PARSONS CORP Q3 FY2025 earnings call

• Continued strong performance in a dynamic global environment as an advanced and differentiated technology leader aligned to national security and infrastructure priorities.
• Achieved industry-leading organic revenue growth (excluding confidential contract), expanded adjusted EBITDA margins, exceeded cash flow expectations, and won strategic contracts.
• Won 4 contracts over $100 million in Q3, including a large 10-year single-award task order contract for Holston Army ammunition plant, a 6-year $133 million authorization for Georgia State Route 400 Express Lanes, and 2 new multiyear single-award defense and security contracts in the Middle East.
• Completed an accretive acquisition in the water market, strengthening capabilities and Florida presence.
• Recognized as one of the world's best companies by TIME and one of the best led companies by Glassdoor, and received the Diamond Award in the Structural Systems category from ACEC New York.

Critical Infrastructure: Third quarter revenue increased by $129 million or 18% from Q3 2024. This was driven by organic growth of 13% and inorganic revenue contributions from BCC and TRS acquisitions. Adjusted EBITDA increased 83% from Q3 2024, and adjusted EBITDA margin increased 360 basis points to 10.3%. Federal Solutions: Third quarter revenue increased 9% and 5% on an organic basis, excluding the confidential contract. Total Federal Solutions revenue, including the confidential contract, decreased 29% from the prior year period and 31% on an organic basis. Federal Solutions adjusted EBITDA decreased 40% from Q3 2024 with an adjusted EBITDA margin of 9.2%.

• Reiterated midpoint of adjusted EBITDA and cash flow guidance for 2025.
• Modified revenue outlook to reflect delays in sole-source task order awards, products, and material procurements. Total revenue expected to be between $6.4 billion and $6.5 billion, with 10% organic growth excluding the confidential contract. Adjusted EBITDA remains between $600 million and $630 million. Operating cash flow is expected to be between $380 million and $460 million.

• Government shutdown may impact timing of sole-source task order awards, products, and material procurements.
• Uncertainty regarding the confidential contract which is in a wind-down state.
• Competitive risks in the market for winning contracts and maintaining market position.

Q: Sangita Jain asked about whether there was revenue from the confidential contract in 4Q and if it's still presumed to be 0.

A: Carey Smith said there was some revenue in Q3 guidance, it's very small and immaterial, and the program is in a wind-down state.

Q: Andrew Wittmann inquired about revenue guidance variance, impact of government shutdown on top line, and FAA program.

A: Carey Smith said challenge was due to timing, things moved to the right but still seeing delays; Matt Ofilos added Fed excluding confidential contract expected 15% growth in Q4. Carey Smith also mentioned FAA award is imminent with Parsons' strong offer.

Q: Tobey Sommer asked about modeling 2026 based on top line guidance, contribution of confidential contract, and verticals in critical infrastructure.

A: Matt Ofilos said mid-single digit or better organic growth excluding confidential contract; Matt Ofilos stated confidential contract contribution is about $350 million; Carey Smith mentioned water and environment in critical infrastructure as a focus area with recent acquisition.

Q: Gautam Khanna asked about EBITDA contribution from confidential contract in Q3 and for the year.

A: Matt Ofilos said it's a fixed price international contract, low double-digit margin.

Q: Sheila Kahyaoglu asked about FS growth attributed to shutdown and CI margins.

A: Carey Smith said FS growth has delays due to federal contracting capacity and shutdown, but business is performing well; Carey Smith mentioned CI has excellent year with strong growth in North America and Middle East, margins hitting 10% stride.

Q: Louie DiPalma asked about defense solutions in Middle East and FAA facilities contract.

A: Carey Smith said involved in infrastructure and border security work for Middle East; Carey Smith said FAA facilities contract will benefit from reconciliation funding and is expected to start flowing.

Q: Jonathan Siegmann asked about recompetes in classified area.

A: Carey Smith said recompete rate is about 6%-7%, no major contracts in recompete soon.

Q: Noah Poponak asked about Federal Solutions organic growth excluding confidential.

A: Matt Ofilos said first half was just about 10%, second half 12% with Q4 at almost 15%, driven by things slipping from Q3 tracking for Q4.