Q3 2026 Parsons Corporation Earnings Conference Call - PARSONS CORP

Good day and thank you for standing by. Welcome to the Parsons Corporation 3rd Quarter 2026 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. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host, Dave Spinelli, Vice President of Investillations. Please go ahead. Thank you. Good morning, and thank you for joining us today to discuss our third quarter 2026 financial results. Please note that we've provided presentation slides on the Investor Relations section of our website. Joining me on today's call are Kerry Smith, Chair, President, and CEO, Matt Opelis, CFO, and George Ball, our former CFO and a current member of our Board of Directors. Today, Carrie 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 2026 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, including the risk factors described in our Form 10-K for fiscal year ended December 31 and other SEC filings. Please also refer to our earnings press release and presentation slides for additional forward- looking statement disclosures. We do not undertake any obligation to update forward- looking statements. will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAP financial measures are not a substitute for the comparable GAAP measures. Please refer to our earnings press release and presentation slides for reconciliation of the non-gap financial measures. And now we'll turn the call over to Carrie. Thank you, Dave, and welcome to Parson's third quarter 2026 earnings call. I'd like to begin by recognizing Parson more than 21,000 employees for their dedication and professionalism. Their continued focus on our customers' missions enabled us to deliver results that exceeded our third quarter commitments. We also remain deeply focused on the safety and security of our 8,000 employees across the Middle East. Their resilience and commitment have allowed us to maintain strong execution across the region and continue delivering for our customers. This quarter, we delivered on our financial and strategic objectives through disciplined execution. Revenue, adjusted EBITDA, adjusted EBITDON margin, and operating cash flow all exceeded our commitments. Demand remained healthy across both federal solutions and critical infrastructure, despite a challenging macroeconomic backdrop. These results, combined with our strong bookings, a growing backlog, and robust pipeline, demonstrate the resilience of our portfolio and provide a solid foundation for enduring organic growth. Building on this momentum, we continue to advance our strategic portfolio initiatives and drive operational excellence. We signed a definitive purchase agreement for the divestiture of our remote location contracts and are finalizing approval of the related contract novation. This transaction further de-risks our portfolio and enables us to focus our resources on higher growth, higher margin opportunities. Our critical infrastructure joint venture program is now more than 75% complete. We expect to reach over 80% by year end and 85% at the end of the first quarter of 2027. We've increased executable oversight, strengthened review frequency, and initiated critical testing and commissioning activities to manage remaining costs and schedule risk. While the project remains exposed to factors outside of our control, such as weather, potential contract modifications, and being the non-managing joint venture partner, we remain focused on disciplined execution in line with our current estimates. As a reminder, we have not pursued similar consortium projects since 2019. Before we review our financial and operational highlights for the quarter, I want to address the leadership transition we announced earlier today. As noted in our 8-K filing, Matt Offalus has decided to step down as Chief Financial Officer to pursue a new professional opportunity. On behalf of the Board and the entire Parson's team, I want to thank Matt for his dedicated leadership and financial stewardship over the past five years. We wish him the best in his next chapter. To ensure a seamless transition, George Ball will be stepping into the interim CFO role effective November 6. George brings decades of experience with Parsons Corporation, including 13 years as the Parsons CFO. Since retiring, George has been serving on our board of directors and has deep familiarity with the company, immediate operational readiness, and a proven track record. George's extensive experience and thorough institutional knowledge will ensure continuity and a seamless transition during this period. Turning to our third quarter financial results, total revenue increased 2% year-over-year. Excluding our confidential contract, revenue increased 5% with 2% organic growth. Adjusted EBITDA increased 6%. And adjusted EBITD on margin expanded 40 basis points to 10.2%, a company record. County cash flow was $269 million, significantly exceeding our commitments. Critical infrastructure delivered record third quarter revenue and adjusted EBITDA margin, which exceeded 11% for the first time. Bookings were also strong. Total contract awards increased 14% year-over-year, resulting in a consolidated book-to-bill ratio of 1.1 times. Solutions was particularly strong, with awards increasing 53% year-over-year and a book-to-bill ratio of 1.2 times. Critical Infrastructure delivered a book to bill ratio of one point 0 times, marking its 24th consecutive quarter at or above that level. Through the first nine months of 2026, Federal Solutions bookings increased 47% year over year, while Critical structure achieved a year-to-date book-to bill ratio of 1.1 times. As a result, consolidated year- to-date booked a bill was 1.2 times. The quality and strategic importance of these awards were equally encouraging. During the quarter, we received three contract actions valued at more than a hundred million dollars each and continue to expand our use of other transaction agreements or OTAs. We won a $495 million ceiling value contract for a national security customer to acquire and deploy advanced communications, power, and software capabilities. We booked $37 million on this contract in the third quarter. One of the quarter's most significant awards was the increase of the ceiling value of our five-year sole source other transaction production contract with the United States Cyber Command of $750 million. We secured this contract through our acquisition of Ceiling Tech and have now begun full-rate production of the Joint Cyber Hunt Kit, or JCHK. JCHP is a modular mobile cybersecurity system that enables joint cyber protection teams to rapidly detect, analyze, and counter advanced cyber threats across the United states and allied networks. To date, we've booked $250 million under this contract. Including JCHK, Parsons now generates approximately $350 million annually in products and related services revenue, and we plan to continue to expand this portfolio across six product families, biometrics and identity management, full-spectrum warfare, command and control and mission planning, autonomy and counter unmanned aircraft systems, space mission systems, and infrastructure operations and resilience. In addition this quarter, we booked $234 million of the $514 million two-year option period for the Missile Defense Agency's Teams Next program. Under this program, we will continue providing engineering, technical, analytical, and oversight support for the nation's integrated missile defense system, including efforts to address evolving ballistic missiles and hypersonic threats. We also won four new OTA awards with an aggregate ceiling value of more than $370 million and booked approximately $140 million under these agreements during the quarter. These awards include a five-year, $97 million OTA by a government customer to deliver technology to simulate radio frequency and cyber conditions. The company booked $4 million on this agreement during the quarter. We also received a five-year, $95 million other transaction agreement from a government customer to modernize software supporting early warning capabilities, and we booked $19 million on the agreement during this quarter. In addition, we were awarded a classified three-year agreement with a $95 million ceiling to provide advanced national security solution supporting operations in the Pacific theater. We booked $30 million on this agreement in Q3. We won a 75-month, $86 million agreement to provide program and construction management support for the United States Space Command's new headquarters at Redstone Arsenal in Alabama. We booked the full value of this agreement. Collectively, these wins expand our presence across several strategic growth markets. The United States Space Command Award also demonstrates the synergies between our federal solutions and critical infrastructure segments and highlights our continued growth in defense infrastructure. OTAs provide customers with a flexible path from technology development and prototyping through production and deployment. are particularly well suited to critical missions such as cyber, counter-inmanned aircraft systems, electronic warfare, and space and missile defense. We currently have 26 OTA contracts, including 12 awarded this year, representing $1.6 billion in total ceiling value. Our OTA pipeline totals approximately $2 billion, positioning us to continue expanding this important contracting vehicle. Today's defense environment is faster, more distributed, more contested, and increasingly multi-domain. Meeting these challenges requires solutions that are high-performing, affordable, rapidly deployable, and scalable for sustained operations. Our purpose-built federal solutions portfolio is differentiated by the combination of speed, agility, affordability, and mission reliability. We bring together proven hardware, mission software, and secure deployment to deliver integrated systems that create measurable advantages for our customers. The administration's proposed FY27 base defense budget of $1.15 trillion represents an increase of more than 28% over fiscal year 26 and aligns closely with persons' differentiated capabilities and customer relationships. While the proposed budget remains subject to congressional approval and appropriations, its focus on missile defense, cyber, space, electronic warfare, and industrial-based modernization reinforces our confidence in the long-term demand environment. With strong bookings and a strong pipeline, we believe Parsons is well-positioned to support national security priorities and deliver capabilities at the speed and agility required by the Department Funding decisions, protests, and procurement may affect revenue conversion, but we view those as timing considerations rather than indicators of demand. We also expect growth as existing vehicles are funded and as classified capabilities, recently awarded programs, and new products ramp. The same principles extend across critical infrastructure. owners are seeking assets that are more resilient, connected, and intelligent, and they need partners who can help them navigate the full life cycle from planning and design through construction, operations, and optimization. Parsons combines deep infrastructure expertise with digital engineering, data analytics, and secure technology to transform complex systems into higher performing more resilient assets. By connecting physical infrastructure with digital intelligence, we help customers make better decisions, improve performance, and create measurable value. Demand remains healthy across our critical infrastructure segment in both North America and the Middle East, and this is reflected in the segment's 24th consecutive quarter with a book-to-bill ratio of at least 1.0 times. In North America, demand remains strong across transportation, environmental, and water and wastewater projects. Only 48% of the Infrastructure Investment and Jobs Act funding has been spent as of August 2026, and the proposed Build America 250 Act would authorize at least $580 billion of surface transportation funding through 2031 if enacted. This includes historic bridge investment, permitting reforms, and increased formula-based funding to 90 percent. The Middle East also remains a resilient and attractive long-term growth market supported by investment in transportation, urban development, aviation modernization, major regional events, and broader economic transformation. We also see emerging opportunities in the Middle East and counter unmanned air system, cyber defense, integrated air and missile defense, desalination, and the protection of critical infrastructure. Our Middle East net headcount has increased every month in 2026. These trends reflect our continued investment in the region, the strength of our brand, and our confidence in long-term growth prospects. While the infrastructure market remains attractive, recent growth has been moderated due to lower pass-through revenue in North America and broader geopolitical uncertainty. In summary, we believe the third quarter demonstrated the strength and differentiation of our portfolio. We exceeded our commitments for revenue, adjusted EBITDA, adjusted EBITDA margin and operating cash flow, while strong book-to-bill ratios and healthy demand reinforce the resilience of both segments. Combined with our greater than $50 billion pipeline, strong win rates, total backlog of $9.4 billion, of which 73% is funded, and $12 billion of awarded contracts not yet booked, we believe these results provide us with solid foundation for attractive long-term organic growth and value creation for our shareholders. With that, I'll turn the call over to Matt to provide more details on our third quarter financial results. Matt? Thank you, Carrie. Serving as a Parson CFO under your leadership has been an incredible privilege. I'm proud of all that our team has accomplished and have tremendous confidence in the company's future. I'll remain a committed Parson supporter for years to come. With that let me get into the details of the Q3 results. The third quarter was highlighted by exceeding our prior commitments in delivering solid performance across the company. We will continue to focus on disciplined execution to drive long-term growth and shareholder value. With book-to-bill ratios at or above 1.0 times in both segments for the third consecutive quarter, revenue growth of 5% excluding the confidential contract, a record third quarter adjusted EBITDA margin of 10.2%, and operating cash flow of $269 million, we believe the strength of the portfolio will continue to drive long-term growth and margin expansion. Turning to the details of our third quarter results, total revenue grew 5% and 2% on an organic basis, excluding the confidential contract. These increases were driven by growth in our cyber and electronic warfare and transportation markets. Highlights included strong growth on new and existing contracts to include JCHK, classified identity management contract, and our FAA work. Total revenue, including the confidential contract, increased 2% from the prior year period and was down 1% on an organic basis. We anticipate accelerating federal solutions growth over the next several quarters, supported by strong book-to-bill ratios over the past three quarters and the expected resolution of over $850 million in contract wins that are currently under protest. SG&A expenses for the third quarter increased 10% fromthe prior year period, primarily driven by acquisitions and technology investments that are in line with expectations. Record adjusted EBITDA of $168 million increased 6% from the prior year period. Adjusted EBITTA margin expanded 40 basis points to a record 10.2%. These increases were driven by accretive growth across both our infrastructure and federal segments. We'll now turn to our operating segments, beginning with critical infrastructure. Record third-quarter revenue of $846 million increased 2% year-over-year, driven by 1% organic growth and contributions from our Applied Sciences acquisition. Organic growth includes strength in our transportation market and growth in the Middle East, despite the ongoing geopolitical uncertainty. Adjusted EBITDA increased 9% year over year to $94 million, while adjusted EBITTA margin expanded 80 basis points to 11.1%. Revenue, adjusted EBITDA, and adjusted EBITA margin all set new records for the segment, reflecting the ramp-up of recent awards, contributions from accretive acquisitions, and stronger program execution. Moving to our federal solutions segment, where third-quarter revenue, excluding the confidential contract, increased 9% year-over-year and 3% on an organic basis. Growth was driven by strength across our cyber and electronic warfare and transportation including the confidential contract total segment revenue increased 2% year over year and declined 3% organically federal solutions adjusted EBITDA increased 2 percent year over year while adjusted EBITA margin remained unchanged at 9.2 percent the increase in adjusted EBita was primarily driven by contributions from acquisitions and growth on accretive contracts next I'll discuss cash flow and balance sheet metrics our net VSO at the end of Q3 was 70 days, eight days above the prior year period, mainly due to the conclusion of our confidential contract in Q1 of 2026. Compared to Q2 2026, our DSO improved by six days on strong cash collections. During Q3, we generated $269 million of operating cash flow, compared with $163 million in the third quarter of 2025. On a trailing 12-month basis, we created $490 million in operating cash flow, an increase of 12% over the prior 12-month period. These increases were driven primarily by strong collections across the entire portfolio. Capital expenditures totaled $18 million in the third quarter. Looking ahead to the fourth quarter, we expect CapEx to increase sequentially as we continue to invest in classified facilities and reach critical milestones related to enterprise systems upgrades that support Parsons' long-term growth and enhance efficiency across the business. Trailing 12-month free cash flow conversion was 130%. Our balance sheet remained strong as we ended the third quarter with a net debt leverage ratio of 2.1 times. During the third quarterly, we repurchased 1.3 million shares for $60 million. Year-to-date, share repurchases have totaled $110 million, an increase of nearly 70% from the prior year period. We have increased share repurchases given our view that the current stock price does not fully reflect Parson's long-term value. We also continue to invest organically to differentiate our capabilities and will selectively pursue accretive acquisitions that strengthen our win rates and ability to capture large programs through differentiated technology. Turning next to bookings, we secured $1.8 billion in contract awards during the third quarter, an increase of 14% year-over-year. This resulted in a consolidated book-to-bill ratio of 1.1 times for the quarter. Our book- to-bills ratio was 1.2 times for first nine months of the year and 1. 1 times on a trailing 12-month basis, supporting our future growth outlook as recently awarded programs ran. Both segments delivered solid bookings. Critical infrastructure achieved the book- bill ratio of one point 0 times, marking its 24th consecutive quarter at or above 1.0. In federal solutions, contract awards increased 53% year-over-year, resulting in a book-to-bill ratio of 1.2 times for both the third quarter and on a trailing 12-month basis. At the end of the third-quarter, total backlog reached a record $9.4 billion, up 6% year over year, while funded backlog was up 7% and reached a recorded $6.8 billion, representing 73% of total backlog funded. Now let's turn to our guidance. Based on our year-to-date performance and enhanced operational visibility, we are narrowing our revenue and adjusted EBITDA guidance ranges provided on July 29. For fiscal year 2026, we now expect a revenue in the range of $6.25 to $645 billion and adjusted EBIDDA between $510 and $550 million. While Q3 cash flow was strong, we were maintaining our operating cash flow guidance range of $430 to $490 million due to the uncertain geopolitical environment. These guidance ranges are outlined in our earnings press release and PowerPoint presentation, both of which are located on our investor relations website. Slide 12 of the presentation provides additional key assumptions that support the midpoints of our 2026 guidance ranges, which we believe remain the appropriate basis for modeling our full-year results. In summary, our third quarter results reflected solid performance across our portfolio, including book-to-bill ratios at or above 1.0 times in both segments, record profitability, and healthy cash generation. We remain focused on disciplined execution and delivering on our commitments to drive sustainable long-term shareholder value. With that, I'll turn the call back over to Carrie. Thank you, Matt. This quarter, we exceeded all of our financial commitments, delivering record profitability, excellent cash generation, strong bookings, and record total and funded backlog, while expanding our products and other transaction agreement portfolio and strategically repositioning the business toward higher growth, higher margin work. As we look ahead, our priorities are clear. Consistent execution and converting our strong pipeline at recent awards into profitable growth. While we continue to navigate procurement timing and geopolitical uncertainty, the alignment of our capabilities with our customers' most critical national security and infrastructure needs and demand for our differentiated solutions supports our confidence in persons' long-term outlook. We will remain disciplined in deploying capital and focused on delivering for our customers, employees, and shareholders. With that, we'll now open the line for questions. Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star 1-1 on your telephone and wait for your name to be announced. As a reminder, in the consideration of time, please limit yourself to one question and one follow-up. One moment for our first question in queue. Now, first question coming from the line of Sheila Kayagu with Jeffries, your line is now open. Thank you, guys, and good morning, and Matt, congratulations on your move, and you'll be missed. Maybe to Carrie, you know, I guess, how do you think about just the future growth outlook, sticking to federal solutions, when we look, awards are up almost 50%. Book-to-bill is 1.3 times. Yet organic growth X, the confidential program, is running at low single digits. So I guess, you know, what's your line of sight to improvement? You also just mentioned funded backlog is a pretty good statistic. So, I guess how are you thinking about FS growth as we head into 2027? Yeah, thanks, Sheila. So i'd say we're very positive on FS growth. When you look at the book to bill, as you point out, year-to-date, it's very strong at 1.3 times. We've been awarded over 12 different contract actions greater than 100 million since the start of the year. The majority of those have been in federal. In addition to what we talked about as far as the wins, we currently have 850 million awarded to Parsons over a five-year period that's under protest and another 495 million that's still the protest period so the federal group definitely has some momentum behind it and funding backlog is significantly up for federal the goal now is really how quickly we can convert those awards into revenue and that's where we're laser focused okay maybe a follow-up on that I guess as we think about organic growth from the low single digits should it accelerate next year and are there one or two programs that are driving that growth and any that fall off for FF only? Yes, so as far as some programs that are driving the growth, I would say all the recent new wins, the classified biometrics identity win, all the other transaction awards that we've received, which include programs that basically already full of work like Joint Cyber Hunt Kit at $750 million or the Space Command Headquarters new award. So those would be some of the key. FAA continues to be very strong. We're up 40 percent year-over-year in FAA and we see that effort continuing as we go into next year. And the air-based air defense as well as the additional point defense activities remain very strong we're also doing well on our defense threat reduction agency CITRC contract being the number one awardee there and Department of Energy counter nuclear system smuggling and deterrence were the number one awardee there. So a lot of trajectory in the federal area. As you're aware, we haven't yet provided formal 2027 guidance. As we looked at 2027, we're very confident in the strength of our record backlog. We have 12 billion of awarded contracts to Parsons that we have not yet reflected in bookings, and more than 50 billion of a qualified pipeline with over 109 opportunities greater than $100 million that are in that pipeline. But that said, we are in a dynamic environment, and contract awards are taking longer to convert to revenue. And we do also face some uncertainty related to midterms, geopolitical conditions in the Middle East, and as I mentioned, the elevated level of protests, which we're waiting to clear. So the good news is, as we get closer to reporting our fourth quarter earnings, we should have a better line of sight, particularly on the protest status. We're still confident in Parson's ability to deliver our long-term guidance, which we've indicated is mid-single-digit or better, and double-digIT margins by 2028, although we are going to be cautious that some of the macro headwinds that we experienced in 2026 could persist into 2027. So we look forward to providing our full-year guidance on our fourth-quarter earnings call in February 2027, which is consistent with what we've done in prior are yours. Thank you. Our next question in queue coming from the line of John Gooden with Citi, Yolanda Smallman. Hey, thank you for taking my question. I wanted to just follow up on this year's guidance. You know, you guys narrowed the range, which completely makes sense. There's still a good amount of range with one quarter left in the year, and it could be a complicated quarter with, I guess, news out there of the possibility of a significant escalation in Iraq, I'm sorry, in Iran after the midterms, as well as the midterm themselves, and we'll see how that shapes out. I was just hoping maybe we could dialogue a little bit on low-end versus high-end and any puts and takes and risk factors to think about for 4Q kind of driving the range. Yeah, thanks, John. I'll take that one. I'm probably going in reverse order. On the cash flow, to your point, we had an exceptional quarter in Q3. I think, you know, we see the opportunity to continue to deliver at cash levels at similar levels. However, given the uncertainty specifically in the Middle East, we've been a bit more conservative on the forecasting there and given ourselves a little bit more wiggle room at the midpoint. So I'd say on the cash side, probably some opportunity trending between midpoint and higher end on the cash. Revenue, really strong quarter. Again, kind of de-risk Q4. We see a little bit of a de-sell in Q4 from Q3, but mainly that's the seasonality on programs like FAA and some of the Canada mine jobs and access there. So if things like protests unwind earlier, we have no revenue in from kind of new, new, and the protest unwind. So, tailwinds or trending toward the higher end of guide would be on protest and continued performance, similar to what we had in Q3 on the revenue side. On EBITDA, I think you'll see, you know, with Q3's performance, it's kind of a flat Q3 to Q4. So, you Know, obviously, risks and opportunities to EBITda are always performance-related and operational. So no real risk there in terms of the margins on the executing programs. It would just be maybe higher opportunity would be higher volume on products like JCHK and different things and risk would be any unexpected execution issues. Got it. Very helpful. And in the slides, there was this note about strong contract win rates. Clearly, you guys are producing some wins. We don't have perfect clarity into what the funnel looks like and how much, you know, you're out there bidding. Carrie, I think in the last question you mentioned a very large qualified pipeline. Can you just plug us into the funnel here and how you're kind of thinking through the funnel as we go into 2027? Yes, so we expect this year we're going to bid roughly the same amount as we did last year, so on the order of about $19 billion of proposals submitted. And again, I'll highlight that our pipeline has been greater than $50 billion for 11 consecutive quarters, so a very strong pipeline. 109 opportunities greater than 100 million, so strong funnel. If you look at the pipeline, it's broken up about $30 billion of that comes from federal with about 23 from critical infrastructure. And John, just two things I would add. Carrie mentioned earlier the awarding north of $12 billion. That's the highest level that's been since 2024, which is a really good sign. Obviously, those things are easy to turn into backlog quicker than kind of new, new pursuits. And then on top of that, we have just about $5 billion awaiting notice of award. Thank you. Our next question, coming from the line of Gautam Khanna with TD Securities, Yolanda Smeltman. Yeah, thanks. Good morning, and congrats, Matt. Thanks, John. Good morning. Hey, just wanted to follow up on a couple things. First, on the JV project in Canada that you talked about, what is the remaining kind of charge exposure, if there is any, given the timing of the project? Is it just if you could calibrate, like, how is that considered in the guidance for this year, and is that something that could slip out to next year? with the potential charge. Follow up. Yeah, great question, Gottem. As I mentioned on the call, the project is over 75% complete as of today, and we expect to be 80% by year end, 85% by the end of the first quarter. One thing that we did throughout the quarter since June when we had in June and July the historic rainfall, to mitigate the weather risks, we re-sequenced the work so that we prioritized all the critical activities before the end of this year, and we move work to the right that could be performed during the winter months. We're also working with customer on requested relief for historical weather and other events, and that's not included in our forecasted final completion date of June 2028. If that schedule were to extend beyond June 2029, we're going to have to do a lot of work or other risks would materialize. There could be additional costs or joint venture investment required, but as you point out, as the project advances and nears completion, we expect the nature and the potential impact of those remaining issues to be less significant than what we experienced historically. As a reminder, this is a 50-50 joint venture project. We're the non-managing partner, and we have not pursued any similar consortium projects since 2019. Okay. So there's no assumed charge in the fourth quarter guide. Is that fair? No. Okay. I also wanted to just ask, at one point we were talking about three larger CI projects that you guys were pursuing. I think we talked about it last quarter on the earnings call. Could you Give us an update on where those stand. Yeah, so on the one that was announced, the concessionaire of the team that was announced as the winner basically bid five times the concessions fee of any of the three other bidders. Our concession, our concessionnaire has protested that award. Thank you. Our next question in queue coming from the lineup, Jonathan Sigmund with Stiefel. Good morning. Thanks for taking my question, and best wishes, Matt. Thanks, John. Appreciate you guys qualifying product revenue base today. Can you frame how we should think about the margin difference between products and those services relative to the base federal solutions? And then you had previously mentioned over 30% growth for Cyber Hunt. hunt. Is that specific for that product line or that products broadly? Just trying to gauge how much faster that vertical could grow relative to the base. Thank you. Yeah, I'll start off on the growth. So as we mentioned in the metal hit the margin, we have 350 million of products and related services in 2026. And we're expecting an increase of between 20 to 30% of our overall products as we go into 2027. That's based on joint cyber hunt kit but also other products including our T-Rex threat emulation system, our shared position navigation and timing system, our command and control core system, our biometrics and identity management, as well as some of our RF capabilities and our attack situational awareness system, and some of our space products and our intelligent network products. So, quite a robust products portfolio. Yeah, John, relative to margin, I'd say it obviously ranges, I would say, we'll talk generally about products, but, you know, I think a lot of the product revenue we have today, you Know, JCHK specifically was going through LRIP and some of the other programs are still kind of early investment and growing. So I would says we expect margins on products in general to be north of 20 percent some of the bigger ones will be right around that 20 but others are even you know kind of the 40 percent range so if you think about products as a whole you know two times what you know the let's call it kind of high nine or mid to high nine that fed should be that's probably a good target so if we can grow products 20 or 30 percent again next year at 20 plus percent margin, that'd be a good story. Thank you. Our next question in queue, coming from the lineup, Gavin Parsons with UBS. See you, Linus and Alvin. Thank you, good morning. Morning, Gavin. Sorry to come back on the charge risk contract on CI. I thought last quarter you'd said the plan was to be 90% complete by the end of this year, so just wanted to check if that means you've buffered or accommodated for some additional overrun already in the charge that you previously took? Yeah, what we did, Gavin, is because we had the historic rainfall in June and July, we decided to re-sequence the work and that it would be better that we could get to an earlier testing and commissioning phase. So it was intentionally moving work around to optimize resources. By doing that, that enabled us to reduce our cost and reduce some headcount this year so that we can surge it after the new year. Okay, thanks for that. And then on the OTAs, clearly a lot of wins there. I think some of those have been slower to ramp, and you had a lot of language this morning around funding decisions and procurement. Any progress on those OTA's transitioning from awarding to funding? Yes, so we have had progress. Again, I'll point out two of them are kind of fully scoped from the beginning, which are two of the bigger OTAs. That would be the Joint Cyber Hunt Kit, where there's a requirement to deliver approximately 74 kits per year for three years. And then the Space Command Headquarters, which we fully booked and is fully ramped. So those two make up a good portion of what we've already booked. And we have the OTA's that we announced last year. We've already started to receive funding on those. The good news is the scope that we're doing on the majority of the OTI's focused on the Indo-PACOM region, the near-peer fight, cyberspace, missile defense, electronic warfare, all areas that are in heavy demand by the Department of War as well as the intelligence community. Thank you. Our next question in queue coming from the line of Andrew Whitman with Baird, Carolina Smallman. All right. Thanks for taking my questions, Matt. We'll miss you, George. Welcome back. Glad to have you. I guess I'm going to ask one of the first questions here on the CI segment. I just, you know, the organic growth rates here have been kind of low. The change over last quarter here is around the Middle East. Last quarter, the Middle Eastern was pretty good, even though some of the turbulence was already affecting the region. This quarter, a little bit of a decel. So I just, Carrie, I was hoping you could maybe address what you saw in the quarter and how that bodes for the future. Obviously, there's tons of uncertainty here, but I just wanted to kind of think about it like you're thinking about it. And even in North America here, you know, we've been seeing kind of across the board some deceleration in some of the organic growth rates for not just your company, but for peers as well. I just want to make sure we're thinking about what the realistic organic growth rates for that business are. Obviously, you're going to point to the backlog, and that's been pretty consistent here. But I just wanted to try to think about like that, what you're seeing there, and think about it like you're thinking about it, please. Yeah, sure. Thanks, Andy. So again, we've had greater than 24 consecutive quarters, greater than 1-0 book-to-bill, which reflects very strongly on the demand for both the Middle East as well as for North America. During the quarter, there was some slow in Saudi, which makes up 65% of our Middle East business, and that was due to a re-phasing of programs by the public investment funds. You can think about that as timing, as well as award timings. So their focus right now is on any program that is based around Riyadh so that they can get to the Expo and the World Cup events in 2030 and 2034. So this quarter, while we were at a 0.8 book to bill for the Middle East, we believe we're going to exceed a 1.0 back for Q4. And the reason is that in Q4, we get our annual renewals on our large programs, such as Jezzon and Yambo, as an example. In the Middle Eastern, we're very happy. Last week, we had record billable hours, and we've had, as I mentioned on the call, an increase in net headcount every single month throughout 2026. So demand remains strong. I think there are some timing issues that are happening in Saudi Arabia. On the other side, again, of the conflict, though, we do see opportunities to include areas like rebuild. How do you passively and actively protect various assets like data centers, utilities, and water? So in addition to are kind of our core critical infrastructure business, we see some expansion opportunities into new market areas. In North America, if you take out lower pass-through, we mentioned that some of our larger design programs had peaked, which includes Hawaii Rail and Transit, the New York Air Train Program, and the Georgia State Route 400. Those had a lot of pass-thru. So excluding the pass-through, we're actually up 4.5% organic, and the good news, excluding the pass-though, that's driving our higher margins that we've been able to realize in critical infrastructure. Context on that, and I guess, Matt, just for you, a clarification on the guidance here. You made the point that 3Q revenue EBITDA, even cash flow ahead of expectations, but didn't move the full year. Is there something else that we should understand that it didn't take up the fourth quarter? Is there an offset? I just want to try to understand kind of how you're thinking about that. Thanks. Yeah, no, there's nothing really there, Andy. Just kind of trying to be thoughtful and look forward to potentially outperforming, but obviously a lot of volatility given the media environment and different places. So I have high confidence in the midpoint and really just want to get back to that beat mode. Thank you. Our next question in queue coming from the lineup, Toby Sommer with Truist. Your line is now open. Thanks. I wanted to ask a question of you on the trend towards OTAs and what you think that that will mean for the company. How big can that be, and can it be a needle mover in terms of margin, and if so, when? Yeah, thanks, Toby. So we're excited about other transaction agreements. We have a nontraditional company that we've kept in place since we bought Flair Salfa back in May of 2019. We've been awarded 26 OTAs, as I mentioned, for up to $1.6 billion in value. We have a pipeline of over $2 billion in OTA. They offer a lot of advantages over traditional federal contracts in terms of the flexibility. You can tailor the terms to the project. It provides access to innovation. You can do a lot faster prototyping. It's quicker from bid to award timing. You negotiate intellectual property terms. You can do more collaboration with consortia and public-private partnerships. You have flexible payment, lower administrative burden, and you can also have a production transition is what we've illustrated with the Joint Cyber Hunt Kit. We do like OTAs that have a defined scope and stated technical objective and are tied to customer mission requirements, which all of our OTA's awards have been. The other advantage, to your point on margin, is most of these are at fixed price, so we do believe that these will be margin-accretive to our business. Yeah, mainly driven, Toby, by obviously the cost type work. You see some pressure on the margin for ODCs and materials, where on the OTAs you can get profit across the entire program. Great. Thank you. Thank you, Toby. Thanks, Toby Thank you Thank you. Thanks, Toby. Thank you! Our next question in queue, coming from the line of Matt Akers with BNP Paribas, Yolanda Snellman. Hey, good morning, everybody. Yeah, thanks for the question, and then, Matt, best of luck, it's been nice working with you. Thank you, Matt. I wanted to follow up on just the critical infrastructure margins, really strong in the quarter. Anything sort of unusual that drove that, and just your level of confidence to be able to continue to expand margins at that segment? Yeah, great. You know, I think to your point, 11 plus percent margin. The only thing I would tell you is pass-throughs. So you'll recall from the last quarter, we lowered revenue guide for the year by about $50 million through the first half with specific to pass-thrus. So through the 1st half of the year, we had been down about $25 million. So we assumed a similar trend in the 2nd half. What we saw in Q3 was about $19 million dollars lower past three year-over-year so we do see we do get the benefit on the pure margin rate so excited to see the EBITDA dollars were up nine percent year- over-year. So business continues to deliver and and you know deliver on the earnings and so the past two dollars well it looks a little bit worse on the revenue side it does benefit the EBITA dollars and margin rate. So nothing particular it's just the the underlying execution of the business and then the next yeah thanks and and then um you guys talked a little bit about um sort of the funded portion of your backlog it's been growing faster than total backlog could you talk a little bit about what's driving that and maybe should we be more focused on kind of the funded portion of backlog uh as opposed to just the total backlog or kind of kind of how to think about that yeah i'll start metal jump in um yeah we're very happy with 73 funded backlog, I think it's two to three times most of our peers. So, I view that as a good sign, again, as you start to think about how quickly you can convert awards into revenue. Yeah, the only thing I'd say, Matt, is typically we watch funded because it's more likely to convert to revenue quicker than just total backlog. And so, funded is obviously evidence of the next 12 to 18 months. Andso, positive trends in funded should support the growth outlook. That's good. Thanks. I appreciate it. Thank you, Matt. Thank you. And as a reminder, to ask a question, please press star 1-1. Our next question coming from the line of Bryce Enberg with William Blair, Yolanda Snellman. Terry, Matt, George, and Dave, good morning. Thanks for the question. And Matt, best of luck in your next role. Thank you for the questions. Thanks, Bryce. Last quarter, you talked about a second-half margin of 9.4 in federal. It came in at 9.2 this quarter. Can you just talk about the puts and takes there and what's assumed in the guide for the fourth quarter? Yeah, so numbers are still the same, 9.4 second half. We are expecting a little bit of a ramp up in Q4 to about 9.7 for federal. So overall, you know, total year normalized for the adjustments is just north of 9 or 6.7, including the adjustments from Q2. So it's really just timing on the products, ramp up on JCHK, ABAT, and a couple other things. And also I'd say just a little less seasonality because FAA, which is cost-reimbursable, tends to be seasonal and is not as high in the fourth quarter. And that's cost-less. Okay, helpful. Thank you. And then can you just maybe talk generally about the impact of the continuing resolution on backlog conversion in federal? Yeah, so first I'd say we're very fortunate that we have the 73% funded backlog, record backlog of $9.4 billion and $12 billion that's been awarded to persons but not yet booked because we can run for a long time under a CR. Unfortunately, we've become very used to dealing with CRs. There's definitely still some uncertainty around the FY27 appropriations process, the NDAA, potential supplemental legislations, and the next steps that will follow the current continuing resolution. The current CR funds government through December 11th, and if that's not passed, new CR, you could potentially have a shutdown, which we don't think either party is really going to want to have. But I think the key for us is we're not highly dependent on new budget because of the wins that we've had, 12 contract actions greater than 100 million since the first of the year. Our federal business is anchored by very large multi-year contracts and single award IDIQ and OTA vehicles such as Missile Defense Agency, the FAA, and a lot of work we do with the GSA FedSim. And once again, substantial backlog awarded, not booked in a large qualified pipeline. Great. Thanks, Carrie. Thanks Matt. Thank you. Thank you, our next question coming from the line of Gunn-Cunnam with 2D Securities, your line is now open. Yeah, thanks for the follow-up. I was just wondering, as we look to 2027, knowing you have not given guidance, can you give us a sense for just generically, what do you think the relative growth between the two segments might be, which grows faster, and if there's any first half, second half dynamic to be mindful of? So I would say based on the awards that we've had, we anticipate that federal would grow faster than critical infrastructure in 2027. First half, second half, I can't think of any dynamics. The only thing I would point to, Gotham, is depending on the protests, if they extend out longer, you know, that could delay kind of the ramp on some of the Fed programs, but generally speaking, it should be throughout the year, maybe a little bit of a ramp in Q2. Thank you. Appreciate it, guys. Thanks. Thank you Our next question coming from the line of Noah Popenek with Goldman Sachs Your line is now open Hey, good morning, everyone Hey, Noah Matt, thanks Thanks. I'll add my thanks for all the time you spent with us over the years Always super helpful and appreciate it Appreciate it Can you guys talk a little bit about capital deployment? You've bought back some stock the last few quarters, paid down some debt. I know you're always looking at acquisitions, and net debt EBITDA isn't super high, but it's higher than your historical average. So should I read all of that as the M&A pipeline is a little slower, or is that not the case? What are you seeing on that front? M&E pipeline is still strong. We're looking at various opportunities in critical infrastructure as well as federal solutions. And I think you can kind of expect us to stay on a trajectory of about two to four acquisitions per year. we're going to remain highly selective, making sure that we're buying for capabilities, not for scale and acquisitions that fill current gaps that we have. Okay. And, Carrie, just to the questions you've had on top-line growth moving forward, I guess if federal solutions is faster next year, I guess I was wondering what the first quarter is that that moves to positive year-over-year growth, just when you're fully clear of all the moving pieces you've had in the baseline compare in that segment. And then on CI, I mean, is there a way to frame how you see the next three to five years compared to the three to five-year run you had post-pandemic? Yeah, let me start, and then I can jump in. For CI, for the next 3 to 5 years, we still view a favorable environment. The Middle East, we've got growth prospects, not just in our critical infrastructure business, urban development, transportation, but we've moved into tourism and hospitality and defense and security, which obviously have become increasingly important. and then we see opportunities as far as rebuild. In North America, with the Build America 250 Act, that basically set the floor at $580 billion. Importantly, within that next five-year surface transportation bill, there's a historic investment in bridges. Parsons has done over 4,500 bridge projects. So once again, very well aligned to our capabilities. And roads and highways are also focused. We've designed and built over 10,000 miles of roads and highways on six continents, another very strong core competency for the company. And there's push towards digital transformation where we're uniquely positioned with our portfolio because we can bring capabilities like artificial intelligence, cybersecurity protection, digital twins, because we have all those technologies across our business, particularly driven from the federal side. As far as federal and the confidential program, pretty much the lapping will end at the end of this year. We only have about $15 million that would go into next year that would be overlooked. Yeah, no, it's specifically in Q3 we had just under a $50 million headwind from the confidential contract. In Q4 it's 23, and then Q1 will be 15. So, you know, Q4 will likely be closer to flattish organic. We have a little bit of seasonality with FAA and different things in Fed, so it's somewhere around there. And then Q1 with the lower comp, it should be a positive growth. Thank you. And that's all the time we have for our Q&A session for today. I will now turn the call back over to Dave Spilley for any closing comments. Thank you for joining us this morning. If you have any additional questions, please feel free to contact me directly. We look forward to connecting with many of you in the coming weeks. With that, we'll end today's call. Have a great day. Ladies and gentlemen, that's the conference for today. Thank you. Thank you all for your participation, and you may now disconnect.