Q2 2020 Parsons Corp Earnings Call

[music].

For standing by and welcome to second quarter 2020 Persons Corporation earnings Conference call.

At this time all participant lines are in listen only mode.

After the speakers presentation, there will be a question answer session.

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I'd now like to hand, the conference over to your host today Mr. dates Philly Vice President of Investor Relations. Please go ahead Sir.

Thank you. Good morning, Thank you for joining us today to discuss our second quarter 2020 financial results.

Please note that we provide a presentation slides on the Investor Relations section of our website on the call with me today, our Chuck Carrington, Chairman and CEO, George both CFO and Kerry Smith, President and Chief operating Officer.

Today, Chuck will discuss execution against our corporate strategy George will provide an overview of our second quarter financial results and then Kerry will review our operational highlights. We then we'll close with a question and answer session.

Management May also make forward looking statements during the call regarding future events anticipated future trends and 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 port.

Looking statements due to a variety of factors. These risk factors are described in our form 10-K for fiscal year ended December 31, 2019, and other SEC filings.

Please refer to our earnings press release for Parsons 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 and we remind you that these non-GAAP financial measures are not a substitute further comparable GAAP measures and now I'll turn the call over to Chuck.

Thank you, Dave and good morning, and thank you those who are joining us today for our second quarter 2020 earnings call.

Since our last call several watershed events occurred to shine a light on inclusion diversity in a quality once you've been central to Parsons core values for decades.

These cultural tenants are essential to us as a company to ensure quality for all individuals not only within our organization, but also in communities. We serve consistent with this core value Parsons is proud to be name for the fifth consecutive year as a top 50 company for diversity by stem workforce diversity magazine.

Similar to our Cobot 19 response, we engage with our employees and empowering them to develop solutions that will result in a more diverse workforce and inclusive culture, we approach social and cultural opportunities with the same agility and vigor that we approach our business.

Now to our second quarter financial results, we reported record adjusted EBITDA and record EBITDA margins built on the strength of our growing product and solutions revenues.

We also benefited from strong cash flow and second quarter revenue that was in line with our internal expectations amidst the challenging macroeconomic backdrop.

We continue to win large strategic contracts developed technology solutions and accelerate transactional revenues. Additionally, our strong balance sheet continues to provide us with the flexibility to strategically evaluate internal and external investments.

Details on our second quarter business results include total revenue of $979 million, which was a 1% decline from the second quarter 2019, as we implement our strategy to run off low margin pass through revenues combined with headwinds from coated 19.

We delivered adjusted EBITDA of 91 million and adjusted EBITDA margin of 9.3%, which is 150 basis point improvement from the second quarter 2019, and a 310 basis point improvement from our first quarter 2020 results.

We also generated cash flow from operating activities of 88 million.

And we achieved a book to Bill ratio of one times, which was driven by 1.2 times in critical infrastructure.

Our federal solutions team continues to execute well and maintained is trailing 12 month book to Bill ratio of 1.2 times in the quarter. Our federal solution segment. One a 950 million dollar multiple award Q contract to support advanced Battle management solutions and kicked off the third quarter with a $307 million Contra.

When with the classified customer to provide an interim enterprise information security services.

Our critical infrastructure segment, one or $224 million competitive extension to our Riyadh Metro program management Court contract in the quarter and continued to win new work with our connected communities market.

I am pleased with the innovation our team is bringing to the market with technology accelerating and an ever increasing rate. We continue to innovate and developed technology provide differentiated solutions for our customers are solutions are comprised of software hardware and services packaging, new contractual arrangements such as our intersection.

The service and pandemic response offerings as an example, our for Smart cities Challenge winners will deploy intelligent transportation solutions, leveraging our software platform that incorporates our advanced analytics and artificial intelligence algorithms to reduce traffic congestion and improve safety and driver satisfaction.

We have rates a partner friendly strategy to bring best of breed technology solutions to market. This enables us to expand our addressable market by extending into market adjacent disease, and cross selling our hardware and software products and associated services.

This partnership strategy played a key role in the release of our detect wise grid armor and bio surveillance solutions, although they are not yet material to our financial results their margins are materially higher than our services business and momentum is building.

They also are indicative of our agility rapid prototyping capability and our culture of innovation. In addition, they reflect our strategy to accelerate our technology and transactional revenue streams.

Our strong balance sheet low leverage in over $500 million Undrawn revolver capacity has enabled us to make these internal investments.

It also enables us to be opportunistic in pursuit of strategic acquisitions as the M&A market is now beginning to reopen and discussions are expanding in summary, we had a successful second quarter, we reported record adjusted EBITDA and EBITDA margins delivered strong cash flow and maintain a robust balance sheet we.

Also continued to develop innovative solutions consistent with our strategy to transition to increased hardware software and transactional revenue streams I'm proud of our employees and their contributions to our inclusion diversity any quality core value. They continue to rise to the challenge of our quest to deliver a better world with that I'll turn the call.

Our Chief Financial Officer, George fall to discuss our second quarter financial highlights George.

Thank you Chuck and good morning, everyone.

Today, we're going to as my remarks into the following five key areas. The income statement cash flow results the balance sheet contract awards in 2020 goods.

Indicated we had a strong second quarter reported revenue and profitability results the generally exceeded our internal expectations.

Total revenue for the second quarter decreased 1% from the prior year.

Due primarily to the continued runoff of pass through revenue included 19 headwinds largely offset by growth in our federal solutions segment.

Organic growth was 5% when excluding approximately $67 million.

Contract work delayed as a result Workovers 19.

Our team did an outstanding job offsetting these coated related delays through strong program execution.

Redeployment of resources, the additional scope on existing contracts and ramp up work on recent wins.

Indirect just unit expenses decreased $38 million from the second quarter of 2009 soon.

This decrease was primarily lower costs related to legacy equity release equity based programs and a reduction and transaction related expenses.

Adjusted EBITDA of $91 million represents a $15 million, an increase of $15 million from last year.

Adjusted EBITDA margin increased 160 basis points to 9.3%.

These increases were primarily driven by higher earnings from consolidated joint ventures.

Strong cost controls and approximately $6.5 million performance incentive fees.

Most of which are not expected to reach future periods.

Turning now to our operating segments, starting first with federal solutions, where second quarter revenue grew 1% year over year.

This increase was impacted by approximately $32 million of contract work that was delayed as a result of code named soon.

Excluding this impact, but it'll solutions organic revenue growth would have been 6% in the second quarter and 8% over the first half from 20 to 20.

Federal solutions, adjusted EBITDA increased $12 million from the prior year quarter.

Adjusted EBITDA margin increased from 7.5% to 9.9%.

These increases were driven by higher project margins, resulting primarily from an increase in performances sentences.

And a decrease in subcontractor and material costs.

Now a few words regarding our critical infrastructure segment.

Second quarter revenue decrease decreased 3% year over year with revenue growth of 4% when excluding approximately $35 million.

Contract work that was delayed as a result covidien team.

Critical infrastructure, adjusted EBITDA increased 7% year over year.

And our adjusted EBITDA margin increased 80 basis points to 8.7%.

These increases were driven primarily by higher earnings from consolidated joint ventures, and approved project margins offset in part by lower equity in earnings from unconsolidated joint ventures.

Next I'll discuss cash flow and balance sheet metrics.

Our net Dsos at June Thirtyth 2020 stands at 2069 days compared to 65 days at the end of second quarter of 2019.

Our second quarter operating cash flow totaled $88 million driven by strong collections, along with income and payroll tax deferrals totaling approximately $33 million.

Capital expenditures totaled $10 million in the second quarter, 2020, which was inline with expectations.

As noted by Chuck or balance sheet remains very strong.

We ended the quarter with a net leverage ratio of 0.4 times.

And we closed the quarter with $505 million of Undrawn capacity on our revolver.

Regarding awards, we reported contract awards of $1 billion in the second quarter.

Representing a book to Bill ratio of 1.0 times.

On a trailing 12 month basis, our book to Bill ratio was also 1.0.

Our backlog at the end of the second quarter totaled $7.7 billion and continues to represent approximately two years of revenue at our current run rate.

Now, let's turn to our guidance.

Given our strong second quarter performance and outlook for the balance of the year, we again reiterate or 2020 guidance ranges provided initially on March 10th.

With that I'll turn the call over to our President and Chief operating Officer Kerry Smith.

To discuss our second quarter operational results.

Kerry.

Thank you George as Chuck in Georgia indicated we had a solid second quarter I'm proud of our team's performance given the fluid environment as suppress although the cobot 19 pandemic. Despite these challenges we delivered record profitability with strong cash flow in revenue results.

During the second quarter, our team demonstrated agility and rapidly developing new solutions, establishing new partnerships and deploying new offerings across various industries during a global crisis.

In addition, we took swift action to enhance our inclusion diversity and a quality.

During the second quarter, we continue to win large single and multiple award contracts I Q task orders and other transaction agreements for OTI eight.

As an example, we've ordered at 224 million competitive extension as the lead joint venture partner for the Riyadh Metro project, which is the largest ongoing metro project and the world.

Other notable recent contract wins include a 307 million contract women that third quarter with classify customer to provide enterprise information security.

During this large contract we leveraged capabilities gains from O.G. systems, Polaris Alpha and legacy Parsons.

What does that include information system security information assurance Engineering security controls assessment and testing, we're strategically position in the growing based communication security and cryptographic engineering markets.

We were also awarded Airforces advanced Battle management system 950 million multiple board I'd like to contract.

50 contract will help enable that joint all domain command and control vision of enabling any sensor to inform any weapons system in any detailed plan C air space and cyber space.

Our momentum of winning I'd like to task orders to know TJ contracts continues.

During the second quarter, we won an additional task order under the Air Force Research Laboratory stardom I'd like to contract.

We have not booked more than 110 million year to date under this vehicle, making us the market share leader.

We also one strategic new OTN contracts, bringing our total award value to more than 100 million year to date I know Ta pace.

Well as an example is our naval surface technology and innovation can sortie at multi eight when what we will design develop built test and deliver a working prototype up on non lethal systems to support maritime operations.

We're also pleased what's your RC technologies second quarter performance. This high margin hardware business successfully booked wins with our survey and signals intelligence products.

We also to develop new use cases, leveraging our existing radio frequency situational awareness solutions for government military and security customers.

Throughout the second quarter, we continue to drive product solutions and increase our transactional bye for now.

In terms of new product introductions, we've made substantial progress on our that tech Weiss pandemic detection and response and arc radar solution.

Hi Tech places, our textbooks sweeter products that monitors real time health and facilitates the safe movement up people in public areas.

This solution leverage us off the shelf sensors integrated onto a custom person to develop software backbone.

It's been deployed in multiple locations with multiple customers and we have a robust pipeline of over 250 opportunities.

A second cobot 19, offering we introduced this our bias surveillance the tech quite stash solution.

Through our partnership with a nonprofit research Institute, we developed and our commercializing Diamond electro biosensor for rapid detection as far as koby to the virus that cost us cobot 19th.

The sensor its past multiple test in a controlled laboratory environment, what's still lie fibrous and detection results are nearly immediate.

Use cases range from human testing to environmental which includes airport surface and water.

Our newest product rollout is radar, which merchants information from multiple sources, such as weather conductors video and vegetation to provide real type situational awareness for utility companies.

Great I ever approved operational efficiency and enables utilities to better identify and mitigate potential catastrophic events, such as wildfires and public safety power shops.

Said another Great example of leveraging our federal technology for a critical infrastructure customer.

As Chuck indicated we've been listening to and learning from our employees regarding ideas to further enhance our inclusion diversity in our quality offers initial actions that we are implementing includes posting to more to first job boards, increasing mentoring and training opportunities and ensuring we have a diverse candidate slate and interview Pan.

Ill.

We will be tracking our progress every quarter against a rolling 12 month plan.

Diversity is a person's core value and its inherent in our company's culture.

Finally, I would like to highlight that we've received the 2020 Cogswell outstanding Industrial Security Achievement Award.

As a provider of critical National Security solutions for both the intelligence community and the Department of Defense, We're very proud of this recognition.

With that I'll turn it back over to Chuck.

Yes.

Thank you carry in summary, our team second quarter execution was strong we overcame covered 19 headwinds to deliver strong financial results developed assault, new technology solutions and transitioned to an effective work from home operational model, we've heard horrified our balance sheet, which we plan to utilize to execute.

Our strategic plan with focused investments in technology products and solutions.

Our team approach once again demonstrated our genuine desire to deliver a better world by reinforcing our core value of diversity inclusion and quality.

We have a unique culture Parsons for our employees are the foundation of our business built on their dedication to our customers missions and our core values now we'll open the line for questions.

Ladies and gentlemen, if you'd like to ask a question at this time. Please press Star then the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

Our first question comes from Kevin Parsons with Goldman Sachs. Your line is now open.

Hey, good morning.

Good morning Gavin.

Chuck on federal solutions growth going forward or organic growth going forward I think you've said that could be upper single digits over the next few years and you flagged in number of key wins that will contribute to that but your backlog is kind of flat to down over the last year and a half there. So I'm just curious what gives you confidence.

In that forecast for federal solutions organic.

Yes, Great question Gavin as we said we would have a 1.2 book to bill so far through the first half of the year and we felt that.

We keep our book to Bill around 1.1, Thats, a ports that double digit growth or high single digit growth that we talked about we've got a lot of exciting prospects that are on.

In the near term award scenario that we think in addition to those contracts we already have one that will support that growth.

So I mean is there also an aspect so maybe have some of these ceiling idea accuse you havent fully booked in there or on contract growth or something like that.

Yeah. So on.

We have a couple of things in the BD front, and I'll have Kerry and provide a bit more color on this as well.

But we as you say when we do book, our multi award cues, we only put into backlog that amount.

So its stated with tasks that we've actually been awarded so we booked a billion dollar dashboard and start off with the $20 million task.

Well I going to put $20 million into backlog so.

It's as those Casco orders come through.

In addition to that as you said, we've also got a couple of contracts that on.

Where the customers, bringing in additional work on consolidating two or three different suppliers, where the work into one and those are pretty rapid ramp up obviously carry you want to provide a little more color on on the growth.

Sure check as of the end of the second quarter, We had an award at not book value of 220 million since the second quarter, obviously, we announced the $307 million win.

Intelligence community contract that was previously one in February I was under protest and we were just reported that contract. Once again, we also have a waiting on notice of footwear. It's seven contracts that are greater than 100 million four of which are single word contracts and three of those are multiple award contracts.

So we feel very confident and federal solutions growth.

That's great color appreciate that and then maybe just on GBSD sizing Nox Northrop said they expect in DMD booking in the 10 to 15 billion range. So just wanted to see if you have any update or ability to quantify what you're expecting thanks, yes, not at this time once once that contract is signed.

And.

I think northrop's stated they expect that to occur.

Perhaps even as soon as later this month, then we'll get down into.

The final negotiations and scope identification for us and so that could be.

Something we announce later this quarter.

Makes sense. Thank you.

Our next question comes from Cai von Rumohr with Cowen. Your line is now open.

Yes, thank you very much and good quarter. So could you give us a little bit more color on bookings.

Usually use.

This is this current quarter is seasonal peak, but could should we look for the book to Bill.

Over one maybe if you could identify.

Targets.

No.

Yes so.

And again I think as.

You cut off a little bit they're kind of got little hard for me to here, but.

No you're talking about our bookings and so generally what we're seeing is on.

Strong.

Proposal activity, we have a huge pipeline in federal solutions, especially I think we've submitted something like 21 billion in revenue for 2020.

Which is almost double what we did this time in 2019.

And we also have had a real starting to ramp up quite materially on our Q R. C products, So which is really helping the bottom line in EBITDA.

Does that answer your question Pat.

Yes, thats helpful, but I mean, so with all of that I mean should we expect this should be a strong bookings where I would assume seasonally it is obviously things may not happen currency delays, but it sounds like what you're saying.

Strong bookings quarter, Yes, Q3 is as you say KYC Q3 is usually strong bookings quarters would come into the end of year, especially in task Order Awards.

And we've not seen a material slowdown in either prime contract or task Order awards.

That carry any additional color you'd like to provide on that.

In addition, I mentioned earlier, we had a word it not booked as a 220 million at the end of the second quarter. We also have a waiting notice of awards 4.8 billion, which is significant and again, we got off to a very strong start in Q3 with the 307 million contract that we cited as well as a very strong start and continued Q.

RCM products momentum as you indicate kite Q3 is always strong Friday I accused another transaction agreements and we're at the peak we've ever had further transaction agreements through Q2 with over 100 million awarded I'm expecting very strong idea to performance as well.

Very helpful. And then the second question was the you've talked two quarters now on detect wise.

Say is deployed.

250 opportunities kind of what are we talking about in terms of revenues and when we talk about an opportunity.

Is there a dollar numbers.

Sure.

Per opportunity 500000, given some color on.

Financial potential forwards et cetera.

Yeah. So on.

For competitive reasons, we're really at this point not getting down into things. So you can back calculate with the price of that unit is.

And we do have curious on models of the detect wise from very complex models. They can link right into a customer security or ticketing systems into.

Sophisticated models that are more for maybe a larger mass application.

What we can say is that we've got a lot of interest in intelligence community in infrastructure markets in healthcare. We've got several units that are now sold.

And in discussions with with a lot more units that it could potentially.

Be material to our revenues and earnings by the end of year.

Okay Super Thank you very much.

Thank you kayak.

Our next question comes from Joseph Denardi with Stifel. Your line is now open.

Hey, good morning, guys.

Chuck or Georgia, you're one of the only services company that talks about your business in terms of software as a service and transactional volume is clearly a strategic focus free for you also can you just talk about that a little bit fundamentally why does that improve earnings.

Earnings power of the business longer term does it make you more competitive because it just enhance.

For the ability with the advantage being able to contract in that manner or go to market in that way.

Thank you Joe the for the question and good morning.

Yes, so actually you hit the two primary nails running ahead, one it obviously improves our profitability tremendously the margins in the SaaS models and these other solutions models are materially greater than what we've historically got into services line of our business.

Secondly, it really builds upon our agility and rapid prototyping capability at the end of the day, what our customers are looking for our solutions to problems and there is multiple ways of getting there. They can hire a large workforce to develop a solution over time or in what we do.

Is bringing in a solution either in todo or or partial.

And that is that is much more rapidly deployable and no solutions as we've said in the past have been on maybe historically got software and hardware that we've converted to cots hardware and software to be able to packaged together to total solution offering and we see great opportunity for that both on the.

Federal side of our business as well as our critical infrastructure side.

Chuck or there are there certain customers on the government side that are more receptive to that and others that are maybe coming along.

Yeah, I think we'll I'll put it everybody in the coming along phase on but what it offers is much quicker deployment. So those customers that are interested really rapid deployment and you can kind of figure out who those might be.

Our are the most interested and we think about it the the ice was kind of broken when the intelligence community moved into cloud computing sphere, where they're basically procuring a data center as a service.

And so that provides kind of the priming the pump and I think that.

There will be more acquisitions in that regard probably in the intelligence community in defense Department over time as these solutions are more cost effective.

This way of contracting is more cost effective and more timely in in the delivery of the solution.

Got it.

Okay, and if I could just sneak one more in on for George just maybe on the the impact from cobot in the quarter I think.

You had said previously that you weren't expecting much of an impact or weren't seeing much of an impact now that there has been one can you talk about where across the business you're seeing it what gives you confidence that it will normalize and how were you able to maintain guidance. Despite the impact. Thank you.

Yes.

Good question.

Really matter of how the Parsons team has adapted as they had in my remarks, we were effective and redeploying resources into other activities.

As carrier indicated we've had a lot a nice recent wins, we've ramped up that work.

I would say, we've probably seen the biggest impact than him through everybody.

Yes, so we anticipate that we will actually have lesser impact as we move ahead.

Absent a significant change in the citizens of ours.

Yep.

Thank you.

Thank you George yelling Tiering is there and maybe you want to provide a little color on the coded as well.

Sure. So if you look at the co, but I would break it into two buckets 67 cobot impact that was not covered undercarriage 40 million that was covered under carriers that will be reimbursed on the 67, it was pretty much but 32 for federal 35 for critical infrastructure within the federal on the major impact.

Our EFI a program, which we're now starting to see recover the projects are restarting up within a critical infrastructure sector. The main impacts LER. Some home remediation work, which once again is starting up as well as vehicle inspection, which has returned so what we anticipate an end on the carrots at coverage Werent down.

Today half of what our peak was we hit a peak at the end of April early May we're now at half of that what you expect to see as partial recovery in 2020, and what's the rest of the work deferred to 2021.

Very helpful. Thank you.

Our next question comes from Louie Dipalma with William Blair. Your line is now open.

Chuck George Kerry and David Good morning.

Good morning Lewis.

I hope everybody is doing okay.

We are and we hope to see the Youre as well.

Thanks.

Yesterday, you were a platinum sponsor for the base missile Defense Virtual conference and in 2019, I Remember you were awarded.

The $100 million small satellite contract with.

Air Force base and missile systems Center for small satellite integration and I believe that program is now led by our east the former CEO of your Oh Gee systems can you discuss at a high level, how the pipeline looks for small satellite.

Fence applications, and how you expect that market to evolve and your role in that market.

Yeah, I'll I'll provide an overview and ines carry to provide a bit more detail. So that's our lindsay contract.

And.

We have a high Bay facility, we put together specifically to support that out in California, where we integrate small satellites into a ring for deployment from another you another launched its putting up a larger satellite, perhaps and we can launch either before or after the primary payload.

So we've done two launches today, and we see that pace increasing.

Not just from a missile defense, but from lots of potential applications as the small sat satellite fleet increases on a pretty rapid basis.

Carry would you like provide a little more detail on that.

Sure as you indicated we were awarded the contract in early 2019 since that time, we've had two successful launches the contract completion months until 2024, and our expectation is that with every up primary payload mission space. A missile command will also be map manifesting a small satellite payload.

We will continue to be involved at all launches its a very robust market with future commercial potential flexibility.

Sounds good that that's helpful and also during the quarter, you announced a partnership with vehicle pulling and registration provider Neonatology and I was wondering just what the.

That partnership entail and do you expect that ill focus on.

Government solutions and commercial opportunity.

Yes potentially.

Lastly, when we look at that we see one a clear a clear line of sight to smart cities applications.

Where we have intelligent transportation.

Services in your intersection as a service offering but also as we look at the smart basis of Tomorrow really does intelligent.

On.

Transportation solutions have the same applicability into our military bases in the offerings that we're we're bringing to those clients as well.

Sounds good that's helpful. Thanks, Okay.

Q.

As a reminder, ladies and gentlemen, if you'd like to ask a question at this time that Star then one.

Our next question comes from Tobey Sommer with truly your line is now open.

Thank you.

I was wondering if you could.

Speak to the.

Impact of.

Cobot 19, and on your infrastructure business in terms of essentially making.

Cities in densely populated areas, a little bit less appetizing to live at least over the near term.

And maybe contrast that with.

Opportunities that could emerge that would actually potentially benefit the business just kind of want to get the puts and takes things.

Thank you Toby.

I think it I think at this point.

We think it's probably too early to tell you exactly what the longer term ramifications are of the coated 19, Oh, we think of the Yogi Berra quote predictions are hard very especially about the future.

But with a couple of things are for sure happening one the public needs to have trust re establish that they can travel safely whether thats by air train, but car and so there are going to be.

Infrastructure upgrades and modifications to prove to basically allow for more social distancing and perhaps even just physical distancing, whether its installing plexiglass et cetera, and technology solutions like our detect wise product that can provide scanning.

Looking for symptoms and.

And linking that to ticketing and other types of software application. So software platforms are probably going to take a big tick up we think the technology side.

Infrastructure will have to change now in terms of people movement habits. I mean, clearly right now traveled is down pretty materially so wide infrastructure customers are looking for our how do they get their work done significantly cheaper than they have done before which is.

Really creates an opportunity for those companies that have technologies that can virtualize their operating centers.

And other types of applications many of these customers.

Unfortunately have really old technology, so the ability to bring a SaaS model to them. So they aren't having a big capital program and really prove their their core technology. We think is another near term opportunity that we'll see.

Out of co that carry are there any is there any additional color you'd like to provide on this.

Yeah, just a couple of examples on it does provide opportunity for us if you think about the way and airport works for example, the future airports rock me like that today. So we submitted some recent beds as far as queuing, how do you get people in and out of an airport safely on that obviously couples quite nicely with our that tech why solution also.

I asked earlier about the neonatology partnership that's another terrific example, if an opportunity that would be post cobot as most of our totaling systems go to contact less toll like that market is very large and growing so if you take the person's capability with intelligent transportation, coupled with the all in chase innovative technology totally.

Installations, we see opportunities for a total takes tool readers license plate recognition vehicle detection classification and other areas.

Thanks, as a follow up on the infrastructure side.

Well, if we think of a potentially an infrastructure bill.

Needing to be passed to for this retooling.

What what kinds of items should we look for as being most direct potential drivers of your business.

Well I think what we've seen in the past Tobey is.

Is when large infrastructure builds are put forth and name in a really fun the advancement of technology and the betterment of infrastructure.

Versus I think the terminology, we signed the past things like shovel, ready, which which tend to be more just quick action, but that may be customers Havent had enough time to really put forth the thought and planning to goes into a technology upgrade so the technology oriented infrastructure, a great definitely benefits division of where we're going now since we also have a.

Large physical infrastructure business, we benefit that way as as well, but clearly our solutions or are very differentiated on the technology side. So think of rail transit systems as Carey pointed out airports in aviation systems as well as incorporating.

Upgrades to take into a autonomy this vehicles and some of the work we see going on at Tesla in other auto manufacturers.

Thanks last question for me I wanted to follow up on sort of the products related to cope with 19 have out in the market I understand the reluctance to identify specific price point could you speak to the competitive landscape and just comments about whether this has the potential to.

The material thanks.

Thank you.

So yes, I think the competitive landscape is is a.

Worry right now because there's a lot of.

The result, there was a lot of first movement of existing products that.

Probably didnt always meet the bill.

And then there's a firms like guys that are coming up with a more differentiated product sets and then in some cases, there is a little bit of confusion as to who is buying for who's responsible for buying products.

For a given market, we see a little bit about an infrastructure side.

I think the interesting thing of the products that were producing which right now are dedicated to coated but they all have applicability to whether its seasonal flu or other types of viruses. So they have staying power and its goes beyond in many cases, just measuring temperature and answering questions cardio pulled.

Larry rates, I mean could actually if our bio sensors.

Continue to pass the testing that we put them through including lied virus testing.

Right now, they're showing they can detect decoded virus, let same center could be used for other types of virus detection. So the materiality comes from these are not going to be large contracts. These are going to be more large numbers of product sales. So as we think about a public.

In the U.S. of roughly 380 million people.

And if we all got tested tomorrow, we would know tomorrow, whether or not we had coated.

But since so much of it it's passed a symptomatically we wouldn't know.

Two days later, if we had code or not so you start thinking through how we get people back into public and how we get them back into large places whether sporting events are.

Religious worshipping areas are back into school, which is obviously a key area, we're going to need a cost effective rapid.

Rapidly.

Response.

To covert testing and then you can think of it quickly that numbers of tests, they're going to be done over the next 18 months probably going to exceed.

Hundreds of millions in how old the potential to be into the building to test. So it's a really really big market.

Thank you.

Our next question comes from Josh Sullivan with the Benchmark Company. Your line is now open.

Hi, good morning structures carry the.

Good morning, Josh.

Can you just update us and how we should think of the pace of the drawdown on the pass through revenues going forward versus the organic growth in the the technology program. Thanks.

Thank you Josh Yes, what we had said previously is that this drawdown will continue.

Through 2020 and 2021.

And by by early 2022, we should have that.

Off its predominantly coming out of critical infrastructure, but it's also coming a bit out of our engineered systems portion of ER.

Federal solutions.

Got it.

And then can you just expand on the overall partnership approach to technology development. How are you structuring those relationships, how meaningful or they're going to be going forward and then how do you make sure Parsons they'll get the appropriate value from from those relationships.

Yes.

So it's a broad number of partnerships that we're looking at from a licensing agreements to co manufacturing capabilities, we have scalability.

And obviously getting.

Every every partner getting their fair share of the profitability is key carry you might want to go into a little more detail on some of the partnerships we've put together in and how we see those playing out over time.

Sure today, we have seven global channel partners that help us sell our entire product suite worldwide. So you can pick about to our seed technology products you cut out in that that tech by solution as Mark said, our product offerings like our packet both high speed processor. We also have an additional eight channel partnerships that are.

Currently underway, we work as well in a form of value added resellers. So some other partners that we have for example on her to attack by suite, we've established our agreements with to be able to sell our products one key differentiator for us in that marketplace. If there were a system integrator. So we have both the domain might not like Japan.

Our industry's work such as aviation industry on health care, plus technology to bring along with it.

Got it.

And then just one last one can you talk about your your role on the advanced Battle management system for the Air Force and then are you see that the timing of that program going forward.

Yes, Gary let go ahead and take that.

Yes, so they have been stuff Battle management system explained the first steps in the joint only to make me an external so that as a model or contract where we're expecting to be a task orders. We have a second contract that were in that down select phase four as well that Tyson debt.

Let's see or try not to make me under control, which caused the tightening program, which is going to beat the ground system supporting Monday domain operations in support of the Army. My fires are critical mission. So were heavily involved in all aspects of joint automaker Danica control as well leveraging some of our legacy approach.

Offerings, such as command and control core into that marketplace.

Okay. Thank you for the time.

Thank you.

Our next question comes from Ron Epstein with Bank of America. Your line is open.

Good morning.

Maybe just a morning Ron.

A quick accounting type question.

Given your spend on on R&D given.

What potential change in R&D tax credit in 2022 could mean for your cash flow.

Yeah.

Well.

You know I know so much of our R&D is either all or partially reimbursed.

I don't know that we're going to see major impact from that George you want to provide a little different color on them.

Yeah, I would agree that we'd probably see some nominal benefit run, but it would not be material.

Okay as much through my understanding that the customer funded R&D is included there.

It is.

It is but or do not all that was through.

Okay, Great alright, thanks, guys.

Thank you.

Our next question comes from Justin Denardi with Wells Fargo. Your line is now open.

Hi, Thanks for taking my question.

Can you just talk little bit more about margin strength this quarter, what you see a sustainable in what was the Coca impact.

Thank you Justin Yes was we said last quarter. Our Q1 each year generally is our lowest margin quarter and that's driven by a couple of seasonality items. One. It's we have higher overheads in Q1 is were.

Rolling out our business plan and strategy, making sure everyone's online.

With where we're going but it's also a period, where we generally have lower performance award fees and this particular Q1, we also had a slightly higher Pat low margin pass through revenues.

Q2 is generally where we start to see the margins.

Increase and in generally have been stronger in Q3 in Q4 as well.

And and usually that's driven by more award fee milestones being located in Q3, and four especially that also Q2.

And.

We are new contracts are ramping up.

And so our overhead is more fully absorbed the other thing to generally has been occurring I think as we've said is over the last three or four years, the bid margins and the work and the portfolio work. We're pursuing has been steadily increasing in margin. So the backlog that we have is sequentially.

Higher margin as we book off as we booked that new backlog, it's flowing through with a higher margin in backlog, we book safe for five years ago. So.

So those things together kind of hit a confluence that are driving our margins up and we continue to see those margins go up we expect that.

Certainly by mid 2022 will have both segments operating a double digit.

No EBITDA margins.

Does that answer your question.

It does thank you. Thank you Justin.

We have a follow up question the lineup pipeline remember Cowen Your line is now open.

Thanks, so much so basically been focused on M&A, but you said in the first quarter coal.

I want to do it in a virtual buyer.

Here are you on that issue today looking at more things you know would you do them in the virtual environment.

Hello.

Yes, hi, Thank you great question. So I think a couple of things have happened a sense.

Q1, one we are getting not just Parsons, but I think all companies are getting a little more comfortable and how we can operate.

In a safe environment, maintaining social distancing using mass and disinfecting art tables and conference room. So one yes, we can do lot of this virtually but too we've even found ways now what we feel more comfortable going into spaces in conducting in person due diligence.

So that combined with the fact that the stock market has.

Got a little less volatile than it was there it was obviously a little volatile there that in the March April timeframe.

Thanks, Good sellers have a little more confidence that they know where things are settling out as well as buyers have a little more confident now where they think multiples are settling out as well. So I think it's a confluence of all those.

Factors Chi that have led to.

A significant warming of the M&A market from our perspective.

And what sort of things are you looking that give us.

Yes, absolutely. So we're staying focused in the four key markets that we've identified there are our core for us in that is cyber intelligence.

Space and Geo spatial markets missile defense and see five is our as well as our connected communities slash intelligent transportation systems.

With that we're continue to look at companies are leveraging that either have and augment arm for technologies or benefit from our technologies in AI autonomous systems cloud computing and Aiotv sensors.

And we continually look for those companies that have software and hardware IP and either they converted quite a bit of that into either hardware software sales ours as a service sales or we believe it provides us the building blocks, we need to do that ourselves.

Terrific. Thank you very much.

Thank you guide.

We have a follow up question from the way that Kevin persons with Goldman Sachs. Your line is now open.

Hey, Thanks for the follow up I think I might have just missed in response to Justin's question, but.

EBITDA impact from Covidien the quarter I'm.

Just wanted to see if you could put the number around that with the 67 million headwind from delayed contract worth but then also the $40 million reimbursed work under carries a presumably didn't have fees. So just wanted to see if you could quantify the EBITDA dollars that you otherwise might have recognized in the quarter. Thanks.

Yes, so the EBITDA targets.

A little more difficult to calculate just because there is a lot of things that we did to counter it I mean your worse.

Yeah, we were making some overhead reductions so you know that countered a little bit of the covered.

Some of our customers as.

Allowed us obviously to go back into skips and so forth or work from our own scared. So all of that kind of although it's fairly easy for us to attract the revenue impact it was much more difficult for us to really quantify the EBITDA impact because of offsetting factors. So.

Probably not the Claire answer that you wanted but I think thats, that's just factual reality gather.

Yeah, I know that makes sense.

And then George maybe could you just give us an update on.

Free cash flow on on working cap collectibles, which you've caught up on and which are still kind of outstanding that are working through.

Certainly given the we're generally caught up with.

With respect to major accounts, but I would say there's pockets of slowness.

Still across the portfolio, we obviously going a lot of questions about the middle East.

That's probably the area, where we have the grid is.

But opportunity as we move into the second half, but I would also.

Right.

North America pretty well, but we'll have upside that's.

So.

Probably not quite where we would be had enough and.

But given the strength of the second quarter, we've obviously middle of progress, but the bullish on the second half.

Great and then more quick one if I could carry any chance you to start off hand of how many bids in the federal solutions pipeline greater than 100 million.

Yes, we have a 15 that robotic between now and year end and 68 and the total pipeline there are greater than 100 million.

Perfect. Thanks, so much.

How does all the time, we have for question I'd like to turn the call back today's Philly for closing remarks.

Thank you for joining us. This morning, you have any questions. Please don't hesitate to give me a call. We look forward to speaking with many you over the coming weeks and what that will end today's call have great that.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Ladies and gentlemen, thank you for standing by welcome to second quarter 2020, Parsons Corporation earnings Conference call.

This time, all participant lines all in listen only mode.

After the speakers presentation, there will be a question answer session.

You asked a question during this session you will need to press Star then one on your telephone keypad.

Please be advised to today's conference maybe recorded.

If you require operator assistance. Please press Star then zero.

I'd now like to have the conference over to your host today Mr., Dave Kelly Vice President of Investor Relations. Please go ahead Sir.

Thank you. Good morning, Thank you for joining us today to discuss our second quarter 2020 financial results.

Please note that we provide a presentation slides on the Investor Relations section of our website on the call with me today or truck carried <unk>, Chairman and CEO, George Ball, CFO, and Kerry Smith, President and Chief operating Officer.

Today, Chuck will discuss execution against our corporate strategy.

George will provide an overview of our second quarter financial results and then Kerry will review our operational highlights. We then we'll close what the question and answer session.

Management May also make forward looking statements during the call regarding future events anticipated future trends and 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 ended December 31, 2019, and other FCC violent.

Please refer to our earnings press release for parts. That'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 and we remind you that these non-GAAP financial measures are not a substitute further comparable GAAP measures and now we'll turn it.

Call over to Chuck.

Thank you, Dave and good morning, and thank you those who are joining us today for our second quarter 2020 earnings call since our last call. Several watershed events occurred to shine a light on inclusion diversity in a quality. Once you have been central the Parsons core values for decades. These called held tenants are essential that as a company.

Sure good quality for all individuals not only within the organization that often communities. We serve consistent with this core value Parsons is proud to be name for the fifth consecutive year as a top 50 company for diversity by stem workforce diversity magazine.

Sure Mark Heart Cobot, 19 response, we engage with our employees and empowering them to develop solutions that will result in a more diverse workforce and inclusive culture, we approach social and cultural opportunities with the same agility invigorate that we approach our business.

Now to our second quarter financial results.

We reported record adjusted EBITDA and a record EBITDA margins built on the strength of our growing product and solutions revenues.

We also benefited from strong cash flow and second quarter revenues. It was in line with our internal expectations and that's been challenging macro economic backdrop.

We continue to win large strategic contracts developed technology solutions and accelerate transactional revenues. Additionally, our strong balance sheet continues to provide us with the flexibility to strategically evaluate internal and external investments.

Details our second quarter business results include total revenue of 979 billion, which was a 1% decline from the second quarter 2019, as we implement our strategy your run off low margin pass through revenues combined with headwinds from Cobot 19.

We delivered adjusted EBITDA of 91 million and adjusted EBITDA margin of 9.3%, which is 150 basis point improvement from the second quarter 2019, and a 310 basis point improvement from our first quarter 2020 results.

We also generated cash flow from operating activities of 88 million.

And we achieved a book to Bill ratio of one times, which was driven by 1.2 times and critical infrastructure.

Our federal solutions team continues to execute well and maintained is trailing 12 month book to Bill ratio of 1.2 times in the quarter. Our federal solutions segment, one a 950 million dollar multiple award our Q contract to support the advanced Battle management solutions and kicked off the third quarter with a 307 million dollar contra.

Back one with the classified customer to provide an interim enterprise information security services.

Our critical infrastructure segment, one or 224 million dollar competitive extension to our Riyadh Metro program management Court contract in the quarter and continue to win new work with our connected communities market.

I'm pleased with the innovation our team is bringing to the market with technology accelerating at an ever increasing rate. We continue to innovate and developed technology provide differentiated solutions for our customers are solutions are comprised of software hardware and services package in new contractual arrangements such as our intersections.

The service and pandemic response offerings.

As an example of course smart cities challenge winners will deploy intelligent transportation solutions, leveraging our software platform that incorporates our advanced analytics and artificial intelligence algorithms to reduce traffic congestion and improve safety and driver satisfaction.

We embrace a partner friendly strategy to bring best of breed technology solutions to market. This enables us to expand our addressable market by extending into market to Jason fees and costs selling our hardware software products and associated services.

This partnership strategy played a key role in the release of our detect wise grid armor and bio surveillance solutions, although they are not yet material to our financial results their margins are materially higher than our services business and momentum is building.

Also are indicative of our agility rapid prototyping capability and our culture of innovation. In addition, they reflect our strategy to accelerate our technology and transactional revenue streams.

Our strong balance sheet, low leverage and over $500 million Undrawn revolver capacity has enabled us to make these internal investments.

It also enables us to be opportunistic in pursuit of strategic acquisitions as the M&A market is now beginning to reopen and discussions are expanding in summary, we had a successful second quarter, we reported record adjusted EBITDA and EBITDA margins delivered strong cash flow and maintain a robust balance sheet. We are.

So continue to develop innovative solutions consistent with our strategy to transition to increased hardware software and transactional revenue streams.

One of our employees and their contributions to our inclusion diversity any quality core value. They continue to rise to the challenge of our question deliver a better world with that I'll turn the corner, our Chief Financial Officer, George Ball to discuss our second quarter financial highlights George.

Thank you Chuck and good morning, everyone.

Today organize my remarks into the following five key areas. The income statement cash flow results the balance sheet contract awards in 2020 goods.

Okay indicated we had a strong second quarter reported revenue and profitability results the generally exceeded our internal expectations.

Total revenue for the second quarter decreased 1% from the prior year.

Due primarily to the continued run off with pass through revenue and coated night June headwinds largely offset by growth in our federal solutions segment.

Organic growth was 5% one excluding approximately $67 million.

Contract work delayed as a result Workovers 19.

Our team did an outstanding job offsetting these kobin related delays through strong program execution.

Redeployment of resources that additional scope on existing contracts and ramp up work on recent wins.

Indirect just unit expenses decreased $38 million from the second quarter of 2019.

This decrease was primarily lower costs related to legacy equity related equity based programs and a reduction and transaction related expenses.

Adjusted EBITDA of $91 million represents a $15 million, an increase of $15 million from last year.

Adjusted EBITDA margin increased 160 basis points to 9.3%.

These increases were primarily driven by higher earnings from unconsolidated joint ventures.

Strong cost controls and approximately $6.5 million of net performance incentive fees.

Most of which are not expected to future periods.

Turning now to our operating segments, starting first with federal solutions.

Second quarter revenue grew 1% year over year.

This increase was impacted by approximately $32 million of contract work.

Was delayed as a result carbonite soon.

Excluding this impact federal solutions organic revenue growth would have been 6%.

Second quarter and 8% over the first half of 2020.

Federal solutions, adjusted EBITDA increased $12 million from the prior year quarter.

Our adjusted EBITDA margin increased from 7.5% to 9.9%.

Increases were driven by higher project margins, resulting primarily from an increase in performances sentences.

A decrease in subcontractor and material costs.

Now a few words regarding our critical infrastructure segment.

Second quarter revenue decreased decreased 3% year over year with revenue growth of 4% when excluding approximately $35 million contract work that was delayed as a result covidien 18.

Critical infrastructure, adjusted EBITDA increased 7% year over year.

Adjusted EBITDA margin increased 80 basis points to 8.7%.

These increases were driven primarily by higher earnings from consolidated joint ventures and approved project margins.

Offset in part by lower equity in earnings from unconsolidated joint ventures.

Next I'll discuss cash flow and balance sheet metrics.

Our net DSO at June Thirtyth 2020 stands at 2069 days compared to 65 days at the end of second quarter of 2019.

Our second quarter operating cash flow totaled $88 million driven by strong collections, along with income and payroll tax deferrals totaling approximately $33 million.

Capital expenditures totaled $10 million in the second quarter, 2020, which was inline with expectations.

As noted by Chuck or balance sheet remains very strong.

We ended the quarter with a net debt leverage ratio of 0.4 times.

We closed the quarter with $505 million of Undrawn capacity on our revolver.

Regarding awards, we reported contract awards of $1 billion in the second quarter.

Representing a book to Bill ratio of 1.0 times.

On a trailing 12 month basis, our book to Bill ratio was also 1.0.

Our backlog at the end of the second quarter totaled $7.7 billion and continues to represent approximately two years of revenue at our current run rate.

Now, let's turn to our guidance.

Given our strong second quarter performance and outlook for the balance of the year, we again reiterate or 2020 guidance ranges provided initially on March.

With that I'll turn the call over to our President and Chief operating Officer Kerry Smith.

To discuss our second quarter operational results.

Gary.

Thank you George as Chuck and George indicated we had a solid second quarter Im proud of our team's performance given the fluid environment as suppress although the cobot 19 pandemic. Despite these challenges we delivered record profitability with strong cash flow and revenue results.

During the second quarter, our team demonstrated agility and rapidly developing new solutions, establishing new partnerships and deploying new offerings across various industries during a global crisis.

In addition, we took swift action to enhance our inclusion diversity and a quality.

During the second quarter, we continue to win large single and multiple award contracts I'd like to task orders and other transaction agreements for OTI eight as an example, we've ordered at 224 million ended up extension as the lead joint venture partner for the Riyadh Metro project, which is below.

Just ongoing Metro project and the World.

Other notable recent contract wins included a 307 million contract win in the third quarter with last night customer to provide enterprise information security.

During this large contract we leveraged capabilities gains from LG systems, Polaris Alpha and legacy Parsons.

Yes, that's going to include information system Security information Assurance Engineering security controls assessment and testing, we're strategically position and the growing based communication security and cryptographic engineering markets.

We were also awarded Air Force's Advanced Battle management system 950 million multiple board.

You contract.

50 contract will help enable that joint all domain command and control vision of enabling any sensor to inform any weapons system in any de Mayo land Sea air space and cyber space.

Our momentum of winning I'd like to task orders and Nokia contracts continues.

During the second quarter, we want an additional task order under their first research laboratory stardom I'd like to contract.

We have now booked more than 110 million year to date under this vehicle, making us the market share leader.

We also one strategic new OTN contracts.

Total award value to more than 100 million year to date I know Ta pace.

A relevant an example, as our naval surface technology and innovation consortium multi a went well we will design develop built test and deliver a working prototype up on non lethal system to support maritime operations.

We're also pleased what's your RC technologies second quarter performance. This high margin hardware business successfully booked wins with our survey and signals intelligence products.

We also develop new use cases, leveraging our existing radio frequency situational awareness solutions for government military and security customers.

Throughout the second quarter, we continue to drive product solutions and increase our transactional revenue.

In terms of new product introduction, we've made substantial progress on our Ditech wise pandemic detection and response and I agree Dharmesh solutions.

Since our touchless sweeter products.

Monitors real time health and facilitates the safe movement of people and public area.

This solution Leverages off the shelf sensors integrated onto our custom person to develop software backlog.

It's been deployed in multiple locations with multiple customers and we have a robust pipeline of over 250 opportunities.

A second cobot 19, offering we introduced us our bio surveillance the tech why stash solution.

Through our partnership with a nonprofit research Institute, we developed and our commercializing Diamond electrode biosensor for rapid detection as far as Kobe to the virus that causes cobot night tool.

A sensor is past multiple test in a controlled laboratory environment with alive fibrous and detection results are nearly a media.

Use cases range from human testing to environmental which includes airborne surface water.

Our newest product rollout is bright our which merchants information from multiple sources, such as weather conductors video and vegetation to provide real time situational awareness for utility companies.

Great I ever approved operational efficiency and enables utilities to better identify and mitigate potential catastrophic events, such as wildfires and public safety power shops.

This is another great example of leveraging our federal technology for critical infrastructure customer.

As Chuck indicated we've been listening to and learning from our employees regarding ideas to further enhance our inclusion diversity in a quality efforts initial actions that we are implementing include posting to Martin first job boards, increasing mentoring and training opportunities and ensuring we have a diverse candidate slate and interview.

Panel.

Well be tracking our progress every quarter against a rolling 12 month plan.

Personally is a person's core value and its inherent in our company's culture.

Finally, I would like to highlight that we've received 2020 Cogswell outstanding Industrial Security Achievement Award.

Provider of critical National Security solutions for both the intelligence community and the Department of Defense, We're very proud of this recognition.

With that I'll turn it back opener Chuck.

Yes.

Thank you Gary in summary, our team second quarter execution was strong we overcame cover 19 headwinds to deliver strong financial results.

Also saw new technology solutions and transitioned to an effective work from Hong operational model.

We further quantified our balance sheet, which we plan to utilize to execute our strategic plan with focused investments in technology products and solutions.

Our team approach once again demonstrated our genuine desire to deliver a better world by reinforcing our core value of diversity inclusion and quality.

We have unique culture, Parsons, where our employees are the foundation of our business built on their dedication to our customers missions and our core values now we'll open the line for questions.

Ladies and gentlemen, if you'd like to ask a question at this time. Please press Star then the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

Our first question comes from Gavin Parsons with Goldman Sachs. Your line is now open.

Hey, good morning.

Good morning gap.

Chuck on federal solutions growth going forward or organic growth going forward I think you've said that could be upper single digits over the next few years and you flagged in number of key wins that will contribute to that but your backlog is kind of flat to down over the last year and a half there. So I'm just curious what gives you confidence.

And then that forecast for federal solutions organic.

Yes, Great question Gavin as we said we would have a 1.2 book to bill so far through the first half of the year and we felt that.

We keep our book to Bill around 1.1 that supports that double digit growth or high single digit growth that we've talked about we've got a lot of exciting prospects that are.

In the near term award scenario that we think in addition to those contracts we are ready at one that will support that growth.

So I mean is there also an aspect so maybe have some of these ceiling idea accuse you haven't fully booked in there or on contract growth or something like that.

Yes, so on.

I have a couple of things in the BD front, and I'll have Kerry and provide a bit more color on us as well.

But we as you say when we do book, our multi award cues, we only put into backlog data now.

So associated with tasks that we've actually been awarded so Weve book a billion dollar dashboard and start off with that $20 million tasks.

I'm going to put $20 million into backlog so.

It's out those task orders orders come through.

In addition to that as you said, we've also got a couple of contracts that on.

Where the customers, bringing in additional work kind of consolidating two or three different suppliers, where the work into one and those are pretty rapid ramp up obviously carry you want to provide a little more color on on the growth.

Sure cash at the end of the second quarter, We had an award at not book value of 220 million since the second quarter, Obviously, we announced a 307 million win.

Intelligence community contract.

Was previously one in February I was under protest and labor just reported that contract. Once again, we also have a waiting on notice of footwork seven contracts that are greater than 100 million four of which are single award contracts and three of those are multiple worry contracts, we feel very confident and federal solutions.

Right.

Thats great color appreciate that and then maybe just on GBSD sizing Nox Northrop said they expect in DMD booking in the 10 to 15 billion range. So just wanted to see if you have any update or ability to quantify what you're expecting thanks, yes, not at this time once once that contract is signed.

And.

I think northrop's day to day, they expect that to occur.

Perhaps even as soon as later this month, then we'll get down into the.

Final negotiations and scope identification for us and so that could be.

Something we announce later this quarter.

Makes sense. Thank you.

Our next question comes from Cai von Rumohr with Cowen. Your line is now open.

Yes. Thank you very much and good order so could you give us a little bit more color on bookings.

No use release.

This is this current quarter as seasonal peak.

Could should we look for the book to Bill.

Over one maybe if you could identify.

Yeah.

Targets.

Good morning.

Yes so.

And again I think as.

You cut off a little bit their Cai got little hard for me to here, but.

I know you're talking about our bookings and so generally what we're seeing is on.

Strong.

Proposal activity, we have a huge pipeline in federal solutions, especially I think we've submitted something like 21 billion in revenue for 2020.

Which is almost double what we did this time.

2019.

And we also have.

Had a real starting to ramp up quite materially our Q RC products, So which is really helping the bottom line and EBITDA.

Does that answer your question Pat.

Yes, thats helpful, but I mean, so with all of that.

Should we expect this should be a strong bookings quarter I would assume seasonally it is obviously things may not happen can see delays, but it sounds like what you're saying.

Strong bookings quarter, Yes, Q3 is as you say KYC Q3 is usually strong bookings quarters, we come into the ended the year, especially in task Order Awards.

And we've not seen a material slowdown in year prime contract or task Order Awards.

Carry any additional color you'd like to provide on that.

In addition, I mentioned earlier, we had a word it not booked US 220 million at the end of second quarter. We also have awaiting noticeable board 4.8 billion, which is significant and again, we got off to a very strong start in Q3 with the 307 million contract that we cited as well, it's a very strong start and continued Q.

Our CRM products momentum as you indicate Chi Q3 is always strong Friday I choose another transaction agreements and we're at the peak we've ever had further transaction agreements through Q2 with over 100 million awarded I'm expecting very strong idea to performance as well.

Very helpful. And then the second question would be you've talked two quarters now on detect wise.

Say is deployed.

250 opportunities.

What are we talking about in terms of revenues and when we talk about an opportunity.

Is there a dollar numbers as like a million per acre.

Opportunity 500000 give us some color on.

Financial potential towards et cetera.

Yeah. So on.

For competitive reasons, we're really at this point not getting down into same. So you can back calculate with the price of that unit is.

And when we do have curious on models detect wise very complex models. They can link right into a customer security or ticketing systems into.

Less sophisticated models that are more for maybe a larger mass application.

What we can say is that we've had a lot of interest in the intelligence community in infrastructure markets in healthcare. We've got several units that are now sold.

And in discussions with with a lot more units that it could potentially.

Be material to our revenues and earnings by the end of year.

Okay Super Thank you very much.

Thank you correct.

Our next question comes from Joseph Denardi with Stifel. Your line is now open.

Hey, good morning, guys.

Chuck or Georgia, you're one of the only services companies that talks about your business in terms of software as a service and transactional volume is clearly a strategic focus free for you also can you just talk about that a little bit fundamentally why does that improved earnings.

Earnings power of the business longer term does it make you more competitive because it just enhance profitability, what's the advantage being able to contract in that manner or go to market in that way.

Thank you Joe is it for the question and good morning.

Yes, so actually you hit the two primary nails read on the head one it obviously improves our profitability tremendously the margins in the SaaS models and these other solutions models are materially greater than what we've historically got into services line of our business Secondly.

It really builds upon our agility and rapid prototyping capability at the end of the day, what our customers are looking for our solutions to problems and there's multiple ways of getting there. They can hire a large workforce to develop a solution over time or in what we do is bringing in a sub.

Lucian either in toto or or partial and that is going as much more rapidly deployable and no solutions as we've said in the past have been.

Maybe historically got software and hardware that we've converted to cots hardware and software to be able to packaged together to total solution offering and we see great opportunity for that both on the federal side of our business as well as our critical infrastructure side.

Chuck or there are there certain customers on the government side that are more receptive to that and others that are maybe coming along.

Yeah, I think we'll I'll put everybody in the coming along phase.

But what it offers is much quicker deployment. So those customers that are interested really rapid deployment and you can kind of figure out who those might be.

Our are the most interested.

And we think about it the the ice was kind of broken when the intelligence community moved into cloud computing sphere, where they're basically procuring a datacenter as a service.

And so that provides kind of the priming the pump and I think that.

There will be more acquisitions in that regard probably in the intelligence community in defense Department over time as these solutions are more cost effective.

This way of contracting is more cost effective and more timely and in the delivery of the solution.

Got it.

Okay, and if I could just sneak one more in.

For George just maybe on the the impact from Togut in the quarter I think.

You had said previously that you weren't expecting much of an impact or we aren't seeing much of an impact now that there has been one can you talk about where across the business you're seeing at what gives you confidence that it will normalize and how were you able to maintain guidance. Despite the impact. Thank you.

Yes.

Good question.

Really matter of how the Parsons.

After the head in my remarks, we were effective and redeploying resources into other activities.

Sure you indicated we've had a lot a nice recent wins, we've ramped up that work.

I would say, we've probably seen the biggest impact and I'm sure everybody.

Yes, so we anticipate that we will actually have lesser impact as we move ahead.

Absent a significant change in the status of ours.

Yes. Thank you.

Thank you George yelling carries area, maybe you want to provide a little color on the coded as well.

Sure. So if you look at the co, but I would break it into two buckets 67, cobot impact that was not covering undercarriage $40 million that was covered under carriers that will be reimbursed on the 67. It was pretty much by 32 per federal 30 fives for critical infrastructure within the federal on the major impact.

Our assay a program, which we're now starting to see recover the projects are restarting up within a critical infrastructure sector. The main impacts were some home remediation work, which once again, starting up as far as vehicle inspection, which has returned so what we anticipate and on the terror attack coverage we're down.

Today half of what our peak was we hit a peak at the end of April early May we're now at half of that what you expect to see as partial recovery in 2020, and what the rest of the work deferred that 2021.

Very helpful. Thank you.

Our next question comes from Louie Dipalma with William Blair. Your line is now open.

Shut George Kerry and David Good morning.

Good morning loading.

I hope everybody is doing okay.

We are and we hope to steer you are as well.

Thanks.

Yesterday, you were a platinum sponsor for the base missile Defense Virtual conference and in 2019, I Remember you were awarded.

I $100 million small satellite contract with.

Air Force base and missile systems Center for small satellite integration and I believe that program is now led by our east the former CEO of your.

Systems can you discuss at a high level, how the pipeline looks for small satellite missile defense applications, and how you expect that market to evolve and your role in that market.

Yeah, I'll I'll provide an overview and then ask carry to provide a bit more detail. So that's our lindsay contract.

And John we have a high Bay facility, we put together specifically to support that out in California, where we integrate small satellites into a ring for deployment from another.

Another launched its putting up a larger satellite, perhaps and we can launch either before or after the primary payload. So we've done two launches today and we see that pace increasing.

Not just from a missile defense, but from lots of potential applications as the small sat satellite fleet.

Increases on a pretty rapid basis.

Gary would you like provide a little more detail on that.

Sure as you indicated we were awarded the contract in early 2019 since that time, we've had two successful launches the contract completion runs until 2024 and our expectation is that with every up primary payload mission space. A missile command will also be map manifesting a small satellite payload. So we.

Well continue to be involved at all launches its a very robust market with future commercial potential applicability.

Sounds good that that's helpful and also during the quarter.

You announced a partnership with vehicle, calling in registration provider Neola Gi and I was wondering just what the.

That partnership in Pailin.

But that will focus on.

Government solutions and commercial opportunity.

Yes potentially.

Lastly, when we look at that we see one a clear a clear line of sight to smart cities applications.

Where we have intelligent transportation.

Services in our intersection as a service offering.

But also as we look at the smart basis of Tomorrow really does intelligent.

On.

Transportation solutions have the same applicability into our military bases in the offerings that we're we're bringing to those clients as well.

Sounds good that's helpful. Thanks, guys.

Yes.

As a reminder, ladies and gentlemen, if you'd like to ask a question at this time that Star then one.

Our next question comes from Tobey Sommer with Truest. Your line is now open.

Thank you.

I was wondering if you could.

Speak to the impact of.

Cobot 19, and on your infrastructure business in terms of essentially making.

Cities in densely populated areas, a little bit less appetizing sliver of at least over the near term.

And maybe contrast that with.

Opportunities that could emerge that would actually potentially benefit the business just kind of want to get the puts and takes thanks.

Thank you Toby.

I think I think at this point.

We think it's probably too early to tell us exactly what the longer term ramifications are the cobot 19, we think of the Yogi Berra quote predictions or hardware, especially about the future.

But well a couple of things are for sure happening one.

Like needs to have trust re establish that they can travel safely whether thats by air train, but car and so there are going to be.

Infrastructure upgrades and modifications to.

To basically allow for more social distancing and perhaps even just physical distancing, whether its installing plexiglass et cetera, and technology solutions like our Ditech wise product that can provide scanning.

Looking for symptoms and.

And linking that to ticketing and other types of software application. So software platforms are probably going to take a big tick up.

We think the technology side.

Infrastructure will have to change now in terms of people movement habits, I mean, clearly right now travel is down.

Pretty materially so what infrastructure customers are looking for our how do they get their work done significantly cheaper than they have done before which is.

Really creates an opportunity for those companies that have technologies that can virtualize their operating centers.

And other types of applications many of these customers.

Unfortunately have really old technology, so the ability to bring that SaaS model to them. So they are having a big capital program and really prove their their core technology. We think is another near term opportunity that we'll see.

Out of co that carry are there any is there any additional color you'd like to provide on this.

Just a couple of examples but it does provide opportunity for us if you think about the way an airport works for example, the future airports are not me like that today. So weve submitted some recent beds as far as queuing, how do you get people in and out of an airport safely.

That obviously couples quite nicely with our that tech why solution also asked earlier about the DRG partnership. That's another terrific example, if an opportunity that would be post cobot as most of our totaling systems go to contact plus toll like that market is very large and growing so if you take the parsons capability with intelligent transport.

Station, coupled with the all in chase innovative technology totaling solutions, we see opportunities for a total takes tool readers license plate recognition vehicle detection classification and other yes.

Thanks, as a follow up on the infrastructure side.

We if we think of a potentially an infrastructure bill needing to be passed to for this retooling.

What kinds of items should we look for.

As being most direct potential drivers of your business.

Well I think what we've seen in the past Tobey is.

Is when large infrastructure builds are put forth and they in a really fund the advancement of technology and the betterment.

Infrastructure.

Versus I think the terminology, we saw in the past things like shovel ready, which tend to be more just quick action, but that navy customers haven't had enough time to really put forth the thought and planning that goes into a technology upgrade so the technology oriented infrastructure upgrade definitely benefits division where were gone now since we also have a.

Large physical infrastructure business, we benefit that way as as well, but clearly our solutions or are very differentiated on the technology side. So think of rail transit systems as Carey pointed out airports in aviation systems as well as.

Incorporating upgrades to take into a autonomy is vehicles and some of the work we see going on at Tesla and other auto manufacturers.

Thanks last question for me I wanted to follow up on sort of the products related to cope with 19 have out in the market I understand the reluctance to identify specific price point could you speak to the competitive landscape.

And just comments about whether this has the potential to be material. Thanks.

Thank you.

Yes, I think the competitive landscape is is.

Blurry right now because there's a lot of.

So there was a lot of first movement of existing products that probably didnt always meet the bill.

And then there are so firms like guys that are coming up with.

More differentiated product sets and in some cases, there is a little bit of confusion as to who is buying for who is responsible for buying products.

For a given market, we see a little bit of that an infrastructure side.

I think the interesting thing of the products that were producing which right now are dedicated to coded but they all have applicability to whether its seasonal flu or other types of viruses. So they have staying power and its goes beyond in many cases, just measuring temperature and answering questions.

Cardio pulmonary rates I mean could actually if our biosensors.

We continue to pass the testing that we put them through including lie virus testing.

Right now, they're showing they can detect decoded virus, let same center could be used for other types of virus detection. So the materiality comes from these are not going to be large contracts. These are going to be more large numbers of product sales. So as we think about a public.

In the U.S. of roughly 380 million people.

And if we all got tested tomorrow, we would know tomorrow, whether or not we had coated.

But since so much of it it's passed a symptomatically we wouldn't know.

Two days later, if we had cold or not so are you start thinking through how we get people back into public in how we get them back into large places whether sporting events are.

Religious worshipping areas are back into school, which is obviously a key area, we're going to need a cost effective rapid.

Rapid rate.

Response.

To covert testing and then.

Got it quickly that numbers of tests theyre going to be done over the next 18 months probably going to exceed.

Hundreds of millions in Hell, all the potential to be into the ability to test. So it's a really really good market.

Thank you.

Our next question comes from Josh Sullivan with the Benchmark Company. Your line is now open.

Hi, good morning structured carry the.

Good morning, Josh.

Can you just update us and how we should think of the pace of the drawdown on the pass through revenues going forward versus the your organic growth and the technology program. Thanks.

Thank you Josh Yes, what we had said previously is that this drawdown will continue.

Through 2020 and 2021.

And by by early 2022, we should have that.

Off its predominantly coming out of critical infrastructure, but also coming a bit out of our engineered systems portion of.

At Federal solutions.

Got it.

And then can you just expand on the overall partnership approach to technology development. How are you structuring those relationships how meaningful that they're going to be going forward and then how do you make sure Parsons yet the appropriate value from from those relationships.

Yes.

So it's a broad number of partnerships that we're looking at from.

Licensing agreements to co manufacturing capabilities weeks have scalability.

And obviously getting.

Every every partner getting their fair share of the profitability is key carry you might want to go into a little more detail on some of the partnerships, we've put together and and how we see those playing out over time.

Sure today, we have seven global channel partners that help us sell our entire products fleet worldwide. So you can pick about Q, our seed technology products.

Cut out in that Tech why solution as Mark said, our product offerings like our Packable high speed processor. We also have an additional eight channel partnerships that are currently underway, we work as well in a form of value added resellers. So some other partners that we have for example on our detect price. We've established are a great met Swift.

Able to sell their products white key differentiator for us in that marketplace. If I were system integrator. So we have both the domain my knowledge power industries work, such as aviation industry on health care, plus technology to bring along with it.

Got it.

And then just one last one can you talk about your role on the advanced Battle management system for the Air Force and then how you see the timing of that program going forward.

Yes, Gary let go ahead and take that.

Yes, so they advanced battery management system. It's one of the first steps and then joined our domain command and control so that as a model or contract where we're expecting to be a task orders. We have a second contract that were in that down select phase four as well that Tyson debt.

Thats fair join our domain command and control, which caused the tightening program, which is going to be the ground system supporting Monday domain operations in support of the Army life's hires are critical missions. So were heavily involved in all aspects of joint automaker panic control as well leveraging some of our legacy.

Offerings, such as command and control core into that marketplace.

Thank you Vincent.

Thank you.

Our next question comes from Ron Epstein with Bank of America. Your line is now open.

Good morning, guys, maybe just a morning Ron.

Quick accounting question.

Given your spend on on R&D given.

What potential change in R&D tax credit 2022 could mean for your cash flow.

Yeah.

Well.

Yeah, so much of our R&D is either all or partially reimbursed.

No no there we're going to see major impact from that George you want to provide a little different color on that.

Yes, I would agree that we'd probably see some nominal benefit run, but it would not be material.

Okay do my understanding that the customer funded R&D is included.

It is.

But our do not all that was through.

Okay, Great alright, thanks, guys.

Thank you.

Our next question comes from Justin Denardi with Wells Fargo. Your line is now open.

Hi, Thanks for taking my question.

Can you just talk little bit more about margin strength this quarter.

You see a sustainable and what was the open to impact.

Thank you Justin Yes was we said last quarter. Our Q1 each year generally is our lowest margin quarter and that's driven by a couple of seasonality items. One. It's we have higher overheads in Q1 is were.

Rolling out our business plan and strategy, making sure everyone's online.

With where we're going but it's also a period, where we generally have lower performance award fees and this particular Q1, we also had slightly higher Pat low margin pass through revenues.

Q2 is generally where we start to see the margins.

Increase and generally have been stronger in Q3 in Q4 as well.

And and usually that's driven by more award fee milestones being located in Q3, and four especially that also Q2.

And.

Yes.

Our new contracts are ramping up.

And so our overhead is more fully absorbed the other thing to generally has been occurring I think as we've said is over the last three or four years, the bid margins and the work and the portfolio work. We're pursuing has been steadily increasing in margin. So the backlog that we have.

Is sequentially higher margin as we book off as we book that new backlog, it's flowing through with a higher margin in backlog, we booked say four or five years ago.

So those things together kind of hit a confluence that are driving our margins up and we continue to see those margins go up we expect that.

Certainly by mid 2022 will have both segments operating a double digit.

No EBITDA margins.

Does that answer your question.

It does thank you. Thank you Justin.

We have a follow up questions from the line of pipeline remember Cowen. Your line is now open.

Thanks, so much so basically been focused on M&A, but you said in the first quarter coal.

Do it in a virtual.

Where are you on that issue.

Looking at more things you know would you do them in the virtual environment.

Hello.

Yes, hi, Thank you great question. So I think a couple of things have happened since.

Q1, one.

We are all getting not just Parsons, but I think all companies are getting a little more comfortable and how we can operate.

In a safe environment, maintaining social distancing using mass and disinfecting art cables and conference room. So one yes, we can do lot of its virtually but too we didn't sound waves now what we feel more comfortable going into spaces in conducting in person due diligence.

So that combined with the fact that the stock market has.

Got a little less volatile than it was there it was obviously a little volatile there in that in the March April timeframe, I think that sellers have a little more confidence that they know where things are settling out as well as buyers have a little more confidence now and where they think multiples are settling out as well. So I think it's a confluence of all day.

Those.

Factors Chi that have led to.

A significant warming of the M&A market from our perspective.

And what sort of things are you looking that give us.

Yes, absolutely. So we're staying focused in the four key markets that we've identified that are our core for us in that is cyber intelligence.

Space and Geo spatial markets missile defense and see five is our as well as our connected communities slash intelligent transportation systems.

With that we're continue to look at companies that are leveraging Ethernet either have and augment RM for technologies or benefit from our technologies in AI autonomous systems cloud computing and Aiotv sensors.

And we continually look for those companies that have software and hardware IP and either they converted quite a bit of that into either hardware software sales ours as a service sales or we believe it provides us the building blocks, we need to do that ourselves.

Terrific. Thank you very much.

Thank you.

We have a follow up question from the way that Kevin Parsons with Goldman Sachs. Your line is now open.

Hey, Thanks for the follow up I think I might have just miss in response to Justin's question, but.

EBITDA impact from cobot in the quarter.

Just wanted to see if you could put a number around that with the 67 million headwind from delayed contract work, but then also the $40 million reimbursed work under carriers that presumably didnt have you. So just wanted to see if you could quantify the EBITDA dollars that otherwise might have recognized in the quarter. Thanks.

Yes, so the EBITDA targets.

A little more difficult to calculate just because there is a lot of things that we did to counter it I mean numerous.

Yeah, we were making some overhead reductions so that countered a little bit of the coven.

Some of our customers has.

Yes allowed us obviously to go back into skips and so forth or worked from our own scared. So all of that kind of although it's fairly easy for us to attract the revenue impact it was much more difficult for us to really quantify the EBITDA impact because of offsetting factors. So.

Probably not the Claire answer that you wanted but I think thats, that's just factual reality Gavin.

Dead on that makes sense.

Sure that.

And then George maybe could you just give us an update on.

Free cash flow on on working cap collectibles, which you've caught up on and which are still kind of outstanding that are working through.

Certainly given the we're generally caught up.

With respect to major accounts, but I would say there's pockets of slowness.

Still across the portfolio, we obviously going a lot of questions about the middle East.

Thats, probably the area, where we have the greatest.

All right opportunity as we move into the second that but I would also.

Both.

Hi, everyone, but we'll have upside central.

We're probably not quite where we had enough and for term.

Given the strength of the second quarter, we've obviously middle of progress, but bullish on the second half.

Great and then one more quick one if I could carry any chance you to stead off hand of how many bids in the federal solutions pipeline greater than 100 million.

Yes, we have 15 that wallboard between now and year end and 68 in the total pipeline there are greater than 100 million.

Perfect. Thanks, so much.

How does all the time, we have for questions I'd like to turn the call back today's Philly for closing remarks.

Thank you for joining us. This morning, you have any questions. Please don't hesitate to give me a call. We look forward to speaking with many you over the coming weeks and what that will end today's call have great that.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.