Parsons Corp (PSN) 2025 Q4 法說會逐字稿

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 f iscal 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 a dynamic federal government macro environment. We delivered 12% total revenue growth and 8% organic revenue growth, excluding our confidential contract. We continue to be one of 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 three 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 number 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 trusted companies by Forbes, one of the best led companies by Glassdoor, and one of the world's most ethical companies by atmosphere.

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 1.4 times to 1.3 times 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 three 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 three 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 three 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 four contracts over $100 million in Q4 with three of the four contracts representing new work for Parsons.

All four 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 Perry, 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 three-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, missile warnings, space, 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 five-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 New Murabba, Riyadh traffic Management, and all our 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 build 10 or greater, we've delivered double-digit total revenue growth in both North America and the Middle East for four 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 three 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 three years. We have an experienced management team operating in 6 end markets that are all growing, a purpose-built national security portfolio that outpaced near peer 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 1.3 times. 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 1.8 times 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 0.9 times on an enterprise basis. On a trailing 12-month basis, our book-to-bill ratio was 1.0 times, 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 1.1 times, 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 1.2 times 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 two large and well-funded segments across six 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)

Sangita Jain, KeyBanc Capital Markets.

Good morning Carey, Matt. Thanks for taking my question. 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.

Yes, good morning, 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. Thanks. 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 sub one, for some time now. Thank you.

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.

Appreciate it. Thank you.

Louie DiPalma, William Blair.

Harry, Matt, and Dave, good morning.

Morning, Louis.

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 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, thanks. 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 Salmon Park, King Abdullah Financial District, Riyadh Rings and Roads, Riyadh Traffic Management, Kadia King Salmon 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 El Sadda 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.

Great, thanks. Thanks, Carrie. Thanks, man, Dave.

Gavin Parsons, UBS.

Thank you. Good morning.

Good morning, Gavin.

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 10 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? Matt Ofilos Executive 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. Thank you.

Thanks, Kevin.

John Godyn, Citi.

Hey, thank you for taking my question. 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?

Yeah, I would say obviously we're really happy with over the last two 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 yeah, I think there is, as we expand on products, as we have additional creative M&A and, 2 point leverages are all great opportunities to continue to expand margin.

Okay, great, and you also mentioned that you know you're targeting double-digit margins for the enterprise that 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 and kind of north of 10% and to Carrie'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 on as we expand on products, the product deliveries is a great opportunity to expand margins in federal, but overall right now we see federal and kind of the high 8s, low nines, short-term, and trending toward mid-nines, longer-term.

Appreciate it. Thank.

You.

Thanks, John. Thanks, John.

Thank you. Our next question coming from the line of Sheila Kayago with Jeffrey. Yannin.

Good morning guys and thank you. I know it's been asked a few ways, but just on 2026, Carrie Matt, any sort of color on the largest program movers that are growing in 202,006, from whether it's a contract area or a particular contract or a specific area.

Yeah, 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. I, we highlighted two classified wins. The $392 million dollar contract was a takeaway from another company, and the $200 million dollar 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 theirport contract, the R traffic management contract, the newerraba contract. Those are all 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 Newark AirTrain, Hawaii Rail and Transit, and some of the larger programs.

Got it. And then maybe a bigger picture question for you, Carrie, just given one of your competitors pre-announced negative this morning, we're seeing sort of a dichotomy between IT services, CACI at the high end, lidos 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 are you 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 unbooked 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 the bill as we come into 2026 within federal and we started to see these large awards go through. We're 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 Border Security. Security or countermanded error systems biometrics and then cyber operations and then electro 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 persons so I feel our portfolio is well aligned for 2026 and beyond.

Got it.

Thank you.

Thank.

You.

Thank you. And as reminded to ask a question, please press R11. Our next question coming from the line of Andrew Whitman with bear Killen is now open.

Oh great, good morning everyone. So I wanted to ask about.

The outlook for, critical infrastructures, backlog and specifically, Carrie, you just mentioned some of those large, larger projects that you've won over the last year or two, 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 1 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 build to remain over 10 for 2026 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 kinda 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, you've referenced this and obviously. You're one of many contractors, a very large contract. 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.

Yeah, let me take the Hudson River tunnel question first. So last week the US 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 p.m. And preserving the status quo, while the US Court of Appeals for the Second Circuit is considering whether to intervene. So the outcome is if the appeals court grants a stay, the funding freeze will remain in place during the appeal. If it does not, the judge's injunction barring enforcement of the funding suspension is set to take effect again at 5 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 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 Gund Dome on that contract. And secondly, I would say non kinetic effects the use of cyber and electronic warfare instead of kinetics to kinetics is a growth opportunity for us.

Airbase air defense is another one we're providing protection of the air base air defenses and for the Air Force base in Europe and you could think about that as being similar to what's going to be needed to provide the local area defense here within the US and the Golden Dome program and then I'd say we also have. Some cyber efforts, Golden Dome, it has been starting to roll out. It's been a little slow, but the classified architecture has been released. General Gutline is confirmed and running the program. There's been a four 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.

Thank you.

Thank you.

Thank you. And again, as a reminder to ask a question, please press 11. Our next question coming from the line of Toby Summer with Drews. Yanis Min.

Thank you. 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 dollar contract over 10 years we have over 500 FAA cleared personnel that support engineering, construction, environmental equipment installation. We're located at over thousands of FAA sites, so it's pretty much all the national airspace sites, including NAIDS, radar sites, com. 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 role as the implementer for that work for the FAA.

Thanks Karen. And then, you did talk about areas of, sort of growth this year within federal, but I was wondering if do, does your, 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.

Yeah, they would be in the same areas, the joint cyber hunt kit, program, obviously the FAA award will get booked in the 1st quarter. Those are the two that we announced after the 4th 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, what's your, what, 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 all of 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. Upon companies that we've bought in the past like Black Signal, Blackhorse, and CTI, and it broadens all the main capabilities within critical infrastructure. We're going to continue to look in the water space. We're also going to continue to double down on transportation engineering and specifically looking across our six tier 1 states Florida, Texas, California, and New York, New Jersey, and Georgia.

I'm going to speak one more, and if I could. What 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 reactor type of projects there's few bids out on those we also do micro grid work for example we have a program in Puerto Rico that's been 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.

Thank you.

Thanks.

Thank you. Our next question coming from the line of Gavin Parsons with UPS. Your line is now open.

Hey, thanks for the follow-up. I just wanted to ask on the medium term growth targets, because first, 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? Thanks.

But that's the first part and then Matt went to 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 parsons as we look forward to FY27.

President Trump has announced that 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 FY26. There's some arguments that you can say it 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 that FY27 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 feel very good about FY 26, the one big Beautiful Bill Act, and the reconciliation funding starting to flow, and there's clearly momentum towards a larger FY27.

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

Thanks again.

Thank you, Governor Kevin.

Thank you. And that's all the time we have for our question-and-answer session today. I will now turn the call back over today for any calls and 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 doesn't call conference for today.

Thank you for your participation. You may now disconnect.

I.