Booz Allen views tech as the lever to change its algorithm
Booz Allen Hamilton's corporate headquarters in McLean, Virginia. Photo by Kevin Dietsch / Getty Images
By
Ross Wilkers
In talking with Wall Street, Booz Allen Hamilton executives explain the different moving parts of the company's push to decouple headcount growth from sales.
In a market landscape that Booz Allen Hamilton views as bifurcated, the company is also looking to move into a new algorithm for how it plots and carries out its push for organic growth.
Whereas Booz Allen’s traditional algorithm directly tied hiring to sales, the one it wants to migrate to is more linked with technology development and rapid deployments of those offerings.
During Booz Allen’s fiscal second quarter earnings call with investors Friday, Chief Financial Officer Troy Lahr laid out the company’s path for tech development efforts to drive its transformation.
“As those take hold, especially in the cyber business as we're productizing, and (as) the defense tech hardware really starts taking off in that business and the solutions that we're bringing to market, you're going to see further decoupling over time,” Lahr told analysts. “I don't think that this is going to be a one-quarter phenomenon or even a one-year phenomenon. This is a gradual journey that we're on.”
Booz Allen is in the midst of that journey as the Trump administration’s scrutiny on federal contract spending has particularly hit consulting work, among other professional services. The administration has also pushed for greater use of outcome-based and fixed-price contracting as a way to get industry to assume more risk, especially with tech-intensive programs.
The company’s headcount stood at 31,000 as of Sept. 30, down 4% from the prior year period, and also is an indicator of the bifurcation Booz Allen is seeing. In their eyes, defense and national security remains robust while civil remains challenging.
Kristine Martin Anderson, Booz Allen president and chief operating officer, said the company added 300 employees in national security during the quarter ended Sept. 30 and civil was again “down a little bit.” She said the company is still “focusing very strongly” on hiring across the entire enterprise.
Civil is also where the company continues to see choppiness in procurement activities. Anderson said agencies will release draft solicitations, but then “push it out further and extend the current contract and decide to do the recompete a little bit later, whether it's ours or somebody else's.”
On the other hand, civil is also where Booz Allen is touting significant progress on converting work to fixed-price/outcome-based contracts and growing its portfolio of Other Transaction Authority contracts.
Horacio Rozanski, Booz Allen’s chief executive and chairman, said “civil got there earlier” than other businesses with respect to fixed-price and OTA contract growth. He expects the share of fixed-price/outcome-based contracts to grow for quite some time.
“Our ability to change the way we deliver and our ability to grow our profitability, together with the fact that we're productizing a lot of our (intellectual property), we're launching things in the market, we're selling differently, and when you put all that together, that is part of the story for why we’re saying we’re on track,” Rozanski said.
Cybersecurity remains a cornerstone of Booz Allen’s strategy alongside artificial intelligence, which the government now calls Super Intelligence as mandated by President Trump’s executive order in September to do so.
Booz Allen’s ramped-up productization push now includes its Guile offering that it built to counter AI-enabled cyber attacks in real-time. Rozanski said Guile so far has recorded a 95% success rate in testing against “the most advanced models.”
“We've gone to market with Guile on private beta in record time, but it's still early in those developments,” Rozanski said. “I think the promise of those products will play out much more strongly over the next couple of years than over the next couple of quarters.”
Fiscal second quarter revenue of $2.8 billion was down nearly 4% from the prior year period, while sales excluding billable expenses were lower by around 1%. Booz Allen reports both top-line figures to help investors gauge the core business’ performance as the majority of billable expenses are payments to subcontractors.
Profit of $313 million showed a 3% year-over-year decrease in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Booz Allen narrowed its full-year revenue outlook to $11.3 billion-to-$11.6 billion, compared to the prior $11.2 billion-to-$11.7 billion range, which signals growth expectations of 1%-to-3%.
The firm nudged up the bottom end of its adjusted EBITDA outlook to $1.26 billion from $1.24 billion with the top end left at $1.29 billion, which signals an unchanged expected margin of 11%.