Parsons Corp

NYSE:PSN

Earnings Call Analysis

Record Growth and Increased 2024 Guidance

In Q2 2024, the company's revenue reached a record $1.7 billion, with organic growth of 22%. Adjusted EBITDA rose 27% to $150 million, expanding margins by 30 basis points to 9%. Operating cash flow hit $161 million, up from $23 million a year earlier. Management increased the 2024 revenue guidance to $6.35-6.55 billion and adjusted EBITDA to $555-595 million, reflecting 19% and 24% growth, respectively. Both Federal Solutions and Critical Infrastructure segments saw significant growth and high win rates, with strong pipelines, notably in the Middle East and North America.

Strong Financial Performance and Growth

Parsons delivered outstanding financial results this quarter, setting new records for revenue and adjusted EBITDA. For the first time in the company's history, quarterly revenue reached $1.7 billion, marking a 23% increase from the prior year and achieving 22% organic growth. This significant growth was driven by higher volumes on margin-accretive contracts and effective cost management. Adjusted EBITDA also reached a new high, increasing by 27% year-over-year to $150 million, outpacing total revenue growth【4:2†source】【4:6†source】.

Guidance Raised on Back of Strong Results

The strong performance led Parsons to increase its 2024 financial guidance across the board. Revenue guidance was raised to a range of $6.35 billion to $6.55 billion, representing a 19% growth at the midpoint, with organic growth expected to be 18%. Adjusted EBITDA guidance was also increased to a range of $555 million to $595 million, which represents 24% growth at the midpoint. Margin expectations were set at 8.9%, up 40 basis points from the previous year, while operating cash flow is expected to range between $395 million and $455 million【4:12†source】.

Segment Performance Highlights

Parsons' Federal Solutions segment saw a revenue increase of $226 million, or 30%, from the previous year, driven by 27% organic growth and contributions from recent acquisitions. Despite a slight dip in adjusted EBITDA margins due to nonrecurring incentive fees, the segment still managed to show growth in profitability【4:9†source】【4:1†source】.

Critical Infrastructure Segment Achievements

The Critical Infrastructure segment also performed well, with a 15% increase in revenue from the previous year. This growth was driven by higher volumes in the Middle East and North American infrastructure portfolios. Adjusted EBITDA for this segment increased by $15 million, or 46%, improving the adjusted EBITDA margin by 150 basis points to 7%. Year-to-date, this segment's margins have improved by 140 basis points to 7.3%, and the company expects further margin expansion as legacy programs are completed【4:6†source】.

Strong Cash Flow and Balance Sheet

Parsons reported robust cash flow metrics, generating $161 million in operating cash flow during the second quarter, a substantial increase from $23 million in the same period of the previous year. On a trailing 12-month basis, operating cash flow reached a record $492 million, up 117% year-over-year. The company's net debt leverage ratio improved to 1.3x, and even with the future impact of a $200 million acquisition, the pro forma net debt leverage ratio would be 1.7x. Parsons also repurchased $10 million of its stock during the quarter【4:4†source】【4:10†source】.

Strategic Acquisitions and Pipeline Strength

Parsons remains focused on accretive acquisitions that support long-term growth. The upcoming acquisition of BlackSignal, a next-generation digital signal processing and cybersecurity provider, aligns with this strategy, adding critical capabilities in electronic warfare and cyber operations. The company's pipeline remains robust, with a total backlog of $8.8 billion and $13 billion in contract wins not yet included in bookings. The win rate for the year-to-date improved to 76%, up from 66% a year ago【4:18†source】【4:9†source】.

Global Strategic Initiatives and Market Position

Parsons continues to leverage its strong position in both the Federal Solutions and Critical Infrastructure segments. The company has been successful in integrating advanced technologies like artificial intelligence to enhance project efficiency and productivity. Key wins in North America and the Middle East underscore Parsons' capability to secure and execute large-scale infrastructure projects. The company’s diverse Saudi business, which recently grew its revenue by 18%, stands to benefit from significant planned infrastructure investments aligned with Saudi Vision 2030【4:17†source】.

Outlook and Future Growth

Looking ahead, Parsons is well-positioned for sustained growth with continued execution on higher-margin contracts and efficient business management. The company expects to see further improvements in profitability, aiming for an additional 20 to 30 basis points in margin expansion each year beyond 2024. With strong operational performance, strategic acquisitions, and a robust pipeline, Parsons is confident in achieving its increased growth targets and delivering value to shareholders【4:12†source】【4:6†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2024 Parsons Corporation Earnings Conference Call. [Operator Instructions] Please be advice that today's conference is being recorded.

I would like now to turn the conference over to Dave Spille, Senior Vice President, Investor Relations. Please go ahead.

[David Spille, executive]

Good. Thanks, Michelle. Good morning, and thank you for joining us today to discuss our second quarter 2024 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 increased 2024 guidance. We then will close with a question-and-answer session.

Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors.

These risk factors are described in our Form 10-K for fiscal year ended December 31, 2023, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call, and we remind you that these nonfinancial measures are not a substitute for the comparable GAAP measures.

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

[Carey Smith, executive]

Thank you, Dave. Good morning, and welcome to Parson's second quarter 2024 earnings call. We are very pleased with our second quarter and year-to-date results and what the entire Parson's team continues to accomplish.

Over the last 3 years, we have transformed the company into a high-value solutions provider that differentiates by leveraging software and cutting-edge technologies such as artificial intelligence, cloud computing and advanced signal processing. This transition has enabled us to deliver record financial results, industry-leading organic revenue growth in both segments, improved win rates and a demonstrated ability to win larger and higher-margin contracts.

Also, our strong balance sheet and free cash flow are enabling us to continue to make internal investments and accretive acquisitions that support our long-term growth and margin expansion goals, as well as strengthen our capabilities in both segments. These accomplishments are the result of our clear strategic intent and ability to execute.

Our purpose-built Federal Solutions portfolio is addressing national security threats from near-peer adversaries that are increasingly aggressive. Our technology-driven infrastructure portfolio and our strong market position are enabling us to take advantage of the unprecedented global infrastructure spending.

As our financial results demonstrate, we are executing on our strategy and delivering on our customers' missions and the benefits of our portfolio transformation have allowed us to capitalize on the tailwinds that are positively impacting both our Federal Solutions and Critical Infrastructure segments.

For the second quarter, we delivered record results for all three major financial metrics, including total revenue, adjusted EBITDA and operating cash flow. This is the 10th consecutive quarterly record for revenue and the 11th consecutive quarterly record for adjusted EBITDA.

For the quarter, we generated $1.7 billion in revenue for the first time in our company's history and delivered organic revenue growth of 22%. This is now the fifth consecutive quarter in which we achieved year-over-year organic revenue growth of more than 20%.

During the second quarter, we also delivered double-digit total revenue growth in all four business units in major geographies.

Adjusted EBITDA of $150 million was also a record and increased 27% year-over-year, which outpaced total revenue growth. We expanded our adjusted EBITDA margins by 30 basis points, as we continue to execute on higher-margin contracts and efficiently manage the business. In addition, we reported record second quarter operating cash flow and increased our trailing 12-month cash flow by more than 115% from the prior year period.

As a result of our strong second quarter performance, we are increasing our 2024 guidance ranges for all financial metrics, which Matt will discuss in a few minutes.

Our ability to win new business across both segments and all six end markets continues, with Parson's trailing 12-month book-to-bill ratio of 1.0x, representing a 10% increase in contract award activity.

In addition, the Critical Infrastructure segment has achieved a book-to-bill ratio of 1.0 or greater for the 15th consecutive quarter. Much of our success in the infrastructure market is due to our ability to infuse technology across our portfolio. For example, we've implemented artificial intelligence to automate construction supervision across many of our giga projects in the Middle East. This has led to reduced cost, increased productivity and safety and margin expansion.

In Critical Infrastructure during the second quarter, we were awarded many new strategically important contracts. In Saudi Arabia, we were awarded over $160 million of awards during the quarter, including a confidential $41 million contract for technical consulting, $60 million of additional scope on existing contracts, approximately $30 million of new work for resort and marina and new work supporting a Saudi developer.

Our momentum in the Middle East and the Saudi market, in particular, continues as both markets achieved double-digit year-over-year revenue growth in the second quarter, exceeding our second quarter plan. We also increased our fiscal year 2024 forecast for both the EMEA and Saudi Arabia markets.

We currently have the largest qualified pipeline in our company's history in both Saudi and the Middle East overall, and our Saudi business is so diverse that no single contract represents more than 2% of Parsons total revenue.

In Infrastructure North America, we received a new $46 million contract for operations and maintenance of intelligent transportation systems by the Virginia Department of Transportation and a new rail and transit project.

During the quarter, the Gateway tunnel project secured the last piece of $16 billion of funding, signing the nearly $7 billion full funding grant agreement with the United States Department of Transportation and securing $4 billion in loans for the local match. This is a milestone project. We won as a delivery partner in the first quarter and represents the largest investment in a mass transit project in modern history.

As I indicated last quarter, Parsons has recently won three of the largest North America transportation projects in our company's history, the Hudson River Tunnel; JFK International Airport Roadways; and Newark Bay Bridge projects. These three major awards, along with our second quarter wins demonstrate the success that we're having in the transportation market. It also highlights that federal, state, local and international funding continue to flow at a steady pace.

In our Federal Solutions segment, during the second quarter, we received an option period award totaling $460 million under the company's Technical, Engineering, Advisory and Management Support or TEAMS contract. On this program Parsons provides system engineering and integration for the nation's missile defense system. This includes engineering expertise to oversee the development of hardware and software builds, ensure cyber resilience and provide war fighting capabilities to defend the United States homeland, our deployed forces, and our allies.

This award continues Parsons more than 40-year history supporting the Missile Defense Agency with technology-enabled services such as digital engineering. We also exercised the next option year totaling $110 million on the General Services Administration, C5ISR, exercise, operations and information services or CEOIS contract. Under this program, we design, develop, trained and deployed scalable machine learning solutions to extract actionable intelligence from vast amounts of data and deliver it to intelligence analysts and warfighters.

In the [ INDOPACOM ] region, we continue to strengthen our presence. Right after the quarter ended, we were awarded a $16 million contract over 3 years to provide Army family housing. Our presence in Guam, Kwajalein and Hawaii continues to strengthen and is aligned to the fiscal year 2025 Pacific Deterrence Initiative of $9.9 billion for targeted investment to enhance U.S. force posture, infrastructure, presence and readiness of U.S. allies and partners in the Indo-Pacific region.

After the second quarter ended, we entered into a definitive agreement to acquire BlackSignal Technologies and a transaction valued at approximately $200 million. This acquisition, which is expected to close in August 2024 is consistent with our strategy of completing accretive acquisitions of companies we know well and have revenue growth and adjusted EBITDA margins of 10% or more, while adding critical intellectual property that strengthens our existing portfolio.

BlackSignal is a next-generation digital signal processing, electronic warfare and cybersecurity provider built to counter near peer threats. They will expand Parsons customer base across the Department of Defense and intelligence community and significantly strengthened Parsons positioning within Offensive Cyber Operations and electronic warfare while adding new capabilities in the counterspace radio frequency domain, a market anticipated to grow more than 10% annually with double-digit margin expectations.

BlackSignal uses artificial intelligence and machine learning to create innovative signal processing techniques that detect and disrupt difficult-to-access adversary command and control systems and platforms. We look forward to welcoming BlackSignal's talented employees into the Parsons family, and the significant contributions they will make to our business.

We continue our 80-year history of cultivating a responsible enterprise. As outlined in today's second quarter earnings release, Parsons received multiple awards for our innovative approach to delivering resilient and sustainable infrastructure.

In addition, we were recognized by Engineering News-Record as one of the top three global companies in 2024 in three categories: Program Management, Construction Management, and Program/Construction Management for Fee.

These rankings reflect the company's worldwide reputation and ability to successfully win and execute infrastructure programs. Parsons was also named as one of the best employers for new graduates by Forbes.

As I look forward, I'm extremely excited about our bright future. We have strong tailwinds in both segments and across our six core end markets, and an experienced management team that consistently delivers strong financial results. In addition, we have a robust pipeline of accretive acquisitions that we will continue to pursue, given the strength of our balance sheet.

We also have significant financial visibility with approximately 3% of our revenue up for repeat in 2024 and less than 10% in '25. A total backlog of $8.8 billion, of which 62% is funded. And we have $57 billion of qualified pipeline with $13 billion of single-award contract wins that are not yet included in either our bookings or our backlog.

With that, I'll turn the call over to Matt to provide more details on our second quarter financial results and our increased fiscal year 2024 guidance. Matt?

[Matt Ofilos, executive]

Thank you, Carey. As Carey indicated, our momentum continued through the second quarter of 2024 and it was highlighted by record results for total revenue, adjusted EBITDA and operating cash flow.

We are very pleased growth we achieved given our record results in the second quarter of 2023, resulting in a tough comparable period for the second quarter of 2024. Additionally, our growth was consistent across the portfolio as we experienced double-digit total revenue in all business units in major geographies.

Turning to our results. Second quarter revenue of $1.7 billion increased $314 million or 23% from the prior year period and is up 22% on an organic basis. For perspective, this significant growth was achieved off our record second quarter in 2023, where we grew $348 million or 34%.

Organic growth for the second quarter was driven by continued ramp-up on recent contract awards and execution on our backlog programs, including significant growth from our critical infrastructure protection, cyber and urban development markets.

SG&A expenses for the second quarter were 13.4% of total revenue compared to 15.6% in the prior year period, as we continue to focus on efficient growth across the portfolio, while investing in the future through technology, business development and hiring and retention initiatives.

Adjusted EBITDA of $150 million increased $32 million or 27% and adjusted EBITDA margin expanded 30 basis points to 9%. These year-over-year increases were driven primarily by higher volume on margin-accretive contracts, program execution and a deliberate focus on indirect cost management.

As with revenue, our adjusted EBITDA growth was compared to a very strong second quarter in 2023, where we experienced growth of 53% over the prior year period. Even with the strong performance last year, we outperformed in 2024. On a year-to-date basis, adjusted EBITDA margin at the Parsons level is 9.1% compared to 8.2% in 2023.

I'll turn to our operating segments, starting first with Federal Solutions, where second quarter revenue increased $226 million or 30% from the second quarter of 2023. This increase was driven by organic growth of 27% and the contribution from our Sealing Tech acquisition.

Organic growth was driven primarily by the ramp-up of recent contract wins and growth on existing contracts to include strength in our critical infrastructure protection and cyber markets.

Federal Solutions adjusted EBITDA increased by $17 million or 20% from the second quarter of 2023. This increase was driven primarily by increased volume on accretive contracts and effective cost control.

Adjusted EBITDA margin of 10.4% was down from the prior year period, as a result of the $20 million in nonrecurring incentive fees realized in Q2 of 2023.

Excluding these incentive fees, our Federal Solutions adjusted EBITDA margin would have increased by 160 basis points from the second quarter of 2023. On a year-to-date basis, Federal adjusted EBITDA margins of 10.3% are ahead of plan and guidance as a result of improved business mix.

Moving now to our Critical Infrastructure segment. Second quarter revenue increased 15% from the prior year period on both an organic and inorganic basis. Organic growth was driven by higher volume in our Middle East and North American infrastructure portfolios.

Critical Infrastructure adjusted EBITDA increased by $15 million or 46% from the second quarter of 2023. Adjusted EBITDA margin increased 150 basis points to 7%. The adjusted EBITDA increases were driven by growth on accretive programs and improved operating performance.

Year-to-date, Critical Infrastructure margins at 7.3% are 140 basis points ahead of 2023, and we're optimistic we will continue to see improvement as we complete legacy programs and drive growth on higher-margin contracts.

Next, I'll discuss cash flow and balance sheet metrics. During the second quarter of 2024, we generated $161 million of operating cash flow compared to $23 million in Q2 of 2023. On a trailing 12-month basis, we generated a record $492 million of operating cash flow, a 117% increase over the prior 12-month period. These increases were primarily driven by improved profitability and strong collections across the portfolio.

During the second quarter, net DSO declined by year-over-year by 16 days to 60 days. Capital expenditures totaled $9 million in the second quarter of 2024, which is relatively consistent with last quarter in the prior year period. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue, while continuing to invest in strategic areas like expanding classified facilities and space technology to support future growth.

Free cash conversion was 150% for the second quarter and 124% on a trailing 12-month basis, with an intentional focus on improved contract terms and cash collections.

Our balance sheet remains strong as we ended the second quarter with a net debt leverage ratio of 1.3x compared to 1.6x at the end of the first quarter of 2024. Considering the future impact of the $200 million all-cash BlackSignal acquisition, our pro forma net debt leverage ratio would be 1.7x when calculated on a second quarter results.

Our strong free cash flow is enabling us to delever the balance sheet, while continuing to make additional internal investments and accretive acquisitions that support our long-term growth objectives.

During the quarter, we were opportunistic and repurchased $10 million of Parsons stock at an average price of $76.30. On a [indiscernible] basis, we purchased $65 million of stock at an average price of $41.54.

Turning next to bookings. On a trailing 12-month basis, contract awards increased 10% and our book-to-bill ratio was 1.0x, and our Critical Infrastructure segment, we achieved a quarterly book-to-bill ratio of 1.0 in the second quarter, marking the 15th consecutive quarter with a book-to-bill ratio of 1.0 or greater.

Second quarter contract award activity decreased 22% year-over-year to $1.5 billion for a book-to-bill ratio of 0.9x. Contract awards decreased from the prior year period due to the timing of large contracts in both the second quarter of '23 and the first quarter of 2024.

With industry-leading organic growth and a robust pipeline of new opportunities, we continue to have confidence in our ability to sustain above-market growth rates. We ended the second quarter with total backlog of $8.8 billion, which is consistent with the prior year period. As previously noted, this does not include $13 billion of contract wins.

Now let's turn to our guidance. We're increasing our 2024 guidance ranges as a result of our record second quarter performance, recent contract wins and option awards, positive end market exposure and our favorable outlook for the remainder of the year.

For 2024, we are increasing our revenue range by $200 million at the midpoint to $6.35 billion to $6.55 billion. This represents total revenue growth of 19% at the midpoint and 18% on an organic basis. Additionally, we are increasing our adjusted EBITDA range. We now expect adjusted EBITDA to be between $555 million and $595 million, which represents 24% growth at the midpoint of the range and continues to exceed our revenue growth.

Margin at the midpoint of our increased revenue and adjusted EBITDA ranges remains at 8.9%, which is 40 basis points above our fiscal 2023 results. We are also increasing our cash flow guidance. We now expect operating cash flow to be between $395 million and $455 million.

At the midpoint of the guidance range, we expect free cash flow conversion to be approximately 100% of adjusted net income. Other key assumptions in connection with our 2024 guidance are outlined on Slide 10 in today's PowerPoint presentation located on our Investor Relations website.

In summary, we've had an exceptional first half of the year with great top and bottom line and cash flow results. We are putting the balance sheet to use after announcing another strategic acquisition, which we believe will further enhance our technology offerings and support long-term growth expectations.

Our execution has been strong across all business units and major geographies. We are confident in our ability to achieve our increased 2024 guidance ranges.

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

[Carey Smith, executive]

As some of you may know, this month is my 3-year anniversary as the CEO of Parsons. As I reflect over the last 3 years, I am very proud of what the entire Parsons team has accomplished. We have a laser-focused strategy that has transformed the company into a solutions provider that differentiates with software and advanced technology.

We intentionally positioned the company in six enduring, growing and profitable end markets. This has resulted in record revenue, profitability and cash flow, industry-leading organic growth, improved win rates and a demonstrated ability to move up the value chain and win larger and more profitable jobs.

In addition, we continue to lead with technology transformation in critical areas, including cyber, artificial intelligence, space, electronic warfare, advanced transportation systems and emerging contaminants. I'm extremely pleased with our last 3 years of performance, which is a direct result of our 18,000 employees focused on delivering our customers' critical missions.

[David Spille, executive]

Operator, you can open the line for questions, please.

[Operator]

[Operator Instructions] Our first question comes from Sheila Kahyaoglu with Jefferies.

[Sheila Kahyaoglu, analyst]

Carey, congrats on your 3-year anniversary. So -- and good job on -- great job on margins, up 40 bps, but the guidance was unchanged at 8.9%. So maybe if you could just talk about how we should think about profitability because it's been an issue in the rest of the sector, as your new wins ramp given your organic growth?

[Carey Smith, executive]

Yes. Thanks, Sheila. So first, I would say we are pleased with our profit. We're up 90 basis points year-to-date. We were up 30 basis points for this quarter, and we expect to be up 40 basis points for the year. And in addition, as we look forward, we expect to be up 20 to 30 basis points each year and years after. So I think we've done a great job of expanding margin, plus our EBITDA dollars have been growing faster than our revenue growth. In this quarter, we were at 27% versus 23% on revenue growth.

We do feel on the critical infrastructure side, we can still get further margin expansion. Eventually, that's a business that we expect to be double digits. We do have one legacy program remaining that we expect to wrap up in the third quarter. And once that's behind us, we expect that we'll see some additional tailwinds.

[Sheila Kahyaoglu, analyst]

Great. And then if I could ask one more on the book pipeline that's been really helpful, but I believe it came down from $14 billion to $13 billion. So kind of how do you think about on book pipeline coming into the backlog and how we think about that, the cadence of conversion there?

[Carey Smith, executive]

Yes. Thanks. Great question, Sheila. It was $14 billion, now it's just over $13 billion. We converted two programs, which we announced on the call, the TEAMS and the CEOIS. Those were previously in that award [indiscernible] not booked. So those converted during the quarter.

We do expect as we get new awards, that gets replenished, and that's a metric that we're going to continue to attract. So it is very important since we don't reflect that $13 billion in our $8.8 billion backlog or in our bookings.

[Operator]

And the next question comes from Tobey Sommer with Truth Securities.

[Tobey Sommer, analyst]

Could you please discuss any programs or contracts that are winding down or coming to some sort of natural completion, and contrast that with any new wins that are ramping that could provide a basis for a sequential revenue trajectory in the second half of the year?

[Carey Smith, executive]

Yes. On the ones that are winding down, it's about $86 million this year, and we tend to run about $100 million on any given year, and it's really three contracts that price that. The ones that are ramping up, I would say the GSA $1.2 billion award that we had over a year ago, we're starting to see some ramp up there. We continue to do well in all of our cyber work across various contracts, CCMS, CEOIS and others. That's been a strong 25% growth for us.

Also on the infrastructure side of the house, I've mentioned all the Middle East wins that we've had, including the additional $160 million that we received this quarter. That's been strong. In North America, winning our three largest programs within the last 12 months have all ramped up. And that's obviously what's been a key contributor to driving such strong organic growth across both business segments.

[Tobey Sommer, analyst]

Could you also discuss the -- maybe put a little bit more color on the decline in backlog and slower bookings in the quarter, and your expectations for contract activity and bookings as you look into the second half of the year?

[Carey Smith, executive]

Sure. So backlog was relatively flat. The book-to-bill as you're aware is lumpy. We had a very strong book-to-bill of 1.4x in Q1, followed by 0.9x in Q2. So year-to-date, we're doing very well at 1.12x. I would also highlight that both segments are over 1.1x year-to-date. And then trailing 12 months for Parsons has been greater than 1.0x. And once again, both segments are over 1.0x.

I think bookings are interesting. I think organic revenue growth is what really matters, and we're really pleased that we've had five consecutive quarters of greater than 20% growth. On the backlog, I would also highlight that, that does not reflect again the $13 billion of single award work that Parsons has already won.

[Tobey Sommer, analyst]

I think I'll sneak one more if I couldn't. Could you elaborate a little bit on opportunities for revenue synergies with BlackSignal and comment about what the prospective pipeline of M&A, it looks like you're going to be able to get sort of quota or target for the year?

[Carey Smith, executive]

Yes. So I would say, first, very excited about BlackSignal. It's directly aligned with Parsons, solution selling vision they have 90% intellectual property enabled offerings and that drive 67% of sole-source awards. It strengthens our position in key markets, offensive cyber operations and electronic warfare. And if I just delve a bit deeper into that, I would say in the offensive cyber side, they've played a lot more in the research and development. We're strong in the operations. So it really strengthens our full-spectrum cyber operations capability.

In the electronic warfare space, we both play there, but we happen to look at different signals of interest and both of us leverage our advanced digital signal processing capabilities. And then they provide new capabilities for us in the counterspace radio frequency domain area, again, that's expected to see double-digit growth.

They also improved our posture in the INDOPACOM region, which I talked about a little bit on the call. And then in the electronic warfare area, also, I would point out that we play mostly with Title 10 tactical military, whereas they bring a lot of Title 50 strategic. So overall, this is just a terrific acquisition.

We have customer alignment. They're strong with the Air Force with an AV with DARPin, the intel community. We're strong with the Army and different parts of the intel community. So extremely complementary. And as with all of our acquisitions, we really look for them to drive us up the value chain.

On your second question, the pipeline is still very strong. We have a lot of candidates within both critical infrastructure and within federal, and we're on track to do two to three acquisitions this year.

[Operator]

And the next question comes from Bert Subin with Stifel.

[Bert Subin, analyst]

Maybe just to start with the higher-level question. I mean if we go back to early '23 when you guys hosted your Investor Day, looking for growth on the federal side, more in the sort of low to mid-single digits, critical infrastructure mid-single digits. And obviously sort of blown through those expectations and here you are with 5 straight quarters of 20-plus percent organic.

I guess the question is, as your visibility toward growth improved, do you see Parsons as moving more to position being a growth company? And if you think about that trajectory, what do you think drives that more? Is it going to continue to be the federal side? Or do you think infrastructure will be the greater grower longer term?

[Carey Smith, executive]

Yes. So I would say what's happened since our Investor Day. first, we have a very clear strategic intent. We're focused on six core end markets that are all enduring, growing and sustainable and profitable. I would say all four business units, both the segments, all major geographies have hit on all cylinders. Everybody is delivering double digits, and that's expected for the year. And that's what's been happening.

As far as our visibility increasing, I think we always have pretty good visibility, both on the federal and the critical infrastructure side. Our trajectory is a growth company. We intend to keep growing.

[Matt Ofilos, executive]

Yes, Bert, I'd just add, if you think back to the Investor Day, what -- some of the things we outlined at the time, obviously, the overall labor market was kind of uncertain. We had this uncertain inflation environment; budgets were pretty challenged. And of course, win rates in a traditional year, we planned 40% to 50% from a win rate perspective. Through the second quarter, our win rate is 72% at the company level.

So things like that, we saw last year really strong win rates as well. So all of those things kind of contributed, each one kind of came in better than we were expecting back in the Investor Day, labor markets are better, budget environments settled down.

And so all in all, I think it's -- that's kind of what's been helping drive the growth. And to your point, we're definitely -- our goal is long-term growth and kind of sustained growth. And I think it will be balanced. I think CI and Federal are both well positioned to continue to grow.

[Carey Smith, executive]

Yes. Just to add to that, we were 72% in Q2. We're 76% win rates year-to-date, and that's up from 66% a year ago and 49% the year before that.

[Bert Subin, analyst]

Got it. Very helpful. On the Critical Infrastructure side, this is the first quarter we've seen North America growth exceed Middle East. Is that a trend do you think will persist? It seems like Middle East is still growing nicely. And I know Carey, you've made some comments about strength in Saudi and seeing improvement in Abu Dhabi. But I'm just curious, is the set up even better for the North American side?

[Carey Smith, executive]

Yes. I think we're going to continue to see growth in both of those, Bert. And I think, as I indicated, they're both expected to grow double digits this year. What we're starting to see is more of the infrastructure bill funds be led out and also the state and local matching funds that are coming about. So that's why we've seen some of -- such large infrastructure projects, some of the biggest ones in our company's history be awarded over the last 12 months.

They both have very strong pipelines, and I think it will be interesting to mix the two business units give each other a race because I'm excited about the Saudi and the Middle East market as well. The Middle East business this year grew at 12% this quarter and Saudi grew at 18%, so very strong.

[Matt Ofilos, executive]

Yes. Bert, you'll remember last year, Middle East grew about 30-plus percent. So coming off a little bit tougher comps there, where North America was kind of high single digits. So we're -- I think the -- to Carey's point, North America will kind of follow suit and start to challenge Middle East and we like the idea of the competition.

[Bert Subin, analyst]

Just one clarification question. I don't know if you -- I might have missed this in your prepared remarks, but is BlackSignal included in guidance? Or will that be additive?

[Carey Smith, executive]

It's additive to guidance. It is not included.

[Matt Ofilos, executive]

So just to give some scope, this year, we can expect about $30 million worth of revenue, double-digit margins. And then next year, I think it was in the release, but just under $100 million in double-digit margins.

[Operator]

And our next question comes from Alex Dwyer with KeyBanc Capital.

[Alexander Dwyer, analyst]

I wanted to ask about the SG&A leverage and the focus on the indirect cost management we've been seeing. Can you talk a little bit about what specifically has been driving that? And then what should we expect going forward in terms of SG&A for the business? Should this continue to trend down as a percent of revenue going forward?

[Matt Ofilos, executive]

Yes, Alex, I'd say that we're kind of -- Carey and I are pretty comfortable about where we're at right now, call it, low to mid-teens. We have seen favorable trends, obviously, as revenue growth has been in kind of the 20% to 30% over the past few quarters. We've been kind of controlling costs. We've been doing effective things like, obviously, a lot of folks are pulling facility cost out and things. But obviously, to support the growth we've been spending in important areas like technology, [indiscernible] things like that.

So I think from a modeling perspective, that kind of low to mid-teens is a good number for us. But overall, again, really strong performance, and we're heading in the right direction and critical IRAD investments that will benefit long-term growth as well. So -- but I think low to mid-teens is a good number from SG&A. I don't think it will go far below that.

[Alexander Dwyer, analyst]

Got it. That's very helpful. And then secondly, can you talk about the equity and earnings line during this quarter? I think it included a $22 million write-down from a design build JV. Can you just talk about what happened there? Was this the same project from last quarter? And then what's built into the guidance in terms of that equity and earnings line for the remainder of the year?

[Carey Smith, executive]

Yes, I'll take the first part, and Matt will take the last part.

So first, we're very happy with our margin performance. On a year-to-date basis, margins are up 90 basis points. And so the businesses are performing quite well. We're also still projecting 40 basis points of margin expansion this year at our midpoint of guidance and 20 to 30 basis points after that.

In the Critical Infrastructure segment in the quarter was up 150 basis points. We did, to your point, take a $22 million adjustment. It was on a joint venture, specifically a construction joint venture project, and that's reflected within equity and earnings. This is the program we mentioned in the fourth quarter that had some supply chain issues.

And so we're still in discussions with the customer on various scope and schedule challenges pro forma, the critical infrastructure margin would have been at 10.2%, and the Parsons margin would have been at 10.3%. And I'd also like to remind you, Alex, this is business that we no longer pursue. Since I became CEO, we've stopped bidding construction joint ventures.

[Matt Ofilos, executive]

And Alex, just from a modeling perspective, you can assume kind of, call it, $3 million to $5 million in the second half for equity and earnings, so a couple of million a quarter. On a normal run rate where we wouldn't have any impacts, we think equity and earnings for the company should run, call it between $10 million and $20 million. So if you want to say 15-ish. I think that's probably $13 million to $15 million is probably a fair number.

[Operator]

And the next question comes from Andrew Wittmann with Baird.

[Andrew J. Wittmann, analyst]

Yes. Great. Yes, so that $22 million, I think, is important to note. As I read the cue here, it looks like there was also some positive offsets on the equity income line. I mean that's a big penalty. Was there notable or material or can you quantify the positive offsets that were against that $22 million? I'm just trying to get a better understanding on the quarter on the CI segment in particular to start out with.

[Matt Ofilos, executive]

Yes. Nothing, I would say material, Andy. It's just our kind of normal run rate. If you think about the numbers I just gave about kind of a normal year, $15 million, we should be seeing $4 million, $5 million a quarter worth of equity and earnings normalized. So to your point, $22 million minus the -- offset by the positives is kind of net [indiscernible] equity and earnings position.

[Andrew J. Wittmann, analyst]

Okay. All right. Great. Can you just -- sorry, I missed the start of the call. So did you give your percent complete on that project in particular? Or can you? And then if you could, could you just, Carey, address a little bit more on the backlog funnel. You talked about the $13 billion of single-award contracts not yet in backlog. Can you talk about the pipeline size or the amount awaiting notice as well.

[Carey Smith, executive]

Sure. So first on the percent complete on that program, it's around 20% to 25%. The important thing to note, though, is that the procurement is nearly complete, and that's where the supply chain issues occurred. On the backlog, the $13 billion -- I'm sorry, your question was?

[Andrew J. Wittmann, analyst]

Can you talk about the size of the total pipeline today and/or the amount of awards that you've submitted and that you're waiting notice for.

[Carey Smith, executive]

Sure. So the total pipeline is $57 billion. Within the $57 billion, we have 121 programs that are greater than $100 million. And then the value of outstanding proposals awaiting award at the end of the quarter is $6 billion. Within that, we have 14 programs greater than $100 million. And we don't have much under protest. It's about $200 million, and the majority of that is multiple award contracts. And I will find out...

[Andrew J. Wittmann, analyst]

That's all my questions.

[Carey Smith, executive]

Yes. This is one of the strongest pipelines that we've had in our company's history.

[Operator]

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

[Mariana Perez Mora, analyst]

I'm going to tap again on the margin question. I'm curious if you have any visibility on the backlog and the pipeline of opportunities, where you should be like 3 or 5 years from now, excluding any inorganic upside?

[Matt Ofilos, executive]

Yes, Mariana. I think the short answer on that is when we bid jobs, and we're -- what's in the backlog is accretive to the overall margin, if you think about the two businesses individually. Carey and I previously have talked about federal, we're comfortable with federal and kind of the mid-9s. I think given a little bit of a mix shift. I haven't really talked about this yet, but if you look at kind of fixed-price T&M at the company level this year versus last, it's about a 7% increase in kind of fixed-price T&M.

So we're seeing a mix shift, that's helped us drive the margins up. You'll see federal north of 10%. So Carey and I are excited about that's a mix of both acquisitions, SG&A, it's a little bit everything that we're doing to try to improve margins.

So overall, federal like in kind of, I'll call it, the high 9s. The CI margins, you'll see in the 7s and Carey and I believe, long term, that should trend towards 10%, just how quickly we can get there as we get out from underneath these legacy programs. In the back -- to your point, the backlog and the bid support that.

[Mariana Perez Mora, analyst]

Yes, that was my question. Like what are the key milestones that you're looking at to actually go from seven to 10 in critical infrastructure?

[Carey Smith, executive]

Yes. So several levers. One is continuing to explore cost constant as our revenue increases. Second one is pricing premium. Demands so much greater than supply, whether you're talking about North America or the Middle East. So we are seeing higher margins come in.

The other areas, again, derisking the portfolio and not getting into some of these legacy construction joint ventures, which we have not done since I took over 3 years ago. So those are all levers that we have, and then accretive margins. The companies that we're buying are all greater than 10% EBITDA.

[Mariana Perez Mora, analyst]

And then could you mind tapping on the election, what risk do you see going into election. Any uncertainty actually, I don't know, affecting the way that your customers buy? And how do you think this could affect indirectly like any spending on like the infrastructure bill or even the state and local funding.

[Carey Smith, executive]

Yes. So we do not see any impact from the election, whether it's over Republican or Democratic administration.

Starting with federal, what we do in national security is very well supported. If you look at the National Defense strategy, whether it was published by the Republicans or the Democrats, it's focused on near peer adversaries. So the capabilities that we've put into our purpose, both federal portfolio as far as cyber space, electronic warfare and the convergence of those areas is really where the country is focused and needs to be, and that has bipartisan support.

On the infrastructure side of the house, the infrastructure bill has been passed into law. So it basically would take a lot to overturn it and a lot of that funding $454 billion as of May had already been delved out, state and local also is coming up with their own funding. So I do not see any change in the work that we do as far as infrastructure. President Trump -- former President Trump stated in a recent speech, how important infrastructure was to the country and in particular, transportation. That's the area that we play.

[Operator]

And the next question comes from Cai von Rumohr with TD Cowen.

[Cai Von Rumohr, analyst]

Yes. Terrific growth at Federal Solutions. So were there a couple of contracts that really, we had a disproportionate impact on that growth, specifically that one contract, I think you've noted with a confidential customer. And were any of the big drivers in terms of contracts. Are any of those kind of starting to reach their expected run rate?

[Carey Smith, executive]

Yes, Cai. So I would say it was in several areas. First, in the critical infrastructure protection area, we saw strong growth, and part of it was on the classified contract. Also saw strong growth in cyber at 25% in the quarter. Other areas, too, like our Army ammunition plant work that's ramping up at Radford and Holston, that's been important. And I would say the INDOPACOM area still continues to be very strong for us.

[Matt Ofilos, executive]

Yes. So Cai, I'd just add to your question, I think the confidential customer, to your point, I think that one has we're about a year into that job. And so we're starting to see kind of -- we've kind of seen what the budgets will support in terms of that contract.

So we're starting to stabilize on that one. But as Carey mentioned earlier, we saw 30-plus percent growth in cyber in Q1, 25-plus percent in Q2. So the cyber business on top of the things, Carey mentioned is also quite strong.

[Cai Von Rumohr, analyst]

Terrific. And do you have -- I think [indiscernible] mentioned that they were impacted by delay in Ukraine funding, their [ Ucom ] business. Do you have any [ Ucom ] business or any other business where a funding delay could impact your rate of growth?

[Carey Smith, executive]

No, we do not.

[Cai Von Rumohr, analyst]

Okay. Terrific. Great quarter.

[Operator]

The next question comes from Louie DiPalma with William Blair.

[Louie Dipalma, analyst]

Carey, Matt and Dave, congrats on the 5 quarters in a row above 20% organic growth, and it's very impressive. I don't think it's been done before.

From a high level and following up on the previous question from Cai. The end to the Ukraine and Gaza military conflicts could be negative for much of the defense industry. However, could the end to the conflicts actually be positive for Parsons given your role as one of the largest infrastructure providers in the world.

[Carey Smith, executive]

Yes. Great question, Louie, and the answer is yes. So we have capabilities to provide such as demining capabilities, environmental remediation to be able to get people back in their homes. And most importantly, I would say the rebuild, which is going to be critical for both of those areas. Parsons was heavily involved in the Iraq rebuild years ago. And so we do intend whenever those conflicts get settled to be able to assist there.

[Louie Dipalma, analyst]

Great. That is very helpful in terms of the perception of Parsons as defense contractor versus infrastructure.

And also on the infrastructure side, is the U.S. IIJ funding peak in your eyes, Carey still expected in 2027, are the dollars flowing? I know that you discussed winning roles on the three largest U.S. projects that were awarded over the past year. But are there other large U.S. projects in the pipeline that can cause the momentum to continue?

[Carey Smith, executive]

Yes. We do believe the peak is still going to be in the 2027 time frame, and then you'll see a 6- to 8-year tail after that. So there's a lot of longevity. And we do have good visibility, a very strong pipeline because a lot of these capital plans get put together years in advance. So very optimistic about our infrastructure pipeline in North America.

[Louie Dipalma, analyst]

Great. And one more speculative question. And it's well known that Parsons is one of the major industry leaders of critical infrastructure in the Middle East, and you have a 6-decade relationship. In the news, there's been discussions of the U.S. and Saudi Arabia negotiating a defense tech.

And I was wondering, is there any long-term and I emphasize long-term opportunity for Parsons to cross-sell some of it's defense solutions to that region. I know you're already involved in [ Centcom ]. But is there an opportunity for you to become even more involved on the defense side given your history in the region?

[Carey Smith, executive]

Yes, we do believe that there is. We're currently involved in a couple of efforts we do a little bit of F16 maintenance activity, and then we're involved in program with the Army Corps of Engineers supporting missile defense efforts like inflation of Patriot tab batteries.

But we're currently putting together a more robust pipeline around specifically defense once the defense security pack is concluded. And also around areas we can uniquely play like should all indeed become a permanent base. We're a company that does both infrastructure and protection.

And if you look at areas like cybersecurity, physical security, there's a lot of needs there. And once again, we're kind of uniquely positioned with our portfolio. So that is definitely an opportunity for the company.

[Operator]

[Operator Instructions] And the next question comes from Noah Poponak with Goldman Sachs.

[Noah Poponak, analyst]

If I go to the midpoint of the revenue guide 3Q and 4Q would be lower than 2Q in absolute dollars. That would be atypical relative to your historical seasonality maybe -- I'm not sure that's ever happened. So can you walk me through what would drive that to occur?

[Matt Ofilos, executive]

Yes. So overall, Noah, I'd say we're kind of very happy with the year-to-date performance. Updated guidance is obviously 19% growth at the midpoint. Second half is still does have some sequential growth, it's pretty nominal to your point, but it is showing some growth. It flattens a bit with the mix of seasonality.

I think I've talked before when Cai asked the question about kind of the -- we do see some programs potentially dealing with some seasonality through the summer. So that might be new this year.

And then normally, we have completing programs Carey talked about almost $100 million worth of completing programs, but that's offset by the growth on the recent awards and the backlog. So tougher comps coming into the second half.

But overall, we're really happy. I think, like I said, the second half is trending in the right direction. The award positioning is good, the capture rates are great. So all in all, we're comfortable with the second half guide.

[Noah Poponak, analyst]

Okay. And Matt, I guess, similarly on the cash flow cadence and the guidance, the guidance would imply that the back half as a percentage of the year would be pretty different compared to history and that's a pretty big cash flow number you just had in the second quarter compared to how that usually turns through the year. I guess the working -- it looks like you had a positive change in working capital, but it's not a massive number. What's behind that?

[Matt Ofilos, executive]

Yes. Overall, we're just really happy with the collections. We had some major milestones that we're completing. As we've talked about completing some of these legacy programs will benefit cash flow. And so I would say, just generally speaking, really strong cash flow from across the board. Federal business, obviously, is pretty consistent. Quarter-over-quarter given just underlying cash that builds out every other week or monthly.

And so this is really just on the CI side, great performance out of the Middle East. DSO is down pretty significantly in the Middle East as well as North America. So some upfront payments on some big jobs. So all in all, just really great cash performance across the board.

[Noah Poponak, analyst]

Okay. And could you just update us on what EBITDA margin you're assuming for the year for each segment to roll up into the total?

[Matt Ofilos, executive]

Yes. So if I look at second half specifically, Noah, we are -- we have FS, call it in the high 9s, 9.8% at the midpoint NCI 74, so a little bit better on CI and a little bit of depression in FS. As you'd suspect, I mentioned earlier, I can't remember whose question it was, but we saw a little bit of a mix shift, stronger fixed price.

As we continue to grow on some of these programs, specifically the GSA FEDSIM win, that's a cost-type job. So as we see significant growth on that job, the mix will probably come back a little bit, and we expect Federal to kind of balance back out in the high 9s.

And then CI, we are expecting slight improvements, but opportunity there if we can get through these last couple of programs.

[Operator]

And the next question comes from Josh Sullivan with the Benchmark Company.

[Joshua Sullivan, analyst]

Carey, congratulations on the first year 3 years here and the transformation that you've ushered in. But maybe if you look at the next 3 years, what do you think characterizes Parsons in your efforts?

[Carey Smith, executive]

So I would say, as we look at the next 3 years, continuing number one, to stay laser focused on our customers' emerging missions. We like to play in the new news space and figure out how we're going to help fix their challenges of tomorrow versus try and run around and take away, for example, other people's recompetes.

So I would say if you look at infrastructure, very excited about the work we're doing in the Middle East. Those are all greenfield projects. We're having an opportunity to transform a country, which is kind of a once-in-a-lifetime opportunity, build new transportation systems, new residential areas, new marinas, new tourism centers, entertainment centers.

As I look at North America, I would say it's more a brownfield opportunities, and those are equally as challenging. How do you -- for example, we just were awarded the Inglewood project which is a rail and transit project out in California to help Los Angeles get ready to host the World Cup and everybody for the Olympics. So how do you position for some of these big events? And that's going to carry us sort of through the end of the decade.

As I look forward to, I would say, on the federal side of the house, we're going to continue to do what we've been doing very successfully, positioned ourselves as an exquisite federal company against near peer adversaries and state, laser focused in the areas where we're very strong, offensive cyber capabilities, electronic warfare, space, digital signal processing, continue to move up the value chain, bid and win larger jobs and kind of keep a playbook for us that's been working and staying on the leading edge of our customers' challenges.

[Joshua Sullivan, analyst]

Got it. And then just maybe to put a fighter point on, you talked about the Middle East there and your Saudi exposure, I think you mentioned no programs larger than 2%. And there has been some conversation around the space of some of those investments in the region. What are you guys seeing currently?

[Carey Smith, executive]

Yes. So Saudi Vision 2030 was launched by the Crown Prince in January 2016 to diversify the economy away from oil and transforming economically, socially and culturally they're going to be on the world stage several times. So over the next decade, they're going to host Asian games -- Asian Winter Games 2029, the World Expo 2030 and the FIFA World Cup in 2034.

So as original, infrastructure is going to be prioritized. It's going to receive significant funding. In order for Saudi to achieve its vision and be on the world stage over the next 5 to 10 years. I would also highlight the public investment funds, the sovereign wealth fund for Saudi Arabia. It's one of the world's largest funds, controlling an estimated assets of nearly $1 trillion. And it's directly mandated to realize Saudi Vision 2030. They're going to be increasing their annual deployment of capital from $40 billion to $50 billion a year up to $70 billion a year after 2025. And total construction output in Saudi Arabia -- made it to be $121 billion in 2024. Infrastructure construction is projected to grow at a compound annual growth rate of 6% through 2027.

We've been there a long time. We have extremely close relationships with customers. I just visited the region less month, had the opportunity to be with the CEOs of some of the major Giga projects that are going on. So we will understand the timing of these projects and the imperative to get them accomplished for Saudi Arabia.

[Operator]

That is all the time that we have for questions. I would now like to hand the call back over to Dave Spille for closing remarks.

[David Spille, executive]

Thank you, and thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. And we look forward to speaking with you soon. And with that, we'll end today's call. Have a great day.

[Operator]

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