Parsons (PSN) Q1 2025 Earnings Call April 30, 2025 08:00 AM ET Company Participants Dave Spille - SVP, IRCarey Smith - President, CEO & ChairwomanMatt Ofilos - CFOMariana Pérez Mora - DirectorTobey Sommer - Managing DirectorSheila Kahyaoglu - Aerospace & Defense and Airlines Equity ResearchAlex Dwyer - AVP - Equity Research Conference Call Participants Andrew Wittmann - Senior Research AnalystGautam Khanna - AnalystJosh Sullivan - Managing Director & Equity Research Analyst Operator Ladies and gentlemen, th ...

Financial Highlights - Q1 2025 total revenue reached $1.554 billion, a 1% increase compared to $1.536 billion in Q1 2024[8, 13, 16] - Net income increased by 67% to $66 million in Q1 2025[8, 11] - Adjusted EBITDA increased by 5% to $149 million in Q1 2025 from $141 million in Q1 2024[8, 15, 16] - Adjusted EBITDA margin expanded by 40 basis points to 9.6% in Q1 2025[7, 11, 14, 16] - Record backlog increased by $42 million to $9.1 billion, with 69% funded[7, 11] Business Segment Performance - Federal Solutions revenue decreased by 7% to $843 million in Q1 2025[18, 20] - Critical Infrastructure revenue increased by 14% to $712 million in Q1 2025[19, 20] - Critical Infrastructure adjusted EBITDA increased by 51% to $73 million in Q1 2025[19, 20] - Critical Infrastructure book-to-bill ratio was strong at 1.4x[7, 20] Strategic Moves and Outlook - The company acquired TRS Group for approximately $37 million to enhance environmental remediation capabilities[7, 42] - The board approved a $250 million share repurchase authorization[44]

Acquisitions - The Company acquired TRS Group, Inc. for $36.6 million, with $3.8 million to be paid in July 2026, and generated $4.1 million in revenue for the three months ended March 31, 2025[37][38]. - The acquisition of BCC Engineering, LLC was completed for $233.5 million, with $27.6 million in revenue generated for the three months ended March 31, 2025[41][44]. - BlackSignal Technologies, LLC was acquired for $203.7 million, contributing $13.1 million in revenue for the three months ended March 31, 2025[46][48]. - The Company recognized $4.2 million of acquisition-related expenses for BCC and $2.5 million for BlackSignal in the consolidated statements of income for the year ended December 31, 2024[41][46]. Pro Forma Financials - Pro forma revenue for the three months ended March 31, 2025, assuming TRS acquisition was consummated at the beginning of fiscal year 2024, was $1,556.4 million[40]. - Pro forma net income for the same period, including noncontrolling interests, was $82.0 million[40]. - Pro forma revenue for the three months ended March 31, 2025, assuming BCC acquisition was consummated at the beginning of fiscal year 2023, was $1,554.4 million[45]. - Pro forma net income for the same period, including noncontrolling interests, was $82.8 million[45]. - Pro forma revenue for the three months ended March 31, 2025, assuming BlackSignal acquisition was consummated at the beginning of fiscal year 2023, was $1,554.4 million[49]. - Pro forma net income for the same period, including noncontrolling interests, was $82.7 million[49]. Revenue and Growth - Total revenue for the three months ended March 31, 2025, was $1,554,360 thousand, a slight increase from $1,535,676 thousand in the same period of 2024, representing a growth of 1.1%[51]. - The company recognized revenue of $117.3 million during the three months ended March 31, 2025, from contract liabilities that were recorded as of December 31, 2024[52]. - Revenue from consolidated joint ventures for the three months ended March 31, 2025 was $196.4 million, a decrease of 2.3% from $202.0 million in the same period of 2024[120]. - Revenue from unconsolidated joint ventures increased to $524.6 million for the three months ended March 31, 2025, up 10.8% from $473.5 million in the same period of 2024[122]. - Basic earnings per share for the three months ended March 31, 2025 was $0.62, an increase from $0.37 in the same period of 2024[134]. - Total revenue for the three months ended March 31, 2025, was $1,554,360, compared to $1,535,676 for the same period in 2024, representing a year-over-year increase of 1.2%[148]. - Adjusted EBITDA attributable to Parsons Corporation for Q1 2025 was $133,719, up from $125,504 in Q1 2024, reflecting a growth of 6.0%[145][152]. - Net income attributable to Parsons Corporation for Q1 2025 was $66,203, compared to $39,750 in Q1 2024, indicating a significant increase of 66.7%[145][146]. - Federal Solutions revenue decreased to $842,557 in Q1 2025 from $909,608 in Q1 2024, a decline of 7.4%[152]. - Critical Infrastructure revenue increased to $711,803 in Q1 2025 from $626,068 in Q1 2024, marking an increase of 13.7%[152]. - North America revenue for Q1 2025 was $1,284,232, slightly up from $1,272,250 in Q1 2024, a growth of 0.5%[148]. Assets and Liabilities - Contract assets increased to $822,781 thousand as of March 31, 2025, compared to $741,504 thousand at December 31, 2024, reflecting a growth of 10.9%[52]. - Remaining unsatisfied performance obligations (RUPO) amounted to $6.8 billion as of March 31, 2025, indicating the total dollar value of work to be performed on awarded contracts[56]. - The company expects to satisfy $4,334,583 thousand of RUPO within one year, with an additional $1,498,923 thousand expected to be satisfied in the following two years[59]. - Total accounts receivable, net, increased to $1,124,951 thousand as of March 31, 2025, from $1,100,396 thousand as of December 31, 2024, marking a growth of 2.2%[54]. - Goodwill increased from $2,082,680 thousand as of December 31, 2024, to $2,107,072 thousand as of March 31, 2025, primarily due to acquisitions[62]. - Consolidated joint ventures reported total assets of $505.9 million and total liabilities of $322.7 million as of March 31, 2025[120]. - Unconsolidated joint ventures had total assets of $1.9 billion and total liabilities of $1.4 billion as of March 31, 2025[122]. Expenses - The aggregate amortization expense of intangible assets for the three months ended March 31, 2025, was $16.4 million, compared to $13.7 million for the same period in 2024, reflecting an increase of 19.7%[63]. - The company reported total lease costs of $20,245 thousand for the three months ended March 31, 2025, slightly higher than $20,081 thousand for the same period in 2024[60]. - Depreciation expense for the three months ended March 31, 2025, was $9.1 million, a decrease from $9.4 million in the same period of 2024[65]. - The Company’s selling, general and administrative expenses for Q1 2025 totaled $91,536, compared to $69,725 in Q1 2024, reflecting a rise of 31.2%[145][146]. Debt and Financing - Total debt as of March 31, 2025, was $1,220.1 million, a decrease of 2.2% from $1,247.5 million on December 31, 2024[66]. - Short-term debt decreased from $463.4 million on December 31, 2024, to $434.9 million as of March 31, 2025, primarily due to a reduction in convertible senior notes[66]. - The company incurred $0.9 million in debt issuance costs related to the $350 million Delayed Draw Term Loan, which remains fully drawn as of March 31, 2025[67]. - Interest expense for the Delayed Draw Term Loan was $4.9 million for the three months ended March 31, 2025, down from $6.0 million for the same period in 2024[67]. - The company issued $800 million of 2.625% Convertible Senior Notes due 2029 in February 2024, with net proceeds of $781.1 million after transaction fees[82]. - The carrying value of the Convertible Senior Notes due 2029 was $785.4 million as of March 31, 2025, compared to $784.3 million on December 31, 2024[89]. - Interest expense for the Convertible Senior Notes due 2029 was $6.3 million for the three months ended March 31, 2025, compared to $2.4 million for the same period in 2024[89]. - The company recorded a deferred tax liability of $16.2 million related to the Convertible Senior Notes debt discount and capitalized debt issuance costs[81]. - The Company entered into capped call transactions with a cap price of $131.7575 per share, representing a 75% premium over the last reported sale price of $75.29 per share on February 21, 2024[91]. - The cost of the capped call transactions was $88.4 million, recorded as a reduction to additional paid-in capital[91]. - The Company used $391.8 million of net proceeds from the issuance of Convertible Senior Notes due 2029 to repurchase approximately $228.1 million of Convertible Senior Notes due 2025[93]. - A partial repurchase during the three months ended March 31, 2024, resulted in a $18.4 million repurchase loss and a $3.2 million charge to interest expense[94]. Tax and Commitments - The Company's effective tax rate decreased to 18.8% for the three months ended March 31, 2025, down from 19.5% for the same period in 2024[100]. - As of March 31, 2025, the Company's deferred tax assets were subject to a valuation allowance of $45.8 million[101]. - The Company has letters of credit commitments outstanding aggregating approximately $335.6 million as of March 31, 2025[99]. - The Company has a $650 million unsecured revolving credit facility, with interest rates at 5.7% as of March 31, 2025[97]. - The Company recorded a $211.0 million loss on debt extinguishment associated with the 0.25% Convertible Senior Notes due 2025[95]. Share Repurchase and Equity - The company repurchased 423,980 shares of common stock at an average price of $58.95 per share during the three months ended March 31, 2025[138]. - The company’s board authorized a share repurchase program with a capacity of $250 million as of March 2025, increasing from previous authorizations[135]. - The total joint venture equity for consolidated joint ventures decreased from $230.3 million as of December 31, 2024 to $183.1 million as of March 31, 2025[120]. - The company’s maximum exposure to loss from unconsolidated joint ventures is typically limited to the carrying value of the investment and future funding commitments[121].

Financial Performance - Total revenue for Q1 2025 increased by $19 million, or 1%, to $1.6 billion, with an organic revenue decline of 2%[6] - Net income for Q1 2025 rose by 67% to $66 million, compared to $40 million in Q1 2024[6] - GAAP diluted earnings per share (EPS) increased by 61% to $0.60 in Q1 2025, up from $0.37 in the prior year[8] - Adjusted EBITDA for Q1 2025 was $149 million, a 5% increase year-over-year, with an adjusted EBITDA margin of 9.6%, up 40 basis points[7] - Revenue for the three months ended March 31, 2025, was $1,554,360, compared to $1,535,676 for the same period in 2024, representing a growth of 1.1%[28] - Net income attributable to Parsons Corporation for the three months ended March 31, 2025, was $66,203, an increase of 66.7% from $39,750 in the same period of 2024[28] - Basic earnings per share (EPS) increased to $0.62 for the three months ended March 31, 2025, compared to $0.37 for the same period in 2024, reflecting a growth of 67.6%[28] - Adjusted net income attributable to Parsons Corporation for the three months ended March 31, 2025, was $84,548,000, up from $74,807,000 in the same period last year[42] - Adjusted earnings per share increased to $0.79 for basic shares and $0.78 for diluted shares, compared to $0.71 and $0.70 respectively in the prior year[42] - Adjusted EBITDA for the three months ended March 31, 2025, was $148,776,000, compared to $141,093,000 for the same period in 2024[39] Segment Performance - Federal Solutions segment revenue decreased by 7% to $842.6 million, while adjusted EBITDA margin fell to 9.0%[9][10] - Critical Infrastructure segment revenue increased by 14% to $711.8 million, driven by organic growth of 8% and contributions from recent acquisitions[11][12] - Federal Solutions Adjusted EBITDA attributable to Parsons Corporation decreased to $75,532,000 from $92,541,000 year-over-year, while Critical Infrastructure Adjusted EBITDA increased to $58,187,000 from $32,963,000[41] Contracts and Backlog - The book-to-bill ratio was 1.1x, supported by a 1.4x ratio in the Critical Infrastructure segment, with total backlog reaching a record $9.1 billion[8][13] - The company won four single-award contracts worth over $100 million each during Q1 2025, enhancing its growth prospects[15] - Total contract awards for the three months ended March 31, 2025, were $1,766,506, a decrease of 15.1% from $2,082,309 in the same period of 2024[33] - Total backlog as of March 31, 2025, is $9,071,226,000, slightly up from $9,028,843,000 as of March 31, 2024[34] - Funded backlog in Federal Solutions decreased to $1,770,655,000 from $1,804,251,000 year-over-year, while unfunded backlog decreased from $3,450,328,000 to $2,799,723,000[34] - Critical Infrastructure funded backlog increased significantly from $3,706,435,000 to $4,451,234,000, with unfunded backlog decreasing from $67,829,000 to $49,614,000[34] - The overall book-to-bill ratio decreased to 1.1 in March 2025 from 1.4 in March 2024, indicating a decline in contract awards relative to revenue[35][37] Cash Flow and Capital Expenditures - Cash and cash equivalents decreased to $269,745 as of March 31, 2025, from $453,548 at the end of 2024, a decline of 40.5%[31] - Total assets as of March 31, 2025, were $5,449,144, a slight decrease from $5,487,962 at the end of 2024[31] - Total liabilities decreased to $2,903,412 as of March 31, 2025, from $2,953,473 at the end of 2024, a reduction of 1.7%[31] - Operating income for the three months ended March 31, 2025, was $109,233, compared to $101,844 for the same period in 2024, indicating an increase of 7.1%[28] - The company reported a net cash used in operating activities of $11,787 for the three months ended March 31, 2025, compared to $63,420 for the same period in 2024, showing an improvement[32] - The company made capital expenditures of $13,473 for the three months ended March 31, 2025, compared to $9,436 in the same period of 2024, reflecting an increase of 42.9%[32] Guidance - Fiscal year 2025 guidance includes revenue expectations of $7.0 billion to $7.5 billion and adjusted EBITDA of $640 million to $710 million[19] Acquisitions - Parsons closed its acquisition of TRS Group for $37 million, strengthening its environmental remediation capabilities[16] Non-GAAP Measures - The company continues to adjust for non-GAAP measures to provide a clearer picture of its operational performance, excluding non-recurring and non-operational costs[36]

Core Insights - Parsons Corporation reported record first quarter results for total revenue, net income, earnings per share, adjusted EBITDA, and backlog, indicating strong performance and growth potential [3][5][8]. Financial Performance - Total revenue for Q1 2025 increased by $19 million, or 1%, to $1.6 billion, with a 2% decline on an organic basis. Excluding a confidential contract, total revenue growth was 11% and organic revenue growth was 7% [5][8]. - Operating income rose by 7% to $109 million, while net income surged by 67% to $66 million, attributed to improved operating performance and a prior year loss from convertible debt repurchase [5][8]. - GAAP diluted earnings per share (EPS) increased to $0.60 from $0.37 year-over-year, reflecting strong financial results [5][8]. Adjusted Metrics - Adjusted EBITDA for Q1 2025 was $149 million, a 5% increase from the previous year, with an adjusted EBITDA margin expanding by 40 basis points to 9.6% [6][8]. - Adjusted EPS rose to $0.78 from $0.70, driven by the increase in adjusted EBITDA [6][8]. Segment Performance - The Federal Solutions segment experienced a revenue decline of 7% to $842.6 million, but showed an 8% increase when excluding the confidential contract [9][10]. - The Critical Infrastructure segment reported a 14% revenue increase to $711.8 million, driven by organic growth and contributions from recent acquisitions [11][12]. Backlog and Book-to-Bill Ratio - Total backlog reached a record $9.1 billion, up $42 million from Q1 2024, with a book-to-bill ratio of 1.1x supported by a 1.4x ratio in the Critical Infrastructure segment [8][14]. - The company won four contracts worth over $100 million each during the first quarter, contributing to strong net bookings of $1.8 billion [14][18]. Corporate Highlights - Parsons was recognized as one of the World's Most Ethical Companies for the 16th consecutive year, reflecting its commitment to responsible enterprise practices [16][18]. - The Board of Directors increased the stock repurchase authorization to $250 million, with approximately 424,000 shares repurchased at an average price of $58.95 during Q1 2025 [18][19]. Fiscal Year Guidance - The company reiterated its fiscal year 2025 guidance for revenue between $7.0 billion and $7.5 billion, adjusted EBITDA of $640 million to $710 million, and cash flow from operations of $420 million to $480 million [19][17].

Core Insights - Parsons Corporation has been awarded a 25-month contract for Project Management Office services by the King Salman Park Foundation, marking new work for the company [1] - King Salman Park is a significant urban transformation project covering 11.6 sq km of green space and over 10 sq km of built-up area, supporting Saudi Vision 2030's "Quality of Life" Program [1][3] Company Responsibilities - Parsons will support the delivery strategy of the King Salman Park program, overseeing design, procurement, construction, and implementation of smart city initiatives [2] - The company will leverage its 80 years of global expertise and local experience in managing complex urban projects in the Kingdom [3] Sustainability Initiatives - The project aims to plant 1 million trees and plants, enhancing vegetation cover, increasing per capita green space, and boosting biodiversity [3] - Strategic placement of trees will help absorb CO2, increase humidity, and mitigate the heat island effect [3] Company Background - Parsons has over 65 years of regional presence, offering expertise in urban development, smart mobility, asset management, design, sustainability, and landscape architecture within the Kingdom [4] - The company is recognized as a leading disruptive technology provider in national security and global infrastructure markets [5]

Core Insights - Parsons Corporation has been selected by the Lee County Port Authority to provide project management services for Phase 1 of the Southwest Florida International Airport Terminal Expansion Project [1][2] - The expansion project aims to enhance passenger experience by reducing wait times, consolidating checkpoint operations, and improving connectivity between concourses [3] Company Overview - Parsons Corporation is a leading provider in national security and global infrastructure markets, with expertise in various sectors including transportation and critical infrastructure protection [6] - The company has extensive experience in managing and enhancing airport infrastructure, having worked on over 450 airports in 40 countries [4] Project Details - Phase 1 of the RSW Terminal Expansion Project will include approximately 200,000 square feet of new and remodeled terminal space [3] - The project will involve collaboration with design, construction management, and engineering inspection teams to ensure effective project control and successful completion [2]

Core Insights - Sealing Technologies, a subsidiary of Parsons Corporation, has launched two new edge computing nodes, the GN 7100 and GN 9000, aimed at enhancing operational effectiveness for U.S. national security missions [1][6] Product Features - The GN 7100 utilizes PCIe Gen 5 and AMD's latest 9000 EPYC series, providing faster processing speeds and is designed for AI and machine learning applications, enhancing defense capabilities for cyber protection teams [2] - The GN 9000 features two GPUs for maximum resource pooling, delivering 188GB of HBM3 memory to support demanding AI models at the edge, while also maximizing operational effectiveness and storage capacity [3] Strategic Importance - Both products are designed with flexibility and scalability to meet current and future needs of warfighters, providing AI/ML edge computing capabilities that were previously limited to datacenters [4] - Sealing Technologies emphasizes its commitment to developing purpose-built defensive cyber solutions, aiming to deliver increased capability, storage, agility, and value to its customers [4]

Core Insights - Parsons Corporation has been awarded a $1.5 billion indefinite-delivery, indefinite-quantity contract by the Air Force Civil Engineering Center to provide architect-engineer services for environmental issues, particularly focusing on PFAS [1][2][3] Contract Details - The contract includes a five-year base period with five one-year option periods and an additional six-month extension option [1] - Parsons will compete for task orders based on qualifications to address various environmental issues at U.S. Air Force installations and other federal clients [2] Company Commitment and Experience - Parsons emphasizes its commitment to providing cost-effective solutions for environmental remediation, leveraging over 50 years of experience in supporting the Department of Defense [3] - The company has been involved in PFAS remediation, including managing a groundwater treatment system for the National Guard Bureau [3] Recent Developments - The acquisition of TRS Group, Inc. in February 2025 has enhanced Parsons' capabilities in environmental remediation technology [3]

Core Viewpoint - Parsons Corporation has been awarded a $24 million contract to support the Naval Medical Research Command in biological defense research, focusing on the rapid detection of infectious diseases and enhancing global disease surveillance [1][2]. Group 1: Contract Details - The contract includes a one-year base period and four one-year option periods, totaling $24 million [1]. - Parsons will continue its support for the Biological Defense Research Directorate, facilitating biological research critical to the Department of Defense [2]. Group 2: Company Expertise - Parsons has been involved in this work since 2018, providing experts in various fields such as molecular biology, immunology, and outbreak response [3]. - The company offers a comprehensive range of biodefense services, including risk assessments, biological threat detection, and incident response [3]. Group 3: Company Profile - Parsons is recognized as a leading provider of disruptive technology in national security and global infrastructure, with capabilities spanning cyber and intelligence, space defense, and environmental remediation [5].