Parsons Corp at Cowen Aerospace/Defense & Industrials Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay, thank you very much. So Carey, you took over as CEO in July, and you made some changes with new people and some positions. But what changes have you made in terms of things that might not be so apparent like strategy, management comp, portfolio shaping processes. I mean, obviously, some things you may not be able to talk about, but any of those other things? Have you tweaked them?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : That is very helpful. Are you thinking of any portfolio shaping? I guess you've talked a little bit in terms of critical infrastructure, about the things you're not going to build on. But are you thinking any more broadly? Maybe walk us through there, where you are in that process in terms of stuff you're sort of moving back from, and when you'll be done with that. And whether there are any other areas where maybe -- not a bad business but really you want to change your focus to put it on something else.

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay. So give us some color regarding the impact COVID has had on Parsons. And what should we look for if and when Omicron drops off?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Interesting. How much of that task order -- I mean, what's the run rate on that task order? Is that essentially just for COVID, or -- what's that for?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : And over what time frame does that kind of roll out?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. Okay.

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Interesting. I was kind of thinking -- I knew about your three businesses, and that's very helpful to kind of know where they might be. I was also thinking of the broader issue, like [CACI and Booz] who -- they reported kind of disappointing results in terms of their revenues. And so the explanation -- because if you think about it, they basically reported their numbers in late October and then they missed in December. And so like at some point there, things changed pretty quickly because it was the revenues. So their explanation was that it's the CR; it's DoD occupancy limits at the Pentagon was one issue. But really the combination of the CR, the DoD occupancy limits -- give us your take on kind of the overall demand environment and those kinds of issues. And what would it take to solve them? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 09, 2022 / 6:30PM, PSN.N - Parsons Corp at Cowen Aerospace/Defense & Industrials Conference (Virtual)

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. So one of the other issues people talk about is the indirect impact that COVID has in terms of less travel, lower medical expenses, and that as basically things go back to normal, you'll have sort of more of those expenses and that, therefore, that might -- while it would help revenues, and you've pointed out the 70 million we'd get -- that you might have slightly lower margins as a result of that. Is that an issue for you guys?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Interesting. So federal solutions, you did a number of acquisitions; 2018, 2019, you had pretty good growth. It looked like the sales growth took a breather the last two years after those pretty good gains. Why the slowdown?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : So was any of the slowdown related to your engineering business in federal solutions, also some of the legacy businesses were slowing down?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. Okay. And so in federal solutions, what percent of the annual revenues are up for recompete in 2022?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. Okay, that's terrific. So presumably -- you mentioned COVID and the impact and pretty good win rates. So theoretically, we should start to see -- 2022, we should start to see the organic numbers snap back. Is that fair to say?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. So you've walked over the focus shift in critical infrastructure. So exiting low-margin pass-through where -- exiting JVs where you are a minority partner; exiting just pure construction work. Give us some color about how long will it take to fully exit all of those areas, and sort of what's the ramp down? What's the expected resulting impact likely to be?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : And how big are those, roughly, in terms of revenues as they come down approximately?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : That's fine. That's fine. When you get to 2023, this essentially will be done and the results will be, I guess, you'll have less revenue growth as this business burns off. But your profitability should be more robust. Is that a fair assessment?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : That's really interesting in terms of the potential impact of the infrastructure bill. Can you give us a little more color? I mean now that it's sort of like a law, when we might see some of that work being put out for bid, and when you'll actually generate revenues from it somewhat? And what areas of that are you going to bid on?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : That's really interesting. And so the government being the government, when do we expect this money to be let? They go through competition. You bid on the work. Give us any color you can there in terms of how much are you likely to bid over the next year or so. How long do we have to wait for the decision? How long then do we have to wait for the revenues to start?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Start to see the impact in terms of awards or in terms of revenues?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay. So then the awards will start to hit in 2022. I think you said before, in the back part of the year. Is that still kind of the way to think about it?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. Got it. Okay, that's really interesting. So you mentioned, I think, in the 2004 period that the margins went up. Did you say 300 basis points, something like that?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : So how should we (multiple speakers)?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Yeah. How should we think -- because I guess you got two things going on. One, you have the mixed shift from pass-throughs, lower-margin stuff for being a minority partner for construction. So that should be a plus to the margins. And then you have this volume benefit which should, at least in the past infrastructure bill, was a plus. How should we think about where the margins might be able to go over, let's say, a three-year period? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 09, 2022 / 6:30PM, PSN.N - Parsons Corp at Cowen Aerospace/Defense & Industrials Conference (Virtual)

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay. Okay. Your Mideast business, I think, currently is about one-third of critical infrastructure. You mentioned that it's strong. How has it been doing? What are the prospects of 2022 now that oil prices are up?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. So are there any areas where the demand is weak in terms of critical infrastructure? I mean, it sounds like outside of the mixed shift -- that basically there's a lot of demand. And the pricing of these contracts also favorable or is that more competitive?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : But I mean, you were mentioning that, today, there are half the competitors that they were in 2004. So while, I mean, this is always a competitive environment, is the pricing about the same, maybe potential to get better? Any sort of color you can give us on that?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. So you've been an acquisitive company ever since I followed you. You did five large deals since 2018. So how have these deals done, and were there integration issues? Is that part of the reason for the organic slowdown in 2021, or is the integration basically going okay?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Right. And so if you think about those acquisitions, how many of the top folks -- top two or three folks -- in each of them have stayed? Because I know there's the issue in this industry that people do well. They sell out. They play golf. They come back. Have you been able to keep most of the key folks at these things that you bought?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Good for you. That's terrific. That's great. So you've got a pretty decent net debt to EBITDA, 1.0. It's actually a whole lot better than all the other folks in your industry. So talk to us about how -- and maybe, George, you want to get in here and talk about the target debt ratio -- how much financial power do you think this gives Parsons and kind of how do you plan on using it?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. Great. And so how do you think about your potential M&A pipeline?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. Okay. So I mean, you're seeing a fair amount of opportunity out there? I mean, for some people complain the prices are up or whatever. You're still seeing things that are there of real interest?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. And then maybe walk us through your relative cash deployment priorities. I know that M&A is high on that list. But like where are dividends; where is share repurchase -- all of that?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay. And then you and George looks like bought 1.4 million in stock when it dropped in mid-December price, near where it currently is. If you think it's attractive enough for you to buy, should we look at you to switch to maybe buying a little bit more for the company versus M&A? How should we think about that?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. And so as you think about where we are today and you look forward over this next year, what do you think the two -- couple risks, things that worry you the most, and maybe the one or two opportunities that the folks on Wall Street don't have accurately assessed?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Got it. And then maybe the last one. So when you think about Parsons, where is the company going to be in three to five years? If it changes over this period, what's going to change?

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay, terrific. I don't have any more questions. And I guess we have a couple more minutes, not many, but I don't know if you want to make any kind of concluding thoughts that people should keep in mind when they look at your company.

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Terrific. Thank you very much for a terrific presentation and a great interview. Really appreciate it.

Question: Cai Von-Rumohr - Cowen and Company, LLC - Analyst : Okay.