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PAE - PAE Inc News Story

$9.12 -0.1  -1.2%

Last Trade - 27/07/21

Sector
Industrials
Size
Mid Cap
Market Cap £621.8m
Enterprise Value £1.19bn
Revenue £2.06bn
Position in Universe 3060th / 7000

PAE Reports First-Quarter 2021 Financial Results

Thu 6th May, 2021 11:30am
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Highlights
* First-quarter revenue of $748.6 million
* First-quarter operating income of $26.2 million
* First-quarter net income of $13.4 million
* First-quarter adjusted EBITDA(1) of $47.0 million (margin of 6.3%(1) of
revenue)
* First-quarter cash flows provided by operations of $55.4 million
* First-quarter net bookings of $292 million (0.4x book-to-bill); $2.7 billion
for the trailing 12 months (1.0x book-to-bill)
* Company reiterates fiscal 2021 financial guidance
FALLS CHURCH, Va., May 06, 2021 (GLOBE NEWSWIRE) -- PAE Incorporated
(“PAE” or the “Company”) (NASDAQ: PAE, PAEWW) today announced
first-quarter 2021 financial and operating results.

CEO Commentary

PAE Interim President and CEO Charlie Peiffer said, “I am very proud of the
PAE team and very pleased with our operating results. We grew organic revenue
about 7% over the prior year period and delivered strong adjusted EBITDA,
margins and cash flow. Our strategy of expanding the business towards higher
margin contract opportunities is yielding positive results. We’ll continue
to execute our strategy and build on this strong momentum.”

First-Quarter 2021 Results

Revenues for the quarter of $748.6 million increased $131.3 million, or 21.3%,
compared to the prior year period. The increase was attributable to $88.8
million of revenue from recent acquisitions and by a $42.5 million net
increase from new business awards and other changes in contract volume. The
Global Mission Services and National Security Solutions segments’ revenues
increased by approximately $64.1 million and $67.2 million, respectively.

Operating income for the quarter was $26.2 million, compared with operating
income of $7.5 million in the prior year period. The increase resulted from
higher revenue volume in the current period and lower selling, general and
administrative expenses as a percentage of revenue.

The net income attributed to PAE for the quarter was $13.4 million, or $0.14
per diluted share, compared with net income of approximately $26.0 million, or
$0.43 per diluted share in the prior year period. The decrease in net income
for the first quarter of 2021 was primarily driven by changes in fair value of
the warrants, which decrease was partially offset by the increase in operating
income and the reduction in interest expense. 
   
Adjusted EBITDA for the quarter was $47.0 million, or 6.3% of revenue,
compared to $41.6 million, or 6.7% of revenue, in the prior year period.
Adjusted EBITDA increased due to higher revenue volume while margins declined
due primarily to higher non-labor revenue in the current period.

Global Mission Services
GMS revenues for the quarter of $521.6 million increased $64.1 million, or
14.0%, compared to the prior year period. The increase was attributable to new
business awards, including COVID-19 relief opportunities, which increase was
partially offset by reductions in contract volume on certain programs.

GMS operating income for the quarter was $24.5 million, compared to $12.6
million in the prior-year period. The increase was driven by higher revenue
volume, lower selling, general and administrative expenses as a percentage of
revenue and an increase in consolidated venture income. These increases were
partially offset by higher cost of sales from an increase in non-labor
revenue.

GMS adjusted operating income(2) for the quarter was $27.8 million, or 5.3% of
revenue, compared to $27.3 million, or an operating margin of 6.0% of revenue,
in the prior year period. The variances in GMS adjusted operating income and
margins(2) were driven by the increase in revenue volume including higher
non-labor revenue in the current period.

National Security Solutions
NSS revenues for the quarter of $227.0 million increased $67.2 million, or
42.0%, compared to the prior year period. The increase was attributable to
$88.8 million of revenue from recent acquisitions, partially offset by a $23.0
million decrease from small business set aside re-compete losses and changes
in contract volume, net of new business wins.

NSS operating income for the quarter was $11.4 million, compared to $4.4
million in the prior year period. The increase resulted from higher revenue
volume, improved program performance and lower selling, general and
administrative expense as a percentage of revenue.

NSS adjusted operating income(3) for the quarter was $19.3 million, or an
operating margin of 8.5% of revenue, compared to $14.3 million, or 9.0% of
revenue, in the prior year period. The variances in NSS adjusted operating
income and margins were driven by the increase in revenue volume and the
timing of net profit adjustments in the prior year period.  

Cash Flow Summary

Net cash provided by operating activities for the quarter of $55.4 million
increased $44.5 million over the prior year period, driven primarily by higher
cash collections and increases in accounts payable and accrued expenses in the
current period.

As of March 28, 2021, PAE had cash and cash equivalents totaling $118.2
million and had no outstanding borrowings on its senior secured revolving
credit facility.

Business Development Highlights and Contract Awards

Net bookings totaled $292 million in the first quarter and $2.7 billion over
the trailing 12 months (“TTM”), representing a book to bill ratio of 0.4x
and 1.0x for the first quarter and TTM, respectively.

Notable first quarter awards received include:

Notable New Business Awards:
* Global Tactical Advanced Communication Systems II Global FSR task order:
PAE’s NSS segment was awarded a task order, valued at $25 million to provide
support for Satellite Communications’ terminals and network operability and
sustainment.
* Department of State Rapid Engineering and Construction Program: PAE’s GMS
segment was awarded multiple subcontracts totaling approximately $20 million
to support the development of a rapid response supply chain to carry out
procurement and construction activities during contingency operations and
various emergency situations.
Notable Recompete Awards:
* Joint Personnel Recovery Agency: PAE’s NSS segment was awarded an
approximate $27 million contract to provide cleared personnel for SERE
instruction, curriculum development, strategy, operations and intelligence
analysis.
* The Bureau of Alcohol, Tobacco, Firearms and Explosives National Integrated
Ballistic Information Network National Correlation and Training Center:
PAE’s NSS segment was awarded a contract, valued at approximately $15
million, to provide intelligence focused support to enhance ATF’s abilities
to solve, reduce and prevent firearm-related violent crime.
The Company’s backlog at the end of the quarter was $7.5 billion, of which
approximately $1.3 billion was funded.

2021 Financial Outlook

PAE is reiterating the fiscal 2021 guidance it issued on March 11, 2021, based
on the Company's financial results for the first quarter of 2021 and its
current outlook for the remainder of the year.   The table below summarizes
the Company's 2021 financial 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 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,
May 6, 2021, at 8 a.m. ET. Management will review the Company's first-quarter
2021 financial results, followed by a question-and-answer session. Listeners
will be able to access a presentation summarizing the first-quarter 2021
results on the PAE Investor Relations website
(https://www.globenewswire.com/Tracker?data=vRioSCf1Ti5cbrpTuz_b-gcz-zNCgZgb8Sh_YrnAM024nDiyOkEB8tjvxSLh5Ik9ZaHVylMTYC4daFb_EbYC-Kxd21rLog1DHxp_AsNYbn4=).

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 2929758. 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
(https://www.globenewswire.com/Tracker?data=vRioSCf1Ti5cbrpTuz_b-gcz-zNCgZgb8Sh_YrnAM03spvmV7CjhHgKOfmiTXv_VOsz2RSxrohd4YlcUiSC_oR4v93RmqgQtCSISOU-wVDg=).

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 more than 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
(https://www.globenewswire.com/Tracker?data=5_LWnYelVEXic8JuGZk_V0fWgtYFJC8A_TjU_B_G1xsJd0FxTcewkTDJAoMi2KB75bVBldSeNX9Ih1Uw7-XrJg==),
on Facebook
(https://www.globenewswire.com/Tracker?data=-SDJDS62G3pIveS3be5xOU05aXExrQUuPTiWG0czb27Bumt4PH7SEAdEyDUG9T-eLfF1lXso0-es-DhQ-5ODdJrXawiBRF4iRuumeJBYi3A=),
Twitter
(https://www.globenewswire.com/Tracker?data=D632vaBnokgzXZk21V1HvJWV8ILB_jgZ5oVssJJjzU4ouZPok9y37-CcKuUYTxMDk3ZVgfZMg_zG2CGlGT__2g==)
and LinkedIn
(https://www.globenewswire.com/Tracker?data=TnfRdtrk8pfwWSl1BwWwhausqDtkUquPb7TPLx693W-2WuwO8O_EBgKKlBaXJjUvL6f23XxvgPlFYXb8cL5TOBAR8OTcBkLq7Sp1zBSmp0Q=).

For investor inquiries regarding PAE:

Mark Zindler
Vice President Investor Relations
PAE
703-717-6017
mark.zindler@pae.com

For media inquiries regarding PAE:

Terrence Nowlin
Senior Communications Manager
PAE
703-656-7423
terrence.nowlin@pae.com

PAE Incorporated
Condensed Consolidated Statement of Operations (Unaudited)
(In thousands, except share and per share data)

                                                              Three Months Ended                                         
                                                              March 28,                       March 29,                  
                                                              2021                            2020                       
 Revenues                                                     $       748,567                 $       617,253            
 Cost of revenues                                             566,666                         465,208                    
 Selling, general and administrative expenses                 145,291                         137,326                    
 Amortization of intangible assets                            12,215                          8,047                      
 Total operating expenses                                     724,172                         610,581                    
 Program profit                                               24,395                          6,672                      
 Other operating income net                                   1,801                           785                        
 Operating income                                             26,196                          7,457                      
 Interest expense, net                                        (12,514          )              (20,948          )         
 Other income, net                                            1,200                           30,112                     
 Income (loss) before income taxes                            14,882                          16,621                     
 Expense (benefit) from income taxes                          2,609                           (9,529           )         
 Net income (loss)                                            12,273                          26,150                     
 Noncontrolling interest in earnings of ventures              (1,111           )              166                        
 Net income (loss) attributed to PAE Incorporated             $       13,384                  $       25,984             
                                                                                                                         
 Net income (loss) per share attributed to PAE Incorporated:                                                             
 Basic                                                        $       0.14                    $       0.43               
 Diluted                                                      $       0.14                    $       0.43               
                                                                                                                         
 Weighted average shares outstanding                                                                                     
 Basic                                                        92,613,057                      59,807,549                 
 Diluted                                                      95,128,326                      59,807,549                 
                                                                                                                         

PAE Incorporated
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and par value amounts)

                                                                                                                                                                                             March 28,                     December 31,                  
                                                                                                                                                                                             2021                          2020                          
                                                                                                                                                                                                                                                         
 Assets                                                                                                                                                                                                                                                  
 Current assets:                                                                                                                                                                                                                                         
 Cash and cash equivalents                                                                                                                                                                   $      118,150                $      85,908                 
 Accounts receivable, net                                                                                                                                                                    562,398                       585,511                       
 Prepaid expenses and other current assets                                                                                                                                                   69,902                        61,607                        
 Total current assets                                                                                                                                                                        750,450                       733,026                       
 Property and equipment, net                                                                                                                                                                 27,652                        27,615                        
 Investments                                                                                                                                                                                 19,400                        18,272                        
 Goodwill                                                                                                                                                                                    591,209                       590,668                       
 Intangible assets, net                                                                                                                                                                      245,995                       258,210                       
 Operating lease right-of-use assets, net                                                                                                                                                    183,276                       191,370                       
 Other noncurrent assets                                                                                                                                                                     10,283                        10,209                        
 Total assets                                                                                                                                                                                $      1,828,265              $      1,829,370              
 Liabilities and stockholders' equity                                                                                                                                                                                                                    
 Current liabilities:                                                                                                                                                                                                                                    
 Accounts payable                                                                                                                                                                            $      177,911                $      152,962                
 Accrued expenses                                                                                                                                                                            121,274                       114,222                       
 Customer advances and billings in excess of costs                                                                                                                                           74,197                        106,475                       
 Salaries, benefits and payroll taxes                                                                                                                                                        158,841                       145,186                       
 Accrued taxes                                                                                                                                                                               15,186                        15,582                        
 Current portion of long-term debt, net                                                                                                                                                      5,920                         5,961                         
 Operating lease liabilities, current portion                                                                                                                                                47,163                        46,756                        
 Other current liabilities                                                                                                                                                                   42,393                        45,037                        
 Total current liabilities                                                                                                                                                                   642,885                       632,181                       
 Deferred income taxes, net                                                                                                                                                                  6,587                         4,389                         
 Long-term debt, net                                                                                                                                                                         861,057                       860,306                       
 Long-term operating lease liabilities                                                                                                                                                       136,473                       145,569                       
 Warrant liability                                                                                                                                                                           49,267                        50,467                        
 Other long-term liabilities                                                                                                                                                                 32,441                        30,273                        
 Total liabilities                                                                                                                                                                           1,728,710                     1,723,185                     
 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; 93,069,815 and 92,040,654 shares issued and outstanding as of March 28, 2021 and December 31, 2020, respectively  9                             9                             
 Additional paid-in capital                                                                                                                                                                  167,898                       188,685                       
 Accumulated deficit                                                                                                                                                                         (103,237          )           (116,621          )           
 Accumulated other comprehensive loss                                                                                                                                                        881                           1,876                         
 Total PAE Incorporated stockholders' equity                                                                                                                                                 65,551                        73,949                        
 Noncontrolling interests                                                                                                                                                                    34,004                        32,236                        
 Total liabilities and stockholders' equity                                                                                                                                                  $      1,828,265              $      1,829,370              

PAE Incorporated
Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)

                                                                                           Three Months Ended                                     
                                                                                           March 28,                     March 29,                
                                                                                           2021                          2020                     
 Operating activities                                                                                                                             
 Net income (loss)                                                                         $     12,273                  $      26,150            
 Adjustments to reconcile net income (loss) to net cash provided by operating activities:                                                         
 Depreciation of property and equipment                                                    2,268                         2,583                    
 Amortization of intangible assets                                                         12,215                        8,047                    
 Amortization of debt issuance cost                                                        777                           6,063                    
 Stock-based compensation                                                                  2,270                         —                        
 Net undistributed (loss) income from unconsolidated ventures                              (2,411         )              (663           )         
 Deferred income taxes, net                                                                2,818                         (9,896         )         
 Change in fair value of Warrant liability                                                 (1,200         )              (33,599        )         
 Other non-cash activities, net                                                            (140           )              270                      
 Changes in operating assets and liabilities, net of acquisitions:                                                                                
 Accounts receivable, net                                                                  22,685                        20,869                   
 Accounts payable                                                                          25,037                        (2,417         )         
 Accrued expenses                                                                          7,335                         (292           )         
 Customer advances and billings in excess of costs                                         (32,276        )              18,223                   
 Salaries, benefits and payroll taxes                                                      13,951                        (21,307        )         
 Prepaid expenses and other current assets                                                 (8,555         )              (1,579         )         
 Other current and noncurrent liabilities                                                  (10,632        )              (4,545         )         
 Investments                                                                               1,374                         750                      
 Other noncurrent assets                                                                   7,999                         4,729                    
 Accrued taxes                                                                             (392           )              (2,473         )         
 Net cash provided by operating activities                                                 55,396                        10,913                   
 Investing activities                                                                                                                             
 Expenditures for property and equipment                                                   (2,434         )              (404           )         
 Proceeds from sales of property                                                           222                           —                        
 Acquisition of noncontrolling interest                                                    (14,300        )              —                        
 Other investing activities, net                                                           (372           )              —                        
 Net cash used in investing activities                                                     (16,884        )              (404           )         
 Financing activities                                                                                                                             
 Net contributions from noncontrolling interests                                           490                           150                      
 Borrowings on long-term debt                                                              20,000                        60,000                   
 Repayments on long-term debt                                                              (20,000        )              (196,544       )         
 Payment of debt issuance costs                                                            —                             (964           )         
 Recapitalization from merger with Gores III                                               —                             605,708                  
 Payment of underwriting and transaction costs                                             —                             (27,268        )         
 Distribution to selling stockholders                                                      —                             (419,548       )         
 Stock-based compensation tax withholding obligation                                       (5,659         )              —                        
 Net cash (used in) provided by financing activities                                       (5,169         )              21,534                   
 Effect of exchange rate changes on cash and cash equivalents                              (1,101         )              (288           )         
 Net increase in cash and cash equivalents                                                 32,242                        31,755                   
 Cash and cash equivalents at beginning of period                                          85,908                        68,035                   
 Cash and cash equivalents at end of period                                                $     118,150                 $      99,790            
 Supplemental cash flow information                                                                                                               
 Cash paid for interest                                                                    $     11,977                  $      10,900            
 Cash paid for taxes                                                                       $     471                     $      1,523             

PAE INCORPORATED
SEGMENT DATA
(in thousands)

                                                 Three Months Ended                                     
                                                 March 28,                     March 29,                
                                                 2021                          2020                     
 Revenues                                                                                               
 GMS                                             $     521,561                 $     457,444            
 NSS                                             227,006                       159,809                  
 Consolidated revenues                           $     748,567                 $     617,253            
                                                                                                        
 Operating income                                                                                       
 GMS                                             $     24,514                  $     12,603             
 NSS                                             11,390                        4,367                    
 Corporate                                       (9,708         )              (9,513         )         
 Consolidated operating income                   $     26,196                  $     7,457              
                                                                                                        
 Amortization of intangible assets                                                                      
 GMS                                             $     4,161                   $     4,115              
 NSS                                             8,054                         3,932                    
 Consolidated amortization of intangible assets  $     12,215                  $     8,047              
                                                                                                        



PAE INCORPORATED
BACKLOG
(in thousands)

                               As of                         As of                         
                               March 28,                     December 31,                  
                               2021                          2020                          
 Global Mission Services:                                                                  
 Funded backlog                $      832,553                $      946,711                
 Unfunded backlog              4,234,540                     4,445,442                     
 Total GMS backlog             $      5,067,093              $      5,392,153              
                                                                                           
 National Security Solutions:                                                              
 Funded backlog                $      451,574                $      476,618                
 Unfunded backlog              1,940,234                     2,046,634                     
 Total NSS backlog             $      2,391,808              $      2,523,252              
                                                                                           
 Total:                                                                                    
 Funded backlog                $      1,284,127              $      1,423,329              
 Unfunded backlog              6,174,774                     6,492,076                     
 Total backlog                 $      7,458,901              $      7,915,405              

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 2021 and 2020, 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.

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                                                            
                                                                                     March 28,                    March 29,                                        
                                                                                     2021                         2020                      Change                 
 Net income (loss) attributed to PAE Incorporated                                    $     13,384                 $     25,984              $     (12,600  )       
 Interest expense, net                                                               12,514                       20,948                    (8,434         )       
 Provision for taxes                                                                 2,609                        (9,529        )           12,138                 
 Depreciation and amortization                                                       14,483                       10,630                    3,853                  
 M&A and Integration costs                                                           1,833                        23,980                    (22,147        )       
 Disposal of assets                                                                  —                            —                         —                      
 Non-core expenses ((1))                                                             1,066                        258                       808                    
 Non-cash items ((2))                                                                —                            —                         —                      
 Equity based compensation ((3))                                                     1,931                        —                         1,931                  
 Other ((4))                                                                         (791          )              (30,626       )           29,835                 
 Adjusted EBITDA                                                                     $     47,029                 $     41,646              $     5,384            
 Adjusted EBITDA margin                                                              6.3           %              6.7           %                                  



 Reconciliation of GAAP operating income to adjusted operating income, a non-GAAP Measure - GMS                                                                                  
 (in thousands)                                                                                                                                                                  
                                                                                                 Three Months Ended                                                              
                                                                                                 March 28,                     March 29,                                         
                                                                                                 2021                          2020                        Change                
 Operating income                                                                                $     24,514                  $     12,603                $     11,911          
 Corp operating loss allocation ((5))                                                            (7,674        )               (7,049        )             (625          )       
 Corp other income (loss) allocation ((6))                                                       949                           22,316                      (21,367       )       
 Corporate NCI allocation                                                                        925                           (222          )             1,147                 
 Depreciation and amortization                                                                   5,862                         6,151                       (289          )       
 M&A and Integration costs                                                                       1,449                         15,912                      (14,463       )       
 Disposal of assets                                                                              —                             —                           —                     
 Non-core expenses ((1))                                                                         843                           191                         652                   
 Equity based compensation ((3))                                                                 1,526                         —                           1,526                 
 Other ((4))                                                                                     (625          )               (22,588       )             21,963                
 Adjusted operating income                                                                       $     27,769                  $     27,314                $     455             
 Adjusted operating income margin                                                                      5.3     %                     6.0     %                                   



 Reconciliation of GAAP operating income to adjusted operating income, a non-GAAP Measure - NSS                                                                                 
 (in thousands)                                                                                                                                                                 
                                                                                                 Three Months Ended                                                             
                                                                                                 March 28,                     March 29,                                        
                                                                                                 2021                          2020                        Change               
 Operating income                                                                                $     11,390                  $     4,367                 $     7,023          
 Corp operating loss allocation ((5))                                                            (2,034        )               (2,463        )             429                  
 Corp other income (loss) allocation ((6))                                                       251                           7,796                       (7,545       )       
 Corporate NCI allocation                                                                        186                           56                          130                  
 Depreciation and amortization                                                                   8,621                         4,479                       4,142                
 M&A and Integration costs                                                                       384                           8,068                       (7,684       )       
 Disposal of assets                                                                              —                             —                           —                    
 Non-core expenses ((1))                                                                         223                           67                          156                  
 Non-cash items ((2))                                                                            —                             —                           —                    
 Equity based compensation ((3))                                                                 405                           —                           405                  
 Other ((4))                                                                                     (166          )               (8,038        )             7,872                
 Adjusted operating income                                                                       $     19,260                  $     14,332                $     4,928          
 Adjusted operating income margin                                                                      8.5     %                     9.0     %                                  

((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)) 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.

((4)) Other costs include adjustments to offset capitalized internal labor,
state income taxes that were not captured in reported income tax expense and
warrant-related expenses.

((5)) 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.

((6)) Corporate other income (loss) allocation includes changes in the fair
value of the warrants and transaction expenses allocated to the warrants.

(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.

(https://www.globenewswire.com/NewsRoom/AttachmentNg/fcc8a68c-a0d6-41da-9db8-5dd40cc2bf70)



GlobeNewswire, Inc. 2021
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