Parsons Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Parsons provides engineering, technical and software services to U.S. federal government and critical infrastructure customers. Results are unaudited and should be read with the company’s 2023 Form 10-K.
Financial highlights
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $1.536 billion | $1.173 billion; up 30.9% |
| Operating income | $101.8 million; 6.6% margin | $51.1 million; 4.4% margin |
| Net income (loss) attributable to Parsons | $(107.4) million; diluted EPS $(1.01) | $25.6 million; diluted EPS $0.23 |
| Adjusted EBITDA | $141.1 million; 9.2% margin | $90.4 million; 7.7% margin |
| Operating cash flow | $(63.4) million | $(9.0) million |
| Cash and cash equivalents | $423.1 million | $272.9 million at December 31, 2023 |
| Debt | $1.246 billion carrying value, net of debt issuance costs | $746.0 million at December 31, 2023 |
| Backlog / RUPO | $9.03 billion / $6.3 billion | Backlog $8.37 billion at March 31, 2023 |
Current assets were $2.43 billion and current liabilities $1.35 billion, or working capital of approximately $1.07 billion. The company reported a 1.4 year-to-date book-to-bill ratio, compared with 1.2 a year earlier. Adjusted EBITDA is a non-GAAP measure; it excludes specified items and is not a substitute for GAAP earnings or cash flow.
Changes versus prior year
- Revenue increased in both segments: Federal Solutions rose 43.3% to $909.6 million, and Critical Infrastructure rose 16.2% to $626.1 million. Management cited growth on new and existing work, including a significant Federal Solutions contract; acquisitions also contributed.
- Adjusted EBITDA attributable to Parsons increased 64.8% in Federal Solutions and 35.3% in Critical Infrastructure. SG&A rose 10.9% in dollars but declined as a share of revenue, from 17.0% to 14.4%.
- GAAP results swung to a net loss primarily because of a $211.0 million loss on extinguishment of debt. Parsons issued $800 million of 2.625% convertible notes due 2029 and used proceeds in part to repurchase $284.6 million principal amount of its 2025 convertible notes for $495.6 million. Interest expense also increased to $13.0 million from $6.5 million.
- Operating cash outflow widened as working-capital accounts used more cash, particularly receivables, accrued liabilities, contract liabilities and income taxes. Investing outflow was $45.5 million, including $36.1 million invested in unconsolidated joint ventures.
Outlook, risks and unusual items
- No specific full-year revenue, earnings or cash-flow guidance is provided in the filing. Management said liquidity and capital resources are adequate for operations, debt service and its ongoing acquisition strategy for at least the next 12 months.
- Management expects to recognize $3.8 billion of funded backlog as revenue in the following 12 months. Backlog includes unfunded work, probable task orders and option periods; federal customers may reduce funding, terminate contracts or not exercise options. RUPO is a narrower measure of awarded work.
- Management cited federal budget and appropriation uncertainty, government shutdowns, contract audits and scrutiny, competition, seasonality, and contract execution and staffing as factors that could affect results. Fixed-price work can carry greater cost-overrun risk. Net DSO improved to 63 days from 69 days a year earlier, but the filing notes collection delays from time to time from Middle East customers.
- A court proposed an approximately $102.5 million award in Parsons’ favor against Alstom; Alstom objected, and Parsons said it could not determine the probability of the outcome. A separate False Claims Act case remains pending, with court rulings expected to determine whether a 2024 trial is needed. Management believes outstanding claims will not materially affect the company, but outcomes are not assured.
- Federal contract cost audits for years after 2018 remain open. The company was in compliance with credit-facility covenants at quarter-end and reported no material changes to its risk factors or material off-balance-sheet arrangements.
Important facts for investors to verify
- How much of reported growth and margin improvement reflects durable organic performance, particularly on the significant Federal Solutions fixed-price contract, versus acquisitions and contract timing.
- Whether working-capital outflows reverse and operating cash generation improves; Q1 operating cash flow was negative despite higher adjusted EBITDA.
- The eventual cash and dilution implications of the convertible-note transactions, including the remaining 2025 notes, 2029 notes and capped-call arrangements.
- The funding, conversion to revenue and cancellation risk embedded in backlog, especially the unfunded portion of Federal Solutions backlog.
- Developments in the Alstom litigation, the False Claims Act matter, open government audits and the SealingTech earn-out, whose estimated fair value was $4.1 million at quarter-end.