Q4 2023 Parsons Corp Earnings Call

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Operator: The End Ladies and gentlemen, thank you for standing by. Welcome to the Parsons Corporation Earnings Conference Call for Q4 2023. At this time, all participants are in a listen-only mode.

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Speaker Change: Ladies and gentlemen, thank you for standing by welcome to Q4, 2023 Parsons Corporation earnings Conference call. At this time, all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone; you will then hear an automated message advising whether your hand is right. To withdraw your question, please press star 11 again. Please be advised that today's conference is being. I would like now to turn the conference over to Dave Spilley, Senior Vice President of Investor Relations. Please go ahead.

Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During this session you would need to press star one on your telephone.

Speaker Change: Didn't hear an automated message it bites in your hand is raised to.

Speaker Change: Your question. Please press Star one one again please be advised that today's conference is being recorded I would like now to turn the conference over to Dave <unk> Senior Vice President of Investor Relations. Please go ahead.

Dave Spilley: Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal year 2023 financial results. Please note that we provide presentation slides in the Investor Relations section of our website. On the call with me today are Carrie Smith, Chair, President, and CEO; and Matt Opolis, CFO. Today, Carrie will discuss our corporate strategy and operational highlights, and then Matt will provide a review of our fourth quarter financial results, as well as a review of our 2024 guidance and increased investor day target. We will then close with a question and answer session.

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

Dave: Corporate strategy and operational highlights and then Matt will provide an overview of our fourth quarter financial results as well as a review of our 2020 for guidance and increased Investor Day targets. We then will close with a question and answer session.

Operator: Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors.

Dave: Some of them May also make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected in the forward looking.

Dave: It's due to a variety of factors.

Operator: These risk factors are described in our Form 10-K for fiscal year end of December 31, 2023 and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements.

Dave: These risk factors are described in our Form 10-K for fiscal year ended December 31, 2023, and other SEC filings. Please refer to our earnings press release for Parsons complete forward looking statement disclosure, we do not undertake any obligation to update forward looking statements.

Carrie Smith: Management will also make reference to non-GAAP financial measures during this call. However, we remind you that these non-GAAP financial measures are not a substitute for comparable GAAP measures. And now we'll turn the call over to Dave. Good morning, and welcome to Parsons' fiscal year 2023 and fourth quarter earnings call. I want to start by thanking all 18,500 employees of Parsons Corporation for their contributions to an exceptional 2023. We executed on our growth strategy, delivered our customers' critical missions, and achieved record financial results for our shareholders. For the full year and the fourth quarter, we delivered the strongest financial results since our IPO, including records for total revenue, organic revenue, adjusted EBITDA, operating cash flow, and contract awards. For example, starting with the full year, we exceeded $5.4 billion in revenue for the first time and delivered record organic revenue growth of 23%, making us an industry leader in both our federal solutions and critical infrastructure segments. We had consistent results throughout the year, with organic growth in excess of 20% for each of the last three quarters of the year and double-digit organic growth in all four quarters.

Dave: It's meant will also make reference to non-GAAP financial measures. During this call. We remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures and now I will turn the call over to Carrie. Thank you Dave.

Carrie: Good morning, and welcome to par since fiscal year, 2023, and fourth quarter earnings call I want to start by thanking all 18500 employees, our Parsons Corporation for their contributions to an exception or 2023, we executed on our growth strategy delivered our customers' critical missions and achieved record.

Carrie: Financial results for our shareholders.

Carrie: For the full year in the fourth quarter, we delivered the strongest financial results since our IPO, including records for total revenue organic revenue adjusted EBITDA operating cash flow and contract awards.

Carrie: Starting with the full year, we exceeded $5 $4 billion. Some revenue for the first time and delivered record organic revenue growth of 23%, making us an industry leader in both our federal solutions and critical infrastructure segments.

Carrie: We had consistent results throughout the year with organic growth in excess of 20% for each of the last three quarters of the year and double digit organic growth in all four quarters are.

Carrie Smith: Our strong results for the year were driven primarily by our ability to win and ramp new contracts, strong hiring and retention, and on-contract growth. In 2023, we delivered over $460 million in adjusted EBITDA for the first time in our company's history and continued to expand our margin, achieving 13 basis points of improvement for the year. Total revenue grew 30% while adjusted EBITDA increased by 32%.

Carrie: Our strong results for the year were driven primarily by our ability to win them ramp new contracts strong hiring and retention and on contract growth.

Carrie: In 2023, we delivered over $460 million and adjusted EBITDA for the first time in our company's history and continue to expand our margin achieving 13 basis points of improvement for the year.

Carrie: Total revenue grew 30%, while adjusted EBITDA increased by 32%.

Carrie Smith: Our ability to drive adjusted EBITDA growth faster than our revenue growth demonstrates our focus on margin expansion. For the full year, our contract awards increased 40% to a record $6 billion, which equates to a 1.1 times book-to-bill ratio. In addition, our fiscal year 2023 cash flow increased by 72% over 2022 to a record $408 million. For the fourth quarter, total revenue increased 35% year-over-year and 34%

Carrie: Our ability to drive adjusted EBITDA growth faster than our revenue growth demonstrates our focus on margin expansion.

Carrie: For the full year, our contract awards increased 40% to a record $6 billion, which equates to a one one times book to Bill ratio.

Carrie: In addition, our fiscal year 2023 cash flow increased by 72% over 2022 to a record $408 million.

Carrie: For the fourth quarter total revenue increased 35% year over year and 34% organically.

Carrie Smith: Adjusted EBITDA grew by 30% over the prior year period, and cash flow from operations was $190 million. During the fourth quarter, we won two single award contracts worth more than $100 million each. This brings our total contract wins that are greater than $100 million to 15 for the full year, a new record for Parsons.

Carrie: EBITDA grew by 30% over the prior year period and cash flow from operations was $190 million.

Carrie: During the fourth quarter, we won two single award contracts worth more than $100 million. Each this brings our total contract wins that are greater than $100 million 15 for the full year, a new record for Parsons.

Carrie Smith: Our ability to successfully deliver on our customers' missions has allowed us to continue to win new work and secure repeat business. Also, our exquisite federal solutions portfolio is aligned with national security near-peer priorities, and our digitally enabled critical infrastructure business is capitalizing on unprecedented global infrastructure spend. Significant fourth quarter wins included a single award classified contract for continued and new work in support of the United States government.

Carrie: Our ability to successfully deliver on our customer submissions has allowed us to continue to win new work and secure outbreak peaks.

Carrie: Also our exquisite federal solutions portfolio is aligned with national security near peer threat priorities and our digitally enabled critical infrastructure business is capitalizing on unprecedented global infrastructure spend.

Carrie: Significant fourth quarter wins included a single award classified contract for continued in new work in support of the United States government.

Carrie Smith: This five-year contract is valued at over $250 million, of which we booked $50 million in the fourth quarter, a new $150 million single award contract to serve as lead designer on a major infrastructure replacement project in the Northeast United States. We plan to book the full value of the contract in the first quarter of 2024, and a new $80 million contract to provide remediation of lead-contaminated soil for a US customer. We booked $73 million on this contract in the fourth quarter. We were also awarded prime positions on two multiple award IDIQ contracts. The first one is a new five-year contract for the Army Corps of Engineers with a ceiling value of $245 million for environmental remediation. This contract includes infrastructure investment and JOBSAC funding related to Environmental Protection Agency cleanup projects.

Carrie: This five year contracts valued at over $250 million of which we booked $50 million in the fourth quarter.

Carrie: $150 million single award contract to serve as lead designer on a major infrastructure replacement project in the northeast United States. We plan to book the full value of the contract in the first quarter of 2024.

Carrie: A new $80 million contract to provide remediation of light contaminated soil for United States customer, we booked $73 million on this contract in the fourth quarter.

Carrie: We were also awarded prime positions on to multiple award <unk> contracts. The first was a new five year contract for the Army Corps of engineers with a ceiling value of $245 million for environmental remediation.

Carrie: This contract includes infrastructure investment and jobs Act funding related to environmental protection agency cleanup projects.

Carrie Smith: We continue to win significant environmental remediation projects. During the fourth quarter, we also completed a comprehensive assessment, investigation, and treatment of PFAS for a major Fortune 100 industrial client. We completed this project from investigation to treatment without causing any downtime for the customer's facility, which is a testament to the innovation, creativity, and expertise of our multidisciplinary PFAS team. Parsons Water Treatment Lab in Syracuse, New York, has been a leader in water treatment innovation for more than 30 years.

Carrie: We continue to win significant environmental remediation projects during the fourth quarter. We also completed a comprehensive assessment investigation and treatment of PFS for a major fortune 100 industrial client.

We completed this project from investigation to treatment without causing any downtime for their customers facility, which is a testament to the innovation creativity and expertise of umbrella disciplinary PFS team.

Carrie: Parsons water treatment lab in Syracuse, New York has been a leader in water treatment innovation for more than 30 years.

Carrie Smith: The second multiple award contract that we won in the fourth quarter is a new five-year General Services Administration Public Building Services Program, and this contract has an estimated ceiling value of $200 million. After the fourth quarter of 2023 ended, we were awarded two significant contracts. We were selected by the Department of Labor Job Corps to assist with planning, management, and oversight of their facilities program.

Carrie: The second multiple award contract that we won the fourth quarter's a new five year General Services Administration public building services program and this contract has an estimated ceiling value of $200 million.

Carrie: After the fourth quarter of 2023 ended we were awarded two significant contracts. We were selected by the department of Labor job Corps to assist with planning management and oversight of their facilities program. This single award five year Recompete contract has a ceiling value of over $115 million.

Carrie Smith: This single award, five-year repeat contract has a ceiling value of over $115 million. We were also awarded a new, three-year, $87 million contract to provide project management services for a major tourism and entertainment development project in the Middle East. During the fourth quarter, we completed the acquisition of Bias Engineers, which is a Texas-based full-service consulting engineering firm that specializes in transportation engineering, including roads and highways and program management

Carrie: <unk>.

Carrie: We were also awarded a new three year $87 million contract to provide project management services for a major tourism and entertainment development project in the Middle East.

Carrie: During the fourth quarter, we completed the acquisition of bias Engineers, which set Texas based full service consulting engineering firm that specializes in transportation engineering, including roads and highways and program management.

Carrie Smith: This acquisition adds critical infrastructure talent and strengthens our portfolio in this large and growing state. Texas is poised to receive nearly $30 billion in total transportation funding from the Infrastructure Investment and Jobs Act between 2022 and 2026. The acquisition of IS Engineers marks our third acquisition in 2023, which includes two acquisitions in critical infrastructure and one in federal solutions. In addition to bolstering our critical infrastructure portfolio through strategic acquisitions, we strengthened and reorganized this segment to better align with our customers, geographies, and end markets and better position Parsons to capitalize on the unprecedented global infrastructure spending. For informational purposes, we have provided historical financial results in the back of our earnings press release for our new business unit. As part of our 80-year history of cultivating a responsible enterprise, Parsons is proud to be recognized with the highest achievable score of 100 by the Human Rights Campaign Foundation on their 2023-2024 Corporate Equality Index for active support and inclusion of the LGBTQ+ community. In addition, Parsons was recognized as a Best for Vets company by the Military Times for supporting veterans' post-military careers.

Carrie: This acquisition adds critical infrastructure talent and strengthen our portfolio in this large and growing state Texas.

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

Carrie: The acquisition of ice Engineers marks our third acquisition in 2023, which includes two acquisitions in critical infrastructure and one in federal solutions.

Carrie: In addition to bolstering our critical infrastructure portfolio through strategic acquisitions, we strengthened and reorganized our segments to better align with our customers' geographies and end markets and better position Parsons to capitalize on the unprecedented global infrastructure spend.

For information all purposes, we have provided historical financial results in the back of our earnings press release for our new business units.

Carrie: As part of our 80 year history of cultivating a responsible enterprise Parsons is proud to be recognized with the highest achievable score of 100 by the human rights campaign Foundation on our 2023 2020 for corporate equality index proactive support and inclusion of the LGBTQ plus community.

Carrie: In addition, Parsons was recognized as a best for Vets company by the military times for supporting Veterans post military careers.

Carrie Smith: In 2023, we were also named one of the world's most ethical companies by Ethosphere for the 14th consecutive year, one of the world's best companies by Time Magazine, and one of the best employers for diversity by Forbes. In summary, we are executing on our strategy and delivering our customers' missions as we continue to post record results and strong growth rates across all financial metrics. We also expanded margins and closed on a creative acquisition that strengthens our engineering expertise and increases our footprint in a high-growth geography. As we enter 2024 and the 80th anniversary of our company, we're excited about our long-term prospects. We are well-positioned in two high-growth and complementary segments that continue to experience significant tailwinds. Starting with federal solutions, the proposed defense budget supports an $886 billion top-line budget, which is 3% higher overall than 2023.

Carrie: In 2023, we were also named as one of the world's most ethical companies by Ethisphere for the 14th consecutive year one of the world's best companies by time magazine and one of the best employers for diversity by Forbes.

Carrie: In summary, we are executing on our strategy and delivering our customers missions as we continue to post record results and strong growth rates across all financial metrics. We also expanded margins and close an accretive acquisition that strengthens our engineering expertise and <unk>.

Carrie: Increased sharply print in a high growth geography.

Carrie: As we enter 2024 and the <unk> anniversary of our company. We are excited about our long term prospects.

Carrie: We are well positioned in two high growth and complementary segments that continue to experience significant tailwind.

Carrie: Starting with federal solutions, the proposed defense budgets parts and 886 billion top line budget, which is 3% higher overall than 2023.

Carrie: However, the Parsons core defense markets are growing at mid to high single digits.

Carrie Smith: However, Parsons' core defense markets are growing at mid-to-high single-digit rates. Given worldwide geopolitical events, we continue to see strong demand for our solutions, including cyber, electronic warfare, signals collection, space, missile defense, and critical infrastructure protection. Our focus remains on outpacing our nation's near-peer threats with our differentiated solutions and critical infrastructure. Global demand remains strong in all three geographies where Parsons operates, the United States, Canada, and the Middle East.

Carrie: Worldwide geopolitical events, we continue to see strong demand for our solutions, including cyber and electronic warfare signals collection space missile defense and critical infrastructure protection.

Carrie: Our focus remains on outpacing our nation's near peer threats with our differentiated solutions.

Carrie: And critical infrastructure global demand remains strong in all three geographies, where person operates the United States, Canada and the Middle East.

Carrie: We are leveraging our core competencies in engineering design program management and owners representative to win and deliver on large complex programs.

Carrie Smith: We are leveraging our core competencies in engineering design, program management, and owner's representative to win and deliver on large, complex programs. As an industry leader in applying digital transformation to infrastructure, we look forward to continuing to transform this industry. Given our strong performance and our confidence in our current outlook, we are pleased to update the long-term guidance we provided at our Investor Day on March 15, 2023. Matt will share more details, but in summary, we're raising our revenue growth targets, which is also off a total revenue base that is $1.2 billion higher than it was at the end of 2022. In addition, we expect average 20 to 30 basis points of margin expansion each year through 2025 and a free cash flow conversion rate of 100% or more of adjusted net income.

Carrie: As an industry leader in applying digital transformation to infrastructure, we look forward to continuing to transform this industry.

Carrie: Given our strong performance and our confidence in our current outlook. We are pleased to update the long term guidance, we provided at our Investor day on March 15th 2023 now.

Carrie: Matt will share more details, but in summary, we're raising our revenue growth targets, which is also up a total revenue base that is $1.2 billion higher than it was at the end of 2022.

Matt: In addition, we expect to average 20 to 30 basis points of margin expansion each year through 2025, and our free cash flow conversion rate of 100% or more of adjusted net income.

Matt: We also expect to continue to supplement our organic growth with two to three accretive acquisitions per year in order to enhance our technology differentiation move further up the integrated solutions value chain and drive additional shareholder value.

Matt: With that I'll turn the call over to Matt to provide more details on our 2023 financial results 2020 for guidance and our enhanced long term financial targets.

Carrie Smith: We also expect to continue to supplement our organic growth with two to three accretive acquisitions per year in order to enhance our technology differentiation, move further up the integrated solutions value chain, and drive additional shareholder value. With that, I'll turn the call over to Matt to provide more details on our 2023 financial results, 2024 guidance, and our enhanced long-term financial targets. Matt.

Matt: Thank you Terry I was curious indicated our fourth quarter and fiscal year 2023 were highlighted by record results in a number of areas, including total revenue organic revenue adjusted EBITDA operating cash flow and contract awards.

Matt: Total revenue of $1 5 billion for the fourth quarter of 2023 increased 35% from the prior year period and was up 34% on an organic basis.

Matt: Adjusted EBITDA of $128 million increased 30% from the fourth quarter of 2022, and adjusted EBITDA margin decreased 30 basis points to eight 6%.

Matt Opolis: Thank you, Keri. As Keri indicated, our fourth quarter and fiscal year 2023 were highlighted by record results in a number of areas, including total revenue, organic revenue, adjusted EBITDA, operating cash flow, and contract awards. Total revenue of $1.5 billion for the fourth quarter of 2023 increased 35% from the prior year period and was up 34% on an organic basis. Adjusted EBITDA of $128 million increased 30% from the fourth quarter of 2022, and adjusted EBITDA margin decreased 30 basis points to 8.6%. The adjusted EBITDA increase was driven primarily by accretive organic growth on recent contracts, as well as growth on existing content. However, our adjusted EBITDA growth for the quarter was negatively impacted by a net $20 million headwind from adjustments on two separate programs.

Matt: The adjusted EBITDA increase was driven primarily by accretive organic growth on recent contract wins as well as growth on existing contracts.

Matt: Our adjusted EBITDA growth for the quarter was negatively impacted by a net $20 million headwind from adjustments on two separate programs.

Matt: On the first program, we reached a positive proposed judgment on rail and transit project for which we realized a $38 million favorable impact to fourth quarter adjusted EBITDA.

Matt: On the second program with an equity in earnings we took a $58 million adjusted EBITDA charge.

Matt: The impact was the result of supply chain challenges identified during the procurement of materials.

Matt: Normalized margins. Excluding these two adjustments would have been nine 9% and eight 9% for the fourth quarter and full year respectively.

Matt: Total revenue for the fiscal year 2023 increased 30% from prior year and was up 23% on an organic basis.

Matt: The strong organic growth throughout the year was driven by the ramp up of recent contract wins and growth on existing contracts.

Matt: Acquisitions contributed approximately $274 million of revenue for the full year.

Matt: SG&A expenses for the full year were 16% of total revenue compared to 18, 5% in 2022.

Matt Opolis: On the first program, we reached a positive proposed judgment on a rail and transit project for which we realized a $38 million favorable impact on fourth quarter adjusted EBITDA. On the second program, within Equity and Earnings, we took a $58 million adjusted EBITDA charge. The impact is the result of supply chain challenges identified during the procurement of materials. Normalized margins excluding these two adjustments would have been 9.9% and 8.9% for the fourth quarter and full year, respectively.

Matt: Intentional focus on efficient spend positions the portfolio well to continue to drive margin expansion.

Matt: Fiscal year 2023, adjusted EBITDA of $465 million increased 32% from 2022, and adjusted EBIT margin increased over 10 basis points to eight 5%.

Matt: The adjusted EBITDA increases were driven primarily by increased volume on new and existing contracts accretive acquisitions and continuing to closely manage costs.

Matt: I'll turn now to our operating segments, starting first with federal solutions, where fourth quarter revenue increased by $280 million or 50% from the fourth quarter of 2022.

Matt: This increase was driven by organic growth of 47% and the contribution from our ceiling <unk> acquisition, which closed in August of 2023.

Matt Opolis: Total revenue for the fiscal year 2023 increased 30% from the prior year and was up 23% on an organic basis. Strong organic growth throughout the year was driven by the ramp-up of recent contract wins and growth on existing contracts. Acquisitions contributed approximately $274 million of revenue for the full year. SG&A expenses for the full year were 16% of total revenue, compared to 18.5% in 2022.

Matt: Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts.

Matt: Federal solutions, adjusted EBITDA increased by $35 million or 73% from the fourth quarter of 2022, and adjusted EBITDA margin increased 130 basis points to nine 8%.

Matt: These increases were driven primarily by increased volume on new and existing contracts with effective cost controls.

Matt: For the full year federal solutions revenue increased by $808 million or 30%, 36% from 2022. This.

Matt Opolis: The Intentional Focus on Efficient Spend positions the portfolio well to continue to drive margin. Fiscal year 2023 adjusted EBITDA of $465 million increased 32% from 2022, and adjusted EBITDA margin increased over 10 basis points to 8.5%. The adjusted EBITDA increases were driven primarily by increased volume on new and existing contracts, accretive acquisitions, and continuing to closely manage. I'll turn now to our operating results, starting first with federal solutions, where fourth-quarter revenue increased by $280 million, or 50% from the fourth quarter of 2022. This increase was driven by organic growth of 47% and the contribution from our ceiling tech acquisition, which closed in August of 2020. Organic growth was driven primarily by the ramp-up of recent contract wins and growth on existing contracts. Federal Solutions' adjusted EBITDA increased by $35 million, or 73%, from the fourth quarter of 2022. An adjusted EBITDA margin increased 130 basis points to 9.8%.

Matt: This increase was driven by organic growth of 25% and approximately $264 million from acquisitions.

Matt: Organic growth was driven by the ramp up of recent contract wins and growth on existing contracts.

Matt: Federal solutions adjusted EBITDA for the full year increased $90 million or 45% from 2022, and adjusted EBITDA margin increased 60 basis points to nine 6%. These.

Matt: These increases were driven primarily by organic operating leverage accretive acquisitions and $20 million of nonrecurring incentive fees recognized in the second quarter of 2023.

Matt: Okay.

Matt: Moving now to our critical infrastructure segment.

Fourth quarter revenue increased by $111 million or 21% from the fourth quarter of 2022.

Matt: This increase was driven by organic growth of 20% and the inorganic revenue contribution from acquisitions.

Matt: Organic growth was driven by higher volume on both Middle East and North America infrastructure programs.

Matt: Critical infrastructure, adjusted EBIT decreased by $5 million or 10% from the fourth quarter of 2022 adjusted.

Matt: Adjusted EBITDA margin decreased 240 basis points to seven 3%.

Matt: The adjusted EBITDA decreases were driven by the $20 million negative net impact previously discussed partially offset by profits from accretive organic growth on both new and existing contracts.

Matt: For the full year critical infrastructures revenue increased by $440 million or 22% almost all of which was organic.

Matt: Organic growth was driven by expansion in both the middle East and North America.

Matt Opolis: These increases were driven primarily by increased volume on new and existing contracts with effective cost control. For the full year, federal solutions revenue increased by $808 million, or 36% from 2020. This increase was driven by organic growth of 25% and approximately $264 million from acquisitions.

Matt: Critical infrastructure adjusted EBITDA for the full year increased by $22 million or 14% from 2022, and adjusted EBITDA margin decreased 50 basis points to seven 2%.

Matt: Okay.

Matt: The adjusted EBITDA increase was driven primarily by accretive organic growth and operating leverage.

Matt: The lower margin was the result of fourth quarter $20 million net impact from the two <unk> programs previously discussed.

Matt Opolis: Organic growth was driven by the ramp-up of recent contract wins and growth on existing Federal solutions customers. Federal solutions adjusted EBITDA for the full year increased $90 million, or 45% from 2022, and adjusted EBITDA margin increased 60 basis points to 9.6%. These increases were driven primarily by organic operating leverage, accretive acquisitions, and $20 million of non-recurring incentive fees recognized in the second quarter of 2020. Moving now to our critical infrastructure. Fourth quarter revenue increased by $111 million, or 21% from the fourth quarter of 2020. This increase was driven by organic growth of 20% and the inorganic revenue contribution from acquisition. Organic growth was driven by higher volume on both Middle East and North America infrastructure programs. Critical infrastructure adjusted EBITDA decreased by $5 million, or 10%, from the fourth quarter of 2020. Adjusted EBITDA margin decreased 240 basis points to 7.0%.

Matt: <unk> the Q4 impact critical infrastructure margins were 10, 1% and eight 1% for the quarter in total years, respectively.

Matt: Next ill discuss cash flow and balance sheet metrics.

Matt: Our net DSO at the end of Q4 2023 was 59 days down 10 days from the prior year period.

Matt: Our fourth quarter operating cash flow totaled $190 million compared to $89 million in the prior year period, our operating cash flow for the full year increased 72% to $408 million.

Matt: Our strong cash flow was driven by improved profitability and strong collections across the portfolio.

Matt: Total year free cash flow conversion was 120%.

Matt: Capital expenditures totaled $10 million in the fourth quarter of 2023% and $40 million for the full year Capex continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue.

Matt: Our balance sheet remains strong as we ended the fourth quarter with a net debt leverage ratio of one eight times compared to one four at the end of 2022, even after closing three acquisitions in 2023.

Matt: Our low leverage strong free cash flow outlook and balance sheet capacity will enable us to continue to make internal investments and accretive acquisitions to support long term growth.

Matt: Turning to bookings for the fourth quarter year over year contract award activity increased 13% to $1 2 billion.

On a trailing 12 month basis contract awards increased by 40% and our book to Bill ratio was one one times on an enterprise basis and in both business segments.

Matt: Our book to Bill ratio for the fourth quarter was <unk> eight times.

Matt: In our critical infrastructure segment, we have achieved a quarterly book to bill ratio of one times or better for 13 consecutive quarters.

Matt Opolis: The adjusted EBITDA decreases were driven by the $20 million negative net impact previously described, partially offset by profits from accretive organic growth on both new and existing business. For the full year, Critical Infrastructure's revenue increased by $440 million, or 22%, almost all of which was organic. Organic growth was driven by expansion in both the Middle East and North America.

Matt: We remain optimistic that IHA and global infrastructure investments will continue to drive demand and new business well into the future.

Matt: Our recent contract awards and backlog support our long term critical infrastructure margin goal of approximately 9% by 2025.

Matt: Our backlog at the end of the fourth quarter totaled $8 6 billion.

Matt: $413 million or 5% from the fourth quarter of 2022.

Speaker Change: Next I'll turn to our guidance.

Speaker Change: When establishing our guidance, we've contemplated key variables, which include a competitive labor market uncertainty around domestic budgets and challenging inflation. However, we're confident in our ability to achieve results within our improved guidance ranges given significant tailwind, including unprecedented global infrastructure spend a federal portfolio that is closely aligned to the national defense strategy.

Matt Opolis: Critical infrastructure's adjusted EBITDA for the full year increased by $22 million, or 14% from 2022, and its adjusted EBITDA margin decreased 50 basis points to 7.5%. The adjusted EBITDA increase was driven primarily by accretive organic growth and operating leverage. The lower margin was the result of a fourth quarter $20 million net impact from the two programs previously. Excluding the Q4 impact, critical infrastructure margins were 10.1% and 8.1% for the quarter and total years. Next, I'll discuss cash flow and the balance sheet. Our net DSO at the end of Q4 2023 was 59 days, down 10 days from the prior year period. Our fourth quarter operating cash flow totaled $190 million compared to $89 million in the prior year period.

Speaker Change: Low recompete risk $8 6 billion of total backlog included funded backlog of $5 billion.

Speaker Change: And $14 billion of contracts won that are not yet reflected in backlog.

For 2024, we expect revenue to be between five eight and $6 billion.

Speaker Change: This represents 8% growth at the midpoint of the range and 7% growth on an organic basis.

Speaker Change: Our adjusted EBITDA is expected to be between 505 and $545 million with a margin of eight 9% at the midpoint of our revenue and adjusted EBITDA guidance ranges.

Speaker Change: This represents adjusted EBITDA growth of 13% and margin expansion of approximately 40 basis points from 2023, achieving our investor day commitments.

Speaker Change: The growth in adjusted EBITDA and associated margins is expected to be driven by improved program performance accretive wins and a continued focus on operating leverage.

Matt Opolis: Our operating cash flow for the full year increased 72% to $408 million. Our strong cash flow was driven by improved profitability and strong collections across the portfolio. Total year free cash flow conversion was $120,000.

Speaker Change: Our cash flow from operating activities is expected to be between $350 and $410 million.

Speaker Change: At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 100% of adjusted net income.

Matt Opolis: Capital expenditures totaled $10 million in the fourth quarter of 2023 and $40 million for the full year. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue. Our balance sheet remains strong as we ended the fourth quarter with a net debt leverage ratio of 1.0 times compared to 1.4 at the end of 2020, even after closing three acquisitions in 2020. Our low leverage, strong free cash flow outlook, and balance sheet capacity will enable us to continue to make internal investments and accretive acquisitions to support long-term growth. Turning to bookings for the fourth quarter, year-over-year contract award activity increased 13% to $1.2 billion. On a trailing 12-month basis, contract awards increased by 40%, and our book-to-bill ratio was 1.1 times on an enterprise basis and in both business levels. Our book-to-bill ratio for the fourth quarter was 0.8 times.

Speaker Change: <unk> 2024 cash flow is expected to be down from 2023, primarily due to the exceptional fourth quarter that accelerated approximately $30 million in receipts from 2024.

Speaker Change: Our other key assumptions in connection with our 2020 for guidance and our quarterly cadence are outlined on slide 15 in today's Powerpoint presentation located on our Investor Relations website.

Speaker Change: As Carrie mentioned, we are increasing the long term targets. We provided at our March 2023, Investor day at that time, we expected total revenue growth of 4% to 6% and organic growth of 3% to 5%.

Speaker Change: We now believe that we can achieve organic revenue growth of mid single digits or better through 2025.

Speaker Change: With performance in 2023, our strong outlook for 2024, we are raising our revenue growth targets of a total revenue base that is $1 $2 billion higher than it was at the end of 2022.

Speaker Change: In addition, we continue to expect an average of 20 to 30 basis points of margin expansion each year through 2025, and our free cash flow conversion rate of 100% or more of adjusted net income.

These targets indicate we expect total revenue to exceed $6 billion and adjusted EBITDA margin to be over 9% by the end of 2025. These implied targets indicate adjusted EBITDA growth is expected to outpace total revenue growth through 2025.

Speaker Change: We expect it we expect to supplement our organic growth with two to three accretive acquisitions per year to further drive shareholder value.

Speaker Change: In summary, we reported exceptional results from our fourth quarter, and our full year and I'm confident in our ability to achieve results within our 2024 guidance ranges, we are operating and well funded markets have a great team that is executing at a high level and I believe we're making the right organic and inorganic investments to continue to drive growth and margin expansion into the business.

Matt Opolis: In our critical infrastructure segment, we have achieved a quarterly book-to-bill ratio of 1.0 times or better for 13 consecutive quarters. We remain optimistic that IAJA and global infrastructure investments will continue to drive demand and new business well into the future. Our recent contract awards and backlogs support our long-term critical infrastructure margin goal of approximately 9% by 2024. Our backlog at the end of the fourth quarter totaled $8.6 billion, up $413 million, or 5% from the fourth quarter of 2022.

Speaker Change: With that I'll turn the call back over to Carrie Thank you Matt.

Carrie: I'm very pleased with the continued strong performance of our company, we delivered record fourth quarter and full year results for total revenue organic revenue growth adjusted EBITDA operating cash flow and contract Awards. In addition, we're executing on our strategic M&A program, which driving additional growth into our business.

Carrie: Our team is delivering consistent results and we're 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.

Matt Opolis: Next, I'll turn to our guidance. When establishing our guidance, we've contemplated key variables, which include a competitive labor market, uncertainty around domestic budgets, and challenging inflation. However, we're confident in our ability to achieve results within our improved guidance ranges, given significant tailwinds, including unprecedented global infrastructure, a federal portfolio that is closely aligned to the national defense strategy, low recompete risk, $8.6 billion of total backlog, including funded backlog of $5 billion, and $14 billion of contracts won that are not yet reflected in backlog. For 2024, we expect revenue to be between $5.8 and $6 billion. This represents 8% growth at the midpoint of the range and 7% growth on an organic basis. Our adjusted EBITDA is expected to be between $505 million and $545 million, with a margin of 8.9 percent at the midpoint of our revenue and adjusted EBITDA guidance.

With that we will now open the line for questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on 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.

Speaker Change: The first question comes from Sheila <unk> with Jefferies. Your line is open.

Sheila: Good morning, everyone. Thank you so much.

Sheila: Good morning.

Sheila: Happy Valentine's day, and just wanted to say I think we're all pretty.

Sheila: In love with these results and what you've downloaded part then so congratulations I mean, its pretty phenomenal.

Sheila: So I guess my first question is related to that you started off 23, starting where organic growth up for you closed up 23% and you accelerated into the year, which is kind of amazing. So I guess, what unlocks that can you talk about was it hiring with it just award wins, new business and how do you.

Sheila: That progress obviously, you raised your long term targets.

Matt Opolis: This represents adjusted EBITDA growth of 13% and margin expansion of approximately 40 basis points from 2023, achieving our investor day target. The growth and adjusted EBITDA and associated margins are expected to be driven by improved program performance, accretive wins, and a continued focus on operating leverage. Our cash flow from operating activities is expected to be between $350 and $410 million. At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 100% of adjusted net income.

Speaker Change: Well. Thank you Sheila further question happy Valentine's day to you as well.

Speaker Change: I would say hiring and retention have continued to be strong our consistent trailing 12 month book to bill of greater than one O has helped us win new programs, we had record win rates the share at 66% with 93% of re competes we have secured all four of our major right.

Speaker Change: Peach that are $2 billion programs and I would say business development is hitting it across the board on all cylinders, what I'm, probably most proud of is all four business units delivered double digit organic growth. So it's not one business unit driving Parsons all four business units are deliberate.

Matt Opolis: 2024 cash flow is expected to be down from 2023, primarily due to the exceptional fourth quarter that accelerated approximately $30 million in receipts from 2024. Our other key assumptions in connection with our 2024 guidance and our quarterly cadence are outlined on slide 15 in today's PowerPoint presentation, located on our investor relations website. Kerry mentioned we're increasing the long-term targets we provided at our March 2023 meeting. At that time, we expected total revenue growth of 4% to 6% and organic growth of 3 to 5%. We now believe that we can achieve organic revenue growth of mid-single digits or better through 2025. With performance in 2023 and a strong outlook for 2024, we're raising our revenue growth targets off a total revenue base that is $1.2 billion higher than it was at the end of 2023.

Speaker Change: Maybe if we could delve into the critical infrastructure growth and just the segmentation.

Speaker Change: On a regional basis, it looks like Europe Middle East Africa are growing <unk>.

Speaker Change: And North America. So can you just talk about the balance of those two in the high single digit growth implied for 2024, how do you see it how much is locked in whether it's in the backlog or the pipeline.

Speaker Change: Yes so.

Speaker Change: Place whats the middle East growth being over 30%. This year, we had some very strong wins in large programs, particularly in Saudi Arabia that occurred but also doing well in the UAE.

Speaker Change: North America is also doing extremely well and had strong organic growth and if you look at that it was 16%. So both organizations are doing well I would say North America is going to continue to speed up because we haven't hit the peak yet on the infrastructure investment and jobs Act, we expect that to be around the 2020.

Speaker Change: Seven timeframe, but with that said the middle East also that growth is expected to peak somewhere between 2028 and 30. So the nice thing is we've got strong tailwind in both of our geographies.

Matt Opolis: In addition, we continue to expect an average of 20 to 30 basis points of margin expansion each year through 2025 and a free cash flow conversion rate of 100% or more of adjusted net income. These targets indicate we expect total revenue to exceed $6 billion and adjusted EBITDA to be over 9% by the end of 2025. These implied targets indicate that adjusted EBITDA growth is expected to outpace total revenue growth through 2025.

Speaker Change: First of all long foreseeable future.

Speaker Change: Great. Thank you.

Speaker Change: Thanks Sheila.

Speaker Change: Please standby for the next question.

Speaker Change: Yeah.

Speaker Change: The next question comes from Tobey Sommer with true with Securities. Your line is open.

Speaker Change: Hey, Good morning. This is Jasper bibb on for Tobey I guess, just following up from a negative $20 million adjustment in the C&I segment.

Jasper Bibb: Can you update us how much of that are riskier legacy work is still in the segment today and with the near 10% margin. Excluding those adjustments how should we think about the go forward margin profile of that business comes out of the portfolio.

Matt Opolis: We expect to supplement our organic growth with two to three accretive acquisitions per year to further drive shareholder value. In summary, we've reported exceptional results for the fourth quarter in a full year, and I'm confident in our ability to achieve results within our 2024 guidance. We are operating in well-funded markets, have a great team that is executing at a high level, and I believe we are making the right organic and inorganic investments to continue to drive growth and margin expansion into the business. With that, I'll turn the call back over to Carrie.

Speaker Change: Sure. Thanks for the question. So this was not one of the two legacy programs that you've heard US referred to previously Fortunately, we had indicated that one of those programs was going to wrap up the first quarter the share of which it did that is going to.

Jasper Bibb: A $18 million.

<unk> for us as we enter the share because we had $18 million write offs on that particular program last year. The second legacy program is still on track to complete in the third quarter of this year and that program's 90% done.

Carrie Smith: Thank you, Matt. I'm very pleased with the continued strong performance of our company. We delivered record fourth-quarter and full-year results for total revenue, organic revenue growth, adjusted EBITDA, operating cash flow, and contract awards. In addition, we're executing on our strategic M&A program, which is driving additional growth into our business. Our team is delivering consistent results, and we're benefiting from tailwinds in each segment. We expect our momentum to continue given our portfolio is well aligned to important macro environment trends in two well-funded segments and six growing and enduring markets. With that, we will 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 and stand by while we compile the Q&A roster. The first question comes from Sheila Kahyaoglu with Jeffrey's. Your line is open. Good morning, everyone.

Jasper Bibb: Exceeded some recent technical milestones the program that we had the $20 million impact or the 58 million write down was due to supply chain impacts from material procurement. It was a job that had been bid back in 2019 prior to Covid. So we got initial quotes at that time once we did that.

Jasper Bibb: Assigned several years later, and we went back and we refresh those quotes we had less supplier availability in those suppliers prices have gone up.

Jasper Bibb: Good news is that this is kind of one off I'm going to stay within our portfolio because we stopped bidding. This type of work years ago. So we don't have other large contracts that have a big majority of material pass through.

Jasper Bibb: I'm really pleased that even with this impact the great job that we've done expanding margins, we were up 13 basis points for the year, we grow EBITDA dollars at 32% with revenue up 30%. So EBITDA is growing faster and as we looked at 2024, we're going to be expanding our margins by 40 basis points.

Speaker Change: Yes, Jeff I would just add relative to critical infrastructure, specifically the total year was about seven 2% within that business, we're expecting about eight and a half in 2024 federal will still being kind of the low nines called 92, and Thats, how we get to the eight nine midpoint.

Sheila Kahyaoglu: Thank you so much. Happy Valentine's Day. I just want to say I think we're all pretty in love with these results and what you've done with Parsons, so congratulations. I mean, it's pretty phenomenal.

Speaker Change: Carey and I have talked long term that by 2025. Our goal is to have both segments operating over 9% and a lot of the new work that we're bidding as we've mentioned is trending towards double digit so really positive about the long term projections for critical infrastructure.

Sheila Kahyaoglu: So I guess my first question is related to that, you know, you started off 23, guiding for organic growth up four, you closed up 23 percent, and you accelerated into the year, which is kind of amazing. So I guess what unlocked that? Can you talk about was it hiring, was it just award wins, new business, and how do you expect that to progress? Obviously, you've raised your long-term target. Well, thank you, Shields, for the question. Happy Valentine's Day to you as well.

Speaker Change: Okay.

Speaker Change: Thanks Glenn.

Speaker Change: The organic growth is obviously really impressive this quarter.

Speaker Change: But ran significantly ahead of your backlog growth in the book to Bill. So just how should we think about the ability of the backlog.

Speaker Change: You are seeing in the bid pipeline from the awards you won after the quarter to support further growth in 2025.

Bill: Yes. So we're pleased that we were able to win the <unk> awards greater than $100 million and as we announced we had two greater than $100 million already as we go into this year. The bid pipeline is very robust it's the highest its ever been for our business such that 58 billion out of the $58 billion. We have 110 awards that are greater than a 100.

Carrie Smith: So I would say hiring and retention have continued to be strong. Our consistent trailing 12 month book to bill of greater than 1.0 has helped us win new programs. We had record win rates this year at 66% with 93% of re-competes.

Bill: We also have awaiting notice of award 4 billion.

Bill: And within there we have eight programs greater than a $100 million and then we've talked about the $14 billion of on booked backlog. So that's basically comprised of contracts. They have option years are unbox sailing and we're confident in a good portion of that being able to convert over the next three years.

Carrie Smith: We've secured all four of our major re-competes that are $2 billion programs. And I would say business development is hitting it across the board on all cylinders. What I'm probably most proud of is all four business units deliver double-digit organic growth. So it's not one business unit driving Parsons; all four business units are delivering.

Speaker Change: Got it.

Speaker Change: Last question for me I, just wanted to ask about M&A appetite.

And the size of deals you might be looking at I guess, we did notice the $10 million in transaction and other expense in the guide so just any color on what that might be related to.

Carrie Smith: Maybe if we could delve into the critical infrastructure growth and just the segmentation on a regional basis, it looks like Europe, the Middle East, and Africa are growing 2x North America. So can you just talk about the balance of those two in the high single-digit growth implied for 2024? How do you see it?

Speaker Change: Yes, I would say the overall pipeline for M&A remains strong I think we are.

Speaker Change: Anything that's in the guide is related to prior transactions. So we as we mentioned we closed the ice engineers deal in Q4, and so again.

Carrie Smith: How much is locked in, whether it's in the backlog or the unbooked pipeline? Yes, so we're really pleased with the Middle East growth being over 30% this year. We had some very strong wins and large programs, particularly in Saudi Arabia that happened, but also doing well in the UAE. North America is also doing extremely well and had strong organic growth. And if you look at that, it was 16%.

Speaker Change: The M&A pipeline is quite strong we feel good about we closed three transactions in 2023 were goal. Our goal is two to three in 2024 as well and I'll just add to that so we're looking at both federal and credit card infrastructure. The size of the deals will continue to be around what we've done in the past. We generally look at companies that are between about 100 $500 million annually.

Carrie Smith: So both organizations are doing well. I would say North America is going to continue to speed up because we haven't hit the peak yet on the infrastructure investment and jobs act. We expect that to be around the 2027 timeframe. But with that said, the Middle East also has growth that is expected to peak somewhere between 2028 and 30. So the nice thing is we've got strong tailwinds in both of our end geographies for the foreseeable future. Great, thank you.

Speaker Change: Revenue, but as you noted we did buy <unk> engineers for $10 million and.

Speaker Change: And the reason for that is that it was located in our key state that's going to have a lot of potential growth and what you tend to see is smaller deals on a credit by infrastructure site versus the federal side of the house, we've been very selective we're going to continue to keep our high bar of companies growing greater than 10% top line greater than 10% each.

Speaker Change: But our margin and we're also looking for companies that have technology differentiation, but a good pipeline.

Sheila Kahyaoglu: Thanks, Sheila. Please stand by for the next question. The next question comes from Tobey Sommer with Truist Securities. Your line is open. Hey, good morning. This is Jasper Bibb on behalf of Tobey.

Speaker Change: Got it thank you for taking the question.

Speaker Change: Thank you Joseph please.

Speaker Change: Please standby for the next question.

Speaker Change: The next question comes from Bert Subban with Stifel. Your line is now open.

Bert Subin: Hey, good morning.

Tobey Sommer: I guess I'm just following up on the negative 20 million adjustment in the CI segment. Can you please update us on how much of that riskier legacy work is still in the segment today? And with a near 10% margin excluding those adjustments, how should we think about the go-forward margin profile? Is that... Sure, thanks for the question.

Bert Subin: Yes, I'll Echo everyone's thoughts I mean, just amazing results.

Bert Subin: Thank you Barry and expert.

Bert Subin: Gary maybe just to follow up on earlier question.

Bert Subin: How do you how do you think you'd keep momentum going in federal solutions. I mean, you just grew Sn.

Speaker Change: Essentially 4000 basis points above the industry in the fourth quarter.

Carrie Smith: So this was not one of the two legacy programs that you've heard us refer to previously. Fortunately, we had indicated that one of those programs was going to wrap up in the first quarter of this year, which it did. That is going to present an $18 million tailwind for us as we enter this year because we had $18 million right off the bat from that particular program last year. The second legacy program is still on track to complete in the third quarter of this year, and that program's 90% done, and it has exceeded some recent technical milestones. The program that we had the $20 million impact on, or the $58 million write-down, was due to supply chain impacts from material procurement.

Gary: Just curious how much of that was driven by specific contracts be it bolt venture or additional work with the FAA.

Gary: And then how good is your visibility as we think through 'twenty four 'twenty five I guess, it's pretty good since you're updating those longer term targets.

Speaker Change: Yes, so to take the second part first our visibility is very good.

Speaker Change: The good news too we have very low recompete, which we mentioned on the call, but it's less than 5% as we go into this year. We also have that 14 billion of booked.

Speaker Change: Contract, so the visibility and line of sight to that transitioning as good over the next three years, we anticipate a roughly 50% of that to transition how do we keep the momentum going is continue to keep a laser focus on our six core end markets. Those markets are all growing between 5% to 12% compound annual growth rate our goal is.

Carrie Smith: It was a job that had been bid back in 2019 prior to COVID, so we got initial quotes at that time. Once we completed the design several years later, and we went back, and we refreshed those quotes, we had less supplier availability, and those suppliers' prices had gone up. The good news is that this is kind of a one-off, I'm going to say, within our portfolio because we stopped bidding this type of work years ago, so we don't have other large contracts that have a big majority of material passed through. I'm really pleased that, even with this impact, the great job that we've done expanding margins. We were up 13 basis points for the year.

Speaker Change: Ben to be differentiated B, a top player in each of those market areas and one thing I was happy about when you look at our wins across the year and those 15, we won in almost every single area. If you look at environmental remediation. For example, we won work in the mine jobs, we expanded our presence in army ammunition plant.

Speaker Change: <unk>, if you look at cyber security, where it's been very very strong with cyber command as well as the GSP gate GSA job. If you look at critical infrastructure protection. The work that we've been doing with department of state has been very good also one work and endo paid com expanding our footprint there with Kwajalein housing if you look.

Matt Opolis: We grew EBITDA dollars by 32 percent, with revenue up 30 percent, so EBITDA is growing faster. And as we look at 2024, we're going to be expanding our margins by 40 basis points. Yeah, Jasper, I'd just add, relative to critical infrastructure specifically, the total year was about 7.2% within that business, and we're expecting about eight and a half in 2024. Federal will still be in kind of the low nines, called 9.2. And that's how we get to the 8.9 midpoint.

Speaker Change: Over on the infrastructure side and transportation, we were awarded what at the time was our biggest design job since IPO with JFK highways, we just surpassed that with infrastructure job that I announced on the call today, which will now be our new biggest assigned job that we've had and then finally urban development.

Speaker Change: The team over in the Middle East has just done an amazing job of securing our position on all the giga projects and the fact that we're not even going to see a peak there until.

Speaker Change: Later 2028 to 2030 timeframe.

Matt Opolis: Kerry and I have talked long term that by 2025, our goal is to have both segments operating over 9%. And a lot of the new work that we're bidding on, as we mentioned, is trending toward double digits. So really positive about the long-term projections for critical infrastructure. Thanks.

Speaker Change: We've got a lot of momentum in the business.

Speaker Change: Maybe just as my follow up Gary.

Gary: You talked about the middle East there clearly been an engine for pretty good growth. We saw it slow down on the growth basis is still very elevated.

Gary: As we look forward can you just talk about I guess, what the risks are in the region are you seeing any spillover just from conflict in Red Sea.

Gary: In Israel, the loss or I guess, as we think beyond that.

Tobey Sommer: The organic growth is obviously really impressive this quarter, but it ran significantly ahead of your backlog growth in the book to bill. So just how should we think about the ability of the backlog, and what you're seeing in the bid pipeline from the awards you won after the quarter, to support further growth in 2024 and 2025? Yeah, so we're pleased that we were able to win 15 awards greater than $100 million. And, as we announced, we've had two greater than $100 million already this year. The bid pipeline is very robust.

Gary: Is there a geographic dispersion you expect I mean, it sounds like Saudi has been really strong are you seeing strength in the UAE are you seeing a rebound in Qatar.

Gary: Curious, how the middle East the shakeout.

Gary: Yes, so from a risk perspective, the conflicts really don't pertain to the type of work, we do because we are really doing infrastructure.

Gary: I would call it help bank, Saudi really build out their infrastructure, whether it's transportation infrastructure, whether it's new industrial cities, whether its new entertainment and tourism that building is just going on across the country and will continue for a long time.

Speaker Change: Great <unk> there.

Carrie Smith: It's the highest it's ever been for our business. It's at $58 billion. Out of that $58 billion, we have 110 awards that are greater than $100 million.

Speaker Change: All the people that live there because they'll have places to go for entertainment their education systems getting improved their health carriers getting improved so I'd say that's terrific on the conflict side, where we would see potential opportunity is in our federal solutions business because of the type of areas. We play in whether that cyber security missile defense.

Carrie Smith: We also have a waiting notice for award of $4 billion. And within there, we have eight programs greater than $100 million. And then we've talked about the $14 billion of unbooked backlog. So that's basically comprised of contracts that have option years or unbooked ceilings. And we're confident on a good portion of that being able to convert over the next three years.

Speaker Change: Intelligence type of work, we also do some RF emulator projects that we've seen deployed our geographic dispersion. We are the largest in Saudi Arabia about 60%, 65% of our business is there. That's also been our fastest growing followed by the UAE, which had strong growth UAE.

Tobey Sommer: Last question for me, I just wanted to ask about M&A appetite and the size of deals you might be looking at. I guess we did notice the $10 million in transaction costs and other expenses in the guide. So any color on what that might be.

Speaker Change: Focus has been on mixed use developments and continuing to build out whether it's to buy your Abu Dhabi, which where most of our work there is.

Speaker Change: And we did recently the UAE World Expo in Qatar, we were heavily involved in the World Cup. We did their traffic management system for that we also did the Lasalle City, which we were recognized as an outstanding consultant for our performance there, but I would take Qatar will probably out of the three of those would be the slowest with Saudi.

Carrie Smith: Yeah, I would say the overall pipeline for M&A remains strong. I think we're, you know, with anything that's in the guide is related to a prior transaction. So, as we mentioned, we closed the IS Engineers deal in Q4. And so, again, the M&A pipeline is quite strong. We feel good about it. We closed three transactions in 2023. Our goal is two to three in 2024 as well, and I'll just add to that.

Speaker Change: Being the fastest followed by UAE.

Speaker Change: And Gary I guess, Matt just as a sort of a last follow up on the cash side.

Speaker Change: It sounds like generation looks really good.

Speaker Change: Talking more like two to three deals a year versus maybe wanted to I.

Speaker Change: I guess in the meantime, how are you thinking about capital deployment, either sort of willing to wait until you guys find the next deal.

Matt: Yes, I think Thats Redbird, obviously, we have the share buyback program that is kind of nominal we did about $11 million worth of share buyback in 2023, but definitely the focus is on M&A and to your point. The team has done an amazing job with the $400 million in op cash for the year just focus on working capital improvements and so the cash is generating.

Carrie Smith: So we're looking at both federal and critical infrastructure. The size of the deals will continue to be around what we've done in the past. We generally look at companies that are between about 100 and 500 million annual revenue.

Matt: We're really achieving critical milestone so really excited about what the cash position. The one point of leverage puts us in a great place to keep pushing deals I would say the transition from kind of a one to two deals to two to three is a mix of going from kind of a heavier federal to a mix of federal NCI.

Carrie Smith: But, as you noted, we did buy IS Engineers for 10 million. And the reason for that is that it was located in a key state that's gonna have a lot of potential growth. And what you tend to see are smaller deals on the critical infrastructure side versus the federal side of the house. We've been very selective.

Carrie Smith: We're gonna continue to keep our high bar of companies growing greater than 10% of their top line, and greater than 10% of their EBITDA margin. And we're also looking for companies that have technology differentiation but a good pipeline. Got it. Thank you for taking the question. Thanks, Justin. Please stand by for the next question. The next question comes from Bert Subin with Stiefel. Your line is now open. Hey, good morning.

Matt: The Ci deals as Carrie mentioned, a little bit smaller so we have capacity to kind of get to the two to three and then M&A really helps our momentum as well whether it's if I look at the three recent deals selling tech really expanded our presence in defensive cyber we were strong in offensive now we can cover a full spectrum cyber operations I talked about ISN generic <unk>.

Matt: Spanning our presence in Texas, the two of US together can move up the value chain and bid and win larger jobs and then <unk> is kind of nice at the intersection between federal and critical infrastructure, providing ciber compliance for energy and water companies. So those all of those acquisitions as well as the ones that we've done in prior year.

Bert Subin: I guess I'll echo everyone's thoughts. Thank you, Bert, from the National Science Foundation. Thank you. Thank you. Follow up to an earlier question, you know, how do you keep the momentum going in federal solutions, and he just grew, basically more than 4,000 Basis Points than the industry in the fourth quarter. I was just curious about how much photography was taken in this way, is there a relevant phrase in your contract, others consisting of V, Yes. So to take the second part first, our visibility is very good. The good news too, we have very low repeat business, which we mentioned on the call, but it's less than 5% as we go into this year. We also have that 14 billion in unbooked contracts.

Matt: <unk>, our hope the momentum.

Speaker Change: Great. Thank you so much Greg.

Greg: Thank you Eric.

Speaker Change: Please standby for the next question.

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

Andrew John Wittmann: Great. Good morning, Thanks for taking my question I think I might just have one question today.

Andrew John Wittmann: <unk>.

Andrew John Wittmann: And as I looked at the capital structure, you've got this $400 million convertible note out there it's fully hedged with the bond hedge that you've got on it.

Andrew John Wittmann: And it looks like the conditions to convert debt to equity have been met with the trading performance of the stock here in the last several months. So I guess my thought my question is what are you going to do about $400 million face thats totally hedged out like.

Carrie Smith: So the visibility and line of sight to that transition are good over the next three years. We anticipate roughly 50% at the transition. How do we keep the momentum going? We continue to keep a laser focus on our six core end markets, which are all growing between 5% to 12% compound annual growth rates. Our goal has been to be differentiated, to be a top player in each of those market areas. And one thing I was happy about was that when you look at our wins across the year, in those 15, we won in almost every single area.

Andrew John Wittmann: I guess is it fair to think of that as basically kind of gone or like not on the balance sheet. Because you have got to hedge that takes out the dilution that would result, if you converted it.

Andrew John Wittmann: What do you expect to do in practical sense with this.

Andrew John Wittmann: If anything at all.

Speaker Change: Yeah, I'd say, Andy Thanks for the question I would say.

Speaker Change: Obviously look at the balance sheet constantly we want to make sure that we're capable of continuing to do the M&A. The convert that we have in place has been a great great deal for both us and kind of the convert holders as the stock has performed so well.

Carrie Smith: If you look at environmental remediation, for example, we won work in the mine jobs. We expanded our presence in army ammunition plant modernization. If you look at cybersecurity, we've been very, very strong with cyber command as well as the GSA job. If you look at critical infrastructure protection, the work that we've been doing with the Department of State has been very good. We also won work in IndoPACOM, expanding our footprint there with Kwajalein housing.

Speaker Change: So all in all we continue to look at it I would say it remains on the balance sheet. It is local current until August of this year, but we are continuing to look at options.

Speaker Change: As we go forward so those solid plan, yet, but we're always looking at opportunities.

Speaker Change: Okay. Thank.

Speaker Change: Thank you.

Speaker Change: Thanks, Andy.

Speaker Change: Please standby for the next question.

Carrie Smith: If you look over on the infrastructure side and transportation, we were awarded what, at the time, was our biggest design job since IPO with JFK highways. We just surpassed that with the infrastructure job that I announced on the call today, which will now be our new biggest design job that we've had. And then, finally, urban development.

Speaker Change: The next question comes from Alex Dwyer with Keybanc capital markets. Your line is open.

Alex Dwyer: Hi team congrats on a great quarter.

Alex Dwyer: Thank you Alex shakes out.

Alex Dwyer: Okay.

Alex Dwyer: So I wanted to ask about the organic revenue growth guide, 7% this year.

Carrie Smith: The team over in the Middle East has just done an amazing job of securing our position on all the giga projects, and the fact that we're not even going to see a peak there until later, in the 2028 to 2030 timeframe, I think we've got a lot of momentum in the business. Maybe just as my follow-up, Kerry.

Alex Dwyer: How that splits between the segments. This year and if we can parse through the different assumptions from hiring and retention to win rate to the ramp up of contracts.

Alex Dwyer: And if there's upside to the 7% revenue guide where do you think were most likely to see this upside come from.

Bert Subin: We talked about the Middle East there, and it's clearly been an end. This all slowed down on a growth basis, but still very elevated. As we look forward, can you just talk about, I guess..., are, and beyond that, is there a geographic dispersion you expect? I mean, it sounds like Saudi's been really strong.

Speaker Change: Yes, so the 7% is roughly equal with federal being a little bit higher growth.

Speaker Change: And as far as upside I would say across the portfolio again, because if you look at the 15 wins, we've had in 2023 greater than 100 and the two that we just announced this year so far its across the board in all six of those end market areas. So it really affects all four of the business units.

Carrie Smith: Are you seeing strength in the UAE? Are you seeing a rebound in Qatar? Just curious about how the Middle East...

Carrie Smith: Yes, so from a risk perspective, the conflicts really don't pertain to the type of work we do, because we're really doing infrastructure. I would call it, you know, helping Saudi Arabia really build out their infrastructure, whether it's transportation infrastructure, whether it's new industrial cities, whether it's new entertainment and tourism. That building is just going on across the country and will continue for a long time. It's great for all the people that live there because they'll have places to go for entertainment, their education systems are getting improved, and their health care is getting improved.

Speaker Change: Net I would say to kind of get to the high end as Kerry mentioned I think in our script a little bit around.

Speaker Change: The labor markets I think the U S budget, obviously youre getting a deal done it would be great and so kind of the those are the things that we're working through in terms of trying to get to within the midpoint to the high end.

Speaker Change: Got it thanks and then.

Speaker Change: The critical infrastructure backlog continues to remain strong, but I wanted to ask about federal solutions with <unk> seven.

Speaker Change: <unk> seven book to Bill this quarter.

Speaker Change: How much of that was the impact of the continued Crs.

Speaker Change: Should we continue to expect this segment to remain below one times until the government gets a full budget.

Carrie Smith: So I'd say that's terrific. On the conflict side, where we would see potential opportunity is in our federal solutions business, because of the types of areas we play in, whether that's cybersecurity, missile defense, intelligence type of work. We also do some RF emulator projects that we've seen deployed.

Speaker Change: So I would say first fourth quarter is always slight for federal government services third quarter is usually kind of a peak, but I would say the trailing 12 months is what we look at which is very important and thats been a one one and so I think our federal business has been delivering quite fine on that.

Carrie Smith: Our geographic dispersion, we are the largest in Saudi Arabia; about 60, 65% of our business is there. That's also been our fastest growing business, followed by the UAE, which has had strong growth. The UAE's focus has been on mixed-use developments and continuing to build out, whether it's Dubai or Abu Dhabi, which is where most of our work there is. And we did recently the UAE World Expo. In Qatar, we were heavily involved in the World Cup.

Speaker Change: No I don't expect that to drive being below a one <unk> times and the reason I don't is because we've already won a lot of work that $14 billion and the majority of that is in federal that we havent booked yet that we can still convert.

Speaker Change: We also by the way one other variable we've got 59% funded backlog, which is very high.

Speaker Change: Okay.

Speaker Change: Thank you very helpful. I appreciate the thoughts.

Carrie Smith: We did the traffic management system for that. We also did Lausanne City, and we were recognized as an outstanding consultant for our performance there. But I would say Qatar will probably, out of the three of those, be the slowest, with Saudi being the fastest, followed by UAE.

Speaker Change: Thanks, Alex.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced one moment for our next question.

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

Matt Opolis: And Kerry, I guess Matt, just as a sort of last follow-up on the cash side. Yep. Yeah, I think that's right, Bert. You know, obviously, we have the share buyback program that's kind of nominal. We did about $11 million worth of share buybacks in 2023. But definitely, the focus is on M&A. And to your point, you know, the team has done an amazing job with the $400 million in opcash for the year, just focused on working capital improvements.

Louie Dipalma: Sorry, Matt and Dave Good morning, and Great fourth quarter Youre setting the bar very high.

Louie Dipalma: Thank you Louie Thanks Louie.

Louie Dipalma: R&D exit or ceiling tech and <unk> acquisitions, performing significantly better than their revenue run rate prior to being acquired and when Parsons integrate.

Louie Dipalma: These assets are you able to unlock significant cross selling revenue synergies that makes the returns much more attractive than the.

Carrie Smith: And so the cash is generating, and we're really achieving critical milestones. So really excited about the cash position, and the 1.0 leverage puts us in a great place to keep pushing deals. I'd say the transition from kind of a one to two deals to two to three is a mix of, you know, going from kind of a heavier federal to a mix of federal NCI, where the CI deals, as Kerry mentioned, are a little bit smaller. So we have capacity to kind of get to the two to three. And that M&A really helps our momentum as well, you know, whether it's, if I look We were strong on the offensive.

Louie Dipalma: The original multiple may suggest.

Speaker Change: Yes, so I would say, etc has certainly been outperforming on a revenue front ceiling tech is really <unk>, but we do expect.

Speaker Change: They're going to deliver very strong performance I'll talk about that in a minute and IP keys is on track with our expectations, we do get the value as youre pointing out Louie from the cross selling we haven't factored in revenue or cost synergies as we've made these acquisitions. So anything that we get is kind of above and beyond great.

Speaker Change: Example, would be IP keys, they have a book of customers hundreds of customers in the utility in the water space. So in addition to selling those customers their capabilities. We can also solve the broader person's capabilities in those market areas. Likewise, we can take their products to our current Utah.

Carrie Smith: Now we can cover full spectrum cyber operations. I talked about IS engineers expanding our presence in Texas. The two of us together can move up the value chain and bid on and win larger jobs. And then IP keys are kind of nice at the intersection between federal and critical infrastructure, providing cyber compliance for energy and water companies.

Speaker Change: <unk> in water wastewater customers and sell that we've seen synergies already even between ceiling check in IP keys, and coming up with a new product line offering called cyber scape and we're going to be putting IP keys capabilities on the fly away catch at sealing tech such how quickly we do the integration.

Speaker Change: And we drive synergies, but that's definitely a big factor, helping our momentum.

Carrie Smith: So all those acquisitions, as well as the ones that we've done in prior years, are helping momentum. Great. Thank you so much, Ben.

Speaker Change: Great and another one Parsons has been particularly strong with capturing.

Bert Subin: Thank you, stand by for the next question. The next question comes from Andrew Wittmann with, "Your line is open. Great. Good morning."

Speaker Change: Classified cyber contracts over the past year, what is in general what is driving that strength and are these cyber contracts or are some of the hilli.

Andrew John Wittmann: Thanks for taking my question. I think I might just have one question today, and it's for Matt.

Matt Opolis: As I look at the capital structure, you've got this $400 million convertible note out there. It's fully hedged with the bond hedge that you've got on it. And it looks like the conditions to convert that to equity have been met with the trading performance of the stock here in the last several months. So I guess my thought or my question is, what are you gonna do about this $400 million face that's totally hedged out? I guess, is it fair to think of that as basically kind of gone or like not on the balance sheet because you've got the hedge that takes out the dilution that would result if you converted it? And what do you expect to do in practical sense with this, if anything at all?

Speaker Change: And with the Geo political conflicts in Europe.

The middle East.

Speaker Change: Asia and in General what is Parsons present, with the Endo Endo par call.

Speaker Change: Okay. So ill take the first one whats driving the cyber I would say first or one of the leaders and offensive cyber and that comprises about 75% of our business.

We have in depth relationships across the department of defense military services as well as the intelligence community and customers like Cyber command. So we've been able to get a very strong position. We've done work for them for a long time. They know they can count on us, particularly in a time of need as you mentioned such as the comps.

Andrew John Wittmann: Yeah, I'd say, Andy, thanks for the question. I would say we obviously look at the balance sheet constantly. We want to make sure that we're capable of continuing to do the M&A. The convert that we have in place has been a great deal for both us and the kind of convert holders as the stock has performed so well. So, all in all, we continue to look at it. I would say that it remains on the balance sheet.

Filiation I can't comment too much more on that in depth just due to the classification nature in the <unk>, we have several efforts underway and we've been on Guam for over three decades supporting public works that's through our credit core infrastructure group. We also are on Guam supporting defense of Guam.

Speaker Change: Through the missile for the missile Defense agency through our team's contract where on Kwajalein Island, we built the Kwajalein airfield. We're also just recently won the Kwajalein housing and we're looking for continued expansion there, particularly that budget got increased from $9 1 billion to over $14 billion in the NDAA. So that's going to be a big for.

Matt Opolis: It won't go current until August of this year, but we're continuing to look at options as we go forward. So no solid plan yet, but we're always looking at opportunities. Thank you. Thanks, Annie.

Speaker Change: <unk> area and then on our defense and intelligence side, we have over 100 folks located out in Hawaii that are working on cyber and intelligence type of work.

Speaker Change: And one for for Matt or your acquisitions are they typically margin accretive and you forecast that you would expect two to three acquisitions per.

Alex Dwyer: Please stand by for the next question. The next question comes from Alex Dwyer with KeyBank Capital Markets. Your line is open. Hi team.

Speaker Change: And so in general should these acquisitions.

Carrie Smith: Congratulations on a great quarter. Thank you, Alex. Thanks, Alex. So I wanted to ask about the Organic Revenue Growth Guide of 7% this year, how that splits between the segments this year, and if we can parse through the different assumptions from hiring and retention to win rates to the ramp-up of contracts. And if there's upside to this 7% revenue guide, where do you think we're most likely to see this upside? Yeah, so the 7% is roughly equal, with the federal government being a little bit higher growth.

Speaker Change: One of the drivers for continued margin expansion that you've guided to as part of that 2020 outlook.

Matt: Yes, absolutely Louie we target.

Matt: Adjusted EBITDA of 10% or better and so all of these companies are performing well I'd like to say that we like to buy companies that are doing well and bring them in and have them do better as part of Parsons versus kind of betting on the come whether it's on revenue growth or margins. So yes, absolutely. Each one of these acquisitions are expected to be accretive in a very short term and have strong cash flow as well.

Carrie Smith: And as far as upside is concerned, I would say across the portfolio again because if you look at the 15 wins we've had in 2023, the 100, and the two that we just announced this year so far, it's across the board and all six of those market areas. So it really affects all four of the business units. And I would say, you know, to kind of get to the high end, as Carrie mentioned in her script, a little bit about the labor market. I think the U.S. budget, obviously, getting a deal done would be great. And so kind of those are the things that we're looking through in terms of trying to get from the midpoint to the high end. Got it, thanks.

Speaker Change: Okay. Thanks, everyone.

Speaker Change: Thanks Luke.

Speaker Change: One moment for our next question.

Yes.

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

Speaker Change: Hi, This is Samantha styron from Marianna.

Speaker Change: Excellent.

Speaker Change: Hi, I, just wanted to ask about labor and hiring and kind of what you're seeing on these what you just mentioned in the classified contracts.

Speaker Change: Kind of getting those certifications are you seeing still a strong or like a bomb waitlist there.

Speaker Change: Yes, so overall on labor and hiring we are doing very well, obviously, that's been critical to driving our organic growth.

Speaker Change: We've seen our retention improve in fact, it improved by over a percent year to year, which is very strong and we were already ahead of <unk>.

Alex Dwyer: Critical infrastructure backlog continues to remain strong, but I wanted to ask about federal solutions with the 0.7 book-to-bill this quarter. How much of that was the impact of the continued CRs, and should we continue to expect this segment to remain below one times until the government gets a full budget? So I would say first, fourth quarter is always late for federal government services. Third quarter is usually kind of a peak.

Speaker Change: Pwc industry benchmarks in that area as far as classified contracts the clearance processing move to Dcs say back in 2019 and when it did they were able to drop the backlog and I must say it was close to 75% and they also sped up the clearance processing time for secret on top.

Speaker Change: Great.

Speaker Change: Which has really helped us classified area is always going to be the most difficult though to hire but we've seen some improvement in recent years.

Carrie Smith: But I would, I would say the trailing 12 months is what we look at, which is very important. And that's been a 1.1. And so I think our federal business has been delivering quite fine. On the CR, no, I don't expect that to drive it below a 1.0 times.

Speaker Change: Great and then on these programs that you have the $14 billion of on booked would those require more hiring to keep up with them and are you kind of hiring ahead of that or do you have the people in place already.

Carrie Smith: And the reason I don't is because we've already won a lot of work for that $14 billion, and the majority of that is federal work that we haven't booked yet that we can still convert. We also have, by the way, one other variable: we've got 59% funded backlog, which is very high. Thank you. Very helpful. Thanks, Alex. Thanks, Alex. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Speaker Change: Yes, so it's a mix so.

Speaker Change: I'll put them into two categories. When you look at it about half of that $14 billion of fund booked as option years. So those would be current programs that we're performing and we'll get follow on options in general most of those would have the people performing their contract today there might be some increased our surge scope as you go into the options, but generally those would be on <unk>.

Board the ones, where we would get additional labor is the ones that are unbox ceiling. So a case of example of that would be we want air based Air Defense program in Europe, and so that has just shy of $1 billion ceiling. So we book that as we get task orders and those task orders represent all new work. So it is.

Louie Dipalma: One moment for our next question. The next question comes from Louie DiPalma with William Blair. Your line is open. Carrie, Matt, and Dave, good morning and a great fourth quarter.

Louie Dipalma: You're setting the bar very high. Thank you, Louie, from Are the Exetor ceiling tech and IP keys acquisitions performing significantly better than their revenue run rates prior to being acquired? And when Parsons integrates these assets, are you able to unlock significant cross-selling revenue synergies that make the returns much more attractive than the original multiple may suggest? Yes, so I would say Exeter has certainly been outperforming on a revenue front. CeilingTech is really new, but we do expect, you know, they're going to deliver a very strong performance. I'll talk about that in a minute.

Speaker Change: About 50 50.

Speaker Change: Got it thank you so much.

Speaker Change: Thank you.

Speaker Change: That is all the time, we have for questions today I would now like to turn the call back to Dave for closing remarks.

Dave: Thank you and thank you for joining us. This morning, if you have any questions. Please don't hesitate to give me a call. We look forward to speaking with many of you over the next couple of weeks and with that we'll end today's call. Thank you have a great day.

Carrie Smith: And IPT is on track with our expectations. We do get the value, as you're pointing out, Louie, from the cross-selling. But we haven't factored in revenue or cost synergies as we've made these acquisitions.

Dave: That concludes today's conference call. Thank you for your participation you may now disconnect.

Dave: Okay.

Dave: [music].

Carrie Smith: So anything that we get is kind of above and beyond. A great example would be IPTs. They have a book of customers, hundreds of customers, in the utility and the water space. So, in addition to selling those customers their capabilities, we can also sell the broader person's capabilities in those market areas. Likewise, we can take their products to our current utility and water-wastewater customers and sell them. We've seen synergies already between Sealing Tech and IP Keys in coming up with a new product line offering called CyberScape. And we're going to be putting IP Keys capabilities on the flyaway kits at Sealing Tech. So that's how quickly we do the integration, and we drive synergies. But that's definitely a big factor helping our momentum.

Dave: Hum.

Dave: Okay.

Dave: Yes.

Dave: Okay.

Dave: Hum.

Dave:

Dave: Okay.

Dave: Hmm.

Dave: Okay.

Dave: [music].

Dave: Yes.

Dave: Hum.

Dave: Okay.

Carrie Smith: Great. And another one, Parsons has been particularly strong with capturing classified cyber contracts over the past year. What is, in general, driving that strength?

Okay.

Okay.

Dave: Okay.

Dave: Okay.

Dave: Okay.

[music].

Dave: Okay.

Dave: Hum.

Louie Dipalma: And are these cyber contracts, or some of them, affiliated with the geopolitical conflicts in Europe, the Middle East, and Asia, and, in general, what is Parsons' presence with the Indo-Petcom thing? Okay, so take the first one.

Dave: [music].

Dave: Okay.

Dave: [music].

Dave: Hum.

Dave: Okay.

Dave: [music].

Carrie Smith: What's driving cyber? I would say, first, we're one of the leaders in offensive cyber, and that comprises about 75% of our business. We have in-depth relationships across the Department of Defense military Services, as well as the intelligence community, and customers like Cyber Command. So we've been able to gain a very strong position. We've done work for them for a long time. They know they can count on us, particularly in a time of need, as you mentioned, such as when the conflict affiliation. I can't comment too much more on that in-depth, just due to the classification nature.

Dave: Yeah.

Dave: [music].

Dave: Hum.

Dave: Okay.

Dave: Yes.

Dave: Okay.

Dave: Hum.

Dave:

Dave: Okay.

Dave: Hmm.

Dave: Okay.

Dave: Yes.

Dave: [music].

Dave: Yes.

Hum.

[music].

Dave: Yes.

Carrie Smith: In Indo-PACOM, we have several efforts underway. We've been on Guam for over three decades, supporting public works through our critical infrastructure group. We also are on Guam supporting defense of Guam for the Missile Defense Agency through our teams' contract. We're on Kwajalein Island; we built the Kwajalein Air Field.

Dave: [music].

Dave: Okay.

Dave: Okay.

Dave: Okay.

Dave: Yes.

Dave: [music].

Yes.

Dave: Yeah.

Dave: Okay.

Dave: Okay.

Dave: Hum.

Dave: [music].

Carrie Smith: We've also just won the Kwajalein Housing, and we're looking for continued expansion there. Particularly, that budget got increased from $9.1 billion to over $14 billion in the NDAA, so that's going to be a big focus area. And then on our defense and intelligence side, we have over 100 folks located out in Hawaii that are working on cyber and intelligence type of work.

Dave: Okay.

Dave: Okay.

Dave: [music].

Dave: Hum.

Dave: Okay.

Dave: Okay.

Dave: [music].

Dave: Okay.

[music].

Dave: Hum.

Dave: Okay.

Louie Dipalma: Great. And one question for Matt: are your acquisitions typically margin accretive? And you just forecast that you would expect two to three acquisitions per year.

Dave: Okay.

[music].

Dave:

Okay.

Dave: Okay.

Dave: Okay.

Dave: Okay.

Matt Opolis: And so in general, should these acquisitions be one of the drivers for your continued margin expansion that you guided to as part of that 2025 outlook? Yeah, absolutely, Louie. We target adjusted EBITDA of 10% or better, and so all these companies are performing well. I like to say that we like to buy companies that are doing well and bring them in and have them do better as part of Parsons versus kind of betting on the come, whether it's on revenue growth or margin. So yeah, absolutely. Each one of these acquisitions is expected to be accretive in the very short term and have strong cash flow as well.

Dave: Yeah.

Dave: Yeah.

Dave: Yes.

Dave: [music].

Dave: Okay.

Dave: Hum.

Dave: Okay.

Dave: Yeah.

Dave: [music].

Dave: Yes.

Dave: Okay.

Dave: Yeah.

Dave: Okay.

Dave: Okay.

Dave: [music].

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Dave: Hum.

Dave: [music].

Louie Dipalma: Excellent. Thanks, everyone. Thanks, Louie.

Dave: Okay.

Okay.

Dave: Yes.

Dave: Okay.

Dave: [music].

Operator: One moment for our next question. The next question comes from Mariana Perez Mora with Bank of America. Your line is open. Hi, this is Samantha Styro on behalf of Mariana.

Dave: Hum.

Okay.

Dave: [music].

Dave: Okay.

Mariana Perez Mora: Hi, I just wanted to ask about labor and hiring and kind of what you're seeing on these, what you just mentioned, the classified contracts, kind of getting those certifications, are you seeing still a strong or like a long wait list there? Yeah, so overall, in labor and hiring, we're doing very well. Obviously, that's been critical to driving our organic growth.

Dave: [music].

Dave: Hum.

Dave: Okay.

Dave:

Dave: Hum.

Dave: Thank you.

Dave:

Dave: Okay.

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Dave: Okay.

Dave: Okay.

Dave: Yeah.

Dave: [music].

Dave: Uh huh.

Dave: Yes.

Dave: [music].

Carrie Smith: We've seen our retention improve; in fact, it improved by over a percent year to year, which is very strong, and we were already ahead of PwC industry benchmarks in that area. As far as classified contracts are concerned, the clearance processing moved to DCSA back in 2019. And when it did, they were able to drop the backlog. And I want to say it was close to 75%.

Dave: Hum.

Dave: Okay.

Dave: [music].

Dave: Okay.

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Dave: Okay.

Dave: Okay.

Dave: Okay.

Dave: Okay.

Carrie Smith: And they also sped up the clearance processing time for secret and top secret, which has really helped us. Classified areas are always going to be the most difficult, though, to hire, but we've seen some improvement in recent years. Great. And then on these programs that you have the $14 billion in unbooked, would those require more hiring to keep up with? And are you kind of hiring ahead of that, or do you have the people in place already? Yes, so it's a mix. And I'll put them into two categories.

Dave: Okay.

Dave: Hmm.

Dave: [music].

Dave: Okay.

Dave: [music].

Dave: Okay.

Dave: Hum.

Dave: Okay.

[music].

Dave: Okay.

Carrie Smith: When you look at it, about half that $14 billion of unbooked is for option years. So those would be current programs that we're performing, and we'll get follow-on options. In general, most of those would have the people performing the contract today. There might be some increased or surged scope as you go into the options, but generally, those would be on board. The ones where we would get additional labor are the ones that have an unbooked ceiling. So an example of that would be we won an airbase air defense program in Europe, and so that has just shy of a billion-dollar ceiling.

Dave: [music].

Dave: Hum.

Dave: Okay.

Dave:

Dave: [music].

Dave:

Dave: Hum.

Dave: Okay.

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Dave: Okay.

Dave: <unk>.

Dave: Yeah.

Dave: [music].

Dave: Okay.

Dave: [music].

Carrie Smith: So we book that as we get task orders, and those task orders represent all new work. So it's about 50-50. Thank you so much. Thank you. That is all the time we have for questions today.

Dave: Hum.

Dave: Okay.

Dave: <unk>.

Dave: [music].

Dave: Okay.

Dave Spilley: I would now like to turn the call back to Dave for his closing remarks. Thank you, and thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to speaking with many of you over the next couple weeks, and with that, we'll end today's call. Thank you. That concludes today's conference call. Thank you for your participation. You may now disconnect. www.globalonenessproject.org. Thank you for watching. Thank you for watching!

Dave: Okay.

Dave: Okay.

Dave: Okay.

Dave: [music].

Dave: Okay.

Dave: Okay.

Dave: Hum.

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Dave: [music].

Dave: