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PARSONS CORP (PSN)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered record revenue of $1.734B (+16% YoY) and adjusted EBITDA of $147M (+14% YoY); sequentially, revenue and adjusted EBITDA were lower vs Q3 due to two program adjustments totaling $29M that suppressed margins to 8.5% (normalized would have been ~10.0%) .
  • Federal Solutions grew strongly (revenue +19% YoY to $1.003B; adj. EBITDA +21% YoY; margin +20bps to 10.0%), while Critical Infrastructure grew revenue +12% YoY but reported margin compression to 6.4% from program adjustments .
  • FY25 guidance introduced: revenue $7.0–$7.5B, adjusted EBITDA $640–$710M (midpoint margin ~9.3%), and cash from operations $420–$480M; margin expansion expected as legacy programs complete, with cash flow lower YoY on timing (incentive fees) and a ~$30M one-time 401(k) match change .
  • Book-to-bill remained 1.0x in Q4 and for the TTM; backlog rose to $8.9B (+4% YoY), with funded backlog a record 66%, supporting durable growth; contract awards hit $1.672B (+34% YoY) .
  • Stock narrative catalysts: resolution of the “confidential” federal contract dependency, ramp of Middle East/UAE projects, Sentinel ground infrastructure restructuring opportunities, and PFAS remediation expansion via TRS acquisition .

What Went Well and What Went Wrong

What Went Well

  • Federal Solutions momentum: Q4 revenue +19% YoY to $1.003B; adjusted EBITDA +21% YoY; margin up to 10.0%, driven by ramp on recent wins and BlackSignal contributions .
  • Contracting strength: Q4 awards +34% YoY to $1.672B; six >$100M awards in Q4; FY24 awards $7.039B (+17% YoY), supported by 71% win rates and record funded backlog at 66% .
  • Management confidence and strategy: “We achieved record results… delivering double-digit organic revenue growth every quarter for the last two years” and reiterated long-term targets for mid-single-digit+ organic growth, 20–30bps annual margin expansion, and >100% FCF conversion .

What Went Wrong

  • Margin headwinds in Critical Infrastructure: Q4 adjusted EBITDA margin fell to 6.4% (vs 7.0% YoY), impacted by a claim settlement JV and the last legacy program close-out; normalized Q4 margin would have been ~10.2% for CI and ~10.0% consolidated .
  • Sequential deceleration: vs Q3, revenue fell from $1.810B to $1.734B and adjusted EBITDA from $167M to $147M on the $29M adjustments; adjusted EPS declined from $0.95 to $0.78 .
  • Confidential contract uncertainty: an adjacent program (performed by others) was paused due to policy, constraining volume; FY25 plan includes the negotiated Option Year 2 amount, but incremental upside depends on restart of the related program .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Billions)$1.494 $1.810 $1.734
GAAP Diluted EPS ($)$0.39 $0.65 $0.49
Adjusted EPS ($)$0.69 $0.95 $0.78
Operating Income ($USD Millions)$77.4 $115.0 $99.8
Adjusted EBITDA ($USD Millions)$128.1 $167.0 $146.6
Adjusted EBITDA Margin (%)8.6% 9.2% 8.5% (10.0% normalized excl. $29M)

Segment breakdown (Q4 YoY):

SegmentQ4 2023 Revenue ($USD Millions)Q4 2024 Revenue ($USD Millions)Q4 2023 Adj. EBITDA ($USD Millions)Q4 2024 Adj. EBITDA ($USD Millions)Margin (%)
Federal Solutions$843.2 $1,003.3 $82.5 $100.0 9.8% → 10.0%
Critical Infrastructure$651.0 $731.0 $45.7 $46.7 7.0% → 6.4%

KPIs:

KPIQ4 2023Q3 2024Q4 2024
Contract Awards ($USD Billions)$1.248 $1.785 $1.672
Book-to-Bill (Overall)0.8x 1.0x 1.0x
Backlog ($USD Billions)$8.592 $8.784 $8.894
Cash from Operations ($USD Millions)$190 $299 $127
Net DSO (days)——55

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025n/a$7.0B – $7.5B New
Adjusted EBITDA (incl. NCI)FY 2025n/a$640M – $710M (midpoint margin ~9.3%) New
Cash Flow from OpsFY 2025n/a$420M – $480M New
Long-term Organic Revenue GrowthMulti-yearMid-single-digit+Mid-single-digit+ Reiterated
Adjusted EBITDA Margin ExpansionMulti-year20–30bps/year20–30bps/year Reiterated
FCF ConversionMulti-year>100% of adjusted net income>100% Reiterated

Notes:

  • FY25 cash flow guidance reflects timing: incentive fees collected in 2024 and a one-time ~$30M impact from shifting 401(k) match to quarterly in 2025 .
  • Margin expansion driven by completion of legacy programs and improved execution .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2/Q3 2024)Current Period (Q4 2024)Trend
Confidential federal programOption awards booked; high win rates; ramp across cyber/critical infra; no single Middle East contract >2% revenue Option Year 2 exercised; $242M funded booked; related external program paused due to executive orders; growth contingent on restart Mixed (funded base solid; dependency risk)
Margin profile (CI)CI margin improved in Q2 (7.0%); Q3 CI margin pressured by legacy program write-down Q4 CI margin 6.4% due to claim settlement and legacy close-out; normalized CI margin ~10.2%; plan ~8.8% for FY25 Improving post clean-up
Middle East/UAE accelerationSaudi and regional awards (>$200M in Q3); strong pipeline Post-Q4 Dubai >$200M follow-on; continued acceleration in UAE; backlogs supportive Strengthening
Sentinel ground infrastructureNot present earlierAir Force restructuring of Sentinel ground infrastructure; Parsons aims to reengage; track record in ICBM infrastructure Emerging opportunity
PFAS remediationEnvironmental solutions highlighted; portfolio strength TRS Group acquired (Feb 2025), expanding PFAS capabilities; supportive EPA stance Strengthening
FAA modernizationNot a focus previously10-year $1.8B single-award FAA Technical Support Services Contract; >500 cleared staff; opportunity to upgrade infrastructure Positive
Budget/procurement cadenceSolid TTM book-to-bill ≥1.0x; pipeline >$50B Cadence slightly slower; more extensions/ceilings; TTM 1.0x; backlog $8.9B; awarded-not-booked ~$12.4B Stable to slightly softer awards pace

Management Commentary

  • Carey Smith: “We achieved record results for total revenue, adjusted EBITDA, adjusted EBITDA margin, operating cash flow, contract win rates, and contract awards… reported double-digit organic revenue growth every quarter for the last two years” .
  • Margin normalization: Matt Ofilos reiterated that excluding the $29M adjustments, Q4 adjusted EBITDA margin would have been 10%, aligning to the long-term double-digit target .
  • Strategic stance on national security: “Our purpose-built federal portfolio… specifically address priority threat areas including cyber, space, missile defense, electronic warfare, signals intelligence and critical infrastructure protection solutions” .
  • Middle East pipeline: “Follow-on program and construction management contract in Dubai valued at over $200 million… acceleration in our UAE business” .
  • PFAS remediation strategy: TRS acquisition gives Parsons “the first proven full-scale destructive capability to address PFAS in both soil and groundwater at the same time” .

Q&A Highlights

  • Confidential contract: $242M funded portion viewed as solid; upside depends on restart of a related paused program due to policy; guidance includes negotiated Option Year 2 amount; management emphasized national importance of the mission .
  • Margins trajectory: CI margin expected to expand ~200bps in FY25 (to ~8.8%); Federal margins to be high-9s amid portfolio mix and confidential program dynamics; consolidated margin expansion ~30bps planned .
  • FAA opportunity: Parsons highlighted modernization scope and existing 10-year $1.8B single-award TSSE V program with >500 cleared personnel .
  • Cash flow guide reconciliation: FY25 CFO down vs two exceptional years (116–120% conversion), with ~$30M one-time 401(k) timing impact and mix shift (Middle East growth) nudging DSO up 1–2 days .
  • Award cadence: Expect more ceiling raises/extensions vs new awards near term; maintain 1.0x book-to-bill target; backlog and awarded-not-booked base support growth .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS/revenue and FY25 were unavailable due to data request limits during this session; therefore, we cannot quantify beats/misses vs Street at this time. Values would ordinarily be retrieved from S&P Global.
  • Implications: Street models may need to reflect (1) normalized double-digit adjusted EBITDA margins post legacy/claim clean-up, (2) FY25 organic growth tempered by confidential program volumes, and (3) lower FY25 cash flow from timing and one-time 401(k) match change .

Key Takeaways for Investors

  • Federal Solutions strength and CI recovery set up FY25 margin expansion; normalized Q4 margins (~10%) validate long-term double-digit target .
  • Watch policy-linked dependency on the confidential program—resolution/restart of the related external program is a catalyst for upside vs the base plan .
  • Award momentum and record funded backlog (66%) underpin growth durability despite softer procurement cadence; TTM book-to-bill remains 1.0x .
  • Middle East/UAE acceleration and Sentinel ground infrastructure restructuring provide incremental growth vectors beyond core US federal markets .
  • PFAS remediation capability broadened via TRS acquisition; environmental tailwinds and regulatory focus likely to support multi-year pipeline .
  • FY25 cash flow guide reflects timing rather than deterioration; expect normalization toward ~100% FCF conversion longer term .
  • Near-term trading: sentiment will hinge on clarity around the confidential program and visible CI margin improvements as legacy issues roll off; medium-term thesis supported by portfolio alignment to defense priorities and infrastructure spending .