Q2 2025 Parsons Corp Earnings Call
Good day and thank you for standing by. Welcome to the second quarter, 2025 Parsons Corporation, earnings conference call.
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I'd now like to turn the conference over to Dave spilly senior, vice president investor relations. Please go ahead.
Thanks Liz. Good morning, and thank you for joining us today to discuss our second quarter 2025 Financial results. Please note that we provide the presentation slides on the investor relations section of our website on the call with me today are Gary Smith chair, president and CEO. And Matt AIS CFO today Carrie will discuss, our corporate strategy and operational highlights, and then, Matt will provide an overview of our second quarter Financial results, as well as a review of our 2025 guidance. We then will close with a question and answer session management. May also make forward-looking statements during the call regarding future events participated, future Trends and anticipated future performance of the company. We caution you that such statements are not guarantees of future performance, and involve risk and uncertainties that are difficult to prove.
Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for the fiscal year ended December 31, 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. 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, we'll turn the call over to Carrie.
Thank you Dave, good morning. Welcome to person's second quarter 2025 earnings call.
Respectively.
This growth includes double-digit, total revenue growth in 3 of our 4, business units. With the fourth business unit growing 9% year-over-year. It also includes 8% organic growth for persons at both segments, highlighting the strengths of our balanced portfolio. Our strong hiring and retention and our alignment to Priority spending areas.
During the second quarter, we delivered 40 basis points of margin expansion to 9.4%, a second quarter record, $160 million of cash flow from operations, and achieved a free cash flow conversion rate of 151% for the quarter and 125% on a trailing 12-month basis.
We also reported a book to Bill ratio of 1.0 times for the quarter and trailing 12 months.
This continues our streak of having a quarterly trailing 12-month book to Bill ratio of 1.0 or better. Since our 2019 IPO,
Finally, we're increasing our full year Revenue, adjusted ebit on cash flow. Guidance ranges to reflect our second quarter operating performance, Chesapeake Technology, International acquisition and our outlook for the remainder of the year.
In addition to delivering solid Financial results and program execution across our portfolio. We were recognized as quarter by engineering News Record as the top program manager firm in the world.
Also persons was ranked number 2 in the Professional Services list. Number 2 on the construction management program management for feed list. And number 3 for construction management.
This global recognition is a testament to our reputation for complex program delivery.
Further. We won 3 contracts over a hundred million dollars in the second quarter with 2 of the 3. Contracts representing new work significant second quarter contract wins included a new 176 million. Single award contract by the United States Army Corps of Engineers to provide design build delivery services for an ammonium nitrate solution. Tank farm at the Holston Army ammunition plant.
A new single award contract for cyber work by the defense threat reduction agency, with the ceiling value of 138 million under this contract persons, will perform cyber assessments operations, analysis, and research.
134 billion dollar Fallon contract, oversee remediation projects on the giant mine program in Canada which is 1 of the largest mine Reclamation projects in the world.
Our critical infrastructure segment continues to thrive, as we leverage our reputation program management and design engineering expertise to capitalize on unprecedented infrastructure. Spending in both North America and the Middle East.
Overall second quarter total infrastructure Revenue grew 14% And 8% on organic basis.
In North America, total revenue grew 17% and 7% on an organic basis, as we continue to win, large new programs, execute on existing contracts and retain and hire new employees.
Contributed to second, quarter growth and are expected to grow in the second. Half of 2025, including Georgia State Route, 400 Newark are trained. Hawaii City Center, Rail and Transit, Hudson River tunnel and the I-55 Bridge replacement.
Our growth and success in North America are particularly exciting. Infrastructure spending from the IIJA is not expected to peak until 2028, with a 6 to 8-year tail after that. Plus, discussions on the next Surface Transportation Reauthorization Bill are already underway, and Secretary Duffy held a kickoff meeting.
July 17th to emphasize that America is building again.
This bill will provide more infrastructure spending once passed.
Our focus on hard infrastructure, such as roads and highways Bridges. And airports has bipartisan support. And is a priority for the administration.
Our Middle East infrastructure business, also continues to Excel. And we're the number 1 program manager throughout the region. We've operated in the Middle East for over 6 decades and have 7,000 employees in the region today.
In 2024, we generated more than 1 billion dollars of Revenue. And we expect total revenue growth of over 10% in 2025, which would Mark the fourth consecutive year with double digit organic Revenue growth in the Middle East.
Engineering and program and construction Management Solutions in the Middle East. We see this trend continuing as governments deliver their strategic Vision as well as prepare.
Is the Asian Winter Games a World Expo and World Cup?
We've expanded into the defense hospitality and Industrial manufacturing sectors with recent wins as these sectors are receiving. A major investment.
We were excited to participate in President Trump's second quarter Middle East trip, which included visits to Saudi Arabia, Qatar, and the UAE. Each of these represents significant existing work and future growth opportunities. These visits underscore Parsons' pivotal role as a premier leader in the region and our alignment with the administration's priorities.
Person's portfolio is a technology during events including a signing ceremony for 2. A for the new king salmon International Airport.
Our Middle East revenue growth is expected to accelerate in the second half of this year. As we continue our strong hiring and retention and ramp up contracts, including King Salman Park, the Riyadh Ring Roads program, the Dubai Metro Blue Line project, and the King Salman International Airport.
With significant wins and critical infrastructure, Middle East and North America. We've achieved a book to Bill ratio of 1.4 times and 1.2 times respectively, and the first half of 2025,
In our federal Solutions segment, we're excited about the growth. We're delivering in our Core Business, the significant large opportunities in our Pipeline and the funding boost to the fiscal year. 26 defense investment accounts due to the recently passed 1, big beautiful Bill, the reconciliation bill
The revenue impact from our confidential contract.
Your total and organic Revenue. Growth rates were 11% and 8% respectively.
This growth was primarily driven by demand for our Aviation cyber and electronic warfare Solutions.
We are benefiting from our exposure to large single award idiq, contracts, including our 2 sizes, General Services, Administration, FedEx and programs. The missile defense agency teams in our Airbase, air defense contract.
Having existing single-award IDIQ contracts with high ceiling values is important to rapidly deploy solutions that address near-peer threats.
In addition, we're experiencing growth on our FAA, our ammunition and defense threat reduction agency, red team programs.
These contracts are expected to continue to grow in the second half of 2025.
We're excited about the passage of the reconciliation bill on July 4th. The increase is defense spending by 150 billion dollars and adds an anticipated 25% to investment accounts for fiscal year 26.
Our federal portfolio aligns with major budget line items including Aviation modernization missile defense.
Munitions facility modernization, Pacific deterrence, border security, and more.
Persons portfolio also aligns to 10 of the 17 priority areas. Outlined the February 2025 Department of Defense memorandum which are expected to receive additional funding over the next 5 years.
We are laser focused on the budget line items that align with our core competencies and where our portfolio is well positioned with domain knowledge and leap ahead Solutions.
As a non-traditional company that was purpose built with differentiated capabilities, we have the Speed and Agility to deliver, transformational programs that achieve the administration's requirements and accelerated timelines.
The FDA.
5 billion dollars under the reconciliation Bill, to produce a new state of the art air traffic control system.
We are well positioned for the integrator contract, given our transformational approach partnership with IBM and a team that is vendor agnostic knows how to deliver Advanced Solutions understands the FAA and has strong past performance.
If we win the integrator, contract persons will gain additional FAA work and services. A single point of accountability prime contractor to ensure Mission success.
Ely bill.
Parsons has strong qualifications to address challenges that golden domes trying to solve.
We've spurred the missile defense Agency for more than 40 years and we're currently providing system engineering and integration on mda's teams next system engineering contract.
Contract. We deliver capabilities that are directly aligned to gondom such as engineering analysis and modeling and simulation on a vendor agnostic basis.
These Solutions enable the development of an integrated and and layered missile defense system to protect the United States and Allied Forces against ballistic Hypersonic cruise missile and I'm manned aircraft system threats.
Golden Doom.
Defending against Advanced missile and drone threats with Kinetic weapons such as missiles and non-kinetic capabilities such as cyber and electronic warfare. Having non-kinetic Solutions embedded within the golden dome system is a game changer since it will enable our country to defeat adversary weapon systems. Either before or after a threat is launched.
These capabilities can be used numerous times and against many types of threats while preserving valuable and costly kinetic resources.
Our port.
aligns with other major budget, reconciliation line items, including Munitions, Pacific, deterrence, border security, and more
The Munitions production budget received 25 billion dollars of funding under the reconciliation bill.
We're involved in modernizing. Several of the largest Army ammunition plants, including Holston and Bradford. Like our most recent 176 million dollar award for the new ammonium nitrate solution. Tank farm at Holston.
The Pacific ATR initiative, received 12 billion dollars of new funding.
We've been operating in the Indo paycom region for 3 decades and have significant infrastructure. Work on Guam and quadulan islands, along with important Mission, critical, cyber and electronic warfare programs in the region this quarter. We further expanded our presence by winning a counter nuclear, smuggling detection. Deterrence task order from the Department of energy for the Endo paycom region.
Finally, border security and enforcement received over $160 billion in the reconciliation bill. For decades, Parsons has worked on border security projects worldwide to improve our customers' ability to predict illicit activity, detect and track illegal border crossings, and identify and classify.
Incursions and prevent weapons of mass destruction.
We've supported the defense threat, reduction agency, Customs and Border Protection, Federal Aviation Administration, Transportation, Security, Administration and Department of energy providing engineering program management infrastructure, upgrades integrated command and control remote sensing surveillance systems situational awareness, and common operating picture systems.
Our work is performed across the United States at the Southwest border, land ports of entry, and Customs and Border Protection training facilities, and globally in countries including Armenia, Georgia, Lebanon, Jordan, and more.
We are very excited about the large opportunities in our pipeline.
That are substantial federal funding with excellent win rates over the last three years and strategic investments at Biden. Proposal activity and key personnel have positioned the company to win these large pursuits that could accelerate our future organic revenue growth for years to come.
as a result of a person's strategic business positioning, and purpose-built portfolio. These major projects are well aligned to our core competencies and we are ready to deliver the additional demand.
I want to highlight our acquisition of Chesapeake Technology International.
CTI is a developer of multi-domain Technologies crossed the invisible battle space in areas of electronic warfare cyber and autonomous systems. They enhance our position in the Indo paycom region and strengthen our relationships with Special Operations, forces and key research and development customers, including the defense threat reduction agency,
CTI's Team Awareness Kit and Tactical Assault Kit, or Attack X, situational awareness tool has been applied for border security. Disaster relief counter on demand are systems and other applications.
This acquisition meets our financial m&a criteria.
Excited to welcome them to the person's team.
In summary, I'm pleased with our second quarter results, as our Core Business continues to deliver strong total and organic revenue growth.
We expanded margins by 40 basis. Points delivered, exceptional cash flow and further position the company for continued long-term sustainable growth.
In addition, we leveraged our balance sheet and closed, another strategic accrete of acquisition,
We've now closed 1.
our Diversified portfolio and 6 growing and profitable and markets are enabling us to achieve mid to high single-digit, organic growth, across the entire company, excluding the confidential contract
We have Tailwind at both segments and financial metrics that support long-term growth and margin expansion.
Unprecedented global infrastructure spending is expected to last until the next decade.
The reconciliation bill was passed and Parsons capabilities will continue to play a vital role. As nearpeer threats become more aggressive and advanced cyber attacks increase across the US and Global conflicts persist.
From a financial perspective, we have a total backlog of nearly 9 billion dollars of which 70% is funded.
approximately $11 billion of contract wins that we have not yet booked.
A 55 billion pipeline that includes 114 opportunities of contracts worth a hundred million dollars or more and 14 opportunity worth 500 million dollars or more. And we have less than 3% of our Revenue up for repeat in the second half of 2025.
Our robust backlog.
Large scale Pursuits and excellent win rates. Provide a backdrop for persons to continue to outpace Industry. Growth rates and deliver significant shareholder value over the long term.
I look forward to our bright future, and I am proud of our more than 20,000 employees who are making a difference for our customers and communities around the world every day.
It's a very exciting time to be at persons.
With that. I'll turn it over to Matt to provide more details on our second quarter Financial results. Matt
Thank you Carrie, Q2 financials, were highlighted by strong free cash flow, adjusted, even to margins and total and organic Revenue growth. Excluding our confidential contract. In addition, we continue to leverage our balance sheet and completed another. Accretive acquisition in the Strategic National Security space that strengthens capabilities and customer relationships.
Turning to the details of our second quarter results, total revenue of 1.6 billion decreased 5% from the prior year period and was down 9% on an organic basis.
Excluding our confidential contract total revenue, growth 13% and 8% on an organic basis. Driven by growth in our transportation and Cyber Markets.
Sgna expenses for the second quarter, increased 13% from the prior year period. This increase was primarily driven by the inclusion of recent acquisitions and increased investments in bidden proposal activity and critical hires and support of our strong Pipeline and large, strategic, Pursuits aligned to the administration's priorities.
Adjusted ebita of 149 million was comparable with the second quarter of 2024. However adjusted even with the margin expanded by 40 basis points to 9.4% a second quarter record.
Our margin increase was driven by improved program performance and a creative acquisitions.
I'll turn now to our operating segments, starting first with Federal Solutions or second quarter, total revenue. Decreased 19% from the prior year period and 20% on an organic basis.
Excluding our confidential contract Q2 Federal Solutions, total revenue, increased 8% and 8% on an organic basis.
These increases were driven by growth on existing contracts and the ramp up of new task order wins specifically in the Cyber intelligence and Aviation markets.
Our confidential contract generated 106 million of Revenue in Q2 2025.
In line with our expectations.
At the beginning of the third quarter, this contract was terminated for convenience as anticipated.
Federal Solutions' adjusted EBITDA decreased 35% from the second quarter of 2024, and adjusted margins decreased 210 basis points to 8.3%, driven primarily by contract mix and investments made in Biden proposal activities and key personnel on strategic pursuits.
Moving now to our critical infrastructure segment.
And $97 million, or 14%, from the second quarter of 2024.
This increase was driven by organic growth of 8% and inorganic Revenue contributions from our BCC and TRS acquisitions.
Organic growth was driven primarily by the ramp up of recent contract, lens and growth on existing contracts in both North America and the Middle East.
We are expecting growth to accelerate in the second half of the year as new and existing contracts, ramp and strong hiring activity in the second, quarter flows through the revenue.
Critical infrastructure, adjusted ebita increased its 73% from the second quarter of 2024 and adjusted. Even the margin increased 350 basis points to 10.5%. A second quarter record for the segment.
These increases were driven primarily by improved program performance, the ramp up on recent Awards and Acquisitions to include BCC where we are seeing significant Synergy benefits both to revenue and margins.
Next, I'll discuss cash flow and balance sheet metrics.
Our net DSO at the end of Q2 255 was 60 days, consistent with prior year period.
During the second quarter of 2025, we generated 160 million of operating cash flow which is also consistent with Q2 2024.
On a trailing 12-month basis, we generated 574 million of operating cash flow, which is a Q2 record and a 17% increase over the prior 12-month period. These increases were driven by strong collections in both segments and lower tax payments.
Capital expenditures total 9 million in the second quarter of 2025 consistent with the prior year period. We expect capex to increase in the second half of the year in support of long-term growth. Partially offset by reductions in facility square footage and several locations.
For fiscal year, 2025 capex is expected to rename in line with our plan, spend of approximately 1% of annual revenue.
At the end of Q2 free cash, flow conversion was 125% on a trailing 12-month basis with an intentional. Focus on contract execution settlement of Legacy claims and improved cash management and collections.
Our balance sheet remains strong, including the impact of our all cash acquisition of CTI. We ended the second quarter with the net debt, leverage ratio of 1.5 times.
During the second quarter, we repurchased approximately 219,000 shares at an average price of 68.56 for an aggregate purchase, price of 15 million on a year-to-date basis. We have repurchased approximately 643,000 shares at an average price of 62.22 for an aggregate purchase price of 40 million.
Turning now to bookings for the second quarter. We reported contract Awards of 1.5 billion, representing a book to Bill ratio of 1.0 times on an Enterprise basis, which continued our streak with a trailing 12-month book, to Bill ratio of 1.0 or greater in every quarter since our IPO.
In critical infrastructure, we achieved a book to Bill ratio of 1.1 times which is a 19th consecutive quarter with a book to Bill ratio of 1.0 or greater.
Federal Solutions, we reported a book to Bill ratio of 0.8 times.
Our backlog at the end of the second quarter totaled, 8.9 billion a 1% increase over Q2, 20224 additionally. Our funded backlog is the highest sensor IPO at 6.2 billion a 14% increase year-over-year.
Is I'll discuss updated guidance.
We're increasing our Revenue, adjusted, Ava and cash flow guidance ranges, provided on June 2nd, to reflect our second quarter results, CTI acquisition changes to tax laws and our outlook for the remainder of the year.
We expect to total revenue to be between 6.48 and 6.68 billion.
This guidance represents total revenue growth of 17% and 13% on an organic basis. Excluding the confidential contract, total revenue is anticipated to decline 3% at the midpoint of the range and 6% on an organic basis, including this contract.
We expect growth to accelerate in the second half of the year, as we ramp on recent contract. Wins existing contracts, expand, strong hiring and retention continues. And we realize the contributions from CTI.
Adjusted ebit is now expected to be between 595 and 635 million with a margin of 9.3% at the midpoint of a revenue and adjusted Eva guidance ranges.
This represents adjusted ebit. The margin expansion of 30 basis points from 2024 and in 80 basis point increase since 2023,
Operating cash flow is now expected to be between 400 and 440 million given strong, Q2 performance, and the cash tax benefit related to the reconciliation bill.
Other key assumptions, and connection with our 2025 guidance, including quarterly cadences are outlined on slide 11 in today's PowerPoint presentation located on the investor relations website.
Back over to Carrie thank you. Matt, during the second quarter, we delivered significant growth in our Core Business, 40 basis points of margin expansion.
Exceptional cash flow and free cash flow conversion and completed a strategic acquisition by maintaining our strong balance sheet which will enable us to make future creative acquisitions.
We're optimistic about our future, given our team's proven execution. The Tailwind we have in both segments are large total and funded backlog, and the robust pipeline of large opportunities we have to pursue with that. We'll now open the line for questions.
As a reminder, if you'd like to ask a question at this time, please press star 1 1, 1 on your touchtone, phone and wait for your name to be announced to withdraw your question. Please press star 1 1 1 again.
Please stand by while we compile the Q&A roster.
Our first question comes from Toby, Somer with truist.
Thank you. Um, good morning. I wanted to ask about, uh, the opportunities in front of the company.
Took over the near to medium-term with respect to golden dome.
And, uh, the the very large FAA procurement, could you just, uh, discuss, how you're pursuing those? And I, I know that that we've heard that the FAA, uh, procurement is, is sort of fluid or soliciting a lot of advice. And it's not yet determined kind of how that path will proceed. But is there a, uh, sort of an optimal way that that could proceed from your perspective?
Yeah, thanks, Toby. I appreciate the question, and thanks for joining the call. Today, we're very excited about the FAA program. Fortunately, we have supported the FAA for nearly five decades and have excellent past performance. We've done a lot of the infrastructure and facilities work. We've put together a very strong team to pursue the FAA integration contract. What's going to be important in that contract is making sure that you have a company that knows how to deliver. Parsons is the number one program manager in the world, per Engineering News Record, and we've partnered with IBM, a very strong technical partnership. We feel that we're very well ready to take on the single point of accountability integration role and provide the FAA with a safe and reliable system that also transforms for the future.
That's uh, 12.5 billion of funding. And the reconciliation Bill were anticipating a request for solicitation sometime soon. They had hoped to make an award by the end of September, but that's really now dependent on the timing of the request. First solicitation under golden, um, um, that's, uh, 25 billion of reconciliation funding and both of these. By the way, the FAA, and golden dome are both projected to receive more in the future on. FAA, they indicated they need about 31.5 billion and for the golden dome they've indicated, they need about 175 billion for the total contract.
It's a very similar to fa. We're extremely well.
For 4 decades, providing system Engineering in in integration capabilities, along with modeling, simulation and Analysis capabilities. We have a current contract vehicle. It's worth 2.2 billion dollars on that vehicle. We still have a billion dollars remaining so that can be used to get golden dome kickstarted right away. In addition to that, we also have non-kinetic capabilities as I mentioned, uh, during the script that we think are very novel and unique, uh, to counter threats on a non-kinetic way.
I'd also highlight again under the uh, bill because I really excited about the reconciliation Bill and how well aligned our portfolio, the Munitions budget of 21 billion. So it will continue to expand beyond our current uh, capacity that we have at Holston and Bradford and then the border security funding of 160 billion. That's really going to leverage our Decades of experience all over the globe and providing border Security Solutions. Yeah, so the only thing I would add and carry kind of commented on it but on the existing idea IQ Vehicles between those uh you know those 2 areas with MDA and Fa we have almost 3 billion dollars worth of ceiling remaining so just great opportunity to you know move on existing vehicles or new. So it's a really great opportunity on both for us.
A bigger than normal seasonal, ketchup for the industry and yourselves.
Point out Toby is for the Federal Business as the strongest quarter. Um within critical infrastructure. Obviously we've had 19 consecutive quarters greater than 1. No booked a bill orders. Can be lumpy, I always like myself to look at the revenue growth. I think where we've done a tremendous job in our federal business is driving task orders onto that. 11 billion of unused sealing that has been awarded to persons that we haven't yet. Put into bookings. I was glad this quarter on the Federal Business that we did. See, 2 new large Awards, move forward. The whole stand, the defense threat reduction cyber but we are anticipating a 1.0 booked, the bill for the full year um for both CI. And for federal and expect Q3 will be a stronger quarter.
Thanks.
Our next question comes from Andrew Whitman, with beard.
Great. Good morning. And thank you for taking my questions. Um, I guess Carrie, I thought I would just uh, check in here. Uh, and get your comments on uh, how the 1? Big beautiful Bill, uh, which obviously, you've articulated the the aspects in the federal side. Can you talk about how it might impact? Um, your infrastructure side, um, particularly as it relates to the state
Local budgets that are out there and how they might be affected if you're hearing anything from your customers. Uh on that side of the house um of how the the bill might impact them.
Yes, so I think Andrew the biggest thing I'd say is we're aligned with the administration's and bipartisan priorities. There's going to be a shift from soft infrastructure areas like climate change, Renewables electrification over to hard infrastructure which road and highways Bridges airports. And those are the areas where persons portfolio is very well aligned. We're also super excited about you know the next 5 year, uh surface Transportation, reauthorization, Bill kicking off. And we expect uh, you know, additional funding to come through that bill when you're looking at the current iija, not peaking until 2028, 68-year tail. Overlaying a new Surface Transportation Bill and then a shift in funding from soft to hard targets infrastructure. That really benefits persons.
Got it.
Okay, and then just my follow-up from that easy.
Here. But um just the guidance increase uh, at least here on the income statement, it looks like it's mostly the the the contribution of the incremental acquisition that you did in the quarter um that it looks at the income statement for the company for the quarter was mostly in line. Is that the correct way of thinking about the the guidance increase, or is there some other Nuance there that we should be aware of?
Yeah, I know and it's CTI is a big contributor 30 million to the Top Line and then 5 million in the bottom line. A little bit more aggressive on the bottom line, given the outperform first half. So a little bit of that is organic on the cash flow side. It's mainly organic. So the the big effect was the um R&D tax credit. So we got almost $20 million worth of benefit from the um reconciliation bill on the on the R&D tax credit so that flowed through the cash and and but the other the top and bottom line were all CTI mainly
Okay, thank you very much.
Thanks Andy.
Our next question comes from Sheila kyoo with Jeff.
Um, good morning guys. Uh thanks so much and thanks for mentioning Armenia in the script. I don't think I've heard that before, so appreciate that. Um maybe we could just talk about uh the organic growth Outlook a little bit more Carrie. Um, you know, how do you think about the puts and takes? It seems like we're down a point to 6% organic. Um, given CTI contribution, how do we think about the second half contributors uh, playing into that in the and and the ramp up?
Yes, so excluding the confidential contract. Uh, we're going to grow 18% organic in the second half.
And that breaks out. Um,
Let's see that would end up being.
Engineered systems. Faaa Holston ammonium, nitrate defense threat reduction red, team United States, Postal Service, and defense and intelligence. Uh, the missile defense agency, teams contract, GSA fedsim additional, uh, sealing tech product sales, Airbase, air defense. I think what's important is, you know, we do have our July results. They were very favorable and they're on track to achieve the back half acceleration. We also had in July record hiring within the Middle East, so, quite excited. I think we've got industry-leading organic growth in both segments.
What changed to cut the core by 1 point since your last update? And then my second question, if I can squeeze that into you, just once the eye; the performance has been quite stellar—10.4% margins year to date. Just any update on the programs that previously faced supply chain challenges?
Yeah, shell I can start off with the 5 to 6%, actually. It's it's really just rounding. It was 5.4 went to 5.5, so there's really nothing more behind that. The court, the organic Revenue stayed constant. It was just the contribution from CTI changed the base. So so just, uh, no, no implied. Delta on the organic. So, here you want to cover CI, um, critical infrastructure margins. So what's been good on critical infrastructure is really program execution. The team's done a very good job, this year of just executing, we've always indicated that the long term margins for critical infrastructure should be double.
Digit. And that's what we're saying. So, I'd say continued program, execution. Uh, we're seeing demand much greater than Supply, uh, both in North America and in the Middle East, double digit growth within those. Um,
And those are the margins long term that we would expect to deliver.
Awesome. Thank you.
Thank you, Michelle.
Our next question comes from Noah papaak with Goldman Sachs.
Hey, good morning, everyone.
Matt, what's the um second half?
um,
Federal Solutions, organic X confidential.
that's now in the guidance because just looking at the slide you have that shows that um,
confidential was still just over a hundred million in the second quarter. If I take that out sequentially,
Um it it looks like a bit of a lift to to overcome that sequentially. I unless you know, seasonality is in your favor or if there's a uh acceleration kind of everywhere else.
Yeah, no, you're right. No, uh, fed, uh, organic growth in the second half is expected to be just north of 20%. So, uh, a little bit better than the first half, which was closer to high single low double digit. We’re seeing really strong growth on programs we have some key deliveries on. The FAA ramp that Carey talked about, MDA is growing, and we have some product deliveries within the SealTec acquisition we’ve done. So we see really strong demand across the portfolio on the federal side. Uh, but to your point, it is going to expand in the second half of the year and also the new business wins we highlighted with host and the Defense Threat Reduction Agency. I go back to our July results; they are right in line with our plan.
Yeah, Carrie I guess. Um,
you you've cited a a number of
specifics for the basis for that, but
Um from a top-down perspective I I guess. Do you how much risk is there just in the slower Contracting environment that we're in?
to assume double the growth rate in that business in the back hours, the first half,
So the most important thing is uh those are largely contracts that have already been awarded. And we're ramping up which we've been accelerating throughout the year. Faz a real good example of that, um, which we've seen strong, um, outperformance over last year. So I would say a lot of that is 1.
We also have the 11 billion of awarded not booked that is predominantly in the federal area and we've done a great job of driving task orders over to that.
Slower. But I'd say we're optimistic that it is starting to pick up. Um, I look at the amount and the volume of proposals that we've been submitting; it's right in line with what we would expect. And it's great to see some of these large new awards come through this quarter.
Okay and it sounds like you're saying you're able to say right now that July I mean it's 1 month but July at least is tracking to that direction all plan.
To achieve the back half acceleration.
Okay great. Um just the last 1 for me the the the federal Solutions margin has come down. Um,
you know, how much was confidential, helping that margin and and maybe you can just
Was there anything abnormal in the quarter or or where does that go in the back half? Uh, from here?
Yeah. So now as you point out, the biggest driver, of course, was the lower volume on our confidential contract that came down about 250 million year-over-year. Fixed price, contracts obviously are creative. So, the impact from that, put a damper on the on the margins, but in addition to that, I think Kerry mentioned in our script, but it was a, you know, we had some additional spend from a B&P perspective, back to the expanding, um, you know, capture environment, and some strategic hires that we put in place ahead of expected Awards. So, those 2 things are the Big Driver to the FED margin for the quarter for the rest of the year. We expect fed margins to be kind of in the low 9% range to get back up near 9% for total year. Uh, we have some incentive fees timing in the second half. We've got some product sales as I mentioned before and then operating leverage as you see the outpaced revenue growth. You'll start to see the margins Trend back up as well. So those are the big drivers for second half. I think long term Toby, we're kind of in the, you know, we're happy in that kind of low to mid 9s, given the the breadth of the portfolio and the amount of
Cost type work, we do, that's kind of more on the front end R&D focused. And so all in all happy with the, you know, where the Investments are going and, uh, and long-term outlook for the FED margins.
Okay, thanks so much.
Thanks. Thanks.
Our next question comes from Mariana, Perez, Mora with Bank of America.
Hi, good morning. This is Samantha Styer on from Ariana
Hey Sam. Good morning.
Um,
Sticking with the uh, FS margin you highlighted strategic, uh, Personnel hires. Um, so with that, how has the hiring environment been and then how, or what is your ability to move people within the company, um, around to these kind of high priority areas?
Yeah, thanks for the question hiring environment's been very strong and also the retention. Our retention is the best that it's been since 2020. Um, and we do have a great ability to hire. I think really is a result of our mission focus and our culture people want to come to Parsons our ability to win, you know, with strong win rates of 72% this year of similar to what we've delivered in the last 2 years. We're winning these great new exciting projects. We do have an ability to move people around. We have kind of a common program management pool of people. We have an engineering design group of people. And I always like to highlight somebody who today Works in internal audit.
That's the person that worked in federal or worked in critical infrastructure worked in North America worked in the Middle East. So she's kind of been all over the company and I think we do a great job at that and giving people new experiences and development opportunities.
Great. Thank you. I'll keep it at 1.
Thanks man. Thank you.
Our next question comes from Gotham Cana with TD Cowen.
Yeah, thanks. Good morning.
Morning.
Was wondering if you could uh elaborate on the the unbooked. Backlog, if you will, I think it changed by a billion dollars in the quarter.
Maybe you touched on it and I missed it. But
12. No sure 11. Yeah thanks yeah sure. So it's it's um
Listen for the confidential contract, so we obviously have removed that then we've done exactly as we indicated, which is driven task orders on to some of our idiq vehicles. So it came down slightly because of that. And that's again our full intention.
Okay.
And um, maybe did you guys comment on what your outstanding bids are as of the end of the quarter?
We have um, 6 billion, uh, awaiting notice of award, we have a 55 billion pipeline.
Okay. And um, is there any risk to the second? You mentioned. You've booked a lot of this stuff already that
that it gives you confidence in the second half ramp. But, uh, is there any sort of
Change in the funding environment. You know, the funded backlog that um
Is that you have seen that raises any risks to that outlook or.
Does that look all well aligned at this point.
Our funded backlog is the highest it spend at seven 8% so very strong.
Fundings coming in in line cash is paying clean so I'd say all in all we are we're looking pretty good government.
Terrific. Thank you.
Thank you.
As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone phone.
Our next question comes from Jonathan <unk> with Stifel.
Hey, good morning Kary.
Thanks for taking my question.
Got it.
So maybe just a bit more on the second half ramp.
Federal solutions.
Thank you.
Optically struggling is looking at the backlog.
Sequentially down with your expectations of higher growth when I look at your remaining performance obligations.
In power solutions at an all time high up double digits.
That's consistent with your confidence, but I just wanted to.
See if that indicated.
That's the right interpretation of it or whether that's being distorted by Chesapeake or at all thank you.
Yes, no real distortion from Chesapeake I think youre right between repo and funded backlog are starting to see really strong next 12 to 18 months I'd say.
It helps us build the confidence we see.
The timing on the awards the ramps the milestone deliveries there's a lot of things that are all to help us build confidence obviously, 20% of the sporting number but Gary and.
Fully committed and where we're going to deliver and again our funded backlog is up 14% so very strong.
Okay.
Okay.
I appreciate it guys. Thank you. Thank you.
Our next question comes from Louie Dipalma with William Blair.
Gary Matt and Dave Good morning.
Good morning, Louis Good morning Louis.
Carey you discussed the strong second half drop or I think seven large U S infrastructure programs for these programs, while the revenue trajectory take the shape.
Bell curve and does that peak.
Funding for these programs should it present ball general peak funding for II JA I think you mentioned that there should be.
Funding should increase.
Through 2028.
Now we should assume.
The revenue trajectory for these programs.
Yeah. So it really varies let me just give you two specific examples Georgia State Route 400 were part of a public private partnership where the design engineer. So what Youll see is most of our work at the very beginning of that project. Another example would be the Dubai Metro Blue line, whereas a.
Manager. So in that instance, we will provide program management capabilities throughout that entire contract at a steady state. So it really depends on the type of work or performing on each contract. Another example in the U S that had some rubber tunnel, which is the largest rail and transit infrastructure project in the U S.
We're the program manager on that so it will be on for that entire duration.
Oh, Okay, I guess as a whole for the program.
Would there be difficult comps in 2028 or 2027 four.
The ones that are front end loaded or how should we think about.
Yeah, no because we continue to win new business, so 19 consecutive quarters greater than one book to Bill.
<unk> still coming out larger than we've seen in both North America and the middle East.
Not even at our peak, yet where the funding has been outlaid Aldo the IHA, a and then adding a new surface transportation bill on top of that.
Well like I said, we'll continue to win projects and again very proud of the fact of where we've moved up on engineering news record ratings to be number one now on program management a world.
Great Okay and.
And.
Or the.
The confidential contract was there any any breakup fee or should we or should we assume zero revenue in third quarter or how should we think about that.
Yeah. So for that contract, we did a $181 million in Q1 of $106 million in Q2, So 286 billion consistent with our guidance that we updated on June 2nd we are in the process of negotiating a demobilization contract line item for the wind down of the project, it's not yet negotiated.
But we expect it to be very scaled back and immaterial less than 1% of revenue.
Okay, Thanks and.
Is it possible.
Matt could you provide the.
The quarterly <unk> for the confidential contract for.
Third quarter and fourth quarter of last year.
Okay.
Yes.
So we didn't really give a solo you'll remember we had some complexities with the customer differently given the total scale of the contract so I would say Q.
Give you a directional Q2 and Q3, where the peak Q4 was lighter and so I would say this kind of Q2 numbers was a little bit bigger in Q3, and then Q4 is lower.
Great and then one final one earlier this week.
Terry Matt you announced a satellite communications partnership with Globalstar to bring services to Europe.
What does that partnership.
In town the reason I'm asking.
And.
Everybody on the call I'm aware, there has been significant GPS jamming attacks.
Europe with the.
The conflict and so does your globalstar partnership provide.
Any type of alternative position navigation and timing services to help alleviate that.
Jamming attacks.
Yes, great question, the way and that's exactly what it does we partner with global startup, we've got a very innovative solution and it takes our Parsons proprietary software defined satellite communications technology, and a great set with global stars lower orbit satellite constellation and we developed it specifically.
<unk> to target complex in congested areas as youre, referring to in Ukraine.
We think that this partnership is going to unlock previously impossible mission critical solutions.
And provide unique and responses for assured PNT within radiofrequency congested environments and also set a new standard for global communication services in complex and challenging operating conditions, we did deploy the system at three different locations across the theater.
It is active within a conflict scenario and we were very pleased with their performance results. We're now looking at how we expand that ended don't pay com and other areas.
Excellent.
Potentially bring into other geographies as well.
Yes.
Yes.
Thanks, Gary Matt and Dave Thanks, Alright, great.
That's all the time, we have for questions today I'd like to turn the call back to Dave <unk> for closing remarks.
And thanks again for joining this morning, if you have any questions. Please don't hesitate to give me a call and we look forward to catching up with you over the coming weeks and with that we'll end today's call have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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