Q4 2024 Parsons Corp Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Parsons' fourth quarter in fiscal year 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker Change: 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 11 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Dave Spille, Senior Vice President, Investor Relations. Please go ahead, sir.
Dave Spille: Thanks, Michelle. Good morning and thank you for joining us today to discuss our fourth quarter and fiscal year 2024 financial results.
Speaker Change: 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 fourth quarter and fiscal year financial results, as well as a review of our 2025 guidance and long-term growth targets.
We then will close with a question and answer session.
Speaker Change: Management may also make forelooking 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.
Speaker Change: Actual results may differ materially from those projected in the forward-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, 2024, and other SEC filings. Please refer to our earnings press release for Parson's 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. 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 Smith: Thank you Dave. Good morning and welcome to Parsons fiscal year 2024 and fourth quarter earnings call. Before I summarize our operating results, Matt and I want to express our deepest sympathies to everyone affected by the devastating California wildfires.
Carey Smith: Parsons was founded in Southern California over 80 years ago and has a significant presence there today. So the fires are impactful to our team and our communities.
Carey Smith: The safety and well-being of our employees is our top priority, and we continue to offer our assistance to help them move forward. In parallel, we are committed to supporting the expeditious recovery and rebuild of Southern California.
Carey Smith: Moving to our fourth quarter and 2024 results. I want to thank our nearly 20,000 employees for their contributions to yet another exceptional year.
Carey Smith: Our team's strong execution and focus on our six growing end markets enables us to capitalize on the tailwinds that are positively impacting both our critical infrastructure and federal solutions segments.
Carey Smith: Parsons is well positioned with a unique portfolio and two complementary high growth enduring and profitable business segments.
Carey Smith: Our federal portfolio is aligned to the new administration's priorities, including renewed and increased focus on missile defense, offensive cyber, electronic warfare, border security, and an emphasis on the Indo-Pacific region.
Carey Smith: We are an agile and innovative company that can deliver operationally relevant and differentiated solutions to protect our nation's security at a time when it is needed most.
Carey Smith: As a firm that has both government and commercial businesses, we have a proven track record of being able to move with speed and apply commercial business models.
Carey Smith: Additionally, our North America Infrastructure Portfolio includes Transportation, Environmental Remediation and Water Wastewater Treatment.
Carey Smith: as well as capabilities to rebuild our communities, manage major events, and provide critical infrastructure protection, which positions us for our country's needs today and into the future.
Carey Smith: The United States and Middle East relations are strengthening, and as the premier program management consultant in the Middle East, we look forward to continuing our accelerated growth in the region.
Turning to financial results.
Carey Smith: For both the fourth quarter and the full year, we achieved record results for total revenue, adjusted EBITDA, and contract awards.
Carey Smith: For the full year, we also had record adjusted EBITDA margin and operating cash flow since our IPO.
Carey Smith: We delivered organic revenue growth of 22% and adjusted EBITDA growth of 30% in fiscal year 2024.
Carey Smith: We now have delivered organic revenue growth of more than 20% and adjusted EBITDA growth of more than 30% for the second consecutive year, demonstrating our commitment to above-market growth and while efficiently managing the business to drive margin expansion.
Carey Smith: This disciplined and creative growth enabled us to expand our adjusted EBITDA margin by 50 basis points in 2024.
Carey Smith: We ended the year with a strong balance sheet, which will enable us to continue to invest ahead of demand in high-growth areas such as artificial intelligence, cyber, biometrics, counter-unmanned air systems.
Carey Smith: Signals Intelligence, Assured Position, Navigation and Timing, and PFOS PFAS for Mediation.
Carey Smith: For the full year, we exceeded $6.7 billion in revenue for the first time. Our organic revenue growth of 22% enabled us to continue to be an organic revenue growth leader in both of our business segments.
Carey Smith: Throughout the year we delivered consistent results and now have reported double-digit organic growth in every quarter for the last two years.
Carey Smith: Winning and ramping up new business, delivering on contract growth, and strong hiring and retention were drivers to achieving these outstanding results.
Carey Smith: For the full year, our record contract awards of $7 billion increased 17% over 2023, including over 15% growth in both segments, demonstrating the broad-based demand we are experiencing across our portfolio.
Carey Smith: This record contract award activity was driven by our overall win rates of 71%, the highest level our company has ever achieved.
Carey Smith: Our strategy is working to move up the value chain and differentiate with advanced technology, software and digital enablement. Our acquisitions have also played a key role in helping win new business.
Carey Smith: During the fourth quarter, record contract awards increased to $1.7 billion, or 34%. This quarter we won six single award contracts worth more than $100 million each.
Carey Smith: This brings our total to 15 contract wins worth more than $100 million for the full year, matching our quarterly and annual records from last year.
Carey Smith: I'm proud of our team's ability to win work spanning both business segments, all four business units, and all six core end markets.
Carey Smith: Significant fourth quarter contract wins included two new three-year contracts in Saudi Arabia totaling over 275 million dollars.
Carey Smith: The company booked the first option period on both awards for a value of $81 million in the fourth quarter of 2024.
Carey Smith: Once our customer is ready, we look forward to announcing these very strategic wins that further strengthen our position in the Middle East.
Carey Smith: We booked a portion of a second option year contract with a confidential customer for $242 million, which runs through February 2026.
Carey Smith: However, a related program performed by others has recently been paused, which impacts our ability to complete the scope of our mission.
Carey Smith: Our confidential program is continuing, but at a reduced volume today, and the long-term continuation of our contract is contingent on the related work restarting. As developments occur, we will continue to be transparent and provide updates.
Carey Smith: We were awarded a new lead design contract for the Newark Airtrain Replacement Program Guideway and Stations project.
Carey Smith: Parsons is a subcontractor on this $1.2 billion project. As the lead designer, we will be responsible for designing 2.5 miles of elevated guideway along with three new stations.
Carey Smith: We also were awarded an option period totaling $122 million by the Department of State, of which we booked $84 million. On this contract, Parsons installs integrated security systems for 270 United States overseas diplomatic missions.
Carey Smith: Also includes counter-unmanned aircraft systems, biometrics, mass notification, and alarm enunciation systems.
Carey Smith: We were awarded an option year totaling a hundred and four million dollars on the company's General Services Administration C5ISR Exercise Operations and Information Services contract or CEOS.
Carey Smith: On this program, Parsons designs, develops, trains and deploys scalable machine learning solutions to extract actionable intelligence from vast amounts of data and delivers it to intelligent analysts and warfighters.
Carey Smith: We were awarded a two-year follow-on cybersecurity contract valued at $96 million, of which we booked $78 million.
Carey Smith: On this contract we provide a wide range of services focused on identifying, mitigating and reducing cyber risks to ensure mission resilience and operational readiness.
Carey Smith: And finally, after the fourth quarter ended, we were awarded two more contracts exceeding $100 million. The first is a follow-on program and construction management contract in Dubai, valued at over $200 million.
Carey Smith: This win highlights strength of our entire Middle East portfolio and the acceleration in our UAE business.
Carey Smith: The second contract is an additional $125 million ceiling value modification that was added to our Cyber Threat Hunt Forward program, which came to us through our ceiling tech acquisition.
Carey Smith: In 2024, we acquired two preeminent companies, one in our Federal Solutions Segment and one in the Critical Infrastructure Segment.
Carey Smith: The first acquisition, Black Signal, significantly strengthens Parsons' positioning within offensive cyber operations and electronic warfare, while adding new capabilities in the counterspace radio frequency domain.
Carey Smith: BlackSignal, which was built to counter near-peer threats, uses artificial intelligence and machine learning to create innovative signal processing techniques that detect and disrupt difficult-to-access adversary command and control systems.
Carey Smith: The second acquisition, BCC Engineering, which we completed in the fourth quarter.
Carey Smith: strengthens our position as an infrastructure leader in program management and design engineering and positions us as the number one consultant in South Florida and doubles our presence with the Georgia Department of Transportation.
Carey Smith: This is consistent with our strategy to expand our presence in high growth regions.
Carey Smith: We are very happy with the performance and successful integration of both companies and we have already realized revenue synergies with each.
Carey Smith: After the fourth quarter ended, we acquired TRS Group. TRS is an industry leader in PFAS, thermal, and holistic environmental remediation, having cleaned hazardous and toxic substances from soil, groundwater, and fire suppression systems for global clients.
Carey Smith: This $36 million acquisition enhances Parsons' environmental remediation capabilities in both of our operating segments, and serves as a force multiplier for our industry-leading PFAS remediation solutions.
Carey Smith: Our discipline M&A program has been very successful and we will continue to acquire companies to enhance our capabilities, expand our customer base, and drive growth and margin expansion.
Carey Smith: We have a robust candidate pipeline and anticipate acquiring two to three companies in 2025.
Carey Smith: As noted in today's earnings press release, Parsons was named one of America's most trusted companies by Forbes, and our Kicking Horse Canyon project was awarded the prestigious 2024 Best Project Award in the road-highway category by Engineering News Record.
Carey Smith: 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 key financial metrics.
Carey Smith: We also significantly expanded margins and generated exceptional cash flow and contract awards.
Carey Smith: Finally, we closed two accretive acquisitions in 2024 that exceeded our strict financial metrics, fit Parsons' culture, and share our passion for delivering innovative solutions for the national security and critical infrastructure markets.
Speaker Change: As we enter 2025 and my fourth year as person CEO, I am even more enthused about our future.
Speaker Change: We operate in six growing, enduring, and profitable end markets, and we have long-term tailwinds that span both segments.
Speaker Change: In critical infrastructure, global demand is strong in all major geographies where Parsons operates—the United States, Canada, and the Middle East—and is not expected to peak until the 2028-2030 timeframe.
Speaker Change: We continue to see increased worldwide infrastructure spending given the benefits modern infrastructure provides including helping countries grow economically, increasing productivity, creating jobs, and improving living standards.
Speaker Change: We are leveraging our core competencies in engineering design, program management, and owner's representative to win and deliver on large, complex programs.
Speaker Change: whether it's designing the world's largest entertainment center in the Middle East.
Speaker Change: Serving as the delivery partner for the Hudson Tunnel Project, the largest investment for a mass transit project in modern history.
Speaker Change: for being the lead designer on the $4.6 billion Georgia State Route 400 Express Lane project implementing state-of-the-art traffic, incident management, and digital twin systems. Parsons is ready to deliver on our customers' missions.
Speaker Change: As an industry pioneer in applying digital transformation to infrastructure, we look forward to continuing to transform this industry and drive efficiencies.
Speaker Change: In our Federal Solutions segment, we are operating in a dynamic environment. Parsons will continue to take advantage of our speed and agility, commercial business mindset and operating models, and a national security business that is aligned with the new administration's priorities to improve efficiency, reduce cost, and most importantly, protect our nation.
The Threats to Our Nation have never been more concerning.
Speaker Change: Our purpose-built federal portfolio was engineered through internal research and development and accretive acquisitions to specifically address priority threat areas.
Speaker Change: including Cyber, Space, Missile Defense, Electronic Warfare, Signals Intelligence, and Critical Infrastructure Protection Solutions.
Speaker Change: Our focus remains on outpacing our nation's near-peer threats with differentiated solutions to support the new administration in defending our nation, warfighters, and intelligence communities to deter adversaries and protect our homeland.
Speaker Change: We have the right company, the right portfolio, and the right team at the right time to continue to drive results.
Speaker Change: With that, I'll turn the call over to Matt to provide more details on our 2024 financial results, 2025 guidance, and our long-term financial targets. Matt.
Matt Ofilos: Thank you, Carey. As Carey indicated, 2024 is an exceptional year for Parsons.
Matt Ofilos: We raised all three guidance metrics every quarter, delivered over 20% organic revenue growth, expanded margins by 50 basis points, delivered record cash flow and free cash flow conversion rate of 116% of adjusted net income.
Matt Ofilos: We also reported record win rates and contract awards for the year.
Matt Ofilos: We're very pleased with our results, particularly against tougher comparable periods given the significant growth we've realized over the last two years.
Matt Ofilos: During the two-year period, we've added over $2.5 billion, or 61%, to our top line, with $1.3 billion coming in 2024.
Matt Ofilos: Our growth continues to be strong across the company, with double-digit organic growth in all four business units in both segments in 2024.
Matt Ofilos: We are benefiting from unprecedented global infrastructure spending, and we have a federal portfolio built to counter near-peer threats and align to the new administration's priorities.
Matt Ofilos: Turning to the details of our results, total revenue of $1.7 billion for the fourth quarter of 2024 increased 16% from the prior year period, and was up 14% on an organic basis.
Matt Ofilos: Organic growth was primarily driven by strong growth in our critical infrastructure protection and cyber markets, which grew 31% and 24% respectively during the quarter.
Matt Ofilos: Adjusted EBITDA of $147 million increased 14% from the fourth quarter of 2023. And adjusted EBITDA margin decreased 10 basis points to 8.5%.
Matt Ofilos: The adjusted EBITDA increase was driven by the ramp-up of recent contract wins and growth on existing contracts with effective cost control.
Matt Ofilos: Our adjusted EBITDA margin for the quarter was negatively impacted by 29 million dollars of adjustments on two critical infrastructure programs.
Matt Ofilos: The first program was our last remaining legacy contract, which achieved substantial completion on December 31st.
The scheduled delay realized in the quarter drove additional cost.
Matt Ofilos: The second program impact was a claim settlement on a joint venture. While the final value did not achieve our booked position, it did allow for favorable schedule relief and cash flow.
Matt Ofilos: Normalized margin excluding these two adjustments would have been 10% in the fourth quarter supporting our long-term target of double-digit margins.
Matt Ofilos: Total revenue for fiscal year 2024 increased 24% from the prior year and was up 22% on an organic basis.
Matt Ofilos: The strong organic growth throughout the year was driven by the ramp-up of recent contract wins and growth on existing contracts.
Matt Ofilos: Estimated expenses for 2024 were 14.1% of total revenue, compared to 16% in 2023 and 18.5% in 2022.
Matt Ofilos: Fiscal year 2024 adjusted EBITDA of $605 million, increased 30% from 2023 and adjusted EBITDA margin increased 50 basis points to 9%.
Matt Ofilos: The adjusted EBIT day increases outperformed our investor day goal of 20 to 30 basis points per year and were driven by growth on accretive contracts, contributions from acquisitions, and continuing to effectively manage cost.
Matt Ofilos: Before I discuss our operating segments, I want to mention that during the fourth quarter, we early adopted a new accounting standard that retroactively changes the partial repurchase of our convertible senior notes, which occurred in the first quarter of 2024.
Matt Ofilos: The new accounting standard resulted in reversing the $162 million net loss we originally reported in the first quarter to a $14 million net loss under the new accounting rules.
Matt Ofilos: As a result of this change, GAAP diluted earnings per share for the first quarter of 2024 is now 37 cents, compared to a loss per share of $1.01 previously reported.
Matt Ofilos: The impacts from this transaction continue to be excluded from our adjusted EBITDA and adjusted EPS calculations. We included a revised first quarter income statement in today's earnings press release.
Speaker Change: I'll turn now to our operating segments, starting first with Federal Solutions, where fourth quarter revenue increased by 160 million dollars, or 19% from the fourth quarter of 2023.
Matt Ofilos: This increase was driven by organic growth of 17% and the contribution from our black signal acquisition.
Matt Ofilos: Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts.
Matt Ofilos: Federal solutions adjusted EBITDA increased by 21 percent from the fourth quarter of 2023 and adjusted EBITDA margin increased 20 basis points to 10 percent.
Matt Ofilos: These increases were driven primarily by higher volume and improved mix, with effective indirect cost control.
Matt Ofilos: For the full year, Federal Solutions revenue increased by $986 million, or 33% from 2023. This increase was driven by organic growth of 30% in contributions from our ceiling tech and black signal acquisitions.
Matt Ofilos: A strong organic growth was led by our critical infrastructure protection and cyber markets.
Matt Ofilos: Federal Solutions adjusted EBITDA for the full year increased 126 million dollars or 43% from 2023 and adjusted EBITDA margin increased 80 basis points to 10.4%. These increases were driven primarily by increased volume on accretive contracts and contributions from high margin acquisitions.
Moving now to our critical infrastructure segment.
Matt Ofilos: Fourth quarter revenue increased by 80 million dollars or 12% from the fourth quarter of 2023. This increase was driven by organic growth of 9% in inorganic revenue contributions from our BCC and IS Engineers acquisitions.
Matt Ofilos: Organic growth was driven by higher volume of new awards in both our Middle East and North America infrastructure markets.
Matt Ofilos: Critical infrastructure adjusted EBITDA increased by 2% from the fourth quarter of 2023.
Matt Ofilos: Adjusted EBITDA margin decreased 60 basis points to 6.4 percent. Our adjusted EBITDA figures were impacted by the 29 million dollars of adjustments previously discussed, partially offset by profits from accretive organic growth on both new and existing contracts.
Excluding these adjustments, Q4 critical infrastructure margins were 10.2%.
Matt Ofilos: For the full year, Critical Infrastructure's revenue increased by $321 million, or 13%, almost all of which was organic.
Matt Ofilos: Organic growth was driven by expansion in both the Middle East and North America.
Matt Ofilos: Critical infrastructure's adjusted EBITDA for the full year increased by 14 million dollars or 8% from 2023. An adjusted EBITDA margin decreased 30 basis points to 6.9%.
Matt Ofilos: The adjusted EBITDA increase was driven primarily by organic growth and operating leverage.
Matt Ofilos: The lower margin for the year was the result of adjustments on two programs previously discussed.
Matt Ofilos: Excluding these impacts, critical infrastructure margins were 10.1% for the total year.
Next, I'll discuss cash flow and balance sheet metrics.
Matt Ofilos: Our net DSO at the end of Q4 2024 was 55 days, down 4 days from the prior year period and down 14 days from the fourth quarter of 2022.
Matt Ofilos: Our fourth quarter operating cash flow totaled $127 million compared to $190 million in the prior year period.
Matt Ofilos: Operating cash flow for the full year increased 28% to 524 million dollars.
Matt Ofilos: Our strong cash flow for the year was driven by higher profitability and improved working capital.
Matt Ofilos: Our free cash flow conversion rate for the year was 116%.
Matt Ofilos: Capital expenditures totaled $19 million in the fourth quarter of 2024 and $49 million for the full year.
Matt Ofilos: CapEx spend was in line with our plan of less than 1% of annual revenue.
Matt Ofilos: Our balance sheet remains strong as we ended the fourth quarter with a net debt leverage ratio of 1.3 times, even after closing two strategic acquisitions worth $430 million in 2024.
Matt Ofilos: Including the cash acquisition of TRS and Q1, performer leverage would be approximately 1.4 times based on Q4 results.
Matt Ofilos: As part of our $100 million share repurchase program, we repurchased approximately 156,000 shares for an aggregate purchase price of $15 million during the fourth quarter. For the full year, we repurchased approximately 287,000 shares for an aggregate purchase price of $25 million.
Matt Ofilos: Turning next to bookings for the fourth quarter. Year-over-year contract award activity increased 34 percent to a record 1.7 billion dollars, driven by growth of 26 percent in federal solutions and 41 percent in our critical infrastructure segment.
Matt Ofilos: Our trailing 12-month book-to-bill ratio at the end of the fourth quarter was 1.0 times.
Matt Ofilos: which continues our quarterly streak with a trailing 12-month book-to-bill ratio of 1.0 or better since our IPO in 2019.
Matt Ofilos: In our critical infrastructure segment, we achieved a quarterly book-to-bill ratio of 1.2 in the fourth quarter, marking the 17th consecutive quarter with a book-to-bill ratio of 1.0 or greater.
Matt Ofilos: In our Federal Solutions segment, we achieved a quarterly book-to-bill ratio of 0.8 in the fourth quarter, which is the best Q4 book-to-bill ratio in the last four years.
Matt Ofilos: For fiscal year 2024, contract awards increased 17%, and our book-to-bill ratio was 1.0 times.
Matt Ofilos: In our critical infrastructure segment, contract awards increased 15% in 2024, and our book-to-bill ratio was 1.2 times.
Matt Ofilos: In Federal Solutions, contract awards increased 19% over fiscal year 2023, and our book-to-bill ratio was 1.0 times, even with revenue growth of nearly $1 billion in 2024.
Matt Ofilos: Our backlog at the end of the fourth quarter totaled $8.9 billion, up 4% from the fourth quarter of 2023.
Matt Ofilos: Additionally, our funded backlog is the highest since our IPO at 66%.
Now let's turn to guidance.
Matt Ofilos: For 2025, we expect revenue to be between $7.0 and $7.5 billion.
Matt Ofilos: This represents approximately 7.5% growth at the midpoint of the range and 5% growth on an organic basis.
Matt Ofilos: As previously discussed, we are expecting lower volumes on our confidential contract, as well as transitioning programs.
Matt Ofilos: Excluding these contracts, the rest of the portfolio is projected to grow double digits organically.
Matt Ofilos: It is worth noting that our 2025 growth rates are off a total revenue base that has increased more than $3 billion, or nearly 85% since the end of 2021.
Matt Ofilos: Adjusted EBITDA is expected to be between 640 and 710 million dollars, with a margin of 9.3% at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents adjusted EBITDA growth of 12% and margin expansion of approximately 30 basis points from 2024.
Matt Ofilos: The growth and adjusted EBITDA and associated margins is expected to be driven by completion of our legacy programs and improved execution.
Matt Ofilos: At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 86% of adjusted net income.
Matt Ofilos: 2025 cash flow is expected to be down year-over-year due to the timing of incentive fees collected in 2024 and a change in our 401k match benefit which results in a one-time impact of approximately 30 million dollars for the year as we shift from an annual to a quarterly match.
Matt Ofilos: Our 2025 guidance contemplates domestic budget uncertainty, a competitive labor market, and current estimates related to government procurements.
Matt Ofilos: These macro conditions are offset by significant tailwinds, including the unprecedented global infrastructure spend, a federal portfolio that is closely aligned to the new administration's priorities.
Matt Ofilos: Recompete risk of less than 5% of 2025 total revenue. $8.9 billion of total backlog, including record funded backlog, and over $12 billion of contracts awarded to Parsons, but not yet booked into backlog.
Matt Ofilos: Other key assumptions in connection with our 2025 guidance and our quarterly cadence are outlined on slide 16 in today's PowerPoint presentation located on our Investor Relations website.
Matt Ofilos: In terms of our long-term financial targets, our outlook continues to support mid-single-digit or better organic revenue growth.
Matt Ofilos: with the 20 to 30 basis points of margin expansion each year and a free cash flow conversion rate of at least 100% of adjusted net income.
Matt Ofilos: We also expect to supplement our organic growth with two to three acquisitions per year.
Matt Ofilos: In summary, I couldn't be more excited about where the company is headed. We are aligned to markets with growing demand and have a clear line of sight to delivering expanded margins.
Matt Ofilos: Our balance sheet is in great shape and allows us to continue to deploy capital on strategic internal investments, acquisitions, and share buybacks, which create long-term value for the company and our shareholders.
With that, I'll turn the call back over to Carey.
Speaker Change: Thanks Matt. 2024 was an outstanding year. Our team's strong execution enabled us to deliver record results across all major financial metrics.
Speaker Change: Our balanced portfolio and the speed and agility with which we operate has enabled us to improve efficiency, reduce costs, and protect our nation from adversaries, as well as to take advantage of unprecedented global infrastructure spending.
Speaker Change: Parsons is well-aligned with market growth drivers and I'm extremely excited about our long-term future and we look forward to continuing to deliver consistent results and drive long-term shareholder value.
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. To withdraw your question, please press star 11 again.
Speaker Change: And our first question will come from Toby Sommer with Truist. Your line is now open.
Toby Sommer: Thank you. I was hoping you could give us an update to the extent you can on the contours and developments with your confidential customer and project. Thank you.
Sure. Thanks, Toby, and good morning.
Toby Sommer: On the confidential contract, option year two has been exercised, and that option runs until February 2026.
Toby Sommer: We've booked the portion of the option that's funded for $242 million.
Toby Sommer: Our 2025 plan is aligned to the negotiated value of the option year 2 contract.
Toby Sommer: Parsons performs steps one to four. Other companies perform step five. But you can't complete step four without step five moving forward. That's sort of the situation we're in.
Toby Sommer: So while we aggressively are working to get that related program restarted, we're also focusing in parallel on the rest of our portfolio, which has 3,400 contracts and is growing double digits.
Toby Sommer: I want to take just a minute, in fact, to talk about that opportunity within the portfolio and the strong alignment to Trump administration's priorities.
Toby Sommer: 44% of our portfolio is not funded under the federal government, and the 56% that is funded is directly aligned with the priorities as I highlight in my remarks.
Toby Sommer: That includes missile defense and air systems, electronic warfare, cyber, counter-effects for cruise missiles and hypersonics, border security, counter-unmanned air systems, and space surveillance. And as you look at the FY 25 and 26 budgets, these are likely to be beneficiaries of incremental dollars.
Toby Sommer: I'd like to add, too, as announced this week, the ground-based infrastructure portion of the Sentinel program is being restructured, and Parsons has been involved in every intercontinental ballistic program except for Sentinel, and we look forward to being involved in that one.
Toby Sommer: And then our Indo-Pacom regional alignment is very aligned with the Trump administration. Our focus on cyber, electronic warfare space, and building out our critical infrastructure and our presence that has been in Guam for over three decades, strong presence in Hawaii and Kwajalein.
Toby Sommer: And then I'd say also as we look to a potential settlement of some of the conflicts, whether it's Russia, Ukraine, or Israel-Gaza, that will benefit persons with the rebuild opportunity as we were heavily involved in Iraq.
Toby Sommer: And we're rebuilding, currently, futuristic cities in Saudi, mixed-use development residential projects in the UAE, and performing hospitality and tourism projects. So to say I'm excited about the future and the overall alignment with the Trump administration, I think our portfolio fits really well.
Toby Sommer: Thanks. If I could ask a follow-up. You mentioned sort of a...
Speaker Change: a choice related to a different program. What is the procurement environment like for what you're bidding on? And has anything changed sort of since the quarter in the recent weeks and year to date in terms of the cadence and timing of contract awards, et cetera?
Speaker Change: Yes, so the your first question as far as the procurement environment
Speaker Change: Again, our program has been funded and it's continuing but it's a related program so we're trying to work to get that program unpaused.
Speaker Change: With the exception of that, we have only seen two contracts pause for less than $3 million in our portfolio.
Speaker Change: We're fortunate that we don't have a big dependency on many of the federal civilian agencies, which are seeing some disruption, you know, such as the IRS, USAID, FEMA, Department of Energy, OSHA, or VA. We don't have work with those agencies, so it hasn't disrupted our portfolio.
Speaker Change: And I'll highlight again that 44% of our portfolio is independent on the federal government. The cadence that we're seeing is a little slower, but I would say the offset to that is we're seeing many more extensions and ceiling increases, which is positive for our business.
Speaker Change: And as we enter 2025, we have less than 5% of our business up for re-compete.
Thank you very much, Carey. That's helpful.
Thanks, Toby.
Speaker Change: And the next question comes from Louis DePalma with William Blair. Your line is open.
Carey, Matt, and Dave, good morning.
Good morning, Louie.
Speaker Change: As it relates to the confidential contract, I know you're limited in what you can say, but you indicated that you received
Speaker Change: the $242 million in the funded option. And are you assuming...
Speaker Change: that you recognize the $242 million in revenue this year, and is that $242 million, is that impacted by the adjacent contract such that...
Speaker Change: That $242,000 may come in significantly lower if that adjacent contract is not resolved.
Speaker Change: So we believe that 242 is solid for the year. What we've put into our plan is the negotiated value of the full option year with the customer since it has been exercised.
Yeah, think about the initial funding for the year.
Speaker Change: Okay, so are you saying that the unfunded portion may not be fully realized because of the adjacent contract then?
Speaker Change: It may not, we don't have any certainty at this time. All we know is that our option year has been exercised as we work to help the related program get restarted.
Speaker Change: OK, so if it does get restarted, then that $242 million could increase then.
Speaker Change: That's correct. And we have a negotiated contract with our customer for our work.
Great, that is that is definitely
Speaker Change: That definitely clarifies a lot of things. Thanks. And you mentioned Sentinel. Can you discuss
Speaker Change: the role that your team's contract could play with Iron Dome in the Trump administration and, you know, and past
Speaker Change: missile defense programs that you're involved with, whether it's the proliferated warfare space architecture or other ones.
Thanks.
Speaker Change: Sure, and let me just elaborate a little bit on Sentinel. So what the Air Force has announced
Speaker Change: They're going to be restructuring the ground infrastructure portion, so the launch facilities and the control centers.
Speaker Change: Again, Parsons has done every single intercontinental ballistic missile program infrastructure, and the only one we were not involved in was Sentinel. So we really look forward to having the opportunity to re-engage in that contract. Relative to your specific question on Iron Dome,
Speaker Change: I'm going to say cruise missile threat, requires what's called a layered
Speaker Change: defense strategy. So you have to protect against everything from intercontinental ballistic missiles to hypersonics.
Speaker Change: to cruise missiles, all the way down to unmanned air systems. And that needs a multi-layered architecture that's going to be built upon Missile Defense Agency and Space Development Agency space infrastructure.
Speaker Change: And it may also involve the integration and development of space-based interceptors.
Speaker Change: There's been introduced the Iron Dome Act by Republican Senators, which is proposing $19.5 billion of funding in fiscal year 26 to implement the plan, and they would like to largely use existing technologies.
Speaker Change: This is beneficial for persons as we've worked for 40 years supporting the Missile Defense Agency, providing system engineering and integration.
Speaker Change: We're the largest technical advisor for MDA and we provide engineering expertise to oversee the development of missile defense platforms. We also have a role in cyber resiliency.
Speaker Change: and provide war fighting capabilities to defend the U.S. homeland, as well as our deployed forces and allies who are involved in defense of Guam.
Speaker Change: In addition to our partnership with MDA, we do have experience working with Israel's Iron Dome system, specifically the David Sling system on engineering assessments and data integration.
Speaker Change: Just to elaborate further on what we can bring to Iron Dome, we also have exquisite cyber and electronic warfare solutions, so if you think about it, you deliver non-kinetic effects that provide force protection for the homeland and the allies.
Speaker Change: So, our non-kinetic electromagnetic defeat capabilities can augment kinetic missile systems.
and Disrupt Missile Kill Chains both before and after launch.
Speaker Change: Counter Groups 1 to 5 Unmanned Air Systems, and other Advanced Stereo Targets.
Speaker Change: We also provide air base air defense. We have a contract over in Europe. It has a billion dollar ceiling. And that was specifically applicable when you look at Iron Dome because our contract was to defend against unmanned air systems, cruise missile systems, hypersonics all the way up to ICBMs.
Speaker Change: So, by the end of the month, we will be providing RFI responses to both MDA and SDA and look forward to contributing to the important efforts of Iron Dome for America.
Speaker Change: Thanks. Thanks, Carey. And one last one, it appears that your infrastructure business is...
Speaker Change: It's firing on all cylinders, and you discussed the new contract wins in Saudi Arabia, and you're doing really well domestically. Do you envision any impact?
Speaker Change: for your U.S. projects as it relates to federal funding, or what is the status there?
Speaker Change: Yeah, great question. So all of our funding comes from state and local, and for federally it's the Infrastructure Investment and Jobs Act. The area that they're looking at reducing within the Infrastructure Investment and Jobs Act are things that are related to social inequity.
Speaker Change: and Electrification and Broadband. We don't receive any funds from there. They're instead looking on how do they take those funds, reapply them to what you call hard infrastructure, which is where we play. So if you think roads and highways and bridges as an example.
Speaker Change: And we, again, get no funding from the Inflation Reduction Act.
Awesome. Thanks, Carey. Thanks, Matt and Dave. Thanks, Joey.
Speaker Change: And our next question will come from Andrew Whitman with Baird. Your line is open.
Oh, great. Good morning. Excuse me.
Speaker Change: And thank you for taking my questions. I guess I just wanted to understand a little bit.
Speaker Change: and the Federal Aviation Administration understood it. I think this is a decent customer for you all.
Speaker Change: And I was just wondering, there's been some reports that the DOJ team was coming in there. Can you just remind us all what your scope and size of work is for that?
Speaker Change: agency is and the types of things that you're working on and if you've seen anything from the team in terms of what they're looking at.
Speaker Change: Yeah, thanks Andy and good morning. We think there's actually opportunity with us for us with the FAA So we've supported the FAA for four decades in our role to provide technical services
Speaker Change: Those would include things like project management, how do you modernize the infrastructure, which is going to be a big area of focus.
Speaker Change: installing systems and equipment at over 600 locations and then we're also supporting their capital investment plan by providing engineering construction and project management services.
Speaker Change: Our contract is called the FAA Technical Support Services Contract 5, and on that we have over 500 people that are FAA cleared and qualified to be able to provide that support.
Speaker Change: So we're currently in year two of a 10-year $1.8 billion single award contract.
Speaker Change: There's obviously, due to the tragic accidents that have happened, a recent renewed emphasis on the air transportation safety.
Speaker Change: So there's going to be opportunities to upgrade and replace the aging equipment, the systems, and the infrastructure. We feel that we're well positioned to execute the assessment, the sustainment, and the modernization, and be able to help also with air traffic control and air traffic management needs.
Speaker Change: Yes, Andy, just importantly, as Carey mentioned, we have over 1.6 billion worth of ceiling left on that contract, so great opportunity for us.
Thank you.
Speaker Change: Got it. That's a helpful context on that one. I guess, Matt, I just want to make sure that everybody heard it or understands that correctly. On the $29 million here, one was a claim, so that's old and done, and the other one
Speaker Change: It's a project that you closed down on COVID-31, so that's old and done as well. There's no charges here on anything that has any future revenue expectation to it. Is that right?
half right. So there were two issues. The first one
Speaker Change: was a program that was our last legacy. So we're happy that we're never gonna talk about legacy contracts on an earnings call again. That ended on December 31st. And these contracts again, go back to the timeframe in the company between 2010 and 2015 when these were bid. So those are kind of in the rear view mirror. The second one is a contract that we refer to where we had a supply chain issue due to COVID.
Speaker Change: We had a settlement with the customer on that. We did not achieve our booked value, but importantly, we were able to get some schedule extension and some cash flow.
Speaker Change: What I'm very pleased with on that program, it is executing very well and ahead of schedule. So, you know, now that we have that settlement on the COVID issue behind us, we can continue just to move on and execute.
Speaker Change: Okay, that makes sense. I appreciate that context. I think I'll leave it there. Thank you very much. Thanks Andy.
Speaker Change: And our next question comes from Sheila Kayaglou with Jeffreys. Your line is open.
Sheila Kayaglou: Good morning guys and thank you for the time. I know I carry lots of questions on the top line and I'm sure you're prepared for it.
Sheila Kayaglou: But I kind of wanted to clarify a few things, because I'm still confused. So, your guidance range is 7 to 7.5 billion for 2025. It's a bit wider than normal. The bottom end suggests about 2% organic growth versus the 20%-plus you've been doing over the last two years. So, for that...
confidential contract. Is it fair to assume your guidance?
Sheila Kayaglou: has about 240 of the, let's say, 600 million this contract is.
in the guide, or does it include the full amount?
Sheila Kayaglou: And what are sort of the big drivers to get to the bottom end, given the growth you've seen?
Yes, the guidance includes option year
Sheila Kayaglou: We always, as you're aware, Sheila, we have puts and takes any given year, we always have programs ramping down, programs ramping up, so we have some of those dynamics going on. I would say the biggest variance...
Sheila Kayaglou: and the Organic Growth is that confidential program. We were aware that we had peaked last year, which we had discussed, and we had built that into our guidance. And again, we are reiterating our guidance.
Thank you.
Okay, and then maybe...
Sheila Kayaglou: On the pipeline, if we could talk about that, just how we think about, you know, it seems like you've caught up $12 billion in awarded contracts that have not yet been booked in backlog. And this is a pretty good lead indicator to your organic growth, but it's down from $13 billion over the last few quarters. But yet,
Sheila Kayaglou: The contract awards were quite strong, up 34% year-over-year, so can you walk through the moving pieces there, please?
Sheila Kayaglou: Yes, so first I'd say we're very pleased with our pipeline. We've had a pipeline now greater than 50 billion.
Sheila Kayaglou: Over the last six quarters, it's currently at $54 billion. The other thing we've done is we've moved up the value chain. So now we've got 111 opportunities greater than $100 million within the pipeline. But even more importantly, we have about 15 opportunities greater than $500 million. So doing exactly as we intend to do.
Sheila Kayaglou: We moved some things, so our goal again is we will have a contract, CEOS I'll use because that's an example we cited today, or the Georgia State Route 400. We will win a contract. We don't book the full value, but once we...
Sheila Kayaglou: win new work and get the funding on that value then we'll book like the next exercise option or the next phase of that program. So we have pulled a couple of things over and done exactly what we wanted to do, which was win new work.
Sheila Kayaglou: and be able to pull that over. So we have $8.9 billion of backlog. Out of that, our funded backlog is very high at 66% and that $12.4 billion of awarded, not booked, that we can leverage.
Okay, thank you so much.
Thanks Sheila.
Speaker Change: And the next question comes from Noah Poppenack with Goldman Sachs. Your line is open.
Hey, good morning everyone.
Good morning, Noah.
Speaker Change: Carey, one more for you on the classified program you've been discussing here.
Is there any risk in your view that
Speaker Change: If that fifth stage does not get restarted, that the $242 million you're citing is zero for the year?
Speaker Change: My perspective though is that, you know, a good portion of that will be consumed and probably was even consumed in January, some portion, so I would say the 242 is unlikely to be zero.
Thank you.
Okay. Thank you.
Speaker Change: And Matt, the other contract you had talked about when you were citing 5-15% coming into the year for re-competes was CCMS.
Speaker Change: Can you just level set us on where, how that has, you know, shaken out and what's in the full year plan for that?
Speaker Change: Yes, I would say again, our re-competes going into this year are less than 5%, around 4%, which is very low for us. We were fortunately able to retain almost all the work, 70%-ish, on CCMS.
Speaker Change: We were performing very important mission work for our customers and the customers wanted to stick with Parsons so we had another GSA vehicle that we have placed that work onto.
Speaker Change: Okay, great. And then on the critical infrastructure margin, you know, fully adjusted for the $29 million in the quarter, it's pretty high.
Speaker Change: In order to get to the implied margin for 2025, it can't be...
Speaker Change: Where it was on a fully adjusted basis in the fourth quarter for the year and especially to have 21% of the full year in the first quarter the first quarter Can't be anywhere near the fourth quarter on a fully adjusted basis. So man, maybe you can just talk me through how that
Speaker Change: happens. And I know you've talked in the past about there's kind of some lingering closeout. But if you can just help me better understand the moving pieces there and maybe the progression of the CI margin through the year.
Speaker Change: Yeah, sure, and kind of spot on, Noah, if you look at, if I look at the Parsons as a whole, the 30 basis points of margin expansion is going to come from kind of a mix. If we look at
The federal business.
As the confidential contract kind of stabilizes a little bit.
Speaker Change: They were probably going to grow faster on the cost part of the business. So we are expecting a little bit of margin compression on the federal side of the business.
Speaker Change: negotiations with customers and things so we're just kind of baking in a little bit of a little bit of opportunity in case of any unexpected.
Matt Ofilos: Okay, and then last one for you, Matt. If I go back to your 2023 Investor Day Outlook...
Your 2025 cash flow guidance provided today...
Matt Ofilos: actually matches the high end of your 2023 Investor Day cash flow, free cash flow guidance.
Matt Ofilos: And that's despite now adding over $2 billion of revenue and over $200 million of EBITDA to that 23 look.
How can that be?
Matt Ofilos: Yeah, so, you know, if I look back on the last two years, kind of exceptional cash performance in 2023 and 2024.
Matt Ofilos: In 2023, we had about 120% cash conversion, 2024 was 116, 117%, so really strong two years in a row, delivered, you know, over $100 million ahead of our initial guide for 2024. So, I would say, you know, just really strong performance in the last two years, and, you know, over time, of course.
Matt Ofilos: Cash Conversion will transport 100% and so as I mentioned during the call the the 2025 guide is somewhat impacted by 30 million dollar one-time impact on this 401k switch from an annual to a quarterly so in 2025 will pay out
Matt Ofilos: Q1 will be for all of 2024's 401k match, and then we'll have quarterly matches after that, so $10 million per quarter. So a little bit of a $30 million dollar headline there. And on the other part for 2025 is, you know, we do expect...
Matt Ofilos: Accelerated growth within the Middle East and the CI business as Federal Start comes down a bit in terms of the growth rate. So the DSO is up a day or two in the plan, but all those kind of mixed together, Noah, to be, you know, confident in the guide, but we've really done a great job over the last two years accelerating and closing out.
Matt Ofilos: kind of the claims and things that have benefited cash and incentive fees over the last two years.
Okay, thank you.
Thanks a lot. Thank you.
Mariana Perez-Mora: And the next question will come from Mariana Perez-Mora with Bank of America. Your line is open. Thank you and good morning everyone.
Mariana Perez-Mora: My first question is going to be around like the new administration and how should we think about PFAS and any like environmental remediation work. How fast that could grow and like were you including in your 25 expectations?
Mariana Perez-Mora: Yes, so I would say the selection of Lee Zeldin as the PFAS or the EPA administrator will be helpful. We believe that PFAS, he was originally involved in setting up the minimum or the maximum contaminant levels that went into the
Mariana Perez-Mora: PA legislation, and he's been a big supporter of PFAS remediation.
Mariana Perez-Mora: I'll take this opportunity just to mention the acquisition of TRS Group. We're really excited about this acquisition and how it strengthens our PFAS position. They provide thermal environmental remediation solutions and it's split nicely 50-50 between the federal and the private sector. So kind of...
at the Nexus.
Mariana Perez-Mora: of our portfolio. They have emerging PFAS remediation capability. They've got patented technologies. They've got projects today with the Defense Innovation Unit focused on soil remediation. And they've got presence at a lot of airports, such as Seattle, Denver, and LA, just to name a few, where they're working on firefighting foam change out.
They're patented remediation-based technologies.
Mariana Perez-Mora: basically remediate the PFAS in unsaturated soil. And that complements a technology that we've talked about in the past called R-HOT-ESCO technology, which is designed to destructively remediate PFAS below the water table in saturated soil. So the combination of these.
Mariana Perez-Mora: will give us collectively, Parsons and TRS, the first proven full-scale destructive capability to address PFAS in both soil and groundwater at the same time. Really, a small acquisition, but super exciting for us.
Speaker Change: Thank you. And following on the line of M&A, could you please discuss how is the pipeline of opportunities? Where is it stronger? And mostly, when you think about this new focus on efficiencies and incorporating commercial-like technologies,
Speaker Change: How do you decide what type of skills do you want to own versus skills you want to partner with?
Speaker Change: Yeah, thanks, Mariana. So we always do kind of a build by our partner. And the question is, we'd like to build internally if we can. We will buy something if we can get technology quicker at a lower cost, because we do have to make market demands. I think a great example of two smaller acquisitions we made fit that category, TRS I just described, and also when we acquired Echo Rage, they had a software-defined radio that helped with assured position navigation and timing capabilities quicker than we could have developed it under our own IRED.
Speaker Change: We also partner quite a bit with commercial companies, and if they have kind of a secret sauce that fits well with Parsons, that's a great opportunity to partner. Great example, we just signed an agreement with MAW Telecom, they're a Polish company, and they're going to be our agent to sell our deployable cyber flyaway kits.
Speaker Change: And then we've also discussed in the past our partnership with Global Star for satellite communication in contested environments.
Speaker Change: And we partner with Microsoft for cloud and AI, and we also work with a company called OpenSpace AI, which provides AI capabilities for our infrastructure business.
Speaker Change: M&A pipeline remains very strong, both with candidates in the federal and the critical infrastructure.
Speaker Change: We continue to look at and pass on multiple companies any given month. We're still very strict with our criteria, growing greater than 10% on the top line, greater than 10% even on margin, and needs to have some type of technology differentiation. So we look forward to doing two to three deals again this year.
Thank you.
Thank you so much.
Speaker Change: As a reminder, to ask a question, please press star 11 on your telephone. And the next question comes from Gwannam Khanna with Cohen. Your line is open.
Guadamcana, your line is now open.
Gwannam Khanna: Oh, I apologize. Something was going on with my headset. Hey, I got two questions related to the confidential contract. First, I was wondering, can you say whether it was the current administration that extended it earlier in January, or was it the former administration?
So the option here was exercised during the transition.
Thank you for your attention.
Speaker Change: During the transition means under the Trump administration? From Biden to Trump administration is the time period in which it was exercised.
Gwannam Khanna: So it was authorized by Biden's administration, not the Trump administration. I just technically asked before January 20th or after.
It was before.
Gwannam Khanna: Okay, and then the related contract, why is that being paused?
Gwannam Khanna: Is it a funding issue or is it a policy issue related to executive orders or something else? It's a policy issue related to the executive orders.
Gwannam Khanna: Okay and I think in the past you guys have sized the the recompete you know five to fifteen percent or something of that nature which
allow people to triangulate.
Gwannam Khanna: Work scope of somewhere in the $500 million range annually, is that?
Gwannam Khanna: So the 240 that you're assuming, is that basically, that would be half?
Gwannam Khanna: Unfortunately, the customer is confidential, the work scope is confidential, and they do not permit us to share the value on the contract due to national security reasons.
Speaker Change: Okay, but I did hear correctly to think that if in fact the work was fully unleashed and the related
work was unleashed, allowed to happen, the 240 would grow.
Speaker Change: Right, that's that's what you were saying. In order to get to the midpoint of guide we need the 240 to grow to the full value that's the initial funding allotment.
Speaker Change: Gotcha and you're just not willing to tell us what the full value is but we can make sure. We're not permitted unfortunately. We try and be very transparent but we are not allowed by the customer.
Speaker Change: And so then I do, I do wonder, because they're interrelated, what gives you the confidence that if the policy shift has impacted the related contract and put it on pause?
why that won't bleed over into the.
Speaker Change: work scope that Parsons is responsible for? Like, what gives you, is it, is there enough buy-in that the senior administration people who have looked at the work scope that Parsons is doing?
Speaker Change: to give you that assurance, or is that just, yeah, thank you. I would, yeah, I would say it's an extremely important mission for the nation.
Great. Thanks, guys.
Thanks.
Speaker Change: And the next question comes from Alex DeWire with KeyBank. Your line is open.
Hey, good morning. Thanks for taking my questions.
Hi Alex. Hi.
Speaker Change: So, it sounds like there was some award momentum that continued into the first quarter. There was a couple hundred million dollar wins, but then it also seems like
Speaker Change: that the cadence of like procurements and new awards is a bit slower now. Do you think we should expect some softness in the book to bills in the first quarter or the second quarter or do you think that
Speaker Change: Your exposure to where the new awards is slow, do you think it's not meaningful enough to see it impact the backlog?
Speaker Change: Yeah, so we have planned for 1.0 times for the year.
Speaker Change: Again, 44% of our business, that's the 44% that said 17 consecutive quarters greater than 1.0 booked a bill. For the federal business, we have $12.4 billion of awarded not booked, so what our priority is right now is to continue to push and drive that work onto those vehicles as we have been.
Speaker Change: Yeah, Alex, the way I'm thinking about it is, you know, I think the government officials are going through a capacity...
Speaker Change: story and trying to figure out how many, you know, take a new pursuit as an example. There's a lot that goes into that long time to get these things through acquisition process. So I think from a capacity perspective, we're expecting that, well, total activity will probably be similar.
Speaker Change: Some of it may end up being more kind of ceiling raised and extensions versus new business.
Speaker Change: That's kind of where our heads at today. Now, the one thing we didn't talk about is the budget. And if you look at the budget resolution, right now the House has $100 billion.
Speaker Change: plan for armed services, $90 billion for homeland security, and that's largely going towards border security that's in their budget resolution. That's over a 10-year period. The Senate has a $150 billion cap for armed services, $175 billion for homeland.
Speaker Change: That's within, again, their budget resolution, so we'll see how that all shapes out once they get to conference.
Speaker Change: The other thing I would highlight, we're looking ahead to FY26 and what's going on there.
and Department of Defense has preliminary indicated.
that they're looking to reduce.
Speaker Change: spending but shift the funds to Trump-aligned priorities. So what they're going to do is basically look at areas such as DEI, anything that was there for climate.
Speaker Change: And those funds are going to get shifted to areas that benefit Parson, specifically the areas I talked about earlier, cyber, missile defense, border security. We didn't have a chance to get to that. But counter-armed air systems and other areas that align well with our federal portfolio.
Speaker Change: Okay, got it. Thank you. And then I just wanted to follow up on this GSA contract that you had mentioned in the response to a question earlier. It seems like the GSA is another agency that the Trump administration or DOJ is coming after in terms of budget cuts.
Speaker Change: I was just wondering if you're seeing any impacts to this contract or do you think this one is kind of well insulated from these budget cuts that are being discussed?
Speaker Change: Yes, so this contract is already awarded and they have to have line of sight to 75% of the funding before they can award a contract. So this was already awarded for $1.2 billion, so we've got the work. Where we're seeing most of the targeting thus far within GSA is more around the facilities type of areas and how they reduce, you know,
footprint.
Speaker Change: Yeah, and Alex, I would just say, if there were a threat to some of these GSA contracts, we have other vehicles outside of GSA where, you know, the important part is maintaining the relationship and the capability with the end users, and we can steer them toward other vehicles. Yes, it's a great point, Matt, because we hold about somewhere over 50, less than 100 vehicles, so we have a lot of room to move.
Thank you.
Thanks.
Speaker Change: This is all the time that we have for questions. I would now like to turn the call back over to Dave Spille for closing remarks.
Speaker Change: 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 coming weeks. And with that, we'll end today's call. Have a great day.
Speaker Change: This does conclude today's conference call. Thank you for participating. You may now disconnect.