Parsons Corporation

Good day, and thank you for standing by. Welcome to the Parsons Corporation second quarter 2021 earnings conference call. At this time, all participants are in listening mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker. Dave Spilly, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us today to discuss our second quarter 2021 financial results. Please note that we provide the presentation slides on the Investor Relations section of our website. On the call with me today are Carrie Smith, President and CEO, and George Ball, CFO. Today, Carrie will discuss her corporate strategy and operational highlights, and then George will provide an overview of our second quarter financial results and revised 2021 guidance. We then will close with a question and answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forelooking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year end of December 31, 2020 and other SEC filings. Please refer to our earnings press release for Parsons' complete forelooking statement disclosure. We do not undertake any obligation to update forelooking statements. Management will also make reference to non-GAAP financial measures during this call, and we remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures. I now will turn the call over to Carrie.

Thank you, Dave. I want to welcome everyone to Person's second quarter 2021 earnings call. At the outset, let me say how excited I am to be in the role of Person's CEO. It's an honor and privilege to lead a business that has two complementary segments with increasing demand. We're in all the right markets with all the right capabilities across both our critical infrastructure and federal solutions segments. I also want to take this opportunity to again thank our Executive Chairman, Chuck Harrington, for his leadership as our CEO for the past 13 years. Given my new role as the CEO of Parsons, I thought it would be helpful to start with my assessment of the business, as well as some thoughts on what's going well in areas we are focused on improving. As you will hear throughout today's call, our immediate priorities are to deliver our customers' critical missions, drive organic growth, and complete legacy critical infrastructure programs. In Federal Solutions, we are well positioned in attractive, high-growth markets where our capabilities are closely aligned to our customers' highest national security priorities. We have a long and successful M&A track record that's enabled large prime contract wins. We offer differentiated, technology-rich solutions focused on near-peer threats. And as a result, we continue to win new work, which together with our existing base, provides a solid foundation for growth. That said, we have experienced procurement and funding delays, and we face a competitive hiring environment. As I will discuss this morning, our executive leadership team is focused on addressing these issues. Moving to critical infrastructure, world renowned design firm for projects across multiple disciplines, including bridges, dams, roads and highways, smart cities, airports and rail and transit. We have truly differentiated capabilities in environmental remediation, including water and wastewater treatment, mine reclamation, and the elimination of emerging contaminants. We also offer unique cyber resiliency capabilities, which can be coupled with our design expertise to drive critical infrastructure protection, placing us at the intersection of infrastructure and technology. We continue to see increased infrastructure demand throughout the United States, Canada, and the Middle East, even without an infrastructure bill being in place, which would drive even more funding in the United States if enacted. Finally, oil prices have rebounded, which is helping our Middle East posture. However, we are completing legacy programs that were awarded prior to 2019. As most of you are aware, we made the strategic decision to no longer perform work in particular areas such as prime construction, and instead focus on areas such as design, and owner's engineering work. As a result, we feel the risk profile of the company has been significantly reduced going forward. With this background, I would like to discuss our second quarter performance in more detail. We achieved excellent and record second quarter cash flow of $104 million and record contract awards of $1.7 billion, but our revenue of $879 million was below our expectations. Despite strong 12-month book-to-bill ratios in both segments and key contract wins, we did not generate enough revenue to compensate for the program completions that we faced in the first half of 2021. We are working with our customers to accelerate task order funding across our major contracts, and we're diligently ramping up new contract wins. In federal solutions, our ability to drive organic growth is dependent in part on our ability to recruit and retain employees. While we've done a terrific job retaining employees once hired, the hiring environment is very competitive right now, particularly in the technical and cleared space. As part of our strategy to address this, we recently hired a new chief human resources officer with three decades of federal industry experience and a new chief communications officer also with an extensive federal background. Recruiting is our top priority, and we're reviewing our strategy to ensure we can continue to attract the talent we need to support our growth. As a result of the procurement funding delays, a competitive hiring environment, and two second quarter reserves, we are lowering our 2021 guidance. As part of the reduction in guidance, we have also changed our assumption on the ability to consolidate sales on our Edmonton program. During the quarter, we did have many significant accomplishments, starting with our record second quarter cash flow. We also achieved record awards for both persons in our federal solutions segment. We announced a key acquisition that expands our mission-focused technologies and enables us to drive information advantage against near-peer threats while exceeding our strict M&A criteria. Second quarter contract awards were also a record and increased 67% year-over-year to $1.7 billion, which equates to a book-to-bill ratio of 1.9 times. This was led by our highest ever book-to-bill ratio of 2.8 times in our federal solutions segment. Our critical infrastructure book-to-bill ratio was also solid at 1.1 times. During the second quarter, we won three significant contracts for mission-critical work that is driven by the administration's commitment to ensure national security. We were awarded the $2.2 billion Team's Next contract by the Missile Defense Agency, the largest contract award in Parsons' history. Under this contract, persons will provide engineering, analysis, and management support for the development of integrated and layered missile defense systems that defend the United States and allied forces against ballistic, hypersonic, and cruise missile threats. We booked the three-year base period worth $617 million out of the total contract value of $2.2 billion and a total period of performance of seven years. We were awarded a $618 million task order by the General Services Administration for C5ISR exercises, operations, and information services. We will support numerous mission partners, including the intelligence community, Department of Defense, and Department of State by providing real-time enhanced awareness that enables warfighter information advantage in their area of responsibility. We won this significant award by leveraging the capabilities from our Polaris Alpha, OG Systems, and QRC acquisitions and incorporating our Join All Domain capabilities to create a unique solution that adapts to the pace of the evolving threat. In the second quarter, we booked the first year base period worth approximately $90 million out of the total contract value of $618 million. We were also awarded a task order contract by Space and Missile System Center for Integrated Solutions for Situational Awareness, or ISSA. In addition to delivering operational, technical, and space domain awareness expertise, Parsons will meet critical innovation and agility goals for the ISSA effort by providing unique solutions in astrophysics, intelligence, data analytics, and multi-domain operations. This contract has a ceiling value of $185 million and was won by incorporating the capabilities and expertise from our Polaris Alpha acquisition. Under this contract, we booked $148 million in the second quarter. I am very pleased with the significant contract awards in our federal solutions business. Award activity has also remained strong in our critical infrastructure segment, with second quarter highlights including the award of a Middle East program management contract for $91 million. We continue to execute on our acquisition strategy of buying mission-focused companies with differentiated technologies. The level of activity in the M&A market remains high, and we see attractive opportunities in our core markets. During the second quarter, we announced the $203 million acquisition of Blackhorse Solutions and subsequently closed on this transaction in early July. This strategic acquisition expands persons' customer base and capabilities in next-generation military, intelligence, and space operations, specifically cyber, electronic warfare, and information dominance. Blackhorse also exceeds our M&A financial criteria with revenue growth and adjusted EBITDA margins, both exceeding 10%. Blackhorse is a company we have partnered with and has a similar mission-focused culture with a strong reputation in the market. This acquisition enhances our ability to pursue and win large joint all-domain contracts to combat near-peer threats. This quarter, we launched our CARE, or Cultivating a Responsible Enterprise Initiative, which empowers every employee to make a difference. In conjunction with this initiative, we published our 2021 Corporate Social Responsibility Report, which highlights our new ESG initiatives, including reducing absolute greenhouse gas emissions by 20% by 2025, and enhancing gender, ethnic, and racial diversity. In partnership with the Modern Military Association of America, Parsons proudly awarded the inaugural recipient of the 2021 Donna Johnson Military Spouse Scholarship to Jonathan Hagwood, an Army veteran. The Modern Military Association of America is dedicated to advancing fairness and equality for the LGBTQ military and veteran community, and we are proud to support this initiative in advancing diversity, equity, and inclusion. In summary, We generated strong free cash flow, achieved record awards, announced a significant acquisition, and maintained our balance sheet flexibility. Going forward, we have solidified our base of business with our $2.2 billion team's repeat win. In addition, we have meaningful tailwinds from the significant amount of new business we have won, contracts that are gaining momentum post-COVID and on-contract growth, We're also accelerating our recruiting and retention initiatives, and we expect to grow in the second half of this year over the first half, and this growth is expected to continue into 2022 and beyond. Our portfolio is differentiated and diversified. Our federal solutions portfolio is well aligned with the Biden administration national security priorities for cyber, C5ISR, artificial intelligence, missile defense, and space. Our critical infrastructure portfolio is consistent with the administration's transportation, environmental remediation, and water and wastewater treatment priorities and its goals of enhancing the cybersecurity and resilience for future infrastructure projects. We're excited about the future given our differentiated position and experience in these growing and enduring markets and our proven ability to win new work. With that, I'll turn the call over to George to discuss our second quarter financial highlights and 2021 guidance. George?