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. Please go ahead.

Thank you. Good morning and thank you for joining us today to discuss our first quarter 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 Carey Smith, Chair, President and CEO; and Matt Ofilos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our first quarter financial results and a review of our 2023 guidance. We then will close with a question-and-answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These Risk Factors are described in our Form 10-K for the fiscal year ended December 31, 2022, 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'll turn the call over to Carey.

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 $1.2 billion and year-over-year organic revenue growth of 12%. We also delivered first quarter records for adjusted EBITDA and cash flow. 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 Parsons' 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 and our global critical infrastructure posture across all six 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 first quarter performance, we are increasing our 2023 guidance ranges for all financial metrics, which Matt will discuss in a few minutes. During the first quarter, we achieved a book-to-bill ratio of 1.2x on an enterprise basis, including 1.3x in Critical Infrastructure and 1.1x in Federal Solutions. These results were driven by a 52% year-over-year increase in Federal Solutions contract award activity, and a 49% increase in Critical Infrastructure award activity. This is now the 10th consecutive quarter in which Critical Infrastructure's book-to-bill ratio has exceeded 1.0x. 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 three contracts that exceeded $100 million, and after the first quarter ended, we won three additional contracts that were worth more than $100 million each. These meaningful and long-duration contract wins span our four business units and our six end markets, which has solidified our financial outlook and positioned us well for the future. Significant first quarter and early second quarter contract wins included a new three-year $750 million State Department Humanitarian Support Contract led by Xator. This delivery order contract includes a one-year base period of $250 million and two one-year option periods valued at $250 million each. For this significant contract win, we booked $250 million in the first quarter. Xator has won a substantial amount of new business and has performed exceptionally well in its first year with Parsons. This recent win follows the $119 million 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 million to continue overseeing the Giant Mine Remediation program in Canada, which is one of the largest mine reclamation projects in the world. We won a new $164 million four-year contract by the Army Corps of Engineers to deliver a new Explosive Decomposition Chamber facility at Holston Army Ammunition Plant. This follows Parsons being awarded 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 billion ammunition plant modernization plan to modernize the United States depots, arsenals, and ammunition plants. In addition to the three wins greater than $100 million each, we were awarded a $94 million recompete contract to provide command, control, communications, computers, and capabilities development services to the United States Cyber Command. This important contract provides support to expand full-spectrum military cyberspace operations. The period of performance is one 12-month base period with four 12-month options. Finally, we won prime positions on several multiple award IDIQ vehicles, including a $75 billion ceiling contract with the Department of Health and Human Services Administration for the provision and operation of Influx Care Facilities. After the first quarter ended, we were awarded three contracts greater than $100 million each. The first is a new five-year single award contract in our Federal Solutions segment from the General Services Administration with a potential value of $1.2 billion. 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 battlespace. The second new contract is a four-year single award contract for a roads and highways transportation project valued at more than $100 million. Additionally, after the first quarter ended, we successfully won our major Federal Aviation Administration technical support services contract recompete. This $1.8 billion ceiling value contract will support the FAA's Aviation System Capital Investment Plan and includes a base period of four years and two three-year option periods. Parsons has been the prime contractor for this work for more than two decades and supported this critical customer for more than four decades. With the Infrastructure Investment and Jobs Act, the FAA has $5 billion of additional funding for facilities-related work. With the FAA win, we have now won all four of our key recompete contracts over the last two years, including the TEAMS, FAA, and Faro and Giant Mine contracts. These long-duration contracts span from 7 to 20 years and are worth approximately $2 billion each, which solidifies our financial outlook. These wins are a testament to our strong program execution, customer relationships, and recompete win rates. During the first quarter, we also announced the acquisition of IPKeys Power Partners. This strategic acquisition, which closed in April, expands Parsons' presence in two rapidly growing end markets: grid modernization and cyber resiliency for Critical Infrastructure. IPKeys enables Parsons to bring cybersecurity tools, technology and market experience to utility operators to secure operations, optimize efficiency, and achieve grid resiliency. This acquisition is 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. With the macro environment focus on utility and water critical infrastructure protection and modernization, we look forward to the contributions that IPKeys will bring to Parsons. We maintained our robust balance sheet and ended the first quarter with a 1.4x net leverage ratio. We continue to have an active M&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 longstanding commitment to ESG. During the first quarter, we were recognized for our initiatives that attract, hire, and promote women, racial diversity, LGBTQ+, and other underrepresented people into the engineering industry. Additionally, we are proud that we were named one 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. We also achieved a healthy book-to-bill ratio by increasing contract awards by approximately 50% in both segments. Additionally, we continued to execute on our strategic M&A program by acquiring IPKeys. 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. We've solidified our financial outlook by winning a significant amount of new and repeat business, and we have 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 first quarter financial highlights.

Thank you, Carey. As Carey indicated, our first quarter 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 $1.2 billion for the first quarter 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 Xator acquisition contributed approximately $112 million of revenue in the first quarter. SG&A expenses for the first quarter were 17% of total revenue compared to 19.5% in the first quarter of 2022, due to efficient growth across the portfolio. Adjusted EBITDA of $90 million increased 22% from the first quarter of 2022. This increase was driven primarily by the ramp-up of new and existing contracts, as well as contributions from our Xator acquisition. The year-over-year margin decrease to 7.7% 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. For the first quarter, revenue increased by $143 million or 29% from the first quarter of 2022. This increase was driven by organic growth of 6% and $112 million from Xator. Organic growth was driven primarily by higher volume on existing contracts. Federal Solutions adjusted EBITDA increased by $13 million or 32% from the first quarter 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 Xator acquisition. Moving now to our Critical Infrastructure segment. First quarter revenue increased by $81 million or 18% from the first quarter of 2022, all of which was organic. The strong growth was driven by higher volume in both our Middle East and North America operations. Critical Infrastructure adjusted EBITDA increased by $3 million or 8% from the first quarter of 2022. Adjusted EBITDA margin decreased 60 basis points to 6.3%. 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 seven days from the prior year period. During the first quarter of 2023, we consumed $9 million of operating cash compared to the use of $26 million in the prior year period. This $17 million improvement was driven by higher net income and strong collections across the company, including the Middle East. Capital expenditures totaled $8 million in the first quarter 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 million all-cash IPKeys acquisition, which closed in April, our pro forma net debt leverage ratio would be approximately 1.5x 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. As part of our $100 million share repurchase program, we repurchased approximately 140,000 shares for an aggregate purchase price of $6 million during the first quarter. On a run rate basis, this is slightly more than our annual repurchase target of $20 million. As of the end of Q1, $50 million remains available under the program. Turning to bookings for the first quarter. Year-over-year contract award activity increased 51% to $1.4 billion, driven by growth of 52% in Federal Solutions and 49% in our Critical Infrastructure segment. Our book-to-bill ratio for the first quarter was 1.2x, with Critical Infrastructure at 1.3x and Federal Solutions at 1.1x. Our backlog at the end of the first quarter totaled $8.4 billion, up $186 million from the fourth quarter 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 first quarter results, recent large contract wins, hiring and retention momentum, positive end market exposure, and our outlook for the remainder of the year. For 2023, we are increasing our revenue range by $125 million to $4.5 billion to $4.7 billion. This represents total revenue growth of 10% at the mid-point and 5% on an organic basis. Additionally, we are increasing our adjusted EBITDA range. We now expect adjusted EBITDA to be between $375 million and $415 million, which represents 12% growth at the mid-point of the range. Margin at the mid-point of our revenue and adjusted EBITDA remains at 8.6%. We are also increasing our cash flow guidance. We now expect operating cash flow to be between $275 million and $335 million, representing 28% growth at the mid-point. Free cash flow conversion is expected to remain above 100% of adjusted net income. 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 IPKeys acquisition, and we're confident in our ability to achieve our updated 2023 guidance.

Thank you, Matt. In closing, I am pleased with our start to 2023. We delivered on our commitments resulting in record first 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 three of our 2023 guidance metrics. Looking forward, I'm excited about our business, given the significant amount of new and recompete business we've won, our strong backlog, a 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.

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

Maybe just to start, I mean you kind of touched on it in the script, but 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?

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.

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 drives that sequential margin improvement?

Yes, Greg. The key point to note is regarding equity and earnings. In Q1, we experienced about a $7 million impact on equity and earnings due to the change orders we discussed earlier. We anticipate some recovery as the year progresses. This $7 million is part of our ongoing discussion about change orders, and the positive aspect is that over the next four years, this will add an additional $20 million to equity and earnings. Therefore, we remain optimistic about the recovery of equity and earnings in the latter half of the year. We still project equity and earnings to reach around $22 million, in the low $20 million range, by the end of the year. If we break that down, it amounts to over $8 million for the remaining quarters.

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

Yes, great question, Greg. We have a strong list of potential M&A candidates that covers both of our business segments. To elaborate on IPKeys, we are particularly excited about it because it fits well within our balanced portfolio. The company serves utility and water companies while providing cyber monitoring capabilities, making it ideally positioned for both federal and critical infrastructure markets. Additionally, IPKeys has introduced us to hundreds of new customers. This allows us to market the entire Parsons portfolio to this new group, while we continue to pursue more M&A opportunities in both the Federal and Critical Infrastructure segments.

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

Hey, Carey and Matt. Maybe just following-up to the first question there, so if I look at your revised guidance assumptions that 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 to the year for Critical Infrastructure and then the IPKeys acquisition. Can you just walk us through maybe some more granularity on what's driving the outperformance in Federal Solutions and how we should think about the ramp phase for the State Department contract?

Sure, Greg. So what's driving it is new business wins. When you look at the CARES contract, $750 million over three years, the large FEDSIM contract will also come into play, again, that going to be announced shortly at the end of the first quarter. That's $1.2 billion over five years. You look at the Holston contract for $164 million over four years. The FAA contract recompete win, which is going to get some upside due to the Infrastructure Bill. Those are all key contributors. As far as the CARES ramp, it's early days yet on that contract. So we did about $40 million in Q1 and we're just watching the ramp-up pace. And we will adjust guidance going forward as needed upward if we need to based on the ramp.

Yes, Bert specifically noted that we did about $40 million in Q1 and we're just watching the ramp-up pace.

Okay. Sorry, Matt.

I was going to add Bert, specifically for Xator, we had targeted $300 million when we put the guidance out previously, and we're now at $400 million, which is obviously for the current calendar year, which is obviously weighted toward Federal.

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 Q, it looks like that was up 38% year-over-year in the first quarter, 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? 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?

Yes, it's still the view. We were fortunate and we've been awarded five of the five giga-projects in the Middle East. So we're seeing very strong demand there. The programs particularly I would say NEOM Oxagon and NEOM 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.

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

Thanks. I wanted to get your expectations for the mix between the segments over time. Clearly there are some strong drivers within Critical Infrastructure with the activity in the Middle East and 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 two or three years, and is there a preference for where to apply capital in terms of acquisitions?

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 Critical Infrastructure, and 6% from Federal. Very pleased with the awards that we're seeing in both segments. And when you look at our six end markets, three in each of the segments, they're all six growing. So for us it's just a really great place to be and it's the right portfolio. And from M&A again, we have targets in both areas. So we'll continue to acquire the best companies that will deliver like Xator has.

In terms of your reinvestment into the business, how are you choosing to do that as the top-line growth has accelerated and you've 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?

Yes. So 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; we do the classification level about the award that we just won, but I will say that was the $1.2 billion FEDSIM win. I will say that our investments have been targeted on winning awards such as that. We also invest in areas where we're technologically differentiated. A great example there would be PFAS investment.

Appreciate that. And you mentioned hiring up 27% year-over-year. What's your expectation for headcount growth for the year and have you noticed 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.

We are planning to hire at a rate similar to last year, which we had included in our projections. We're pleased to report a strong start with a 27% increase. Both hiring and retention have improved, with retention showing progress this quarter. We are surpassing the PwC industry benchmarks across all our businesses, which is encouraging. While a significant portion of our hiring has been in the Middle East, we are also witnessing strength in North America. Overall, the labor market appears to be improving for us.

And last one for me, if 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?

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

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

Yes, 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 million equity and 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. 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?

Yes. So we also had that we took a charge of about $4 million 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 in Q3, late Q3 timeframe. So we're kind of coming up on the back end of that program, which is positive. If you performed the change order plus the write-offs, it would be about 8.5% for CI.

And I think the 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 third quarter, but also the change orders, we anticipate positive change orders starting in the second quarter.

Yes.

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

The comment in the prepared remarks looking at 10th quarter with a book-to-bill over 1x, 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?

So I would look at three dynamics. First is Canada. Canada passed its Infrastructure Bill back in 2016. So those programs are often 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. 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 2030. So if you look at a program like NEOM The Line, the goal is to have like 9 million people living in the city by 2030. So these are really long-duration programs and long spend. U.S. Infrastructure Bill again is $1.2 trillion, $550 billion of that 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.

The next question is from Cai von Rumohr of Cowen. Please go ahead.

So your guide hike of $125 million, I mean basically you pick up at least $100 million from Xator and the CARES that you pick up IPKeys, 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 better than it was last year, which presumably should help you on your utilization. So I mean normally people don't raise their guide this early in the year. I mean it looks like just at the factors that this is a guide hike that has some opportunity. Is that a reasonable assumption?

Yes. So I would say again, we try and keep a very measured approach to 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.

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 yesterday and they were talking about expecting to see the award flow, which kind of was very slow last year that that's really starting to pick up very aggressively as folks try to get money put under contract before what 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.

Yes. We're also seeing, Cai, similar trends and that's why I wanted to include a couple of the wins that we got just after the end of Q1. But we have seen good progress and again we have quite a big awaiting notice of award that we're hoping starts to get awarded soon and a large pipeline.

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

The next question is from Louie DiPalma of William Blair. Please go ahead.

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?

Yes. I would say definitely, and again, I can't talk too much about that $1.2 billion contract, but just I will say it is in those areas. Overall in INDOPACOM 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, particularly for the combat and commander program out of Hawaii. So INDOPACOM and the Pacific Deterrence Initiative of $9.1 billion is very much in our line of sight for expansion and growth.

Thanks, Carey. And you discussed the Xator $250 million one-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 two and in year three? Is it considered the type of service that would only be for one year or do you think that is sustainable for the rest of the contract?

We believe it is sustainable and could potentially continue beyond the three-year period based on the demand and the requirement.

The next question is from Noah Poponak of Goldman Sachs. Please go ahead. We believe it is sustainable and could perhaps even continue beyond the three-year period based on the demand and the requirement.

Can you clarify how the top-line outlook has changed today and where you see the pacing for the year? Was there anything that was shifted to the end or brought forward into the quarter? It seems like the growth rate and the sequential pacing for the rest of the year is a bit different from what you previously indicated.

Yes, Noah, what I'd point to is, we've talked a little bit about the headwinds around Kwajalein. The majority of that $70 million is weighted toward Q2, Q3, really Q3 as the peak. So I'd say from a modeling perspective, Q3 was $40-plus million of revenue that's non-recurring given the program was completed. And so that's the biggest driver to the cyclicality or the updated quarterly outlook.

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 saying on the order activity, that 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 two years?

Yes. I would say to best today, first we didn't 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.

Yes, that's fair. Carey, you've provided some good details regarding the CI margin and how the terms of trade in the contracts function. You mentioned something about being out of some legacy contracts by the middle of this year. Are you referring to a specific contract? What is the timing for transitioning away from what you consider to be legacy in terms of the contract terms in CI?

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 two remaining as we entered this year. So one of those is going to wrap up. Our estimate right now is in the third quarter, and then the second one will wrap up in the second quarter of 2024. And once those are behind us, it's really going to help the CI margin because those have been dragging on the margin.

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 remarks.

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. Have a great day.

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