Parsons Corp at Goldman Sachs Industrials Conference Summary

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

Question: Noah Poponak - Goldman Sachs - Analyst : <_ALACRA_META_ABSTRACT>So we have to start with the DOGE. I've been waiting for my first government services company. So I've asked -- we just had a sort of quasi-defense company that claimed it would be great. But no, in all seriousness, I mean, it is a pretty shocking thing, I guess, to see some of the statements and some of the headlines. But for a long time, people in the government have talked about doing things better, more efficient. We definitely buy things we don't need. We definitely buy things imperfectly. And so I could see scenarios where they reduce the size of some things in the government, and it actually accrues to you because you do it better, more efficient. But I could also see scenarios where they just aren't able to implement it that smartly, and it's just blanket reductions to budgets, and your revenues are highly correlated to budgets. So what are you guys thinking? How are you managing the business for it? What are the internal discussions like? What do we think happens with DOGE?

Question: Noah Poponak - Goldman Sachs - Analyst : Interesting. And you're saying you officially support it.

Question: Noah Poponak - Goldman Sachs - Analyst : And are you actively engaged in discussions with the government or the incoming administration on what some of the ideas you just walked through could look like?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. And we should think of the infrastructure side of your business as just not related to DOGE.

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. Okay. That's a good answer. Appreciate that.

Question: Noah Poponak - Goldman Sachs - Analyst : If I look at the Parsons model, the top line organic revenue growth has been very strong. I want to talk about what's behind that and where it goes from here in terms of the drivers and the new program wins you've had and how you've aligned the business. But first question is just how worried should an investor be about just the pure base effects and the compares as you start to lap these high growth rates? Is there a rapid deceleration just purely from working off of a higher base? Or is the company still actually small enough within its markets that it can keep growing at pretty high rates for a while?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. You mentioned that you've -- the six largest contracts in your history in the last 16 months or 18 months, that's within infrastructure, specifically or that's at the total company level? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:20PM, PSN.N - Parsons Corp at Goldman Sachs Industrials Conference

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. On the federal side, is there a -- I think you've had -- or I know you've had some...

Question: Noah Poponak - Goldman Sachs - Analyst : Largest for infrastructure. Sixth largest in the history of your infrastructure business the last 16 months.

Question: Noah Poponak - Goldman Sachs - Analyst : North America. On the federal side, you've had some new wins. Are there similarly new programs on the federal side that are large relative to your history, relative to the size of the company, that have not actually hit their run rate level yet? And what would those pay, if they are there?

Question: Noah Poponak - Goldman Sachs - Analyst : Are you able to give the same numbers on the classified business? The classified win?

Question: Noah Poponak - Goldman Sachs - Analyst : Thought so. Just checking. Got it. And then those six on the infrastructure side, I'm not going to ask you to give me all the numbers on those right here, but are those still early in their path to the recurring number as well?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. So ultimately, what I'm trying to get at is sustainability of the growth rate, how much growth is left in front of you? And in infrastructure, six of your largest contracts ever are in the last 1.5 years and are mostly or half of them are still ramping, that seems like -- and then that's all North America, and as you've mentioned, outside of North America is kind of still ahead of you. And then on the federal side, it sounds like you have a few new wins that are -- $90 million as a percent is less than half of $240 million. So I guess the next question then is, are there enough new bids, and what's your confidence in your ability to win them to then keep the next set of new awards and new revenue that comes behind that?

Question: Noah Poponak - Goldman Sachs - Analyst : What were those numbers three, four, five years ago?

Question: Noah Poponak - Goldman Sachs - Analyst : And that's essentially pivoting the business into these six channels that are growing faster or have a larger pipeline?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. And then is there anything rolling off, any major recompetes in the next two, three years?

Question: Noah Poponak - Goldman Sachs - Analyst : Is that a sizable contract? Or is that sort of just like the only one to point out?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. Fair enough. Maybe moving then to margins. The federal margin has been pretty stable and maybe a little higher, moved above 10%. I think you've talked about that being 10%, it's now above 10%. Maybe let's start there. We just think about that as kind of 10% sustainably for a long time? Or can that go higher?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. And then the CI margin has, I guess, a lot more improvement potential. You've talked about shifting from the legacy of the company in engineering and construction, the leg work, to out of construction and really into the sort of general contractor role, and that takes on less risk. Maybe for those that aren't as familiar with it, walk us through that transition, and what does that mean for the margins of that business over time?

Question: Noah Poponak - Goldman Sachs - Analyst : Does the math of the adjusted margin, excluding those two contracts, not suggest more than 50 basis points of margin expansion next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:20PM, PSN.N - Parsons Corp at Goldman Sachs Industrials Conference

Question: Noah Poponak - Goldman Sachs - Analyst : Are there still small write-downs and adjustments here and there across that total portfolio?

Question: Noah Poponak - Goldman Sachs - Analyst : That last ramp-up has not yet occurred.

Question: Noah Poponak - Goldman Sachs - Analyst : What does that mean, that they came back?

Question: Noah Poponak - Goldman Sachs - Analyst : And they're pushing back on the idea?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. Got it. Infrastructure in the Middle East seems like something that would have risk of scope creep, specification creep, cost creep. And even if not in traditional E&C or the construction, part of the job have write-down risk. I guess, how do you -- do investors ask you about that? And how do you get people comfortable that the building of islands or brand-new cities is not the type of project that comes with cost creep risk?

Question: Noah Poponak - Goldman Sachs - Analyst : So it's really like a consulting business with a fee.

Question: Noah Poponak - Goldman Sachs - Analyst : And so you essentially have -- is it fair to say you have zero risk associated with the scope and cost creep of the project, if it does happen?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. I'd like to better understand where Saudi, specifically, and I guess total international infrastructure is as a percentage of your infrastructure business now and how large that gets once these Saudi and other projects have fully ramped, if you could talk about that. And then in the U.S., is it your expectation that the new incoming administration on infrastructure is just going to take what already exists in terms of spending packages and just run with that, that infrastructure is fairly bipartisan? Or just is there some turmoil that holds things up while they change administration?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. Great. All right. Maybe turning to balance sheet, cash flow, capital deployment. Matt, talk about -- the balance sheet leverage is not particularly high, given the cash characteristics of the business. I guess where are you comfortable taking that? How do you want to manage that? And what's the free cash to net income conversion rate we should be looking for over time, given the noncash items you have on the P&L?

Question: Noah Poponak - Goldman Sachs - Analyst : Do you think of Parsons as an acquisition compounder platform? Not independent, it's all integrated, but do you think of that as an M&A function that you run with its own team, separate from running the organic federal and infrastructure business and sort of differentiated from how most companies do it?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. We kind of all know of the seven, eight, nine greater than $1 billion in market cap publicly-traded government services companies. Are there just hundreds of $100 million to $200 million enterprise value-sized government services companies out there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:20PM, PSN.N - Parsons Corp at Goldman Sachs Industrials Conference

Question: Noah Poponak - Goldman Sachs - Analyst : What makes you pass on a company?

Question: Noah Poponak - Goldman Sachs - Analyst : If you passed on 100 assets in a year, wouldn't you run out of things to look at pretty quickly?

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. It's fascinating that there's that many companies out there. Maybe just on your last -- on the two deals you just mentioned, just to help everyone better understand, because you -- looking for 10% growth and a 10% EBITDA margin is super interesting, but also you mentioned it having differentiated capability technology. What do those two to bring to you?

Question: Noah Poponak - Goldman Sachs - Analyst : If I had the extremely unique, hard-to-replicate capability that you just described from BlackSignal or I was positioned in a state that was about to receive many billions of dollars of infrastructure funding like you just described for BCC, why would I -- why do they sell to you for 12 times EBITDA?

Question: Noah Poponak - Goldman Sachs - Analyst : So they know their business can do much more inside of Parsons, and they stay on board to...

Question: Noah Poponak - Goldman Sachs - Analyst : Really interesting. Okay. We just have a few minutes left, if anybody in the room here has a question for Carey and Matt. Last chance. Okay. If not, we skipped over environmental remediation and PFAS, generally. Maybe just talk about how big is that today? I understand that's a pretty small piece of the business today, but I'm not sure. And what's the timeline around when larger projects start to come to you in that business? How big could that get over time?

Question: Noah Poponak - Goldman Sachs - Analyst : I guess if it's -- out of $40 billion, I guess I'm a little surprised that's not a larger revenue stream for you at this point.

Question: Noah Poponak - Goldman Sachs - Analyst : So you've done thousands of investigations, but a much smaller amount of actual remediations.

Question: Noah Poponak - Goldman Sachs - Analyst : Okay. All right. We have 25 seconds left, so we'll cut it there. This was great. Thank you so much for being with us today.