PAE Incorporated (“PAE” or the “Company”) (NASDAQ: PAE, PAEWW)
today announced third-quarter 2020 financial and operating results.
CEO Commentary
“PAE continued to execute our plan, delivering
strong revenue, profitability, cash flow and bookings. Of
additional and positive note after quarter-close we completed our
successful debt refinancing and announced the signed purchase
agreement with CENTRA Technology, Inc.” said PAE President and
Chief Executive Officer John Heller. “Revenue was in-line with
expectations and profitability and cash flow exceeded our
objectives for the quarter. In summary, we are delivering strong
financial results and achieving our growth, profitability and
capital structure initiatives in accordance with our strategy.”
COVID-19 Financial
Impact
We estimate the third-quarter impact from the
COVID-19 pandemic to be approximately $53.3 million of revenue and
an immaterial net impact to adjusted EBITDA and free cash flow.
These impacts were primarily driven by disruptions to logistics
operations and by limitations on the ability of PAE employees and
subcontractors to access facilities to perform on customer
contracts. Since the onset of the COVID-19 pandemic, PAE has
operated as an essential business, continuing to operate and
support our customers in a resilient market.
Third-Quarter
2020 Results
Revenues for the quarter of $666.2 million
decreased $31.5 million, or 4.5%, compared to the prior year
period. The decrease was attributable to a $53.3 million impact
from COVID-19, of which approximately $42.8 million was non-labor
and $10.5 million was labor, which decrease was partially offset by
a $21.9 million net increase in contract volume and new business
programs. The Global Mission Services (“GMS”) and National Security
Solutions (“NSS”) segments revenue decreased by approximately $14.3
million and $17.2 million, respectively.
Operating income for the quarter was $28.5
million, compared with an operating loss of $10.5 million in the
prior year period. The increase resulted from the write down of PAE
ISR LLC (“ISR”) assets held for sale in the prior year period,
lower Selling, General and Administrative expenses and increased
volume on higher margin programs in the current period, which
increase was partially offset by lower revenue volume in the
current period.
The net income attributed to PAE for the quarter
was $10.3 million, or $0.11 per diluted share, compared with a net
loss of approximately $32.2 million, or $1.52 per diluted share in
the prior year period. The improvement in net income for the third
quarter of 2020, was primarily driven by factors driving the
increase in operating income and lower interest expense, which was
driven by a reduction in debt year over year.
Adjusted EBITDA for the quarter was $46.2 million, or
6.9% of revenue, compared to $50.0 million, or 7.2% of revenue, in
the prior year period. Adjusted EBITDA and margins declined due to
lower revenue volume and timing of net profit adjustments in the
prior year period, which decrease was partially offset by increased
volume on higher margin programs.
Global Mission ServicesGMS revenues for the
quarter of $521.3 million decreased $14.3 million, or 2.7%,
compared to the prior year period. The decrease was attributable to
a $38.7 million impact from COVID-19, of which approximately $31.9
million was non-labor and $6.9 million was labor, partially offset
by a $24.2 million net increase in contract volume and new business
programs.
GMS operating income for the quarter was $31.4
million, compared to $26.0 million in the prior-year period. The
improvement was driven by increased consolidated venture income and
increased volume on higher margin programs, which increase was
partially offset by lower revenue volume.
GMS adjusted operating income2 for the quarter
was $35.7 million, or 6.8% of revenue, compared to $32.9 million,
or 6.1% of revenue, in the prior year period. GMS adjusted
operating income and margins2 benefited from increased volume on
higher margin programs, which increase was partially offset by
lower revenue volume and higher SG&A expenses.
National Security SolutionsNSS revenues for the
quarter of $144.9 million decreased $17.2 million, or 10.6%,
compared to the prior year period. The decrease was attributable to
a $14.6 million impact from COVID-19, of which approximately $9.3
million was non-labor and $5.3 million was labor, and by a $2.4
million decrease from small business set-aside re-compete losses,
net of new business wins.
NSS operating income for the quarter was $5.7
million, compared to an operating loss of $26.4 million in the
prior year period. The increase resulted from the write down of PAE
ISR assets held for sale in the prior year period and lower
selling, general and administrative expenses in the current period,
partially offset by lower revenue volume in the current period.
NSS adjusted operating income3 for the quarter
was $10.5 million, or 7.3% of revenue, compared to $17.1 million,
or 10.5% of revenue, in the prior year period. NSS adjusted
operating income and margins declined due to the timing of net
profit adjustments incurred in the prior year period and lower
revenue volume.
Cash Flow Summary
Net cash provided by operating activities for
the quarter of $36.5 million, decreased by $20.4 million over the
prior year period, primarily as a result of lower comparable cash
collections and customer advances and billings in excess of costs,
partially offset by net income growth, increases in accounts
payable and accrued salaries.
As of September 27, 2020, PAE had cash and cash
equivalents totaling $145.4 million and had no outstanding
borrowings on its asset-based revolving loan credit facility.
Business Development Highlights and
Contract Awards
Net bookings totaled $1.4 billion in the third
quarter and $2.8 billion over the trailing 12 months (“TTM”),
representing a book to bill ratio of 2.1x and 1.1x for the third
quarter and TTM, respectively. TTM net bookings exclude the
previously announced $1.3 billion U.S. Customs and Border
Protection award previously protested by another company.
Notable third quarter awards received
include:
Notable New Business Awards:
- U.S. Navy Integrated
Training Environment
Initiative:
PAE’s GMS segment was awarded an approximate $225 million,
five-year subcontract with Alion Science and Technology to provide
an integrated training platform across multiple physical locations
throughout the Navy training enterprise.
- Navajo Nation COVID-19
Response: PAE’s GMS segment was awarded
an approximate $50 million contract with the Navajo Nation to serve
as the joint logistics and medical integrator for the Navajo
Department of Health’s COVID-19 response.
- DTRA CTRIC International
Counterproliferation Program and Proliferation Security
Initiative:
PAE’s NSS segment was awarded a contract valued at $17 million to
deliver global capacity-building initiatives to strengthen partner
weapons of mass destruction interdiction capabilities through
training and exercise events.
Notable Recompete Award:
- U.S. Navy
Guam Base Operations Support:
DZSP 21 LLC, a consolidated venture between PAE and Parsons
Corporation (NYSE: PSN), was awarded a $545 million facility and
base operating support services contract by the Naval Facilities
Engineering Command, Pacific, at Joint Region Marianas, Guam.
Notable IDIQ Award:
- Aircraft Maintenance
Enterprise Solution: PAE’s GMS segment won a seat on the
$14 billion multiple-award, IDIQ contract for Aircraft Maintenance
Enterprise Solution—a strategic sourcing vehicle for Air Force-wide
contracted aircraft maintenance. PAE is one of eight awardees on
the contract vehicle.
The Company’s backlog at the end of the quarter
was $7.0 billion, of which approximately $1.7 billion was
funded.
Debt Refinancing
On October 19, 2020, the Company refinanced its
existing credit agreements and entered into new senior secured
credit facilities (the “New Credit Agreements”). The New Credit
Agreements establish a $740 million term loan facility maturing in
October 2027 priced at LIBOR plus a spread of 4.50%, a $150 million
delayed draw term loan facility maturing in October 2027 priced at
LIBOR plus a spread of 4.50%, and a $175 million senior secured
revolving credit facility maturing in October 2025 priced at LIBOR
plus a spread of 1.75% to 2.25%.
Agreement to Acquire CENTRA Technology,
Inc.
On October 26, 2020, PAE announced that its
indirect wholly owned subsidiary has entered into a definitive
agreement to acquire CENTRA Technology, Inc. (“CENTRA”), a leading
independent provider of high-end intelligence analysis, information
analytics and other advanced technology solutions, for
approximately $208 million (net of tax benefits) in cash. The press
release and investor presentation discussing the acquisition are
available on the PAE Investor Relations website.
2020 Financial Outlook
As a result of the Company's financial results
for the first nine months of 2020 and its updated outlook for the
remainder of the year, the Company is revising its fiscal year 2020
guidance as follows:
(in millions) |
Revised 2020 Guidance |
Previous 2020 Guidance |
Revenue |
$2,625 - $2,675 |
$2,600 - $2,700 |
Adjusted EBITDA |
$172 - $178 |
$172 - $178 |
Free Cash Flow |
At least $110 |
At least $100 |
The 2020 Financial Outlook does not incorporate
anticipated financial results of CENTRA.
“Despite continued impacts from COVID-19, we are
maintaining and narrowing our revenue guidance and reiterating
Adjusted EBITDA guidance for the year. In addition, we are modestly
increasing our Free Cash Flow outlook driven by increased
profitability on existing business and strong working capital
management,” said PAE Executive Vice President and Chief Financial
Officer Charlie Peiffer.
Adjusted EBITDA is a non-GAAP financial measure.
The Company is not providing a quantitative reconciliation of
adjusted EBITDA in its 2020 financial guidance in reliance on the
“unreasonable efforts” exception for forward-looking non-GAAP
measures set forth in SEC rules because certain financial
information, the probable significance of which cannot be
determined, is not available and cannot be reasonably estimated
without unreasonable effort and expense. In this regard, the
Company does not provide a reconciliation of forward-looking
adjusted EBITDA (non-GAAP) to GAAP net income, due to the inherent
difficulty in forecasting and quantifying certain amounts that are
necessary for such reconciliation. Because certain deductions for
non-GAAP exclusions used to calculate projected net income may vary
significantly based on actual events, the Company is not able to
forecast on a GAAP basis with reasonable certainty all deductions
needed in order to provide a GAAP calculation of projected net
income at this time. The amounts of these deductions may be
material and, therefore, could result in projected GAAP net income
being materially less than is indicated by estimated adjusted
EBITDA (non-GAAP). In addition, the Company does not
provide a reconciliation of forward-looking free cash flow
(non-GAAP) to GAAP cash flows provided by operating activities and
GAAP cash used in investing activities, due to the inherent
difficulty in forecasting and quantifying certain amounts that are
necessary for such reconciliation. Because certain line items used
to calculate projected cash flows provided by operating activities
and cash used in investing activities may vary significantly based
on actual events, the Company is not able to forecast on a GAAP
basis with reasonable certainty all line items needed in order to
provide a GAAP calculation of projected free cash flow at this
time.
Conference Call Information
As previously announced, PAE will host a conference call and
webcast today, November 5, 2020, at 8 a.m. ET. Management will
review the Company's third-quarter 2020 financial results, followed
by a question-and-answer session. Listeners will be able to access
a presentation summarizing the third-quarter 2020 results on the
PAE Investor Relations website.
Interested parties are invited to join the webcast from the PAE
Investor Relations website and may register for an email reminder
using the “Events and Presentations” link. Due to the COVID-19
pandemic, teleconference providers globally are experiencing
significant increases in conference call volume. As such, the
Company recommends that parties participate by joining the webcast.
Alternatively, if the webcast is not practical, attendees may
listen to the conference call by dialing (855) 982-6676 and
entering conference ID 4949057. The international dial-in access
number is (614) 999-9188.
The Company will post an archive of the webcast following the
call on the PAE Investor Relations website.
Forward-Looking Statements
This press release may contain a number of “forward-looking
statements” as defined in the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, but are not
limited to, statements about PAE’s possible or assumed future
results of operations and cash flows, financial results, business
strategies, debt levels, competitive position, industry
environment, potential growth opportunities, potential impact of
COVID-19, effects of regulation, backlog, estimation of resources
for contracts, risks related to IDIQ contracts, risks related to
integration of acquisitions, strategy for and management of growth,
needs for additional capital, risks related to U.S. government
contracting generally, including congressional approval of
appropriations, and bid protests. These forward-looking statements
are based on PAE’s management’s current expectations, estimates,
projections and beliefs, as well as a number of assumptions
concerning future events. When used in this press release, the
words “estimates,” “projected,” “expects,” “anticipates,”
“forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,”
“will,” “should,” “future,” “propose” and variations of these words
or similar expressions (or the negative versions of such words or
expressions) are intended to identify forward-looking
statements.
These forward-looking statements are not guarantees of future
performance, conditions or results, and involve a number of known
and unknown risks, uncertainties, assumptions and other important
factors, many of which are outside PAE’s management’s control, that
could cause actual results to differ materially from the results
discussed in the forward-looking statements.
Forward-looking statements included in this release speak only
as of the date of this release. PAE does not undertake any
obligation to update its forward-looking statements to reflect
events or circumstances after the date of this release except as
may be required by the federal securities laws.
About PAE
For 65 years, PAE has tackled the world’s toughest challenges to
deliver agile and steadfast solutions to the U.S. government and
its allies. With a global workforce of approximately 20,000 on all
seven continents and in approximately 60 countries, PAE delivers a
broad range of operational support services to meet the critical
needs of our clients. Our headquarters is in Falls Church,
Virginia. Find us online at pae.com, on Facebook, Twitter and
LinkedIn.
For investor inquiries regarding PAE:
Mark ZindlerVice President Investor
RelationsPAE703-717-6017mark.zindler@pae.com
For media inquiries regarding PAE:
Terrence NowlinSenior Communications
ManagerPAE703-656-7423terrence.nowlin@pae.com
PAE IncorporatedCondensed Consolidated Statement
of Operations (Unaudited)(In thousands, except per share data)
|
Three Months Ended |
|
Nine Months Ended |
|
September 27, |
|
September 29, |
|
September 27, |
|
September 29, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues |
$ |
666,240 |
|
|
|
$ |
697,717 |
|
|
|
$ |
1,926,795 |
|
|
|
$ |
2,066,808 |
|
|
Cost of revenues |
512,877 |
|
|
|
565,703 |
|
|
|
1,474,763 |
|
|
|
1,623,634 |
|
|
Selling, general and
administrative expenses |
119,168 |
|
|
|
133,215 |
|
|
|
361,945 |
|
|
|
394,689 |
|
|
Amortization of intangible
assets |
8,047 |
|
|
|
8,176 |
|
|
|
24,141 |
|
|
|
25,029 |
|
|
Total operating expenses |
640,092 |
|
|
|
707,094 |
|
|
|
1,860,849 |
|
|
|
2,043,352 |
|
|
Program profit(loss) |
26,148 |
|
|
|
(9,377 |
) |
|
|
65,946 |
|
|
|
23,456 |
|
|
Other income (loss), net |
2,384 |
|
|
|
(1,148 |
) |
|
|
4,338 |
|
|
|
6,530 |
|
|
Operating income(loss) |
28,532 |
|
|
|
(10,525 |
) |
|
|
70,284 |
|
|
|
29,986 |
|
|
Interest expense, net |
(13,607 |
) |
|
|
(20,983 |
) |
|
|
(48,312 |
) |
|
|
(65,260 |
) |
|
Income (loss) before income
taxes |
14,925 |
|
|
|
(31,508 |
) |
|
|
21,972 |
|
|
|
(35,274 |
) |
|
Expense (benefit) from income
taxes |
4,194 |
|
|
|
117 |
|
|
|
(767 |
) |
|
|
(1,877 |
) |
|
Net income (loss) |
10,731 |
|
|
|
(31,625 |
) |
|
|
22,739 |
|
|
|
(33,397 |
) |
|
Noncontrolling interest in
earnings of ventures |
413 |
|
|
|
545 |
|
|
|
1,344 |
|
|
|
1,819 |
|
|
Net income (loss) attributed
to PAE Incorporated |
$ |
10,318 |
|
|
|
$ |
(32,170 |
) |
|
|
$ |
21,395 |
|
|
|
$ |
(35,216 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributed to PAE
Incorporated: |
|
|
|
|
|
|
|
Basic |
$ |
0.11 |
|
|
|
$ |
(1.52 |
) |
|
|
$ |
0.26 |
|
|
|
$ |
(1.67 |
) |
|
Diluted |
$ |
0.11 |
|
|
|
$ |
(1.52 |
) |
|
|
$ |
0.26 |
|
|
|
$ |
(1.67 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
Basic |
92,070,306 |
|
|
|
21,127,823 |
|
|
|
81,323,258 |
|
|
|
21,127,823 |
|
|
Diluted |
93,392,565 |
|
|
|
21,127,823 |
|
|
|
82,115,825 |
|
|
|
21,127,823 |
|
|
PAE IncorporatedCondensed Consolidated Balance
Sheets (Unaudited)(In thousands, except share and par value
amounts)
|
September 27, |
|
December 31, |
|
2020 |
|
2019 |
|
|
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
145,446 |
|
|
|
$ |
68,035 |
|
|
Accounts receivable, net |
445,429 |
|
|
|
442,180 |
|
|
Prepaid expenses and other
current assets |
44,363 |
|
|
|
43,549 |
|
|
Total current
assets |
635,238 |
|
|
|
553,764 |
|
|
Property and equipment,
net |
25,696 |
|
|
|
30,404 |
|
|
Deferred income taxes,
net |
13,419 |
|
|
|
3,212 |
|
|
Investments |
18,961 |
|
|
|
17,925 |
|
|
Goodwill |
409,588 |
|
|
|
409,588 |
|
|
Intangible assets, net |
156,323 |
|
|
|
180,464 |
|
|
Operating lease right-of-use
assets, net |
159,975 |
|
|
|
162,184 |
|
|
Other noncurrent assets |
9,762 |
|
|
|
13,758 |
|
|
Total assets |
$ |
1,428,962 |
|
|
|
$ |
1,371,299 |
|
|
Liabilities and stockholders'
equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
140,515 |
|
|
|
$ |
124,661 |
|
|
Accrued expenses |
103,025 |
|
|
|
102,315 |
|
|
Customer advances and billings
in excess of costs |
60,390 |
|
|
|
51,439 |
|
|
Salaries, benefits and payroll
taxes |
141,537 |
|
|
|
130,633 |
|
|
Accrued taxes |
13,604 |
|
|
|
18,488 |
|
|
Current portion of long-term
debt, net |
23,044 |
|
|
|
22,007 |
|
|
Operating lease liabilities,
current portion |
40,979 |
|
|
|
36,997 |
|
|
Other current liabilities |
31,528 |
|
|
|
30,893 |
|
|
Total current liabilities |
554,622 |
|
|
|
517,433 |
|
|
Long-term debt, net |
584,038 |
|
|
|
727,930 |
|
|
Long-term operating lease
liabilities |
120,883 |
|
|
|
129,244 |
|
|
Other long-term
liabilities |
7,410 |
|
|
|
8,601 |
|
|
Total liabilities |
1,266,953 |
|
|
|
1,383,208 |
|
|
Stockholders' equity: |
|
|
|
Preferred stock, $0.0001 par
value per share, 1,000,000 shares authorized; no shares issued and
outstanding |
— |
|
|
|
— |
|
|
Common stock, $0.0001 par
value per share: 210,000,000 shares authorized; 92,040,654 and
21,127,823 shares issued and outstanding as of September 27, 2020
and December 31, 2019, respectively |
9 |
|
|
|
2 |
|
|
Additional paid-in
capital |
250,805 |
|
|
|
101,743 |
|
|
Accumulated deficit |
(123,975 |
) |
|
|
(145,371 |
) |
|
Accumulated other
comprehensive loss |
153 |
|
|
|
(134 |
) |
|
Total
PAE Incorporated stockholders' equity |
126,992 |
|
|
|
(43,760 |
) |
|
Noncontrolling interests |
35,017 |
|
|
|
31,851 |
|
|
Total liabilities
and stockholders' equity |
$ |
1,428,962 |
|
|
|
$ |
1,371,299 |
|
|
PAE IncorporatedCondensed Consolidated Statements
of Cash Flows (Unaudited) (In thousands)
|
Three Months Ended |
|
September 27, |
|
September 29, |
|
2020 |
|
2019 |
Operating
activities |
|
|
|
Net income (loss) |
$ |
10,730 |
|
|
|
$ |
(31,625 |
) |
|
Adjustments to reconcile net
loss to net cash provided by operating activities: |
|
|
|
Depreciation of property and equipment |
2,191 |
|
|
|
3,167 |
|
|
Amortization of intangible assets |
8,047 |
|
|
|
8,176 |
|
|
Amortization of debt issuance cost |
1,739 |
|
|
|
2,014 |
|
|
Stock-based
compensation |
4,318 |
|
|
|
— |
|
|
Net
undistributed income from unconsolidated ventures |
(1,794 |
) |
|
|
(69 |
) |
|
Deferred
income taxes, net |
2,066 |
|
|
|
(1,500 |
) |
|
Other
non-cash activities, net |
(22 |
) |
|
|
32,274 |
|
|
Changes in
operating assets and liabilities, net: |
|
|
|
Accounts receivable,
net |
(13,084 |
) |
|
|
37,356 |
|
|
Accounts payable |
33,399 |
|
|
|
(9,968 |
) |
|
Accrued expenses |
(5,593 |
) |
|
|
17,383 |
|
|
Customer advances and
billings in excess of costs |
(10,359 |
) |
|
|
7,882 |
|
|
Salaries, benefits and
payroll taxes |
6,665 |
|
|
|
(8,276 |
) |
|
Inventories, net |
(124 |
) |
|
|
(144 |
) |
|
Prepaid expenses and
other current assets |
(1,153 |
) |
|
|
1,595 |
|
|
Other current and
noncurrent liabilities |
5,172 |
|
|
|
(7,592 |
) |
|
Investments |
1,092 |
|
|
|
1,545 |
|
|
Other noncurrent
assets |
(5,697 |
) |
|
|
3,662 |
|
|
Accrued taxes |
(1,057 |
) |
|
|
1,074 |
|
|
Net cash provided by operating activities |
36,536 |
|
|
|
56,954 |
|
|
Investing
activities |
|
|
|
Expenditures for property and
equipment |
(1,031 |
) |
|
|
(2,788 |
) |
|
Other investing activities,
net |
(109 |
) |
|
|
179 |
|
|
Net cash used in
investing activities |
(1,140 |
) |
|
|
(2,609 |
) |
|
Financing
activities |
|
|
|
Net contributions from
noncontrolling interests |
145 |
|
|
|
— |
|
|
Borrowings on long-term
debt |
266 |
|
|
|
92,090 |
|
|
Repayments on long-term
debt |
(7,720 |
) |
|
|
(109,590 |
) |
|
Distribution to selling
stockholders |
(20,171 |
) |
|
|
— |
|
|
Other financing activities,
net |
— |
|
|
|
— |
|
|
Net cash used in
financing activities |
(27,480 |
) |
|
|
(17,500 |
) |
|
Effect of exchange rate
changes on cash and cash equivalents |
(939 |
) |
|
|
(281 |
) |
|
Net increase
(decrease) in cash and cash equivalents |
6,977 |
|
|
|
36,564 |
|
|
Cash and cash equivalents at
beginning of period |
138,469 |
|
|
|
55,380 |
|
|
Cash and cash
equivalents at end of period |
$ |
145,446 |
|
|
|
$ |
91,944 |
|
|
|
|
|
|
Supplemental cash flow
information |
|
|
|
Cash paid for interest |
$ |
11,807 |
|
|
|
$ |
1,090 |
|
|
Cash paid for taxes |
$ |
2,508 |
|
|
|
$ |
2,039 |
|
|
PAE IncorporatedCondensed Consolidated Statements
of Cash Flows (Unaudited) (continued) (In thousands)
|
Nine Months Ended |
|
September 27, |
|
September 29, |
|
2020 |
|
2019 |
Operating
activities |
|
|
|
Net income (loss) |
$ |
22,739 |
|
|
|
$ |
(33,397 |
) |
|
Adjustments to reconcile net
loss to net cash provided by operating activities: |
|
|
|
Depreciation of property and equipment |
7,263 |
|
|
|
9,468 |
|
|
Amortization of intangible assets |
24,141 |
|
|
|
25,029 |
|
|
Amortization of debt issuance cost |
9,560 |
|
|
|
6,096 |
|
|
Stock-Based
compensation |
8,018 |
|
|
|
— |
|
|
Net
undistributed income from unconsolidated ventures |
(3,533 |
) |
|
|
(2,253 |
) |
|
Deferred
income taxes, net |
(11,229 |
) |
|
|
(1,872 |
) |
|
Other
non-cash activities, net |
382 |
|
|
|
35,598 |
|
|
Changes in
operating assets and liabilities, net: |
|
|
|
Accounts receivable,
net |
(3,477 |
) |
|
|
65,752 |
|
|
Accounts payable |
15,852 |
|
|
|
1,310 |
|
|
Accrued expenses |
765 |
|
|
|
12,217 |
|
|
Customer advances and
billings in excess of costs |
8,923 |
|
|
|
34,179 |
|
|
Salaries, benefits and
payroll taxes |
10,975 |
|
|
|
1,569 |
|
|
Inventories, net |
2,291 |
|
|
|
(2,195 |
) |
|
Prepaid expenses and
other current assets |
(4,409 |
) |
|
|
1,050 |
|
|
Other current and
noncurrent liabilities |
71 |
|
|
|
(17,172 |
) |
|
Investments |
2,793 |
|
|
|
3,314 |
|
|
Other noncurrent
assets |
5,903 |
|
|
|
(6,289 |
) |
|
Accrued taxes |
(4,904 |
) |
|
|
(3,527 |
) |
|
Net cash provided by operating activities |
92,124 |
|
|
|
128,877 |
|
|
Investing
activities |
|
|
|
Expenditures for property and
equipment |
(2,628 |
) |
|
|
(8,421 |
) |
|
Other investing activities,
net |
(72 |
) |
|
|
2,221 |
|
|
Net cash used in
investing activities |
(2,700 |
) |
|
|
(6,200 |
) |
|
Financing
activities |
|
|
|
Net contributions from
noncontrolling interests |
2,095 |
|
|
|
5,400 |
|
|
Borrowings on long-term
debt |
60,734 |
|
|
|
161,409 |
|
|
Repayments on long-term
debt |
(212,184 |
) |
|
|
(246,411 |
) |
|
Payments of debt issuance
costs |
(964 |
) |
|
|
— |
|
|
Recapitalization from merger
with Gores III |
605,713 |
|
|
|
— |
|
|
Payment of underwriting and
transaction costs |
(27,267 |
) |
|
|
— |
|
|
Distribution to selling
stockholders |
(439,719 |
) |
|
|
— |
|
|
Other financial activities,
net |
(292 |
) |
|
|
(742 |
) |
|
Net cash used in
financing activities |
(11,884 |
) |
|
|
(80,344 |
) |
|
Effect of exchange rate
changes on cash and cash equivalents |
(129 |
) |
|
|
(1,486 |
) |
|
Net increase
(decrease) in cash and cash equivalents |
77,411 |
|
|
|
40,847 |
|
|
Cash and cash equivalents at
beginning of period |
68,035 |
|
|
|
51,097 |
|
|
Cash and cash
equivalents at end of period |
$ |
145,446 |
|
|
|
$ |
91,944 |
|
|
|
|
|
|
Supplemental cash flow
information |
|
|
|
Cash paid for interest |
$ |
35,085 |
|
|
|
$ |
40,628 |
|
|
Cash paid for taxes |
$ |
5,304 |
|
|
|
$ |
6,936 |
|
|
PAE INCORPORATEDSEGMENT DATA(Amounts in
thousands)
|
Three Months Ended |
|
Nine Months Ended |
|
September 27, |
|
September 29, |
|
September 27, |
|
September 29, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues |
|
|
|
|
|
|
|
GMS |
$ |
521,346 |
|
|
|
$ |
535,635 |
|
|
|
$ |
1,486,643 |
|
|
|
$ |
1,566,138 |
|
|
NSS |
144,894 |
|
|
|
162,082 |
|
|
|
440,152 |
|
|
|
500,670 |
|
|
Consolidated revenues |
$ |
666,240 |
|
|
|
$ |
697,717 |
|
|
|
$ |
1,926,795 |
|
|
|
$ |
2,066,808 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
GMS |
$ |
31,401 |
|
|
|
$ |
26,000 |
|
|
|
$ |
75,541 |
|
|
|
$ |
77,449 |
|
|
NSS |
5,679 |
|
|
|
(26,402 |
) |
|
|
17,770 |
|
|
|
(23,270 |
) |
|
Corporate |
(8,548 |
) |
|
|
(10,123 |
) |
|
|
(23,027 |
) |
|
|
(24,193 |
) |
|
Consolidated operating
income |
$ |
28,532 |
|
|
|
$ |
(10,525 |
) |
|
|
$ |
70,284 |
|
|
|
$ |
29,986 |
|
|
|
|
|
|
|
|
|
|
Amortization of intangible
assets |
|
|
|
|
|
|
|
GMS |
$ |
4,115 |
|
|
|
$ |
4,140 |
|
|
|
$ |
12,346 |
|
|
|
$ |
12,539 |
|
|
NSS |
3,932 |
|
|
|
4,036 |
|
|
|
11,795 |
|
|
|
12,490 |
|
|
Consolidated amortization of
intangible assets |
$ |
8,047 |
|
|
|
$ |
8,176 |
|
|
|
$ |
24,141 |
|
|
|
$ |
25,029 |
|
|
PAE INCORPORATEDBACKLOG(Amounts in thousands)
|
As of |
|
As of |
|
September 27, |
|
December 31, |
|
2020 |
|
2019 |
Global Mission Services: |
|
|
|
Funded backlog |
$ |
1,297,983 |
|
|
$ |
1,173,196 |
|
Unfunded backlog |
4,196,193 |
|
|
3,393,081 |
|
Total GMS backlog |
$ |
5,494,176 |
|
|
$ |
4,566,277 |
|
|
|
|
|
National Security
Solutions: |
|
|
|
Funded backlog |
$ |
352,257 |
|
|
$ |
311,214 |
|
Unfunded backlog |
1,141,423 |
|
|
1,474,309 |
|
Total NSS backlog |
$ |
1,493,680 |
|
|
$ |
1,785,523 |
|
|
|
|
|
Total: |
|
|
|
Funded backlog |
$ |
1,650,240 |
|
|
$ |
1,484,410 |
|
Unfunded backlog |
5,337,616 |
|
|
4,867,390 |
|
Total backlog |
$ |
6,987,856 |
|
|
$ |
6,351,800 |
|
Backlog represents the estimated amount of
future revenues to be recognized under negotiated contracts and
task orders as work is performed and excludes contract awards which
have been protested by competitors until the protest is resolved in
our favor. PAE segregates backlog into two categories, funded
backlog and unfunded backlog.
Funded backlog refers to the value on contracts
for which funding is appropriated less revenues previously
recognized on these contracts.
Unfunded backlog represents the estimated future
revenues to be earned from negotiated contracts for which funding
has not been appropriated or authorized, and unexercised priced
contract options. Unfunded backlog does not include any estimate of
future potential task orders expected to be awarded under
indefinite delivery, indefinite quantity, U.S. General Services
Administration schedules or other master agreement contract
vehicles.
Non-GAAP Financial Measures
The Company uses EBITDA, adjusted EBITDA,
adjusted EBITDA margin, adjusted operating income per segment and
adjusted operating income margin per segment as supplemental
non-GAAP measures of performance. PAE defines EBITDA as net income
excluding (i) interest expense, (ii) provision for or benefit from
income taxes and (iii) depreciation and amortization.
Adjusted EBITDA and adjusted operating income per segment exclude
certain amounts included in EBITDA as provided in the
reconciliations provided herein. Adjusted EBITDA is equal to the
sum of adjusted operating income for each segment. Adjusted EBITDA
margin is calculated as adjusted EBITDA divided by revenues
expressed as a percentage and adjusted operating income margin is
calculated as adjusted operating income divided by revenues
expressed as a percentage.
For 2020 and 2019, the Company’s net income was
impacted by certain events that do not reflect the cost of our
operations and which may affect the period-over-period assessment
of operating results. The non-GAAP financial measures demonstrate
the impact of these events.
During 2019 substantially all the assets of PAE
ISR LLC (“ISR”) were sold. The Company believes that it is
helpful for investors to be able to evaluate the performance of
PAE’s underlying business based on excluding ISR’s operations
during the year. To calculate the loss, adjusted EBITDA and
adjusted operating income without ISR, the Company removed ISR from
its revenue and loss metrics for the third quarter of 2019.
These non-GAAP measures of performance are used
by management to conduct and evaluate its business during its
regular review of operating results for the periods
presented. Management and the Company’s Board utilize these
non-GAAP measures to make decisions about the use of the Company’s
resources, analyze performance between periods, develop internal
projections and measure management performance. PAE believes these
non-GAAP measures are useful to investors in evaluating the
Company’s ongoing operating and financial results and understanding
how such results compare with the Company’s historical
performance.
In addition to the above non-GAAP financial
measures, the Company has included backlog, net bookings, and
book-to-bill ratio in this release. Backlog is an operational
measure representing the estimated amount of future revenues to be
recognized under negotiated contracts and task orders as work is
performed and excludes contract awards which have been protested by
competitors until the protest is resolved in our favor. Net
bookings are an operational measure representing the change in
backlog between reporting periods plus reported revenue for the
period and book-to-bill ratio is an operational measure
representing net bookings divided by reported revenues for the same
period. We believe backlog, net bookings and book-to-bill ratio are
useful metrics for investors because they are an important measure
of business development performance and revenue growth. These
metrics are used by management to conduct and evaluate its business
during its regular review of operating results for the periods
presented.
Reconciliation of GAAP net income to Adjusted EBITDA, a
non-GAAP Measure - Company |
(in thousands) |
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, |
|
September 29, |
|
|
|
2020 |
|
2019 |
|
Change |
Net (loss) income attributed to PAE Incorporated |
$ |
10,318 |
|
|
$ |
(32,170 |
) |
|
|
$ |
42,488 |
|
|
Interest expense, net |
13,607 |
|
|
20,986 |
|
|
|
(7,379 |
) |
|
Provision for taxes |
4,194 |
|
|
117 |
|
|
|
4,077 |
|
|
Depreciation and
amortization |
10,239 |
|
|
11,342 |
|
|
|
(1,103 |
) |
|
M&A costs |
2,642 |
|
|
6,899 |
|
|
|
(4,257 |
) |
|
Disposal of assets |
— |
|
|
32,016 |
|
|
|
(32,016 |
) |
|
Non-core expenses (1) |
464 |
|
|
2,155 |
|
|
|
(1,691 |
) |
|
Non-cash items (2) |
— |
|
|
1,456 |
|
|
|
(1,456 |
) |
|
Forward loss accruals (3) |
— |
|
|
3,323 |
|
|
|
(3,323 |
) |
|
Sponsor fees (4) |
— |
|
|
1,250 |
|
|
|
(1,250 |
) |
|
Equity based compensation
(5) |
4,039 |
|
|
— |
|
|
|
4,039 |
|
|
Other (6) |
705 |
|
|
2,591 |
|
|
|
(1,886 |
) |
|
Adjusted EBITDA |
$ |
46,208 |
|
|
$ |
49,965 |
|
|
|
$ |
(3,757 |
) |
|
Adjusted EBITDA margin |
6.9 |
% |
|
7.2 |
|
% |
|
|
Reconciliation of GAAP operating income to
adjusted operating income, a non-GAAP Measure -
GMS |
(in thousands) |
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, |
|
September 29, |
|
|
|
2020 |
|
2019 |
|
Change |
Operating income |
$ |
31,401 |
|
|
|
$ |
26,000 |
|
|
|
$ |
5,401 |
|
|
Corp operating loss allocation
(7) |
(6,689 |
) |
|
|
(7,796 |
) |
|
|
1,107 |
|
|
Corporate NCI allocation |
(471 |
) |
|
|
(608 |
) |
|
|
137 |
|
|
Depreciation and
amortization |
5,880 |
|
|
|
6,727 |
|
|
|
(847 |
) |
|
M&A costs |
1,482 |
|
|
|
5,296 |
|
|
|
(3,814 |
) |
|
Disposal of assets |
— |
|
|
|
— |
|
|
|
— |
|
|
Non-core expenses (1) |
363 |
|
|
|
677 |
|
|
|
(314 |
) |
|
Non-cash items (2) |
— |
|
|
|
(26 |
) |
|
|
26 |
|
|
Forward loss accruals (3) |
— |
|
|
|
(341 |
) |
|
|
341 |
|
|
Sponsor fees (4) |
— |
|
|
|
960 |
|
|
|
(960 |
) |
|
Equity based compensation
(5) |
3,161 |
|
|
|
— |
|
|
|
3,161 |
|
|
Other (6) |
552 |
|
|
|
1,989 |
|
|
|
(1,437 |
) |
|
Adjusted operating income |
$ |
35,679 |
|
|
|
$ |
32,878 |
|
|
|
$ |
2,801 |
|
|
Adjusted operating income
margin |
6.8 |
|
% |
|
6.1 |
|
% |
|
|
Reconciliation of GAAP operating income to adjusted
operating income, a non-GAAP Measure - NSS |
(in thousands) |
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, |
|
September 29, |
|
|
|
2020 |
|
2019 |
|
Change |
Operating income |
$ |
5,679 |
|
|
|
$ |
(26,402 |
) |
|
|
$ |
32,081 |
|
|
Corp operating loss allocation
(7) |
(1,859 |
) |
|
|
(2,327 |
) |
|
|
468 |
|
|
Corporate NCI allocation |
58 |
|
|
|
64 |
|
|
|
(6 |
) |
|
Depreciation and
amortization |
4,359 |
|
|
|
4,615 |
|
|
|
(256 |
) |
|
M&A costs |
1,160 |
|
|
|
1,603 |
|
|
|
(443 |
) |
|
Disposal of assets |
— |
|
|
|
32,016 |
|
|
|
(32,016 |
) |
|
Non-core expenses (1) |
101 |
|
|
|
1,479 |
|
|
|
(1,378 |
) |
|
Non-cash items (2) |
— |
|
|
|
1,482 |
|
|
|
(1,482 |
) |
|
Forward loss accruals (3) |
— |
|
|
|
3,665 |
|
|
|
(3,665 |
) |
|
Sponsor fees (4) |
— |
|
|
|
290 |
|
|
|
(290 |
) |
|
Equity based compensation
(5) |
878 |
|
|
|
— |
|
|
|
878 |
|
|
Other (6) |
153 |
|
|
|
602 |
|
|
|
(449 |
) |
|
Adjusted operating income |
$ |
10,529 |
|
|
|
$ |
17,087 |
|
|
|
$ |
(6,558 |
) |
|
Adjusted operating income
margin |
7.3 |
|
% |
|
10.5 |
|
% |
|
|
(1) Non-core expenses include certain
professional fees, gain/loss on disposal of fixed assets,
settlements and certain severance costs.
(2) Non-cash items include idle facilities
charges for facilities the Company no longer occupies, pension
curtailment costs and unrealized FX gains/losses.
(3) Forward loss accruals include adjustments
related to future expected losses recognized in the current
period.
(4) Sponsor fees include management fees and out
of pocket expenses paid to the Company’s former private equity
sponsor for general management, transactional, financial and other
corporate advisory services.
(5) Equity based compensation reflects costs
associated with the issuance of restricted and performance shares
to PAE employees and independent directors.
(6) Other costs include adjustments related to
adjustments to offset capitalized internal labor and state income
taxes that were not captured in reported income tax expense.
(7) Corporate operating loss allocation includes
certain selling, general and administrative, depreciation and
amortization costs that cannot be assigned to a specific segment;
this cost is allocated based on proportionate segment revenues for
the period in which the cost is incurred.
1 Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP
financial measures. A reconciliation of adjusted EBITDA and
adjusted EBITDA margin to their most directly comparable GAAP
financial measure, net income (loss), and a discussion of Adjusted
EBITDA, Adjusted EBITDA margins and other non-GAAP financial
measures, is contained in the “Non-GAAP Financial Measures” section
of this release.
2 GMS adjusted operating income and adjusted operating income
margin are non-GAAP financial measures. A reconciliation of
GMS adjusted operating income and adjusted operating income margin
to their most directly comparable GAAP financial measure, GMS
operating income (loss), is contained in the “Non-GAAP Financial
Measures” section of this release.
3 NSS adjusted operating income and adjusted operating income
margin are non-GAAP financial measures. A reconciliation of NSS
adjusted operating income and adjusted operating income margin to
their most directly comparable GAAP financial measure, NSS
operating income (loss), is contained in the “Non-GAAP Financial
Measures” section of this release.
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