Parsons Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: Excluding its confidential contract, Parsons achieved 138% total revenue growth on an organic basis this quarter, with three of four business units posting double-digit gains and adjusted EBITDA margin expanding 40 bps to 9.4%.
  • Positive Sentiment: Operating cash flow reached $160 million in Q2, while free cash flow conversion hit 151% for the quarter and 125% on a trailing-12-month basis.
  • Positive Sentiment: Parsons booked $1.5 billion in Q2 awards, maintained a book-to-bill ratio of 1.0× (LTM), and grew its total backlog to nearly $9 billion with 70% funded.
  • Positive Sentiment: The company raised its full-year 2025 guidance—revenue to $6.48 B–$6.68 B, adjusted EBITDA to $595 M–$635 M, and operating cash flow to $400 M–$440 M—reflecting strong Q2 performance and the CTI acquisition.
  • Positive Sentiment: Parsons stands to benefit from the reconciliation bill’s $150 billion defense spending increase and 25% R&D tax credit, aligning to 10 of 17 DoD priorities and positioning it for major programs like the FAA’s $12.5 B integration and Golden Dome’s $25 B missile defense.
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Earnings Conference Call
Parsons Q2 2025
00:00 / 00:00

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Operator

Good day, and thank you for standing by. Welcome to the Second Quarter twenty twenty five 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 session. Please be advised that today's conference is being recorded.

Operator

I'd now like to turn the conference over to Dave Spilley, Senior Vice President, Investor Relations. Please go ahead.

Dave Spille
Dave Spille
SVP - IR at Parsons

Thanks, Liz. Good morning, and thank you for joining us today to discuss our second quarter twenty twenty five financial results. Please note that we provided 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 Ophelis, CFO. Today, Cary will discuss our corporate strategy and operational highlights and then Matt will provide an overview of our second quarter financial results as well as a review of our 2025 guidance.

Dave Spille
Dave Spille
SVP - IR at Parsons

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. These risk factors are described in our Form 10 ks for fiscal year ended 12/31/2024 and other SEC filings.

Dave Spille
Dave Spille
SVP - IR at Parsons

Please refer to our earnings press release for Parsons' complete forward looking statement disclosure. We do not undertake any obligation to update forward looking statements. Management will also make reference to non GAAP financial measures during this call. We remind you that these non GAAP financial measures are not a substitute for their comparable GAAP measures. And now, I'll turn the call over to Carrie.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thank you, Dave. Good morning. Welcome to Person's second quarter twenty twenty five earnings call. We're pleased with our second quarter results as cash flow exceeded our forecast and our revenue and adjusted EBITDA were in line with our expectations assumptions we outlined on 06/02/2025. Excluding the revenue impact from our confidential contract for both Q2 twenty twenty five and Q2 twenty twenty four, our second quarter total inorganic organic revenue growth rates were 138%, respectively.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

This growth includes double digit total revenue growth in three of our four business units, with the fourth business unit growing 9% year over year. It also includes 8% organic growth for persons in both segments, highlighting the strength of our balanced portfolio, our strong hiring and retention and our alignment to priority spending areas. During the second quarter, we delivered 40 basis points of margin expansion to 9.4%, a second quarter record, dollars 160,000,000 of cash flow from operations and achieved a free cash flow conversion rate of 151% for the quarter and 125% on a trailing twelve month basis. We also reported a book to bill ratio of one point zero times for the quarter and trailing twelve months. This continues our streak of having a quarterly trailing twelve month book to bill ratio of one point zero or better since our 2019 IPO.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Finally, we're increasing our full year revenue, adjusted EBITDA and cash flow guidance ranges to reflect our second quarter operating performance, Chesapeake Technology International acquisition and our outlook for the remainder of the year. In addition to delivering solid financial results and program execution across our portfolio, we were recognized this quarter by Engineering News Record as the top program manager firm in the world. Also, Parsons was ranked number two on the professional services list, number two on the construction management, program management for fee list and number three for construction management. This global recognition is a testament to our reputation for complex program delivery. Further, we won three contracts over $100,000,000 in the second quarter with two of the three contracts representing new work.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Significant second quarter contract wins included a new $176,000,000 single award contract by the United States Army Corps of Engineers to provide design build delivery services for an ammonium nitrate solution tank farm at the Holston Army Ammunition Plant a new single award contract for cyber work by the Defense Threat Reduction Agency with a ceiling value of $138,000,000 Under this contract Parsons will perform cyber assessments, operations analysis and research. Dollars 134,000,000 fall on contract to oversee remediation projects on the Giant Mine Program in Canada, which is one of the largest mine reclamation projects in the world. Our Critical Infrastructure segment continues to thrive as we leverage our reputation, program management design engineering expertise to capitalize on unprecedented infrastructure spending in both North America and The Middle East. Overall, second quarter total infrastructure revenue grew 148% on an organic basis. In North America, total revenue grew 177% on an organic basis as we continued to win large new programs, execute on existing contracts and retain and hire new employees.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Several large project wins contributed to second quarter growth and are expected to grow in the 2025, including Georgia State Route 400, Newark Airtrain, Hawaii City Center Rail and Transit, Hudson River Tunnel and the I-fifty 5 Bridge replacement. Our growth and success in North America are particularly exciting given infrastructure spending from the IIJA is not expected to peak until 2028 with a six to eight year tail after that. Plus, discussions on the next Surface Transportation Reauthorization Bill are already underway, and Secretary Duffy held a kickoff meeting on July 17 to emphasize that America is building again. This bill will provide more infrastructure spending once passed. Our focus on hard infrastructure such as roads and highways, bridges and airports has bipartisan support and is a priority for the administration.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Our Middle East infrastructure business also continues to excel, and we're the number one program manager throughout the region. We've operated in The Middle East for over six decades and have 7,000 employees in the region today. In 2024, we generated more than $1,000,000,000 of revenue, and we expect total revenue growth of over 10% in 2025, which would mark the fourth consecutive year with double digit organic revenue growth in The Middle East. We continue to see significant demand for our master planning, design engineering and program and construction management solutions in The Middle East. We see this trend continuing as governments deliver their strategic vision as well as prepare for upcoming events such as the Asian Winter Games, World Expo and World Cup.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

We've expanded into the defense, hospitality and industrial manufacturing sectors with recent wins as these sectors are receiving major investments. We were excited to participate in President Trump's second quarter Middle East trip, which included visits to Saudi Arabia, Qatar and The UAE, each of which represents significant existing work and future growth opportunities for Parsons. These visits underscore Parsons' pivotal role as a premier leader in the region and our alignment with the administration's priorities. Parsons' portfolio was acknowledged during events, including a signing ceremony for our two awards for the new King Salmon International Airport. Our Middle East revenue growth is expected to accelerate in the second half of this year as we continue our strong hiring and retention and ramp up contracts including King Salmon Park, the Riyadh Ring Roads program, the Dubai Metro Blue Line project and the King Salmon International Airport.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

With significant wins in critical infrastructure Middle East and North America, we've achieved a book to bill ratio of 1.4 times and 1.2 times respectively in the 2025. In our Federal Solutions segment, we're excited about the growth we're delivering in our core business, the significant large opportunities in our pipeline and the funding boost to the fiscal year 2026 defense investment accounts due to the recently passed One Big Beautiful bill, the reconciliation bill. Excluding the revenue impact from our confidential contract, our second quarter Federal Solutions year over year total and organic revenue growth rates were 118%, respectively. This growth was primarily driven by demand for our aviation, cyber and electronic warfare solutions. We are benefiting from our exposure to large single award IDIQ contracts, including our two sizable General Services Administration FedSIM programs, the Missile Defense HC teams and our Air Base Air Defense contract.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Having existing single award IDIQ contracts with high ceiling values is important to rapidly deploy solutions that address near peer threats. In addition, we're experiencing growth on our FAA, Army Ammunition and Defense Threat Reduction Agency Red Team programs. These contracts are expected to continue to grow in the 2025. We're excited about the passage of the reconciliation bill on July 4 that increases defense spending by $150,000,000,000 and adds an anticipated 25% to investment accounts for fiscal year twenty twenty six. Our federal portfolio lines with major budget line items, including aviation modernization, missile defense, space, munitions facility modernization, Pacific deterrence, border security and more.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Parsons' portfolio also aligns to 10 of the 17 priority areas outlined in the February 2025 Department of Defense memorandum which are expected to receive additional funding over the next five years. We are laser focused on the budget line items that align with our core competencies and where our portfolio is well positioned with domain knowledge and leap ahead solutions. As a non traditional company that was purpose built with differentiated capabilities, we have the speed and agility to deliver transformational programs that achieve the administration's requirements and accelerated time lines. The FAA received $12,500,000,000 under the reconciliation bill to produce a new state of the art air traffic control system. We are well positioned for the integrator contract given our transformational approach, partnership with IBM and a team that is vendor agnostic, knows how to deliver advanced solutions, understands the FAA and has strong past performance.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

If we win the integrator contract, Parsons will gain additional FAA work and serve as a single point of accountability prime contractor to ensure mission success. The Golden Dome for America initiative, an integrated air and missile defense shield for our country's homeland defense, received $25,000,000,000 of funding under the reconciliation bill. Parsons has strong qualifications to address challenges that Golden Dome is trying to solve. We've supported the Missile Defense Agency for more than forty years, and we're currently providing system engineering and integration on MDA's TeamSneak system engineering contract. Under this contract, we deliver capabilities that are directly aligned to Goldendome, such as engineering, analysis and modeling and simulation on a vendor agnostic basis.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

These solutions enable the development of an integrated and layered missile defense system to protect The United States and allied forces against ballistic, hypersonic, cruise missile and unmanned aircraft system threats. Golden Dome encompasses defending against advanced missile and drone threats with kinetic weapons such as missiles and non kinetic capabilities such as cyber and electronic warfare. Having non kinetic solutions embedded within the Golden Dome system is a game changer since it will enable our country to defeat adversary weapon systems either before or after a threat is launched. These capabilities can be used numerous times and against many types of threats, while preserving valuable and costly kinetic resources. Our portfolio aligns with other major budget reconciliation line items, including munitions, Pacific deterrence, border security and more.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

The munitions production budget received $25,000,000,000 of funding under the reconciliation bill. We're involved in modernizing several of the largest Army ammunition plants, including Holston and Radford, like our most recent $176,000,000 award for the new ammonium nitrate solution tank farm at Holston. The Pacific Deterrence Initiative received $12,000,000,000 of new funding. We've been operating in the INDOPACOM region for three decades and have significant infrastructure work on Guam and Kwajalein Islands, along with important mission critical cyber and electronic warfare programs in the region. This quarter, we further expanded our presence by winning a Counter Nuclear Smuggling Detection and Deterrence Task Order from the Department of Energy for the INNOPACOM region.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Finally, border security and enforcement received over $160,000,000,000 in the reconciliation bill. For decades, Parsons has worked on border security projects worldwide to improve our customers' ability to predict illicit activity, detect and track illegal border crossings, identify and classify the incursions and prevent weapons of mass destruction. We supported the Defense Threat Reduction Agency, Customs and Border Protection, Federal Aviation Administration, Transportation Security Administration, and Department of Energy, providing engineering, program management, infrastructure upgrades, integrated command and control, remote sensing surveillance systems, situational awareness and common operating picture systems. Our work is performed across The United States at the Southwest Border, land ports of entry and customs and border protection training facilities and globally in countries including Armenia, Georgia, Lebanon, Jordan and more. We are very excited about the large opportunities in our pipeline that are substantial federal funding.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

With excellent win rates over the last three years and strategic investments and bid and proposal activity and key personnel, we've positioned the company to win these large pursuits that could accelerate our future organic revenue growth for years to come. As a result of Parsons' strategic business positioning and purpose built portfolio, these major projects are well aligned to our core competencies, and we are ready to deliver the additional demand. I want to highlight our acquisition of Chesapeake Technology International. CTI is a developer of multi domain technologies across the invisible battlespace in areas of electronic warfare, cyber and autonomous systems. They enhance our position in the INDOPACOM region and strengthen our relationships with special operations forces and key research and development customers, including the Defense Threat Reduction Agency.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

CTI's Team Awareness Kit and Tactical Assault Kit or TAC X situational awareness tool has been applied for border security, disaster relief, counter unmanned air systems and other applications. This acquisition meets our financial M and A criteria. CTI is a high quality and unique company, and we're excited to welcome them to the Parsons team. In summary, I'm pleased with our second quarter results as our core business continues to deliver strong total and organic revenue growth. We expanded margins by 40 basis points, delivered exceptional cash flow and further positioned the company for continued long term sustainable growth.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

In addition, we leveraged our balance sheet and closed another strategic accretive acquisition. We've now closed one acquisition in each of the last four quarters. Our diversified portfolio in six growing and profitable end markets are enabling us to achieve mid to high single digit organic growth across the entire company, excluding the confidential contract. We have tailwinds in both segments and financial metrics that support long term growth and margin expansion. Unprecedented global infrastructure spending is expected to last into the next decade.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

The reconciliation bill was passed, and Parsons' capabilities will continue to play a vital role as near peer threats become more aggressive and advanced cyber attacks increase across The U. S. And global conflicts persist. From a financial perspective, we have a total backlog of nearly $9,000,000,000 of which 70% is funded approximately $11,000,000,000 of contract wins that we have not yet booked a $55,000,000,000 pipeline that includes 114 opportunities of contracts worth $100,000,000 or more and 14 opportunities worth $500,000,000 or more. And we have less than 3% of our revenue up for repeat in the 2025.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Our robust backlog, large scale pursuits and excellent win rates provide a backdrop for persons to continue to outpace industry growth rates and deliver significant shareholder value over the long term. I look forward to our bright future, and I am proud of our more than 20,000 employees that are making a difference for our customers and communities around the world every day. It's a very exciting time to be at Parsons. With that, I'll turn it over to Matt to provide more details on our second quarter financial results. Matt?

Matt Ofilos
Matt Ofilos
CFO at Parsons

Thank you, Carrie. Q2 financials were highlighted by strong free cash flow, adjusted EBITDA margins and total and organic revenue growth, excluding our confidential contract. In addition, we continue to leverage our balance sheet and completed another accretive acquisition in the strategic national security space that strengthens capabilities and customer relationships. Turning to the details of our second quarter results. Total revenue of $1,600,000,000 decreased 5% from the prior year period and was down 9% on an organic basis.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Excluding our confidential contract, total revenue grew 138% on an organic basis, driven by growth in our transportation and cyber markets. SG and A expenses for the second quarter increased 13% from the prior year period. This increase was primarily driven by the inclusion of recent acquisitions and increased investments in bid and proposal activity and critical hires in support of our strong pipeline and large strategic pursuits aligned to the administration's priorities. Adjusted EBITDA of $149,000,000 was comparable with the 2024. However, adjusted EBITDA margin expanded by 40 basis points to 9.4%, a second quarter record.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Our margin increase was driven by improved program performance and accretive acquisitions. I'll turn now to our operating segments, starting first with Federal Solutions, where second quarter total revenue decreased 19% from the prior year period and 20% on an organic basis. Excluding our confidential contract, Q2 Federal Solutions total revenue increased 88% on an organic basis. These increases were driven by growth on existing contracts and the ramp up of new task order wins, specifically in the cyber and intelligence and aviation markets. Our confidential contract generated $106,000,000 of revenue in Q2 twenty twenty five, in line with our expectations.

Matt Ofilos
Matt Ofilos
CFO at Parsons

At the beginning of the third quarter, this contract was terminated for convenience as anticipated. Federal Solutions adjusted EBITDA decreased 35% from the 2024 and adjusted EBITDA margin decreased two ten basis points to 8.3, driven primarily by contract mix and investments made in bid proposal activity and key personnel on strategic pursuits. Moving now to our Critical Infrastructure segment. Second quarter revenue increased by $97,000,000 or 14% from the 2024. This increase was driven by organic growth of 8% and inorganic revenue contributions from our BCC and TRS acquisitions.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts in both North America and The Middle East. We are expecting growth to accelerate in the second half of the year as new and existing contracts ramp and strong hiring activity in the second quarter flows through to revenue. Critical Infrastructure adjusted EBITDA increased 73% from the 2024 and adjusted EBITDA margin increased three fifty basis points to 10.5%, a second quarter record for the segment. These increases were driven primarily by improved program performance, the ramp up on recent awards and acquisitions to include BCC, where we are seeing significant synergy benefits both to revenue and margins. Next, I'll discuss cash flow and balance sheet metrics.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Our net DSO at the end of Q2 twenty twenty five was sixty days, consistent with prior year period. During the 2025, we generated $160,000,000 of operating cash flow, which is also consistent with Q2 twenty twenty four. On a trailing twelve month basis, we generated $574,000,000 of operating cash flow, which is a Q2 record and a 17% increase over the prior twelve month period. These increases were driven by strong collections in both segments and lower tax payments. Capital expenditures totaled $9,000,000 in the 2025, consistent with the prior year period.

Matt Ofilos
Matt Ofilos
CFO at Parsons

We expect CapEx to increase in the second half of the year in support of long term growth, partially offset by reductions in facility square footage in several locations. For fiscal year twenty twenty five, CapEx is expected to remain in line with our planned spend of approximately 1% of annual revenue. At the end of Q2, free cash flow conversion was 125% on a trailing twelve month basis, with an intentional focus on contract execution, settlement of legacy claims and improved cash management and collections. Our balance sheet remains strong. Including the impact of our all cash acquisition of CTI, we ended the second quarter with a net debt leverage ratio of 1.5 times.

Matt Ofilos
Matt Ofilos
CFO at Parsons

During the second quarter, we repurchased approximately 219,000 shares at an average price of $68.56 for an aggregate purchase price of $15,000,000 On a year to date basis, we've repurchased approximately 643,000 shares at an average price of $62.22 for an aggregate purchase price of $40,000,000 Turning now to bookings. For the second quarter, we reported contract awards of $1,500,000,000 representing a book to bill ratio of one point zero times on an enterprise basis, which continued our streak with a trailing twelve month book to bill ratio of one point zero or greater in every quarter since our IPO. In Critical Infrastructure, we achieved a book to bill ratio of 1.1 times, which is the nineteenth consecutive quarter with a book to bill ratio of one point zero or greater. Federal Solutions reported a book to bill ratio of 0.8 times. Our backlog at the end of the second quarter totaled $8,900,000,000 a 1% increase over Q2 twenty twenty four.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Additionally, our funded backlog is the highest since our IPO at 6,200,000,000 a 14% increase year over year. Next, I'll discuss updated guidance. We're increasing our revenue, adjusted EBITDA and cash flow guidance ranges provided on June 2 to reflect our second quarter results, CTI acquisition, changes to tax laws and our outlook for the remainder of the year. We expect total revenue to be between $6,480,000,000 and $6,680,000,000 This guidance represents total revenue growth of 1713% on an organic basis, excluding the confidential contract. Including this contract, total revenue is anticipated to decline 3% at the midpoint of the range and 6% on an organic basis.

Matt Ofilos
Matt Ofilos
CFO at Parsons

We expect growth to accelerate in the second half of the year as we ramp on recent contract wins, existing contracts expand, strong hiring and retention continues and we realize the contributions from CTI. Adjusted EBITDA is now expected to be between $595,000,000 and $635,000,000 with a margin of 9.3% at the midpoint of revenue guidance ranges. This represents adjusted EBITDA margin expansion of 30 basis points from 2024 and an 80 basis point increase since 2023. Operating cash flow is now expected to be between 400,000,000 and $440,000,000 given strong Q2 performance and the cash tax benefit related to the reconciliation bill. Other key assumptions in connection with our 2025 guidance, including quarterly cadences, are outlined on Slide 11 in today's PowerPoint presentation located on the Investor Relations website.

Matt Ofilos
Matt Ofilos
CFO at Parsons

With that, I'll turn the call back over to Carrie.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thank you, Matt. During the second quarter, we delivered significant growth in our core business, 40 basis points of margin expansion, exceptional cash flow and free cash flow conversion and completed a strategic acquisition while maintaining our strong balance sheet, which will enable us to make future accretive acquisitions. We're optimistic about our future, given our team's proven execution, the tailwinds we have in both segments, our large total and funded backlog and the robust pipeline of large opportunities we have to pursue. With that, we'll now open the line for questions.

Operator

Our first question comes from Toby Sommer with Truist.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thank you. Good morning. I wanted to ask about the opportunities in front of the company sort of over the near to medium term with respect to Golden Dome and the very large FAA procurement. Could you just discuss how you're pursuing those? And I know that we've heard that the FAA procurement is sort of fluid.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

They're soliciting a lot of advice and it's not yet determined kind of how that path will proceed, but is there a sort of an optimal way that that could proceed from your perspective?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes, thanks, Toby. Appreciate the question. Thanks for joining the call today. We're very excited about the FAA program. We've fortunately supported the FAA for nearly five decades.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

We have excellent past performance. We've done a lot of the infrastructure and facilities work. We've put together a very strong team to pursue the FAA integration contract. What's going to be important in that contract is making sure that you have a company that knows how to deliver. Parsons is the number one program manager in the world per Engineering News record.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And we've partnered with IBM, a very strong technical partnership, and we feel that we're very well ready to take on the single point of accountability integration role and provide the FAA a safe, resilient, reliant system that also transforms for the future. That's $12,500,000,000 of funding in the reconciliation bill. We're anticipating a request for solicitation sometime soon. They had hoped to make an award by the September, but that's really now dependent on the timing of the request for solicitation. Under Golden Dome, that's $25,000,000,000 of reconciliation funding.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And both of these by the way the FAA and Golden Dome are both projected to receive more in the future. On FAA they indicated they need about $31,500,000,000 And for the Golden Dome they've indicated they need about $175,000,000,000 for the total contract. Very similar to FAA, we're extremely well positioned for the Golden Dome. We've been supporting the Missile Defense Agency for four decades providing system engineering and integration capabilities along with modeling simulation and analysis capabilities. We have a current contract vehicle.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

It's worth $2,200,000,000 On that vehicle, we still have $1,000,000,000 remaining. So that can be used to get Golden Dome kick started right away. In addition to that, we also have non kinetic capabilities as I mentioned during the script, that we think are very novel and unique to counter threats on a nonkinetic way. I'd also highlight again under the bill, because I'm really excited about the reconciliation bill and how well it aligned our portfolio. The munitions budget of $21,000,000,000 so it will continue to expand beyond our current capacity that we have at Holston and Bradford.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And then the border security funding of $160,000,000,000 that's really going to leverage our decades of experience all over the globe in providing border security solutions.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes. Tobey, the only thing I would add, and Carrie kind of commented on it, but on the existing IDIQ vehicles between those two areas with MDA and FAA, have almost $3,000,000,000 worth of ceiling remaining. So just great opportunity to move on existing vehicles or new. So it's really great opportunities on both for us.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thanks. If I could ask a follow-up. What's your expectation for the calendar 3Q, which is seasonally the industry's strongest from a book to bill perspective? And this year, we've seen obligation actions sort of lagging pretty significantly. Do you expect a bigger than normal seasonal catch up for the industry and yourselves?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

I would say we're definitely expecting more robust Q3. And that traditionally as you point out Tobey is for the federal business the strongest quarter. Within critical infrastructure obviously we've had 19 consecutive quarters greater than one point book to bill. Orders can be lumpy. I always like myself to look at the revenue growth.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

I think where we've done a tremendous job in our federal business is driving task orders onto that $11,000,000,000 of unused ceiling that has been awarded to Parsons that we haven't yet put into bookings. I was glad this quarter on the federal business that we did see two new large awards move forward, the Holston, the Defense Threat Reduction Cyber. But we are anticipating a one point zero book to bill for the full year, for both CI and for federal and expect Q3 will be a stronger quarter.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thank you.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thanks.

Operator

Our next question comes from Andrew Wittmann with Baird.

Andrew Wittmann
Senior Research Analyst at Baird

Great. Good morning and thank you for taking my questions. I guess, Carrie, I thought I would just check-in here and get your comments on how the one big beautiful bill, which obviously articulated the aspects on the federal side. Can you talk about how it might impact your infrastructure side, particularly as it relates to the state and local budgets that are out there and how they might be affected? If you're hearing anything from your customers on that side of the house of how the bill might impact them.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes. So I think, Andrew, the biggest thing I'd say is we're aligned with the administration's and bipartisan priorities. There's going to be a shift from soft infrastructure areas like climate change, renewables, electrification over to hard infrastructure which is road and highways, bridges, airports. And those are the areas where Parsons portfolio is very well aligned. We're also super excited about the next five year surface transportation reauthorization bill kicking off and we expect additional funding to come through that bill.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

When you're looking at the current IIJA not peaking until twenty twenty eight six to eight year tail, overlaying a new surface transportation bill and then a shift in funding from soft to hard targets infrastructure, that really benefits Parsons.

Andrew Wittmann
Senior Research Analyst at Baird

Got it. Okay. And then just my follow-up for Matt, easy one here, but just the guidance increase, at least here on the income statement, it looks like it's mostly the contribution of the incremental acquisition that you did in the quarter. It looks like the income statement for the company for the quarter was mostly in line. Is that the correct way of thinking about the guidance increase?

Andrew Wittmann
Senior Research Analyst at Baird

Or is there some other nuance there that we should be aware of?

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes. No, Andy, CTI is a big contributor, 30,000,000 to the top line and then $5,000,000 in the bottom line, a little bit more aggressive on the bottom line given the outperformed first half. So a little bit of that is organic. On the cash flow side, it's mainly organic. So the big effect was the R and D tax credit.

Matt Ofilos
Matt Ofilos
CFO at Parsons

So we got almost $20,000,000 worth of benefit from the reconciliation bill on the R and D tax credit. So that flowed through the cash and but the other the top and bottom line were all CTI mainly.

Andrew Wittmann
Senior Research Analyst at Baird

Okay. Thank you very much.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thanks, Amy.

Operator

Our next question comes from Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu
Sheila Kahyaoglu
Aerospace, Defense & Airlines Equity Research at Jefferies

Good morning, guys. Thanks so much. And thanks for mentioning Armenia in the script.

Sheila Kahyaoglu
Sheila Kahyaoglu
Aerospace, Defense & Airlines Equity Research at Jefferies

I don't think I've heard that before, so appreciate that.

Sheila Kahyaoglu
Sheila Kahyaoglu
Aerospace, Defense & Airlines Equity Research at Jefferies

Maybe if we could just talk about the organic growth outlook a little bit more, Carrie. How do you think about the puts and takes? It seems like we're down a point to 6% organic given CTI contribution. How do we think about the second half contributors playing into that and the ramp up?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes. So excluding the confidential contract, we're going to grow 18% organic in the second half. And that breaks out let's see, that would end up being

Matt Ofilos
Matt Ofilos
CFO at Parsons

About 13% within CI on an organic basis and then north of 20% on Fed. So really strong growth from both sides of the company.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes. And let me kind of walk through the pieces for that. So I think it's important to note that this is largely based on work that we've already won today. So when you look at what's going to accelerate in the second half critical infrastructure North America, Georgia State Route 400, Newark Airtrain, Hawaii Rail and Transit, Hudson River Tunnel I-fifty 5, Middle East, King Salmon Park, Rio Ring Roads, Dubai Metro, King Salmon International Airport, Engineered Systems, FAA, Holston Ammonium Nitrate, Defense Threat Reduction Red Team, United States Postal Service and Defense and Intelligence, the Missile Defense Agency teams contract, GSA FedSIM additional, ceiling tech product sales, air base air defense. I think what's important is we do have our July results.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

They were very favorable and they're on track to achieve the back half acceleration. We also had in July record hiring within The Middle East. So quite excited. I think we've got industry leading organic growth in both segments.

Sheila Kahyaoglu
Sheila Kahyaoglu
Aerospace, Defense & Airlines Equity Research at Jefferies

What changed to cut the core by one point since your last update? And then my second question, if I can squeeze that into just on CI, the performance has been quite stellar, 10.4% margins year to date. Just any update on the programs that previously faced supply chain challenges?

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes, Sheila, I can start off with the 5% to 6%. Actually, it's really just rounding. It was 5.4 went to 5.5%. So there's really nothing more behind that. The core the organic revenue stayed constant.

Matt Ofilos
Matt Ofilos
CFO at Parsons

It was just contribution from CTI changed the base. Just no implied delta on the organic. So Carrie, you want to cover CI?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Critical infrastructure margins. So what's been good on critical infrastructure is really program execution. The team's done a very good job this year of just executing. We've always indicated that the long term margins for critical infrastructure should be double digit and that's what we're seeing. So I'd say continued program execution.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

We're seeing demand much greater than supply, both in North America and in The Middle East, double digit growth within those. And those are the margins long term that we would expect to deliver.

Sheila Kahyaoglu
Sheila Kahyaoglu
Aerospace, Defense & Airlines Equity Research at Jefferies

Awesome. Thank you.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thank you.

Operator

Our next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Hey, good morning, everyone. Good morning, Noah.

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Matt, what's the second half Federal Solutions organic ex confidential that's now in the guidance? Because just looking at the slide you have that shows that confidential was still just over $100,000,000 in the second quarter. If I take that out sequentially, it looks like a bit of a lift to overcome that sequentially unless seasonality is in your favor or there's an acceleration kind of everywhere else?

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes. No, you're right. Noah, the Fed organic growth in the second half is expected to be just north of 20. So a little bit better than first half, which was closer to high single, low double digit. And so we're seeing really strong growth on programs.

Matt Ofilos
Matt Ofilos
CFO at Parsons

We have some key deliveries, the FAA ramp that Carrie talked about. MDA is growing. We have some product deliveries within the Sealing Tech acquisition we've done. So we see really strong demand across the portfolio on the federal side. But to your point, it is going to expand in the second half of the year.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And also the new business wins we highlighted with Holston, Defense Threat Reduction Agency. I go back to our July results are right in line with our plan.

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Yes, Carrie, I guess you've cited a number of specifics for the basis for that. But from a top down perspective, I guess, much risk is there just in the slower contracting environment that we're in to assume double the growth rate in that business in the back half versus the first half?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

So the most important thing is those are largely contracts that have already been awarded and we're ramping up, which we've been accelerating throughout the year. FAA is a real good example of that, which we've seen strong outperformance over last year. So I would say a lot of that is one. We also have the $11,000,000,000 of awarded not booked, predominantly in the federal area. And we've done a great job of driving task orders over to that.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Environment has been a little slower, but I'd say we're optimistic that it is starting to pick up. I look at the amount of and the volume of proposals that we've been submitting. It's right in line with what we would expect. And it's great to see some of these big large new awards come through this quarter.

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Okay. And it sounds like you're saying you're able to say right now that July, I mean, it's one month, but July at least is tracking to that directional plan.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

That's correct. Just July results were favorable and demonstrate that we're on track to achieve the back half acceleration.

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Okay, great. Just last one for me. Federal Solutions margin has come down. How much was confidential helping that margin? And maybe you can just was there anything abnormal in the quarter?

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Or where does that go in the back half from here?

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes. So Noah, as you point out, the biggest driver, of course, was the lower volume on our confidential contract that came down about $250,000,000 year over year. Fixed price contracts, obviously, are accretive. So the impact from that put a damper on the margins. But in addition to that, I think Carrie mentioned in her script, but it was a we had some additional spend from a BNP perspective back to the expanding capture environment and some strategic hires that we put in place ahead of expected awards.

Matt Ofilos
Matt Ofilos
CFO at Parsons

So those two things are the big driver to the Fed margin for the quarter. For the rest of the year, we expect Fed margins to be kind of in the low 9% range to get back up near 9% for total year. We have some incentive fees timing in the second half. We've got some product sales, as I mentioned before, and then operating leverage as you see the outpaced revenue growth. You'll start to see the margins trend back up as well.

Matt Ofilos
Matt Ofilos
CFO at Parsons

So those are the big drivers for second half. I think long term, Tobey, we're kind of in that we're happy in that kind of low to mid-9s given the breadth of the portfolio, the amount of cost type work we do. That's kind of more on the front end R and D focused. And so all in all, happy with where the investments are going and long term outlook for the Fed margins.

Noah Poponak
Noah Poponak
Research Analyst at Goldman Sachs

Okay. Thanks so much.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thanks.

Operator

Our next question comes from Mariana Perez Mora with Bank of America.

Samantha Stiroh
Samantha Stiroh
Global Research Analyst at Bank of America

Hi. Good morning. This is Samantha Steyer on for Mariana.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Hey, Sam.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Good morning.

Samantha Stiroh
Samantha Stiroh
Global Research Analyst at Bank of America

Sticking with the FS margin, you highlighted strategic personnel hires. So with that, how has the hiring environment been? And then how or what is your ability to move people within the company around to these kind of high priority areas?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes. Thanks for the question. Hiring environment has been very strong and also the retention. Our retention is the best that it's been since 2020. And we do have a great ability to hire.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

I think really as a result of our mission focus and our culture, people want to come to Parsons. Our ability to win with strong win rates of 72% this year, similar to what we've delivered in the last two years, we're winning these great new exciting projects. We do have an ability to move people around. We have kind of a common program management pool of people. We have an engineering design group of people.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And I always like to highlight somebody who today works in internal audit That's a person that worked in federal, worked in critical infrastructure, worked in North America, worked in The Middle East. So she's kind of been all over the company. And I think we do a great job of that in giving people new experiences and development opportunities.

Samantha Stiroh
Samantha Stiroh
Global Research Analyst at Bank of America

Great. Thank you. I'll keep it at one.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Thanks, Phil.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thank you.

Operator

Our next question comes from Gautam Khanna with TD Cowen.

Gautam Khanna
Managing Director at TD Cowen

Yes, thanks. Good morning.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Good morning.

Gautam Khanna
Managing Director at TD Cowen

I was wondering if you could elaborate on the unbooked backlog, if you will. I think it changed by $1,000,000,000 in the quarter. Maybe you touched on it and I missed it, but 12,000,000,000

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes, or sure. Eleven So it's just over $11,000,000,000 now. We had about $600,000,000 that was in for the confidential contract. So we obviously have removed that. Then we've done exactly as we indicated, which is driven task orders onto some of our IDIQ vehicles.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

So it came down slightly because of that. And that's again our full intention.

Gautam Khanna
Managing Director at TD Cowen

Okay. And maybe did you guys comment on what your outstanding bids are as of the end of the quarter?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

We have $6,000,000,000 awaiting notice of award. We have a $55,000,000,000 pipeline.

Gautam Khanna
Managing Director at TD Cowen

Okay. And is there any risk of the second you mentioned you've booked a lot of the stuff already that gives you confidence in the second half ramp. But is there any sort of change in the funding environment, the funded backlog that you're seeing that raises any risks to that outlook? Or does that look all well aligned at this point?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Well, our funded backlog is the highest it's been at 70%, so very strong.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes. Would say funding is coming in, in line. Cash is paying clean. So I would say all in all, we're looking pretty good, Gautam.

Gautam Khanna
Managing Director at TD Cowen

Terrific. Thank you.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thank you.

Operator

Our next question comes from Jonathan Siegman with Stifel.

Jonathan Siegmann
MD - Aerospace & Defense at Stifel Institutional

Hey, good morning, Carrie, Matt Good morning. And Thanks for taking my question. So maybe just to tease a bit more on the second half ramp in federal solutions. I think maybe what's optically struggling is looking at the backlog that hasn't sequentially down with your expectations of higher growth. But when I look at your remaining performance obligations being in Federal Solutions at an all time high, up double digits, I think that's consistent with your confidence.

Jonathan Siegmann
MD - Aerospace & Defense at Stifel Institutional

But I just wanted to see if that indicated that's the right interpretation of it or whether that's being distorted by Chesapeake at all. Thank you.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yeah, no real distortion from Chesapeake. I think you're right between RUPO and funded backlog, we're starting to see really strong next twelve eighteen months. So I'd say that helps us build the confidence we see, timing on the awards, the ramps, the milestone deliveries. There's a lot of things that are all to help us build confidence. Obviously, percent is a sporty number, but Carrie and I are fully committed, and we're going to deliver.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And again, our funded backlog is up 14%. So very strong.

Jonathan Siegmann
MD - Aerospace & Defense at Stifel Institutional

Appreciate that. Thank you.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thank you.

Operator

Our next question comes from Louie DiPalma with William Blair.

Louie Dipalma
Research Analyst - Industrials at William Blair

Carrie, Matt and Dave, good morning.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Good morning, Louis.

Matt Ofilos
Matt Ofilos
CFO at Parsons

Good morning, Louis.

Louie Dipalma
Research Analyst - Industrials at William Blair

Carrie, you discussed the strong second half growth for, I think, seven large U. S. Infrastructure programs. For these programs, will the revenue trajectory take the shape of a bell curve? And does that peak funding for these programs, should it resemble general peak funding for IIJA?

Louie Dipalma
Research Analyst - Industrials at William Blair

I think you mentioned that there should be funding that should increase for IIJA through 2028. And so is that how we should assume the the revenue trajectory for these programs?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes. So it really varies. Let me just give you two specific examples. Georgia State Route 400, we're part of a public private partnership. We are the design engineer.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

So what you'll see is most of our work at the very beginning of that project. Another example would be the Divide Metro BlueLine. We're the program manager. So in that instance, we will provide program management capabilities throughout that entire contract at a steady state. So it really depends on the type of work we're performing on each contract.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Another example in The U. S, the Hudson River Tunnel, which is the largest rail and transit infrastructure project in The U. S, we are the program manager on that. So we'll be on for that entire duration.

Louie Dipalma
Research Analyst - Industrials at William Blair

Okay. I guess, a whole, for these programs, would there be, like, difficult comps in 2028 or or 2027 for the ones that are, like, front end loaded, or how should we think about them collectively?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

No. Because we continue to win new business. So nineteen consecutive quarters greater than one point book to bill. Projects still coming out larger than we've seen in both North America and The Middle East, not even at a peak yet where the funding has been outlaid out of the IIJA. And then adding a new surface transportation bill on top of that, we'll like I said, we'll continue to win projects.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

And again, proud of the fact of where we've moved up on engineering news record ratings to be number one now on program management in the world.

Louie Dipalma
Research Analyst - Industrials at William Blair

Great, Carrie. And for the, the confidential contract, was there any breakup fee? Or should we assume zero in revenue in the third quarter? Or how should we think about that?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes. So for that contract, we did $181,000,000 in Q1, January in Q2, so $286,000,000 consistent with our guidance that we updated on June 2. We are in the process of negotiating a demobilization contract line item for the wind down of the project. It's not yet negotiated, but we expect it to be very scaled back and immaterial, less than 1% of revenue.

Louie Dipalma
Research Analyst - Industrials at William Blair

Okay. Thanks. And, is it possible, Matt, could you provide the the quarterlies for the confidential contract for the third quarter and and fourth quarter of of last year?

Matt Ofilos
Matt Ofilos
CFO at Parsons

Yes. So we didn't really give so Lou, you'll remember we had some complexities with the customer, didn't really want to give out a total scale of the contract. So I would say, I'll kind of give you a directional. Q2 and Q3 were the peak. Q4 was lighter.

Matt Ofilos
Matt Ofilos
CFO at Parsons

And so, I would say this kind of Q2 number was a little bit bigger in Q3 and then Q4 was lower.

Louie Dipalma
Research Analyst - Industrials at William Blair

Great. And and one final one. Earlier this week, Terry and Matt, you announced a a satellite communications partnership with Globalstar to bring services to Europe. What does that partnership entail? And the reason I'm asking is, as everybody on the call is aware, there has been significant GPS jamming attacks across Europe with the conflict.

Louie Dipalma
Research Analyst - Industrials at William Blair

And so does your Globalstar partnership provide any types of alternative, like, position navigation and timing services to help, you know, alleviate those jamming attacks? Thanks.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yeah. Great question, Louie, and that's exactly what it does. We've partnered with Globalstar. We've got a very innovative solution, and it takes our Parsons proprietary software defined satellite communications technology, integrates it with Globalstar's low Earth orbit satellite constellation. And we developed it specifically to target complex and congested areas as you're referring to in Ukraine.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

We think that this partnership is going to unlock previously impossible mission critical solutions and provide unique responses for Assured P and T within radio frequency congested environments and also set a new standard for global communication services and complex and challenging operating conditions. We did deploy the system at three different locations across the theater. It is active within a conflict scenario and we were very pleased with the performance results. We're now looking at how we expand that into no paycom and other areas.

Louie Dipalma
Research Analyst - Industrials at William Blair

Excellent. So you you can potentially, bring into other geographies as well?

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Yes.

Louie Dipalma
Research Analyst - Industrials at William Blair

Yeah. Great. Thanks, Carrie, Matt, and Dave.

Carey Smith
Carey Smith
Chair, President & CEO at Parsons

Thanks, Laurie.

Louie Dipalma
Research Analyst - Industrials at William Blair

Have a great day.

Operator

That's all the time we have for questions today. I'd like to turn the call back to Dave Spilley for closing remarks.

Dave Spille
Dave Spille
SVP - IR at Parsons

Thank you, and thanks again for joining this morning. If you have any questions, please don't hesitate to give me a call. We look forward to catching up with you over the coming weeks. And with that, we'll end today's call. Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Dave Spille
      Dave Spille
      SVP - IR
    • Carey Smith
      Carey Smith
      Chair, President & CEO
    • Matt Ofilos
      Matt Ofilos
      CFO
Analysts
    • Tobey Sommer
      Managing Director at Truist Securities
    • Andrew Wittmann
      Senior Research Analyst at Baird
    • Sheila Kahyaoglu
      Aerospace, Defense & Airlines Equity Research at Jefferies
    • Noah Poponak
      Research Analyst at Goldman Sachs
    • Samantha Stiroh
      Global Research Analyst at Bank of America
    • Gautam Khanna
      Managing Director at TD Cowen
    • Jonathan Siegmann
      MD - Aerospace & Defense at Stifel Institutional
    • Louie Dipalma
      Research Analyst - Industrials at William Blair
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