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Parsons Delivers Strong Second Quarter 2020 Operating Earnings and Cash Flow Results

Parsons Quest Mark Logo (PRNewsfoto/Parsons Corporation)
Parsons Quest Mark Logo (PRNewsfoto/Parsons Corporation)

Q2 2020 Financial Highlights:

- Revenue of $979 million includes $67 million of adverse impact from COVID-19

- Net income decreases 42% to $23 million and net income margin decreases to 2.4%

- Adjusted EBITDA increases 20% to $91 million and adjusted EBITDA margin expands 160 basis points to 9.3%

- Cash flow from operating activities of $88 million

- Q2 2020 book-to-bill ratio of 1.0x

- Reiterates fiscal year 2020 guidance

Strategic Highlights:

- Commitment to innovation, agility, and collaboration drives development of three new solutions

- Quest to Deliver a Better World facilitates diversity and partnership awards

- $307 million intelligence contract win to start Q3 2020

CENTREVILLE, Va. , Aug. 5, 2020 /PRNewswire/ -- Parsons Corporation (NYSE: PSN) today announced financial results for the  second quarter ended June 30, 2020 .

CEO Commentary

"Inclusion, diversity, and equality have been a central aspect of Parsons' core values for decades, and recent watershed events have elevated our commitment to assuring we achieve our vision of equal opportunity for all in these areas. These core values enhance our creativity and entrepreneurial culture, which is a key aspect of our competitive advantage and continued growth and success," said Chuck Harrington , chairman and chief executive office of Parsons Corporation.

"We delivered record second quarter profitability and strong cash flow results, while overcoming ongoing COVID-19 headwinds to achieve revenue results that were in-line with our internal expectations. Our long history of commitment to innovation, agility, and collaboration continues to differentiate Parsons and is enabling the acceleration of our transition to deliver more technology and transactional solutions. We are well positioned in our markets and will leverage our strong balance sheet to enhance our portfolio and drive future growth."

Second Quarter 2020 Results

Total revenue for the second quarter of 2020 decreased by $10 million , or 1%, from the prior year period to $979 million . This decrease was driven by approximately $67 million of contract work that was delayed as a result of the COVID-19 pandemic. Operating income increased to $46 million primarily as a result of an increase in gross profit and lower IPO-related long-term incentive compensation expenses and transaction-related costs. Net income decreased to $23 million and net income margin decreased to 2.4% from the prior year period. These decreases were driven by an income tax benefit associated with the establishment of a $56 million deferred tax asset resulting from Parsons conversion from an S-Corporation to a C-Corporation in the second quarter of 2019. Diluted earnings per share (EPS) attributable to Parsons was $0 .23 in the second quarter of 2020, compared to $0 .44 in the prior year period.

Adjusted EBITDA including noncontrolling interests for the second quarter of 2020 was $91 million , a 20% increase over the prior year period. Adjusted EBITDA margin increased 160 basis points to 9.3%.

Adjusted EPS increased to $0.49 , compared to $0 .43 in the second quarter of 2019.

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

Segment Results

Federal Solutions Segment



Three Months Ended



Growth



Six Months Ended



Growth




June   30,
2020



June   30,
2019



Dollars/

Percent



Percent



June   30,
2020



June   30,
2019



Dollars/

Percent



Percent


Revenue


$

482,210



$

478,497



$

3,713




1

%


$

959,781



$

901,309



$

58,472




6

%

Adjusted EBITDA


$

47,756



$

35,809



$

11,947




33

%


$

79,465



$

76,534



$

2,931




4

%

Adjusted EBITDA margin



9.9

%



7.5

%



2.4

%



32

%



8.3

%



8.5

%



-0.2

%



-2

%

Second quarter 2020 revenue increased $4 million , or 1%, compared to the prior year period. The increase was driven by $28 million of increased volume on new and existing contracts, $8 million from acquisitions, offset by approximately $32 million of delayed contract work as a result of COVID-19. Excluding the impact from COVID-19, organic revenue growth would have been 6%, and 8% over the first half of 2020.

Second quarter 2020 Federal Solutions Adjusted EBITDA including noncontrolling interests increased by $12 million , or 33%, compared to the prior year period. Adjusted EBITDA margin increased to 9.9%, or by 240 basis points from the second quarter of 2019. These increases were primarily driven by higher profit margins driven by an increase in incentive fee recognition and a decrease in volume on contracts with pass-through costs.

Critical Infrastructure Segment



Three Months Ended



Growth



Fiscal Year Ended



Growth




June   30,
2020



June   30,
2019



Dollars/

Percent



Percent



June   30,
2020



June   30,
2019



Dollars/

Percent



Percent


Revenue


$

497,249



$

511,245



$

(13,996)




-3

%


$

990,671



$

992,838



$

(2,167)




0

%

Adjusted EBITDA


$

43,405



$

40,396



$

3,009




7

%


$

72,192



$

71,695



$

497




1

%

Adjusted EBITDA margin



8.7

%



7.9

%



0.8

%



10

%



7.3

%



7.2

%



0.1

%



1

%

Second quarter 2020 revenue decreased $14 million , or 3%, compared to the prior year period. The decrease was primarily driven by approximately $35 million of delayed contract work as a result of COVID-19, partially offset by an increase in business volume under new and existing contracts. Excluding the impact from COVID-19, revenue growth would have been 4%.

Second quarter 2020 Critical Infrastructure Adjusted EBITDA including noncontrolling interests increased by $3 million , or 7%, compared to the prior year period. Adjusted EBITDA margin increased to 8.7%, or by 80 basis points from the second quarter of 2019. These increases were primarily driven by higher earnings from consolidated joint ventures and improved project margins.

Second Quarter 2020 Key Performance Indicators

  • Book-to-bill ratio (second quarter): 1.0x on net bookings of $1.0 billion . Book-to-bill ratio (trailing twelve-months): 1.0x on net bookings of $4.0 billion .

  • Total backlog: $7.7 billion , a 9% decrease from the second quarter of 2019.

  • Cash flow from operating activities: $88 million compared to $12 million in the second quarter of 2019. This increase was driven by strong collections and income and payroll tax deferrals totaling approximately $33 million dollars .

  • Debt: total and net debt were $249 million and $120 million , respectively. The company's net debt to trailing twelve-month adjusted EBITDA leverage ratio at the end of the second quarter of 2020 was 0.4x. The company defines net debt as total debt less cash and cash equivalents, which was $129 million at June 30, 2020 .

Recent Significant Contract Wins

Parsons continues to win large single-award, multiple-award, and joint venture projects.

  • Awarded a $307 million contract with a classified customer to provide enterprise security, including both cyber and physical security. This contract was awarded in the third quarter of 2020.

  • As the lead partner of a joint venture (JV), Parsons was awarded a $224 million recompete contract for the Riyadh Metro, the largest ongoing metro project in the world. Parsons' work scope includes program, design and construction management; systems testing, and commissioning.

  • Awarded a $950 million ceiling multiple-award indefinite-delivery/indefinite-quantity contract for the U.S. Air Force's Advanced Battle Management System mission. The Air Force will use this contract for the maturation, demonstration and proliferation of capabilities across platforms and domains, leveraging open systems design, modern software and algorithm development in order to enable Joint All Domain Command and Control (JADC2).

Recent Additional Corporate Highlights

Parsons recently announced the introduction of three new solutions to maximize the health, safety and security of its communities. The company also appointed three new distinguished members to its Board of Directors. In addition, the company was recognized for its STEM workforce diversity initiatives, its Engineering excellence, and its outstanding mentorship and partnership as part of the Department of Defense's Mentor-Protégé Program.

  • During the second quarter of 2020, Parsons introduced three new solutions to maximize public safety:

  • As announced previously, Letitia A. Long , former director of the National Geospatial-Intelligence Agency (NGA), was elected to Parsons board of directors in April 2020 . In addition, General Darren W. McDew , U.S. Air Force (ret.), and David C. Wajsgras were appointed to the company's board in July 2020 . Gen. McDew served with distinction in the U.S. military for 36 years, culminating as the Commander, United States Transportation Command (USTRANSCOM). Mr. Wajsgras has 20 years of experience at the senior executive management level, including Chief Financial Officer of The Raytheon Company and President of its Intelligence, Information and Services (IIS) business unit.

  • Signed multiple value-added reseller agreements with COVID-19 health and safety screening partners.

  • Recognized by STEM Workforce Diversity magazine for the fifth consecutive year as a top national STEM employer for minority groups, women, and people with disabilities working in science, technology, engineering, and math (STEM).

  • Announced that three of the company's projects received Engineering Excellence Awards from the American Council of Engineering Companies. These prestigious awards signify the quality of the work Parsons' performs and the level of attention the company provides to its customers and to the communities in which it serves.

  • Parsons received its third Nunn-Perry Award for outstanding mentorship and partnership as part of the Department of Defense Mentor-Protégé Program with Mb Solutions, Inc. under the Missile Defense Agency.

Fiscal Year 2020 Guidance

The company is again reiterating the fiscal year 2020 guidance it initially issued on March 10, 2020 , based on its financial results for the first half of 2020 and its current outlook for the remainder of year. The table below summarizes the company's fiscal year 2020 guidance.


Fiscal Year 2020 Guidance

Revenue

$3.95 billion - $4.05 billion

Adjusted EBITDA including non-controlling interest

$330 million - $360 million

Cash Flow from Operating Activities

$230 million - $250 million

Net income guidance is not presented as the company believes market volatility in its share price and the resulting impact on the company's equity-based compensation expense, as well as charges to interest, taxes, depreciation, amortization and other matters affecting net income will preclude the company from providing accurate net income guidance for fiscal year 2020.

Conference Call Information

Parsons will host a conference call today, August 5, 2020 , at 8:00 a.m. ET to discuss the financial results for its second quarter 2020.

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 may also access a slide presentation on the website, which summarizes the company's second quarter 2020 results. Listeners should go to the website 15 minutes before the live event to download and install any necessary audio software.

Listeners may also participate in the conference call by dialing +1 866-987-6581 (domestic) or +1 602-563-8686 (international) and entering passcode 8494908.

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 August 12, 2020 at +1 855-859-2056 (domestic) or +1 404-537-3406 (international) and entering passcode 8494908.

About Parsons Corporation

Parsons is a leading disruptive technology provider in the global defense, intelligence, and critical infrastructure markets, with capabilities across cybersecurity, missile defense, space, connected infrastructure, and smart cities. Please visit  parsons.com , and follow us on  LinkedIn  and  Facebook  to learn how we're making an impact.

Forward-Looking Statements

This Earnings Release and materials included therewith 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: the impact of COVID-19; 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 Annual Report with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019 on Form 10K, filed on March 10, 2020 , 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

Bryce.McDevitt@Parsons.com

Dave.Spille@Parsons.com

 

PARSONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)




For the Three Months Ended



For the Six Months Ended




June   30, 2020



June   30, 2019



June   30, 2020



June   30, 2019


Revenue


$

979,459



$

989,742



$

1,950,452



$

1,894,147


Direct cost of contracts



749,324




784,723




1,518,956




1,498,960


Equity in earnings of unconsolidated joint ventures



3,769




11,634




9,883




22,031


Indirect, general and administrative expenses



187,640




225,359




371,414




402,878


Operating income (loss)



46,264




(8,706)




69,965




14,340


Interest income



196




225




424




702


Interest expense



(4,159)




(6,376)




(8,181)




(14,668)


Other income (expense), net



715




1,506




263




1,547


Total other income (expense)



(3,248)




(4,645)




(7,494)




(12,419)


Income (loss) before income tax expense



43,016




(13,351)




62,471




1,921


Income tax (expense) benefit



(11,891)




53,496




(16,975)




51,610


Net income including noncontrolling interests



31,125




40,145




45,496




53,531


Net (income) loss attributable to noncontrolling interests



(7,826)




114




(9,224)




(3,531)


Net income attributable to Parsons Corporation


$

23,299



$

40,259



$

36,272



$

50,000


Earnings per share:

















Basic


$

0.23



$

0.44



$

0.36



$

0.59


Diluted


$

0.23



$

0.44



$

0.36



$

0.59




Weighted average number shares used to compute basic and diluted EPS (in thousands)   (Unaudited)   




Three Months Ended



Six Months Ended




June   30,
2020



June   30,
2019



June   30,
2020



June   30,
2019


Basic weighted average number of shares outstanding



100,695




92,336




100,682




85,249


Dilutive common share equivalents



291




-




266




-


Diluted weighted average number of shares outstanding



100,986




92,336




100,949




85,249


 

PARSONS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)





June   30, 2020



December 31, 2019


Assets









Current assets:










Cash and cash equivalents (including $31,221 and $51,171 Cash of consolidated joint ventures)


$

129,579



$

182,688



Restricted cash and investments



7,041




12,686



Accounts receivable, net (including $257,967 and $166,355 Accounts receivable of consolidated joint ventures, net)



717,358




671,492



Contract assets (including $27,010 and $26,458 Contract assets of consolidated joint ventures)



645,556




575,089



Prepaid expenses and other current assets (including $8,524 and $11,182 Prepaid expenses and other current assets of consolidated joint ventures)



89,662




84,454



Total current assets



1,589,196




1,526,409













Property and equipment, net (including $2,672 and $2,945 Property and equipment of consolidated joint ventures, net)



124,764




122,751



Right of use assets, operating leases



225,054




233,415



Goodwill



1,045,344




1,047,425



Investments in and advances to unconsolidated joint ventures



64,905




68,620



Intangible assets, net



214,936




259,858



Deferred tax assets



129,737




130,401



Other noncurrent assets



57,246




61,489



Total assets


$

3,451,182



$

3,450,368












Liabilities and Shareholders' Equity (Deficit)









Current liabilities:










Accounts payable (including $91,969 and $85,869 Accounts payable of consolidated joint ventures)


$

209,858



$

216,613



Accrued expenses and other current liabilities (including $112,014 and $74,857 Accrued expenses and other current liabilities of consolidated joint ventures)



642,357




639,863



Contract liabilities (including $41,945 and $32,638 Contract liabilities of consolidated joint ventures)



219,037




230,681



Short-term lease liabilities, operating leases



47,648




49,994



Income taxes payable



12,053




7,231



Total current liabilities



1,130,953




1,144,382



Long-term employee incentives



22,122




56,928



Long-term debt



249,448




249,353



Long-term lease liabilities, operating leases



201,472




203,624



Deferred tax liabilities



9,117




9,621



Other long-term liabilities



131,818




125,704



Total liabilities



1,744,930




1,789,612


Contingencies (Note 12)









Shareholders' equity (deficit):










Common stock, $1 par value; authorized 1,000,000,000 shares; 146,495,690 and 146,440,701 shares issued; 23,929,462 and 21,772,888 public shares outstanding; 76,795,221 and 78,896,806 ESOP shares outstanding



146,496




146,441



Treasury stock, 45,771,008 shares at cost



(934,240)




(934,240)



Additional paid-in capital



2,658,036




2,649,975



Accumulated deficit



(182,753)




(218,025)



Accumulated other comprehensive loss



(19,991)




(14,261)



Total Parsons Corporation shareholders' equity



1,667,548




1,629,890



Noncontrolling interests



38,704




30,866



Total shareholders' equity



1,706,252




1,660,756



Total liabilities, redeemable common stock and shareholders' equity


$

3,451,182



$

3,450,368


 

PARSONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)





For the Six Months Ended





June   30, 2020



June   30, 2019


Cash flows from operating activities:










Net income including noncontrolling interests


$

45,496



$

53,531



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










Depreciation and amortization



64,490




61,665



Amortization of debt issue costs



369




629



Gain on disposal of property and equipment



(43)




(24)



Provision for doubtful accounts



38




(866)



Deferred taxes



325




(64,924)