Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2024 Parsons Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like now to turn the conference over to your speaker today, Dave Spille, Senior Vice President, Investor Relations. Sir, please go ahead.

Thanks, Michelle. Good morning, and thank you for joining us today to discuss our third quarter 2024 financial results. Please note that we provide a presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair, President and CEO; and Matt Ofilos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our third quarter financial results, as well as a review of our increased 2024 guidance. We then will close with a question-and-answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year ended December 31, 2023, and other SEC filings including the quarterly reports filed with the Securities and Exchange Commission on October 30th 2024 on Form 10-Q for the quarter ended September 30, 2024. Please refer to our earnings press release for Parsons’ complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures. I now will turn the call over to Carey.

Thank you, Dave. Good morning and welcome to Parsons third quarter 2024 earnings call. We are very pleased with our third quarter and year-to-date performance as we delivered record Q3 results for total revenue, organic revenue growth, net income, adjusted EBITDA, operating cash flow and contract awards. We also achieved strong growth across the portfolio delivering over 20% organic growth for the sixth consecutive quarter, while efficiently managing the business, as bottom-line growth continues to outpace our robust top-line growth. In addition, we continue to leverage our strong balance sheet to invest in software and integrated solutions, as well as execute accretive acquisitions that either provide distinguished defense capabilities that counter near-pure threats or strengthen our engineering expertise and increase our geographical footprint in high growth infrastructure markets. As a result of our strong operating performance in our BlackSignal acquisition, we are raising our full year revenue, adjusted EBITDA, and cash flow guidance ranges. Our record results reflect the hard work and dedication of the entire Parsons team to deliver on our customers’ national security and infrastructure missions with the urgency and operational relevance required in today’s SaaS-based and dynamic environment. For the third quarter, we generated $1.8 billion in revenue for the first time in our company's history and delivered organic revenue growth of 26%. During the third quarter, we also delivered double-digit total revenue growth in both businesses segments illustrating the strength of our portfolio. This is now the 11th consecutive quarterly record for revenue and 12th consecutive record quarterly adjusted EBITDA. I will also note that for the third quarter, and for the first nine months of 2024, total adjusted EBITDA growth exceeded revenue growth. In the third quarter, total revenue increased 28%, while adjusted EBITDA grew by 31%. And for the first nine months of 2024,…

Thank you, Carey. As Carey indicated, our momentum continued through the third quarter of 2024 and was highlighted by record third quarter results for total revenue, organic revenue growth, net income, adjusted EBITDA, operating cash flow and contract awards. We’re very pleased with our results, particularly against tougher comparable periods, given the significant growth realized in the second half of 2023. Our Revenue growth remains strong across the portfolio with double-digit growth in both segments. Turning to our results. Third quarter revenue of $1.8 billion increased $392 million or 28% from the prior year period and was up 26% on an organic basis. For perspectives, this significant growth was achieved off our record third quarter in 2023, where we grew $284 million or 25%, Organic growth for the third quarter was driven by the ramp up of recent contract wins and growth on existing contracts in our Critical Infrastructure Protection in cyber and intelligence markets. SG&A expenses for the third quarter were 13.6%. of total revenue compared to 15.6% in the prior year period as we continue to focus on efficient growth across the portfolio, while investing in the future through technology, business development and hiring and retention initiatives. On a year-to-date basis, SG&A as a percentage of revenue was 13.8%, compared to 16% in 2023. Adjusted EBITDA of $167 million increased $39 million or 31% and adjusted EBITDA margin expanded 20 basis points to 9.2%. These year-over-year increases were driven primarily by higher volume on margin accretive contracts and a deliberate focus on indirect cost management. As with revenue, our adjusted EBITDA growth was compared to a very strong third quarter in 2023, where we experienced growth of 24% over the prior year period. On a year-to-date basis, adjusted EBITDA margin up a Parson’s level increased 60% basis points…

Thank you, Matt. In closing, I am very pleased with our company’s performance through the first nine months of the year. Our operating results continue to exceed our expectations as we once again delivered record results across all guidance metrics. Our 19,000 employees are consistently executing and taking advantage of the strong tailwinds that are positively impacting both of our business segments. I am thankful to be leading such a great team and I expect our momentum to continue given our portfolio is well aligned to important macro environment trends, and two well-funded segments and six growing and enduring markets.

Thank you. [Operator Instructions] And the first question will come from Sheila Kahyaoglu with Jefferies. Your line is now open.

Good morning guys, and great quarter, as always. If I could ask two questions, maybe first on the top-line, just give the performance has been so, stellar. The $13 billion unbooked pipeline is relatively unchanged, but still a very good book-to-bill of 1 times, which seems nearly impossible with your growth rate. How do we think about as we enter 2025, what year growth rate could potentially look like?

Thank you, Sheila, and good morning. So, the top-line has remained relatively flat and - only awarded not booked and the reason for that is that we booked four of our repeats between July 2021 and January of 2023. So it's kind of reached a peak because they were all greater than $2 billion each. What I think is important to look at is a combination of the $13 billion awarded not booked, plus the $8.8 billion and backlog, which is up significantly over 2022. I would also recommend that the 66% of funded backlog and that’s the amount that we expect to convert within the next 12 to 18 months is very strong and probably close to an industry high. Looking forward from a top-line perspective, we anticipate being at mid-single-digits were better as we've indicated.

Great. And if I could ask one more, if you don't mind, on CI, the margins, exit charge were closer to 9% once again. This fluctuated quite a bit. Matt over the past few quarters. What's the right way to think about the run rate margin once legacy programs are run-off?

Yeah, thanks Sheila. I'd say we talk a lot about the CI with the underlying business kind of performing in the 9 to 10 range. Long-term goal, of course is double-digits. We have a, path to get there, but it's kind of a slow charges we get through these programs to your point. We were expecting kind of wrap up that program. We had a couple week delay, which is not unexpected as we kind of get to the end of these programs. But $23 million charge within the quarter was down little bit of the schedule slip and then as we to close out and kind of negotiations with customer on close out, that was the biggest driver behind the charge. But generally speaking, we think, that underlying margins for the backlog that we’ve recently booked and the work that we are really performing on is kind of north of 9%. So it’s kind of just have a slope that which we can get there. I’ve kind of said 20 to 30 basis points per year of margin expansion if you think about the Federal business being kind of stable, you’d think 40 to 60 basis points from CI per year. So that’s the way we are kind of looking at it, Sheila.

I would also add, yeah, I would also add that we are really excited to get rid of these legacy programs. These were jobs that were way back in the 2010 to 2015 timeframe. As we entered the year, we only had two of these remaining. We wrapped one up in the first quarter and this last one as Matt indicated, is just a couple of weeks away, we’re 98% complete right now. So it's really exciting to have those in the mirror, because improved performance execution on our Critical Infrastructure side is going to be the biggest driver of margin expansion.

Thank you.

Thanks, Sheila.

Thank you.

And our next question comes from Andrew Wittmann with Baird. Your line is now open.

Oh, great. Good morning. And thank you for taking my questions, Matt. I guess, I wanted to just understand the quarter a little bit better here because I was reading some stuff in the Q that it seems like it relates to the CI equity and income charge you’ve said on your comments, your $23.5 million write-down in the Q it’s at $6.7 million write-down. And so, I was hoping you just could bridge the gap. May maybe there were some positive write-ups or close-outs that were offsets. Maybe can you just help explain some of the moving pieces so that we can understand that segment’s performance a little bit better.

Yeah, sure. Very good question, Andy. So, we'll talk about equity and earnings first. So to your point, we did take a smaller – of $23.5 million look the outsize impact for the quarter, so it’s why we kind of gave the pro forma of that. But additionally, the program that we had some supply chain risk last year, we’ve kind of been taken our way through completing design and kind of little bit of a schedule extension, some approvals around the partials design there has kind of extended out. So we did take a $6 million charge within equity and earnings to your point. The $23.5 million will roll through the CI operating results so would it be in equity and earnings have been the normal op profit. So kind of combined to your point may be the – you need to think about it as $30 million worth of total impacts. There were some favorable adjustments, as well through some smaller extent. But all in all, even if I did a kind of a pro forma on both of those excluding the $23.5 million we go from 6.5 - 6.7 to 9.7 and then if we also excluded this 6.5, we’d probably in the 10.5 range. But again, I think there is some of the smaller ones. There is still be fluctuations in any given quarter.

Got it. Yeah, yeah including some of those positives, maybe some of those positive eat into that 6, when we've play this mental accounting game of what's in and what's out. But appreciate the color on that line. And then, just curious just it's coming up a lot in investor conversations, you addressed it in your prepared remarks. But I think it's probably works in air time on the Middle East, some of your competitors has – some scope there and you talked about being slow walked on some of the projects. Maybe you could just, I mean, you talked about the growth there, you talked about the book-to-bill being, in the Middle East being better than your segment average. But maybe if you could just talk about what you are seeing there and the confidence that you have and work that you're on today continuing at full steam ahead, as well as the prospects of future wins there as you head through 20 – do our backfills both the good work that you are doing today.

Sure, thank you, Andy. I actually just returned from there. So it's perfect question for this time and Matt needs to go there next week. So that was terrific to be on the ground and see firsthand the tremendous progress that we're making both in Saudi Arabia programs, as well as in the UAE. Overall, the region is performing as expected. There's always going to be fluctuations from one quarter to another, but if you look at year-to-date, our Saudi business has grown 17%. And this is following a year in which the Middle East revenue grew last year 33%. We expect to have for the full year double-digit growth within the Middle East, as well as year-to-date. So, they're meeting and exceeding all their key performance indicators as expected. We continue to win our fair share of work we highlighted in the second quarter. We won over $160 million in Saudi wins and we won more than $200 million in the third quarter. So, our book-to-bill was 1.2 for the Middle East and 1.3 for Saudi. And again, this is part of the Critical Infrastructure group continuing to have 16 consecutive quarters of 1.0 book-to-bill or better. I’ll also highlight that the funding is still on the uptick. So, when you look at the ramp up, we don't even expect the funding in the Middle East to peak until about the 2030 to 2032 timeframe. We're in an all-time high this quarter for both the pipeline and for headcount. Saudi is going to be on the world stage many times coming up over the next decade. They're hosting major events like The Asian Winter Games in 2029. They’ve got the World Expo in 2030 and they have the FIFA World Cup in 2034. So, a lot of these projects…

Appreciate that. One last technical question. But in the past, you guys have commented on your various win rates, but maybe, you could inform us what your win rate was in the quarter, by segment that’s interesting as well, but just overall, if you could understand the character there?

Yes, the win rate for the quarter is 74%. The win rate year-to-date is 75%.

Thank you very much. Have a good day.

Thank you.

And our next question comes from Cai von Rumohr with TD Cowen. Your line is now open.

Yes, thanks, so much and uh, terrific quarter again. Your engineering portion of Federal Solutions grew 70% and you mentioned Critical Infrastructure Protection, I mean, is that that one very large contract that you have with a confidential customer?

Yes, so we are seeing growth on that contract, we're also seeing growth in other areas. I would highlight industrial base modernization as an example where we are doing a lot of the Army ammunition plant works. We are also seeing some growth in the biometrics efforts that we have in place. And then we had the wins in the INDOPACOM region, particularly excited about the Kwajalein win. We have been performing, Kwajalein airfield. We won the first Kwajalein housing contract. Now we just won the second Kwajalein housing contract and we won some additional work in trying to clean up the Island of Guam. So that the Missile Defense Agency come in and put equipment in for Defense of Guam. So, excited about our Hawaii Engineering Systems business.

So, you've been doing great, but I think you mentioned at one point that the time, the duration of engineering contracts can be a little bit shorter than normal Fed Solution contracts. So, is there any worry that particularly this one Critical Infrastructure Protection contract is very big, but it could sunset relatively quickly at some point. Or should it just continue on the relatively slow rate?

Yeah, I would say that's a great question. So, where we're at on that contract? Right now, the first option period extends through February 2025. We do have the second option period, that if it's exercised we'd run through February 2026. It's a customer did recently advised that even though we have very strong performance that they're considering whether or not they're going to exercise the section - second option period, they will extend it or otherwise repeat the contract. If they do repeat the contract, we intend to submit a proposal for the continued performance of the work, and I will note that we have an average of 95% repeat win rates, including 98% year-to-date repeat win rates. At the present time though there's no announced acquisition strategy, and there's no draft or final RFP. So what this means, we had indicated that we expected our 2025 recompete percent to be around 10%, which what we have in any given year. So, I would say right now, we anticipate our repeat for 2025 to be somewhere in the range of 5% to 15%. And it's dependent on that contract plus one other contract that we continue to receive extensions. I mean, what I'm excited about is, as we look into next year, hopefully we will be around the 10%, but at the high-end 15%. We've got a very strong repeat win rate. We continue to win extensive work off a higher base. 1.1 times book-to-bill year-to-date. Continue to acquire more companies through the share potentially three. And we've had 6 quarters of greater than 20% organic growth and our awards activity, as Matt highlighted during his script has increased 24% over the prior year period and 13% on a trailing 12 months off a higher base. So we have a lot of momentum in the business.

Terrific. Great answer. Thanks so much.

Thanks. Thanks, Cai.

And our next question comes from Tobey Sommer with Truist Securities. Your line is now open.

Thanks. When we think about the guidance range, could you break down the contribution from organic performance in acquisitions and at \this point with the acquisitions already in hand, what is the acquired revenue that will fold into the P&L in 2025?

Yes so, Tobey, let me give you a kind of a - so final three months of the quarter or total revenue growth at the midpoint is just under 13%, of which about 12% is organic. So relatively minor contribution within the fourth quarter. When we look at next year, we expect BlackSignal will contribute just over $100 million and then BCC, which is not in any guidance yet would be an additional over $100 million. So, you can probably think about $200 million worth of inorganic, maybe a little bit lighter than that because we have BlackSignal for a few months this quarter - this year. So let’s say, somewhat or call it the high 100s so low 200, but we can get more details in that later. So about $80 million is from our Black - so, $80 million to $90 million is BlackSignal and in BCC it would be another 100 plus.

Okay. Thank you. And then, could you talk about what the outlook is for revenue synergies associated with BCC and BlackSignal? Historically, you’ve acquired firms that are with whom you have a relationship, you by the work you bid on things together or competing and sometimes had line of sight into near-term opportunities.

Yes, I'll start with Black Signal. As I mentioned, they provide Digital Signal Processing, Electronic Warfare, and cybersecurity. When you look at their capabilities, they fit in very nicely with Parsons’ capabilities. We're both doing Digital Signal work, but we look at different per to the Electromagnetic spectrum and also for different customers. On the cybersecurity side, we are both involved in offensive, the legacy Parsons was more historically on the Department of Defense side. BlackSignal was more on the Intelligence Community side. And then, when you look at space, we see a lot of synergies to develop a space training range. BlackSignal is the Hack-A-Sat market leader that use on-orbit digital twin technologies and they basically create a cyber-war gaming platform for space systems. This is complementary with Parson’s capability of system that we have called TReX, which is an emulator system. So we are combining those capabilities. As you noted, we do buy companies that we’ve worked with quite a bit. We've known BlackSignal for a long time and also their legacy companies and it really fit in nice with us. We’ve already been able to capitalize on synergies, particularly on the GSA growth that I mentioned. BCC is very exciting. They will be adding about 450 employees to our business. We both have presence in Florida. We both have presence in Georgia, as well as Texas, South Carolina. I would say they are much stronger in Florida, and we're going to be consolidating the legacy Parsons Florida activities under them. Their headquarters is in Miami. They're involved in four areas. They do design services. They do construction engineering and inspection design build and general engineering capabilities. Also, I mentioned during the script but they doubled the amount of resources that we have work in the Georgia Department of Transportation. We're really excited about that particularly with our recent win on the State Route 400 job, because there's a lot of big opportunities coming up within Georgia. I will note on BCC, they also have 50%, fixed price, 50% time and material. So we anticipate that that's going to help us on the margin side as well on CI.

Thank you very much.

Thank you.

Thanks, Tobey.

And the next question comes from Alex Dwyer with KeyBanc Capital Markets. Your line is open.

Hi, Carey, Matt and Dave. Good morning.

Good morning, Alex.

Good morning, Alex.

Good morning. So, I think, Parsons has now won five of the largest North American transportation projects in the history of the company over the past year or so. Can you talk about the pipeline of seeing more of these large transportation projects? Are you still seeing many more of these out there that could be awarded in the next year or so? And kind of what your capacity is to take more of these on?

Yes, thanks Alex, for that question. We have won five of the largest - we had mentioned the Gateway project. That’s was the largest rail and transit project for the Hudson River tunnel. It’s a largest infrastructure project occurring in the United States and we're really proud to be the program manager, there. We were awarded the JFK roads and highways. Those could be – New York City will be happy that we are improving, the area around the airport. And we were awarded the Newark Bay Bridge over a $140 million project for us. We are a project leader in bridge design, having designed over 4500 bridges, and particularly a leader in long span bridges. And then the two awards that we just highlighted this quarter with Hawaii HART Rail and Transit System, which the next phase of that extension as well as State 400 Route. What we are particularly excited about is we’ve had 16 consecutive quarters of greater than 1.0 book-to-bill and the IIJA is still on the ramp up. Recent data shows there was out of the $1.2 trillion of funding, $550 billion of that was new. And we're nearly three years into the 5-year loss actually may have the share with the halfway point. 40% of the IIJA funds have been announced and that covers 60,000 projects. So this leaves $720 billion yet to be allocated. And I would note that there are announced that means our captured from agency press releases, but that doesn’t mean are yet awarded which is actual obligation. So we are still very much on the up ramp here. I would also indicate that State, Local are contributing quite a bit of funding, as well once they saw the certainty of the IIJA passage in November 2021 they started to contribute. As far as capacity, we are doing a terrific job hiring. Terrific job retaining. We have our lowest retention rates that we’ve ever had within the North America Critical Infrastructure business. So, we're going to continue to pursue and win these large jobs through the United States, particularly focused on our Tier-1 states.

And Alex, just to add some numbers related to what Carey mentioned, I am looking at kind of Q1 2023, about $17 billion worth of pipeline within infrastructure. Right now, we are at almost at $21 billion. So you are up about 23.5% over the 18 months. So, really strong evidence of continued growth there.

Got it. Okay. And then, I guess, just I wanted to ask about just the general hiring needs across the entire company. As we think about the next 12 months. I guess, like, over this past year, has there been areas of the business where it’s been more challenging to hire or less challenging to hire? And then, just talk about where the business development teams are most focused on hiring for the next year plan?.

Yeah, so I would say we’ve done a great job on both hiring and retention. The easiest area to hire would be the Critical Infrastructure business. Middle East, we actually hire from about 50 countries around the world today. And also Critical Infrastructure North America would be pretty easy. When you get to the Federal side, part of the Engineered Systems, particularly the group that is not cleared is not very difficult to hire. So the highest parts always going to be that cleared area of our portfolio. But again, I am happy with what we’ve done there. From a retention perspective, we measure ourselves against PWC industry benchmarks. We are lower than the benchmarks. So we're doing better than industry average in both the Federal and the Critical Infrastructure segments. From a business development perspective, we are going to be focused on the same areas that we have been. Our six core end-markets, all of which are growing between 5% to 12% compound annual growth rate and continuing to hire their both BD talent as well as performance execution talent to get ahead of winning these large jobs.

Thank you.

Thank you, Alex.

And the next question comes from Josh Sullivan with The Benchmark Company. Your line is open.

Hey, good morning.

Good morning.

Good morning, Josh.

Carey, to your credit, you've been very deliberate in your willingness to invest in any geographic region, especially when growth wasn’t obvious. But in your opening comments, you called out geographic expansion. So just curious what the current philosophy on that global expansion is. Should we expect you are just looking in the same regions which have been delivering? Or are there any new opportunities opening up, I am thinking of Europe there.

Yes, so I would say, we have been very deliberate. We're fortunate that we're in the right places, right now. If you look at the North America growth with the infrastructure build, not peaking until ‘27 timeframe. If you look at the Middle East, not peaking till the 2030, 2032 timeframe. I would say it's areas if I - to talk about any expansion within Federal, we highlighted INDOPACOM. That’s been a very big focus for us because we have a purpose built Federal Solutions company that we’ve put together to basically outpace near-pure threats. So, the type of work that we're doing whether it’s on the Defense and Intelligence side, Signals and Intelligence, Electronic Warfare, Information Operations, cybersecurity, or it's on the Engineered Systems side with environmental remediation and infrastructure builds, INDOPACOM is going to be a significant area of focus in expansion. And as I mentioned a little bit earlier, we're also going to start to look at opportunities in the Middle East because we have such a strong – such high win rates. We’ve felt that we can take our Federal portfolio there, as well. I would say in Critical Infrastructure, we're going to stay laser-focused on North America as well as the Middle East. We have a small presence in Europe. We do some rail and transit work in Marseille and in Paris, France. So we might – and also in The Netherlands. So we might see a little expansion off of that. But when you're in a position where your growth is so strong, we just really need to continue to focus and deliver.

Okay. And then, kind of a similar question on software capabilities that you mentioned. How are you approaching this, obviously, it can be a difficult expansion, but also very fruitful one, but we are seeing other partnerships announced like with L&T and L3. There should we think of your approach being more organic.

Yes. So I would say we partner on a selective basis, and to win certain pursuits. We have such a strong software base. It's really our key differentiator. And when we talk about kind of purpose building the Federal Solutions portfolio, it’s often about software. I think hardware is going to become more commoditized. That’s really key areas like Digital Signal Processing, where we are one of the industry leaders. Artificial Intelligence, again, where we’ve had a strong presence for the last couple of decades and we applied almost every program that we do. Software is going to be the nugget. In addition, the Federal I’d highlight a couple areas, I think Critical Infrastructure mostly on Intelligent Infrastructure, Transportation business and our Advanced Traffic Management System work, our Intelligent Interception-as-a-Service work. Those are also heavily software-driven. We use an agile approach, we have a dev sec ops secure capability and we are going to continue to lean in on software. That we've ever had within the North America critical infrastructure business. So we're going to continue to pursue and win.

Great. Thank you for the time.

Thank you..

And our next question comes from Louie DiPalma with William Blair. Your line is now open.

Carey, Matt and Dave, good morning and congrats on the results.

Thank you very much Louie.

Carey and Matt, investors often ask about the difference between your recent string of 20% plus organic growth and the long-term guidance for mid-single-digit growth. And we are wondering, is there anything specific that would prevent this year's momentum and last year's momentum from continuing next year?

We did mention the one confidential contract we're awaiting to see if the customer is going to exercise the option here. Or if they are going to beat it. I think the key thing is, for us, making sure that we beat and raise and set guidance that's realistic. We anticipate as we go into next year, we'll probably have our usual run off of programs in the amount of about $80 million to $100 million, which is typical for us. Recompetes, as I mentioned about 5% to 15%, but I would say, continue doing what we're doing. We've got to get the high win rates as we've been able to deliver wins and move up the value chain, wait and win larger drops and continue to execute.

Great Carey. And at the AUSA Conference, you showcased your Digital Twins software. And we were wondering, is this software being utilized for several of these recent large Transportation Infrastructure IIJA contracts such as the Newport Bay Bridge, JFK Airport, Hudson River Tunnel Inglewood project. And are you able to use this Digital Twin Software for both Federal Solutions and Infrastructure?

Yes. So we are able to use Digital Twin capabilities for both Federal and Infrastructure and we shared those capabilities across the portfolio. I would say, our biggest application is with Missile Defense Agency that we’ve been applying it. We have a framework that we’ve build out called Parsons Digital Engineering Framework and we’ve been applying it there for quite a while. We also now have Digital Twin capability on orbit with the BlackSignal acquisition. On the infrastructure side of the house, we’ve been applying Digital Twins mostly to our airport projects.

Great. And following up on these Transportation Infrastructure projects, how should we think of the revenue trajectory and duration as, it seems that these are fairly long-term contracts. And also related, is the scope of work for these contracts significantly different from your legacy contracts that have featured write-downs. And are there any risk for write-downs for these types of IIJA contracts?

Yes. Let me take the second part first. We derisked our portfolio starting when I took over as Chief Operating Officer in November 2018. And we've gone back to what I am going to call our core groups. The core groups are the companies that we are a designer. We do program management and we do owners engineer, where we help the owners deliver the technical design. So we have stopped bidding, those legacy programs back in the 2015 timeframe. That's why we're really happy this year to be wrapping up the last one of those. So the projects that we've won the one in Hawaii, the Rail and Transit System, and the State Route 400, we are the lead design subcontractor on both of those. Again, that’s what Parsons has done for eight years since the company was created. So, no, we don't anticipate write-downs like we've had on some of these legacy construction programs. When you look at our scope, because we are the designer, the majority of our work does get done early on the project. So if a project that’s five to eight years, will be done in the very early parts of that project. Good example is the JFK, we're nearly done with the design on that we won about 16 months ago.

Great. Thanks. everyone.

Thanks, Louie.

Thanks, Louie.

And our next question comes from Noah Poponak with Goldman Sachs. Your line is open.

Hey, good morning, everyone.

Good morning, Noah.

Good morning.

Carey, it sounds like you are saying there are two contracts, mainly that are creating that range that you are referencing a 5% to 15% for recompete next year and you were talking about the one large confidential in the Engineering business. Are you able to say what the second one is?

The second one is a contract that we continue to receive extensions. Right now, we're extended through February. Those extensions may or may not continue indefinitely. We're waiting on some actions from the customer.

Okay. Okay. And Matt, what’s in the fourth quarter margin by segment approximately just to get to the full year EBITDA range?

Yeah. So right now, we have Federal just let’s call it kind of high 9s low 10s, and then CI in the low 7s. So think that as kind of constant quarter-over-quarter and Federal kind of a little bit lower than where they have been.

Okay. And maybe you could update us on what you are now expecting as the end timing of the remaining legacy work in CI? And maybe also just talk about how you would expect that to progress the crunch really from here?

Yes. So, we really have just the one project and we're expecting to meet with the customer within the next few weeks to achieve substantial completion.

Okay. So, Carey, that had previously been expected in – inside of the third quarter and now that’s expected in the fourth quarter?

That’s correct. There were some additional systems that were added that we had to our process,

And I guess, once that is complete, does the CI margin just kind of flip to what it's been adjusted for charges or is there for some other reason some more gradual ramp to it?

Yes, our goal is, of course, to kind of get to the adjusted number, but Carey and I are cautious substantial completion has some kind of trail through where you are negotiating with customers and kind of completing the job. So, I would say, kind of that 40 to 60 basis points per year should get us there within a couple of years. But generally speaking, the substantive write-downs that we’ve had will be behind us with substantial completion.

We’ve indicated 20 or 30 basis points at the Parsons level for our long-term guidance as Matt mentioned, we are expecting that to come from the CI segment.

Okay. Great. Thank you so much.

Thank you, Noah.

Thank you, Noah.

This is all the time that we do have for questions. I would like to turn the call back over to Dave Spille for closing remarks.

Okay, thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call and we look forward to speaking with many of you over the coming weeks. And with that, we'll end today’s call. Have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect