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PARSONS CORP - Quarter Report: 2023 September (Form 10-Q)

10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-07782

 

img90722407_0.jpg 

Parsons Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

95-3232481

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

14291 Park Meadow Drive, Suite 100

Chantilly, Virginia

20151

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (703) 988-8500

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $1 par value

 

PSN

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 19, 2023, the registrant had 104,888,937 shares of common stock, $1.00 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

 

1

Item 1.

Financial Statements (Unaudited)

 

1

Consolidated Balance Sheets

 

1

Consolidated Statements of Income

 

2

Consolidated Statements of Comprehensive Income

 

3

Consolidated Statements of Cash Flows

 

4

 

Consolidated Statements of Shareholders’ Equity

 

5

Notes to Unaudited Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

42

Item 4.

Controls and Procedures

 

43

PART II.

OTHER INFORMATION

 

44

Item 1.

Legal Proceedings

 

44

Item 1A.

Risk Factors

 

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

Item 3.

Defaults Upon Senior Securities

 

44

Item 4.

Mine Safety Disclosures

 

44

Item 5.

Other Information

 

45

Item 6.

Exhibits

 

45

 

Signatures

 

46

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)

 

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents (including $100,478 and $53,193 Cash of consolidated joint ventures)

 

$

205,406

 

 

$

262,539

 

 

Accounts receivable, net (including $293,023 and $217,419 Accounts receivable of consolidated joint ventures, net)

 

 

906,741

 

 

 

717,345

 

 

Contract assets (including $12,622 and $11,313 Contract assets of consolidated joint ventures)

 

 

756,630

 

 

 

634,033

 

 

Prepaid expenses and other current assets (including $12,731 and $7,913 Prepaid expenses and other current assets of consolidated joint ventures)

 

 

146,764

 

 

 

105,866

 

 

Total current assets

 

 

2,015,541

 

 

 

1,719,783

 

 

 

 

 

 

 

 

 

 

Property and equipment, net (including $3,902 and $2,543 Property and equipment of consolidated joint ventures, net)

 

 

99,344

 

 

 

96,050

 

 

Right of use assets, operating leases (including $7,011 and $6,315 Right of use assets, operating leases of consolidated joint ventures)

 

 

158,400

 

 

 

155,090

 

 

Goodwill

 

 

1,797,330

 

 

 

1,661,850

 

 

Investments in and advances to unconsolidated joint ventures

 

 

164,858

 

 

 

107,425

 

 

Intangible assets, net

 

 

282,098

 

 

 

254,127

 

 

Deferred tax assets

 

 

148,512

 

 

 

137,709

 

 

Other noncurrent assets

 

 

66,905

 

 

 

66,108

 

 

Total assets

 

$

4,732,988

 

 

$

4,198,142

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable (including $54,668 and $49,078 Accounts payable of consolidated joint ventures)

 

$

266,345

 

 

$

201,428

 

 

Accrued expenses and other current liabilities (including $147,808 and $102,417 Accrued expenses and other current liabilities of consolidated joint ventures)

 

 

771,912

 

 

 

630,193

 

 

Contract liabilities (including $72,168 and $40,654 Contract liabilities of consolidated joint ventures)

 

 

277,249

 

 

 

213,064

 

 

Short-term lease liabilities, operating leases (including $3,507 and $2,552 Short-term lease liabilities, operating leases of consolidated joint ventures)

 

 

56,930

 

 

 

59,144

 

 

Income taxes payable

 

 

21,657

 

 

 

4,290

 

 

Total current liabilities

 

 

1,394,093

 

 

 

1,108,119

 

 

 

 

 

 

 

 

 

 

Long-term employee incentives

 

 

19,199

 

 

 

17,375

 

 

Long-term debt

 

 

820,366

 

 

 

743,605

 

 

Long-term lease liabilities, operating leases (including $3,504 and $3,763 Long-term lease liabilities, operating leases of consolidated joint ventures)

 

 

119,281

 

 

 

111,417

 

 

Deferred tax liabilities

 

 

20,448

 

 

 

12,471

 

 

Other long-term liabilities

 

 

111,501

 

 

 

109,220

 

 

Total liabilities

 

 

2,484,888

 

 

 

2,102,207

 

Contingencies (Note 12)

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

Common stock, $1 par value; authorized 1,000,000,000 shares; 146,317,493 and 146,132,016 shares issued; 45,136,147 and 40,960,845 public shares outstanding; 59,752,326 and 63,742,151 ESOP shares outstanding

 

 

146,318

 

 

 

146,132

 

 

Treasury stock, 41,429,020 shares at cost

 

 

(844,936

)

 

 

(844,936

)

Additional paid-in capital

 

 

2,729,206

 

 

 

2,717,134

 

Retained earnings

 

 

158,945

 

 

 

43,089

 

Accumulated other comprehensive loss

 

 

(16,797

)

 

 

(17,849

)

Total Parsons Corporation shareholders' equity

 

 

2,172,736

 

 

 

2,043,570

 

Noncontrolling interests

 

 

75,364

 

 

 

52,365

 

Total shareholders' equity

 

 

2,248,100

 

 

 

2,095,935

 

 

Total liabilities and shareholders' equity

 

$

4,732,988

 

 

$

4,198,142

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share information)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue

 

$

1,418,571

 

 

$

1,134,370

 

 

$

3,948,523

 

 

$

3,092,160

 

Direct cost of contracts

 

 

1,124,305

 

 

 

872,423

 

 

 

3,109,713

 

 

 

2,388,095

 

Equity in (losses) earnings of unconsolidated joint ventures

 

 

10,262

 

 

 

(974

)

 

 

4,497

 

 

 

10,237

 

Selling, general and administrative expenses

 

 

221,188

 

 

 

196,960

 

 

 

632,393

 

 

 

581,969

 

Operating income

 

 

83,340

 

 

 

64,013

 

 

 

210,914

 

 

 

132,333

 

Interest income

 

 

492

 

 

 

382

 

 

 

1,591

 

 

 

618

 

Interest expense

 

 

(8,612

)

 

 

(6,323

)

 

 

(22,369

)

 

 

(14,786

)

Other income (expense), net

 

 

(191

)

 

 

(685

)

 

 

1,666

 

 

 

(304

)

Total other income (expense)

 

 

(8,311

)

 

 

(6,626

)

 

 

(19,112

)

 

 

(14,472

)

Income before income tax expense

 

 

75,029

 

 

 

57,387

 

 

 

191,802

 

 

 

117,861

 

Income tax expense

 

 

(15,218

)

 

 

(13,792

)

 

 

(41,944

)

 

 

(27,643

)

Net income including noncontrolling interests

 

 

59,811

 

 

 

43,595

 

 

 

149,858

 

 

 

90,218

 

Net income attributable to noncontrolling interests

 

 

(12,364

)

 

 

(14,024

)

 

 

(33,617

)

 

 

(21,685

)

Net income attributable to Parsons Corporation

 

$

47,447

 

 

$

29,571

 

 

$

116,241

 

 

$

68,533

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.45

 

 

$

0.29

 

 

$

1.11

 

 

$

0.66

 

Diluted

 

$

0.42

 

 

$

0.27

 

 

$

1.03

 

 

$

0.62

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Net income including noncontrolling interests

 

$

59,811

 

 

$

43,595

 

 

$

149,858

 

 

$

90,218

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(1,929

)

 

 

(7,134

)

 

 

1,046

 

 

 

(9,643

)

Pension adjustments, net of tax

 

 

(11

)

 

 

(68

)

 

 

6

 

 

 

(93

)

Comprehensive income including noncontrolling interests, net of tax

 

 

57,871

 

 

 

36,393

 

 

 

150,910

 

 

 

80,482

 

Comprehensive income attributable to noncontrolling interests, net of tax

 

 

(12,361

)

 

 

(14,014

)

 

 

(33,617

)

 

 

(21,673

)

Comprehensive income attributable to Parsons Corporation, net of tax

 

$

45,510

 

 

$

22,379

 

 

$

117,293

 

 

$

58,809

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

For the Nine Months Ended

 

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income including noncontrolling interests

 

$

149,858

 

 

$

90,218

 

 

Adjustments to reconcile net income to net cash used in operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

 

87,202

 

 

$

90,668

 

 

Amortization of debt issue costs

 

 

2,124

 

 

$

1,959

 

 

Loss (gain) on disposal of property and equipment

 

 

(27

)

 

$

(261

)

 

Provision for doubtful accounts

 

 

91

 

 

$

(3

)

 

Deferred taxes

 

 

(8,205

)

 

$

(6,334

)

 

Foreign currency transaction gains and losses

 

 

1,479

 

 

$

3,502

 

 

Equity in losses (earnings) of unconsolidated joint ventures

 

 

(4,497

)

 

$

(10,237

)

 

Return on investments in unconsolidated joint ventures

 

 

30,328

 

 

$

25,626

 

 

Stock-based compensation

 

 

23,872

 

 

$

14,991

 

 

Contributions of treasury stock

 

 

44,072

 

 

$

41,980

 

 

Changes in assets and liabilities, net of acquisitions and newly consolidated
   joint ventures:

 

 

 

 

 

 

 

Accounts receivable

 

 

(168,964

)

 

$

(90,913

)

 

Contract assets

 

 

(120,414

)

 

$

(62,861

)

 

Prepaid expenses and other assets

 

 

(40,470

)

 

$

8,772

 

 

Accounts payable

 

 

48,294

 

 

$

(918

)

 

Accrued expenses and other current liabilities

 

 

93,263

 

 

$

20,220

 

 

Contract liabilities

 

 

61,503

 

 

$

26,665

 

 

Income taxes

 

 

17,395

 

 

$

1,160

 

 

Other long-term liabilities

 

 

662

 

 

$

(5,866

)

 

Net cash provided by operating activities

 

 

217,566

 

 

 

148,368

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(30,877

)

 

$

(19,784

)

 

Proceeds from sale of property and equipment

 

 

274

 

 

$

573

 

 

Payments for acquisitions, net of cash acquired

 

 

(215,497

)

 

$

(379,272

)

 

Investments in unconsolidated joint ventures

 

 

(81,598

)

 

$

(13,637

)

 

Return of investments in unconsolidated joint ventures

 

 

72

 

 

$

9,443

 

 

Proceeds from sales of investments in unconsolidated joint ventures

 

 

381

 

 

$

-

 

 

Net cash used in investing activities

 

 

(327,245

)

 

 

(402,677

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

511,500

 

 

$

680,900

 

 

Repayments of borrowings

 

 

(436,500

)

 

$

(579,700

)

 

Payments for debt costs and credit agreement

 

 

-

 

 

$

(870

)

 

Payments for acquired warrants

 

 

-

 

 

$

(11,243

)

Contributions by noncontrolling interests

 

 

1,537

 

 

$

8,299

 

Distributions to noncontrolling interests

 

 

(12,156

)

 

$

(14,290

)

Repurchases of common stock

 

 

(8,000

)

 

$

(19,500

)

Taxes paid on vested stock

 

 

(6,941

)

 

$

(6,135

)

Proceeds from issuance of common stock

 

 

2,940

 

 

$

2,724

 

Net cash provided by financing activities

 

 

52,380

 

 

 

60,185

 

Effect of exchange rate changes

 

 

166

 

 

$

(2,220

)

Net decrease in cash, cash equivalents, and restricted cash

 

 

(57,133

)

 

 

(196,344

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Beginning of year

 

 

262,539

 

 

$

343,883

 

 

End of period

 

$

205,406

 

 

$

147,539

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Three Months Ended September 30, 2023 and September 30, 2022

(In thousands)

(Unaudited)

 

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings
(Accumulated
Deficit)

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Parsons
Equity

 

 

Noncontrolling
Interests

 

 

Total

 

Balance at June 30, 2023

 

$

146,312

 

 

$

(844,936

)

 

$

2,721,402

 

 

$

111,513

 

 

$

(14,860

)

 

$

2,119,431

 

 

$

71,334

 

 

$

2,190,765

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

47,447

 

 

 

-

 

 

 

47,447

 

 

 

12,364

 

 

 

59,811

 

Foreign currency translation
   gain, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,926

)

 

 

(1,926

)

 

 

(3

)

 

 

(1,929

)

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11

)

 

 

(11

)

 

 

-

 

 

 

(11

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,337

 

 

 

1,337

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,669

)

 

 

(9,669

)

Issuance of equity securities,
   net of retirements

 

 

6

 

 

 

-

 

 

 

(90

)

 

 

(15

)

 

 

-

 

 

 

(99

)

 

 

-

 

 

 

(99

)

Repurchases of common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

7,894

 

 

 

-

 

 

 

-

 

 

 

7,894

 

 

 

-

 

 

 

7,894

 

Balance at September 30, 2023

 

$

146,318

 

 

$

(844,936

)

 

$

2,729,206

 

 

$

158,945

 

 

$

(16,797

)

 

$

2,172,736

 

 

$

75,364

 

 

$

2,248,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2022

 

$

146,174

 

 

$

(867,391

)

 

$

2,676,063

 

 

$

(14,565

)

 

$

(12,100

)

 

$

1,928,181

 

 

$

36,486

 

 

$

1,964,667

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,571

 

 

 

-

 

 

 

29,571

 

 

 

14,024

 

 

 

43,595

 

Foreign currency translation
   loss, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,124

)

 

 

(7,124

)

 

 

(10

)

 

 

(7,134

)

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(68

)

 

 

(68

)

 

 

-

 

 

 

(68

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,472

 

 

 

5,472

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,946

)

 

 

(3,946

)

Issuance of equity securities,
   net of retirements

 

 

9

 

 

 

-

 

 

 

(186

)

 

 

2

 

 

 

-

 

 

 

(175

)

 

 

-

 

 

 

(175

)

Repurchases of common stock

 

 

(95

)

 

 

-

 

 

 

(3,857

)

 

 

-

 

 

 

-

 

 

 

(3,952

)

 

 

-

 

 

 

(3,952

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

6,633

 

 

 

-

 

 

 

-

 

 

 

6,633

 

 

 

-

 

 

 

6,633

 

Balance at September 30, 2022

 

$

146,088

 

 

$

(867,391

)

 

$

2,678,653

 

 

$

15,008

 

 

$

(19,292

)

 

$

1,953,066

 

 

$

52,026

 

 

$

2,005,092

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Nine Months Ended September 30, 2023 and September 30, 2022

(In thousands)

(Unaudited)

 

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings
(Accumulated
Deficit)

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Parsons
Equity

 

 

Noncontrolling
Interests

 

 

Total

 

Balance at December 31, 2022

 

$

146,132

 

 

$

(844,936

)

 

$

2,717,134

 

 

$

43,089

 

 

$

(17,849

)

 

$

2,043,570

 

 

$

52,365

 

 

$

2,095,935

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

116,241

 

 

 

-

 

 

 

116,241

 

 

 

33,617

 

 

 

149,858

 

Foreign currency translation gain, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,046

 

 

 

1,046

 

 

 

-

 

 

 

1,046

 

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6

 

 

 

6

 

 

 

-

 

 

 

6

 

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,537

 

 

 

1,537

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,156

)

 

 

(12,156

)

Issuance of equity securities, net of retirement

 

 

371

 

 

 

-

 

 

 

(3,985

)

 

 

(385

)

 

 

-

 

 

 

(3,999

)

 

 

-

 

 

 

(3,999

)

Repurchases of common stock

 

 

(185

)

 

 

-

 

 

 

(7,815

)

 

 

-

 

 

 

-

 

 

 

(8,000

)

 

 

 

 

 

(8,000

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

23,872

 

 

 

-

 

 

 

-

 

 

 

23,872

 

 

 

-

 

 

 

23,872

 

Balance at September 30, 2023

 

$

146,318

 

 

$

(844,936

)

 

$

2,729,206

 

 

$

158,945

 

 

$

(16,797

)

 

$

2,172,736

 

 

$

75,364

 

 

$

2,248,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

$

146,277

 

 

$

(867,391

)

 

$

2,684,979

 

 

$

(53,529

)

 

$

(9,568

)

 

$

1,900,768

 

 

$

36,344

 

 

$

1,937,112

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

68,533

 

 

 

-

 

 

 

68,533

 

 

 

21,685

 

 

 

90,218

 

Foreign currency translation loss, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,631

)

 

 

(9,631

)

 

 

(12

)

 

 

(9,643

)

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(93

)

 

 

(93

)

 

 

-

 

 

 

(93

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,299

 

 

 

8,299

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,290

)

 

 

(14,290

)

Issuance of equity securities, net of retirement

 

 

333

 

 

 

-

 

 

 

(2,339

)

 

 

4

 

 

 

-

 

 

 

(2,002

)

 

 

-

 

 

 

(2,002

)

Repurchases of common stock

 

 

(522

)

 

 

-

 

 

 

(18,978

)

 

 

-

 

 

 

-

 

 

 

(19,500

)

 

 

-

 

 

 

(19,500

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

14,991

 

 

 

-

 

 

 

-

 

 

 

14,991

 

 

 

-

 

 

 

14,991

 

Balance at September 30, 2022

 

$

146,088

 

 

$

(867,391

)

 

$

2,678,653

 

 

$

15,008

 

 

$

(19,292

)

 

$

1,953,066

 

 

$

52,026

 

 

$

2,005,092

 

 

The accompanying notes are an integral part of these consolidated financial statements.

6


 

Parsons Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

 

1.
Description of Operations

Organization

Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) provide sophisticated design, engineering and technical services, and smart and agile software to the United States federal government and Critical Infrastructure customers worldwide. The Company performs work in various foreign countries through local subsidiaries, joint ventures and foreign offices maintained to carry out specific projects.

2.
Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements and related notes of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and pursuant to the interim period reporting requirements of Form 10-Q. They do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with our consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year or for future years.

This Quarterly Report on Form 10-Q includes the accounts of Parsons Corporation and its subsidiaries and affiliates which it controls. Interests in joint ventures that are controlled by the Company, or for which the Company is otherwise deemed to be the primary beneficiary, are consolidated. For joint ventures in which the Company does not have a controlling interest, but exerts a significant influence, the Company applies the equity method of accounting (see “Note 14 – Investments in and Advances to Joint Ventures" for further discussion). Intercompany accounts and transactions are eliminated in consolidation. Certain amounts may not foot due to rounding.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The Company’s most significant estimates and judgments involve revenue recognition with respect to the determination of the costs to complete contracts and transaction price; determination of self-insurance reserves; useful lives of property and equipment and intangible assets; valuation of goodwill, intangible assets and net assets acquired from business acquisitions; valuation of deferred income tax assets and uncertain tax positions, among others. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and “Note 2—Summary of Significant Accounting Policies” in the notes to our consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2022, for a discussion of the significant estimates and assumptions affecting our consolidated financial statements. Estimates of costs to complete contracts are continually evaluated as work progresses and are revised when necessary. When a change in estimate is determined to have an impact on contract profit, the Company records a positive or negative adjustment to the consolidated statement of income.

3.
New Accounting Pronouncements

In the first quarter of 2022, the Company early adopted ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The new guidance requires that the approach of ASC 606, Revenue from Contracts with Customers, should be used to measure an acquired revenue contract in a business combination. This guidance is to be applied (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early

7


 

application and (2) prospectively to all business combinations that occur on or after the date of initial application. The early adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.

During July 2023, the Financial Accounting Standards Board Issued ASU No. 2023-03. ASU No. 2023-03 incorporates, into certain accounting standards, amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revisions of Regulation S-X: Income or Loss Applicable to Common Stock. These rules are effective immediately.

The significant amendment in this guidance impacting the Company involves share-based payment awards granted when the Company is in possession of material non-public information to which the market is likely to react positively when the information is announced. For each award granted, the Company needs to determine, at the date of the grant, whether positive material non-public information is currently available (or would be available) to the issuer that would be considered by a marketplace participant in estimating the expected volatility. If positive material non-public information is available, the Company should consider the future events in estimating expected volatility. ASU No. 2023-03 had no impact on the Company's consolidated financial statements as of and for the periods ending September 30, 2023.

 

4.
Acquisitions

Sealing Technologies, Inc.

On August 23, 2023, the Company acquired a 100% ownership interest in Sealing Technologies, Inc (“SealingTech”), a privately-owned company, for $181.7 million in cash and up to an additional $25 million in the event an earn out revenue target is exceeded. The Company borrowed $175 million under the Credit Agreement, as described in “Note 10 – Debt and Credit Facilities”, to fund the acquisition. Headquartered in Maryland, SealingTech expands Parsons’ customer base across the Department of Defense and Intelligence Community, and further enhances the company’s capabilities in defensive cyber operations; integrated mission-solutions powered by artificial intelligence (AI) and machine learning (ML); edge computing and edge access modernization; critical infrastructure protection; and secure data management. In connection with this acquisition, the Company recognized $3.1 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2023, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

The Company has agreed to pay the selling shareholders up to an additional $25 million in the event an earn out revenue target of $110 million is exceeded during the fiscal year ended December 31, 2024. The earn out payment due and payable by the Company to the selling shareholders shall be equal to (i) five-tenths (0.5), multiplied by (ii) the difference of (A) the actual earn out revenue minus (B) the earn out revenue target; provided, however, that in no event shall the earn out payment exceed $25 million. In the event that the earn out revenue is less than or equal to the earn out revenue target, the earn out payment shall be zero. The earn out payment, if any, shall be paid by the Company to the selling shareholders within 15 days following the date the earn out statement becomes final and binding on both parties.

The following table summarizes the acquisition date fair value of the purchase consideration transferred (in thousands):

 

 

 

Amount

 

Cash paid at closing

 

$

181,690

 

Fair value of contingent consideration to be achieved

 

 

3,443

 

Total purchase price

 

$

185,133

 

Changes in the fair value of contingent consideration, when they occur, are recorded in the consolidated statements of income within “Selling, general and administrative expense”.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):

8


 

 

 

 

Amount

 

Cash and cash equivalents

 

$

8,133

 

Accounts receivable

 

 

17,889

 

Contract assets

 

 

2,960

 

Other current assets

 

 

1,379

 

Property and equipment

 

 

1,635

 

Right of use asset

 

 

1,288

 

Deferred tax assets

 

 

686

 

Goodwill

 

 

106,241

 

Intangible assets

 

 

59,900

 

Accounts payable

 

 

(15,987

)

Accrued expenses and other current liabilities

 

 

(2,377

)

Contract liabilities

 

 

(493

)

Short-term lease liabilities

 

 

(540

)

Deferred tax liabilities

 

 

(330

)

Long-term lease liabilities

 

 

(551

)

Net assets acquired

 

$

179,833

 

Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years):

 

 

 

Gross
Carrying
Amount

 

 

Amortization
Period

 

 

 

 

 

(in years)

Customer relationships

 

$

31,400

 

 

8

Backlog

 

 

18,500

 

 

8

Developed technologies

 

 

8,000

 

 

5

Other

 

 

2,000

 

 

1 to 3

Amortization expense of $1.5 million related to these intangible assets was recorded for the three and nine months ended September 30, 2023. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. The entire value of goodwill is deductible for tax purposes.

The amount of revenue generated by SealingTech and included within consolidated revenues is $18.4 million for the three and nine months ended September 30, 2023. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

The Company is still in the process of finalizing its valuation of the net assets acquired.

Supplemental Pro Forma Information (Unaudited)

Supplemental information of unaudited pro forma operating results assuming the SealingTech acquisition had been consummated as of the beginning of fiscal year 2022 (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Pro forma Revenue

 

$

1,450,376

 

 

$

1,154,603

 

 

$

4,030,873

 

 

$

3,134,609

 

Pro forma Net Income including noncontrolling interests

 

 

66,010

 

 

 

42,820

 

 

$

161,544

 

 

$

77,218

 

 

9


 

IPKeys Power Partners

On April 13, 2023, the Company entered into a merger agreement to acquire a 100% ownership interest in IPKeys Power Partners (“IPKeys”), a privately-owned company, for $43.0 million in cash. The merger brings IPKeys' established customer base, expanding Parsons' presence in two rapidly growing end markets: grid modernization and cyber resiliency for critical infrastructure. Headquartered in Tinton Falls, New Jersey, IPKeys is a trusted provider of enterprise software platform solutions that is actively delivering cyber and operational security to hundreds of electric, water, and gas utilities across North America. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $0.1 million and $0.6 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2023, respectively, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):

 

 

 

Amount

 

Cash and cash equivalents

 

$

126

 

Accounts receivable

 

 

3,937

 

Contract assets

 

 

834

 

Other current assets

 

 

422

 

Property and equipment

 

 

86

 

Right of use asset

 

 

129

 

Other noncurrent assets

 

 

56

 

Goodwill

 

 

24,126

 

Intangible assets

 

 

23,000

 

Accounts payable

 

 

(541

)

Accrued expenses and other current liabilities

 

 

(1,768

)

Contract liabilities

 

 

(1,936

)

Deferred tax liabilities

 

 

(5,432

)

Net assets acquired

 

$

43,039

 

Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years):

 

 

 

Gross
Carrying
Amount

 

 

Amortization
Period

 

 

 

 

 

(in years)

Customer relationships (1)

 

$

15,900

 

 

16

Developed technologies

 

 

7,000

 

 

11

Other

 

$

100

 

 

1

(1)
The acquired business is a SaaS commercial business. Backlog for this type of business is included as customer relationships.

Amortization expense of $0.5 million and $0.9 million related to these intangible assets was recorded for the three and nine months ended September 30, 2023, respectively. The entire value of goodwill was assigned to the Critical Infrastructure reporting unit and represents synergies expected to be realized from this business combination. $1.0 million of goodwill is deductible for tax purposes.

The amount of revenue generated by IPKeys and included within consolidated revenues is $3.5 million and $6.1 million for the three and nine months ended September 30, 2023, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

The Company is still in the process of finalizing its valuation of the net assets acquired.

Supplemental Pro Forma Information (Unaudited)

10


 

Supplemental information of unaudited pro forma operating results assuming the IPKeys acquisition had been consummated as of the beginning of fiscal year 2022 (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Pro forma Revenue

 

$

1,418,571

 

 

$

1,137,381

 

 

$

3,951,378

 

 

$

3,101,246

 

Pro forma Net Income including noncontrolling interests

 

 

60,187

 

 

 

42,907

 

 

$

151,917

 

 

$

87,427

 

Xator Corporation

On May 31, 2022, the Company acquired a 100% ownership interest in Xator Corporation (“Xator”), a privately-owned company, for $387.5 million in cash. The Company borrowed $300 million under the Credit Agreement, as described in “Note 10 – Debt and Credit Facilities”, to partially fund the acquisition. Xator expands Parsons’ customer base and brings differentiated technical capabilities in critical infrastructure protection, counter-unmanned aircraft systems (cUAS), intelligence and cyber solutions, biometrics, and global threat assessment and operations. In connection with this acquisition, the Company recognized $7.7 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2022, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the purchase price allocation as of the date of acquisition (in thousands):

 

 

 

Amount

 

Cash and cash equivalents

 

$

8,935

 

Accounts receivable

 

 

7,393

 

Contract assets

 

 

24,332

 

Prepaid expenses and other current assets

 

 

3,615

 

Property and equipment

 

 

1,699

 

Right of use assets, operating leases

 

 

7,517

 

Goodwill

 

 

257,934

 

Investments in and advances to unconsolidated joint ventures

 

 

698

 

Intangible assets

 

 

123,500

 

Other noncurrent assets

 

 

9,156

 

Accounts payable

 

 

(6,626

)

Accrued expenses and other current liabilities

 

 

(31,309

)

Contract liabilities

 

 

(2,631

)

Short-term lease liabilities, operating leases

 

 

(2,371

)

Long-term lease liabilities, operating leases

 

 

(5,146

)

Other long-term liabilities

 

 

(9,156

)

Net assets acquired

 

$

387,540

 

Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):

 

 

 

Gross
Carrying
Amount

 

 

Amortization
Period

 

 

 

 

 

(in years)

Customer relationships

 

$

37,000

 

 

15

Backlog

 

 

81,000

 

 

6

Trade name

 

 

4,000

 

 

1

Developed technologies

 

 

1,000

 

 

3

Non-compete agreements

 

$

500

 

 

3

Amortization expense of $4.1 million and $14.0 million related to these intangible assets was recorded for the three and nine months ended September 30, 2023, respectively and $4.9 million and $6.6 million for both the three and nine months ended September 30, 2022, respectively. The entire value of goodwill was assigned to the Federal Solutions

11


 

reporting unit and represents synergies expected to be realized from this business combination. Goodwill in its entirety is deductible for tax purposes.

The amount of revenue generated by Xator and included within consolidated revenues was $70.4 million and $91.2 million for the three and nine months ended September 30, 2022. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.

Supplemental Pro Forma Information (Unaudited)

Supplemental information of unaudited pro forma operating results assuming the Xator acquisition had been consummated as of the beginning of fiscal year 2021 (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Pro forma Revenue

 

$

1,418,571

 

 

$

1,134,370

 

 

$

3,948,523

 

 

$

3,199,336

 

Pro forma Net Income including noncontrolling interests

 

 

60,374

 

 

 

43,970

 

 

 

154,275

 

 

 

102,859

 

 

 

5.
Contracts with Customers

Disaggregation of Revenue

The Company’s contracts contain both fixed-price and cost reimbursable components. Contract types are based on the component that represents the majority of the contract. The following table presents revenue disaggregated by contract type (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Fixed-Price

 

$

452,606

 

 

$

334,853

 

 

$

1,233,712

 

 

$

854,835

 

Time-and-Materials

 

 

355,689

 

 

 

302,236

 

 

 

998,037

 

 

 

836,881

 

Cost-Plus

 

 

610,276

 

 

 

497,281

 

 

 

1,716,774

 

 

 

1,400,444

 

Total

 

$

1,418,571

 

 

$

1,134,370

 

 

$

3,948,523

 

 

$

3,092,160

 

 

See “Note 18 – Segments Information” for the Company’s revenues by business lines.

Contract Assets and Contract Liabilities

Contract assets and contract liabilities balances at September 30, 2023 and December 31, 2022 were as follows (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

$ change

 

 

% change

 

Contract assets

 

$

756,630

 

 

$

634,033

 

 

$

122,597

 

 

 

19.3

%

Contract liabilities

 

 

277,249

 

 

 

213,064

 

 

 

64,185

 

 

 

30.1

%

Net contract assets (liabilities) (1)

 

$

479,381

 

 

$

420,969

 

 

$

58,412

 

 

 

13.9

%

 

(1)
Total contract retentions included in net contract assets (liabilities) were $73.7 million as of September 30, 2023, of which $34.7 million are not expected to be paid in the next 12 months. Total contract retentions included in net contract assets (liabilities) were $73.5 million as of December 31, 2022. Contract assets at September 30, 2023 and December 31, 2022 include $105.6 million and $95.7 million, respectively, related to net claim recovery estimates. For the three and nine months ended September 30, 2023 and September 30, 2022, there were no material losses recognized related to the collectability of claims, unapproved change orders, and requests for equitable adjustment.

12


 

During the three months ended September 30, 2023 and September 30, 2022, the Company recognized revenue of $8.9 million and $10.1 million, respectively, and $116.6 million and $91.8 million during the nine months ended September 30, 2023 and September 30, 2022, respectively, that was included in the corresponding contract liability balances at December 31, 2022 and December 31, 2021, respectively. Certain changes in contract assets and contract liabilities consisted of the following:

 

 

September 30, 2023

 

 

December 31, 2022

 

Acquired contract assets

 

$

2,729

 

 

$

25,397

 

Acquired contract liabilities

 

 

2,980

 

 

 

2,080

 

 

There was no significant impairment of contract assets recognized during the nine months ended September 30, 2023 and September 30, 2022.

Revisions in estimates, such as changes in estimated claims or incentives, related to performance obligations partially satisfied in previous periods that individually had an impact of $5 million or more on revenue resulted in the following changes in revenue:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue impact, net

 

$

-

 

 

$

-

 

 

$

4,748

 

 

$

-

 

During the nine-month period ended September 30, 2023, there was a change in estimate to direct costs of contracts related to a write-down on a contract in the Critical Infrastructure segment. This change in estimate combined with changes to estimates to revenue resulted in a net decrease of $3.1 million to operating income, $2.3 million to net income and $0.02 to diluted earnings per share for the nine months ended September 30, 2023.

Accounts Receivable, net

Accounts receivable, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):

 

 

 

2023

 

 

2022

 

Billed

 

$

587,160

 

 

$

502,411

 

Unbilled

 

 

323,592

 

 

 

218,945

 

   Total accounts receivable, gross

 

 

910,752

 

 

 

721,356

 

Allowance for doubtful accounts

 

 

(4,011

)

 

 

(4,011

)

   Total accounts receivable, net

 

$

906,741

 

 

$

717,345

 

 

Billed accounts receivable represents amounts billed to clients that have not been collected. Unbilled accounts receivable represents amounts where the Company has a present contractual right to bill but an invoice has not been issued to the customer at the period-end date.

The allowance for doubtful accounts was determined based on consideration of trends in actual and forecasted credit quality of clients, including delinquency and payment history, type of client, such as a government agency or commercial sector client, and general economic conditions and particular industry conditions that may affect a client’s ability to pay.

13


 

Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations

The Company’s remaining unsatisfied performance obligations (“RUPO”) as of September 30, 2023 represent a measure of the total dollar value of work to be performed on contracts awarded and in-progress. The Company had $6.2 billion in RUPO as of September 30, 2023.

RUPO will increase with awards of new contracts and decrease as the Company performs work and recognizes revenue on existing contracts. Projects are included within RUPO at such time the project is awarded and agreement on contract terms has been reached. The difference between RUPO and backlog relates to unexercised option years that are included within backlog and the value of Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracts included in backlog for which delivery orders have not been issued.

RUPO is comprised of: (a) original transaction price, (b) change orders for which written confirmations from our customers have been received, (c) pending change orders for which the Company expects to receive confirmations in the ordinary course of business, and (d) claim amounts that the Company has made against customers for which it has determined that it has a legal basis under existing contractual arrangements and a significant reversal of revenue is not probable, less revenue recognized to-date.

The Company expects to satisfy its RUPO as of September 30, 2023 over the following periods (in thousands):

 

 Period RUPO Will Be Satisfied

 

Within One Year

 

 

Within One to
Two Years

 

 

Thereafter

 

 Federal Solutions

 

$

1,620,465

 

 

$

335,848

 

 

$

240,563

 

 Critical Infrastructure

 

 

1,893,315

 

 

 

1,076,331

 

 

 

1,011,917

 

    Total

 

$

3,513,780

 

 

$

1,412,179

 

 

$

1,252,480

 

 

6.
Leases

The Company has operating and finance leases for corporate and project office spaces, vehicles, heavy machinery and office equipment. Our leases have remaining lease terms of one to nine years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases after the third year.

The components of lease costs for the three and nine months ended September 30, 2023 and September 30, 2022 are as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Operating lease cost

 

$

16,885

 

 

$

16,299

 

 

$

50,639

 

 

$

49,049

 

Short-term lease cost

 

 

2,823

 

 

 

3,858

 

 

 

9,882

 

 

 

10,948

 

Amortization of right-of-use assets

 

 

718

 

 

 

571

 

 

 

1,904

 

 

 

1,721

 

Interest on lease liabilities

 

 

73

 

 

 

24

 

 

 

171

 

 

 

67

 

Sublease income

 

 

(1,186

)

 

 

(1,318

)

 

 

(3,549

)

 

 

(3,321

)

Total lease cost

 

$

19,313

 

 

$

19,434

 

 

$

59,047

 

 

$

58,464

 

 

Supplemental cash flow information related to leases for the nine months ended September 30, 2023 and September 30, 2022 is as follows (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Operating cash flows for operating leases

 

$

53,040

 

 

$

51,988

 

Operating cash flows for finance leases

 

 

171

 

 

 

67

 

Financing cash flows from finance leases

 

 

1,865

 

 

 

1,580

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

48,430

 

 

 

15,709

 

Right-of-use assets obtained in exchange for new finance lease liabilities

 

$

4,470

 

 

$

1,156

 

 

14


 

Supplemental balance sheet and other information related to leases as of September 30, 2023 and December 31, 2022 are as follows (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Operating Leases:

 

 

 

 

 

 

Right-of-use assets

 

$

158,400

 

 

$

155,090

 

Lease liabilities:

 

 

 

 

 

 

Current

 

 

56,930

 

 

 

59,144

 

Long-term

 

 

119,281

 

 

 

111,417

 

Total operating lease liabilities

 

$

176,211

 

 

$

170,561

 

Finance Leases:

 

 

 

 

 

 

Other noncurrent assets

 

$

6,559

 

 

$

3,965

 

Accrued expenses and other current liabilities

 

$

2,358

 

 

$

1,746

 

Other long-term liabilities

 

$

4,198

 

 

$

2,246

 

 

 

 

 

 

 

 

Weighted Average Remaining Lease Term:

 

 

 

 

 

 

Operating leases

 

4.0 years

 

 

3.6 years

 

Finance leases

 

3.0 years

 

 

2.6 years

 

Weighted Average Discount Rate:

 

 

 

 

 

 

Operating leases

 

 

4.0

%

 

 

3.4

%

Finance leases

 

 

4.2

%

 

 

2.8

%

 

As of September 30, 2023, the Company has no operating leases that have not yet commenced.

 

A maturity analysis of the future undiscounted cash flows associated with the Company’s operating and finance lease liabilities as of September 30, 2023 is as follows (in thousands):

 

 

 

Operating Leases

 

 

Finance Leases

 

2023 (remaining)

 

$

17,404

 

 

$

673

 

2024

 

 

58,599

 

 

 

2,518

 

2025

 

 

45,042

 

 

 

2,056

 

2026

 

 

28,876

 

 

 

1,418

 

2027

 

 

16,536

 

 

 

314

 

Thereafter

 

 

24,290

 

 

 

4

 

Total lease payments

 

 

190,747

 

 

 

6,983

 

Less: imputed interest

 

 

(14,536

)

 

 

(427

)

Total present value of lease liabilities

 

$

176,211

 

 

$

6,556

 

7.
Goodwill

The following table summarizes the changes in the carrying value of goodwill by reporting segment from December 31, 2022 to September 30, 2023 (in thousands):

 

 

 

December 31, 2022

 

 

Acquisitions

 

 

Foreign Exchange

 

 

September 30, 2023

 

Federal Solutions

 

$

1,591,563

 

 

$

110,984

 

 

$

-

 

 

$

1,702,547

 

Critical Infrastructure

 

 

70,287

 

 

 

24,126

 

 

 

370

 

 

 

94,783

 

Total

 

$

1,661,850

 

 

$

135,110

 

 

$

370

 

 

$

1,797,330

 

 

The Company performed a qualitative triggering analysis and determined there was no triggering event indicating a potential impairment to the carrying value of its goodwill at September 30, 2023 and concluded there has not been an impairment.

15


 

8.
Intangible Assets

The gross amount and accumulated amortization of intangible assets with finite useful lives included in “Intangible assets, net” on the consolidated balance sheets are as follows (in thousands except for years):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

Weighted
Average

 

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

Amortization
Period
(in years)

 

Backlog

 

$

160,700

 

 

$

(71,713

)

 

$

88,987

 

 

$

142,200

 

 

$

(45,903

)

 

$

96,297

 

 

 

4.3

 

Customer relationships

 

 

345,620

 

 

 

(174,196

)

 

 

171,424

 

 

 

293,730

 

 

 

(146,032

)

 

 

147,698

 

 

 

9.0

 

Leases

 

 

120

 

 

 

(101

)

 

 

19

 

 

 

120

 

 

 

(87

)

 

 

33

 

 

 

1.0

 

Developed technology

 

 

31,600

 

 

 

(14,145

)

 

 

17,455

 

 

 

16,600

 

 

 

(11,560

)

 

 

5,040

 

 

 

5.5

 

Trade name

 

 

1,200

 

 

 

(267

)

 

 

933

 

 

 

5,000

 

 

 

(3,083

)

 

 

1,917

 

 

 

1.1

 

Non-compete agreements

 

 

2,150

 

 

 

(1,587

)

 

 

563

 

 

 

3,350

 

 

 

(2,074

)

 

 

1,276

 

 

 

3.3

 

In process research and development

 

 

1,800

 

 

 

-

 

 

 

1,800

 

 

 

1,800

 

 

 

-

 

 

 

1,800

 

 

n/a

 

Other intangibles

 

 

1,175

 

 

 

(258

)

 

 

917

 

 

 

275

 

 

 

(209

)

 

 

66

 

 

 

3.5

 

Total intangible assets

 

$

544,365

 

 

$

(262,267

)

 

$

282,098

 

 

$

463,075

 

 

$

(208,948

)

 

$

254,127

 

 

 

 

The aggregate amortization expense of intangible assets for the three months ended September 30, 2023 and September 30, 2022 was $18.8 million and $19.1 million, respectively, and $54.9 million and $58.9 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Estimated amortization expense for the remainder of the current fiscal year, each of the next four years and beyond is as follows (in thousands):

 

 

 

September 30, 2023

 

2023

 

$

18,505

 

2024

 

 

45,773

 

2025

 

 

39,599

 

2026

 

 

35,880

 

2027

 

 

34,766

 

Thereafter

 

 

105,775

 

Total

 

$

280,298

 

 

9.
Property and Equipment, Net

Property and equipment consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

Useful life
(years)

Buildings and leasehold improvements

 

$

105,192

 

 

$

103,071

 

 

1-15

Furniture and equipment

 

 

88,856

 

 

 

85,088

 

 

3-10

Computer systems and equipment

 

 

174,215

 

 

 

152,511

 

 

3-10

Construction equipment

 

 

6,389

 

 

 

5,271

 

 

5-7

Construction in progress

 

 

15,331

 

 

 

21,952

 

 

 

 

 

 

389,983

 

 

 

367,893

 

 

 

Accumulated depreciation

 

 

(290,639

)

 

 

(271,843

)

 

 

Property and equipment, net

 

$

99,344

 

 

$

96,050

 

 

 

 

Depreciation expense for the three months ended September 30, 2023 and September 30, 2022 was $10.2 million and $9.7 million, respectively, and $29.1 million and $29.3 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

16


 

10.
Debt and Credit Facilities

Debt consisted of the following (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Long-Term Debt:

 

 

 

 

 

 

Delayed draw term loan

 

$

350,000

 

 

$

350,000

 

Convertible senior notes

 

 

400,000

 

 

 

400,000

 

Revolving credit facility

 

 

75,000

 

 

 

-

 

Debt issuance costs

 

 

(4,634

)

 

 

(6,395

)

Total

 

$

820,366

 

 

$

743,605

 

Delayed Draw Term Loan

In September 2022, the Company entered into a $350 million unsecured Delayed Draw Term Loan with an increase option of up to $150 million (the “2022 Delayed Draw Term Loan”). Proceeds of the 2022 Delayed Draw Term Loan Agreement may be used (a) to pay off in full, or partially payoff, the Company’s existing Senior Notes, (b) to prepay revolving loans outstanding under the Revolving Credit Agreement (as defined below), or (c) for working capital, capital expenditures and other lawful corporate purposes. The Company drew $350.0 million from the 2022 Delayed Draw Term Loan in November 2022. The Company incurred $0.9 million of debt issuance costs in connection with the delayed draw term loan as of December 31, 2022. These costs are presented as a direct deduction from long-term debt on the face of the balance sheet. Interest expense related to the 2022 Delayed Draw Term Loan was $5.9 million and $16.6 million for the three and nine months ended September 30, 2023, respectively There were no amounts outstanding under the 2022 Delayed Draw Term Loan as of September 30, 2022. The amortization of debt issuance costs and interest expense is recorded in “Interest expense” on the consolidated statements of income. As of September 30, 2023 and December 31, 2022, there was $350.0 million outstanding under the 2022 Delayed Draw Term Loan. The interest rates on September 30, 2023 and December 31, 2022 were 6.6% and 5.6%, respectively.

The 2022 Delayed Draw Term Loan has a three-year maturity and permits the Company to borrow in U.S. dollars. The 2022 Delayed Draw Term Loan does not require any amortization payments by the Company. Depending on the Company’s consolidated leverage ratio (or debt rating after such time as the Company has such rating), borrowings under the 2022 Delayed Draw Term Loan Agreement will bear interest at either an adjusted Term SOFR benchmark rate plus a margin between 0.875% and 1.500% or a base rate plus a margin of between 0% and 0.500% and will initially bear interest at the middle of this range. The Company will pay a ticking fee on unused term loan commitments at a rate of 0.175% commencing with the date that is ninety (90) days after the Closing Date. Amounts outstanding under the 2022 Delayed Draw Term Loan Agreement may be prepaid at the option of the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of benchmark rate loans.

Convertible Senior Notes

In August 2020, the Company issued an aggregate $400.0 million of 0.25% Convertible Senior Notes due 2025, including the exercise of a $50.0 million initial purchasers’ option. The Company received proceeds from the issuance and sale of the Convertible Senior Notes of $389.7 million, net of $10.3 million of transaction fees and other third-party offering expenses. The Convertible Senior Notes accrue interest at a rate of 0.25% per annum, payable semi-annually on February 15 and August 15 of each year beginning on February 15, 2021, and will mature on August 15, 2025, unless earlier repurchased, redeemed or converted.

The Convertible Senior Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness, to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries

Each $1,000 of principal of the Notes will initially be convertible into 22.2913 shares of our common stock, which is equivalent to an initial conversion price of $44.86 per share, subject to adjustment upon the occurrence of specified events. On or after March 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date of the Convertible Senior Notes, holders may convert all or a portion of their Convertible Senior Notes, regardless of the conditions below.

17


 

Prior to the close of business on the business day immediately preceding March 15, 2025, the Notes will be convertible at the option of the holders thereof only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on December 31, 2021, if the last reported sale price of the Company’s common stock for at least 20 trading days, whether or not consecutive, during a period of 30 consecutive trading days ending on, and including the last trading day of the immediately preceding calendar quarter, is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of Convertible Senior Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
if the Company calls such Convertible Senior Notes for redemption; or
upon the occurrence of specified corporate events described in the Indenture.

The Company may redeem all or any portion of the Convertible Senior Notes for cash, at its option, on or after August 21, 2023 and before the 51st scheduled trading day immediately before the maturity date at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for a specified period of time. In addition, calling any Convertible Senior Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Convertible Senior Note, in which case the conversion rate applicable to the conversion of that Convertible Senior Note will be increased in certain circumstances if it is converted after it is called for redemption.

Upon the occurrence of a fundamental change prior to the maturity date of the Convertible Senior Notes, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Upon conversion, the Company may settle the Convertible Senior Notes for cash, shares of the Company’s common stock, or a combination thereof, at the Company’s option. If the Company satisfies its conversion obligation solely in cash or through payment and delivery of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of common stock due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 50-trading day observation period.

The Company recognized interest expense of approximately $0.7 million for both the three months ended September 30, 2023 and September 30, 2022 and $2.3 million and $2.2 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. As of September 30, 2023 and December 31, 2022, the carrying value of the Notes was $400.0 million.

Revolving Credit Facility

 

In June 2021, the Company entered into a $650 million unsecured revolving credit facility (the “Credit Agreement”). The Company incurred $1.9 million of costs in connection with this Credit Agreement. The 2021 Credit Agreement replaced an existing Fifth Amended and Restated Credit Agreement dated as of November 15, 2017. Under the new agreement, the Company’s revolving credit facility was increased from $550 million to $650 million. The credit facility has a five-year maturity, which may be extended up to two times for periods determined by the Company and the applicable extending lenders, and permits the Company to borrow in U.S. dollars, certain specified foreign currencies, and each other currency that may be approved in accordance with the 2021 Facility. The borrowings under the Credit Agreement bear interest at either the Term SOFR rate plus a margin between 1.0% and 1.625% or a base rate (as defined in the Credit Agreement) plus a margin of between 0% and 0.625%. The rates on September 30, 2023 and December 31, 2022 were 6.7% and 5.7%, respectively. Borrowings under this Credit Agreement are guaranteed by certain Company operating subsidiaries. Letters of credit commitments outstanding under this agreement aggregated to $43.9 million and $44.5 million at March 31, 2023 and December 31, 2022, respectively, which reduced borrowing limits available to the Company. Interest expense related to the Credit Agreement was $1.5 million and $2.5 million for the three months ended September 30, 2023 and September 30, 2022, respectively and $2.0 million and $3.4 million for the nine months ended

18


 

September 30, 2023 and September 30, 2022, respectively. There was $75 million outstanding under the Credit Agreement at September 30, 2023.

The Credit Agreement includes various covenants, including restrictions on indebtedness, liens, acquisitions, investments or dispositions, payment of dividends and maintenance of certain financial ratios and conditions. The Company was in compliance with these covenants at September 30, 2023 and December 31, 2022.

Letters of Credit

 

The Company also has in place several secondary bank credit lines for issuing letters of credit, principally for foreign contracts, to support performance and completion guarantees. Letters of credit commitments outstanding under these bank lines aggregated approximately $311.8 million and $222.5 million at September 30, 2023 and December 31, 2022, respectively.

Convertible Note Hedge and Warrant Transactions

In connection with the sale of the Convertible Senior Notes, the Company purchased a bond hedge designed to mitigate the potential dilution from the conversion of the Convertible Senior Notes. Under the five-year term of the bond hedge, upon a conversion of the bonds, the Company will receive the number of shares of common stock equal to the remaining common stock deliverable upon conversion of the Convertible Senior Notes if the conversion value exceeds the principal amount of the Notes. The aggregate number of shares that the Company could be obligated to issue upon conversion of the Convertible Senior Notes is approximately 8.9 million shares. The cost of the convertible note hedge transactions was $55.0 million.

The cost of the convertible note hedge was partially offset by the Company’s sale of warrants to acquire approximately 8.9 million shares of the Company’s common stock. The warrants were initially exercisable at a price of at least $66.46 per share and are subject to customary adjustments upon the occurrence of certain events, such as the payment of dividends. The Company received $13.8 million in cash proceeds from the sales of these warrants.

The bond hedge and warrant transactions effectively increased the conversion price associated with the Convertible Senior Notes during the term of these transactions from 35%, or $44.86, to 100%, or $66.46, at their issuance, thereby reducing the dilutive economic effect to shareholders upon actual conversion.

The bond hedges and warrants are indexed to, and potentially settled in, shares of the Company’s common stock. The net cost of $41.2 million for the purchase of the bond hedges and sale of the warrants was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.

At issuance, the Company recorded a deferred tax liability of $16.2 million related to the Convertible Senior Notes debt discount and the capitalized debt issuance costs. The Company also recorded a deferred tax asset of $16.5 million related to the convertible note hedge transactions and the tax basis of the capitalized debt issuance costs through additional paid-in capital. The deferred tax liability and deferred tax asset were included net in “Deferred tax assets” on the consolidated balance sheets. Upon adoption of ASU 2020-06, the Company reversed the deferred tax liability of $13.9 million that the Company had recorded at issuance related to the Convertible Senior Note debt discount and recorded an additional deferred tax liability of $0.4 million related to the capitalized debt issuance costs. In addition, the Company recorded a $0.9 million adjustment to the deferred tax asset through retained earnings related to the tax effect of book accretion recorded in 2020 and reversed upon adoption.

11.
Income Taxes

The Company’s effective tax rate was 20.3% and 24.0% and income tax expense was $15.2 million and $13.8 million for the three months ended September 30, 2023 and September 30, 2022, respectively. The change in the effective tax rate was due primarily to tax benefits related to increases in the foreign-derived intangible income (FDII) deduction and a change in jurisdictional mix of earnings, partially offset by an increase in foreign withholding taxes. The Company’s effective tax rate was 21.9% and 23.5% and income tax expense was $41.9 million and $27.6 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. The most significant items contributing to the change in the effective tax rate are the tax benefits related to increases in the FDII deduction and change in jurisdictional mix of earnings, partially offset by an increase in foreign withholding taxes. The difference between the effective tax rate and the statutory U.S. Federal income tax rate of 21% for the three and nine months ended September

19


 

30, 2023 primarily relates to state income taxes and foreign withholding taxes, partially offset by benefits related to untaxed income attributable to noncontrolling interests, earnings in lower tax jurisdictions, the FDII deduction, and the federal research tax credit.

As of September 30, 2023, the Company’s deferred tax assets were subject to a valuation allowance of $25.7 million primarily related to foreign net operating loss carryforwards, foreign tax credit carryforwards, and capital losses that the Company has determined are not more-likely-than-not to be realized. The factors used to assess the likelihood of realization include: the past performance of the entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.

As of September 30, 2023 and December 31, 2022, the liability for income taxes associated with uncertain tax positions was $25.1 million and $22.8 million, respectively. It is reasonably possible that the Company may realize a decrease in our unrecognized tax benefits of approximately $1.4 million during the next 12 months as a result of concluding various tax audits and closing tax years.

Although the Company believes its reserves for its tax positions are reasonable, the final outcome of tax audits could be materially different, both favorably and unfavorably. It is reasonably possible that certain audits may conclude in the next 12 months and that the unrecognized tax benefits the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. However, it is not currently possible to estimate the amount, if any, of such change.

On July 21, 2023, the IRS issued Notice 2023-55 which provides guidance to taxpayers in determining whether a foreign tax is eligible for a U.S. foreign tax credit for tax years 2022 and 2023, specifically delaying until 2024 the application of unfavorable foreign tax credit regulations that were originally issued late last year. The Company does not expect this Notice to have a material impact to its income tax positions.

12.
Contingencies

The Company is subject to certain lawsuits, claims and assessments that arise in the ordinary course of business. Additionally, the Company has been named as a defendant in lawsuits alleging personal injuries as a result of contact with asbestos products at various project sites. Management believes that any significant costs relating to these claims will be reimbursed by applicable insurance and, although there can be no assurance that these matters will be resolved favorably, management believes that the ultimate resolution of any of these claims will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows. A liability is recorded when it is both probable that a loss has been incurred and the amount of loss or range of loss can be reasonably estimated. When using a range of loss estimate, the Company records the liability using the low end of the range unless some amount within the range of loss appears at that time to be a better estimate than any other amount in the range. The Company records a corresponding receivable for costs covered under its insurance policies. Management judgment is required to determine the outcome and the estimated amount of a loss related to such matters. Management believes that there are no claims or assessments outstanding which would materially affect the consolidated results of operations or the Company’s financial position.

In September 2015, a former Parsons employee filed an action in the United States District Court for the Northern District of Alabama against us as a qui tam relator on behalf of the United States (the “Relator”) alleging violation of the False Claims Act. The plaintiff alleges that, as a result of these actions, the United States paid in excess of $1 million per month between February and September 2006 that it should have paid to another contractor, plus $2.9 million to acquire vehicles for the contractor defendant to perform its security services. The lawsuit sought (i) that we cease and desist from violating the False Claims Act, (ii) monetary damages equal to three times the amount of damages that the United States has sustained because of our alleged violations, plus a civil penalty of not less than $5,500 and not more than $11,000 for each alleged violation of the False Claims Act, (iii) monetary damages equal to the maximum amount allowed pursuant to §3730(d) of the False Claims Act, and (iv) Relator’s costs for this action, including recovery of attorneys’ fees and costs incurred in the lawsuit. The United States government did not intervene in this matter as it is allowed to do so under the statute. Dispositive and/or pre-trail motions have been filed. A hearing date was held during the third quarter of 2023 on such motions; however, the court has not issued a ruling. Depending upon the court’s rulings upon such motions, a trial may be scheduled in 2023 or 2024.

20


 

Federal government contracts are subject to audits, which are performed for the most part by the Defense Contract Audit Agency (“DCAA”). Audits by the DCAA and other agencies consist of reviews of our overhead rates, operating systems and cost proposals to ensure that we account for such costs in accordance with the Cost Accounting Standards (“CAS”). If the DCAA determines we have not accounted for such costs in accordance with the CAS, the DCAA may disallow these costs. The disallowance of such costs may result in a reduction of revenue and additional liability for the Company. Historically, the Company has not experienced any material disallowed costs as a result of government audits. However, the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future. All audits of costs incurred on work performed through 2013 have been closed, and years thereafter remain open.

Although there can be no assurance that these matters will be resolved favorably, management believes that their ultimate resolution will not have a material adverse impact on the Company’s consolidated financial position, results of operations, or cash flows.

13.
Retirement Benefit Plan

The Company’s principal retirement benefit plan is the Parsons Employee Stock Ownership Plan (“ESOP”), a stock bonus plan, established in 1975 to cover eligible employees of the Company and certain affiliated companies. Contributions of treasury stock to the ESOP are made annually in amounts determined by the Company’s board of directors and are held in trust for the sole benefit of the participants. Shares allocated to a participant’s account are fully vested after three years of credited service, or in the event(s) of reaching age 65, death or disability while an active employee of the Company. As of September 30, 2023 and December 31, 2022, total shares of the Company’s common stock outstanding were 104,888,473 and 104,702,996, respectively, of which 59,752,326 and 63,742,151, respectively, were held by the ESOP.

A participant’s interest in their ESOP account is redeemable upon certain events, including retirement, death, termination due to permanent disability, a severe financial hardship following termination of employment, certain conflicts of interest following termination of employment, or the exercise of diversification rights. Distributions from the ESOP of participants’ interests are made in the Company’s common stock based on quoted prices of a share of the Company’s common stock on the NYSE. A participant will be able to sell such shares of common stock in the market, subject to any requirements of the federal securities laws.

Total ESOP contribution expense was $14.9 million and $15.4 million for the three months ended September 30, 2023 and September 30, 2022, respectively and $44.1 million and $42.0 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. The expense is recorded in “Direct costs of contracts” and “Selling, general and administrative expense” in the consolidated statements of income. The fiscal 2023 ESOP contribution has not yet been made. The amount is currently included in accrued liabilities.

14.
Investments in and Advances to Joint Ventures

The Company participates in joint ventures to bid, negotiate and complete specific projects. The Company is required to consolidate these joint ventures if it holds the majority voting interest or if the Company meets the criteria under the consolidation model, as described below.

The Company performs an analysis to determine whether its variable interests give the Company a controlling financial interest in a Variable Interest Entity (“VIE”) for which the Company is the primary beneficiary and should, therefore, be consolidated. Such analysis requires the Company to assess whether it has the power to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

The Company analyzed all of its joint ventures and classified them into two groups: (1) joint ventures that must be consolidated because they are either not VIEs and the Company holds the majority voting interest, or because they are VIEs and the Company is the primary beneficiary; and (2) joint ventures that do not need to be consolidated because they are either not VIEs and the Company holds a minority voting interest, or because they are VIEs and the Company is not the primary beneficiary.

Many of the Company’s joint venture agreements provide for capital calls to fund operations, as necessary; however, such funding is infrequent and is not anticipated to be material.

21


 

Letters of credit outstanding described in “Note 10 – Debt and Credit Facilities” that relate to project ventures are $149.9 million and $106.8 million at September 30, 2023 and December 31, 2022.

In the table below, aggregated financial information relating to the Company’s joint ventures is provided because their nature, risk and reward characteristics are similar. None of the Company’s current joint ventures that meet the characteristics of a VIE are individually significant to the consolidated financial statements.

Consolidated Joint Ventures

The following represents financial information for consolidated joint ventures included in the consolidated financial statements (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Current assets

 

$

418,854

 

 

$

289,837

 

Noncurrent assets

 

 

11,637

 

 

 

9,961

 

Total assets

 

 

430,491

 

 

 

299,798

 

Current liabilities

 

 

278,168

 

 

 

194,701

 

Noncurrent liabilities

 

 

3,504

 

 

 

3,763

 

Total liabilities

 

 

281,672

 

 

 

198,464

 

Total joint venture equity

 

$

148,819

 

 

$

101,334

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue

 

$

185,602

 

 

$

130,344

 

 

$

514,339

 

 

$

333,967

 

Costs

 

 

160,423

 

 

 

101,882

 

 

 

445,829

 

 

 

289,485

 

Net income

 

$

25,179

 

 

$

28,462

 

 

$

68,510

 

 

$

44,482

 

Net income attributable to noncontrolling interests

 

$

12,364

 

 

$

14,024

 

 

$

33,617

 

 

$

21,685

 

 

The assets of the consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the Company’s general operations.

Unconsolidated Joint Ventures

The Company accounts for its unconsolidated joint ventures using the equity method of accounting. Under this method, the Company recognizes its proportionate share of the net earnings of these joint ventures as “Equity in (losses) earnings of unconsolidated joint ventures” in the consolidated statements of income. The Company’s maximum exposure to loss as a result of its investments in unconsolidated joint ventures is typically limited to the aggregate of the carrying value of the investment and future funding commitments.

The following represents the financial information of the Company’s unconsolidated joint ventures as presented in their unaudited financial statements (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Current assets

 

$

1,513,825

 

 

$

1,610,246

 

Noncurrent assets

 

 

481,708

 

 

 

491,658

 

Total assets

 

 

1,995,533

 

 

 

2,101,904

 

Current liabilities

 

 

960,276

 

 

 

1,255,297

 

Noncurrent liabilities

 

 

503,705

 

 

 

468,056

 

Total liabilities

 

 

1,463,981

 

 

 

1,723,353

 

Total joint venture equity

 

$

531,552

 

 

$

378,551

 

Investments in and advances to unconsolidated joint ventures

 

$

164,858

 

 

$

107,425

 

 

22


 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue

 

$

634,937

 

 

$

782,880

 

 

$

1,514,561

 

 

$

1,762,420

 

Costs

 

 

581,041

 

 

 

774,030

 

 

 

1,474,991

 

 

 

1,711,555

 

Net income

 

$

53,896

 

 

$

8,850

 

 

$

39,570

 

 

$

50,865

 

Equity in (losses) earnings of unconsolidated joint ventures

 

$

10,262

 

 

$

(974

)

 

$

4,497

 

 

$

10,237

 

 

The Company had net contributions to its unconsolidated joint ventures for the three and nine months ended September 30, 2023 of $36.1 million and $50.8 million, respectively and received net distributions from its unconsolidated joint ventures for the three and nine months ended September 30, 2022 of $13.2 million and $21.4 million, respectively.

For the three ended September 30, 2023, the Company recorded adjustments to equity in earnings of unconsolidated joint ventures of $5.1 million and for the nine months ended September 30, 2023 the Company recorded adjustments to equity in losses of unconsolidated joint ventures of $12.4 million on two unconsolidated joint ventures in the Critical Infrastructure segment, one from lower margin change orders in the first quarter offset in the current quarter by higher margin change orders and the other from write-offs in each of the three quarters ended September 30, 2023. For the three months ended September 30, 2023, these adjustments increased operating income by $5.1 million, net income by $3.8 million and diluted earnings per share of $0.03 and for the nine months ended September 30, 2023 decreased operating income by $12.4 million, net income by $9.2 million and diluted earnings per share by $0.08.

15.
Related Party Transactions

The Company often provides services to unconsolidated joint ventures and revenues include amounts related to recovering costs for these services. Revenues related to services the Company provided to unconsolidated joint ventures for the three months ended September 30, 2023 and September 30, 2022 were $57.3 million and $60.3 million, respectively and $164.8 million and $160.5 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

For the three months ended September 30, 2023 and September 30, 2022, the Company incurred $38.8 million and $42.1 million, respectively, and for the nine months ended September 30, 2023 and September 30, 2022 incurred $118.5 million and $113.8 million, respectively, of reimbursable costs.

Amounts included in the consolidated balance sheets related to services the Company provided to unconsolidated joint ventures are as follows (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Accounts receivable

 

$

41,043

 

 

$

40,795

 

Contract assets

 

 

40,032

 

 

 

30,578

 

Contract liabilities

 

 

14,161

 

 

 

14,318

 

Amounts presented above for prior and comparable periods have been updated to reflect all unconsolidated joint ventures.

16.
Fair Value Measurements

The authoritative guidance on fair value measurement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). At September 30, 2023 and December 31, 2022, the Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts payable, debt, and other liabilities. The fair values of these financial instruments approximate their carrying values due to their short-term maturities.

Investments measured at fair value are based on one or more of the following three valuation techniques:

Market approach—Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

23


 

Cost approach—Amount that would be required to replace the service capacity of an asset (i.e., replacement cost); and
Income approach—Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing models and lattice models).

In addition, the guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities;

Level 2 - Pricing inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument; and

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurements and unobservable.

The Company's contingent consideration is categorized as Level 3 within the fair value hierarchy. Contingent consideration is recorded within other long-term liabilities in the Company's consolidated balance sheet as of September 30, 2023. Contingent consideration has been recorded at its fair values using the option pricing method prescribed in the earnout valuation guide published by The Appraisal Foundation. We considered three major risks associated with earnout, i.e. risk in the underlying metric, risk in the earnout structure, and counterparty credit risk. Our valuation model was based on the Black Scholes option pricing formula and major assumptions including SealingTech's fiscal year 2024 projected revenue, the revenue discount rate, the revenue volatility, and the Company's credit adjusted discount rate.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Refer to Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2022 for a more complete discussion of the various items within the consolidated financial statements measured at fair value and the methods used to determine fair value.

17.
Earnings Per Share

The following tables reconcile the denominator and numerator used to compute basic earnings per share (“EPS”) to the denominator and numerator used to compute diluted EPS for the three and nine months ended September 30, 2023 and September 30, 2022. Basic EPS is computed using the weighted average number of shares outstanding during the period and income available to shareholders. Diluted EPS is computed similar to basic EPS, except the income available to shareholders is adjusted to add back interest expense, after tax, related to the Convertible Senior Note, and the weighted average number of shares outstanding is adjusted to reflect the dilutive effects of stock-based awards and shares underlying the Convertible Senior Note.

Convertible Senior Note dilution impact is calculated using the if-converted method. In connection with the offerings of the Notes, the Company entered into a convertible note hedge and warrants (see Note 10 Debt and Credit Facilities); however, the convertible note hedge is not considered when calculating dilutive shares given its impact is anti-dilutive. The impact of the bond hedge would offset the dilutive impact of the shares underlying the Convertible Senior Note. The warrants have a strike price above our average share price during the period and are out of the money and not included in the tables below.

Dilutive potential common shares include, when circumstances require, shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (see Note 10 for further discussion) and stock-based awards. Shares to be provided to the Company from its bond hedge purchased concurrently with the issuance of Convertible Senior Notes are anti-dilutive and are not included in its diluted shares. Anti-dilutive stock-based awards excluded from the calculation of earnings per share for the three months ended September 30, 2023 and September 30, 2022 were 2,911 and 2,449, respectively and for the nine months ended September 30, 2023 and September 30, 2022 were 3,284 and 11,564, respectively.

24


 

The weighted average number of shares used to compute basic and diluted EPS were:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Basic weighted average number of shares outstanding

 

 

104,970,645

 

 

 

103,608,135

 

 

 

104,894,448

 

 

 

103,684,048

 

Stock-based awards

 

 

1,177,894

 

 

 

918,090

 

 

 

1,020,082

 

 

 

746,702

 

Convertible senior notes

 

 

8,916,530

 

 

 

8,916,530

 

 

 

8,916,530

 

 

 

8,916,530

 

Diluted weighted average number of shares outstanding

 

 

115,065,069

 

 

 

113,442,755

 

 

 

114,831,060

 

 

 

113,347,280

 

The net income available to shareholders to compute basic and diluted EPS were (in thousands):
 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Net income attributable to Parsons Corporation

 

$

47,447

 

 

$

29,571

 

 

 

116,241

 

 

 

68,533

 

Convertible senior notes if-converted method interest adjustment

 

 

559

 

 

 

545

 

 

 

1,665

 

 

 

1,627

 

Diluted net income attributable to Parsons Corporation

 

$

48,006

 

 

$

30,116

 

 

 

117,906

 

 

 

70,160

 

Share Repurchases

In August 2021, the Company’s Board of Directors authorized a stock repurchase program to repurchase up to $100.0 million of shares of Common stock. Repurchases under this stock repurchase program commenced on August 12, 2021. Any and all shares of Common Stock purchased by the Company pursuant to the program shall be retired upon their acquisition and shall not become treasury shares but instead shall resume the status of authorized but unissued shares of Common Stock. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, the market price of the Company's common stock, other uses of capital and other factors.

There were no share repurchases during the three months ended September 30, 2023

The table below presents information on this repurchase program:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Total shares repurchased

 

 

-

 

 

 

95,413

 

 

 

185,475

 

 

 

522,501

 

Total shares retired

 

 

-

 

 

 

95,413

 

 

 

185,475

 

 

 

522,501

 

Average price paid per share

 

$

-

 

 

$

41.42

 

 

$

43.13

 

 

$

37.32

 

 

As of September 30, 2023, the Company has $48.3 million remaining under the stock repurchase program.

18.
Segment Information

The Company operates in two reportable segments: Federal Solutions and Critical Infrastructure.

The Federal Solutions segment provides advanced technical solutions to the U.S. government, delivering timely, cost-effective hardware, software and services for mission-critical projects. The segment provides advanced technologies, supporting national security missions in cybersecurity, missile defense, and military facility modernization, logistics support, hazardous material remediation and engineering services.

The Critical Infrastructure segment provides integrated engineering and management services for complex physical and digital infrastructure around the globe. The Critical Infrastructure segment is a technology innovator focused on next generation digital systems and complex structures. Industry leading capabilities in engineering and project

25


 

management allow the Company to deliver significant value to customers by employing cutting-edge technologies, improving timelines and reducing costs.

The Company defines its reportable segments based on the way the chief operating decision maker (“CODM”), its Chair and Chief Executive Officer, evaluates the performance of each segment and manages the operations of the Company for purposes of allocating resources among the segments. The CODM evaluates segment operating performance using segment Revenue and segment Adjusted EBITDA attributable to Parsons Corporation.

The following table summarizes business segment revenue for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Federal Solutions revenue

 

$

780,114

 

 

$

620,416

 

 

 

$

2,177,457

 

 

$

1,649,601

 

Critical Infrastructure revenue

 

 

638,457

 

 

 

513,954

 

 

 

 

1,771,066

 

 

 

1,442,559

 

Total revenue

 

$

1,418,571

 

 

$

1,134,370

 

 

 

$

3,948,523

 

 

$

3,092,160

 

 

The Company defines Adjusted EBITDA attributable to Parsons Corporation as Adjusted EBITDA excluding Adjusted EBITDA attributable to noncontrolling interests. The Company defines Adjusted EBITDA as net income (loss) attributable to Parsons Corporation, adjusted to include net income (loss) attributable to noncontrolling interests and to exclude interest expense (net of interest income), provision for income taxes, depreciation and amortization and certain other items that are not considered in the evaluation of ongoing operating performance. These other items include net income (loss) attributable to noncontrolling interests, asset impairment charges, equity-based compensation, income and expense recognized on litigation matters, expenses incurred in connection with acquisitions and other non-recurring transaction costs and expenses related to our prior restructuring. The following table reconciles business segment Adjusted EBITDA attributable to Parsons Corporation to Net Income attributable to Parsons Corporation for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

Adjusted EBITDA attributable to Parsons Corporation

 

September 30, 2023

 

 

September 30, 2022

 

 

 

September 30, 2023

 

 

September 30, 2022

 

     Federal Solutions

 

$

65,039

 

 

$

61,004

 

 

 

$

206,827

 

 

$

151,287

 

     Critical Infrastructure

 

 

50,188

 

 

 

27,545

 

 

 

 

95,481

 

 

 

81,020

 

Adjusted EBITDA attributable to Parsons Corporation

 

 

115,227

 

 

 

88,549

 

 

 

 

302,308

 

 

 

232,307

 

Adjusted EBITDA attributable to noncontrolling interests

 

 

12,606

 

 

 

14,138

 

 

 

 

34,222

 

 

 

22,042

 

Depreciation and amortization

 

 

(30,154

)

 

 

(29,578

)

 

 

 

(87,202

)

 

 

(90,668

)

Interest expense, net

 

 

(8,120

)

 

 

(5,941

)

 

 

 

(20,778

)

 

 

(14,168

)

Income tax expense

 

 

(15,218

)

 

 

(13,792

)

 

 

 

(41,944

)

 

 

(27,643

)

Equity-based compensation expense

 

 

(9,075

)

 

 

(7,125

)

 

 

 

(25,092

)

 

 

(15,814

)

Transaction-related costs (a)

 

 

(5,493

)

 

 

(2,563

)

 

 

 

(9,028

)

 

 

(14,486

)

Restructuring expense (b)

 

 

-

 

 

 

-

 

 

 

 

(546

)

 

 

(213

)

Other (c)

 

 

38

 

 

 

(93

)

 

 

 

(2,082

)

 

 

(1,139

)

Net income including noncontrolling interests

 

 

59,811

 

 

 

43,595

 

 

 

 

149,858

 

 

 

90,218

 

Net income attributable to noncontrolling interests

 

 

12,364

 

 

 

14,024

 

 

 

 

33,617

 

 

 

21,685

 

Net income attributable to Parsons Corporation

 

$

47,447

 

 

$

29,571

 

 

 

$

116,241

 

 

$

68,533

 

 

(a)
Reflects costs incurred in connection with acquisitions and other non-recurring transaction costs, primarily fees paid for professional services and employee retention.
(b)
Reflects costs associated with corporate restructuring initiatives.
(c)
Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually insignificant items that are non-recurring in nature.

Asset information by segment is not a key measure of performance used by the CODM.

26


 

The following tables present revenues and property and equipment, net by geographic area (in thousands):

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

1,166,547

 

 

$

944,942

 

 

 

$

3,251,552

 

 

$

2,571,741

 

Middle East

 

 

247,689

 

 

 

184,680

 

 

 

 

684,340

 

 

 

504,078

 

Rest of World

 

 

4,335

 

 

 

4,748

 

 

 

 

12,631

 

 

 

16,341

 

Total Revenue

 

$

1,418,571

 

 

$

1,134,370

 

 

 

$

3,948,523

 

 

$

3,092,160

 

The geographic location of revenue is determined by the location of the customer (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Property and Equipment, Net

 

 

 

 

 

 

North America

 

$

92,279

 

 

$

91,217

 

Middle East

 

 

7,065

 

 

 

4,833

 

Total Property and Equipment, Net

 

$

99,344

 

 

$

96,050

 

North America includes revenue in the United States for the three months ended September 30, 2023 and September 30, 2022 of $1.1 billion and $0.9 billion, respectively and for the nine months ended September 30, 2023 and September 30, 2022 of $3.0 billion and $2.3 billion, respectively. North America property and equipment, net includes $85.2 million and $84.4 million of property and equipment, net in the United States at September 30, 2023 and December 31, 2022, respectively.

The following table presents revenues by business units (in thousands):

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Defense and Intelligence

 

$

398,632

 

 

$

351,419

 

 

 

$

1,144,320

 

 

$

1,037,244

 

Engineered Systems

 

 

381,482

 

 

 

268,997

 

 

 

 

1,033,137

 

 

 

612,357

 

Federal Solutions revenues

 

 

780,114

 

 

 

620,416

 

 

 

 

2,177,457

 

 

 

1,649,601

 

Mobility Solutions

 

 

430,011

 

 

 

329,666

 

 

 

 

1,209,554

 

 

 

924,834

 

Connected Communities

 

 

208,446

 

 

 

184,288

 

 

 

 

561,512

 

 

 

517,725

 

Critical Infrastructure revenues

 

 

638,457

 

 

 

513,954

 

 

 

 

1,771,066

 

 

 

1,442,559

 

Total Revenue

 

$

1,418,571

 

 

$

1,134,370

 

 

 

$

3,948,523

 

 

$

3,092,160

 

 

19.
Subsequent Events

On October 31, 2023, the Company entered into a Membership Interest Purchase Agreement to acquire a 100% ownership interest in I.S. Engineers, LLC, a privately-owned company, for $11.5 million, subject to certain adjustments. Headquartered in Texas, I.S. Engineers, LLC provides full service consulting specializing in transportation engineering, including roads and highways, and program management. At the timing of the filing of this Form 10-Q, the Company has just started the process of obtaining the relevant data to make the required acquisition related disclosures. This acquisition is not material to the Company's consolidated financial statements.

 

27


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis is intended to help investors understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q and in conjunction with the Company’s Form 10-K for the year ended December 31, 2022. Certain amounts may not foot due to rounding.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in the Company’s Form 10-K for the year ended December 31, 2022. We undertake no obligation to revise publicly any forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.

img90722407_1.jpg 

 

 

 

PARSONS CORPORATION Enabling a safer, smarter, and more interconnected world. Engineered solutions for complex physical and digital infrastructure challenges SEGMENTS KEY FACTS AND FIGURES Technology-driven solutions for defense and intelligence customers FINANCIAL SNAPSHOT $4B Total Revenue Trailing 12-Months (Q2 2020) $4B Contract Awards Trailing 12-Months (Q2 2020) 75+ Years Of History Federal Solutions 49% Critical Infrastructure 51% Federal Solutions 58% Critical Infrastructure 42% Federal Solutions Critical Infrastructure ~16K Employees 6% Revenue Growth Trailing 12-Months (Q2 2020) 1.0X Book-To-Bill Ratio Trailing 12-Months (Q2 2020) $7.7B Backlog As Of 6/30/2020 PARSONS CORPORATION.

Overview

We are a leading provider of the integrated solutions and services required in today’s complex security environment and a world of digital transformation. We deliver innovative technology-driven solutions to customers worldwide. We have developed significant expertise and differentiated capabilities in key areas of cybersecurity, intelligence, missile defense, C5ISR, space, transportation, water/wastewater and environmental remediation. By combining our talented team of professionals and advanced technology, we solve complex technical challenges to enable a safer, smarter, more secure and more connected world.

28


 

We operate in two reporting segments, Federal Solutions and Critical Infrastructure. Our Federal Solutions business provides advanced technical solutions to the U.S. government. Our Critical Infrastructure business provides integrated engineering and management services for complex physical and digital infrastructure to state and local governments and large companies.

Our employees provide services pursuant to contracts that we are awarded by the customer and specific task orders relating to such contracts. These contracts are often multi-year, which provides us backlog and visibility on our revenues for future periods. Many of our contracts and task orders are subject to renewal and rebidding at the end of their term, and some are subject to the exercise of contract options and issuance of task orders by the applicable government entity. In addition to focusing on increasing our revenues through increased contract awards and backlog, we focus our financial performance on margin expansion and cash flow.

Key Metrics

We manage and assess the performance of our business by evaluating a variety of metrics. The following table sets forth selected key metrics (in thousands, except Book-to-Bill):

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Awards (year to date)

 

$

4,748,320

 

 

$

3,167,023

 

Backlog (1)

 

$

8,815,561

 

 

$

8,228,989

 

Book-to-Bill (year to date)

 

 

1.2

 

 

 

1.0

 

(1)
Difference between our backlog of $8.8 billion and our remaining unsatisfied performance obligations, or RUPO, of $6.2 billion, each as of September 30, 2023, is due to (i) unissued task orders and unexercised option years, to the extent their issuance or exercise is probable, as well as (ii) contract awards, to the extent we believe contract execution and funding is probable.

Awards

Awards generally represent the amount of revenue expected to be earned in the future from funded and unfunded contract awards received during the period. Contract awards include both new and re-compete contracts and task orders. Given that new contract awards generate growth, we closely track our new awards each year.

The following table summarizes the year to-date value of new awards for the periods presented below (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Federal Solutions

 

$

764,531

 

 

$

685,599

 

 

$

2,642,302

 

 

$

1,535,041

 

Critical Infrastructure

 

 

670,398

 

 

 

572,657

 

 

 

2,106,018

 

 

 

1,631,982

 

Total Awards

 

$

1,434,929

 

 

$

1,258,256

 

 

$

4,748,320

 

 

$

3,167,023

 

 

The change in new awards from year to year is generally due to ordinary course fluctuations in our business. The volume of contract awards can fluctuate in any given period due to win rate and the timing and size of the awards issued by our customers. The increase in awards for the three months ended September 30, 2023 when compared to the corresponding period last year was primarily driven by significant awards in both our Federal Solutions and Critical Infrastructure segments.

Backlog

We define backlog to include the following two components:

Funded—Funded backlog represents future revenue anticipated from orders for services under existing contracts for which funding is appropriated or otherwise authorized.
Unfunded—Unfunded backlog represents future revenue anticipated from orders for services under existing contracts for which funding has not been appropriated or otherwise authorized.

29


 

Backlog includes (i) unissued task orders and unexercised option years, to the extent their issuance or exercise is probable, as well as (ii) contract awards, to the extent we believe contract execution and funding is probable.

The following table summarizes the value of our backlog at the respective dates presented below (in thousands):

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Federal Solutions:

 

 

 

 

 

 

Funded

 

$

1,625,475

 

 

$

1,448,615

 

Unfunded

 

 

3,565,223

 

 

 

3,656,421

 

Total Federal Solutions

 

 

5,190,698

 

 

 

5,105,036

 

Critical Infrastructure:

 

 

 

 

 

 

Funded

 

 

3,554,754

 

 

 

3,066,325

 

Unfunded

 

 

70,109

 

 

 

57,628

 

Total Critical Infrastructure

 

 

3,624,863

 

 

 

3,123,953

 

Total Backlog (1)

 

$

8,815,561

 

 

$

8,228,989

 

(1)
Difference between our backlog of $8.8 billion and our RUPO of $6.2 billion, each as of September 30, 2023, is due to (i) unissued task orders and unexercised option years, to the extent their issuance or exercise is probable, as well as (ii) contract awards, to the extent we believe contract execution and funding is probable.

Our backlog includes orders under contracts that in some cases extend for several years. For example, the U.S. Congress generally appropriates funds for our U.S. federal government customers on a yearly basis, even though their contracts with us may call for performance that is expected to take a number of years to complete. As a result, our federal contracts typically are only partially funded at any point during their term. All or some of the work to be performed under the contracts may remain unfunded unless and until the U.S. Congress makes subsequent appropriations and the procuring agency allocates funding to the contract.

We expect to recognize $3.5 billion of our funded backlog at September 30, 2023 as revenues in the following twelve months. However, our U.S. federal government customers may cancel their contracts with us at any time through a termination for convenience or may elect to not exercise option periods under such contracts. In the case of a termination for convenience, we would not receive anticipated future revenues, but would generally be permitted to recover all or a portion of our incurred costs and fees for work performed. See “Risk Factors—Risk Relating to Our Business—We may not realize the full value of our backlog, which may result in lower than expected revenue” in the Company’s Form 10-K for the year ended December 31, 2022.

The changes in backlog in both the Federa