Parsons (PSN) Q2 2025 Earnings Call August 06, 2025 08:00 AM ET Company ParticipantsDave Spille - SVP - IRCarey Smith - Chair, President & CEOMatt Ofilos - CFOTobey Sommer - Managing DirectorSheila Kahyaoglu - Aerospace, Defense & Airlines Equity ResearchGautam Khanna - Managing DirectorJonathan Siegmann - MD - Aerospace & DefenseConference Call ParticipantsAndrew Wittmann - Senior Research AnalystNoah Poponak - Research AnalystSamantha Stiroh - Global Research AnalystLouie Dipalma - Research Analyst - Indu ...

NATO leaders agreed on the The Hague Defense Investment plan. And this will fuel a quantum leap in our collective defense. They agreed to boost our defense industries, which will not only increase our security, but will also create jobs.And we have reaffirmed our unwavering support for Ukraine. All of this is crucial. It means that no matter the challenges we face -- whether from Russia or terrorism, cyber attacks, sabotage or strategic competition.This alliance is and will remain ready, willing and able to ...

Defense Spending & Investment - Canada will meet NATO's 2% of GDP target this year, ahead of schedule [1] - Increased investment in armed forces to meet new security imperatives [1] - Prioritizing made in Canada manufacturing and supply chains for defense investments [2] - Redirecting defense capital spending away from the US [3] - Investing in new submarines, aircraft, ships, armed vehicles, artillery, radar, drones, and sensors [3] Strategic Priorities - Strengthening Canada's defense capabilities across land, sea, air, and cyberspace [2] - Protecting Canadian interests and allies [2] - Ensuring Canada is protected from coast to coast to coast [4] - Creating higher paying jobs across the land [4] Geopolitical Positioning - Canada aims to lead with its values, resources, and economy within the G7 [4]

Financial Data and Key Metrics Changes - FFO per share for 2024 was $2.57, representing a 6.2% increase over 2023 [4][28] - Same property cash NOI increased by 9.1% year over year, the highest increase reported [5][28] - Same property occupancy ended the year at 94.1%, a 30 basis point increase year over year [28] Business Line Data and Key Metrics Changes - Executed 500,000 square feet of vacancy leasing, exceeding the initial target by 25% [19] - Tenant retention rate reached 86%, the highest level in over twenty years [5][14] - The Defense IT portfolio occupancy was 95.6%, with overall portfolio occupancy at 93.6% [15] Market Data and Key Metrics Changes - Over 40% of vacancy leasing was executed in Navy support and other markets, indicating strong demand [19] - The company has a strong leasing pipeline with over 170,000 square feet in advanced negotiations [20] Company Strategy and Development Direction - The company is focusing on defense-related developments, particularly in response to the new presidential administration's priorities [6][8] - Plans to commit $200 million to $250 million for new investments and $250 million to $300 million for development projects in 2025 [35][38] - The company aims to maintain a strong development pipeline with 600,000 square feet of active developments, 75% of which are pre-leased [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong demand for their properties, particularly in defense sectors [13][14] - The company anticipates a 3.5% growth in FFO per share for 2025, with a focus on maintaining high tenant retention [6][38] - Management noted that the operating environment remains favorable despite potential delays in defense budget appropriations [51][53] Other Important Information - The company has minimal exposure to GSA leases, with only 8 leases totaling 185,000 square feet, representing less than 1% of annualized rental revenue [10][12] - The company has a strong balance sheet, with 100% of debt at fixed rates [29] Q&A Session Summary Question: How would you expect demand to evolve in your markets around the three defense priorities? - Management expects strong demand in Huntsville, particularly with potential relocations of Space Command and missile defense initiatives [41] Question: Could there be an indirect impact to COPD if there's increased focus on contractor customers? - Management believes that service companies are well-positioned to bring efficiencies to the DoD, indicating a positive outlook for contractor relationships [44] Question: Can you provide an update on your data center land in Iowa? - Management confirmed they are working through power requests and have a path to a gigawatt, but timing remains unclear [45] Question: Do you foresee any potential issues with defense budget appropriations? - Management acknowledged the uncertainty but noted bipartisan support for increased DoD funding over the past years [51][52] Question: Have you seen any ability to push on pricing with private sector tenants? - Management indicated they are focused on reducing concessions and maintaining tenant relationships rather than aggressively pushing for price increases [54] Question: Can you provide additional color on development starts for 2025? - Management confirmed plans to start new developments in response to anticipated demand, particularly for defense IT [61][62] Question: What is the natural level of frictional vacancy in the portfolio? - Management suggested that a natural occupancy level of 95% to 96% is expected, with opportunities to improve slightly [78] Question: What does the pipeline look like for acquisitions? - Management is seeing some distressed opportunities but emphasized strict criteria for any potential acquisitions [82][84]