Parsons Delivers Strong First Quarter 2019 Results; Reports Robust Bookings and Backlog Growth; and Bolsters Federal Solutions Business with OGSystems Acquisition

CENTREVILLE, Va., June 18, 2019 /PRNewswire/ — Parsons Corporation (NYSE: PSN) today announced financial results for the first quarter ended March 31, 2019.

CEO Commentary

“We reported strong first quarter revenue, profitability and bookings,” said Chuck Harrington, Chairman, CEO and President of Parsons Corporation. “Our results reflect continued execution and implementation of our strategy to expand our technology base in our core defense, intelligence and critical infrastructure markets. We’ve had a great start to the year, and we are excited about our future with our robust balance sheet and differentiated solutions aligned with large and growing customer markets.”

First Quarter 2019 Results

Total revenue for the first quarter of 2019 increased 20% from the prior year period primarily due to the Polaris Alpha and OGSystems acquisitions, which added $122 million, and organic growth in both our Federal Solutions and Critical Infrastructure market segments. Operating income decreased 41% from the first quarter of 2018 primarily due to an increase in acquisition-related intangible amortization expenses and IPO costs. Diluted earnings per share (EPS) attributable to Parsons decreased 60% due to the same factors as noted above and higher interest expense.

Adjusted EBITDA for the first quarter of 2019 was $68 million, a 43% increase over the prior year period. Adjusted EBITDA margin increased to 7.5%, or by 120 basis points from the first quarter of 2018. Adjusted EBITDA and Adjusted EBITDA margin increased primarily as a result of recent acquisitions in the Federal Solutions segment, as well as organic revenue growth and margin expansion in both the Federal Solutions and Critical Infrastructure segments. The Federal Solutions segment also benefited from a shift in revenue mix to higher margin markets including cyber, intelligence, geospatial, missile defense and space.

Adjusted EBITDA attributable to Parsons for the first quarter of 2019 was $64 million, a 47% increase over the prior year period. Adjusted EPS was $0.57, a 67% increase over the first quarter of 2018. These increases were primarily driven by the same factors as noted above.

Information about the Company’s use of non-GAAP financial information is provided on page 9 and in the non-GAAP reconciliation tables included herein.

Segment Results

Federal Solutions Segment

Three Months Ended

Growth

March 30,

2018

March 31,

2019

Dollars/

Percent

Percent

Revenue

$

291,335

$

422,812

$

131,477

45

%

Adj. EBITDA including noncontrolling interests

$

20,174

$

38,992

$

18,818

93

%

Adj. EBITDA margin including noncontrolling interests

6.9

%

9.2

%

2.3

%

33

%

Adj. EBTIDA attributable to Parsons Corp.

$

20,154

$

38,866

$

18,712

93

%

Adj. EBITDA margin attributable to Parsons Corp.

6.9

%

9.2

%

2.3

%

33

%

First quarter 2019 revenue increased $131 million, or 45%, compared to the prior year period. The increase was primarily driven by the acquisitions of Polaris Alpha and OGSystems, which contributed $122 million of revenue to the first quarter of 2019, as well as organic growth. 

Federal Solutions Adjusted EBITDA including noncontrolling interests and Adjusted EBITDA attributable to Parsons Corporation for the first quarter of 2019 both increased by $19 million, or 93%, compared to the prior year period. Adjusted EBITDA margin for both metrics increased to 9.2%, or by 230 basis points from the first quarter of 2018. The increases were primarily driven by the acquisitions of Polaris Alpha and OGSystems, as well as margin expansion in our legacy business.

Critical Infrastructure Segment

Three Months Ended

Growth

March 30,

2018

March 31,

2019

Dollars/

Percent

Percent

Revenue

$

463,344

$

481,593

$

18,249

4

%

Adj. EBITDA including noncontrolling interests

$

27,556

$

29,182

$

1,626

6

%

Adj. EBITDA margin including noncontrolling interests

5.9

%

6.1

%

0.1

%

2

%

Adj. EBTIDA attributable to Parsons Corp.

$

23,656

$

25,559

$

1,903

8

%

Adj. EBITDA margin attributable to Parsons Corp.

5.1

%

5.3

%

0.2

%

4

%

First quarter 2019 revenue increased $18 million, or 4%, compared to the prior year period. The increase was primarily due to revenue growth on existing contracts.

Critical Infrastructure Adjusted EBITDA including noncontrolling interests for the first quarter of 2019 increased $2 million, or 6%, compared to the prior year period. Adjusted EBITDA margin including noncontrolling interests increased to 6.1%, or by 10 basis points from the first quarter of 2018. The increase was primarily driven by lower operational overhead costs, partially offset by targeted increases in business development costs.

Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation for the first quarter of 2019 increased $2 million, or 8%, compared to the prior year period. Adjusted EBITDA margin attributable to Parsons increased to 5.3%, or by 20 basis points from the first quarter of 2018. The increase was driven by the same factors as noted above.

Key Performance Indicators

  • Book-to-bill ratio: First quarter 2019: 1.4x on net bookings of $1.2 billion. Trailing 12-month: 1.4x on net bookings of $5.1 billion.
  • Total backlog: First quarter 2019: $8.6 billion, 35% increase over the first quarter of 2018.
  • Cash flow used in operating activities: First quarter 2019: $60 million, 8% increase from first quarter 2018.
  • Debt: First quarter 2019: total and net debt were $659 million and $538 million, respectively. Following receipt of IPO proceeds, total and net debt were approximately $250 million and $50, respectively, positioning the Company for continued investment in the implementation of its strategy. The Company defines net debt as total debt less cash and cash equivalents.

First Quarter 2019 Highlights

  • Awarded a $175 million re-compete contract from a classified government customer to provide services relating to information technology infrastructure and industrial control systems.
  • Awarded a new $147 million contract by another classified government customer to provide high-end software, hardware, integration, operations and maintenance and mission support.
  • Awarded a new contract worth approximately $100 million by the Air Force Space and Missile Systems Center for integration services for small satellite delivery to space.
  • Awarded a new $982 million ceiling value multiple-award contract for the Army to provide a full-spectrum of cyber electromagnetic initiatives.
  • Acquired OGSystems, LLC, a disruptive geospatial intelligence solutions and immersive engineering provider that creates technology solutions for the United States intelligence community and the Department of Defense.
  • Recognized by the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices, as one of the 2019 World’s Most Ethical Companies. Parsons has been recognized by Ethisphere for ten consecutive years.

Conference Call Information

Parsons will host a conference call today, June 18, 2019, at 8:00 a.m. ET to discuss the financial results for its first quarter 2019.

Listeners may access a webcast of the live conference call from the Investor Relations section of the Company’s website at www.Parsons.com. Listeners also may access a slide presentation on the website, which summarizes the Company’s first quarter 2019 results. Listeners should go to the website at least 15 minutes before the live event to download and install any necessary audio software.

Listeners may also participate in the conference call by dialing +1 (866) 211-3159 (domestic) or +1 (647) 689-6592 (international) and entering passcode 9788674.

A replay will be available on the Company’s website approximately two hours after the conference call and continuing for one year. A telephonic replay also will be available through June 25, 2019 at +1 (800) 585-8367 (domestic) or +1 (416) 621-4642 (international) and entering passcode 9788674.

About Parsons Corporation

Parsons is a leading provider of technology-driven solutions focused on the defense, intelligence and critical infrastructure markets. Celebrating 75 years of operations, Parsons provides technical design and engineering services and software products to address our customers’ challenges. Parsons has differentiated capabilities in cybersecurity, intelligence, missile defense, space, connected communities, physical infrastructure and mobility solutions. Parsons’ combination of talented professionals and advanced technology enables a safer, smarter and more interconnected world.

Forward-Looking Statements

This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: any issue that compromises our relationships with the U.S. federal government or its agencies or other state, local or foreign governments or agencies; any issues that damage our professional reputation; changes in governmental priorities that shift expenditures away from agencies or programs that we support; our dependence on long-term government contracts, which are subject to the government’s budgetary approval process; the size of our addressable markets and the amount of government spending on private contractors; failure by us or our employees to obtain and maintain necessary security clearances or certifications; failure to comply with numerous laws and regulations; changes in government procurement, contract or other practices or the adoption by governments of new laws, rules, regulations and programs in a manner adverse to us; the termination or nonrenewal of our government contracts, particularly our contracts with the U.S. federal government; our ability to compete effectively in the competitive bidding process and delays, contract terminations or cancellations caused by competitors’ protests of major contract awards received by us; our ability to generate revenue under certain of our contracts; any inability to attract, train or retain employees with the requisite skills, experience and security clearances; the loss of members of senior management or failure to develop new leaders; misconduct or other improper activities from our employees or subcontractors; our ability to realize the full value of our backlog and the timing of our receipt of revenue under contracts included in backlog; changes in the mix of our contracts and our ability to accurately estimate or otherwise recover expenses, time and resources for our contracts; changes in estimates used in recognizing revenue; internal system or service failures and security breaches; and inherent uncertainties and potential adverse developments in legal proceedings, including litigation, audits, reviews and investigations, which may result in materially adverse judgments, settlements or other unfavorable outcomes. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption “Risk Factors” in our Registration Statement on Form S-1 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statement made in this presentation that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

Financial-News

Media:

Investor Relations:

Bryce McDevitt

Dave Spille

Parsons Corporation

Parsons Corporation

(703) 797-3001

(571) 655-8264

[email protected]

[email protected]

 

PARSONS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

For the Three Months Ended

March 30, 2018

March 31, 2019

Revenues

$

754,679

$

904,405

Direct costs of contracts

602,972

714,237

Equity in earnings of unconsolidated joint ventures

11,031

10,397

Indirect, general and administrative expenses

123,847

177,519

Operating income

38,891

23,046

Interest income

741

477

Interest expense

(3,999)

(8,292)

Other income, net

1,152

41

(Interest and other expense) gain associated with claim on long-term contract

(2,330)

Total other expense

(4,436)

(7,774)

Income before income tax provision

34,455

15,272

Income tax provision

(5,353)

(1,886)

Net income including noncontrolling interests

29,102

13,386

Net income attributable to noncontrolling interests

(3,815)

(3,645)

Net income attributable to Parsons Corporation

$

25,287

$

9,741

Earnings per share:

     Basic and diluted

$

0.31

$

0.12

 

Weighted average number shares used to compute basic and diluted EPS

Three Months Ended

March 30, 2018

March 31, 2019

Basic weighted average number of shares outstanding

81,846,305

78,161,484

Dilutive common share equivalents

Diluted weighted average number of shares outstanding

81,846,305

78,161,484

 

PARSONS CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

(Unaudited)

December 31,
2018

March 31,
2019

Assets

Current assets:

Cash and cash equivalents (including $73,794 and $42,872 Cash of consolidated joint ventures)

$

280,221

$

121,408

Restricted cash and investments

974

9,061

Accounts receivable, net (including $180,325 and $193,597 Accounts receivable of consolidated joint ventures, net)

623,286

651,924

Contract assets (including $21,270 and $23,964 Contract assets of consolidated joint ventures)

515,319

571,755

Prepaid expenses and other current assets (including $11,837 and $9,423 Prepaid expenses and other current assets of consolidated joint ventures)

69,007

77,013

Total current assets

1,488,807

1,431,161

Property and equipment, net (including $2,561 and $2,507 Property and equipment of consolidated joint ventures, net)

91,849

97,298

Right of use assets, operating leases

216,484

Goodwill

736,938

921,097

Investments in and advances to unconsolidated joint ventures

63,560

67,202

Intangible assets, net

179,519

250,948

Deferred tax assets

5,680

4,891

Other noncurrent assets

46,225

43,917

Total assets

$

2,612,578

$

3,032,998

Liabilities and Shareholders Equity

Current liabilities:

Accounts payable (including $87,914 and $91,505 Accounts payable of consolidated joint ventures)

$

226,345

$

203,684

Accrued expenses and other current liabilities (including $73,209 and $71,593 Accrued expenses and other current liabilities of consolidated joint ventures)

559,700

547,954

Contract liabilities (including $38,706 and $46,754 Contract liabilities of consolidated joint ventures)

208,576

225,017

Short-term lease liabilities, operating leases

53,029

Income taxes payable

11,540

9,415

Short-term notes payable

149,786

Total current liabilities

1,006,161

1,188,885

Long-term employee incentives

41,913

29,991

Deferred gain resulting from sale-leaseback transactions

46,004

Long-term debt

429,164

509,211

Long-term lease liabilities, operating leases

181,274

Deferred tax liabilities

6,240

7,922

Other long-term liabilities

127,863

111,023

Total liabilities

1,657,345

2,028,306

Commitments and contingencies (Note 14)

Redeemable common stock held by Employee Stock Ownership Plan (ESOP) ,$1 par value; authorized 150,000,000 shares; 125,097,684 shares issued; 78,172,809 and 78,138,831 shares outstanding, recorded at redemption value

1,876,309

1,875,332

Shareholder’s equity (deficit):

Treasury Stock, 46,918,140 and 46,958,853 shares at cost

(957,025)

(957,838)

Retained earnings

12,445

75,771

Accumulated other comprehensive loss

(22,957)

(20,401)

Total Parsons Corporation shareholder’s equity (deficit)

(967,537)

(902,468)

Noncontrolling interests

46,461

31,828

Total shareholder’s equity (deficit)

(921,076)

(870,640)

Total liabilities, redeemable common stock and shareholder’s equity (deficit)

$

2,612,578

$

3,032,998

 

PARSONS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Three Months Ended

March 30, 2018

March 31, 2019

Cash flows from operating activities:

Net income including noncontrolling interests

$

29,102

$

13,386

Adjustments to reconcile net income to net cash used in operating activities

Depreciation and amortization

9,009

30,591

Amortization of deferred gain

(1,813)

Amortization of debt issue costs

149

244

(Gain) loss on disposal of property and equipment

18

(27)

Provision for doubtful accounts

2,426

(279)

Deferred taxes

(138)

1,486

Foreign currency transaction gains and losses

(457)

618

Equity in earnings of unconsolidated joint ventures

(11,031)

(10,397)

Return on investments in unconsolidated joint ventures

15,406

10,794

Contributions of treasury stock

11,357

12,250

Changes in assets and liabilities, net of acquisitions and newly consolidated

   joint ventures:

Accounts receivable

469,720

(17,135)

Contract assets

(531,157)

(46,984)

Prepaid expenses and current assets

(27,138)

(1,424)

Accounts payable

(723)

(28,182)

Accrued expenses and other current liabilities

(44,016)

(24,023)

Billings in excess of costs

(152,147)

Contract liabilities

299,639

14,884

Provision for contract losses

(143,666)

Income taxes

(597)

(3,645)

Other long-term liabilities

10,624

(12,265)

Net cash used in operating activities

(65,433)

(60,108)

Cash flows from investing activities:

Capital expenditures

(5,152)

(11,041)

Proceeds from sale of property and equipment

29

135

Payments for acquisitions, net of cash acquired

(287,482)

Investments in unconsolidated joint ventures

(3,058)

(4,905)

Return of investments in unconsolidated joint ventures

2,234

Net cash used in investing activities

(8,181)

(301,059)

Cash flows from financing activities:

Proceeds from borrowings under credit agreement

290,000

Repayments of borrowings under credit agreement

(60,000)

Payments for debt costs and credit agreement

(286)

Contributions by (distributions to) noncontrolling interests, net

6,497

(18,278)

Purchase of treasury stock

(366)

(813)

Net cash provided by financing activities

6,131

210,623

Effect of exchange rate changes

(825)

(182)

Net increase (decrease) in cash, cash equivalents, and restricted cash

(68,308)

(150,726)

Cash, cash equivalents and restricted cash

Beginning of year

446,144

281,195

End of period

$

377,836

$

130,469

 

Contract Awards (in thousands):

Three Months Ended

March 30, 2018

March 31, 2019

Federal Solutions

$

111,441

$

808,540

Critical Infrastructure

496,873

412,528

Total Awards

$

608,314

$

1,221,068

Backlog (in thousands):

March 30, 2018

March 31, 2019

Federal Solutions:

Funded

$

936,467

$

1,681,816

Unfunded

2,224,354

3,429,779

Total Federal Solutions

3,160,821

5,111,595

Critical Infrastructure:

Funded

3,161,513

3,442,374

Unfunded

Total Critical Infrastructure

3,161,513

3,442,374

Total Backlog

$

6,322,334

$

8,553,969

Book-To-Bill Ratio:

Three Months Ended

March 30, 2018

March 31, 2019

Federal Solutions

0.4

1.9

Critical Infrastructure

1.1

0.9

Overall

0.8

1.4

Non-GAAP Financial Information

The tables under “Parsons Corporation Inc. Reconciliation of Non-GAAP Measures” present Adjusted Operating Income, Adjusted Operating Margin, Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin, reconciled to their most directly comparable GAAP measure. These financial measures are calculated and presented on the basis of methodologies other than in accordance with U.S. generally accepted accounting principles (“Non-GAAP Measures”). Parsons has provided these Non-GAAP Measures to adjust for, among other things, the impact of amortization expenses related to our acquisitions of Williams Electric, Polaris Alpha and  OGSystems, initial public offering transaction-related expenses, costs associated with a loss or gain on the disposal or sale of property, plant and equipment, restructuring and related expenses, costs associated with mergers and acquisitions, software implementation costs, legal and settlement costs, and other costs considered to non-operational in nature . These items have been Adjusted because they are not considered core to the Company’s business or otherwise not considered operational or because these charges are non-cash or non-recurring. The Company presents these Non-GAAP Measures because management believes that they are meaningful to understanding Parsons’s performance during the periods presented and the Company’s ongoing business. Non-GAAP Measures are not prepared in accordance with GAAP and therefore are not necessarily comparable to similarly titled metrics or the financial results of other companies. These Non-GAAP Measures should be considered a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP.

PARSONS CORPORATION

Non-GAAP Financial Information

Reconciliation of Net Income to Adjusted EBITDA

(in thousands)

Three Months Ended

March 30, 2018

March 31, 2019

Net income attributable to Parsons Corporation

$

25,287

$

9,741

Interest expense, net

3,258

7,815

Income tax expense

5,353

1,886

Depreciation and amortization

9,009

30,591

Net income attributable to noncontrolling interests

3,815

3,645

Litigation-related expenses(a)

2,330

Amortization of deferred gain resulting from sale-leaseback transactions(b)

(1,813)

Transaction-related costs(c)

125

9,355

Restructuring(d)

2,218

HCM software implementation costs(e)

2,912

Other(f)

366

11

Adjusted EBITDA

$

47,730

$

68,174

(a)

Reflects interest expense in “(Interest and other expenses) gain associated with claim on long-term contract” in our results of operations associated with a lawsuit against a joint venture in which the Company is the managing partner. Please see “Note 14 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, for a description of this matter which was resolved in favor of the Company on June 13, 2018.

(b) 

Reflects recognized deferred gains related to sales-leaseback transactions.

(c) 

Reflects costs incurred in connection with acquisitions, initial public offering, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention.

(d)

Reflects costs associated with our corporate restructuring initiatives.

(e)

Reflects implementation costs incurred in connection with a new human resources and payroll application.

(f)

Includes a loss from sale of a subsidiary and other individually insignificant items that are non-recurring in nature for the quarter ended March 30, 2018 and a combination of gain/loss related to sale of fixed assets and other individually insignificant items that are non-recurring in nature for the quarter ended March 31, 2019.

 

 (in thousands)

Three Months Ended

March 30,

2018

March 31,

2019

Federal Solutions Adjusted EBITDA attributable to Parsons Corporation

$

20,154

$

38,866

Federal Solutions Adjusted EBITDA attributable to noncontrolling interests

20

126

Federal Solutions Adjusted EBITDA including noncontrolling interests

$

20,174

$

38,992

Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation

23,656

25,559

Critical Infrastructure Adjusted EBITDA attributable to noncontrolling interests

3,900

3,623

Critical Infrastructure Adjusted EBITDA including noncontrolling interests

$

27,556

$

29,182

Total Adjusted EBITDA including noncontrolling interests

$

47,730

$

68,174

 

PARSONS CORPORATION

Non-GAAP Financial Information

Reconciliation of Net Income Attributable to Parsons Corporation to Adjusted Net Income Attributable to Parsons Corporation

(in thousands, except share and per share data)

Three Months Ended

March 30, 2018

March 31, 2019

Net income attributable to Parsons Corporation

$

25,287

$

9,741

Acquisition related intangible asset amortization

1,815

20,906

Litigation-related expenses(a)

2,330

Amortization of deferred gain resulting from sale-leaseback transactions(b)

(1,813)

Transaction-related costs(c)

125

9,355

Restructuring(d)

2,218

HCM software implementation costs(e)

2,912

Other(f)

366

11

Tax effect on adjustments

(36)

(434)

Adjusted net income attributable to Parsons Corporation

28,074

44,709

Adjusted earnings per share:

Weighted-average number of basic/diluted shares outstanding

81,846,305

78,161,484

Adjusted net income attributable to Parsons Corporation per basic/diluted share

$

0.34

$

0.57

(a)

Reflects interest expense in “(Interest and other expenses) gain associated with claim on long-term contract” in our results of operations associated with a lawsuit against a joint venture in which the Company is the managing partner. Please see “Note 14 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, for a description of this matter which was resolved in favor of the Company on June 13, 2018.

(b)

Reflects recognized deferred gains related to sales-leaseback transactions.

(c)

Reflects costs incurred in connection with acquisitions, initial public offering, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention.

(d)

Reflects costs associated with our corporate restructuring initiatives.

(e) 

Reflects implementation costs incurred in connection with a new human resources and payroll application.

(f) 

Includes a loss from sale of a subsidiary and other individually insignificant items that are non-recurring in nature for the quarter ended March 30, 2018 and a combination of gain/loss related to sale of fixed assets and other individually insignificant items that are non-recurring in nature for the quarter ended March 31, 2019.

 

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