Parsons Q3 2026 Earnings Call Transcript

Parsons (NYSE:PSN) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Parsons Corporation reported a 2% year-over-year revenue increase in Q3 2026, with a 5% increase excluding a confidential contract, and achieved a record adjusted EBITDA margin of 10.2%.

The company exceeded its financial and strategic objectives, with strong results in Federal Solutions and Critical Infrastructure despite macroeconomic challenges.

Parsons signed a definitive purchase agreement for divesting remote location contracts to focus on higher-growth, higher-margin opportunities.

Significant contract wins included a $495 million contract for a national security customer and an increase in the ceiling value of a U.S. Cyber Command contract to $750 million.

The company maintains a strong bookings pipeline with a consolidated book-to-bill ratio of 1.2x year-to-date, supported by strong federal and critical infrastructure awards.

Parsons plans to grow its products and services revenue by 20-30% in 2027, particularly in cybersecurity and defense-related areas.

Guidance for 2026 was narrowed with revenue expected between $6.25 and $6.45 billion and adjusted EBITDA between $510 and $550 million.

Leadership changes were announced, with Matt Ofilos stepping down as CFO and George Ball assuming the interim role.

The company emphasized the resilience of its portfolio, with a strong backlog and a focus on converting awarded contracts into revenue.

Operational highlights include record third quarter revenue and margin in the Critical Infrastructure segment and significant progress on a joint venture program in the Middle East.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the Parsons third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today’s conference is being recorded.

I will now hand the conference over to your speaker host, Dave Spille, Senior Vice President, Investor Relations. Please go ahead.

Dave Spille (Senior Vice President, Investor Relations)

Thank you. Good morning, and thank you for joining us today to discuss our third quarter 2026 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. Joining me on today’s call are Carey Smith, Chair, President and CEO; Matt Ofilos, CFO; and George Ball, our former CFO and a current member of our Board of Directors. Today Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our third quarter financial results as well as a review of our 2026 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, including the risk factors described in our Form 10-K for fiscal year ended December 31st and other SEC filings.

Please also refer to our earnings press release and presentation slides for additional forward-looking statement disclosures. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call, and we remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures. Please refer to our earnings press release and presentation slides for a reconciliation of the non-GAAP financial measures. I now will turn the call over to Carey.

Carey Smith (Chair, President and CEO)

Thank you, Dave, and welcome to Parsons’ third quarter 2026 earnings call. I’d like to begin by recognizing Parsons’ more than 21,000 employees for their dedication and professionalism. Their continued focus on our customers’ missions enabled us to deliver results that exceeded our third quarter commitments. We also remain deeply focused on the safety and security of our 8,000 employees across the Middle East. Their resilience and commitment have allowed us to maintain strong execution across the region and continue delivering for our customers.

This quarter we delivered on our financial and strategic objectives through disciplined execution. Revenue, adjusted EBITDA, adjusted EBITDA margin, and operating cash flow all exceeded our commitments. Demand remained healthy across both Federal Solutions and Critical Infrastructure, despite a challenging macroeconomic backdrop. These results, combined with our strong bookings, a growing backlog, and robust pipeline, demonstrate the resilience of our portfolio and provide a solid foundation for enduring organic growth.

Building on this momentum, we continue to advance our strategic portfolio initiatives and drive operational excellence. We signed a definitive purchase agreement for the divestiture of our remote location contracts and are finalizing approval of the related contract novation. This transaction further de-risks our portfolio and enables us to focus our resources on higher-growth, higher-margin opportunities. Our Critical Infrastructure joint venture program is now more than 75% complete. We expect to reach over 80% by year-end and 85% at the end of the first quarter of 2027. We’ve increased executive oversight, strengthened review frequency, and initiated critical testing and commissioning activities to manage remaining cost and schedule risk. While the project remains exposed to factors outside of our control such as weather, potential contract modifications, and being the non-managing joint venture partner, we remain focused on disciplined execution in line with our current estimates.

As a reminder, we have not pursued similar consortium projects since 2019. Before we review our financial and operational highlights for the quarter, I want to address the leadership transition we announced earlier today. As noted in our 8-K filing, Matt has decided to step down as Chief Financial Officer to pursue a new professional opportunity. On behalf of the Board and the entire Parsons team, I want to thank Matt for his dedicated leadership and financial stewardship over the past five years. We wish him the best in his next chapter.

To ensure a seamless transition, George Ball will be stepping into the interim CFO role effective November 6th. George brings decades of experience with Parsons Corporation, including 13 years as the Parsons CFO. Since retiring, George has been serving on our Board of Directors and has deep familiarity with the company, immediate operational readiness, and a proven track record. George’s extensive experience and thorough institutional knowledge will ensure continuity and a seamless transition during this period.

Turning to our third quarter financial results, total revenue increased 2% year over year. Excluding our confidential contract, revenue increased 5% with 2% organic growth. Adjusted EBITDA increased 6% and adjusted EBITDA margin expanded 40 basis points to 10.2%, a company record. Operating cash flow was $269 million, significantly exceeding our commitments. Critical Infrastructure delivered record third quarter revenue, and adjusted EBITDA margin exceeded 11% for the first time.

Bookings were also strong. Total contract awards increased 14% year over year, resulting in a consolidated book-to-bill ratio of 1.1x. Federal Solutions was particularly strong, with awards increasing 53% year over year and a book-to-bill ratio of 1.2x. Critical Infrastructure delivered a book-to-bill ratio of 1.0x, marking its 24th consecutive quarter at or above that level. Through the first nine months of 2026, Federal Solutions bookings increased 47% year over year, while Critical Infrastructure achieved a year-to-date book-to-bill ratio of 1.1x.

As a result, consolidated year-to-date book-to-bill was 1.2x. The quality and strategic importance of these awards were equally encouraging. During the quarter, we received three contract actions valued at more than $100 million each and continued to expand our use of other transaction agreements, or OTAs. We won a $495 million ceiling value contract for a national security customer to acquire and deploy advanced communications, power, and software capabilities. We booked $37 million on this contract in the third quarter.

One of the quarter’s most significant awards was the increase of the ceiling value of our five-year, sole-source other transaction production contract with United States Cyber Command to $750 million. We secured this contract through our acquisition of SealingTech and have now begun full-rate production of the Joint Cyber Hunt Kit, or JCHK. JCHK is a modular, mobile cybersecurity system that enables joint cyber protection teams to rapidly detect, analyze, and counter advanced cyber threats across the United States and allied networks.

To date, we’ve booked $250 million under this contract. Including JCHK, Parsons now generates approximately $350 million annually in products and related service revenue, and we plan to continue to expand this portfolio across six product lines: biometrics and identity management; full-spectrum warfare; command and control and mission planning; autonomy and counter-unmanned aircraft systems; space mission systems; and infrastructure operations and resilience.

In addition, this quarter we booked $234 million of the $514 million two-year option period for the Missile Defense Agency’s TEAMS Next program. Under this program, we will continue providing engineering, technical, analytical, and oversight support for the nation’s integrated missile defense system, including efforts to address evolving ballistic missile and hypersonic threats. We also won four new OTA awards with an aggregate ceiling value of more than $370 million and booked approximately $140 million under these agreements during the quarter.

These awards include a five-year, $97 million OTA by a government customer to deliver technology to simulate radio frequency and cyber conditions. The company booked $4 million on this agreement during the quarter. We also received a five-year, $95 million other transaction agreement from a government customer to modernize software supporting early warning capabilities, and we booked $19 million on this agreement during the quarter. In addition, we were awarded a classified three-year agreement with a $95 million ceiling to provide advanced national security solutions supporting operations in the Pacific theater; we booked $30 million on this agreement. In Q3, we won a 75-month, $86 million agreement to provide program and construction management support for the United States Space Command’s new headquarters at Redstone Arsenal in Alabama. We booked the full value of this agreement. Collectively, these wins expand our presence across several strategic growth markets. The United States Space Command award also demonstrates the synergies between our Federal Solutions and Critical Infrastructure segments and highlights our continued growth in defense infrastructure.

OTAs provide customers with a flexible path from technology development and prototyping through production and deployment. They’re particularly well suited to critical missions such as cyber, counter-unmanned aircraft systems, electronic warfare, and space and missile defense. We currently have 26 OTA contracts, including 12 awarded this year, representing $1.6 billion in total ceiling value. Our OTA pipeline totals approximately $2 billion, positioning us to continue expanding this important contracting vehicle.

Today’s defense environment is faster, more distributed, more contested, and increasingly multi-domain. Meeting these challenges requires solutions that are high-performing, affordable, rapidly deployable, and scalable for sustained operations. Our purpose-built Federal Solutions portfolio is differentiated by the combination of speed, agility, affordability, and mission reliability. We bring together proven hardware, mission software, and secure deployment to deliver integrated systems that create measurable advantages for our customers.

The administration’s proposed FY27 base defense budget of $1.15 trillion represents an increase of more than 28% over fiscal year 2026 and aligns closely with Parsons’ differentiated capabilities and customer relationships. While the proposed budget remains subject to Congressional approval and appropriations, its focus on missile defense, cyber, space, electronic warfare, and industrial base modernization reinforces our confidence in the long-term demand environment.

With strong bookings and a strong pipeline, we believe Parsons is well positioned to support national security priorities and deliver capabilities at the speed and agility required by the Department of Defense. Funding decisions, protests, and procurement may affect revenue conversion, but we view those as timing considerations rather than indicators of demand. We also expect growth as existing vehicles are funded and as classified capabilities, recently awarded programs, and new products ramp.

The same principles extend across Critical Infrastructure. Infrastructure owners are seeking assets that are more resilient, connected, and intelligent, and they need partners who can help them navigate the full life cycle from planning and design through construction, operations, and optimization. Parsons combines deep infrastructure expertise with digital engineering, data analytics, and secure technology to transform complex systems into higher-performing, more resilient assets.

By connecting physical infrastructure with digital intelligence, we help customers make better decisions, improve performance, and create measurable value. Demand remains healthy across our Critical Infrastructure segment in both North America and the Middle East, and this is reflected in the segment’s 24th consecutive quarter with a book-to-bill ratio of at least 1.0x. In North America, demand remains strong across transportation, environmental, and water and wastewater projects. Only 48% of the Infrastructure Investment and Jobs Act funding has been spent as of August 2026, and the proposed Build America 250 Act would authorize at least $580 billion of surface transportation funding through 2031 if enacted.

This includes historic bridge investment, permitting reforms, and increased formula-based funding to 90%. The Middle East also remains a resilient and attractive long-term growth market supported by investment in transportation, urban development, aviation modernization, major regional events, and broader economic transformation. We also see emerging opportunities in the Middle East in counter-unmanned air systems, cyber defense, integrated air and missile defense, desalination, and the protection of critical infrastructure.

Our Middle East net headcount has increased every month in 2026. These trends reflect our continued investment in the region, the strength of our brand, and our confidence in long-term growth prospects. While the infrastructure market remains attractive, recent growth has been moderated due to lower pass-through revenue in North America and broader geopolitical uncertainty. In summary, we believe the third quarter demonstrated the strength and differentiation of our portfolio. We exceeded our commitments for revenue, adjusted EBITDA, adjusted EBITDA margin, and operating cash flow, while strong book-to-bill ratios and healthy demand reinforced the resilience of both segments. Combined with our greater than $50 billion pipeline, strong win rates, total backlog of $9.4 billion, of which 73% is funded, and $12 billion of awarded contracts not yet booked, we believe these results provide us with a solid foundation for attractive long-term organic growth and value creation for our shareholders.

With that, I’ll turn the call over to Matt to provide more details on our third quarter financial results.

Matt Ofilos (Chief Financial Officer)

Thank you, Carey. Serving as the Parsons CFO under your leadership has been an incredible privilege. I’m proud of all that our team has accomplished and have tremendous confidence in the company’s future. I’ll remain a committed Parsons supporter for years to come. With that, let me get into the details of the Q3 results. Third quarter was highlighted by exceeding our prior commitments in delivering solid performance across the company. We will continue to focus on disciplined execution to drive long-term growth and shareholder value, with book-to-bill ratios at or above 1.0x in both segments for the third consecutive quarter, revenue growth of 5% excluding the confidential contract, a record third quarter adjusted EBITDA margin of 10.2%, and operating cash flow of $269 million.

We believe the strength of the portfolio will continue to drive long-term growth and margin expansion. Turning to the details of our third quarter results, total revenue grew 5% and 2% on an organic basis as excluding the confidential contract. These increases were driven by growth in our cyber and electronic warfare and transportation markets. Highlights included strong growth on new and existing contracts, to include the Classified Identity Management contract and our FAA work. Total revenue including the confidential contract increased 2% from the prior-year period and was down 1% on an organic basis.

We anticipate accelerating Federal Solutions growth over the next several quarters, supported by strong book-to-bill ratios over the past three quarters and the expected resolution of over $850 million in contract wins that are currently under protest. SG&A expenses for the third quarter increased to 10% from the prior-year period, primarily driven by acquisitions and technology investments that are in line with expectations. Record adjusted EBITDA of $168 million increased 6% from the prior-year period. Adjusted EBITDA margin expanded 40 basis points to a record 10.2%. These increases were driven by accretive growth across both our infrastructure and federal segments.

I’ll now turn to our operating segments, beginning with Critical Infrastructure. Record third quarter revenue of $846 million increased 2% year over year, driven by 1% organic growth and contributions from our Applied Sciences acquisition. Organic growth includes strength in our transportation market and growth in the Middle East despite the ongoing geopolitical uncertainty. Adjusted EBITDA increased 9% year over year to $94 million, while adjusted EBITDA margin expanded 80 basis points to 11.1%.

Revenue, adjusted EBITDA, and adjusted EBITDA margin all set new records for the segment, reflecting the ramp up of recent awards, contributions from accretive acquisitions, and stronger program execution. Moving to our Federal Solutions segment, where third quarter revenue excluding the confidential contract increased 9% year over year and 3% on an organic basis. Growth was driven by strength across our cyber and electronic warfare and transportation markets. Including the confidential contract, total segment revenue increased 2% year over year and declined 3% organically. Federal Solutions adjusted EBITDA increased 2% year over year, while adjusted EBITDA margin remained unchanged at 9.2%.

The increase in adjusted EBITDA was primarily driven by contributions from acquisitions and growth on accretive contracts. Next I’ll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q3 was 70 days, eight days above the prior-year period, mainly due to the conclusion of our confidential contract in Q1 of 2026. Compared to Q2 2026, our DSO improved by six days on strong cash collections. During Q3, we generated $269 million of operating cash flow compared with $163 million in the third quarter of 2025. On a trailing twelve-month basis, we generated $490 million in operating cash flow, an increase of 12% over the prior twelve-month period.

These increases were driven primarily by strong collections across the entire portfolio. Capital expenditures totaled $18 million in the third quarter. Looking ahead to the fourth quarter, we expect capex to increase sequentially as we continue to invest in classified facilities and reach critical milestones related to enterprise systems upgrades that support Parsons’ long-term growth and enhance efficiency across the business. Trailing 12-month free cash flow conversion was 130%.

Our balance sheet remains strong as we enter the third quarter with a net debt leverage ratio of 2.1 times. During the third quarter we repurchased 1.3 million shares for $60 million. Year to date, share repurchases have totaled $110 million, an increase of nearly 70% from the prior-year period. We have increased share repurchases given our view that the current stock price does not fully reflect Parsons’ long-term value. We also continue to invest organically to differentiate our capabilities and will selectively pursue accretive acquisitions that strengthen our win rates and ability to capture large programs through differentiated technology.

Turning next to bookings, we secured $1.8 billion in contract awards during the third quarter, an increase of 14% year over year. This resulted in a consolidated book-to-bill ratio of 1.1x for the quarter. Our book-to-bill ratio was 1.2x for the first nine months of the year and 1.1x on a trailing 12-month basis, supporting our future growth outlook as recently awarded programs ramp. Both segments delivered solid bookings. Critical Infrastructure achieved a book-to-bill ratio of 1.0x, marking its 24th consecutive quarter at or above 1.0x.

In Federal Solutions, contract awards increased 53% year over year, resulting in a book-to-bill ratio of 1.2x for both the third quarter and on a trailing 12-month basis. At the end of the third quarter, total backlog reached a record $9.4 billion, up 6% year over year, while funded backlog was up 7% and reached a record $6.8 billion, representing 73% of total backlog funded. Now let’s turn to our guidance. Based on our year-to-date performance and enhanced operational visibility, we are narrowing our revenue and adjusted EBITDA guidance ranges provided on July 29th. For fiscal year 2026, we now expect revenue in the range of $6.25 to $6.45 billion and adjusted EBITDA between $510 and $550 million. While Q3 cash flow was strong, we are maintaining our operating cash flow guidance range of $430 million to $490 million due to the uncertain geopolitical environment.

These guidance ranges are outlined in our earnings press release and PowerPoint presentation, both of which are located on our investor relations website. Slide 12 of the presentation provides additional key assumptions that support the midpoints of our 2026 guidance ranges, which we believe remain the appropriate basis for modeling our full-year results. In summary, our third quarter results reflected solid performance across our portfolio, including book-to-bill ratios at or above 1.0x in both segments, record profitability, and healthy cash generation. We remain focused on disciplined execution and delivering on our commitments to drive sustainable long-term shareholder value. With that, I’ll turn the call back over to Carey.

Carey Smith (Chair, President and CEO)

Thank you, Matt. This quarter we exceeded all of our financial commitments, delivering record profitability, excellent cash generation, strong bookings, and record total and funded backlog, while expanding our products and Other Transaction Agreement portfolio and strategically repositioning the business toward higher growth, higher margin work. As we look ahead, our priorities are clear: consistent execution and converting our strong pipeline and recent awards into profitable growth. While we continue to navigate procurement timing and geopolitical uncertainty, the alignment of our capabilities with our customers’ most critical national security and infrastructure needs, and demand for our differentiated solutions, supports our confidence in Parsons’ long-term outlook. We will remain disciplined in deploying capital and focused on delivering for our customers, employees, and shareholders.

With that, we’ll now open the line for questions.

OPERATOR

Thank you, ladies and gentlemen. To ask a question at this time, you will need to press star-11 on your telephone and wait for your name to be announced. In the interest of time, please limit yourself to one question and one follow-up. One moment for our first question in queue. Our first question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is now open.

Sheila Kahyaoglu (Analyst at Jefferies)

Thank you, guys, and good morning. And Matt, congratulations on your move — you’ll be missed, maybe. Carey, I guess, how do you think about just the future growth outlook, sticking to Federal Solutions? When we look, awards are up almost 50%. Book-to-bill is 1.3 times. Yet organic growth, ex the confidential program, is running at low single digits. So I guess, you know, what’s your line of sight to improvement? You also just mentioned funded backlog is a pretty good statistic.

So I guess how are you thinking about FS growth as we head into 2027?

Carey Smith (Chair, President and CEO)

Yeah, thanks, Sheila. So I’d say we’re very positive on FS growth. When you look at the book-to-bill, as you pointed out, year to date it’s very strong. At 1.33 times we’ve been awarded over 12 different contract actions greater than $100 million since the start of the year. The majority of those have been in federal. In addition to what we talked about as far as the wins, we currently have $850 million awarded to Parsons over a five-year period that’s under protest and another $495 million that’s still in the protest period.

So the federal group definitely has some momentum behind it. And funded backlog is significantly up for federal. The goal now is really how quickly we can convert those awards into revenue, and that’s where we’re laser focused.

Sheila Kahyaoglu (Analyst at Jefferies)

Okay, maybe a follow-up on that. I guess as we think about organic growth from the low single digits, should it accelerate next year, and are there one or two programs that are driving that growth, and any that fall off for FS only?

Carey Smith (Chair, President and CEO)

Yeah. So as far as programs that are driving the growth, I would say all the recent new wins, the classified biometrics identity win, all the other transaction awards that we’ve received which include programs that are basically already full of work like Joint Cyber Hunt Kit at 750 million or the Space Command Headquarters new award. So those would be some of the key. FAA continues to be very strong. We’re up 40% year over year in FAA and we see that effort continuing as we go into next year.

And the air base, air defense as well as additional point defense activities remain very strong. We’re also doing well on our Defense Threat Reduction Agency CeTRiC contract, being the number one awardee there. And Department of Energy Counter Nuclear System Smuggling and Deterrence, the number one awardee there. So a lot of trajectory in the federal area. As you’re aware, we haven’t yet provided formal 2027 guidance. As we looked at 2027, we’re very confident in the strength of our record backlog. We have 12 billion of awarded contracts to Parsons that we have not yet reflected in bookings and more than 50 billion of a qualified pipeline with over 109 opportunities, opportunities greater than 100 million that are in that pipeline.

But that said, we are in a dynamic environment and contract awards are taking longer to convert to revenue and we do also face some uncertainty related to midterms, geopolitical conditions in the Middle East and, as I mentioned, the elevated level of protest which we’re waiting to clear. So the good news is as we get closer to reporting our fourth quarter earnings, we should have better line of sight protection, particularly on the protest status.

We’re still confident in Parsons’ ability to deliver our long-term guidance which we’ve indicated is mid single digit or better and double digit margins by 2028, although we are going to be cautious that some of the macro headwinds that we experienced in 2026 could persist into 2027. So we look forward to providing our full-year guidance on our fourth quarter earnings call in February 20, 2027, which is consistent with what we’ve done in prior years.

OPERATOR

Thank you. Our next question coming from the line of John.

John

Hey, thank you for taking my question. I wanted to just follow up on this year’s guidance. You know, you guys narrowed the range which completely makes sense. There’s still a good amount of range with one quarter left in the year and it could be a complicated quarter with, I guess, news out there of the possibility of a significant escalation in Iran after the midterms as well as the midterms themselves and we’ll see how that shapes out. I was just hoping maybe we could dialogue a little bit on low end versus high end and any puts and takes and risk factors to think about for 4Q kind of driving the range.

Matt Ofilos (Chief Financial Officer)

Yes, thanks, John. I’ll take that one. I’ll probably go in reverse order on the cash flow. To your point, we had an exceptional quarter in Q3. I think we see the opportunity to continue to deliver at cash levels at similar levels. However, given the uncertainty specifically in the Middle East, we’ve been a bit more conservative on the forecasting there and given ourselves a little bit more wiggle room at the midpoint. So I’d say on the cash side probably some opportunity trending between midpoint and higher end.

On the cash revenue, really strong quarter again kind of de-risk Q4. We see a little bit of a decel in Q4 from Q3, but mainly that’s the seasonality on programs like FAA and some of the Canada mine jobs and access there. So if things like protests unwind earlier, we have no revenue in from kind of new new and the protest unwind. So tailwinds or trending toward the higher end of guide would be on protests and continued performance similar to what we had in Q3 on the revenue side.

On EBITDA, I think you’ll see with Q3’s performance it’s kind of a flat Q3 to Q4. So obviously risks and opportunities to EBITDA are always performance related and operational. So no real risk there. In terms of the margins on the executing programs it would just be maybe higher volume; opportunity would be higher volume on products like JCHK and different things and risk would be any unexpected execution issues.

John

Got it. Very helpful. And in the slides there was this note about strong contract win rates. Clearly you guys are producing some wins. We don’t have perfect clarity into what the funnel looks like and how much you’re out there bidding. Carey, I think in the last question you mentioned a very large qualified pipeline. Can you just plug us into the funnel here and how you’re kind of thinking through the funnel as we go into 2027?

Carey Smith (Chair, President and CEO)

Yes, we expect this year we’re going to bid roughly the same amount as we did last year. So on the order of about 19 billion of proposals submitted. And again I’ll highlight that our pipeline has been greater than $50 billion for 11 consecutive quarters. So very strong pipeline, 109 opportunities greater than $100 million. So strong funnel. If you look at the pipeline it’s broken up, about $30 billion of that comes from federal with about $23 billion from critical infrastructure.

Matt Ofilos (Chief Financial Officer)

And John, just two things I would add. Carey mentioned earlier the awarded, not booked, north of $12 billion. That’s the highest level that’s been since 2024, which is a really good sign. Obviously those things are easy to turn into backlog quicker than kind of new new pursuits. And then on top of that we have just about $5 billion awaiting notice of award.

OPERATOR

Thank you. Our next question coming from the line of Gautam Khanna with TD Securities.

Gautam Khanna (Analyst at TD Securities)

Yeah, thanks. Good morning and congrats, Matt.

Matt Ofilos (Chief Financial Officer)

Thanks, Gautam.

Gautam Khanna (Analyst at TD Securities)

Hey, just wanted to follow up on a couple things. First, on the JV project in Canada that you talked about, what is the remaining kind of charge exposure, if there is any, given the timing of the project? Is it just, if you could calibrate, like how is that considered in the guidance for this year? And is that something that could slip out to next year with the potential charge follow up?

Carey Smith (Chair, President and CEO)

Yeah, great, great question, Gautam. As I mentioned on the call, the project is over 75% complete as of today and we expect to be 80% by year end, 85% by the end of the first quarter. One thing that we did throughout the quarter since June, when we had, in June and July, the historic rainfall, to mitigate the weather risks, we resequenced the work so that we prioritized all the critical activities before the end of this year, and we moved work to the right that could be performed during the winter months.

We’re also working with the customer on requested relief for historical weather and other events. And that’s not included in our forecasted final completion date of June 2028. If that schedule were to extend beyond June 2028 or other risks would materialize, there could be additional costs or joint venture investment requirements. But as you point out, as the project advances and nears completion, we expect the nature and the potential impact of those remaining issues to be less significant than what we experienced historically.

As a reminder, this is a 50-50 joint venture project. We’re the non-managing partner and we have not pursued any similar consortium projects since 2019.

Gautam Khanna (Analyst at TD Securities)

Okay, so there’s no assumed charge in the fourth quarter guide. Is that fair? Okay. Also wanted to just ask, at one point we were talking about three larger CI projects that you guys were pursuing. I think we talked about it last quarter on the earnings call. Could you give us an update on where those stand?

Carey Smith (Chair, President and CEO)

Yeah. So on the one that was announced, the concessionaire of the team that was announced as the winner basically bid five times the concession fee of any of the three other bidders. Our concessionaire has protested that award.

OPERATOR

Thank you. Our next question in queue coming from the line of Jonathan Sigman with Stifel. Your line is now open.

Jonathan Sigman (Analyst at Stifel)

Good morning. Thanks for taking my question and best wishes, Matt.

Matt Ofilos (Chief Financial Officer)

Thanks, John.

Jonathan Sigman (Analyst at Stifel)

Appreciate you guys. Qualifying product revenue base today. I was just… Can you frame how we should think about the margin difference between products and those services relative to the base Federal Solutions? And then you had previously mentioned, you know, over 30% growth for Cyber Hunt. Is that specific for that product line or that product broadly? Just trying to gauge how much faster that vertical could grow relative to the base. Thank you.

Carey Smith (Chair, President and CEO)

Yeah, I’ll start off on the growth. So as we mentioned, and the metal hit the margin, we have 350 million of products and related services in 2026. And we’re expecting an increase of between 20% to 30% of our overall products as we go into 2027. That’s based on Joint Cyber Hunt Kit, but also other products, including our T-REX threat emulation system, our Sure Position Navigation Timing system, our Command and Control Core system, our biometrics and identity management, as well as some of our RF capabilities and our tax situational awareness system, and some of our space products and our intelligent network products.

So quite a robust products portfolio.

Matt Ofilos (Chief Financial Officer)

Yeah, John, relative to margin, I’d say it obviously ranges. I would say we’ll talk generally about products, but I’d say a lot of the product revenue we have today, JCHK specifically, was going through LRIP and some of the other programs are still kind of early investment and growing. So I would say we expect margins on products in general to be north of 20%. Some of the bigger ones will be right around that 20, but others are even kind of in the 40% range.

So if you think about products as a whole, you know, two times what, you know, let’s call it kind of high nine or mid to high nine that Fed should be, that’s probably a good target. So if we can grow products 20% or 30% again next year at 20-plus percent margin, that’d be a good story.

OPERATOR

Thank you. Our next question in queue coming from the line of Gavin Parsons with UBS.

Gavin Parsons (Analyst at UBS)

Thank you. Good morning.

Carey Smith (Chair, President and CEO)

Morning, Gavin.

Gavin Parsons (Analyst at UBS)

Sorry to come back on the charge risk contract on CI. I thought last quarter you’d said the plan was to be 90% complete by the end of this year. So just want to check if that means you’ve buffered some or accommodated for some additional overrun already in the charge that you previously took.

Carey Smith (Chair, President and CEO)

Yeah, what we did, Gavin, is because we had the historic rainfall in June and July, we decided to resequence the work and that it would be better that we could get to an earlier testing and commissioning phase. So it was intentionally moving work around to optimize resources. By doing that, that enabled us to reduce our cost and reduce some headcount this year so that we can surge it after the new year.

Gavin Parsons (Analyst at UBS)

Okay, thanks for that. And then on the OTAs, clearly a lot of wins there. I think some of those had been slower to ramp. And you had a lot of language this morning around funding decisions and procurement. Any progress on those OTAs transitioning from awarding to funding?

Carey Smith (Chair, President and CEO)

Yes. So we have had progress. Again, I’ll point out two of them are kind of fully scoped from the beginning, which are two of the bigger OTAs. That would be the Joint Cyber Hunt Kit where there’s a requirement to deliver approximately 74 kits per year for three years, and then the Space Command Headquarters, which we fully booked and is fully ramped. So those two make up a good portion of what we’ve already booked. And then we have the OTAs that we announced last year.

We’ve already started to receive funding on those. The good news is the scope that we’re doing on the majority of the OTAs is focused on the Indo-Pacific region, the near peer fight, cyber, space, missile defense, electronic warfare — all areas that are in heavy demand by the Department of Defense, as well as the intelligence community.

OPERATOR

Thank you. Our next question in queue coming from the line of Andrew Whitman.

Andy

All right, thanks for taking my questions, Matt. We’ll miss you. George, welcome back. Glad to have you. I guess I’m going to ask one of the first questions here on the CI segment. The organic growth rates here have been kind of low. The change over last quarter here is around the Middle East. Last quarter the Middle East was pretty good, even though some of the turbulence is already affecting the region. This quarter a little bit of a decel. So I just.

Kerry, I was hoping you could maybe address what you saw in the quarter and how that bodes for the future. Obviously there’s tons of uncertainty here, but I just wanted to kind of think about it like you’re thinking about it. And even in North America here we’ve been seeing kind of across the board some deceleration in some of the organic growth rates for not just your company but for peers as well. Just want to make sure we’re thinking about what the realistic organic growth rates for that business are.

Obviously you’re going to point to the backlog and that’s been pretty consistent here. But just want to try to think about like that what you’re seeing there and think about it like you’re thinking about it, please.

Carey Smith (Chair, President and CEO)

Yeah, sure. Thanks, Andy. So again, we’ve had greater than 24 consecutive quarters greater than 1.0 book-to-bill, which reflects very strongly on the demand for both the Middle East as well as for North America. During the quarter there was some slowdown in Saudi, which makes up 65% of our Middle East business, and that was due to a rephasing of programs by the Public Investment Fund. So you can think about that as timing as well as award timings.

So their focus right now is on any program that is based around Riyadh so that they can get to the Expo and the World Cup events in 2030 and 2034. So this quarter, while we were at a 0.8 book-to-bill for the Middle East, we believe we’re going to exceed a 1.0 back for Q4. And the reason is that in Q4 we get our annual renewals on our large programs, such as Jazan and Yanbu as an example. In the Middle East, we’re very happy. Last week we had record billable hours and we’ve had, as I mentioned on the call, an increase in net headcount every single month throughout 2026.

So demand remains strong. I think there are some timing issues that are happening in Saudi Arabia. On the other side, again of the conflict, though, we do see opportunities to include areas like rebuild: how do you passively and actively protect various assets like data centers, utilities and water? So in addition to our kind of our core critical infrastructure business, we see some expansion opportunities into new market areas. In North America, if you take out lower pass-through, we mentioned that some of our larger design programs had peaked, which includes Hawaii Rail and Transit, the Newark AirTrain program and the Georgia State Route 400. Those had a lot of pass-through. So excluding the pass-through, we’re actually up 4.5% organic. And the good news, excluding the pass-through, that’s driving our higher margins that we’ve been able to realize and create our infrastructure

Andy

Context on that. And I guess, Matt, just for you, a clarification on the guidance here. You made the point: the 3Q revenue, EBITDA, cash flow ahead of expectations but didn’t move the full year. Is there something else that we should understand that it didn’t take up the fourth quarter? Is there an offset? Is there? You know, just wanted to try to understand kind of how you’re thinking about that. Thanks.

Matt Ofilos (Chief Financial Officer)

Yeah, no, there’s nothing really there, Andy. Just kind of trying to be thoughtful and look forward to potentially outperforming, but obviously a lot of volatility given the media environment in different places. So I have high confidence in the midpoint and really just want to get back to that beat mode.

OPERATOR

Thank you. Our next question in queue, coming from the line of Tobey Sommer with Truist. Your line is now open.

Tobey Sommer (Analyst at Truist Securities)

Thanks. I wanted to ask a question of you on the trend towards OTAs and what you think that that will mean for the company. How big can that be and can it be a needle mover in terms of margin and if so, when?

Carey Smith (Chair, President and CEO)

Yeah, thanks, Tobey. So we’re excited about other transaction agreements. We have a non-traditional company that we’ve kept in place since we bought Plans Alphabet in May of 2019. We’ve been awarded 26 OTAs I mentioned for up 1.6 billion in value. We have a pipeline of over 2 billion in OTAs. They offer a lot of advantages over traditional federal contracts in terms of the flexibility. You can tailor the terms to the project. It provides access to innovation.

You can do a lot faster prototyping, quicker from bid-to-award timing. You negotiate intellectual property terms. You can do more collaboration with consortium, public-private partnerships. You have flexible payment, lower administrative burden and you can also have a production transition as what we’ve illustrated with the Joint Cyber Hunt Kit. We do like OTAs. They have a defined scope and stated technical objective and are tied to customer mission requirements, which all of our OTAs awards have been.

The other advantage, to your point on margin, is most of these are at fixed price. So we do believe that these will be margin accretive to our business.

Matt Ofilos (Chief Financial Officer)

Yeah. Mainly driven, Tobey, by obviously the cost-type work. You see some pressure on the margin for ODCs and materials, where on the OTAs you can get profit across the entire program.

Tobey Sommer (Analyst at Truist Securities)

Great, thank you.

Carey Smith (Chair, President and CEO)

Thank you. Thanks, Tobey.

OPERATOR

Thank you. Our next question in queue coming from the line of Matt Akers with BNP Paribas. Your line is now open.

Matt Akers (Analyst at BNP Paribas)

Hey, good morning everybody. Yeah, thanks for the question. And Matt, best of luck. It’s been nice working with you.

Matt Ofilos (Chief Financial Officer)

Thank you, Matt.

Matt Akers (Analyst at BNP Paribas)

I wanted to follow up on just the critical infrastructure margins. Really strong in the quarter. Anything sort of unusual that drove that and just your level of confidence to be able to continue to expand margins with that segment.

Matt Ofilos (Chief Financial Officer)

Yeah, great. I think to your point, 11-plus percent margin, the only thing I would tell you is pass-through. So you’ll recall from the last quarter we lowered revenue guide for the year by about $50 million through the first half, specific to pass-throughs. So through the first half of the year we had been down about $25 million. So we assumed a similar trend in the second half. What we saw in Q3 was about $19 million lower pass-through year over year.

So we do get the benefit on the pure margin rate. We’re excited to see the EBITDA dollars were up 9% year over year. So business continues to deliver and deliver on the earnings and so the pass-through dollars, while it looks a little bit worse on the revenue side, it does benefit the EBITDA dollars and margin rate. So nothing particular, it’s just the underlying execution of the business and then the mix.

Matt Akers (Analyst at BNP Paribas)

Yeah, thanks. And then you guys talked a little bit about sort of the funded portion of your backlog. It’s been growing faster than total backlog. Could you talk a little bit about what’s driving that and maybe should we be more focused on kind of the funded portion of backlog as opposed to just the total backlog or kind of how to think about that?

Carey Smith (Chair, President and CEO)

Yeah, I’ll start. Matt will jump in. Yeah, we’re very happy with 73% funded backlog. I think it’s two to three times most of our peers. So view that as a good sign again, as you start to think about how quickly you can convert awards into revenue.

Matt Ofilos (Chief Financial Officer)

Yeah, the only thing I’d say, Matt, is typically we watch funded because it’s more likely to convert to revenue quicker than just total backlog. And so funded is obviously evidence of the next 12 to 18 months. And so positive trends in funding should support the growth outlook.

Matt Akers (Analyst at BNP Paribas)

That’s good. Thanks. I appreciate it. Thank you.

OPERATOR

Thank you. And as a reminder, to ask a question, please press star, one, one. Our next question coming from the line of Bruce with William Blair. Your line is now open.

Bruce (Analyst at William Blair)

Carey, Matt, George and Dave, good morning. Thanks for the question. And Matt, best of luck in your next role. Thanks, Bruce. Last quarter you talked about a second half margin of 9.4 in Federal. Came in at 9.2% this quarter. Can you just talk about the puts and takes there and what’s assumed in the guide for the fourth quarter?

Matt Ofilos (Chief Financial Officer)

Yeah. So numbers are still the same, 9.4% half. We are expecting a little bit of a ramp up in Q4 to about 9.7% for Federal. So overall total year normalized for the adjustments is just north of 9, or 6.7 including the adjustments from Q2. So it’s really just timing on the products, ramp up on JCHK a bit and a couple other things.

Carey Smith (Chair, President and CEO)

And also I’d say just a little less seasonality because FAA, which is cost reimbursable, tends to be seasonal and is not as high in the fourth quarter, and that’s cost plus.

Bruce (Analyst at William Blair)

Okay, helpful. Thank you. And then can you just maybe talk generally about the impact of the continuing resolution on backlog conversion in Federal?

Carey Smith (Chair, President and CEO)

Yeah. So first I’d say we’re very fortunate that we have the 73% funded backlog, record backlog of 9.4 billion and 12 billion that’s been awarded to Parsons but not yet booked, because we can run for a long time under a CR. Unfortunately, we’ve become very used to dealing with CRs. There’s definitely still some uncertainty around the FY27 appropriations process, the NDAA, potential supplemental legislations and the next steps that will follow the current continuing resolution.

The current CR funds government through December 11th and if that’s not passed with a new CR, you could potentially have a shutdown, which we don’t think either party is really going to want to have. But I think the key for us is we’re not highly dependent on new budget because of the wins that we’ve had — 12 contract actions greater than 100 million since the first of the year. Our Federal business is anchored by very large multi-year contracts and single-award IDIQ and OTA vehicles such as Missile Defense Agency, the FAA and a lot of work we do with the GSA FEDSIM, and once again substantial backlog awarded not booked and a large qualified pipeline.

Bruce (Analyst at William Blair)

Great. Thanks, Carey.

Carey Smith (Chair, President and CEO)

Thanks, Matt.

OPERATOR

Thank you. Thank you. Our next question coming from the line of Gautam Khanna with TD Securities. Your line is now open.

Gautam Khanna (Analyst at TD Securities)

Yeah, thanks for the follow-up. I was just wondering as we look to 2027, knowing you have not given guidance, can you give us a sense for just generically what do you think the relative growth between the two segments might be — which grows faster — and if there’s any first half, second half dynamic to be mindful of.

Carey Smith (Chair, President and CEO)

So I would say based on the awards that we’ve had, we anticipate that Federal would grow faster than Critical Infrastructure in 2027. First half, second half, I can’t think of any dynamics.

Matt Ofilos (Chief Financial Officer)

Only thing I would point to, Gautam, is depending on how the protest — if they extend out longer, you know, that could delay kind of the ramp on some of the Fed programs. But generally speaking it should be flat throughout the year. Maybe a little bit of a ramp in Q2.

Gautam Khanna (Analyst at TD Securities)

Thank you. Appreciate it, guys.

OPERATOR

Thanks. Thank you. Our next question coming from the line of Noah Poponak with Goldman Sachs. Your line is now open.

Noah Poponak (Analyst at Goldman Sachs)

Hey, good morning everyone. Matt, thanks. I’ll add my thanks for all the time you spent with us over the years. Always super helpful and appreciate it.

Matt Ofilos (Chief Financial Officer)

Appreciate it.

Noah Poponak (Analyst at Goldman Sachs)

Can you guys talk a little bit about capital deployment? You’ve bought back some stock the last few quarters, paid down some debt. I know you’re always looking at acquisitions and net debt to EBITDA isn’t super high, but it’s higher than your historical average. So should I read all of that as the M&A pipeline is a little slower or is that not the case? What are you seeing on that front?

Carey Smith (Chair, President and CEO)

M&A pipeline is still strong. We’re looking at various opportunities in critical infrastructure as well as federal solutions. And I think you can kind of expect us to stay on a trajectory of about two to four acquisitions per year. We’re going to remain highly selective, making sure that we’re buying for capabilities, not for scale, and acquisitions that fill current gaps that we have. Yeah, let me start, and then jump in. For CI for the next three to five years, we still view a favorable environment. The Middle East, we’ve got growth prospects not just in our critical infrastructure business, urban development, and transportation, but we’ve moved into tourism and hospitality and defense and security, which obviously have become increasingly important. And then we see opportunities as far as rebuild in North America with the Build America 250 Act that basically set the floor at 580 billion.

Importantly, within that next five-year surface transportation bill, there’s a historic investment in bridges. Parsons has done over 4,500 bridge projects, so once again very well aligned to our capabilities. And roads and highways are also focused. We’ve designed and built over 10,000 miles of roads and highways on six continents. Another very strong core competency for the company. And there’s push towards digital transformation where we’re uniquely positioned with our portfolio, because we can bring capabilities like artificial intelligence, cybersecurity protection, digital twins, because we have all those technologies across our business, particularly driven from the federal side.

As far as federal and the confidential program, pretty much the lapping will end at the end of this year. We only have about 15 million that would go into next year that would be overlapped.

Matt Ofilos (Chief Financial Officer)

Yeah, no, specifically in Q3 we had just under a $50 million headwind from the confidential contract. In Q4 ’23 and then Q1 will be 15. So, you know, Q4 will likely be closer to flattish organic. We have a little bit of seasonality with FAA and different things in Fed, so it’s somewhere around there. And then Q1, with the lower comp, it should be positive growth.

OPERATOR

Thank you. And that’s all the time we have for our Q&A session for today. I will now turn the call back over to Dave Spille for any closing comments.

Dave Spille (Senior Vice President, Investor Relations)

Thank you for joining us this morning. If you have any additional questions, please feel free to contact me directly. We look forward to connecting with many of you in the coming weeks. With that, we’ll end today’s call. Have a great day.