Parsons Corp Q1 FY2021 Earnings Call

Thank you. Good morning, and thank you for joining us today to discuss our first quarter 2021 financial results. Please note that we provide presentation slides on the Investor Relations section of our website. On the call with me today are Chuck Harrington, Chairman and CEO, Carey Smith, President and COO, and George Ball, CFO. Today Chuck will discuss execution against our corporate strategy and ESG initiatives. Carey will review our operational highlights, and then George will provide an overview of our first quarter financial results in 2021 guidance. We then will close with the 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 the fiscal year ended December 31, 2020, 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. And we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures. And now, I will turn the call over to Chuck.

Thank you, Dave. Welcome to Parsons' first quarter 2021 earnings call. We're pleased with our performance in the first quarter. The quarter was marked by strong bookings and significant margin expansion with overall results in line with internal expectations and historical seasonal patterns. For the first quarter, we reported a 170 basis points year-over-year increase in adjusted EBITDA margin. We had a 1.2x book-to-bill ratio and a $61 million improvement in our free cash flow. Adjusted EBITDA and EBITDA margin exceeded our expectations, and revenue and cash flow results were in line with guidance we provided in our last earnings call. We had another strong quarter of contract bookings with six wins over $100 million. In addition, we had a great start to the second quarter with contract wins totaling approximately $1 billion to date. We've maintained our healthy balance sheet supporting continued investments in our organic and inorganic growth strategy. We ended the first quarter with a net leverage ratio of approximately 0.7 turns. Our low leverage and liquidity position enabled us to continue our strategic investments in accretive acquisitions, in technology, and in our workforce. As I previously indicated, we're driven by our core values. Over the past year, we've taken steps to enhance our commitment to ESG, including at the board level. We expanded the charter of our corporate governance and responsibility committee with additional responsibilities overseeing our ESG program. This reflects our belief that ESG excellence is a critical component of continued growth, resiliency, and most importantly, long-term shareholder value. We've also linked a portion of our annual executive compensation to our six core values, with specific targets for reducing greenhouse gas emissions and enhancing workforce diversity. In today's press release, you'll also notice that Parsons continues to win distinguished awards for its hiring, diversity, and ethical business practices. We're proud of our culture and our employees and their accomplishments in delivering customer mission success while also improving the quality of life in the communities in which we live and work. As covered in our April 20 press release, I've announced my retirement after 39 years with Parsons and 13 years as CEO. I'm very excited that the Board of Directors unanimously appointed Carey Smith, our President and COO, to succeed me on July 1. At that time, I will become Executive Chairman of Parsons' Board and will ensure a seamless transition. Carey has been responsible for global operations and driving growth in both of our segments since January of 2019. Her deep knowledge of our business, customer relationships, and proven performance makes her the natural choice to continue to execute on our long-term strategy and deliver exceptional solutions to our customers and value to our shareholders. Carey and I are aligned on our vision for the company. I know she'll continue to build on our 77 years of success and continue to forge ahead to transform Parsons into an industry-leading global technology company supporting a more sustainable, safer, and connected world. In summary, we produced strong bookings and significant margin expansion with results in line with our expectations. We won large contracts, maintained our healthy balance sheet, and continued to be recognized for our longstanding and industry-leading ESG initiatives. Finally, I want to thank our shareholders, analysts, employees, and customers for their extraordinary support. Your commitment to Parsons has been extremely important to our success and we look forward to continuing our partnership. With that, I'll turn the call over to Carey to discuss our first quarter operational highlights.

Thank you, Chuck. First, I'm excited and honored to be the next CEO of Parsons and I appreciate the trust that you and the Board have in me to execute on our vision for the company. I want to personally thank you for the direction you've taken Parsons and how we're positioned today as a global advanced technology firm. Going forward, I will continue transforming Parsons into a solutions integrator, moving up the value chain and ensuring top positions in high growth, high demand markets. As Chuck indicated, our results were in line with the guidance we communicated on our last earnings call. We achieved strong margin expansion and continued to win large awards, leveraging our technology, agility, and ability to consistently deliver mission success for our customers. During the first quarter, we posted our largest quarterly critical infrastructure book-to-bill ratio in over two years at 1.4x. In our federal solution segment, we achieved a 0.9x book-to-bill ratio. While our new business awards have been notable for many quarters, what is also important is the type and size of business that we are winning. We've won larger, higher value contracts that are solution-based in both segments. In federal, this is evidenced by our recent $618 million cyber and intelligence win, which occurred just after the first quarter ended. The $618 million win with the General Services Administration is our largest ever in our cyber and intelligence business. The scope provides our mission customers with an end-to-end solution that leverages our cyber reconnaissance capabilities and an infinite amount of publicly available data streams to enable real-time situational awareness, mission planning, and execution. We won a significant deal by leveraging the capabilities from our acquisitions and incorporating our joint all-domain capabilities to create a unique solution that adapts to the pace of the evolving threat. Now I'll turn back to quarter one awards, which included a $600 million sealing contract with the United States Postal Service to support their ongoing modernization efforts to ensure continuous mail service. Based on our 17 years of historical experience supporting USPS, Parsons anticipates realizing $140 million in contract value; a $114 million contract by the Public Works Authority of Qatar to provide programming construction management supervision; an $80 million award by the Architect of the Capitol for program management. This was a recompete which transitioned from a model award contract to a single award contract to Parsons; a $69 million contract by the United States Army Combat Capabilities Development Command Army Research Laboratory to develop disruptive technology that will provide the United States warfighters with a technology advantage. And I also want to highlight our first quarter win that reinforces our commitment to deliver a sustainable world. We won the $75 million Giant Mine contract, which is one of the largest environmental remediation projects in Canada. This project will improve the safety, health, and prosperity of local citizens by containing arsenic trioxide waste stored underground and by excavating and relocating contaminated soil. In addition, we won four multiple award IDIQ contracts, each representing new work for Parsons with Department of Defense and Intelligence Community Customers. The ceiling values of these contracts are $12.6 billion, $2 billion, $250 million, and $100 million with advanced technology scope that includes information technology, intelligence, surveillance, reconnaissance, and information operations. In terms of our Braxton acquisition, we are very pleased with our performance and the strong cultural alignment to Parsons and the integration progress, which will be largely complete this summer. The very talented Braxton team exceeded their first quarter revenue and profitability targets. And we've identified three new opportunities over $100 million that we're able to collectively pursue. Looking forward, we're excited about the momentum building around a potential American jobs plan and the proposed FY’22 defense budget. There appears to be bipartisan support for an infrastructure bill, although the amount and timing is uncertain. Key areas where Parsons operates that are anticipated to be included in the bill are roads and bridges, public transit, passenger and freight rail, airports, ports and waterways, water and wastewater, emerging contaminants, and resilience. On the federal side, our cyberspace and missile defense portfolios align well with the Biden administration priorities as outlined in the proposed FY'22 budget request, and the interim national security strategy. There is unwavering commitment to renewing America's technology-driven advantage and investing in advanced systems that would be useful against near peer competitors. The biggest threats today to our national security include pandemics and biological risks, the climate crisis, cyber and digital threats, violent extremism and terrorism, the proliferation of weapons of mass destruction, and the changing distribution of power throughout the world. Parsons has and is developing solutions to counter each of these threats. Parsons' diversified and differentiated portfolio is combined, with our combined federal solutions and critical infrastructure businesses. There are very few companies that have our collective credentials. We bring our federal capabilities like cyber, artificial intelligence, and cloud-enabled solutions to our critical infrastructure customers. And we also leverage our expansive critical infrastructure capabilities, including design, construction management, and environmental planning and remediation to our federal customers. Parsons is fortunate to operate in well-funded and enduring markets and we believe we're well positioned to achieve our revenue growth, margin expansion, and free cash flow targets as outlined at our Investor Day on March 11. Our addressable markets are large and growing in both segments. We have a strong pipeline of opportunities, high win rates, and a solutions portfolio that's aligned to our customers' needs. With that, I'll turn the call over to George to discuss our financial highlights.

Thank you, Carey. As noted earlier by Chuck and Carey, first quarter results were in line with guidance provided on our last earnings call. Total revenue for the first quarter decreased 10% from the prior year period, excluding $51 million of net lower pass through revenue and $13 million of adverse impact from COVID. Total revenue would have been down 4% from the first quarter of 2020 and down 7% when excluding $31 million from the Braxton acquisition. I should also note that first quarter 2020 revenue represents an all-time record high for Q1. SG&A expenses increased $4 million from the first quarter of 2020 driven by higher compensation costs related to equity-based incentive programs. First quarter 2021 adjusted EBITDA of $69 million increased 14% from last year and adjusted EBITDA margin increased 170 basis points to 7.9%. These increases were driven by higher contract profitability, including contributions from our higher margin Braxton acquisition. I'll now turn to our operating segments, starting first with federal solutions. Our first quarter revenue decreased by $26 million or 5% year-over-year, excluding $11 million net lower pass through revenue, $16 million of adverse impact from COVID. Total net federal solutions revenue was relatively flat as compared to the first quarter of 2020 and down 7% on an organic basis. The decrease in organic revenue, excluding COVID and pass through revenue was driven by contract transitions. Federal solutions adjusted EBITDA increased 1% from the first quarter of 2020 and adjusted EBITDA margin increased 50 basis points to 7.1%. These increases were driven by higher contract profitability and contributions from Braxton. Now, a few words regarding our critical infrastructure segment. First quarter revenue decreased by $71 million or 14% year-over-year, excluding approximately $40 million of lower pass through revenue and a benefit of $3 million associated with reduced COVID impacts. Total net critical infrastructure revenue was down 8% from the first quarter of 2020. Critical infrastructure adjusted EBITDA increased by $8 million or 27% year-over-year, and our adjusted EBITDA margin increased 280 basis points to 8.7%. These increases were driven primarily by lower SG&A costs and higher contract profitability. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of the first quarter was 71 days, compared to 64 days at the end of the first quarter of 2020. During the first quarter of 2021, we used $66 million in operating cash flow, compared to the use of $119 million in the prior year period. A $53 million improvement was driven by the decline of working capital and lower payments on our pre-IPO executive compensation plans. Capital expenditures totaled $4 million in the first quarter, compared to $13 million in the prior year period. As noted earlier by Chuck, our free cash flow improved by $61 million from the first quarter of 2020. Our balance sheet remains very healthy; we ended the quarter with a net debt leverage ratio of 0.7x. Regarding awards, we reported contract awards at $1 billion in the first quarter, representing a book-to-bill ratio of 1.2x. On a trailing 12-month basis, our book-to-bill ratio is 1.1x. Our backlog at the end of the first quarter totaled $8.2 billion, up 5% from last year and continues to represent approximately two years of annual revenue. Now let's turn to our guidance. We are reiterating all of our 2021 guidance ranges provided on February 24 based upon our financial results for the first quarter of 2021 and our outlook for the remainder of the year. As we indicated last quarter, we expect sequential improvements in revenue and adjusted EBITDA through Q3 and then down sequentially in Q4. For operating cash flow, we expect sequential improvements as we move through the balance of the year. Other key assumptions in connection with our 2021 guidance are outlined on Slide nine of today's PowerPoint presentation located on our Investor Relations website. With that, I'll turn the call back over to Chuck.

Thanks, George. To summarize, we delivered strong bookings and significant margin expansion with results in line with our expectations. We also had a strong start to the second quarter with a major contract win in our cyber and intelligence business unit. As we look ahead, we're excited about our future with our positions in growing and enduring markets in both segments. Revenue growth will accelerate while margin expansion and free cash flow conversion will continue. These are driven by benefits from our technology solutions aligned with the Biden administration's infrastructure and defense priorities. We will also benefit as we move beyond headwinds from COVID and pass through revenue while leveraging our robust balance sheet for accretive acquisitions. Again, I'd like to extend my congratulations to Carey as she prepares for a new role in the coming months. Thank you. And now, we'll open the line for questions.

Our first question comes from Joseph DeNardi with Stifel.

Chuck, just on the cyber contract you announced after the quarter. Can you give us the duration for that?

Yes, Joe, and thanks for the question. Carey, why don't you go into a little detail on only about the duration but some of the things we're doing on that contract?

Yes. Sure, Chuck. So it's a five-year contract that is designed for ISR exercises, operations, and information services. The purpose is to position the United States for national security in the Indo-Pacific region, which is becoming increasingly important. We're really excited that we are able to leverage our cyber reconnaissance capabilities along with real-time situational awareness, targeting mission planning, and execution. This contract will broadly support the Department of Defense and Intelligence Community, as well as the Combatant Commanders.

That's great. And then, Chuck or Carey, can you just talk about your positioning relative to the infrastructure market? I know a lot of what's going on there is still very fluid. But can you talk about how well positioned you think you are given some of the priorities and any sense of timing on when you think that could actually benefit your business?

Sure, Joe, as we've mentioned in the past, it's really been well over 15 years since we were really bullish about an infrastructure bill. We're more bullish about this one than any of the ones before. And that's because there's broad support on both sides of the aisle for the physical infrastructure that we do. And if you look at our infrastructure work, about 75% of that is oriented to transportation. So we think of roads, highways, bridges, rail, and transit systems and airport improvements. About another 70% to 80% is in environmental remediation, and that's obviously a high priority for the Biden administration, and another 11% to 12% is in the area of water and wastewater treatment. So we're really well aligned and positioned. I think it'd be reasonable to assume that sometime maybe towards the end of Q3 or early Q4, we'd see an approval of that bill, and perhaps sooner. Carey, anything you'd like to add to that?

Sure. At the top level, $2 billion of our $4 billion in revenue is centered around infrastructure. If you break that down further, $1.2 billion of that is based in the United States that will benefit from the infrastructure bill. I also want to highlight that we're seeing growth in Canada as well as the Middle East as well in infrastructure projects. And our Middle East group had a very strong year in 2020 and is postured for a strong year in 2021 as well. When you look at the plans by the Biden administration at $2.3 trillion or the Republican plan at $568 billion, there are areas that Parsons plays in and have bipartisan support. So transportation infrastructure, or the hard infrastructure supported by both groups, including bridges, highways, rail, public transit, passenger and freight rail systems, resiliency, airports, and road safety, are all involved in those areas. Other areas that received bipartisan support include broadband, electrical grid, and water and wastewater treatment, as well as PFOS and PFAS emerging contaminant elimination. So we're quite excited as we feel Parsons will receive support, regardless of how the bill ends up.

Is it fair to say that the 5% to 7% revenue CAGR you talked about at Investor Day would provide pretty meaningful upside to that? And then, can you just talk about risk management on the infrastructure side, given the labor market and concerns around inflation? Can you talk about how you balance those risks against what looks to be a pretty exciting opportunity for you all over the next couple of years? Thank you.

Yes. So as we described in Investor Day, we did not put in the assumption of an infrastructure bill into our forecast. So one would expect that to have a significant increase to those rates as the bill gets defined and approved, and typically, it takes about six to 12 months after a bill is approved before you start seeing up ticks. In terms of risk, the bulk of the work we do in that market is either fixed-price design or cost-reimbursable program management construction management. So any sort of escalation on materials is not that significant. In terms of labor availability, one of the things we pioneered going back 20 years, Joe, was the ability to shift work to where the people were available. So almost all of our infrastructure work involves multiple offices in multiple states and sometimes even foreign countries to execute that work. So we tend to move the work to where the people are and we don't anticipate any issues around that either.

Our next question comes from Sheila Kahyaoglu with Jefferies.

And Chuck, congratulations on your retirement again and Carey on your promotion of course. So I guess, on federal solutions first, you guys hear me, right?

Yes.

Okay, cool. On federal solutions, the book-to-bill was about 0.9x, revenues contracted 7%, organically; I think your full year guide is about up one organically for FS. How do you think about the ramp-up as we progress through the year, returning progress in that segment?

As we've typically had in the past, we tend to start slow. And that's predominantly due to a lot of jobs just haven't really gotten going yet in the year. If you look at 2020 as a basis, we had a lot of pass-through costs that we didn't really have this year. And so I think the ramp will look very similar to prior years. The really great thing is that we've got so many great wins that have come in even right after the end of the quarter. That really gives us a great deal of confidence in the growth of that unit. And we've gone through the COVID headwinds; we still have those to consider will continue this year, due to the late starts in and Kwajalein Island. We still have the low margin last year of low margin pass-through revenue runoff. So the great news is, we're continuing to drive those margins up as a result of that work, those strategic moves that we made. Carey, is there anything you'd like to add on the federal ramp?

Yes, thanks, Chuck. And thank you, Sheila, for the congratulations; I appreciate it. A few things relative to federal, specifically to give us confidence. The FAA program is returning in 2021 to the pre-pandemic levels from 2019. We're currently 90% staffed; we'll be fully staffed by the end of May. So that will ramp up an additional $40 million as we start to head into Q2. Also, we mentioned the strong book-to-bill; I would highlight that, first for the $1 billion that we've received since Q2 started. Nearly all of that is in the federal market. There were some delays last year in those; we're starting to see those awards pop out. Finally, to QRC Technologies, which you are aware delivers a very high margin, has its highest growth in Q2 and Q3 based on historical year-over-year information. And we'll have a full year of Braxton usher.

Well, thank you for that color. And then, just going back to the cyber business, can you remind us how big it is? I think it's about $400 million of sales. So you've got, I think the contract you announced is over five years, $600 million or so. So could that imply 20% growth to that business, I guess? What are you seeing in terms of growth in cyber? And what's your visibility like there?

You want to take that, Carey?

Sure. Yes, Sheila, Cyber is around a $400 million business unit. On the new work, the way that we're going to book it because we try to be conservative when we have new contracts is that we'll book the first year and we'll make sure that we're realizing that revenue. If you recall, our second-largest cyber and intelligence contract was the combatant commander mission support for $590 million. We did the same thing on that contract. We're fortunate that we are seeing growth on that contract. This is another one that's under GSA fed stem. So we're very optimistic that we'll be able to drive the volume through that vehicle as we proceed forward. But we will take a conservative booking to start. We're also focused on other single award contracts that we've received one year and a half ago in the classified area, and building up to the ceiling there. So we see growth coming in the cyber and intelligence area.

Our next question comes from Tobey Sommer with Truist Securities.

I wonder if you could benchmark for us what the impact was on the company's infrastructure business, the last time we had a kind of 'infrastructure bill' in 2009. The dollar values of the kind of direct infrastructure-related monies in the package unveiled by the current administration seems to be substantially larger and maybe understanding that historical relationship would help us understand the potential consequences of the current discussion.

Yes, so you look at that last bill that drove our Special Air Transportation business. It led the corporation in terms of revenue growth and profit bookings expanded our margins during that era. And I might note that during that era, we had twice as many competitors for the large programs in the U.S. that we have today just due to consolidation in the industry; there's been a lot of merger and acquisition activity. So I don't recall the specific growth rates, Toby, off the top of my head, but they were significant. And as you pointed out, it had a fairly long tail. That revenue growth that we got through 2009, we had record years of profits and revenues in 2008, 2009, and 2010, all as a result of that bill, even as other parts of the business curtailed a bit due to the global financial crisis. So it was material. George, is there anything you’d like to add going back to that era?

No, that's exactly right, Chuck. I would say if you were to put a number on it, Toby, we, as Chuck suggested, realized probably a 10% CAGR top-line growth for about a three to four year period.

That was with a shorter bill duration than this one.

Yes. And just so, a follow-up question, sort of something that's been asked. The revenue trajectory and organic growth has trended down some recently, and you did convey some good contract awards in signings here. Is the pipeline of bids submitted due to be awarded, either to yourselves or potentially an alternative provider? Is that looking pretty robust right now? What's the outlook for the next several quarters? Because we've heard mixed takes on that from other public competitors.

Well, as we stand today, and I'll have Carey give a little more color on this, but we're looking at 14 contracts winning awards over $100 million that represent several billion dollars of awards. And if you look at our pipeline, we're standing right now without outstanding proposals awaiting adjudication at about $6.7 billion, which is relatively flat to Q4 but well up over Q3 2020. We were down below $5 billion at that point. So it's a very robust pipeline, and we're seeing growth in both segments. Carey, any additional color you'd like to provide on that?

Yes. So the pipeline is at $38 billion and within the $38 billion, we have 72 bids greater than $100 million that will award within 2021 or 2022. If you look out to 2024, that number increases to 90 bids over $100 million. As Chuck mentioned, $6.7 billion awaiting notice of award. This year, we plan to submit $24 billion in bids versus $12 billion last year. I'll add to Sheila's initial question; she asked about revenue confidence in the federal market. Also, a few points, I would like to add, that in critical infrastructure, we're looking to consolidate Edmonton sales starting in Q2 for an additional $28.3 million. And I'd like to highlight again the strong book-to-bill that we've had in critical infrastructure with the record in the last two years occurring within the last two quarters of 1.3x and 1.4x. So we're bullish on the pipeline and our prospects.

I want to mention that during our Q4 earnings call, we referred to a buildup of delays in awards from the Intelligence Community into our IC business, primarily because key positions were not filled in the new administration. That backlog appears to have cleared up towards the end of Q1 and has definitely started to improve in Q2.

And last question for me, do you think that we're likely to have a budget in place on time, or would you guess that the odds are we'll have a CR to start things out?

I think what our planning is that we always plan that the potential exists to start with the CR. So we're not surprised by that. It's too hard to predict at this point, I think, a lot more mid-summer, as we see how some of the discussions go on the infrastructure bill, to really get a good handle on whether or not we will start with the CR. If so, how long that CR is likely to go. But I'm fairly positive that we'll have, if we don't, that we either will not start with a CR or if we do, it'll be relatively short.

Our next question comes from Gavin Parsons with Goldman Sachs.

Hey, good morning and congrats to both Chuck and Carey. Curious, I wanted to follow up on your comment that I think you should just submit $24 billion of bids this year versus $12 billion last year, is this all right?

Yes.

What's the enabler behind that? I mean, have you scaled up over the years, is it integration of M&A shifting more than a proposal to federal solutions from critical infrastructure? And then, how much of that is a lower kind of P win, but that could be significant upside drivers if you do actually capture them.

So we have one major recompete that we'll be submitting this year, which is our teams recompete; our three contracts were consolidated into one, and that bid has already gone. We anticipate that being awarded in June of this year, so that's significant. We also saw a big drop in intelligence RFPs last year, so our typical bid volume with the intelligence community is a couple of billion a year. Last year, we only submitted $173 million, so that's a significant change. The third area is bidding bigger and larger jobs.

And Gavin, to that last point, if you remember, from Q4, we said that that $24 billion, we're not bidding twice as many contracts. We're bidding contracts that, on average, are twice as large as we used to bid. That's largely as a result of the great acquisitions we've done in an uptick in large infrastructure bids.

Got it. That makes sense. And then, George, just thinking about margins throughout the year, and I know you mentioned revenue and EBITDA up in Q2, Q3, down in Q4. But if I just assume there's no margin expansion for the rest of the year, year-over-year, can I get at or above the guidance for the year? So this is 1Q strength, point of potential upside, or is this just slightly more normal seasonality than last year's light 1Q? Thanks.

Yes, Gavin, good question. I would say it's more normal seasonality. We outlined higher margins in Q1. We do anticipate that we will hit our guidance; we don't see much upside. Last year, we had some performance fee pickups that were somewhat outside that we don't anticipate repeating this year. We think we'll probably run slightly lower through the balance of the year, but we do plan to hit our guidance targets.

And just a couple of other additions. Our equity and earnings issues are back-end loaded. I mentioned QRCs best quarter, so usually Q2 and Q3, we'll have a full year of Braxton, and we did achieve an 18.2% margin in Q1 with Braxton and our improved contract profitability has been continuing.

Our next question comes from Cai Von Rumohr with Cowen.

Let me join the others in congratulating Chuck, and congratulations to Carey. So you mentioned you know that the bids logjam is starting to break. As the normal pattern for the sector, at least the federal solutions is that Q2 is better than Q1, and Q3 is enormous or very, very big. Could you give us some color as you look at things today, how you see that? Is that the pattern you see? And is there room for catch-up? Because others have also said that things were slow and lots of reasons why things didn't get done? Do you think we're going to see catch-up? Will we have potential for a better than normal Q2 and Q3?

Certainly, as it relates to specifics, we have a couple of big bids that we expect to just close in Q2 or early Q3. But to that catch-up, Carey, you might want to provide a little more color on that. And could it be a real upside?

Yes. To your point, Cai, Q3 is just our strongest, particularly IDIQ, and trying to use end-of-year funds. So I would say we still expect it to be strongest in Q3. Obviously, we're bullish on Q2, given what we've seen since the beginning of April.

Terrific. And could you give us just a little more color on the TEAMS award? How big is that? And if you win it, given its consolidating three pieces, what sort of upside does that have in terms of revenues?

We received three significant contracts related to our systems engineering, weapons and missiles, and facilities and lifecycle support. These have been combined into a single contract known as TEAMS Next Gen. We have been working on the TEAMS contract with MDA for nearly 40 years. Last year, we experienced a hiring freeze that prevented us from bringing on new staff, but that freeze has been lifted this year, allowing us to hire again. As we await the new award, which we will keep confidential for now as it is still in the bidding process, there is the potential for increased work. We are beginning to see new tasks from MDA that we are able to undertake.

Terrific. And then, the last one, on the infrastructure bill, could you give us any color in terms of if it really passes let’s say, by early Q4 roughly? How long will it take, do you think, for revenues to flow through to Parsons?

So traditionally, what we've seen, Cai, is that it usually takes about six months for the money to get obligated in cities and counties, states, and certain federal agencies to apply and get the upticks and get the RFPs out. The quickest upticks occur where we're already an incumbent. We have several programs on the infrastructure side, where the initial contracts were awarded that had anywhere from $700 million to $1 billion of additional work they want to do waiting funding. Those customers we're already working with to get their funding application in. So those will be the quick hits. Others will take a little longer, but usually six to 12 months, you start to see an impact.

Our next question comes from Josh Sullivan with the Benchmark Company.

Chuck, thank you for your leadership, and congratulations, and congratulations to Carey; I look forward to your vision. Just the trends toward larger contracts, how much of that is driven by your business development initiatives versus the structure in which the customers are awarding contracts? And have you seen any material change under the new administration with regard to that?

You know, Josh, I'll have Carey go into more detail on this. But if you go back to our strategy of focused M&A in certain high technology, high growth markets. We started off seven, eight years ago as a supplier to larger companies and not a prime. By weaving together those acquisitions into providing a critical mass of high-end capability, that's allowed us to go after prime contracts on the federal side. So that was part of this very strategic move on our federal side. On the infrastructure side, we've always been a large project firm, but what customers have done is taken things like bridges and upended it with the on-ramps and off-ramps on both sides. To be at a more efficient capital project executed, they've rolled more and more nearby projects into the large projects to get executed at one time. So both those things have played together here.

I agree with what Chuck said; our M&A strategy has been very deliberate. It's how we develop end-to-end solutions across our key growth markets of cyber and intelligence space, ISR, and missile defense. By doing that, we're able to bid and win larger jobs. We also tend in the federal space to play on the leading edge. So we're seeing new opportunities, new large scope contracts come out. There has been some bundling if you look at efforts over within the intelligence community, and then the Fed sim deals have been very large, so we've been intentionally focused on those because we can provide the end-to-end capabilities. On the infrastructure side, we've done the same migration from a service company to a solutions integrator over the past four years and really moved into technology-led infrastructures. The ability to provide smarter infrastructure and look at areas such as what are coming out in their proposed American jobs plan as far as infrastructure modernization. Finally, I would highlight our internal research and development investment, which has increased 20x over the last four years.

Got it. And then, do you anticipate any overlap between where the defense budget priorities are and any of the potential infrastructure bills that are coming out? Parsons, you guys appear to be well positioned, I would think for overlap on things like cyber security. But then, could it also bring about any complications on funding sources or anything of that nature?

Don't anticipate any or foresee any complications from the work that we do conflicts of interest, etc. Usually, do you think about cyber and our approach has been designed it in. It's actually a natural fit. But Carey, anything that you see that…

I think it is complementary for us. We're fortunate as a company that we have both portfolios under the same roof. If you look at areas like resiliency and you apply cyber resiliency, you can do it obviously on the defense side, which we are heavily involved, but it also applies to the entire critical infrastructure sites. There will be funding going into that area. Areas like emerging contaminants as well; we're doing emerging contaminant PFOS and PFAS elimination work on both the federal and the critical infrastructure business units. Finally, if you look at areas like smart intelligence, how do you leverage the data that you're getting from sensors that applies whether you're designing a smart base on the federal side or a smart city on the critical infrastructure side? I feel that Parsons is uniquely positioned to benefit from both.

Our next question comes from Mariana Pérez Mora with Bank of America.

And congratulations, both Carey and Chuck. So would you mind reminding us what is embedded in your previous or current mid-single-digit growth expectations for critical infrastructure? So we understand how much incremental dive-in politics would be add to those?

I think we said in our Q4 call, we looked at critical infrastructure, we did not include an infrastructure bill in our low to mid-single-digit organic growth forecast for that unit once the low margin revenue pass-through concluded this year. And that was based on the strength of the markets we saw in the U.S., Canada, and the Middle East. Obviously, a large infrastructure bill in the U.S. has an uptick on that. And as we see this bill, which will be towards the end of this year, then will be looked at in our growth expectations.

On the midpoint of the range, which we showed at the Investor Day in 2020, we had $2 billion and then we were going to $2.3 billion in 2023. We had both units growing both mobility solutions and connected communities.

Congrats, Carey and Chuck on the passing of the torch. First, I want to confirm, is high single-digit/low double-digit organic revenue growth in 2022 and 2023 in accordance with your Analyst Day projections?

What we said is once we got out of COVID, and the low margin revenue run-off, obviously, we have tailwinds to our organic growth at that point. Plus, we had some rather large contracts that we're starting up. I think what we've always said is over the longer term, taking out any year-to-year anomalies, without an infrastructure bill, we've seen the infrastructure business growing in the low to mid-single digits, and federal solutions growing in the mid to upper single digits. Obviously, year-to-year growth can be higher than that as a result of COVID, etc. And, George, anything that you'd like to add to that?

I'd agree with that; probably balance maybe about 6% or 7% for the enterprise. And the margin profile for your recent strong bookings on the critical infrastructure and federal side? Did those bookings instill confidence that margin expansion can continue? Yes, Louie. We have experienced even since going back to the IPO. We've experienced consistent improved margins on the intake on our awards compared to what we're running off. That's one of the incremental drivers in seeing your margins creep up in the past and we expect it that will continue.

Our next question comes from Joseph DeNardi with Stifel.

I think just a quick follow up on the $24 billion in contract value you anticipate bidding on this year over the next 12 months? How do you handle kind of large ceiling value contracts in that number? Like, for example, I think in March, you announced that you want to see it on a $12.6 billion contract. How would something like that be reflected in the $24 billion? Thank you.

Sure. I don't believe there are any $12 billion ceilings within the $24 billion. That particular win was unexpected and not a goal we were chasing long-term. It arose during our efforts, and we secured it. Typically, we reference contract ceilings, and most of those wins are not significantly large. Carey, you may want to add some insight regarding the $24 billion.

Sure. Joe, we did win four multiple award contracts this quarter; one of them was a $12.6 billion ceiling with the Defense Intelligence Agency. The way we booked those as we win task orders, so it's only the single award contracts that we book. That's all the time we have for questions today; I'd like to turn the call back to Dave Spille for closing remarks.

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. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.