Parsons Corporation

Good morning and welcome to the Q4 2022 Parsons Corporation Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for 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 on your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. And now I'd like to turn the conference over to your host today, David Spilly. Sir, please go ahead.

Thank you very much. Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal year 2022 financial results. Please note that we provide a 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 Ophelis, CFO. Today, Kerry will discuss our corporate strategy and operational highlights, And then Matt will provide an overview of our fourth quarter financial results and a review of our 2023 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 forward-looking statements due to a variety of factors. These risk factors are described in our 8-K filed on February 15, 2023, and the risk factors to be referenced in the 10-K for fiscal year ended December 31, 2020-22, which we'll file within the next couple days. Please refer to our earnings press release for Parson's complete forward-looking statement 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. 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 Parsons' fourth quarter and fiscal year 2022 earnings call. We had a strong finish to 2022. achieving record revenue and adjusted EBITDA for both the fourth quarter and for the full year, while generating solid cash flow. We also delivered on our 2022 objectives, which resulted in strong, consistent, organic revenue growth throughout the year. We have a leading national security portfolio positioned to deliver solutions and outpace near-peer threats, And we are a pioneer in exploiting digital technology to upgrade our global infrastructure at a time of heightened spend. For the fourth quarter, total revenue increased 16% year-over-year and 9% organically. This was driven by 18% growth in critical infrastructure, all of which was organic. Adjusted EBITDA grew by 8%, and cash flow from operations was $89 million for the quarter. For the full year, we exceeded $4 billion in revenue and $350 million in adjusted EBITDA for the first time in our company's history. We also delivered operating cash flow growth of 16%. We achieved organic revenue growth of 9% for the full year, driven by strong hiring and retention, on-contract growth, and our ability to win and ramp new contracts. As a result, we were one of the organic growth leaders in both of our business segments in 2022. In addition, we maintained a robust balance sheet while completing our largest acquisition since our IPO. We ended the year with a 1.4 times net leverage ratio, and Exator continues to win significant contracts and is making meaningful contributions to our results. For both the fourth quarter and for the full year, we have achieved a book to bill ratio of 1.0 times on an enterprise basis. In our critical infrastructure segment, we achieved a book to bill ratio of 1.3 times, which is the ninth consecutive quarter we exceeded 1.0 times. During the fourth quarter, we were awarded three contracts that exceeded $100 million, bringing our total to 11 contracts worth $100 million or more in 2022. Significant fourth quarter single award contract wins included a 12-year follow-on contract for environmental remediation on the giant mine program in Canada, which is one of the largest mine reclamation projects in the world. The expected value of this program to Parsons is approximately $2 billion, of which we booked $270 million in the fourth quarter. This is the third largest contract win in Parsons history. and a significant ESG accomplishment that reinforces our commitment to protecting human health and safety, restoring the environment, and maximizing socioeconomic benefits. Additionally, we were awarded a $122 million auctioneer contract for C5ISR exercises, operations, and information services by the General Services Administration. Under this contract, we booked $40 million in the fourth quarter of 2022. Parsons is pleased to support the intelligence community by providing critical global cyber and intelligence technologies. Exitor's Overseas Security Installation Services program received its second of five potential award years, valued at $119 million. On this contract, Exitor provides the Department of State with technical security installation, operation centers, and counter unmanned aerial systems worldwide. XTOR also won two task orders totaling approximately $80 million on the Integrated Base Defense Security System contract to provide the United States Air Force with a platform that seamlessly integrates computing power, communications, and tools for situational awareness. We were awarded a sole source contract with a chemicals customer to develop and implement innovative and sustainable solutions for environmental remediation, including emerging contaminants at both active and inactive manufacturing sites across North America. The contract value is $75 million over five years. In addition, we won prime positions on three multiple award IDIQ contracts, a $900 million ceiling contract with the Air Force for 10 years, to deliver systems and synthetic environmental development solutions, a $95 million ceiling value contract over five years with the Navy to provide engineering services, and a $58 million ceiling value over three years for the Toronto Transit Commission's Renewable Energy Program. And finally, after the fourth quarter of 2022 ended, we were awarded a $94 million repeat single award contract from a classified customer for cyber capabilities development and support services. We continue to build on our longstanding ESG commitment. During the fourth quarter, we received three Military Veteran Employment Awards. Additionally, in 2022, we were named one of the world's most ethical companies by Ethisphere for the 13th consecutive year, honored by the Human Rights Campaign as a 2022 Best Place to Work for the LGBTQ plus community, And we're recognized by numerous other institutions for our STEM and diversity hiring practices. As I mentioned in my opening remarks, we delivered on our objectives for 2022, which included four priorities to drive growth and profitability. Priority one was to capture new high-quality projects with increased global infrastructure spend. And we won three significant contracts in 2022. Two were giga projects to support the development of major Middle East industrial cities, and the third contract was $148 million Riyadh Metro program management contract. Domestically, we also captured funds from the infrastructure bill on federal aviation and rail and transit programs, and we expect to see increased opportunities in 2023 and beyond as additional programs are allocated funds from the Infrastructure Investment and Jobs Act. Priority two was to ramp up staffing on new business and task order wins. And I'm extremely pleased with our performance. During 2022, our ability to win new contracts, retain our repeats, grow existing contracts, increase hiring by 42%, and maintain employee retention ahead of industry benchmarks were all key contributors to our strong organic growth. Priority three was to continue to move up the solutions integration value chain. Our differentiated and complementary portfolio in federal solutions and critical infrastructure has enabled us to solve emerging customer priorities, such as PFAS, PFAS, emerging contaminant removal. Exator was a financially accretive acquisition to our top and bottom line. It brought strong capabilities in security and surveillance systems, biometrics, and counter-unmanned aerial systems. Exitor enhances our position in both the federal solutions and critical infrastructure markets. Our last goal was to make continued progress on completing remaining legacy critical infrastructure programs. During 2022, we made progress against all three projects. One project reached substantial completion, and the other two programs advanced to more than 90% and 70% complete. Although we have more work to do on these programs, I am pleased with our team's progress. Thanks to the hard work and dedication of our talented employees, 2022 was a successful year for Parsons with record revenue and profitability. We substantially increased hiring and continue to have retention rates above industry benchmarks, won a significant amount of new business. acquired an accretive company that enhanced our strategic position in both the critical infrastructure and federal solution segments, and we maintained our strong balance sheet. Looking forward to 2023, we enter the year with a strong macro environment backdrop supporting our business with an increasing defense budget, unprecedented global infrastructure spending, and continued geopolitical tensions, including cyber threats. Our 2023 priorities are to win new projects associated with increased global infrastructure funds, capture federal solutions strategic contract pursuits, expand critical infrastructure margins, and acquire creative assets. I am very excited about our future. Over the last year and a half, we made significant changes to our business by moving up the solutions integration value chain and hiring key executives. These changes enabled us to achieve record revenue and profits in 2022 and become one of the organic revenue growth leaders in both of our business segments. We are well positioned in two complementary and growing markets, and we will continue to invest in our people, technology, business development initiatives, and strategic M&A to maintain our momentum and drive shareholder value. Most importantly, we will continue to deliver on our customers' missions, which are experiencing increasing demand in both national security and critical infrastructure. With that, I will turn the call over to Matt to provide more details on our 2022 financial results and our guidance for 2023. Matt? Thank you, Carrie.