NYSE:PSN Parsons Q4 2023 Earnings Report $66.57 +1.50 (+2.31%) As of 11:30 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Parsons EPS ResultsActual EPS$0.69Consensus EPS $0.56Beat/MissBeat by +$0.13One Year Ago EPS$0.45Parsons Revenue ResultsActual Revenue$1.50 billionExpected Revenue$1.33 billionBeat/MissBeat by +$166.60 millionYoY Revenue Growth+36.40%Parsons Announcement DetailsQuarterQ4 2023Date2/14/2024TimeBefore Market OpensConference Call DateWednesday, February 14, 2024Conference Call Time8:00AM ETUpcoming EarningsParsons' Q1 2025 earnings is scheduled for Wednesday, April 30, 2025, with a conference call scheduled at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Parsons Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 14, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to Q4 2023 Parsons Corporation Earnings Conference Call. Speakers Presentation. There will be a question and answer session. You will then hear an automated message advising your hand is raised. Operator00:00:31Group. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Dave Spiele, Senior Vice President of Investor Relations. Please go ahead. Speaker 100:00:43Thank you. Good morning and thank you for joining us today to discuss our Q4 fiscal year 2023 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. Inc. On the call with me today are Cary Smith, Chair, President and CEO and Matt Aphelous, CFO. Speaker 100:01:02Today, Cary will discuss our corporate strategy and operational highlights, and then Matt will provide a review of our Q4 financial results, as well as a review of our 2024 guidance and increased Investor Day targets. Inc. We then will close with a question and answer session. Management may also make forward looking statements during the call regarding future events, Incorporated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Speaker 100:01:35Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. Inc. These risk factors are described in our Form 10 ks for fiscal year ended December 31, 2023 and other SEC filings. Complete. Please refer to our earnings press release for Parsons' complete forward looking statement disclosure. Speaker 100:01:54We 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 the comparable GAAP measures. Inc. And now I'll turn the call over to Keri. Speaker 200:02:11Thank you, Dave. Good morning, and welcome to Parsons fiscal year 2023 and Q4 earnings call. Corporation. I want to start by thanking all 18,500 employees of Parsons Corporation for their contributions to an exceptional 2023. We executed on our growth strategy, delivered our customers' critical missions and achieved record financial results for our shareholders. Speaker 200:02:35Inc. For the full year and the Q4, we delivered the strongest financial results since our IPO, Inc. Including records for total revenue, organic revenue, adjusted EBITDA, operating cash flow and contract awards. Inc. Starting with the full year, we exceeded $5,400,000,000 in revenue for the first time and delivered record organic revenue growth Inc. Speaker 200:03:01Of 23%, making us an industry leader in both our Federal Solutions and Critical Infrastructure segments. Inc. We had consistent results throughout the year with organic growth in excess of 20% for each of the last three quarters of the year and Double Digit Organic Growth in All Four Quarters. Our strong results for the year were driven primarily by our ability to win and ramp new contracts, Strong Hiring and Retention and On Contract Growth. In 2023, we delivered over 4 Inc. Speaker 200:03:36$60,000,000 in adjusted EBITDA for the first time in our company's history and continue to expand our margin, achieving 13 basis and Company's Q4 2023. Total revenue grew 30% while adjusted EBITDA increased by 32%. Our ability to drive adjusted EBITDA growth faster than our revenue growth demonstrates our focus on margin expansion. Inc. For the full year, our contract awards increased 40% to a record $6,000,000,000 which equates to a 1.1 times book to bill ratio. Speaker 200:04:11In addition, our fiscal year 2023 cash flow increased by 72% over 2022 to a record $408,000,000 For the Q4, total revenue increased 35% year over year and 34% organically. Adjusted EBITDA grew by 30% over the prior year period and cash flow from operations Inc. During the Q4, we won 2 single award contracts worth more than $100,000,000 each. This brings our total contract wins that are greater than $100,000,000 to $15,000,000 for the full year, a new record for Parsons. Our ability to successfully deliver on our customers' missions has allowed us to continue to win new work and secure our recompete. Speaker 200:05:02Inc. Also, our exquisite Federal Solutions portfolio is aligned with National Security Near Peer Threat Priorities and our digitally enabled Critical Infrastructure business is capitalizing on unprecedented global infrastructure spend. Incorporated 4th quarter wins included a single award classified contract for continued and new work in support of the United States government. Inc. This 5 year contract is valued at over $250,000,000 of which we booked $50,000,000 in the 4th quarter. Speaker 200:05:34Inc. A new $150,000,000 single award contract to serve as lead designer on a major infrastructure replacement project Inc. In the Northeast United States. We plan to book the full value of the contract in the Q1 of 2024. Inc. Speaker 200:05:51A new $80,000,000 contract to provide remediation of light contaminated soil for a United States customer. We booked $73,000,000 on this contract in the 4th quarter. We were also awarded prime positions on 2 multiple award IDIQ new contracts. The first one is a new 5 year contract for the Army Corps of Engineers with a ceiling value of $245,000,000 for environmental remediation. Inc. Speaker 200:06:18This contract includes infrastructure investment and Jobs Act funding related to Environmental Protection Agency cleanup projects. Inc. We continue to win significant environmental remediation projects. During the Q4, we also completed a comprehensive assessment, Investigation and Treatment of PFAS for a major Fortune 100 industrial client. We completed this project Inc. Speaker 200:06:44From investigation to treatment without causing any downtime for the customer's facility, which is a testament to the innovation, creativity and expertise of our multidisciplinary PFAS team. The Parsons Water Treatment Lab in Syracuse, New York has been a leader in water treatment innovation for more than 30 years. The 2nd multiple award contract that we won in the 4th quarter is a new 5 year General Services Administration Public Building Services Program. And this contract has an estimated ceiling value of $200,000,000 Inc. After the Q4 of 2023 ended, we were awarded 2 significant contracts. Speaker 200:07:25We were selected by the Department of Labor Job Corps to assist with planning, management and oversight of their facilities program. This single award 5 year recompete Inc. Contract has a ceiling value of over $115,000,000 We were also awarded a new 3 year $87,000,000 contract to provide project management services for a major tourism and entertainment development project in the Middle East. During the Q4, we completed the acquisition of Vias Engineers, which is a Texas based full service consulting engineering firm that specializes in transportation engineering, including roads and highways and program management. This acquisition adds critical infrastructure talent and strengthens our portfolio in this large and growing state. Speaker 200:08:16Texas is poised to receive nearly $30,000,000,000 and Total Transportation Funding from the Infrastructure Investment and Jobs Act between 20222026. Inc. The acquisition of IS Engineers marks our 3rd acquisition in 2023, which includes 2 acquisitions in critical infrastructure and 1 in Federal Solutions. In addition to bolstering our critical infrastructure portfolio through strategic acquisitions, We strengthened and reorganized this segment to better align with our customers, geographies and end markets and better Parsons to capitalize on the unprecedented global infrastructure spend. For informational purposes, we have provided historical financial results in the back of our earnings press release for our new business units. Speaker 200:09:05As part of our 80 year history of cultivating a responsible enterprise, Parsons is proud to be recognized with the highest achievable score of 100 by the Human Rights Campaign Foundation on our 2023, 2024 Corporate Equality Index for active support and inclusion of the LGBTQ plus community. Inc. In addition, Parsons was recognized as a Best for Vets Company by the Military Times for supporting veterans post military careers. Inc. In 2023, we were also named as one of the World's Most Ethical Companies by Ethisphere for the 14th consecutive year, Inc. Speaker 200:09:431 of the World's Best Companies by Time Magazine and 1 of the Best Employers for Diversity by Forks. In summary, we are executing on our strategy and delivering our customers' missions as we continue to post record results and strong growth rates across all financial metrics. We also expanded margins and closed an accretive acquisition Inc. That strengthens our engineering expertise and increases our footprint in a high growth geography. Inc. Speaker 200:10:15As we enter 2024 and the 80th anniversary of our company, we are excited about our long term prospects. We are well positioned in 2 high growth and complementary segments that continue to experience significant tailwinds. Starting with Federal Solutions, the proposed defense budget supports an $886,000,000,000 top line budget, Corp. Which is 3% higher overall than 2023. However, the Parsons core defense markets are growing at mid to high single digits. Speaker 200:10:47Given worldwide geopolitical events, we continue to see strong demand for our solutions, including cyber, electronic warfare, Signal Collection, Space, Missile Defense and Critical Infrastructure Protection. Our focus remains on outpacing our nation's near peer threats with our differentiated solutions. In critical infrastructure, global demand remains strong in all three geographies where Parsons operates, the United States, Canada and the Middle East. We are leveraging our core competencies in engineering design, Program Management and Owner's Representative to win and deliver on large complex programs. As an industry leader in applying digital transformation to infrastructure, we look forward to continuing to transform this industry. Speaker 200:11:40Inc. Given our strong performance and our confidence in our current outlook, we are pleased to update the long term guidance we provided at our Investor Day on March 15, 20 23. Matt will share more details, but in summary, we're raising our revenue growth targets, which is also off a total revenue base that is $1,200,000,000 higher than it was at the end of 2022. In addition, we expect to average 20 to 30 basis points of margin expansion each year through 2025 and a free cash flow conversion rate of 100% or more of adjusted net income. Group. Speaker 200:12:18We also expect to continue to supplement our organic growth with 2 to 3 accretive acquisitions per year Inc. Speaker 100:12:25In order Speaker 200:12:25to enhance our technology differentiation, move further up the integrated solutions value chain and drive additional shareholder value. With that, I'll turn the call over to Matt to provide more details on our 2023 financial results, 2024 guidance and our enhanced long term financial targets. Matt? Speaker 300:12:45Thank you, Carrie. As Carrie indicated, our Q4 fiscal year 2023 were highlighted Inc. By record results in a number of areas, including total revenue, organic revenue, adjusted EBITDA, operating cash flow and contract awards. Total revenue of $1,500,000,000 for the Q4 of 2023 increased 35% from the prior year period and was up 34% on an organic basis. Incorporated EBITDA of $128,000,000 increased 30% from the Q4 of 2022 and adjusted EBITDA margin decreased 30 basis points to 8.6%. Speaker 300:13:19The adjusted EBITDA increase was driven primarily by accretive organic growth on recent contract wins, as well as growth on existing contracts. Group. Our adjusted EBITDA growth for the quarter was negatively impacted by a net $20,000,000 headwind from adjustments on 2 separate programs. On the first program, we reached a positive proposed judgment on rail and transit project for which we realized a $38,000,000 favorable impact to 4th quarter adjusted EBITDA. On the 2nd program within equity and earnings, we took a $58,000,000 adjusted EBITDA charge. Speaker 300:13:54The impact was the result of supply chain challenges Inc. During the procurement of materials. Normalized margins excluding these two adjustments would have been 9.9% and 8.9% for the Q4 and full year respectively. Total revenue for the fiscal year 2023 increased 30% from prior year and was up 23% on an organic basis. The strong organic growth throughout the year was driven by the ramp up of recent contract wins and growth on existing contracts. Speaker 300:14:24Acquisitions contributed approximately $274,000,000 of revenue for the full year. SG and A expenses for the full year were 16% of total revenue compared to 18.5% in 2022. The intentional focus on efficient spend positions the portfolio well to continue to drive margin expansion. Fiscal year 2023 adjusted EBITDA of $465,000,000 increased 32% from 2022 and adjusted EBITDA margin increased over 10 basis points to 8.5%. The adjusted EBITDA increases were Incorporated, driven primarily by increased volume on new and existing contracts, accretive acquisitions and continuing to closely manage costs. Speaker 300:15:06I'll turn now to our operating segments, starting first with Federal Solutions, where 4th quarter revenue increased by $280,000,000 or 50% from the Q4 of 2022. Inc. This increase was driven by organic growth of 47% and the contribution from our Sealing Tech acquisition, which closed in August of 2023. Inc. Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts. Speaker 300:15:32Federal Solutions adjusted EBITDA increased Inc. By $35,000,000 or 73 percent from the Q4 of 2022, and adjusted EBITDA margin increased 130 basis points to 9.8%. These increases were driven primarily by increased volume on new and existing contracts with effective cost controls. For the full year, Federal Solutions revenue increased by $808,000,000 or 36% from 2022. This increase was driven by organic growth of 25% and approximately $264,000,000 from acquisitions. Speaker 300:16:06Inc. Organic growth was driven by the ramp up of recent contract wins and growth on existing contracts. Federal Solutions adjusted EBITDA for the full year increased $90,000,000 were 45% from 2022 and adjusted EBITDA margin increased 60 basis points to 9.6%. Inc. These increases were driven primarily by organic operating leverage, accretive acquisitions and $20,000,000 of non recurring incentive fees recognized in the Q2 of 2023. Speaker 300:16:33Moving now to our Critical Infrastructure segment. 4th quarter revenue increased by $111,000,000 or 21% from the Q4 of 2022. This increase was driven by organic growth of 20% and the inorganic revenue contribution from acquisitions. Organic growth was driven by higher volume on both Middle East and North America Infrastructure Programs. Critical Infrastructure adjusted EBITDA decreased by $5,000,000 or 10% from the Q4 of 2022. Speaker 300:17:02Adjusted EBITDA margin decreased 2 40 basis points to 7.0%. The adjusted EBITDA decreases were driven by the $20,000,000 negative net impact previously discussed, partially offset by profits from accretive organic growth on both new and existing contracts. Call. For the full year, Critical Infrastructure's revenue increased by $440,000,000 or 22%, almost all of which was organic. Organic growth was driven by expansion in both the Middle East and North America. Speaker 300:17:33Critical Infrastructure's adjusted EBITDA for the full year increased by $22,000,000 or 14% from 2022 and adjusted EBITDA margin decreased 50 basis points to 7.2%. The adjusted EBITDA increase was driven primarily by accretive organic growth and operating leverage. The lower margin was a result of 4th quarter $20,000,000 net impact from the 2 programs previously discussed. Excluding the Q4 impact, Critical Infrastructure margins were 10.1% and 8.1% for the quarter and total years, respectively. Next, I'll discuss cash flow and balance sheet metrics. Speaker 300:18:10Our net DSO at the end of Q4 2023 was 59 days, down 10 days from the prior year period. Inc. Our 4th quarter operating cash flow totaled $190,000,000 compared to $89,000,000 in the prior year period. Our operating cash flow for the full year increased 72% to $408,000,000 Our strong cash flow was driven by improved profitability and strong collections across the portfolio. Total year free cash flow conversion was 120%. Speaker 300:18:39Capital expenditures totaled $10,000,000 in the Q4 of 2023 $40,000,000 for the full year. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue. Inc. Our balance sheet remains strong as we ended the 4th quarter with a net debt leverage ratio of 1.0x compared to 1.4 at the end of 2022, even after closing 3 acquisitions in 2023. Our low leverage, strong free cash flow outlook and balance sheet capacity will enable us continue to make internal investments and accretive acquisitions to support long term growth. Speaker 300:19:14Turning to bookings for the 4th quarter. Year over year contract award activity increased 13 percent to $1,200,000,000 On a trailing 12 month basis, contract awards increased by 40% and our book to bill ratio was 1.1 times on an enterprise basis and in both business segments. Speaker 400:19:31Our book Speaker 300:19:32to bill ratio for the Q4 was 0.8 times. In our Critical Infrastructure segment, we have achieved a quarterly book to bill ratio of 1.0x or better for 13 consecutive quarters. Inc. We remain optimistic that IJA and Global Infrastructure Investments will continue to drive demand and new business well into the future. Our recent contract awards and backlog support our long term critical infrastructure margin goal of approximately 9% by 2025. Speaker 300:19:57Our backlog at the end of the Q4 totaled $8,600,000,000 up $413,000,000 or 5% from the Q4 of 2022. Next, I'll turn to our guidance. When establishing our guidance, we've contemplated key variables, which include a competitive labor market, uncertainty around domestic budgets and challenging inflation. However, we're confident in our ability to achieve results within our improved guidance ranges Inc. Given significant tailwinds, including unprecedented global infrastructure spend, a federal portfolio that is closely aligned to the National Defense Strategy, low recompete risk, Inc. Speaker 300:20:32$8,600,000,000 of total backlog included funded backlog of $5,000,000,000 $14,000,000,000 of contracts won that are not yet reflected in backlog. Call. For 2024, we expect revenue to be between $5,800,000,000 $6,000,000,000 This represents 8% growth at the midpoint of the range and 7% growth on an organic basis. Our adjusted EBITDA is expected to be between $505,000,000 $545,000,000 with a margin of 8.9 percent at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents adjusted EBITDA growth of 13% and margin expansion of approximately 40 basis points from 2023, achieving our Investor Day commitments. Speaker 300:21:14The growth in adjusted EBITDA and associated margins is expected to be driven by improved program performance, accretive wins and a continued focus on operating leverage. Our cash flow from operating activities is expected to be between $350,000,000 $410,000,000 At the midpoint of the guidance range, we and Exchange. We expect free cash flow conversion to be approximately 100 percent of adjusted net income. 2024 cash flow is expected to be down from 2023, Incorporated, primarily due to the exceptional 4th quarter that accelerated approximately $30,000,000 in receipts from 2024. Inc. Speaker 300:21:47Other key assumptions in connection with our 2024 guidance and our quarterly cadence are outlined on Slide 15 in today's PowerPoint presentation located on our Investor Relations website. As Carey mentioned, we are increasing the long term targets we provided at our March 2023 Investor Day. Inc. At that time, we expected total revenue growth of 4% to 6% and organic growth of 3% to 5%. We now believe that we can achieve organic revenue growth of mid single digits or better through 2025. Speaker 300:22:16With performance in 2023, a strong outlook for 2024, We are raising our revenue growth targets off a total revenue base that is $1,200,000,000 higher than it was at the end of 2022. In addition, we continue to expect an average of 20 to 30 basis points of margin expansion each year through 2025 and a free cash flow conversion rate of 100 percent or more of adjusted net income. These targets indicate we expect total revenue to exceed $6,000,000,000 and adjusted EBITDA margin to be over 9% by the end of 2025. These implied targets indicate adjusted EBITDA growth is expected to outpace total revenue growth through 2025. We expect to supplement our organic growth with 2 to 3 accretive acquisitions per year to further drive shareholder value. Speaker 300:23:01In summary, we've reported exceptional results from the Q4 and a full year, and I'm confident in our ability to achieve results within our 2024 guidance ranges. Inc. We are operating in well funded markets, have a great team that is executing at a high level, and I believe we are making the right organic and inorganic investments to continue to drive growth and margin expansion into the business. With that, I'll turn the call back over Speaker 200:23:22to Carrie. Thank you, Matt. I'm very pleased with the continued strong performance of our company. We delivered record 4th quarter and full year results for total revenue, organic revenue growth, adjusted EBITDA, operating cash flow and contract awards. In addition, we're executing on our strategic M and A program, which is driving additional growth into our business. Speaker 200:23:45Inc. Our team is delivering consistent results and we're benefiting from tailwinds in each segment. We expect our momentum to continue given our portfolio is well aligned to important macro environment trends in 2 well funded segments in 6 growing and enduring markets. With that, we will now open the line for questions. Thank Operator00:24:24The first question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Speaker 500:24:32Good morning, everyone. Thank you so much. Good morning, Sheila. Happy Valentine's Day. Just want to say, I think we're all pretty in love with these results and what you've done with Parsons. Speaker 500:24:44So congratulations. I mean, it's pretty Nominal. So, I guess my first question is related to that. You started off 'twenty three, citing for organic growth up 4. You closed up 23% and you accelerated into the year, which is kind of amazing. Speaker 500:25:01So I guess what unlocked back. Can you talk about was it hiring? Was it just award wins, new business? And how do you expect that to progress? Obviously, you raised your long term target. Speaker 200:25:13Well, thank you, Sheila, for the question and happy Valentine's Day to you as well. So, I would say hiring and retention have continued to be strong. Our consistent trailing 12 month book to bill of greater than 1.0 has helped us win new programs. We had record win rates this year at 66% with 93% of rate competes. We've secured all 4 of our major rate PEETS that are $2,000,000,000 programs. Speaker 200:25:41And I would say business development is hitting it across the board on all Cylinders. What I'm probably most proud of is all four business units delivered double digit organic growth. So it's not one business unit driving Parsons, all four business units are delivering. Speaker 500:25:59Maybe if we could delve into the critical infrastructure growth and segmentation on a regional basis. It looks like Europe, Middle East, Africa are growing 2x North America. So can you just talk about The balance of those 2 in the high single digit growth implied for 2024, how do you see it? How much is locked in, whether it's in the backlog or the unbooked pipeline? Speaker 200:26:24Yes. So we're really pleased with the Middle East growth being over 30% this year. We had some very strong wins in large programs, Particularly in Saudi Arabia that occurred, but also doing well in the UAE. North America is also doing extremely well and had strong organic growth. And if you look at that, it was 16%. Speaker 200:26:44So both organizations are doing well. I would say North America is going to continue to Speed up because we haven't hit the peak yet on the Infrastructure Investment and Jobs Act. We expect that to be around the 2027 timeframe. But with that said, the Middle East also that growth is expected to peak somewhere between 20, 28 and 30. So the nice thing is we've got strong tailwinds in both of our end geographies for the long foreseeable future. Speaker 500:27:15Great. Thank you. Speaker 200:27:17Thanks, Sheila. Thanks, Operator00:27:18Sheila. Please stand by for the next question. Corp. The next question comes from Tobey Sommer with Truist Securities. Your line is open. Speaker 600:27:33Group. Hey, good morning. This is Jasper Bibb on for Toby. I guess just following up on the negative $20,000,000 adjustment in the CI segment, Can you update us how much of that riskier legacy work is still in the segment today? And with a near 10% margin, excluding those adjustments, how should we think about the go forward margin profile as that business comes out of the portfolio? Speaker 200:27:57Co. Sure. Thanks for the question. So this was not one of the 2 legacy programs that you've heard us refer to previously. Fortunately, we had indicated that one of those programs was going to wrap up the Q1 of this year, which it did. Speaker 200:28:10That is going to present a $18,000,000 tailwind for us as we enter this year because We had $18,000,000 write off on that particular program last year. The second legacy program is still on track to complete in the 3rd quarter of this year and that program is 90% and exceeded some recent technical milestones. The program that we had the $20,000,000 impact or the $58,000,000 write down was due to supply chain impacts from material Procurement. It was a job that had been bid back in 2019 prior to COVID. So we got initial quotes at that time. Speaker 200:28:48Once we We did the design several years later and we went back and we refreshed those quotes. We had less supplier availability and those suppliers prices have gone up. The good news is that this is kind of one off, I'm going to say within our portfolio because we stopped bidding this type of work years ago. So So we don't have other large contracts that have a big majority of material pass through. I'm really pleased that even with this impact, The great job that we've done expanding margins. Speaker 200:29:20We were up 13 basis points for the year. We grew EBITDA dollars at 32 Center with revenue up 30%, so EBITDA is growing faster. And as we look to 2024, we're going to be expanding our margins by 40 basis points. Speaker 300:29:35Yes, Jasper, I'd just add relative to critical infrastructure specifically, the total year was about 7.2% within that business. We're expecting about 8.5% in 2024. Federal will still be in kind of the low 9s, call it 9.2%, and that's how we get to the 8%, 9% midpoint. Kerry and I have talked long term that by 2025, our goal is to have both segments operating over 9%. And a lot of the new work that we're bidding, as we mentioned, is trending toward double digit. Speaker 300:30:02So really positive about the long term projections for Critical Infrastructure. Speaker 600:30:07Thanks. And then the organic growth is obviously really impressive this quarter, But ran significantly ahead of your backlog growth and the book to bill. So just how should we think about the ability of the backlog, What you're seeing in the bid pipelines from the awards you won after the quarter to support further growth in 2024 and 2025. Yes. Speaker 200:30:27So we're pleased that we were able to win the 15 awards greater than $100,000,000 and as we announced, we've had 2 greater than $100,000,000 already as we go into this year. The bid pipeline is very robust. It's the highest it's ever been for our business. It's at $58,000,000,000 Out of the $58,000,000,000 we have 110 awards That are greater than $100,000,000 We also have awaiting notice of award $4,000,000,000 and within there we have 8 programs greater than Inc. And then we've talked about the $14,000,000,000 of unbooked backlog. Speaker 200:31:00So that's basically comprised of contracts that have option years or unbooked ceiling and we're confident on a good portion of that being able to convert over the next 3 years. Speaker 600:31:12Got it. Last question for me. I just wanted to ask about M and A appetite and the size of deals you might be looking at. I guess we did notice $10,000,000 in transaction and other expense in the guide. So just any color on what that might be related to? Speaker 300:31:28Yes, I would say the overall pipeline for M and A remains strong. I think we're with the anything that's in the guide is related to prior transactions. So as we mentioned, we closed the IS Engineers deal in Q4. And so again, the M and A pipeline is quite strong. We feel good about we've closed 3 transactions in 2023. Speaker 300:31:49Our goal is 2 to 3 in 2024 as well. Speaker 200:31:52And I'll just add to that. So we're looking at both Federal and Critical Infrastructure, the size of the deals will continue to be around what we've done in the past. We generally look at companies that are between about $100,000,000 $500,000,000 annual revenue. But as you noted, we did buy IS Engineers for $10,000,000 And the reason for that is that it was located in a key state that's going to have a lot of potential growth. And what you tend to see is smaller deals on the credit bar infrastructure side versus the federal side of the house. Speaker 200:32:20We've been Very selective. We're going to continue to keep our high bar of companies growing greater than 10% top line, greater than 10% EBITDA margin. We're also looking for companies that have technology differentiation, but a good pipeline. Operator00:32:38Co. Speaker 300:32:38Thanks, Jasper. Operator00:32:39Please stand by for the next question. The next question comes from Burt Soudin with Stifel. Your line is now open. Speaker 400:32:51Hey, good morning. I guess I'll echo everyone's thoughts. I mean, just amazing results. Speaker 300:32:56Co. Thank Speaker 200:32:57you, Bert. Thanks, Bert. Speaker 400:33:00So, Carrie, maybe just a follow-up to an earlier question. How do you think you keep Momentum going in Federal Solutions. I mean, you just grew essentially 4,000 basis points above the industry in the 4th quarter. And just Curious how much of that was driven by specific contracts, be it full venture or additional work with the FAA? And then how good is your visibility as we think to 2024, 2025? Speaker 400:33:25I guess it's pretty good since you're updating those longer term targets. Speaker 200:33:29Yes. So to take the second part first, our visibility is very good. The good news too, we have very low rate Which we mentioned on the call, but it's less than 5% as we go into this year. We also have that $14,000,000,000 of unbooked Contracts, so the visibility and line of sight to that transitioning is good over the next 3 years. We anticipate roughly 50% of that transition. Speaker 200:33:52How do we keep the momentum going as continue to keep laser focus on our 6 core end markets. Those markets are all growing between 5% to 12% compound A and O growth rate. Our goal has been to be differentiated, be a top player in each of those market areas. And one thing I was happy about when you look at our wins across the year and those 15, we won in almost every single area. If you look at environmental remediation, for example, we won work in the mine jobs. Speaker 200:34:22We expanded our presence in army ammunition plant modernization. If you look at cybersecurity, we've been very, very strong with Cyber Command as well as the GSA job. If you look at Critical Infrastructure Protection, the work that we've been doing with Department of State has been very good. Also one work in Endo Paycom expanding our footprint there with Quadrant Housing. If you look over on the infrastructure side and transportation, we were awarded what at the time was our biggest Design Jobs since IPO with JFK Highways. Speaker 200:34:54We just surpassed that with the infrastructure job that I announced on the call today, which will now be our new biggest Design job that we've had. And then finally, Urban Development, the team over in the Middle East has just done an amazing job of securing our session on all the Giga projects and the fact that we're not even going to see a peak there until later 2028 to 2,030 timeframe. I think we've got a lot of momentum in the business. Speaker 400:35:21Maybe just as my follow-up, Kerry. Inc. You talked about the Middle East there, it's clearly been an engine for pretty significant growth. You saw a slowdown on a growth basis, but still very elevated. As we look forward, can you just talk about, I guess, what the risks are in the region? Speaker 400:35:37Are you seeing any spillover just from conflict in Red Sea In Israel, Hamas or I guess as we think beyond that, is there a geographic dispersion you expect? I mean, it sounds Saudi has been really strong. Are you seeing strength in the UAE? Are you seeing a rebound in Qatar? Just curious how the Middle East is shaking out. Speaker 200:35:59Yes. So from a risk perspective, the conflicts really don't pertain to the type of work we do because we're really doing infrastructure. I would call it helping Saudi really build out their infrastructure, whether it's transportation infrastructure, whether New industrial cities, whether it's new entertainment and tourism, that building is just going on across the country and will continue for a long time. It's great for all the people that live there because they'll have places to go for entertainment, their education system is getting improved, Their healthcare is getting improved. So, I'd say that's terrific. Speaker 200:36:35On the conflict side, where we would see potential opportunity is in our Federal Solutions business Because of the type areas we play in, whether that's cybersecurity, missile defense, intelligence type of work, We also do some RF emulator projects that we've seen deployed. Our geographic dispersion, we are the largest and Saudi Arabia about 60%, 65% of our businesses there. That's also been our fastest growing followed by the UAE, which has had strong growth. UAE's focus has been on mixed use developments and continuing to build out whether it's Dubai or Abu Dhabi, which where most of our work there is. And we did recently the UAE World Expo. Speaker 200:37:18In Qatar, we were heavily involved in the World Cup. We did the traffic System for that. We also did the Lusail City, which we were recognized as an outstanding consultant for our performance there. But I would say Qatar We'll probably out of the 3 of those be the slowest with Saudi Bay in the fastest followed by UAE. Speaker 400:37:40And Carrie, I guess, Matt, just As a sort of a last follow-up on the cash side, it sounds like generation looks really good and talking more like 2 to 3 deals a year versus maybe 1 2. I guess in the meantime, how are you thinking about capital deployment? Are you just sort of willing to wait until you guys find the next deal? Speaker 300:37:59Yes, I think that's right, Bert. Obviously, we have the share buyback program that's kind of nominal. We did about $11,000,000 worth of share buyback in 2023, but Definitely the focus is on M and A and to your point, the team has done an amazing job with the $400,000,000 in op cash for the year, just focused on working capital improvements and So the cash is generating and we're really achieving critical milestones. So really excited about the cash position, the 1.0 leverage puts us in a great place to keep pushing deals. I'd say the transition from kind of 1 to 2 deals to 2 to 3 is a mix of going from kind of a heavier federal to a mix of federal and CI, Where the CI deals as Carey mentioned are a little bit smaller. Speaker 300:38:38So we have capacity to kind of get to the 2% to 3%. Speaker 200:38:41And then M and A really helps our momentum as well. You know whether it's If I look at the 3 recent deals, Sealing Tech really expanded our presence in defensive cyber. We were strong in offensive. Now we can cover full spectrum cyber operations. I talked about ISN Engineers expanding our presence in Texas. Speaker 200:38:58The 2 of us together can move up the value chain and bid and win larger jobs. And then IP keys is kind of nice at the intersection between federal and critical infrastructure providing cyber compliance for energy and Water Companies. So those all those acquisitions as well as the ones that we've done in prior years are helping momentum. Speaker 400:39:18Great. Thank you so much, Matt and Gary. Speaker 200:39:21Group. Operator00:39:27The next question comes from Andrew Wittmann with Baird. Your line is open. Speaker 700:39:35Great. Good morning. Thanks for taking my question. I think I might just have one question today, and it's for Matt. As I look at the capital structure, you got this $400,000,000 convertible note out there. Speaker 700:39:46It's fully hedged with the bond hedge that you've got on it. And it looks like the conditions to convert that to equity have been met with the trading performance of the stock here in the last several months. So I guess my thought or my question is, what are you going to do about this $400,000,000 face that's totally hedged out? Like, I guess, is it fair to think of that as basically kind of gone or like not on the balance sheet because you've got the hedge that takes out the dilution that would result if you converted it? And what do you expect to do in practical sense with this and if anything at all? Speaker 300:40:24Yes, I'd say Andy, thanks for the I would say the we obviously look at the balance sheet constantly. We want to make sure that we're capable of continuing to do the M and A. The convert that we have in place has been A great deal for both us and kind of the convert holders as the stock has performed so well. So all in all, we continue to look at it. I would say that It remains on the balance sheet. Speaker 300:40:46It won't go current until August of this year, but we're continuing to look at options as we go forward. So No solid plan yet, but always looking at opportunities. Speaker 200:41:01Thanks, Andy. Thanks, Debbie. Operator00:41:02Please stand by for the next question. The next question comes from Alex Dwyer with KeyBanc Capital Markets. Your line is open. Speaker 800:41:16Group. Hi, team. Congrats on a great quarter. Speaker 200:41:19Thank you, Alex. Thanks, Alex. Speaker 800:41:22So I wanted to ask about the organic revenue growth guide of 7% this year. How that splits between the segments this year? And if we can parse through the different assumptions from hiring and retention to win rate to the ramp up of contracts. And if there's upside to this 7% revenue guide, where do you think where most likely to see this upside come from? Speaker 200:41:46Yes. So the 7% is roughly equal with federal being a little bit higher growth. And as far as upside, I would say across the portfolio again, because if you look at the 15 wins we've had In 2023, right, the 102 that we just announced this year so far, it's across the board in all 6 of those End Market Area. So it really affects all 4 of the business units. Speaker 300:42:14Yes, I would say to kind of get to the high end, as Carrie mentioned, I think in script a little bit around labor markets. I think the U. S. Budget, obviously, getting a deal done would be great. And so kind of those are the things that we're looking through in terms of trying to get from the midpoint to the high end. Speaker 800:42:34Got it. Thanks. And then the critical infrastructure backlog continues to remain strong, but I wanted to ask about Federal Solutions with the 0.7 book to bill this quarter. Like how much of that was the impact of the continued CRs? Inc. Speaker 800:42:51And should we continue to expect this segment to remain below one times until the government gets the full budget? Speaker 200:43:00So, I would say, 1st, Q4 is always late for federal government services. 3rd quarter is usually kind of a peak. But I would say the trailing 12 month is what we look at, which is very important and that's been a 1.1. And so I think our federal business has Been delivering quite fine. On the CR, no, I don't expect that to drive being below a 1.0 times. Speaker 200:43:24And the reason I don't is because we've already won a lot of work that $14,000,000,000 and the majority of that is in federal that we haven't booked yet that we can still convert. We also by the way, one other variable, we've got 59% funded backlog, which is very high. Speaker 800:43:45Thank you. Very helpful. Appreciate the thoughts. Speaker 300:43:49Thanks, Alex. Thanks, Alex. Operator00:43:53Co question. Club. The next question comes from Louie DiPalma with William Blair. Your line is open. Speaker 900:44:10Group. Carrie, Matt and Dave, good morning and great Q4. You're setting the bar very high. Speaker 200:44:18Inc. Thank you, Louis. Thanks Louis. Speaker 900:44:23Are the Exitor Sealing Tech and IP Keys acquisitions performing significantly better than their revenue run rates prior to being acquired. And when Parsons integrates these assets, are you able to unlock significant Cross selling revenue synergies that make the returns much more attractive than The original multiple may suggest. Speaker 200:44:54Yes. So, I would say, Exotour has certainly been Incorporated. Outperforming on a revenue front. Sealing Tech is really recent, but we do expect they're going to deliver a very strong performance. I'll talk about that in a minute. Speaker 200:45:07And IP keys is on track with our expectations. We do get the value as you're pointing out, Louis, From the cross selling, we haven't factored in revenue or cost synergies as we've made these acquisitions. So anything that we get is kind of above and beyond. Great example would be IP Keys. They have a book of customers, hundreds of customers in the utility and the water space. Speaker 200:45:32So in addition to selling those customers their capabilities, we can also sell the broader Parsons capabilities in those market areas. Inc. Likewise, we can take their products to our current utility and water wastewater customers and sell that. We've seen synergies already even between Sealingtech and IP Keys and coming up with a new product line offering Inc. Called Cyberscape and we're going to be putting IP keys capabilities on the flyaway kits at SealingTec. Speaker 200:46:02So that's how quickly we do the integration and we drive synergies, but that's definitely a big factor helping our momentum. Speaker 900:46:12Great. And another one, Parsons has been particularly strong with capturing classified cyber contracts over the past Call. In general, what is driving that strength? And are these cyber contracts or some of them affiliated with the geopolitical conflicts in Europe, the Middle East and Asia. And in general, what is Parsons presence with the Endo Patcom. Speaker 900:46:46Thanks. Speaker 200:46:46Okay. So, I'll take the first one. What's Driving the cyber, I would say, 1st, we're one of the leaders in offensive cyber and that comprise about 75% of our business. We have in-depth relationships across the Department of Defense Military Services as well as the intelligence community and customers like Cyber Command. So we've been able to get a very strong position. Speaker 200:47:11We've done work for them for a long time. They know they can count on us, particularly in a time of need, as you mentioned, such as the conflict affiliation. I can't comment too much more on that in-depth Just due to the classification nature. In the Indo Paycom, we have several efforts underway. We've been on Guam for over 3 decades supporting public works that's through our critical infrastructure group. Speaker 200:47:35We also are on Guam supporting Defense of Guam through the missile for the Missile Defense Agency through our team's contract. We're on Kwajalein Island. We built the Kwajalein Airfield. We're also just recently won the Quadline Housing and we're looking for continued expansion there. Particularly that budget got increased from 9.1 $1,000,000,000 to over $14,000,000,000 in the NDAA. Speaker 200:47:58So that's going to be a big focus area. And then on our Defense and Intelligence side, we have over 100 folks located out in Hawaii that are working on cyber and intelligence type of work. Speaker 900:48:10Great. And one for Matt. Your acquisitions, are they typically margin accretive and you just forecast that you would expect 2 to 3 acquisitions per year. And so in general, should these acquisitions be one of the drivers for your continued margin expansion that you guided to as part of that 2025 outlook? Speaker 300:48:38Yes, absolutely, Louis. We target adjusted EBITDA of 10% or better, and so all these companies are performing well. I I'd like to say that we like to buy companies that are doing well and bring them in and have them do better as part of Parsons versus kind of betting on the come, whether it's on revenue growth or margin. So, Yes, absolutely. Each one of these acquisitions are expected to be accretive in a very short term and have strong cash flow as well. Speaker 900:49:03Excellent. Thanks, everyone. Speaker 200:49:05Thanks, Luke. Operator00:49:08One moment for our next question. The next question comes from Mariana Perez Mora with Bank of America. Your line is open. Speaker 1000:49:21Group. Hi, this is Samantha Styro on for Mariana. Speaker 200:49:24Hi, Samantha. Hi. Speaker 1000:49:27I just wanted to ask about labor and hiring and kind of what you're seeing on these what you just mentioned, the classified contracts Getting those certifications, are you seeing still a strong or like a long wait list there? Speaker 200:49:44Yes. So overall in labor and hiring, we're doing very well. Obviously, that's been critical to driving our organic growth. We've seen our retention improve. In fact, it improved by over 1% year to year, which is very strong, and we were already ahead of PwC Industry Benchmarks in that area. Speaker 200:50:02As far as classified contracts, the clearance processing moved to DCSA Back in 2019 and when it did, they were able to drop the backlog and I want to say it was close to 75%. And they also sped up the clearance processing time for Secret and Top Secret, which has really helped us. Classified area is always going to be the most difficult though to hire, but we've seen some improvement in recent years. Speaker 1000:50:31Great. And then on these programs that you have the $14,000,000,000 of unbooked, would those require more hiring to keep up with? And are you kind of hiring ahead of that? Or do you have the people in place already? Speaker 200:50:45Yes. So, it's a mix. So, and I'll put them into 2 categories. When you look at it, about half that $14,000,000,000 of unbooked is option years. So, those would be current programs that we're performing and we'll get follow on options. Speaker 200:50:58In general, most of those would have the people performing their contract today. There might be some increased or surge scope as you go into the options, but generally those would be on board. The ones where we would get additional labor is the ones that are unbooked ceiling. So a case of example of that would be we won an airbase, air defense Program in Europe. And so that has just shy of $1,000,000,000 ceiling. Speaker 200:51:22So we booked that as we get task orders and those task orders represent all new work. So it's about fifty-fifty. Speaker 1000:51:30Got it. Thank you so much. Speaker 200:51:32Thank you. Operator00:51:36Call. That is all the time we have for questions today. I would now like to turn the call back to Dave for closing remarks. Call. Speaker 100:51:46Thank you and thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to speaking with many of you over the next Couple of weeks and with that we will end today's call. Thank you. Have a great day. Operator00:52:00That concludes today's conference call. Thank youRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallParsons Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Parsons Earnings HeadlinesParsons Co. (NYSE:PSN) Receives $93.60 Consensus Price Target from AnalystsApril 24 at 1:45 AM | americanbankingnews.comCowboys' Micah Parsons Sounds Off On 'Worth' In Contract UpdateApril 24 at 12:48 AM | msn.comThe Trump Dump is starting; Get out of stocks now?The first 365 days of the Trump presidency… Will be the best time to get rich in American history.April 24, 2025 | Paradigm Press (Ad)Cowboys' Micah Parsons Reveals Contract Holdout Plan for Training CampApril 24 at 12:48 AM | msn.comFor Micah Parsons, yesterday’s price is not today’s price. Neither is tomorrow’sApril 24 at 12:48 AM | msn.comMicah Parsons explains why he showed up to Cowboys' voluntary workouts despite no contract extensionApril 24 at 12:48 AM | msn.comSee More Parsons Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Parsons? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Parsons and other key companies, straight to your email. Email Address About ParsonsParsons (NYSE:PSN) provides integrated solutions and services in the defense, intelligence, and critical infrastructure markets in North America, the Middle East, and internationally. The company operates through Federal Solutions and Critical Infrastructure segments. The Federal Solutions segment provides critical technologies, such as cybersecurity; missile defense; intelligence; space launch and ground systems; space and weapon system resiliency; geospatial intelligence; signals intelligence; environmental remediation; border security, critical infrastructure protection; counter unmanned air systems; biometrics and bio surveillance solutions to U.S. Department of Defense, including military services; Missile Defense Agency, the Department of Energy; the Department of State; the Department of Homeland Security, and the Federal Aviation Administration. The Critical Infrastructure segment provides management, design, and engineering services, as well as offers leveraging sensor solutions. This segment develops digital solutions for next generation aviation, rail and transit, bridges, roads, and highways; and provides water and wastewater treatment systems; AI/ML, and digital twin and cyber systems integration services; planning, engineering, and management services for infrastructure, including bridges and tunnels, roads and highways, water and wastewater, and dams and reservoirs. Parsons Corporation was founded in 1944 and is headquartered in Chantilly, Virginia.View Parsons ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Rocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock?Genuine Parts: Solid Earnings But Economic Uncertainties Remain Upcoming Earnings AbbVie (4/25/2025)AON (4/25/2025)Colgate-Palmolive (4/25/2025)HCA Healthcare (4/25/2025)NatWest Group (4/25/2025)Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 11 speakers on the call. Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to Q4 2023 Parsons Corporation Earnings Conference Call. Speakers Presentation. There will be a question and answer session. You will then hear an automated message advising your hand is raised. Operator00:00:31Group. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Dave Spiele, Senior Vice President of Investor Relations. Please go ahead. Speaker 100:00:43Thank you. Good morning and thank you for joining us today to discuss our Q4 fiscal year 2023 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. Inc. On the call with me today are Cary Smith, Chair, President and CEO and Matt Aphelous, CFO. Speaker 100:01:02Today, Cary will discuss our corporate strategy and operational highlights, and then Matt will provide a review of our Q4 financial results, as well as a review of our 2024 guidance and increased Investor Day targets. Inc. We then will close with a question and answer session. Management may also make forward looking statements during the call regarding future events, Incorporated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Speaker 100:01:35Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. Inc. These risk factors are described in our Form 10 ks for fiscal year ended December 31, 2023 and other SEC filings. Complete. Please refer to our earnings press release for Parsons' complete forward looking statement disclosure. Speaker 100:01:54We 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 the comparable GAAP measures. Inc. And now I'll turn the call over to Keri. Speaker 200:02:11Thank you, Dave. Good morning, and welcome to Parsons fiscal year 2023 and Q4 earnings call. Corporation. I want to start by thanking all 18,500 employees of Parsons Corporation for their contributions to an exceptional 2023. We executed on our growth strategy, delivered our customers' critical missions and achieved record financial results for our shareholders. Speaker 200:02:35Inc. For the full year and the Q4, we delivered the strongest financial results since our IPO, Inc. Including records for total revenue, organic revenue, adjusted EBITDA, operating cash flow and contract awards. Inc. Starting with the full year, we exceeded $5,400,000,000 in revenue for the first time and delivered record organic revenue growth Inc. Speaker 200:03:01Of 23%, making us an industry leader in both our Federal Solutions and Critical Infrastructure segments. Inc. We had consistent results throughout the year with organic growth in excess of 20% for each of the last three quarters of the year and Double Digit Organic Growth in All Four Quarters. Our strong results for the year were driven primarily by our ability to win and ramp new contracts, Strong Hiring and Retention and On Contract Growth. In 2023, we delivered over 4 Inc. Speaker 200:03:36$60,000,000 in adjusted EBITDA for the first time in our company's history and continue to expand our margin, achieving 13 basis and Company's Q4 2023. Total revenue grew 30% while adjusted EBITDA increased by 32%. Our ability to drive adjusted EBITDA growth faster than our revenue growth demonstrates our focus on margin expansion. Inc. For the full year, our contract awards increased 40% to a record $6,000,000,000 which equates to a 1.1 times book to bill ratio. Speaker 200:04:11In addition, our fiscal year 2023 cash flow increased by 72% over 2022 to a record $408,000,000 For the Q4, total revenue increased 35% year over year and 34% organically. Adjusted EBITDA grew by 30% over the prior year period and cash flow from operations Inc. During the Q4, we won 2 single award contracts worth more than $100,000,000 each. This brings our total contract wins that are greater than $100,000,000 to $15,000,000 for the full year, a new record for Parsons. Our ability to successfully deliver on our customers' missions has allowed us to continue to win new work and secure our recompete. Speaker 200:05:02Inc. Also, our exquisite Federal Solutions portfolio is aligned with National Security Near Peer Threat Priorities and our digitally enabled Critical Infrastructure business is capitalizing on unprecedented global infrastructure spend. Incorporated 4th quarter wins included a single award classified contract for continued and new work in support of the United States government. Inc. This 5 year contract is valued at over $250,000,000 of which we booked $50,000,000 in the 4th quarter. Speaker 200:05:34Inc. A new $150,000,000 single award contract to serve as lead designer on a major infrastructure replacement project Inc. In the Northeast United States. We plan to book the full value of the contract in the Q1 of 2024. Inc. Speaker 200:05:51A new $80,000,000 contract to provide remediation of light contaminated soil for a United States customer. We booked $73,000,000 on this contract in the 4th quarter. We were also awarded prime positions on 2 multiple award IDIQ new contracts. The first one is a new 5 year contract for the Army Corps of Engineers with a ceiling value of $245,000,000 for environmental remediation. Inc. Speaker 200:06:18This contract includes infrastructure investment and Jobs Act funding related to Environmental Protection Agency cleanup projects. Inc. We continue to win significant environmental remediation projects. During the Q4, we also completed a comprehensive assessment, Investigation and Treatment of PFAS for a major Fortune 100 industrial client. We completed this project Inc. Speaker 200:06:44From investigation to treatment without causing any downtime for the customer's facility, which is a testament to the innovation, creativity and expertise of our multidisciplinary PFAS team. The Parsons Water Treatment Lab in Syracuse, New York has been a leader in water treatment innovation for more than 30 years. The 2nd multiple award contract that we won in the 4th quarter is a new 5 year General Services Administration Public Building Services Program. And this contract has an estimated ceiling value of $200,000,000 Inc. After the Q4 of 2023 ended, we were awarded 2 significant contracts. Speaker 200:07:25We were selected by the Department of Labor Job Corps to assist with planning, management and oversight of their facilities program. This single award 5 year recompete Inc. Contract has a ceiling value of over $115,000,000 We were also awarded a new 3 year $87,000,000 contract to provide project management services for a major tourism and entertainment development project in the Middle East. During the Q4, we completed the acquisition of Vias Engineers, which is a Texas based full service consulting engineering firm that specializes in transportation engineering, including roads and highways and program management. This acquisition adds critical infrastructure talent and strengthens our portfolio in this large and growing state. Speaker 200:08:16Texas is poised to receive nearly $30,000,000,000 and Total Transportation Funding from the Infrastructure Investment and Jobs Act between 20222026. Inc. The acquisition of IS Engineers marks our 3rd acquisition in 2023, which includes 2 acquisitions in critical infrastructure and 1 in Federal Solutions. In addition to bolstering our critical infrastructure portfolio through strategic acquisitions, We strengthened and reorganized this segment to better align with our customers, geographies and end markets and better Parsons to capitalize on the unprecedented global infrastructure spend. For informational purposes, we have provided historical financial results in the back of our earnings press release for our new business units. Speaker 200:09:05As part of our 80 year history of cultivating a responsible enterprise, Parsons is proud to be recognized with the highest achievable score of 100 by the Human Rights Campaign Foundation on our 2023, 2024 Corporate Equality Index for active support and inclusion of the LGBTQ plus community. Inc. In addition, Parsons was recognized as a Best for Vets Company by the Military Times for supporting veterans post military careers. Inc. In 2023, we were also named as one of the World's Most Ethical Companies by Ethisphere for the 14th consecutive year, Inc. Speaker 200:09:431 of the World's Best Companies by Time Magazine and 1 of the Best Employers for Diversity by Forks. In summary, we are executing on our strategy and delivering our customers' missions as we continue to post record results and strong growth rates across all financial metrics. We also expanded margins and closed an accretive acquisition Inc. That strengthens our engineering expertise and increases our footprint in a high growth geography. Inc. Speaker 200:10:15As we enter 2024 and the 80th anniversary of our company, we are excited about our long term prospects. We are well positioned in 2 high growth and complementary segments that continue to experience significant tailwinds. Starting with Federal Solutions, the proposed defense budget supports an $886,000,000,000 top line budget, Corp. Which is 3% higher overall than 2023. However, the Parsons core defense markets are growing at mid to high single digits. Speaker 200:10:47Given worldwide geopolitical events, we continue to see strong demand for our solutions, including cyber, electronic warfare, Signal Collection, Space, Missile Defense and Critical Infrastructure Protection. Our focus remains on outpacing our nation's near peer threats with our differentiated solutions. In critical infrastructure, global demand remains strong in all three geographies where Parsons operates, the United States, Canada and the Middle East. We are leveraging our core competencies in engineering design, Program Management and Owner's Representative to win and deliver on large complex programs. As an industry leader in applying digital transformation to infrastructure, we look forward to continuing to transform this industry. Speaker 200:11:40Inc. Given our strong performance and our confidence in our current outlook, we are pleased to update the long term guidance we provided at our Investor Day on March 15, 20 23. Matt will share more details, but in summary, we're raising our revenue growth targets, which is also off a total revenue base that is $1,200,000,000 higher than it was at the end of 2022. In addition, we expect to average 20 to 30 basis points of margin expansion each year through 2025 and a free cash flow conversion rate of 100% or more of adjusted net income. Group. Speaker 200:12:18We also expect to continue to supplement our organic growth with 2 to 3 accretive acquisitions per year Inc. Speaker 100:12:25In order Speaker 200:12:25to enhance our technology differentiation, move further up the integrated solutions value chain and drive additional shareholder value. With that, I'll turn the call over to Matt to provide more details on our 2023 financial results, 2024 guidance and our enhanced long term financial targets. Matt? Speaker 300:12:45Thank you, Carrie. As Carrie indicated, our Q4 fiscal year 2023 were highlighted Inc. By record results in a number of areas, including total revenue, organic revenue, adjusted EBITDA, operating cash flow and contract awards. Total revenue of $1,500,000,000 for the Q4 of 2023 increased 35% from the prior year period and was up 34% on an organic basis. Incorporated EBITDA of $128,000,000 increased 30% from the Q4 of 2022 and adjusted EBITDA margin decreased 30 basis points to 8.6%. Speaker 300:13:19The adjusted EBITDA increase was driven primarily by accretive organic growth on recent contract wins, as well as growth on existing contracts. Group. Our adjusted EBITDA growth for the quarter was negatively impacted by a net $20,000,000 headwind from adjustments on 2 separate programs. On the first program, we reached a positive proposed judgment on rail and transit project for which we realized a $38,000,000 favorable impact to 4th quarter adjusted EBITDA. On the 2nd program within equity and earnings, we took a $58,000,000 adjusted EBITDA charge. Speaker 300:13:54The impact was the result of supply chain challenges Inc. During the procurement of materials. Normalized margins excluding these two adjustments would have been 9.9% and 8.9% for the Q4 and full year respectively. Total revenue for the fiscal year 2023 increased 30% from prior year and was up 23% on an organic basis. The strong organic growth throughout the year was driven by the ramp up of recent contract wins and growth on existing contracts. Speaker 300:14:24Acquisitions contributed approximately $274,000,000 of revenue for the full year. SG and A expenses for the full year were 16% of total revenue compared to 18.5% in 2022. The intentional focus on efficient spend positions the portfolio well to continue to drive margin expansion. Fiscal year 2023 adjusted EBITDA of $465,000,000 increased 32% from 2022 and adjusted EBITDA margin increased over 10 basis points to 8.5%. The adjusted EBITDA increases were Incorporated, driven primarily by increased volume on new and existing contracts, accretive acquisitions and continuing to closely manage costs. Speaker 300:15:06I'll turn now to our operating segments, starting first with Federal Solutions, where 4th quarter revenue increased by $280,000,000 or 50% from the Q4 of 2022. Inc. This increase was driven by organic growth of 47% and the contribution from our Sealing Tech acquisition, which closed in August of 2023. Inc. Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts. Speaker 300:15:32Federal Solutions adjusted EBITDA increased Inc. By $35,000,000 or 73 percent from the Q4 of 2022, and adjusted EBITDA margin increased 130 basis points to 9.8%. These increases were driven primarily by increased volume on new and existing contracts with effective cost controls. For the full year, Federal Solutions revenue increased by $808,000,000 or 36% from 2022. This increase was driven by organic growth of 25% and approximately $264,000,000 from acquisitions. Speaker 300:16:06Inc. Organic growth was driven by the ramp up of recent contract wins and growth on existing contracts. Federal Solutions adjusted EBITDA for the full year increased $90,000,000 were 45% from 2022 and adjusted EBITDA margin increased 60 basis points to 9.6%. Inc. These increases were driven primarily by organic operating leverage, accretive acquisitions and $20,000,000 of non recurring incentive fees recognized in the Q2 of 2023. Speaker 300:16:33Moving now to our Critical Infrastructure segment. 4th quarter revenue increased by $111,000,000 or 21% from the Q4 of 2022. This increase was driven by organic growth of 20% and the inorganic revenue contribution from acquisitions. Organic growth was driven by higher volume on both Middle East and North America Infrastructure Programs. Critical Infrastructure adjusted EBITDA decreased by $5,000,000 or 10% from the Q4 of 2022. Speaker 300:17:02Adjusted EBITDA margin decreased 2 40 basis points to 7.0%. The adjusted EBITDA decreases were driven by the $20,000,000 negative net impact previously discussed, partially offset by profits from accretive organic growth on both new and existing contracts. Call. For the full year, Critical Infrastructure's revenue increased by $440,000,000 or 22%, almost all of which was organic. Organic growth was driven by expansion in both the Middle East and North America. Speaker 300:17:33Critical Infrastructure's adjusted EBITDA for the full year increased by $22,000,000 or 14% from 2022 and adjusted EBITDA margin decreased 50 basis points to 7.2%. The adjusted EBITDA increase was driven primarily by accretive organic growth and operating leverage. The lower margin was a result of 4th quarter $20,000,000 net impact from the 2 programs previously discussed. Excluding the Q4 impact, Critical Infrastructure margins were 10.1% and 8.1% for the quarter and total years, respectively. Next, I'll discuss cash flow and balance sheet metrics. Speaker 300:18:10Our net DSO at the end of Q4 2023 was 59 days, down 10 days from the prior year period. Inc. Our 4th quarter operating cash flow totaled $190,000,000 compared to $89,000,000 in the prior year period. Our operating cash flow for the full year increased 72% to $408,000,000 Our strong cash flow was driven by improved profitability and strong collections across the portfolio. Total year free cash flow conversion was 120%. Speaker 300:18:39Capital expenditures totaled $10,000,000 in the Q4 of 2023 $40,000,000 for the full year. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue. Inc. Our balance sheet remains strong as we ended the 4th quarter with a net debt leverage ratio of 1.0x compared to 1.4 at the end of 2022, even after closing 3 acquisitions in 2023. Our low leverage, strong free cash flow outlook and balance sheet capacity will enable us continue to make internal investments and accretive acquisitions to support long term growth. Speaker 300:19:14Turning to bookings for the 4th quarter. Year over year contract award activity increased 13 percent to $1,200,000,000 On a trailing 12 month basis, contract awards increased by 40% and our book to bill ratio was 1.1 times on an enterprise basis and in both business segments. Speaker 400:19:31Our book Speaker 300:19:32to bill ratio for the Q4 was 0.8 times. In our Critical Infrastructure segment, we have achieved a quarterly book to bill ratio of 1.0x or better for 13 consecutive quarters. Inc. We remain optimistic that IJA and Global Infrastructure Investments will continue to drive demand and new business well into the future. Our recent contract awards and backlog support our long term critical infrastructure margin goal of approximately 9% by 2025. Speaker 300:19:57Our backlog at the end of the Q4 totaled $8,600,000,000 up $413,000,000 or 5% from the Q4 of 2022. Next, I'll turn to our guidance. When establishing our guidance, we've contemplated key variables, which include a competitive labor market, uncertainty around domestic budgets and challenging inflation. However, we're confident in our ability to achieve results within our improved guidance ranges Inc. Given significant tailwinds, including unprecedented global infrastructure spend, a federal portfolio that is closely aligned to the National Defense Strategy, low recompete risk, Inc. Speaker 300:20:32$8,600,000,000 of total backlog included funded backlog of $5,000,000,000 $14,000,000,000 of contracts won that are not yet reflected in backlog. Call. For 2024, we expect revenue to be between $5,800,000,000 $6,000,000,000 This represents 8% growth at the midpoint of the range and 7% growth on an organic basis. Our adjusted EBITDA is expected to be between $505,000,000 $545,000,000 with a margin of 8.9 percent at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents adjusted EBITDA growth of 13% and margin expansion of approximately 40 basis points from 2023, achieving our Investor Day commitments. Speaker 300:21:14The growth in adjusted EBITDA and associated margins is expected to be driven by improved program performance, accretive wins and a continued focus on operating leverage. Our cash flow from operating activities is expected to be between $350,000,000 $410,000,000 At the midpoint of the guidance range, we and Exchange. We expect free cash flow conversion to be approximately 100 percent of adjusted net income. 2024 cash flow is expected to be down from 2023, Incorporated, primarily due to the exceptional 4th quarter that accelerated approximately $30,000,000 in receipts from 2024. Inc. Speaker 300:21:47Other key assumptions in connection with our 2024 guidance and our quarterly cadence are outlined on Slide 15 in today's PowerPoint presentation located on our Investor Relations website. As Carey mentioned, we are increasing the long term targets we provided at our March 2023 Investor Day. Inc. At that time, we expected total revenue growth of 4% to 6% and organic growth of 3% to 5%. We now believe that we can achieve organic revenue growth of mid single digits or better through 2025. Speaker 300:22:16With performance in 2023, a strong outlook for 2024, We are raising our revenue growth targets off a total revenue base that is $1,200,000,000 higher than it was at the end of 2022. In addition, we continue to expect an average of 20 to 30 basis points of margin expansion each year through 2025 and a free cash flow conversion rate of 100 percent or more of adjusted net income. These targets indicate we expect total revenue to exceed $6,000,000,000 and adjusted EBITDA margin to be over 9% by the end of 2025. These implied targets indicate adjusted EBITDA growth is expected to outpace total revenue growth through 2025. We expect to supplement our organic growth with 2 to 3 accretive acquisitions per year to further drive shareholder value. Speaker 300:23:01In summary, we've reported exceptional results from the Q4 and a full year, and I'm confident in our ability to achieve results within our 2024 guidance ranges. Inc. We are operating in well funded markets, have a great team that is executing at a high level, and I believe we are making the right organic and inorganic investments to continue to drive growth and margin expansion into the business. With that, I'll turn the call back over Speaker 200:23:22to Carrie. Thank you, Matt. I'm very pleased with the continued strong performance of our company. We delivered record 4th quarter and full year results for total revenue, organic revenue growth, adjusted EBITDA, operating cash flow and contract awards. In addition, we're executing on our strategic M and A program, which is driving additional growth into our business. Speaker 200:23:45Inc. Our team is delivering consistent results and we're benefiting from tailwinds in each segment. We expect our momentum to continue given our portfolio is well aligned to important macro environment trends in 2 well funded segments in 6 growing and enduring markets. With that, we will now open the line for questions. Thank Operator00:24:24The first question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Speaker 500:24:32Good morning, everyone. Thank you so much. Good morning, Sheila. Happy Valentine's Day. Just want to say, I think we're all pretty in love with these results and what you've done with Parsons. Speaker 500:24:44So congratulations. I mean, it's pretty Nominal. So, I guess my first question is related to that. You started off 'twenty three, citing for organic growth up 4. You closed up 23% and you accelerated into the year, which is kind of amazing. Speaker 500:25:01So I guess what unlocked back. Can you talk about was it hiring? Was it just award wins, new business? And how do you expect that to progress? Obviously, you raised your long term target. Speaker 200:25:13Well, thank you, Sheila, for the question and happy Valentine's Day to you as well. So, I would say hiring and retention have continued to be strong. Our consistent trailing 12 month book to bill of greater than 1.0 has helped us win new programs. We had record win rates this year at 66% with 93% of rate competes. We've secured all 4 of our major rate PEETS that are $2,000,000,000 programs. Speaker 200:25:41And I would say business development is hitting it across the board on all Cylinders. What I'm probably most proud of is all four business units delivered double digit organic growth. So it's not one business unit driving Parsons, all four business units are delivering. Speaker 500:25:59Maybe if we could delve into the critical infrastructure growth and segmentation on a regional basis. It looks like Europe, Middle East, Africa are growing 2x North America. So can you just talk about The balance of those 2 in the high single digit growth implied for 2024, how do you see it? How much is locked in, whether it's in the backlog or the unbooked pipeline? Speaker 200:26:24Yes. So we're really pleased with the Middle East growth being over 30% this year. We had some very strong wins in large programs, Particularly in Saudi Arabia that occurred, but also doing well in the UAE. North America is also doing extremely well and had strong organic growth. And if you look at that, it was 16%. Speaker 200:26:44So both organizations are doing well. I would say North America is going to continue to Speed up because we haven't hit the peak yet on the Infrastructure Investment and Jobs Act. We expect that to be around the 2027 timeframe. But with that said, the Middle East also that growth is expected to peak somewhere between 20, 28 and 30. So the nice thing is we've got strong tailwinds in both of our end geographies for the long foreseeable future. Speaker 500:27:15Great. Thank you. Speaker 200:27:17Thanks, Sheila. Thanks, Operator00:27:18Sheila. Please stand by for the next question. Corp. The next question comes from Tobey Sommer with Truist Securities. Your line is open. Speaker 600:27:33Group. Hey, good morning. This is Jasper Bibb on for Toby. I guess just following up on the negative $20,000,000 adjustment in the CI segment, Can you update us how much of that riskier legacy work is still in the segment today? And with a near 10% margin, excluding those adjustments, how should we think about the go forward margin profile as that business comes out of the portfolio? Speaker 200:27:57Co. Sure. Thanks for the question. So this was not one of the 2 legacy programs that you've heard us refer to previously. Fortunately, we had indicated that one of those programs was going to wrap up the Q1 of this year, which it did. Speaker 200:28:10That is going to present a $18,000,000 tailwind for us as we enter this year because We had $18,000,000 write off on that particular program last year. The second legacy program is still on track to complete in the 3rd quarter of this year and that program is 90% and exceeded some recent technical milestones. The program that we had the $20,000,000 impact or the $58,000,000 write down was due to supply chain impacts from material Procurement. It was a job that had been bid back in 2019 prior to COVID. So we got initial quotes at that time. Speaker 200:28:48Once we We did the design several years later and we went back and we refreshed those quotes. We had less supplier availability and those suppliers prices have gone up. The good news is that this is kind of one off, I'm going to say within our portfolio because we stopped bidding this type of work years ago. So So we don't have other large contracts that have a big majority of material pass through. I'm really pleased that even with this impact, The great job that we've done expanding margins. Speaker 200:29:20We were up 13 basis points for the year. We grew EBITDA dollars at 32 Center with revenue up 30%, so EBITDA is growing faster. And as we look to 2024, we're going to be expanding our margins by 40 basis points. Speaker 300:29:35Yes, Jasper, I'd just add relative to critical infrastructure specifically, the total year was about 7.2% within that business. We're expecting about 8.5% in 2024. Federal will still be in kind of the low 9s, call it 9.2%, and that's how we get to the 8%, 9% midpoint. Kerry and I have talked long term that by 2025, our goal is to have both segments operating over 9%. And a lot of the new work that we're bidding, as we mentioned, is trending toward double digit. Speaker 300:30:02So really positive about the long term projections for Critical Infrastructure. Speaker 600:30:07Thanks. And then the organic growth is obviously really impressive this quarter, But ran significantly ahead of your backlog growth and the book to bill. So just how should we think about the ability of the backlog, What you're seeing in the bid pipelines from the awards you won after the quarter to support further growth in 2024 and 2025. Yes. Speaker 200:30:27So we're pleased that we were able to win the 15 awards greater than $100,000,000 and as we announced, we've had 2 greater than $100,000,000 already as we go into this year. The bid pipeline is very robust. It's the highest it's ever been for our business. It's at $58,000,000,000 Out of the $58,000,000,000 we have 110 awards That are greater than $100,000,000 We also have awaiting notice of award $4,000,000,000 and within there we have 8 programs greater than Inc. And then we've talked about the $14,000,000,000 of unbooked backlog. Speaker 200:31:00So that's basically comprised of contracts that have option years or unbooked ceiling and we're confident on a good portion of that being able to convert over the next 3 years. Speaker 600:31:12Got it. Last question for me. I just wanted to ask about M and A appetite and the size of deals you might be looking at. I guess we did notice $10,000,000 in transaction and other expense in the guide. So just any color on what that might be related to? Speaker 300:31:28Yes, I would say the overall pipeline for M and A remains strong. I think we're with the anything that's in the guide is related to prior transactions. So as we mentioned, we closed the IS Engineers deal in Q4. And so again, the M and A pipeline is quite strong. We feel good about we've closed 3 transactions in 2023. Speaker 300:31:49Our goal is 2 to 3 in 2024 as well. Speaker 200:31:52And I'll just add to that. So we're looking at both Federal and Critical Infrastructure, the size of the deals will continue to be around what we've done in the past. We generally look at companies that are between about $100,000,000 $500,000,000 annual revenue. But as you noted, we did buy IS Engineers for $10,000,000 And the reason for that is that it was located in a key state that's going to have a lot of potential growth. And what you tend to see is smaller deals on the credit bar infrastructure side versus the federal side of the house. Speaker 200:32:20We've been Very selective. We're going to continue to keep our high bar of companies growing greater than 10% top line, greater than 10% EBITDA margin. We're also looking for companies that have technology differentiation, but a good pipeline. Operator00:32:38Co. Speaker 300:32:38Thanks, Jasper. Operator00:32:39Please stand by for the next question. The next question comes from Burt Soudin with Stifel. Your line is now open. Speaker 400:32:51Hey, good morning. I guess I'll echo everyone's thoughts. I mean, just amazing results. Speaker 300:32:56Co. Thank Speaker 200:32:57you, Bert. Thanks, Bert. Speaker 400:33:00So, Carrie, maybe just a follow-up to an earlier question. How do you think you keep Momentum going in Federal Solutions. I mean, you just grew essentially 4,000 basis points above the industry in the 4th quarter. And just Curious how much of that was driven by specific contracts, be it full venture or additional work with the FAA? And then how good is your visibility as we think to 2024, 2025? Speaker 400:33:25I guess it's pretty good since you're updating those longer term targets. Speaker 200:33:29Yes. So to take the second part first, our visibility is very good. The good news too, we have very low rate Which we mentioned on the call, but it's less than 5% as we go into this year. We also have that $14,000,000,000 of unbooked Contracts, so the visibility and line of sight to that transitioning is good over the next 3 years. We anticipate roughly 50% of that transition. Speaker 200:33:52How do we keep the momentum going as continue to keep laser focus on our 6 core end markets. Those markets are all growing between 5% to 12% compound A and O growth rate. Our goal has been to be differentiated, be a top player in each of those market areas. And one thing I was happy about when you look at our wins across the year and those 15, we won in almost every single area. If you look at environmental remediation, for example, we won work in the mine jobs. Speaker 200:34:22We expanded our presence in army ammunition plant modernization. If you look at cybersecurity, we've been very, very strong with Cyber Command as well as the GSA job. If you look at Critical Infrastructure Protection, the work that we've been doing with Department of State has been very good. Also one work in Endo Paycom expanding our footprint there with Quadrant Housing. If you look over on the infrastructure side and transportation, we were awarded what at the time was our biggest Design Jobs since IPO with JFK Highways. Speaker 200:34:54We just surpassed that with the infrastructure job that I announced on the call today, which will now be our new biggest Design job that we've had. And then finally, Urban Development, the team over in the Middle East has just done an amazing job of securing our session on all the Giga projects and the fact that we're not even going to see a peak there until later 2028 to 2,030 timeframe. I think we've got a lot of momentum in the business. Speaker 400:35:21Maybe just as my follow-up, Kerry. Inc. You talked about the Middle East there, it's clearly been an engine for pretty significant growth. You saw a slowdown on a growth basis, but still very elevated. As we look forward, can you just talk about, I guess, what the risks are in the region? Speaker 400:35:37Are you seeing any spillover just from conflict in Red Sea In Israel, Hamas or I guess as we think beyond that, is there a geographic dispersion you expect? I mean, it sounds Saudi has been really strong. Are you seeing strength in the UAE? Are you seeing a rebound in Qatar? Just curious how the Middle East is shaking out. Speaker 200:35:59Yes. So from a risk perspective, the conflicts really don't pertain to the type of work we do because we're really doing infrastructure. I would call it helping Saudi really build out their infrastructure, whether it's transportation infrastructure, whether New industrial cities, whether it's new entertainment and tourism, that building is just going on across the country and will continue for a long time. It's great for all the people that live there because they'll have places to go for entertainment, their education system is getting improved, Their healthcare is getting improved. So, I'd say that's terrific. Speaker 200:36:35On the conflict side, where we would see potential opportunity is in our Federal Solutions business Because of the type areas we play in, whether that's cybersecurity, missile defense, intelligence type of work, We also do some RF emulator projects that we've seen deployed. Our geographic dispersion, we are the largest and Saudi Arabia about 60%, 65% of our businesses there. That's also been our fastest growing followed by the UAE, which has had strong growth. UAE's focus has been on mixed use developments and continuing to build out whether it's Dubai or Abu Dhabi, which where most of our work there is. And we did recently the UAE World Expo. Speaker 200:37:18In Qatar, we were heavily involved in the World Cup. We did the traffic System for that. We also did the Lusail City, which we were recognized as an outstanding consultant for our performance there. But I would say Qatar We'll probably out of the 3 of those be the slowest with Saudi Bay in the fastest followed by UAE. Speaker 400:37:40And Carrie, I guess, Matt, just As a sort of a last follow-up on the cash side, it sounds like generation looks really good and talking more like 2 to 3 deals a year versus maybe 1 2. I guess in the meantime, how are you thinking about capital deployment? Are you just sort of willing to wait until you guys find the next deal? Speaker 300:37:59Yes, I think that's right, Bert. Obviously, we have the share buyback program that's kind of nominal. We did about $11,000,000 worth of share buyback in 2023, but Definitely the focus is on M and A and to your point, the team has done an amazing job with the $400,000,000 in op cash for the year, just focused on working capital improvements and So the cash is generating and we're really achieving critical milestones. So really excited about the cash position, the 1.0 leverage puts us in a great place to keep pushing deals. I'd say the transition from kind of 1 to 2 deals to 2 to 3 is a mix of going from kind of a heavier federal to a mix of federal and CI, Where the CI deals as Carey mentioned are a little bit smaller. Speaker 300:38:38So we have capacity to kind of get to the 2% to 3%. Speaker 200:38:41And then M and A really helps our momentum as well. You know whether it's If I look at the 3 recent deals, Sealing Tech really expanded our presence in defensive cyber. We were strong in offensive. Now we can cover full spectrum cyber operations. I talked about ISN Engineers expanding our presence in Texas. Speaker 200:38:58The 2 of us together can move up the value chain and bid and win larger jobs. And then IP keys is kind of nice at the intersection between federal and critical infrastructure providing cyber compliance for energy and Water Companies. So those all those acquisitions as well as the ones that we've done in prior years are helping momentum. Speaker 400:39:18Great. Thank you so much, Matt and Gary. Speaker 200:39:21Group. Operator00:39:27The next question comes from Andrew Wittmann with Baird. Your line is open. Speaker 700:39:35Great. Good morning. Thanks for taking my question. I think I might just have one question today, and it's for Matt. As I look at the capital structure, you got this $400,000,000 convertible note out there. Speaker 700:39:46It's fully hedged with the bond hedge that you've got on it. And it looks like the conditions to convert that to equity have been met with the trading performance of the stock here in the last several months. So I guess my thought or my question is, what are you going to do about this $400,000,000 face that's totally hedged out? Like, I guess, is it fair to think of that as basically kind of gone or like not on the balance sheet because you've got the hedge that takes out the dilution that would result if you converted it? And what do you expect to do in practical sense with this and if anything at all? Speaker 300:40:24Yes, I'd say Andy, thanks for the I would say the we obviously look at the balance sheet constantly. We want to make sure that we're capable of continuing to do the M and A. The convert that we have in place has been A great deal for both us and kind of the convert holders as the stock has performed so well. So all in all, we continue to look at it. I would say that It remains on the balance sheet. Speaker 300:40:46It won't go current until August of this year, but we're continuing to look at options as we go forward. So No solid plan yet, but always looking at opportunities. Speaker 200:41:01Thanks, Andy. Thanks, Debbie. Operator00:41:02Please stand by for the next question. The next question comes from Alex Dwyer with KeyBanc Capital Markets. Your line is open. Speaker 800:41:16Group. Hi, team. Congrats on a great quarter. Speaker 200:41:19Thank you, Alex. Thanks, Alex. Speaker 800:41:22So I wanted to ask about the organic revenue growth guide of 7% this year. How that splits between the segments this year? And if we can parse through the different assumptions from hiring and retention to win rate to the ramp up of contracts. And if there's upside to this 7% revenue guide, where do you think where most likely to see this upside come from? Speaker 200:41:46Yes. So the 7% is roughly equal with federal being a little bit higher growth. And as far as upside, I would say across the portfolio again, because if you look at the 15 wins we've had In 2023, right, the 102 that we just announced this year so far, it's across the board in all 6 of those End Market Area. So it really affects all 4 of the business units. Speaker 300:42:14Yes, I would say to kind of get to the high end, as Carrie mentioned, I think in script a little bit around labor markets. I think the U. S. Budget, obviously, getting a deal done would be great. And so kind of those are the things that we're looking through in terms of trying to get from the midpoint to the high end. Speaker 800:42:34Got it. Thanks. And then the critical infrastructure backlog continues to remain strong, but I wanted to ask about Federal Solutions with the 0.7 book to bill this quarter. Like how much of that was the impact of the continued CRs? Inc. Speaker 800:42:51And should we continue to expect this segment to remain below one times until the government gets the full budget? Speaker 200:43:00So, I would say, 1st, Q4 is always late for federal government services. 3rd quarter is usually kind of a peak. But I would say the trailing 12 month is what we look at, which is very important and that's been a 1.1. And so I think our federal business has Been delivering quite fine. On the CR, no, I don't expect that to drive being below a 1.0 times. Speaker 200:43:24And the reason I don't is because we've already won a lot of work that $14,000,000,000 and the majority of that is in federal that we haven't booked yet that we can still convert. We also by the way, one other variable, we've got 59% funded backlog, which is very high. Speaker 800:43:45Thank you. Very helpful. Appreciate the thoughts. Speaker 300:43:49Thanks, Alex. Thanks, Alex. Operator00:43:53Co question. Club. The next question comes from Louie DiPalma with William Blair. Your line is open. Speaker 900:44:10Group. Carrie, Matt and Dave, good morning and great Q4. You're setting the bar very high. Speaker 200:44:18Inc. Thank you, Louis. Thanks Louis. Speaker 900:44:23Are the Exitor Sealing Tech and IP Keys acquisitions performing significantly better than their revenue run rates prior to being acquired. And when Parsons integrates these assets, are you able to unlock significant Cross selling revenue synergies that make the returns much more attractive than The original multiple may suggest. Speaker 200:44:54Yes. So, I would say, Exotour has certainly been Incorporated. Outperforming on a revenue front. Sealing Tech is really recent, but we do expect they're going to deliver a very strong performance. I'll talk about that in a minute. Speaker 200:45:07And IP keys is on track with our expectations. We do get the value as you're pointing out, Louis, From the cross selling, we haven't factored in revenue or cost synergies as we've made these acquisitions. So anything that we get is kind of above and beyond. Great example would be IP Keys. They have a book of customers, hundreds of customers in the utility and the water space. Speaker 200:45:32So in addition to selling those customers their capabilities, we can also sell the broader Parsons capabilities in those market areas. Inc. Likewise, we can take their products to our current utility and water wastewater customers and sell that. We've seen synergies already even between Sealingtech and IP Keys and coming up with a new product line offering Inc. Called Cyberscape and we're going to be putting IP keys capabilities on the flyaway kits at SealingTec. Speaker 200:46:02So that's how quickly we do the integration and we drive synergies, but that's definitely a big factor helping our momentum. Speaker 900:46:12Great. And another one, Parsons has been particularly strong with capturing classified cyber contracts over the past Call. In general, what is driving that strength? And are these cyber contracts or some of them affiliated with the geopolitical conflicts in Europe, the Middle East and Asia. And in general, what is Parsons presence with the Endo Patcom. Speaker 900:46:46Thanks. Speaker 200:46:46Okay. So, I'll take the first one. What's Driving the cyber, I would say, 1st, we're one of the leaders in offensive cyber and that comprise about 75% of our business. We have in-depth relationships across the Department of Defense Military Services as well as the intelligence community and customers like Cyber Command. So we've been able to get a very strong position. Speaker 200:47:11We've done work for them for a long time. They know they can count on us, particularly in a time of need, as you mentioned, such as the conflict affiliation. I can't comment too much more on that in-depth Just due to the classification nature. In the Indo Paycom, we have several efforts underway. We've been on Guam for over 3 decades supporting public works that's through our critical infrastructure group. Speaker 200:47:35We also are on Guam supporting Defense of Guam through the missile for the Missile Defense Agency through our team's contract. We're on Kwajalein Island. We built the Kwajalein Airfield. We're also just recently won the Quadline Housing and we're looking for continued expansion there. Particularly that budget got increased from 9.1 $1,000,000,000 to over $14,000,000,000 in the NDAA. Speaker 200:47:58So that's going to be a big focus area. And then on our Defense and Intelligence side, we have over 100 folks located out in Hawaii that are working on cyber and intelligence type of work. Speaker 900:48:10Great. And one for Matt. Your acquisitions, are they typically margin accretive and you just forecast that you would expect 2 to 3 acquisitions per year. And so in general, should these acquisitions be one of the drivers for your continued margin expansion that you guided to as part of that 2025 outlook? Speaker 300:48:38Yes, absolutely, Louis. We target adjusted EBITDA of 10% or better, and so all these companies are performing well. I I'd like to say that we like to buy companies that are doing well and bring them in and have them do better as part of Parsons versus kind of betting on the come, whether it's on revenue growth or margin. So, Yes, absolutely. Each one of these acquisitions are expected to be accretive in a very short term and have strong cash flow as well. Speaker 900:49:03Excellent. Thanks, everyone. Speaker 200:49:05Thanks, Luke. Operator00:49:08One moment for our next question. The next question comes from Mariana Perez Mora with Bank of America. Your line is open. Speaker 1000:49:21Group. Hi, this is Samantha Styro on for Mariana. Speaker 200:49:24Hi, Samantha. Hi. Speaker 1000:49:27I just wanted to ask about labor and hiring and kind of what you're seeing on these what you just mentioned, the classified contracts Getting those certifications, are you seeing still a strong or like a long wait list there? Speaker 200:49:44Yes. So overall in labor and hiring, we're doing very well. Obviously, that's been critical to driving our organic growth. We've seen our retention improve. In fact, it improved by over 1% year to year, which is very strong, and we were already ahead of PwC Industry Benchmarks in that area. Speaker 200:50:02As far as classified contracts, the clearance processing moved to DCSA Back in 2019 and when it did, they were able to drop the backlog and I want to say it was close to 75%. And they also sped up the clearance processing time for Secret and Top Secret, which has really helped us. Classified area is always going to be the most difficult though to hire, but we've seen some improvement in recent years. Speaker 1000:50:31Great. And then on these programs that you have the $14,000,000,000 of unbooked, would those require more hiring to keep up with? And are you kind of hiring ahead of that? Or do you have the people in place already? Speaker 200:50:45Yes. So, it's a mix. So, and I'll put them into 2 categories. When you look at it, about half that $14,000,000,000 of unbooked is option years. So, those would be current programs that we're performing and we'll get follow on options. Speaker 200:50:58In general, most of those would have the people performing their contract today. There might be some increased or surge scope as you go into the options, but generally those would be on board. The ones where we would get additional labor is the ones that are unbooked ceiling. So a case of example of that would be we won an airbase, air defense Program in Europe. And so that has just shy of $1,000,000,000 ceiling. Speaker 200:51:22So we booked that as we get task orders and those task orders represent all new work. So it's about fifty-fifty. Speaker 1000:51:30Got it. Thank you so much. Speaker 200:51:32Thank you. Operator00:51:36Call. That is all the time we have for questions today. I would now like to turn the call back to Dave for closing remarks. Call. Speaker 100:51:46Thank you and thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to speaking with many of you over the next Couple of weeks and with that we will end today's call. Thank you. Have a great day. Operator00:52:00That concludes today's conference call. Thank youRead morePowered by