Parsons Delivers Strong Third Quarter 2020 Results

Strategic Accomplishments

- Announced Braxton acquisition that accelerates growth strategy in rapidly expanding space market

- Awarded a $307 million contract with a classified customer

- Won strategic directed energy contract

Q3 2020 Financial Highlights

- Net income of $41 million and margin of 4.0%; adjusted EBITDA of $101 million and margin of 10.0%

- Cash flow from operating activities of $145 million

- Federal Solutions book-to-bill ratio of 1.5x

Financial Position and Outlook

- Narrows FY20 adjusted EBITDA guidance range; reiterates revenue and cash flow ranges

- Closed $400 million convertible note which will fully fund Braxton acquisition

- Pro forma net debt leverage ratio of 0.8x at end of Q3 2020 post Braxton acquisition

CENTREVILLE, Va. , Nov. 4, 2020 /PRNewswire/ -- Parsons Corporation (NYSE: PSN) today announced financial results for the third quarter ended September 30, 2020 .

CEO Commentary

"We delivered strong third quarter results with record adjusted EBITDA and generated outstanding cash flow. We also recently announced a significant pending strategic acquisition in the rapidly expanding space market that exceeds all our disciplined quantitative and qualitative M&A criteria, while also preserving our financial flexibility for potential future acquisitions," said Chuck Harrington , chairman and chief executive officer of Parsons Corporation.

"Our strong operational performance enabled us to win large new contracts in high-priority national security markets. We continue to execute our strategic plan and look forward to further leveraging our strong balance sheet to drive additional shareholder value."

Third Quarter 2020 Results

Total revenue for the third quarter of 2020 decreased by $19 million , or 2%, from the prior year period to $1 billion . Operating income increased 24% to $66 million primarily as a result of an increase in equity in earnings and lower indirect, general and administrative (IG&A) expenses. Net income decreased to $41 million and net income margin decreased to 4.0% from the prior year period. These decreases were driven by the nonrecurring positive tax benefit impact included in the third quarter of 2019 from elections made in connection with the filing of the company's 2018 S-Corporation tax return and associated with the company's change in tax status. Diluted earnings per share (EPS) attributable to Parsons was $0 .40 in the third quarter of 2020, compared to $0 .57 in the prior year period.

Adjusted EBITDA including noncontrolling interests for the third quarter of 2020 was $101 million , a 13% increase over the prior year period. Adjusted EBITDA margin increased 130 basis points to 10.0%.

Adjusted EPS increased to $0.57 , compared to $0 .53 in the third quarter of 2019.

Information about the company's use of non-GAAP financial information is provided on page nine and in the non-GAAP reconciliation tables included herein.

Segment Results

Federal Solutions Segment

Third quarter 2020 revenue increased $12 million , or 2%, compared to the prior year period primarily due to an increase in business volume on new and existing contracts.

Third quarter 2020 Federal Solutions Adjusted EBITDA including noncontrolling interests decreased by $5 million , or 9%, compared to the prior year period. Adjusted EBITDA margin decreased to 9.2% from the third quarter of 2019. These decreases were primarily driven by a large technical performance incentive fee recognized in the third quarter of 2019 and an increase in volume on contracts with pass-through costs during the third quarter 2020.

Critical Infrastructure Segment

Third quarter 2020 revenue decreased $31 million , or 6%, compared to the prior year period. The decrease was primarily driven by lower volume on contracts with pass-through revenue.

Third quarter 2020 Critical Infrastructure Adjusted EBITDA including noncontrolling interests increased by $16 million , or 42%, compared to the prior year period. Adjusted EBITDA margin increased to 10.8%. These increases were primarily driven by higher equity in earnings from unconsolidated joint ventures and lower IG&A costs.

Third Quarter 2020 Key Performance Indicators

• Book-to-bill ratio (third quarter): 1.2x on net bookings of $1.2 billion . Book-to-bill ratio (trailing twelve-months): 1.0x on net bookings of $4.0 billion .

• Total backlog: $7.8 billion , a 6% decrease from the third quarter of 2019 and a 1% increase from the second quarter of 2020.

• Cash flow from operating activities: $145 million . This strong performance was driven by healthy cash collections.

• Net cash: Cash and cash equivalents were $614 million and total debt was $587 million for a total net cash position of $27 million as of September 30, 2020 . Following the $300 million all-cash acquisition of Braxton, as of September 30, 2020 , pro forma net debt was approximately $273 million , positioning the company for continued investment in the implementation of its growth strategy. The company's pro forma net debt to trailing twelve-month adjusted EBITDA leverage ratio at the end of the third quarter of 2020 was 0.8x. The company defines net debt as total debt less cash and cash equivalents.

Third Quarter 2020 Significant Contract Wins

Parsons continues to win large single-award contracts in markets of national security importance.

• Awarded a $307 million contract with a classified customer.

• Awarded a $115 million option year contract on the Combatant Commands Cyber Mission Support (CCMS) contract by the U.S. General Services Administration.

• Awarded a $51 million contract by the U.S. Air Force for the manufacturing, integration and sustainment of 13 Recovery of Airbase Denied by Ordnance (RADBO) systems. RADBO employs the Parsons developed ZEUS" directed energy system to destroy unexploded ordinance with extreme accuracy in previously denied areas and improves the safety of deployed warfighters. This program is the first Department of Defense (DoD) ground-based laser system placed into production.

Recent Additional Corporate Highlights

Parsons continues to build on its strong track record of acquiring and integrating leading-edge technology companies in high-growth markets that broaden its portfolio and customer footprint. In addition, the company was recognized for its commitment to various important military friendly programs.

• Announced on October 29, 2020 , its intent to acquire Braxton Science & Technology Group, LLC (Braxton). The addition of Braxton complements Parsons' space portfolio, increases its product offerings in high-growth markets, and adds critical intellectual property that complements and expands the company's capabilities for the U.S. Air Force, Space Force, and research laboratories. The transaction is also consistent with Parsons' strategy of acquiring high-growth, defense, and intelligence technology companies with software and hardware intellectual property that enhance its technology and transactional revenue growth and margin profile.

• Recognized numerous times as one of the best companies for its commitment to military personnel, veterans and their families.

Fiscal Year 2020 Guidance

The company is narrowing its adjusted EBITDA guidance range for fiscal year 2020 and reiterating the revenue and cash flow from operating activities guidance ranges it initially issued on March 10, 2020 , based on its financial results for the first nine months of 2020 and its current outlook for the remainder of year. The table below summarizes the company's fiscal year 2020 guidance.

Net income guidance is not presented as the company believes market volatility in its share price and the resulting impact on the company's equity-based compensation expense, as well as charges to interest, taxes, depreciation, amortization and other matters affecting net income will preclude the company from providing accurate net income guidance for fiscal year 2020.

Conference Call Information

Parsons will host a conference call today, November 4, 2020 , at 8:00 a.m. ET to discuss the financial results for its third quarter 2020.

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 may also access a slide presentation on the website, which summarizes the company's third quarter 2020 results. Listeners should go to the website 15 minutes before the live event to download and install any necessary audio software.

Listeners may also participate in the conference call by dialing +1 866-987-6581 (domestic) or +1 602-563-8686 (international) and entering passcode 6876155.

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 November 11, 2020 at +1 855-859-2056 (domestic) or +1 404-537-3406 (international) and entering passcode 6876155.

About Parsons Corporation

Parsons is a leading disruptive technology provider in the global defense, intelligence, and critical infrastructure markets, with capabilities across cybersecurity, missile defense, space, connected infrastructure, and smart cities. Please visit  parsons.com , and follow us on  LinkedIn  and  Facebook  to learn how we're making an impact.

Forward-Looking Statements

This Earnings Release and materials included therewith 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: the impact of COVID-19; 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 Annual Report with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019 on Form 10K, filed on March 10, 2020 , 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.

financial-news