Good morning, everyone, and thank you for joining us for the day two of our virtual teleconference. This morning, we have Parsons Corporation with us. On the line, we've got Chuck Harrington, Chairman and Chief Executive Officer, George Ball, their Chief Financial Officer, and Dave Spille, Vice President of Investor Relations. Without further ado, let me hand it over to Chuck.
Thank you, Ron. Before I start with just a very short company overview, I'd like to make my obligatory declaration that may be making forward-looking statements. The standard forward-looking statement disclosure applies. I guess I'll tell you three things about three things. First, the company overview. We're $4 billion in revenue. We've got a strong balance sheet, low leverage. We're about 0.6 turns. Plenty of dry powder. Strong backlog at about two years. 16,000 employees, roughly 3,200 of them are cleared, most of them highly cleared. We operate in two segments, Federal Solutions and Critical Infrastructure. Our Federal Solutions is broke down into four markets, Cyber and Intelligence, Defense and C5ISR, Space and Geospatial Solutions, and Engineered Systems. Our Critical Infrastructure group is divided in two, Connected Communities and Mobility Solutions .
We're focused on four core technologies that we invest in internally through R&D and externally through M&A, and that's artificial intelligence. Think of primarily machine learning and associated data analytics. Autonomous systems, both on land, sea, air, and space, and we include hypersonics in that area. Cloud computing. Think of mission software, replatforming, and new software development on the cloud, and then IoT, and that's mainly sensors and the associated communications and high-speed processing. Looking back, last week we reported Q1 performance. We had a good solid quarter. We exceeded our internal plan. We've reaffirmed our 2020 guidance, and I'd like to stress the agility. When COVID-19 hit, we immediately went into a defensive posture, taking care of our employees, our customers, and suppliers.
Literally in a few days, moved to an offensive posture of how do we get out and really help the world, help our customers and communities. So we started things like a personal care practice of printing 3D face masks for our employees and frontline care workers, decontamination, work we're doing with Battelle, decontaminating face masks, and we're also decontaminating infrastructure in many cities. Also touchless biometrics, where you might have seen a press release on our DetectWise kiosks and our laboratories for health testing. In digitalization and virtualization, mainly of Security Operations Centers. We virtualized our own SOCs and we're doing it for customers as well, as well as traffic management centers and cyber. A little bit about the future. We're looking to get our revenues from currently about 30% tied to our four key technologies that I mentioned, up to 50%.
We're focusing on continuing to grow what we call transactional revenues, which is software sales, hardware sales, Software as a Service, and solutions combined of software, hardware, and services. As we look at our COVID-19 response technologies, we really think that's helping open us kind of an extent strategy, moving into new markets with our touchless biometrics, physical modifications for physical distancing at things like airports and military bases and transit centers, as well as our SaaS products. That's kind of a brief overview, Ron.
Okay, great. Thanks. Just to remind everybody in the meeting, if you want to submit a question, you can do it via the Veracast system. If you'd like, feel free to email a question to myself or anybody on my team. In the meantime, let's kick it off. COVID's on the front of everybody's mind. In your remarks, you mentioned some of the interesting work that Parsons is doing. Is it possible to quantify, maybe in some broad way, even if it can't be specific, on how big these opportunities could be when you look out to sort of the mid and longer term?
Where I'm going with this is if you look at kind of what happened in the wake of September 11th, it was just a matter of months and the TSA was set up and there was a whole infrastructure to do scanning, if you will, on folks in terms of carrying things they shouldn't on aircraft. When you think about where the world could be in just a matter of months, what kind of opportunities could be out there?
I think a lot of what we're seeing, Ron, gets back to kind of like this situation you mentioned. It's about public confidence. It's about public confidence to be able to enter large places of employment, airports, where, again, large numbers of people and closely confined, transit stations, sporting arenas, and the like. I think there are some solutions that as we enter the new normal, or as many people are referring to it as the new abnormal, we're going to see physical distancing playing a greater role. How are TSA lines designed to go through airports, as an example? Are we really going to be standing literally a foot or so apart from three or four of our closest friends? Are we going to have a little more spacing? That's going to require physical change.
There's all the advances in technology and how we measure temperature and respiratory rate and cardiovascular performance, a lot of which can be done remotely now, or if it's not currently available now, soon will be. I think those are likely to be permanent changes. Someone once said, this is a terrible pandemic, the first in 100 years. I doubt it'll be another 100 years before the next. Over seven billion people on the planet, highly mobile. Just the chances of these things are statistically higher. As we look at our revenues, we're looking right now, we are already under contract. We have several contracts signed, and I look out over the next year or so, I could see revenues aggregating over $100 million in this work. Now, will that all come to fruition? I don't know.
As it goes more global, I think we're talking significantly more than that. It's going to be to the firms who are very agile and can respond quickly, and probably in partnership with other companies to bring world-class solutions to restore confidence to reusing the public infrastructure.
Yeah, that makes a lot of sense. While we're on COVID, and then we'll kind of pivot to maybe some other stuff, but it's just on top of everybody's minds. Can you discuss how COVID has impacted your core business operations, if at all? How you've been able to have your teams work remotely and while still providing the services that you do, and if you could discuss that a bit.
Yeah. We had invested in our internal infrastructure, really had ramped that up a couple of years ago just with the development of what we call FedDevOps, our ability to do classified work on our own classified network. Since on the infrastructure world, designs are usually never done in one office. They're usually spread out around the country or sometimes around the world. You have high bandwidth capabilities. When we decided to go, like everyone else, to work at home, or were told to do so, we actually went early on. Our network flexed really easily. I'm not saying there weren't some other things we had to do. There were, but it was amazing how easy it was, and I think other CEOs are saying the same thing. That was immediate, and we saw really no immediate impact.
Obviously, some of the intelligence customers have gone to blue and green teams or blue, green, yellow teams, and that has had some minor impact. All in all, we're talking about very small numbers of revenue impacts that were, quite frankly, compensated for by upticks in other parts of our business as other customers decided they need to do some things really quickly. That, combining with running a series of scrums that generated well over 100 ideas from our employees around the globe of things that we should evaluate, that we quickly narrowed down to four buckets of solutions to provide to our customers was, one, really motivating. Quite frankly, it also gave me a better platform to talk to our employees. I was doing three videos a week every morning and getting up to 25 or 30% of our workforce watching those videos.
One, just to get everyone settled down and getting confident that we're going to get through this as a company, as a world, as nations. Restoring confidence is so important, and time for leaders to really step up, in my opinion.
You brought up an interesting topic. When you think about innovation at Parsons, how do you cultivate it? How do you reward it? You mentioned the scrums that you ran. What's the process for generating innovation at the company? I guess it's my sense that innovation is really the edge that's going to kind of keep you guys going forward in a market that's reasonably competitive.
I think you hit the nail on the head, Ron. It's all about culture. Since it's one of our six core values, we really herald innovation and reward innovation. There's no such thing as bad innovation. Some ideas are more successful than others, but you have to reward and inculcate that belief that everyone can contribute because they can. Having an environment and a culture that's collaborative and inclusive really facilitates. We put a lot of time and energy into that because the rewards are so great. It also requires trust. When you're new to the team and you're putting out an idea, the last thing you want to see is the people look at that idea as not being in line with what everyone else is thinking. That's really critical to have that inclusive nature and culture in your team.
We act on it. That's the other thing. People put ideas in, and they never hear back, like, "Well, why didn't my idea go forward?" We really put a lot of energy into getting back. The decisions aren't made by a group of executives, all-seeing, all-knowing executives. We put together cross-functional teams throughout the organization, we hit it hard and say, "Okay, this looks like a great idea. What's the opportunity? How are we going to put it together? What technology needs to be developed? How are we going to price it? What do the contractual terms look like? Who are the end customers? How are we going to reach them? What are the partners we need?" We try to do that literally measuring in hours and days versus weeks, then months. I think that's key to an innovative culture.
How do you think about when you're looking at a new product or an innovative idea, the balance between the capital investment required to do so and the return? How do you do that balance, and over what timeframe? If you invest X in a new technology, when would you like to see a return for that? Is it a year, 2 years, 6 months? How do you think about that balance?
Yeah. We subscribe to kind of the theory, we call it firing bullets, not missiles. Some of the most innovative and largest companies in the world were, quote unquote, "Created in garages or dorm rooms with little to no money." We pride ourselves on being really capital efficient during these phases. Now, some of these things become big, and obviously you're going to take millions and millions of dollars to move forward. Personally, we don't like to do that unless we've tested the market and are absolutely assured it's meeting customer demand, and there's a large market of customers, and we have access to them. You don't see us coming out with business to consumer or really too many business to business. We're basically a B2G company, and some of those government customers are state and local and county-type customers.
We know who we are, we know who our customers are, we know what the missions that we're working, and we stay true to those missions and true to those customers, and then invest small and grow if the market opportunities present themselves.
Maybe pivoting just a little bit to the portfolio of businesses that you now as Parsons, right? Broadly, Parsons is growing into this, whatever you want to call it, defense services, away from just sort of the E&C roots, right? When we think about the portfolio shaping and how you're growing the portfolio, given the current environment, has this created opportunities? How should we expect to see the portfolio change, if any, in the next sort of short to medium term?
We have a longer range that we started several years ago, transformative strategy, as I said in those opening remarks, building more and more of our portfolio around those four key technologies, and more and more of our portfolio around software and hardware products, and weaving those products together with the services that have been our history for so long into total solutions. Providing those solutions on a different kind of basis to our customers. I think a lot of government customers think in terms of buying headcount or buying services through cost reimbursable T&M or lump sum contracts. We think in terms more of a SaaS model, where what you really want is not all the constituent parts, what you want is a solution.
How do we work with our customers to better deliver a solution that really is agile and works with their needs? The other thing that we've benefited from that I think has been really helpful during times like this, is that innovative spirit which we find in terms of the ability to rapidly prototype an agile development. We've invested in a lot of 3D printers. Some of these are very, very sophisticated printers that can print very small parts to do special missions. That gives us the capability to take an idea on paper or on a board and go, "Let's go print it. Let's go see what this thing looks like. Let's see how this works. What are the operating parameters looking like?" We also are blessed to have a series of customers that want to participate in that.
Whether it's OTAs or just R&D associated with some of our programs, that's all helping to transform this company to a company that is seeing its largest growth in Cyber and Intel, missile defense, and C5ISR, the Geospatial I talked about, and Connected Communities, where the future of communities is probably far more digital than it has been in the past.
Along that same line, when you think about where Parsons could be five years from now, 10 years from now, the journey that the company's taking, where do you see the, I don't know, the end game or ultimately, when you think about the mix between Federal Solutions and the traditional businesses that Parsons was in, where do you see that ultimately ending?
Well, I see-
arriving, I guess.
I see.
You know.
lines getting blurrier, Ron. As the physical infrastructure world becomes more and more digital and infrastructure becomes smarter, it detects the aging that's taking place in the physical structures and can alert you of pending issues or required maintenance. We see more and more autonomous systems, whether it's driving or flying autonomous systems, and how the infrastructure of cities and counties and states and nations interface with that autonomous systems, whether it's air traffic control-type scenarios or just legal bodies interfacing back and forth, and how does that work and how does it function to help people get from point A to point B more efficiently. The solutions are going to have to be far more network-like. They're going to have to be really robust cyber systems.
All the things that we've been investing in on the Federal side going back 10 years are starting to now position us to be a much different infrastructure participant going forward. As I look out 5 to 10 years, I see the vast majority of our revenues coming from whatever our core technologies are in 10 years. Machine learning may be moving to deep learning. Quantum computing may be coming in. There's a lot of new technology. We're going to always stay near the forefront of technology, and I think a lot more of our sales will be hardware, software products, and SaaS solutions.
Got it. If we maybe peel back the onion just a little bit more, think about from a contracting perspective, what do you think that the optimal mix between firm fixed price style contracts versus cost-plus type contracts is for Parsons?
I think if the scope is defined and the objective is clear, we much prefer fixed price contracting. It puts us in control of the resources to deliver the solution, and we think we are the best to do so. It's much quicker, more efficient. There's less administrative costs in putting together massive invoices, listing every person and how many hours they have and their hourly rate and all of that. It's much more efficient for us to bill. It's much more efficient for the customer to pay. It's much more efficient for the customer to actually oversee. As long as they have trust and enough visibility into the progress being made to be assured that the solution will be delivered on time and meet the required performance requirements, it's clearly the more efficient and effective way to go.
It does require a clear understanding of what's being procured and when it's due, and et cetera. I guess that's my long-winded answer to we prefer fixed price, Ron.
Just to maybe follow up on that, when you think about in the Federal Solutions business today, and correct me if I'm wrong, it's what, about two-thirds cost-plus type contracts and maybe a third fixed? Ultimately, would you like to see that reverse, given if you have all the characteristics that you just mentioned, that you can go to fixed price on contracts that the company deeply understands?
Yeah. I don't see the cost reimbursable side reducing in scope. I see the fixed price growing in magnitude. The nice thing about the cost reimbursable work we do for our critical customers is that's where we're doing a lot of the software DevOps and the hardware DevOps, and working in conjunction to solve problems that have never been solved before. We pull out of that the solutions, with the government approval, obviously, to now go use those solutions to solve other people's problems in other areas, as long as they're not conflicting with the government mission. I see that cost reimbursable part as being critical to the engine of innovation. It's that fixed price piece that's the future growth piece that can really outperform, in my opinion, and grow even faster than the cost reimbursable side.
Maybe even peeling back the onion a little bit more. GBSD, for those who are not familiar with the acronym, the Ground-Based Strategic Deterrent award, if that comes through in the August timeframe, which that's what it seems, that's what we're hearing, right? The August timeframe. How should we start to see the revenue impact from that, and the EBIT impact from that? It's a big contract over a long period of time. How should we think about that when we're looking at our models and trying to figure that out?
Yeah. Well, obviously, there's not a lot I can say about that one. That's being the prime contract's obviously between the U.S. Air Force and Northrop Grumman. Until they have signed their contract, we won't be starting our work. What I can tell you is that we've been involved with, I'll say almost, only because there can always be one missile system I can't remember. Every ground-based intercontinental ballistic missile system ever deployed in the U.S., and including going back and working with Wernher von Braun and how you bury missiles and allow them to launch without exploding in the chute, in the silo. Obviously, a lot of physics around getting rid of the heat and the gases and flames and everything.
Our expertise is in blast-resistant design, nuclear radiation shielding, Cyber around controls, and the interfaces and control of those interfaces between the physical infrastructure and the missile itself and its control systems. There's a lot of R&D that is going to have to go on with the missiles themselves, and obviously, missile technology's changing, both what's coming at us as well as what's used to defend against it. We can anticipate a lot of the early days are going to be working on design concepts, and some test plants, some pilot facilities. We can get things up and see how they're going to work, and how they're going to weather the next 40-year or 50-year lifespan in the ground.
As we think about our work, we'll start off, sometime in 2019 or 2020, is our anticipation, and then be doing a lot of this early work around design and studies and pilot plant, getting them ready, the infrastructure. It's going to continue on for several years in the design phase, getting the infrastructure ready as the missiles start coming out of prototype production. Obviously, it's a 20-year program, it's a very long program with a lot of work. A lot of parties will be involved. Much of the defense industrial complex will be involved in this program, which really is the first major missile system to be deployed since the early '80s, which was really, most of that work was done in the '70s. It's been a long time.
Yeah. That sounds like it's going to be an exciting opportunity, right? Big team working on it.
Yes.
We're starting to get towards the end of our time here, but maybe end it with a broad question. When you think about the portfolio of businesses that you have now, are there any new areas of interest that you'd like to push Parsons in the direction of, beyond the immediate kind of COVID-19 stuff that's going to happen, right? Are there any other areas that you're thinking about? Is there anything that us, as kind of outsiders looking at Parsons, to better understand a potential pipeline of opportunities, how that's shaping up when we think about the company?
Well, I think that when you have this exciting work going on, and you've got four technologies that are going across all your markets, you start seeing similarities and synergies between markets. As we look at something as critical as missile defense, and we start looking at hypersonics, which we've been working in and around for six, seven years now, you start seeing that cyber's going to play a role in that. C5ISR plays a role in that. Space-based satellite structures to sense and help guide counter-hypersonic technologies. All of that, I think, is kind of the new frontier, is how do these things all work together and using a missile system term, defense in depth. How do we provide a constellation of technologies to protect our nation and other nations and our borders, et cetera, from incursions that are unwanted?
In that, one of the areas I think is most exciting to me personally is space. I mean, that was the subject of a lot of the work I did in college. Now that we see private companies putting up in space has gone from a very lonely place to, it's becoming a very crowded neighborhood with a lot of players who all have different agendas. I think that's an area where you're going to see ever-increasing focus by Parsons, and probably other companies as well. We've been so proud of the work that we and others have done.
With this Launch Manifest Systems Integration contract we're doing, putting up smallsats, CubeSats, it's just put us in a different perspective as we view space and how it can be used to help in defense and cyber and a lot of other areas of our portfolio.
Exciting. That's exciting stuff. I think with that, we're just about out of time. I'd like to thank Chuck and his team for the presentation this morning. If you have any further questions for the Parsons team, obviously feel free to email them, but email us too. We can forward it on to them. I hope everybody has a good day at the virtual conference. Thanks. Thanks, guys.
Thank you, Ron. Thanks for the opportunity