Parsons Corporation (NYSE: PSN) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 24, 2021. Parsons provides technology, engineering and program-management solutions through Federal Solutions and Critical Infrastructure.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $3.919 billion | $3.955 billion |
| Operating income / margin | $177.8 million / 4.5% | $92.1 million / 2.3% |
| Net income attributable to Parsons | $98.5 million; diluted EPS $0.97 | $120.5 million; diluted EPS $1.30 |
| Adjusted EBITDA / margin | $342.6 million / 8.7% | $325.0 million / 8.2% |
| Operating cash flow | $289.2 million | $220.2 million |
| Cash and cash equivalents | $483.6 million | $182.7 million |
| Total debt | $590.0 million | $249.4 million |
| Working capital | $705.7 million | $382.0 million |
Revenue declined 0.9% year over year. Operating income increased substantially, while net income attributable to Parsons declined 18.3%; the comparison is affected by the unusually large tax benefit recorded in 2019 following the S-corporation-to-C-corporation conversion. FY2020 operating cash flow rose 31%. Cash and cash equivalents exclude restricted cash and investments.
Federal Solutions revenue increased 1.3% to $1.912 billion, while segment Adjusted EBITDA attributable to Parsons decreased 1.0% to $167.3 million. Critical Infrastructure revenue decreased 2.9% to $2.007 billion, while segment Adjusted EBITDA increased 11.3% to $154.5 million. Fourth-quarter 2020 revenue was $964.3 million, operating income $41.6 million and Parsons-attributable net income $21.6 million.
At year-end, total backlog was $8.1 billion, up 0.8%, including $4.0 billion funded and $4.1 billion unfunded. Awards were $4.20 billion and book-to-bill was 1.1. Remaining unsatisfied performance obligations were $5.2 billion. Backlog includes unfunded work, options and anticipated task orders and is not assured revenue; the filing gives differing estimates of funded backlog expected to convert to revenue over the next 12 months ($2.7 billion and $2.8 billion in separate sections).
Material changes and unusual items
- Revenue fell by $35.9 million, primarily because Critical Infrastructure revenue decreased $59.9 million; Federal Solutions revenue increased $24.0 million.
- Lower indirect expenses, especially cash-settled equity-award compensation ($9.8 million versus $65.7 million in 2019), contributed to higher operating income. Excluding that compensation, indirect expenses increased $3.6 million.
- Critical Infrastructure included a $15.5 million write-down on an unconsolidated joint-venture project, reducing diluted EPS by $0.11.
- Parsons acquired Braxton Science & Technology Group on November 19, 2020 for $310.9 million in cash, expanding space and satellite capabilities. The purchase-price allocation remained preliminary at year-end.
- In August 2020, Parsons issued $400 million of 0.25% convertible senior notes due 2025. The notes generated $389.7 million net proceeds before related hedge, warrant and transaction costs. The company reported $50 million of senior notes as current, including a tranche due in 2021.
Outlook, risks and contingencies
The filing provides no numeric revenue or earnings guidance. Management said COVID-19 had not materially disrupted execution, but site-access restrictions reduced work volume in some areas and delayed potential awards. Parsons received a $35.2 million cash benefit from deferred Social Security taxes; half was due by December 31, 2021 and the remainder by December 31, 2022. The company reported payment delays but did not expect material customer nonpayment, and stated it expected adequate liquidity for at least 12 months.
Key risks include reliance on government spending and appropriations, contract termination and renewal risk, competitive bidding and cost-estimation exposure, collection delays, security breaches, hiring and clearance constraints, acquisition integration, and the uncertain conversion of backlog to revenue. Government audits can result in cost disallowances or penalties. COVID-19 effects and possible recession-related impacts remained uncertain.
Parsons disputes a Peninsula Corridor Joint Powers Board claim seeking more than $100 million; the company said the outcome and potential exposure could not yet be determined. A False Claims Act case was remanded for further proceedings, and a separate patent-infringement suit also had no estimable loss range. Management stated it did not expect ordinary-course claims, including asbestos-related matters, to materially affect results. The auditor identified revenue estimates for fixed-price contracts and valuation of Braxton customer relationships as critical audit matters; its opinions on the financial statements and internal controls were unqualified.
Most important facts for investors to verify
- Whether backlog, especially unfunded backlog and unissued task orders, converts to funded revenue on the expected schedule.
- Whether Critical Infrastructure margins hold up despite lower revenue and the joint-venture write-down.
- Cash conversion and working-capital trends: net DSO increased to 64 days from 55, while contract assets were $576.6 million.
- Debt repayment and dilution terms for the 2025 convertible notes, alongside the $50 million senior-note maturity in 2021 and credit-agreement covenants.
- Progress and potential financial exposure in the JPB, False Claims Act and patent matters, and final valuation and integration of Braxton.
- ESOP ownership and governance: the ESOP held approximately 75% of voting power at year-end; no dividend was declared in 2020.