Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Parsons Corp (PSN, Financial) reported record results for total revenue, adjusted EBITDA, and operating cash flow for the second quarter of 2024.
- The company achieved organic revenue growth of 22%, marking the fifth consecutive quarter of over 20% year-over-year organic revenue growth.
- Parsons Corp (PSN) increased its 2024 guidance ranges for all financial metrics, reflecting strong performance and positive outlook.
- The critical infrastructure segment achieved a book-to-bill ratio of 1.0 or greater for the 15th consecutive quarter.
- The company has a robust pipeline of $57 billion, with $13 billion of single-award contract wins not yet included in bookings or backlog.
Negative Points
- The book-to-bill ratio for the second quarter was 0.9 times, indicating a decrease in contract award activity compared to the prior year period.
- The company took a $22 million adjustment on a construction joint venture project due to supply chain issues, impacting the equity and earnings line.
- Despite strong performance, the guidance implies a sequential revenue decline in the second half of the year, which is atypical compared to historical seasonality.
- The adjusted EBITDA margin for the federal solutions segment was down from the prior year period due to non-recurring incentive fees realized in Q2 of 2023.
- The company faces challenges in completing legacy programs, which could impact future margin expansion in the critical infrastructure segment.
Q & A Highlights
Q: Carey, congrats on your three-year anniversary. So -- and good job on -- great job on margins, up 40 bps. But the guidance was unchanged at 8.9%. So maybe if you could just talk about how we should think about profitability, because it's been an issue in the rest of the sector, as your new wins ramp given your organic growth?
A: Yeah. Thanks, Sheila. So first, I would say we are pleased with our profit. We're up 90 basis points year to date. We were up 30 basis points for this quarter. And we expect to be up 40 basis points for the year. And in addition, as we look forward, we expect to be up 20 to 30 basis points each year and years after. So I think we've done a great job of expanding margin, plus our EBITDA dollars have been growing faster than our revenue growth. In this quarter, we were at 27% versus 23% on revenue growth. We do feel on the critical infrastructure side, we can still get further margin expansion. Eventually, that's a business that we expect to be double digits. We do have one legacy program remaining that we expect to wrap up in the third quarter. And once that's behind us, we expect that we'll see some additional tailwinds.
Q: Could you please discuss any programs or contracts that are winding down or coming to some natural completion and contrast that with any new wins that are ramping that could provide a basis for a sequential revenue trajectory in the second half of the year?
A: Yeah. On the ones that are winding down, it's about $86 million this year. And we tend to run about $100 million on any given year, and it's really three contracts that price that. The ones that are ramping up, I would say the GSA $1.2 billion award that we had over a year ago, we're starting to see some ramp up there. We continue to do well in all of our cyber work across various contracts, CCMS, CEOIS, and others. That's been a strong 25% growth for us. Also on the infrastructure side of the house, I've mentioned all the Middle East wins that we've had, including the additional $160 million that we received this quarter. That's been strong. In North America, winning our three largest programs within the last 12 months have all ramped up. And that's obviously what's been a key contributor to driving such strong organic growth across both business segments.
Q: Could you elaborate a little bit on opportunities for revenue synergies with BlackSignal and comment about what the prospective pipeline of M&A? It looks like you're going to be able to get quota or target for the year?
A: Yeah. So I would say, first, very excited about BlackSignal. It's directly aligned with Parsons' solution selling vision. They have 90% intellectual property enabled offerings and they drive 67% of sole-source awards. It strengthens our position in key markets, offensive cyber operations and electronic warfare. And if I just delve a bit deeper into that, I would say in the offensive cyber side, they've played a lot more in the research and development. We're strong in the operations. So it really strengthens our full-spectrum cyber operations capability. In the electronic warfare space, we both play there, but we happen to look at different signals of interest; and both of us leverage our advanced digital signal processing capabilities. And then they provide new capabilities for us in the counterspace radio frequency domain area, again, that's expected to see double-digit growth. They also improved our posture in the INDOPACOM region, which I talked about a little bit on the call. And then in the electronic warfare area, also, I would point out that we play mostly with Title 10 tactical military, whereas they bring a lot of Title 50 strategic. So overall, this is just a terrific acquisition. We have customer alignment. They're strong with the Air Force, with the Navy, with [DARPin], the intel community. We're strong with the Army and different parts of the intel community. So extremely complementary. And as with all of our acquisitions, we really look for them to drive us up the value chain. On your second question, the pipeline is still very strong. We have a lot of candidates within both critical infrastructure and within federal, and we're on track to do two to three acquisitions this year.
Q: Maybe just to start with the higher-level question. I mean, if we go back to early '23 when you guys hosted your Investor Day, looking for growth on the federal side, more in the low to mid-single digits; critical infrastructure, mid-single digits. And obviously, you've blown through those expectations, and here you are with five straight quarters of 20%-plus organic. I guess the question is, as your visibility toward growth improved, do you see Parsons as moving more to position being a growth company? And if you think about that trajectory, what do you think drives that more? Is it going to continue to be the federal side? Or do you think infrastructure will be the greater grower longer term?
A: Yeah. So I would say what's happened since our Investor Day. First, we have a very clear strategic intent. We're focused on six core end markets that are all enduring, growing, and sustainable and profitable. I would say all four business units, both the segments, all major geographies have hit on all cylinders. Everybody is delivering double digits, and that's expected for the year. And that's what's been happening. As far as our visibility increasing, I think we always have pretty good visibility, both on the federal and the critical infrastructure side. Our trajectory is a growth company. We intend to keep growing.
Q: Carey, congratulations on the first year -- three years here and the transformation that you've ushered in. But maybe if you look at the next three years, what do you think characterizes Parsons in your efforts?
A: Thank you. So I would say as we look at the next three years, continuing, number one, to stay laser focused on our customers' emerging missions. We like to play in the new news space and figure out how we're going to help fix their challenges of tomorrow versus try and run around and take away, for example, other people's recompetes. So I would say if you look at infrastructure, very excited about the work we're doing in the Middle East. Those are all greenfield projects. We're having an opportunity to transform a country, which is a once-in-a-lifetime opportunity; build new transportation systems, new residential areas, new marinas, new tourism centers, entertainment centers. As I look at North America, I would say it's more brownfield opportunities, and those are equally as challenging. How do you -- for example, we just were awarded the Inglewood project which is a rail and transit project out in California to help Los Angeles get ready to host the World Cup and get ready for the Olympics. So how do you position for some of these
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
