Good morning, and thank you for standing by. Welcome to the Third Quarter 2023 Parsons Corporation Earnings Conference Call. Please be advised that today's conference 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 third 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 third 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 this call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year ended December 31, 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. 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' third quarter 2023 earnings call. I'm very pleased with our team's performance and our ability to take advantage of the favorable conditions in our Critical Infrastructure and Federal Solutions segments. We achieved record quarterly results in total revenue, organic revenue growth, adjusted EBITDA, and operating cash flow. We also saw over 20% organic revenue growth in both segments for the second consecutive quarter, adjusted EBITDA growth of nearly 25%, a double-digit increase in contract awards, and over $200 million in quarterly cash flow for the first time in our company’s history. Additionally, we completed a strategic acquisition that enhances our defensive cyber capabilities at a time when increasing cyber threats are prompting greater customer spending. As a result of our strong performance and the Sealing Technologies acquisition, we are updating our guidance for full-year revenue, adjusted EBITDA, and cash flow. In the third quarter, we achieved total revenue growth of 25% and year-over-year organic revenue growth of 23%, with 24% in our Critical Infrastructure segment and 23% in our Federal Solutions segment. Our record organic revenue growth was driven by our capacity to secure and ramp up new contracts, efficiently manage task orders for large single-award contracts, and maintain strong employee hiring and retention, effectively operating in two well-funded and growing markets. Furthermore, our M&A initiatives are bolstering our growth by allowing Parsons to enhance its value chain with higher-end capabilities and innovative technology solutions, enabling us to bid for and win larger and more profitable contracts. We continue to grow our business effectively. In the first nine months of 2023, total revenue grew by 28%, while adjusted EBITDA rose by 32%. Our ability to grow adjusted EBITDA faster than our strong revenue growth reflects our focus on expanding margins. In the third quarter, we achieved a book-to-bill ratio of 1.0 times on an enterprise basis, fueled by a 14% year-over-year rise in contract awards. This marks the 12th consecutive quarter where the Critical Infrastructure segment's book-to-bill ratio has surpassed 1.0 times. We're pleased that over 50% of our wins represent new work, highlighting our ongoing competitiveness and progress within the value chain. Over the trailing 12 months, our enterprise book-to-bill ratio stands at 1.2 times. In the third quarter, we secured four contracts, two from each segment, each worth over $100 million. We've won a total of 13 contracts exceeding $100 million so far in 2023, making it the highest amount we've achieved in a single year, surpassing our previous record of 11 such contracts in fiscal year 2022. Significant third quarter contract wins included a $160 million contract from the intelligence community to develop hardware and software solutions for intelligence operations. This seven-year classified contract includes both new and repeat work with a customer we’ve supported for over two decades, with $70 million booked this quarter. Another major contract was a seven-year, $150 million agreement with the Southern Nevada Water Authority to improve system reliability and enhance community health, representing both new and re-compete scope, with $47 million booked this quarter. Additionally, we won a five-year contract valued at $130 million related to NASA's repairs and maintenance contract, where we will provide facilities and construction management as a subcontractor. This contract will also lead to around $30 million in bookings in the fourth quarter. We also secured additional work exceeding $100 million on NEOM's THE LINE infrastructure project in Saudi Arabia, a pioneering linear smart city driven by renewable energy. Parsons is proud to contribute to all five of Saudi Arabia's giga projects. In the Indo-Pacific region, we secured contracts worth over $70 million supporting the United States Army Corps of Engineers, including a new three-year $44 million contract for housing design and construction on Kwajalein Island, and a $27 million task order for munitions and explosives assessment on Guam. A total of $54 million was booked from these two contracts in the third quarter. Our extensive work in the Indo-Pacific Command leverages our comprehensive expertise across various fields and reflects our commitment to supporting U.S. national security needs. During the quarter, we also completed our acquisition of Sealing Technologies for approximately $200 million, which broadens our customer base across the Department of Defense and enhances our defensive cyber operations and integrated mission solutions powered by AI. Following the third quarter, we acquired I.S. Engineers, a Texas-based consulting firm specializing in transportation engineering. This acquisition fits our strategy of making value-accretive acquisitions that enhance our critical infrastructure talent and capabilities in growing states. Texas is expected to receive nearly $30 billion in transportation funding from the Infrastructure Investment and Jobs Act between 2022 and 2026. We have a strong M&A pipeline in both segments and will continue to leverage our balance sheet for further growth-oriented acquisitions. As part of our commitment to ESG, we were recognized for the eighth consecutive year by STEM Workforce Diversity magazine as a top STEM employer for minorities, women, and people with disabilities. Additionally, we were named to the Best of the Best 2023 Top Veteran-Friendly Companies list by the U.S. Veterans Magazine and recognized by Engineering News-Record as one of the top three global companies in multiple categories in 2023. These honors reflect our strong global reputation and capabilities in infrastructure programs. In summary, we had another robust quarter with record figures in total revenue, organic revenue growth, and adjusted EBITDA for the second consecutive time. We also achieved record cash flow and significant contract awards while maintaining strong hiring and employee retention. We made an acquisition that enhances our cyber capabilities and expanded our engineering expertise with a new infrastructure company. I want to express my gratitude to our dedicated employees for their critical role in delivering successful outcomes for our customers. Their hard work has been pivotal in our operational achievements. Looking ahead, I am very optimistic about our future, supported by strong growth trends in six markets. In Critical Infrastructure, we are positioned to benefit from substantial global investment expected to continue for decades. In our Federal Solutions segment, our offerings align well with national defense strategies and macro trends. With our extensive capabilities and expertise, I am confident we have the right portfolio and team to leverage these opportunities effectively. These developments, along with our recent acquisitions, enable us to confidently raise our full-year guidance for revenue, adjusted EBITDA, and cash flow. Now, I will turn the call over to Matt for a discussion on our third quarter financial highlights.

Thank you, Carey. As Carey indicated, our third quarter was highlighted by record results in a number of areas, including total revenue, organic revenue growth, adjusted EBITDA and operating cash flow. Total revenue of $1.4 billion for the third quarter of 2023 increased 25% from the prior year period and was up 23% on an organic basis. Organic growth was driven by the ramp-up of recent contract wins and growth on existing contracts and inorganic revenue benefited from our Sealing Tech and IPKeys acquisitions. SG&A expenses for the third quarter were 15.6% of total revenue compared to 17.4% in the third quarter of 2022 due to a continued focus on efficient growth across the portfolio. On a year-to-date basis, SG&A was 16% compared to 18.8% in 2022. The 280 basis point improvement is an intentional focus on delivering higher margins through cost control to go with strong topline growth. Adjusted EBITDA of $128 million increased 24% from the third quarter of 2022. This increase was driven primarily by organic growth and a high-margin change order on an unconsolidated joint venture project. The 10 basis point margin decrease to 9% was driven by higher projected incentive compensation costs as a result of the company's strong operating performance and growing employee base. For the first nine months of the year, our adjusted EBITDA margins have expanded in both segments and have increased 30 basis points overall from the prior year period to 8.5%. I'll turn now to our operating segments, starting first with Federal Solutions, where third quarter revenue increased by $160 million or 26% from the third quarter of 2022. This increase was driven by organic growth of 23% and the inorganic revenue contribution from our Sealing Tech acquisition. Organic growth was driven primarily by growth on new and existing contracts, partially offset by the previously discussed wind-down of the Kwajalein Island contract. Federal Solutions adjusted EBITDA increased by $4 million or 7% from the third quarter of 2022, primarily due to growth on recent contract awards. Adjusted EBITDA margin decreased 160 basis points to 8.3% based on the timing of program milestones and completions as well as higher projected incentive compensation costs as a result of the company's strong operating performance and growing employee base. Year-to-date, Federal Solutions adjusted EBITDA margin remained strong at 9.5%, which is more in line with our long-term expectations. Moving now to our Critical Infrastructure segment. Third quarter revenue increased by $125 million or 24% from the third quarter of 2022. This increase was driven by organic growth of 24% and the inorganic revenue contribution from our IPKeys acquisition. Organic growth was driven by higher volume in both the Middle East and North America. Critical Infrastructure adjusted EBITDA increased by $21 million or 51% from the third quarter of 2022. Adjusted EBITDA margin increased 170 basis points to 9.8%. The adjusted EBITDA increases were driven by accretive organic growth and a high-margin change order on an unconsolidated joint venture project that positively impacted equity and earnings. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q3 2023 was 65 days, down 3 days from the prior year period. During the third quarter of 2023, we generated $204 million of operating cash flow, compared to $123 million in Q3 of 2022. For the nine months ended, we generated $218 million of operating cash flow, a 47% increase over the prior year period. These increases were primarily driven by improved profitability and strong collections across the portfolio during the third quarter. Capital expenditures during the quarter totaled $13 million compared to $6 million in the prior year period. 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 the quarter with a net debt leverage ratio of 1.4 times consistent with the second quarter, even after the all-cash acquisition of Sealing Tech, which closed in August. Our low leverage, strong free cash flow outlook and undrawn borrowing capacity is enabling us to continue to make internal investments and accretive acquisitions to support long-term growth. Turning to bookings for the third quarter. Year-over-year contract award activity increased 14% to $1.4 billion. The strong bookings performance was driven by a 12% increase in our Federal Solutions segment and a 17% increase in Critical Infrastructure. Our book-to-bill ratio for the third quarter was 1.0 times, with Federal Solutions at 1.0 times and Critical Infrastructure at 1.1 times. On a trailing 12-month basis, contract awards increased 47%, and our book-to-bill ratio was 1.2 times with Critical Infrastructure at 1.2 times and Federal Solutions at 1.1 times. Our backlog at the end of the third quarter totaled $8.8 billion, up $587 million or 7% from the third quarter of 2022. Now, let's turn to our guidance. We're increasing all of our 2023 guidance ranges provided on August 2 to reflect our record third quarter results, recent large contract wins, hiring and retention momentum, Sealing Tech acquisition and our outlook for the remainder of the year. For 2023, we are increasing the midpoint of our revenue guidance by $300 million to a range of $5.175 billion to $5.325 billion. This represents total revenue growth of 25% at the midpoint and 19% on an organic basis. Additionally, we are increasing our adjusted EBITDA by $25 million at the midpoint. We now expect adjusted EBITDA to be between $440 million and $460 million, which represents 28% growth at the midpoint of the range. Margin at the midpoint of our revenue and adjusted EBITDA range remains at 8.6%. We are also increasing our cash flow guidance. We now expect operating cash flow to be between $300 million and $340 million, representing 35% growth at the midpoint. This guidance also reflects $33 million of deferred cash payments made at the beginning of Q4. Free cash flow conversion is expected to remain around 100% of adjusted net income for the full year. Our updated guidance represents 6% of additional revenue and adjusted EBITDA growth at the midpoint of our ranges. 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've delivered strong results in each of the first three quarters of the year. Through the first nine months of the year, we have achieved revenue growth of 28% and adjusted EBITDA growth of 32%. We're confident in our ability to achieve our increased 2023 guidance as a result of our strong funded and total backlog, continued hiring and retention momentum, robust global infrastructure spend, and the increasing need for national security solutions. With that, I'll turn the call back over to Carey.

Thank you, Matt. I'm very pleased with the performance of our company. We delivered record quarterly total revenue, organic revenue growth, adjusted EBITDA and operating cash flow. We also continue to be a top organic revenue growth leader in both of our segments, and we're executing on our strategic M&A program, which is driving growth into our business. Given our strong operating performance, we're raising guidance for all three of our financial metrics. Our team is delivering consistent results, and we are benefiting from tailwinds in each segment. We expect our momentum to continue given our portfolio is well aligned to important macro environment trends in two well-funded segments and six growing and enduring markets. With that, we'll now open the line for questions.

Thank you. The first question comes from Bert Subin with Stifel. Your line is open.

Hey, good morning, and congrats on the great quarter.

Thanks, Bert.

Thanks, Bert.

Carey, organic growth has been pretty unbelievable the last two quarters, both segments above the 20% mark, which is obviously quite a bit ahead of your peers. That seems pretty intact as we look to 4Q, maybe a little lower, but still really elevated. As we think about the fourth quarter, what's driving such a wide range of outcomes? I assume it's the government shutdown or the potential for a shutdown. And then as we look out to '24, what gives you confidence growth can remain elevated if maybe not at the 20% mark, but still pretty quick for what you put out at the Investor Day?

Yeah, thanks for the question, Bert. So first, we're very pleased with our growth to date and obviously, two consecutive quarters of 23% organic growth. We're in terrific markets, all six end markets are growing. As we look to the latter half of the year, we have one headwind, which is our Kwajalein program in Engineered Systems. That's about $15 million that we need to overcome. I would say the biggest variable is really kind of uncertainty relative to the budget environment. And then we do get seasonality in our business, both in Federal and in Critical Infrastructure. Our FAA program in Federal has seasonality and our mine programs up in Canada. With that said, we're confident of achieving the midpoint to the high end of the range as far as revenue performance. As we look to '24, it would be great to be able to continue this terrific organic growth performance, but we're obviously making sure that we put together measured guidance and that we can meet what we commit to deliver.

Maybe just on that point, could you give a little bit more commentary on the large cyber contract win you had? I think that's probably quite early stages, maybe more of a '24 contributor. And then what you're seeing on the IIJA front? Or if you can't break it out on IIJA, just in terms of what you're seeing in domestic infrastructure spend?

Yeah. So the large cyber win, it's a contract that we've held, but they're going to be adding some new and expanded scope. It's a classified contract and it's supporting an intelligence community customer. I can just say we've supported this customer for over two decades. We're very pleased with that. We also continued our success beyond this classified customer with the United States Cyber Command, securing both our J6 and our J9 objectives. That's critically important as we look forward to next year because Cyber Command has now been given budget authority, similar to what the United States Special Operations Command has. So, beyond the intelligence community, we're seeing excellent growth across our cyber business. Within the IIJA, there's been about $184 billion of the funds that have started to roll out from the $1.2 trillion. Our estimate is still that we're going to see the majority start to roll out in the latter part of this year, early next year. And we expect the peak to move from a 2026 timeframe to a 2027 timeframe based on the rollout. As you could see from 12 consecutive quarters of greater than 1.0 book-to-bill and we're overdriving organic growth in both the Middle East and the United States, we are starting to benefit from that. It also helps our Federal segment because our FAA contract, which we just won the re-compete, the FAA is getting $25 billion now from the infrastructure bill, $5 billion of that is going to go to facilities work, and that's directly aligned with our scope on the FAA contract.

Great. Super helpful, Carey. And then Matt, just a final question on the margin side. Can you update us on the status of the two legacy Critical Infrastructure projects? One is still expected to wrap before year-end and the other by the end of next year. What are you seeing in terms of margins and backlog as you move forward with the unprecedented demand that Carey mentioned?

I appreciate the question, Bert. To start with the legacy programs, the first one is expected to conclude in the fourth quarter, and we are tracking close to completion at over 97% by the end of the quarter. It's great to see that we'll have it behind us soon. This one will impact equity and earnings. The second program is self-performed and is still projected to finish by late 2024. Everything is on track with no significant changes since the last quarter. Regarding the bid pipeline and backlog, we are concentrating on expanding margins. As mentioned at the Investor Day, we're aiming for an increase of 20 to 30 basis points per year, and we are pushing the teams to achieve that. I'm starting to see positive developments in both the bid pipeline and the backlog.

And just one addition, Matt indicated, the first program is 98% complete. The second program is 84% complete.

The next question comes from Tobey Sommer with Truist. Your line is open. There has been no significant change from the prior quarter. Regarding the bid pipeline and backlog, we are definitely focused on expanding margins. At the Investor Day, we mentioned a target of 20 to 30 basis points per year, and we are pushing the teams hard to achieve that. We're starting to see those efforts reflected in the bid pipeline and backlog. Additionally, the first program is 98% complete, while the second program is 84% complete.

Thanks. I wanted to ask you about the M&A market and your appetite across the two segments. Are you seeing targets that meet your criteria and are the right size? We recently attended an M&A conference, and the pace of activity and available opportunities in the market seemed quite low. I'm curious about your perspective.

Thank you, Tobey, and good morning. We plan to continue pursuing mergers and acquisitions as a key part of our strategy for growth, which has significantly contributed to our success in securing large contracts, evidenced by 13 wins this year exceeding $100 million, surpassing last year's record of 11 wins. The recent M&A deals we've made align well with our objectives. For instance, IPKeys specializes in cyber compliance and monitoring for power and water utility companies, nicely bridging our Federal and Critical Infrastructure divisions. Similarly, Sealing Technologies has primarily supported the Department of Defense and the intelligence community, and we aim to integrate their capabilities with those of IPKeys and explore new product offerings. Sealing Technologies' fly-away kits are also applicable in commercial markets. We will maintain our strict criteria for acquisitions, targeting companies that demonstrate over 10% top-line growth and 10% margin expansion. Additionally, I.S. Engineers offers transportation engineering services, which generally align with our Critical Infrastructure sector, but their projects could also benefit our Engineered Systems Group in the Federal area.

Thank you. Could you provide an update on the impacts on the income statement or cash collections from contract awards during the last government shutdown? This would help us understand what potential effects we might anticipate if a similar situation occurs in the coming months.

Yeah. So the last government shutdown, we were only impacted by one contract that was a shutdown that occurred late 2018, early 2019, and that was our FAA contract. So I would say it really depends on what is exempted from the shutdown process as they continue to go forward. My personal opinion, I expect that we're going to continue to see continuing resolutions. The current CR ends November 17. We've learned how to deal with CRs. There's been 47 of them between FY '10 and FY '22, those have lasted for a duration of 1 to 176 days or just less than six months. So we know how to deal with that very well. And the nice thing with the Parsons' portfolio in a CR perspective is 50% of our portfolio is outside of the federal budget because we have the commercial business and the international business. We also have very strong backlog at $8.8 billion, 59% of that is funded backlog. And we have $14 billion of contract wins that we've not yet reflected in bookings or backlog. So, I feel our portfolio is in very good shape to withstand the CR and remain optimistic that we will not have a shutdown.

Yeah. And Tobey, specifically on the topline side, FAA was impacted by about $20 million back in '19 during that shutdown, so just to give you kind of a directional. But importantly, the DoD was exempted at that point.

Thank you very much.

Thanks, Tobey.

Thanks, Tobey.

The next question comes from Andrew Wittmann with Baird. Your line is open.

The next question comes from Andrew Wittmann with Baird. Your line is open.

The next question comes from Cai von Rumohr with TD Cowen. Your line is open.

Thank you very much, and terrific quarter, guys. Very impressive.

Thank you, Cai.

So, what do you have baked into your guidance for a shutdown? I agree with you totally, CR is not going to be a big deal, but a shutdown and if it's 45 days, what would happen to the FAA? And is there any incremental margin impact? Like if you lose $20 million of revenue, is the incremental margin 20%?

Yes, I'll start and then Matt can address the margin impact. So because of the type of services we provide, first, again, 50% of our portfolio will not be affected. But because of the type of services we provide the alignment with the national defense strategy, everything going on in the world today, we remain optimistic that during a shutdown, most of our programs are going to continue. Just again, as an example, FAA being the only one that was impacted last 2019 shutdown. Matt, on the margin?

I believe that if there were no shutdown, we would likely be at the higher end of our guidance. The good news is that year-over-year, our funded backlog has increased by approximately 13%, indicating strong funding for our current projects. We feel confident about this. Specifically for FAA, you might consider it to be around 10%, with most of the work in the range of 8% to 10%. Therefore, if you were looking at $20 million or $40 million, that would translate to about $2 million to $4 million in EBITDA.

But I guess the issue is like, so if you can't do the work, employees are there and presumably want to get paid. So, is the incremental margin higher just because I assume you have to pay their salaries, even though they're not able to bill?

Yeah, it's kind of a mix, Cai. There's a mix of furlough, there's PTO, there's modified time. So the team is really effective at working through those things, but I don't suspect it will be a pure absorption of all the employee costs.

The other thing that we have available is research and development. So we either use combination PTO or research and development.

Okay. Great answer. And then how is hiring? I mean, when you're growing 20% over two quarters, does that put any stress on your ability to hire folks and your ability to kind of control the growth?

So both our hiring and retention are strong. Our retention year-over-year continues to improve. And hiring has been great, obviously, to be able to keep up with growth. I would say our human resources team as well as all four of our business units are laser-focused on both the hiring and the retention and doing an excellent job.

Yes, I'd say, generally speaking, Cai, we've been investing in the support functions appropriately to support the growth.

Hey, good morning. Congratulations on the good quarter here.

Thank you, Josh.

Thanks, Josh.

Just following up on that, with the acquisition of Sealing, the $110 million you're expecting in 2024, how large is your overall cyber exposure at this point? And should we expect that to have above corporate average margins?

Yeah. So, cyber represents about 13% of our portfolio, and yes, it does have above average margins.

And with Sealing, do you expect that to be higher next year, that 13%?

I would say, Josh, that the cyber business is growing double digits. So, we suspect it will continue to increase as a percentage of the company.

Got it. And then just on the $250 million radiation device win, how much of that is hardware versus software services? And then do you see that as a market which could find some international interest as well?

Yeah. So the majority of the radiation device win is systems integration. So we're actually putting the system together that performs the testing at areas like airports and ports, for example, and also it could be used on the border as well. We do see market expansion there. We have a pipeline both in the United States, but that could potentially expand internationally.

Our next question comes from Andrew Wittman with Baird. Your line is open.

The next question comes from Andrew Wittman with Baird. Your line is open.

The next question comes from Noah Poponak with GS. Your line is open.

Hey, good morning, everyone.

Good morning, Noah.

Good morning, Noah.

Carey, you've mentioned the possibility of a shutdown versus short-term extensions. However, it seems that the longer these short-term extensions last, the less likely it is that we will see actual full year bills. We find ourselves in a unique situation where the debt limit deal includes a 1% cut across the board on discretionary spending if there are no bills. What is your perspective on the likelihood of this happening? How are you managing Parsons in light of that possibility?

Yeah. Thanks, Noah. So to your point, the debt limit did set in place a cut, and that cut would occur at the start of April. So, the new House Speaker has said he's looking at continuing resolutions. One option is to run until January. One option is to run until April. But he is definitely factoring in that 1% cut as he makes those decisions. I would say, again, when you look at the parts of the budget, where we focus is growing between 5% to 12% compound annual growth rate. The areas that we play cyber and intelligence space and missile defense and critical infrastructure protection are very likely to be the last areas that are going to get cut, given the global tensions that are occurring right now around the world.

Does the strong growth this year create a situation for next year where the comparisons are so challenging that the growth rate slows down significantly? Or, given such a high growth rate this year and the number of new business wins, should we not expect a major base effect next year?

I'd say, Noah, that when we look at the longer-term planning at the Investor Day, we talked about 4% to 6% growth. And so, the baseline we've been telling folks is go off the updated guide and assume the same kind of growth rates. Obviously, 20%-plus is a little bit bullish going into 2024. But we're still comfortable that the range of guide provided at the Investor Day of the new base is appropriate.

We plan in February of next year to provide updated long-term targets. And I would say one of the big focuses is keeping up our competitive win rates, which have been close to 70% throughout the year, and if we can continue that type of performance. But to Matt's point, we've clearly had a great year.

Okay. And then, Matt, just on margins. If I kind of go to the high end of the new EBITDA range and assume CI adjusted is kind of flat sequentially around that 8% would imply Federal Solutions closer to 9%. Is that kind of what you're looking for in the fourth quarter? And then I guess, just run rating from here, are we still thinking FS is over 9%? And can CI just kind of keep moving higher from this quarter? Or will that maybe step down again before it then sustainably is high single digits?

Our goal is to achieve double-digit margins for CI within a few years. I believe we have a couple more years to navigate through these challenging programs. We did see some positive impact in Q3 due to a beneficial change order. Regarding the Federal margin for the entire year, we're still anticipating around mid-9%, with projections indicating approximately 8.9% at the lower end and 9% at the high end for Q4 specifically. So, we expect Federal margins to remain in the low to mid-9% range, aiming for mid-9% in the long term. For CI, we expect margins to keep expanding, and we were pleased to see Q3 close to 10%, which aligns with our long-term goal.

Okay. Sorry. And did you quantify in just an absolute millions of dollars, the item in CI in the quarter?

We did. It's about $10 million.

Our next question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Good morning, guys, and thank you. Great quarter. I think I'm going to ask Noah's questions, but in a slightly more positive light. So, obviously, this growth is super phenomenal and industry-leading. What would you say you attribute it to? Carey, you alluded to, you've been competitively winning 70% of your contracts. So, as we think about that, like how do you think that translates into growth for 2024? I know you're still not even in your planning process yet, but these are your one of contracts that are just starting that are competitive wins, and that's how we should think about it? Or can you shed some light there?

Thanks, Sheila. So I would say, yes, we've had strong competitive win rates. We're also again in six growing markets, which is really nice across the portfolio, across the two segments. All four of the business units have been growing with particularly strong growth out of Mobility Solutions and Engineered Systems. We've done a great job continuing to win what I call new and emerging contracts, be able to win large single-award contracts that have ceilings that we can drive task orders to. And then we're really just at the very start of the United States infrastructure spend, and we're facing a Middle East spend that's going to last for decades. So I would say those are the areas that I attribute to the growth. And I think it's terrific that the team has been able to capitalize on all the tailwinds that we're facing in our end markets.

And Sheila, one thing I would add is with all the success we've had, we have the $8.8 billion in backlog, plus we have $14 billion of awarded not booked. So again, that number continues to grow, and we're really happy with the continued to execute on the existing jobs and the potential ceiling that will come from those.

The next question comes from Mariana Perez Mora with Bank of America. Your line is open.

My question is a follow-up on M&A. How is the pipeline looking? What is the pricing environment and competitiveness for those deals? I'm interested in details about how that pipeline is shaping up, especially since you usually acquire companies that are closely aligned with you.

Thanks, Mariana. The pipeline is very strong in both Federal and Critical Infrastructure. I mean we're really pleased that we've been able to close the three acquisitions we've been able to do this year. We're always kind of ranking and restacking that pipeline to end which one is most important based on the financial criteria of greater than 10% topline growth, greater than 10% EBITDA. And then looking at the technological differentiators, particularly on the Federal side, how do we continue to strengthen in cyberspace in missile defense and critical infrastructure protection. And on the infrastructure side, how do we double down in geographies that are going to be very important across the United States, but also considering Canada. We've been able to continue to find terrific companies and are really glad to welcome them to the Parsons' portfolio. We've also been able to do this mostly on a preemptive basis, so we try to avoid auctions. That's enabled us to stick within our standard multiples of about a 10 times to 13 times. The most recent one we did with I.S. Engineers was a 7.7 times multiple. So, we're really pleased with the terrific companies we've been able to buy and the multiples we've been able to buy them at.

As you expose yourselves to the infrastructure bill across the U.S. and with the recent Texas acquisition, what other states do you think you have opportunity to tap in or will be interested to double down?

Yeah. So when you look at a lot of funds in the infrastructure bill, 70% of those come out through what's called formula funds. And those are generally based on the population of states and their growth over time. So, it tends to be the larger states that get the money. Parsons is fortunate. We're positioned in all 50 states, but we've set in place a list of Tier 1 states. They include states like California, New York, Florida and Texas, for example, that are expected to gain quite a bit of infrastructure bill funds.

Thank you. And last one also related to this topic. How you think about buying the companies versus doing joint ventures when you approach those opportunities?

So I'd say, first, we look at, are we going to build by our partner. So it's, do we build it internal, and can we do that under a research and development and capital expenditures and get there in the timeframe that is needed to deliver our customers' mission? Second, we look at should we partner as an area that is core to our company and if it's not core, then we'll go to a partnership route. And then third is, if it's a core area of our company, we do a gap analysis. And we specifically outlined what technologies we need to be able to continue to move up the solutions integration value chain and be able to bid and win in prime larger contracts. So that's kind of our standard criteria. From a joint venture, I would say, while we do joint ventures, we've started to reduce the number of joint ventures that we do. We will only joint venture in instances where a customer really wants that or where it's required for past performance to win a contract.

This is all the time that we have for questions. I would now 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. And we look forward to speaking with many of you over the coming weeks. And with that, we'll end today's call. Thank you very much.

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