NYSE:PSN Parsons Q2 2024 Earnings Report $67.22 +2.16 (+3.31%) As of 01:47 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Parsons EPS ResultsActual EPS$0.77Consensus EPS $0.59Beat/MissBeat by +$0.18One Year Ago EPSN/AParsons Revenue ResultsActual Revenue$1.67 billionExpected Revenue$1.53 billionBeat/MissBeat by +$140.73 millionYoY Revenue GrowthN/AParsons Announcement DetailsQuarterQ2 2024Date7/31/2024TimeN/AConference Call DateWednesday, July 31, 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)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Parsons Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 31, 2024 ShareLink copied to clipboard.There are 14 speakers on the call. Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2024 Parsons Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer 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, Investor Relations. Operator00:00:40Please go ahead. Speaker 100:00:42Good. Thanks, Michelle. Good morning and thank you for joining us today to discuss our Q2 2024 financial results. Please note that we provide presentation slides on the Investor Relations section of our website. On the call with me today are Cary Smith, Chair, President and CEO and Matt Apollos, CFO. Speaker 100:01:00Today, Cary will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our Q2 financial results as well as a review of our increased 2024 guidance. We then will close with a question and answer session. Management may also make forward looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. Speaker 100:01:38These risk factors are described in our Form 10 ks for fiscal year ended December 31, 2023, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward looking statement disclosure. We do not undertake any obligation to update forward looking statements. Management will also make reference to non GAAP financial measures during this call, and we remind you that these non GAAP financial measures are not a substitute for the comparable GAAP measures. And now I'll turn the call over to Keri. Speaker 200:02:07Thank you, Dave. Good morning, and welcome to Persson's Q2 2024 Earnings Call. We are very pleased with our Q2 and year to date results and what the entire Persons' team continues to accomplish. Over the last 3 years, we have transformed the company into a high value solutions provider that differentiates by leveraging software and cutting edge technologies, such as artificial intelligence, cloud computing and advanced signal processing. This transition has enabled us to deliver record financial results, industry leading organic revenue growth in both segments, improved win rates and a demonstrated ability to win larger and higher margin contracts. Speaker 200:02:53Also, our strong balance sheet and free cash flow are enabling us to continue to make internal investments and accretive acquisitions that support our long term growth and margin expansion goals as well as strengthen our capabilities in both segments. These accomplishments are the result of our clear strategic intent and ability to execute. Our purpose built federal solutions portfolio is addressing national security threats from near peer adversaries that are increasingly aggressive. Our technology driven infrastructure portfolio and our strong market position are enabling us to take advantage of the unprecedented global infrastructure spending. As our financial results demonstrate, we are executing on our strategy and delivering on our customers' missions, and the benefits of our portfolio transformation have allowed us to capitalize on the tailwinds that are positively impacting both our Federal Solutions and Critical Infrastructure segments. Speaker 200:03:57For the Q2, we've delivered record results for all three major financial metrics, including total revenue, adjusted EBITDA and operating cash flow. This is the 10th consecutive quarterly record for revenue and the 11th consecutive quarterly record for adjusted EBITDA. For the quarter, we generated $1,700,000,000 in revenue for the first time in our company's history and delivered organic revenue growth of 22%. This is now the 5th consecutive quarter in which we achieved year over year organic revenue growth of more than 20%. During the Q2, we also delivered double digit total revenue growth in all 4 business units in major geographies. Speaker 200:04:48Adjusted EBITDA of $150,000,000 was also a record and increased 27% year over year, which outpaced total revenue growth. We expanded our adjusted EBITDA margins by 30 basis points as we continue to execute on higher margin contracts and efficiently manage the business. In addition, we reported record 2nd quarter operating cash flow and increased our trailing 12 month cash flow by more than 115% from the prior year period. As a result of our strong second quarter performance, we are increasing our 2024 guidance ranges for all financial metrics, which Matt will discuss in a few minutes. Our ability to win new business across both segments in all 6 end markets continues with Parsons trailing 12 month book to bill ratio of 1.0 times, representing a 10% increase in contract award activity. Speaker 200:05:49In addition, the Critical Infrastructure segment has achieved a book to bill ratio of 1.0 or greater for the 15th consecutive quarter. Much of our success in the infrastructure market is due to our ability to infuse technology across our portfolio. For example, we've implemented artificial intelligence to automate construction supervision across many of our Giga projects in the Middle East. This has led to reduced cost, increased productivity and safety and margin expansion. In Critical Infrastructure, during the Q2, we were awarded many new strategically important contracts. Speaker 200:06:28In Saudi Arabia, we were awarded over $160,000,000 of awards during the quarter, including a confidential $41,000,000 contract for technical consulting, dollars 60,000,000 of additional scope on existing contracts, approximately $30,000,000 of new work for a resort and marina and new work supporting a Saudi developer. Our momentum in the Middle East and the Saudi market in particular continues as both markets achieved double digit year over year revenue growth in the Q2, exceeding our Q2 plan. We also increased our fiscal year 2024 forecast for both the EMEA and Saudi Arabia markets. We currently have the largest qualified pipeline in our company's histories in both Saudi and the Middle East overall, and our Saudi business is so diverse that no single contract represents more than 2% of Parsons' total revenue. In Infrastructure North America, we received a new $46,000,000 contract for operations and maintenance of intelligent transportation systems by the Virginia Department of Transportation and a new rail and transit project. Speaker 200:07:43During the quarter, the Gateway Tunnel project secured the last piece of $16,000,000,000 in funding, signing the nearly $7,000,000,000 full funding grant agreement with the United States Department of Transportation and securing $4,000,000,000 in loans for the local match. This is a milestone project we won as a delivery partner in the Q1 and represents the largest investment in a mass transit project in modern history. As I indicated last quarter, Parsons has recently won 3 of the largest North America transportation projects in our company's history: the Hudson River Tunnel, JFK International Airport Roadways and Newark Bay Bridge Projects. These 3 major awards along with our 2nd quarter wins demonstrate the success that we're having in the transportation market. It also highlights that federal, state, local and international funding continue to flow at a steady pace. Speaker 200:08:41In our Federal Solutions segment, during the Q2, we received an option period award totaling $460,000,000 under the company's Technical Engineering Advisory and Management Support or TEAMS contract. On this program, Parsons provides system engineering and integration for the nation's missile defense system. This includes engineering expertise to oversee the development of hardware and software builds, ensure cyber resilience and provide war fighting capabilities to defend the United States homeland, our deployed forces and our allies. This award continues Parsons' more than 40 year history, supporting the Missile Defense Agency with technology enabled services such as digital engineering. We also exercised the next option here totaling $110,000,000 on the General Services Administration C5ISR, exercise operations and information services or CEOS contract. Speaker 200:09:41Under this program, we design, develop, train and deploy scalable machine learning solutions to extract actionable intelligence from vast amounts of data and deliver it to intelligence analysts and war fighters. In the Indo Paycom region, we continue to strengthen our presence. Right after the quarter ended, we were awarded a $69,000,000 contract over 3 years to provide Army Family Housing. Our presence in Guam, Kwajalein and Hawaii continues to strengthen and is aligned to the fiscal year 2025 Pacific Deterrence Initiative of $9,900,000,000 for targeted investment to enhance U. S. Speaker 200:10:23Force posture, infrastructure, presence and readiness of U. S. Allies and partners in the Indo Pacific region. After the Q2 ended, we entered into a definitive agreement to acquire Black Signal Technologies in a transaction valued at approximately $200,000,000 This acquisition, which is expected to close in August 2024, is consistent with our strategy of completing accretive acquisitions of companies we know well and have revenue growth and adjusted EBITDA margins of 10% or more, while adding critical intellectual property that strengthens our existing portfolio. BlackSignal is a next generation digital signal processing, electronic warfare and cybersecurity provider built to counter near peer threats. Speaker 200:11:16They will expand Persson's customer base across the Department of Defense and Intelligence community and significantly strengthen Persson's positioning within offensive cyber operations and electronic warfare, while adding new capabilities in the counterspace radio frequency domain, a market anticipated to grow more than 10% annually with double digit margin expectations. BlackSignal uses artificial intelligence and machine learning to create innovative signal processing techniques that detect and disrupt difficult to access adversary command and control systems and platforms. We look forward to welcoming BlackSignal's talented employees into the Parsons family and to the significant contributions they will make to our business. We continue our 80 year history of cultivating a responsible enterprise. As outlined in today's Q2 earnings release, Parsons received multiple awards for our innovative approach to delivering resilient, sustainable infrastructure. Speaker 200:12:21In addition, we were recognized by Engineering News Record as 1 of the top 3 global companies in 2024 in 3 categories: program management, construction management and program construction management for fee. These rankings reflect the company's worldwide reputation and ability to successfully win and execute infrastructure programs. Parsons was also named as one of the best employers for new graduates by Forbes. As I look forward, I'm extremely excited about our bright future. We have strong tailwinds in both segments and across our 6 core end markets and an experienced management team that consistently delivers strong financial results. Speaker 200:13:08In addition, we have a robust pipeline of accretive acquisitions that we will continue to pursue given the strength of our balance sheet. We also have significant financial visibility with approximately 3% of our revenue up for repeat in 2024 and less than 10% in 2025. A total backlog of $8,800,000,000 of which 62% is funded. And we have $57,000,000,000 of qualified pipeline with $13,000,000,000 of single award contract wins that are not yet included in either our bookings or our backlog. With that, I'll turn the call over to Matt to provide more details on our Q2 financial results and our increased fiscal year 2024 guidance. Speaker 200:13:58Matt? Speaker 300:13:59Thank you, Carey. As Carey indicated, our momentum continued through the Q2 of 2024 and was highlighted by record results for total revenue, adjusted EBITDA and operating cash flow. We are very pleased with the growth we achieved given our record results in the Q2 of 2023, resulting in a tough comparable period for the Q2 of 2024. Additionally, our growth was consistent across the portfolio as we experienced double digit total revenue growth in all business units and major geographies. Turning to our results. Speaker 300:14:302nd quarter revenue of $1,700,000,000 increased $314,000,000 or 23% from the prior year period and was up 22% on an organic basis. For perspective, this significant growth was achieved off our record Q2 in 2023, where we grew $348,000,000 or 34%. Organic growth for the Q2 was driven by continued ramp up on recent contract awards and execution on our backlog programs, including significant growth from our critical infrastructure protection, cyber and urban development markets. SG and A expenses for the Q2 were 13.4% of total revenue compared to 15.6% in the prior year period as we continue to focus on efficient growth across the portfolio while investing in the future through technology, business development and hiring and retention initiatives. Adjusted EBITDA of $150,000,000 increased $32,000,000 or 27%, and adjusted EBITDA margin expanded 30 basis points to 9%. Speaker 300:15:32These year over year increases were As with revenue, our adjusted EBITDA growth was compared to a very strong Q2 in 2023 where we experienced growth of 53% over the prior year period. Even with the strong performance last year, we outperformed in 2024. On a year to date basis, adjusted EBITDA margin at the Parsons level is 9.1% compared to 8.2% in 2023. I'll turn to our operating segments, starting first with Federal Solutions, where 2nd quarter revenue increased $226,000,000 or 30% from the Q2 of 2023. This increase was driven by organic growth of 27% and the contribution from our SealingTek acquisition. Speaker 300:16:23Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts to include strength in our critical infrastructure protection and cyber markets. Federal Solutions adjusted EBITDA increased by $17,000,000 or 20% from the Q2 of 2023. This increase was driven primarily by increased volume on accretive contracts and effective cost control. Adjusted EBITDA margin of 10.4 percent was down from the prior year period as a result of the $20,000,000 in non recurring incentive fees realized in Q2 of 2023. Excluding these incentive fees, our Federal Solutions adjusted EBITDA margin would have increased by 160 basis points from the Q2 of 2023. Speaker 300:17:06On a year to date basis, federal adjusted EBITDA margins of 10.3% are ahead of plan and guidance as a result of improved business mix. Moving now to our Critical Infrastructure segment. 2nd quarter revenue increased 15% from the prior year period on both an organic and inorganic basis. Organic growth was driven by higher volume in our Middle East and North American infrastructure portfolios. Critical Infrastructure adjusted EBITDA increased by $15,000,000 or 46% from the Q2 of 2023. Speaker 300:17:39Adjusted EBITDA margin increased 150 basis points to 7%. The adjusted EBITDA increases were driven by growth on accretive programs and improved operating performance. Year to date, Critical Infrastructure margins are 7.3% are 140 basis points ahead of 2023, and we're optimistic we will continue to see improvement as we complete legacy programs and drive growth on higher margin contracts. Next, I'll discuss cash flow and balance sheet metrics. During the Q2 of 2024, we generated $161,000,000 of operating cash flow compared to $23,000,000 in Q2 of 2023. Speaker 300:18:17On a trailing 12 month basis, we generated a record $492,000,000 of operating cash flow, a 117% increase over the prior 12 month period. These increases were primarily driven by improved profitability and strong collections across the portfolio. During the Q2, net DSO declined year over year by 16 days to 60 days. Capital expenditures totaled $9,000,000 in the Q2 of 2024, which is relatively consistent with last quarter and the prior year period. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue, while continuing to invest in strategic areas like expanding classified facilities and space technology to support future growth. Speaker 300:19:02Free cash conversion was 150% for the Q2 and 124% on a trailing 12 month basis with an intentional focus on approved contract terms and cash collections. Our balance sheet remains strong as we ended the 2nd quarter with a net debt leverage ratio of 1 point three times compared to 1 point six times at the end of the Q1 of 2024. Considering the future impact of the $200,000,000 all cash BlackSignal acquisition, our pro form a net debt leverage ratio would be 1.7x when calculated on the 2nd quarter results. Our strong free cash flow is enabling us to delever the balance sheet while continuing to make additional internal investments and accretive acquisitions that support our long term growth objectives. During the quarter, we were opportunistic and repurchased $10,000,000 of Parsons stock at an average price of 76.30 dollars On inception date basis, we purchased $65,000,000 of stock at an average price of 41.54 dollars Turning next to bookings. Speaker 300:20:02On a trailing 12 month basis, contract awards increased 10% and our book to bill ratio was 1.0x. In our Critical Infrastructure segment, we achieved a quarterly book to bill ratio of 1.0 in the 2nd quarter, marking the 15th consecutive quarter with a book to bill ratio of 1.0 or greater. 2nd quarter contract award activity decreased 22% year over year to $1,500,000,000 for a book to bill ratio of 0.9 times. Contract awards decreased from the prior year period due to the timing of large contracts in both the Q2 of 2023 and the Q1 of 2024. With industry leading organic growth and a robust pipeline of new opportunities, we continue to have confidence in our ability to sustain above market growth rates. Speaker 300:20:47We ended the 2nd quarter with total backlog of $8,800,000,000 which is consistent with the prior year period. As previously noted, this does not include $13,000,000,000 of contract wins. Now let's turn to our guidance. We're increasing our 2024 guidance ranges as a result of our record second quarter performance, recent contract wins and option awards, positive end market exposure and our favorable outlook for the remainder of the year. For 2024, we are increasing our revenue range by $200,000,000 at the midpoint to $6,350,000,000 to $6,550,000,000 This represents total revenue growth of 19% at the midpoint and 18% on an organic basis. Speaker 300:21:29Additionally, we are increasing our adjusted EBITDA range. We now expect adjusted EBITDA to be between $555,000,000 $595,000,000 which represents 24% growth at the midpoint of the range and continues to exceed our revenue growth. Margin at the midpoint of our increased revenue and adjusted EBITDA ranges remains at 8.9%, which is 40 basis points above our fiscal 2023 results. We are also increasing our cash flow guidance. We now expect operating cash flow to be between 3.95 $455,000,000 At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 100% of adjusted net income. Speaker 300:22:08Other key assumptions in connection with our 2024 guidance are outlined on Slide 10 in today's PowerPoint presentation located on our Investor Relations website. In summary, we've had an exceptional first half of the year with great top and bottom line and cash flow results. We are putting the balance sheet to use after announcing another strategic acquisition, which we believe will further enhance our technology offerings and support long term growth expectations. Our execution has been strong across all business units and major geographies. We are confident in our ability to achieve our increased 2024 guidance ranges. Speaker 300:22:42With that, I'll turn the call back over to Keri. Speaker 200:22:45As some of you may know, this month is my 3 year anniversary as the CEO of Parsons. As I reflect over the last 3 years, I am very proud of what the entire Parsons team has accomplished. We have a laser focused strategy that has transformed the company into a solutions provider that differentiates with software and advanced technology. We intentionally positioned the company in 6 enduring, growing and profitable end markets. This has resulted in record revenue, profitability and cash flow, industry leading organic revenue growth, improved win rates and a demonstrated ability to move up the value chain and win larger and more profitable jobs. Speaker 200:23:27In addition, we continue to lead with technology transformation in critical areas, including cyber, artificial intelligence, space, electronic warfare, advanced transportation systems and emerging contaminants. I'm extremely pleased with our last 3 years of performance, which is a direct result of our 18,500 employees' focus on delivering our customers' critical missions. Speaker 100:23:59Operator, you can open the line for questions, please. Operator00:24:02Thank And our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Speaker 400:24:22Hey, good morning guys and thank you very much. Hi, Louise. Carrie, congrats on your 3 year anniversary. Thank you. So, good job on great job on margins, Speaker 500:24:32up 40 bps. Speaker 400:24:34But the guidance was unchanged at 8.9. So maybe if you could just talk about how we should think about profitability because it's been an issue in the rest of the sector as your new wins ramp given your organic growth? Speaker 200:24:48Yes. Thanks, Sheila. So first, I would say we are pleased with our profit. We're up 90 basis points year to date. We were up 30 basis points for this quarter, and we expect to be up 40 basis points for the year. Speaker 200:25:01In addition, as we look forward, we expect to be up 20 to 30 basis points each year and years after. So I think we've done a great job of expanding margin, plus our EBITDA dollars have been growing faster than our revenue growth. In this quarter, we were at 27% versus 23% on revenue growth. We do feel on the critical infrastructure side, we can still get further margin expansion. Eventually, that's a business that we expect to be double digits. Speaker 200:25:30We do have one legacy program remaining that we expect to wrap up in the Q3. And once that's behind us, we expect that we'll see some additional tailwinds. Speaker 400:25:42Great. And then if I could ask one more on the unbooked pipeline, that's been really helpful. But I believe it came down from $14,000,000,000 to $13,000,000,000 So kind of how do you think about unbooked pipeline coming into the backlog and how we think about that the cadence of conversion there? Speaker 200:25:59Yes, thanks. Great question, Sheila. It was $14,000,000,000 Now it's just over $13,000,000,000 We converted 2 programs, which we announced on the call, the Teams and the CEOS. Those were previously in that awarded not booked. So those converted during the quarter. Speaker 200:26:15We do expect as we get new awards that gets replenished and that's a metric that we're going to continue to attract. So it is very important since we don't reflect that $13,000,000,000 in our $8,800,000,000 backlog or in our bookings. Speaker 400:26:32Got it. Thank you so much and great quarter. Speaker 500:26:35Thank you. And Operator00:26:38the next question comes from Tobey Sommer with Truett Securities. Your line is open. Speaker 600:26:45Thank you. Could you please discuss any programs or contracts that are winding down or coming to some sort of natural completion and contrast that with any new wins that are ramping that could provide a basis for a sequential revenue trajectory in the second half of the year? Speaker 200:27:08Yes. On the ones that are winding down, it's about $86,000,000 this year, and we tend to run about $100,000,000 on any given year, and it's really 3 contracts that comprise that. The ones that are ramping up, I would say the GSA $1,200,000,000 award that we had over a year ago, we're starting to see some ramp up there. We continue to do well in all of our cyber work across various infrastructure side of the house, I've mentioned all the Middle East wins that we've had, including the additional $160,000,000 that we received this quarter, that's been strong. And North America winning our 3 largest programs within the last 12 months have all ramped up. Speaker 200:27:55And that's obviously what's been a key contributor to driving such strong organic growth across both business segments. Speaker 600:28:04Thanks. And could you also discuss the maybe put a little bit more color on the decline in backlog and slower bookings in the quarter, and your expectations for contract activity and bookings as you look into the second half of the year? Speaker 200:28:25Sure. So backlog was relatively flat. Book to bill, as you're aware, is lumpy. We had a very strong book to bill of 1.4 times in Q1, followed by 0.9 times in Q2. So year to date, we're doing very well at 1.12 times. Speaker 200:28:42I would also highlight that both segments are over 1.1 times year to date. And then trailing 12 months for Parsons has been greater than 1.0 times. And once again, both segments are over 1.0 times. I think bookings are interesting. I think organic revenue growth is what really matters. Speaker 200:29:01And we're really pleased that we've had 5 consecutive quarters of greater than 20% growth. On the backlog, I would also highlight that that does not reflect again the $13,000,000,000 of single work that Parsons has already won. Speaker 600:29:18Thanks. I'll sneak one more if I could. Could you elaborate a little bit on opportunities for revenue synergies with Black Signal and comment about what the prospective pipeline of M and A looks like if you're going to be able to get your sort of quota or target for the year? Speaker 200:29:40Yes. So I would say first very excited about BlackSignal. It's directly aligned with Persson's solution selling vision. They have 90% intellectual property enabled offerings and it drives 67% of sole source awards. It strengthens our position in key markets, offensive cyber operations and electronic warfare. Speaker 200:30:00And if I just delve a bit deeper into that, I would say in the offensive cyber side, they've played a lot more in the research and development. We're strong in the operations. So it really strengthens our full spectrum cyber operations capability. In the electronic warfare space, we both play there, but we happen to look at different signals of interest and both of us leverage our advanced digital signal processing capabilities. And then they provide new capabilities for us in the counterspace radio frequency domain area, again, that's expected to see double digit growth. Speaker 200:30:33They also improve our posture in the endo pay com region, which I talked about a little bit on the call. And then in the electronic warfare area also, I would point out that we play with Title 10 tactical military, whereas they bring a lot of Title 50 strategic. So overall, this just a terrific acquisition. We have customer alignment. They're strong with the Air Force, with the Navy, with DARPA and the Intel community. Speaker 200:30:59We're strong with the Army in different parts of the Intel community. So extremely complementary, and as with all of our acquisitions, we really look for them to drive us up the value chain. On your second question, the pipeline is still very strong. We have a lot of candidates within both critical infrastructure and within federal, and we're on track to do 2 to 3 acquisitions this year. Thank you very much. Speaker 200:31:19Thank Operator00:31:29Burt Soudin with Stifel. Your line is open. Speaker 700:31:33Hey, good morning. Speaker 300:31:35Good morning, Burt. Speaker 600:31:36Good morning, Burt. Speaker 700:31:37Maybe just to start with a higher level question. I mean, if we go back to early 2023 when you guys hosted your Investor Day, looking for growth on the federal side more in that sort of low to mid single digits, critical infrastructure mid single digits and obviously sort of blown through those expectations and here you are with 5 straight quarters of 20 plus percent organic. I guess the question is, as your visibility toward growth improved, do you see Parsons as moving more to position of being a growth company? And if you think about that trajectory, what do you think drives that more? Is it going to continue to be the federal side? Speaker 700:32:14Or do you think infrastructure will be the greater grower longer term? Speaker 200:32:18Yes. So I would say what's happened since our Investor Day, first, we have a very clear strategic intent. We're focused on 6 core end markets that are all enduring, growing and sustainable and profitable. I would say all 4 business units, both the segments, all major geographies have hit on all cylinders. Everybody is delivering double digits and that's expected for the year. Speaker 200:32:41And that's what's been happening. As far as our visibility increasing, I think we always have pretty good visibility both on the federal and the critical infrastructure side. Trajectory is a growth company. We intend to keep growing. Speaker 300:32:56Yes, Bert, I'd just add, if you think back to the Investor Day, some of the things we outlined at the time, obviously, the overall labor market was kind of uncertain. We had this uncertain inflation environment, budgets were pretty challenged. And of course, win rates on it in a traditional year, we plan 40% to 50% from a win rates perspective. Through the Q2, our win rate is 72 percent at the company level. So things like that we saw last year really strong win rates as well. Speaker 300:33:24So all of those things kind of of contributed. Each one kind of came in better than we were expecting back in the Investor Day. Labor markets are better, budget environment settled down. And so all in all, I think it's that's kind of what's been helping drive the growth. And to your point, we're definitely our goal is long term growth and sustained growth. Speaker 300:33:44And I think it will be balanced. I think CI and federal are both well positioned to continue to grow. Speaker 200:33:50Yes. Just to add to that, we were 72% in Q2. We're 76% win rates year to date, and that's up from 66% a year ago and 49% the year before that. Speaker 700:34:02Got it. Very helpful. On the critical infrastructure side, this is the Q1 we've seen North America growth exceed Middle East. Is that a trend you think will persist? It seems like Middle East is still growing nicely. Speaker 700:34:17And I know, Kerry, you've made some comments about strength in Saudi and seeing improvement in Abu Dhabi. But I'm just curious, is the setup even better for the North American side? Speaker 200:34:29Yes. I think we're going to continue to see growth in both of those, Bert. And I think, as I indicated, they're both expected to grow double digits this year. What we're starting to see is more of the infrastructure bill funds be led out and also the state and local matching funds that are coming about. So that's why we've seen some such large infrastructure projects, some of the biggest ones in our company's history be awarded over the last 12 months. Speaker 200:34:55They both have very strong pipelines, and I think it will be interesting to watch the 2 business units give each other a race because I'm excited about Saudi and the Middle East market as well. The Middle East business this year grew at 12% this quarter and Saudi grew at 18 percent, so very strong. Speaker 300:35:14Yes. Bert, you'll remember last year Middle East grew about 30% -plus so coming off a little bit tougher comps there, whereas North America was kind of high single digits. So we're I think the to Carey's point, North America will kind of follow suit and start to challenge Middle East and we like the idea of the competition. Speaker 700:35:33Thanks. Just one clarification question. I don't know if you might have missed this in your prepared remarks, but is BlackSignal included in guidance or will that be additive? Speaker 200:35:42It's additive to guidance. It is not included. Speaker 300:35:46Right. So just to give some scope, this year we can expect about $30,000,000 worth of revenue, double digit margins. And then next year, I think it was in the release, but just under $100,000,000 in double digit margins. Speaker 600:35:59Thank you. Thanks, Bert. Operator00:36:04And our next question comes from Alex Dwyer with KeyBanc Capital. Your line is open. Speaker 800:36:14Hey, thanks for taking my questions. Speaker 200:36:16Good morning. Thank you, Alex. Speaker 800:36:18Hey, thanks. I wanted to ask about the SG and A leverage and the focus on the indirect cost management we've been seeing. Can you talk a little bit about what specifically has been driving that? And then what should we expect going forward in terms of SG and A for the business? Should this continue to trend down as a percent of revenue going forward? Speaker 300:36:42Yes, Alex, I'd say that we're kind of Carrie and I are pretty comfortable about where we're at right now, call it low to mid teens. We have seen favorable trends, obviously, as revenue growth has been in kind of the 20% to 30% over the past few quarters. We've been kind of controlling costs. We've been doing effective things like, obviously, a lot of folks are pulling facility cost out and things. But obviously to support the growth we've been spending in important areas like technology, BD, things like that. Speaker 300:37:09So I think from a modeling perspective that kind of low to mid teens is a good number for us. But overall, again, really strong performance, and we're heading in the right directions and critical IRAD investments that will benefit long term growth as well. So but I think low to mid teens is a good number from SG and A. I don't think it will go far below that. Speaker 800:37:34Got it. Thank you. That's very helpful. And then secondly, can you talk about the equity and earnings line during this quarter? I think it included a $22,000,000 write down from a design build JV. Speaker 800:37:49Can you just talk about what happened there? Was this the same project from last quarter? And then what's built into the guidance in terms of that equity and earnings line for the remainder of the year? Speaker 200:38:01Yes, I'll take the first part and Matt will take the last part. So first, we're very happy with our margin performance. On a year to date basis, margins are up 90 basis points, and so the businesses are performing quite well. We're also still projecting 40 basis points of margin expansion this year at our midpoint of guidance and 20 to 30 basis points after that. And the Critical Infrastructure segment in the quarter was up 150 basis points. Speaker 200:38:27We did, to your point, take a $22,000,000 adjustment. It was on a joint venture, specifically a construction joint venture project, and that's reflected within equity and earnings. This is the program we mentioned in the Q4 that had some supply chain issues. And so we're still in discussions with the customer on various scope and schedule challenges. Pro form a, the critical infrastructure margin would have been at 10.2% and the Parsons margin would have been at 10.3%. Speaker 200:38:56I'd also like to remind you, Alex, this is business that we no longer pursue. Since I became CEO, we've stopped bidding construction joint ventures. Speaker 300:39:05And Alex, just from a modeling perspective, you can assume kind of call it $3,000,000 to $5,000,000 in the second half for equity and earnings, so a couple of 1,000,000 a quarter. On a normal run rate where we wouldn't have any impacts, we think equity and earnings for the company should run, call it, between $10,000,000 $20,000,000 So if you want to say $15,000,000 ish, I think that's probably $13,000,000 to $15,000,000 is probably a fair number. Speaker 800:39:26Thank you. I'll turn it over there. Speaker 300:39:29Thanks Alex. Operator00:39:31And the next question comes from Andrew Wittmann with Baird. Your line is open. Speaker 900:39:40Yes, great. Thanks for taking my questions. Yes, so that 22%, I think is important to note. As I read the Q here, it looks like there was also some positive offsets on the equity income line. I mean that's a big penalty. Speaker 900:39:52Was there notable or material or can you quantify the positive offsets that were against that $22,000,000 I'm just trying to get a better understanding of the quarter on the CI segment in particular to start out with? Speaker 300:40:05Yes, nothing I would say material, Andy. It's just our kind of normal run rate. If you think about the numbers I just gave about kind of a normal year 2015, we should be seeing $4,000,000 or $5,000,000 a quarter worth of equity and earnings normalized. So, to your point, dollars 22,000,000 minus the offset by the positives is kind of net thought of the equity and earnings position. Speaker 900:40:28Okay. All right, great. Can you just sorry, I missed the start of the call. So did you give your percent complete on that project in particular or can you? And then if you could, could you just, Teri, address a little bit more on the backlog funnel? Speaker 900:40:45You talked about the $13,000,000,000 of single award contracts not yet in backlog. Can you talk about the pipeline size or the amount awaiting notice as well? Speaker 200:40:58Sure. So first on the percent complete on that program, it's around 20% to 25%. The important thing to note though is that the procurement is nearly complete and that's where the supply chain issues occurred. On the backlog, the $13,000,000,000 I'm sorry, your question was? Speaker 900:41:17Can you talk about the size of the total pipeline today or and or the amount of awards that you submitted and that you're waiting notice Speaker 200:41:27for? Sure. So the total pipeline is $57,000,000,000 Within the $57,000,000,000 we have 121 programs that are greater than 100,000,000 dollars And then the value of outstanding proposals awaiting award at the end of the quarter is $6,000,000,000 Within that, we have 14 programs greater than 100,000,000 and we don't have much under protest. It's about $200,000,000 and the majority of that is multiple award contracts. And I will point out that Speaker 900:41:54That's all my questions. Speaker 200:41:56Yes, this is, one of the strongest pipelines that we've had in our company's history. Speaker 900:42:03Great. Thank you for that context. Have a good day. Operator00:42:09And the next question comes from Mariana Perez Mora with Bank of America. Your line is open. Speaker 500:42:16Thank you and good morning everyone. Speaker 200:42:19Good morning Maria. Speaker 500:42:21I'm going to tap again on the margin question. I'm curious if you have any visibility on the backlog and the pipeline of opportunities where you should be like 3 or 5 years from now, excluding any inorganic upside? Speaker 300:42:38Yes, Mario. I think the short answer on that is when we bid jobs and we're what's in the backlog is accretive to the overall margin. If you think about the 2 businesses individually, Carey and I previously have talked about federal. We're comfortable with federal in kind of the mid-9s. I think given a little bit of the mix shift, I haven't really talked about this yet, but if you look at kind of fixed price T and M at the company level this year versus last, it's about a 7% increase in kind of fixed price T and M. Speaker 300:43:04So we're seeing a mix shift that's helped us drive the margins up. You'll see federal north of 10%. So Carrie and I are excited about that's a mix of both acquisitions, SG and A, it's a little bit of everything that we're doing to try to improve margins. So overall, federal, we like and kind of, I'll call it, the high 9s. The CI margins, you'll see in the 7s. Speaker 300:43:25And Carrie and I believe long term, that should trend toward 10%, just how quickly we can get there as we get out from underneath these legacy programs. In the back to your point, the backlog and the bid support that. Speaker 500:43:37Yes. That was my question. Like what are the key milestones that you're looking at to actually go from 7 to 10 in critical infrastructure? Speaker 200:43:46Yes. So several levers. One is continuing to store cost constant as our revenue increases. 2nd one is pricing premium. Demand is so much greater than supply whether you're talking about North America or the Middle East. Speaker 200:43:58So we are seeing higher margins come in. The other areas, again, derisking the portfolio and not getting into some of these legacy construction joint ventures, which we have not done since I took over 3 years ago. So those are all levers that we have and then accretive margins, the companies that we're buying are all greater than 10% EBITDA. Speaker 500:44:19Thank you. And then could you mind typing on the election? What risk do you see going into election and your certainty actually, I don't know, affecting the way that your customers buy? And how do you think this could affect indirectly like any spending on the infrastructure bill or even the state and local funding? Speaker 200:44:41Yes. So we do not see any impact from the election, whether it's over a Republican or a Democrat administration. Starting with federal, what we do and So the capabilities that we've put into our purpose built federal portfolio as far as cyberspace, electronic warfare, and the convergence of those areas is really where the country is focused and needs to be and that has bipartisan support. On the infrastructure side of the House, the infrastructure bill has been passed into law. So it basically would take a lot to overturn it and a lot of that funding, dollars 4.50 $4,000,000,000 as of May had already been delved out. Speaker 200:45:28State and local also is coming up with their own funding. So I do not see any change in the work that we do as far as infrastructure. President Trump, former President Trump stated in a recent speech how important infrastructure was to the country and in particular transportation, that's the area that we play. Speaker 500:45:50Thank you very much. Thank you. Operator00:45:54And the next question comes from Cai von Rumohr with TD Cowen. Your line is open. Speaker 1000:46:03Yes. Thanks so much. Terrific growth at Federal Solutions. So were there a couple of contracts that really had a disproportionate impact on that growth, specifically that one contract, I think you've noted with a confidential customer. And were any of the big drivers in terms of contracts, Are any of those kind of starting to reach their expected run rate? Speaker 200:46:33Yes, Cai. So I would say it was in several areas. First in the critical infrastructure protection area, we saw strong growth, and part of it was on the classified contract. Also saw strong growth in cyber at 25% on the quarter. Other areas too like our army ammunition plant work that's ramping up at Bradford and Holston, that's been important. Speaker 200:46:55And I would say the end of Paycom area still continues to be very strong for us. Speaker 300:47:00Yes. So, Kai, I'd just add to your question. I think the confidential customer, to your point, I think that one has we're about a year into that job. And so we're starting to see kind of a we've kind of seen what the budgets will support in terms of that contract. So we're starting to stabilize on that one. Speaker 300:47:17But as Carey mentioned earlier, we saw 30% -plus growth in cyber in Q1, 25% -plus in Q2. So the cyber business on top of the things Carey mentioned is also quite strong. Speaker 1000:47:29Terrific. And do you have, I think Boo has mentioned that they were impacted by delay in Ukraine funding, their EUCOM business. Do you have any EUCOM business or any other business where a funding delay could impact your rate of growth? Speaker 200:47:50No, we do not. Speaker 1000:47:52Okay, terrific. Thank you very much. Great quarter. Speaker 300:47:56Thanks, Scott. Thank you. Operator00:47:59The next question comes from Louie DiPalma with William Blair. Your line is open. Speaker 1100:48:07Carrie, Matt and Dave, good morning and congrats on the 5 quarters in a row above 20% organic growth. That is very impressive. I don't think it's been done Speaker 300:48:17before. Thanks, Louie. Speaker 1100:48:21From a high level and following up on the previous negative for much of the defense industry. However, could the end to the conflicts actually be positive for Parsons given your role as one of the largest infrastructure providers in the world? Speaker 200:48:51Yes. Great question, Louie, and the answer is yes. So we have capabilities to provide such as de mining capabilities, environmental remediation to be able to get people back in their homes. And most importantly, I would say the rebuild, which is going to be critical for both of those areas. Parsons was heavily involved in the Iraq rebuild years ago. Speaker 200:49:12And so we do intend whenever those conflicts get settled to be able to assist there. Speaker 1100:49:19Great. That is very, helpful in terms of the perception of Parsons as defense contractor versus infrastructure? And also on the infrastructure side, is the U. S. IIJA funding peak in your eyes, Carrie, still expected in 2027? Speaker 1100:49:43Are the dollars flowing? I know that you discussed winning roles on the 3 largest U. S. Projects that were awarded over the past year, but are there other large U. S. Speaker 1100:49:57Projects in the pipeline that can cause the momentum to continue? Speaker 200:50:04Yes, we do believe the peak is still going to be in the 2027 timeframe and then you'll see a 6 to 8 year tail after that. So there's a lot of longevity and we do have good visibility, a very strong pipeline because a lot of these capital plans get put together years in advance. So, very optimistic about our infrastructure pipeline in North America. Speaker 1100:50:28Great. And one more speculative question. It is well known that Parsons is one of the major industry leaders of critical infrastructure in the Middle East and you have a 6 decade relationship. In the news, there's been discussions of the U. S. Speaker 1100:50:50And Saudi Arabia negotiating a defense pact. And I was wondering, is there any long term and I emphasize long term opportunity for Parsons to cross sell some of its defense solutions to that region? I know you're already involved in CENTCOM, but is there an opportunity for you to become even more involved on the defense side given your history in the region? Speaker 200:51:20Yes, we do believe that there is. We're currently involved in a couple of efforts. We do a little bit of F-sixteen maintenance activity and then we're involved in program with the Army Corps engineers supporting missile defense efforts like installation of Patriot and TAB batteries. But we're currently putting together a more robust pipeline around specifically defense once the defense security pact is concluded and also around areas we can uniquely play like should AllDeed become a permanent base. We're a company that does both infrastructure and protection. Speaker 200:51:54And if you look at areas like cybersecurity, physical security, there's a lot of needs there. And once again, we're kind of uniquely positioned with our portfolio. So that is definitely an opportunity for the company. Speaker 1100:52:06Awesome. Thanks, Carrie, and thanks, Matt and Dave. Operator00:52:17And the next question comes from Noah Poponak with Goldman Sachs. Your line is open. Speaker 1200:52:24Hey, good morning, everyone. Speaker 300:52:26Good morning, Noah. Good morning, Speaker 1200:52:30Noah. If I go to the midpoint of the revenue guide, 3Q and 4Q would be lower than 2Q in absolute dollars. That would be atypical relative to your historical seasonality. Maybe I'm not sure that's ever happened. So can you walk me through what would drive that to occur? Speaker 300:52:53Yes. So overall, no, I'd say we're kind of very happy with the year to date performance. Updated guidance is obviously 19% growth at the midpoint. 2nd half still does have some sequential growth. It's pretty nominal to your point, but it is showing some growth. Speaker 300:53:07It flattens a bit with the mix of seasonality. I think I talked before when Kai asked the question about kind of the we do see some programs potentially dealing with some seasonality through the summer. So that might be new this year. And then normally, we have completing programs, Carrie talked about almost $100,000,000 worth of completing programs, but that's offset by the growth on the recent awards and the backlog. So tougher comps coming into the second half. Speaker 300:53:35But overall, we're really happy. I think, like I said, second half is trending in the right direction. The award positioning is good. The capture rates are great. So all in all, we're comfortable with the second half guide. Speaker 1200:53:51Okay. And Matt, I guess, similarly on the cash flow cadence and the guidance, the guidance would imply that the back half as a percentage of the year would be pretty different compared to history and that's a pretty big cash flow number you just had in the Q2 compared to how that usually turns to the year. I guess the working it looks like you had positive change in working capital, but it's not a massive number. What's behind that? Speaker 300:54:22Yes. Overall, just really happy with the collections. We had some major milestones that we're completing. As we've talked about, completing some of these legacy programs will benefit cash flow. And so I would say just generally speaking, really strong cash flow from across the board. Speaker 300:54:36Federal business obviously is pretty consistent quarter over quarter given just underlying cash that builds out every other week or monthly. And so this is really just on the CI side, great performance out of the Middle East. DSO is down pretty significantly in the Middle East as well as North America. So some upfront payments on some big jobs. So all in all, just really great cash performance across the board. Speaker 1200:54:59Okay. And could you just update us on what EBITDA margin you're assuming for the year for each segment to roll up into the total? Speaker 300:55:12Yes. So if I look at second half specifically, Noah, we are we have FS called in the high 9s, 9.8% at the midpoint and CI 7.4%. So a little bit better on CI and a little bit of depression in FS. As you'd suspect, I mentioned earlier, I can't remember whose question it was, but we saw a little bit of a mix shift, stronger fixed price. As we continue to grow on some of these programs, specifically the GSA Fed SIM win, that's a cost type job. Speaker 300:55:39So as we see significant growth on that job, the mix will probably come back a little bit, and we expect federal to kind of balance back out in the high 9s. And then CI, we are expecting slight improvements, but opportunity there if we can get through these last couple of programs. Speaker 1200:55:55Okay, great. Thanks so much. Speaker 300:55:58Thanks Noah. Thanks Noah. Operator00:56:00And the next question comes from Josh Sullivan with The Benchmark Company. Your line is open. Speaker 1200:56:08Hey, good morning. Speaker 200:56:10Good morning, Josh. Speaker 300:56:10Hey, Josh. Speaker 1300:56:12Carrie, congratulations on the 1st year 3 years here and the transformation that you've ushered in. But maybe as soon as we look at the next 3 years, what do you think characterizes Parsons and your efforts? Speaker 200:56:26So I would say as we look at the next 3 years, continuing number 1 to stay laser focused on our customers' emerging missions. We like to play in the new, new space and figure out how we're going to help fix their challenges of tomorrow versus try and run around and take away, for example, other people's pre competes. So I would say if you look at infrastructure, very excited about the work we're doing in the Middle East. Those are all greenfield projects. We're having the opportunity to transform a country, which is kind of a once in a lifetime opportunity, build new transportation systems, new residential areas, new marinas, new tourism centers, entertainment centers. Speaker 200:57:06As I look at North America, I would say it's more a brownfield opportunities and those are equally as challenging. How do you for example, we just forwarded the Englewood project, which is a rail and transit project out in California to help Los Angeles get ready to host the World Cup and get ready for the Olympics. So how do you position for some of these big events? And that's going to carry us sort of through the end of the decade. As I look forward to, I would say, on the federal side of the house, we're going to continue to do what we've been doing very successfully, position ourselves as an exquisite federal company against near peer adversaries and stay laser focused in the areas where we're very strong, offensive cyber capabilities, electronic warfare, space, digital signal processing, continue to move up the value chain, bid and win larger jobs, and kind of keep a playbook for us that's been working and staying on the leading edge of our customers' challenges. Speaker 900:58:06And then just maybe to Speaker 1300:58:07put a finer point on you talked about the Middle East there and your Saudi exposure. I think you mentioned no programs larger than 2%. There has been some conversation around the face of some of those investments in the region. What are you guys seeing currently? Speaker 200:58:24Yes. So Saudi Vision 2,030 was launched by the Crown Prince in January 2016 to diversify the economy away from oil and transform it economically, socially and culturally. And they're going to be on the world stage several times over the next decade. They're going to host Asian Games and Asian Winter Games 2029, the World Expo 2,030 and the FIFA World Cup in 2,034. So as a result, infrastructure is going to be prioritized. Speaker 200:58:50It's going to receive significant funding in order for Saudi to achieve its vision and be on the world stage over the next 5 to 10 years. I would also highlight the public investment funds, the Sovereign Wealth Fund for Saudi Arabia. It's one of the world's largest funds, controlling an estimated assets of nearly $1,000,000,000,000 and it's directly mandated to realize Saudi Vision 2,030. They're going to be increasing their annual deployment of capital from $40,000,000,000 to $50,000,000,000 a year up to $70,000,000,000 a year after 2025. And total construction output in Saudi Arabia estimated to be $121,000,000,000 in 2024. Speaker 200:59:27Infrastructure construction is projected to grow at a compound annual growth rate of 6% through 2027. We've been there a long time. We have extremely close relationships with customers. I just visited the region last month, had the opportunity to be with the CEOs of some of the major giga projects that are going on. So we well understand the timing of these projects and the imperative to get them accomplished for Saudi Arabia. Speaker 1200:59:54Great. Speaker 1300:59:55Thanks for Speaker 1200:59:55the time. Speaker 500:59:57Thank you. Thanks, Josh. Operator00:59:59That is all the time that we have for questions. I would now like to hand the call back over to Dave Spille for closing remarks. Speaker 101:00:08Thank you. And thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. And we look forward to speaking with you soon. And with that, we'll end today's call. Speaker 101:00:17Have a great day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallParsons Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) 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.comFBI Warns: Wave Of Retiree Cyber Hacks Coming In 2025Try to think back to the fall of 2008… The pandemic accelerated America's descent into a “no-cash society” by several years…April 24, 2025 | Colonial Metals (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 Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket 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? 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There are 14 speakers on the call. Operator00:00:00Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2024 Parsons Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer 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, Investor Relations. Operator00:00:40Please go ahead. Speaker 100:00:42Good. Thanks, Michelle. Good morning and thank you for joining us today to discuss our Q2 2024 financial results. Please note that we provide presentation slides on the Investor Relations section of our website. On the call with me today are Cary Smith, Chair, President and CEO and Matt Apollos, CFO. Speaker 100:01:00Today, Cary will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our Q2 financial results as well as a review of our increased 2024 guidance. We then will close with a question and answer session. Management may also make forward looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. Speaker 100:01:38These risk factors are described in our Form 10 ks for fiscal year ended December 31, 2023, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward looking statement disclosure. We do not undertake any obligation to update forward looking statements. Management will also make reference to non GAAP financial measures during this call, and we remind you that these non GAAP financial measures are not a substitute for the comparable GAAP measures. And now I'll turn the call over to Keri. Speaker 200:02:07Thank you, Dave. Good morning, and welcome to Persson's Q2 2024 Earnings Call. We are very pleased with our Q2 and year to date results and what the entire Persons' team continues to accomplish. Over the last 3 years, we have transformed the company into a high value solutions provider that differentiates by leveraging software and cutting edge technologies, such as artificial intelligence, cloud computing and advanced signal processing. This transition has enabled us to deliver record financial results, industry leading organic revenue growth in both segments, improved win rates and a demonstrated ability to win larger and higher margin contracts. Speaker 200:02:53Also, our strong balance sheet and free cash flow are enabling us to continue to make internal investments and accretive acquisitions that support our long term growth and margin expansion goals as well as strengthen our capabilities in both segments. These accomplishments are the result of our clear strategic intent and ability to execute. Our purpose built federal solutions portfolio is addressing national security threats from near peer adversaries that are increasingly aggressive. Our technology driven infrastructure portfolio and our strong market position are enabling us to take advantage of the unprecedented global infrastructure spending. As our financial results demonstrate, we are executing on our strategy and delivering on our customers' missions, and the benefits of our portfolio transformation have allowed us to capitalize on the tailwinds that are positively impacting both our Federal Solutions and Critical Infrastructure segments. Speaker 200:03:57For the Q2, we've delivered record results for all three major financial metrics, including total revenue, adjusted EBITDA and operating cash flow. This is the 10th consecutive quarterly record for revenue and the 11th consecutive quarterly record for adjusted EBITDA. For the quarter, we generated $1,700,000,000 in revenue for the first time in our company's history and delivered organic revenue growth of 22%. This is now the 5th consecutive quarter in which we achieved year over year organic revenue growth of more than 20%. During the Q2, we also delivered double digit total revenue growth in all 4 business units in major geographies. Speaker 200:04:48Adjusted EBITDA of $150,000,000 was also a record and increased 27% year over year, which outpaced total revenue growth. We expanded our adjusted EBITDA margins by 30 basis points as we continue to execute on higher margin contracts and efficiently manage the business. In addition, we reported record 2nd quarter operating cash flow and increased our trailing 12 month cash flow by more than 115% from the prior year period. As a result of our strong second quarter performance, we are increasing our 2024 guidance ranges for all financial metrics, which Matt will discuss in a few minutes. Our ability to win new business across both segments in all 6 end markets continues with Parsons trailing 12 month book to bill ratio of 1.0 times, representing a 10% increase in contract award activity. Speaker 200:05:49In addition, the Critical Infrastructure segment has achieved a book to bill ratio of 1.0 or greater for the 15th consecutive quarter. Much of our success in the infrastructure market is due to our ability to infuse technology across our portfolio. For example, we've implemented artificial intelligence to automate construction supervision across many of our Giga projects in the Middle East. This has led to reduced cost, increased productivity and safety and margin expansion. In Critical Infrastructure, during the Q2, we were awarded many new strategically important contracts. Speaker 200:06:28In Saudi Arabia, we were awarded over $160,000,000 of awards during the quarter, including a confidential $41,000,000 contract for technical consulting, dollars 60,000,000 of additional scope on existing contracts, approximately $30,000,000 of new work for a resort and marina and new work supporting a Saudi developer. Our momentum in the Middle East and the Saudi market in particular continues as both markets achieved double digit year over year revenue growth in the Q2, exceeding our Q2 plan. We also increased our fiscal year 2024 forecast for both the EMEA and Saudi Arabia markets. We currently have the largest qualified pipeline in our company's histories in both Saudi and the Middle East overall, and our Saudi business is so diverse that no single contract represents more than 2% of Parsons' total revenue. In Infrastructure North America, we received a new $46,000,000 contract for operations and maintenance of intelligent transportation systems by the Virginia Department of Transportation and a new rail and transit project. Speaker 200:07:43During the quarter, the Gateway Tunnel project secured the last piece of $16,000,000,000 in funding, signing the nearly $7,000,000,000 full funding grant agreement with the United States Department of Transportation and securing $4,000,000,000 in loans for the local match. This is a milestone project we won as a delivery partner in the Q1 and represents the largest investment in a mass transit project in modern history. As I indicated last quarter, Parsons has recently won 3 of the largest North America transportation projects in our company's history: the Hudson River Tunnel, JFK International Airport Roadways and Newark Bay Bridge Projects. These 3 major awards along with our 2nd quarter wins demonstrate the success that we're having in the transportation market. It also highlights that federal, state, local and international funding continue to flow at a steady pace. Speaker 200:08:41In our Federal Solutions segment, during the Q2, we received an option period award totaling $460,000,000 under the company's Technical Engineering Advisory and Management Support or TEAMS contract. On this program, Parsons provides system engineering and integration for the nation's missile defense system. This includes engineering expertise to oversee the development of hardware and software builds, ensure cyber resilience and provide war fighting capabilities to defend the United States homeland, our deployed forces and our allies. This award continues Parsons' more than 40 year history, supporting the Missile Defense Agency with technology enabled services such as digital engineering. We also exercised the next option here totaling $110,000,000 on the General Services Administration C5ISR, exercise operations and information services or CEOS contract. Speaker 200:09:41Under this program, we design, develop, train and deploy scalable machine learning solutions to extract actionable intelligence from vast amounts of data and deliver it to intelligence analysts and war fighters. In the Indo Paycom region, we continue to strengthen our presence. Right after the quarter ended, we were awarded a $69,000,000 contract over 3 years to provide Army Family Housing. Our presence in Guam, Kwajalein and Hawaii continues to strengthen and is aligned to the fiscal year 2025 Pacific Deterrence Initiative of $9,900,000,000 for targeted investment to enhance U. S. Speaker 200:10:23Force posture, infrastructure, presence and readiness of U. S. Allies and partners in the Indo Pacific region. After the Q2 ended, we entered into a definitive agreement to acquire Black Signal Technologies in a transaction valued at approximately $200,000,000 This acquisition, which is expected to close in August 2024, is consistent with our strategy of completing accretive acquisitions of companies we know well and have revenue growth and adjusted EBITDA margins of 10% or more, while adding critical intellectual property that strengthens our existing portfolio. BlackSignal is a next generation digital signal processing, electronic warfare and cybersecurity provider built to counter near peer threats. Speaker 200:11:16They will expand Persson's customer base across the Department of Defense and Intelligence community and significantly strengthen Persson's positioning within offensive cyber operations and electronic warfare, while adding new capabilities in the counterspace radio frequency domain, a market anticipated to grow more than 10% annually with double digit margin expectations. BlackSignal uses artificial intelligence and machine learning to create innovative signal processing techniques that detect and disrupt difficult to access adversary command and control systems and platforms. We look forward to welcoming BlackSignal's talented employees into the Parsons family and to the significant contributions they will make to our business. We continue our 80 year history of cultivating a responsible enterprise. As outlined in today's Q2 earnings release, Parsons received multiple awards for our innovative approach to delivering resilient, sustainable infrastructure. Speaker 200:12:21In addition, we were recognized by Engineering News Record as 1 of the top 3 global companies in 2024 in 3 categories: program management, construction management and program construction management for fee. These rankings reflect the company's worldwide reputation and ability to successfully win and execute infrastructure programs. Parsons was also named as one of the best employers for new graduates by Forbes. As I look forward, I'm extremely excited about our bright future. We have strong tailwinds in both segments and across our 6 core end markets and an experienced management team that consistently delivers strong financial results. Speaker 200:13:08In addition, we have a robust pipeline of accretive acquisitions that we will continue to pursue given the strength of our balance sheet. We also have significant financial visibility with approximately 3% of our revenue up for repeat in 2024 and less than 10% in 2025. A total backlog of $8,800,000,000 of which 62% is funded. And we have $57,000,000,000 of qualified pipeline with $13,000,000,000 of single award contract wins that are not yet included in either our bookings or our backlog. With that, I'll turn the call over to Matt to provide more details on our Q2 financial results and our increased fiscal year 2024 guidance. Speaker 200:13:58Matt? Speaker 300:13:59Thank you, Carey. As Carey indicated, our momentum continued through the Q2 of 2024 and was highlighted by record results for total revenue, adjusted EBITDA and operating cash flow. We are very pleased with the growth we achieved given our record results in the Q2 of 2023, resulting in a tough comparable period for the Q2 of 2024. Additionally, our growth was consistent across the portfolio as we experienced double digit total revenue growth in all business units and major geographies. Turning to our results. Speaker 300:14:302nd quarter revenue of $1,700,000,000 increased $314,000,000 or 23% from the prior year period and was up 22% on an organic basis. For perspective, this significant growth was achieved off our record Q2 in 2023, where we grew $348,000,000 or 34%. Organic growth for the Q2 was driven by continued ramp up on recent contract awards and execution on our backlog programs, including significant growth from our critical infrastructure protection, cyber and urban development markets. SG and A expenses for the Q2 were 13.4% of total revenue compared to 15.6% in the prior year period as we continue to focus on efficient growth across the portfolio while investing in the future through technology, business development and hiring and retention initiatives. Adjusted EBITDA of $150,000,000 increased $32,000,000 or 27%, and adjusted EBITDA margin expanded 30 basis points to 9%. Speaker 300:15:32These year over year increases were As with revenue, our adjusted EBITDA growth was compared to a very strong Q2 in 2023 where we experienced growth of 53% over the prior year period. Even with the strong performance last year, we outperformed in 2024. On a year to date basis, adjusted EBITDA margin at the Parsons level is 9.1% compared to 8.2% in 2023. I'll turn to our operating segments, starting first with Federal Solutions, where 2nd quarter revenue increased $226,000,000 or 30% from the Q2 of 2023. This increase was driven by organic growth of 27% and the contribution from our SealingTek acquisition. Speaker 300:16:23Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts to include strength in our critical infrastructure protection and cyber markets. Federal Solutions adjusted EBITDA increased by $17,000,000 or 20% from the Q2 of 2023. This increase was driven primarily by increased volume on accretive contracts and effective cost control. Adjusted EBITDA margin of 10.4 percent was down from the prior year period as a result of the $20,000,000 in non recurring incentive fees realized in Q2 of 2023. Excluding these incentive fees, our Federal Solutions adjusted EBITDA margin would have increased by 160 basis points from the Q2 of 2023. Speaker 300:17:06On a year to date basis, federal adjusted EBITDA margins of 10.3% are ahead of plan and guidance as a result of improved business mix. Moving now to our Critical Infrastructure segment. 2nd quarter revenue increased 15% from the prior year period on both an organic and inorganic basis. Organic growth was driven by higher volume in our Middle East and North American infrastructure portfolios. Critical Infrastructure adjusted EBITDA increased by $15,000,000 or 46% from the Q2 of 2023. Speaker 300:17:39Adjusted EBITDA margin increased 150 basis points to 7%. The adjusted EBITDA increases were driven by growth on accretive programs and improved operating performance. Year to date, Critical Infrastructure margins are 7.3% are 140 basis points ahead of 2023, and we're optimistic we will continue to see improvement as we complete legacy programs and drive growth on higher margin contracts. Next, I'll discuss cash flow and balance sheet metrics. During the Q2 of 2024, we generated $161,000,000 of operating cash flow compared to $23,000,000 in Q2 of 2023. Speaker 300:18:17On a trailing 12 month basis, we generated a record $492,000,000 of operating cash flow, a 117% increase over the prior 12 month period. These increases were primarily driven by improved profitability and strong collections across the portfolio. During the Q2, net DSO declined year over year by 16 days to 60 days. Capital expenditures totaled $9,000,000 in the Q2 of 2024, which is relatively consistent with last quarter and the prior year period. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue, while continuing to invest in strategic areas like expanding classified facilities and space technology to support future growth. Speaker 300:19:02Free cash conversion was 150% for the Q2 and 124% on a trailing 12 month basis with an intentional focus on approved contract terms and cash collections. Our balance sheet remains strong as we ended the 2nd quarter with a net debt leverage ratio of 1 point three times compared to 1 point six times at the end of the Q1 of 2024. Considering the future impact of the $200,000,000 all cash BlackSignal acquisition, our pro form a net debt leverage ratio would be 1.7x when calculated on the 2nd quarter results. Our strong free cash flow is enabling us to delever the balance sheet while continuing to make additional internal investments and accretive acquisitions that support our long term growth objectives. During the quarter, we were opportunistic and repurchased $10,000,000 of Parsons stock at an average price of 76.30 dollars On inception date basis, we purchased $65,000,000 of stock at an average price of 41.54 dollars Turning next to bookings. Speaker 300:20:02On a trailing 12 month basis, contract awards increased 10% and our book to bill ratio was 1.0x. In our Critical Infrastructure segment, we achieved a quarterly book to bill ratio of 1.0 in the 2nd quarter, marking the 15th consecutive quarter with a book to bill ratio of 1.0 or greater. 2nd quarter contract award activity decreased 22% year over year to $1,500,000,000 for a book to bill ratio of 0.9 times. Contract awards decreased from the prior year period due to the timing of large contracts in both the Q2 of 2023 and the Q1 of 2024. With industry leading organic growth and a robust pipeline of new opportunities, we continue to have confidence in our ability to sustain above market growth rates. Speaker 300:20:47We ended the 2nd quarter with total backlog of $8,800,000,000 which is consistent with the prior year period. As previously noted, this does not include $13,000,000,000 of contract wins. Now let's turn to our guidance. We're increasing our 2024 guidance ranges as a result of our record second quarter performance, recent contract wins and option awards, positive end market exposure and our favorable outlook for the remainder of the year. For 2024, we are increasing our revenue range by $200,000,000 at the midpoint to $6,350,000,000 to $6,550,000,000 This represents total revenue growth of 19% at the midpoint and 18% on an organic basis. Speaker 300:21:29Additionally, we are increasing our adjusted EBITDA range. We now expect adjusted EBITDA to be between $555,000,000 $595,000,000 which represents 24% growth at the midpoint of the range and continues to exceed our revenue growth. Margin at the midpoint of our increased revenue and adjusted EBITDA ranges remains at 8.9%, which is 40 basis points above our fiscal 2023 results. We are also increasing our cash flow guidance. We now expect operating cash flow to be between 3.95 $455,000,000 At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 100% of adjusted net income. Speaker 300:22:08Other key assumptions in connection with our 2024 guidance are outlined on Slide 10 in today's PowerPoint presentation located on our Investor Relations website. In summary, we've had an exceptional first half of the year with great top and bottom line and cash flow results. We are putting the balance sheet to use after announcing another strategic acquisition, which we believe will further enhance our technology offerings and support long term growth expectations. Our execution has been strong across all business units and major geographies. We are confident in our ability to achieve our increased 2024 guidance ranges. Speaker 300:22:42With that, I'll turn the call back over to Keri. Speaker 200:22:45As some of you may know, this month is my 3 year anniversary as the CEO of Parsons. As I reflect over the last 3 years, I am very proud of what the entire Parsons team has accomplished. We have a laser focused strategy that has transformed the company into a solutions provider that differentiates with software and advanced technology. We intentionally positioned the company in 6 enduring, growing and profitable end markets. This has resulted in record revenue, profitability and cash flow, industry leading organic revenue growth, improved win rates and a demonstrated ability to move up the value chain and win larger and more profitable jobs. Speaker 200:23:27In addition, we continue to lead with technology transformation in critical areas, including cyber, artificial intelligence, space, electronic warfare, advanced transportation systems and emerging contaminants. I'm extremely pleased with our last 3 years of performance, which is a direct result of our 18,500 employees' focus on delivering our customers' critical missions. Speaker 100:23:59Operator, you can open the line for questions, please. Operator00:24:02Thank And our first question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Speaker 400:24:22Hey, good morning guys and thank you very much. Hi, Louise. Carrie, congrats on your 3 year anniversary. Thank you. So, good job on great job on margins, Speaker 500:24:32up 40 bps. Speaker 400:24:34But the guidance was unchanged at 8.9. So maybe if you could just talk about how we should think about profitability because it's been an issue in the rest of the sector as your new wins ramp given your organic growth? Speaker 200:24:48Yes. Thanks, Sheila. So first, I would say we are pleased with our profit. We're up 90 basis points year to date. We were up 30 basis points for this quarter, and we expect to be up 40 basis points for the year. Speaker 200:25:01In addition, as we look forward, we expect to be up 20 to 30 basis points each year and years after. So I think we've done a great job of expanding margin, plus our EBITDA dollars have been growing faster than our revenue growth. In this quarter, we were at 27% versus 23% on revenue growth. We do feel on the critical infrastructure side, we can still get further margin expansion. Eventually, that's a business that we expect to be double digits. Speaker 200:25:30We do have one legacy program remaining that we expect to wrap up in the Q3. And once that's behind us, we expect that we'll see some additional tailwinds. Speaker 400:25:42Great. And then if I could ask one more on the unbooked pipeline, that's been really helpful. But I believe it came down from $14,000,000,000 to $13,000,000,000 So kind of how do you think about unbooked pipeline coming into the backlog and how we think about that the cadence of conversion there? Speaker 200:25:59Yes, thanks. Great question, Sheila. It was $14,000,000,000 Now it's just over $13,000,000,000 We converted 2 programs, which we announced on the call, the Teams and the CEOS. Those were previously in that awarded not booked. So those converted during the quarter. Speaker 200:26:15We do expect as we get new awards that gets replenished and that's a metric that we're going to continue to attract. So it is very important since we don't reflect that $13,000,000,000 in our $8,800,000,000 backlog or in our bookings. Speaker 400:26:32Got it. Thank you so much and great quarter. Speaker 500:26:35Thank you. And Operator00:26:38the next question comes from Tobey Sommer with Truett Securities. Your line is open. Speaker 600:26:45Thank you. Could you please discuss any programs or contracts that are winding down or coming to some sort of natural completion and contrast that with any new wins that are ramping that could provide a basis for a sequential revenue trajectory in the second half of the year? Speaker 200:27:08Yes. On the ones that are winding down, it's about $86,000,000 this year, and we tend to run about $100,000,000 on any given year, and it's really 3 contracts that comprise that. The ones that are ramping up, I would say the GSA $1,200,000,000 award that we had over a year ago, we're starting to see some ramp up there. We continue to do well in all of our cyber work across various infrastructure side of the house, I've mentioned all the Middle East wins that we've had, including the additional $160,000,000 that we received this quarter, that's been strong. And North America winning our 3 largest programs within the last 12 months have all ramped up. Speaker 200:27:55And that's obviously what's been a key contributor to driving such strong organic growth across both business segments. Speaker 600:28:04Thanks. And could you also discuss the maybe put a little bit more color on the decline in backlog and slower bookings in the quarter, and your expectations for contract activity and bookings as you look into the second half of the year? Speaker 200:28:25Sure. So backlog was relatively flat. Book to bill, as you're aware, is lumpy. We had a very strong book to bill of 1.4 times in Q1, followed by 0.9 times in Q2. So year to date, we're doing very well at 1.12 times. Speaker 200:28:42I would also highlight that both segments are over 1.1 times year to date. And then trailing 12 months for Parsons has been greater than 1.0 times. And once again, both segments are over 1.0 times. I think bookings are interesting. I think organic revenue growth is what really matters. Speaker 200:29:01And we're really pleased that we've had 5 consecutive quarters of greater than 20% growth. On the backlog, I would also highlight that that does not reflect again the $13,000,000,000 of single work that Parsons has already won. Speaker 600:29:18Thanks. I'll sneak one more if I could. Could you elaborate a little bit on opportunities for revenue synergies with Black Signal and comment about what the prospective pipeline of M and A looks like if you're going to be able to get your sort of quota or target for the year? Speaker 200:29:40Yes. So I would say first very excited about BlackSignal. It's directly aligned with Persson's solution selling vision. They have 90% intellectual property enabled offerings and it drives 67% of sole source awards. It strengthens our position in key markets, offensive cyber operations and electronic warfare. Speaker 200:30:00And if I just delve a bit deeper into that, I would say in the offensive cyber side, they've played a lot more in the research and development. We're strong in the operations. So it really strengthens our full spectrum cyber operations capability. In the electronic warfare space, we both play there, but we happen to look at different signals of interest and both of us leverage our advanced digital signal processing capabilities. And then they provide new capabilities for us in the counterspace radio frequency domain area, again, that's expected to see double digit growth. Speaker 200:30:33They also improve our posture in the endo pay com region, which I talked about a little bit on the call. And then in the electronic warfare area also, I would point out that we play with Title 10 tactical military, whereas they bring a lot of Title 50 strategic. So overall, this just a terrific acquisition. We have customer alignment. They're strong with the Air Force, with the Navy, with DARPA and the Intel community. Speaker 200:30:59We're strong with the Army in different parts of the Intel community. So extremely complementary, and as with all of our acquisitions, we really look for them to drive us up the value chain. On your second question, the pipeline is still very strong. We have a lot of candidates within both critical infrastructure and within federal, and we're on track to do 2 to 3 acquisitions this year. Thank you very much. Speaker 200:31:19Thank Operator00:31:29Burt Soudin with Stifel. Your line is open. Speaker 700:31:33Hey, good morning. Speaker 300:31:35Good morning, Burt. Speaker 600:31:36Good morning, Burt. Speaker 700:31:37Maybe just to start with a higher level question. I mean, if we go back to early 2023 when you guys hosted your Investor Day, looking for growth on the federal side more in that sort of low to mid single digits, critical infrastructure mid single digits and obviously sort of blown through those expectations and here you are with 5 straight quarters of 20 plus percent organic. I guess the question is, as your visibility toward growth improved, do you see Parsons as moving more to position of being a growth company? And if you think about that trajectory, what do you think drives that more? Is it going to continue to be the federal side? Speaker 700:32:14Or do you think infrastructure will be the greater grower longer term? Speaker 200:32:18Yes. So I would say what's happened since our Investor Day, first, we have a very clear strategic intent. We're focused on 6 core end markets that are all enduring, growing and sustainable and profitable. I would say all 4 business units, both the segments, all major geographies have hit on all cylinders. Everybody is delivering double digits and that's expected for the year. Speaker 200:32:41And that's what's been happening. As far as our visibility increasing, I think we always have pretty good visibility both on the federal and the critical infrastructure side. Trajectory is a growth company. We intend to keep growing. Speaker 300:32:56Yes, Bert, I'd just add, if you think back to the Investor Day, some of the things we outlined at the time, obviously, the overall labor market was kind of uncertain. We had this uncertain inflation environment, budgets were pretty challenged. And of course, win rates on it in a traditional year, we plan 40% to 50% from a win rates perspective. Through the Q2, our win rate is 72 percent at the company level. So things like that we saw last year really strong win rates as well. Speaker 300:33:24So all of those things kind of of contributed. Each one kind of came in better than we were expecting back in the Investor Day. Labor markets are better, budget environment settled down. And so all in all, I think it's that's kind of what's been helping drive the growth. And to your point, we're definitely our goal is long term growth and sustained growth. Speaker 300:33:44And I think it will be balanced. I think CI and federal are both well positioned to continue to grow. Speaker 200:33:50Yes. Just to add to that, we were 72% in Q2. We're 76% win rates year to date, and that's up from 66% a year ago and 49% the year before that. Speaker 700:34:02Got it. Very helpful. On the critical infrastructure side, this is the Q1 we've seen North America growth exceed Middle East. Is that a trend you think will persist? It seems like Middle East is still growing nicely. Speaker 700:34:17And I know, Kerry, you've made some comments about strength in Saudi and seeing improvement in Abu Dhabi. But I'm just curious, is the setup even better for the North American side? Speaker 200:34:29Yes. I think we're going to continue to see growth in both of those, Bert. And I think, as I indicated, they're both expected to grow double digits this year. What we're starting to see is more of the infrastructure bill funds be led out and also the state and local matching funds that are coming about. So that's why we've seen some such large infrastructure projects, some of the biggest ones in our company's history be awarded over the last 12 months. Speaker 200:34:55They both have very strong pipelines, and I think it will be interesting to watch the 2 business units give each other a race because I'm excited about Saudi and the Middle East market as well. The Middle East business this year grew at 12% this quarter and Saudi grew at 18 percent, so very strong. Speaker 300:35:14Yes. Bert, you'll remember last year Middle East grew about 30% -plus so coming off a little bit tougher comps there, whereas North America was kind of high single digits. So we're I think the to Carey's point, North America will kind of follow suit and start to challenge Middle East and we like the idea of the competition. Speaker 700:35:33Thanks. Just one clarification question. I don't know if you might have missed this in your prepared remarks, but is BlackSignal included in guidance or will that be additive? Speaker 200:35:42It's additive to guidance. It is not included. Speaker 300:35:46Right. So just to give some scope, this year we can expect about $30,000,000 worth of revenue, double digit margins. And then next year, I think it was in the release, but just under $100,000,000 in double digit margins. Speaker 600:35:59Thank you. Thanks, Bert. Operator00:36:04And our next question comes from Alex Dwyer with KeyBanc Capital. Your line is open. Speaker 800:36:14Hey, thanks for taking my questions. Speaker 200:36:16Good morning. Thank you, Alex. Speaker 800:36:18Hey, thanks. I wanted to ask about the SG and A leverage and the focus on the indirect cost management we've been seeing. Can you talk a little bit about what specifically has been driving that? And then what should we expect going forward in terms of SG and A for the business? Should this continue to trend down as a percent of revenue going forward? Speaker 300:36:42Yes, Alex, I'd say that we're kind of Carrie and I are pretty comfortable about where we're at right now, call it low to mid teens. We have seen favorable trends, obviously, as revenue growth has been in kind of the 20% to 30% over the past few quarters. We've been kind of controlling costs. We've been doing effective things like, obviously, a lot of folks are pulling facility cost out and things. But obviously to support the growth we've been spending in important areas like technology, BD, things like that. Speaker 300:37:09So I think from a modeling perspective that kind of low to mid teens is a good number for us. But overall, again, really strong performance, and we're heading in the right directions and critical IRAD investments that will benefit long term growth as well. So but I think low to mid teens is a good number from SG and A. I don't think it will go far below that. Speaker 800:37:34Got it. Thank you. That's very helpful. And then secondly, can you talk about the equity and earnings line during this quarter? I think it included a $22,000,000 write down from a design build JV. Speaker 800:37:49Can you just talk about what happened there? Was this the same project from last quarter? And then what's built into the guidance in terms of that equity and earnings line for the remainder of the year? Speaker 200:38:01Yes, I'll take the first part and Matt will take the last part. So first, we're very happy with our margin performance. On a year to date basis, margins are up 90 basis points, and so the businesses are performing quite well. We're also still projecting 40 basis points of margin expansion this year at our midpoint of guidance and 20 to 30 basis points after that. And the Critical Infrastructure segment in the quarter was up 150 basis points. Speaker 200:38:27We did, to your point, take a $22,000,000 adjustment. It was on a joint venture, specifically a construction joint venture project, and that's reflected within equity and earnings. This is the program we mentioned in the Q4 that had some supply chain issues. And so we're still in discussions with the customer on various scope and schedule challenges. Pro form a, the critical infrastructure margin would have been at 10.2% and the Parsons margin would have been at 10.3%. Speaker 200:38:56I'd also like to remind you, Alex, this is business that we no longer pursue. Since I became CEO, we've stopped bidding construction joint ventures. Speaker 300:39:05And Alex, just from a modeling perspective, you can assume kind of call it $3,000,000 to $5,000,000 in the second half for equity and earnings, so a couple of 1,000,000 a quarter. On a normal run rate where we wouldn't have any impacts, we think equity and earnings for the company should run, call it, between $10,000,000 $20,000,000 So if you want to say $15,000,000 ish, I think that's probably $13,000,000 to $15,000,000 is probably a fair number. Speaker 800:39:26Thank you. I'll turn it over there. Speaker 300:39:29Thanks Alex. Operator00:39:31And the next question comes from Andrew Wittmann with Baird. Your line is open. Speaker 900:39:40Yes, great. Thanks for taking my questions. Yes, so that 22%, I think is important to note. As I read the Q here, it looks like there was also some positive offsets on the equity income line. I mean that's a big penalty. Speaker 900:39:52Was there notable or material or can you quantify the positive offsets that were against that $22,000,000 I'm just trying to get a better understanding of the quarter on the CI segment in particular to start out with? Speaker 300:40:05Yes, nothing I would say material, Andy. It's just our kind of normal run rate. If you think about the numbers I just gave about kind of a normal year 2015, we should be seeing $4,000,000 or $5,000,000 a quarter worth of equity and earnings normalized. So, to your point, dollars 22,000,000 minus the offset by the positives is kind of net thought of the equity and earnings position. Speaker 900:40:28Okay. All right, great. Can you just sorry, I missed the start of the call. So did you give your percent complete on that project in particular or can you? And then if you could, could you just, Teri, address a little bit more on the backlog funnel? Speaker 900:40:45You talked about the $13,000,000,000 of single award contracts not yet in backlog. Can you talk about the pipeline size or the amount awaiting notice as well? Speaker 200:40:58Sure. So first on the percent complete on that program, it's around 20% to 25%. The important thing to note though is that the procurement is nearly complete and that's where the supply chain issues occurred. On the backlog, the $13,000,000,000 I'm sorry, your question was? Speaker 900:41:17Can you talk about the size of the total pipeline today or and or the amount of awards that you submitted and that you're waiting notice Speaker 200:41:27for? Sure. So the total pipeline is $57,000,000,000 Within the $57,000,000,000 we have 121 programs that are greater than 100,000,000 dollars And then the value of outstanding proposals awaiting award at the end of the quarter is $6,000,000,000 Within that, we have 14 programs greater than 100,000,000 and we don't have much under protest. It's about $200,000,000 and the majority of that is multiple award contracts. And I will point out that Speaker 900:41:54That's all my questions. Speaker 200:41:56Yes, this is, one of the strongest pipelines that we've had in our company's history. Speaker 900:42:03Great. Thank you for that context. Have a good day. Operator00:42:09And the next question comes from Mariana Perez Mora with Bank of America. Your line is open. Speaker 500:42:16Thank you and good morning everyone. Speaker 200:42:19Good morning Maria. Speaker 500:42:21I'm going to tap again on the margin question. I'm curious if you have any visibility on the backlog and the pipeline of opportunities where you should be like 3 or 5 years from now, excluding any inorganic upside? Speaker 300:42:38Yes, Mario. I think the short answer on that is when we bid jobs and we're what's in the backlog is accretive to the overall margin. If you think about the 2 businesses individually, Carey and I previously have talked about federal. We're comfortable with federal in kind of the mid-9s. I think given a little bit of the mix shift, I haven't really talked about this yet, but if you look at kind of fixed price T and M at the company level this year versus last, it's about a 7% increase in kind of fixed price T and M. Speaker 300:43:04So we're seeing a mix shift that's helped us drive the margins up. You'll see federal north of 10%. So Carrie and I are excited about that's a mix of both acquisitions, SG and A, it's a little bit of everything that we're doing to try to improve margins. So overall, federal, we like and kind of, I'll call it, the high 9s. The CI margins, you'll see in the 7s. Speaker 300:43:25And Carrie and I believe long term, that should trend toward 10%, just how quickly we can get there as we get out from underneath these legacy programs. In the back to your point, the backlog and the bid support that. Speaker 500:43:37Yes. That was my question. Like what are the key milestones that you're looking at to actually go from 7 to 10 in critical infrastructure? Speaker 200:43:46Yes. So several levers. One is continuing to store cost constant as our revenue increases. 2nd one is pricing premium. Demand is so much greater than supply whether you're talking about North America or the Middle East. Speaker 200:43:58So we are seeing higher margins come in. The other areas, again, derisking the portfolio and not getting into some of these legacy construction joint ventures, which we have not done since I took over 3 years ago. So those are all levers that we have and then accretive margins, the companies that we're buying are all greater than 10% EBITDA. Speaker 500:44:19Thank you. And then could you mind typing on the election? What risk do you see going into election and your certainty actually, I don't know, affecting the way that your customers buy? And how do you think this could affect indirectly like any spending on the infrastructure bill or even the state and local funding? Speaker 200:44:41Yes. So we do not see any impact from the election, whether it's over a Republican or a Democrat administration. Starting with federal, what we do and So the capabilities that we've put into our purpose built federal portfolio as far as cyberspace, electronic warfare, and the convergence of those areas is really where the country is focused and needs to be and that has bipartisan support. On the infrastructure side of the House, the infrastructure bill has been passed into law. So it basically would take a lot to overturn it and a lot of that funding, dollars 4.50 $4,000,000,000 as of May had already been delved out. Speaker 200:45:28State and local also is coming up with their own funding. So I do not see any change in the work that we do as far as infrastructure. President Trump, former President Trump stated in a recent speech how important infrastructure was to the country and in particular transportation, that's the area that we play. Speaker 500:45:50Thank you very much. Thank you. Operator00:45:54And the next question comes from Cai von Rumohr with TD Cowen. Your line is open. Speaker 1000:46:03Yes. Thanks so much. Terrific growth at Federal Solutions. So were there a couple of contracts that really had a disproportionate impact on that growth, specifically that one contract, I think you've noted with a confidential customer. And were any of the big drivers in terms of contracts, Are any of those kind of starting to reach their expected run rate? Speaker 200:46:33Yes, Cai. So I would say it was in several areas. First in the critical infrastructure protection area, we saw strong growth, and part of it was on the classified contract. Also saw strong growth in cyber at 25% on the quarter. Other areas too like our army ammunition plant work that's ramping up at Bradford and Holston, that's been important. Speaker 200:46:55And I would say the end of Paycom area still continues to be very strong for us. Speaker 300:47:00Yes. So, Kai, I'd just add to your question. I think the confidential customer, to your point, I think that one has we're about a year into that job. And so we're starting to see kind of a we've kind of seen what the budgets will support in terms of that contract. So we're starting to stabilize on that one. Speaker 300:47:17But as Carey mentioned earlier, we saw 30% -plus growth in cyber in Q1, 25% -plus in Q2. So the cyber business on top of the things Carey mentioned is also quite strong. Speaker 1000:47:29Terrific. And do you have, I think Boo has mentioned that they were impacted by delay in Ukraine funding, their EUCOM business. Do you have any EUCOM business or any other business where a funding delay could impact your rate of growth? Speaker 200:47:50No, we do not. Speaker 1000:47:52Okay, terrific. Thank you very much. Great quarter. Speaker 300:47:56Thanks, Scott. Thank you. Operator00:47:59The next question comes from Louie DiPalma with William Blair. Your line is open. Speaker 1100:48:07Carrie, Matt and Dave, good morning and congrats on the 5 quarters in a row above 20% organic growth. That is very impressive. I don't think it's been done Speaker 300:48:17before. Thanks, Louie. Speaker 1100:48:21From a high level and following up on the previous negative for much of the defense industry. However, could the end to the conflicts actually be positive for Parsons given your role as one of the largest infrastructure providers in the world? Speaker 200:48:51Yes. Great question, Louie, and the answer is yes. So we have capabilities to provide such as de mining capabilities, environmental remediation to be able to get people back in their homes. And most importantly, I would say the rebuild, which is going to be critical for both of those areas. Parsons was heavily involved in the Iraq rebuild years ago. Speaker 200:49:12And so we do intend whenever those conflicts get settled to be able to assist there. Speaker 1100:49:19Great. That is very, helpful in terms of the perception of Parsons as defense contractor versus infrastructure? And also on the infrastructure side, is the U. S. IIJA funding peak in your eyes, Carrie, still expected in 2027? Speaker 1100:49:43Are the dollars flowing? I know that you discussed winning roles on the 3 largest U. S. Projects that were awarded over the past year, but are there other large U. S. Speaker 1100:49:57Projects in the pipeline that can cause the momentum to continue? Speaker 200:50:04Yes, we do believe the peak is still going to be in the 2027 timeframe and then you'll see a 6 to 8 year tail after that. So there's a lot of longevity and we do have good visibility, a very strong pipeline because a lot of these capital plans get put together years in advance. So, very optimistic about our infrastructure pipeline in North America. Speaker 1100:50:28Great. And one more speculative question. It is well known that Parsons is one of the major industry leaders of critical infrastructure in the Middle East and you have a 6 decade relationship. In the news, there's been discussions of the U. S. Speaker 1100:50:50And Saudi Arabia negotiating a defense pact. And I was wondering, is there any long term and I emphasize long term opportunity for Parsons to cross sell some of its defense solutions to that region? I know you're already involved in CENTCOM, but is there an opportunity for you to become even more involved on the defense side given your history in the region? Speaker 200:51:20Yes, we do believe that there is. We're currently involved in a couple of efforts. We do a little bit of F-sixteen maintenance activity and then we're involved in program with the Army Corps engineers supporting missile defense efforts like installation of Patriot and TAB batteries. But we're currently putting together a more robust pipeline around specifically defense once the defense security pact is concluded and also around areas we can uniquely play like should AllDeed become a permanent base. We're a company that does both infrastructure and protection. Speaker 200:51:54And if you look at areas like cybersecurity, physical security, there's a lot of needs there. And once again, we're kind of uniquely positioned with our portfolio. So that is definitely an opportunity for the company. Speaker 1100:52:06Awesome. Thanks, Carrie, and thanks, Matt and Dave. Operator00:52:17And the next question comes from Noah Poponak with Goldman Sachs. Your line is open. Speaker 1200:52:24Hey, good morning, everyone. Speaker 300:52:26Good morning, Noah. Good morning, Speaker 1200:52:30Noah. If I go to the midpoint of the revenue guide, 3Q and 4Q would be lower than 2Q in absolute dollars. That would be atypical relative to your historical seasonality. Maybe I'm not sure that's ever happened. So can you walk me through what would drive that to occur? Speaker 300:52:53Yes. So overall, no, I'd say we're kind of very happy with the year to date performance. Updated guidance is obviously 19% growth at the midpoint. 2nd half still does have some sequential growth. It's pretty nominal to your point, but it is showing some growth. Speaker 300:53:07It flattens a bit with the mix of seasonality. I think I talked before when Kai asked the question about kind of the we do see some programs potentially dealing with some seasonality through the summer. So that might be new this year. And then normally, we have completing programs, Carrie talked about almost $100,000,000 worth of completing programs, but that's offset by the growth on the recent awards and the backlog. So tougher comps coming into the second half. Speaker 300:53:35But overall, we're really happy. I think, like I said, second half is trending in the right direction. The award positioning is good. The capture rates are great. So all in all, we're comfortable with the second half guide. Speaker 1200:53:51Okay. And Matt, I guess, similarly on the cash flow cadence and the guidance, the guidance would imply that the back half as a percentage of the year would be pretty different compared to history and that's a pretty big cash flow number you just had in the Q2 compared to how that usually turns to the year. I guess the working it looks like you had positive change in working capital, but it's not a massive number. What's behind that? Speaker 300:54:22Yes. Overall, just really happy with the collections. We had some major milestones that we're completing. As we've talked about, completing some of these legacy programs will benefit cash flow. And so I would say just generally speaking, really strong cash flow from across the board. Speaker 300:54:36Federal business obviously is pretty consistent quarter over quarter given just underlying cash that builds out every other week or monthly. And so this is really just on the CI side, great performance out of the Middle East. DSO is down pretty significantly in the Middle East as well as North America. So some upfront payments on some big jobs. So all in all, just really great cash performance across the board. Speaker 1200:54:59Okay. And could you just update us on what EBITDA margin you're assuming for the year for each segment to roll up into the total? Speaker 300:55:12Yes. So if I look at second half specifically, Noah, we are we have FS called in the high 9s, 9.8% at the midpoint and CI 7.4%. So a little bit better on CI and a little bit of depression in FS. As you'd suspect, I mentioned earlier, I can't remember whose question it was, but we saw a little bit of a mix shift, stronger fixed price. As we continue to grow on some of these programs, specifically the GSA Fed SIM win, that's a cost type job. Speaker 300:55:39So as we see significant growth on that job, the mix will probably come back a little bit, and we expect federal to kind of balance back out in the high 9s. And then CI, we are expecting slight improvements, but opportunity there if we can get through these last couple of programs. Speaker 1200:55:55Okay, great. Thanks so much. Speaker 300:55:58Thanks Noah. Thanks Noah. Operator00:56:00And the next question comes from Josh Sullivan with The Benchmark Company. Your line is open. Speaker 1200:56:08Hey, good morning. Speaker 200:56:10Good morning, Josh. Speaker 300:56:10Hey, Josh. Speaker 1300:56:12Carrie, congratulations on the 1st year 3 years here and the transformation that you've ushered in. But maybe as soon as we look at the next 3 years, what do you think characterizes Parsons and your efforts? Speaker 200:56:26So I would say as we look at the next 3 years, continuing number 1 to stay laser focused on our customers' emerging missions. We like to play in the new, new space and figure out how we're going to help fix their challenges of tomorrow versus try and run around and take away, for example, other people's pre competes. So I would say if you look at infrastructure, very excited about the work we're doing in the Middle East. Those are all greenfield projects. We're having the opportunity to transform a country, which is kind of a once in a lifetime opportunity, build new transportation systems, new residential areas, new marinas, new tourism centers, entertainment centers. Speaker 200:57:06As I look at North America, I would say it's more a brownfield opportunities and those are equally as challenging. How do you for example, we just forwarded the Englewood project, which is a rail and transit project out in California to help Los Angeles get ready to host the World Cup and get ready for the Olympics. So how do you position for some of these big events? And that's going to carry us sort of through the end of the decade. As I look forward to, I would say, on the federal side of the house, we're going to continue to do what we've been doing very successfully, position ourselves as an exquisite federal company against near peer adversaries and stay laser focused in the areas where we're very strong, offensive cyber capabilities, electronic warfare, space, digital signal processing, continue to move up the value chain, bid and win larger jobs, and kind of keep a playbook for us that's been working and staying on the leading edge of our customers' challenges. Speaker 900:58:06And then just maybe to Speaker 1300:58:07put a finer point on you talked about the Middle East there and your Saudi exposure. I think you mentioned no programs larger than 2%. There has been some conversation around the face of some of those investments in the region. What are you guys seeing currently? Speaker 200:58:24Yes. So Saudi Vision 2,030 was launched by the Crown Prince in January 2016 to diversify the economy away from oil and transform it economically, socially and culturally. And they're going to be on the world stage several times over the next decade. They're going to host Asian Games and Asian Winter Games 2029, the World Expo 2,030 and the FIFA World Cup in 2,034. So as a result, infrastructure is going to be prioritized. Speaker 200:58:50It's going to receive significant funding in order for Saudi to achieve its vision and be on the world stage over the next 5 to 10 years. I would also highlight the public investment funds, the Sovereign Wealth Fund for Saudi Arabia. It's one of the world's largest funds, controlling an estimated assets of nearly $1,000,000,000,000 and it's directly mandated to realize Saudi Vision 2,030. They're going to be increasing their annual deployment of capital from $40,000,000,000 to $50,000,000,000 a year up to $70,000,000,000 a year after 2025. And total construction output in Saudi Arabia estimated to be $121,000,000,000 in 2024. Speaker 200:59:27Infrastructure construction is projected to grow at a compound annual growth rate of 6% through 2027. We've been there a long time. We have extremely close relationships with customers. I just visited the region last month, had the opportunity to be with the CEOs of some of the major giga projects that are going on. So we well understand the timing of these projects and the imperative to get them accomplished for Saudi Arabia. Speaker 1200:59:54Great. Speaker 1300:59:55Thanks for Speaker 1200:59:55the time. Speaker 500:59:57Thank you. Thanks, Josh. Operator00:59:59That is all the time that we have for questions. I would now like to hand the call back over to Dave Spille for closing remarks. Speaker 101:00:08Thank you. And thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. And we look forward to speaking with you soon. And with that, we'll end today's call. Speaker 101:00:17Have a great day.Read morePowered by