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OFFON

PARSONS CORPORATION

(PSN)
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PARSONS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/04/2021 | 06:40am EDT
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 10-K for the year ended December
31, 2020.

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 10-K for the year ended December 31, 2020. 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 workforce transitioned to
work-from-home status during the latter part of the quarter ended March 31,
2020, and these practices remain largely 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 received 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 did not have a material
impact on our financial condition or results of operations. The reimbursement
period for Section 3610 of the CARES Act expired March 31, 2021.

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.

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                               [[Image Removed]]

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 innovative technology provider in the global defense,
intelligence and critical infrastructure markets. We provide software and
hardware products, technical services and integrated solutions to support our
customers' missions. We have developed significant expertise and differentiated
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 enable a safer, smarter and more interconnected world.

We operate in two reporting segments, Federal Solutions and Critical
Infrastructure. Our Federal Solutions business provides advanced technical
solutions to the U.S. government. Our Critical Infrastructure business provides
integrated engineering and management 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 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 30, 2021       June 30, 2020
Awards (year to date)         $     2,692,557     $     1,971,186
Backlog (1)                   $     8,412,208     $     7,718,690
Book-to-Bill (year to date)               1.5                 1.0




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(1) Difference between our backlog of $8.4 billion and our remaining unsatisfied

performance obligations, or RUPO, of $5.1 billion, each as of June 30, 2021,

is due to (i) unissued task 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.



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-date value of new awards for the periods presented below (in thousands):




                                                  Three Months Ended                       Six Months Ended
                                           June 30, 2021       June 30, 2020       June 30, 2021       June 30, 2020
Federal Solutions                         $     1,218,413     $       433,140     $     1,643,034     $     1,048,830
Critical Infrastructure                           463,170             571,951           1,049,523             922,356
Total Awards                              $     1,681,583     $     1,005,091     $     2,692,557     $     1,971,186




The change in new awards from year to year is primarily due to ordinary course
fluctuations in our 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
three and six months ended June 30, 2021 when compared to the corresponding
periods last year were primarily impacted by one significant contract awarded in
the second quarter of 2021. The awards in Critical Infrastructure for the six
months ended June 30, 2021 were impacted by several large contracts awarded in
the first quarter of 2021.

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.


     • 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 task 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 30, 2021       June 30, 2020
Federal Solutions:
Funded                          $     1,126,408     $     1,308,663
Unfunded                              4,362,700           3,654,203
Total Federal Solutions               5,489,108           4,962,866
Critical Infrastructure:
Funded                                2,850,211           2,719,037
Unfunded                                 72,889              36,787
Total Critical Infrastructure         2,923,100           2,755,824
Total Backlog (1)               $     8,412,208     $     7,718,690




   (1)  Difference between our backlog of $8.4 billion and our RUPO of $5.1

billion, each as of June 30, 2021, is due to (i) unissued task 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.


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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. 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 $2.7 billion of our funded backlog at June 30, 2021 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-Risk 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
10-K for the year ended December 31, 2020.

The changes in backlog in both the Federal Solutions and Critical Infrastructure
segments were primarily from ordinary course fluctuations in our business and
the impacts related to the 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
                                           June 30, 2021         June 30, 2020       June 30, 2021         June 30, 2020
Federal Solutions                                 2.8                   0.9                 1.8                    1.1
Critical Infrastructure                           1.1                   1.2                 1.2                    0.9
Overall                                           1.9                   1.0                 1.5                    1.0




             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

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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

Braxton Science & Technology Group, LLC


On November 19, 2020, we acquired Braxton for $309.5 million. Braxton operates
at the forefront of satellite operations, ground system automation, flight
dynamics, and spacecraft and antenna simulation for the U.S. Department of
Defense and Intelligence Community. The acquisition was funded by cash
on-hand. The financial results of Braxton have been included in our consolidated
results of operations from November 19, 2020 onward.

Seasonality


Our results may be affected by variances as a result of weather conditions and
contract award seasonality impacts that we experience across our businesses. The
latter issue 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 task orders 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 U.S. federal government 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.

Results of Operations

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.

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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 non-reimbursable under the terms of the contract.

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.

Under fixed-price contracts, clients pay an agreed fixed-amount negotiated in advance for a specified scope of work.

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 10-K for the year ended December 31, 2020 for a 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
                     June 30, 2021     June 30, 2020     June 30, 2021     June 30, 2020
Fixed-price              26.5%             31.8%             26.4%             31.8%
Time-and-materials       28.8%             26.5%             28.1%             26.2%
Cost-plus                44.7%             41.7%             45.5%             42.0%




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 revenue 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 estimated cost or transaction price is determined to have an
impact on contract profit, we record a positive or negative adjustment to
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 our 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
30, 2021 and June 30, 2020 of $40.5 million and $42.4 million, respectively, and
for the six months ended June 30, 2021 and June 30, 2020 of $82.4 million and
$82.8 million, respectively.

Operating costs and expenses

Operating costs and expenses primarily include direct costs of contracts and selling, general and administrative expenses. Costs associated with compensation-related expenses for our people and facilities, which includes ESOP

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contribution expenses, are the most significant component of our operating
expenses. Total ESOP contribution expense for the three months ended June 30,
2021 and June 30, 2020 was $13.4 million and $14.6 million, respectively, and
for the six months ended June 30, 2021 and June 30, 2020 was $26.5 million and
$29.5 million, respectively, and is recorded in "Direct cost of contracts" and
"Selling, general and administrative expenses."

Direct costs of contracts consist of direct labor and associated fringe benefits, indirect overhead, subcontractor and materials ("pass-through costs"), travel expenses and other expenses incurred to perform on contracts.


Selling, general and administrative expenses ("SG&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

Other income and expenses primarily consist of interest income, interest expense and other income, net.

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, Convertible 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 30, 2021 and June 30, 2020.




                                                  Three Months Ended                       Six Months Ended
(U.S. dollars in thousands)                June 30, 2021       June 30, 2020       June 30, 2021       June 30, 2020
Adjusted EBITDA (1)                       $        65,727     $        91,161     $       134,426     $       151,657
Net Income Margin (2)                                 1.4 %               3.2 %               1.5 %               2.3 %
Adjusted EBITDA Margin (3)                            7.5 %               9.3 %               7.7 %               7.8 %




   (1)  A reconciliation of net income attributable to Parsons Corporation to
        Adjusted EBITDA is set forth below (in thousands).


(2) Net Income Margin is calculated as net income including noncontrolling

interest divided by revenue in the applicable period

(3) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by revenue

        in the applicable period.




                                                  Three Months Ended                       Six Months Ended
                                           June 30, 2021       June 30, 2020       June 30, 2021       June 30, 2020
Net income attributable to Parsons
Corporation                               $         6,702     $        23,299     $        15,741     $        36,272
Interest expense, net                               4,758               3,963               9,201               7,757
Income tax expense                                  3,838              11,891               9,213              16,975
Depreciation and amortization                      34,635              32,081              69,308              64,490
Net income attributable to
noncontrolling interests                            5,325               7,826              10,300               9,224
Equity-based compensation                           4,921              12,854              11,901               5,133
Transaction-related costs (a)                       4,086              (2,485 )             6,732               9,526
Restructuring (b)                                      73               1,143                 150               1,110
Other (c)                                           1,389                 589               1,880               1,170
Adjusted EBITDA                           $        65,727     $        91,161     $       134,426     $       151,657




(a)  Reflects costs incurred in connection with acquisitions and other
     non-recurring transaction costs, primarily fees paid for professional
     services and employee retention.


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(b) Reflects costs associated with our corporate restructuring initiatives.

(c) 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 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, 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
                                                    June 30,
                                 June 30, 2021        2020         Dollar       Percent       June 30, 2021       June 30, 2020       Dollar       Percent
Federal Solutions Adjusted
EBITDA attributable to
Parsons Corporation             $        32,500     $  47,700     $ (15,200 )      -31.9 %   $        64,482     $        79,317     $ (14,835 )      -18.7 %
Critical Infrastructure
Adjusted EBITDA attributable
to Parsons Corporation                   27,817        35,519        (7,702 )      -21.7 %            59,474              62,876        (3,402 )       -5.4 %
Adjusted EBITDA attributable
to noncontrolling interests               5,410         7,942        (2,532 )      -31.9 %            10,470               9,464         1,006         10.6 %
Total Adjusted EBITDA           $        65,727     $  91,161     $ (25,434 )      -27.9 %   $       134,426     $       151,657     $ (17,231 )      -11.4 %


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The following table sets forth our results of operations for the three and six months ended June 30, 2021 and June 30, 2020 as a percentage of revenue.




                                                   Three Months Ended                         Six Months Ended
                                           June 30, 2021         June 30, 2020       June 30, 2021        June 30, 2020
Revenues                                              100 %                 100 %               100 %                100 %
Direct costs of contracts                            77.4 %                76.5 %              76.9 %               77.9 %
Equity in earnings of unconsolidated
joint ventures                                        1.1 %                 0.4 %               1.0 %                0.5 %
Selling, general and administrative
expenses                                             21.4 %                19.2 %              21.4 %               19.0 %
Operating income                                      2.3 %                 4.7 %               2.6 %                3.6 %
Interest income                                       0.0 %                 0.0 %               0.0 %                0.0 %
Interest expense                                     -0.6 %                -0.4 %              -0.5 %               -0.4 %
Other income, net                                     0.0 %                 0.1 %              -0.1 %                0.0 %
Total other income (expense)                         -0.5 %                -0.3 %              -0.6 %               -0.4 %
Income before income tax expense                      1.8 %                 4.4 %               2.0 %                3.2 %
Income tax benefit (provision)                       -0.4 %                -1.2 %              -0.5 %               -0.9 %
Net income including noncontrolling
interests                                             1.4 %                 3.2 %               1.5 %                2.3 %
Net income attributable to
noncontrolling interests                             -0.6 %                -0.8 %              -0.6 %               -0.5 %
Net income attributable to Parsons
Corporation                                           0.8 %                 2.4 %               0.9 %                1.9 %




Revenue



                                          Three Months Ended                     Variance                      Six Months Ended                      Variance

(U.S. dollars in thousands) June 30, 2021 June 30, 2020 Dollar Percent June 30, 2021 June 30, 2020 Dollar

     Percent
Revenue                           $       879,356     $       979,459     $ (100,103 )      -10.2 %   $     1,754,053     $     1,950,452     $ (196,399 )      -10.1 %




Revenue decreased $100.1 million for the three months ended June 30, 2021 when
compared to the corresponding period last year, primarily due to a decrease in
revenue in our Critical Infrastructure segment of $60.6 million and a decrease
in our Federal Solutions segment of $39.5 million. Revenue decreased $196.4
million for the six months ended June 30, 2021 when compared to the
corresponding period last year, primarily due to a decrease in our Critical
Infrastructure segment of $131.4 million and a decrease in our Federal Solutions
segment of $65.0 million. See "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, 2021 June 30, 2020 Dollar Percent June 30, 2021 June 30, 2020 Dollar

      Percent
Direct costs of contracts         $       680,328     $       749,324     $ (68,996 )        -9.2 %   $     1,349,410     $     1,518,956     $ (169,546 )      -11.2 %




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Direct cost of contracts decreased $69.0 million for the three months ended June
30, 2021 when compared to the corresponding period last year, primarily due to
decreases of $39.6 million in our Critical Infrastructure segment and $29.4
million in our Federal Solutions segment. The decrease in our Critical
Infrastructure segment was primarily due to a decrease in business volume,
particularly the winding down of several programs with high levels of
pass-through costs. The decrease in our Federal Solutions segment was primarily
due to a decrease in business volume.

Direct cost of contracts decreased $169.5 million for the six months ended June
30, 2021 when compared to the corresponding period last year, primarily due to
decreases of $111.2 million in our Critical Infrastructure segment and $58.3
million in our Federal Solutions segment. The decrease in our Critical
Infrastructure segment was primarily due to a decrease in business volume,
particularly the winding down of several programs with high levels of
pass-through costs. The decrease in our Federal Solutions segment was primarily
due to a decrease in business volume.

Equity in earnings of unconsolidated joint ventures



                                         Three Months Ended                    Variance                    Six Months Ended                     Variance

(U.S. dollars in thousands) June 30, 2021 June 30, 2020 Dollar Percent June 30, 2021 June 30, 2020 Dollar

Percent

Equity in earnings of unconsolidated joint ventures $ 9,428 $ 3,769 $ 5,659 150.1 % $ 16,958 $ 9,883 $ 7,075

    71.6 %




Equity in earnings of unconsolidated joint ventures increased $5.7 million and
$7.1 million for the three and six months ended June 30, 2021 compared to the
corresponding periods last year, primarily related to new joint ventures, and
increased activity and margins in certain existing joint ventures, partially
offset by write-downs of $1.6 million and $5.1 million for the three and six
months ended June 30, 2021, respectively, on an unconsolidated joint venture in
the Critical Infrastructure segment and reductions in activity on others.

Selling, general and administrative expenses



                                         Three Months Ended                     Variance                     Six Months Ended                     Variance
(U.S. dollars in thousands)       June 30, 2021       June 30, 2020       Dollar       Percent       June 30, 2021       June 30, 2020      Dollar       Percent
Selling, general and
administrative expenses          $       188,238     $       187,640     $    598           0.3 %   $       375,760     $       371,414     $ 4,346           1.2 %



Selling, general and administrative expenses ("SG&A") for the three months ended June 30, 2021 and June 30, 2020 include $4.9 million and $12.9 million, respectively, and for the six months ended June 30, 2021 and June 30, 2020 include $11.9 million and $5.1 million, respectively, of compensation cost related to equity-based awards.




Equity awards issued prior to the Company's IPO were settled in cash and were
remeasured to an updated fair value at each reporting period until the award was
settled. Compensation cost was trued-up at each reporting period for changes in
fair value pro-rated for the portion of the requisite service period
rendered. Prior to the IPO on May 8, 2019, the fair value of a share of the
Company's common stock was established by the ESOP trustee. See "Note 19 - Fair
Value of Financial Instruments" in the Company's Form 10-K for the year ended
December 31, 2020 for a further discussion of how a share of the Company's
common stock was valued prior to the IPO. Subsequent to the IPO, the share price
of the Company's common stock is based on quoted prices on the New York Stock
Exchange.

Excluding the compensation costs discussed above, SG&A for the three months
ended June 30, 2021 and June 30, 2020 was $183.3 million and $174.8 million,
respectively and for the six months ended June 30, 2021 and June 30, 2020 was
$363.9 million and $366.3 million, respectively.

The increase in SG&A of $8.5 million, exclusive of equity compensation cost, for
the three months ended June 30, 2021 when compared to the corresponding period
last year was primarily due to a $6.3 million increase in transaction-related
costs, a $5.4 million increase from acquisitions, and a $2.4 million increase in
intangible asset amortization. These increases were partially offset by a $1.0
million decrease in restructuring costs and $4.6 million decrease in other
costs.

The decrease in SG&A of $2.4 million, exclusive of equity compensation cost, for
the six months ended June 30, 2021 when compared to the corresponding period
last year was primarily due to a $3.3 million decrease in transaction-

                                       35

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related costs, a $1.0 million decrease in restructuring costs and $13.0 million
decrease in other costs. These were partially offset by a $10.7 million increase
from acquisitions and a $4.2 million increase in intangible asset amortization.


Total other income (expense)




                              Three Months Ended                 Variance                  Six Months Ended                  Variance
(U.S. dollars in                             June 30,                                                    June 30,
thousands)                June 30, 2021        2020         Dollar      Percent       June 30, 2021        2020         Dollar      Percent
Interest income          $           152     $     196     $    (44 )      -22.4 %   $           250     $     424     $   (174 )      -41.0 %
Interest expense                  (4,910 )      (4,159 )       (751 )       18.1 %            (9,451 )      (8,181 )     (1,270 )       15.5 %
Other income
(expense), net                       405           715         (310 )      -43.4 %            (1,386 )         263       (1,649 )     -627.0 %
Total other income
(expense)                $        (4,353 )   $  (3,248 )   $ (1,105 )       34.0 %   $       (10,587 )   $  (7,494 )   $ (3,093 )       41.3 %



Interest income is related to interest earned on cash balances held. Interest expense is primarily due to debt related to our business acquisitions and Convertible Senior Note. The amounts in other income (expense), net are primarily related to transaction gains and losses on foreign currency transactions and sublease income.

Income tax expense



                                      Three Months Ended                 Variance                  Six Months Ended                  Variance
                                                     June 30,                                                    June 30,

(U.S. dollars in thousands) June 30, 2021 2020 Dollar

     Percent       June 30, 2021        2020         Dollar      Percent
Income tax expense              $         3,838      $  11,891     $ (8,053 )      -67.7 %   $         9,213     $  16,975     $ (7,762 )      -45.7 %




The Company's effective tax rate was 24.2% and 27.6% for the three months ended
June 30, 2021 and 2020, respectively. The change in the effective tax rate was
due primarily to an increase in untaxed income attributable to noncontrolling
interests and a change in jurisdictional earnings. The Company's effective tax
rate for the six months ended June 30, 2021 and June 30, 2020 was 26.1% and
27.2%, respectively. The change in effective tax rate was due primarily to an
increase in untaxed income attributed to noncontrolling interests and a change
in jurisdictional earnings, partially offset by an increase in foreign tax
losses which will not provide any tax benefit and a settlement of a state tax
audit. The difference between the effective tax rate and the statutory U.S.
Federal income tax rate of 21.0% for the three and six months ended June 30,
2021 primarily relates to state income taxes and a recorded valuation allowance
on foreign tax credits, partially offset by benefits related to income
attributable to noncontrolling interests and federal research tax credits.

                                       36

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                                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, in this 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 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
(U.S. dollars in thousands)                 June 30, 2021       June 30, 2020       June 30, 2021       June 30, 2020
Federal Solutions Adjusted EBITDA
attributable to Parsons Corporation        $        32,500     $        47,700     $        64,482     $        79,317
Critical Infrastructure Adjusted EBITDA
attributable to Parsons Corporation                 27,817              35,519              59,474              62,876
Adjusted EBITDA attributable to
noncontrolling interests                             5,410               7,942              10,470               9,464
Total Adjusted EBITDA                      $        65,727     $        91,161     $       134,426     $       151,657




Federal Solutions

                                             Three Months Ended                     Variance                     Six Months Ended                      Variance
(U.S. dollars in thousands)           June 30, 2021       June 30, 2020    
  Dollar       Percent       June 30, 2021       June 30, 2020       Dollar       Percent
Revenue                              $       442,675     $       482,210     $ (39,535 )       -8.2 %   $       894,744     $       959,781     $ (65,037 )       -6.8 %
Adjusted EBITDA attributable to
Parsons Corporation                  $        32,500     $        47,700     $ (15,200 )      -31.9 %   $        64,482     $        79,317     $ (14,835 )      -18.7 %


The decrease in Federal Solutions revenue for the three and six months ended
June 30, 2021 compared to the corresponding periods last year was primarily due
to a decrease in business volume from program completions and wind-downs, a
reserve taken on a program, and the competitive hiring environment for cleared
personnel. The decreases were partially offset by increases from business
acquisition of $29.3 million and $60.3 million for the three and six months
ended June 30, 2021, respectively.

The decrease in Federal Solutions Adjusted EBITDA attributable to Parsons
Corporation for the three and six months ended June 30, 2021 compared to the
corresponding periods last year was primarily related to a $6.9 million net
impact from a reserve taken on a program during the second quarter of 2021,
compared to a $9.0 million incentive fee recognized during the second quarter of
2020 in addition to decline in business volume.

Critical Infrastructure



                                             Three Months Ended                     Variance                     Six Months Ended                      Variance
(U.S. dollars in thousands)           June 30, 2021       June 30, 2020       Dollar       Percent       June 30, 2021       June 30, 2020        Dollar       Percent
Revenue                              $       436,681     $       497,249     $ (60,568 )      -12.2 %   $       859,309     $       990,671     $ (131,362 )      -13.3 %
Adjusted EBITDA attributable to
Parsons Corporation                  $        27,817     $        35,519     $  (7,702 )      -21.7 %   $        59,474     $        62,876     $   (3,402 )       -5.4 %


                                       37
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The decrease in Critical Infrastructure revenue for the three and six months
ended June 30, 2021 compared to the corresponding periods last year was
primarily due to a decrease in business volume from program completions and a
write down on a project during the second quarter of 2021.

The decrease in Adjusted EBITDA attributable to Parsons Corporation in Critical
Infrastructure for the three and six months ended June 30, 2021 was primarily
related to a $15.4 million write down on a project, partially offset by an
increase in equity in earnings of unconsolidated joint ventures.


                        Liquidity and Capital Resources

We finance our operations and capital expenditures through a combination of internally generated cash from operations, our Senior Notes, Convertible Senior Notes, and periodic 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.

As of June 30, 2021, 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-hand and our borrowing capacity under our Revolving Credit Facility. We do
not anticipate that the COVID-19 pandemic-related economic impacts will impair
our ability to continue to maintain compliance with our debt covenants or access
available borrowing capacity from our banks.

During July 2021, we paid the $50 million Series A tranche of our Senior Note
which had a scheduled maturity of July 15, 2021. See "Note 10-Debt and Credit
Facilities" in the notes to the consolidated financial statements in this Form
10-Q for further information.

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. 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). We focus
on collecting outstanding receivables to reduce Net DSO and working capital. Net
DSO was 68 days at June 30, 2021 and 69 days at June 30, 2020. The decrease in
DSO was primarily due to strong cash collections during the second quarter of
2021. Our working capital (current assets less current liabilities) was $717.0
million at June 30, 2021 and $655.7 million at December 31, 2020.

Our cash, cash equivalents and restricted cash decreased by $2.6 million to $484.6 million at June 30, 2021 from $487.2 million at December 31, 2020.

                                       38

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The following table summarizes our sources and uses of cash over the periods
presented (in thousands):



                                                                Six Months Ended
                                                        June 30, 2021       June 30, 2020
Net cash provided by (used in) operating activities    $        38,463     $       (31,444 )
Net cash used in investing activities                          (19,842 )           (25,822 )
Net cash used in financing activities                          (22,259 )              (847 )
Effect of exchange rate changes                                  1,011                (641 )
Net decrease in cash, cash equivalents and
restricted cash                                        $        (2,627 )   $       (58,754 )




Operating Activities

Net cash provided by (used in) operating activities consists primarily of net
income 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. 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 provided by operating activities increased $69.9 million for the six
months ended June 30, 2021 compared to the six months ended June 30, 2020. The
change in net cash from operating activities is attributable to a $71.6 million
increase in cash inflows from our working capital accounts (primarily from
accounts receivable and contract liabilities offset by accrued expenses,
accounts payable and contract assets) and a $17.6 million change in other
long-term liabilities, partially offset by a $19.4 million decrease in net
income after adjusting for non-cash items.

Investing Activities

Net cash used in investing activities consists primarily of cash flows associated with capital expenditures, joint ventures and business acquisitions.


Net cash used in investing activities decreased $6.0 million for the six months
ended June 30, 2021, when compared to the six months ended June 30, 2020,
primarily due to proceeds from sale of investments in unconsolidated joint
ventures of $14.3 million and a decrease in cash used for capital expenditures
of $13.8 million, partially offset by increased investments in unconsolidated
joint ventures of $22.5 million. The Company had no business acquisitions during
the six months ended June 30, 2021 and June 30, 2020.

Financing Activities

Net cash provided by financing activities is primarily associated with proceeds from debt, the repayment thereof, and distributions to noncontrolling interests.


Net cash used in financing activities increased $21.4 million for the six months
ended June 30, 2021 compared to the six months ended June 30, 2020. The change
in cash flows from financing activities is primarily due to larger distributions
to noncontrolling interests.

Letters of Credit

We 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 to $219.2 million as of June 30, 2021. Letters of credit outstanding
under the Credit Agreement total $45.0 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.

                                       39

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Off-Balance Sheet Arrangements


As of June 30, 2021, 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.

© Edgar Online, source Glimpses

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