Parsons Delivers Strong First Quarter 2019 Results; Reports Robust Bookings and Backlog Growth; and Bolsters Federal Solutions Business with OGSystems Acquisition
CENTREVILLE, Va., June 18, 2019 /PRNewswire/ -- Parsons Corporation (NYSE: PSN) today announced financial results for the first quarter ended March 31, 2019.
CEO Commentary
"We reported strong first quarter revenue, profitability and bookings," said Chuck Harrington, Chairman, CEO and President of Parsons Corporation. "Our results reflect continued execution and implementation of our strategy to expand our technology base in our core defense, intelligence and critical infrastructure markets. We've had a great start to the year, and we are excited about our future with our robust balance sheet and differentiated solutions aligned with large and growing customer markets."
First Quarter 2019 Results
Total revenue for the first quarter of 2019 increased 20% from the prior year period primarily due to the Polaris Alpha and OGSystems acquisitions, which added $122 million, and organic growth in both our Federal Solutions and Critical Infrastructure market segments. Operating income decreased 41% from the first quarter of 2018 primarily due to an increase in acquisition-related intangible amortization expenses and IPO costs. Diluted earnings per share (EPS) attributable to Parsons decreased 60% due to the same factors as noted above and higher interest expense.
Adjusted EBITDA for the first quarter of 2019 was $68 million, a 43% increase over the prior year period. Adjusted EBITDA margin increased to 7.5%, or by 120 basis points from the first quarter of 2018. Adjusted EBITDA and Adjusted EBITDA margin increased primarily as a result of recent acquisitions in the Federal Solutions segment, as well as organic revenue growth and margin expansion in both the Federal Solutions and Critical Infrastructure segments. The Federal Solutions segment also benefited from a shift in revenue mix to higher margin markets including cyber, intelligence, geospatial, missile defense and space.
Adjusted EBITDA attributable to Parsons for the first quarter of 2019 was $64 million, a 47% increase over the prior year period. Adjusted EPS was $0.57, a 67% increase over the first quarter of 2018. These increases were primarily driven by the same factors as noted above.
Information about the Company's use of non-GAAP financial information is provided on page 9 and in the non-GAAP reconciliation tables included herein.
Segment Results
Federal Solutions Segment
Three Months Ended
Growth
March 30, March 31, Dollars/ Percent
2018 2019 Percent
Revenue $
291,335 $
422,812 $
131,477 45
%
Adj. EBITDA
including %
noncontrolling
interests $
20,174 $
38,992 $
18,818 93
Adj. EBITDA margin
including % % % %
noncontrolling
interests 6.9 9.2 2.3 33
Adj. EBTIDA
attributable to %
Parsons Corp. $
20,154 $
38,866 $
18,712 93
Adj. EBITDA margin
attributable to % % % %
Parsons Corp. 6.9 9.2 2.3 33
First quarter 2019 revenue increased $131 million, or 45%, compared to the prior year period. The increase was primarily driven by the acquisitions of Polaris Alpha and OGSystems, which contributed $122 million of revenue to the first quarter of 2019, as well as organic growth.
Federal Solutions Adjusted EBITDA including noncontrolling interests and Adjusted EBITDA attributable to Parsons Corporation for the first quarter of 2019 both increased by $19 million, or 93%, compared to the prior year period. Adjusted EBITDA margin for both metrics increased to 9.2%, or by 230 basis points from the first quarter of 2018. The increases were primarily driven by the acquisitions of Polaris Alpha and OGSystems, as well as margin expansion in our legacy business.
Critical Infrastructure Segment
Three Months Ended Growth
March 30, March 31, Dollars/ Percent
2018 2019 Percent
Revenue $
463,344 $
481,593 $
18,249 4
%
Adj. EBITDA
including
noncontrolling %
interests $
27,556 $
29,182 $
1,626 6
Adj. EBITDA margin
including % % %
noncontrolling %
interests 5.9 6.1 0.1 2
Adj. EBTIDA $
23,656 $
25,559 $
1,903 8
attributable to
Parsons Corp. %
Adj. EBITDA margin 5.1 5.3 0.2 4
attributable to % % %
Parsons Corp. %
First quarter 2019 revenue increased $18 million, or 4%, compared to the prior year period. The increase was primarily due to revenue growth on existing contracts.
Critical Infrastructure Adjusted EBITDA including noncontrolling interests for the first quarter of 2019 increased $2 million, or 6%, compared to the prior year period. Adjusted EBITDA margin including noncontrolling interests increased to 6.1%, or by 10 basis points from the first quarter of 2018. The increase was primarily driven by lower operational overhead costs, partially offset by targeted increases in business development costs.
Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation for the first quarter of 2019 increased $2 million, or 8%, compared to the prior year period. Adjusted EBITDA margin attributable to Parsons increased to 5.3%, or by 20 basis points from the first quarter of 2018. The increase was driven by the same factors as noted above.
Key Performance Indicators
-- Book-to-bill ratio: First quarter 2019: 1.4x on net bookings of $1.2
billion. Trailing 12-month: 1.4x on net bookings of $5.1 billion.
-- Total backlog: First quarter 2019: $8.6 billion, 35% increase over the
first quarter of 2018.
-- Cash flow used in operating activities: First quarter 2019: $60 million,
8% increase from first quarter 2018.
-- Debt: First quarter 2019: total and net debt were $659 million and $538
million, respectively. Following receipt of IPO proceeds, total and net
debt were approximately $250 million and $50, respectively, positioning
the Company for continued investment in the implementation of its
strategy. The Company defines net debt as total debt less cash and cash
equivalents.
First Quarter 2019 Highlights
-- Awarded a $175 million re-compete contract from a classified government
customer to provide services relating to information technology
infrastructure and industrial control systems.
-- Awarded a new $147 million contract by another classified government
customer to provide high-end software, hardware, integration, operations
and maintenance and mission support.
-- Awarded a new contract worth approximately $100 million by the Air Force
Space and Missile Systems Center for integration services for small
satellite delivery to space.
-- Awarded a new $982 million ceiling value multiple-award contract for the
Army to provide a full-spectrum of cyber electromagnetic initiatives.
-- Acquired OGSystems, LLC, a disruptive geospatial intelligence solutions
and immersive engineering provider that creates technology solutions for
the United States intelligence community and the Department of Defense.
-- Recognized by the Ethisphere Institute, a global leader in defining and
advancing the standards of ethical business practices, as one of the
2019 World's Most Ethical Companies. Parsons has been recognized by
Ethisphere for ten consecutive years.
Conference Call Information
Parsons will host a conference call today, June 18, 2019, at 8:00 a.m. ET to discuss the financial results for its first quarter 2019.
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 also may access a slide presentation on the website, which summarizes the Company's first quarter 2019 results. Listeners should go to the website at least 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) 211-3159 (domestic) or +1 (647) 689-6592 (international) and entering passcode 9788674.
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 June 25, 2019 at +1 (800) 585-8367 (domestic) or +1 (416) 621-4642 (international) and entering passcode 9788674.
About Parsons Corporation
Parsons is a leading provider of technology-driven solutions focused on the defense, intelligence and critical infrastructure markets. Celebrating 75 years of operations, Parsons provides technical design and engineering services and software products to address our customers' challenges. Parsons has differentiated capabilities in cybersecurity, intelligence, missile defense, space, connected communities, physical infrastructure and mobility solutions. Parsons' combination of talented professionals and advanced technology enables a safer, smarter and more interconnected world.
Forward-Looking Statements
This presentation 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: 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 Registration Statement on Form S-1 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.
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Bryce McDevitt
Dave Spille
Parsons Corporation
Parsons Corporation
(703) 797-3001
(571) 655-8264
Bryce.McDevitt@Parsons.com
Dave.Spille@Parsons.com
PARSONS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months Ended
March 30, 2018 March 31, 2019
Revenues $
754,679 $
904,405
Direct costs of contracts 602,972 714,237
Equity in earnings of
unconsolidated joint ventures 11,031 10,397
Indirect, general and
administrative expenses 123,847 177,519
Operating income 38,891 23,046
Interest income 741 477
Interest expense (3,999) (8,292)
Other income, net 1,152 41
(Interest and other expense)
gain associated with claim on
long-term contract (2,330)
Total other expense (4,436) (7,774)
Income before income tax
provision 34,455 15,272
Income tax provision (5,353) (1,886)
Net income including
noncontrolling interests 29,102 13,386
Net income attributable to
noncontrolling interests (3,815) (3,645)
Net income attributable to
Parsons Corporation $
25,287 $
9,741
Earnings per share:
Basic and diluted $
0.31 $
0.12
Weighted average number shares used to compute basic and diluted EPS
Three Months Ended
March 30, 2018 March 31, 2019
Basic weighted average
number of shares
outstanding 81,846,305 78,161,484
Dilutive common share
equivalents
Diluted weighted
average number of
shares outstanding 81,846,305 78,161,484
PARSONS CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(Unaudited)
December 31, March 31,
2018 2019
Assets
Current assets:
Cash and cash equivalents (including
$73,794 and $42,872 Cash of
consolidated joint ventures) $
280,221 $
121,408
Restricted cash and investments 974 9,061
Accounts receivable, net (including
$180,325 and $193,597 Accounts
receivable of consolidated joint
ventures, net) 623,286 651,924
Contract assets (including $21,270
and $23,964 Contract assets of
consolidated joint ventures) 515,319 571,755
Prepaid expenses and other current
assets (including $11,837 and $9,423
Prepaid expenses and other current
assets of consolidated joint
ventures) 69,007 77,013
Total current assets 1,488,807 1,431,161
Property and equipment, net
(including $2,561 and $2,507
Property and equipment of
consolidated joint ventures, net) 91,849 97,298
Right of use assets, operating leases 216,484
Goodwill 736,938 921,097
Investments in and advances to
unconsolidated joint ventures 63,560 67,202
Intangible assets, net 179,519 250,948
Deferred tax assets 5,680 4,891
Other noncurrent assets 46,225 43,917
Total assets $
2,612,578 $
3,032,998
Liabilities and Shareholder
'
s Equity
Current liabilities:
Accounts payable (including $87,914
and $91,505 Accounts payable of
consolidated joint ventures) $
226,345 $
203,684
Accrued expenses and other current
liabilities (including $73,209 and
$71,593 Accrued expenses and other
current liabilities of consolidated
joint ventures) 559,700 547,954
Contract liabilities (including
$38,706 and $46,754 Contract
liabilities of consolidated joint
ventures) 208,576 225,017
Short-term lease liabilities,
operating leases 53,029
Income taxes payable 11,540 9,415
Short-term notes payable 149,786
Total current liabilities 1,006,161 1,188,885
Long-term employee incentives 41,913 29,991
Deferred gain resulting from sale-
leaseback transactions 46,004
Long-term debt 429,164 509,211
Long-term lease liabilities,
operating leases 181,274
Deferred tax liabilities 6,240 7,922
Other long-term liabilities 127,863 111,023
Total liabilities 1,657,345 2,028,306
Commitments and contingencies (Note 14)
Redeemable common stock held by
Employee Stock Ownership Plan (ESOP)
,$1 par value; authorized
150,000,000 shares; 125,097,684
shares issued; 78,172,809 and
78,138,831 shares outstanding,
recorded at redemption value 1,876,309 1,875,332
Shareholder's equity (deficit):
Treasury Stock, 46,918,140 and
46,958,853 shares at cost (957,025) (957,838)
Retained earnings 12,445 75,771
Accumulated other comprehensive loss (22,957) (20,401)
Total Parsons Corporation
shareholder's equity (deficit) (967,537) (902,468)
Noncontrolling interests 46,461 31,828
Total shareholder's equity (deficit) (921,076) (870,640)
Total liabilities, redeemable common
stock and shareholder's equity
(deficit) $
2,612,578 $
3,032,998
PARSONS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months Ended
March 30, 2018 March 31, 2019
Cash flows from operating activities:
Net income including noncontrolling
interests $
29,102 $
13,386
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 9,009 30,591
Amortization of deferred gain (1,813)
Amortization of debt issue costs 149 244
(Gain) loss on disposal of property and
equipment 18 (27)
Provision for doubtful accounts 2,426 (279)
Deferred taxes (138) 1,486
Foreign currency transaction gains and
losses (457) 618
Equity in earnings of unconsolidated
joint ventures (11,031) (10,397)
Return on investments in unconsolidated
joint ventures 15,406 10,794
Contributions of treasury stock 11,357 12,250
Changes in assets and liabilities, net of
acquisitions and newly consolidated
joint ventures:
Accounts receivable 469,720 (17,135)
Contract assets (531,157) (46,984)
Prepaid expenses and current assets (27,138) (1,424)
Accounts payable (723) (28,182)
Accrued expenses and other current
liabilities (44,016) (24,023)
Billings in excess of costs (152,147)
Contract liabilities 299,639 14,884
Provision for contract losses (143,666)
Income taxes (597) (3,645)
Other long-term liabilities 10,624 (12,265)
Net cash used in operating activities (65,433) (60,108)
Cash flows from investing activities:
Capital expenditures (5,152) (11,041)
Proceeds from sale of property and
equipment 29 135
Payments for acquisitions, net of cash
acquired (287,482)
Investments in unconsolidated joint
ventures (3,058) (4,905)
Return of investments in unconsolidated
joint ventures 2,234
Net cash used in investing activities (8,181) (301,059)
Cash flows from financing activities:
Proceeds from borrowings under credit
agreement 290,000
Repayments of borrowings under credit
agreement (60,000)
Payments for debt costs and credit
agreement (286)
Contributions by (distributions to)
noncontrolling interests, net 6,497 (18,278)
Purchase of treasury stock (366) (813)
Net cash provided by financing activities 6,131 210,623
Effect of exchange rate changes (825) (182)
Net increase (decrease) in cash, cash
equivalents, and restricted cash (68,308) (150,726)
Cash, cash equivalents and restricted
cash
Beginning of year 446,144 281,195
End of period $
377,836 $
130,469
Contract Awards (in thousands):
---
Three Months Ended
March 30, 2018 March 31, 2019
Federal Solutions $
111,441 $
808,540
Critical Infrastructure 496,873 412,528
Total Awards $
608,314 $
1,221,068
Backlog (in thousands):
---
March 30, 2018 March 31, 2019
Federal Solutions:
Funded $
936,467 $
1,681,816
Unfunded 2,224,354 3,429,779
Total Federal Solutions 3,160,821 5,111,595
Critical Infrastructure:
Funded 3,161,513 3,442,374
Unfunded
Total Critical
Infrastructure 3,161,513 3,442,374
Total Backlog $
6,322,334 $
8,553,969
Book-To-Bill Ratio:
---
Three Months Ended
March 30, 2018 March 31, 2019
Federal Solutions 0.4 1.9
Critical Infrastructure 1.1 0.9
Overall 0.8 1.4
Non-GAAP Financial Information
The tables under "Parsons Corporation Inc. Reconciliation of Non-GAAP Measures" present Adjusted Operating Income, Adjusted Operating Margin, Earnings before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin, reconciled to their most directly comparable GAAP measure. These financial measures are calculated and presented on the basis of methodologies other than in accordance with U.S. generally accepted accounting principles ("Non-GAAP Measures"). Parsons has provided these Non-GAAP Measures to adjust for, among other things, the impact of amortization expenses related to our acquisitions of Williams Electric, Polaris Alpha and OGSystems, initial public offering transaction-related expenses, costs associated with a loss or gain on the disposal or sale of property, plant and equipment, restructuring and related expenses, costs associated with mergers and acquisitions, software implementation costs, legal and settlement costs, and other costs considered to non-operational in nature . These items have been Adjusted because they are not considered core to the Company's business or otherwise not considered operational or because these charges are non-cash or non-recurring. The Company presents these Non-GAAP Measures because management believes that they are meaningful to understanding Parsons's performance during the periods presented and the Company's ongoing business. Non-GAAP Measures are not prepared in accordance with GAAP and therefore are not necessarily comparable to similarly titled metrics or the financial results of other companies. These Non-GAAP Measures should be considered a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP.
PARSONS CORPORATION
Non-GAAP Financial Information
Reconciliation of Net Income to Adjusted EBITDA
(in thousands)
Three Months Ended
March 30, 2018 March 31, 2019
Net income attributable to Parsons
Corporation $
25,287 $
9,741
Interest expense, net 3,258 7,815
Income tax expense 5,353 1,886
Depreciation and amortization 9,009 30,591
Net income attributable to
noncontrolling interests 3,815 3,645
Litigation-related expenses(a) 2,330
Amortization of deferred gain resulting
from sale-leaseback transactions(b) (1,813)
Transaction-related costs(c) 125 9,355
Restructuring(d) 2,218
HCM software implementation costs(e) 2,912
Other(f) 366 11
Adjusted EBITDA $
47,730 $
68,174
(a) Reflects interest expense in
"(Interest and other expenses) gain
associated with claim on long-term
contract" in our results of
operations associated with a lawsuit
against a joint venture in which the
Company is the managing partner.
Please see "Note 14 - Commitments
and Contingencies" in the Company's
Form S-1/A filed on April 29, 2019,
for a description of this matter
which was resolved in favor of the
Company on June 13, 2018.
(b) Reflects recognized deferred gains
related to sales-leaseback
transactions.
(c) Reflects costs incurred in connection
with acquisitions, initial public
offering, and other non-recurring
transaction costs, primarily fees
paid for professional services and
employee retention.
(d) Reflects costs associated with our
corporate restructuring initiatives.
(e) Reflects implementation costs
incurred in connection with a new
human resources and payroll
application.
(f) Includes a loss from sale of a
subsidiary and other individually
insignificant items that are non-
recurring in nature for the quarter
ended March 30, 2018 and a
combination of gain/loss related to
sale of fixed assets and other
individually insignificant items
that are non-recurring in nature
for the quarter ended March 31,
2019.
(in thousands) Three Months Ended
March 30, March 31,
2018 2019
Federal
Solutions
Adjusted
EBITDA
attributable
to Parsons
Corporation $
20,154 $
38,866
Federal
Solutions
Adjusted
EBITDA
attributable
to
noncontrolling
interests 20 126
Federal
Solutions
Adjusted
EBITDA
including
noncontrolling
interests $
20,174 $
38,992
Critical
Infrastructure
Adjusted
EBITDA
attributable
to Parsons
Corporation 23,656 25,559
Critical
Infrastructure
Adjusted
EBITDA
attributable
to
noncontrolling
interests 3,900 3,623
Critical
Infrastructure
Adjusted
EBITDA
including
noncontrolling
interests $
27,556 $
29,182
Total Adjusted
EBITDA
including
noncontrolling
interests $
47,730 $
68,174
PARSONS CORPORATION
Non-GAAP Financial Information
Reconciliation of Net Income Attributable to Parsons Corporation to Adjusted Net Income Attributable to Parsons Corporation
(in thousands, except share and per share data)
Three Months Ended
March 30, 2018 March 31, 2019
Net income attributable to
Parsons Corporation $
25,287 $
9,741
Acquisition related intangible
asset amortization 1,815 20,906
Litigation-related expenses(a) 2,330
Amortization of deferred gain
resulting from sale-leaseback
transactions(b) (1,813)
Transaction-related costs(c) 125 9,355
Restructuring(d) 2,218
HCM software implementation
costs(e) 2,912
Other(f) 366 11
Tax effect on adjustments (36) (434)
Adjusted net income attributable
to Parsons Corporation 28,074 44,709
Adjusted earnings per share:
Weighted-average number of
basic/diluted shares
outstanding 81,846,305 78,161,484
Adjusted net income attributable
to Parsons Corporation per
basic/diluted share $
0.34 $
0.57
(a) Reflects interest expense in
"(Interest and other expenses) gain
associated with claim on long-term
contract" in our results of
operations associated with a lawsuit
against a joint venture in which the
Company is the managing partner.
Please see "Note 14 - Commitments
and Contingencies" in the Company's
Form S-1/A filed on April 29, 2019,
for a description of this matter
which was resolved in favor of the
Company on June 13, 2018.
(b) Reflects recognized deferred gains
related to sales-leaseback
transactions.
(c) Reflects costs incurred in connection
with acquisitions, initial public
offering, and other non-recurring
transaction costs, primarily fees
paid for professional services and
employee retention.
(d) Reflects costs associated with our
corporate restructuring initiatives.
(e) Reflects implementation costs
incurred in connection with a new
human resources and payroll
application.
(f) Includes a loss from sale of a
subsidiary and other individually
insignificant items that are non-
recurring in nature for the quarter
ended March 30, 2018 and a
combination of gain/loss related to
sale of fixed assets and other
individually insignificant items
that are non-recurring in nature
for the quarter ended March 31,
2019.
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