How Parsons sees today's market dynamic changing the future

Parsons Corp. has the same expectations regarding financial performance for this year that it did before the coronavirus pandemic brought much of society to a screeching halt.

The company attributes some of that to how it made the shift to a new operating environment. During Parsons’ first quarter earnings call Wednesday, executives said nearly 90 percent of its employees are working remotely and only a small number are furloughed -- mostly in a vehicle inspection division within its critical infrastructure segment.

But will that be the normal way of doing things in a world without widespread COVID-19 illness, and particularly for government programs that require a security clearance?

In the call with investors, CEO Chuck Harrington said some federal agencies have done some on-the-fly rethinking with respect to what work absolutely must be done in a sensitive compartmented information facility more commonly called a “SCIF” versus other aspects where that is not the case, albeit preferred in many cases.

“Some of our customers (are) really strutting hard the amount of work that is classified and unclassified and where that line is drawn,” Harrington told analysts, adding those agencies are “allowing more work to be done in an unclassified environment and potentially even in a work-from-home environment.

“Then the last 15-20-25 percent, the really critical stuff, being done in SCIFs, which then puts reduced loads on SCIFs and greater flexibility in how we conduct the work,” Harrington also said. “We’re seeing a lot of flexibility across the platform and a lot of these changes, if not permanent, going to be semi-permanent for the foreseeable future.”

Roughly 3,000 of Parsons’ nearly 16,000 employees have security clearances. Chief Operating Officer Carey Smith said that for classified programs, most Parsons staffers are working on a shift schedule of “one week on, one week off.”

Internal workplace dynamics among government contractors could also change as Harrington sees it.

“I think we’ll see more of a pivot to virtual officing on a go-forward basis, leveraging the IT infrastructure we have in place, on a longer term,” Harrington said. “We expect to see reductions in real estate costs, facilities costs, and reduction in travel costs, as we are going to be more comfortable in conducting audio and video teleconferences.” 

Market dynamics of today and potential opportunities for the future are behind why Centreville, Virginia-based Parsons is holding to its outlook of $3.95 billion-to-$4.05 billion in revenue and $330 million-to-$360 million in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization expenses).

Smith said that 1.4 percent of Parsons’ revenue falls into the category of requiring reimbursement through the CARES Act economic stimulus law that lets agencies cover contractors’ paid leave costs to keep workforces in a ready state if employees have to stay home.

Some government services companies such as Leidos and ManTech International nudged their outlooks down because of the pandemic’s impacts, while others such as Science Applications International Corp. and Maximus have pulled back yearly guidance altogether. On the other hand, CACI International is one example of a contractor that reiterated its forecast even considering revenue impacts.

Also underpinning Parsons’ continued optimism for now is a $7.8 billion backlog, which covers two years worth of revenue at its current run rate, and a 1.0 book-to-bill ratio on a trailing 12-month basis that shows the company’s inventory of contracts is growing at least level with drawdowns to book sales.

Parsons also outlined one new initiative it is working on to help address the COVID-19 pandemic and how future biohazards like it could be monitored. Company executives were not ready to size up the revenue from those programs to investors but pulled back the curtain on what customers will have access to.

On Monday, Parsons unveiled its touchless DetectWise system that is designed to screen people for COVID-19 at places of mass gatherings like airports and sporting venues. Harrington said the company and one airport are finalizing a memorandum of understanding for an initial deployment there in June.

DetectWise is designed with contactless screening kiosks and modular testing facilities that could determine if they have a high temperature or other systems before they enter a mass gathering location.

What the overall landscape looks like for products and services to support the fight against COVID-19 and other biothreats is an open question, according to Harrington.

“It’s a rapidly developing market and it’s hard to tell who the competitors are going to be,” Harrington said. “What we’ve seen at least in the early stages, the firms that can be incredibly agile and move quickly, across market lines and industry lines with the talent that’s needed have been those that have been very successful.

“Fortunately we’re one of those companies. Our teams have been working seven days a week, getting RFPs (request for proposals) on Friday nights, having interviews on Saturdays and awards on Sundays,” he added.