Q2 2021 Parsons Corp Earnings Call
Good day, and thank you for standing by and welcome to the Parsons Corporation second quarter 2021 earnings Conference call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session to.
To ask a question during the session you will need to press star 1 on your telephone.
Please be advised that today's conference is being recorded if.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker day Silly Senior Vice President of Investor Relations. Please go ahead. Thank you good morning, and thank you for joining us today to discuss our second quarter 2021 financial results.
Please note that we provided presentation slides on the Investor Relations section of our website on the call with me today are Kerry Smith, President and CEO and George Ball CFO.
Today Cary will discuss our corporate strategy and operational highlights and then George will provide an overview of our second quarter financial results and revised 2021 guidance. We then will close with a question and answer session.
Management May also make forward looking statements during the call regarding future events dissipated future trends and the anticipated future performance of the company.
We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict actual results may differ materially from those projected in the forward looking statements due to a variety of factors. These risk factors are described in our form 10-K for fiscal year ended December 31, 2020 and other S.
You see 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.
We 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 Kerry.
Thank you, Dave I want to welcome everyone to Parsons second quarter, 2021earnings call.
At the outset, let me say, how excited I am to be on the balls Parsons CEO hits.
It's an honor and privilege to lead a business that has 2 complementary segments with increasing demand. We're in all the right markets with all the right capabilities across both our critical infrastructure and federal solutions segments.
I also wanted to take this opportunity to again, thank our executive Chairman Chuck Harrington for his leadership as our CEO for the past 13 years.
Give it my new role associate with Parsons I thought it would be helpful to start with my assessment of the business as well as some thoughts on what's going well and areas. We are focused on improving it.
As you will hear throughout today's call our immediate priorities are to deliver our customers' critical missions drive organic growth and complete legacy credit Corp restructure programs.
In federal solutions, we are well positioned in attractive high growth markets, where our capabilities are closely aligned to our customers' highest national security priorities.
We have a long and successful M&A track record that's enabled large prime contract wins.
We offer a differentiated technology rich solutions focused on near peer threats and as a result, we continue to win new work, which together with our existing base provides a solid foundation for growth.
That said, we have experienced procurement funding delays and we face a competitive hiring environment.
We'll discuss this morning, our executive leadership team is focused on addressing these issues.
Moving to critical infrastructure World, we're all for it now and design for them for projects across multiple disciplines, including bridges dams roads and highways smart cities airports and rail and transit.
We have truly differentiated capabilities in environmental remediation, including water and wastewater treatment mine reclamation and the elimination of emerging contaminants.
We also offer unique cyber resiliency capabilities, which can be coupled with our design expertise to drive critical infrastructure protection, placing us at the intersection of infrastructure and technology.
We continue to see increased infrastructure demand throughout the United States, Canada, and the middle East, even without it and infrastructure being in place, which would drive even more funding in the United States if enacted.
Finally oil prices have rebounded, which is helping our med always posture.
However, we are completing legacy programs that were awarded prior to 2019.
As most of you are aware, we made the strategic decision to no longer perform work in particular areas such as prime construction and instead focus on areas such as design.
No nurse engineering work as a result, we feel the risk profile of the company has been significantly reduced going forward.
With this background I would like to discuss our second quarter performance in more detail.
We achieved excellent and record second quarter cash flow of $104 million and record contract awards of $1.7 billion, but our revenue of $879 million was below our expectations.
Based on strong 12 month book to Bill ratios in both segments and key contract wins, we did not generate enough revenue to compensate for the program completions that we faced in the first half of 2020.1.
We are working with our customers to accelerate task order of funding across our major contracts and were diligently ramping up new contract wins.
In federal solutions for our ability to drive organic growth is dependent in part on our ability to recruit and retain employees.
Well, we've done a terrific job retaining employees once hired the hiring environment is very competitive right now, particularly on the technical and cleared space.
As part of our strategy to address this we recently hired a new chief Human resources officer with 3 decades of federal industry experience and a new Chief Communications Officer also with her extensive federal background.
Recruiting is our top priority and we're reviewing our strategy to ensure we can continue to attract the talent we need to support our growth.
As a result of the procurement funding delays are competitive hiring environment into second quarter reserves, we are lowering our 2021guidance.
As part of the reduction in guidance, we have also changed our assumption on the ability to consolidate sales on our Edmonton program.
During the quarter, we did have many significant accomplishments starting with our record second quarter cash flow.
We also achieved record awards for both Parsons and our federal solutions segment.
We announced a key acquisition that expands our mission focused technologies and enables us to drive information advantage against near peer threats, while exceeding our strict M&A criteria.
Second quarter contract awards for also a record and increased 67 per cent year over year to $1.7 billion, which equates to a book to bill ratio of 1.9 times.
This was led by our highest ever booked over at the low ratio of 2.8 times and our federal solutions segment.
Our critical infrastructure book to Bill ratio was also solid at 1.1 times.
During the second quarter, we won 3 significant contracts for mission critical work day disturbing by the administration's commitment to ensure national security.
We were awarded the 2.2 billion dollar teams next contract by the missile Defense Agency the largest contract award on Pearsons history.
Under this contract Parsons will provide engineering analysis and management support for the development of integrated a layered missile defense systems that defend the United States and Allied forces against ballistic hypersonic and cruise missile threats.
We book the 3 year base period were $617 million out of the total contract value of $2.2 billion and a total period of performance of 7 years.
We were awarded a $618 million task order by the General services administration for C..5 ISR exercise for us operations and information services.
We will support numerous mission partners, including the intelligence community Department of Defense and Department of state by providing real time enhanced awareness that enables warfighter information advantage in their area of responsibility.
We won a significant award by leveraging the capabilities from our play herself, Oh, Gee systems, and QR see acquisitions and incorporating our joint all domain capabilities to create a unique solution that adapt to the pace of the evolving threat.
In the second quarter, we book the first share base period worth approximately $90 million out of the total contract value of $618 million.
We were also awarded a task order contract by space and missile system Center for integrated solutions for situational awareness R. I S S a and.
In addition to deliberate on operational technical and space domain awareness expertise Parsons will meet critical innovation and agility goals for the ISO say effort by providing unique solutions in astrophysics intelligence data analytics and multi domain operations.
This contract has a ceiling value of $185 million and was won by incorporating that capabilities and expertise from our player herself acquisition.
Under this contract we booked $148 million in the second quarter.
I am very pleased with the significant contract awards in our federal solutions business.
A word on K, but he has also remained strong in our critical infrastructure segment with second quarter highlights, including the award of a but always program management contract for $91 million.
We continue to execute on our acquisition strategy of buying mission focused companies with differentiated technologies the level of activity on the M&A market remains high and we see attractive opportunities on our core markets.
During the second quarter, we announced the $203 million acquisition of Black Horse solutions and subsequently closed on this transaction in early July.
This strategic acquisition expands Parsons customer base and capabilities in next generation military intelligence and space operations, specifically, cyber and electronic warfare and information dogma, that's black.
Black horse also exceeds our M&A financial criteria with revenue growth and adjusted EBITDA margins, both exceeding 10%.
Black horse as a company we have partner with and has a similar mission focused culture with a strong reputation in the market.
This acquisition enhances our ability to pursue and win large joint all domain contract to combat near peer threats.
This quarter, we launched our care are cultivating a responsible enter price initiative, which empowers every employee to make a difference in conjunction with this initiative, we published our 2021 corporate social responsibility report, which highlights our new ESG initiatives, including reducing absolute greenhouse gas emissions.
By 20% by 2025, and enhancing gender ethnic and racial diversity.
In partnership with the modern Military Association of America, Parsons, probably awarded the inaugural recipient of the 2021 Dana Johnson military spouse scholarship to Jonathan Haigwood, an army veteran.
Monetary Association of America's dedicated to advancing fairness and equality for the LGBTQ military and veteran community and we are proud to support this initiative and advancing diversity equity and inclusion.
In summary, we generated strong free cash flow achieved record awards announced a significant acquisition and maintained our balance sheet flexibility.
Going forward, we have solidified our base of business with our $2.2 billion teams Recompete win.
In addition, we have meaningful tailwind from a significant amount of new business. We have won contracts that are gaining momentum post COVID-19 and on contract growth.
We're also accelerating our recruiting and retention initiatives and we expect to grow on the second half for the share over the first half and this growth is expected to continue into 2022 and beyond.
Our portfolio is differentiated and diversified.
Our federal solutions portfolio is well aligned with the bite administration National security priorities for cyber C..5 ISR artificial intelligence missile defense and space.
Our critical infrastructure portfolio is consistent with the administration's transportation, environmental remediation and water and wastewater treatment priorities and at schools of enhancing the cyber security and resilience for future infrastructure projects.
We're excited about the future given our differentiated position and experience in these growing and enduring markets and our proven ability to win new work.
With that I'll turn the call over to George to discuss our second quarter financial highlights and 2021guidance George.
Thank you Carrie just curious indicated second quarter results were highlighted by strong cash flow.
Robust awards and M&A activity.
Total revenue for the second quarter decreased 10% from the prior year period.
Was down 13%.
Excluding $29 million of revenue from a Brexit decision.
These decreases were driven by delayed procurements and funding to.
2 contract reserves and a competitive hiring environment.
SG&A expenses were relatively flat from the second quarter of 2020.
Adjusted EBITDA of $66 million represents a decrease of $25 million from last year.
And adjusted EBITDA margin decreased to 7.5 per cent.
These decreases were primarily driven by the 2 reserves as.
As well as contract delays and a competitive hiring environment.
I would like to address the 2 reserves, we recorded in the second quarter.
The first was a $6.9 million dollar reserve on.
On a federal solutions contract.
Where we are a subcontractor insurer incentive fees with the prime.
The program has suffered delays beyond the control of the prime contractor and.
And we've determined the previously recognized performance fees.
You may now be partially impaired.
The prime contractor plans to issue a request for equitable adjustment for free recovery.
This type of reserve is highly unusual for federal portfolio.
The second reserve the amount of $15.4 million.
This is associated with a legacy critical infrastructure program.
Extensive discussions with the customer during the second quarter were unsuccessful in resolving issues associated with cost escalation on schedule delays and we have submitted a claim to seek recovery for these damages.
I'll turn now to our operating segments, starting first with federal solutions.
Where second quarter revenue decreased by $40 million or 8% year over year.
The decrease in revenue was driven by procurement and funding delays.
The competitive hiring environment and the aforementioned program reserve.
This was partially offset by the $29 million of revenue from Braxton.
Excluding the Brexit on acquisition revenue decreased 14%.
Federal solutions, adjusted EBITDA decreased $15 million from the second quarter of 2020.
And adjusted EBITDA margin decreased to 7.4%.
These decreases were driven by the $6.9 million dollar reserve.
And a $9 million incentive fee recognized in the second quarter of 2020.
Moving now to our critical infrastructure segment.
Second quarter revenue decreased by $61 million or 12% year over year.
This decrease was driven by program completions.
On a $19.3 million impact from the reserve taken on the legacy critical infrastructure program.
Critical infrastructure adjusted EBITDA decreased by $10 million year over year, and was driven by a $15.4 million impact from the reserve taken on the legacy critical infrastructure program.
Partially offset by an increase in equity and earnings from unconsolidated joint ventures.
As a result, our adjusted EBITDA margin decreased to 7.6%.
Next I'll discuss cash flow and balance sheet metrics.
Our net DSO at the end of the second quarter was 67 days.
Compared to 69 days at the end of the second quarter of 2020.
And 71 days at the end of last quarter.
Our second quarter operating cash flow totaled $104 million.
Compared to $88 million in the second quarter of 2020.
This increase was driven by strong cash collections.
On a positive changes in working capital.
Capital expenditures expenditures totaled $5 million in the second quarter compared to $10 million in the prior year period.
Our balance sheet remains very strong.
We ended the quarter with a net debt leverage ratio of 0.5 times.
Considering the impact of the $203 million all cash Black horse acquisition.
Our pro forma net debt as of June 32021, with total $360 million.
This would equate to a pro forma net debt leverage ratio of 1.1 times.
During the quarter, we took advantage of positive market conditions and increased our revolving credit facility by $100 million $650 million.
With the option to increase this to $1.15 billion under certain conditions.
This provides us with ample financial flexibility.
We continue with our growth investments.
Turning to bookings for the second quarter.
We reported contract awards of $1.7 billion, representing a book to Bill ratio of 1.9 times.
On a trailing 12 month basis, our book to Bill ratio was a healthy 1.3 times.
Federal solutions at 1.5.
On critical infrastructure at 1.1.
Our backlog at the end of the second quarter totaled $8.4 billion up 9% from last year and continues to represent more than 2 years of annual revenue.
Now, let's turn to our guidance.
We are updating our 2 thoughts.
Sales in 'twenty, 1 guidance for revenue adjusted EBITDA and cash flow due to procurement and funding delays.
The competitive hiring environment.
The reserves, we took in the second quarter and a change in our assumption regarding the consolidation of or Admins and program.
For 2021, we expect revenue to be between 3.6.
And $3.7 billion.
Adjusted EBITDA is expected to be between 295.
$315 million.
Our cash flow from operating activities is expected to be between 195 and $215 million.
From a quarterly cadence perspective, we expect sequential improvements in revenue and.
And adjusted EBITDA in the third quarter, and then normal slight seasonal sequential declines in Q4.
For operating cash flow, we expect the second half of the year.
To be heavily weighted in Q4.
Other key assumptions in connection with our 2021 guidance are outlined on slide 10.
Today's Powerpoint presentation.
With that I'll turn the call back to Karen.
Thank you George.
2021 is an important year for Parsons, we've won a significant amount of new business. However, we reduced our guidance for the reasons George described.
For the remainder of the share of our executive leadership team is intensely focused on achieving the updated 2021 guidance by driving organic growth and successfully executing on our contracts.
The good news is that we've already won a significant amount of new and Recompete business. We're also driving funding to existing contracts and we believe our retention and recruiting will improve driven by recent strategic leadership changes in our assessment of critical human resources initiatives.
Going forward I'm very confident on the business and I'm excited about our growth prospects over the past for years, we successfully pivoted to a balance federal solutions and critical infrastructure portfolio, which proved to be timely and it's expected to generate significant demand for our solutions for the FERC.
Campbell future.
We are well positioned in these attractive high growth national security and critical infrastructure markets with differentiated technology solutions.
With that we will now open the line for questions.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from Tobey Sommer with Truth Securities. Your line is open.
Thank you.
If I could ask a question about sort of labor.
What is your anticipated.
Labor expense growth on sort of.
On an apples to apples basis understanding that you could add heads that would change that net.
New additions would be impactful on the variables and then could you also.
Describe how.
<unk>.
Potential pickup in wage inflation could impact both segments.
Sure. Thanks, Toby for that question our expected growth.
From the first half to the second half of this year is 4% on.
And this is based upon.
What we've been able to achieve and proven historical so we felt very comfortable with that as far as inflation in most of our contracts are cost reimbursable on the federal side. We do include a wage adjustment clause on us.
So that is reimbursed through the rates on the fixed price in a time material, we don't but we usually budget in the escalation of monthly bit the programs.
And have you.
Is there a in the critical infrastructure is there any different.
Mechanism or or experience that you've had historically relative to wage inflation or is it really just based on contract type to cross across both units.
It's really based on contract type across both units I will say, it's much easier to recruit in our critical infrastructure segment.
Okay.
And then.
On critical infrastructure.
Whats the historic frequency for reserves in situations such as this you did mention I think in the prepared remarks that are on the federal solutions side, our reserves such as this is a relatively infrequent occurrence.
Correct Federal solutions, it's very infrequent and on their federal solutions for sure that prime contractor is going to submit a request for equitable adjustment is the delays were not on their responsibility. It was delays in getting a permit that was some responsibility about third party and on the critical infrastructure side. They can be more common we do go through on.
Obviously every quarter and update our reserves assessed our programs and you need to have a triggering event to take a reserve and we did have triggering a bit this quarter.
So how far back we have to go and critical infrastructure.
Triggering.
Triggering events for a reserve that would you.
You don't need to be sort of quantified on the forum like this but with earnings.
Or do you want to take that for sure.
The other west event, we had like this Toby was actually last year on a different project. It was a project on which we were a minority partner you might recall there was a write down taken late in 2020 that affected equity in earnings.
But I also wanted on fire.
And prior to that can you recall, how far back so just to get a sense for frequency and prior to debt Tobey It would be well before we went public you might recall when we went public we actually had a large increase.
Related to the resolution of a legal matter.
But we have taken a very conservative reserve and we had a substantial pick up.
We've unfortunately had to.
Since we went public but as Kerry indicated in her prepared remarks, they all go back on.
The prior bids before we went public.
We think we do a great job managing risk.
But we are working through a number of these legacy programs and we've unfortunately had 2 of them.
On a result in reserves over the last year, we put some different processes in place a couple of years ago before going public debt have helped US situation first we are very selective on what we bid on adult beds, we have bid guidelines.
For example, we no longer bid price construction work, we've shifted our focus to design engineering work and the onerous engineering work. We also are selective on that type of partners that we work with we have a list of partners that we will and we will not work with based on past proof on results and experience and with strength strengthened our participation on joint venture.
Boards are where whether or not we're managing are a minority partner and we strengthened the position of chief risk officer on the organization. So I think as a result of these we believes that we've been able to mitigate further.
Great.
They sneak 1 more in what's sort of the.
Changes are you making to improve your ability to.
<unk> challenge is it is it money if it benefits us.
On a posture as an employer if you could give us some examples that'd be helpful.
Sure I'll give you a couple of examples first we hired a chief human resources Officer. She comes with federal experience, which we felt was very important because recruiting on federal just different from recruiting and credit card for structure on that kind of sets. The high bar. So she has 3 decades of experience. There. She's also co located with me on center Bell, which I believe.
For a halt we brought in a new Chief Communications officer are swallowed that will help on our recruiting efforts, where we've also ensuring that we've got competitive HR programs.
The board salary benefits, we do feel that being a public company and having a Nissan is a unique benefit that we bring we have a dual career path offering for technical folks that can go up in parallel with program management, all the way up to our Chief Technology officer position and along with that we have felt technical Fellows program.
Which we feel is innovative we're recruiting outside the D C, Maryland, Virginia area, specifically, we set up on an office down Augusta, Georgia that was several years ago co located with Army Cyber command. We also have an office in San Antonio were co located with the Air Force Cyber command and we're doing a hiring out of the Denver area.
On Huntsville area as well so it's how do we get outside of the space, but it's kind of a desktop call. It we're working with our customers on what Covid showed US is that you can do a lot of development in an unclassified environment often up to the point out for about 90% on programs. So we're working with our customers to do software development in an unclassified environment we.
A system that was called fed net debt suck up system that allows people to develop software virtually from anywhere.
They're very side and then finally, we have a program post COVID-19, we're letting people if they want to continue to work for most day can work remote if they want to work hybrid they can work hybrid or if they want to be back on office. They can come back on the office provided debt their customer agrees with that this gives people the maximum flexibility when we did a survey we found out.
That people really wanted that flexibility.
I think all of those initiatives will drive us to be employer of choice.
Thank you. Our next question comes from Josh Sullivan with benchmark. Your line is open.
Hey, good morning.
Good morning, good morning, Josh.
Just as you leverage those wage inflation teachers, you just mentioned.
How are the dollar value of the contracts.
The government customer are cognizant of the labor market are the adjusted budgets, knowing that you're going to be seeking to raise the level of book competition for talent.
I do believe that they are cognizant of it again on a cost reimbursable, which represents roughly 3 quarters of our federal work, we do get reimbursed for those rates and we have escalation clauses and then the fixed price work. It's really the onus is on us to make sure that we properly price in that inflation.
Okay.
And then is there any way to quantify.
Environment impact, it's having on on the overall head count is there a number of open positions today versus the beginning of the year that you could provide us.
We do not share that information, but I will share with you is on the retention front. We're pleased with our retention once we do get people here they stay with Parsons.
And we compare it against the Pwc survey and we are running on industry average on retention.
Got it.
And then just 1 last 1 here on the acquisition of Black horse on your growth from this space vertical.
What's your appetite versus technology versus advisory.
The labor market make technology more attractive in the M&A market at this point.
We're definitely focused on technology versus advisory if you see the acquisitions that we've acquired they've all been focused on.
Integrated solutions, how do we have technology differentiation that provides integrated solutions.
I'm really happy with our acquisitions and I think what Youll see from Black horses are further ability to win new business. If you look at the new business that we've won as the rest of all of our acquisitions combatant commander for $590 million. We wanted to see 5 ISR opportunity I spoke about earlier today for 618 more recently, we were awarded on there.
Based on our defense opportunity for $953 million. All of these are a result of the acquisitions that we've been able to do a lot of course further enables us and particularly positions us in a joint all domain.
Enough.
Thank you for.
It's on.
Thank you.
Our next question comes from Joe de Nardi with Stifel. Your line is open.
Thanks, Good morning.
Good morning, George.
Just talk about the charging infrastructure, how complete is the program and then.
Understand you all are trying to I guess do you emphasize.
For exit construction in that line of business.
Can you talk about how much of the portfolio is still in in.
<unk> either directly or indirectly with partners.
Trying to understand how much more risk exists there.
Oh sure Joe I'll take the second part of the first.
Probably about 10% of our portfolio exposed to.
Construction activities.
As Kerry remark, we don't do prime construction, we only participate when we're doing the design and in cases, where we have other design build joint venture exposure.
We're basically bringing it is designed to those activities with trusted partners as contractors relative to the project on which the reserve was taken and critical infrastructure in Q2.
The job is well along.
Due to a variety of scope changes.
Frankly.
We would consider our original scope largely done.
As I remarked in my disk.
Discussion.
We had actually very intense conversations with the client up through and including.
Through the end of the second quarter, we were very hopeful that those would be productive and fruitful on resolving our differences.
As I indicated that proved to be on successful. So we unfortunately had to submit a claim.
Which was just submitted last week so.
So we're well along on the job I think we've marketed by discounting other.
Other claims significantly so we believe we have it behind us, but it will likely evolve into my guess is litigation. So it will take a protracted Peru to resolve similar to the issue we had a number of years ago.
We actually had a picked up shortly before the IPO. So it'll be a protracted solution, but the job is very well along at this point.
Okay. That's helpful. And then just on the operating cash guidance can you talk about kind of the moving parts, there, obviously pretty meaningful reduction and if you could just elaborate on the impact that the.
I admit in consolidation.
On that if any.
But certainly the low relative to the moving parts. So you are correct, though obviously, there's an impact from the reduction in our earnings guidance.
Theres also impact relative to the project I described.
And our original plan on the legacy critical infrastructure reserve.
We actually had in anticipation of receiving a milestone payment significant milestone payment on the back half for the year.
Given the fact that that will probably evolve into a litigation we've taken that out of guidance on those are the 2 big headline issues.
And then in addition to that we had a favorable resolution of a legal matter.
Which would result in a payment of $8 million.
The second half of the year.
So that's a deduct from the original guidance the impact of Edmonton It was around $5 million its not significant.
Okay. Okay, and then just on on margins between the 2 segments can you just update us on maybe where you think both those segments get you from a margin standpoint for the year, just trying to understand kind of the impact of these 2 charges on on go forward margins and do you still see getting debt, 10%. It did.
Infrastructure next year.
Yeah, Great question, so over the second half for the year, we're forecasting margins of around 9%.
And that's pretty well balanced between both segments, so that'll get us into the eights.
But for the full year.
And we still do believe that we can get to 10% margins across the entire portfolio, including critical infrastructure as we move ahead.
And critical infrastructure without a reserve taken would have been at 10% this quarter.
Right, Okay, I'll turn it over to someone else can get back in the queue. Thank you.
Thanks.
Our next question comes high volume rumor with cash.
Cowen Your line is open.
Yes. Thanks, so much so Kerry you mentioned significant leadership changes and you mentioned the 2 the HR and the communications are there any other.
Leadership changes that we should know.
We've also strengthened our government relations team on that person has been hired and is on board and we've put our chief risk officer as I mentioned charge of the program that we took the reserve on and we're beefing up some of our operations on.
In addition on the business development side, we've brought in some critical key strategic hires particularly in space on cyber.
Okay Super and then.
You had good bookings this quarter and I think everybody has talked about delays what are you seeing in terms of the bidding environment today and what would we be looking for in terms of bookings and book to Bill in this third quarter.
Yeah. So the beta environment very robust I mentioned earlier, we did publicly announce our air base share of defense win as well as our satellite prototype and integration win on that 1 was $139 million of first of almost 953 million. Both those occurred right. After the third quarter. This.
This share we will submit 22 billion of bids compared to 12 billion last year. Our pipeline is 33 billion. That's split 18 billion in federal 15 billion and critical infrastructure. We have 90 opportunities that are greater than $100 million on.
So all of that to indicate I'm quite excited about the bid opportunity and pipeline.
Terrific. Thank you and 1 last 1 George you took your.
You took your.
Your revenue guide down.
On the seizure.
250 to 350, maybe walk us through 'twenty threes, the write off how big was the Edmonton in terms of revenues and <unk>.
How big of the rest of that was split between.
Yes.
Critical infrastructure.
Certainly cash so talking in terms of the mid 0.1st.
First item I would cover off as the impact of Black horse, which is about $40 million $40 million.
So then you're dealing with a delta of $3.40, the onetime issues are actually 26.
It might've been a little bit what kind of went by and on my prepared remarks, but the P&L impact.
It was $15.4 million other critical infrastructure reserve Nok 19.
So the 1 time impact is actually 26.
Edmonton is only $30 million, it's not very significant so the balance which is nominally $285 million is all related to volume.
And how is it split between the 2 segments 64 day federal credit card infrastructure.
Thank you very much.
Good.
Our next question on the Parsons with Goldman Sachs. Your line is open.
Hey, good morning, Brian.
Alright got it.
This is to be honest I don't really fully understand the revenue declines.
Would love a little more color there and just the context on that is I appreciate the issues on hiring and funding delays, but it is that.
Also on programs that you're already executing on is that on new ramp up wins, just given that the business was down 13% organically in <unk> and <unk> and in both segments. So where are you.
Not getting the growth you expected.
Which implies the core business is declining significantly we would just love to hear your thoughts on that dynamic.
Yeah. So it's basically it's looking at new ramp ups and how quickly we feel that we can get the hiring on board. Some of the core business has declined we had significant program completions that occurred this year, particularly on the critical infrastructure side of the business that we were offsetting much new business, we perceived that new business now we've got to get it staffed.
And ramped up.
Okay.
I think the second half implies a lower number than you'd had in prior guidance. I mean, how confident are you you can actually kind of catch this up and when do you think do you catch us up and then do you need or when do you need to revisit your 2023 targets yes.
So 'twenty 2021in the second half we're confident that we will achieve those numbers, we've got quite a bit of momentum or see us win starting to ramp up.
We're seeing for Spy award, which will add about additional 50 folks of share. It. All go is ramping up even further we won that last year. It was about $300 million until when.
Pay a program has restored to pre COVID-19 growth the vehicle inspection and compliance program has restored to pre COVID-19 growth the middle East I talked about a $91 million of program management a win that is ramping up as we speak and Texas 183 is another program only 1 on credit core infrastructure and giant buying.
So we felt confident and again, we have 4% growth projected over the first half without black horse on the reserves.
Okay. Thanks for that detail last 1 just on book to Bill the bump on non reported free cash.
Late that on net change in backlog it looks closer to 1.3 did you have some some day bookings there.
Yes, yes, we do Kevin.
Probably around $550 million in total.
The largest single component of that is a hair under 200 million are related to the team's contract the incumbent contract.
That is concluding as we implement the recompete.
Essentially it was unexpected.
On expanded contract value.
Won't be burned before the new contract comes into play.
And then in addition to that there were a number of situations, where do too fast approaching the end of the period for performance.
Just based upon burn routes, we felt it was prudent to reduce backlog for a number of programs and that frankly is a byproduct of the softness on the top line in the second quarter.
Thank you both.
Thank you thanks again.
Our next question comes from Ron Epstein with Bank of America. Your line is open.
Hey, Good morning. This is actually Elizabeth on for on this morning.
Hi, good morning.
Okay.
I was wondering you know now that you're on your new role on how are you thinking about the business differently than your predecessors, where do you really see her primary focus areas coming out of the gate.
Yeah. So first I'd say, Chuck and I were aligned on the strategy and where we've taken a company I would say coming into the role where my focus is is having top positions in high growth markets in both of our segments those would be markets such as cyber intelligence C..5 ISR missile defense and smart mobility, we're going to continue.
To drive integrated end to end solutions and lead with technology differentiation. This is what has really enabled us to be able to move up the value chain on maybe able to win larger jobs. We're focused on what I call people first which is having the right culture of agility innovation Disruptiveness and obviously very focused on.
On improving recruiting.
And then we're gonna be co located as a leadership team and Centerville.
Okay.
Okay, great. Thanks, and then as you think about potential other M&A opportunities going forward.
How are you thinking about what you're comfortable with the leverage ratio and I know you mentioned that tech is going to be your focus area, but what is sort of the pipeline looking like D. C. A lot of potential opportunities out there or.
Yeah.
Yes. Thank you we have a significant pipeline, we're really excited about the opportunities that we're saying we'll continue to stay on the technology path.
And the end to end solutions path, we've opened the aperture to federal civilian on the federal side and we're also looking at technology related critical infrastructure place, but I think you'll continue to see us focused on areas that we have.
On a getting back on black horse that really differentiated us because the cyber electromagnetic convergence and information advantage is what's needed for the near peer threats from a leverage perspective, we would be comfortable at about a 3 X leverage for currently at 1.1 pro forma.
Great. Thanks, so much.
Thank you. Our next question comes from Louie Dipalma with William Blair. Your line is open.
Good morning, Terry George and Dave.
Good morning, 1 on Lilly.
Gary You mentioned program completions for both the critical infrastructure and Federal Solutions Division.
In terms of the guidance reduction how much of a factor.
Is the revenue pressure from the program completions and I was wondering if you could quantify.
The contributions from book.
Program completions from the critical infrastructure side and the federal solutions side.
Yeah. So the program completions were higher on a critical infrastructure sign out for the shorter cycle business from what you see on the federal side, so that would be to be expected again, what we had hoped to do was offset that with new business, but we just haven't gotten that ramp up as quick as we'd liked in the hiring as quick as we'd like so that's why our focus is.
Yeah.
[laughter].
Okay and for the for the Federal solutions.
Division arguable to quantify like the magnitude of revenue that is training off for where it has turned to us and like.
Type book.
Has elected not to renew.
Sure.
It's not really a matter of electing not to renew it. So I was curious suggested Louie it's kind of adult are between you know work completing.
Offset by work ramping up another 285, I mentioned previously a curious sitting on about 60% you know call. It around 175 is inside of federal for about 110 inside of critical infrastructure.
So it's related to the net of those 2 activities.
As it relates to guidance to answer your question I think you were asking about you know, what's what's the relative contribution margin on that.
If you look at the low a walk on adjusted EBITDA. It was worth about $35 million.
And I do want a higher highlight also that we've had very high recompete rates when rates approaching about 100 per cent.
The team teams being the obvious biggest fund, which really puts us on a great position.
From a stabilizing the book.
Good thing.
Going forward for 2021, we have 1.8% Recompete remaining and if you look at 'twenty 'twenty, 2 and 'twenty 'twenty, 3 it's 5 and 6% respectively.
We're really pleased that we've solidified our core base.
Yeah.
Great. Thanks.
Thanks Luke.
Yeah.
As a reminder to ask a question on the press Star 1 at this time our.
Our next question is a follow up from Joseph de Nardi with Stifel. Your line is open.
Oh, yeah. Thank you just following up on that on that last question, just so I understand the the runoff for the revenue pressure at the federal business from work that's mature does that end.
In second quarter, it looks like it continues it critical infrastructure, but.
The headwind is it federal kind of over now as that continue through the year.
We have 1 program that will continue and that was in our engineered systems group, it's called the salt waste processing facility. That's a program that took place in January of 2022.
Okay, Okay great.
And then.
Kerry I think I think last quarter over the past couple of quarters, you all have talked about expecting to bid on.
The $25 billion.
Contract value over the next year or so can you just update us where that number is now your all in debt a couple of pretty Big awards over the past several months. Some of those have involved a number of partners I think so I'm just trying to understand kind of how much of that 25 billion has been a war.
And how much is yet to come.
Yeah. So for the full year, we anticipate bidding on $22 billion. So that's up from 12 billion last year on I think the last quarter. I said. It was 24 billion. We did receive a significant airbase at air Defense for work since then.
Okay. Okay, and then maybe just on the on the infrastructure side can you can you just provide us with kind of conversations you're having with customers.
Customers there around.
On how they're going to handle higher infrastructure and maybe any updated thoughts in terms of you know what.
Do you think all that means for your business.
Yeah. So we're really excited about the infrastructure bill on the progress that was made this week and the Senate and we're obviously closely monitoring that.
The infrastructure Bill, but reflect 550 billion of new work out of that 284 billion is in transportation areas that we play 110 billion as roads bridges highways 60, six's passenger and freight rail for these public transit 42 between airports and ports and 11 billion for.
Safety, but those are all Parsons addressable markets and then if you look at the other infrastructure.
On the 239, there's about 105 billion, there pertains to water infrastructure and western water.
The resiliency and again Parsons place there. So we think that's a significant opportunity for us I would highlight as well were not even dependent on the infrastructure build we're already seeing growth like if you look at California, They're 1 of our 36 states that have enacted a gas tax since 2010, so they've put in place a $54 billion.
Program over 10 years, we're seeing similar growth in states like Illinois, Michigan at misery.
Likewise in Canada, Canada has a significant infrastructure plan, Quebec has upgraded to $8.5 billion and then the middle East as part of Saudi patient 2030, they're investing heavily and that's an example of the appropriate management win that we had for a new industrial city there.
So when would you expect to see additional awards kind of tied to the incremental funding that's coming from the infrastructure package.
So our estimate is 6 to 9 months after the infrastructure package its approved as when we would start to see funds flow.
Okay. Okay. Thank you.
Thank you.
Thank you that is all the time, we have for questions today I would now like to turn the call back today silly for closing remarks.
For joining us. This morning, if you have any questions. Please don't hesitate to give me a call.
Look forward to speaking with many of you over the coming weeks and with that blended today's call have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yes.
Yeah.
[music].