UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 21, 2024, the registrant had
Table of Contents
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PART I. |
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1 |
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Item 1. |
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3 |
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4 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share information)
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September 30, 2024 |
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December 31, 2023 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents (including $ |
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$ |
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$ |
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Accounts receivable, net (including $ |
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Contract assets (including $ |
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Prepaid expenses and other current assets (including $ |
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Total current assets |
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Property and equipment, net (including $ |
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Right of use assets, operating leases (including $ |
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Goodwill |
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Investments in and advances to unconsolidated joint ventures |
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Intangible assets, net |
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Deferred tax assets |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders' Equity |
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Current liabilities: |
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Accounts payable (including $ |
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$ |
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$ |
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Accrued expenses and other current liabilities (including $ |
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Contract liabilities (including $ |
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Short-term lease liabilities, operating leases (including $ |
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Income taxes payable |
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Short-term debt |
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Total current liabilities |
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Long-term employee incentives |
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Long-term debt |
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Long-term lease liabilities, operating leases (including $ |
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Deferred tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Shareholders' equity: |
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Common stock, $ |
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Treasury stock, |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total Parsons Corporation shareholders' equity |
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Noncontrolling interests |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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The accompanying notes are an integral part of these consolidated financial statements.
1
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
(In thousands, except per share information)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2024 |
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September 30, 2023 |
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September 30, 2024 |
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September 30, 2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Direct cost of contracts |
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Equity in (losses) earnings of unconsolidated joint ventures |
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Selling, general and administrative expenses |
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Operating income |
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Interest income |
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Interest expense |
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Loss on extinguishment of debt |
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- |
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- |
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( |
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Other income (expense), net |
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( |
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Total other income (expense) |
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Income before income tax expense |
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Income tax expense |
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( |
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Net income including noncontrolling interests |
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Net income attributable to noncontrolling interests |
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Net income attributable to Parsons Corporation |
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$ |
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$ |
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$ |
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$ |
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Earnings per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
2
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2024 |
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September 30, 2023 |
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September 30, 2024 |
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September 30, 2023 |
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Net income including noncontrolling interests |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income, net of tax |
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Foreign currency translation adjustment, net of tax |
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( |
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( |
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Pension adjustments, net of tax |
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( |
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Comprehensive income including noncontrolling interests, net of tax |
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Comprehensive income attributable to noncontrolling interests, net of tax |
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( |
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( |
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( |
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Comprehensive income attributable to Parsons Corporation, net of tax |
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$ |
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$ |
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$ |
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$ |
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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)
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For the Nine Months Ended |
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September 30, 2024 |
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September 30, 2023 |
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Cash flows from operating activities: |
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Net income including noncontrolling interests |
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$ |
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$ |
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Adjustments to reconcile net (loss) income to net cash used in operating activities |
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Depreciation and amortization |
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Amortization of debt issue costs |
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Loss (gain) on disposal of property and equipment |
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( |
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Loss on extinguishment of debt |
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Provision for doubtful accounts |
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Deferred taxes |
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( |
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Foreign currency transaction gains and losses |
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Equity in losses (earnings) of unconsolidated joint ventures |
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( |
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Return on investments in unconsolidated joint ventures |
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Stock-based compensation |
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Contributions of treasury stock |
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Changes in assets and liabilities, net of acquisitions and consolidated |
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Accounts receivable |
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( |
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( |
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Contract assets |
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( |
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( |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Contract liabilities |
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Income taxes |
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( |
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Other long-term liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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Proceeds from sale of property and equipment |
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Payments for acquisitions, net of cash acquired |
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( |
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( |
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Investments in unconsolidated joint ventures |
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( |
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( |
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Return of investments in unconsolidated joint ventures |
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Proceeds from sales of investments in unconsolidated joint ventures |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from borrowings under credit agreement |
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Repayments of borrowings under credit agreement |
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( |
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( |
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Proceeds from issuance of convertible notes due 2029 |
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Repurchases of convertible notes due 2025 |
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( |
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Payments for debt issuance costs |
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( |
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Contributions by noncontrolling interests |
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Distributions to noncontrolling interests |
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( |
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( |
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Repurchases of common stock |
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( |
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( |
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Taxes paid on vested stock |
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( |
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( |
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Capped call transactions |
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( |
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Bond hedge termination |
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Redemption of warrants |
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( |
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Proceeds from issuance of common stock |
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Net cash provided by financing activities |
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Effect of exchange rate changes |
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( |
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Net increase (decrease) in cash, cash equivalents, and restricted cash |
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( |
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Cash, cash equivalents and restricted cash: |
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Beginning of year |
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End of period |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
PARSONS CORPORATION AND SUBSIDIARIES
For the Three Months Ended September 30, 2024 and September 30, 2023
(In thousands)
(Unaudited)
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Common |
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Treasury |
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Additional |
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Retained |
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Accumulated |
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Total |
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Noncontrolling |
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Total |
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Balance at June 30, 2024 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Comprehensive income |
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Net income |
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- |
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- |
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- |
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- |
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Foreign currency translation |
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- |
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- |
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- |
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- |
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Pension adjustments, net |
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- |
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- |
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- |
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- |
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- |
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Contributions |
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- |
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- |
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- |
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- |
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- |
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- |
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Distributions |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Issuance of equity securities, |
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- |
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( |
) |
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( |
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- |
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( |
) |
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- |
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( |
) |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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Balance at September 30, 2024 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Balance at June 30, 2023 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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||||||
Comprehensive income |
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||||||||
Net income |
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- |
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- |
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- |
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- |
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Foreign currency translation |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Pension adjustments, net |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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- |
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( |
) |
Distributions |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Issuance of equity securities, |
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- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Balance at September 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
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, 2024 and September 30, 2023
(In thousands)
(Unaudited)
|
|
Common |
|
|
Treasury |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
Balance at December 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency translation gain, net |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Pension adjustments, net |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Contributions |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||||
Distributions |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|||
Capped call transactions |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Repurchase of warrants |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Bond hedge termination |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Issuance of equity securities, net of retirement |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Repurchases of common stock |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Stock-based compensation |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at September 30, 2024 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation loss, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Pension adjustments, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Contributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Distributions |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Issuance of equity securities, net of retirement |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Repurchases of common stock |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Balance at September 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
6
Parsons Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
Organization
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, 2023.
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
In the fourth quarter of 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-09, "Income Taxes (Topic 740)" ("ASU 2023-09"). ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after
7
Early
In the fourth quarter of 2023, the FASB Issued ASU 2023-07, "Segment Reporting (Topic 280)". ASU 2023-07 introduces enhanced disclosures about significant segment expenses along with other enhanced segment disclosures. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after
During July 2023, the FASB Issued ASU 2023-03. ASU 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 adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
BlackSignal Technologies, LLC.
On August 16, 2024, the Company acquired a
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 |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Contract assets |
|
|
|
|
Income taxes receivable |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Right of use assets, operating leases |
|
|
|
|
Property and Equipment |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Other assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other current liabilities |
|
|
( |
) |
Short-term lease liabilities, operating leases |
|
|
( |
) |
Deferred income taxes |
|
|
( |
) |
Long-term lease liabilities, operating leases |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
8
Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years):
|
|
Gross |
|
|
Amortization |
|
|
|
|
|
|
(in years) |
|
Customer relationships |
|
$ |
|
|
||
Backlog |
|
|
|
|
||
Developed technologies |
|
|
|
|
||
Non-compete agreements |
|
|
|
|
||
Other |
|
$ |
|
|
||
Amortization expense of $
The amount of revenue generated by BlackSignal and included within consolidated revenue is $
Supplemental Pro Forma Information
Supplemental information of unaudited pro forma operating results assuming the BlackSignal acquisition had been consummated as of the beginning of fiscal year 2023 (in thousands) is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Pro forma Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Pro forma Net Income including noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets, employee retention, and the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses as of the assumed acquisition date. This supplemental pro forma information has been prepared for informational purposes and does not purport to be indicative of what would have occurred had the acquisition been consummated during the periods for which pro forma information is presented.
I.S. Engineers, LLC
On October 31, 2023, the Company entered into a Membership Interest Purchase Agreement to acquire a
Sealing Technologies, Inc.
On August 23, 2023, the Company acquired a
9
the Company recognized $
The Company has agreed to pay the selling shareholders up to an additional $
The following table summarizes the acquisition date fair value of the purchase consideration transferred (in thousands):
|
|
Amount |
|
|
Cash paid at closing |
|
$ |
|
|
Fair value of contingent consideration to be achieved |
|
|
|
|
Total purchase price |
|
$ |
|
|
The estimated fair value of the SealingTech contingent consideration as of September 30, 2024 was $
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 |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Contract assets |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Right of use assets, operating leases |
|
|
|
|
Deferred tax assets |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other current liabilities |
|
|
( |
) |
Contract liabilities |
|
|
( |
) |
Short-term lease liabilities, operating leases |
|
|
( |
) |
Long-term lease liabilities, operating leases |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
|
Gross |
|
|
Amortization |
|
|
|
|
|
|
(in years) |
|
Customer relationships |
|
$ |
|
|
||
Backlog |
|
|
|
|
||
Developed technologies |
|
|
|
|
||
Other |
|
$ |
|
|
||
10
Amortization expense of $
The amount of revenue generated by SealingTech and included within consolidated revenue is $
Supplemental Pro Forma Information
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, 2023 |
|
||
Pro forma Revenue |
|
$ |
|
|
$ |
|
||
Pro forma Net Income including noncontrolling interests |
|
|
|
|
|
|
||
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets, employee retention, the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses, employee retention, and the additional pro forma interest expense related to the borrowings under the credit agreement as of the assumed acquisition date. This supplemental pro forma information has been prepared for informational purposes and does not purport to be indicative of what would have occurred had the acquisition been consummated during the periods for which pro forma information is presented.
IPKeys Power Partners
On April 13, 2023, the Company entered into a merger agreement to acquire a
11
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 purchase price allocation as of the date of acquisition (in thousands):
|
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Contract assets |
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
Property and equipment |
|
|
|
|
Right of use assets, operating leases |
|
|
|
|
Other noncurrent assets |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other current liabilities |
|
|
( |
) |
Contract liabilities |
|
|
( |
) |
Short-term lease liabilities, operating leases |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
Long-term lease liabilities, operating leases |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
|
Gross |
|
|
Amortization |
|
|
|
|
|
|
(in years) |
|
Customer relationships (1) |
|
$ |
|
|
||
Developed technologies |
|
|
|
|
||
Other |
|
$ |
|
|
||
(1)
Amortization expense of $
The amount of revenue generated by IPKeys and included within consolidated revenue is $
Supplemental Pro Forma Information
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, 2023 |
|
||
Pro forma Revenue |
|
$ |
|
|
$ |
|
||
Pro forma Net Income including noncontrolling interests |
|
|
|
|
|
|
||
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired
12
intangible assets, the pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses, and the additional pro forma interest expense related to the borrowings under the credit agreement as of the assumed acquisition date. This supplemental pro forma information has been prepared for informational purposes and does not purport to be indicative of what would have occurred had the acquisition been consummated during the periods for which pro forma information is presented.
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, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Fixed-price |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Time-and-Materials |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost-plus |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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, 2024 and December 31, 2023 were as follows (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
$ change |
|
|
% change |
|
||||
Contract assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
Contract liabilities |
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
% |
||
Net contract assets (liabilities) (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
During the three months ended September 30, 2024 and September 30, 2023, the Company recognized revenue of $
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Acquired contract assets |
|
$ |
|
|
$ |
|
||
Acquired contract liabilities |
|
|
|
|
|
|
||
There was
13
The following table presents 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 $
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Revenue impact, net |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Certain financial statement impacts from revisions in estimates were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Operating income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Diluted income (loss) per share |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The amounts in the table above include changes in estimates related to direct costs of contracts of $
Accounts Receivable, net
Accounts receivable, net consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
2024 |
|
|
2023 |
|
||
Billed |
|
$ |
|
|
$ |
|
||
Unbilled |
|
|
|
|
|
|
||
Total accounts receivable, gross |
|
|
|
|
|
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Total accounts receivable, net |
|
$ |
|
|
$ |
|
||
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. Receivables from contracts with the U.S. federal government and its agencies were
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.
14
Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations
The Company’s remaining unsatisfied performance obligations (“RUPO”) as of September 30, 2024 represent a measure of the total dollar value of work to be performed on contracts awarded and in-progress. The Company had $
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, 2024 over the following periods (in thousands):
Period RUPO Will Be Satisfied |
|
Within |
|
|
Within to |
|
|
|
||||
Federal Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Critical Infrastructure |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The components of lease costs for the three and nine months ended September 30, 2024 and September 30, 2023 are as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sublease income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplemental cash flow information related to leases for the nine months ended September 30, 2024 and September 30, 2023 is as follows (in thousands):
|
|
Nine Months Ended |
|
|||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Operating cash flows for operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows for finance leases |
|
|
|
|
|
|
||
Financing cash flows from finance leases |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
$ |
|
|
$ |
|
||
15
Supplemental balance sheet and other information related to leases as of September 30, 2024 and December 31, 2023 are as follows (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Operating Leases: |
|
|
|
|
|
|
||
Right-of-use assets |
|
$ |
|
|
$ |
|
||
Lease liabilities: |
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
||
Long-term |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
Finance Leases: |
|
|
|
|
|
|
||
Other noncurrent assets |
|
$ |
|
|
$ |
|
||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
||
Weighted Average Remaining Lease Term: |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
||||
Finance leases |
|
|
|
|
||||
Weighted Average Discount Rate: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
% |
||
As of September 30, 2024, the Company has
A maturity analysis of the future undiscounted cash flows associated with the Company’s operating and finance lease liabilities as of September 30, 2024 is as follows (in thousands):
|
|
Operating Leases |
|
|
Finance Leases |
|
||
2024 (remaining) |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
||
Less: imputed interest |
|
|
( |
) |
|
|
( |
) |
Total present value of lease liabilities |
|
$ |
|
|
$ |
|
||
The following table summarizes the changes in the carrying value of goodwill by reporting segment from December 31, 2023 to September 30, 2024 (in thousands):
|
|
December 31, 2023 |
|
|
Acquisitions |
|
|
Foreign Exchange |
|
|
September 30, 2024 |
|
||||
Federal Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Critical Infrastructure |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The Company performed a triggering analysis and determined there was no triggering event indicating a potential impairment to the carrying value of its goodwill at September 30, 2024 and concluded there has
16
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, 2024 |
|
|
December 31, 2023 |
|
|
Weighted |
|
|||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Amortization |
|
|||||||
Backlog |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||
Customer relationships |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Developed technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Trade name |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Non-compete agreements |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
In process research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|||||||
Other intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
n/a |
|
||||||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||||
The aggregate amortization expense of intangible assets for the three months ended September 30, 2024 and September 30, 2023 was $
Estimated amortization expense for the remainder of the current fiscal year and in each of the next four years and beyond is as follows (in thousands):
|
|
September 30, 2024 |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Property and equipment consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Useful life |
||
Buildings and leasehold improvements |
|
$ |
|
|
$ |
|
|
|||
Furniture and equipment |
|
|
|
|
|
|
|
|||
Computer systems and equipment |
|
|
|
|
|
|
|
|||
Construction equipment |
|
|
|
|
|
|
|
|||
Construction in progress |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
Property and equipment, net |
|
$ |
|
|
$ |
|
|
|
||
Depreciation expense for the three months ended September 30, 2024 and September 30, 2023 was $
17
Debt consisted of the following (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Short-Term Debt: |
|
|
|
|
|
|
||
Convertible senior notes due 2025 |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Long-Term Debt: |
|
|
|
|
|
|
||
Delayed draw term loan |
|
|
|
|
|
|
||
Convertible senior notes due 2025 |
|
|
|
|
|
|
||
Convertible senior notes due 2029 |
|
|
|
|
|
|
||
Revolving credit facility |
|
|
|
|
|
|
||
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total Long-Term Debt |
|
|
|
|
|
|
||
Total Debt |
|
$ |
|
|
$ |
|
||
Delayed Draw Term Loan
In , the Company entered into a $
The 2022 Delayed Draw Term Loan has a
Convertible Senior Notes due 2025
In August 2020, the Company issued an aggregate $
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
18
Each $
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:
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
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
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 $
See the discussion of the partial repurchase of Convertible Senior Notes due 2025 and the unwind of the related note hedge and warrants below.
Note Hedge and Warrant - Convertible Senior Notes due 2025
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
19
conversion of the Convertible Senior Notes is approximately
The cost of the convertible note hedge was partially offset by the Company’s sale of warrants to acquire approximately
The bond hedge and warrant transactions effectively increased the conversion price associated with the Convertible Senior Notes during the term of these transactions from
The bond hedges and warrants are indexed to, and potentially settled in, shares of the Company’s common stock. The net cost of $
At issuance, the Company recorded a deferred tax liability of $
Convertible Senior Notes due 2029
In February 2024, the Company issued an aggregate $
The 2029 Convertible 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 2029 Convertible 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, including borrowings under the Company’s revolving credit facility and delayed draw term loan credit facility, 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 $
Prior to the close of business on the business day immediately preceding October 1, 2028, the 2029 Convertible Notes will be convertible at the option of the holders thereof only under the following circumstances:
20
The Company may redeem all or any portion of the 2029 Convertible Notes for cash, at its option, on or after March 8, 2027 and before the
Upon the occurrence of a fundamental change prior to the maturity date of the 2029 Convertible Notes, holders of the 2029 Convertible Notes may require the Company to repurchase all or a portion of the 2029 Convertible Notes for cash at a price equal to
Upon conversion, the Company will settle the principal amount of the 2029 Convertible Notes converted in cash and will settle the remainder of the consideration owed upon conversion in cash, shares of the Company’s common stock, or a combination thereof, at the Company’s option, with such amount of cash and, if applicable, shares of common stock due upon conversion 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 with respect to the 2029 Convertible Notes of $
Capped Call Transactions - Convertible Senior Notes due 2029
In February 2024, in connection with the offering of the 2029 Convertible Notes, the Company entered into capped call transactions (the “Capped Call Transactions”) with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of the Convertible Senior Notes due 2029 and/or offset any cash payments the Company is required to make in excess of the principal amount of any converted Convertible Senior Notes due 2029, as the case may be. If, however, the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions.
The cap price of the Capped Call Transactions is initially $
At issuance, the Company recorded a deferred tax asset of $
Convertible Senior Notes due 2025 Partial Repurchase and Note Hedge and Warrants Partial Unwind
In connection with the issuance of the Convertible Senior Notes due 2029, during the first quarter of 2024, we used $
21
our Convertible Senior Notes due 2025 concurrently with the offering in separate and individually negotiated transactions. In addition, we used $
The partial repurchase, during the nine months ended September 30, 2024, resulted in a $
Revolving Credit Facility
In , the Company entered into a $
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, 2024 and December 31, 2023.
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 $
In 2021 the Organization for Economic Co-operation and Development (OECD) announced an inclusive Framework on Base Erosion and Profit Shifting (BEPS) including Pillar Two Model Rules defining the global minimum tax, also known as the Global Anti-Base Erosion (GloBE), which aims to ensure that multinational enterprises (MNEs) pay a
The Company’s effective tax rate was
22
remeasurement of its U.S. deferred tax assets and liabilities due to a change in state tax rate, a net increase of uncertain tax positions, and an increase in executive compensation subject to Section 162(m), offset by an increase in the foreign-derived intangible income (FDII) deduction and an increase in equity-based compensation. The Company’s effective tax rate was
As of September 30, 2024, the Company’s deferred tax assets were subject to a valuation allowance of $
As of September 30, 2024 and December 31, 2023, the liability for income taxes associated with uncertain tax positions was $
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.
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
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 $
23
On July 1, 2024, a final judgment was filed with the clerk of the Superior Court of the State of California In and For the County of San Mateo with an award of damages in the total amount of approximately $
At this time, the Company is unable to determine the probability of the outcome of the litigation.
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 2018 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.
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.
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 $
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,
24
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.
Letters of credit outstanding described in “Note 10 – Debt and Credit Facilities” that relate to project ventures are $
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, 2024 |
|
|
December 31, 2023 |
|
||
Current assets |
|
$ |
|
|
$ |
|
||
Noncurrent assets |
|
|
|
|
|
|
||
Total assets |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Noncurrent liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Total joint venture equity |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income attributable to noncontrolling interests |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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.
25
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, 2024 |
|
|
December 31, 2023 |
|
||
Current assets |
|
$ |
|
|
$ |
|
||
Noncurrent assets |
|
|
|
|
|
|
||
Total assets |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Noncurrent liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Total joint venture equity |
|
$ |
|
|
$ |
|
||
Investments in and advances to unconsolidated joint ventures |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Equity in losses of unconsolidated joint ventures |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The Company had net contributions to its unconsolidated joint ventures for the three months ended September 30, 2024 and September 30, 2023 of $
The following table presents certain financial statement impacts from changes in estimates which resulted in a write-down in a design build joint venture in the Critical Infrastructure segment (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Operating income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Diluted income (loss) per share |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
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, 2024 and September 30, 2023 were $
For the three months ended September 30, 2024 and September 30, 2023, the Company incurred $
26
Amounts included in the consolidated balance sheets related to services the Company provided to unconsolidated joint ventures are as follows (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Contract assets |
|
|
|
|
|
|
||
Contract liabilities |
|
|
|
|
|
|
||
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, 2024 and December 31, 2023, the Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts payable, 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:
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 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.
Financial assets and liabilities measured at fair value on a quarterly basis are as follows:
Fair value as of September 30, 2024 (in thousands):
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Contingent consideration |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnout liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
27
Fair value as of December 31, 2023 (in thousands):
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Contingent consideration |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnout liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contingent consideration is recorded at its fair value, using a Black-Scholes model, within other liabilities or other long-term liabilities, as appropriate. The fair value of contingent consideration involves the use of significant estimates and
assumptions related to risks associated with earnout, i.e. risk in the underlying metric, risk in the earnout structure, counterparty credit risk, projected revenue, the revenue discount rate, the revenue volatility, and the Company's credit adjusted discount rate. Subsequent adjustments to these assumptions can cause changes to the measure of contingent consideration.
Refer to Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2023 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.
The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in our consolidated balance sheets, on the basis of Level 1 inputs for the Company's convertible notes and Level 2 inputs for the delayed draw term loan, were as follows (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Convertible senior notes due 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Convertible senior notes due 2029 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Delayed draw term loan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Basic earnings per share (“EPS”) is computed using the weighted average number of shares outstanding during the period and income available to shareholders. Diluted EPS includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued using the if-converted method for Convertible Debt and the treasury stock method for all other instruments.
Under the treasury stock method, the weighted average number of shares outstanding is adjusted to reflect the dilutive effects of stock-based awards and shares underlying the warrants related to the convertible senior notes due 2025.
Under the if-converted method:
28
The following tables reconcile the denominator and numerator used to compute basic EPS to the denominator and numerator used to compute diluted EPS for the three and nine months ended September 30, 2024 and September 30, 2023 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Numerator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Parsons Corporation - basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Convertible senior notes if-converted method interest adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Parsons Corporation - diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of warrants |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Dilutive effect of convertible senior notes due 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Anti-dilutive stock-based awards excluded from the calculation of earnings per share for the three months ended September 30, 2024 and September 30, 2023 were
If-converted interest adjustment of $
Share Repurchases
On August 9, 2021, the Company’s Board of Directors authorized the Company to acquire a number of shares of Common Stock having an aggregate market value of not greater than $
At the time of the February 2024 authorization, the Company had repurchased shares with an aggregated market value (including fees) of $
As of September 30, 2024, the Company has $
Repurchased shares of common stock are retired and included in “Repurchases of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows. The primary purpose of the Company’s share repurchase program is to reduce the dilutive effect of shares issued under the Company’s ESOP and other stock benefit plans. The timing, amount and manner of share repurchases may depend upon market conditions and economic
29
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.
The following table summarizes the repurchase activity under the stock repurchase program:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Total shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total shares retired |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average price paid per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company operates in
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 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 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, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Federal Solutions revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Critical Infrastructure revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Equity in (losses) earnings of unconsolidated joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Critical Infrastructure |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
$ |
|
||
Total equity in (losses) earnings of unconsolidated joint ventures |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
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.
30
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, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Federal Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Critical Infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA attributable to Parsons Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax benefit (expense) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity-based compensation expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Transaction-related costs (a) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Restructuring expense (b) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Other (c) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net (loss) income including noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income attributable to Parsons Corporation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Asset information by segment is not a key measure of performance used by the CODM.
The following tables present revenues and property and equipment, net by geographic area (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The geographic location of revenue is determined by the location of the customer.
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Property and Equipment, Net |
|
|
|
|
|
|
||
North America |
|
$ |
|
|
$ |
|
||
Middle East |
|
|
|
|
|
|
||
Total Property and Equipment, Net |
|
$ |
|
|
$ |
|
||
North America includes revenue in the United States for the three months ended September 30, 2024 and September 30, 2023 of $
31
The following table presents revenues by business units (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Defense and Intelligence |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Engineered Systems |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal Solutions revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Infrastructure – North America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Infrastructure – Europe, Middle East and Africa |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Critical Infrastructure revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Effective October 1, 2023, the Company reorganized its Critical Infrastructure business units from Mobility Solutions and Connected Communities to Infrastructure – North America and Infrastructure – Europe, Middle East and Africa. The prior year information in the table above has been reclassified to conform to the business unit changes.
After the end of the quarter ended September 30, 2024, the Company entered into a merger agreement to acquire a
32
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, 2023. 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, 2023. We undertake no obligation to revise publicly any forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.
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.
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
33
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, 2024 |
|
|
September 30, 2023 |
|
||
Awards (year to date) |
|
$ |
5,367,109 |
|
|
$ |
4,748,320 |
|
Backlog (1) |
|
$ |
8,784,047 |
|
|
$ |
8,815,561 |
|
Book-to-Bill (year to date) |
|
|
1.1 |
|
|
|
1.2 |
|
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, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Federal Solutions |
|
$ |
1,012,432 |
|
|
$ |
764,531 |
|
|
$ |
3,100,242 |
|
|
$ |
2,642,302 |
|
Critical Infrastructure |
|
|
772,304 |
|
|
|
670,398 |
|
|
|
2,266,867 |
|
|
|
2,106,018 |
|
Total Awards |
|
$ |
1,784,736 |
|
|
$ |
1,434,929 |
|
|
$ |
5,367,109 |
|
|
$ |
4,748,320 |
|
The change in new awards from year to year is primarily 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, 2024 compared to the corresponding period last year was primarily due to two significant awards in our Federal Solutions segment and a design award in our Critical Infrastructure segment.
The increase in awards for the nine months ended September 30, 2024 when compared to the corresponding period last year was primarily due to significant option period awards from a customer in our Federal Solutions segment offset by significant awards in our Federal Solutions segment from the Federal Aviation Administration and the General Services Administration for the nine months ended September 30, 2023.
Backlog
We define backlog to include the following two components:
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.
34
The following table summarizes the value of our backlog at the respective dates presented below (in thousands):
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Federal Solutions: |
|
|
|
|
|
|
||
Funded |
|
$ |
1,982,336 |
|
|
$ |
1,625,475 |
|
Unfunded |
|
|
2,936,109 |
|
|
|
3,565,223 |
|
Total Federal Solutions |
|
|
4,918,445 |
|
|
|
5,190,698 |
|
Critical Infrastructure: |
|
|
|
|
|
|
||
Funded |
|
|
3,811,638 |
|
|
|
3,554,754 |
|
Unfunded |
|
|
53,964 |
|
|
|
70,109 |
|
Total Critical Infrastructure |
|
|
3,865,602 |
|
|
|
3,624,863 |
|
Total Backlog (1) |
|
$ |
8,784,047 |
|
|
$ |
8,815,561 |
|
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 $3.9 billion of our funded backlog at September 30, 2024 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, 2023.
The changes in backlog in both the Federal Solutions and Critical Infrastructure segments were primarily from ordinary course fluctuations in our business and the impacts related to the Company’s awards discussed above.
Book-to-Bill
Book-to-bill is the ratio of total awards to total revenue recorded in the same period. Our management believes our book-to-bill ratio is a useful indicator of our potential future revenue growth in that it measures the rate at which we are generating new awards compared to the Company’s current revenue. To drive future revenue growth, our goal is for the level of awards in a given period to exceed the revenue booked. A book-to-bill ratio greater than 1.0 indicates that awards generated in a given period exceeded the revenue recognized in the same period, while a book-to-bill ratio of less than 1.0 indicates that awards generated in such period were less than the revenue recognized in such period. The following table sets forth the book-to-bill ratio for the periods presented below:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Federal Solutions |
|
|
0.9 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.2 |
|
Critical Infrastructure |
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Overall |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Factors and Trends Affecting Our Results of Operations
We believe that the financial performance of our business and our future success are dependent upon many factors, including those highlighted in this section. Our operating performance will depend upon many variables, including the success of our growth strategies and the timing and size of investments and expenditures that we choose to undertake, as well as market growth and other factors that are not within our control.
35
Government Spending
Changes in the relative mix of government spending and areas of spending growth, with shifts in priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization, and continued increased spending on technology and innovation, including cybersecurity, artificial intelligence, connected communities and physical infrastructure, could impact our business and results of operations. Cost-cutting and efficiency initiatives, current and future budget restrictions, spending cuts and other efforts to reduce government spending could cause our government customers to reduce or delay funding or invest appropriated funds on a less consistent basis or not at all, and demand for our solutions or services could diminish. Furthermore, any disruption in the functioning of government agencies, including as a result of government closures and shutdowns, could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to deploy our staff to customer locations or facilities as a result of such disruptions.
Federal Budget Uncertainty
There is uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps. Additionally, budget deficits and the growing U.S. national debt increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations.
Regulations
Increased audit, review, investigation and general scrutiny by government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws could affect our operating results. Negative publicity and increased scrutiny of government contractors in general, including us, relating to government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information, as well as the increasingly complex requirements of the U.S. Department of Defense and the U.S. Intelligence Community, including those related to cybersecurity, could impact our ability to perform in the markets we serve.
Competitive Markets
The industries we operate in consist of a large number of enterprises ranging from small, niche-oriented companies to multi-billion-dollar corporations that serve many government and commercial customers. We compete on the basis of our technical expertise, technological innovation, our ability to deliver cost-effective multi-faceted services in a timely manner, our reputation and relationships with our customers, qualified and/or security-clearance personnel, and pricing. We believe that we are uniquely positioned to take advantage of the markets in which we operate because of our proven track record, long-term customer relationships, technology innovation, scalable and agile business offerings and world class talent. Our ability to effectively deliver on project engagements and successfully assist our customers affects our ability to win new contracts and drives our financial performance.
Acquired Operations
BlackSignal Technologies, LLC
On August 16, 2024, the Company acquired a 100% ownership interest in BlackSignal Technologies, LLC, ("BlackSignal") a privately-owned company, for $203.8 million from cash on hand. Headquartered in Chantilly, Virginia, BlackSignal is a next-generation digital signal processing, electronic warfare, and cyber security provider built to counter near peer threats. Parsons believes that the acquisition will expand Parsons' customer base across the Department of Defense and Intelligence Community and significantly strengthen Parsons' positioning within cyber warfare, while adding new capabilities in the counterspace radio frequency domain. The financial results of BlackSignal have been included in our consolidated results of operations from August 16, 2024 onward.
36
I.S. Engineers, LLC
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 $12.2 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. The financial results of I.S. Engineers have been included in our consolidated results of operations from October 31, 2023 onward.
Sealing Technologies, Inc.
On August 23, 2023, the Company acquired a 100% ownership interest in Sealing Technologies, Inc (“SealingTech”), a privately-owned company, for $176.0 million and up to an additional $25 million in the event an earn out revenue target is exceeded. 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. The financial results of SealingTech have been included in our consolidated results of operations from August 23, 2023 onward.
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. 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 financial results of IPKeys have been included in our consolidated results of operations from April 13, 2023 onward.
Seasonality
Our results may be affected by variances as a result of weather conditions and contract award seasonality impacts that we experience across our businesses. The latter issue is typically driven by the U.S. federal government fiscal year-end, September 30. While not certain, it is not uncommon for U.S. government agencies to award task orders or complete other contract actions in the weeks before the end of the U.S. federal government fiscal year in order to avoid the loss of unexpended U.S. federal government fiscal year funds. In addition, we have also historically experienced higher bid and proposal costs in the months leading up to the U.S. federal government fiscal year-end as we pursue new contract opportunities expected to be awarded early in the following U.S. federal government fiscal year as a result of funding appropriated for that U.S. federal government fiscal year. Furthermore, many U.S. state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available. We may continue to experience this seasonality in future periods, and our results of operations may be affected by it.
Results of Operations
Revenue
Our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs. Our Federal Solutions segment derives revenue primarily from the U.S. federal government and our Critical Infrastructure segment derives revenue primarily from government and commercial customers.
We enter into the following types of contracts with our customers:
37
Refer to “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, 2023 for a description of our policies on revenue recognition.
The table below presents the percentage of total revenue for each type of contract.
|
|
Three Months Ended |
|
Nine Months Ended |
||||
|
|
September 30, 2024 |
|
September 30, 2023 |
|
September 30, 2024 |
|
September 30, 2023 |
Fixed-price |
|
43.7% |
|
31.9% |
|
42.4% |
|
31.2% |
Time-and-materials |
|
19.6% |
|
25.1% |
|
21.0% |
|
25.3% |
Cost-plus |
|
36.7% |
|
43.0% |
|
36.6% |
|
43.5% |
The amount of risk and potential reward varies under each type of contract. Under cost-plus contracts, there is limited financial risk, because we are reimbursed for all allowable costs up to a ceiling. However, profit margins on this type of contract tend to be lower than on time-and-materials and fixed-price contracts. Under time-and-materials contracts, we are reimbursed for the hours worked using the predetermined hourly rates for each labor category. In addition, we are typically reimbursed for other direct contract costs and expenses at cost. We assume financial risk on time-and-materials contracts because our labor costs may exceed the negotiated billing rates. Profit margins on well-managed time-and-materials contracts tend to be higher than profit margins on cost-plus contracts as long as we are able to staff those contracts with people who have an appropriate skill set. Under fixed-price contracts, we are required to deliver the objectives under the contract for a pre-determined price. Compared to time-and-materials and cost-plus contracts, fixed-price contracts generally offer higher profit margin opportunities because we receive the full benefit of any cost savings, but they also generally involve greater financial risk because we bear the risk of any cost overruns. In the aggregate, the contract type mix in our revenue for any given period will affect that period’s profitability. Over time, we have generally experienced a relatively stable contract mix.
The significant change in the contract mix for the three and nine months ended September 30, 2024 compared to the corresponding period last year relates to increased business volume from a significant fixed price contract in our Federal Solutions segment.
Our recognition of profit on long-term contracts requires the use of assumptions related to transaction price and total cost of completion. Estimates are continually evaluated as work progresses and are revised when necessary. When a change in estimated cost or transaction price is determined to have an impact on contract profit, we record a positive or negative adjustment to the consolidated statement of income.
Joint Ventures
We conduct a portion of our business through joint ventures or similar partnership arrangements. For the joint ventures we control, we consolidate all the revenues and expenses in our consolidated statements of income (including revenues and expenses attributable to noncontrolling interests). For the joint ventures we do not control, we recognize equity in (losses) earnings of unconsolidated joint ventures. Our revenues included amounts related to services we provided to our unconsolidated joint ventures for the three months ended September 30, 2024 and September 30, 2023 of $47.6 million and $57.3 million, respectively, and $144.9 million and $164.8 million for the nine months ended September 30, 2024 and September 30, 2023, respectively.
Operating costs and expenses
Operating costs and expenses primarily include direct costs of contracts and selling, general and administrative expenses. Costs associated with compensation-related expenses for our people and facilities, which includes ESOP contribution expenses, are the most significant component of our operating expenses. Total ESOP contribution expense for the three months ended September 30, 2024 and September 30, 2023 was $13.2 million and $14.9 million, respectively, and $43.4 million and $44.1 million for the nine months ended September 30, 2024 and September 30, 2023, respectively and is recorded in “Direct cost of contracts” and “Selling, general and administrative expenses.”
Direct costs of contracts consist of direct labor and associated fringe benefits, indirect overhead, subcontractor and materials (“pass-through costs”), travel expenses and other expenses incurred to perform on contracts.
Selling, general and administrative expenses (“SG&A”) include salaries and wages and fringe benefits of our employees not performing work directly for customers, facility costs and other costs related to these indirect functions.
38
Other income and expenses
Other income and expenses primarily consist of interest income, interest expense and other income, net.
Interest income primarily consists of interest earned on U.S. government money market funds.
Interest expense consists of interest expense incurred under our Senior Notes, Convertible Senior Notes, and Credit Agreement.
Other income, net primarily consists of gain or loss on sale of assets, sublease income and transaction gain or loss related to movements in foreign currency exchange rates.
Adjusted EBITDA
The following table sets forth Adjusted EBITDA, Net Income Margin, and Adjusted EBITDA Margin for the three and nine months ended September 30, 2024 and September 30, 2023.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Adjusted EBITDA (1) |
|
$ |
167,011 |
|
|
$ |
127,833 |
|
|
$ |
458,334 |
|
|
$ |
336,530 |
|
Net Income Margin (2) |
|
|
4.7 |
% |
|
|
4.2 |
% |
|
|
1.5 |
% |
|
|
3.8 |
% |
Adjusted EBITDA Margin (3) |
|
|
9.2 |
% |
|
|
9.0 |
% |
|
|
9.1 |
% |
|
|
8.5 |
% |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Net income (loss) attributable to Parsons Corporation |
|
$ |
71,951 |
|
|
$ |
47,447 |
|
|
$ |
33,768 |
|
|
$ |
116,241 |
|
Interest expense, net |
|
|
8,802 |
|
|
|
8,120 |
|
|
|
29,831 |
|
|
|
20,778 |
|
Income tax expense |
|
|
22,518 |
|
|
|
15,218 |
|
|
|
12,699 |
|
|
|
41,944 |
|
Depreciation and amortization |
|
|
24,542 |
|
|
|
30,154 |
|
|
|
73,513 |
|
|
|
87,202 |
|
Net income attributable to noncontrolling interests |
|
|
13,638 |
|
|
|
12,364 |
|
|
|
40,428 |
|
|
|
33,617 |
|
Equity-based compensation |
|
|
21,251 |
|
|
|
9,075 |
|
|
|
44,554 |
|
|
|
25,092 |
|
Loss on extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
211,018 |
|
|
|
- |
|
Transaction-related costs (a) |
|
|
3,770 |
|
|
|
5,493 |
|
|
|
8,958 |
|
|
|
9,028 |
|
Restructuring (b) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
546 |
|
Other (c) |
|
|
539 |
|
|
|
(38 |
) |
|
|
3,565 |
|
|
|
2,082 |
|
Adjusted EBITDA |
|
$ |
167,011 |
|
|
$ |
127,833 |
|
|
$ |
458,334 |
|
|
$ |
336,530 |
|
39
Adjusted EBITDA is a supplemental measure of our operating performance used by management and our board of directors to assess our financial performance both on a segment and on a consolidated basis. We discuss Adjusted EBITDA because our management uses this measure for business planning purposes, including to manage the business against internal projected results of operations and measure the performance of the business generally. Adjusted EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry.
Adjusted EBITDA is not a GAAP measure of our financial performance or liquidity and should not be considered as an alternative to net income as a measure of financial performance or cash flows from operations as measures of liquidity, or any other performance measure derived in accordance with GAAP. We define 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 we do not consider in our evaluation of ongoing operating performance. These other items include, among other things, impairment of goodwill, intangible and other assets, interest and other expenses recognized on litigation matters, expenses incurred in connection with acquisitions and other non-recurring transaction costs and expenses related to our corporate restructuring initiatives. Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future, including, among other things, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA supplementally. Our measure of Adjusted EBITDA is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.
The following table shows Adjusted EBITDA attributable to Parsons Corporation for each of our reportable segments and Adjusted EBITDA attributable to noncontrolling interests (in thousands):
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Federal Solutions Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
120,091 |
|
|
$ |
65,039 |
|
|
$ |
55,052 |
|
|
|
84.6 |
% |
Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation |
|
|
33,007 |
|
|
|
50,188 |
|
|
|
(17,181 |
) |
|
|
-34.2 |
% |
Adjusted EBITDA attributable to noncontrolling interests |
|
|
13,913 |
|
|
|
12,606 |
|
|
|
1,307 |
|
|
|
10.4 |
% |
Total Adjusted EBITDA |
|
$ |
167,011 |
|
|
$ |
127,833 |
|
|
$ |
39,178 |
|
|
|
30.6 |
% |
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Federal Solutions Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
315,413 |
|
|
$ |
206,827 |
|
|
$ |
108,586 |
|
|
|
52.5 |
% |
Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation |
|
|
101,582 |
|
|
|
95,481 |
|
|
|
6,101 |
|
|
|
6.4 |
% |
Adjusted EBITDA attributable to noncontrolling interests |
|
|
41,339 |
|
|
|
34,222 |
|
|
|
7,117 |
|
|
|
20.8 |
% |
Total Adjusted EBITDA |
|
$ |
458,334 |
|
|
$ |
336,530 |
|
|
$ |
121,804 |
|
|
|
36.2 |
% |
40
The following table sets forth our results of operations for the three and nine months ended September 30, 2024 and September 30, 2023 as a percentage of revenue.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Direct costs of contracts |
|
|
80.1 |
% |
|
|
79.3 |
% |
|
|
79.3 |
% |
|
|
78.8 |
% |
Equity in (losses) earnings of unconsolidated joint ventures |
|
|
0.0 |
% |
|
|
0.7 |
% |
|
|
-0.4 |
% |
|
|
0.1 |
% |
Selling, general and administrative expenses |
|
|
13.6 |
% |
|
|
15.6 |
% |
|
|
13.8 |
% |
|
|
16.0 |
% |
Operating income |
|
|
6.4 |
% |
|
|
5.9 |
% |
|
|
6.5 |
% |
|
|
5.3 |
% |
Interest income |
|
|
0.2 |
% |
|
|
0.0 |
% |
|
|
0.2 |
% |
|
|
0.0 |
% |
Interest expense |
|
|
-0.7 |
% |
|
|
-0.6 |
% |
|
|
-0.8 |
% |
|
|
-0.6 |
% |
Loss on extinguishment of debt |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
-4.2 |
% |
|
|
0.0 |
% |
Other income, net |
|
|
0.1 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Total other income (expense) |
|
|
-0.4 |
% |
|
|
-0.6 |
% |
|
|
-4.8 |
% |
|
|
-0.5 |
% |
Income before income tax expense |
|
|
6.0 |
% |
|
|
5.3 |
% |
|
|
1.7 |
% |
|
|
4.9 |
% |
Income tax expense |
|
|
-1.2 |
% |
|
|
-1.1 |
% |
|
|
-0.3 |
% |
|
|
-1.1 |
% |
Net income including noncontrolling interests |
|
|
4.7 |
% |
|
|
4.2 |
% |
|
|
1.5 |
% |
|
|
3.8 |
% |
Net income attributable to noncontrolling interests |
|
|
-0.8 |
% |
|
|
-0.9 |
% |
|
|
-0.8 |
% |
|
|
-0.9 |
% |
Net income attributable to Parsons Corporation |
|
|
4.0 |
% |
|
|
3.3 |
% |
|
|
0.7 |
% |
|
|
2.9 |
% |
Revenue
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Revenue |
|
$ |
1,810,116 |
|
|
$ |
1,418,571 |
|
|
$ |
391,545 |
|
|
|
27.6 |
% |
Revenue increased $391.5 million for the three months ended September 30, 2024 when compared to the corresponding period last year, due to increases in revenue in both our Federal Solutions and Critical Infrastructure segments of $325.5 million and $66.1 million, respectively.
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Revenue |
|
$ |
5,016,259 |
|
|
$ |
3,948,523 |
|
|
$ |
1,067,736 |
|
|
|
27.0 |
% |
The increase in revenue for the nine months ended September 30, 2024 when compared to the corresponding period last year, was due to increases in both our Federal Solutions and Critical Infrastructure segments of $826.3 million and $241.4 million, respectively.
See “Segment Results” below for a further discussion of the changes in the Company's revenue.
Direct costs of contracts
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Direct costs of contracts |
|
$ |
1,449,831 |
|
|
$ |
1,124,305 |
|
|
$ |
325,526 |
|
|
|
29.0 |
% |
41
Direct cost of contracts increased $325.5 million for the three months ended September 30, 2024 when compared to the corresponding period last year, primarily due to an increase of $256.1 million in our Federal Solutions segment and $69.4 million in our Critical Infrastructure segment. The increase in direct costs of contracts in both the Federal Solutions and Critical Infrastructure segments was primarily related to increased volume from new and existing contracts.
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Direct costs of contracts |
|
$ |
3,979,589 |
|
|
$ |
3,109,713 |
|
|
$ |
869,876 |
|
|
|
28.0 |
% |
The increase in direct cost of contracts for the nine months ended September 30, 2024 when compared to the corresponding period last year, was primarily due to an increase of $682.0 million in our Federal Solutions segment and $187.9 million in our Critical Infrastructure segment. The increase for the nine months ended September 30, 2024 compared to the corresponding period last year was primarily impacted by the factors noted above for both segments for the three months ended September 30, 2024.
Equity in (losses) earnings of unconsolidated joint ventures
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Equity in earnings of unconsolidated joint ventures |
|
$ |
872 |
|
|
$ |
10,262 |
|
|
$ |
(9,390 |
) |
|
|
-91.5 |
% |
Equity in earnings of unconsolidated joint ventures decreased $9.4 million for the three months ended September 30, 2024 compared to the corresponding period last year. Impacting equity in earnings of unconsolidated joint ventures for the three months ended September 30, 2024 was a write-down of $6.7 million related to Parsons' participation in a design build joint venture. Equity in earnings of unconsolidated joint ventures for the three months ended September 30, 2023 included earnings on higher margin change orders which did not reoccur for the three months ended September 30, 2024. Joint venture volume has decreased year-over-year as we move away from our participation in construction joint ventures.
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Equity in (losses) earnings of unconsolidated joint ventures |
|
$ |
(18,025 |
) |
|
$ |
4,497 |
|
|
$ |
(22,522 |
) |
|
|
-500.8 |
% |
Equity in losses of unconsolidated joint ventures for the nine months ended September 30, 2024 was $18.0 million compared to equity in earnings of consolidated joint ventures of $4.5 million for the nine months ended September 30, 2023, resulting in a decrease in equity in earnings of unconsolidated joint ventures of $22.5 million for the nine months ended September 20, 2024. The decrease in equity in earnings of unconsolidated joint ventures was primarily due to write-downs of $37.5 million during the nine months ended September 30, 2024 related to the joint venture discussed above. Equity in earnings of unconsolidated joint ventures for the nine months ended September 30, 2023 included earnings on higher margin change orders which did not reoccur for the nine months ended September 30, 2024. Joint venture volume has decreased year-over-year as we move away from our participation in construction joint ventures.
Selling, general and administrative expenses
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Selling, general and administrative expenses |
|
$ |
246,169 |
|
|
$ |
221,188 |
|
|
$ |
24,981 |
|
|
|
11.3 |
% |
As a percentage of revenue, SG&A decreased by 2.0% to 13.6% for the three months ended September 30, 2024 compared to 15.6% for the corresponding period last year.
42
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Selling, general and administrative expenses |
|
$ |
690,391 |
|
|
$ |
632,393 |
|
|
$ |
57,998 |
|
|
|
9.2 |
% |
As a percentage of revenue, SG&A decreased by 2.3% to 13.8% for the nine months ended September 30, 2024 compared to 16.0% for the corresponding period last year.
Total other income (expense)
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Interest income |
|
$ |
4,232 |
|
|
$ |
492 |
|
|
$ |
3,740 |
|
|
|
760.2 |
% |
Interest expense |
|
|
(13,034 |
) |
|
|
(8,612 |
) |
|
|
(4,422 |
) |
|
|
51.3 |
% |
Other income (expense), net |
|
|
1,921 |
|
|
|
(191 |
) |
|
|
2,112 |
|
|
|
-1105.8 |
% |
Total other income (expense) |
|
$ |
(6,881 |
) |
|
$ |
(8,311 |
) |
|
$ |
1,430 |
|
|
|
-17.2 |
% |
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Interest income |
|
$ |
9,209 |
|
|
$ |
1,591 |
|
|
$ |
7,618 |
|
|
|
478.8 |
% |
Interest expense |
|
|
(39,040 |
) |
|
|
(22,369 |
) |
|
|
(16,671 |
) |
|
|
74.5 |
% |
Loss on extinguishment of debt |
|
|
(211,018 |
) |
|
|
- |
|
|
|
(211,018 |
) |
|
|
- |
|
Other income (expense), net |
|
|
(510 |
) |
|
|
1,666 |
|
|
|
(2,176 |
) |
|
|
-130.6 |
% |
Total other income (expense) |
|
$ |
(241,359 |
) |
|
$ |
(19,112 |
) |
|
$ |
(222,247 |
) |
|
|
1162.9 |
% |
During the nine months ended September 30, 2024, we paid $495.6 million in cash to repurchase $284.6 million aggregate principal amount of our Convertible Senior Notes due 2025 (the "Repurchase Transaction") concurrently with the offering of 2.625% Convertible Senior Notes due 2029. As a result of the Repurchase Transaction, we incurred a $211.0 million loss on debt extinguishment. The Repurchase Transaction is a partial repurchase of our Convertible Senior Notes due 2025. See “Note 10 – Debt and Credit Facilities,” for a further discussion of this transaction.
Interest income is related to interest earned on investments in government money funds. The increase in interest income for the three and nine months ended September 30, 2024 is from higher cash balances held and increased interest rates compared to the corresponding periods last year.
Interest expense for the three and nine months ended September 30, 2024 is primarily due to debt related to our Convertible Senior Notes and Delayed Draw Term Loan. The increase in interest expense during the three months ended September 30, 2024 compared to the corresponding periods last year is primarily related to an increase in debt balances. The increase in interest expense for the nine months ended September 30, 2024, compared to the corresponding period last year is primarily related to an increase in debt balances and a $3.2 million charge from the acceleration of the amortization of debt issuance costs associated with the partial repurchase of the 0.25% Convertible Senior Notes due 2025 discussed above.
The amounts in other income (expense), net for the three months ended September 30, 2024 are primarily related to transaction gains and losses on foreign currency transactions and sublease income and for the nine months ended September 30, 2024 are primarily related to transaction gains and losses on foreign currency transactions, sublease income, and a change in the estimated fair value of contingent consideration.
Income tax expense
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Income tax expense |
|
$ |
22,518 |
|
|
$ |
15,218 |
|
|
$ |
7,300 |
|
|
|
48.0 |
% |
43
The Company’s effective tax rate was 20.8% and 20.3% and income tax expense was $22.5 million and $15.2 million for the three months ended September 30, 2024 and September 30, 2023, respectively. The increase in tax expense for the three months ended September 30, 2024 compared to the corresponding period last year was due primarily to the tax impact of an increase in pre-tax income, a remeasurement of its U.S. deferred tax assets and liabilities due to a change in state tax rate, a net increase of uncertain tax positions, and an increase in executive compensation subject to Section 162(m), partially offset by the increases in the foreign-derived intangible income (FDII) deduction and equity-based compensation.
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Income tax expense |
|
$ |
12,699 |
|
|
$ |
41,944 |
|
|
$ |
(29,245 |
) |
|
|
-69.7 |
% |
The Company’s effective income tax rate was 14.6% and 21.9% for the nine months ended September 30, 2024 and September 30, 2023, respectively. Income tax expense was $12.7 million and $41.9 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The decrease in tax expense for the nine months ended September 30, 2024 compared to the corresponding period last year was due primarily to the tax benefit resulting from the $211 million loss in partially unwinding Convertible Senior Notes during the first quarter 2024.
Segment Results
We evaluate segment operating performance using segment revenue and segment Adjusted EBITDA attributable to Parsons Corporation. Adjusted EBITDA attributable to Parsons Corporation is Adjusted EBITDA excluding Adjusted EBITDA attributable to noncontrolling interests. Presented above, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, is a discussion of our definition of Adjusted EBITDA, how we use this metric, why we present this metric and the material limitations on the usefulness of this metric. See “Note 18—Segments Information” in the notes to the consolidated financial statements in this Form 10-Q for further discussion regarding our segment Adjusted EBITDA attributable to Parsons Corporation.
The following table shows Adjusted EBITDA attributable to Parsons Corporation for each of our reportable segments and Adjusted EBITDA attributable to noncontrolling interests:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||||
Federal Solutions Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
120,091 |
|
|
$ |
65,039 |
|
|
$ |
315,413 |
|
|
$ |
206,827 |
|
Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation |
|
|
33,007 |
|
|
|
50,188 |
|
|
|
101,582 |
|
|
|
95,481 |
|
Adjusted EBITDA attributable to noncontrolling interests |
|
|
13,913 |
|
|
|
12,606 |
|
|
|
41,339 |
|
|
|
34,222 |
|
Total Adjusted EBITDA |
|
$ |
167,011 |
|
|
$ |
127,833 |
|
|
$ |
458,334 |
|
|
$ |
336,530 |
|
Federal Solutions
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Revenue |
|
$ |
1,105,580 |
|
|
$ |
780,114 |
|
|
$ |
325,466 |
|
|
|
41.7 |
% |
Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
120,091 |
|
|
$ |
65,039 |
|
|
$ |
55,052 |
|
|
|
84.6 |
% |
The increase in Federal Solutions revenue for the three months ended September 30, 2024 compared to the corresponding period last year was primarily related to organic growth of 39% and $23.8 million from business acquisitions. Organic growth was primarily due to the ramp up of recent awards and growth on a significant contract, partially offset by the winding down of certain contracts.
The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the three months ended September 30, 2024 compared to the corresponding period last year was primarily due to the factors impacting
44
revenue discussed above and a reduction in selling general, and administrative expenses as a percentage of revenue for the three months ended September 30, 2024 compared to the corresponding period last year.
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Revenue |
|
$ |
3,003,791 |
|
|
$ |
2,177,457 |
|
|
$ |
826,334 |
|
|
|
37.9 |
% |
Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
315,413 |
|
|
$ |
206,827 |
|
|
$ |
108,586 |
|
|
|
52.5 |
% |
The increase in Federal Solutions revenue for the nine months ended September 30, 2024 compared to the corresponding period last year was primarily related to organic growth of 35% and $57.6 million from business acquisitions. The increase in organic revenue for the nine months ended September 30, 2024 compared to the corresponding period last year was primarily due to the factors impacting revenue discussed above for the three months ended September 30, 2024. Revenue for the nine months ended September 30, 2023 included incentive fees on two contracts of approximately $20 million that did not reoccur for the nine months ended September 30, 2024.
The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the nine months ended September 30, 2024 compared to the corresponding period last year was primarily due to the factors discussed above for Adjusted EBITDA attributable to Parsons Corporation for the three months ended September 30, 2024 and the incentive fees on two contracts of approximately $20 million that did not reoccur for the nine months ended September 30, 2024.
Critical Infrastructure
|
|
Three Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Revenue |
|
$ |
704,536 |
|
|
$ |
638,457 |
|
|
$ |
66,079 |
|
|
|
10.3 |
% |
Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
33,007 |
|
|
$ |
50,188 |
|
|
$ |
(17,181 |
) |
|
|
-34.2 |
% |
The increase in Critical Infrastructure revenue for the three months ended September 30, 2024 compared to the corresponding period last year was primarily related to organic growth of 10%. Organic growth was primarily due to an increase in business volume from existing contracts and ramping up of recent awards offset by the winding down of certain contracts and a write down on a contract of $21.6 million.
The decrease in Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation for the three months ended September 30, 2024 compared to the corresponding period last year was primarily due to a contract write-down along with the write-down in equity in losses from unconsolidated joint ventures discussed above. These decreases were offset by the increase in organic revenue and a reduction in selling general, and administrative expenses as a percentage of revenue for the three months ended September 30, 2024 compared to the corresponding period last year. Also impacting Adjusted EBITDA were higher margin change orders on an unconsolidated joint venture for the three months ended September 30, 2023 which did not reoccur in the three months ended September 30, 2024.
|
|
Nine Months Ended |
|
|
Variance |
|
||||||||||
(U.S. dollars in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Dollar |
|
|
Percent |
|
||||
Revenue |
|
$ |
2,012,468 |
|
|
$ |
1,771,066 |
|
|
$ |
241,402 |
|
|
|
13.6 |
% |
Adjusted EBITDA attributable to Parsons Corporation |
|
$ |
101,582 |
|
|
$ |
95,481 |
|
|
$ |
6,101 |
|
|
|
6.4 |
% |
The increase in Critical Infrastructure revenue for the nine months ended September 30, 2024 compared to the corresponding period last year was primarily related to organic growth of 13%. The increase in organic growth was primarily due to the factors noted above for the three months ended September 30, 2024.
45
The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation for the nine months ended September 30, 2024 compared to the corresponding period last year was primarily due to the increase in organic revenue noted above and a reduction in selling general, and administrative expenses as a percentage of revenue for the nine months ended September 30, 2024. These increases were offset by a contract write-down and the write-down in equity in losses from unconsolidated joint ventures discussed above. Equity in earnings of unconsolidated joint ventures for the three months ended September 30, 2023 included earnings on higher margin change orders which did not reoccur for the three months ended September 30, 2024.
Liquidity and Capital Resources
We currently finance our operations and capital expenditures through a combination of internally generated cash from operations, our Convertible Senior Notes, Delayed Draw Term Loan and periodic borrowings under our Revolving Credit Facility.
Generally, cash provided by operating activities has been adequate to fund our operations. Due to fluctuations in our cash flows and growth in our operations, it may be necessary from time to time in the future to borrow under our Credit Agreement to meet cash demands. Our management regularly monitors certain liquidity measures to monitor performance. We calculate our available liquidity as a sum of cash and cash equivalents from our consolidated balance sheet plus the amount available and unutilized on our Credit Agreement.
As of September 30, 2024, we believe we have adequate liquidity and capital resources to fund our operations, support our debt service and our ongoing acquisition strategy for at least the next twelve months based on the liquidity from cash provided by our operating activities, cash and cash equivalents on-hand and our borrowing capacity under our Revolving Credit Facility. Management continually monitors debt maturities to strategically execute optimal terms and ensure appropriate levels of working capital liquidity are maintained for the Company.
Cash Flows
Cash received from customers, either from the payment of invoices for work performed or for advances in excess of revenue recognized, is our primary source of cash. We generally do not begin work on contracts until funding is appropriated by the customers. Billing timetables and payment terms on our contracts vary based on a number of factors, including whether the contract type is cost-plus, time-and-materials, or fixed-price. We generally bill and collect cash more frequently under cost-plus and time-and-materials contracts, as we are authorized to bill as the costs are incurred or work is performed. In contrast, we may be limited to bill certain fixed-price contracts only when specified milestones, including deliveries, are achieved. A number of our contracts may provide for performance-based payments, which allow us to bill and collect cash prior to completing the work.
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.
Accounts receivable is the principal component of our working capital and includes billed and unbilled amounts. The total amount of our accounts receivable can vary significantly over time but is generally sensitive to revenue levels. We experience delays in collections from time to time from Middle East customers. Net days sales outstanding, which we refer to as Net DSO, is calculated by dividing (i) (accounts receivable plus contract assets) less (contract liabilities plus accounts payable) by (ii) average revenue per day (calculated by dividing trailing twelve months revenue by the number of days in that period). We focus on collecting outstanding receivables to reduce Net DSO and working capital. Net DSO was 51 days at September 30, 2024 down from 65 days at September 30, 2023. Our working capital (current assets less current liabilities) was $905.1 million at September 30, 2024 and $726.6 million at December 31, 2023.
Our cash and cash equivalents increased by $285.9 million to $558.8 million at September 30, 2024 from $272.9 million at December 31, 2023.
46
The following table summarizes our sources and uses of cash over the periods presented (in thousands):
|
|
Nine Months Ended |
|
|||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Net cash provided by operating activities |
|
$ |
396,840 |
|
|
$ |
217,566 |
|
Net cash used in investing activities |
|
|
(344,614 |
) |
|
|
(327,245 |
) |
Net cash provided by financing activities |
|
|
233,966 |
|
|
|
52,380 |
|
Effect of exchange rate changes |
|
|
(312 |
) |
|
|
166 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
285,880 |
|
|
$ |
(57,133 |
) |
Operating Activities
Net cash provided by operating activities consists primarily of net income adjusted for noncash items, such as: equity in losses (earnings) of unconsolidated joint ventures, contributions of treasury stock, depreciation and amortization of property and equipment and intangible assets, and provisions for doubtful accounts. The timing between the conversion of our billed and unbilled receivables into cash from our customers and disbursements to our employees and vendors is the primary driver of changes in our working capital. Our operating cash flows are primarily affected by our ability to invoice and collect from our clients in a timely manner, our ability to manage our vendor payments and the overall profitability of our contracts.
Net cash provided by operating activities increased $179.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The primary driver of the increase in cash flows provided by operating activities was an $172.6 million increase in net income after adjusting for non-cash items and debt extinguishment offset by an increase in cash outflows from our working capital accounts of $30.0 million (primarily from accounts receivable, contract assets, prepaid expenses and other assets, and accounts payable offset by, contract liabilities, income taxes, and accrued expenses and other current liabilities) offset by a $23.3 change in cash used for other long-term liabilities.
Investing Activities
Net cash used in investing activities consists primarily of cash flows associated with capital expenditures, joint ventures and business acquisitions.
Net cash used in investing activities increased $17.4 million for the nine months ended September 30, 2024, when compared to the nine months ended September 30, 2023. was primarily related to a $33.8 million increase in investments in unconsolidated joint ventures offset in part by a decrease of $16.6 million in payments for acquisitions, net of cash acquired.
Financing Activities
Net cash provided by financing activities is primarily associated with proceeds from debt, the repayment thereof, and distributions to noncontrolling interests.
Net cash provided by financing activities increased $181.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The change in cash flows from financing activities is primarily driven by net cash inflows from our convertible bond transactions which generated $287.4 million in cash. See “Note 10 – Debt and Credit Facilities,” for a further discussion of these transactions. This increase was offset in part by net repayments of borrowings under the credit agreement of $75 million.
Letters of Credit
We have 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 to $309.1 million as of September 30, 2024. Letters of credit outstanding under the Credit Agreement total $43.0 million as of September 30, 2024.
Recent Accounting Pronouncements
See the information set forth in “Note 3—New Accounting Pronouncements” in the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Off-Balance Sheet Arrangements
As of September 30, 2024, we have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to interest rate risks related to the Company’s Revolving Credit Facility and Delayed Draw
Term Loan.
As of September 30, 2024, there were no amounts outstanding under the Revolving Credit Facility. Borrowings under the Credit Facility effective June 2021 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%, both based on the leverage ratio of the Company at the end of each quarter. The rates on September 30, 2024 and December 31, 2023 were 6.2% and 6.7%, respectively.
As of September 30, 2024, there was $350.0 million outstanding under the Delayed Draw Term Loan. 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. The interest rate on September 30, 2024 and December 31, 2023 were 6.1% and 6.6%, respectively.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange rate risk resulting from our operations outside of the U.S. We limit exposure to foreign currency fluctuations in most of our contracts through provisions that require client payments in currencies corresponding to the currency in which costs are incurred. As a result of this natural hedge, we generally do not need to hedge foreign currency cash flows for contract work performed.
Item 4. Controls and Procedures.
Evaluation of Disclosure Control and Procedures
Our management carried out, as of September 30, 2024, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the third quarter of 2024, there were no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The information required by this Item 1 is included in “Note 12 – Contingencies” included in the Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Form 10-Q which is incorporated herein by reference.
Item 1A. Risk Factors.
There has been one addition to our Risk Factors disclosed in the Company’s Form 10-K for the year ended December 31, 2023. The additional risk factor is presented below:
Risk Factors:
Parsons Government Services, Inc. has a contract with a confidential federal government client which constitutes material revenue in our Federal Solutions business segment. The confidential client advised that, although Parsons has strong performance on this program, they are considering whether to exercise the second option year to extend Parsons’ existing contract through Q1 2026 or to otherwise re-compete the contract. If the client does re-compete the contract, Parsons intends to submit a proposal for the continued performance of its work. If the contract is re-competed, and it is not awarded to Parsons, it could have a material adverse impact.
As described in the Form 10-K, the United States federal government is our largest customer and is projected to make up 60% of our total revenue for 2024. Two customer sets within the federal government are projected to exceed 20% of revenue given recent growth.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
On August 9, 2021, the Company’s Board of Directors authorized the Company to acquire a number of shares of Common Stock having an aggregate market value of not greater than $100 million from time to time, commencing on August 12, 2021. The Board amended this authorization in August 2022 to remove the prior expiration date and grant executive leadership the discretion to determine the price for such share repurchases. The Board further amended this authorization in February 2024 to restore the repurchase capacity to $100 million and removed the $25 million quarterly cap on such repurchases.
At the time of the February 2024 authorization, the Company had repurchased shares with an aggregated market value (including fees) of $54.7 million. The aggregate market value of shares of Common Stock the Company is authorized to acquire, from both the August 2021 and February 2024 authorizations, is not greater than $154.7 million.
As of September 30, 2024, the Company has $90 million remaining under the stock repurchase program.
Repurchased shares of common stock are retired and included in “Repurchases of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows. The primary purpose of the Company’s share repurchase program is to reduce the dilutive effect of shares issued under the Company’s ESOP and other stock benefit plans. 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.
As of September 30, 2024, the Company has spent $64.7 million (which includes commissions paid of $31.2 thousand) repurchasing 1,557,529 shares of Common Stock (all of which have been retired) at an average price of $41.54 per share.
There were no share repurchases for the three months ended September 30, 2024.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not Applicable
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Item 5. Other Information.
Insider Trading Relationships and Policies
In conformance with updated SEC regulations, the Company has
Item 6. Exhibits.
Exhibit Number |
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Description |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101 |
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The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Parsons Corporation |
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Date: October 30, 2024 |
By: |
/s/ Matthew M. Ofilos |
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Matthew M. Ofilos |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carey A. Smith, certify that:
Date: October 30, 2024 |
By: |
/s/ Carey A. Smith |
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Carey A. Smith |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew M. Ofilos, certify that:
Date: October 30, 2024 |
By: |
/s/ Matthew M. Ofilos |
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Matthew M. Ofilos |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Parsons Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carey A. Smith, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: October 30, 2024 |
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By: |
/s/ Carey A. Smith |
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Carey A. Smith |
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Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Parsons Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew M. Ofilos, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: October 30, 2024 |
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By: |
/s/ Matthew M. Ofilos |
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Matthew M. Ofilos |
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Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.