Microphone is working, but if it's not, I'll just shout. Good afternoon. I'm Louis De Palma. I cover aerospace and defense and smart city technologies on William Blair's Equity Research team. This is the first day of the 45th annual William Blair Growth Stock Conference. We're pleased to be hosting a 30-minute, mostly presentation, with the Parsons Management team. Joining me today are Chair and CEO Carey Smith and Head of Investor Relations Dave Spille in the front row. Following the presentation, there will be a breakout session in the Jenny A. Room. Carey, thank you for joining us. I'm required to inform the audience that a complete list of disclosures and potential conflicts of interest are available on the William Blair website.
In addition, as many of you on the webcast and the audience are aware, last night Parsons released breaking news that seems to be causing the stock price to trade up 5% today. Investors are definitely interested to hear your perspective on the breaking news and the latest developments associated with the company. Carey, please take it away.
Thank you very much, Louis. Happy to be back at this conference. It is always so special. Glad that we did our breaking news at this conference.
Yes.
Let me start off with the breaking news. Last night we did update our guidance for the full year. We've had a contract that's with the Department of State that has been a little bit uncertain throughout the year. In January, there was January 20th, there was an executive order that paused some foreign aid contracts. While our contract was not affected, there was a related contract that was paused that basically has caused our contract to run at a reduced volume. Through the first quarter, we were about 80% of volume. Then through the second quarter, about 50% of volume. Last week, on May 29th, Marco Rubio issued a new organization chart. The organization eliminated the program office that does hold our contract, indicating that the functions would be moved to a different program office.
We felt this was prudent and the right time that, due to the uncertainty, to remove this contract so that you will not see any financials reflected after June. We have zeroed it out for the year. As I talk through the rest of the presentation, I am quite excited to look forward and talk about things that we can control and, most importantly, the exciting growth that we see in the company. Removing that contract, we are looking at 17% total growth and 14% organic growth, excluding that one contract. That is 19% total growth on the federal side, 17% organic growth within federal, 15% on the critical infrastructure side, and 11% organic growth within critical infrastructure. Obviously, very strong tailwinds across all of our markets.
I would say that, coupled with our 68% win rate that we had year to date through Q1, has really enabled us to win some significant jobs. We're looking at the double-digit growth in both of our segments for the year. We still have $9 billion in backlog. Within there, 69% is funded, which is a very high number. We have $12 billion of what we call awarded, not booked. Those are jobs that have been awarded to Parsons as a single company contractor, and we have not yet reflected in our bookings or backlog. You can kind of take and add those two numbers together. On the bottom line, we're expanding our margins by 30 basis points this year. That's on top of a 50 basis points expansion last year. We see the most significant margin opportunity within our critical infrastructure segment.
Q1 was basically what I would call a clean quarter, where we did not have any one-ups or one-downs. Our critical infrastructure business was at $10.3 billion for the quarter. I want to reiterate our growth strategy. First and foremost is to invest in software and integrated solutions to move up the value chain, to be able to prime bid and win larger contracts. For the last four quarters, we have had over a $50 billion pipeline. Within there, we have about 19 opportunities that are greater than $500 million and 121 opportunities greater than $100 million. I do want to point out this pipeline does not reflect some of the items in the reconciliation bill, which I will address on the next chart, because we are waiting to make sure that funding gets passed and assess the timing.
Our goal has been to create a very exquisite federal company that outpaces near-peer threats. We had the luxury, when I joined the company back in November 2016, of putting together a federal business from scratch. That means we really like all parts of our portfolio. We put it together to basically have end-to-end cyber capabilities, space capabilities, electronic warfare to be able to fight information warfare against a potential near-peer threat. We've done a great job, I'm going to say, moving up that value chain and winning larger jobs. We also want to be the digital transformation pioneer within critical infrastructure.
That means we're a company that can apply our cyber capabilities, artificial intelligence capabilities, digital twins, and technology capabilities because we have technical capabilities on the federal side of our house that we can leverage on the critical infrastructure side of our house, whereas other critical infrastructure companies do not have that technology component. We want to leverage our unique portfolio in areas like critical infrastructure protection. How do you protect water companies, utility companies, transportation against cyber threats? Once again, we can vertically integrate. We understand the domain of how those areas work, but we also have the cyber capabilities to be able to protect against those threats. Finally, we want to be the preferred acquirer of assets. I believe we've done a great job. Since 2017, we've bought 14 companies.
We buy companies that are growing at greater than 10% on the top line, greater than 10% EBITDA margin, and have technology differentiation. We generally acquire companies on a preemptive basis. These are companies we've worked with. They understand our mission, understand our culture, and we have alignment in those areas. In the afterwards, we pride ourselves on being able to retain what made those companies successful, whether it was a process, but most importantly, the people, the leadership, and the founders of those companies. This is probably the chart I'm most excited about and what I'm going to present today, which is our alignment to administration and global priorities. Starting over on the left with federal aviation and modernization, that's within the reconciliation budget for $12.5 billion. Parsons has been the Federal Aviation Administration infrastructure contractor for four decades. We've held the technical support service contract for 24 years.
We're currently in year two of 10 on that contract. It's a $1.8 billion ceiling. And we have $1.2 billion remaining. So we really look forward to helping the FAA modernize its systems as we go out over the next three to four years. The next item is Golden Dome for America. And we have several capabilities to bring to bear. For the Missile Defense Agency, Parsons, again, has supported the Missile Defense Agency for four decades as a system engineering and integration contractor. So we've been involved in working with MDA to define a layered architecture that can provide a Golden Dome capability for America. How do you defend against unmanned air systems, cruise missiles, hypersonics, up to intercontinental ballistic missile threats? We believe the engineering and the integration is going to play a very important role in Golden Dome for America.
We have a $2.24 billion contract that we're currently in year three of that contract. We have scope remaining there as well. In addition to what we do for the system engineering and integration component, the capabilities that we've put together in cyber and electronic warfare enable us to provide non-kinetic effects. We believe we're an industry leader in that. Instead of a kinetic missile, you're basically holding a missile through non-kinetic means. Sentinel ground infrastructure. Parsons has been the engineer of record on all prior intercontinental ballistic missile ground infrastructure programs: Atlas, the Titan, the Minuteman. We were originally selected by Northrop Grumman, the prime contractor, but there were some terms under the fixed price that we could not sign up to.
We look forward to the opportunity to get reinvolved in the Sentinel program and leverage our capabilities in designing launch facilities and command centers. I'll point out that Sentinel has $13 billion within the reconciliation bill. Next item is munitions modernization. There's $21 billion within the reconciliation bill for munitions modernization. We're happy to be involved in two of the major Army munition and ammunition plants across America, both Holston and Bradford. Just last week, the Department of Defense announced that we won a $170 million project to develop a new ammonia nitrate facility tank farm that will be placed at Holston. That's an important initiative there. Border security, there's $61.5 billion in the reconciliation budget. Parsons has done border security for over two decades. A lot of our work has supported the Defense Threat Reduction Agency in countries such as Georgia, Armenia, Lebanon, and others.
We've also done work closer here to home on the Mexico-U.S. border, mostly involved in video surveillance activities, as well as building towers. Border security is an opportunity.
Is your biometrics applicable there too?
Yes, our biometrics would apply definitely in that area. I would say in others as well, Louis. I am going to talk critical infrastructure. I will come back to the areas for both. On the critical infrastructure side of the house within the U.S., we are aligned to the administration priorities in terms of hard infrastructure. Our company does roads and highways, designed over 10,000 mi of roads and highways across six continents. We have been involved in over 450 rail and transit projects, over 450 airport projects. That is a good alignment to the administration. We have designed and built over 4,500 bridges. We are rated by Engineering News Record in the top three of three categories. In the Middle East, we are involved in transportation activities. The Middle East has significant spend. In the U.S., we have the $1.2 trillion infrastructure bill.
We do not expect a peak until the 2028 time frame. It is going to last six to eight years after that. Saudi Arabia alone has $1.3 trillion of spend on infrastructure between now and 2030. We are the number one program manager in Saudi Arabia, UAE, and Qatar. Middle East urban development. We are helping design and build some of the newest, I am going to say, most complex facilities in the world today, mostly taking place in Saudi Arabia. Think King's Sandman Park, five times the size of New York City Central Park. Qiddiya, the world's largest entertainment center. We just announced during my recent Middle East visit that coincided with Donald Trump's visit two wins, the air side and the land side, on King's. Think about getting an airport signed and built prior to 2030 that is going to host 120 million passengers per year, twice the size of the JFK.
Middle East defense and security. There is close alignment to help get a partnership between the countries in the Middle East. This is white space for Parsons. We are going to leverage our very strong position that we have in the Middle East, plus our federal capabilities. Finally, advanced manufacturing. We are involved in helping develop and build semiconductor facilities, as well as some data centers from a design and program management perspective. Moving to the center part, this is where the synergies of the portfolio come to play. Cybersecurity, increasingly important for the administration. Parsons does about 75% offensive, 25% defensive. Critical infrastructure protection. How do you protect your utilities, your water companies, your transportation from threats? PFOS, PFAS, an area we see a $40 billion addressable market, not peaking until the 2032 time frame.
We're proud of the fact that we just got approval in the U.S. for our Hot ISCO technology patent. It's going to be the first technology of its kind that destroys the PFAS molecule on site. That patent was approved about a year ago in Canada. Rebuild. How do we help California rebuild from the wildfires? Israel, Gaza, Syria, and Ukraine. Syria presents a unique opportunity because the Middle Eastern countries are going to be involved in helping to fund that. We're obviously in a very strong position within the Middle East. Events management. Parsons has been involved in nearly every world event, like Olympics, expos, World Cups, since 2016 in the Atlanta Olympics. Two most recent, we did the traffic management for the World Cup in Doha, Qatar. We were the head of construction for the expo in Dubai.
We hope to help out here, U.S., Mexico, Canada, as we look forward to the World Cup, as well as to the Olympics in Los Angeles. Finally, IndoPACOM, an area that's got $11 billion in the reconciliation bill. We've been in the IndoPACOM region for three decades, providing critical infrastructure. We're there today on Guam. We're on Kwajalein doing housing and airfield projects. We also have hundreds of people working on cyber and electronic warfare areas within IndoPACOM. As I mentioned, you're looking at a $150 billion reconciliation bill. We're excited about the alignment to Parsons. A lot of times, those bills are spent over a decade. They're indicating this may be spent over a shorter period, like four years, and be front-end loaded. We see some pretty good alignment.
This is our end market portfolio, where all six of the markets, as you can see, are growing between 4%-10% compound annual growth over the next three years. The two most important that I would highlight here are transportation that represents 26% of Parsons revenue, and cyber and intelligence, which represents 20% of Parsons revenue. As you can see, 46% of our revenue has the strongest CAGRs. Our investment thesis remains the same since we hosted our last Investor Day several years ago. Most importantly, we have an experienced management team that delivers on commitments. Again, very excited to be moving forward with 14% organic growth this year across our portfolio, double digits within both segments. We have a people-first culture and a mission focus that attracts destination employees.
We pride ourselves on having the lowest retention this year that we've had since 2020 and doing a great job on hiring. For example, in the Middle East, we need to hire 200 people-250 people a month just to meet the demand for work that we've already been awarded. We pride ourselves on keeping people that we've acquired through acquisitions, and not just keeping these folks, but promoting the really good leaders in the significant roles. As I just showed you, all six markets are growing. They're all enduring. They're all profitable. I talked about our national security portfolio. It's positioned outpaced near-peer threats. Unprecedented global infrastructure spending, $1.2 trillion. 40% of that spend still hasn't been only 40% has been allocated. You're looking at a peak in the 2028 time frame, six- eight-year tail.
In parallel, you've got a new five-year surface transportation reauthorization bill starting up by November 2026. We're going to see a layering effect here in the U.S. I already mentioned the Middle East, which we don't expect to peak till 2030- 2032. We have a favorable financial outlook, proven effective capital deployment strategy. We've been deploying capital on M&A and also on share repurchases. On share repurchases, we're authorized up to $250 million. Last year, we repurchased $25 million. This year, in the first quarter, we did repurchase $25 million already. M&A, we expect to complete two deals- four deals this year. We've already acquired one company, TRS Group, that helps us with thermal remediation and also beefs up our capability on PFOS, PFAS, helping both our federal and critical infrastructure segment.
Just to wrap up, we couldn't be more excited about the position of the company, excited about the double-digit growth, excited about the tailwinds that we see in both sectors, and also the fact that we can look out over a long period of time.
Great. Thanks, Carey. One question that I have following up on the introductory remarks. Beyond the confidential contract, you lowered guidance at the midpoint by $85 million for the remaining co-business. Are you seeing any impact from DOGE, the GSA review, or the broader Department of Defense scrutiny on consultants? In other words, are you a consulting firm?
We are not a consulting firm.
Are you seeing any consulting firm-type weakness, or what is taking place with everything that's been happening in the government tech world?
Yeah, so we lowered an additional $85 million, really for precautionary reasons on the macro environment, just in case we see some delays on the federal side. We're a company that prides ourselves on beating our guidance, and so we want to make sure that we achieve it. Relative to DOGE and GSA, we are not a consulting firm. We do not do enterprise IT work and should not be kind of thrown into that bucket. Pete Hegseth issued a memo a week ago where he talked about insourcing IT work, consulting work, as well as advisory and administrative services. We do not perform that work. That's why our portfolio has not been impacted.
Great. Along those lines, in terms of how the FAA modernization seems to be a pretty huge opportunity given what's taking place in Newark Airport and dozens and dozens of incidents across the United States over the past decade or so, what is the scope of services that you are capable of providing the FAA, and what do you provide the FAA today?
Yeah, so we're at pretty much every FAA location, coast to coast across the U.S. And we're involved in engineering. We do design. We do construction management. We do program management. If you think about the implementation of any project, a project could be, I'm going to upgrade a radar system, or I'm going to put in a new display system, or I'm going to put in a new ADS-B autodirection system. We would be involved in how you implement those at all the facilities. We do quite a bit of tower work as well. I divide it kind of into pillars. You have an infrastructure pillar. You have an automation pillar. You have a surveillance pillar. You have a technology pillar. The nice thing is Parsons plays across all four of those pillars, which is important as we move forward to the modernization program.
Great. How do you think this FAA modernization is going to play out in terms of timing? First, does the reconciliation bill need to get passed, and then the contracts need to be written up in terms of new contracts, or can the government take your existing $1.8 billion contract and just build from there and also use other vendors?
Yes, so they can use our contract today. It's available. Again, we're in year two of 10. We have $1.2 billion ceiling remaining on that. There are some efforts that are already moving forward on the modernization. A good example is the voice communication switches. The FAA has outlined a plan, and it's over basically a three- four year period for how they would roll out the modernization programs. There does need to be budget certainty for that to happen.
Great. Another question related to the U.S. aging infrastructure. Did you indicate that over the next three years, there could be multiple infrastructure bills contributing simultaneously?
That's correct. You would basically have Infrastructure Investment and Jobs Act passed in November 2021. It is a five-year bill, so that runs till 2026. The money can be spent years after that. That is why we're indicating you won't see a peak till 2028, and you'll still have a six- eight year tail. In parallel, they're already starting work on the next surface transportation bill. They hope to pass that by November 2026. You could indeed see a layering effect.
Oh, great.
I also should point out, sorry, Lou, I should also point out the importance of state and local funding, because what we see is about 60% of the funding right now is coming from state and local. It is not just federal funding that we are relying upon to enhance our infrastructure, but also the importance of state and local.
Great. It seems from your observations and your dealings with the administration that they are supportive of a successor infrastructure bill?
Definitely, yes. You look at ASCE is the organization that typically evaluates U.S. infrastructure. Before the Infrastructure Investment and Jobs Act, they rated our infrastructure to a D- . We're now at a level C. I think everybody here that drives on the roads every day across those bridges would agree we still have a ways to go. I think it's going to be an important bipartisan focus for years to come.
For members of the audience, Sterling Infrastructure's CEO, Joe Cotillo, said the exact same thing in terms of the successor infrastructure bill in terms of September or October or November 2026. Multiple independent sources, which seems positive, even though you both are very aligned. It is in your favor for that to happen, but hopefully it does happen for the sake of U.S. infrastructure. Another topic that is very pertinent related to the data center theme, you talked about designing data centers. What is taking place with the Department of Defense in terms of AI? I think you guys recently gave a presentation about Project Linchpin with the Army. Can you discuss the different initiatives you guys are doing with AI that makes you more differentiated than a consulting firm?
Yes.
Once again, that's the theme is that the administration does not like consulting firms. So giving you the opportunity to discuss.
Thank you.
How you are not?
We are not a consulting firm. On artificial intelligence, we've been doing artificial intelligence for the past two decades. We actually started off, our first application was how do you find a counter-improvised explosive device within video analytics. We developed what I would call an early version of an open-source intelligence tool to help the intelligence community sort through data so that you can get to actionable intelligence. If you fast forward to today, we're applying AI in almost every program that we deliver for our customer, whether it's offensive cyber capabilities that we're using it for, whether it's on counter-manned air systems, how you identify, detect, track, and deter a UAS vehicle. On the infrastructure side, we also apply it to our contracts. A good example is advanced traffic management.
We use artificial intelligence to determine, predict if you have an incident, how you reroute, or if there is congestion, how you reroute traffic. We use it for energy. If you are adding renewable energy resources, what does that do to your demand loading? Also, what does that do to your bills that you are going to be paying to your customer? We also have internal use cases. A couple of years ago, I asked each of my leaders, come up with your best internal use case, and you need to deliver three to four every single year, because I wanted the ownership from the top down. For example, our CFO, he developed an AI application to forecast cash, maybe one of the reasons we have been able to accurately predict cash. We developed a tool in our business development team for are we going to win or lose jobs?
It has 92% accuracy. Some pretty neat applications of AI internally as well.
Great. I guess following up on your very high-profile Middle East visit in which Parsons, you were mentioned in the same vein as Boeing, and you were on the world stage in, I think, three different White House press releases. How should we think of the trajectory of this Middle East infrastructure spending boom in terms of what inning are we in here? I know that's a question you get a lot, and it's not a very creative question. Considering you were just in this very high-profile position and you got to speak to all of these dignitaries and hear all of the most recent news flow, what can you share with the audience?
Yeah, so our Middle East business will deliver double digits this year. That's on top of double digits last year and 33% growth the year before. What you're seeing, I'll start with the UAE. The UAE in 2020 had a population of about 3.3 million people. Today, the population is 9.7 million people. When you're increasing the population, you have to have additional transportation infrastructure. Those are the areas that we're involved in, as well as tourism and entertainment. Parsons did a lot of the work in Dubai originally when Dubai was started several decades ago. Now you look forward to today, there's a lot of build-out going on in Abu Dhabi. In the future, you can see areas like in the north, Al Ain, getting built out. Saudi Arabia has experienced similar growth.
Saudi Arabia went from 24 million people to 33 million people from 2020 to 2025. They've had their sights set on Saudi Vision 2030, which is how do you diversify the country away from its dependency on oil. So they identified 13 sectors. Two of those sectors we're heavily involved in, again, transportation, tourism, and entertainment. Infrastructure alone for Saudi Arabia, they're going to spend $1.3 trillion by 2030 under the Public Investment Fund. It's really exciting to go over there because we're involved in pretty much every major project. We just opened the Riyadh Metro, a really beautiful metro project that we did. We're going to be doing King Salman International Airport, about $250 million-$275 million for Parsons, an airport with 120 million passengers per year. We're doing Qiddiya, the world's largest entertainment city.
We're involved in Riyadh Rings and Roads, how do you improve the traffic flow for these upcoming world events? We were awarded a sole-source traffic management contract around Riyadh, which is critically important. Diriyah Gates, which restoration of Saudi's history. You can just see how all these projects are going on. I'd say similar, I expect in Saudi, is what we saw in UAE. You'll build out the Riyadh area first. You'll get up to areas like Neom and really build out Neom on the Red Sea. Areas in the south, like our Al Soudah project, will become tourism centers. Really exciting place to be.
How many different projects would you estimate that you're doing across the area?
I would estimate hundreds of projects across the area.
Yeah. Do these projects, have they been ending? Has that number just been growing such that maybe it was 100 projects two years ago, and then it's increasing to 130, and the scope is widening of everything that they're doing?
Yeah, I'd say the biggest growth we're going to see in this year off a smaller base is actually UAE, which we expect to achieve about 30% growth, again, double digit, and Qatar double digit in Saudi Arabia. UAE is really because of the influx of people and how much building and development that they're going to be doing. Saudi's just going to continue to evolve because they're going to be on the world stage between 2029-2034. They want to become a tourism economy. We're going to see that over the next couple of years.
For a lot of these projects, are they mostly transportation-focused? Is there also security? If you could bucket the different segments of these hundreds of projects across the Middle East.
Yeah, so today, I would say we're involved in transportation. We're involved in tourism and entertainment. We're involved in mixed-use development housing. We also do water, wastewater, and sewage. They obviously had the flood that occurred. How do you improve the water system? I'd say going forward, the biggest white space market that we see is defense and security because leveraging our position that we have there and bringing over some of our important capabilities that they need, such as integrated air and missile defense, border security capabilities, counter-manned air system capabilities. Those are things that we can provide.
Yeah, that's actually a great topic considering that for most of your federal government-type solutions, it's for the U.S. federal government. Is there a legitimate prospect for you to export some of your more cybersecurity-type solutions and the other solutions that you provide to the government?
Yeah, there's just a few examples. Within the Middle East, we are currently doing, we have a Middle East contract with the Army Corps. We were just awarded the repeat where we're responsible for installing systems like that and Patriot missile systems all over the Middle East. We also just got export approval for a system that is called our Zeus Rabo system. It's a 3 kW directed-energy laser system, originally developed to take out improvised explosives, but it can also be used for demining capabilities. We have approval to sell that within Ukraine. We see that as an important step. Definitely, we always look at applications internationally.
Fantastic. I believe that is all the time we have for this main session, but we are going to resume the conversation in a different room, the Jenny A Room upstairs. Thank you so much, Carey.
Thank you, Lou.
Thank you, Dave.
Thank you.