Q3 2023 Parsons Corp Earnings Call

Good morning, and thank you for standing by walking through the third quarter 2023 Parsons Corporation earnings Conference call. At this time, all participants are in a listen only mode.

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I'd now like to turn the conference over to days really senior Vice President of Investor Relations. Please go ahead.

Thank you good morning, and thank you for joining us today to discuss our third quarter 2023 financial results. Please note that we provided presentation slides on the Investor Relations section of our website on the call with me today are Kerry Smith Chair, President and CEO and Matt off list CFO today, Cary will discuss our corporate <unk>.

<unk> operational highlights and then Matt will provide an overview of our third 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 dissipate the 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 look.

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.

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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 Carrie. Thank you Dave.

And welcome to person third quarter 2023 earnings call I'm very pleased with our team's performance and our ability to capitalize on the positive tailwind in both our critical infrastructure in federal solutions segments. We delivered record quarterly results in total revenue organic revenue growth.

Adjusted EBITDA and operating cash flow, we also achieved over 20% organic revenue growth in both segments for the second consecutive quarter adjusted EBITDAR growth of nearly 25%.

Double digit increase in contract awards and over $200 million in quarterly cash flow for the first time in our company's history.

In addition, we closed the strategic acquisition that strengthens our defensive cyber capabilities at a time when accelerating and evolving cyber threats are driving increased customer spending.

So first of all of our strong performance and the sealing technologies acquisition, we are raising our full year revenue adjusted EBITDA and cash flow guidance ranges.

During the third quarter, we generated total revenue growth of 25% and achieved year over year organic revenue growth of 23%, including 24% within our critical infrastructure segment and 23% within our federal solutions segment.

Our record organic revenue growth was driven by our ability to win them ramp up new contracts drive task orders for large single award contract maintained strong employee hiring of retention and operate effectively in two well funded and growing markets.

In addition, our successful M&A program is contributing to our growth by enabling persons to move up the integrated solutions value chain by offering higher end capabilities and differentiated technology solutions, resulting in our ability to bid and win larger and higher margin contracts.

We continue to officially grow our business for the first nine months of 2023 total revenue grew 28%, while adjusted EBITDA increased by 32% our ability to drive adjusted EBITDA growth faster than our strong revenue growth demonstrates our focus on margin expansion.

During the third quarter, we achieved a book to Bill ratio of one point over time. So on an enterprise basis. These results were driven by a 14% year over year increase in contract awards. This is now the 12th consecutive quarter in which critical infrastructures book to Bill ratio has exceeded 1.0 times.

We're pleased that over 50% of our wins represent new work illustrating our continued ability to effectively compete and move up the value chain.

On a trailing 12 month basis, our enterprise book to Bill ratio was one two times.

We were awarded four contracts two in each segment that exceeded $100 million during the third quarter. We've now won 13 contracts over $100 million through the first nine months of 2023. This is the most we've ever won in a single year and it exceeds our prior annual revenue.

Our annual record up 11 contracts greater than $100 million in fiscal year of 2022.

Significant third quarter contract wins included $160 million contract by the intelligence community to develop hardware and software solutions that enable intelligence operations.

This seven year classified contract represents both new and Recompete work with a customer that Parsons has supported for over two decades.

We booked $70 million on this contract in the third quarter.

A seven year $150 million contract by the southern Nevada water authority to enhance system reliability increase water use efficiency and improved community health. This contract represents both new and repeat scope and we booked $47 million on this contract in the third quarter, we are proud to do.

Have supported this critical customer for the past 30 years or more than 120 major projects.

A five year contract with an estimated value of $130 million and they're not sure of our Paris operations maintenance and engineering contract as subcontractor to a small business person will provide facilities construction management and engineering and technical services. This contract represents both new and Recompete.

And we plan to book approximately $30 million in the fourth quarter.

Additional scope of over $100 million for development of Neon the line and infrastructure project in the Kingdom of Saudi Arabia.

Parsons is proud to be supporting the CAGR project, which is a first of a kind linear smart city driven by 100% renewable energy.

Parsons is contributing on all five of Saudi Arabia is K Cup projects.

We were also awarded two contracts in the Indo Pacific region totaling over $70 million supporting the United States Army Corps of engineers.

We were awarded a new three year $44 million contract to provide the design build of United States Army housing on Kwajalein Island we.

We were awarded a new task order for $27 million over five years to assess munitions explosives and material for hazardous removal and provide construction management for the night for the United States Missile Defense agency facilities on guar.

We booked $54 million in total under these two contracts in the third quarter.

We've been awarded extensive work and Endo paid com by leveraging our program and construction management engineering, and planning cyber and intelligence and space and missile defense expertise. We're proud of our sustained regional presence and we are focused on continuing to support our United States customers.

And that national security needs as part of the $9 1 billion dollar Pacific Deterrence initiative and the fiscal year 'twenty for budget.

During the third quarter, we also announced and closed on our acquisition of sealing technologies in a transaction valued at approximately $200 million.

<unk> Tec expands Parsons customer base across the department of Defense and intelligence community and further enhances our capabilities and defensive cyber operations integrated mission solutions powered by artificial intelligence critical infrastructure protection and secure data management.

See like tax defensive cyber capabilities complement pearsons, leading offensive cyber capabilities and increase our market share of full spectrum cyber operations, which is expected to be a leading growth area and both persons federal solutions and critical infrastructure segments due to evolving cyber threats.

After the third quarter ended we also acquired Texas based full service consulting engineering firm, I guess engineers, which specializes in transportation engineering, including roads and highways and program management.

This acquisition is consistent with person strategy of completing accretive acquisitions of companies with revenue growth and adjusted EBITA EBITA margins exceeding 10%, while adding critical infrastructure talent and bolstering the company's portfolio in large and growing states.

Operator: Good morning and thank you for standing by.

Operator: Welcome to the third quarter, 2023 Parsons Corporation earnings conference call. At this time, all participants are in the list and only mode.

Operator: After the speakers' presentation, there will be a question and an answer session. To ask a question during the session, you will need to press Star 1-1 when you're telephoned. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1-1 again.

Texas is poised to receive nearly $30 billion in total transportation funding from the infrastructure investment and jobs Act between 2022 and 2026.

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 align with our strategy and drive growth and margin expansion.

Operator: Please be advised that today's conference is being recorded.

Operator: I would now like to turn the conference over today's weekly Senior Vice President of Investor Relations. Please go ahead. Thank you.

And as part of our long standing commitment to ESG during the third quarter, we were recognized by the stem workforce diversity magazine for the eighth consecutive year.

Operator: Good morning and thank you for joining us today to discuss our third quarter, 2023 financial results. Please note that we provided presentations slides on the Investor Relations section of our website. On the call with me today are Kerry Smith, Chair, President and CEO and Matt Ophilis, CFO.

Top National Science Technology Engineering, and maths employer for minorities women and people with disabilities. We were also named to the best of the best 2023 top veteran friendly companies list by the U S. Veterans Magazine. This award recognizes companies that are recruiting and providing a rewarding.

Operator: Today, Kerry will discuss our corporate strategy and operational highlights and then Matt will provide an overview of our third quarter financial results in the review of our 2023 guidance. We then will close with a question and answer session. Management may also make four looking statements during the call regarding future events, anticipated future trends, and anticipated future performance of the company. We caution you that such statements are not guarantees that future performance and involve risks and uncertainties that are difficult to predict.

Work culture for veterans transitioning service members disabled veterans and military spouses.

In addition, we were recognized by Engineering news record as one of the top three global companies in 2023, and four categories professional services program management construction management and program construction management for fee. These.

Operator: Actual results may differ materially from those projected in the four looking statements due to a variety of factors. These risk factors are described in our form 10K for fiscal year and in December 31, 2022 and other SEC filings. Please refer to our earnings press release for Parsons Complete for Looking Statement Disclosure. We do not undertake any obligation to update for looking statements. Management will also make reference to non-gap financial measures during this call.

These rankings reflect our worldwide reputation and ability to successfully win and perform infrastructure programs. We are proud to be a company of our size with such high rankings.

In summary, we had another strong quarter for the second quarter in a row, we delivered record total revenue organic revenue growth and adjusted EBITDA.

We also achieved record third quarter operating cash flow a double digit increase in contract awards and maintained strong employee hiring and retention.

Operator: We remind you that these non-gap financial measures are not a substitute for their comparable gap measures, and now we'll turn the call over to Kerry. Thank you, Dave.

Carey Smith: Good morning and welcome to Parsons third quarter 2023 earnings call. I'm very pleased with our team's performance and our ability to capitalize on the positive tailwinds and both our critical infrastructure and federal solution segments. We delivered record quarterly results in total revenue, organic revenue growth, adjusted EBITDA and operating cash flow. We also achieved over 20% organic revenue growth in both segments for the second consecutive quarter, adjusted EBITDA growth of nearly 25%, a double digit increase in contract awards, and over $200 million in quarterly cash flow for the first time in our company's history.

We closed an accretive acquisition that strengthens our defensive cyber capabilities and after the third quarter ended we acquired an infrastructure company that strengthened our engineering expertise and expands our geographic footprint and a high growth state.

I want to thank our talented employees for their commitment to successfully delivering on our customers' critical missions. Their dedication has enabled us to achieve our operating performance success.

As I look forward I continue to be very excited about our bright future. We're in six growing and enduring markets and critical infrastructure, we're benefiting from unprecedented global spending, which we expect to continue for decades to come.

Carey Smith: In addition, we closed the strategic acquisition that strengthens our defensive cyber capabilities at a time when accelerating and evolving cyber threats or driving increased customer spending. As a result of our strong performance and the ceiling technology acquisition, we are raising our full-year revenue, adjusted EBITDA and cash flow guidance ranges. During the third quarter, we generated total revenue growth of 25% and achieved year-over-year organic revenue growth of 23%, including 24% within our critical infrastructure segment and 23% within our federal solution segment.

And our federal solutions segment, our portfolio of cyber and intelligence space and missile defense and critical infrastructure protection aligns to the national defense strategy and macro environment trends.

Given the breadth of our capabilities and our technical expertise I believe we have the right portfolio and the right team to capitalize on these tailwind.

These factors along with our sealing check and ice engineers acquisitions provide us the confidence to raise our full year revenue adjusted EBITDA and cash flow guidance.

Carey Smith: Our record organic revenue growth was driven by our ability to win and ramp up new contracts, drive task orders to large single award contracts, maintain strong employee hiring and retention, and operate effectively in two well-funded and growing market. In addition, our successful M&A program is contributing to our growth by enabling persons to move up the integrated solutions value chain by offering higher end capabilities and differentiated technology solutions, resulting in our ability to bid and win larger and higher margin contracts.

With that I'll turn the call over to Matt to discuss our third quarter financial highlights Matt.

Thank you Carrie Carrie indicated our third quarter was highlighted by record results in a number of areas, including total revenue organic revenue growth adjusted EBITDA and operating cash flow.

Total revenue of $1 4 billion for the third quarter of 2023 increased 25% 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 and inorganic revenue benefited from our ceiling tuck in <unk> acquisitions.

Carey Smith: We continue to efficiently grow our business. For the first nine months of 2023, total revenue grew 28% while just a debit of increased by 30% Our ability to drive a just a debit of our growth faster than our strong revenue growth demonstrates our focus on margin expansion. During the third quarter, we achieved a book to bill ratio of 1.0 times on an enterprise basis. These results were driven by a 14% year of a year increase in contract awards.

SG&A expenses for the third quarter were 15, 6% of total revenue compared to 17, 4% in the third quarter of 2022 due to a continued focus on efficient growth across the portfolio.

On a year to date basis, SG&A was 16% compared to 18, 8% in 2022.

The 280 basis point improvement is an intentional focus on delivering higher margins through cost control to go with strong topline growth.

Adjusted EBITDA of $128 million increased 24% from the third quarter of 2022.

Carey Smith: This is now the 12th consecutive quarter in which critical infrastructure's book to bill ratio has exceeded 1.0 times. We're pleased that over 50% of our wins represent new work, illustrating our continued ability to effectively compete and move up to value chain. On a trailing 12 month basis, our enterprise book to bill ratio is 1.2 times. We've rewarded four contracts, two in each segment that exceeded $100 million during the third quarter. We've now won 13 contracts over $100 million through the first nine months of 2023.

This increase was driven primarily by organic growth in our high margin change order on an unconsolidated joint venture project.

The 10 basis point margin decreased to 9% was driven by higher projected incentive compensation costs. As a result of the company's strong operating performance and growing employee base.

For the first nine months of the year, our adjusted EBITDA margins have expanded in both segments and have increased 30 basis points overall from the prior year period to eight 5%.

I'll turn now to our operating segments, starting first with federal solutions, where third quarter revenue increased by $160 million or 26% from the third quarter of 2022.

Carey Smith: This is the most we've ever won in a single year and it exceeds our prior annual revenue or a prior annual record of 11 contracts greater than $100 million in fiscal year 2022. Significant third quarter contract wins included a 160 million dollar contract by the intelligence community to develop hardware and software solutions that enable intelligence operations. The seven year classified contract represents both new and reap work with the customer that persons has supported for over two decades.

This increase was driven by organic growth of 23% and the inorganic revenue contribution from our ceiling Tech acquisition.

<unk> growth was driven primarily by growth on new and existing contracts, partially offset by the previously discussed wind down of the QUADRA long Island contract.

Federal solutions, adjusted EBITDA increased by $4 million or 7% from the third quarter of 2022, primarily due to growth on recent contract awards.

Carey Smith: We booked $70 million on this contract in the third quarter. A $750 million contract by the Southern Nevada Water Authority to enhance system reliability, increase water use efficiency and improve community health. This contract represents both new and reap scope and we booked $47 million on this contract in the third quarter. We are proud to have supported this critical customer for the past 30 years on more than 120 major projects. A five year contract with an estimated value of $130 million on the NASA repairs operations maintenance and engineering contract.

Adjusted EBITDA margin decreased 160 basis points to eight 3% based on the timing of program milestones and completions as well as higher projected incentive compensation cost as a result of the company's strong operating performance and growing employee base.

Year to date Federal solutions adjusted EBITDA margin remained strong at nine 5%, which is more in line with our long term expectations.

Moving now to our critical infrastructure segment.

Third quarter revenue increased by $125 million or 24% from the third quarter of 2022.

This increase was driven by organic growth of 24% and the inorganic revenue contribution from our <unk> acquisition.

Carey Smith: As subcontractor to a small business, persons will provide facilities construction management and engineering and technical services. This contract represents both new and reap peak scope and we plan to book approximately $30 million in the fourth quarter. Additional scope of over $100 million for development of Neon the line, an infrastructure project in the Kingdom of Saudi Arabia. Parsons is proud to be supporting this Giga project which is a first of a kind linear smart city driven by 100% renewable energy.

Organic growth was driven by higher volume in both the middle East and North America.

Critical infrastructure, adjusted EBITDA increased by $21 million or 51% from the third quarter of 2022.

Adjusted EBITDA margin increased 170 basis points to nine 8%.

The adjusted EBITDA increases were driven by accretive organic growth in our high margin change order on an unconsolidated joint venture projects that positively impacted equity in earnings.

Next I'll discuss cash flow and balance sheet metrics.

Carey Smith: Parsons is contributing on all five Saudi Arabia's Giga projects. We were also awarded two contracts in the Indo-Pacific region, totaling over $70 million, supporting the United States Army Corps of Engineers. We were awarded a new three-year, $44 million contract to provide the design build of the United States Army housing on Kwajalan Island. We were awarded a new task order for $27 million over five years to assess munitions, explosives, and material for hazardous removal and provide construction management for the United States Missile Defense Agency Facilities on Guam.

Our net DSO at the end of Q3 2023 was 65 days down three days from the prior year period.

During the third quarter of 2023, regenerated $204 million of operating cash flow compared to $123 million in Q3 of 2022.

For the nine months ended we generated $218 million of operating cash flow, a 47% increase over the prior year period.

These increases were primarily driven by improved profitability and strong collections across the portfolio during the third quarter.

Capital expenditures during the quarter totaled $13 million.

Compared to $6 million in the prior year period.

Capex continues to be well controlled and remains in line with our planned spend of approximately 1% of annual revenue.

Carey Smith: We booked $54 million in total under these two contracts in the third quarter. We've been awarded extensive work in Indo-Pacific by leveraging our program and construction management, engineering and planning, cyber and intelligence, and space and missile defense expertise. We are proud of our sustained regional presence, and we are focused on continuing to support our United States customers in the national security needs as per the $9.1 billion Pacific deterrence initiative in the fiscal year 24 budget.

Our balance sheet remains strong as we ended the quarter with a net debt leverage ratio of one four times consistent with the second quarter, even after the all cash acquisition of ceiling Tech, which closed on August.

Our low leverage strong free cash flow outlook and Undrawn borrowing capacity is enabling us to continue to make internal investments and accretive acquisitions to support long term growth.

Turning to bookings for the third quarter year.

Year over year contract award activity increased 14% to $1 4 billion.

Carey Smith: During the third quarter, we also announced and closed on our acquisition of ceiling technologies and a transaction valued at approximately $200 million. Sealing tech expands Parsons customer base across the Department of Defense and Intelligence community and further enhances our capabilities in defense of cyber operations, integrated mission solutions powered by artificial intelligence, critical infrastructure protection, and secure data management. Sealing tech's defense of cyber capabilities complement Parsons leading offensive cyber capabilities and increase our market share in full spectrum cyber operations, which is expected to be a leading growth area in both Parsons' federal solutions and critical infrastructure segments due to evolving cyber threats.

The strong bookings performance was driven by a 12% increase in our federal solutions segment, and a 17% increase in critical infrastructure.

Our book to Bill ratio for the third quarter was 1.0 times with federal solutions at one point and critical infrastructure at one one times.

On a trailing 12 month basis contract awards increased 47% and our book to Bill ratio was one two times with critical infrastructure at one point too in federal solutions at one one.

Our backlog at the end of the third quarter totaled $8 8 billion.

$587 million or 7% from third quarter of 2022.

Now, let's turn to our guidance, we are increasing all of our 2023 guidance ranges provided on August 2nd to reflect a record third quarter results.

Large contract wins hiring and retention momentum ceiling tech acquisition and our outlook for the remainder of the year.

Carey Smith: After the third quarter ended, we also acquired Texas-based full-service consulting engineering firm, IS Engineers, which specializes in transportation engineering, including roads and highways and program management. This acquisition is consistent with Parsons' strategy of completing our creative acquisitions of companies with revenue growth and adjusted even on margins exceeding 10%. While adding critical infrastructure talent and bolstering the company's portfolio in large and growing states, Texas is poised to receive nearly $30 billion in total transportation funding from the Infrastructure Investment and Jobs Act between 2022 and 2026. We have an active M&A pipeline across both segments, and we will continue to use our strong balance sheet to complete additional creative acquisitions that align with our strategy and drive growth and margin expansion.

For 2023, we are increasing the midpoint of our revenue guidance by $300 million.

To a range of $5 175 to five $3 billion to $5 billion.

This represents total revenue growth of 25% at the midpoint and 19% on an organic basis.

Additionally, we are increasing our adjusted EBITDA by $25 million at the midpoint.

We now expect adjusted EBITDA to be between $4, 40, and $460 million, which represents 28% growth at the midpoint of the range.

Margin at the midpoint of our revenue and adjusted EBITDA range remains at eight 6%.

We're also increasing our cash flow guidance, we now expect operating cash flow to be between 300 and $340 million, representing 35% growth at the midpoint.

This guidance also reflects $33 million of deferred cash payments made at the beginning of Q4.

Carey Smith: As part of our longstanding commitment to ESG, during the third quarter we were recognized by the STEM Workforce Diversity magazine for the 8th consecutive year as a top national science technology engineering and math employer for minorities, women and people with disabilities. We were also named to the best of the best 2023 Top Veteran Friendly Companies list by the US Veterans Magazine. This award recognized companies that are recruiting and providing a rewarding work culture for veterans, transitioning service members, disabled veterans, and military spouses.

Free cash flow conversion is expected to remain around 100% of adjusted net income for the full year.

Our updated guidance represents 6% of additional revenue and adjusted EBITDA growth at the midpoint of our ranges.

Other key assumptions in connection with our 2020 for guidance are outlined on slide 10 in today's Powerpoint presentation located on our Investor Relations website.

In summary, we've delivered strong results in each of the first three quarters of the year through.

Through the first nine months of the year, we have achieved revenue growth of 28% and adjusted EBITDA growth of 32%.

We're confident in our ability to achieve our increased 2020 guidance as a result of our strong funded and total backlog continued hiring and retention momentum robust global infrastructure spend and the increasing need for national security solutions with that I will turn the call back over to Carrie. Thank you Matt.

Carey Smith: In addition, we were recognized by engineering news record as one of the top three global companies in 2023 and four categories, professional services, program management, construction management, and program construction management for fee. These rankings reflect our worldwide reputation and abilities successfully win and perform infrastructure programs. We are proud to be a company of our size with such high rankings.

I am very pleased with the performance of our company. We delivered record total quarterly total revenue organic revenue growth adjusted EBITDA and operating cash flow. We also continue to be a top organic revenue growth later in both of our segments and we're executing on our strategic M&A program, what's driving growth into our business.

Carey Smith: In summary, we had another strong quarter. For the second quarter in a row, we delivered record, total revenue, organic revenue growth, and adjusted deep at all. We also achieved record, third quarter operating cash flow, a double digit increase in contract awards, and maintained strong employee hiring and retention. We closed in a creative acquisition that strengthens our defensive cyber capabilities. And after the third quarter ended, we acquired an infrastructure company that strengthens our engineering expertise and expands our geographic footprint in a high growth state.

Given our strong operating performance for raising guidance for all three of our financial metrics.

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 and two well funded segments and six growing and enduring markets with that we'll now open the line for questions.

Thank you as a reminder to ask a question. Please press star one one when your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Carey Smith: I want to thank our talented employees for their commitment to successfully delivering on our customers' critical missions. Their dedication has enabled us to achieve our operating performance success. As I look forward, I continue to be very excited about our bright future. We're in six growing and enduring markets. And critical infrastructure we're benefiting from unprecedented global spending, which we expect to continue for decades to come. In our federal solution segment, our portfolio of cyber and intelligence, space and missile defense, and critical infrastructure protection aligns to the national defense strategy and macro environment trends.

The first question comes from Bert <unk> with Stifel. Your line is open.

Hey, good morning, and congrats on a great quarter.

Thanks Robert.

Perry organic growth has been pretty unbelievable last few quarters, both segments above the 20% Mark which is obviously quite a bit ahead of your peers that.

That seems pretty intact as we look to <unk>, maybe a little lower but still really elevated.

As we think about the fourth quarter whats driving such a wide range of outcomes.

I assume it's the government shutdown or the potential for a shutdown and then as we look out to 'twenty four what gives you confidence growth can remain elevated maybe not at the 20% Mark but still still pretty quick for what you put out at the Investor day.

Carey Smith: Given the breadth of our capabilities and our technical expertise, I believe we have the right portfolio and the right team to capitalize on these tailwinds. These factors, along with our ceiling tech and IS engineers acquisitions, provide us the confidence to raise our full-year revenue, adjusted EBITDA and cash flow guidance.

Yes. Thanks for the question Bert So first we're very pleased with our growth to date, and obviously two consecutive quarters of 23% organic growth. We're in terrific markets. All six end markets are growing as we look toward the latter half of the year, we have one headwind, which is our quad <unk> program in engineered systems, that's about <unk>.

Matt Ophilis: With that, I'll turn the call over to Matt to discuss our third quarter financial highlights. Matt. Thank you, Carrie.

Matt Ophilis: As Carrie indicated, our third quarter was highlighted by record results in a number of areas, including total revenue, organic revenue growth, adjusted EBITDA and operating cash flow. Total revenue of $1.4 billion for the third quarter of 2023 increased to 25% 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, and in organic revenue benefited from our ceiling tech and IPK's acquisitions.

$15 million that we need to overcome but I would say the biggest variable is really kind of uncertainty relative to the budget environment and then we do get seasonality in our business both in federal and in critical infrastructure. Our FAA program in federal has seasonality in our mind programs up in Canada.

With that said, we're confident of achieving the midpoint to the high end of the range as far as revenue performance as we looked at 'twenty four would be great to be able to continue this terrific organic growth performance, but we're obviously, making sure that we put together measured guidance and that we can meet what we commit to deliver.

Matt Ophilis: SGNA expenses for the third quarter were 15.6% total revenue compared to 17.4% in the third quarter of 2022 due to a continued focus on efficient growth across the portfolio. William. On a year-to-date basis, SGNA was 16%, compared to 18.8% in 2022. The 280 basis point improvement is an intentional focus on delivering higher margins through cost control to go with strong top-line growth. Adjusted to the $128 million increased 24% from the third quarter of 2022.

<unk>.

Maybe just on that point could you give us a little bit more commentary.

On the the large cyber contract win you had and I think thats, probably quite early stages, maybe more of a 2004 contributor and then what youre seeing on the IHA, Brian or if you can't break it out on <unk> just in terms of what youre seeing in domestic infrastructure side.

Yes, so the large cyber win its a contract that we've held.

Matt Ophilis: This increase was driven primarily by organic growth and a high margin change order on an unconsolidated joint venture project. The 10 basis point margin decreased to 9% was driven by higher projected incentive compensation costs as a result of the company's strong operating performance and growing employee base.

They're going to be adding some new and expanded scope, it's a classified contract and its supporting an intelligence community customer I can just say we have spurred this customer for over two decades were very pleased with that we've also continued our success beyond this classified customer with United States Cyber command securing both RJ.

Matt Ophilis: For the first nine months of the year, our adjusted EBITDA margins have expanded in both segments and have increased 30 basis points overall from the prior year period to 8.5%.

Six and RJ nine break peaks that is critically important as we look forward to next year because cyber command has now been given budget authority similar to what the United States Special operations Command has so beyond the intelligence community, we're seeing excellent growth across our cyber business within the Iga theres been about.

Matt Ophilis: I'll turn now to our operating segments starting first with federal solutions where third quarter revenue increased by $160 million or 26% from the third quarter of 2022. This increase was driven by organic growth of 23%, and the inorganic revenue contribution from our ceiling tech acquisition. Organic growth was driven primarily by growth on new and existing contracts partially offset by the previously discussed wind down of the Quadriline Island contract. Federal solutions adjusted EBITDA increased by $4 million or 7% from the third quarter of 2022 primarily due to growth on recent contract awards.

184 billion as the funds that have started to roll out from the one two trillion. Our estimate is still that we're going to see the majority.

Start to rollout in the latter part of this year early next year and we expect the peak to move from a 2026 prime timeframe toward 2027 timeframe based on the rollout.

As you can see from 12 consecutive quarter, so of greater than one book to Bill and we're over driving organic growth in both the middle East and the United States. We are starting to benefit from that it also helps our federal segment, because our FAA contract.

Matt Ophilis: Adjusted EBITDA margin decreased to 160 basis points to 8.3%, based on the timing of program milestones and completions as well as higher projected incentive compensation costs as a result of the company's strong operating performance and growing employee base.

Which we just won the Recompete if the FAA is getting $25 billion out of the infrastructure Bill 5 billion of that is going to go to facilities work that's directly aligned with our scope on the FAA contract.

Matt Ophilis: Year to date, federal solutions adjusted EBITDA remained strong at 9.5%, which is more in line with our long-term expectations.

Matt Ophilis: Moving now to our critical infrastructure segment. Third quarter revenue increased by $125 million or 24% from the third quarter of 2022. This increase was driven by organic growth of 24%, and the inorganic revenue contribution from our IPK's acquisition. Organic growth was driven by higher volume in both the Middle East and North America. Critical infrastructure adjusted EBITDA increased by $21 million or 51% from the third quarter of 2022. Adjusted EBITDA margin increased to 170 basis points to 9.8%. The adjusted EBITDA increases were driven by a creative organic growth and a high margin change order on an unconsolidated joint venture project that positively impacted equity and earnings.

Great Super helpful. Gary and then Matt just a final question on the margin side.

Can you just update us on where we stand on the two legacy critical infrastructure projects. Those are still expected to ones are still expected to ramp before year end and the other by the end of next year and then what are you seeing in terms of margins and backlog.

As you go forward just with some a lot of the pretty impressive demand that Carey mentioned.

Yes, I think great question, Bert I think to your point the to start with the legacy programs. The first one is still due to wrap up in Q4. So we're tracking kind of punch list items behind 90% 97 plus percent complete by the end of the quarter. So again, we're still tracking to the Q4 ramp up which is which is great to have that behind us again that once it's in.

Equity and earnings second one is self perform program that is still projected to wrap up late 2024.

Matt Ophilis: Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q3 2023 was 65 days, down 3 days from the prior year period. During the third quarter of 2023, we generated $204 million of operating cash flow compared to $123 million in Q3 of 2022. For the 9 months ended, we generated $218 million of operating cash flow, a 47% increase over the prior year period. These increases were primarily driven by improved profitability and strong collections across the portfolio during the third quarter.

So those are kind of on track no change from prior quarter I would say no significant change from prior quarter.

When it comes to kind of the bid pipeline and the backlog. We are definitely focused on expanding margins I think it would be.

Investor Day, we talked about 20 to 30 basis points per year.

And we're pushing the teams hard to to deliver on that and we're starting to see that in the bid pipeline and the backlog and just one addition, Matt indicated the first program is 98 set complete the second program is 84% complete.

Matt Ophilis: Capital expenditure is during the quarter total $13 million compared to $6 million in 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 1.4 times consistent with the second quarter even after the all cash acquisition of ceiling tech which closed in August. Our low leverage, strong free cash flow outlook and undrawn borrowing capacity is enabling us to continue to make internal investments and a creative acquisition to support long-term growth.

Great. Thanks, so much.

Thanks Bert.

Please standby for the next question.

The next question comes from Tobey Sommer with true with your line is open.

Thanks, I wanted to ask you about the.

M&A market and.

In your appetite across the two segments.

<unk>.

Are you seeing.

Matt Ophilis: Turning to bookings for the third quarter, year-over-year contract award activity increased 14% to $1.4 billion. The strong bookings performance was earned by a 12% increase in our federal solution segment and a 17% increase in critical infrastructure. Our Bookter Bill ratio for the third quarter was 1.0 times with federal solutions at 1.0. And critical infrastructure at 1.1 times.

Targets.

That meet your criteria and sort of the right size et cetera.

<unk>.

I recently attended an M&A conferencing.

The pace of activity.

Available things when the market was described as kind of kind of low so im curious what youre seeing.

Thank you Toby and good morning.

Matt Ophilis: On a trailing 12 month basis contract awards increased 47% and our Bookter Bill ratio was 1.2 times with critical infrastructure at 1.2 and federal solutions at 1.1. Our backlog at the end of the third quarter totaled $8.8 billion, up $587 million or 7% from the third quarter of 2022.

So our appetite is going to be to continue to pursue M&A.

Been a key part of our game plan and critical to our growth and I think Thats really helped US win all these large pursuits, which testified by 13 Wednesday share greater than a $100 million exceeding last year's record of $11 million or <unk> 11 for the total year.

Use the last two M&A. Examples this ones that are in our sweet spot and crossover IP keys is a company that does ciber compliance from underlying specifically for power utility companies as well as water companies. So it's a nice intersection between our federal and our critical infrastructure business.

Matt Ophilis: Now let's turn to our guidance. We're increasing all of our 2023 guidance ranges provided on August 2nd to reflect our record third quarter results, recent large contract lens, hiring and retention momentum, ceiling tech acquisition and our outlook for the remainder of the year. For 2023, we're increasing the midpoint of our revenue guidance by $300 million to a range of $5.175 to $5.325 billion. This represents total revenue growth of 25% of the midpoint and 19% on an organic basis.

Matt Ophilis: Additionally, we're increasing our adjusted EBITDA by $25 million at the midpoint. We now expect adjusted EBITDA to be between $440 and $460 million, which represents 28% growth at the midpoint of the range. Margin at the midpoint of our revenue and adjusted EBITDA remains at 8.6%. We're also increasing our cash flow guidance. We now expect operating cash flow to be between $300 and $340 million, representing 35% growth at the midpoint, guidance also reflects $33 million of deferred cash payments made at the beginning of Q4. Pre-cash flow conversion is expected to remain around 100% of adjusted net income for the full year. Our updated guidance represents 6% of additional revenue and adjusted EBITDA growth at the midpoint of our ranges.

Likewise sealing technologies why most of their work to date has supported the department of defense and the intelligence community. We're looking at combining their capabilities with the IP key capabilities and new product offerings and sealing technologies fly away kits can also be used for commercial applications.

As far as criteria meeting the right size, we're going to keep our strict criteria, which greater than 10% topline growth and 10% margin expansion.

I'll also just mention I S engineers, they provided transportation engineering and while that's predominantly on our credit card for structure side. Some of the work. They can do their can also help our engineered systems group on the federal side of the house.

Thank you and then.

Could you refresh us on what the impacts were on the either the income statement or cash collections.

Contract awards in the last government shutdown. So we could know sort of what to look for in terms of potential impacts should want to unfold over the next coming months.

Matt Ophilis: Other key assumptions in connection with our 2023 guidance are outlined on slide 10 in today's PowerPoint presentation located on our investor relations website. In summary, we've delivered strong results in each of the first quarters of the year. Through the first nine months of the year, we have achieved revenue growth at 28% and adjusted EBITDA growth of 32%. We're confident in our ability to achieve our increased 2023 guidance as a result of our strong funded and total backlog, continued hiring and retention momentum, robust global infrastructure spend, and the increasing need for national security solutions.

Yeah. So the last government shutdown, we were only impacted by one contract that was shutdown that occurred late 2018 or late 2019 and that was our FAA contract. So I would say it really depends on what is exempted from the shutdown process as they continue to go forward my personal opinion.

I expect that we're going to continue to see continuing resolutions.

Carey Smith: With that, I'll turn the call back over to Carey. Thank you, Matt. I'm very pleased with the performance of our company. We delivered record, quarterly, total revenue, organic revenue growth, adjusted it off, and operating cash flow. We also continue to be a top organic revenue growth leader in both of our segments, and we're executing on our strategic M&A program which is driving growth into our business.

Current CRM November 17th.

We've learned how to deal with Crs or spend 47 of them between FY 10 in FY 'twenty. Two those are blaster for duration of one to 176 days or just less than six months. So we know how to deal with that very well and the nice thing with the <unk> portfolio and SCR perspective is 58% of our portfolio.

Carey Smith: Given our strong operating performance, we're raising guidance for all three of our financial metrics. Our team is delivering consistent results and we are benefiting from tailwinds in each segment. We expect our momentum to continue given our portfolios well aligned to important macro environment trends, and two well-funded segments and six growing and enduring markets.

It's outside of the federal budget, because we have the commercial business in the international business. We also have very strong backlog at $8 8 billion, 59% of that is funded backlog and we have 14 billion of contract wins that we've not yet reflected in bookings or backlog side for our portfolios and very good shape to withstand.

<unk> CR and remain optimistic that we will not have a shutdown and Toby specifically on the topline side FAA. It was impacted by about $20 million back in 19 during that shutdown. So just to give you kind of a directional.

Operator: With that, we'll now open the line for questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by when we compile the Q&A roster.

But importantly, the dod's exempted at that point.

Thank you very much.

Thanks, So thanks Tobey.

Please standby for the next question.

The next question comes from Andrew Wittmann with Baird. Your line is open.

Bert Subin: The first question comes from birds who've been with people. Your line has been.

Bert Subin: Hey, good morning and congrats on the great quarter. Thanks for the first. Carrie, organic growth has been pretty unbelievable last two quarters. Both segments above the 20% mark, which is obviously quite a bit ahead of your peers. That seems pretty intact as we look to 4Q, maybe a little lower but still really elevated.

The next question comes from Andrew Wittmann with Baird. Your line is open.

Please standby for the next question.

Carey Smith: As we think about the fourth quarter, what's driving such a wide range of outcomes. I assume it's the government shutdown or the potential for shutdown. And then as we look out to 24, what gives you confidence growth can remain elevated. Maybe not at the 20% mark, but still pretty quick for what you put out of the investor night. Yeah, thanks for the question, but so first, we're very pleased with our growth to date and obviously two consecutive quarters of 23% organic growth.

The next question comes from Cai von <unk> with PV Cowen Your line is open.

Thank you very much and terrific quarter guys very impressive.

Thank you Scott.

So what do you have baked into your.

Guidance for shutdown I agree with you totally CR is not going to be a big deal, but shut down and.

Carey Smith: We're in terrific markets, all six and markets are growing. As we look to the lighter half of the year, we have one headwind, which is our quage line program and engineered systems. That's about 15 million that we need to overcome. But I would say the biggest variable is really kind of uncertainty relative to the budget environment. And then we do get seasonality in our business, both in federal and in critical infrastructure, our FAA program and federal has seasonality and our mind programs up in Canada. With that said, we're confident of achieving the midpoint to the high end of the range as far as revenue performance.

If it's 45 days.

What would happen to the FAA and is there any incremental margin.

Mark if you'd lose $20 million of revenues is the incremental margin 20%.

Yes, I'll start and then Matt can address the margin impact so because of the type of services. We provide first again, 50% of our portfolio will not be affected but because of the site type of services. We provide the alignment with the national defense strategy everything going on in the world today, we remain optimistic that during.

Our shut down most of our programs are going to continue just again as an example, FAA being the only one that was impacted less 2019 shutdown, Matt on them I would say Cai specifically.

Carey Smith: As we look to 24 would be great to be able to continue this terrific organic growth performance, but we're obviously making sure that we put together measured guidance and that we can meet what we commit to deliver.

If there were no shutdown I think we would kind of trend towards the higher end of the guide at the midpoint.

Carey Smith: Maybe just on that point, could you give a little bit more commentary on the large cyber contract when you had had, I think that's probably quite early stages, maybe more of a 24 contributor. And then what you're seeing on the IJ front or if you can't break it out on IJ just in terms of what you're seeing in domestic. Stake Infrastructure Center. Yes, so the large cyber win, it's a contract that we've held, but they're going to be adding some new and expanded scope.

The Great News is if you look year over year, our funded backlog is up about 13%. So we've got really strong funding on our existing jobs and so we feel pretty good but.

For FAA, specifically, you can probably think about it as a <unk>.

10 ish percent in the majority of the work ranging in that 8% to 10% so.

If you had a 20 or $40 million would be $2 million to $4 million of EBITDA.

Carey Smith: It's a classified contract, and it's supporting an intelligence community customer. I can just say we've supported this customer for over two decades, we're very pleased with that. We've also continued our success beyond this classified customer with the J-6 and our J-9 Reak Peaks. That's critically important as we look forward to next year because cyber command has now been given budget authority, similar to what the United States Special Operations Command has. So beyond the intelligence community, we're seeing excellent growth across our cyber business. Within the IIJA, there's been about 184 billion of the funds that have started to roll out from the 1.2 trillion.

Uh huh.

But I guess the issue is like so if you cant do the work the employees are there and presumably you want to get paid so is the incremental margin higher just because I assume you have to pay their salaries, even though they're not able to.

To bill.

Yes. It is.

A mixed Kai theres, a mix of furlough Theres PTO Theres modified time, so the team's really effective at working through those things, but I don't suspect it'll be a pure absorption of all the employee costs. The other thing that we have available to us as research and development. So we either use combination of PTO or research and development.

Okay, Great answer and then.

Carey Smith: Our estimate is still that we're going to see the majority start to roll out in the latter part of this year early next year, and we expect the peak to move from a 2026 timeframe to a 2027 timeframe based on the rollout. As you can see from 12 consecutive quarters, though of greater than 1.0 book to bill, and we're overdriving organic growth in both the Middle East and the United States. We are starting to benefit from that.

How is hiring I mean, when you're growing 20% two quarters.

Does that put any stress on your ability to hire folks and your ability to kind of control the growth.

So both our hiring and retention are strong our retention year over year continues to improve.

And hiring has been great obviously to be able to keep up with the growth I would say our human resources team as well as all of our four of our business units are laser focused on both the hiring and the retention and doing an excellent job.

Carey Smith: It also helps our federal segment because our FAA contract, which we just won the Reak Peaks, the FAA is getting 25 billion now, the infrastructure bill, 5 billion, and that is going to go to facilities work, and that's directly aligned with our scope on the FAA contract.

Yes, so generally speaking kind of we've been investing in the support functions appropriately to support the growth.

Bert Subin: Great, super helpful, Kerry, and then Matt, just a final question on the margin side.

Terrific. Thank you so much.

Thank you Scott please standby for the next question.

Matt Ophilis: Can you just update us on where we stand on the two legacy critical infrastructure projects? Those are still expected, ones are still expected to wrap before your end and the other by the end of next year.

Yeah.

The next question comes from Louie Dipalma with William Blair. Your line is open.

Matt Ophilis: And then what are you seeing in terms of margins and backlog as you go forward, just with a lot of the pretty unprecedented demand that Kerry mentioned? Yeah, I think a great question, Bird. I think to your point to start with the legacy programs, the first one is still due to wrap up in Q4, so we're tracking kind of punch list items behind 90s, 97 plus percent complete by the end of the quarter.

Cary, Matt and Dave Good morning.

Good morning, Larry.

Carry your middle East business reported 30% plus revenue growth for the third consecutive quarter you mentioned.

Your customers in the Middle East.

Added.

Matt Ophilis: So again, we're still tracking to Q4 wrap up, which is great to have that behind us. Again, that one sits in equity and earnings. The second one is a self-performed program that is still projected to wrap up late 2024. So those are kind of on track, no change from prior quarter, I would say, no significant change from prior quarter.

Two existing projects is there visibility for middle East revenue to continue to expand from here.

Thanks Lloyd.

Middle East has been very strong we're fortunate and again there. We're on 505 of the Saudi Giga projects. The ones that I will say are particularly important to our sarnia on the line Neal Mark <unk> as well as <unk>.

Matt Ophilis: When it comes to kind of the bid pipeline and the backlog, we're definitely focused on expanding margins. I think at the investor day, we talked about 20 to 30 basis points per year. We're pushing the teams hard to deliver on that, and we're starting to see that in the bid pipeline and the backlog. And just one addition, Matt indicated the first program is 90 set complete, the second program is 84 percent complete.

We're also outside of Saudi Arabia, those seeing growth.

Bert Subin: Great, thanks so much. Thanks for it.

The Arabia has its vision 2030, but theyre similar patients that have been established in the UAE, both in Dubai and Abu Dhabi for projects of that 50, and a vision 2040, and then Qatar also has a patient 2030. So we expect to be able to continue to grow in the middle East obviously, 30%.

Operator: Please stand by for the next question.

Pluses very strong wed love to be able to keep it at that rate but to think.

A very long term trajectory out through 2050 of continued middle East expansion.

Tobey Sommer: The next question comes from Toby Summer, which true with your line is open. Thank you. Thanks.

Great.

And also recent data shows that the Intel community budget has had a big increase.

Carey Smith: I wanted to ask you about the M&A market and in your appetite to cross the two segments. Are you seeing targets that meet your criteria and sort of are the right size, etc.? Recently, I attended an M&A conference and the pace of activity and available things in the market was described as kind of low. So I'm curious what you're seeing. Thank you, Tobey.

Fiscal 'twenty three and is in line for another large jump in fiscal 'twenty four assuming the budget passes you referenced several <unk>.

Fiber Intel contract wins.

Can you discuss how your acquisitions have.

Enhanced your solutions portfolio, and and have you been able to take market share from competitors and take contracts away from competitors because.

You're definitely growing faster than competitors in this market.

Carey Smith: Good morning. So our appetite is going to be to continue to pursue M&A that's been a key part of our game plan and critical to our growth. And I think that's really helped us win all these large pursuits which testify by 13 wins this year greater than 100 million exceeding last year's record of 11 million or 11 for the total year. I use the last two M&A examples as ones that are in our sweet spot and cross over. IP keys is a company that does cyber compliance and modern rank specifically for power utility companies as well as water companies. So it's a nice intersection between our federal and our critical infrastructure business.

Yeah. Thanks, Louise I'll take the second part first we don't generally target market share takeaway, we are really after the new and emerging.

Customer challenges. So if you look at our capabilities in cyber security, we play at the very top end of the pyramid again, 75% roughly sort of 25% is defensive in our portfolio. The companies we bought of all enhanced our cyber capabilities recently.

I start with sealing technologies sealing technologies has fly away kits, where they can basically deploy these kit to be able to enable defensive cyber operations security on systems and networks for customers. They support the Intel community and the department of defense, but as I mentioned on.

Carey Smith: Likewise, ceiling technologies. Why most of their work to date has per the Department of Defense and the intelligence community. We're looking at combining their capabilities with the IP keys capabilities and new product offerings and ceiling technologies fly away kits can also be used for commercial applications. As far as criteria and meeting the right size, we're going to keep our strict criteria which greater than 10% top line growth and 10% margin expansion.

The call. We also see potential expansion there to our commercial clients as well IP keys. Likewise has provided capabilities. They do ciber compliance and monitoring specifically for energy companies and water companies for the energy companies, such as compliance with the Newark, and FERC standards, and making sure that <unk>.

<unk> have missed compliance.

Carey Smith: And I'll also just mention I as engineers, they provide transportation engineering and while that's predominantly on our critical infrastructure side, some of the work they do there can also help our engineered systems group on the federal side of the house. Thank you.

All of these are very important as we look forward cyber will be an area that we continue to make acquisitions and it's one where I feel that we've got discriminating companies. It's enabled us to win critical jobs like the $1 2 billion GSA job, we highlighted last quarter.

Carey Smith: And then could you refresh us on what the impacts were on the either the income statement or cash collections contract awards in the last government shutdown so we could know sort of what to look for in terms of potential impacts should one unfold over the next couple months. Yes, so the last government shutdown we really impacted by one contract that was shut down that occurred late 2018 or late 2019 and that was our FAA contract.

Excellent. Thanks Kerry that's it from me.

Thank you Lloyd.

Yeah.

Our next question comes from Josh Sullivan with the Benchmark Company. Your line is open.

Hey, good morning, congratulations on a good quarter here.

Thank you Josh Thanks, Josh.

Just following up on that with the acquisition of Sealy in the $110 million expected in 2024. So how large is your overall cyber exposure at this point.

Carey Smith: So I would say it really depends on what is exempted from the shutdown process as they continue to go forward my personal opinion I expect that we're going to continue to see continuing resolutions. The current CRNs November 17th we've learned how to deal with CR's has been 47 of them between FY 10 and FY 22 those have lasted for duration of one to 176 days or just less than six months so we know how to deal with that very well.

Should we expect that to have above corporate average margins.

Yes, so cyber represents about 13% of our portfolio.

Yes, it does have above average margins.

And we're feeling do you expect that to be.

Higher next year that 13%.

Carey Smith: And the nice thing with the persons portfolio and a CR perspective is 50% of our portfolio is outside of the federal budget because we have the commercial business and the international business. We also have very strong backlog at 8.8 billion 59% of that is funded backlog and we have 14 billion of contract wins that we've not ever reflected in bookings or backlog. So I feel our portfolios and very good shape to withstand a CR and remain optimistic that we will not have a shutdown.

The 13% as of today, So <unk> adds an additional 110 to the portfolio.

Hey, Josh that the cyber business is growing double digit so we suspect it will continue to increase as a percentage of the company.

Got it.

And then just on the 250 million radiation device win how much of that is hardware versus software services and then do you see that as a market, which could find some international interest as well.

Yeah. So the majority of the radiation device win is systems and integration. So we're actually putting the system together that perform <unk> testing at areas like airports and ports for example, and also it could be used on the border as well we.

Carey Smith: And Toby specifically on the top line side you know FAA was impacted by about 20 million dollars back in 19 during that shutdown so just to give you kind of a directional, but importantly, the DOD was exempted at that point.

We do see market expansion there we have a pipeline on both in the United States, but that could potentially expand international.

Tobey Sommer: Thank you very much. Thanks, Tobey.

Operator: Please stand by for the next question.

Okay. Thank you for the time.

Andrew Wittmann: The next question comes from Andrew Wittmann with Baird. Your line is open. The next question comes from Andrew Wittmann with Baird. Your line is open.

Thanks, Josh.

Standby for the next question.

Operator: Please stand by for the next question.

The next question comes from Andrew Wittmann with Baird. Your line is open.

Okay.

Our next question comes from Andrew Wittmann with Baird. Your line is open.

Please standby for the next question.

Kaibon Rumour: The next question comes from Kaibon Rumour with PD Cohen. Your line is open. Thank you very much and terrific quarter guys. Very impressive. Thank you, Tobey. So, what do you have baked into your guidance for a shutdown? I agree with you totally. CR is not going to be a big deal, but a shutdown and, you know, if it's 45 days, you know, what would happen to the FAA? And if there are any incremental margin impact, like if you lose 20 million of revenues, is the incremental margin 20 percent?

The next question comes from Noah <unk> with <unk>. Your line is open.

Hey, good morning, everyone.

Good morning Noah.

Okay.

Gary you've discussed here.

The possibility of a shutdown versus short term extensions.

It seems like the longer they're short term extensions, though.

The less likely there is actual full year bills.

And we live in this unique situation, where the debt limit deal says, there's this 1% cuts kind of across the board on the discretionary side. If there are no bills.

Matt Ophilis: Yes, I'll start them back to address the margin impact. So because of the type of services we provide first again 50 percent of our portfolio will not be affected, but because of the site type of services, we provide the alignment with the national defense strategy, everything going on in the world today. We remain optimistic that during a shutdown, most of our programs are going to continue just again as an example, FAA being the only one that was impacted last 2019 shutdown.

How are you just given you have really good perspective on these macro things.

What do you think is the likelihood of that how are you managing parsons relative to that possibility.

Yes, thanks, Noah so to your point the debt limit.

We had set in place that cut and that cut what occurred at the start of April So the new House Speaker has said he is looking at continuing resolutions one option is to run until January one option is to run until April but he is definitely factoring in that 1% cut is it makes us decisions I would say again when you look at the <unk>.

Matt Ophilis: Matt on the market. Yeah, I would say Kaib, specifically, you know, if there were no shutdown, I think we would kind of trend toward the higher end of the guide. At the midpoint, we've got the great news is if you look here every year, our funded backlogs up about 13 percent. So we've got really strong funding on our existing jobs. And so we feel pretty good. But, you know, for FAA specifically, you can probably think about it as a, you know, 10 percent in the majority of the work ranging in that 8 to 10 percent.

So the budget, where we focus is growing between 5% to 12% compound annual growth rate. There is have we play cyber and intelligence space and missile defense and critical infrastructure protection are very likely to be the last areas that are going to get cut given the global tensions that are occurring right now around the world.

Okay.

Matt Ophilis: So, you know, if you had a 20 or 40 million, it would be $2 to $4 million. But I would say. But I guess the issue is like, so if you can't do the work, the employees are there and presumably want to get paid. So is the incremental a margin higher, just because I assume you have to pay their salaries, even though they're not able to bill. Yeah, it's kind of a mixed guy.

Does does the growth of this year.

So strong.

Just set up a situation for you next year, where the compares are so tough that the growth rate decelerate significantly.

Or.

With with the growth rate that high for one year and the amount of new business wins you have.

Do you not expect.

Or should we not be anticipating that significant of a base effect mixture.

Matt Ophilis: There's a mix of furlough. There's PTO. There's modified time. So the team's really effective at working through those things. But I don't suspect it'll be a pure absorption of all the employee costs. The other thing that we've available to us is research and development. So we either use combination of PTO or research and development. Okay, great answer.

I would say no when we look at the longer term planning that the Investor day, we talked about 4% to 6% growth.

So what are the baseline we've been telling folks is go off the updated guide and assume the same kind of growth rates, obviously, 20% is a little bit bullish going into 2024, but we're still comfortable that the range of guide provided at the investor.

Carey Smith: And then, you know, how is hiring? I mean, when you're growing 20 percent to quarters, does that put any stress on your ability to hire folks and your ability to kind of control the growth? To both our hiring and retention are strong, our retention year over year continues to improve. And hiring has been great, obviously, to be able to keep up with the growth. I would say our human resources team as well, of all of our four of our business units, our laser focused on both the hiring and the retention and doing an excellent job. Yeah, I'd say generally speaking, kind of, we've been investing in the support functions appropriately to support the growth.

Investor Day off the new base is appropriate we plan in February of next year to provide updated long term targets and I would say one of the big focuses is keeping up our competitive win rates, which have been close to 70% throughout the year and if we can continue that type of performance.

But to Matt's point it we've clearly had a great year.

Okay, and then Matt just on margins.

If I if I kind of go to the high end of the new EBITDA range and assumes Cri adjusted is kind of flat sequentially around that 8%.

Bert Subin: Terrific, thank you so much. Thank you, guys.

Would imply.

Our solutions closer to 9% is that kind of what you're looking for in the fourth quarter and then I guess just run rate from here.

Operator: Please stand by for the next question.

Louie Dipalma: The next question comes from Louie DiPalma with William Blair, your line is open.

We're still thinking is.

As you know over nine.

And can I, just kind of keep moving higher from this quarter or rolled out.

Carey Smith: Carrie, Matt, and Dave, good morning. Good morning, Louie. Carrie, your Middle East business reported 30% plus revenue growth for the third consecutive quarter. You mentioned your customers in the Middle East have added go to existing projects. Is there visibility for Middle East revenue to continue to expand from here? Thanks, Louie. So Middle East has been very strong. We're fortunate, again, that we're on 505 of the Saudi giga projects. The ones that I will share, particularly important to us are neon, the line, neon, moxagon, as well as cadet.

Carey Smith: We're also outside of Saudi Arabia, though, seeing growth. Saudi Arabia has its vision 2030, but there's similar visions that have been established in the UAE, both in Dubai and Abu Dhabi for projects of the 50. And a vision 2040. And then Qatar also has a vision 2030. So we expect to be able to continue to grow in the Middle East. Obviously, 30% plus is very strong. We'd love to be able to keep it at that rate, but I do think, you know, we see a very long term trajectory out through 2050 of continued Middle East expansion.

So maybe step down again before it then sustainably is high single digits.

Carey Smith: Great.

Yes, I'd say.

Our goal of course is double digit margins for Ci within a few years I think thats a little bit off a couple of years still as we get through these challenge programs. We did have a little bit of a helper in Q3 related to a change positive change order. So.

To your question on the federal margin for the total year, we're still expecting mid nines, which infers like eight 9%.

<unk> at the high end and an eight 9% the mid range. So for Q4, specifically so to your point I think we still expect federal to be kind of low nines to mid <unk> long term goals being midnight for federal and then.

For for Ci, specifically, where you're still expecting margins to continue to expand we really like to see in Q3 at almost 10% and that is kind of our long term goal.

Okay, sorry did you quantify and just an absolute millions of dollars the item in CRE in the quarter.

It's about $10 million.

Okay.

Great. Thank you will recall, we had a couple of quarters, where there was a lower margin lower margin change order. This was the offsetting up for the higher margin change order this quarter and it was about $10 million.

Carey Smith: And also recent data shows that the Intel Community Budget had a big increase in fiscal 23 and is in line for another large jump in fiscal 24, assuming the budget passes. You referenced several cyber intel contract wins. Can you discuss how your acquisitions have enhanced your solutions portfolio and have you been able to take market share from competitors and take contracts away from competitors because you're definitely growing faster than competitors in this Intel market.

Got it.

Super helpful. Thank you.

Thanks Alastair.

A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Please.

Our next question comes from Sheila <unk> with Jefferies. Your line is open.

Good morning, guys and thank you great quarter.

I think I'm gonna help Noah's question, but in a slightly more positive light. So obviously describe as super phenomenon and industry leading.

What would you say you attribute it to carry you alluded to you you've been competitively winning 70% of your contract.

Carey Smith: Yeah, thanks. So I'll take second part first. We don't generally target market share takeaway. We are really after the new and emerging customer challenges. So if you look at our capabilities in cybersecurity, we play at the very top end of the pyramid. Again, 75% roughly is offensive 25% is defensive in our portfolio. The companies we've bought have all enhanced our cyber capabilities recently. I mean, if I start with ceiling technologies, ceiling technologies has flyaway kits where they can basically deploy these kids to be able to enable defensive cyber operations security on systems and networks for customers.

So as we think about that like how do you think that translates into growth for 2024, I know you're still not even in your planning process yet, but these are your <unk> contracts that are just starting that our competitive wins and that's how we should think about it or can you shed some light there.

Thanks, Sheila so I would say, yes, we've had strong competitive win rates were also again in six growing markets, what's really nice across portfolio.

Across the two segments.

All four of our business units have been growing with particular strong growth out of mobility solutions and engineered systems, we have done a great job.

Continuing with what I call them, new and emerging contracts be able to win large single award contracts that have ceilings that we can drive task orders too and then we're really just at the very start of the United States infrastructure spend and we're facing a middle east spend that's going to last for decades, So I would say.

Carey Smith: They support the Intel Community and the Department of Defense. But as I mentioned on the call, we also see potential expansion there to our commercial clients as well. IPPs, likewise, has provided capabilities. They do cyber compliance and monitoring specifically for energy companies and water companies for the energy companies that compliance with the NERK and FERC standards and making sure that companies have missed compliance. All of these are very important as we look forward.

Those are the areas that I attribute to the growth.

And I think it's terrific.

<unk> been able to capitalize on all the tailwind that we're facing in our end markets and Sheila one thing I would add is with all the success we've had.

Carey Smith: Cyber will be an area that we continue to make acquisitions and it's one where I feel that we've bought discriminating companies. It's enabled us to win critical jobs like the 1.2 billion GSA job we highlighted last quarter.

$8 8 billion in backlog, plus we have $14 billion.

Louie Dipalma: Excellent. Thanks, Carey.

Of awarded not book, So again that number continues to grow and we are.

We're really happy with the <unk>.

Continue to execute on the existing jobs and the potential ceiling that will come from those.

Louie Dipalma: That's it for me. Thank you, Louie.

Thank you.

Then maybe if.

If I can ask another question both for Ci in federal solutions.

How do we think about the unfortunate events in Israel in Gaza and what's going on there.

Joshua Sullivan: Our next question comes from Josh Sullivan with the Benchmark Company. Your line is open. Good morning, congratulations on the good quarter here. Thank you, Josh. Thanks, Josh. You're just following up on that with the acquisition of ceiling, 110 million are expecting in 2024. How large is your overall cyber exposure at this point and should, you know, should we expect that to have above corporate average margins? Yes, the cyber represents about 13% of our portfolio.

How that could potentially impact your business through Intel awards or infrastructure or are also negatively impacted depending on the location.

Yeah. So first I'd say, we're very saddened by what's occurred in the middle East and the tremendous loss of life.

We are staying very close to what's transpiring.

Joshua Sullivan: And yes, it does have above average margins. And would ceiling do you expect that to be higher next year that 13%. The 13% sense of today's ceiling tech adds an additional 110 to the portfolio. I would say, Josh, the cyber business is growing double digits. So we suspect it will continue to increase as a percentage of the company. Got it.

President <unk> for example, just had a call with Prime Minister of Saudi Arabia on October 24th they're very much aligned and how theyre looking at things, which is how do we establish security in the region. How do we support humanitarian assistance and so I would say our job whether it's in credit card infrastructure or in federal solutions.

<unk> is to provide the necessary support to our customers.

And make sure that whatever we do helps out the region, we have a strong presence there or the work that we do there will continue its very important to those nations. So I don't see any downside impact, but I would say again, our objective is really to do what we can to provide stability.

Joshua Sullivan: And then just on the 250 million radiation device win. How much of that is hardware versus software services? And then do you see that as a market which could find some international interest as well? Yes, so the majority of the radiation device win is systems integration. So we're actually putting the system together that performs a testing. It areas like airports and ports, for example, and also it could be used on the border as well. We do see market expansion there. We have a pipeline both in the United States, but that could potentially expand international.

Perfect. That's super helpful and maybe one last one if I. If you don't mind, Matt you said on critical infrastructure $10 million was the positive of that in Q3, so as we think about margins there.

They've obviously been at a low of $5 five in Q2 and kind of fluctuating around how do you think we sort of think about that for 'twenty four.

Yes, Great question, Sheila I think our goal is to of course to get this first challenge program behind US. This year, it's still scheduled to wrap up in Q4, so that'll be a nice tailwind for us I think.

Andrew Wittmann: Thank you for the time. Thanks, Josh. Please stand by for the next question. The next question comes from Andrew Whitman with Bayard. Your line is open. Our next question comes from Andrew Whitman with Bayard. Your line is open. Please stand by for the next question.

Guidance perspective at Investor Day, we talked about in.

20% to 30 basis points, so somewhere in the 80 to 89 the majority of that as we've talked about before will come from Ci. So if you think of federal still in the low nines call at nine 1% to 93.

The math on OCI would be kind of mid eights. So I feel I feel like the business is heading the right direction. The backlog performance is just performing at accretive margins and so we're getting some of these challenges behind us.

Perfect. Thank you.

Noah Poponak: The next question comes from Noah Poppaneck with GS. Your line is open. Hey, good morning, everyone. Morning, Noah. Carrie, you've discussed here the possibility of a shutdown versus short-term extensions. It seems like the longer there are short-term extensions though, the less likely there's actual four-year bills. And we live in this unique situation where the debt limit deal says there's this 1% cut across the board on the discretionary side if there are no bills.

Thanks, Joe.

Please standby for the next question.

The next question comes from Mariana Perez Mora with Bank of America. Your line is open.

Hello.

Okay.

Okay.

So my question is going to be a follow up on money.

How is the pipeline how are the pro how's the pricing environment and competitiveness for those deals because you usually have acquired companies that are really close in and I was interested to learn details about like how that pipeline is looking.

Noah Poponak: How are you just giving you a really good perspective on these macro things? What do you think is the likelihood of that? How are you managing Parsons relative to that possibility? Yeah, thanks Noah. So to your point, the debt limit did sit in place that cut and that cut would occur the start of April. So the new house speaker has said he's looking at continuing resolutions. One option is to run into January, one option is to run until April, but he is definitely factoring in that 1% cut as he makes those decisions.

Thanks, Marianna the pipeline is very strong in both federal and critical infrastructure. I mean, we're really pleased that we've been able to close the three acquisitions, we've been able to do this share.

We're always kind of ranking of restocking that pipeline one Dan.

Which ones are most important based on the financial criteria of greater than 10% topline growth greater than 10% EBITDA and then looking at the technological differentiators, particularly on the federal side, how do we continue to strengthen in cyber space and missile defense and <unk>.

Critical infrastructure protection and on the infrastructure side, how do we double down on geographies that are going to be very important across the United States, but also consider in Canada. We've been able to continue to find terrific companies and are really glad to welcome to the <unk> portfolio. We've also been able to do this mostly on a preemptive basis. So.

Noah Poponak: I would say, again, when you look at the parts of the budget, where we focus is brewing between 5% to 12% compound annual growth rate. There is, have we played cyber and intelligence, space and missile defense and critical infrastructure protection are very likely to be the last areas that are going to get cut given the global tensions that are occurring right now around the world. Okay.

We try to avoid auctions that's enabled us to stick within our standard multiples of about a 10% to 13 times.

Noah Poponak: Does, does the growth of this year being so strong, just set up a situation for you next year where the compares are so tough that the growth rate decelerates significantly or, you know, with, with the growth rate that high for one year and the amount of new business wins you have. Do you not expect or should we not be anticipating that significant of a base effect next year? I would say Noah that, you know, when we look at the longer term planning and that the investor day, we talked about 4 to 6% growth.

Most recent one we did price engineers was seven seven times multiple so we're really pleased with the terrific companies, we've been able to buy in the multiples we have been able to buy them at.

As you expose yourself to the infrastructure bill across the U S.

With the recent Texas acquisition, what other states do you think you have opportunity to tap in with.

Be interested to double down.

Yeah.

Yes, so when you look at a lot of the funds and the infrastructure Bill 70% of those come out through what's called Formula funds and those are generally based on the population of states and their growth over time, so it tends to be the larger states they get the money.

Noah Poponak: And so the baseline we've been telling folks is go off the updated guide and assume the same kind of growth rates. Obviously 20 plus percent is a little bit bullish going into 2024. But, you know, we're still comfortable that the range of guide provided at the investor day off the new base is appropriate. We plan in February of next year to provide updated long term targets. And I would say one of the big focuses is keeping up our competitive win rates, which have been close to 70% throughout the year. And if we can continue that type of performance. But, to Matt's point, we've clearly had a great year. Okay.

Parsons is fortunate we're positioned in all 50 states, but we have set in place a list of tier one states. They include States like California, New York, Florida, and Texas. For example that are expected to gain quite a bad day infrastructure Bell funds.

Thank you and last one also related to these topic, how you think about buying the companies versus doing joint ventures, when you approach those opportunities.

So I would say first we look at.

Matt Ophilis: And then Matt, just on margins. If I kind of go to the high end of the new EBITDA range and assume CI adjusted is kind of flat, sequentially around that 8%. What would imply federal solutions closer to 9% is that kind of what you're looking for in the fourth quarter.

Matt Ophilis: And then I guess just run rating from here. We're still thinking F.S, is, you know, over nine. And can see I just kind of keep moving higher from this quarter. Or will that, you know, maybe step down again before it then sustainably is high single digits.

Matt Ophilis: Yeah, I'd say our goal, of course, is double digit margins for CI within a few years. I think that's a little bit off a couple of years still as we get through these challenge programs. We did have a little bit of a helper in Q3 related to a change, a positive change order. So, to your question, on the federal margin, for the total year, we're still expecting mid-9s, which inferors like 8.9 at the, or a height low 9s at the high end and an 8.9 at the mid-range.

<unk> remarks.

Okay. 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. Thank you very much.

Matt Ophilis: So, for Q4 specifically. So, to your point, I think we still expect federal to be kind of low 9s to mid-9s long-term goals being mid-9 for federal. And then for CI specifically, we're still expecting margins to continue expand. We really like seeing Q3 at almost 10%. And that is kind of our long-term goal.

This concludes today's conference call. Thank you for participating you may now disconnect.

Matt Ophilis: Okay, sorry, and did you quantify in just an absolute millions of dollars the item in CI in the quarter? We did, it's about $10 million. Okay, great.

[music].

Matt Ophilis: Thank you. We had a couple of portals where there was a lower margin, a lower margin change order. This was the offsetting up for the higher margin change order this quarter. It was about $10 million. Got it. Super helpful.

Bert Subin: Thank you.

Operator: Thanks, Stella.

Sheila Kahyaoglu: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Carey Smith: Please. Our next question comes from Sheila Kahyaoglu with Jeffries. Your line is open. Good morning, guys, and thank you. Great quarter. I think I'm going to ask Noah's question, but in a slightly more positive light. So obviously, this growth is super phenomenal. And industry leading. What would you say you attribute it to carry you alluded to you've been competitively winning 70% of your contracts. So as we think about that, like, how do you think that translates into growth for 2024?

Carey Smith: I know you're still not even in your planning process yet, but it, you know, these are your one of contracts that are just starting that are competitive wins. And that's how we should think about it. Or can you shed some light there? Thanks, Sheila. So I would say, yeah, we've had strong competitive win rates. We're also again in six growing markets, which is really nice across portfolio, you know, the across the two segments.

Carey Smith: All four of the business units have been growing with particular strong growth out of mobility solutions and engineered systems. We've done a great job, you know, continuing when what I call new and emerging contracts be able to win large single award contracts that have ceilings that we can drive task orders to. And then we're really just at the very start of the United States infrastructure spend. And we're facing a middle east spend that's going to last for decades.

Carey Smith: So I would say those are the areas that I attribute to the growth. And I think it's terrific that the team's been able to capitalize on all the tailwinds that we're facing in our end markets. And Sheila, one thing I would add is with all the success we've had, we have the 8.8 billion in backlog plus we have $14 billion of awarded not booked. So again, that number continues to grow. And we're really happy with the, you know, continued execute on the existing jobs and the potential ceiling that will come from those. Thank you.

Carey Smith: And then maybe if I could ask another question, both for CI and federal solutions, you know, how do we think about the unfortunate events in Israel and Gaza and what's going on there and, you know, how that could potentially impact your business through Intel awards or infrastructure are also negatively impacted depending on the location. Yes, so first I'd say, you know, we're very saddened by what's occurred in the Middle East and the tremendous loss of life.

Carey Smith: We are what is staying very close to which transpiring. President Biden, for example, just had a call with Prime Minister Saudi Arabia on October 24th. They're very much aligned in how they're looking at things, which is how do we establish security in the region? How do we support humanitarian assistance? And so I would say our job, whether it's in critical infrastructure or in federal solutions, is to provide the necessary support to our customers and make sure that whatever we do helps out the region.

Carey Smith: We have a strong presence there are the work that we do there will continue. It's very important to those nations. So I don't see any downside impact, but I would say again our objective is really to do what we can to provide stability. Perfect, super helpful.

Matt Ophilis: And maybe one last one, if you don't mind, that you said on critical infrastructure, 10 million was the positive event in Q3. So as we think about margins there, you know, they've obviously been at a low of 5.5 in Q2 and kind of fluctuating around, how do you think we'd best sort of think about that for 24. Yeah, great question. Sheila, I think, you know, our goal is, of course, to get this first challenge program behind us this year.

Matt Ophilis: It's still scheduled to wrap up in Q4. So that'll be a nice tailwind for us. I think, you know, from a guidance perspective, at investor day, we talked about in 20 to 30 basis points. So somewhere in the 8, 8, 8, 9, the majority of that as we've talked about before will come from CI. So if you think of federal still in the low 9s, call it 9, 1 to 9, 3.

Matt Ophilis: But, you know, the math on a CI would be kind of mid-8. So I feel, I feel like the business is heading the right direction. The backlog performances is performing at a creative margins. And so we're getting some of these challenges behind us. Perfect. Thank you. Thanks, Sheila. Thank you. Please stand by for the next question.

Mariana Perez-Mora: The next question comes from Mariana Perez-Mora with Bank of America. Your line is open. Thank you.

Carey Smith: So my question is going to be a follow-up on money. How is the pipeline? How are the pro house, the pricing environment and competitiveness for those fields? Because you usually have a core company that they're really close in. And I was interested to learn details about like how the pipeline is looking. Thanks, Mariana.

Carey Smith: The pipeline is very strong and both federal and critical infrastructure. I mean, we're really pleased that we've been able to close the three acquisitions we've been able to do this year. We're always kind of ranking and restacking that pipeline one day. And, you know, which one's most important based on the financial criteria of greater than 10% top line growth, greater than 10% EBITDA. And then looking at the technological differentiators, particularly on the federal side, how do we continue to strengthen and cyber space and missile defense and critical infrastructure protection.

Carey Smith: And on the infrastructure side, how do we double down on geographies that are going to be very important across the United States, but also considering Canada. We've been able to continue to find terrific companies and are really glad to welcome them to the persons portfolio. We've also been able to do this mostly on a preemptive basis, so we try to avoid auctions. That's enabled us to stick within our standard multiples of about a 10 to 13 times.

Carey Smith: The most recent one we did for our engineers was a 7.7 times multiple. So we're really pleased with the terrific companies we've been able to buy in the multiples we've been able to buy them at. For the as you expose yourselves to the infrastructure bill across the US and with the recent Texas acquisition, what other states do you think you have opportunity to tap in or will be interested to double down.

Carey Smith: Yeah, so when you look at a lot of the funds in the infrastructure bill, 70% of those come out through what's called formula funds, and those are generally based on the population of states and their growth over time. So it tends to be the larger states that get the money. Parsons is fortunate, we're a position in all 50 states, but we've seen in place a list of tier one states. They include states like California, New York, Florida, and Texas, for example, that are expected to gain quite a bit of the infrastructure bill funds.

Carey Smith: Thank you, and last one also related to this topic. How do you think about buying the company's versus doing joint ventures when you approach those opportunities? So I'd say first we look at, you know, are we going to build buyer partners? So it's, do we build it internal? And can we do that under research and development and capital expenditures and get there on the time frame that is needed to deliver our customer's mission?

Carey Smith: Second, we look at should we partner as an area that is quarter our company, and if it's not core, then we'll go to a partnership route. And then third is if it's a core area of our company, we do a gap analysis and we specifically outline what technologies we need to be able to continue to move up the solutions integration value chain and be able to bid and win and prime larger contracts.

Carey Smith: So that's kind of our standard criteria from a joint venture. I would say while we do joint ventures, we've started to reduce the number of joint ventures that we do. We will only join venture in instances where a customer really wants that or where it's required for past performance to win a contract.

Operator: This is all the time that we have for questions. I would now like to turn the call back today's Billy for closing remarks. 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 come in weeks.

Operator: And with that, we'll end today's call. Thank you very much.

Operator: This concludes today's conference call. Thank you for participating.

Operator: You may now disconnect. Thank you.