Q3 2022 Parsons Corp Earnings Call
Good morning, and welcome to the Q3 2022 Parsons Corporation earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist that personal sparky, followed by general <unk>.
Today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
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So basically VP of Investor Relations. Please go ahead.
Thank you good morning, and thank you for joining us today to discuss our third quarter 2022 financial results. Please note that we've provided presentation slides on the Investor Relations section of our website on the call with me today are Terry Smith Chair, President and CEO and Matt uplift CFO today Cary will discuss our corporate strategy.
<unk> operational highlights and then Matt will provide an overview of our third quarter financial results. We then will close with a question and answer session.
Management May also make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company.
We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected in the forward looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year ended December 31, 2021 and other.
<unk> filings. Please refer to our earnings press release for Parsons complete forward looking statement disclosure, we do not undertake any obligation to update forward looking statements.
Management will also make reference to non-GAAP financial measures. During this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures and now I will turn the call over to Kerry.
Thank you, Dave Good morning, and welcome to a person's third quarter 2022 earnings call. We delivered strong third quarter financial results with record revenue and record adjusted EBITDA during the quarter, we achieved year over year double digit organic revenue growth in both business segments and grew adjusted he.
It all up by 22% and contract awards by 'twenty one person at.
Operating cash flow increased by 59% year over year and by 28% for the first nine months of the year.
We further strengthened our robust balance sheet and our access where acquisition is making meaningful contribution Starbucks shops.
Given our strong third quarter results, we are raising the mid point of our 2022 revenue adjusted EBITDA and cash flow guidance ranges.
During the third quarter, we generated total revenue growth of 19% our year over year organic revenue growth was 11%, including 13% within our critical infrastructure segment and 10% within our federal solutions segment.
These results were driven by sustained recruiting and retention growing revenue under existing contracts driving task orders to large single award contracts and operating effectively in two well funded and growing markets.
Our ability to successfully deliver on our customers' missions has allowed us to continue to secure our re competes and win large strategic contract in areas aligned with national security and global infrastructure priorities.
During the third quarter, we achieved a book to Bill ratio of one one times on an enterprise basis and in both business segments.
This is now the eighth consecutive quarter in which critical infrastructure is book to Bill ratio exceeded one point O times.
During the third quarter, we were awarded the following notable contracts of $121 million option here on our combatant command cyber mission support contract, where we provide offensive and defensive cyber operations and open source intelligence in support of joint all domain operations.
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$121 million of new work under two contracts to support the development of two major industrial cities in the Middle East.
These gains are projects, we only booked the first phase of each contract.
$117 million of New project work under the Faa's technical support services contract to provide engineering construction oversight installation and technical services over $70 million. That's a gross on this contract was funded out of the infrastructure investment and job.
Shocked.
Oh $104 million teams next facilities lifecycle manage that recompete contract to provide advisory and technical services support to the missile Defense Agency.
Our $75 million contract extension by a classified customer to provide comprehensive cyber vulnerability assessments for weapons systems, and a new $24 million task order for military service branch to perform remedial investigation and feasibility studies, where P fast.
Another contaminant releases have occurred.
Our person emerging contaminant team has been aggressively pursuing opportunities and building market share with a total of over $40 million in PFS contract wins in both our federal solutions and critical infrastructure segments over the last nine months.
We also have one prime positions on three multiple award I D. IQ contracts. The first one is classified contract to provide offensive cyber operations with a $5 billion ceiling value over 10 years. The second idea. It you win is for the defense threat reduction agencies' assessment exercise.
And modeling and simulation support contract with an $850 million ceiling over 10 years and the third IDE E. <unk> contract is for the United States Army Engineering and support center with a $675 million ceiling over seven years.
Under this contract we will provide electronic security system design and maintenance.
A substantial amount of work on our contracts awarded during the quarter contain ESG related work and.
In addition to the recent PFS wins I highlighted earlier, one of the Middle East gigawatt projects I mentioned has a goal to ensure all residents and industries in the city are powered by a 100% renewable energy.
During my recent trip to the Middle East I visited the site and met with customers and employees and their environmental focus is impressive.
This quarter, we also joined our L. A us customer to celebrate the unveiling of their automated people mover vehicles, which sets a high standard for environmentally sustainable transportation, having shelf made up recyclable materials and achieving zero emissions.
We also continue to support numerous charities, including the tragedy assistance program for survivors, which increases advocacy and support for the families of our nation's fallen heroes.
I am proud of the work persons is doing to make positive impact on our environment Society.
Turning to our most recent acquisition the exit tour integration is going well the revenue and profitability have been in line with our expectations and they're exceeding their sales targets, we've retained and integrated key leadership aligned research and development programs and are leveraging synergies.
To pursue new work across both our segments.
Given our robust cash flow we ended the third quarter with a net leverage ratio of one six times, our low leverage and ample debt capacity will enable us to continue to make strategic investments and our accretive acquisition.
Research and development and our people and culture.
In summary, I am very pleased with our execution this quarter and throughout 2022 and remain optimistic about our future.
We delivered record revenue and profitability as well as excellent cash flow results.
We continue to benefit from our strong leadership performance execution, and our ability to win large strategic contracts.
We're operating in two complementary in growing markets and our balanced portfolio was a differentiator for Parsons.
And critical infrastructure, we're seeing budgets grow across the globe, which are aligned with our transportation environmental remediation water and wastewater treatment and urban development markets.
And our federal solutions segment global tensions remain high and threats continue to evolve.
Our portfolio of cyber space missile defense and critical infrastructure protection aligns to the administration's recently released National Defense strategy Nuclear posture review and missile Defense review, which focus on near peer threats.
Given our positive and market position in both segments, we will continue to invest in our people and technologies to drive future shareholder value.
And with that I'll turn the call over to Matt.
Thank you Terry.
You indicated third quarter results were highlighted by strong organic growth profitability and cash flow.
Total revenue for the third quarter of 2022 increased by 19% from the prior year period, and it was up 11% on an organic basis.
Organic growth was driven primarily by the ramp up of work on existing and new contracts and strong hiring.
Our <unk> acquisition contributed approximately $71 million of revenue in the third quarter.
SG&A expenses increased by $6 million or 3% from the prior year period, primarily due to the impact of the extra acquisition.
Adjusted EBITDA of $103 million increased 22% from the third quarter of 2021, and adjusted EBIT margin increased 30 basis points to nine 1%.
These increases were driven primarily by stronger operating leverage and contributions from Ecuador.
I'll turn now to our operating segments, starting first with federal solutions, where third quarter revenue increased by $121 million or 24% from the third quarter of 2021.
This increase was driven by organic growth of 10% and approximately $71 million from Ecuador.
Organic growth was driven by increased activity on existing contracts and the ramp up of recent contract awards.
Federal solutions, adjusted EBITDA increased $15 million or 31% from the third quarter of 2021, and adjusted EBITDA margin increased 60 basis points to nine 9%.
These increases were driven primarily by strong revenue growth, while continuing to control costs.
Moving now to our critical infrastructure segment.
Third quarter revenue increased by $57 million or 13% from the third quarter of 2021, all of which was organic.
This strong growth was driven primarily by increased activity on existing contracts and the ramp up of recent contract awards and increased worldwide hiring activity.
Critical infrastructure, adjusted EBITDA increased by $4 million or 10% from the third quarter of 2021, and adjusted EBITDA margin decreased to eight 1%.
Our adjusted EBITDA increase was driven by strong revenue growth, partially offset by lower equity and earnings.
We expect our critical infrastructure margins to expand sequentially and year over year in the fourth quarter with higher equity and earnings and continued growth on higher margin programs.
Next I'll discuss cash flow and balance sheet metrics.
Our net DSO at the end of Q3, 2022 was 68 days equal to the prior year period and down four days from the end of Q2 with strong collections in the federal segment.
Our third quarter operating cash flow totaled $123 million.
Operating cash flow for the first nine months of 2022 increased by 28% over the prior year period to $148 million and increased 59% from the third quarter of 2021.
Capital expenditures totaled $6 million in the third quarter of 2022 compared to $4 million in the prior year period.
<unk> continues to be well controlled and below our planned spend of 1% of revenue.
Our balance sheet remains strong as we ended the quarter with a net debt leverage ratio of one six times.
Our low leverage and undrawn borrowing capacity, coupled with the recent refinancing of our private placement notes will enable us to continue to make internal investments and accretive acquisitions to drive additional growth for Parsons.
Turning to bookings for the third quarter.
Contract awards increased 21% to $1 $3 billion, representing a book to Bill ratio of one one times.
Contract award activity increased by approximately 20% in both segments and our book to Bill ratio was also 1.1 in both segments.
Our backlog at the end of the third quarter totaled $8 $2 billion in line with our second quarter of 2022, and total backlog continues to represent two years of annual revenue.
Now, let's turn to our guidance.
We're increasing our 2022 revenue adjusted EBITDA and cash flow guidance to reflect our strong third quarter results and our outlook for the remainder of the year.
We've raised revenue by $75 million at the midpoint and updated the range to 4.05 to $4 $2 billion.
This represents total revenue growth of 13% at the midpoint and 7% on an organic basis.
Additionally, we are increasing our adjusted EBITDA range.
Now expect adjusted EBITDA to be between 340, and $360 million, which represents 13% growth at the midpoint of the range.
Margin at the midpoint of the range in revenue at the midpoint of our revenue and adjusted EBITDA remains at eight 5%.
We are also increasing the midpoint of our cash flow guidance.
And now expect operating cash flow to be between 255, and $275 million and free cash flow conversion is expected to remain at approximately 100% of adjusted net income.
Other key assumptions in connection with our 2022 guidance have also been updated and are outlined on slide 10 in today's Powerpoint presentation.
With that I'll turn the call back over to Kerry.
Thank you, Matt I'm very pleased with our third quarter results, we achieved year over year double digit organic revenue growth in both business segments and grew adjusted EBITDA contract awards and operating cash flow by more than 20%. Each we also further strengthened our balance sheet and our access to where acquisitions are off to a great.
Start our team is delivering consistent results and we are benefiting from tailwind in each segment, we expect our momentum to continue given our portfolio is well aligned to important macro environment trends into well funded and growing markets.
I would like to thank our entire team once again for their outstanding performance.
Our success is the product of their hard work and dedication to solving our customers' most complex challenges.
Before we begin the Q&A session I'm pleased to announce that we will be conducting our investor day on March 15th next year. This will be a great opportunity to learn more about our strategic vision here from business unit leaders and participate in Q&A sessions, we look forward to the event and your participation.
With that we will now open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one your telephone keypad.
Excuse me the speakerphone, please pick up your handset before pressing the keys.
To withdraw your question. Please don't start them to at this time, we will pause momentarily to assemble roster.
Uh huh.
Our first question will come from Greg Konrad with Jefferies. You May now go ahead.
Good morning.
Wondering if the anger.
I think you know over the last couple of quarters and coming into this year, you really strict about getting back into a pool.
Places of beats and raises in and you've kind of done that throughout this year. If you think about the revenue profile over the last couple of quarters, what's really improve how much of that New award maybe acceleration of programs or did you just tie to hiring tracking ahead of plan.
Thanks, Greg for the question. So I would say our the revenue growth has been driven by New awards as well as a consistent hiring we really turned our hiring trajectory around last July and we've sustained.
Sustained that momentum if you look at this quarter quarter over quarter, our hiring is up 30% and if you look at the first nine months of this year were up 46% over last year, then from the new upwards perspective on the federal side of the House, We mentioned continuously we had one all these single award <unk> ceiling I D.
Q. So our objective was really how do we drive new task orders to those idea IQ vehicles, which we've successfully done we also had a little bit of benefit in federal with us some COVID-19 tailwind as some of our work such as fluctuating FAA returned to full steam this year.
On the critical infrastructure side of the house, we're already benefiting from global infrastructure spend, particularly in the middle East. They moved many of their programs to the left and we were Fortunately successful on winning this thanks Greg.
And then maybe just to follow up on critical infrastructure I mean, there's been a really good turn in that business and you kind of talked about growing budgets. You just mentioned the middle East, but can you maybe just bucket kind of what's driving that growth and when you think about the pipeline how is that.
Finding and how do you think about growth that's kind of out in front of you based on that pipeline versus maybe what you are capturing today.
Sure. So I would say, we're benefiting from our portfolio of predominantly in the Middle East also in the United States and then third would be in Canada.
Starting with the middle East they establish these gigabit programs, where they're building new industrial cities.
And it's our customer will be shortly announcing those programs. So I don't want to get ahead of them, but a single city. For example, its worth 500 billion, our second cities worth 250 billion.
If you look at the United States infrastructure spend we are starting to benefit from that as a great example, on our F. A a program 70 million on the FAA program has already come from the infrastructure Bill and we're seeing benefit our cross our rail and transit customers as well as some of the aviation customers are moving their projects for.
And then finally in Canada, they pass their infrastructure spend back in 2016, so their programs are already well underway and we're seeing a lot of additional work there.
Nominally rail and transit, but also some road and highway.
Oh, thank you.
Thank you thanks, Chris.
Our next question will come from Bert Steuben with Stifel. You May now go ahead.
Hey, good morning, Cary Mad Dave.
Good morning <unk>.
Maybe just a follow up on infrastructure comment.
Gary can you talk about how U S infrastructure has unfolded relative to what your expectations were maybe earlier this year and what your thoughts are for how that spend starts to materialize or grow sequentially as we head into 'twenty three.
Sure. So just to recap the infrastructure Bill is 1.2 trillion 550 billion of that is new and where we benefit is from transportation, which sold for 288 billion of the funding as well as areas such as power and utility our roads and highways bridges dams tunnels.
Aviation ports.
That dog rail and transit what we've started to see on that Bert is initial rollout of the funds federal customers or gain the funds first so an example, like I mentioned the FAA. We've also seen rail and transit funding start to rollout there was about 88 billion of road and high.
The way funding that's been rolling out and some of the Formula funds that gave allocated to the states.
As we've indicated in the past for from a planning perspective, though we anticipate the peak of that being more along the lines of 'twenty 'twenty three 'twenty 'twenty four.
Thank you Okay, Yeah, no that's helpful. Thanks, Gary.
Just as a follow up how should we think about margins going forward, maybe beyond <unk> across the segments. It looks like federal solutions rose to almost 10% in the quarter do you think those levels are sustainable and then on the critical infrastructure side.
Margins were maybe a little lower than expected around 8% should we expect over time, the two segments sort of get to a point where their margins were ultimately closer and so maybe you'll get some more critical infrastructure accretion over time.
Thoughts on margins would be helpful. Thank you.
Yeah, Great Great question, so from a federal perspective, as we've indicated in the past.
We don't expect 10% continuously every single quarter, because it really depends on the timing of award and incentive fees given that we're about two thirds cost reimbursable business in federal but we are pleased that you know with the stronger revenue and that we've been bringing in and we've been bringing in and at higher margins as well on that.
Critical infrastructure side of the house.
Will improve over time, we started to roll off some of these legacy programs that we've talked in the past and those have kind of been a drain on their critical infrastructure margin that should be our higher performing margin segment given that we have two thirds fixed price time and material work in that segment. So as you look forward, we'll continue to expand.
Margins in both of the segments, particularly critical infrastructure. When you start to look at pricing strength, that's going to come as a result of the global infrastructure spend the wind down of these legacy programs. So improved performance execution and then we continue across the board a persons to control cost as we achieve this revenue growth.
Very helpful. Thank you Carrie.
Our next question will come from Mariana Perez Mora with Bank of America, You May now go ahead.
Thank you good morning.
Good morning Ana.
First could you please to outbid awesome husband money pipeline, where are you looking for active not surprising.
Uh huh.
Oh, M&A and money and money.
Yeah. The M&A pipeline is still very strong we continue to have.
Strong criteria from a financial perspective, if we're looking for companies that are going to have growth of greater than 10% on the top line and greater than 10% EBITDA margin, we've expanded our outreach and were looking at companies in both the federal and their critical infrastructure segment, and we have a robust candidate list in each and we're still looking for comp.
So they keep us focused on our strategic vision of becoming a strong solutions integrator, that's differentiated by advanced technology.
Hey, Joe how are you how do you think about deep that's great environment I know, it's hard to see when you look at these deals.
Yeah, I'm happy to take that one Marina. So you know obviously everybody's dealing with higher interest rates I would say at the company level, we're still from a.
Average interest rate expense, we are still in the high twos low threes low threes. After our term loan so feel really good about where we're at as a company will continue to make an assessment on what makes sense and look at the accretive acquisitions as Kerry mentioned.
And if I may last one relative to the quarter, our organic growth and your updated guidance, it's 7% organic growth.
But that compares to about like 9% year to date, what is the main factor for deceleration in fourth quarter.
Yeah, Great question, we tend to have seasonality in the fourth quarter largely on our FAA contract and then we're also faced with holidays and vacations increase during the fourth quarter and the third area would be we had a peak period for Kwajalein, we had some major deliveries in Q3, so that'll come down slightly in the fourth.
Quarter.
Thank you very much.
Yeah.
Our next question will come from Tobey Sommer with tourists you May now go ahead.
Thank you and good morning.
With respect to that.
So [noise].
The federal contracting environment, we've heard from some others that there may have been an opportunity for spending from last year's budget with some of the two year money to flow into December the December quarter contracting. So do you think that the December quarter could be.
Not as good as the final scope of the federal government, but sort of above average this year and do you have a sort of a baseline expectation for how long we're in a CR.
If I could answer the last winter.
<unk> got a big price, but I would say I hope to see or we'll end this year and that we can continue I think it's critically important we all got every company a lot of important mission work that we've got to deliver so I really hope that we can get through that they should I would say at the longest we would expect it to go into Q1 on the first part of your question.
Toby what we have right now is about 7 billion awaiting notice of award we do hope that we start to see those awards move forward, we have a very strong quality pipeline within those 7 billion I would love to see many of those awarded before the end of the year. We also have about 388 billion tied up in protest that.
All federal work as well so again, we'd like to see some resolution on that and in the meantime, what we're going to continue to do is what we've been doing very well all year is driving work to our single award contracts that we have over 6 billion of.
Ceiling that is unused said, we haven't booked yet.
Yeah.
Hum.
I wanted to ask sort of a maybe a medium term question we smoked.
A year from a.
Growth perspective, you know over the last year or more critical infrastructures reaccelerate it.
What does this do what are the funny complications in terms of equity earnings indoor.
Yes, so as that business.
It accelerates and I give those two examples but consider it open ended in terms of what are the financial implications of accelerated growth and critical infrastructure mean.
Yeah I'll take the first part and then I'll take the AR DSO to come back I think I said on our protests Toby 388 billion. It should be 388 million that we have in protest.
Regarding multiyear with critical infrastructure accelerating so equity and earnings is predominantly for us.
Legacy critical infrastructure programs, where we used to be a minority partner.
So you will start to see equity and earnings go down over time, because we've re pivoted the business and focused on our core which engineering design as well as complex program management and the purpose of this is to Derisk the portfolio and get back to areas, where we know we can drive stronger margins, Matt you want to address the DSO.
Yeah, Tobey I'd say, we're it's something we're definitely looking at I think we're going to continue to push the teams to drive DSO down I think there's opportunities obviously middle east is a little bit longer in terms of cash collections, but theres opportunity to push the teams the customers willing to pay their bills. So it's you know when there's opportunities from a billings improvements and things like that so I don't think it'll be a significant.
Packed we've modeled out 2023 already in and feel like you know whats the comparable TSV type number for next year.
And then as you look at your capital allocation with respect to acquisitions.
Do you.
<unk> more opportunity in any particular side of the business.
Yes, so on M&A, we continue to be focused on the near peer threats and we're looking at areas, where we can drive the cyber space electromagnetic spectrum and information warfare convergence.
To be able to fight that type before that would be our priority and that's all of the companies that you look at over the past five years have been aligned towards that vision on their critical infrastructure side of the house, we're looking at technology differentiation as we start to build back the infrastructure, it's gonna be done differently in the past. It was designed for about a 30 to 30.
Five year lifespan that future, it's gonna be designed for about 100 year lifespan. So technology is critically important and then the other area, which ties back to the infrastructure funding is out of the 550 billion of new funding, there's 115 billion of cyber and resiliency. So any component that gets built is going to have to have cyber and resilient.
And given our portfolio burn in unique position to capitalize on that.
Thank you very much.
Thanks.
Our next question will come from Josh Sullivan with benchmark company.
You May now go ahead.
Hey, good morning.
Good morning, Josh.
Oh on the middle Eastern projects.
What is labor availability look like in the region relative to the contract flow your Youre looking at.
Yeah, Great question. So we've been doing a great job of hiring in the middle East we bring in folks from over 35 countries around the world.
So we've had an expansive network and I think the reason that we've been largely successful we've done business there for over 60 years extremely well established across the region and in Saudi Arabia, a particular, we've had a joint venture company in place for many decades. So we know how to outreach to the right type of personnel.
Well, we've been looking for immediately is getting very strong program management. These are first of a kind unique projects that have never been done. So it's an exciting time for people to take on that challenge and also for engineers to come over and work on those programs.
Alright, and then how should we think of the contract cycles in the middle East versus the North American market. So any any material dynamics, we should think about it that region grows in importance for you I think you mentioned longer cycles on cash collection, but but anything else we should think about.
Yeah, I would say what we've seen recently is shorter cycles on acquisition.
You know they've moved some of these programs to the left which has really benefited us.
And a lot of it is in Saudi to capitalize on Saudi vision 2030, and how do they are basically reduce their dependency on oil and to be able to do that they need to keep the young Saudi people working employed motivated having things to do so they are building. These new cities for places where people can work.
But also tourism centers recreational centers.
So we think that's going to continue again for the next decade to help Saudi.
Thank you for the time.
Thank you Josh.
Okay.
Our next question will come from Cai von rumor with Cowen.
You May now go ahead.
Yes, Thanks, you so much.
Joining a little bit late but two questions first one is.
As you know about.
The occupancy ceiling of D. O D was lifted on September the 14th and secondly, yesterday on <unk> call. They discussed congressional approval of Bill Bill a plant that's being a plus to get some some of these awards flowing what are you seeing in terms of the flow of awards is that.
Is that picking up.
And do you think those two pluses would would outweigh the potential impact of ICR. Thank you.
Thank you Ty I I think they are both positive changes the occupancy lift getting people back working is very important to get things moving.
Build a plant we have a great relationship with him as do others in industry I think he's been very positive I would also highlight the fact you know we added Ellen Lord to our Board recently, which I think was a significant addition, who previously held that role.
But I would say, yes, we're optimistic that we're going to see things moving forward on the federal side and I think are a testament to that would be 1.11 book to bill for federal this quarter.
Are you seeing any signs since the end of the third quarter that things are picking up.
On the federal side.
I would say a little too early to tell but we are seeing is our ability to scale to be able to drive task orders to our unused ceiling.
Great and then the last one so in the mid east.
As you know the U S relationship with Saudi have started to see a little bit more strain is not having any impact on your business there or do you expect that to be a threat in anyway.
No we don't expect it to be a threat in fact that type of work that we do there is good for the world because we're basically developing cities and places of unemployment for the young Saudis to go work in entertainment centers. So I would say no. We do not expect any change we've had that business there for six decades.
Been very solid and are based on the type of work, we do there that will continue.
Terrific. Thank you so much.
Got it.
Again, if you have a question please press star one.
Our next question will come from Louis Dipalma with William Blair You May now go ahead.
Cary, Matt and Dave Good morning.
Morning, Louie Louie.
Hiring and retention has been particularly strong for the past several quarters.
Do you know approximately how much head count has increased over the past year.
Yeah, we we have not shared that specifically, but I'll give you their percentages, 30% quarter over quarter from Q3 last year to Q3. This year and then for the first nine months of this year were up 46%. We also through the first nine months have already exceeded all of our total 2021.
Right.
Great. Thanks.
Thanks, Carrie and you referenced winning a new 177 million dollar contract for that the FAA is technical support program and you've mentioned in the past how.
Your your contract has been up for renewal and what what is the status of that renewal and.
If you were to win such a contract would the full amount go into backlog and the reason I'm wondering as backlog is often scrutinized by analysts and your backlog is down year over year, but it seems to be like artificially low because of this.
Contract. So I'm just wondering the different dynamics here with this contract.
Yeah. So first the status of the re compete as the bids are in evaluation. We expect an award decision would be made sometime first or second quarter of next year from a perspective of the backlog again, we don't put everything fully into backlog. So a great example, I gave you is our teams missile Defense agency.
Contract you know that was 2.24 billion, we only put in backlog $618 million. So we would likely takes a similar conservative approach on the FAA and that's the same conservative approach that we took on these two middle East job site reference, where we only booked the first year and a half in addition, our funded back.
Log is up sequentially and that's really what we look at.
Great and one final one Cary you mentioned, how you recently visited them in your customer in the Middle East and you also saw.
Pretty exceptional growth from that customer this quarter is.
There are pipeline of new opportunities for.
The futuristic cities that are being built that can cause your revenue run rate in the middle east to continue to trend higher.
Yes, there definitely is Louie, there's a serious mostly I'm going to say in Saudi but also the UAE. Saudi has all these good projects and we were very fortunate a couple of years ago. We got on the ground floor of the knee Oxycodone without award and we've been able to continue our success with the next two industrial cities.
We have a very robust pipeline in Saudi but I would also say in the UAE, where we're doing quite a bit of urban development work for.
For companies such as E Mart would be one great example, but robust pipeline there.
Sounds good Thanks, Kerry Mountain Dew.
Absolutely.
Yeah.
Our next question will come from Gavin Parsons with Goldman Sachs. You May now go ahead.
Hey, good morning.
Good morning, Kevin.
Carrier you still have some of the total project numbers for those middle East.
You guys spoke to I think maybe $120 million.
Much of the total overall number is program management and how much of that is maybe sole source too. So I guess the quick.
Question is what's the addressable spend there and that is that kind of front end loaded or spread over the lifetime of the city build.
And so I don't have a specific percent on how much will go towards program management. It because these are such long term programs are starting now but these are gonna be decade Lam programs. What I can tell you is they're using a new model, what's called an integrated delivery partner models. So they will be announcing the selection of three companies for each of their projects.
That I mentioned us so sole source.
Although we've been awarded the work will basically be split among the three companies for those.
Okay did you give timing on the $120 million contracts that you already booked.
Well they've started were already we're already working on those.
Is that one year duration.
One in a half year duration is for the 120.
Got it okay.
Then I think you said that NCI and critical infrastructure is going to trend lower over time I think this quarter is one of the biggest you've had in a while and drove the majority of the sequential step up in margin.
Could you just help.
Ridge the margin drivers from kind of that core critical infrastructure margin in the mid single digits today, you know X NCI too.
The higher of that 9% that you said you know can surpass federal at some point.
Yeah. So I think what the key drivers first Starwave had these legacy programs and once these get off our books.
We're down to two of those now.
One already is complete and it's a fully operational so we have two programs. We got wrap up one of them will wrap up our second quarter next year. The other one at the end of next year to early 2024, so that will help us alone improved performance execution as we get closer to the end of these we have a lot more visibility. So I think that's going to help expand our margin.
And I talked earlier about a the pricing strength that we're going to get from the global infrastructure spend that'll be significant we're bidding higher margin work as we move along.
Given the fact that we've got that pricing strength.
Okay.
Thank you.
Thank you thanks, Kevin.
That is all the time, we have for questions I would like to turn the conference back over to Dave really for any closing remarks.
Thank you thanks for joining us. This morning, if you have any questions. Please don't hesitate to give me a call and we look forward to speaking with many of you over the coming weeks and with that we'll end today's call have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.