Parsons Corporation (PSN) Earnings Call Transcript & Summary

Good morning. My name is Dave Spille, Vice President of Investor Relations. I want to welcome you to Parson's first-ever Investor Day. We're very excited to be here, and I want to thank you for your interest in Parsons and for your attendance. Our executive team and market leaders look forward to engaging with you as we discuss our growth strategy. We have an exciting morning planned with executive presentations, panel discussions and Q&A sessions. We'll also be showcasing a sampling of our technology in a series of short videos. I should also mention that today's presentations will be archived on the Investor Relations section of our website. Before we begin the day, I want to remind you that any statements we make could be considered forward-looking statements under current law. Please refer to the safe harbor language at the beginning of the presentation and incorporate that into any transcript or replay of the event. Before I turn things over to Chuck Harrington, our Chairman and CEO, we'll start the day with a video that showcases the innovative technology and solutions we are bringing to the defense, intelligence and critical infrastructure markets. With that, I hope you enjoy the event and the rest of your day. [Presentation]

Thanks, Dave, and welcome to Parson's first Investor Day. I'm Chuck Harrington, Chairman and CEO. I hope you enjoyed that short video clip that we just showed. We'll show a few more videos throughout the day showcasing technology applications of products we've developed as we transition between speakers and panels. We'll be ending the day with a Q&A session, and I'll be joined by Carey Smith, our President and COO; and George Ball, our CFO. [Operator Instructions] The content of today's Investor Day was guided by input we gathered from current investors, prospective investors and coverage analysts. We gathered this input from our recent perception study and from ongoing discussions to craft today's content, assuring we're providing the information that you wanted us to address. We continue to execute the strategy we outlined at our IPO and continue to evolve and enhance our operations as our markets evolve as well. Central to our strategy is expanding our intellectual property in software and hardware products and platforms and incorporating our strong services infrastructure to deliver innovative and differentiated solutions to our customers. Our people and technology create our unique offerings, which we then leverage when selling and delivering our services contracts, product sales or as fully integrated platforms. This is central to our approach. With that as a backdrop, I want to quickly outline our approach to the day. I'm leading off with an overview of the company and our strategy and a summary of our performance over the past 3 years. Carey Smith, our President and Chief Operating Officer, will follow me with a deeper dive into how we will achieve our strategic goals of organic growth and margin expansion. Our market leader panels will then discuss specifics of market dynamics and provide examples of actions they're taking to achieve our growth margin and cash flow objectives. George Ball, our Chief Financial Officer, will provide the financial analysis of our operating plans, highlighting our past and forecasted performance as it relates to revenue, adjusted EBITDA and cash flow. As I mentioned earlier, we'll be showcasing short videos of our technologies that we believe sets Parsons apart from our competition and is key to the differentiation of our sales model that will drive growth and future revenues and margins. Parsons was founded in 1944 and has a storied history of success and transformation. Underpinning our long-term success has been a focus on the technology and systems that have, quite frankly, changed the world, ranging from missile defense systems to fully autonomous transit systems to satellite ground controls and to cyber platforms used by our nation's defense and intelligence agencies. Our markets are universally driven by government priorities. Today, our customers are facing increased cybersecurity breaches and attacks; a space race that has crowded the domain once completely dominated by the U.S.; a threat environment that has shifted from a war on terrorism to the realization, "Do we have well funded and technologically advanced near-peer threats?"; and a global system of infrastructure that is, quite frankly, not prepared for a 5G interconnected, electrically powered, cyber-susceptible autonomous future, driven by consumer preferences. The responses by our customers to these macroeconomic drivers must be to invest more: invest more in cybersecurity to protect our data and our critical infrastructure; invest more in space to detect and protect global communications, GPS, launches and satellites; invest more in IoT sensors and platforms to protect our military, personnel, equipment and bases from physical attack; and invest more in infrastructure to efficiently move people and goods and build resilience from evolving weather patterns and cyber threats. So whether it's interpreting and responding to macroeconomic drivers like I just discussed or responding to unforeseen events such as 9/11 or the global financial crisis or our current pandemic, Parsons is a resilient company and has demonstrated the ability to move quickly as economic and other drivers open doors of opportunity while simultaneously closing others. Parson's growth through these events are a proof positive of this cultural tenet of our team. As an example, Parsons posted record revenues, profits and cash flows in the years during and following the global financial crisis. I credit this agility to Parson's customer focus and continual innovation. We listen, we learn, we analyze and we develop solutions to remain at the forefront of our customers' needs in the defense, intelligence and critical infrastructure marketplaces. This is at the heart of our continuous process of ideation, immersive engineering, rapid prototyping and solution deployment encompassing software platforms, hardware sensors and technical services. We're focused on large and well-funded customers. Our customers are predominantly departments and agencies of the U.S. federal government or state and local governments, as I mentioned previously. Our game plan to support our customers is straightforward: focus on our customers' key needs, invest in targeted R&D to develop solutions to these emerging needs and augment with focused M&A to expand our portfolio of IP and expertise. This game plan has led Parsons to pursuing and winning larger contracts with higher technology content and is reflected in our steadily increasing annual bid pipeline, which is up 100% at the start of 2021 from what it was at the start of 2020. Our market support and our plans are built on generating 5% to 7% organic revenue growth over the next 3 years, augmented with M&A to drive 10% top line growth while continuing to expand our margins with an objective of building a portfolio that produces 10% adjusted EBITDA margins through organic and inorganic investment. We're focused on converting 100% of our net income to cash flow. So in terms of revenue, Parsons has grown at a 4.9% compound annual growth rate over the past 2 years since going public while simultaneously overcoming a strategic and planned 2.5% to 3% annual revenue headwind generated from the runoff of low-margin, high pass-through contracts and additionally incurring a 5% revenue headwind in 2020 alone due to COVID-19. So as we look to the future, we'll be clear of low-margin revenue run-off and COVID headwinds after 2021, clearing the pathway for higher growth in 2022 and beyond. As outlined in our IPO, we have 3 tools related to top line revenue growth: one, expanding and growing markets; two, investing in key disruptive technologies; and three, targeted M&A. Our markets are strong, they're long-lasting and are exhibiting strong growth for our solutions and solving their challenges. Our clients are looking for increased technology content. Why? To drive efficiency and scalability in their operations and, they're bundling their needs into larger contracts. These are also drivers of our organic growth. We augment our organic operations with M&A investments in our existing markets, building IP in software and hardware products and technology-oriented revenues that drive top line growth and increase margins. We finance and execute this M&A with our strong cash flow, combined with our track record of acquiring strong companies that we integrate effectively. Our market area growth strategy centers on expanding our position in technology-based markets that are large and growing and benefiting from sustainable market drivers. Cyber, space, C5ISR and connected communities are the markets that we see transforming through the use of artificial intelligence and machine learning; digital transformation, including cloud migration; and the IoT, predominantly sensors. These same markets are also growing due to increased cyber incidents and threats, the new space race and the growth of intelligent infrastructure and connected communities that are leveraging advances in 5G and the need to monitor systems autonomously with AI and other digital tools. Investing in strategic M&A has been a cornerstone of Parsons dating back to the late 1940s, when we made our very first acquisition. Today, we invest in companies that broaden and deepen our customer relationships in our core markets and expand our intellectual property. We're investing in cyber, space, command and control and intelligent transportation. We focus on companies that possess software or hardware intellectual property that leverage AI, digital transformation and IoT sensors to drive increased differentiation in our offerings, higher margins and future conversion potential to SaaS models. From a financial perspective, we focus on companies with 10% top line growth, generating at least 10% EBITDA margins, converting cash flow at 100% of net income and are accretive to Parsons' earnings and market multiple. In terms of market expansion, Parsons has expanded its adjusted EBITDA margin by 180 basis points over the past few years since going public, ending the year at 8.7%. We guided to another 50 basis point expansion in 2021. We've outlined 3 organic levers that we'll utilize to increase our adjusted EBITDA margin, augmented with margin-accretive M&A. We outlined a strategic run-off of lower-margin, high pass-through contracts that through their very elimination increase our corporate adjusted EBITDA margin and additionally, our intent to expand the time-and-material and fixed-price portions of our portfolio that also increase margin. Second is expanding our portfolio in areas of higher technology content that inherently support higher margins. These are space, cyber, C5ISR and connected communities. Lastly, we're investing in and expanding our portfolio of technology products that not only drive increased differentiation in our services sales but also possess higher margins when sold on commercial terms or when integrated with services into an as-a-service sale. These levers are further supported with our M&A program that focuses on technology targets that possess adjusted EBITDA margins greater than 10%. Our technology investments provide effective discriminators in how we compete. Software or hardware products that are already developed and functional allow our teams to transition from DevOps to mission ops rapidly. Our software products are highly customizable, allowing us to further refine our software and meet our customers' evolving needs; and they're open platform, allowing us to integrate other suppliers, software and hardware, assuring that our customers are receiving the very best available technology to achieve their missions. Our commercial software and hardware products are highly profitable, and they're critical to our customers' mission success and thereby create additional post-sale opportunities for our teams. As we look to the future, we believe our customers will gradually and steadily increase their focus on integrated solutions, comprised of hardware and software products and associated services. Cash flow is also an important aspect of our financial objective, with a focus on generating strong sustainable cash flows and converting 100% of our net income into cash flow. Since going public 2 years ago, we've averaged a cash-to-net-income conversion rate of 112%. Our strong cash flow is a direct result of our incredible team members and their commitment to excellence. Speaking of our team members, people are the key ingredient to Parsons success with nearly 16,000-strong workforce, comprised of engineers, scientists, programmers and other professionals, many of whom possess advanced degrees and high-level security clearances. We invest in our workforce to maintain our position as an employer of choice with a continuous learning and collaborative culture of diverse backgrounds and thoughts. Diversity is a core value of Parsons, and we embrace all backgrounds to create that atmosphere of diverse thought that's necessary to drive innovative solutions that truly make a difference. Parsons' commitment to core values goes back decades, and these core values of safety, quality, integrity, diversity, innovation and sustainability are a vital part of our company's DNA. From an environmental perspective, we're committed to remediating some of the world's most complex environmental issues, including radioactive and hazardous waste built up over prior generations. We're also committed to reducing the carbon footprint of our own operations. Social awareness is core to several of our core values. We continue our journey to eliminate bias and increase the diversity of our workforce and invest in organizations that are committed to the same. As it relates to governance, we're committed to operating our company with transparency and a commitment to integrity as demonstrated by our recent recognition as one of the world's most ethical companies for the 12th consecutive year. Parsons is a company that has demonstrated the ability to combat strong headwinds and the agility to move to areas of higher growth, creating new products while expanding margins and generating strong cash flows. This has allowed us to reinvest in our workforce, R&D and strategic M&A to drive sustainable shareholder value creation. We're pleased with our journey to date, and we look forward to a bright future of continued growth while holding ourselves to the highest standards of environmental stewardship, inclusion and diversity and ethical governance. Following a short video of our exciting ZEUS directed energy system, our President and Chief Operating Officer, Carey Smith, will provide additional details on how we operationalize this strategy to meet our objectives for organic growth, margin expansion and cash generation that drives our shareholder value creation. Thank you. [Presentation]

Welcome to Parson's first Investor Day. I'm really excited today to share our 3-year growth strategy with you. There are 4 key messages that I'd like you to take away from the presentation. First is we've transformed the Parsons -- the company over the past 4 years. We've moved from what was a project-enabled company focused on services to a solutions-enabled company that's driven by technology. We've also balanced our portfolio. So today, we have about 50% in Federal Solutions and 50% in Critical Infrastructure. This has led to a strong position in growing markets that include cyber, space, C5ISR, missile defense, intelligence and smart mobility. Parsons is different. We're an agile, innovative, disruptive company like a small business, yet we have the breadth and depth of a large business to be able to bid and win large major contracts. Finally, we have a favorable financial outlook. We're focused on top positions in high-growth markets. We will continue to expand our margins and deliver predictable operating cash flow. On March 3, the Biden-Haris administration released the interim national security strategy. This reinforced that the United States is tied to global events such as the recent pandemic crisis and as well, climate change. In addition, we face today a world that is facing rising nationalism, receding democracy and strong near-peer threats of China and Russia. We're also undergoing a technology revolution that will reshape our lives as we know it today, and with that technology revolution comes increased cybersecurity attacks. Those threaten our economy, our safety and our health and our security of our nation. We're cautiously optimistic at Parsons of an infrastructure bill, and as the American Society of Civil Engineering (sic) [ American Society of Civil Engineers ] pointed out, there's a $4 trillion infrastructure need in the United States alone and even broader globally. In addition, oil prices have started to rebound with Brent crude reaching $67 a barrel yesterday, and that will help our Middle East business. This chart I'm really excited about because we've really changed the Federal Solutions portfolio in the last 4 years. At the end of 2016, we were a company that was focused on infrastructure projects, and we also had some Missile Defense Agency technology services. We put in place a strategy to move into top-growing markets, both organically and inorganically, and today, we're a solutions-enabled company that leads with technology. Looking forward 3 years, we're focused on being an integrated, full life cycle solutions provider. So what does that mean financially? That means we've been able to grow our top line and we've been able to expand our margin across this period because we've moved up the value chain and we've gotten to more critical customer missions. And I'd like to share 2 examples of how that works. First is command and control. At the end of 2016, we did service-enabled, service-unique command and control systems. Today, those systems talk to each other so they're integrated and they're coordinated. But the future is joint all-domain operations, where any sensor can connect with any shooter across any network with coordinated mission planning and coordinated project execution. A second example I'd like to share with you is our space business. At the end of 2016, we had a handful of subject matter experts in space, but we decided that was a market that was going to be growing and one that we should focus on. So both, again, through organic and inorganic means, we put together a space strategy. Today, we deliver space situational awareness, small satellite launch and integration and payload solutions as well as enterprise ground systems. So what does the future mean for space? We're going to be selling differently. We're looking at how do we provide launch-as-a-service business models. We're looking at space resiliency, which is critical, from securing those satellite constellations to the networks to the ground systems. It's important that the United States own the outcome of space. We have to be prepared for fighting and winning a war on space should that become necessary. The same transformation has occurred in our Critical Infrastructure business, and the example that I will give there is smart mobility. At the end of 2016, we had a great system called the intelligent network or iNet but it was a stand-alone system. Today, in 2020, we're an integrated traffic solutions provider, integrating thousands of sensors in a single city; aggregating data to provide safer, more efficient traffic flow and reduce congestion in our cities. And we've developed some interesting solutions and ways of monetizing that data. So when you look forward to the future, being an integrated, full life cycle solutions provider, we will be doing data monetization in areas like intelligent intersections since our intersections will be changing post COVID due to different traffic patterns; in areas like asset management, where we've developed a software solution that manages our assets for their entire life cycle; in areas such as congestion pricing, where we're involved in the first congestion pricing program in the United States; and in areas like vehicle miles traveled. Our M&A strategy has supported our migration and our strategic approach to being an integrated solutions provider. In 2011, we first pivoted into the Federal business by getting into missile defense and cyber through our SPARTA acquisition. In 2014, we acquired Delcan. That brought in the intelligent network product but also rail and transit capabilities across North America. And 2018 was our real game changer. We acquired Polaris Alpha. This brought an agile, innovative, disruptive culture to Parsons. It also brought some terrific processes, including DevSecOps and agile software development. And Polaris Alpha increased our space and cyber market presence, giving us leading technology capabilities in advanced sensing, artificial intelligence, command and control and big data analytics. On to 2019, we made 2 acquisitions. We acquired OGSystems, a leader in geospatial intelligence, enabling Parsons to do multi-intelligence data fusion across our portfolio. They also brought threat analytics capability and unique processes in immersive engineering. In 2019, we acquired QRC Technologies, a leader in radio frequency products. This gave Parsons the capability to drive cyber, space and electromagnetic convergence. And finally, our most recent acquisition, which is very exciting, Braxton Technologies. Braxton brought enterprise ground system capabilities. They also have the capability to use with commercial antennas and control government satellite constellations as well as provide assured position, navigation and timing positions, which are critical if GPS is jammed. I will mention also that Braxton increases our space portfolio by 50%. So today, we have differentiated positions in large growing markets. You can see across the top bar each of our business units and the 2020 revenue that they delivered. We have large addressable markets in every single business unit, with $10 billion being the bottom and up to $30 billion in our cyber market and an aggregate addressable market of $110 billion across the company. We have strong compound annual growth rates, particularly on the Federal side, where we're growing at least 5% in every single market, and cyber and space are growing at 12%. And then if you look at our aggregate compound annual growth -- CAGR, our market size is growing at 7.4%. I'd like to note that this does not include a critical infrastructure bill, which would increase the CAGRs there even more. Parsons is different. We lead with a high-value purpose, and it's a purpose that are focused on our customers' missions. These are customers we know, we understand and we're deeply embedded with so we're in the best position to help them meet their emerging challenges of tomorrow. We invest in technology that's at the forefront of their missions. We've identified, acquired and successfully integrated technology companies that have moved us towards becoming an integrated solutions provider, and we have the benefit of having a diverse portfolio between Federal and Critical Infrastructure, one that's able to withstand any budget shifts or any administration priority shifts. Another benefit of that portfolio is the fact that we understand the critical infrastructure domains and we have the technology to improve those domains. So if you look at an airport, you want to modernize an airport, you want to provide critical infrastructure security, who better to go to than Parsons who knows how that airport works and can provide that capability? This end-to-end solutions approach has enabled us to win large, greater than $100 million contracts; for example, the combatant command mission support, our largest cyber contract, at $590 million and most recently, $1.2 billion Edmonton light rail transit. As well, we won a $300 million classified space job last year. We have a strong pipeline of win rates, over $40 billion pipeline between the segments. We have 80 bids that exceed $100 million with 50 of those in Federal. We have greater than a 46% overall win rate, including new business and competitive recompetes. We achieved over a 1.0 trailing 12-month book-to-bill, led by Federal of 1.14. The only difference between the segments is our on-contract growth. In Federal, we get about 14% on-contract growth and extensions annually, whereas in Critical Infrastructure, we get about 40% on-contract growth. And I'd like to highlight the strength of our pipeline. We did last year $12 billion of bids. This year, we will submit $24 billion of bids. Next, I'm going to walk you through our revenue walks and our EBITDA walks for both segments, starting with Federal Solutions. In 2020, we completed the year at $1.9 billion. We will be at $2.4 billion by 2023. We do have a series of program completions and transitions that are partially offset by on-contract growth. We're going to achieve organic growth across all 4 business units. I'll hit on the 3 high-growth business units in just a minute, but I want to highlight that engineered systems is also growing. This is the portfolio where our life sciences business resides. We're involved in areas like pandemic response with our DetectWise solution. We do infectious disease control. We're involved in biosurveillance. We perform environmental remediation. We also are involved in smart installation such a smart bases, and one of the first ones that was done at Tyndall was a Parsons' program. Why is this plan credible? We have planned at 40% win rates versus historical actuals of 46%. We have planned at a 1.2x book-to-bill versus our historical 1.14. But I want to point out, across our 3 high-growth markets, they have a 1.45x book-to-bill ratio in 2019 and 2020, and those are the markets we're going to be focused on bidding more jobs. So let me talk about the jobs we're going to be bidding in those 3 areas. Cyber is increasing, both offensive and defensive cyber, particularly when you look at the recent attacks such as SolarWinds and Microsoft. Parsons has been involved in offensive and defensive cyber and offensive particularly for over 30 years. If you do offense, you're best postured to know how to do defense. In addition, in this marketplace, our adversaries are fighting a war of information warfare, so that means information security, information dominance. The United States is migrating to that where you're going to see more convergence between cyber, space and electromagnetic capabilities. Parsons has all those capabilities within the same company. We're also seeing an increased emphasis on resiliency for both weapon systems and space assets and supply chain security. In the space area, space situational awareness is becoming increasingly important. It's not enough just to detect, track and identify assets in space. We have to prepare for and be ready to win a future war in space. There's a shift towards small satellites for many reasons, earth observation, satellite communications. It's a lower cost for launch and integration, but most importantly, small satellites provide the necessary space resiliency with a disaggregate architecture. Parson sports over 170 spacecraft programs across 7 continents with the recent Braxton acquisition. Intelligence, surveillance and reconnaissance. There's a need for better, more accurate and timely decision-making. That's going to be driven through better intelligence and information. Although we have systems in Parsons that provide that information such as our PeARL sensor that does 3D image rate of pinpoint high-value targets, we're also a best-of-breed integrator in Parsons. We integrate best-of-breed solutions from government solutions as well as our commercial partners, and we lead with technology once again. Artificial intelligence, big data analytics and edge computing are critically important to provide better intelligence, surveillance, reconnaissance. On the EBITDA margin walk for Federal Solutions, we will be going from 8.8% in 2020 to 9.5% in 2023. This is driven by a 40 basis point improvement from Braxton and 30 basis point improvement by shifting to more fixed-price business, increased product sales and holding our overhead flat as our revenue increases. Critical Infrastructure revenue walk. We completed 2020 at $2 billion. We're going to $2.3 billion in 2023. As with Federal, we have a series of program transitions, completions, partly offset by on-contract growth. And once again, we're going to see organic growth in both of the business units, mobility solutions and connected communities. This plan is the same and consistent as far as win rates, book-to-bill and program completions and transitions as our historical averages. Why will Critical Infrastructure grow? Well, we're aligned with the customers' needs. If you look at the intelligent transportation system market, that market is growing at a 15% compound annual growth rate between 2020 and 2026 when the market will reach $50 billion. Our iNET solution is the most globally deployed intelligent transportation system in the world. We're also going to be raising funds to help with infrastructure projects through new means like congestion pricing and vehicle miles traveled. Environmental remediation is a Biden administration priority, as noted in the environmental justice executive order that was released in January. Parsons is very involved in environmental remediation, including remediating mines, oil and gas wells and bringing those back to a usable state. We're also focused on emerging contaminants, such as PFAS and PFOS and getting those out of our drinking water. Another important area is climate change. Particularly with the droughts that we faced in California, it's important that we're able to reuse water, recycle it for irrigation and ground water recharge purposes. Finally, transportation. I mentioned there's a need for $4 trillion of transportation in the United States but also growth in Canada and throughout the Middle East. It's not just to rebuild roads and repair roads, but it's to modernize roads and it's to make those roads smart. So today, when you look at how we're designing infrastructure, we design for a 100-year lifespan, whereas, previously, we were only designing for a 35-year lifespan. We're also making that infrastructure more resilient, leveraging our technologies. On the Critical Infrastructure walk, we'll be going from 8.7% margin in 2020 to a 9.1% margin in 2023, and this will be driven by 40 basis points of portfolio management. So in summary, Parsons is well positioned to drive sustainable growth. Our portfolio is aligned to macro environment trends. We have top positions in high-growth markets, and we're aligned to the Biden administration priorities. We have a credible 3-year plan that is backed up with historical results and $110 billion of addressable market space with a 7.4% market CAGR. Thank you very much. It's certainly been exciting to share the 3-year Parsons' growth strategy. Next, we're going to be showing a video that was prerecorded. I had the opportunity to sit with each of our Federal Solutions business unit leaders and talk to them about how they were going to organically grow their business. This session will be followed by a live question-and-answer session, so please submit your questions on the Q&A tab. Thank you. [Presentation]

Now it's my pleasure to welcome the Federal Solutions market leaders to our panel today. I'd like to make some quick introductions. Chris Alexander leads our engineered systems market. Paul Decker runs cyber and intelligence. Hector Cuevas runs our missile defense and C5ISR. And Richard Aves leads our space and geospatial solutions. I'm going to start off with a question that's really important to Parsons, and that's about driving organic growth. We're very focused on growing sustainable and profitable markets. And Paul, for the last 4 years, your market has been the fastest growing. So why don't you discuss how you're going to continue that trajectory?

Absolutely, Carey. So our cyber and intelligence market has been our fastest growing market within Parsons and has also produced the highest profit margin. Our priorities as we move forward are really focused around 3 things: information warfare with our strategic focus on the Pacific Deterrence Initiative. Second, we're really going to focus on advancing the technologies across autonomous offensive as well as defensive cyber operations, systems and capabilities. And I'll be working alongside Rich to really accelerate the capabilities around resiliency of space-based as well as weapon and platform. We're also going to be looking at bidding larger, more complex jobs as well as on-contract growth. In fourth quarter 2019, we won our largest cyber contract in the history of Parsons, the Combatant Commands Cyber Mission Support contract, $590 million. This was followed by another large contract, $148 million, to deliver cyber mission effects. And as we move forward, the other thing that we're going to have organic growth is really aligning our market to the new administration's priorities. When you think about there's going to be an additional $9 billion that's going to go to IT modernization as well as cyber, being able to leverage and take the expertise within cyber that we've been delivering and developing for our DoD as well as our intelligence community customers and bring those to bear over into our Department of Homeland Security. Rich, your market has also had accelerated growth. Do you want to talk about the secret to that?

Absolutely. Always happy to talk about the closed market within Parsons. From an organic growth perspective, we really have 4 pillars of growth that we're focusing on the near term. Those are enterprise ground services, space situational awareness, small satellite launch, integration and payload development and our advanced geospatial intelligence capabilities. Our recent Braxton acquisition has really opened the door for us from an enterprise ground services perspective, both the intelligence community and Department of Defense clients have signaled that they have a need for a common, secure and standardized way to do their satellite command and control, and we now have that solution. Our small satellite launch manifest integration contract is 2 for 2 now, 100% as far as launches on that contract, and we are looking forward to a successful third launch this year. As a provider of advanced geospatial intelligence, we are really looking forward to expanding into new client spaces and bringing automation to the way our clients do geospatial intelligence. We're also looking to partner with commercial companies and bring new capabilities in -- related to open-source intelligence that our clients haven't traditionally exploited. I want to also highlight from an organic growth perspective kind of a use case. Our recent [ Hidalgo ] win really highlights the ability for Parsons to move up the value chain. In this case, we brought the best of legacy Polaris Alpha and OGSystems companies, and we're able to go and prime a large $300-plus million contract providing information security services for an intelligence community client. It's this type of collaboration that's going to be key to our successful organic growth going forward. As we cultivate these pillars of growth, we've really been focusing on creating an all-domain focus so our capabilities are applicable across air, sea, land, cyber and space. Paul and I have been working very closely with Hector and the missile defense/C5ISR crew who are leading that effort. So Hector, can you expand upon that?

Yes. Thanks, Rich. Before I start, you've heard from the fastest growing market, obviously now the most coolest market. And I'll take the title of the most hip market, and we'll overtake the fastest growing market from Paul real soon. The renewed focus on near-peer threats by the Department of Defense on adversaries like China, Russia, North Korea and the continued commitment to counterbalance extremist organizations across the globe will continue to fuel our growth. Specifically, the domains of -- obviously, joint -- all-domain command and control and intelligence, surveillance and reconnaissance or ISR, as they call it, will be our focus for this year and going into the out-years. We've been supporting the Department of Defense for over 40 years with systems, missile defense, ISR sensor integration, data analytics solutions and delivering to the customer at the speed of relevance. And you'll hear Carey talk more about that later. Our acquisition strategy and the recent acquisitions of Braxton, OGSystems, QRC and Polaris Alpha will enable us to prime larger, technology-complex jobs as we move forward and really move up the value chain there. And then finally for us, being a Tier 1 company with the breadth and depth that comes along with that but really having the mentality of a small business and the agility to deliver solutions at that speed of relevance is really what continues to differentiate our solutions, but more importantly, fuel our growth going into the future. Okay. So Chris, you have a lot of work in the INDOPACOM theater today or Indo-Pacific theater today. Why don't you tell us more about that?

Thanks, Hector. Absolutely. The INDOPACOM region is a priority theater as most recently outlined by the Secretary of Defense. And Parsons already has a beachhead in the Marshall Islands where we're providing aviation support to the Army. What we're seeing is a need for more expeditionary and what the Air Force calls agile combat employment process in that region. So the design-build pipeline is extremely strong out there, and we're excited about the position that we have and the capabilities that we can bring forward. In addition to basing, we also offer what is essentially a smart building capability. Let me explain that a little bit further. At Tyndall Air Force Base, which was unfortunately hit very badly by Hurricane Michael, the base was completely destroyed, and now we are in the process of redesigning it. One of the primary zones there is the F-35 zone, which is going to be the recipient of a new squadron in 2023. What Parsons is doing right now is integrating a lot of sophisticated building controls, automation, climate change resiliency features and intrusion detection systems. This essentially constitutes the smart building of the future and ultimately, for DoD, will be the installation of the future.

Those are really exciting organic growth strategies. And we're very fortunate as a company that we're aligned to growing and enduring markets. One thing that's critical to drive organic growth is having differentiation, whether it's people, processes or technologies. I'd like each of you to address what the differentiation is for your market. Hector, let's start with you.

Thanks, Carey. Well, I'd like to start off by just acknowledging that here sitting in this room today, we have over 100-plus years of federal experience and service, with the 3 of us, Paul, myself and Rich, having direct Department of Defense experience with our prior service in the military, which we're all very proud of. We have a world-class cleared workforce that exemplifies a lot of that service-based mentality, and we will continue to deliver our solutions via that workforce, right? We have a workforce that's very -- again, very agile, knows how to fail quickly and learn from that and continue to be the mission partner that our customers have grown to expect from Parsons. As the JADC2 ecosystem continues to evolve, we have current work right now that's absolutely applicable to that space today. Two examples, one of them being our model-based system engineering support that we're providing our Missile Defense Agency customers today that we're going to look to support the Air Force and the Army and the Navy as they come into the JADC2 environment. And then the second one is our command and control tasking suite that we have in 5 air operation centers around the globe today that will obviously be part of the JADC2 environment moving forward for the Air Force. As we go into this new world of technology solutions and really moving up the value chain, we have to continue to deliver this high-end technology on -- in support of our missile defense customers and our ISR integration customers moving forward. Paul, why don't you tell us some of your differentiators as it relates to cyber?

Yes, absolutely, Hector. So within the cyber and intelligence market, where we're really differentiated really is, one, we have a world-class workforce -- a world-class cleared workforce. And the other thing is, is that we have over 30 years of offensive cyber development and really taking that offensive cyber development to inform defensive cyber operations. We develop platforms, tools and capabilities. And those platforms and tools and capabilities, very few companies do both offensive and defensively, and so we're uniquely positioned in this market because we do both. When you take a look at the sovereign intelligence market and over the last 4 years, we quickly went from being a boutique capability developer and quickly moving up the value chain to becoming a prime platform system integrator. We're a prime across multiple program of records, space-enabled cyber, cyber reconnaissance as well as high-rate data processing and data curation. The other area where I believe that we're uniquely differentiated really is between our space and cyber market, around -- specifically around situational awareness of space assets but also the critical resiliency of those space assets, both ground-based as well as air-based. Rich, you want to talk about our space-cyber collaborations?

Absolutely. So certainly, cyber space resiliency is a key differentiated area, but we're making investments in multiple areas here to stay competitive in the market. First one I want to talk about is our space situational awareness capability. So through space situational awareness, we provide our clients the ability to model and visualize U.S. space constellations as well as adversary constellations, which is very important as we look at sophisticated adversaries that would likely target our space assets at the onset of a conflict. We've been doing this work for the better part of a decade now, and we're continuing to improve this capability by providing artificial intelligence, advanced analytics as well as bringing new tools and capabilities and mission knowledge to improve these capabilities. The next area is really around our satellite enterprise ground services. With the Braxton Science & Technology Group acquisition, we're now able to provide a commercially viable, secure option for our government clients to operate their satellite constellations. Our team is adding automation into this capability, which is going to enable the management of more complex constellations at different orbital regimes, which is the way of the future. The next area is cyber resiliency. We're working closely with Paul and our cyber and intelligence group. We are really developing strong, unique Parsons' capabilities that are ensuring the resiliency of not only command and control but also data transfer from outer space. So we're making sure that ground stations are resilient and the data coming from satellites down to the ground is secure and not hackable. We're also providing strong expertise related to space cryptology and space information security. Chris, I know that within Engineered Systems, you have a strong technology portfolio that's well aligned to the Biden administration priorities. Can you expand upon that for us?

Thanks, Rich. We're extremely excited about the fact that 2 of our offerings in health and environment align directly with Biden priorities. On the health side, we have this product DetectWise that we rolled out in response to the pandemic. And most recently, we won a contract with the Department of Homeland Security, $2 billion in capacity. We were 1 of 4 awardees. And we're going to continue to mature this product by integrating a number of additional features, biometrics, also cloud capability and cloud enabled. We're looking at introducing our records capability as well. This is essentially going to become a digital health passport that can follow people. And this will become a dual-use product that we can then take to the commercial sector as well and hopefully get businesses back online as soon as possible. On the environmental front, we've traditionally always offered a broad range of technologies. But with the Biden administration, we're looking ahead at emerging contaminants, PFOS is one, of extreme importance because it's ubiquitous to groundwater and essentially pervasive to the environment. It's C8, a toxic chemical flame retardant, and we're developing not only identification, but remedial technologies right now in order to remove this from the environment.

Thank you. Those are terrific examples of differentiation. One of the things that makes me most proud to be part of Parsons is the fact that we have the depth and breadth of a large company, but the speed and agility of a small business. That means we can deliver mission solutions at the speed of relevancy at a time that our customers need those most. So let's shift topics and talk a little bit about margin expansion. Parsons has been very fortunate to experience margin expansion, both organically and inorganically in recent years. Paul, on behalf of the Federal Solutions business segment, could you address how we're going to continue that margin expansion going forward?

Absolutely, Carey. So flawless program execution is going to be vital and important. Flawless program execution is going to drive increased award fees as well as increased incentives. Product sales and transactional revenue is going to drive margin expansion. And as we move forward, we are fortunate to have a global network of opportunities as well as established channel partners. We're also going to build upon the success that we have with QRC in 2020. QRC had a phenomenal year. With QRC continuing to move up the value chain and being part of larger electromagnetic spectrum opportunities as well as larger signal intelligence collection opportunities, we're going to be able to bid on larger deals, which ultimately is going to drive into larger quantity sales. Another area that we're going to focus on is really being able to package both our services capabilities, along with our products capabilities. One great example is on our recent [ NOA ] bid, we were able to leverage the expertise out of our space and geospatial brethren, the system engineering expertise that they have, leverage the Braxton ground control segment expertise as well as critical infrastructure and how they build the antenna to really provide a very unique one Parsons offering. We're also going to focus on additional acquisitions. When you look at all our acquisitions, we've had greater than 10% net margin. So that's something we're going to focus on as we move forward.

Excellent. Well, thanks very much, Paul. And thank you very much for the Federal Solutions market leaders for joining me on this panel session today. It's a terrific time to be involved in this marketplace in growth areas such as cyber, space intelligence, C5ISR and missile defense. Thank you. I really enjoyed the panel discussion that we just had. And it's so exciting to hear each of you talk about the organic growth that you have in your markets because we are very well positioned.

So let's go to the questions and answers that we've been receiving from the audience. Paul, it looks like we have one for you to start. There have been a lot of publicized cyber breaches, most recently, SolarWinds as well as the Microsoft incidents. So what do you expect as far as the looming DoD budget, the Biden administration changes? And how is Cyber and Intelligence postured to do in this environment?

Yes. So thanks for that question, Carey. So our cyber and intelligence market is directly aligned to the new administration's priorities. And we were excited to actually see the Technology Modernization Fund being part of the American Rescue Act. And so what that's going to do is that's going to give an injection in the arm into organizations like DHS's cybersecurity and infrastructure agency. So what does it mean for cyber and intelligence? It means that we're going to be able to bring to bear various different technologies and capabilities or defensive cyber operations solutions to organizations like DHS and really help them attack this problem.

Absolutely. Yes, the $1 billion-plus up in the budget definitely helps as well as the SISO budget increasing by $650 million. Looks like, Hector, the next one is for you. Can you elaborate on what we're doing within the hypersonics and the missile defense market?

Sure, Carey. So we have a very long history with our current missile defense agency customer, over 40 years of working for them, working with them as mission partners and their predecessors. Our current work is focused on providing engineering services to the ballistic missile defense system -- legacy system that's still in operations today. We're also at the ground floor of designing the next-generation system, which is called the missile defense system 2.0 with the Chief Architects office. And what's exciting about that effort is really, we're starting to integrate a lot of capabilities that we have across Parsons, especially the space-based sensor layer that our team is going to help them design going into the future. So just as our founder did about 60 years ago with helping to defend the nation, our team is going to do the same thing going into the hypersonic environment going forward.

Great. Thanks very much. Yes, in a 15-year history in hypersonics, we go back pretty far there. Rich, looks like we have a space question. There's been a lot of advances in the commercial space industry. Are there opportunities for Parsons to work with commercial partners?

Okay. Carey, great question. Absolutely. I think when it comes to commercial space, there's probably 4 main avenues of expansion for Parsons. The first is around expanding our work with launch integration. So as more and more commercial companies launch constellations, the work we're doing integrating satellites onto payloads and launch vehicles is just kind of a natural progression into that market. The second area is around space resiliency. So that's an area that Paul and I both will collaborate closely on ensuring that the data coming from these constellations is secure and that the ground station command and control is secure. Third area is around space situational awareness. As these constellations proliferate more greatly, the need for that situation awareness and the deconfliction of these constellations across multiple orbital regimes is going to be extremely critical. And then the last area is around just the use of that commercial data. We're finding our clients on the government side are increasing their utility of this unclassified more prevalent data into their advanced analytics. So that's another exciting area for growth for us.

Great. Thanks, Rich. Chris, let's turn to one for you. What are the growth opportunities that you foresee in the Engineered Systems business unit?

Thanks, Carey. Well, I'm actually really excited about the fact that many of our offerings align so well with the Biden administration, specifically in health, environment and then in national defense as well. Let's talk about health because the stimulus bill obviously just passed, and in it is a large provision for COVID-19 testing. Our DetectWise product is extremely well suited to conduct not only testing, but also all the reporting requirements associated with that. With regard to the environment, you had spoken earlier about PFAS, and PFAS is certainly ubiquitous. It is a compound that is going to take a lot of EPA scrutiny in the out years. We see a very, very large remediation market for PFAS. And we've been actually providing remedial technologies to the Air Force, innovative technologies for decades now. And lastly, national defense. This is critical because we're seeing the SecDef very interested in countering Chinese expansion in the area. Consequently, we have a beachhead on [indiscernible], and what we see is plenty of opportunity there to develop much more infrastructure. So what gets me excited is that my colleagues here talk about their multi-domain ISR experience. And what we bring at ES is the ability to design, build, commission, operate and protect physical infrastructure. The combination of those sets of services allows us to provide full spectrum capability for the mission.

Great. And as you point out, Chris, it certainly helps to have that presence in the INDOPACOM region. Next question that came in, Paul, is for Cyber and Intelligence. Currently, the cyber and intelligence business is roughly $400 million in annual revenue at the end of 2020 with a large addressable market of $30 billion. Can you talk about where you see that your market share is going to be growing in the next 5 years across that $30 billion addressable market?

Yes. Thanks for that question. That $30 billion is the addressable market. And certainly, what we see within Cyber and Intelligence is our ability to go get it, and I'll give you a couple of areas where we'd focus on. First, as we continue to scale and grow as an organization. And I talked about during the panel on how we've been able to go from being a boutique capability developer and really continue to rapidly move up the value chain into being a prime program of record system integrator. That will allow us to then take those capabilities and be able to expand them across the services, integrate them into other markets, the MDC market, our space and geo market and in partnership with our folks over in Engineered Systems. But also our focus is we're going to be able to extend broader to more than just DoD Intelligence community. We're going to be able to take these capabilities back into DHS and get some of the funding that's coming in there as a direct result of the SolarWinds brief, as a result all of other hacks and really the modernization efforts in the cybersecurity spending being able to expand those into those other markets. So we're absolutely excited. One, we have the capabilities, and as we continue to grow, we're going to be able to grow along with these other organizations.

That's terrific. And the great partnership with Critical Infrastructure segment as well. When we look at areas like utilities that have to be protected, the water sector that has to be protected, it's terrific that we have your cyber capability and the critical infrastructure knowledge within the same company. Hector, can you tell us about what are the top things that you're doing to grow in your business unit?

Sure, Carey. Well, it's going to be a common theme across all of our answers here. We're looking at larger, more complex, higher-value jobs across the market, where we can provide integrated solutions. And just as you said in your opening statement, we're also going to look to increase our transactional revenue, right, by selling our products, right, both within the government and internationally as well. And then clearly, just continue to execute flawlessly on our contracts, right, especially our firm fixed-price contracts that we can maintain our margins or grow our margins there as well.

Great. Thanks. Appreciate that. And Rich, could you talk a little bit about some of the big trends that you're seeing in space and geospatial these days?

Absolutely, Carey. So obviously, space is an exciting market area for us. Some of the major trends we're seeing, there's, one, a big focus on utility of small satellites and just a proliferation of constellations. So that dovetails nicely into the work we're doing from a launch integration perspective and multi-manifesting launches. So no longer are clients focus on kind of exquisite and expensive single-utility launches, but now we're looking to put multiple payloads onto vehicles to get them out into space. The next area, from a trend perspective, would be around the utility of automation and advanced analytics with the data that's coming from outer space, right? We're doing this both on the government side and want to branch out on the commercial data side as well. And so that's an area that we're looking to make investments in. And then I believe, lastly, kind of from a major trend perspective, we're really looking at clients' needs for more robust and resilient ground architectures. So the work we're doing with the enterprise ground system as well as commercial augmentation services really plays well into this opportunity on the trend side.

Great. Well, thanks, Rich. Really appreciate you joining us for the Q&A. And thanks mostly to the audience for submitting those critical questions. We look forward to future growth across our Federal Solutions segment. At this point, we're going to take a break, and we will be reconvening at 10:15. Thank you. [Break]

I'd like to welcome everybody to our Critical Infrastructure panel today. I'm joined today by Mark Fialkowski, who runs Mobility Solutions; and Tom Topolsky, who leads our connected communities market. In the fourth quarter of 2020, we had a 1.3x book-to-bill for Critical Infrastructure. And what's significant about that is that's our best within the last 2 years, and it's a great leading indicator for our organic growth. So with that as an entrée, Tom, can you tell us about your organic growth strategies for your market?

Many thanks, Carey. Our overarching growth strategy for Connected Communities is driving digital transformation across the entire market, which includes smart mobility, smart vehicle solutions, rail and transit, aviation and integrated delivery. Our deep understanding of urban infrastructure, combined with our technology-enabled solutions, provides our clients with real-time data-enriched tools to optimize the operations and maintenance of infrastructure, extending the asset life cycles and improving the user experience for all. Our smart mobility sector is a leader in advanced traffic management systems, underpinned by our iNET smart cities platform, which is amongst the most widely deployed traffic management solutions globally. Our network of sensors monitors and manages traffic to reduce congestion, reduce travel times, improve safety and decrease pollution. We use our smart transportation technology to move into adjacencies such as intelligent intersections and open road tolling. And in fact, the pandemic has resulted in an increased interest in our intelligent intersections offer as cities and regions grapple with dramatically changed traffic patterns with people working remotely and so forth. The Biden administration we're finding is really focused on environmentally sustainable and socially equitable policies. And with this, we expect to see an increased interest in congestion pricing programs throughout the country. We're very well placed to capitalize on this, given our involvement in delivering the country's first congestion pricing program in New York. We're also very focused on vehicle miles traveled initiatives as a means to supplement ever-declining gas tax revenues at the state and federal levels due to increased vehicle fuel efficiencies and also ever-increasing number of electric vehicles on the road. The pandemic has also accelerated the need to reinvent and reimagine rail and transit and aviation. Having delivered over 800 programs in aviation and rail and transit over the years, we have an intimate knowledge of these domains and also enduring relationships with our clients, many of which extend over 50 years. This knowledge and these relationships make us uniquely positioned to define what the future of rail and aviation will be going forward. When I think of aviation, I often tell people that an airport is really a city with runways. And so we can apply our smart cities technologies to improve the passenger experience, which for most people involves going from a remote parking lot to the shuttle, to check-in, through security, walking to the gate onboarding, and then the same in reverse when you land. This is where Parsons will be involved to improve the passenger experience. And the work will be involved in reimagining, redesigning terminals, baggage handling, passenger flow to accommodate physical spacing, contactless check-in and improved security processing. On the rail and transit side, as Carey alluded to, we had a very strong book-to-bill in Q4 and for 2020 as a whole. And our rail and transit group delivered in this regard with a $1.2 billion award, the Edmonton Valley Light Rail Transit. While we expect to see continued capital investment in rail and transit, there's also an increased focus on initiatives and new technologies such as contactless fare collection, improved technology and communications and safety and -- as well as data-enriched tools to allow for better decision-making for operators and passengers alike. Finally, we're very well placed to capitalize and help transit ridership get back to pre-pandemic levels through first mile, last mile connections. And that will be something we're very focused on going forward. Mark, I know that you have a lot of technology-infused organic growth initiatives going on in Mobility Solutions. Please tell us more.

Sure. Thanks, Tom. I'll stick with the transportation theme. So when we look at our transportation business, we look regionally to see where is the growth, where is the money? A good example is in Texas right now. So the population and employment growth is driving infrastructure needs and infrastructure investment. We've got a strong, growing team there, and our pipeline of highway design projects, highway improvement projects is very strong out in the future. The scope for those types of projects would be traffic engineering, program management, highway design, bridge design, drainage design and the design of the travel information system. So that would be the variable message signs you see over the top of the highway that say crash 8 miles ahead. So all those go into one package to help deliver that for our client. A good example there is our recent win in early 2021 for the State Highway 183 North Mobility project, that's in Austin, Texas, about a $40 million contract for Parsons. So that really encompasses a lot of the scope that I just mentioned. As we look to the North in Canada, we deliver similar types of services as well as contract administration and then engineering consulting. A great example of engineering consulting is our Gordie Howe International Bridge project. That's a new cable stay bridge that will connect Detroit, Michigan and Windsor, Ontario, and it will be the longest cable stay bridge main span in all of North America. So there, we're helping the client deliver the entire program. We just received a CAD 30 million change order, bringing our total contract value to over CAD 130 million. We're also very excited about the utility space and our growth there, especially in California. Such a huge market, a population of 40 million people. We're seeing the Biden administration's focus on electrification, in clean energy, that's going to drive additional renewable fuels and clean energy generation there that's now got to be connected to the distribution and transmission system. So it's going to create opportunities for Parsons in planning, design, program management and also the remote sensing and remote management of the whole transportation and the transmission and distribution system there. That's a really good example of where we partner with our Federal team to bring the Federal technology over the critical infrastructure side of the house and deploy that for our clients for their benefit. If you look to the Middle East, we're an infrastructure market leader on delivering the most complex projects in the world there. We have been for decades. It's really exciting to see the scope and the size of the projects there, new entertainment districts, new cultural districts, whole new industrial cities, new housing, new airport, new rail lines. So a good example there is our Riyadh Metro program management job in Saudi Arabia, where we're helping deliver the world's largest metro system that's under development anywhere. So some really exciting stuff going on.

That's excellent. Thanks, Mark and Tom. Those are terrific examples of organic growth. And I think what's really exciting, as you point out, is the Biden administration focus. But I would also say, not just in the U.S., but around the world, I think we're really well positioned. So let's talk about smart, sustainable infrastructure a little more. Persons is a thought leader in that area, which is really important. So Mark, why don't you talk about how we differentiate?

Thanks, Carey. As you know, sustainability is a big focus for us. In fact, it's 1 of our 6 core values, and that provides a differentiator for us. And it's a very timely differentiator as we see, kind of what you mentioned, the focus worldwide. So we started off, we can look at the utility market space. Again, we're leading the design of a conversion of an oil refinery to biodiesel. We're also working on several projects that will capture natural gas from dairy farms, convert that and reuse that. So a lot of interesting opportunities there. We've got a growing water and wastewater business, and that's interesting because the client needs kind of depend on what the climate is. Our strongest market for water and wastewater is Southern California. And there, the arid conditions really drive the need to reuse and recycle the wastewater. So water comes into the plant, it's treated, and we'll treat it to certain levels so that it can be reused to recharge groundwater and also for irrigation. Again, a sustainable way to not just kind of dump the water that comes out of the plant into a river, but instead, we're really recycling, we're reusing it. So we're seeing a lot more interest in that area, too. And then we go to the Middle East, we see this huge investment in -- especially in Saudi Arabia. Their Vision 2030 plan. It's going to drive a lot of infrastructure growth. It's given us a very strong pipeline throughout the region. And in the U.S., the infrastructure needs are great. Biden administration is focused on a large, sustainable infrastructure improvement bill, which is great because the American Society of Civil Engineers estimates that the infrastructure needs just in the U.S. are over $4 trillion. We're also seeing infrastructure investment in Canada. Several provinces have rolled out new programs. For example, in Québec, they announced $8.5 billion in infrastructure spending in March, another almost $2.5 billion in May. So as we look at all these infrastructure programs and funding, it really gives us the opportunity to not just rebuild what we have now, but really to put in resilient, sustainable, smart infrastructure, and that's great for Parsons because that's where we're focused.

Excellent. Thanks very much. And Tom, how about your area? Where do you differentiate?

Well, Carey, as Mark said, we drive with technology, and we drive with technology to provide smart and sustainable, end-to-end infrastructure solutions. And we're very fortunate in our industry. We're well positioned because of our deep domain understanding of all forms of critical infrastructure, combined with the advanced technology of a leading government solutions contractor. In fact, it's a benefit to me because I often reach out to Paul Decker and the Cyber and Intelligence group to talk about how we can help our Critical Infrastructure clients take a more proactive approach to defending against rapidly emerging cyber threats, such as ransomware, which we see often. I'm also very pleased to be part of this team, which is so passionate and driven to imagine, design and deliver the smart cities and smart mobility of the future. We're industry leaders in artificial intelligence, machine learning, cloud computing, data analytics, advanced sensing technologies and communications-based train control. And we use this type of technology, our solutions to move into adjacencies. We've done this very successfully recently with our iNET platform, which was originally designed for roads and highways, and we've adapted it into a seaport environment. We're also developing new products for Positive Train Control 2.0, such as rail pulse to help rail operators use existing log data to improve safety, operations and better prepare the reports that are required for the Federal Railroad Administration. Finally, working across the enterprise. We're very focused on the rapidly emerging asset management life cycle needs, and we are very well positioned, given our technology and our digital twinning platform. So I can't think of a better time to be in the industry, a better time for Parsons to be in the industry. It's very exciting and look forward to the future. Thank you, Carey.

Thanks. Well, as you both point out, Parsons really is unique because we have the domain knowledge and to understand how an airport works or how a rail and transit system works, but we also have the technology that we can apply to make that system smart, and that really differentiates us from any other company. So let's move to a final area. Critical Infrastructure has done a very good job in expanding margins over recent years. So as we look forward, Mark, on behalf of Critical Infrastructure business segment, how do you plan to maintain that?

Well, thanks, Carey, and thank you for acknowledging the margin improvements. A lot of heavy lifting there. Our teams are proud of that. But now what's the next step? How do we maintain it, as you said? So a couple of things to highlight. The book-to-bill, that's a leading indicator. Q4 book-to-bill was very strong. And the Edmonton job that you mentioned, Tom, is very high margins forecast, and those will be accretive net margins overall. We're also looking at expanding our existing programs like the Gold Line in Southern California. Margins there have been very strong. Cost control, of course, is one of the drivers of margins. We're always focused on that, but we're also looking at new ways to control our costs. For example, we're using electronic auction to make sure that we get the best pricing out of our suppliers. Technology is definitely a piece of it. Tom had mentioned some of the technologies. We're also rolling out Grid Armor, which is a way to prevent wildfires. That we rolled out in 2020. We're looking at different business models for our existing platforms, such as As a Service. And I also wanted to highlight that we're an industry leader in sharing work. So why that's important is that we don't really differentiate between regions or markets. It's all Parsons, how do we deliver this work. We can deploy people very quickly to ramp up on programs. When the program winds down, we can redeploy those people very quickly. And that allows us to respond to our clients' needs nimbly and as fast as possible. So as we look for that, we're talking about the uptick in the infrastructure business, that's really going to help Parsons capitalize on it because we are nimble and we can get people in and out quickly.

Excellent. Well, thanks very much. I appreciate you both joining me today on the panel. Look forward to continued organic growth and margin expansion from the critical infrastructure sector at a time where the world needs an upgrade in infrastructure. Thanks very much. Mark and Tom, I really enjoyed our discussion, and it's terrific to hear about the organic growth prospects in your businesses.

We have an interesting question that came in from the audience and an important one at this point in time. There's a potential infrastructure bill in the United States. So Mark, let's start off with you. What are the potential benefits for the Mobility Solutions business unit?

Sure. Thanks, Carey. We're very excited about the momentum that's building behind the federal bill. And we've seen a lot of it. It seems like this is the year to get it done. And really, that will give our clients confidence to move forward with major programs in addition to the ones they already have because they'll have the funding and they know they'll have the funding over the long term. So that's really good for us because that's our sweet spot. We're also very excited about the focus of the administration on climate, clean energy, electrification, all those items are businesses that we're in. And as those new-generation facilities get built, it will have opportunities in planning, design, program management and also the remote sensing of the transmission systems, and that's something we partner with our Federal team on to bring that Federal technology over to the infrastructure side of the house for our clients' benefit.

Excellent. And Tom, I'm sure you're excited about the infrastructure bill, too.

Yes, very excited. I mean 2 of our sectors have been hit very hard by the pandemic, as you know, aviation and rail and transit. So the new federal infrastructure bill is going to help -- it's critical to get those sectors up and running. Let's take aviation first. We know that passenger levels at some points were down 90%. Now it's started to rebound. But even before the pandemic, there was a need to invest in our aviation industry to make it more user-friendly, to address the TSA choke point that separates the air side from the land side. And at Parsons, we're extremely well positioned to reimagine what the terminal experience is, to reimagine what the passenger experience is and also to provide for contactless check-in, screening and so forth. Rail is even more important. And Mark, you mentioned the Biden administration, and they're focusing on sustainability. And then there's also the social equity piece of it. Cities need high functioning rail and transit and bus systems to move people to their jobs. And so what we expect to see is a focus on contactless fair collections, more flexibility in the routing to provide service to where it's needed and respond to what we know will be very different travel demand patterns after the pandemic because of remote working and just a change in our entire industry. So I'm really excited. I think for us, it's -- there's a multitude of opportunities, and we're ready to get at it. We're already engaged in a lot of different professional societies to help define what the future is going to be.

Thanks, Tom. And it's sure a benefit to have the advanced technology capabilities within our portfolio. Mark, a question came in regarding the Middle East. You have a strong book of business in the Middle East. What trends are you seeing there regarding infrastructure spending?

At a high level, the IMF predicts about a 3% growth in real GDP in 2021. And of course, oil prices are a big driver there. As you noted earlier, the Brent crude is up to $67, $68 a barrel. It was $35 a barrel a year ago. So that's a real difference in terms of our clients' revenue and their ability to spend. I also want to look at the pandemic response. Obviously, it's affected all of our lives. It's also affected our clients. And the countries there have been really, I'd say, proactive in their response initially and then also in the vaccinations. So good example is in the UAE, United Arab Emirates, it's one of our major markets there. They've delivered 65 doses per 100 people, which is the second highest rate in the world. So they're getting out ahead of that. That's going to help them recover a little bit quicker. And I think as we go into 2021, we'll see things get a little bit back to normal. And that's good because the pipeline there is huge. Just in Saudi Arabia, we've got a $850 billion pipeline. And that's all sorts of exciting projects, new metro systems, rail modernization, airport modernization, new entertainment districts, new industrial facilities, just goes on and on. So it's really exciting to see what that Vision 2030 plan has. And also in the UAE, there's $400 billion in pipeline there. All again, infrastructure projects, about $78 billion in transportation, and that's our real sweet spot there. So I think we'll still see some impacts in 2021, travel restrictions, that sort of thing. But we're really seeing getting into late '21, '22, '23, things really moving forward there.

Well, it's certainly exciting, and it's going to come off a very strong 2020 for the Middle East growth.

Definitely, yes. They had a great year.

Thanks. Tom, a question came in for you on technology. With the advancements in technology such as 5G, smarter electronic vehicles, what challenges and opportunities does this provide for Parsons?

Well, that's great opportunities for us, and we're focused on it. As you know, Carey, we set up a Connected Communities product group. And 5G is a game changer, particularly in the smart vehicle solutions business and smart mobility. And at Parsons, we embrace the change. And because of our ability to design, deploy and integrate these technologies, I think we're ideally suited to take advantage of the opportunities and challenges that 5G provides. When we look at autonomous vehicles, which I'm very excited about, I think as most people know, there's 5 levels of autonomous vehicles. And right now, we're working with our client in San Diego to introduce advanced Level 1 autonomous features on the buses, which basically is forward collision warning systems, lane departure warnings, blind spot warnings and things like that. Ultimately, what I believe is that we'll get to -- with 5G, we're going to get to Level 5, which is basically going to be a vehicle without a steering wheel or accelerator or brake in the not-too-distant future. And like I said, we're excited about it. But the other part of it that makes me excited about Parsons is that with Paul Decker's group in Cyber and Intelligence, we also have the ability to take care of -- to address the cyber threats, which a lot of firms in this peer group don't necessarily have. So I think that's a real differentiator when we're talking to the owners, and they're trying to figure out how do they apply this technology to make better smart cities and more connected communities.

Excellent. Well, it'd certainly be exciting to get a ride in one those Level 5 vehicles. Mark, a question came in for you. What are the biggest risks in the market? And what are you doing to mitigate those risks?

Yes. We touched on the Middle East before. We said that's a significant part of our business. And geopolitical risk is always there. We don't see it as evident in the near term, but it's something we always think about. And then also in the U.S. and Canada, potential political gridlock. Right now, things are looking good. But we know in the past, there's been some difficulty getting things passed. So because of that, we really look at a balanced portfolio, and that's balanced geographically. We've got a big presence in Canada, U.S., Middle East. We also do all sorts of different types of work within the whole delivery system from planning, design, program management, construction inspection, technology development. So all those help us mitigate risk, too. We're not dependent just on one piece of that project development. And then also just diversified clients. As you know, we have a very wide range of clients, and I really think that helps mitigate the risk too because we're not dependent just upon a couple of clients to deliver our revenue.

Great. That's great points, Mark. I appreciate that. Tom, how would Biden administration positively and negatively impact your business?

I think it's all positive. And when I even think of, as we know, Joe Biden was known as Amtrak Joe. He's a big fan of the rails. And in the American Recovery Act, he's actually dedicated $1.7 billion to Amtrak. So that's a good sign. Also over $30 billion to the rail and transit industry and $8 billion to aviation. So it's very positive. We see the focus. I think the Biden administration recognizes the importance of ensuring that people, again, have the right modes to get to and from work to conduct their lives as we come out of this pandemic and prepare these industries for I think what will be a real boom, particularly in air travel. I do think by, what we see, 2022, '23 that we're going to reach pre-pandemic levels and then start to grow again pretty aggressively. So for us, it's very good, Carey.

I know I'm excited to get back on airplanes again. Mark, what are the major things that you're doing to grow the Mobility Solutions business?

Carey, as you know, organic growth is a big focus of ours. And we went through the plan a couple of weeks ago. We developed an organic growth plan. We had very specific actions in different areas. We did it from the ground up to make sure that all of our teams are engaged in helping develop and deliver that plan. And the main items were in business development. We're adding to our business development team. As mentioned earlier, our pipeline is much larger now. So we need a bigger team there. And we've also set a floor of 10% adjusted EBITDA for bids to make sure that we're maintaining our margins. And I think those couple of things are really going to help us drive that growth, along with some strategic hires and other kind of tactical type things we have in that plan.

Excellent. I'll complement both of you on a strong book-to-bill, 1.3x in fourth quarter.

Yes. Looking forward to keeping that going.

Certainly. We have time for one more question. Tom, another question from the audience. What are your major drivers for future growth in Connected Communities?

Well, Carey, you mentioned before that iNET is the most deployed traffic management solution globally, and we're investing heavily in iNET as a smart cities platform. We are now deploying our smart intersection solution in 4 cities, Fort Worth, Arkansas; Austin, Texas; Westminster, Colorado; and Walnut Creek, California. And the beauty of the iNET platform is it does take advantage of, again, the 5G technology, all the sensors, and it enables us to really provide for a better quality of life in cities. So we're investing there. We're also very focused on the asset management life cycle that you talked about, digitally enabled asset management life cycle. And with our paradigm digital twinning platform, we believe that will really help Mark's -- particularly in the power sector, but also in airports to provide that predictive asset management to keep things running in a more cost-effective way and very efficient and effective operations through that type of technology.

[indiscernible] bridge jobs, 2 that I know of, and that's been very effective.

Right. Right. Yes.

Well, excellent. It's certainly an exciting time to be in the infrastructure business. So look forward to future growth here. Thank you to the audience for all of your questions. If you have any follow-ups, please provide those to Dave Spille. Next, we're going to go to a short video. We're excited to show you our Braxton technology, specifically our commercial augmentation service. Following the short video, you'll hear from our Chief Financial Officer, George Ball, as he'll provide an in-depth look at our financials. And then we'll close with an executive session panel with Chuck Harrington, myself and George Ball. Thank you. [Presentation]

Good morning, and welcome. I'd like to thank everyone for attending today's Investor Day event and for your support over these past 2 years. I'll begin my discussion this morning with some brief summary remarks. First, with respect to revenue growth. As Chuck noted, we overcame $200 million of COVID headwinds in 2020, and approximately 1/2 of this amount will continue into 2021. Revenue growth will accelerate in 2022 and 2023 as we move past that issue as well as the final tranche of low-margin pass-through revenue runoff. I would also note that a potential U.S. infrastructure bill could provide meaningful tailwinds to the business. The primary impact would be in Critical Infrastructure, but some potential benefit may also accrue to Federal Solutions. As to adjusted EBITDA margins, needless to say, we're very pleased with our progress in this area since the IPO. 2020 results represent both record earnings and record margins. As to margin expansion, we have achieved 180 basis points in margin expansion since 2018. Margin expansion will continue, albeit at a slower pace. As we've done historically, margin accretive M&A will continue to contribute to margin growth as we move ahead. And now turning to cash flow. Again, we've enjoyed strong performance since the IPO in May of 2019. We anticipate free cash flow conversion will continue to exceed 100% of adjusted net income as we move ahead. And now a few words about our balance sheet. We have substantial balance sheet capacity to fund our growth strategy. We expect continued strong free cash flow generation. We have significant borrowing capacity, and we'll use this capacity to make ongoing investments in our organic growth. IR&D investments will continue to grow. We will continue to focus on bidding high margin, high-growth opportunities, and we'll continue to invest in our people. Lastly, we have a target-rich M&A pipeline where we'll continue to harvest our supply chain as we've done in the past. This is the slide Chuck shared earlier this morning, and I'd like to quickly reinforce our overarching strategic objectives. We operate in large, well-funded markets, which support organic growth of 5% to 7%. We'll continue to supplement that with targeted high-growth M&A. We maintain our long-term adjusted EBITDA margin target of 10%. And free cash flow conversion will continue to exceed 100% of adjusted net income. And now turning to a review of our key metrics. Looking first at revenue. We have a solid track record of historic revenue growth. We've achieved a 5% revenue growth CAGR since 2018 in spite of the factors discussed earlier by Chuck, namely COVID headwinds and the runoff of low-margin pass-through revenue over the 2018 to 2020 period. We anticipate accelerated revenue growth in 2022 and 2023 in both segments, with a CAGR in the range of mid- to high single digits over the 3-year period. As indicated in the footnotes of this slide, we've assumed a recently won Edmonton Light Rail joint venture project will be consolidated beginning in 2021. The annual revenue impact of that consolidation will be approximately as follows: $70 million in 2021, followed by $135 million in 2022 and $195 million in 2023. And now turning to adjusted EBITDA. We've achieved significant growth in adjusted EBITDA over the past 2 years, through revenue growth and margin expansion initiatives. Adjusted EBITDA is up nearly $100 million from 2018 to 2020, representing a CAGR of 18%. We anticipate continued strong growth in adjusted EBITDA as we move ahead, with a high single-digit CAGR over the 3-year forecasted period. As Carey mentioned earlier, we will achieve this through bidding higher-margin work, increasing product sales and strong cost controls. Turning now to adjusted EBITDA margins. We've achieved significant margin expansion over the past 2 years. Adjusted EBITDA margins have increased 180 basis points from 2018 to 2020. We anticipate that margin expansion will continue as we move ahead. Much of that margin expansion occurs, though, in 2021. Adjusted EBITDA margins in 2023 are expected to be in the low to mid-9% range based upon our current portfolio. However, we will continue to grow margins above this level via ongoing margin accretive M&A similar to our late 2020 acquisition of Braxton. Now turning to free cash flow. Strong operating cash flow continues to be a strength of the business. 2020 was another year with robust free cash flow. Over the past 3 years, we've averaged above our long-term target of free cash flow conversion in excess of 100% of adjusted net income. We anticipate that we will continue to achieve greater than 100% conversion over the forecasted period. We expect free cash flow to grow by a CAGR of mid- to high single digits, reaching over $300 million per year by 2023. And now a few words about leverage. Our strong free cash flow has enabled us to maintain a consistently low net debt leverage ratio, which has averaged approximately 0.3x since we went public. Since that time, we funded $525 million in post-IPO acquisitions. Acquiring QRC in 2019 for $215 million and Braxton in 2020 for $310 million, both funded via strong operating cash flow and the issuance of $400 million in convertible senior notes in the third quarter of 2020. Simply stated, we have substantial dry powder to continue to invest in our strategy. As articulated since the time of our IPO, we're comfortable with a net debt leverage ratio of up to 2 to 2.5x for the right opportunity. This equates to approximately $750 million of dry powder today. And now a few words about our capital allocation strategy. First, we will continue to invest in organic growth. As Carey noted earlier, we will continue to increase our investment in IR&D, which is so critical to growing our product and technology revenue as well as in differentiating our solutions. We will also continue to invest in our employees to maintain our position as an employer of choice. These investments will remain a key part of our organic growth strategy as we move ahead. And now turning to M&A. As has been the case for the past several years, M&A will remain our key focus from a capital allocation standpoint. We maintain a rich pipeline of potential target companies and anticipate closing upon 1 to 2 transactions per year as we move ahead. Our M&A criteria remains the same. Revenue growth of greater than 10%, adjusted EBITDA margins in excess of 10%, transactions that are accretive on a multiple basis within 18 months after closing, and all of this with a keen focus on technology. Since we went public, our acquisitions have been entirely in the Federal Solutions segment, but we would not rule out technology-focused opportunities in Critical Infrastructure as we move ahead. In summary, our strong balance sheet is one of our greatest assets. We're committed to maintaining our investment-grade profile as we continue to invest in the company strategy. We are open to dividends and share repurchases over the longer term, but we're cognizant of our low public float. As such, M&A will remain our primary focus. And now before Chuck and Carey join me for a final Q&A session, I'd like to introduce one last video, which showcases our integrated cellular survey product. Also, please note that there is still time to submit questions via the Q&A tab. Thank you very much. [Presentation]

Welcome to our Q&A session now. And I hope you've really enjoyed the presentations we've done today in our videos. So taking your questions that have come in, I'm going to start with the first one, which is how does Parsons differentiate itself? Where do you have a #1 or #2 position or various markets? One of the unique things about Parsons is our very model is differentiated. We're providing hardware, software products. Software products, we're differentiated between Federal Solutions and Critical Infrastructure. And in that regard, we are in a very rarified group. There's not a lot of firms doing that. But going more specifically, we clearly are a leader in our offensive cyber development -- software development in general. And the work we've done in long span bridges and transportation systems and so forth. Carey, you might want to give a little more illumination in our various Federal markets and Critical Infrastructure.

Certainly. So I would say, first, we lead with technology. We're an industry leader in artificial intelligence. We're a leader in convergence of cyber and electromagnetic spectrum, leading to information warfare. Looking at specific markets where we're #1 or #2, I would have to highlight our missile defense and our systems engineering capability, where we have a 3 decade-long relationship. Also, our radio frequency products for the QRC acquisition are on the leading edge. Then on the Critical Infrastructure side, as Chuck mentioned, I'd say, the bridges are very important, but also the iNET product, which is the most globally deployed intelligent transportation system product in the world.

So next question that came in. Can you square the 10% EBITDA margin target with the segment targets that are both below 10% in 2023? And what are the biggest opportunities to reach 10%? Well, as George presented in his overview, what we're modeling is our organic and traditional in our portfolio as it exists today going into the future. We've already put 180 basis points of market expansion over the last 2 years, and not an insignificant amount of that was aided by the acquisitions that we did. So we anticipate these acquisitions continuing to occur, and that will be additive as well as we work with our customers to transition more work to time and material, fixed price and more product sales. Next question, what is the value of your submitted bids? Why is the submitted value of your bids going to double in 2021? And what is the largest deal you expect to submit? And Carey, you might want to take that question.

Sure. So I would say we're bidding much larger jobs. I mentioned that we have 80 bids that are over $100 million that are in our pipeline. We also have 5 bids that are over $1 billion, 4 of those on the Federal Solutions side. As a result of our organic investment and our M&A, we've been able to do end-to-end solutions that enable us to go up the value chain and become a solutions integrator.

Thank you, Carey. So the next question has to do with PFAS environmental issues. And how should we anticipate this market developing? Additionally, what do you see as the margin profile for PFAS cleanup? And should we expect traditional nuclear cleanup type margins? Or is this more of a technology approach that can drive margins? Well, PFAS, as we all know, is a very long-lasting contaminant and carcinogen, or potential carcinogen. And there will be a lot of creating the baselines for what's in soil and other locations. And then how are those going to be remediated. And our point has been to invest in technology to really aid and abet that remediation. So although I don't think the margins will be materially different than what we do say in nuclear remediation or hazardous waste, I do think it holds potential for more technology content. And Carey, anything you'd like to add to that?

Sure. The size of the market is $720 billion over 10 years. And if you look at our share -- I'm sorry, $720 million. If you look at our share of the market -- let me go back. My apologies. $720 million per year. If you look at our share of the market currently, we do $60 million per year. Our -- the area that we play in is both on the Federal and on the commercial side, which is critically important because on the Federal side, it's about finding what the compounds are. And then on the commercial side, it's about remediating those compounds. So we see this as a big growth. The margins will be higher than the nuclear area because this is a new emerging area that requires new technology.

So our next question up is Parsons and others saw slower awards and slower ramp on new programs in Q4. When do you see this turning around? . I think there are really two things. Q4 tends to be a cyclically slower quarter for Federal work just because you're starting with new money that comes in, in a new fiscal year. And anytime there's a change administration, that also tends to slow things up. Oftentimes, people have left posts. They're not going to move forward on major procurements. So as the new administration gets settled and folks get into their locations, these departments and agencies, we'll see that pick up. And typically, I think as we've seen in the past, Carey, that's more like a Q2 type pickup.

That's correct, Chuck. And we're pleased with what our book-to-bill was in the fourth quarter. But Critical Infrastructure at 1.3 was the highest it's been in 2 years.

Yes. And totally not impacted by a change in administration.

Totally. And then Federal at 0.9% is, as you point out, is traditional because that is seasonal.

Yes. Next question up, Federal Solutions revenue is slightly -- significantly grown over the past 3 years. From a scale standpoint, that -- has that had a multiplier effect on your addressable -- our addressable market? And how much addressable market exists today that you don't have the size scale to bid on? And is that an opportunity for you to grow? Well, there's no question. As we have completed our acquisitions and made our R&D investments, we've moved into markets we've never been in before from our radio frequency sensors to enterprise ground systems for space to the offensive and defensive cyber capabilities of Polaris Alpha including AI. These are opening a whole new markets for Parsons. And I think the other point I made is, our clients are now seeing contracts getting larger. And we think that plays into our strategy and is a definite growth potential. Carey, anything you'd like to add to that?

Yes. As we showed earlier today, our addressable market for the Federal segment is $70 billion. We were very well-postured to capture that, both as a result of our organic investment that we've done and our string of PeARLs acquisitions that we've done. I would also point out that we partner with the major primes. We're in prime subrelations. Sometimes we prime, sometimes the sub does. And we also compete with the major primes. We're very pleased with our ability to move up the value chain and with the big words that we've been able to win.

Next question what is your assumed 2020 to 2023 CAGR for each segment? And as we have repeatedly said, and we don't -- haven't seen a material change in this. Our Federal Solutions is growing in the mid- to upper single digits. We think that will continue. And without an infrastructure bill, we see our Critical Infrastructure growing in the low to mid-single digits. As we've said before, if there is a major infrastructure bill, we'll readdress those growth rates. Next question. We've had a couple of questions on GBSD, the Ground-based Strategic Deterrent. And the questions are centered on, are you going to perform any work under the GBSD contract? We have a unique modeling and analytics capabilities as Carey and our team talked about before, that's one of our huge strengths. And we have a platform called Omega that has been redirected to the GBSD for the government. It really determines the efficacy of our defensive missiles against inbounds. And the Air Force has decided that, that is a strategic -- or it creates a potential OCI with the Northrop Grumman's GBSD contract. So we're continuing on the program. We're continuing the modeling simulation aspect of that program, which is a very high-end capability that we have. The next question is, what are the biggest risks in achieving your financial objectives? And I guess on a humorous side, as we said during the IPO, George did. I suppose the biggest single risk would be global peace breaking out and everybody being completely satisfied with infrastructure. And I don't see either one of those happening. So when you break that down, I mean, really, what we are working on is kind of in response to a lot of risks perceived in the world in space and cyber and in missile defense as well as a deteriorating infrastructure that is not well adapted to a new interconnected world. So where did the risk come out? For the most part, it's just changing or delaying procurements, which we don't foresee happening, but is a potential. And George, when you look at our numbers, what would you add to that?

Yes. It's a great question. It's obviously something we think a lot about. I would say it would largely be external issues. Case in point, about a year ago, we probably had a lot of doubts about the strength of our business moving through the pandemic. On the great performance of the entire team, we did very well. So while I wouldn't say something could happen, I've always been really impressed with the agility of our folks to adapt to any circumstances. So again, I would focus largely on external events, and that's obviously what we talk about each month when we get together as a management team.

Yes. And as we've said, we've weathered a global financial crisis, we've weathered 9/11, we've weathered a pandemic. And although it could have temporary delays, we don't see those having permanent. Given a potential incremental infrastructure spending, which segment should have the best growth over the next 5 years? Has your expectation for growth in Critical Infrastructure change since the IPO? Sands and infrastructure bill are -- our growth expectations for Critical Infrastructure haven't changed. They're still mid- to lower single digits. What has changed? Well, we're ending the runoff of low-margin pass-through. So that has immediate impact on the growth potential for CI as we look post 2021. But an infrastructure bill could have a major impact. What we've seen in the past is ultimately, annual spend from a Federal perspective can increase anywhere from 25% to 50% or more. So a major infrastructure bill would have a material growth expectation for our industry in Critical Infrastructure. How can you grow your revenue 5% to 6% when budgets are likely to tighten over the next couple of years? Well, I think as Carey and our teams on both segments have pointed out, and I mentioned in my opening remarks, we are in the areas that are -- where our customers must invest, whether it's cyber attacks, whether it's the realization, we have new well-funded near peer threats, whether it is the new crowded space environment and the fact that infrastructure is not set for a new future. Those are all strong drivers of our markets, and we think they'll continue. In addition, as George mentioned in his, we've got roughly $200 million of headwinds this year, $100 million from COVID, another $100 million from the runoff of low-margin revenues that disappear in 2022 and beyond. So that gives us a bit of an uptick in 2022. George, anything you like to add to that?

No, I think that answered it very well, Chuck.

Next question. What is the largest M&A target in your pipeline by revenue? Well, we really don't get into the details of our target pipeline, but what we've said continuously, nothing's changed, is our pipeline ranges in companies that are geared to our markets, geared to our technology, have the financial growth drivers that George and I described. And they generally range on the low range, maybe around $50 million, in the higher range, they've been $350 million of what we've done to date. We don't see that materially changing going forward. Obviously, we're always open to large strategic mergers and acquisitions, but I wouldn't call that in our pipeline per se. Next question. When do we expect Federal Solutions margins to hit 10%? And as -- this is kind of another twist on a question we've already answered. And as we said, we're continuing to pull the levers that we have, mainly around converting our portfolio to increase T&M, increase fixed price, increase product sales, which are materially higher, converting work to SaaS where we can, and then lastly, M&A. And M&A has a big impact on those margins. Carey, anything you'd like to add to that?

You covered it pretty well.

Next question. We have a follow-on question that's just come in. How are we going to eventually get our Critical Infrastructure margins to 10%, and will achieve this target? So we'll have additional runoff of low-margin revenues in 2021. We're also seeing, again, the inherent margins of that business grow. And if there is a large infrastructure bill, there really aren't a lot of new participants to come in. We would expect margins to have upward pressure on margins as well. And then lastly, any sort of M&A and pulling more of those Federal products into our Critical Infrastructure business. Carey, anything you'd like to add?

Probably the only other would be unconsolidated joint ventures.

Yes, very good point. Next question. How difficult is it to hire and retain employees? And are pay levels increasing? Is it possible to earn higher margins in what may be an accelerating cost environment? Well, whether -- on a lot of our business, whether it's T&M or cost reimbursable, if there's pressure in the pay rates, it generally drives revenue up as well. On our fixed price work, that isn't true. We generally price in escalation to our rates. So right now, based on what we're seeing, we're not seeing a material change in the escalation factors from what we've seen. Clearly, companies like Parsons are all about people and great people. So our whole goal is to be the employer of choice, where employees want to work and help drive our and fuel our passion that's for our customer missions. Carey, anything that you -- because we have a lot of specific things we're doing, too, you might want to address.

The other thing I would just highlight is that we play on the emerging leading-edge of technology. So because of the space that we play in, we tend to demand a premium and get the best people. We're very, very mission focused.

Next question up, why is cash flow growth slowing? Cash flow tends to be a bit lumpy year-to-year. So I don't know that I would say it's slowing for any sort of systemic reason. Clearly, 2020 had some tailwinds around the CARES Act and whether payments being deferred as it related to certain employee taxes. And those taxes will be returned in '21 and '22. So that puts a little bit of a damper. But I don't see anything systemic. George?

No, I wouldn't see anything systemic either, Chuck. There is a, say, a moderate headwind relative to the repayment of the payroll taxes deferred under the CARES Act. In addition to that, as revenue grows, obviously, you have a working capital carry. So that also is at play in the out years.

Yes. And again, converting at 100%, we're operating 12% above that over the last 3 years. So do you plan to accelerate your M&A activity over the next couple of years? Accelerate? We think the pace we have of 1 or 2 acquisitions a year is the right for us. Obviously, if we saw some phenomenal opportunities come on, we might accelerate a bit, but there's no definite plan to accelerate M&A activity per se.

Chunk, one thing I would add to that. I think it's important, is the way that we do integrations that's unique I think the audience today had the opportunity to meet our Federal leaders. Three of our Federal leaders came through acquisitions. So it's been a huge draw for people talent.

That's great. That's a great point. And the other point we always make is, we tend to buy our friends. People we already know. So they're not strangers.

You can even check that our CFO came from an acquisition.

And our CFO came from an acquisition. Great point, George. Many moons ago. Parsons is known for being very product-oriented for both Federal and Critical Infrastructure customers. On the Federal side, are you seeing changes in terms of how the Federal government buys software? Is commercially developed software becoming more common, and does this benefit Parsons? And I'm just going to give a very brief and then I'm going pass it to Carey. I mean, clearly, I think there's a lot of great software products that have been made in the commercial world. And I think the Federal government wants to take advantage of what's there. And we see that as an opportunity to cover more and more of our GOTS products to commercial products. But clearly, I think commercial products that can get the job done quickly and effectively are probably getting a little more views than they had in the past.

Yes, I would say we're excited about the -- those service opportunities. A great example of that is our Launch manifest System Integration, where we're going to advertise on GSA schedules, platform-as-a-service capabilities. We're also selling software-as-a-Service capabilities, and we're starting to see a little bit more buy-in from that government in those areas.

Yes. That's -- I think it's more efficient for them and less administration costs.

Most certainly.

So what are your major recompetes coming up in 2021 and 2022? Carey, this is another great question for you.

Sure. Well, the biggest contract that we have up for recompete, which we've already submitted the proposal for is the Team's next-gen contract, which is the work that we do for the Missile Defense Agency. We're fortunate to have supported the Missile Defense Agency for over 3 decades. We have very strong CPARS from our performance on those contracts. So basically, you'll see our systems engineering contract, our weapons and missile contract and our battle management command and control contract, getting combined into a large effort. We anticipate that award, Chuck, sometime in the summer.

Yes. Next question, are you still targeting technology revenue of 50% and transactional revenue of 33% of total revenue? If so, when will you achieve those targets? As we set out, we set out these very aggressive targets to drive our teams in this direction. We're still committed to those targets. And we're seeing incremental growth. A lot of that, as we said in our IPO, will come from our M&A. And we're continuing to look at companies like Braxton, like QRC, like OGSystems like Polaris Alpha that are all rich in technology revenues and all have components of transactional revenues that really help us achieve those targets over the longer term. Next question, what market segments are performing above and below your expectations? And I suppose that all depends on when we set our expectation. When we launched an IPO, we certainly never expected a COVID impact. So that really wasn't expected. But other than that, I think our markets are performing the way we expect it. If you take out COVID, you take out the strategic and long-planned runoff of those low-margin revenues, we're achieving the numbers we thought we would achieve. Anything you'd like to add to that, George?

I would agree. Obviously, a lot of the COVID impact hit Federal and it hit Engineered Systems. Chris Alexander -- and a shout out to Chris, he and his team have frankly, done an incredible job with those headwinds.

And especially coming up with the creativity of developing a product like DetectWise, something we didn't even have before and they developed it literally in weeks.

Yes.

So what core competencies capabilities drive the majority of your revenue stream? Well, as Carey and the team so articulately pointed out, we're all about technology. And we're a leader in artificial intelligence, machine learning, especially. We've done a lot of work in digital transformation and IoT sensors. And so that kind of cuts across everything we do, along with the really expert people that we have, the engineers, the scientists, the programmers. So that drives a lot of revenues. And now the new thing we've been adding over the last couple of years is products. And as we see going into the future, products will be a great engine. Carey, anything to add?

I agree, Chuck. And I would say software products for us is probably our biggest driver. We have a software component and about everything we do and about every bid that we're pursuing.

And the great thing about software, it's so scalable.

Most certainly.

Yes. Are you seeing any trend in the preference for contract types, moving away from T&M or more fixed price? I suppose the question really has got 2 answers. What do our customers see as a trend? What are their trends and what are our preferences? And our preferences have always been around -- for work that is to find time and material and fixed price. And each one of those is slightly higher in margin. For the work that's not defined, a lot of R&D, et cetera, development work, then cost-plus is a preferred model. And Carey, I think that's the same concepts our customers have as well, is it not?

Exactly. And I would also point out, Chuck, if you look at our portfolio, about 40% of our business overall would be on the cost-plus. We're a little bit higher on cost-plus on the Federal side, about 60% and 20% on the Critical Infrastructure. But if you look at our recent acquisitions, specifically OGSystems as well as QRC, those were more slanted towards fixed price, T&M.

Yes. Yes. Great point. Do you anticipate a slowdown in award activity as a result of the new administration? Well, I think as I mentioned earlier, we naturally generally see slowdowns in award activity as administrations are changing and new people are coming in. Generally, they want to look things over and make sure they're aligned with the new administration. However, given the administration's stated priorities, we don't anticipate that turning into a longer, more sustainable slowdown. It's very much a short transitional slowdown. Carey, anything to add?

Yes. We're pleased to see that the American Rescue Plan is moving through. It should be signed shortly. That definitely will have implications for our Critical Infrastructure sector, both on the Federal side and on the Critical Infrastructure side as there's additional funding for areas like aviation and rail and transit. And then, again, we're optimistic about the Built Back Better infrastructure moving forward as well.

Yes. Next question is about our M&A pipeline. And how is it looking? And do we see anything imminent? I think as we've said repeatedly, we're always talking to 3 to 5 companies. And we have, of course, a much larger pipeline than that, but we're in active discussions. That hasn't changed. That's where it is today. The next question about imminent. We really don't comment on eminence or how close we think something will close or size or anything else or where it is for obvious reasons. But the pipeline is robust, community conversations continue, and I think it's a good M&A market. Next question. What are you assuming for the next 3-year DoD budget, and how much does your Federal Solutions growth plan depend on that? Well, I think as we look to the next 3 years, I mean, we read the same articles and everybody else reads. And there's a lot of variability in forecast from slightly up to flat to slightly down. And I think the bigger question is, where do we think these changes will occur. And although we don't know where -- if there is a flat to declining budget, we have our suspicions of where they'll likely occur, we just don't see them occurring in cyber. We don't see them occurring in space, and we don't see them occurring in our missile defense work nor really in the health care work that we're doing or the work related to health care in our Engineered Solutions. So we're very bullish about those. Carey?

I agree, Chuck. And I would say when you look at the CAGRs across our market areas in Federal, they're all above 5%. And when you look at cyber and intel and space and geospatial, that's a 12%. So we're in areas that are very much insulated and in line with the recently released Biden national security strategy.

So the next question is, how much are we investing in R&D? Where we had the goal originally to create a product or 2 a year. And then now it's a product or 2 a quarter. And we're waiting to get that up to a product or 2 a month. But our R&D, which started from humble means is really, really grown. Carey, you might want to go into that and OTAs as well?

Well, absolutely. I mean, we're at 20x what we spent. If you look back to 2016, we've been very focused on organic investment. And on the other transaction agreements, we doubled the amount that we were awarded from 2019 to 2020. Receiving over $209 million on other transaction agreements. I like the areas we're investing in also. Areas like artificial intelligence, areas like convergence of cyberspace and electromagnetic spectrum, clearly on the leading edge.

Yes. And those OTAs are so helpful for our customers as well as feeding our -- in essence, our R&D.

Yes. It really does help. I mean it's up to rapid prototyping, but it allows you to get solutions quickly fielded to meet our customers' needs.

Next question up, what is impacting your growth in the Federal Solutions market? So as we've mentioned at various aspects of today's discussion, we had a lot of COVID headwinds that hit Federal Solutions in 2020. Roughly, what, 60%, 70% of the $200 million overall and roughly 90% of the headwinds that we see in 2021. And it's really all geared towards 3 contracts. So this is very traceable, trackable. And that is the biggest issue to headwinds that we've seen.

It's fortunate. We're starting to see a little bit of that recovery on our FAA program in particular.

Yes. It's great to see that program, especially as now the public is getting ready to fly again.

Yes.

So what type of impact does COVID '19 had on hiring and retention well? I think that's one of the weird items about COVID. Most companies have probably seen retention tick up a bit. And many companies and us, certainly amongst, we think, the leaders in this, we've all gone from interviewing and onboarding and training, all being done virtually. And although we see a lot of our employees coming back into the office in the future. We'll probably have much more of a hybrid model going forward. That's going to help with retention, too, we think, because it's really what our employee base wants. So as we continue to move and evolve as an employer of choice, we'll see new creative solutions coming up for both recruiting and retention. Carey, anything to add?

Yes, I agree. Our retention has improved. And I want to credit our leadership team because we like to cite ourselves as kind of the fun company and the fun culture to work in. And so the trick has been, how do we retain that culture during a COVID environment. Holding things like virtual movie nights, virtual happy hours, having hackathons that are done virtually across the world. It's been really exciting, and I'm really happy with our retention.

Yes. And I guess we ought to give a shout out to our Inclusion and Diversity Committee and team as well. They've just done such a bang-up job of really putting forth their efforts for increased recruiting not only of historically black colleges and others, which gives us a larger pool of people to attract, but really taking that to next level in our culture, which really great is for retention.

Absolutely. And we have a robust Diversity and Inclusion committee. And they're basically spread throughout the world. Again, we have an ambassador that is located at each of our sites. I would also highlight our intern program being critical where we hire several hundred interns every single year. And we usually have about an 80% interns convert to hires. So I think we have several great means of recruiting that are differentiated.

Yes. Thank you. So the next question. George, willing to give one for you here. How do you -- how much pass-through revenue do you run off in 2020? And how much do you expect in '21?

Yes. In 2020, Chuck, the revenue pass-through runoff was probably high 100s, and we anticipate we'll be low 100s in 2021. And as you highlighted in your opening remarks, we think that will pretty much run the course.

Yes. We'll finally be done talking about that. Next question. As it relates to the ESOP, which is our employee stock ownership plan, are there opportunities to accelerate distributions to increase float? So we did put through a change to our ESOP that kind of lowers the threshold of which people can get onetime distributions or go from 3 to 2 distributions, and that will probably have some incremental change. Now that doesn't necessarily lead to increased float. All it does is put the stock, take it from the hands of the trustee into the hands of the employee. And we're down from nominally 80% to 74%, 75% today. So it is driving down, but it's going to drive down incrementally over time. George, any additional detail?

Yes. So we actually did a couple of things recently, and they were disclosed in the 10-K. We enhance what are known as diversification rights. Giving current employees a greater right to diversify their ownership in ESOP. That in and of itself will probably be a relatively minor impact. The larger change is the one Chuck mentioned. We relaxed the distribution installments associated with people when they, in fact, retire. And many more people will now be taking a lump sum as opposed to taking an installment, which in the past is generally over 3 years. We estimate that will probably incrementally increase the number of shares that move out of the ESOP trust into employees and former employees' hands and ultimately, they'll find their way into the market. We estimate that will have an impact of maybe 2 million to 3 million shares a year. So that will have some small incremental effect on public float but over time.

You might put that in perspective, the total number of shares that we have outstanding.

Total shares outstanding is a little over 100 million. So it's, again, very small incremental number.

Next question. What are your long-term post-COVID facility, office and geographical footprint plans? And it's interesting. We've been talking for some time about how we got more efficient in our facility space and how we did more sharing of spaces and so forth. And it's amazing how COVID really allowed for the whole acceleration of that, really in response to employee wants and needs. So by going to allowing employees to have a say in whether they're full-time in the office, full-time in home or hybrid, that's allowing us to really make some changes. And Carey, you might want to address that?

Sure. I would also give kudos to our IT team who enabled everybody to work virtually across our 16,000 employee base, and we have an engineer work from anywhere initiative where any engineer can use any tool set virtually, and that helps us as well. From a cost reduction perspective, we're targeting a 30% reduction in our footprint over the next 5 years to circle.

It's interesting, Carey. Thank you for bringing that IT thing up. So I think back when we started doing a big infrastructure job, we wanted the best assets from around the world. So we put all that investment I mean going back 15 years ago into the big pipes in the software programs, and lo and behold, what a great benefit because now we are allowing people to work from home, not just our offices and keep up the speed. What are our top ESG priorities for '21 and beyond? Well, I think I break that down into 3 elements. Carey really articulately laid out are working to things like PFAS and emerging environmental remediation trends, which are critical to help make -- deliver a better world. And we -- from social, really our emphasis on inclusion and diversity and really making sure that we're walking the talk, and we're investing in companies who really have that same focus on integrity and ethics. And then lastly, in governance, it's really about transparency and ethical behavior. And we're so proud of 12 years in a row as one of the world's most ethical companies. Carey, George, anything you'd like to add to that?

I think you covered it pretty well. I would just reemphasize the diversity, inclusion and equity, critically important for Parsons.

Next question. Are you expecting margin expansion in both business segments in 2021 and -- so both Federal Solutions and Critical Infrastructure? And we are driving -- George, you might want to address that.

The answer is yes. Obviously, various different levels, but we anticipate expansion in both segments in '21.

Next question. Do you expect to recover all of your FY '20 COVID revenue delays in future years? If so, in what time frame. So we will recover the vast majority of those. We did have one relatively small program in Critical Infrastructure that was canceled, where we were helping cleaning up neighborhoods in Southern California. But other than that, what happens, whether it's our motor vehicle inspection program, where car counts will return or it's the work in Antarctica or out in Kwajalein Island or work for the FAA, that work just moves out in time. So it doesn't recover as like one big step-up in revenue. It's just we get back to the revenue that we would have had before. And I think that's the best way to answer that. Carey, George?

I think that's what I said. FAA is starting to recover. We'll see Kwajalein start to recover in the latter part of this year, and then Antarctica will be the following year.

Yes.

Yes.

So we have time for one more question I am told. How many large bids do you have in your pipeline, and what markets do most of them reside? I think the great thing about that, it's a rich target environment. We have a lot of large bids. Carey, you might want to go into a little detail on that.

No, certainly. I mean, I always look at the bids that are greater than $100 million. We call those the game changers within the company, and those are the ones we target to win. We have 81 of those and 51 are on the Federal side, the rest are on the Critical Infrastructure side, but the majority of the large ones are on the Federal. We tend to see on the Critical Infrastructure side, mostly $50 million and up.

Yes. Well, I think this concludes our Q&A. And on behalf of Carey, George and I and our entire team, I hope you got out of this what we wanted, which was to answer your questions and really hit the topics you wanted us to address. I hope it came across. We had a heck of a lot of fun putting this on. And as part of our core culture and our team just really loved it. So thank you so much for spending the time with us today. And any other questions that you have, please contact Dave Spille in Investor Relations. We'll reach out to you, answer anything that we didn't quite get to. I know there was a lot of questions we didn't get to, and we really look forward to this going forward. So on behalf of all of Parsons, thank you so much.