Parsons Corp Aktie

For the fireside chat with Parsons, I'm here with Carey Smith, CEO; and Matt Ofilos, CFO. Thank you both for being here.

Thank you for hosting us, Mariana.

Amazing. So I like on this industrials conference is to start with, can you give us a quick overview for whoever is not familiar with Parsons on what do you do? What are the key markets you work at?

Sure. So Parsons reports in 2 segments: Federal Solutions and Critical Infrastructure, and it's roughly a 50-50 business. We have 21,000 employees throughout the world, 25 countries, all 50 states. And we have 6 end markets that we like to discuss the company in terms of. The first one is Cyber and Electronic Warfare, where I would say we're a distinguished player in how you use cyber and electronic warfare techniques in ways such as non-kinetic effects. And we also do about 75% offensive, 25% defensive cyber. That represents about 21% of the company's revenue.

The second area would be Space and Missile Defense. That's about 14% of our revenue. We are the #1 system engineering and integration company with the Missile Defense Agency, a role that's going to be critical for the Golden Dome program since getting to the flight test by 2028 is really going to require integration of a lot of the existing capabilities that we have. We also provide capabilities in space, space situational awareness for Department of War, the intelligence community as well as Department of Commerce. We do space resiliency of satellite systems, networks, ground systems. We do a lot of ground processing for the intelligence community, and we've done over 170 different ground systems. We also provide the Neptune Software Architecture Ground System for the Space Development Agency, and we're involved in assured positioning, navigation and timing if you lose your GPS signal. You can still get location information.

The third area would be Critical Infrastructure Protection. That represents 9% of Parsons' revenue. Within critical infrastructure protection, we provide capabilities like electronic security systems, biometrics and counter unmanned air systems, where we're protecting 285 embassies and consulates throughout the world. We're also the #1 provider of electronic security for the Army and #3 for the Air Force.

Next area would be Transportation, about 29% of Parsons' revenue. There, we do roads and highways, designed and built over 10,000 miles across 6 continents. We performed over 450 airport projects and actually expanded to 5 new airports within the last 12 months. We've been involved in over 450 rail and transit projects, and we have the largest globally deployed advanced traffic management system in the world. It's called iNET or Intelligent Network.

Next area would be Water and Environment. Water and Environment, we do water -- wastewater treatment plants. We're involved in sewage and drainage programs, a lot of environmental remediation capabilities. But I'd probably say the most exciting part of that market would be PFOS, PFAS, emerging contaminant elimination, which we think is a $40 billion addressable market for the company.

The final area would be Urban Development, also representing about 12% to 13% of the company's revenue. Within urban development, we're involved mostly within the Middle East. We have 7,500 employees that work there. We're on every single giga project that's going on within Saudi Arabia. And some of the most exciting projects in the world, like the world's fastest, longest metro system, the world's largest park, the world's largest entertainment city. So very exciting projects.

So when you think about those end markets, what is driving growth today? And when you think about like 3, 5 years from now, what are the ones that will drive most of the growth?

Yes. So fortunately, we look at it in terms of a 3-year compound annual growth rate. And when you look across those 6 markets, they're all growing between 4% to 11%. I would say Cyber is going to grow the fastest. That's at about a 9% to 11% type of growth rate. Space and Missile Defense runs about 7% to 8% growth rate. Critical Infrastructure protection is about a 5% to 6% growth rate. Transportation is 8% to 9%. Environment -- Water and Environment runs about 7% to 8% and then urban development is about 6% to 7%. So we're in all very good end markets. And I would also add that when we focus on our markets, we really focus on the growth in areas that we can be differentiated technologically wise and really be one of the top players in each of those end markets.

So this is a question I get a lot, especially because most of the E&C companies that diversified into defense solutions spin off that or are in the process of doing that. What makes you comfortable of like having those 2 business units? And what are the synergies you see on having all of these capabilities under the same umbrella?

So I'd say one thing with us is we've made it work. And if you look like '22 to '24, both of our segments, we were one of the industry-leading growth leaders in both of those segments. And last year, without one contract cancellation, we were also one of the top industry-leading growth leaders. So for us, it's really worked and we've driven the synergies. Just a couple of examples. If you look at aviation, we've supported the FAA for over 5 decades and are currently supporting them on aviation modernization, one of our biggest growth drivers, in fact, as we look this year. But we've also done over 450 airport projects. So we leverage a common pool of talent to be able to approach the aviation modernization market.

PFOS, PFAS is another great example. Where on the federal side, we're helping Department of War and the FAA, eliminate firefighting foam. But we're also selling to customers on the infrastructure side, including water customers and some of the customers that have been sued for PFOS, PFAS. I would say another area that I would highlight would be Middle East. When you look at the Middle East, we traditionally had done transportation projects there of Tourism and Entertainment and Urban Development. But we've since moved into defense and security. That's going to be increasingly important, particularly as we come out of the conflict when the Middle East is going to be in need of solutions such as Integrated Air and Missile Defense, Critical Infrastructure protection of areas like data centers, water, utility, counter unmanned air systems, which we're currently providing today and also looking at an $880 billion rebuild.

Yes, that's fascinating. And I want to double tap on a lot of those things, FAA, Golden Dome, missile. But before that, I think it's interesting, and I've gotten a lot of questions right to Matt on like the dynamics for this year. The first quarter was really, really strong from growth and then also a really strong EBITDA, but you are expecting a second quarter that will actually take some hit and then some growth going forward in the second half. What are the specific dynamics that drive that cadence into this year?

Yes. So high level, to your point, came in right on our revenue target for Q1, which was great coming out of Q4 government shutdown. So really excited about the top line performance. On the bottom line, we outperformed margins north of 10% for the first time, really strong first quarter. And so the business performed really well in Q1. We do have 7% sequential growth. But to your point, we're contending against a $350 million headwind year-over-year on the confidential contract that a lot of you know about. Q2 has about $100 million of headwind. So Q3, Q4, you're going to start to see positive growth.

We don't have to talk about excluding confidential program anymore. We'll be back to growing with and without it. And so really looking forward to those days. But Q2, we have about, like I said, 7% sequential growth, about $100 million worth of growth. Then you look at second half versus first half, we have about $400 million worth of growth from the first half to the second half. And it's a lot of the programs that Carey mentioned, the Sealing Tech acquisition we did a few years back and the Joint Cyber Hunt kits. Those kits are shifting from low rate initial production to full rate production in the second half. You think about the FAA work that we're doing, the ramp-up on that ramp, we grew 35% in Q1, tracking to about the same range for the total year, which is amazing on a pretty decent sized base, $150-ish million base.

And then some of the munitions programs that we have key milestones in the second half of the year, plus some of these recent awards that we mentioned, $400 million worth of OTA awards as of late, and those are quick turn. Those are about 3-year contracts, but we've been working build some material and prepping for those contracts for the past 6 months. So those will be quick moving. And so each one of these contributes $40 million to $50 million. So you add up to $300 million out of the $400 million on a very small number of programs. The other one in the Middle East, the King Salman [indiscernible] and those programs are ramping. And so just very clear line of sight to those program growth. And so again, it's just a really very strong view toward the second half of the year. And to your point, looking forward to those positive growth rates for the second half.

Yes, I would add, we have some really good leading indicators, whether it's 22 consecutive quarters of greater than 1.0 book-to-bill within Critical Infrastructure. At the company level, we've always been over a 1.0 trailing 12-month book-to-bill. Very strong book-to-bill for Q1, 1.4 for Parsons for both segments and the Middle East at 1.5. We've got $9.3 billion in backlog. We got 71% of funded backlog. And then we also have $11 billion that's been awarded but not yet booked at Parsons as a single contract for prime contracts. So some really good leading indicators and a $54 billion pipeline.

And when you think about executing towards those contracts, what is the main factor or big factor? Is it labor? Is it clearances? Is it like that money getting funded? Like what are you concerned about when you think about actually executing on those opportunities?

Yes. The most important thing for us is always going to be labor. It's hiring and retention. We're really proud of the fact over the last 2 years, we've had the best retention in the history of the company. And it's not just in one group, it's across all 4 business units. And I think it's a testament that people want to come work at our company because of the culture and because of the exciting projects that they get the opportunity to work on. And then from a hiring perspective, we started off good, but hiring is going to be a critical focus for us as we go through the years, it always is.

Perfect. So you mentioned the Middle East, both of you. I was surprised. One quarter was like the first quarter was really resilient considering all the conflict there for your operations, and you just mentioned like 1.5 book-to-bill. How are operations there? Are there any money getting like refocused to more like defense projects from like urban development? How do you think about that? And then you also have a really strong positioning for anything post-conflict rebuilding. How fast that could happen? How are you thinking about those opportunities?

So I'd say the most important thing for us was making sure our 7,500 employees were safe, and they are all safe. Our employees are all working at the job sites or in the home offices. And our customers have also continued to award. We overdelivered our expectations on revenue and beat bookings, and we beat cash within the first quarter. So those are all very good signs. It's because we're -- I think we're in the right markets, whether it's tourism and hospitality, transportation, infrastructure, and we've moved into defense and security. In addition to the work that we've had ongoing within the Middle East, we've also beefed up our defense capabilities in support of the conflict.

So we're providing support in areas, including cyber, electronic warfare, counter unmanned air systems. Our command and control system is being used for air tasking. We're doing intelligence and operations, center operations 24/7. We're providing early warning capabilities from our Air Base Air Defense system in Europe. So a lot of defense capabilities also that we're providing for that in support of our war fighters. Then post conflict, we see the opportunities in critical infrastructure protection. There's going to be a need to secure hard and potentially underground assets, including data centers, water companies, utility companies, or air bases within the region. There's also going to be continued need for counter unmanned air system and even at places that you didn't have that capability prior.

And then the rebuild area, we see a significant $880 billion across the Middle East. When you ask about starting to get involved, there's things that we can actually be doing now, so we can be looking at anything that would require kind of getting rid of unexploded ordinance, we can look at things like master concept planning. We can start thinking about different security aspects. We can look at ramping up in terms of what staffing going to take, what type of companies do we need to be partnered with. When you look at the duration of the $880 billion, it's estimated that those funds would flow over about a 15-year period. That's pretty similar with what we saw when we did a lot of the rebuild effort in Iraq. That effort for us went over about a 10-year period.

That's fascinating. And you just mentioned air defenses. So like that click on Golden Dome to me because you guys have exposure to a lot of the non-kinetic effects that you can contribute in these like layered structure that is being designed, but also you have a strong relationship with MDA and you were able to also get down selected to Shield despite like the early conflict of interest of going one side or the other. Like how are you thinking about that? Are you seeing opportunities flow there? I think it was in a recent hearing that Department of War said just 20% of the reconciliation bill has been actually kind of like awarded so far. Like it's taken a while. Like how are you thinking about timing of that, exposure to that? And how fast could that play out?

Yes. So first, starting on the Reconciliation bill, to your point, Mariana, Department of War is supposed to get $150 billion and about $20 billion-ish has been spent. So yes, there's quite a bit yet to be spent. We are starting to see Golden Dome expenditures. A lot of that work is in the classified space, which we're participating. I won't discuss that. But I will say we expect our major role to be the integration role. So Golden Dome has indicated that the Missile Defense Agency will be the system integrator for the Golden Dome contract. We are the system engineering and integration company for the Missile Defense Agency.

We currently have over $1 billion in ceiling remaining on our contract, which runs until 2029. The other area that we can play in is the non-kinetic effects. How do you use Cyber and Electronic Warfare to stop incoming unmanned systems or missile systems instead of doing kinetic to kinetic. It's much cheaper, and we have ways that you can do things like potentially address swarms if those should occur. We are in a space-based interceptor team. We're on 1 of the 4 teams. So that will be another role that we'll play. And then we'll see what ends up coming out in terms of Shield capabilities, but we are in that contract as well. So Golden Dome will be a contributor for the company.

Great. And you mentioned system integrator and that also spark FAA to me. After you were not selected for the air traffic control system, like the big contract against Peraton, even being the favorite from a capabilities point of view, that hit the stock a lot. But after that, you got an extension, a system integrator and like with your long-term relationship with the FAA, you also got like to support Raytheon Antennas being integrated like is all lost? How do you think about your role in this FAA modernization that goes beyond that contract that you were pursuing?

Yes. So I'd say the most important thing, FAA has been a customer of ours for 50 years. We've done work at over 1,000 FAA locations. We have hundreds of people supporting the FAA and hundreds of contractors that support us in the FAA's mission. Our most important focus is to make sure the air traffic modernization gets done on time anywhere that we can help. So our current technical support service contract has over $1 billion remaining on it. And the customer, to your point, did exercise over $500 million 3-year option a full year early, which I think is a testament once again to our performance. And we were rated as the technical superior company in the bid of the air traffic modernization.

So I think we're going to be playing a significant role. We've been doing engineering and design. We do site installation. We do a lot of the test capacities and basically work at all the facilities coast to coast. So our work involves all the work streams, whether it's automation, whether it's communication, whether it's surveillance or facilities, we participate in all 4 of those. We expect to have over 25% growth on our core contract this year, but then we're also seeing additional growth. A good example is we had 35% growth in the first quarter, and part of that came through the voice communication switches. So the FAA went directly to the voice communication vendors and then they've come to us. So whatever we can do to help the FAA make sure that they meet all their milestones, our company is going to continue to support that as we have for the last 5 decades.

Perfect. And I'm going to switch gears a little bit towards infrastructure. The Infrastructure bill is about to expire in September, end of the fiscal year. And if this like new surface transportation bill is not introduced and like actually authorized on time, there is a real risk of that flow of funds to actually slow down. How do you think about that? How much is the political risk? How much funds could be awarded from now till September and actually give visibility for multiple years? What are the puts and takes on that risk?

Yes. So the Infrastructure Investment Jobs Act was passed in November 2021. And to your point, it's a 5-year bill, so it does expire this fiscal year. $1.2 trillion, of that $550 billion of that was new dollars. There's only been, as of the end of January, about 60% obligated and about 40% outlaid. So that means there's still a lot of money remaining within that bill. Our estimation is that the peak of outlays is not going to hit until the '27 to '28 time frame, then you're going to have 3 to 6 years expenditure beyond that. So a lot of money remaining from the current bill.

The next surface transportation bill, we're expecting the surface transportation component of that to be somewhere in the range of $500 billion to $600 billion, not too dissimilar from what it was in the IIJA. That bill, I'm not sure will be passed on time with the upcoming elections. However, we do expect that it will get passed somewhere in the 2027 time frame. So you're basically going to be looking at a case where IIJA is still ramping up, and then you'll be adding to that new surface transportation funding.

Perfect. And you just mentioned this timing and midterm elections and what is the risk for that. We get that question a lot. Like investors today are concerned about a continuing resolution, an extended continuing resolution going into '27. What is the new spending level for that continuing resolution? How are you positioned to that? Because on one end, there is a high risk of that continuing resolution to be a long one. But on the other end, you have the reconciliation bill, the reconciliation 1.0 money flowing through the system, the enacted '26 money flowing through the system. A lot of that outlay is still out there. To what extent you need that money to get appropriated versus not to act to keep growing next year?

Yes. So I'd say we're very used to running through CRs. It's unfortunately been going on half of my career for decades. So we know how to live through CRs. And the biggest thing for us, I'd say, first, 50% of our business is not federal government. So that helps us quite a bit from a portfolio perspective. The 50% that is, we've won some good ceiling level contracts. Great example are the 2 other transaction agreements we were just awarded that we announced on the first quarter call for $400 million. So we've got these contracts that have ceiling values that we can drive work to. Within our $11 billion of awarded not booked, half of that amount is ceiling value contracts. So we have $5.5 billion plus the additional $400 million, so we can just continue to drive work, and we don't expect a CR impact from that point in time.

Perfect. And when I think about all these multiple factors, you're also a super acquisitive company. When you think about the pipeline and your appetite, what are you looking for in terms of capabilities or access to markets? What are you looking for when you look at M&A?

Yes, I'll hit on that, and Matt will talk a little bit about our balance sheet and the position that we're in for that. So we have an excellent pipeline. We've done over 17 acquisitions since 2017. The majority of those have been in the federal space. When we buy a company in one segment or another, it doesn't really matter because if we buy a company in federal and we -- it has cyber, cloud, artificial intelligence capabilities, we take those technologies and we use it as an enablement across the entire business. So we've got a very good pipeline. We already closed one deal this year, Altamira, a $330 million deal with a $45 million earnout. That capability adds to our signals intelligence, our Golden Dome capability for missile tracking, missile warning, our ground system processing capability for the intelligence community as well as other efforts. So very excited about that acquisition. So I would say expect to see us do a couple more deals as we go through the year.

Yes. And I'd just add, the balance sheet is obviously in great shape, 2x levered at the end of Q1 after a $330 million acquisition -- all-cash acquisition in Q1. So with $450 million of free cash flow over the next 3 quarters, in really great shape, a lot of capacity to continue to do more.

What are you seeing from a pricing perspective? Because defense and defense tech, you just talked about like [indiscernible] intelligence exposure to Golden Dome. I could imagine that's way more expensive. How do you manage that?

So we've been continuous between about a 10 to 13x EBITDA range. We had one that was about 7.7x. It was on the infrastructure side. But I would say our valuations have been pretty continuous. One reason is we do preemptive deals generally. We like to work with companies in advance, make sure we have the right mission focus, same culture, and then we'll discuss having an acquisition. That way, you have a much better probability of success. I mean it's neat when you look back over some of our recent acquisitions and some of the awards we've gotten as a result of those. We won a $1.2 billion contract with General Services Administration that largely came through our Black Signal acquisition or our Black Horse acquisition.

We've moved into highly classified space work through our Black Signal acquisition, which was very helpful. The 2 OTAs that we just announced, those came largely through our Chesapeake Technology acquisition. Our PFOS, PFAS work over the last 2 years has grown by 38%. That's through TRS acquisition. Our Applied Sciences acquisition in less than a year has already helped us win a lot of water work, which has been our fastest-growing and most profitable market. So I think we've done an excellent job of not just buying companies, but really being able to drive the value out of those companies in a very short period of time.

And then on the Critical Infrastructure side, you also made like critical acquisitions to position 2 key markets. Do you see in the U.S. any state where you're still looking for a bigger footprint? Or how should we think about that?

Yes. We've identified Tier 1 states. And for us, those are California, Texas. New York, New Jersey, Florida and Georgia. So those 6 are really where we're focused. And the reason is based on demographics, they get the most allocation out of formula funds, and there's an effort underway to do more formula funds and less grant funds as we go into the next reauthorization bill. So we'll continue to double down in those states. It's important if you're in a state that you're also in the right cities. So for example, our BCC acquisition, we didn't have a very strong footprint in Miami. So we bought BCC so that we could strengthen our footprint in Miami.

Perfect. And sticking with capital deployment. M&A has been like the priority for you, but how do you think about repurchases? Especially with the price being literally like half from like the early '25 peak levels?

Yes. Without a doubt, repurchase have been a bigger part of deployment. We've -- over the last 2 quarters, we bought back almost $100 million worth of stock, $95 million. So $35 million in Q1. And so we're very interested in the stock at this price, of course. And so balancing the pipeline of acquisition opportunities and leverage and the price, it's just a great opportunity. Last year, we did $125 million. So clearly feel there's dislocation and feel like it's a great return on investment.

Perfect. And you mentioned before in capabilities, AI. Sometimes defense services are put all in the same bag or IT services in general and people are like, okay, AI agents will take over all these jobs and like this is a risk. But on your side, you see it as an advantage because you can actually implement these things as part of your solutions. What are you doing with AI? For how long have you been working with the different versions of AI? And how that makes you more competitive versus less competitive?

Yes. So for us, AI is an enabler to deliver mission outcomes. If we can help our customers get solutions on the federal side more quickly to the war fighter on the infrastructure side to improve quality of life through efficiency of transportation systems, that's a big asset. We've been doing AI for 2 decades. We first developed a system that could counter-improvise explosive devices and video graphics and then an early open source intelligence source -- search tool for the intelligence community. I personally -- my second job out of college was working in an AI laboratory. So I've been personally doing AI forever.

Then you fast forward to today, I'll just give you some representative examples. Cyber, we've been investing research and development on how can we do more autonomous cyber. How do we determine an adversary's next move? How do we figure out if a circuit board has been tampered with? We use it for counter unmanned air systems. How do you identify, detect, track and defeat a UAS that's incoming? On the infrastructure side, we've applied AI to our intelligent network solution. So for advanced traffic management solutions, how do you do it?

That's a great example of where we've been able to increase our revenue while our headcount has gone down. And it's really been through the use of AI and improving our software development capability by 25% productivity. I'd say on the infrastructure side of the house, when I graduated, I was drafting by hand. After I got out of school, my first year, I was using computer-aided design. Then we went to building information modeling, 2D, 3D, 4D, 5D. Agentic AI is just your next step along that journey. It's really a tool. It's an enabler. I always like to say if a customer has $5 to spend, and we can deliver a product or an offering to them with $4. That's great. We just gave them another $1 to spend.

And that's important because the demand is there in every single one of our markets. And if we are always solving our customers' emerging challenges, more than likely that dollar will come back to us in another form. So for us, AI is critical. It's embedded throughout the entire business. We have trained our entire workforce. We developed internal training several years ago. That's been a focus for us. We have our own instantiation of ChatGPT. We have over 6,000 of our employees that are users on that. So it's a critical enabler to win more business. In fact, if I look at the last 10 wins that we just announced since the end of Q4, that were over $100 million. I would say 9 of those had an AI contribution.

And how -- you mentioned about like being more efficient and cost efficient. How that impacts your margins in the long term? And that's a mix with like how you do M&A. If I were to think about the company like that, like 3, 5 years from now, how margins should look like because of these dynamics?

Yes, I'll talk generally about margins. Over the last 2 years, we've seen 110 basis points of margin expansion. That's on the back of really the critical infrastructure business has come out from underneath some challenging programs and delivered 10-plus percent margin 5 quarters in a row. So we're seeing really great performance there on infrastructure. Within Federal, the margins are typically a result of contract mix. So we've seen faster growth in cost type. So you think our FAA contract, you think ABAD, you think all these Missile Defense Agency, all these contracts that are more cost type oriented.

That puts a little bit of downward pressure on the margins within Fed. But as we get toward the latter half of this year and we start to deliver more on products, you start to see the contribution from Altamira at full scale. And the acquisitions that we've done that are all 10-plus percent margin, you'll start to see Fed trend in that double-digit direction as well. So continue to see opportunity within margin. Probably North America within infrastructure will continue to contribute additional margin expansion. And then on the Fed side, we'll see products become a bigger part of the portfolio. And then as there's a possibility of shift to a little bit more fixed price, then you'll see additional margin expansion.

And I would also say through operating leverage, we're able to get margin expansion. All the acquisitions we do are greater than 10% EBITDA. And then back on artificial intelligence, we're not just applying it for external customer solutions, but it's also how we automate and make ourselves more efficient. Matt uses AI, for example, on cash forecasting. Dave can use AI to tell how Matt and Carey are sounding on an earnings call. Do we sound confident, more confident or less confident than the last quarter. We're using it for legal and contracts. We're using it for proposals. How do I make sure that my proposal is more compliant? How do I produce proposals more efficiently? We're using it for hiring. We're using it for recruiting. We're using it for all of our marketing communications. So AI is really going to help us as well.

So between what you mentioned about like a higher products-oriented portfolio and this way of like incorporating technologies that fast, I was always complaining because we always complain on defense. It's never enough. It's like continuing resolution, but actually, there are things that are changing and are changing way faster than they used to. How do you think about like this like fiscal year '27 that asked for $1.5 trillion for all the acquisition reforms we're seeing, the OTAs you mentioned before, how can you benefit from this more agile growing defense spending?

Yes. So I would say for us, again, half our business is more commercially oriented. So I like to look at us as a nontraditional company. And when you look at our federal business, it was purpose-built starting in November 2016. At that time, we really only had the missile defense business. So our Cyber business, I mentioned, 21% of the company's revenue today didn't exist. Space and missile defense, 14% of the company basically has grown up since that point in time in the critical infrastructure. So because we're purpose-built, we built a company that is very agile, that is very commercial oriented and nontraditional. So we're in the best place, I think, to capitalize on things like OTAs.

We currently have over 30 other transaction agreements across the entire company. We're advertising our product offerings on commercial solution offerings. We believe in all the acquisition reforms that are underway in terms of how do you streamline the far and make things more efficient. But I would say we're a commercial company at heart, and our focus is getting solutions out as quick as possible for our war fighters.

And do you think that the signal towards where the requirements and needs are, are strong enough for you to actually put your own dollars and investment towards those?

Absolutely. I mean, when you look at the defense budget, $1.5 trillion in the base that's proposed for FY '27, whether it's $70 billion that's going into drone dominance, counter unmanned air systems, $60 billion going into space, $58 billion going into JADC2, artificial intelligence, $48 billion going into critical minerals. We got $20 billion that's going into cyber. We got $11 billion going into Pacific deterrence. It aligns perfectly with our portfolio, and they're all areas that we have been investing in, many of them since we started research and development investment back in 2016.

Perfect. And to close, I always like to know like what is it that gets you most excited about the future and what actually keeps you up at night?

So I would say most excited about the future are the strong tailwinds. We're very fortunate to be in 2 growing thriving segments that have bipartisan support and global demand. We're also in 6 end markets that are growing between 4% to 11% over the next 3 years. We have a proven ability to show that we can be one of the industry leaders in organic growth within both of those segments. What keeps me up at night? I think it'd be mostly any unknown unknowns or unpredictables.

Well, thank you both very, very much for being here.

Thank you. We really appreciate it, Mariana.

Thank you for standing by, and welcome to Parsons Corporation's First Quarter 2026 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, David Spilly, Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us today to discuss our first quarter 2026 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair, President and CEO; and Matt Apoulos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our first quarter financial results as well as a review of our 2026 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. These risk factors are described in our Form 10-K for fiscal year ended December 31, 2025, and other SEC filings.

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

Thank you, Dave. Good morning. Welcome to Parsons' First Quarter 2026 Earnings Call. I want to begin by recognizing the dedication and performance of Parsons' more than 21,000 employees who delivered a strong start to the year. Most importantly, I'm pleased to share that our 7,500 team members in the Middle East region have remained safe during the current regional conflict. They've shown tremendous resilience in managing volatility while continuing to deliver our customers' critical missions. As we'll discuss later in the call, our Middle East business produced solid financial results this quarter, and I am very proud of what the team has achieved.

As demonstrated by the current military operations, our differentiated solutions spanning cyber, electronic warfare, air-based defense, countermanned aerial systems and intelligence and operations centers are vitally important to protecting both our nations and our allied security. Post conflict, Parsons is prepared to support the Middle East on its path to recovery by providing essential capabilities, including critical infrastructure protection, air-based defense, integrated air and missile defense, transportation solutions and the reconstruction of conflict-affected areas. We believe Parsons is well positioned to advance allied priorities with our nearly 70 years in the region, extensive footprint and performance reputation.

We are proud of the work we do in defense, security and infrastructure for our global customers. The first quarter highlighted the resilience of our business and our team's high level of execution as we delivered our highest adjusted EBITDA margin ever, reached record levels for both total and funded backlog, achieved a robust book-to-bill ratio of 1.4x in both segments and generated record first quarter cash flow. Revenue performance was in line with our expectations, and we continue to complement our organic growth with strategic accretive acquisitions that enhance our differentiation and drive long-term shareholder value. Looking at our first quarter financials in more detail, total revenue increased by 8% and organic revenue grew 3%, excluding our confidential contract.

This total revenue growth was driven by 12% growth in our Federal Solutions segment and 3% growth in Critical Infrastructure. Our record adjusted EBITDA margin of 10.1% was driven by a 10.8% margin in Critical Infrastructure, marking our highest first quarter performance in that segment. The 50 basis points of margin expansion at the corporate level in Q1 builds on the 40 basis points of expansion we delivered in the first quarter of 2025. In addition, we significantly exceeded our cash flow target and closed the quarter with record total and funded backlog of $9.3 billion and $6.6 billion, respectively.

On the bookings front, contract awards increased 17% year-over-year, resulting in a strong book-to-bill ratio of 1.4x. Our Critical Infrastructure segment reported a book-to-bill of 1.4 for the quarter, marking 22 consecutive quarters above 1.0. Performance in the Middle East was outstanding with a book-to-bill ratio of 1.5. In Federal Solutions, contract awards increased 38% year-over-year, resulting in a book-to-bill ratio of 1.4x. These strong bookings provide a foundation for continued organic growth in both segments. A key driver of our future performance is the strategic importance of our contract wins. During the first quarter, we secured 4 single award contracts valued at more than $100 million.

These included a $593 million contract extension under the Federal Aviation Administration's Technical Support Services or TSSC 5 contract with $410 million booked in Q1. This award exercises the first option period, extends performance through 2030 and supports the FAA's aviation system capital investment plan. TSST V has a $1.8 billion ceiling value with a 4-year base period and 2 3-year option periods. We received a production award notification from the United States Cyber Command for the Joint Cyber Hunt Kit solution, a new sole-source contract with a ceiling value of up to $500 million with $250 million booked in Q1.

Importantly, this contract was another transaction agreement, which allows for faster, customized and collaborative industry partnerships. Parsons is an industry leader in the use of these rapid delivery vehicles. We were awarded a new 5-year contract valued at over $340 million to provide program management services for a major transportation project in the Middle East, booking over $300 million in Q1. Our transportation work in the region spans rail and transit, roads and highways, bridges, airports and intelligent transportation systems.

We were awarded more than $145 million under the Garden contract. Under these task orders, Parsons will enhance command and control, space and intelligent surveillance and reconnaissance technologies for the Air Force and other federal customers. We will develop and sustain next-generation software, deliver on-site training and rapidly deploy advanced mission applications. We booked $38 million on these contracts during the first quarter. We also received an additional $150 million on 2 contracts to continue serving as the main construction manager for remediation projects on the Faro mine and giant mining programs in Canada, 2 of the largest and most complex mine reclamation projects in the world.

We booked the full amount on these contracts during the first quarter. After the first quarter ended, we received 4 more strategic federal awards previously unannounced. First, we were awarded $400 million for 2 other transaction agreements, each having a 3-year period of performance. This new work shows the continued demand for our mission-critical defense and intelligence capabilities and our ability to deliver solutions to our national security customer base rapidly.

Next, we were awarded a single award classified IDIQ contract with a ceiling value of $184 million over 7 years that represents entirely new work for the company. We were awarded this contract based on our differentiated technology, including our unique biometrics capabilities. And finally, we were awarded an $87 million increase on its current national security prime contract. Importantly, in all of our Federal solution wins, we are leveraging our artificial intelligence capabilities to enhance our solutions and create differentiated outcomes. I would now like to highlight some additional accomplishments during this quarter.

We closed our acquisition of Altamira Technologies Corporation in an all-cash transaction valued at up to $375 million. Altamira advances high-priority national security mission supporting intelligence community and Department of War customers by providing multi-intelligence technology solutions and performing critical operations. Altamira expands Parsons' market presence in signals intelligence, missile warning, space and foreign military exploitation and adds critical customer depth with the National Air and Space Intelligence Center, National Security Agency and other classified intelligence customers. We were named one of the World's -- most Ethical Companies by Ethisphere for the 17th consecutive year, and we were honored for our project excellence on 2 major infrastructure initiatives. In Georgia, our team received the Engineering Excellence Honor Award from the American Council of Engineering Companies for the ARS Mill ramp extension in Cobb County.

Internationally, we were recognized with the Refurbishment and Retrofit Project of the Year at the Big Project Middle East Awards for our work on the King of Dolo Financial District residential uplift project. Looking forward, we are optimistic about Parsons' future. The synergies between our Critical Infrastructure and Federal Solutions segments across 6 growing, profitable and enduring end markets set us apart and create significant opportunities for us to meet or exceed our financial goals.

In Critical Infrastructure, we continue to see strong demand in both North America and the Middle East. Our focus on hard infrastructure, roads and highways, bridges, airports, rail and transit and intelligent transportation systems is aligned with the spending priorities in these geographies. Also, there's a need for urban development, support to major events and advanced manufacturing that match our core competencies. Our #1 ranked program management, #3 ranked construction management and AI-enabled solutions underpin our success. While we continue to monitor geopolitical developments, including the ongoing war in Iran, our momentum and our customers' commitments to advancing their projects forward give us confidence in continued growth. Although our business has not been affected by the conflict to date, our customers remain focused on ensuring their budgets are aligned with the right priorities and their programs are properly phased.

Across the Middle East, the emphasis on diversifying economies, hosting major global events and addressing defense, security and infrastructure requirements is expected to continue driving demand for our expertise. Turning to Federal Solutions. We are encouraged by the momentum in the United States defense spending. In fiscal year 2026, $1 trillion has been appropriated for defense, and we're beginning to see funds flow from both the base budget and reconciliation industry. For fiscal year 2027, the administration has submitted a $1.5 trillion defense budget comprising a $1.15 trillion base and $350 billion of reconciliation funding.

This proposed 44% increase over current funding levels, which is focused on modernization, would represent the largest defense budget in history. The fiscal year '27 budget presents substantial opportunities for Parsons that are closely aligned with our strengths, including missile defense, cyber, space, counter unmanned aerial systems, electronic warfare, facilities modernization, critical minerals, countering weapons and mass destruction and joint all-domain command and control. Our purpose-built Federal Solutions portfolio is aligned with our nation's defense and security priorities.

And because of our strategic acquisitions and sustained research and development investments, we've built differentiated capabilities that help safeguard our nation and outpace evolving threats. We are encouraged by the strong bipartisan commitment to increasing U.S. defense spending in response to the evolving global security challenges. Our leading indicators, including our $54 billion pipeline, strong win rates of 60%, total backlog of $9.3 billion, of which 71% is funded and our $11 billion of contract wins not yet booked, give us confidence that we will continue to remain an industry growth leader, excluding the impact of our confidential contract in both segments.

We operate in 2 large and well-funded segments across 6 end markets, and our favorable financial outlook is supported by our proven execution and effective capital deployment. We are reaffirming our 2026 guidance ranges, which Matt will review shortly. In summary, we had a strong start to the year, delivering new records for adjusted EBITDA margin and total unfunded backlog, exceptional book-to-bill ratios in both segments and record first quarter cash flow. Our operational discipline, strategic contract wins and additional corporate achievements reinforce our position as an industry leader. We remain optimistic about our future and are confident in our ability to drive long-term shareholder value.

With that, I'll turn the call over to Matt to provide more details on our first quarter financial results. Matt?

Thank you, Carey. We've started 2026 with solid results and favorable forward-looking indicators towards future growth. With a strong book-to-bill in both segments, record adjusted EBITDA margins and our highest total and funded backlog to date, we are well positioned to deliver for our customers and shareholders. We continue to effectively deploy capital, investing in strategic acquisitions, internal research and development and increased share buybacks, all to support long-term growth and create shareholder value.

Turning to the details of our first quarter results. Total revenue grew 8% and 3% on an organic basis, excluding the confidential contract. These increases were driven by growth in our critical infrastructure protection, space and missile defense and transportation markets. Highlights included strong growth on key contract drivers for the year, such as Airbase Air Defense and the FAA-TSSC5 contract. Total revenue, including the confidential contract decreased 4% from the prior year period and was down 8% on an organic basis. SG&A expenses for the first quarter increased 10% from the prior year period, primarily driven by costs related to recent acquisitions and higher transaction expenses.

Record first quarter adjusted EBITDA of $151 million increased 1% from the prior year period. Adjusted EBITDA margin expanded 50 basis points to a record 10.1%. The -- these increases were driven by improved execution and contributions from accretive acquisitions. I'll turn now to our operating segments, starting first with the critical infrastructure, where first quarter revenue increased by 3% from the first quarter of 2025. This increase was driven by organic growth of 2% and inorganic revenue contributions from our TRS and Applied Sciences acquisitions. Organic growth was primarily driven by strength in the global transportation markets.

As a reminder, Middle East revenues were negatively impacted by the number of work days in Q1 given the holiday schedule compared to 2025. We expect this to resolve in Q2 where there are 3 additional workdays compared to the prior year. Critical Infrastructure adjusted EBITDA of $79 million increased 8% from the first quarter of 2025 and adjusted EBITDA margin expanded 50 basis points to 10.8%. Both adjusted EBITDA dollars and margins were first quarter records for critical infrastructure. These increases were driven by the ramp-up of recent awards, accretive acquisitions and strong program execution.

Moving to our Federal Solutions segment. Our first quarter revenue increased 12% and 4% on an organic basis, excluding the confidential contract. These increases were driven by growth in our critical infrastructure protection space and missile defense and transportation markets. Total Federal Solutions revenue, including the confidential contract, decreased 10% from the prior year period and 17% on an organic basis. Federal Solutions adjusted EBITDA decreased 5% from the first quarter of 2025, while adjusted EBITDA margin expanded 40 basis points to 9.4%. The adjusted EBITDA dollars were primarily impacted by lower volume on the fixed-price confidential contract. The adjusted EBITDA margin increase was primarily driven by accretive contract growth and acquisitions.

Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q1 2026 was 72 days, a 14-day increase in the prior year period. This increase was primarily driven by lower volume on the confidential contract and timing of collections in the Middle East. During the first quarter of 2026, we used $4 million of operating cash, which was an $8 million improvement from the prior year period. Capital expenditures totaled $15 million in the first quarter of 2026.

Looking ahead, we expect CapEx spend to ramp in Q2 as investments in classified facilities and upgrades to our enterprise systems accelerate Sport Parson's long-term growth and drive greater efficiency throughout the business. Trailing 12-month free cash conversion was 102%, reflecting our disciplined focus on contract execution and collections. Our balance sheet remains strong as we ended the first quarter with a net debt leverage ratio of 2.0x. This includes the impact of the upfront cash consideration of $330 million for the acquisition of Altamira in the quarter. During Q1, we repurchased approximately 583,000 shares for an aggregate purchase price of $35 million.

Turning next to bookings. In the first quarter, we secured $2 billion in contract awards, a 17% increase year-over-year, driving a strong enterprise book-to-bill ratio of 1.4x. On a trailing 12-month basis, our book-to-bill stood at 1.1x, which extends our track record of a trailing 12-month book-to-bill of 1 floor grader for every quarter since the IPO. Both segments reported a book-to-bill ratio of 1.4x for the quarter. Our Critical Infrastructure segment continued its impressive streak with its 22nd consecutive quarter above 1.0, with particularly outstanding performance in the Middle East, where we achieved a book-to-bill ratio of 1.5x.

In Federal Solutions, contract awards increased 38% year-over-year. Our backlog at the end of the first quarter totaled $9.3 billion, a 3% increase from the prior year period. Funded backlog of $6.6 billion remains the highest since our IPO and increased 7% year-over-year. At the end of Q1, our funded backlog represented 71% of total backlog. Now let's turn to our guidance. We are reiterating our 2026 guidance ranges provided on February 11 and based on our financial results for the first quarter of 2026 and our outlook for the remainder of the year. These guidance ranges are outlined in our earnings press release and PowerPoint presentation, both of which are located on our Investor Relations website.

On Slide 11 of our PowerPoint presentation, we also include other key assumptions in connection with our 2026 guidance, including quarterly cadences. 2026 guidance reflects the evolving budget environment, a competitive labor market and reality is of a challenging government procurement landscape. While these factors present challenges, we're also benefiting from the tailwinds, including unprecedented global infrastructure spend, federal portfolio that's tightly aligned with the administration's priorities, recompete risk of less than 3% of 2026 total revenue and a record $9.3 billion in total backlog, including our highest funded backlog ever.

On top of that, we have $11 billion in awarded contracts still to be booked, which further strengthens our outlook. We've lowered second quarter expectations due to the timing of recent wins. However, we continue to believe strong backlog and recent awards are supportive of growth projections in the full year guidance. In summary, we delivered strong results for adjusted EBITDA margins, contract awards total unfunded backlog and our revenue was in line with expectations despite a complex global environment. We can continue to deploy capital effectively, investing in organic growth opportunities, acquisitions, share repurchases to support our growth strategy. All of this reflects our disciplined execution, and we remain confident in our ability to achieve commitments and create long-term value for our shareholders by delivering critical capabilities for our customers around the world.

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

Thank you, Matt. This quarter's results underscore the strength and durability of the person's portfolio with a robust pipeline, high win rates, strong book bill performance in both segments record levels of total and funded backlog and $11 billion and contract wins awarded yet to be booked, we are confident in our outlook.

With that, we will now open the line for questions.

Certainly. And our first question for today comes from the line of Sangita Jain from KeyBanc.

First of, Carey, it's really good to hear that all your Parsons team members are safe and you had very strong 1Q results. Can you elaborate on some of the conversations you may be having with your customers about the balance between the short-term disruptions and the long-term opportunity?

Certainly. Thanks, Sangita. I appreciate your question. As you mentioned, our first concern is always for the safety and security of our employees, and all 7,500 are safe and secure. Most importantly, all the employees are working on the job sites and in the offices. We really have not seen an impact to date. I will point out too, the contract has not delayed any of our funding. The Middle East exceeded their first quarter cash forecast. We have not seen any slower contract awards or positive negotiations that's clearly reflected by our strong 1.5x book-to-bill. And we've not had any force majeure insurance claims.

One thing that's good about our portfolio is that no Middle East program represents more than 1.6% of our revenue, and we have 20% of Middle East backlog. The contracts are pretty long in duration as well. The average contract duration is 4.7 years and 49% of our revenue is tied to long-term frameworks, and we're clearly holding our full year guidance for the Middle East of 8.5% organic.

What we're seeing, Sangita, to your question is many of the GCC countries are using the periods of high oil prices to fund diversification into non-oil sectors and advanced technologies such as artificial intelligence and digital infrastructure so that they're less vulnerable to future price swings. I do want to point out that post conflict, we believe there's going to be significant investment in areas, including redundancy and resiliency. So not only will Parsons be doing our traditional areas of transportation, water and environment and urban development, but we're going to expand into prioritized areas, including integrated air and missile defense, border security, counter unmanned air system, critical infrastructure protection, water security and desalination, rail, pipeline security and rebuild opportunities, and there's also a priority to take key assets into hardened underground facilities such as data centers, treatments plants and military assets.

Just reported on the defense front, it was April 27, the Arabian Gulf business indicated that the defense spending in the Middle East is expected to rise by 20% over the next 3 years.

That's super helpful, Carey. And maybe one for Matt. Can you talk about some of the puts and takes that went into your guidance since you're FS margins have recovered really well and your CI margins are very strong, but you decided to keep the full year margin outlook unchanged. Can you help us walk through that?

Yes. Thanks, Sangita. So to your point, really strong Q1 at north of 10% margin, 10.1%. CI now has 5 straight quarters, north of 10%. So the performance here has been a really strong obviously, still early in the year, 9.7% is 10 basis points this year, but on the back of 110 basis points over the last couple of years. So we're still bullish on our margin expansion opportunities over the next couple of years. But obviously, we want to be thoughtful. It's still early in the year. When we look at Fed, Fed is 9.4% in Q1 were high 8s, low 9s is kind of a target for us for the year. And then infrastructure, we're 10.5% at the midpoint. So 10.8 to start the year is a little bit better than total year expectations.

But obviously, early in the year, we will expect within federal, we'll have some additional growth and cost types. We've talked previously about mix is always the biggest driver to Fed margins. And then on the infrastructure side, we had a little bit lighter pass-throughs and materials in Q1. So a little bit of pressure there on margins. So again, early in the year, a great start to the year, but we'll watch over the next couple of quarters.

And our next question comes from the line of Sheila Kahyaoglu from Jefferies.

Maybe Carey, can you just talk about -- the Middle East seems okay. But aside from that, how do you think about the first half versus the second half growth trends? What's really driving the upswing in the second half and some of the major program drivers there.

Yes. Thank you very much, Sheila, for the question. I appreciate it. So both we anticipate both of the segments to grow within the second half of the year. What's driving it? Let me start with federal are the new awards. We just highlighted the 4 awards, 3 of which were federal that occurred during Q1 and then the 4 awards that have already occurred after Q1 ended. So very strong start to the year for federal -- also seeing significant growth on FAA. FAA, we achieved 25% growth in the first quarter, and we expect the FAA to be strong throughout the year. So I would highlight besides the awards I mentioned during the call, areas such as munitions, Holston and programs are ramping up. Also, a lot of classified work and other transaction agreements FAA and then our Missile Defense HC teams contract, which we expect to achieve over 10% growth this year as we're supporting the important Golden Dome program.

Within the Critical Infrastructure segment, I mentioned the Riyadh metro, so we expect that to have a ramp-up in the latter half of the year. Within the North America group, we expect P3s, particularly on the East Coast to ramp up. And then we had some recent wins on the West Coast, including the LA Metro line A extension of the i70 in Missouri and the silver line in Texas, and probably a couple of other programs, I'll highlight in the Middle East would be the Entertainment City as well as King Salmon International Airport.

Yes. And Sheila, the only other one I would add that as we've talked previously about the Joint Cyber Hunt kits through ceiling tech that program is an LRIP, as you know. And so second half will transition to production and have some critical deliveries before the end of the year. So that's also benefiting in the second half.

Got it. And maybe to follow up, Matt, on that. You said Q2 is a little bit lower given award timing. Can you just give us a little bit more color on that? What are you seeing in the outlay environment? Why was it lower?

Yes. So some of the awards that Carey highlighted that came in, started were kind of expected earlier in the year, call it, January, February, so we thought we'd be ramping on those. Additionally, some phasing within the Middle East. Middle East makes up about half of the reduction to Q2. So that's really just phasing as we see the customers' prioritizations. -- again, the second half ramp on those awards is going to benefit the Middle East business. But overall, again, the reductions are really kind of just phasing and timing of awards.

And it's super exciting to see the federal momentum that we had.

Our next question comes from the line of John Godyn from Citi.

Maybe we could just revisit the $1.5 trillion budget. You described it as a generational investment, well aligned with the Parson portfolio. Could you just elaborate on what's most exciting there for you? And then sort of a quick follow-up to that. Obviously, there's some concern about the $1.5 trillion budget going through you guys don't have a perfect crystal ball, but any thoughts on how that may play out as we just sort of form our own views.

Yes. Thanks, John. I appreciate the question. As you mentioned, it is exciting. It is a generational investment. It's been recognized on a bipartisan basis that we're facing with the most complex and dangerous threat environments in our nation's history with adverse series advancing capabilities. And so the need for that budget is there. the budget is focused around 3 pillars, and I'll kind of hit on where persons plays in each of those pillars. The first 1 is super charging Americas defense and industrial base. So while that pillar talks about shipbuilding and air power also within that pillar is a focus on critical minerals onshoring and energy independence and emerging technologies, both areas where persons place.

There probably is most important to us is the second pillar, securing America's military advantage in the whole land. Counter unmanned air systems and economy are going to see big increases of greater than $70 billion on the top line for drug dominance and counter unmanned air systems. The specific insurance initiative is going to increase from $10 billion to $11.7 billion and $3 billion of that is aligned to infrastructure improvements.

In cybersecurity, there's going to be over $20 billion of additional funding. There's artificial intelligence, $58.5 billion of investment in AI as well as showing all the command and control. And then there's going to be a significant hike in both procurement and research development and technology overall, particularly in the space area, which could be more than double the 2026 enacted level. Missile Defense is a budget priority, Missile Defense agencies to receive $17.9 billion.

And then if you look at Golden Dome to receive $17 billion, that would be within the budget. The next pillar focuses on securing America's military witness, and we play in 2 areas there. The first one is modernizing the nuclear triad. We're involved in nuclear command control and communications -- and the second area is in improving the infrastructure for our riders, which is right up our outlook.

So overall, I'd say looking at a procurement increase of 85% in RD&T increase of 63% is good. As you mentioned, it's not for certain. And I'd say, in particular, the discussion right now is over the Reconciliation Bill. Reconciliation 2.0 is moving forward, but the future is not real clear yet. Speaker Johnson is planning on a floor boat sometime this week, which would be based on the Senators -- the Senate budget resolution. But there's a discrepancy between some of the house republican, someone add additional items that are election related and additional DHS provisions. In other words, Republicans are recommending that the skinny vote basically be passed. So I would say this week, we expect the next step on the reconciliation to see whether or not the Senate House do pass the identical reconciliations, which would move that go forward.

That was excellent. And if I could just ask 1 totally separate question on M&A. You guys closed 3 deals in the last 12 months and a relatively large 1 just recently -- can you just refresh us on M&A pipeline thoughts from here? And how we should be thinking about the M&A strategy maybe for the next 12 or 24 months?

Yes. Thanks, John. So M&A remains our #1 focus for capital deployment. As you mentioned, we closed 3 deals last year, followed by a deal, the first quarter of this year. We anticipate this year will close between 2 to 4 deals -- we've got a strong pipeline in both federal and critical infrastructure. We continue to keep our borrower growing greater than 10% on the top line, greater than 10% EBITDA margin. We're continuing with our strategy of preemptive as well. We like to get with companies that we know well that we've worked with. We have a similar mission and culture. And that way, we're more certain for success after the integration of those assets.

So you can expect to see us continue to focus of our capital on M&A. I think it's been a significant differentiator for the company. In fact, as I look over those -- the federal wins that I cited on the script, I would say many of those are due to the fact of our revenue synergies that we've been able to drive across the federal business.

And our next question comes from the line of Andrew Wittmann from Baird.

I just -- Matt, I just wanted to help understand the quarter a little bit better. The holiday timing in the Middle East, how did that affect? Can you quantify the effect or estimate the effect on the growth rate in the CI segment for the quarter? And then how much of the benefit you're going to pick up here in the second quarter. Just to understand that moving -- those moving pieces a little bit more clearly.

Yes. It was about 3 days from Q1 to Q2. So think of it as $10 million to $15 million of impact. So -- we had a little bit of a headwind in Q1. A nice part for when we originally guided to first quarter for Middle East, we're expecting flattish to down a bit. It actually came in up 2.5%. And -- and so a little bit of a strong start to the year for the Middle East and some tailwinds into Q2. .

Got it. Okay. And then, Carey, on the $11 billion of awarded but unbooked, that number has been pretty steady there. Is that getting worked down? And then just going to replenish to the same level? Or is it kind of stagnant? I'm just kind of curious as to the dynamics of what's going on in there?

Yes. Great question, Andy. So what we did is we moved the FAA work, which we look for 410. So that basically moved down to way were to not book as you saw by announcements that we made or the stuff that we've already won post Q1, we're going to be well over that. So that number is going to go right back up as we go into the next quarter. I think the important thing as well is to look at our book-to-bill ratios, which very strong again across the board, 1.4 for persons, 1.4 for federal and critical infrastructure and our backlog of $9.3 billion and then add to that $11 billion, and again, the $11 billion, to your point, is going to be replenished by these new awards.

Okay. And then I guess maybe just 1 final thing. Just on cash flow, Matt, your contract assets number, so your unbilled -- or contract assets, cash that you've got or that you don't have, that work that you performed is up a decent amount. Maybe you could just drill into that a little bit. Is this a certain types of work that you're starting to perform in greater amounts today? Is this a geographic thing with somebody that you're working for and have that asset it stick out with the DSOs up a little bit. Obviously, there's a seasonal effect there. I mean just digging into some of these working capital pieces are -- would be interesting to understand those dynamics. .

Yes. Good question, Andy. So to your point, DSO was up about 14 days, which is a good number. And so overall, really happy with the cash performance in Q1. We do have a higher balances. A lot of it is related in the federal business to milestones on some of the munitions projects that it will deliver over the next 2 quarters. So I expect a number to come out over the next 2 quarters. I don't think it will continue to expand. I think when we get into production on the Cyber Hunt kits, we may have a little bit of fluctuation, but not to the same scale. So I'd say the biggest driver has been the munitions programs and the upcoming milestones there.

And our next question comes from the line of Gavin Parsons from UBS.

Carey, how big is your UAS business? And are you seeing any accelerated procurement yet given Mideast learnings?

Yes. So the big part of the kind of UAS, we have 2 components. One is our non-kinetic business. and that mostly goes through the Army 10 cap program. And as I mentioned, it's deployed in the Middle East right now. The second part of it is our drone arm, which is a system of systems. And that's basically -- it's a technology readiness level 9 that's been deployed. It is currently deployed in Laredo on the southern border. So if I pull those 2 components out, I would guess probably $100 million-ish, if I had to make an estimate.

Yes, we see growth as far as -- we see future growth as far as the Middle East. So we were brought in the Middle East originally to fix another company system that was not working. So our system had basically replaced that. And there's ongoing demand. We also see demand within the United States. There's a couple of procurements that were waiting on award from Department of Homeland Security and Customs and Border Protection and the Coast Guard.

The ABD contract, I think that might also possibly fall in that category. I mean is that just Europe and Africa? Are there other geographical opportunities?

Yes. That's a great point, Gavin. I didn't include that in the number. I just threw out, but they are based here defense contract. That's roughly $1 billion over 5 years, and we're on a run rate to achieve that. So air system, it's much higher. We think air-based defense is going to continue to increase within the region as well as within Endo Paycom. Our contract within Europe has rapidly expanded. It's currently being used for early morning for the Middle East activities.

And our next question comes from the line of Gautam Khanna from TD Securities.

I was wondering what's the latest on the FAA program, that Peraton 1. I didn't know if much work has come your way yet and what's your latest expectation on that?

Yes. So just to recap, we've been supporting the FAA for over 5 decades. We've supported them for 24 years on the technical support service contract. The FAA just issued our extension for 3 years, 1 full year early. -- indicating their intent to fully use that contract. Under that contract, we provide engineering and design support, installation, integration services. We do project structure management and also technical logistics and field support.

Importantly, we've supported about 1,000 FAA sites. So we have people pretty much everywhere embedded in the facilities and equipment work that occurs with the national aerospace system, whether it's radars, navigation aids, communications, surveillance, automation towers. We do the terminal radar approach control system, they're about traffic control centers and much more.

Our FAA revenue, as I mentioned, is projected to grow at 25% this year. On just the TSC contract and we were at 25% for the first quarter. We also had additional growth in on areas like voice communication switches and some contracts that we have outside the TSSE putting us at around a 35% growth rate. In addition to the legacy work that we've performed on the DSSC, we're starting to perform work for the implementation of the new air traffic control system. And that work includes voice communication, automation and training systems. We've been working very closely with Peraton. We have an associate contractor agreement as well as with the FAA, both the FAA and Peraton when to continue to use Parsons as the implementer for that work.

And I just wanted to also circle back to the Q2 commentary. It sounded like bookings have been pretty strong to start the quarter. What would you expect, do you have a view on what book-to-bill could be in the second quarter based on what's in the pipeline and what you've already been awarded?

Yes. To your point, Gautam, really strong start to the year. We are expecting north of 1.0 again at the Parsons level in Q2. .

Okay. And within the segments, is there any SKU is 1 particularly strong relative to the other?

Not really. I think they'll both just be around 1 or better. I don't think we'll see another 1 another 14 necessarily, but I think they're both in a good place to be north of 1.

And again, critical infrastructure, 22 consecutive quarters greater than 10% and our trailing 12 months as a company has been over 10 since IPO.

Great. And then you did -- I mean, obviously, you touched on the Middle East business being more resilient than I think people worry about. At what point do you start to worry about this? I mean I'm just curious in terms of does it disrupt the pace of contract awards? I know you mentioned there's a long duration to the backlog there. But I'm just curious at what point should we worry because it does seem like an overhang?

Yes. Again, I would say we are not worried. The work that we're performing there is Critical Infrastructure work. And now we've actually added additional defense capabilities supporting the war. Hitting on the Critical Infrastructure work for 60% of our work is in Saudi Arabia. The public investment fund just released their priority 6 ecosystems this week.

So whether it's tourism, travel and entertainment, urban development, advanced manufacturing, industrial and logistics, clean energy, Neom, we play in every single 1 of those areas. They also reiterated that they're going to maintain all giga projects. I don't see any cancellations. So there's only been minor rephasing of programs, but they've got to get ready to be on the world stage, which can be 2030 for the Expo, 2034 for the World Cup. And I'll point out in Saudi Arabia. Importantly, 80% of the investment is going to be deployed within Saudi Arabia. We've been there for 7 decades we have a 50-50 joint venture company. So we see that as very stable.

Within the UAE, we're focused still on a lot of development work. There's still a lot of development that has been going on. So we don't see any slowdown there. And Qatar, our focus is primarily on 2 areas. Ashgalis our primary customer. And then we do a lot of work in the city of Blue South or which we just got the contract recompete win. So we've been very strong. As a result of the war, we've been supporting during the war effort, cyber, electronic warfare, counter unmanned air systems, air-based defense. And then we see, as I mentioned earlier, post war that we're going to have opportunities, particularly when you look at areas like Critical Infrastructure protection, a lot of the attacks from Iran have been on data centers, water utilities.

So those assets are all going to have to be protected, potentially put underground, but definitely have critical infrastructure protection. And then there's going to be additional rebuild. So to have a company that has a long deep history within the region, a very demonstrated proven performance as a trusted partner, We look forward to continuing to work across the Middle East and be able to help that region very quickly recover.

Our next question comes from the line of Jonathan Siegmann from Stifel.

Matt and Dave, on the Cyber Hunt contract win, interesting work, and it's new for Parsons. You mentioned it's going to start ramping up in the second half. Can you maybe level set just how steep that ramp could be and any kind of differences in margins or capital intensity of that type of work?

Yes. So I'll start, and Matt can jump in as well. But we're excited about the Joint Cyber Hunt Kit award. It started off as another transaction agreement over 100 companies submitted white papers. They down selected the 3 companies to build prototypes and then we were ultimately selected as the successful winner. We've already started the low rate initial production, and we'll be moving into production in the fall. I will note that we've produced over 500 of these kits. We're expecting another 500 to 750 as we go forward on the new contract. Another unique thing that was in our solution is -- it's the first use of a genic AI in a threat hunt kit solution, and we think that was a big discriminator in helping us win that award. It's margin accretive. It is double-digit margins.

Yes. So John, just to add on to Carey's $500 million ceiling over a relatively short window, kind of 3- to 5-year contract, booked the first $250 million within the quarter. So feel really good about that work. We've already kind of started long lead material purchases on the production orders to kind of get ahead of schedule and help out there. I would say for second half versus first half, we're seeing about a $50 million growth on those -- on that contract, which is helping our second half, of course.

And then I think from a margin perspective, this year, it's favorable and accretive. I think we'll see more benefit in the out years as we get further into the production and deliveries.

Fantastic. And maybe one more for you, Matt. And I think your earlier comments tied to this, but just to confirm directly, remaining performance allegations for Federald Solutions was down sequentially and diverge from funded backlog. Is that just the phasing that you mentioned earlier? Or is there anything else to kind of keep in mind?

Yes. No, exactly. It was the phasing that I mentioned and nothing else behind that.

And our next question comes from the line of Tobey Sommer from Truist Securities.

I wanted to double click on the Middle East, again, if we could. With some of the -- your customers experiencing less oil, petrochemical revenue currently. Is there -- how do you look at the risk that the eventual rebuilding of that to generate revenue could proud out or elongate the projects that you are working on and pressure a little bit of revenue growth there?

Yes. First, Tobey, I'd say that among sort of the 3 major investment funds, Abu Dhabi, Qatar and Saudi public investment fund, they've amassed over $5 trillion of wealth. So when you look at Abu Dhabi Investment Fund, they're like the fourth largest sovereign fund in the world. The public investment fund is the fifth largest sovereign fund in the world. So they have amassed a lot of wealth over time regarding oil prices. They also have the capability both in the UAE and Saudi that they aren't dependent on the Strait of Hormuz. They both have oil pipelines that they can continue to transport oil.

The focus within the regions is very strong. There's a Saudi Vision 2030, there's visions in the UAE for 2030 and 2040. There's a national vision for Qatar for 2030. Their whole focus has been how do they diversify their dependence away from oil. So to be able to do that and achieve that, they're still going to prioritize infrastructure investments and to be on the world stage and be present for those events. What we're seeing, and I'll take public investment fund strategic plan that they just published is the rephasing and moving things away from other sectors or other priorities to stay laser focused on what's going to drive economic and social benefit to the region, and that's where we play.

Appreciate that. And then if I could, with respect to the Cyber Kits and that aspect of your business related to technology and sort of products, how do you envision that growing and becoming a more meaningful part of the company? And if you could dovetail your M&A strategy in coming years, with your response?

Yes. Thanks. So we have a lot of products within the portfolio. Cyber Hunt Kit being one of those. We also have -- I'll just give you a few examples, assured position, navigation and timing. So if you lose your GPS signal, you can get location information. We have a product called TRx, which is an emulator product that could emulate certain signals that's been useful in Ukraine and can also be useful in Endo Paycom and in the Middle East region. In the space side, we have a space series of products that's called the ACs products. that are involved with a lot of the control timing of satellite vehicles we have space ground systems. We've delivered over 170 different ground system solutions.

And then on the infrastructure side, we have the intelligent transportation system where we're the most globally deployed system in the world today, just extending our reach now into the Middle East. We had our first deployment there. And we've won some real big statewide procurements recently, including Georgia. So products is definitely a focus for us. So matter products into 2 categories. We have products that you might call hardware products, and I'll take like our Blue Fly system. It's a search and rescue system that's able to assist local law enforcement as well as customs and border protection. But the secret sauce within there is really the digital signal processing, and that's an area that we focus on as a company.

So our product offerings include both software as well as hardware. And I would say a lot of the companies that we have been acquiring in addition to ceiling tech, which produced the Joint Cyber Hunt Kit do have products, capacity and focus, and you can expect to see that going forward. We think that, that helps with our differentiation as a company. We think that's driven are very strong win rates, which have been consistent over the past 3 years, and they're also margin accretive.

And our next question comes from the line of Mariana Perez Mora from Bank of America.

So the first one is a little bit on the budget. The market is mostly concerned about now like the $1.5 trillion ask, but actually how much could actually be done in an election year. How do you think about growth? And how much is already like funded or procured, if you were to think about like a full year continuing resolution. And how are you positioned to that scenario?

Yes. First, so I would say in an election year, a full year continuing resolution is probably very likely. We know how to live with continuing resolutions. We've lived with them for decades. The key for us is really getting these large -- on the federal side, large task order awards, which we've just announced to that are worth $400 million over the next 3 years. Because once you have those then you don't really fall under the CRO you need to do is deliver task orders to those.

Another important thing, obviously, with our portfolio is 50% of our portfolio does not fall under the federal government. So half our business is kind of immune from that I would say the budget, we are excited about not just this upcoming budget, but to see the $150 billion of prior reconciliation dollars starting to flow, whether that's for Golden Dome, the munitions, Pacific deterrents, the FAA modernization, that all benefits our portfolio. We do have a record backlog as well. And out of that backlog, 71% is funded and $11 billion of awards not booked yet. So I think we're well prepared as company run for a long time and having these large other transaction agreements and IDIQs puts us in a good spot.

At. And then if I can be more specific, there is about like a month ago, the Department of State put out a request for information for the second iteration of dips diplomatic platform support services contract at to you actually benefited from that and you got the confidential contract within that main award. How do you think about that? Because when you look at like the areas they are looking at, core transportation and logistics, security with like physical and electronic security support, infrastructure, maintaining and construction and remediation. And if we think about like the the activity going on in the Middle East right now, I would have expect those volumes to pick up. How are you thinking about that contract right now? How are you thinking about like the regards to our information and your positioning towards that?

Yes. Thanks, Mariana. So the DPS contract, to your point, is coming out for reprocurement again. I believe we were the #1 awarder at the very top on the last steps contract. -- we are definitely planning to bid and prepare to win that contract. Within the Department of state today, the majority of our work is with diplomatic security we provide for diplomatic security, electronic security systems. We do biometrics capabilities and counter unmanned air systems. -- we deploy those at over 250 embassies and conflicts to date throughout the world. And I'd say that's kind of our ongoing continuous business. But the DIPS contract, we are going to be bidding.

Our next question comes from the line of Louie DePalma from William Blair.

On the space front, last year, you announced a strategic partnership with Global Star -- and I was wondering, do you anticipate any potential positive impacts from the proposed Amazon acquisition, perhaps you could become 1 of Amazon's main satellite partners for defense applications across their LEO broadband and also their LEO cellular constellations that are in the process of being built out -- and also related to the Globalstar partnership. Is there a potential that your technology could be embedded into drones and other unmanned platforms to provide resiliency in the various theaters right now, whether it's the Middle East, Ukraine or the Asia Pacific.

Yes. Thanks, Louie. Appreciate the question. On the second part, the answer is yes, it could be embedded into drones to be able to support. We're excited about the acquisition of the Globalstar by Amazon, and we are starting to engage with Amazon. I don't like to get ahead of these discussions, but I'd be happy to discuss that on future upcoming calls.

And there's been a lot of questions and answers on the Middle East. But are you reiterating the prior full year outlook for 8.5% growth in the region? And -- has there been any change in like the long-term view? And in terms of the variables, like how important is like the price of oil in terms of the long-term picture here in the Middle East.

Thanks, Louie. Yes, we are reiterating our 8.5% growth for the Middle East. Long-term view, we're very optimistic about the Middle East. One thing we've done very well is, first, we've been positioned there are some in decades. We have gotten in at kind of ahead of need. We're seen as their trusted partner for all their big programs. We positioned intentionally around Riyadh about 3 years ago because we knew if there ever became funding challenges, they would focus on RiyadhRio because of the Expo and because of the World Cup. So we're involved in transportation. We're involved in urban development. We're involved in water and environment. Then we expanded our capabilities recently into defense and security. So we won a border wall project, and we won a project with the Ministry of Defense.

So we've moved into other sectors. We've also gotten into data centers. We're currently involved in about 12 data center projects within the region and also artificial intelligence projects. So I think what the team has done there very well has successfully moved from our core, which is going to continue into new areas. And I believe that we're focused on the right priorities. If you look at Saudi Arabia, 49% of their GDP is now based on non-oil. So the countries over there have been very successful in diversifying away from oil. I'm really excited about our prospects in the country. I think they're going to only increase after the war with Iran.

Great. And so even if priorities shift you expect to maintain your share because Parson's ability to be versatile in terms of like perhaps shifting from a transportation project or an entertainment project to a data center project? Or what shifts do you expect to potentially take place?

So I would say, again, public investment fund in Saudi just reiterated their 6 priorities. So they're laser-focused on tourism and entertainment, urban development advanced manufacturing, industrial logistics, clean energy and Neon. We're in all 6 of those areas. So whether it's doing airports, the world's art entertainment city. -- participating in the World Cup and the Expo. -- tourism and hospitality sector we're in. We do a lot of urban development with the developers there. I mentioned we're doing the data center work in country. building industrial cities. We're performing logistics efforts. We do a lot of water work, desalination work, renewable work. So I think we're just really well positioned where the money is going to be spent.

And our next question comes from the line of Noah Poponak from Goldman Sachs.

Matt, is it possible to quantify what's in the full year revenue guidance -- what are you assuming for organic revenue growth in Federal Solutions ex confidential and organic revenue growth at CI. And how do you expect those to split first half versus second half? .

Yes. So federal, excluding confidential contract, organic revenue growth is 6.6%, and then CI is just north of 6 6.1%. In first half versus second half, call it, just about 4% on federal versus 9 in the second half and then infrastructure is 3-ish first half and then 9 in the second half. So that's the ramp that we talked about earlier.

Helpful. And Matt, on the CI margin, I guess, a lot of progress there in the last 18 months. The guidance implies that slows down quite a bit through the rest of the year. Can you talk a little bit more about that? Trying to figure out if that's truly mix and other inputs? Or if you're sort of still living in ultra conservative mode because of the issue of that margin?

Yes. So without a doubt, very happy with the performance of the CI margin over the past quarter, 18 months to your point. And so again, 10.5% at the midpoint is about 10 basis points above 2025. We still have these legacy contract closeouts that we're going. So I would say there's some thought in my mind around some flexibility for Kerry and I if we were to accelerate some of the closeouts. But generally speaking, to your point, the performance within the business is quite strong. And so we feel really good Generally, the only other thing I would add is Q1 was a little bit stronger than expected with lower pass-throughs and materials, as I mentioned before. And so there's some natural headwinds over the next 3 quarters as we ramp on some of those newer programs. But all in all, again, just really strong performance out of Middle East and North America and some favorable trends.

Okay. And Carey, you mentioned munitions and missile support, missions work a few times on this call. Remind us what you do there and maybe how big that is? And then you also mentioned reshoring of critical minerals. What does Parsons do there?

Yes. So Matt will give you the numbers on how big others in just a second. But let me hit on what we do on munitions. So we currently have projects at both Holston and Radford and we've been awarded 4 of those projects to it each. And what we're doing is modernizing the facilities. When you go to these facilities, they're old, they're like to decades old. So we will go in, for example, and put a new incinerator system that is more modern, doesn't have as many environmental issues. That would be a sample project. We built a great moat around this because we actually have not had competition on most of these projects. So we're really well positioned there. The most recent win that we have was the Neom award. And that was a unique 1 because that's with a commercial Norwegian company to stand up an energetic facility within the United States.

So when you look forward, both under the reconciliation funds that were already passed and you look forward at the next budget, there's a big focus to redo our plans, recognizing the importance of both ammunition and munitions. And I think we're in a really strong spot for those.

And then your second question on critical minerals. So we provide -- we're a delivery partner to private clients as well as federal agencies across mining projects, industrial projects and infrastructure programs Our history in the mining and critical minerals space dates back to 2013. And it really started with the 2 mine projects I mentioned on the call, Giant and Faro mines. Those are 2 of the most complex high-risk environmental programs in North America, they're up in Northern Canada.

So at Giant mine, for example, we're managing the safe construction of the roaster complex stabilizing underground workings and containing about 237,000 tonnes of underground arsenic trioxide. And at Faro Mine, we leak taminated water treatment, dam safety management, landform reconstruction and Habitat. These are most multibillion-dollar projects. They're each over $2 billion, and they range from $12 billion to $20 billion. So the expertise that we have there is very applicable to some of the critical minerals onshoring activities where they're going to need companies that come in and they understand the technology, they understand speed to production can manage program and construction management, perform contaminated waste management, deal with indigenous communities and understand how to do the environmental work.

Matt, over to you.

Yes. I'd say just high level, each 1 of these contribute kind of $40 million to $50 million a piece. Radford is a little bit smaller this year as it kind of scales back in terms of delivery. But all in all, really strong market that's growing, and we're really excited to be part of it. Obviously, it's a high demand for the administration. And so we're happy to show -- use our capabilities here and and be able to grow this market.

And each of the 5 projects I mentioned are over $100 million in revenue.

Over the period, it's about $40 million to $50 million per year.

And our final question for today comes from the line as a follow-up from Jonathan Siegmann from Stifel.

Just back on some of these products. The IronClad controller that you guys offer, can you just sketch out the opportunity for that product? And is that something that might have been used on some of the drones that were deployed in Epic Fury or maybe partnered with some of the drone dominance programs.

Yes. The name is not bringing a bell with me, John. I'll have to get back to you on that one.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to David Spille for any further remarks.

Thank you all for joining us this morning. If you have any additional questions, please feel free to contact me directly. We look forward to connecting with many of you over the coming weeks. And with that, end of today's call. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

All right. Music is off, it's time to roll. So thanks so much, guys, for joining us for the last session of the day, I believe. So joining us for this session is the Parsons folks. For those guys in the room, my name is Adam Seiden. I'm the U.S. machinery and construction analyst.

From Parsons, we have Carey as well as Matt joining us on stage. And of course, David is out there as well in the audience. So the format of this session is, like the other ones today is a fireside chat, myself and the guys and gal to my left. And then we'll also be opening it up for the audience response questions as we get through the session here.

So with that, team Parsons, thanks so much for being here.

Thanks for having us, Adam.

Great. So I guess I wanted to start off because this is the first time that you and I have been on stage here together here in Miami. So we could talk a little bit and reflect on the past. So you exceeded the high end of your '23 Investor Day targets quite significantly. If you could just talk through of that -- of those targets, like what portion of that outperformance was structural versus cyclical in your views?

Yes. So first, I'd say we were very pleased to exceed the high end of our range for all of our targets. From a revenue growth perspective, we saw very strong tailwinds in terms of budgets. And I would say, particularly, we're in the right markets. If you look at our 6 end markets, they've all had very strong compound annual growth rates, whether it's cyber and electronic warfare, critical infrastructure protection, transportation, urban development, water and environment, or space and missile defense.

On our adjusted EBITDA margin, we're pleased that we were able to get 120 basis points margin expansion across that time period with both segments contributing. And I'd say on the cash flow, we had a compound annual growth rate of 26%. So very pleased with how we've done since our March '23 Investor Day.

Yes, as you should be. So if you think about the -- now the forward plan here, right, for '26, '28, you guys spoke to that a bit the other day around earnings. So one of the inbound feedback that we've gotten is just comparing the organic growth rate on the go-forward versus what you've just delivered.

So just trying to get a sense of level setting for us, like why is the mid-single-digit view the right anchor point just given the performance that you guys have had over the last couple of years?

Yes. And I'll probably lead off and Carey can add in if I miss something. But I would say really happy with the growth over the last several years, as you mentioned, it's a great performance on kind of across the board. When I look at the next couple of years, we're still seeing really strong growth, and I'll kind of break it up into the pieces. If we look at the Middle East, double-digit growth for the past 3 years. We're looking at 8.5% growth this coming year, still very strong, really accretive margins there in the Middle East.

Within North America, it's a little bit more kind of you have -- as we complete some projects, specifically in 2026, we see a little bit slower growth on the mine jobs as we kind of completed some of the capital projects there and then some of the design work kind of just kind of take a 12- to 18-month window on some of that design work. And so we'll win some new design work and that will kind of backfill the second half. But it's a little bit more just the cyclicality of that business, really excited about the trends across critical infrastructure. And so to kind of get back to a double digit there, I think, again, to kind of say on the bull case, I guess, I would say, within infrastructure if we're going to outperform, it would really be around continued ability to hire faster in the Middle East.

We've added almost 1,000 heads last year in the Middle East and continue to see strong demand, whether it's on the recently awarded International Airport in Riyadh, that's 3x the size of JFK for those that fly in and out of JFK. Hard to wrap your head around 150 million passengers a year, but the scale of the projects over there is astronomical. And so I know there's some headlines around some programs that are getting delayed or deferred, but without a doubt, in and around Riyadh is a really strong area for us. And so really great growth in the Middle East and North America.

When we look at the Fed business overall, I think we're looking at about 6.5%, excluding the confidential contract. So still very strong growth that's kind of taking share, of course, if you think about inflation versus labor inflation versus just overall growth. And so we are continuing to take share. We see great opportunities in our missile defense area, specifically Golden Dome. You see some of the impact there flowing through over the next couple of years.

Similarly, if you outperform continued growth within the cyber and electronic warfare area, that's been a key area. You see a lot of what's going on in Russia and Ukraine, and it's amazing how the future wars are changing so quickly. And so just really great demand across the portfolio. And so the outperform would be as you start to see inflow from reconciliation dollars or maybe a $1.5 trillion budget, all those things would help us outperform. But again, really happy with the project the forward-looking growth rates, maybe not quite the double digits we had the last couple of years, but still very strong.

Yes. Totally fair. So we touched a little bit on the top line. Now thinking a little bit on the margin side. You guys came out with a 10%-ish number plus. So what would need to happen for those margins to exceed that 10% level?

Yes. So I'd say really happy with 2025, we had just about 10.4% margin within Critical Infrastructure. We're showing about 10 basis points of expansion in 2026. On the Fed side, we're showing about 20 basis points of margin expansion. We have a slight headwind of $350 million from the confidential contract that wraps up in February of this year. So a $350 million decline year-over-year on an accretive contract. It's a bit of a headwind on the federal side. So Carey and I generally are pretty comfortable with the Fed business being in kind of that high 8s, low 9s, depending on the mix at any point in time. As your cost-plus business grows faster than your fixed price, of course, there's a little bit of pressure on margin.

We've done accretive acquisitions. So we have a great acquisition recently called Altamira, just about $200 million -- just over $200 million worth of revenue this year at accretive margins. So that will benefit the federal business by about 20 basis points. And so you kind of have that shift going on, which is the accretive contract going out, new acquisition coming in. And then we just announced this morning a big production award on a products contract called Joint Cyber Hunt Kit as we continue to get more into the product side of the business, where there's accretive margins within products.

So whether it's our Joint Cyber Hunt kit or Assured navigation precision timing, better known as PNT or some of the other tools that were -- that we see in the field over in the Ukraine today, it's really great demand for our products. And so we see that as an opportunity on Fed as well. So overall, how do we get back to -- how do we get that extra 30 basis points? It's really continued improvement on performance within CI North America, get the legacy contracts completely behind us.

Operationally, they're complete, but getting some of the final change orders and negotiations with customers behind us. And then within Fed, accelerate growth on the product side.

Great. And you did mention, as far as there are some challenges from a fixed price contract. So I think you just defined what it is, but just a reminder for the audience. And then is there any ongoing impact beyond '26 that we should be thinking about there?

So generally, our Federal Solutions sector performs very well. We did have one program, and it was in a remote location. So we experienced some logistical challenge, and we're currently working various options on path forward with our customer.

Got it. So -- your guys' backlog, funded backlog is at really strong levels, record levels, right? So beyond the headline number, though, I think folks like to say like what's actually behind it? What's going on -- when you peel back the onion, what's actually there. So how does the quality and the visibility of the backlog look relative to where you want it to be and to where it was a couple of years ago?

Yes. So I'd say we're very happy at 73% funded backlog. That is the highest that we've ever had. It's very high compared to our peer set as well. One thing when you look at our backlog for our company, we have about $8.7 billion in backlog, but we have another $11 billion in awarded not booked. So if you add the 2 together, it's kind of a better reflection. Within the awarded not booked, about half of that amount is follow-on option year exercises. The other half of that amount is work that's been awarded to Parsons as a single contractor, and we just have to work up to the ceiling value. So I would say, overall, we're pleased with our backlog as well as our awarded not booked.

Got it. So yes, lots of contracts have been awarded. You mentioned PNT. Is that what's going by? Okay. But then -- but in general, also awarded not booked. So when you look at book-to-bill, I guess, just 1x book-to-bill for '26, the feasibility of that, I think you have said in the past, curious there. But then also what gives you confidence as far as forward bookings on the prospects that you see out there?

Yes. So for 2026, we're planning for a 1.0 or better in both federal as well as Critical Infrastructure. Critical Infrastructure has really been a highlight because we've delivered 21 consecutive quarters of greater than 1.0 book-to-bill. And I would also point out that at the Parsons level, we've been greater than 1.0 book-to-bill since our IPO in May of 2019. So even though our revenue has increased over a couple of billion dollars, we've been able to retain that.

Within Federal, we did have the longest shutdown history, 43 days in the fourth quarter. But I'd say we're pleased with the momentum that's coming out of that shutdown. As we announced on the earnings call, we've had 6 contracts greater than $100 million that were awarded. Those were all in the Federal segment. And then we also -- 4 of those contracts were new, new work to Parsons. One of them was $392 million classified contract over a 10-year period. That was a takeaway from a Tier 1 company. We had a $200 million classified contract over a 5-year period. We also were awarded a new rocket facility, Nammo is a Norwegian company. So they're expanding in Perry, Florida, and we're going to be designer and program manager for that facility. We were also awarded $125 million 5-year recompete with the Army Research Laboratory, a contract that we've held for a long time.

And then after the quarter ended, the FAA exercised our option period, which is for 3 years on our technical support service contract, a full year early. So we were very pleased with that. I think it's a testament to our outstanding performance that we've experienced with the FAA. And then finally, the contract that Matt mentioned earlier, the Joint Cyber Hunt Kit, that's a really neat one because it was procured under another transaction agreement. And when it initially started off, there were 100 competitors. It was down selected to 3, and then we ultimately became the winner. We've delivered over 500 of those cyber threat hunt kits prior, and we expect to do over 700 more in this current contract over 3 years.

That's a lot of contracts there. So on the FAA side, the extension and the option that you got there. So how quickly should revenue ramp on that?

Yes. So that option period is 3 years, and it starts April 2027 and runs until April 2030. So that was exercised early. We've been performing on the technical support service contract for 24 years. We've been supporting the FAA for over 50 years. We've worked at over 1,000 FAA locations coast to coast, whether it's navigation aid sites, communication sites, doing automation type of work, radar sites. So very pleased with the support that we've provided. We are expecting in 2026 that our FAA technical support service contract will increase by about 25%.

Got it. So I think earlier, it was mentioned about Golden Dome. So maybe a status update there on the latest involvement there to be a system integrator. And if this does progress, seemingly, this would be activity that could last long past this current administration and so forth, right?

Yes. So on Golden Dome, we see participation in several areas. So I'd say, first, we are the Missile Defense Agency system engineering and integration contractor. We've done work for the Missile Defense Agency for a decades. So are very fortunate to be in that position. When you look at what's going to happen with Golden Dome, initially, there's going to be flight test integrated or FTI, which is going to be a flight test targeted in the summer of 2028.

To get to that flight test, there will be an integration of a lot of existing sensors and weapon systems. So we hope to be able to perform a lot of that integration work. I'd say additionally, we're looking at opportunities on the local area domes, which would be the domes that would protect cities. There, we would leverage our air-based air defense experience, which is work that we're doing for the U.S. Air Force Base in Europe. Our architecture and our design concepts, we feel have a lot of applicability to the local area domes. We're also on one of the space-based interceptor teams. There were 4 small awards that were granted in that area. And then we're involved in non-kinetic effects. How do you take out a missile using cyber and electronic warfare techniques rather than kinetic warhead. I believe Golden Dome is going to go on, but currently within the $25 billion, the objective immediately is to get to that flight test integrated.

Great. So lots of projects, lots of prospects, things like that. When you think of your medium-term growth aspirations and so forth, how much of that is predicated on budget expansion versus your own share expansion within the categories that you play in and maybe other variables thereabouts?

Yes. I'd say the most important thing for growth that we're looking at in the immediate term on the federal side of the house is our alignment to the reconciliation bill. So Department of War got $150 billion. Department of Homeland Security got $190 billion. So we're aligned to the $25 billion we just discussed on Golden Dome. We're also aligned to the $25 billion that is there for Army munitions and ammunition plant modernization. In addition to the Nammo plant I mentioned earlier, we have 2 projects at Houston and 2 at Radford, which are 2 of the more important Army ammunition plants.

Additionally, we expect to tap into the $12.5 billion of the FAA aviation modernization funding and some of the $12 billion out in INDOPACOM. We have hundreds of people in the INDOPACOM region. They're working on cyber signals and intelligence as well as doing important infrastructure work. And then I would say on the infrastructure side, we're looking at the Infrastructure Investment and Jobs Act, $1.2 trillion, not peaking until about the 2028 time frame, having about a 6- to 8-year tail after that. We participate mostly in the surface transportation area. That's about $634 billion of that budget.

You would additionally see the next 5-year surface transportation bill getting passed. The objective is to have that passed by November of this year. And within there, we're expecting to see about another $600 billion to $700 billion of surface transportation funding. And then within the Middle East, we're talking very big numbers, $1.8 trillion through 2030, where we've been experiencing rapid growth. So when you look at all the funding that's coming in, coupled with our compound annual growth rate of our addressable markets being between 4% to 11% on each of our 6 end markets, we feel well positioned.

That's great. Well, the numbers are big. The airports are clearly very big, too, in the Middle East. So I guess maybe that's a question on the Middle East then. So what's your competitive advantage there that has you guys so successful ultimately? Middle East is close to 20% of revenue, right? And then I guess, how do you guys manage some of the concentration risk or to the point, I think, earlier that like headlines around maybe some shifting priorities of what they're looking to build there, including, I think, just recently, the Asian games got shifted away from the region, too.

Yes. We've been in the Middle East for 6 decades, one of the longest companies there. Within Saudi Arabia, we've had a 50-50 joint venture company called Saudi Arabia Parsons Limited, and that's been in place for 5 decades. The important thing in the Middle East, we've never come and gone as markets have been good or bad. We've stayed there continuously. We're also self-sustain there, so the business can run. We've got finance people, HR people, all the support functions so that they can run on their own. We've successfully delivered the most complex projects in the world over in the Middle East.

So whether you're looking at the $250 billion Cadia, the world's largest entertainment center, King Salmon Park, the world's largest park, 5x size of Central Park. We're doing the airport, as Matt mentioned, King Salmon International Airport. We were just awarded New Murabba, which is going to be an industrial city within Riyadh. We're performing on Riyadh traffic management. We just deployed our intelligent network, which is our first deployment of our advanced traffic management system. We're doing Riyadh Rings and Roads. We're involved in King Abdullah Financial District, and I could go on [indiscernible], which we've done for 5 decades. So pretty much hitting all the major projects there.

How they're balancing the rephasing, I think that Saudi Arabia is being very fiscally responsible. When they set out Vision 2030, it was basically how do they diversify away from oil, and they set up 13 different sectors. So they're putting priority on the sectors to get to the 2030 Expo and the 2030 for World Cup. And those sectors are things like transportation, tourism and hospitality, the things that they need in place to meet those events. Then there will eventually be a Saudi Vision 2040 plan where they can start to refund some of the other sectors. So beyond transportation and urban development, we've also gotten into the defense sector. We've gotten into the security sector doing border security work, and we've gotten into the tourism and hospitality segment.

Yes. So there's -- so that puts the long term in perspective in which there's a lot of activity there. And like you said, 5 decades of experience, you've got a lot of lineage history. Now on the shorter-term side, I think there was -- at the earnings call, you were talking a little bit about the holiday, just holiday timing impacting this year. So ultimately, I guess the question is where does the Middle East look like it's going to grow in 2026? Or what sort of growth rates?

Yes. So as you mentioned, overall, expect the Middle East to grow about 8.5% this coming year. We have seen Qatar and UAE grow faster over the last couple of years in Saudi specifically. We do have the headwind on Nammo that I mentioned before. But overall, again, really strong growth in the Middle East at 8.5%. We do have a little bit of an anomaly here coming up in Q1 where all of Ramadan and Eid slides into Q1 versus being spread over the 2 quarters. So we are expecting flattish for Q1, followed by 18% growth in Q2 to balance out to 8.5%, which is in concert with the total year. So again, really happy with the growth in the Middle East, continued expansion there.

And thinking of other areas across the portfolio, a lot of times I get questions around nuclear and where is there areas -- who's involved in that space? I think you guys mentioned it on the call there. So how big is it today? But more so, like what are the most compelling opportunities in whether it's microgrids or NNSA work and things like that?

Yes. Most of the work we're doing today, we have worked with the Department of Energy. We've been involved with the National Nuclear Security Administration, supporting the 8 sites as the program manager and engineering -- owners engineer rep for a number of decades. It's been a successful contract for us. We also won a year ago the counter nuclear smuggling detection and deterrence system, and that's a $1 billion contract. We're 1 of 2 contractor awardees on that. That spans over about a 5- to 6-year period. And so that's off and running. We were awarded the Africa region. We were also awarded the Eastern Europe region and most recently, the INDOPACOM region under that contract.

We're doing microgrid work. We have a contract with the Army Corps that we're working on currently in Puerto Rico that's been quite successful. And we're looking at some various small modular reactor projects that would be with the Department of Energy. A lot of our role is going to be program management and owners engineering rep.

Great. Maybe we'll switch over to the audience response questions for a minute here. There's little gadgets on your table there to participate.

First question will come up in a half a second. All right. So do you currently own the stock? Yes, overweight, market weight, underweight or no? Carry, no clicker. Okay. Room full prospects.

Next question, please. What is your general bias towards the stock right now, positive, negative or neutral? Once the timer goes, it's the best time to click. All right. It's about half and half split between positive and neutral.

Next question, please. In your opinion, through-cycle EPS growth for Parsons will be above in line or below peers?

I think Dave has 2 remotes back there.

He's got like a treat. All right. About 60% of the room says about in line and about 40% above.

Next question, please. In your opinion, what should Parsons do with excess cash, bolt-on M&A, larger M&A, repos, divvies, pay down -- debt paydown or internal investment? Okay. So we got a little bit of M&A and then about 2/3 of the room on the repo side.

Maybe let's talk just about M&A for a second. You just recently did the Altamira deal. I think that came up earlier in the conversation here. So how does that strengthen your guys' competitive position in those markets?

Yes. We're really excited about Atomira. That brings 600 employees, 90% of whom hold top clearances into the organization. Their focus is on areas, including signals intelligence, specifically [ Multi-intelligence ]. So how do you merge various types of intelligence like HUMINT, GEOINT, SIGINT altogether into an actionable intelligence solution.

Second, they're focused on missile warning and missile tracking. That's another area that is going to be very important for Golden Dome. So it gives us more tools in the tool chest as we look forward to that. And third, they're focused on space ground systems and specifically with the intelligence community. We have a great opportunity to cross-sell with Altamira. They have a better presence and bigger in terms of the intelligence community. A great example is there at the National Air and Space Intelligence Center. We're at the Missile Space Intelligence Center in Huntsville, so we can both cross-sell our capabilities to each other. And recently, they were awarded a very large contract with the National Security Agency, which expands our presence there. Likewise, we have a very good presence with Department of War that we can bring in their capabilities.

Got it. And one of the reasons why I think repo came up on here is because there's been a bit of share activity there, partly on the case of AI. So just curious, we're asking every company at this conference these questions around AI, but also just it's relevant, of course, for your services. So ultimately, how do you guys think AI affects your business and your customers' businesses -- customers' project aspirations?

Yes. So I'd say we've been doing AI for over 2 decades. It's embedded pretty much into everything we do on external use cases and on internal cases across the company. Within our federal business, we're a mission solutions provider. So whether we're providing offensive cybersecurity solutions, doing space situational awareness, counter unmanned air systems, it's ingrained into our offerings.

And then if you look on the infrastructure side, I always like to equate it to when I graduated from college, I was drafting. After I got out of college, there was computer-aided design, then we went into building information modeling, and we went from 2D up to 5D. AI is just another logical step in that sequence. So if we can get to a point that we can leverage AI to basically take architecture work and AI basically enable it, digitally enable it, that makes it better for the designer because now you're allowing the designer to move to a more critical level of thinking and being able to use more automation and predictable tool sets. And that's what we really want to do as a company is kind of move up that value chain.

So I would say for us, it's not a new fad. It's not a branding technique. We are an AI company. We've been applying artificial intelligence across both segments. We've identified very strict use cases, revenue cases, been able to drive those with our customers, and it's driven operational transformation throughout the company.

Excellent. Maybe to the last question here as well. Guys thought we were done. We got one more. All right. In your opinion on what multiple of '26 earnings should Parsons trade. It ranges from less than 10x to higher than 21x. We'll let that go here. Perfect.

All right. Split of the room at around 16 to 18 and 19 to 21. All right. So a question, I know we've talked about this before a little bit, but given the split of the portfolio on CI and on the federal side, how do you see that diversification enhancing or not the valuation of the company and giving -- and how it forms the investment narrative?

Yes, I would say it's definitely an enhancement. And we've, as a company, been able to capitalize on the synergies between those 2. What's important to note, if you look over the last 3 years in both segments, if you exclude the confidential contract cancellation, we've been the industry-leading growth leader, one of the top growth leaders in both segments. So we've really been very successful.

And if you look at the intersection between those 2, whether it's aviation modernization, where we work with the FAA on the federal side of the house, but we've done over 450 airport programs on the Critical Infrastructure side of the house. In fact, won 5 new airports within the last 12 months. If you look at an area like PFOS, PFAS, that's $40 billion addressable market for Parsons. We have a subject matter expert team that sells both to the FAA and the Department of War on the federal side of the house, but industrial customers and water customers on the critical infrastructure side of the house.

And a final example I'd share, Adam, would be critical infrastructure protection. Department of Homeland Security has identified 16 vertical critical infrastructure protection sectors. So how do we protect areas like transportation, utility, water, facilities, health care, telecommunications from being attacked from cyber attacks. We're the only company that's vertically integrated. So we understand the domain knowledge from our critical infrastructure side of the house, and we have the cyber protection capabilities from our federal side of the house.

Excellent. So that dovetails into this question. It has a lot of similarities and maybe a good wrap-up one here would be, as a company, you guys have emphasized moving up the value chain and so forth. What does the ideal Parsons portfolio look like when you get through the medium-term aspirations and targets that you laid out there?

Yes. So I would say we're happy with our portfolio, very happy with the way it is today. We like the 50-50 split. We like our 6 end markets. We've got long-term tailwinds in all 6 of the end markets. We're looking at compound annual growth rates across each of them that range between 4% to 11%. We've been able to capitalize on the markets by having outstanding win rates over the last 3 years, we've exceeded 60%. So I would say what we need to do is stay in the markets where we can be a top player. These are enduring markets. They're profitable markets. And I think we've shown that we can be technologically differentiated.

Excellent. Well, Carey, Matt, Dave, the Parsons team, thank you so much for being here. Let's give them a round of applause.

Thanks.

Good day, and thank you for standing by. Welcome to the Parsons Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I will now hand the conference over to your speaker host for today, Dave Spille, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal year 2025 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair President and CEO; and Matt Ofilos,CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our fourth quarter and fiscal year 2025 financial results as well as a review of our 2026 guidance and long-term growth rates. 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-K for fiscal year ended December 31, 2025, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures.

And now I'll turn the call over to Carey.

Thank you, Dave. Good morning. Welcome to Parsons' Fiscal Year 2025 Fourth Quarter Earnings Call. 2025 was a successful year despite [indiscernible] federal government macro environment. We delivered 12% total revenue growth and 8% organic revenue growth, excluding our confidential contract. We continue to be [indiscernible] the organic revenue growth leaders in both of our segments with 10% organic growth in critical infrastructure and 7% organic growth in Federal Solutions excluding the confidential contracts.

We expanded our adjusted EBITDA by 60 basis points to a company record of 9.6%. This record margin builds on the 50 basis points of expansion we achieved in 2024. Additionally, we delivered free cash flow conversion of 100% and exceeded the high end of our fiscal year 2025 cash flow guidance range. We efficiently deployed capital by completing 3 acquisitions during the year and increased our share repurchases while maintaining a strong balance sheet with ample capacity for further investments in our growth strategy.

From an operations perspective, we won strategic contracts, achieved high win rates of 61%, maintained strong hiring and had record retention rates, delivered double-digit total revenue growth in both critical infrastructure North America and Middle East business units. Also, we were named the #1 program management firm in the world by engineering news record, one of the world's most trusted companies by Forbes, one of the best led companies by Glassdoor and one of the world's most [indiscernible] companies by [indiscernible].

We are proud of our 2025 accomplishments, and I want to thank our more than 21,000 employees for their contributions to delivering our customers' most critical missions. The end of 2025 marked the completion of our performance against the 3-year Investor Day targets established in March 2023 with a focus on creating long-term shareholder value. I'm pleased to report that we delivered on the strategy that we outlined at this event of investing in integrated solutions to move up the value chain and win larger and more strategic programs.

During this 3-year period, we exceeded the high end of all of our Investor Day targets. Total revenue, adjusted EBITDA and operating cash flow. From 2023 through 2025, we increased total revenue by 52% or more than $2 billion. This equates to a 3-year compound annual organic revenue growth rate of 10%. And excluding the confidential contract, our 3-year compound annual growth rate was 9%, nearly double our 4% to 6% Investor Day target.

Over the same period, we increased adjusted EBITDA by 73% and expanded margins by 120 basis points resulting in an adjusted EBITDA compound annual growth rate of 20% over the 3-year period. Additionally, we grew cash flow from operations by over 100% since 2022, equating to a 26% compound annual growth rate. Given our strong operating performance over the last 3 years, we were able to reduce our net debt leverage ratio from 1.4x to 1.3x while deploying over $1.1 billion on 8 strategic acquisitions, capital expenditures and share repurchases.

As we look forward over the next 3 years, we expect to again drive long-term shareholder value by achieving mid-single digit or better and organic revenue growth, supplemented with accretive acquisitions. Additionally, we believe we can continue to expand adjusted EBITDA margins over the next 3 years with the goal of double-digit margins by 2028. This expansion is on top of the 120 basis points of margin improvement achieved over the last 3 years and on a revenue base that is more than 50% larger than when we initiated our plan in 2023. Finally, we expect a free cash flow conversion rate of 100% or better over the next 3 years.

Moving to our fourth quarter results. We delivered strong revenue growth, adjusted EBITDA margins and cash flow. Although our fourth quarter revenue was below our expectations, we achieved total revenue growth of 11% year-over-year and 8% on an organic basis, excluding our confidential contract while continuing with the impacts from the longest government shutdown in history. These growth rates include 9% and 6% on organic growth in our Critical Infrastructure and Federal Solutions segments, respectively.

In Q4, our adjusted EBITDA margin expanded 110 basis points and operating cash flow of $168 million grew 32% year-over-year. We also closed the acquisition of Applied Sciences during the fourth quarter. In addition to delivering solid financial results for the fourth quarter, Critical Infrastructure now has 21 consecutive quarters with a book-to-bill of 1.0 or greater, and we won 4 contracts over $100 million in Q4 with 3 of the 4 contracts representing new work for Parsons. All 4 contracts were within our Federal Solutions segment, and we had 15 wins over $100 million for the year, matching last year's record.

Significant fourth quarter contract wins include a new 10-year $392 million single work contract by a federal customer. On this contract, we will deliver advanced biometrics and identity management solutions, combining hard work, software and integration expertise to support federal, defense and law enforcement missions. Parsons has deployed over 3,500 mobile biometric solutions that collect and analyze data in real time, enabling faster identity verification and improved threat detection. We booked $36 million on this contract during the fourth quarter.

We were awarded a new 5-year single-award classified contract with a value of $200 million. We booked $23 million on this contract during the fourth quarter. We were awarded a 5-year $125 million single-award repeat contract to support the United States Army Combat Capabilities Development Command, Army Research Laboratory, high-performance computing modernization program and defense research and engineering network. Parsons will deliver an array of services, including research, development, test and evaluation, infrastructure operations and comprehensive project management. We booked $44 million on this contract during the fourth quarter.

Finally, we were awarded a contract valued at over $100 million by [ NAMA ] to provide design and program and construction management for a new rocket motor manufacturing facility in [indiscernible], Florida. The 2-year industrial-based modernization contract represents new work for the company. This project directly supports the Department of Wars acquisition transformation strategy by expanding the United States munitions production capacity, strengthening supply chain resilience and accelerating delivery of critical capabilities to the warfighter. We booked the full value of the contract during the fourth quarter.

After the fourth quarter ended, Parsons was awarded in early $593 million contract extension under the Federal Aviation Administration's Technical Support service contract to provide program and construction management engineering, technical services, health and environmental safety, fire protection, equipment installation and testing and logistics. The FAA elected to exercise our 3-year option period nearly a year early, underscoring Parsons' person's critical role in FAA's nationwide aerospace modernization.

And finally, after the fourth quarter ended, we received an intent to award notification for a sole-source contract from a national security customer. The contracts new work for the company with a ceiling value of up to $500 million. We booked $13 million on this contract for the low rate initial production, which was awarded during the fourth quarter.

In addition to winning these large contracts, we effectively used our balance sheet to acquire strategic companies with critical intellectual property that strengthen our existing portfolio by generating revenue growth and adjusted EBITDA margins of 10% or more. Parsons is viewed as an acquirer of choice in the industry, which frequently provides us the opportunity to pursue preemptive M&A.

During the fourth quarter, we acquired Applied Sciences Consulting, a Florida-based engineering firm that specializes in modern storm water solutions for cities, counties and water management districts across states. Water is our most profitable and fastest-growing market within the North America Infrastructure business unit. This acquisition expands our expertise, strengthens our presence in Florida and exceeds our financial M&A thresholds.

After the fourth quarter ended, we closed on our acquisition of Altamira Technologies Corporation in an all-cash transaction valued at up to $375 million, including the $45 million earn-out. Altamira advances high-priority national security mission supporting intelligence community and Department of War customers by providing multi-intelligence, technology solutions and performing critical operations. Altamira spans person's market presence and signals intelligence, [indiscernible] and foreign military exploitation and adds critical customer depth with the National Airspace Intelligence Center, National Security Agency and other classified intelligence customers.

There are more than 600 employees, 90% of whom hold security clearances, share the same mission focus as Parsons. And we're already working on revenue synergies, including cross-selling to our customers, expanding our Golden Dome offerings and providing full kill chain solutions from space to operations.

Altamira's technologies, including AI ML, signals and data analysis, cyber operations and their deep software engineering capabilities will accelerate Parson's expansion into the rapidly growing intelligence in multi-domain areas. The transaction is consistent with Parson's strategy of completing accretive acquisitions with revenue growth and adjusted EBITDA margins of at least 10%.

As we enter 2026, I could not be more excited about our robust and diverse opportunities to continue to grow our company and outpace industry growth rates. Our unique and synergistic critical infrastructure and Federal Solutions portfolio, which consists of 6 growing, profitable and enduring end markets, provide substantial tailwinds for us to meet or exceed our financial objectives.

In Critical Infrastructure, we see strong demand in both North America and Middle East markets. In North America, our focus on hard infrastructure such as roads and highways, bridges, airports and rail and transit is aligned to the administration spending priorities. The infrastructure investment in Jobs Act provided states the confidence they needed to move forward with major infrastructure projects and discussions on the next surface transportation bill are well underway. This new 5-year bill will add more funding for U.S. infrastructure spending.

In the Middle East, our business remains well positioned for decades to come. In the fourth quarter, we had key wins, including new [indiscernible] Traffic Management and [indiscernible] Properties. In addition to our legacy transportation and urban development areas, we successfully leveraged our Federal Solutions capabilities to move into the defense and security markets and drove synergies critical infrastructure with the first deployment of our Intelligent Network or iNet, advanced traffic management system into the Middle East. This market expansion illustrates the value of our synergistic and diversified portfolio, which creates global opportunities.

With long-term structure tailwinds in 21 consecutive quarters of book-to-bill of [indiscernible] or greater, we've delivered double-digit total revenue growth in both North America and the Middle East for 4 consecutive years, and we expect further growth in both geographies for the foreseeable future. We are winning the largest projects in our company's history, and we've established a distinguished global reputation.

In Federal Solutions, we remain excited about the upward momentum in defense budgets. This includes a reconciliation funding of over $150 billion for the Department of War and over $190 billion for the Department of Homeland Security, the vast majority of which has not been spent and the potential of a much larger defense budget in 2027. Our purpose-built portfolio has strong alignment to the administration's priorities, especially in full-spectrum cyber operations, electronic warfare, air and missile defense, space superiority, counter unmanned air systems, industrial-based modernization and border security. Through our acquisitions and internal research and development investment, we've developed differentiated capabilities to protect our nation and deter adversaries.

In summary, we've been one of the industry growth leaders in both of our segments for the last 3 years, and we expect this success to continue as we leverage our unique complementary and diverse portfolio. Our balanced portfolio and alignment to priority areas enabled us to withstand short-term headwinds that occurred last year. We've demonstrated our ability to cross-sell capabilities, including cybersecurity, critical infrastructure protection, advanced manufacturing, program and structure management, aviation, environmental remediation and intelligent transportation systems.

Our business remains steadfast as we are consistently delivering mid-single-digit or better organic revenue growth while expanding margins and delivering strong free cash flow. Also, we're supplementing our organic growth with accretive acquisitions to further differentiate our portfolio. In addition, our balanced portfolio diversifies our revenue stream is our largest contract is expected to only generate 4% of our total revenue in 2026. Our leading indicators, which include $55 billion pipeline, strong win rates of 61% in 2025, total backlog of $8.7 billion, of which 73% is funded and our $11 billion of contract wins that we have not yet booked, gives us confidence that we will continue to outpace market growth rates.

As a result, I look forward to what we'll accomplish in 2026 and over the next 3 years. We have an experienced management team operating in 6 end markets that are all growing, a purpose-built national security portfolio that outpaced [indiscernible] threats, unprecedented global infrastructure spending and a favorable financial outlook with an effective capital deployment strategy.

With that, I'll turn the call over to Matt to provide more details on our fourth quarter and fiscal year 2025 financial results. Matt?

Thank you, Carey. 2025 financials were highlighted by strong revenue growth, significant adjusted EBITDA margin expansion and delivering free cash flow ahead of expectations. In addition, we continue to effectively deploy capital for strategic acquisitions, internal research and development and share repurchases to support long-term growth and drive shareholder value.

Turning to the details of our fourth quarter results. Total revenue grew 11% and 8% on an organic basis, excluding our confidential contract. These increases were driven by double-digit growth in our transportation, critical infrastructure protection, urban development and space and missile defense markets. Total revenue, including the confidential contract decreased 8% from the prior year period and was down 10% on an organic basis.

SG&A expenses for the fourth quarter decreased 2% from the prior year period. This decrease was primarily driven by effective cost management and lower transaction-related expenses, partially offset by the inclusion of recent acquisitions. Fourth quarter adjusted EBITDA of $153 million increased 5% from the prior year period, and adjusted EBITDA margin expanded 110 basis points to 9.6%. These increases were driven by improved execution and growth on accretive contracts, offsetting lower revenue volume on the confidential contract.

Total revenue for fiscal year 2025 increased 12% from the prior year period and was up 8% on an organic basis, excluding the confidential contract. The strong organic growth throughout the year was driven by the ramp-up of recent contract wins and growth on existing contracts. Total revenue, including the confidential contract decreased 6% from the prior year period and was down 9% on an organic basis.

SG&A expenses for total year 2025 increased 6% from the prior year period. This increase was primarily driven by the inclusion of 3 acquisitions completed in 2025 and strategic investments to support future growth.

Record fiscal year 2025 adjusted EBITDA of $609 million increased 1% from 2024 and adjusted EBITDA margin increased 60 basis points to a record 9.6%. The adjusted EBITDA increases were primarily driven by improved program performance, effective cost control and accretive acquisitions. It's important to note that despite $1 billion of revenue headwinds in 2025 from the accretive confidential contract, we were able to report record adjusted EBITDA and adjusted EBITDA margins, reflecting the strength and breadth of the portfolio.

I'll turn now to our operating segments, starting first with Critical Infrastructure, where fourth quarter revenue increased by $89 million or 12% from the fourth quarter of 2024. This increase was driven by organic growth of 9% and inorganic revenue contributions from our BCC, TRS and Applied Sciences acquisitions. Organic growth was driven primarily by the transportation and urban development markets.

Critical Infrastructure adjusted EBITDA of $87 million increased 87% from the fourth quarter of 2024, and adjusted EBITDA margin increased 420 basis points to 10.6%. Both adjusted EBITDA dollars and margins were fourth quarter records for CI. These increases were driven by improved program performance, the ramp-up of recent awards and accretive acquisitions. For the full year, Critical Infrastructure revenue increased 15% and 10% on an organic basis. The strong year-over-year organic growth was driven by the ramp-up of recent contract awards and existing contracts, primarily within the transportation and urban development markets. This is the fourth consecutive year in which both our North America and EMEA business units delivered double-digit total revenue growth.

Critical Infrastructure adjusted EBITDA of $328 million for the full year increased 73% from 2024 and adjusted EBITDA margin increased 350 basis points to 10.4%. Both adjusted EBITDA dollars and margins were fiscal year records. These increases were driven by strategic portfolio decisions over the past several years, leading to higher margin work and improved program performance. Additionally, we have efficiently managed indirect expenses during a period of strong top line growth.

Moving to our Federal Solutions segment. Our fourth quarter revenue increased 9% and 6% on an organic basis, excluding the confidential contract. These increases were driven by growth in our critical infrastructure protection, space and missile defense and transportation markets. Total Federal Solutions revenue, including the confidential contract decreased 22% from the prior year period and 24% on an organic basis.

Federal Solutions adjusted EBITDA decreased 34% from the fourth quarter of 2024 and adjusted EBITDA margin was 8.4%. The adjusted EBITDA was primarily impacted by lower volume on the fixed-price confidential contract and recent execution challenges on a program in a remote region. For the full year, Federal Solutions revenue increased 9% and 7% on an organic basis, excluding the confidential contract. The strong year-over-year organic growth was driven by Critical Infrastructure protection, cyber and electronic warfare, space and missile defense and transportation markets. Total Federal Solutions revenue, including the confidential contract decreased 20% from the prior year period and was down 21% on an organic basis.

Federal Solutions adjusted EBITDA for the full year decreased 32% from 2024 and adjusted EBITDA margin decreased 170 basis points to 8.7%. These decreases were driven primarily by lower volume on the fixed-price confidential contract and investments in growth.

Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q4 2025 was 67 days, a 12-day increase from the prior year period. This increase was primarily driven by lower volume on the confidential contract and strong growth in the associated timing of collections in the Middle East.

During the fourth quarter of 2025, we generated $168 million of operating cash flow, which was ahead of expectations on strong collections and grew free cash flow conversion to 100% for fiscal year 2025. Capital expenditures totaled $32 million in the fourth quarter of 2025 and $68 million for the full year. Our full year CapEx spend was in line with our plan of approximately 1% of annual revenue. Our balance sheet remains strong as we ended the fourth quarter with a net debt leverage ratio of 1.3x. During the year, we closed 3 strategic acquisitions totaling $145 million, net of cash acquired including the cash acquisition of Altamira in Q1 2026, pro forma leverage would be approximately 1.8x based on Q4 results.

During Q4, we repurchased approximately 856,000 shares for $60 million. For the full year, we repurchased approximately 1.8 million shares at an average purchase price of $68.59 for an aggregate purchase price of $125 million.

Turning next to bookings. For the fourth quarter, we reported contract awards of $1.5 billion, representing a book-to-bill ratio of 0.9x on an enterprise basis. On a trailing 12-month basis, our book-to-bill ratio was 1.0x, which continues our streak with a trailing 12-month book-to-bill ratio of 1.0 or greater in every quarter since our IPO.

In Critical Infrastructure, we achieved a book-to-bill ratio of 1.1x, which is the 21st consecutive quarter with a book-to-bill ratio of 1.0 or greater. For the full year, our Critical Infrastructure segment achieved a 1.2x book-to-bill ratio. In Federal Solutions, we reported a book-to-bill ratio of 0.8x for both the fourth quarter and full year. Our backlog at the end of the fourth quarter totaled $8.7 billion, a 2% decline over Q4 2024, mainly driven by the impact from the confidential contract coming to completion.

Our funded backlog of $6.4 billion remains the highest since our IPO and increased 8% year-over-year. At the end of Q4, our funded backlog represented 73% of total backlog, which is also a company record.

Now let's turn to our guidance. For 2026, we expect revenue to be between $6.5 billion and $6.8 billion. This represents 4.5% growth at the midpoint of the range and 0.5% growth on an organic basis. As previously discussed, we had a headwind of approximately $345 million from our confidential contract as we enter 2026 with the program scheduled to complete in Q1. Of the $345 million year-over-year headwind, $275 million will be realized in the first half of 2026. Excluding this contract, the rest of the portfolio is projected to grow total revenue 10.5% and 6% on an organic basis, which is in line with the mid-single digit or better organic revenue growth we've been communicating.

Adjusted EBITDA is expected to be between $615 million and $675 million with a margin of 9.7% at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents adjusted EBITDA growth of 6% and margin expansion of approximately 10 basis points from 2025 at the midpoint. Cash flow from operating activities is expected to be between $470 million and $530 million. This represents 4.5% growth at the midpoint of the range and 100% free cash flow conversion of adjusted net income. This includes an increase in CapEx spending to approximately 1.5% of total revenue which is mainly driven by growing demand for additional classified facilities.

Our 2026 guidance ranges contemplate domestic budget uncertainty, a competitive labor market, and best estimates related to the government procurement environment. These macro risks are offset by tailwinds to include unprecedented global infrastructure spend, a federal portfolio that is closely aligned to the administration's priorities, recompete risk of approximately 5% of 2026 total revenue, $8.7 billion of total backlog including record funded backlog and $11 billion of contracts awarded to Parsons but not yet booked into backlog. Other key assumptions in connection with our 2026 guidance and our quarterly cadence are outlined on Slide 16 in today's PowerPoint presentation located on our Investor Relations website.

In terms of our long-term financial targets, our outlook continues to support mid-single-digit or better organic revenue growth with a goal of double-digit margin by 2028 and a free cash flow conversion rate of at least 100% of adjusted net income. We expect to supplement our organic growth with acquisitions accretive to both top and bottom line.

In summary, our core business executed very well in 2025, delivered strong revenue growth, excluding the confidential contract, significantly expanded margins and delivered strong free cash flow. That cash flow was redeployed to fund strategic acquisitions, internal research and development and share repurchases to position us for future growth and drive long-term shareholder value.

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

Thank you, Matt. Although 2025 was a dynamic year in many ways, it validates the strength and resiliency of our portfolio. We're fortunate to operate in 2 large and well-funded segments across 6 growth end markets and we're capitalizing on these tailwinds to remain an industry growth leader, expand margins and generate strong free cash flow. We're optimistic about our future, given our team's proven execution, the tailwinds we have in both segments, our strong total and funded backlog and a robust pipeline of large opportunities.

With that, we'll now open the line for questions.

[Operator Instructions] Our first question coming from the line of Sangita Jain with KeyBanc Capital Markets.

Obviously, CI margins continue to exceed expectations. Just wanted to say if it's safe to presume that the legacy adjustments are behind you? And should we expect this performance as a reasonable run rate going forward? Kind of trying to see if this will be the segment that drives the push to double-digit margins by the end of the planning period.

Sangita, thanks for your question. Yes, the legacy programs are behind us. We're in final closeout stages with the customers, but the execution has completed. We still expect continued expansion in margin for critical infrastructure as we look to 2026. And we also expect expansion in the federal market as we look to 2026, 10 basis points for Parsons and that's 10 basis points for federal, 20 for Critical Infrastructure. Critical Infrastructure will expand more quickly because about 75% of that business is fixed price, time and material and 25% is cost reimbursable. And most of the expansion will come from the North America.

Got it. And one on Federal Solutions, if I can, obviously, 4Q had the impact of the shutdown. So just curious on how you're seeing the cadence of order activity since the end of the shutdown and if it still continues to be more of a book and burn environment? Just trying to see because book-to-bill in that segment has been [indiscernible] for some time now.

Thanks, Sangita. Q4 did have the impact of a 43-day government shutdown, but I'm really pleased on the 6 awards that we announced on our call, all of which were greater than $100 million, were all in the federal segment and a lot of that represented brand-new work for a Parsons. As we go into 2026, we're very confident that we will achieve over a 1.0 book-to-bill for Federal Solutions starting off in the first half of 2026 based upon the award activity we're seeing.

Our next question coming from the line of Louie DiPalma with William Blair.

Carey, you recently announced a win for your drone armor system. How do you view the addressable market in both the U.S. and internationally as there's been a major focus on air defense with drones?

Yes. Thanks, Louie. So first off, say we're really excited about our drone armor solution. We recently achieved technology readiness Level 9. And this solution has been proven to protect personnel basis and assets from drone threats. It's built on a modular open system architecture. And where we're unique, it really allows for a lot of customization and adaptation to various mission requirements. We also use artificial intelligence and machine learning for enhanced decision-making and to reduce the cognitive workload. And we have a core command and control component.

We had the opportunity to demonstrate our drone armor recently when the Department of Homeland Security and all of their components visited our [indiscernible] plant facility. We see opportunities, not just with the department estate, which -- who we're currently providing those solutions to but also with Department of Homeland Security and then for protection of FAA sites as well. So broad market area.

Great. And Carey, you recently visited the Middle East. What are you hearing in terms of the demand for mega projects? There's been speculation that some of the megaprojects on the transportation side could convert towards like data center builds, but what are you hearing on the ground in the Middle East?

Yes, we had a great visit to the Middle East. We went to Saudi Arabia as well as the UAE in January. And I think, Louis, what you're referring to, Saudi is taking a move, what I would call towards fiscal discipline and they're prioritizing projects that are tied to the immediate upcoming global events like the 2030 World Expo and the 2034 FIFA World Cup. And they're scaling back or delaying some of what I would call the more speculative longer-term real estate ventures. Again, in the Middle East, we've had 4 years consecutive double-digit growth. So we continue to rapidly expand. And we are on all the giga projects within Saudi Arabia.

We're the #1 program manager in Saudi Arabia, UAE as well as Qatar. And there's got to be a lot of spend there coming up in all of those -- we've moved our business not just from doing urban development and transportation as we've historically done, but we've gotten into the defense, the border security and the tourism and hospitality sectors as well as industrial manufacturing.

One thing I will note for us a couple of years ago, we made a very smart decision, which was to focus on programs around Riyadh. So we've been awarded a lot of those such as King [indiscernible] Park, King Abdullah Financial District, [indiscernible] some roads, [indiscernible] traffic management, [indiscernible] International Airport and most recently, New Maraba. And that's where, again, they will spend the money.

But I will say following Saudi Vision 2030, there will be a Saudi Vision 2040 where they'll go back to looking at some of the longer-term real estate projects, things like Neon or some of the growth like [indiscernible] and other tourism locations. We see growth in the Middle East for decades to come.

And merging my first question and second question, with the World Expo and the World Cup, are you able to provide some of your own like intellectual property technology solutions to the Middle East as well? Are you able to export drone armor to the Middle East? And are you able to utilize some of your transportation modernization solutions such as iNet in the Middle East in addition to being a program manager?

Yes, we're able to offer quite a few capabilities for the events that are coming up in the Middle East. On the federal side, we obviously have to go through the [indiscernible] and the technical assistance agreement process to get releasability for that. But we are already able to offer the iNet solution, which does not fall under the ITAR. And as I mentioned, we're using traffic management around Read. And we see that system being further deployed. Given that we did the traffic management for the Qatar World Cup and it was very successful. And we were also involved in to buy both on the Metro as well as overall construction management services, we see potential plays in those areas as well.

Then on the federal side, we would look at things like electronic security systems, potentially biometrics capability. And if we had releasability for something like counter unmanned air systems. Those are all offerings that we could provide. Parsons has been involved in every world events since the 2016 Atlanta Olympics. So we look forward to helping the Middle East as well as the United States and Canada with the upcoming events.

Our next question coming from the line of Gavin Parsons with UBS.

If I exclude the confidential contract last year, you still had to revise Federal Solutions revenue guide down a couple of times. So any common theme you can identify that was driving that? And have you taken any different approaches to framing the '26 Federal Solutions guide?

Yes. I would say in Federal Solutions, we definitely were impacted by the shutdown. There were slower procurement activity leading up to the shutdown as well. Specifically, we had 2 contracts, our Airbase, Air Defense as well as our Joint Cyber Hunt Kit that were delayed and that -- a lot of material volume. As you know, materials can be lumpy. I think what we're seeing right now is a positive procurement environment. The fact that we were able to get 6 awards greater than $100 million booked for federal between Q4 and early Q1. And as I mentioned earlier, a strong book-to-bill of greater than [indiscernible] for federal as anticipated for the first half of 2026.

And Gavin, I would just add to everything Carey said, but on top of that, I think when it comes to kind of new, new, we're kind of getting used to the cadence and the amount of time it gets to the award. So kind of maybe a little bit more conservatism on timing of new, new and a little bit more bullishness on contract growth and things like that. So it kind of nets out a little bit, but the new new is a more difficult environment today than it was prior administration.

Okay. That's helpful. And I appreciate the guidance or color on quarterly cadence for the year. It looks like there's a pretty big step up in 2Q from 1Q. What's driving that?

Yes. Biggest driver there, Gavin, is mainly the Middle East. In the Middle East, in 2025, the holidays spanned over Q1 and Q2. In 2026, it's all within Q1. So you'll see kind of Middle East kind of flattish in Q1 and then almost 20% growth in Q2. But first half is kind of bracketed in a balanced way.

Our next question coming from the line of John Godyn with Citi.

I wanted to follow up a little bit on the margin outlook. There were a few drivers on Slide 15, things like operating leverage, growth in margin accretive contracts, growth in high-margin markets. I was hoping you could dig into those a bit more and elaborate. I'm just curious if you think there's potential for upside to margin guidance for the year?

Yes. I would say, obviously, we're really happy with over the last 2 years, 110 basis points of margin expansion kind of well ahead of our our Investor Day targets. So I'd say, again, kind of 2024 and 2025 outperformed 2026. We have about $350 million worth of headwind from that confidential program, which was accretive, of course, to the company margins. And so we're competing against that a little bit. But overall, I think great news is in 2025, net EAC adjustments was down about 50%, so an improvement of about 50%. So really great performance across the company.

So yes, I think there is -- as we expand on products as we have additional accretive M&A and to your point, leverages are all great opportunities to continue to expand margin.

Okay. Great. And you also mentioned that you're targeting double-digit margins for the enterprise, you're not far away from that. That's not a surprise. I'm just curious infrastructure is already there. Federal, isn't. Do you think both segments will be at the double-digit margins? Or is this going to be more of a barbell where infrastructure continues to move higher and drag the company average up?

I suspect for the period, infrastructure will remain higher in kind of north of 10%. And to Carey's point earlier, about 10.5% in 2026 at the midpoint. Federal, of course, is always really driven by the mix of work, cost-plus versus fixed price. And so we are seeing faster growth on cost plus in the federal area. The opportunities, again, as we expand on products. The product deliveries is a great opportunity to expand margins in federal. But overall, right now, we see federal in kind of high 8s, low 9s short term and trending towards mid 9s longer term.

Our next question coming from the line of Sheila Kahyaoglu with Jefferies.

I know it's been asked in a few ways, but just on 2026, Carey, Matt, any sort of color on the largest program movers that are growing in '26 from whether it's a contract area or -- a particular contract or a specific area?

Yes. Thanks, Sheila. So again, I would kind of go back for the federal side to highlight some of the key wins that we've had, Joint Cyber Hunt Kit would be one of those. We highlighted 2 Class 5 wins. The $392 million contract was a takeaway from another company. And the $200 million one represents a brand-new work for us. We're also expecting continued growth on our GSA schedules as well. And then within the Middle East, it would be the contracts that we've won recently, including airport contract, the Riyadh Traffic Management contract, [indiscernible] contracts, those are also going to be ramping up.

And then within Critical Infrastructure, North America, it's kind of across the board, a lot of the major contracts like newer [indiscernible] train, Hawaii rail and transit and some of the larger programs.

Got it. And then maybe a bigger picture question for you, Carey, just given one of your competitors preannounced negative this morning, we're seeing sort of a dichotomy between IT services, CACI at the high end, [indiscernible] kind of there along with it. And declines as well in the sector. So where are you seeing areas that are improving in the government budget and where you're shifting your portfolio to? Clearly, Critical Infrastructure is good, but within the federal side, maybe any additional color on how you're trying to shift that $11 billion on book pipeline to convert into revenues?

Yes. I would say we're very fortunate in federal, and that's why we're very bullish on strong book-to-bill as we come into 2026 within Federal, and we started to see these large awards go through well aligned with the key areas of focus, both under the National Defense Strategy as well as what's in the reconciliation budget. And those dollars are going to have to get spent. So whether you're looking at areas like Golden Dome or boarder security or counter unmanned air systems, biometrics, end-to-end cyber operations and an electric magnetic spectrum space, we're very well positioned. And if you look at reconciliation alone, we believe that we have about $85 billion of addressable market for Parsons. So I feel our portfolio is well aligned for 2026 and beyond.

[Operator Instructions] Our next question coming from the line of Andrew Wittmann with Baird.

Great. So I wanted to ask about the outlook for Critical Infrastructure's backlog. And specifically, Carey, you just mentioned some of those larger projects that you've won over the last year or 2 Hawaii, Newark AirTrain, Georgia State Route. There's a bunch of them in there that are obviously very significant and have been very powerful drivers. Those are getting into bigger burn stages now. You made a comment on your federal first half bookings, but I was wondering if you think that with the ramping burn rate, if you think the book-to-bill in CI can still remain over one in the first half or even for the full year? And just kind of moving parts as you look at your pipeline there and your recent win rates, please?

Yes. So we have planned for Critical Infrastructure book-to-bill to remain over [ 10 ] for 2020. again, resting on 21 consecutive quarters of greater than 10 and the demand that we see both in North America as well as in the Middle East.

Okay. Great. And then just as a follow-up, I guess maybe I wanted to kind of have you zoom in on a few projects, which have been in the headlines or are notable today. One of them is Golden Dome, and you've referenced this, and obviously, you're one of many, many contractors [indiscernible] very large contracts. I was just wondering what you're seeing there in terms of your ability to win task orders, how that's in your backlog today, if at all? And maybe just how Parsons is or is not affected by the turmoil surrounding the Hudson River tunnel project, which has obviously been a lot of fits and starts here even here in recent days?

Yes, let me take the Hudson River tunnel question first. So last week, the U.S. District judge ordered the funding restored. And so that would have forced the Trump administration to lift the 4-month freeze on federal funding. But then on Monday, she issued an administrative stay which basically leaves the tunnel construction on hold until February 12 at 5:00 p.m. and preserving the status quo while the U.S. [indiscernible] appeals for the second circuit is considering whether [indiscernible]. So the outcome is if the Appeal's court grants us stay, the funding freeze would remain in place during the appeal. If it does not, the judges injunction barring enforcement the funding suspension is set to take effect again at 5:00 p.m. on February 12, and that would allow federal disbursements to move forward. It's important to note that this contract represents less than 0.5% of Parson's revenue.

On to your second question, within Golden dome, I'd say our biggest play there is our role that we have with the Missile Defense Agency. Again, we're the system engineering and integration contractor for the missile defense agency. So we expect, and we have been doing some work relative to Golden Dome on that contract. And secondly, I would say nonkinetic effects, the use of cyber and electronic warfare instead of kinetics to kinetics is a growth opportunity for us.

Air-based aerodefense is another one. We're providing protection of air-based air defense for the Air Force base in Europe. And you can think about that as being similar to what's going to be needed to provide the local area of defense here within the U.S. and the Golden Dome program.

And then I'd say we also have some cyber efforts. Golden Dome has been starting to roll out. It's been a little slow, but the classified architecture has been released. General [indiscernible] line is confirmed and running the program. There's been a 4-layer kind of strategy that's defined, which is a layer distributed and software-defined. There's been command and control integration task force worked off, and there's a few small contracts for space-based interceptors, but our key play is really system engineering and integration.

[Operator Instructions] Our next question coming from the line of Tobey Sommer with Truist.

I'm curious what in 2026, do you expect in terms of changes in revenue and profit from the FAA customer?

Yes. So we do expect growth on our FAA Technical Support Services contract. And again, they exercise the option nearly a year early, which we were pleased with for $593 million over the next 3 years. We've supported the FAA for 5 decades. And currently, we're on the technical support service contract, $1.8 billion contract over 10 years. We have over 500 FAA cleared personnel that support engineering, construction, environmental equipment installation. We're located at over, what thousands of FAA sites. So it's pretty much all the national airspace sites including [indiscernible], radar sites, communication sites, and military installations.

And then we also have a team that includes over 300 subcontractors. There's a lot of money that's been put in $12.5 billion to modernize the air traffic control center. And so we look forward to continuing our roles [indiscernible] implementer for that work for the FAA.

Thanks, Carey. And then you did talk about areas of sort of growth this year within federal. But I was wondering do -- do you -- would your answer be the same for areas that are likely to sort of spearhead the greater than one book-to-bill in the first half? Would they map against Cyber Kit and GSA schedules that you commented on earlier?

Yes, they would be in the same areas of the Joint Cyber Hunt Kit program. Obviously, the FAA award will get booked in the first quarter. Those are the 2 that we announced after the fourth quarter ended. But once again, all of our market areas are growing, whether it's cyber and electronic warfare, space and missile defense market or critical infrastructure protection.

And the last question for me. What's your -- what's the most attractive area for the company to apply capital to in the form of acquisitions over the balance of the year?

Yes. So we'll continue to look in similar areas. I'd say on the federal side, [indiscernible] is a great example where they hit a lot of points, cyber, signals intelligence, space capabilities. And then also, they broadened our customer reach, particularly with the intelligence community customer and also NASIC, National Air and Space, that's out of Dayton, Ohio. So that's a good example of a federal one, and that builds upon companies that we've bought in the past like Black Signal, Blackhorse and CTI and it broadens our all domain capabilities.

Within Critical Infrastructure, we're going to continue to look the water space. We're also going to continue to double down on transportation engineering and specifically looking across our 6 Tier 1 states, Florida, Texas, California, New York, New Jersey and Georgia.

I'm going to sneak one more in if I could. Do you -- does the company have an interest in expanding and amplifying its ability in Critical Infrastructure to participate in what looks like a global increase in demand for nuclear energy?

We have a small footprint in nuclear today, and it is expected to grow as you indicate both in the United States as well as in the Middle East. We're currently the Department of Energy, National Nuclear Security Administration engineering and construction management services contractor. And we're also starting to look at some small micro raptor type of projects. There's a few bids out on those. We also do micro [indiscernible] work. For example, we have a program in Puerto Rico that's been going -- growing quite well. And then within the Middle East, we're having discussions with companies because they're going to be making a large investment in nuclear.

Our next question coming from the line of Gavin Parsons with UBS.

I just wanted to ask on the medium-term growth targets. First, what are you assuming -- what are you assuming for the DoW budget growth? Or is that based on reconciliation flow through? And then second, is that mid-single digit plus just a blend of the end markets? And does that not contemplate any potential for market share?

I will answer the first part, and then Matt will answer the second. But I would say from a budget request, -- we've got, again, very strong alignment to the reconciliation budgets, both for Department of Homeland Security as well as Department of War and we see about $85 billion -- and for the FAA, we see about $85 billion of that being addressable for persons. As we look forward to FY '27, President Trump has announced he would like to have a $1.5 trillion defense budget. That would represent a historic 50% increase over the $1 trillion that was authorized for FY '26. There are some arguments that you can say might happen because there's a lot of executive commitment to the priorities such as Golden Dome and Golden Fleet there is congressional support, particularly coming from the GOP for a higher budget.

And then the Republicans are also taking a look at a second potential reconciliation budget that might be like $450 billion to $600 billion. On the areas that -- reasons that FY '27 may not reach the full amount, there's obviously fiscal concerns that the increase would add about $5.8 trillion to the national debt over a decade. And then depending on what happens with the upcoming election. So we're watching that closely, but I would say we feel very good about FY '26, the One Big Beautiful Bill at and the reconciliation funding starting to flow, and there's clearly momentum towards a larger FY '27.

Yes. Gavin, I would just add to your point, the CAGRs within our markets are pretty strong, kind of averaging in that 6.5% range, but higher win rates that we have flown through the plan over the next few years, would assume some takeaway as well.

Thank you. And that's all the time we have our question-and-answer session today. I will now turn the call back over to Dave for any closing comments.

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

Ladies and gentlemen, that does conclude conference for today. Thank you for your participation. You may now disconnect.

Good morning, everyone. Thanks so much for joining us. Really happy to have Parsons here to take us through the story. We have the company's CEO, Carey Smith.

Carey, thanks for joining us today.

Thanks. Great to be back, Brian.

We're going to do fireside as you can probably tell from our setup here. Please have some questions loaded up, though, if there's any time at the end. Carey, why don't you just level set us to the story?

Certainly. So Parsons, we report in 2 segments. We're about 51% Federal Solutions, 49% Critical Infrastructure. We have 6 end markets, cyber and electronic warfare, where we're one of the leaders in offensive cyber and also the ability to converge cyber and electronic warfare in areas like non-kinetic effects. That business comprises 20% of the Parson's revenue. We're involved in space and missile defense. We have been the system engineering and integration contractor for the Missile Defense Agency for 4 decades.

An important role as you start to look forward to Golden Dome and the money that's in the One Big Beautiful Bill. In the space domain, we provide ground systems. We've done over 170 different ground systems. We developed a unique solution where we can actually commercially operate large satellite vehicles, and we do assured position, navigation and timing. We're also involved in space domain awareness, and we just received the Space Icon award, in fact, this week for the work that we've done with Department of Commerce, and that comprises about 10% of our business.

We're in Critical Infrastructure protection. That's about another 10% of the company's revenue, where we're involved in counter unmanned air systems, #1 provider for Department of State. We also do electronic security, physical security systems, #1 with state, #1 with the Army and #3 with the Air Force. Transportation, 28% of the company's revenue. We're involved in over 450 airports, 450 rail and transit projects. We've done over 17,000 miles of road and highway work across 6 continents. And we also do intelligent transportation systems.

We're just awarded our first deployment in the Middle East for that area. We do about 15% of our business in water and environment, just acquired a company, which we can talk about later, Applied Sciences, which is involved in water remediation efforts in Florida. And then the final area would be urban development that comprised about 13% of the company's revenue. Most of the work that we do there is over in the Middle East, where we're involved in almost every major project going on today in Saudi Arabia. And I would also highlight, we are the #1 program manager in the world as ranked by engineering news record.

Well, that's quite a resume. Hopefully, everyone got that down. Carey, the biggest driver after 2 phenomenal years in '23 and '24, the biggest driver of the business this year was the confidential contract. It caused growth to turn negative after 20-plus percent growth in the prior 2 years. Can you remind the audience about the dollar and percentage headwinds that, that caused? Maybe talk about growth, excluding that contract, and really how you -- when that contract anniversaries and the company will be back to an as-reported organic number?

Yes. So first, I'd say we're really excited that for the last 3 years, excluding the confidential contract, we have been the industry organic growth leader in both of our segments. This year, anticipating 14% total growth at the company level, 9% organic growth. And then we've been very clear going into 2026 that we expect mid-single digits or better. So still extremely strong growth across the company as we've been demonstrating.

The confidential contract was about $355 million this year, and that's starting to diminish. It's going to be about $20 million in the fourth quarter and then next year for the first 2 months, maybe $10 million to $15 million, and it will end in February.

Fantastic. Let's talk to -- let's pivot to another contract with the FAA. Recent contract award to a competitor of yours. You've historically had a sizable footprint at the FAA. Would you maybe discuss what happens with your existing contracts from a scope, duration and growth perspective? And are there new opportunities that you could be part of this air traffic control network in a different capacity than lead integrator? And if so, maybe how should we think about the timing and sizing of that?

Yes. So first, I'd say we've been happy to support the FAA as our customer for 5 decades. We've been on the technical support service contract for the last 24 years since 2001, and we've had excellent past performance on that contract. So when you look at the scope of the brand-new air traffic control system, there are, in essence, 2 parts. There's an integrator part, but there's also an implementer part. So if you think implementer, that's the role that we have played with the FAA in the past.

We anticipate growth in that area as a result of this contract when that would be new work for us. So we're currently present in over 600 locations. We do things like site surveys, we do installation work. We do all the logistics. We do safety work. We're also involved in fire protection, but everything that goes on at all those facility sites. That will grow as all the brand new air traffic control systems. As an example, there will be the purchase of 619 radar systems. Those are going to have to get installed at each of the facilities.

So we look forward to continuing to support the FAA in this critical mission and making sure that our national aerospace system remains safe for the traveling public.

How would we think about the contract flow through to Parsons? Does it require new vehicles or you have the existing ceiling or...

Yes. So we were awarded a $1.8 billion contract in April of 2023. That contract runs for 10 years until April of 2033. So they can just continue to award work on that existing vehicle.

Fantastic.

And I should comment, we have $1 billion ceiling remaining.

$1 billion left. Perfect. I want to talk about some of the other growth areas. You mentioned a lot as you were introducing the company to folks. Can you maybe help us what your top 4 growth areas for '26 are and what the timing of that looks like and how investors should be looking at the business going forward?

Yes. So I'd have to say the fastest-growing area would be our Critical Infrastructure business. And I'm going to say in totality, whether it's within the transportation sector, the water and environment sector or the urban development sector, both infrastructure North America as well as infrastructure Middle East are going to be double-digit growers this year. The Middle East, this is their fourth consecutive year of double-digit growth.

And the nice thing for that organization is that we have long-term tailwinds. So within the U.S., the Infrastructure Investment and Jobs Act was passed in November 2021, but that's not going to hit its peak until 2028, then you have a 6-to-8-year tail after that. In parallel, you're going to have the new 5-year surface transportation reauthorization bill ramping up. And then if you look at the Middle East, we like the $1.2 trillion in the U.S. We're expecting $1.5 trillion in the Middle East. So particularly in Saudi as we prepare for the 2030 Expo and for the 2034 World Cup, we're going to see tremendous tailwinds.

I would say the #2 priority would be probably border security. Border security received about $160 billion within the reconciliation bill. Parsons has been involved in border security programs all over the world. We do work with Defense Threat Reduction Agency in countries like Jordan. We've done Armenia. We've done Georgia. We've done Lebanon. We also do work with Department of Energy for the counter nuclear smuggling detection and deterrence. That's a $1 billion ceiling contract, and there's only 2 awardees.

And we've also done work at land ports of entry and along the southern border. So that would probably be my second priority. Third, I would say, would be the Golden Dome for America, North -- [ infected ] North America, not just the U.S. but also with Canada, where we have a big presence. As the Missile Defense Agency system engineering and integration contractor, the big part of the Golden Dome effort initially is going to be on that integration piece. So we would anticipate use on our vehicle. Once again, we have a $1 billion ceiling remaining, and that vehicle runs until January 2029.

We also are involved in non-kinetic effects, as I mentioned earlier, cyber and electronic warfare, how do you take out a missile without using missile to missile system. We're participating on some of the space-based interceptor activity, and we're looking at the battle management command and control growth as well.

Fourth area would be cyber. The national security strategy was just released by the Department of War. And one of the biggest effects of -- challenges is still deterrence of China. That's really how we've purpose-built our federal company is how do we deter and outpace near-peer threats through cyber techniques, electronic warfare, signals intelligence and information operations and offensive cyber being a critical component of that. And it's hard, Brian, to be honest with you, to stop it for because I'm so excited about where the...

But don't let me stop here. You can go one deeper if you want. We have time for that.

I would say another growth area that we're excited about would be PFOS, PFAS, emerging contaminant elimination. We see that as a $40 billion addressable market for the company out of a total market size of $220 billion. We've developed a technology. It's called the Hot ISCO technology that actually destroys the PFAS molecule on spot. That has now been patented in Canada and in the United States, and we've had our first deployments of the technology.

And then I would highlight rebuild of Syria, Ukraine and eventually Israel, Gaza, Syria being the first. Parsons is the company that did the chemical weapons elimination, Phase 1, there's going to be a Phase 2 of that, and then there will be the rebuild of Syria. And we anticipate that the Gulf consortium countries are going to be the ones that are going to pay for that rebuild. Obviously, with our extensive presence in the Middle East, that helps.

And then 2 more quickly, but I would say Army munitions is another big area for us. We're currently present at Radford and Holston. Those are 2 of the 5 top Army ammunition munition plants within the United States. We've won 4 of 4 projects there, so expecting growth.

And then the INDOPACOM region, the Pacific Deterrence Initiative was initially set up for $18 billion. Within the reconciliation bill, there's an additional $12 billion. We've been out in that region for over 3 decades. So we do both infrastructure work as well as cyber electronic warfare and signals intelligence. So again, exciting time for the company with a lot of growth vectors.

If I could just maybe pull on just one of the common threads here. When I was in D.C. a few weeks ago, a lot about border security, encounter UAS in that whole construct. And then just last week, the Shield contract was awarded for Golden Dome. Can you maybe help us understand how that matriculates through to contract awards and activity and how people should think about the timing for some of these things?

Yes. I would say on Golden Dome first, again, I think there's going to be more systems procurement. So if you think about that, Patriots, ground-based interceptors and a lot of integration going on. And then there's going to be an immediate focus sort of on local area defense. I would equate the local area defense to our Air Base Air Defense program that we have established in Europe, which is how we're protecting Air Force bases. It's kind of similar to how you might come in and protect the city from an architecture perspective.

Shield was very broad. It has $150 billion ceiling over 1,000 awards. It was more kind of a broad-based capabilities, but I believe what's going to happen immediately is using existing contracts and getting existing work out.

Makes a lot of sense. I want to zoom into the President with a near-term question here. On the last call, you talked about some disruption from the government shutdown and -- but at the same time, you still guided an acceleration in your fourth quarter here coming up. Can you walk us through the components that are driving the sequential acceleration in your Federal Services segment? And maybe if the length of the shutdown is causing that recovery to be a bit more elongated?

Yes. So first, again, 51% of our company doesn't fall under the federal government. So we're only talking about the 49% that it does. But I would say the growth that we were anticipating is sort of in 3 areas. The first one is the Air Base Air Defense contract that I just mentioned, we've been awarded some new task orders on that vehicle. So we're seeing growth there.

Our Federal Aviation Administration contract, TSC 5 without the brand new air traffic control system was also accelerating throughout the fourth quarter. And then the last one is we were awaiting an award, which we received a success memo on. This one is kind of exciting because there were 100 offers on another transaction agreement. It was necked down to 3 prototypes. And we were awarded the Joint Cyber Hunt kit program. We're awaiting the LRIP contract, but that's a $500 million over 3-year product sales. So it's higher margins, and it's accretive.

So those are the critical elements within federal. As far as shutdown, we are glad it's over. And hopefully, we don't have another one as we go into January 30. We need to get the last 9 bills passed. But I would say people are coming back to the office. It is a little bit slow still in terms of contracting actions, and we're very focused on collecting our cash.

Right. We typically see cash slowdown at this time of year for those situations. Let's maybe zoom now, take the counterbalance of that question and zoom out longer-term view. Remind the group of really what your growth algorithm is organic versus inorganic, how much margin leverage you can realize as you scale up bigger and really what the primary levers are to expand margins towards the top end of that peer group, which is 11% or 12% on an EBITDA basis.

Yes. So on the organic growth first, I would say, once again, we've been for 3 years consecutively the industry leader in organic growth in both of our segments, excluding the confidential contract. We have been very consistent as we go into 2026, we're going to grow mid-single digits or better. That doesn't include any big game changer opportunities that we might be awarded. That is strictly core business, delivering, executing as we have consistently done.

Inorganically, we've bought 16 companies since 2017. This year, we acquired 3 companies: TRS Group in the first quarter that's focused on PFOS, PFAS and thermal remediation. We acquired Chesapeake Technology International, enhanced our cyber electronic warfare, signal intelligence, but most importantly, has a great presence in the INDOPACOM region, also a great presence with Special Operations Command, then most recently Applied Sciences Consulting. And they're involved in water remediation efforts and heavy presence within Florida on resiliency.

We expect to continue to do more M&A, although, I will say with the stock dislocation, we are going to focus on share repurchases right now as well. But we have an active M&A pipeline and expect to be able to drive more organic growth. You can see us doing between 2 to 4 acquisitions in any given year.

Margins. On margins, I would say our federal margins are kind of about where we would expect them to be based on a 60-40 split, which is cost reimbursable to fixed price T&M mix within there. Where we will get margin growth on the federal side of the house is going to be through additional product sales, such as the earlier one that I mentioned on Joint Cyber Hunt Kit or the work that we're doing on assured position, navigation and timing through our Globalstar partnership that we have.

We would also get a lift through M&A because when we buy companies, we're buying companies that have greater than 10% EBITDA margin and also through operating leverage where we've been able to control our costs as our revenues increase. Similarly, I'd say, on the Critical Infrastructure side of the house, but I would add on the infrastructure side of the house, demand is so much greater than supply. So as you start to look at some of our new programs coming in, we have been able to get margin lift.

We have lifted our margins overall as a company, 50 basis points last year, an additional 50 basis points this year. And really happy with the Critical Infrastructure business, which has delivered over 10% margins for 3 consecutive quarters through outstanding performance execution.

You've done a really nice job on that Critical Infrastructure piece. Maybe let's pivot to that business a little bit, not only the margin execution, but the growth rate has been mid-teens, 20 consecutive book-to-bills greater than 1. Maybe talk about the durability of this cycle. It sounds like it's a very elongated cycle with years in front of it still. And then maybe where you're seeing the biggest pockets of activity, whether it's transportation, water. And then maybe give us a regional flavor for where things are coming, either Middle East or North America or how you're looking at it?

Yes. So I'd say, first at the company level, we're really proud of the fact that we've been greater than 1.0 trailing 12-month book-to-bill since we IPO-ed back in May of 2019. And as you point out, 20 consecutive quarters greater than [ 1.0 ] within Critical Infrastructure. Demand is really across the board. Additional -- as we saw a shift within the United States back to what I'm going to call hard infrastructure away from areas like climate change, electrification, broadband where Parsons does not play, back to a refocus on roads and highways, airports, bridges, those are the areas that we're involved in, rail and transit. So that kind of plays to our strength, and that's where the money has been going.

In the Middle East, we're going to see a lot of long tailwinds. The important thing right now is to get ready for the 2030 Expo in Saudi, the 2034 World Cup that's going to occur. We've been heavily focused on programs that are around Riyadh because they're going to be on the world stage, and those programs have to get done first. So as any reprioritization were to occur in Saudi, you're still going to deliver on those programs.

So if you think about Diriyah Gates, restoration of Saudi's history; King Salman Park, 5x the size of Central Park; Qiddiya, the world's largest entertainment city. We were just awarded King Salman International Airport, where we're going to have 108 million passengers by 2030, same size as Atlanta, the world's busiest airport, 150 million passengers by 2050. We'll be the world's largest airport.

We did the Metro project, which is still underway, quite a success done in a very short period of time. We were just awarded the traffic management that's around Riyadh. So it's our first deployment of our advanced traffic management system within the Middle East, quite exciting. So I would say that's the significant growth we're seeing there, but not to leave out the UAE and Qatar because we're growing double digits within all 3 countries.

In the UAE, we're seeing a lot of development. There are a lot of people moving there. So we're actually building manmade islands for people to live on and designing a lot of new mixed-use development areas. And then within Qatar, we've been very busy, not just in Doha, but also in the city of Lusail, which is going to be focusing more on tourism and entertainment. We've diversified within the Middle East, too. So traditionally, we've done transportation projects in urban development.

We were awarded a project with the Ministry of Defense. It's a critical infrastructure project within Saudi. We also were awarded a border security project within Saudi Arabia, again, strengthening our border security credentials. And then finally, we're awarded a project in tourism and hospitality to convert some palaces to hotels.

A lot going on in the Middle East, definitely. Let's maybe -- I think you teased it a little bit, but let's talk about capital allocation. I think your leverage is about 1.4x. You've done kind of a few deals each year, 2 to 4. So they've been reasonably sized. How are we thinking about -- you mentioned the stock dislocation. How are we looking at maybe 2 things, one, what the pipeline looks like from an M&A perspective? Is there a leaning towards one segment or the other where you would do more deals? And then third, how are you now balancing a potential stock buyback going forward?

Yes. So I'll take the second part first. We are authorized by the Board for $250 million. As of the end of the third quarter, we had $185 million remaining in share repurchase. We do plan to be more active as we go into the fourth quarter given the stock relocation. On the second question, we have an excellent pipeline. I was hoping to close 4 deals this year, but stay tuned.

And I would say we've got opportunities on both the Federal and the Critical Infrastructure side of the house. 4 of our last 6 deals were on the Critical Infrastructure side of the house, but I still like a lot of the federal deals because they're high technology, and we can take that technology and we can apply it across the business.

So you can expect to see us likely do a deal that is still in kind of that cyber, EW, signals intelligence area that expands our presence with the intelligence community.

Great areas to be in. Carey, this is your moment to shine here, the drop the mic moment. So go ahead, no follow-up for me, talk directly to investors here and on the Internet and tell them why they should consider Parsons as an investment.

But I'll miss the follow-up. So I would say why you should consider Parsons as an investment. Again, we have been the leading industry organic growth driver for the last 3 years, excluding the confidential contract. That's in both segments. We have strong tailwinds across the business. I highlighted all of our growth areas within North America and the federal side with the One Big Beautiful Reconciliation Bill, where we are very much aligned to all the elements that got funded there, whether it's border security, Golden Dome for America, INDOPACOM, army munitions, et cetera.

Within the infrastructure side of the house in North America, very well aligned to the hard infrastructure, where the money is going to be spent under the IIJA as well as the next 5-year surface transportation reauthorization bill. Within the Middle East, I just talked about it, but very exciting times there that's going to go on for decades of growth. I'm really proud of our presence that we've had over there for 65 years, 50-year partnership with our Saudi Arabia partner.

Margin expansion, we've been consistent, 50 basis points last year, 50 basis points this year, another 10 to 20 anticipated as we go into next year. Book-to-bill, the company over 1.0 trailing 12 month since IPO, Critical Infrastructure greater than 1.0, 20 consecutive quarters. Biggest pipeline we've ever had in the company, $58 billion. We've moved up the value chain just as we said, as a solutions integrator. We're differentiating with software. We're in a position now that we can bid prime and win larger projects.

Then I'd highlight our consistent cash flow over the last couple of years, 115% to 120%. So very consistent and great capital deployment. I think M&A has really helped us move up that value chain and definitely transformed our company. So exciting time at Parsons.

It sounds great. Well said, Carey, thank you so much for joining us today. And thanks, everyone, out there for your interest. We do have time for a question or 2, if anyone has one in the audience. Yes, please.

Can I just ask about -- you mentioned [indiscernible]

Sure. So within PFOS, PFAS, we've had a research laboratory in Syracuse, New York for 3 decades that we've been focused on improving, I'm going to say, quality of water, quality of soil. We hold several patents within the PFOS, PFAS area. The most important one is the Hot ISCO technology, which we have deployed. It basically breaks the PFAS molecule on site without requiring incineration. We see this as a $40 billion addressable market for Parsons out of a total $220 billion market.

On the Critical Infrastructure side of the house, we will sell to airports, we'll sell to industrial customers and also water customers. And then on the federal side of the house, we'll sell to the Federal Aviation Administration and the Department of Defense. On both sides of the house, we already have contracts in place, master service agreements or indefinite delivery, indefinite quantity vehicles. We're involved in every aspect of the life cycle.

So we do investigations. We've done over 2,000 investigations and over 7,000 point-of-use investigations. Then we can come in and we can do the remediation and treatment and also the follow-on monitoring and support. The federal MCL levels have not been changed. They're still at a consistent level. What has happened is the time line for implementation from the federal government has been stretched. We always felt that it was going to be elongated. So we always indicated 2032 is our expectation for a peak in that market.

In addition to the federal, you also have 34 states that have their own regulations. So we see this as an exciting area for the company. Thank you.

Great. Carey, thanks so much.

Thanks, Brian.

All right. Good afternoon, everybody. We'll keep forging ahead in the aerospace and defense sector with our next presentation from Parsons. And with me on the stage here is Carey Smith, who is the CEO; and Matt Ofilos, who is the CFO. So Carey and Matt, thanks so much for joining me here today.

Thanks for having us back, Noah.

It's great to have you. Maybe just starting high level at the sort of industry end market level and the backdrop and environment. We've had DOGE and similar efforts. Then we had a government shutdown. Where are we now? Are things normal? Are they close to normal? Are they still completely abnormal? What are you seeing in the marketplace?

Sure. So I would say with DOGE, I think that's pretty much behind us. I will say it affected a lot of the companies in our sector. From a Parsons perspective, we were very fortunate because we were not impacted by DOGE other than that our stock price went down with our peers but we did not have any contracts that were terminated or canceled. And the main reason is because we're a solutions-oriented company. We don't do IT work and we don't do consulting work. So we really weren't on their target list. But I do think that's behind us.

Relative to the shutdown, we're happy that's behind us for now. And hopefully, it will be behind us as we approach January 30, and the last 9 bills will be able to be passed so that we can continue to operate. I would say things are slowly getting back to normal. We're still seeing a little bit of delays in terms of award and contract actions. And then we're going to obviously be going after our cash for the remainder of the year. Fortunately, 50% of our business is not federal government though, and so really hasn't been impacted by that.

On a positive note, I would say the reconciliation bill passage and starting to see the funds flow is very important for us for border security, $25 billion for Golden Dome, another $21 billion for the Pacific Deterrence Initiative or INDOPACOM region, $12.5 billion for the Federal Aviation modernization brand new air traffic control system. And then another 12 -- I'm sorry, $21 million was for the Army munitions and then $12 million for the INDOPACOM region. So when you look at each of those areas, Parsons is very fortunate that our portfolio is aligned to that. So we have very good strong tailwinds as we go into 2026.

Have you studied those numbers previously?

A few times.

Okay. Good. I want to talk about each of those but maybe just, Matt, on the rest of the year and into next year, I just wanted to get your updated thinking on growth in Federal Solutions. And you have the confidential program that's now rolled out of the business. For the rest of this year, I think you still have, FS, if you call it, kind of core, excluding confidential at a pretty high growth rate to finish the year. Can you do that with this -- we got a spool back up from government shutdown. And then as we go into '26, how should we think about FS core? And then what is the confidential headwind that everybody will need to attempt to model correctly when trying to model FS in 2026?

Yes. So to your point, Noah, Q4 is strong growth within our Federal segment. It is -- I don't want to call it a layup by any means but we do have clear line of sight to mid-teens growth in Federal for Q4 in order to get to the midpoint of guide. Obviously, some pressure coming out of the shutdown. What we've seen really is just slower contracting actions. So things that we thought would get done in late summer, early fall have kind of just continued to slip. Everything is, hey, next week, this will come in, next week, that will come in. But we still have line of sight to that midpoint, of course.

The way we put guidance together was the low end would consider kind of a shutdown through year-end. And so we feel pretty comfortable that kind of that's a good balance for us. So the shutdown being behind us, to Carey's point, is a good thing, and we're just pushing hard with our contracting officers to get back on track. We did have some kind of built-up materials and products deliveries that were scheduled for kind of late Q3, early Q4. And so those are all going to -- still intended to deliver before year-end. That will help get the federal growth up into that mid-teens growth, not too far off from where we were in Q3.

When we look at 2026, the contribution from the confidential contract in total for 2025 will be about $350 million, $285 million of that is in the first half. So the kind of the headwind is all in the first half. We feel really good about the overall portfolio. Carey, I'm sure we'll get into more details about some of these large game-changing type opportunities. What we've said publicly is kind of mid-single-digit or better growth just on the core business and continue to execute on backlog growth, IDIQs that we have. I think we're seeing with the customers, the easy button is a really great place to be where you can get work done on existing vehicles. So we're lucky enough to have over $11 billion worth of work awarded to Parsons that's still not quite in backlog, just waiting on task orders to be awarded.

And so we just have a lot of capacity within our existing vehicles to go execute for the customer. So mid-single digit or better is a good place for us to start when we look at federal for 2026 but big game-changing opportunities like FAA, Southern Border, Golden Domes another ones. So some big ones ahead of us.

If you're exiting at 15%, why should we not think next year can be closer to 15% than 5% before the big stuff that we're going to talk about.

Yes, that's a great question. That's probably the question we're getting the most often. But as I mentioned, there is some timing on material deliveries, product deliveries that it's nonrecurring. And so those are the things we're just normalizing for. To your point, if we -- at our exit rate, it's really strong support for what we're expecting. When we look at 2026, we only have about 6% of revenue from recompetes. So that's a pretty low level in terms of history. Typically, you'll start off the year high single digit, low double digit on recompete revenue. And so we're already in a really good place for next year. But to start the year, where we're at is that we feel comfortable with mid-single digit or better.

And we do plan to update our guidance as we go into the next earnings call, plus we'll have better line of sight because the FAA program should be awarded as well as some of the border security work.

Okay. Let's use that as the segue to FAA. When do you expect an award? And what can you tell us about what it could mean for your financials if you were to win?

Yes. So I would say repeating what Secretary Duffy said last week at the Aviation Summit that the award is imminent. The customer is looking for Department of Transportation and FAA to picking a builder and a program manager that will manage this very important project for the country and for everybody's flying public safety. I'd say it's really important that we have a national airspace system that is safe, that is resilient, that is reliable and also that's upgraded and transformed for the future. Some of the equipment is quite old. So as we start to look at the areas, whether it's automation, telecommunications, surveillance or facilities, across the first 3 years, those will be our immediate focus and that aligns to the $12.5 billion that was in the Reconciliation Bill.

And then there will be 7 1-year options, and those are put in place to be able to do the common automation platform as well as the facilities consolidation. There is an additional $19 billion that is needed for that. So if everybody can help lobby Congress because it's important that we do have the best and the safest national airspace system in the world.

We are very excited about hopefully receiving the award. We strategically partner with IBM as our technology partner. And we also have built a team of -- I'm going to call them the who's who of the FAA companies that have the long business with the FAA, including Regulus on the surveillance front, Mosaic on the automation front, Tetra Tech on the communications front and Noblis on the acquisition front. So again, hopefully, an imminent award, and I think we've put together a very compelling offer.

Over what period of time with the $12.5 billion be spent?

So that's over the first 3 years of the contract and then the additional $19 billion would be needed over the last 7 years. And that's specifically relative to areas like upgrading the radar systems, going from copper to fiber, analog to digital, doing some of the voice communication system work. Those are the primary areas of focus. I would say from a Parsons perspective, too, we treat this as like an aviation modernization franchise. We think it's a great opportunity to work with the United States first but also then take those capabilities global. And this is a great example of why we have the portfolio we do. This was an entire company effort because when you look on the federal side of the house, we've been supporting the FAA for over 5 decades, doing a lot of facilities work.

But when you look at our Critical Infrastructure business, we've done over 450 airport projects all over the world. So we understand how airports work. We understand how the airlines work, and we understand how the FAA works. So it's truly a one Parsons effort.

Okay. Is there any simple framework for how to think about the $12.5 billion or the [ $4 billion ] a year translating to Parsons?

Yes. So we've not shared financial information. And the reason is we're still in a competition. And there's some flexibility with how each bidder approach the job, and that's dependent on how much procurement would go through your books. So what we've indicated is that we'd be happy to share financial information post contract award.

Okay. There has been some discussion of uniquely running a lot of the revenue through the prime integrator and then the prime pays the subs as opposed to the subs having their own contracts with the government. Is that -- am I correct that, that's being evaluated? And I guess where I'm going with that is, will we all need to understand what -- whether or not that's happening because it has an implication for the -- a significant implication for the margin on whatever the revenue number is going to be. I don't even worry about that because you'll just lay it out for us.

Yes. I'd say we're going to lay that out for you. I think the important thing to note is that the margins will be in line with our federal business margins.

They will.

But other than that, we don't want to get too much into the structure for competitive reasons right now.

Okay. There's not a lot of competition for this at the moment. And I've heard some people in the industry say, well, that's because, as Carey Smith just said, Parsons has a long history with aviation FAA. They've done a ton of work at airports. They just know this so well. It's not even worth competing. I've heard others say that it's a high-risk project with cost overrun potential that will have low margins and therefore, others don't want to do it. Which of those is true? Are those both -- do those both have some truth? Or what's your take on that?

Well, I like the former much better. So I would say we are well positioned. We put together a very strong team. We put together a very compelling offer. We understand the FAA but also we understand how to transform the FAA in parallel because that's equally important. You've got to make sure you keep the system operating reliably but you also have to upgrade it so that it's ready for the future. We would not sign a bad contract. This is a cost plus award fee contract. And again, the margins are in line with our current federal business.

Okay. Great.

And importantly, I think some of the other lower competition has created a conflict of interest for some of the system or product providers. So it made a lot of sense for somebody like Parsons who doesn't actually supply radars as an example or comm systems as an example. So...

I was a little surprised that as that was explained to me by some of your peers, it is a little surprising that there aren't certain subcomponents or technologies or software that you would want to provide into the process. Or can you still do?

Well, you do get into a conflict of interest. So let's take a common automation platform, which will be part of Phase 2. If you're the integrator and you're involved in the selection of who's going to be providing that, you shouldn't be the company providing that. So there are some inherent conflict of interest in that regard. But I'd say the most...

And you do not run into.

We're not bidding in areas such as those. So we're not going to be selecting our own equipment. I think the most important thing that is needed here is a company that understands system integration and a company that most importantly understands program management and building. We're the #1 program manager in the world as ranked by engineering news record.

Okay. All right. We will keep our eyes peeled. Golden Dome, how does Parsons participate in Golden Dome? And is Golden Dome definitely fully moving forward? It's been a little surprising that there hasn't been more award activity. Is a significant priority for this administration but administrations are only 4 years long. Are you feeling at all different about the likelihood this all moves forward or not?

So like FAA, I would say Golden Dome has bipartisan support. It's very important for the country to be able to protect us from all different types of attacks, whether it's counter unmanned air systems, cruise missiles, hypersonic missiles or intercontinental ballistic missiles. So there has been progress being made. General Guetlein was named as running Golden Dome, who was an excellent choice with his background in the Space Force and the Air Force. There has been $25 billion in the Reconciliation Bill for the Golden Dome. Initially, we believe a lot of the effort is going to be to buy more capabilities that are there today, consider more fabs, more Patriots, ground-based interceptors. And a lot of the effort will involve system engineering and integration.

Parsons has part of the Missile Defense Agency for 4 decades. We are the system engineering and integration contractor. So we are encouraging use of our vehicle, which is already in place. We have a $2.26 billion contract. We have over $1 billion ceiling remaining. That contract runs until January 2029. So we would like to be heavily involved in the integration effort relative to Golden Dome.

Have you seen any funded task ordering from under that vehicle yet that whether it's actually specifically for Golden Dome or if it's not named for Golden Dome right now, you suspect it is eventually for Golden Dome?

So I would say a lot of the work that we do on that contract because we're involved in everything from design development, integration test, follow-on life cycle support. We get involved in architectures, for example, in architecture development. So the Missile Defense Agency has released a classified Golden Dome architecture. So there are aspects of the work that we perform on our teams contract that are relative to the Golden Dome effort. And beyond that...

You've participated in helping create the architecture?

We've been involved in some of the support for the Missile Defense Agency architecture. And then I would say beyond that, there are some new areas that we plan to participate in. Non-kinetic effects is a great example because today, usually kinetic effects are used missile to missile to take out a missile system. We have exquisite capability in cyber and electronic warfare, where we can defeat missile systems using non-kinetic effects. And then we're also looking at partnering with a company on the battle management command and control and then participating as a partner on some of the space-based interceptor activity. But the most important role for us is to leverage what we've done for a long time, which is system engineering and integration.

Okay. In your list of growth platforms for the business, you mentioned FAA Golden Dome, you also mentioned border security and INDOPACOM. Do those buckets have specific sizable singular program award possibilities? Or are those more sort of you're involved in them and they're going to grow faster than the end market?

Yes. So I would say there are some specific program possibilities. Department of Homeland Security is looking at some potential procurements in areas of the southern wall and also in counter unmanned air systems. Importantly, from a Parsons' perspective, we've been involved in border security for over 2 decades. We support Defense Threat Reduction Agency in countries like Jordan, Armenia, Georgia, providing border security. We've also been involved in supporting Department of Energy with Counter Nuclear Smuggling Detection and Deterrence Program. That's a $1 billion program that has only 2 awardees on it. We've done work at the Southern border wall before in terms of remote video remote towers and then remote video surveillance capabilities. And we've also been involved in land ports of entry. So we feel that we bring quite a few capabilities to be able to help with the border security.

Okay. And then profitability in Federal Solutions, Matt, maybe just talk about where the FS margin can go from here. It's been a little -- it's always a little lumpy quarter-to-quarter but as I think confidential was higher margin. So as that's rolled out, that pressures the margin a little bit. But then last quarter, the margin was back up again. So where do you see that medium term?

Yes. So to your point, within the Federal business that we don't really have performance issues necessarily. It's really always a mix story. So last year, with the confidential contract playing a big role in that being a fixed price international contract that did have higher margins relative to the Fed margin. So long term, Carey and I are comfortable in kind of that high 8s, low 9s based on the mix. Right now, we're just north of 60% cost-plus work. So if you think about our cost-plus work structurally limiting the margin expansion opportunity. The good news about that is, of course, you're kind of on the front end, you're more in the research and development, the first of its kind work.

So you would never really want to shift that work to fixed price because you're kind of solving problems as they come along versus building to print necessarily. And so we feel really good about the Fed margins in high 8s, low 9s. We do have -- we talked previously, Noah about the Joint Cyber Hunt Kit program. We were notified that we were successful on that pursuit. So really big products job for us over the next 3 years. So that will benefit margins over the next couple of years.

FAA, as an example, as Carey mentioned, is cost plus award fee kind of in line with the rest of Fed margins. So it will always be a mix shift story. But I think the tailwinds on margin without a doubt expanded products opportunity. We've gone to our customers with a lot of ideas around shifting to fixed price because that's what we had heard they wanted but we haven't really had a lot of movement on that side as of yet but we're very comfortable in the fixed price world where it's pretty well defined. And so I would say a shift to fixed price and more products will benefit margins and then the cost -- additional cost-plus we kind of hold it more in the high 8s, low 9s.

And also M&A, the companies that we acquire are greater than 10% EBITDA margin on both Federal and Critical Infrastructure.

Things you buy have a higher growth rate and a higher margin, but at a lower multiple?

Yes. Pretty good story.

That's a good way to do it. There was discussion in the industry of more outcomes-based, more fixed price. You're saying you went to the customer with here's a menu for where we would do that, but they're not taking you up on it.

I would say, in general, there hasn't been a big shift there. And it really goes back to if it's something new, new, you can't fix price. If it's something that's repeatable, you can. But in general, there has -- we have not seen a big transfer from reimbursable to fixed price work. So we would be willing to do that, though, in areas that we're comfortable.

I'd say a lot of the customers enjoy the flexibility of being able to kind of shift mission along the way versus kind of committing to exactly what they want from the start.

Okay. And how would FAA be both fully cost plus but also in line with the segment average?

So FAA contracts cost plus award fee, right? You have basically task orders. They call them needs packages. Each needs package is going to be assessed differently. So you can have fixed price needs packages as well as cost plus needs packages. So if it's something that you've been doing for a long time and you can fix price it, both we and the FAA would agree that we should fix price it. But if it's something brand new, then you would leave it as a reimbursable.

So the FAA project, if you were to have it, would literally -- it would almost be like the segment. It would have the mix of the different types of...

That's correct.

Yes. But to your point, Noah, obviously, delivering is critically important for the award fee portion of the cost plus as well.

Right. Right. Okay. Let's maybe talk about the Infrastructure business a little bit. I mean, to some degree, I feel like it's diversified across a lot of projects in several geographies, and it just keeps growing 10% to 12%. And I'm just going to assume it just keeps growing 10% to 12%. Can it be as simple as that? Or are there things that accelerate that? Or are there reasons that would decelerate? Anything you're seeing that's notable right now by geography? Or is it just forging ahead across dozens of projects?

Yes. So we're really excited about the Infrastructure business. It's been hitting on all cylinders. We've had over 3 consecutive quarters greater than 10% margin. We've had 20 consecutive quarters of greater than 1.0 book-to-bill. So as we've continued to grow, we've been continuing to bring in more business. The demand is there. When you look at Parsons, we're about 81% focused in North America, 19% within the Middle East. We got within the U.S., the Infrastructure Investment and Jobs Act that was passed in November of '21. That money is not going to peak until the 2028 time frame, then you have a 6- to 8-year tail after that.

Likewise, we're seeing a similar phenomenon, and that's $1.2 trillion. Similar phenomenon in the Middle East, which they're going to spend about $1.5 trillion. That funds are not going to peak until about the 2030 to 2034 timing. So the demand is out there. It's quite substantial. We're in all the right parts of that market as well. We focus predominantly on hard infrastructure. So if you think about roads and highways, rail and transit, airports, ports, bridges, those are all the areas that we play in. We've won some of our most significant projects within the last couple of years.

Within the Middle East, we're involved in almost every major project going on. I'll hit on Saudi. That makes up about 60% of our Middle East business. So we're involved in Qiddiya, the world's largest entertainment city, King Salman Park, the world's largest park. We did the Riyadh Metro, the world's longest metro. We were just awarded a job with the Ministry of Defense, a Critical Infrastructure job. We just won a border security job with the Ministry of Interior. We were awarded the traffic management around Riyadh, probably the most important project to be ready for the 2030 and 2034 Expo.

Similarly, in the U.S., we've seen some of the biggest projects that we've seen in decades. We were awarded the New York Bay Bridge, $147 million project for us. We're on the Hawaii Rail and Transit program. We're awarded the Georgia State Route 400 Express Lanes, one of the first and largest public private partnership efforts within the United States. And also, we're the program manager for the Gateway Hudson River Tunnel. So the infrastructure business has a lot of tailwinds, a lot of funding. And then I should mention that there's also going to be a new 5-year surface transportation reauthorization bill that should be passed by November 2026 in the U.S. So you're going to have a layering effect where the IIJA is still ramping up and then the new surface transportation bill is starting.

Okay. That sounds quite robust. And the margins in that business, you mentioned have expanded. You had the legacy contract, which pertains to when you historically would do a different type of work that had a different risk profile, I guess. That's now just 100% fully out of the business?

Yes. So all the legacy business kind of wrapped up last year, we achieved substantial completion or final completion on the program execution. So that's behind us. So the great thing now, we're focused on what we do very well, which is program management and design engineering.

And so how would you categorize where that margin lands 3, 5 years down the road?

Yes. So I'm looking at last year, we were about 7% margin within CI. Year-to-date, we're at 10.3%. So 300 basis points of margin expansion from CI, which has been critical to delivering 50 basis points last year at the Parsons level and another 50 basis points this year. And so we're very happy to see CI north of 10% already. And we think within North America specifically, we feel like the Middle East business is probably operating about where it needs to be, but there's still some additional opportunity within North America. So if we can get another 20 or 30 basis points out of the North America CI business as we kind of -- to Carey's point, we're done operationally, but there's still a little bit of a drag on some of these things. So look forward to having those completely behind us.

The Middle East margins right now are higher than the North American.

Correct. Yes.

Approximately how wide is that gap?

A couple of points.

A couple of points?

Yes.

And they should be the same over time?

Could be. Yes.

Okay. Got it. Okay. We have sort of 5 to 10 minutes left. I have a few more questions, but why don't I see if there's anybody in the audience with a question for Carey and Matt. Anybody, don't be shy. I haven't had a question yet today. These lists must just be too thorough, extinguished all possibilities.

Goldman has done such a good job.

Okay. Let's talk capital deployment and acquisitions. That's a significant portion of your model as well. I guess it's been a little surprising that there may be hasn't been a little bit more activity. And I've kind of seen that across a lot of the deal platform businesses I cover, including ones in completely different end markets than your own. So I'm sort of trying to figure out if there's some common thread to that or if it's just random. But what have you seen in the deal market? Is there anything making it harder than normal right now or not? And how much do you think you can do in 2026?

Yes. So we've still been very busy. We've acquired 16 companies since 2017, including 3 this year. We bought TRS Group, which is a company that does thermal remediation and also supports our PFOS, PFAS emerging contaminant elimination in the first quarter. Followed that with Chesapeake Technology International, a company that does end-to-end cyber, electronic warfare, signals and intelligence capability, has a nice presence in the INDOPACOM region, which we could tap into some of the reconciliation funding I mentioned earlier and also a lot of work with Special Operations Command. Then most recently, we acquired Applied Sciences Consulting, a Florida-based water firm focused on water resiliency. We had a water practice in Florida. We did a lot of wastewater treatment work, but this, combined with the resiliency will enable us to tap into the billions of dollars that are going to be spent in water within Florida. So happy with 3 deals we did. We're still very active. We have a long robust list in both Federal and Critical Infrastructure. And capital deployment is going to continue to be -- M&A is going to continue to be our #1 use of capital deployment.

We like the fact that, to your earlier point that we don't pay high multiples. We've been between 9 to 13x for all the companies that we've bought. We also buy companies generally on a preemptive basis. We try and avoid auctions, and we don't include revenue or cost synergies in the companies we buy. And I think we have a unique approach. When we buy a company, our objective is to keep the founders and the leaders that made that company successful. And today, 1/3 of my leadership team formally came from M&A.

Is -- are your thresholds specifically 10% organic revenue growth and a 10% EBITDA margin?

That's correct.

That could be higher than that.

That's correct.

Okay. And then doing that in the 9 to 13x EBITDA range?

Yes. Correct.

Okay. And there's plenty to do in that fit all of that?

We've done 3 already. I was hoping to close the fourth this year but stay tuned.

I think specifically, Noah, when you think about the work that we're able to do and you think about some of these founders on the federal side, specifically that are so mission-oriented, we've been really -- when you start to bring them the capacity, whether it's on the HR side, the classified space, the IDIQ vehicles that we have, they feel like they can make a bigger impact on the long-term mission. And that's really been what we've been focused on when we're selling them on why Parsons is we can do more together. And so we'll work with them for a little while, go through a little bit of a grooming phase, make sure that the cultures fit together. And so typically, by the time we get to negotiations, it's -- we both know it's the right thing.

So you can find technologies, capabilities, solutions that have a high growth rate and a decent margin but do even better on your platform because of all that infrastructure and then they want to sell to you. So it doesn't happen.

Yes. I think a perfect example of that was a win that we had with the General Services Administration a couple of years ago, $1.2 billion job. And we brought all of our federal capabilities together. Nobody could have won that job, including Parsons on their own but together as a collective company, we won the job and we also beat Tier 1 companies to win that job. So it really goes back to we've built an exquisite federal capability that spans end-to-end cyber, electronic warfare, signals intelligence and then selective areas within space and missile defense.

Excellent. And how large are PFAS and water as a percentage of total revenue today? And could those be significant growth drivers or they'll just never be large enough relative to the rest of the business?

So the water is part of our water and environment, which makes up 15% at the Parsons level.

Of total company?

It's within that group. So it includes water and includes some of our mine reclamation jobs and environment but it's 15% of the total company revenue. Water is our fastest-growing and most profitable part of our Critical Infrastructure business, which is why we are very focused on it. PFOS, PFAS represents a component of our water business. Within PFOS, PFAS, we see that as a $220 billion total market, $40 billion of which is addressable for Parsons. We think that market is going to peak in around the 2032 time frame. We're uniquely positioned there. We've had a research and development water facility up in Syracuse, New York for over 3 decades. We've come up with a patent that we're quite excited about. It's called the Hot ISCO patent that was approved 2 years ago in Canada that was approved this year within the United States.

It's first patent of its kind to actually destroy the PFAS molecule on site without having to require incineration. And it can be applied to water, groundwater, soil type of problems. We've already deployed that technology now 3 times. So we feel that we're in a great position for PFOS, PFAS. We handle everything from investigations to the actual remediation and treatment to all the follow-on life cycle and support. So it's the entire life cycle chain of how you eliminate PFOS, PFAS.

Okay. Well, excellent. All right. We're out of time. So we'll wrap up there. So Carey and Matt, thanks so much for being with us today. This is great.

Thank you very much, Noah. Appreciate it.

Thanks, Noah.

Good day, everyone, and welcome to the Third Quarter 2025 Parsons Corporation Earnings Conference Call. [Operator Instructions]

Note, this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Dave Spille. Please proceed. .

Thank you, Carmen. Good morning, and thank you for joining us today to discuss our third quarter 2025 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair President and CEO; and Matt Ofilos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our third quarter financial results as well as a review of our 2025 guidance. We then will close with a question-and-answer session.

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-K for fiscal year end December 31, 2024, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call, and 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 Carey.

Thank you, Dave. Good morning. Welcome to Parsons Third Quarter 2025 Earnings Call. This quarter, we continued to deliver strong performance in a dynamic global environment as an advanced and differentiated technology leader that's aligned to the administration's and global priorities in national security and infrastructure our portfolio is strategically positioned to continue to capitalize on long-term macro environment trends.

In addition, we operate with speed in delivering operationally relevant solutions at a time where our customers need companies that can deliver rapid results. During the quarter, we continued to achieve industry-leading organic revenue growth, excluding our confidential contract, significantly expanded our adjusted EBITDA margins, exceeded our cash flow expectations and won strategic contracts.

In addition, our win rates and hiring retention remained strong and we completed another accretive acquisition after the quarter ended in the fast-growing and profitable water market that strengthens our capabilities and enhances our Florida presence.

Turning to our third quarter financial results. Our adjusted EBITDA, adjusted EBITDA margin, cash flow results exceeded our expectations, and our total and organic revenue growth rates, excluding the impact from our confidential contract remained strong at 14% and 9%, respectively. This includes 18% total revenue growth in critical infrastructure and 9% in Federal Solutions. This strong growth in both segments highlights the strength and synergies of our diversified portfolio, our strong hiring and retention, the successful integration of our acquisitions and our alignment to priority spending areas.

During the third quarter, we also delivered 60 basis points of margin expansion to 9.8%. And $163 million of cash flow from operations and reported a book-to-bill ratio of 1.0x for the quarter and trailing 12 months. This continues our streak of having a quarterly trailing 12-month book-to-bill ratio of 1.0x or better since our 2019 IPO.

Finally, we are reiterating our 2025 adjusted EBITDA and cash flow guidance ranges at the midpoint and we're modifying our revenue outlook to reflect delays in sole-source task order awards products and material procurements. In addition to delivering solid financial results, we won 4 contracts over $100 million in the third quarter with 2 representing new work.

Significant third quarter contract wins included a new large 10-year single-award task order contract is an exclusive subcontractor for design and modernization on the Holston Army ammunition plant government-owned contractor operated contract. We booked $50 million on this contract during the quarter. This win continues our success of winning industrial-based upgrades as per the $18 billion modernization plan and is our fourth contract win supporting the RMA customer that's valued at more than $100 million.

A 6-year $133 million authorization to continue serving as the lead designer for the Georgia State Route 400 Express lines. This project will add new Express Lanes and use state of-the-art traffic, incident management and digital twin systems. As a Tier 1 focused state for persons, this expands our Georgia Department of Transportation presence with the state of Georgia expected to spend more than $20 billion over the next 5 years. We were awarded 2 new multiyear single-award defense and security contracts by Middle East government customers. One contract valued at more than $100 million represents new work, we believe the design review and project and construction management of National security infrastructure. While the second contract is the design border security, infrastructure and facilities.

These contracts reflect the strength of Parsons synergistic portfolio and our ability to bring comprehensive national security critical infrastructure protection and program management capabilities to our Middle East and critical structure customers. And during this quarter, we booked $107 million for these 2 contracts, delivery partners, a joint venture of 3 companies, including Parsons is the managing partner was awarded of $665 million, 4.5-year contract extension by the Gateway Development Commission to continue managing the successful delivery of the Hudson Tunnel project.

This project will build a new 22 Brio tunnel under the Hudson River and rehabilitate the existing 115-year tunnel as well as 9 miles of new passenger rail track between New York and New Jersey. We were awarded an $88 million task order under the Air based defense contract Parsons will provide integration, upgrades procurement and training across the Europe and Africa areas of responsibility for the United States Air Force. This contract includes a 1-year base period and 2 1-year option periods, and we booked $82 million during the quarter.

For the first 9 months of 2025, we've been awarded over $190 million in task orders on this IDIQ vehicle. Air based air defense is increasingly important around the globe to safeguard military operations and Parsons is an industry leader in this domain with innovative solutions designed to rapidly detect alerts, deny or to defeat threats, ranging from low-cost demand vehicles sophisticated hypersonic weapons.

Parsons was also awarded 3 PFAS contracts with a collective value of $23 million. These wins span both our Federal Solutions and Critical infrastructure businesses and expand our portfolio in the highly strategic and rapidly growing PFAS market. Year-to-date, we've won nearly $70 million in PFAS contract awards, and the PFAS market represents a $40 billion addressable market for Parsons. These wins represent revenue synergies with our TRS Group acquisition.

In addition to these large and important wins, we continued our successful track record of acquiring strategic companies in high-growth markets that strengthen our portfolio and have revenue growth and adjusted EBT margins of 10% or more. After the third quarter ended, we acquired Applied Sciences Consulting, a Florida-based engineering firm that specializes in water and store motor solutions for cities, counties and water management districts across the state.

Water is our fastest-growing and most profitable market within our North America infrastructure business unit. This acquisition positions us to capitalize on Florida's significant investments in water infrastructure, resiliency and quality. We continue to deploy capital across both business segments to take advantage of the significant tailwinds in our markets and 4 of our last 6 acquisitions have been in our Critical Infrastructure segment.

During the quarter, the company was recognized as 1 of the world's best companies by Time and 1 of the best led companies by Glassdoor, we're particularly pleased with the Glassdoor rating since we were selected by our employees.

Parsons also received the prestigious Diamond Award in the Structural Systems category from ACEC New York for our work on the Brooklyn Bridge rehabilitation project. Looking forward, we are excited about our growth opportunities. Our relentless focus on strong program execution and our delivery reputation provides customers with the confidence they need to choose Parsons as their contractor of choice for their large, most complex and mission-critical challenges.

In addition, our unique and synergistic critical infrastructure and Federal Solutions portfolio which consists of 6 growing, profitable and enduring end markets is expected to drive mid-single digit or better organic revenue growth, excluding the confidential contract for the foreseeable future. This growth outlook excludes the FAA brand-new air traffic control system contract.

Regarding this opportunity, we believe a decision is imminent, and we felt we offered a compelling bid given we're the #1 program manager in the world offered a transformational approach strategically partnered with IBM, have strong past performance and assembled a team that is vendor-agnostic and understands the FAA.

In Critical Infrastructure, we continue to win some of the largest and highest priority projects in our geographies and are expanding into high-value adjacent markets by leveraging our entire portfolio with long-term tailwinds and 20 consecutive quarters of greater than 10x book-to-bill, we expect continued growth into the next decade. In the United States, our focus on hard infrastructure such as roads and highways, bridges, airports and rail and transit is aligned to spending priorities.

The infrastructure investment and Jobs Act provided states with the confidence they needed to move forward with major infrastructure projects and discussions on the next surface transportation bill are underway. This bill is expected to provide additional budget for increased U.S. infrastructure spending.

Our Middle East infrastructure business also continues to excel. Our more than 60-year history in the region, outstanding reputation and Saudi joint venture has positioned us as a trusted partner to our customers and is a competitive advantage in the region.

We see significant demand for our engineering and program management solutions across the region as governments implement their strategic visions and prepare for upcoming world events. In addition, our expansion into the defense, security, hospitality and industrial manufacturing sectors has contributed to our recent growth as these markets are receiving major investments.

In Federal Solutions, Parsons has a strong position and differentiated capabilities in aviation modernization, integrated air and missile defense, space superiority, counter unmanned air systems, cyber operations, electronic warfare, industrial-based modernization and border security with a strong alignment, the administration's priorities and budget Parsons is well positioned to immediately capitalize on opportunities in these areas.

In summary, I am very pleased with our strong execution. We continue to deliver industry-leading growth with 14% total revenue growth and 9% organic growth, excluding our confidential contract. We expanded margins by 60 basis points, exceeded our cash flow expectations. On defense contracts in the administration's priority areas, our Critical Infrastructure segment continues to hit on all cylinders by delivering double-digit organic revenue growth and adjusted EBITDA margins.

Our win rates and hiring and retention remains strong, and we continue to leverage our balance sheet for strategic accretive acquisitions. We also have a total backlog of nearly $9 million, of which 72% is funded, approximately $11 billion of contract wins that we have not yet booked a $58 billion pipeline that includes more than 115 opportunities of contracts worth $100 million or more and 15 opportunities worth $500 million or more.

We believe our healthy forward-looking metrics, strong operating teams and industry tailwinds positions us to outpace industry growth rates and continue to deliver significant long-term shareholder value.

With that, I'll turn the call over to Matt to provide more details on our third quarter financial results. Matt?

Thank you, Carey. Q3 financials were highlighted by strong revenue growth, adjusted EBITDA margins and free cash flow ahead of expectations. In addition, we continue to leverage our balance sheet and completed our third accretive acquisition of the year in the strategic water market.

Turning to the details of our third quarter results. Excluding our confidential contract, total revenue grew by 14% and 9% on an organic basis. These increases were driven by double-digit growth in our critical infrastructure protection, transportation and urban development markets. Total revenue, including the confidential contract decreased 10% from the prior year period and was down 14% on an organic basis.

SG&A expenses for the third quarter increased 6% from the prior year period. This increase was primarily driven by the inclusion of recent acquisitions and focused investments in bid and proposal activity and critical hires in support of our large strategic pursuits and pipeline aligned to the administration's priorities.

Adjusted EBITDA margin expanded 60 basis points to 9.8%, driven by improved program performance and accretive acquisitions. Adjusted EBITDA of $158 million decreased 5% from the prior year period, driven by the revenue decline on our confidential contract.

I'll turn now to our operating segments, starting first with Critical Infrastructure, where third quarter revenue increased by $129 million or 18% from the third quarter of 2024. This increase was driven by organic growth of 13% and inorganic revenue contributions from our BCC and TRS acquisitions.

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. Critical Infrastructure adjusted EBITDA increased 83% from the third quarter of 2024, and adjusted EBITDA margin increased 360 basis points to 10.3%. These increases were driven primarily by improved program performance, the ramp up of recent awards and our accretive BCC acquisition.

Moving to our Federal Solutions segment, our third quarter revenue increased 9% and 5% on an organic basis, excluding our confidential contract. These increases were driven by growth in our critical infrastructure protection, transportation and space and missile defense markets.

Total Federal Solutions revenue, including our confidential contract, decreased 29% from the prior year period and 31% on an organic basis. Federal Solutions adjusted EBITDA decreased 40% from the third quarter of 2024 with an adjusted EBITDA margin of 9.2%. The adjusted EBITDA was primarily impacted by lower volume on the fixed-price confidential contract.

Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q3 2025 was 62 days, an 11-day increase from the prior year period but still favorable to historical averages. This increase was primarily driven by lower volume on our confidential contract and the timing of collections in the Middle East. During the third quarter of 2025, we generated $163 million of operating cash flow, which was better than expected and drove free cash flow conversion of 135% for the quarter.

Capital expenditures totaled $13 million in the third quarter, relatively consistent with the prior year period. For fiscal year 2025, CapEx is expected to remain in line with our planned spend of approximately 1% of annual revenue.

Our balance sheet remains strong, and we ended the third quarter with a net debt leverage ratio of 1.4x. During the quarter, the remaining $85 million balance on the 2025 convertible senior notes was settled with cash on hand. Additionally, we repurchased approximately 323,000 shares in Q3 at an average price of $77.36 for an aggregate purchase price of $25 million. On a year-to-date basis, we have repurchased approximately 966,000 shares at an average price of $67.28 for an aggregate purchase price of $65 million.

Turning next to bookings. For the third quarter, we reported contract awards of $1.6 billion, representing a book-to-bill ratio of 1.0x on an enterprise basis. which continued our streak with a trailing 12-month book-to-bill of 1.0x or greater in every quarter since our IPO. In Critical Infrastructure, we achieved a book-to-bill ratio of 1.1x which is the 20th consecutive quarter with a book-to-bill ratio of 1.0 or greater.

In Federal Solutions, we reported a book-to-bill ratio of 0.8x. Our backlog at the end of the third quarter totaled $8.8 billion, a 1% increase over Q3 2024. Additionally, our funded backlog is the highest since our IPO at $6.4 billion, a 10% increase year-over-year.

In terms of our guidance, we are reiterating the midpoint of adjusted EBITDA and operating cash flow. However, we are updating revenue guidance to reflect the impact of federal customer capacity constraints impacting timing of sole-source task order awards, products and material procurements, and the inability to recover in Q4 due to the extended government shutdown. We expect total revenue to be between $6.4 billion and $6.5 billion.

This guidance represents total revenue growth of 14% and 10% on an organic basis, excluding the confidential contract. Including this contract, total revenue is anticipated to decline 4% at the midpoint of the range and 8% on an organic basis. Adjusted EBITDA remains between $600 million and $630 million.

At the midpoint of our revenue and adjusted EBITDA guidance ranges, our margin increased to 9.5% from 9.3%, this represents adjusted EBITDA margin expansion of 50 basis points from 2024 and a 100% -- 100 basis point increase since 2023. Operating cash flow is expected to be between $380 million and $460 million.

While the midpoint remains the same, we did want to widen the range to incorporate any potential impacts from the extended government shutdown. Other key assumptions in connection with our 2025 guidance are outlined on Slide 11 in today's PowerPoint presentation located on our Investor Relations website. With that, I'll turn the call back over to Carey.

During the third quarter, we delivered double-digit revenue growth, excluding our confidential contract, 60 basis points of margin expansion, free cash flow conversion of 135% and we completed a strategic acquisition while maintaining our strong balance sheet, which will enable us to make future accretive acquisitions. We remain optimistic about our future, given our team's proven execution, the tailwinds we have in both segments, our strong total and funded backlog and the robust pipeline of large opportunities we have to pursue. .

With that, we'll now open the line for questions.

[Operator Instructions]

Our first question comes from Sangita Jain with KeyBanc Capital Markets.

So Carey, and Matt, just -- it looks like there was some revenue from the confidential contract in 3Q. I know it was a much smaller number than the previous run rate. So I was kind of wondering if -- there was some included in your 4Q guide as well or if you're still presuming that it's going to be 0.

Yes, there was some revenue included in our third quarter guidance. At this point, it's very small and immaterial. The program is in a wind-down state, so we're basically demobilizing.

Got it. And on C&I margins, it's three quarters in a row now that you've done 10%-plus margins. I know you were expecting a softer second half as you close out some legacy projects. So kind of I just want to get some more color on what may have driven the 3Q strength and if we should expect a 10% to 10.5% as the new run rate heading into '26.

Yes, I'll start, and Matt will jump in. But I would say, first and foremost, critical infrastructure has outstanding program execution. We'd always indicated that we expected this business to be double-digit margins, and we weren't sure how quickly we could get there. And obviously, we've had 3 consecutive quarters to your point. So I would say continuing that solid execution looking forward. We've got some higher-margin business that will be coming in as we have been winning some new bids based on the demand that's out there, both in North America as well as the Middle East and then any acquisitions that we do are going to be accretive as well. .

Yes, to give some numbers on a year-to-date basis, to your point, CI is at 10.4%. So really great performance out of the CI business. Q4, we have modeled in kind of the high 9s, low 10s for a total year in kind of the low 10s, as I mentioned, but again, curious point really strong margins out of the CI business, north of 10% throughout the year. And so really excited about the stability throughout the calendar year. .

Our next question is from Andrew Wittmann with Baird. .

I wanted to ask about the top line here in the quarter and in the fourth quarter guidance. I think maybe it was a little bit lighter than you expected in the third quarter. I was wondering if you could Carey talk about what was the variance there? And then just as it relates to the fourth quarter guidance, I heard your comments in the prepared remarks, you talked about federal customer capacity, some things about the material. I just thought maybe you could elaborate on some of that.

When you talk about like materials procurement, was that like you couldn't procure because the government was shutdown? Or was there something else behind that? when you talked about customer -- federal customer capacity, is that again shutdown related? Or is there something else behind it? I think just understanding kind of what's changing or what you're seeing in the top line performance is an important topic for today.

Yes. Thanks, Andrew. I appreciate the question. So first, our challenge in this quarter was strictly due to timing. So we've had things move to the right. These were actually on contracts that were already awarded to us. Most of the work was our airbase air defense contract had a task order that was awarded later than anticipated. And then we're still awaiting on some of our defensive cyber threat hunt kit awards, and that is impacted by the shutdown.

We indicated in Q2 that we did -- we knew we had a second half that was going to be higher than the first half. And that we were optimistic that things will get moving. But I would say, unfortunately, we are still seeing delays and so we wanted to make sure that we were going to achieve our guidance. And so setting for the rest of the year, we had to assume that the shutdown may last as long as till the end of the year.

Yes. And Andy, I'd just add, if I look at Fed and I'll talk excluding the confidential contract, call it, 9-ish percent growth for Q3, we are forecasting about 15% for Q4 to Carey's point, some was a slide to the right from Q3 to Q4. We do expect acceleration in Q4, just with the government shutdown, the timing on task order awards, approvals on material purchases, things like that. All those things are kind of impacting our ability to recover before the end of the calendar year, but should be obviously first half next year. .

Got it. Okay. Great. And then I guess from my follow-up, I wanted to just drill in and get a little bit more for you on FAA. Obviously, the government has shutdown. This one1 notionally had an October 31 award target date. Obviously, the government controls that and can slide. But I was just wondering, you said imminence on the call. Like are the contracting personnel at the FAA on staff? Is there a dialogue happening there? What can you tell us a little bit more detail on that one in particular? .

Yes. Fortunately, the FAA brand-new air traffic control system is not impacted by the shutdown and an award is imminent. This program, again, is going to use the $12.5 billion of funding that was awarded under the reconciliation bill, this is a critically important program to our country.

We need to improve the safety, reliability, redundancy and efficiency of the national aerospace system. And in parallel, we have to transform that for the future. I feel that our team has offered a very compelling offer. Parsons, again, as the #1 program manager ranked by engineering news record. This is the type of work we do for a living. We partnered with IBM as our strategic technology partner, and both we and IBM have very deep engineering expertise.

We also have the right team and a team that knows the FAA and has excellent past performance with the FAA. I mean, our motto has been right team, right time. We're ready now. We certainly look forward to partnering with the FAA on the brand new air traffic control system and achieving the results by December 2028.

Got it. So just as an addendum to that, then, I think in the past, you've talked about like the dollar amount of awards that you're awaiting notice on. I think in the quarter, this one, among others, many others, went in as awards that you're awaiting notice on. What does that metric stand out here at the end of the third quarter? .

Yes. So awaiting noticeable award right now is just under $10 million, Andy and that compares to prior years of an average between 4 and 6. So obviously, a big part of that is FAA, but all in all, just under $10 billion awaiting no more. So bids submitted waiting adjudication. .

Yes, I'd also highlight the strength of our pipeline. $58 billion is a record pipeline for the company. And the number of awards that we have potentially greater than $500 million being over 15 is also a record for the company. So we're really seeing a lot of needs and demand for our business across both segments. .

Our next question is from Tobey Sommer with Truist. .

Given the slightly lower top line exiting the year, I'm just wondering how we should think about modeling next year based on the midpoint of the new top line guidance, it looks like consensus is around 8%. And total revenue growth, which I know wouldn't necessarily be an organic number, but any color you could provide there without specific guidance, of course, at this stage would be helpful. .

Yes. Obviously, we'll provide full year 2026 guidance during the February call. But to your point, solid run rate in Q4 positions us well for 2026. And we've said previously mid-single digit or better organic growth, excluding the confidential contract. So that's the number that we're holding to. That would exclude any what I'll call binary large items, like FAA or others that Cary mentioned, Southern border or Golden Dome that are obviously large items. So mid-single digit or better organic excluding confidential contract and supported by a solid Q4 revenue.

And Matt, what would the total contribution this year be from confidential contracts so we have that math equation squared away? .

Yes. It's about $350 million, so just 5-ish percent. .

And Carey, you highlighted water as an area with the recent acquisition of critical infrastructure, you talked about the growth, et cetera. Are there any verticals within critical infrastructure that you would like to sort of further fortify or maybe gain exposure where you might not have it currently?

Well, I would say water and environment, which is 1 of our 6 end markets has been rapidly growing. We expect this year for that market to be around $650 million. And I mentioned the water portion of that is also our most profitable. So we have been kind of doubling down there. The acquisition of Applied Sciences Consulting was critical for us because Florida is spending billions of dollars and making sure that they have resiliency. And this company is very well positioned to help us capitalize on it by combining our collective capabilities. So it has been an area of focus for M&A. .

Okay. And then during the shutdown, there's been kind of a new wrinkle with the administration helping funding of various things in states. Have you seen any impact from this particular facet of the shutdown. And in particular, maybe a comment on Gateway would be interesting. We have our offices nearby and it looks like there's plenty of equipment and workers still plugging away, but would love your perspective. .

Yes. And you're absolutely right there, Toby. So the gateway program continues, as I mentioned on the call, we were awarded $665 million follow-on effort for that. We have 5 major construction projects that are underway on the Gateway program as we speak and the state funding that's available for Gateway is $5 billion. So we continue to work. .

Our next question is from Gautam Khanna with TD Cowen.

Yes. I was wondering if you could comment on the EBITDA contribution from the confidential contract in Q3 and for the year, just so we have a sense for what the comp to overcome is in '26? .

Yes. Round numbers, when you think about this as a fixed price international contract, so it would be accretive to our Fed business, I think kind of low double-digit margin. .

Okay. And then I know on the FA modernization opportunity, there was -- it sounded like there were just 2 bidders yourselves and Peraton there's some anecdotes that there might be some risks associated with the terms of the contract. I just wanted to get your view on how to kind of insulate the company from some risk? And how you may gone about that bid in a way that doesn't -- is a good thing if you win it as opposed to something we should be concerned about? .

Yes. First, as a company, we will not take that business and FAA brand-new air traffic control system is not a bad contract. It's a good contract. There are only 2 bidders. There were various reasons for that. I think we got off the dime very quickly announced our partnership with IBM back in June. .

We tend to be a very agile company that delivers operationally relevant solutions. And so we kind of got out pretty fast. And I think some of the competitors were worried about that. Other competitors dropped out due to potential organizational conflicts some interest because if you want to provide systems, it's kind of hard to sit in an integrator role, you may be selecting and evaluating and acquiring those systems. So we're very excited about the FAA contract. It's going to be a good contract, and we look forward to an imminent announcement.

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

You highlighted space and missile defense as a growth driver for FS. I was wondering if you could talk a little bit more about that, what can you expect.

Yes, you're breaking up a lot, but I think I caught the gist of it. So space of missile defense being a growth driver. First, I would start with our missile defense contract. We are the system engineer and integration contractor for the Missile Defense Agency on the team's contract. That work will lead into Golden Dome efforts, and we are starting to ramp up in anticipation that we expect some of the Golden Dome funds there was $25 billion in the reconciliation bill to start hitting around the December time frame, and we've been closely working with the metal Defense Agency on areas like architecture. .

Relative to our space business, we're involved in space situational awareness, an area that's seen uptick as there's been a lot more activity going on in space, we're also involved in the space ground systems. We've delivered over 170 different ground systems for a variety of customers. And then an area of space we're particularly excited about would be our assured position navigation and timing solution.

We've partnered with Globalstar. We're using their constellation and our software-defined radio capability to be able to get location information in the case of GPS as Jam. A great example is we just deployed it over in the Ukraine and European theater and our timing results and location results were better than anticipated and additional units have now been purchased for the Endopacom region. So exciting business. We have seen growth there, and that's an area that we project to continue to be strong, particularly as it relates to the Golden dome program. .

[Operator Instructions]

Our next question is from Sheila Kahyaoglu with Jefferies. .

Maybe if we could talk about 2 questions. First on FS growth. How do we think about the FS growth given the order decline in the quarter? How much of it was attributable to the shutdown? And I know -- I think, Matt, you said mid-single-digit growth outlook for' '26, how we could think about the order flow and the pipeline selling together to get that growth outlook? .

Yes. I'll start. Matt, I'll jump in. So on the growth, how much tribute the shuts a little hard to tell because we're -- I think we're dealing with 2 things at 1 time. One is federal contracting capacity. There's been some delays in getting things signed off. And the second is the shutdown, which I would say the big impact there that we saw was kind of eliminating our recovery in the fourth quarter not knowing how long the shutdown is going to continue.

So we plan for it to continue for the rest of the year. But the big issue for us has been material procurements on existing contract awards. I want to reiterate this is not new business we'd go in. It's not about any program losses. It's strictly a timing issue. .

Yes. And the only thing I'd add, Sheila, if I look at total year 2025 Fed, excluding component contracts, the outlook is high single-digit growth, 11% total growth. So it's a -- the business is performing quite well. If we can kind of maintain that run rate, it's kind of above market and taking share. So we're happy with those kind of rates. .

Got it. And then maybe if I could ask one on CI, please. The performance there has been pretty good. Margins are now hitting this 10% stride, what's driving that? How do we think about mix going forward? .

Yes. CI definitely has had an excellent year, I'd say on all fronts, winning new business for the last 20 quarters, also the strong margins throughout the year. And were this quarter to be able to do 18% total and 13% organic is excellent. We're seeing strong growth in both North America and the Middle East, and that growth is going to continue for as long as we can see.

The IIJ, again, funding has not peaked yet. It won't peak until the 2028 time frame. It's going to have a 6- to 8-year tail after that. The next surface transportation 5-year bill is expected to be passed by November of 2026. So that's going to be additive to what we're seeing.

In the Middle East, our expansion there continues. We've had 4 years of double-digit growth in the Middle East. We've not just been growing in our core market of urban development, transportation, but we've now moved into 3 new markets, which are receiving significant investments, defense, security and tourism and hospitality.

So critical infrastructure, we've got great long-term tailwinds. We've been able to capitalize on it with very strong win rates, both in North America and in the Middle East. When you look at split between the businesses, though, I would have to say the real large jobs are in the federal business as you look to the near future. We talked about the $12.5 billion that the FAA is receiving for the reconciliation as we await that imminent award. There's $25 billion for Golden dome. We're well positioned, not just an area I mentioned earlier for system engineering and integration, but we also have nonkinetic effects capability and command and control capacity. There's $25 billion for Pacific deterrent -- or I'm sorry, $25 billion for more for border security, $161 billion in total, but a lot of that's addressable to us.

We do border security all over the world. So we've got currently 2 very large opportunities that are in bid within the border security area. And then Pacific Deterrence got an additional $12 billion in new funding and we're well positioned there with our presence on Quad and Guam, and that we're able to capitalize on that from the Federal group.

So CI rapidly growing, I'd say the big game changer opportunities largely in federal. I should mention 1 that kind of passes both groups too, which would be rebuilt. We expect to be involved in Syria, first in eliminating the chemical weapons and then the rebuild of Syria, which is being very much supported by the Gulf countries.

We're looking at the rebuild of Ukraine and also the rebuild of Israel Gaza. And then a final area just to hit that I put in that game changer category is our position and critical minerals and leveraging our processing and refining abilities as we start to ensure critical minerals in the United States.

Our next question is from Louie DiPalma with William Blair.

Following up on your recent answer, it seems you've made significant progress with providing defense services to some of your Middle East customers, what types of solutions are gaining traction on the defense side? And what's the long-term outlook there? .

Yes. So I'd say the areas that we've gotten into are kind of a combination leveraging our entire portfolio. So we're basically doing work for the Ministry of Defense that is infrastructure work due to the proprietary nature of it, I can't go beyond that. But if you think about infrastructure builds for the Ministry of Defense.

Also on the security side, we're doing border security work. We've been involved in border security for a long time through our work with Defense Threat Reduction Agency Armenia, Lebanon, Georgia, other locations.

We do work with customs and border protection down on the southern border, we've been involved a little bit with immigration and customs enforcement, and we do the counter nuclear smuggling detection and deterrence program for Department of Energy. So we've been able to take those competencies now and expand them, and we were awarded a job through the Ministry of Interior for border security in Saudi Arabia.

Excellent, Carey. And in addition to the FAA brand-new air traffic control systems contract that you're pursuing, you already have an existing FAA facilities contract and should that contract also benefit from the reconciliation bill funding? And related to this, are you starting to already receive awards in October? Or did you receive awards in October that were funded from the reconciliation bill funding? Is that funding starting to flow .

Yes. So I would say, to your first question, that contract will also benefit. That contract's technical support services contract. We've supported the FAA for 50 years as a company. We've been on that contract for 24 years excellent past performance, and it will benefit from the brand air traffic control system separate from our integrator work that we're looking forward to receiving. As far as reconciliation funding, I would say it's going to start to flow, we think this month and next.

And Louie, just the numbers on your question around FAA. As we've mentioned previously, that is a growth driver for us. I mentioned transportation is a key driver. We're expecting that FAA contract to grow 25% to 30% this year in 2025. So to your point, that's a great growth driver for us with or without. .

Our next question comes from Jonathan Siegmann with Stifel. .

Maybe just back on the shutdown, you've made some really helpful comments on that. But maybe if you could talk a little bit about the other side, when the government is open, can we expect a surge of activity? Or is the backlog so great at this point that we might still be talking about capacity problems next year assuming the government opens in the next couple of weeks. .

Yes, thanks. And 1 thing I should mention is 50% of our business, again, is not impacted by the shutdown because 50% of our business is not federal government-related work. I would say as far as when the government's open, I do expect that we're going to see a surge because they are backlogged with contracting actions. .

And so as I mentioned earlier, John, as I think about almost $10 billion of awaiting noticeable typically in the Middle East, processes quickly. So the majority of that is within the Federal group, that being 40% or 50% above the norm is evidence that there's a building backlog and hopefully, they'll transact quickly so that we can get working on these jobs. .

Dave, they almost have to when you look at the reconciliation funds and the fact that the government would like to spend those upfront over the next few years. So to be able to accomplish things if you look at the branded are control system, as an example, we need to achieve those milestones by December 2028 with no excuses.

We've got to deliver. And when you look at the -- a lot of the other funding that's in that build, there's a lot of milestones that have to be achieved. So I think things are going to have to get moving forward.

And as we think about next year, you've already quantified the headwind from the confidential contract. Is there anything else that you'd highlight today that we should be thinking about maybe a larger recompetes in the classified area that we should be contemplating as we think about next year? .

No. Fortunately, going into next year, a repeat rate is about 6% to 7%, so it's pretty small and there are no major contracts that are in that rate feet. We secured our contracts that are greater than $2 billion in July of 2021 is when the last 1 was one. So those have been secured for the next 7 to 20 years, respectively. That would be the 2 mine jobs, the FAA TSSE job in the Missile Defense Agency, system engineering and integration job. So our big repeats are still a ways out like 2029 time frame. .

And our next question is from Noah Poponak with Goldman Sachs.

Matt, can you just level set me or remind me the numbers on Federal Solutions organic growth, excluding confidential. What was it in the first half? What was it in 3Q? And what do you now have for 4Q?

Yes. So first half, we're looking at the total is just about 10%. Second half, we're looking at 12%, driven by Q4 at almost 15%. Saw a little bit of a ramp in Q4, but something as I mentioned, a lot of the things that slipped from Q3 are on track for Q4. So that's really what's driving the Q3 to Q4 sequential. .

Okay. Yes, I guess, how did you think about building that? I mean it's 1 quarter, but just given how that's progressed? how did you think about building that acceleration in 4Q versus 3Q or first 9 months in a government shutdown.

Yes. Obviously, we went through -- we don't take lowering top line guide without a lot of effort going into exactly what the outlook is. So we went through line by line, every program material that's been ordered, timing on those deliveries products. So I would say we're highly confident in the midpoint. I would say, if we see an extended government shutdown through the end of the calendar year, as an example, Noah, I would say it would be biased towards the lower end of the guide. But I think a lot of the sort we're hearing is, over the next couple of weeks is likely to come out of the shutdown. .

Okay. And Matt or Carey, I guess, we've been in this environment with lower outlays in some of your government customer markets, but you've still had that 10% federal core. If next year, some of the things that have gummed up the system get better can that core accelerate? Or is that too optimistic just given the overall backdrop?

I would say that we have the opportunity to accelerate. I mentioned the very large programs that we have in front of us, and I feel we're well.

Just curious if I was sort of thinking of that, excluding like putting FAA side or -- maybe you have so many large opportunities that putting them aside, is not a relevant question, but excluding any 1 large program totally changing the growth rate, just thinking more about the diversified core ex-confidential?

Yes. So this year, we'll deliver for federal -- for the full year, about 8.3% organic growth, again, which is industry leading. So I would say we're in all the right markets, and I've been talking about any of the game changer programs, and we've indicated that we would deliver mid-single-digit or better, excluding the confidential contract as we go into next year. That's excluding game changer contracts. .

Okay. Can you frame for us for whoever wins FAA approximately how large it could become on an annual revenue basis and then what the margins would look like roughly?

Yes. Unfortunately, because we're in a competition and the award is eminent, I can't share financial information at this time.

Okay. Last one, Matt, just on the FS margins because you had talked about confidential was accretive to the margin. And then as that came out, the margins came down a bit, but back up sequentially here nicely in the third quarter despite that. So as we move forward, what's your latest thinking on where the FS margin lands.

Yes. So if I look at Q3 specifically, cost type represents about 60% of the federal business. So in an environment where cost type is greater than 50%. There's always going to be a little bit of pressure on the margin, so we're comfortable in kind of the high 8s, low 9s, Noah acquisitions will help with long-term expansion as we always target 10-plus percent EBITDA on our acquisitions, a shift to fixed price.

We haven't necessarily seen it as of yet. We're obviously open in a lot of cases to that. And so I think highs to low 9s is a good a good target based on the existing connects. And we do have some great opportunities. We've talked Carey mentioned in our script a little bit about the Joint Cyber Hunt kits, things like that.

We're a little bit more product, a little bit more materials that are accretive could also benefit. In Q3, we did have that benefit from the incentive fee that we talked about in Q2 and then Q4 will help from the products. So all those things add up to kind of a high, low 9s, a good number, opportunities around expanding products and acquisitions.

Ladies and gentlemen, this is all the time we have for your questions. I will pass it back to Dave Spille for final comments. .

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

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

Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Parsons Corporation Earnings Conference Call. [Operator Instructions] After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to turn the conference over to Dave Spille, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Liz. Good morning, and thank you for joining us today to discuss our second quarter 2025 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair President and CEO; and Matt Ofilos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our second quarter financial results as well as a review of our 2025 guidance. We then will close with a question-and-answer session. .

Management may also make forward-looking statements during the call regarding future events, 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 reflected in the forward-looking statements due to a variety of factors.

These risk factors are described in our Form 10-K for fiscal year ended December 31, 2024, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures.

And now I'll turn the call over to Carey.

Thank you, Dave. Good morning. Welcome to Parsons Second Quarter 2021 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 and the guidance assumptions we outlined on June 2, 2025. Excluding the revenue impact from our confidential contract for both Q2 2025 and Q2 2024, our second quarter total and organic revenue growth rates were 13% and 8%, respectively. This growth includes double-digit total revenue growth in 3 of our 4 business units with the fourth business unit growing 9% year-over-year.

It also includes 8% organic growth for Parsons 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. $160 million of cash flow from operations and achieved a free cash flow conversion rate of 151% for the quarter and 125% on a trailing 12-month basis.

We also reported a book-to-bill ratio of 1.0x for the quarter and trailing 12 months. This continues our streak of having a quarterly trailing 12-month book-to-bill ratio of 1.0x or better since our 2019 IPO. 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 #2 in the professional services list, #2 on the construction management program management for field list and number three, for construction management. This global recognition is a testament to our reputation for complex program delivery.

Further, we won 3 contracts over $100 million in the second quarter with 2 of the 3 contracts representing new work. Significant second quarter contract wins included a new $176 million single-award contract by the United States Army Corps of Engineers to provide design build delivery services for an Ammonium Nitrate Solution Tank Farm at the Holston Army Ammunition Plant. A new single-award contract for cyber work by the Defense Threat Reduction Agency with a ceiling value of $138 million. Under this contract, Parsons will perform cyber assessments, operations, analysis and research. $134 million follow-on contract overseas 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 and design engineering expertise to capitalize on unprecedented infrastructure spending in both North America and the Middle East.

Overall, second quarter total infrastructure revenue grew 14% and 8% on an organic basis. In North America, total revenue grew 17% and 7% on an organic basis as we continue to win large new programs, execute on existing contracts and retain and hire new employees. Several large project wins contributed to second quarter growth and are expected to grow in the second half of 2025, including Georgia State Route 400 and Newark Garreton, Hawaii City Center rail and transit, Hudson River Tunnel and the I-55 Bridge replacement.

Our growth and success in North America are particularly exciting, given infrastructure spending from the IIA is not expected to peak until 2028 with a 6- to 8-year tail after that plus discussions on the next Surface Transportation Reauthorization bill are already underway, and Secretary Duffy held a kickoff meeting on July 17, emphasize that America is building again. This bill will provide more infrastructure spending once passed.

Our focus on hard infrastructure such as roads and highways, bridges and airports has bipartisan support and is a priority for the administration.

Our Middle East infrastructure business also continues to excel, and we're the #1 program manager throughout the region. We've operated in the Middle East for over 6 decades and have 7,000 employees in the region today. In 2024, we generated more than $1 billion 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.

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 2 awards for the new King Salman International Airport. Our Middle East revenue growth is expected to accelerate in the second half of this year as we continue our strong hiring and retention and ramp-up contracts, including King Salman Park, the Riyadh Ring Roads program, the Dubai Metro Blue Line project and the King Salman International Airport. With significant wins in critical infrastructure Middle East and North America, we've achieved a book-to-bill ratio of 1.4x and 1.2x, respectively, in the first half of 2025.

In our Federal Solutions segment, we're excited about the growth we're delivering in our core business the significant large opportunities in our pipeline and the funding boost to the fiscal year '26 defense investment accounts due to the recently passed 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 11% and 8%, respectively. This growth was primarily driven by demand for our aviation, cyber and electronic warfare solutions.

We are benefiting from our exposure to large single award IDIQ contracts, including our 2 sizable General Services Administration, FEDSIM programs the Missile Defense HC teams and our air-based air defense contract. Having existing single-award IDIQ contracts with high ceiling values is important to rapidly deploy solutions that address near-peer threats. In addition, we're experiencing growth on our FAA, Army ammunition and Defense Threat Reduction Agency Red Team programs. These contracts are expected to continue to grow in the second half of 2025. We're excited about the passage of the reconciliation bill on July 4 that increases defense spending by $150 billion and adds an anticipated 25% to investment accounts for fiscal year '26.

Our federal portfolio aligns with major budget line items, including aviation modernization, missile defense, space, munitions facility modernization, Pacific deterrence, border security and more. Parson's portfolio also aligns to 10 of the 17 priority areas outlined the February 2025 Department of Defense Memorandum, which are expected to receive additional funding over the next 5 years.

We are laser-focused on the budget line items that align with our core competencies and where our portfolio is well positioned with domain knowledge and leap ahead solutions. As a nontraditional company that was purpose-built with differentiated capabilities, we have the speed and agility to deliver transformational programs that achieve the administration requirements and accelerated time lines. The FAA received $12.5 billion under the reconciliation bill 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 event solutions understands the FAA and has strong past performance.

If we win the integrator contract, Parsons will gain additional FAA work and service 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 billion of funding under the reconciliation bill. Parsons have strong qualifications to address challenges that Golden Dome is trying to solve. We've exported the Missile Defense Agency for more than 40 years, and we're currently providing system engineering and integration on MDA's team's next system engineering contract.

Under this contract, we deliver capabilities that are directly aligned to Golden Dome such as engineering analysis and modeling and simulation on a vendor-agnostic basis. 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 die 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 nonkinetic 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. The munitions production budget received $25 billion 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 million award for the new Ammonium Nitrate Solution Tank Farm at Holston.

The Pacific Deterrence initiative received $12 billion of new funding. We've been operating in the INDOPACOM region for 3 decades and have significant infrastructure work on Guam and Kwajalein Island along with important mission-critical cyber and electronic warfare programs in the region. This quarter, we further expanded our presence by winning a counter nuclear smuggling detection deterrence task order from the Department of Energy for the INDOPACOM region.

Finally, Border Security and Enforcement received over $160 billion in the reconciliation bill. For decades, Parsons has worked on border security projects worldwide to improve our customers' ability to predict illicit activity, detect and track the 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 and 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 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 [indiscernible] federal funding. With excellent win rates over the last 3 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 battle space 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. CTI's team awareness kit and Tactical Assault Kit, or attack -- situational awareness tool has been applied for border security, disaster relief, counter unmanned air systems and other applications.

This acquisition meets our financial M&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 position the company for continued long-term sustainable growth. In addition, we leveraged our balance sheet and closed another strategic accretive acquisition. We've now closed 1 acquisition in each of the last 4 quarters. Our diversified portfolio and 6 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 and global infrastructure spending is expected to last into the next decade. The reconciliation bill was passed and Parsons capabilities will continue to play a vital role as near-peer threats become more aggressive in advanced cyber attacks increase across the U.S. and global conflicts persist.

From a financial perspective, we have a total backlog of nearly $9 billion, of which 70% is funded. Approximately $11 billion of contract wins that we have not yet booked, a $55 billion pipeline that includes 114 opportunities of contracts worth $100 million or more and 14 opportunities worth $500 million or more. And we have less than 3% of our revenue, up for repeat in the second half of 2025. Our robust backlog large-scale pursuits and excellent win rates provide a backdrop for Parsons 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?

Thank you, Carey. 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 $1.6 billion decreased 5% from the prior year period and was down 9% on an organic basis. Excluding our confidential contract, total revenue grew 13% and 8% on an organic basis, driven by growth in our transportation and cyber markets. SG&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 million was comparable with the second quarter of 2024. However, adjusted EBITDA margin expanded by 40 basis points to 9.4%, a second quarter record. 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 8% and 8% on an organic basis. These increases were driven by growth on existing contracts and the ramp-up of new task order wins, specifically in the cyber and intelligence and aviation markets.

Our confidential contract generated $106 million of revenue in Q2 2025, in line with our expectations. At the beginning of the third quarter, this contract was terminated for convenience as anticipated. Federal Solutions adjusted EBITDA decreased 35% from the second quarter of 2024, and adjusted EBITDA margin decreased 210 basis points to 8.3% and 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 million or 14% from the second quarter of 2024. This increase was driven by organic growth of 8% and inorganic revenue contributions from our BDC and TRS acquisitions. 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 second quarter of 2024, and adjusted EBITDA margin increased 350 basis points to 10.5%, a second quarter record for the segment. These increases were driven primarily by improved program performance, the ramp up on recent awards and acquisitions to include BCC, where we are seeing significant synergy benefits both to revenue and margins.

Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q2 '25 was 60 days, consistent with prior year period. During the second quarter of 2025, we generated $160 million of operating cash flow, which is also consistent with Q2 2024. On a trailing 12-month basis, we generated $574 million of operating cash flow which is a Q2 record and a 17% increase over the prior 12-month period. These increases were driven by strong collections in both segments and lower tax payments. Capital expenditures totaled $9 million in the second quarter of 2025 consistent with the prior year period. We expect CapEx to increase in the second half of the year in support of long-term growth, partially offset by reductions in facility square footage in several locations.

For fiscal year 2025, 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 12-month basis with an intentional focus on contract execution, settlement of legacy claims and improved cash management and collections. Our balance sheet remains strong. Including the impact of our all-cash acquisition of CTI, we ended the second quarter with a net debt leverage ratio of 1.5x. During the second quarter, we repurchased approximately 219,000 shares at an average price of $68.56 for an aggregate purchase price of $15 million. On a year-to-date basis, we've repurchased approximately 643,000 shares at an average price of $62.22 for an aggregate purchase price of $40 million.

Turning now to bookings. For the second quarter, we reported contract awards of $1.5 billion, representing a book-to-bill ratio of 1.0x on an enterprise basis, which continued our streak with a trailing 12-month book-to-bill ratio of 1.0x or greater in every quarter since our IPO. In Critical Infrastructure, we achieved a book-to-bill ratio of 1.1x, which is the 19th consecutive quarter with a book-to-bill ratio of 1.0x or greater. Federal Solutions reported a book-to-bill ratio of 0.8x.

Our backlog at the end of the second quarter totaled $8.9 billion, a 1% increase over Q2 2024. Additionally, our funded backlog is the highest since our IPO at $6.2 billion, 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 outlook for the remainder of the year. We expect total revenue to be between $6.48 billion and $6.68 billion. This guidance represents total revenue growth of 17% and 13% 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. 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 retain continues, and we realize the contributions from CTI.

Adjusted EBITDA is now expected to be between $595 million and $635 million with a margin of 9.3% at the midpoint of our revenue and adjusted EBITDA 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 million and $440 million, 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.

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

Thank you, Matt. During the second quarter, we delivered significant growth in our core business. 40 basis points of margin expansion, exceptional cash flow and free cash flow conversion and completed a strategic acquisition by maintaining our strong balance sheet, which will enable us to make future 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 there to pursue.

With that, we'll now open the line for questions.

[Operator Instructions] Our first question comes from Tobey Sommer with Truist.

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

Yes. Thanks, Tobey. 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 5 decades. 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 FDA integration contract. We're going to be important in that contract just making sure that you have a company that knows how to deliver. Parsons is the #1 program manager in the world per Engineering News-Record and we've partnered with IBM a very strong technical partnership, and we felt 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 $12.5 billion of funding and the reconciliation bill.

We're anticipating a request for solicitation sometime soon. They had hoped to make an award by the end of September, but that's really now dependent on the timing of the request for solicitation. Under Golden Dome, that's $25 billion of reconciliation funding and most of these, by the way, the FAA and Golden Dome are both projected to receive more in the future. On FAA, they indicated they need about $31.5 billion. And for the Golden Dome, they've indicated they need about $175 billion for the total contract. Very similar to FAA, we're extremely well positioned for the Golden Dome. We've been supporting the Missile Defense Agency for 4 decades, providing suspension and integration capabilities along with modeling, simulation and analysis capabilities. We have a current contract vehicle. It's worth $2.2 billion. On that vehicle, we still have $1 billion remaining, so that can be used to get Golden Dome kick started right away.

In addition to that, we also have nonkinetic 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 billion. So it will continue to expand beyond our current capacity that we have at Holston and Radford and then the Border Security funding of $160 billion that's really going to leverage our decades of experience all over the globe and providing border security solutions.

Yes. So the only thing I would add, and Carey kind of commented on it, but on the existing IDIQ vehicles between those 2 areas with MDA and FAA, we have almost $3 billion worth of ceiling remaining. So just a great opportunity to move on existing vehicles or new. So it's a really great opportunities on both for us.

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 action sort of lagging pretty significantly. Do you expect a bigger-than-normal seasonal catch-up for the industry and yourselves?

I would say we're definitely expecting a 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 1 book-to-bill. Orders can be lumpy. I always like myself to look at the revenue growth. I think where we've done a tremendous job in our federal business is driving task orders on to that $11 billion 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 2 new large awards move forward, the Holston the defense threat reduction in cyber. But we are anticipating a 1.0x book-to-bill for the full year for both C5 and for federal and expect Q3 will be a stronger quarter.

Our next question comes from Andrew Wittmann with Baird.

I guess, Carey, I thought I would just check in here and get your comments on how the One Big Beautiful Bill, which obviously, you've 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.

Yes. So I think, Andrew, the biggest thing I'd say is we're aligned with the administrations and bipartisan priorities. There's going to be a shift from soft infrastructure areas like climate change, renewables, electrification over to hard infrastructure [indiscernible] highways, bridges, airports. And those are the areas where Parsons portfolio is very well aligned. We are also super excited about the next 5-year Surface Transportation Reauthorization Bill kicking off. And we expect additional funding to come through that, Bill. When you're looking at the current IIJA not peaking until 2028, 6- to 8-year tail overlaying a new surface transportation bill and then a shift in funding from soft to hard targets infrastructure, that really benefits Parsons.

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

Yes. No, Andy, CTI is a big contributor, $30 million to the top line and then $5 million in the bottom line, a little bit more aggressive on the bottom line given the outperform first half. So a little bit of that is organic. On the cash flow side, it's mainly organic. So the big effect was the R&D tax credits, so we got almost $20 million worth of benefit from the reconciliation bill on the R&D tax credit. So that flowed through the cash but the other -- the top and bottom line were all CTI mainly.

Our next question comes from Sheila Kahyaoglu with Jefferies.

And thanks for mentioning Armenia in the script. I don't think I've heard that before. So I appreciate that. Maybe if we could just talk about the organic growth outlook a little bit more, Carey. How do you think about the puts and takes? It seems like we're down 1 point to 6% organic, given CTI contribution? How do we think about the second half contributors playing into that and the ramp-up?

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

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

Yes. And let me kind of walk through the pieces for that because 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 in North America, Georgia State Route 400, Newark [indiscernible] Hawaii rail and transit, Hudson River Tunnel, I-55, Middle East King Salman Park, Riyadh Ring Roads, Dubai Metro, King Salman International Airport, Engineered Systems, FAA, Holston Ammonium Nitrate, Defense Threat Reduction [indiscernible], United States Postal Service and Defense and Intelligence, the Missile Defense Agency Teams Contract, GSA Fed SIM, additional sealing tech product sales, Airbase Air Defense. I think what's important is we do have our July results, they were very favorable, and they're on track to achieve the back half acceleration. We also had in July record hiring within the Middle East. So quite excited. I think we've got industry-leading organic growth in both segments.

What changed to cut the core by 1 point since your last update? And then my second question, if I can squeeze that into just on CI, the performance has been quite stellar 4% margins year-to-date. Just any update on the programs that previously faced supply chain challenges.

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 at the core. The organic revenue stayed constant. The contribution from CTI changed the base. So just no implied delta on the organic. So Carey, you want to cover CI.

Critical Infrastructure margins. So what's been good on Critical Infrastructure is really program execution. The team has 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. We're seeing demand much greater than supply, both in North America and in the Middle East, double-digit growth within those and those margins long term that we would expect to deliver. .

Our next question comes from Noah Poponak with 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 million 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?

Yes. No, you're right. No, 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 single, low double digit. And so we're seeing really strong growth on programs. We have some key deliveries of the FAA ramp that Carey 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.

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.

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

So the most important thing is those are largely contracts have already been awarded and we're ramping up, which we've been accelerating throughout the year. FAA is a real 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 billion of awarded not booked predominantly in the federal area. And we've done a great job of driving task orders over to that. 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 -- in the volume of proposals that we've been submitting. It's right in line with what we would expect. And it's great to see some of these large new awards come through this quarter. .

Okay. And it sounds like you're saying you're able to say right now that July -- I mean, it's 1 month, but July at least, is tracking to that directional plan.

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

Okay. Great. Just last one for me. The 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? Or where does that go in the back half from here?

Yes. So as you point out, the biggest driver, of course, was the lower volume on our confidential contract that came down about $250 million year-over-year. Fixed-price contracts obviously are accretive. So the impact from that put a damper on the margins. But in addition to that, I think Carey mentioned in her script, but it was -- 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. So those 2 things are the big driver to the Fed margin for the quarter.

For the rest of the year, we expect Fed margins to be kind of in the low 9% range to get back up near 9% for total year. We have some incentive fees timing in the second half. We've got some product sales, as I mentioned before, and then operating leverage as you see the outpaced revenue growth you'll start to see the margins trend back up as well. So those are the big drivers for second half think long term, [indiscernible], 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&D-focused. And so all happy with where the investments are going and long-term outlook for the Fed margins.

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

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

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. 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 2 years. We were winning these great new exciting projects.

We do have an ability to move people around. We have kind of a common program management pool of people. We have an engineering design group of people. And I always like to highlight somebody who today works an internal audit that's a person that worked in federal or worked in critical infrastructure, worked in North America, worked in the Middle East. So she's kind of been all over the company. And I think we do a great job of that and giving people new experiences and development opportunities.

Our next question comes from Gautam Khanna with TD Cowen.

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

Yes, sure. So it's just over $11 billion now. We had about $600 million that was in for the confidential contract. So we obviously have removed that then we've done exactly as we indicated, which has driven task orders onto some of our IDIQ vehicles. So it came down slightly because of that. And that's, again, our full intention.

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

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

Okay. And is there any risk of the second you mean 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 risk to that outlook? Or does that look well aligned at this point?

Our funded backlog is the highest spend at 70%. So very strong.

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

[Operator Instructions] Our next question comes from Jonathan Siegmann with Stifel.

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, but I just wanted to see if that incaded -- that's the right interpretation of it or whether that's being distorted by Chesapeake at all.

Yes. No real distortion from Chesapeake. I think you're right, between [indiscernible] and funded backlog are starting to see really strong next 12 to 18 months. 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 help us build confidence. Obviously, 20% is a supporting number, but are fully committed and we're going to deliver.

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

Our next question comes from Louie DiPalma with William Blair.

Carey, Matt, and Dave, good morning. Carey, you discussed the strong second half growth for -- I think, 7 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. 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 revenue trajectory for these programs?

Yes. So it really varies. Let me just give you specific examples. Georgia State Route 400, we're part of a public-private partnership. We are the design engineer. So what you'll see is most of our work at the very beginning of that project. Another example would be the Dubai Metro Blue Line. 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. Another example in the U.S., the Hudson River Tunnel, which is the largest rail transit infrastructure project in the U.S., we are the program manager on that. So we'll be on for that entire duration.

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

Yes. No, because we continue to win new business. So 19 consecutive quarters greater than 1.0 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. Like I said, we'll continue to win projects. And again, very proud of the fact of where we've moved up on the Engineering News-Record ratings to be #1 now on program management in the world.

Great, Carey. And for the confidential contract there any breakup fee? Or should we assume 0 in revenue in the third quarter? Or how should we think about that?

Yes. So for that contract, we did $181 million in Q1, $106 million in Q2, so $286 million, 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.

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

Yes. So we didn't really give -- remember, we had some complexities with the customer, given the total scale of the contracts. So I would say -- I'll kind of give you a directional Q2 and Q3 where the peak Q4 was lighter. And so I would say this kind of Q2 number was a little bit bigger in Q3 and then Q4 was lower.

Great. And one final one. Earlier this week, Carey and Matt, you announced a satellite communications partnership with Globalstar to bring services to Europe. And what does that partnership entail. The reason I'm asking is as everybody on the call are aware, there has been significant GPS jamming attacks across Europe with the conflict. And so does your Global Fire partnership provide any types of alternative like position navigation and timing services to help alleviate those jamming attacks.

Yes. 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 person's proprietary software-defined cellular like 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.

We think that this partnership is going to unlock previously impossible mission-critical solutions and provide unique responses for Assured PNT within radio frequency congested environments and also set a new standard for global communication services and complex and challenging operating conditions. We did deploy system at 3 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 and become in other areas.

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

Yes.

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

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

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