Carey Smith: Yes. So we plan to acquire two to three companies this year, we’re going to continue to be very selective. Last year, we passed on over 100 companies, so we regularly are looking at companies, but they have to meet our strict financial criteria of growing greater than 10% on the top line, and having tailoring [ph] greater than 10% EBITDA margin. Our plan is still to buy for capabilities. We’re not buying for scale. We — I think we’ve shown we don’t need to buy for scale, we’ve been able to move up the value chain and bid and win larger jobs through capabilities and technology differentiation. So when you look on the Federal side, we’re going to continue to look at companies that have cyberspace electronic warfare and information operations capabilities focused on the near peer fight.
And when you look on the critical infrastructure side, we’re going to focus on our Tier 1 states, which are really Texas, Florida, California, New York and New Jersey. Even though we do business in all 50 states, those are the ones that will receive their predominant amount of the Infrastructure Investment and Jobs Act funding. As far as heightened competition at this point, I’d say it’s still pretty similar to what we saw in last year. There’s an expectation, I know, by a lot of the bankers that the number of deals is going to go up in 2024. But I would say, as a first quarter, we haven’t seen a significant change. We’re going to continue to pay on our valuation, which has been around the 10x to 13x range.
Alex Dwyer: Thank you.
Operator: [Operator Instructions] Our next question comes from the line of Mariana Perez Mora with Bank of America.
Mariana Perez Mora: Good morning, everyone. Sir, you mentioned you’re growing this fast because you have the right team, the right profile, the right time, and I could argue you’re already looking at the right place to expose yourself to the Critical Infrastructure Bill. But how do you think about organic or inorganic skills capabilities that you have to develop to continue to be with these profile and be able to continue to capture this type of growth?
Carey Smith: Yes, I would say a couple of points in that regard. First is, it’s important to hire, retain and develop the best talent. So we are a company that focuses on people first, we pride ourselves on having a differentiated culture where people can come in and be fully engaged in the business. We’re not a huge company, so we still have kind of that agility and entrepreneurism of a small business. But yet we have the breadth and depth like a large company to be able to win programs. I would say we also invest in research and development to make sure we’re on the leading edge. Two great examples of research and development projects I touch upon would be artificial intelligence and PFAS. Within artificial intelligence, we’re applying artificial intelligence across our entire portfolio.
We use it as an enabler in areas like camera unmanned air systems; how do you identify, detect and track an unmanned vehicle that’s coming in. We use it in areas like cyber security, two-fold there. One, how do you detect an adversaries next move. And another example would be, if you’re looking at our printed circuit board, how do you determine if it’s been tampered with. On a critical infrastructure side, we’re applying artificial intelligence to areas like energy. You’ve distributed energy resource management system, as you start to have renewables, how is your load going to change, how are your payment terms going to change relative to that. We also use it for cyber compliance for energy and water sectors, and then we use them from predictability on traffic flow.
So, I’d say artificial intelligence is a critical enabler for the business. The other is PFAS. We expect the PFAS market, as I mentioned, it’d be a $40 billion addressable market for Parsons. We’ve already completed the 2000 investigation, 7000 point-of-use entries for households. We’ve also done over 71 projects to remove aqueous [ph] self-forming film, which is basically the film that is on facilities for Department of Defense, FAA [ph]. So we see that as a very robust marketplace. But I’d say it all comes back to having the right people to deliver the customer’s missions as we move up the value chain in both of our segments.
Mariana Perez Mora: Thank you. And as a follow-up to the PFAS addressable market, how large is PFAS today? How should we think about the growth over the next decade as you reach — this like $40 billion target, and/or like the market? And how are the margins on those developments?
Carey Smith: Yes. So currently, our environmental remediation portfolio is about 12% of the Parsons revenue. And if you look at growth of PFAS over the next decade, I would say we’re at the very early stages. So we’ve done all these investigations but now that the EPA has published its guidance for the minimum contaminant levels, and people are going to have — the cities, companies are going to have start moving forward with remediation. There’s also language, for example, in the NDAA [ph] that the FAA is going to have to remediate it’s sites. The margins are accretive to our business unit margins.
Matt Ofilos: That said, Mariana, especially when we get out into the remediation phase. Obviously, in the early phases, when it’s more studies, it’s more kind of T&M but when we get into applying IP in the longer term remediation, the margins are accretive, even more accretive.
Mariana Perez Mora: Thank you so much.
Operator: Our next question comes from the line of Josh Sullivan, with The Benchmark Company.
Josh Sullivan: Hey, good morning. Just on that labor availability question, can you just give us some perspective just on inflation, regional access, retention?
Carey Smith: Sure. So we’ve been able to hire and retain people, and that’s obviously what’s been driving our organic growth. Our hiring goals to achieve our midpoint of revenue this year are about the same as what we delivered last year, and we haven’t seen much of a change in terms of the labor market. Our retention continues to be better than industry benchmarks in both of our segments. From an inflation perspective, I would say it’s going to be pretty similar to last year, and what we saw, not much of a difference. And because many of our contracts — 44% on the Federal side are reimbursable, we do get a large part of that reimbursed. And then on the critical infrastructure side, most of those projects, if you exclude the mind jobs, tend to have a shorter duration; so we don’t have significant inflation.
From a regional perspective, our easiest area to hire remains the Middle East because we recruit from over 40 countries around the world; so I think that will continue. And probably our next easiest would be critical infrastructure in general, across North America. The hardest area to hire, and recruit and retain is Federal; the people that have the clearances. So that is where we put a lot of focus. I think we’ve done several things very well there, including our robust intern program where we bring in hundreds of interns, we start to get their clearances at a very early stage. We also have a unique ability compared to our peers, where we have a commercial business. So we can start people working in a commercial business, get them cleared and have them move over.
But I think again, it goes back to culture. And when you look at our company, we’re very mission focused, whether it’s national security or infrastructure. But we have a very unique culture, and that’s what attracts and retains people at Parsons.
Josh Sullivan: I’ll stick to one. Thank you for the time.
Operator: [Operator Instructions] Our next question comes from the line of Noah [ph] with William Blair.
Louie DiPalma: Carey, Matt and Dave, good morning. This is Louie DiPalma. On the on the Federal side, how much of the elevated demand do you view as being driven by the various geopolitical conflicts around the world? And are you seeing specific work for cyber missile defense and electronic warfare associated with Ukraine, Israel and the Indo-Pacific missions? Or is it more along the lines of everyday projects that you’re seeing in the elevated demand war [ph]?
Carey Smith: Yes. Thanks, Louie for the question. So I would say the confidential work that we’re doing is related to a global requirement. And so yes, that would tie to international demand. Talking more broadly about international in total, Parsons currently is in 30 countries around the world. And if I look specifically at Ukraine, the opportunities that we have there today, we’re doing radar and RF simulators [ph], we also were recently awarded an airbase air defense task order to provide integrated air and missile defense system across some of the NATO countries. And then we’re working for the Defense Threat Reduction Agency on the eastern flank, so that includes areas like Ukraine, Poland, Baltics, and we’re seeing a higher demand there.
Relative to Ukraine for the long-term where we see opportunities includes demining, environmental remediation, to be able to get people back to live in Ukraine, and then the ultimate rebuild of Ukraine. To talk about the Middle East conflicts, I would say, we are engaged to support with cyber and electronic warfare be it — to be able to counter threats and be able to protect our troops and the personnel in the region. And then the other region I’d like to mention is Indo PAYCOM [ph], which — where we see significant opportunity. The FY 2025 budget had $9.9 billion for the Pacific deterrence initiative. This was up 8.8% from the FY 2024 budget. Parsons has been in Guam for 30 years providing support for public works. We’re doing defensive Guam work for the Missile Defense Agency, and we have a contract to assess munitions explosive materials for hazardous removal; also in part of the Missile Defense Agency.
In Kwajalein [ph], we built their field and we’re currently building housing units and looking at other opportunities across that region. And then in Hawaii, we have about 130 people that support critical cyber and intelligence missions. Internationally and all the regions I just mentioned, other capabilities that Parsons provides, includes border security, counter unmanned air systems, electronic security systems, cyber and electronic warfare. And then another thing that has come up as a result of the conflict is the shortage of munitions and ammunitions. So under the army modernization plan, there is $4.5 billion put there to modernize the army ammunition facilities. And we’re heavily involved at both, Holston and Radford [ph] for that modernization.
Louie DiPalma: Thanks, Carey. It is obvious you have a ton of exposure to these conflicts. And on the other side of the business, you’ve answered a few questions about the 3 New York, New Jersey mega projects. But as it relates to the Infrastructure Bill funding, are there many others of these types of mega projects across the United States in the pipeline that are up for bid right now?
Carey Smith: Yes, Louie. What we’re seeing are bigger projects, and we’re seeing the projects come to fruition. Once the bill was passed in November 2021, the state and local also started to put up their funding because they knew that federal funding was secure; so we’ve seen a lot of projects move forward. I think that’s reflected in our 14 consecutive quarters of greater of than 1.0x [ph] book-to-bill growth. And I would say that those Tier 1 states that I mentioned, specifically, Texas, there are several greater than $100 million — ranging $100 million to $500 million projects coming up there. Los Angeles is worried about — you know, they have to host the Olympics coming up, as well as the World Cup. And then the New York, New Jersey area continues to modernize after receiving a significant amount of funds.
And Florida would be the final one where we’ve seen both, transportation opportunities, as well as water — wastewater. It’s nice to see the funds flowing, and more importantly, the projects moving forward. We don’t expect that to peak until about the 2027 [ph] timeframe. And then we expect to tail after that of like 6 to 8 years. And there’s already talk about how do we keep the infrastructure going; so maybe an infrastructure bill too.
Louie DiPalma: And is there many — is there much demand in the pipeline for bridge infrastructure? There was the incident close by you in Baltimore, and there’s been a lot of studies recently about just deteriorating bridges and aging infrastructure. Do you see a role for Parsons to play there in terms of the design of new, more resilient bridges?
Carey Smith: We do and we can play one of two roles; we can play a program management role which we’ve done, and we can play a design role. The Baltimore Bridge, by the way, the Key Bridge, there’s going to be an industry day held this week on that opportunity. But yes, we are seeing an opportunity; bridges in the last report published by ASC were rated very poor, and so they both need to be upgraded, better maintained. And then in some cases is what we’re seeing — in the New York, New Jersey area rebuilt.
