What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-14 · 116 added, 110 removed, 622 unchanged (27% of the section changed)

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We deliver innovative technology-driven solutions to customers worldwide.

We have developed significant expertise and differentiated capabilities in key areas of cybersecurity and intelligence, space and missile defense, critical infrastructure protection, transportation, environmental remediation and urban development.

We have developed significant expertise and differentiated capabilities in key areas of cyber and intelligence, space and missile defense, critical infrastructure protection, transportation, environmental remediation and urban development.

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.

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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 both our Federal Solutions and Critical Infrastructure segments for the year ended December 31, 2023 when compared to the corresponding period last year was primarily driven by an overall increase in the number of large contract awards.

The change in new awards in both our Federal Solutions and Critical Infrastructure segments for the year ended December 31, 2024 when compared to the corresponding period last year was primarily due to significant option period awards in our Federal Solutions segment and three large transportation awards and a mining award in our Critical Infrastructure segment.

We define backlog to include the following two components:

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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.

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 cyber, 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.

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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 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.

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Acquired Operations

BCC Engin eering, LLC

On November 1, 2024, the Company acquired a 100% ownership interest in BCC Engineering, LLC ("BCC") a privately owned company, for $232.7 million.

BCC is a full-service engineering firm that provides planning, design, and management services for transportation, civil and structural engineering projects in Florida, Georgia, Texas, South Carolina, and Puerto Rico.

This acquisition strengthens Parsons’ position as an infrastructure leader while expanding the company’s reach in the southeastern United States.

The financial results of BCC have been included in our consolidated results of operations from October 18, 2024 onward.

BlackSignal Technologies, LLC

On August 16, 2024, the Company acquired a 100% ownership interest in BlackSignal Technologies, LLC, ("BlackSignal") a privately-owned company, for $203.7 million.

Headquartered in Chantilly, Virginia, BlackSignal is a next-generation digital signal processing, electronic warfare, and cyber security provider built to counter near peer threats.

Parsons believes that the acquisition will expand Parsons' customer base across the Department of Defense and Intelligence Community and significantly strengthen Parsons' positioning within cyber warfare, while adding new capabilities in the counterspace radio frequency domain.

The financial results of BlackSignal have been included in our consolidated results of operations from August 16, 2024 onward.

Engineers, LLC

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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, the Company 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 entirely 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, the Company acquired Echo Ridge 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 entirely 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.

Our results may be affected by variances as a result of weather conditions and contract award seasonality impacts that we experience across our businesses.

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Over time, we have experienced a relatively stable contract mix.

The significant change in the contract mix for the year ended December 31, 2024 compared to the corresponding period last year relates to increased business volume from a significant fixed price contract in our Federal Solutions segment.

Our recognition of profit on long-term contracts requires the use of assumptions related to transaction price and total cost of completion.

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The Company is involved in a significant volume of contracts with the United States federal government and state and local governments.

Approximately 55%, 53%, and 52% of consolidated revenues for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively were derived from contracts with the United States federal government.

Approximately 59%, 55%, and 53% of consolidated revenues for the years ended December 31, 2024, December 31, 2023 and December 31, 2022,

respectively were derived from contracts with the United States federal government.

No other customers represented 10% or more of consolidated revenues or accounts receivable in any of the periods presented.

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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 (losses) of unconsolidated joint

For the joint ventures we do not control, we recognize equity in earnings (losses) of unconsolidated joint ventures.

Our revenues included $182.6 million in 2024, $213.8 million in 2023, and $217.4 million in 2022 related to services we provided to our unconsolidated joint ventures.

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Other income, net primarily consists of gain or loss on sale of assets, sublease income.

transaction gain or loss related to movements in foreign currency exchange rates, and contingent consideration.

transaction gain or loss related to movements in foreign currency exchange rates, contingent consideration and convertible debt repurchase loss.

Year ended December 31, 2024 compared to year ended December 31, 2023

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Interest expense

Convertible debt repurchase loss

Other income, net

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Direct cost of contracts

Direct cost of contracts for the year ended December 31, 2023 compared to the prior year increased $988.2 million.

Direct cost of contracts for the year ended December 31, 2024 compared to the prior year increased $1.1 billion.

Direct cost of contracts increased in both the Federal Solutions and Critical Infrastructure segments by $812.5 million and $294.9 million, respectively.

The increases were primarily due to an increase in business volume and from business acquisitions offset by a decrease of $37.9 million in the Critical Infrastructure segment related to a legal matter on a previously completed contract.

The increase in direct costs of contracts in both the Federal Solutions and Critical Infrastructure segments was primarily related to increased volume from new and existing contracts.

Equity in (losses) earnings of unconsolidated joint ventures

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December 31, 2023

Equity in (losses) earnings of unconsolidated joint ventures

Equity in (losses) earnings of unconsolidated joint ventures for the year ended December 31, 2023 decreased by $64.1 million compared to the prior year.

The decrease was primarily related to write-downs on joint ventures of $83.4 million.

$57.9 million of the joint venture write-downs related to Parsons’ participation in a design build joint venture.

The write-down relates to supply chain challenges identified during the procurement of materials which impacted the estimate to complete the project.

Equity in losses of unconsolidated joint ventures

Equity in losses of unconsolidated joint ventures for the year ended December 31, 2024 improved by $24.4 million compared to the prior year.

Impacting equity in losses of unconsolidated joint ventures for the year ended December 31, 2024 were write-downs of $51.7 million related to Parsons' participation in a design build joint venture.

For the year ended December 31, 2023 the Company had write-downs of $83.4 million, inclusive of $57.9 million related to the design build joint venture referenced above.

Results for the year ended December 31, 2023 also included earnings on higher margin change orders which did not reoccur for the year ended December 31, 2024.

Joint venture volume has decreased year-over-year as we move away from our participation in construction joint ventures.

Selling, general and administrative expenses

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Selling, general and administrative expenses

SG&A expenses for the year ended December 31, 2023 increased by $92.5 million compared to the prior year.

The increase in SG&A was primarily due to an increase of $35.9 million related to employee incentive programs, a $23.7 million increase from business acquisitions, a $17.0 million increase primarily related to business development and sales activities, and a $7.3 million increase in general liability insurance costs.

As a percent of revenue, our SG&A declined from 18.5% in 2022 to 16.0% in 2023.

As a percentage of revenue, SG&A decreased by 1.9% to 14.1% for the year ended December 31, 2024 compared to16.0% for the corresponding period last year.

Total other income (expense)

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Interest expense

Convertible debt repurchase loss

Other income (expense), net

Total other income (expense)

Interest income increased for the year ended December 31, 2023 compared to the corresponding period last year primarily due to an increase in interest rates compared to the prior year on investments in government money funds.

Interest expense increased for the year ended December 31, 2023 compared to the corresponding period last year primarily due to higher interest rates on borrowings.

The amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign currency transactions, sublease income, and contingent consideration.

Interest income is related to interest earned on investments in government money funds.

Interest income increased for the year ended December 31, 2024 compared to the corresponding period last year is due to higher cash balances held and increased interest rates compared to the corresponding period last year.

Interest expense for the year ended December 31, 2024 is primarily due to debt related to our Convertible Senior Notes and Delayed Draw Term Loan.

The increase in Interest expense for the year ended December 31, 2024 compared to the corresponding period last year is primarily related to an increase in debt balances and a $3.2 million charge from the acceleration of the amortization of debt issuance costs associated with the partial repurchase of the 0.25% Convertible Senior Notes due 2025 discussed below.

During the year ended December 31, 2024, we paid $495.6 million in cash to repurchase $284.6 million aggregate principal amount of our Convertible Senior Notes due 2025 (the "Repurchase Transaction") concurrently with the offering of 2.625% Convertible Senior Notes due 2029.

As a result of the Repurchase Transaction, we incurred an $18.4 convertible debt repurchase loss 1 .

The Repurchase Transaction is a partial repurchase of our Convertible Senior Notes due 2025.

See “Note 11 – Debt and Credit Facilities,” for a further discussion of this transaction.

1 During the first quarter of 2024, prior to the early adoption of ASU 2024-04, the Company recorded a $211.0 million loss on debt extinguishment associated with the 0.25% Convertible Senior Notes due 2025.

Please see "Note 2—Summary of Significant Accounting Policies—New Accounting Pronouncements" for a discussion of the Company's adoption of ASU 2024-04.

As a result of the early adoption, the extinguishment charge was reversed from the

Company's consolidated financial statements and a convertible debt repurchase loss was recorded as described above.

The amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign currency transactions, sublease income, and a change in the fair value of contingent consideration.

Income tax expense

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Income tax expense

Income tax expense increased in fiscal 2023 primarily due to an increase in overall earnings and an increase in foreign withholding taxes partially offset by increases in the foreign-derived intangible income (FDII) deduction and earnings in lower tax jurisdictions.

Income tax expense increased in fiscal 2024 primarily due to an increase in overall pre-tax income, increases in current year foreign Net Operating Losses (NOLs) subject to valuation allowances and an increase in non-deductible executive compensation subject to Section 162(m), partially offset by increases in the foreign-derived intangible income (FDII) deduction, and increased equity based-compensation deductions.

Our effective tax rate was 20.9% and 21.3% for the years ended December 31, 2024 and 2023, respectively.

The difference between the statutory U.S.

federal income tax rate of 21% and the effective tax rate for the year ended December 31, 2023 primarily relates to state income taxes, valuation allowance on foreign tax credit carryovers originating from foreign withholding taxes offset in part by benefits related to income attributable to noncontrolling interests, earnings in lower tax jurisdictions, the FDII deduction, and federal business tax credits.

Effective for tax year 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to currently deduct research and development expenditures in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes (15 years for foreign research and development expenditures).

This provision resulted in additional cash tax liability for the 2023 tax year of approximately $12 million.

On January 31, 2024, the House of Representatives passed a tax relief package (the Tax Relief for American Families and Workers Act of 2024).

The key tax proposal that would impact our tax position is a deferral of the mandatory capitalization of research expenditures for domestic expenditures, retroactive to expenses paid or incurred after December 31, 2021 and before January 1, 2026.

If this tax proposal is enacted, we would expect a $15 million and a $12 million decrease to our cash tax liabilities for tax years 2022 and 2023, respectively.

We would recognize any changes in our financial results in the period of enactment.

federal income tax rate of 21% and the effective tax rate for the year ended December 31, 2024 primarily relates to state income taxes, valuation allowance and executive compensations subject to Section 162(m) offset by benefits related to untaxed income attributable to noncontrolling interests, earnings in lower tax jurisdictions, the FDII deduction, and equity-based compensation.

In 2021 the Organization for Economic Co-operation and Development (OECD) announced an inclusive Framework on Base Erosion and Profit Shifting (BEPS) including Pillar Two Model Rules defining the global minimum tax, also known as the Global Anti-Base Erosion (GloBE), which aims to ensure that multinational enterprises (MNEs) pay a 15% minimum level of tax regardless of where the MNE operates.

The OECD released additional administrative guidance in June 2024 and January 2025.

Many non-US tax jurisdictions have either recently enacted legislation to adopt components of the Pillar Two Model Rules beginning in 2024 and/or have announced their plans to enact legislation in future years.

The Company has evaluated the implementation of Pillar Two on its 2024 income tax position based on currently enacted legislation and has determined there is no material impact.

We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending enactment of legislation by individual countries.

Year ended December 31, 2023 compared to year ended December 31, 2022

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December 31, 2022

Revenue for the year ended December 31, 2022 compared to the prior year increased $534.5 million.

This increase was primarily due to an increase in revenue in our Federal Solutions segment of $324.9 million and an increase in our Critical Infrastructure segment of $209.6 million.

Revenue for the year ended December 31, 2023 compared to the prior year increased $1.2 billion.

Revenue increased in both the Federal Solutions and Critical Infrastructure segments by $807.7 million and $439.8 million, respectively.

See “—Segment Results” below for further discussion.

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Direct cost of contracts for the year ended December 31, 2023 compared to the prior year increased $988.2 million.

This increase was primarily due to an increase in direct cost of contracts in our Federal Solutions segment of $272.6 million and an increase in our Critical Infrastructure segment of $168.0 million.

The increases were primarily due to an increase in business volume from recent contract awards and business acquisitions.

Direct cost of contracts increased in both the Federal Solutions and Critical Infrastructure segments by $672.1 million and $316.1 million, respectively.

Equity in earnings of unconsolidated joint ventures

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December 31, 2022

Equity in earnings of unconsolidated joint ventures

Equity in (losses) earnings of unconsolidated joint ventures

Equity in earnings of unconsolidated joint ventures for the year ended December 31, 2023 decreased by $64.1 million compared to the prior year.

The decrease was primarily related to change orders which delayed joint venture profits to future periods and a reduction in activity.

The decrease was primarily related to write-downs on joint ventures of $83.4 million.

$57.9 million of the joint venture write-downs related to Parsons’ participation in a design build joint venture.

Selling, general and administrative expenses

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Selling, general and administrative expenses

SG&A expenses for the year ended December 31, 2022 increased by $20.2 million compared to the prior year.

The increase in SG&A was primarily due to a $17.2 million increase from business acquisitions, a $12.6 million increase related to investments in future growth and general increases in operating costs, a $9.0 million increase in incentives, a $6.2 million increase in transaction related costs primarily related to business acquisition activity, and a $4.8 million increase in compensation costs related to equity-based awards.

These increases were partially offset by a $25.0 million decrease in intangible asset amortization primarily related to the drop-off in intangible asset amortization from the Company’s older acquisitions offset by intangible amortization from the Company’s more recent acquisitions and a reduction in the Company’s liability insurance costs of $4.6 million.

As a percentage of revenue, SG&A decreased by 2.5% to 16.0% for the year ended December 31, 2023 compared to 18.5% for the corresponding period last year.

Total other (expense) income

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Total other income (expense)

Interest expense increased for the year ended December 31, 2022 compared to the corresponding period last year primarily due to interest expense from borrowings under the Credit Agreement and

Delayed Draw Term Loan, neither of which had outstanding balances during the year ended December 31, 2021.

Interest expense for the year ended December 31, 2022 included $2.1 million associated with a make-whole payment and remaining unamortized debt issuance costs resulting from the repayment of all outstanding Senior Notes under the Company’s Private Placement.

The amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign currency transactions and sublease income.

Interest income is related to interest earned on investments in government money funds.

Interest expense is primarily due to debt related to our Convertible Senior Notes and Delayed Draw Term Loan.

Interest expense increased for the year ended December 31, 2023 compared to the corresponding period last year primarily due to higher interest rates on borrowings.

The amounts in other income (expense), net, are primarily related to transaction gains and losses on foreign currency transactions, sublease income, and a change in the estimated fair value of contingent consideration.

Income tax expense

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Income tax expense

Income tax expense increased in fiscal 2022 primarily due to an increase in earnings and a decrease in foreign tax credits, partially offset by a change in jurisdictional mix of earnings and nonrecurring write down of a foreign tax receivable included in 2021.

Our effective tax rate was 21.3% and 23.9% for the years ended December 31, 2023 and 2022, respectively.

The difference between the statutory U.S.

federal income tax rate of 21% and the effective tax rate for the year ended December 31, 2022 primarily relates to state income taxes and a recorded valuation allowance on foreign tax credit carryovers, offset in part by benefits related to income attributable to noncontrolling interest, earnings in lower tax jurisdictions and federal research tax credits.

For the year ended December 31, 2021, the difference primarily relates to state income taxes and a recorded valuation allowance on foreign tax credit carryovers, a write down of a foreign tax receivable and an increase in executive compensation subject to IRC Section 162(m) limitations, offset by benefits related to income attributable to noncontrolling interest, release of uncertain tax positions, and federal research tax credits.

benefits related to income attributable to noncontrolling interests, earnings in lower tax jurisdictions, the FDII deduction, and federal business tax credits.

This provision resulted in additional cash tax liability and additional net deferred tax assets for the 2022 tax year of approximately $16 million.

This 2022 additional cash tax liability was offset by other carryforward tax attributes.

While the largest impact of this provision was to our 2022 cash tax liability, the impact will decline over the five-year amortization period and is expected to have an immaterial impact beginning in year six.

Congress is considering legislation that would defer the amortization requirement to later years, possibly with retroactive effect.

This provision resulted in additional cash tax liability for the 2023 tax year of approximately $12 million.

To date, there has been no enacted legislation that would change the tax treatment of these research and development expenditures and the Company continues to capitalize and amortize these expenses in accordance with the law.

Non-GAAP Financial Measures:

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Transaction-related costs (a)

Convertible debt repurchase loss

Restructuring (b)

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We define Adjusted EBITDA as net income attributable to Parsons Corporation, adjusted to include net income attributable to noncontrolling interests and to exclude interest expense (net of interest income), provision for income taxes, depreciation and amortization and certain 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, equity-based compensation, and expenses related to our corporate restructuring initiatives.

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, equity-based compensation, 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.

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Adjusted EBITDA attributable to Parsons Corporation

The increase in Federal Solutions revenue for the year ended December 31, 2023 compared to the corresponding period last year was primarily due to organic growth of 25% and increases from business acquisitions of $264.1 million.

The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the year ended December 31, 2023 compared to the prior year was primarily due to the factors impacting revenue discussed above and non-recurring incentive fees of approximately $20 million.

These increases were offset by higher selling general and administrative costs from business acquisitions, business development and sales activities, and incentive compensation costs as a result of the company's strong operating performance and growing employee base.

The increase in Federal Solutions revenue for the year ended December 31, 2024 compared to the corresponding period last year was primarily related to organic growth of 30% and $73.6 million from business acquisitions.

Organic growth was primarily due to the ramp up of recent awards including growth on a significant contract, growth of existing contracts, partially offset by the winding down of certain contracts.

Revenue for the year ended December 31, 2023 included incentive fees on two contracts of approximately $20 million that did not reoccur for the year ended December 31, 2024.

The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the year ended December 31, 2024 compared to the prior year was primarily due to the factors impacting revenue discussed above.

Critical Infrastructure

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Adjusted EBITDA attributable to Parsons Corporation

The increase in Critical Infrastructure revenue for the year ended December 31, 2023 compared to the corresponding period last year was substantially due to organic growth.

The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended December 31, 2023 compared to the corresponding period last year was primarily due to increases in business volume and a decrease in direct cost of contracts of $38 million related to a legal matter on a previously completed contract, offset by write-downs on joint ventures discussed above and higher selling general and administrative costs from business development and sales activities and higher incentive compensation costs as a result of the company's strong operating performance and growing employee base.

The increase in Critical Infrastructure revenue for the year ended December 31, 2024 compared to the corresponding period last year was primarily related to organic growth of 12% and $29.9 million from business acquisitions.

Organic growth was primarily due to an increase in business volume from existing contracts and ramping up of recent awards offset by the winding down of certain contracts and contract write-downs of $44.5 million.

The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended December 31, 2024 compared to the corresponding period last year was primarily due to the increase in organic revenue.

This increase was offset by the contract write-downs discussed above along with a write-down in equity in losses from unconsolidated joint ventures of $51.7 million compared to write-downs of $83.4 million for the year ended December 31, 2023.

Also impacting Adjusted EBITDA were higher margin change orders on an unconsolidated joint venture for the year ended December 31, 2023 which did not reoccur for the year ended December 31, 2024.

Year ended December 31, 2023 compared to year ended December 31, 2022

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Adjusted EBITDA attributable to Parsons Corporation

The increase in Federal Solutions revenue for the year ended December 31, 2022 compared to the corresponding period last year was primarily due to increases from business acquisitions of $205 million, and increases in business volume from recent contract awards and increased activity on existing contracts.

The increase in Federal Solutions Adjusted EBITDA attributable to Parsons Corporation for the year ended December 31, 2022 compared to the prior year was primarily due to increases in business volume, increases related to acquisitions, and a write down on a project in the corresponding period last year.

Critical Infrastructure

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Adjusted EBITDA attributable to Parsons Corporation

The increase in revenue for the year ended December 31, 2022 compared to the corresponding period last year was primarily due to an increase in business volume from recent contract awards, increased activity on existing contracts, increased hiring activity, and write downs on projects in the corresponding period last year.

The increase in Critical Infrastructure Adjusted EBITDA attributable to Parsons for the year ended December 31, 2022 compared to the corresponding period last year was primarily due to increases in business volume, partially offset by reduced equity in earnings of $21.9 million and increased SG&A.

The increase in Critical Infrastructure revenue for the year ended December 31, 2023 compared to the corresponding period last year was substantially due to organic growth.

Liquidity and Capital Resources

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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 and Delayed Draw Term Loan.

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 Revolving Credit Facility.

As of December 31, 2024, 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.

Management continually monitors debt maturities to strategically execute optimal terms and ensure appropriate levels of working capital liquidity are maintained for the company.

During October 2022, we prepaid private placement debt of $200.0 million with borrowings under the revolving credit facility and subsequently borrowed $350.0 million on the 2022 Delayed Draw Term Loan.

Proceeds from the Delayed Draw Term Loan were used to pay down the borrowings under the revolving credit facility.

See “Note 11 – Debt and Credit Facilities” in the notes to the consolidated financial statements in this Form 10-K for further information.

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.

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We focus on collecting outstanding receivables to reduce net DSO and improve working capital.

Net DSO was 59 days at December 31, 2023, down from 69 days at December 31, 2022.

and 68 days at December 31, 2021.

Net DSO was 55 days at December 31, 2024, down from 59 days at December 31, 2023 and 69 days at December 31, 2022.

Our working capital (current assets less current liabilities) was $546.8 million at December 31, 2024, $726.6 million at December 31, 2023 and $611.7 million at December 31, 2022.

Our cash and cash equivalents increased by $180.6 million to $453.5 million at December 31, 2024 from $272.9 million at December 31, 2023.

This compares to a decrease in cash and cash equivalents of $81.3 million to $262.5 million at December 31, 2022 from $343.9 million at December 31, 2021.

This compares to an increase in cash and cash equivalents of $10.4 million to $272.9 million at December 31, 2023 from $262.5 million at December 31, 2022.

The following table summarizes our sources and uses of cash over the periods presented (in thousands):

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Net cash provided by operating activities increased $115.9 million to $523.6 million during 2024 compared to $407.7 million during 2023.

The increase in net cash provided by operating activities is primarily due to a $98.4 million change in net income after adjusting for non-cash items and convertible debt settlement and from changes in our working capital accounts of $46.4 million (primarily from contract assets and prepaid expenses and other assets offset by accounts payable, accrued expenses and other current liabilities, and contract liabilities).

These increase were offset by a $29.0 million change in cash used for other long-term liabilities.

Net cash provided by operating activities increased $170.2 million to $407.7 million during 2023 compared to $237.5 million during 2022.

The increase in net cash provided by operating activities is primarily due to a $170.1 million change in net income after adjusting for non-cash items and the 10-day improvement in DSO.

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The changes in the Company's various working capital accounts were driven primarily by the significant increase in business volume during the year ended December 31, 2023 compared to the corresponding period last year.

Net cash provided by operating activities increased $32.0 million to $237.5 million during 2022 compared to $205.6 million during 2021.

The increase in net cash provided by operating activities is primarily due to a $40.4 million change in net income after adjusting for non-cash items and a change in the use of cash related to other long-term liabilities of $50.1 million.

The long-term liabilities change was primarily driven by CARES Act deferrals from 2020 being reclassed from long-term to short-term at the end of 2021 and long-term portion of insurance reserve reduction during 2021.

These increases were offset primarily from changes in our working capital accounts of $58.5 million (primarily from accounts receivable and contract assets, offset by accrued expenses, contract liabilities, accounts payable and prepaid expenses).

Net DSO increased one day to 69 days as of December 31, 2022, compared to 68 as of December 31, 2021.

Investing Activities

Net cash used in investing activities consists primarily of cash flows associated with capital expenditures and business acquisitions.

Net cash used in investing activities increased $180.7 million to $556.7 million during 2024 compared to $376.0 million during 2023.

The change was primarily driven by a $206.8 million increase in payments for acquisitions, $14.3 million from investments in unconsolidated joint ventures, and $8.8 million from capital expenditures offset by a $49.9 million increase in return of investments in unconsolidated joint ventures.

Net cash used in investing activities decreased $41.5 million to $376.0 million during 2023 compared to $417.5 million during 2022.

The change was primarily driven by a $157.5 million reduction in payments for acquisitions offset in part by a $102.0 million increase in investments in unconsolidated joint ventures, a $9.8 million increase in capital expenditures (primarily from computer systems and equipment) and a change from return of investments in unconsolidated joint ventures of $4.4 million.

Net cash used in investing activities increased $176.6 million to $417.5 million during 2022 compared to $240.9 million during 2021, primarily due to the use of $379.5 million, net of cash acquired

during 2022 for the acquisition of Xator compared to the use of cash of $189.6 million, net of cash acquired, for the acquisition of BlackHorse and the use of $8.7 million, net of cash acquired, for the acquisition of Echo Ridge, both in 2021.

Also impacting the increase in cash used in investing activities was a decrease in proceeds from sale of investments in unconsolidated joint ventures to zero during 2022 compared to $14.8 million during 2021.

These increases in cash used in investment activities were offset in part by a $20.8 million decrease in investments in unconsolidated joint ventures.

Financing Activities

Net cash provided by (used in) financing activities is primarily associated with proceeds from debt, the repayment thereof, transactions related to the Company’s common stock, and contributions by and distributions to noncontrolling interests.

Net cash (used in) provided by financing activities changed by $122.2 million to $(21.9) million in 2023 compared to $100.4 million in 2022.

Net cash provided by (used in) financing activities increased by $240.6 million to $218.7 million in 2024 compared to $(21.9) million in 2023.

The change in cash flows from financing activities is primarily driven by net cash inflows from our convertible bond transactions which generated $285.4 million in cash.

See “Note 11 – Debt and Credit Facilities,” for a further discussion of these transactions.

This increase was offset in part by distributions to noncontrolling interests of $16.7 million, taxes paid on vested stock of $15.3 million and $14.0 million from repurchases of common stock.

Net cash provided by (used in) financing activities changed by $122.2 million to $(21.9) million in 2023 compared to $100.4 million in 2022.

This change was primarily due to a decrease of $150.0 million from net borrowing related activities and a $7.4 million change in contributions by noncontrolling interests offset by a decrease in distributions to noncontrolling interests of $11.6 billion, a decrease in cash used to repurchase common stock of $11.0 million and from $11.2 million of payments in warrants for the year ended December 31, 2022 that did not reoccur in 2023.

Net cash provided by (used in) financing activities increased $206.9 million to $100.4 million in 2022

compared to $(106.5) million in 2021.

Cash provided by financing activities in 2022 included $916.0 million in proceeds from borrowings under our credit agreement and $350 million in proceeds from the Delayed Draw Term Loan.

These increases in cash provided by financing activities were offset in part by a change in repayments borrowings under our credit agreement of $866.0 million and a $200 million repayment under our private placement debt.

Letters of Credit

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We believe that the following items are the most critical accounting policies and estimates that involved significant judgment as we prepared our financial statements.

We consider an accounting policy or estimate to be critical if the policy or estimate requires assumptions to be made that were uncertain at the time they were made and if changes in these assumptions could have a material impact on our financial condition or results of operations.

We consider an accounting policy

or estimate to be critical if the policy or estimate requires assumptions to be made that were uncertain at the time they were made and if changes in these assumptions could have a material impact on our financial condition or results of operations.

Revenue Recognition and Cost Estimation

In our industry, recognition of revenue and profit on long-term contracts requires the use of assumptions and estimates related to total contract revenue, total cost at completion, and the

measurement of progress towards completion.

In our industry, recognition of revenue and profit on long-term contracts requires the use of assumptions and estimates related to total contract revenue, total cost at completion, and the measurement of progress towards completion.

Estimates are continually evaluated as work progresses and are revised when necessary.

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Change orders, which are a normal and recurring part of our business, are generally not distinct and are accounted for as part of the existing contract.

The effect of a change order that is not distinct on the transaction price and our measure of progress for the performance obligation to which it relates is recognized on a cumulative catch-up basis.

The effect of a change order that is not distinct on the transaction price and our measure of progress for the performance obligation to which it relates is

recognized on a cumulative catch-up basis.

To the extent change orders included in the transaction price are not resolved in our favor, there could be reductions in, or reversals of previously reported amounts of, revenues and profits, and charges against current earnings.

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We recognize revenue for most of our contracts over time as performance obligations are satisfied, as we are continuously transferring control to the customer.

Typically, revenue is recognized over time

using an input measure (i.e., costs incurred to date relative to total estimated costs at completion) to measure progress.

Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion) to measure progress.

We often enter into contracts in which the amount billed to the customer corresponds directly with the amount of work performed.

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We have operating and finance leases for corporate and project office spaces, vehicles, heavy machinery and office equipment.

Our leases have remaining lease terms of one year to eight years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases up to the third year.

Our leases have remaining lease terms of one year to eleven years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases up to the third year.

Business Combinations

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Transaction costs associated with business combinations are expensed as incurred.

determination of fair values of assets acquired and liabilities assumed requires the Company to make estimates and use valuation techniques when a market value is not readily available.

The determination of fair values of assets acquired and liabilities assumed requires the Company to make estimates and use valuation techniques when a market value is not readily available.

The Company adjusts the preliminary purchase prices allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as the Company obtains more information as to facts and circumstances existing at the acquisition date.

Certain business acquisitions include contingent earn-out arrangements, which are generally based on meeting a revenue target.

The fair value of this contingent consideration is included as part of the purchase price of the acquired company on the acquisition date and recorded in at its fair value within other liabilities or other long-term liabilities, as appropriate on the consolidated balance sheets.

We measure our contingent consideration at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy.The fair value of contingent consideration is determined using the option pricing method prescribed in the earnout valuation guide published by The Appraisal Foundation.

The fair value of this contingent consideration is included as part of the purchase price of the acquired company on the acquisition date and recorded at its fair value within other liabilities or other long-term liabilities, as appropriate on the consolidated balance sheets.

We measure our contingent consideration at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy.

The fair value of contingent consideration is determined using the option pricing method prescribed in the earnout valuation guide published by The Appraisal Foundation.

We consider three major risks associated with earnout, i.e.

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If the carrying amount of a reporting unit’s goodwill exceeds the fair value of that goodwill, an impairment loss is recognized.

Our decision to perform a qualitative impairment assessment in a given year is influenced by a number of factors, including the significance of the excess of our estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the date of the applicable acquisitions, if any.

at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the date of the applicable acquisitions, if any.

We perform a goodwill impairment test annually, on October 1 st of each year, for each reporting unit that requires certain assumptions and estimates be made regarding industry economic factors and future profitability.

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This process requires significant judgments and estimates, including assumptions about our strategic plans for operations as well as the interpretation of current economic indicators.

Development of the present value of future cash flow projections includes assumptions and estimates derived from a review of our expected

revenue growth rates, profit margins, business plans, cost of capital and tax rates.

Development of the present value of future cash flow projections includes assumptions and estimates derived from a review of our expected revenue growth rates, profit margins, business plans, cost of capital and tax rates.

We also make certain assumptions about future market conditions, market prices, interest rates and changes in business strategies.

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or (c) an equity investor has voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are on behalf of the investor with disproportionately low voting rights.

Our VIEs may be funded through contributions, loans and/or advances from the joint venture

partners or by advances and/or letters of credit provided by clients.

Our VIEs may be funded through contributions, loans and/or advances from the joint venture partners or by advances and/or letters of credit provided by clients.

Certain VIEs are directly governed, managed, operated and administered by the joint venture partners.

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As of December 31, 2024 and December 31, 2023, there were no amounts outstanding under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility effective June 2021 bear interest

at either an adjusted Term SOFR rate plus a margin between 1.0% and 1.625%, or a base rate (as defined in the Credit Agreement) plus a margin of between 0% and 0.625%, both based on the leverage ratio of the Company at the end of each quarter.

Borrowings under the Revolving Credit Facility effective June 2021 bear interest at either an adjusted Term SOFR rate plus a margin between 1.0% and 1.625%, or a base rate (as defined in the Credit Agreement) plus a margin of between 0% and 0.625%, both based on the leverage ratio of the Company at the end of each quarter.

As of December 31, 2024, there was $350.0 million outstanding under the 2022 Delayed Draw Term Loan.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis