PARSONS CORP Q1 FY2025 earnings call

• Achieved record first quarter results for total revenue, net income, earnings per share, adjusted EBITDA, and adjusted EBITDA margin. Total backlog and funded backlog at all-time highs. - Operating cash flow improved by $52 million year-over-year. Best employee retention since 2020. 1.1 times book-to-bill ratio with 1.4 times in Critical Infrastructure. - Capitalizing on infrastructure spending in North America and Middle East. In US, infrastructure spend not peaking until 2028 with 6-8 year tail. In Middle East, involved in major projects in Saudi Arabia, UAE, Qatar. - Record total revenue of $1.6 billion, 1% increase y-o-y, 2% decline organic. Excluding confidential contract, total and organic revenue growth 11% and 7% respectively. - Adjusted EBITDA margin 9.6% at enterprise level, 10.3% in Critical Infrastructure. - Won several large contracts over $100M, acquired TRS Group for $37M to enhance environmental remediation capabilities. - Named one of the world's most ethical companies for 16th consecutive year.

Critical Infrastructure Segment: First quarter revenue increased by $86 million or 14% from Q1 2024. Organic growth was 8%, and inorganic revenue contributions from BCC and TRS acquisitions. Adjusted EBITDA increased 51% from Q1 2024, with a margin of 10.3%, a company record. Federal Solutions Segment: First quarter total revenue decreased 7% from prior year period and 9% on an organic basis. Excluding confidential contract, revenue increased 8% and 6% on an organic basis. Adjusted EBITDA decreased by 18% from Q1 2024, with a margin of 9%, driven primarily by contract mix.

• Reiterating all 2025 guidance metrics. Total revenue expected $7.0 billion to $7.5 billion (7% growth midpoint, 5% organic). - Adjusted EBITDA expected $640 million to $710 million (12% growth, margin 9.3% midpoint). - Cash flow from operating activities expected $420 million to $480 million. - Backlog at record $9.1 billion, funded backlog 69% since IPO.

• Confidential federal contract operating at reduced volume compared to 2024 due to a presidential executive order pausing a related contract. - Risk factors described in Form 10-K for fiscal year ended December 31, 2024, and other SEC filings.

Q: Andrew Wittmann from Baird asked about strong margins in Critical Infrastructure segment, specifically if there were unusual adjustments.

A: Matt Ofilos responded that there were no favorable or negative adjustments of substance, just underlying business performance on backlog and new business.

Q: Mariana Perez Mora from Bank of America asked about Middle East contracts and confidential contract.

A: Carey Smith mentioned larger Middle East contracts were slower to ramp due to holidays, but expecting double-digit growth. For confidential contract, it's at 80% run rate, with update expected in mid-May.

Q: Tobey Sommer from Truist asked about fixed price contracting and M&A expectations.

A: Carey Smith said they're used to fixed price but no contracts shifted yet. Expect 2-3 acquisitions this year, with Critical Infrastructure pipeline more robust.

Q: Sheila Kahyaoglu from Jefferies asked about revenue ramp and confidential program.

A: Carey Smith said excluding confidential contract, 18% total growth and 15% organic, driven by ramp in Critical Infrastructure and federal cyber areas.

Q: Gautam Khanna from TD Securities asked about DOGE and confidential contract guidance.

A: Carey Smith said DOGE discussions positive, confidential contract guidance aligned with negotiated value, expecting surge after May decision.

Q: Joshua Sullivan from The Benchmark Company asked about hiring cleared personnel.

A: Carey Smith said retention good, hiring well underway for cleared workforce.

Q: Alex Dwyer from KeyBanc Capital Markets asked about pipeline and recompete.

A: Carey Smith said robust pipeline with 114 opportunities >$100M and 19 >$500M, 2% recompete exposure in 2025.