Parsons Corporation (PSN) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the 2021 Annual Meeting of Parsons Corporation's Shareholders. I would now like to introduce the first presenter, Chuck Harrington, Chairman and CEO of Parsons.

Good morning. I'm Chuck Harrington, Parson's CEO and chair of this meeting. On behalf of the entire Board, our leadership team and employees, I'd like to thank you for participating in our 2021 Annual Meeting of Shareholders of Parsons Corporation. Before commencing with the official business of this meeting, I'd like to briefly discuss our accomplishments in 2020 and extend our deepest sympathies to all who've suffered and been affected by the COVID-19 pandemic. 2020 will be a year that none of us will soon forget, between the global pandemic, political and social unrest, widespread cyberattacks and an election that was, to say the least, unique. I'm extremely proud of the commitment and support of Parsons' employees for our communities and customers during this past year. During 2020, Parsons remain true to its core values of safety, quality, integrity, diversity, innovation and sustainability. Now I'll discuss Parsons' 2020 performance. Parsons had an outstanding 2020. Our strategy to focus on well-funded markets with higher technology content is creating a resilient and more profitable business model that creates strong cash flows in the process. We invested in creating a portfolio of solutions that comprise hardware and software products and associated services to create differentiation in the market. This enabled us to achieve strong 2020 financial results, complete a strategic acquisition in the high-growth space market and deliver on our customers' missions. For the year, we achieved record profitability and cash flow, acquired Braxton Science & Technology Group and won large contracts. In addition, we were recognized for our ethics and IT leadership as well as for our employee-centric practices. I'm proud of our employees' performance and the way they represent Parsons. We ended 2020 with revenue within 1% of guidance, net income of nearly $100 million and records for adjusted EBITDA, adjusted EBITDA margin and cash flow. We delivered net income margin of 2.5% and expanded adjusted EBITDA margins by 180 basis points over the past 2 years. We also exceeded the high end of our cash flow guidance and maintained our healthy balance sheet. However, we were not completely immune from the items mentioned in my opening paragraph. In terms of revenue, we were less than 1 percentage point below the low end of our 2020 guidance range and would have exceeded the high end of the range where it not for approximately $200 million of contract work deferred as a result of the COVID-19 pandemic. In terms of other metrics, we maintained our solid backlog, which stands at 2x our 2020 annual revenue. In addition, we won large new contracts in both operating segments, which was driven by investments in our technology, in our people and our recent acquisitions. Key contract wins in 2020 included the $1.2 billion Valley Line West Light Rail Transit project for the city of Edmonton in Alberta, Canada; $224 million extension to the Riyadh Metro project, which is one of the largest ongoing metro projects in the world; $307 million and $180 million contracts for classified work with classified customers; and a $51 million contract deploying our Parsons ZEUS directed energy system, which can target more than 300 meters and has enough power to detonate cluster bombs, land mines and general purpose bombs. This is the first Department of Defense ground-based laser system placed into production. We also acquired the Braxton Science & Technology Group, which reinforces our position in the rapidly expanding space market and underscores our disciplined approach to mergers and acquisitions. We strive to acquire companies that operate in specific high-priority and high-growth markets. We also like to acquire companies who we worked with in the past that have a strong reputation in the market and that benefit from our scale and broader set of capabilities. Braxton perfectly aligns with this strategy. In addition, we ensure our M&A candidate companies have great technology, exceptional management teams and are a strong fit with our agile and innovative culture. Braxton also meets these objectives as well. Braxton exceeded all of our major financial criteria as well with revenue growth and adjusted EBITDA margins above 10%, and it's accretive. Braxton enhances our margin and revenue growth profile and further strengthens our strategy to win large prime contracts within the Department of Defense and intelligence communities. Our disciplined M&A approach and robust cash flow enabled us to maintain our strong balance sheet. We generated cash flow of $289 million for the year, and ended 2020 with a net leverage ratio of approximately 0.3x. Our low leverage and over $500 million of undrawn revolver capacity will enable us to continue to make strategic investments in accretive acquisitions, research and development, our people and our culture. In addition to successfully executing on our strategy, Parsons has a long-standing commitment to integrity, diversity and inclusion and doing the right thing. We're a smarter and stronger company when we all work together. Attention to environmental, social and governance or ESG excellence remains a critical component of our culture and our ability to drive shareholder value. In 2020, we took steps to elevate our ESG work, which began at the Board level. The Corporate Governance and Responsibility Committee took on the additional oversight of economic, environmental and social topics. We felt this was an important step to reinforce our commitment to deliver a better world. We also have a culture of continuous improvement, which includes revising and updating our code of conduct and human rights policies, modifying and streamlining our supplier diversity process, extending our sustainability practices and supporting our employees in their well-being. In addition, we've invested in our communities through our employee-driven Parsons Gives Back program. Even with the limitations of a global pandemic, our teams rose to the challenge and found new and innovative ways to give back to communities, including blood donations, support for online education, cleanup efforts, homeless outreach and food donations and supporting our U.S. military veterans and their families, just to name a few. We're also proud of the various awards and recognition we received in 2020, including Ethisphere Institute recognition in 2020 as one of the world's most ethical companies for the 11th year in a row; Forbes' recognition as one of the world's best employers, a top employer for minority groups, women and people with disabilities working in science, technology, engineering and math careers; honored by the Virginia Department for the Blind and Vision Impaired for excellence and access or disabled persons; named as Best for Vets Employer - 2020 by Military Times as one of the country's best employers and organizations with military-connected employment programs, benefits and support efforts; and named to the CIO 100 List as one of the world's most innovative companies. Now let us proceed to the business agenda. We'll entertain questions from shareholders once we've concluded the formal business set forth in the agenda. Pursuant to the information referenced in the proxy statement, the notice filed with the Securities and Exchange Commission and the notice posted on our website, the Annual Meeting of Shareholders is being held virtually rather than in person for the safety of our shareholders, directors and employees. Joining the meeting today from a Board of Directors are Mark K. Holdsworth; Steven F. Leer; Letitia A. Long; General Darren W. McDew, U.S. Air Force retired; James F. McGovern; Harry T. McMahon; M. Christian Mitchell; Carey A. Smith; Major General Suzanne M. Vautrinot, U.S. Air Force retired; and David C. Wajsgras. Also joining the meeting today from our executive leadership team are Carey A. Smith, President and Chief Operating Officer; George L. Ball, Chief Financial Officer; and Michael R. Kolloway, Chief Legal Officer. The following members of our ESOP Policy and Advisory Committee are also in attendance: Paul Walker-Lanz, Chair of the ESOP Policy and Advisory Committee; Leslie Bradley; Justin Hampton, Nikki Herman and Stacey Salazar. Also joining the meeting today are the following representatives from Newport Trust Company, the trustee of the ESOP Trust: William Ryan, William Glasgow and Eileen Kanner. Joining us from American Election Services, the Inspector of Elections for the Annual Meeting is [Karl Wagner]. And finally, joining us from PricewaterhouseCoopers, the corporation's independent registered public accounting firm, are Kirk Thorell and Kathleen Hopely. Mr. Kolloway will record the proceedings and serves as the secretary and parliamentarian for the meeting. The polls remain open. If you have a proxy card and have not yet voted or if you wish to change your vote, please provide your vote at this time. The corporation's proxy statement was sent by Broadridge Financial Services to all of the corporation's shareholders of record as of February 19, 2021. The ESOP Trust is the corporation's largest shareholder. ESOP participants hold interest in the trust and have the right to instruct the trustee on how their interest in the trust should be voted. ESOP participants may vote all of the shares allocated to their accounts both vested and unvested. If the trustee does not receive voting instructions from a participant, the shares will be voted by the trustee in its discretion. There are 3 matters for consideration at this Shareholders' Meeting: First, the election of nominees to the Board of Directors of Parsons Corporation; second, the approval of the ratification of the corporation's independent registered public accounting firm for the fiscal year 2021; and third, an advisory vote on the compensation for the corporation's named executive officers as disclosed in the Compensation Discussion and Analysis section or CD&A of the proxy statement. The nominees for election to the Board of Directors of Parsons Corporation are: Mark K. Holdsworth, Steven F. Leer, M. Christian Mitchell and David C. Wajsgras. All 4 nominees are independent directors. If nominees Holdsworth, Leer, Mitchell and Wajsgras are elected, they will serve terms ending in 2024 or until reaching our director retirement criteria, whichever comes first. The other members of the Board of Directors who will continue in office until either 2022 or 2023 are: myself, Charles L. Harrington; Letitia A. Long; General Darren W. McDew, U.S. Air Force retired; James F. McGovern; Harry T. McMahon; Carey A. Smith; Major General Suzanne M. Vautrinot, U.S. Air Force retired. I now call the Parsons Corporation Annual Meeting of Shareholders to order and declare the polls closed.

Mr. Harrington, I confirm that more than [99,322,970,000,000] votes were cast of the corporation's common stock and are present for the meeting either through attendance or by proxy, representing a quorum for the meeting. The meeting is, therefore, legally constituted.

Thank you. Is there a motion for this meeting?

I, Jim McGovern move for the election of Mr. Mark K. Holdsworth, Mr. Steven F. Leer, Mr. M. Christian Mitchell; and Mr. David C. Wajsgras to the Board of Directors of Parsons Corporation.

I have received a motion from Mr. McGovern, which puts in nomination for Director the persons whose names are set forth in the proxy statement for this meeting namely: Mark K. Holdsworth, Steven F. Leer, M. Christian Mitchell; and David C. Wajsgras. Mr. Kolloway, do you have a report for the election of the directors?

Mr. Chairman, out of the total of more than 97,411,769 volts cast, there were more than 86,935,673 votes cast for the election of each of the nominees. And these individuals, therefore, have been elected as Directors of Parsons Corporation to serve until the 2024 Annual Meeting of Shareholders or until reaching the director retirement criteria, whichever is first, as to Mr. Holdsworth, Mr. Leer, Mr. Mitchell and Mr. Wajsgras and until their respective successors are elected.

Thank you, Mr. Kolloway. Is there another motion?

I, M. Christian Mitchell, I move for the ratification of the appointment of PricewaterhouseCoopers as the independent registered public accounting firm for Parsons Corporation for the fiscal year 2021.

I've received a motion from Mr. Mitchell to ratify the appointment of PricewaterhouseCoopers as the independent registered public accounting firm for Parsons Corporation for fiscal year 2021. Mr. Kolloway, do you have a report on the votes for the ratification of the appointment of PricewaterhouseCoopers as the corporation's independent registered public accounting firm for 2021.

Mr. Chairman, out of a total of more than 99,322,970 votes cast, there were more than 97,181,121 votes cast for the ratification of the appointment of PricewaterhouseCoopers as the independent registered public accounting firm for Parsons Corporation for fiscal year 2021. Therefore, PricewaterhouseCoopers is hereby ratified to serve as the corporation's independent registered public accounting firm for fiscal year 2021.

Thank you, Mr. Kolloway. Is there another motion?

I, Suzanne Vautrinot move for the consideration of the advisory vote of the corporation's shareholders for approval of the compensation of the corporation's named executive officers as disclosed in the CD&A section of the proxy statement.

I've received the motion from Ms. Vautrinot for the consideration of the advisory vote of the corporation's shareholders for approval of the compensation of the corporation's named executive officers as disclosed in the CD&A section of the proxy statement. Mr. Kolloway, do you have a report on the advisory vote of the corporation's shareholders with respect to the approval of the compensation of the corporation's named executives?

Mr. Chairman, out of the total of more than 97,411,769 votes cast, there were more than 95,365,240 votes cast in favor of the compensation of the corporation's named executive officers as disclosed in the CD&A section of the corporation's proxy statement.

Thank you, Mr. Kolloway. Is there any other business to be conducted at this meeting? Hearing none. This concludes the formal business of the Parsons Corporation Annual Meeting of Shareholders. Prior to adjourning the meeting, I have an announcement to make regarding our President and Chief Operating Officer, Carey Smith. Effective July 1, 2021, Ms. Smith will become Chief Executive Officer and President of Parsons Corporation. I will serve as Executive Chair for the corporation. We're excited for Ms. Smith to assume her new responsibilities and congratulate her on assuming the role of CEO. I would like to express our appreciation to Parsons' nearly 16,000 employees for their hard work and dedication. They are the foundation of our business, and their commitment to our customers' missions and core values are truly inspiring. We're also grateful for the continued loyalty of our customers and shareholders. Parsons is in a position to deliver on our customers' critical missions and execute our growth strategy while we continue to maintain a strong balance sheet to support additional investments in organic growth and acquisitions. We're excited about our future and confident of our diversified portfolio that is aligned with the Biden administration's priorities for national defense, infrastructure and environmental initiatives. Mr. Kolloway, are there any questions from the shareholders?

Yes, Mr. Chairman, we have several questions. First question, is it under consideration for the company to offer dividends on its stocks?

Thank you for the question. As we have said in the past, Parsons is not discounting that in the future we may pay dividends. Currently, we believe the best use of our funds will be to continue to invest in the high-growth, high-margin M&A that we've been implementing to date.

Second question, does Parsons have any plans for future M&A?

Our strategy is to continue our investments in high-growth, high-margin technology companies as we have done in the last few years as we go forward.

Another question, what are your thoughts on the potential for an infrastructure bill?

We're optimistic about a new bill in the areas of investment to improve transportation, water and the environment. And we'll be following this bill closely as it progresses through the congressional process for approval.

Mr. Chairman, that's all the questions we have at this time.

There being no further questions for the meeting, please remember that you're always welcome to contact our Vice President of Investor Relations with any questions. His contact information is on our website.

Mr. Chairman, I move that this meeting be adjourned.

I, Carey Smith, second the motion.

It has been moved and seconded that the meeting be adjourned. Are there any objections to this motion? Hearing none, the motion is carried and the meeting is adjourned. We want to thank everyone who participated in today's meeting, and thank you for continuing your interest in Parsons.

Thank you. The 2021 Annual Meeting of Parsons shareholders has now come to an end. Thank you for attending. You may now disconnect.