Parsons Corp Q2 2019 Earnings Call Transcript

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

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : I wanted to ask about first on the free cash flow. How do you think about the moving pieces for working capital and what's expected to come back in the second half?

Question: Sheila Kahyaoglu - Jefferies LLC - Analyst : Got it, thank you for the color. And then you called out missile defense as well as hypersonics in your prepared remarks. The latter has been getting a lot of focus in the press. Can you talk about what you're seeing on the services side? Are there any opportunities yet for hypersonics?

Question: Cai von Rumohr - Cowen and Company - Analyst : Yes, thanks so much and nice operating results. So, to go back to cash flow, of the four customers who were light, how much was the shortfall in total?

Question: Cai von Rumohr - Cowen and Company - Analyst : Got it. And I believe -- I mean, you said that you expect free cash flow to exceed underlying earnings. I believe your prior target was about $245 million in free cash flow for the year. Is that achievable because that looks like it would require a pretty aggressive hockey stick in the second half?

Question: Cai von Rumohr - Cowen and Company - Analyst : Got it. And then in terms of DSOs -- and this is the last one -- you were 65 days. Do you feel you can get that number down by year-end?

Question: Matt Sharpe - Morgan Stanley - Analyst : Good morning and nice quarter. I was just curious, so in your prepared remarks you mentioned some investments in space facilities and other infrastructure. And just looking at the CapEx trend over the last few quarters, it steadily risen as a percentage of revenue here. You guys have traditionally trended below 1%, but I think for the quarter you are up to 1.5%. Given the pivot of the portfolio to more solutions or somewhat product oriented offerings, how should we think about the profile going forward here? Is it going to continue to gravitate upward or should it normalize back down towards the 1% or so level?

Question: Matt Sharpe - Morgan Stanley - Analyst : Great and then just turning to M&A for a moment, given the QRC acquisition, could you just provide a little bit of color in terms of the pipeline, what you see from here? Is there a pause in integration period? Or should we more think about it as steady as she goes and you guys will continue to be opportunistic in that sense?

Question: Tobey Sommer - SunTrust - Analyst : I was wondering if you could describe the Company's qualified pipeline and other forward indicators and contract activity that you're tracking and how it distributes between the two businesses, where the pockets of the greatest strength are and where the opportunities could use some improvement. Thanks.

Question: Tobey Sommer - SunTrust - Analyst : From a culture and employee morale standpoint, how would you describe the last handful of months during and since the IPO process? And if you could include a comment on the retention of your employees in recent acquisitions? Thanks.

Question: Tobey Sommer - SunTrust - Analyst : Thanks. I wanted you to elaborate on one of the other previous questions with respect to acquisition targets and how you mentioned that in many cases these are partners of yours on contracts that you then end up acquiring. On average historically how long have you had your acquisition target that is working partners prior to deals?

Question: Tobey Sommer - SunTrust - Analyst : And if I could sneak one last one in -- does the decline in interest rates at all change your -- the way you think about leverage, your appetite for acquisitions? Thank you.

Question: Gavin Parsons - Goldman Sachs - Analyst : I wanted to get a -- how you think of the math of book to bill translating to revenue growth specifically in Federal Solutions? Just with the 1.2 times the last 12 months, it was 1.2 times for 2018, 1.2 times for 2017. So, following that 1.2 in 2017, I think you grew somewhere in the vicinity of 10% organic in 2018. You're tracking up out of the mid-single-digits so far this year. So, how does that 1.2 over a long period of time translate into revenue growth going forward?

Question: Gavin Parsons - Goldman Sachs - Analyst : Got it. And then on Federal Solutions' margins, up only a little bit year to date despite the inclusion of Polaris Alpha and OG. I know you mentioned more allocation of corporate overhead to the segment, but maybe if you can talk about some of the moving pieces there that would be great.

Question: Gavin Parsons - Goldman Sachs - Analyst : Great, then one last one if I could. You mentioned you're pursuing larger contracts there. I imagine that's both a function of customer footprint and past performance, so (inaudible) added acquisitions. But is there also a benefit of scale where now you're able to leverage across the business or the customer sees you as a bigger entity and thus able to work on bigger contracts?

Question: Gavin Parsons - Goldman Sachs - Analyst : Great, thanks.

Question: Justin Donati - Wells Fargo - Analyst : This is Justin Donati on for Ed. Thanks for taking my questions. The first one I had, just given QRC's 30% plus EBITDA margins, can you talk about the step-up in margin in both the Federal segment and the overall business that that provides?

Question: Justin Donati - Wells Fargo - Analyst : Okay, thanks for the color there. And then kind of my follow-up question, I know you're not providing guidance at this time, but could you talk about any headwinds or tailwinds to revenue in 2020 relative to 2019? Have there been any large re-compete contracts that you may have lost or have been in some significant takeaways that you've won this year? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. AUGUST 13, 2019 / 12:00PM, PSN.N - Q2 2019 Parsons Corp Earnings Call

Question: Justin Donati - Wells Fargo - Analyst : All right, thank you for the color. I appreciate it.