Parsons Corporation

Thank you for standing by and welcome to Parsons Corporation's first quarter 2026 earnings conference call. At this time, all participants are in 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 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, David Spilly, Vice President, Investor Relations.

Please go ahead, sir. Good morning, and thank you for joining us today to discuss our first quarter 2026 financial results. Please note that we 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 Opelous, CFO. Today, Carrie will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our first quarter financial results, as well as a review of our 2026 guidance. We then will close with a question and answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year ended December 31, 2025 and other SEC filings. Please refer to our earnings press release for 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. Please refer to our earnings press release and presentation slides for a reconciliation of the non-GAAP financial measures. And now we'll turn the call over to Carrie.

Thank you, Dave. Good morning. Welcome to Parson's first quarter 2026 earnings call. I want to begin by recognizing the dedication and performance of Parson's more than 21,000 employees who delivered a strong start to the year. Most importantly, I'm pleased to share that our 7,500 team members in the Middle East region have remained safe during their current regional conflict. They've shown tremendous resilience in managing volatility while continuing to deliver our customers' critical missions. As we'll discuss later in the call, our Middle East business produced solid financial results this quarter, and I am very proud of what the team has achieved. As demonstrated by the current military operations, our differentiated solutions spanning cyber, electronic warfare, air-based defense, counter-manned aerial systems, and intelligence and operations centers are vitally important to protecting both our nations and our allies' security. Post-conflict, Parsons has prepared to support the Middle East on its path to recovery by providing essential capabilities, including critical infrastructure protection, air-based defense, integrated air and missile defense, transportation solutions, and the reconstruction of conflict-affected areas. We believe Parsons is well-positioned to advance allied priorities with our nearly 70 years in the region, extensive footprint, and performance reputation. We are proud of the work we do in defense, security, and infrastructure for our global customers. The first quarter highlighted the resilience of our business and our team's high level of execution as we delivered our highest adjusted EBITDA margin ever, reached record levels for both total and funded backlog, achieved a robust book-to-bill ratio of 1.4 times in both segments, and generated record first quarter cash flow. Revenue performance was in line with our expectations And we continue to complement our organic growth with strategic accretive acquisitions that enhance our differentiation and drive long-term shareholder value. Looking at our first quarter financials in more detail, total revenue increased by 8% and organic revenue grew 3%, excluding our confidential contract. This total revenue growth was driven by 12% growth in our federal solution segment and 3% growth in critical infrastructure. Our record adjusted EBITDA margin of 10.1% was driven by a 10.8% margin in critical infrastructure, marking our highest first quarter performance in that segment. The 50 basis points of margin expansion at the corporate level in 2.1 builds on the 40 basis points of expansion we delivered in the first quarter of 2025. In addition, we significantly exceeded our cash flow target and closed the quarter with record total and funded backlog of $9.3 and $6.6 billion, respectively. On the bookings front, contract awards increased 17% year over year, resulting in a strong book-to-bill ratio of 1.4 times. Our critical infrastructure segment reported a book-to-bill of 1.4 for the quarter, marking 22 consecutive quarters above 1.0. Performance in the Middle East was outstanding, with a book-to-bill ratio of 1.5. In federal solutions, contract awards increased 38% year-over-year, resulting in a book-to-bill ratio of 1.4 times. These strong bookings provide a foundation for continued organic growth in both segments. A key driver of our future performance is the strategic importance of our contract wins. During the first quarter, we secured four single award contracts valued at more than $100 million. These included a $593 million contract extension under the Federal Aviation Administration's Technical Support Services, or TSSC-5 contract, with $410 million booked in Q1. This award exercise, the first option period, extends performance through 2030 and supports the FAA's aviation system capital investment plan. TSST-5 has a $1.8 billion ceiling value with a four-year base period and two three-year option periods. We received a production award notification from the United States Cyber Command for the Joint Cyber Hunt Kit Solution, a new sole source contract with a ceiling value of up to $500 million, with $250 million booked in Q1. Importantly, this contract was another transaction agreement, which allows for faster, customized, and collaborative industry partnerships. Parsons is an industry leader in the use of these rapid delivery vehicles. We were awarded a new five-year contract valued at over $340 million to provide program management services for a major transportation project in the Middle East, booking over $300 million in Q1. Our transportation work in the region spans rail and transit, roads and highways, bridges, airports, and intelligent transportation systems. We rewarded more than $145 million under the GARDEM contract. Under these task orders, Parsons will enhance command and control space and intelligence surveillance and reconnaissance technologies for the Air Force and other federal customers. We will develop and sustain next generation software, deliver onsite training, and rapidly deploy advanced mission applications. We booked $38 million on these contracts during the first quarter. We also received an additional $150 million on two contracts to continue serving as the main construction manager for remediation projects on the Faro Mine and Giant Mine programs in Canada, two of the largest and most complex mine reclamation projects in the world. We booked the full amount on these contracts during the first quarter. After the first quarter ended, we received four more strategic federal awards previously unannounced. First, we were awarded $400 million for two other transaction agreements, each having a three-year period of performance. This new work shows the continued demand for our mission-critical defense and intelligence capabilities and our ability to deliver solutions to our national security customer base rapidly. Next, we were awarded a single award classified IDIQ contract with a ceiling value of $184 million, over seven years that represents entirely new work for the company. We were awarded this contract based on our differentiated technology, including our unique biometrics capabilities. And finally, we were awarded an $87 million increase on its current national security prime contract. Importantly, in all of our federal solution wins, we are leveraging our artificial intelligent capabilities to enhance our solutions and create differentiated outcomes. I would now like to highlight some additional accomplishments during this quarter. We closed our acquisition of Altamira Technologies Corporation in an all-cash transaction valued at up to $375 million. Altamira advances high-priority national security missions, supporting intelligence community and Department of War customers by providing multi-intelligence technology solutions and performing critical operations. Altamira expands persons' market presence and signals intelligence, missile warning, space, and foreign military exploitation, and adds critical customer depth with the National Air and Space Intelligence Center, National Security Agency, and other classified intelligence customers. We were named one of the world's most ethical companies by Office Fair for the 17th consecutive year. and we were honored for our project excellence on two major infrastructure initiatives. In Georgia, our team received the Engineering Excellence Honor Award from the American Council of Engineering Companies for the Acres Mill Ramp Extension in Cobb County. Internationally, we were recognized with the Refurbishment and Retrofit Project of the Year at the Big Project Middle East Awards for our work on the King Abdullah Financial District Residential Uplift Project. Looking forward, we are optimistic about Parsons' future. The synergies between our critical infrastructure and federal solutions segments across six growing, profitable, and enduring end markets set us apart and create significant opportunities for us to meet or exceed our financial goals. In critical infrastructure, we continue to see strong demand in both North America and the Middle East. Our focus on hard infrastructure, roads and highways, bridges, airports, rail and transit, and intelligent transportation systems is aligned with the spending priorities in these geographies. Also, there's a need for urban development, support to major events, and advanced manufacturing that match our core competencies. Our number one ranked program management, number three ranked construction management, and AI-enabled solutions underpin our success. While we continue to monitor geopolitical developments, including the ongoing war in Iran, our momentum and our customers' commitment to advancing their projects forward give us confidence in continued growth. Although our business has not been affected by the conflict to date, our customers remain focused on ensuring their budgets are aligned with the right priorities and their programs are properly phased. Across the Middle East, the emphasis on diversifying economies, hosting major global events, and addressing defense, security, and infrastructure requirements is expected to continue driving demand for our expertise. Turning to federal solutions, we are encouraged by the momentum in the United States defense spending. In fiscal year 2026, $1 trillion has been appropriated for defense and we're beginning to see funds flow from both the base budget and reconciliation industry. For fiscal year 2027, the administration has submitted a $1.5 trillion defense budget comprising a $1.15 trillion base and $350 billion in reconciliation funding. This proposed 44% increase over current funding levels, which is focused on modernization, would represent the largest defense budget in history. The fiscal year 27 budget presents substantial opportunities for persons that are closely aligned with our strengths, including missile defense, cyber, space, counter unmanned aerial systems, electronic warfare, facilities modernization, critical minerals, countering weapons of mass destruction, and joint all-domain command and control. Our purpose-built federal solutions portfolio is aligned with our nation's defense and security priorities And because of our strategic acquisitions and sustained research and development investments, we've built differentiated capabilities that help safeguard our nation and outpace evolving threats. We are encouraged by the strong bipartisan commitment to increasing U.S. defense spending in response to the evolving global security challenges. Our leading indicators, including our $54 billion pipeline, strong win rates of 60%, total backlog of $9.3 billion, of which 71% is funded, and our $11 billion of contract wins not yet booked give us confidence that we will continue to remain an industry growth leader, excluding the impact of our confidential contract in both segments. We operate in two large and well-funded segments across six end markets, and our favorable financial outlook is supported by our proven execution and effective capital deployment. We are reaffirming our 2026 guidance ranges, which Matt will review shortly. In summary, we had a strong start to the year, delivering new records for adjusted EBITDA margin and total unfunded backlog, exceptional book-to-bill ratios in both segments, and record first quarter cash flow. Our operational discipline, strategic contract wins, and additional corporate achievements reinforce our position as an industry leader. We remain optimistic about our future and are confident in our ability to drive long-term shareholder value. With that, I'll turn the call over to Matt to provide more details on our first quarter financial results.