Parsons Corporation (NYSE:PSN) Q1 2024 Earnings Call Transcript

Parsons Corporation (NYSE:PSN) Q1 2024 Earnings Call Transcript May 1, 2024

Parsons Corporation beats earnings expectations. Reported EPS is $0.7, expectations were $0.62. Parsons Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to First Quarter 2024 Parsons Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Dave Spille, Senior Vice President, Investor Relations. Please go ahead.

Dave Spille: Thank you. Good morning and thank you for joining us today to discuss our first quarter 2024 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, as well as a review of our increased 2024 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 fiscal year ended December 31, 2023, 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 but 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.

Carey Smith: Thank you, Dave. Good morning and welcome to Parsons first quarter 2024 earnings call. We had a great start to 2024 after reporting record financial results on fiscal years 2022 and 2023. For the first quarter of 2024, our momentum continued with record quarterly results for revenue, adjusted EBITDA, adjusted EBITDA margin, contract awards, and total backlog. Our ability to leverage our strong balance sheet to invest in software and integrated solutions, as well as to acquire companies with differentiated technologies is enabling Parsons to move up the value chain and win larger and more profitable contracts. Our team continues to perform at a high level, and our persistent focus on our six growing end markets is enabling us to capitalize on the tailwinds that are positively impacting both, our Federal Solutions and critical infrastructure segments.

During the first quarter, we generated over $1.5 billion in revenue for the first time in our company’s history, and delivered organic revenue growth of 29%. This is now the fourth consecutive quarter where organic growth exceeded 20%, making us an industry growth leader in both our Federal Solutions and critical infrastructure segments. The strong results included double digit total revenue growth across all four business units in major geographies. We also achieved quarterly records for adjusted EBITDA in contract awards, adjusted EBITDA grew 56% and contract awards increased 51% year-over-year. Total backlog also grew 8% to a record $9 billion and we exceeded our cash flow expectations for the quarter. Our momentum is driven by our ability to deliver on our customers missions, win and ramp new contracts, grow revenue on existing contracts, achieve strong win rates, efficiently manage costs, and operate effectively in our two well-funded and growing segments.

As a result of our strong first quarter performance, we are increasing our 2024 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 1.4x on an enterprise basis, which included three contract wins over $100 million each. Parsons continues to win large strategic contracts across both segments supporting national security priorities and unprecedented global infrastructure spend. In our Federal Solution segment, we continue to pursue contracts that focus on near peer threats and require solutions that are driven by our exquisite cyber space, missile defense, electronic warfare and information operations capabilities. In critical infrastructure we’re pursuing projects that require high-end design and program management expertise, and build on our legacy of delivering innovative solutions for complex infrastructure projects.

We are also aligned to geographic locations that receive high levels of global infrastructure funding. Strategic first quarter wins in our critical infrastructure segment include our selection by the Gateway Development Commission as the delivery partner on the $16 billion Hudson Tunnel Project, which we plan to book our portion of this contract in the second quarter of 2024. This milestone project is supported by the bipartisan Infrastructure Investment and Jobs Act, and is slated to receive nearly $12 billion in federal funding, the largest investment for a mass transit project in modern history. Over the last 12 months, Parsons has won three of the largest North America transportation wins in our company’s history, the Hudson River Tunnel, JFK International Airport Roadways and Newark Bay Bridge projects.

Parsons also won two significant contracts in Saudi Arabia during the first quarter. The first was a new $87 million 3-year contract. This project is for the development of a luxury mountain tourism destination and the real estate development customers owned by the Public Investment Fund of Saudi Arabia. The second award was a $53 million contract for program management or Riyadh’s Road Network. Following the record in 2023 of 33% organic growth, Parsons continues to win work in the Middle East as a result of our strong trusted partner reputation. We expect continued double digit growth in the Middle East in 2024 given our first quarter performance, current backlog of work and our large pipeline of bid opportunities. Strategic first quarter wins within our Federal Solution segment include option period awards totaling $970 million with a confidential customer.

Also, Parsons was selected by the United States Department of Labor to assist with planning, management and oversight of the Job Corps Facilities program. We’re the sole authority on $115 million [ph] contract of which we booked $46 million. Parsons has performed project management on this contract since 2013. In addition, Parsons was one of two companies awarded a position on an IDIQ contract by the National Nuclear Security Administration, Office of Nuclear Smuggling Detection and Deterrence. This $1 billion sealing value [ph] contract to deploy global counter nuclear smuggling systems represents new work for the company, and we were already awarded two task orders for $13 million. This strategic win is an important progression of our decade’s long legacy of serving global and national nonproliferation security missions.

In addition to the Department of Energy, we have supported customers including the Defense Threat Reduction Agency, Transportation Security Administration, and the Countering Weapons of Mass Destruction Office and similar missions. We were awarded a $63 million for a fixed price contract by The United States Air Force Lifecycle Management Center, of which we booked $44 million. The scope is for a directed energy laser system that has already neutralized more than 4000 unexploded ordnance, and allows for the precise detonation of submunitions, cluster and general purpose bombs, land mines and artillery shells. This is the first ground-based laser system in production and has been deployed in Iraq, Afghanistan and the Indo-Pacific region where it demonstrated 100% effectiveness.

Finally, we were awarded a one year based contract by the National Oceanic and Atmospheric Administration for system integration and cloud management services for their traffic coordination system for space. This contract is valued at $27 million, of which we booked the base value of $16 million. Under this contract, we will provide space situational awareness and space traffic coordination services to private and civil space operators. We were able to win the strategic contract by leveraging the expertise of our space team that has supported the Department of Defense for nearly two decades. We are now providing space situational awareness solutions for both, commercial and Department of Defense customers, and we are well positioned to pursue future global opportunities.

In addition to our contract wins, the Environmental Protection Agency recently issued the first national drinking water standard to protect communities from exposure to harmful PFAS or forever [ph] chemicals. The EPA estimates that 6% to 10% of the United States public drinking water systems will have to take action to comply with these new and more restrictive safety standards. This announcement includes $1 billion of newly available funding and as part of a $9 billion investment from the Bipartisan Infrastructure Bill to help communities eliminate PFAS and emerging contaminants from their drinking water. Although the markets in very early stages, we believe that PFAS mitigation offers a significant future growth opportunity for Parsons since we have the ability to investigate, remediate, treat and provide monitoring and support services for our customers.

We have already completed nearly 2000 PFAS investigations for industrial, commercial and federal clients, and we’ve designed and built and installed over 7000 PFAS point-of-entry treatment systems. We also designed, built and continue to operate three full-scale treatment plants to remove PFAS from drinking and wastewater. We estimate PFAS is a $40 billion addressable market for Parsons, and we expect annual spending to grow into the next decade. We continue our 80-year history of cultivating a responsible enterprise. We are proud that we were named one of the world’s most ethical companies by Ethisphere for the 15th consecutive year. We also were recognized for delivering project excellence on three major infrastructure programs and honored for our diversity, equity and inclusion efforts, and for being a military friendly employer.

The company’s Newark Liberty International Airport Terminal A joint venture project was named the world’s best new airport terminal by the global airport evaluation firms Skytrax. This project is just one of three North American airport terminals to receive a 5-star rating from Skytrax. Additionally, the I-270 North design build project for which Parsons served as primary consultant was selected as one of the American Public Work Association’s 2024 transportation projects of the year. Finally, The American Council of Engineering Companies of New York recognized Parsons with the Empire Award for the East Side Access Project for it’s significant contributions to the growth, prosperity and betterment of the community. These recognitions reiterate Parsons commitment to successfully delivering on our customers missions.

In summary, we’re executing on our strategy and delivering on our customers missions as we continue to post record results and strong growth rates across all key financial metrics. Parsons has the right team and the right portfolio at a time when all of our end markets are growing between 5% and 12%. Our team is consistently delivering double digit growth across all four business units and major geographies. Our concerted effort to increase margins drove significant expansion this quarter. In addition, our cash flow and strong balance sheet are enabling us to continue to invest in technology and our employees to further differentiate our portfolio and to complete accretive [ph] acquisitions across both segments. Thus enabling us to win a significant amount of business as contract awards grew more than 50% this quarter.

As we look to the future, we have ample tailwinds in both segments. In Federal Solutions, near peer threats are driving demand for our cyber space, missile defense, electronic warfare, information operations and critical infrastructure protection capabilities. This complements the unprecedented infrastructure spending across our global portfolio. Our significant financial visibility is supported by these market tailwinds and by having less than 5% of our revenue for repeat [ph] in 2024, and less than 10% in 2025. Having a record total backlog of $9 billion, of which 61% is funded, having $14 billion of contract wins that have not yet been included in our contract awards or backlog, and having a $56 billion pipeline of opportunities to pursue.

Before I turn the call over to Matt, I want to thank and recognize the outstanding work of our talented employees. For eight decades, they have worked to make our world safer, smarter, more sustainable, and more secure. With that, I’ll turn the call over to Matt to provide more details on our first quarter financial results, and our increased fiscal year 2024 guidance. Matt?

Matt Ofilos: Thank you, Carey. As Carey indicated, our momentum continued through the first quarter of 2024 and was highlighted by record results for total revenue, adjusted EBITDA, adjusted EBITDA, margin contract awards, and total backlog. We’re pleased with our double digit growth across all business units. Our Q1 margin performance also put us on our way to a 40 basis point goal for the year. Turning to our results; first quarter revenue of $1.5 billion increased 31% from the prior year period, and it was up 29% on an organic basis. Organic growth was driven by the continued ramp up on recent contract awards and execution on our backlog programs. SG&A expenses for the quarter were 14.4% of total revenue, compared to 17% in the prior year period as we intentionally focus on efficient growth across the portfolio.

We are realizing savings in areas to include facilities expenses while continuing to invest in technology, new business capture and hiring retention initiatives. Adjusted EBITDA of $141 million increased $51 million, or 56% and adjusted EBITDA margin expanded 150 basis points to 9.2% from the prior year period. These increases were driven primarily by increased volume on the margin accretive contracts, and a deliberate focus on cost management and controls. I’ll turn now to our operating segments, starting first with Federal Solutions where first quarter revenue increased by $275 million, or 43% from the first quarter of 2023. This increase was driven by organic growth of 41% and the contribution from our Sealing Tech acquisition. Organic growth was driven primarily by the ramp up of recent contract wins and growth on existing contracts to include strength in our SAT [ph] cyber portfolio.

Federal Solutions adjusted EBITDA increased by $36 million or 65% from the first quarter of 2023, and adjusted EBITDA margin increased 130 basis points to 10.2%. These increases are driven primarily by increased volume on accretive contracts, effective cost controls, and a favorable adjustment related for the achievement of program milestones. Moving now to our critical infrastructure segment. First quarter revenue increased by $87 million or 16% from the first quarter of 2023. This increase was driven by organic growth of 15% and a nominal amount of revenue contribution from acquisitions. Organic growth was driven by higher volume in our Middle East and North America infrastructure portfolios. Critical infrastructure adjusted EBITDA increased by $14 million or 42% from the first quarter of 2023.

Adjusted EBITDA margin increased 140 basis points to 7.7%. The adjusted EBITDA increases were driven by higher volume on accretive programs and improved operating performance. Next, we’ll discuss cash flow and balance sheet metrics. During the first quarter of 2024, we consumed $63 million of operating cash, which was better than planned. Compared to prior year the greater cash consumption was the result of timing of receipts. Additionally, there was higher incentive compensation given the company’s strong fiscal year 2023 operating performance and increased employee base. During the quarter, net DSO declined by 6 days to 63 days. Capital expenditures totaled $9 million in the first quarter of 2024. CapEx continues to be well controlled and remains in line with our planned spend of less than 1% of annual revenue.

We’re continuing to invest in strategic areas like classified facilities and space technology. Turning to bookings; first quarter contract award activity increased 51% year-over-year to a record $2.1 billion for a book-to-bill ratio of 1.4x. On a trailing 12-month basis, contract awards increased 41% and our book-to-bill ratio was 1.2x. In our critical infrastructure segment, we achieved a quarterly book-to-bill ratio of 1.3x in Q1. On a trailing 12-month basis, it was 1.1x. This marks our 14th consecutive quarter of the book-to-bill ratio of 1.0x or greater. On a trailing 12-month basis, our book-to-bill ratio was 1.1x. We remain optimistic that global infrastructure investment will continue to drive demand and new business well into the future.

Our Federal Solutions book-to-bill ratio for the quarter was 1.4x and 1.2x on a trailing 12-month basis. We ended the first quarter with record backlog of $9 billion, up $664 million or 8% from the prior year period. During the first quarter, we took advantage of positive market conditions and successfully issued $800 million of 2029 convertible senior notes to retire portion of our $400 million convertible notes due in 2025. As a result, we were able to obtain an attractive interest rate of [indiscernible] which provides enhanced free cash flow to continue our demonstrated capital deployment strategy. In addition, we entered into hedging transactions as part of this offering that protects shareholders from dilution upto a share price of $131 76.

We use the net proceeds from our new convertible note to repurchase approximately $285 million of our prior $400 million convertible notes, and we expect to address the remaining notes at/or before their August 2025 maturity. We intend to use the remainder of the net proceeds from the new offering for general corporate purposes, potential acquisitions and to fund working capital related for the company’s growth. Thanks to strong investor demand for this offering, we achieved beneficial terms for the company from a well-timed and efficiently executed transaction. The transaction capitalized on the strength of Parsons business performance and balance sheet to achieve two key objectives. First, to raise capital at the lowest all-in cost available to Parsons; and second, to minimize potential dilution to our current shareholders by retiring the existing convertible and issuing a new convertible at a higher share price.

The transaction resulted in a $214 million pre-tax charged to our GAAP net income and impacted GAAP EPS by $1.50 per share. Excluding this impact, GAAP EPS would have been $0.49 per share. This charge was primarily due to the strength of the stock price increasing to a level above the conversion price of our original convertible bond. These GAAP charges have been excluded from our adjusted EBITDA and EPS calculations. Our balance sheet remains strong as we ended the first quarter with a net debt leverage ratio of 1.6x compared to 1.4x at the end of the first quarter of 2023. We will continue to effectively use the strength of our balance sheet to make additional internal investments and accretive acquisitions that support our long-term growth objectives.

Now, let’s turn to our guidance. We are increasing all of our 2024 guidance ranges to reflect our record first quarter results, recent large contract wins and option awards, positive end-market exposure and our favorable outlook for the remainder of the year. For 2024, we are increasing our revenue range by approximately $350 million to $6.1 billion to $6.4 billion. This represents total revenue growth of 15% at the midpoint and 14% on an organic basis, which is approximately double the growth rates of our prior guidance. Additionally, we are increasing our adjusted EBITDA range, we now expect adjusted EBITDA to be between $535 million and $575 million which represents 19% growth at the midpoint of the range and continues to exceed revenue growth.

Margin at the midpoint of our increased revenue and adjusted EBITDA ranges remains at 8.9%, which is 40 basis points above our fiscal 2023 results. We’re also increasing our cash flow guidance. We now expect operating cash flow to be between $380 million and $440 million. For the midpoint of the guidance range we expect free cash flow conversion to be approximately 100% of adjusted net income. Other key assumptions in connection with our 2024 guidance are outlined on Slide 11 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 and we exceeded our cash flow expectations. We also completed a successful financing transaction and are confident in our ability to achieve our increased 2024 guidance ranges.

With that, I’ll turn the call back to Carey.

Carey Smith: Thank you, Matt. In closing, I’m very pleased with our start to 2024. We delivered record results for revenue, adjusted EBITDA, adjusted EBITDA margin, contract awards and total backlog. We also achieved 29% organic revenue growth, which was driven by strong growth across all four business units in major geographies, giving us the confidence to raise all of our guidance metrics. Looking forward, I’m excited about our business given the ample tailwind that we have in both segments, our strong backlog and pipeline, low [indiscernible] levels and robust balance sheet that will enable us to continue to invest in the business and make accretive acquisitions to drive future revenue growth and margin expansion. With that, we will now open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Toby [ph] with Truist Securities.

Unidentified Analyst: Thank you. The first question that comes to mind is, how does — do you think Parsons sustains what seems to be a systematically higher win rate for new Federal Solutions contracts than certainly is an industry norm because the rate of organic growth that the company is posted is almost seems otherworldly for this industry?

Carey Smith: Yes. Thank you, Toby [ph] and good morning. So we’re very pleased with our win rate of 78% so far within a quarter, and this is up from our win rate last year of 66%, and the prior year of 49%. I would say a couple of things. First is, I think all four business units are really hitting on all cylinders. We’ve made a conscious effort to strategically position ourselves in six markets; all markets are growing, and we’re fortunately winning business across all six of those markets. We’ve also had the strategy of moving up the solutions value chain, and both through internal investment, as well as through M&A being able to bid and win larger, more strategic and more profitable jobs. And I think as a testament to that, we had 15 wins last year greater than $100 million.

Starting off this quarter, we had three wins greater than $100 million. So again, I would say — again, both segments, all four business units are really hitting on all cylinders. We have the right team, the right profile at the right time.

Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies.

Sheila Kahyaoglu: Good morning, guys and a great quarter. I wanted to maybe start out with FS [ph]. Like 41% organic growth, I don’t think I’ve ever seen that for defense contractors. So maybe if you could give us a little bit more detail on what drove that? You mentioned cyber in your prepared remarks, Matt, I believe. So if you could give us some outline there and how we could see that growth continued through the year?

Carey Smith: Yes. So the federal growth was very strong at 41%. And also, we had Sealing Tech acquisition that was included in our total growth. There were a couple of things. First, I’d say it was ramp up of recent wins. It did include our cyber portfolio, so some of the contracts we’ve had like our CS contract, CCMS board [ph] venture; those have all seen a growth. We also won some work with a confidential customer, and fortunately, that contract was able to ramp up very quickly.

Sheila Kahyaoglu: Okay. And then if I could ask about the 3 Jersey contracts, just because that’s where I’m from; the Hudson River Tunnel, JFK and Newark. Carey you gave those a shout out. So how do we think about the scope of those and the dollar amount on an annual basis and the duration?

Carey Smith: Yes. So let me start with JFK. JFK was $130 million contract for us. And basically, our scope will be upfront; so it’s going to be over the first 3 years. And Sheila, you’ll be happy to know, we will improve the roadways, we’re going to make it much easier to get in and out of the JFK Airport which I know we’re all looking forward to. The next one I’d say is the Newark Bay Bridge, which is basically — we were selected by the New Jersey Turnpike Authority as the final designer to replace the Vincent Robert Casciano Bridge, which was called the Newark Bay Bridge. And so on that one, you’re going to see that period of performance basically over about a 5-year period; delighted to be the designer to do that new bridge.

And that’s basically built upon our bridge reputation where we’ve designed to build over 4000 bridges around the world; so significant strategic win for us. And the last one, I’ll say probably the one that we’re most proud of is the Gateway Program; the largest mass transit investment in the U.S. in recent history. There’s going to be, as I mentioned on the call, $16 billion of funds going into this, and we will be the project manager for it. So this is the Hudson Tunnel Project where we’re going to be improving the capacity, the reliability and resiliency for commuter and intercity rail transit. And this line serves 800,000 daily passengers from DC to New York, New Jersey and New England. Really critical project for the region and area, and we’re just delighted to be a partner in supporting the Gateway Development Commission as their integrated delivery partner.

Sheila Kahyaoglu: Right. Thank you.

Operator: Our next question comes from a line of Bert Subin with Stifel.

Bert Subin: Hey, good morning. I wanted to ask — maybe first question for you, Matt. If we think about the margin setup, I think the sort of path that you talked about at Investor Day was sort of sequential improvement over a 3-year period in critical infrastructure. And what we’re seeing is, it seems like that’s on-track but Federal Solutions is sort of stepped up from that 9% or low 9% range. What should we expect? Is there an opportunity for Federal Solutions margins to remain elevated? Or were there some one-time things that keep that in that double digit range?

Matt Ofilos: Yes, good question. But I’d say when I think about Federal, you’ve heard Carey and I talk previously, that we’re pretty happy with where Federal sits from a margin perspective, kind of low to mid-9% [ph]. I will say, you’ll probably see a little bit of a shift to a little bit more fixed price this quarter. And so that’s an intentional goal of trying to drive additional fixed price to help drive margins. So we did see — so we could see some additional help on the federal margins. But to your point, our long-term goal is to get the critical infrastructure business trending toward double digits, and it’s kind of just the slope at which we get there. But yes, absolutely; the — within Q1, we had Federal — we had a smaller pickup in there related to some contract completions. But all in all, again, really happy with the — our EBITDA performance within the quarter, puts us well on our way to the 40 basis points of improvement year-over-year.

Bert Subin: Just a clarification there, Matt. On the critical infrastructure side, I mean, I think you have one more project that’s wrapping up second half. Should we expect that the margin as a little bit of like a hockey stick as we get later in the year? Or do you expect it to be more sort of — sequentially, you know, improving at a slower rate?

Matt Ofilos: Yes. I would say it’s improving at a slower rate, that program specifically is kind of at a — it’s not necessarily a loss, it’s kind of breakeven. So you’ll start to see some improvement but the revenue is pretty low at this point; so I wouldn’t think of a hockey stick necessarily. But to your point, we’re really excited. We wrapped up one of the two challenged programs in Q1. And then the second one is to wrap up late Q3 early Q4; so really run it on track and in a great place.

Carey Smith: Just to highlight. Sorry. Sorry, I think we had on that one project about $20 million to write down last year. So that will eventually become a tailwind force when that project has wrapped up in the third quarter. We’re excited the product program is over 92% done, we’ve completed all the key technical hurdles to show the system works. So it’s just a matter of finishing it up for our customer.

Bert Subin: Got it. And just one follow-up on the Middle East. There’s been some noise, I think earlier this year, just around NEOM getting scaled back from the 105 mile initial plan to 1.5 miles. I assume that initial plan was probably never viewed as too realistic of a timeframe. But as you think about that, I’m just curious what impact you’ve seen in the region? It seems like in the quarter, flat sequentially on a seasonal basis is still pretty good. And you’re talking double digit growth; so is it having any impact? And do you expect any sort of acceleration in the region?

Carey Smith: Yes. So NEOM was actually rephased in 2023; so we had built this into our plan. The line is still going to be 105 miles long, but what they’ve changed is the duration. Basically they’re going to do 1.5 by 2030. But the scope is still the same again, from an overall perspective. As the program manager, we will be on from the start to the finish of this project, so it doesn’t necessarily impact our work. Just to highlight overall in the region; we’ve been in the Middle East region for 60 years. We’ve been in Saudi Arabia for 50 years. We have a 50-50 partnership with Saudi companies; so we’re kind of seen as Saudi in the work that we do. And that’s why they trust us with their most critical projects. Saudi Vision 2030 was set up to transform the country and diversify away from oil.

So how do you look at doing things different from an economic basis, a social basis and a cultural basis. And we’re involved in nearly every major project that’s going on in Saudi including NEOM, THE LINE [ph]. NEOM Oxagon, Qiddiya, the world’s largest entertainment city; Diriyah, the restoration of Saudis history; King Salman Park, which can be four to five times size Central Park; King Abdullah Financial District, a city that’s going to be driven and led by a lot of renewables. In addition to NEOM, THE LINE, a 100% renewable city. Then our most recent win, Al-Soudah [ph], which is going to be a new luxury tourism destination. So, when you look at our Middle East growth results for the quarter of 19%, it’s so substantial, and we continue to win a lot of work there.

Bert Subin: Very helpful. Thanks very much.

Operator: Our next question comes from the line of Andrew Wittmann with Baird.

Andrew Wittmann: Great, good morning, and thank you for taking my questions. Matt, maybe for you. I just wanted to understand a little bit more about the updated outlook here. I mean, when I just kind of look at guide [ph] quarterly, but when I look at your results versus consensus in the guidance range, it kind of feels like most of the raise was due to outperformance in the quarter, rather than a change of outlook for the rest of the year. But I thought I would have you kind of offer some thoughts on how you’re thinking about the remaining in the year this quarter versus how you saw it last quarter? And maybe if you could just quantify for us that pickup in the Federal segment, so we can just understand how much of a help that was in the quarter?

Matt Ofilos: Yes, happy to do that, Andy. I think the way we looked at it as the Q1 was up about $175 million [ph] in the ballpark from plan. So, the $350 million [ph] raise is about half of the — half of it happened in Q1; so think about $50 million to $60 million per quarter, through the end of the year. Q2 to Q4 we are expecting 10%-ish growth in both segments, plus or minus a point [ph] depending on which segment you’re looking at. But all in all, really happy with the performance in Q1, a good portion of the raise did come in Federal to your point. So I think that $350 million [ph] lift is about — half of it was Q1 and then the rest is spread Q2 to Q4.

Andrew Wittmann: And the size of the pickup on the milestone payment?

Matt Ofilos: That was just under $5 million [indiscernible].

Andrew Wittmann: Got it. And then, thank you for the context that you gave us. You gave us the contract scope that’s been awarded but not in backlog. So what was your total pipeline? Sometimes you guys talk also about the amount of awards that you’ve submitted that are awaiting notice. Just kind of curious if you have an update on that one, so we can just see how the bid process is converting into awards?

Carey Smith: Sure. So to start with the pipeline, we have right now $56 billion pipeline within their $117 million, or 117 programs that are greater than $100 million in value. The awarded, not booked, as you mentioned is $14 billion, and that’s comprised of — basically half of it is option years on contracts that we’ve been awarded, the other half is awarded Sealing as a single word to Parsons. So we do expect about 50% of that to convert within the next three years. Our waiting notice of award amount is $4.5 billion; within the $4.5 billion there are 11 awards greater than $100 million. And again, just very pleased with the start to the year with 78% win rate.

Andrew Wittmann: Great. That’s all I had. Have a good day.

Operator: Our next question comes from the line of Alex Dwyer with KeyBanc.

Alex Dwyer: Hi, good morning. Thanks for taking my questions. So, I just wanted to expand on $56 billion pipeline, which I think is slightly down from last quarter. Is that just a function of all the wins you’ve had in the quarter with the 1.4x [ph] book-to-bill? And then the pipeline, how does that split between the six business units? Is there like one or two of those that are driving a bigger share of the pipeline, or one or two that are smaller? So, any thoughts on that would be helpful.

Carey Smith: Sure. So the pipeline is very close to what it was last quarter, I think it’s within $2 billion, and the pipeline’s really driven by — to your point, wins. We did win some of the significant work that was previously in the pipeline. But it’s still about our largest pipeline that we’ve ever had in our company’s history. Most of the pipeline tends to be comprised, I’d say it’s more slanted towards Federal because we have a little more line of sight longer term in the Federal business. So if you look at all four of the business units though, are heavily represented within the pipeline. And again, all four of the business units are delivering and winning.

Alex Dwyer: Thank you. And can I ask about the acquisition strategy for this year. How many deals would you expect to close on this year? Could they be larger or smaller? And maybe if you’re seeing any heightened competition for acquisitions this year versus last year?