Q2 2023 Parsons Corp Earnings Call
Good day, and thank you for standing by.
Welcome to the second quarter 2023, Parsons Corporation earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, David Billy Senior Vice President of Investor Relations. Please go ahead.
Thank you good morning, and thank you for joining us today to discuss our second quarter 2023 financial results.
Note that we've provided presentation slides on the Investor Relations section of our website on the call with me today are Terry Smith, Chairman, President and CEO and Matt <unk> CFO .
Cary will discuss our corporate strategy and operational highlights and then Matt will provide an overview of our second quarter financial results and a review of our 2023 guidance. We then will close with a question and answer session.
Management May also make forward looking statements during the call regarding future events.
Great and future trends and anticipated future performance of the company.
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, 2022, and other SEC 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 the comparable GAAP measures and now I will turn the call over to Kerry.
Thank you Dave.
You're welcome to person second quarter 2023 earnings call.
I am very pleased with our results again this quarter our momentum continues as we delivered another record quarter with all time highs for total revenue organic revenue growth adjusted EBITDA contract Awards and total backlog.
And the second quarter, we achieved organic revenue growth of over 20% in both business segments and one six contracts over 100 million.
All company Records.
Our record growth was driven by winning key contracts in both segments ramping up new contract work growing revenue on existing contracts and record employee hiring and improve retention.
In addition, our successful M&A program is contributing to growth by enhancing our ability to win large strategic contracts with differentiated technical solutions.
I'll also note that for Q2 and the first half of 2023 total adjusted EBITDA growth exceeded revenue growth in the second quarter total revenue increased 34%, while adjusted EBITDA grew by 53% and for the first half of 2023 total revenue.
<unk> grew 29% and adjusted EBITDA increased 38%.
Our ability to drive adjusted EBITDA growth faster than our strong revenue growth demonstrates our focus on margin expansion.
We have the right portfolio and the right team to continue to capitalize on unprecedented global infrastructure spending and the increasing demand for national security solutions, especially in high priority growth markets, such as cyber and intelligence space electronic warfare information.
Operations and artificial intelligence, all of which address near peer threats. These.
These positive factors provide us with the confidence and visibility to raise our full year revenue adjusted EBITDA and cash flow guidance, which Bob will discuss in a few minutes.
During the second quarter, we achieved a book to Bill ratio of one four times on an enterprise basis. These results were driven by a 95% year over year increase in contract awards.
This is now the 11th consecutive quarter and much critical infrastructures book to Bill ratio has exceeded one.
Thanks.
Our robust bookings and record year to date when rates were driven by delivering on our customers' missions moving up the value chain by offering higher end capabilities, developing differentiated technology solutions and hiring and retaining a prestigious workforce.
We were awarded six contracts that exceeded $100 million during the second quarter and one more just after the quarter ended.
These large contracts span both business segments and provide increased visibility to our financial outlook.
Significant second quarter contract wins included the Federal Aviation administration, one $8 billion ceiling value re compete contract to support their aviation system capital investment plan of which we booked a three year base period for $641 million.
Parsons has been the prime contractor on this work for more than two decades, and we look forward to continuing to support this important customer.
What's the infrastructure investment and jobs Act the FAA has $5 billion of additional funding for facilities related work.
Also with this win we have secured all four of our major rates peak of approximately 2 billion each and these contracts span. The next seven to 20 years.
We were awarded a new five year single award contract from the General services administration with a potential value of $1 $2 billion of which we booked a one year base period for $217 million. This.
This contract supports the department of defense and its strategic partners and delivering global quick reaction capabilities, leveraging advanced technology solutions across the all domain battle space.
We want to $170 million task order contract by the defense threat reduction agency under the assessments exercises modeling and simulation support <unk> IQ vehicle.
This contract contains new and existing work to provide vulnerability assessments design reviews and analysis that advances the department of defense and defense threat reduction hfc's missions to counter and mitigate a broad spectrum of existing and emerging bought our abilities and threat, we booked 34 million.
So on this contract in the second quarter.
We were awarded a new $130 million single award contract as lead designer for the Port Authority of New York, and New Jersey that enhance infrastructure at the John F. Kennedy International Airport, the scope and closed a new on your report roadway transportation network parking garage pedestrian bridge.
And utility upgrades.
We booked this entire contract value in the second quarter.
We were also awarded a new $127 million contract, a subcontractor to a federal customer of which Parsons booked $25 million to deliver detection technology solutions.
We were awarded a $109 million of Recompete contract from the United States Cyber command to provide cyber capability discovery development testing and advanced analytics, we booked $52 million on this contract in the second quarter. This is our second consecutive win with the cyber command this year.
We're excited about our position supporting this critical customers mission.
Cyber command is now gaining budget authority in recognition of their importance to national security.
In addition to the six wins greater than $100 million. Each we were awarded a new $93 million single award contract to complete project and design management for a major development, Saudi Arabia, We book the entire value of this contract in the second quarter.
And shortly after the quarter ended the NASA over appears operations maintenance and engineering contract was awarded a dark prime contractor Parsons workshop was $130 million.
During the second quarter. We also closed on our acquisition of IP Keys power partners. This strategic acquisition expands <unk> presence and to rapidly growing end markets grid modernization and cyber resiliency for critical infrastructure.
I think he's enables parsons to bring cyber security tools technology and market experience to utility operators, just your operations optimized sufficiency and achieve grid resiliency.
I'm very pleased with our M&A program, especially with the strong execution of our recent acts to our acquisition our acquisitions have enabled us to prime and win large contracts are strategic and selective approach to acquisitions has enabled us to move up the value chain and create differentiated.
<unk> in our six core end markets.
We have an active M&A pipeline across both segments and we will continue to use our strong balance sheet to complete additional accretive acquisitions that drive gross margin expansion into our business.
As part of our long standing commitment to ESG in April we released our 2023 ESG report detailing how we're making the world safer healthier and more sustainable.
Part of this report, we announced that we have already exceeded our 2025 targets to reduce scope, one and two emissions by 20%.
As a result, we published our commitment to set updated near and long term targets for greenhouse gas emission reductions align with science based target initiatives.
During the quarter, we were recognized as a top employer for diversity by distinguished organizations, including Forbes Women Engineering magazine, and the Washington Business Journal.
In addition, we were recognized by vets indexes for our commitment to support veterans.
As a result of our ESG commitment, we were upgraded by institutional shareholder services or ISS to prime status. This labels awarded to companies for successfully managing sustainability related risks and opportunities and achieving the best ESG scores among their peers.
I'm also proud to share that Parsons was part of the team that helped the United States comply with a 1997 chemical weapons convention or agreement by destroying our country's last chemical weapon. The final Sharon nerve agent filled M. 55 rocket was destroyed on July 7th.
I want to congratulate the hundreds of Pearsons team members and the many partner personnel that supported this mission over the years, leading us to this monumental accomplishment.
As a result of the major milestone achievement on this contract and one other chemical weapons destruction program. This quarter, our federal solutions segment earned $20 million of one time incentive fees driving its adjusted EBITDA margin to over 11% for the quarter.
Relative to our two legacy critical infrastructure programs, our margin was impacted by $28 million. This quarter, while the write downs are disappointing we've made significant progress on both programs, bringing them to over 95% and 75% complete with final completion dates expected.
In early Q4, 2023, and late 2024, respectively.
For the program and entered 2024 during the second quarter, we demonstrate important progress against technical requirements.
In summary, we had an excellent second quarter I'm extremely proud of the hard work and performance of our talented employees.
They have consistently delivered strong results over the last two years.
In the second quarter, we achieved record total revenue organic revenue growth adjusted EBITDA contract Awards and total backlog.
We also reported a one four times book to Bill ratio by increasing contract awards by 95%.
Additionally, we continued to execute on our strategic M&A program and plan to continue to leverage our balance sheet for additional accretive acquisitions.
As I look forward I'm extremely excited about our bright future.
We are in six great markets with differentiated technology that are all simultaneously growing.
We have an experienced management team that is delivering strong results and promoting our people first culture, which is enabling us to be one of their organic growth leaders at both of our business segments.
With that I'll turn the call over to Matt to discuss our second quarter financial highlights Matt.
Thank you Carrie Carrie indicated our second quarter was highlighted by record results in a number of areas, including total revenue organic revenue growth adjusted EBITDA contract Awards and total backlog.
Total revenue of $1 4 billion for the second quarter of 2023 increased 34% from the prior year period and was up 23% on an organic basis.
Organic growth was driven by the ramp up of recent contract wins and growth on existing contracts.
In the second quarter, our acquisitions contributed approximately $121 million of inorganic growth.
As a reminder, our <unk> acquisition closed at the end of May 2022. So in the June 2023 results are reflected in our second quarter organic growth.
SG&A expenses for the second quarter were 16% of total revenue compared to 20% in the second quarter of 2022 due to a continued focus on efficient growth across the portfolio.
Adjusted EBITDA of $118 million increased 53% from the second quarter of 2022.
This increase was driven primarily by volume on new contract wins and the incentive fees from the chemical weapons destruction programs as well as contributions from our <unk> acquisition.
The year over year 100 basis point margin improvement to eight 7% was driven by recent contract awards or <unk> acquisition and operating leverage.
I'll turn now to our operating segments, starting first with federal solutions, where second quarter revenue increased by $225 million or 42% from the second quarter of 2022.
This increase was driven by organic growth of 20% and $118 million from etc.
Organic growth was driven primarily by expansion with department of state growth on existing contracts and the incentive fees previously discussed.
Federal solutions, adjusted EBITDA increased by $38 million or 80% from the second quarter of 2022, and adjusted EBITDA margin increased 230 basis points to 11, 2%.
These increases were driven primarily by the $20 million nonrecurring incentive fees and contributions from etc.
Moving now to our critical infrastructure segment.
Second quarter revenue increased by $123 million or 26% from the second quarter of 2022.
This increase was driven by organic growth of 25% and $3 million from our <unk> acquisition.
Organic growth was driven by higher volume in both the middle East and North America.
Critical infrastructure, adjusted EBITDA increases increased by $3 million or 10% from the second quarter of 2022.
Adjusted EBITDA margin decreased 80 basis points to five 5%.
The adjusted EBITDA increase was driven by higher volume on new and existing contracts.
A stronger core margin was impacted by $28 million of write downs on two legacy programs.
Notwithstanding we continue to see margin expansion within critical infrastructure, excluding impacts from the two legacy programs.
Next I'll discuss cash flow and balance sheet metrics.
Our net DSO at the end of Q2 2023 was 76 days up four days from the prior year period.
During the second quarter of 2023, we generated $23 million of operating cash flow compared to $51 million in the prior year period the.
The decrease was driven by timing of collections on a few large receipts, which were collected early in Q3.
Additionally, working capital was consumed to support the strong growth in the quarter as new programs ramped up.
Consistent with typical seasonality patterns, we expect cash flow to be strong in the second half of the year to get us the midpoint of our increased guidance for 2023.
Capital expenditures totaled $10 million in the second quarter of 2023, which is relatively consistent with the prior year period.
Capex continues to be well controlled and remains in line with our planned spend of approximately 1% of annual revenue.
Our balance sheet remains strong as we ended the quarter with a net debt leverage ratio of less than 114 times. After the $43 million all cash <unk> acquisition, which closed in April .
Our low leverage strong free cash flow outlook, and undrawn borrowing capacity enable us to continue to make internal investments and accretive acquisitions to support long term growth.
Turning to bookings for the second quarter year over year contract award activity increased 95% to $1 9 billion.
Which is the highest in our company's history.
The strong bookings performance was driven by a 201% increase in our federal solutions segment, and a 25% increase in critical infrastructure.
Our book to Bill ratio for the second quarter was one four times with federal solutions at one 5% and critical infrastructure at one three.
On a trailing 12 month basis, our book to Bill ratio remains a healthy one two times with critical infrastructure at one two in federal solutions at 1.1.
Our record backlog at the end of the second quarter totaled $8 9 billion.
Up $674 million or 8% from the second quarter of 2022.
Now I'll turn to our guidance.
We're increasing all of our 2023 guidance ranges provided on may 3rd to reflect a record second quarter results recent large contract wins hiring and retention momentum positive end market exposure and our outlook for the remainder of the year.
For 2023, we're increasing our revenue range by $350 million to $4 85 to 5.05 billion. This represents total revenue growth of 18% at the midpoint and 12% on an organic basis.
Additionally, we are increasing our adjusted EBITDA range, we now expect adjusted EBITDA to be between 410, and $440 million, which represents 20% growth at the midpoint of the range.
At the midpoint of our revenue and adjusted EBITDA ranges remains at eight 6%.
We're also increasing our cash flow guidance, we now expect operating cash flow to be between $280 to $340 million, representing 31% growth at the midpoint.
Free cash flow conversion is expected to remain around 100% of adjusted net income.
Our updated guidance represents 8% of additional revenue and adjusted EBITDA growth at the midpoint of our ranges. These increases reflect greater visibility into customer demand funding on new programs and higher confidence in the staffing and retention estimates.
Other key assumptions in connection with our 2023 guidance are outlined on slide 11 in todays Powerpoint presentation located on our Investor Relations website.
In summary, we delivered record first and second quarter financial results through the first half of the year, we have achieved revenue growth of 29% and adjusted EBITDA growth of 38%.
We're confident in our ability to achieve our increased 2023 guidance as a result, a record total backlog continued hiring and retention momentum strong global infrastructure spend and New award activity in our federal solutions portfolio.
With that I'll turn the call back over to Carrie Thank you Matt.
I'm very pleased with the performance of our company over the last two years, we continue to be one of the top leaders in organic revenue growth in both of our segments.
Given our strong awards revenue and adjusted EBITDA performance, we are raising guidance for all three of our financial metrics.
Looking forward the company with a unique portfolio that is well positioned in two complementary business segments.
All six of our end markets are growing and we continue to win new business and each of them with company record win rates.
As a destination employer, we're exceeding hiring and retention goals as employees seek to work for a firm that combines value driven mission with an entrepreneurial culture.
Our M&A program continues to be successful and the companies that have joined the <unk> family have strengthened our technical differentiation and moved us up the value chain.
Thank you to all the <unk> employees for their dedication and support of our customers' missions.
With that we will now open the line for questions.
As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Draw. Your question. Please press star one again.
Yeah.
Our first question comes from the line of Tobey Sommer with Truest Securities.
Thank you can you hear me.
Yes.
Tobey.
Good morning.
I was wondering if you could describe the factors that would explain why.
It looks like by my math at least.
Sequential topline declines implied in guidance in <unk> and <unk> is there something seasonal or some work that was completed in the quarter that would help.
Help us understand that.
Yeah, Tobey so if we're looking at the second half specifically, we've talked a little bit in prior calls about some headwinds related to Kwajalein specifically that program completed that peaked in Q3 of last year. So that's a bit of an impact. We also to your point have seasonality through the summer months, obviously, a good portion of our growth has been driven by middle East and some of the department.
The state work. So we have some summer months, where the seasonality adjust a little bit and then obviously the Q4, we have a little bit of budget uncertainty with things go well and we continue down the hiring trends will kind of trend towards the high end, but right now the mid point, we're pretty comfortable.
Okay.
And then from a modeling perspective is there if you look into 2024.
It does.
The nonrecurring fee that you described in your third quarter does that provide a real significant headwind to EBITDA growth next year.
No. We don't believe it does tobey were still on track with our long range targets that we provided at the Investor day.
So Tobey I would say if you think about the federal NCI businesses as we've mentioned before federal we typically are in the high <unk> low <unk> from a margin perspective, our goal by 2025 is to get the Ci business over 9%, So I'd say somewhere in those ranges as a fair share number.
Okay and last one for me if I could what is the cadence of Recompete looked like over the next couple of years, having recently kind of one and retired some pretty significant recompete risk.
Yes, Tobey for the rest of this year, it's 1% and for next year. It's 9%. We're very proud of the fact that we won all four of four major re competes and particularly pleased with the duration of this program spanning seven to 20 years.
Thank you very much.
Thank you.
Our next question comes from the line of Bert Steuben with Stifel.
Hey, good morning, and congrats on the strong results in the quarter.
Thank you Bernd expert.
Matt maybe just a follow up to your comments there to Tobey.
Absent the project write downs in the quarter I think you'll see adjusted EBITDA margin would have been over 10% something like 10, 3%.
Which would imply you're already outpacing that nine plus percent Ci margin target so is that.
Just a one time thing was there something I guess beneficial in the quarter outside of.
The headwind you had from the $28 million project write downs.
Yes, I would say.
I think to your point, but we are starting to see the core business with NCI is executing as Carey mentioned, we have that one program wrapping up in early Q4, it kind of slipped into October with in the quarter and then the second one will be middle of next year. So again, it's the core business is executing where we expect it to be longer term, it's really kind of getting through these.
Challenge program. So again, we feel comfortable with targeting <unk> in the low <unk> over the next couple of years, Yes, just add to that so as you mentioned, we were about 10.2 pro forma further quarter for Ci margins for the first half of the year, we would've been at eight seven pro forma.
We are fortunate at one of these programs is very close to wrapping up in fact, we're in the final punch list stage for that that will complete in Q4 early Q4 of this share in the second program. We had terrific results. This quarter in terms of demonstrating some key tech back all of our clients, which gives us confidence in the end of 2000.
2040.
Got it.
Maybe more.
At a high level question for you Kerry.
Look at the recent success you've won a ton of contracts in your FFS side, a lot of success in Ci, both in North America, and the Middle East.
Created a pretty impressive organic growth set up I think the main risks to that where we're hiring around some of the new contract wins on FX, particularly things that involve fiber class of classified work.
And then the <unk>.
<unk> projects.
Should we think about I guess, both going forward on the hiring front.
Do you see a pretty good path to hiring those classified as clear.
I shouldn't.
Have been doing a great job of attracting and keeping quality people within persons.
Great. Thanks, Karen and just one final question can you give us any update on how you think about <unk> that had the potential to be a tailwind do you think that's <unk>.
Being moved up to 23 is that still more of 2024 sorry.
Yes, we are starting to see more demand for P. Fuss P fast as you've seen in the news with particularly if some of the industrial manufacturing companies. When we look at the addressable market for that it's about a 200 billion addressable market out of which person's service service address above market. It's around 45 billion. So.
Were involved mostly today stolen the investigations and then we'll get more involved in remediation as time goes on with the increasing standards that are being put in place by the government. We expect to see that accelerate as we look over the next couple of years.
Great. Thank you can replace ma'am.
Thanks for <unk>.
Our next question comes from a line of Sheila <unk> with Jeffries.
Mm. Good morning, guys. Thank you so much so I just wanted to ask on the top line first off like great corner on every single metric possible. So if you could just talk about what's going on with the top line great organic growth of 23 per cent are you guys changing the way you win business.
How much of it is coming from your addressable market getting bigger it seems like see I had some major tailwinds as well, but you guys are also doing the right thing. So if you could talk about just your update updated guidance how much of it was tied to new words vs on contract rose versus hiring coming in better and then I'll have a follow up.
Yeah. She looked good morning Uhm.
We're very pleased then I'd say all four of the business units and all six of our end markets have been hitting on all cylinders, what we've done probably if there's one change we've moved up the value chain as a result of inorganic investment and then organic M&A, so being able to string together capabilities and Dan has allowed us to win.
Jobs like the 1.2 billion dollar G. S. A job that we were awarded we're also very selective what we bid and we've delivered extremely high wind rates record for the company at 72 per cent your date.
Addressable market again, it's really backed R. Six core markets, where in Sideburn intelligence space and missile defense transportation, environmental remediation urban development and credit pulling up for structure and word unfortunate time that all of the compound annual growth rates are increasing between 5% to 12%. So.
We have to do is really stay laser focus on the sex markets. The customers that we have the capabilities that we deliver and continue to move up the value chain and <unk> when bigger programs. This year year to date, we've won 10 jobs greater than 100 billion, that's Paris with 11 for the full year last year.
So we're in a very strong trajectory, we've seen both new business wins as well as on contract growth across the board.
And hiring is again, it's stronger this year than it was last year, which was already a very good year my attention to uproot by two per cent.
Got it no that's super helpful. And then maybe you mentioned some of these already so as we think about the second half what really comes off on the organic decline with the well not we're getting a plan, but only up 10 and up six as we think about two three in queue for how how it does the F. A a.
Contract Ram factor in there and then that's at G. S a win as well.
Yeah. So Matt mentioned earlier, you have a headwind from Kwajalein of about 55 million and there's a couple of small contract completions, we have factored in <unk> government budget uncertainly, particularly on the federal side and we do have tougher comparable F. A a to your point does have seasonality that's positive that.
Factored in increasing for the second half.
Alright, Thank you [noise].
Thank you.
Our next question comes from the line of Kaifeng rumour with T D Cowan.
Thank you very much so.
Wow.
Congratulations.
Thank you [laughter].
<unk> kind of research.
The numbers were so good.
Where you expect to be with your mood point.
Mmm systems.
[noise] structure.
Yeah. So for the total year, we expect to have 18 per cent growth and 12% organic and Matthew my share of the federal too.
Yeah <unk> <unk>.
54% federal business and 46 per cent C I.
Okay.
And then.
So.
Mmm too much to ask but.
Okay.
Third quarter, because Susan was this is pretty good for them.
The defense.
Okay.
You're historicals.
Q3 at one point.
One in every.
February .
Since 2017, so what are we looking for.
Mmm.
So what we've planned for the rest of the year would be just slightly below a wino, we do typically to your point in the third quarter see very strong federal bookings and again, if the critical infrastructure volume continues based on global infrastructure spend that should already remains <unk>.
<unk>.
We I did point out earlier, we've won 10 contracts greater than 100 million year to date and we already one one of those in the third quarter that we've announced that was the NASA Rome contract for $130 million.
Oh.
And then so you've reached <unk> are you interested in.
You're only increased the cash.
Five.
Question.
Yeah. Good question I, obviously, I think through the first half we're a little bit you know behind I guess I would say from where we had planned we mentioned I mentioned on the script that we were you know we had a couple very [noise] wings that were collected early in the third quarter.
Probably you know the high end is is is kind of what we're hoping for but you know given some of the uncertainty obviously, 35% growth in the middle East year to date, there's a little bit more uncertainty around the middle East billings and collections. So I'd say you know if things go well you know, we're we do have to do almost $300 million in collections or <unk>.
Ash in the second half so it's it's just kind of coming up with the estimate there were comfort confident in.
Terrific.
Last one.
How fast are growing.
What's your appetite.
Mhm, you're growing so fast.
Deliver on that.
As well as do acquisitions, where you're basically cooling.
We still intend to do acquisitions, we really believe that's been a critical part of our growth story, moving us up the value chain solutions and a greater being April debate and win a larger jobs. So we plan to continue we'll keep the same high bar. So it when you need to look a company.
That are growing greater than 10% top line have greater than 10% EBIT margin. We're gonna continue to be very selective you know I think if you look at exit towards being the most recent acquisition and what they've been able to deliver it's gotta be companies like that that are really going to be able to contribute to our growth and couple of indoor or capabilities and make us <unk>.
<unk> to be able to win more business on the federal side, we're going to look at companies and area of cyber and space and particularly around areas like defense of cyber or a credit card infrastructure protection on that credit card for structure side. We're also going to look at areas of geographies because if you look at how the infrastructure spend is the larger states.
Had any more of the money. So you can expect to see S double down there.
Thank you very much thanks.
<unk>.
Our next question comes from the line of Andrew Whitman, which bird.
[noise] excuse me thanks for taking my question I guess.
Your success in the federal.
Awards front this year.
Only with the Recompetes, but with just kind of broadly with your words.
Is obviously notable here I was just wondering in terms of the the level of outstanding bids that you have not heard back on yet.
Does that compare with earlier in the year and does any of the uncertainty in the appropriations process, that's coming this summer fall.
How does that affect the the bidding velocity of the bidding paste that's happening right now Kerry.
Yeah. Thanks, Andrew.
So we have 7 billion awaiting notice of award, which is a little lighter the last quarter because we did win so much I would also point out though we have over 12 billion of what I call on book ceiling value. So if you look at the way again that we do both gangs and take for example, the F. A a contract that was a one.
8 billion dollar award of which we book $641 million. So the rest of that you don't see reflected in our backlog or both things. It's in that 12 billion of unplugged value.
If you look at the appropriations process, we've gotten very used to dealing with certain budget environments. Unfortunately, with continuing resolutions and we're able to run through those both based on that 12 billion a bump up value. We've got obviously very strong 8.9 billion record backlog and then 50% of.
Our business is not subject to like the C. R. A process. If you look at the amount that we have that's international state local and commercial so we felt confident we'll be able to run for awhile and then.
Yeah, just add to your to your complaint you know that's $7 billion of a wedding notice of award. That's if we look back a coupla years of phones two times when our run rate was a coupla years ago. So there's still a backlog there.
But it's kind of training in the right direction.
Recently and Andy We also have a 45 billion pipeline.
Those are all the the numbers I wanted I guess.
A quick comment maybe I missed it on when roots can you just uhm.
Maybe elaborate on kind of what you've seen I know, it's been a good year to date.
Is there any reason to believe that you you've you've been doing better than expected or worse than expected there should be any change in the winter it's that you've <unk> you've.
Periods.
Yeah, we've been doing very well you're to date I mean, I will say if I look back over the last three years almost consistently every year, we've improved sorted by 10% over the last couple of years. This year, we're way up at 72%.
And again I think it goes back to our bidding process, it's being very selective it's moving up the value chain and positioning early working with customers and it keeps point about our business as we look for emerging customer requirements. So we're not a company that's coming in and always trying to take somebody else's market share, but rather how do we solve the problems of the.
Future like the near a pair of threat problems or how do you solve digital transformation within an infrastructure and I think that's a key contributor to our success.
Great. Thank you very much have a good day.
Generally.
Our next question comes from the line of Josh Sullivan with the benchmark company.
Yeah, good morning, three quarters.
Good morning, Thank you Josh.
Just spell you put on the 12 billion of on book value. The International Peace, how do we think of the the middle Eastern contract stay Jean her kids looking ahead any large poles in the tent over the next 12 months.
Yes on the Middle East works, we've been successful to get on 505 of the Giga projects and those are gonna continue to grow as they ramp up the two biggest ones for us would be neon. The line and also at neon would be Oxyt gone project and <unk>. So neon the line being the city that's just.
<unk> Empire State building as long as long Island, you know their goal is to have 9 million people living there by 2030 totally sustainable City and then Kitty at the end of the largest entertainment city in the World just outside of <unk> and we have word that deliver a partner both of those projects. So I would say those are going to continue to see.
Ramp and they have kind of a long tail because that vision months 2030, then outside of Saudi and to buy in Qatar, you're seeing uhm investment as well. So they have like the projects that are 50 in the UAE. That's been defined there's a cut or a national vision. So those are strong.
And then as far as the the Sun studied legacy programs are there any terminal costs, we should think about outside of the <unk>.
I'm not no nothing.
Nothing specific Josh.
It's just kind of wrapping them up in completing within mccarney issues.
And then just lastly, pirate and retention would you seem generally in the labor markets as far as wage inflation or availability and retention rates.
Yes, so we see it down a little bit from last year and again.
Again, great on retention, we've seen 2% drop you over here is a very big improvement.
Credit that to our culture, though I think people come to Parsons and they really liked persons. It's we're a big company, but we act like a small company in terms of our agility our flexibility.
It's kind of a support of culture and I think it's just a great place to be so I believe that's why we're attracting more than kind of our fair share of talent.
Great. Thank you for the plan.
Thank you.
Our next question comes from the line of Louie Depalma with William Blair.
Kerry, Matt and Dave Good morning.
Good morning Lloyd.
It seems that your recent $750 million State Department contract when was for exit tour and the 1.2 billion dollar GSA a word seems.
Seems related to your your Black horse acquisition and I was wondering does this encourage persons to be more active on the M&A front as your current formula seems to.
To be highly effective.
Right now and on this topic what is the state of the M&A pipelines for you as you've done a fairly significant acquisition every year I think for the past four years, but it's just been I P. Keys. This year. So I was just wondering how you feel about the M&A market.
Yeah, Thanks, Blue and I'd say I'm in a as a critical contributor to our what we've seen in our growth our ability to buy the right companies to integrate that companies to retain the leadership and the people has been very important to our success to your point the department of state work growth has been from <unk>.
Tour the GSA when was led by Black horse, but it included almost all the companies that way, but I mean, it was legacy Polaris Alpha O G systems Braxton QR C legacy persons and that way and I would say it was really the culmination of all of those acquisitions the ability to quickly.
In a great and the ability to go after work that is emerging customer requirements, we still see it very good pipeline on both the federal and the credit card for structure side. We look at companies every week, we're going to continue to be very selective so that we're buying their companies that enable the growth that we've been deliberating.
Great. Thanks charity and as it relates to the Middle East how has the labor market been specific to that geography U U reported very strong revenue growth as persons able to hire enough to keep up with.
The demand in that region.
Yeah. Thank slowly the labor market, there's been very good we hire from about 40 different countries around the world. So we have quite a bit of Paul and that type of projects that were doing there are first of a kind one of a kind so people want to be involved in these because they're so unique and compared to other countries.
<unk>, they're really in a greenfield stage, so if you're an engineer there's nothing more exciting than being able to go work on a project like Neon Mark India that you may never see in the rest of your career.
Excellent Thanks Kerry Mendez.
Thanks <unk>.
As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Our next question comes from Marianna Perez, Laura with Bank of America.
Good morning, everyone.
Good morning.
Is.
You have you are expecting 12% organic growth. This year, that's like three four times the.
<unk> you expected.
And with just this year you almost accomplish the lower end of that.
First how should with thinking about the future and like organic growth into the next two years.
And <unk> what are the variables that I didn't know it keep you up at night, and and I Dunno could you place to still build some concern about this in the future.
Thanks for bearing on a great question, we've had a lot of success on upside to our financial targets as you point out during the first half of the year. We have one a significant amount of work we do plan to update our three year financial targets as a result, and you'll hear from us in either two three or Q for for an update but for now from a modeling perspective I would start.
With the updated guidance midpoint of 4.95 billion and put our Investor day total revenue targets of mid single growth on top of that higher base.
And then your second part of your question was what.
What part keeps you up.
Oh have headwinds.
I would say if any of the macro environment issues, you know everything within our control I felt comfortable about so the question is do we end up with a longer than a year C. R. We talked about Kwajalein earlier being a headwind in the second half of the year does hiring her by attention become more difficult right now we're not.
Seeing those but those would be the ones that we would keep an eye on.
Perfect. Thank you I'm done a name on a five have you seen any colds trying some clothing bill that'd be M because of higher scrutiny.
We have not seen constraints at all on closing deals I'll.
I'll point out to a couple of things.
We look for companies not that we're competing against by companies that will fill capability gaps to help us become a stronger solutions and a greater and move up the value chain. We also try and get companies preemptively. So we try to avoid auction processes. We get companies that we've worked with for a long time, so we understand their <unk>.
Culture, and we know that they're gonna be a fit one other items that you mentioned unlike other companies, we don't build in synergies into our M&A case, so anytime we get cost of revenue synergies those are additive to our M&A case, and then after way by companies. It's key focus of us to be able to keep the leadership team in fact, many of the folks on my executive later.
Ship team today came from acquisitions.
Thanks, so much.
Thank you thanks Marianna.
That's all the time, we have for questions today I'd like to turn the call back to Dave's Billy for closing remarks.
Thank you and thank you 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 will end today's call have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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