Parsons (PSN) 4 May 222022 Q1 Earnings call transcript

Good day, and thank you for standing by. Welcome to the First Quarter 2022 Parsons Corporation Earnings Conference Call. At this time, all participants are in listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, today's conference maybe recorded. like Dave the Investor Spille, now your over Relations. I'd today, host Senior Instructions] to conference hand to [Operator Vice President, Please go ahead.

today of that we’ve morning, for presentation slides quarter Good thank Investor provided financial to Relations the us section XXXX note you. first website. discuss Please Thank results. on our our and joining you

from measures call non-GAAP financial do I'll turn not XXXX, Please earnings forward-looking release fiscal to ended factors. for XX, complete variety non-GAAP now, during measures then you the trends, guarantees financial Carey. will not then the George this such comparable over financial operational future to not will also George of may undertake forward-looking that GAAP future Ball, to call. and call for and reference these President their CEO; any to and obligation remind overview an statements And performance, the disclosure. make anticipated of with On may and provide XX-K with risks SEC results other and to Actual are statements results. strategy risk Management difficult our Today, update will a me forward-looking question-and-answer the also measures. discuss our year future projected differ caution Carey events, of We the Smith, you highlights, factors of materially a substitute quarter corporate are today call statements. are These Management for session. and and will statements described statement forward-looking We are uncertainties December that Carey the first due predict. anticipated refer a our that in in to future filings. during CFO. are performance and our those make close involve We Form regarding Parsons' press We company.

business quarter IPO healthy results, organic call. quarter our May delivered Thank retention. contract everyone, on over hiring first in strong quarter you, strong first earnings and reported Parson's since financial continued and half and momentum of our three XXXX, the established morning, operating to awards won in continued and We revenue both XXXX We second Dave. generated $XXX highest Good the in first growth million, welcome EBITDA segments, adjusted cashflows XXXX.

For our across the board. year, full we are guidance reiterating the

X%, During the from both of quarter, business and growth generated all segments with we year-over-year total units. four contributions

within and year-over-year Our Federal X% Solutions our growth within segment, X% X%, organic revenue Infrastructure segment. our was including Critical

We markets macroeconomic for our This complementary, across balanced position to technology, differentiated by discipline. prior high-growth also grew attribute markets, security with retain year strategic have strong and the solutions differentiator this and proven employees, improved have an evolution strong well Parsons. enduring I integrated national a are adjusted as EBITDA our recruit provider, United $XX cashflow X% year-over-year, aligned We portfolio into Critical Federal lead as is States trends, operating million operating period. from well ability success and and both to a our to and that government with priorities. Infrastructure

other for technologically focused actors. near-peer East as is the the also about continued Middle and on rising with demand. such and wastewater treatment, Solutions and the state excited Critical spending projects. water environmental of new oil the Demand be position Federal Today, from we're cyber, to well move and our our business, capabilities. given remediation, global environment, customers Canada, our is forward threat increased continue price transportation, United We In of due facing Parsons align advanced Infrastructure priorities in space, infrastructure CXISR, We're build infrastructure States, seeing strength defense, missile capabilities, enabling nation competitors. to increased with to cyberattacks and

threats. and positioned Parsons contested, a address have race to solutions space many of and offer crowded challenges. hypersonic increasingly is these which well anti-satellite that's We and to includes

federal are and collective customers. complementary, uniquely Our two bringing and credentials. We're cyber, with our Critical to we're artificial positioned in cloud-enabled intelligence, capabilities Infrastructure solutions highly our segments data analytics,

also capabilities environmental management, expansive critical infrastructure design, and federal our remediation and to and our program leverage We customers. planning

to continue relying and move and will data goods, security our with to benefit sustainable our balanced to We essential threats that's and from more becomes as interests, connected and and resilient portfolio people both ability world efficient the infrastructure. national and evolve on safely our

enable our to customers’ large on win ability contracts. to Our missions to strategic us successfully deliver continues

quarter, Commands United $XXX valued an for testing, option During and we General more Support will integrating awarded by million. were technologies, developing, Administration won the three advanced Combatant contracts the for this solutions Under Services researching, platforms. contract, first concepts contract. Cyber represents the States evaluating we million which and We exercise year at than under be and operations, work, Mission cyber operational cyberspace tailored new $XXX

United and including We $XXX System. example And States National nature at update to a $X also Airspace the landing for air the and of of provided our bill infrastructure aids, contract safety, this standards complementary approved The upgrade growth of Federal our FAA Infrastructure and replace and traffic received facilities, program million is environmental bipartisan navigational Critical security, Solutions and facilities. modernizing billion FAA segments. representative great contract equipment, on

the for related ceiling the to the the of quarter, Immigration, Middle East our a management in AXXX order we metro contract series won a rail first in leader on million Parsons received the infrastructure a largest across program, to which remains to $XX we a provide by value quarter value the of also testing a customer kingdom. nature This closed, strong the these two rail our of new projects. Metro has last a $XXX response upon facilities highlight importance. Riyadh total depend potential million more will first of contract after rail the we a awarded we deliver our Customs on Department including contracts of solutions world. the first in our development is task XXXX contracts combined were for see project United long-term well-funded million transit urban cities and a of capacity, to within After for contract for system quarter the program Infrastructure over national worth need increase $XX to awards Also, industrial value Collectively, and surge In close, win in customers’ testing. and ceiling investment living future earnings contracts Arabia's to pandemic security in COVID-XX States. nation's vision and new the the awarded and in Homeland award pandemic staff sector, this Enforcement well noted Saudi the on redefine Act. task the Realization areas value, than were call, of missions, As order we're infrastructure the as of Security, million. system and successfully pleased Investment Jobs as ability

to and our we've but effort capabilities added strategic Our competitiveness M&A. to the is also portfolio talent, tied that our through team's

we listed world's quarter, we for ethical the press the XXth quarter, A also won we And release. of most recognition the today's of companies in during were summary inclusion one awards by earnings year. During for notable specific received Ethisphere the our named and are ESG diversity initiatives. the consecutive

interwoven portfolio maintained highest healthy hiring lead hire These this win choice. IPO, In of is last recognized at employer a momentum, to president delivered segments, Parsons. generated adjusted operating operate our continued quarter. both company, We our of back ESG, Accordingly, an as have deliver cashflow function to of our growth build We ESG our which EBITDA the values, contracts, summary, large from we strong revenue to a an organic vice a reported we strong strategic our continued important first customers. and how within be and to commitment first and on to across core we our momentum the results quarter we made a year. half since as

As business. excited I am our forward, very about look I

enduring, growing, We are markets. well and complementary positioned into

recruiting have and solidified significant retention, strides all winning in our base We by business repeat contracts. major of made recent and

will and make two With George? expand balance turn sheet a M&A continue first over over us call quarter I'll our backlog, margins. discuss and investments organic financial and to that, to George strong have We revenue of to enable growth drive to years that and ongoing the to highlights.

Carey. Thank you,

and expenses, recent results segments, Solutions, in organic on increased offset the of partially where for of of growth to This from X.X%. contract asset or margin These increased recent points operating from X% contract first SG&A was EBITDA $XX to cashflow expansion, of $XX margin up the acquisitions. from approximately Federal X%, awards first turn first was adjusted compensation I'll growth margin first revenue expenses. increase the basis. increased XXXX from segments, acquisition X.X%. adjusted And contributions and by organic by or XXXX. million, primarily increase $XX was quarter X% driven awards. quarter by quarter was largely $X by and driven the recent and million SG&A now growth expenses XXXX. of period, Adjusted the with by starting The organic million primarily EBITDA prior of awards improvement. Solutions increases of of adjusted XXX first contract amortization, acquisitions. first X% XXXX. the ramp-up revenue Care XX% stock-based increased was EBITDA Organic acquisitions. lower EBITDA X% our recent driven contributions by delivering from first by As and EBITDA the And due was decreased both ramp-up contract quarter by intangible by highlighted in an indicated, quarter Organic adjusted Federal and increased quarter growth from driven Total to million awards. were year from driven $XX were basis million

Infrastructure now segment. Moving Critical our to

to the the unconsolidated contract revenue was increase the million decreased or change XXXX, These quarter quarter awards recent margin a from of quarter order an future adjusted increased driven by decreases on XXXX, EBITDA decreased of venture by project, driven First primarily effect was $X first up to X% or Critical and has by of adjusted which ramp Infrastructure which periods. XX% of X.X%. primarily This EBITDA increased all the million by joint first $XX and profit of activity. organic. hiring from delaying were

negative While this XXXX. change in change impact fact quarter, anticipate impact profits, we and the EBITDA first in first increased of in adjusted and margins the order, future on from be that profits order by and it had realized the will will increase full quarter the end a negative both

sheet balance and discuss cashflow metrics. I'll Next,

was DSO of XXXX, end the days Our first of QX quarter of at the net the at compared to XX days, XX end XXXX.

we Capital increased use the the expenditures first our of improvement driven lower totaled quarter a quarter XXXX, by used first period. The period. pre-IPO operating payments on $XX compared year compensation cashflow, prior plans, and in in of executive in million to the the profitability. XXXX, million million of $XX was million year $XX to $X During prior equivalent

with quarter of net the Our ended debt leverage times. a ratio balance strong, sheet remains as we X.X

to times, ratio basis, representing X.X a reported and for contract the trailing we first bookings at $XXX our awards Turning times. remains with ratio Infrastructure healthy On book-to-bill X.X of of quarter, book-to-bill XX-month million, Solutions Critical X.X. Federal at X.X, a a

the of from totaled total XXXX. Our than backlog $X.X billion, represent first first years end continues X% at revenue. quarter up to more of the two of quarter, the annual backlog And

to Now, let's guidance. our turn

on all remainder are We year. XXXX outlook first financial results of the our of provided based for February XX, upon quarter reiterating our the for XXXX, of and our the guidance ranges

we then in to For and quarters, growth revenue due low in year-over-year, expect and the QX, revenue single-digit third seasonality. sequentially down second

then growth we down in and For year-over-year of XX% to adjusted XX% QX. QX, expect QX both sequentially in EBITDA, and

I'll improvements sequential call expect Investor our we on back our of Other move in year. outlined the presentation the Carey. connection located cashflow, with Slide on guidance, operating assumptions we turn in website. PowerPoint are today's Relations XXXX balance as key through that, the For to over With XX

pleased you, quarter results. with George. Thank We're our first

hard demonstrated trends. growth, with macroeconomic enduring This to critical increasing I durability impressed deliver continue ability markets consistency. our and missions, line that momentum, our on in team's well quarter to once position with work, and the our operational be of our two customers’ again, are our

open With expansion. is a topline very environment, postured executing we'll continued what to line now we're team drive questions. for the growth in and Our and that, is margin dynamic well

question with Kahyaoglu Sheila Our from comes first Instructions] [Operator Jefferies.

Thank Good quarter. guys. morning, for the time you good and

very you Sheila. much, Thank

you we expected, I just than driving talk that and about you've how ask laid out. wanted strength that dynamics. better to the about QX what's Can and previously were Revenues you there that are expect cyber talk big you can going is? of on? maybe your about progress? benefits any how you it exposure, - you Are And seeing what's to sort from

The very Thanks are, Sheila. much. as momentum. as pleased hiring far dynamics with really the first, Sure, drivers continued that. We're

continued over XX% were indicated that last we this the into half, As momentum half and up in year, the year. second first we

In fact, QX since terms XXXX of was our QX XXXX in best quarter hiring.

won just single those and of in staffed. job of lot need to had work, have orders a would also I get and great task we new the we're We award work the doing really say, job to contracts those indicated vehicles. we a on past driving

In an growth, for area of and areas that's as Critical Defense community, a we our in both as portion terms far defense intelligence of such that's Infrastructure but to Department organization, cyber, as supporting intelligence look the looking protection. and and also continue of

that, at on it the is and how year, you just help a You if quarter grow the and is then inflation like said bit? is the What expect And can was since what growth do the frame hiring a in little expected hiring, all? full it what you that for - XXXX best to factor QX.

a last really really our also in made and benefit of HR resources human back of our that we're revisited think strengthened programs I few seen employer kind From We've choice. quite changes a big we've and year, that hiring Yes. of best-in-class sure to was perspective, of all team, and make and a improvement. July we to our

needle which we has that to for see as very we've turned the So, been really and able that positive. momentum, us, sustain

the As we're and something the and as percent year. currently like indicated as but the it last a around continue to looks that to what increase, go far for that's full is that sit, we planning on it year watch inflation, for we where were to see X% we kind X.X% throughout going of I call

Okay. so much. you Thank

Our next with from Gavin Goldman question Sachs. comes Parsons

missed Hey, good I Critical if the you morning. I size of adjustment? George, Did quantify it. apologize the Infrastructure

that, Yes, Good help can I you Gavin. with question.

unconsolidated change result it's about to $X.X more So, work. was the the an venture, received which negative, all million On Parsons joint will which impact future. the order, and is profit additive contract, in quarter of particular earning in we actually the this timing of the million relative in performance $X an

million margin However, was there due of the $X.X the fact was the order quarter. in to take-down lower, that change on the of essentially profit

will We this the that that We'll year. get back year. part rest get next of back of

adjusted actually over and more period, gross So, $X profit in million EBITDA in the anticipated. we total, two-year generate than we’ll originally

actually year, impact, actually will down it of negative, though the for be in break $X.X impact it the year, $X.X impact million. million even to this positive So, by the million year was on full it $X.X year, first about quarter, an a and next will have

nature So, It on is direct though to quarter, being the a of basis. opposed work, is negative inside earlier it even subcontractor the as sounds current order the that the to on relates this actually the work a this the part self-perform project development. change fact performance of largely positive

it's So, the though actually it to the even you I’d positive negative, with, very message business. looks leave

points Okay. the margin adjust I your the rest XX charges appreciate basis last for That's I I nearly if XX%. out Then like are If year-over-year. that. if up. a great It of forward, the deal. margins maybe year, to adjust of year all that, was your margins walk for looks were I

to So, if any for headwinds trend there walk should to be this or margins margins expecting year, the to rest continue an know year-over-year, I year-over-year? were on of adjusted forward basis higher to we are

facility this notable have notable performance se. quarter, processing where no wrapped the on Federal in tended first at and a project the job I about have Carey call, Solutions. the per phase. waste and That we talked headwinds is one end the really business that There's issue, project, of to There call what up salt last would rich the a the completion

perform I headwinds, a that we standpoint headwind, than on obviously fact of better execution it much there's expect Infrastructure to an say but the Critical the that's wouldn't from side, a So, bit SWPF. other

it. Got

very Okay. Thank much. you

Our with next Bert Corp. Subin from comes question Stifel Financial

It mean, your that oil mentioned project how you the international of over tailwind helping be you about one Middle that's some you're have curious ramp? Carey, like you How to propel expect morning. you of new. business? customers good thoughts could East. for projects if much already in that I Hey, doing from do here. expect prices I'm sounds business a your quickly to rail do any those how just the there

Yes.

we East, the due oil price to starts Middle increases. pick are infrastructure the up So, seeing markets to

contract like Last railway UAE major projects, to $XX the I the years back seeing If GCC ago, Neom couple One program that it that with being basically We really quickly in particularly Saudi had $XX add-on are The wins a that the year and build barrel. was Oxagon. to million. Kingdom barrel. was oil contract for forward these we're million, move and you services Kingdom Vision million. the cities a program. city the And received look totaled cited new two was Neom. to awarded Arabia. is infrastructure year, new were the of trends management in We Saudi project allowing a the $XX the previously $XXX. of $XX, consultancy of Arabia now providing We in for of what we're $XX XXXX industrial more at are and a script of built this These are $XX beginning an additional it's

targeted additional that certification. kilometers. one business and Financial contract It's to our scope. square platinum $XX that's second value that's LEED about We is initiatives where a $XX an of one And was the also million. area an for received The basically million, ESG lifestyle District, add-on new original spans Abdullah of and King destination some iconic XX achieve

seeing about the that East. opportunities we're the excited quite Middle we're So, in

out break somewhere and segment you. your Got being missile XX% your the as think on revenue. CXISR in it. of total of to of the the used ballpark you other And I side maybe Thank business, defense

Federal currently starting you like or increased are can start mean, Thanks to the portion activity time. do there, you business. used give is So, of I missile be, or Solutions much see you to And - ramp related Can defense? to that for around more how in just segment a say to pretty to frame the a substantial of us you expect XXXX? that

Sure.

about full the business. For was year of million $XXX XXXX, it our

there. does for repeat which is a $X.XX hypersonic contract. on, our of there last were around contract and clause, planned of And surge now area contract That’s seven-year space-based layer. most I'd awarded currently a seeing That XX% our for are sensor right not year. team's focus is continued We have defense we've use. a ramp billion but the We say,

Thank it. you, Carey. Got

instructions]. [Operator

question Our next Cowen. von with comes from Cai Rumohr

much. thanks Yes, so

So, had fundings most combination book-to-bill the in of the quarter. Carey, in color, us quarter, Federal of Federal And are your you you now some pretty their awards that at terms X.X - we've seeing CR Omicron basically which and good, the what on into give have corner peers a Can and Solutions, so the of their saw impact hurting is did you momentum turned second that you? the Solutions? at what given

Yes. Thank Cai. you,

out, quarter. have in book-to-bill this you as uptick saw slowdown X.X. So, quarters is, had did XX-month that and trailing did X.X, pleased an a is book-to-bill, we've see a first, second over point year. know, last is our Federal, the but quarter we and half fortunate first the we're book-to-bill actually of consecutive of the eight lumpy. year, thing I’d Within X.XX this We very proposals we

we resolution might the a previously. have were We position, single award though, that the in had say, So, fortunate proposals. contracts I I because mentioned won continuing slowed would pretty

revenue. will was I helped So, and But those year, on and up quarter based our ramped to getting this improve that what contracts proposal going, the book-to-bill expect our continue our that's volume. on we what throughout focused really

benefits obviously there, Infrastructure. Mid-East some mean, you when in up. like come then, through would strong looked an bill quarter extremely Critical you've Is the us the to picking to give start And flowing the to it. there from talked the I color there? expect you infrastructure Can at you you're off to second Got see about orders? more and

Yes.

put I bill, into couple would the a parts. infrastructure of So,

as saw bill. We of a actually FAA affects infrastructure bill uptick Out additional Engineered of see of that to received, Systems. through I of we we Solutions part And $XX the army growth infrastructure the infrastructure Federal funding in that segment, an million going some the mentioned We're to contract First, our the result was as continue that new expect contract our funds. to also call. during the corps. additional coming grow, from work the already

federal dollars already the on those are side of house, flow. So, starting the to

it into If you of Critical the three to break move parts. Infrastructure side the house, I'll

formula You which have increased. getting funds, the are

and the funds will grants, The new coming new well grant What as existing be the be will existing slower formula out, grants. have funding, have are You you as grants. the new programs. already

we was also the $XXX planning I expect mention Canada. start and $XX into there, billion areas So, In in plan investing left. And talk Middle air accelerate from of continue we funding, XXXX, but purpose, Canada, transportation communities. to that funding they trade East rural in XXXX us and in XX-year we see the may Canadian for always in it transit, billion some trickle were out that programs have northern and And started provided put and over investment clean XXXX. water, and out to public as their that the period. and new. a a growth about to move did I'll

which phase start smaller funds then stimulus projects, those two seeing already on follow. will we're to one, trickle and and phase in out focused So, short-term

a Infrastructure. perspective, global that in we're positioned well I So, very from feel Critical

much. very you Thank

Our Louie next DiPalma comes question from Blair. William with

Good Hey, George, Dave. and morning.

to Critical expect US infrastructure Parsons? of Thanks. your to solutions be transportation impact guess think have in when infrastructure revenue? biggest on terms bill, Infrastructure last you the I what like still bill do timeline up you the question, will the will following a significant for do the the create inflection For And

the and rail Thanks, highways our roads portion infrastructure is of us for transportation specifically Louie. transit. portfolio, largest Yes, and

as We our as mentioned of impact, far to I on expect transportation terms do in well. areas and will that well The trickle little a waste we utilities out XXXX. remediation and largest. some earlier as water say, earlier, rail by see see may growth we some we're treatment, the such some have as impact, Federal biggest I although the But bit So, transit environmental water of planning is projects. as would broadband

Great. position for Echo satellite you believe related navigation timing. to mitigating demand with there to and DOD an solutions, acquired and cyber appears jamming Last called Ridge, you And I asset your elevated for be solutions alternative also seem see jamming area. solutions in does satellite to in significant alternative for position mitigation Parsons have timing? any any, its existing I And this was and navigation or and have like wondering, pipeline like opportunities year, Thanks.

you, Louie. Thank Yes.

So, well and is system we we resiliency systems. your ground space And for navigation assured both help the the as opportunities. say provide our Ridge, felt seeing Echo we Technologies, Braxton timing are today space. ground the and by offerings, that of would us satellites, yes, have We I assets, in there. unique links, we majority and some on point, as did work component. to position

Sounds Thanks, thanks, Carey, George. and good.

[Operator instructions].

Sommer question next Securities. Truist with comes from Tobey Our

morning. Good you. Thank

I XX the kind did Infrastructure, a values the Critical also sort that? and what contrast do of contrast compare you pursue of not ago of I internal that but of do the compare time got a that we will infrastructure ago the And for one? you'll work might it. know bid that different here, spend versus at point, now dollar focus the at guess effect this point. versus are higher on decade plus we I that the you you some How have on current customer duration think the occurred, of First question years bill and how so is this

Yes. question. Thanks, Tobey. Great

XXXX. current a $X.X ran that bit So, beyond Safety is for for the trillion, billion period the four now That refer $XXX and billion, passed in of new was years, over is is a one was you little it Act, $XXX The basically that that. to one which and funding.

be And larger during We fact twice topline. much by prior that that funding previously consolidated today, number a XX% mentioned time. the this since prior grew the had from industry was we see that Parsons about as the about time on competitors what bill So, of with the has it then. than the

construction engineering we we back We the on saw we have I the look exact focused but - as as Where in it doing you not involved XXXX, Act. XXXX, work, a back got owners’ the predominantly We was of design after you construction. as our period in but changed funds mentioned, was engineering, from XXXX say, work starting are were today. to scope, Safety would same actually about in were we well as when

So, from very good our engineering a the going a feel work. perspective, point It's be and in we're see bill the for than infrastructure we for Act, owners the inflection significant Safety as larger being much businesses. and we to design and position engineering

Congress Okay. a lot certainly, would and smoothness on on of of lack you impact longer-term like? or thoughts sort year there's is Russia-Ukraine have what of inflation. the passing Because the thereof any of slightly initial war next the budgets look what might

might mid-single-digit of terms. real in growth, have sort terms decent rate a of have growth you spending don't not budget in any you if of So,

longer-term do That it but to the to We a as going electronic particularly all our sympathy it the chem do Ukraine, the surveillance. of type assist assist going like access we activities, systems, perspective, security bio opportunity around the protection Ukraine, see specifically in with systems, to on security control, what's and Yes. as do Ukraine, think think is war, and give help areas is, unfortunate the the and that in specifically I people XXXX we rebuilding the they FY budget, NATO wherever physical about operations, Parsons, FY after electronic involved pleased. information about countries, cyber from national security. the was budget can we were ‘XX up The up. also as $XXX go the war. would billion. I went for billion Obviously, then go We're $XXX budgets warfare say for to we in

Thank you.

Epstein next with of Bank America. Our from question Ron comes

it is budget Yes. be even wondering - going there's better on upside just ‘XX fiscal what in were of little anticipating, a to like probably going seeing think to if terms the and Hey, to I could bit peel much back that. you're looks of onion come further just in we lot the people a than

do what you see So, as for potential the down Parsons? there opportunities road, you look as

that, a much expected you, better Thank FY X% than everybody yes, I would the came in Ron. increase. at ‘XX say

thing I in really And because play in development, was that think we most technology that Pentagon's category. budget of where the important increase we which research is the play drive where for is we programs the the us and ever innovation. R&D of request kind largest the formation on

hypersonics, So, cybersecurity, much the very look if those all are with Parsons artificial aligned you like areas at portfolio. intelligence,

see your you when And it. kind flow think business? to through that do Got of you start could

even flowing particularly make I situation, would I it'll more biggest security China is through. stay us. areas. and so sure given front say, Russia-Ukraine, that impetus, also the still those once making States definite There's against threat, the particularly the postured R&D we that well to in year of sure And national China, be than starts, would remains United Russia-Ukraine say, critical in fiscal the

Got Okay. it. Thank you.

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

you Thank for this morning. joining us

over If great you day. weeks. with forward And have you we call. end many with any to coming Have look we'll speaking call, questions, of today's please me the and give a don't to that, a hesitate

conference for today's Thank call. concludes This participating. you

You now disconnect. may