PAE Incorporated (“PAE” or the “Company”) (NASDAQ: PAE, PAEWW)
today announced fourth-quarter and full year 2020 financial and
operating results.
CEO Commentary
PAE President and CEO John Heller said, “We
delivered strong organic year-over-year revenue growth of 7.4%
(before the impact of acquisitions) and profitability that exceeded
expectations for the quarter. Despite the challenges presented by
the pandemic in 2020, we successfully executed against our
objectives of increasing profit margins, lowering our cost of debt
and completing strategic, accretive acquisitions. We have favorable
tailwinds entering 2021 with recent flagship contract wins,
including positions on the Global Support Strategy 2.0 and MEGA V
IDIQ contracts, along with the anticipated successful integrations
of CENTRA and Metis.”
COVID-19 Financial Impact
We estimate the fourth-quarter negative impact
from the COVID-19 pandemic to be approximately $62.1 million of
revenue and an immaterial net impact to adjusted EBITDA and cash
flow provided by operations. 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
support our customers in a resilient market.
Fourth-Quarter 2020 Results
Revenues for the quarter of $787.8 million
increased $90.7 million, or 13.0%, compared to the prior year
period. The increase was attributable to $39.2 million of revenue
from recent acquisitions and by a net increase of $113.6 million
from a change in contract volume, non-labor revenue and new
business, including COVID relief opportunities, which increase was
partially offset by a negative $62.1 million impact from the
COVID-19 pandemic, of which approximately $42.7 million was
non-labor and $19.4 million was labor. The Global Mission Services
and National Security Solutions segments’ revenues increased by
approximately $60.2 million and $30.5 million, respectively.
Operating income for the quarter was $20.5
million, compared with an operating loss of $3.2 million in the
prior year period. The increase resulted from higher revenue volume
in the current period, improved program performance and lower
selling, general and administrative expenses as a percentage of
revenue.
The net loss attributed to PAE for the quarter
was $6.1 million, or $0.07 per diluted share, compared with a net
loss of approximately $14.6 million, or $0.69 per diluted share in
the prior year period. The improvement in net loss for the fourth
quarter of 2020, was primarily driven by factors driving the
increase in operating income.
Adjusted EBITDA for the quarter was $44.0
million, or 5.6% of revenue, compared to $37.5 million, or 5.4% of
revenue, in the prior year period. Excluding the contributions from
the recent acquisitions, PAE generated $41.3 million of adjusted
EBITDA. Adjusted EBITDA and margins increased due to higher revenue
volume, improved program performance and lower selling, general and
administrative expenses as a percentage of revenue.
Global Mission ServicesGMS revenues for the
quarter of $593.8 million increased $60.2 million, or 11.3%,
compared to the prior year period. The increase was attributable to
a $115.7 million net increase in contract volume, non-labor revenue
and new business including COVID-19 relief opportunities, which
increase was partially offset by a $55.5 million impact from the
COVID-19 pandemic, of which approximately $39.4 million was
non-labor and $16.1 million was labor.
GMS operating income for the quarter was $4.5
million, compared to $15.4 million in the prior-year period. The
decline was driven by higher selling, general and administrative
expense, which decrease was partially offset by higher revenue
volume and an increase in consolidated venture income.
GMS adjusted operating income2 for the quarter
was $28.2 million, or 4.8% of revenue, compared to $33.5 million,
or an operating margin of 6.3% of revenue, in the prior year
period. GMS adjusted operating income and margins2 declined due to
higher selling, general and administrative expense, which decrease
was partially offset by higher revenue volume.
National Security SolutionsNSS revenues for the
quarter of $194.0 million increased $30.5 million, or 18.7%,
compared to the prior year period. The increase was attributable to
$39.2 million of revenue from recent acquisitions and by a net
increase of $2.1 million from change in contract volume and new
business, which increase was partially offset by a $6.6 million
impact from the COVID-19 pandemic, of which approximately $3.3
million was non-labor and $3.3 million was labor.
NSS operating income for the quarter was $4.3
million, compared to an operating loss of $13.7 million in the
prior year period. The increase resulted from higher revenue
volume, improved program performance and lower selling, general and
administrative expense.
NSS adjusted operating income3 for the quarter
was $15.7 million, or an operating margin of 8.1% of revenue,
compared to $3.9 million, or 2.4% of revenue, in the prior year
period. Excluding the contributions from the recent acquisitions,
NSS generated $13.1 million of adjusted operating income. NSS
adjusted operating income and margins increased due to higher
revenue volume and improved program performance.
Full-Year 2020 Results
Revenues of approximately $2.7 billion for the
fiscal year ended December 31, 2020 decreased by $49.3 million, or
1.8%, from the comparable period in 2019. The decrease was
primarily attributable to a $187.4 million negative impact from the
COVID-19 pandemic, of which approximately $124.5 million was
non-labor and $62.9 million was labor, which decrease was partially
offset by $39.2 million of revenue from recent acquisitions and a
net increase of $98.9 million from an increase in contract volume
and new business and COVID-19 relief opportunities. Revenue for the
GMS and NSS segments decreased $19.3 million and $30.0 million,
respectively.
Operating income for the year was $90.8 million,
compared with operating income of $26.8 million in the prior year.
The increase in operating income resulted from the loss on disposal
of PAE ISR LLC assets in 2019 and improved program performance in
the current period, which increase was partially offset by lower
revenue volume and other operating income.
The net income attributed to PAE for 2020 was
$15.3 million, or $0.18 per diluted share, compared with a net loss
of $49.8 million, or $(2.36) per diluted share in 2019. The
increase in net income for the fiscal year ended December 31, 2020
as compared to the fiscal year ended December 31, 2019 was driven
primarily by the factors impacting operating income and lower
interest expense, which was driven by a reduction in average debt
balances year over year and lower interest rates.
Adjusted EBITDA for 2020 was $180.2 million, or
an operating margin of 6.6% of revenue, compared with $166.7
million, or 6.0% of revenue, in 2019. Excluding the contributions
from the recent acquisitions, PAE generated $177.6 million of
adjusted EBITDA. The improvement was primarily attributable to
improved program performance, which improvement was partially
offset by lower revenue volume.
Global Mission ServicesGMS revenues of $2.1
billion for fiscal year 2020 decreased $19.3 million, or 0.9%,
compared to the prior year. The decrease was primarily attributable
to a $147.1 million impact from the COVID-19 pandemic, of which
approximately $104.6 million was non-labor and $42.5 million was
labor, which decrease was partially offset by a $127.8 million net
increase in contract volume, new business and COVID-19 relief
opportunities.
GMS operating income of $80.1 million for fiscal
year 2020 decreased by $12.3 million from the comparable period in
2019. The variance was driven by higher selling, general and
administrative expenses and lower revenue volume, which decrease
was partially offset by an increased consolidated venture
income.
GMS adjusted operating income for fiscal year
2020 was $128.7 million, or an operating margin of 6.2% of revenue,
compared to $126.1 million, or 6.0% of revenue, in the prior year.
Adjusted operating income and margins increased over the prior year
primarily due to improved program performance, which improvement
was partially offset by lower revenue volume.
National Security SolutionsNSS revenues of
$634.2 million for fiscal year 2020 decreased by $30.0 million, or
4.5%, from the comparable period in 2019. The decrease was
primarily attributable to a $40.3 million impact from the COVID-19
pandemic, of which approximately $19.9 million was non-labor and
$20.4 million was labor, and by a $28.9 million decrease from small
business set aside re-compete losses, net of new business wins,
which decrease was partially offset by $39.2 million of revenue
from recent acquisitions.
NSS operating income of $22.1 million for the
fiscal year ended December 31, 2020 increased by $59.0 million from
the comparable period in 2019. The increase was primarily due to
the loss on disposal of PAE ISR LLC assets in 2019 as well as
improved program performance in the current period, which increase
was partially offset by lower revenue volume.
NSS adjusted operating income for fiscal year
2020 was $51.6 million, or an operating margin of 8.1% of revenue,
compared to $40.6 million, or 6.1% of revenue, in the prior year.
Excluding the contributions from the recent acquisitions, NSS
generated $48.9 million of adjusted operating income. Adjusted
operating income and margin increased over the prior year primarily
because of improved program performance, which improvement was
partially offset by lower revenue volume.
Cash Flow Summary
Net cash provided by operating activities for
the quarter of $8.7 million, increased $21.0 million over the prior
year period, primarily as a result of increases in customer
advances and billings in excess of costs and accrued expenses.
Net cash provided by operating activities for
fiscal year 2020 decreased by $15.8 million from the comparable
period in 2019, primarily as a result of lower cash collections and
a decrease in accounts payable, partially offset by net income
growth and increases in customer advances and billings in excess of
cost and accrued salaries.
During the fourth quarter, the Company
refinanced its existing credit facilities and entered into new
senior secured credit facilities. The new credit agreements
established a $740.0 million term loan facility maturing in October
2027 priced at LIBOR plus a spread of 4.5%, a $150.0 million
delayed draw term loan facility maturing in October 2027 priced at
LIBOR plus a spread of 4.5%, and a $175.0 million senior secured
revolving credit facility maturing in October 2025 priced at LIBOR
plus a spread of 1.8% to 2.3%.
As of December 31, 2020, PAE had cash and cash
equivalents totaling $85.9 million and had no outstanding
borrowings on its senior secured revolving credit facility.
Business Development Highlights and
Contract Awards
Net bookings totaled $526 million in the fourth
quarter and $3.1 billion over the trailing 12 months (“TTM”),
representing a book to bill ratio of 0.7x and 1.2x for the fourth
quarter and TTM, respectively.
Notable fourth quarter awards received
include:
Notable New Business Awards:
- Naval Aviation Maintenance Center for Excellence at
Naval Air Station Lemoore: PAE’s GMS segment was awarded a
task order, valued at $96 million to improve the readiness of
F/A-18E/F fighter jets under Strike Fighter Wing Pacific.
Notable Recompete Award:
- U.S. Postal Service: PAE’s NSS segment was
awarded an approximate $93 million contract to support the U.S.
Postal Service at its Philadelphia, Pennsylvania Mail Transport
Equipment Service Center.
Notable IDIQ Awards:
- Department of State Global Support Strategy
2.0: PAE’s NSS segment was selected as one of three prime
contractors on the $3.3 billion multiple-award, IDIQ contract for
providing integrated business process solutions to assist with the
worldwide processing of non-immigrant and immigrant visa
applications.
- MEGA V: PAE’s NSS segment was awarded a seat
on the U.S. Department of Justice MEGA V Automated Litigation
Support Services IDIQ contract. MEGA V supports Department of
Justice attorneys throughout the course of litigation across all
eight of the agency’s litigating divisions with a wide range of
professional services.
- AFICA Air Force Helicopter Organizational and
Intermediate Maintenance: PAE’s GMS segment was awarded a
position on the U.S. Air Force Rotary Wing Maintenance Contract
Consolidation IDIQ contract vehicle, which has a ceiling value of
$835 million and a 10-year period of performance.
- USAFE-AFAFRICA: PAE’s GMS segment was awarded
a single-award IDIQ contract with a ceiling value of $98 million to
provide electronic warfare operations training and infrastructure
maintenance support for the U.S. Air Forces in Europe & Air
Forces Africa. PAE was also awarded a five-year, €46 million new
task order on the contract to operate and maintain USAFE-AFAFRICA's
electronic warfare range systems infrastructure in Germany and
provide mobile training operations throughout Europe and
Africa.
The Company’s backlog at the end of the quarter
was $7.9 billion, of which approximately $1.4 billion was
funded.
2021 Financial Outlook
The table below summarizes the Company’s fiscal
year 2021 guidance.
Revenue: |
$3,050 million - $3,150 million |
Adjusted EBITDA: |
$205 million - $215 million |
Cash flow provided by operations: |
At least $120 million |
|
|
Adjusted EBITDA is a non-GAAP financial measure.
The Company is not providing a quantitative reconciliation of
adjusted EBITDA in its 2021 financial guidance in reliance on the
“unreasonable efforts” exception for forward-looking non-GAAP
measures set forth in Securities and Exchange Commission 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 actual GAAP net
income being materially less than is indicated by estimated
adjusted EBITDA (non-GAAP). Due to the uncertainty of estimates and
assumptions used in preparing forward-looking non-GAAP measures,
actual results could differ materially from these non-GAAP
financial projections.
Conference Call Information
As previously announced, PAE will host a conference call and
webcast today, March 11, 2021, at 8 a.m. ET. Management will review
the Company's fourth-quarter and full-year 2020 financial results,
followed by a question-and-answer session. Listeners will be able
to access a presentation summarizing the fourth-quarter and full
year 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 9497032. 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” within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) as defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements relate to
management’s assumptions, expectations, projections, intentions
and/or beliefs about future events or occurrences, and 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. Some factors that could cause actual results to differ
include, a loss of contracts with the U.S. federal government or
its agencies or other state, local or foreign governments or
agencies, including as a result of a reduction in government
spending; service failures or failures to properly manage projects;
issues that damage our professional reputation; disruptions in or
changes to prices relating to our supply chain, including as a
result of difficulties in the supplier qualification process;
failures on the part of our subcontractors or joint venture
partners to perform their contractual obligations; failures to
maintain strong relationships with other contractors; the impact of
a negative audit or other investigation; failure to comply with
numerous laws and regulations regarding procurement, anti-bribery
and organizational conflicts of interest; inability to comply
with the laws and other security requirements governing access to
classified information; inability to share information from
classified contracts with investors; impact of implementing various
data privacy and cybersecurity laws; costs and liabilities arising
under various environmental laws and regulations; various claims,
litigation and other disputes that could be resolved against PAE;
delays, contract terminations or cancellations caused by
competitors’ protests of major contract awards received by us;
risks related to acquisitions, including our ability to realize the
benefits of acquisitions in a manner consistent with our
expectations and integration risks; risks from operating
internationally; the effects of COVID-19 outbreak and other
pandemics or health epidemics, including disruptions to our
workforce and the impact on government spending; disruptions caused
by natural or environmental disasters, terrorist activities or
other events outside our control; disruptions caused by social
unrest, including related protests or disturbances; issues arising
from cybersecurity threats or intellectual property infringement
claims; the loss of members of senior management; the inability to
attract, train or retain employees with the requisite skills,
experience and security clearances; the impact of the expiration of
our collective bargaining agreements; and other risks and
uncertainties described under the heading “Risk Factors” and
elsewhere in our reports filed with the Securities and Exchange
Commission (“SEC”).
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 over 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 Incorporated
Consolidated Statement of Operations
(In thousands, except share and per share
data)
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues |
$ |
787,833 |
|
|
$ |
697,085 |
|
|
$ |
2,714,628 |
|
|
$ |
2,763,893 |
|
Cost of revenues |
623,390 |
|
|
559,940 |
|
|
2,098,153 |
|
|
2,183,574 |
|
Selling, general and
administrative expenses |
136,882 |
|
|
135,391 |
|
|
498,827 |
|
|
530,080 |
|
Amortization of intangible
assets |
10,013 |
|
|
8,176 |
|
|
34,154 |
|
|
33,205 |
|
Total operating expenses |
770,285 |
|
|
703,507 |
|
|
2,631,134 |
|
|
2,746,859 |
|
Program profit(loss) |
17,548 |
|
|
(6,422 |
) |
|
83,494 |
|
|
17,034 |
|
Other income net |
2,934 |
|
|
3,255 |
|
|
7,272 |
|
|
9,785 |
|
Operating income (loss) |
20,482 |
|
|
(3,167 |
) |
|
90,766 |
|
|
26,819 |
|
Interest expense, net |
(25,545 |
) |
|
(20,751 |
) |
|
(73,857 |
) |
|
(86,011 |
) |
Income (loss) before income
taxes |
(5,063 |
) |
|
(23,918 |
) |
|
16,909 |
|
|
(59,192 |
) |
Expense (benefit) from income
taxes |
3,850 |
|
|
(7,254 |
) |
|
3,083 |
|
|
(9,131 |
) |
Net income (loss) |
(8,913 |
) |
|
(16,664 |
) |
|
13,826 |
|
|
(50,061 |
) |
Noncontrolling interest in
earnings of ventures |
(2,808 |
) |
|
(2,071 |
) |
|
(1,464 |
) |
|
(252 |
) |
Net income (loss) attributed
to PAE Incorporated |
$ |
(6,105 |
) |
|
$ |
(14,593 |
) |
|
$ |
15,290 |
|
|
$ |
(49,809 |
) |
|
|
|
|
|
|
|
|
Net income (loss) per share attributed to PAE
Incorporated: |
|
|
|
|
|
|
|
Basic |
$ |
(0.07 |
) |
|
$ |
(0.69 |
) |
|
$ |
0.18 |
|
|
$ |
(2.36 |
) |
Diluted |
$ |
(0.07 |
) |
|
$ |
(0.69 |
) |
|
$ |
0.18 |
|
|
$ |
(2.36 |
) |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
Basic |
92,075,020 |
|
|
21,127,823 |
|
|
84,114,016 |
|
|
21,127,823 |
|
Diluted |
92,075,020 |
|
|
21,127,823 |
|
|
85,369,328 |
|
|
21,127,823 |
|
|
|
|
|
|
|
|
|
PAE IncorporatedConsolidated Balance Sheets(In
thousands, except share and par value amounts)
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
|
|
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
85,908 |
|
|
$ |
68,035 |
|
Accounts receivable, net |
585,511 |
|
|
442,180 |
|
Prepaid expenses and other
current assets |
61,607 |
|
|
43,549 |
|
Total current assets |
733,026 |
|
|
553,764 |
|
Property and equipment,
net |
27,615 |
|
|
30,404 |
|
Deferred income taxes,
net |
— |
|
|
3,212 |
|
Investments |
18,272 |
|
|
17,925 |
|
Goodwill |
590,668 |
|
|
409,588 |
|
Intangible assets, net |
258,210 |
|
|
180,464 |
|
Operating lease right-of-use
assets, net |
191,370 |
|
|
162,184 |
|
Other noncurrent assets |
10,209 |
|
|
13,758 |
|
Total assets |
$ |
1,829,370 |
|
|
$ |
1,371,299 |
|
Liabilities and stockholders'
equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
152,962 |
|
|
$ |
124,661 |
|
Accrued expenses |
114,222 |
|
|
102,315 |
|
Customer advances and billings
in excess of costs |
106,475 |
|
|
51,439 |
|
Salaries, benefits and payroll
taxes |
145,186 |
|
|
130,633 |
|
Accrued taxes |
15,582 |
|
|
18,488 |
|
Current portion of long-term
debt, net |
5,961 |
|
|
22,007 |
|
Operating lease liabilities,
current portion |
46,756 |
|
|
36,997 |
|
Other current liabilities |
45,037 |
|
|
30,893 |
|
Total current liabilities |
632,181 |
|
|
517,433 |
|
Deferred income taxes,
net |
4,389 |
|
|
— |
|
Long-term debt, net |
860,306 |
|
|
727,930 |
|
Long-term operating lease
liabilities |
145,569 |
|
|
129,244 |
|
Other long-term
liabilities |
30,273 |
|
|
8,601 |
|
Total liabilities |
1,672,718 |
|
|
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 |
|
|
3 |
|
Additional paid-in
capital |
252,612 |
|
|
101,742 |
|
Accumulated deficit |
(130,081 |
) |
|
(145,371 |
) |
Accumulated other
comprehensive loss |
1,876 |
|
|
(134 |
) |
Total PAE Incorporated stockholders' equity |
124,416 |
|
|
(43,760 |
) |
Noncontrolling interests |
32,236 |
|
|
31,851 |
|
Total liabilities and stockholders' equity |
$ |
1,829,370 |
|
|
$ |
1,371,299 |
|
|
|
|
|
|
|
|
|
PAE IncorporatedConsolidated Statements of Cash
Flows (In thousands)
|
Three Months Ended |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
Operating
activities |
|
|
|
Net loss |
$ |
(8,913 |
) |
|
$ |
(16,664 |
) |
Adjustments to reconcile net
loss to net cash provided by operating activities: |
|
|
|
Depreciation of property and equipment |
2,221 |
|
|
3,407 |
|
Amortization of intangible assets |
10,013 |
|
|
8,176 |
|
Amortization of debt issuance cost |
(2,870 |
) |
|
1,996 |
|
Loss on extinguishment of debt |
16,528 |
|
|
— |
|
Stock-based compensation |
4,925 |
|
|
— |
|
Net undistributed (loss) income from unconsolidated ventures |
(2,971 |
) |
|
(427 |
) |
Deferred income taxes, net |
(8,049 |
) |
|
(15,375 |
) |
Other non-cash activities, net |
1 |
|
|
1,344 |
|
Changes in operating assets and liabilities, net: |
|
|
|
Accounts receivable, net |
(50,868 |
) |
|
8,664 |
|
Accounts payable |
(20,381 |
) |
|
(692 |
) |
Accrued expenses |
8,764 |
|
|
(17,846 |
) |
Customer advances and billings in excess of costs |
39,695 |
|
|
(10,610 |
) |
Salaries, benefits and payroll taxes |
(10,421 |
) |
|
15,842 |
|
Prepaid expenses and other current assets |
(3,744 |
) |
|
4,347 |
|
Other current and noncurrent liabilities |
39,144 |
|
|
(8,048 |
) |
Investments |
3,745 |
|
|
2,788 |
|
Other noncurrent assets |
(10,044 |
) |
|
7,739 |
|
Accrued taxes |
1,963 |
|
|
3,130 |
|
Net cash provided (used in) by operating activities |
8,738 |
|
|
(12,229 |
) |
Investing
activities |
|
|
|
Expenditures for property and
equipment |
(1,207 |
) |
|
(1,015 |
) |
Acquisition of Metis Solutions
Corporation, net of acquired cash |
(90,271 |
) |
|
— |
|
Acquisition of CENTRA
Technology Inc, net of acquired cash |
(222,124 |
) |
|
— |
|
Other investing activities,
net |
89 |
|
|
4,526 |
|
Net cash (used in) provided by investing activities |
(313,513 |
) |
|
3,511 |
|
Financing
activities |
|
|
|
Net contributions from
noncontrolling interests |
— |
|
|
5 |
|
Borrowings on long-term
debt |
900,296 |
|
|
105,966 |
|
Repayments on long-term
debt |
(630,947 |
) |
|
(120,901 |
) |
Payment of debt issuance
costs |
(25,682 |
) |
|
— |
|
Net cash provided by (used in) financing activities |
243,667 |
|
|
(14,930 |
) |
Effect of exchange rate
changes on cash and cash equivalents |
1,570 |
|
|
(261 |
) |
Net decrease in cash
and cash equivalents |
(59,538 |
) |
|
(23,909 |
) |
Cash and cash equivalents at
beginning of period |
145,446 |
|
|
91,944 |
|
Cash and cash
equivalents at end of period |
$ |
85,908 |
|
|
$ |
68,035 |
|
|
|
|
|
Supplemental cash flow
information |
|
|
|
Cash paid for interest |
$ |
10,162 |
|
|
$ |
37,391 |
|
Cash paid for taxes |
$ |
5,632 |
|
|
$ |
2,616 |
|
|
|
|
|
|
|
|
|
PAE IncorporatedConsolidated Statements of Cash
Flows (continued) (In thousands)
|
Year Ended |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
Operating
activities |
|
|
|
Net income (loss) |
$ |
13,826 |
|
|
$ |
(50,061 |
) |
Adjustments to reconcile net
income (loss) to net cash provided by operating activities: |
|
|
|
Depreciation of property and equipment |
9,484 |
|
|
12,875 |
|
Amortization of intangible assets |
34,154 |
|
|
33,205 |
|
Amortization of debt issuance cost |
6,690 |
|
|
8,092 |
|
Loss on extinguishment of debt |
16,528 |
|
|
— |
|
Stock-based compensation |
12,943 |
|
|
— |
|
Net undistributed (loss) income from unconsolidated ventures |
(6,504 |
) |
|
(2,680 |
) |
Deferred income taxes, net |
(19,278 |
) |
|
(17,247 |
) |
Other non-cash activities, net |
383 |
|
36,942 |
Changes in operating assets
and liabilities, net of acquisitions: |
|
|
|
Accounts receivable, net |
(54,345 |
) |
|
74,416 |
|
Accounts payable |
(4,529 |
) |
|
618 |
|
Accrued expenses |
9,529 |
|
|
(5,629 |
) |
Customer advances and billings in excess of costs |
48,618 |
|
|
23,569 |
|
Salaries, benefits and payroll taxes |
554 |
|
|
17,411 |
|
Prepaid expenses and other current assets |
(5,862 |
) |
|
3,202 |
|
Other current and noncurrent liabilities |
39,215 |
|
|
(25,220 |
) |
Investments |
6,538 |
|
|
6,102 |
|
Other noncurrent assets |
(4,141 |
) |
|
1,450 |
|
Accrued taxes |
(2,941 |
) |
|
(397 |
) |
Net cash provided by operating activities |
100,862 |
|
|
116,648 |
|
Investing
activities |
|
|
|
Expenditures for property and
equipment |
(3,835 |
) |
|
(9,436 |
) |
Acquisition of Metis Solutions
Corporation, net of acquired cash |
(90,271 |
) |
|
— |
|
Acquisition of CENTRA
Technology Inc, net of acquired cash |
(222,124 |
) |
|
— |
|
Other investing activities,
net |
17 |
|
|
6,747 |
|
Net cash used in investing activities |
(316,213 |
) |
|
(2,689 |
) |
Financing
activities |
|
|
|
Net contributions from
noncontrolling interests |
2,095 |
|
|
5,405 |
|
Borrowings on long-term
debt |
961,030 |
|
|
267,375 |
|
Repayments on long-term
debt |
(843,131 |
) |
|
(367,312 |
) |
Payment of debt issuance
costs |
(26,646 |
) |
|
— |
|
Recapitalization from merger
with Gores III |
605,713 |
|
|
— |
|
Payment of underwriting and
transaction costs |
(27,267 |
) |
|
— |
|
Distribution to selling
stockholders |
(439,719 |
) |
|
— |
|
Other financing activities,
net |
(292 |
) |
|
(742 |
) |
Net cash provided by (used in) financing activities |
231,783 |
|
|
(95,274 |
) |
Effect of exchange rate
changes on cash and cash equivalents |
1,441 |
|
|
(1,747 |
) |
Net increase in cash
and cash equivalents |
17,873 |
|
|
16,938 |
|
Cash and cash equivalents at
beginning of period |
68,035 |
|
|
51,097 |
|
Cash and cash
equivalents at end of period |
$ |
85,908 |
|
|
$ |
68,035 |
|
|
|
|
|
Supplemental cash flow
information |
|
|
|
Cash paid for interest |
$ |
45,247 |
|
|
$ |
78,019 |
|
Cash paid for taxes |
$ |
10,936 |
|
|
$ |
9,552 |
|
|
|
|
|
|
|
|
|
PAE INCORPORATED
SEGMENT DATA
(in thousands)
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues |
|
|
|
|
|
|
|
GMS |
$ |
593,831 |
|
|
$ |
533,600 |
|
|
$ |
2,080,474 |
|
|
$ |
2,099,737 |
|
NSS |
194,002 |
|
|
163,485 |
|
|
634,154 |
|
|
664,156 |
|
Consolidated revenues |
$ |
787,833 |
|
|
$ |
697,085 |
|
|
$ |
2,714,628 |
|
|
$ |
2,763,893 |
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
GMS |
$ |
4,549 |
|
|
$ |
15,407 |
|
|
$ |
80,090 |
|
|
$ |
92,386 |
|
NSS |
4,303 |
|
|
(13,730 |
) |
|
22,073 |
|
|
(36,940 |
) |
Corporate |
11,630 |
|
|
(4,845 |
) |
|
(11,397 |
) |
|
(28,627 |
) |
Consolidated operating income
(loss) |
$ |
20,482 |
|
|
$ |
(3,168 |
) |
|
$ |
90,766 |
|
|
$ |
26,819 |
|
|
|
|
|
|
|
|
|
Amortization of intangible
assets |
|
|
|
|
|
|
|
GMS |
$ |
4,115 |
|
|
$ |
4,140 |
|
|
$ |
16,461 |
|
|
$ |
16,679 |
|
NSS |
5,898 |
|
|
4,036 |
|
|
17,693 |
|
|
16,526 |
|
Consolidated amortization of
intangible assets |
$ |
10,013 |
|
|
$ |
8,176 |
|
|
$ |
34,154 |
|
|
$ |
33,205 |
|
|
|
|
|
|
|
|
|
PAE INCORPORATED
BACKLOG
(in thousands)
|
As of |
|
As of |
|
December 31, |
|
December 31, |
|
2020 |
|
2019 |
Global Mission Services: |
|
|
|
Funded backlog |
$ |
946,711 |
|
|
$ |
1,173,196 |
|
Unfunded backlog |
4,445,442 |
|
|
3,393,081 |
|
Total GMS backlog |
$ |
5,392,153 |
|
|
$ |
4,566,277 |
|
|
|
|
|
National Security
Solutions: |
|
|
|
Funded backlog |
$ |
476,618 |
|
|
$ |
311,214 |
|
Unfunded backlog |
2,046,634 |
|
|
1,474,309 |
|
Total NSS backlog |
$ |
2,523,252 |
|
|
$ |
1,785,523 |
|
|
|
|
|
Total: |
|
|
|
Funded backlog |
$ |
1,423,329 |
|
|
$ |
1,484,410 |
|
Unfunded backlog |
6,492,076 |
|
|
4,867,390 |
|
Total backlog |
$ |
7,915,405 |
|
|
$ |
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, as described in the footnotes to the
reconciliation tables, 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 fourth quarter and full year 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 |
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2020 |
|
2019 |
|
Change |
|
2020 |
|
2019 |
|
Change |
Net (loss)
income attributed to PAE Incorporated |
$ |
(6,105 |
) |
|
$ |
(14,593 |
) |
|
$ |
8,488 |
|
|
$ |
15,290 |
|
|
$ |
(49,809 |
) |
|
$ |
65,099 |
|
Interest expense, net |
25,545 |
|
|
20,752 |
|
|
4,793 |
|
|
73,857 |
|
|
86,011 |
|
|
(12,154 |
) |
Provision for taxes |
3,850 |
|
|
(7,254 |
) |
|
11,104 |
|
|
3,083 |
|
|
(9,131 |
) |
|
12,214 |
|
Depreciation and amortization |
12,250 |
|
|
11,584 |
|
|
666 |
|
|
43,655 |
|
|
46,081 |
|
|
(2,426 |
) |
M&A costs |
1,515 |
|
|
5,209 |
|
|
(3,694 |
) |
|
27,385 |
|
|
13,172 |
|
|
14,213 |
|
Disposal of assets |
— |
|
|
1,774 |
|
|
(1,774 |
) |
|
— |
|
|
44,436 |
|
|
(44,436 |
) |
Non-core expenses (1) |
144 |
|
|
2,086 |
|
|
(1,942 |
) |
|
2,061 |
|
|
10,963 |
|
|
(8,902 |
) |
Non-cash items (2) |
— |
|
|
6,649 |
|
|
(6,649 |
) |
|
— |
|
|
4,437 |
|
|
(4,437 |
) |
Forward loss accruals (3) |
— |
|
|
9,615 |
|
|
(9,615 |
) |
|
— |
|
|
13,069 |
|
|
(13,069 |
) |
Sponsor fees (4) |
— |
|
|
1,315 |
|
|
(1,315 |
) |
|
— |
|
|
5,077 |
|
|
(5,077 |
) |
Equity based compensation (5) |
4,749 |
|
|
— |
|
|
4,749 |
|
|
12,308 |
|
|
— |
|
|
12,308 |
|
Other (6) |
2,031 |
|
|
327 |
|
|
1,704 |
|
|
2,595 |
|
|
2,425 |
|
|
170 |
|
Adjusted EBITDA |
$ |
43,979 |
|
|
$ |
37,464 |
|
|
$ |
6,515 |
|
|
$ |
180,234 |
|
|
$ |
166,731 |
|
|
$ |
13,503 |
|
Adjusted EBITDA margin |
5.6 |
% |
|
5.4 |
% |
|
|
|
|
6.6 |
% |
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP operating income to
adjusted operating income, a non-GAAP Measure -
GMS |
(in thousands) |
|
Three Months Ended |
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2020 |
|
2019 |
|
Change |
|
2020 |
|
2019 |
|
Change |
Operating
income |
$ |
4,549 |
|
|
$ |
15,407 |
|
|
$ |
(10,858 |
) |
|
$ |
80,090 |
|
|
$ |
92,386 |
|
|
$ |
(12,296 |
) |
Corp operating loss allocation (7) |
8,765 |
|
|
(3,709 |
) |
|
12,474 |
|
|
(8,891 |
) |
|
(21,746 |
) |
|
12,855 |
|
Corporate NCI allocation |
2,739 |
|
|
1,973 |
|
|
766 |
|
|
1,241 |
|
|
(51 |
) |
|
1,292 |
|
Depreciation and amortization |
5,846 |
|
|
6,847 |
|
|
(1,001 |
) |
|
23,934 |
|
|
26,934 |
|
|
(3,000 |
) |
M&A costs |
1,126 |
|
|
3,987 |
|
|
(2,861 |
) |
|
19,073 |
|
|
10,004 |
|
|
9,069 |
|
Disposal of assets |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-core expenses (1) |
109 |
|
|
108 |
|
|
1 |
|
|
1,606 |
|
|
5,371 |
|
|
(3,765 |
) |
Non-cash items (2) |
— |
|
|
2,262 |
|
|
(2,262 |
) |
|
— |
|
|
3,153 |
|
|
(3,153 |
) |
Forward loss accruals (3) |
— |
|
|
5,384 |
|
|
(5,384 |
) |
|
— |
|
|
4,349 |
|
|
(4,349 |
) |
Sponsor fees (4) |
— |
|
|
1,007 |
|
|
(1,007 |
) |
|
— |
|
|
3,857 |
|
|
(3,857 |
) |
Equity based compensation (5) |
3,580 |
|
|
— |
|
|
3,580 |
|
|
9,517 |
|
|
— |
|
|
9,517 |
|
Other (6) |
1,520 |
|
|
250 |
|
|
1,270 |
|
|
2,093 |
|
|
1,842 |
|
|
251 |
|
Adjusted operating income |
$ |
28,234 |
|
|
$ |
33,516 |
|
|
$ |
(5,282 |
) |
|
$ |
128,663 |
|
|
$ |
126,099 |
|
|
$ |
2,564 |
|
Adjusted operating income margin |
4.8 |
% |
|
6.3 |
% |
|
|
|
|
6.2 |
% |
|
6.0 |
% |
|
|
|
Reconciliation of GAAP operating income to adjusted
operating income, a non-GAAP Measure - NSS |
(in thousands) |
|
Three Months Ended |
|
|
|
|
Year Ended |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
2020 |
|
2019 |
|
Change |
|
2020 |
|
2019 |
|
Change |
Operating
income (loss) |
$ |
4,303 |
|
|
$ |
(13,729 |
) |
|
$ |
18,032 |
|
|
$ |
22,073 |
|
|
$ |
(36,940 |
) |
|
$ |
59,013 |
|
Corp operating loss allocation (7) |
2,864 |
|
|
(1,136 |
) |
|
4,000 |
|
|
|
(2,506 |
) |
|
|
(6,879 |
) |
|
4,373 |
|
Corporate NCI allocation |
69 |
|
|
94 |
|
|
(25 |
) |
|
|
223 |
|
|
|
304 |
|
|
(81 |
) |
Depreciation and amortization |
6,404 |
|
|
4,738 |
|
|
1,666 |
|
|
|
19,721 |
|
|
|
19,146 |
|
|
575 |
|
M&A costs |
390 |
|
|
1,222 |
|
|
(832 |
) |
|
|
8,312 |
|
|
|
3,164 |
|
|
5,148 |
|
Disposal of assets |
— |
|
|
1,774 |
|
|
(1,774 |
) |
|
|
— |
|
|
|
44,436 |
|
|
(44,436 |
) |
Non-core expenses (1) |
35 |
|
|
1,978 |
|
|
(1,943 |
) |
|
|
455 |
|
|
|
5,592 |
|
|
(5,137 |
) |
Non-cash items (2) |
— |
|
|
4,389 |
|
|
(4,389 |
) |
|
|
— |
|
|
|
1,283 |
|
|
(1,283 |
) |
Forward loss accruals (3) |
— |
|
|
4,232 |
|
|
(4,232 |
) |
|
|
— |
|
|
|
8,721 |
|
|
(8,721 |
) |
Sponsor fees (4) |
— |
|
|
308 |
|
|
(308 |
) |
|
|
— |
|
|
|
1,220 |
|
|
(1,220 |
) |
Equity based compensation (5) |
1,169 |
|
|
— |
|
|
1,169 |
|
|
|
2,791 |
|
|
|
— |
|
|
2,791 |
|
Other (6) |
512 |
|
|
77 |
|
|
435 |
|
|
|
501 |
|
|
|
583 |
|
|
(82 |
) |
Adjusted operating income |
$ |
15,746 |
|
|
$ |
3,947 |
|
|
|
11,799 |
|
|
$ |
51,570 |
|
|
$ |
40,630 |
|
|
$ |
10,940 |
|
Adjusted operating income margin |
8.1 |
% |
|
2.4 |
% |
|
|
|
|
|
8.1 |
% |
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 stock units and
performance-based restricted stock units to PAE employees and
independent directors.
(6) Other costs include 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 margin
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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