Q2 2024 Parsons Corp Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the second quarter of 2024 Parsons Corporation Earnings Conference Call.
Operator: 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 would need to press star 11 on your telephone. You would then hear an automated message advising that your hand is raised.
Speaker Change: At this time, all participants are in the listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you would need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Dave Spille, Senior Vice President, Investor Relations. Please go ahead.
Speaker Change: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Dave Spille, Senior Vice President, Investor Relations. Please go ahead.
David Spille: Thanks, Michelle. Good morning and thank you for joining us today to discuss our second quarter 2024 financial results. Please note that we provide a presentation slides on the investor relations section of our website. On the call with me today are Carey Smith, Chair, President and CEO , and Matt Ofilos, CFO .
Speaker Change: Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our second quarter financial results, as well as a review of our increased 2024 guidance. We then will close with a question and answer session.
Speaker Change: 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.
Carey A. Smith: Actual results may differ materially from those projected in the four looking statements due to a variety of factors. These risk factors are described in our Form 10-K for the fiscal year ended December 31, 2023 and other SEC filings. Also, our strong balance sheet and free cash flow are enabling us to continue to make internal investments in accretive acquisitions that support our long-term growth and margin expansion goals, as well as strengthen our capabilities in both segments.
Speaker Change: Actual results may differ materially from those projected in the four looking statements due to a variety of factors.
Speaker Change: 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.
Speaker Change: Management will also make reference to non-GAAP financial measures during this call, and we remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures. And now we'll turn the call over to Carey.
Carey: Thank you, Judith. Good morning and welcome to PERSON's second quarter 2024 earnings call. We are very pleased with our second quarter and year-to-date results and what the entire PERSONS team continues to accomplish.
Speaker Change: Over the last three years, we have transformed the company into a high-value solutions provider that differentiates by leveraging software and cutting-edge technologies such as artificial intelligence, cloud computing, and advanced signal processing.
Speaker Change: This transition has enabled us to deliver record financial results, industry-leading organic revenue growth in both segments, improved win rates, and a demonstrated ability to win larger and higher margin contracts.
Speaker Change: Also, our strong balance sheet and free cash flow are enabling us to continue to make internal investments and accretive acquisitions that support our long-term growth and margin expansion goals, as well as strengthen our capabilities in both segments.
Speaker Change: These accomplishments are the result of our clear strategic intent and ability to execute.
Speaker Change: Our Purpose-Built Federal Solutions Portfolio is addressing national security threats from near-peer adversaries that are increasingly aggressive.
Speaker Change: Our technology-driven infrastructure portfolio and our strong market position are enabling us to take advantage of the unprecedented global infrastructure spending.
Carey A. Smith: As our financial results demonstrate, we are executing on our strategy and delivering on our customers' missions, and the benefits of our portfolio transformation have allowed us to capitalize on the tailwinds that are positively impacting both our federal solutions and critical infrastructure segments. As a result of our strong second quarter performance, we are increasing our 2024 guidance ranges for all financial metrics, which Matt will discuss in a few minutes. Our ability to win new business across both segments in all six end markets continues, with Parsons posting a trailing 12-month book-to-bill ratio of 1.0 times, representing a 10% increase in contract award activity.
Speaker Change: As our financial results demonstrate,
Speaker Change: We are executing on our strategy and delivering on our customers' missions.
Speaker Change: And the benefits of our portfolio transformation have allowed us to capitalize on the tailwinds that are positively impacting both our federal solutions and critical infrastructure segments.
Speaker Change: For the second quarter, we've delivered record results for all three major financial metrics, including total revenue, adjusted EBITDA, and operating cash flow.
Speaker Change: This is the 10th consecutive quarterly record for revenue, and the 11th consecutive quarterly record for adjusted EBITDA.
Speaker Change: For the quarter, we generated $1.7 billion in revenue for the first time in our company's history and delivered organic revenue growth of 22 percent.
Speaker Change: This is now the fifth consecutive quarter in which we achieved year-over-year organic revenue growth of more than 20%.
Speaker Change: During the second quarter, we also delivered double-digit total revenue growth in all four business units in major geographies.
Speaker Change: I just did EBITDA of $150 million, what's also a record, an increase 27% year-over-year, which outpaced total revenue growth.
Speaker Change: We expanded our adjusted EBITDA margins by 30 basis points as we continue to execute on higher margin contracts and efficiently manage the business.
Speaker Change: In addition, we reported record second quarter operating cash flow and increased our trailing 12-month cash flow by more than 115% from the prior year period.
Speaker Change: As a result of our strong second quarter performance, we are increasing our 2024 guidance ranges for all financial metrics, which Matt will discuss in a few minutes.
Matt: Our ability to win new business across both segments in all six end markets continues, with Parsons trailing 12-month book-to-bill ratio of 1.0 times, representing a 10 percent increase in contract award activity.
Matt: In addition, the critical infrastructure segment has achieved a book-to-bill ratio of 1.0 or greater for the 15th consecutive quarter.
Matt: Much of our success in the infrastructure market is due to our ability to infuse technology across our portfolio. For example, we've implemented artificial intelligence to automate construction supervision across many of our giga projects in the Middle East.
Carey A. Smith: This has led to reduced cost, increased productivity and safety, and margin expansion. In Saudi Arabia, we were awarded over $160 million in awards during the quarter, including a confidential $41 million contract for technical consulting and $60 million of additional scope on existing contracts. Approximately $30 million of new work for a resort and marina and new work supporting a Saudi developer. In infrastructure North America, we received a new $46 million contract for operations and maintenance of intelligent transportation systems by the Virginia Department of Transportation and a new rail and transit project.
Matt: This has led to reduced cost, increased productivity and safety, and margin expansion.
Matt: In critical infrastructure, during the second quarter, we were awarded many new strategically important contracts.
Matt: In Saudi Arabia, we were awarded over $160 million of awards during the quarter, including a confidential $41 million contract for technical consulting, $60 million of additional scope on existing contracts.
Matt: Approximately 30 million of new work for a resort and marina and new work supporting a Saudi developer.
Matt: Our momentum in the Middle East, and the Saudi market in particular, continues as both markets achieved double-digit year-over-year revenue growth in the second quarter, exceeding our second quarter plan.
Matt: We also increased our fiscal year 2024 forecast for both the EMEA and Saudi Arabia markets.
Matt: We currently have the largest qualified pipeline in our company's history in both Saudi and the Middle East overall, and our Saudi business is so diverse that no single contract represents more than 2% of Parsons' total revenue.
Matt: In Infrastructure North America, we received a new $46 million contract for operations and maintenance of intelligent transportation systems by the Virginia Department of Transportation and a new rail and transit project.
Speaker Change: During the quarter, the Gateway Tunnel Project secured the last piece of $16 billion in funding, signing the nearly $7 billion full funding grant agreement with the United States Department of Transportation, and securing $4 billion in loans for the local match.
Carey A. Smith: This is a milestone project. We won as a delivery partner in the first quarter, and it represents the largest investment in a mass transit project in modern history. Right after the quarter ended, we were awarded a $69 million contract over three years to provide Army Family Health. Our presence in Guam, Kwajalein, and Hawaii continues to strengthen and is aligned to the fiscal year 2025 Pacific Deterrence Initiative of $9.9 billion for targeted investment to enhance U.S. force posture, infrastructure, presence, and readiness of U.S. allies and partners in the Indo-Pacific region. After the second quarter ended, we entered into a definitive agreement to acquire BlockSignal Technologies in a transaction valued at approximately $200 million.
Speaker Change: This is a milestone project. We won as a delivery partner in the first quarter and represents the largest investment in a mass transit project in modern history.
Speaker Change: As I indicated last quarter, Parsons has recently won three of the largest North America transportation projects in our company's history, the Hudson River Tunnel, JFK International Airport roadways, and Newark Bay Bridge projects.
Speaker Change: These three major awards, along with our second quarter wins, demonstrate the success that we're having in the transportation market. It also highlights that federal, state, local, and international funding continue to flow at a steady pace.
Speaker Change: In our Federal Solutions segment, during the second quarter, we received an option period award totaling $460 million under the company's Technical Engineering Advisory and Management Support, or TEAMS, contract.
Speaker Change: On this program, Parsons provides system engineering and integration for the nation's missile defense system.
Speaker Change: This includes engineering expertise to oversee the development of hardware and software builds, ensure cyber resilience, and provide warfighting capabilities to defend the United States homeland, our deployed forces, and our allies.
Speaker Change: This award continues Parsons' more than 40-year history supporting the Missile Defense Agency with technology-enabled services such as digital engineering.
Speaker Change: We also exercised the next option here totaling $110 million on the General Services Administration C5ISR Exercise Operations and Information Services or CEOS contract.
Speaker Change: Under this program, we design, develop, train, and deploy scalable machine learning solutions to extract actionable intelligence from vast amounts of data and deliver it to intelligence analysts and warfighters.
Speaker Change: In the Indo-Pecan region, we continue to strengthen our presence. Right after the quarter ended, we were awarded a $69 million contract over three years to provide Army family housing.
Speaker Change: Our presence in Guam, Kwajalein, and Hawaii continues to strengthen and is aligned to the fiscal year 2025 Pacific Deterrence Initiative of $9.9 billion for targeted investment to enhance U.S. force posture, infrastructure, presence, and readiness of U.S. allies and partners in the Indo-Pacific region.
Speaker Change: After the second quarter ended, we entered into a definitive agreement to acquire Black Signal Technologies and a transaction valued at approximately $200 million.
Carey A. Smith: This acquisition, which is expected to close in August 2024, is consistent with our strategy of completing accretive acquisitions of companies we know well and have revenue growth and adjusted EBITDA margins of 10% or more, while adding critical intellectual property that strengthens our existing portfolio. These rankings reflect the company's worldwide reputation and ability to successfully win and execute infrastructure programs. As I look forward, I'm extremely excited about our bright future. In addition, we have a robust pipeline of accretive acquisitions that we will continue to pursue given the strength of our balance sheet.
Speaker Change: This acquisition, which is expected to close in August 2024, is consistent with our strategy of completing accretive acquisitions of companies we know well and have revenue growth and adjusted EBITDA margins of 10% or more, while adding critical intellectual property that strengthens our existing portfolio.
Speaker Change: Black Signal is a next-generation digital signal processing, electronic warfare, and cybersecurity provider built to counter near-peer threats.
Speaker Change: They will expand Parsons' customer base across the Department of Defense and Intelligence community and significantly strengthen Parsons' positioning within offensive cyber operations and electronic warfare, while adding new capabilities in the counterspace radio frequency domain, a market anticipated to grow more than 10% annually with double-digit margin expectations.
Speaker Change: Black Signal uses artificial intelligence and machine learning to create innovative signal processing techniques that detect and disrupt difficult-to-access adversary command and control systems and platforms.
Speaker Change: We look forward to welcoming Black Signal's talented employees into the Parsons family and the significant contributions they will make to our business.
Speaker Change: We continue our 80-year history of cultivating a responsible enterprise. As outlined in today's second quarter earnings release, Parsons received multiple awards for our innovative approach to delivering resilient and sustainable infrastructure.
Speaker Change: In addition, we were recognized by Engineering News Record as one of the top three global companies in 2024 in three categories, program management, construction management, and program construction management for fee.
Speaker Change: These rankings reflect the company's worldwide reputation and ability to successfully win and execute infrastructure programs.
Speaker Change: Parsons was also named as one of the best employers for new graduates by Forbes.
Speaker Change: As I look forward, I'm extremely excited about our bright future.
Speaker Change: We have strong tailwinds in both segments and across our six core end markets and an experienced management team that consistently delivers strong financial results.
Speaker Change: In addition, we have a robust pipeline of accretive acquisitions that we will continue to pursue given the strength of our balance sheet.
Speaker Change: We also have significant financial visibility with approximately 3% of our revenue up for repeat in 2024 and less than 10% in 2025.
Speaker Change: A total backlog of $8.8 billion, of which 62% is funded.
Carey A. Smith: And we have $57 billion of qualified pipeline with $13 billion of single award contract wins that are not yet included in either our bookings or our backlog. With that, I'll turn the call over to Matt to provide more details on our second quarter financial results and our increased fiscal year 2024 guidance. Matt. Thank you, Carey.
Speaker Change: And we have $57 billion of qualified pipeline with $13 billion of single award contract wins that are not yet included in either our bookings or our backlog.
Speaker Change: With that, I'll turn the call over to Matt to provide more details on our second quarter financial results and our increased fiscal year 2024 guidance. Matt?
Matt: As Carey indicated, our momentum continued through the second quarter of 2024 and was highlighted by record results for total revenue, adjusted EBITDA, and operating cash. We are very pleased with the growth we achieved, given our record results in the second quarter of 2023, resulting in a tough comparable period for the second quarter of 2024. Organic growth for the second quarter was driven by continued ramp-up on recent contract awards and execution on our backlog programs, including significant growth from our critical infrastructure protection, cyber, and urban development markets.
Matt: Thank you, Carey. As Carey indicated, our momentum continued through the second quarter of 2024 and was highlighted by record results for total revenue, adjusted EBITDA, and operating cash flow.
Matt: We are very pleased with the growth we achieved, given our record results in the second quarter of 2023, resulting in a tough comparable period for the second quarter of 2024. Additionally, our growth was consistent across the portfolio as we experienced double-digit total revenue growth in all business units and major geographies.
Matt: Turning to our results.
Matt: Second quarter revenue of $1.7 billion increased $314 million, or 23% from the prior year period, and was up 22% on an organic basis.
Matt: For Perspective, this significant growth was achieved off our record second quarter in 2023, where we grew $348 million, or 34%.
Matt: Organic growth for the second quarter was driven by continued ramp-up on recent contract awards and execution on our backlog programs, including significant growth from our critical infrastructure protection, cyber, and urban development markets.
Matt: SG&A expenses for the second quarter were 13.4% of total revenue compared to 15.6% in the prior year period as we continue to focus on efficient growth across the portfolio while investing in the future through technology, business development, and hiring and retention initiatives.
Matt: Adjusted EBITDA of $150 million increased to $32 million, or 27%, and adjusted EBITDA margin expanded 30 basis points to 9%.
Matt: These year-over-year increases were driven primarily by higher volume on margin of creative contracts, program execution, and a deliberate focus on indirect cost management.
Matt: As with revenue, our adjusted EBITDA growth was compared to a very strong second quarter in 2023, where we experienced growth of 53% over the prior year period. Even with the strong performance last year, we outperformed in 2024. On a year-to-date basis, adjusted EBITDA margin at the Parsons level is 9.1% compared to 8.2% in 2025. This increase was driven by organic growth of 27% and the contribution from our ceiling tech acquisition. Organic growth was driven primarily by the ramp-up of recent contract wins and growth on existing contracts to include strength in our critical infrastructure protection and cyber market. Adjusted even the margin of 10.4% was down from the prior year period as a result of the $20 million in non-recurring incentive fees realized in Q2 of 2025. Second quarter revenue increased 15% from the prior year period on both an organic and inorganic basis.
Matt: As with revenue, our adjusted EBITDA growth was compared to a very strong second quarter in 2023, where we experienced growth of 53% over the prior year period.
Matt: Even with the strong performance last year, we outperformed in 2024. On a year-to-date basis, adjusted even at the margin at the Parsons level is 9.1% compared to 8.2% in 2023.
Matt: I'll turn to our operating segments, starting first with Federal Solutions, where second quarter revenue increased to $226 million, or 30% from the second quarter of 2023.
Matt: This increase was driven by organic growth of 27% and the contribution from our ceiling tech acquisition.
Matt: Organic growth was driven primarily by the ramp-up of recent contract wins and growth on existing contracts to include strength in our critical infrastructure protection and cyber markets.
Matt: Federal solutions adjusted EBITDA increased by $17 million or 20% from the second quarter of 2023. This increase was driven primarily by increased volume on accretive contracts and effective cost control.
Matt: Adjusted EBITDA margin of 10.4% was down from the prior year period as a result of the $20 million in non-recurring incentive fees realized in Q2 of 2023.
Matt: Excluding these incentive fees, our federal solutions adjusted even the margin would have increased by 160 basis points from the second quarter of 2023.
Matt: On a year-to-date basis, federal adjusted income margins of 10.3% are ahead of plan and guidance as a result of improved business mix.
Matt: Moving now to our critical infrastructure segment.
Matt: Second quarter revenue increased 15% from the prior year period on both an organic and inorganic basis.
Matt: Organic growth was driven by higher volume in our Middle East and North American infrastructure portfolios.
Matt: Critical infrastructure was adjusted to increase by $15 million, or 46%, from the second quarter of 2023. The adjusted EBITDA margin increased 150 basis points to 7%. Year-to-date critical infrastructure margins are 7.3%, 140 basis points ahead of 2023, and we're optimistic we will continue to see improvement as we complete legacy programs and drive growth on higher margin contracts. During the second quarter of 2024, we generated $161 million of operating cash flow compared to $23 million in Q2 of 2023.
Matt: Critical infrastructure adjusted EBITDA increased by 15 million dollars or 46 percent from the second quarter of 2023. Adjusted EBITDA margin increased 150 basis points to 7 percent.
Matt: The adjusted EBITDA increases were driven by growth on accretive programs and improved operating performance.
Matt: Year-to-date critical infrastructure margins are 7.3%, are 140 basis points ahead of 2023, and we're optimistic we will continue to see improvement as we complete legacy programs and drive growth on higher margin contracts.
Matt: Next I'll discuss cash flow and balance sheet metrics.
Matt: During the second quarter of 2024, we generated $161 million of operating cash flow, compared to $23 million in Q2 of 2023.
Matt: On a trailing 12-month basis, we generated a record $492 million of operating cash flow, a 117% increase over the prior 12-month period. Our balance sheet remains strong as we ended the second quarter with a net debt leverage ratio of 1.3 times compared to 1.6 times at the end of the first quarter of 2020. Considering the future impact of the $200 million all-cash black signal acquisition, our pro forma net debt leverage ratio would be 1.7 times when calculated on the second quarter results.
Matt: On a trailing 12-month basis, we generated a record $492 million of operating cash flow, a 117% increase over the prior 12-month period.
Matt: These increases were primarily driven by improved profitability and strong collections across the portfolio.
Matt: During the second quarter, net DSO declined year over year by 16 days to 60 days.
Matt: Capital expenditures totaled $9 million in the second quarter of 2024, which is relatively consistent with last quarter in the prior year period.
Matt: CAPEX continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue, while continuing to invest in strategic areas like expanding classified facilities and space technology to support future growth.
Matt: Free cash conversion was 150% for the second quarter and 124% on a trailing 12-month basis, with an intentional focus on approved contract terms and cash collections.
Matt: Our balance sheet remains strong as we ended the second quarter with a net debt leverage ratio of 1.3 times compared to 1.6 times at the end of the first quarter of 2024.
Matt: Considering the future impact of the 200 million dollar all cash black signal acquisition, our pro forma net debt leverage ratio would be 1.7 times when calculated on a second quarter on the second quarter results.
Matt: Our strong free cash flow is enabling us to de-lever the balance sheet while continuing to make additional internal investments and accretive acquisitions that support our long-term growth objectives. Contract awards decreased from the prior year period due to the timing of large contracts in both the second quarter of 2023 and the first quarter of 2024.
Matt: Our strong free cash flow is enabling us to de-lever the balance sheet while continuing to make additional internal investments and accretive acquisitions that support our long-term growth objectives.
Matt: During the quarter, we were opportunistic and we purchased $10 million of Parsons stock at an average price of $76.30. On an inception-to-date basis, we purchased $65 million of stock at an average price of $41.54.
Matt: Turning next to bookings. On a trailing 12-month basis, contract awards increased 10% and our book-to-bill ratio was 1.0 times.
Matt: In our critical infrastructure segment, we achieved a quarterly book-to-bill ratio of 1.0 in the second quarter, marking the 15th consecutive quarter with a book-to-bill ratio of 1.0 or greater.
Matt: Second quarter contract award activity decreased 22% year-over-year to 1.5 billion dollars for a book-to-bill ratio of 0.9 times.
Matt: Contract awards decreased from the prior year period due to the timing of large contracts in both the second quarter of 2023 and the first quarter of 2024.
Matt: With industry-leading organic growth and a robust pipeline of new opportunities, we continue to have confidence in our ability to sustain above-market growth rates.
Matt: We ended the second quarter with total backlog of $8.8 billion, which is consistent with the prior year period. As previously noted, this does not include $13 billion of contract wins.
Matt: Now let's turn to our guidance. We're increasing our 2024 guidance ranges as a result of our record second quarter performance, recent contract wins, and option awards, positive end market exposure, and our favorable outlook for the remainder of the year.
Matt: For 2024, we are increasing our revenue range by $200 million at the midpoint to $6.35 to $6.55 billion. This represents total revenue growth of 19% at the midpoint and 18% on an organic basis. We are also increasing our cash flow guidance. We now expect operating cash flow to be between $395 and $455 million.
Matt: For 2024, we are increasing our revenue range by 200 million dollars at the midpoint to 6.35 to 6.55 billion dollars.
Matt: This represents total revenue growth of 19% at the midpoint and 18% on an organic basis.
Matt: Additionally, we are increasing our adjusted EBITDA range. We now expect adjusted EBITDA to be between $555 and $595 million, which represents 24% growth at the midpoint of the range and continues to exceed our revenue growth.
Matt: Margin at the midpoint of our increased revenue and adjusted EBITDA ranges remains at 8.9%, which is 40 basis points above our fiscal 2023 results.
Matt: We are also increasing our cash flow guidance. We now expect operating cash flow to be between $395 and $455 million.
Matt: At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 100% of adjusted net income.
Matt: Other key assumptions in connection with our 2024 guidance are outlined on slide 10 in today's PowerPoint presentation located on our Investor Relations website.
Matt: In summary, we've had an exceptional first half of the year with great top and bottom line and cash flow results. Our execution has been strong across all business units and major geographies. We are confident in our ability to achieve our increased 2024 guidance range. This has resulted in record revenue, profitability, and cash flow, industry-leading organic revenue growth, improved win rates, and a demonstrated ability to move up the value chain and win larger and more profitable jobs. I'm extremely pleased with our last three years of performance, which is a direct result of our 18,500 employees' focus on delivering our customers' critical mission. But the guidance was unchanged at 8.9.
Matt: In summary, we've had an exceptional first half of the year with great top and bottom line and cash flow results. We're putting the balance sheet to use after announcing another strategic acquisition, which we believe will further enhance our technology offerings and support long-term growth expectations.
Matt: Our execution has been strong across all business units and major geographies. We are confident in our ability to achieve our increased 2024 guidance ranges.
Matt: With that, I'll turn the call back over to Carey.
Carey: As some of you may know, this month is my three-year anniversary as the CEO of Parsons. As I reflect over the last three years, I am very proud of what the entire Parsons team has accomplished.
Carey: We have a laser-focused strategy that has transformed the company into a solutions provider that differentiates with software and advanced technology. We intentionally position the company in six enduring, growing, and profitable end markets.
Carey: This has resulted in record revenue, profitability, and cash flow, industry-leading organic revenue growth, improved win rates, and a demonstrated ability to move up the value chain and win larger and more profitable jobs.
Carey: In addition, we continue to lead with technology transformation in critical areas, including cyber, artificial intelligence, space, electronic warfare, advanced transportation systems, and emerging contaminants.
Carey: I'm extremely pleased with our last three years of performance, which is a direct result of our 18,500 employees' focus on delivering our customers' critical missions.
Speaker Change: Operator, you can open the line for questions please.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again. And our first question comes from Sheila Kahyaoglu with Jeffreys. Your line is open.
Sheila Karin Kahyaoglu: Hey, good morning guys, and thank you very much. Good morning, Sheila. Carey, congrats on your three-year anniversary. Thank you. And great job on margins, up 40 bits.
Operator: So maybe if you could just talk about it. Great. And then if I could ask one more on the unbooked pipeline, that's been really helpful. But I believe it came down from $14 billion to $13 billion. So kind of how do you think about the unbooked pipeline coming into the backlog? And how do we think about that, the cadence of conversion there?
Sheila Karin Kahyaoglu: But the guidance was unchanged at 8.9. So maybe if you could just talk about how we should think about profitability, because it's been an issue in the rest of the sector as your new winds ramp, given your organic growth.
Carey: Yeah, thanks, Sheila. So first, I would say we are pleased with our profit. We're up 90 basis points year-to-date. We were up 30 basis points for this quarter.
Carey: and we expect to be up 40 basis points for the year.
Carey: And in addition, as we look forward, we expect to be up 20 to 30 basis points each year and years after. So I think we've done a great job of expanding margin, plus our EBITDA dollars have been growing faster than our revenue growth in this quarter. We were at 27% versus 23%.
Carey: On revenue growth, we do feel on the critical infrastructure side, we can still get further margin expansion. Eventually, that's a business that we expect to be double digits.
Carey: We do have one legacy program remaining that we expect to wrap up in the third quarter. And once that's behind us, we expect that we'll see some additional tailwinds.
Speaker Change: Great, and then if I could ask one more on the unbooked pipeline that's been.
Speaker Change: really helpful, but I believe it came down from $14 billion to $13 billion. So, kind of, how do you think about Unbooked Pipeline coming into the backlog?
Speaker Change: and how we think about that, the cadence of conversion there.
Speaker Change: Yeah, thanks. Great question, Sheila. It was $14 billion, now it's just over $13 billion.
Speaker Change: We converted two programs, which we announced on the call, the TEAMS and the SEOS. Those were previously in that award and not booked.
Speaker Change: So those converted during the quarter. We do expect, you know, as we get new awards, that gets replenished, and that's a metric that we're going to continue to track. So it is very important since we don't reflect that $13 billion in our $8.8 billion backlog or in our bookings.
Tobey O'Brien Sommer: Thank you. And the next question comes from Tobey Sommer with Truist Securities. Your line is open. Sure, so backlog was relatively flat. Book-to-bill, as you're aware, is lumpy.
Speaker Change: Got it. Thank you so much and great quarter.
Speaker Change: Thank you. Thanks, y'all.
Speaker Change: And the next question comes from Tobey Sommer with Truist Securities. Your line is open.
Tobey O'Brien Sommer: Thank you. Could you please discuss any programs or contracts that are winding down or coming to some sort of natural completion and contrast that with any new wins that are ramping?
Speaker Change: that could provide a basis for a sequential revenue trajectory in the second half of the year.
Speaker Change: Yeah, and the ones that are winding down, it's about $86 million this year, and we tend to run about $100 million on any given year, and it's really three contracts that price that.
Speaker Change: The ones that are ramping up, I would say the GSA $1.2 billion award that we had over a year ago, we're starting to see some ramp up there. We continue to do well in all of our cyber work across various contracts, CCMS, CEOS, and others. That's been a strong 25% growth for us.
Speaker Change: Also, on the infrastructure side of the house, I've mentioned all the Middle East wins that we've had, including the additional $160 million that we received this quarter. That's been strong. And North America winning our three largest programs within the last 12 months.
Speaker Change: have all ramped up, and that's obviously what's been a key contributor to driving such strong organic growth across both business segments.
Speaker Change: Thanks. Could you also discuss, maybe put a little bit more color on the decline in backlog and slower bookings in the quarter and your expectations for contract activity and bookings as you look into the second half of the year?
Speaker: We had a very strong book-to-bill of 1.4 times in Q1, followed by 0.9 times in Q2. So, year-to-date, we're doing very well at 1.12 times. I would also highlight that both segments are over 1.1 times year-to-date. And then the trailing 12 months for Parsons has been greater than 1.0 times.
Speaker Change: Sure. So backlog was relatively flat. Book-to-bill, as you're aware, is lumpy. We had a very strong book-to-bill of 1.4 times in Q1, followed by 0.9 times in Q2. So year-to-date, we're doing very well at 1.12 times.
Speaker Change: I would also highlight that both segments are over 1.1 times year-to-date, and then trailing 12 months for Parsons has been greater than 1.0 times, and once again, both segments are over 1.0 times.
Speaker Change: I think bookings are interesting. I think organic revenue growth is what really matters, and we're really pleased that we've had five consecutive quarters or greater than 20% growth.
Speaker Change: On the backlog, I would also highlight that that does not reflect, again, the $13 billion of single work that Parsons has already won.
Speaker Change: Thanks, I'll sneak one more if I could.
Speaker Change: Oh, could you...
Speaker Change: Elaborate a little bit on opportunities for revenue synergies with BlackSignal and comment about what the prospective pipeline of M&A looks like if you're going to be able to get your sort of quota or target for the year.
Speaker: And once again, both segments are over 1.0 times. Yes, I would say first that I am very excited about BlackSignal. It's directly aligned with Parsons' solution selling vision. They have 90% intellectual property enabled offerings, and it drives 67% of sole source awards. It strengthens our position in key markets, offensive cyber operations, and electronic warfare. And if I just delve a bit deeper into that, I would say on the offensive cyber side, they've played a lot more in research and development.
Speaker Change: Yes, I would say first, very excited about Black Signal. It's directly aligned with Parsons' solution selling vision. They have 90% intellectual property enabled offerings, and it drives 67% of sole source awards.
Speaker Change: It strengthens our position in key markets, offensive cyber operations and electronic warfare, and if I just delve a bit deeper into that, I would say in the offensive cyber side, they've played a lot more in the research and development, we're strong in the operations, so it really strengthens our full-spectrum cyber operations capability.
Speaker: We're strong in operations, so it really strengthens our full-spectrum cyber operations capability. In the electronic warfare space, we both play there, but we happen to look at different signals of interest, and both of us leverage our advanced digital signal processing capabilities.
Speaker Change: In the electronic warfare space, we both play there, but we happen to look at different signals of interest, and both of us leverage.
Speaker: And then they provide new capabilities for us in the counter-space radio frequency domain, an area again that's expected to see double-digit growth. They also improve our posture in the Indo-PACOM region, which I talked about a little bit on the call. And then in the electronic warfare area, I would point out that we play mostly with Title 10 tactical military, whereas they bring a lot of Title 50 strategic.
Speaker Change: or Advanced Digital Signal Processing Capabilities, and then they provide new capabilities for us in the counter space radio frequency domain, an area again that's expected to see double digit growth.
Speaker Change: They also improve our posture in the Indo-Pekom region, which I talked about a little bit on the call, and then in the electronic warfare area also I would point out that we play mostly with Title 10 tactical military, whereas they bring a lot of Title 50 strategic
Speaker: So overall, that's just a terrific acquisition. We have customer alignment. They are strong with the Air Force, with the Navy, with DARPA, and the Intel community. We're strong with the Army and different parts of the Intel community. So, extremely complementary.
Speaker Change: So overall, this is just a terrific acquisition. We have customer alignment. They're strong with the Air Force, with the Navy, with DARPA and the intel community. We're strong with the Army and different parts of the intel community.
Bert William Subin: And as with all of our acquisitions, we really look for them to drive us up the value chain. On your second question, the pipeline is still very strong. We have a lot of candidates within both critical infrastructure and within federal, and we're on track to do two to three acquisitions this year. Thanks, everybody. And the next question comes from Bert Subin with Stiefel. Your line is open.
Speaker Change: So, extremely complimentary, and as with all of our acquisitions, we really look for them to drive us up the value chain.
Speaker Change: On your second question, the pipeline is still very strong. We have a lot of candidates within both critical infrastructure and within federal, and we're on track to do two to three acquisitions this year.
Speaker Change: Thank you very much.
Victoria: Thanks, everybody.
Victoria: And the next question comes from Bert Subin with Stiefel. Your line is open.
Bert William Subin: Hey, good morning.
Bert: Good morning, Bert. Morning, Bert.
Bert William Subin: And if you think about that trajectory, what do you think drives that more? Is it going to continue to be the federal side, or do you think infrastructure will be the greater pro or longer term?
Speaker Change: Yes, I would say what's happened since our Investor Day. First, you know, we have a very clear strategic intent. We're focused on six core end markets that are all enduring, growing, and sustainable and profitable.
Speaker Change: Both the segments, all major geographies have hit on all cylinders. Everybody's delivering double digits, and that's expected for the year, and that's what's been happening. As far as our visibility increasing, I think we always have pretty good visibility, both on the federal and the critical infrastructure side.
Speaker Change: Trajectory is a growth company. We intend to keep growing.
Speaker Change: Yeah, Bert, I'd just add, if you think back to the investor day, you know, some of the things we outlined.
Bert William Subin: At the time, obviously, the overall labor market was kind of uncertain. We had this uncertain inflation environment, budgets were pretty challenged.
Bert William Subin: Thank you.
Carey A. Smith: Very helpful. On the critical infrastructure side, this is the first quarter we've seen North America growth exceed the Middle East. Is that a trend you think will persist? It seems like the Middle East is still growing nicely.
Bert William Subin: Got it. Very helpful. On the critical infrastructure side, this is the first quarter we've seen North America growth exceed Middle East.
Speaker Change: Is that a trend you think will persist? It seems like Middle East is still growing nicely, and I know, Carey, you've made some comments about strength in Saudi and seeing improvement in Abu Dhabi, but I'm just curious, is the setup even better for the North American side?
Carey: You know, some of the biggest ones in our company's history be awarded over the last 12 months.
Carey: They both have very strong pipelines, and I think it'll be interesting to watch the two business units give each other a race, because I'm excited about the Saudi and the Middle East market as well.
Speaker Change: Thanks, just just one clarification question. I don't know if you might have missed this in your prepared remarks, but is black signal included in guidance or will that be additive?
Alex Dwyer: And I know, Carey, you've made some comments about strength in Saudi Arabia and seeing improvement in Abu Dhabi. But I'm just curious, is the setup even better for North America? Right, so just to give some scope, you know, this year we can expect about 30 million worth of revenue, double-digit margins, and then next year, I think it was in the release, but just under $100 million in double-digit margins. Thank you. And our next question comes from Alex Dwyer with KeyBank Capital. Your line is open.
Speaker Change: It's additive to guidance, it is not included.
Speaker Change: Right. Thanks, Carey. Thanks a lot. Just to give some scope, you know, this year we can expect about $30 million worth of revenue, double-digit margins, and then next year, I think it was in the release, but just under $100 million in double-digit margins.
Bert William Subin: Thanks, Bert.
Speaker Change: And our next question comes from Alex Dwyer with KeyBank Capital. Your line is open.
Speaker: Hey, thanks for taking my question. And we're heading in the right direction and, you know, critical IRAD investments that'll benefit long-term growth as well. So, but I think low to mid-teens is a good number from SG&A. I don't think it'll go far below that.
Alex Dwyer: Hey, thanks for taking my questions.
Alex: Thank you, Alex. Hey, thanks.
Speaker Change: I wanted to ask about the SG&A leverage and the focus on the indirect cost management we've been seeing.
Alex Dwyer: Can you talk a little bit about what specifically has been driving that and then what should we expect going forward in terms of SG&A for the business? Should this continue to trend down as a percent of revenue going forward?
Carey: Yeah, Alex, I'd say that we're kind of, Carey and I are pretty comfortable about where we're at right now.
Carey: Low-to-Mid-Teens. We have seen favorable trends, obviously, as revenue growth has been in kind of the...
Carey: 20-30% over the past few quarters.
Carey: We've been kind of controlling costs, we've been doing effective things like, obviously a lot of folks are pulling facility costs out and things, but obviously to support the growth we've been spending in important areas like technology, BD.
Carey: things like that. So I think, you know, from a modeling perspective, that kind of low to mid teens is a good number for us. But overall, again, you know, really strong performance.
Carey: and we're heading in the right directions and, you know, critical IRAD investments that'll benefit long-term growth as well. So, but I think low to mid-teens is a good number from SG&A. I don't think it'll go far below that.
Speaker Change: Got it. Thank you. That's very helpful.
Speaker Change: And then secondly, can you talk about the equity and earnings line during this quarter? I think it included a $22 million write-down from a design-build JV. Can you just talk about what happened there? Was this the same project from last quarter?
Speaker Change: And then what's built into the guidance in terms of that equity and earnings line for the remainder of the year?
Speaker Change: I'll take the first part and Matt will take the last part.
Matt: So first, we're very happy with our margin performance. On a year-to-date basis, margins are up 90 basis points, and so the business are performing quite well. We're also still projecting 40 basis points of margin expansion this year at our midpoint of guidance, and 20 to 30 basis points after that.
Speaker Change: And the critical infrastructure segment in the quarter was up 150 basis points.
Speaker Change: We did, to your point, take a $22 million adjustment. It was on a joint venture, specifically a construction joint venture project, and that's reflected.
Speaker Change: Within Equity and Earnings. This is the program we mentioned in the fourth quarter that had some supply chain issues.
Speaker Change: And so, we're still in discussions with the customer on various scope and schedule challenges. Pro forma, the critical infrastructure margin would have been at 10.2%, and the Parsons margin would have been at 10.3%.
Speaker Change: I'd also like to remind you, Alex, this is business that we no longer pursue. Since I became CEO , we've stopped bidding construction joint ventures.
Alex: And Alex, just from a modeling perspective, you can assume, kind of, call it 3 to 5 million in the second half for equity and earnings, so a couple million a quarter. On a normal run rate where we wouldn't have any impacts, we think, you know, equity and earnings for the company should run, call it between 10 and 20 million, so if you want to say 15-ish, I think that's probably, 13 to 15 is probably a fair number.
Speaker Change: Thank you. I'll turn it over there.
Alex: Thanks, Alex.
Speaker Change: And the next question comes from Andrew Wittmann with Baird. Your line is open.
Andrew John Wittmann: Yeah, great. Thanks for taking my questions. Yeah, so that 22, I think, is important to note. As I read the queue here, it looks like there was also some positive offsets on the equity income line. I mean, that...
Andrew John Wittmann: That's a big penalty. Was there notable or material or can you quantify the positive offsets that were against that $22 million? I'm just trying to get a better understanding of the quarter on the CI segment in particular to start out with.
Andrew John Wittmann: Yeah, nothing I would say material, Andy. It's just our kind of normal run rate if you think about the numbers I just gave about kind of a normal year 15. We should be seeing, you know, four or five million a quarter worth of equity and earnings normalized. So, you know, it's your point 22 minus the...
Paula: Paula offset by the positives is kind of net thoughts of equity and earnings position
Andy: All right, great. Can you just, uh, sorry, I missed it.
Speaker Change: So did you give your percent complete on that project in particular, or can you? And then, if you could,
Paula: Could you just, Carey, address a little bit more on the backlog funnel? You talked about the $13 billion of single award contracts not yet in backlog. Can you talk about the pipeline size or the amount awaiting notice as well?
Speaker: Got it. Thank you. That's very helpful. Sure. So first, on the percent complete on that program, it's around 20 to 25%. The important thing to note, though, is that the procurement is nearly complete. And that's where the supply chain issues occurred. On the backlog, the $13 billion, I'm sorry, your question was: Can you talk about the size of the total pipeline today and or the amount of awards that you've submitted and that you're waiting for notice? Yeah, this is one of the strongest pipelines that we've had in our company's history. Great. Thank you for that context.
Carey: Sure. So first on the percent complete on that program, it's around 20 to 25 percent. The important thing to note, though, is that the procurement is nearly complete, and that's where the supply chain issues occurred. On the backlog, the $13 billion, I'm sorry, your question was?
Speaker Change: Can you talk about the size of the total pipeline today and or the amount of awards that you've submitted and that you're waiting notice for?
Speaker Change: Sure, so the total pipeline is 57 billion. Within the 57 billion, we have 121 programs that are greater than 100 million.
Speaker Change: Thank you, that's all my questions.
Speaker Change: Yeah, this is one of the strongest pipelines that we've had in our company's history.
Mariana Perez Mora: Have a good day. [inaudible] And the next question comes from Mariana Perez Mora with Bank of America. Your line is open. Good morning, Mariana.
Speaker Change: And the next question comes from Mariana Perez Mora with Bank of America. Your line is open.
Speaker: I'm gonna touch again on the margin question. I'm curious if you have any visibility on the backlog and the pipeline of opportunities where you should be like three or five years from now, excluding any inorganic upside. Yeah, Mariana, I think the short answer on that is, you know, when we bid jobs, and we're, you know, what's in the backlog is accretive to the overall margin. If you think about the two businesses individually, Carey and I previously talked about federal, we're comfortable with federal and kind of the mid nines.
Speaker Change: Thank you and good morning everyone.
Speaker Change: Good morning, Mariana. I'm going to tap again on the margin question. I'm curious if you have any visibility on the backlog and the pipeline of opportunities, where you should be like three or five years from now, excluding any inorganic
Speaker Change: Opposite.
Speaker Change: Yeah, Mariana, I think the short answer on that is, you know, when we bid jobs and we're, you know, what's in the backlog is accretive to the overall margin. If you think about the two businesses individually,
Carey: Carey and I previously have talked about federal. We're comfortable with federal and kind of the mid-nines. I think given a little bit of a mixed shift, I haven't really talked about this yet, but if you look at kind of fixed price TNM at the company level this year versus last, it's a, you know, about a 7% increase in kind of fixed price TNM. So we're seeing a mixed shift.
Speaker: I think given a little bit of a mixed shift, I haven't really talked about this yet. But if you look at kind of fixed price T&M at the company level this year versus last, it's, you know, about a 7% increase in fixed price T&M.
Speaker: So we're seeing a mixed shift that's helped us drive the margins up; you'll see federal north of 10%. So Carey and I are excited about that, you know, that's a mix of both acquisitions and SG&A; it's a little bit of everything that we're doing to try to improve margins. So overall, federal, we like and kind of call it the high nines; the CI margins, you'll see in the sevens, and Carey and I believe long term that should trend toward 10%. Just how quickly we can get there as we get out from underneath these legacy programs, in the back, your point, the backlog, and the bid support that. Yes, so several levers.
Carey: that's helped us drive the margins up. You'll see federal north of 10%. So Carey and I are excited about, you know, that's a mix of both.
Speaker Change: Acquisitions, SG&A, it's a little bit of everything that we're doing to try to improve margins. So overall federal we like and kind of I'll call it the high nines. The CI margins you'll see in the sevens and you know Kerry and I believe long-term that should trend toward ten percent, just how quickly we can get there as we get out from underneath these legacy programs.
Speaker Change: In your point, the backlog, can the bids support that?
Speaker Change: Yeah that was my question like what were the key milestones that you're looking at to actually go from seven to ten in critical infrastructure?
Speaker: One is continuing to keep our cost constant as our revenue increases. The second one is pricing premium. Demand is so much greater than supply, whether you're talking about North America or the Middle East. So we are seeing higher margins come in. The other area is, again, de-risking the portfolio and not getting into some of these legacy construction joint ventures, which we have not done since I took over three years ago. So those are all levers that we have.
Speaker Change: Yes, so several levers. One is continuing to control our cost constant as our revenue increases. Second one is pricing premium. Demand is so much greater than supply, whether you're talking about North America or the Middle East. So we are seeing higher margins come in.
Speaker Change: The other area is, again, de-risking a portfolio and not getting into some of these legacy construction joint ventures, which we have not done since I took over three years ago. So those are all levers that we have, and then accretive margins, the companies that we're buying are all greater than 10% EBITDA.
Speaker Change: Thank you. And then, do you mind typing on the election? What risks do you see going into election and your certainty actually, I don't know, affecting the way that your customers buy? And how do you think
Speaker Change: This could affect indirectly like any spending on like the infrastructure bill or even the state and local funding
Speaker Change: Yes, we do not see any impact from the election, whether it's a Republican or Democrat administration.
Speaker Change: Starting with federal, what we do in national security is very well supported. If you look at the National Defense Strategy, whether it was published by the Republicans or the Democrats.
Speaker Change: It's focused on near-peer adversaries, so the capabilities that we've put into our purpose-built federal portfolio as far as cyberspace, electronic warfare,
Speaker Change: And the convergence of those areas is really where the country's focused and needs to be, and that has bipartisan support.
Speaker Change: On the infrastructure side of the house, the infrastructure bill has been passed into law, so it basically would take a lot to overturn it, and a lot of that funding, $454 billion as of May, had already been delved out. State and local also is coming up with their own funding.
Speaker Change: So, I do not see any change in the work that we do as far as infrastructure. President Trump, former President Trump, stated in a recent speech how important infrastructure was to the country, and in particular transportation, that's the area that we play.
Cai von Rumohr: And then accretive margins, the companies that we're buying are all greater than the terms of signing up at all. And the next question comes from Cai Von Rumohr with T.D. Cohen.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: And the next question comes from Cai Von Rumohr with TV Cohen. Your line is open.
Speaker: Your line is open. Yes, thanks so much. Terrific growth at Federal Solutions. Yes, okay, I just add to your question. I think that confidential customer, to your point, I think that one, as you know, we're about a year into that job. And so we're starting to see kind of a, Thanks guys. Thank you.
Speaker Change: Yes, thanks so much. Terrific growth at Federal Solutions.
Speaker Change: Were there a couple of contracts that really had a disproportionate impact on that growth? Specifically that one contract, I think you've noted, with a confidential customer.
Speaker Change: And were any of the big drivers in terms of contracts, are any of those kind of starting to reach their expected run rate?
Speaker Change: Yeah, Cai, so I would say it was in several areas. First, in the critical infrastructure protection area, we saw strong growth, and part of it was on the classified contract. Also saw strong growth in cyber at 25% on the quarter. Other areas, too, like our army ammunition plant work that's ramping up at Bradford and Holston, that's been important.
Speaker Change: And I would say the Indo-PACOM area still continues to be very strong for us.
Speaker Change: Yeah, so, Cai, I'd just add to your question, I think that confidential customer, to your point, I think that one has, you know, we're about a year into that job, and so we're starting to see kind of a...
Speaker Change: We've kind of seen what the budgets will support in terms of that contract, so we're starting to stabilize on that one, but as Carey mentioned earlier, we saw 30-plus percent growth in cyber in Q1, 25-plus percent in Q2, so the cyber business on top of the things Carey mentioned is also quite strong.
Speaker Change: Terrific. And do you have, you know, I think Booz mentioned that they were impacted by delay in Ukraine funding, you know, their UCOM business. Do you have any UCOM business or any other business where a funding delay could impact?
Speaker Change: You're ready to grow.
Speaker Change: No, we do not.
Speaker Change: Okay, terrific. Thank you very much. Great clutter.
Speaker Change: Thanks, guys. Thank you.
Speaker Change: The next question comes from Louie DiPalma with William Blair. Your line is open.
Speaker Change: Carey, Matt, and Dave, good morning and congrats on the the five quarters in a row above 20% organic growth. That is very impressive. I don't think it's been done before. Thanks Louie.
Louie Dipalma: From a high level, and following up on the previous question from Cai, the end to the Ukraine and Gaza military conflicts could be negative for much of the defense industry. However, could the end to the conflicts actually be positive for Parsons, given your role as one of the largest infrastructure providers in the world? Yeah, great question, Louie.
Speaker Change: From a high level and following up on the previous question from Cai, the end to the Ukraine and Gaza military conflicts could be
Speaker Change: negative for much of the defense industry. However, could the end to the conflicts actually be positive for Parsons given your role as one of the largest infrastructure providers in the world?
Speaker: And the answer is yes. So we have capabilities to provide, such as demining capabilities, and environmental remediation to be able to get people back in their homes. And most importantly, I would say the rebuild, which is going to be critical for both of those areas. Parsons was heavily involved in the Iraqi rebuild years ago.
Speaker Change: Yeah, great question, Louie, and the answer is yes. So we have capabilities to provide, such as demining capabilities, environmental remediation to be able to get people back in their homes.
Speaker Change: And most importantly, I would say the rebuild, which is going to be critical for both of those areas. Parsons was heavily involved in the Iraq rebuild years ago, and so, you know, we do intend, whenever those conflicts get settled, to be able to assist there.
Speaker Change: Great, that is very helpful in terms of the perception of Parsons as defense contractor versus infrastructure and
Speaker: And so you know, we do intend, whenever those conflicts get settled, to be able to assist there. Defense Contractor vs. Infrastructure, and um... Yeah, we do believe the peak is still going to be in the 2027 time frame, and then you'll see a six to eight year tail after that. So there's a lot of longevity, and we do have good visibility, and a very strong pipeline because a lot of these capital plans get put together years in advance.
Speaker Change: Also on the infrastructure side...
Carey: Is the USIIJA funding peak, in your eyes, Carey, still expected in 2027?
Speaker Change: Are the dollars flowing? I know that you discussed winning roles on the three largest U.S. projects that were awarded over the past year, but are there other large U.S. projects in the pipeline that can
Speaker Change: Cause the momentum to continue.
Carey: Yeah, we do believe the peak is still going to be in the 2027 time frame and then you'll see a six to eight year tail after that.
Speaker Change: So there's a lot of longevity, and we do have good visibility, a very strong pipeline, because a lot of these capital plans get put together years in advance. So I'm very optimistic about our infrastructure pipeline in North America.
Speaker: So I'm very optimistic about our infrastructure pipeline in North America. Great, and one more speculative question. It is, you know, well known that Parsons is one of the major industry leaders of critical infrastructure in the Middle East, and you have a six-decade relationship. In the news, there have been discussions of the US and Saudi Arabia negotiating a defense pact. And I was wondering, is there any long-term, and I emphasize long-term, opportunity for Parsons to cross sell some of its defense solutions to that region? I know you're already involved in CENTCOM, but is there an opportunity for you to become even more involved on the defense side, given your history in the region?
Speaker Change: Great, and one...
Speaker Change: more speculative
Speaker Change: Question, um...
Speaker Change #100: It is well known that Parsons is one of the major industry leaders of critical infrastructure in the Middle East, and you have a six-decade relationship. In the news, there's been discussions of the U.S. and Saudi Arabia negotiating a defense pact.
Speaker Change: And I was wondering, is there any long-term, and I emphasize long-term, opportunity for Parsons to...
Speaker Change: Cross-sell some of its defense solutions to that region. I know you're already involved in CENTCOM, but is there an opportunity for you to become even even more involved on the defense side given your your history in the region?
Speaker Change: Yeah, we do believe that there is, we're currently involved in a couple of efforts. We do a little bit of F-16 maintenance activity, and then we're involved in...
Noah Poponak: Awesome. Thanks, Carey. And thanks, Matt and Dave. Thank you, Louie. As a reminder, to ask a question, please press star 1 1 on your telephone, and the next question comes from Noah Poponak with Goldman Sachs. Your line is open.
Speaker Change: Awesome, thanks Carey and thanks Matt and Dave.
Lloyd: Thank you, Lloyd.
Speaker Change #101: As a reminder, to ask a question, please press star 1-1 on your telephone. And the next question comes from Noah Poponak with Goldman Sachs. Your line is open.
Speaker Change: Hey, good morning everyone. Morning Noah. Morning Noah.
Speaker Change: If I go to the midpoint of the revenue guide, 3Q and 4Q would be lower than 2Q in absolute dollars.
Speaker: Yeah, so overall, though, I'd say we're kind of very happy with the year-to-date performance. Updated guidance is obviously 19% growth at the midpoint. The second half still does have some sequential growth, and it's pretty nominal to your point, but it is showing some growth. It flattens a bit with the mix of seasonality.
Speaker Change #111: Yeah, so overall, though, I'd say we're kind of very happy with the year-to-date performance. Updated guidance is obviously 19% growth at the midpoint. Second half still does have some sequential growth. It's pretty nominal, to your point, but it is showing some growth. It flattens a bit with the mix of seasonality.
Cai: I talked before when Cai asked the question about kind of the, you know, we do see some programs potentially dealing with some seasonality through the summer, so that might be new this year. And then, you know, normally, you know, we have completing programs, Carey talked about almost $100 million worth of completing programs, but that's offset by the growth on the recent awards, so, and the backlog. So tougher comps coming into the second half, but overall we're really happy. I think, like I said, you know, second half is.
Speaker: I think I talked about it before when Cai asked the question about kind of the, you know, we do see some programs potentially dealing with some seasonality through the summer, so that might be new this year. And then, you know, normally, you know, we have completion programs. Carey talked about almost $100 million worth of completing programs, but that's offset by the growth in recent awards and the backlog, so tougher comps coming into the second half. But overall, we're really happy. I think, like I said, you know, the second half is turning in the right direction. The award positioning is good. The capture rates are great,
Speaker Change #117: Training in the Right Direction, the award positioning is good, the capture rates are great, so all in all we're comfortable with the second half guide.
Speaker Change: Okay.
Matt: And Matt, I guess, similarly on the cash flow cadence and the guidance, the guidance would imply that the back half as a percentage of the year would be
Speaker: So all in all, we're comfortable with the second half guide. [inaudible] Pretty different compared to history and that's a pretty big cash flow number you just had in the second quarter compared to how that usually turns out the year. I guess the working capital, it looks like you had a positive change in working capital, but it's not a massive number. What's behind that?
Matt: pretty different compared to history and that's a pretty big cash flow number you just had in the second quarter compared to
Speaker Change #116: How that usually turns to the year. I guess the working, it looks like you had positive change in working capital, but it's not a massive number. What's behind that?
Speaker: Yeah, overall, we're just really happy with the collections. We had some major milestones that we're completing, as we've talked about. Completing some of these legacy programs will benefit cash flow. And so I would say, just generally speaking, really strong cash flow from across the board. Federal business is obviously pretty consistent, quarter of a quarter, given just underlying cash that bills out every other week or monthly.
Speaker Change #102: Yeah, overall just really happy with the collections. We had some major milestones that we're completing as we've talked about completing some of these legacy programs will benefit cash flow.
Speaker Change: And so I would say just generally speaking, really strong cash flow from across the board, federal business obviously is pretty consistent.
Speaker Change: David Spille, CFO Alphabet and Google
Speaker: And so this is really just on the CI side, great performance out of the Middle East. DSO is down pretty significantly in the Middle East, as well as North America. So some upfront payments on some big jobs. So all in all, just really, really great cash performance across the board. Okay, great. Thanks so much.
Speaker Change #108: Okay, and could you just update us on what EBITDA margin you're assuming for the year for each segment to roll up into the total?
Speaker Change #103: Yeah, so if I look at second half specifically, Noah, we are, we have FS caught in the high nines, 9.8% at the midpoint, and CI 7.4, so a little bit better on CI and a little bit of depression in FS.
Speaker Change #104: As you'd suspect, I mentioned earlier, I can't remember whose question it was, but we saw a little bit of a mixed shift, stronger fixed price.
Speaker Change #104: As we continue to grow on some of these programs, specifically the GSA FedSim win, that's a cost type job.
Speaker Change #104: So as we see significant growth on that job, the mix will probably come back a little bit, and we expect federal to kind of balance back out in the high nines. And then CI, we are expecting slight improvements, but you know, opportunity there if we can get through these last couple programs.
Speaker Change #105: Okay, great. Thanks so much.
Speaker Change #110: Thank you.
Speaker Change #108: And the next question comes from Josh Sullivan with the Benchmark Company. Your line is open.
Joshua Ward Sullivan: Hey, good morning.
Josh: Morning, Josh. Hey, Josh.
Josh: Carey, you know, congratulations on the first year, three years here and the transformation that you've ushered in. But maybe if we look at the next three years, you know, what do you think characterizes Parsons and your efforts?
Carey: So I would say as we look at the next three years, continuing, number one, to stay laser-focused on our customers' emerging missions. We like to play in the new, new space and figure out, you know, how we're going to help fix their challenges of tomorrow versus try and run around and take away, for example, other people's repeats.
Josh: So, I would say if you look at infrastructure...
Speaker Change #114: I'm very excited about the work we're doing in the Middle East. Those are all greenfield projects. We're having the opportunity to transform a country, which is kind of a once-in-a-lifetime opportunity. Build new transportation systems, new residential areas, new marinas, new tourism centers, entertainment centers.
Speaker Change: As I look at North America, I would say it's more a brownfield opportunities and those are equally as challenging, you know, how do you, for example, we just were awarded the Englewood project, which is a rail and transit project out in California to help Los Angeles get ready to host the World Cup and get ready for the Olympics.
Speaker Change: So how do you position for some of these big events, and that's going to carry us sort of through the end of the decade.
Speaker Change: As I look forward to, I would say on the federal side of the House, we're going to continue to do what we've been doing very successfully, position ourselves as an exquisite federal company against near-peer adversaries and stay laser-focused in the areas where we're very strong.
Speaker Change: Offensive Cyber Capabilities, Electronic Warfare, Space, Digital Signal Processing, continue to move up the value chain, bid and win larger jobs, and kind of keep a playbook for us that's been working and staying on the leading edge of our customers' challenges.
Speaker Change: [inaudible]
Speaker Change #113: And then just maybe to put a fighter point on, you know, you talked about the Middle East there and, you know, your Saudi exposure, I think you mentioned, you know, programs larger than 2%. You know, there has been some conversation around the space of some of those investments in the region. You know, what are you guys seeing currently?
Speaker: Thank you. Saudi Vision 2030 was launched by the Crown Prince in January 2016 to diversify the economy away from oil and transform it economically, socially, and culturally. And they're going to be on the world stage several times over the next decade.
Speaker Change #118: Yes, so Saudi Vision 2030 was launched by the Crown Prince in January 2016 to diversify the economy away from oil and transform it economically, socially, and culturally. And they're going to be on the world stage several times over the next decade. They're going to host the Asian Winter Games 2029, the World Expo 2030, and the FIFA World Cup in 2034. So as a result, infrastructure is going to be prioritized. It's going to receive significant funding in order for Saudi to achieve its vision and be on the world stage over the next five to ten years.
Speaker: They're going to host the Asian Winter Games in 2029, the World Expo in 2030, and the FIFA World Cup in 2034. So as a result, infrastructure is going to be prioritized, and it's going to receive significant funding in order for Saudi Arabia to achieve its vision and be on the world stage over the next five to 10 years. I would also highlight the public investment fund, the Sovereign Wealth Fund of Saudi Arabia. It's one of the world's largest funds, controlling an estimated assets of nearly $1 trillion.
Speaker: And it's directly mandated to realize Saudi Vision 2030. They're going to be increasing their annual deployment of capital from $40 to $50 billion a year up to $70 billion a year after 2025. And total construction output in Saudi Arabia, as well as the government, is estimated to be $121 billion in 2024. Infrastructure construction is projected to grow at a compound annual growth rate of 6% through 2027.
Speaker Change: I would also highlight the public investment funds, the Sovereign Wealth Fund for Saudi Arabia. It's one of the world's largest funds.
Speaker Change: Controlling an Estimated Assets of Nearly $1 Trillion, and it's directly mandated to realize Saudi Vision 2030. They're going to be increasing their annual deployment of capital from $40 to $50 billion a year up to $70 billion a year after 2025.
Speaker: We've been there a long time. We have extremely close relationships with customers. I just visited the region last month and had the opportunity to be with the CEOs of some of the major giga projects that are going on. So we very well understand the timing of these projects and the imperative to get them accomplished for Saudi Arabia.
Speaker Change: and total construction output in Saudi Arabia, estimated to be $121 billion in 2024.
Speaker Change: Infrastructure constructions projected to grow at a compound annual growth rate of 6% through 2027.
Speaker Change #115: We've been there a long time. We have extremely close relationships with customers. I just visited the region last month, had the opportunity to be with the CEOs of some of the major Giga projects that are going on. So we well understand the timing of these projects and the imperative to get them accomplished for Saudi Arabia.
Operator: Great, thanks for the time. Thank you. That is all the time that we have for questions.
Speaker Change #115: Great. Thanks for the time.
David Spille: I would now like to hand the call back over to Dave Spille for closing remarks. Thank you. And thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call.
Speaker Change #115: Thank you. Thank you, Josh. That is all the time that we have for questions. I would now like to hand the call back over to Dave Spille for closing remarks.
David Spille: And we look forward to speaking with you soon. And with that, we'll end today's call. Have a great day. This does conclude today's conference call. Thank you for participating. You may now disconnect.
David Spille: Thank you and thank you for joining us this morning. If you have any questions please don't hesitate to give me a call and we look forward to speaking with you soon and with that we'll end today's call. Have a great day.
Speaker Change #119: This does conclude today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #115: [inaudible]