Parsons Corporation (PSN) Earnings Call Transcript & Summary

Good morning, everyone. We have Carey Smith and George Ball from Parsons with us this morning. Thank you guys for attending.

Thank you, Gavin.

Thank you.

Well, maybe we'll just jump right in and then come back to some higher-level questions, if that's all right.

In terms of the quarter you just reported organic growth accelerated pretty nicely, picked back up, but there's also an aspect of just maybe returning to a more normal seasonality relative to last year. So how much of that acceleration is really seen an inflection in new business and awards and wins versus kind of that seasonality aspect?

Well, first, we were really pleased with our first quarter organic growth at 6%, 9% growth overall. And both segments and all 4 bids and its units had the growth. So I would say right now, it's really a matter of continuing to do what we've been doing. We've won some very large contracts. We have to get those staffed or staffing and our recruiting and retention has been very strong. So I wouldn't say seasonality as much as continuing on the path that we've been on.

Got it. So then how about in terms of that guidance range, does it take the year to get it towards the high or low ends of that range?

To get to the high end, it would be to continue that hiring. We had tremendous momentum at second half of 2021 with a 30% improvement over the first half of 2021. We've seen that momentum continue into 2022. In fact, March of 2022 was our best hiring month since March of 2019 in what's a very difficult environment, as you know. So I would say continuing the hiring, continuing to drive task orders to the single award contracts that we've already won and continuing our critical infrastructure, strong book-to-bill, which we've had for 8 straight quarters.

Maybe staying on hiring, then. I think you guys made some leadership changes there. Just talk a little bit more about kind of what you've done to accelerate that hiring and if you're seeing that kind of continues at March is the strongest you've had in a while.

Certainly. So I took over in July of last year, our CEO, and one change I made was to bring in a new CHRO. I want to get somebody that had strong federal experience. They knew how to hire cleared people and also was located in the D.C., Maryland, Virginia area, since that's our primary market. To date, federal hiring has been more difficult. Critical infrastructure hiring has been a little easier. So she came in, she brought with the 35 years of federal experience, and she also brought a brand-new team. So we have a new head of talent acquisition. We have a new person that runs employee engagement and also brought in some new recruiters, and we've really seen the benefit of those changes.

Okay. All right. As the hiring is picking up. You've won a lot of rewards, you won a lot of contracts. The backlog hasn't really grown though, over the last few years. I mean is that something that we need to see grow before we can expect sustained accelerating organic growth over time? Or is there a different dynamic there of sealing IDIQs or awards that you've won or on contract growth?

Yes. So our backlog is $8.2 billion, more than twice our annual revenues. And what we do on backlog is we take a very conservative measured approach. So just a couple of examples. We were awarded Teams next contract for the Missile Defense Agency. It's a $2.24 billion contract over 7 years. We only booked the base share, which was $618 million. We were also awarded the Faro Mine contract, our largest contract ever at $2.5 billion. We only booked $240 million, once again, just the base portion of that contract. A couple of other examples. We've won these large single word GSA Fed SIM contracts, 2 of which are called Combatant Commands and the other one is C5ISR excise operations. Those respectively, were $590 million, $618 million. And what we did there was just booked the base here. And once we get to that base share funding, we start to book the follow-on options. And the third example is contracts where we've been awarded, but we're not quite certain how fast the task orders are going to go. So an example there would be our base or defense. That's a $953 million contract. We've only booked the first task order on that contract. And another one would be our DHS COVID win, which was $118 million. We've only booked the first 2 on there. So I would just say it's really a conservative measured approach to bookings. In total, on the single-award contracts, we have over $3 billion of ceiling value remaining that's been awarded.

So high visibility on what you do have in backlog.

100%.

So do you have a sense for how much kind of that seasoning IDIQ value might have changed over the last few years?

Yes. So we've been awarded a lot of contracts like I just mentioned. And again, that's up to -- we've got $3 billion that we haven't yet booked that's in reserve. So as we get the task orders or as we continue through the auctioner exercises, we'll continue to book and roll those forward. Beyond that $3 billion, we also have about $5 billion in total of awarded not booked. So things other than the single award IDIQ contracts.

Got it. And I want to come back to overall budget spending levels, but is that a dynamic that allows you to see faster on-contract growth? Or is that also a dynamic of being able to hire and execute on that when it comes through?

Yes. So I would say both. Well, I'm very pleased that the FY '22 appropriations went through at 782 and also the FY '23 budget uptick at 813. So it does give line of sight not just for us but also for our customers, and we are starting to see those funds flow through. The other thing that it did was helped us for the infrastructure bill. -- because that funding as well was hold up. If you look at the infrastructure, about $1.2 trillion, $550 billion of new funds were awaiting approval. So now that that's happened, those funds can trickle through.

Got it. So then maybe just in terms of CR or COVID disruptions, you said you're starting to see some of the budget funding come through, were there are any disruptions from absenteeism. I know the intel community had some disruptions. The CR was much more disruptive than usual. How did that impact you, if at all, in the first quarter?

So I would say awards the second half last year were -- our procurement was a little slower than the first half last year. We just didn't have as much proposal activity. We were pleased though that we had a very respectable book-to-bill in the first quarter still at 1.0x and then trailing 12 months of 1.2x. So we've been able to maintain that even despite the CR. As we proceed into this year, though, proposal activity has been very strong and we expect that that's going to really pick up. COVID for us, fortunately, well, it was a headwind in prior years because we had a couple of contracts that were shut down, where we were working in Anartica, for example, or quadulin. That has now picked back up, and that's now become a tailwind as we go into 2022.

On that higher funding? Is there a user or loser dynamic where they need to get a lot of that on by year-end? Or is that going to have a more stretched out impact to your bookings?

Yes. We're seeing a lot of momentum and you set or lose it. So I anticipate that we'll see some on-contract growth and also an emphasis to get funds placed before the end of September.

Got it. Great. Maybe pivoting to infrastructure. You mentioned the size of the bill. You guys have been asked a bunch on the timing or the pace of that accelerating. And I'd love you to comment on that, but also I just want to ask on the sizing of that, I mean some of those categories are up 50% or more. So at some point between now and the next few years, there's the critical infrastructure business 10%, 20%, 30%, 40% larger than it is today. I mean, so maybe you could talk a little bit about timing, but also about the magnitude of the sizing of those budget increases.

Yes. First, to address the budget. So $1.2 trillion, $550 billion of new funds. Out of the $550 billion, there's $284 million that goes to transportation, which is where we play heavily, whether it's roads, highways, bridges, airports, ports. There's an additional $115 billion that goes through resiliency and digitalization. So if you think about broadband capabilities, cybersecurity, resiliency, again, it clearly aligns with our portfolio. There's another $84 billion that goes towards environmental remediation as well as water and wastewater treatment. And there's an additional $73 billion towards clean energy utilities work. So when you look at that $550 billion, it really aligns very well with Parsons' portfolio in areas that we apply. Not to get ahead of ourselves, but if you look back at the Safety Act in 2005, the company did grow at 10% on the top line. But we're going to closely monitor them, and again, just not get ahead of ourselves on expectations. What we're seeing is the federal funds are already starting to be allocated. An example is on our Federal Aviation Administration contract for Technical Services. Out of the FAA's budget increase about $25 billion, $5 billion is dedicated towards facilities, and we've started to see those funds flow already. I would say another example is the Army Corps of Engineers. That funding is already flowing. If you look on the critical infrastructure side of our business, areas like Amtrak and federal government agencies will likely get the funds flow first where it will take a little bit longer, it's where you have to go from federal to state to local just because it takes time to get those funds allocated. And then there's 3 areas of funding. There's formula funds, which are basically done based upon your population and changes in transportation indices and it's just strictly formula based. Those will come out first and get adjusted. There are also existing grant programs, which are already in place. The one that will be the longest pool in the tent will be new grant programs where they have to be established. There has to be applications, and that process takes longer. I would also add, Gavin, not just in the U.S., but we're excited about the global infrastructure trends as well. If you look at Canada, for example, Canada passed its infrastructure bill equivalent back in 2016, and that was for $188 billion. And out of that, over $90 billion is for new funds. So we're seeing that Canada programs progress quite rapidly now because they're actually several years ahead of where the United States is. And then in the Middle East with the high oil prices that we're seeing, they're actually accelerating programs and some are even moving to the left.

How long does that take to ramp up or flow through? I mean, presumably to your point, the phones will get allocated, but then it will take some time to make its way through the agencies. You'll see it on the high-level agencies first, but it will take time on the state and local. And should we expect that to accelerate over a few years? Or is there a step function in one year and then you can hold a pace of growth how should we think about that?

Yes. When we think of a step function, it will more be deliberate. So the government has published different guide books. There's about 465-page guide book that goes through all the different programs. And it outlines all the different timing for the programs. So what we've done as a company is we've laid those out across the states that we're interested across the projects that we're interested in. So we know when we expect to see that funding flow through. And again, our focus today would be mostly on those federal agencies that I mentioned because those funds were quickest, the formula funds and the existing grant programs. But you can expect to see that kind of be rather steady. From a planning purpose, we counted on the -- that's ramping up starting in 2023, not in 2022, although we are seeing some federal funds already.

Got it. And then you referenced double-digit growth in the past. Is that something that's achievable if you can hire to it? Or is it getting ahead of ourselves?

That's probably getting ahead of ourselves. That would definitely be in a long-term objective. But for right now, we just want to make sure that we deliver on our 2022 guidance. We do expect to set long-term targets. We plan on holding an Investor Day as we go into 2023.

Great. All right. And maybe taking that infrastructure and critical infrastructure conversation back to federal. It sounds like you'll get some of the funding on both sides. But can you talk in a level about where the synergies are between those, both in terms of the infrastructure bill and in terms of national security?

Yes. So first, I'd say very excited about our portfolio. We're in a unique place as a company where we have 2 segments, and both segments are growing. And we really are aligned very well with macroeconomic trends. So if you look on the federal side, areas like cybersecurity, missile defense, space, C5ISR, those are all growing. And I've already talked about the critical infrastructure, areas of transportation, water, wastewater and environmental remediation. We also have a lot of collaboration between the 2 segments. One area is we take our technologies from our federal side of the house, things like cyber, like artificial intelligence, like cloud computing, and we apply those to the critical infrastructure side of the house. Great example I mentioned is there's $115 billion of new funds that is strictly for digitization, resiliency in cybersecurity and the infrastructure bill. We're one of the few companies that can address that under the same roof. So if you look at kind of what does the infrastructure side help the federal side of the house with, it would be complex program management. It would be areas like environmental remediation, areas like water because we've got water on the federal side of Army Corps of Engineers. And then underlying all that, we share resources across the company. So our program managers can move back and forth. We have a combined and collaborative engineering group that shares resources. We have the same processes that apply across the whole company. So again, I think we're just in a really unique position and aligned very well with macroeconomic trends in both of our segments at this time.

So I assume it's advantageous to be able to bid something on the infrastructure side with the cyber offering packaged. Was there any reason that a team's group of competitors would have an advantage?

Other companies could team, but most companies have to go outside to get that expertise. Where we offer the advantage is if you're going to protect an airport, you really need to understand how an airport operates. And you need to understand where that cyber protection needs to be and how to implement it. If you know the domain, you're best equipped to apply. The same applies to a utility. One of the biggest challenges for a utility right now is not the information technology, but it's really the operation technology. So it's those industrial control systems or SCADA systems that were put in place 30, 35 years ago, what companies better prepared to protect that than a company that understands both the IT and the OT. That's where we're unique because we know the domain and we know how to protect that to me.

So there's a lot of that on existing infrastructure modernization opportunity? Or is there also a lot of new build? How does that play out?

Yes. So it's going to be both. If you look at some of the recent incidents that have occurred like colonial pipelines like SolarWinds, that would kind of be an example of an existing. If you think about the future, this is a chance for us to build back smarter as we go into the infrastructure, but what Build Back smarter means is applying sensors using technology. So instead of designing a bridge, for example, for a 35-year life, it's how do I design a bridge for 100-year life. But if you're going to do that, you're putting in sensors. Any sensor is a cyber threat. So you have to be able to provide that data analytics, cybersecurity protection around it. So it's really protect the systems that are there today, particularly those old SCADA systems, but designed for the future so that you're building security in.

So does it seem like the Parsons or the entity that's going to pay for this all is the U.S. government? Or are you going to have some sort of public private partnership with industry and they'll also have to do their own investment. Or is a lot of this funding coming now from the government for national security-based infrastructure reduction?

Yes, great question. It's really both. So I would say federal, for sure. And if you look at the infrastructure build, that $115 billion pocket of money will really go towards that. But if you think about private companies, private companies also have to step up because of the incidents that have occurred. CISR now under the Department of Homeland Security has taken the lead on that public-private coordination. And I'd say it's better than it has ever been in the past in terms of information sharing. Groups getting together under coordinating committees, not just across the agencies within government, but also within private industry.

Got it. Maybe following that through to margin lever -- the margin levers on the critical infrastructure side, you made the point that there's less competition now than there was in the Safety Act a number of years ago. You've repositioned the portfolio to be less construction what are the main levers? I mean, is it just that supply-demand dynamic? Do you have anything else you can pull? How should we think about that margin progression?

Yes. So if you look previously, there's been a lot of industry consolidation from 2005. The last time we had to bill until today. In fact, there is that we plan specifically engineering and owner's engineer. It's about half the number of companies that were previously in it. So I would say right now, you've got an opportunity of a lifetime where you have a bill that's out there that there's going to be a lot of demand for, but you also have a lot less companies that are going to go for that. So I do believe that, that should trend favorable for margins in the future.

And is that immediately margin accretive? Or is it something that starts at a lower margin ramps as the program progresses.

Yes. For us and because our programs tend to run about an average of 18 months when you look at critical infrastructure, it's -- they're a pretty short window when you look at that engineering design component.

Got it. And is there operating leverage in that business? Is there a high amount of fixed cost? Or is that going to be pretty program-by-program actual margins, and that's what you'll realize.

Yes. And again, for us, because it's predominantly labor, it's what we'll actually realize.

Got it. Helpful. Okay. Then maybe moving over to Federal Solutions and the overall budget since you're starting to see some flow through of the Omnibus, maybe specific to Ukraine. Have you seen any plus-ups or flow through? Or is that something more of that is just going to structurally shift the defense mindset and lift all categories?

Yes. So first, I do want to express my sympathy for the people of Ukraine. I think this is a most unfortunate situation and probably one in most of the world did not see coming, particularly as quickly as it occurred. For us, we've been offering some of our offerings, particularly around the areas of electronic warfare. I can't go into a lot of detail of those due to classification reasons, but we do have some offerings that we're providing in the Ukraine. If you look longer term, though, and you look at the European spend going up, there's going to be systems like air-based AirDefense needs. There are going to be needs for electronic security systems. We're going to have to do more protection, for example, of MSCs or in consents across the world. European nations are going to be spending more in areas like missile defense, like cybersecurity. And then for Parsons back to why it's important to have both of the segments within the company, the rebuild of Ukraine will take place at some point. That's an area that Parsons has been involved in the past if you look at the rebuild of buyback for example.

Interesting. So it's U.S. funding towards a rebuild that would be beneficial for a U.S. contractor or advantageous to winning work.

Yes. I'd say U.S. funding, but I'd also anticipate European and NATO funding.

Got it. Okay. So then maybe in terms of how that flows through this year versus over the longer term, do you get to see any of that benefit this year? Or is that more likely to possibly hit backlog and then impact revenue in the out years?

Yes. So today, we are providing some systems, but I wouldn't say it's material relative to Ukraine. So I would see that being more of a benefit in the longer term.

Got it. And then hypersonics, obviously is a category where there's been a lot of emphasis. You have the big contract with teams with NDA. Are you doing hypersonic work there? Are there other areas of hypersonic work? And how are you exposed to that category?

Yes. So we're the largest technical adviser for the missile defense AMC. We've been supporting them for over 38 years. We're involved in pretty much every aspect of what occurs at MDA. We just won the next-gen system engineering contract. That was the team's contract I mentioned earlier for $2.24 billion. So if you think about systems engineering, architecture, design, analysis, a great example would be hypersonic defense. We've been involved in hypersonic defense for over 15 years. And it's really looking at how do you detect and track hypersonic missiles. And from a Parsons' perspective, we provide the engineers that help define that sensor-based architecture to be able to perform that.

How much of that architecture exists today versus now? We've realized that some of our near-peer adversaries are further than we thought and we need to invest more aggressively.

Yes. So I'd say previously, the architecture was more defined for intercontinental ballistic missiles, which have a very defined trajectory. So now that architecture is being adopted more to be able to detect hypersonics, which have a very fluent trajectory.

So your exposure there would be along the lines of testing, rollout of the system advancing the overall sensor system rather than any sort of production or development of the weapons themselves.

Yes, because we're a technical adviser, we would be responsible for the architecture, specifying how the overall system would work. So if you think about a model-based system engineering environment, how the various sensors would react and interact with each other, perhaps helping along the lines of specifying some of the requirements and then getting involved in actual testing performance analysis results by not building actual equipment.

Got it. Does that have any overlap with the space work you do? Or is that a separate category? And if so, can you talk a little bit more about it?

Yes. So there is definitely a connectivity there. But I would say on space areas that we're mostly involved in are ground systems and mostly enterprise ground systems where you don't have to have an individual commandant to control every single satellite, but rather you can come up with a concept of one enterprise system that controls multiple satellites. That was through our Braxton Technologies acquisition. We also do assured position, navigation and timing. We got that capability, both through Braxton and our most recent acquisition of Echo Ridge. We're performing resiliency efforts of the overall satellite systems, the link as well as the ground systems themselves is another area we play. We performed space situational awareness. We had $185 million win last year relative to space situational awareness. And then finally, we do launch and integration. So we take a small satellite payload and we do the payload selection, we manifest it with a large payload and then perform the launch mission. We've been 4 for 4 successful missions on that.

Space is a pretty big bucket. I don't know if you play in a specific area, but do you have a sense for overall kind of how that category may grow over multiyear outlook?

Yes. So we do expect it will be high single digit to low double digit in general, from an addressable market space as far as compound annual growth rate. And we are selective to your point on where we play. We're not going to be like a bus builder, for example, on a satellite, but we're going to pick our niche areas where we know that we can be top of our market.

And as Braxton the majority of your exposure there? Or did you have some business before that just thinking about sizing?

Yes. So the original launch contract was a Parsons' contract. That's a great example of our M&A strategy, by the way. The space situational awareness work came to us through Polaris Alpha. The ground system work came to us through Braxton, the Assured Position, Navigation and Time Inc. through Echo Ridge. And then the space resiliency was the legacy Parsons effort. So by putting together the string of pearls through our M&A strategy, that's enabled us to basically move up the value chain, bid and win larger jobs and become a better player or a stronger player on the space domain.

And that's a perfect way to pivot to M&A and maybe the capabilities you've added the M&A over the last few years. But maybe starting there. I mean your Federal Solutions business was $1 billion of revenue a couple of years ago. Now it's $2 billion. It feels like you've added capabilities in some of the fastest growth areas of the budget. And how well positioned is that business relative to the current priorities of the administration relative to legacy businesses or areas that aren't growing as fast?

Yes. So we think we're very well positioned. We've had a very deliberate M&A strategy over the last 5 years, starting with Polaris Alpha, which brought us kind of cyber cloud data analytics capability, then we acquired OG Systems, which brought in geospatial intelligence, greater analytics capability. And it also enables us to do some intelligence fusion, which is a big need coming up out of the Ukraine conflict as well. And then we moved into QRC, which brought signals intelligence, radio frequency, situational awareness. We talked about Braxton and Echo Ridge. So it's been kind of a very deliberate, connect the dots. It's enabled us to move up that value chain. I mentioned some of the bigger jobs that we were awarded Airbase, Air Defense $953 million, the CS job for $618 million, the CCMS for $590 million. We could not have won those big jobs without that deliberate M&A strategy. So it's really allowed us to bid, win and position ourselves as a prime contractor and move up that value chain. We're very deliberate on M&A and that we really buy for technology differentiation because that is what enables us to win.

And how important is scale you've doubled in size, but some of your peers are significantly larger. I mean is this scale a challenge in keeping up with those larger peers? Or is it a net benefit since you yourselves have scaled up significantly?

Yes. So we do not buy again for scale. And I would say it hasn't mattered because we've been able to win the jobs and we've been able to retain a very strong trailing 12-month book-to-bill. So it's really for us about focusing on areas that we can be top in our markets and being very deliberate on the focus.

Got it. Makes sense. Maybe ask George a couple of questions, and I'll open it up to the room, margins and cash flow. Margins last year, if I adjust out some of those charges, very strong margins, I think you get in hit 10% in a couple of quarters in critical infrastructure. The margin bridge this year implies year-over-year expansion, but it's down on an adjusted basis. Can you just help walk that bridge and there are any visible headwinds this year on an adjusted basis, why is that margin expanding?

Great question, Gavin. The primary issue is salt waste processing facility, which is a project we've been working on for over a decade. That came to a conclusion at the end of March. That's a job that historically had very good performance fees associated with it. There are some other jobs that fees are less significant in the portfolio than they were previously. But we anticipate that won't do a margin expansion over this year. It will just be less pronounced than maybe what it was right after we went public.

Got it. Do you have any cushion and guide for potential charges? Or are those hopefully largely behind you?

Yes. Of course, if we had something that we knew that needed to be addressed, we would have to address it immediately. So there's no cushion in guidance. We are anticipating no breakdowns. We've come a long way on mitigating the risk of those legacy programs. Many of them have completed. Others are nearing completion, and we don't envision that we'll have anything like the issues we had in 2021.

Got it. And then in terms of visibility beyond this year, do you have higher margin contracts in the backlog? Do you have visibility into margin growth? Or is that still something you'll need to work on?

Yes. It's a great question. I would say the margins at the gross level on our backlog are comparable with what we're currently producing. As Carey suggested, we think margins will expand as funds flow on the infrastructure bill just due to the favorable supply demand dynamic. That's so probably something that we won't see until '23, '24.

Maybe in terms of cash flow generation, then a couple of lumpy years, carries payroll and some legacy payments. What's the target in normalized free cash flow generation? And what's the year you get to kind of normal with no lumpy pieces?

Yes. Our target has been and will continue to be 100% of adjusted net income. There are opportunities where, frankly, we could exceed that. We do have milestone payments associated with the legacy work that as we complete those projects and unwind those final payments and retention that we could exceed 100% of adjusted net income, but that's essentially our long-term mark.

Some of that working capital timing, I know it's flipped around the last few years. Is that something you could recognize this year? Or those milestones is going to be on '22?

Probably both. We expect that we will collect some this year, but some will leak into next year.

Got it. Great. Maybe I'll open it up to the room if anybody has questions.

You talked about M&A and obviously, your portfolio of capabilities would be ideally suited to address some pretty significant opportunities in Europe, not only on the ex-Ukraine issue, but on the critical infrastructure side. So what is your European strategy? Do you feel like you need to expand by M&A in that market to capture the $1 trillion that are going to be spent on the infrastructure in the next 10 years?

Yes. Great question. Our #1 means of capital deployment is going to continue to be M&A. We see the benefit that it's gotten us by being able to move up as a solutions integrator and win those large awards. Our strategy is still focused predominantly on federal. We would consider a critical infrastructure one, if they've had a technology play. But generally, we have fought on the federal side, gotten technologies that have helped us on the critical infrastructure side. That will be the primary play. So the latter part of your question, we do not believe that we need an acquisition to help us on that $1 trillion of spend and the $550 billion of new spend. We're a world-renowned design engineering firm, and we've been in the business since 1944. And we're very well known, whether it's, like I said, North America, United States and Canada or in the Middle East where we've been for close to 60 years. So from our perspective, we have all the capabilities that we need and more because we bring the technology component to the play from our federal side of the house to be able to capitalize on the bill.

What is your balance sheet capacity in terms of M&A?

We're currently at a 1.0 leverage.

And where could you go?

We could go -- I would say, at a peak, probably 3% to 3.5%, but we'd be comfortable with kind of a more steady run rate of about 2 to 2.5.

And maybe in terms of inflation, I mean, you guys have spoken to this and addressed this, but if you could take it from the angle of, first, cost risk, any margin pressure? Is that largely passed through? And then secondarily, from a growth standpoint, I mean, does the DOD and does the government appreciate the inflation dynamic? And does that flow through in terms of maintaining real purchasing power?

Yes. So on the first one, our portfolio is roughly 50-50. If you look at our cost reimbursables about half, and then fixed price, time and material is about half. Now it's a little different in the segments and that federal is mostly cost reimbursable, about 2/3, 1/3. Critical infrastructure is about 2/3 fixed price, 1/3 cost per reimbursable. So generally, our costs will flow through on the federal side of the house. But if you look at critical infrastructure, because the duration of our projects is so short and it generally runs now an 18-month average, we don't see -- get a lot of inflationary pressures. So we've maintained our strategy of kind of standard raises like we've had in the past. Looking at the trends, it does, hopefully, we've passed the peak on inflation and hopefully, the consumer price index is right, and we start to see that come down. I do believe our customers have recognized that. If you look at the FY '23 uptick, it's about 4%, you can say, adjusted for inflation, you're more like 1.5%. But Department of Defense recently as the last couple of days is talking about the need to make sure that they have enough funds for inflation.

Great. Unless we have any others in the room, I think we can leave it there. Well, thank you guys very much.

Thank you very much, Gavin. Appreciate it.

It was a pleasure -- thank you.