Segment Information

9 Months Ended

Sep. 30, 2019

19.	Segment Information

The Company operates in two reportable segments: Federal Solutions and Critical Infrastructure.

The Federal Solutions segment provides advanced technical solutions to the U.S. government, delivering timely, cost-effective hardware, software and services for mission-critical projects. The segment provides advanced technologies, supporting national security missions in cybersecurity, missile defense, and military facility modernization, logistics support, hazardous material remediation and engineering services.

The Critical Infrastructure segment provides integrated engineering and management services for complex physical and digital infrastructure around the globe. The Critical Infrastructure segment is a technology innovator focused on next generation digital systems and complex structures. Industry leading capabilities in engineering and project management allow the Company to deliver significant value to customers by employing cutting-edge technologies, improving timelines and reducing costs.

The Company defines its reportable segments based on the way the chief operating decision maker (“CODM”), currently its Chairman and Chief Executive Officer, evaluates the performance of each segment and manages the operations of the Company for purposes of allocating resources among the segments. The CODM evaluates segment operating performance using segment Revenue and segment Adjusted EBITDA attributable to Parsons Corporation.

The following table summarizes business segment revenue for the periods presented (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2018		September 30, 2019		September 28, 2018		September 30, 2019
Federal Solutions revenue	$	443,725	$	486,175	$	1,076,125	$	1,387,484
Critical Infrastructure revenue		532,432		537,102		1,555,443		1,529,940
Total revenue	$	976,157	$	1,023,277	$	2,631,568	$	2,917,424

The Company defines Adjusted EBITDA attributable to Parsons Corporation as Adjusted EBITDA excluding Adjusted EBITDA attributable to noncontrolling interests. The Company defines 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 other items that are not considered in the evaluation of ongoing operating performance. These other items include net income (loss) attributable to noncontrolling interests, asset impairment charges, income and expense recognized on litigation matters, expenses incurred in connection with acquisitions and other non-recurring transaction costs and expenses related to our prior restructuring. The following table reconciles business segment Adjusted EBITDA attributable to Parsons Corporation to Net Income attributable to Parsons Corporation for the periods presented (in thousands):

	Three Months Ended						Nine Months Ended
Adjusted EBITDA attributable to Parsons Corporation	September 28, 2018			September 30, 2019			September 28, 2018			September 30, 2019
Federal Solutions	$	45,556		$	50,359		$	101,052		$	126,658
Critical Infrastructure		38,006			33,976			80,296			102,177
Adjusted EBITDA attributable to Parsons Corporation		83,562			84,335			181,348			228,835
Adjusted EBITDA attributable to noncontrolling interests		5,002			4,655			10,681			8,384
Depreciation and amortization		(23,599	)		(31,027	)		(46,656	)		(92,692	)
Interest expense, net		(5,589	)		(4,482	)		(12,117	)		(18,448	)
Income tax (expense) benefit		(4,154	)		15,453			(18,526	)		67,063
Litigation-related gains(a)		-			-			129,674			-
Amortization of deferred gain resulting from sale-leaseback transactions(b)		1,798			-			5,440			-
Equity-based compensation		(5,049	)		1,657			(13,198	)		(45,504	)
Transaction-related costs(c)		(2,456	)		(9,891	)		(7,511	)		(26,961	)
Restructuring(d)		-			(309	)		-			(2,880	)
Other(e)		(3,449	)		902			(3,929	)		(2,973	)
Net income including noncontrolling interests		46,066			61,293			225,206			114,824
Net income attributable to noncontrolling interests		4,844			4,481			10,316			8,012
Net income attributable to Parsons Corporation	$	41,222		$	56,812		$	214,890		$	106,812

(a)

Reversal of an accrued liability, with $55.1 million recorded to revenue and $74.6 million recorded to other income (“gain associated with claim on long-term contract”) in results of operations, associated with a lawsuit against a joint venture in which the Company is the managing partner. Please see “Note 14 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, for a description of this matter, which was resolved in favor of the Company on June 13, 2018.

(b)	Reflects recognized deferred gains related to sales-leaseback transactions described in “Note 10 – Sale-Leasebacks.”

(c)	Reflects costs incurred in connection with acquisitions, the IPO, and other non-recurring transaction costs, primarily fees paid for professional services and employee retention.

(d)	Reflects costs associated with corporate restructuring initiatives.

(e)	Includes a combination of gain/loss related to sale of fixed assets, software implementation costs, and other individually insignificant items that are non-recurring in nature.

Asset information by segment is not a key measure of performance used by the CODM.

The following tables presents revenues and property and equipment, net by geographic area (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2018		September 30, 2019		September 28, 2018		September 30, 2019
Revenue
North America	$	805,320	$	849,839	$	2,131,562	$	2,400,124
Middle East		164,677		169,028		485,377		504,604
Rest of World		6,160		4,410		14,629		12,696
Total Revenue	$	976,157	$	1,023,277	$	2,631,568	$	2,917,424

The geographic location of revenue is determined by the location of the customer. The prior reporting of revenue by geographic location has been conformed to the current presentation.


	December 31, 2018		September 30, 2019
Property and Equipment, Net
North America	$	86,847	$	103,690
Middle East		5,002		5,548
Total Property and Equipment, Net	$	91,849	$	109,238

North America includes revenue in the United States for the three months ended September 28, 2018 and September 30, 2019 of $747.7 million and $774.2 million, respectively, and for the nine months ended September 28, 2018 and September 30, 2019, $2.0 billion and $2.2 billion, respectively. North America property and equipment, net includes $79.9 million and $97.3 million of property and equipment, net in the United States at December 31, 2018 and September 30, 2019, respectively.

The following table presents revenues by business lines (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2018		September 30, 2019		September 28, 2018		September 30, 2019
Revenue
Cyber & Intelligence	$	68,895	$	90,429	$	177,838	$	247,710
Defense		133,259		144,160		297,318		425,603
Mission Solutions		122,780		87,936		280,902		237,914
Engineered Systems		118,791		129,989		320,067		367,542
Geospatial		-		33,661		-		108,715
Federal Solutions revenues		443,725		486,175		1,076,125		1,387,484
Connected Communities		165,529		151,779		491,444		459,277
Mobility Solutions		300,523		286,199		894,796		836,779
Industrial		66,380		99,124		169,203		233,884
Critical Infrastructure revenues		532,432		537,102		1,555,443		1,529,940
Total Revenue	$	976,157	$	1,023,277	$	2,631,568	$	2,917,424

Revenue for the three and nine months ended September 28, 2018 included $55.1 million related to the settlement of a claim that was resolved in favor of the Company in the Mobility Solutions business line of our Critical Infrastructure segment. Please see “Note 14 – Commitments and Contingencies” in the Company’s Form S-1/A filed on April 29, 2019, for a description of this matter. Excluding the claim settlement, revenue for the nine months ended September 28, 2018 for the Critical Infrastructure segment was $1.5 billion, respectively and for the Mobility Solutions revenue business line revenue was and $839.7 million, respectively.