Booz Allen's AI outlook centers on 'vertical scaling'

When GovCon chief executives talk in public forums, the conversation inevitably works its way toward artificial intelligence and how prominent it is becoming in how the federal government operates.

During Booz Allen's fourth quarter and fiscal year-end earnings call Friday, Horacio Rozanski provided investors this summary of how he sees things:

"There's a cycle of experimentation, there's a cycle of trying this out, then you start to get early successes and then you go vertical on scaling, and I think we're just at the very beginning of the vertical scaling phase. The rationale there is these missions are becoming increasingly complex."

One key signpost of that scaling can be seen in how each federal agency is under a Biden administration mandate to appoint a chief AI officer.

Many agencies already have chief data officers in place, but the White House's AI guidelines finalized in March focus on balancing safeguards with advancing the government's use of the technologies.

Chief AI and data officers also lead the management of resources and investments in the technologies. Rozanski told analysts that substantially every agency is looking to take advantage of their cloud-based data to further drive AI into their missions.

Within Booz Allen itself, Rozanski attributes approximately $600 million in revenue from the firm's just-ended fiscal year to AI work. That translates to around 5.6% of sales for the 12-month period ended March 31.

Booz Allen wants the AI sales number to become $1 billion in the next couple of years, he said.

The way Rozanski and Booz Allen see things, that bullish outlook reflects the different nature of how agencies look at AI today versus in the past.

"If you asked me this question 18 months ago, I would have said it was most prominent in (intelligence), DOD was starting to go down that path and the civil agencies were really more focused on cloud migration than on AI," Rozanski said. "I think that has really changed."

Rozanski also disclosed this significant news item on the Friday call. Ralph Shrader, chairman of Booz Allen's board of directors since 1999 and CEO from 1999-2014, will retire after the company's annual stockholders meeting on July 24.

The board has elected Rozanski as chair and Mark Gaumond as lead independent director, a role that acts as a key liason between the board and chair when the latter is also CEO. Gaumond has been a board member since 2011.

"It is impossible to fully account for Ralph's contributions to Booz Allen, to our investors and our people, to the country, and to so many of us personally," Rozanski said. "Earlier this spring, Ralph celebrated 50 years with Booz Allen in a career that spanned many roles including CEO and now chair. His impact and his legacy will forever be ingrained in the fabric of our company, guiding us and inspiring us as we chart the course for our continued success."

Fourth quarter revenue of $2.8 billion was 13.9% higher than the prior year period, while profit of $286.8 million showed a 23.9% year-over-year increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

Full fiscal year sales of $10.6 billion were 15.2% higher than the prior year period, while adjusted EBITDA of $1.17 billion showed a 15.9% year-over-year increase. That translates to a margin of 11% adjusted EBITDA on revenue.

Employee headcount increased 7.2% to 34,234 and client-facing staff grew 7.4% to 31,228.

Booz Allen's 2025 fiscal year started on April 1. The company's initial financial outlook for FY 2025 has revenue growth of 8%-to-11% and adjusted EBITDA of $1.26 billion-to-$1.3 billion, suggesting a margin of 11%.

As is becoming Booz Allen's modus operandi, the company is looking to build momentum and capture as much work as possible in its first half. The November election and specter of stopgap funding measures out of Congress both loom in the second half.