Good day, and thank you for standing by. Welcome to the Parsons Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today, Dave Spille, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal year 2025 financial results. Please note that we provided 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 fourth quarter and fiscal year 2025 financial results as well as a review of our 2026 guidance and long-term growth rates. 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, 2025, and other SEC filings. 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 their comparable GAAP measures. And now I'll turn the call over to Carey.

Thank you, Dave. Good morning. Welcome to Parsons' Fiscal Year 2025 Fourth Quarter Earnings Call. 2025 was a successful year despite a dynamic federal government macro environment. We delivered 12% total revenue growth and 8% organic revenue growth, excluding our confidential contract. We continue to be one of the organic revenue growth leaders in both of our segments with 10% organic growth in critical infrastructure and 7% organic growth in Federal Solutions excluding the confidential contracts. We expanded our adjusted EBITDA by 60 basis points to a company record of 9.6%. This record margin builds on the 50 basis points of expansion we achieved in 2024. Additionally, we delivered free cash flow conversion of 100% and exceeded the high end of our fiscal year 2025 cash flow guidance range. We efficiently deployed capital by completing 3 acquisitions during the year and increased our share repurchases while maintaining a strong balance sheet with ample capacity for further investments in our growth strategy. From an operations perspective, we won strategic contracts, achieved high win rates of 61%, maintained strong hiring and had record retention rates, delivered double-digit total revenue growth in both critical infrastructure North America and Middle East business units. Also, we were named the #1 Program Management Firm in the world by Engineering News-Record, one of the World's Most Trusted Companies by Forbes, one of the Best-Led Companies by Glassdoor and one of the World's Most Ethical Companies by Ethisphere. We are proud of our 2025 accomplishments, and I want to thank our more than 21,000 employees for their contributions to delivering our customers' most critical missions. The end of 2025 marked the completion of our performance against the 3-year Investor Day targets established in March 2023 with a focus on creating long-term shareholder value. I'm pleased to report that…

Thank you, Carey. 2025 financials were highlighted by strong revenue growth, significant adjusted EBITDA margin expansion and delivering free cash flow ahead of expectations. In addition, we continue to effectively deploy capital for strategic acquisitions, internal research and development and share repurchases to support long-term growth and drive shareholder value. Turning to the details of our fourth quarter results. Total revenue grew 11% and 8% on an organic basis, excluding our confidential contract. These increases were driven by double-digit growth in our transportation, critical infrastructure protection, urban development, and space and missile defense markets. Total revenue, including the confidential contract decreased 8% from the prior year period and was down 10% on an organic basis. SG&A expenses for the fourth quarter decreased 2% from the prior year period. This decrease was primarily driven by effective cost management and lower transaction-related expenses, partially offset by the inclusion of recent acquisitions. Fourth quarter adjusted EBITDA of $153 million increased 5% from the prior year period, and adjusted EBITDA margin expanded 110 basis points to 9.6%. These increases were driven by improved execution and growth on accretive contracts, offsetting lower revenue volume on the confidential contract. Total revenue for fiscal year 2025 increased 12% from the prior year period and was up 8% on an organic basis, excluding the confidential contract. The strong organic growth throughout the year was driven by the ramp-up of recent contract wins and growth on existing contracts. Total revenue, including the confidential contract decreased 6% from the prior year period and was down 9% on an organic basis. SG&A expenses for total year 2025 increased 6% from the prior year period. This increase was primarily driven by the inclusion of 3 acquisitions completed in 2025 and strategic investments to support future growth. Record fiscal year 2025 adjusted EBITDA…

Thank you, Matt. Although 2025 was a dynamic year in many ways, it validates the strength and resiliency of our portfolio. We're fortunate to operate in 2 large and well-funded segments across 6 growth end markets and we're capitalizing on these tailwinds to remain an industry growth leader, expand margins and generate strong free cash flow. We're optimistic about our future, given our team's proven execution, the tailwinds we have in both segments, our strong total and funded backlog and a robust pipeline of large opportunities. With that, we'll now open the line for questions.

[Operator Instructions] Our first question coming from the line of Sangita Jain with KeyBanc Capital Markets.

Obviously, CI margins continue to exceed expectations. Just wanted to say if it's safe to presume that the legacy adjustments are behind you? And should we expect this performance as a reasonable run rate going forward? Kind of trying to see if this will be the segment that drives the push to double-digit margins by the end of the planning period.

Thanks for your question. Yes, the legacy programs are behind us. We're in final closeout stages with the customers, but the execution has completed. We still expect continued expansion in margin for critical infrastructure as we look to 2026. And we also expect expansion in the federal market as we look to 2026, 10 basis points for Parsons and that's 10 basis points for Federal, 20 for Critical Infrastructure. Critical Infrastructure will expand more quickly because about 75% of that business is fixed price, time and material and 25% is cost reimbursable. And most of the expansion will come from the North America.

Got it. And one on Federal Solutions, if I can, obviously, 4Q had the impact of the shutdown. So just curious on how you're seeing the cadence of order activity since the end of the shutdown and if it still continues to be more of a book and burn environment? Just trying to see because book-to-bill in that segment has been sub-one for some time now.

Thanks, Sangita. Q4 did have the impact of a 43-day government shutdown, but I'm really pleased on the 6 awards that we announced on our call, all of which were greater than $100 million, were all in the federal segment and a lot of that represented brand-new work for Parsons. As we go into 2026, we're very confident that we will achieve over a 1.0x book-to-bill for Federal Solutions starting off in the first half of 2026 based upon the award activity we're seeing.

Our next question coming from the line of Louie DiPalma with William Blair.

Carey, you recently announced a win for your DroneArmor system. How do you view the addressable market in both the U.S. and internationally as there's been a major focus on air defense with drones?

Yes. Thanks, Louie. So first off, say we're really excited about our DroneArmor solution. We recently achieved technology readiness Level 9. And this solution has been proven to protect personnel basis and assets from drone threats. It's built on a modular open system architecture. And where we're unique, it really allows for a lot of customization and adaptation to various mission requirements. We also use artificial intelligence and machine learning for enhanced decision-making and to reduce the cognitive workload. And we have a core command and control component. We had the opportunity to demonstrate our DroneArmor recently when the Department of Homeland Security and all of their components visited our Summit Point facility. We see opportunities, not just with the Department of State, which -- who we're currently providing those solutions to but also with Department of Homeland Security and then for protection of FAA sites as well. So broad market area.

Great. And Carey, you recently visited the Middle East. What are you hearing in terms of the demand for mega projects? There's been speculation that some of the mega projects on the transportation side could convert towards like data center builds, but what are you hearing on the ground in the Middle East?

Yes, we had a great visit to the Middle East. We went to Saudi Arabia as well as the UAE in January. And I think, Louie, what you're referring to, Saudi is taking a move, what I would call towards fiscal discipline and they're prioritizing projects that are tied to the immediate upcoming global events like the 2030 World Expo and the 2034 FIFA World Cup. And they're scaling back or delaying some of what I would call the more speculative longer-term real estate ventures. Again, in the Middle East, we've had 4 years consecutive double-digit growth. So we continue to rapidly expand. And we are on all the giga projects within Saudi Arabia. We're the #1 program manager in Saudi Arabia, UAE as well as Qatar. And there's got to be a lot of spend there coming up in all of those. We've moved our business not just from doing urban development and transportation as we've historically done, but we've gotten into the defense, the border security and the tourism and hospitality sectors as well as industrial manufacturing. One thing I will note for us a couple of years ago, we made a very smart decision, which was to focus on programs around Riyadh. So we've been awarded a lot of those such as King Salman Park, King Abdullah Financial District, Riyadh Rings and Roads, Riyadh Traffic Management, Qiddiya, King Salman International Airport and most recently, New Murabba. And that's where, again, they will spend the money. But I will say following Saudi Vision 2030, there will be a Saudi Vision 2040 where they'll go back to looking at some of the longer-term real estate projects, things like NEOM or some of the growth like Al Soudah and other tourism locations. We see growth in the Middle East for decades to come.

And merging my first question and second question, with the World Expo and the World Cup, are you able to provide some of your own like intellectual property technology solutions to the Middle East as well? Are you able to export DroneArmor to the Middle East? And are you able to utilize some of your transportation modernization solutions such as iNET in the Middle East in addition to being a program manager?

Yes, we're able to offer quite a few capabilities for the events that are coming up in the Middle East. On the federal side, we obviously have to go through the ITAR and the technical assistance agreement process to get releasability for that. But we are already able to offer the iNET solution, which does not fall under the ITAR. And as I mentioned, we're using that for traffic management around Riyadh. And we see that system being further deployed. Given that we did the traffic management for the Qatar World Cup and it was very successful. And we were also involved in Dubai both on the Metro as well as overall construction management services, we see potential plays in those areas as well. Then on the federal side, we would look at things like electronic security systems, potentially biometrics capability. And if we had releasability for something like counter-unmanned air systems. Those are all offerings that we could provide. Parsons has been involved in every world events since the 2016 Atlanta Olympics. So we look forward to helping the Middle East as well as the United States and Canada with the upcoming events.

Our next question coming from the line of Gavin Parsons with UBS.

If I exclude the confidential contract last year, you still had to revise Federal Solutions revenue guide down a couple of times. So any common theme you can identify that was driving that? And have you taken any different approaches to framing the '26 Federal Solutions guide?

Yes. I would say on Federal Solutions, we definitely were impacted by the shutdown. There were slower procurement activity leading up to the shutdown as well. Specifically, we had 2 contracts, our Air Base Air Defense as well as our Joint Cyber Hunt Kit, that were delayed and that had a lot of material volume. As you know, materials can be lumpy. I think what we're seeing right now is a positive procurement environment. The fact that we were able to get 6 awards greater than $100 million booked for federal between Q4 and early Q1. And as I mentioned earlier, a strong book-to-bill of greater than 1.0x for federal as anticipated for the first half of 2026.

And Gavin, I'll just add to everything Carey said, but on top of that, I think when it comes to kind of new, new, we're kind of getting used to the cadence and the amount of time it gets to award. So kind of maybe a little bit more conservatism on timing of new, new and a little bit more bullishness on contract growth and things like that. So kind of nets out a little bit, but the new, new is a more difficult environment today than it was prior administration.

Okay. That's helpful. And I appreciate the guidance on color or color on quarterly cadence for the year. It looks like there's a pretty big step up in 2Q from 1Q. What's driving that?

Yes. Biggest driver there, Gavin, is mainly the Middle East. In the Middle East, in 2025, the holidays spanned over Q1 and Q2. In 2026, it's all within Q1. So you'll see kind of Middle East kind of flattish in Q1 and then almost 20% growth in Q2. But first half is kind of bracketed in a balanced way.

Our next question coming from the line of John Godyn with Citi.

I wanted to follow up a little bit on the margin outlook. There were a few drivers on Slide 15, things like operating leverage, growth in margin accretive contracts, growth in high-margin markets. I was hoping you could dig into those a bit more and elaborate. I'm just curious if you think there's potential for upside to margin guidance for the year?

Yes. I would say, obviously, we're really happy with over the last 2 years, 110 basis points of margin expansion kind of well ahead of our Investor Day targets. So I'd say, again, kind of 2024 and 2025 outperformed. 2026, we have about $350 million worth of headwind from that confidential program, which was accretive, of course, to the company margins. And so we're competing against that a little bit. But overall, I think great news is in 2025, net EAC adjustments was down about 50%, so an improvement of about 50%. So really great performance across the company. So yes, I think there is -- as we expand on products as we have additional accretive M&A and to your point, leverages are all great opportunities to continue to expand margin.

Okay. Great. And you also mentioned that you're targeting double-digit margins for the enterprise, you're not far away from that. That's not a surprise. I'm just curious infrastructure is already there. Federal, isn't. Do you think both segments will be at that double-digit margins? Or is this going to be more of a barbell where infrastructure continues to move higher and drag the company average up?

I suspect for the period, infrastructure will remain higher in kind of north of 10%. And to Carey's point earlier, about 10.5% in 2026 at the midpoint. Federal, of course, is always really driven by the mix of work, cost-plus versus fixed price. And so we are seeing faster growth on cost plus in the federal area. The opportunities, again, as we expand on products. The product deliveries is a great opportunity to expand margins in federal. But overall, right now, we see federal in kind of high 8s, low 9s short term and trending towards mid 9s longer term.

Our next question coming from the line of Sheila Kahyaoglu with Jefferies.

I know it's been asked in a few ways, but just on 2026, Carey, Matt, any sort of color on the largest program movers that are growing in '26 from whether it's a contract area or -- a particular contract or a specific area?

Yes. Thanks, Sheila. So again, I would kind of go back for the federal side to highlight some of the key wins that we've had, Joint Cyber Hunt Kit would be one of those. We highlighted 2 Class 5 wins. The $392 million contract was a takeaway from another company. And the $200 million one represents a brand-new work for us. We're also expecting continued growth on our GSA schedules as well. And then within the Middle East, it would be the contracts that we've won recently, including airport contract, the Riyadh Traffic Management contract, the New Murabba contract. Those are also going to be ramping up. And then within Critical Infrastructure, North America, it's kind of across the board, a lot of the major contracts like newer Newark AirTrain, Hawaii Rail and Transit, and some of the larger programs.

Got it. And then maybe a bigger picture question for you, Carey, just given one of your competitors preannounced negative this morning. We're seeing sort of a dichotomy between IT services, CACI at the high end, Leidos kind of there along with it. And declines as well in the sector. So where are you seeing areas that are improving in the government budget and where you're shifting your portfolio to? Clearly, Critical Infrastructure is good, but within the federal side, maybe any additional color on how you're trying to shift that $11 billion on book pipeline to convert into revenues?

Yes. I would say we're very fortunate in federal, and that's why we're very bullish on strong book-to-bill as we come into 2026 within federal, and we started to see these large awards go through. We're well aligned with the key areas of focus, both under the National Defense Strategy as well as what's in the reconciliation budget. And those dollars are going to have to get spent. So whether you're looking at areas like Golden Dome or border security or counter-unmanned air systems, biometrics, end-to-end cyber operations and then electromagnetic spectrum space, we're very well positioned. And if you look at reconciliation alone, we believe that we have about $85 billion of addressable market for Parsons. So I feel our portfolio is well aligned for 2026 and beyond.

[Operator Instructions] Our next question coming from the line of Andrew Wittmann with Baird.

Great. So I wanted to ask about the outlook for Critical Infrastructure's backlog. And specifically, Carey, you just mentioned some of those larger projects that you've won over the last year or 2 Hawaii, Newark AirTrain, Georgia State Route. There's a bunch of them in there that are obviously very significant and have been very powerful drivers. Those are getting into bigger burn stages now. You made a comment on your federal first-half bookings, but I was wondering if you think that with the ramping burn rate, if you think the book-to-bill in CI can still remain over 1 in the first half or even for the full year? And just kind of moving parts as you look at your pipeline there and your recent win rates, please?

Yes. So we have planned for Critical Infrastructure book-to-bill to remain over 1.0x for 2026. Again, resting on 21 consecutive quarters of greater than 1.0x and the demand that we see both in North America as well as in the Middle East.

Okay. Great. And then just as a follow-up, I guess maybe I wanted to kind of have you zoom in on a few projects, which have been in the headlines or are notable today. One of them is Golden Dome, and you've referenced this, and obviously, you're one of many, many contractors with a very large contract. I was just wondering what you're seeing there in terms of your ability to win task orders, how that's in your backlog today, if at all? And maybe just how Parsons is or is not affected by the turmoil surrounding the Hudson River tunnel project, which has obviously been a lot of fits and starts here even here in recent days?

Yes, let me take the Hudson River tunnel question first. So last week, the U.S. District Judge ordered the funding restored. And so that would have forced the Trump administration to lift the 4-month freeze on federal funding. But then on Monday, she issued an administrative stay which basically leaves the tunnel construction on hold until February 12 at 5:00 p.m. and preserving the status quo while the U.S. Court of Appeals for the second circuit is considering whether to intervene. So the outcome is if the Appeal's court grants us stay, the funding freeze would remain in place during the appeal. If it does not, the judges injunction barring enforcement the funding suspension is set to take effect, again at 5:00 p.m. on February 12, and that would allow federal disbursements to move forward. It's important to note that this contract represents less than 0.5% of Parsons' revenue. On to your second question, within Golden dome, I'd say our biggest play there is our role that we have with the Missile Defense Agency. Again, we're the System Engineering and Integration contractor for the Missile Defense Agency. So we expect, and we have been doing some work relative to Golden Dome on that contract. And secondly, I would say nonkinetic effects, the use of cyber and electronic warfare instead of kinetics to kinetics is a growth opportunity for us. Air Base Air Defense is another one. We're providing protection of air base air defense for the Air Force bases in Europe. And you can think about that as being similar to what's going to be needed to provide the local area of defense here within the U.S. and the Golden Dome program. And then I'd say we also have some cyber efforts. Golden Dome has been starting to roll out. It's been a little slow, but the classified architecture has been released. General Guetlein is confirmed and running the program. There's been a 4-layer kind of strategy that's defined, which is a layer distributed and software-defined. There's been command and control integration task force worked off, and there's a few small contracts for space-based interceptors, but our key play is really system engineering and integration.

[Operator Instructions] Our next question coming from the line of Tobey Sommer with Truist.

I'm curious, what in 2026, do you expect in terms of changes in revenue and profit from the FAA customer?

Yes. So we do expect growth on our FAA Technical Support Services contract. And again, they exercise the option nearly a year early, which we were pleased with for $593 million over the next 3 years. We've supported the FAA for 5 decades. And currently, we're on the technical support service contract, $1.8 billion contract over 10 years. We have over 500 FAA cleared personnel that support engineering, construction, environmental equipment installation. We're located at over, what thousands of FAA sites. So it's pretty much all the national airspace sites including NAVAIDS, radar sites, communication sites, and military installations. And then we also have a team that includes over 300 subcontractors. There's a lot of money that's been put in $12.5 billion to modernize the air traffic control center. And so we look forward to continuing our role as the implementer for that work for the FAA.

Thanks, Carey. And then you did talk about areas of sort of growth this year within federal. But I was wondering would your answer be the same for areas that are likely to sort of spearhead the greater than 1 book-to-bill in the first half? Would they map against Cyber Kit and GSA schedules that you commented on earlier?

Yes, they would be in the same areas of the Joint Cyber Hunt Kit program. Obviously, the FAA award will get booked in the first quarter. Those are the 2 that we announced after the fourth quarter ended. But once again, all of our market areas are growing, whether it's cyber and electronic warfare, space and missile defense market or critical infrastructure protection.

And the last question for me. What's your -- what's the most attractive area for the company to apply capital to in the form of acquisitions over the balance of the year?

Yes. So we'll continue to look in similar areas. I'd say on the federal side, Altamira is a great example where they hit a lot of points, cyber, signals intelligence, space capabilities. And then also, they broadened our customer reach, particularly with the intelligence community customer and also NASIC, National Air and Space, that's out of Dayton, Ohio. So that's a good example of a federal one, and that builds upon companies that we've bought in the past like Black Signal, Black Horse and CTI and it broadens our all domain capabilities. Within Critical Infrastructure, we're going to continue to look in the water space. We're also going to continue to double down on transportation engineering and specifically looking across our 6 Tier 1 states, Florida, Texas, California, New York, New Jersey and Georgia.

I'm going to sneak one more in, if I could. Do you -- does the company have an interest in expanding and amplifying its ability in Critical Infrastructure to participate in what looks like a global increase in demand for nuclear energy?

We have a small footprint in nuclear today, and it is expected to grow as you indicate both in the United States as well as in the Middle East. We're currently the Department of Energy, National Nuclear Security Administration, Engineering and Construction Management Services contractor. And we're also starting to look at some small microreactor type of projects. There's a few bids out on those. We also do microgrid work. For example, we have a program in Puerto Rico that's been going -- growing quite well. And then within the Middle East, we're having discussions with companies because they're going to be making a large investment in nuclear.

Our next question coming from the line of Gavin Parsons with UBS.

I just wanted to ask on the medium-term growth targets. First, what are you assuming -- what are you assuming for the DoW budget growth? Or is that based on reconciliation flow through? And then second, is that mid-single digit plus just a blend of the end markets? And does that not contemplate any potential for market share?

That's the first part, and then Matt will answer the second. But I would say from a budget request, we've got, again, very strong alignment to the reconciliation budgets, both for Department of Homeland Security as well as Department of War and we see about $85 billion and for the FAA, we see about $85 billion of that being addressable for Parsons. As we look forward to FY '27, President Trump has announced that he would like to have a $1.5 trillion defense budget. That would represent a historic 50% increase over the $1 trillion that was authorized for FY '26. There are some arguments that you can say might happen because there's a lot of executive commitment to the priorities such as Golden Dome and Golden Fleet. There is congressional support, particularly coming from the GOP for a higher budget. And then the Republicans are also taking a look at a second potential reconciliation budget that might be like $450 billion to $600 billion. On the areas, reasons that FY '27 may not reach the full amount, there's obviously fiscal concerns that the increase would add about $5.8 trillion to the national debt over a decade. And then depending on what happens with the upcoming election. So we're watching that closely, but I would say we feel very good about FY '26, the One Big Beautiful Bill Act, and the reconciliation funding starting to flow, and there's clearly momentum towards a larger FY '27.

Yes. Gavin, I would just add to your point, the CAGRs within our markets are pretty strong, kind of averaging in that 6.5% range, but higher win rates that we have flown through the plan over the next few years, would assume some takeaway as well.

Thank you. And that's all the time we have our question-and-answer session today. I will now turn the call back over to Dave for any closing comments.

Thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to catching up with many of you over the coming weeks. And with that, we'll end today's call. Have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.