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Acquisitions | 6 Months Ended
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Jun. 30, 2024
Business Combinations [Abstract] |
Acquisitions | 4. Acquisitions I.S. Engineers, LLC On October 31, 2023, the Company entered into a Membership Interest Purchase Agreement to acquire a 100% ownership interest in I.S. Engineers, LLC (“I.S. Engineers”), a privately-owned company, for $12.2 million in cash. Headquartered in Texas, I.S. Engineers provides full service consulting specializing in transportation engineering, including roads and highways, and program management. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $0.3 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2023, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The Company allocated the purchase price to the appropriate classes of tangible assets and liabilities and assigned the excess of $11.9 million entirely to goodwill. The entire value of goodwill was assigned to the Critical Infrastructure reporting unit and represents synergies expected to be realized from this business combination. No goodwill is deductible for income tax purposes. Sealing Technologies, Inc. On August 23, 2023, the Company acquired a 100% ownership interest in Sealing Technologies, Inc (“SealingTech”), a privately-owned company, for $179.3 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 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 $3.3 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 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 fair value of the earn out (contingent consideration in the table below) was calculated using a Black-Scholes model. See “Note 2—Summary of Significant Accounting Policies” in the notes to our consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2023 for further information on how the fair value of contingent consideration is determined. The following table summarizes the acquisition date fair value of the purchase consideration transferred (in thousands):
|  | Amount |
Cash paid at closing |  | $ | 179,259 |
Fair value of contingent consideration to be achieved |  |  | 3,231 |
Total purchase price |  | $ | 182,490 |
The estimated fair value of the SealingTech contingent consideration as of June 30, 2024 was $4.1 million, a $1.8 million increase from the estimated fair value as of December 31, 2023. Changes in the estimated fair value are recorded to "other income (expense), net" in the consolidated financial statements. 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 |  | $ | 8,133 |
Accounts receivable |  |  | 17,889 |
Contract assets |  |  | 2,946 |
Prepaid expenses and other current assets |  |  | 1,379 |
Property and equipment |  |  | 2,025 |
Right of use assets, operating leases |  |  | 1,836 |
Deferred tax assets |  |  | 357 |
Goodwill |  |  | 90,593 |
Intangible assets |  |  | 75,000 |
Accounts payable |  |  | (15,987 | )
Accrued expenses and other current liabilities |  |  | (2,408 | )
Contract liabilities |  |  | (668 | )
Short-term lease liabilities, operating leases |  |  | (418 | )
Long-term lease liabilities, operating leases |  |  | (1,418 | )
Net assets acquired |  | $ | 179,259 |
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 |  | $ | 40,000 |  |  | 14
Backlog |  |  | 26,000 |  |  | 3
Developed technologies |  |  | 8,000 |  |  | 3
Other |  | $ | 1,000 |  |  | 1
Amortization expense of $3.3 million and $6.6 million related to these intangible assets was recorded for the three and six months ended June 30, 2024, 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. The entire value of goodwill is deductible for tax purposes. The amount of revenue generated by SealingTech and included within consolidated revenue is $16.9 million and $33.8 million for the three and six months ended June 30, 2024, 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. 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 |  |  | Six Months Ended |
|  | June 30, 2024 |  |  | June 30, 2023 |  |  | June 30, 2024 |  |  | June 30, 2023 |
Pro forma Revenue |  | $ | 1,670,467 |  |  | $ | 1,390,016 |  |  | $ | 3,206,143 |  |  | $ | 2,580,497 |
Pro forma Net Income including noncontrolling interests |  |  | 81,910 |  |  |  | 59,230 |  |  | $ | (8,869 | ) |  | $ | 93,425 |
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 $0.6 million of acquisition-related expenses in “Selling, general and administrative expense” in the consolidated statements of income for the year ended December 31, 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 purchase price allocation as of the date of acquisition (in thousands):
|  | Amount |
Cash and cash equivalents |  | $ | 126 |
Accounts receivable |  |  | 3,937 |
Contract assets |  |  | 834 |
Prepaid expenses and other current assets |  |  | 455 |
Property and equipment |  |  | 86 |
Right of use assets, operating leases |  |  | 1,105 |
Other noncurrent assets |  |  | 152 |
Goodwill |  |  | 22,407 |
Intangible assets |  |  | 23,000 |
Accounts payable |  |  | (541 | )
Accrued expenses and other current liabilities |  |  | (1,768 | )
Contract liabilities |  |  | (1,936 | )
Short-term lease liabilities, operating leases |  |  | (343 | )
Deferred tax liabilities |  |  | (3,713 | )
Long-term lease liabilities, operating leases |  |  | (762 | )
Net assets acquired |  | $ | 43,039 |
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 (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 $0.4 million and $0.8 million related to these intangible assets was recorded for the three and six months ended June 30, 2024, respectively and $0.4 million for both the three and six months ended June 30, 2023. The entire value of goodwill was assigned to the Critical Infrastructure reporting unit and represents synergies expected to be realized from this business combination. $0.9 million of goodwill is deductible for tax purposes. The amount of revenue generated by IPKeys and included within consolidated revenue is $2.6 million for both the three and six months ended June 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. 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 |  |  | Six Months Ended |
|  | June 30, 2024 |  |  | June 30, 2023 |  |  | June 30, 2024 |  |  | June 30, 2023 |
Pro forma Revenue |  | $ | 1,670,467 |  |  | $ | 1,356,486 |  |  | $ | 3,206,143 |  |  | $ | 2,532,807 |
Pro forma Net Income including noncontrolling interests |  |  | 80,812 |  |  |  | 56,441 |  |  | $ | (11,141 | ) |  | $ | 91,803 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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