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Edited Transcript of PSN.N earnings conference call or presentation 18-Jun-19 12:00pm GMT

Q1 2019 Parsons Corp Earnings Call

Jun 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Parsons Corp earnings conference call or presentation Tuesday, June 18, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dave Spille

Parsons Corporation - VP of IR

* Chuck Harrington

Parsons Corporation - Chairman & CEO

* George Ball

Parsons Corporation - CFO

* Carey Smith

Parsons Corporation - COO

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Conference Call Participants

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* Matt Sharpe

Morgan Stanley - Analyst

* Raymond Gonzalez

Jefferies LLC - Analyst

* Edward Caso

Wells Fargo Securities - Analyst

* Natalie O'Dea

BofA Merrill Lynch - Analyst

* Tobey Sommer

SunTrust Robinson Humphrey - Analyst

* Dan Flick

Cowen and Company - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Jack and I will be your conference operator today. At this time, I would like to welcome everyone to the Parsons first-quarter 2019 earnings conference call. (Operator Instructions). Thank you. Dave Spille, Vice President of Investor Relations, you may begin your conference.

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Dave Spille, Parsons Corporation - VP of IR [2]

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Thank you. Good morning and thank you for joining us today to discuss our first-quarter 2019 financial results. Please note that we've provided presentation slides on the Investor Relations section of our website.

On the call with me today are Chuck Harrington, Chairman and CEO; George Ball, CFO; and Carey Smith, Chief Operating Officer. Today, Chuck will discuss execution against our corporate strategy; George will provide an overview of our first-quarter financial results; and then Carey will review our operational highlights. 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. These factors are described in a registration statement on Form S1 and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements.

Management will also make reference to non-GAAP financial measures during this call and we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures. And now I will turn the call over to Chuck.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [3]

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Thank you, Dave. Welcome to all who are on the line to Parsons' first-quarter 2019 earnings call. We had a strong quarter across both business segments and our Q1 results reflect the success of executing on our Enhance-Extend-Transform Strategy.

Financially we delivered a strong quarter -- first-quarter results which included notable increases in revenue, profitability and contract awards over the first quarter of 2018. In fact our revenue grew 20%, our adjusted EBITDA grew 43% and included a 120 basis point margin improvement.

Total backlog increased 35%, now stands at $8.6 billion on the strength of a 1.4 book-to-bill ratio. And our Federal Solutions revenue contribution increased to 47% of the corporate total in the quarter from 39% in the prior year. Strategically we closed on a key acquisition, OGSystems, and, as you know, recently completed our IPO.

Our performance has benefited from our strategy to enhance organic operations through strategic leadership additions, technology R&D efforts and focusing our sales on higher margin, lower working capital markets. Simultaneously we've also executed our Extend strategy to enter the geospatial intelligence, cloud computing and small satellite markets while expanding our revenue in cyber, intelligence, missile-defense and intelligent transportation systems.

These accomplishments, coupled with the execution of our Transform strategy to build our technology revenue streams and transactional revenue streams, has enabled us to accelerate revenue growth, increase margins, generate strong free cash flow and bring new capabilities to our customers.

Our M&A strategy added Polaris Alpha and OGSystems to our Federal Solutions segment in the past year. The OGSystems acquisition was completed in early January of this year. This acquisition provides us with geospatial intelligence capabilities, increased data analytics and cloud computing expertise. Additionally provides an insider threat detection capability for our defense and intelligence customers.

Through OGSystems we also acquired the PeARL product suite which enables our defense and intelligence customers to analyze objects and their movements from 10,000 feet above ground and yields resolution of objects at a 4 cm accuracy. We're taking this same technology to our critical infrastructure market to create 3D models of existing critical infrastructure structures like bridges, reducing or eliminating the need for inspectors to take physical measurements in the field. M&A will continue to be a key initiative given our Transform strategy and the strength of our balance sheet.

And finally I want to acknowledge Parsons' 10th consecutive recognition as one of the world's most ethical companies by the Ethisphere Institute. This award reflects our culture and commitment of our global workforce to ethical business practices. We are proud of this recognition and our commitment to integrity is one of our six core values.

In summary, this first quarter of our 75th year of operations was a success in terms of financial results and strategic actions. With that I'm going to turn the call over to George Ball, our Chief Financial Officer, to discuss our first-quarter 2019 financial highlights. George?

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George Ball, Parsons Corporation - CFO [4]

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Thank you, Chuck, and good morning, everyone. Today I will organize my remarks into four key areas: the income statement; cash flow results; balance sheet; and contract awards. I will also discuss certain financial results on an adjusted non-GAAP basis where we believe doing so provides a meaningful comparison to our prior financial results. GAAP reconciliation tables are provided in the press release and the PowerPoint presentation which was issued this morning.

As Chuck noted, our first-quarter revenue, profitability and bookings all exceeded our prior-year results. Total revenue for the first quarter increased 20% and organic revenue increased 4% from the first quarter of 2018. GAAP EPS for the quarter was $0.12 per share and adjusted EPS for the quarter was $0.57 per share.

Our EPS comparisons are less meaningful this quarter due to IPO transaction costs and the additional shares issued in the IPO. Total shares issued and outstanding at the conclusion of the IPO were approximately 99.4 million shares.

Adjusted EBITDA increased 43% to $68 million, equating to an adjusted EBITDA margin of 7.5% or a 120 basis point improvement over the prior year. This margin expansion was driven largely by the addition of our Polaris Alpha and OGSystems acquisitions, which have significantly higher margins than our legacy business, as well as improved margins in our underlying legacy business.

Turning now to our operating segments and starting first with Federal Solutions. First-quarter revenue grew 45% year-over-year. This increase was primarily due to the acquisitions of Polaris Alpha and OGSystems with accompanying organic growth of 3%. Federal Solutions' adjusted EBITDA grew 93% and our margin expanded by 230 basis points to 9.2%. This increase was again driven largely by the acquisitions of Polaris Alpha and OGSystems, as well as margin expansion in our underlying legacy business.

And now a few words regarding our Critical Infrastructure segment. First-quarter revenue grew 4% organically year-over-year on the strength of growth on existing contracts. Critical Infrastructure adjusted EBITDA grew 6% and our margin expanded by 10 basis points to 6.1%. These increases were driven primarily by the aforementioned revenue increase, an improved business mix and overhead cost reduction initiatives which were partially offset by targeted increases in business development costs.

Now I will turn to cash flow and balance sheet metrics. Our net DSO for the quarter was 61 days as compared to 75 days at the end of the first quarter of 2018. The decline in net DSO was driven by improved Middle East cash collections in our Critical Infrastructure segment and the acquisitions of Polaris Alpha and OGSystems, both of which have lower net DSOs than our legacy business.

During the quarter, we used $60 million in operating cash flow, which represents an 8% improvement as compared to the prior year period. Cash flow tends to be lower in the first quarter as a result of incentive compensation payments and other obligations dispersed during the period. We expect solid cash flow from operations for the full year in line with or above underlying earnings.

Our first-quarter 2019 balance sheet reflects gross and net debt of $659 million and $538 million respectively. However, the proceeds from our recently completed IPO reduced these amounts to approximately $250 million and $50 million respectively and were therefore ideally positioned to continue our investment in the Company's strategy.

The implementation of the new leasing standard had no notable impact on earnings in the first quarter and we anticipate no notable future impact. But its implementation did have the effect of increasing both assets and liabilities by over $200 million.

As Chuck noted earlier, we reported contract awards of $1.2 billion in the first quarter, which represents a book-to-bill ratio of 1.4 times, a strong performance driven largely by our Federal Solutions segment which achieved a book-to-bill ratio of 1.9 times. Total backlog at the end of Q1 is now $8.6 million, up 35% from last year. And notably Federal Solutions now represents 60% of the Company's backlog as compared to 50% at the end of Q1 2018.

With that, I will turn the call over to Carey will discuss some of our first-quarter operational highlights. Carey?

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Carey Smith, Parsons Corporation - COO [5]

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Thank you, George. Operationally, as Chuck and George have noted, we had strong performance in both segments, and particularly strong in Federal Solutions. Our first-quarter book-to-bill ratio of 1.4 times was driven by large contract awards, strong win rates, an excellent performance in the Federal Solutions segment which, as George noted, achieved a book-to-bill ratio of 1.9 times.

Our Critical Infrastructure book-to-bill ratio was 0.9 times, which was in line with expectations as we implement a focused bid strategy of pursuing higher margin work. We expect our book-to-bill ratio in this segment to improve throughout 2019.

We had several key awards in our Federal Solutions segment including our cyber, intelligence and space focused markets. First, we won a $175 million re-compete award from a classified government customer to provide services relating to information technology infrastructure and industrial control systems.

In addition, we won three significant new awards: a $982 million ceiling value multiple award contract for the Army to provide a full spectrum of cyber electromagnetic initiatives; a $147 million award from another classified government customer to provide high-end software, hardware, integration, operations and maintenance and mission support; and an award worth approximately $100 million by the Air Force Space and Missile Systems Center for integration services for small satellite delivery to space.

For critical infrastructure we had notable contract expansion bookings including the California Interstate 405, 40 (inaudible) [Bridge] and the Southern California Gas program. Both segments also had strong top- and bottom-line growth. The revenue growth was both organic, driven by early contract wins and growth on existing contracts.

In the case of Federal Solutions, also inorganic. The margin expansion is the result of top-line growth, strong award and incentive fees, as well as cost reduction initiatives in the Critical Infrastructure segment.

Next I would like to briefly discuss our two most recent acquisitions, Polaris Alpha and OGSystems. We are very pleased with the performance of both acquisitions as they continue to experience double-digit revenue growth and EBITDA margins exceeding their financial targets. We are already experiencing revenue synergies and nearly every bid is a combined Parsons, Polaris Alpha, OGSystems response.

A recent example of a Polaris Alpha revenue synergy award is the Army's Defensive Cyber Operations mission planning contract. An example of an OGSystems cross segment revenue synergy award is our recent Critical Infrastructure to -- by Roads & Transport Authority win, which leveraged our PeARL sensor system. Finally, OGSystems, our most recent acquisition, continues to have industry-leading employee retention at 96%, which has improved since we closed the acquisition.

I'm very excited about the opportunities we have to grow our business and expand our margins. We are winning more high-end work in our targeted markets and are executing well in both business segments. Our pipeline is at an all-time high and we have $3.9 billion of outstanding bids awaiting award.

On the technology front, our strategic incubator, which we call sWorks, is driving growth in markets including artificial intelligence, critical infrastructure protection and operational energy. We formed companywide technology communities of practice that span both business segments and we have initiated commercial product marketing strategies.

In addition, we are investing research and development in critical areas, including high-speed processing, smart cities and border security integrated sensor systems. With that I will turn it back over to Chuck.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [6]

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Thank you, Carey. In summary, we achieved strong growth in revenue, profitability and awards. We delivered effective execution against our strategy, and we continue to transform our business, enhancing our revenue growth and margin expansion opportunities. We also have a strong balance sheet providing the financial flexibility to make continued investments in our strategy.

Before we move to the Q&A session, I want to acknowledge that our success is driven by the hard work and dedication of our nearly 16,000 employees. They are the foundation of our business. And their commitment to our customers' missions and our core values is inspiring and what makes Parsons a great place to work. Their achievements put us on a path to successfully execute our IPO. Now we will open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Matt Sharpe, Morgan Stanley.

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Matt Sharpe, Morgan Stanley - Analyst [2]

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Good morning, Chuck, George and Carey. Congratulations on the IPO and the first earnings print.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [3]

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Thank you.

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Matt Sharpe, Morgan Stanley - Analyst [4]

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I just wanted to talk capital deployment a bit here. So, post IPO you guys -- I think you are at a net debt number of about $50 million and the Company should generate pretty good cash going forward from here.

What's the appetite or can you give us some framework around share repurchase versus M&A versus internal investment from here? Do you have any targets in terms of those buckets on a percentage basis? Or what can you give us just to help us contextualize your approach?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [5]

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Well, given the phenomenal amount of opportunities we believe exists in the marketplace and the strong growth that we're getting, we are targeting our capital deployment in the area of M&A in the near future of companies that met our acquisition criteria of high-margin, high-growth companies with great IP in our focus markets of cyber, intel, space defense and critical infrastructure in the smart cities area.

So, we're not counting out the possibility in the future of making share repurchases, but in the near-term we're focused on M&A.

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Matt Sharpe, Morgan Stanley - Analyst [6]

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Got it, thanks. And just a follow-up to that. So what types of companies maybe are you looking at in terms of size, in terms of market segment? And are you guys considering any divestitures potentially on the critical infrastructure side?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [7]

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Well, our focus area has been in the markets of cyber, intel, missile defense, space and smart cities; leveraging our expertise in artificial intelligence, mainly machine learning, but also now expanding our deep learning capabilities; cloud migration; IOT and autonomous systems.

And we're focused on companies that have a material amount of IP, IP either in the area of software and software development and hardware. And so, those will retain our focus on M&A. The size of the companies we look at are fairly broad. It's really more important to us looking at their margin, growth capabilities and alignment to our key market focus areas.

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Matt Sharpe, Morgan Stanley - Analyst [8]

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Got it. Any pressure to scale given what some of your competitors have done? Or how do you think about that in the context of M&A?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [9]

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We think we have the scale that we need and we are far more focused on high-margin, high-growth specialty areas that really play upon our differentiated capabilities and -- versus scale for scale's sake. I'm not sure that that provides us -- additional capabilities and what makes us a differentiated offer, which is the agility of -- and our speed to react. And so, we don't see a compelling reason for scale in our core markets.

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Operator [10]

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Sheila Kahyaoglu, Jefferies.

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Raymond Gonzalez, Jefferies LLC - Analyst [11]

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This is actually Raymond González on for Sheila. Just wanted to ask about Polaris Alpha OGSystems. How are the integrations of those two businesses tracking versus internal plan from a cost perspective? We estimate those businesses have 12% type EBITDA margins through fiscal year 2019. Should we think about that differently?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [12]

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I will say in summary, and I will have Carey dive a little deeper into this, is they are meeting and exceeding our expectations from both a revenue generation and synergies where we saw them in the case of Polaris Alpha. So, I think what we had communicated earlier, we are on track or slightly exceeding that. Carey, any additional color you would like to provide?

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Carey Smith, Parsons Corporation - COO [13]

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Yes, thanks, Chuck. We are doing a great job on revenue synergies with both companies. With Polaris Alpha we also had cost synergies since that was a rollup of six prior companies and we are on track to exceed those cost synergies. With OGSystems we did not plan on any cost synergies, so our focus is really on revenue. And as I mentioned earlier, we've had several key wins already with synergies and every bit that we submit involves all three companies.

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Raymond Gonzalez, Jefferies LLC - Analyst [14]

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Okay, great. Thank you. And just one follow-up in general on the bid pipeline. Congrats on the all-time high there. Just wanted to figure out how has the bid pipeline grown sequentially for the two segments. And how is that impacted by the focused bid strategy for Critical Infrastructure?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [15]

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So, what I would say in general is the federal marketplace right now is very robust. There's a lot of opportunity, especially in the areas we are focused on of cyber, intel, space, missile defense. Those are all areas where there's a lot of focus and emphasis by the federal government.

In the Critical Infrastructure space in general you are right on in that we are being very selective in the pursuits that we are taking on where -- leverage our core expertise and fit our margin and cash flow profiles. And Carey, anything you would like to add in terms of specific color?

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Carey Smith, Parsons Corporation - COO [16]

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I would just add that our pipeline is $20 billion, awaiting notice of award is $3.9 billion. And to add on to what Chuck said, Federal Solutions is really in overdrive mode. We have quite a bit of opportunities particularly greater than $100 million that will be awarded this year.

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Operator [17]

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Edward Caso, Wells Fargo.

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Edward Caso, Wells Fargo Securities - Analyst [18]

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Welcome back to the public markets here. I was wondering if you could give us a look into your crystal ball about the budget, how you see that shaking out as far as shutdown, continuing resolution -- whatever your crystal ball tells us?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [19]

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Well, I think if I know one thing I don't always try to predict where these things are going to fall in specific. So our strategy, Ed, was all aligned around getting us into those areas that we feel are going to have the highest emphasis for funding during whether it is sequestration continuing resolution, which is probably the most likely outcome for a few months.

And as I think I've said before, just because we have some disagreements in Washington, the folks that are attacking us either in cyber or missile defense tests and so forth, those don't tend to decline during those periods. So, we think our areas are as insulated from that as possible in the federal spend.

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Edward Caso, Wells Fargo Securities - Analyst [20]

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Your revenue number came in a little higher than we were looking for. Were there some pass-throughs in the quarter, lower margin pass-throughs that raised the number?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [21]

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I think it just tends to be in some parts of our business the revenue numbers tend to be a little lumpier than others. Obviously our margins were very strong, so it really wasn't pass-through costs so much as just more -- maybe a little acceleration on a few programs they staffed or just went a little faster than we had anticipated they would in Q1.

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Edward Caso, Wells Fargo Securities - Analyst [22]

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Last question. Can you give us a sense, since you didn't offer any guidance today, what your approach will be to giving guidance? Thank you.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [23]

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Yes and, George, do you want to take that, please?

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George Ball, Parsons Corporation - CFO [24]

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Sure, Ed. We plan to provide guidance beginning in 2020, which we'll communicate on our fourth-quarter call probably early March.

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Operator [25]

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Ron Epstein, Bank of America Merrill Lynch.

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Natalie O'Dea, BofA Merrill Lynch - Analyst [26]

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Hi, good morning. This is Natalie O'Dea on for Ron Epstein. My question -- so your growth strategy is predicated on targeting more advanced technologies that provide additional capabilities in Federal Solutions. I think you've already touched on what you look for in a target. Can you talk about your thresholds for return?

And then as a follow-up, you've been acquiring higher-margin businesses in Federal Solutions, so how do you maintain those higher margins over time as you absorb them? Thanks.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [27]

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Yes, great question. So one, the companies that we buy, we always look for accretion of margins in a relatively quick timeframe, certainly less than 18 months and have been more like a year. Since the areas we're going into -- we are not growing additional overhead onto our units, so we do a really great job of maintaining if not expanding the margins of the acquisitions we buy. And our model has been to develop technology in the federal space and then bring that technology to our critical infrastructure space.

So, for the vast majority of the technology we create we have actually two market segments we can deploy that technology in. We talked about our PeARL center suite, we've talked about Domain6 in the past. Many of those software solutions deploy to both. So, we continue that margin increase and actually can look at the R&D investment as having two market segments worth of growth -- revenues off of one R&D investment.

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Operator [28]

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Tobey Sommer, SunTrust.

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Tobey Sommer, SunTrust Robinson Humphrey - Analyst [29]

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I was going to ask you a question about margins, which you showed really nice expansion driven primarily in the Federal Solutions space. How does the business performance -- how does that compare to contract awards? And then when you look at your backlog and the potential margin associated with that, do you see margins continuing to prove as a result of the visibility that you have in contract awards and backlog?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [30]

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Yes. So, when we look at margin and margin expansion profile on a go-forward basis, there's really a couple things that are driving that. One, the work we are selling and have been selling over the last year plus has been at higher margins than what we've sold in the past. So we've got strong organic margin growth profiles in our backlog.

Two, we've been working through our Enhance strategy to increase the margins in our ongoing work by continuing to streamline our overhead and G&A, make other growth opportunities on existing contracts to expand margins. Our M&A has been at higher margins so that adds into this as well.

And then lastly, our new to create more technology and transactional revenue streams, which also contribute to margin expansion. So, we see continued growth of margins in the foreseeable future.

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Tobey Sommer, SunTrust Robinson Humphrey - Analyst [31]

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Thanks. And when I look at the book-to-bill of 1.4, is there a way that you could characterize that in terms of your Enhance-Extend-Transform Strategy and kind of give us some color as to which element might've been most pronounced within the 1.4?

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Chuck Harrington, Parsons Corporation - Chairman & CEO [32]

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Yes, so I'm going to have Carey dive into that a little deeper, but what I can tell you is for the most part of that 1.4 book-to-bill you are seeing a more efficient sales and business development operation which allows us to be more efficient with that [BMP] that we're [spend] and that's part of Enhance.

Extend is what has moved us into these high-growth markets and most of those sales are coming out of that. And the Transform is -- that has really led the M&A profile and is now developing that increased emphasis on transactional and what we call technology led. So as Carey will expound upon that sales process, we lead with the sale of IP and follow that up with services. Carey, do you want to take that and run?

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Carey Smith, Parsons Corporation - COO [33]

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Sure if you look at Q1 and particularly the Federal Solutions book-to-bill of 1.9 times, it really was based on extending into adjacent markets. We have a predominant position now within the cyber security area, the intelligence market as well as the space and our big wins that were greater than $100 million came out of each of those adjacent market areas.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [34]

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We might also mention too that we've seen just exceptional growth in the area of missile defense as well.

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Carey Smith, Parsons Corporation - COO [35]

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That's correct. And that's predominantly on contract growth where we have over 1,000 employees that support missile defense and systems engineering weapons and missile system facilities and lifecycle support and war fighter support.

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Operator [36]

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(Operator Instructions). Cai von Rumohr, Cowen and Company.

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Dan Flick, Cowen and Company - Analyst [37]

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This is Dan Flick on for Cai. Good morning. So, your initial share on the LOGCAP contract was small. Is there a potential to expand that share throughout the life of the contract and, if so, how big might that opportunity be? Thank you.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [38]

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For us -- and I will have Carey go into a little more depth. But our focus on LOGCAP is to bring technology solutions to that. So, to the extent that the LOGCAP contracts, or specific tasks that are assigned to that, have increased technology needs, then that share will grow. But our focus is the technology side of LOGCAP.

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Carey Smith, Parsons Corporation - COO [39]

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On LOGCAP, we are a minority joint venture partner. We were awarded the South Com region. The contract is currently under protest. For Parsons this represents all new work, so we don't have any existing LOGCAP work. So we were pleased to get the South Com region. As we come through the protest we would only have additional upside.

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Operator [40]

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Tobey Sommer, SunTrust.

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Tobey Sommer, SunTrust Robinson Humphrey - Analyst [41]

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You cited three substantial single award contracts. I'm curious if there's something that you could describe within the Company or within the customer set that's driving these larger awards. And then you called them out, so is that an unusual amount or should that be considered something that historically is at a cadence that you would consider normal? Thanks.

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Chuck Harrington, Parsons Corporation - Chairman & CEO [42]

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We like to call this our new normal. So, if you look at where we started with the strategy two or three years ago, oftentimes we were getting into these markets as really critical subcontract roles. And now we've moved to the prime role and this is the kind of cadence that we expect on a quarter-to-quarter basis. Now Carey, would you like to expand upon that?

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Carey Smith, Parsons Corporation - COO [43]

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Sure. One of the contracts was a re-compete of which we are performing facilities work and infrastructure work, industrial control systems as well as information technology. The other one was in the cyber security domain. It was a single sourced award for a classified customer where we are uniquely qualified to be able to provide software and hardware solutions that support our critical missions.

Additionally, our space award got us into a new market which is basically the launch of small satellites that go up with a primary payload. It is called the Launch Manifest System Integrator contract. That contract was awarded by the Air Force, but will also potentially service NASA and National Reconnaissance Organization and other customers.

And finally, another one that I would highlight that we're very proud of was Defensive Cyber Operations where we are the lead system integrator for the Army's defensive cyber program of record. We have close to 20 contracts that are over $100 million that will be awarded this year.

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Operator [44]

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Matt Sharpe, Morgan Stanley.

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Matt Sharpe, Morgan Stanley - Analyst [45]

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I just want to talk network and capital for a moment here. I believe you guys made some progress on DSO days, but in general I think the Company has run a little bit higher than most peers. Is it a structural issue? What type of opportunity do guys have to drive that down and sort of provide a tailwind here -- free cash flow going forward?

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George Ball, Parsons Corporation - CFO [46]

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We've made considerable progress on that over the past couple years, but we still do have additional opportunities. Largely in the Critical Infrastructure segment probably a bit more oriented in the Middle East. And in the federal side there are a number of large programs with considerable retention and backend loaded award fees and the like that we think will see some liquidation as well. But going forward I'd say over the next 18-month time horizon we should see continual tailwinds.

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Matt Sharpe, Morgan Stanley - Analyst [47]

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Got it, thanks, that helps. And then just -- I know we've talked bookings quite a bit, but I want to touch in particular on LOGCAP as well as the Army R4 contract. Those were both incremental awards to the Company. So getting a sense here of the ramp up in the path forward, how we should think about that and whether or not that was incremental in fact to your plan say a few months ago or whether it was already baked into some extent.

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Carey Smith, Parsons Corporation - COO [48]

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Sure. And also the other classified contract I mentioned was incremental to the plan as well as the space contract. The R4 contract is a (inaudible) award contract and we've just received a request for proposal for the first task order on that contract which we are bidding now.

On LOGCAP it's very hard to estimate, since it is under multiple protests, when the protest resolution will be decided. But we do not have anything baked into our plans for LOGCAP, so everything we get there is going to be upside.

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Operator [49]

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And that is all the time we have for questions. I would now like to turn the call back over to Dave Spille for final remarks.

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Dave Spille, Parsons Corporation - VP of IR [50]

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Thanks, Jack. Thank you for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to speaking with many of you over the coming weeks. And with that we will end today's call. Have a great day.

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Operator [51]

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This concludes the Parsons first-quarter 2019 earnings conference call. We thank you for your participation. You may now disconnect.