Parsons Corporation (PSN) | The Buildout — AI Infrastructure
The Verdict
Parsons is a defense and critical-infrastructure contractor. It sells mission software, engineering, and program-management services to U.S. federal agencies and to civil-infrastructure customers in North America and the Middle East. AI sits inside its products — cyber, counter-drone, space, and traffic-management systems — rather than being sold as compute, power, or cooling. Management frames AI as a win-rate and margin differentiator, and AI-specific revenue is not separately disclosed.
| Market Cap | — |
| Revenue (TTM) | $6.3B |
| Revenue Growth | −5.8% |
| EBITDA Margin (TTM) | 6.9% |
| Net Debt | $1.4B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Q2 2026 contract awards were $1.9B, up 24%, at 1.2x enterprise book-to-bill; Federal bookings rose 51% to 1.3x.
- Backlog is $9.3B, with $6.6B funded (up 6% YoY, 71% of total) and $11B of awarded-not-booked work.
- Critical Infrastructure posted an 11.9% adjusted EBITDA margin in Q2, up 140 bps, its fifth consecutive quarter above 10% and its 23rd straight quarter at or above 1.0x book-to-bill.
- Products are 10% of the federal business and guided to grow 30–40% in 2027; the JCHK ceiling was raised to $750M with a 62/74/74 unit delivery plan.
- Win rates are near 60%, described as greater than 60% for the past three years, against a $54B pipeline.
What We’re Watching
- FY2026 guidance was cut in Q2 after being reaffirmed in Q1: revenue midpoint down $300M, adjusted EBITDA midpoint down $115M, operating cash flow midpoint down $40M.
- Federal normalized adjusted EBITDA dollars fell 5% YoY in both Q1 and Q2 2026, and Q2 margin was 8.2%; the second-half recovery to 9.4% is guided, not observed.
- A $190M, five-year federal award is under protest, ICOP and OTA funding is slow, and management said the expected reconciliation flush had produced 'not some huge flush yet.'
- One U.S. federal customer set is over 20% of FY2025 revenue and is not named; a confidential federal contract was canceled with what management said was no heads-up.
The demand half of the case is strengthening, and the reporting half is weakening. Bookings, backlog, and award cadence all improved, and management argues the guidance cut is about portfolio composition and timing rather than demand. But the company cut full-year guidance one quarter after reaffirming it, took $118M of charges, and its Federal segment has now posted two consecutive quarters of lower EBITDA dollars. The open question is whether Federal bookings convert into revenue — and whether Federal margin reaches the guided 9.4% in the second half.
Earnings Beat
Parsons reported Q2 2026 revenue of $1.6B, up 1% including the confidential contract and down 4% organically; excluding that contract, revenue rose 8% with organic growth of 3%. Gross margin was 16.9%. Normalized adjusted EBITDA was $161M, up 8%, at a 10.1% margin, up 70 bps. The quarter carried $118M of nonrecurring events — a $77M loss on two remote federal contracts held for sale, a $41M Critical Infrastructure JV charge, and a $19M gain on a SETA divestiture — and a reported net loss of about $15M.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.6B | $1.5B | $1.6B | −0.5% |
| Gross margin | 16.9% | 24.0% | 22.0% | -510bps |
| EBITDA | $38M | $128M | $125M | −69.7% |
| EPS | $-0.14 | $0.49 | $0.50 | −127.9% |
| Book-to-bill | 1.2x | 1.4x | n/a | — |
| Contract awards | $1.9B | n/a | n/a | +24% YoY |
we took $118 million in charges, and we reduced guidance by $115 million. So in theory, the total year EBITDA was raised on core performance despite $200 million in headwind on revenue.— Matt Ofilos, Chief Financial Officer, 2026-07-29
Management tone: Management's tone shifted from confident to defensive and explanatory between the Q1 and Q2 2026 calls. On the Q1 call they reaffirmed full-year guidance and repeatedly said they were not worried about the Middle East. On the Q2 call they opened by naming the quarter's nonrecurring charges, spent much of the call separating demand from conversion, and defended the charges as one-time. They also said they plan to hold an Investor Day sometime next year, an acknowledgment of the disclosure concerns an analyst raised on the record.
Management Guidance
Management lowered FY2026 guidance on the Q2 call: revenue to $6.2–$6.5B, adjusted EBITDA to $500–$560M, and operating cash flow to $430–$490M, with free cash conversion above 100% reaffirmed. The $300M revenue midpoint cut breaks into $85M of planned divestitures, $125M of reduced Critical Infrastructure ramp (of which $50–60M is pass-through revenue), and $90M of federal timing (about $20M tied to a protest). The $115M EBITDA midpoint cut reflects $118M of charges and about $14M of lower volume, partly offset by $18M of favorable margin trends, cost controls, and program performance. For the second half, management guides Federal adjusted EBITDA margin to 9.4%, revenue growth of about 3% sequentially into Q3 with Q4 up about $20M, capital expenditure near 1.5% of revenue, and about $350M of cash including roughly $50M from federal milestones.
Trajectory
Revenue has moved unevenly: $1,622M in Q3 FY2025, $1,604M in Q4 FY2025, $1,491M in Q1 FY2026, then $1,576M in Q2 FY2026. The first-quarter drop reflects the confidential contract running off, and Q2 recovered 5.7% sequentially. Trailing-twelve-month revenue is $6,292.6M with EBITDA of $433.8M (6.9%). Mix is doing the work in both directions: Critical Infrastructure margin reached 11.9% in Q2 while Federal normalized margin was 8.2%. Consolidated gross margin was 16.9% in Q2 FY2026 versus 22.0% a year earlier, and nonrecurring events drove reported EBITDA down to $37.9M.
The Model
The model projects FY+1 revenue of $6,350M with EBITDA of $648M, a 10.2% margin, and FY+2 revenue of $6,750M with EBITDA of $709M, a 10.5% margin. The FY+1 revenue figure sits just above the midpoint of the company's guided FY2026 range, and the 10.2% margin implies the second-half mix improvement management guides — Federal margin recovering to 9.4% on product sales and accretive contracts. FY+2 depends on the products business growing 30–40% as management expects and on the JCHK ramp of 62 units in 2026 and 74 in 2027 converting into higher-margin revenue.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $6.4B | $6.3B | $6.8B |
| YoY Growth | — | −0.2% | +6.3% |
| EBITDA | $528M | $648M | $709M |
| EBITDA Margin | 8.3% | 10.2% | 10.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.7% below analyst consensus.
Management lowered FY2026 guidance on the Q2 call: revenue to $6.2–$6.5B, adjusted EBITDA to $500–$560M, and operating cash flow to $430–$490M, with free cash conversion above 100% reaffirmed. The $300M revenue midpoint cut breaks into $85M of planned divestitures, $125M of reduced Critical Infrastructure ramp (of which $50–60M is pass-through revenue), and $90M of federal timing (about $20M tied to a protest). The $115M EBITDA midpoint cut reflects $118M of charges and about $14M of lower volume, partly offset by $18M of favorable margin trends, cost controls, and program performance. For the second half, management guides Federal adjusted EBITDA margin to 9.4%, revenue growth of about 3% sequentially into Q3 with Q4 up about $20M, capital expenditure near 1.5% of revenue, and about $350M of cash including roughly $50M from federal milestones.
What Could Go Right — and Wrong
- Federal bookings convert: IDIQ and task-order funding releases arrive, the $190M protest resolves, and reconciliation funds flow.
- Federal second-half adjusted EBITDA margin reaches the guided 9.4% and holds, validating the mix shift toward products.
- The products business grows 30–40% in 2027 as guided, and JCHK reaches its 62/74/74 unit cadence at double-digit margins.
- No further one-time charges appear, and the three remaining non-managing JV programs wrap on schedule.
- Middle East reconstruction work converts from a headline addressable-market figure into named awards.
- Federal funding stays slow and the same 'timing' explanation recurs, leading to another guidance reset.
- A third large one-time charge appears inside the remaining non-managing joint ventures.
- Federal margin stays in the low-8s and never reaches the guided 9.4%, stalling the corporate margin bridge.
- Memory and component inflation forces a repeat of the roughly $30M inventory pre-buy, extending the working-capital drag.
- The undisclosed federal customer set that is over 20% of revenue carries further concentration risk.
Looking Ahead
Over the next 12 months the story turns on conversion. Management guides roughly 3% sequential revenue growth into Q3 with Q4 up about $20M at the midpoint, and expects about $350M of second-half cash on the way to above-100% free cash conversion for the year. JCHK moves to full-rate production in the fall of 2026, with 62 units to be delivered this year. The two remote federal programs held for sale are expected to close in Q3 2026, the weather-affected Critical Infrastructure JV is expected to be 90% complete at year-end, and management plans an Investor Day sometime next year. Products are guided to grow 30–40% in 2027.
- Q3 2026Remote program divestiture close — Close and novation approval; any residual reopens the charges question.
- Fall 2026JCHK production transition — Delivery of 62 units in 2026; tests the product ramp and margins.
- 2H 2026Federal margin 9.4% target — Tests whether Federal mix shifts toward products and accretive work.
- FY2026Q3 and Q4 prints vs guidance — Tests revenue $6.2–6.5B, EBITDA $500–560M, OCF $430–490M.
- Year-end 2026CI joint venture completion — Weather-affected JV expected 90% complete; removes a charge category.
- 2027Products +30–40% guide — Product disclosure and mix would confirm the AI-linked ramp.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $6.8B | $6.4B | $6.3B | -5.7% |
| Gross Margin | 20.9% | 22.5% | 21.5% | +165bps |
| EBITDA | $527M | $528M | $434M | +0.1% |
| EBITDA Margin | 7.8% | 8.3% | 6.9% | +48bps |
| Net Income | $235M | $241M | $157M | +2.6% |
| Free Cash Flow | $474M | $410M | $308M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)21.5%
- EBITDA Margin (TTM)6.9%
- Net Margin (TTM)2.5%
- ROIC6.0%
- FCF Conversion71.0%
- SBC / Revenue0.4%
The Company
Parsons provides integrated solutions and services for national security and critical infrastructure. It operates two segments. Federal Solutions, which it describes as an advanced technology provider to the U.S. government, delivers mission-critical software and systems. Critical Infrastructure provides program management, planning, design, and engineering services for physical and digital infrastructure. Its named products include command-and-control mission planning software (C2Core), threat-emulation tools (TReX), counter-drone systems (DroneArmor), biometric identity systems (AresNXT and Javelin), the Joint Cyber Hunt Kit, and advanced traffic management (iNET). The company has over 81 years of history and is headquartered in Chantilly, Virginia.
Parsons employs about 21,000 people, of which 7,500 are in the Middle East. Revenue runs through fixed-price, time-and-materials, and cost-plus contracts; management describes the mix as about 55% fixed-price and time-and-materials and 45% reimbursable, and expects it to stay consistent. About half the company is tied to the U.S. federal government — 51% of FY2025 consolidated revenue, down from 59% in FY2024. Capital deployment prioritizes acquisitions; Altamira Technologies closed in Q1 2026 in an all-cash deal valued at up to $375M.
Business Segments
Competitive Landscape
Parsons competes against two different peer sets. Its 10-K names U.S. federal systems integrators and service providers such as Booz Allen Hamilton, CACI International, Leidos Holdings, and Science Applications International Corporation for Federal Solutions, and AECOM, Jacobs Solutions, Stantec, Tetra Tech, and WSP for Critical Infrastructure. On its own calls, management describes several positions as hard to displace: it says it has a great moat around munitions-facility work at Holston and Radford because it has not had competition on most of those projects, and SealingTech is sole prime on the JCHK award.
- Booz Allen HamiltonNamed in the 10-K as a U.S. federal systems integrator and service provider competitor.
- CACI InternationalNamed in the 10-K as a U.S. federal systems integrator and service provider competitor.
- Leidos HoldingsNamed in the 10-K as a U.S. federal systems integrator and service provider competitor.
- Science Applications International CorporationNamed in the 10-K as a U.S. federal systems integrator and service provider competitor.
- AECOMNamed in the 10-K as a Critical Infrastructure competitor.
Supply Chain
Parsons discloses no sole-source supplier, and its 10-K carries a single generic supply-chain and inflation risk. Its real exposure is component availability inside products — memory, storage, semiconductors — plus staffing and subcontracting inside services.
More on PSN: Earnings recap