PARSONS CORP Q4 FY2025 earnings call

Management Statement and Operational Highlights

• 2025 was a successful year with 12% total revenue growth and 8% organic revenue growth (excluding confidential contract). Adjusted EBITDA expanded to a company record of 9.6%, and free cash flow conversion was 100%.
• Completed three acquisitions in 2025, increased share repurchases, and maintained a strong balance sheet. Won strategic contracts with a 61% win rate, had strong hiring and record retention rates.
• End of 2025 marked completion of three-year Investor Day targets, exceeding high ends of total revenue, adjusted EBITDA, and operating cash flow targets.
• Fourth quarter had strong revenue growth, adjusted EBITDA margins, and cash flow. Won several large contracts, including a $392 million contract for biometric solutions, a $200 million classified contract, etc.
• Acquired Applied Sciences Consulting and Altamira Technologies Corporation, which strengthened the portfolio and aligned with strategic growth.

Segment Performance

• Critical Infrastructure: Fourth quarter revenue increased by $89 million, 12% from 2024, driven by 9% organic growth and inorganic contributions from acquisitions. Organic growth was mainly from transportation and urban development markets. Fourth quarter adjusted EBITDA was $87 million, up 87% from 2024, and margin increased 420 basis points to 10.6%. Full-year critical infrastructure revenue grew 15% organically, with adjusted EBITDA of $328 million, up 73% from 2024, and margin increased 350 basis points to 10.4%.
• Federal Solutions: Fourth quarter organic revenue growth was 9%. Full-year organic revenue growth was 9%. Fourth quarter adjusted EBITDA decreased 34% from 2024, with a margin of 8.4%. Full-year adjusted EBITDA decreased 32% from 2024, and margin decreased 170 basis points to 8.7%, mainly impacted by lower volume on a fixed-price confidential contract and execution challenges.

Guidance

• 2026 revenue expected to be between $6.5 and $6.8 billion, representing 4.5% growth at midpoint and 0.5% organic growth. Excluding confidential contract, rest of portfolio projected to grow 10.5% total revenue and 6% organically.
• Adjusted EBITDA expected to be between $615 and $675 million, with a margin of 9.7% at midpoint of ranges.
• Cash flow from operating activities expected to be between $470 and $530 million, with 100% free cash flow conversion. CapEx spending expected to be approximately 1.5% of total revenue.

Risks

• Domestic budget uncertainty.
• Competitive labor market.
• Uncertainties related to the government procurement environment.

Question and Answer

Q: Just wanted to see if it's safe to presume that the legacy adjustments are behind you. And should we expect this performance as a reasonable run rate going forward? Kinda trying to see if this will be the segment that drives the push to double-digit margins by the end of the planning period.

A: Yeah. The legacy programs are behind us. We're in final closeout stages with the customers, but the execution has completed. We still expect continued expansion in margin for critical infrastructure as we look to 2026, and we also expect expansion in the federal market as we look to 2026. 10 basis points for Parsons Corporation, and that's 10 basis points for federal, 20 for critical, and infrastructure. Critical infrastructure will expand more quickly because about 75% of that business is fixed price, time, and material, and 25% is cost reimbursable. And most of the expansion will come from North America.

Q: Obviously, April had the impact of the shutdown. But just curious on how you're seeing the cadence of order activity since the end of the shutdown and if it still continues to be more of a book and burn environment. Just trying to see because book-to-bill in that segment has been sub one for some time now.

A: Yeah. Q4 did have the impact of a forty-three-day government shutdown, but I'm really pleased, the six awards that we announced on our call, all of which were greater than $100 million, were all in the federal segment, and a lot of that representing brand new work for Parsons Corporation. As we go into 2026, we're very confident that we will achieve over a 1.0 book-to-bill for Federal Solutions. Starting off in 2026 based on the award activity we're seeing.