Booz Allen Hamilton Holding Corp (BAH) FY 2025 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report, and Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended March 31, 2024, which provides additional information on comparisons of fiscal 2024 and 2023.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Item 1A. Risk Factors” and “Introductory Note — Cautionary Note Regarding Forward-Looking Statements”. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our fiscal year ends March 31 and, unless otherwise noted, references to years or fiscal are for fiscal years ended March 31. See “— Results of Operations.”

Overview

Trusted to transform missions with the power of tomorrow’s technologies, Booz Allen advances the nation’s most critical civil, defense, and national security priorities. As an advanced technology company, we build technology solutions using AI, cyber, and other cutting-edge technologies to advance and protect the nation and its citizens. By focusing on outcomes, we enable our people and customers to transform missions for the nation.

Our approximately 35,800 employees support critical missions for a diverse base of federal government customers, including nearly all of the U.S. government's cabinet-level departments, as well as for commercial customers, both domestically and in select international locations. Our work is designed to protect soldiers in combat, secure our national infrastructure, enable enhanced digital services, and improve government efficiency to achieve better outcomes. Drawing on our deep expertise and leading position as a cybersecurity provider, we bring advanced tradecraft to commercial customers across industries, including financial services, health and life sciences, energy, and technology.

Financial and Other Highlights

During fiscal 2025, the Company generated year over year revenue growth of 12%, primarily driven by strong demand for our solutions, outcomes, and services, as well as an increase in headcount to meet that demand, and higher billable expenses. In addition, revenue was positively impacted by $122 million representing the reduction to our provision for claimed costs recorded during the second quarter of fiscal 2025 (as compared to $18 million in the second quarter of fiscal 2024). See Note 19, “Commitments and Contingencies,” within this Annual Report on Form 10-K for further information.

Operating income increased 35% to $1,370 million in fiscal 2025 from $1,014 million in fiscal 2024, which reflects an increase in operating margin to 11% from 10% in the comparable year. Operating income was driven by the same drivers benefiting revenue growth, as well as ongoing cost management efforts. Margins were impacted by a decrease in general and administrative expenses resulting from $115 million in insurance recoveries from claims related to the Company’s fiscal 2024 settlement as described in Note 19, “Commitments and Contingencies,” within this Annual Report on Form 10-K.

Non-GAAP Measures

We publicly disclose certain non-GAAP financial measurements, including Revenue, Excluding Billable Expenses, EBITDA and Adjusted EBITDA, because management uses these measures for business planning purposes, including to manage our business against internal projected results of operations and measure our performance. We view Adjusted EBITDA as a measure of our core operating business, which excludes the impact of the items detailed below, as these items are generally not operational in nature. These non-GAAP measures also provide another basis for comparing period to period results by excluding potential differences caused by non-operational and unusual or non-recurring items. In addition, we use Revenue, Excluding Billable Expenses because it provides management useful information about the Company's operating performance by excluding the impact of costs such as subcontractor expenses, travel expenses, and other non-labor expenses incurred to perform on contracts. Billable expenses generally have lower margin and thus are less indicative of our profit generation capacity. Management believes this metric provides useful information about our business. These supplemental performance measurements may vary from and may not be comparable to similarly titled measures by other companies in our industry. Revenue, Excluding Billable Expenses, EBITDA and Adjusted EBITDA are not recognized measurements under accounting principles generally accepted in the United States (“GAAP”) and when analyzing our performance, investors should (i) evaluate each adjustment in our reconciliation of revenue to Revenue, Excluding Billable Expenses, net income to EBITDA and Adjusted EBITDA, and (ii) use Revenue, Excluding Billable Expenses, EBITDA and Adjusted EBITDA in addition to, and not as an alternative to, revenue and net income, as measures of operating results, each as defined under GAAP. We have defined the aforementioned non-GAAP measures as follows:

•Revenue, Excluding Billable Expenses represents revenue less billable expenses.

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•EBITDA represents net income attributable to common stockholders before income taxes, net interest expense, net and other income (expense), net, and depreciation and amortization.

•Adjusted EBITDA represents net income attributable to common stockholders before income taxes, net interest, net and other income (expense), net, and depreciation and amortization and before certain other items, including the change in provision for claimed costs for historical rate years, acquisition and divestiture costs, financing transaction costs, DC tax assessment adjustment, the reserve associated with the U.S. Department of Justice (the “DOJ”) investigation disclosed in Note 20, “Commitments and Contingencies,” to the consolidated financial statements contained within our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 and the insurance recoveries related to the settlement of that matter. The Company prepares Adjusted EBITDA to eliminate the impact of items it does not consider indicative of ongoing operating performance due to their inherent unusual, extraordinary or non-recurring nature or because they result from an event of a similar nature.

Below is a reconciliation of our most directly comparable GAAP measures to our non-GAAP measures, Revenue to Revenue, Excluding Billable Expenses and Net income to EBITDA and Adjusted EBITDA, calculated and presented in accordance with GAAP:

* Revenue, Excluding Billable Expenses includes $113 million of revenue and $18 million revenue for fiscal 2025

and 2024 respectively, resulting from the reduction to our provision for claimed costs (see note (b) below).

(a) Reflects the combination of Interest expense, net and Other income (expense), net from the consolidated statement of operations.

(b) Represents the reduction to our provision for claimed costs for years prior to fiscal 2025 recorded during the second quarters of fiscal 2025 and 2024, which resulted in a corresponding increase to revenue, as a result of the Defense Contract Audit Agency's findings related to its audits of our claimed costs for multiple fiscal years. See Note 19, “Commitments and Contingencies,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information.

(c) Represents costs associated with the acquisition efforts of the Company related to transactions for which the Company has submitted a letter of intent to acquire a controlling financial interest in the target entity. Transactions primarily include the acquisitions of EverWatch Corp. (“EverWatch”) in fiscal 2023 and PAR Government Systems Corporation (“PGSC”) in fiscal 2025. See Note 5, “Acquisitions and Divestitures,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information.

(d) Reflects expenses associated with debt financing activities incurred during the second quarters of fiscal 2024 and 2023.

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(e) Reflects the impact (specifically the revenue from recoverable expenses) of the Company's unfavorable ruling from the District of Columbia Court of Appeals related to contested tax assessments from the District of Columbia Office of Tax and Revenue (“DC OTR”). See Note 13, “Income Taxes,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024 for further information.

(f) Reserve associated with the U.S. Department of Justice's investigation of the Company. See Note 20, “Commitments and Contingencies,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024 for further information.

(g) Reflects insurance recoveries from claims related to the Company’s fiscal 2024 settlement as described in Note 19, “Commitments and Contingencies,” to the consolidated financial statements contained within this Annual Report on Form 10-K.

Factors and Trends Affecting Our Results of Operations

Our results of operations have been, and we expect them to continue to be, affected by the following factors, which may cause our future results of operations to differ from our historical results of operations discussed under “—Results of Operations.”

U.S. Political, Budget and Regulatory Environment

The U.S. continues to face an uncertain and evolving political, budget and regulatory environment, and we expect this uncertainty will continue. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the spending priorities of the U.S. government.

The U.S. government is driving changes in the structure and priorities of U.S. government agencies and the U.S. government is currently in the process of reviewing spending across U.S. government agencies to ensure it aligns with the new administration’s priorities of maximizing governmental efficiency and productivity. We have been, and will continue to be, subject to these reviews, and we have had, and may in the future have, certain of our contracts impacted, reduced or canceled as a result of these reviews. We have also experienced price adjustments and renegotiations prior to option exercise of certain of our contracts as a result of these reviews and may in the future continue to experience such adjustments. Further, we are, and may in the future be, subject to customer mandates to formulate additional methods by which to achieve efficiencies in providing our services, and we remain in ongoing discussions with various U.S. government departments and agencies in relation to cost reductions and other potential contract modifications. There can be no assurance that these reviews will not ultimately have a material adverse impact on our business and financial performance. There has been a marked increase in negative publicity regarding government contractors (including the Company) in connection with the U.S. government’s efforts to improve efficiency and reduce costs, which could harm our reputation and could have a material impact on our business, results of operations and financial condition.

The new U.S. government administration is putting in place a number of Executive Orders and actions that have and could continue to affect our business. U.S. government agencies are also undertaking their own independent reviews of their contract portfolios and reviewing future procurements in response to recent Executive Orders focused on efficiency in government procurement. At the same time that the scrutiny is increasing, there have been reductions in personnel at U.S. government agencies with which we do business. These reductions in personnel, along with the changing political and regulatory environment, has led to a slower procurement environment, with delays in the granting of new contract awards, delays in the processing of payments by government payment offices, as well as increased processing times for security clearances and other governmental consents, each of which could result in negative impacts to our business and financial performance.

The President has issued two specific Executive Orders that may cause future changes, the impact of which remains uncertain, that are intended to (i) simplify and accelerate the procurement process through a review and restructuring of the Federal Acquisition Regulation (FAR), and its supplements and (ii) modernize defense acquisitions by promoting commercial solutions, innovative acquisition authorities, and other existing streamlined processes. While the impact of these reforms on our business is uncertain, they could potentially lead to changes in the way we interact with the U.S. government. If certain commercial preferences are narrowly defined, these reforms could introduce new barriers that reduce the likelihood of direct award to companies such as Booz Allen.

On March 15, 2025, the President signed into law the Full-Year Continuing Appropriations and Extensions Act, 2025 (the “2025 Appropriations Act”), which funds the U.S. government under a continuing resolution through September 30, 2025, its fiscal year end. In total, the fiscal year 2025 continuing resolution funding is roughly equivalent to the U.S. government’s fiscal year 2024 funding with a few anomalies and other smaller shifts in funding between appropriations titles. The 2025 Appropriations Act increases the Department of Defense’s fiscal year 2025 base budget, while reducing nondefense spending. Unlike other continuing resulting funding measures, the 2025 Appropriations Act provides the Department of Defense conditional authority to permit new program starts, as long as they were included in the fiscal year 2025 House or Senate appropriation bills, furthering the flexibility of the Department of Defense operating under a continuing resolution.

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In January 2025, the Federal debt ceiling was reached, and the U.S. Department of the Treasury is operating under “extraordinary measures” to service debt obligations of the U.S. government. The Treasury has not yet indicated when those measures will be exhausted, but it is expected that the date of potential U.S. government default will be sometime during the summer of 2025. Before that time, Congress will need to pass, and the President will need to sign, legislation that would extend or eliminate the debt limit. Failure to do so, or any agreement to raise the ceiling that significantly reduces future funding, could lead to negative impacts on our business.

See “Item 1A. Risk Factors—Industry and Economic Risks and —Legal and Regulatory Risks” for additional discussion of risks to the company related to our industry and the political, budget and regulatory environment.

Sources of Revenue

Substantially all of our revenue is derived from services provided under contracts and task orders with the U.S. government, primarily by our customer staff and, to a lesser extent, our subcontractors. Funding for our contracts and task orders is generally linked to trends in budgets and spending across various U.S. government agencies and departments. We provide services under a large portfolio of contracts and contract vehicles to a broad customer base, and we believe that our diversified contract and customer base lessens potential volatility in our business; however, a reduction in the amount of services that we are contracted to provide to the U.S. government or any of our significant non-U.S. government customers could have a material adverse effect on our business and results of operations. In particular, the Department of Defense is one of our significant customers, and the Bipartisan Budget Control Act of 2011 (“BCA”) originally required nine automatic spending cuts (referred to as “sequestration”) of $109 billion annually from 2013 to 2021, half of which was intended to come from defense programs, though less than $1.0 billion has been cut for defense programs per year under the BCA. Mandatory sequestrations under the BCA were subsequently extended by the Bipartisan Budget Acts of 2013, 2015, 2018 and 2019, the Military Retired Pay Restoration Act, the CARES Act and the Infrastructure Investment and Jobs Act. The extension of the mandatory sequestration applies an 8.3% reduction in defense spending in each year from 2021 through 2031. This could result in a commensurate reduction in the amount of services that we are contracted to provide to the Department of Defense and could have a material adverse effect on our business and results of operations, and given the uncertainty of when and how these automatic reductions required by the BCA may return and/or be applied, we are unable to predict the nature or magnitude of the potential adverse effect.

Contract Types

We generate revenue under the following three basic types of contracts:

•Cost-Reimbursable Contracts. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract, up to a ceiling based on the amount that has been funded, plus a fixed fee or award fee. As we increase or decrease our spending on allowable costs, our revenue generated on cost-reimbursable contracts will increase, up to the ceiling and funded amounts, or decrease, respectively. We generate revenue under two general types of cost-reimbursable contracts: cost-plus-fixed-fee and cost-plus-award-fee, both of which reimburse allowable costs and provide for a fee. The fee under each type of cost-reimbursable contract is generally payable upon completion of services in accordance with the terms of the contract. Cost-plus-fixed-fee contracts offer no opportunity for payment beyond the fixed fee. Cost-plus-award-fee contracts also provide for an award fee that varies within specified limits based upon the customer’s assessment of our performance against a predetermined set of criteria, such as targets for factors like cost, quality, schedule, and performance.

•Time-and-Materials Contracts. Under contracts in this category, we are paid a fixed hourly rate for each direct labor hour expended, and we are reimbursed for billable material costs and billable out-of-pocket expenses inclusive of allocable indirect costs. We assume the financial risk on time-and-materials contracts because our costs of performance may exceed negotiated hourly rates. To the extent our actual direct labor, including allocated indirect costs, and associated billable expenses decrease or increase in relation to the fixed hourly billing rates provided in the contract, we will generate more or less profit, respectively, or could incur a loss.

•Fixed-Price Contracts. Under a fixed-price contract, we agree to perform the specified work for a predetermined price. To the extent our actual direct and allocated indirect costs decrease or increase from the estimates upon which the price was negotiated, we will generate more or less profit, respectively, or could incur a loss. Some fixed-price contracts have a performance-based component, pursuant to which we can earn incentive payments or incur financial penalties based on our performance. Fixed-price level of effort contracts require us to provide a specified level of effort (i.e., labor hours), over a stated period of time, for a fixed price.

The amount of risk and potential reward varies under each type of contract. In the aggregate, the contract type mix in our revenue for any given period will affect that period's profitability. Changes in contract type as a result of re-competes and new business could influence the percentage/mix in unanticipated ways. See “Item 1A. Risk Factors—Industry and Economic Risks.”

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The table below presents the percentage of total revenue for each type of contract for the respective periods shown:

Contract Diversity and Revenue Mix

We provide services to our customers through a large number of single award contracts, contract vehicles, and multiple award contract vehicles. Most of our revenue is generated under indefinite delivery/indefinite quantity (“IDIQ”) contract vehicles, which include multiple award government wide acquisition contract vehicles (“GWACs”) and General Services Administration (“GSA”) Multiple Award Schedule Contracts (“GSA schedules”) and certain single award contracts. GWACs and GSA schedules are available to all U.S. government agencies. Any number of contractors typically compete under multiple award IDIQ contract vehicles for task orders to provide particular services, and we earn revenue under these contract vehicles only to the extent that we are successful in the bidding process for task orders. No single task order under any IDIQ contract represented more than 4% of our revenue in fiscal 2025. No single definite contract accounted for more than 1% of our revenue in fiscal 2025.

We generate revenue under our contracts and task orders through our provision of services as both a prime contractor and a subcontractor, as well as from the provision of services by subcontractors under contracts and task orders for which we act as the prime contractor. For each of fiscal 2025, 2024, and 2023, 95% of our revenue was generated by contracts and task orders for which we served as the prime contractor; 5% of our revenue was generated by contracts and task orders for which we served as a subcontractor; and 25% of our revenue was generated by services provided by our subcontractors. The mix of these types of revenue affects our operating margin. Substantially all of our operating margin is derived from direct customer staff labor as the portion of our operating margin derived from fees we earn on services provided by our subcontractors is not significant.

Contract Backlog

We define backlog to include the following three components:

•Funded Backlog. Funded backlog represents the value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.

•Unfunded Backlog. Unfunded backlog represents the value of orders (including optional orders) for services under existing contracts for which funding has not been appropriated or otherwise authorized.

•Priced Options. Priced contract options represent 100% of the value of all future contract option periods under existing contracts that may be exercised at our customers’ option and for which funding has not been appropriated or otherwise authorized.

Our backlog does not include contracts that have been awarded but are currently under protest and also does not include any task orders under IDIQ contracts, General Services Administration Schedule or other master agreement contract vehicles, except to the extent that task orders have been awarded to us under those contracts.

The following table summarizes the value of our contract backlog as of the respective periods shown:

(1) Backlog presented at March 31, 2025 includes backlog acquired from the Company’s acquisition of PGSC during fiscal 2025. Original backlog value at acquisition was $231 million.

(2) Amounts reflect the Company’s change in policy during the fourth quarter of fiscal 2025 as noted below.

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Our total backlog consists of contractual values which is inclusive of remaining performance obligations, unexercised option periods and other unexercised optional orders. Our total backlog reflects retrospective application of the Company’s change in policy during the fourth quarter of fiscal 2025, to exclude from total backlog, in all periods presented, orders under contracts for which the period of performance has expired. As of March 31, 2025 and March 31, 2024, the Company had $9.5 billion and $8.7 billion of remaining performance obligations, respectively, and we expect to recognize approximately 65% of the remaining performance obligations as of March 31, 2025 as revenue over the next 12 months, and approximately 70% over the next 24 months. The remainder is expected to be recognized thereafter. However, given the uncertainties discussed below, as well as the risks described in “Item 1A. Risk Factors,” we can give no assurance that we will be able to convert our backlog into revenue in any particular period, if at all. Our backlog includes orders under contracts that in some cases extend for several years. The U.S. Congress generally appropriates funds for our customers on a yearly basis, even though their contracts with us may call for performance that is expected to take a number of years to complete. As a result, contracts typically are only partially funded at any point during their term and all or some of the work to be performed under the contracts may remain unfunded unless and until the U.S. Congress makes subsequent appropriations and the procuring agency allocates funding to the contract.

We view growth in total backlog as a key measure of our potential business growth. Total backlog increased by 15% from March 31, 2024 to March 31, 2025. Additions to funded backlog during fiscal 2025 and 2024 totaled $12.2 billion and $10.2 billion respectively, as a result of the conversion of unfunded backlog to funded backlog, the award of new contracts and task orders under which funding was appropriated, and the exercise and subsequent funding of priced options. We report internally on our backlog on a monthly basis and review backlog upon occurrence of certain events to determine if any adjustments are necessary.

We cannot predict with any certainty the portion of our backlog that we expect to recognize as revenue in any future period and we cannot guarantee that we will recognize any revenue from our backlog. The primary risks that could affect our ability to recognize such revenue on a timely basis or at all are: program schedule changes, contract modifications, and our ability to assimilate and deploy new customer staff against funded backlog; cost-cutting initiatives and other efforts to reduce U.S. government spending, which could reduce or delay funding for orders for services; and delayed funding of our contracts due to delays in the completion of the U.S. government's budgeting process and the use of continuing resolutions by the U.S. government to fund its operations. The amount of our funded backlog is also subject to change, due to, among other factors: changes in congressional appropriations that reflect changes in U.S. government policies or priorities resulting from various military, political, economic, or international developments; changes in the use of U.S. government contracting vehicles, and the provisions therein used to procure our services and adjustments to the scope of services, or cancellation of contracts, by the U.S. government at any time. In our recent experience, none of the following additional risks have had a material negative effect on our ability to realize revenue as of March 31, 2025 but could have a material effect in the future: for funded backlog, the unilateral right of the U.S. government to cancel multi-year contracts and related orders or to terminate existing contracts for convenience or default; in the case of unfunded backlog, the potential that funding will not be made available; and, in the case of priced options, the risk that our customers will not exercise their options.

We expect to recognize revenue from a substantial portion of funded backlog as of March 31, 2025 within the next twelve months. However, given the uncertainties discussed above, as well as the risks described in “Item 1A. Risk Factors,” we can give no assurance that we will be able to convert our backlog into revenue in any particular period, if at all.

Operating Costs and Expenses

Costs associated with compensation and related expenses for our people are the most significant component of our operating costs and expenses. The principal factors that affect our costs are additional people as we grow our business and are awarded new contracts, task orders, and additional work under our existing contracts, and the hiring of people with specific skill sets and security clearances as required by our additional work.

Our most significant operating costs and expenses are described below.

•Cost of Revenue. Cost of revenue includes direct labor, related employee benefits, and overhead. Overhead consists of indirect costs, including indirect labor relating to infrastructure, management and administration, and other expenses.

•Billable Expenses. Billable expenses include direct subcontractor expenses, travel expenses, and other expenses incurred to perform on contracts.

•General and Administrative Expenses. General and administrative expenses include indirect labor of executive management and corporate administrative functions, marketing and bid and proposal costs, and other discretionary spending.

•Depreciation and Amortization. Depreciation and amortization includes the depreciation of computers, leasehold improvements, furniture and other equipment, and the amortization of internally developed software, as well as third-party software that we use internally, and of identifiable long-lived intangible assets over their estimated useful lives.

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Seasonality

The U.S. government's fiscal year ends on September 30 of each year. We have historically experienced higher bid and proposal costs in the months leading up to the U.S. government's fiscal year end as we pursue new contract opportunities being awarded shortly after the U.S. government fiscal year end as new opportunities are expected to have funding appropriated in the U.S. government's subsequent fiscal year. We may continue to experience this seasonality in future periods, and our future periods may be affected by it. While not certain, changes in the government's funding and spending patterns have altered historical seasonality trends, supporting our approach to managing the business on an annual basis.

Seasonality is just one of a number of factors, many of which are outside of our control, which may affect our results in any period. See “Item 1A. Risk Factors.”

Government Audit Impact on Operating Income

As noted in Item 1, “Business - Regulation,” of this Annual Report on Form 10-K, in the ordinary course of business, agencies of the U.S. government for which the Company is engaged as a prime contractor or a subcontractor, including the Defense Contract Audit Agency (the “DCAA”), audit the Company’s claimed costs and conduct inquiries and investigations of our business practices with respect to government contracts. Such audits may result in, and have historically resulted in, the Company’s inability to retain certain claimed costs, including executive and employee compensation, due to differing views of the allowability and reasonableness of such costs.

As discussed in Note 19 and 20, “Commitments and Contingencies,” to the consolidated financial statements contained within our Annual Reports on Form 10-K for the fiscal years ended March 31, 2025 and 2024, respectively, the Company recognized a reserve for estimated adjustments to historical claimed costs in respect of the years subsequent to fiscal 2011, based primarily on historical audit results. Following the settlement and closure of the civil and criminal investigation, respectively, of the Company by the DOJ, audits for years subsequent to fiscal 2011 have resumed and remain subject to audit and/or final resolution. As audits of the periods subsequent to 2011 are completed, our estimates of adjustment to claimed costs for these periods could change. Any such change could materially impact our reported revenue, operating income, net income and basic and diluted earnings per common share.

Critical Accounting Estimates and Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies, including the critical policies and practices listed below, are more fully described and discussed in the notes to the consolidated financial statements. We consider the following accounting policies to be critical to an understanding of our financial condition and results of operations because these policies require the most difficult, subjective or complex judgments on the part of our management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Revenue Recognition and Cost Estimation

We perform under various types of contracts, which include cost-reimbursable-plus-fee contracts, time-and-materials contracts, and fixed-price contracts.

Certain of our contracts contain award fees, incentive fees or other provisions that may increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and may be based upon customer discretion. Management estimates variable consideration as the most likely amount that we expect to achieve based on our assessment of the variable fee provisions within the contract. We evaluate unfunded amounts as variable consideration in estimating the transaction price. We include the estimated variable consideration in our transaction price to the extent that it is probable that a significant reversal of revenue will not occur upon the ultimate settlement of the variable fee provision.

We recognize revenue for fixed-price contracts using a contract cost-based input method and require an Estimate-at-Completion (“EAC”), which management uses to review and monitor the progress towards the completion of our performance obligations. Under this process, management considers various inputs and assumptions related to the EAC, including, but not limited to, progress towards completion, labor costs and productivity, material and subcontractor costs, and identified risks. Estimating the total cost at completion of performance obligations is subjective and requires management to make assumptions about future activity and cost drivers under the contract. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the profitability of our contracts. If the estimate of contract profitability indicates an anticipated loss on a contract, we recognize the total loss at the time it is identified.

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Remaining performance obligations represent the transaction price of exercised contracts for which work has not yet been performed, regardless of whether funding has or has not been authorized and appropriated as of the date of exercise. Remaining performance obligations exclude negotiated but unexercised options and certain variable consideration which the Company does not expect to recognize as revenue.

We recognize revenue for each performance obligation identified within our customer contracts when, or as, the performance obligation is satisfied by transferring the promised goods or services. On certain contracts, principally time-and-materials and cost-reimbursable-plus-fee contracts, revenue is recognized using the right-to-invoice practical expedient as we are contractually able to invoice the customer based on the control transferred.

For further detail on our contract types and processes, including when a contract is deemed to exist, contract modifications, as well as other specifics, see Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements contained within this Annual Report on Form 10-K.

Provision for Claimed Costs

U.S. government contracts and subcontracts are subject to extensive legal and regulatory requirements. From time to time and in the ordinary course of business, agencies of the U.S. government, including the DCAA, audit the Company’s claimed costs and conduct inquiries and investigations of our business practices with respect to government contracts to determine whether the Company's operations are conducted in accordance with these requirements and the terms of the relevant contracts.

The Company recognizes a reserve for estimated adjustments to historical claimed costs in respect of the years subsequent to fiscal 2011, based primarily on historical audit results. As audits of the periods subsequent to 2011 are completed, our estimates of adjustment to claimed costs for these periods could change. Any such change could materially impact our reported revenue, operating income, net income and basic and diluted earnings per common share.

Accounting for Income Taxes

Provisions for federal, state, and foreign income taxes are calculated from the income reported on our consolidated financial statements based on current tax law and also include the cumulative effect of any changes in tax rates from those previously used in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for purposes of preparing consolidated financial statements than for income tax purposes.

Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for uncertain tax positions when, despite the belief that our tax positions are supportable, there remains uncertainty in a tax position taken in our previously filed income tax returns. For tax positions where it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of reserves, our effective tax rate in a given consolidated financial statement period may be materially impacted.

The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the value of these assets. If we are unable to generate sufficient future taxable income in these jurisdictions, a valuation allowance is recorded when it is more likely than not that the value of the deferred tax assets is not realizable.

Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements contained within this Annual Report on Form 10-K for information related to our adoption of new accounting standards and for information on our anticipated adoption of recently issued accounting standards.

Segment Reporting

We report operating results and financial data in one operating and reportable segment. We manage our business as a single profit center in order to promote collaboration, provide comprehensive functional service offerings across our entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding served markets and functional capabilities is discussed for purposes of promoting an understanding of our complex business, we manage our business and allocate resources at the consolidated level of a single operating segment. See Note 20, “Business Segment Information,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in consolidation.

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The accompanying consolidated financial statements and notes of the Company include its subsidiaries, and the joint ventures and partnerships over which the Company has a controlling financial interest. The Company uses the equity method to account for investments in entities that it does not control if it is otherwise able to exert significant influence over the entities’ operating and financial policies.

The Company’s fiscal year ends on March 31 and unless otherwise noted, references to fiscal year or fiscal are for fiscal years ended March 31. The accompanying consolidated financial statements present the financial position of the Company as of March 31, 2025 and 2024 and the Company’s results of operations for fiscal 2025, fiscal 2024, and fiscal 2023.

Certain amounts reported in the Company's prior year consolidated financial statements have been reclassified to conform to the current year presentation.

Results of Operations

The following table presents items from our consolidated statements of operations for the respective periods shown:

NM - Not meaningful

Fiscal 2025 Compared to Fiscal 2024

Revenue

Revenue increased 12% to $11,980 million, primarily driven by strong demand for our solutions, outcomes, and services, as well as an increase in headcount to meet that demand, and higher billable expenses. In addition, revenue was positively impacted by $122 million representing the reduction to our provision for claimed costs recorded during fiscal 2025 (as compared to $18 million in fiscal 2024). See Note 19, “Commitments and Contingencies,” to the consolidated financial statements for further information

Cost of Revenue

Cost of revenue increased 10% to $5,419 million, and decreased as a percentage of revenue to 45% from 46%. The increase was primarily due to an increase in salaries and salary-related benefits of $540 million, driven by increased headcount and annual base salary increases, partially offset by a decrease in incentive and stock-based compensation of $47 million over the prior year.

Billable Expenses

Billable expenses increased 15% to $3,780 million, and increased as a percentage of revenue to 32% from 31%. This increase was primarily attributable to an increase in the use of subcontractors driven by customer demand and timing of customer needs as well as increases in expenses from contracts that require the Company to incur other direct expenses and travel on behalf of customers as compared to the prior year.

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General and Administrative Expenses

General and administrative expenses decreased 3% to $1,246 million, and decreased as a percentage of revenue to 10% from 12%. Fiscal 2025 was impacted by $115 million in insurance recoveries from claims related to the Company’s fiscal 2024 settlement as described in Note 19, “Commitments and Contingencies,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information, as well as a $27 million reserve from fiscal 2024 associated with the U.S. Department of Justice's investigation of the Company, not present in the current year. Partially offsetting the above was an increase in salaries and salary related benefits of $75 million, and increases in other business expenses and professional fees of $29 million.

Depreciation and Amortization

Depreciation and amortization expense increased 1% to $165 million, primarily driven by increases in internal software amortization, partially offset by decreases in intangible amortization related to acquisitions.

Interest Expense, net

Interest expense, net increased 14% to $168 million. This was primarily due to the following:

•An increase of $13 million in bond interest expense related to the $650 million Senior Notes due 2033 (issued August of fiscal 2024)

•A decrease in interest income driven by a combination of a lower average cash balance and lower interest rates, partially offset by,

•A decrease in interest expense on the Company’s term loan due to lower rates year over year.

Other Income (expense), net

Other income (expense), net increased to $17 million from $(13) million in the prior year period primarily due to the following:

•An increase of $13 million as a result of the gain on sale of an investment in fiscal 2025;

•An increase of $11 million in the fair value of the Company’s cost method investments reflected in fiscal 2025, as compared to a net decrease in fiscal 2024 of $6 million from non-recurring valuation adjustments (primarily from the write-off of one of its investments), resulting in a year over year increase of $17 million.

Income Tax Expense

Income tax expense increased to $284 million from $248 million. The effective tax rate decreased to 23% in fiscal 2025 from 29% in fiscal 2024. The increase in income tax expense for the year to date period was primarily driven by increases in pre-tax income. The decrease in the effective tax rate was driven by increases in fiscal 2024 state taxes, related to an unfavorable ruling received from the District of Columbia Court of Appeals related to contested tax assessments from the District of Columbia Office of Tax and Revenue (“DC OTR”) and the fiscal 2024 reversal of prior period indirect effects of underlying prior period uncertain tax positions.

Liquidity and Capital Resources

As of March 31, 2025, our total liquidity was $1.9 billion, consisting of $885 million of cash and cash equivalents and $999 million available under the Revolving Credit Facility. In the opinion of management, we will be able to meet our liquidity and cash needs through a combination of cash flows from operating activities, available cash balances, and available borrowing under the Revolving Credit Facility. If these resources need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities.

The following table presents selected financial information for the respective periods shown:

Some of the possible uses of our remaining excess cash at any point in time may include funding strategic acquisitions and investments, further investment in our business, and returning value to stockholders through share repurchases, quarterly dividends, and special dividends.

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Historically, we have been able to generate sufficient cash to fund our operations, mandatory debt and interest payments, capital expenditures, and discretionary funding needs. However, due to the trends and developments described above under “—Factors and Trends Affecting Our Results of Operations” relating to U.S. government cost-cutting, reductions or delays in the appropriations and spending process as well as potential shutdowns, it may be necessary to borrow under our Credit Agreement to meet cash demands in the future. While the timing and financial magnitude of these possible actions are currently indeterminable, we expect to be able to manage and adjust our capital structure to meet our liquidity needs. We anticipate that cash provided by operating activities, existing cash and cash equivalents, and borrowing capacity under our Revolving Credit Facility will be sufficient to meet our anticipated cash requirements for the next twelve months, which primarily include:

•operating expenses, including salaries;

•working capital requirements to fund both organic and inorganic growth of our business;

•capital expenditures which primarily relate to the purchase of computers, business systems, furniture and leasehold improvements to support our operations;

•the ongoing maintenance around all financial management systems;

•commitments and other discretionary investments;

•debt service requirements for borrowings under our Credit Agreement and interest payments for the Senior Notes due 2028, Senior Notes due 2029, Senior Notes due 2033, and Senior Notes due 2035; and

•cash taxes to be paid.

From time to time, we evaluate conditions to opportunistically access the financing markets to secure additional debt capital resources and improve the terms of our indebtedness.

Cash Flows

Operating Cash Flow

Net cash provided by operations was $1.0 billion in fiscal 2025 compared to $259 million in fiscal 2024. Fiscal 2025 operating cash was aided by strong collection performance and overall revenue growth. Fiscal 2024 reflects a $378 million outflow related to the Company’s fiscal 2024 settlement as described in Note 20, “Commitments and Contingencies,” to the consolidated financial statements contained within the Annual Report on Form 10-K for the fiscal year ended March 31, 2024, whereas fiscal 2025 reflects $115 million in insurance recoveries from claims related to that settlement.

Investing Cash Flow

Net cash used in investing activities was $218 million in fiscal 2025 compared to $91 million in the prior year. The increase in net cash used over the prior year was primarily due to the Company’s acquisition of PAR Government Systems Corporation for $99 million, net of post-closing adjustments and incurred transaction costs as part of the acquisition, as well as an increase in capital expenditures over the prior year of $31 million. See Note 5, “Acquisitions and Divestitures,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information on the acquisition.

Financing Cash Flow

Net cash used in financing activities was $460 million in fiscal 2025 compared to $19 million in the prior year. The increase in net cash used over the prior year was primarily due to the following:

•An increase in share repurchases of $408 million,

•An increase in dividends paid of $14 million,

•An increase in term loan payments of $21 million, partially offset by,

•An increase of $7 million in net proceeds associated with the Company’s issuance of its Senior Notes in each respective year:

◦Fiscal 2025 - $644 million received from the issuance of the 5.95% Senior Notes due 2035

◦Fiscal 2024 - $637 million received from the issuance of the 5.95% Senior Notes due 2033

Dividends and Share Repurchases

The Company paid $2.08 in dividends per share to stockholders of record in fiscal 2025. On May 23, 2025, the Company announced a regular quarterly cash dividend in the amount of $0.55 per share. The quarterly dividend is payable on June 27, 2025 to stockholders of record on June 11, 2025.

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The following table summarizes the cash distributions recognized in the consolidated statement of cash flows for the respective periods shown:

(1) Amounts represent recurring dividends that were declared and paid for during each quarter of fiscal 2025, 2024, and 2023, respectively.

On December 12, 2011, the Board of Directors initially approved a share repurchase program, which was subsequently increased from time to time, and most recently increased by $500 million to $3,585 million on January 28, 2025. The Company may repurchase shares pursuant to the program by means of open market repurchases, directly negotiated repurchases or through agents acting pursuant to negotiated repurchase agreements. During fiscal 2025 and 2024, the Company purchased 5.6 million and 3.2 million shares of the Company’s Class A Common Stock, respectively, for an aggregate of $764 million and $373 million, respectively. As of March 31, 2025, the Company had approximately $745 million remaining under the repurchase program.

Any determination to pursue one or more of the above alternative uses for excess cash is subject to the discretion of our Board of Directors, and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, restrictions that may be imposed by applicable law, our contracts, and our Credit Agreement, as amended, and other factors deemed relevant by our Board of Directors.

Indebtedness

Our debt totaled $4.0 billion and $3.4 billion as of March 31, 2025 and 2024, respectively. The total outstanding debt balance is recorded in the accompanying consolidated balance sheets net of unamortized discount and debt issuance costs of $28 million and $26 million, respectively, as of March 31, 2025 and 2024. Our debt is comprised of our Credit Agreement and four separate and distinct tranches of our Senior Notes, which all bear interest at specified rates. See Note 10, “Debt,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information and specifics on the material terms of our debt.

As of both March 31, 2025 and 2024, Booz Allen Hamilton was contingently liable under open standby letters of credit and bank guarantees issued by its banks in favor of third parties that totaled $4 million. These letters of credit and bank guarantees primarily support insurance and bid and performance obligations. As of both March 31, 2025 and 2024, approximately $1 million of these instruments reduced our available borrowings under the Credit Agreement. The remainder is guaranteed under a separate $3 million facility, formerly $8 million, of which less than a million and $4 million, respectively, were available to the Company at March 31, 2025 and March 31, 2024, respectively. See Note 19, “Commitments and Contingencies,” to our consolidated financial statements contained within this Annual Report on Form 10-K for further information.

The Company occasionally borrows under the Credit Agreement’s revolving credit facility for our working capital needs and during the fourth quarter of fiscal 2025, we borrowed $200 million on this revolving credit facility, which was subsequently repaid with the proceeds from our latest offering of Senior Notes in the same quarter. As of March 31, 2025 and March 31, 2024, respectively, there was no outstanding balance on the Revolving Credit Facility. See Note 10, “Debt,” to the consolidated financial statements contained within this Annual Report on Form 10-K for further information our latest offering of Senior Notes that was completed in fiscal 2025.

Summarized Financial Information

The Senior Notes due 2033 and Senior Notes due 2035 were issued by Booz Allen Hamilton pursuant to the respective Indenture, among Booz Allen Hamilton, the Company and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the respective Supplemental Indenture and are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by the Company pursuant to the respective Indenture.

The tables below present the summarized financial information as combined for the Company and Booz Allen Hamilton as of March 31, 2025, after the elimination of intercompany transactions and balances between the Company and Booz Allen Hamilton and excluding the subsidiaries of both entities that are not issuers or guarantors of the Senior Notes due 2033 and Senior Notes due 2035, including earnings from and investments in these entities. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under Regulation S-X and is not intended to present our financial position or results of operations in accordance with GAAP.

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Summarized Statements of Financial Condition

Summarized Statement of Operations

Capital Structure and Resources

Our stockholders’ equity totaled $1,003 million as of March 31, 2025, a decrease of $44 million compared to stockholders’ equity of $1,047 million as of March 31, 2024. The decrease was primarily due to $804 million in treasury stock resulting from the repurchase of shares of our Class A Common Stock and $269 million in aggregate quarterly dividend payments, partially offset by net income of $935 million and stock-based compensation expense of $94 million.

Capital Expenditures

Since we do not own any of our facilities, our capital expenditure requirements primarily relate to the purchase of computers, management systems, furniture, and leasehold improvements to support our operations. Direct facility and equipment costs billed to customers are not treated as capital expenses. Our capital expenditures for fiscal 2025 and 2024 were $107 million and $83 million, respectively, of which $9 million and $16 million, respectively, were unpaid at fiscal 2025 and 2024 year end.

Commitments and Contingencies

We are subject to a number of reviews, investigations, claims, lawsuits, and other uncertainties related to our business. For a discussion of these items, refer to Note 19, “Commitments and Contingencies,” to our consolidated financial statements.