A closer look inside Parsons' IPO filing

Parsons Corp.’s “S-1” registration statement for an initial public offering was revealed in full Friday and shows they are ready to join the fray of publicly-traded global engineering firms.

That announcement and disclosure also peels back several onions on how the 75-year-old employee-owned company sees themselves in the federal government market and other information about them that until now has been hidden.

Here are some key items worth noting from Parsons’ now-public filing:

Parsons’ competitive landscape is crowded and fragmented

In their filing, Parsons lists primary federal market competitors as including most of the usual suspects: CACI International, Leidos, Science Applications International Corp., Booz Allen Hamilton, CSRA (now General Dynamics IT), Raytheon, Northrop Grumman, Perspecta and ManTech International.

But Parsons also calls out Jacobs Engineering Group and Tetra Tech as competitors in critical infrastructure, plus Siemens and Cisco in what the filings refer to as the “connected communities” market that includes smart cities.

Notable absences from those groups include other global engineering firms like AECOM and KBR that have also increasingly come into the fold of government technology services over this decade through both acquisitions and organic growth.

Some of that owes to the lines of business in Parsons’ federal solutions segment -- - one of two reportable segments alongside critical infrastructure. Federal solutions is broken out into five lines of business: cyber and intelligence, geospatial, defense, mission solutions and engineered systems. Parsons views that approach as helping them tackle large-scale projects that have convergence of hardware and software.

Parsons’ federal arm is buying and showing organic growth signs

Of Parsons’ $3.5 billion in total revenue last year, almost $1.5 billion or 41.5 percent of that came in the federal solutions segment. Results Parsons spelled out in their filing do not include OGSystems, the geospatial technology firm acquired in January of this year.

Federal revenue climbed 37 percent last year, primarily on the May 2018 acquisition of defense technology integrator Polaris Alpha but also including contributions from the October 2017 purchase of energy control systems firm Williams Electric.

But the federal business posted 15.9-percent organic revenue growth last year. The business has laid foundations for organic growth through book-to-bill ratios of 1.50, 1.18 and 1.22 over the last three years respectively starting from 2016.

Parsons’ explanation of those numbers explains why investors watch that metric closely: “To drive future revenue growth, our goal is for the level of awards in a given period to exceed the revenue booked.

"A book-to-bill ratio is greater than 1.0 indicates that awards generated in a given period exceeded the revenue recognized in the same period, while a book-to-bill ratio of less than 1.0 indicates that awards generated in such period were less than the revenue recognized in such period.”

Parsons’ books open on their big-ticket acquisitions

The now-public filing also discloses what Parsons paid for its two most recent acquisitions focused on high-end, complex technology work for defense and intelligence programs.

OGSystems carried a price tag of $300.3 million, while Polaris Alpha’s was steeper at $489.1 million. Williams Electric by comparison had a price tag of $26.4 million.

No details about OGSystems’ performance are in the filing but the filing does glimpse of what the other deals have contributed to Parsons so far. Polaris Alpha added $227.4 million in revenue and $18.4 million in profit last year, while Williams Electric contributed $27.5 million in sales and $6.2 million in earnings.

The integrations of OGSystems and Polaris Alpha is ongoing though and investors will likely have questions about them. Among others, Parsons lists as risk factors to consider the time and energy management spends on integration along with running the day-to-day business, plus the possibility they may not realize full revenue or other financial synergies.

Parsons also “may face difficulties in integrating Polaris Alpha’s and OGSystems’ employees, integrating different corporate cultures and in attracting and retaining key personnel,” and “may face challenges in keeping existing Polaris Alpha and OGSystems contracts and customers.”

Parsons’ employee owners can have skin in the game

Parsons transitioned to an employee stock ownership plan in 1984 after a 10 year-period where it was listed on the New York Stock Exchange, so this current IPO represents a re-entry of sorts for the company to the public markets.

ESOP participants generally are able to receive cash distributions from their stock following the end of their employment or upon death, and in order to diversify accounts after reaching a specified age and completing a specific number of years of employment.

They will have the right to receive publicly-traded common stock and sell such shares in the public markets, Parsons’ filing says. A number of shares available for that component of the IPO was not given but subsequent amended filings before the start of trade should detail that.

There are factors for participants to consider though. During a 180-day lockup period started Friday, ESOP distributions will be made in the form of cash. After that window closes, ESOP distributions will be made in the form of shares of Parsons’ common stock that recipients are free to sell in the market.

How much was Parsons spending on its ESOP plan? The filing says ESOP contribution expenses were $41.8 million for 2016, $40.6 million for 2017 and $47 million for 2018.