Parsons(PSN) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Parsons Corporation's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the periods ended June 30, 2024, and December 31, 2023 Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Parsons Corporation and its subsidiaries, including the Balance Sheets, Statements of Income (Loss), Comprehensive Income (Loss), Cash Flows, and Shareholders' Equity, along with detailed notes explaining the company's accounting policies, acquisitions, debt, leases, and other financial instruments for the periods ended June 30, 2024, and December 31, 2023 Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific points in time | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | |:---|:---|:---| | Total Assets | $5,238,730 | $4,804,061 | | Total Liabilities | $2,919,086 | $2,427,346 | | Total Shareholders' Equity | $2,319,644 | $2,376,715 | - Total assets increased by $434.67 million (9.05%) from December 31, 2023, to June 30, 2024, primarily driven by an increase in cash and cash equivalents and accounts receivable[27] - Total liabilities increased by $491.74 million (20.26%) over the same period, largely due to an increase in long-term debt[8] Consolidated Statements of Income (Loss) This statement reports the company's financial performance over a period, showing revenues, expenses, and net income or loss | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenue | $1,670,467 | $1,356,486 | $3,206,143 | $2,529,952 | | Operating Income | $111,422 | $76,444 | $213,266 | $127,574 | | Net Income (Loss) attributable to Parsons Corporation | $69,172 | $43,241 | $(38,183) | $68,794 | | Basic EPS | $0.65 | $0.41 | $(0.36) | $0.66 | | Diluted EPS | $0.63 | $0.38 | $(0.36) | $0.61 | - Revenue increased by 23.1% for the three months ended June 30, 2024, and by 26.7% for the six months ended June 30, 2024, compared to the prior year periods[30] - The company reported a net loss attributable to Parsons Corporation of $(38.183) million for the six months ended June 30, 2024, primarily due to a $211.018 million loss on extinguishment of debt[30] Consolidated Statements of Comprehensive Income (Loss) This statement presents the total change in equity from non-owner sources, including net income and other comprehensive income items | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Net income (loss) including noncontrolling interests | $80,719 | $54,771 | $(11,393) | $90,047 | | Other comprehensive income, net of tax | $(2,261) | $3,168 | $(4,219) | $2,992 | | Comprehensive income (loss) attributable to Parsons Corporation, net of tax | $66,899 | $46,406 | $(42,414) | $71,783 | - Comprehensive income attributable to Parsons Corporation decreased significantly for the six months ended June 30, 2024, to $(42.414) million from $71.783 million in the prior year, primarily due to the net loss[11] Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities over a period | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|\ | Net cash provided by operating activities | $97,807 | $13,986 | | Net cash used in investing activities | $(88,715) | $(84,218) | | Net cash provided by (used in) financing activities | $247,065 | $(14,185) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $255,519 | $(83,950) | | Cash, cash equivalents and restricted cash, End of period | $528,462 | $178,589 | - Net cash provided by operating activities increased significantly to $97.807 million for the six months ended June 30, 2024, from $13.986 million in the prior year[13] - Net cash provided by financing activities saw a substantial increase to $247.065 million for the six months ended June 30, 2024, compared to a net cash outflow of $(14.185) million in the prior year, driven by convertible bond transactions[13][345] Consolidated Statements of Shareholders' Equity This statement outlines the changes in the company's equity accounts, including common stock, retained earnings, and other comprehensive income, over a period | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | |:---|:---|:---|\ | Total Parsons Corporation shareholders' equity | $2,218,510 | $2,287,211 | | Noncontrolling interests | $101,134 | $89,504 | | Total shareholders' equity | $2,319,644 | $2,376,715 | - Total shareholders' equity decreased by $57.071 million from December 31, 2023, to June 30, 2024, primarily due to the net loss for the six-month period, partially offset by stock-based compensation and bond hedge termination proceeds[28][36] Notes to Unaudited Consolidated Financial Statements These notes provide essential details and explanations supporting the figures presented in the primary financial statements 1. Description of Operations This note describes Parsons Corporation's core business activities and the services it provides to its diverse customer base - Parsons Corporation provides sophisticated design, engineering, technical services, and smart/agile software to the U.S. federal government and Critical Infrastructure customers worldwide[61] 2. Basis of Presentation and Principles of Consolidation This note explains the accounting standards used for financial statement preparation and the criteria for consolidating subsidiaries and joint ventures - The financial statements are prepared in accordance with GAAP and Form 10-Q requirements, reflecting all normal recurring adjustments. The company consolidates controlled subsidiaries and joint ventures where it is the primary beneficiary, using the equity method for unconsolidated joint ventures where it exerts significant influence[17][38][62] 3. New Accounting Pronouncements This note discusses recently issued accounting standards and their anticipated impact on the company's financial reporting - ASU 2023-09 (Income Taxes) is effective for fiscal years beginning after December 15, 2024, enhancing income tax disclosures. ASU 2023-07 (Segment Reporting) is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, introducing enhanced disclosures about significant segment expenses. Neither ASU is expected to have a material impact on the company's consolidated financial statements[19][65][40] 4. Acquisitions This note details the company's recent acquisition activities, including purchase prices, strategic rationale, and financial impacts I.S. Engineers, LLC This section details the acquisition of I.S. Engineers, LLC, including its specialization and the resulting goodwill allocation - On October 31, 2023, Parsons acquired I.S. Engineers, LLC for $12.2 million in cash, specializing in transportation engineering. The acquisition resulted in $11.9 million in goodwill allocated to the Critical Infrastructure reporting unit[41] Sealing Technologies, Inc. This section outlines the acquisition of Sealing Technologies, Inc., highlighting its strategic value and financial terms - On August 23, 2023, Parsons acquired Sealing Technologies, Inc. for $179.3 million in cash, plus a potential $25 million earn-out. This acquisition expands Parsons' capabilities in defensive cyber operations, AI/ML integrated solutions, and critical infrastructure protection, with $90.593 million in goodwill assigned to Federal Solutions[42][69] | Metric | Amount (in thousands) | |:---|:---|\ | Cash paid at closing | $179,259 | | Fair value of contingent consideration | $3,231 | | Total purchase price | $182,490 | | Goodwill | $90,593 | | Intangible assets | $75,000 | - SealingTech generated $16.9 million and $33.8 million in revenue for the three and six months ended June 30, 2024, respectively[44] IPKeys Power Partners This section describes the acquisition of IPKeys Power Partners, focusing on its contribution to grid modernization and cyber resiliency - On April 13, 2023, Parsons acquired IPKeys Power Partners for $43.0 million in cash, enhancing its presence in grid modernization and cyber resiliency for critical infrastructure. The acquisition resulted in $22.407 million in goodwill allocated to the Critical Infrastructure reporting unit[45][72] | Metric | Amount (in thousands) | |:---|:---|\ | Net assets acquired | $43,039 | | Goodwill | $22,407 | | Intangible assets | $23,000 | - IPKeys generated $2.6 million in revenue for both the three and six months ended June 30, 2023[72] 5. Contracts with Customers This note provides information on the company's revenue recognition policies and balances related to customer contracts Disaggregation of Revenue This section breaks down the company's revenue by contract type, illustrating the different sources of income | Contract Type | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Fixed-price | $707,235 | $440,094 | $1,338,454 | $781,106 | | Time-and-Materials | $347,275 | $324,033 | $697,926 | $642,348 | | Cost-plus | $615,957 | $592,359 | $1,169,763 | $1,106,498 | | Total Revenue | $1,670,467 | $1,356,486 | $3,206,143 | $2,529,952 | - Fixed-price contracts significantly increased their share of total revenue, rising from 32.4% to 42.3% for the three months ended June 30, 2024, compared to the prior year, driven by increased business volume from a significant fixed-price contract in the Federal Solutions segment[74][313] Contract Assets and Contract Liabilities This section details the balances and changes in contract assets and liabilities, reflecting the timing of revenue recognition and customer payments | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Contract assets | $803,685 | $757,515 | $46,170 | 6.1% | | Contract liabilities | $298,104 | $301,107 | $(3,003) | -1.0% | | Net contract assets (liabilities) | $505,581 | $456,408 | $49,173 | 10.8% | - Total contract retentions were $77.0 million as of June 30, 2024, with $33.3 million not expected to be paid within the next 12 months[50] - Revenue recognized from contract liability balances was $30.9 million and $169.2 million for the three and six months ended June 30, 2024, respectively[76] Accounts Receivable, net This section presents the composition and changes in the company's accounts receivable, including billed and unbilled amounts | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | |:---|:---|:---|\ | Billed | $692,946 | $646,375 | | Unbilled | $353,876 | $273,215 | | Total accounts receivable, gross | $1,046,822 | $919,590 | | Allowance for doubtful accounts | $(3,886) | $(3,952) | | Total accounts receivable, net | $1,042,936 | $915,638 | - Receivables from U.S. federal government contracts increased to 25% of total accounts receivable as of June 30, 2024, from 18% at December 31, 2023[101] Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations This section outlines the future revenue expected from contracts with customers for which performance obligations have not yet been satisfied - The company had $6.2 billion in Remaining Unsatisfied Performance Obligations (RUPO) as of June 30, 2024[102] | Segment | Within One Year (in thousands) | Within One to Two Years (in thousands) | Thereafter (in thousands) | |:---|:---|:---|:---|\ | Federal Solutions | $1,724,068 | $261,075 | $175,603 | | Critical Infrastructure | $2,031,090 | $980,936 | $993,590 | | Total | $3,755,158 | $1,242,011 | $1,169,193 | 6. Leases This note provides details on the company's lease arrangements, including lease costs, right-of-use assets, and lease liabilities | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Total lease cost | $20,485 | $20,021 | $40,566 | $39,734 | | Operating cash flows for operating leases | N/A | N/A | $34,189 | $35,076 | | Right-of-use assets, operating leases (June 30, 2024) | $136,169 | | | | | Total operating lease liabilities (June 30, 2024) | $150,992 | | | | - The weighted average remaining lease term for operating leases is 3.7 years, and for finance leases is 3 years, as of June 30, 2024[106] 7. Goodwill This note presents the carrying amount of goodwill, its allocation to reporting units, and changes during the period | Segment | December 31, 2023 (in thousands) | Acquisitions (in thousands) | Foreign Exchange (in thousands) | June 30, 2024 (in thousands) | |:---|:---|:---|:---|:---|\ | Federal Solutions | $1,686,901 | $- | $- | $1,686,901 | | Critical Infrastructure | $105,764 | $- | $(1,762) | $104,002 | | Total | $1,792,665 | $- | $(1,762) | $1,790,903 | - Total goodwill decreased slightly by $1.762 million from December 31, 2023, to June 30, 2024, primarily due to foreign exchange adjustments in the Critical Infrastructure segment[107] 8. Intangible Assets This note details the company's intangible assets, including their net carrying amounts, types, and amortization periods | Intangible Asset Type | Net Carrying Amount June 30, 2024 (in thousands) | Net Carrying Amount December 31, 2023 (in thousands) | Weighted Average Amortization Period (in years) | |:---|:---|:---|:---|\ | Backlog | $69,078 | $84,036 | 4.8 | | Customer relationships | $163,958 | $172,926 | 11.5 | | Developed technology | $12,980 | $15,777 | 4.7 | | Total intangible assets | $248,079 | $275,566 | N/A | - Aggregate amortization expense for intangible assets was $13.8 million and $27.5 million for the three and six months ended June 30, 2024, respectively[109] 9. Property and Equipment, Net This note provides a breakdown of the company's property and equipment, including their net carrying amounts and depreciation expense | Asset Type | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | |:---|:---|:---|\ | Buildings and leasehold improvements | $102,309 | $102,372 | | Furniture and equipment | $84,574 | $84,244 | | Computer systems and equipment | $172,846 | $168,926 | | Construction in progress | $25,019 | $21,030 | | Total Property and equipment, net | $98,217 | $98,957 | - Depreciation expense for the three and six months ended June 30, 2024, was $9.2 million and $18.7 million, respectively[111] 10. Debt and Credit Facilities This note describes the company's various debt instruments and credit arrangements, including terms, interest rates, and outstanding balances Delayed Draw Term Loan This section details the company's Delayed Draw Term Loan, including its outstanding balance and associated interest expense - The company has a $350.0 million Delayed Draw Term Loan outstanding as of June 30, 2024, with an interest rate of 6.6%. Interest expense for this loan was $5.8 million and $11.8 million for the three and six months ended June 30, 2024, respectively[112] Convertible Senior Notes due 2025 This section provides information on the 2025 Convertible Senior Notes, including their carrying value, interest rate, and maturity - The net carrying value of the 0.25% Convertible Senior Notes due 2025 was $115.4 million as of June 30, 2024, down from $396.5 million at December 31, 2023, due to partial repurchases[95][112] - These notes accrue interest at 0.25% per annum and mature on August 15, 2025[91] Note Hedge and Warrant - Convertible Senior Notes due 2025 This section explains the bond hedge and warrant transactions related to the 2025 Convertible Senior Notes, designed to manage dilution risk - The company purchased a bond hedge for $55.0 million and sold warrants for $13.8 million in connection with the 2025 Convertible Senior Notes, effectively increasing the conversion price from $44.86 to $66.46 per share[117][118][122] Convertible Senior Notes due 2029 This section details the issuance of the 2029 Convertible Senior Notes, including their principal amount, conversion price, and maturity - In February 2024, Parsons issued $800.0 million of 2.625% Convertible Senior Notes due 2029, with net proceeds of $781.1 million. These notes have an initial conversion price of approximately $94.11 per share and mature on March 1, 2029[131][132] - Interest expense for the 2029 Convertible Notes was $6.3 million and $8.7 million for the three and six months ended June 30, 2024, respectively[135] Capped Call Transactions - Convertible Senior Notes due 2029 This section describes the Capped Call Transactions entered into to mitigate potential dilution from the 2029 Convertible Senior Notes - The company entered into Capped Call Transactions for $88.4 million to reduce potential dilution from the 2029 Convertible Senior Notes, with an initial cap price of $131.7575 per share[136][145] Convertible Senior Notes due 2025 Partial Repurchase and Note Hedge and Warrants Partial Unwind This section details the partial repurchase of the 2025 Convertible Senior Notes and the unwind of related hedge and warrant transactions, including the financial impact - In Q1 2024, Parsons repurchased $284.6 million aggregate principal amount of its 2025 Convertible Senior Notes for $495.6 million cash, resulting in a $214.2 million loss on debt extinguishment[137][138][330] - The company also received $90.6 million cash from the partial termination of the related bond hedge and incurred a $49.9 million tax benefit from the debt extinguishment[137][138][147] Revolving Credit Facility This section provides information on the company's unsecured revolving credit facility, including its capacity and outstanding amounts - Parsons has a $650 million unsecured revolving credit facility with a five-year maturity. No loan amounts were outstanding as of June 30, 2024[148] Letters of Credit This section details the outstanding commitments under letters of credit from various bank lines - Letters of credit commitments outstanding under secondary bank lines aggregated $303.6 million at June 30, 2024, and $43.0 million under the Credit Agreement[149][346] 11. Income Taxes This note provides information on the company's income tax expense or benefit, effective tax rates, and deferred tax assets and liabilities | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Effective tax rate | 21.7% | 21.8% | 46.3% (benefit) | 22.9% | | Income tax (benefit) expense (in thousands) | $22,415 | $15,223 | $(9,819) | $26,726 | - The effective tax rate for the six months ended June 30, 2024, was a 46.3% benefit, primarily due to the tax benefit from the $211 million loss on partially unwinding Convertible Senior Notes[150][332] - The company had a valuation allowance of $44.0 million against deferred tax assets as of June 30, 2024, mainly for foreign net operating loss carryforwards and foreign tax credit carryforwards[180] 12. Contingencies This note discloses significant legal proceedings, audits, and other contingent liabilities that could impact the company's financial position - Parsons is involved in a False Claims Act lawsuit from 2015, with dispositive motions heard in 2023 and rulings pending[154] - A final judgment of approximately $102.5 million was awarded in favor of Parsons Transportation Group, Inc. against Alstom Signaling Operations LLC on July 1, 2024, which Alstom has appealed[155] - The company's federal government contracts are subject to DCAA audits, with all costs incurred through 2018 closed and subsequent years remaining open[156] 13. Retirement Benefit Plan This note describes the company's retirement benefit plan, including the Employee Stock Ownership Plan (ESOP) and related expenses - The Parsons Employee Stock Ownership Plan (ESOP) held 56,161,683 shares of the company's common stock as of June 30, 2024. ESOP contribution expense was $15.1 million and $30.1 million for the three and six months ended June 30, 2024, respectively[186][187] 14. Investments in and Advances to Joint Ventures This note provides details on the company's investments in both consolidated and unconsolidated joint ventures Consolidated Joint Ventures This section presents the financial performance and equity of joint ventures that are consolidated into the company's financial statements | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenue | $186,731 | $167,253 | $388,748 | $328,737 | | Net income | $23,444 | $23,445 | $54,313 | $43,331 | | Total joint venture equity (June 30, 2024) | $196,034 | | | | - The assets of consolidated joint ventures are restricted for use only by the particular joint venture[192] Unconsolidated Joint Ventures This section provides financial information on joint ventures where the company exerts significant influence but does not consolidate | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenue | $544,000 | $530,467 | $1,017,532 | $879,624 | | Net income (loss) | $(11,971) | $(4,088) | $(15,189) | $(14,326) | | Equity in losses of unconsolidated joint ventures | $(16,837) | $75 | $(18,897) | $(5,765) | - Equity in losses of unconsolidated joint ventures increased significantly for both the three and six months ended June 30, 2024, primarily due to write-downs related to a design-build joint venture in the Critical Infrastructure segment[167][325][302] 15. Related Party Transactions This note discloses transactions with related parties, primarily unconsolidated joint ventures, and their financial impact | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | |:---|:---|:---|\ | Accounts receivable | $47,778 | $38,898 | | Contract assets | $15,909 | $38,009 | | Contract liabilities | $14,215 | $15,287 | - The company provided services to unconsolidated joint ventures, generating revenues of $50.5 million and $97.3 million for the three and six months ended June 30, 2024, respectively[194] 16. Fair Value of Financial Instruments This note provides the fair value measurements for various financial instruments, including debt and contingent consideration | Liability | Carrying Value June 30, 2024 (in thousands) | Fair Value June 30, 2024 (in thousands) | |:---|:---|:---|\ | Convertible senior notes due 2025 | $115,443 | $207,797 | | Convertible senior notes due 2029 | $800,000 | $859,520 | | Delayed draw term loan | $350,000 | $350,000 | | Total | $1,265,443 | $1,417,317 | - The fair value of the earnout liability for SealingTech was $4.142 million as of June 30, 2024, an increase of $1.8 million from December 31, 2023[43][222] 17. Earnings Per Share This note details the calculation of basic and diluted earnings per share, including the weighted average shares outstanding | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Basic EPS | $0.65 | $0.41 | $(0.36) | $0.66 | | Diluted EPS | $0.63 | $0.38 | $(0.36) | $0.61 | | Basic weighted average shares outstanding (in thousands) | 106,303 | 104,908 | 106,170 | 104,856 | | Diluted weighted average shares outstanding (in thousands) | 110,524 | 114,708 | 106,170 | 114,714 | - Due to the net loss for the six months ended June 30, 2024, potential dilutive effects from stock-based awards and convertible senior notes were excluded from diluted EPS calculation as they were anti-dilutive[200] 18. Segment Information This note provides financial data disaggregated by the company's operating segments, Federal Solutions and Critical Infrastructure Federal Solutions This section describes the Federal Solutions segment, focusing on its services to the U.S. government and national security missions - The Federal Solutions segment provides advanced technical solutions to the U.S. government, focusing on national security missions in cybersecurity, missile defense, and military facility modernization[202] Critical Infrastructure This section describes the Critical Infrastructure segment, focusing on its engineering and management services for global infrastructure - The Critical Infrastructure segment offers integrated engineering and management services for complex physical and digital infrastructure globally, with capabilities in next-generation digital systems and complex structures[229] Geographic Area Revenue and Property & Equipment This section presents revenue and property and equipment data broken down by the company's primary geographic operating areas | Geographic Area | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | North America Revenue | $1,419,327 | $1,136,290 | $2,691,577 | $2,085,005 | | Middle East Revenue | $246,063 | $219,253 | $504,984 | $436,651 | | Total Revenue | $1,670,467 | $1,356,486 | $3,206,143 | $2,529,952 | | Geographic Area | Property and Equipment, Net June 30, 2024 (in thousands) | Property and Equipment, Net December 31, 2023 (in thousands) | |:---|:---|:---|\ | North America | $89,506 | $91,766 | | Middle East | $8,711 | $7,191 | | Total | $98,217 | $98,957 | Revenue by Business Units This section disaggregates revenue by the company's internal business units, providing a more granular view of income sources | Business Unit | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Defense and Intelligence | $420,396 | $381,328 | $828,784 | $745,688 | | Engineered Systems | $568,207 | $381,469 | $1,069,427 | $651,655 | | Infrastructure – North America | $434,163 | $373,153 | $799,445 | $692,712 | | Infrastructure – Europe, Middle East and Africa | $247,701 | $220,536 | $508,487 | $439,897 | | Total Revenue | $1,670,467 | $1,356,486 | $3,206,143 | $2,529,952 | - Effective October 1, 2023, Critical Infrastructure business units were reorganized into Infrastructure – North America and Infrastructure – Europe, Middle East and Africa[234] 19. Subsequent Events This note discloses significant events that occurred after the reporting period but before the financial statements were issued - After June 30, 2024, Parsons entered into an agreement to acquire BlackSignal Technologies, LLC for approximately $200 million in cash, expected to close in Q3 2024. This acquisition aims to expand Parsons' customer base in the Department of Defense and Intelligence Community and strengthen its offensive cyber warfare capabilities[235] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Parsons Corporation's financial condition, results of operations, liquidity, and capital resources. It covers key metrics, factors affecting performance, detailed analysis of revenue and expenses by segment, and cash flow activities for the periods ended June 30, 2024, and June 30, 2023 Overview This section provides a high-level summary of Parsons Corporation's business, its strategic focus, and its operating segments - Parsons is a leading provider of integrated solutions and services in security and digital transformation, delivering technology-driven solutions in cybersecurity, intelligence, missile defense, C5ISR, space, transportation, water/wastewater, and environmental remediation[213] - The company operates in two segments: Federal Solutions (U.S. government) and Critical Infrastructure (state/local governments and commercial customers)[266] Key Metrics This section presents critical performance indicators used by management to assess the company's operational and financial health Awards This section details the value of new contracts and task orders awarded to the company during the reporting periods | Segment | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Federal Solutions | $805,170 | $1,182,127 | $2,087,810 | $1,877,771 | | Critical Infrastructure | $694,894 | $749,035 | $1,494,563 | $1,435,620 | | Total Awards | $1,500,064 | $1,931,162 | $3,582,373 | $3,313,391 | - Total awards decreased by 22.3% for the three months ended June 30, 2024, but increased by 8.1% for the six months ended June 30, 2024, compared to the prior year periods[215][241] Backlog This section provides information on the total value of uncompleted work under contract, indicating future revenue potential | Segment | June 30, 2024 (in thousands) | June 30, 2023 (in thousands) | |:---|:---|:---|\ | Federal Solutions Funded | $1,736,698 | $1,506,235 | | Federal Solutions Unfunded | $3,284,801 | $3,709,288 | | Critical Infrastructure Funded | $3,754,225 | $3,615,955 | | Critical Infrastructure Unfunded | $55,882 | $70,109 | | Total Backlog | $8,831,606 | $8,901,587 | - Total backlog decreased slightly by 0.8% to $8.83 billion as of June 30, 2024, compared to $8.90 billion at June 30, 2023[271] - The company expects to recognize $3.8 billion of its funded backlog as revenue in the next twelve months[244] Book-to-Bill This section presents the ratio of new awards to revenue recognized, indicating the company's ability to replenish its backlog | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Federal Solutions | 0.8 | 1.5 | 1.1 | 1.3 | | Critical Infrastructure | 1.0 | 1.3 | 1.1 | 1.3 | | Overall | 0.9 | 1.4 | 1.1 | 1.3 | - The overall book-to-bill ratio for the three months ended June 30, 2024, was 0.9, indicating that awards were less than revenue recognized in the period. For the six months, it was 1.1, showing awards exceeded revenue[245][273] Factors and Trends Affecting Our Results of Operations This section discusses external and internal factors that could significantly influence the company's financial performance and operational outcomes Government Spending This section analyzes how changes in government spending priorities and budget allocations impact the company's business opportunities - Changes in government spending mix and priorities (e.g., homeland security, intelligence, defense, infrastructure, technology, cybersecurity, AI) could impact business results. Cost-cutting initiatives and budget restrictions may reduce or delay funding[276] Federal Budget Uncertainty This section addresses the potential effects of federal budget instability, including spending caps and appropriation delays, on company operations - Uncertainty regarding U.S. federal government budgets, including discretionary spending caps and delays in appropriations, could lead to reduced or delayed funding for services, materially affecting operations[277] Regulations This section discusses the impact of government regulations, audits, and compliance requirements on the company's contract performance and operating results - Increased scrutiny and audits by government agencies on contract performance and compliance, along with complex requirements from the U.S. Department of Defense and Intelligence Community (e.g., cybersecurity), could impact operating results and ability to perform[278] Competitive Markets This section describes the competitive landscape in which the company operates, highlighting key factors for success and market positioning - The company competes on technical expertise, innovation, cost-effectiveness, reputation, qualified personnel, and pricing in a market with diverse competitors. Parsons believes its proven track record, customer relationships, and technology position it uniquely[279] Acquired Operations This section provides an overview of the financial contributions and strategic rationale of recently acquired businesses I.S. Engineers, LLC This section details the financial impact and integration of I.S. Engineers, LLC since its acquisition date - I.S. Engineers, LLC, acquired on October 31, 2023, for $12.2 million, provides transportation engineering consulting and its financial results are included from the acquisition date[250] Sealing Technologies, Inc. This section outlines the financial results and strategic benefits derived from the acquisition of Sealing Technologies, Inc - Sealing Technologies, Inc., acquired on August 23, 2023, for $179.3 million (plus potential earn-out), enhances Parsons' capabilities in defensive cyber operations, AI/ML, and critical infrastructure protection. Its financial results are included from the acquisition date[281] IPKeys Power Partners This section discusses the financial performance and strategic contributions of IPKeys Power Partners since its acquisition - IPKeys Power Partners, acquired on April 13, 2023, for $43.0 million, expands Parsons' presence in grid modernization and cyber resiliency for critical infrastructure. Its financial results are included from the acquisition date[282] Seasonality This section explains how seasonal factors, such as weather and government fiscal year-ends, can influence the company's operating results - Results may be affected by weather and contract award seasonality, particularly around the U.S. federal government fiscal year-end (September 30) and state government fiscal year-ends (June 30), which can lead to accelerated spending and higher bid/proposal costs[283] Results of Operations This section provides a detailed analysis of the company's financial performance, examining key revenue and expense line items Revenue This section analyzes the company's total revenue, including growth drivers and contributions from different segments | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenue | $1,670,467 | $1,356,486 | $3,206,143 | $2,529,952 | | % Change YoY (3 months) | 23.1% | | | | | % Change YoY (6 months) | 26.7% | | | | - Revenue increased by $314.0 million (23.1%) for the three months and $676.2 million (26.7%) for the six months ended June 30, 2024, driven by increases in both Federal Solutions and Critical Infrastructure segments[324][296][297] Direct costs of contracts This section examines the direct costs incurred in fulfilling contracts, including their trends and relationship to revenue | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Direct costs of contracts | $1,318,931 | $1,068,220 | $2,529,758 | $1,985,408 | | % Change YoY (3 months) | 23.5% | | | | | % Change YoY (6 months) | 27.4% | | | | - Direct costs increased by $250.7 million (23.5%) for the three months and $544.4 million (27.4%) for the six months ended June 30, 2024, primarily due to increased business volume in both segments. The prior year's three-month period included a $24.7 million write-down on a Critical Infrastructure contract[325][298][299] Equity in (losses) earnings of unconsolidated joint ventures This section analyzes the company's share of profits or losses from its unconsolidated joint ventures | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Equity in (losses) earnings of unconsolidated joint ventures | $(16,837) | $75 | $(18,897) | $(5,765) | | % Change YoY (3 months) | 22549.3% (increase in loss) | | | | | % Change YoY (6 months) | 227.8% (increase in loss) | | | | - The increase in losses was primarily due to a $22.4 million write-down related to a design-build joint venture for the three months, and $30.8 million in write-downs for the six months ended June 30, 2024[300][326][325][302] Selling, general and administrative expenses This section discusses trends in selling, general, and administrative expenses and their impact on overall profitability | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | SG&A expenses | $223,277 | $211,897 | $444,222 | $411,205 | | SG&A as % of revenue (3 months) | 13.4% | 15.6% | | | | SG&A as % of revenue (6 months) | 13.9% | 16.3% | | | - SG&A expenses as a percentage of revenue decreased by 2.3% for the three months and 2.4% for the six months ended June 30, 2024, indicating improved efficiency[303][327][328] Total other income (expense) This section analyzes non-operating income and expenses, including interest income, interest expense, and other financial items | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Interest income | $3,825 | $306 | $4,977 | $1,099 | | Interest expense | $(13,008) | $(7,299) | $(26,006) | $(13,757) | | Loss on extinguishment of debt | $- | $- | $(211,018) | $- | | Total other income (expense) | $(8,288) | $(6,450) | $(234,478) | $(10,801) | - Total other income (expense) significantly increased to a net expense of $(234.478) million for the six months ended June 30, 2024, primarily due to a $211.018 million loss on debt extinguishment from the partial repurchase of 2025 Convertible Senior Notes[329][304][330] - Interest income increased due to higher cash balances and interest rates, while interest expense rose due to increased debt balances and accelerated amortization of debt issuance costs[304][331] Income tax (benefit) expense This section examines the company's income tax provision, effective tax rate, and factors influencing tax expense or benefit | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|\ | Income tax expense (benefit) | $22,415 | $15,223 | $(9,819) | $26,726 | | Effective tax rate | 21.7% | 21.8% | 46.3% (benefit) | 22.9% | - The six-month period ended June 30, 2024, saw an income tax benefit of $9.8 million, compared to an expense of $26.7 million in the prior year, primarily due to the tax benefit from the $211 million loss on unwinding Convertible Senior Notes[332][359] Segment Results This section provides a detailed breakdown of the financial performance for each of the company's operating segments Federal Solutions This section analyzes the revenue and profitability of the Federal Solutions segment, highlighting key performance drivers | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenue | $988,603 | $762,797 | $1,898,211 | $1,397,343 | | Adjusted EBITDA attributable to Parsons Corporation | $102,781 | $85,640 | $195,322 | $141,788 | - Federal Solutions revenue increased by 29.6% for the three months and 35.8% for the six months ended June 30, 2024, driven by 27% organic growth and $16.9 million from acquisitions for the three months, and 33% organic growth and $33.8 million from acquisitions for the six months[309][310][362][363] - Adjusted EBITDA attributable to Parsons Corporation for Federal Solutions increased by 20.0% for the three months and 37.8% for the six months, benefiting from revenue growth and reduced SG&A as a percentage of revenue[309][310][334] Critical Infrastructure This section analyzes the revenue and profitability of the Critical Infrastructure segment, highlighting key performance drivers | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | |:---|:---|:---|:---|:---|\ | Revenue | $681,864 | $593,689 | $1,307,932 | $1,132,609 | | Adjusted EBITDA attributable to Parsons Corporation | $35,612 | $20,936 | $68,575 | $45,293 | - Critical Infrastructure revenue increased by 14.9% for the three months and 15.5% for the six months ended June 30, 2024, driven by 15% organic growth and $7.1 million from acquisitions for the six months[365][337][366] - Adjusted EBITDA attributable to Parsons Corporation for Critical Infrastructure increased by 70.1% for the three months and 51.4% for the six months, due to revenue growth and reduced SG&A as a percentage of revenue, despite write-downs in unconsolidated joint ventures[365][337] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, its sources of funding, and capital allocation strategies Cash Flows This section provides an overview of the company's cash and cash equivalents and key cash flow metrics - Cash and cash equivalents increased by $255.5 million to $528.5 million at June 30, 2024, from $272.9 million at December 31, 2023[341] - Net Days Sales Outstanding (Net DSO) improved to 60 days at June 30, 2024, down from 76 days at June 30, 2023[369] Operating Activities This section analyzes the cash generated or used by the company's primary business operations - Net cash provided by operating activities increased by $83.8 million for the six months ended June 30, 2024, compared to the prior year, primarily due to a $142.8 million increase in net income (adjusted for non-cash items and debt extinguishment) offset by increased cash outflows from working capital[342] Investing Activities This section details the cash flows related to the acquisition and disposal of long-term assets and investments - Net cash used in investing activities increased by $4.5 million for the six months ended June 30, 2024, primarily due to a $45.5 million increase in investments in unconsolidated joint ventures, partially offset by substantially lower payments for acquisitions[371][372] Financing Activities This section examines the cash flows associated with debt, equity, and other financing transactions - Net cash provided by financing activities increased by $261.3 million for the six months ended June 30, 2024, primarily driven by $287.4 million in net cash inflows from convertible bond transactions[345] Letters of Credit This section provides details on the company's outstanding letters of credit and their impact on liquidity - Letters of credit outstanding under secondary bank lines totaled $303.6 million, and $43.0 million under the Credit Agreement, as of June 30, 2024[346] Recent Accounting Pronouncements This section refers to the discussion of new accounting standards and their potential impact on the company's financial statements - Refer to Note 3 for details on recent accounting pronouncements, which are not expected to have a material impact[347] Off-Balance Sheet Arrangements This section discloses any material off-balance sheet arrangements that could affect the company's financial condition - As of June 30, 2024, the company has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on its financial condition or results of operations[348] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Parsons Corporation's exposure to market risks, specifically interest rate risk and foreign currency exchange risk, and how these risks are managed Interest Rate Risk This section discusses the company's exposure to fluctuations in interest rates, particularly concerning its variable-rate debt - Parsons is exposed to interest rate risks related to its Revolving Credit Facility and Delayed Draw Term Loan. As of June 30, 2024, there were no amounts outstanding under the Revolving Credit Facility, but $350.0 million was outstanding under the Delayed Draw Term Loan, both bearing variable interest rates[349][374] Foreign Currency Exchange Risk This section addresses the company's exposure to changes in foreign currency exchange rates from its international operations - The company is exposed to foreign currency exchange rate risk from international operations but limits this exposure through contract provisions requiring client payments in currencies corresponding to costs incurred, creating a natural hedge[123][350] Item 4. Controls and Procedures This section details the evaluation of Parsons Corporation's disclosure controls and procedures and reports on any changes to internal control over financial reporting Evaluation of Disclosure Control and Procedures This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - As of June 30, 2024, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective in providing reasonable assurance that material information is recorded, processed, summarized, and reported timely[351] Changes in Internal Control Over Financial Reporting This section discloses any material changes in the company's internal control over financial reporting during the reporting period - There were no material changes to the company's internal control over financial reporting during the second quarter of 2024[376] PART II. OTHER INFORMATION This section provides additional disclosures not covered in the financial information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to the legal proceedings disclosed in the Notes to Consolidated Financial Statements - Information on legal proceedings is incorporated by reference from Note 12 – Contingencies in Part I, Item 1 of this Form 10-Q[377] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed - There have been no material changes to the Risk Factors disclosed in the Company's Form 10-K for the year ended December 31, 2023[353] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds to report[386] Item 3. Defaults Upon Senior Securities This section reports no defaults upon senior securities - No defaults upon senior securities to report[387] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[380] Item 5. Other Information This section provides additional information, including details on issuer purchases of equity securities and updated insider trading policies Issuer Purchases of Equity Securities This section details the company's stock repurchase activities during the reporting period | Period | Total shares purchased | Average price paid per share | Maximum remaining purchase value (in thousands) | |:---|:---|:---|:---|\ | April 1 to 30, 2024 | - | - | $100,000 | | May 1 to 31, 2024 | 63,375 | $78.8931 | $95,000 | | June 1 to 30, 2024 | 67,678 | $73.8782 | $90,000 | | Total (3 months) | 131,053 | $76.3033 | $90,000 | - As of June 30, 2024, Parsons had $90 million remaining under its stock repurchase program, which was restored to $100 million in February 2024[354][126][201] Insider Trading Relationships and Policies This section discusses the company's policies and procedures regarding insider trading - The company adopted amended insider trading policies and procedures in conformance with updated SEC regulations, governing securities transactions by directors, officers, employees, and the company itself[389] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including amendments to retirement plans, certifications, and interactive data files - Exhibits include amendments to the Retirement Savings Plan and ESOP, certifications of principal executive and financial officers (31.1, 31.2, 32.1, 32.2), and XBRL interactive data files (101, 104)[356][388][390] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q - The report was signed by Matthew M. Ofilos, Chief Financial Officer, on July 31, 2024[392]