Bert Subin: And Carey, I guess Matt, just as a sort of last follow up on the cash side, sounds like generation looks really good. And talking more like two to three deals a year versus maybe one to two, I guess in the meantime, how are you thinking about capital deployment? Are you just sort of willing to wait until you guys find the next deal?
Matt Ofilos: Yes, I think that’s right, Bert. Obviously, we have the share buyback program that’s kind of nominal. We did about $11 million worth of share buyback in 2023, but definitely the focus is on M&A and to your point, the team has done an amazing job with the $100 million in op-cash for the year just focused on working capital improvements and so the cash is generating and we’re really achieving critical milestones so really excited about the cash position the 1.0 leverage puts us in a great place to keep pushing deals. I’d say the transition from kind of one to two deals to two to three is a mix of going from kind of a heavier federal to a mix of federal NCI where the CI deals as Carey mentioned are a little bit smaller so we have capacity to kind of get to the two to three.
Carey Smith : And that M&A really helps our momentum as well, whether it’s if I look at the three recent deals SealingTech really expanded our presence in defensive cyber, we were strong and offensive now we can cover full spectrum cyber operations. I talked about IS Engineers expanding our presence in Texas, the two of us together can move up the value chain and bid and win larger jobs and then IP keys is kind of nice at the intersection between federal and Critical Infrastructure providing cyber compliance for energy and water companies, so those — all those acquisitions as well as the ones that we’ve done in prior years are helping momentum.
Operator: The next question comes from Andrew Wittmann with Baird.
Andrew Wittmann: Great. Good morning. Thanks for taking my question. I think I might just have one question today. And it’s for Matt. Matt, as I look at the capital structure you’ve got this $400 million convertible note out there. It’s fully hedged with the bond hedge that you’ve got on it. And it looks like the conditions to convert that to equity have been met with the trading performance of the stock here in the last several months. So I guess my thought or question is, what are you going to do about this $400 million face that’s totally hedged out? Like, I guess is it fair to think of that as basically kind of gone or like not on the balance sheet because you’ve got the hedge that takes out the dilution that would result if you converted it? And what do you expect to do in practical sense with this, if anything at all?
Matt Ofilos: Yes, I’d say, Andy, thanks for the question. I would say we obviously look at the balance sheet constantly. We want to make sure that we’re capable of continuing to do the M&A. The convert that we have in place has been a great deal for both us and kind of the convert holders as the stock has performed so well. So all-in-all, we continue to look at it. I would say that it remains on the balance sheet. It won’t go current until August of this year, but we’re continuing to look at options as we go forward. So no solid plan yet, but always looking at opportunities.
Operator: The next question comes from Alex Dwyer with KeyBanc Capital Markets.
Alex Dwyer: Hi, team. Congrats on a great quarter. So I wanted to ask about the organic revenue growth guide of 7% this year. How that splits between the segments this year and if we can parse through the different assumptions from hiring and retention to win rate to the ramp up of contracts. And if there’s upside to this 7% revenue guide, where do you think we’re most likely to see this upside come from?
Carey Smith : Yes, so the 7% is roughly equal with federal being a little bit higher growth. And as far as upside I would say across the portfolio again because if you look at the 15 wins, we’ve had in 2023 greater than $100 million and the two that we just announced this year so far, it’s across the board in all six of those end market areas, so it really affects all four of the business units.
Matt Ofilos: Yes, I would say to kind of get to the high end as Carey mentioned I think in her script a little bit around labor markets. I think the U.S. budget obviously getting a deal done would be great and so kind of those are the things that we’re looking through in terms of trying to get from the midpoint to the high end.
Alex Dwyer: Got it, thanks. And then the Critical Infrastructure backlog continues to remain strong but I wanted to ask about Federal Solutions with the 0.7 book-to-bill this quarter. Like how much of that was the impact of the continued CRs and should we continue to expect this segment to remain below 1x until the government gets a full budget?
Carey Smith : So I would say first fourth quarter is always late for federal government services, third quarter is usually kind of a peak but I would say the trailing 12 months is what we look at which is very important and that’s been a 1.1 and so I think our federal business has been delivering quite fine. On the CR, no, I don’t expect that to drive being below 1.0x. And the reason I don’t is because we’ve already won a lot of work that $14 billion, and the majority of that is in federal that we haven’t booked yet that we can still convert. We also, by the way, one other variable, we’ve got 59% funded backlog, which is very high.
Operator: The next question comes from Louie DiPalma with William Blair.
Louie DiPalma: Carey, Matt, and Dave, good morning and great fourth quarter. You’re setting the bar very high. Are the Xator, SealingTech and IPKeys acquisitions performing significantly better than their revenue run rates prior to being acquired? And when Parsons integrates these assets, are you able to unlock significant cross-selling revenue synergies that make the returns much more attractive than the original multiple may suggest?
Carey Smith : Yes, so I would say Xator has certainly been outperforming on a revenue front. SealingTech is really recent, but we do expect they’re going to deliver a very strong performance. I’ll talk about that in a minute. And IPKeys is on track with our expectations. We do get the value, as you’re pointing out, Louie, from the cross-selling. We haven’t factored in revenue or cost synergies as we’ve made these acquisitions. So anything that we get is kind of above and beyond. Great example would be IPKeys. They have a book of customers, hundreds of customers in the utility and the water space. So in addition to selling those customers, their capabilities, we can also sell the broader Parsons capabilities in those market areas.
Likewise, we can take their products to our current utility and water waste, water customers. And so that, we’ve seen synergies already even between SealingTech and IPKeys and coming up with a new product line offering called Cyberzcape, and we’re going to be putting IPKeys capabilities on the fly Away Kits at SealingTech. So that’s how quickly we do the integration and we drive synergies, but that’s definitely a big factor helping our momentum.
Louie DiPalma: Great. And another one, Parsons has been particularly strong with capturing classified cyber contracts over the past year. What is, in general, what is driving that strength? And are these cyber contracts or some of them affiliated with the geopolitical conflicts in Europe, the Middle East, and Asia? And in general, what is Parsons presence with the INDOPACOM? Thanks.
Carey Smith : Okay, so take the first one. What’s driving the cyber? I would say, first, we’re one of the leaders in offensive cyber, and that comprised about 75% of our business. We have in-depth relationships across the Department of Defense military services, as well as the intelligence community and customers like cyber commands. So we’ve been able to get a very strong position. We’ve done work for them for a long time. They know they can count on us, particularly in a time of need, as you mentioned, such as the conflict affiliation. I can’t comment too much more on that in-depth, just due to the classification nature. In the INDOPACOM, we have several efforts underway. We’ve been on Guam for over three decades, supporting public works, that’s through our Critical Infrastructure group.
We also are on Guam supporting defensive Guam for the Missile Defense Agency through our team’s contract. We’re on Kwajalein Island. We built the Kwajalein airfield. We’re also just recently won the Kwajalein housing, and we’re looking for continued expansion there. Particularly, that budget got increased from $9.1 billion to over $14 billion in the NDAA, so that’s going to be a big focus area. And then on our defense and intelligence side, we have over 100 folks located out in Hawaii that are working on cyber and intelligence type of work.
Louie DiPalma: Great. And one for, Matt. Are your acquisitions — are they typically margin accretive and you just forecast that you would expect two to three acquisitions per year. And so in general, should these acquisitions be one of the drivers for your continued margin expansion that you’ve guided to as part of that 2025 outlook?
Matt Ofilos: Yes, absolutely. We target adjusted EBITDA of 10% or better and so all these companies are performing well. I like to say that we like to buy companies that are doing well and bring them in and have them do better as part of Parsons versus kind of betting on the come, whether it’s on revenue growth or margin. So yes, absolutely each one of these acquisitions are expected to be accretive in a very short term and have strong cash flow as well.
Operator: The next question comes from Mariana Perez Mora with Bank of America.
Samantha Stiroh: Hi, this is Samantha Stiroh on from Mariana. Hi. I just wanted to ask about labor and hiring and kind of what you’re seeing on these, what you just mentioned, the classified contracts, kind of getting those certifications. Are you seeing still a strong or like a long wait list there?
Carey Smith : Yes, so overall in labor and hiring we’re doing very well. Obviously, that’s been critical to driving our organic growth. We’ve seen our retention improve, in fact, it improved by over a 1% year-to- year, which is very strong and we were already ahead of PwC industry benchmarks in that area. As far as classified contracts, the clearance processing moved to DCSA back in 2019 and when it did, they were able to drop the backlog and I want to say it was close to 75%. And they also sped up the clearance processing time for secret and top secret, which has really helped us. Classified areas always going to be the most difficult though to hire, but we’ve seen some improvement in recent years.
