Parsons Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

Key Takeaways

  • Parsons delivered record Q1 results with $1.2 billion in revenue (up 24% year-over-year, 12% organic), and all-time highs in adjusted EBITDA and cash flow.
  • Contract awards surged roughly 50% year-over-year in both Federal Solutions and Critical Infrastructure, yielding a 1.2x book-to-bill ratio for the tenth straight quarter above 1.0x.
  • The company secured multiple large multi-year contracts, including a $750 million State Department humanitarian support deal, a $1.2 billion FedSim contract, and an $1.8 billion FAA technical services award.
  • Parsons completed the acquisition of IPKeys Power Partners to bolster grid modernization and cybersecurity offerings for critical infrastructure operators.
  • In response to strong performance and robust awards activity, Parsons raised its full-year 2023 guidance for revenue (to $4.5–4.7 billion), adjusted EBITDA, and operating cash flow.
AI Generated. May Contain Errors.
Earnings Conference Call
Parsons Q1 2023
00:00 / 00:00

There are 12 speakers on the call.

Operator

Good morning, and welcome to the Parsons Corporation First Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Dave Spille, Senior Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning and thank you for joining us today to discuss our Q1 2023 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Cary Smith, Chair, President and CEO and Matt Apollos, CFO. Today, Carey will discuss our corporate strategy and operational highlights and then Matt will provide an overview of our Q1 financial results and a review of our 2023 guidance.

Speaker 1

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 ks for fiscal year ended December 31, 2022, and other SEC filings.

Speaker 1

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, And we remind you that these non GAAP financial measures are not a substitute for the comparable GAAP measures. And now, I'll turn the call over to Keri.

Speaker 2

Thank you, Dave. Good morning, and welcome to Parsons' First Quarter 2023 Earnings Call. We had an excellent start to the year. We delivered all time records for revenue of $1,200,000,000 and year over year organic revenue growth of 12%. We also delivered 1st quarter records for adjusted EBITDA and cash flow.

Speaker 2

In addition, our year over year Contract awards increased by approximately 50% in both our Federal Solutions and Critical Infrastructure segments. We continued our hiring and retention momentum and we acquired a strategic company that enhances Persson's critical infrastructure protection capabilities in both of our business segments. I am very pleased with our results this quarter as we've strengthened our federal national security portfolio in our global critical infrastructure posture across all 6 of our end markets: Cyber and Intelligence, Space and Missile Defense, Critical Infrastructure Protection, Transportation, Environmental Remediation and Urban Development. As a result of our strong Q1 performance, we are increasing our 2023 guidance ranges for all financial metrics, which Matt will discuss in a few minutes. During the Q1, we achieved a book to bill ratio of 1.2 times on an enterprise basis, including 1.3x in Critical Infrastructure and 1.1x in Federal Solutions.

Speaker 2

These results were driven by a 52% year over year increase in Federal Solutions contract award activity and a 49% increase in critical This is now the 10th consecutive quarter in which Critical Infrastructure's book to bill ratio Has exceeded 1.0 times. Our ability to successfully deliver our customers' missions Has enabled us to continue to win large, new and recompete contracts in areas aligned with national security And Global Infrastructure Priorities. During the quarter, we were awarded 3 contracts that exceeded $100,000,000 And after the Q1 ended, We won 3 additional contracts that were worth more than $100,000,000 each. These meaningful and long duration contract wins Span our 4 business units in our 6 end markets, which has solidified our financial outlook and positioned us well for the future. Significant first quarter and early second quarter contracts included a new 3 year $750,000,000 State Department Humanitarian Support Contract, led by Escitor, this delivery order contract includes a 1 year base period of If again contract wins, we booked $250,000,000 in the Q1.

Speaker 2

Escitor has won a substantial amount of new business and has performed exceptionally well in its 1st year with Parsons. This recent win follows the $119,000,000 Department of State award we announced Last quarter to provide electronic security systems, operation centers and counter unmanned aerial systems worldwide. We were awarded an additional $214,000,000 to continue overseeing the Giant Mine remediation program in Canada, which is by the Army Corps of Engineers to deliver a new explosive decomposition chamber facility at Holston Army Ammunition Plant. This follows Parsons' award at the Radford Army Ammunition Plant for a new energetic waste incinerator and contaminated waste processor. These strategic wins are part of the Army's larger and broader 15 year and more than $16,000,000,000 Ammunition plant modernization plan to modernize the United States depots, arsenals and ammunition plants.

Speaker 2

In addition to the 3 wins greater than $100,000,000 each, we were awarded a $94,000,000 recompete contract to provide command, control, Computers and capabilities development services to the United States Cyber Command. This important contract provides to expand full spectrum militarycyberspace operations. The period of performance is 1 12 month base period with 4 12 month options. Finally, we won prime positions on several multiple award IDIQ vehicles, including a $75,000,000,000 ceiling contract with the Department of Health and Human Services Administration for the provision and operation of Influx Care Facilities. After the Q1 ended, we were awarded 3 contracts greater than $100,000,000 each.

Speaker 2

The first is a new 5 year single award contract in our Federal Solutions segment from the General Services Administration with a potential value of $1,200,000,000 This contract supports the Department of Defense and its strategic partners in delivering global quick reaction capabilities, leveraging advanced technology solutions across the all domain data space. The second new contract is a 4 year single award contract for a roads and highways transportation project valued at more than $100,000,000 Additionally, after the Q1 ended, we successfully won our major Federal Aviation Administration Technical Support Services contract REIT Pete, this $1,800,000,000 ceiling value contract will support the FAA's Aviation System Capital Investment Plan and includes a base period of 4 years and 2, 3 year option periods. Parsons has been the prime contractor for this work for more than 2 decades and support this critical customer for more than 4 decades. With the Infrastructure Investment and Jobs Act, The FAA has $5,000,000,000 of additional funding for facilities related work. With the FAA win, We have now won all 4 of our key REIT peak contracts over the last 2 years, including the teams, FAA And Farrow and Giant Mine Contracts.

Speaker 2

These long duration contracts span from 7 to 20 years and are worth $2,000,000,000 each, which solidifies our financial outlook. These wins are a testament to our strong program During the Q1, We also announced the acquisition of IP Key's Power Partners. This strategic acquisition, which closed in April, Expands Parsons' presence in 2 rapidly growing end markets: grid modernization and cyber resiliency for critical infrastructure. IP Keys enables Parsons to bring cybersecurity tools, technology and market experience to utility operators to secure operations, optimize efficiency and achieve grid resiliency. This acquisition Consistent with our strategy of completing accretive acquisitions of companies with revenue growth and adjusted EBITDA margins of 10% or more, while adding intellectual property that strengthens the company's existing portfolio in both business segments.

Speaker 2

With the macro environment focused on utility and water, critical infrastructure protection and modernization, we look forward The contributions that IP Keys will bring to Parsons. We maintained our robust balance sheet and ended the Q1 with a 1.4 times net leverage ratio. We continue to have an active M and A pipeline in both segments and we'll use our strong balance sheet to complete additional accretive acquisitions that drive growth and margin expansion into our business. We continue to build on our long standing commitment to ESG. During the Q1, we were recognized for our initiatives that attract, hire And promote women, racial diversity, LGBTQ plus and other underrepresented people into the engineering industry.

Speaker 2

Additionally, We are proud that we were named 1 of the World's Most Ethical Companies by Ethisphere for the 14th consecutive year. In April, we released our 2023 ESG report highlighting key milestones and initiatives we achieved last year. These include year over year decreases in Scope 1, 2 and 3 emissions to reduce our carbon footprint. ESG is fundamental to our core values and how we operate as a company. In summary, we delivered record first Quarter total revenue, organic revenue growth, adjusted EBITDA and cash flow results.

Speaker 2

We also achieved a healthy book to bill ratio by increasing contract awards by approximately 50% in both segments. Additionally, We continue to execute on our strategic M and A program by acquiring IP Keys. These results illustrate our continued momentum, And I am proud of the work our talented employees deliver every day on our customers' most critical missions. Looking forward, I am very excited about our business. We have the right portfolio, the right team at the right Time to capitalize on unprecedented global infrastructure spending and growing demand for national security solutions.

Speaker 2

We have solidified our financial outlook by winning a significant amount of new and repeat business, and we a strong balance sheet that will enable us to continue to make accretive acquisitions to drive revenue growth and margin expansion. With that, I'll turn the call over to Matt to discuss our Q1 financial highlights. Matt?

Speaker 3

Thank you, Carrie. As Carey indicated, our Q1 was highlighted by record results in a number of areas, including total revenue, organic revenue growth, adjusted EBITDA and cash flow from operations. Total revenue of $1,200,000,000 for the Q1 of 2023 increased 24% from the prior year period and was up 12% on an organic basis. Organic growth was driven by new and existing contracts. Our Exitor acquisition contributed approximately $112,000,000 of revenue in the Q1.

Speaker 3

SG and A expenses for the Q1 were 17% of total revenue compared to 19.5% in the Q1 of 2022 due to efficient growth across the portfolio. Adjusted EBITDA of $90,000,000 increased 22% from the Q1 of 2022. This increase was driven primarily by the ramp up of new and existing contracts as well as contributions from our Xtore acquisition. The year over year margin decrease to 7.7 percent was driven by lower equity and earnings as a result of contract change orders, which are delaying the timing of profit recognition into future quarters as well as legacy program impacts. I'll turn now to our operating segments, starting first with Federal Solutions.

Speaker 3

Our first quarter revenue increased by $143,000,000 or 29% from the Q1 of 2022. This increase was driven by organic growth of 6% and $112,000,000 from Exitor. Organic growth was driven primarily by Higher volume on existing contracts. Federal Solutions adjusted EBITDA increased by $13,000,000 or 32% from the Q1 of 2022 And adjusted EBITDA margin increased 20 basis points to 8.9%. These increases were driven by operating leverage And higher margin growth related to our Xtore acquisition.

Speaker 3

Moving now to our Critical Infrastructure segment. 1st quarter revenue increased by $81,000,000 or 18% from the Q1 of 2022, all of which was organic. This strong growth was driven by higher volume in both our Middle East and North America operations. Critical Infrastructure adjusted EBITDA Increased by $3,000,000 or 8% from the Q1 of 2022. Adjusted EBITDA margin decreased 60 basis points to 6.3%.

Speaker 3

The adjusted EBITDA increase was driven by higher volume on new and existing contracts, offset by lower equity and earnings as a result of change orders and legacy program impacts. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q4 2022 was 69 days, down 7 days from the prior year period. During the Q1 of 2023, we consumed $9,000,000 of operating cash compared to a use of $26,000,000 in the prior year period. The $17,000,000 improvement was driven by higher net income and strong collections across the company to include the Middle East.

Speaker 3

Capital expenditures totaled $8,000,000 in the Q1 of 2023. CapEx continues to be well controlled and remains in line with our planned spend of approximately 1% of annual revenue. Our balance sheet remains strong as we ended this quarter with a net debt leverage ratio of 1.4x. Considering the impact of the $43,000,000 all cash IPKeys acquisition, which closed in April, our pro form a net debt leverage ratio would 1.5 times post transaction. Our low leverage and undrawn borrowing capacity enables us to continue to make internal investments and accretive acquisitions to support long term growth.

Speaker 3

As part of our $100,000,000 share repurchase program, we repurchased approximately 140,000 shares For an aggregate purchase price of $6,000,000 during the Q1. On a run rate basis, this is slightly more than our annual repurchase target of $20,000,000 As of the end of Q1, dollars 50,000,000 remained available under the program. Turning to bookings for the Q1. Year over year contract award activity increased 51 percent to $1,400,000,000 driven by growth of 52% in Federal Solutions and 4.49 percent in our Critical Infrastructure segment. Our book to bill ratio for the Q1 was 1.2 times with critical infrastructure at 1.3 and federal solutions at 1.1.

Speaker 3

Our backlog at the end of the Q1 totaled 8,400,000,000 up $186,000,000 from the Q4 of 2022. Now let's turn to our guidance. We're increasing all of our 2023 guidance ranges provided on February 15 to reflect our record Q1 results, recent large contract wins, Hiregen retention momentum, positive end market exposure and our outlook for the remainder of the year. For 2023, we are increasing our revenue range by $25,000,000 to $4,500,000,000 to $4,700,000,000 This represents total revenue growth of 10% at the midpoint and 5% on an organic basis. Additionally, we are increasing our adjusted EBITDA range.

Speaker 3

We now expect adjusted EBITDA to be between $375,000,000 $415,000,000 which represents 12% growth at the midpoint of the range. Margin at the midpoint of our revenue and adjusted EBITDA remains at 8.6%. We're also increasing our cash flow guidance. We now expect operating cash flow to be between $275,000,000 $335,000,000 representing 28% growth at the midpoint. Free cash flow conversion is expected to remain above 100% of adjusted net income.

Speaker 3

Other key assumptions in connection with our 2023 guidance are outlined on Slide 10 in today's PowerPoint presentation located on our Investor Relations website. In summary, we had a very strong start to the year with great top and bottom line results. We collected significant cash, raised guidance for all metrics, Effectively leveraged our balance sheet with the IPQs acquisition and we're confident in our ability to achieve our updated 2023 guidance. With that, I'll turn the call back over to Carrie.

Speaker 2

Thank you, Matt. In closing, I am pleased with our start to 2023. We delivered on our commitments, resulting in record 1st quarter revenue, organic revenue growth, adjusted EBITDA and cash flow. We also won strategic large contracts in both segments, driving a 51% increase in contract award activity. In addition, we maintained our hiring and retention momentum, acquired a strategic company that enhances our critical infrastructure protection capabilities, And we increased all 3 of our 2023 guidance metrics.

Speaker 2

Looking forward, I'm excited about our business Given the significant amount of new and repeat business we've won, our strong backlog and robust balance sheet That will enable us to continue to make accretive acquisitions to drive future revenue growth and margin expansion. With that, we will now open the line for questions.

Operator

We will now begin the question and answer session. The first question is from Greg Konrad of Jefferies. Please go ahead.

Speaker 4

Good morning and great quarter.

Speaker 3

Thank you, Greg.

Speaker 5

Maybe just to start,

Speaker 4

I mean, you kind of touched on it In the script, but I mean looking at the improved outlook for the year, can you maybe talk about the weighting of the drivers? How much is Tied to improved awards on contract growth, you had a smaller deal in the quarter and then how much maybe hiring above expectations Has contributed to the improved outlook?

Speaker 2

Yes, Greg. So I would say it's mostly tied to the awards Predominantly, but also some on contract growth. Hiring, we are exceeding or meeting our expectations, but I would say, We're doing as well as we did last year and maintaining our momentum. We were up on hiring 27% this quarter over a year ago. So I would again predominantly the very large awards that we've won.

Speaker 4

And then Just on the margin, I mean, you typically have a back half ramp. I mean, it's pretty steep ramp through the back half of the year. You mentioned some of the equity income in CI in the quarter. When you think about that ramp, I mean, how much is tied to Volume versus maybe mix or just anything else to call out that kind of drives that sequential margin improvement?

Speaker 3

Yes, Greg. The main point I would make is relative to equity and earnings. When we look at Q1, the biggest impact we had about $7,000,000 impact on equity and earnings Related to the change orders we mentioned during the script, that's we expect a little bit of throughout the year, that $7,000,000 We talked about change orders a couple of quarters now and the positive story is that over the next 4 years That will contribute $20,000,000 more in equity and earnings. So we're positive around the equity and earnings recovery toward the back half of the year. And we still expect equity and earnings to be about $22,000,000 call it, call it, low $20,000,000 range before the end of the year.

Speaker 3

So if you Lay that out, it's $8 plus 1,000,000 for the rest of the quarters.

Speaker 4

And then maybe just sneaking in one last one. I mean, you had the acquisition close, the IP position close the IP keys. Historically, most of the deals have been in And you've talked about kind of the targets for M and A. Are you seeing maybe increased opportunity to add to CI inorganically just thinking about maybe the pipeline going forward?

Speaker 2

Yes, great question, Greg. We certainly are. We have A robust M and A candidate list that spans both of the business segments. To touch upon IP keys a little more, why we were I'm excited about that. It kind of plays well at the intersection between our balanced portfolio.

Speaker 2

So when you look at a company that Servicing utility companies, water companies and providing cyber monitoring capabilities, it really It's at the right intersection for both federal and critical infrastructure. I'd also point out IP Keys brought us hundreds of new customers. Now we can take the entire person's portfolio and sell it to that new slate. But yes, more M and A both segments, Federal

Operator

The next question is from Bert Subin with Stifel. Please go ahead.

Speaker 6

Hey, good morning.

Speaker 3

Good morning, Bert. Good morning, Bert.

Speaker 6

Hey, Carrie, Matt. Maybe just following up to the first question there. So if I look at your revised guidance assumptions, they're now incrementally more weighted toward Federal Solutions, you were sort of targeting 53% to 54% and now you're looking at 54% of sales coming from that. And that's despite a pretty strong start The year for Critical Infrastructure and then the IP Keys acquisition. Can you just walk us through maybe some more granularity on what's driving the Performance in Federal Solutions and how we should think about the ramp phase for the State Department contract.

Speaker 2

Sure, Greg. So what's driving it is new business wins. When you look at the CARES contract, dollars 750,000,000 over 3 years. The large FedSIM contract will also come into play again, I got in shortly at the end of Q1. That's $1,200,000,000 over 5 years.

Speaker 2

You look at the Holstein contract, dollars 164,000,000 over 4 years, the FAA contract breakeven which is going to get some upside due to the infrastructure bill. Those are all key contributors. As far as the Caris ramp, it's early days yet on that contract. So we did about $40,000,000 in Q1 and we're just watching the ramp up And we will adjust guidance going forward as needed upward if we need to based on the ramp.

Speaker 3

Yes. So Bert specifically I was going to add Bert, specifically for Exotour, we had targeted $300,000,000 when we put Guidance up previously, we're now at $400,000,000 which is obviously for the current calendar year, which is obviously weighted towards federal. Okay.

Speaker 6

And just to clarify that, I mean, you're including within that $400,000,000 the State Department, so that assumes you're assuming more like $100,000,000 instead of the Maybe $250,000,000 once you lap a full year there?

Speaker 3

Correct. Yes. So we're adding $100,000,000 For Exitor, yes. So it's about $125,000,000 associated with the Caris contract.

Speaker 6

Got it. Okay, thanks. And just one follow-up. If I look at sales in the Middle East region, at least based on sort of preliminary numbers in the queue, It looks like that was up 38% year over year in the Q1, which I believe is the highest growth rate for the region since you became a public company. Can you just help us think Through sort of what that tailwind should look like going forward.

Speaker 6

Carey, I know at the Investor Day, you talked about how Middle East could remain a Pretty strong growth contributor for a couple of years. Is that still the view?

Speaker 2

Yes, it's still the view. We were fortunate and We've been awarded 5 of the 5 giga projects in the Middle East. So we're seeing very strong demand there. The programs, particularly, I would say, Neon Oxagon and Neon The Line have been significant contributors, but also the largest Entertainment City that's being built outside of Riyadh is important. Our hiring there has been very strong and that's been driving our growth.

Speaker 6

Great. Thanks, Carrie and Matt and Dave. Congrats on the quarter.

Speaker 3

Thank you. Thank you very much.

Operator

The next question is from Tobey Sommer of Truist Securities, please go ahead.

Speaker 3

Thanks. I wanted to get

Speaker 7

your expectations for mix between the segments over time. Clearly, there are some strong drivers within critical infrastructure with the activity in the Middle East and In the infrastructure bill, but it was only a couple of years ago that we were expecting a mix shift towards the federal government space To occur over time, how do you think about that over a longer stretch of time than 2 or 3 years? And is there a preference For where to apply capital in terms of acquisitions?

Speaker 2

Yes. Tobey, great question. We like our balanced portfolio. I think we're unique in the industry and this diverse portfolio really helps us. Obviously, very pleased with the strong organic growth that we had 12%, 18% from Credit One Infrastructure, 6% from Federal.

Speaker 2

I'm very pleased with the awards that we're seeing in both segments. And when you look at our 6 end markets, 3 in each of the segments, they're all 6 growing. So for us, it's Just a really great place to be and it's the right portfolio. And from M and A, again, we have targets in both areas. So we'll continue to acquire the best companies that will deliver like ex Torrez.

Speaker 7

In terms of your reinvestments into the business, How are you choosing to do that as the top line growth has accelerated and Had better than expected top line results. What sort of tactical choices are you making and where are you Placing those sort of additional dollars.

Speaker 2

Yes. We have a very focused research and development program and we refresh that as we go throughout the year. And what we do is invest in areas where we have technology differentiation. I can't talk too much to the classification level about the award that we just won, but I will say that was the $1,200,000,000 FedSim 1. I will say that our investments have been targeted on winning awards such as that.

Speaker 2

We also invest in areas where we're Technologically differentiated, great example there would be PFOS, PFEST investment.

Speaker 7

Appreciate that. And you mentioned hiring up 27% year over year. What's your expectation for headcount growth for the year? And have you Notice any changes in terms of the component pieces to achieve that growth year to date either retention Or sort of acceptance rates? We've heard from other companies in our coverage about some changes in those dimensions.

Speaker 2

Yes. So what we're planning on is hiring that's roughly the same as what we achieved last year. That was what we had booked into our plan and obviously we're very pleased Getting off to a strong start of 27% increase. We are seeing improvement on both the hiring and the retention. Our retention improved this quarter.

Speaker 2

We continue to be ahead of the PWC industry benchmarks and that's across all of our businesses, Which is good. And I would say in the hiring, again, a lot was in the Middle East, but seeing strength as well in North America. So the labor market I think has become better for us.

Speaker 8

Last one for me if

Speaker 7

I could sneak one in. How would you describe the bids you have submitted or are working on for relatively large programs? How would you describe that piece of your pipeline?

Speaker 2

Yes. So first I would say we have awarded not booked Value of $7,000,000,000 We have an awaiting notice of award value of $14,000,000,000 And by the way, that's up from $9,000,000,000 in the last quarter. Within the $14,000,000,000 there are 20 programs greater than $100,000,000 Then when you look at our qualified pipeline, it's $48,000,000,000 and there are 90 of words greater than $100,000,000 in that.

Speaker 9

Thank you.

Speaker 8

Thank you, Tobey. Thanks, Tobey.

Operator

The next question is from Andy Wittmann of Baird. Please go ahead.

Speaker 7

Excuse me. Yes, great. Thanks for taking my question. I guess I just wanted to understand the margins a little bit better in the Critical Infrastructure segment. Matt, I guess you talked about The $7,000,000 equity in earnings, which is really just an accounting result of the change order that you received a few quarters ago and You've been talking about that, but it sounded like there was also a charge on the legacy project in a joint venture.

Speaker 7

So I was hoping I mean, the quarter was good despite what looks like there was a charge, but like how much better could it have been? What was the size of the charge that you took on the legacy JV project?

Speaker 3

Yes. So we also had that we took a charge of about $4,000,000 related to one of the legacy contracts that we've talked about in the past. That's the program that's scheduled to wrap up, we call it Q3, late Q3 timeframe. So we're kind of coming up on the back end of that program, which is positive. If you pro form a the change order plus the write offs, it would be about 8.5% for CI.

Speaker 3

And I think the

Speaker 2

key thing there and we were asked earlier about the ramp up in margins at the end of the year. So, the legacy program will be wrapped up Again, in the Q3, but also the change orders, we anticipate positive change orders starting in the Q2. Yes.

Speaker 7

Got it. Okay, good. That's my only question. Thank you very much.

Speaker 8

Thank you. Thanks, Eddie.

Operator

The next question is from Josh Sullivan of The Benchmark Company. Please go ahead.

Speaker 10

Hey, good morning.

Speaker 8

Good morning, Josh.

Speaker 10

Just the comment in the prepared remarks looking at 10th quarter with a book to bill over one times. Just looking at the future spending coming forward, how long do you think that cycle can generally last? Clearly, quarter to quarter, there's going to be variability, but Where do you think we are in that cycle?

Speaker 2

So I would look at 3 dynamics. First is Canada. Canada passed its infrastructure bill back in 2016, so those programs are off and ramping, and we're kind of in the sweet spot of that. When you look at the Infrastructure bill, we haven't started to see the strong uptick yet. We're expecting that at the end of this year to early 2024.

Speaker 2

And then when you look at the Middle East, that's going to continue for quite a while because the programs that we're on are part of Saudi Vision 2,030. So if you look at a program like The goal is to have like 9,000,000 people living in the city by 2,030. So these are really long duration programs and long spend. Our U. S.

Speaker 2

Infrastructure bill again is $1,250,000,000 of that is $1,000,000,000 is new. And then if you look at the Middle East, it's 1.5 Trillion with about 60% to 70% of that new funding.

Speaker 10

Got it. And then, I mean, as far as just the headlines around Debt ceiling negotiations. Have you seen any change in customer behavior or scenario planning at this point?

Speaker 2

Well, first, we don't think that the debt ceiling will have a material impact to persons and also we feel it's highly unlikely the country will default on its debt. The debt ceiling has been increased 20 times since 2,001, so it's highly likely that that will happen again. I'd also say that we're fortunate Compared to many of our peers because we have our diverse portfolio, so 50% will not even be impacted by the debt ceiling and that includes our international Our state and local business and our commercial business. And then when you look at the remainder in federal, a good portion of the Federal Solutions backlog is already

Speaker 10

Great. Thank you for the time.

Speaker 2

Thanks very much, Josh. Thanks, Josh.

Operator

The next question is from Kai Von Rumohr of Cowen. Please go ahead.

Speaker 11

Yes. Thank you. An excellent quarter.

Speaker 8

Thanks, guys. Thanks, guys.

Speaker 11

So your guide hike of 125 1,000,000 I mean basically you pick up at least 100 from Exitor and the CARES Act, you pick up IP keys, Which suggests that you're really not adding anything else given what you have very, very good bookings. And you talk of good retention, but I mean throughout your sector, everybody is talking about retention as a whole lot Normally, people don't raise their guide this early in the year. I mean, it looks like just at the factors But this is a guide that has some opportunity. Is that a reasonable assumption?

Speaker 2

Yes. So I would say again, we try and keep

Speaker 8

a very measured approach to guidance to make sure that we can

Speaker 2

achieve it. It is Sure to approach the guidance to make sure that we can achieve it. It is early in the year. We've won a lot of new work and we want to see how those programs ramp up.

Speaker 11

Got it. And so you're really off to sort of a very strong start here in terms of bookings in this quarter. Leidos reported And they were talking about expecting to see the award flow, which kind of was very slow Last year, that's really starting to pick up very aggressively as folks try to get money put under contract Before it could be a tough CR later this year. Are you seeing that too, I mean, beyond what you've already got, But if you look at the additional potentials for Q2 and early Q3 that the bookings potential Looks pretty good.

Speaker 2

Yes. We're also seeing, Cai, similar trends, and that's why I want to include a couple of the wins

Speaker 3

that we got just after

Speaker 2

the end of Q1. We have seen good progress. And again, we have quite a big awaiting notice of award that we're hoping starts

Speaker 8

Yes, kind of from

Speaker 3

a specifics perspective, I'd tell you that I suspect in Q2 that will be the first time in Over a year, probably a year and a half, we're awaiting notice of award will come down. Kerry talked about FAA happening in Q2 and a couple of other 1,000,000,000 plus jobs. So That number has kind of been stacking up over the last 18 months. And so it's probably the Q1 where that number starts to come down, which is evidence of what you asked.

Speaker 11

Thank you very much.

Speaker 8

Thank you, Kai. Thanks, Kai.

Operator

The next question is from Louis DePalma of William Please go ahead.

Speaker 5

Carrie, Matt and Dave, good morning.

Operator

Good morning, Louie.

Speaker 10

Good morning, Louie.

Speaker 5

Geopolitical tension has been increasing on multiple fronts. Do you expect Increased demand for your missile defense and space services as it relates to the Indo Pacific and Guam?

Speaker 2

Yes. I would say definitely. And again, I can't talk too much about that $1,200,000,000 contract,

Speaker 8

But

Speaker 2

just I will say it is in those areas. Overall in Indo Paycom and Guam, we have a pretty good presence. We've been on Guam for a couple of decades Providing infrastructure support, we're doing the Kwajalein Airfield program. And we run a lot of our cyber work, For the combatant commander program out of Hawaii, so INDOPACOM and the Pacific Deterrence Initiative of $9,100,000,000 is very much in our line of

Speaker 5

Thanks, Carrie. And you discussed The Exitor, dollars 250,000,000 1 year contract and how a portion of that Is expected to be recognized for this year, but do you have any visibility in terms of That contract renewing for the option years in year 2 year 3, is it Consider the type of service that would only be for 1 year or do you think that is sustainable

Speaker 3

for the rest of the contract?

Speaker 2

We believe it's sustainable and could perhaps even continue beyond the 3 year period based on the demand and the requirement.

Speaker 5

Excellent. Thanks. Carrie, that's it for me.

Speaker 8

Thanks, Laurie.

Operator

The next question is from Noah Poponak of Goldman Sachs. Please go ahead.

Speaker 9

Hey, good morning, everyone.

Speaker 3

Good morning, Noah.

Speaker 9

Just back to the question on sort of how the top line outlook is revised today and the pacing of the year. I mean, was there anything kind of pulled into the end of the quarter, pulled forward into the quarter just because Just given where the growth rate was and then seems like the sort of sequential pacing for the rest of the year is a little bit different than what you had previously indicated?

Speaker 3

Yes. No, what I'd point to is we've talked a little bit about the headwinds around QuadruLIn. The majority of that $70,000,000 It's weighted toward Q2, Q3, really Q3 as the peak. So I'd say from a modeling perspective, Q3 was $40 plus 1,000,000 of revenue. That's non recurring given the program was completed.

Speaker 3

And so that's The biggest driver to the cyclicality or the updated quarterly outlook.

Speaker 9

Okay. You just had an Investor Day where you gave a longer term look at the top line. Given where this year is now tracking, given what you're seeing on the order activity, that implies a Deceleration in the growth rate, obviously, the larger the revenue base gets, the harder to compare. But With the program you just mentioned as a headwind this year, but then not beyond and the bookings what they are, I guess, why would the growth rate decelerate over the next 2 years?

Speaker 2

Yes. So I would say at Investor Day, first, we didn't I have a couple of those very large awards that we've just won in hand. So that was kind of a point in time. What we want to do is obviously see how these programs Ramp up and then we'll take a look at our longer term targets.

Speaker 9

Yes. Okay. Yes. Okay. That's fair.

Speaker 9

And then last one, just Harry, you've given some good detail here on What happened to the CI margin and how the sort of terms of trade, I guess, in the contracts play out. I think you may I forget the exact wording, but you made a comment about when you get into the middle of this year, Being out of some legacy being out of legacy contracts, are you referring to a specific contract? I guess what's kind of the timing of where you're off of everything you consider to be legacy in terms of the contract terms in CI?

Speaker 2

Yes. So we had some contracts and these were bid back in the 2015 timeframe that we've been trying to wind out of the portfolio. As we've mentioned, we've had 2 remaining as we entered this year. So one of those is going to wrap up our estimate right now is 3rd quarter And then the second one will wrap up the Q2 of 2024. And once those are behind us, it's really going to help the CI margin because There have been a drag on the margin.

Speaker 9

Okay, great. Thank you.

Speaker 8

Thanks Noah. Thanks Noah.

Operator

That is all the time we have for questions today. So this concludes our question and answer session. I would like to turn the conference back over to Dave Spille for closing

Speaker 1

Thank you. And 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 speaking with many of you over the coming weeks. And with that, we'll end today's call.

Speaker 1

Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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