ブーズ・アレン・ハミルトン（BAH）2027年度第2四半期決算説明会：EPS予想を上方修正

要点

• 2027年度第2四半期の売上高は、主に請求可能経費が10.6%減少したことにより、前年同期比3.9%減の28億ドルとなりました。請求可能経費を除く売上高の減少幅は1%未満にとどまりました。
• 調整後EBITDAは3億1,300万ドルに増加し、利益率は10ベーシスポイント拡大して11.3%となりました。調整後希薄化後EPSは18%増の1.76ドルとなりました。
• 国家安全保障（National Security）部門の売上高は1%増加し、請求可能経費の減少の影響を除くと6%増となりました。民生（Civil）部門の売上高は、後続契約の規模縮小や新規プログラム開始の減少により15%減少しました。
• 当四半期のブック・トゥ・ビル（受注入金比率）は1.5倍に達しました。受注残高合計は2%増の約410億ドルとなり、資金裏付けのある受注残高（funded backlog）は5%増の57億ドルに増加しました。国家安全保障部門の資金裏付けのある受注残高は約10%増加しました。
• ブーズ・アレンは調整後EBITDA業績予想の下限を引き上げ、調整後EPS予想を6.50ドル〜6.70ドルに上方修正しました。2027年度の売上高予想は113億ドル〜116億ドルとしています。
• 経営陣は、成果連動型契約、製品化された技術、およびウルトラ・ミッション・ソリューションズ（Ultra Mission Solutions）の買収に支えられ、サイバーおよび防衛技術が中長期的な成長を牽引すると見込んでいます。

主要財務データ

調整後EPSは、利益成長、発行済株式数の減少、税率低下、およびDARPA事業売却に関連する1,000万ドルのアーンアウトがプラスに寄与しました。

事業および業績の動向

国家安全保障部門が成長を牽引

国家安全保障部門の売上高は前年同期比1%増加しました。請求可能経費の減少を除いた実質成長率は6%となり、先端技術に対する需要を反映しています。案件評価済みの国家安全保障部門のパイプラインは前年同期比20%以上増加し、同社は当四半期中に同部門で300名以上の従業員を増員しました。

経営陣は、国家安全保障部門の成長が下半期に加速し、2027年度通期では1桁台半ばの成長率に達すると見込んでいます。需要分野には、戦闘管理、宇宙領域把握、部隊即応性、デジタルエンジニアリング、自律型技術、量子技術などが含まれます。

国家安全保障部門における確定固定価格契約の比率は、年初来で3ポイント上昇しました。経営陣は、急激な利益率拡大ではなく段階的な改善を見込んでいるものの、固定価格型および成果連動型業務への移行が長期的に収益性を支えると期待しています。

民生部門は引き続き圧迫を受ける

民生部門の売上高は前年同期比15%減少しました。これは主に、一部の再入札案件が資金調達額、規模、範囲を縮小した追加契約に移行したことや、新規プログラムの開始が減少したことによるものです。

経営陣によると、主要な再入札の移行はおおむね完了しており、2027年度に大きな再入札案件は残っていません。しかし、調達および選定のスケジュールは後倒しが続いています。需要は依然として、エージェンティック（自律型）ソフトウェア開発、SI対応データプラットフォーム、サイバーセキュリティ、財務的整合性、公共安全インフラ、ヘルスケアミッションに集中しています。

サイバーおよび防衛技術への投資

ブーズ・アレンは、従来の労務中心かつ原価加算型の業務から、技術主導の製品およびソリューションへとサイバーポートフォリオを拡大しています。同社の自律型サイバー suite「Vellox」に含まれる「Guile」は、大規模テストにおいてAI/SIを悪用した攻撃の成功率を95%以上削減したと経営陣は述べています。Guileは現在、政府および民間顧客向けにプライベートベータ版を提供中ですが、経営陣は収益機会の具現化には今後数四半期ではなく数年を要すると見込んでいます。

同社は8月にウルトラ・ミッション・ソリューションズの買収を完了しました。ウルトラ社はC3BM、自律技術、暗号化などの分野で防衛技術製品に貢献しています。経営陣は、ウルトラ社が防衛技術分野での2桁成長というより広範な目標を支えつつ、堅調な売上成長と20%を大幅に上回る利益率を維持すると期待しています。

ブーズ・アレンは当四半期中に9億6,500万ドルの資本を投入しました。その内訳は、一定の調整を含むウルトラ・ミッション・ソリューションズ向けに7億2,900万ドル、戦略的ベンチャー投資に6,600万ドル、配当および自社株買いを通じて1億7,000万ドルとなっています。

業績予想（ガイダンス）

経営陣は、下半期に見込まれる利益率低下の要因として、民生部門の取扱量減少、通常の季節要因、および投資支出のタイミングを挙げました。ウルトラ社の貢献が民生部門の軟調な見通しを概ね相殺するため、全体的な売上予想の枠組みはほぼ変更ありません。

リスクおよび注視事項

• 連邦政府の資金供給は依然として不均衡であり、政府はつなぎ予算（継続決議）のもとで運営されています。経営陣は業績予想に複数の資金調達シナリオを織り込んでいます。
• 民生部門の調達プロセスや契約締結の遅れが続いており、パイプライン（案件候補）が拡大しているにもかかわらず、売上発生への変換時期が制限されています。
• 民生部門の取扱量減少、季節要因、および投資タイミングが、下半期の利益率を押し下げる要因になると見込まれます。
• ディファイの買収も一因となり、DSOはブーズ・アレンの過去の水準を上回ったままですが、ディファイとウルトラを除いた場合は前年同期比でわずかに低下しました。
• Vellox製品スイートはまだ初期段階にあり、プライベートベータ版の導入が今後数四半期で大きな財務的インパクトをもたらすとはまだ予想されていません。

アナリスト質疑応答のハイライト

• 利益率の拡大：経営陣は、固定価格型契約や成果連動型契約の拡大に伴い、利益が売上高よりも速いペースで成長すると見込んでいます。再利用可能な技術、製品化された知的財産、および効率的なデリバリーにより、数年にわたり着実な利益率の改善が支えられる見通しです。
• 受注残高と新規受注：国家安全保障部門の資金裏付けのある受注残高は約10%増加し、下半期の成長に対する確信を強めています。資金供給や受注確定のタイミングにバラつきがあるため、短期的な受注額の予測は引き続き困難です。
• 成長モデル：ブーズ・アレンは、人員数、賃金、受注入金比率（ブック・トゥ・ビル）に主導される成長モデルからの脱却を徐々に進めています。経営陣は、サイバー製品、防衛技術、SI主導のデリバリーにより、売上高および利益の成長と人員配置との連動性が次第に低くなると予想しています。
• ウルトラ社の統合：同社はウルトラ社と既存の防衛技術部門との統合を進めています。経営陣は、C3BM、自律技術、暗号化、サイバー分野における製品のシナジー効果と、高い企業の文化的適合性を強調しました。
• 資本配分：ブーズ・アレンは、配当金、控えめな自社株買い、サイバーおよび防衛技術分野での選択的な投資や買収を継続しつつ、ウルトラ社の統合期間中にデレバレッジ（負債削減）を進める計画です。

決算説明会文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning. Thank you for standing by, and welcome to Booz Allen Hamilton's earnings call covering Second Quarter Fiscal Year 2027 results. [Operator Instructions] I would now like to turn the call over to the Head of Investor Relations, Dustin Darensbourg.

Dustin Darensbourg

Thanks, Carmen. Good morning, and thank you for joining us for Booz Allen's Second Quarter Fiscal Year 2027 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 and Chief Executive Officer; Kristine Martin Anderson, President and Chief Operating Officer; and Troy Lahr, Executive Vice President and Chief Financial Officer.

As shown on the disclaimer on Slide 3, some of the items we will discuss this morning are forward looking and may relate to future events and as such, involve known and unknown risks, uncertainties and other factors, that may cause our actual results to differ materially from forecasted results discussed in our SEC filings and on this call.

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 second quarter fiscal year 2027 earnings release and slides.

It is now my pleasure to turn the call over to our Chairman and CEO, Horacio Rozanski. We are now on Slide 4.

Horacio Rozanski

Thanks, Dustin, and good morning, everyone. Thank you for joining the call. Today, Kristine, Troy and I will share Booz Allen's results for the second quarter of fiscal year 2027. The headline is this, Booz Allen is on track with the expectations we set for this fiscal year. We delivered strong profitability and cash generation while continuing to invest for the future. The amazing people of Booz Allen are executing exceptionally well, both operationally and by accelerating our strategic transformation to drive our next phase of growth.

In just a moment, Kristine will discuss our business trajectory and Troy will cover the detailed financial results and updated guidance. Ahead of that, I will focus my remarks on the broader forces shaping our market and the progress we are making in accelerating our cyber and defense tech growth vectors.

On our July earnings call, we said there would be some uncertainty around the federal budget process and funding as we approach the end of the government fiscal year. And we did see those dynamics play out during the second quarter. At the same time, demand for advanced technology solutions and products remains strong, driven by the growing urgency to transform the nation's most critical missions. Ongoing geopolitical conflicts and the changing nature of warfare are increasing the need for advanced capabilities at the tactical edge.

Artificial or now super intelligence or SI for short, is powering more sophisticated cyber threats. And across the entire federal government, there is a growing need to modernize critical systems and deliver better outcomes through technology. At Booz Allen, we are innovating and investing to meet these needs. We are accelerating our Cyber & Defense Tech products and solutions, applying SI and Agentic across our work and building capabilities in emerging technologies like physical SI, Quantum and 6G.

Today, I'll focus on the progress we're making in 2 of these areas. Cyber and defense tech. I'll begin with cyber. Agentic SI is fundamentally changing the cyber threat landscape as you see in the news every day. Other series can now launch autonomous attacks with the speed, scale and persistence that traditional defenses were not designed to defeat. As a result, we are seeing significant demand for advanced cyber solutions across government and commercial markets. Booz Allen is well positioned to meet this demand.

Our cyber capabilities span from cyber operations and Zero Trust to incident response and SI enabled cyber defense. We serve all 16 critical infrastructure sectors dozens of Fortune 500 companies and of course, numerous federal customers. We are building on these strengths with new products, including our Vellox Agentic cyber product suite. Vellox combines our deep cyber tradecraft with our proprietary technology to help customers defend against evolving threats at machine speed.

One notable example is our counter SI product, we call Guile. Guile is designed to counter an SI enabled attack in real time. In testing at scale, Guile reduced the tax excess rates by more than 95%. And it is currently in private beta with government and commercial customers. We believe the combination of established cyber capabilities and our growing product line positions cyber to drive significant top and bottom line growth.

Shifting to defense tech. Across today's national security environment, sensors and systems generate vast amounts of data, while autonomy, SI and other advanced technologies are transforming modern warfare. Our customers need mission proven products. that turn data into actionable information to help warfighters make faster, better decisions all the way to the edge. To accelerate our ability to build and scale these products we acquired Ultra INC Mission Solutions in August. Ultra brings a portfolio of commercially proven, software-centric hardware-enabled defense tech products that are highly complementary to our own.

Just as importantly, Ultra brings an established customer base already relying on these technologies in operational missions. Ultra and Booz Allen have partnered successfully for years. Now as one company, we will integrate our technologies to address mission gaps faster and more effectively than each of us could do alone. I believe some of you had the opportunity to see both Booz Allen and Ultra products at last week's AUSA conference. There's very strong customer interest and engagement at both are booths. We're excited about what's ahead as we integrate our products and pursue market opportunities together.

And one final thought before I close. Cyber and Defense Tech actually reinforce each other. Our world-class cyber capabilities make the defense tech products we bring to market more secure. At the same time, our defense tech portfolio creates new opportunities to strengthen and scale our cyber products for emissions at the edge. Taken together, they expand what we can deliver to customers. The progress we are making across both areas gives me great confidence in our ability to accelerate our medium-term growth.

And with that, Kristine, over to you to discuss the trajectory of our business.

Kristine Anderson

Thank you, Horacio. We continue to operate in a bifurcated market. and our second quarter performance reflects those dynamics. National Security continued to grow, while Civil remained in transition. We see strong demand in our national security business, predicated on our ability to deliver innovation and new technologies to accelerate missions. We're ramping up new awards quickly, scaling our cyber and defense tech products, and continuing to help our customers transition to outcomes-based contracting. And we're already seeing progress in that transition.

Within National Security, our firm fixed price contract mix has increased by 3 percentage points year-to-date. This shift is creating opportunities to bring more value to our customers and improve profitability over time. More broadly, we expect national security growth to accelerate in the second half.

Turning now to Civil. Our focus is on rebuilding the portfolio and gaining momentum. We're seeing demand for Agentic software development and SI ready data platforms across multiple missions. We expect Civil's year-over-year decline to moderate in the second half of the fiscal year as new work ramps up and additional awards come in. On whole, we remain on track with the expectations we laid out for the fiscal year.

Heading into the second half of the year, our 3 operating priorities are: delivering excellent outcomes for our customers, driving strong business execution and transforming and investing for growth. Our goal is to bring our strategic efforts to fruition leading us back to above-market top line growth and even better bottom line growth.

With that, Troy, I'll turn it over to you.

Troy Lahr

Thanks, Kristine, and good morning, everyone. I'm pleased with our continued strong operational execution including capturing strategic awards, delivering profitability above our expectations and generating robust free cash flow. Through our investments and operational discipline, we continue to position the company for durable long-term growth.

Now let me walk you through our second quarter performance in more detail. Second quarter revenue declined 3.9% year-over-year to $2.8 billion. The decline was largely due to a 10.6% decrease in billable expenses year-over-year. As a result, revenue ex billable expenses, where nearly all of our profit is generated was down less than 1% versus the prior period. From an end market perspective, our National Security business grew 1% year-over-year in the second quarter. However, excluding the impact of lower billable expenses, our National Security business grew 6% in the quarter, reflecting strong customer demand.

We have significant backlog of funded work to execute on and have aggressively scaled up our hiring. We continue to see strong demand signals across the portfolio with our qualified pipeline in National Security up more than 20% year-over-year compared to this time last year. Our Civil business declined 15% year-over-year, slightly better than we guided to last quarter. This was primarily driven by the full quarter impact of some recompetes that have transitioned to follow-on contracts with smaller size and scope as well as fewer new program starts.

Looking ahead for the rest of the year, pressure in the civil business is easing, and we now expect revenue to be flat to slightly down sequentially for the third and fourth quarter. as some of the first half dynamics gradually ease into the second half of the year.

Turning to profitability. In the second quarter, we again delivered results above our expectations. Adjusted EBITDA was $313 million at a margin of 11.3%, up 10 basis points year-over-year. The performance was driven by another quarter of strong contract execution. Adjusted diluted earnings per share increased 18% year-over-year to $1.76. This increase was driven by profit growth, a reduced share count and a lower tax rate. Adjusted EPS also benefited from a $10 million earnout from the DARPA divestiture. Our tax rate benefited from tax planning updates for the recent tax law changes. And on cash flows. Free cash flow for the second quarter was $263 million, driven by continued strong collections.

From a working capital perspective, days sales outstanding, or DSO, was up 10 days year-over-year to 82 days. As a reminder, we expect our DSO to remain elevated relative to our historical level due to the Defy acquisition. Excluding the impacts of both Defy and the Ultra acquisition, DSOs were slightly down year-over-year.

Moving to demand in leading indicators, we had solid bookings during the quarter with a book-to-bill of 1.5x, benefiting from a large classified award in the quarter. Our trailing 12-month book-to-bill was 1.1x. Total backlog at the end of the second quarter was nearly $41 billion, up 2% year-over-year. Despite a funding environment that remains choppy, our funded backlog continued to strengthen increasing 5% year-over-year to $5.7 billion. Funding started slowly in the quarter. However, we saw stronger funding activity in September to close out the government fiscal year.

And finally, on capital deployment and the balance sheet, we deployed a total of $965 million in the second quarter, which consisted of $729 million for the Ultra Mission Solutions acquisition inclusive of certain adjustments, $66 million for strategic venture investments and $170 million in shareholder returns through quarterly dividends and share repurchase. From a balance sheet perspective, we ended the quarter with $334 million of cash on hand and total liquidity of $1.8 billion. Our balance sheet remains strong, and our robust cash flow generation gives us strategic flexibility to drive investments in the business and opportunistically deploy capital.

Now turning to our outlook on Slide 7. For fiscal year 2027, we now expect to deliver revenue between $11.3 billion and $11.6 billion, implying growth of 1% to 3%. As we enter the second half of the year, we expect an acceleration in our national security portfolio with mid-single-digit growth for the full year. In civil, as previously discussed, we see some headwinds in the first half of the year easing into the second half. From a quarterly cadence perspective, we expect Civil revenue to be flat to slightly down sequentially and for the third and fourth quarter, implying a low double-digit decline for the year, slightly softer than our initial expectations.

Our updated range also reflect the incorporation of Ultra mission solutions. We're excited about the acquisition, and we are in the process of integrating Ultra with our broader defense tech business. We're raising the bottom end of our prior adjusted EBITDA guidance to now a revised range of $1.26 billion to $1.29 billion. This implies a step down in margins in the second half, in line with typical second half seasonality and timing of investment spending. We're raising our expected adjusted EPS range meaningfully to a revised range of $6.50 to $6.70. Our ADEPS guidance incorporates the impact of the CVC gain from the first quarter, the DARPA divestiture earnout and a lower expected tax rate for the rest of the year.

And lastly, we now expect to generate free cash flow between $850 million and $925 million. This range reflects our strong year-to-date collections, a slightly lowered CapEx assumption and incremental cost and interest expense associated with the Ultra acquisition. To summarize, I'm proud of the team's continued strong execution and their unwavering commitment to delivering critical technologies for our customers. We are investing in our growth vectors, accelerating our transition to outcome-based contracts and as always, driving value for our shareholders.

With that, operator, let's open the line for questions.

Operator

[Operator Instructions] One moment for our first question. It comes from Tobey Sommer with Truist.

質疑応答

Tobey Sommer

I wanted to ask you about the customers' propensity to convert work to fixed price and pursue OTAs from the onset to move more quickly. How do you see that shifting your portfolio by contract type in margin over a medium-term amount of time?

Horacio Rozanski

Tobey, why don't I start this is on -- in line we've been talking all along, which is it is both good for the country and for the department and frankly, good for Booz Allen that the move to outcome space is something we embrace and something we've been pushing for, for a long time, and it's actually really happening.

OTs are a piece of that. We are seeing strong growth in our OT pipeline. But importantly, across really all of our business, Civil got there earlier, but across all of our business the proportion of our contract that is going to be either fixed price or outcome-based we project to continue to grow for quite some time. And with that, 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 IP, we're launching things in the market. We're selling differently and the like.

And when you put that all together, that is part of the story for why we're saying we're on track, why we're saying like revenue growth in national security, if you take out the billable expenses was about 6% last quarter, and profit growth has been strong. Margins have been very strong in the first half and execution has been great.

Operator

One moment for our next question that comes from Gautam Khanna with TD Securities.

Gautam Khanna

Just curious on the big sequential increase in funded backlog, which is positive. I assume that was mostly in national security. So if you could just elaborate on where you saw the big increase? And then secondly, how do you think bookings play out over the next couple of quarters, given what you have in the pipeline?

Troy Lahr

Yes. So I can start. Thanks, Gautam. When you look at the backlog growth that we saw, again, total backlog was up 2% to about $41 billion. saw good growth in the funded backlog, but even stronger growth in the National Security funded backlog, which was up 10%. And so I think that, that really gives us confidence in the back part of the year for the growth that we expect to see in the national security business.

I'll let Horacio talk a little bit about the environment around bookings and things like that. But overall, we're generally comfortable with what we're seeing from the customers right now and how they're seeing our advanced technologies provide value.

Horacio Rozanski

Gautam, I would make the following distinction. First of all, I would characterize the demand environment in both natural security and frankly civil are strong. And in national security, we are seeing, as Troy said, a good increase in funded backlog, especially towards the back end of the quarter. We are now in a continuing resolution. We're still funding operations out of the base budget. And so how exactly that is going to play out in the next quarter or two is something we're watching very closely, but it's embedded in the way we're guiding.

And then on the civil side, again, we see strong demand, especially around Super Intelligence and agent and using those tools effectively to code faster. We see huge demand across our portfolio, both commercial and government for cyber. But yes, having said that, especially when you look at civil, there are procurements that are continuing to shift to the right, both in terms of when the procurement gets laid out and sometimes the award timing shift to the right as well. So exactly how bookings are going to play out. over the next quarter or two is a little harder to predict. But overall, I think the trend lines and the positive outlook on demand is what we're focused on.

Operator

Our next question comes from Louie DiPalma with William Blair.

Louie Dipalma

Happy Friday. Horacio, you described your product line that utilizes agent AI for cybersecurity, and there continues to be cybersecurity incidents regarding the SI platforms going rogue and the risk of adversary is exploiting the vulnerabilities. And so what has been the adoption of your Vellox product suite and have agencies been incorporating Vellox into your existing large cybersecurity programs such as CDM Defend.

Horacio Rozanski

Sure, Louie. So I would say the following. First of all, if you look at our Zero Trust platform because at the end of the day, while there's a number of things that you need to do to find with Zero Trust is a foundational capability because perimeter defense alone is wholly insufficient. And our 0 trust work is growing significantly because it is such a big need. And we have productized some of it, and we are changing the way in which we sell that really not just to the federal government, but brought to a broader range of customers.

On the Vellox suite, in particular, recognize that we had a plan to launch the 3 or 4 products in Vellox over a 2-year period. We made the investment to push a lot of that into private betas a lot sooner. We've gone to market with Guile on private beta in record time. But it's still early in those developments. I think the promise of those products will play out much more strongly over the next couple of years that over the next couple of quarters. The conversations with customers, especially in commercial, but also in federal, have been tremendous.

The excitement about Guile as being a one-of-a-kind type solution to -- where in our lab, even the most advanced malls are stymied by Guile to the tune of 95% of the time. We don't know of anything else that can do that. So we're seeing a significant upside on top of a cyber business that is already growing very fast, we've been preparing for this. We've been investing on SI now for over a decade. As you know, we have a huge cyber presence. And at the intersection of those two, Booz Allen, both excels and sees huge opportunity for growth.

Louie Dipalma

Indeed. And on the other side of the business for Civil, Troy, you described the negative impact of smaller scope on certain recompetes. And I was wondering what type of scope has been removed or is being removed? And do you believe that process is largely complete as you guided for generally flat sequential set of revenue versus last year, which saw a major step down in this coming December quarter.

Kristine Anderson

Thanks, Louie. I'll take that one. In Civil, when we talk about the recompetes being smaller duration and smaller scope, it's really just how much funding they're actually giving to the same activities rather than actually taking out large sections of work. It has to do, like, for example, as we're doing software development and they're funding a certain number of scrum teams to push functionality just with the current pressures inside of civil, they might do that slower compared to how they've done that in past years. And we're largely through those transitions.

We don't -- in terms of recompetes, as you know, a proportion of our business recompetes every year and this year has been no different. But our recompete win rate has been high, and there are no significant recompetes remaining for the fiscal year. We are seeing tailwinds around expanding the customer base. And Horacio mentioned our SI ready data platforms and Agentic development, we're seeing a lot of demand for that in financial integrity missions, public safety infrastructure missions and also health care.

So there is a strong pipeline, again, that it comes down to conversion how quick they'll do the awards and that we can ramp up. So it has, as you know, been choppy, but there still is a very strong demand signal for secure agent, cyber development and data systems.

Louie Dipalma

Excellent. Thanks for discussing those nuances, Kristine, and thanks, everyone.

Operator

Our next question comes from John Godyn with Citi.

John Godyn

I wanted to follow up on the trend in fixed price contracting and the impact on margins, kind of bigger picture. For a long time, EBITDA margins have been, let's say, 10%, 11% or so. And obviously, the math of moving more towards fixed price contracts over time, if it's fast enough, kind of introduces the idea of a breakout of margins. And Horacio, I'm just curious, like for somebody that has a long-term view, a multiyear view on this stock, in our mind, should we be thinking about 12%-plus margins like kind of a new regime of margins. Is that possible the way that you guys see it? Or is it not? And maybe we could just kind of discuss that a little?

Horacio Rozanski

Thanks for the question. I think all 3 of us, we were pointing at each other trying to figure, I think all 3 of us have something to say on this, so I'll start, and I'll pass it over to my colleagues. I'll say the following. I've been saying for a while that the nature of our business as it changes, we expect profit to grow faster than revenue and therefore, margins to expand over the next couple of years.

If you think about it, the move towards outcomes-based in some ways for us, it's better than ourselves and our ability to deliver excellent quality while continuing to drive the cost curve again, our investments in SI that go back a decade create a tailwind there, and we are confident based on what we've already seen in terms of the performance or a fixed price portfolio versus our cost plus portfolio. that, that is something that we'll realize and materialize.

But the other thing is we are selling differently. And so we've productized a lot of our IP, some of which is kind of discrete concrete products we're taking to market like the Vellox suite, but a lot of it is reusable technology that sells us technology inside existing programs. Some of the things that Kristine was talking about in terms of digital engineering, Agentic data platforms and the like, I think, give us those kinds of opportunities.

And so I don't think you're going to see like a huge step-up in margin 1 quarter to the next. I think you're going to see a steady growth. But certainly, as we are planning the business as we are executing the business our goal is to expand margins for the foreseeable future.

Troy Lahr

Yes, John, I'll just add a little color there. I think, Horacio just teed it up perfectly on the long-term trend is very favorable. There will obviously be variations quarter-to-quarter. Specifically, I called it out in the second half when you look at the margins that we're seeing, I think you do see favorable benefits of towards this fixed price trend. However, there are lower civil volumes in the second half. There is some timing of investment, and there's normal seasonality. So just be mindful of that for the next few quarters, but I think you're thinking about it right from a long-term trend standpoint.

Horacio Rozanski

And John, I'll make one last point that I should have made earlier. We are growing margins while at the same time growing investment in the business. If you think about it, blocks, it's a bit of a start-up inside of Booz Allen. And so right now, you're investing for growth. That's one example of several. And yet we can do that at an increased pace at an accelerated pace while continuing to grow margins.

John Godyn

I think that's fantastic. Appreciate it. And if I could ask 1 of Kristine. Kristine, you mentioned you had a phrase in the prepared remarks something like recurring to above-market growth. And this isn't a [indiscernible] question. I'm not trying to wordsmith that. But what is the market growth rate that you guys observed? Because you have a business where there are some markets that are growing very quickly and you're leaning into it others a lot less so. How do we think about the market growth as you do so that we know what above market is?

Kristine Anderson

Yes. Thank you for that. And certainly, it has been our goal to return to where we have been with mid-single-digit growth year-over-year and then even better on the bottom line even than we have in the past. And so we see the demand signals out there to get to that, and it's really a matter of making it happen with the conversions and continuing to lean in and build the momentum around our use of our technology and productizing our business and continuing to shift to outcomes-based. So they're just -- for what the market is demanding, we have a lot of it. And so if you look across defense tech, cyber, SIs, I mean just pure strength areas for Booz Allen.

Operator

Our next question is from Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu

I wanted to ask maybe 2 questions on the national security side. You highlighted that ex billables, the growth was actually 6% versus the 1% reported in the second quarter. Maybe can you talk about what acceleration do you see in the second half and to hit the high end of the guidance, it's about mid-teens growth? And how much of that is moving from just funding improving versus boost specific priorities that are being funded?

Kristine Anderson

Thanks, Sheila. I think a lot of it has to do with the capabilities that we're bringing to market. I mean there are -- there's great demand for our battle management solutions and that ties into the Ultra acquisition, lots of activity in space domain awareness. We're seeing a lot of force readiness initiatives and our digital engineering some emerging areas around autonomy and our mission autonomy software, quantum picking up.

So I think, in general, both between what we already have backlog for and what the pipeline looks like, which as Horacio said, is how the converts may be related to how the budget environment plays out. But what we're telling you is in our guide is that we see enough in the business to continue to grow that strongly and have it strengthened in the second half.

Sheila Kahyaoglu

Okay. Got it. And maybe if I could just ask about Ultra. Can you talk about how we should think about that in the second half and just how it is blending into your defense tech portfolio already and contributing?

Troy Lahr

Yes. Thanks, Sheila. I'll take that one. From a Defense Tech standpoint, Look, we're very happy with how Ultra is going. We're integrating our Defense Tech business with Ultra out having conversations with customers and very excited about what these 2 businesses can do when we bring them together.

We do still see Ultra growing strong top line growth and then having margins well above the 20%, which is what we've talked about. So we continue to see good growth out of that business. We've rolled that into the guide, which I'm sure a lot of people have questions about. And so overall, the National Security business is growing and Ultra is a great part of that.

Horacio Rozanski

Especially, I'll just add to that, say, the core of what Ultra brings is additional strength to our C3BM portfolio, which is already growing very strongly, both in terms of traditional contracts and OTAs and new formats and B2B formats and things like that. They also -- and that was the primary goal of the -- for the acquisition.

But it also brought with it a series of products that we believe are going to further enhance our position in autonomy, especially around their platforms. And because of their encryption business, that meshes really well with some of the things we're doing both in autonomy and in cyber. And so we see really strong market opportunity and traction for our Defense Tech business. In totality, we would like to see it grow double digits. And certainly, Ultras significant part of that.

And the other thing I will say, having seen us do a number of acquisitions, and I caveat think that this is very early days. From a cultural standpoint, this is one of the most compatible cultural integrations I've ever seen.

Operator

Our next question is from Gavin Parsons with UBS.

Gavin Parsons

Going back to the question on kind of above market top line growth. I just wanted to think about how we should frame that or build up to that over time as you evolve the business model away from kind of that historical head count that we could use to sort of drive revenue.

Horacio Rozanski

So I'll start, and then I'll turn it over to Troy. In my mind, again, if you think about our business, we expect our cyber and our defense tech businesses to be the growth leaders inside Booz Allen. Those are attractive markets. We have unique positions, tremendous demand and already a track record for above-market growth that we expect and intend to expand. And inside of that is where we're making also most of our investments in terms of producing and bringing IP to market in a different way. So that, to me, is going to be a core area of strength that will drive a lot of our business, both at the top line and at the bottom line.

And then beyond that, SI demand, identifying things both externally and internally, create a significant tailwind for the business. that we expect to see play out again over the next couple of years. So I don't think there's a magical change where quarter-to-quarter, you're going to see huge changes, but I think the way we see it is steady improvement in the top line, steady improvement in the bottom line and the ability to really continue to differentiate Booz Allen through the capabilities we're investing in, we bring.

Gavin Parsons

Got it. And then on the Civil side, I appreciate the color on the downsized recompetes, but you mentioned the demand environment there is strong. So what kind of keeps moving to the right on you guys in this business?

Kristine Anderson

Yes. Thanks for that. Well, the pipeline itself has been strong. What we do see -- and this happens a little bit in national security, too, but it happens more recently in Civil. Just where they're pushing out the -- like there'll be a recompete announced. You'll see a couple of draft RFPs, et cetera, but then they'll 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. And so that's what we're really talking about. Some of the larger bids are just pushing to the right.

And then as they push to the right now, they kind of push out of this fiscal year in terms of where you really see the value. But the pipeline itself continues to grow, and we are seeing awards. It's just a little bit choppier than it normally would have been.

Operator

Our next question comes from Matt Akers with PNB Paribas.

Matthew Akers

Could you touch on head count a little bit. You've had pretty steady declines here for a while, it looks like maybe it's starting to stabilize? Are you starting to ramp back up in terms of headcount? And if so, are you finding that you're able to find the people that you need for that?

Kristine Anderson

Yes. Thank you. Absolutely. I mean we're still focusing very strongly on hiring, and this is where it is bifurcated. It was another quarter down a little bit for Civil. But we added over 300 employees in National Security this quarter. And we are rapidly building our technologies, and we will be decoupling growth from headcount. But Yes, it is different across the businesses, and we are hiring.

Matthew Akers

Okay. And then I guess maybe for Troy, just on the balance sheet. After Ultra, just how you're thinking about deleveraging and kind of the capital allocation priorities from here?

Troy Lahr

Yes. I would say if you look at the cash flows of the company, very strong, really good cash flow performance and good collection. So I think that, that gives us the ability to have a very balanced capital deployment strategy. We have talked deleveraging while we go through the integration of Ultra here. But that does still allow us to strategically look at some other opportunities, but we'll still continue to pay the dividend and do modest share repurchase. So continue to stay have a very balanced approach is the way I would think about it.

Operator

Our next question is from Scott Mikus with Melius Research.

Scott Mikus

Just, in the past, we would think about the organic growth algorithm kind of as a function of head count growth, wage growth and book-to-bill. Just going back to some of the earlier questions on the call about the shift to fixed price and outcome-based contracting. How relevant is that old growth algorithm today? And what's the strategy going forward to try and decouple your top line growth from the overall budget cycle or at least make it more resilient when there's potentially administration changes and changes in priorities?

Troy Lahr

Yes, I'll take that one here. I think when you think about the algorithm that you're used to, it is -- we are, I would say, migrating away from that. Kristine talked about the transformation and the technologies that we're building. as those take hold, especially in the cyber business as we're productizing and 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. Again, I don't think that this is going to be a 1-quarter phenomenon or even a 1-year phenomenon. This is a gradual journey that we're on. I think we're really bringing these advanced technologies to bear that allows for long-term growth and margin expansion.

And so I think you'll see a trend where you see good top line growth, and you could see faster bottom line growth. as the products and the solutions that we're bringing to customers have more value. And then we're really using our SI capabilities to [ bring those ] enable technologies to bear allowing us to execute more efficiently for customers. So it's a trend that will continue over time. We have good profitability that allows us to invest in these core areas. But -- so that decoupling will continue over time. But it will be a gradual effort year in and year out.

Scott Mikus

All right. And then one other housekeeping item, Troy, what were the acquired sales in the quarter and contemplated in the guide for the Ultra acquisition?

Troy Lahr

The acquired...

Scott Mikus

The acquired sales from the Ultra acquisition in the quarter and in the guide?

Troy Lahr

Yes. I would say it's immaterial. I mean, look, we rolled it in. There was modest impacts to the guide from Ultra. We saw some puts and takes on the revenue side. When I think about Ultra, I would say that offset the civil changes that we saw, and that allowed us to really hold the guide across the board.

Operator

Our next question is from Seth Seifman with JPMorgan.

Seth Seifman

I guess first off, if you can just talk about the orders in the quarter. Should we think about the same type of bifurcation in terms of the order growth? It seemed like the orders were probably down kind of low double digits year-on-year. Should we think about -- were the Civil orders down significantly more than that. And is that kind of factoring into the change in the outlook?

Troy Lahr

Yes. I think that, that's generally right. I mean, I think we're continuing to see good strength in the national security business. Again, national security funded backlog was up nearly 10%. The National Security pipeline is up more than 20%. So that's really where you're seeing strength. Kristine highlighted some of the insights into the Civil business. I think that some of those pressures are easing. And I think that, that's reflected in the new updated guide for Civil, where we're talking now about flat to slightly down just given some of the macro environments that we see in the civil space. So I think it continues to be bifurcated with national security being the strength of the company and the business right now.

Seth Seifman

Okay. Okay. Excellent. And then maybe a little bit bigger picture, Horacio, and I apologize, I know that sounds like a super basic question. But just in terms of cyber, like I don't think anyone doubts that Booz Allen has some very superior cyber capabilities and also that there is huge demand for cybersecurity right now. But in terms of helping people understand if you're an investor and you're looking at Booz and thinking about exposure to cyber, helping to dimensionalize what that means in the portfolio right now and kind of where Booz Allen fits into the whole cyber equation.

There's a number of businesses in cyber, different stocks who are covered by software analysts who have very different growth structures and margin structures. And so when you think, okay, cybersecurity is an important trend and Booz Allen has a lot to contribute but to make sure that people's expectations are properly capitalized or properly set about what that could mean for the financial performance of Booz Allen. How should they think about that?

Horacio Rozanski

It's a great question. So let me describe our cyber business as essentially our most rapidly transforming business across the portfolio. If you go back a couple of years, our cyber business was largely a cost-plus business, largely labor-based. I cover the spectrum from full-spectrum operations to cyber defense across the entirety of the federal government and a commercial business that was coming along, but that was not a large portion of our growth opportunity.

If you look at our cyber business now and you take the snapshot, now this is a business that is already growing significantly, both at the top line and at the bottom line because it's really fundamentally changing to be a business that is a technology first, business and solutions first business, if you will. If you look at our large -- for example, Zero Trust platform, we were originally an integrator, and we were building tech that was in the middle was sort of closing gaps between the technologies we're integrating.

If you look at our Zero Trust business now, we're really an innovator building -- we're still building on best commercial technology in an open architecture where we can swap out technologies as they get better and worse relative to each other. But also, we are building on top of that a set of capabilities that allow us to almost sell that as a SKU just about. And so that is a fundamental change to the way we can actually execute and scale that business beyond our federal customers because it is very hard to sell it to sell it to anybody else the way it was sold to federal customers. And that is a big part of our cyber business.

And in addition to that, we are seeing all across our cyber portfolio, significant opportunities to innovate from -- again, like I said, from full-spectrum operations to the work that we do with the commercial markets where Vellox is getting traction, where Guile is -- as part of that is getting traction and where customers are looking to us to really help them close the gaps that they have right now, we all have, including our own infrastructure when it comes to defending against these SI power cyber attacks.

So we see huge growth, huge opportunity in a business that fundamentally transforming that at 1 level, it's an unrecognized world leader in cyber. Part of what we need to do over the coming quarters and years is to be able to dimensionalize it better in a way that you all can put a understand its value better. That is in the cars that is part of what we're working on. But again, part of the reason -- part of the power of Booz Allen is that while we build these amazing businesses, we integrate them with each other so that they can actually create internal synergies. So I'll give you a great example.

We're using what we know about cyber, on both sides of the ball, to really strengthen the products that we're building in our Defense Tech portfolio. And why is that important? Because if you're going to play at the edge, your products are going to get attacked by every adversary even before they leave the factory floor. And so we are bringing all of that know-how to ensure that our products can be trusted at the edge by all of our customers. And in some cases, when you're dealing, for example, with EW, they -- our DTG portfolio becomes the vehicle by which some of these Cyber products go to market. So I'm not sure if I'm fully answering your question the way you would answer, but this is why this is an area we see so much opportunity.

Operator

Our next question is from Noah Poponak with Goldman Sachs.

Noah Poponak

Troy, can you quantify what is the organic revenue growth range that's in your new full year guidance versus what that was previously?

Troy Lahr

Yes. I would say -- I can give you a framework here and then kind of let you triangulate and get to the answer here. But obviously, we changed the civil guide from down high single digits to now down flat to slightly down sequentially in the third and the fourth quarter. So you can kind of think about those changes and we said that Ultra largely offsets the civil. And then so we're still seeing growth in the national security and really no change.

So those are really kind of the puts and takes to the guide, and that should help kind of frame Ultra a little bit around how much is rolled into the guide. But again, it's not material to the overall picture of what we're guiding to for the year.

Noah Poponak

Got it. So in the absolute dollar range, same midpoint and Fed Civ and Ultra roughly offsetting.

Troy Lahr

Yes. Yes.

Noah Poponak

Is it -- when you say not material, it's just dimensionalizing the size of that business and the what you paid for it, that business still has a fairly sizable revenue base just to understand how much that means to you or can move the needle for you over time?

Troy Lahr

Yes. I would say we are very excited about the business. We continue to see strong double-digit growth. I think on a full year basis, there's good revenue volumes out of that business. The margins we said are well above 20%. We see a lot of core synergies and capabilities between our Defense Tech business and their business. We're bringing these 2 businesses together. So we kind of view these as an integrated defense tech business. And so that's why we're not sitting here kind of breaking out the numbers and kind of getting in the details.

But it's a very good business that we bought and we're very comfortable with the growth profile, the margin profile, as Horacio said, the culture is fantastic, fitting in well with us. and we like the technologies of what we see. So yes, I think it's good. It helps the business long term, and we're very optimistic about this.

Noah Poponak

And as you continue to evaluate M&A, is it pretty opportunity-rich just given kind of the raw number of companies out there? And then what's happened with valuations, I guess, in the defense tech vertical and is there a world or a scenario where we see you make a flurry of acquisitions, especially as you try to strategically pivot the business a bit? Or will it not be like that? Will it be slower and much more selective and you'll want to buy back stock as well?

Troy Lahr

I would say we continue to maintain a very balanced approach to the capital deployment strategy. I would say as it relates to M&A, we are being very methodical and strategic with our investments around these growth verticals in cyber and defense tech. We're investing internally, but then we're also being selective with M&A opportunities is the way I probably describe the outlook probably better than just commenting that there's a flurry. So what will be very strategic and methodical about it.

Noah Poponak

Great. Just last one, Troy, just the margins for the rest of the year, is there -- do the moving pieces create any substantial difference 3Q to 4Q? Or is it pretty level loaded the rest of the year?

Troy Lahr

Yes. I mean there's puts and takes. I don't want to get into quarter-by-quarter. I think directionally, you'll still continue to see Civil volumes as those come down relative to the first half that will impact margins. The investment is relatively balanced throughout the year. A little more seasonality. But quarter-to-quarter, not trying to guide one way or the other, third versus the fourth, but those are the puts and takes for the second half.

Operator

Our next question is from Jonathan Siegmann with Stifel.

Jonathan Siegmann

Maybe a big picture for you, Horacio. You managed the company through many election cycles, not with 1 -- 10 days from now, just not asking you to call the election or estimate the budget, but just maybe comment on what changes may happen or not happen after past midterm elections. And then specifically, just on this positive momentum on the outcome-based contracting, maybe comment on how bipartisan you think support is for some of those reforms would be appreciated.

Horacio Rozanski

Sure. I'll -- maybe I'll start with the second part and then try and answer your first question. I -- when you look at the NDA and the general support for the NDA, which has been consistently pushing towards outcomes-based. I think that the -- in general, these are bipartisan moves that I hope will stand the test of time because, again, going back to basics, this is not about who prefers what. This is about the fact that technology is evolving at a speed and with a scale that cannot simply be bought in the way things used to be bought in the past to set up these very long cost-plus contracts where you're trying to define every aspect on day 1 and making any change takes forever, doesn't work.

And I think, frankly, creating a stronger incentive for the defense industrial base, where it's the established players or the new players to innovate on a more constant and rapid basis, is good for the country, something we've been advocating and something I believe, based on all my discussions that is going to continue could it change in tenor a little bit and some of the dynamics and how it's actually done. It probably has to because things evolve over time. And as these new processes mature, they're going to get better, and then there's going to be some learning there. But I expect and I hope that, that is a longer-term trend than just 1 congress.

And then going back to the first question, I think we -- regardless of the outcome of the election, there's always -- one of the key questions is, is there going to be a budget this year and when is the budget going to be passed. And I don't think we can be in the business of predicting that us or anyone, right? I mean we've seen it where in the waning months of the Congress, they pass a budget. I've seen it where in the waning months of the Congress, they leave it to the next congress to do it.

And what we've tried to do is 2 things. First of all, we try to incorporate a variety of scenarios in our guide. But more importantly, we're focused on execution. We're focused on what we can control and we're focused on driving the transformation and investing for future growth.

Operator

And this will conclude our Q&A session for today. I will turn the call back to Horacio Rozanski for final comments.

Horacio Rozanski

Thank you. And thank you all for your questions and for being with us today. We spent a lot of time this morning talking about exceptional execution, the progress we're making on our products, our technologies and how we feel about the opportunities ahead I'd like to take a moment at the end of the call to recognize the incredible people that actually make all of this happen.

The people of Booz Allen are among the most talented and dedicated professionals anywhere in the world. they really do bring their best every day, not just because they love what they do, but also because they believe deeply in the missions that we serve and in making our nation better. And this sense of purpose is what makes Booz Allen special and what makes me grateful to come to work with such an incredible group of colleagues day in and day out.

So to conclude and to all my Booz Allen colleagues, I just want to say thank you. Thank you for your passion, for your dedication and for everything you do to improve both our company and our country. You feel my optimism about the future. And with that, thanks again for joining us, and have a great day.

Operator

Thank you all for participating in today's conference. You may now disconnect.