Parsons Corporation (PSN) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Parsons 2023 Investor Day. I'm David Spille, Senior Vice President of Investor Relations for Parsons. And it's my pleasure to welcome you here today and kick off this event. I want to sincerely thank everyone of you for being here today and for all the people online as well. I know it's a lot out of your busy schedules, but we certainly appreciate the support and all you do for us. Obviously, we're really excited to be here today and share with you all the incredible work that we're doing across the company. In terms of the agenda, we'll begin today's session with Carey Smith, Chair, President and CEO, and she'll provide an overview of our strategic vision and investment thesis. Then we'll have a panel discussion with the presidents of each of our 4 business units; and then Matt Ofilos, our CFO, will provide a financial overview of Parsons. And then Carey and Matt will actually do a live Q&A session. And that will actually conclude the formal portion of the day, but we'll also have a couple of technology demos outside the back of the room. So beyond the glass doors, after we finish up the Q&A, please grab some lunch and go to the back of the room and check out what we have. We're going to show you some of our space capabilities as well as what we're doing in the PFAS market. And I should also mention that today's presentations will be archived on the Investor Relations section of our website. And I need to remind you that any statements we make today could be considered forward-looking statements under applicable law. So please refer to the safe harbor language at the beginning of the presentation and incorporate that into any transcript or replay of the event. So before we begin and bring Carey up to the stage, I'm excited to share a short video with you that provides an overview of how Parsons is creating the future of national security and global infrastructure, as told through the voices of our own employees. So again, thank you all so much for being here today. I appreciate the support, and hope you enjoy the event, and have a great day. Thank you. [Presentation]

Good morning. Welcome to Parsons Corporation Investor Day. Thanks, everybody, for taking the time to join us. It's hard for me to believe that it's been nearly 4 years since we completed our IPO, and our company has undergone significant evolution since that point in time. Today, I cannot be more proud of our 17,000 employees that are working around the globe in support of our customers' critical missions, advancing critical infrastructure and advancing national security. I'm very proud of our company. I'm proud of our people. I'm proud of our leadership team, as you will hear throughout the day. I would say, most importantly, I'm extremely excited about our bright future. We are in 6 growth markets that are all simultaneously growing, and we'll spend some time talking about those, but we're very well positioned for 2023 and beyond. So I want to spend a minute and tell you about that evolution that's occurred since May 2019. We completed the IPO. Then over the next 1.5 years, 2 years, we decided to shape our portfolio. Specifically on Critical Infrastructure, we exited pure construction work, and we got back to what is our core roots. That's design engineering, program management capabilities and owner's engineer or engineering rep for the customer. What we did on the federal side was continue to make acquisitions. We have now bought over 9 companies, counting the company that we announced yesterday, within the last 5 years. And what we've done with that portfolio is migrated it to be a portfolio that can position to outpace near peer threats. Today, we have a different management team. We have a different Wall Street philosophy. And we also have a synergistic and differentiated portfolio. When I took over as CEO in July of 2021, I revamped the executive leadership team. In fact, only myself and our General Counsel, Mike Kolloway, were on the executive leadership team at that time. So I hired and promoted leaders from internal that I had a lot of confidence in, and I brought in some new people from the outside. This was an important pivotal point and change in the company's trajectory for the future. In addition, I also brought in a new Wall Street philosophy, which was to make sure we established measured guidance that we would outperform. So fast forward, as you look at the second half of 2021 and you look throughout 2022, Parsons has consistently delivered results. In fact, we were the industry leader in organic growth in 2022 at 9%. And we were one of the top leaders in growth in both of our segments with 12% in Critical Infrastructure and 6% organic growth in Federal. And as we look forward to the future now, I want to talk a little bit about 2023 and beyond. Parsons is focused on creating the future of national security and Critical Infrastructure. And we like to call that Imagine Next. So imagine, imagine that we will be the integrated delivery partner for the new city called NEOM The Line, a city being built from the sand next to the Red Sea in Saudi Arabia. This could be a city that's as high as Empire State Building and as long as Long Island. It's going to be a city that is 100% run on renewables. It's going to be a city that has no cars, no carbon emissions. We're excited to be on the ground floor of that project. Imagine Next. Imagine how we will use digital twin technology to apply it to one of the world's busiest airports to be able to improve asset operations and improve visualization. Imagine Next, imagine how we're using artificial intelligence technology to find bugs, rogue parts, tampering on a printed circuit board and prevent foreign exploits. Imagine Next, imagine how we're doing identity management so that if somebody improperly tries to enter our embassies and consulates around the world that we're able to stop them within minutes from doing that. And Imagine Next how we're able to provide operationally efficient access to space and commercialize space ground operations. This is the future for our customers. This is the future for Parsons. So I want to talk about why invest in Parsons. There are 6 reasons. First, we have an experienced, committed management team that delivers results. We had 9% organic growth, but we all had 2 beaten races throughout 2022. And we're committed to the targets that we're going to show you today for 2023 and beyond. Second, we have a people-first culture and a mission focus that attracts what we call destination employees. People come to Parsons, and people stay at Parsons. And again, that's reflected in our organic growth that we've had. When you look year-over-year from 2021 to 2022, our hiring improved 42% in a difficult labor market, and we increased retention at the same time. The third reason, all 6 end markets are growing simultaneously. I don't think I've been in the leadership role where I've seen this, and it's so fortunate. And we're really excited about our market position because we have strong differentiated positions in each of those 6 areas, and we've won business throughout 2022 in each of those areas. The fourth reason, we have a distinguished national security portfolio positioned to outpace near peer threats. We are the #1 technical adviser for the Missile Defense Agency, a customer that we've supported for over 40 years. We are the #1 provider of electronic security systems for the Department of State and the Army and in the top 3 for the Air Force and very strong with the intelligence community as well. We are in the very top of offensive cybersecurity providers. This is what I would call an elite portfolio on the federal side. Reason 5, unprecedented global infrastructure spend. I call this a once-in-a-lifetime opportunity. And for us, it's not just the United States, $1.2 trillion that we're looking at, a $550 billion of new funds that's going to last between 6 and 8 years. But it's also the -- in Canada, the bill that was passed in 2016, $140 billion, $70 billion in new funds and it's also in the Middle East, where there's $1.5 trillion of funds, 65% to 70% of that is new, a customer that we've served for 6 decades. So what does all this mean? It means that we have a favorable financial outlook for Parsons. We also have a proven effective capital deployment strategy. We have a very low net debt leverage ratio of 1.36. So we've been able to continue to make acquisitions as the one that we announced yesterday. So what's our growth strategy? First and foremost, we've been investing in moving up the value chain. So moving up the value chain to where we can bid and win larger contracts that are more profitable, specifically going from a company that 4 years ago might have been considered as one more services and staff augmentation to one now that is concentrated in software and integrated solutions. So you might be wondering, what is an integrated solution? So I'll share a few examples. On the federal side, an integrated solution means our VIPER system, which is Vessel incapacitating Power Effect Radiation, a lot of words. What does that mean? It's a high-power microwave system that will stop non lethal -- or stop vessels that are noncompliant, nonlethally in high-speed states. And that system is being used today. It's going to be deployed for the Coast Guard, but it can also be deployed for the Department of Defense. So think about a high-powered directed energy solution. I'll give you an example of an integrated solution in our Critical Infrastructure market, and I'll refer to our rail and transit system program. So an example there is a communications-based train control system. We were one of the leaders in bringing ultra-wideband technology to the United States. So that's a system that you can pinpoint with accuracy a train's position. Another example with rail and transit is positive train control, which is a system that was put in place to help improve safety, to stop and slow trains and potentially prevent head-on-head collisions to trains. Second, I would say, is be the Build Back Better -- Build Back Smarter pioneer. If we look at IIJA, that's defined as Build Back Better. And that's great if we Build Back Better, but we're only going to be able to Build Back Better if we do it the right way. And doing it the right way means how are we going to apply digital technologies to our infrastructure, an area that Parsons is uniquely positioned because we have a technology arm in addition to our infrastructure arm. So if you think about digital engineering framework, digital twin capabilities, how do I leverage artificial intelligence in the infrastructure world? How do I leverage cybersecurity and the infrastructure work? How do I apply virtual reality? This is where our acquisition of IPKeys fits in. IPKeys is a platform that provides cyber capability as well as capabilities for Critical Infrastructure, specifically utility companies. It's a scalable platform. So the company is about 50% services, 50% products, but sells to hundreds of customers, provides Parsons a great opportunity to take our whole portfolio to that new customer suite. Again, Build Back Smarter. How do we think about building infrastructure that will last 100 years, not 30 years? Leverage our unique portfolio. We are different as Parsons. We love our portfolio because we understand how an airport works. We understand how a rail and transit system works. But more importantly, we know how to protect those systems. We can bring the physical security capability. We can bring the resiliency. We can bring the cyber capability. So if you think about areas like utilities or transportation or facilities or water, those are the sectors that Parsons is going to play in. And the reason that we select those sectors is because, A, we have installed base there. We know the customers. We know how it works. B, they're the highest threat driven; and C, they're the highest regulatory driven. So that means it's the highest barrier to entry there, the toughest problems to solve. And if you noticed in the President's budget request, Critical Infrastructure is becoming increasingly important and also out of the Russia-Ukraine conflict. Finally, we'll continue to be a preferred acquirer and integrator of selective and accretive assets. We're keeping that bar high. We look at companies that are growing greater than 10% and also a greater than 10% EBITDA margin. We are looking at companies on both the Federal and the Critical Infrastructure side. Although our first 8 acquisitions in the last 5 years were on the Federal side, yesterday was our first acquisition in Critical Infrastructure since 2014. Very high bar, we want technology differentiation, and we want companies that are going to continue to move us up that value chain. Another way I'd say that we're unique is the way that we acquire companies. We like to do it preemptively. We don't like to go through an auction process. We prefer to get companies that we know the culture will fit, and it will be a great marriage once they were together. On the integration side, we're also unique. We adopt those companies' best practices, and we're willing to change Parsons accordingly. A great example when we acquired Polaris Alpha. They had a terrific employee recognition program. We thought it was better than ours. We adopted their program. And we do that with each and every acquisition. And we keep the leadership team. If there's good leaders, they stay with Parsons. 25% of my executive leadership team came from acquisitions. Speaking of the leadership team, here they are. And I encourage you to get to know them as most of them are here with me today. I couldn't be happier with this group that's been put together. Leadership starts at the top. We all believe that. We come from a very broad variety of backgrounds. And we have a lot of collective collaborative discussions. And at the end of the day, we all deliver results, and we're very committed to that. We're driven by a higher value purpose, and that's the missions that we serve for enhancing Critical Infrastructure and protecting national security. And we also have a very unique culture at Parsons. So across the world, 17,000 employees based in 23 countries, 50 states, a highly cleared workforce or 25% in total at the Parsons level. Within our federal group, that's 60%. And these are high clearances. So they -- think about mostly top secret compartmentalized type of clearances, doing the toughest, most complex missions. We have a military veteran workforce that's 20% of our U.S. population. But most importantly, what I'm proud of there, 90% retention rate of those military veterans. And 50% of our employees have advanced degrees. So you're probably wondering what makes Parsons a destination employer? What's so attractive about coming and staying at Parsons? So I would say, first, it's that mission. Where do you have a chance to Imagine Next? Where do you have a chance to design an integrated air missile defense system that's going to protect not just our homeland, but also assist NATO and also assist Guam and think about how we're going to protect against intercontinental ballistic missiles, cruise missiles and hypersonic missiles at the same time? Where do you have a company that you can go work on emerging contaminants, the announcement that just came out of the White House yesterday? And you can investigate and remediate PFAS contaminants from our water system, making everybody's lives better. Where do you have a company that you can design cities of the future, transportation of the future, particularly in a post-COVID environment, where we're reinventing what we thought we knew? And we're adding digital technology because everybody got very comfortable with digital during COVID. This is why people come to Parsons. They have the opportunity to work on these critical missions. So our culture. Our culture is one of agility. It's innovativeness, it's collaborative, and it's technology disruptive. We don't think about things the way they exist today. We think about the could be in the clean sheet of paper approach because that's what our customers need right now in both of our business segments. Some of our initiatives that we put in place from a human resources perspective, we have a dual career ladder, and this is intentional. We want our technical people to stay with Parsons and be able to reach the highest echelons of the corporation. So they go up to our Chief Technology Officer position, which I elevated to be on the executive leadership team. We also have technical fellows, 57 of them across our company. In fact, one of them is here today, Dan Griffiths, who I encourage you to speak to on PFOS/PFAS afterwards. We have a work for [indiscernible] program. So if there people want to work remotely, that's fine as long as they can do so by contracts. They want to be hybrid, that's fine. Or if they're an old timer like me, they can go in the office, and that's fine, too. But we're very flexible. We have flexible work schedules. And then one thing that I think is really different with us is our redeployment opportunities. People can work anywhere in the world. They don't even have to move. We have engineer works from anywhere. So somebody can work in the United States and be working on that exciting NEOM Line project in the Middle East. But if they want to move to the Middle East, that's fine, too, and they could take that opportunity. We have people that have moved from one sector to another sector to corporate and all throughout the company. And the reason that's important is it keeps them at Parsons. They don't have to worry about where their next job is coming from. They get to go try something else. Imagine Next, how do you think about the future? And how do you think about it from a clean sheet of paper? It is really important because if you don't do that, you're always going to stumble back on what we've done before, and you're going to be trying to upgrade what we've done before. So it's critically important to say what if, what could be? Our mission also we understand that we have to get technologies that are delivered in operational relevance. It's not just enough to sit and be a research house and develop innovative technologies. They have to get deployed. And that's where the size and culture of our company is important. We have the breadth and depth of a large company, but we have that agility and entrepreneurship of a small business. So we can get customers those solutions immediately that they need to accomplish their mission. I talked about our 6 core markets, and you can see those listed on the bottom, and I'll go into this in more detail. Some of those markets like Cyber and Critical Infrastructure Protection span the entire Parsons enterprise. So they apply to each of our 4 business units. And once again, we've won significant business in each of these market areas. They're all simultaneously growing. They are all enduring markets, and they're all profitable markets. So I'll spend a few minutes and tell you about each of the segments and what's in our portfolio and what we do, and the presidents will also discuss that a little bit further on their panel. So I'll start with cyber. In cyber, we're involved in every facet of the multi-domain battle space with both offensive and defensive capabilities. We have the capability of covertly gathering data online to be able to perform reconnaissance missions. We process data packages at very high speed rates. We perform reverse engineering and vulnerability research all the way from tearing down a missile system to see how it works down to computer and network levels, one of our key specialty areas. And then we protect critical infrastructure, again, very unique because of our portfolio. And we have converged capabilities. How do you convert cyber, electronic warfare and information operations to fight an information war, which is what we're going to be facing in the future with near-peer threats. This area is important because of the near-peer threats and because of protecting national security. Next is space and missile defense. Missile Defense Agency, our long-term customer for 40 years. We understand every facet of their mission. We're side-by-side with them as their lead technical adviser, putting together integrated air and missile defense systems. We've secured our recompete for the next 7 years under a $2.24 billion contract. And we're looking forward to supporting their critical missions, which are 3: defending the homeland, defending Guam, and providing hypersonic defense. In the space area, we've been involved in 200 space missions over the last 20 years. And those support government, international and commercial customers. We've carved out specialty areas in space because you can't do all of space. So where we've decided to focus is on launch integration, how do we get small satellites up at a point that's critical right now for the space force and the space development agency. And we do the launch and manifest of those satellites. We have Alex Gross who's in the hall, who would be happy to talk to you about the Launch Manifest program as well as our other space activities. We perform ground systems work. We've been doing ground systems for a long time. But one thing I want to highlight on the ground systems is that clean sheet of paper Imagine Next approach. We've come up with commercial ground operation center, which can be sold on an as-a-service basis. And we have 3 government customers that have signed up. So we're pulling the government into what I think is a very operationally efficient, affordable model. They don't have to buy the infrastructure. They don't have to maintain the infrastructure. They don't have to pay for it when they're not using it. We do that for them. And I think this is a leading way of the future. So space and missile defense, one other area, Assured Position, Navigation and Timing. How do you get location information when GPS goes down? We have a unique small system that an Army soldier can use to pick that up. We call it the [indiscernible] appropriately named. Why is space and missile defense important? Again, near-peer threats. Space is becoming contested, more congested. It's a war-fighting domain. We have to make sure we maintain space dominance for the United States and also missile defense dominance. Transportation. We're involved in intelligent transportation system, specifically the intelligent network or iNET program, the most globally deployed advanced traffic management systems in the world. Aviation. We're above -- we've done over 400 aviation projects all the way from the Middle East where we're currently doing the Abu Dhabi expansion projects to one here closer at home, where we're the program manager at BWI and also Houston. We're involved in rail and transit projects, over 450 worldwide, including the largest metro system in the world. We do both program management as well as systems work, as I mentioned, the communications-based train control, positive train control programs. We build bridges, one of the leaders in long span bridges. In fact, I'll show you the Goethals Bridge coming up close to home that was Parsons project. We do roads and highways. We've done over 10,000 miles of roads and highways across 6 continents. So why is transportation important? It's important to improve all of our quality of life. But I would also say, as transportation becomes smarter and there's sensors and there's data, you need a company that knows how to secure that transportation, that's Parsons. So let me talk about Critical Infrastructure Protection. Electronic security systems are basically access control systems, fiscal surveillance systems or intrusion detection systems. I mentioned that we're one of the leaders with Department of Defense, Department of State and the intelligence community. Identity and biometrics. We have a system that basically if somebody is trying to enter an embassy or consulate and you show them your iPhone or your Android, we've built a gateway that ties back to all the databases. So within minutes, you can tell if that person is allowed to enter or not. Counter-unmanned aerial systems. We provide capabilities for all groups 1 to 5, and we take a system of systems approach. And what that means is we're product-agnostic. So we don't have to be the ones providing the RF or the electro optic. We'll buy the best product out there, but we'll put it together to make sure that we have the best system that exists. We're the #1 provider for the Department of State. And biosurveillance capabilities. We're very involved in areas of research and development such as infectious disease control. Again, on the leading edge. And we have back -- we have platforms that can do situational awareness, data analysis of things going on in the biosurveillance world. This is becoming increasingly important. Again, you read about it every single day, was reflected in the President's budget, and it will continue to be part of our future. We've got to make sure that we protect the sectors that are important. Environmental remediation. We do mine reclamation, currently responsible for 2 of the largest mine projects in the world or abandoned mines up in Northern Canada: Giant Mine and Faro Mine. Each of those projects, over $2 billion, one's for 20 years, one's for 12 years. We're involved in mine or water wastewater treatment systems. We provide quality water for Las Vegas. So next time you're in the city, think about Parsons when you drink the water. PFAS remediation I mentioned. One thing I want to mention about PFAS, we currently do investigations and remedial treatments. We have a treatability facility that we've had up in Syracuse, New York with unique water filtration technologies. We're a leader as you look at soil and groundwater, you look at large concentration streams or you look at solid masses. But more importantly, we have 4 patents in that area. We've been involved in that area since 2009. And that legislation that was published yesterday was very important to start setting minimal levels for PFAS. We also have a patent pending, which is pretty neat. It's basically how do you remediate subsurface soil and groundwater. So you're basically remediating PFAS at a subsurface level. And please do stop and talk to Dan. That's an exciting area when you're looking at a market that's going to be $100 billion to $140 billion over the next 30 years. Oil Plugging & Abandonment. Again, we have a patent pending to stop methane from leaking from abandoned oil wells. Why is environmental remediation important to everybody? It's our quality of life. It's what we -- it's important not just for -- here for us, but around the world. Urban development. We're involved in building the next-generation cities, I mentioned, in Saudi Arabia. We're also involved in building the biggest entertainment city in Saudi Arabia as the integrated delivery partner. We won 5 of 5 giga projects in Saudi Arabia. Beyond Saudi Arabia, we're heavily involved in areas in the UAE as well as Qatar. We were involved in the World Cup. We were involved in the Expo. So Parsons has a deep root there. We're well branded. We have a strong reputation, well respected. That's important as we look at some of these developing countries. From a macro environment perspective, at the enterprise level, global threats and global priorities are driving growth within Parsons. I talked about digital transformation. It's affecting everywhere on both sides, Federal and Critical Infrastructure, climate change, clean energy, electrification. Cybersecurity. We have cyber attacks on Critical Infrastructure. We have cyber attacks on space, and Parsons is covering those domains. On the federal side of the house, the strategy has shifted from one that was counterterrorism to one that's focused on the near-peer threats. We've spent the last several years through our organic investment and acquisitions building an elite federal company to outpace near-peer threats. Research and development budgets are at all-time highs. FY '23 was $140 billion. When you look at that, you look at there is some investment. You have cyber. You have space. You have directed energy. You have artificial intelligence. These are the Parsons technologies. We have shifting global requirements, and I'll talk here about INDOPACOM. There's $9.1 billion for the Pacific Deterrence Initiative that is in the President's budget request. Parsons has been in the INDOPACOM region for decades. We provide infrastructure capabilities on Guam. We provide missile defense, homeland defense of Guam. We provide infrastructure capabilities on Kwajalein. And we have cyber and intelligence capabilities at our office based in Hawaii. Critical Infrastructure, I had already talked about the global infrastructure demand in all 3 of our areas, United States, Canada and the Middle East simultaneously. There's demographic shifts, like what we're seeing in the Middle East. So one of the things we're involved in there is mixed-use development. How do you create basically from a concept or a master plan an area that has residential, industrial, recreational, cultural altogether. And social and equitable infrastructure growth. Transportation, environmental remediation, we need to make sure this is all done social and equitably. So again, Parsons growth is really driven by having the right portfolio within the right markets. I love this chart because it shows why these portfolios are together and why we're synergistic. Cyber and Critical Infrastructure Protection span federal and span Critical Infrastructure. Now you might be surprised when you're looking at transportation, why is that in federal? Because we have the FAA contract. So our federal team supports the FAA. Our Critical Infrastructure team supports airports, and we have one aviation focus across Parsons. The same is true in environmental remediation. We do PFOS/PFAS for industrial customers on the Critical Infrastructure side of the house. But we provide that same capability at military installations on the federal side of the house. In technologies, artificial intelligence, cybersecurity, cloud computing, those are enablers regardless which segment you're looking at. Now the macro environment looks good. The compound annual growth rates look good in each of our market, ranging from 5% to 12%. So we do have a strong macro environment backdrop. Against that backdrop, as I get into our growth targets, we're planning on mid-single digits for Parsons. We will continue our Wall Street approach of putting out measured guidance, which we strive to outperform. Our portfolio, roughly 50-50 between Critical Infrastructure and Federal. You can see in each of our end markets, we have at least a 10% position with exception of Critical Infrastructure Protection. And a reason [indiscernible] that is because most of that came in through our Xator acquisition, which we did earlier this year, which was our largest acquisition since IPO. But we're strong, and we're differentiated in every market. We have a global footprint, 75% being in the U.S., 25% outside the U.S. And we like to prime our contracts because when we prime, we typically win. If you look at our overall win rates, last year was 49% in 2022. Year prior was 56%, year before that was 46%. We know how to win as a company. That's why we like the prime. Our portfolio margins, 55% of our portfolio is fixed price, time and material, allowing for higher returns and higher margin. Milestone awards. I mentioned we've won business in every one of these markets throughout 2022. So let me start with cyber. We had won 2 large single-award contracts a couple of years ago. One is called CCMS or Combatant Commands mission support for $590 million. One is called C5ISR exercise, operations, information services, $618 million. Our goal has been to drive task orders to these contracts to drive revenue. And that's exactly what we did and why we had strong organic revenue within federal. So we've exercised the options on those contracts. Space and missile defense, I talked about our 2.24 engineering win that we won back in -- that was June of 2021. We also won our facilities for recompete this year for over $100 million. The space ops number might look a little smaller than the others, but I mentioned that's an emerging market. That is getting the government to buy ground space operations as a service, a different buying model for the government. And we're delighted that 3 of our customers have signed on to that. Transportation. Riyadh Metro Program, one of the world's largest metros. We're the program manager. We won the follow-on phase. FAA, we continue to get a lot of work from the FAA. We do the facilities work for the FAA. And that contract, $233 million, but $50 million of that came from infrastructure bill funding. So you won't just see infrastructure bill funding affecting Critical Infrastructure side of the house, but also comes in through our federal. Under Critical Infrastructure Protection, technical security is the work that we provide for electronic security systems for Department of Defense, Department of State and intelligence community is below. That's Xator. We couldn't be happier with the Xator acquisition driving very strong growth across our federal business. Environmental remediation. Giant Mine, we booked $270 million out of that $2 billion program. That's why the asterisk is there. In the year prior, we won the Faro Mine for $2 billion. And again, we only booked a little over $200 million on that job as well. Emerging Contaminants. We've won 6 jobs, 4 within federal, 2 within Critical Infrastructure, including a large job for the Army Corps of Engineers in Baltimore out of our Federal Group. This is PFOS/PFAS. Urban development. Most of that work again is in the Middle East. Future cities refers to the NEOM Line program. We've only booked the first phase of that contract. We were selected as the integrated delivery partner. That work is going to run for 10 to 15 years. Likewise, under entertainment, recreation, our largest job is in Saudi Arabia again where we won the world's largest entertainment city. We've only booked the first phase of that contract. Global infrastructure spending. Very exciting. I talked about Canada. They passed their bill in 2016. We're already off and running on that. Middle East, we have 5 of 5 giga projects, $1.5 trillion spend. Many of those projects have moved to the left, as part of Saudi Vision 2030 to be able to diversify away from oil as part of the UAE projects of the 50 to be able to diversify under tourism. We're seeing things move faster. Then you look at the United States infrastructure bill, which is mapped on the left of the chart. We expect to be on the incline in the latter part of this year. This data comes from CBO, continuing to increase in '24 with a peak somewhere around the '26 timeframe. We are very pleased that we've seen projects move left within the U.S. We've also seen state local investment. Capital deployment. Left-hand side of the chart, you can see we've applied most of our capital for M&A with Xator being our second largest acquisition we ever made in our largest since IPO. And then our first acquisition of the year yesterday with IPKeys. We're going to continue to keep our CapEx at about 1% of revenue. When you look to the right side of the chart, you can expect to see the same going forward as far as future capital deployment. Our plans continue to do M&A, but we're going to be very selective. We've passed on 100 acquisitions this year, 100. So we're evaluating companies every day, every week, but that bar is high to get the companies that are going to be part of Parsons. Share repurchases. We're expecting to do about $20 million a year. So far, we are authorized by the Board up to $100 million. We have repurchased $44 million, and out of that, $22 million was in 2022. And at the end of the day, we want to maintain our net debt leverage ratio between 1 and 2.5x. We also invest in technology. I want to hit on 4 of the areas we invest in. The first is one we call securing connected ecosystem. So you can think about on the Critical Infrastructure side, that would be a project like an intelligent intersection or on the federal side of the house, that would be about controlling a constellation and space. It's how do we connect assets to key users and decision makers. The second area is precision sensing and effects. Precision sensing means you can't counter a threat that you can't see. Effects means how are we going to make sure that we hold off the adversary from obtaining any advantage while keeping our advantage in our friendly unimpeded access. So where is that we invest in here include signals collection, signals intelligence, directed energy type of systems, alternative GPS systems. Digitalization and autonomy affecting every part of our life. We invest in both sides of the house because digital technology is what's going to transform the future. An environmental improvement. Our primary areas are PFOS/PFAS and mine reclamation, the oil plugging and abandonment. ESG is a business enabler for Parsons, not just because of what we do in our communities, which is very important to our 17,000 people who've donated over 20,000 of volunteer hours throughout 2022. But it's also important because it is half of the Parsons portfolio, greater than $2 billion of our portfolio directly affects social environment and equity for the lives of our people. As a company, we set greenhouse gas emission goals. And once we achieve those goals, we raise the bar higher. So we've established targets from 2021 to '31 and also set in place a net zero commitment for 2050. We're reducing and optimizing facility space. We started that before COVID, obviously, accelerated it post COVID. We have a goal of $10 million reduction over the next 3 years in cost. Under social, 40% of every dollar goes to a diverse supplier from Parsons, and that's at the Parsons level. I talked about our volunteers. We're proud of all the time our employees donate. We as a company have a philanthropy program, where every month, we donate to a certain cause. For example, our most recent was donating to FIRST. It's a global robotics organization. We're helping those young people Imagine Next. Under governance, 14 years consecutively as one of the world's most ethical companies. We're proud of that because we do work over the world, and it's important that we always have the top in ethics. From a diversity perspective, about half of our Board of Directors and half of our executive leadership team are diverse. We believe diversity drives better business results, and we've shown that. And then finally, our incentive compensation is tied to ESG, specifically around diversity and gender goals. Our 3-year growth targets, we are planning on 4% to 6% revenue growth. That does not include future M&A. So it does include $110 million of Xator. That does not include IPKeys or anything that we do going forward. We have 20 to 30 basis points per year of margin expansion, 20 for 2023, 20 for 2024, 30 for 2025. We're committed to a 100% free cash flow convergence. And we plan to do an average of 2 acquisitions per year. Our executive leadership team delivered in 2022, and we look forward to delivering on these commitments in 2023 and beyond. So in summary, I'm very proud of the group that we have on board. I'm proud of our company. I'm proud of our people, and I'm proud of the missions we support. We're in 6 simultaneous and growing markets, very well-aligned macro environment trends. We've positioned our portfolio intentionally over the years to be in the position that we are in for the future. We are ready to face the near-peer threats with our elite federal portfolio. We're ready to build infrastructure around the world, United States, Canada and Middle East. We have a favorable financial outlook and a strong capital deployment strategy. I would say what makes me go to work every day is passion. I've been in the business 37 years. I spent most of my career on the national security side and started doing infrastructure when I joined Parsons about 6 years ago. And we have passion in our company. Everybody is mission-focused. We come to work because of that mission. But we also come to work because of that culture. And one thing you will see with our team is that collaboration. We like to play hard. We like to have fun. And it's just the best culture and the best place that I've ever had the privilege of working with the best people I've had the privilege of working with. So think about Parsons, think about right portfolio, right team, right place, right time, Imagine Next. So I want to thank everybody for coming today. And next up, we have our presidents panel, and they're going to talk about how they're going to deploy the strategy and goals that I've just outlined. Thank you. [Presentation]

Good morning. I'm Jason Yaley. I'm the Chief Communications Officer at Parsons, and it's my pleasure to moderate this next panel. This panel was designed to dive into the markets and the people who make all of the topics Carey covered possible. While we have about 45 minutes for this session, we won't do live Q&A here, but all of the business unit presidents available here who will be available during the demos afterwards as well as the breaks. It truly is a pleasure to share the stage with these 4 leaders. I'm proud to call them colleagues, partners and friends. With me here on the stage today is Mark Fialkowski, our President of our Mobility Solutions business unit; Paul Decker, President of Defense and Intelligence; Jon Moretta, President of Engineered Systems; and Peter Torrellas, President of Connected Communities. To kick off this session, we'll go down the line by asking each of them to share a little bit more about themselves and their business units. Mark, why don't you kick this off?

Sure. Thanks, Jason. Proud to say I've worked for Parsons for 29 years. It's been a fun ride. I started in the Chicago office as a traffic and transportation engineer studying highway operations, say, if you built a new interchange, how would that affect the freeway flows? If you built a new rail line, what kind of ridership could you attract? I did quite a few environmental impact statements, environmental assessments. So it's kind of a broad range of starting out. I then worked my way up to project manager. I was in business development for 3.5 years, which was a great career step for me. I also ran operations for the infrastructure group. And for the past now 15 years or so, I've been increasingly responsible project and [ laws ] roles. So we're more on the business side of the business. When we look at mobility solutions, it's really a civil engineering arm of Parsons. We do all sorts of highway bridge work, water, wastewater, tunnels, also the urban development, really, how do you develop the infrastructure for a new city. I think one of the great things about our business and about our company is the projects that we work on and the projects that we deliver have long-lasting benefits with the communities, for the residents and the businesses in the region. I'll give you an example of a job I worked on years ago in the island of Sumatra in Indonesia. It was a disaster relief job. We partnered with John's group on the federal side on behalf of the U.S. government and delivered a new road and new bridges that were destroyed by the Asian tsunami. It was terrible to see a destruction, but it was also heartening to see what Parsons delivered in terms of that new road, new structures, allowed people to rebuild their lives, businesses to come back into the area. And that's really one of the reasons I like to come to work is because we do have those long-lasting benefits. Look at where we operate, really coast to coast in the U.S. Canada, now we can say coast to coast. We just opened a Halifax office, and it's growing quickly. And then the Middle East, it's really the Gulf Cooperation Council countries. We worked there continuously since 1976. Look at our main operations are in the Kingdom of Saudi Arabia, in Abu Dhabi, Dubai and Qatar. The scale of the projects that we do there is just amazing, and we'll get into that in a little bit, too. So we look at what do we do within our markets? Well, really, we can take a project from concept all the way through completion. An example of that is the Ohio River bridges job. So 2 new bridges Ohio River in Louisville, Kentucky. When we started on a job, it was just 2 lines on a map, a new bridge here, new bridge there. And over 15 years, we worked on the concept planning. We worked on the environmental documentation, historic resource mitigation, oversaw the design and oversaw the whole program and the construction for the client. So over that 15-year period, we took it from concept to completion. So again, another great thing about our business is you can visualize it. And then you get done with the project, and it's there. So you know I could go on and on about the business, but I just want to close by saying I appreciate working with these guys. It's a really great team, great executive leadership team, collaborative and really the best that I've been a part of in my 30 years in the business.

Great. Thanks, Mark. Paul, what about you?

Yes. Thanks, Jason. So good morning, everyone. I'm Paul Decker. I lead our Defense Intelligence business. I'm actually one of those individuals that came to Parsons through acquisitions. So I came to Parsons a little over 9 years ago through the acquisition of Secure Mission Solutions. So this is a full spectrum cyber operations company really helped us advance our capabilities in that area. You wouldn't know it by my hair, but I'm actually a veteran in the United States Marine Corps. It is really through my time in the Marine Corps developed servant leadership. And through that servant leadership, I've carried that throughout my career along with building high-performance teams, much like the team that we have in defense and intelligence. So it's a really critically important work that we do. A little bit about background in addition to the Marine Corps, after I left the Marine Corps, I spent some time at DARPA. After DARPA, I supported U.S. Cyber Command for over a decade, well over a decade as well as the predecessor organizations and a handful of different intelligence committee clients. Cyber security engineer by training, by education, has really been a big part of my background. So let me tell you a little bit about defense and intelligence. And I'd be remiss if I didn't give a shout out to the 3,200 employees that support our business and the critical missions that they serve. So thank you for everything that they do. Last year, we delivered $1.4 billion, really broken across 3 major buckets. First part of that bucket is really centered around cyber operations, electronic warfare and information operations. This is a really, really unique bespoke work that we've been doing in support of the government, both DoD and intelligence community for 20, 30-plus years. Another part of that effort has really been around, what I would say, defensive cyber operations. So it's platform resiliency, Critical Infrastructure, space systems, weapon systems, ensuring the resiliency and survivability of those systems for our customers. Second part of that revenue stream really showed up with our missile defense work. So as Carey mentioned, we've been supporting the Missile Defense Agency for over 40 years. It is one of our long-term customers, very, very important customers where we are the lead system engineer and integrated for that organization as well as we provide the facility life cycle management of that -- of the organization. The last part of the revenue really came from our space solutions as well as hardware and software integration. You'll hear a little bit later today from Alex and others. But this is around launch manifesting, space situation awareness, domain situation awareness as well as our space ops, which we really believe is going to be very disruptive in the market, and we're pretty excited about our position there. I'm super excited to be part of this leadership team that you see up here. I'm also excited because we're at a point in time where we're being asked to develop, integrate and deliver full-spectrum cyber capabilities that really are going to transform the battle space, and it's a really important time that we're at today.

Thanks, Paul. Jon, how about you?

Great step, Paul. Good morning, and thank you all for being here. I appreciate it. My name is Jon Moretta. I have the honor of leading our Engineered Systems business unit in the Federal segment. A little bit about myself. I'm a chemical engineer by education, but over nearly a 40-year career, I've had the opportunity to hold many different roles along the way and also work for several Parsons competitors. So with that perspective, I can tell you I couldn't be happier than I am to be at Parsons. It's really a great company. We have a fantastic leadership team, very collaborative, aligned. And we have amazing employees, and we're all really focused on the same thing. So we're supporting our customers' critical missions. We are growing the company. And then we're also making Parsons as a destination employer, a great place to work. I've been at Parsons for 7 years. The first 6 I got to spend on the Critical Infrastructure side of the house. So I'm really pleased to see now is the momentum that we're gaining in bringing everything that Parsons can do and bear to all of our clients. So we call that One Parsons solutioning. So it's really exciting times there. A little bit about the business unit. We're 3,300 folks strong and generated $845 million in revenue. I also want to recognize my team, my leadership team and all the amazing employees in the business unit are really the ones who are delivering our success, and they're doing a great job at it. You saw that video as we came up on stage, challenge accepted. And that really is what we embody within Engineered Systems. So we take on extremely complex projects and very challenging and sometimes harsh locations like Antarctica is one, and we focus on delivery excellence. And so when you think about what we actually do, Carey talked about infrastructure and also Critical Infrastructure Protection, and that's really the essence of Engineered Systems. So we help our clients build infrastructure, and we help them protect the infrastructure and protect people. The build side of Engineered Systems has really been our foundation for many years, and it will continue to be that going forward. And that includes everything from master planning, engineering, design, program management and construction management. The protection side is really where we're focused for additive growth. And our recent acquisition of Xator is a great example where we bolstered our capability in that regard. And I do want to comment that I'm really pleased with how the integration of Xator has been going. It's been 8 or 9 months since we closed. The culture is a great fit. We've seen very high retention. They're outperforming their financials. And right out of the gate, they had some phenomenal wins, and I expect that's going to keep continuing. And then the last thing I'll mention that we do is environmental work for our clients. We provide world-class solutions to the most challenging problems that they have. We work very closely with Peter's business unit in that regard. Top of the list is PFAS today, and you're going to hear more about that as we go. And I also encourage you to talk to Dan Griffiths after we get out into the area out there. So in a nutshell, Engineered Systems, a takeaway for this group what do we do, just think we build and we protect infrastructure.

Thanks, Jon. Peter, do you want to close this out?

Thanks, Jason. Peter Torrellas here. I lead our Connected Communities business unit. You want to think of Connected Communities essentially as the digital house of our Critical Infrastructure business. And that's where we house a lot of incredible end markets. That's 2,500 folks strong across the world. A lot of our work is in North America. We also have a European operations based in Paris, and we support the business in the Middle East, specifically in Dubai and Saudi Arabia. It's really a phenomenal team. The end markets that we serve are also incredible, and they're also growing. So we're in rail, aviation, traffic. We also have a business in mining reclamation. We have a business in Emerging Contaminants. And we also have an exciting business called Parsons X. It's really where we house the digital enterprise transformation of Parsons. And so that's a lot of exciting portfolios that we have there. Personally, my journey with infrastructure began probably about 20 years ago right here in the city. As a kid who grew up on the city, I got to work on the train system. And so for those of you who ride the subway, the countdown clocks that tell you when the next train is coming, that was my first project where I got a chance to have the intersection of technology and innovation and infrastructure come to play. As a kid growing up in the city, the only way you knew when the next train is coming is when you'd lean over the platform and look down, and if you could see the light, you'd have a sense or maybe you'd hear the rumbling. And so just to get a chance to transform infrastructure was incredibly exciting for me. I'm the new kid on the block. So I joined Parsons around 18 months ago, and that really had a lot to do with Carey's vision. I came from almost 20 years at another global powerhouse and having that conversation with Carey and hearing her vision about what she wanted to do with the company, how she wanted to transform and the incredible roots that the company had both as in my business, having hundreds of software developers as well as thousands of people who work on construction and project management and engineering across a lot of asset classes, I thought it was just a spectacular opportunity and also a chance to be on a world-class team. We have a lot of fun together. We do a lot of business together, and it's just a great team to be a part of and also the incredible work that our people do, that my leadership team does as exemplified by -- we use artificial intelligence to help people get through the Bay Bridge and help traffic flow better, help people get to work. We work on digital twins for major airports, as Carey mentioned. And we also do other great stuff. In L.A., we're doing work that supports workforce development and economic development. So we're helping to create jobs. We're helping to provide that infrastructure, and that's inspiring for our folks. Thank you, Jason.

Thanks, Peter. Mark, maybe we'll kick it off with you. We heard a lot this morning about the demand for global infrastructure. And so if you can give us a sense of how that demand is shaping the future for your team, and how will that drive your growth over the next few years?

Sure. Thanks, Jason. This is the best infrastructure funding environment I've seen in 30 years in the business, and that really covers all our geographies. And I'll start in the Middle East. I was just there twice over the last 6 weeks or so. And it's really amazing how that market took off in 2022. Our team delivered had a great year there, and we're really starting to see a lot of big projects move forward that have been talked about for a long time. And those projects are driven by the visions of the different countries to diversify their economies away from just oil and gas. For example, Saudi Vision 2030, Dubai 2040, Abu Dhabi Projects of the 50, Qatar National Vision 2030. They all lay out frameworks to diversify into more entertainment, industrial, financial. We're seeing all these different big projects that support that diversification of the economy come forward. So it's really exciting. We still see the infrastructure work that we traditionally do, but it's really being I think it almost superseded by this whole vision of how do we diversify the economy, how do we provide opportunities for our people, how do we improve people's lives. And there's a big ESG component to a lot of them as well. For example, King Salman Park in Riyadh will be the largest urban park in the world, 5x larger than Central Park here. It's almost hard to get your head around some of that. We're the program manager there. We look to the U.S., $550 billion in new money from IIJA. That's certainly historic. I never thought we'd see numbers that large, but it's not enough. You look at the American Society of Civil Engineers estimates that it would take $2.6 trillion to upgrade all U.S. infrastructure to a B grade. So there's still a big gap there. And we are seeing states and local governments step up to fill that gap. They now have certainty at the federal level. They know they're going to get that funding. They can move forward with bigger projects that have been on the books for a while that maybe they didn't feel confident they could fund. A good example of that state and local support is 8 states have raised their gas tax in 2022 alone. So we're starting to see that whole funding pool start to expand, and that's moving those projects forward. Canada passed the Invest in Canada plan in 2016. That was USD 140 billion in new money or in total money, USD 70 billion new. But the first phases were more on the kind of stimulus side, maybe smaller projects. Now we're really starting to see larger projects roll out for procurement, especially in the public transit side with Peter's group, also clean air and water, trade and transport and Northern and indigenous communities. So that market is also very strong as well. So it's an exciting time to be in the infrastructure market, a very busy time. But it's great to see that we have the support, and that support is going to last for years to come.

Thanks, Mark. Peter and John, maybe on that same line. How is this global demand for infrastructure shaping your business? And then what is it past IIJA that is also going to shape the growth for your teams over the next few years? Peter, why don't you kick us off?

Yes, that's a great question. We love growth. I think from an IIJA perspective, we see a lot of the benefits that Mark sees. There's co-benefits for us in rail and aviation. And so we see the natural uplift in our core markets. What we also like about IIJA is also it's investing in our future. So we have wins around fleet electrification and EV that's exciting for us. We have a business around grid modernization. That's also exciting for us. So we see a lot of adjacencies being invested to. If you look past IIJA, the first thing that comes to mind is climate action. So we see a lot of focus and resourcing of projects related to climate action. Actually, I was just at Giant Mine, which was recently announced and Carey mentioned, I got to see the Northern Lights. Never seen that before. So that was exciting. But you could see the focus on making sure that, that mine was reclamated and remediated. And so that focus is also driving materiality in terms of our revenue. And I would say the third area and probably the most exciting area long term is our digital work, right? So our Parsons X growth has been double digit last year. We see a strong pace to continue to grow. And what's exciting about that growth is, it affects all of us. So a recently announced partnership that we had with Microsoft is because within Critical Infrastructure, we have a digital twin that's based on Azure and leverages Microsoft capabilities. But Paul also has a business within space that also leverages those technologies and capabilities. So we're growing our ecosystem. We're leveraging the technology across all of our businesses, also the new business models, as Carey talked about as a service. So those are things that we're doing together, and that allows us to scale it. And so that's incredibly exciting for us.

Thanks, Peter. Jon, what about you?

Yes, yes. Thank you. I'm going to talk about my response in 2 parts. One is what is driving, I'd say, near-term shorter-term growth and what we're looking at for longer term. In the near and short term, really, it's the same kind of drivers that Peter and Mark talked about. It's this unprecedented amount of funding that's flowing to all of our clients to support their critical missions. And I'd say we're very proud to partner with our clients to address those missions. And we're very well positioned in the federal business unit that I run in that we have long-term relationships with clients. We have long-term contracts. And the money is flowing to the federal side of the house, I think, a little bit quicker. And so we're already seeing that money come in. So for example, with our FAA contract, we had $50 million of infrastructure fund income in 2022. We expect that to continue and grow even more going forward. We've won -- work around PFAS and clean energy development as well. But it's not just the infrastructure bill that we're seeing that funding flow. We've been a long-term partner with the U.S. Postal Service, and they just had $107 billion of funding. And we're there already helping them plan and then implement their infrastructure modernization across the entire -- the U.S. facilities, including we're working with Peter's organization on their plans to electrify their fleet. So a lot of exciting things with them. And then the third area I'll touch on is Department of Defense funding. So over $800 billion of funding this year in support of our national defense and security. We're out, as you know, on Kwajalein Atoll. We're just finishing up a large job there, but there's a lot more work that's going to follow. We're already on island, and we're well positioned to win that work going forward. So that's exciting. Closer to home, we just finished up detailed engineering on the Radford Army Ammunition Plant. It's called Energetic Waste Incinerator project. And that's a technology that's being installed to do closed destruction of waste munitions and replace an open burn system that they had previously. So those are the kind of things that are driving the shorter-term growth over the next several years. Longer term, we're focused on where do we see high-growth markets, and we're investing in those. And I'll mention just a couple of those as examples. So from an organic growth standpoint, we've been focused on developing biosurveillance, biothreat reduction and life sciences capabilities. We've also been investing in developing PFAS remediation capability. From an acquisition standpoint, I mentioned Xator previously. And they bring us really 3 core capabilities in significant markets and high-growth markets. So one is the technical security area, and that is where we're already #1 provider of electronic security and surveillance for the Army and Department of State. Second is biometrics and identity management, where they bring to us a world-class technology, both software and hardware platforms. And then the third is counter-unmanned aerial systems. In that space, we're the #1 solutions provider for Department of State. So it's just some really great things short term that are going to lift the business. And then longer term, we're positioning for out through 2030 and beyond. So that's where we're going.

Thanks, Jon. Paul, maybe picking up on that. Jon talked a lot about the growth in the federal sector that he's seeing. Obviously, we know a significant amount of the growth that we'll see in the federal sector also comes in that national security market. Can you give us a sense of how you see the threat environment and how we're positioned for growth inside of that environment?

Yes, absolutely, Jason. I mean, so the threat environment, it's evolved, and it's going to continue to evolve. And as you've heard from Jon and Peter, I mean, there's such a significant emphasis on INDOPAC as a region. There's such a significant emphasis on Ukraine in European defense initiatives. And those really, really play well for our national security business because those are the areas that we've been in. So when you look back about 5 or 6 years ago, our customers, I mean, they made a strategic pivot. They pivoted from counterterrorism operation, counterinsurgency operations, and they pivoted to near-peer. You can say it went back a little longer, but let's just say, 5 to 6 years ago. And we were smartly aligned as a business through our acquisitions to be able to catch and carry that pivot. And so really, over the course of '21 through '22 and the performance that we saw, we were asked to develop exquisite capabilities, integratable capabilities from developing, integrating them and delivering those capabilities to support both DoD as well as intelligence community missions. And we saw a significant uplift across defense of the homeland. And so when we look at defense of the homeland, specifically our Defense of Guam, it's about bringing added capabilities within those theaters, not only from a missile defense standpoint but also from a cyber intelligence and resiliency standpoint. So the other part I would say that from a threat environment that I'd focus on is when you think about the pivot, the thesis behind the near-peer threat and why we acquired BlackHorse Solutions was, it really provided very, very unique and bespoke capabilities within cyber, electronic warfare and information operations. And these are all core investment areas. And so we've been delivering capability in support of PDI. We've been delivering capability in support of European Defense Initiatives, and we're going to continue to see that growth as we move forward. I'd say the last part that really kind of addresses really the threat environment is when you think about the commercialization of space, [indiscernible] Space Development Agency is going to launch hundreds of satellites over the next 3 to 5 years. We're really in a unique situation where we have a space operation, space-as-a-service offering, our ability to do the launch manifesting as well as the space situation awareness. So I think it creates some really unique growth opportunities for our business.

Yes. Let's maybe actually stay on this idea of the growth, and let's talk about the future for it. We know specifically for you and Jon especially that our ability to continue to grow is rooted in those future award values, the book-to-bill and other growth drivers. Maybe, Paul, can you talk to those areas and the significant opportunities you're seeing in the future?

Yes, absolutely, Jason. I mean, growth, as you're going to hear from the other BU presidents is top of mind. It's everyone's focus within the business, and it's going to continue to be a focus within defense intelligence. I'd say there's 3 macro drivers that we're focused on. You got geopolitical turmoil in INDOPAC. You got the war in Ukraine. I kind of talked about how we're addressing that being able to develop and integrate capability, integratable capability within those theater of operations. The other macro driver is cyber incidents. The pace of cyber incidents is not going to change, right? But what's being outpaced is there just isn't enough response. And so this is an opportunity to take the offensive cyber capabilities that we have within our business that we've acquired as well as the heritage capabilities, the defensive cyber operations capabilities from the platform resiliency, analysis, access and analysis work that we do for DoD as well as Intelligence Community customers. And that's really going to continue to be a core trajectory. And then I'd say the last piece really is the space race, right? There's a commercial space race. The government is continuing to work to catch up. There's a lot more adoptability in there. And so with our space operations as a service model, it really is going to become a disruptive capability within that space. When I look at defense and intelligence, back in 2020, you think COVID, the pandemic, acquisitions were slowing down. It took a lot of time to get RFPs back out on the street. And so what we did as an organization, we focused on those SATOC contracts that Carey mentioned, Combatant Command Mission Support, C5ISR exercises, operations, intelligence support because we knew that the dollars had to show up somewhere. So when there was a delay in acquisitions, we focused on driving task orders onto those vehicles, and we saw tremendous growth over the last 1.5 years. The other part is that's really core to the business. We've had an unbelievable success rate. We've won 100% of our recompetes, and we're going to continue to march forward as we go through the rest of this year. As I look at our executable pipeline, we have about 200-plus growth within our -- awaiting noticeable award, and we have about a 25% qualified pipeline that we intend to pursue over the next 2 years.

Got it. Jon, how about you?

Yes, great. This is a great topic, and I can't reinforce enough what Paul said about our focus on growth. It's top priority. Revenue growth and also margin growth and expansion. I mentioned the drivers for the Engineered Systems business unit being infrastructure and Critical Infrastructure Protection, and the funding is just enormous. So rather than talk more about those drivers, I think I'm going to focus a little bit more on how we're capturing our share and growing within that opportunity space. And really, it's about what we've done strategically investing in our business development team and growing our pipeline. And we've built an amazing business development team that's delivering. So we're focused on winning our recompetes, adding new clients and contracts and then also in our operations area, growing on contract as well. And we've just had great success. So in '22, we achieved a 90% recompete win rate. The largest of that was $160 million contract with the Department of Energy. We've also done really well adding new clients and new contracts. One example there is Xator won $100 million classified security and protection contract in the later part of 2022. And then we've also won seats on some very large multiple award task orders with ceilings that range from $675 million all the way up to $10 billion. And what's more important about those because that doesn't -- when you work is you've got to win the task orders. And we're already heavily engaged in bidding task orders, and some of those are very large, well over $100 million. So just really a great job by our business development team working closely with operations, and we're seeing that success take place. We have, in our awardable pipeline for this year, 4x more than we had this time last year. So that's just a reflection of what a great job the team has been doing there. And on top of that, we'll be continually looking for acquisition for accretive revenue and margin growth. That's where we're focused.

Thanks, Jon. Mark and Peter, maybe similar for you on that way forward, we heard a lot earlier about margin expansion opportunities. Maybe you can share a few of those details of what you are doing to drive margin expansion planning over the next few years. Mark, maybe you kick us off?

Sure. We've looked at this a lot of different ways. It's top of mind for me and my team. And we've developed a multipronged plan. We're implementing the plan, and I'll touch on a few of the items within that plan. First of all, it all starts with people. People drive our success. We've got an outstanding team. I appreciate all that they do. We just need a bigger team, right? So it's really recruiting, development, retention worldwide. We're growing our headcount. We need to continue to do that. Improved program execution. We can always do better in that area in terms of efficiency and quality. A good example is we rolled out 50 new design automation tools for our teams. They will help them do their job quicker and also with higher quality. Continued overhead control. We need to continue to grow our revenue faster than our overhead. And then on the sales side, we're differentiated. We need to hold our ground and pricing, which we're doing. And we've got a couple of examples. We won 2 new jobs where we were second in price. We won another job where we were third in price. So because of that differentiation, because of the strong market, because we deliver, we can hold our ground on pricing. We're also seeing more sole-source awards, particularly in the Middle East, where clients are coming to Parsons. They have a lot of work to do. They're under pressure. They know that we're going to deliver, and they come right to us for that. And I'd say finally, acquisitions. We're looking at multiple acquisitions, accretive on margins. I think as we look all those pieces together, we're going to roll out that plan, work the plan and improve the margins on the bottom line.

Great. Thanks, Mark. Peter, what about you?

Yes. Thanks, Jason. When it comes to margin expansion, we -- in our business, there's 2 lenses through which we look at the work that we're doing. The first lens is operationally. So like Mark, we get to benefit from being in a great market where we get to be really disciplined about what we're bidding on. And so we're bidding on work, and that work is coming in at higher margins. And I would say, over the last 12 months since we've really focused on this, we've seen some around 50 basis point improvement. And we still see some headroom to continue to improve there. The other area that's really important for our business is our legacy programs. So we are really hyper-focused on making sure that we close those, and we saw some success last year by achieving substantial completion on one of those programs. And so that's also going to be kind of a head-down focus for us operationally. The other lens through which we look at margin expansion is strategically. So the first thing I'll say there is inorganic growth is going to play a strong role in margin expansion for our business. I think the agreement that we announced yesterday is an indication that actually the entire leadership team is supporting Critical Infrastructure, taking a much stronger posture in terms of our inorganic growth strategy. And now we have materiality to that. And then last but certainly not least is really, as I mentioned before, our digital strategy. So through the pandemic, one of the things that happened for our clients is digital transformation was accelerated. So they just started doubling down, tripling down on leveraging innovation and technology in order to drive outcomes within infrastructure across all of the asset classes. Why that makes -- why that's important is because if you look at the value chain across all of our end markets, the digital part and the solutions and the services around those solutions is by far the deepest profit pool within the value chain. And so if you have growth along that spectrum, and you can combine those deep profit pools and capture and create value and add that to the core portfolio, then you see materiality in terms of margin expansion over the long term. And that's incredibly exciting for us as well. And I would say the most exciting part of that is that's also something that we do together, right? So when we talk about those services and enterprise strategy, there are situations where, as Jon mentioned, we're leveraging the digital twin I mentioned to support USPS or we're actually leveraging artificial intelligence, do an acquisition in Polaris Alpha and Paul's business that we were able to use to differentiate ourselves for a traffic customer. And within Parsons X, we have engineers and focused on the next cognitive city from a digital perspective, supporting Mark's team on The Line program. And so those are the things that we get super excited about, and we think they're going to add some serious -- I think the basis points that Carey talked about is the bottom line.

Let's talk a little bit more about people. We heard all about the war for talent throughout the news, and you heard Carey talk a lot about how we're a people-first company. I think all of us would agree and any of our leadership teams would agree that it's really the professionals we work with every day that underpin all the successes they're going to hear -- everyone's going to hear about throughout this morning. But let's talk about what that means. And so, Peter, you came to Parsons pretty recently, as you said after decades at another global powerhouse. And Mark, you've been here for almost 3 decades. So maybe as we begin to close this out, Peter, if you can talk to us why do people come to Parsons? And then, Mark, why do people stay at Parsons? Peter, why don't you kick us off?

Yes. I can tell you why I came. I think that's a good place to start. As I told you about the story of working on the train system, we do the work that we do because it's really important, right? It makes a difference in the world. There's community benefit to us. Parsons is a culture and a family of folks who are all mission-focused. They're all purpose-driven leaders. All of these leaders that you see here and everyone on our leadership team actually wants to make the world a little bit better every day. That's true of my senior leadership team, and it's true of all of the people that I've met at Parsons, and that's incredible. If you combine that with the fact that we can actually be agile, we can actually take smart risks and we're doing digital and bringing and creating value for our customers in a way that we believe no one else is today, that's incredibly compelling for folks who are doing stuff that adds benefit to the community and doing it in a way that is moving the industry forward. And last but certainly not least, we're winning. We're growing. Our business is doing really well, and people like working for companies and teams that are winning. And so if you add that all up, it gets people excited about coming to work every day, and that's our focus.

Mark, what about you? Why do people stay with Parsons?

I'd say it really comes down to people, culture and opportunities. And I'll combine the people and culture piece together, they're kind of hand-to-hand. Like Peter said, it's about the team, right? We all want to be part of a winning team. It's also what's the culture of that team? What kind of dynamics do you have on that team? I'm really proud of our team. And in fact, that we all have each other's back, we're all pulling in the same direction. We're all helping each other be successful. We recognize our employees. We support our employees and really think that, that makes a big difference in terms of wanting to stick with the company. Opportunity is big, too, right? And people's careers, they want to get those opportunities. And we're a worldwide leader in work sharing. And that's great because it helps balance out workloads for the management team. But really, it really benefits our employees too. You're not just beholden to one client or just going to work in one region, you can work anywhere over the world, right? And you can learn from the best experts. You can switch to different types of projects. And we'll often see as I go around to different offices, you ask people, what are you working on? I'll say, working on this job in Manitoba. And we're doing work in Doha as well. It's like, well, you're in the New York City office, but that's cool, right? And that's -- people appreciate that because it really diversifies their whole background. It also helps them learn every day, keeps the job exciting. They're not just doing the same thing. So it really comes down to the people, culture and the opportunities for employees in terms of why people stick around and why I stuck around.

Got it. Let's stay on that idea of culture, maybe for Jon and Paul. Let's go in further on culture itself inside of Parsons. So Jon, maybe you can take on what is the culture inside of Parsons? What does it mean inside of your own team? And how does that drive collaboration across this leadership team? And then for Paul, maybe to close this out, we heard a lot about mission-focused early on in the day. And can you share what that mission-focused approach means inside of Parsons and inside of the D&I business unit? Jon, maybe you first on culture.

Sure. Sure. I love talking about our culture because it is so strong. It's one of the things that really just makes me energized about coming to work every day. And it's really across the entire organization and within my business unit as well. There's just an excitement, energy in the air. People want to work for us. You mentioned the winning team. I mean, that's really what we are. And I think there's 3 primary drivers. One is the type of work that we do. It's extremely challenging work, and it's very rewarding work and the impact that it achieved. So it attracts the best and brightest people. And then secondly, our leadership focus is really strong on recognizing, rewarding our employees and giving them career opportunities for growth and development. And I'm actually an example of that where Carey moved me from Critical Infrastructure to run this Federal business unit and learn a whole new side of the business, which was great. And then the third thing I'll mention is our set of core values. And they're foundational to Parsons and everything that we do. We really walk the talk. It's not just air. One example there is this is our 14th consecutive year of winning the most ethical company in the world award from Ethisphere. And that's really important to me and the folks up here and all of our employees. So these core values are foundational, and it gives our employees something to believe in. So super strong culture.

Paul, what about you on culture and mission-focused?

Yes. Thanks, Jason. Culture is everything. And as they say, culture will eat strategy for breakfast. Maybe it's lunch or dinner, but it will absolutely eat strategy. And so when you look at defense and intel, I mean, the business that I'm running is the acquisitions that we did less Xator and our most recent acquisition. And so you think about those cultures that were part of those organizations and bringing that together, so critically important. And it's really easy when you think about like the common theme around defense and intel is mission orientation. It directly ties to mission-focused. It directly ties to the national security missions that we are supporting, doing meaningful work that is directly impacting national security and supporting defense priorities. And so that's really, really critically important. And it's critically important for us to get it right not only for our employees, for our customers and the missions that they support. And I'm really proud to say I think we've gotten it right within Parsons. And then when I look at this collective leadership team and just how well we collaborate and we communicate with each other, we bounce ideas off. And when you look at an enterprise culture of agility, innovation, technology, and we take example, our PALADIN Lab, where we're demonstrating, we're experimenting technology to envision the next city of the future up in PALADIN. And that was the DoD lab that we created for a DoD customer. And now we've been able to really cross between DoD and our Connected Community customers. And so it's that -- it's the technology, it's the innovation that really brings this business together. Super excited to be part of that, and it really permeates throughout the rest of the enterprise.

Thanks, Paul, and then thank all of you for your insights as well. Thank you all for joining us for this panel, and thank you as well for joining us for our Investor Day 2023 here at the New York Stock Exchange. We will take a short break followed by Matt Ofilos, our CFO, providing a financial presentation. Thank you. [Break]

Good morning, and thank you, everybody, for being here today, both online and in the room. Really excited to be here. My name is Matt Ofilos. I joined Parsons about 18 months ago. I started after 20 years with a Tier 1 defense company and 2 years with a cloud technology company. And really what brought me to Parsons was we're small enough to be innovative and entrepreneurial but we're also big enough to be disruptive and actually drive change. And we can all control that change, which is a great idea. I'm really excited to be here. I wanted to start off with some major themes across the financial metrics. When it comes to awards, we have really low recompetes. 2023 revenue is less than 5% from recompetes and 2024 is under 10%. As we get through the next couple of months and hopefully secure a couple of recompetes, those numbers will continue to come down. We have significant unbooked ceiling values with $8 billion of contracts that were awarded to Parsons that we just have not booked yet or have not been awarded or have not booked because we're waiting for that option year to come along. So as long as we continue to execute, staff those programs, retain those people and bring the task orders to contracts, that work will come to Parsons. We also have really strong win rates. Over the past 3 years, we've reported between 40% and 50% win rates on new work. So we're in really great shape. The really strong backlog, low recompetes gives us the opportunity to continue to chase new business and have long sustainable revenue for the company. From a revenue perspective, we have significant tailwinds. You heard the team talk about the tailwinds with the global infrastructure and also our Federal Solutions is closely aligned to the national defense strategy. So we're in really great shape from a revenue perspective. We need to continue to grow and through hiring. Our business is mainly labor. So our HR team coming in. Last year, we had a 40% increase in gross hires compared to the prior year. So if we can continue on that cadence and use the momentum from 2022, we will continue to outperform. On an adjusted EBITDA margin basis, we have opportunity to expand margin, and I'll talk a lot about that in the next few slides. But our margin expansion is going to come from a few places. One is we're wrapping up with a couple of these legacy programs. One will wrap up in the latter half of this year, probably Q3. And then the second 1 will wrap up in 2024. As we complete those, we expect some more stability in the margin side. On top of that, we have accretive growth programs. We've seen really strong growth within 2022 with programs within the core that I'll talk to you about as well. And as we continue to grow and expand on these programs, lot of the programs that Mark and others talked about, you'll see the margins continue to come up. And finally, we have operational leverage. In 2022, we had a 200 basis points improvement from an SG&A as a percentage of revenue. So as we grow, we are not necessarily spending more, we're spending efficiently, and we're going to grow efficiently. On cash flow, we continue to generate solid cash flow. The company as a whole is doing very well. We have opportunity to improve though. As we saw at the last end of 2022, we had a couple of large payments that slipped into 2023, and that allowed us to guide to 109% cash conversion for 2023. But overall, the cash conversion is very consistent and repeatable, and we feel like there's opportunity to continue to improve both DSO and working capital balances. The balance sheet is in great shape. I really couldn't be more excited given some of the turmoil going on right now. But as I mentioned, our cash conversion is quite strong, and we have really low leverage. Carey mentioned, we're down below 1.4 at the end of the year. And so we'll continue to be able to invest in order to grow the company, both organic and inorganic. Looking back at 2022, we really had a phenomenal year. 15% -- just under 15% total revenue growth to just under $4.2 billion, 9% of that was organic, again, across the board, the most exciting part for me was the 4 gentlemen you saw here before. Each and every 1 of them had growth last year. So that's a great place to throw the company to be. On an adjusted EBITDA basis, I thought it was important to break out the 2 major components with 14% growth on EBITDA. But if you look at the 2 major components, equity and earnings is our participation on joint ventures where we are a minority. So we had almost $21 million in decline year-over-year on equity and earnings. So that was made up of 2 major pieces. One was $6 million of work that we're intentionally departing from, so Carey mentioned earlier about derisking the portfolio, about $6 million of equity earnings came down because of the lower volume on those programs. The other $13 million, and George and I talked about it early in 2022 was change orders on existing contracts. That really just deferred the timing on the profit recognition further to the right. But again, performance-wise, the things we're doing well. But most importantly, what I really wanted to get across here is if you look at the core performance, meaning the business that Parsons controlled, our core adjusted EBITDA grew 23% compared to the 15% revenue growth. So we grew the core performance by 50 basis points. So we had a really great year last year on the things that were within our control. And as we expect equity and earnings to kind of stabilize in the mid-20s, we'll start to see that recovery in 2023. On cash flow from ops, we had just a little bit under 16% growth year-over-year to $240 million worth of cash flow from ops. Again, a real great opportunity that the company continue to do well. However, we saw opportunity to do even better and we expect to improve over time. We're reiterating our 2023 guidance. We have just under 7% guidance at the midpoint on the revenue side with a 9% high and 4% low. If we talk about kind of what the bulls and the bears are within there, of course, our business is all around hiring and retention. So we're really going to continue to do what we're doing, bring work to our existing contracts, hire and retain and that will trend us up above the midpoint. On an adjusted EBITDA basis, you can see 9% growth in first -- 20 basis points of margin expansion. I mentioned earlier, the equity and earnings would recover into the mid-20s. So we see about $8 million of expansion there, but additional expansion within the core as well. And if we talk about the bulls and the bears on the EBITDA side, we have to minimize impacts on our programs, as we've talked about, continue to have operating leverage and rapid growth within the higher-margin programs. Cash flow from ops grew 26%, or is projected to grow 26% to $300 million for 2023. We feel really good about the cash flow. We have line of sight to this $300 million. We're going to continue to focus on this. At the end of 2022, we had some challenges around receipts. But we have -- we're communicating closely with customers and making sure that we're overall aligned in terms of getting through the process. So again, the $300 million equates to 109% cash conversion, and so we feel really good about continuing to deliver strong cash flow. Now if we look at longer term, Carey mentioned this earlier, but we're looking at between 4% and 6% revenue growth over the 3-year period through 2025. From a tailwinds perspective, we have global infrastructure spend that is greater than we've ever seen in our lives. So that's a great place for us to be. Our capabilities are closely aligned to our near peer threats. As Paul mentioned, we're transitioning from this global war on terror to our near peer threats, and our portfolio is directly aligned with that. So we're well positioned to capture as much of the budget as possible. We have to maintain our strong hiring and retention, and with our $8.2 billion worth of backlog, plus the $8 billion of unbooked business, we have real opportunity to beat or exceed this -- the midpoint of this guide. When I look at headwinds, of course, the challenges or competition for labor. Since we've never seen an infrastructure market that strong, we are a little bit conservative around, "hey, is it going to be more difficult to hire". I would say our HR team is in a wonderful place because they've been used to this on the federal side, hiring folks with high-level clearances and things. So I'm confident that we'll be able to do the right things within infrastructure as well. Also the unknowns that we're all dealing with from an inflation and budget uncertainty perspective. On an adjusted EBITDA basis, we're expecting to grow to $445 million through 2025, which is about 8% at the midpoint. That 8% represents 9.1% margin for 2025. So we feel really good about the opportunity to continue to expand margin. Some of the tailwinds and headwinds are consistent, but legacy program completions we talked about demand being greater than supply. We're in a great place. Mark talked about programs where we were up a bit higher margins, maybe not be low price, technically acceptable, and we're still winning these jobs. So we're in a great place in order to expand margins. We have accretive programs that we're growing on today, things that were awarded in the last 12 to 18 months, and we have operational leverage, as I mentioned. From a headwinds perspective, obviously, concern around continued competition for labor. We did see labor expense come in higher than we expected in 2022, but it was well within our manageable -- within our ability to manage. We have the unknown in inflation and U.S. budget uncertainty that we're tracking as well. I thought this was an important walk for us to go through because, again, we've talked a lot about margin expansion, but this is really how we're going to deliver that. I talked a lot about this, but in 2021, we delivered about an 8.5% margin rate. In 2022, we had a 50 basis point hit on equity and earnings. We invested in our EMEA business, which was incredibly valuable. We spent about $6 million early in the year last year to hire folks ahead of contract award. And as Carey and Mark mentioned, we got 5 out of the 5 giga projects. So we're in a great position there, and we're going to recover that through these growth programs. But importantly, as I mentioned before, we had the core operations of the company expanded 50 basis points in order for us to deliver 8.4% margin in 2022. So how are we going to get from the 8.4% to the 9.1%? In 2023, the majority of our recovery is going to come from equity and earnings. We see about a 20 basis point improvement there for when it goes from $16 million to $24 million. We're going to continue to drive on the core operations as well, however, the majority of the impact is going to come from equity and earnings. Beyond 2023, we see our accretive growth. We see these programs that are going to ramp over the next couple of years. We see [indiscernible] peaking in 2026. We see ramp in 2024 and beyond. And so we see accretive growth and continued operational leverage. And additionally, we have another 10 basis points of margin expansion, which we feel comfortable that we'll get us to the 9.1%. Operating cash flow and conversion. We do expect continued cash conversion greater than 100%. At the midpoint, we're projecting 14% growth over the 3-year period to $350 million. We expect we'll have project completions with milestone payments, and we expect continued growth in the federal business with really strong DSO will also help our cash flow conversion. From a headwinds perspective, EMEA, to be fair, is a little bit less predictable. So we're working closely with the customer to make sure we have strong communication and that we're working through the challenges with them to make sure we minimize the net investment for us. And then the U.S. budget uncertainty, of course, is another challenge for us that we're watching. From a balance sheet perspective, I love this chart because if you look at the timing on these acquisitions and you'd see the small spike in our net debt leverage ratios, and I'll pick at Xator as an example, we spent $400 million last year, and our net debt leverage grew to 2x, within 6 months, we were down to just under 1.4x. So again, the real strong cash flow generation allows us to continue doing what we're doing through on an inorganic basis. We'll continue to have strategic M&A, and we'll continue our share repurchase program. We have short-term capital. We're in a pretty great place where we don't have any near-term debt maturities, which is a great place for the company to be. And over $800 million worth of free cash flow expected over the 3-year period. And additionally, we have a very competitive with our convert and the term loan that we closed, we have an effective interest rate of 3.75%. So we feel like that's a really great place for us to be to continue down the strategy that we've been doing. We talk a lot with folks in the room about our ESOP. ESOP, when we went public, represented about 80% of the outstanding shares. At the end of 2022, that was down to just over 60%. So we've done a great job of getting shares to the market and increasing the flow, which is exactly what we wanted to do. Average daily trading volume is up about 11% from our prior -- or from the IPO time and our relaxed distribution will really allow folks to get those shares to the market, which is what we wanted. ESOP continued for those that are eligible for the ESOP, it continues to be a differentiator for us and a retention tool. So we think it's an important part of our execution. As Carey mentioned, we have 3-year growth targets that are 4% to 6% on the revenue side, 20 to 30 basis points of margin expansion per year with 30 basis points in 2025 and free cash flow conversion consistently over 100%. We anticipate continuing to do acquisitions with M&A somewhere around 1 to 2 acquisitions per year and feel really great about the overall strategy of the business. So to wrap up, back to the overall investment thesis, we have a really great experienced management team. We have a people-first culture that both attracts and retains talent. All 6 of our end markets are growing. So we're in a really great place as a company. Our national security portfolio is directly aligned with where the customers are headed. Our critical infrastructure spend is getting busters. So we feel great about that as well. And all of that equates to a really favorable financial outlook for the company over the next several years. So with that, it's a great time to be a part of Parsons, and I'm really excited to be here. And with that, I'll invite Carey up for some Q&A.

So thanks again, everybody. We're going to jump into the Q&A session. And before we go to the audience, I got a couple of questions before the event and during the break on the recent IPKeys acquisition. So before we go into the questions, I thought I'd just open up. Carey, do you mind elaborating on the IPKeys acquisition and the valuation you paid for it?

Sure. So the valuation, I'll start there was in line with what we've done in the past between 11% to 13%. On the IPKeys acquisition, several reasons we're excited about it. First half of the business is services, half the business is products. And when you look at the customers, they have hundreds of customers. And you think about the outreach opportunity that, that presents. It's basically selling scalable software and now we have access to all those customers with the broader Parsons' portfolio. They basically have 4 products. They have 2 within the cyber space, 2 within the utility space. The products are focused on basically cyber monitoring of both the operational technology and the informational technology environment, also focused on compliance to standards such as [indiscernible] or FERC and NERC standards for the energy sector. On the energy side, 1 of the product lines that we're really excited about is the distributed energy response management system. So if you think about going forward, we're going to be adding electrification. We're going to be adding renewable energies. So the demand load for those utility companies going to be changing, and this is a product that basically helps manage that demand load. They also have our product fits for metering and operations. So they sell to our customers and beyond. They sell predominantly to energy customers facility customers such as in the federal segment as well as water customers. So this is a great opportunity for Parsons, a scalable opportunity in terms of the products that they provide.

Anybody in the audience ask a question?

Scott Forbes from Jefferies. I mean if we think about the 4% to 6% CAGR revenue target and the 70 bps of margin expansion off the 2022 base, how should we think about that split between FS and CI and the growth leaders and margin expansion?

Yes. Thank you, Scott. So the split is about, if you look at an organic level, federal is about 3% on the top line and critical infrastructure is between 5% and 6%.

And then on the margin side, Scott, I think at the end of 2022, our federal business ran just over 9%. We feel pretty comfortable that there's maybe 10 or 20 basis points within federal that we can expand. But structurally, that business is pretty limited in terms of how high the margins can go because a lot of development work, a lot of prototype type working cost-plus environment. So we think the majority of the expansion on the margin side will come critical infrastructure.

And then just on the revenue CAGR, it's 4% to 6%. Your addressable markets are all kind of outgrowing that. Just what are the puts and takes there?

Yes, great question. So first, we are faced with 2 headwinds in the Engineered Systems business. We had that salt waste processing facility program that completed. That was about $20 million because of wrapped up in the first quarter. And then [indiscernible] last year, that was about another $67 million. So we are overcoming that within those numbers. And I also want to just reiterate again that we do give measured guidance and our goal is to always outperform as we did in 2022.

And so Scott, I know we talked about this, but with the business being mainly labor, this labor market is going to be a challenging one, as we all know. And we're going to continue to hire. And as soon as our HR team can continue to deliver like they did in 2022, we'll be able to be raised hopefully.

Anybody else? Tobey?

Tobey Sommer with Truist. With win rates, were you quoted over the last several years, are you bidding enough?

Yes, it's a great question, Tobey. I would say in some areas, I think we're going to be expanding. Jon mentioned for Engineered Systems is a great example of how much this pipeline has expanded. So I would say we're definitely going to continue to bid and win more and focus on that. With the markets the way we are, we need to -- and we do have strong win rates across the board, recompetes have consistently been above 90% and 40% to 50% overall. .

Yes, Tobey, I'd add, if I think back to the couple of years in 2022, our focus is definitely investing in HR, recruiting and the traction of talent. And in 2023, there's a real opportunity to spend more money on BD and capture. So I think that's definitely a shift in terms of our internal investment.

Within Saudi Arabia and the critical infrastructure exposure you have there, we don't often hear in the industry moving to the left. So I was wondering if you could frame the arc of the opportunity there? And if it's possible to look out multiple years -- is there a year that -- or a range of years that you would expect that opportunity to crest, so to speak?

Yes. So within Middle East and over $1 trillion of the $1.5 trillion is in Saudi Arabia, they definitely have moved programs to the left. The Saudi Vision 2030 was announced that started to get accelerated as oil prices increase, and they wanted to move the giga projects forward. So we were fortunate, obviously, to land on [ 5050 ] giga projects. We are being conservative in our bookings. So a lot of that does fall kind of into this unbooked that we have. We've only booked the first phase. We want to make sure first that we're hiring, we're ramped and we're delivering for the customer. That's our predominant focus because we do believe we have strong growth potential provided we do that.

Okay. And last question for me. Could you give a little more color on the as-a-service model that you described for ground base ops. What is the growth opportunity, margin opportunity and competitive environment look like in that arena? And is there a different area that's sort of what's next for the as-a-service model?

Yes. It's a great question. Today, we have 3 customers. NOAA has signed up. DARPA has signed up and the Air Force has signed up and specifically at Air Force Research Laboratory. We believe this is a model that can be adopted across Department of Defense and even into the intelligence community. We need to get to a comfort level because it's a different buying pattern for them that they can come in and they can use this infrastructure. Right if you going to space symposium, they want to come visit our facility over in Colorado Springs. We'd love to show you how we're flying those satellites because it is quite fascinating. I think it's more of a comfort level and how quickly we can scale. I'm not aware of anybody else that has sold on this basis. So we're kind of pleased that we've been a fourth runner in this. Margin perspective, it would be higher margin because you're selling as-a-service.

Anybody else?

Hey, there -- this is Louie. Louie from William Blair. Sticking to the Middle East topic, Matt, I think you mentioned how it's Saudi Vision 2030 and Dubai 2040. And those time frames are very long in duration. And currently, I think at least according to your 10-K, you do roughly $700 million in revenue from the broader Middle East region. So I was wondering if you could provide a like more long-term outlook in terms of what is the market potential? And also, what is the visibility in terms of the Middle East because it seems that there was a dip in 2021. So should the Middle East revenue be lumpy? Or is there like a clear line of site since you are on, I think, 5 different projects there?

Yes, I'll start with that. So the Middle East spend at $1.5 trillion is expected to last over about a 10- to 15-year horizon. So we do have pretty good line of sight because if you look at the 3 countries that we're involved in, Saudi Arabia has laid all of its priority programs under the Vision 2030. For example, NEOM, the line, there's supposed to be 9 million people living there by 2030. If you look at the Entertainment City being built right outside of Riyadh, they're supposed to have 6 [indiscernible] amusement park up and running in 2023, 2024. So we have pretty detailed schedules that we can follow. The same applies for the UAE as well as Qatar. So we have good line of sight. On Saudi, I also want to emphasize something folks may not be aware of. We've been there for 50 years. We are seen as a Saudi company. In Saudi Arabia Parsons Limited. It's a 50-50 joint venture with the Saudi partner. .

Yes. And so I think from my perspective, I do expect the revenue to be more stable in the Middle East, and Carey can probably talk about the delivery partner, but we're really in a program manager role in a lot of cases. So we are like an LOE for the life of the contract versus kind of a delivery 3-year period that comes to a completion. So I do suspect it will be stable growth and kind of a plateau through between now and 2030.

Great. And in that role as a program manager, do you have the capability to expand your services just because we have seen so many presentations about what you can do for environmental remediation. We've seen what you can do for smart transportation and all across the critical infrastructure realm. It seems Parson can do a lot more than just product management, not to be little product management. It's obviously very critical. But is there an opportunity to expand what you can do?

There certainly is, and you're giving our sales speech in fact, which is helpful. That's exactly it, Louie, once we get our feet on the ground, we have so many more capabilities. So if you think of about NEOM, for example, security for NEOM, cybersecurity, physical security, environmental work, yes, we can bring quite a bit more to the table, and we look forward to having those opportunities.

Louie, 1 thing I would add, too, is I was over in the Middle East at the end of January. And 1 of the highlights for me it was unexpected was as I sat down, there was got next to me from Xator that I didn't know it was going to be there, and there was another guy from Peter's team. So again, it kind of across the portfolio, people are able to once we are on this NEOM the line contract or some of these other contracts, we can bring the Parsons capabilities, to your point, great opportunity.

Andy Wittmann from Baird. I guess -- I just had a question on the unknowable in some ways, the budget ceiling, the debt ceiling and the federal budget that is coming into question the summer or maybe early this fall. And I was hoping you could give us some context by maybe addressing this in a couple of ways. First, starting out with assuming that maybe like the defense part of the budget isn't cut and it continues to grow as it suggested in the President's budget. Could you talk about your civilian exposure? How much of your federal government is civilian exposed, where maybe isn't as protected as the defense side? And maybe if you could talk about some of the context from the 2012 sequestration and how that impacted Parsons' business then? And if it's the same or changed in terms of the character of the business today?

Yes. So on the first part, I'd say, we've had a debt ceiling increases 20x since 2001. And so I'm quite optimistic that the parties will get together and then we'll have resolution there. The same can be said for continuing resolutions. As you look at that, there's been 47 of those since FY '10 to FY '22. So we're pretty used to dealing with that. When I look at the President budget request for 2024, I'm pretty excited. You might say, well, DoD was in there at 3.2%, yes, but that's without add-ons, which have happened over the last 2 years. And in addition, cybersecurity, which is a key area for us, is growing at 21%, up to $13.5 billion. So when we look at where we play in the DoD budget, that's where the budget is growing because of how we've positioned our portfolio. As far as other exposure, if I look at Department of State, a critical area for our Xator group under Engineered Systems, they're in the budget at 11.2%. If I look at Health and Human Services, again, under Engineered Systems, they're in the budget for 11.5%. Department of Transportation that affects our Critical Infrastructure Group and Engineered Systems, plus 6.7% on top of IIJA. So when we looked at the budget, and actually, let me add on to that, areas that are highlighted in the budget is spend. And PFOS-PFAS and the White House just came out with the announcement yesterday was setting the minimum standard levels. So we're starting to see that move forward in the legislation space, cybersecurity. There's a rail safety and infrastructure. There's FAA work and FAA modernization. We were very pleased with the budget in total. We think it directly aligns our capability. Sequestration last time I don't believe affected the company a whole lot, but I want to get back with specific since I wasn't at the company at that time. I think it was predominantly 1 contract that we had.

Byron Callan, Capital Alpha Partners. A couple of questions. Carey. On headcount, you've been running around $250,000 in revenues per person. Can you increase that through better product mix? That's one question.

Yes. So in response to that, the answer is absolutely yes. That's why we're looking at areas like as-a-service to sell. And also, we do have space products we didn't talk about today, but we do quite a bit of like scheduling, resource optimization. So we sell those on a commercial basis. And that was a large part of the reason IPKeys was attractive to us because 50% of that is products, and it's directly scalable. So yes.

One thing I'd add, Byron, is in the Middle East, our cost per head is a little bit lower than the rest of the company. So if that grows at an outpace. But yes, to Carey's point, absolutely opportunity.

Okay. Good. And then on Critical Solutions, you talked about 1 of the headwinds being labor hiring people. You think traditional civil engineering, but it sounds like this is going to be more technology people you're looking for. And I just wonder if that changes given what we've seen with the layoffs recently on big tech companies, the Silicon Valley Bank ripples and how that might increase the pool of available labor that you're looking at?

Yes. So our hiring again has been very strong. If you look '21 to '22, up 42%. In fact, I'd say it's been very strong since we brought on a new HR team the second half of 2021 until today. And we're continuing the momentum as we go into 2023. The skills that we predominantly hire in critical infrastructure and critical infrastructure, a lot easier bar higher than, for example, our Defense and Intelligence business because of the clearances. But it would be program management, predominantly when you look in the Middle East. And then within the U.S., a lot of design engineering people. Tech companies, we get some people from, but I wouldn't say that's our major pool.

Okay. Last question. This is a little further afield, but Ukraine and how Ukraine might fit into your thinking from a defense standpoint. But also even from a critical infrastructure standpoint, there's going to be a rebuilding of that company -- country at some point? Is it something you think about either from stopping up global engineering capacity or from your own opportunity set?

Yes. Terrific question. And absolutely, yes, I've been fortunate. I've had the opportunity to meet with the ambassador from Ukraine recently, also met with the Secretary of Commerce. And we're in deep discussions in several areas. But I would say demining is their most important objective right now because they're really going into the agricultural season and they've got to get done [indiscernible] removed. We also have an emulation system that we've delivered to Ukraine that's basically a radar an RF emulation system out of our defense portfolio. So that's another area that we're looking at. We have a biometrics capability where they've bought the first few kits. So it's our system that we're using for Department of State. They need to use it to track prisoners of war to identify various Russians. We see additional kits being deployed as we look there. The big opportunity will be the reconstruction. And I would say before the reconstruction starts, one thing we've been in discussion with is master planning because for them to be able to enter into a long-term reconstruction that will take a decade or more, you need a master plan, a concept. And so we've put some ideas forth in that regard. And then the other area would be Energy Solutions, that's a big need. So we're in deep discussions.

Great. And I'll go to the online question real quick. I'm sorry, we got a couple online here. Out of your 6 markets, where do you see the most potential?

Well, first, I'll say again, I couldn't be happier with the 6 markets we have. When you look at 5% to 12% growth rate across those. But if I had to pick your favorite children, I guess, I would say transportation has the highest growth rate projected at 12%. And Critical Infrastructure Protection is also very strong at 9% as well as Environmental Remediation at 9%.

Bert Subin with Stifel. Carey, during the group moderated session. You talked about the pipeline expanding pretty significantly in the Federal Solutions side. Yet you noted the organic growth expectation there is a bit more modest than maybe 3% over the next few years. Can you just sort of tie that together? We have RDT&E growing double digits this year. You're heavily exposed to that. Pipeline is expanding. It seems like there's a lot of opportunity there. How should we think about the upside of that 3% number?

Yes, great question. So our pipeline is up at $42 billion at the end of the fourth quarter, and that's several billion over what it was at the end of third quarter. Our awaiting notice of award is also up. So we're up to $9 billion, over $7 billion, which means we're submitting more, and we just need to get them pushed in the funnel out. As I mentioned on the quarterly earnings call, we had a couple of awards that had slipped from fourth quarter into first quarter. We are fortunate that we've seen a couple of awards in the first quarter that we anticipated. So I'm optimistic that we're going to start seeing those awards push through. But I think it's really just caution on -- the government has been late on contracting officers. There was some slowdown in the industry in total. So it's being cautious and making sure that they're getting those awards out.

And then a question for you, Matt. On the margin side, you gave a good walk through with that waterfall chart. How should we think about when critical infrastructure ultimately sort of gets in line with your peer group? I mean the -- your peers tend to earn something closer to 10-plus percent margins there. You guys have a couple of points to close that gap, but you're talking about sort of 20 to 30 basis points of annual expansion. Is there a possibility for that to expand more just as that gets in line with the peer group?

Yes, good question, Bert. I would tell you that, as I mentioned, the majority of the margin expansion over the next 3 years will be in critical infrastructure. So if you think of the 20 to 30 being 40 to 60 on the critical infrastructure side, we had about a 7.7% margin wrapping up 2022. So we're really optimistic that we're going to start to see that come up. Peter talked about some of the as-a-service work we're doing there. Mark talked a lot about the pricing premiums that we've been able to attract within our pursuits. So we're optimistic that we'll see critical infrastructure north of 9% within the period, and we're also optimistic we're going to continue to push.

Matt, the $390 million at the high end of the 2025 cash from ops range based on the P&L guidance, that would be a pretty high conversion rate. Are there drivers you're looking for outside of the business segments to drive cash flow?

Yes. So I mentioned it probably in the comments, but we do have some milestones coming up. We've got a little bit that we've -- programs that we've completed kind of beginning of this year and going into the beginning of next year. So it's really just kind of the timing on wrapping up some of those programs, but some pretty good milestones as we wrap up to tune of $40 million to $50 million.

And then you referred to last year spending nearly $400 million on acquisitions. You've spent something close to that, most of the last half decade or so. Is that a reasonable given what the pipeline looks like and where the balance sheet is? Is that kind of a reasonable amount to expect you to spend on M&A the next few years...

I would say, first, historically, kind of our sweet spot has been companies in the revenue range of about $50 million to $300 million annual revenue. We don't put an amount down. What's important for us is because that's not really what matters. It's really about how we move up the value chain, and it's finding those right companies that have the solutions integration and the software capacity or in our critical infrastructure, we're also looking to expand in certain geographic locations, specific states. So for us, it's about buying the right assets that we know will fit culturally with the company that are moving in accordance with our strategy.

I think when I look at it generically over -- on average, we want to use the free cash flow, excluding share buybacks and capital toward M&A. So I think that average will probably play out over a longer period. So $400 million is probably on the higher end on average.

I'll go to another question online. So as you've experienced a lot of growth in the Middle East, do you have other geographical expansion plans?

Well, we're fortunate with our portfolio right now. As we talk about a lot as an executive leadership team, we need to focus and deliver. When you're in 6 growing markets and you're in all the right geographies, the objective is how do you capitalize on that opportunity. It takes time. I've done a lot of international work over my career. It takes a lot of time, it takes a lot of money to get set up in new geographies. We're fortunate we don't need to do that. Now, having said that, INDOPACOM for us, where we do have a strong presence in Guam and [indiscernible] as well as in Hawaii, we see as ramping up over the short duration with China, Taiwan conflict.

[ Elain from Savara Capital ]. Just a quick follow-up on Louie's question on Middle East. So Middle East did see very strong growth, growing over 25% in the past year or so. Should we expect that to accelerate? Or moderate kind of going forward into 2023 and beyond?

Yes, [ Elain ]. So I would say we still expect growth. They run through some areas like if you look at holidays coming out of Ramadan and Eid where we're not going to see as much. So I would say there's a little bit of seasonality in that. But those programs are still on the incline where the integrated project delivery partner for those. So I do expect we're still going to continue to see that increase.

Got it. And kind of like with that moderating slightly, but CI being the faster growth business segment within Parsons. So what are some levers that you're pulling on the CI side to kind of drive that continued growth?

On the CI side, what's important for us is if I look at -- let me start with the U.S. Infrastructure bill, $550 billion of new funds, $284 billion of that is transportation. So we're directly aligned to that. If you look at other areas in the U.S. Infrastructure Bill, we talked about electrification. That's big for us, both in federal as well as CI. But again, substantial funding for that Broadband is an area as well where we've seen some recent activity and awards. PFOS, PFAS is a growing area for us. So I would say those are the focus within the United States as well as aviation and rail and transit. Within Canada, we're mostly focused on rail and transit is a large growth area for us. And then within the Middle East, it would be the urban development.

Great. Another online question. Given all your markets are growing, how do you prioritize investments in your business?

Yes, it's a great question. And investment has been something we spent quite a bit of time on. When I joined the company back in 2016, we actually didn't have a research and development budget. So that was 1 of the first things we did is put that in place because you're going to be an elite federal contractor, you have to invest. And that's why I wanted to spend a couple of minutes this morning talking about technology and where we've been making those investments. And we've increased that budget about 20x over the 4 years. I mean we've really skyrocketed that up to make sure that we stay at that elite position. We also look at what are the emerging markets. So it's really about -- I'll go back to kind of the 4 block chart that says you have parts of your portfolio that are sort of your cash cow, they're going to be good, they're going to be stable, they're going to be core operations. You have other parts of your portfolio that can have outstanding growth. They're kind of those new emerging markets where you're at the forefront of those. I put PFOS, PFAS as an example there. I would put the oil well abandoned and plugging there and the methane [indiscernible] work that we're doing in the patent in that area. National security. We pick the parts of the market where we're going to be the top position. So it's looking at how we can strengthen offensive and defensive cyber. How we can carve out the niche area and space like the operations-as-a-service like space domain awareness. But it's those parts in the market where we know that we can accelerate, we can be the top of the market, and we can be technologically differentiated.

Great another online here. What is the trajectory of your growth and margin expansion? Is it linear or back-end loaded?

Yes, I can take that one. It's pretty linear. Of course, there's going to be some small anomalies, but I would treat it as linear. We do expect about the same amount of revenue growth and margin expansion on a yearly basis. We talked about 20 basis points in 2023 and 2024 and then 30 in 2025. But for the most part, it's going to be linear versus our goal, of course, is to have stability and consistent delivery.

Great. What gets you to the high end and the low end of your ranges?

So Matt covered a lot of that, but I would say on the high end, it's continuing to do what we've been doing, which is successfully winning business and maintaining those high competitive win rates, making sure that we continue the hiring momentum that we've had since the middle of 2021. We're quite delighted about that, making sure that we keep our retention very strong which has been improving, and we're quite excited about that as well. On the low end, it's really the cautionary around what we can't control. So it's inflation, it's budget uncertainty. Will something happen with the labor market. But really, it's focused on what we've been doing and continue to deliver.

Okay. Another 1 here is how are you able to do such a good job of attracting and retaining talent?

Yes. I tried to hit on a lot of that in our presentation. I think the Presidents also did a great job, and it's interesting hearing effect between Peter and Mark, somebody that's relatively new to the company and somebody has been at the company for decades. But I think it goes back to mission and culture. We come to work because we're passionate about what we do and passionate about delivering for our customers. But we have this great culture at Parsons. And I don't think you can find that because we're not a Tier 1 type of company and we're not a small business, but we have this breadth and depth of capabilities that people can come in, they can work on these very exciting projects anywhere in the world. They can move up in their career and have great career opportunities, and we're very agile. And so we attract people that are kind of the entrepreneurs that like that fast-moving space and getting solutions out there to the customers because we're a different type of company.

Has the infrastructure bill begun to positively impact your revenue, if not material yet, when do you expect it to have a meaningful impact?

We have started to see infrastructure funds. We got $50 million for our FAA program, and there's additional that will come through that because there's $5 billion plan for FAA in the facilities area that's in the infrastructure bill. We've also gotten some infrastructure funds on both federal rail and transit programs, as well as state and local rail and transit programs. From a planning perspective, we see that starting on the incline later in 2023, 2024 with the peak in 2026. And I would just reiterate how well aligned our portfolio is transportation, electrification, broadband capability, environmental remediation capabilities. We are very excited about the growth and the prospects that we're going to see over the next couple of years.

Great. One more here. Why do you win or lose in the market?

This is -- it's technical. We rarely lose on cost. And the reason is because of where we play in our market spaces. Mark talked about, I'd say, is if any in the past has been more cost competitive, but now we're winning and we're not low cost. And it's because we have unique solutions, and we've positioned ourselves at such a place in the market that we're technologically differentiated. So the key for us is getting ahead of customers emerging problems, understanding them, being able to put the solution response in that they need. And ideally, I'll take a program like [indiscernible], to me, that's exciting. So when you have a program where you can basically stop a noncompliant vessel using directed energy, in a nonlethal way. And that program starts out as basically a study task order now completed CDR, and we're looking at kind of a full program to support the Coast Guard and other Department of Defense initiatives. That's how we like to play, get in the front door shape the market, develop the solution and then see that solution go into a program of record.

Great. Anything from the audience? I'll go here online. With the significant growth you're experiencing in the Middle East, can you convert free cash flow at 100% or higher?

Yes. That's a great question, whoever asked it. But yes, obviously, the Middle East is our challenge area. As I mentioned, I think, during the conversation, it's never a risk of whether we're going to get paid. We're delivering consistently the customers are very happy with us. It's really just timing. It's very difficult -- Carey talk a little bit about holidays, sometimes their holidays line up to our fiscal closes, which isn't ideal, but I'd say the leadership team every time Mark goes over or Carey goes over or I go over, we have a list of, hey, here's the critical receipts within the quarter that we need to collect on. And we've gone through flow diagrams is, hey, where are our bottlenecks? Is it on our side? What can we do better? What can the customer do better? Is this transitions from treasury to a different part of the customer? So we're optimistic, Dave, that the -- we can continue to drive down working capital balances despite the strong growth and hopefully maintain or reduce DSO.

And I think given that we've been over there for decades, as Matt said, it really is a timing issue. We do always get paid. But they're in a position now to that Western companies are contributing quite a bit, and they want the Western companies to be there to help support their growth. So I think we'll get better aligned.

Yes, when we talk to some of the customers and the important seat they tell them how important cash flow is for public companies in the U.S., of course, and around the world. But -- so it's a little bit of an education for them as well.

Great. Another 1 here, what are your major recompetes coming up between now and 2025?

We really only have 1 that I'd say is material to the business, and we've talked about that in the past, but that would be our FAA contract. That is already been submitted and I think evaluation is near complete. We've performed for that customer for over 2 decades, very successfully, very high outstanding past performance. We have very strong recompete win rates, and so we look forward to receiving that award. And hopefully, it will be awarded by second quarter.

Great. Another one here is it looks like you have an active M&A, but are there opportunities for divestitures?

We're always looking at shaping the portfolio. We've met and I both spent quite a bit of time on that. We are fortunate, again, just given our market position, there's nothing material that we see that we would want to divest. There's a bit we do around the edges, but there is nothing material. We feel we have top positions, strong positions, differentiated positions in all 6 of our core end markets.

Can you elaborate on your executive compensation plans? Are they aligned with shareholder interests?

Yes, executive compensation plans, both the short term and the long term are aligned with shareholder interest. So they're predominantly around financials, also a total shareholder return. And then we do have a component that is tied to a diversity equity inclusion specifically around gender and racial.

Okay. Another 1 here. Are you having any issues with protests, especially on larger programs? And is there risk of larger programs just getting delayed and pushed out?

There's always protests, which is unfortunate. It's 1 thing I wish that we could change. We have about $300 million currently that is held up in protest. The majority of that is in federal. We don't tend to see protests on the critical infrastructure side, except in rare instances. So fortunately, that business tends to move forward a little bit predictable. Generally you see these closed within months, but we do have the occasional ones, we have 1 right now within Engineered Systems that's gone on for over a year. We've won it probably 3 or 4 times. It would be new workforce. So yes, protests are something that we continually have to deal with.

Tobey Sommer, Truist, again. I wanted to follow up on that protest. What -- did the customers think about this? And is there a low-hanging obvious change just to keep it simple, like one change that could change the behavior?

So we talked about this a lot. I'm [ going to chair ] for the professional service council and this is always an agenda item for us on how do we help the government fix us. What do the customers think about it, they don't like it. Are there mistakes made in the system, sometimes what -- the part that is difficult or [ winner ] or what I will call frivolous protest if companies are trying to hang on to work or there's a new program that was material for them and they protest that. I think what has to happen personally is the industry associations have to help the government and come up with a new system and perhaps you know companies if they submit a protest to [ steam ] frivolous, they would have to pay the protest expense or something like that to resolve it. Having been in the industry for 37 years, I'm hoping it gets [indiscernible] of my career, but it's a pretty tough challenge.

Okay. It looks like we have time for a couple more here. What are the margins in each of your markets and what markets will drive your margin expansion?

Yes. So as Matt mentioned, our critical infrastructure overall has the most potential for expansion. When you look at our contract mix, 3/4 of that portfolio is fixed price, time and material. So that's where we have the most opportunity, whereas 2/3 of our federal portfolio is cost reimbursable. So having said that, I would say all the critical infrastructure areas we see margin expansion potential, but also within defense and intelligence areas where we're in selective positions such as cyber and space we see opportunity.

Carey, you talked about contracting officers earlier and the impact that's had. If we look at the treasury outlay data, that's actually become more favorable, and you're seeing money move through. It sounds like your rhetoric was more that there's still bottlenecks there? Are you seeing any improvement? And sort of what's your expectation as we go through '23?

We have seen some improvement. And I'm hoping before we get to this year's budget appropriation cycle that people will want to award the money, but we've seen a little bit of an improvement in those programs that I mentioned that got delayed in fourth quarter have since been awarded. So I do expect to see progress and the outlays are a good sign.

And Bert, I know we talked about this, but we do still have $9 billion in awaiting award, which for a $4 billion company is pretty significant, more than 2x what our kind of normal run would be over the last few years or so. So we do think there's still some opportunity for improvement.

Byron Callan, Capital Alpha Partners. What's next with PFAS? And what do you guys do different than some of the competitors in that market?

Yes. So PFOS, PFAS, and I will ask you to talk to Dan Griffiths who's our expert, but I'll give you the high-level version. We've been involved since 2009, so kind of at the inception of it. We have a water treatment laboratory up in Syracuse, New York, that we used to test various filtration technologies, and that's helped us as well. We have 4 patents that have already been approved. We have a patent pending, which I'll talk about in just a minute. But if you look at it, we look at all 3 streams. So it would be soil and groundwater. It would be large concentration waste streams. And it would be large volumes of solid mass. The patent that we have pending would remediate at the subsurface level, and this is going to be a first of a kind patent to get out there. So what we're excited about, I would say, is we're 1 of the leaders in this. It's a growing market with $100 billion to $140 billion potential. And we intend to stay on the forefront of it. It is one of our major investment areas in the company.

That's a good segue into the demos. So I just really wanted to thank everybody here. Super nice of you guys to be here, definitely appreciated. Please don't hesitate to reach out to me or any of the executives here. We'll go to the demos now, but we do have lunch. So please grab some food, check out the PFAS demo as well as the space capabilities. And again, thank you very much, and thanks to the people online as well. Again, we appreciate all your support. Have a good day.