Q1 2025 Parsons Corp Earnings Call
Yeah.
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to par since first quarter 2025 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.
Speaker Change: You will need to press star one on your telephone you wouldn't hear an automated message of bites in your hands right.
Speaker Change: I would draw your question. Please press star one again.
Speaker Change: Be advised that today's conference is being recorded I would like now to turn the conference over to your Speaker today, David Bailey Senior Vice President of Investor Relations. Please go ahead Sir.
Speaker Change: Thanks, Michele good morning, and thank you for joining us today to discuss our first quarter 2025 financial results. Please note that we've provided presentation slides on the Investor Relations section of our website on the call with me today are Kerry Smith Chair, President and CEO and Matt off list CFO today Cary will discuss our Corp.
Speaker Change: But strategy and operational highlights and then Matt will provide an overview of our first quarter financial results as well as a review of our 2025 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 dissipate the future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.
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 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. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures and now I will turn the call over to Kerry.
Kerry Smith: Thank you Dave Good morning, welcome to <unk> first quarter 2025 earnings call. We're pleased with our performance this quarter as we achieved record first quarter results for total revenue net income earnings per share adjusted EBITDA and adjusted EBITDA margin.
Speaker Change: In addition, total backlog and funded backlog are at all time highs.
We also delivered a $52 million a year over year improvement in our operating cash flow achieved our best employee retention since 2020, and we reported a one one times book to Bill ratio, which was supported by a one four times ratio in our critical infrastructure segment.
Speaker Change: We achieved these results despite our confidential federal contract operating it or produce volume compared to 2024 as we reported last quarter. Our contract has continued however related contract was paused due to our presidential executive order, which is costs lower volume on our work on today's call.
Speaker Change: <unk> to continue to provide transparency and illustrate the strength of our entire portfolio and the growth we're experiencing in the rest of our business. We will discuss revenue results, both with and without this confidential contract.
Additionally, we are reiterating all 2025 guidance metrics.
Speaker Change: David last quarter, the guidance midpoint is aligned to the negotiated value of option year two of the confidential contract as we wait for the decision on this important mission to proceed I commit to investors that we will continue to deliver best in class execution across the entire portfolio.
Speaker Change: In our critical infrastructure segment, we are capitalizing on the unprecedented spending in both North America and Middle East infrastructure markets.
Speaker Change: It states this particularly exciting given the current infrastructure spend is not expected to peak until 2028 and more of a six to eight year a tail after that.
Speaker Change: In addition discussions on the next surface transportation Bill are already underway, our focus on hard infrastructure, such as roads and highways bridges airports and rail and transit has five partisan part and it's a priority for the new administration.
Speaker Change: In the U S. We continue to win some of the largest and highest priority projects in our company's history.
Speaker Change: Nice by Engineering news record in the top three companies in three categories, we are punching well above our weight class.
Speaker Change: Our middle East infrastructure business also continues to excel, where we're the number one program manager throughout the region.
Speaker Change: Saudi Arabia, we're involved in nearly every major project throughout the Kingdom as we help them achieve Saudi vision 2030, and prepare for the upcoming world events, including the Asian games The World Cup in the Expo.
Speaker Change: The expected public investment fund Giga project spend for infrastructure is 1.3 trillion by 2030.
Speaker Change: In the UAE, we're experiencing significant growth as Abu Dhabi implements their urban evolution program and Dubai to place their 2040 Master plan.
Speaker Change: Also Qatar has a national vision 2030 objectives, which is driving our expansion in that country.
Speaker Change: So the Gulf Cooperation Council countries on trade and tourism diversification and a booming real estate market is accelerating their first structure demand.
Speaker Change: Given our six decade history in the region and proven performance on delivering new complex projects, we are well positioned to continue to capitalize on these long term tailwind.
Speaker Change: Representing 46% of par since Q1 revenue, we expect our global infrastructure portfolio to continue to thrive not just this year, but well into the next decade.
Speaker Change: And our federal solutions segment, we're excited about the upward momentum in the defense budget with the congressional Republicans releasing a budget reconciliation bill that would increase defense spending in the coming years by 150 billion.
Speaker Change: Our portfolio aligned with major budget reconciliation areas, including missile defense munitions Pacific nuclear deterrent border security and more.
Speaker Change: In addition plants were unveiled for the first potential one trillion dollars of defense budget in fiscal year 2026.
Speaker Change: <unk> portfolio alignment to 10 of the 17 priority areas outlined in our February 2025 Department of Defense memo, it's encouraging since we anticipate 8% of the budget to be realigned these focus areas for each year across the future year's defense program.
<unk> strong position in differentiated capabilities and integrated air and missile defense aviation modernization space superiority counter unmanned air systems cyber operations electronic warfare munitions and border security as well as our geographic presence in the Endo.
Speaker Change: Pacific region will enable us to capitalize on this increased spending.
Speaker Change: We are in non traditional company that was purpose built to be agile and innovative and we are therefore pleased to see the administration's focus on it.
Speaker Change: Software acquisition pathways commercial solutions opening and other transaction agreements to enable us to rapidly deploy solutions that are operationally relevant.
Speaker Change: This approach aligns very well with our strategy that's been in place since the day that I became the CEO of <unk> to be an advanced solution center greater that differentiates was soft for.
Speaker Change: Parsons organic investments and strategic acquisitions have positioned us as a technology later in important emerging national security markets, including artificial intelligence assured position navigation and timing cyber signals intelligence and biometrics and finally our center.
Speaker Change: <unk> National security and infrastructure portfolio uniquely positions us to help solve some of the worlds most difficult challenges. These include critical infrastructure protection of our utilities water facilities transportation and health care systems.
Speaker Change: <unk> P fast emerging contaminant elimination.
Speaker Change: Asia modernization for both the Federal Aviation administration, and global airports events management, such as the upcoming Olympics World Cup and Expo.
Speaker Change: Rebuilding of cities talents in countries throughout the world and energy resilience. We are excited about the unique growth specs at the intersection of critical infrastructure and federal solutions, and how we've been able to leverage our differentiated portfolio.
Speaker Change: Moving to our first quarter results record total revenue for the first quarter was $1 6 billion.
Speaker Change: A 1% increase over the prior year period, and a 2% decline on an organic basis.
Speaker Change: Excluding the revenue impact from our confidential contract, our total and organic revenue growth rates would have been 11% and 7% respectively.
Speaker Change: These results are in line with the mid single digit or better organic revenue growth target. We provided on our fourth quarter 2024 earnings call.
Speaker Change: This growth validates the strength of our portfolio and our alignment to national security and infrastructure priority spending areas.
Speaker Change: Margins were exceptionally strong in the first quarter as we achieved record first quarter adjusted EBITDA margins of nine 6% at the enterprise level and 10, 3% within our credit card restructure segments.
Speaker Change: Our margin expansion is driven by our emphasis on our infrastructure core competencies, including program management owner's engineer and design engineering.
Speaker Change: This deliberate focus and performance execution drove 40 basis points of margin expansion in the first quarter of 2025.
Speaker Change: For the total year margins are projected to expand 30 basis points. After expanding 50 basis points. In 2024. We also delivered record first quarter net income and earnings per share. Additionally, cash flow results were favorable as a result of strong collections in both.
Speaker Change: Eight months.
Speaker Change: Okay.
Speaker Change: During the first quarter, we achieved a book to Bill ratio of one one times on an enterprise basis, driven by strong win rates of 68% in large contract wins for.
For the first time since our IPO, we exceeded $1 billion and quarterly contract awards and our critical infrastructure segment and achieved our 18th consecutive quarter with a book to bill ratio of one point or greater.
Speaker Change: In our Federal Solutions segment award activity met our expectations with a book to Bill ratio of <unk> nine times.
Speaker Change: In addition, this is the seventh consecutive quarter, where our pipeline has exceeded $50 billion illustrating the demand for our solutions and only the second quarter in the history of our company with a backlog of more than $9 billion.
Speaker Change: We continue to win large strategic contracts across both segments and all six end markets and this quarter. We were awarded four contracts that each exceeded $100 million demonstrating the demand for our federal solutions in the national security alignment of our portfolio three of the four wins.
Speaker Change: Later than $100 million in the first quarter, where in our federal segment, and we won an additional $95 million federal contract during the quarter.
Speaker Change: And just after the quarter ended we were awarded another new federal contract valued at greater than $100 million.
Speaker Change: With that background, let me.
Speaker Change: Because our first significant first quarter wins.
Speaker Change: We were awarded an option year totaling $243 million on our general services administration contract. This for both new and continuing defense work delivering global quick reaction capabilities that leverage our advanced technology solutions across the all the main battle space. This award is part of our cyber and intelligence and <unk>.
<unk>, which continues to achieve double digit revenue growth after two years with growth of more than 20%.
Speaker Change: We received $232 million in option, you're funding from a confidential customer and our critical infrastructure protection market.
Speaker Change: We were awarded a follow on program and construction management contract in Dubai.
Speaker Change: $200 million in the UAE, we're seeing continued growth in both our transportation and urban development markets.
Speaker Change: And an additional $125 million ceiling value modification was added a person cyber threat forward program.
Speaker Change: In space and missile defense, we received a new $95 million contract for operational field and Sustainment of the United States Air Force's Europe Air Defense early warning capability to U S and NATO partners across the European command area of operations and after the first quarter ended we were awarded.
Speaker Change: Our new five year task order for cyber assessment work supporting the defense threat reduction agency. This single award contract has a ceiling value of $138 million.
Speaker Change: During the first quarter, we acquired Trs group, an industry leader in PFS thermal and holistic environmental remediation, having claimed hazardous and toxic substances from soil groundwater of fire suppression systems for global clients. This $37 million acquisition enhances person.
Speaker Change: <unk> environmental remediation capabilities in both operating segments and serves as a force smaller player for our industry, leading PFS remediation solutions.
Speaker Change: As a testament to the importance of ethics and integrity in our company. We are proud to be named one of the world's most ethical companies by Ethisphere for the 16th consecutive year.
Speaker Change: In summary, I am pleased with our first quarter results as we achieved records across our financial metrics. In addition, we leveraged our balance sheet and closed an accretive acquisition and Opportunistically executed on our share repurchase program.
Speaker Change: Our balanced portfolio and six growing and profitable end markets are enabling us to achieve mid to high single digit organic growth across the company, excluding the confidential contract signed.
Speaker Change: Simultaneously, our adjusted EBITDA continues to expand faster than our top line, resulting in margin expansion.
Speaker Change: And critical infrastructure of our capitalizing on unprecedented global infrastructure spending and leveraging our strong position and reputation in the North America, and Middle East markets and Federal solutions. Our portfolio is aligned with the new administration's national security priorities as well as their desire to deliver fast.
Speaker Change: <unk> innovative and operationally relevant solutions that outpace near peer threats.
Speaker Change: As we look to the future we have long term tailwind in both segments. In addition, we have record total backlog of $9 1 billion of which 69% is funded.
Speaker Change: Proximately $12 billion of contract wins that we have not yet booked.
Speaker Change: $55 billion pipeline that includes over 100 opportunities that are worth more than $100 million, each and 19 opportunities worth more than $500 million each and we have only 2% of our revenue up for Recompete in 2025.
Speaker Change: As a result of this tailwind and the proven confidence I have in our team's ability to deliver strong financial results I'm extremely excited about our bright future and our ability to continue to drive long term shareholder value.
Speaker Change: With that I'll turn the call over to Matt to provide more details on our first quarter financial results Matt.
Matt: Thank you Terry I was carrying indicated our first quarter results were highlighted by record revenue and profitability. Despite headwinds on our confidential program <unk>.
Matt: Excluding this one contract the company is delivering results in line with expectations through strong execution and six end markets aligned to critical infrastructure and national security priority spending areas.
Matt: Turning to the details of our results total revenue of $1 6 billion for the first quarter of 2025 increased 1% from the prior year period and was down 2% on an organic basis.
Matt: Excluding our confidential contract with total revenue growth was 11% and organic revenue growth was 7% driven by double digit growth in our cyber transportation and environmental remediation markets.
Matt: SG&A expenses for the first quarter increased 10% from the prior year period, but decreased 8% from the fourth quarter of 2024.
Matt: Year over year increase was primarily driven by the inclusion of recent acquisitions.
Matt: This is because the sequential decrease was driven by a reduction in incentive based compensation and transaction related expenses.
Matt: <unk> expenses for Q1 were 15, 7% of total revenue compared to 14, 4% in the prior year period.
Matt: Adjusted EBITDA of $149 million increased 5% from the prior quarter of 2000, and the first quarter of 2024, and adjusted EBITDA margin increased 40 basis points to nine 6% a first quarter record.
Matt: The adjusted EBITDA increase was driven by accretive acquisitions and improved program performance, partially offset by shift in contract mix.
Speaker Change: I'll turn now to our operating segments, starting first with federal solutions, where the first quarter total revenue decreased 7% from the prior year period, and 9% on an organic basis.
Speaker Change: Excluding our confidential contract federal solutions revenue increased 8% and 6% on an organic basis.
Speaker Change: These increases were driven by growth on existing contracts and the ramp up of new task order wins, specifically in the cyber and intelligence markets.
Speaker Change: Federal solutions adjusted EBITDA decreased by 18% from the first quarter of 2024, and adjusted EBITDA margin decreased to 120 basis points to 9% driven primarily by contract mix.
Speaker Change: As anticipated in our guidance strong growth on strategic cost type programs will impact federal margins in 2025, while the business continues to execute well.
Speaker Change: Moving now to our critical infrastructure segment first quarter revenue increased by $86 million were 14% from the first quarter of 2024.
Speaker Change: This increase was driven by organic growth of 8% in inorganic revenue contributions from our BCC and Trs acquisitions.
Speaker Change: Organic growth was primarily driven by the ramp up of recent contract wins in our North America business unit.
Speaker Change: Our middle East business also grew but was impacted by the timing of holidays and new business ramp.
Speaker Change: Large long term contracts and recent wins in the middle East are expected to drive additional growth in the second quarter of 2025 and continued for several years.
Speaker Change: Critical infrastructure adjusted EBITDA increased 51% from the first quarter of 2024, and adjusted EBITDA margin increased 260 basis points to 10, 3% a company record.
Speaker Change: These increases were driven primarily by the ramp up of new programs accretive acquisitions and stronger program performance.
Speaker Change: Next I'll discuss cash flow and balance sheet metrics.
Speaker Change: Our net DSO at the end of Q1 2025 was 58 days a five day improvement from the prior year period, and a record low for the first quarter.
Speaker Change: During the first quarter of 2025, we consumed $12 million of operating cash compared to use of $63 million in the prior year period.
Speaker Change: $52 million improvement was driven by higher net income and strong collections in both segments.
Speaker Change: Capital expenditures totaled $13 million in the first quarter of 2025 compared to $9 million in the prior year period.
Speaker Change: Capex continues to be well controlled and remains in line with our planned spend of approximately 1% of annual revenue.
Speaker Change: Higher 2025, Capex spend is focused on strategic classified facility expansion product investments and enterprise systems improvements, which all support long term growth and efficiency for Parsons.
Speaker Change: Free cash flow conversion was 125% on a trailing 12 month basis with an intentional focus on contract execution.
Speaker Change: Element of legacy claims and improved cash management and collections.
Speaker Change: Our balance sheet remains strong as we ended the first quarter with a net debt leverage ratio of one six times, including the impact of our all cash Trs acquisition.
Speaker Change: In addition to deploying capital for M&A, Our board of Directors recently increased our stock repurchase authorization to $250 million to drive incremental shareholder value during.
Speaker Change: During the first quarter, we repurchased approximately 424000 shares at an average price of $58 95 for an aggregate purchase price of $25 million.
Speaker Change: The $25 million in share repurchase was a quarterly high and reflects our confidence in the companys strategic direction predictable cash performance and our commitment to return capital to shareholders.
Speaker Change: <unk> to date, we've repurchased approximately $2 1 million shares at an average price of $48 98 for an aggregate purchase price of $105 million.
Speaker Change: $225 million of authorization remaining under our current increased share repurchase program and will continue to be opportunistic regarding future purchases.
Speaker Change: Turning to bookings for the quarter, we reported contract awards of $1 8 billion.
Speaker Change: Representing a book to Bill ratio of one one times on an enterprise basis, one four times and our critical infrastructure and <unk> nine times in federal solutions.
Speaker Change: Gary mentioned earlier, our critical infrastructure segment achieved its 18th consecutive quarter with a book to bill ratio of one point or greater.
Speaker Change: On a trailing 12 month basis, our book to Bill ratio is one <unk> times on an enterprise basis, one two times in critical infrastructure and <unk> 85 times in federal solutions.
Speaker Change: Our backlog at the end of the first quarter totaled $9 1 billion.
Speaker Change: The company record.
Speaker Change: Additionally, our funded backlog is the highest since our IPO at 69%.
Speaker Change: Now, let's turn to our guidance we are reiterating all of our 2025 guidance range as provided on February 19th based on our financial results for the first quarter of 2025, and our outlook for the remainder of the year.
Speaker Change: We expect total revenue to be between seven and $7 5 billion. This represents 7% growth at the midpoint of the range and 5% growth on an organic basis, excluding our confidential contract. We expect total revenue growth of 18% and organic revenue growth of 15%.
Speaker Change: We are pleased with our record total and funded backlog approximately $12 billion of contract wins that we have not yet booked and $55 billion pipeline and our exceptional win rates.
Speaker Change: Adjusted EBITDA is expected to be between 640 $710 million with a margin of nine 3% at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents.
Speaker Change: <unk> adjusted EBIT growth of 12% and margin expansion of approximately 30 basis points from 2024.
Speaker Change: We continue to expect cash flow from operating activities to be between 420 and $480 million other.
Speaker Change: Other key assumptions in connection with our 2025 guidance, including quarterly cadence are outlined on slide 13 in today's Powerpoint presentation located on our Investor Relations website.
Kerry Smith: With that I'll turn the call back over to Kerry Thanks, Pat.
Speaker Change: During the quarter, we achieved record top and bottom line results improved operating cash flow and reported a book to Bill ratio of one one times are unique and synergistic portfolio is a differentiator for persons and we will continue to benefit from unprecedented global infrastructure spending as well as the federal portfolio, that's aligned to the new administration.
Speaker Change: <unk> priorities, our strategy of moving up the value chain is in advanced solutions integrator that differentiates with software has been working and will continue to position us well for the future our demonstrated ability to expand margins and deploy capital on strategic acquisitions will drive long term shareholder value.
Speaker Change: We are very excited about <unk> future and I think all approximately 20000 employees worldwide for their ability to consistently deliver results. Thank you for your support and we will now open the line for questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again and our first question comes from Andrew Wittmann with Baird. Your line is now open.
Speaker Change: Okay.
Andrew Wittmann: Great. Thanks for taking my questions and good morning, I guess can you start with just kind of a technical question for Matt just in the.
Andrew Wittmann: Our critical infrastructure segment margins were actually were very strong this quarter over 10% and it's been kind of the place where you're kind of trying to get to for some time and I guess my question is it looks like the thank you said there was no big adjustments on any kind of percentage of completion or anything were there any closeouts or anything that contributed unusually too.
Andrew Wittmann: Margin performance in the quarter, because obviously the first quarter is seasonally not usually a particularly strong quarter. Yet. Your results were so I was hoping that you could just speak to that a little bit more detail. Please.
Speaker Change: Yes, Thanks, Andy and good morning, and thanks for the question Great question, Yes, we're as Kieran I have mentioned for a couple of years now we're really excited about the underlying performance of the Ci business. Obviously, we've had the headwinds related to the to the legacy programs that drag the margins down last year <unk> was just below 7%, but in Q1, we did not have any favorable adjustments were.
Speaker Change: Through claims or pickups or anything so really as I mentioned no negative impacts of substance either so.
Speaker Change: This is just really the underlying business performing on its backlog and the new business and the accretive acquisitions. We've done as of late so really great sign of the long term expectations of RCI business.
Speaker Change: What's the implication for the balance of the year, if it's strong in the seasonally weak quarter should we read anything into like the momentum in that business for the balance of the year then.
Speaker Change: Because it seems like you'd be tracking well above what your plan would be for that segment.
Speaker Change: Yes, so total year, Andy we're expecting the Ci margin as the midpoint of guide is about 91%. So we do have some final closeout some change orders and claims things like that that we've got to get through on final completion on these contracts but.
Speaker Change: I think all in all again the underlying performance of that business is quite strong middle East is mid teens margins, so really really great performance across the entire portfolio and.
Speaker Change: The next three quarters are just driven by getting through the Closeouts on these legacy programs.
Speaker Change: Got it and then.
Speaker Change: Gary just on that Middle East I think there was a comment in your prepared remarks.
Speaker Change: Related to the Middle East talking about how you are expecting a little bit better growth as the year goes on I think there are some.
Speaker Change: Comments about larger contracts in the middle East Dubuque.
Speaker Change: Maybe with a delayed start or delayed ramp maybe you can clarify that comment a little bit more but can you just talk to.
Speaker Change: What what's behind maybe a little bit slower service. Some of these larger contracts and what gives you confidence that they are indeed going to ramp.
Speaker Change: Just vis vis the overall economic environment, given oil prices I guess.
Speaker Change: Yeah. Thanks, Andy So we have won some larger contracts. If you look last quarter, we announced two large contracts greater than $275 million those were a little slower to ramp than what we anticipated and we did have more holidays within a quarter than.
Speaker Change: Usually occurs within Q1.
Speaker Change: We are very well obsession once again in Saudi Arabia, what we're seeing is a big emphasis around Riyadh and focus on getting ready to be on the world stage in 2029 fifth Asian games are followed by the Expo in 2030 and the World Cup in 2034.
Speaker Change: Once again, we're kind of on every major program there.
Speaker Change: We are bringing some roads, we borrow BARDA is sole source traffic management contract King Abdullah financial District, <unk>, the world's largest entertainment city.
Speaker Change: <unk> City, we're going to be the program manager for the New stadium there for the World Cup. So really great performance, we've got a hiring demand of over 200 people per month were going to be higher and so on.
Speaker Change: Expecting double digit results from that business for the full year very much on track I would say in addition that we're seeing a lot of strength out of the UAE. In fact, if you look at Saudi UAE and Qatar were over double digits in each of those with UAE being about 30% growth driven by the reasons that I mentioned in terms of diversification.
<unk> the real estate market booming, so a lot more infrastructure of transportation projects.
Speaker Change: Okay.
Speaker Change: I will leave it there. Thank you so much.
Speaker Change: Thank you.
Speaker Change: And our next question will come from Mariana Perez Mora with Bank of America. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: Good morning Marianna.
Speaker Change: So my first question is about the solicitation award environment.
Speaker Change: I'm surprised to see.
Speaker Change: <unk> resilient.
Speaker Change: Award environment or bad luck for federal solutions.
Speaker Change: I like to.
Speaker Change: So if you can add any color about like post casino resolution extension and with this reconciliation. If you have seen any speeding up of this solicitation environment and where are your expectations for the full year.
Speaker Change: Yes. Thanks, Marianna. So we were pleased because Q1 is traditionally a slower quarter for the federal business. So we were pleased with <unk> nine book to Bill we expect over 1.0 for the full year and again at the person level, we've been over a one <unk> book to Bill since our IPO as far as continuing resolution. This one was a little bit.
Speaker Change: And that they can add new funds and they can also sheff funds surround. Good example of that is the $138 million Cyber award that we received just after the quarter end shows that new funds can be out located the reconciliation Bill I'm, particularly excited about as you are aware of the house marked up the bowl yesterday.
Speaker Change: And the house Bill will now be sent to the house budget Committee that will compile it was the bells from 10 other committees and that will become the reconciliation bill the goal of the house Republicans just passed the Bill by Memorial Day, and then send it to the Senate and the objective is depressed and I would like to sign it by July 4th I would say.
Speaker Change: What we're particularly excited about is what was in the Bill when you look at 150 billion defense package and typically a reconciliation bill could be spent over 10 years, but the view is that this is going to be very front end loaded and could be spent over a window as short as a two to four year period. There was a 25 billion for Golden Dome Masada.
Speaker Change: So as you recall, we've been spray missile defense and save for four decades, the rail key with Golden Dome.
Speaker Change: You need to get new systems out there for space based interceptors, but it's really about integrating all of it.
Speaker Change: Systems had accessed and we're currently the system engineering technical support contractor for MDA. The munitions production budget of $21 billion. We're currently involved in modernizing several of the largest army ammunition plant whole center Mirad FERC. So we think thats a good indication for the future there.
Speaker Change: <unk> innovation to the war fighter was for $14 billion as a company that was purpose built to drive innovation to get solutions out fast and non traditional firms, we see that as a very good move nuclear deterrence of $13 billion areas. There that we're looking at our risk reduction on the <unk> program on <unk>.
Speaker Change: Again persons has been the Intercontinental ballistic missile.
Speaker Change: Engineer of record for every Intercontinental program.
Speaker Change: And then there is also money that is going to be allocated towards system improvements on excess stay minimum am program, which was a person to assign 11 billion for the Pacific that turns initiative, we've been positioning our in the Endo paid com region for the last three decades and have a strong possession, then there's an additional $15 billion.
A modernization for radar facilities and personnel controllers <unk>.
Speaker Change: <unk> holds the facility's contract $1 8 billion CLO with one 5 billion remaining so we look forward quickly, helping the FAA modernize and there is an additional over $50 billion for border security, we've done border security for two decades around the world. So that scenario that we plan to tap into and there is additional.
Speaker Change: <unk> funding to support security for the Olympics and the FIFA World Cup persons has been involved in Olympics World Cup <unk>. Since 2016. So reconciliation Bill. We're really pleased said that's moving forward and then I would just quickly say for FY 'twenty six.
Speaker Change: I mentioned that thats going to potentially be a one trillion dollar budget. There is 10 of the 17 priority areas aligned a person's activities, including southwest border nuclear modernization homeland missile defense counter unmanned air systems, Cyber security munitions and more so very happy with federal budget.
Alignment.
Speaker Change: Thank you so much that was great color and then if I can follow up on the confidential contract. I know you are limited to what you could say that I don't know if you can share any color around remember last call you defined the program as like steps, one to five and you're managing steps, one and two for them.
Speaker Change: Fifth theft at even depends on you have happy with how they manage this last piece of the mission or not what are your expectations there.
Speaker Change: How is the program trending so far in terms of like volumes versus last year and how that compares to your expectations for the full year.
Speaker Change: Yes, So as a reminder January 20th President Trump signed an executive order was 14, 169, which mandated a reevaluation of the United States Foreign assistance program and so a pause some obligations and disbursements for a 90 day period to review the programs to see whether they aid spur.
Speaker Change: Ending store aligns with U S interest on April 17th this they announced that the foreign assistance review was going to be extended by an additional 30 days or until mid may.
Speaker Change: We're not sure if they'll complete on time or a federal receive a further extension so as of today. Our contract continues it is at a reduced run rate for the first quarter, we were at about an 80% Brian right.
Speaker Change: And it wasn't our contract that's been pause, but to your point, it's a related contract thats been paused.
Speaker Change: If we receive any material positive or negative information in mid may or later, we'll make sure to update you as needed.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Tobey Sommer with true with your line is open.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Jerry I appreciate the.
Speaker Change: Illustrative examples for the new budget alignment.
Speaker Change: I'm curious if there's been anything on the other side of the ledger relative to.
Speaker Change: To Joe's or.
Speaker Change: Perhaps.
Speaker Change: Civil agency activities, where investors broadly seem to think so.
Speaker Change: The most risk activities could be.
Speaker Change: Diminish going forward.
Speaker Change: No Tobey.
Speaker Change: We're seeing two contracts they were in South Africa that were canceled it was less than $3 million annually. That's really been it I would say on the Dod side for US our engagement has been rather positive. The example, I'll use is federal Aviation administration. The Doge team has come in to see how we can accelerate the aviation monitor.
Speaker Change: <unk> efforts to improve aviation safety.
Speaker Change: So at this point, because we don't do work with the agencies like IRS Veterans Affairs USA.
Speaker Change: The Department of Education Department of Agriculture, all the ones that have been impacted by Dodge and we're also not an it consulting firm we don't appear in the top 100, when you Brian consulting firms.
Speaker Change: We don't anticipate an impact there.
Speaker Change: I'm curious do you think that.
Speaker Change: There will be material and tangible change.
Speaker Change: Towards.
Speaker Change: Fixed price contracting.
Speaker Change: And if so.
Speaker Change: What we're trying to change the order of magnitude.
Speaker Change: They may result.
Speaker Change: Yes, so I would say at first with our businesses', 60% fixed price time and material, 40% cost reimbursable.
Speaker Change: You look at critical infrastructure, we're about 75% fixed price time material, 25% cost reimbursable, whereas on federal were about 45% fixed price time material, 55% Reimbursable. So net net we're very used to working in a fixed price type of environment, we have not yet seen any contract shifted.
Speaker Change: We have talked with our customers on areas that we felt they could go to a fixed price model, where it's work that we've been doing for a long time and we'd be comfortable working in a fixed price environment, but at this point, we have not yet seen that movement.
Speaker Change: I think their priority has really been on the various agencies and also the consulting.
Speaker Change: And then if I could just ask the last question.
M&A front.
Speaker Change: What are your expectations.
Speaker Change: For the balance of the year.
Speaker Change: Do you have.
Speaker Change: Are you seeing more or less opportunities on either side of it.
Speaker Change: Yes, so we expect to do two to three acquisitions. This year, we obviously already acquired Trs groups. So that's one we have a robust pipeline still both within federal analysts, saying credit core infrastructure it'd be great. If we can do one acquisition in each that's sure.
But I'd say its pipeline continues.
Speaker Change: Critical infrastructure, probably a little more robust some federal companies are kind of uncertain on whether to go to market right now given that we do our deals preemptively, though on the federal side. These are generally companies, we've been courting for quite a while that wont be with Parsons.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone. Our next question will come from Sheila <unk> with Jefferies. Your line is open.
Speaker Change: Good morning, and carrying that Dave Good morning, Larry I wanted to happen.
Speaker Change: Wanted to focus on the revenues I'm, sorry, I'm gonna have to asking so many questions on this confidential program and how we think about it so.
Speaker Change: Maybe broader actually on slide 13, you point to a sequential increase in Q2, but it still implies sales are about flattish year over year or down low single organic so when we think about the first half second half dynamics.
Speaker Change: What drives that second half inflection and maybe more broadly you know you're targeting 15% organic growth for the full year I think.
Speaker Change: How do we think about that ramp up.
Speaker Change: Yes, so excluding the confidential contract, we're targeting 18% total growth, 15% organic to your 0.1st I'll start with credit card for structure, we've had 18 consecutive quarters greater than one book to Bill we've won our largest contracts in the United States over the last 18 to 24 months in the company.
Speaker Change: History, and the Middle East we're involved in pretty much every major program going on in Saudi Arabia, and I mentioned double digit growth in all three of our major countries. So a lot of ramp up is going to occur on the work that we've already won within federal business, our cyber area, probably I'd highlight in particular in our <unk>.
Speaker Change: <unk> contract has experienced tremendous ramp and then were also obviously distorted our brand new cyber contract that we're going to expect a ramp we've been driving work over to our ceiling contracts. So if you recall, we have 12 billion of awarded not booked that's work that's been awarded a persons that were reflected in bookings.
Speaker Change: Backlog out of that about half is ceiling contract. So we've done a great job of driving new and continuing work over to those contracts and then once again. The reconciliation will help as soon as that starts to take place which could be as early if they really get it signed by July we could start to see.
Speaker Change: Programs moving forward as early as August.
Speaker Change: Got it. Thank you so much and then maybe one on just at the margin.
Speaker Change: Being at 9%.
Speaker Change: The confidential contract I think is accretive so just how do we think about the path to get back to 9%.
Speaker Change: Alright, sorry, how do we get to the high 9% range.
Speaker Change: Range back again.
Speaker Change: Yes, Sheila I would say is our goal for this year was mid nines for the federal business as a couple of contributing factors. Obviously as you noted the fixed price volume from the confidential contract coming down puts a little bit of pressure on but we've also as Kerry mentioned ramped up quickly on that GSA fed. Some work that is of course cost type. So a faster ramp in cost type if you look.
Speaker Change: Year over year, our cost type within federal has gone from 45% to 55% so a pretty substantial shift in mix on the federal side overall federal business is performing quite well no real charges or anything like that it's really just kind of the mix of work that we're executing on for the total year, we are expecting about nine 5%. So.
Speaker Change: You will see a ramp.
Speaker Change: As you know is kind of a confidential contract comes back in and as we see.
Speaker Change: Kind of a stabilization on the cost side and new fixed price work in acquisitions have a bigger impact so over overall, we're happy with that nine 5% based on the portfolio and the strong growth on cost side.
Speaker Change: Great. Thank you so much.
Joe: Thanks, Joe.
Speaker Change: And our next question comes from Gautam Khanna with TD Securities. Your line is open.
Joe: Hey, Thanks, good morning, guys.
Speaker Change: Morning.
Speaker Change: Just to clarify I wanted to ask again about dose.
Speaker Change: No.
Speaker Change: Have you guys had extensive dialogue with.
Speaker Change: Jos Leo Johnson that some of your customers.
Speaker Change: Literally the result is only a couple of contracts of de Minimis value.
Speaker Change: <unk> bin.
Speaker Change: Removed or is this still an ongoing dialogue.
Speaker Change: And so that.
Speaker Change: We could actually see something more substantial in terms of negative impact a quarter or two from now what's your what's your best guess on that.
Speaker Change: Well. So first it's my understanding that <unk> met with consulting firms that I mentioned earlier, we're not a consulting firm. So we have not had discussions in that regard the only area really that we've had discussions on how to accelerate the FAA modernization, which has received $15 billion in there.
Speaker Change: Reconciliation buildup, we spent over three years and so we were very pleased our team was engaged through our customer on how can we help accelerate that initiative. So our discussions have been positive.
Speaker Change: Yeah. So gautam just as an example in the FAA.
Speaker Change: We talked a lot about accelerating permitting and different approvals that are required and kind of how quickly we can get.
Speaker Change: Yes capability to the to the end users.
Speaker Change: It's kind of been the majority of the discussions around nodes to date.
Speaker Change: Okay.
Speaker Change: I know there was some discussion early in the quarter from the New administration.
Speaker Change: Stopping offensive cyber operations against Russia, and what have you I know you guys are involved in some of that type of activity and there was no discernible impact from some of those initiatives on the business.
Speaker Change: Yes, we don't expect offensive cyber capabilities to be stopped we continue to support our customers in that area and have been continuing to receive new awards.
Gotcha.
Just on the confidential contract with respect to guidance.
Speaker Change: I think just to be clear the midpoint assumes what you assumed at the beginning of the year right.
Speaker Change: Get to whatever rate you anticipated it to get to which is still down year over year.
Speaker Change: I want to make sure.
Speaker Change: And then.
Speaker Change: Is that right.
Speaker Change: Yes, that's correct our <unk> Wi Fi if guidance is aligned with the negotiated value of our option year, two contract, which is down from 2024.
Speaker Change: Given that Q1 seem to be on.
Speaker Change: <unk> that right.
Speaker Change: Is there.
Speaker Change: Yes.
Speaker Change: Whenever if they go ahead and say, let's turn it back on at full rate.
Speaker Change: Is there enough time to catch that.
Speaker Change: On the.
Speaker Change: But underrun level from Q1 up in the year and if not.
Speaker Change: If you could just quantify what is that delta.
Speaker Change: Yes, we believe there is and again, we've been running at 80% run rate, but there would be.
Speaker Change: After that May date.
Speaker Change: In continuation of the contract we would anticipate a search to meet the mission requirements and so gautam, we're tracking kind of demand signal in funding and both of those have remained constant.
Speaker Change: Okay.
Speaker Change: And last one for me it sounds like bookings since the quarter end also seem pretty.
Speaker Change: Upbeat.
Speaker Change: I'm just curious what are you seeing broadly in terms of.
Speaker Change: Procurements pace.
Speaker Change: Pace of adjudication in the second calendar quarter end.
Speaker Change: And do you expect a big flush in the.
Speaker Change: And the third calendar quarter of the year as we typically have.
Speaker Change: Yes, so I'd say procurement has been on track we look at the.
Speaker Change: The volume of proposals we submit if you look last year, we submitted about $13 billion in proposals Q1, we were over $3 billion in proposals. So we are on kind of that same pace.
Yes, I would say that the.
Speaker Change: End of the third quarter are there usually is a big flush and we're using our.
Speaker Change: Our current IQ vehicles between now and then as well to drive work to those.
Speaker Change: And do you expect Q2 to be pretty strong with respect to that.
Speaker Change: It sounds like the words, given what you have outstanding.
Speaker Change: We're estimating over a one O for every quarter.
Speaker Change: Great. Thank you guys I appreciate it.
Speaker Change: Okay. Thanks.
Speaker Change: As a reminder to ask a question. Please press star one on your outlook down and the next question comes from Josh Sullivan with the Benchmark Company. Your line is open.
Josh Sullivan: Hey, good morning.
Josh Sullivan: Good morning, Great job, just going to keep it to one here just given the dynamics around those programs being curtailed buyouts being off what are you seeing on the hiring front for cleared personnel you better positioned to hiring access more of your backlog going forward.
Josh Sullivan: Yes, So let me start with retention, which has been great with our best for attention. Since 2020 are very pleased with that and I would say people are kind of happy with the company and the direction, we're going so theyre staying from a hiring perspective, we've been doing a very good job also we obviously would not be able to achieve the organic growth rates.
Josh Sullivan: We have over the last two years or theyre projected 15% organic growth rate without the confidential contract this year without getting that necessary hiring so I'd say, we're doing pretty well there is actually more federal workers available and so we are looking at hiring cleared federal workforce.
Josh Sullivan: Thank you for your time.
Josh Sullivan: Thank you.
Speaker Change: And our next question will come from Alex <unk> with Keybanc capital markets. Your line is open.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks for taking my question good morning.
Speaker Change: Okay. So I think last quarter, you had mentioned a $54 billion pipeline.
Speaker Change: Several $100 million.
Speaker Change: And some $500 million awards I apologize if I missed it but did you provide an update on this today and how it trended in the first quarter.
Speaker Change: I guess.
Speaker Change: Should we think of your 68% win rate.
Speaker Change: But sir this pipeline should we expect this to sustain or.
Speaker Change: Should we ultimately expect this to come back down to.
Speaker Change: Defense industry averages.
Speaker Change: Yes, so our pipeline is 55 billion this quarter and we have about 114 opportunities greater than $100 million 19 opportunities greater than $500 million. Some very robust pipeline. We're pleased with the win rates, we have been achieving its roughly about 100% on our break peet's and 60% on our competitive.
Speaker Change: We kind of plan to about a 40% to 45%, but I would say the team has done a great job of being able to win not just <unk>, but also a competitive business.
Speaker Change: So we will keep our same playbook.
Speaker Change: Got it okay and I appreciate the 2% Recompete exposure comment for this year, but I guess.
We're thinking about next year.
Speaker Change: I think the confidential contract was supposed to be rebid in February but did that get.
Speaker Change: Exercise early in the rebid or is that really the only major contracts as we think about 2026 recompete or are there any other larger ones we should.
Speaker Change: Youre thinking about.
Speaker Change: That's really the only major ones that we would be looking at for 2026, and we'd be estimating somewhere around 10%.
Speaker Change: So Alex the period of performance on this option year two that we're executing on right now goes February 25 February 26.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks.
Speaker Change: That is all the time that we have for questions I would now like to turn the call back over to Dave <unk> for closing remarks.
Speaker Change: 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 concludes today's conference call. Thank you for participating you may now disconnect.
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