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ALK 2025 Q4 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2025 Fourth Quarter Earnings Call. [Operator Instructions]. Today's call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers' remarks, we will conduct a question-and-answer session for analysts. I would now like to turn the call over to Alaska Air Group's Vice President of Finance, Planning and Investor Relations Ryan St. John. Ryan St. John: Thank you, operator, and good morning. Thanks for joining us today to discuss our fourth quarter and full year 2025 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, Andrew and Shane. Several other of our management team are also on the line to answer your questions during the Q&A portion of the call. Air Group reported fourth quarter and full year GAAP net income of $21 million and $100 million, respectively. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted fourth quarter and full year net income of $50 million and $293 million, respectively. Our comments today will include discussion of Air Group reported results and forward-looking guidance compared to prior year pro forma results as if Alaska and Hawaiian were a combined company for the full periods referenced. Lastly, as a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release. Over to you, Ben. Benito Minicucci: Thanks, Ryan, and good morning, everyone. Before we dive in, I want to start by thanking our 30,000 employees for their efforts throughout 2025. Last year was a year of transformation where we laid the groundwork for the next chapter of Alaska Air Group. It did not come without growing pains, but we delivered bold initiatives, strengthen our competitive position, improved our relevance and set the stage for long-term growth under our Alaska Accelerate vision. Our employees navigated a lot of change last year, and I can't thank them enough for their commitment to helping us realize our long-term potential and for taking care of our guests every step of the way. My belief in our future has never been more evident in the last few weeks as we secured the largest aircraft order in our history with Boeing. This solidifies our growth through 2035, resulting in an outstanding order book of 261 aircraft, if all options are exercised. This now includes firm orders that will take our 787 fleet to a total of 17 aircraft supporting our goal of building Seattle into a world-class global hub with at least 12 destinations. I want to thank Boeing and Transportation Secretary Duffy for their support and our commitment to being the country's fourth global airline. While 2025 did not result in the financial returns we had initially laid out at the start of the year, we strongly delivered against our Alaska Accelerate vision, ticking off many major milestones with several of them outperforming expectations. By many measures, 2025 was a major success for our company. We firmly control the areas within our control. Synergies finished ahead of plan for the year, notably on the network side as the power of the combination of Alaska and Hawaiian was evident all year long. Hawaii was by far our strongest region in the network on a year-over-year basis, demonstrating the benefits of the utility the merger has created. We embarked on our journey to build Seattle into a world-class global hub launching flights to Tokyo and Seoul, and we're thrilled to begin service to London, Rome and Reykjavik this spring, 3 iconic European destinations that elevate Alaska's global relevance. Our unified loyalty program, Atmos Rewards, went live in August, creating a single platform for engagement and brand reach. We launched an industry-leading and premium credit card that saw 75,000 sign-ups in just 4 months, exceeding our expectations by 3x, demonstrating the power of the industry's best loyalty program. Importantly, we achieved a single operating certificate in October, just 13 months post merger, an impressive accomplishment and the hard work behind the scenes was completed for our combined passenger service system with operational cutover scheduled for April of this year. This will deliver a seamless, cohesive guest experience, eliminating friction from operating dual systems. These accomplishments demonstrate our ability to execute a complex integration while transforming ourselves into the country's fourth global airline. While many things went exceptionally well last year as we rolled out a slew of new initiatives at a record pace, we know there is room for improvement. Our goal is to build world-class technology infrastructure. The two outages we experienced last year were painful for our guests, employees and financial results. Corrective actions are underway and will continue throughout the year, supported by third-party experts as we invest in both near-term fixes and long-term sustainable solutions. Turning to 2025 results. For the fourth quarter, we delivered adjusted EPS of $0.43 and for the full year, adjusted EPS of $2.44 both ahead of our revised guidance put out in early December. As we had shared at the time, results were impacted by the IT outage, elevated fuel costs and the impact from the government shutdown. In the end, we've delivered a better cost result and benefited from slightly lower fuel in December than anticipated. Given our conviction in Alaska Accelerate and our ability to generate $10 of earnings per share by 2027, we executed $570 million of share repurchases when our stock price was below its long-term potential. This puts us more than halfway through the $1 billion buyback authorization, we unveiled at the end of 2024. As we look ahead to 2026, our overarching focus is on harvesting the investments we made in 2025 and driving margin expansion as we progress toward our goal of $10 per share by 2027. We expect full year earnings per share to be in the range of $3.50 to $6.50, representing a meaningful improvement over 2025, this reflects continued delivery of incremental earnings from our $1 billion Alaska Accelerate plan, the benefit of lapping transitory challenges experienced in 2025 and the trajectory of the macroeconomic environment and industry capacity growth. At Air Group, we feel the momentum building and accelerating in 2026 as our bold strategy comes to life. Our team is inspired and motivated to win. We have a winning business model and are continuing to configure it to meet the market where it's headed, more premium experiences, more international and fierce loyalty. And with that, I'll turn it over to Andrew. Andrew Harrison: Thanks, Ben, and good morning, everyone. Today, my comments will focus on fourth quarter and full year results, along with our outlook and trends for 2026. For the fourth quarter, we delivered total revenues of $3.6 billion. That's up 2.8% year-over-year on 2.2% capacity growth. This resulted in unit revenues up 0.6%. I'm proud of the team for delivering positive unit revenue performance considering we had one of the industry's most difficult year-over-year comparisons in addition to contending with a government shutdown. As we shared in our investor update back in early December, the government shutdown impacted fourth quarter earnings by approximately $30 million or $0.15 of earnings per share. Bookings were solidly positive going into the heart of the shutdown, then went negative on a year-over-year basis for a short period and rebounded in early December, back to positive territory to finish the year out strong. For the full year, we delivered total revenues of $14.2 billion, up 3.3% year-over-year on 1.9% capacity growth resulting in unit revenues up 1.4%. This performance reflects our continued leadership in unit revenue growth, which we believe will finish the year ahead of the industry average, illustrating the benefits of our Alaska Accelerate synergies and initiatives. As has been the case all year, we continue to see strong demand in our premium cabins. In the fourth quarter, First and Premium Class revenues were up 7.1% year-over-year, outperforming Main Cabin by 9.5 points. Premium revenues represented 36% of total revenue, up 1 point from Q3. Main Cabin revenues were down 2.4%, which is a modest improvement versus the third quarter. The fourth quarter has a much harder comparison than the third quarter, so the improvement in Main Cabin performance is encouraging as we look to 2026. For the full year, premium cabin revenues increased 6.7% and outperformed the Main Cabin by 7 points. We are excited to see continued growth in our Premium Cabin revenues and now have 86% of our 218 Boeing 737 aircraft seat retrofit complete. All that remain our 31-737-800 aircraft. As a reminder, all these retrofits will be finished in time for selling into the summer travel, enabling us to sell all 1.3 million incremental premium seats across our network, which will help us fully realize $100 million in incremental profit we outlined as part of Alaska Accelerate. Managed corporate revenues in the fourth quarter were up 9%, notwithstanding the government shutdown and related flight reductions, a 2-point quarter-over-quarter sequential improvement. I'm also pleased to report that our share of corporate travelers in our business class cabins on our Seattle to Tokyo and Seoul routes is about to cross over our fair market share demonstrating that we have successfully tapped into the lucrative international corporate revenue pool of the West Coast that we previously did not have access to. Forward-looking business bookings for 2026 are also very encouraging. Held managed corporate revenue on the books is up 20% year-over-year for Q1, with significant increases in the technology, manufacturing and financial services sectors. Turning to loyalty. The launch of Atmos Rewards, our new single loyalty program, including our new premium credit card, the Atmos Summit card drove unprecedented increases in absolute card spend and new card members. In the fourth quarter, loyalty revenues, which include bank cash and member redemptions were up 12% year-over-year. For the full year, bank cash remuneration was $2.1 billion, up 10% year-over-year. Turning to credit card. Acquisitions for the full year finished up 17% year-over-year with a significant portion of those coming after the launch of Atmos in August. Our new premium card, the Atmos Summit card has been a resounding success. To put it in perspective, in Q4, we had record card acquisitions for any single quarter in our history and nearly 1/4 of those new acquisitions were for the Summit card. This is particularly important because premium cardholders are spending 2x more than holders of the base credit card, demonstrating the value this new card product has brought to our portfolio from these high-value travelers. The demand for new global benefits that come with the card when combined with our global network expansion was truly amazing. Importantly, in the fourth quarter, nearly 60% of all new card accounts came from outside our core in the Pacific Northwest with 25% of new accounts coming from California. Our thesis that the new program and our new card products would appeal to a wider audience has proven true in the first 4 months post launch, helping us expand our reach. The Atmos Rewards business card also had an impressive quarter. New accounts are up more than 185% year-over-year, benefiting from the new Atmos for business platform we launched, which is aimed at making travel for small and medium businesses more integrated and seamless. Looking forward to 2026, as Ben said, this will be a year of harvesting and optimizing the investments we made in 2025 with a focus on our guests and other key touch points. These include the premium seat expansion I already touched on, which will be complete by spring, offering an overall better experience for our guests and higher revenue generation across our fleet. We're rolling out expanded lounge footprints and new food and beverage program and introducing curated onboard experiences for international service. We believe our new international service will be measured amongst the best. We now sell in 6 foreign currencies and recently unveiled our Japanese, Korean and Italian language-based websites, helping us drive point of sale outside of the United States to support our new international service. Starlink Wi-Fi installation is already underway on the Alaska branded fleet with 24 aircraft complete. Adding these 24 to the existing Hawaiian branded fleets, a total of 66 or 16% of our aircraft are now equipped with Starlink. We expect to have 50% of the fleet online by the end of 2026 and 100% complete by the end of 2027. We will offer this for free to Atmos reward members, and we believe Starlink is a clear differentiator as it's the fastest Wi-Fi in the sky. Turning to our outlook. Growth will be modest this year given only six 737 deliveries as we await certification of the MAX 10. We'll also take one 787 delivery and four Embraer 175s. The MAX 10, when it's delivered, will add 5.5% more seats and increased first-class seats by 25% when compared to the MAX 9. We expect first quarter capacity to be up 1% to 2% with full year capacity projected to be up between 2% to 3%. Given that the demand environment is still recovering from the economic shocks experienced in 2025, we believe our low growth rate is prudent given the current backdrop. 100% of our net growth is represented by new long haul out of Seattle, and we have moved our domestic capacity around to focus on higher growth in both Portland and San Diego, which are geographies, our brand, product and loyalty base is poised for further growth. As Ben mentioned, we are also eager to launch flights to London, Rome and Iceland. All 3 new markets are selling extremely well. Not only have we turned on network access beyond Tokyo and Seoul, but we've also recently enabled access beyond all 3 European cities. We're also finalizing regulatory approvals for 17 code-share destinations beyond London, which would bring us to 55 total destinations and enable us to take our guests to all the high-demand cities in Europe. Additionally, we were awarded more favorable departure times on our Seattle to Seoul inch on route, which will improve connectivity options deeper into Asia effective late April of 2026. Advanced bookings across the network have been robust since we started the year, well into the double digits since January 6. We have seen several of the highest booking days in Air Group's history the last few weeks. The falloff in bookings and yields last year began the first half of February when demand was hit hard, so we expect sequential improvement each month throughout the quarter. First quarter industry capacity is also projected to remain in line with macroeconomic growth. With strong demand momentum and a constructive backdrop, we expect solidly positive unit revenue growth in Q1 on the back of the toughest industry comp. Recall last year that even with the shock in demand, our first quarter unit revenue still finished up 5%. I want to close by stating what might seem obvious. 2025 was a monumental year for the commercial team at Alaska Air Group with respect to systems integration, synergies and guest benefit unlock. Not only did our synergies and initiatives finished the year slightly ahead of plan, but we also built the new foundation for our commercial engine and are just getting started on maximizing its potential. There is plenty of optimization and maturation opportunity within initiatives that have already been rolled out. And we unveiled dynamic pricing later this year and begin rolling out our new O&D revenue management system in 2027. While 2025's progress was slowed by macroeconomic challenges and integration friction, bookings momentum has been building since last July, and we are off to a strong start to the year. Managed corporate business is looking strong. We continue to roll out new premium seats for sale, hub banking efforts continue to bear fruit, and we're excited to land our first scheduled service in Europe. We are well on our way to realizing the full $800 million in incremental revenue by 2027 that we laid out in Alaska Accelerate. Importantly, our guests will begin to experience the full breadth and depth of what a seamless and integrated airline can offer, both domestically and now globally because of a single passenger service system, single loyalty program with seamless benefits across both brands, full oneworld unlock. Co-location of airport operations and completion of construction in the Seattle and Portland lobbies, a single website and app reflecting two brands and alignment of Hawaiian and Alaska guest policies along with enabling technologies. We are now poised to see all the benefits envisaged by Alaska Accelerate come to life. And with that, I'll pass it over to Shane. Shane Tackett: Thanks, Andrew, and good morning, everyone. As our fourth quarter earnings indicate and as Ben and Andrew both shared, we exited 2025 on a strong trajectory, which has continued to strengthen further in the first 3 weeks of the year. At this time last year, we were coming off of our Investor Day, and we're experiencing a similar historically strong demand backdrop, which felt like a very constructive start on our path to $10 of earnings per share by 2027. Ultimately, the macroeconomic backdrop in 2025 played out differently, reducing revenues by more than $500 million and underscoring that our industry remains a volatile one. Changes can occur quickly in either direction and that direction has been increasingly positive since September of last year, trends which were only briefly interrupted by the government shutdown. While slightly below our guide, which was snapped a couple of weeks after our full flight schedule was restored when the government reopened, our fourth quarter unit revenues finished closer to our original plan versus any other quarter in 2025. Demand rebounded quickly post shutdown, flattening modestly through the holiday and has since accelerated further with current bookings now improved on a year-over-year basis on difficult comps versus January and February 2025. Given our 2026 capacity growth is in line with forecasted overall economic growth, we expect this trend can continue, hopefully backfilling the entire macro-driven revenue reduction from last year. This strength, along with further synergy and initiative execution is expected to drive healthy earnings expansion this year. For the fourth quarter, we reported adjusted earnings per share of $0.43. $0.33 above the guidance we released in early December. Roughly half of the beat was attributable to better nonfuel cost performance with the other half coming from a combination of lower fuel in December as West Coast refining margins normalized plus a lower tax rate due to higher earnings. For the full year, we reported earnings per share of $2.44 with an adjusted pretax margin of 2.8%, which is down about 1 point compared to 2024 on a pro forma basis. In addition to the macro-driven revenue gap to expectation, our full year earnings were also impacted by approximately $100 million of transient items we do not expect to recur moving forward. Despite the headwinds from macro and these transitory items, we generated $1.2 billion of operating cash flow for the year. Our total liquidity inclusive of on-hand cash and undrawn lines of credit stood at $3 billion at year-end. Debt repayments for the quarter were approximately $130 million and are expected to be approximately $240 million in the first quarter. As Ben mentioned, we repurchased $570 million of ALK stock in 2025, including $30 million of repurchases in the fourth quarter. With these purchases, we more than offset dilution and reduced our diluted share count to 117 million shares, down from 129 million shares last year and well below pre-pandemic levels. We expect to continue to execute share repurchases in 2026 to at least offset dilution. Our debt-to-cap ended the year at 61% with our net debt-to-EBITDA at 3x. Our long-term target remains 1.5x, which is achievable as earnings expand, though could shift to the right slightly given macro factors and our share repurchase activity in 2025 that modestly slowed our debt repayment cadence. Fourth quarter unit costs were up 1.3% year-over-year ending the year below guidance and on a trajectory in line with our original plan. As we pass integration milestones, we anticipate we will increasingly be able to fully focus on running excellent and productive core airline operations allowing us to return fully to our historic strength of cost discipline. For the full year, unit costs were up approximately 4.7% year-over-year on just 1.9% capacity growth. Given this capacity was 0.75% less than our original plan and given a nearly 2-point cost headwind from market-based labor deals, I view our overall cost performance as very strong. This was partly helped by the unlocking of early cost synergies from the merger. Turning to our outlook. First quarter adjusted earnings per share are expected to be a loss of $1.50 to a loss of $0.50, while full year adjusted earnings per share is expected to be between $3.50 and $6.50. First quarter earnings per share is expected to be approximately flat year-over-year, which would mark another sequential improvement towards earnings expansion. With planned CapEx of $1.5 billion, we expect to generate positive free cash flow this year. Our guidance range is wider than normal, but as I noted at the top of my remarks, our industry remains volatile. For further context, our range generally assumes the following: That we deliver on synergy and initiative value as we did in 2025 that we lap onetime issues that impacted earnings this year, and the low end of the range would require a deceleration of current booking strength due to macroeconomic factors or supply-demand imbalances in the industry or there is extreme price pressure on fuel. And the high end of the range can be achieved if current demand trends hold and fuel prices steady with normalized refining margins. As we talk today, the macro backdrop, bookings and overall supply side of the equation look quite positive. But fuel has been volatile in January. And for context, every $0.10 change for the full year in fuel price translates to $0.75 of earnings per share. We remain committed to driving $10 of earnings per share. This requires that we execute on our $1 billion of profit unlock, which we are progressing well on and that the macro backdrop looks as it did when we first set that goal. We are excited to see how 2026 plays out to fully execute year 2 of our Accelerate plan and to deliver on our commitment of generating durable financial performance for our people and our owners. And with that, let's get to your questions. Operator: [Operator Instructions] And our first question comes from Duane Pfennigwerth from Evercore ISI. Duane Pfennigwerth: Just on the increase in managed corporate travel, that 20% number, what's interesting about that is the comps aren't easy yet. I think that's more of a late Feb, March event. So how do you interpret that 20% growth? Do you think this is catch-up from travel that's deferred from the fourth quarter? Are there just differences kind of seasonally year-over-year? How do we think about that? Andrew Harrison: Duane, I think a couple of things. It's sort of in general, up in line with bookings. What we've really seen on the managed corporate side is driven by volumes. But the other thing I'll just tell you is that I think as it relates to technology and some of those industries, we've just seen a real significant bump. I also think that what we're starting to see is the fruits of our labor as it relates to our expanded network footprint global. We're getting more and more penetration into our corporate contracts. And so I think it all stems to what we've been working on is to become more relevant for the corporate traveler. Duane Pfennigwerth: And then my follow-up is just on systems. You rattled off a lot of positives. And I just wanted to check with you, are those all in the bag? Or are there specific integration milestones from a systems perspective that you expect as we think about 2026? Andrew Harrison: Thanks, Duane. What's really exciting on the guest-facing systems, we cut over in October for all flights beyond April '22 on a single PSS. The last major milestone is actually in April where we people start flying on the new PSS. But other than that, all major guest-facing commercial systems, whether it's loyalty and all the rest of it are all single and in place now. So that's why we're very confident that our guest experiences in 2026 will be materially smoother and more seamless than they were in '25. Operator: And our next question comes from Conor Cunningham from Melius Research. Conor Cunningham: Maybe we can start off just by the guide for '26 in general. So I think it's pretty clear at the high end on how you get there and if demand remains here and fuel normalizes, all that stuff, it's pretty easy to get to. But just trying to understand the downside a little bit better. You cited macro factors, but if you could just talk about how that could play out for you if the low end of the range was actually in play. Is it really more of an industry dynamic? Or is it macro? Just how do you think about the risks in general? Shane Tackett: Conor, it's Shane. Yes, you actually just answered it at the very end. I think -- the two things that really could take us to the low end of the range in our mind is either a step back on the macro side, which we're hopeful doesn't happen and we're not expecting, but it did happen last year. And so we're a little bit informed by last year's experience in terms of putting a guide out for this year or we just saw fuel prices spike. And just for reference or context, $0.10 of fuel price increase for the year is $0.75 of earnings. So $0.20 fuel price increase could take us down there, all else equal. Again, we're not expecting that, but just given the volatility in the industry recently, we thought it was the right thing to do to widen the range a bit and share more details about why we would approach the low end. All of the things that are in our control, synergies initiatives, running a great operation, lapping some things that happened to us last year, we're going to execute really, really well, and we're confident about that. Conor Cunningham: Okay. Okay. And then, Shane, maybe sticking with you. Just -- so in the past, you've talked about like 4% to 5% capacity growth. And then in the context of that, it's like flat unit revenue. I know you're not giving unit revenue trajectory, but just hoping you could talk about the building blocks here because the way that I think about you're growing 2.5%, I assume you're back to hiring some you have some investments that are in place, but you also have cost synergies. So if you could just help with the trajectory of costs throughout the year, I think that, that would be helpful. Shane Tackett: Yes, sure. So a couple of things. One, we did in the middle of the year, have a couple of large sort of step-ups. This is in '25 in certain categories we had -- and we mentioned this in the script, market-based labor deals. We're not fully lapped there. So we've got to get through the first and second quarter to fully lap those. And then we've talked about this thematically for a few years now, real estate costs continue to be sort of the highest cost CAGR in the P&L. And that's because of all the investments that were necessary but are being made in a lot of our core hubs. And we're excited about the spaces that our guests are going to get to experience as those come online, but there's a cost reality that comes with it. A lot of that comes in the middle of the year, so it hit us in Q3 and Q4, and we've got to lap those as well. So I think with low growth in the first quarter, which is the right thing for us to do with our seasonality and lapping those were the most challenged on a unit cost basis in Q1 and Q2. And then as we get to grow a little bit more into the summer and the latter part of the year and lap those, I think we're going to have a really nice cost trajectory out of the end of the year as well this year. Operator: And our next question comes from Jamie Baker from JPMorgan. Jamie Baker: So my first question, I guess it kind of builds on Duane's second question on integration, Slide 9. You note that the selling cutover is behind us. That represents the most significant phase. I completely understand all that. What's not clear to me is what remaining risk is there? I mean you mentioned being able to unify guest experiences after April. What exactly is that? Again, the goal is just trying to assess PSS risk from here. Andrew Harrison: Jamie, so of course, my technology team are much more wound up, but I have full confidence in where we are. But essentially, every ticket sold after October beyond April was on Alaska, single systems and all the rest of it. So all that really has to happen on April 22 is that when people actually start flying those flights, our systems need to point to the Hawaiian operational systems versus Alaska systems because they're not all integrated. But the team is all over it. We've done this before. I have full confidence, and we have good plans in place. So from a revenue and a commercial perspective, all things going well, we're in a very good place for 2026. Jamie Baker: Okay. That's helpful. And then second on Atmos, when we think about I'm personally very disappointed with the overall level of industry disclosures. But when we think about rank ordering the industry's loyalty programs by profitability, where do you think Alaska ranks? And what gives you the confidence in your answer? Andrew Harrison: Thanks, Jamie. I think -- well, there's 2 sides to loyalty. Obviously, there's the guest perception of loyalty. And then, of course, there's the airlines' economic reality. Both of those are critically important. I can unequivocally say we're at the top. I believe based on what we've heard from industry experts, banks and others that we're in a really good place. I also know that we win year after year on guest generosity. And we are very purposeful about how we manage our loyalty program that the value of points that we provide to our guests. We don't depreciate and mess with materially. And the good news is that we're always growing. We're expanding our network. We've now got an international network and the platform and the Hawaii franchise and the network there. So personally, what we have that others do not have is a real step change in our underlying business that's only going to, I think, attract more loyalty and the new program is even more expansive and generous. Operator: And our next question comes from Tom Fitzgerald from TD Cowen. Thomas Fitzgerald: I was wondering if you could touch on some of the growth in San Diego, both from a transportation perspective and the loyalty program sign-up and how that's been absorbed? Andrew Harrison: Yes. Tom, actually, really good. I think -- and one of the key things that my team is very aware of as we move into '26 is with the increased utility, we fully expect and are seeing increased membership and most importantly, increased card sign-ups. We're working hard with the operations teams to make sure that this growth is seamless. But overall, all the leading indicators about what you would expect to see from growth, which is share, share of corporates, card sign-ups, loyalty sign-ups, we're seeing come to pass. Thomas Fitzgerald: Okay. Great. That's really helpful. And then just one for Shane. I'm wondering if you could, I guess, a, just touch on maybe unpack some of the drivers of the nonfuel cost beat and the execution there in the fourth quarter. And then maybe just an update on some of the IT overhaul investments and the improvements in IT hygiene coming down the pipeline in '26. Shane Tackett: Thanks, Tom. Yes. Yes, we -- and I obviously covered this in the prepared remarks, but really good performance by the team across the board in terms of cost management and focus in the fourth quarter as we exited the year. The good news, I think, from my perspective is it was in many, many categories. It wasn't one single area that we just sort of got an unexpected benefit out of. So as we crossed over getting our single operating certificate, it really is the moment that we're able to go and put more of our full focus on running really efficient, effective quality core airline operations. And I think the fourth quarter is just evidence of what we can do when we're able to really focus on running the airline well. So we had benefit versus our guide or forecast internally in wages and productivity on the maintenance side of the business and selling and distribution expenses. And anyhow, it's just a lot of like little things that added up to a nice beat. So well done by the leadership team and everybody else at the company in the fourth quarter on cost. On the IT side, yes, we're making headway on investing in resiliency and redundancy. We've got a lot of sort of detailed plans ready to execute in the first quarter here, and we've spent a good amount of time in the fourth quarter, understanding exactly what we need to do. And we're on our way of executing all of that. And all of the investments are already contemplated in our guide for next year, both the CapEx side and the EPS side. Operator: And our next question comes from Andrew Didora from Bank of America. Andrew Didora: Shane, maybe a follow-up there on -- just on costs. I guess you are making a change to CASM. Can you maybe talk about -- the way I understand it, there's still some profit share that's going to be in there. Could you maybe just talk to the change you're making, why you're doing this now? And I guess more importantly, does this change like influence the way we should think about kind of your CASM trajectory versus -- in conjunction with your capacity growth? Any thoughts around that would be helpful. Shane Tackett: Yes. Yes, thanks. I think Andrew, you're sort of referring to the restatement of CASMex to remove profit sharing. Honestly, it's just become kind of an industry convention that we were a little bit of an outlier in. So we decided to adopt this year. We just had to choose a time to do it. It's not going to change our focus on driving cost performance in the business and margin performance in the business at all. There isn't really any other "profit sharing in the adjusted number." There are some incentive payments that we have for customer satisfaction and for operational performance that employees can earn that remains in our core CASM because it's not really a profit sharing metric. So it's really just like the rest of the industry has done, remove the volatility of year-over-year profit sharing from adjusted CASMex. Andrew Didora: Got it. Okay. It was that portion that's remaining that I was referring to. Okay. That's helpful. And then just, Shane, you alluded to this at the end of your prepared remarks, but just the $10 in 2027 EPS, you obviously still express confidence in at least the building blocks to get there. I'm not asking about '27. I guess, can you maybe walk us through what we need to see happen in 2026 in order to make this goal seem much more achievable today? Benito Minicucci: Andrew, I'll jump in. It's Ben. Well, look, our thesis hasn't changed from our December 24 Investor Day. What we laid out under Alaska Accelerate was a plan to unlock $1 billion of pretax with the integration. And as Andrew mentioned, we're well on track, slightly ahead of plan on that. And that is all the network synergies, the loyalty, the premium leaning into international, the elements where the big airlines are getting a lot of the profit accretion from. So these are things that are coming, they're harvesting for us in the next couple of years. And -- but for the -- as Shane laid out, the macroeconomic volatility that we saw last year and a little bit of the pressure on fuel that we're seeing from West Coast refinery margins, we are on track. And I am as convicted and as committed as ever to $10 of EPS to that goal. And just that's how we see it. And if this trajectory continues, we're off to a good start in '26. If this trajectory continues, then we'll be solidly on the right-hand side of our guide. Operator: And our next question comes from Brandon Oglenski from Barclays. Brandon Oglenski: So Ben, I asked a similar question from your competitor this week. But effectively, we didn't see any industry revenue growth in 2025, even though GDP was pretty positive. And I think the prevailing thought here is that industry pricing has really been the culprit. It's not underlying demand that's the problem. Would you view that similarly? And just given the changes we're seeing on the low-cost side with capacity coming out, do you think that's going to be where the industry can get some traction again on yields and margins? Andrew Harrison: Yes. I'll take this one, Brandon. I think it was one of capacity outrunning economic growth in 2025. I think it was clearly documented in the third quarter. That was very significant. And as you fully aware the multiple shocks to demand throughout '25 were significant. I think as we look to 2026, I think as you look out and just read the commentary, I think there is a much closer alignment between economic growth and capacity growth. And as you referenced, there's a lot of carriers that are actually reducing. So I think overall, I think we're in a better position in going into '26 than we were in '25 as it relates to GDP aligning more closely with the capacity growth for the industry, which should then, therefore, be positive on both the unit revenue side and as we've been talking about some of that lost economic demand coming back in 2026. Brandon Oglenski: I appreciate that, Andrew. And maybe as a follow-up, too, I know you guys were focused on maybe moving more domestic flow through Portland and restructuring Seattle for more international connectivity. How is that progressing? Andrew Harrison: Yes. Thanks, Brandon. We -- it's one of those exciting things you get to do when you look at your network and one of the wonderful things of having a Portland hub 130 miles down the street from Seattle is we're able to focus both hubs to collectively take our local and connecting traffic across our network. We continue to see significant increases in flow of volumes through both those hubs through this. And of course, Seattle is very constrained, and we're also able to make room for those local passengers that we need to serve out of Seattle when we can put connections over to Portland. So I think there's going to be a lot of work -- further work to be done this year, but it's a real gift to be able to have both these hubs to do what we need to do with. Benito Minicucci: And Brandon, maybe just to maybe to summarize all that. I think where you're seeing strength with the legacy carriers is in the premium space and in the international space. And if you look at our strategy under Alaska Accelerate, that's exactly where we're leaning into. We're adding more premium seats. Andrew mentioned 36% of our revenues are from the premium space. Our international, we have 2 flights today. We're going to 5 up to 12. We're really leaning into the space where we can capture some of that revenue that's really been strong over the last several years. So this is why Alaska Accelerate is beginning to work. It is working, and we're confident moving forward on that. Operator: And our next question comes from Scott Group from Wolfe Research. Scott Group: So I know you're guiding to solidly positive RASM in Q1. I'm just hoping to get a little color on like what that means. I think back like last January, you said it would be high singles in Q1, it ended up mid-single. So like the comp gets obviously a lot easier. Like if we just take like current trend and just assume it holds and then get the easy comp, like what could this mean for Q1 RASM? Andrew Harrison: Scott, so a couple of things. I think we achieved, I think it was 5% unit revenue increases in the first quarter of '25, which was industry-leading, notwithstanding the massive shocks that happened there. We still have about 1/3, about $1 billion of revenue to come. And of course, that's going to be influenced by the continued strength and growth in both demand, both leisure and domestic. So I think -- and again, Shane is not allowing me to give any guidance here, but the reality is that if continue -- conditions continue, this could get better and stronger. And I think the network dynamic, what we're seeing and I think the opportunity we have, especially in the premium cabin, I think we have more upside there could only get better. Scott Group: Okay. And then, Shane, just sort of like big picture, like you're saying -- you're saying solidly positive RASM in Q1 and flat earnings, but then earnings for the year are at the midpoint kind of double. Like what changes from Q1 to the rest of the year to see such a massive sort of change? Is it just the comps? Just some thoughts on that thought. Shane Tackett: Yes. No, I appreciate the question, Scott. A couple of things, and I will answer specifically to what's going on in Q1 this year for us. But I think it's important to remind folks, we are the most seasonal airline. I think the second most seasonal airline prior to our merger was Hawaiian. And so Q1 is going to be the toughest quarter for us. We're committed long term to still getting to breakeven in this quarter at a minimum. I think the core Alaska network was really close to that last year. And really, our cost profile sequentially coming out of Q4 into Q1, it's -- the costs are pretty flat sort of quarter-over-quarter. Like I had talked about, we have to lap these labor deals and the real estate step-up. And really, had we seen the demand environment we're seeing today for the entire Q1 booking window, we wouldn't be talking about a flat result. We'd be talking about a material improvement to year-over-year performance in the first quarter. And so it really is ultimately how quickly this macro backdrop can recover. And had it recovered a little bit sooner than it ultimately did, I think we'd be in a different place in terms of the year-over-year comp. But again, if you sort of just take what's happening today forward and then have to take it up from today forward, the rest of the year looks really, really good. And I'll just remind everybody, you guys know this, but the biggest sort of missing revenue quarters for us last year in the whole industry were Q2 and Q3. And so that's really where we expect to see the biggest expansion of earnings this year. Operator: Our next question comes from Atul Maheswari from UBS. Atul Maheswari: I have a question on fuel first, which is like do you have a view on what's driving the volatility in the West Coast fuel, like what's driving the elevated prices? And what really needs to happen for some of the spreads to come down? And given all the volatility that we're seeing in the West Coast fuel, what can you do to reduce the reliance and how quickly can that be achieved? Shane Tackett: Yes. Thanks, Atul. We do have a view on this, and it's pretty straightforward. We really need the West Coast refineries, particularly in California, to stabilize. They just are not up and operating consistently enough and not operating at the level that they did for the last 23 years that I was at the company before the last 2 where it's really become very volatile. And so that's what we need. That's the driver. It's all on the refining margin side of the business. Some just sort of, I think, good facts for folks to understand. We get about 50% of our fuel is exposed to West Coast and 25% is really in Hawaii, and that's coming out of Singapore, and that's the lowest fuel all-in cost, I think, that you can get in the industry. And then we get 25% from the rest of the country, call it, U.S. Gulf Coast types of pricing. So we're about half the fuel bill is exposed to the West Coast. We do need to see this volatility go away. And I think, by the way, it's not just Alaska, it's every airline that needs to see this over time and guests up and down the West Coast. So we're going to increasingly work with local communities and probably federal agencies to see what we can do to ultimately help smooth out the frequency with which the refineries come offline. And in addition to that, we need to bring more fuel supply into the West Coast that's not reliant on the refineries. And we're working to do that in our biggest hubs, but that is a longer-term initiative. It's probably a 2-year sort of initiative to get that in place. But ultimately, we're going to be able to, I believe, move back to parity, which we have to as an industry on the West Coast in terms of all-in fuel prices. Atul Maheswari: Got it. That's very helpful. And then as my follow-up, assuming you do the midpoint of the guidance for this year, which is, say, call it, $5 in EPS, then in that scenario, is $10 in EPS for 2027 still in play? And if so, can you please give us a bridge to go from that $5 to the $10. And I think that will be helpful for all of us to understand how reasonable that $10 estimate is? Shane Tackett: Sure, Atul. I'll not fully verbat and repeat what Ben said. But yes, it's still in play. And I'll just step back and sort of remind people of the high-level math that got us to $10. We started with our 2024 result. We normalized that for the fleet grounding that had happened in the first quarter of that year. And then we added $1 billion of profit unlock from our Alaska Accelerate plan, which we're on track to outperform at this point over the 3-year period. And that really got us above $10. There was some buffer. We've never sort of shared the buffer. We're not going to share that today. And then the other underlying assumptions were that macro organic revenue growth in the industry that we were exposed to and everybody else was exposed to roughly offset the cost growth of the company. And that's how we got to above $10. Fuel was roughly what it was back in '24 as we exited '24. That's the underlying assumptions. All that's really gone negative on us is the macro backdrop, and it looks like it's coming back. And if it comes back fully, and we get all of the $500 million or $600 million that we were missing out of last year, plus a little bit of macro growth on top of that, which should have naturally been happening in '26, '27. By '27, we are back into $10-plus range. So we're in month 13 of a 3-year plan, way too early for us to be saying we can't achieve this. We wouldn't say that anyway. We're committed to this number. And I think owners and our employees should expect that we go and achieve $10 ultimately. That's the right way to be thinking about driving the business aggressively forward. So we're super committed to it. We've got a lot of year left before we know what happens in '26 and what the setup for '27 is. But we're optimistic and we're going to go drive the synergy and initiative and the controllable piece of this extraordinarily hard over the next 2 years. Operator: Our next question comes from Catherine O'Brien from Goldman Sachs. Catherine O'Brien: So not to be harping on the 2026 EPS range, but I just wanted to clarify on what drives the midpoint. It sounds like for the high end, you just need demand to stay on the current trajectory and I guess fuel will come down a little bit from where we are today. So at the midpoint, does that also entail a step down in the macro or maybe a flattening of the acceleration you're seeing? Or is that current macro plus higher fuel than where you'd be at the high end? Shane Tackett: Thanks, Catie. You guys are good at your jobs. I don't -- we're trying to be as clear as we can, but also acknowledge it's a volatile industry, and we're in January. And so we're really, we really like the current setup and the demand feels very good right now. And we're -- we expect and hope that it maintains over the rest of the year. But I'll be super clear. The midpoint is essentially 2025 EPS, lapping transient issues that should not happen to us again that did impact earnings last year, delivery of incremental synergies and initiatives and a little bit of recovery in macro. That's how we get to the midpoint. And we're right now, the macro line is above that modest recovery scenario, but it needs to hold to get above the midpoint. But that's essentially how we got to the midpoint. And we feel really good about the setup as we sit here and talk to you today. And hopefully, in 90 days, we feel even better about it. But anyhow, that's the -- those are the elements that you can sort of use as you think about the way to bridge '25 to '26 midpoint. Catherine O'Brien: That makes sense and feels prudent. Maybe just one more quick one on loyalty. I know you referenced that some of the initiatives are running ahead. It feels like that $150 million loyalty might be conservative just given the success of the joint program and new loyalty card or new credit card. I guess like is that what you're seeing? And relatedly, of the 60% of new premium card sign-ups outside of the Pacific Northwest, I understand a decent amount of that was in California, but where is the rest? Andrew Harrison: Catie, yes, I from where I sit today and what we're seeing, I do believe that there is a lot of opportunity here. I just -- this is just a throwaway anecdote, but just our 1 million miler base in the last 12 months has increased over 30%. You only get that from flying on our aircraft. We're just seeing across the Board a step change. And the other thing I'll add is the Bank of America have been an amazing partner. They understand that we need to grow. They have leaned in with us and leveraging the depth and the breadth of their brand and their network, along with our increased brand and network, it's just a fantastic result. So I look for good things this year. Operator: And our next question comes from Savi Syth from Raymond James. Savanthi Syth: Shane, I might try to bring everything together on the cost discussion that's been done so far on the call. And just trying to understand very simplistically. Historically, you've talked about growing 5% to keep unit costs flat. This year, you have kind of some headwinds and tailwinds kind of in terms of just initiatives or kind of merger synergies coming online, but then also dissynergies coming online. How should we think about that relationship this year? And like when do you kind of -- do we get back to that historical relationship? Or is there something in the environment that's changed that doesn't get us there? Shane Tackett: Yes, Savi, I make sure I fully understand it. But the relationship of needing to grow roughly 4% to 5% to fully offset sort of core inflation in the business, that's the essential question. Are we going to get back to that relationship? Savanthi Syth: That's correct. Shane Tackett: Yes. Yes. No, I think we will. I think we will. And that is what our business model is built on. That's how we think about projecting what we need to do longer term in terms of cost performance or incremental revenue to offset the inflation in the business. Look, we're merging 2 airlines, we're making a lot of investments in the business. We're making a lot of investments in airports. And so it is a little more volatile around that relationship for the next -- for last year and this year than it will be going forward. Once we stabilize all of this, which I think we're well on our way to doing, we fully expect to get back to offsetting unit costs, having flattish or marginally up unit cost with 4%-ish growth. And it will be good to get back there. I think our teams are really capable of delivering on that. And I don't know that it's exactly going to happen in '27, but in the next 24 months-ish, I think that's what you'll start to see as we get through the last of the integration milestones and really get to focus on running a productive airline again. Savanthi Syth: That's helpful. And if I might, on the cargo side, I think all the aircraft that you -- the freighter aircraft that you're planning are in and you're not getting a lot of extra net aircraft growth this year, but you're also doing international flying. I'm curious how you're thinking about what cargo can do this year? Shane Tackett: Savi, we're going to have Jason Berry, our Chief Operating Officer, answer that. Jason Berry: Savi, this is Jason. Good question. We're continuing to -- as we brought these 2 airlines together, we saw a lot of synergies and opportunities, and those are happening. And the top end revenue and the margin is really good coming in on the cargo side. We're seeing good momentum on all sides. We just actually got to a single selling platform earlier this month, and that's really actually helping us unlock and making it a lot simpler for our customers on the cargo side to book with us. So we expect to continue to see positive growth on that as we bring in the new wide-bodies and continue to just work the network. Benito Minicucci: And Savi, I think if you were asking about, yes, we have 10 Amazon airplanes, freighters. And right now, that's where we're at. That number is not going up. Savanthi Syth: So maybe cargo growing faster than you would normally expect in the kind of the Alaska Hawaii system? Shane Tackett: Yes, I think that's totally true. And our goal is to have Jason talk to you a lot more about this as it does that and expands. He's got a big lift to go and fill these planes up and they're doing a nice job out of the gate, especially internationally to Asia, and we're excited about the future of cargo. Ryan St. John: I think we got time for maybe one more question. Operator: And our next question comes from Ravi Shanker from Morgan Stanley. Ravi Shanker: And I apologize for asking you another 2026 guidance EBIT walk question. But to the point of the high end of the guide points to current trends continuing, I think there's broad consensus that U.S. domestic continues to remain well short of normal strength. So is that guidance baking in the current level of U.S. domestic. So if U.S. domestic does normalize to the year, is that upside to the high end of your guidance? Shane Tackett: Yes, Ravi, I think, yes, current trends are sort of how we -- and I think I did just mention this, like if they flatten out from here, we're still feeling very good about the midpoint or better. If they continue to improve, that and backfill the amount of missing revenue from last year fully, then you get to the high end of the range. And I do think domestic for us was -- I think we believe it was a better story in Q4 than the other airlines. If you just look at some of the main cabin results that have been released by others relative to ours, we actually, I think, had the best relative quarter in Q4 in the main cabin and also in our basic economy, what we call Saver Fare category in the fourth quarter. So that actually saw a nice bump as well. And Andrew mentioned this in a prior answer and also in the prepared remarks, we've really seen the improvement in the demand profile across every segment of the business. But certainly, premium and loyalty are the biggest drivers of that. But I think we actually like the trends we're seeing in Main Cabin right now. Ravi Shanker: Understood. And maybe on the IT side, I know you guys mentioned that you're pretty confident in '26 and there's no incremental cost. But can you actually share some of the key takeaways from the IT audit and kind of what some of the issues were and kind of what actions you guys are taking to ensure that this won't happen again? Benito Minicucci: Yes, Ravi, it's Ben. Look, the IT outages were very painful, as I said. And like what I will frame it as, it's not for a lack of investment. We were investing in IT. I think it was more of a configuration. We had hardware failures. We had backup systems and triple redundancies that didn't kick in. And so experts came in. They're still helping us really understand how to take this investment we're making, and we'll add to it to really address the configuration of our infrastructure so that we stay resilient to a really high degree. And that's really why we're not saying we're going to have this extremely onerous cost in IT because we already invest a lot in IT. It's just getting experts here, really helping us configure it. And long term, if there's migration to cloud and stuff, we'll get you guys up to speed on what we're doing. But in the short term, we're putting a lot of mitigation in place. And like Shane said, that spending is already in our budget. All right, everyone. Thanks for joining us, and I'm sure you'll have a lot of follow-up with Ryan and team. Thank you so much. Operator: This concludes today's conference call. Thank you for attending. You may now disconnect.

106天前Insight Analytics约5分钟阅读

BAH 2026 Q3 财报电话会议

Operator: Good morning, and thank you for standing by. Welcome to Booz Allen Hamilton Holding Corporation's earnings call covering third quarter fiscal year 2026 results. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. I'd now like to turn the call over to the Head of Investor Relations, Dustin Darensbourg. Thank you. Dustin Darensbourg: Good morning, and thank you for joining us for Booz Allen Hamilton Holding Corporation's third quarter fiscal year 2026 earnings call. 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 two. With me today to talk about our business and financial results are Horacio Rozanski, our chairman, chief executive officer, and president; Matthew Calderone, executive vice president and chief financial officer; and Kristine Martin Anderson, executive vice president and chief operating officer. As shown in the disclaimer on slide three, please note that we may make forward-looking statements on today's call which involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from the forecasted results discussed in our SEC filings and on this call. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements and speak only as of the date made. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements. 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 third quarter fiscal year 2026 earnings release and slides. Numbers presented may be rounded and, as such, may vary slightly from those in our public disclosure. It is now my pleasure to turn the call over to our chairman, CEO, and president, Horacio Rozanski. We are now on slide four. Horacio Rozanski: Thank you, Dustin. Welcome, everyone, and thank you for joining the call. Today, Kristine, Matt, and I will share Booz Allen Hamilton Holding Corporation's financial results for 2026. Before we dive in, I would like to begin by acknowledging the transition of our chief financial officer, Matthew Calderone. As we announced in December, Matt will be leaving on February 1, and today is his final Booz Allen Hamilton Holding Corporation earnings call. Matt has been with the company for over twenty-three years and has had a meaningful impact in all his leadership roles. Most recently as our CFO, he led us through a period of significant growth, deepened our connections with the investor community, and helped many analysts and investors better understand what we do by actually showing them our tech. He also played a pivotal role in strengthening Booz Allen Hamilton Holding Corporation's leadership position in the tech ecosystem through our investments and unique partnerships. Matt, I'm grateful to you for all your contributions. On behalf of all of us, we wish you the very best. To continue our search for a new CFO, Kristine Martin Anderson will serve as our interim CFO in addition to her duties as our chief operating officer. Kristine is an exceptional leader, has led and grown large businesses, and currently drives the execution of Booz Allen Hamilton Holding Corporation's strategic and operational priorities. Thank you, Kristine, for leading us with this transition. And now let's turn to our performance. During our October earnings call, we said we expected the macro environment to remain fluid and dynamic for the foreseeable future. We also outlined three priorities we would focus on to strengthen our near-term financial performance, expand our market leadership, and reaccelerate our growth. Those priorities were to reduce our cost, accelerate our transition to outcome-based contracting and product sales, and focus our investment by doubling down on proven growth vectors like cyber, national security, partnerships, and AI. Our third-quarter results demonstrate we're making strong progress against those priorities. Our results are in line with the revised fiscal year guidance we shared in October, and we are narrowing the ranges at the top and bottom lines. Our performance reflects Booz Allen Hamilton Holding Corporation's strong execution and our ongoing transformation in a continually evolving and complex macro environment. On today's call, Matt will walk you through the numbers in detail, and Kristine will share our outlook for the remainder of the fiscal year. Ahead of that, I will focus my remarks on progress against our three priorities, both in terms of current performance and on strengthening the foundation for the future. Let's begin with the first priority: reduce cost. Early in the quarter, we took swift action to execute the cost reduction program we described on the October earnings call. These crucial and difficult actions were necessary to enable agility in a changing market. They also create capacity to invest in growth. In parallel with the cost reductions, we navigated the longest government shutdown in history. The shutdown exacerbated an already slow funding and awards process. Our performance demonstrates our resilience, disciplined cost management, and strong execution. I am particularly proud that we supported our employees who were impacted during the historic shutdown. This decision was consistent with how we handled prior shutdowns. It ensured our people could immediately return to their customers' missions when contracts restarted. Overall, our results this quarter show that even in the midst of uncertainty and change, Booz Allen Hamilton Holding Corporation is managing the business tightly while preparing for the future. Shifting now to our second priority: accelerating our transition to outcomes-based contracting and product sales. As part of the overall transformation of our business, we continue identifying opportunities to reshape our portfolio and deliver more technical outcome-based work. The recent divestiture of a portion of our DARPA business sets us up to unlock technical performer opportunities that align with our growth vectors. For example, our investments in full-spectrum cyber capabilities are strongly aligned with DARPA's mission. As DARPA accelerates tech acquisition through their expedited research implementation series, or ARIES Marketplace, we are positioned to be a direct supplier of advanced technology and solutions. We also continue to partner with our customers to convert existing work and procure new opportunities through more commercially oriented buying practices, including fixed-price models. For our work on Thunderdome, this zero-trust cybersecurity program, we have successfully transitioned the majority of existing task orders to include a fixed-price component. We were also recently awarded nearly $100 million of fixed-price work to expand Thunderdome across the Department of War. Through these efforts, we will continue advancing Zero Trust capabilities, including accelerating AI and ML adoption for cyber defense use cases. As we shift more of our portfolio to fixed-price and outcome-based models, we gain more flexibility to innovate how we deliver. This will create cost savings for the government and support Booz Allen Hamilton Holding Corporation's margin expansion over the medium to long term. Staying on the topic of cyber, Booz Allen Hamilton Holding Corporation's Velox Reverser is a good example of how we are productizing our IP for commercial sales. Velox Reverser is our AI-native malware reverse engineering product. This week, we're launching it in general availability to both federal and commercial customers. Velox Reverser accelerates an organization's response to today's most complex cyber threats. It performs fully automated malware analysis and delivers actionable intelligence in minutes, versus what traditionally takes days. As AI-enhanced cyber attacks increase and become one of the primary threats of 2026, this product is a force multiplier for cyber defense efforts. Thus, Booz Allen Hamilton Holding Corporation is redefining our future, innovating what we build, how we build, and how we deliver to ensure the best value for our customers. Lastly, we've made advances in our priority number three: focusing investments by doubling down on proven growth vectors to drive acceleration. Our progress is evident through the expansion of our national security portfolio, the combination of our defense and intel businesses, as well as our industry partnerships. First, we continue to see strong demand for our technologies within the national security mission. Two United States Navy examples illustrate this point. We recently announced the award of a $99 million contract with the Navy's Military Sealift Command, where we'll deliver wireless capabilities onboard ships around the world. Using low earth orbit satellites, advanced Wi-Fi, and 5G, our tech will enable ships to have secure, reliable connectivity at the tactical edge. Additionally, many of our customers continue to increase our contract ceiling based on exceptional delivery and how well our exquisite tech works in their missions. We saw this with the Navy's Program Executive Office for Unmanned and Small Combatants. They recently expanded our work in the areas of unmanned and autonomous systems, mine and mine countermeasures, and mission modules for littoral combat ships. This is in addition to work already delivering for the Navy on our visual object localization and tracking solution. It uses machine learning and open architecture interfaces on autonomous platforms to passively detect and track objects in a maritime environment. Our national security portfolio is well aligned to the Trump administration's highest tech and mission priorities and positioned for continued growth and expansion. The other growth vector where we have doubled down is our industry partnerships. We are leveraging the tech ecosystem by engaging and investing in new ways, with a specific focus on the best companies in Silicon Valley. Earlier this month, we announced a new partnership between Booz Allen Hamilton Holding Corporation and Andreessen Horowitz, or a16z, one of the world's premier venture capital firms. Booz Allen Hamilton Holding Corporation is the first-ever a16z technology acceleration partner for governments. We've been working with a16z portfolio companies for many years and have an exceptional track record in building and delivering transformational solutions. That success is the foundation for this expanded partnership, and we look forward to building on our shared passion for driving the future of American technology. Together, we will co-create unique commercial tech for national security, public safety, healthcare, and other government missions. Booz Allen Hamilton Holding Corporation has committed to deploy up to $400 million in a16z's late-stage venture fund over the life of the fund. This is good for Booz Allen Hamilton Holding Corporation, it's good for our shareholders, and it's good for the country. Through this game-changing partnership, we will choose national challenges that need to be solved, build innovative tech solutions, and deliver outcomes at speed and scale. In closing, our performance this quarter and our progress against our three priorities give me confidence that we are on track operationally and strategically. Looking ahead, we will continue to anticipate change in a dynamic environment. We will operate efficiently and with agility, accelerate our transformation, and we will focus on returning to growth. And now I'll hand off to Matt to cover our third-quarter financials. Matt, for the last time, over to you. Matthew Calderone: Thank you, Horacio. And good morning, everyone. As Horacio noted, this has remained a dynamic fiscal year. I share his pride in how Booz Allen Hamilton Holding Corporation has risen to the challenge, as well as his optimism for the future. Here are my five takeaways for the quarter. First, our third-quarter results are in line with the revised fiscal year guidance we issued in October. Even with the protracted shutdown, revenue ex-billables, where most of our profitability is generated, tracked in line with expectations. Both adjusted EBITDA and ADEPS were stronger than anticipated. Second, we successfully navigated through both the government shutdown and significant cost actions in the quarter. The shutdown pushed some procurements and funding actions to the right. We believe, based on our estimates, these will have a cumulative impact of about $50 million on revenue and $20 million on profit for the full fiscal year. Additionally, in our national security portfolio, which includes our defense and intelligence businesses, the shutdown caused approximately $60 million in billable expenses in the quarter to move from Q3 into Q4. We also completed meaningful actions to adjust our cost structure, dropping our run rate spend by approximately $150 million. The full impact of these cost actions on profitability will be felt next fiscal year. Third, we continue to operate the business very well. We are running the business efficiently and seeing strong contract-level execution. This is reflected in our strong margin performance in the quarter. Fourth, while third-quarter hiring and near-term funding were impacted by the shutdown, the overall demand outlook has improved. As of December 31, our qualified pipeline for next fiscal year, that is fiscal year 2027, stands at nearly $53 billion. This is 12% higher than where our fiscal year 2026 pipeline was at the same point last year. And finally, we saw a meaningful decrease in our tax rate from a change in estimate related to the finalization of our fiscal year 2025 return. These changes included a higher R&D tax credit for more qualified technical work in our portfolio, as well as additional revenues qualifying for the foreign-derived intangible income deduction. We expect this to provide 47¢ of incremental benefit to ADEPS for the full fiscal year. Importantly, we also anticipate that a meaningful portion of this benefit will be recurring. I will now walk you through third-quarter performance in more detail. For the quarter, gross revenue totaled $2.6 billion, representing a roughly 10% decline versus the prior year period and a 7% decline on a revenue ex-billable basis. The government shutdown had two impacts on revenue in the quarter, one permanent and one temporal. We lost some revenue due to work not performed, and we also saw some revenue push from Q3 to Q4 given timing delays and billable expenses. Adjusting for these impacts, gross revenue in the quarter was down about 6% year over year, which is roughly in line with our expectations. Within these consolidated results, our performance remains bifurcated across markets. Our national security portfolio declined about 1% year over year in the quarter, inclusive of the impact of billable expenses shifting out of our Q3. Adjusting for the impact of the government shutdown, our national security portfolio grew about 4% year over year. As anticipated, our civil business declined about 28% year over year. We continue to expect this business to remain stable through the remainder of the fiscal year and are optimistic about its future. Turning now to demand, awards in the quarter were seasonally light. As noted earlier, the shutdown caused delays in some funding actions and shifted some award activities to subsequent quarters. Net bookings for the third quarter totaled $888 million. This equated to a quarterly book-to-bill ratio of 0.3 times and a trailing twelve-month book-to-bill of 1.1 times. The overall pace of funding was meaningfully slower than prior third quarters, down 32% year over year. As a result, funded backlog fell 10% year over year. However, we did see a meaningful pickup in funding activity in December as customers worked through backlog related to the government shutdown. Despite friction in the funding environment, we ended the calendar year with a record year-end backlog of over $38 billion, up about 2% over the prior year. As we look ahead, the qualified pipeline for next fiscal year, fiscal year 2027, stands at nearly $53 billion. This is 12% higher than where our fiscal year 2026 pipeline was at the same point last year, with national security up 12% and civil up 10% year over year. Turning now to headcount, Booz Allen Hamilton Holding Corporation ended the calendar year with roughly 32,000 employees. Our customer-facing staff was down 2% sequentially in the quarter. Notably, this includes involuntary terms of about 2.5% and headcount losses from the divestiture were about half a percent. Our focus remains on ensuring we have the right talent to execute our backlog and support pipeline growth. As funding flows and contracts continue to ramp, we are scaling hiring accordingly. Moving now to profitability, strong contract execution and disciplined cost management helped drive profitability in the quarter. Adjusted EBITDA for the third quarter was $285 million. This translated to an adjusted EBITDA margin of 10.9%. Through the first three quarters of the fiscal year, our EBITDA margin was also 10.9%. We still expect margins to step down in the fourth quarter due to normal spending patterns and the anticipated catch-up in billable expenses. Further down the income statement, third-quarter net income was $200 million, a 7% increase year over year. Adjusted net income was $215 million, an increase of about 9% from the prior year. Diluted earnings per share increased roughly 12% year over year to $1.63 per share. Adjusted diluted earnings per share increased about 14% year over year to $1.77 per share. These increases were driven by meaningfully lower effective tax rates and a lower share count that were partially offset by lower operating profit and slightly higher interest expense compared to the prior year period. In the quarter, we also recognized a $7 million pretax gain from the divestiture of our DARPA cedar work, which is excluded from our non-GAAP adjusted income in ADEPS. Transitioning now to the balance sheet, our balance sheet remains strong, and we continue to generate meaningful cash flow. At the end of the third quarter, we had $882 million of cash on hand, net debt of $3.1 billion, and a net leverage ratio of 2.5 times adjusted EBITDA for the trailing twelve months. As a result of particularly strong collections in December, free cash flow for the quarter was $248 million, inclusive of $261 million of cash from operations, less $13 million of CapEx. I will now turn to capital deployment. In the quarter, we deployed a total of $195 million. This included $125 million in share repurchases at an average price of $95.16. Our total repurchase activity was just over 1% of outstanding shares in the quarter. It included $67 million in quarterly dividends and $3 million in strategic investments made through Booz Allen Ventures. We are also pleased to announce that today our board of directors approved a quarterly dividend of 59¢ per share, which will be payable on March 2 to stockholders of record as of February 13. Finally, before Kristine walks you through the outlook for the remainder of our fiscal year, I want to take a brief moment to thank the people of Booz Allen Hamilton Holding Corporation. Booz Allen Hamilton Holding Corporation is an extraordinary place that does essential work for our nation, often in areas and in places that we cannot discuss. It has been a great joy and an absolute privilege to be part of this company. I'm truly excited for Booz Allen Hamilton Holding Corporation's future. With that, Kristine, over to you. Kristine Martin Anderson: Thanks, Matt. I want to add my thanks to Matt for his incredible contributions to Booz Allen Hamilton Holding Corporation's success. He will be missed, and we wish him great success in his new role. I will now walk you through our updated fiscal year 2026 outlook. Please turn to slide seven. We remain focused on execution in the remaining months of a dynamic year. We expect quarter four funding to improve over quarter three but remain slower than usual. We will continue running the business effectively and efficiently. As a result, we are tightening towards the lower end of our guided range for revenue, adjusting cash flow accordingly. We are also narrowing our EBITDA range and increasing adjusted EPS. We now expect to deliver revenue between $11.3 billion and $11.4 billion, given some of the impacts from the prolonged government shutdown. We expect an adjusted EBITDA dollar range of $1.195 billion and $1.215 billion. We are raising our ADEPS guidance to a range of $5.95 to $6.15 per share. Lastly, we expect to generate free cash flow between $825 million and $900 million. We enter the final quarter of this year confident in our trajectory and our right to win. Demand for our national security technology and expertise remains robust. At the same time, our civil business is reset, and demand is accelerating. It has been personally rewarding to work with our amazing people and commercial tech partners to develop and pitch big ideas that advance critical missions, about which we are deeply passionate. For example, this quarter alone, we've advanced our cyber tradecraft and prepared to launch Velox Reverser. We completed a major design review on the Air Force's tactical operations center light program, the Air Force's next-generation mobile command and control system. We launched America the Beautiful passes on recreation.gov. We engaged our allies on Zero Trust and Warfighter tech solutions. And we co-developed innovative solutions with our tech partners, from long-term partners like NVIDIA, AWS, and Shield AI to newer venture portfolio companies. We are shaping our future. With that, operator, let's open the line for questions. Operator: Thank you so much. And as a reminder, to ask a question, simply press 11 to get in the queue. To remove yourself, press 11 again. One moment for our first question, please. Colin Canfield: Hey. Thank you for the question. And, Matt, thank you for your leadership. Character is the long-run determinant of many nations alike, and honestly, it's something you've exhibited in spades from your 2022 starting point. A Russia's invasion of Ukraine to this year's volatility. So certainly want to thank you. As and then switching over to maybe the question side of it, as we think about the end market expectations for FY 2027, is it fair to characterize Defense and Intelligence as growing with civil flat? And then essentially, when do you expect the downdrafts to lift on Civil in FY '27? Thank you. Horacio Rozanski: Hey, Colin. Good morning. Let me start. Let me frame the conversation. First of all, I think the headline for this quarter is about strong execution across all aspects of our business and about positioning for the future by investing in our growth vectors and transforming the business, especially with an eye towards growing the bottom line and reaccelerating our overall growth. You know, our national security business continues to see good growth and very good prospects. But I think what's really exciting to us is our civil business is beginning to reignite. If you know, the pipeline is up double digits both in national security and in civil. And we're beginning to see some movement on the award activity in the civil side, which we have not seen all year. So my cautiously optimistic take is that the market does feel like it's at an inflection point. We obviously need to get through a couple of, still a couple quarters of challenging comps. But the business is certainly starting to feel a different energy across the board. And where we see the uplift is really in the areas that we're describing as our growth vectors. Our AI business continues to grow strongly. We see both good growth and acceleration in our cyber business, our defense tech business looks good, and this work that we're doing with commercial partnerships is also going to bring another wave of opportunity. Colin Canfield: Got it. No. I appreciate the color. And then in terms of the kind of multiyear civil setup, can you maybe kind of talk to it? As we think of, like, the pieces that have been downdrafts this year, that are likely to get made up over a multiyear period, maybe just frame kind of that construct versus the concept of just like a high-level rebuilding the civil administration and maybe, like, how you think about the multiyear level of work not just, like, the quantitative makeup from this year, but essentially, the level of cuts that have gone through civil this year and, essentially, how do you think about that as being an opportunity for Booz Allen Hamilton Holding Corporation over a multiyear period? Kristine Martin Anderson: Yeah. Thanks, Colin. I would say that civil has changed. And that happens across administrations. We got a bit of a delay this time, certainly with all the cuts. The biggest trend is that modernization and transformation on cloud to a focus on readiness of data platforms that are critical for AI. You see consolidation of platforms within and across agencies, and that's a focus and still a strength of ours. And, definitely, our delivery track record is what has them turned back to us. In terms of specific missions, while a smaller proportion of our forward-looking pipeline, health will always be a national priority. And we are seeing green shoots in AI-enabled public health, biothreat detection, fraud detection. At FAA, we're focused on an AI-powered aviation safety data platform. At Homeland Security, we're focused on autonomy at the edge, where integration of sensing and compute and decision-making is required. And then, you know, weather infrastructure ground processing, AIML for multisource intelligence, integrating commercial sources. There's just a few examples. Colin Canfield: Okay. I appreciate it. Thank you. Operator: Thank you so much. One moment for our next question that comes from Gautam Khanna with TD Cowen. Please proceed. Gautam Khanna: Yes. Thank you, and congratulations. Was wondering if you could talk about the cost reduction plan. How much of that is yet to unfold? And how much, if you could maybe you said it, how much was realized in the quarter? Matthew Calderone: Thanks, Gautam. I mean, the actions are done. Obviously, they happened over the course of the quarter. And remember, given the nature of how we do accruals, in that sort of cost-recoverable environment, it's not always a one-to-one impact of cost reductions to the P&L in a given quarter. They're essentially done. We'll see a little bit of the impact in Q4, but this really is about setting us up for next year. And to go back to Colin's question, you know, obviously took a shock on our civil business at the beginning of our fiscal year. And, you know, these actions will essentially reset our margin structure to accommodate for the shift in our portfolio caused by those one-time actions in civil. So you saw very little of it in Q3. You see maybe a little bit more of it in Q4. The full weight next fiscal year. Gautam Khanna: Gotcha. And then could you talk a bit about or expand on your comments about how things have picked up with respect to the pace of contract award activity? And maybe I don't know if you're comfortable sharing, but what do you anticipate submitting over the next couple quarters in terms of, you know, don't know if you can quantify? You gave the big pipeline opportunity set, but what are you actually pursuing? Kristine Martin Anderson: Yeah. Thank you. Over the next couple quarters? I mean, we are seeing more movement in December post the shutdown. So funding in December was more than twice what October and November were combined, and January has started off strong as well. Seeing some movement in the awards and just funding overall. We are pursuing the kind of work that we've talked about in AI and cyber, in defense tech, doing a ton of co-creating with our partners. We have focused in national security in areas like space ground and full-spectrum operations, AI-enabled cyber operations, and I've just talked a bit about civil. So still very much tied to our growth vectors. Horacio Rozanski: Yeah. And the other thing I would say is, as you know, we have plenty of contracts healing, and so what we're looking for are signs, and we're beginning to see signs, but it's early. Of demand picking up, and then this is Kristine pointed out demand in civil is picking up and demand against our key defense growth areas and national security growth areas remains strong. Gautam Khanna: Thank you. Operator: Thank you. Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed. Sheila Kahyaoglu: Hi. Good morning, guys, and congratulations, Matt, and thank you for all the help. So maybe if we could just start off in terms of the civil, Kristine, you talked about the green shoots, and the color is really helpful with the pipeline growing double digits. But it was down 28% in the quarter or lower sequentially. How much do you think was tied to the shutdown? And how do we even start thinking about a return to growth in that market? Kristine Martin Anderson: Yeah. I think the civil business overall had, you know, this been a year of reset, right? And the shift from cuts to focusing on the president's priorities, I think, is what you're seeing in terms of, you know, there was very little award activity that occurred in the majority of the beginning of our fiscal year, and we are just starting to see that turn now. So that pipeline has been there. We're starting to see some on-contract growth. We're starting to see the awards unlock, and we are certainly seeing the pipeline expand. Sheila Kahyaoglu: Got it. Thank you so much. And then maybe, Horacio, one for you. I'm sorry. I'm gonna put a big picture question out there for you because I know you appreciate them more. Know, you think about the way you sell to the government, you know, maybe what are one or two biggest changes you've done to transition the business a bit more, whether it's in health or defense or civil? If you could just talk about that. Horacio Rozanski: Yeah. I mean, there are a couple of things that are different now than they were perhaps a year ago. One of them is we have been working on all of these commercial partnerships. We've had our venture fund for a while, but that has really picked up and accelerated. And we have become a lot more agile in the way we go to market with these companies, you know, hence, the a16z partnership. There's a good example there on payments, for example. You know, as you know, the US government is one of the largest, if not the largest payer in the world if you think about all the payments they have to process. And the idea of bringing commercial solutions to that, you know, we reimagined how we would approach that not just from the solution standpoint, but even from how we would have the conversation, how we would sell it, how we would run a pilot, who we would bring in. And we were able to put together a couple of companies from the Valley that have great capabilities, one of which was focused on this topic, one of which has nothing to do with this topic that was in the a16z portfolio. And we see more of that in the future, and we see ourselves advantaged because we can truly create a complete solution across all of these technologies. There are opportunities like that that we see in health. There are things we're already pursuing, and we have been pursuing against priorities for the Department of War. From counter US to integrated C2 to battle management. And so, to me, that is sort of one big trend. The other big trend is we continue to drive our own work towards outcome-based. We've been having this conversation with customers for a while. The level of receptivity of that, since acquisition reform was announced, has gone up significantly. I talked in the prepared remarks about the Thunderdome opportunities and how things there are moving to fixed price. We believe that this is going to be a significant trend over the next couple of years that we view very positively. Now, part of the way that plays out is once we take more control over the delivery, we can actually lower the cost to the government, which is why this is good for the government. While at the same time, if we perform well, driving our profitability, which is why I've been saying over the next couple of years, I would expect Booz Allen Hamilton Holding Corporation's bottom line to grow faster than the top line as we, again, deliver more value and capture more value. Sheila Kahyaoglu: Great. Thank you so much. Operator: Our next question comes from Scott Mikos with Melius Research. Please proceed. Scott Mikos: Morning, Horacio and Matt. Nice results. Good job on the cost. They got your headcount was down 12% year over year. Just as the business returns to growth and you leverage AI-based solutions, do we expect organic revenue growth to outpace headcount growth going forward? And is that enough to offset the pricing pressures you're seeing on some of the civil programs as they come up for recompetes? Matthew Calderone: Yeah. Thanks, Scott. The short answer is yes. Right? I think, you know, we're running the business efficiently, and we're also getting more leverage out of technology as, you know, even the things Horacio described. You know, we're leading with solutions that are more tech-forward. So you did see our revenue and profit per employee go up. I think that's a trend that you'll see persist into the future. Scott Mikos: Okay. And then one other modeling question. Previously, you had mentioned you expected a $170 million cash tax refund in fiscal 2027. Does the cash tax benefit from this year and the change in tax rate impact that refund you're expecting next year? Could it be a little bit higher? Matthew Calderone: No. But, you know, we do see, you know, there are still three cash tax headwinds for next year. There's the continued unwind of $1.74 and the state's ongoing assessment of the one big beautiful bill. There's what you just mentioned, the $170 million refund from the IRS. And then, you know, the benefit from the incremental R&D tax credit recognized this quarter, we don't expect to convert to cash this year. You're gonna see some of that next year, and then, you know, given the recurring nature of at least some of that tax credit, it should be a longer-term cash tax headwind. Scott Mikos: Okay. Got it. Thank you. Operator: Thank you. One moment, please, for our next question. It comes from the line of John Godin with Citi. Please proceed. John Godin: Hey, guys. Thanks for taking my question. I wanted to just kind of dialogue a little bit about the defense budget outlook. You know, there's this idea of the possibility of a $1.5 trillion budget. And I don't expect you guys to take a view on that, but what I was hoping was you could just offer thoughts on how a company kind of prepares for even the possibility of something like that. Do we, you know, look out there and say, let's make some investments ahead of that? We've seen other companies engage in M&A possibly ahead of a change in inflection in the budget. Do we just look at it and say, let's wait and see what really happens? Maybe you take a view and you say, alright. It could be 1.2 or 1.3. Seem to be so many permutations possibility of that kind of growth, I'm just curious when the customer's messaging, how does that kind of feed into the strategic thinking? And it's not a leading question. Obviously, we don't know. I just wanted to kind of dialogue a little bit about it. Horacio Rozanski: Well, you know, it's a great question. And, you know, what the president has been clear all along about rebuilding the industrial base, the defense industrial base around recapitalizing some aspects of it around bringing new technology to bear for our warfighters in the battlefield. And I think a larger budget, whatever the number ends up being, is consistent with the messaging that's been going on all along. And from our perspective, we have been preparing all along to support those priorities. If you go back a year ago, we were talking already about leaning forward heavily into opportunities with Golden Dome even before that got fully articulated. We expect that to accelerate in the coming year as one example. You know, we're doing a lot of work on space. Our traditional strength in cyber, we expect next year to be a significant year for cyber across the board. In part because of what we're seeing with the budget, but frankly, in part because the agentic cyber attack and, you know, the first publicized one was when Anthropic had the courage of coming in and explaining how cloth was used maliciously for an attack. All of that is going to, in our view, accelerate the need for more cyber at the intersection of Cyber AI in the next year. And we have been making significant investments in all those areas. Right? That's why the way we pick it up is there's a few growth vectors that we believe will ultimately drive significant growth for Booz Allen Hamilton Holding Corporation and significant value against these key priorities. Cyber, AI, national security, especially related to space, and the border. Defense technology. Right? I mean, and all of these commercial parts, again, set us up to be able to bring solutions quickly into those spaces, which is why we're excited about it. So that's the way we're thinking about it. You know, this is a very dynamic environment. And there's a level of unpredictability around the environment and across all of our markets that we have now sort of put into our management motion. And so we're looking to become more agile. Matt talked about the cost takeout. That is an element of that. So I believe we're well poised right now to respond a little bit ahead, but we don't need to get too far ahead of budgetary either headwinds or tailwinds in a stronger way than we have over the last twelve months. John Godin: Got it. That was very helpful. It sounds like, you know, needless to say, regardless of what happens, a budget like that is something that you think Booz Allen Hamilton Holding Corporation will find ways to participate in a meaningful way. Horacio Rozanski: Completely. John Godin: Okay. Thanks a lot. Operator: Thank you. Our next question comes from the line of Seth Seifman with JPMorgan. Please proceed. Seth Seifman: Hey, thanks very much, and good morning. And congratulations, Matt. I wanted to ask, when we think about the funded backlog and recognizing that the award situation depressed Q3, where do you think you can end the year on funded backlog? And will that be enough to allow for growth in fiscal '27? Kristine Martin Anderson: As I mentioned, we are starting to see awards accelerate, and we hope that continues through the rest of the quarter, although it has been choppy, good months and bad months in terms of pushing funding out. And we're less focused on Q4 at this point because we're keeping ourselves heavily focused on building momentum for next fiscal year. Work that we win in February would still have time to ramp up, which would affect the next year. But we are seeing strong funding in December, really positive signs. As I mentioned, so far in January, very strong, an improved demand environment. Pipeline's up. But lots of proposals being worked at all moments here, and also even unsolicited proposals, OTAs, CSOs, it's very active. And, you know, we are, you know, we've got ourselves right-sized and ready and positioned for growth. Seth Seifman: Okay. Okay. Great. Thanks. And then maybe, as a follow-up, in your filings, you guys have pointed out the potential for increased competition from new players and commercial competitors. Are there places you'd point out in the business where you see that threat being more acute or maybe where you already see more competition from new competitors? Horacio Rozanski: You know, the competitive market has already evolved. You looked at the people that we would have listed as primary competitors five years ago and even primary teammates five years ago, and the people that we team with now is a different competitive set. For us, we look at this as, you know, more as where can we create opportunities by taking advantage of the fact that we have a unique set of relationships with the tech world. Certainly, the work we're doing with AWS, I'll give you an example. We're working with AWS on an agentic AI platform that would transform intelligence analysis. That's one example. The fact that AWS is interested in co-investing with us and co-creating with us there is hugely exciting. Does that mean that somebody, another tech company, will work with somebody else on a competitive platform? Probably. And that's okay. We believe that teaming together, we can do more. You know, the work we've done with NVIDIA all the way back to 2017 positions us uniquely, and, again, I could go through the list. Right? But from Shield AI to hidden level, small companies that you never heard of to the largest companies, we have built, I believe, a unique ecosystem that can take advantage of the different trends that we see in the market. Seth Seifman: Great. Thanks very much. Operator: Thank you so much. Our next question comes from the line of Jonathan Siegmann with Stifel. Please proceed. Jonathan Siegmann: Good morning. Thank you for taking my question and good luck, Matt. Just in the past, you've highlighted tactical selling and on-contract growth as one of the challenges of this dynamic environment. And Kristine, you had some encouraging comments about seeing a recovery in civil. I just wanted to clarify whether this is normalized for the entire portfolio, or is it still below trend and expecting that there'll still be a challenge next year. Thank you. Kristine Martin Anderson: Sure. On-contract growth will always be important. And it's really just a matter of matching the customer's needs with solutions that we can bring forward to them. There's always a constant selling that's going on. As we mentioned, the funding environment has been choppy, right? So does two months make a trend? I hope so, but we're going to see here over time. There is a trend toward just funding smaller amounts, more frequently, and that's a lot more activity for a lessened workforce. But we do see encouraging signs in that area, both in the funding and also, as we mentioned, in the pipeline, and that includes pipeline for on-contract growth as well as pipeline for new awards. Jonathan Siegmann: That's great. Thank you. And then if I can slip in another one about larger new program, Golden Dome, the company's capabilities are really well suited for the mission. Can you just maybe level set what, if anything, we might hear about the company's role publicly understanding a lot of it's happening in the dark world? Thank you again. Horacio Rozanski: Yeah. We're, you know, we're excited about our space business in general from space domain awareness to ground systems and bringing AI to developing common ground systems and virtualizing that entire infrastructure. On Golden Dome, we have been very active pursuing a number of opportunities, many of which we are not prepared to talk about yet. But we see this as an area where Booz Allen Hamilton Holding Corporation, as you said, has a lot to contribute. And we expect and hope to see significant growth there. And, again, I mean, I'll take it back to something Kristine said. The environment is still choppy and uncertain. And so part of what we need to do and we need to continue to do is find these areas where the mission priorities, the funding, and our capabilities are well aligned and double down on those areas, which is why you're hearing us talk about this growth factor. You're gonna hear us talk about those growth vectors. You're gonna see us invest in these areas to drive both top-line and, in particular, profit growth. Thank you. Operator: Thank you so much. And our last question will come from Tobey Sommer with Truist. Please proceed. Tobey Sommer: Thank you and good luck, Matt. I was wondering if you could comment on what you might see as the interplay. You know, the president indicated an appetite for a real tectonic change in defense spending next year. But I'm wondering if there would be interplay in offsetting areas should the growth in defense be very substantial, you know, as opposed to just blowing up the deficit. In particular, is civil an area that you think would be a source of fiscal restraint? Horacio Rozanski: That has been the trend certainly over the last year. And even inside the Department of War, they've done a lot of work to kind of make sure that they're focusing funding against the key priorities. The one big beautiful bill was pretty specific in terms of the areas of investment. It was not broad-based. And so we interpret things going into next year as, again, you know, the president and the administration picking key areas of focus and doubling down on funding and national investment against those areas. With an expectation that industry will follow suit and participate in that, you know, part of what we're trying to do is anticipate it from the standpoint of positions that we're taking, the capabilities that we're funding, the growth vectors that we're investing in. But a big part of it is we've built more agility into our system. Again, I point you to the cost reduction. I point you to the fact that we've flattened and simplified the management layers in order to be able to respond more quickly to the fact that as funding potentially gets reprogrammed against these priorities, even if overall funding is higher, we need to be well-positioned to respond to that. And I believe that we are. We've made significant strides. Kristine Martin Anderson: And I would also add that, you know, if you go back a couple of years, when I was a civil sector president, I used to talk about enduring missions. These are missions that have to be done in civil regardless of administration, but what changes is the approach. And so we're seeing that, right? Still need a strong FAA and aviation safety. You still need to deliver healthcare. You still need secure borders. You know, you still need to have the right infrastructure to the nation. And so we're seeing exactly that. That the missions are enduring, the same ones that we have invested in for years, but the focus area has changed. And now they're really ready to move forward to impact. Tobey Sommer: Thank you. I appreciate that. And with respect to capital deployment, you've got a strong balance sheet. This is a period of significant change. Or do you think a lean in and utilize the balance sheet more to affect change in the portfolio? And maybe inclusive in your response, could you talk about the EO and share repurchase and whether or not you feel constrained in future repurchases as a result? Horacio Rozanski: Yeah. Let me start by saying, you know, let me start with the EO. The EO was focused on making sure the defense contractors, especially the ones that the Department of Warfield are underperforming, sure that they invested, got back up to track, and made consistent with the requirements in order to create the capacity and then to prioritize the government's mission. I think Booz Allen Hamilton Holding Corporation is already there, in addition to the fact that our much worthless capital intensive, we are very proud of our delivery, and we do not have any performance issues. So we don't think that on the whole domain, the EO applies to us in a negative way. Having said that, you know, to the other part of your question, absolutely. Right? I mean, our capital deployment priorities remain unchanged. The balance sheet is strong, it's a strategic asset. And we continue to look for, call it smaller, but impactful M&A that can behave as a strategic accelerator, especially in the growth vectors that we've been talking about all morning. And then so, hopefully, you'll see us be more active, especially in those areas. Beyond that, of course, we'll continue to support the dividend. And then, you know, share repurchases become something that's more opportunistic. Because, obviously, investors should not want us, do not want us, and we don't want to have an idle balance sheet. So that's the overall thought process. But, you know, we're very focused strategically on reaccelerating, reigniting our growth and to do it in a very focused way. Tobey Sommer: Thank you. Operator: Thank you so much. And this will conclude our Q&A session. I will pass it back to Horacio for closing comments. Horacio Rozanski: Thank you, Carmen, and thank you all for your questions this morning. I hope the discussion conveyed that even in what remains a complex and challenging environment, Booz Allen Hamilton Holding Corporation is on track both operationally and strategically and that our people are focused every day on building and delivering technologies that create value for our company, for our nation, and for our investors. And as we close, let me share my excitement about 2026. It's not only the things that we talked about this morning that give me confidence and optimism about the future. But this is a special year, and I'm excited for our company-wide celebration of America's two hundred and fiftieth birthday. We're planning a year of company-wide events to live our purpose and especially to show our commitment to passionate service both by amping up our work in our communities and also, certainly our work on these critical missions. And then with that, thank you all for joining us, and have a great day. Operator: Concludes our program. Thank you for participating, and you may now disconnect.

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Japan's central bank held short-term rates at 0.75%, maintaining the highest levels since 1995 and signaling a shift in global capital flows. Sharply narrowed yield spreads between Japanese and US bonds threaten the longstanding yen carry trade, likely triggering outflows from US equities and bonds.

106天前Insight Analytics约5分钟阅读

Business Leaders Weigh In On US Economy, Outlook for US Credit Market | Real Yield 1/23/2025

"Bloomberg Real Yield" highlights the market-moving news you need to know. Today's guests: Schwab Center for Financial Research Chief Fixed Income Strategist Kathy Jones, BlackRock Deputy CIO of Global Fixed Income Russ Brownback, AllianceBernstein Head of Credit Will Smith, and PineBridge Investments Co-Head of Leveraged Finance Steven Oh.

106天前Insight Analytics约5分钟阅读

Oil May Be Heading For A Breakout

Oil is showing technical improvement, clearing a long-term downtrend and testing resistance at $61. A breakout above $61 could propel crude toward $65 and signal a sustained upward move.

106天前Insight Analytics约5分钟阅读

What to watch for in the pivotal week ahead for markets

The Investment Committee debate the huge week ahead for the markets with Mega Cap Earnings reporting next week.

106天前Insight Analytics约5分钟阅读

Is it time to load up again on the ‘Magnificent Seven' stocks?

Also: How Nvidia stands out as a bargain stock, warnings for investors and a bitcoin-related IPO.

106天前Insight Analytics约5分钟阅读

US consumer sentiment rises in January, though worries over prices, jobs persist

US consumer sentiment improved modestly in January, showing gains across demographic groups even as Americans remained uneasy about high prices, job prospects and the broader economic outlook, according to a closely watched survey released on Friday. The University of Michigan's Consumer Sentiment Index rose to a final reading of 56.

106天前Insight Analytics约5分钟阅读

Many investors let politics influence their portfolio decisions. That's a big mistake.

Politics and the stock market don't mix. Yet looking at the political environment to make stock-market predictions is common in election years like this.

106天前Insight Analytics约5分钟阅读

Trump's Greenland Gambit Signals a New World Order for Markets

Trump's actions are accelerating a shift toward a multipolar world and new alliances. Here's what strategists say it means for portfolios.

106天前Insight Analytics约5分钟阅读

Week Ahead for FX, Bonds: Fed Rate Decision in Focus

Focus will return to economics and monetary policy in the week ahead, with a Federal Reserve meeting likely to be the highlight of the days to come.

106天前Insight Analytics约5分钟阅读

Nasdaq Gains Over 100 Points; US Consumer Sentiment Rises In January

U.S. stocks traded mixed midway through trading, with the Nasdaq Composite gaining more than 100 points on Friday.

106天前Insight Analytics约5分钟阅读

Morgan Stanley's Jim Lacamp says he ‘would caution' people about getting out of this market

Jim Lacamp, Morgan Stanley Wealth Management senior vice president, joins CNBC's 'Money Movers' to discuss the S&P's third negative week, a "rodeo" bull market, Fed independence, and more.

106天前Insight Analytics约5分钟阅读

Small-Cap Resurgence in 2026

A new year is bringing in a huge market rotation and new leadership for equities.

106天前Insight Analytics约5分钟阅读

WallStreetBets 2026 Index—Top 10 Stocks Chosen By Retail

The digital forum that once brought Wall Street to its knees with the GameStop Corp. (NYSE: GME) short squeeze has set its sights on a longer horizon.

107天前Insight Analytics约5分钟阅读

Now is not the time to own bonds, says Bank of America. These are safer bets.

International stocks, emerging markets and gold will shine in the second half of the 2020s, as investors have made clear that it's time for anything but bonds, Band of America says.

107天前Insight Analytics约5分钟阅读

We have ‘two more rate cuts coming,' says Wharton's Jeremy Siegel

Jeremy Siegel, Wharton professor emeritus, joins ‘Squawk on the Street' to discuss the broadening of the market, consumer sentiment and more.

107天前Insight Analytics约5分钟阅读

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These Two Charts Sum Up the AI Stock Rally in 2026

Artificial intelligence is once again fueling a scorching tech stock rally, but the rising tide is notably not lifting all boats.

106天前Insight Analytics约5分钟阅读

Inflation is an ‘economic thief.' Can the Fed finally arrest the frustrating rise in prices?

The last time U.S. inflation was below 2%, Tom Brady was the reigning Super Bowl MVP as a member of Tampa Bay Buccaneers.

106天前Insight Analytics约5分钟阅读

2 Factors Keeping Markets In Overbought Territory

106天前Insight Analytics约5分钟阅读

Japan Rate Decision And Its Butterfly Effects On S&P 500

106天前Insight Analytics约5分钟阅读

Business Leaders Weigh In On US Economy, Outlook for US Credit Market | Real Yield 1/23/2025

106天前Insight Analytics约5分钟阅读

Oil May Be Heading For A Breakout

Oil is showing technical improvement, clearing a long-term downtrend and testing resistance at $61. A breakout above $61 could propel crude toward $65 and signal a sustained upward move.

106天前Insight Analytics约5分钟阅读

What to watch for in the pivotal week ahead for markets

The Investment Committee debate the huge week ahead for the markets with Mega Cap Earnings reporting next week.

106天前Insight Analytics约5分钟阅读

Is it time to load up again on the ‘Magnificent Seven' stocks?

Also: How Nvidia stands out as a bargain stock, warnings for investors and a bitcoin-related IPO.

106天前Insight Analytics约5分钟阅读

US consumer sentiment rises in January, though worries over prices, jobs persist

106天前Insight Analytics约5分钟阅读

Many investors let politics influence their portfolio decisions. That's a big mistake.

Politics and the stock market don't mix. Yet looking at the political environment to make stock-market predictions is common in election years like this.

106天前Insight Analytics约5分钟阅读

Trump's Greenland Gambit Signals a New World Order for Markets

Trump's actions are accelerating a shift toward a multipolar world and new alliances. Here's what strategists say it means for portfolios.

106天前Insight Analytics约5分钟阅读

Week Ahead for FX, Bonds: Fed Rate Decision in Focus

Focus will return to economics and monetary policy in the week ahead, with a Federal Reserve meeting likely to be the highlight of the days to come.

106天前Insight Analytics约5分钟阅读

Nasdaq Gains Over 100 Points; US Consumer Sentiment Rises In January

U.S. stocks traded mixed midway through trading, with the Nasdaq Composite gaining more than 100 points on Friday.

106天前Insight Analytics约5分钟阅读

Morgan Stanley's Jim Lacamp says he ‘would caution' people about getting out of this market

Jim Lacamp, Morgan Stanley Wealth Management senior vice president, joins CNBC's 'Money Movers' to discuss the S&P's third negative week, a "rodeo" bull market, Fed independence, and more.

106天前Insight Analytics约5分钟阅读

Small-Cap Resurgence in 2026

A new year is bringing in a huge market rotation and new leadership for equities.

106天前Insight Analytics约5分钟阅读

WallStreetBets 2026 Index—Top 10 Stocks Chosen By Retail

The digital forum that once brought Wall Street to its knees with the GameStop Corp. (NYSE: GME) short squeeze has set its sights on a longer horizon.

107天前Insight Analytics约5分钟阅读

Now is not the time to own bonds, says Bank of America. These are safer bets.

International stocks, emerging markets and gold will shine in the second half of the 2020s, as investors have made clear that it's time for anything but bonds, Band of America says.

107天前Insight Analytics约5分钟阅读

We have ‘two more rate cuts coming,' says Wharton's Jeremy Siegel

Jeremy Siegel, Wharton professor emeritus, joins ‘Squawk on the Street' to discuss the broadening of the market, consumer sentiment and more.

107天前Insight Analytics约5分钟阅读