Booz Allen's AI blueprint for customers and the company itself

Booz Allen Hamilton has long made automation and artificial intelligence a core component of its technology strategy, which has both a customer and company-centric component.

AI also stands to be key in Booz Allen’s work to return its civil business to growth. That unit is where Booz Allen carried out substantially all of the 7% workforce reduction it announced in May, which brought headcount down to around 33,000 employees.

During Booz Allen’s fiscal first quarter earnings call Friday, Chief Operating Officer Kristine Martin Anderson told investors the company views that move as a “onetime reset from the first quarter” and the civil environment as more stable now.

She told analysts the civil business’ work includes “bringing AI into software development, securing some highly visible national events using our public safety tech solutions, stopping fentanyl at the border, (and) speeding veteran benefit eligibility determinations.”

As federal tech integrators like Booz Allen see things, the point of bringing AI into those functions is to increase productivity and free resources for mission-centric work.

“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,” Anderson said. “But as we stand today, there's a lot of tech debt in government.”

In software development and other IT fields, technical debt refers to the concept of rising costs of additional work in the future as a result from choosing the most expedient solution over a more robust one.

Short-term development is certainly more achievable by choosing the expedient offering, but future costs and complexity only go up if both counts are left unresolved. Technical debt is often cited as what gets in the way of large-scale transformation and modernization efforts across government.

“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,” Anderson said. “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, and so better technology is going to get better mission outcomes.”

Booz Allen is also using the portfolio of AI technologies for its own internal functions on the talent front, such as matching job descriptions with technical requirements and security clearance levels.

Anderson said the company did “a lot of work last fiscal year in automating a lot of those processes and getting much better (at) matching algorithms and using AI in our hiring and recruiting.”

Headcount and revenue growth have traditionally gone hand-in-hand with each other for substantially all of Booz Allen’s history, but the emergence of these tools brings a different element into that equation.

“Over time, these trends should disconnect our growth algorithm a little bit from headcount growth,” Chief Financial Officer Matt Calderone said. “If you talk about outcome-based contracting or fixed price contracting, empowering our incredible talent with AI-assisted coding and other tools, that should make them more productive, and therefore revenue per employee go up.”

Fiscal first quarter revenue of $2.9 billion was 0.6% lower than the prior year period, while profit of $311 million represented a 3% year-over-year increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

Sales in the civil business were down 13% year-over-year, while the respective growth rates in defense and intelligence were 6% and 7%.

The company left its fiscal year 2026 outlook unchanged at revenue of $12 billion-to-$12.5 billion, which suggests growth of 0%-to-4%, on an adjusted EBITDA margin holding flat at roughly 11%.