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Acquisitions | 9 Months Ended
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Sep. 30, 2023
Business Combinations [Abstract] |
Acquisitions | 4. Acquisitions Sealing Technologies, Inc. On August 23, 2023, the Company acquired a 100% ownership interest in Sealing Technologies, Inc (“SealingTech”), a privately-owned company, for $181.7 million in cash and up to an additional $25 million in the event an earn out revenue target is exceeded. The Company borrowed $175 million under the Credit Agreement, as described in “Note 10 – Debt and Credit Facilities”, to fund the acquisition. Headquartered in Maryland, SealingTech expands Parsons’ customer base across the Department of Defense and Intelligence Community, and further enhances the company’s capabilities in defensive cyber operations; integrated mission-solutions powered by artificial intelligence (AI) and machine learning (ML); edge computing and edge access modernization; critical infrastructure protection; and secure data management. In connection with this acquisition, the Company recognized $3.1 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2023, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The Company has agreed to pay the selling shareholders up to an additional $25 million in the event an earn out revenue target of $110 million is exceeded during the fiscal year ended December 31, 2024. The earn out payment due and payable by the Company to the selling shareholders shall be equal to (i) five-tenths (0.5), multiplied by (ii) the difference of (A) the actual earn out revenue minus (B) the earn out revenue target; provided, however, that in no event shall the earn out payment exceed $25 million. In the event that the earn out revenue is less than or equal to the earn out revenue target, the earn out payment shall be zero. The earn out payment, if any, shall be paid by the Company to the selling shareholders within 15 days following the date the earn out statement becomes final and binding on both parties. The following table summarizes the acquisition date fair value of the purchase consideration transferred (in thousands):
|  | Amount |
Cash paid at closing |  | $ | 181,690 |
Fair value of contingent consideration to be achieved |  |  | 3,443 |
Total purchase price |  | $ | 185,133 |
Changes in the fair value of contingent consideration, when they occur, are recorded in the consolidated statements of income within “Selling, general and administrative expense”. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
|  | Amount |
Cash and cash equivalents |  | $ | 8,133 |
Accounts receivable |  |  | 17,889 |
Contract assets |  |  | 2,960 |
Other current assets |  |  | 1,379 |
Property and equipment |  |  | 1,635 |
Right of use asset |  |  | 1,288 |
Deferred tax assets |  |  | 686 |
Goodwill |  |  | 106,241 |
Intangible assets |  |  | 59,900 |
Accounts payable |  |  | (15,987 | )
Accrued expenses and other current liabilities |  |  | (2,377 | )
Contract liabilities |  |  | (493 | )
Short-term lease liabilities |  |  | (540 | )
Deferred tax liabilities |  |  | (330 | )
Long-term lease liabilities |  |  | (551 | )
Net assets acquired |  | $ | 179,833 |
Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years):
|  | Gross Carrying Amount |  |  | Amortization Period
|  |  |  |  | (in years)
Customer relationships |  | $ | 31,400 |  |  | 8
Backlog |  |  | 18,500 |  |  | 8
Developed technologies |  |  | 8,000 |  |  | 5
Other |  |  | 2,000 |  |  | 1 to 3
Amortization expense of $1.5 million related to these intangible assets was recorded for the three and nine months ended September 30, 2023. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. The entire value of goodwill is deductible for tax purposes. The amount of revenue generated by SealingTech and included within consolidated revenues is $18.4 million for the three and nine months ended September 30, 2023. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. The Company is still in the process of finalizing its valuation of the net assets acquired. Supplemental Pro Forma Information (Unaudited) Supplemental information of unaudited pro forma operating results assuming the SealingTech acquisition had been consummated as of the beginning of fiscal year 2022 (in thousands) is as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | September 30, 2023 |  |  | September 30, 2022 |
Pro forma Revenue |  | $ | 1,450,376 |  |  | $ | 1,154,603 |  |  | $ | 4,030,873 |  |  | $ | 3,134,609 |
Pro forma Net Income including noncontrolling interests |  |  | 66,010 |  |  |  | 42,820 |  |  | $ | 161,544 |  |  | $ | 77,218 |
IPKeys Power Partners On April 13, 2023, the Company entered into a merger agreement to acquire a 100% ownership interest in IPKeys Power Partners (“IPKeys”), a privately-owned company, for $43.0 million in cash. The merger brings IPKeys' established customer base, expanding Parsons' presence in two rapidly growing end markets: grid modernization and cyber resiliency for critical infrastructure. Headquartered in Tinton Falls, New Jersey, IPKeys is a trusted provider of enterprise software platform solutions that is actively delivering cyber and operational security to hundreds of electric, water, and gas utilities across North America. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $0.1 million and $0.6 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2023, respectively, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
|  | Amount |
Cash and cash equivalents |  | $ | 126 |
Accounts receivable |  |  | 3,937 |
Contract assets |  |  | 834 |
Other current assets |  |  | 422 |
Property and equipment |  |  | 86 |
Right of use asset |  |  | 129 |
Other noncurrent assets |  |  | 56 |
Goodwill |  |  | 24,126 |
Intangible assets |  |  | 23,000 |
Accounts payable |  |  | (541 | )
Accrued expenses and other current liabilities |  |  | (1,768 | )
Contract liabilities |  |  | (1,936 | )
Deferred tax liabilities |  |  | (5,432 | )
Net assets acquired |  | $ | 43,039 |
Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years):
|  | Gross Carrying Amount |  |  | Amortization Period
|  |  |  |  | (in years)
Customer relationships (1) |  | $ | 15,900 |  |  | 16
Developed technologies |  |  | 7,000 |  |  | 11
Other |  | $ | 100 |  |  | 1
(1) The acquired business is a SaaS commercial business. Backlog for this type of business is included as customer relationships. Amortization expense of $0.5 million and $0.9 million related to these intangible assets was recorded for the three and nine months ended September 30, 2023, respectively. The entire value of goodwill was assigned to the Critical Infrastructure reporting unit and represents synergies expected to be realized from this business combination. $1.0 million of goodwill is deductible for tax purposes. The amount of revenue generated by IPKeys and included within consolidated revenues is $3.5 million and $6.1 million for the three and nine months ended September 30, 2023, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. The Company is still in the process of finalizing its valuation of the net assets acquired. Supplemental Pro Forma Information (Unaudited) Supplemental information of unaudited pro forma operating results assuming the IPKeys acquisition had been consummated as of the beginning of fiscal year 2022 (in thousands) is as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | September 30, 2023 |  |  | September 30, 2022 |
Pro forma Revenue |  | $ | 1,418,571 |  |  | $ | 1,137,381 |  |  | $ | 3,951,378 |  |  | $ | 3,101,246 |
Pro forma Net Income including noncontrolling interests |  |  | 60,187 |  |  |  | 42,907 |  |  | $ | 151,917 |  |  | $ | 87,427 |
Xator Corporation On May 31, 2022, the Company acquired a 100% ownership interest in Xator Corporation (“Xator”), a privately-owned company, for $387.5 million in cash. The Company 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 operations. In connection with this acquisition, the Company recognized $7.7 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2022, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the purchase price allocation as of the date of acquisition (in thousands):
|  | Amount |
Cash and cash equivalents |  | $ | 8,935 |
Accounts receivable |  |  | 7,393 |
Contract assets |  |  | 24,332 |
Prepaid expenses and other current assets |  |  | 3,615 |
Property and equipment |  |  | 1,699 |
Right of use assets, operating leases |  |  | 7,517 |
Goodwill |  |  | 257,934 |
Investments in and advances to unconsolidated joint ventures |  |  | 698 |
Intangible assets |  |  | 123,500 |
Other noncurrent assets |  |  | 9,156 |
Accounts payable |  |  | (6,626 | )
Accrued expenses and other current liabilities |  |  | (31,309 | )
Contract liabilities |  |  | (2,631 | )
Short-term lease liabilities, operating leases |  |  | (2,371 | )
Long-term lease liabilities, operating leases |  |  | (5,146 | )
Other long-term liabilities |  |  | (9,156 | )
Net assets acquired |  | $ | 387,540 |
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|  | Gross Carrying Amount |  |  | Amortization Period
|  |  |  |  | (in years)
Customer relationships |  | $ | 37,000 |  |  | 15
Backlog |  |  | 81,000 |  |  | 6
Trade name |  |  | 4,000 |  |  | 1
Developed technologies |  |  | 1,000 |  |  | 3
Non-compete agreements |  | $ | 500 |  |  | 3
Amortization expense of $4.1 million and $14.0 million related to these intangible assets was recorded for the three and nine months ended September 30, 2023, respectively and $4.9 million and $6.6 million for both the three and nine months ended September 30, 2022, respectively. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill in its entirety is deductible for tax purposes. The amount of revenue generated by Xator and included within consolidated revenues was $70.4 million and $91.2 million for the three and nine months ended September 30, 2022. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition. Supplemental Pro Forma Information (Unaudited) Supplemental information of unaudited pro forma operating results assuming the Xator acquisition had been consummated as of the beginning of fiscal year 2021 (in thousands) is as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2023 |  |  | September 30, 2022 |  |  | September 30, 2023 |  |  | September 30, 2022 |
Pro forma Revenue |  | $ | 1,418,571 |  |  | $ | 1,134,370 |  |  | $ | 3,948,523 |  |  | $ | 3,199,336 |
Pro forma Net Income including noncontrolling interests |  |  | 60,374 |  |  |  | 43,970 |  |  |  | 154,275 |  |  |  | 102,859 |

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