Q3 2025 Parsons Corp Earnings Call
Speaker #2: Good day everyone and welcome to the third quarter 2025 PARSONS CORP Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #2: After the speakers presentation , there will be a question and answer session . To participate , you will need to press star one and one on your telephone .
Speaker #2: You will then hear a message advising your hand is raised . To withdraw your question , simply press star one one again . Please note this conference is being recorded .
Speaker #2: Now it is my pleasure to turn the call over to the Vice President of Investor Relations , Dave Spiel . Please proceed .
Speaker #3: Thank you . Carmen . Good morning , and thank you for joining us today to discuss our third quarter 2020 financial results . Please note that we provided presentation slides on the Investor Relations section of our website .
Speaker #3: On the call with me today are Carey Smith chair , president and CEO . And Matthew Ofilos CFO . Today , Kerry will discuss our corporate strategy and operational highlights .
Speaker #3: And then Matt will provide an overview of our third quarter financial results , as well as a review of our 2025 guidance . We then will close with a question and answer session .
Speaker #3: Management may also make forward looking statements during the call regarding future events . Anticipated future trends and the anticipated future performance of the company .
Speaker #3: We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict . Actual results may differ materially from those projected in the forward looking statements , due to a variety of factors .
Speaker #3: These risk factors are described in our form 10-K for fiscal year ended December 31st , 2024 and other SEC filings . Please refer to our earnings press release for Parsons complete , forward looking statement disclosure .
Speaker #3: We do not undertake any obligation to update forward looking statements . Management will also make reference to non-GAAP financial measures during this call , and we remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures .
Speaker #3: And now we'll turn the call over to Kerry .
Speaker #4: Thank you . Dave . Good morning . Welcome to person's third quarter 2020 earnings call . This quarter we continued to deliver strong performance in a dynamic global environment .
Speaker #4: As an advanced in differentiated technology leader that's aligned to the administration's and global priorities and national security and infrastructure , our portfolio is strategically positioned to continue to capitalize on long term macro environment trends .
Speaker #4: In addition , we operate with speed in delivering operationally relevant solutions at a time where our customers need companies that can deliver rapid results .
Speaker #4: During the quarter , we continued to achieve industry leading organic revenue growth , excluding our confidential contract , significantly expanded our adjusted EBITDA margins , exceeded our cash flow expectations and won strategic contracts .
Speaker #4: In addition , our win rates and hiring retention remain strong and we completed another accretive acquisition after the quarter ended in the fast growing and profitable water market that strengthens our capabilities and enhances our Florida presence .
Speaker #4: Turning to our third quarter financial results . Our adjusted EBITDA , adjusted EBITDA margin and cash flow results exceeded our expectations and our total and organic revenue growth rates , excluding the impact from our confidential contract , remained strong at 14% and 9% , respectively .
Speaker #4: This includes 18% total revenue growth in critical infrastructure and 9% in federal solutions . This strong growth in both segments highlights the strength and synergies of our diversified portfolio .
Speaker #4: Our strong hiring and retention . The successful integration of our acquisitions and our alignment to priority spending areas . During the third quarter , we also delivered 60 basis points of margin expansion to 9.8% , $163 million of cash flow from operations and reported a book to bill ratio of 1.0 times for the quarter and trailing 12 months .
Speaker #4: This continues our streak of having a quarterly trailing 12 month book to bill ratio of 1.0 times or better since our 2019 IPO .
Speaker #4: Finally , we are reiterating our 2025 adjusted EBITDA and cash flow guidance ranges at the midpoint , and we're modifying our revenue outlook to reflect .
Speaker #4: Reflect , delays and sole source task order awards , products and material procurements . In addition to delivering solid financial results . We won for contracts over $100 million in the third quarter , with two representing new work .
Speaker #4: Significant third quarter contract wins included a new large ten year single award task order contract is an exclusive subcontractor for design and modernization on the Holston Army Ammunition Plant .
Speaker #4: Government owned contractor operated contract . We booked $50 million on this contract during the quarter . This win continues our success of winning industrial base upgrades .
Speaker #4: As per the $18 billion modernization plan , and is our fourth contract win supporting the Army customer . That's valued at more than $100 million , a six year , $133 million authorization to continue serving as a lead designer for the Georgia State Route 400 express lanes .
Speaker #4: This project will add new express lanes and use state of the art traffic incident management and digital twin systems as a tier one focus state for persons .
Speaker #4: This expands our Georgia Department of Transportation presence, with the State of Georgia expected to spend more than $20 billion over the next five years.
Speaker #4: We were awarded two new multi-year single award defense and Security contracts by Midwest Government customers . One contract valued at more than $100 million , represents new work to lead the design , review and project , and construction management of national security infrastructure .
Speaker #4: While the second contract is designed , border security infrastructure and facilities . These contracts reflect the strength of person synergistic portfolio and our ability to bring comprehensive national security , critical infrastructure protection and program management capabilities to our Middle East and critical infrastructure customers .
Speaker #4: And during this quarter , we booked $107 million for these two contracts . MPA Delivery Partners , a joint venture of three companies , including Parsons , is the managing partner , was awarded a $665 million , four and a half year contract extension by the Gateway Development Commission to continue managing the successful delivery of the Hudson Tunnel project .
Speaker #4: This project will build a new two tube rail tunnel under the Hudson River and rehabilitate the existing 115 year tunnel , as well as nine miles of new passenger rail track between New York and New Jersey .
Speaker #4: We were awarded an $88 million task order under the air Base Air defense contract . Parsons will provide integration upgrades , procurement and training across the Europe and Africa areas of responsibility for the United States Air Force , this contract includes a one year base period and two one year option periods , and we booked $82 million during the quarter .
Speaker #4: For the first nine months of 2025 , we've been awarded over $190 million in task orders on this idea . Ike vehicle , air base , Air defense is increasingly important around the globe .
Speaker #4: The safeguard military operations and Parsons is an industry leader in this domain with innovative solutions designed to rapidly detect alert , deny or defeat threats ranging from low cost unmanned vehicles to sophisticated hypersonic weapons .
Speaker #4: Parsons was also awarded three contracts with a collective value of $23 million. These wins span both our federal solutions and critical infrastructure businesses, and expand our portfolio in the highly strategic and rapidly growing PFAS market.
Speaker #4: Year to date , we've won nearly $70 million in PFAS contract awards and the PFAS market represents a $40 billion addressable market for Parsons , these wins represent revenue synergies with our tres Group acquisition .
Speaker #4: In addition to these large and important wins , we continued our successful track record of acquiring strategic companies and high growth markets that strengthen our portfolio and have revenue growth in adjusted EBITDA margins of 10% or more after the third quarter ended , we acquired applied Sciences Consulting , a Florida based engineering firm that specializes in water and stormwater solutions for cities , counties and water management districts across the state .
Speaker #4: Water is our fastest growing and most profitable market within our North America infrastructure business unit . This acquisition positions us to capitalize on Florida's significant investments in water infrastructure resiliency and quality .
Speaker #4: We continue to deploy capital across both business segments to take advantage of the significant tailwinds in our markets and four of our last six acquisitions have been in our critical infrastructure segment during the quarter , the company was recognized as one of the world's best companies by time and one of the best led companies by Glassdoor .
Speaker #4: We're particularly pleased with the Glassdoor rating since we were selected by our employees . Parsons also received the prestigious Diamond Award in the structural Systems category from a New York for our work on the Brooklyn Bridge Rehabilitation Project .
This bill is expected to provide additional budget for increased us infrastructure, spending, our Middle East infrastructure business. Also continues to excel our more than 60 year history in the region outstanding reputation and Saudi joint venture has positioned us as a trusted partner to our customers and as a competitive advantage in the region,
We see significant demand for our engineering and program Management Solutions. The region as governments. Implement their strategic visions and prepare for upcoming world events.
In addition, our expansion into the defense security hospitality and Industrial manufacturing sectors. Has contributed to our recent growth as these markets are receiving major Investments.
in federal Solutions, Parsons has a strong position and differentiated capabilities and Yves and modernization integrated, air and missile defense, space superiority counter and air systems cyber operations, electronic warfare, industrial-based modernization and border security
With a strong alignment, the administration's priorities and budget persons is well positioned to immediately capitalize on opportunities in these areas.
In summary. I am very pleased with our strong execution. We continue to deliver industry-leading growth with 14% total revenue growth, and 9% organic growth, excluding our confidential contract
We expanded margins by 60 basis points. Exceeded our cash flow expectations
1 defense contracts in the administration's priority areas and our critical infrastructure statement continues to hit on all cylinders by delivering double digit, organic Revenue growth and adjusted ebit on margins. Our win rates and hiring and retention remains strong. And we continue to leverage our balance sheet for strategic accretive acquisitions.
we also have total backlog of nearly 9 million of which 72% is funded approximately 11 billion dollars of contract wins that we have not yet booked
a 58 billion pipeline that includes more than 115 opportunities of contracts. Worth a hundred million dollars or more and 15 opportunities worth 500 million dollars or more.
We believe our healthy forward-looking metrics, strong, operating teams and Industry Tailwinds. Physicians us to outpace Industry. Growth rates.
And continue to deliver significant long-term shareholder value with that. I'll turn the call over to Matt to provide more details on our third quarter, Financial results. Matt
Thank you, Carrie 233 financials were highlighted by strong Revenue growth. Adjusted even the margins in free. Cash flow ahead of expectations. In addition, we continue to leverage our balance sheet and completed. Our third, accretive acquisition of the year in the Strategic Water Market.
Turning to the details of our third quarter results, excluding our confidential contracts total revenue grew by 14% And 9% on an organic basis.
These increases were driven by double-digit growth in our critical infrastructure. Protection transportation and Urban Development markets.
Total revenue, including the confidential contract decreased 10% from the prior year period and was down 14% on an organic basis.
SG&A expenses for the third quarter increased 6% from the prior year period. This increase was primarily driven by the inclusion of recent acquisitions and focused investments in Biden proposal activity and critical hires in support of our large, strategic pursuits and pipelines, aligned to the administration's priorities.
Adjusted ebit to margin.
Expanded 60 basis points to 9.8% driven by improved program performance and a creative acquisitions.
Adjusted EBITDA of $158 million decreased 5% from the prior year period, driven by the revenue decline on our confidential contract.
This increase was driven by organic growth of 13% and inorganic Revenue contributions from our BCC and TRS acquisitions.
Organic growth during primarily by the ramp up of recent contract wins and growth on existing contracts in both North America and the Middle East.
Critical infrastructure, adjusted ibitta increased 83%. From the third quarter of 2024 and adjusted ebit to margin increased 360 basis points to 10.3%.
These increases were driven primarily by improved program performance, the ramp up a recent Awards and our accretive BCC acquisition.
Moving to our federal solution segment, where third quarter Revenue increased 9% and 5% on an organic basis, excluding our confidential contract. These increases were driven by growth in our critical infrastructure. Protection transportation and space and missile defense markets.
Total federal Solutions Revenue, including our confidential contract decreased 29% from the prior year, period and 31% on an organic basis.
Federal Solutions' adjusted EBIT decreased 40% from the third quarter of 2024, with an adjusted EBIT margin of 9.2%.
The adjusted ebit that was primarily impacted by lower volume on the fixed price confidential contract.
Next, I'll discuss cash flow and balance sheet metrics.
Our net DFO at the end of Q3 2025, was 62 days and 11-day an 11-day increase from the prior year period, but still favorable to long to historical averages.
This increase was primarily driven by lower volume on our confidential contract and the timing of collections in the Middle East.
During the third quarter of 2025, we generated 163 million of operating cash flow, which was better than expected and drove free cash flow conversion of 135% for the quarter.
Capital expenditures total to the 13 million dollars in the third quarter relatively consistent with the prior year period.
For fiscal year, 2025 capex, is expected to remain in line with our plan, spend of approximately 1% of annual revenue.
Our balance sheet remains strong, and we ended the third quarter with a net debt leverage ratio of 1.4 times.
During the quarter, the remaining 85 million, balance on the 2025 convertible, senior notes was settled with cash on hand.
Additionally, we repurchased approximately 323,000 shares in Q3 at an average price of 77.36, for an aggregate purchase price of 25 million.
Honey here today basis, we were purchased approximately 966,000 shares at an average price of 67.28 for an aggregate purchase price of 65 million.
Turning next to bookings.
For the third quarter, we reported contract Awards of 1.6 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 of 1.0 times or greater in every quarter since our ipf.
Critical information. We retrieved a book to Bill ratio of 1.1 time which is the 20th consecutive quarter with a book to Bill ratio of 1.0 or greater.
In federal Solutions, we reported a book to Bill ratio of 0.8 times.
Our backlog at the end of the third quarter, total of 8.8 billion, a 1 over Q3 2024, the additionally, our funded backlog is the highest since our IPO at 6.4 billion. The 10% increase year-over-year.
In terms of our guidance, we are reiterating the midpoint of adjusted ebta and operating cash flow. However, we are updating Revenue guidance to reflect the impact of Federal customer capacity, constraints impacting timing of Soul Source task order Awards, products and material procurements, and the inability to recover in Q4 due to the extended government shutdown.
We expect total revenue to be between 6.4 and 6.5 billion.
This guidance represents total revenue growth of 14% and 10% on an organic basis, excluding the confidential contract.
Including this contract total revenue is anticipated to decline 4% at the midpoint of the range and 8% on an organic basis.
Adjusted, if it's a remains between 600 and 630 million.
At the midpoint of our revenue and adjusted Eva guidance ranges are margin, increase to 9.5% from 9.3% this represents adjusted even to margin expansion of 50 basis points from 2024. And a 100% point, a 100 basis point increase since 2023.
Operating cash flow is expected to be between $380 million and $460 million.
While the midpoint remains the same, we did want to widen the range to incorporate any potential impacts from the extended government shutdown.
Other key assumptions. And connection with our 2025 guidance are outlined on slide 11. In today's PowerPoint, presentation located on our investor relations website.
That I'll turn the call back over to care.
During the third quarter, we delivered double-digit revenue growth, excluding our confidential contract, 60 basis points of margin expansion, and free cash flow conversion of 135%. We completed a strategic acquisition while maintaining our strong balance sheet, which will enable us to make future accretive acquisitions.
We remain optimistic about our future, giving our teams proven execution. The Tailwind we have in both segments are strong 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. Thank you so much. And as a reminder to ask for questions, simply press star, 1 1, 1 and wait for your name to be announced to remove yourself press star 1. Again, please stand by for our first question, please.
Calm, Jane with Kibbie band, Capital markets, please proceed.
Great, thank you. Good morning and thanks for taking my questions. So um, Carrie and my just, it looks like there was some revenue from the confidential contract in 3Q. I know it was a much smaller number than the previous run rate. So I was kind of wondering if there there was some included in your 4 q guide as well or if you're still presuming that it's going to be zero.
Yes. There was some Sunita good morning to you. Also, by the way, there was some Revenue included in our third quarter guidance. At this point, it's very small and immaterial the program is um in a wind down state. So we're basically demobilized
Um got it. And on cni margins um it's 3/4 in a row now that you've done 10% plus margins, I know you were expecting a softer second half as you close out some Legacy projects. So kind of just want to get some more color on. What may have driven the 3Q strength and if you should expect a 10 to 10 and a half percent of the new run rate heading into 26,
Points for structure has had outstanding program execution. We'd always indicated that we expected this business to be double-digit margins. And we weren't sure how quickly we could get there. And obviously, we've had, um, 3 consecutive quarters to your point. So, I would say continuing that solid execution looking forward. We've got some higher margin business, that'll be coming in. As we have been winning, some new bids based on the demand that's out there. Both in North America, as well as the Middle East. And then any Acquisitions that we do are going to be a great as, as well. Yes. And get to give some numbers on a year to date basis. To your point CI, is at 10.4%. It's a really great performance out of the CI business Q4 we have modeled in kind of the high high 9's, low 10's for a total year.
In kind of the low tens as I, as I mentioned. But uh, again it's curious Point really. Strong margins out of the CI business, north of 10 through the year. And so really excited about the stability throughout the calendar year.
Got it. Appreciate you. Taking my questions.
Thank you. Our next question is from Andrew Witman with beard. Please proceed.
Yeah, great. Good morning and thanks for taking my questions. I wanted to ask about the Top Line, uh, here in the quarter and in the fourth quarter guidance. Um, I think maybe it was a little bit lighter than you expected in the third quarter. I was wondering if you could carry talk about, uh, what, what was the variance there and then just as it relates to the fourth quarter guidance, I heard your comments in the in the prepared remarks, you talked about the federal c c customer capacity, some things about the material. I, I just thought maybe you could elaborate on on some of that.
When you talk about like em materials procurements, was that like you couldn't procure because the government was shut down, or was there something else behind that when you talked about customer Federal customer capacity is that, is that again, shut down related? Or is there something else behind it? I think just understanding, um, kind of what's, what's changing or what you're seeing in the Top Line performances and is important topic for today.
And so we wanted to make sure that we were going to achieve our guidance. So, setting up for the rest of the year, we had to assume that the shutdown may last as long as until the end of the year.
And and I'll just add, you know, if I look at fed and I'll talk excluding the confidential contract, you know, call it the Nish percent growth for Q3 we are we are forecasting about 15% for Q4. So to car's Point, some was a slide to the right from Q3 to Q4. We do expect acceleration in Q4 just with the government shutdown, the timing on task order Awards, approvals on material purchases, things like that. All those things are are kind of impacting our ability to recover before the end of the calendar year, but should be first half next year.
Got it.
Um, okay, great. And then, I guess, uh, from my follow-up. I wanted to just drill in and get a little bit more care from you on FAA. Um, obviously the government is shut down this, this 1 not only had a October 31st, uh, award, uh, Target dates, obviously, the government controls that and, and can slide. But I was just wondering, um, you said evidence on the call, like, are, are the Contracting Personnel at the FAA on staff, is their dialogue happening there? Um, what what can you tell us a little bit more detail on on, on that 1 in particular.
Yeah. Fortunately, uh, the FAA brand new air traffic control system is not impacted by the shutdown and an award is imminent this program. Again, um, is going to use the 12.5 billion, uh, funding. That was, um, awarded under the reconciliation bill. This is a critically important program to our country. We need to improve the safety reliability, redundancy, and efficiency of the national airspace system. And in parallel, we have to transform that for the future. Um, I feel that our team is offered a very compelling offer, uh, persons again, is the number 1 program manager ranked by engineering news record. This is the type of work we do for a living. We partner with IBM as our strategic technology partner and both, we and IBM have very deep system. Engineering expertise. We also have the right team and a team that knows the FAA and has excellent past performance, with the FAA. I mean, our motto has been right team, right time, we're ready now, we certainly look.
Forward to partnering with the FAA on the spray new air traffic control system and achieving the results by December 2028.
Got it. So just just as an addendum to that then I think in the past you've talked about like the dollar amount of awards that you're awaiting. Notice on I think in the quarter of this, this 1 among others, many others. When in as awards that you're waiting, notice on what is that metric? Stand out here at the end of the third quarter?
yes, so awaiting notice of Award right now is just under 10 billion Andy
and that compares to Prior years of, you know, an average between 4 and 6. So obviously a big part of that is is FAA, but all in all just under 10 billion dollars of waiting notice of award. So bids submitted waiting, adjudication. Yeah, it also highlights the strength of our pipeline 58 billion.
Occurred pipeline for the company and the number of awards that we have potentially greater than 500 million. Um, being over 15 is also a record for the company. So we're really seeing, um, a lot of needs and demand for our business across both segments.
Got it. Okay, thanks, I'll pass it on.
Thanks Andrew.
Thank you. Our next question is from Toby Summer with Tourist. Please proceed.
Thanks uh given the the slightly lower Topline exiting the year. Um I'm just wondering how we should think about modeling next year. Based on the midpoint of the of the new Topline guidance. It looks like consensus is around 8%.
Total revenue growth, which I know wouldn't necessarily be an organic number. But any color you could provide there without specific. Uh, you know, guidance of course, at this stage would be helpful.
Yeah, obviously, um, we'll we'll provide full year, 2026 guidance, uh, and during the February call, but, uh, to your point solid run rate in Q4, uh, positions as well for 2026. We've said, previously mid single digit or better, organic growth, excluding the confidential contract. So, that's, uh, the number that we're holding to that would exclude any, what, I'll call binary large items, think FAA or others, that, that Carrie mentioned Southern border or golden dome that are obviously large items. So, uh, mid single digit or better, organic, excluding confidential, contract and supported by a solid Q4 run rate.
Contribution this year be from confidential contract. Just so we have the math equation squared away.
Yeah. Um,
It's about 350 million. So just 5-ish percent.
Thank you. And, uh, Carrie you highlighted water as an area with the recent acquisition, critical infrastructure, talked about the growth Etc. Um, are there any uh, verticals within critical infrastructure that you would like to sort of further fortify or maybe gain exposure, where you, where you might not have it currently?
Why I would say water in an environment is, which is 1 of our 6 and markets has been rapidly growing. Um, we expect this year for that market to be around 650 million and I mentioned the water portion of that is also our most profitable so we have been kind of doubling down there. The acquisition of applied sciences Consulting was critical for us, because Florida is spending billions of dollars and making sure that they have resiliency. And this company is very well positioned to help us capitalize on it like binding our Collective, uh capabilities.
So it it has been an area of focus uh for m&a.
okay, thanks and then um during the shutdown there's been a a kind of a new wrinkle with the administration hoping funding of various things and uh in in in States um
Have you seen any impact of, from this particular? Uh, facet of the shutdown in, in particular, maybe a comment on, uh, Gateway would be interesting. We, uh, our offices nearby and it looks like there's plenty of equipment and and workers still plugging away. But would love your perspective.
Yeah, and and, and you're absolutely right there. Toby. So the Gateway program continues. As I mentioned, on the call, we were awarded 665 million, uh, follow-on effort for that. We have 5 major construction projects that are underway on the Gateway program as we speak and the state funding um that's available for gateways. 5 billion dollars.
So, we continue to work.
Thank you.
Thanks. Thank you. Our next question is from Gautam Cana with TD. Colin, please proceed.
Yeah, thanks. Good morning, guys.
Morning, got him.
I was wondering if you could comment on the ebta contribution from the confidential.
contract in Q3 and for the year, just so we have a sense for what the
the comp to overcome is in 26.
Yeah wrong numbers got me. Think about this as a fixed price International contract so it would be accretive to our fed business think kind of low double digits margin.
Okay.
and then I know on the FAA modernization opportunity, you know there was it sounded like there was just 2 BS yourselves and peraton and
there's some anecdotes that there might be some risk associated with the terms of the contract. I just wanted to get your
view on. Um,
you know, how to kind of insulate the company from some risk and how how you may have gone about that bit in a way that uh,
you know, doesn't
is a good thing if you win it, as opposed to something, we should be concerned about
Yeah. First um, as a company, we will not take Bad Business. Um, and the FAA, uh, brand new air traffic control system is not a bad contract. It's, it's a good contract. Um, there are only 2 bids that were various reasons for that. I think we got off the dime very quickly and now it's our partnership with IBM back in June, uh, we tend to be a very agile company that delivers
Operationally relevant Solutions. And so we kind of got out pretty fast and I think some of the competitors were worried about that other competitors dropped out due to potential organizational, conflicts of interest. Because if you want to provide systems, it's kind of hard to sit in an integrator role where you may be selecting an evaluating and acquiring those systems. So we're very excited about the FAA contract. It's going to be a good contract, um, and we look forward to an imminent, announcement.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Mariana Perez Mora with Bank of America. Please proceed.
Hi, good morning. This is Samantha.
Today, morning Mariana.
Example.
talk a little bit about the
Are, uh, your audio is breaking up. We cannot hear your question.
Are you able to hear me now?
A little better. Yeah.
Okay, sorry about that.
Um, you highlighted space and missile defense as a growth driver for FS. I was wondering if you could talk a little bit more about that. Um,
Go through.
Yeah, you're breaking up a little bit. I think I caught the gist of it so space and missile defense. Being a growth driver. First driver would start with our missile defense contract. We are the system engineer and integration contractor for the missile defense, Agency on the team's contract that work uh will lead in to golden, dome efforts. Um, and we are starting to ramp up in anticipation that we expect some of the golden dome funds. There was 25 billion in the reconciliation Bill to start hitting. Um, and around the December time frame and we've been closely working with the National Defense Agency on areas, like architecture, relative to our space business. Uh, we're involved in space situational awareness and area that's seen uptick, as there's been a lot more activity going on in space. Um, we're also involved in, uh, space ground systems. We've delivered over 170, different ground systems for a variety of customers, and then an area of space, where particularly excited about would be our assured position.
Navigation and timing solution. We've partnered with global star, we're using their constellation and our software to find radio capability to be able to get location information. In the case of GPS is jammed, a great example, is we just deployed it over in the Ukraine and European theater and our timing, um, results and location results were better than anticipated and additional units. Have now been purchased for the Indo paycom region. So exciting, business, we have seen growth there. And that's an area that we project to continue to be strong. Particularly as relates to the golden dome program.
Great, thank you so much. I'll keep it at 1.
Thanks Sam. Thank you so much. And as a reminder to ask the question, simply press star 1 1, 1 to get in the queue
Our next question is from Sheila. Kia all glue with Jeffries please proceed.
Good morning, Carrie and Matt. Thank you for the time.
um hey uh maybe if we could talk about 2 questions first on FS growth, um you know, how do we think about the fs growth given the order
Uh, decline in the quarter. How much of it was attributable to the shutdown. And I know I think Matt you said mid single digit growth outlook for 26, how we could think about the order flow and the pipeline gelling together to get that growth Outlook.
Yep, I'll start em. Jump in. So on the growth. How much tribute or the shutdown's a little hard to tell? Because we're I think we're dealing with 2 things at 1 Time, 1 is, uh, Federal contract and capacity. There's been some delays in getting things signed off. And the second is the shutdown which I would say the big impact there that we saw was kind of limiting our recovery in the fourth quarter, not knowing how long, the shutdown's going to continue. So we plan for it to continue for the rest of the year. But the big issue for us has been material, procurements on existing contract Awards. I want to reiterate. This is not new business. We have to go in and it's not about any program losses. It's strictly a timing issue.
Yeah, and the only thing I got to add Sheila, if we, if I look at total year, 2025 fed, excluding confidential contract is the Outlook is, you know, high single-digit growth 11% total growth. So it's a, um, you know, the business is performing quite well. If we can kind of maintain that run rate, it's you know, kind of above market and taking share. So we're we're happy with those kind of rates.
Got it. Um, and then maybe if I could ask 1 on CI, please, uh, the performance there has been pretty good. You know, margins are now hitting this 10% stride. Uh you know how what's driving that how do we think about mixed selling forward?
Additive to what we're seeing. Um, in the Middle East, it's our expansion there. Continues, we've had 4 years of double-digit growth in the Middle East. Uh, We've not just been growing and our core Market of Urban Development Transportation. But we've now moved into 3 new markets, which are receiving significant Investments, defense, security, and tourism and Hospitality so critical infrastructure, we've got great long-term. Tailwinds, we've been able to capitalize on it with very strong wind rates both in North America and in the Middle East. Um, when you look at split between the businesses though, I would have to say the real large jobs are in the Federal Business. As you look to the near future, we talked about the 12.5 billion that the FAA is receiving for the reconciliation. As we await that imminent award, there's 25 billion for golden dome. Um, we're well positioned not just in the area. I mentioned earlier for system engineering and integration but we also have non-kinetic effect.
Capability and command and control. Uh capacity, there's 25 billion for Pacific deterrence or I'm sorry, 25 billion for um, and more for uh, border security 161 billion in total. But a lot of that's addressable to us. We do border security all over the world. So we've got currently 2, very large opportunities that are in bid within the border, security area and then Pacific deterrence got an additional 12 billion in new funding.
And we're well positioned there with our presence on quad and Guam and that we're able to capitalize on that from the federal group. So CI rapidly growing, I'd say the big game changer opportunities largely in Federal I should mention 1 that kind of passes both groups too which would be rebuild we expect to be involved in Syria. Uh first in eliminating, the chemical weapons and then the rebuild of Syria which being very much supported by the gulf. Uh countries we're looking at the rebuild of Ukraine and also the rebuild of Israel Gaza. And then a final area just to hit that I put in that game. Changer category is our position and critical minerals and leveraging our processing and refining capabilities. As we start to ensure our critical minerals in the United States.
Great. Thank you.
Thank you.
Thank you so much. Our next question is from Louie. De Palma with William. Blair please proceed.
Carrie Matt and Dave, good morning.
Morning.
Um, following up on.
On your recent answer it seems you've made significant progress with providing defense services to some of your Middle East. Customers what types of solutions are are gaining traction on the defense side and what's the long term Outlook there?
Yeah, so I'd say there is that we've gotten into her kind of a combination leveraging, our entire portfolio. So we're basically doing work for the ministry of defense. That is infrastructure work. Um, due to the proprietary nature of it, I can't go beyond that, but if you think about uh, infrastructure builds for the ministry of Defense,
Also, on the, uh, security side. We're doing border security work. You know, we've been involved in border security for a long time. Through our work with defense threat reduction agency. Our media Lebanon, Georgia other locations. We do work with, uh, Customs and Border Protection down on the southern border. We've been involved a little bit with Immigration and Customs Enforcement and we do the counter nuclear, smuggling detection and deterrence program for Department of energy. So we've been able to take those competencies now and expand them. And we were awarded a job through the ministry of interior for border security in Saudi Arabia.
Excellent, Carrie. And, um, in addition to the, the FAA brand new Air Traffic Control Systems, contract that you're pursuing, you already have an existing, um, FAA facilities contract and should that contract also benefit from the reconciliation Bill funding and
Related to this. Are you starting to already receive Awards in October, or did you receive Awards in October that were funded from the reconciliation Bill funding, is that funding starting to flow? Thanks,
We're looking forward to receiving as far as reconciliation funding. I would say it's going to start to flow, we think this month and next
and just to put some numbers on your question around FAA, you know that as we mentioned, previously, that is a growth driver for us. I mentioned transportation is a key driver. We're expecting that FAA contract to grow, you know, 25 to 30% this year in 2025. So, to your point it's a it's a great growth driver for us, um, with or without being as
Excellent. Thanks everyone. Thanks Matt. Dave and Carrie
Thanks Roy.
Thank you. And our next question comes from Jonathan Sigmund with stifel. Please proceed
Good morning, Carrie, Matt, and Dave. Thanks for taking my question.
Good morning, Jonathan.
May just just back on, uh, the shutdown. You've, you've made some really helpful comments on that, but maybe if you, if you could talk a little bit about the other side, when the government is open, can we expect a, a surge of activity or is the backlog? So great at this point that we might still be talking about capacity problems. Next year, assuming the government opens the next couple of weeks. Thank you.
Yeah, thanks. And 1 thing, I should mention is, um, at 50% of our business against not impacted, by the shutdown, because 50% of our business is not federal government related work. Um, but I would say, as far as when the government's open, I do expect that we're going to see a surge because they are backlogged with Contracting actions.
Yeah. And so, as I mentioned earlier, John, you know, I think about, you know, almost 10 billion dollars of a waiting notice of award typically in the Middle East process as quickly. So the majority of that is within the federal groups that being 40 or 50% of the norm is a, is evidence that there is a building backlog and hopefully they'll transact quickly so that we can get working on these jobs.
They, they almost have to when you look at the reconciliation funds and the fact that the government would like to spend those upfront over the next few years. So, to be able to accomplish things, you know, if you look at the brand new air traffic control system as an example, we need to achieve those Milestones by December 2028, you know, with no excuses. We've got to deliver and when you look at the, a lot of the other funding that's in that bill, there's a lot of Milestones that have to be achieved. So I think the things are going to have to get moving forward.
And as as we think about next year, you've already Quantified the headwind from the confidential contract, is there anything else that uh you would you would you'd highlight today that we should be thinking about maybe a larger recompete in in the classified area that we should be contemplating as we think about next year.
No, fortunately going into next year, a repeat rate is about 6 to 7% so it's pretty small and there are no um major contracts that are in that rates. Fee we secured our 4, contracts that are greater than 2 billion dollars in July of 2021. Is when the last 1 was 1. So those have been secured for the next 7 to 20 years respectively. That would be, uh, the 2 mind jobs. Um, the FAA tssc job in the missile defense, agency system, engineering, and integration job. So our big Greek, pets are still a ways out like 2029 time frame.
Appreciate that. Thank you.
Thanks John.
Thank you so much.
And our next question is from Noah popon with Goldman Sachs, please proceed.
Hey, good morning, everyone.
Matt, can you just level set me or remind me of the numbers on federal solutions? Organic growth, excluding confidential. What was it in the first half? What was it in Q3, and what do you now have for Q4?
Yes. So first half we're looking at, um, do you want the total is just about 10% second half. We're looking at 12%, driven, by Q4 at almost 15%. Um,
So, a little bit of a ramp in Q4, but something, you know, as as I mentioned, a lot of the things that flip from Q3 are on track for Q4. So that's really what's driving the Q3 to Q4 sequential.
Okay.
Yeah, I guess. How did you think about building that? I mean it's 1 quarter but just
um,
Given how that's progressed.
How, how did you think about building that acceleration 4q verse?
3Q or first 9 months.
In a government shutdown.
Yeah, um, obviously we went through, you know. It'll take, uh, lowering Topline guide. Yeah.
With the Outlook is. So, we went through line by line every program material, that's been ordered timing on those deliveries products. So, I would say we're, we're highly confident in the midpoint. I would say if we see an extended government shutdown through the end of the calendar year, as an as an example, Noah, I would say it would be biased toward the lower end of the guide. But uh, you know, I think a lot of the story we're hearing is over the next couple weeks. It's likely, uh, to come out of the shutdown.
Okay.
and, and Matt or Harry I guess, um,
you know, we've been in this environment with
lower outlays in some of your government customer markets.
Um, but you've still, you've still had that.
Uh, 10% Federal Corps.
Um,
you know, if next year,
some of the things that have,
Gummed up the system, get better.
Can that core accelerate?
Or you know, is that too optimistic just given the the overall backdrop.
I, I would say it, we have the opportunity to accelerate and I mentioned the very large programs that we have in front of us. And I feel we're well positioned to carry. If I, I was sort of, thinking of that excluding, like, putting FAA aside or
Um, maybe you have so many large opportunities that putting them aside is not a relevant question. But, uh, excluding you know, any 1 1, large program, totally changing the growth rate just thinking more about the Diversified, core FS.
X confidential.
Yes. So this year, we'll deliver for federal um for the full year about 8.3% organic growth again, which is industry-leading. So I would say we're in all the right markets and I'm even talking about any of the game changer programs, and we've been indicated that we would deliver mids single digit or better excluding the confidential contract as we go into next year. That's excluding Game Changer contracts.
Okay.
can you can you frame for us for whoever wins uh, faaa
Approximately, how large it could become on an annual revenue basis. And then what the margins would look like roughly
Yeah, unfortunately, because we're in a competition and the awards imminent. Um, I can't share financial
information.
Okay, last 1 Matt just on the fs margins.
Um, because you had talked about, um, confidential was a creative to the margin.
Um and then, you know, as that came out, the margins came down a bit. But back up sequentially here, nicely in the third quarter.
Despite that. So as we move forward, um what's your latest thinking on where the fs margin Lance
Yeah, so if uh, if I look at Q3 specifically uh cost type represents about 60% of the federal business. So uh, you know, in an environment where cost type is greater than 50%, there's always going to be a little bit of pressure on the margin. Um, so we're comfortable in kind of the high 8, low nines Noah Acquisitions will
Help with long-term um expansion as we always Target 10 plus percentage. But uh, on our on our Acquisitions, a shift to fixed price, we haven't necessarily seen it as of yet. We're obviously open in a lot of cases to that and so um I think Heights to low nines is a, is a good
A good Target based on the existing mix and, you know, we do have some great opportunities. We've talked to Carrie mentioned in her script, a little bit about the joint cyber hunt kit. Things like that where a little bit more product a little bit more, uh, materials that are creative could also benefit in. Q3 we did have that uh, benefit from the incentive fee that we talked about and it in Q2 and then Q3 or Q4 will help from the products. So all those things add up to kind of a high low 9 is a good number opportunities around expanding products and and acquisitions.
Okay, thanks a lot. Thanks Noah.
Thank you. And ladies and gentlemen, this is all the time we have for your questions. I will pass it back to Dave spay for final comments.
Uh thanks again for joining this morning. If you have any questions please don't hesitate to call and we look forward to talking to many of you over the coming days. Um have a great day. Thank you.
And this concludes our conference. Thank you for participating. You may now disconnect