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Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Parsons Corporation Earnings Conference Call. [Operator Instructions] After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to turn the conference over to Dave Spille, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Liz. Good morning, and thank you for joining us today to discuss our second quarter 2025 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 second quarter financial results as well as a review of our 2025 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 reflected 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, 2024, 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. Welcome to Parsons Second Quarter 2025 Earnings Call. We're pleased with our second quarter results as cash flow exceeded our forecast and our revenue and adjusted EBITDA were in line with our expectations and the guidance assumptions we outlined on June 2, 2025. Excluding the revenue impact from our confidential contract for both Q2 2025 and Q2 2024, our second quarter total and organic revenue growth rates were 13% and 8%, respectively. This growth includes double-digit total revenue growth in 3 of our 4 business units with the fourth business unit growing 9% year-over-year. It also includes 8% organic growth for Parsons in both segments highlighting the strength of our balanced portfolio, our strong hiring and retention and our alignment to priority spending areas. During the second quarter, we delivered 40 basis points of margin expansion to 9.4%, a second quarter record. $160 million of cash flow from operations and achieved a free cash flow conversion rate of 151% for the quarter and 125% on a trailing 12-month basis. We also reported a book-to-bill ratio of 1.0x for the quarter and trailing 12 months. This continues our streak of having a quarterly trailing 12-month book-to-bill ratio of 1.0x or better since our 2019 IPO. Finally, we're increasing our full year revenue, adjusted EBITDA and cash flow guidance ranges to reflect our second quarter operating performance, Chesapeake Technology International acquisition and our outlook for the remainder of the year. In addition to delivering solid financial results and program execution across our portfolio, we were recognized this quarter by engineering news record as the top program manager firm in the world. Also, Parsons was ranked #2 in the professional services list, #2 on the construction management -- program management for field list and number three, for construction management. This global recognition is a testament to our reputation for complex program delivery. Further, we won 3 contracts over $100 million in the second quarter with 2 of the 3 contracts representing new work. Significant second quarter contract wins included a new $176 million single-award contract by the United States Army Corps of Engineers to provide design build delivery services for an Ammonium Nitrate Solution Tank Farm at the Holston Army Ammunition Plant. A new single-award contract for cyber work by the Defense Threat Reduction Agency with a ceiling value of $138 million. Under this contract, Parsons will perform cyber assessments, operations analysis and research. $134 million follow-on contract overseas remediation projects on the Giant Mine program in Canada, which is one of the largest mine reclamation projects in the world. Our Critical Infrastructure segment continues to thrive as we leverage our reputation, program management and design engineering expertise to capitalize on unprecedented infrastructure spending in both North America and the Middle East. Overall, second quarter total infrastructure revenue grew 14% and 8% on an organic basis. In North America, total revenue grew 17% and 7% on an organic basis as we continue to win large new programs, execute on existing contracts and retain and hire new employees. Several large project wins contributed to second quarter growth and are expected to grow in the second half of 2025, including Georgia State Route 400, Newark AirTrain, Hawaii City Center rail and transit, Hudson River Tunnel and the I-55 Bridge replacement. Our growth and success in North America are particularly exciting, given infrastructure spending from the IIJA is not expected to peak until 2028 with a 6- to 8-year tail after that plus discussions on the next Surface Transportation Reauthorization bill are already underway, and Secretary Duffy held a kick-off meeting on July 17 to emphasize that America is building again. This bill will provide more infrastructure spending once passed. Our focus on hard infrastructure such as roads and highways, bridges and airports has bipartisan support and is a priority for the administration. Our Middle East infrastructure business also continues to excel, and we're the #1 program manager throughout the region. We've operated in the Middle East for over 6 decades and have 7,000 employees in the region today. In 2024, we generated more than $1 billion of revenue, and we expect total revenue growth of over 10% in 2025, which would mark the fourth consecutive year with double-digit organic revenue growth in the Middle East. We continue to see significant demand for our master planning, design engineering and program and construction management solutions in the Middle East. We see this trend continuing as governments deliver their strategic vision as well as prepare for upcoming events such as the Asian Winter Games, World Expo and World Cup. We've expanded into the defense, hospitality and industrial manufacturing sectors with recent wins as these sectors are receiving major investments. We were excited to participate in President Trump's second quarter Middle-East trip which included visits to Saudi Arabia, Qatar and the UAE, each of which represents significant existing work and future growth opportunities for Parsons. These visits underscore Parsons pivotal role as a premier leader in the region and our alignment with the administration's priorities. Parsons portfolio was acknowledged during events, including a signing ceremony for our 2 awards for the new King Salman International Airport. Our Middle East revenue growth is expected to accelerate in the second half of this year as we continue our strong hiring and retention and ramp-up contracts, including King Salman Park, the Riyadh Ring Roads program, the Dubai Metro Blue Line project and the King Salman International Airport. With significant wins in critical infrastructure Middle East and North America, we've achieved a book-to-bill ratio of 1.4x and 1.2x, respectively, in the first half of 2025. In our Federal Solutions segment, we're excited about the growth we're delivering in our core business the significant large opportunities in our pipeline and the funding boost to the fiscal year '26 defense investment accounts due to the recently passed One Big Beautiful Bill, the reconciliation bill. Excluding the revenue impact from our confidential contract, our second quarter Federal Solutions year-over-year total and organic revenue growth rates were 11% and 8%, respectively. This growth was primarily driven by demand for our aviation, cyber and electronic warfare solutions. We are benefiting from our exposure to large single award IDIQ contracts, including our 2 sizable General Services Administration, FEDSIM programs the Missile Defense HC teams and our air-based air defense contract. Having existing single-award IDIQ contracts with high ceiling values is important to rapidly deploy solutions that address near-peer threats. In addition, we're experiencing growth on our FAA, Army ammunition and Defense Threat Reduction Agency Red Team programs. These contracts are expected to continue to grow in the second half of 2025. We're excited about the passage of the reconciliation bill on July 4 that increases defense spending by $150 billion and adds an anticipated 25% to investment accounts for fiscal year '26. Our federal portfolio aligns with major budget line items, including aviation modernization, missile defense, space, munitions facility modernization, Pacific deterrence, border security and more. Parsons portfolio also aligns to 10 of the 17 priority areas outlined the February 2025 Department of Defense Memorandum, which are expected to receive additional funding over the next 5 years. We are laser-focused on the budget line items that align with our core competencies and where our portfolio is well positioned with domain knowledge and leap ahead solutions. As a nontraditional company that was purpose-built with differentiated capabilities, we have the speed and agility to deliver transformational programs that achieve the administration's requirements and accelerated time lines. The FAA received $12.5 billion under the reconciliation bill to produce a new state-of-the-art air traffic control system. We are well positioned for the integrator contract given our transformational approach partnership with IBM and a team that is vendor- agnostic, knows how to deliver advanced solutions, understands the FAA and has strong past performance. If we win the integrator contract, Parsons will gain additional FAA work and serve as a single point of accountability prime contractor to ensure mission success. The Golden Dome for America initiative, an integrated air and missile defense Shield for our country's Homeland Defense received $25 billion of funding under the reconciliation bill. Parsons have strong qualifications to address challenges that Golden Dome is trying to solve. We've exported the Missile Defense Agency for more than 40 years, and we're currently providing system engineering and integration on MDA's team's next system engineering contract. Under this contract, we deliver capabilities that are directly aligned to Golden Dome such as engineering analysis and modeling and simulation on a vendor-agnostic basis. These solutions enable the development of an integrated and layered missile defense system to protect the United States and allied forces against ballistic hypersonic cruise missile and unmanned aircraft system threats. Golden Dome encompasses defending against advanced missile and drone threats with kinetic weapons, such as missiles and non- kinetic capabilities such as cyber and electronic warfare. Having nonkinetic solutions embedded within the Golden Dome system is a game changer since it will enable our country to defeat adversary weapon systems either before or after a threat is launched. These capabilities can be used numerous times and against many types of threats while preserving valuable and costly kinetic resources. Our portfolio aligns with other major budget reconciliation line items, including munitions, Pacific Deterrence Border Security and more. The munitions production budget received $25 billion of funding under the reconciliation bill. We're involved in modernizing several of the largest Army ammunition plants, including Holston and Radford, like our most recent $176 million award for the new Ammonium Nitrate Solution Tank Farm at Holston. The Pacific Deterrence initiative received $12 billion of new funding. We've been operating in the INDOPACOM region for 3 decades and have significant infrastructure work on Guam and Kwajalein Island along with important mission-critical cyber and electronic warfare programs in the region. This quarter, we further expanded our presence by winning a counter nuclear smuggling detection deterrence task order from the Department of Energy for the INDOPACOM region. Finally, Border Security and Enforcement received over $160 billion in the reconciliation bill. For decades, Parsons has worked on border security projects worldwide to improve our customers' ability to predict illicit activity, detect and track the illegal border crossings, identify and classify the incursions and prevent weapons of mass destruction. We supported the Defense Threat Reduction Agency, Customs and Border Protection, Federal Aviation Administration, Transportation and Security Administration and Department of Energy providing engineering, program management, infrastructure upgrades, integrated command and control, remote sensing surveillance systems, situational awareness and common operating picture systems. Our work is performed across the United States at Southwest border, land ports of entry and customs and border protection training facilities. And globally in countries including Armenia, Georgia, Lebanon, Jordan and more. We are very excited about the large opportunities in our pipeline that are substantial federal funding. With excellent win rates over the last 3 years, and strategic investments and bid and proposal activity and key personnel, we've positioned the company to win these large pursuits that could accelerate our future organic revenue growth for years to come. As a result of Parsons strategic business positioning and purpose-built portfolio, these major projects are well aligned to our core competencies, and we are ready to deliver the additional demand. I want to highlight our acquisition of Chesapeake Technology International, CTI is a developer of multi-domain technologies across the invisible battle space in areas of electronic warfare, cyber and autonomous systems. They enhance our position in the INDOPACOM region and strengthen our relationships with special operations forces and key research and development customers, including the Defense Threat Reduction Agency. CTI's team awareness kit and Tactical Assault Kit, or TAK X situational awareness tool has been applied for border security, disaster relief, counter unmanned air systems and other applications. This acquisition meets our financial M&A criteria. CTI is a high-quality and unique company, and we're excited to welcome them to the Parsons team. In summary, I'm pleased with our second quarter results as our core business continues to deliver strong total and organic revenue growth. We expanded margins by 40 basis points, delivered exceptional cash flow and further position the company for continued long-term sustainable growth. In addition, we leveraged our balance sheet and closed another strategic accretive acquisition. We've now closed 1 acquisition in each of the last 4 quarters. Our diversified portfolio and 6 growing and profitable end markets are enabling us to achieve mid- to high single-digit organic growth across the entire company excluding the confidential contract. We have tailwinds in both segments and financial metrics that support long-term growth and margin expansion. Unprecedented and global infrastructure spending is expected to last into the next decade. The reconciliation bill was passed and Parsons capabilities will continue to play a vital role as near-peer threats become more aggressive and advanced cyber attacks increase across the U.S. and global conflicts persist. From a financial perspective, we have a total backlog of nearly $9 billion, of which 70% is funded. Approximately $11 billion of contract wins that we have not yet booked, a $55 billion pipeline that includes 114 opportunities of contracts worth $100 million or more and 14 opportunities worth $500 million or more. And we have less than 3% of our revenue, up for repeat in the second half of 2025. Our robust backlog, large-scale pursuits and excellent win rates provide a backdrop for Parsons to continue to outpace industry growth rates and deliver significant shareholder value over the long term. I look forward to our bright future, and I am proud of our more than 20,000 employees that are making a difference for our customers and communities around the world every day. It's a very exciting time to be at Parsons. With that, I'll turn it over to Matt to provide more details on our second quarter financial results. Matt?

Thank you, Carey. Q2 financials were highlighted by strong free cash flow, adjusted EBITDA margins and total and organic revenue growth, excluding our confidential contract. In addition, we continue to leverage our balance sheet and completed another accretive acquisition in the strategic national security space that strengthens capabilities and customer relationships. Turning to the details of our second quarter results. Total revenue of $1.6 billion decreased 5% from the prior year period and was down 9% on an organic basis. Excluding our confidential contract, total revenue grew 13% and 8% on an organic basis, driven by growth in our transportation and cyber markets. SG&A expenses for the second quarter increased 13% from the prior year period. This increase was primarily driven by the inclusion of recent acquisitions and increased investments in bid and proposal activity and critical hires in support of our strong pipeline and large strategic pursuits aligned to the administration's priorities. Adjusted EBITDA of $149 million was comparable with the second quarter of 2024. However, adjusted EBITDA margin expanded by 40 basis points to 9.4%, a second quarter record. Our margin increase was driven by improved program performance and accretive acquisitions. I'll turn now to our operating segments, starting first with Federal Solutions, where second quarter total revenue decreased 19% from the prior year period and 20% on an organic basis. Excluding our confidential contract, Q2 Federal Solutions total revenue increased 8% and 8% on an organic basis. These increases were driven by growth on existing contracts and the ramp-up of new task order wins, specifically in the cyber and intelligence and aviation markets. Our confidential contract generated $106 million of revenue in Q2 2025, in line with our expectations. At the beginning of the third quarter, this contract was terminated for convenience as anticipated. Federal Solutions adjusted EBITDA decreased 35% from the second quarter of 2024, and adjusted EBITDA margin decreased 210 basis points to 8.3% driven primarily by contract mix and investments made in bid proposal activity and key personnel on strategic pursuits. Moving now to our Critical Infrastructure segment. Second quarter revenue increased by $97 million or 14% from the second quarter of 2024. This increase was driven by organic growth of 8% and inorganic revenue contributions from our BCC and TRS acquisitions. Organic growth was driven primarily by the ramp-up of recent contract wins and growth on existing contracts in both North America and the Middle East. We are expecting growth to accelerate in the second half of the year as new and existing contracts ramp and strong hiring activity in the second quarter flows through to revenue. Critical Infrastructure adjusted EBITDA increased 73% from the second quarter of 2024, and adjusted EBITDA margin increased 350 basis points to 10.5%, a second quarter record for the segment. These increases were driven primarily by improved program performance, the ramp up on recent awards and acquisitions to include BCC, where we are seeing significant synergy benefits both to revenue and margins. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q2 '25 was 60 days, consistent with prior year period. During the second quarter of 2025, we generated $160 million of operating cash flow, which is also consistent with Q2 2024. On a trailing 12-month basis, we generated $574 million of operating cash flow which is a Q2 record and a 17% increase over the prior 12-month period. These increases were driven by strong collections in both segments and lower tax payments. Capital expenditures totaled $9 million in the second quarter of 2025 consistent with the prior year period. We expect CapEx to increase in the second half of the year in support of long-term growth, partially offset by reductions in facility square footage in several locations. For fiscal year 2025, CapEx is expected to remain in line with our planned spend of approximately 1% of annual revenue. At the end of Q2, free cash flow conversion was 125% on a trailing 12-month basis with an intentional focus on contract execution, settlement of legacy claims and improved cash management and collections. Our balance sheet remains strong. Including the impact of our all- cash acquisition of CTI, we ended the second quarter with a net debt leverage ratio of 1.5x. During the second quarter, we repurchased approximately 219,000 shares at an average price of $68.56 for an aggregate purchase price of $15 million. On a year-to-date basis, we've repurchased approximately 643,000 shares at an average price of $62.22 for an aggregate purchase price of $40 million. Turning now to bookings. For the second quarter, we reported contract awards of $1.5 billion, representing a book-to-bill ratio of 1.0x on an enterprise basis, which continued our streak with a trailing 12-month book-to-bill ratio of 1.0x or greater in every quarter since our IPO. In Critical Infrastructure, we achieved a book-to-bill ratio of 1.1x, which is the 19th consecutive quarter with a book-to-bill ratio of 1.0x or greater. Federal Solutions reported a book-to-bill ratio of 0.8x. Our backlog at the end of the second quarter totaled $8.9 billion, a 1% increase over Q2 2024. Additionally, our funded backlog is the highest since our IPO at $6.2 billion, a 14% increase year-over-year. Next, I'll discuss updated guidance. We're increasing our revenue, adjusted EBITDA and cash flow guidance ranges provided on June 2 to reflect our second quarter results, CTI acquisition, changes to tax laws and our outlook for the remainder of the year. We expect total revenue to be between $6.48 billion and $6.68 billion. This guidance represents total revenue growth of 17% and 13% on an organic basis, excluding the confidential contract. Including this contract, total revenue is anticipated to decline 3% at the midpoint of the range and 6% on an organic basis. We expect growth to accelerate in the second half of the year as we ramp on recent contract wins, existing contracts expand, strong hiring and retain continues, and we realize the contributions from CTI. Adjusted EBITDA is now expected to be between $595 million and $635 million with a margin of 9.3% at the midpoint of our revenue and adjusted EBITDA guidance ranges. This represents adjusted EBITDA margin expansion of 30 basis points from 2024 and an 80 basis point increase since 2023. Operating cash flow is now expected to be between $400 million and $440 million, given strong Q2 performance and the cash tax benefit related to the reconciliation bill. Other key assumptions in connection with our 2025 guidance, including quarterly cadences are outlined on Slide 11 in today's PowerPoint presentation located on the Investor Relations website. With that, I'll turn the call back over to Carey.

Thank you, Matt. During the second quarter, we delivered significant growth in our core business. 40 basis points of margin expansion, exceptional cash flow and free cash flow conversion and completed a strategic acquisition by maintaining our strong balance sheet, which will enable us to make future accretive acquisitions. We're optimistic about our future, given our team's proven execution, the tailwinds we have in both segments, our large total and funded backlog and the robust pipeline of large opportunities we have to pursue. With that, we'll now open the line for questions.

[Operator Instructions] Our first question comes from Tobey Sommer with Truist.

I wanted to ask about the opportunities in front of the company sort of over the near to medium term with respect to Golden Dome and the very large FAA procurement. Could you just discuss how you're pursuing those? And I know that we've heard that the FAA procurement is sort of fluid, they're soliciting a lot of advice, and it's not yet determined kind of how that path will proceed, but is there sort of an optimal way that, that could proceed from your perspective?

Yes. Thanks, Tobey. Appreciate the question. Thanks for joining the call today. We're very excited about the FAA program. We've fortunately supported the FAA for nearly 5 decades. We have excellent past performance. We've done a lot of the infrastructure and facilities work. We've put together a very strong team to pursue the FAA integration contract. What is going to be important in that contract just making sure that you have a company that knows how to deliver. Parsons is the #1 program manager in the world per Engineering News-Record and we've partnered with IBM a very strong technical partnership, and we felt that we're very well ready to take on the single point of accountability, integration role and provide the FAA a safe, resilient reliant system that also transforms for the future. That's $12.5 billion of funding and the reconciliation bill. We're anticipating a request for solicitation sometime soon. They had hoped to make an award by the end of September, but that's really now dependent on the timing of the request for solicitation. Under Golden Dome, that's $25 billion of reconciliation funding and most of these, by the way, the FAA and Golden Dome are both projected to receive more in the future. On FAA, they indicated they need about $31.5 billion. And for the Golden Dome, they've indicated they need about $175 billion for the total contract. Very similar to FAA, we're extremely well positioned for the Golden Dome. We've been supporting the Missile Defense Agency for 4 decades, providing system engineering and integration capabilities along with modeling, simulation and analysis capabilities. We have a current contract vehicle. It's worth $2.2 billion. On that vehicle, we still have $1 billion remaining, so that can be used to get Golden Dome kick started right away. In addition to that, we also have nonkinetic capabilities, as I mentioned during the script that we think are very novel and unique to counter threats on a nonkinetic way. I'd also highlight again under the bill because I'm really excited about the reconciliation bill and how well it aligned our portfolio. The munitions budget of $21 billion. So it will continue to expand beyond our current capacity that we have at Holston and Radford and then the Border Security funding of $160 billion that's really going to leverage our decades of experience all over the globe and providing border security solutions.

Yes. So the only thing I would add, and Carey kind of commented on it, but on the existing IDIQ vehicles between those 2 areas with MDA and FAA, we have almost $3 billion worth of ceiling remaining. So just a great opportunity to move on existing vehicles or new. So it's a really great opportunities on both for us.

If I could ask a follow-up. What's your expectation for the calendar 3Q which is seasonally the industry's strongest from a book-to- bill perspective. And this year, we've seen obligation action sort of lagging pretty significantly. Do you expect a bigger-than-normal seasonal catch-up for the industry and yourselves?

I would say we're definitely expecting a more robust Q3. And that traditionally, as you point out, Tobey, is for the federal business, the strongest quarter. Within Critical infrastructure, obviously, we've had 19 consecutive quarters greater than 1.0 book-to-bill. Orders can be lumpy. I always like myself to look at the revenue growth. I think where we've done a tremendous job in our federal business is driving task orders on to that $11 billion of unused ceiling that has been awarded to Parsons that we haven't yet put into bookings. I was glad this quarter on the federal business that we did see 2 new large awards move forward, the Holston and the defense threat reduction in cyber. But we are anticipating a 1.0x book-to-bill for the full year for both CTI and for federal and expect Q3 will be a stronger quarter.

Our next question comes from Andrew Wittmann with Baird.

I guess, Carey, I thought I would just check in here and get your comments on how the One Big Beautiful Bill, which obviously, you've articulated the aspects on the federal side. Can you talk about how it might impact your infrastructure side, particularly as it relates to the state and local budgets that are out there and how they might be affected if you're hearing anything from your customers on that side of the house of how the bill might impact them.

Yes. So I think, Andrew, the biggest thing I'd say is we're aligned with the administrations and bipartisan priorities. There's going to be a shift from soft infrastructure areas like climate change, renewables, electrification over to hard infrastructure which road and highways, bridges, airports. And those are the areas where Parsons portfolio is very well aligned. We are also super excited about the next 5-year Surface Transportation Reauthorization Bill kicking off. And we expect additional funding to come through that, Bill. When you're looking at the current IIJA not peaking until 2028, 6- to 8-year tail overlaying a new surface transportation bill and then a shift in funding from soft to hard targets infrastructure, that really benefits Parsons.

Got it. Okay. And then just my follow-up for Matt, easy one here. But just the guidance increase at least here on the income statement. It looks like it's mostly the contribution of the incremental acquisition that you did in the quarter. It looks like the income statement for the company for the quarter was mostly in line. Is that the correct way of thinking about the guidance increase? Or is there some other nuance there that we should be aware of?

Yes. No, Andy, CTI is a big contributor, $30 million to the top line and then $5 million in the bottom line, a little bit more aggressive on the bottom line given the outperform first half. So a little bit of that is organic. On the cash flow side, it's mainly organic. So the big effect was the R&D tax credits, so we got almost $20 million worth of benefit from the reconciliation bill on the R&D tax credit. So that flowed through the cash but the other -- the top and bottom line were all CTI mainly.

Our next question comes from Sheila Kahyaoglu with Jefferies.

And thanks for mentioning Armenia in the script. I don't think I've heard that before. So I appreciate that. Maybe if we could just talk about the organic growth outlook a little bit more, Carey. How do you think about the puts and takes? It seems like we're down 1 point to 6% organic, given CTI contribution? How do we think about the second half contributors playing into that and the ramp-up?

Yes. So excluding the confidential contract, we're going to grow 18% organic in the second half. And that breaks out, let's see, that would end up being...

About 13% within CI on an organic basis and then north of 20% on Fed. So really strong growth on both sides of the company.

Yes. And let me kind of walk through the pieces for that because I think it's important to note that this is largely based on work that we've already won today. So when you look at what's going to accelerate in the second half, critical infrastructure in North America, Georgia State Route 400, Newark AirTrain, Hawaii rail and transit, Hudson River Tunnel, I-55, Middle East King Salman Park, Riyadh Ring Roads, Dubai Metro, King Salman International Airport, Engineered Systems, FAA, Holston Ammonium Nitrate, Defense Threat Reduction Red Team, United States Postal Service and Defense and Intelligence, the Missile Defense Agency Teams Contract, GSA FedSIM, additional sealing tech product sales, Airbase Air Defense. I think what's important is we do have our July results, they were very favorable, and they're on track to achieve the back half acceleration. We also had in July record hiring within the Middle East. So quite excited. I think we've got industry-leading organic growth in both segments.

What changed to cut the core by 1 point since your last update? And then my second question, if I can squeeze that into just on CI, the performance has been quite stellar 10.4% margins year-to-date. Just any update on the programs that previously faced supply chain challenges.

Yes, Sheila, I can start off with the 5% to 6%. Actually, it's really just rounding. It was 5.4%, went to 5.5%. So there's really nothing more behind that at the core. The organic revenue stayed constant. It's just the contribution from CTI changed the base. So just no implied delta on the organic. So Carey, you want to cover CI.

Critical Infrastructure margins. So what's been good on Critical Infrastructure is really program execution. The team has done a very good job this year of just executing. We've always indicated that the long-term margins for critical infrastructure should be double digit, and that's what we're seeing. So I'd say continued program execution. We're seeing demand much greater than supply, both in North America and in the Middle East, double-digit growth within those and those margins long term that we would expect to deliver.

Our next question comes from Noah Poponak with Goldman Sachs.

Matt, what's the second half Federal Solutions organic ex confidential that's now in the guidance? Because just looking at the slide you have that shows that confidential was still just over $100 million in the second quarter. If I take that out sequentially it looks like a bit of a lift to overcome that sequentially unless seasonality is in your favor? Or there's an acceleration kind of everywhere else?

Yes. No, you're right. No, Fed organic growth in the second half is expected to be just north of 20% so a little bit better than first half, which was closer to a high single, low double digit. And so we're seeing really strong growth on programs. We have some key deliveries of the FAA ramp that Carey talked about, MDA is growing. We have some product deliveries within the Sealing Tech acquisition we've done. So we see really strong demand across the portfolio on the federal side. But to your point, it is going to expand in the second half of the year.

And also the new business wins we highlighted with Holston Defense Threat Reduction Agency, I go back to our July results are right in line with our plan.

Yes, Carey, I guess, you've cited a number of specifics for the basis for that. But from a top-down perspective, I guess, how much risk is there just in the slower contracting environment that we're in to assume double the growth rate in that business in the back half versus the first half?

So the most important thing is those are largely contracts have already been awarded and we're ramping up, which we've been accelerating throughout the year. FAA is a real good example of that, which we've seen strong outperformance over the last year. So I would say a lot of that is one. We also have the $11 billion of awarded not booked that is predominantly in the federal area. And we've done a great job of driving task orders over to that. Environment has been a little slower, but I'd say we're optimistic that it is starting to pick up. I look at the amount of -- in the volume of proposals that we've been submitting, it's right in line with what we would expect. And it's great to see some of these big large new awards come through this quarter.

Okay. And it sounds like you're saying you're able to say right now that July -- I mean, it's 1 month, but July at least, is tracking to that directional plan.

That's correct. July results were favorable and demonstrate that we're on track to achieve the back half acceleration.

Okay. Great. Just last one for me. The Federal Solutions margin has come down. How much was confidential helping that margin? And maybe you can just -- was there anything abnormal in the quarter? Or where does that go in the back half from here?

Yes. So as you point out, the biggest driver, of course, was the lower volume on our confidential contract that came down about $250 million year-over-year. Fixed-price contracts obviously are accretive. So the impact from that put a damper on the margins. But in addition to that, I think Carey mentioned in her script, but it was -- we had some additional spend from a BNP perspective back to the expanding capture environment and some strategic hires that we put in place ahead of expected awards. So those 2 things are the big driver to the Fed margin for the quarter. For the rest of the year, we expect Fed margins to be kind of in the low 9% range to get back up near 9% for total year. We have some incentive fees timing in the second half. We've got some product sales, as I mentioned before, and then operating leverage as you see the outpaced revenue growth you'll start to see the margins trend back up as well. So those are the big drivers for second half think long term, Tobey, we're kind of in that. We're happy in that kind of low to mid-9s given the breadth of the portfolio, the amount of cost type work we do, that's kind of more on the front end, R&D-focused. And so all in all happy with where the investments are going and long-term outlook for the Fed margins.

Our next question comes from Mariana Perez Mora with Bank of America.

This is Samantha Stiroh for Mariana. Sticking with the FS margin, you highlighted strategic personnel hires. So with that, how has the hiring environment been? And then how -- what is your ability to move people within the company around to these kind of high priority areas?

Yes. Thanks for the question. Hiring environment has been very strong and also the retention. Our retention is the best that it's been since 2020. And we do have a great ability to hire. I think really as a result of our mission focus and our culture people want to come to Parsons. Our ability to win with strong win rates of 72% this year, similar to what we've delivered in the last 2 years. We were winning these great new exciting projects. We do have an ability to move people around. We have kind of a common program management pool of people. We have an engineering design group of people. And I always like to highlight somebody who today works an internal audit that's a person that worked in federal or worked in critical infrastructure, worked in North America, worked in the Middle East. So she's kind of been all over the company. And I think we do a great job of that and giving people new experiences and development opportunities.

Our next question comes from Gautam Khanna with TD Cowen.

I was wondering if you could elaborate on the unbooked backlog, if you will, I think it changed by $1 billion in the quarter. Maybe you touched on it and I missed it, but $12 billion worth...

Yes, sure. So it's just over $11 billion now. We had about $600 million that was in for the confidential contract. So we obviously have removed that. Then we've done exactly as we indicated, which has driven task orders onto some of our IDIQ vehicles. So it came down slightly because of that. And that's, again, our full intention.

Okay. And maybe did you guys comment on what your outstanding bids are as of the end of the quarter?

We have $6 billion of awaiting notice of award. We have a $55 billion pipeline.

Okay. And is there any risk of the second you mentioned you've booked a lot of the stuff already that gives you confidence in the second half ramp. But is there any sort of change in the funding environment, the funded backlog that you're seeing that raises any risk to that outlook? Or does that look well aligned at this point?

Our funded backlog is the highest it's been at 70%. So very strong.

Yes. I would say funding is coming in, in line, cash is paying clean. So I'd say, all in all, we're looking pretty good, Gautam.

[Operator Instructions] Our next question comes from Jonathan Siegmann with Stifel.

So maybe just to tease a bit more on the second half ramp in Federal Solutions. I think maybe what's optically struggling is looking at the backlog that hasn't sequentially down with your expectations of higher growth. But when I look at your remaining performance obligations being in Federal Solutions at an all-time high, up double digits. I think that's consistent with your confidence, but I just wanted to see if that indicated -- that's the right interpretation of it or whether that's being distorted by Chesapeake at all.

Yes. No real distortion from Chesapeake. I think you're right, between RUPO and funded backlog we see really strong next 12 to 18 months. I'd say that helps us build the confidence. We see timing on the awards, the ramps, the milestone deliveries. There's a lot of things that are all help us build confidence. Obviously, 20% is a sporty number, but we are fully committed and we're going to deliver.

And again, our funded backlog is up 14%. So very strong.

Our next question comes from Louie DiPalma with William Blair.

Carey, you discussed the strong second half growth for -- I think, 7 large U.S. infrastructure programs. For these programs, will the revenue trajectory take the shape of a bell curve? And does that peak funding for these programs should it resemble general peak funding for IIJA. I think you mentioned that there should be funding that should increase for IIJA through 2028. And so is that how we should assume the revenue trajectory for these programs?

Yes. So it really varies. Let me just give you 2 specific examples. Georgia State Route 400, we're part of a public-private partnership. We are the design engineer. So what you'll see is most of our work at the very beginning of that project. Another example would be the Dubai Metro Blue Line. We're the program manager so in that instance, we will provide program management capabilities throughout that entire contract at a steady state. So it really depends on the type of work we're performing on each contract. Another example in the U.S., the Hudson River Tunnel, which is the largest rail transit infrastructure project in the U.S., we are the program manager on that. So we'll be on for that entire duration.

Okay. I guess as a whole for these programs, would there be difficult comps in 2028 or 2027 for the ones that are front-end loaded? Or how should we think about them collectively?

Yes. No, because we continue to win new business. So 19 consecutive quarters greater than 1.0 book-to-bill. Projects still coming out larger than we've seen in both North America and the Middle East, not even at a peak yet where the funding has been outlaid out of the IIJA and then adding a new surface transportation bill on top of that. Like I said, we'll continue to win projects. And again, very proud of the fact of where we've moved up on the Engineering News-Record ratings to be #1 now on program management in the world.

Great, Carey. And for the confidential contract was there any breakup fee? Or should we assume 0 in revenue in the third quarter? Or how should we think about that?

Yes. So for that contract, we did $181 million in Q1, $106 million in Q2, so $286 million, consistent with our guidance that we updated on June 2. We are in the process of negotiating a demobilization contract line item for the wind down of the project. It's not yet negotiated. But we expect it to be very scaled back and immaterial, less than 1% of revenue.

Okay. And is it possible, Matt, could you provide the quarterly for the confidential contract for the third quarter and fourth quarter of last year.

Yes. So we didn't really give -- remember, we had some complexities with the customer, given the total scale of the contracts. So I would say -- I'll kind of give you a directional Q2 and Q3 where the peak Q4 was lighter. And so I would say this kind of Q2 number was a little bit bigger in Q3 and then Q4 was lower.

Great. And one final one. Earlier this week, Carey and Matt, you announced a satellite communications partnership with Globalstar to bring services to Europe. And what does that partnership entail. The reason I'm asking is as everybody on the call are aware, there has been significant GPS jamming attacks across Europe with the conflict. And so does your Globalstar partnership provide any types of alternative like position navigation and timing services to help alleviate those jamming attacks.

Yes. Great question, Louie, and that's exactly what it does. We've partnered with Globalstar, we've got a very innovative solution, and it takes our person's proprietary software-defined satellite communications technology, integrates it with Globalstar's low earth orbit satellite constellation. And we developed it specifically to target complex and congested areas as you're referring to in Ukraine. We think that this partnership is going to unlock previously impossible mission-critical solutions and provide unique responses for Assured PNT within radio frequency congested environments and also set a new standard for global communication services and complex and challenging operating conditions. We did deploy the system at 3 different locations across the theater. It is active within a conflict scenario, and we were very pleased with the performance results. We're now looking at how we expand that into INDOPACOM and other areas.

Excellent. So you can potentially bring into other geographies as well?

Yes.

That's all the time we have for questions today. I'd like to turn the call back to Dave Spille for closing remarks.

Thank you, and thanks again for joining this morning. If you have any questions, please don't hesitate to give me a call, and we look forward to catching up with you over the coming weeks. And with that, we'll end today's call. Have a great day.