Parsons Corporation

Good day and welcome to the Parsons Corporation second quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Dave Spilly, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and thank you for joining us today to discuss our second quarter 2022 financial results. Please note that we've provided presentation slides on the investor relations section of our website. On the call with me today are Kerry Smith, Chair, President, and CEO, and Matt Opolis, CFO. Today, Kerry will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our second quarter financial results. 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 forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year end of December 31, 2021. and other SEC filings. Please refer to our earnings press release for Parson's complete forward-looking statements to disclosure. We do not undertake any obligation to update forward-looking 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. And now we'll turn the call over to Carrie.

Thank you, Dave. Good morning, and welcome to Parson's second quarter 2022 earnings call. Before we review our quarterly results, I want to welcome Matt off the list to our call today. As we announced last week, Matt was appointed our Chief Financial Officer, effective July 25th. Many of you have had the opportunity to meet Matt over the last several months at investor conferences, roadshows, and during conference calls. Since October of last year, Matt has been a valued member of our leadership team and his significant public company experience, financial acumen, and integrity made him a natural selection to serve as our next CFO. I know you will enjoy working with Matt as much as I have, and we look forward to the positive impact he will have on our growth and operations. I also want to thank George Ball, our prior CFO, for his numerous contributions to Parsons since taking over as CFO in 2008. His strategic counsel and thought leadership enabled Parsons to become an industry leader in both the national security and critical infrastructure markets. George has been a great business partner to me, and I am thrilled that we will continue to benefit from his insights and expertise as a member of our board of directors. I am also pleased to announce the addition of Ellen Lord, the former Under Secretary of Defense for Acquisition and Sustainment to our board. As you can imagine, We're thrilled to have an individual with her stature and defense expertise, which will complement Georgia's infrastructure and federal solutions knowledge. Now let's turn to our results. We delivered strong second quarter financial results as momentum established over the last year continued. During the quarter, we achieved 9% organic revenue growth, which is our highest since our IPO. And we generated adjusted EBITDA and cash flow results in line with our expectations. We also leveraged our balance sheet to complete our largest acquisition since our IPO. ExaTor is an important strategic and financially accretive acquisition that diversifies our customer base, broadens and further differentiates our capabilities, and increases our addressable market in both the federal solutions and critical infrastructure segments. As a result of our strong performance through the first half of 2022 and the Exitor acquisition, we are increasing our revenue and adjusted EBITDA guidance, which Matt will discuss in a few minutes. During the second quarter, we generated total revenue growth of 15%. Our year-over-year organic revenue growth was 9%, including 11% within our federal solutions segment and 8% within our critical infrastructure segment. These results reflect the improvements we've made to our business over the last year and were driven by sustained recruiting and retention, growing revenue on existing contracts, driving task orders to large single award contracts, and operating effectively in two well-funded and growing markets. We grew adjusted EBITDA 18% year over year and expect to expand margins in the second half of the year. We also generated cash flow from operations of $51 million during the quarter. Our ability to successfully deliver on our customers' missions has allowed us to continue to win large strategic contracts in areas that are aligned with national security and global infrastructure priorities. During the second quarter, we achieved a book-to-bill ratio of 1.0 times on an enterprise basis, driven by a 1.3 times book-to-bill ratio in our critical infrastructure segment, marking the seventh consecutive quarter in which critical infrastructure's book-to-bill ratio has exceeded 1.0 times. During the second quarter, we were awarded the following notable contracts. A $148 million contract value increase on our program management contract for the Riyadh Metro program, which is the largest metro system development project in the world. A $99 million new contract win by Exator with Classified Customer after our acquisition closed on May 31st. An $88 million repeat contract to provide enterprise construction management services for the Department of Energy National Nuclear Security Administration, a new contract in Saudi Arabia worth over $75 million related to developing the fast-growing entertainment sector to improve the quality of life as part of the Saudi Vision 2030 program, and a $75 million task order contract by a rail customer for infrastructure projects. We also won prime positions on two multiple award IDIQ contracts with ceiling values of $10 billion and $95 million. Customers for these contracts are the Defense Health Agency and Naval Facilities Engineering Systems Command, respectfully. After the second quarter ended, we won two large Middle East contracts with values that are being finalized. We also won prime positions on two additional multiple award IDIQ contracts. One IDIQ is a classified contract with a $5 billion ceiling value over 10 years to provide offensive cyber operations. The second IDIQ win is for the Defense Threat Reduction Agency's assessment, exercise, and modeling and simulation support contract with an $850 million ceiling over 10 years. Overall, contract award remains healthy and is particularly strong in our critical infrastructure segment. Infrastructure spending in the Middle East for projects aligned with Saudi Arabia's objective to diversify their economy remains strong. And Canada is also investing in their future with multiple provinces accelerating major infrastructure programs. In the United States, infrastructure spending remains healthy, and it's only at the very beginning stages of an anticipated prolonged increase in spending due to the passage of the infrastructure bill in November 2021. Award activity in the federal solutions segment has been slower than anticipated over the last few quarters as clients are taking longer to evaluate and award proposals, and protests have increased. However, over the next two quarters, we expect several of our large proposals to be adjudicated, and we anticipate an increase in overall contract award activity as the United States government obligates appropriated funds. In Federal Solutions, we are fortunate to have won several large single award contracts over the past few years, and we're focused on driving new task orders to these existing vehicles, which is resulting in our strong organic revenue growth. We operate in well-funded, high-priority markets such as cyber, space, critical infrastructure protection, and missile defense, and we believe we will continue to win more than our fair share of contracts. As noted previously, we closed the $388 million ExaTor acquisition at the end of May. We continue to effectively use our balance sheet to complete financially accretive acquisitions of companies we know well and have revenue growth and adjusted EBITDA margins of 10% or more. ExaTor expands persons' presence with the Special Operations Command, intelligence community, and federal civilian customers. Exitor also provides new customer access at the Department of State, whose budget is expected to grow over 10% from 2020 to 2025. With strong capabilities in security and surveillance systems, biometrics, and counter unmanned aircraft systems, Exitor enhances our position in the critical infrastructure, national security, and training solutions markets, benefiting both of Parson's business segments. This quarter, we opened the Parsons Laboratory for Development and Integration, called Paladin, where we already showcased Exitor's capabilities and discussed the synergies with the Parsons portfolio to customers and partners. Exitor is off to a strong start with its $99 million classified contract win, and we are pleased to welcome their more than 900 employees to the Parsons family. From an ESG perspective, Parsons was again recognized as a top 50 employer by Minority Engineer Magazine, where we were honored by the Washington Business Journal as one of the most diverse companies and employers in the Washington, D.C. metropolitan area. In addition, our Spring Valley Remediation Project won the Secretary of Defense Environmental Award for Remediation of Chemical Warfare Material. and our Dubai Metro route extension program won the Sustainable Transport Best Consultant Award. Parsons was recognized as one of the top four companies in Engineering News Records 2022 rankings for both professional services and program management firms. These rankings reflect our overall reputation in these markets and the value we provide in support of our customers' projects. In summary, I am especially encouraged by our progress this quarter and over the past year and optimistic about our future. This quarter, yet again, extends our track record and momentum, starting since the back half of last year. It is gratifying to see the hard work of our employees and the improvements we've made to our business over the last year having a positive impact on our financial results. We've delivered strong results across both of our segments. particularly during a time when the broader market is experiencing volatility and macroeconomic uncertainty. Parsons is well positioned to take advantage of the growing budgets and opportunities that exist in both our critical infrastructure and national security markets. And we expect our progress to continue as we further leverage the technical expertise of our talented employees. With that, I will turn the call over to Matt.