Parsons Corporation

Q3 2021 Earnings Conference Call

11/3/2021

spk_0: the day they give her standing by walk to the third quarter two thousand twenty one person's corporation earnings conference call at this time all participants are endless and only mode added speakers presentation there will be a question and answer session to ask a question during the session you'll need to buy star than one on your telephone key bad please be advised that today's conference may be recorded if you require operator assistance during the call please press star than zero i no idea and the conference over to date believe had of investor relations
spk_1: thank you good morning and thank you for joining us today to discuss or quarter two thousand twenty one financial results please note that we provide a presentation slides on investor relations section of her website on the call with me today or kerry smith president and ceo and george ball see cfl today carry will discuss their corporate strategy and operational highlights and then george will provide an overview of our third quarter financial results with them will close with the question and answer session management may also make for looking statements during the call regarding future events to stay the future trends in ages rated future performance or the company because she knew that such statements are not guarantees a future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected you're looking statements due to a variety of factors this risk factors are described in our form can pay for fiscal year ended december thirty one two thousand and twenty and other se si filings please refer to earnings press release for parsons complete for looking statements disclosure we do not undertake any obligation to update for looking statements management will also make reference and i get financial measures during this call we remind you that these non gaap financial measures are not a substitute for their comparable gap measures and i will turn the colorado carry
spk_2: a few days of on a welcome everyone to person's third quarter twenty twenty one earnings call
spk_1: where did the third quarter as we delivered on the street teacher can financial objectives we established at the end of the second quarter we reported strong sequential revenue growth of nine percent with seven percent organic one significant contract awards including five worth more than one hundred million which was a company record a
spk_2: the record backlog reported solid march and said both business segments delivered critical program performance for assaults close to important acquisitions and implemented a one hundred million dollars share repurchase program which supports are derived a crate shareholder value we also continue to strengthen our executive leadership team with the announcement of to new business unit presidents and i'm encouraged by the strong tiring activity way experienced than a quarter finally we are confirming over twenty twenty one guy in the strangers as discussed on our last earnings call we have three a media priorities deliver on our customers critical missions close out like a secret a corporate structure programs and drive organic revenue growth in terms of delivering on our customers critical missions we continue to receive strong customer satisfaction scores based upon are excellent program execution this is further validated by deliver a year to date reach p win rate of nearly one hundred percent and more than ninety percent achievement up every chance set up an award fees are so waste processing facility program also receive notable recognition as a finalist for twenty twenty one project to the year by the price or management institute although we take much pride in our program perform much as i indicated last quarter one of our top priority says complete legacy critical infrastructure programs are bored and prior to our may twenty nineteen i appeal which country more we no longer pursue such as prime construction during the third quarter we're to legacy programs they experienced writedowns the details of which george will discuss and a moment overall as discussed on prior quarter earnings calls we've reduced our project risk profile by not priming construction work and enhancing program performance oversight we make meaningful progress and a quarter towards the depletion of several these blake a secret a court for structure programs in terms of organic growth priority we remain focused on moving up the solution center greater value chain and bidding and winning larger prime contracts i'm pleased to report that we achieve significant progress during the third quarter as demonstrator piracy quench organic growth of seven percent and positive pyre and true
spk_3: chapter eight
spk_2: we continue to win large deals that are tied to the administration's commitment to the turn their peers threats and sport environmental social and governance or yes she initiatives and advance the nation's infrastructure during the third quarter we achieved a book the bell ratio of one point one times on an enterprise basis as well as and both segments this comes one quarter after porting a record quarterly book the bill ratio and to to for both parsons and our federal solutions segment also when are critical infrastructure segment we have had four consecutive quarters with a book to bowl ratio over one point old times resulting in are trailing twelve month of to build one point two times and a federal solution segment we achieved a trailing twelve month booked a bell ratio of one point four times and overall for persons at one point three times twirling twelve months of the bell ratio it's also worth highlighting that we won five single word contracts worth more than one hundred million dollars during the third quarter which is that most in a single quarter and parsons sisters we were awarded a single word idea coupon track with the nine hundred and fifty throwing three million dollars ceiling value under which person's would lead an industry team to decide to procure integrate operate maintain airbase air defense systems across the european and african continent and support the united states air force this when shows or ability to move up the solution center greater value chain we were awarded a five hundred and fifty six billion dollar break pete contract with classified customer this when further demonstrates are track record of securing our critical reek pete contracts we were awarded one hundred and forty five million dollar contract with the army corps of engineers to develop a facility that treat hazardous energetic waste streams from the radford army ammunition plant this is another important environmental remediation when that underpants are he is she strategy we were also ordered one hundred and thirty nine billion dollar contract by the space and missile system center for satellite operations prototype thing and integration for support and delivery network infrastructure hardware in architecture solutions we continue to be a technology disruptor in the space market in addition we were awarded one hundred and twenty six million dollar contract was saudi arabia's ministry of housing to provide program management services for the development of affordable housing during my visit in the middle east last month i was pleased to see the robust infrastructure growth opportunity that access we also one prime positions on six multiple word id i q contracts to a multi billion dollar ceiling values and for instilling values between fifty and two hundred fifty million dollars each as we've been a kid our priorities calls we continue to be conservative and our approach to pull things a large single word contracts and wales to do not look the entire contract value in addition we only book awards and are multiple word idea q vehicles as we when specific task orders in addition the winning a significant amount of new business we're focused on hiring of retaining the best talent to drive organic revenue growth in are less turner's cause i report on the hiring are for new cheap human resource officer or chr oh since that time which made several additional strategic tires including a recognized group leader to run are critical infrastructure connected barely spencer shown that we also promoted or proven performer and driving organic growth to lead our federal solutions engineered systems possession it in addition we achieved notable success and increasing our billable hiring during the quarter producing our best tiring months in august september and october in the last two years and in spite of petard competitive hiring market or attrition has remained flat and in line with industry average and just a short period of time that changes implemented by or new ch euro have yield an encouraging results and both hiring and retention we continue to maintain a robust balance sheet which sports are internal and external investments to drive growth and increase shareholder value during the third quarter we closed our strategic black horse solutions and echo rage acquisitions in terms of our markets we remain well positioned for future spending priorities and both segments with strong ally mentor macro environment trends and federal solutions we continue to win work and areas that are aligned with the by and administration cyber she by by a source artificial intelligence missile defense and space priorities within critical infrastructure we expect a benefit from increased investments with or without a a states there for structure bell in this segment are sustainable solutions are aligned with the administration's priority infrastructure and he is she initiatives and transportation environmental remediation water and waste treatments and the elimination of emerging ten minutes we're also well positioned offer secure brazilian infrastructure given our extensive federal cyber security credentials in addition we see growing infrastructure demand a both canada and the middle east in summary we accomplished a great deal against our strategic objectives and the third quarter we reported strong sequential organic revenue growth one a significant amount of new business tied to national security and he is she priorities made important improvements and both firing him retention continue to deliver mission success for customers and achieve solid margins and our core markets as i look forward i'm a remained very excited about our outlook we're well positioned and to growing and during and profitable segments we'd solidified our corpus us with the two point two billion dollar teams and five hundred and fifty million dollar cost by breathed pete wentz as well as other new business when some the third quarter we've upgraded tell him interiors and may notable stride summer crew or attention to drive organic growth we remain confident in our ability to achieve our twenty twenty one guy and strangers and believe that momentum were seeing across both segments will continue to build as we move through the fourth quarter ended up to twenty twenty two with that culture turn the colder george to discuss or third quarter financial highlights george jury was korean the kittens third quarter results were highlighted by strong sequential revenue group
spk_4: significant challenge or towards and increase tiring activity today or focus the majority of my remarks with respect to third quarter twenty twenty one performance within the context of a sequential comparison to the previous quarter this is consistent with or comments on or less earnings call around anticipated roof and the second half two thousand twenty one as stated earlier we had to critical infrastructure legacy program breakdowns and the third quarter one impacted revenue by six point three million dollars and adjusted ebitda by six point seven million dollars and the second impacted equity in earnings and adjusted ebitda about five point five million dollars in both cases we experienced schedule lose and costs escalation
spk_1: although more work remains to be done we're encouraged by meaningful progress made during the quarter towards the completion of these and other projects
spk_4: moving on to our third quarter results
spk_1: total revenue for the third quarter increase nine percent from the second quarter two thousand twenty one and was up seven percent excluding approximately two million dollars of revenue from are black horse in echo reject positions
spk_4: these increases were driven by higher volume on existing contracts and recent country towards as well as a reduction in write downs
spk_1: as june a expenses were relatively unchanged from the second quarter of two thousand and twenty one
spk_4: adjusted ebitda of eighty four million dollars represents an increase of ninety million dollars or twenty percent from last quarter and adjusted ebitda margin increase one hundred and thirty basis points that eight point eight percent
spk_1: these increases were driven primarily by net ten million dollar reduction in legacy program write downs higher volume on existing contracts recent contract the words as well as acquisitions i'll turn now to operating segments starting first with federal solutions where third quarter revenue increased by fifty seven million dollars or thirteen percent from the second quarter of two thousand and twenty one the increase in revenue is driven by higher business volume on existing contracts and recent transfer towards and eighteen million dollars associated with the acquisitions of black horse an echo ridge excluding the impact of those acquisitions revenue increased nine percent or jannik leading to three as compared to the previous quarter
spk_4: that solutions adjusted ebitda increased fourteen million dollars or forty three percent from the second quarter two thousand twenty one and adjusted ebitda margin increase one hundred ninety basis points to nine point three percent these increases were driven primarily by higher volume on existing contracts and recent patrick awards
spk_1: acquisitions as well as the absence of write downs in the current quarter
spk_4: moving out who are critical infrastructure segment
spk_1: third quarter revenue increased by twenty million dollars or five percent from the second quarter of two thousand and twenty one this increase was driven primarily by a thirteen million dollar reduction in write downs and higher revenue for recent contract awards
spk_4: critical infrastructure adjusted he would die increased by five million dollars or fourteen percent from the second quarter of two thousand twenty one this increase was driven primarily by three million dollar net reduction in write downs and an increase in business volume
spk_1: critical infrastructure adjusted ebitda margin increase seventy basis points the point three percent
spk_4: next i'll discuss cash flow and balance sheet metrics
spk_1: or net the a so the end of the third quarter was sixty days compared to sixty seven days at the end of the second quarter of two thousand twenty one our third quarter operating cash flow totaled seventy seven million dollars following a seasonally strong one hundred and four million dollars cash flow in the second quarter of two thousand twenty one operating cash flow for the first nine months two thousand twenty one totals one hundred sixteen million dollars compared to one hundred thirteen million dollars in the prayer period
spk_4: capital expenditures total of four million dollars in the third quarter compared to six million dollars in them for your period
spk_1: or balance sheet remains very strong winds ended the quarter with a net debt to trilling twelve month adjusted ebitda leverage ratio
spk_4: of one point zero times
spk_1: in addition to the point capital for emanate to enhance our capabilities and expand their customer base or board of directors recently authorize the one hundred million dollar share repurchase program
spk_4: as a means to drive incremental shareholder value during the third quarter we repurchased approximately two hundred and forty five thousand shares for an aggregate purchase price of a point seven million dollars in connection with this authorization turning the bookings for the third quarter report contract awards of one billion dollars representing able to build virtual one point one times on an enterprise races and also with in both segments on a trilling twelve month basis or book to the you ratios a healthy one point three times with federal solutions at one point four and critical infrastructure of one point two
spk_1: or backlog at the under the third quarter to eight point six billion dollars up two percent from the second quarter of two thousand and twenty one and ten percent over the third quarter of two thousand and twenty
spk_4: total backlog continues to represent more than two years of annual revenue now let's turn guns
spk_1: we are reiterating all of our two thousand and twenty one ranges provided on august fourth based on our finance results for the first nine months of this year and our outlook for the fourth quarter
spk_4: he assumptions in connection with or two thousand and twenty one guidance
spk_1: our outlined mind on sled ten and today's powerpoint presentation
spk_4: located on our investor relations website and would that i'll turn the call back over to cure it
spk_2: thank you george and place with our third quarter performance and believe this as matter much tenuously move through the fourth quarter and into twenty twenty two when strong sequential organic growth continued excellent but the bell and both segments accelerated are hiring and strengthened our executive leadership team where position or to profitable and and during high growth markets finally we will leverage our balance sheet for internal and external investments to drive future growth or devastating you on our progress during our fourth quarter earnings call in february with that we won our in the line for quest us
spk_0: if you like to ask the question at this time please press the star in the number one on your touchstone telephone to withdraw your question press the pound key or first question comes from silicon valley which jeffries
spk_5: and morning as impinge upon a time at carry you know a lot of you know new and in the quite are lots of contacts and we think about these new when how much of that contributes to twenty twenty two and maybe you can give us some others have said you know what's up serving compete but also has a completions that might be moving
spk_2: sure sila thanks here for their questions and so first i'll cover the single or contracts sensors the most important up for the five single were contracts or immediate work been a med their got ceiling bias which he acted right for are still said that classified program is a contract that we've been performing for a few decades and that program as gonna have an increased ceilings due to expected an additional customers being added that contract that's the one that was five hundred and fifty six million the radford contract that hundred forty five million basically as a project performance contracts so that alex band over the five year project performance the satellite prototype integration is a continuation of effort that we've been doing for space and missile system center but that effort is expanding it back were rapidly hiring new hires every week to meet that demand the ministry of housing has also a meeting at work that's fallen on to work the then performing sense twenty eleven am in saudi arabia and that is steady state works really for the five or reflect immediate work that can be additional and then the one that that is a little bit of an outlier would be there are based air defense strategy as say said sam contracts are we need to bring work to the vehicle we have an english your task order and then from there will be adding additional taskers as we go i'm also very inspired by the hiring that we've achieved on it it really means a lot of three solid months and i are best since october twenty nineteen so what that says as we won't be able to achieve this growth and start to realize the revenue oh from as wins that we've achieved as far as program completions are the ones that we've talked in the past or pretty much behind us positive trying to troll with them at critical infrastructure area and then once in a federal solutions area with one job that we didn't fit the sure that was just a picture my job that didn't have any march on it the only other large one within on federal solutions that will and in twenty twenty two would be salt lake processing facility
spk_6: thank you and then on
spk_5: media off when i'm profits as well you know you have a pretty good step up into four to nine percent margin from about eight percent your the ah yes how do we think about a margin ramp into the fourth quarter
spk_2: yeah of the first i would say again based on our staff a moment on that we have the additional revenue that's as says have the addition of black horse acquisition which will be there for the fourth quarter on the new wins and obviously are hoping the continue bus pass through as i just mentioned and them were expected minimal the
spk_1: oh breakdown says we go under the fourth quarter
spk_0: thank you
spk_7: or next question comes from to be summer with to securities so did show up i asked know answer the phone on the on the right tunes in the quarter
spk_8: could you give more color oh man you'd be specifically said own a function of the tight labor market supply chain his shoes
spk_9: on appreciate
spk_2: movable prospective thank you
spk_1: certainly up so first we're not seeing an impact go from supply chain so that that doesn't affect our business
spk_2: from the to break down perspective one was a program and connected community so legacy program paid back and twenty six team were almost stick place another contract ninety five percent complete we actually had several key performance milestone said she's during the quarter and that program will successfully a wind up at this point in time on
spk_7: the of second one was a mobility solutions that we have talked about on house calls where we are not the managing partner we for provided additional oversight to help the managing partner were approaching seventy percent completion on that job were encouraged by the progress that we've made but we stood still have a little bit of work to do in are there any on doing lessons learned from that him in terms of your food outlook for for beauty
spk_9: a business development or you have your little less employees to be a junior partner or
spk_2: this is just a specific situation on we've had a lotta lessons learned so we have changed or bidding philosophy and the programs i've talked about were all the bed bath pre twenty sixteen awarded pre twenty nine team so we really changed our floss be back and twenty nineteen we do prefer to be at managing partner not a minority partner were no longer priming construction work weeks or diverse the company by putting in place in guidelines that we follow and those are along the lines of that type of work that we won't we won't perform we also have selective partners that we will and we won't work with we're focusing predominantly on design work as well as owners engineer work which were a pure strength are we're both very regular programmer do meetings we also have a dedicated independent cost estimating system process that we put in place we have been march and so we don't bid anything that's below ten percent a bit on march and and put significant contingency were needed we strengthened our joint venture got bored representation and we also have a full time risk leader that takes over a program says necessary now finally i'd hire that to recent changes that we've made to the executive leadership team on the leader those is coming and connected communities very strong later aviation real and transit smart mobility background from a couple of decay
spk_7: eight and a major company and then the internal later that we promoted who had gone been running our industrial business very strong operational background the tickle wrench nerd systems the you less question for me could you comment on that and give us some color on the vaccine mandate and perhaps some new numerical questions than a little perspective on what was a portion of your employees today are vaccinated
spk_1: how do you estimates the percentage of employees that when the vaccine maybe to arrives you me you may lose next the certainly toby in this scenario obviously we've had a lot of focus on as you're aware the executive order for chino for to a place to employees that are working or in connection with covered federal contracts as well as employees that your workplace as was such employees or come into contact with them on that said the deep give them was december eighth two
spk_2: comply but for guidance that we received on monday from the white house it's not a cliff so the contractors have to be showing progress towards compliance if it's not achieved on a person's from the beginning of kobe we've been encouraging employees to be active vaccinated we've also asked that they upload their vaccinations data so that week contract and at a company level and we're working very closely with those employees who have requested accommodations due to medical religious freedom of reasons we're also deeply involved with up some management and budget the industry associations to stay current on the latest guidance and help shape that times before it's release
spk_1: i'm in answer to your specific question of portray a substantial majority of our employees are vaccinated and we're fortunate that we have a diversified portfolio sophia look at our company the executive order doesn't apply to all about thirty five santa company and that would be or employees that are based in canada as well as the middle east and parts
spk_0: so the critical infrastructure business that are not under federal contracts were doing everything we can to work with our employees and were also proactively increasing are hiring as you've seen by our results of it was great months as a reminder like to ask a question at this time that star been one
spk_10: or next question comes from devon persons with goldman sachs
spk_11: moon orange evan
spk_1: so as to the you the the reason revenues declining organic limbo like masood attributed to him snore start of new words be some more delays that were unable to have said the program program completed are experiencing this year
spk_2: so maybe can you give us an update on the ramp up of the work whether or not you're still seeing a more delays and any early thoughts on what that means for twenty twenty two whether to get back to twenty twenty levels revenue
spk_1: yes so and as the question for starts a wordless we are saying ramp up on their contracts again that was demonstrated i think fire our revenue actually men are hiring that we've had over the last three months really not seen a lot of a word delays i mean the only exception it's a very small portion of our business would be with the
spk_12: restricted customer and maryland but other than that of things are moving forward and that's obviously was our best a word month for major words that weekend and parsons history
spk_11: i'm as far as twenty twenty two were in the process right now of putting together are operating plan doing all the puts and takes us we talked about on the last earnings call on and we will release or guidance information and february at our fourth quarter call
spk_2: fair enough the movie just thinking about the record backlog how long does a few to ramp up on that and and was the other the risk is a just ability to iron of people getting funded task murders on that would just execute on the workload i'm so and a backlog it wouldn't help from mix of program soon as i discussed some bomb hit immediately and as hiring select for the five that we won this quarter we have to immediately higher which sick obsession to be and other ones what we do have a ceiling value and we have to ramp up cask orders a great example that said some contract so
spk_13: that combatant commanders the one that i will use that was awarded late twenty nineteen for five hundred ninety million it was our largest cyber contract we've now that thought that contract at a steady state run rate as she would expect on an annual basis so there's so little bit of kind of a lake as she gets the task orders placed on contact on contract so that would apply
spk_14: tell so sci fi bias or excise us operations information contract and they are based area defense contract that i just mentioned but otherwise are either wins hit immediately and it's all about firing
spk_0: peter
spk_15: thank you gather
spk_0: as a reminder like to ask a question at this time
spk_16: star than one
spk_17: or next question comes from time on rumor with cohen
spk_2: yeah thanks so much for taking the question so you've done a fair amount of hiring at the executive level or sherry gfp have any more up plans i mean obviously i know you might have some blue bird but the do you have any specific plans for for more hiring your and and changes
spk_16: i know i don't have time triumphed i want to highlight kind of talent that we brought into the business which early i think reflects on our brand ever accomplished thing in the marketplace we've brought in people from significant tier one companies on any just very pleased if you look across an effect the results are showing a you know a new chr oh a new head of communications a new head of government relations we also brought in and executive vp of finance on that can be supporting george we hired to new business owner presence that really are able to hit the ground running so i'm very pleased with our executive leadership team in this will be the team metal take us forward terrific thank you very much and secondly if we could talk a little bit about revenues to questions first
spk_1: where are we with an article in clergyman one of those my to a ramp up again and secondly you know normally you have a seasonal down turkey and both of your businesses in the fourth quarter i mean given the number of higher the number of wins that you have should we look for that same pattern or said the some chance that could could be different this time
spk_2: sure so on clots when we anticipate that restarting and the first quarter of next year and answer would be doing the asphalt paving worked as every starts antarctica is undergoing a modernization program refreshed so they're stepping back and same which capital projects to they want to proceed but will continue with
spk_16: our core services that we bid but some of the other projects under antarctica they're real prioritise and based upon the budget outcome swirl of working closely with that one that effort as far as seasonal down checked on that was largely used to be relayed related mortar extraction process we started to wind down fss that has less of an impact too
spk_0: the company and we've also done something as far as our people paid time off we've allowed employees to differ that and we're seeing some benefit from that or billable hours
spk_1: and excellent thank you
spk_0: thank you that's all the time we have for questions soon as apply to turn the contacted instilling a closing remarks
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only. Earnings Call, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-