Booz Allen views artificial intelligence and cyber as inherently linked
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By
Ross Wilkers
Artificial intelligence is the enabler of larger systems and it's cyber that protects them, so Booz Allen Hamilton tells investors to think of them as going together when considering the firm's strategy.
Standalone, one-off procurements to acquire artificial intelligence technologies do not appear to be the primary approach of government buyers looking to use the technology.
That is, at least, according to Booz Allen Hamilton's view of the overall landscape. During that firm's fiscal second quarter earnings call, Chief Financial Officer Matt Calderone advised them to take note of "the extent to which AI is now being bundled into large procurements."
It is worth noting that McLean, Virginia-headquartered Booz Allen had one of them to tout as a win.
During the call with analysts, CEO Horacio Rozanski described the firm's booking in June of a potential $1.86 billion cyber contract called "Thunderdome" with the Defense Information Systems Agency. Thunderdome has one initial base year and up to four individual option years.
DISA's goal for the Thunderdome initiative is to roll out a new zero trust architecture across the Defense Department's entire technical infrastructure, Rozanski told analysts. Given those size and specs, automation will have to be part of the equation and incorporate tools for artificial intelligence and machine learning.
Thunderdome is merely one example of how Booz Allen believes the common tech threads of cyber and AI go together and essentially have to for larger systems.
"Increasingly, we're seeing not just for AI, but for cyber, for digital, for some of the hardware engineering and integration that we do, that is bundled together," Calderone told analysts. "Because If you think about a complex mission problem, it requires AI to enable it, cyber to protect it. You've got to integrate it into a software and network system. Often times, it has to be integrated into some type of hardware product."
Where Booz Allen gets the technologies from and how the firm incorporates it is all-encompassing.
"We have some unique solutions that are the product of our talent, some frameworks that are proprietary to Booz Allen, and the work we do with commercial partners to bring dual-use technology into these missions," Rozanski said.
This current iteration of Booz Allen's strategy unveiled in 2021 highlighted acquisitions of other companies as a key tool for expansion.
Booz Allen's $725 million purchase of Liberty IT Solutions may have preceded the investor day that unveiled the "VoLT" strategy by around four months, but certainly is part of that bigger picture the firm presented.
Calderone told analysts that in 2021, the lower interest rates contributed to an M&A market that "was much more robust and less political and macroeconomic risk."
In essence, the world was in a different place. Interest rates are now higher and federal antitrust regulators are turning up their scrutiny of mergers and acquisitions, as Booz Allen itself found out in moving to close the purchase of EverWatch.
It is also worth pointing out that Booz Allen's venture capital fund closes transactions of a different stripe, where the firm takes partial ownership stakes in emerging technology companies whose tools show the potential to scale for government usage.
"Strategic M&A very much remains a priority for us. It's an important tool in rounding out our ability to bring technology to mission at scale," Calderone said. "We're getting a lot of value out of our venture investments, but they tend to not be at the kind of scale that you get from Liberty. So exclusively, I would absolutely do the Liberty acquisition again, and we're looking for the next one. We've got a sizable pipeline of small to midsize tuck-ins that we're prosecuting."
Fiscal second quarter revenue of $2.7 billion was 16% higher than the prior year period, while profit of $290.6 million represented a 1.6% year-over-year increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Booz Allen lifted its full-fiscal year 2024 revenue guidance to a growth range of 11%-to-14%, up from the prior 7%-to-11% range, from the fiscal 2023 sales number of $9.3 billion.
The firm also nudged up its adjusted EBITDA outlook to a range of $1.115 billion-to-$1.145 billion, up from the prior $1.075 billion-to-$1.105 billion range, with adjusted EBITDA margin expectations left unchanged at high 10%-to-11%.