Parsons' most recent acquisition and what it means

Since its initial public offering in 2019, Parsons Corp. has described its strategy as one that looks for convergence across its federal government and critical infrastructure segments.

The company's most recent acquisition of the utility software provider IPKeys has that in mind, given it involves both the power providers and government regulators overseeing them.

During Parsons' 2023 investor day presentation held Wednesday, chief executive Carey Smith explained what IPKeys has to offer its buyer and what that transaction means for both business segments.

IPKeys' products focus on cyber monitoring of both the operational and information technology environments that utilities manage. That company also designs its software to help those facilities comply with energy sector standards under the purview of government agencies such as the Federal Energy Regulatory Commission and North American Electric Reliability Corporation.

Smith said the idea for Parsons is that with the push to add electrification and renewable energy, the demand load for utilities will change and IPKeys' products can help manage that demand load. IPKeys also will fit in with Parsons' offerings for metering and operations, she added.

"It's basically selling scalable software and now we have access to all those customers with the broader Parsons' portfolio," Smith said. "They sell to our customers and beyond. They sell predominantly to energy customers, facility customers such as in the federal segment, as well as water customers."

The addition of IPKeys represents one example of how Parsons thinks about both sides of the business as it embarks on a new set of three-year financial goals.

Using 2022's results as the starting point: Parsons is pushing for revenue growth of 4-to-6% through 2025 and a profit margin of 9.1% adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

Centreville, Virginia-headquartered Parsons also will look to continue its approach of two acquisitions per year on average in support of its strategy.

Human capital remains paramount for Parsons and was its key focus in 2022. Those challenges are not going away given the industry-wide dynamics at play there, but 2023's internal investments for Parsons are looking slightly different.

Chief Financial Officer Matt Ofilos said that for 2023, "There's a real opportunity to spend more money on (business development) and capture."

Smith reported that Parsons' focus on hiring over the past two years has born results. Headcount climbed 9.7% year-over-year in 2022.

A second major opportunity Parsons sees for itself is in providing an as-a-service model for ground-based operations and systems, particularly those that support space assets.

"They don't have to buy the infrastructure. They don't have to maintain the infrastructure. They don't have to pay for it when they're not using it," Smith said. "We do that for them. And I think this is a leading way of the future."

Three agencies have signed up for as-a-service support from Parsons so far: the Air Force and specifically its Research Laboratory, National Oceanic and Atmospheric Administration, and Defense Advanced Research Projects Agency.

Parsons may see runway for that offering across the defense and intelligence markets, but Smith cautioned that this is unfamiliar territory for many agencies.

"We need to get to a comfort level because it's a different buying pattern for them that they can come in and they can use this infrastructure," Smith said. "It's a different buying pattern for them that they can come in and they can use this infrastructure."

How does Parsons think about that word infrastructure and the way it cuts across all of the business units? Smith described the company's vision and big-picture goal as to be the "Build Back Better, Build Back Smarter pioneer."

The idea behind enacting the $1.2 trillion Infrastructure Investment and Jobs Act was not just about building new stuff, but making it last for multiple decades and even past 100 years if everyone involved can make that happen.

"We're only going to be able to build back better if we do it the right way, and doing it the right way means how are we going to apply digital technologies to our infrastructure, an area that Parsons is uniquely positioned because we have a technology arm in addition to our infrastructure arm," Smith said.

Smith followed with these rhetorical questions regarding the blend of software and other digital tech with physical assets:

"If you think about digital engineering framework, digital twin capabilities, how do I leverage artificial intelligence in the infrastructure world? How do I leverage cybersecurity and the infrastructure work? How do I apply virtual reality?"

Parsons believes its acquisition of IPKeys and overall vision of the bigger picture will lead to more answers.