Signal management

PARSONS CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-Q)

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, 2021.

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, 2021. We
undertake no obligation to revise publicly any forward-looking
statements. Actual results may differ materially from those contained in any
forward-looking statements.

                               [[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 provider of the integrated solutions and services required in
today's complex security environment and a world of digital transformation. We
deliver innovative technology-driven solutions to customers worldwide. We have
developed significant expertise and differentiated capabilities in key areas of
cybersecurity, intelligence, missile defense, C5ISR, space, transportation,
water/wastewater and environmental remediation. By combining our talented team
of professionals and advanced technology, we solve complex technical challenges
to enable a safer, smarter, more secure and more connected 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

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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, 2022       June 30, 2021
Awards (year to date)         $     1,908,767     $     2,692,557
Backlog (1)                   $     8,227,636     $     8,412,208
Book-to-Bill (year to date)               1.0                 1.5



(1) Difference between our backlog of $8.2 billion and our remaining dissatisfied

performance obligations, or RUPO, of $5.8 billioneach from June 30, 2022,

is due to (i) unissued mission orders and unexercised option years,

insofar as their issue or exercise is probable, as well as (ii) the contract

awards, to the extent that we believe execution and funding of the contract are 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, 2022       June 30, 2021       June 30, 2022       June 30, 2021
Federal Solutions                         $       392,554     $     1,218,413     $       849,442     $     1,643,034
Critical Infrastructure                           599,057             463,170           1,059,325           1,049,523
Total Awards                              $       991,611     $     1,681,583     $     1,908,767     $     2,692,557



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, 2022 when compared to the corresponding
periods last year was primarily due to a significant contract awarded in the
second quarter of 2021. The awards in Critical Infrastructure for the three and
six months ended June 30, 2022 were higher primarily due to a large contract
value increase in the second quarter of 2022, partially offset on a year to date
basis by several large contracts awarded in the first quarter of 2021.

Back

We define the backlog to include the following two components:

• Funded-funded backlog represents the expected future revenue from orders for

       services under existing contracts for which funding is appropriated or
       otherwise authorized.

• Unfunded-unfunded backlog represents the expected future revenue from orders

for services under existing contracts for which funding has not been

appropriate or otherwise permitted.


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.

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The following table summarizes the value of our backlog at the respective dates presented below: (in thousands):

                                 June 30, 2022       June 30, 2021
Federal Solutions:
Funded                          $     1,329,695     $     1,126,408
Unfunded                              3,756,452           4,362,700
Total Federal Solutions               5,086,147           5,489,108
Critical Infrastructure:
Funded                                3,080,338           2,850,211
Unfunded                                 61,151              72,889
Total Critical Infrastructure         3,141,489           2,923,100
Total Backlog (1)               $     8,227,636     $     8,412,208



(1) Difference between our backlog of $8.2 billion and our RUPO of $5.8

billion, each from June 30, 2022is due to (i) mission orders not issued 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.


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 $3.2 billion of our funded backlog at June 30, 2022 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, 2021.

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.

From booking to invoicing

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, 2022         June 30, 2021       June 30, 2022         June 30, 2021
Federal Solutions                                 0.7                   2.8                 0.8                    1.8
Critical Infrastructure                           1.3                   1.1                 1.1                    1.2
Overall                                           1.0                   1.9                 1.0                    1.5



             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

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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 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.

Operations acquired

Xator Company

On May 31, 2022, we acquired Xator for $388.3 million in cash. We borrowed $300
million under the Credit Agreement, as described in "Note 10 - Debt and Credit
Facilities", to partially fund the acquisition. Xator expands Parsons' customer
base and brings differentiated technical capabilities in critical infrastructure
protection, counter-unmanned aircraft systems (cUAS), intelligence and cyber
solutions, biometrics, and global threat assessment and

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operations. The acquisition was funded by cash on-hand and borrowings under our
revolving line of credit. The financial results of Xator have been included in
our consolidated results of operations from May 31, 2022 onward.


BlackHorse Solutions, Inc.

On July 6, 2021, we acquired BlackHorse for $205.0 million. BlackHorse expands
Parsons' capabilities and products in next-generation military, intelligence,
and space operations, specifically in cyber electronic warfare, and information
dominance. The acquisition was funded by cash on-hand. The financial results of
BlackHorse have been included in our consolidated results of operations from
July 6, 2021 onward.

Echo Ridge LLC

On July 30, 2021, we acquired Echo Ridge LLC for $9.0 million. Echo Ridge adds
position, navigation, and timing devices; modeling, simulation, test, and
measurement tools; and deployable software defined radio products and signal
processing services to Parsons' space portfolio. The acquisition was funded by
cash on-hand. The financial results of Echo Ridge have been included in our
consolidated results of operations from July 30, 2021 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.

We enter into the following types of contracts with our customers:

        •  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.

• As part of 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, customers pay an agreed fixed amount

           negotiated in advance for a specified scope of work.


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 Policies” in the notes to our consolidated financial statements included in this form. 10-K of the Company for the years ended
December 31, 2021 for a description of our revenue recognition policies.

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The table below presents the percentage of total revenue for each type of
contract.

                           Three Months Ended                   Six Months Ended
                     June 30, 2022     June 30, 2021     June 30, 2022     June 30, 2021
Fixed-price              27.7%             26.5%             26.6%             26.4%
Time-and-materials       26.9%             28.8%             27.3%             28.1%
Cost-plus                45.4%             44.7%             46.1%             45.5%



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 profit 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, 2022 and June 30, 2021 of $51.8 million and $50.9 million, respectively, and
for the six months ended June 30, 2022 and June 30, 2021 of $99.1 million and
$104.6 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
contribution expenses, are the most significant component of our operating
expenses. Total ESOP contribution expense for the three months ended June 30,
2022 and June 30, 2021 was $13.5 million and $13.4 million, respectively, and
for both the six months ended June 30, 2022 and June 30, 2021 was $26.5 million,
and is recorded in "Direct cost of contracts" and "Selling, general and
administrative expenses."

Direct contract costs include direct labor and associated benefits, indirect overhead, subcontractors and materials (“pass-through costs”), travel and other expenses incurred to perform the 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 include interest income, interest expense and other income, net.

Interest income consists primarily of interest earned on WE government money market funds.

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Interest expense includes 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 shows Adjusted EBITDA, Net Profit Margin and Adjusted EBITDA Margin for the three and six months ended June 30, 2022 and June 30, 2021.

                                                  Three Months Ended                       Six Months Ended
(U.S. dollars in thousands)                June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
Adjusted EBITDA (1)                       $        77,414     $        65,727     $       151,662     $       134,426
Net Income Margin (2)                                 2.3 %               1.4 %               2.4 %               1.5 %
Adjusted EBITDA Margin (3)                            7.7 %               7.5 %               7.7 %               7.7 %



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


(2) Net profit margin is calculated as net profit including non-controlling shareholders

interest divided by income for the applicable period

(3) Adjusted EBITDA margin is Adjusted EBITDA divided by revenue

        in the applicable period.



                                                  Three Months Ended                       Six Months Ended
                                           June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
Net income attributable to Parsons
Corporation                               $        18,295     $         6,702     $        38,962     $        15,741
Interest expense, net                               4,354               4,758               8,227               9,201
Income tax expense                                  5,732               3,838              13,851               9,213
Depreciation and amortization                      30,581              34,635              61,090              69,308
Net income attributable to
noncontrolling interests                            4,485               5,325               7,661              10,300
Equity-based compensation                           4,791               4,921               8,689              11,901
Transaction-related costs (a)                       9,525               4,086              11,923               6,732
Restructuring (b)                                       -                  73                 213                 150
Other (c)                                            (349 )             1,389               1,046               1,880
Adjusted EBITDA                           $        77,414     $        65,727     $       151,662     $       134,426


(a) Reflects costs incurred in connection with acquisitions and other

non-recurring transaction costs, mainly fees paid to professionals

services and employee retention.

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

(c) Includes a combination of gains/losses from the sale of fixed assets,

software implementation costs and other individually insignificant items

which 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

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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 presents the adjusted EBITDA attributable to Parsons Company
for each of our reportable segments and adjusted EBITDA attributable to non-controlling interests (in thousands):

                                    Three Months Ended                 Variance                     Six Months Ended                     Variance
                                                   June 30,
                                June 30, 2022        2021         Dollar      Percent       June 30, 2022       June 30, 2021       Dollar      Percent
Federal Solutions Adjusted
EBITDA attributable to
Parsons Corporation            $        47,645     $  32,500     $ 15,145         46.6 %   $        90,283     $        64,482     $ 25,801         40.0 %
Critical Infrastructure
Adjusted EBITDA attributable
to Parsons Corporation                  25,160        27,817       (2,657 )       -9.6 %            53,475              59,474       (5,999 )      -10.1 %
Adjusted EBITDA attributable
to noncontrolling interests              4,609         5,410         (801 )      -14.8 %             7,904              10,470       (2,566 )      -24.5 %
Total Adjusted EBITDA          $        77,414     $  65,727     $ 11,687         17.8 %   $       151,662     $       134,426     $ 17,236         12.8 %



See “Segment Results” below for further analysis of Adjusted EBITDA by segment.

The following table presents our results of operations for the three and six months ended June 30, 2022 and June 30, 2021 as a percentage of turnover.

                                                   Three Months Ended                         Six Months Ended
                                           June 30, 2022         June 30, 2021       June 30, 2022        June 30, 2021
Revenues                                              100 %                 100 %               100 %                100 %
Direct costs of contracts                            77.5 %                77.4 %              77.4 %               76.9 %
Equity in earnings of unconsolidated
joint ventures                                        0.6 %                 1.1 %               0.6 %                1.0 %
Selling, general and administrative
expenses                                             19.8 %                21.4 %              19.7 %               21.4 %
Operating income                                      3.2 %                 2.3 %               3.5 %                2.6 %
Interest income                                       0.0 %                 0.0 %               0.0 %                0.0 %
Interest expense                                     -0.4 %                -0.6 %              -0.4 %               -0.5 %
Other income, net                                     0.0 %                 0.0 %               0.0 %               -0.1 %
Total other income (expense)                         -0.4 %                -0.5 %              -0.4 %               -0.6 %
Income before income tax expense                      2.8 %                 1.8 %               3.1 %                2.0 %
Income tax benefit (provision)                       -0.6 %                -0.4 %              -0.7 %               -0.5 %
Net income including noncontrolling
interests                                             2.3 %                 1.4 %               2.4 %                1.5 %
Net income attributable to
noncontrolling interests                             -0.4 %                -0.6 %              -0.4 %               -0.6 %
Net income attributable to Parsons
Corporation                                           1.8 %                 0.8 %               2.0 %                0.9 %




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Revenue

                                           Three Months Ended                     Variance                      Six Months Ended                      Variance
(U.S. dollars in thousands)         June 30, 2022       June 30, 2021       Dollar        Percent       June 30, 2022       June 30, 2021       Dollar        Percent
Revenue                            $     1,008,721     $       879,356     $ 129,365          14.7 %   $     1,957,790     $     1,754,053     $ 203,737          11.6 %



Revenue increased $129.4 million for the three months ended June 30, 2022 when
compared to the corresponding period last year, due to increases in revenue in
both our Federal Solutions and Critical Infrastructure segments of $94.9 million
and $34.5 million, respectively. Revenue increased $203.7 million for the six
months ended June 30, 2022 when compared to the corresponding period last year,
due to increases in revenue in both our Federal Solutions and Critical
Infrastructure segments of $134.4 million and $69.3 million, respectively. See
"Segment Results" below for a further discussion.

Direct costs of contracts

                                          Three Months Ended                     Variance                      Six Months Ended                      Variance

(WE dollars to thousands) June 30, 2022 June 30, 2021 Dollar percentage June 30, 2022 June 30, 2021 Dollar

      Percent
Direct costs of contracts         $       781,772     $       680,328     $ 101,444          14.9 %   $     1,515,672     $     1,349,410     $ 166,262          12.3 %



Direct cost of contracts increased $101.4 million for the three months ended
June 30, 2022 when compared to the corresponding period last year, due to
increases of $74.3 million in our Federal Solutions segment and $27.1 million in
our Critical Infrastructure segment. Direct cost of contracts increased $166.3
million for the six months ended June 30, 2022 when compared to the
corresponding period last year, due to increases of $104.6 million in our
Federal Solutions segment and $61.7 million in our Critical Infrastructure
segment. The increases were primarily due to an increase in business volume from
recent contract awards and acquisitions.

Equity to results of unconsolidated joint ventures

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

(WE dollars to thousands) June 30, 2022 June 30, 2021 Dollar Percentage 2022 2021 Dollar Percentage Equity in earnings of unconsolidated joint ventures $5,613 $9,428 ($3,815) -40.5% $11,211 $16,958 ($5,747) -33.9%



Equity in earnings of unconsolidated joint ventures decreased $3.8 million and
$5.7 million for the three and six months ended June 30, 2022, respectively,
compared to the corresponding periods last year. The decreases were primarily
related to change orders which delayed a joint venture profits to future
periods, partially offset by increase for new joint ventures.

Selling, general and administrative expenses

                                         Three Months Ended                     Variance                     Six Months Ended                     

Variance

(WE dollars to thousands) June 30, 2022 June 30, 2021 Dollar percentage June 30, 2022 June 30, 2021 Dollar

   Percent
Selling, general and
administrative expenses          $       199,932     $       188,238     $ 11,694           6.2 %   $       385,009     $       375,760     $ 9,249           2.5 %


The increase in SG&A of $11.7 million for the three months ended June 30, 2022
when compared to the corresponding period last year was primarily due to a $6.5
million increase from acquisitions, $5.9 million increase in transaction related
costs, and $2.0 million increase in incentive costs. These increases were
partially offset by a $4.7 million decrease in intangible asset amortization and
a $2.0 million decrease from other costs.

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The increase in SG&A of $9.2 million for the six months ended June 30, 2022 when
compared to the corresponding period last year was primarily due to a $10.6
million increase from acquisitions, $6.4 million increase in transaction related
costs, $2.0 million increase in incentive costs, and $2.7 million increase from
other costs. These increases were partially offset by a $9.2 million decrease in
intangible asset amortization and a $3.2 million decrease in stock-based
compensation costs.

Total other income (expenses)

                             Three Months Ended                 Variance                  Six Months Ended                  Variance
(U.S. dollars in                            June 30,                                June 30,
thousands)               June 30, 2022        2021         Dollar      Percent        2022         June 30, 2021      Dollar      Percent
Interest income         $           171     $     152     $     19         12.5 %   $     236     $           250     $   (14 )       -5.6 %
Interest expense                 (4,525 )      (4,910 )        385         -7.8 %      (8,463 )            (9,451 )       988        -10.5 %
Other income
(expense), net                      236           405         (169 )      -41.7 %         381              (1,386 )     1,767       -127.5 %
Total other income
(expense)               $        (4,118 )   $  (4,353 )   $    235         -5.4 %   $  (7,846 )   $       (10,587 )   $ 2,741        -25.9 %


Interest income relates to interest earned on cash balances held. Interest expense is primarily attributable to debt related to our business acquisitions and convertible senior notes. The amounts of other income (expenses), net, are mainly related to gains and losses on foreign exchange transactions and sublease income.

Income tax expense

                                         Three Months Ended                    Variance                     Six Months Ended                     Variance
(U.S. dollars in thousands)      June 30, 2022        June 30, 2021      Dollar       Percent       June 30, 2022       June 30, 2021      Dollar       Percent
Income tax expense              $         5,732      $         3,838     $ 1,894          49.3 %   $        13,851     $         9,213     $ 4,638          50.3 %



The Company's effective tax rate was 20.1% and 24.2% for the three months ended
June 30, 2022 and June 30, 2021, respectively. The most significant items
contributing to the change in the effective tax rate relate to a decrease in
withholding tax, a change in jurisdictional mix of earnings and a settlement of
an uncertain tax position. The Company's effective tax rate for the six months
ended June 30, 2022 and June 30, 2021 was 23.0% and 26.1%, respectively. The
change in effective tax rate was due primarily to a decrease in withholding tax,
a change in jurisdictional mix of earnings, and a settlement of an uncertain tax
position. The difference between the statutory U.S. federal income tax rate of
21.0% and the effective tax rate for the three and six months ended June 30,
2022 primarily relates to state income taxes, partially offset by benefits
related to untaxed income attributable to noncontrolling interests, earnings in
lower tax jurisdictions and federal research tax credits.

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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 presents the adjusted EBITDA attributable to Parsons Society
for each of our reportable segments and Adjusted EBITDA attributable to non-controlling interests:

                                                   Three Months Ended                       Six Months Ended
(U.S. dollars in thousands)                 June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
Federal Solutions Adjusted EBITDA
attributable to Parsons Corporation        $        47,645     $        32,500     $        90,283     $        64,482
Critical Infrastructure Adjusted EBITDA
attributable to Parsons Corporation                 25,160              27,817              53,475              59,474
Adjusted EBITDA attributable to
noncontrolling interests                             4,609               5,410               7,904              10,470
Total Adjusted EBITDA                      $        77,414     $        65,727     $       151,662     $       134,426




Federal Solutions
                                              Three Months Ended                     Variance                     Six Months Ended                      Variance
(U.S. dollars in thousands)            June 30, 2022       June 30, 2021       Dollar       Percent       June 30, 2022       June 30, 2021       Dollar        Percent
Revenue                               $       537,556     $       442,675     $ 94,881          21.4 %   $     1,029,185     $       894,744     $ 134,441          15.0 %
Adjusted EBITDA attributable to
Parsons Corporation                   $        47,645     $        32,500     $ 15,145          46.6 %   $        90,283     $        64,482     $  25,801          40.0 %


Federal Solutions revenue for the three months ended June 30, 2022 compared to
the corresponding period last year increased primarily due to increases from
business acquisitions of $47.6 million, and increases in business volume from
recent contract awards and increased activity on existing contracts.

Federal Solutions revenue for the six months ended June 30, 2022 compared to the
corresponding period last year increased primarily due to increases from
business acquisitions of $67.7 million, and increases in business volume from
recent contract awards and increased activity on existing contracts.

Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the
three and six months ended June 30, 2022 compared to the corresponding period
last year increased primarily due to increases related to acquisitions and a
write down on a project during the second quarter of 2021.

Critical Infrastructure

                                            Three Months Ended                     Variance                     Six Months Ended                     Variance
(U.S. dollars in thousands)          June 30, 2022       June 30, 2021     
 Dollar       Percent       June 30, 2022       June 30, 2021       Dollar      Percent
Revenue                             $       471,165     $       436,681     $ 34,484           7.9 %   $       928,605     $       859,309     $ 69,296          8.1 %
Adjusted EBITDA attributable to
Parsons Corporation                 $        25,160     $        27,817     $ (2,657 )        -9.6 %   $        53,475     $        59,474     $ (5,999 )      -10.1 %


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The increase in Critical Infrastructure revenue for the three and six months
ended June 30, 2022 compared to the corresponding periods last year was
primarily due to an increase in business volume from recent contract awards and
increased hiring activity, and a write down on a project during the second
quarter of 2021.

Critical infrastructure adjusted EBITDA attributable to Parsons Society
decreased for the three and six month periods ended June 30, 2022 primarily due to increased selling, general and administrative expenses driven by investments in future growth, cost adjustments on legacy programs and program completions.

                        Liquidity and Capital Resources

We fund our operations and capital expenditures through a combination of internally generated cash flow, 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, 2022, 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.

Cash flow

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 72 days at June 30, 2022 and 68 days at June 30, 2021. The increase in
Net DSO was primarily due to an increase in accounts receivable at June 30, 2022
compared to June 30, 2021. Our working capital (current assets less current
liabilities) was $484.8 million at June 30, 2022 and $601.6 million at December
31, 2021.

Our cash, cash equivalents and restricted cash decreased by $217.0 million at
$126.9 million at June 30, 2022 of $343.9 million at December 31, 2021.

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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, 2022       June 30, 2021
Net cash provided by operating activities              $        25,336     $        38,463
Net cash used in investing activities                         (403,837 )           (19,842 )
Net cash provided by (used in) financing activities            162,453             (22,259 )
Effect of exchange rate changes                                   (963 )    

1,011

Net decrease in cash, cash equivalents and
restricted cash                                        $      (217,011 )   $        (2,627 )




Operating Activities

Net cash provided by 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 decreased $13.1 million for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021. The
decrease net cash from operating activities is primarily attributable to a $45.1
million increase in cash outflows from our working capital accounts (primarily
from accounts receivable and contract assets offset by accrued expenses,
accounts payable and contract liabilities), partially offset by a $16.9 million
increase in net income after adjusting for non-cash items. A large component of
the change was due to legacy cash-settled long-term incentive plans which paid
out their last cycle during the first quarter of 2021. The Company paid $26.4
million related to these plans in the first quarter of 2021 compared to no
payments during the first quarter of 2022.

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 increased by 384.0 million for the six months ended June 30, 2022compared to the six months ended June 30, 2021mainly thanks to the acquisition of Xator for $379.3 million net of cash acquired during the second quarter of 2022. The Company did not make any business acquisitions during the six months ended June 30, 2021.

Fundraising activities

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

Net cash used in financing activities increased $184.7 million for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021. The
change in cash flows from financing activities is primarily due to $200.0
million net borrowings under the Credit Agreement in connection with the
acquisition of Xator partially offset by payments made to settle warrants in
connection with the acquisition. Other drivers were increased outflows of $15.5
million of repurchases of common stock under the stock repurchase program which
began in August 2021, partially offset by reduced distributions to
noncontrolling interest of $11.5 million.

Letter 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 $229.6 million as of June 30, 2022. Letters of credit outstanding
under the Credit Agreement total $44.5 million.

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Recent accounting pronouncements

See the information presented in “Note 3 – Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements” in the Notes to our Consolidated Financial Statements.

Off-balance sheet arrangements

As of June 30, 2022, 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.

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