Good morning, everyone. I would like to welcome you to the 2020 First Quarter Parsons Corporation Earnings Conference Call. Now I will turn the call over to our presenters. Mr. Dave Spille, you may begin.

Thank you. Good morning, and thank you for joining us today to discuss our first quarter 2020 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Chuck Harrington, Chairman and CEO; George Ball, CFO; and Carey Smith, President and Chief Operating Officer. Today, Chuck will discuss execution against our corporate strategy, George will provide an overview of our first quarter financial results and then Carey will review our operational highlights. 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-K for fiscal year ended December 31, 2019, and other SEC filings. Please refer to our earnings press release for Parsons' 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. I now will turn the call over to Chuck.

Thank you, Dave. Welcome to Parsons' First Quarter 2020 Earnings Call. First, I want to express our deepest sympathies for everyone that has been impacted by the COVID-19 pandemic. This outbreak has been a tragic event. It has taken the lives of many individuals and further disrupted the health of many more. COVID-19 has had varying impacts on families and businesses around the world. It reminds us that the true measure of humankind is not our responses in times of normalcy, but how we rise to the challenges of adversity. And at Parsons, we have been very fortunate to have had minimal impact to both our financials and staffing as a result of COVID-19. Those impacts that did arise were compensated by offsetting increases in other areas as billable hours have been down by less than 2% and COVID-impacted revenues were down approximately 1%. Where impacts did occur, our customers have been in communications with us regarding the plans and processes to return to work in a safe manner, consistent with CDC guidelines. We recognize we're working in a fluid planning environment. We assume the environment will continue to evolve as we progress through this pandemic, and we're scenario-planning accordingly. As I stated earlier, we are fortunate that we have not experienced any material contract delays or cancellations nor major displacement of our employees. Our customers have been supported during this public health emergency, and they enacted policies to maintain their mission-critical programs. From a federal government perspective, the CARES Act legislation is an effective tool against lost productivity. It enables agencies to reimburse contractors that have employees who cannot work on a full-time basis due to work site closures, remote work policies or personnel quarantines. Additionally, the Department of Defense identified our industry as mission-critical, and that has helped as well. These efforts enacted by our customers are beneficial to our nation. First, they allow the federal government's defense industrial base of highly specialized technical and management personnel to remain employed. They've also allowed the defense industrial base employers to remain financially stable. Perhaps most importantly, it has allowed our national security to be maintained in the ongoing competition for cyber, space and missile defense supremacy. Regarding Critical Infrastructure, given the large and complex nature of our projects, the overwhelming predominance of our programs have been deemed mission-essential to date. These projects improve the safety, security, mobility and healthy lifestyles for residents while contributing to each region's future economic growth. Internally, we are proactively addressing the realized and potential impacts to our programs from COVID-19. In partnership with our customers, we promoted telework, ensured contractual coverage and redeployed resources. As I stated previously, to date, this has resulted in immaterial impacts to our billable hours and has not impacted the ongoing integration of our most recent acquisition. We continue to identify opportunities to further align our overhead investments with our strategy while growing our business development and bid and proposal budgets. Our policies and programs have been flexed to maximize benefits to our employees. The president's 2021 defense budget request released in February continues to align with our strategy. Parsons' primary core competencies in artificial intelligence and machine learning, cyber, hypersonics, space and missile defense were all prioritized and appear to have bipartisan support for funding. Authorization and appropriations still need to occur, but we are encouraged by current congressional support and our position in these key markets and technologies. Now I'll move to our first quarter financial results. We reported record first quarter revenue, achieved profitability above our internal Q1 plan, won high-end work in our Federal Solutions market and invested in our people, processes and technologies. In addition, we continue to maintain one of the strongest balance sheets in the industry. In terms of our first quarter financial results, we delivered total revenue growth of 7%, which includes organic growth of 11% in Federal Solutions and 2.5% in Critical Infrastructure, which were all ahead of our internal plan. We also achieved an adjusted EBITDA margin of 6.2%, which, although below Q4 2019, exceeded our internal plan as the first quarter of each year has historically been our lowest margin quarter; and a book-to-bill ratio of 1.0x, which was driven by 1.3x in Federal Solutions. Parsons' first quarter is historically our lightest revenue and adjusted EBITDA quarter. This is generally due to lower award fees, seasonality and ramping up of new contracts, combined with the overhead expenditures we invest in to ensure that our teams are aligned both strategically and operationally for the upcoming year. The revenue impact from COVID was approximately 1% and was offset by strong execution of our contracts and recently won new business. We reported our second consecutive quarter of double-digit organic revenue growth in our Federal Solutions business, and we are maintaining our guidance issued earlier this year. Our balanced and diversified portfolio has been and will continue to be a strength. Our revenue is now almost evenly split between our 2 businesses, and we have financially stable government customers in both segments. Our Federal Solutions team continued to execute well by winning key pursuits and posting strong win rates. We won 3 single-award contracts of approximately $100 million each and other classified cyber contracts. Additionally, we had important contract wins in our Critical Infrastructure business in both mobility solutions and connected communities markets. As we indicated in our conference call last quarter, we are increasing our investments in our people, processes and technologies in 2020. This will ensure we maintain our competitive edge in higher-growth and higher-margin markets that collectively drive our future growth. We're investing in critical areas that drive growth, including business development, research and development and recruiting, retention and training of our talented employees. Additionally, we have recently added key Federal Solutions executives to support and accelerate our growth in strategic markets. We've strategically maintained our strong balance sheet by being selective in our M&A targets and prudent in our strategic investments. As a result, we've maintained low leverage and over $400 million of undrawn revolver capacity. Our strong financial position, combined with our deep backlog, positions us well to weather COVID-19 uncertainties. A key aspect of Parsons' culture is our commitment to core values. In recognition of our commitment to integrity and innovation, Parsons was once again recognized for its ethics and IT leadership. For the 11th consecutive year, Ethisphere, a global leader in defining and advancing the standards of ethical business practices, named Parsons as one of 2020 World's Most Ethical Companies. We were also named to the CIO list of the world's 100 most innovative companies. Building on these core values, I am truly inspired by the support our employees have provided to our communities and customers during these challenging times. Our President and Chief Operating Officer, Carey Smith, will discuss our focus on the safety and well-being of our employees and the development and deployment of new market solutions that have resulted from COVID-19. These capabilities will help in what we and many others are referring to as the new abnormal operating environment as well as in any future pandemic crisis. Epitomizing our core values of safety and innovation, I am so proud of the Parsons team employees across the U.S. that initiated an effort to print 3D face masks for both our employees and health care professionals. These masks keep our employees safe while enabling them to perform our customers' critical missions. I'm also grateful for our team working with a municipal client to sanitize public areas to help prevent the spread of COVID-19. At Parsons, our employees have always been the foundation of our 75-year history of excellence, and we look forward to upholding that legacy during COVID-19 and fulfilling our corporate purpose of delivering a better world. Finally, I want to highlight the corporate social responsibility report we published on Earth Day, April 22. Our CSR, an integral part of our corporate culture, is closely tied to our core value of sustainability and to our corporate mission to delivering a better world. This report illustrates our commitment to successfully delivering on our customers' missions while reducing our carbon impact, improving society through our charitable support, our inclusion and diversity initiatives and by adhering to the highest levels of ethical standards. In summary, we had a solid first quarter. We reported strong organic revenue growth; achieved profitability results ahead of our internal plan; won significant large and high-end technical contracts; invested in our people, processes and technologies; and maintained our strong balance sheet. I'm also very proud of our employees. It is in times of turbulence when true leaders emerge, and I'm thankful for the way the Parsons team has risen to the challenge and protected our communities while delivering on our customers' missions. With that, I'll turn the call over to our Chief Financial Officer, George Ball, to discuss our first quarter financial highlights. George?

Thank you, Chuck, and good morning, everyone. Today, I'll organize my remarks into 5 key areas: the income statement, cash flow results, our balance sheet, contract awards and 2020 guidance. I'll also discuss certain financial metrics on an adjusted non-GAAP basis, where doing so provides a meaningful comparison to prior financial results. As Chuck indicated, we had a solid first quarter and reported revenue and profitability results that exceeded our internal expectations. Total revenue for the first quarter increased 7%, with strong organic revenue growth of 7% as compared to the first quarter of 2019, driven largely by Federal Solutions which achieved organic growth of 11%. GAAP-based indirect SG&A expenses increased $6 million from the first quarter of 2019. This increase was due primarily to additional costs associated with strategic growth initiatives; the impact of acquisitions, including increased intangible asset amortization expenses; public company costs; as well as various positive overhead adjustments which occurred in the first quarter of 2019 but did not recur in this year's first quarter. These increases were offset by a reversal of approximately $8 million in accrued compensation costs related to legacy equity-based programs linked to changes in the company's share price. GAAP earnings per share for the quarter increased to $0.13 per share and adjusted EPS decreased to $0.33. Adjusted EBITDA of $60 million represents a decrease of $12 million from last year, and adjusted EBITDA margin decreased to 6.2%. I'll turn now to our operating segments. Starting first with Federal Solutions, where first quarter revenue grew 13% year-over-year. This increase was due to organic growth of 11% as well as contributions from recent acquisitions. Federal Solutions adjusted EBITDA decreased $9 million from the prior year quarter, and our adjusted EBITDA margin decreased from 9.6% to 6.6%. These decreases were driven primarily by an increase in volume on contracts with higher subcontractor and material costs and an increase in SG&A expenses due in large part to various favorable overhead adjustments which occurred in the first quarter of 2019 but did not recur in the current year quarter. Now a few words regarding our Critical Infrastructure segment. First quarter organic revenue grew 2.5% year-over-year, driven by on-contract growth. Critical Infrastructure adjusted EBITDA decreased by $3 million and adjusted EBITDA margin decreased from 6.5% to 5.8%. These decreases were driven primarily by lower equity and earnings from unconsolidated joint ventures in the current year quarter. Next, I'll discuss cash flow and balance sheet metrics. Our DSO at March 31, 2020, stands at 64 days compared to 61 days at the end of the first quarter of 2019 and 55 days as of December 31, 2019. During the first quarter of 2020, we used $119 million in operating cash flow compared to a use of $60 million in the prior year period. The increase in outflows was driven primarily by payment of previously disclosed legacy long-term incentive compensation plans linked to the company's share price. Operating cash flow was also impacted to a lesser degree by slower-than-anticipated collections in our Federal Solutions segment and in the Middle East within our Critical Infrastructure segment. Capital expenditures totaled $13 million in the first quarter of 2020, in line with expectations. As noted by Chuck in his opening remarks, our balance sheet remains very strong. At the end of the first quarter, gross and net debt were $314 million and $195 million, respectively, as we ended the quarter with a net debt leverage ratio of 0.6x. We closed the quarter with over $400 million of undrawn capacity on our revolver and are in the same position as of today. Regarding awards, we reported contract awards of $966 million in the first quarter, representing a book-to-bill ratio of 1.0x. On a trailing 12-month basis, our book-to-bill ratio is also at 1.0. Our backlog at the end of the first quarter totaled $7.8 billion, representing approximately 2 years revenue at our current run rate. Now let's turn to our guidance. We are reiterating all of our 2020 guidance ranges provided on March 10, as outlined in our earnings press release issued this morning. We expect to achieve these results on the strength of continued organic growth in our Federal Solutions segment, recognition of higher performance award fees across the entire portfolio and targeted cost reductions centered in our Critical Infrastructure segment.

Thank you, George. As Chuck and George indicated, we had a solid first quarter. I'm impressed by the actions our employees have taken to stay safe, to help our communities and to deliver on our customers' missions. We've been proactively monitoring and managing the COVID-19 situation and holding daily corporate response management team meetings since January. We mobilized quickly to ensure the safety and health of our employees, establish contractual coverage and still accomplish our customers' critical mission requirements. Today, I will cover 2 areas related to COVID-19: first, how we're handling operations; and second, new business opportunities, both in response to the current pandemic and for preparation of response to future pandemics or bio threats. From an employee perspective, we've been protecting the health and well-being of our employees and enabling them to work productively from remote locations. Across Parsons, we produced and delivered over 1,000 3D-printed face masks to protect our employees and donate to local health care providers. In addition, we increased the frequency for sanitizing facilities, redeployed staff that were impacted by a lack of customer work and enhanced leave policies. We deployed information technology equipment, and now nearly 90% of our staff is working remotely. Finally, we virtualized our security operations center, enhanced our cybersecurity protections and ensured continuity of operations across the portfolio. From a business process perspective, our programs have been largely classified as mission-essential, and we've obtained permission for remote work. Working with our customers, we've assured contractual coverage and closely monitor potential program impacts in line with the federal, state and local guidelines. Importantly, we continued to deliver on our customers' critical missions, including our second successful small satellite launch manifested with an Advanced Extremely High Frequency satellite. Many of our customers have recognized our employees' performance for going above and beyond in response to the challenges presented by COVID-19, and I'm proud of our entire team. From an opportunity perspective, we were awarded several COVID-19-related projects. We're particularly proud of our work to provide personal protective equipment as a service for N95 mask decontamination and our deployment of virtual transportation management centers. We're also focused on providing solutions to meet our customers' needs in a post COVID-19 crisis world to ensure people can return to a safe living and work environment as soon as possible. Our offerings are organized into 4 areas: touchless screening solutions and virus testing, biosurveillance, cyber protection and digital transformation. Parsons' mission is to deliver a better world, and our DetectWise suite of offerings will reinvent the entire personal screening experience through system integration of best-of-breed emerging technologies, data analytics and artificial intelligence. Our solution will help the public feel safe to travel through airports, attend events and enter public buildings. The DetectWise suite of products includes a touchless health screening kiosk, mobile virus testing laboratory and a decontamination facility. With partners, we're developing a scalable nationwide IT architecture for monitoring individuals tested for COVID-19 and a sensing solution to monitor and detect biohazards. Our cyber protection solutions that have been developed for intelligence and defense customers have synergistic applications to a variety of critical infrastructure sectors, such as energy, transportation and health care. This infrastructure must be even more secure in the future, given the evolving and increasing cyber threats. Finally, our virtual centers, including traffic management and security and emergency operations are increasingly deployed in our digitally transformed society and will benefit a post-COVID world. As Chuck indicated, we won 2 single-award contracts worth over $100 million in the first quarter. The first was with a classified customer for physical security work and is valued at approximately $180 million. The second was a General Services Administration Special Programs Division contract for $109 million to provide program, design and construction management services for a wide variety of federal customers. I would also note that we have 6 additional single-award pursuits worth $100 million or more that are awaiting contract award. Other notable first quarter contract wins include a contract valued at $91 million with the Air Force research laboratory to perform on-site testing, training, enhancements, modifications and technology deployment; classified contracts valued collectively at $60 million to provide cyber operational software development work, security assessment and protection of sophisticated systems and critical infrastructure; and numerous advanced traffic management system contracts throughout North America. Our strong organic growth is being driven by our alignment to the national defense strategy and growing/enduring markets, including cyber, space, missile defense and C5ISR. These are supported by the president's 2021 budget. In addition, our demonstrated ability to win large new contracts, deliver strong win rates and perform on our programs is also driving organic growth. Finally, as announced last quarter, we recently realigned our organization into 6 markets to drive business growth and execution in 2020 and beyond. This structure is driving increased collaboration across our 2 business segments as evidenced by the recent introduction of our COVID-19 One Parsons campaigns that I just discussed. We're fortunate to have a balanced and diversified portfolio as we pursue COVID-19 work and large critical infrastructure contracts within the federal government, such as the Bucholz Army Airfield program, the Antarctica infrastructure modernization program, the Department of Energy Hanford Mission Essential Services joint venture contract and the Ground Based Strategic Deterrent program. We've also been able to apply our Federal Solutions' cyber, video and data analytics and geospatial technology in the Critical Infrastructure market. This strong cross-pollinization between our 2 business segments has enabled us to win larger contracts and increase win rates. In summary, our team continues to execute well, and I'm proud of our many accomplishments. We achieved our revenue and profitability objectives, won large strategic contracts, kept our employees safe and employed during COVID-19, developed new COVID-19 solutions that will help our communities and our customers, and optimized our organizational structure to drive additional growth. With that, I'll turn it back over to Chuck.

Thank you, Carey. To summarize, we had a successful first quarter with record revenue and significant high-end contract wins. In addition, we have a strong balance sheet that we'll continue to use to further invest in our business and to weather these COVID-19 uncertainties. As I indicated in my opening remarks, I'm extremely proud of the way our team members have stepped up to help our communities and customers during these challenging times and delivered on their financial targets. Now we'll open up the line for questions.

The first question comes from Ms. Sheila Kahyaoglu.

Chuck or Carey, maybe this one is for you. In terms of FS, just consistent double-digit organic growth for the second quarter in a row. I think book-to-bill was 1.3. How do you view sustainable organic growth? And maybe can you just talk about the recent awards and ramp on newer programs?

Yes. Thank you, Sheila. We are continuing to see strong proposal activity. Our win rates have been very good, and we're blessed with very high win rates. So we continue to see strong growth in that market. I think that’s at least partially due to the fact that we're aligned with the national defense priorities of cyber and, obviously, space, with what's going on there, and missile defense, combined with the technologies we're involved in are the technologies that our customers are looking for – AI, machine learning, autonomous systems, cloud computing and IoT. So we expect that growth to continue. And in terms of the pipeline and wins, I'll let Carey address that. Carey?

Thanks, Chuck. Yes, Sheila, I would reiterate what Chuck said. This is our second consecutive quarter of double-digit federal organic growth. We obviously have a strong book-to-bill of 1.2x. And I think that shows our strong competitive market advantage. So I'll highlight a couple of our recent wins. We were awarded the CUVAS program with the Maryland Procurement Office. It is currently under protest, but we were awarded the contract and we are performing and executing on the contract. That's a critical win for us because we're doing physical security, engineering, design, documentation, software and hardware development across the MPO sites. We also were awarded last year the Combatant Command Mission Support contract for $590 million for cyber operations, our largest cyber contract ever. We saw that contract ramp up as we started the first quarter of this year. Likewise, in our pivot to a Pacific strategy, we were awarded the Kwajalein, Bucholz Army Airfield contract for over $200 million, and that's enabled us to ramp up growth there. Some other cyber wins that we had this quarter are Dark Patriot, which is a multiple-award contract. We were successful in winning the first task order released for cyber and operational software development. We were awarded a classified contract for infested waters, which is security assessment and protection of systems; and a classified contract called Lock & Roll, which is cybersecurity capability development. So I think we continue to see our differentiation in these key emerging and growing markets.

That's very helpful. Regarding margins, you mentioned that Q1 aligned with your internal plan and is typically a seasonally weaker quarter. This suggests there will be an increase in the margins over the next three quarters. Could you discuss some of the factors driving these margins, whether they are related to indirect costs or product mix, that enhance the profitability profile?

Sure. Yes. It's really a combination of a couple of things. The first quarter of the year is when we do intensive planning and get our teams aligned with our strategy and our operating plans. So our SG&A or IG&A are generally higher in the first quarter than they are in other quarters. We've seen a lot of growth and a lot of new contracts ramping. The contracts that are coming onboard are all higher margins. This particular quarter, we also had a little bump in pass-through revenues, which tended to push down our margins a bit from that perspective. Generally, the first quarter of every year is kind of a repeating occurrence, just like the overhead. We don't generally have higher performance-related revenues or fees. So that tends to come more in Q3 and Q4. The combination of those factors is what has driven our margin down in Q1 traditionally. As Carey mentioned, we have quite a few programs that are ramping right now, and those programs are all very strong margin. We do expect higher award performance fees as we look into downstream quarters. In addition to that, as we mentioned, we continue to integrate our acquisitions and align our overhead structure with our strategic focus. We also made some planned reductions in this quarter, and those really start to kick in in Q2 and will be fully deployed in Q3 and Q4. Carey, is there any additional color that you'd like to add to that?

Yes, thank you, Chuck. As mentioned, we have several major programs ramping up that involve a higher labor component, particularly two classified contracts, CUVAS and another with the intelligence community, which have higher labor margins. We also recently secured the Hanford joint venture for the mission services contract. Being a minority partner means this is pure profit equity for our company. Regarding the combatant command, in the first quarter, we had additional heavy material due to the ramp-up, which we will not see moving forward. We are transitioning to a higher labor component in the next quarter. Additionally, we anticipate an increase in our equity and earnings from our unconsolidated joint ventures as we progress.

Your next question comes from Mr. Joseph DeNardi.

Chuck, I appreciate you guys maintaining the guidance. I'm wondering if how you're thinking about kind of 2021 or 2022 has changed at all just at least internally because of what's happening, not necessarily that lead spending priorities. But does work that you're expecting to be awarded not get done and so the impact is maybe less than you would expect now and it starts to show up more next year? What are your thoughts there?

Yes. I think there have been things that have gone both ways. We've seen a couple of contracts that have moved out. Some of those contracts that moved out have moved back into this year; in fact, got accelerated. In terms of trying to see a long-term trend that would indicate negativity, I don't see that. On the Critical Infrastructure side, again, because the contracts we do are generally bond-funded long term, I mean George and I were leading the company through the global financial crisis. We didn't see cancellations there either or with oil price up and down. I think you could expect to see some delays of newer contracts in those areas, but given our pivot to more digital solutions, at this point, we're not predicting material changes to 2021 or 2022. George, any color that you would like to add to that?

Yes, I agree with everything you said. We saw a lot of the same factors in the great financial crisis. The other thing I would add is we've really seen a significant pickup in emergency response work. And from the standpoint of our Critical Infrastructure business, I think as we move through the reopening of the economy, a lot of the things we do relative to that part of the business are technology-based. I think we'll probably see an upturn in work associated with safe passage of people through airports and just through their communities. So frankly, that's one of the reasons why we're pretty bullish and have maintained guidance, Joe.

Yes. I would like to have Carey expand on that a bit. We're obviously doing a lot of work with productization, and we were able to pivot very quickly with some of the things we had underway to produce our DetectWise product, which was announced on Monday. We now have the signed MOU, and we're executing for our first deployment of that. We're pretty excited. We haven't even put the impacts of the four buckets of technologies that Carey discussed into the forecast yet. Carey, can you kind of talk about that from a perspective of 2021 and 2022?

Surely, Chuck. As I mentioned in the remarks, one thing we're very excited about is reinventing the personal screening process, which needs to become touchless. It can be deployed in any factor of our lives, and it can be scaled up or down. You might have a simple kiosk solution, for example, at a sports venue, whereas when you go to an airport, you want to feel secure to go through a kiosk but also have people that have symptoms, as they go through the kiosk, be thoroughly tested for COVID before being permitted to get onto an airplane. This has immediate application globally, and we're really anxious to roll this out in the next few weeks.

Can you elaborate on how the kiosk operates and the progress of its deployment plan?

Carey, do you want to go ahead and take that?

Sure. We're in discussions with various sporting venue companies as well as numerous airports across the globe. Basically, the way the kiosk works is you go up and you answer a questionnaire that says that you're willing to answer certain information about your symptoms. You will have your temperature taken. We will be adding a sensor for respiratory as well. If you do not pass the questions at the kiosk, for example, if you're at the more complicated airport scenario, you would be sent to our mobile testing lab where you would be tested for COVID. Depending on the results there, you would either be permitted to board the plane or you would have to depart the airport. This really will keep all of our lives safe as we travel.

Next question comes from Cai von Rumohr.

Yes. So you touched on COVID a little bit, said it was a 1% revenue hit in the first quarter. Could you talk about how much of a profit hit it was and what sort of impact on the negative side in terms of revenues and profits you see for the year? And maybe what have you baked in for DetectWise and other initiatives you've talked about?

Thank you, Cai. Those are great questions. From a profit perspective, it's relatively minor. Other areas of our portfolio performed better than expected. We've reassigned personnel, making it difficult to pinpoint an exact figure since the final numbers exceeded our initial predictions, around 2% as I mentioned earlier. Regarding COVID revenues, we've included services like decontamination for masks that we're providing in collaboration with Battelle in our forecasts. However, the work from airports hasn't been factored in yet; we'll commence our first live launch around the start of June, and that should generate revenue at that time. We are still in the process of collecting industry data for other initiatives to include in our estimates. Overall, we've been fortunate, thanks to CARES Act support and the redeployment of staff to different roles. Very few of our employees have been on work-from-home status without being gainfully employed.

Terrific. And just turning to GBSD. You're one of the members of the Northrop team, and they should be getting a contract here in the next several months. How big is your contract? I mean they've got a very big R&D contract. Do you get proportionately the same amount of that big number? And how do the revenues and profits ramp for you?

Thank you, Cai. Well, that's still being worked out with Northrop, and we don't want to get in front of Northrop's announcements. They're obviously working all that with the Air Force. We're in discussions with them as well. Our work will tend to be more front-end oriented, given our historic capabilities. We are very hopeful and optimistic that that contract will be signed on time, which would be around August of this year. Carey, do you have anything else to add to that?

No. The only thing I would add is that we're working with both Northrop Grumman and Bechtel. Bechtel is going to be a member of the team as well. We're in the process of finalizing our work scope. The Parsons effort will be on the design effort in areas like blast and nuclear protection, things that we've uniquely done on other intercontinental ballistic missile programs where we're uniquely qualified.

Next question comes from Gavin Parsons.

Chuck, could I just make a quick clarification on the COVID-19 impact? It sounded like you said there was maybe a 1% to as much as 2% impact in the quarter. You do anticipate some impact for the remainder of the year, but that will be offset by benefits on programs like mask, sanitation and maybe the screening devices.

Yes, we experienced some movement in other programs that accelerated or had wins earlier than expected. The impact on our billable hours was about 2%, which was measured before redeployment and before accounting for earnings. Regarding revenue, the impact was approximately 1%. We managed these challenges similarly to how we handle other issues that arise in any year, such as cancellations or protests. While this situation is not typical business, the effects were manageable and consistent with what we usually encounter.

Okay. Appreciate that clarification. And then on cash flow, maybe, George, if you can just talk about some of the moving pieces of working capital, your confidence in collecting all those. Obviously, there was a little bit of slippage out of Q4 '19 as well, and the collection timing on that was 12-plus months. So maybe just a little bit of color on what happened with collections in the quarter and then your confidence on being able to get those back this year.

Sure, Gavin. As I mentioned earlier, we saw a significant outflow of about $40 million year-over-year related to the legacy share-based compensation plan, which was the main factor in the year-over-year change. Additionally, there was about a $20 million difference in normal operating cash flow compared to the previous year. In the federal sector, we started some projects that typically experience delays in billing approvals, likely impacted by our government clients transitioning to remote work. However, we've noticed a significant improvement in cash flow in the federal sector as we entered the second quarter, with April showing particularly strong performance. We also experienced some slowdown in the Middle East during the first quarter, but that has also picked up in the second quarter. Overall, I feel more optimistic about our ability to meet our guidance now than I did three months ago, despite the challenges posed by COVID-19. This optimism is partly due to the deferral of payroll tax deposits, which will benefit us by about $30 million this year. There are many factors at play, but our outlook has improved significantly in Q2, and we are feeling confident about our cash flow guidance.

Got it. And then just kind of considering also that Q4 '19 slippage, is it possible to sort of size the amount of collections that are outstanding above what would be normal?

Relative to COVID-19, it's difficult, as Chuck suggested, to kind of separate the strands. It probably would be some number around $20 million in shortfall as compared to year-over-year. And also referencing our internal plans, we fell short by about $20 million. Again, very difficult to determine what would have been with or without COVID. If I had to put a number on it, that would probably be it.

Next question comes from Tobey Sommer.

What internal or external, from a customer perspective, changes do you think may result from COVID-19 and this experience?

Thank you, Tobey. One big change is that we had moved to a lot of virtual officing but nowhere near the amount of virtual officing or work-from-home we're doing now. It's been amazing to see how easy it is to conduct this work virtually, enhanced by technology like conferencing and video conferencing. Productivity hasn't gone down, and in fact, may have gone up. I think we'll see more of a pivot to virtual officing on a go-forward basis and leveraging the IT infrastructure that we have in place. Longer term, we expect reductions in real estate costs, facilities costs and travel costs. I think we're all going to be more comfortable in conducting audio and video teleconferences. Some great technology is out there for conducting those. If that sticks, I think it could result in a reduction in overhead costs associated with those. I also think we're seeing customers deeply examining the amount of work that is classified and unclassified, allowing more work to be done in an unclassified environment and potentially even in a work-from-home environment. The last 15%, 20%, 25% will be done in SCIFs, reducing the load on SCIFs and increasing flexibility in how we conduct the work. We're experiencing a lot of flexibility across our platform that may be semi-permanent for the foreseeable future. Carey, you and the team have done tremendous work looking at facilities and IT and working with our customers in this regard. Perhaps you can add a little additional color to Tobey's question.

Yes. I would say both internally and externally, there's going to be a lot more focus on teleworking. Our customers are starting to move to that. The classified customer is looking at how much can be done remotely versus must be purely on-site. There will also be additional focus on cybersecurity. As we saw during the crisis, the amount of attacks increased across the board. It's not just going to affect the defense and intelligence sector that have always focused on it. That will increasingly pressure other sectors, including energy and transportation, to ensure they're on top of it.

And maybe could I get your perspective on how this crisis and resulting recession impacts the company's ability to source, hire and onboard talent; as well as the appetite you have as well as the ability to consummate additional acquisitions?

We are very proud of our people team and their achievements. In mid-March, we transitioned to fully virtual onboarding, effectively managing our employees' IT asset needs and conducting interviews, which has been quite successful. March turned out to be a remarkable month for us in terms of hiring, and much of the credit goes to our operations and people team. As for acquisitions, we still have an interest and are in discussions with several promising companies. However, we have likely experienced a pause in this area, as proper due diligence is challenging without the ability to visit offices and meet individuals face-to-face, which we consider essential. We are also waiting for market valuations to stabilize. Some companies may not be in as strong a financial position as we are, which could lead them to consider selling or divesting parts of their businesses, potentially creating more opportunities for us. We have noticed that in certain markets, our competitors are facing challenges, making it easier for us to hire talent. In specialized and technical fields, we expect to see a preference for established companies that are financially stable and not seeking pay cuts. There remains a strong demand for such employees. Carey, would you like to add anything?

Just two additional items. First is our retention rate is the best it's ever been. I think that's terrific. As well as recruiting, back in March, it was our highest month. We've moved to virtual recruiting and found that to be quite effective.

Your next question comes from Mr. Ron Epstein.

Oops, yes, I was on mute. Sorry about that. Yes. There's a lot of discussion around COVID-19 and the opportunities it might bring along. As we model the company and we think about what that could potentially be as we walk out over the next several years, how should we think about it? How big an opportunity is it? And who's competing with you in that work?

It's a rapidly developing market, and it's hard to see who the competitors are going to be in various lines. What we've seen in these early stages is that firms that can be incredibly agile, moving quickly across market lines with the required talent have been very successful, and we are one of those companies. Our teams have been working seven days a week, getting RFPs on Friday nights and having interviews on Saturdays; awards on Sundays. It's been incredibly inspiring and motivating. As we model out, it may be premature to assess how we model that in. There are just emerging solutions and relative unknowns. So I would personally feel more comfortable when I have more data.

All right. As a follow-on, and this takes us back to the beginning of the call. Just following up on Sheila's line of questions. You mentioned in the remarks part of the strategy is looking for high-growth, high-margin areas. We're seeing the growth come through but I'm still scratching my head on the margins. The worry is in an intensely competitive market – could concessions on price be a problem? Why is that wrong?

I can assure you we're not making concessions on price. We’re not seeing excessive price competition in the areas we're operating. I'm not saying there aren't tighter margins, but the margins we're bidding are generally greater than our target margins. In areas we're working, technology is crucial, and that technology lowers the cost of the total solution to the customer. The customer's costs may go down, but the profit margins remain sound. Remember, Q1 is traditionally low due to lower performance fees and revenues, combined with higher overhead costs we incur. Carey, would you like to add anything on contracts we have going forward?

I would agree with what you said. We had a shift also. If you look at federal versus Critical Infrastructure, our allocation is shifting because of the bigger mix that federal has, resulting from the company. We had the new start contracts, combatant command mission support and Kwajalein that were higher-than-normal pass-through costs. On CCMS, in particular, as we go into Q2, we'll shift from a material to a labor basis. Relative to last year, there were onetime overhead adjustments occurring last year.

Next question comes from Mr. Josh Sullivan.

Kind of a related pricing question. The push into machine learning, IoT, DetectWise – these appear to be more commercial-like products and services. Can you talk about how the customer is responding or evolving? Are they receptive to commercial pricing, such as more service-based models?

As part of our longer-term strategy, we see that many in the commercial world are adopting as-a-service type models. This approach puts control of resources in contractors' hands to best apply resources to opportunities. It generally leads to faster deployments and a total solution to the customer, combining hardware, software, and services. In the federal world, they've migrated to the cloud, which is essentially data center as a service. We're seeing increased interest—though not floodgates opening yet, but a growing trend. That’s why we’ve been investing in productizing our services and combining them with our hardware and software. Carey, you probably have some additional color to add on that.

Sure. We're already selling our iNET product as a service, either software as a service or platform as a service. The decontamination service we’re providing is already in discussion. We're also exploring cybersecurity services like 'hunt as a service' – comprehensive threat assessments and looking at the supply chain. We have a product offering called Knowtify, which sells knowledge as a service. This is a critical business model for our company.

One other significance is that we've added senior executives to speed growth in key federal markets, notably cyber, intel, space, geospatial, and defense. They already have had a significant impact, assisting in positioning us for bids and proposals, coupled with our longer-term productization strategy. Carey, you may want to provide more detail.

Certainly. We brought in talent for business development, operations, and recruiting. They are steeped in military or intelligence domain expertise as well as deep industry expertise in the federal space.

Next question comes from Louie DiPalma.

Can you talk about the resiliency of your Critical Infrastructure division during this period that you referred to as the new abnormal? If state and city budgets come under pressure, how would your business be impacted?

Great question. Very few of our contracts come directly from states. Most are from special taxing districts and agencies at the county, city, and cross-county levels like airports and transit districts, which tend to span city and county lines. Most of the programs we are on are bond-funded; they don’t stop. They have dedicated financing lines. In the global financial crisis, which resembles this, 2008 was a record year only exceeded by 2009 and 2010. We’re seeing infrastructure businesses pullback, nurturing fewer competitors pursuing the work, and I believe this trend will continue. State and local budgets will definitely be pressured, affecting traffic volume. A lot will depend on how fast things come back, with a renewed focus on regaining ridership in transit systems, airports, and parking facilities. That’s our pivot, which plays into the transition we’re already undertaking in that market, providing physical solutions for safe distancing and technology solutions that identify symptoms, rapid testing capabilities to ensure safety. We see that being a growth area since the public will need assurance about the safety of using infrastructure and returning to normalcy. Carey, would you like to add anything to that?

Our Critical Infrastructure proposal volume has increased. If you look, we submitted 237 last quarter, and this quarter, it’s up to 245. So continued demand remains in the areas we’re involved in. Nearly all of our programs in Critical Infrastructure have been deemed mission-critical and continue performing despite COVID. The COVID offerings I described, especially the integrated personal screening system, will be marketed through our Critical Infrastructure sector with significant attention paid to rail, transit, and aviation markets.

One additional note is a good news/bad news story. The bad news is our society faces increased cyber attacks on infrastructure and citizens, but for companies like us offering those protective services, I believe this could represent another potential growth opportunity.

Next question comes from Justin Donati.

You talked about your ability to redirect employees. Can you just talk a little bit more about if that's in one segment more than another?

It comes down to each open slot and how well each employee's specific skill matches. For example, we have software programming skilled employees that can manage several sectors. Employees in skill areas across construction management and critical infrastructure were transferable, allowing us quickly to make necessary adjustments across sectors daily. That’s why the team facilitated placements quickly. Carey, any expansion on that?

Yes. We have a robust redeployment program. We meet a couple of times weekly to evaluate every program and each employee to align skill sets. We've had minimal furloughs; those who were were primarily from vehicle inspections, deferring their work to later in the year. Our redeployment scheme has been very successful.

Great. Just as a quick follow-up, what percentage of your federal segment has cleared personnel where they might not be able to be redirected?

Specifically, what percent of our personnel are cleared that could not be redirected?

We have over 3,000 cleared personnel. Most classified customers have transitioned to 1 week on, 1 week off. Lastly, only 1.4% of our revenue falls in that category, and all will be recovered through CARES Act from a revenue standpoint.

Next question comes from Joseph DeNardi.

Chuck, just a quick follow-up. You mentioned several times the amount of business that is funded through bond issuance. Can you quantify that? How much of your Critical Infrastructure segment revenues comes from something like that, if you have that handy?

I don’t have that on hand, Joe. I will check with Carey if she does. What I can say is when you get over about $100 million in contract size, nearly 100% are either bond-funded or P3-funded. They don't come from operating funds at an airport or transit agency. Thus, capital projects in the infrastructure side are virtually bond-funded in the U.S. Carey, do you have any further detail?

I don’t have that number handy, Chuck.

We can look that up for you, Joe.

That is all the time we have for questions. Thank you all for joining. Presenters, please stand by.

Thank you.

Thank you, everyone.