Parsons Corporation

Good day and thank you for standing by. Welcome to the second quarter 2025 Parsons Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I'd now like to turn the conference over to Dave Spilly, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Liz. Good morning, and thank you for joining us today to discuss our second quarter 2025 financial results. Please note that we provide the presentation slides on the Investor Relations section of our website. On the call with me today are Carrie Smith, Chair, President, and CEO, and Matt Opelis, CFO. Today, Carrie will discuss her corporate strategy and operational highlights, and then Matt will provide an overview of our second quarter financial results, as well as a review of our 2025 guidance. We then will close with a question and answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year ended December 31, 2024 and other SEC filings. Please refer to our earnings press release for Parson's complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures. And now we'll turn the call over to Carrie.

Thank you, Dave. Good morning. Welcome to Pearson's second quarter 2025 earnings call. We're pleased with our second quarter results as cash flow exceeded our forecast and our revenue and adjusted EBITDA were in line with our expectations and the guidance assumptions we outlined on June 2, 2025. Excluding the revenue impact from our confidential contract for both Q2 2025 and Q2 2024, our second quarter total and organic revenue growth rates were 13% and 8% respectively. This growth includes double-digit total revenue growth in three of our four business units, with the fourth business unit growing 9% year-over-year. It also includes 8% organic growth for persons in both segments. highlighting the strength of our balanced portfolio, our strong hiring and retention, and our alignment to priority spending areas. During the second quarter, we delivered 40 basis points of margin expansion to 9.4%, a second quarter record, $160 million of cash flow from operations, and achieved a free cash flow conversion rate of 151% for the quarter, and 125% on a trailing 12-month basis. We also reported a book-to-bill ratio of 1.0 times for the quarter and trailing 12 months. This continues our streak of having a quarterly trailing 12-month book-to-bill ratio of 1.0 or better since our 2019 IPO. Finally, we're increasing our full-year revenue, adjusted EBITDA, and cash flow guidance ranges to reflect our second quarter operating performance. Chesapeake Technology International acquisition and our outlook for the remainder of the year. In addition to delivering solid financial results and program execution across our portfolio, we were recognized this quarter by Engineering News Record as the top program manager firm in the world. Also, Parsons was ranked number two on the professional services list, number two on the construction management program management for fee list, And number three, for construction management. This global recognition is a testament to our reputation for complex program delivery. Further, we won three contracts, over $100 million in the second quarter, with two of the three contracts representing new work. Significant second quarter contract wins included a new $176 million single award contract by the United States Army Corps of Engineers. to provide design, build, delivery services for an ammonium nitrate solution tank farm at the Holston Army Ammunition Plant. A new single award contract for cyber work by the Defense Threat Reduction Agency with a ceiling value of $138 million. Under this contract, persons will perform cyber assessments, operations, analysis, and research. $134 million fall on contract to oversee remediation projects on the Giant Mine Program in Canada, which is one of the largest mine reclamation projects in the world. Our critical infrastructure segment continues to thrive as we leverage our reputation, program management, and design engineering expertise to capitalize on unprecedented infrastructure spending in both North America and the Middle East. Overall, second quarter total infrastructure revenue grew 14% and 8% on an organic basis. In North America, total revenue grew 17% and 7% on an organic basis as we continued to win large new programs, execute on existing contracts, and retain and hire new employees. Several large project wins contributed to second quarter growth and are expected to grow in the second half of 2025, including Georgia State Route 400, Newark Air Train, Hawaii City Center Rail and Transit, Hudson River Tunnel, and the I-55 bridge replacement. Our growth and success in North America are particularly exciting, given infrastructure spending from the IIJA is not expected to peak until 2028, with a six- to eight-year tail after that. Plus, discussions on the next surface transportation reauthorization bill are already underway. and Secretary Duffy held a kickoff meeting on July 17th to emphasize that America is building again. This bill will provide more infrastructure spending once passed. Our focus on hard infrastructure, such as roads and highways, bridges, and airports, has bipartisan support and is a priority for the administration. Our Middle East infrastructure business also continues to excel, and we're the number one program manager throughout the region. We've operated in the Middle East for over six decades and have 7,000 employees in the region today. In 2024, we generated more than $1 billion of revenue and we expect total revenue growth of over 10% in 2025, which would mark the fourth consecutive year with double-digit organic revenue growth in the Middle East. We continue to see significant demand for our master planning, design engineering, and program and construction management solutions in the Middle East. We see this trend continuing as governments deliver their strategic vision, as well as prepare for upcoming events such as the Asian Winter Games, World Expo, and World Cup. We've expanded into the defense, hospitality, and industrial manufacturing sectors with recent wins, as these sectors are receiving major investments. We were excited to participate in President Trump's second quarter Middle East trip, which included visits to Saudi Arabia, Qatar, and the UAE, each of which represents significant existing work and future growth opportunities for Parsons. These visits underscore Parsons' pivotal role as a premier leader in the region and our alignment with the administration's priorities. Parsons' portfolio was acknowledged during events, including a signing ceremony for our two awards for the new King Salmon International Airport. Our Middle East revenue growth is expected to accelerate in the second half of this year as we continue our strong hiring and retention and ramp-up contracts, including King Salmon Park, the Riyadh Ring Roads Program, the Dubai Metro Blue Line Project, and the King Salmon International Airport. With significant wins in critical infrastructure Middle East and North America, we've achieved a book-to-bill ratio of 1.4 times and 1.2 times respectively in the first half of 2025. In our federal solutions segment, we're excited about the growth we're delivering in our core business, the significant large opportunities in our pipeline, and the funding boost to the fiscal year 26 defense investment accounts due to the recently passed one big beautiful bill, the reconciliation bill. Excluding the revenue impact from our confidential contract, our second quarter federal solutions year-over-year total and organic revenue growth rates were 11% and 8% respectively. This growth was primarily driven by demand for our aviation, cyber, and electronic warfare solutions. We are benefiting from our exposure to large single award IDIQ contracts, including our two sizable General Services Administration FEDSIM programs, the Missile Defense HC Teams, and our Air Base Air Defense Contract. Having existing single award IDIQ contracts with high ceiling values is important to rapidly deploy solutions that address near-peer threats. In addition, we're experiencing growth on our FAA, Army Ammunition, and Defense Threat Reduction HC Red Team programs. These contracts are expected to continue to grow in the second half of 2025. We're excited about the passage of the reconciliation bill on July 4th that increases defense spending by $150 billion and adds an anticipated 25% to investment accounts for fiscal year 26. Our federal portfolio lines with major budget line items, including aviation modernization, missile defense, space, munitions facility modernization, Pacific deterrence, border security, and more. Parson's portfolio also aligns to 10 of the 17 priority areas outlined in the February 2025 Department of Defense Memorandum, which are expected to receive additional funding over the next five years. We are laser focused on the budget line items that align with our core competencies and where our portfolio is well positioned with domain knowledge and leap ahead solutions. As a non-traditional company that was purpose-built with differentiated capabilities, we have the speed and agility to deliver transformational programs that achieve the administration's requirements and accelerated timelines. The FAA received $12.5 billion under the reconciliation bill to produce a new state-of-the-art air traffic control system. We are well positioned for the integrator contract given our transformational approach, partnership with IBM, and a team that is vendor agnostic, knows how to deliver advanced solutions, understands the FAA, and has strong past performance. If we win the integrator contract, Parsons will gain additional FAA work and serve as a single point of accountability prime contractor to ensure mission success. The Golden Dome for America Initiative, an integrated air and missile defense shield for our country's homeland defense, received $25 billion of funding under the reconciliation bill. Parsons has strong qualifications to address challenges that Golden Dome's trying to solve. We've supported the Missile Defense Agency for more than 40 years, and we're currently providing system engineering and integration on MDA's Teams Next system engineering contract. Under this contract, we deliver capabilities that are directly aligned to Golden Dome, such as engineering, analysis, and modeling and simulation on a vendor agnostic basis. These solutions enable the development of an integrated and layered missile defense system to protect the United States and allied forces against ballistic, hypersonic, cruise missile, and unmanned aircraft system threats. Golden Dome encompasses defending against advanced missile and drone threats with kinetic weapons such as missiles and non-kinetic capabilities such as cyber and electronic warfare. Having non-kinetic solutions embedded within the Golden Dome system is a game changer since it will enable our country to defeat adversary weapon systems either before or after a threat is launched. These capabilities can be used numerous times and against many types of threats while preserving valuable and costly kinetic resources. Our portfolio aligns with other major budget reconciliation line items, including munitions, Pacific deterrents, border security, and more. The munitions production budget received $25 billion of funding under the reconciliation bill. We're involved in modernizing several of the largest Army ammunition plants, including Holston and Radford, like our most recent $176 million award for the new ammonium nitrate solution tank farm at Holston. The Pacific Deterrence Initiative received $12 billion of new funding. We've been operating in the Indo-Pacom region for three decades and have significant infrastructure work on Guam and Kwajalein Islands, along with important mission-critical cyber and electronic warfare programs in the region. This quarter, we further expanded our presence by winning a counter-nuclear smuggling detection and deterrence task order from the Department of Energy for the Indo-Pacom region. Finally, border security and enforcement received over $160 billion in the reconciliation bill. For decades, Parsons has worked on border security projects worldwide to improve our customers' ability to predict illicit activity, detect and track illegal border crossings, identify and classify the incursions, and prevent weapons of mass destruction. We've supported the Defense Threat Reduction Agency, Customs and Border Protection, Federal Aviation Administration, Transportation Security Administration, and Department of Energy, providing engineering, program management, infrastructure upgrades, integrated command and control, remote sensing surveillance systems, situational awareness, and common operating picture systems. Our work is performed across the United States at the southwest border, land ports of entry, and customs and border protection training facilities, and globally in countries including Armenia, Georgia, Lebanon, Jordan, and more. We are very excited about the large opportunities in our pipeline that are substantial federal funding. With excellent win rates over the last three years and strategic investments in bid and proposal activity and key personnel, we've positioned the company to win these large pursuits that could accelerate our future organic revenue growth for years to come. As a result of Parson's strategic business positioning and purpose-built portfolio, These major projects are well aligned to our core competencies, and we are ready to deliver the additional demand. I want to highlight our acquisition of Chesapeake Technology International. CTI is a developer of multi-domain technologies across the invisible battle space in areas of electronic warfare, cyber, and autonomous systems. They enhance our position in the Indo-PACOM region and strengthen our relationships with special operations forces and key research and development customers, including the Defense Threat Reduction Agency. CTI's Team Awareness Kit and Tactical Assault Kit, or TAC-X Situational Awareness Tool, has been applied for border security, disaster relief, counter unmanned air systems, and other applications. This acquisition meets our financial M&A criteria. CTI is a high quality and unique company And we're excited to welcome them to the Parsons team. In summary, I'm pleased with our second quarter results as our core business continues to deliver strong total and organic revenue growth. We expanded margins by 40 basis points, delivered exceptional cash flow, and further positioned the company for continued long-term sustainable growth. In addition, we leveraged our balance sheet and closed another strategic accretive acquisition. We've now closed one acquisition in each of the last four quarters. Our diversified portfolio and six growing and profitable end markets are enabling us to achieve mid to high single-digit organic growth across the entire company, excluding the confidential contract. We have tailwinds in both segments, and financial metrics that support long-term growth and margin expansion. Unprecedented global infrastructure spending is expected to last into the next decade. The reconciliation bill was passed, and Parsons' capabilities will continue to play a vital role as near-peer threats become more aggressive and advanced cyber attacks increase across the U.S. and global conflicts persist. From a financial perspective, we have a total backlog of nearly $9 billion, of which 70% is funded. Approximately $11 billion of contract wins that we have not yet booked. A $55 billion pipeline that includes 114 opportunities of contracts worth $100 million or more and 14 opportunities worth $500 million or more. and we have less than 3% of our revenue up for repeat in the second half of 2025. Our robust backlog, large-scale pursuits, and excellent win rates provide a backdrop for persons to continue to outpace industry growth rates and deliver significant shareholder value over the long term. I look forward to our bright future, and I am proud of our more than 20,000 employees that are making a difference for our customers and communities around the world every day. It's a very exciting time to be at Parsons. With that, I'll turn it over to Matt to provide more details on our second quarter financial results. Matt?