Parsons - Earnings Call - Q4 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter twenty twenty Parsons Corporation Earnings Conference Call. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, Mr. Dave Spilley, Vice President of Investor Relations. Please go ahead, sir.

Speaker 1

Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal year twenty twenty financial results. Please note that we've provided presentation slides on the Investor Relations section of our website. On the call with me today are Chuck Harrington, Chairman and CEO Carrie Smith, President and Chief Operating Officer and George Ball, CFO. Today, Chuck will discuss execution against our corporate strategy.

Carrie will review our operational highlights, and then George will provide an overview of our fourth quarter financial results and 2021 guidance. We then will close with a question and answer session. Management may also make forward looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward looking statements due to a variety of factors.

These risk factors are described in our Form 10 ks for fiscal year ended 12/31/2020, and other SEC filings. Please refer to our earnings press release for Carson's complete forward looking statement disclosure. We do not undertake any obligation to update forward looking statements. Management will also make reference to non GAAP financial measures during this call. We remind you that these non GAAP financial measures are not a substitute for their comparable GAAP measures.

And now I'll turn the call over to Chuck.

Speaker 2

Thank you, Yves. Welcome to Parsons fourth quarter and fiscal year twenty twenty earnings call. 2020 will be a year none of us will soon forget between the global pandemic, political and social unrest, widespread cyber attacks and an election that was unique, to say the least. Our hearts go out to those who have suffered, and we all look forward to a brighter 2021. Parsons had a strong 2020 in spite of these events and ended the year with record adjusted EBITDA, record adjusted EBITDA margin, record cash flow and a very strong balance sheet.

We delivered adjusted EBITDA results within guidance, and we have now expanded margins by 180 basis points over the past two years. We also exceeded the high end of our cash flow guidance. We were, however, not completely immune from the items mentioned in my opening. In terms of revenue, we were less than one percentage point below the low end of our 2020 guidance range. And we would have exceeded the high end of the range were it not for approximately $200,000,000 of project related COVID-nineteen headwinds.

Sixty percent of the COVID impacts were in our Federal Solutions segment. And the total COVID impact across both segments represented a 5% headwind to Parsons' total revenues. We maintained our solid backlog, which stands at 2x our twenty twenty annual revenues, and we reported a book to bill of 1.1x for the full year. For the fourth quarter, we report exceptional cash flow and a 90 basis point year over year increase in adjusted EBITDA margin. However, our revenue results and adjusted EBITDA were below our expectations.

Fourth quarter revenue decreased year over year primarily as a result of $45 from the aforementioned COVID headwinds and lower pass through revenues. In addition, our fourth quarter adjusted EBITDA was impacted by an $11,000,000 write down on an unconsolidated joint venture project in our Critical Infrastructure segment. Our Critical Infrastructure segment performed exceptionally well in Q4, producing record adjusted EBITDA and adjusted EBITDA margins prior to this write down. On this project, Parsons is a minority partner. The managing partner updated the project estimate very late in the quarter, which resulted in the write down.

We don't take write downs lightly, and we've mobilized additional oversight and resources to the project to improve go forward execution. The Critical Infrastructure segment produced exceptional overall performance this quarter, including delivering the positive train control system for New Jersey Transit in advance of the federally mandated deadline in December, another great accomplishment for Team Parsons. We also received recognition for our Regina Bypass Public Private Partnership project, which is now in full operations. Carrie will elaborate on our strong program execution in a few minutes. Business fundamentals remain strong as we continue to achieve healthy win rates and execute successfully in our broad and diversified portfolio of contracts.

We reported a 17% year over year increase in contract awards in the quarter. Significant fourth quarter contract wins included a $1,200,000,000 passenger rail project in Edmonton, Canada and a $2,000,000,000 COVID-nineteen testing and related solutions multi award IDIQ contract with the Department of Homeland Security. I'll note that this award directly results from our DetectWise product. During the fourth quarter, we also continued our strategy to further penetrate high end, high growth markets with the acquisition of Braxton, a space technology company. In addition to impressive technical and leadership talent, Braxton brings a mix of proprietary and government products.

We're very excited to welcome Braxton team to the Parsons family and fully integrating their capabilities with Parsons' own space capabilities to win ever larger contracts within our space and geospatial business. We're keenly focused on driving free cash flow and maintaining balance sheet flexibility to continue to support investments in organic growth and acquisitions. The Braxton acquisition and resulting low leverage further demonstrate this focus. Given our robust cash flow, we ended the fourth quarter with a net leverage ratio of approximately 0.3 times. Our low leverage and over $500,000,000 of undrawn revolver capacity enable us to continue to make strategic investments, including accretive acquisitions, R and D and investments in our people and culture.

As we've said on previous calls, a key aspect of Parsons' culture is our commitment to core values and to our employees. In recognition of these commitments, Parsons was once again recognized by EthiSphere for our Ethics and Integrity Program. This represents the twelfth consecutive year we've been named as one of the world's most ethical companies by the global leader in defining and advancing the standards of ethical business practices. Additionally, we were named by Forbes as one of the world's best employers. We're proud of these awards, and they speak volumes about the dedication of our people and our quest to deliver a better world.

As indicated previously, we're holding a virtual Investor Day on March 11. And we'll discuss at that time our forecast for continued revenue growth, margin expansion and free cash flow generation at 100% of adjusted net income. In summary, we produced record adjusted EBITDA, margins and cash flow while continuing to win large contracts and delivering on our programs. We maintained our healthy balance sheet after completing a strategic acquisition in a high growth market, and we won several prestigious awards. With that, I'll turn the call over to Carrie to discuss our operational highlights.

Carrie?

Speaker 3

Thank you, Chuck. We had a strong 2020 despite experiencing COVID impacts on three large Federal Solutions contracts, which we expect to contribute to accelerating growth in the future. Most importantly, I'm proud of our employees' continued focus on achieving mission success for our customers and delivering strong financial results with record adjusted EBITDA and cash flow. During the fourth quarter, we won significant contracts and posted our largest quarter book to bill ratio for Critical Infrastructure in two years at 1.3x. In our Federal Solutions segment, we had a 0.9x book to bill ratio in a seasonally soft quarter, and we continue to win important other transaction agreement awards, completed the Braxton acquisition, which added key capabilities in the space domain.

Notable contract wins in the fourth quarter included a fifty-fifty joint venture partnership on the 1,200,000,000.0 light rail transit project for Valley Line West in the City Of Edmonton in Alberta, Canada. Globally, Parsons is a leader in light rail transit and advanced train control systems, serving over 80 rail and transit customers. We were one of four awardees out of over 700 bids submitted on the 2,000,000,000 ceiling multiple award IDIQ Department of Homeland Security COVID-nineteen program. Under this contract, we will provide flexible COVID testing solutions, leveraging our innovative Detectwise suite. Finally, we won the $80,000,000 TLOS contract supporting government space operations customers.

This contract provides the access to new experimental space programs, and we will be supporting next generation early missile warning systems. For the full year, we won over $200,000,000 of new other transaction agreement contracts, and this is more than double the amount that we were awarded in 2019. Our Cyber and Intelligence business grew 15% in 2020, exceeding market growth rates. In the fourth quarter, we won strategic pursuits, including a classified sole source program with the Air Force, leveraging our enhanced visualization environment solution developed for the Army, and this provides cyber topology and actionable intelligence. This program aligns our cyber reconnaissance technologies with space enabled cyber and focuses on regional threat areas.

QRC Technologies had a strong fourth quarter in 2020, recording a 57% increase in revenue and 73% increase in bookings compared to the same quarter in 2019. QRC also launched five gs enabled products in a new radio frequency recording playback system with QRC developed software defined radios. Our Space and Geospatial Solutions market also continues its growth momentum. In mid December, our Space Situational Awareness solution provided a near real time assessment of the Russian test launch of a direct descent anti satellite missile. After a successful briefing to the Joint Chiefs of Staff, the Space Command requested 20 fourseven space situational awareness support and use of our software baseline.

We also closed the Braxton acquisition, which will increase our space revenue by over 50% in 2021. Capabilities position Parsons to capitalize on the evolving space missions, including work for the United States Air Force to provide a standard and secure ground control system controlling satellite constellations. The Braxton integration is going well. We've retained key leadership, aligned our research and development programs and submitted our first integrated proposal. Looking forward, our organic growth strategy aligns very well with the Biden administration priorities.

Threats from nation state hackers and other adversaries continue to evolve as we saw in the recent attacks of SolarWinds and the water infrastructure in Florida. Both of these events illustrate continued vulnerabilities in supply chains and critical infrastructure. Parsons' focus on cyber, space, critical infrastructure and supply chain security correspond with the national security needs and the Biden administration's plans for additional funding to protect America's networks and infrastructure against these sophisticated threats. We're also aligned with the Biden administration's focus on sustainability. Parsons is a leader in environmental remediation, smart grid deployment, renewable wind projects and LEED certified transit systems.

Parsons' diversified portfolio is well postured for smart, sustainable infrastructure priorities. In 2020, program performance remained exceptional as we increased our Federal Solutions award fee average score to 97% on prime contracts and delivered the strongest critical infrastructure margins in the history of our company. We achieved the Federal Railroad Administration certification on time for the New Jersey Transit Positive Train Control System. This effort involved commissioning four forty locomotives on all 12 statewide rail lines, spanning three seventy six route miles and delivering a system that improves safety of rail transit and protects riders. In addition, we were recognized with the Gold Award for Infrastructure by the Canadian Council for Public Private Partnerships for our work on the Regina Bypass project, which is the largest transportation infrastructure project in Saskatchewan's history.

With that, I'll turn the call over to George to discuss our financial highlights. George?

Speaker 4

Thank you, Carey. Today, I'll organize my remarks into the following five key areas: the income statement, cash flow results, balance sheet, contract awards and 2021 guidance. As Chuck and Carey described, performance was highlighted by our ongoing margin expansion, As overall sound program performance and the benefits of reduced operating expenses resulting in record adjusted EBITDA and associated margins. In addition, we also delivered record operating cash flow of $289,000,000 For the full year, total revenue declined by 1% and was impacted by the aforementioned COVID-nineteen headwind. Excluding this impact, total revenue grew by 4%, of which 3% was organic.

Federal Solutions growth excluding COVID was 8%, of which 6% was organic, and Critical Infrastructure revenue grew 1% excluding COVID, all of which was organic. Adjusted EBITDA margin for the year increased 50 basis points driven by a 120 basis point expansion in Critical Infrastructure, primarily as a result of increased contract profitability. Federal Solutions adjusted EBITDA margin decreased 20 basis points as a result of lost fees associated with the CARES Act and higher IG and A costs driven by increased allocations and public company costs. Regarding the details of our fourth quarter financial results, total revenue for the fourth quarter decreased 7% from the prior year period. Excluding $45,000,000 of adverse impact from COVID, total revenue and revenue for both segments decreased 3%.

The primary driver of this total net revenue decline excluding COVID was a decrease in pass through revenue and contract transitions. I should also note that fourth quarter twenty nineteen was an all time record high. Indirect G and A expenses decreased $8,000,000 from the 2019 driven by lower compensation costs related to pre IPO equity based programs. Fourth quarter twenty twenty adjusted EBITDA of $90,000,000 increased $2,000,000 from last year and adjusted EBITDA margin increased 90 basis points to 9.4%. These increases were driven primarily by increased contract profitability offset by the $11,000,000 write down on an unconsolidated JV that Chuck described in his earlier remarks.

I'll turn now to our operating segments, starting first with Federal Solutions, where fourth quarter revenue decreased by $46,000,000 or 9% year over year. Excluding $32,000,000 in COVID impact, total revenue decreased 35% organically. These net decreases were driven by lower pass through revenue and contract transitions offset by $10,000,000 of acquisition revenue. Federal Solutions adjusted EBITDA was relatively flat from the fourth quarter of twenty nineteen. However, our adjusted EBITDA margin increased 80 basis points to 9.3% resulting from increased contract profitability.

And now a few words regarding our Critical Infrastructure segment. Fourth quarter revenue decreased $27,000,000 or 5% from the prior year period. This decrease was driven by $13,000,000 from COVID impacts and lower volume on contracts with pass through revenue. Critical Infrastructure adjusted EBITDA increased by $3,000,000 or 6% year over year and our adjusted EBITDA margin increased 100 basis points to 9.4%. These increases were primarily driven by increased overall contract profitability.

Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of the year was sixty four days compared to fifty five days at the 2019 and sixty nine days at the end of Q3 twenty twenty. Operating cash flow totaled $176,000,000 for the quarter and $280,000,000 for the year driven by strong collections in both segments. We also benefited from income and payroll tax deferrals totaling approximately $9,000,000 and $35,000,000 for the quarter and full year respectively. As noted earlier by Chuck, our balance sheet remains very healthy.

We ended the quarter with a net debt leverage ratio of 0.3 times and closed the quarter with more than $500,000,000 of undrawn capacity on our revolver. Regarding awards, we reported a book to bill ratio of 1.1 times for both the fourth quarter and full year. Our backlog at the end of the fourth quarter totals $8,100,000,000 representing approximately two years' annual revenue. Now let's turn to our guidance. For 2021, we expect revenue to be between $3.85 and $4,050,000,000 Our adjusted EBITDA is expected to be between $350,000,000 and $375,000,000 with a margin of approximately 9.2% at the midpoint of our revenue and adjusted EBITDA guidance ranges.

This represents margin expansion of approximately 50 basis points from 2020 and two thirty basis points from 2018. Our cash flow from operating activities is expected to be between $280,000,000 and $310,000,000 Free cash flow conversion is expected to remain above 100% of adjusted net income. From a timing perspective as it relates to revenue and adjusted EBITDA, we expect the first quarter to be our lowest quarter of the year and follow last year's historical pattern of down approximately 5% to 10% sequentially from Q4 twenty twenty with a similar adjusted EBITDA margin as Q1 twenty twenty. From Q1 onward, we again expect sequential improvements through Q3 and then down sequentially in Q4. From a free cash flow perspective, we expect typical seasonality throughout the year with negative operating cash flow in Q1 and then sequential improvements as we move through the balance of the year.

Other key assumptions in connection with our 2021 guidance are outlined on Slide 10 in today's PowerPoint presentation located on our Investor Relations website. With that, I'll turn the call over to Chuck.

Speaker 2

Thanks, George. To summarize, twenty twenty was another successful year producing record results for adjusted EBITDA, margins and cash flow in spite of headwinds primarily from COVID. We also continued to successfully deliver on our customers' missions and execute our growth strategy while maintaining a strong balance sheet. As we look ahead, we expect 2021 to deliver modest revenue growth at the midpoint of our guidance range given continued impacts from COVID and pass through revenue runoff. We also expect margins to incrementally expand and to continue to deliver strong free cash flow.

We're excited about our future and confident of our broad and diversified portfolio, aligned with the Biden administration's priorities for national defense, infrastructure and environmental initiatives. And our focus on costs and cash yield a robust balance sheet for continued organic and M and A investments. Thank you. And now we'll open the line for questions.

Speaker 0

Our first question comes from Cai von Rumohr with Cowen.

Speaker 5

Yes, thank you very much. So looking at your numbers, COVID impact was down in the fourth quarter from the third. So I assume it's going to be down in 2021. And as you know, the 2021 your 2021 revenue guide, I think is below where most of the Street is. So maybe you could give us some color on where is the COVID impact for both sectors assumed to be in 'twenty one?

What's the level of pass throughs? And taking those two out, how come the numbers aren't stronger?

Speaker 2

Thank you, Kai. Yes, we expect our COVID impact in 'twenty one to be about $100,000,000 And we also expect our low margin pass through revenues to be approximately another $100,000,000 And that will be pretty much complete with the runoff of pass through revenues. The third area we have is a series of contracts that are going through transitions. Some are transitioning out of design phase and end up going to noncontrolling interest. Others are going from the DevOps phase into implementation.

So 'twenty one is a year of transition of a couple of large contracts that we expect to lead to much greater growth in 2022.

Speaker 5

Craig, maybe you could give us some color on the contract transitions.

Speaker 2

Yes. I'll give a summary, then I'll have Carey give a bit more detail. But in that oftentimes, when we finish design and we move into execution, we have a fair amount of revenue in the design phase that doesn't show up as revenue as we go into execution phase. It ends up as non controlling interest. So although our profits go up and our margins go up, we don't necessarily see the revenue associated with that.

And ditto, when we transition from a DevOps phase, there is a bit of a lag as you really start moving into the full implementation. Carrie, would you like to give a little more color on that, please?

Speaker 3

Sure. Just a couple of specific examples. We had a program that was called ENVE, the Enhanced Visualization Environment. That transitioned to Guidance. So basically, the development effort completed, and it went into a sustainment mode.

So that's lower revenues in the federal segment. In the Critical Infrastructure segment, there's a few examples. We had a program in California with remediation effort. And that program was canceled due to COVID, so that's completely gone away. And then we also had a few that we were completing, the design effort on, specifically Federal Way and Foothill are two good examples of those.

Speaker 5

Very good. Thanks so much. I'll let someone else go.

Speaker 2

Thank you, Kai.

Speaker 0

Our next question comes from Tobey Sommer with Truist Securities.

Speaker 2

Thanks. I was wondering

Speaker 6

if you could comment on the company's opportunity within the DHS contract for IDIQ for $2,000,000,000 Is it confined to Detectwise? Are there other skills and know how that the company could compete for in task orders underneath that IDIQ.

Speaker 2

Thank you, Toby. It's a pretty broad scope associated with testing and so forth associated with COVID. And I suppose it could be even broader health related issues. But it is much broader than just the DetectWise product. Carrie, you might go into a bit more detail on the scope of that contract.

Speaker 3

Sure, Leigh. Let me start. So DHS, there's 240,000 employees and there's 14 component commands. So all of those have access to the availability of this contract ceiling, plus it can also be used for other government agencies. The scope is focused on two functional categories.

One is for managed testing services. So it's basically all encompassing, where you take the test, you process the test, you provide the test kit, and you give the support services. The second category is modular diagnostic test kits and testing services. And in that case, we provide the test kits, we process the results, but we do not collect the sample. The DHS components can select whichever of those functional categories they desire.

Speaker 6

Thanks. And could you just for a second give us a little background on the historical frequency and magnitude of write downs so that we can frame the one in the quarter and and maybe also comment on the proportion of critical infrastructure segment revenue where where Parsons is in a, you know, a subcontractor junior junior role and and can be in this sort of situation where you're informed of a change

Speaker 2

can occur. Thank you, Toby. Yeah, this is a rare occurrence for us. We have a good track record in these projects. So as you can imagine, we're all over this.

The amount of revenues across Parsons that have some sort of construction orientation around them are around 10% of revenues. And in this case, you know, in accordance with GAAP, obviously, this anticipates performance through project completion for this job. But this is not something that we have on a regular occurrence for certain.

Speaker 6

Okay. And then I had just a numbers question. Could you give us a little color on what you expect for free cash flow in 2021? And within that, if you could comment on the expectation for DSO, that would be helpful.

Speaker 2

Excellent. George, do you want to take the cash flow and DSO?

Speaker 4

Our free cash flow would be essentially our operating cash flow, less CapEx at about 1% of revenue. From the standpoint of DSO, we would view ourselves going moderately lower in 2021.

Speaker 6

Thank you very much.

Speaker 4

Thank you, Toby. Thank you, Toby.

Speaker 0

Our next question comes from Gavin Parsons with Goldman Sachs.

Speaker 7

Hey, good morning.

Speaker 2

Good morning, Gavin.

Speaker 7

Appreciate the color on the transition year in response to Kai's question, but I kind of wanted to ask about the Federal Solutions and the opportunity pipeline and the backlog. Just given the backlog didn't really grow in 2020 if I strip out the Brasson acquisition. But it sounds like you're bidding on a ton of new work. You're going after bigger contracts. You've expanded your addressable market through M and A.

So I mean, what are your expectations for bookings in 2021 that support an acceleration beyond? And how much visibility do you actually have on contract growth that we may not see reflected in your backlog right now? Yes.

Speaker 2

Thank you, Gavin. So as we sit today, we are at the end of Q4, have approximately $200,000,000 in awarded not booked. And we have eight single award $100,000,000 contracts and 15 multiple award contracts that we are awaiting adjudication at the end of Q4 twenty twenty. And so we have a very robust solid pipeline. In fact, if we look throughout the year at our outstanding proposals awaiting adjudication, it continued to increase throughout the year and was about $6,700,000,000 at the 2020 compared with $4,600,000,000 at the end of Q4 twenty nineteen.

So that's a it's a very robust and growing pipeline in almost all of our markets. And Carrie, you want to provide a little more color to that?

Speaker 3

Sure. Overall, we have a $37,000,000,000 pipeline. Federal is very strong. The items that Chuck mentioned, when you look at the awards greater than $100,000,000 out of the eight, five of those are in federal. Out of the 15 multiple award contracts, those are all in federal.

And then when you look in total, we have over 80 opportunities greater than $100,000,000 that are in our pipeline. We also look at the amount of bids that we expect to submit in 2021. 2020, we submitted about $12,400,000,000 2021, we're looking at $24,900,000,000

Speaker 4

Got it. That's helpful. And

Speaker 7

then on EBITDA margin guidance, the 9.2%, up 50 bps at the midpoint, does that consider a 10% Federal Solutions margin? And if not, what's your new time line for that? And do you still think you can get the total company to 10% next year?

Speaker 2

Yes. Thank you. Ash, the margin for Federal Solutions next year is below 10%. And again, part of that is the fact that we still have work that's being impacted by COVID. We remain committed to getting the unit to 10% through the methods we talked about previously, increasing our product sales, bidding on larger work and continuing with our M and A of companies that have materially greater than 10% margins.

Speaker 6

Thanks.

Speaker 0

Our next question comes from Greg Conrad with Jefferies.

Speaker 8

Good morning.

Speaker 2

Good morning, Greg.

Speaker 8

A couple of follow-up questions from the ones I already asked. But you mentioned COVID impact is $100,000,000 in 2021. I think it was close to 200,000,000 in 2020. That's not incremental. Maybe what are some of the programs that step up and maybe get better?

And then do you fully expect to recapture that as we kind of move into 2022, assuming it's a more normalized environment?

Speaker 2

Yes. Thank you, Greg. Great question. As we look at the roughly $200,000,000 of COVID impact we had in 2020, about $120,000,000 of that hit our Federal Solutions business, predominantly on three large contracts where all or part of the expected work was deferred for future years. So it doesn't come back in one year.

It pretty much just extends the length of our contract to the future. And those were the FAA, which has started to come back and hence why we have a lesser impact in 2021. The Antarctica work, which we would not expect to remobilize until sometime in Q3 at the earliest. And also our work on Kwajalein Island. In Critical Infrastructure, we were nominally $80,000,000 And that was predominantly a delay of vehicle inspection work.

And again, those cars will all get inspected. But it'll so we expect that to get back to normal in 2021. And then we did have, as Carey mentioned, a neighborhood environmental remediation contract that was terminated. It was a low margin contract. And so as we look to 2021, we expect that impact to be about $100,000,000 as well as running off about $100,000,000 of low margin pass through revenues, which should complete that aspect of our stated strategy.

Does that answer your question, Greg?

Speaker 8

Yes. That's very helpful. So I mean none of it goes away. It just and it gets a little bit better, but you're not fully back in 2021.

Speaker 9

Correct.

Speaker 1

And then

Speaker 8

the work the third part of the transition, you talked about design to execution revenue. And I think that there's probably a lot of programs or multiple pieces to that. But even just from a backlog perspective or an opportunity set, is there any numbers around that as we kind of think about these programs going into execution as kind of like the opportunity with this transition?

Speaker 2

Yes. So the I guess the numbers that I would think of is this is probably between 80,000,000 and $100,000,000 of work that is going through this transition phase. As we go into the sustainment phase, as Carrie talked about, especially some of our large cyber programs, and how we go into mission execution. And it is a dynamic cyber environment. So we would expect to see growth there as we move into full implementation.

And then obviously, the products and tools usually get enhanced as well. As we're in the design phase of certain projects, now we go into that engineering support during construction, which is a multiyear support effort. And usually those have a tail on them of at least two, if not three or four years.

Speaker 9

Thank you. You're welcome.

Speaker 0

Our next question comes from Joseph DeNardi with Stifel.

Speaker 10

Thanks. Good morning. And I appreciate the additional color you provided in the slides on the 2021 outlook. That was helpful. Chuck, can you just talk a little bit about what you're seeing maybe kind of from the business in terms of the change in administration, award flow, changing priorities, that sort of thing?

Speaker 2

Yes. Thank you, Joe. With any new administration, there's always a little bit of delay as they get people into the slots and try to get Senate confirmations. So we're not seeing anything unique. It's just a normal transition that goes on with a new administration.

It is still early days, but we do see a lot of support around the items that are near and dear to our hearts of national security. And I think the new Secretary of Defense and the folks that we see in the intelligence community and national security are all folks that we know and support the important efforts, especially around cyber, as Carrie had mentioned, with the SolarWinds attack. That's likely to lead to more expenditures in the federal government on cyber as well as commitment to missile defense and C5ISR and driving more efficiency and execution, which typically means more platforms and software as well as their focus on infrastructure and environmental services. So those are all areas of strength for us. So we are not foreseeing any areas that we are focused on that we think are subject to any sort of defunding or curtailment.

In fact, quite the opposite. We think it will remain or even potentially increase in some areas.

Speaker 6

Okay. That's helpful. And then can

Speaker 10

you just remind us on GBSD where you all stand with that and whether that's a contributor to stronger growth in 2022?

Speaker 2

Yes. So as you recall, GBSD, as we've said in previous calls, that is not in our guidance. And last week, after a series of discussions with the Air Force that had been going on, that we were deemed that we did not have an OCI previously. In February, now the Air Force has come back and made a final determination that we indeed do have an OCI for the work that we're going to be doing for Northrop. So our work that we do for the Defense Department is a very sophisticated modeling and simulations and systems engineering work we have with a ten year contract that compares missile systems efficiency.

So with that, we stand committed to the customers we have. So we have and we'll be honoring that contract. And we will not be going forward on the GBSD team with Northrop Grumman.

Speaker 4

Okay. Thank you.

Speaker 9

You're welcome.

Speaker 0

Our next question comes from Matt Sharp with Morgan Stanley.

Speaker 11

Chuck, George, Carrie, good morning and, hope everyone is well.

Speaker 2

Good

Speaker 6

morning, George, just on

Speaker 11

the revenue, guidance, it looks like the company is up about, I think, 1% at the midpoint. Just wondering how much is currently in backlog versus, say, how much you need to actually go out and win this year to hit your numbers? And then any view of growth at a segment level would be helpful.

Speaker 2

George, if that was addressed to you.

Speaker 4

Okay. From the standpoint of, the revenue component from backlog, it would be consistent with historic patterns. So our new wins would be nominally about 20%. That would be skewed towards the critical infrastructure segment, less so in federal.

Speaker 11

Got it. And then just one quick one on space, following the Braxton deal. Harry, I know you mentioned, space is up about 50% year over year. Can you maybe remind us where that puts the company on a percent basis overall? And then maybe talk a little bit about growth expectations for the end market as well as growth expectations in revenue for Braxton, in particular, in 2021?

Speaker 3

Yes. Space is has been our smallest market, but it's our fastest growing market going forward. We're quite excited about the capabilities that this adds, and again, at 50% more revenue. Specifically, we're bringing in capabilities such as enterprise ground systems, which are standard interoperable that will support the Department of Defense as well as the intelligence community. We also have precision navigation timing capabilities.

So if you think of GPS is getting jammed, we have the capability to provide a solution to work around that. So we think our space market is very robust. I'd also highlight our small satellite launch and integration program, where we're two for two on launches, and we anticipate doing about two launches a year. Our next launch is going to be with our Landsat, multi manifest vehicle. And this time, we're actually going to have 18 small satellites that are being launched on that mission.

Speaker 11

Got it. And then, any, expectation for Braxton into 2021?

Speaker 3

We're we're estimating about $131,000,000 for Braxton in 2021.

Speaker 11

Okay. And then just on a pro form a, what is that in terms of growth for Braxton year over year?

Speaker 3

George, do you have that?

Speaker 4

Yes, Carrie. I'd say it's about between 10% to 15%.

Speaker 2

Got it. And Matt, to put that in perspective, if you recall, we bought that obviously late in the year, and the revenue to Parsons for Braxton last year was about $10,000,000

Speaker 9

Got it. Thanks.

Speaker 0

Our next question comes from Josh Sullivan with The Benchmark Company.

Speaker 4

Hey, good morning.

Speaker 2

Good morning, Josh.

Speaker 4

Just one on COVID. Do you think you and the market are getting better at handling it? There's so many scenarios going forward. You gave some thoughts kind of on the margin impact near term. But what are your thoughts on kind of the long term impact to you and the market and just what's changed with COVID?

Speaker 2

Yes, great question. As we look at 2021 more near term, the two contracts that we have less control, let's say, over is restarting our work in Kwajalein Island, which is really controlled by the Marshall Island government and when they have confidence, which may be around when people are vaccinated. It kind of ditto in Antarctica. In terms of longer term impacts of COVID, we really see it in two areas. One, we, like every other company, have learned to do so much virtually that I anticipate a, one, reduced travel expenses going forward as we do more internal meetings, and in some cases with customers who actually prefer virtual meetings over in person.

I mean I think that'll come back but not come back to the way it was pre COVID. And ditto with real estate, we've obviously learned how to do a lot more with less. And we anticipate substantial reductions in real estate footprint going forward as our leases come up for renewal. We'll be renewing significantly smaller footprints as we've learned to do better in that regard as well. And lastly, I think with our customers, there seems to be a shift in mindset that would appear to be more permanent in nature are just around how people interface with infrastructure, enter buildings, depart buildings, using more touchless technologies, which actually leads to improved customer interface.

So I think that there'll be probably a lot more physical upgrades to especially mass transit systems, airport entrydeparture, as well as large facilities. And there will also be software updates as well.

Speaker 9

Great. Thank you.

Speaker 0

Our next question comes from Ron Epstein with Bank of America.

Speaker 7

Hey, good morning, guys.

Speaker 2

Good morning, Ron.

Speaker 7

So we've seen a lot of services companies report this quarter. Pretty much across the board, everybody's missed. And pretty much across the board, everybody's saying the same thing. And it almost feels like the market's changed and nobody wants to admit it. Why is that thesis wrong?

Speaker 2

Yes. Well, I think we're all do it's interesting that we all probably are operating in different parts of the market, but there's no question COVID had a big impact. And for some of us, was bigger than for others. I think what we'll see is that as COVID diminishes and work restarts, things will come back. But when we look at the underlying drivers of our markets, infrastructure, we all know, is outdated.

We have, in cases of transportation, massive changes in terms of the number of electric vehicles, not that far off autonomous vehicles. Infrastructure has to change. It can't just stay as it is. And the world is not getting it's not becoming a safer place. So I think if you're in the area of defending our nation from cyberattacks, dealing with the changes of hypersonics in the missile field and dealing with the much more crowded nature of space, those are just drivers that aren't going to go away.

I can't speak for other parts of the segment. Kerry, I know you also have some great perceptions here. Why don't you jump in on this?

Speaker 3

Sure. I would say at the end of the year, when there was a little bit of slowdown, particularly in the Intelligence Community Awards, we do expect that to pick back up in 2021. I also want to highlight the fact that we have not included a federal infrastructure bill in our forecast, and we think this presents tremendous upside with the Biden administration. And just to reiterate on Chuck's points on the environment, we're extremely well aligned to capitalize on that opportunity, particularly in areas like emerging contaminants. We also are involved in biofuels, and we do work on other work on clean energy.

Speaker 7

Okay, great. Thank you.

Speaker 2

Thank you, Ron.

Speaker 0

Our next question comes from Louie DiPalma with William Blair.

Speaker 9

Chuck, George, Carrie and Dave, good morning.

Speaker 3

Morning. Hi, Louie.

Speaker 9

You've noted the optimism regarding President Biden and his plans to revive transportation infrastructure here in The U. S. And you mentioned how you have relationships with over 80 transportation agencies and you also have a pretty strong partnership with Neology for tolling tech. I was wondering, is there any way you can at a high level quantify how much of your revenue is related to transportation infrastructure? And how do you expect a Biden stimulustransportation policy to play out over the next several years?

And how would that like impact your revenue? Yes.

Speaker 2

Thank you, Louis. Great question. So if we look at our portfolio and infrastructure, the overwhelming majority of that those revenues are associated with transportation as order of magnitude, I would say probably about three quarters. As we look at historical infrastructure bills, to put them in perspective going back to roughly February, the largest bills this nation has ever had funded transportation infrastructure at roughly $61,000,000,000 per year on average. And if we look at what's being talked about in the Congress and you assume somewhere like if they produced I mean, they're talking about numbers like $1,500,000,000,000 Even at $500,000,000,000 with a five year bill, that's obviously $100,000,000,000 a year, which would be a large uptick.

And at $500,000,000,000 the largest transportation infrastructure bill ever approved. If they go to $1,000,000,000,000 or $1,000,000,000,000 and maybe even extend to seven to ten years, that does two things. One, it's more money per year. But larger programs generally where the largest economic benefit to The U. S.

Comes from, the large programs, those take five to seven years to complete. So a longer program we get, the larger the projects and programs that are implemented. And that plays more into parts and strengths of large projects. In terms of our relationship with Neology and tolling and relationship with our iNet product, Carrie, you want to you might want to shed a little bit more color on that.

Speaker 3

Sure. So we are partnered with Neology. We have some big bids coming up this year, specifically in Georgia as well as New Jersey, New York area. So we're really excited about that and the opportunities that, that will bring. Relative to INET, that's one of the most globally deployed traffic management systems.

And our sensor networks monitor and manage traffic conditions that reduce congestion and travel times. This is going to play a lot into clean energy and sustainability going forward in the future. We recently launched an intelligent intersection, and that's getting a lot of opportunity because with COVID, the traffic patterns are quite different. So cities are looking at how they change.

Speaker 2

Louis, one other thing I would mention to keep our eyes on is that as electric vehicles become a larger part of the fleet, the gas tax has less of an impact on funding infrastructure. So I'd also keep our eyes open to what's been kicked around in Congress for a long time of vehicle miles traveled and how and then the technology used to get that information, and how that's actually charged to the citizens that use the infrastructure.

Speaker 9

Great. And you're also, you know, involved with the New York City congestion tech, deployment with TransCore, right? I would assume that project, you know, has been delayed as it relates to COVID. But over the long term, do you expect that project to be resumed and further to be congestion tax deployment in other cities in The United States potentially, you know, with funding from, you know, an infrastructure bill?

Speaker 2

Yes. That's a really great question. And you are correct in that it was delayed a bit. And as we know, London has been doing this for some time. I don't know really where every single city will fall out on this.

But it's certainly this is the first one in The U. S. And very large. Carrie, you might provide a little more color. I know you've been involved in that very deeply.

Speaker 3

Yes. Thanks, Louis. As you mentioned, this is the first congestion pricing program in New York. It was slightly delayed, but it's starting to pick back up. And we've had interest expressed from many major American cities to implement programs going forward into next year.

Speaker 9

Excellent. Thanks. And I look forward to hearing more on March 11.

Speaker 2

Thank you, Louis.

Speaker 0

Our next question comes from Cai von Rumohr with Cowen.

Speaker 5

Yes. So thank you. So, you mentioned that the big COVID impact is really, you know, in Federal Solutions is on Kwajalein, Antarctica, the FAA. As I recall, aren't those all engineered systems?

Speaker 2

Yes.

Speaker 5

Correct? And and therefore, you know, as I look at your guide, which looks a little disappointing for '21, pretty much all of I mean, the engineered by my numbers, engineered systems could be down $100,000,000 or so?

Speaker 2

Well, it would be the impact, probably a little bit less than that. But yes, you're in the ballpark. So in

Speaker 3

Engineered this Systems will be slightly up next year. The other three markets are up substantially, but Engineered Systems is slightly up.

Speaker 2

The COVID impact to that unit should be about $90,000,000

Speaker 5

Okay. The point I'm making is that where you're missing is really in kind of your your more mundane work, not to say that's totally mundane, and where you're still getting the growth is in space, cyber, those those kind of programs. Is that correct next year?

Speaker 2

Yeah. And C5ISR part of our Right.

Speaker 9

Yep.

Speaker 5

Okay. Thank you very much.

Speaker 9

Thank you, Kai.

Speaker 0

Our next question comes from Joseph DeNardi with Stifel.

Speaker 10

Thanks. Chuck, could you just talk about what you all intend to talk about at Investor Day, maybe preview that for us a bit? Thank you.

Speaker 2

You're looking for a teaser,

Speaker 9

Right.

Speaker 2

Yes. So I'll give an overview of our strategy and what we expect to see over the next three to four years and where we're going. Carrie will talk about how that's operationalized and how that goes down into our segments. We'll also show a few videos of some of our newest technology. We'll have a couple of roundtables with our market leaders in with federal and critical infrastructure.

We'll have a Q and A with our market leaders to allow attendees to hear right from our market leads how they view their markets and where they're going and what's exciting them. George will go over the financials and talk about our multiyear guidance that we will be talking about. And then we'll wrap it all up with a closing Q and A.

Speaker 10

Sounds great. Thank you.

Speaker 0

That's all the time we have for questions. I'd like to turn the call back to Dave Spilley for closing remarks.

Speaker 1

Thank you. And thanks for joining us this morning. If you have any questions, please don't hesitate to give me a call. We look forward to speaking with many of you over the coming weeks. And with that, we'll end the call.

Speaker 9

Have a great day.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.