BAH Financial Analysis

Analysis Date: 2/3/2025

Business Model

Booz Allen Hamilton generates revenue by providing management and technology consulting and engineering services to U.S. and international governments, corporations, and not-for-profit organizations.

Revenue Sources

• Defense Clients (50% of Q3 2025 revenue)
• Civil Clients (35% of Q3 2025 revenue)
• Intelligence Clients (15% of Q3 2025 revenue)

Income Statement Analysis

• Revenue increased significantly by 13.5% year-over-year, indicating strong business growth.
• Cost of revenue and billable expenses increased, but at a slower pace than revenue growth, suggesting operating leverage.
• General and administrative expenses increased, but as a percentage of revenue remained stable.
• Operating income increased at a higher rate (17.7%) than revenue, demonstrating improved profitability.
• Net income increased substantially by 28.4%, reflecting strong bottom-line performance.

Balance Sheet Analysis

• Total assets increased by 3.92%, driven by growth in accounts receivable and goodwill.
• Cash and cash equivalents decreased by 17.99%, potentially due to share repurchases and dividend payments, but remains healthy.
• Accounts receivable increased by 8.62%, consistent with revenue growth.
• Goodwill increased by 2.56%, likely due to acquisitions (PGSC).
• Total liabilities increased slightly by 1.7%, while stockholders' equity increased significantly by 15.61%, strengthening the financial position.
• Accrued compensation and benefits increased significantly by 39.66%, potentially reflecting payroll cadence change and increased employee numbers.
• Treasury stock increased by 20.83%, indicating continued share repurchase activity.

Capital Allocation

The company is focused on deploying capital to generate long-term shareholder value through dividends, share repurchases, strategic investments including acquisitions, and reinvestment in the business. In Q3 FY2025, they deployed $227.6 million through dividends, share repurchases, strategic investments, and acquisitions. The board authorized a 7.8% increase in quarterly dividends and increased share repurchase authorization by $500 million.

Management Commentary

We delivered about 14% top line growth, roughly 13% organic with solid performance across all three sectors.

We ran the business efficiently, generating $332,000,000 in adjusted EBITDA at an 11.4 percent adjusted EBITDA margin.

We maintained a 1.41 times trailing 12 month book to bill. This is our highest at calendar year end in the last 6 years.

We expect the industry will see a short term slowdown of funding and award activity as the new administration and Congress establish our agenda.

Overall Sentiment: Bullish about the future and confident in navigating the presidential transition period. Management emphasizes strong performance, efficient operations, and strategic alignment with the new administration's priorities, particularly in technology and innovation.

Recommendation

Rating: Buy

Reason for Rating: Based on strong financial performance, robust backlog, and strategic positioning in key government sectors, a Buy recommendation is warranted.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/3/2025, 8:01:03 AM