count and an unrealized gain from one of our venture investments, which were slightly offset by 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 2.5x 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 less $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 repurchases 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 29 to stockholders of record as of August 14. 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 to 25 new companies over the next five years. Booz Allen remains committed to ensuring America's tactical superiority over its adversaries. Now please turn to Page 7 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 claim 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 reaccelerate growth. We remain confident in our VoLT strategy and our ability to continue to generate lasting value for our customers, our people and our shareholders.
分析師問答
One moment for our first question, and it's from Louie DiPalma with William Blair.
As part of your 1.4x book-to-bill, you won several, I would say, Palantir/Anduril AESC Awards over the past few months under the new administration, and 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. But 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? And is the procurement environment better than it was three months ago?
I'll begin, Louie. It's fair to say that the business has stabilized in a very dynamic environment. As mentioned earlier, there are contracts currently under review. The technology is performing exceptionally well, and its impact on missions is significant, which makes us feel very optimistic. Our teams are closely collaborating with each customer. Our long-term clients recognize the value that Booz Allen provides and appreciate the technology we are developing. What's noteworthy about the recent awards is that they involve Booz Allen's work for the warfighter, often within critical operations that require technology to function under extreme conditions. While many companies can offer technology, we have the ability to make it effective in those challenging environments. This is why we are accelerating our transformation and are enthusiastic about the projects we're winning, dedicating our efforts to create opportunities as you've highlighted. Although the procurement environment has improved, it still operates below historical rates, and we are focused on facilitating its recovery. Overall, particularly when looking beyond the short-term, we feel very optimistic.
And 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. And with the administration's focus on commercial tech, what is the interest from Silicon Valley and these commercial tech providers to partner with you? And secondarily, what is the implications of you partnering with commercial tech with fixed-price outcome-based contracts?
Well, 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 hyperscalers. We've been working closely with NVIDIA for seven or eight years. We've been working closely with AWS for years. And 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. And 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. And so 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 these technologies 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. So it certainly has a potential to be a win-win for everybody.
Our next question is from Gautam Khanna with TD Cowen.
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.
Yes, 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, but finding a little bit slow. So that's why you're seeing a relative decline in funded backlog, but increases in other portions.
Does that imply a significant catch-up at some point? At what point should we actually be concerned? I'm curious to know when this could become a worry issue, if it ever does.
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 partners. So we're not concerned. We got a lot of confidence in the medium term. It's really just a timing issue, Gautam.
If you examine the passage of The One Big Beautiful Bill and the substantial funds allocated for significant technology investments in both the Department of Defense and the government as a whole, it indicates that this money needs to be contracted and spent for the administration to further its main goals. Therefore, we fully anticipate that there will be increases in the future. The only uncertainty we have is how quickly those increases will be implemented.
Yes. Fair enough. I guess I'm also trying to get it. Typically, we have a September fiscal year-end flush or money has to be allocated. Do you anticipate that same seasonality this time around, given all the noise?
Yes. 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?
Yes. 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. And I think taken all together, we're very confident.
Yes, just to build on what Kristine said, I think it's important to say, we are still hiring, right? We've 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, so 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 I just wondered if there's any impact to Booz 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 scaled platform that can do what it can do across the federal government. I think that's widely recognized. And 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. So 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, and 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 in this week in Washington around AI Summit and the subsequent executive orders, we see a lot of upside.
Our next question comes from the line of Mariana Perez Mora with Bank of America.
So my first question is going to be about Golden Dome. Now that the reconciliation bill actually funded the purpose, and it has been well since the President announced this. What is the role that Booz Allen could play there? And how much visibility do 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 like what else could Booz Allen be exposed to?
So 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. And there's about another $24 billion additional for missile defense that has some overlap or some surrounding things, and then there's also intelligence aspects to this, and 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 that we've done, like you said, around data platforming and the like. But as we've discussed publicly around our Brilliant Swarms approach, we have, if not the one, meaningful answers to the Booz mid-course space-based interception, where our solution has modeled extremely well. And so we're excited about all of the possibilities staying very close to it and participating in the procurement process as it ramps up.
I have two specific questions about the near term. First, Matt, you mentioned in the prepared remarks that civilian revenue is expected to reach its lowest point next quarter. What kind of headwind do we still face? Second, Kristine, you indicated that the challenge with hiring is not about attracting talent but rather about meeting demand and ramping up. Can you provide some insight on how you view that and how quickly you can actually hire and deploy talent, particularly for more technical roles or positions that require clearances?
Thank you. I'll start with our Civil business, which remains very stable despite the dynamic environment. We continue to excel at integrating AI into software development, supporting important national events with our public safety technology, combating fentanyl at the border, and expediting veteran benefit eligibility determinations. Our core work with various agencies is also ongoing. Now that we've moved past the one-time reset from the first quarter, Civil is quite stable, and we are optimistic about the medium term, preparing to return to growth as Matt indicated. Regarding hiring, I'm not particularly concerned about matching from a technical standpoint since we are effective in recruiting for all necessary technical disciplines. The challenge arises from the decline in Civil while Intel and Defense are growing faster, which complicates matching with required security clearances and locations for the expanding work. We have made significant progress in automating many of these processes and improving our matching algorithms by leveraging AI in our hiring and recruiting efforts. We are confident in our ability to manage this going forward.
One moment for our next question, it comes from Colin Canfield with Cantor.
Maybe talking through the non-operational cash flow building box. Starting with cash tax, you suggested $200 million in '26 and $170 million in '27. Is it fair to assume that there are continued repeat benefits in '28 to track to that sort of curve? And then 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 talk us through kind of how we should think about potential tailwinds from that in the '27 to '28 time period in terms of like a cash flow number or something like a net income number?
Yes, thanks, Colin. I'll address this. We experienced two significant positive cash developments this quarter. First, the enactment of The One Big Beautiful Bill, which will provide around a $200 million cash tax benefit for us this year. I want to emphasize that this benefit is only at the federal level, as we are still awaiting the states' responses and implementations. The second highlight from Q1 is that we reached a favorable agreement with the IRS concerning strategic tax planning initiatives from previous years related to R&D tax credits. We have been discussing this for a couple of years and had a receivable of about $150 million recorded, along with a reserve for uncertain tax positions regarding this matter. This has resulted in a very positive outcome. You can see the accounting impact reflected in our GAAP P&L this quarter, and we expect to receive a cash refund of $170 million next. So that's $200 million in cash this year, with approximately $170 million expected next year while we await further developments regarding The One Big Beautiful Bill from the states. There will be a small ongoing benefit since we won’t have the $174 million tax drag on our cash taxes going forward. While we haven't quantified that yet, there will be some minor recurring federal cash tax benefits at a minimum. On the venture front, I am extremely pleased with Booz Allen Ventures' performance and the increased commitment. For decades, we've been leaders in integrating commercial technology into government, and Booz Allen Ventures is a natural extension of this commitment, ensuring that America's technical superiority is maintained over adversaries in the long term while addressing critical mission gaps for our clients. Although it's still early, the fund's financial performance is currently in the top decile of similar funds. So far, it's been on paper; however, we do expect to gain cash returns as these investments mature. We will also continue to invest, so I suggest not building any assumptions into your models yet, as we are increasing our commitment while also beginning to see returns on some of our early investments. We remain focused on growth and innovation with our portfolio companies, whether that means integrating Hidden Layers' products into our cybersecurity solutions or enhancing SEEK's technology. Our commitment to Booz Allen Ventures is a clear indication of our proactive stance and our acceleration of strategic transformation.
Got it. That's great information. I appreciate it. Regarding the current quarter, do you have a sense of our bookings to date and how that might influence the potential book-to-bill ratio for the next fiscal quarter?
Yes. It's still early in the quarter, Colin, but as we've 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 it's realized this quarter or next quarter, it's less important to us right now than getting work started.
Got it. And then as long as we're kind of asking multipart 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 like that translation of basically freeing up money now alongside what, I'd say, is a constructive '25 CR versus waiting for Congress to get back and pass '26 full regular budgets?
Yes. 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 logjam to break and that will play out over the next few weeks.
One moment for our next question, it comes from Sheila Kahyaoglu with Jefferies.
Maybe two questions. One about headcount, both long-term and short-term. For the long-term perspective, how should we consider headcount in relation to Booz? Is this administration perhaps approaching procurement differently compared to other administrations where Booz has usually been quite successful in expanding contract scope and work? Could this administration's focus on transformational contracts, like Golden Dome, put you at a disadvantage? How do you view this situation?
I’ll begin. I believe it’s a mix of factors. As Kristine noted, there is significant demand on contracting shops, and utilizing existing resources can speed up funding for contracts. We anticipate seeing progress in that area. Our record backlog and ample sealing are encouraging. We hope for acceleration soon. However, as you mentioned, there are also considerable new demands arising in different areas. The Big Beautiful Bill has focused funding on new priorities, which will likely lead to new contracts. We are seeing this primarily with Golden Dome, which we discussed earlier. So, I think it’s all of these elements combined. As we've mentioned in previous calls, the effect on headcount is that the work needs to be done differently. We recognize that AI is a permanent fixture. We have been preparing for this for years, understanding the technology, driving its use, and applying it aggressively in our programs to enhance work efficiency, expedite processes, and provide better value to the government. Additionally, there is a consensus that some contracts should transition to fixed price or outcome-based models. If we maintain our position at the forefront of this, it will create opportunities to generate and capture value through increased margins. However, this will unfold over the medium to long term, as there are many immediate tasks that need attention, and shifting to fixed price or outcome-based contracts is a complex process. There is still work ahead, but we remain optimistic about demand and supply for our services.
Yes. I would like to emphasize that technology has always been the primary driver of lasting increases in productivity. Our initial experience with AI-assisted coding demonstrates this potential for enhancing that effect. Currently, there is considerable technological debt within the government, which has been a significant factor in the lengthy process of transformation and modernization. From what we have observed so far, utilizing some of these AI-assisted tools allows us to navigate that technological debt more quickly. What is particularly exciting is the opportunity to leverage AI to expand capabilities, as federal missions are uniquely demanding and operate at the cutting edge of technology. Improved technology will lead to better outcomes for these missions.
Got it. When you look at your revenue per employee, it was up 8% in the quarter. How should we view that revenue per employee figure? Is it a result of pricing benefits? Also, how does that trend, and what should we consider regarding headcount as we approach the end of the year?
Yes, 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 to what extent we see a normalization in funding. And 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.
And so headcount stays flat from here. Is this a stable level?
We certainly anticipate adding headcount based on how when and how funding comes in, right?
And our last question comes from the line of Jonathan Siegmann with Stifel.
There have been several directives and executive orders regarding changes in software acquisition and adjustments to the FAR, and we've already discussed the move towards outcome-based contracting. Can you elaborate on your thoughts regarding these changes? How disruptive do you find them, and what excites you most about the long-term implications in this new environment? Are there particular actions we should closely monitor to understand how things are evolving?
Sure, I'll get us started. As we've mentioned, there are several factors that we believe are beneficial for the nation, the government, and therefore for Booz Allen. A revision of the FAR is long overdue. Over time, the FAR has accumulated numerous layers of regulatory burden that significantly increase costs across the industry, including for Booz Allen, which ultimately impacts the federal government as well. Simplifying this would allow everyone to operate more quickly, flexibly, and efficiently, benefiting all parties involved. We hope this will happen soon, leading to a more streamlined environment. Additionally, all the executive orders, especially those from this week focused on speeding up technology adoption and accelerating the use of AI, are crucial. We've emphasized the need to move more swiftly, especially in the context of geopolitical competition. Recent measures aimed at expediting data center construction and promoting AI exports globally are significant, and Booz Allen has a vital role in this and the opportunity to derive value from it. Moreover, transitioning to outcome-based contracting, which we've discussed frequently, yields benefits for both the nation and Booz Allen. We believe that enhancing technology integration in mission operations and eliminating obstacles to this process are the most exciting prospects for us and present substantial growth potential in the medium term.
And this concludes our Q&A session, and I will turn it back to Horacio Rozanski for final remarks.
Thank you, Carmen. And thank you, all of you for joining us today and for your questions. I hope we gave you a sense of the environment of 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'm 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. And I'm particularly proud of the people of Booz Allen that are making all of this happen. They truly are special, and I'm proud to call them my colleagues. And with that, thank you. Have a great rest of the summer, and we'll talk to you soon.
Thank you, everyone, for participating in today's program. And you may now disconnect, and have a great day, everyone.