Q1 2021 Parsons Corp Earnings Call
Good day and thank you for standing by welcome to the first quarter 2021, Parsons Corporation earnings Conference call.
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After the speaker's presentation, there will be a question and answer session.
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I'd now like to hand, the conference over to your Speaker today, Mr. Dave Bailey, Vice President of Investor Relations. Please go ahead.
Thank you good morning, and thank you for joining us today to discuss our first quarter 2021 financial results. Please note that we've provided presentation slides on the Investor Relations section of our website.
On the call with me today are Chuck Harrington, Chairman and CEO Carey Smith, President and C of O N George Ball CFO.
Today, Chuck will discuss the execution against our corporate strategy in the ESG initiatives Cary will review our operational highlights and then George will provide an overview of our first quarter financial results in 2021 guidance. We then will close with the question and answer session.
Management May also make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company.
We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected in the forward looking statements due to a variety of factors. These risk factors are described on our form 10-K for fiscal year ended December 31 2020.
And the other at SEC filings please.
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. We remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures and now I will turn the call over to Chuck.
Thank you Dave.
Welcome to Parsons first quarter 2021 earnings call.
We're pleased with our performance in the first quarter. The quarter was marked by strong bookings and significant margin expansion with overall results in line with internal expectations and historical seasonal patterns.
For the first quarter, we reported of 170 basis point year over year increase in adjusted EBITDA margin.
We had a 1.2 times book to Bill ratio and of $61 million improvement in our free cash flow adjusted.
Adjusted EBITDA and EBITDA margin exceeded our expectations.
And revenue on cash flow results were in line with guidance, we provide in our last earnings call.
We had another strong quarter of contract bookings with six wins over $100 million in.
In addition, we had a great start to the second quarter with contract wins totaling approximately $1 billion to date.
We've maintained our healthy balance sheet supporting continued investments in our organic and inorganic growth strategy we.
We ended the first quarter with a net leverage ratio of approximately <unk> seven turns on.
Of our low leverage and liquidity position enable us to continue our strategic investments and accretive acquisitions in technology and in our work force.
As I previously indicated.
Driven by our core values.
For the past year, we've taken steps to enhance our commitment to ESG and.
Including at the board level.
We expanded the charter of our corporate governance and responsibility committee with the additional responsibilities overseeing our ESG program.
This reflects our belief that ESG excellence is a critical component of continued growth.
Zillionths fee.
And most importantly long term shareholder value.
We've also linked of portion of our annual executive compensation to our six core values with specific targets for reducing greenhouse gas emissions and enhancing workforce diversity.
On today's press release, you'll also notice the Parsons continues to win Distinguished awards for its hiring diversity and ethical business practices.
We're proud of our culture, and our employees and accomplishments of they've made to deliver customer mission success.
I'll also improving the quality of life in the communities of which we live and work.
As covered in our April 20th press release, I've announced my retirement after 39 years of Parsons and 13 years as CEO.
I'm very excited that the board of directors unanimously appointed Kerry Smith, our president and COO to succeed me on July one.
At that time, I'll be kind of executive chairman of Parsons Board and will ensure a seamless transition.
Cary has been responsible for global operations and driving growth of both of our segments since January of 2019 for.
Our deep knowledge of our business customer relationships and proven performance makes for of the natural choice to continue to execute on our long term strategy and deliver exceptional solutions to our customers and value to our shareholders.
Carey and I are aligned on our vision for the company.
I know she'll continue to build our 77 years of success and continue to forge ahead to transform Parsons into an industry, leading global technology company.
Supporting a more sustainable safer and connected world and.
In summary.
We produced strong bookings and significant margin expansion.
Results in line with our expectations. We won large contracts maintained our pay our healthy balance sheet and continued to be recognized for our long standing and industry, leading ESG initiatives.
Finally, I want to thank our shareholders analysts employees and customers for their extraordinary support your commitment to Parsons has been extremely important to our success and we look forward to continuing our partnership.
With that I'll turn the call over to Carrie to discuss our first quarter operational highlights Carey.
Thank you Chuck first I'm excited and honored to be the next CEO of Parsons and I. Appreciate the trust. The you and the board happened me execute on our vision for the company I'm on.
On a personally thank you for the direction, you've taken Parsons and how we're positioned today as a global advanced technology firm.
Going forward I will continue transforming parsons to our solutions and the greater moving up the value chain and ensuring top positions in high growth high demand markets.
As Chuck indicated our results were in line with the guidance, we communicated on our last earnings call. We achieved strong margin expansion and continued to win large towards leveraging our technology agility and ability to consistently deliver mission success for our customers.
During the first quarter, we posted our largest quarterly critical infrastructure book to Bill ratio on more than two years at one four times and our federal solutions segment, we achieved the 0.9 times spoke the bell ratio.
While our new business awards have been notable for many quarters. What is also important is the type and size of business that we are winning.
The one larger higher value of contracts that are solutions business in both segments.
And federal this is evidenced by our recent $618 million cyber and intelligence win which occurred just after the first quarter ended.
The $618 million when what's the general services administration is our largest ever in our cyber and intelligence business.
The scope provides our mission customers and end to end solution that leverages, our cyber reconnaissance capabilities and an infinite amount of publicly available data streams to enable real time situational awareness mission planning and rehearse so on execution.
One of the significant deal by leveraging the capabilities for more acquisitions and incorporating our joint all domain capabilities to create a unique solution that adapts to the pace of the evolving threat.
Now I will turn back the quarter, one of warrants, which included a <unk>.
$600 million ceiling contract with the United States Postal service to support the ongoing modernization efforts to ensure continuous mail service.
Just on our 17 years of historical experience supporting U S. P. S Parsons anticipates, realizing $140 million on contract value.
A $114 million of contract by the public works authority of Qatar to provide program on construction management and supervision.
And $80 million award by the architect of the capital for program management.
This was the Recompete, which transitions on my model of all the work contract for a single award contracts of the Parsons.
A $69 million contract by the United States Army combat capabilities. The ball at Mcmahon Army Research laboratory to develop disruptive technology that will provide the United States for fighters with the technology advantage.
And I also am on a highlight of first quarter win that reinforces our commitment to deliver a sustainable world. We won the 75 million giant mine contract, which is one of the largest environmental remediation projects in Canada. The.
This project, one proof of safety and health of their prosperity of local citizens by containing arsenic trioxide waste stored underground and by excavator and relocating contaminated soil.
In addition, we went for a multiple award <unk> contract each representing new work for a person split department of defense and intelligence community customers.
The ceiling value of these contracts are $12 6 billion $2.250 billion and $100 million with advanced technology scope that includes the information technology intelligence surveillance and reconnaissance and information operations.
In terms of our Braxton acquisition, we are very pleased with their performance and the strong cultural alignment of Parsons and the integration progress, which will be largely complete the summer the.
Very talented Braxton team exceeded their first quarter revenue and profitability targets and we've identified three new opportunities over $100 million that we're able to collectively pursue.
Looking forward, we're excited about the momentum building around the potential American jobs plan and the proposed FY 'twenty two defense budget.
There appears to be bipartisan support for an infrastructure bill, although the amount and timing is uncertain.
The areas, where Parsons off rates that are anticipated to be included in the bell our rote of temporary just public transit passenger and freight rail airports ports of water waste water and wastewater emerging contaminants and resilience.
On the federal side of our cyber space and missile defense portfolios of line well, what's the buying of administration priorities as outlined in the proposed FY 'twenty two budget request and the interim National security strategy there.
There is unwavering commitment to renewing Americas technology, driven advantage and investing in advanced systems that would be useful against near peer competitors the big.
A stretch today to our National security include Pandemics and biological risks the climate crisis, cyber and digital threats violent extremist of men of terrorism.
On the proliferation of weapons of mass destruction, and the changing distribution of power throughout the World Parsons has and is developing solutions to counter each of these threats.
Parsons diversified and differentiated portfolio is combined with our combined federal solutions and critical infrastructure businesses.
There are very few companies that half of our collective credentials, we bring our federal capabilities like cyber artificial intelligence and cloud enabled solution story of critical infrastructure customers and we also leverage our expansion of critical infrastructure capabilities, including design construction management and environmental planning and remediate.
Sundar of federal customers.
Our sense is fortunate to operate them well funded and enduring markets and we believe we're well positioned to achieve our revenue growth margin expansion and free cash flow of targets as outlined at our Investor day on March 11th.
Our addressable markets are large and growing in both segments. We have a strong pipeline of opportunities high win rates and our solutions portfolio, that's aligned to our customers' needs.
With that I'll turn the call over to George to discuss our financial highlights George.
Thank you Gerry as noted earlier by Chucking carry first quarter results were in line with guidance provided on our last earnings call.
Total revenue for the first quarter decreased 10% from the prior year period.
Excluding $51 million of net lower pass through revenue.
The $13 million of adverse impact from COVID-19.
Total revenue would have been down 4% from the first quarter of 2020.
And down 7% when excluding $31 million from the <unk> acquisition.
I should also note the first quarter 2020 revenue represents an all time record high for Q1.
SG&A expenses increased $4 million from the first quarter of 2020.
Driven by higher compensation costs related to equity based incentive programs.
First quarter 2021, adjusted EBITDA of $69 million increased 14% from last year.
And adjusted EBITDA margin increased 170 basis points to seven 9%.
These increases were driven by higher contract profitability, including contributions from our higher margin Brexit the acquisition.
I'll now turn to our operating segments, starting first with the federal solutions for first quarter revenue decreased by $26 million.
For a 5% year over year ex.
Excluding $11 million of the lower pass through revenue for <unk>.
$16 million of adverse impact from COVID-19.
Total net federal solutions revenue was relatively flat as compared to the first quarter of 2020.
And down 7% on an organic basis.
The decrease in organic revenue, excluding COVID-19 in pass through revenue was driven by contract transitions.
Federal solutions adjusted EBITDA increased 1% from the first quarter of 2020 and.
And adjusted EBITDA margin increased 50 basis points to seven 1%.
These increases were driven by higher contract profitability.
And contributions from Brexit.
Now a few words regarding our critical infrastructure segment.
First quarter revenue decreased by $71 million for.
Of 14% year over year.
Excluding approximately $40 million of lower pass through revenue.
The benefit of $3 million associated with reduced COVID-19 impacts.
Total net critical infrastructure revenue was down 8% from the first quarter of 2020.
Critical infrastructure, adjusted EBITDA increased by $8 million or 27% year over year.
And our adjusted EBITDA margin increased 280 basis points to eight 7%.
These increases were driven primarily by lower SG&A costs.
Higher contract profitability.
Next I'll discuss cash flow on balance sheet metrics.
Net DSO at the end of the first quarter was 71 days.
Compared to 64 days at the end of the first quarter of 2020.
During the first quarter of 2021, we used $66 million in operating cash flow compared to the use of $119 million in the prior year period.
The $53 million improvement was driven by the decline of working capital and lower payments on our pre IPO executive compensation plans.
Capital expenditures totaled $4 million in the first quarter compared to $13 million in the prior year for it.
As noted earlier by truck or free cash flow improved by $61 million from the first quarter of 2020.
Our balance sheet remains very healthy.
We ended the quarter with a net debt leverage ratio of 0.7 times.
Regarding awards, we reported contract awards of $1 billion in the first quarter, representing a book to Bill ratio of one two times.
On the trailing 12 month basis of a book to Bill ratio was one one times.
Our backlog at the end of the first quarter totaled $8 2 billion.
Up 5% from last year.
It continues to represent approximately two years annual revenue.
Now, let's turn to our guidance.
We are reiterating all of our 2021 guidance ranges provided on February 24th based.
Based upon our financial results for the first quarter of 2021, and our outlook for the remainder of the year.
As we indicated last quarter, we expect sequential improvements in revenue and adjusted EBITDA through Q3.
And then down sequentially in Q4.
For operating cash flow, we expect sequential improvements as we move through the balance of the year.
The other key assumptions in connection with our 2021 guidance are outlined on slide nine in today's Powerpoint presentation.
Located on our Investor Relations website.
With that I'll turn the call back over to Chuck.
Thanks, George to summarize we delivered strong bookings and significant margin expansion with results in line with our expectations.
We also had a strong start to the second quarter was the major contract win in our cyber and intelligence business unit as.
As we look ahead, we're excited about our future with our positions in growing and enduring markets in both segments.
Revenue growth will accelerate while margin expansion of free cash flow conversion will continue.
These are driven by benefits from our technology solutions align with the by the administrations infrastructure and defense priorities.
We will also benefit as we move beyond headwinds from COVID-19 and pass through revenue and large and leverage our robust balance sheet for accretive acquisitions.
Again, I'd like to extend my congratulations to carrying as she prepares for a new role in the coming months.
Thank you and now we'll open the line for questions.
As a reminder, cash for the question you'll need the press Star then one on your telephone keypad.
To withdraw your question press the pound key.
Again that is Tom on one to ask the question.
Our first question comes from Joseph de Nardi with Stifel.
Oh, Thanks, good morning.
Chuck just on the on the the cyber contract you announced after the quarter can you give us the duration for that.
Yes, John Thanks for the question.
Why don't you go into a little detail only about the duration, but some of the things we're doing on that contract.
Yes, sure Chuck So it's a five year of contracts the contract is for seats for ISR exercises on.
Operations and information services, the purpose related position the United States for National Security in the Endo paid Com region, which is becoming increasingly important we're really excited that we were able to leverage our cyber of kind of sense capabilities, along with real time situational awareness targeting mission planning and execution. This.
Contract will broadly support the department of fence intelligence community as well as the combatant commanders.
That's great and then Chuck or Terry can you just talk about kind of your positioning relative to the infrastructure market I know a lot of that what's going on there is still very fluid, but can you talk about kind of what you're monitoring how well positioned do you think you are given some of the priorities.
Any sense of timing on when you think that could actually benefit your business.
Sure Joe as we've mentioned in the past.
It's really been.
Well over 15 years before we were since we were really bullish about of infrastructure Bill and we're more bullish about this one.
And then any of the ones before and Thats because there is broad support on both sides of the aisle for physical infrastructure that we do and you look at our infrastructure work about 75% of that is oriented to transportation. So we think of roads and highways and bridges in rail and transit systems and airport improve.
<unk>.
About another 17% to 18% is an environmental remediation and that's obviously a high priority for the by the administration and another 11% 12% is in the area of water and wastewater treatment. So we are really well aligned and positioned well.
Well I think it would be reasonable to assume that sometime maybe towards the end of Q3 early Q4, we'd see an approval of that bill, perhaps sooner, but I think it's more likely to be towards the towards the end of Q3 of carry anything you'd like to add to that.
Sure at the top level of 2 billion of fire of 4 billion of revenue is centered around the infrastructure. If you break that down further $1 2 billion of that is based in the United States that will benefit from the infrastructure Bill I also want to highlight the we're seeing a growth in Canada as well as the middle East as well on infrastructure projects and our Middle East Group.
A very strong year in 2020 is postured for strong year on 2021 as well.
When you look can you break down the plants, the bite and play on it 2.3 trillion or of the Republican plan at 568 million. There is that Parsons place and are have bipartisan support so transportation infrastructure or the herd of infrastructure supported by both groups and credit bridges highways rail public transit passenger on.
For April systems growth.
The Red cell E&C airports and road safety worry about at each of those areas.
The other areas that Christine bipartisan support include.
The broadband electrical grid, and water and wastewater treatment as well as P. Fast P fast emerging contaminant elimination. So we're quite excited that we felt Parsons will receive support regardless of how the bell on shop.
Is it fair to say that the the 5% to 7% revenue CAGR you talked about at Investor day, the infrastructure would provide pretty meaningful upside to that and then can you just talk about kind of risk management.
On the infrastructure side, given the labor market and concerns around inflation can you talk about how you balance of those risks against what looks to be of pretty exciting opportunity for you all over the next couple of years. Thank you.
Yeah. So as we described on Investor Day, we did not put in the assumption of an infrastructure bill into our forecast. So one would expect that to have.
Have an increase significant increase to those those rates as the bill gets defined and proved and typically six to 12 months. After of Bill is approved before you start seeing upticks in terms of risk you know the bulk of the work, we do and net market is either fixed price design or cost reimbursable.
<unk>.
The program management construction management so the.
Any sort of of escalation on materials is not that significant in terms of labor availability.
On one of the things we pioneered going back 20 years, Joe was the ability to shift work to where the people were available.
So almost all of our infrastructure work involves multiple offices in multiple states and sometimes even foreign countries to execute that work.
So we tend to move the work to where the people are and we don't anticipate any issues around that either.
Thank you.
Our next question comes from Sheila <unk> with Jefferies.
Hi, good morning, everyone and Chuck Congratulations on your retirement again and carry on the promotion of course.
So I guess on.
The Federal solutions first you guys can hear me right.
Okay cool on federal solutions. The book to Bill was about <unk> nine times revenues contracted 7% organically I think your full year guide is.
About up one organically for <unk>, how do you think about the ramp.
As we progressed through the year.
And that segment as we've typically had in the past we tend to start slow for.
And that's predominantly due to a lot of jobs just haven't got it.
Really gotten going yet in the year for you.
Look at 2020 as the basis weight of lot of pass through costs that we didn't really have.
This year.
And so I think the ramp will look very similar to prior years, they're really great thing is that we've got so many great wins that have come in even right right. After the end of the quarter that really gives us a great deal of of confidence in the growth of that unit and we've gone through the COVID-19 headwinds.
Still half of those the candidate will continue this year due to the late starts in the Antarctica Kwajalein Island.
We still have the low margin last year of low margin pass through revenue run off so the the great News is we're continuing to drive those margins up as the result of of that work those strategic moves that we made.
Terry is there anything you'd like to add on the federal ramp yeah. Thanks, Chuck and thank you Sheila for the congratulation on I appreciate it.
A few things relative to the federal specifically that give us confidence that the FAA program is returning in 2020 one to the 2000 2019 pre pandemic levels. We're currently 90% staffed we'll be fully staffed by the end of May so that will ramp up an additional $40 million as we start to head into Q2 also.
The we mentioned the strong book to Bill I would highlight that for.
For the $1 billion that we received since Q2 started nearly all of that is in federal market. There were some delays last year and those were starting to see those awards pop out finally, QR C technologies, which as you're aware delivers very high margin has its highest growth and Q2 and Q3 and the.
It's based on historical year over year information and we'll have a full year of Braxton the share.
Well. Thank you for that color and then just going back to the cyber business can you remind us how big it is I think it's about 400 million of sales. So you've got a you know I think the contract you announced is over five years 600 million or so so could that imply 20% growth to that business. I guess, what are you seeing in terms of growth in cyber and what's your.
Visibility like there.
You want to take that Gary.
Sure. So yes, Sheila cyber of surround of 400 million dollar of business unit.
On the new work the way that we're gonna of kind of book it because we try to be conservative for when we have new contracts. We'll book the first year and we will make sure that we're realizing that revenue.
You recall of our second largest cyber and intelligence contract was the combatant commander mission support for $590 million. We did the same thing on that contract and we're fortunate that we are seeing the growth on that contract. This is another one that's under GSA fetch them. So we're very optimistic that we'll be able to drive the volume through that vehicle as we proceed.
Forward, but we will take a conservative booking to start. We're also focused on other single award contracts that we've received one of year and a half ago and the classified area and building up to the ceiling. There. So we see growth coming in the cyber and intelligence area.
Thank you.
Our next question comes from Tobey Sommer with true security.
Hum.
Good morning.
I Wonder if you could.
Benchmark for.
For us what the impact was on the company's infrastructure business. The last time, we had a low kind of quote unquote infrastructure Bill in 2009, the dollar values of the kind of direct infrastructure related monies in the in.
And the package unveiled by the current administration seems to be substantially larger and maybe understanding that historical relationship would help us understand the the potential.
Potential consequence of the current discussion.
Yes, so if.
If you look at that last bill.
That drove our especially our transportation business.
For us to really lead the corporation in terms of revenue growth and profit bookings expanded our margins during that era and I might note that during that era, we had twice as many competitors for the large programs.
In the U S that we have today, just due to consolidation in the industry and theres been a lot of merger and acquisition.
Activity.
On.
I don't recall of the specific growth rates Tobey off the top of my head, but they were significant and as you pointed out it had a fairly long tail.
Revenue growth that we got through 2009 continued we had record years of <unk>.
Profit and revenues in 2008, nine and 10.
On all as a result of that bill even as the.
Other parts of the business were had curtailed a bit due to the global financial crisis. So it was material George is there anything that you'd like to add going back to that era.
No that's exactly for Chuck I would say if you were to put a number on the Tobey we as Chuck suggested.
We realized probably of 10% CAGR.
On growth for about three to four year period.
For net.
Order of shorter bill duration in this one.
Yes, yes.
And interest so far.
Follow up question sort of something that's been asked.
The the revenue trajectory and organic growth has trended down some recently.
You did convey a of some good contract awards in signings here is the other.
The pipeline of bids submitted due to be awarded either yourselves or potentially an alternative.
Provider is that looking pretty robust right now what's the outlook for.
The next.
Several quarters, because we've heard mixed takes on that from other public competitors.
Well as we stand today and now I'll have Carrie get little more color on the us, but we're looking at 14 contracts waiting award over $100 million.
The revenue represents.
Yes, several billion dollars of awards and if you look at our pipeline.
Standard right now with outstanding proposals awaiting adjudication at about $6 7 billion, which is relatively flat to Q4, but well up over Q3, 2020, where we were down below $5 billion at that point. So it's a very robust pipeline and we're seeing it in both segments of carrying <unk>.
Anil color you'd like to provide on that.
So the pipeline is at 38 billion and within the 38 billion, we of 72 bids greater than 100 million the wallboard.
Within 2021 or 2022, and then if you look out to 2020 for that number increases to 90 beds for $100 million as Chuck mentioned, a $6 7 billion of waiting notice of award and this year, we plan to submit 24 billion in bids versus 12 billion last year.
Add to Sheila's question. She asked about revenue confidence in the federal market also on a few points I would add to that I mentioned, the FAA program for federal but in critical infrastructure. We're looking to consolidate Ed mentioned sales starting in Q2 for $28 3 million additional and I'd like to highlight.
The strong book to Bill that we've had on critical infrastructure with the record in the last two years occurring within the last two quarters of one three times and one four times. So we're bullish on the pipeline on our prospects.
I think one other thing that I would just mentioned as you remember at our Q4 earnings call. We talked about how there was kind of of log Jam building awards out of the IC IC.
<unk> business.
Primarily due to the people not being in place and the new administration and that logjam seems to have broken through at the end of towards the end of Q1 and definitely the start of Q2.
And the last question for me do you think that we're likely to have a budget in place.
On time or would you.
Guests of the odds are we'll have a CR to start things out.
I think what our planning is the.
We always planned that the potential exists to start with the CR. So we're not surprised by that.
And I think it's too hard to predict at this point I think of I think we'll know a lot more mid summer as we see how some of the discussions go on the on the infrastructure Bill to really get a good handle on whether or not we'll be starting with the CR. If so how long of SCR is likely to go but.
I'm fairly positive that we will have if we don't that we either will not start with the CR or if we do it'll be relatively short.
Our next question comes from Gavin Parsons with Goldman Sachs.
Hey, good morning, and the congrats to bill checking theory.
Thank you Evan.
Curious what was the follow up on your comment that I think you said just submit 24 billion of the bids this year versus 12 billion last year is that right.
Yes.
What's the enabler of behind that I mean is that besides the easy scaled up over the years of the integration of M&A shifting more bid and proposal two for those solutions for critical infrastructure.
Then.
How much of that is of lower kind of P win but that could be significant upside drivers. If you do actually go after them.
Yeah.
So we have one major brake piece of it will be submitting this year, which star teams recompete or three contracts were consolidated into one that bids outbreak on M. We anticipate that being awarded in June of this year. So that's significant.
We also saw a big drop in intelligence Rfps last year. So the our typical bid volume with the intelligence community is a couple of billion of year last year, we only submitted $173 million. So that's a significant change and then the third area is built bidding bigger and larger jobs.
GAAP.
Moving to that last point, if you remember from Q4, we said that that 24 billion.
Got bidding twice as many of them contracts.
We're bidding contracts that on average are twice as large as we used the bid.
And that's largely as a result of the great acquisitions that we've done in the uptick in the large infrastructure bids.
Got it that makes sense the.
George just thinking about margins throughout the day, you mentioned the revenue and EBITDA of two <unk> down in <unk>.
But if I just assume you'll know margin expansion for the rest of the year year over year kind of get.
At or above.
On the guidance for the year. So it was because of <unk> strength points of potential upside or is this just slightly more normal seasonality than last year's light <unk>. Thanks.
Yeah. Good question I would say, it's more normal seasonality.
We did have as we.
We have outlined on the.
Our comments of higher margins in Q1.
We do do though anticipate the Wii.
We'll hit our guidance, we don't see much upside last year, we had some performance fee pickups, which were somewhat outsized, but we don't anticipate repeating this year.
So we think we'll probably run slightly lower through the balance of the year, but we do plan to hit our guidance targets.
And just a couple of other additions our equity and earnings tissues like back end loaded I mentioned QR sees best quarter of so usually Q2 and Q3 will have a full year of Braxton and we did achieve an 18, 2% margin in Q1 of the Fracs, then and our improved contract profitability has been continuing.
Okay. Thanks very much.
Okay.
Our next question comes from Cai von rumors of Cowen.
Thank you so much and let me join the others and congratulation.
Chuck and congratulations Carrie.
So.
You mentioned, you know that the bit logjam is starting to break.
As you know the normal pattern for the sector at least the federal solutions as the.
Q2 is better than on them.
Q3 is enormous or im sorry, very big could you give us some color as you look at things today.
How you see that is that the pattern. You've seen is there is the room for catch up because others are also said the things were slow and lots of reasons why things didn't get done do you think we're going to see catch up. So we will have we have the potential for a better the normal Q2 on Q3.
Certainly as it relates to our specifics we have a couple of big bids that we expect to close in Q2 or early Q3, but to that catch up carry you might want to provide a little more color on that and could it be a real upside.
Yeah to your point kind of Q3 issues are strongest, particularly idea IQ I'm trying to use any of your funds.
I would say, we still expect our strongest in Q3 and obviously, we're bullish on Q2, given what we've seen since the beginning of April.
Terrific and could you give us just.
The excuse me a little more color on the team's award how big is that and.
If you win it given its consolidating three pieces, what sort of upside does that have in terms of revenues.
So a bunch of what it took all of around three major contract chip. It was our systems engineering contracts of much of our weapons of missiles.
On contract and it was our facilities for the lifecycle of support contract and a bundle of those into a single contract called the team's nextgen on the team's contract, which we've been performing close to 40 years with M. D. A we did have a hiring freeze last year and were unable to hire they have lifted that hiring freeze the share. So we.
We're able to hire and as we get the New award which will be.
I'll, probably keep the number of confidential since it's still on bid.
As we get the New award there is the potential for more upside work and we're starting the C. M. D. A has some new tasking and that we've been able to perform.
Terrific.
And then the last one.
On the infrastructure.
Bill.
Could you give us any color in terms of if it really passes let's say by early Q4, roughly how long will it take do you think for revenues to flow through to Parsons.
Yeah.
So traditionally what we've seen kind of said it.
And it usually takes about six months for the money to get obligated.
Cities and counties and states in certain federal agencies to apply and get the uptick and get the rfps out the quickest uptake of occur where we're already an incumbent.
And we have several programs on the infrastructure side, where the the initial contracts were awarded but they had anywhere from several hundred million dollars to $1 billion of additional work they want to do waiting funding. So those customers were already working with to get their funding application and so goes.
We'll be the quick hits and then.
Then there will be others that take a little longer but usually six to 12 months you start to see an impact.
Thank you.
Our next question comes from Josh Sullivan with the benchmark company.
Hey, good morning the.
Chuck Thank you for your for your leadership and congratulations and congratulations to the carrier and look forward to your vision.
Thank you Charlie.
Just just the trends towards larger contracts you know how much of that is driven by your business development initiatives versus the structure in which the customers are awarding contracts and have you seen a material change under the new administration with regard to that.
Okay, and I'll have Terry go into more detail on this but if you go back to our strategy of focused M&A in certain.
High technology high growth market and we started off.
Seven eight years ago, as a supplier to larger companies and not of prime.
And by weaving together of those acquisitions into providing the critical mass of high end capability. That's allowed us to go after prime contracts on the federal side. So that's that was part of this very strategic move on our federal side on the infrastructure side, we've always been a large <unk>.
Project firm, but what customers have done is taken things like bridges and appended it with the on ramps and off ramps on both sides. So to be at a more efficient capital project executed they've rolled more and more nearby projects into the large projects to get them executed.
At one time, so both of those things of so it's our strategy and two moves by both our federal and critical infrastructure customers to make larger contracts are playing together here of carrying anything you'd like to add on that.
I agree with what Chuck said on our M&A strategy has been very deliberate how do we develop end to end solutions across our key growth markets of cyber and intelligence space ISR missile defense and by doing that we're able to bid and win larger jobs. We also tend on the federal space to play on the leading edge.
So we're seeing new opportunities new large scope contracts come out there has been some bundling if you look at efforts Oh for within the intelligence community and then the fed some deals have been very large so we have been intentionally focused on those because we can provide the end to end capabilities on the infrastructure side we've done.
The same migration from a service company to of solutions integrator over the past for years and we've really moved in the technology light infrastructures. So the ability of provide smart infrastructure and look at areas such as what are coming out and the proposed to American jobs plan as far as infrastructure modernization and finally I would highlight our internal research.
And development of investment, which has increased 20 times over the last for years.
Got it got it.
And then do you anticipate any overlap between where the defense budget priorities are and any of the potential infrastructure bills that are coming out. The Parsons you guys appear to be well positioned I would think for for overlap on things like cyber security.
Then could it also bring about any complications on funding sources or anything of that nature.
No.
Josh we don't anticipate any or foresee.
Any any complications from the work that we do conflicts of interest et cetera on they usually do you think about cyber and our approach has been designed it in so it's actually a net.
Natural on.
But the carry any anything that you see the items.
They are complimentary for us. So we're fortunate company that we have both portfolios on under the same company. So if you look at areas like resiliency and you apply cyber resiliency you can do it obviously on the defense side, which we are heavily but it also applies for the entire critical infrastructure site and there will be funding going into that area.
Just like emerging contaminants as well and we're doing the emerging contaminant P Force P. First elimination of work on both the federal on the critical infrastructure business units and then if you look at areas like Smart intelligence, how do you leverage the data that you're getting from sensors that applies whether you're designing of smart base on the federal side or a smart city on the critical infrastructure side.
So I feel that Parsons is uniquely positioned to be able to benefit from both.
Yes.
Do you think that cyber security aspect of infrastructure do you think that naturally resides on the infrastructure side or on the defense side.
So we the way we approach the marketplace as we use are of critical infrastructure account managers because they have the domain knowledge. So for example, if you're putting cyber security in an airport or of port.
They take the lead for my customer perspective, and then we bring on the technology from our federal site.
Thank you for the time.
Our next question comes from Mariana Perez Mora with Bank of America.
Good morning, everyone and congratulations both the calorie on tech.
Maryann.
So could you kind of reminding us what is embedded on your previous or like power range and mid single digit growth expectations for critical infrastructure. So we understand how the incremental.
The items policies at the odd to those.
So on.
As I think we said in our Q4 call. We looked at critical infrastructure. We did not include an infrastructure bill and our low to mid single digit organic growth forecast for that unit once the low margin.
Revenue pass through that concluded this year and that was based on the strength of the markets. We saw in the U S, Canada and the Middle East.
Obviously, a large infrastructure bill on the U S has an uptick on that and as we see the specifics of that bill.
Which will be towards the end of this year then we'll we'll.
We look at our out year out your growth.
Growth for expectations.
On.
At the midpoint of the range as we showed at the Investor Day in 2020, we had $2 billion and then we're going to 2.3 and 2023, we had both units growing both of mobility solutions and connected communities.
Yeah.
Okay and then what are the main drivers of that margin expansion about something.
So if you look at what we've been implementing to date the.
The primary drivers have been the run off of low margin pass through revenues and so that continues to.
A GAAP units margins this year.
Also we consolidated a lot of our back office operations between Federal solutions for critical infrastructure that also made us more efficient from the overhead G&A perspective, but it's also of the bid pipeline margins as I mentioned earlier theres been out on.
On the one hand, a huge consolidation of.
The players that we compete against in that space. So that's naturally led to higher margins and now if we look at an uptick with additional spend from an infrastructure bill.
I would expect that to be accretive.
And even what we've forecasted to date.
Yeah.
Okay perfect. Thank you very much.
Our next question comes from Louie Dipalma with William Blair.
Chuck Carrie and George Good morning.
Good morning.
Congrats Carey and checked on the passing of the torch. Thanks.
Thanks for Lilly.
Thanks Louie.
And first I want to confirm.
Is high single digit slash low double digit organic revenue growth in 2022, and 2023 in accordance with your analysts day projections.
Well, what we said is once the we.
We have got out of COVID-19.
And the low margin revenue run off obviously, we have tailwind to our organic growth at that point.
Plus we had a lot.
Some rather large contracts that were starting up.
And.
I think what we've always said is over.
Over the longer term takeout in a year on year to year anomalies.
<unk> Sans an infrastructure bill we've seen the infrastructure of business growing in the low to mid single digits and the federal solutions growing in the.
Mid to upper single digits, obviously year to year growth can be hired of that after you know as a result of COVID-19 et cetera of.
George anything that you'd like to add to that.
On the Ed agree with the probably balance.
Uh huh.
Maybe you're about six or 7% for the enterprise.
Great.
And Georgia as a follow up does the.
The margin profile for your recent strong bookings on the critical infrastructure and federal side.
For those bookings instill confidence that the margin expansion can continue.
Okay.
Yes.
We have experienced even sort of going back for the IPO.
We've experienced the consistent.
The improved margins on the intake on <unk>.
Words compared to what we're running off.
So that's one of the the incremental drivers and sing margins creep up in the per.
Past and we expect that that will continue.
Awesome.
Thanks, Carrie and George.
Thanks, Laura.
Sure.
As a reminder to ask a question you'll need the price. The Star then one on your telephone keypad.
Our next question comes from Joseph de Nardi with Stifel.
Hi, Thanks, just a quick follow up on the 24 billion.
<unk>.
Because contract value you anticipate bidding on.
This year over the next 12 months, how do you handle kind of large ceiling value contracts in that number like for example, I think in March.
You announced that you want to see it on a $12 6 billion dollar contract how would something like that the reflected in the 24 billion. Thank you.
Sure.
Well I don't think there are any of $12 billion ceilings and the 24 billion.
The.
The.
And that one was kind of the.
The when the the team.
Wasn't of long term pursuit you know it came up we pursued it we want it.
But generally we're quoting the the contract ceilings and for the most part of those are within the range of.
Theyre not outsized wins, you know Kerry you might want to provide some color on the 24 billion.
Sure well, Joe we did win for amount of ball word contracts. This quarter one of them a set of $12 6 billion ceiling with our defense Intelligence agency. The way we bought the the other says as we win task orders. So it's the only the single award contracts that we book.
Okay. Thank you.
That's all the time, we have for questions today I'd like to turn the call back to Dave Bailey for closing remarks.
Thank you for joining us. This morning, if you have any questions. Please don't hesitate to give me a call and we look forward to speaking with many of you over the coming weeks and with that we'll end today's call have a great day.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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