Parsons Corporation (PSN) Earnings Call Transcript & Summary

Okay. Good morning. We're back here. I'm Steve Fisher, UBS Machinery, Engineering, Construction and U.S. Building Materials analyst. We're really thrilled to have management of Parsons with us. We have Carey Smith, CEO. We have Matt Ofilos, CFO; and we have Dave Spille from Investor Relations. We're going to do this as a fireside chat, but we will pause at some point in case anyone wants to ask a question, you can either use the QR code or just raise your hand and we'll get a microphone to you. So welcome. Thanks for being here. Maybe just for those not as familiar, if you could just provide a quick profile overview of the company and then maybe lead that into some color on your operating performance, which has been really strong over the last couple of years. Q3 recent quarter, really no exception to that. Maybe you can just elaborate on really what's been driving your -- the strong financial performance over the last couple of years.

Great. Thanks, Steve. Thanks for having us here today. So Parsons is about 19,500 people. We're located in over 25 countries around the world, all 50 states. We report in 2 segments: Federal Solutions, which comprises about 60% of the revenue; and Critical Infrastructure, which makes up about 40% of the revenue. We have 6 end market areas that we're focused on. Those include Cyber and Intelligence, Space and Missile Defense, Critical Infrastructure Protection, Transportation, Environmental Remediation and Urban Development. And one thing I think that's particularly exciting is that across those 6 markets, compound annual growth rate is 5% to 12% projected over the next 3 years. So we're in a fortunate position where we have a lot of tailwinds across all of our core market spaces. Our revenue is about 85% in North America. It's about 76% in the U.S., the rest in Canada. And then we have about 15% of our business that's based in the Middle East. When you look at the federal portion, about 58% of the business would be fixed price, time and material, about 42% is cost reimbursable. Whereas in the Critical Infrastructure part of the business, it's about 71% fixed price, time material and 29% cost reimbursable. Our focus in the federal business area has been focused on outpacing near peer threats and being able to provide integrated deterrence to enhance the United States national security. And with that, we've purpose-built a federal portfolio that's comprised -- focused on cyber, electronic warfare, space and information operations. Within the Critical Infrastructure segment, our focus is on providing program management capabilities, owners engineer capabilities and design engineering. As you mentioned, Steve, we're really pleased with the growth that we've had. We've had 6 consecutive quarters of greater than 20% organic growth. And it's really driven by all 4 of our business units, profit and loss centers growing double digits as well as our major geographies going double digits. Likewise, we've had a very strong competitive win rate. We're at 75% year-to-date.

That's great. Yes, that's hard to achieve that 20% plus over that many quarters. You mentioned 16% in the Middle East. I think that's one of the unique characteristics and focus areas for your company. And it's been very strong. Maybe you can just talk a little bit about what has contributed to that success in the Middle East for you?

Sure. So we've been in the Middle East for 6 decades, which is hard to believe, very deep roots there. And we've been in Saudi Arabia for 5 decades, and we have a 50-50 joint venture partnership with the Saudi Arabian firm and the joint venture is called Saudi Arabia Parsons Limited. And that JV has been in place for 5 decades. So very deep roots. We provide predominantly program management consulting capabilities, and we're also heavily involved in transportation and urban development areas. I would say the growth that most recently has come from Saudi Arabia. Saudi Arabia side, Saudi Vision 2030, which basically, how do you diversify the country away from a dependence on oil. They set up different sectors, which are managed by the public investment fund, and the focus is on how do you do infrastructure, transportation, but then they also have sectors like e-gaming and some ethers where we don't participate. But I would say for us, tourism, entertainment, transportation and infrastructure are the main drivers. So they have all these giga projects in preparation for being on the world stage. In 2029, they're going to be hosting the Asian Games. 2030, they're going to be hosting the World Expo. 2034, they're going to be hosting the World Cup. So we're in a fortunate position where we're involved in many of those giga projects. We're involved in NEOM. NEOM's comprised of many projects. One of them is The Line, which is going to be a city as tall as [indiscernible] building as long as Long Island. We're one of the delivery partners there. We're the program manager for NEOM Oxagon, which is going to be a floating city on the Red Sea, basically a technology hub. We're one of the delivery partners for Cadia, which will be the world's largest entertainment center. We're the program manager for King Salman Park, which is 5x size the Central Park. We're working on King Abdullah Financial District. We're working on Abdullah. We're doing Riyadh rings and roads. So we're really excited to be at the forefront of helping Saudi achieve its vision of diversifying away from oil and basically transforming the country for it to be on the world stage.

Yes. It's amazing to see this area develop. However, there have been certain geopolitical dynamics going on in the region for sure. How does that impact your ability to kind of work in the region, if it does at all?

Yes. So we don't see any impact. I think everybody would agree that Saudi's vision is terrific. It's great for the world, and it's great for the economy. And so we're very supportive of that. I would also say that relationships between Saudi and the U.S. really have never been better as well as with the UAE. I didn't talk about the UAE, but I'll just mention a few of the things that we're doing there. We're involved right now -- they had the unfortunate floods over the last few years. So we're involved in doing water, wastewater treatment work as well as sewage work. And then in Abu Dhabi, there's a lot of movements. We're actually involved in helping create man-made islands and modernizing it for mixed-use development as people start to move from other countries into the UAE.

Interesting. Obviously, there is -- goes along with some of the geopolitical activity is potential for rebuilding. Can you talk a little bit about whether this is something that you're even thinking about or being involved in?

Yes, it's a great question. And we certainly are -- Parsons was very heavily involved in the rebuild of Iraq. And so if the Russia-Ukraine conflict comes to an end and the Israel-Gaza conflict comes to an end, we anticipate being involved in the rebuild of those countries. In addition to what we can do on the rebuild, the first step within Ukraine will be to provide demining because about 40% of the country is covered in mines. So we have a system where we have export approval to directed energy laser system that can accomplish the demining. We also do environmental remediation work. And then we would go in and help develop a master concept plan and be able to help with the rebuild. So we do see that as an opportunity for the company.

Yes. Fascinating. So maybe shifting gears a little bit here to something else that's fairly topical around the federal government area with the potential change or the expected change in administration, not a lot of details yet, but curious how you're thinking about this DOGE topic and how that might potentially impact your businesses and the segments?

Yes, I think it's most frequently asked question right now. So the Department of Government Efficiency is basically going to be an advisory board that's set up. And they will come up with recommendations in several areas. One is how do you improve the efficiency of the government. The second one is how do you reduce cost. And the third area is eliminating regulations that may be unnecessary or unneeded. So I would say we think all those 3 objectives are very important and all very worthy. Currently, with Parsons portfolio, 40% of our portfolio is immune from the federal government because it's international and state and local. So 60% of our business falls under the federal government. The agencies that have been talked about so far being looked at or like the Department of Education, the Veterans Affairs, the IRS and the FBI, Parsons has no work with those agencies. But I will say what we are looking at is how we can come up with ideas and recommendations to help those achieve its objectives because we think, particularly on the efficiency side, if you apply artificial intelligence, automation technologies, you can make the government more efficient. And as you look at cost reduction areas, are there areas that might be better privatized versus done by the government? Or are there programs that have been procured that perhaps are losing money and you can look at different procurement strategies. So we're really looking forward to coming up with ideas to help those achieve their objectives.

And do you sense that there's kind of -- maybe it's too early, but is there receptivity to input from the industry?

Yes. I would say it is at early stages, but I believe based on the group that's being formed that they will be very receptive to ideas from private industry.

That's great. another general federal government topic is around the budget, and we have continuing resolution right now. So I'm just curious what your expectations are for how long this might continue? And if there's any risk in terms of your kind of guidance and framework for '24 and '25 if we have a prolonged continuing resolution?

Yes. So right now, the continuing resolution until December 20, there's an expectation that, that will continue until the March time frame. I've been in the industry almost 4 decades. We've dealt with continuing resolutions since 2005. On average, there's been 4 CRs per year since then. They've averaged about 163 days. I kind of look at it at almost as noise in the system. It's unfortunate noise in the system. From a Parsons' perspective, we have $8.8 billion in backlog, 66% of that is funded, which is very high. We also have another $13 billion of awarded, not booked. So that's work that Parsons has won that we haven't yet reflected in our bookings or backlog. So we're in a fortunate position of being able to run a long time without seeing an impact.

That's great. One other question that I get a lot relates to combination to DOGE and also to continuing resolutions. So maybe now is a good time to ask it is, but the trickle down from federal government to state and local given that you do a lot of infrastructure work, is there any connection that you see out there between those and any impact at the state and local level from federal dynamics?

No, we really don't. The Infrastructure Investment and Jobs Act was passed in November 2021 and put into law. If you look at the progress up through May of this year, it was reported by ARPA and other groups that about 40% of the projects have been announced, and that's about 60,000 projects. And about 80% of the funding was -- still remain to be allocated. Our expectation is that, that funding won't peak until the 2027 time frame, it's going to have about a 6- to 8-year runway. Fortunately, both administrations -- it was a bipartisan bill and both administrations are very supportive of infrastructure. Incoming President Trump has indicated the importance of modernizing our roads, our highways, our bridges. So we remain very excited about the prospects for the IIJA.

Okay. Terrific. So now that we're on to the Critical Infrastructure area, you've had some very good success in that business. But maybe operationally, there's been a few write-downs here and there. Maybe you can just give us a little bit of an update on some of the legacy programs that have contributed to that and kind of where you stand on those legacy programs?

Yes. So -- Matt talked about our margins as well and the projected future for Critical Infrastructure. But if you look going into this year, the company previously had gotten involved in construction. That's since the market that we have exited. When I took over as Chief Operating Officer in 2018, we had about 10 to 15 of those programs. We were down to 2 as we started this year. We're now down to 1, which we think is hopefully going to close out within days, but definitely this month -- and Matt, why don't you talk a little bit about the margins?

Yes. So the Critical Infrastructure business is performing quite well. If you think about the hundreds, if not thousands of programs, we're performing on the underlying -- if you normalize for just those 2 programs, the actual margin is closer to 10%. Let's call it, high 9s, low 10s at this point in time. So Carey and I have a lot of confidence that will trend towards double digits over time. This year, we'll probably be in the low -- low to mid-7s, which is kind of the midpoint of the guide. But all in all, we're really confident in the business. There's several programs -- lots of programs that are performing quite well and the backlog and the new business that's being performed. The acquisitions that we've done are all kind of that double-digit range. So we're confident that, that critical infrastructure business is a great opportunity for us to expand margins.

Awesome. Shifting back to the growth element of it, we talked in the beginning about being able to grow 20% or more than 20% organically over the last 1 to 2 years. Maybe people always kind of look at growth rates relative to book-to-bills and maybe a little bit of a disconnect. Can you just sort of reconcile that growth rate relative to sort of the book-to-bills?

Yes. We're pleased that we've maintained over 1.0x book-to-bill since we IPO-ed back in May of 2019. Everybody reports bookings a little bit different. I'd say we're perhaps a little more conservative than other companies. And that's why when we cite our backlog, it's $8.8 billion, we also mentioned the $13 billion that's awarded, not booked. So if you take the combination of those, nearly $22 billion. If you look back at the end, 2 years ago, that number was in the $14 billion range. So we've indeed grown quite a bit. And what we do is we put the awarded not booked once we get to like the base period, then we will book the follow-on option period. It's perhaps just a lot more conservative.

Okay. Got it. And you talked about contract win rate over 70%. Obviously, that's very high. Can you talk a little bit about the factors contributing to the success there? And how much of that is technical ability, the availability of labor, pricing, something else? What contributes to that high win rate?

Yes. So we win or lose on technical and that's the same in federal as well as it is in Critical Infrastructure. And I think what you've seen is the combination of our strategy coming to effect over the last couple of years. We've really been focused on acquiring companies that give us end-to-end capabilities, whether that's cyber operations, electronic warfare, space or information operations. What that's enabled us to do on the federal side is move up the value chain. So we've been priming, bidding and winning much larger contracts, and that's contributed substantially to the win rate. I would say on the Critical Infrastructure side, it's really driven by unprecedented infrastructure spend. We have, obviously, a unique position in the Middle East being the #1 program management consultant and a very trusted, reliable partner. And then when you look in the U.S., we're fortunate over the last 16 months that we've won perhaps the 6 biggest jobs in our company's history. So just doing a great job, I'd say, across. And then our hiring and retention is very strong. And so the ability to be able to retain people and particularly have the right business development and team has contributed.

Great. Yes, I thought it was very impressive, those major wins in Critical Infrastructure. I'm wondering if there's like a context that you can provide for how it is that those big programs kind of came about at this last -- since you started booking them. It was just out of sort of like a delayed impact from the IIJA being passed is that these were on the Board. A couple of years ago, but we had an inflation period. And so maybe they were taking a little extra time to be rethought. How is it that these such big programs have now all kind of come out at one time and then where -- how do we put them in context of what's still ahead?

Yes. So I would say it's been part of the long-term capital planning process. A combination of states started contributing and funding projects once they saw the certainty of the IIJA and a combination of IIJA projects. We're particularly pleased to see a program like the gateway go forward and get full federal funding as it did in the last quarter because that's going to be the U.S.'s largest infrastructure project, and we're really proud to be program management consultant on that. Also another one I'd mention is public-private partnerships are coming back in favor within the U.S. So if you look at the Georgia State Route 400, that's a private partnership. So again, participating on the ground floor of a P3 and an important project like that is key.

Fantastic. Maybe we talk a little bit about sort of longer-term revenue growth and margin expectations. There's a way to talk about that for kind of each of your segments and then Parsons overall?

Yes. So 2024 is a really strong year. We're looking at about 50 basis points of margin expansion, strong growth, 20-plus percent, as you mentioned, at the midpoint. And so 2025, we have said mid-single digit or better top line growth, obviously, a little bit tougher comps, specifically within the Federal segment. Suspect that the CI business will outperform in terms of growth rate, the federal business, but both businesses continue to quite well, I believe. On the federal side, we have margins this year in kind of the mid-10s given the structure of the company and a lot of cost type work. You think about the cyber, the space, the kind of early phase R&D type work, a lot of that is cost type in nature. And so you're kind of structurally limited in terms of margin expansion technically within federal. So we're pretty comfortable that kind of high 9s, low 10s is a great place for that federal business to be with additional accretion coming from acquisitions and kind of strength of the business growth. But on the infrastructure side, as I mentioned before, again, we kind of say we saw 30% growth in EMEA last year, north of 10% this year, kind of 15% from Saudi. We are expecting kind of still double-digit growth out of Middle East next year. As Carey mentioned, a lot of these new awards, so really strong growth out of infrastructure next year. But the real opportunity from a margin perspective is if we're in kind of the low to mid-7s this year, trending towards that 10% over time, getting out from underneath these programs, wrapping up these negotiations with customers on closeout and things. And so kind of seeing the 20 to 30 basis points of margin expansion at the company level, with the majority coming from infrastructure, so call it 40 to 60, if not better, margin expansion from infrastructure per year.

Got it. Great. Can't talk about federal businesses without concept of recompete. So I think you -- and option extensions. You mentioned recently that one of your -- the customer for one of your larger contracts could exercise an option year or recompete the contract. Can you just elaborate on this contract? And how much of your revenue is up for recompete in '24 and '25?

Yes. So it is, unfortunately, a confidential customer, and so we're not allowed to disclose any information. But we're currently working through with that customer to try and provide some suggestions for where they might get some cost savings by changing some requirements and continuing forward with the option year. And actually, something like that, I think it falls under like a DOGE concept where if you can get some better money savings for your customer, gives them more money to apply to other important missions. And we think as a company, that's part of our job is to help get the best dollar spent across the important missions we're performing.

And Steve, just to give some numbers on the recompete value. So in a typical year, we'll see about 10% of revenue from recompetes. Next year, we're kind of trending towards that 5-ish percent, depending on the -- whether this is a recompete or an option year award, you could see something more towards the 10% to 15% or as low as 5%. So kind of a little bit of a range next year, but we're hoping to a finalization in the next few weeks.

Got it. Very helpful. Maybe shifting gears a little bit to M&A, and you've had an active M&A program since you've been a publicly traded company over the last handful of years. Maybe you can just give us an update on some of these recent acquisitions that you've done and sort of what your capital allocation priorities are from here?

Yes. And so we have a great balance sheet pro forma after our most recent acquisition, we'd be at 1.6x. We're comfortable going to about a 2 to 2.5x. The talk about the 2 acquisitions that we did this year, the first one is BlackSignal, a company on the federal side, we're very excited about. They enhance our capability in cyber operations. If you look at where we were playing as Parsons and you add BlackSignal capabilities, Parsons was more focused on the operations side, BlackSignal is more on the research and development side. Also within cyber, we address different customers. Parsons was more focused on defense, whereas BlackSignal is more focused on the intelligence community. So it really enables us to bring full spectrum cyber operations to our broader portfolio of customers. They also brought electronic warfare capability. So we both do signals intelligence, but we were addressing different parts of the electromagnetic spectrum. So now you can look at an end-to-end signals intelligence type of capability. And then within space, they have capabilities like hack a satellite, Hack-A-Sat, we call it. And we do space domain awareness. So very complementary, once again. And they also have the capability of having a digital twin on orbit, which we're very excited about. Moving over to -- another point I'll make is about 60% to 70% of their business is directed sole source, which really shows their exquisite capabilities. Moving over to BCC. BCC is a company that we've been interested in for years. So very excited to welcome them into the family. BCC is the #1 consultant within South Florida, predominantly focused on transportation and engineering. They participate in every district of Florida's business, headquartered out of Miami. They also have doubled our business within Georgia, which I mentioned how important George is for the company. And they have a presence in Texas, North Carolina as well as Puerto Rico. Both companies prime more than 75% of their business. So they're very used to dealing direct with the customers, terrific companies to have as part of Parsons.

And so Steve, just on capital deployment, so we have about a $100 million share buyback program in place where the goal overall is to kind of buy back $20 million to $25 million per year, kind of eliminate any ESOP dilution there. But really, the focus of capital deployment will remain M&A. Carey's point, at the end of Q3, 1.2 leverage and with the pro forma on BCC [ 1.6 ]. So the balance sheet is in really great shape to continue down the path.

Great. I think one of the points I've heard you make before about your M&A approach is that you don't include synergies in your M&A assumptions. Just curious on a look back of your experiences, do you get synergies in the end? How does that end up playing out you..

We absolutely do. That's been the reason we've been able to move up the value chain and bid and win the larger contracts, and it's been an absolute key contributor to 6 consecutive quarters of greater than 20% organic growth. I'd say every bid that's going out involves all of our companies because they each have right unique capabilities and having the luxury to put together a purpose-built federal business pretty much from scratch to think about what are the customers' emerging challenges for the future and what type of company you need to be able to achieve those [indiscernible] threats has really helped us. So it's been an extremely deliberate strategy.

And Steve, one of the things that's interesting is we -- when we're putting together the business case, we won't put synergies in place because we really want the companies to stand on their own. We buy companies that are 10-plus percent profit, they're delivering cash flow. So we're not really betting on the come. And so we're really happy with the companies we're acquiring. But when we put them underneath one of the business units, we hold them to synergy targets, all top line, very little on the cost side. Our goal is not to acquire a company and rip a bunch of costs. They're all successful in their own right. So we really just want to see top line growth. Carey mentioned that GSA FedSIM when we had last year, $1.2 billion job. If you really look at how that came together, that was a combination of legacy Parsons, legacy SPARTA, legacy BlackHorse. So a lot of these acquisitions that we had done over time, Braxton and another one. So you kind of pull all those together and rather than being able to pursue $100 million and $200 million jobs, now you're competing against Tier 1s and capturing $1.2 billion jobs.

Fantastic. One maybe a specific question about a specific topical area, which is PFAS. And -- just curious how large is your PFAS-related business? And are you expecting it to start materially impacting your financial results and maybe you have timing around that?

Yes. We expect the overall PFAS market to be about $200 billion market. The addressable portion for Parsons is about a $40 billion addressable market. It's an area that we've been involved with. We've had a water and wastewater treatment, research and development laboratory up in Syracuse, New York for over 3 decades. We hold patents across multiple areas of PFAS involving soil, ground water, wastewater treatment. We're excited about one patent, which we have approval in Canada. It's pending in the U.S. that's called the [indiscernible] technology. And what that will do is actually destroy and situ the PFAS on the spot, whereas a lot of better technologies today, you'll take a PFAS molecule and you break it into smaller parts and it requires incineration. This is a really unique approach that we're excited about. To date, when you look at the PFAS market, we've been embarked in over 2,000 investigations. We've done over 7,000 point-of-use systems. And these apply -- and we're doing a lot of firefighting foam investigation replacements. So if you look on the federal side of the house, our customers are predominantly Department of Defense, Army Corps and Air Force, Civil Engineering. And then if you -- and the Federal Aviation Administration as well. If you look on the critical infrastructure side of the house, it's mostly water customers as well as industrial clients, many of which are facing lawsuits as a result of PFOS, PFAS. Last year, the EPA did approve the maximum contaminant levels, which was released. I would say, with or without that, though, one thing is the states are moving forward, 34 states currently have regulations around PFOS, PFAS. So we're approaching multiple customers, multiple states. And we -- like I said, we do see this as a significant market for us. We don't expect the marketplace to peak until about the 2032 time frame.

And we often get the question as it relates to PFAS, again, change of government, any federal implications around PFAS to anticipate?

I would say even if the MCL levels change, you still have a public health issue that has to be addressed. And the fact that the states are moving forward on their own, that's still going to continue. And the industrial clients are going to continue and the FDA and Department of Defense are going to replace the firefighting foam.

Got it. Sounds good. We talked a little bit before about some of the big infrastructure programs coming out of the IIJA and how that's evolving. I wanted to ask you about program management. I know you have a capability -- a core capability there. Is that becoming an increasingly relevant skill set? And if not, maybe it's just been around a while and kind of the same, how do you differentiate in your program management offering?

Yes. So in the Middle East, we're predominantly a program management consultant, and that's an intentional position we've taken because it is a lower risk posture than doing design work. So about 85% of our business in the Middle East is PMC work and 15% is design. In the U.S., we look at it on a project-by-project basis, and we're kind of split. What we'd like to do is be program management consultant on projects as they are very prestigious, complex, difficult. Gateway is a great example of that. To be the program manager on a project that's $16 billion infrastructure project to do the new Hudson River tunnel is very exciting in dealing with a multitude of customers. Another great example would be LAX airport, we're the program manager and helping to modernize that airport, one of the largest airport infrastructure projects. Other areas, we will do design, more good example, JFK Roadways or the New York Bay Bridge that we won or the State Route 400 or we just were awarded also the Hawaii rail and transit for Honolulu. So we kind of pick and choose depending on the individual project within North America.

And Steve, interestingly enough, the program management area is a great place for technology insertion, too. You think about artificial intelligence and whether it's inspection, quality, a lot of those things, there's really great opportunities for advancing technology there. So we're seeing a big uptick. EMEA is leading the way on some projects. North America is starting to adopt as well. So good opportunities there.

Yes, it's going to be really interesting to watch. Maybe continuing with the Critical Infrastructure area. We're talking a little bit about transportation right now. We're talking about PFAS. Can you just maybe rank some of the kind of core applications and end markets within Critical Infrastructure, be it water, transportation or anything else? Where do you see the most on a relative basis exciting opportunities?

Our largest would be transportation. Within transportation, we've designed over 10,000 miles of road and highway across 6 continents. We've been involved in over 400 rail and transit projects, over 450 airport projects. We do work at ports. We have an intelligent transportation system, which is one of the most globally deployed advanced traffic management system, and we're actually using it for smart cities work in the Middle East as well. So I'd say transportation is a very strong place for us. Environmental Remediation, we're involved in mine reclamation. We're reclamating 2 of the world's largest mines up in Canada, Faro and Giant mine. We also do the PFOS, PFAS as we mentioned. And then we do oil well plugging and abandonment. So we have developed a patent for a technology that prevents methane leakage from oil wells. So those are kind of the areas there and water/wastewater treatment plants would be another area of environmental remediation that we participate in. And then on the Urban Development side, that's mostly the PMC work that we do within the Middle East. So how do you develop first of a kind, one-of-a-kind projects these new cities being built, these new parks, new bridges and accomplish these important projects on time.

Fantastic. I wanted to just come back to the idea of just the competitive landscape. I mean like you said, you're looking for these -- the most prestigious and kind of one of those projects, how do we think about sort of who the competitive set is that you're really kind of focused on? Is it really kind of a bifurcated approach where there's lots of infrastructure projects around the country and the world? And you've got a group of companies working on those, and then you've got sort of the premier set working on these premier projects, and you're really just kind of focusing on those. How do you see the kind of competitive land scape and -- evolving in your ability to differentiate?

Yes. So I would say our competitors are pretty typical within the Critical Infrastructure areas, so mostly the design PMC companies. I would highlight our ability to differentiate as being very important because we are unique. We have a unique portfolio because we have a very high advanced technology group in our federal side, and we can apply that technology of the Critical Infrastructure side. So whether it's artificial intelligence and how you apply that to infrastructure, whether you're putting sensors on bridges, so you can determine the predictability where you can design and build your infrastructure that last 100 years and not 30 years, whether you're applying cybersecurity, a huge marketplace. If you think about utility companies getting attacked. There just was the [indiscernible] that was reported the other day, water companies getting attacked, transportation, facilities, health care because we have the domain knowledge on our Critical Infrastructure business, but we also have the cyber capability to protect it. We view that Critical Infrastructure Protection market as very important. So I would say kind of standard set of competitors, but we're a different company because of that technology component.

Great. Maybe we'll just pause here to see if anyone has any questions. If you'd like to ask and you can use the QR code or raise your hand. I think we have a question in the back.

I just wanted to ask you about with infrastructure, it seems like labor availability is always a challenge. And just is there any color that you could give us on, I suppose, mostly interested in the U.S., but just how you're managing that and particularly given that products can be complex and complicated and run over years?

Yes, great question. Hiring and retention are one of the most important areas for our company and our focus since we are a labor-based business. So it's really key that we're able to keep good numbers in both those areas. Middle East for us is our easiest hiring ground because we recruit from over 40 countries around the world. I would say U.S. infrastructure is kind of our next easiest hiring program management talent, design engineering talent. Our hiring has been very good and women be able to achieve the organic growth rates that we have. And our retention has improved a full percent year-over-year for the last 2 years and is really low right now. And I think a lot of that is driven by our mission and our culture. Now the area that's the hardest to hire within our portfolio is actually on the federal side, people that are highly clear, that's always going to be a difficult market. And what we do there is we're working with the government, the Intel community, the Department of Defense on how do we reform the security clearance processing. It has improved over recent years, but still probably not where it needs to be.

But also add, too, it's interesting. One of the important things now is with an aging workforce and things, it's important we have internship programs, important we have development program. So people are getting exposure to these subject matter experts, folks that have been around for 40 years, doing bridge design and road design. It's really important that folks are making their way up through their careers so often carry pitches often about Parsons isn't a one project, a job, it's a career. We want people to feel it's a great opportunity for their careers. So they can do work in the Middle East on NEOM The Line or they can do work on job in New York or Texas or Florida. And so I think that's the great part about Parsons is a diverse portfolio. It gives people a great opportunity to rotate around, get great experiences.

Great point, Matt. And I would say also key is keeping our people from acquisitions. We're known as a company. When we do acquisitions, our goal is that the people will stay with the company, and they'll get promoted within the company. 1/3 of our executive leadership team came from acquisitions. And it's really important that you keep those founders, those CEOs and you keep all the people from the acquisitions. That's a critical part of our labor force.

Please, Troy?

Carey, Matt, can you maybe just talk about your thoughts on potential portfolio actions? Obviously, companies on both sides of government services and E&C have moved towards more pure play. Just curious on whether you guys are kind of thinking the same down the line? Given your unique shareholder structure, whether that kind of prevents that from happening in the time being?

So first, we love our portfolio the way it is 60-40 or 50-50. But right now, it's 60-40. We've been able to capitalize on the synergies across the portfolio, and that's been very important to drive our growth. Whether it's having a common program management organization, a common design engineering organization, common subject matter experts like PFOS, PFAS that service the federal market for those clients or service that Critical Infrastructure for those clients. I talked earlier about Critical Infrastructure Protection, very important market area. We're unique there because we're the one company that can come in and understand the domain, but also fix the problem of cybersecurity breakage. So no, we're very happy with the portfolio. It's worked for us. We're getting synergies across the portfolio. And that's been key to driving our growth.

Great. Well, we are right about out of time. So I really want to thank you very much, Carey, Matt, Dave, thanks for being here, and best of luck for 2025.

Thank you, Steve. Thanks for hosting.

Yes. Thank you.

Thank you.