UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 20192020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
Commission File Number: 001-07782
Parsons Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware | 95-3232481 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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5875 Trinity Parkway #300 Centreville, Virginia | 20120 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (703) 988-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $1 par value | PSN | New York Stock Exchange |
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. Yes ☐☒ No ☒☐
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). Yes ☒ No ☐
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.
Large accelerated filer |
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| Accelerated filer | ☐ |
Non-accelerated filer |
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| Smaller reporting company | ☐ |
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 ☒
Securities registered pursuant to Section 12(b) of the Act:
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As of August 1, 2019,July 27, 2020, the registrant had 99,434,877100,724,683 shares of common stock, $1.00 par value per share, outstanding.
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PART I. |
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Item 1. |
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| 4 | |
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| 5 | |
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| 7 | |
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—FINANCIALFINANCIAL INFORMATION
PARSONS CORPORATION AND SUBSIDIARIES
(in thousands, except share information)
(Unaudited)
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| December 31, 2018 |
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| June 30, 2019 |
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| June 30, 2020 |
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| December 31, 2019 |
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Assets | Assets |
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| Assets |
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Current assets: | Current assets: |
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| Current assets: |
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| Cash and cash equivalents (including $73,794 and $40,866 Cash of consolidated joint ventures) |
| $ | 280,221 |
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| $ | 202,854 |
| Cash and cash equivalents (including $31,221 and $51,171 Cash of consolidated joint ventures) |
| $ | 129,579 |
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| $ | 182,688 |
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| Restricted cash and investments |
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| 974 |
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| 8,529 |
| Restricted cash and investments |
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| 7,041 |
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| 12,686 |
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| Accounts receivable, net (including $180,325 and $211,091 Accounts receivable of consolidated joint ventures, net) |
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| 623,286 |
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| 734,389 |
| Accounts receivable, net (including $257,967 and $166,355 Accounts receivable of consolidated joint ventures, net) |
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| 717,358 |
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| 671,492 |
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| Contract assets (including $21,270 and $25,779 Contract assets of consolidated joint ventures) |
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| 515,319 |
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| 576,280 |
| Contract assets (including $27,010 and $26,458 Contract assets of consolidated joint ventures) |
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| 645,556 |
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| 575,089 |
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| Prepaid expenses and other current assets (including $11,837 and $13,165 Prepaid expenses and other current assets of consolidated joint ventures) |
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| 69,007 |
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| 73,910 |
| Prepaid expenses and other current assets (including $8,524 and $11,182 Prepaid expenses and other current assets of consolidated joint ventures) |
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| 89,662 |
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| 84,454 |
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| Total current assets |
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| 1,488,807 |
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| 1,595,962 |
| Total current assets |
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| 1,589,196 |
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| 1,526,409 |
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| Property and equipment, net (including $2,561 and $2,998 Property and equipment of consolidated joint ventures, net) |
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| 91,849 |
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| 100,934 |
| Property and equipment, net (including $2,672 and $2,945 Property and equipment of consolidated joint ventures, net) |
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| 124,764 |
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| 122,751 |
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| Right of use assets, operating leases |
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| - |
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| 212,386 |
| Right of use assets, operating leases |
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| 225,054 |
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| 233,415 |
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| Goodwill |
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| 736,938 |
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| 922,403 |
| Goodwill |
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| 1,045,344 |
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| 1,047,425 |
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| Investments in and advances to unconsolidated joint ventures |
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| 63,560 |
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| 73,481 |
| Investments in and advances to unconsolidated joint ventures |
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| 64,905 |
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| 68,620 |
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| Intangible assets, net |
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| 179,519 |
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| 229,639 |
| Intangible assets, net |
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| 214,936 |
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| 259,858 |
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| Deferred tax assets |
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| 5,680 |
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| 70,152 |
| Deferred tax assets |
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| 129,737 |
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| 130,401 |
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| Other noncurrent assets |
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| 46,225 |
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| 50,495 |
| Other noncurrent assets |
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| 57,246 |
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| 61,489 |
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| Total assets |
| $ | 2,612,578 |
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| $ | 3,255,452 |
| Total assets |
| $ | 3,451,182 |
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| $ | 3,450,368 |
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Liabilities and Shareholders' Equity (Deficit) | Liabilities and Shareholders' Equity (Deficit) |
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| Liabilities and Shareholders' Equity (Deficit) |
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Current liabilities: | Current liabilities: |
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| Current liabilities: |
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| Accounts payable (including $87,914 and $103,938 Accounts payable of consolidated joint ventures) |
| $ | 226,345 |
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| $ | 227,672 |
| Accounts payable (including $91,969 and $85,869 Accounts payable of consolidated joint ventures) |
| $ | 209,858 |
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| $ | 216,613 |
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| Accrued expenses and other current liabilities (including $73,209 and $65,210 Accrued expenses and other current liabilities of consolidated joint ventures) |
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| 559,700 |
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| 602,425 |
| Accrued expenses and other current liabilities (including $112,014 and $74,857 Accrued expenses and other current liabilities of consolidated joint ventures) |
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| 642,357 |
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| 639,863 |
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| Contract liabilities (including $38,706 and $48,507 Contract liabilities of consolidated joint ventures) |
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| 208,576 |
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| 222,167 |
| Contract liabilities (including $41,945 and $32,638 Contract liabilities of consolidated joint ventures) |
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| 219,037 |
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| 230,681 |
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| Short-term lease liabilities, operating leases |
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| - |
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| 51,696 |
| Short-term lease liabilities, operating leases |
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| 47,648 |
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| 49,994 |
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| Income taxes payable |
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| 11,540 |
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| 5,816 |
| Income taxes payable |
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| 12,053 |
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| 7,231 |
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| Total current liabilities |
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| 1,006,161 |
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| 1,109,776 |
| Total current liabilities |
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| 1,130,953 |
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| 1,144,382 |
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| Long-term employee incentives |
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| 41,913 |
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| 54,825 |
| Long-term employee incentives |
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| 22,122 |
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| 56,928 |
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| Deferred gain resulting from sale-leaseback transactions |
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| 46,004 |
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| - |
| Long-term debt |
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| 249,448 |
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| 249,353 |
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| Long-term debt |
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| 429,164 |
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| 249,258 |
| Long-term lease liabilities, operating leases |
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| 201,472 |
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| 203,624 |
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| Long-term lease liabilities, operating leases |
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| - |
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| 178,589 |
| Deferred tax liabilities |
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| 9,117 |
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| 9,621 |
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| Deferred tax liabilities |
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| 6,240 |
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| 6,190 |
| Other long-term liabilities |
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| 131,818 |
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| 125,704 |
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| Other long-term liabilities |
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| 127,863 |
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| 118,851 |
| Total liabilities |
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| 1,744,930 |
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| 1,789,612 |
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| Total liabilities |
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| 1,657,345 |
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| 1,717,489 |
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Commitments and contingencies (Note 14) |
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| Redeemable common stock held by Employee Stock Ownership Plan (ESOP), $1 par value; 78,172,809 and 78,138,602 shares outstanding, recorded at redemption value |
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| 1,876,309 |
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| 2,880,189 |
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Contingencies (Note 12) | Contingencies (Note 12) |
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Shareholders' equity (deficit): | Shareholders' equity (deficit): |
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| Shareholders' equity (deficit): |
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| Common stock, $1 par value; authorized 1,000,000,000 shares; 125,097,684 and 146,393,959 shares issued; 0 and 21,296,275 shares outstanding |
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| - |
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| 21,296 |
| Common stock, $1 par value; authorized 1,000,000,000 shares; 146,495,690 and 146,440,701 shares issued; 23,929,462 and 21,772,888 public shares outstanding; 76,795,221 and 78,896,806 ESOP shares outstanding |
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| 146,496 |
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| 146,441 |
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| Treasury stock, 46,918,140 and 46,959,082 shares at cost |
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| (957,025 | ) |
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| (957,844 | ) | Treasury stock, 45,771,008 shares at cost |
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| (934,240 | ) |
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| (934,240 | ) |
| Retained earnings (accumulated deficit) |
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| 12,445 |
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| (424,886 | ) | Additional paid-in capital |
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| 2,658,036 |
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| 2,649,975 |
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| Accumulated other comprehensive loss |
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| (22,957 | ) |
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| (18,144 | ) | Accumulated deficit |
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| (182,753 | ) |
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| (218,025 | ) |
| Total Parsons Corporation shareholders' equity (deficit) |
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| (967,537 | ) |
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| (1,379,578 | ) | Accumulated other comprehensive loss |
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| (19,991 | ) |
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| (14,261 | ) |
| Noncontrolling interests |
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| 46,461 |
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| 37,352 |
| Total Parsons Corporation shareholders' equity |
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| 1,667,548 |
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| 1,629,890 |
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| Total shareholders' equity (deficit) |
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| (921,076 | ) |
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| (1,342,226 | ) | Noncontrolling interests |
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| 38,704 |
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| 30,866 |
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| Total liabilities, redeemable common stock and shareholders' equity (deficit) |
| $ | 2,612,578 |
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| $ | 3,255,452 |
| Total shareholders' equity |
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| 1,706,252 |
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| 1,660,756 |
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| Total liabilities, redeemable common stock and shareholders' equity |
| $ | 3,451,182 |
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| $ | 3,450,368 |
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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
(In thousands, except per share information)
(Unaudited)
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| For the Three Months Ended |
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| For the Six Months Ended |
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| For the Three Months Ended |
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| For the Six Months Ended |
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| June 29, 2018 |
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| June 30, 2019 |
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| June 29, 2018 |
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| June 30, 2019 |
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| June 30, 2020 |
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| June 30, 2019 |
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| June 30, 2020 |
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| June 30, 2019 |
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Revenues |
| $ | 900,732 |
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| $ | 989,742 |
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| $ | 1,655,411 |
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| $ | 1,894,147 |
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Direct costs of contracts |
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| 668,211 |
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| 784,723 |
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| 1,271,183 |
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| 1,498,960 |
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Revenue |
| $ | 979,459 |
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| $ | 989,742 |
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| $ | 1,950,452 |
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| $ | 1,894,147 |
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Direct cost of contracts |
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| 749,324 |
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| 784,723 |
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| 1,518,956 |
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| 1,498,960 |
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Equity in earnings of unconsolidated joint ventures |
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| 1,839 |
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| 11,634 |
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| 12,870 |
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| 22,031 |
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| 3,769 |
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| 11,634 |
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| 9,883 |
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| 22,031 |
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Indirect, general and administrative expenses |
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| 147,448 |
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| 225,359 |
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| 271,295 |
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| 402,878 |
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| 187,640 |
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| 225,359 |
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| 371,414 |
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| 402,878 |
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Operating income (loss) |
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| 86,912 |
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| (8,706 | ) |
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| 125,803 |
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| 14,340 |
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| 46,264 |
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| (8,706 | ) |
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| 69,965 |
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| 14,340 |
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Interest income |
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| 1,266 |
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|
| 225 |
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|
| 2,007 |
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|
| 702 |
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|
| 196 |
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|
| 225 |
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|
| 424 |
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|
| 702 |
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Interest expense |
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| (4,536 | ) |
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| (6,376 | ) |
|
| (8,535 | ) |
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| (14,668 | ) |
|
| (4,159 | ) |
|
| (6,376 | ) |
|
| (8,181 | ) |
|
| (14,668 | ) | |
Other income (expense), net |
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| (1,493 | ) |
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| 1,506 |
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| (341 | ) |
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| 1,547 |
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|
| 715 |
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| 1,506 |
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|
| 263 |
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|
| 1,547 |
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Gain associated with claim on long-term contract |
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| 76,908 |
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| - |
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| 74,578 |
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| - |
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Total other income (expense) |
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| 72,145 |
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| (4,645 | ) |
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| 67,709 |
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| (12,419 | ) | |||||||||||||||||
Income (loss) before income tax provision |
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| 159,057 |
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| (13,351 | ) |
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| 193,512 |
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|
| 1,921 |
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Income tax benefit (provision) |
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| (9,019 | ) |
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| 53,496 |
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| (14,372 | ) |
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| 51,610 |
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Total other expense |
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| (3,248 | ) |
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| (4,645 | ) |
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| (7,494 | ) |
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| (12,419 | ) | |||||||||||||||||
Income (loss) before income tax expense |
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| 43,016 |
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| (13,351 | ) |
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| 62,471 |
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| 1,921 |
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Income tax (expense) benefit |
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| (11,891 | ) |
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| 53,496 |
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| (16,975 | ) |
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| 51,610 |
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Net income including noncontrolling interests |
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| 150,038 |
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| 40,145 |
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| 179,140 |
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| 53,531 |
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| 31,125 |
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| 40,145 |
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| 45,496 |
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|
| 53,531 |
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Net (income) loss attributable to noncontrolling interests |
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| (1,657 | ) |
|
| 114 |
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| (5,472 | ) |
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| (3,531 | ) |
|
| (7,826 | ) |
|
| 114 |
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|
| (9,224 | ) |
|
| (3,531 | ) | |
Net income attributable to Parsons Corporation |
| $ | 148,381 |
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| $ | 40,259 |
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| $ | 173,668 |
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| $ | 50,000 |
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| $ | 23,299 |
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| $ | 40,259 |
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| $ | 36,272 |
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| $ | 50,000 |
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Earnings per share: |
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Basic and diluted |
| $ | 1.83 |
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| $ | 0.44 |
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| $ | 2.13 |
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| $ | 0.59 |
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Basic |
| $ | 0.23 |
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| $ | 0.44 |
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| $ | 0.36 |
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| $ | 0.59 |
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Diluted |
| $ | 0.23 |
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| $ | 0.44 |
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| $ | 0.36 |
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| $ | 0.59 |
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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
(In thousands)
(Unaudited)
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| For the Three Months Ended |
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| For the Six Months Ended |
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| For the Three Months Ended |
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| For the Six Months Ended |
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| June 29, 2018 |
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| June 30, 2019 |
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| June 29, 2018 |
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| June 30, 2019 |
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| June 30, 2020 |
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| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
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Net income including noncontrolling interests |
| $ | 150,038 |
|
| $ | 40,145 |
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| $ | 179,140 |
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| $ | 53,531 |
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| $ | 31,125 |
|
| $ | 40,145 |
|
| $ | 45,496 |
|
| $ | 53,531 |
|
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
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|
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Other comprehensive income (loss), net of tax |
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|
|
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|
|
|
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|
|
|
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Foreign currency translation adjustment, net of tax |
|
| (2,598 | ) |
|
| 2,240 |
|
|
| (5,382 | ) |
|
| 4,787 |
|
|
| 3,104 |
|
|
| 2,240 |
|
|
| (5,696 | ) |
|
| 4,787 |
|
Pension adjustments, net of tax |
|
| (18 | ) |
|
| 17 |
|
|
| (37 | ) |
|
| 26 |
|
|
| 23 |
|
|
| 17 |
|
|
| (38 | ) |
|
| 26 |
|
Comprehensive income including noncontrolling interests, net of tax |
|
| 147,422 |
|
|
| 42,402 |
|
|
| 173,721 |
|
|
| 58,344 |
|
|
| 34,252 |
|
|
| 42,402 |
|
|
| 39,762 |
|
|
| 58,344 |
|
Comprehensive (income) loss attributable to noncontrolling interests, net of tax |
|
| (1,657 | ) |
|
| 114 |
|
|
| (5,472 | ) |
|
| (3,531 | ) |
|
| (7,830 | ) |
|
| 114 |
|
|
| (9,220 | ) |
|
| (3,531 | ) |
Comprehensive income attributable to Parsons Corporation, net of tax |
| $ | 145,765 |
|
| $ | 42,516 |
|
| $ | 168,249 |
|
| $ | 54,813 |
|
| $ | 26,422 |
|
| $ | 42,516 |
|
| $ | 30,542 |
|
| $ | 54,813 |
|
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)
|
|
| For the Six Months Ended |
|
|
| For the Six Months Ended |
| ||||||||||
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Cash flows from operating activities: | Cash flows from operating activities: |
|
|
|
|
|
|
|
| Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| Net income including noncontrolling interests |
| $ | 179,140 |
|
| $ | 53,531 |
| |||||||||
| Adjustments to reconcile net income to net cash used in operating activities |
|
|
|
|
|
|
|
| |||||||||
| Depreciation and amortization |
|
| 23,057 |
|
|
| 61,665 |
| |||||||||
| Amortization of deferred gain |
|
| (3,642 | ) |
|
| - |
| Net income including noncontrolling interests |
| $ | 45,496 |
|
| $ | 53,531 |
|
| Amortization of debt issue costs |
|
| 300 |
|
|
| 629 |
| Adjustments to reconcile net income to net cash used in operating activities |
|
|
|
|
|
|
|
|
| Gain associated with claim on long-term contract |
|
| (129,674 | ) |
|
| - |
| Depreciation and amortization |
|
| 64,490 |
|
|
| 61,665 |
|
| (Gain) loss on disposal of property and equipment |
|
| 53 |
|
|
| (24 | ) | Amortization of debt issue costs |
|
| 369 |
|
|
| 629 |
|
| Provision for doubtful accounts |
|
| 6,464 |
|
|
| (866 | ) | Gain on disposal of property and equipment |
|
| (43 | ) |
|
| (24 | ) |
| Deferred taxes |
|
| 584 |
|
|
| (64,924 | ) | Provision for doubtful accounts |
|
| 38 |
|
|
| (866 | ) |
| Foreign currency transaction gains and losses |
|
| 1,633 |
|
|
| (352 | ) | Deferred taxes |
|
| 325 |
|
|
| (64,924 | ) |
| Equity in earnings of unconsolidated joint ventures |
|
| (12,870 | ) |
|
| (22,031 | ) | Foreign currency transaction gains and losses |
|
| 1,185 |
|
|
| (352 | ) |
| Return on investments in unconsolidated joint ventures |
|
| 12,726 |
|
|
| 15,023 |
| Equity in earnings of unconsolidated joint ventures |
|
| (9,883 | ) |
|
| (22,031 | ) |
| Contributions of treasury stock |
|
| 22,713 |
|
|
| 24,529 |
| Return on investments in unconsolidated joint ventures |
|
| 15,893 |
|
|
| 15,023 |
|
| Changes in assets and liabilities, net of acquisitions and newly consolidated joint ventures: |
|
|
|
|
|
|
|
| Stock-based compensation |
|
| 6,432 |
|
|
| - |
|
| Accounts receivable |
|
| 418,169 |
|
|
| (97,450 | ) | Contributions of treasury stock |
|
| 29,468 |
|
|
| 24,529 |
|
| Contract assets |
|
| (502,095 | ) |
|
| (50,842 | ) | Changes in assets and liabilities, net of acquisitions and newly consolidated joint ventures: |
|
|
|
|
|
|
|
|
| Prepaid expenses and current assets |
|
| (26,458 | ) |
|
| (4,967 | ) | Accounts receivable |
|
| (49,618 | ) |
|
| (97,450 | ) |
| Accounts payable |
|
| 2,470 |
|
|
| (4,517 | ) | Contract assets |
|
| (70,739 | ) |
|
| (50,842 | ) |
| Accrued expenses and other current liabilities |
|
| (12,592 | ) |
|
| 17,763 |
| Prepaid expenses and current assets |
|
| (999 | ) |
|
| (4,967 | ) |
| Billings in excess of costs |
|
| (151,642 | ) |
|
| - |
| Accounts payable |
|
| (6,228 | ) |
|
| (4,517 | ) |
| Contract liabilities |
|
| 164,727 |
|
|
| 11,464 |
| Accrued expenses and other current liabilities |
|
| (21,983 | ) |
|
| 17,763 |
|
| Provision for contract losses |
|
| (13,992 | ) |
|
| - |
| Contract liabilities |
|
| (11,047 | ) |
|
| 11,464 |
|
| Income taxes |
|
| 2,978 |
|
|
| (7,223 | ) | Income taxes |
|
| 4,048 |
|
|
| (7,223 | ) |
| Other long-term liabilities |
|
| 9,508 |
|
|
| 20,097 |
| Other long-term liabilities |
|
| (28,648 | ) |
|
| 20,097 |
|
| Net cash used in operating activities |
|
| (8,443 | ) |
|
| (48,495 | ) | Net cash used in operating activities |
|
| (31,444 | ) |
|
| (48,495 | ) |
Cash flows from investing activities: | Cash flows from investing activities: |
|
|
|
|
|
|
|
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Capital expenditures |
|
| (10,565 | ) |
|
| (25,953 | ) | Capital expenditures |
|
| (22,938 | ) |
|
| (25,953 | ) |
| Proceeds from sale of property and equipment |
|
| 112 |
|
|
| 1,873 |
| Proceeds from sale of property and equipment |
|
| 943 |
|
|
| 1,873 |
|
| Payments for acquisitions, net of cash acquired |
|
| (481,163 | ) |
|
| (287,482 | ) | Payments for acquisitions, net of cash acquired |
|
| - |
|
|
| (287,482 | ) |
| Investments in unconsolidated joint ventures |
|
| (4,211 | ) |
|
| (5,049 | ) | Investments in unconsolidated joint ventures |
|
| (3,844 | ) |
|
| (5,049 | ) |
| Return of investments in unconsolidated joint ventures |
|
| - |
|
|
| 4,403 |
| Return of investments in unconsolidated joint ventures |
|
| 17 |
|
|
| 4,403 |
|
| Net cash used in investing activities |
|
| (495,827 | ) |
|
| (312,208 | ) | Net cash used in investing activities |
|
| (25,822 | ) |
|
| (312,208 | ) |
Cash flows from financing activities: | Cash flows from financing activities: |
|
|
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Proceeds from borrowings |
|
| 260,000 |
|
|
| 350,000 |
| Proceeds from borrowings |
|
| 180,600 |
|
|
| 350,000 |
|
| Repayments of borrowings |
|
| - |
|
|
| (530,000 | ) | Repayments of borrowings |
|
| (180,600 | ) |
|
| (530,000 | ) |
| Payments for debt costs and credit agreement |
|
| - |
|
|
| (286 | ) | Payments for debt costs and credit agreement |
|
| - |
|
|
| (286 | ) |
| Contributions by (distributions to) noncontrolling interests, net |
|
| 10,892 |
|
|
| (12,640 | ) | Contributions by noncontrolling interests |
|
| 223 |
|
|
| 8,147 |
|
| Purchase of treasury stock |
|
| (32,996 | ) |
|
| (819 | ) | Distributions to noncontrolling interests |
|
| (1,605 | ) |
|
| (20,787 | ) |
| IPO proceeds, net |
|
| - |
|
|
| 537,331 |
| Purchase of treasury stock |
|
| - |
|
|
| (819 | ) |
| Dividend paid |
|
| - |
|
|
| (52,093 | ) | Taxes paid on vested stock |
|
| (1,149 | ) |
|
| - |
|
| Net cash provided by financing activities |
|
| 237,896 |
|
|
| 291,493 |
| Proceeds from issuance of common stock |
|
| 1,684 |
|
|
| 537,331 |
|
| Effect of exchange rate changes |
|
| (624 | ) |
|
| (602 | ) | Dividend paid |
|
| - |
|
|
| (52,093 | ) |
| Net decrease in cash, cash equivalents, and restricted cash |
|
| (266,998 | ) |
|
| (69,812 | ) | Net cash (used in) provided by financing activities |
|
| (847 | ) |
|
| 291,493 |
|
| Cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
| Effect of exchange rate changes |
|
| (641 | ) |
|
| (602 | ) |
| Beginning of year |
|
| 446,144 |
|
|
| 281,195 |
| Net decrease in cash, cash equivalents, and restricted cash |
|
| (58,754 | ) |
|
| (69,812 | ) |
| End of period |
| $ | 179,146 |
|
| $ | 211,383 |
| Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
| Beginning of year |
|
| 195,374 |
|
|
| 281,195 |
| |||||||||
| End of period |
| $ | 136,620 |
|
| $ | 211,383 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (Deficit)
For the Three Months Ended June 30, 20192020 and June 29, 201830, 2019
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retained |
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retained |
|
| Accumulated |
|
| Total |
|
|
|
|
|
|
|
|
| |||||
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Earnings |
|
| Other |
|
| Total |
|
|
|
|
|
|
|
|
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Earnings |
|
| Other |
|
| Parsons |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Common |
|
|
| Common |
|
| Treasury |
|
| Paid-in |
|
| (Accumulated |
|
| Comprehensive |
|
| Parsons |
|
| Noncontrolling |
|
|
|
|
|
| Common |
|
|
| Common |
|
| Treasury |
|
| Paid-in |
|
| (Accumulated |
|
| Comprehensive |
|
| Equity |
|
| Noncontrolling |
|
|
|
|
| ||||||||||||||||
|
| Stock |
|
|
| Stock |
|
| Stock |
|
| Capital |
|
| Deficit) |
|
| Income (Loss) |
|
| Deficit |
|
| Interests |
|
| Total |
|
| Stock |
|
|
| Stock |
|
| Stock |
|
| Capital |
|
| Deficit) |
|
| Income (Loss) |
|
| (Deficit) |
|
| Interests |
|
| Total |
| ||||||||||||||||||
Balance at March 31, 2020 |
| $ | - |
|
|
| $ | 146,441 |
|
| $ | (934,240 | ) |
| $ | 2,652,227 |
|
| $ | (206,052 | ) |
| $ | (23,114 | ) |
| $ | 1,635,262 |
|
| $ | 32,117 |
|
| $ | 1,667,379 |
| |||||||||||||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,299 |
|
|
| - |
|
|
| 23,299 |
|
|
| 7,826 |
|
|
| 31,125 |
| |||||||||||||||||||||||||||||||||||||
Foreign currency translation gain, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,100 |
|
|
| 3,100 |
|
|
| 4 |
|
|
| 3,104 |
| |||||||||||||||||||||||||||||||||||||
Pension adjustments, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23 |
|
|
| 23 |
|
|
| - |
|
|
| 23 |
| |||||||||||||||||||||||||||||||||||||
Contributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| 2 |
| |||||||||||||||||||||||||||||||||||||
Distributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,245 | ) |
|
| (1,245 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of equity securities, net of retirements |
|
| - |
|
|
|
| 55 |
|
|
| - |
|
|
| 1,629 |
|
|
| - |
|
|
| - |
|
|
| 1,684 |
|
|
| - |
|
|
| 1,684 |
| |||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| 4,180 |
|
|
| - |
|
|
| - |
|
|
| 4,180 |
|
|
| - |
|
|
| 4,180 |
| |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 |
| $ | - |
|
|
| $ | 146,496 |
|
| $ | (934,240 | ) |
| $ | 2,658,036 |
|
| $ | (182,753 | ) |
| $ | (19,991 | ) |
| $ | 1,667,548 |
|
| $ | 38,704 |
|
| $ | 1,706,252 |
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at March 31, 2019 |
| $ | 1,875,332 |
|
|
| $ | - |
|
| $ | (957,838 | ) |
| $ | - |
|
| $ | 75,771 |
|
| $ | (20,401 | ) |
| $ | (902,468 | ) |
| $ | 31,828 |
|
| $ | (870,640 | ) |
| $ | 1,875,332 |
|
|
| $ | - |
|
| $ | (957,838 | ) |
| $ | - |
|
| $ | 75,771 |
|
| $ | (20,401 | ) |
| $ | (902,468 | ) |
| $ | 31,828 |
|
| $ | (870,640 | ) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 40,259 |
|
|
| - |
|
|
| 40,259 |
|
|
| (114 | ) |
|
| 40,145 |
| |||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 40,259 |
|
|
| - |
|
|
| 40,259 |
|
|
| (114 | ) |
|
| 40,145 |
| |||||||||||||||||||||||||||||||||||||
Foreign currency translation gain, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,240 |
|
|
| 2,240 |
|
|
| - |
|
|
| 2,240 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,240 |
|
|
| 2,240 |
|
|
| - |
|
|
| 2,240 |
|
Pension adjustments, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17 |
|
|
| 17 |
|
|
| - |
|
|
| 17 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17 |
|
|
| 17 |
|
|
| - |
|
|
| 17 |
|
Purchase of treasury stock |
|
| (6 | ) |
|
|
| - |
|
|
| (6 | ) |
|
| - |
|
|
| 6 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (6 | ) |
|
|
| - |
|
|
| (6 | ) |
|
| - |
|
|
| 6 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Distributions, net of contributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,638 |
|
|
| 5,638 |
| |||||||||||||||||||||||||||||||||||||
Distributions |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,638 |
|
|
| 5,638 |
| ||||||||||||||||||||||||||||||||||||||
Dividend paid |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
Conversion of S-Corp to C-Corp |
|
| 25,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (25,877 | ) |
|
|
|
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
|
| 25,877 |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
IPO proceeds, net |
|
| - |
|
|
|
| 21,296 |
|
|
| - |
|
|
| 516,034 |
|
|
| - |
|
|
| - |
|
|
| 537,330 |
|
|
| - |
|
|
| 537,330 |
|
|
| - |
|
|
|
| 21,296 |
|
|
| - |
|
|
| 516,034 |
|
|
| - |
|
|
| - |
|
|
| 537,330 |
|
|
| - |
|
|
| 537,330 |
|
Accretion of redeemable common stock |
|
| 978,986 |
|
|
|
| - |
|
|
| - |
|
|
| (516,034 | ) |
|
| (462,952 | ) |
|
| - |
|
|
| (978,986 | ) |
|
| - |
|
|
| (978,986 | ) | |||||||||||||||||||||||||||||||||||||
ESOP shares at redemption value |
|
| 978,986 |
|
|
|
| - |
|
|
| - |
|
|
| (516,034 | ) |
|
| (462,952 | ) |
|
| - |
|
|
| (978,986 | ) |
|
| - |
|
|
| (978,986 | ) | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 |
| $ | 2,880,189 |
|
|
| $ | 21,296 |
|
| $ | (957,844 | ) |
| $ | - |
|
| $ | (424,886 | ) |
| $ | (18,144 | ) |
| $ | (1,379,578 | ) |
| $ | 37,352 |
|
| $ | (1,342,226 | ) |
| $ | 2,880,189 |
|
|
| $ | 21,296 |
|
| $ | (957,844 | ) |
| $ | - |
|
| $ | (424,886 | ) |
| $ | (18,144 | ) |
| $ | (1,379,578 | ) |
| $ | 37,352 |
|
| $ | (1,342,226 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at March 30, 2018 |
| $ | 1,854,938 |
|
|
| $ | - |
|
| $ | (876,738 | ) |
| $ | - |
|
| $ | (165,116 | ) |
| $ | (17,803 | ) |
| $ | (1,059,657 | ) |
| $ | 37,906 |
|
| $ | (1,021,751 | ) | |||||||||||||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 148,381 |
|
|
| - |
|
|
| 148,381 |
|
|
| 1,657 |
|
|
| 150,038 |
| |||||||||||||||||||||||||||||||||||||
Foreign currency translation (loss), net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,576 | ) |
|
| (2,576 | ) |
|
| (22 | ) |
|
| (2,598 | ) | |||||||||||||||||||||||||||||||||||||
Pension adjustments, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (18 | ) |
|
| (18 | ) |
|
| - |
|
|
| (18 | ) | |||||||||||||||||||||||||||||||||||||
Purchase of treasury stock |
|
| (32,629 | ) |
|
|
| - |
|
|
| (32,629 | ) |
|
| - |
|
|
| 32,629 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||||||||||||||||||||||||||||||||||||
Contributions, net of distributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,394 |
|
|
| 4,394 |
| |||||||||||||||||||||||||||||||||||||
Balance at June 29, 2018 |
| $ | 1,822,309 |
|
|
| $ | - |
|
| $ | (909,368 | ) |
| $ | - |
|
| $ | 15,894 |
|
| $ | (20,397 | ) |
| $ | (913,871 | ) |
| $ | 43,935 |
|
| $ | (869,936 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
5
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (Deficit)
For the Six Months Ended June 30, 20192020 and June 29, 201830, 2019
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retained |
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retained |
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Earnings |
|
| Other |
|
| Total |
|
|
|
|
|
|
|
|
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Earnings |
|
| Other |
|
| Total |
|
|
|
|
|
|
|
|
| ||||||||||
|
| Common |
|
|
| Common |
|
| Treasury |
|
| Paid-in |
|
| (Accumulated |
|
| Comprehensive |
|
| Parsons |
|
| Noncontrolling |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
| Stock |
|
|
| Stock |
|
| Stock |
|
| Capital |
|
| Deficit) |
|
| Income (Loss) |
|
| Deficit |
|
| Interests |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 |
| $ | - |
|
|
| $ | 146,441 |
|
| $ | (934,240 | ) |
| $ | 2,649,975 |
|
| $ | (218,025 | ) |
| $ | (14,261 | ) |
| $ | 1,629,890 |
|
| $ | 30,866 |
|
| $ | 1,660,756 |
| |||||||||||||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 36,272 |
|
|
| - |
|
|
| 36,272 |
|
|
| 9,224 |
|
|
| 45,496 |
| |||||||||||||||||||||||||||||||||||||
Foreign currency translation (loss), net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,692 | ) |
|
| (5,692 | ) |
|
| (4 | ) |
|
| (5,696 | ) | |||||||||||||||||||||||||||||||||||||
Pension adjustments, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (38 | ) |
|
| (38 | ) |
|
| - |
|
|
| (38 | ) | |||||||||||||||||||||||||||||||||||||
Adoption of ASU 2016-13 |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,000 | ) |
|
|
|
|
|
| (1,000 | ) |
|
|
|
|
|
| (1,000 | ) | |||||||||||||||||||||||||||||||||||||
Contributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 223 |
|
|
| 223 |
| |||||||||||||||||||||||||||||||||||||
Distributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,605 | ) |
|
| (1,605 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of equity securities, net of retirement |
|
|
|
|
|
|
| 55 |
|
|
|
|
|
|
| 1,629 |
|
|
|
|
|
|
|
|
|
|
| 1,684 |
|
|
|
|
|
|
| 1,684 |
| |||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| 6,432 |
|
|
| - |
|
|
| - |
|
|
| 6,432 |
|
|
| - |
|
|
| 6,432 |
| |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 |
| $ | - |
|
|
| $ | 146,496 |
|
| $ | (934,240 | ) |
| $ | 2,658,036 |
|
| $ | (182,753 | ) |
| $ | (19,991 | ) |
| $ | 1,667,548 |
|
| $ | 38,704 |
|
| $ | 1,706,252 |
| |||||||||||||||||||||||||||||||||||||
|
| Common |
|
|
| Common |
|
| Treasury |
|
| Paid-in |
|
| (Accumulated |
|
| Comprehensive |
|
| Parsons |
|
| Noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Stock |
|
|
| Stock |
|
| Stock |
|
| Capital |
|
| Deficit) |
|
| Income (Loss) |
|
| Deficit |
|
| Interests |
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2018 |
| $ | 1,876,309 |
|
|
| $ | - |
|
| $ | (957,025 | ) |
| $ | - |
|
| $ | 12,445 |
|
| $ | (22,957 | ) |
| $ | (967,537 | ) |
| $ | 46,461 |
|
| $ | (921,076 | ) |
| $ | 1,876,309 |
|
|
| $ | - |
|
| $ | (957,025 | ) |
| $ | - |
|
| $ | 12,445 |
|
| $ | (22,957 | ) |
| $ | (967,537 | ) |
| $ | 46,461 |
|
| $ | (921,076 | ) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 50,000 |
|
|
| - |
|
|
| 50,000 |
|
|
| 3,531 |
|
|
| 53,531 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 50,000 |
|
|
| - |
|
|
| 50,000 |
|
|
| 3,531 |
|
|
| 53,531 |
|
Foreign currency translation gain, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,787 |
|
|
| 4,787 |
|
|
| - |
|
|
| 4,787 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,787 |
|
|
| 4,787 |
|
|
| - |
|
|
| 4,787 |
|
Pension adjustments, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26 |
|
|
| 26 |
|
|
| - |
|
|
| 26 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26 |
|
|
| 26 |
|
|
| - |
|
|
| 26 |
|
ASC 842 transition adjustment |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 52,608 |
|
|
| - |
|
|
| 52,608 |
|
|
| - |
|
|
| 52,608 |
| |||||||||||||||||||||||||||||||||||||
ASC 842 Transition Adjustment |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 52,608 |
|
|
| - |
|
|
| 52,608 |
|
|
| - |
|
|
| 52,608 |
| |||||||||||||||||||||||||||||||||||||
Purchase of treasury stock |
|
| (819 | ) |
|
|
| - |
|
|
| (819 | ) |
|
| - |
|
|
| 819 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (819 | ) |
|
|
| - |
|
|
| (819 | ) |
|
| - |
|
|
| 819 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Distributions, net of contributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (12,640 | ) |
|
| (12,640 | ) | |||||||||||||||||||||||||||||||||||||
Contributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,147 |
|
|
| 8,147 |
| |||||||||||||||||||||||||||||||||||||
Distributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (20,787 | ) |
|
| (20,787 | ) | |||||||||||||||||||||||||||||||||||||
Dividend paid |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
|
| - |
|
|
| (52,093 | ) |
Conversion of S-Corp to C-Corp |
|
| 25,877 |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
|
| 25,877 |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
|
| - |
|
|
| (25,877 | ) |
IPO proceeds, net |
|
| - |
|
|
|
| 21,296 |
|
|
| - |
|
|
| 516,034 |
|
|
| - |
|
|
| - |
|
|
| 537,330 |
|
|
| - |
|
|
| 537,330 |
|
|
| - |
|
|
|
| 21,296 |
|
|
| - |
|
|
| 516,034 |
|
|
| - |
|
|
| - |
|
|
| 537,330 |
|
|
| - |
|
|
| 537,330 |
|
Accretion of redeemable common stock |
|
| 978,822 |
|
|
|
| - |
|
|
| - |
|
|
| (516,034 | ) |
|
| (462,788 | ) |
|
| - |
|
|
| (978,822 | ) |
|
|
|
|
|
| (978,822 | ) | |||||||||||||||||||||||||||||||||||||
ESOP shares at redemption value |
|
| 978,822 |
|
|
|
| - |
|
|
| - |
|
|
| (516,034 | ) |
|
| (462,788 | ) |
|
| - |
|
|
| (978,822 | ) |
|
| - |
|
|
| (978,822 | ) | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 |
| $ | 2,880,189 |
|
|
| $ | 21,296 |
|
| $ | (957,844 | ) |
| $ | - |
|
| $ | (424,886 | ) |
| $ | (18,144 | ) |
| $ | (1,379,578 | ) |
| $ | 37,352 |
|
| $ | (1,342,226 | ) |
| $ | 2,880,189 |
|
|
| $ | 21,296 |
|
| $ | (957,844 | ) |
| $ | - |
|
| $ | (424,886 | ) |
| $ | (18,144 | ) |
| $ | (1,379,578 | ) |
| $ | 37,352 |
|
| $ | (1,342,226 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance at December 29, 2017 |
| $ | 1,855,305 |
|
|
| $ | - |
|
| $ | (876,372 | ) |
| $ | - |
|
| $ | (186,035 | ) |
| $ | (15,003 | ) |
| $ | (1,077,410 | ) |
| $ | 27,494 |
|
| $ | (1,049,916 | ) | |||||||||||||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 173,668 |
|
|
| - |
|
|
| 173,668 |
|
|
| 5,472 |
|
|
| 179,140 |
| |||||||||||||||||||||||||||||||||||||
Foreign currency translation (loss), net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,357 | ) |
|
| (5,357 | ) |
|
| (25 | ) |
|
| (5,382 | ) | |||||||||||||||||||||||||||||||||||||
Pension adjustments, net |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (37 | ) |
|
| (37 | ) |
|
| - |
|
|
| (37 | ) | |||||||||||||||||||||||||||||||||||||
Adoption of ASC 606 |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,735 | ) |
|
| - |
|
|
| (4,735 | ) |
|
| 103 |
|
|
| (4,632 | ) | |||||||||||||||||||||||||||||||||||||
Purchase of treasury stock |
|
| (32,996 | ) |
|
|
|
|
|
|
| (32,996 | ) |
|
| - |
|
|
| 32,996 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |||||||||||||||||||||||||||||||||||||
Contributions, net of distributions |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,891 |
|
|
| 10,891 |
| |||||||||||||||||||||||||||||||||||||
Balance at June 29, 2018 |
| $ | 1,822,309 |
|
|
| $ | - |
|
| $ | (909,368 | ) |
| $ | - |
|
| $ | 15,894 |
|
| $ | (20,397 | ) |
| $ | (913,871 | ) |
| $ | 43,935 |
|
| $ | (869,936 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Parsons Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
1. | Description of Operations |
Organization
Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) is a leading provider of technology-driven solutions in the defense, intelligence and critical infrastructure markets. We provide sophisticated design, engineeringsoftware and hardware products, technical services and smartintegrated solutions to support our customers’ missions. We have developed significant expertise and agile softwaredifferentiated capabilities in key areas of cybersecurity, intelligence, missile defense, C5ISR, space, geospatial, and connected communities. By combining our talented team of professionals and advanced technology, we help solve complex technical challenges to the United States federal governmentenable a safer, smarter and Critical Infrastructure customers worldwide. The Company performs work in various foreign countries through local subsidiaries, joint ventures and foreign offices maintained to carry out specific projects.more interconnected world.
Initial Public Offering
On May 8, 2019, the Company consummated its initial public offering (“IPO”) whereby the Company sold 18,518,500 shares of common stock for $27.00 per share. The underwriters exercised their share option on May 14, 2019 to purchase an additional 2,777,775 shares at the sharenet price of $25.515 which was the IPO share price of $27.00 less the underwriting discount of $1.485 per share. The net proceeds of the IPO and the underwriters’ share option were approximately $537.3$536.9 million, after deducting underwriting discounts and other fees, and were used to fund an IPO dividend of $52.1 million, repay the outstanding balance of $150.0 million under our Term Loan, and repay outstanding indebtedness under our Revolving Credit Facility.
Stock Dividend
On April 15, 2019, the board of directors of the Company declared a common stock dividend in a ratio of two2 shares of common stock for every one share of common stock presently held by the Company’s stockholder (the “Stock Dividend”). The record date of this common Stock Dividend, which the Company refers to as the Stock Dividend was May 7, 2019, the day immediately prior to the consummation of the Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was May 8, 2019. Purchasers of the Company’s common stock in the Company’s public offering were not entitled to receive any portion of the Stock Dividend.
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 S-1/A filed on April 29,10-K for the year ended December 31, 2019.
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 includesinclude the accounts of our wholly-ownedParsons Corporation and its subsidiaries and affiliates with it controls. Interests in joint ventures ofthat are controlled by the Company, or for which we arethe Company is otherwise deemed to be the primary beneficiary. The equity method of accounting is applied for thebeneficiary, 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 1614 –Investments in and Advances to Joint Ventures" for further discussion). Intercompany accounts and transactions are eliminated in consolidation.
In the first quarter of 2019 the Company adopted Accounting Standards Update (‘ASU”) 2016-02, “Leases” (“Topic 842”), using the modified retrospective method. The new guidance was applied to leases that existed or were entered into on or after January 1. 2019. The Company’s results for the reporting period beginning January 1, 2019 have been presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with previous guidance. See “Note 6 – Leases” for further discussion of the adoption and the impact on the Company’s financial statements.
Accumulated Deficit
The Company's accounting policy is to record dividends and accretion of redeemable stock as a reduction of retained earnings. In the absence of retained earnings, the Company will charge the dividends and/or accretion of redeemable stock to Additional Paid in Capital until depleted and will then charge the remainder to accumulated deficit. As a result of the change in tax status from "S" Corporation to "C" Corporation, the Company reclassified historical retained earnings for the "S" Corporation from retained earnings to Additional Paid in Capital as of the date of conversion. The accumulated deficit in the second quarter of 2019 was primarily the result of the accretion of redeemable common stock to the maximum redemption value thereby depleting Additional Paid in Capital and resulting in an Accumulated Deficit.
Fiscal Periods
In October 2018, our board of directors approved a change in our annual and quarterly fiscal period ends from the last Friday on or before the calendar year or quarterly month-end to the last day of the calendar year or quarterly month-end. Accordingly, the period end for the first and second quarters of fiscal 2018 and fiscal 2019 are March 30, 2018 and June 29, 2018, respectively, and March 31, 2019 and June 30, 2019, respectively. The number of days in the three and six month periods ended June 29, 2018 and June 30, 2019 were 91 and 182, respectively and 91 and 181, respectively.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The Company’s most significant estimates and judgments involve revenue recognition with respect to the determination of the costs to complete contracts and transaction price; determination of self-insurance reserves; valuation of the Company’s fair value of common stock (for periods prior to the IPO); useful lives of property and equipment and intangible assets; calculation of allowance for doubtful accounts; valuation of deferred income tax assets and uncertain tax positions, among others. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and “Note 2 – 2—Summary of Significant Accounting Policies” of NotesPolices” in the notes to Consolidated Financial Statementsour consolidated financial statements included in the Company’s Form S-1/A filed April 29,10-K for the year ended December 31, 2019, for a discussion of the significant estimates and assumptions affecting our consolidated financial statements. Estimates of costs to complete contracts are continually evaluated as work progresses and are revised when necessary. When a change in estimate is determined to have an impact on contract profit, the Company records a positive or negative adjustment to the consolidated statement of income.
Employee Stock Purchase Plan
During the second quarter of fiscal 2020, initial purchases of the Company’s common Stock were made under the Parsons Employee Stock Purchase Program (“ESPP”). Under the ESPP, eligible employees who elect to participate are granted the right to purchase shares of the common stock of Parsons at a discount that is limited to 5% of the per-share market value on the day shares are sold to employees. Purchases of common stock under the ESPP are included in “proceeds from issuance of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows.
In the first quarter of 2019,2020, the Company adopted Topic 842. See “Note 6 – Leases” for further discussionAccounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments.” The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current practice with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The adoption and theof ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
In the first quarter ofDecember 2019, the Company adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” under which the Company did not elect to reclassify the income tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the enactment of comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act. As a result, there was no impact on the Company’s financial position, results of operations or cash flows.
On December 30, 2017, the Company adopted ASC 606, “Revenue from Contracts with Customers”, using the modified retrospective method, which provides for a cumulative effect adjustment to retained earnings beginning in fiscal 2018 for those uncompleted contracts impacted by the adoption of the new standard. The difference between the recognition criteria under ASC 606 and our previous recognition practices under ASC 605-35 was recognized through a cumulative adjustment of $4.7 million that was made to the opening balance of accumulated deficit as of December 30, 2017.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04,No. 2019-12, Income Taxes (Topic 740): Simplifying the TestAccounting for Goodwill Impairment. Income Taxes (“ASU 2017-04 simplifies2019-12”). ASU 2019-12 was issued as a means to reduce the testcomplexity of accounting for goodwill impairment by removingincome taxes for those entities that fall within the second stepscope of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.standard. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2019-12 is effective for interim and annual reporting periodsfiscal years beginning after December 15, 2019 and should be applied prospectively2020, with early adoption permitted. The Company early adopted the newdoes not expect this standard as of the beginning of fiscal 2018 and its adoption did notto have a material impact on theits consolidated financial statements.
4. | Acquisitions |
Polaris Alpha
On May 31, 2018, the Company acquired a 100% ownership interest in Polaris Alpha, a privately owned, advanced technology-focused provider of innovative mission solutions for complex defense, intelligence, and security customers, as well as other U.S. federal government customers, for $489.1 million paid in cash. The Company borrowed $260 million under the credit agreement, as described in “Note 12 – Debt and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company recognized $6.2 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the fiscal year ended December 31, 2018, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. Polaris Alpha enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions. Customers of both companies will benefit from existing, complementary technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile development.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in thousands):
|
| Amount |
| |
Cash and cash equivalents |
| $ | 7,914 |
|
Accounts receivable |
|
| 29,688 |
|
Contract assets |
|
| 35,229 |
|
Prepaid expenses and other current assets |
|
| 9,295 |
|
Property and equipment |
|
| 9,024 |
|
Goodwill |
|
| 243,471 |
|
Intangible assets |
|
| 199,520 |
|
Other noncurrent assets |
|
| 2,203 |
|
Accounts payable |
|
| (13,942 | ) |
Accrued expenses and other current liabilities |
|
| (26,419 | ) |
Contract liabilities |
|
| (3,529 | ) |
Deferred tax liabilities |
|
| (2,231 | ) |
Other long-term liabilities |
|
| (1,146 | ) |
Net assets acquired |
| $ | 489,077 |
|
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
| Gross Carrying Amount |
|
| Amortization Period | |
|
|
|
|
|
| (in years) |
Developed technology |
| $ | 84,900 |
|
| 4 |
Customer relationships |
|
| 76,000 |
|
| 8 |
Backlog |
|
| 34,900 |
|
| 2 |
Trade name |
|
| 3,600 |
|
| 1 |
Leases |
| $ | 120 |
|
| 6 |
Amortization expense of $4.3 million and $14.3 million related to these intangible assets was recorded for the three months ended June 29, 2018 and June 30, 2019, respectively, and $4.3 million and $28.0 million for the six months ended June 29, 2018 and June 30, 2019, respectively. The entire value of goodwill of $243.5 million was assigned to the Parsons Federal reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $50.1 million is deductible for tax purposes.
The amount of revenue generated by Polaris Alpha and included within consolidated revenues is $29.9 million and $102.7 million for the three months ended June 29, 2018 and June 30, 2019, respectively, and $29.9 million and $196.1 million for the six months ended June 29, 2018 and June 30, 2019, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.
Supplemental Pro Forma Information
Supplemental information on an unaudited pro forma operating results assuming the Polaris Alpha acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||
|
| June 29, 2018 |
|
| June 29, 2018 |
| ||
Pro forma revenue |
| $ | 968,220 |
|
| $ | 1,808,707 |
|
Pro forma net income including noncontrolling interests |
| $ | 116,288 |
|
| $ | 126,819 |
|
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, 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 comparative 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.
OGSystems
On January 7, 2019, the Company acquired a 100% ownership interest in OGSystems. A privately ownedOGSystems, a privately-owned company, for $292.4 million paid in cash. OGSystems provides geospatial intelligence, big data analytics and threat mitigation for defense and intelligence customers. The Company borrowed $110 million under the credit agreementCredit Agreement and $150 million on a short-term loan, as described in “Note 12 – 10—Debt and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company recognized $0.8 million and $4.9$5.4 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the three and six monthsyear ended June 30,December 31, 2019, respectively, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. OGSystems enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions. Customers of both companies will benefit from existing, complementary technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile development.
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 |
| $ | 5,772 |
|
Accounts receivable |
|
| 9,904 |
|
Contract assets |
|
| 9,747 |
|
Prepaid expenses and other current assets |
|
| 4,307 |
|
Property and equipment |
|
| 4,085 |
|
Right of use assets, operating leases |
|
| 8,826 |
|
Goodwill |
|
| 183,540 |
|
Intangible assets |
|
| 92,300 |
|
Other noncurrent assets |
|
| 10 |
|
Accounts payable |
|
| (5,450 | ) |
Accrued expenses and other current liabilities |
|
| (7,147 | ) |
Contract liabilities |
|
| (1,300 | ) |
Short-term lease liabilities, operating leases |
|
| (805 | ) |
Income tax payable |
|
| (1,178 | ) |
Deferred tax liabilities |
|
| (1,195 | ) |
Long-term lease liabilities, operating leases |
|
| (8,021 | ) |
Other long-term liabilities |
|
| (1,015 | ) |
Net assets acquired |
| $ | 292,380 |
|
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
| Gross Carrying Amount |
|
| Amortization Period |
| ||
|
|
|
|
|
| (in years) |
| |
Customer relationships |
| $ | 57,100 |
|
|
| 5 |
|
Backlog |
|
| 27,700 |
|
|
| 3 |
|
Trade name |
|
| 3,800 |
|
|
| 2 |
|
Non-compete agreements |
|
| 2,400 |
|
|
| 3 |
|
Developed technologies |
| $ | 1,300 |
|
|
| 3 |
|
Amortization expense of $5.9 million and $5.9 million related to these intangible assets was recorded for the three months ended June 30, 2020 and June 30, 2019, respectively, and $11.9 million and $11.9 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The entire value of goodwill of $183.5 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $16 million is deductible for tax purposes.
The amount of revenue generated by OGSystems and included within consolidated revenues is $37.7 million and $46.1 million for the three months June 30, 2020 and June 30, 2019, respectively, and $70.8 million and $75.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.
Supplemental Pro Forma Information (Unaudited)
Supplemental information of unaudited pro forma operating results assuming the OGSystems acquisition had been consummated as of the beginning of fiscal year 2018 (December 30, 2017) (in thousands) is as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Pro forma revenue |
| $ | 979,459 |
|
| $ | 989,742 |
|
| $ | 1,950,452 |
|
| $ | 1,896,102 |
|
Pro forma net income including noncontrolling interests |
| $ | 32,165 |
|
| $ | 40,976 |
|
| $ | 47,628 |
|
| $ | 58,433 |
|
QRC Technologies
On July 31, 2019 the Company acquired a 100% ownership interest in QRC Technologies (“QRC”), a privately-owned company, for $214.1 million in cash. QRC provides design and development of open-architecture radio-frequency products. The Company borrowed $140.0 million under the Revolving Credit Facility to partially fund the transaction. In connection with this acquisition, the Company recognized $4.9 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the fiscal year ended December 31, 2019, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. QRC is an agile, disruptive product company that specializes in radio frequency spectrum survey, record and playback; signals intelligence; and electronic warfare missions. QRC complements our existing portfolio, increases our presence in the high-growth markets of spectrum awareness and surveillance, and adds critical intellectual property that complements and expands the Company’s available capabilities for the Special Operations and Intelligence Communities.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
|
| Amount |
|
| Amount |
| ||
Cash and cash equivalents |
| $ | 5,772 |
|
| $ | 5,925 |
|
Accounts receivable |
|
| 9,904 |
|
|
| 5,587 |
|
Contract assets |
|
| 9,747 |
| ||||
Prepaid expenses and other current assets |
|
| 4,307 |
|
|
| 5,727 |
|
Property and equipment |
|
| 4,085 |
|
|
| 1,205 |
|
Right of use assets, operating leases |
|
| 8,826 |
|
|
| 5,228 |
|
Goodwill |
|
| 183,540 |
|
|
| 125,091 |
|
Intangible assets |
|
| 92,300 |
|
|
| 76,200 |
|
Other noncurrent assets |
|
| 10 |
| ||||
Accounts payable |
|
| (5,450 | ) |
|
| (1,567 | ) |
Accrued expenses and other current liabilities |
|
| (7,147 | ) |
|
| (4,025 | ) |
Contract liabilities |
|
| (1,300 | ) | ||||
Short-term lease liabilities, operating leases |
|
| (805 | ) |
|
| (545 | ) |
Income tax payable |
|
| (1,469 | ) | ||||
Deferred tax liabilities |
|
| (904 | ) | ||||
Long-term lease liabilities, operating leases |
|
| (8,021 | ) |
|
| (4,683 | ) |
Other long-term liabilities |
|
| (1,015 | ) | ||||
Net assets acquired |
| $ | 292,380 |
|
| $ | 214,143 |
|
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
| Gross Carrying Amount |
|
| Amortization Period |
| Gross Carrying Amount |
|
| Amortization Period | ||
|
|
|
|
|
| (in years) |
|
|
|
|
| (in years) |
Customer relationships |
| $ | 57,100 |
|
| 5 |
| $ | 49,800 |
|
| 12 |
Developed technologies |
|
| 21,800 |
|
| 3 to 5 | ||||||
In-process research and development |
|
| 1,800 |
|
| 3 to 5 | ||||||
Non-compete agreements |
|
| 1,200 |
|
| 4 | ||||||
Trade name |
|
| 800 |
|
| 2 | ||||||
Backlog |
|
| 27,700 |
|
| 3 |
|
| 800 |
|
| 1 |
Trade name |
|
| 3,800 |
|
| 2 | ||||||
Non compete agreements |
|
| 2,400 |
|
| 3 | ||||||
Developed technologies |
| $ | 1,300 |
|
| 3 |
The Company is still in the process of finalizing its valuation of developed technologythe net assets acquired.
Amortization expense of $5.9$3.6 million and $11.9$7.2 million related to these intangible assets was recorded for the three and six months ended June 30, 2019,2020, respectively. The entire value of goodwill of $183.5$125.1 million was assigned to the Parsons Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $16.0 millionin its entirety is deductible for tax purposes.
The amount of revenue generated by OGSystems since the acquisitionQRC and included within consolidated revenues for the three and six months ended June 30, 20192020 is $46.1$8.1 million and $75.1$12.5 million, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.
Supplemental Pro Forma Information
Supplemental information on an unaudited pro forma operating resultsbasis, assuming the OGSystemsQRC Technologies acquisition had been consummated as of the beginning of fiscal year 2018 (December 31,30, 2017) (in thousands) is as follows:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Pro forma revenue |
| $ | 925,561 |
|
| $ | 985,742 |
|
| $ | 1,707,779 |
|
| $ | 1,892,102 |
|
| $ | 979,459 |
|
| $ | 1,001,145 |
|
| $ | 1,950,452 |
|
| $ | 1,912,142 |
|
Pro forma net income including noncontrolling interests |
| $ | 141,943 |
|
| $ | 40,145 |
|
| $ | 157,682 |
|
| $ | 57,603 |
|
| $ | 31,235 |
|
| $ | 40,772 |
|
| $ | 46,971 |
|
| $ | 51,617 |
|
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, 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 comparative 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.
5. | Contracts with Customers |
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 |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Fixed-Price |
| $ | 267,591 |
|
| $ | 304,647 |
|
| $ | 532,999 |
|
| $ | 562,342 |
|
| $ | 311,368 |
|
| $ | 304,647 |
|
| $ | 619,676 |
|
| $ | 562,342 |
|
Time-and-Materials |
|
| 250,379 |
|
|
| 269,364 |
|
|
| 478,120 |
|
|
| 525,070 |
|
|
| 259,381 |
|
|
| 269,364 |
|
|
| 511,820 |
|
|
| 525,070 |
|
Cost-Plus |
|
| 382,762 |
|
|
| 415,731 |
|
|
| 644,292 |
|
|
| 806,735 |
|
|
| 408,710 |
|
|
| 415,731 |
|
|
| 818,956 |
|
|
| 806,735 |
|
Total |
| $ | 900,732 |
|
| $ | 989,742 |
|
| $ | 1,655,411 |
|
| $ | 1,894,147 |
|
| $ | 979,459 |
|
| $ | 989,742 |
|
| $ | 1,950,452 |
|
| $ | 1,894,147 |
|
See “Note 2018 – Segments Information” for the Company’s revenues by business lines.
Contract Assets and Contract Liabilities
Contract assets and contract liabilities balances at June 30, 2020 and December 31, 2018 and June 30, 2019 were as follows (in thousands):
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| $ change |
|
| % change |
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| $ change |
|
| % change |
| ||||||||
Contract assets |
| $ | 515,319 |
|
| $ | 576,280 |
|
| $ | 60,961 |
|
|
| 11.8 | % |
| $ | 645,556 |
|
| $ | 575,089 |
|
| $ | 70,467 |
|
|
| 12.3 | % |
Contract liabilities |
|
| 208,576 |
|
|
| 222,167 |
|
|
| 13,591 |
|
|
| 6.5 | % |
|
| 219,037 |
|
|
| 230,681 |
|
|
| (11,644 | ) |
|
| -5.0 | % |
Net contract assets (liabilities) (1) |
| $ | 306,743 |
|
| $ | 354,113 |
|
| $ | 47,370 |
|
|
| 15.4 | % |
| $ | 426,519 |
|
| $ | 344,408 |
|
| $ | 82,111 |
|
|
| 23.8 | % |
During the three months ended June 29, 201830, 2020 and June 30, 2019, the Company recognized revenue of approximately $73.3$28.4 million and $27.3 million, respectively, and $99.6$122.7 million and $113.0 million during the six months ended June 29, 201830, 2020 and June 30, 2019, respectively that was included in the corresponding contract liability balance at
December 30, 201731, 2019 and December 31, 2018, respectively. TheCertain changes in contract assets and contract liabilities wereconsisted of the result of normal business activity and not significantly impacted by other factors, except as follows:following:
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Acquired contract assets |
| $ | 35,229 |
|
| $ | 9,747 |
|
| $ | - |
|
| $ | 9,747 |
|
Acquired contract liabilities |
|
| 3,529 |
|
|
| 1,300 |
|
|
| - |
|
|
| 1,300 |
|
Reversal of provision for contract losses (1) |
| $ | 133,180 |
|
| $ | - |
| ||||||||
Change in the estimate of variable consideration |
|
| - |
|
|
| 12,166 |
|
|
|
There was no0 significant impairment of contract assets recognized during the three and six months ended June 29, 201830, 2020 and June 30, 2019.
DuringRevisions 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 $5 million or more on revenue resulted in an increase in revenue of $9.0 million for the three months ended June 29, 2018 and June 30, 2019, the Company recognized revenues of $0.8 million and $6.4 million, respectively and for the six months ended June 29, 201830, 2020, and 0 amounts for the three and six months ended June 30, 2019.
Accounts Receivable, net
Accounts receivable, net consisted of the following as of June 30, 2020 and December 31, 2019 $19.6 million and $10.9 million, respectively, related(in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Billed |
| $ | 487,654 |
|
| $ | 475,528 |
|
Unbilled |
|
| 235,245 |
|
|
| 201,461 |
|
Total accounts receivable, gross |
|
| 722,899 |
|
|
| 676,989 |
|
Allowance for doubtful accounts |
|
| (5,541 | ) |
|
| (5,497 | ) |
Total accounts receivable, net |
| $ | 717,358 |
|
| $ | 671,492 |
|
Billed accounts receivable represents amounts billed to unapproved change orders and claims from changes in transaction price associated with performance obligationsclients that were satisfied or partially satisfied. Thesehave not been collected. Unbilled accounts receivable represents amounts represent management’s estimates of additional contract revenues that had been earned and were probable of collection. The amount ultimately realized bywhere the Company cannot currentlyhas a present contractual right to bill but an invoice has not been issued to the customer at the period-end date.
In connection with the adoption of ASU 2016-13, we have modified the historical presentation of gross receivables and the allowance for doubtful accounts to reflect only expected credit losses in the allowance in conformity with the current period presentation.
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. COVID-19 Impacts: We have not seen and do not expect there to be determined but could be significantly highera risk of non-payment from either our government agency or lower than the estimated amount.commercial customers. We have experienced payment delays due to administrative limitations from both types of customers.
Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations
The Company’s remaining unsatisfied performance obligations (“RUPO”) as of June 30, 20192020 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress.in-progress. The Company had $5.4$5.0 billion in RUPO as of June 30, 2019.2020.
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 for the Federal Solutions segment.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 June 30, 20192020 over the following periods (in thousands):
Period RUPO Will Be Satisfied |
| Within One Year |
|
| Within One to Two Years |
|
| Thereafter |
| |||
Federal Solutions |
| $ | 1,130,931 |
|
| $ | 537,654 |
|
| $ | 239,180 |
|
Critical Infrastructure |
|
| 1,773,035 |
|
|
| 936,023 |
|
|
| 757,593 |
|
Total |
| $ | 2,903,966 |
|
| $ | 1,473,677 |
|
| $ | 996,773 |
|
Period RUPO Will Be Satisfied |
| Within One Year |
|
| Within One to Two Years |
|
| Thereafter |
| |||
Federal Solutions |
| $ | 1,298,368 |
|
| $ | 541,804 |
|
| $ | 259,113 |
|
Critical Infrastructure |
|
| 1,539,418 |
|
|
| 629,956 |
|
|
| 743,576 |
|
Total |
| $ | 2,837,786 |
|
| $ | 1,171,760 |
|
| $ | 1,002,689 |
|
6. | Leases |
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, which is a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets obtained in exchange for lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company elected to adopt the standard, and available practical expedients, effective January 1, 2019. These practical expedients allowed the Company to keep the lease classification assessed under the previous lease accounting standard (ASC 840) without reassessment under the new standard, and allowed all separate lease components, including non-lease components, to be accounted for as a single lease component for all existing leases prior to adoption of the new standard. Furthermore, the Company made an accounting policy election to not recognize a lease liability and ROU asset for leases with lease terms of twelve months or less.
The Company adopted this new standard under the modified retrospective transition approach without adjusting comparative periods in the financial statements, as allowed under Topic 842, and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.
The standard had a material impact on the Company’s consolidated balance sheets but did not have an impact on the consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained substantially unchanged.
As a result of the adoption, the Company recorded a cumulative-effect adjustment to retained earnings of $52.6 million net of deferred tax asset adjustment of $0.7 million, representing the unamortized portion of a deferred gain previously recorded as a sale-leaseback transaction associated with the sale of an office building in 2011. The Company concluded the transaction resulted in the transfer of control of the office building to the buyer-lessor at market terms and would have qualified as a sale under Topic 842 with gain recognition in the period the sale was recognized.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and current and long-term operating lease liabilities in the consolidated balance sheets. Finance leases are included in other noncurrent assets, accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
The Company has operating and finance leases for corporate and project office spaces, vehicles, heavy machinery and office equipment. Our leases have remaining lease terms of one year to 1110 years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases up to the seventh year. As of June 30, 2019, assets recorded under finance leases were $1.8 millionand accumulated depreciation associated with finance leases was $0.3 million.
The components of lease costs for the three and six months ended June 30, 2020 and June 30, 2019 are as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
|
| June 30, 2019 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||
Operating lease cost |
| $ | 17,581 |
|
| $ | 35,866 |
|
| $ | 15,755 |
|
| $ | 17,581 |
|
| $ | 33,026 |
|
| $ | 35,866 |
|
Short-term lease cost |
|
| 3,492 |
|
|
| 5,496 |
|
|
| 4,301 |
|
|
| 3,492 |
|
|
| 7,952 |
|
|
| 5,496 |
|
Amortization of right-of-use assets |
|
| 110 |
|
|
| 335 |
|
|
| 251 |
|
|
| 110 |
|
|
| 505 |
|
|
| 335 |
|
Interest on lease liabilities |
|
| 15 |
|
|
| 31 |
|
|
| 22 |
|
|
| 15 |
|
|
| 46 |
|
|
| 31 |
|
Sublease income |
|
| (1,085 | ) |
|
| (2,015 | ) |
|
| (932 | ) |
|
| (1,085 | ) |
|
| (1,812 | ) |
|
| (2,015 | ) |
Total lease cost |
| $ | 20,113 |
|
| $ | 39,713 |
|
| $ | 19,397 |
|
| $ | 20,113 |
|
| $ | 39,717 |
|
| $ | 39,713 |
|
Supplemental cash flow information related to leases for the six months ended June 30, 2020 and June 30, 2019 is as follows (in thousands):
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| |||
Operating cash flows for operating leases |
| $ | 35,012 |
|
| $ | 30,676 |
|
| $ | 35,012 |
|
Operating cash flows for financing activities |
|
| 412 |
|
|
| 46 |
|
|
| 412 |
|
Financing cash flows from finance leases |
|
| 553 |
|
|
| - |
| ||||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
| 254,084 |
|
|
| 17,034 |
|
|
| 254,084 |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
| $ | 1,818 |
|
| $ | - |
|
| $ | 1,818 |
|
Supplemental balance sheet and other information related to leases as of June 30, 2020 and December 31, 2019 isare as follows (in thousands):
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| |||
Operating Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets |
| $ | 212,386 |
|
| $ | 225,054 |
|
| $ | 233,415 |
|
Lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
| $ | 51,696 |
|
| $ | 47,648 |
|
| $ | 49,994 |
|
Long-term |
|
| 178,589 |
|
|
| 201,472 |
|
|
| 203,624 |
|
Total operating lease liabilities |
| $ | 230,285 |
|
| $ | 249,120 |
|
| $ | 253,618 |
|
Finance Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets |
| $ | 1,483 |
|
| $ | 1,876 |
|
| $ | 2,377 |
|
Accrued expenses and other current liabilities |
| $ | 574 |
|
| $ | 1,031 |
|
| $ | 1,075 |
|
Other long-term liabilities |
| $ | 863 |
|
| $ | 695 |
|
| $ | 1,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| 6 years |
|
| 5 years |
|
| 6 years |
| |||
Finance leases |
| 3 years |
|
| 2 years |
|
| 3 years |
| |||
Weighted Average Discount Rate: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.4 | % |
|
| 3.8 | % |
|
| 4.0 | % |
Finance leases |
|
| 4.4 | % |
|
| 4.5 | % |
|
| 4.5 | % |
As of June 30, 2019,2020, the Company has additional operating leases, primarily for office spaces, that have not yet commenced of $23.8$2.2 million. These operating leases will commence in 20192020 with lease terms of 2 years to 11six years.
A maturity analysis of the future undiscounted cash flows associated with the Company’s operating and finance lease liabilities as of June 30, 20192020 is as follows (in thousands):
| Operating Leases |
|
| Finance Leases |
|
| Operating Leases |
|
| Finance Leases |
| |||||
2019 |
| $ | 31,293 |
|
| $ | 317 |
| ||||||||
2020 |
|
| 53,440 |
|
|
| 574 |
| ||||||||
2020 (remaining) |
| $ | 25,732 |
|
| $ | 560 |
| ||||||||
2021 |
|
| 46,274 |
|
|
| 421 |
|
|
| 59,006 |
|
|
| 879 |
|
2022 |
|
| 40,126 |
|
|
| 187 |
|
|
| 53,031 |
|
|
| 334 |
|
2023 |
|
| 33,034 |
|
|
| 26 |
|
|
| 46,075 |
|
|
| 56 |
|
2024 |
|
| 36,213 |
|
|
| - |
| ||||||||
Thereafter |
|
| 55,414 |
|
|
| - |
|
|
| 55,006 |
|
|
| - |
|
Total lease payments |
|
| 259,581 |
|
|
| 1,525 |
|
|
| 275,063 |
|
|
| 1,829 |
|
Less: imputed interest |
|
| (29,296 | ) |
|
| (88 | ) |
|
| (25,943 | ) |
|
| (102 | ) |
Total present value of lease liabilities |
| $ | 230,285 |
|
| $ | 1,437 |
|
| $ | 249,120 |
|
| $ | 1,727 |
|
As of December 31, 2018, $276.7 million of minimum rental commitments on operating leases was payable as follows: $67.9 million in 2019, $51.0 million in 2020, $42.5 million in 2021, $35.9 million in 2022, $29.4 million in 2023, and $50.0 million thereafter. Rental expense for the three and six months ended June 30, 2018 was $19.8 million and $38.0 million, respectively.
7. |
|
Accounts receivable, net consisted of the following as of December 31, 2018 and June 30, 2019 (in thousands):
|
| December 31, 2018 |
|
| June 30, 2019 |
| ||
Billed |
| $ | 538,808 |
|
| $ | 613,234 |
|
Unbilled |
|
| 135,180 |
|
|
| 166,315 |
|
Total accounts receivable, gross |
|
| 673,988 |
|
|
| 779,549 |
|
Allowance for doubtful accounts |
|
| (50,702 | ) |
|
| (45,160 | ) |
Total accounts receivable, net |
| $ | 623,286 |
|
| $ | 734,389 |
|
Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the period-end date. Substantially all unbilled receivables as of June 30, 2019 are expected to be billed and collected within 12 months. Unbilled accounts receivable at December 31, 2018 and June 30, 2019 include approximately $47.1 million and $56.8 million, respectively, related to unapproved change orders, claims, and requests for equitable adjustment. The Company regularly evaluates these amounts and records adjustments to operating income when recoverability is deemed to have changed. For the periods ended December 31, 2018 and June 30, 2019, no material losses were recognized related to the collectability of claims, unapproved change orders, and requests for equitable adjustment.
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.
| Goodwill |
The following table summarizes the changes in the carrying value of goodwill by reporting segment at June 30, 2020 and December 31, 2018 and June 30, 2019 (in thousands):
|
| December 31, 2018 |
|
| Acquisitions |
|
| Foreign Exchange |
|
| June 30, 2019 |
|
| December 31, 2019 |
|
| Foreign Exchange |
|
| June 30, 2020 |
| |||||||
Federal Solutions |
| $ | 666,841 |
|
| $ | 183,473 |
|
| $ | - |
|
| $ | 850,314 |
|
| $ | 975,405 |
|
| $ | - |
|
| $ | 975,405 |
|
Critical Infrastructure |
|
| 70,097 |
|
|
| - |
|
|
| 1,992 |
|
|
| 72,089 |
|
|
| 72,020 |
|
|
| (2,081 | ) |
|
| 69,939 |
|
Total |
| $ | 736,938 |
|
| $ | 183,473 |
|
| $ | 1,992 |
|
| $ | 922,403 |
|
| $ | 1,047,425 |
|
| $ | (2,081 | ) |
| $ | 1,045,344 |
|
The ultimate impact from the COVID-19 pandemic is difficult to predict. While many uncertainties exist, we currently anticipate no material change in our financial condition or results of operations. Although the Company does not anticipate a material change to our financial condition or results of operations, the Company performed a qualitative triggering analysis and determined there was no triggering event indicating a potential impairment to the carrying value of its goodwill at June 30, 2020 and concluded there has 0t been an impairment.
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):
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| Weighted Average |
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| Weighted Average |
| ||||||||||||||||||||||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Amortization Period (in years) |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Amortization Period (in years) |
| ||||||||||||||
Backlog |
| $ | 80,754 |
|
| $ | (58,295 | ) |
| $ | 22,459 |
|
| $ | 108,455 |
|
| $ | (72,930 | ) |
| $ | 35,525 |
|
|
| 3 |
|
| $ | 109,255 |
|
| $ | (95,338 | ) |
| $ | 13,917 |
|
| $ | 109,255 |
|
| $ | (87,510 | ) |
| $ | 21,745 |
|
|
| 3 |
|
Customer relationships |
|
| 121,629 |
|
|
| (38,974 | ) |
|
| 82,655 |
|
|
| 178,729 |
|
|
| (52,651 | ) |
|
| 126,078 |
|
|
| 7 |
|
|
| 228,529 |
|
|
| (89,079 | ) |
|
| 139,450 |
|
|
| 228,529 |
|
|
| (67,809 | ) |
|
| 160,720 |
|
|
| 7 |
|
Leases |
|
| 670 |
|
|
| (561 | ) |
|
| 109 |
|
|
| 670 |
|
|
| (571 | ) |
|
| 99 |
|
|
| 5 |
|
|
| 670 |
|
|
| (590 | ) |
|
| 80 |
|
|
| 670 |
|
|
| (580 | ) |
|
| 90 |
|
|
| 5 |
|
Developed technology |
|
| 87,839 |
|
|
| (15,174 | ) |
|
| 72,665 |
|
|
| 89,139 |
|
|
| (26,169 | ) |
|
| 62,970 |
|
|
| 4 |
|
|
| 110,939 |
|
|
| (54,850 | ) |
|
| 56,089 |
|
|
| 110,939 |
|
|
| (40,749 | ) |
|
| 70,190 |
|
|
| 4 |
|
Trade name |
|
| 3,600 |
|
|
| (2,100 | ) |
|
| 1,500 |
|
|
| 7,400 |
|
|
| (4,550 | ) |
|
| 2,850 |
|
|
| 1 |
|
|
| 8,200 |
|
|
| (6,817 | ) |
|
| 1,383 |
|
|
| 8,200 |
|
|
| (5,667 | ) |
|
| 2,533 |
|
|
| 1 |
|
Non compete agreements |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,400 |
|
|
| (400 | ) |
|
| 2,000 |
|
|
| 2 |
| ||||||||||||||||||||||||||||
Non-compete agreements |
|
| 3,600 |
|
|
| (1,475 | ) |
|
| 2,125 |
|
|
| 3,600 |
|
|
| (925 | ) |
|
| 2,675 |
|
|
| 3 |
| ||||||||||||||||||||||||||||
In process research and development |
|
| 1,800 |
|
|
| - |
|
|
| 1,800 |
|
|
| 1,800 |
|
|
| - |
|
|
| 1,800 |
|
| n/a |
| |||||||||||||||||||||||||||||
Other intangibles |
|
| 275 |
|
|
| (145 | ) |
|
| 130 |
|
|
| 275 |
|
|
| (158 | ) |
|
| 117 |
|
|
| 10 |
|
|
| 275 |
|
|
| (183 | ) |
|
| 92 |
|
|
| 275 |
|
|
| (170 | ) |
|
| 105 |
|
|
| 10 |
|
Total intangible assets |
| $ | 294,767 |
|
| $ | (115,249 | ) |
| $ | 179,518 |
|
| $ | 387,068 |
|
| $ | (157,429 | ) |
| $ | 229,639 |
|
|
|
|
|
| $ | 463,268 |
|
| $ | (248,332 | ) |
| $ | 214,936 |
|
| $ | 463,268 |
|
| $ | (203,410 | ) |
| $ | 259,858 |
|
|
|
|
|
The aggregate amortization expense of intangible assets for the three months ended June 29, 201830, 2020 and June 30, 2019 was $6.1$22.1 million and 21.4$21.4 million, respectively and for the six months ended June 30, 20182020 and June 30, 2019 was $7.9$44.8 million and 42.3$42.3 million, respectively.
Estimated amortization expense for the remainder of the current fiscal year and in each of the next fivefour years and beyond is as follows (in thousands):
|
| June 30, 2019 |
|
| June 30, 2020 |
| ||
2019 (remaining) |
| $ | 40,295 |
| ||||
2020 |
|
| 72,568 |
| ||||
2020 (remaining) |
| $ | 41,696 |
| ||||
2021 |
|
| 68,411 |
|
|
| 81,552 |
|
2022 |
|
| 26,031 |
|
|
| 36,095 |
|
2023 |
|
| 15,977 |
|
|
| 23,549 |
|
2024 |
|
| 9,098 |
| ||||
Thereafter |
|
| 6,357 |
|
|
| 21,146 |
|
Total |
| $ | 229,639 |
|
| $ | 213,136 |
|
| Property and Equipment, Net |
Property and equipment consisted of the following at June 30, 2020 and December 31, 2018 and June 30, 2019 (in thousands):
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| Useful lives (years) |
| June 30, 2020 |
|
| December 31, 2019 |
|
| Useful lives (years) | ||||
Buildings and leasehold improvements |
| $ | 54,348 |
|
| $ | 64,444 |
|
| 1-15 |
| $ | 91,688 |
|
| $ | 81,065 |
|
| 1-15 |
Furniture and equipment |
|
| 81,705 |
|
|
| 87,358 |
|
| 3-10 |
|
| 91,336 |
|
|
| 91,720 |
|
| 3-10 |
Computer systems and equipment |
|
| 148,255 |
|
|
| 160,680 |
|
| 3-10 |
|
| 170,484 |
|
|
| 164,161 |
|
| 3-10 |
Construction equipment |
|
| 12,074 |
|
|
| 11,785 |
|
| 5-7 |
|
| 9,547 |
|
|
| 11,765 |
|
| 5-7 |
|
|
| 363,055 |
|
|
| 348,711 |
|
|
| ||||||||||
Accumulated depreciation |
|
| (204,533 | ) |
|
| (223,333 | ) |
|
|
|
| (238,291 | ) |
|
| (225,960 | ) |
|
|
Property and equipment, net |
| $ | 91,849 |
|
| $ | 100,934 |
|
|
|
| $ | 124,764 |
|
| $ | 122,751 |
|
|
|
Depreciation expense for the three months ended June 29, 201830, 2020 and June 30, 2019 was $7.9$9.8 million and $9.7 million, respectively, and 15.1$19.4 million and 19.4$19.4 million, respectively, for the six months ended June 29, 201830, 2020 and June 30, 2019.
During fiscal 2011, the Company consummated two sale-leaseback transactions associated with the sale of two office buildings from which the Company recognized a total gain in the consolidated statements of income (loss) of approximately $106.7 million and a total deferred gain of approximately $107.8 million. The current and long-term portion of the deferred gain had been recorded in “Accrued expenses and other current liabilities” and “Deferred gain resulting from sale-leaseback transactions” on the consolidated balance sheet at December 31, 2018, respectively, and was being recognized ratably over the minimum lease terms to which they relate, as an offset to rental expense in “Indirect, general and administrative expenses” in the consolidated statements of income. Amortization of the deferred gain was $1.8 million and $0 for the three months ended June 29, 2018 and June 30, 2019, respectively, and $3.6 million and $0 for the six months ended June 29, 2018 and June 30, 2019, respectively. The deferred gain balance of $53.3 million as of December 31, 2018 was recognized as an adjustment to beginning retained earnings net of a deferred tax asset adjustment of $0.7 million during January 2019 in connection with the adoption of the new leasing standard. See “Note 6 – Leases”.
| Debt and Credit Facilities |
Debt consisted of the following (in thousands):
Long-Term: |
| December 31, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Revolving credit facility |
| $ | 180,000 |
|
| $ | - |
| ||||||||
Senior notes |
|
| 250,000 |
|
|
| 250,000 |
|
|
| 250,000 |
|
|
| 250,000 |
|
Debt issuance costs |
|
| (836 | ) |
|
| (742 | ) |
|
| (552 | ) |
|
| (647 | ) |
Total long-term |
| $ | 429,164 |
|
| $ | 249,258 |
|
| $ | 249,448 |
|
| $ | 249,353 |
|
In November 2017, the Company entered into an amended and restated Credit Agreement. The Company incurred approximately $2.0 million of costs in connection with this amendment. Under the agreement, the Company’s revolving credit facility was increased from $500 million to $550 million and the term of the agreement was extended through November 2022.2022. The borrowings under the Credit Agreement bear interest, at the Company’s option, at either the Base Rate (as defined in the Credit Agreement), plus an applicable margin, or LIBOR plus an applicable margin. The applicable margin for Base Rate loans is a range of 0.125% to 1.00% and the applicable margin for LIBOR loans is a range of 1.125% to 2.00%, both based on the leverage ratio of the Company at the end of each fiscal quarter. The rates at June 30, 2020 and December 31, 2018 and June 30, 2019 were 4.253%1.42% and 3.974%3.02%, respectively. Borrowings under this Credit Agreement are guaranteed by certain of the Company’s operating subsidiaries. Letters of credit commitments outstanding under this agreement aggregated to approximately $49.8$44.9 million and $46.5$43.7 million at June 30, 2020 and December 31, 2018 and June 30, 2019, respectively, which reduced borrowing limits available to the Company. Interest expense related to the credit agreementCredit Agreement was $1.6$0.3 million and $5.0$0.4 million for the three and six months ended June 30, 2019,2020, respectively, and for the three and six months ended June 29, 201830, 2019 was $0.7$1.6 million and $0.7$5.0 million, respectively.There were 0 loan amounts outstanding under the Credit Agreement at June 30, 2020.
On July 1, 2014, the Company finalized a private placement whereby the Company raised an aggregate amount of $250.0 million in debt repayable as follows (in thousands):
Tranche |
| Debt Amount |
|
| Maturity Date |
| Interest Rates |
|
| Debt Amount |
|
| Maturity Date |
| Interest Rates |
| ||||
Senior Note, Series A |
| $ | 50,000 |
|
| July 15, 2021 |
|
| 4.44 | % |
| $ | 50,000 |
|
| July 15, 2021 |
|
| 4.44 | % |
Senior Note, Series B |
|
| 100,000 |
|
| July 15, 2024 |
|
| 4.98 | % |
|
| 100,000 |
|
| July 15, 2024 |
|
| 4.98 | % |
Senior Note, Series C |
|
| 60,000 |
|
| July 15, 2026 |
|
| 5.13 | % |
|
| 60,000 |
|
| July 15, 2026 |
|
| 5.13 | % |
Senior Note, Series D |
| $ | 40,000 |
|
| July 15, 2029 |
|
| 5.38 | % |
|
| 40,000 |
|
| July 15, 2029 |
|
| 5.38 | % |
The Company incurred approximately $1.1 million of debt issuance costs in connection with the private placement. On August 10, 2018, the Company finalized an amended and restated intercreditor agreement related to this private placement to more closely align certain covenants and definitions with the terms under the 2017 amended and restated Credit Agreement and incurred approximately $0.5 million of additional issuance costs. These costs are presented as a direct deduction from the debt on the face of the consolidated balance sheets. Interest expense related to the Senior Notes for both the three and six months ended June 29, 201830, 2020 and June 30, 2019 was approximately $3.1 million and $6.2 million,respectively. The amortization of debt issuance costs and interest expense are recorded in “Interest expense” on the consolidated statements of income. The Company made interest payments related to the Senior Notes for both the three and six months ended June 29, 201830, 2020 and June 30, 2019 of approximately $0 million and $6.2 million,respectively. Interest payable of approximately$5.6 million and $5.7 million is recorded in “Accrued expenses and other current liabilities” on the consolidated balance sheets at June 30, 2020 and December 31, 2018 and June 30, 2019, respectively, related to the Senior Notes.
The Credit Agreement and private placement 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 June 30, 2020 and December 31, 2018 and June 30, 2019.
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 $223.0$186.6 million and $234.0$197.3 million at June 30, 2020 and December 31, 2018 and June 30, 2019, respectively.
Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile, the Company has determined thatestimated the fair value (level(Level 2) of its debtsenior notes at June 30, 2020 approximates the carrying value. $272.2 million.See “Note 1816 – Fair Value of Financial Instruments” for the definition of levelLevel 2 of the fair value hierarchy.
In January 2019, the Company borrowed $150.0 million under our Term Loan Agreement to partially finance the OGSystems Acquisition.acquisition. On May 10, 2019, the Company used proceeds from its May 8, 2019 IPO to repay the $150.0 million outstanding balance under the Term Loan and this loan is now closed. Interest expense related to the term loanTerm Loan was $1.0$1.0 million and $2.3 million for the three and six months ended June 30, 2019, respectively.
Amortization of debt issuance costs for all the Company’s debt and credit facilities for the three months ended June 29, 2018 and June 30, 2019 was approximately $0.1 million and $0.2 million, respectively and $0.3 million and $0.6 million for the six months ended June 29, 2018 and June 30, 2019, respectively.There were 0 amounts outstanding in fiscal 2020.
| Income Taxes |
Historically,On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits Net Operating Loss (“NOL“) carryovers to offset 100% of taxable income for tax years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding tax years to generate a refund of previously paid income taxes. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. The CARES Act also accelerates the refund of alternative minimum tax (“AMT”) credits that were previously accumulated. The Company does not expect that the modifications on the limitation of business interest or AMT credits would have any impact to the Company. Under the NOL carryback provision, the Company expects to carry back some of its NOLs relating to certain amounts associated with acquisitions which may be subject to certain shareholders’ claims.
On July 9, 2020, the U.S. Treasury Department issued final tax regulations related to the foreign-derived intangible income and global intangible low-taxed income (GILTI) provisions. Also, on July 20, 2020 the U.S. Treasury Department released final tax regulations permitting a taxpayer to elect to exclude from its GILTI inclusion items of income subject to a high effective rate of foreign tax. The Company is currently assessing the impact of the new legislation to its consolidated financial statements but does not expect a material change of its income tax expense due to the new regulations.
Prior to the Company’s IPO, the Company had elected to be taxed under the provisions of Subchapter “S” of the Internal Revenue Code for federal tax purposes. As a result, income had not been subject to U.S. federal income taxes or state income taxes in those states where the “S” Corporation status is recognized. Previously,Therefore, previously, no provision or liability for federal or state income tax had been provided in the consolidated financial statements except for those states where the “S” Corporation status was not recognized, or where states imposed a tax on “S” Corporations. The provision for income tax in the historical periods prior to the IPO consists of these state taxes and taxes from certain foreign taxesjurisdictions where the Company is subject to tax.
In connection with the Company’s IPO on May 8, 2019, the “S” Corporation status was terminated, and the Company is now treated as a “C” Corporation under the Code. The termination of the “S” Corporation election has had a material impact on the Company’s results of operations, financial condition, and cash flows as reflected in the June 30, 20192020 consolidated financial statements. The effective income tax rate has increased, and net income has decreased as compared to the Company’s “S” Corporation tax years, since the Company is now subject to both U.S. federal and state corporate income taxes on its earnings.
For corporateThe Company’s effective tax rate was 27.64% and 400.68% for the three months ended June 30, 2020 and 2019, respectively. The change in the effective tax rate was due primarily to nonrecurring tax items included in the second quarter 2019 income taxes associated with a $56 million tax purposes,benefit from the Company will apportion its 2019 taxable income ratably betweenremeasurement of deferred taxes associated with the Company’s change in “S” Corporation andto “C” Corporation periods, as allowed by law. This allocation of income will effectively result in a blended incomestatus. The Company’s effective tax rate for the six months ended June 30, 2020 and 2019 year, as only the C corporation earnings will be subject to both U.S. federalwas 27.17% and state corporate income tax while the “S” Corporation earnings will be subject to tax in those states that tax “S” Corporations or do not recognize “S” Corporation status. The Company has estimated our 2019 effective tax benefit rate to be (31.16)(2,686.95)%. The most significant item contributingchange in the effective tax rate was due primarily to the nonrecurring tax items included in 2019 for the remeasurement of deferred taxes associated with the change in tax status. The difference between the effective tax rate and the statutory U.S. Federal income tax rate of 21.0% for the quarter ended June 30, 2019 is the tax impact of revaluing deferred tax assets and liabilities, resulting from the conversion from an “S”2020 primarily relates to a “C” Corporation.
The termination for the “S” Corporation status has been treated as a change in tax status under Accounting Standards Codification 740, “Income Taxes”. These rules require that the deferred tax effects of a change in tax status be recorded tostate income from continuing operations on the date the “S” Corporation status terminates. The Company has calculated the estimated effect of the change in tax status to be a tax benefit of $56 million, relating to the recognition of net deferred tax assets for temporary differences in existence on the date of conversion to a “C” Corporation. This amount is subject to revision based upon actual results. The tax effect of this change has been recorded as a discrete tax benefit in the three months ended June 30, 2019.
The US government enacted comprehensive tax legislation on December 22, 2017, which is commonly referred to as the Tax Cuts and Jobs Act ("TCJA"). The TCJA significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The TCJA also repealed the deduction for domestic production activities, limited the deductibility of certain executive compensation, and implemented a modified territorial tax system with the introduction of the Global Intangible Low-Taxed Income (“GILTI”) tax rules. The
TCJA also imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries. As a Subchapter “S” corporation the TCJA had a limited effect on the Company’s 2018 effective tax rate. The Company calculated that as a “C” corporation in 2019, the provisions of TCJA, except for the statutory rate, will not have a material impact on the income tax provision. Under GAAP, the Company is allowed to make an accounting policy election of either: (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost” method); or (ii) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred” method). For taxable income inclusions due to the GILTI tax rules, the Company has elected the period cost method and has included the impact in the estimated annual effective tax rate as of June 30, 2019.taxes.
As of June 30, 2019,2020, the Company’s deferred tax assets included a valuation allowance of $13.5$17.2 million primarily related to foreign net operating loss carryforwards, foreign tax credit carryforwards, and capital losses that the Company has determined are not more likely than notmore-likely-than-not to be realized. The factors used to assess the likelihood of realization wereinclude: the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.
As of June 30, 2020 and December 31, 2018 and June 30, 2019, the liability for income taxes associated with uncertain tax positions was $9.9$14.6 million and $11.3$15.5 million, respectively. Management believes itIt is unlikelyreasonably possible that the liabilityCompany may realize a decrease in our uncertain tax positions of approximately $1.7 million during the next twelve months as a result of concluding various tax audits and closing tax years. Although the Company believes its reserves for unrecognizedits tax benefits related to existing matters would increase or decrease withinpositions 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 by a material amount. The Company is routinely subject toand that the unrecognized tax audit in several jurisdictions. Although adjustments could result from these audits,benefits the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. However, it is not awarecurrently possible to estimate the amount, if any, of any issue that would materially change the liability for uncertain tax positions. such change.
|
|
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. 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 no0 claims or assessments outstanding which would materially affect the consolidated results of operations or the Company’s financial position.
On or about March 1, 2017, the Peninsula Corridor Joint Powers Board, or the JPB, filed a lawsuit against Parsons Transportation Group, Inc., or PTG, in the Superior Court of California, County of San Mateo, in connection with a positive train control project on which PTG was engaged prior to termination of its contract by the JPB. PTG had previously filed a lawsuit against the JPB for breach of contract and wrongful termination. The JPB seeks damages in excess of $100.0 million, which the Company is currently disputing. In addition to filing a complaint for breach of contract and wrongful termination, the Company has denied the allegations raised by the JPB and, accordingly, filed affirmative defenses. The Company is currently defending against the JPB’s claims and the parties are still engaged in discovery. The Company also has a professional liability insurance policy to the extent the JPB proves any errors or omissions occurred. At this time, itthe Company is too soonunable to determine the probability of the outcome of the litigation or assess thedetermine a potential range of loss, if any. The Company has also filed a third partythird-party claim against a subcontractor for indemnification in connection with this matter.
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 United States government did not intervene in this matter as it is allowed to do so under the statute. The Company filed a motion to dismiss the lawsuit on the grounds that the Relator did not meet the applicable statute of limitations. The District Court granted the motion to dismiss. The Relator’s attorney appealed the decision to the United States Court of Appeals of the Eleventh Circuit, which ultimately ruled in favor of the Relator, and the Company petitioned the United States Supreme Court to review the decision. The Supreme Court reviewed the decision and accepted the
position of the Relator. The case was thus remanded to the United States District Court for the Northern District of Alabama. The defendants, including Parsons, will file appropriate pleadings opposing the allegations. At this time, itthe Company is too soonunable to determine the probability of the outcome of the litigation or assess thedetermine a potential range of loss, if any.
On or about October 4, 2019, LBH Engineers, LLC (“LBH”) filed a lawsuit against Parsons, PTG, and various other parties in the US District Court of for the Northern District of Georgia, in connection with an alleged infringement of LBH’s patent. LBH seeks damages and costs incurred by LBH, a post-judgment royalty, treble damages if the infringement is found to be willful, among other damages, which the Company and the other defendants are currently disputing. At this time, the Company is unable to determine the probability of the outcome of the litigation or determine a potential range of loss, if any.
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 20092010 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.
| Retirement |
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. Shares allocated to a participant’s account are fully vested after sixthree years of credited service, or in the event(s) of reaching age 65, death or disability while an active employee of the Company. AllAs of June 30, 2020 and December 31, 2019, total shares of the Company’s common stock was acquiredwere 100,724,683 and 100,669,694, respectively, of which 76,795,221and 78,896,806, respectively, were held by the ESOP.
A participant’s interest in their ESOP in conjunction with a reorganization in 1984, which was financed by the Company.
Uponaccount is redeemable upon certain events, including retirement, death, termination due to permanent disability, a severe financial hardship conflictfollowing termination of employment, certain conflicts of interest following termination of employment, or the exercise of diversification rights,rights. Distributions from the ESOP of participants’ interests are made in their ESOP accounts are redeemable at the current price perCompany’s common stock based on quoted prices of a share of the stock.
There is a lock-up agreementCompany’s common stock on the NYSE. A participant will be able to sell such shares of common stock in place through November 8, 2019 affecting the abilitymarket, subject to any requirements of the ESOP Trustee to trade shares of the Company’s stock. During the lock-up period, the Trustee will redeem eligible participants’ interests in their ESOP accounts for cash, funded by the May 10, 2019 IPO Dividend described below. If that cash is exhausted before the end of the lock-up period, participants will put their shares to the Company which will redeem them for cash. Upon the expiration of the lock-up period, all shares held by the ESOP will be redeemable by participants in shares of the Company’s stock once vesting and eligibility requirements have been met. The Company presents all shares held by the ESOP as temporary equity on the consolidated balance sheets at their redemption value. The Company elected the policy to adjust the temporary equity balance to the maximum redemption amount at each balance sheet date for units that are not currently redeemable. Accordingly, at each balance sheet date, the Company will adjust the temporary equity balance to its maximum redemption amount with a corresponding offset to retained earnings.federal securities laws.
Total ESOP contribution expense was approximately $11.5$14.6 million and $12.3 million for the three months ended June 28, 201830, 2020 and June 30, 2019, respectively, and approximately $22.7$29.5 million and $24.5 million for the six months ended June 28, 201830, 2020 and June 30, 2019, respectively. The expense is recorded in “Direct costs of contracts” and “Indirect, general and administrative expense” in the consolidated statements of income. The fiscal 20192020 ESOP contribution has not yet been made. The amount is currently included in accrued liabilities.
At December 31, 2018 and June 30, 2019, 78,172,809 shares and 78,138,602 shares of the Company’s stock were held by the ESOP which the Company recorded at their aggregate redemption value of $1.9 billion and $2.9 billion, respectively. On April 3, 2019, the board of directors of the Company declared a cash dividend to the Company’s sole existing shareholder at that time, the ESOP, in the amount of $2.00 per share, or $52.1 million in the aggregate (the “IPO Dividend”). The IPO Dividend was paid on May 10, 2019. On April 15, 2019, the board of directors of the Company declared a common stock dividend in a ratio of two2 shares of common stock for every one share of common stock then held by the Company’s shareholder (the “Stock Dividend”). The record date of the Stock Dividend was May 7, 2019, the day immediately prior to the consummation of the Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was May 8, 2019. Purchasers of the Company’s common stock in the Company’s public offering were not entitled to receive any portion of the Stock Dividend. During the year ended December 31, 2018, the Company did not declare any dividends. Please see the Company’s Form S-1/A, filed April 29, 2019, for a further discussion of the Company’s ESOP.
As part of an acquisition in 2014, the Company acquired a defined contribution pension plan, a defined benefit pension plan, and supplemental retirement plan. For the defined contribution pension plan, the Company contributes a base amount plus an additional amount based upon a predetermined formula. At December 31, 2018 and June 30, 2019, the defined benefit pension plan was in a net asset position of $1.7 million and $1.7 million, respectively, which is recorded in “Other noncurrent assets” on the consolidated balance sheets.
| Investments in and Advances to Joint Ventures |
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, 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 1210 – Debt and Credit Facilities” that relate to project ventures are approximately $76.8$65.7 millionand $79.1$55.0 million at June 30, 2020 and December 31, 2018 and June 30, 2019, respectively.
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):
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Current assets |
| $ | 287,227 |
|
| $ | 290,901 |
|
| $ | 324,721 |
|
| $ | 255,167 |
|
Noncurrent assets |
|
| 2,689 |
|
|
| 2,578 |
|
|
| 1,947 |
|
|
| 2,860 |
|
Total assets |
|
| 289,916 |
|
|
| 293,479 |
|
|
| 326,668 |
|
|
| 258,027 |
|
Current liabilities |
|
| 199,833 |
|
|
| 217,799 |
|
|
| 246,019 |
|
|
| 193,583 |
|
Total liabilities |
|
| 199,833 |
|
|
| 217,799 |
|
|
| 246,019 |
|
|
| 193,583 |
|
Total joint venture equity |
| $ | 90,083 |
|
| $ | 75,680 |
|
| $ | 80,649 |
|
| $ | 64,444 |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Revenue |
| $ | 174,947 |
|
| $ | 109,004 |
|
| $ | 287,068 |
|
| $ | 224,108 |
|
| $ | 117,889 |
|
| $ | 109,004 |
|
| $ | 218,167 |
|
| $ | 224,108 |
|
Costs |
|
| 39,512 |
|
|
| 106,781 |
|
|
| 145,678 |
|
|
| 213,987 |
|
|
| 101,935 |
|
|
| 106,781 |
|
|
| 199,085 |
|
|
| 213,987 |
|
Net income |
| $ | 135,435 |
|
| $ | 2,223 |
|
| $ | 141,390 |
|
| $ | 10,121 |
|
| $ | 15,954 |
|
| $ | 2,223 |
|
| $ | 19,082 |
|
| $ | 10,121 |
|
Net income (loss) attributable to noncontrolling interests |
| $ | 1,657 |
|
| $ | (114 | ) |
| $ | 5,472 |
|
| $ | 3,531 |
|
| $ | 7,826 |
|
| $ | (114 | ) |
| $ | 9,224 |
|
| $ | 3,531 |
|
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.
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 earnings (loss) 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 VIEs 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):
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Current assets |
| $ | 707,457 |
|
| $ | 712,935 |
|
| $ | 775,365 |
|
| $ | 801,335 |
|
Noncurrent assets |
|
| 876,385 |
|
|
| 919,323 |
|
|
| 541,528 |
|
|
| 564,160 |
|
Total assets |
|
| 1,583,842 |
|
|
| 1,632,258 |
|
|
| 1,316,893 |
|
|
| 1,365,495 |
|
Current liabilities |
|
| 560,306 |
|
|
| 514,664 |
|
|
| 720,964 |
|
|
| 655,495 |
|
Noncurrent liabilities |
|
| 813,269 |
|
|
| 898,666 |
|
|
| 486,464 |
|
|
| 507,131 |
|
Total liabilities |
|
| 1,373,575 |
|
|
| 1,413,330 |
|
|
| 1,207,428 |
|
|
| 1,162,626 |
|
Total joint venture equity |
|
| 210,267 |
|
|
| 218,928 |
|
|
| 109,465 |
|
|
| 202,869 |
|
Investments in and advances to unconsolidated joint ventures |
| $ | 63,560 |
|
| $ | 73,481 |
|
| $ | 64,905 |
|
| $ | 68,620 |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Revenue |
| $ | 471,234 |
|
| $ | 521,218 |
|
| $ | 752,312 |
|
| $ | 750,684 |
|
| $ | 238,188 |
|
| $ | 521,218 |
|
| $ | 691,447 |
|
| $ | 750,684 |
|
Costs |
|
| 470,478 |
|
|
| 497,227 |
|
|
| 724,142 |
|
|
| 714,007 |
|
|
| 223,686 |
|
|
| 497,227 |
|
|
| 650,691 |
|
|
| 714,007 |
|
Net income |
| $ | 756 |
|
| $ | 23,991 |
|
| $ | 28,170 |
|
| $ | 36,677 |
|
| $ | 14,502 |
|
| $ | 23,991 |
|
| $ | 40,756 |
|
| $ | 36,677 |
|
Equity in earnings of unconsolidated joint ventures |
| $ | 1,839 |
|
| $ | 11,634 |
|
| $ | 12,870 |
|
| $ | 22,031 |
|
| $ | 3,769 |
|
| $ | 11,634 |
|
| $ | 9,883 |
|
| $ | 22,031 |
|
The Company received net distributions from (made contributions to) its unconsolidated joint ventures for the three and six months ended June 29, 201830, 2020 and June 30, 2019 of $3.8$5.6 million and $6.3 million, respectively, and $8.5for the six months ended June 30, 2020 and June 30, 2019 of $12.1 millionand $14.4 million, respectively.
| Related Party Transactions |
The Company often provides services to unconsolidated joint ventures and revenues include amounts related to recovering overhead costs for these services. Revenues related to services the Company provided to unconsolidated joint ventures for the three months ended June 29, 201830, 2020 and June 30, 2019 were $41.9$42.4 million and $50.7 million, respectively, and for the six months ended June 29, 201830, 2020 and June 30, 2019 were $75.6$82.8 million and $84.3 million respectively. For the three months ended June 29, 201830, 2020 and June 30, 2019, the Company incurred approximately $31.1$34.6 million and $39.0 million, respectively, and for the six months ended June 29, 201930, 2020 and June 30, 2019, $57.0$66.1 million and $66.2 million, respectively, of reimbursable costs. Amounts included in the consolidated balance sheets related to services the Company provided to unconsolidated joint ventures isare as follows (in thousands):
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Accounts receivable |
| $ | 38,742 |
|
| $ | 33,930 |
|
| $ | 40,199 |
|
| $ | 37,425 |
|
Contract assets |
|
| 2,648 |
|
|
| 5,201 |
|
|
| 3,309 |
|
|
| 6,955 |
|
Contract liabilities |
| $ | 10,861 |
|
| $ | 3,857 |
|
|
| 4,435 |
|
|
| 4,509 |
|
| Fair Value of Financial Instruments |
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 June 30, 2020 and December 31, 2018 and June 30, 2019, 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:
Market approach—Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
• | Market approach—Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities; |
Cost approach—Amount that would be required to replace the service capacity of an asset (i.e., replacement cost); and
• | Cost approach—Amount that would be required to replace the service capacity of an asset (i.e., replacement cost); and |
Income approach—Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing models and lattice models).
• | Income approach—Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing models and lattice models). |
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.
The following table sets forth assets associated withRefer to Notes to Consolidated Financial Statements included in the pension plan in “Note 15 – Retirement and Other Benefit Plans” that are accountedCompany’s Form 10-K for the year ended December 31, 2019 for a more complete discussion of the various items within the consolidated financial statements measured at fair value by Level withinand the methods used to determine fair value hierarchy.
Fair value as of December 31, 2018 (in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Mutual funds |
| $ | 2,539 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,539 |
|
Fixed income |
|
| - |
|
|
| 10,168 |
|
|
| - |
|
|
| 10,168 |
|
Cash and cash equivalents |
|
| 361 |
|
|
| - |
|
|
| - |
|
|
| 361 |
|
|
| $ | 2,900 |
|
| $ | 10,168 |
|
| $ | - |
|
| $ | 13,068 |
|
Fair value as of June 30, 2019 (in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Mutual funds |
| $ | 2,876 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,876 |
|
Fixed income |
|
| - |
|
|
| 10,887 |
|
|
| - |
|
|
| 10,887 |
|
Cash and cash equivalents |
|
| 282 |
|
|
| - |
|
|
| - |
|
|
| 282 |
|
|
| $ | 3,158 |
|
| $ | 10,887 |
|
| $ | - |
|
| $ | 14,045 |
|
As described in “Note 15 – Retirement and Other Benefit Plans,” the Company acquired a defined contribution pension plan, a defined benefit pension plan, and supplemental retirement plans. At December 31, 2018 and June 30, 2019, the Company measured the mutual funds held within the defined benefit pension plan at fair value using unadjusted quoted prices in active markets that are accessible for identical assets. The Company measured the fixed income securities using market bid and ask prices. The inputs that are significant to valuation of fixed income securities are generally observable and therefore have been classified as Level 2.
The following table sets forth redeemable common stock associated with the ESOP in as described in “Note 14 – Retirement and Other Benefit Plans” that is accounted for at fair value by Level within the fair value hierarchy.
Fair value as of December 31, 2018 (in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Redeemable common stock |
| $ | - |
|
| $ | - |
|
| $ | 1,876,309 |
|
| $ | 1,876,309 |
|
Fair value as of June 30, 2019 (in thousands):
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Redeemable common stock |
| $ | 2,880,189 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,880,189 |
|
As described in “Note 15 – Retirement and Other Benefit Plans,” the Company is obligated to redeem eligible participants’ interests in their ESOP accounts for cash upon an employee’s election. All shares held by the ESOP are eventually redeemable in the future for cash at the option of the holder once vesting and eligibility requirements have been met. The Company presents all shares held by the ESOP as temporary equity on the consolidated balance sheets at their redemption value. At December 31, 2018 and June 30, 2019, approximately 78,172,809 shares and 78,138,603 shares, respectively, of the Company’s stock were held by the ESOP which the Company recorded at their aggregate redemption values of $1.9 billion and $2.9 billion, respectively. The December 31, 2018 redemption values is based on a share price established by the ESOP trustee, taking into account, among other things, the advice of a third-party valuation consultant for the ESOP trustee as well as the ESOP trustee’s knowledge of the Company. The share price valuation was determined using a combination of income and market-based methods that utilized unobservable Level 3 inputs, including significant assumptions such as forecasted revenue and operating margins, working capital requirements, and weighted average cost of capital. The June 30, 2019 redemption value is based on the Company’s closing share price in an active market and therefore has been classified as Level 1.
The following tables present a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) (in thousands):
Balance at December 31, 2018 |
| $ | 1,876,309 |
|
Transfer to Level 1 |
|
| (1,876,309 | ) |
Balance at June 30, 2019 |
| $ | - |
|
| Earnings Per Share |
BasicThe following table reconciles the denominator used to compute basic earnings per common share (“EPS”) to the denominator used to compute diluted EPS for the three and six months ended June 30, 2020 and June 30, 2019. Basic EPS is computed using the weighted average number of shares outstanding during the period and income available to shareholders.
Diluted earnings per share (“EPS”)EPS is computed similar to basic EPS, except the weighted average number of shares outstanding is increased to include the dilutive effects of outstanding stock optionsequity-based awards. For the three and other stock-based awards. six months ended June 30, 2020, there were 4,939 shares and 4,066 shares, respectively, excluded from the number of shares used in calculating diluted EPS as their inclusion would be antidilutive. There were no0 dilutive securities outstanding for the three and six months ended June 29, 2018 and June 30, 2019.
The weighted average number of shares used to compute basic and diluted EPS were:
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Basic weighted average number of shares outstanding |
|
| 81,074,264 |
|
|
| 92,336,119 |
|
|
| 81,460,285 |
|
|
| 85,248,801 |
|
|
| 100,694,938 |
|
|
| 92,336,119 |
|
|
| 100,682,315 |
|
|
| 85,248,801 |
|
Dilutive common share equivalents |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 290,649 |
|
|
| - |
|
|
| 266,369 |
|
|
| - |
|
Diluted weighted average number of shares outstanding |
|
| 81,074,264 |
|
|
| 92,336,119 |
|
|
| 81,460,285 |
|
|
| 85,248,801 |
|
|
| 100,985,587 |
|
|
| 92,336,119 |
|
|
| 100,948,684 |
|
|
| 85,248,801 |
|
The Company operates in two2 reportable segments: Federal Solutions and Critical Infrastructure.
The Federal Solutions segment is a high-end services providerprovides advanced technical solutions to the U.S. government, delivering timely, cost-effective solutionshardware, software and services for mission-critical projects. The segment provides advanced technologies, including
supporting national security missions in cybersecurity, missile defense, systems, and subsurface munitions detection, as well as military facility modernization, logistics support, chemical weaponhazardous material remediation and engineering services.
The Critical Infrastructure segment provides integrated designengineering and engineeringmanagement services for complex physical and digital infrastructure around the globe. The Critical Infrastructure segment is a technology innovator focused on next generation infrastructure.digital systems and complex structures. Industry leading capabilities in designengineering 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”), currently its Chairman and 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 |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Federal Solutions revenue |
| $ | 341,065 |
|
| $ | 478,497 |
|
| $ | 632,400 |
|
| $ | 901,309 |
|
| $ | 482,210 |
|
| $ | 478,497 |
|
| $ | 959,781 |
|
| $ | 901,309 |
| ||
Critical Infrastructure revenue |
|
| 559,667 |
|
|
| 511,245 |
|
|
| 1,023,011 |
|
|
| 992,838 |
|
|
| 497,249 |
|
|
| 511,245 |
|
|
| 990,671 |
|
|
| 992,838 |
| ||
Total revenue |
| $ | 900,732 |
|
| $ | 989,742 |
|
| $ | 1,655,411 |
|
| $ | 1,894,147 |
|
| $ | 979,459 |
|
| $ | 989,742 |
|
| $ | 1,950,452 |
|
| $ | 1,894,147 |
|
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, 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. The following table reconciles business segment Adjusted EBITDA attributable to Parsons Corporation to Net Income attributable to Parsons Corporation for the periods presented (in thousands):
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
|
| Six Months Ended |
| ||||||||||||||||||||
Adjusted EBITDA attributable to Parsons Corporation |
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Federal Solutions |
| $ | 33,948 |
|
| $ | 35,700 |
|
| $ | 55,496 |
|
| $ | 76,299 |
|
| $ | 47,700 |
|
| $ | 35,700 |
|
| $ | 79,317 |
|
| $ | 76,299 |
| ||
Critical Infrastructure |
|
| 16,928 |
|
|
| 40,525 |
|
|
| 42,290 |
|
|
| 68,201 |
|
|
| 35,519 |
|
|
| 40,525 |
|
|
| 62,876 |
|
|
| 68,201 |
| ||
Adjusted EBITDA attributable to Parsons Corporation |
|
| 50,876 |
|
|
| 76,225 |
|
|
| 97,786 |
|
|
| 144,500 |
|
|
| 83,219 |
|
|
| 76,225 |
|
|
| 142,193 |
|
|
| 144,500 |
| ||
Adjusted EBITDA attributable to noncontrolling interests |
|
| 1,759 |
|
|
| (20 | ) |
|
| 5,679 |
|
|
| 3,729 |
|
|
| 7,942 |
|
|
| (20 | ) |
|
| 9,464 |
|
|
| 3,729 |
| ||
Depreciation and amortization |
|
| (14,048 | ) |
|
| (31,074 | ) |
|
| (23,057 | ) |
|
| (61,665 | ) |
|
| (32,081 | ) |
|
| (31,074 | ) |
|
| (64,490 | ) |
|
| (61,665 | ) | ||
Interest expense, net |
|
| (3,270 | ) |
|
| (6,151 | ) |
|
| (6,528 | ) |
|
| (13,966 | ) |
|
| (3,963 | ) |
|
| (6,151 | ) |
|
| (7,757 | ) |
|
| (13,966 | ) | ||
Income tax (expense) benefit |
|
| (9,019 | ) |
|
| 53,496 |
|
|
| (14,372 | ) |
|
| 51,610 |
|
|
| (11,891 | ) |
|
| 53,496 |
|
|
| (16,975 | ) |
|
| 51,610 |
| ||
Litigation-related gains(a) |
|
| 132,004 |
|
|
| - |
|
|
| 129,674 |
|
|
| - |
| ||||||||||||||||||
Amortization of deferred gain resulting from sale-leaseback transactions(b) |
|
| 1,829 |
|
|
| - |
|
|
| 3,642 |
|
|
| - |
| ||||||||||||||||||
Equity based compensation(c) |
|
| (5,049 | ) |
|
| (43,311 | ) |
|
| (8,149 | ) |
|
| (47,161 | ) | ||||||||||||||||||
Transaction-related costs(d) |
|
| (4,930 | ) |
|
| (7,715 | ) |
|
| (5,055 | ) |
|
| (17,070 | ) | ||||||||||||||||||
Restructuring(e) |
|
| - |
|
|
| (353 | ) |
|
| - |
|
|
| (2,571 | ) | ||||||||||||||||||
HCM software implementation costs(f) |
|
| (337 | ) |
|
| (586 | ) |
|
| (337 | ) |
|
| (3,498 | ) | ||||||||||||||||||
Other(g) |
|
| 223 |
|
|
| (366 | ) |
|
| (143 | ) |
|
| (377 | ) | ||||||||||||||||||
Equity-based compensation expense |
|
| (12,854 | ) |
|
| (43,311 | ) |
|
| (5,133 | ) |
|
| (47,161 | ) | ||||||||||||||||||
Transaction-related costs (a) |
|
| 2,485 |
|
|
| (7,715 | ) |
|
| (9,526 | ) |
|
| (17,070 | ) | ||||||||||||||||||
Restructuring expense (b) |
|
| (1,143 | ) |
|
| (353 | ) |
|
| (1,110 | ) |
|
| (2,571 | ) | ||||||||||||||||||
Other (c) |
|
| (589 | ) |
|
| (952 | ) |
|
| (1,170 | ) |
|
| (3,875 | ) | ||||||||||||||||||
Net income including noncontrolling interests |
|
| 150,038 |
|
|
| 40,145 |
|
|
| 179,140 |
|
|
| 53,531 |
|
|
| 31,125 |
|
|
| 40,145 |
|
|
| 45,496 |
|
|
| 53,531 |
| ||
Net income attributable to noncontrolling interests |
|
| 1,657 |
|
|
| (114 | ) |
|
| 5,472 |
|
|
| 3,531 |
|
|
| 7,826 |
|
|
| (114 | ) |
|
| 9,224 |
|
|
| 3,531 |
| ||
Net income attributable to Parsons Corporation |
| $ | 148,381 |
|
| $ | 40,259 |
|
| $ | 173,668 |
|
| $ | 50,000 |
|
| $ | 23,299 |
|
| $ | 40,259 |
|
| $ | 36,272 |
|
| $ | 50,000 |
|
(a) |
|
|
|
|
|
| Reflects costs incurred in connection with acquisitions, the IPO, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention. |
| Reflects costs associated with corporate restructuring initiatives. |
|
|
| Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually insignificant items that are non-recurring in nature. |
Asset information by segment is not a key measure of performance used by the CODM.
The following tables presentspresent revenues and property and equipment, net by geographic area (in thousands):
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
North America |
| $ | 738,935 |
|
| $ | 819,255 |
|
| $ | 1,326,242 |
|
| $ | 1,550,285 |
|
| $ | 800,044 |
|
| $ | 819,255 |
|
| $ | 1,597,990 |
|
| $ | 1,550,285 |
| ||
Middle East |
|
| 158,294 |
|
|
| 167,624 |
|
|
| 320,700 |
|
|
| 335,576 |
|
|
| 174,689 |
|
|
| 167,624 |
|
|
| 343,548 |
|
|
| 335,576 |
| ||
Rest of World |
|
| 3,503 |
|
|
| 2,863 |
|
|
| 8,469 |
|
|
| 8,286 |
|
|
| 4,726 |
|
|
| 2,863 |
|
|
| 8,914 |
|
|
| 8,286 |
| ||
Total Revenue |
| $ | 900,732 |
|
| $ | 989,742 |
|
| $ | 1,655,411 |
|
| $ | 1,894,147 |
|
| $ | 979,459 |
|
| $ | 989,742 |
|
| $ | 1,950,452 |
|
| $ | 1,894,147 |
|
The geographic location of revenue is determined by the location of the customer. The prior reporting of revenue by geographic location has been conformed to the current presentation.
|
|
|
| |||||||||||||
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Property and Equipment, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 86,847 |
|
| $ | 95,279 |
|
| $ | 119,985 |
|
| $ | 117,606 |
|
Middle East |
|
| 5,002 |
|
|
| 5,655 |
|
|
| 4,779 |
|
|
| 5,145 |
|
Total Property and Equipment, Net |
| $ | 91,849 |
|
| $ | 100,934 |
|
| $ | 124,764 |
|
| $ | 122,751 |
|
North America includes revenue in the United States for the three months ended June 29, 201830, 2020 and June 30, 2019 of $671.5$737.4 million and $744.3 million, respectively, and for the six months ended June 29, 201830, 2020 and June 30, 2019 $1.2$1.5 billion and $1.4 billion, respectively.North America property and equipment, net includes $79.9$112.6 million and $90.4$109.9 million of property and equipment, net in the United States at June 30, 2020 and December 31, 2018 and June 30, 2019, respectively.
The following table presents revenues by business lines (in thousands):
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Space & Geospatial Solutions |
| $ | 57,967 |
|
| $ | 65,768 |
|
| $ | 109,255 |
|
| $ | 111,525 |
| ||||||||||||||||||
Cyber & Intelligence |
| $ | 64,576 |
|
| $ | 81,171 |
|
| $ | 108,943 |
|
| $ | 157,281 |
|
|
| 102,993 |
|
|
| 80,489 |
|
|
| 201,875 |
|
|
| 153,038 |
| ||
Defense |
|
| 90,519 |
|
|
| 146,453 |
|
|
| 164,059 |
|
|
| 281,443 |
| ||||||||||||||||||
Mission Solutions |
|
| 83,973 |
|
|
| 81,888 |
|
|
| 158,122 |
|
|
| 149,978 |
| ||||||||||||||||||
Engineered Systems |
|
| 101,997 |
|
|
| 122,887 |
|
|
| 201,276 |
|
|
| 237,553 |
|
|
| 166,483 |
|
|
| 167,276 |
|
|
| 339,315 |
|
|
| 312,894 |
| ||
Geospatial |
|
| - |
|
|
| 46,098 |
|
|
| - |
|
|
| 75,054 |
| ||||||||||||||||||
Missile Defense & C5ISR |
|
| 154,767 |
|
|
| 164,964 |
|
|
| 309,336 |
|
|
| 323,852 |
| ||||||||||||||||||
Federal Solutions revenues |
|
| 341,065 |
|
|
| 478,497 |
|
|
| 632,400 |
|
|
| 901,309 |
|
|
| 482,210 |
|
|
| 478,497 |
|
|
| 959,781 |
|
|
| 901,309 |
| ||
Connect Communities |
|
| 165,002 |
|
|
| 150,622 |
|
|
| 325,915 |
|
|
| 307,498 |
| ||||||||||||||||||
Mobility Solutions |
|
| 338,594 |
|
|
| 281,466 |
|
|
| 594,273 |
|
|
| 550,580 |
|
|
| 398,890 |
|
|
| 401,842 |
|
|
| 790,411 |
|
|
| 775,822 |
| ||
Industrial |
|
| 56,071 |
|
|
| 79,157 |
|
|
| 102,823 |
|
|
| 134,760 |
| ||||||||||||||||||
Connected Communities |
|
| 98,359 |
|
|
| 109,403 |
|
|
| 200,260 |
|
|
| 217,016 |
| ||||||||||||||||||
Critical Infrastructure revenues |
|
| 559,667 |
|
|
| 511,245 |
|
|
| 1,023,011 |
|
|
| 992,838 |
|
|
| 497,249 |
|
|
| 511,245 |
|
|
| 990,671 |
|
|
| 992,838 |
| ||
Total Revenue |
| $ | 900,732 |
|
| $ | 989,742 |
|
| $ | 1,655,411 |
|
| $ | 1,894,147 |
|
| $ | 979,459 |
|
| $ | 989,742 |
|
| $ | 1,950,452 |
|
| $ | 1,894,147 |
|
Revenue forEffective January 1, 2020, the three and six months ended June 29, 2018 included $55.1 million relatedCompany made changes to its business lines as described below. The prior year information in the table above has been reclassified to conform to the settlement ofbusiness line changes.
Federal Solutions Business Line Changes
As a claim that was resolved in favorresult of the Company inacquisitions of Polaris Alpha, OGSystems and QRC, we realigned the Mobilityfive business lines within our Federal Solutions segment into four business lines. We consolidated all space and geospatial programs from the former Geospatial Solutions, Defense and Cyber & Intelligence markets into a new Space & Geospatial Solutions business line ofto increase focus on the critical, evolving space market. This new business line better aligns capabilities and customers to drive growth and performance execution through improved agile, end-to-end solutions and dedicated customer focus.
Further, we re-named our Defense business line to Missile Defense & C5ISR. We moved our Missions Solutions business line into our Missile Defense & C5ISR, Engineered Systems and Cyber & Intelligence business lines, for better
customer and capability alignment. These changes were the next logical step in our acquisition integration process, to optimize performance delivery and growth.
Critical Infrastructure Business Line Changes
We re-aligned our Critical Infrastructure segment. Please see “Note 15 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, forsegment from three markets to two markets. Industrial is now a descriptionpart of this matter. Excluding the claim settlement, revenue for the three and six months ended June 29, 2018 for the Critical Infrastructure segment was $504.6 million and $967.9 million, respectively and for the Mobility Solutions revenueand we moved all Middle East business line revenue was $283.5 millioninto Mobility Solutions as well. We believe this will drive improved synergies among like-markets and $539.2 million, respectively.increased collaboration in areas such as program and engineering management, civil and structural and water/wastewater treatment. We also moved Aviation to Connected Communities and consolidated the civil portion of rail and transit with the systems portion of rail and transit into a consolidated sub-market within Connected Communities to focus on growth in these critical market segments. In each, we are pursuing systems, software and hardware product advanced technology opportunities.
|
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 S-1/A filed April 29,10-K for the year ended December 31, 2019.
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 S-1/A filed April 29,10-K for the year ended December 31, 2019. We undertake no obligation to revise publicly any forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.
COVID-19 Pandemic
In response to the COVID-19 pandemic, the Company has taken certain actions to continue to execute under our contracts with customers and allow our people to work safely. A substantial majority of our work-force transitioned to work-from-home status during the latter part of the quarter ended March 31, 2020, and these practices remain in effect as of the date of this filing. To date, we have experienced no material disruption in our work as a consequence of these changes in our work practices.
The Company has experienced an impact in the volume of work in both the Federal Solutions and Critical Infrastructure segments where customers have restricted access to certain project sites. We have not seen any substantive cancellations of previously awarded contracts. In the Federal Solutions segment, we have had some existing contracts extended. We continue to see several potential contract awards pushed out to a future date.
The Company is receiving limited benefits associated with the CARES Act related to its work on certain US national security projects; however, the curtailment of work under these projects and the CARES Act benefits are not likely to have a material impact on our financial condition or results of operations.
The Company has provided additional disclosure around liquidity and capital resources which can be found in the “Liquidity and Capital Resources” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.
The Company anticipates substantially all of the Company’s subcontractors and material suppliers will be able to fulfill their contractual obligations and we do not expect a material impact from non-performance.
The ultimate impact from the COVID-19 pandemic is difficult to predict. While many uncertainties exist, we currently anticipate no material change in our financial condition or results of operations.
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 disruptive technology provider of technology-driven solutions in the global defense, intelligence and critical infrastructure markets. We provide technical designsoftware and engineeringhardware products, technical services and softwareintegrated solutions to addresssupport our customers’ challenges.missions. We have developed significant expertise and differentiated capabilities in key areas of cybersecurity, intelligence, missile defense, military trainingC5ISR, space, geospatial, and development, connected communities, physical infrastructure and mobility solutions.communities. By combining our talented team of professionals and advanced technology, we help solve complex technical challenges to enable a safer, smarter and more interconnected world.
We operate in two reporting segments, Federal Solutions and Critical Infrastructure. Our Federal Solutions business is a high-end services and technology providerprovides advanced technical solutions to the U.S. government. Our Critical Infrastructure business provides integrated designengineering and engineeringmanagement 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 delivery or task orders by the applicable government 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):
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Awards (year to date) |
| $ | 1,995,167 |
|
| $ | 2,199,210 |
|
| $ | 1,971,186 |
|
| $ | 2,199,210 |
|
Backlog (1) |
| $ | 7,752,666 |
|
| $ | 8,500,954 |
|
| $ | 7,718,690 |
|
| $ | 8,500,954 |
|
Book-to-Bill (year to date) |
|
| 1.2 |
|
|
| 1.2 |
|
|
| 1.0 |
|
|
| 1.2 |
|
(1) | Difference between our backlog of |
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 dateto-date value of new awards for the periods presented below (in thousands):
|
| Three months ended |
|
|
| Six months ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Federal Solutions |
| $ | 841,517 |
|
| $ | 422,829 |
|
| $ | 952,958 |
|
| $ | 1,231,369 |
|
| $ | 433,140 |
|
| $ | 422,829 |
|
| $ | 1,048,830 |
|
| $ | 1,231,369 |
| |
Critical Infrastructure |
|
| 545,336 |
|
|
| 555,313 |
|
|
| 1,042,209 |
|
|
| 967,841 |
|
|
| 571,951 |
|
|
| 555,313 |
|
|
| 922,356 |
|
|
| 967,841 |
| |
Total Awards |
| $ | 1,386,853 |
|
| $ | 978,142 |
|
| $ | 1,995,167 |
|
| $ | 2,199,210 |
|
| $ | 1,005,091 |
|
| $ | 978,142 |
|
| $ | 1,971,186 |
|
| $ | 2,199,210 |
|
The change in new awards from year to year in our Federal Solutions segment is primarily due to a significant award under an existing contractordinary course fluctuations in our legacy business and from business acquisitions. The Federal Solutions segment had significant awards in the second quarter of fiscal 2018. The change in new awards from year to year in our Critical Infrastructure segment is primarily related to a significant award that occurred in the second quarter of 2018.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 change in new awards in our Federal Solutions segment for the six months ended June 30, 2020 when compared to the corresponding period last year was impacted by two significant contracts awarded in the first quarter of 2019. The awards in Critical Infrastructure for the three and six months ended June 30, 2020, were impacted by potential awards being pushed out to a future date.
Backlog
We define backlog to include the following two components:
Funded—Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts.
• | Funded—Funded backlog represents the revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts. |
Unfunded—Unfunded backlog represents the revenue value of orders for services under existing contracts for which funding has not been appropriated or otherwise authorized less revenue previously recognized on these contracts.
• | Unfunded—Unfunded backlog represents the revenue value of orders for services under existing contracts for which funding has not been appropriated or otherwise authorized less revenue previously recognized on these contracts. |
Backlog includes (i) unissued deliverytask 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.
The following table summarizes the value of our backlog at the respective dates presented below: (in thousands):
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Federal Solutions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded (1) |
| $ | 1,000,759 |
|
| $ | 1,003,167 |
| ||||||||
Funded |
| $ | 1,308,663 |
|
| $ | 1,003,167 |
| ||||||||
Unfunded |
|
| 3,609,793 |
|
|
| 4,031,137 |
|
|
| 3,654,203 |
|
|
| 4,031,137 |
|
Total Federal Solutions |
|
| 4,610,552 |
|
|
| 5,034,304 |
|
|
| 4,962,866 |
|
|
| 5,034,304 |
|
Critical Infrastructure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded |
|
| 3,142,114 |
|
|
| 3,466,650 |
|
|
| 2,719,037 |
|
|
| 3,428,364 |
|
Unfunded |
|
|
|
|
|
|
|
| ||||||||
Unfunded (1) |
|
| 36,787 |
|
|
| 38,286 |
| ||||||||
Total Critical Infrastructure |
|
| 3,142,114 |
|
|
| 3,466,650 |
|
|
| 2,755,824 |
|
|
| 3,466,650 |
|
Total Backlog (2) |
| $ | 7,752,666 |
|
| $ | 8,500,954 |
|
| $ | 7,718,690 |
|
| $ | 8,500,954 |
|
(1) | As presented in the first quarter of 2019, funded backlog for the |
| (2) | Difference between our backlog of |
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 and allterm. 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 $2.3$2.8 billion of our funded backlog at June 30, 20192020 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—RisksRisk 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 S-1/A filed on April 29,10-K for the year ended December 31, 2019.
The changes in backlog in ourboth the Federal Solutions segment isand Critical Infrastructure segments were primarily from business acquisition which contributed $0.3 billion. The change in backlog in our Critical Infrastructure segment was primarily due to ordinary course fluctuations in our business. Our backlog will fluctuate in any given period based onbusiness and the volume of awards issued in comparisonimpacts related to the revenue generated from our existing contracts.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 |
|
|
| Six months ended |
|
| Three months ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Federal Solutions |
|
| 2.5 |
|
|
| 0.9 |
|
|
| 1.5 |
|
|
| 1.4 |
|
|
| 0.9 |
|
|
| 0.9 |
|
|
| 1.1 |
|
|
| 1.4 |
| |
Critical Infrastructure |
|
| 1.0 |
|
|
| 1.1 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 1.2 |
|
|
| 1.1 |
|
|
| 0.9 |
|
|
| 1.0 |
| |
Overall |
|
| 1.5 |
|
|
| 1.0 |
|
|
| 1.2 |
|
|
| 1.2 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 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.
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
Polaris AlphaQRC Technologies
On MayJuly 31, 2018, we2019, the Company acquired Polaris AlphaQRC Technologies for $489.1$214.1 million. Polaris Alpha is an advanced, technology-focused providerQRC Technologies provides design and development of innovative mission solutions for national security, intelligence and other U.S. federal customers.open-architecture radio-frequency products. The acquisition was funded by cash on-hand and borrowings under our Revolving Credit Facility. The financial results of Polaris AlphaQRC Technologies have been included in our consolidated results of operations from MayJuly 31, 2018 onward.
OGSystems
On January 7, 2019, we acquired OGSystems for $292.4 million. OGSystems provides geospatial intelligence, big data analytics and threat mitigation for defense and intelligence customers. The acquisition was funded by cash on-hand and borrowings under our Term Loan and Revolving Credit Facility. The financial results of OGSystems have been included in our consolidated results of operations from January 7, 2019 onward.
Seasonality
Our results may be affected by variances as a result of seasonality we experience across our businesses. This pattern 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 extra tasks 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 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.
Historically, the Company had elected to be taxed under the provisions of Subchapter “S” of the Internal Revenue Code for federal tax purposes. As a result, the Company’s income had not been subject to U.S. federal income taxes or state income taxes in those states where the “S” Corporation status was recognized. No provision or liability for federal or
state income tax had been provided in the Company’s consolidated financial statements, prior to the IPO on May 8, 2019, except for those states where the “S” Corporation status was not recognized and for the 1.5% California franchiseor where states imposed a tax to which the Company was also subject as a Californiaon “S” Corporation.Corporations. The provision for income tax in the historical periods prior to the initial public offering (“IPO”)IPO consists of these taxes.state taxes and from certain foreign jurisdictions where the Company is subject to tax.
In connection with the IPO, on May 8, 2019, the Company’s “S” Corporation status terminated, and the Company will beis now treated as a “C” Corporation under Subchapter C of the Internal Revenue Code. The revocation of the Company’s “S” Corporation election had a material impact on the Company’s results of operations, financial condition and cash flows. Going forward theThe effective income tax rate will increasehas increased, and net income will decreasehas decreased as compared to the Company’s “S” Corporation tax years, since the Company will beis now subject to both U.S. federal and state corporate income taxes on ourits earnings.
Results of Operations
In October 2018, our board of directors approved a change in our annual and quarterly fiscal period ends from the last Friday on or before the calendar year or quarterly month-end to the last day of the calendar year or quarterly month-end. Accordingly, the period end for the first and second quarters of fiscal 2018 and fiscal 2019 are March 30, 2018 and June 29, 2018, respectively, and March 31, 2019 and June 30, 2019, respectively. The number of days in the three and six month periods ended June 29, 2018 and June 30, 2019 were 91 and 182, respectively, and 91 and 181, respectively.
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 recognize revenue for work performed under cost-plus, time-and-materials and fixed-price contracts as follows:
Under cost-plus contracts, we are reimbursed for allowable or otherwise defined costs incurred, plus a fee. The contracts may also include incentives for various performance criteria, including quality, timeliness, safety and cost-effectiveness. In addition, costs are generally subject to review by clients and regulatory audit agencies, and such reviews could result in costs being disputed as nonreimbursablenon-reimbursable under the terms of the contract. Revenue for cost-plus contracts is generally recognized using the cost-to-cost measure of progress method. Accounting for the sales and profits on performance obligations for which progress is measured using the cost-to-cost method involves the preparation of estimates of: (1) transaction price and (2) total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s statement of work.
Under time-and-materials contracts, hourly billing rates are negotiated and charged to clients based on the actual time spent on a project. In addition, clients reimburse actual out-of-pocket costs for other direct costs and expenses that are incurred in connection with the performance under the contract. Revenue on time-and-materials contracts is recognized as services are performed and are contractually billable.
Under fixed-price or FFP contracts, clients pay an agreed fixed-amount negotiated in advance for a specified scope of work. Revenue on FFP contracts is generally recognized using the cost-to-cost measure of progress method.
Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and “Note 2—Summary of Significant Accounting Polices” in the notes to our consolidated financial statements included in the Company’s Form S-1/A filed on April 29,10-K for the year ended December 31, 2019 for a further description of our policies on revenue recognition.
The table below presents the percentage of total revenue for each type of contract.
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| |
Fixed-price |
| 29.7% |
|
| 30.8% |
|
| 32.2% |
|
| 29.7% |
|
| 31.8% |
|
| 30.8% |
|
| 31.8% |
|
| 29.7% |
| |
Time-and-materials |
| 27.8% |
|
| 27.2% |
|
| 28.9% |
|
| 27.7% |
|
| 26.5% |
|
| 27.2% |
|
| 26.2% |
|
| 27.7% |
| |
Cost-plus |
| 42.5% |
|
| 42.0% |
|
| 38.9% |
|
| 42.6% |
|
| 41.7% |
|
| 42.0% |
|
| 42.0% |
|
| 42.6% |
|
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 experienced a relatively stable contract mix.
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 estimateestimated cost or transaction price is determined to have an impact on contract profit, we record a positive or negative adjustment to revenue and/or direct cost of contracts.revenue.
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 the Company’sour consolidated statements of income (including revenues and expenses attributable to noncontrolling interests). For the joint ventures we do not control, we recognize equity in earnings (loss) of unconsolidated joint ventures. Our revenues included amounts related to services we provided to our unconsolidated joint ventures for the three months ended June 29, 201830, 2020 and June 30, 2019 of $41.9$42.4 million and $50.7 million, respectively, and for the six months ended June 29, 201830, 2020 and June 30, 2019 $75.6of $82.8 million and $84.3 million, respectively.
Operating costs and expenses
Operating costs and expenses primarily include direct costs of contracts and indirect, 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 June 29, 201830, 2020 and June 30, 2019 was $11.5$14.6 million and $12.3 million, respectively, and for the six months ended June 29, 201830, 2020 and June 30, 2019 was $22.7$29.5 million and $24.5 million, respectively and is recorded in “Direct cost of contracts” and “Indirect, general and administrative expenses.” We expect operating expenses to increase due to our anticipated growth and the incremental costs associated with being a public company. In particular, under our existing compensation plans, we will adjust our compensation expense on a quarterly basis for any change in our share price from the end of the prior quarter. However, on a forward-looking basis, we generally expect these costs to decline as a percentage of our total revenue as we realize the benefits of scale.
Direct costs of contracts consist of direct labor and associated fringe benefits, indirect overhead, subcontractor costs,and materials (“pass-through costs”), travel expenses and other expenses incurred to perform on contracts.
Indirect, general and administrative expenses (“IG&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.
Other income and expenses primarily consist of interest income, interest expense, other income, net and interest and other expense associated with claims on long-term contracts.
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 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 six months ended June 29, 201830, 2020 and June 30, 2019.
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Adjusted EBITDA (1) |
| $ | 52,635 |
|
| $ | 76,205 |
|
| $ | 103,465 |
|
| $ | 148,229 |
|
| $ | 91,161 |
|
| $ | 76,205 |
|
| $ | 151,657 |
|
| $ | 148,229 |
| |
Net Income Margin (2) |
|
| 16.7 | % |
|
| 4.1 | % |
|
| 10.8 | % |
|
| 2.8 | % |
|
| 3.2 | % |
|
| 4.1 | % |
|
| 2.3 | % |
|
| 2.8 | % | |
Adjusted EBITDA Margin (3) |
|
| 5.8 | % |
|
| 7.7 | % |
|
| 6.3 | % |
|
| 7.8 | % |
|
| 9.3 | % |
|
| 7.7 | % |
|
| 7.8 | % |
|
| 7.8 | % |
| (1) | A reconciliation of net income attributable to Parsons Corporation to Adjusted EBITDA is set forth below (in thousands). |
|
| Three months ended |
|
|
| Six months ended |
| ||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
| ||||
Net income attributable to Parsons Corporation |
| $ | 148,381 |
|
| $ | 40,259 |
|
|
| $ | 173,668 |
|
| $ | 50,000 |
|
Interest expense, net |
|
| 3,270 |
|
|
| 6,151 |
|
|
|
| 6,528 |
|
|
| 13,966 |
|
Income tax expense (benefit) |
|
| 9,019 |
|
|
| (53,496 | ) |
|
|
| 14,372 |
|
|
| (51,610 | ) |
Depreciation and amortization |
|
| 14,048 |
|
|
| 31,074 |
|
|
|
| 23,057 |
|
|
| 61,665 |
|
Net income (loss) attributable to noncontrolling interests |
|
| 1,657 |
|
|
| (114 | ) |
|
|
| 5,472 |
|
|
| 3,531 |
|
Litigation-related gains(a) |
|
| (132,004 | ) |
|
| - |
|
|
|
| (129,674 | ) |
|
| - |
|
Amortization of deferred gain resulting from sale-leaseback transactions(b) |
|
| (1,829 | ) |
|
| - |
|
|
|
| (3,642 | ) |
|
| - |
|
Equity based compensation(c) |
|
| 5,049 |
|
|
| 43,311 |
|
|
|
| 8,149 |
|
|
| 47,161 |
|
Transaction-related costs(d) |
|
| 4,930 |
|
|
| 7,715 |
|
|
|
| 5,055 |
|
|
| 17,070 |
|
Restructuring(e) |
|
| - |
|
|
| 353 |
|
|
|
| - |
|
|
| 2,571 |
|
HCM software implementation costs(f) |
|
| 337 |
|
|
| 586 |
|
|
|
| 337 |
|
|
| 3,498 |
|
Other(g) |
|
| (223 | ) |
|
| 366 |
|
|
|
| 143 |
|
|
| 377 |
|
Adjusted EBITDA |
| $ | 52,635 |
|
| $ | 76,205 |
|
|
| $ | 103,465 |
|
| $ | 148,229 |
|
|
| Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by revenue in |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Net income attributable to Parsons Corporation |
| $ | 23,299 |
|
| $ | 40,259 |
|
| $ | 36,272 |
|
| $ | 50,000 |
|
Interest expense, net |
|
| 3,963 |
|
|
| 6,151 |
|
|
| 7,757 |
|
|
| 13,966 |
|
Income tax expense (benefit) |
|
| 11,891 |
|
|
| (53,496 | ) |
|
| 16,975 |
|
|
| (51,610 | ) |
Depreciation and amortization |
|
| 32,081 |
|
|
| 31,074 |
|
|
| 64,490 |
|
|
| 61,665 |
|
Net income attributable to noncontrolling interests |
|
| 7,826 |
|
|
| (114 | ) |
|
| 9,224 |
|
|
| 3,531 |
|
Equity-based compensation |
|
| 12,854 |
|
|
| 43,311 |
|
|
| 5,133 |
|
|
| 47,161 |
|
Transaction-related costs (a) |
|
| (2,485 | ) |
|
| 7,715 |
|
|
| 9,526 |
|
|
| 17,070 |
|
Restructuring (b) |
|
| 1,143 |
|
|
| 353 |
|
|
| 1,110 |
|
|
| 2,571 |
|
Other (c) |
|
| 589 |
|
|
| 952 |
|
|
| 1,170 |
|
|
| 3,875 |
|
Adjusted EBITDA |
| $ | 91,161 |
|
| $ | 76,205 |
|
| $ | 151,657 |
|
| $ | 148,229 |
|
|
|
| Reflects costs incurred in connection with acquisitions, IPO, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention. |
|
|
| Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually insignificant items that are non-recurring in nature. |
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 (loss) 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, amortization of deferred gain resulting from sale-leaseback transactions, 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 |
|
| Six Months Ended |
|
| Variance |
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||||||||||
Federal Solutions Adjusted EBITDA attributable to Parsons Corporation |
| $ | 33,948 |
|
| $ | 35,700 |
|
| $ | 1,752 |
|
|
| 5.2 | % |
| $ | 55,496 |
|
| $ | 76,299 |
|
| $ | 20,803 |
|
|
| 37.5 | % |
| $ | 47,700 |
|
| $ | 35,700 |
|
| $ | 12,000 |
|
|
| 33.6 | % |
| $ | 79,317 |
|
| $ | 76,299 |
|
| $ | 3,018 |
|
|
| 4.0 | % | |
Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation |
|
| 16,928 |
|
|
| 40,525 |
|
|
| 23,597 |
|
|
| 139.4 | % |
|
| 42,290 |
|
|
| 68,201 |
|
|
| 25,911 |
|
|
| 61.3 | % |
|
| 35,519 |
|
|
| 40,525 |
|
|
| (5,006 | ) |
|
| -12.4 | % |
|
| 62,876 |
|
|
| 68,201 |
|
|
| (5,325 | ) |
|
| -7.8 | % | |
Adjusted EBITDA attributable to noncontrolling interests |
|
| 1,759 |
|
|
| (20 | ) |
|
| (1,779 | ) |
|
| -101.1 | % |
|
| 5,679 |
|
|
| 3,729 |
|
|
| (1,950 | ) |
|
| -34.3 | % |
|
| 7,942 |
|
|
| (20 | ) |
|
| 7,962 |
|
| N/A |
|
|
| 9,464 |
|
|
| 3,729 |
|
|
| 5,735 |
|
|
| 153.8 | % | ||
Total Adjusted EBITDA |
| $ | 52,635 |
|
| $ | 76,205 |
|
| $ | 23,570 |
|
|
| 44.8 | % |
| $ | 103,465 |
|
| $ | 148,229 |
|
| $ | 44,764 |
|
|
| 43.3 | % |
| $ | 91,161 |
|
| $ | 76,205 |
|
| $ | 14,956 |
|
|
| 19.6 | % |
| $ | 151,657 |
|
| $ | 148,229 |
|
| $ | 3,428 |
|
|
| 2.3 | % |
|
|
|
|
The following table sets forth our results of operations for the three and six months ended June 29, 201830, 2020 and June 30, 2019 as a percentage of revenue.
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Revenues |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % | |
Direct costs of contracts |
|
| 74.2 | % |
|
| 79.3 | % |
|
| 76.8 | % |
|
| 79.1 | % |
|
| 76.5 | % |
|
| 79.3 | % |
|
| 77.9 | % |
|
| 79.1 | % | |
Equity in earnings of unconsolidated joint ventures |
|
| 0.2 | % |
|
| 1.2 | % |
|
| 0.8 | % |
|
| 1.2 | % |
|
| 0.4 | % |
|
| 1.2 | % |
|
| 0.5 | % |
|
| 1.2 | % | |
Indirect, general and administrative expenses |
|
| 16.4 | % |
|
| 22.8 | % |
|
| 16.4 | % |
|
| 21.3 | % |
|
| 19.2 | % |
|
| 22.8 | % |
|
| 19.0 | % |
|
| 21.3 | % | |
Operating income |
|
| 9.6 | % |
|
| -0.9 | % |
|
| 7.6 | % |
|
| 0.8 | % | |||||||||||||||||
Operating income (loss) |
|
| 4.7 | % |
|
| -0.9 | % |
|
| 3.6 | % |
|
| 0.8 | % | |||||||||||||||||
Interest income |
|
| 0.1 | % |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % | |
Interest expense |
|
| -0.5 | % |
|
| -0.6 | % |
|
| -0.5 | % |
|
| -0.8 | % |
|
| -0.4 | % |
|
| -0.6 | % |
|
| -0.4 | % |
|
| -0.8 | % | |
Other income, net |
|
| -0.2 | % |
|
| 0.2 | % |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 0.1 | % |
|
| 0.2 | % |
|
| 0.0 | % |
|
| 0.1 | % | |
(Interest and other expense) gain associated with claim on long-term contract |
|
| 8.5 | % |
|
| 0.0 | % |
|
| 4.5 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % | |
Total other income (expense) |
|
| 8.0 | % |
|
| -0.5 | % |
|
| 4.1 | % |
|
| -0.7 | % |
|
| -0.3 | % |
|
| -0.5 | % |
|
| -0.4 | % |
|
| -0.7 | % | |
Income before income tax provision |
|
| 17.7 | % |
|
| -1.3 | % |
|
| 11.7 | % |
|
| 0.1 | % | |||||||||||||||||
Income tax provision |
|
| -1.0 | % |
|
| 5.4 | % |
|
| -0.9 | % |
|
| 2.7 | % | |||||||||||||||||
Income (loss) before income tax expense |
|
| 4.4 | % |
|
| -1.3 | % |
|
| 3.2 | % |
|
| 0.1 | % | |||||||||||||||||
Income tax benefit (provision) |
|
| -1.2 | % |
|
| 5.4 | % |
|
| -0.9 | % |
|
| 2.7 | % | |||||||||||||||||
Net income including noncontrolling interests |
|
| 16.7 | % |
|
| 4.1 | % |
|
| 10.8 | % |
|
| 2.8 | % |
|
| 3.2 | % |
|
| 4.1 | % |
|
| 2.3 | % |
|
| 2.8 | % | |
Net income attributable to noncontrolling interests |
|
| -0.2 | % |
|
| 0.0 | % |
|
| -0.3 | % |
|
| -0.2 | % |
|
| -0.8 | % |
|
| 0.0 | % |
|
| -0.5 | % |
|
| -0.2 | % | |
Net income attributable to Parsons Corporation |
|
| 16.5 | % |
|
| 4.1 | % |
|
| 10.5 | % |
|
| 2.6 | % |
|
| 2.4 | % |
|
| 4.1 | % |
|
| 1.9 | % |
|
| 2.6 | % |
Revenue
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||||||||||
Revenue |
| $ | 900,732 |
|
| $ | 989,742 |
|
| $ | 89,010 |
|
|
| 9.9 | % |
| $ | 1,655,411 |
|
| $ | 1,894,147 |
|
| $ | 238,736 |
|
|
| 14.4 | % |
| $ | 979,459 |
|
| $ | 989,742 |
|
| $ | (10,283 | ) |
|
| -1.0 | % |
| $ | 1,950,452 |
|
| $ | 1,894,147 |
|
| $ | 56,305 |
|
|
| 3.0 | % |
Revenue for the three and six months ended June 29, 2018 included $55.1 million related to the settlement of a claim that was resolved in favor of the Company on June 13, 2018, in our Critical Infrastructure segment. Please see “Note 15 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, for a description of this matter.
Excluding the claim settlement, Revenue increased $144.1decreased $10.3 million for the three months ended June 30, 20192020 when compared to the corresponding period last year, primarily due to a decrease in revenue in our Critical Infrastructure segment of $14.0 million offset by an increase in our Federal Solutions segment of $3.7 million. Revenue increased $56.3 million for the six months ended June 30, 2020 when compared to the corresponding period last year, primarily due to an increase in revenue in our Federal Solutions segment of $137.4$58.5 million and an increaseoffset by a decrease in our Critical Infrastructure segment of $6.7$2.2 million. RevenueSee “Segment Results” below for a further discussion.
Direct costs of contracts
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||
Direct costs of contracts |
| $ | 749,324 |
|
| $ | 784,723 |
|
| $ | (35,399 | ) |
|
| -4.5 | % |
| $ | 1,518,956 |
|
| $ | 1,498,960 |
|
| $ | 19,996 |
|
|
| 1.3 | % |
Direct cost of contracts decreased $35.4 million for the three months ended June 30, 2020 when compared to the corresponding period last year, primarily due to a decrease of $26.8 million in our Critical Infrastructure segment and a decrease of $8.6 million in our Federal Solutions segment. The decrease in our Critical Infrastructure segment was primarily due to programs with high levels of pass-through costs reaching substantial completion. The decrease in our Federal Solutions segment was primarily due to a decrease in business volume driven by a reduction in pass-through costs.
Direct cost of contracts increased $293.8$20.0 million for the six months ended June 30, 2019 when compared to the corresponding period last year, excluding the claim settlement, primarily due to an increase in revenue in our Federal Solutions segment of $268.9 million and an increase in our Critical Infrastructure segment of $24.9 million See “—Segment Results” below for further discussion.
Direct costs of contracts
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||
Direct costs of contracts |
| $ | 668,211 |
|
| $ | 784,723 |
|
| $ | 116,512 |
|
|
| 17.4 | % |
| $ | 1,271,183 |
|
| $ | 1,498,960 |
|
| $ | 227,777 |
|
|
| 17.9 | % |
Direct cost of contracts increased for the three months ended June 30, 20192020 when compared to the corresponding period last year, primarily due to an increase of $110.0$41.0 million in our Federal Solutions segment and from an increaseoffset by a decrease of
$6.5 $21.0 million in our Critical Infrastructure segment. The increase in our Federal Solutions segment was due primarily from business acquisitions, which added $89.1 million.increased pass-through costs. The increasedecrease in our Critical Infrastructure segment was primarily due to an increase in business volume under existing contracts. Direct costprograms with high levels of contracts increased for the six months ended June 30, 2019 when compared to the corresponding period last year primarily due to an increase of $203.2 million in our Federal Solutions segment and from an increase of $24.6 million in our Critical Infrastructure segment. The increase in our Federal Solutions segment was due primarily to business acquisitions which added $180.4 million. The increase in our Critical Infrastructure segment was primarily due to an increase in business volume under existing contracts. pass-through costs reaching substantial completion.
Equity in earnings of unconsolidated joint ventures
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||||||||||
Equity in earnings of unconsolidated joint ventures |
| $ | 1,839 |
|
| $ | 11,634 |
|
| $ | 9,795 |
|
|
| 532.6 | % |
| $ | 12,870 |
|
| $ | 22,031 |
|
| $ | 9,161 |
|
|
| 71.2 | % |
| $ | 3,769 |
|
| $ | 11,634 |
|
| $ | (7,865 | ) |
|
| -67.6 | % |
| $ | 9,883 |
|
| $ | 22,031 |
|
| $ | (12,148 | ) |
|
| -55.1 | % |
Equity in earnings of unconsolidated joint ventures increaseddecreased $7.9 million and $12.1 million for the three and six months ended June 30, 20192020, respectively, when compared to the corresponding periods last year. The increases wereyear primarily duerelated to increased activity under a number of the Company’s existingreduced margins in certain joint ventures as well as a reduction in our Critical Infrastructure segment.activity on a significant joint venture that is substantially complete.
Indirect, general and administrative expenses
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||||||||||
Indirect, general and administrative expenses |
| $ | 147,448 |
|
| $ | 225,359 |
|
| $ | 77,911 |
|
|
| 52.8 | % |
| $ | 271,295 |
|
| $ | 402,878 |
|
| $ | 131,583 |
|
|
| 48.5 | % |
| $ | 187,640 |
|
| $ | 225,359 |
|
| $ | (37,719 | ) |
|
| -16.7 | % |
| $ | 371,414 |
|
| $ | 402,878 |
|
| $ | (31,464 | ) |
|
| -7.8 | % |
Indirect, general and administrative expenses (“IG&A”) for the three months ended June 29, 201830, 2020 and June 30, 2019 include $5.0$12.9 million and $43.3 million, respectively, and for the six months ended June 29, 201830, 2020 and June 30, 2019 $8.1include $5.1 million and $47.2 million, respectively, of compensation cost related to equity-based awards.
Equity awards thatissued prior to the Company’s IPO settle in cash. These awardscash and are remeasured to an updated fair value at each reporting period until the award is settled. Compensation cost is trued-up at each reporting period for changes in fair value pro-rated for the portion of the requisite service period rendered.
The significant increase in compensation cost, related to these cash settled equity-based awards for the three and six months ended June 30, 2019, is due Prior to the significant difference inIPO on May 8, 2019, the fair value of a share of the Company’s common stock under Parsonswas established by the ESOP valuation at Marchtrustee. See “Note 19 – Fair Value of Financial Instruments” in the Company’s Form 10-K for the year ended December 31, 2019 (the previous reporting period end) compared to the fair valuefor a further discussion of how a share of the Company’s common stock inwas valued prior to the public market at June 30, 2019 (the current reporting period end). Please see “Note 18 – Fair ValueIPO. Subsequent to the IPO, the share price of Financial Instruments” for a description of how the ESOP share value is determined. Please see “Note 1 – Description of Operations” for more detail regarding the Company’s IPO. The plans in which these awards were granted have been frozen andcommon stock is based on quoted prices on the Company does not currently intend to grant any further cash settled equity-based awards.New York Stock Exchange.
Excluding the compensation costs discussed above, IG&A for the three months ended June 29, 201830, 2020 and June 30, 2019 were $142.4was $174.8 million and $182.1$182.0 million, respectively and for the six months ended June 29, 201830, 2020 and June 30, 2019 were $263.2was $366.3 million and $355.7 million, respectively. respectively
The increasedecrease in IG&A of $39.7$7.2 million, exclusive of equity compensation cost, for the three months ended June 30, 20192020 when compared to the corresponding period last year was primarily due to our Federal Solutions segment, most ofa $8.6 million reduction in transaction-related, restructuring and other non-recurring costs, $4.3 million due to a tax law change, and $4.3 million from various overhead adjustments which is related tooccurred in second quarter 2019, but did not recur in the second quarter 2020. These decreases were offset by additional expenses of $15.8$8.5 million fromassociated with business acquisitions and $15.9$1.5 million from the amortization of intangible assets related to our acquisitions. In our Critical Infrastructure segment, IG&A decreased by $2.8 million. strategic growth initiatives and public company operating costs.
The increase in IG&A of $92.5$10.6 million, exclusive of equity compensation cost, for the six months ended June 30, 20192020 when compared to the corresponding period last year was primarily due to our Federal Solutions segment, mostadditional expenses of which$16.7 million associated with business acquisitions, $3.7 million due to a tax law change, and $5.0 million related to strategic growth initiatives and public company operating costs. These increases were partially offset by a $14.8 million reduction in transaction-related, restructuring and other non-recurring costs.
Total other income (expense)
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||
Interest income |
| $ | 196 |
|
| $ | 225 |
|
| $ | (29 | ) |
|
| -12.9 | % |
| $ | 424 |
|
| $ | 702 |
|
| $ | (278 | ) |
|
| -39.6 | % |
Interest expense |
|
| (4,159 | ) |
|
| (6,376 | ) |
|
| 2,217 |
|
|
| -34.8 | % |
|
| (8,181 | ) |
|
| (14,668 | ) |
|
| 6,487 |
|
|
| -44.2 | % |
Other income (expense), net |
|
| 715 |
|
|
| 1,506 |
|
|
| (791 | ) |
|
| -52.5 | % |
|
| 263 |
|
|
| 1,547 |
|
|
| (1,284 | ) |
|
| -83.0 | % |
Total other income (expense) |
| $ | (3,248 | ) |
| $ | (4,645 | ) |
| $ | 1,397 |
|
|
| -30.1 | % |
| $ | (7,494 | ) |
| $ | (12,419 | ) |
| $ | 4,925 |
|
|
| -39.7 | % |
Interest income is related to additional expenses of $34.7 million from business acquisitions, $35.5 million from the amortization of intangible assets related to our acquisitions and $12.0 million in acquisition-related expenses. In our Critical Infrastructure segment, IG&A is substantially unchanged.
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||
Interest income |
| $ | 1,266 |
|
| $ | 225 |
|
| $ | (1,041 | ) |
|
| -82.2 | % |
| $ | 2,007 |
|
| $ | 702 |
|
| $ | (1,305 | ) |
|
| -65.0 | % |
Interest expense |
|
| (4,536 | ) |
|
| (6,376 | ) |
|
| (1,840 | ) |
|
| 40.6 | % |
|
| (8,535 | ) |
|
| (14,668 | ) |
|
| (6,133 | ) |
|
| 71.9 | % |
Other income (expense), net |
|
| (1,493 | ) |
|
| 1,506 |
|
|
| 2,999 |
|
|
| -200.9 | % |
|
| (341 | ) |
|
| 1,547 |
|
|
| 1,888 |
|
|
| -553.7 | % |
Interest and other income associated with claim on long-term contract |
|
| 2,330 |
|
|
| - |
|
|
| (2,330 | ) |
|
| -100.0 | % |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Gain associated with claim on long-term contract |
|
| 74,578 |
|
|
| - |
|
|
| (74,578 | ) |
|
| -100.0 | % |
|
| 74,578 |
|
|
| - |
|
|
| (74,578 | ) |
|
| -100.0 | % |
Total other income (expense) |
| $ | 72,145 |
|
| $ | (4,645 | ) |
| $ | (76,790 | ) |
|
| -106.4 | % |
| $ | 67,709 |
|
| $ | (12,419 | ) |
| $ | (80,128 | ) |
|
| -118.3 | % |
The decrease in interest income for the three and six months ended June 30, 2019 compared to the corresponding period last yearearned on cash balances held. Interest expense is primarily due to lower cash balances held during the three and six months ended June 30, 2019 compared to the corresponding periods last year. The increase in interest expense for the three and six months ended June 30, 2019 compared to the corresponding period last year is primarily due to an increase in debt related to our business acquisitions. During the quarter ended June 30, 2019, the Company’s term loan of $150 million was paid off and the amount of debt outstanding under the Company’s revolving credit facility was reduced. The amounts in other income (expense), net for the three and six months ended June 29, 2018 and June 30, 2019 are primarily related to transaction gains and losses on foreign currency transactions and sublease income.
The amounts presented in Interest and other expense associated with claim on long-term contract and gain associated with claim on long-term contract for the three and six months ended June 29, 2018 relates to a lawsuit against a joint venture in which the Company is the managing partner. Please see “Note 15 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, for a description of this matter, which was resolved in favor of the Company on June 13, 2018.
Income tax expense (benefit)
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||||||||||
Income tax expense (benefit) |
| $ | 9,019 |
|
| $ | (53,496 | ) |
| $ | (62,515 | ) |
|
| -693.1 | % |
| $ | 14,372 |
|
| $ | (51,610 | ) |
| $ | (65,982 | ) |
|
| -459.1 | % | ||||||||||||||||||||||||||||||||
Income tax expense |
| $ | 11,891 |
|
| $ | (53,496 | ) |
| $ | 65,387 |
|
|
| -122.2 | % |
| $ | 16,975 |
|
| $ | (51,610 | ) |
| $ | 68,585 |
|
|
| -132.9 | % |
Income tax benefit was recorded for the three and six months ended June 30, 2019, compared to expense for the corresponding periods last year primarily due to revaluation of our deferred tax assets and liabilities as a result of our conversion from “S” Corporation to a “C” Corporation.
As described in “Note 1311 – Income Taxes,” in the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, in connection with the Company’s IPO on May 8, 2019, the Company converted from an “S” Corporation to a “C” Corporation. On a pro forma basis, if the Company had been taxed as a “C” Corporation for the three months and six months ended June 29, 2018 and June 30, 2019, the pro forma effective income tax rate would have been 27.22%8.36% and 8.36%190.71%, respectively, and the pro forma income tax expense would have been $43.2 million and $(1.1) million, respectively. For the six months ended June 29, 2018 and June 30, 2019 the pro forma effective income tax rate would have been 28.26% and 190.71%, respectively, and the Company’s pro forma income tax expense (benefit) would have been $54.7 million and $3.7 million, respectively. The Company’s effective tax rate was 27.64% and 27.17% and income tax expense was $11.9 million and $17.0 million for the three months and six months ended June 30, 2020, respectively. The most significant itemitems contributing to the change in the effective tax rate relatesrelate to a tax benefit recognized fornonrecurring item included in the deduction ofsecond quarter 2019 associated with equity compensation offset in part byand a change in jurisdictional earnings. The difference between the statutory U.S. federal income tax rate of 21.0% and the effective tax rate for the quarter ended June 29, 201830, 2020 primarily relates to foreign earnings which are subject to foreignstate income taxes at rates that exceed the U.S. income tax rate.taxes.
The termination forof the “S” Corporation status was treated as a change in tax status for Accounting Standards Codification 740, Income Taxes. These rules require that the deferred tax effects of a change in tax status to be recorded to income from continuing operations on the date the “S” Corporation status terminates. TheAt the quarter ended June 30, 2019, the Company has calculatedhad recorded $56 million for the estimated effect of thisthe change in tax status, based upon our forecastedrelating to the recognition of net deferred tax assets for temporary differences forin existence on the yeardate of conversion to be a deferred tax benefit of $56 million.“C” Corporation. This estimated amount is subject to additional revision based upon actual results.filing of the 2019 tax returns.
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, inthis 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 20—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 |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||
Federal Solutions Adjusted EBITDA attributable to Parsons Corporation |
| $ | 33,948 |
|
| $ | 35,700 |
|
| $ | 55,496 |
|
| $ | 76,299 |
|
| $ | 47,700 |
|
| $ | 35,700 |
|
| $ | 79,317 |
|
| $ | 76,299 |
|
Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation |
|
| 16,928 |
|
|
| 40,525 |
|
|
| 42,290 |
|
|
| 68,201 |
|
|
| 35,519 |
|
|
| 40,525 |
|
|
| 62,876 |
|
|
| 68,201 |
|
Adjusted EBITDA attributable to noncontrolling interests |
|
| 1,759 |
|
|
| (20 | ) |
|
| 5,679 |
|
|
| 3,729 |
|
|
| 7,942 |
|
|
| (20 | ) |
|
| 9,464 |
|
|
| 3,729 |
|
Total Adjusted EBITDA |
| $ | 52,635 |
|
| $ | 76,205 |
|
| $ | 103,465 |
|
| $ | 148,229 |
|
| $ | 91,161 |
|
| $ | 76,205 |
|
| $ | 151,657 |
|
| $ | 148,229 |
|
Federal Solutions
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||||||||||
Revenue |
| $ | 341,065 |
|
| $ | 478,497 |
|
| $ | 137,432 |
|
|
| 40.3 | % |
| $ | 632,400 |
|
| $ | 901,309 |
|
| $ | 268,909 |
|
|
| 42.5 | % |
| $ | 482,210 |
|
| $ | 478,497 |
|
| $ | 3,713 |
|
|
| 0.8 | % |
| $ | 959,781 |
|
| $ | 901,309 |
|
| $ | 58,472 |
|
|
| 6.5 | % |
Adjusted EBITDA attributable to Parsons Corporation |
| $ | 33,948 |
|
| $ | 35,700 |
|
| $ | 1,752 |
|
|
| 5.2 | % |
| $ | 55,496 |
|
| $ | 76,299 |
|
| $ | 20,803 |
|
|
| 37.5 | % |
| $ | 47,700 |
|
| $ | 35,700 |
|
| $ | 12,000 |
|
|
| 33.6 | % |
| $ | 79,317 |
|
| $ | 76,299 |
|
| $ | 3,018 |
|
|
| 4.0 | % |
The increase in Federal Solutions revenue for the three and six months ended June 30, 20192020 compared to the corresponding periodperiods last year was primarily due to incrementalan increase in business volume from new and existing contracts and an increase in incentive fees. These increases were partially offset by a delay in revenue from business acquisitions, which added $115.5 million. Federal Solutions legacy revenue increased $21.9 million. The increase in Federal Solutions revenue for the six months ended June 30, 2019 compared to the corresponding period last year was primarily due to business acquisitions, which added $237.8 million. Federal Solutions legacy revenue increased $31.1 million.certain programs where work is delayed as a result of COVID-19.
The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the three months ended June 30, 20192020 compared to the corresponding period last year was primarily due to business acquisitions, primarily offsetgenerally higher profit margins driven by an increase in IG&A, driven byincentive fee recognition and a greater allocation of corporate IG&Adecrease in line with its growing share of overall business, increased pass-through sub-contract costs, and the timing of completion of certainvolume on contracts with higher margins. pass-through costs.
The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the six months ended June 30, 20192020 compared to the corresponding period last year was primarily due to business acquisitions and generally higher profit margins net of the factors discussed above. These increases were primarily offsetdriven by an increase in incentive fees and an increase in business volume from new awards and business acquisitions. Offsetting the increase in Adjusted EBITDA attributable to Parsons Corporation was an increase in volume on contracts with pass-through costs and an increase in IG&A as described above.from business acquisitions and corporate allocated costs. IG&A, in the first quarter of 2019, included various positive overhead adjustments that did not recur in the first quarter of 2020.
Critical Infrastructure
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||
Revenue |
| $ | 497,249 |
|
| $ | 511,245 |
|
| $ | (13,996 | ) |
|
| -2.7 | % |
| $ | 990,671 |
|
| $ | 992,838 |
|
| $ | (2,167 | ) |
|
| -0.2 | % |
Adjusted EBITDA attributable to Parsons Corporation |
| $ | 35,519 |
|
| $ | 40,525 |
|
| $ | (5,006 | ) |
|
| -12.4 | % |
| $ | 62,876 |
|
| $ | 68,201 |
|
| $ | (5,325 | ) |
|
| -7.8 | % |
The decrease in Critical Infrastructure
|
| Three Months Ended |
|
| Variance |
|
| Six Months Ended |
|
| Variance |
| ||||||||||||||||||||
(U.S. dollars in thousands) |
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| Dollar |
|
| Percent |
| ||||||||
Revenue |
| $ | 559,667 |
|
| $ | 511,245 |
|
| $ | (48,422 | ) |
|
| -8.7 | % |
| $ | 1,023,011 |
|
| $ | 992,838 |
|
| $ | (30,173 | ) |
|
| -2.9 | % |
Adjusted EBITDA attributable to Parsons Corporation |
| $ | 16,928 |
|
| $ | 40,525 |
|
| $ | 23,597 |
|
|
| 139.4 | % |
| $ | 42,290 |
|
| $ | 68,201 |
|
| $ | 25,911 |
|
|
| 61.3 | % |
As discussed above, revenue for the three and six months ended June 29, 2018 included $55.1 million related to the settlement of a claim that was resolved in favor of the Company. Excluding the claim settlement, revenue for the three and six months ended June 30, 2019 compared to the corresponding periods last year increased $6.7 million and $24.9 million, respectively. These increases in revenue were primarily related to revenue growth on existing contracts.
The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons Corporation for the three and six months ended June 30, 20192020 compared to the corresponding periods last year was primarily due to a delay in revenue from certain programs where work is delayed as a result of COVID-19, partially offset by an increase in business volume under new and existing contracts.
The decrease in Adjusted EBITDA attributable to Parsons Corporation in Critical Infrastructure for the three months ended June 30, 2020 was primarily related to a decrease in equity in earnings of unconsolidated joint ventures primarilypartially offset by improved project margins.
The decrease in Adjusted EBITDA attributable to Parsons Corporation in Critical Infrastructure for the six months ended June 30, 2020 was primarily related to a decrease in equity in earnings of unconsolidated joint ventures and an increase in business volume on lower margin construction and related services.IG&A. These decreases were partially offset by improved project margins.
Liquidity and Capital Resources
Historically, we have financed our operations and capital expenditures and satisfied redemptions of ESOP interests through a combination of internally generated cash from operations, our Senior Notes and from 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.
There are likely to be certain impacts in our ability to collect accounts receivable as a result of the economic impacts from the COVID-19 pandemic. Accounts receivable reflect amounts due from both commercial and government customers. Our commercial customers are comprised principally of large, well-known and well-established companies. Our government customers are comprised principally of national, state and local agencies in the U.S. and Middle East. We have not seen and do not expect there to be a risk of non-payment from either our government agency or commercial customers. We have experienced payment delays due to administrative limitations from both types of customers.
As of June 30, 2020, we believe we have adequate liquidity and capital resources to fund our operations, support our debt service and support 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 handon-hand and our borrowing capacity under our Revolving Credit Facility.
On July 31, 2019Facility, which totals $505.1 million as of June 30, 2020. We do not currently anticipate that the Company closed onCOVID-19 pandemic related economic impacts will impair the Company’s ability to continue to maintain compliance with its acquisition of QRC Technologies (“QRC”). QRC provides design and development of open-architecture radio-frequency products. The purchase price is estimated to be $217.7 million and the Company anticipates using $140.0 million of debt undercovenants or access available borrowing capacity from our revolving credit facility and $77.7 million in cash to fund the transaction.banks.
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 contracts.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.
Accounts receivable is the principal component of our working capital and is generally driven by revenue growth. Accounts receivable reflects amounts billed to our clients as of each balance sheet date and receivable amounts that are currently due but unbilled. The total amount of our accounts receivable can vary significantly over time, but is generally sensitive to revenue levels. 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). In the last few years we have focusedWe focus on collecting outstanding receivables to reduce Net DSO and working capital. Net DSO was 7069 days at
June 29, 201830, 2020 and 65 days at June 30, 2019. In addition to the COVID-19 impacts discussed above, the increase in DSO was also impacted by certain administrative activities by a customer in the Federal Solutions segment which have delayed the payment of invoices.
Our working capital (current assets less current liabilities) was $482.6$458.2 million at June 30, 2020 and $382.0 million at December 31, 2018 and $486.2 million at June 30, 2019.
Our cash, cash equivalents and restricted cash decreased by $69.8$58.8 million to $211.4$136.6 million at June 30, 20192020 from $211.4$195.4 million at June 29, 2018.December 31, 2019.
The following table summarizes our sources and uses of cash over the periods presented (in thousands):
|
| Six Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 29, 2018 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Net cash used in operating activities |
| $ | (8,443 | ) |
| $ | (48,495 | ) |
| $ | (31,444 | ) |
| $ | (48,495 | ) |
Net cash used in investing activities |
|
| (495,827 | ) |
|
| (312,208 | ) |
|
| (25,822 | ) |
|
| (312,208 | ) |
Net cash provided by financing activities |
|
| 237,896 |
|
|
| 291,493 |
|
|
| (847 | ) |
|
| 291,493 |
|
Effect of exchange rate changes |
|
| (624 | ) |
|
| (602 | ) |
|
| (641 | ) |
|
| (602 | ) |
Net decrease in cash and cash equivalents |
| $ | (266,998 | ) |
| $ | (69,812 | ) |
| $ | (58,754 | ) |
| $ | (69,812 | ) |
Operating Activities
Net cash used in operating activities consists primarily of net income (loss) adjusted for noncash items, such as: equity in earnings (loss) of unconsolidated joint ventures, contributions of treasury stock, depreciation and amortization of property and equipment and intangible assets, and provisions for doubtful accounts, amortization of deferred gains, and impairment charges.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 used in operating activities increased $40.1decreased $17.1 million to $48.5$31.4 million for the six months ended June 30, 20192020 compared to $8.4$48.5 million of cash used in operating activities for the six months ended June 29, 2018.30, 2019. The increasechange in net cash used in operating activities is primarily due tofrom a $33.3$86.6 million decreaseincrease in net income after adjusting for non-cash items and from a $17.3 million increase in the use of cash in our working capital accounts. These uses of cash were offset by a $10.6change of $48.7 million change in other long-term liabilities, primarily related to the Company’s incentive plans. Net DSOs improved from 70 days to 65 days primarily driven by the payment of long-term employee incentives offset by the deferral of social security payroll taxes as described below and a $20.8 million increase in cash outflows from our working capital accounts (primarily from accrued expenses and contract liabilities offset by accounts receivable, net of contract assets and deferred income tax payments as described below).
Under the Company’s revenueCARES Act, the Company had deferred $18.5 million in U.S. federal and certain state estimated 2020 income tax payments that were otherwise due during the quarter ended June 30, 2020 and were due and paid by July 15, 2020. The CARES Act also provides for the deferral of employer’s share of social security payroll taxes due from business acquisitions.the date of enactment through the end of 2020. The Company has deferred $14.5 million of social security taxes otherwise due from April 10, 2020 through the quarter ended June 30, 2020 and will continue to defer employer social security taxes otherwise due for the remaining of the calendar year 2020; one-half of which are due December 31, 2021 and the second-half which are due December 31, 2022.
Investing Activities
Net cash used in investing activities consists primarily of cash flows associated with capital expenditures and business acquisitions.
Net cash used in investing activities decreased $183.6$286.4 million to $25.8 million for the six months ended June 30, 2020, when compared to $312.2 million for the six months ended June 30, 2019, when comparedprimarily due to $495.8the use of $287.5 million, net of cash acquired, for the acquisition of OGSystems on January 7, 2019. The Company had no business acquisitions activity during the six months ended June 29, 2018. Cash used in investing activities for the six months ended June 29, 2018 and June 30, 2019 primarily related to the acquisitions of Polaris Alpha, and OGSystems, respectively.2020.
Financing Activities
Net cash provided by financing activities is primarily associated with proceeds from debt, the repayment thereof, and distributions to noncontrolling interests and payments to the ESOPinterests.
The Company used $0.8 million in connection with the redemption of ESOP participants’ interests. We spent $33.0 million and $0.8 millionnet cash from financing activities for the six months ended June 29, 2018 and June 30, 2019, respectively,2020 compared to $291.5 million in connection with the redemption of ESOP participants’ interests. With a public market for the Company’s common stock, cash will no longer be required for ESOP redemptions following the 180-day lock-up period which ends November 8, 2019.
Netnet cash provided by financing activities increased $53.6 million to $291.5 million for the six months ended June 30, 2019, whena decrease in net cash provided by financing activities of $292.3 million. The change in cash flows from financing activities is primarily due to $537.3 million of IPO proceeds offset in part by net repayments of borrowings of $180 million and a dividend payment
of $52.1 million during the six months ended June 30, 2019 compared to $237.9 millionno amounts related to these financing activities for the six months ended June 29, 2018, primarily due to $537.3 million of net proceeds from the IPO and a reduction of $32.2 million in the purchases of treasury stock. These cash flows provided by financing activities were offset, in part, by a reduction in cash used under the Company’s revolving credit agreement of
$440.0 million, an increase of $23.5 million of net distributions to noncontrolling interests, and payment of the IPO dividend of $52.1 million.30, 2020.
Letters of Credit
We also 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 $234.0$186.6 million as of June 30, 2019,2020, including $46.5$44.9 million of letters of credit outstanding under the Credit Agreement. Total letters of credit outstanding at June 30, 2020 are $231.4 million.
Recent Accounting Pronouncements
See the information set forth in “Note 3—Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” in the notes to our consolidated financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2019,2020, 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 boththe Company’s Revolving Credit Facility. As of June 30, 2020, there were no amounts outstanding under the Revolving Credit Facility and our Term Loan Agreement.Facility. Borrowings under the Revolving Credit Facility bear interest, at ourthe Company’s option, at either (i) the Base Rate (as defined in the Revolving Credit Facility)Agreement), plus an applicable margin, or (ii) LIBOR plus an applicable margin. AsThe applicable margin for Base Rate loans is a range of 0.125% to 1.00% and the applicable margin for LIBOR loans is a range of 1.125% to 2.00%, both based on the leverage ratio of the Company at the end of each fiscal quarter. The rates at June 30, 2020 and December 31, 2018, we had outstanding borrowings under the Revolving Credit Facility of $180.0 million. Based on the $180.0 million outstanding under the Credit Agreement, an increase or decrease of 100 basis points in the Base Rate and/or LIBOR rates would result in an increase or decrease in annual interest expense of approximately $1.8 million. Borrowing under our Term Loan is comprised of Offshore Rate Loans2019 were 1.42% and Base Rate Loans (each as defined in the Term Loan Agreement)3.02%, with an initial aggregate principal amount of $150.0 million. The Offshore Rate Loans bear interest at a rate per annum of LIBOR, divided by 1.00 minus the Eurodollar Reserve Percentage, plus 1.25%. The Base Rate Loans bear interest at a rate per annum of the sum of (a) the highest of (1) the administrative agent’s reference rate; (2) the rate equal to 1.50% per annum above the Offshore Rate; and (3) the rate equal to 0.50% per annum above the latest federal funds rate, plus (b) 0.25%. Based on the $150.0 million outstanding principal balance under the Term Loan, an increase or decrease of 100 basis points in the Term Loan’s applicable interest rate would result in an increase or decrease in annual interest expense of approximately $1.5 million. The Term Loan has a maturity date of January 3, 2020 and we used the proceeds from the May 8, 2019 IPO to pay off the full outstanding balance under the Term Loan.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 June 30, 2019 ,2020, 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 June 30, 20192020 , 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
On January 1, 2019 the Company adopted ASU 2016-02, “Leases”. In connection with the adoption, the Company implemented certain changes to our processes, systems, and controls.
In connection with the Company’s IPO on May 8, 2019, the Company terminated its U.S. federal income tax status as a “S” Corporation and will now be treated as a “C” Corporation. In connection with the change in tax status the Company implemented certain changes to our process, systems, and controls.
During the second quarter of 20182020, there were no other 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.
The information required by this Item 1 is included in “Note 1412 – Commitments and Contingencies” included in the Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q which is incorporated herein by reference.
There have been no material changes from our Risk Factors disclosed in the Company’s Form S-1/A filed10-K for the year ended December 31, 2019 other than as set forth below. See also our updates for the COVID-19 pandemic included in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.
Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of COVID-19.
Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of COVID-19 which has spread from China to many other countries including the United States. In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home" orders, travel restrictions, business curtailments, school closures, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
Although we have continued our operations consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities may have a material adverse effect on April 29, 2019.our operations, employees and customers, including business shutdowns or disruptions. The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be estimated reasonably at this time but may materially adversely affect our ability to collect accounts receivables and our business, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in our Form 10-K for the year ended December 31, 2019, such as those relating to government spending and priorities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not Applicable
None
Exhibit Number |
| Description |
|
|
|
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1* |
| |
|
|
|
32.2* |
| |
|
|
|
|
|
|
|
|
|
|
| Cover Page Interactive Data File (formatted as inline XBRL |
|
| |
|
| |
|
| |
|
|
* | Filed herewith. |
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.
| Company Name | |
|
|
|
Date: August | By: | /s/ George L. Ball |
|
| George L. Ball |
|
| Chief Financial Officer |
|
| (Principal Financial Officer) |
4743