PAE to Acquire CENTRA Technology - October 26, 2020 - PAE Investor Relations ...

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PAE to Acquire CENTRA Technology - October 26, 2020 - PAE Investor Relations ...
PAE to Acquire CENTRA Technology
           October 26, 2020
PAE to Acquire CENTRA Technology - October 26, 2020 - PAE Investor Relations ...
DISCLAIMER
This presentation contains a number of “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to,
statements about PAE’s possible or assumed future results of operations, 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, 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, and our expectations and projections regarding the acquisition of CENTRA Technology,
Inc. 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 presentation, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words
or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important
factors, many of which are outside PAE’s management’s control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.

Forward-looking statements included in this presentation speak only as of the date of this presentation. PAE does not undertake any obligation to update its forward-looking statements to reflect events or
circumstances after the date of this presentation except as may be required by the federal securities laws.

This presentation contains non-GAAP financial measures. The Company uses adjusted EBITDA, adjusted EBITDA margin and free cash flow 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 excludes certain amounts included in EBITDA.
Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenues expressed as a percentage. Free cash flow is defined as cash flow provided by operating activities less capital expenditures. PAE
believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating the acquisition by PAE of CENTRA Technology Inc. and the projected future operating
and financial results of PAE. The non-GAAP financial measures provided in this presentation are forward-looking.

PAE is not providing a quantitative reconciliation of adjusted EBITDA or adjusted EBITDA margin in reliance on the “unreasonable efforts” exception for forward-looking non-GAAP measures set forth in SEC
rules because certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated without unreasonable effort and expense. In this
regard, the Company does not provide a reconciliation of forward-looking adjusted EBITDA (non-GAAP) to GAAP net income, due to the inherent difficulty in forecasting and quantifying certain amounts that
are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income may vary significantly based on actual events, the Company is not able to
forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income at this time. The amounts of these deductions may be material and,
therefore, could result in projected GAAP net income being materially less than is indicated by estimated adjusted EBITDA (non-GAAP). In addition, the Company does not provide a reconciliation of forward-
looking free cash flow (non-GAAP) to GAAP cash flows provided by operating activities and GAAP cash used in investing activities, due to the inherent difficulty in forecasting and quantifying certain amounts
that are necessary for such reconciliation. Because certain line items used to calculate projected cash flows provided by operating activities and cash used in investing activities may vary significantly based on
actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all line items needed in order to provide a GAAP calculation of projected free cash flow at this time.

This presentation contains projections with respect to the company and CENTRA Technology, Inc. The company’s independent auditors have not audited, reviewed, compiled, or performed any procedures
with respect to the projections for the purpose of their inclusion in this presentation, and accordingly, did not express an opinion or provide any other form of assurance with respect thereto for the purpose
of this presentation. These projections should not be relied upon as being necessarily indicative of future results.

In this presentation, unless the context indicates otherwise, the terms “PAE” and the “company” refer to PAE Incorporated and its subsidiaries taken as a whole.                         2 |
PAE to Acquire CENTRA Technology - October 26, 2020 - PAE Investor Relations ...
JOHN HELLER
President & Chief Executive Officer
CENTRA TECHNOLOGY ACQUISITION HIGHLIGHTS
     Transaction expands PAE’s portfolio with access to new capabilities, customers and
     highly sought-after contract vehicles

                                                                                                                                Key CENTRA CY2020 Financial Metrics
•   PAE will acquire CENTRA Technology, Inc. in a $208 million transaction,
    netProviding
        of taxmission
                 benefits
                      critical operational services to solve the complex challenges of our customers
                                                                                                                                Total Revenue 1
                                                                                                                                $255 million
•   Acquisition strengthens PAE's intelligence, defense and national and
    homeland security businesses in areas of high priority for the U.S.
    federal government                                                                                                          Adjusted EBITDA 1,2,3
                                                                                                                                $20 million (7.8% margin)
•   Business combination expands and differentiates PAE's capabilities in
    intelligence analysis, communication systems integration and research
                                                                                                                                Strong Backlog
    and development services for intelligence and defense customers
                                                                                                                                $1.0 billion (~ 4.0x revenue)
•   CENTRA will broaden PAE’s customer reach and adds attractive contract
    vehicles to PAE’s portfolio                                                                                                 Free Cash Flow 3
•   The agreement is accretive to key financial metrics including organic                                                       Minimal capital expenditures driving >99% free
    revenue growth, adjusted EBITDA margins 3 and free cash flow 3                                                              cash flow conversion

                               1 Based on CY2020 financial estimates
                               2 Excludes $4 million of cost synergies expected to be realized in FY 2021                                                       4 |
    PAE PROPRIETARY            3 Adjusted EBITDA, Adjusted EBITDA margins and free cash flow are non-GAAP financial measures.

                                 For a discussion of non-GAAP financial measures, see slide 2.
CENTRA OVERVIEW
     Premier provider of intelligence and national security mission support                                KEY CAPABILITIES

•     Focused on providing mission critical services to the Intelligence Community
      (“IC”) and other U.S. national security customers, including: classified                                 Intelligence Support
      intelligence agencies, DARPA, DTRA, DIA, DHS Office of Intelligence and
      Analysis (“I&A”), USAF, and other defense and domestic agencies
                                                                                                               Secure Communications Systems
•     Delivers exceptional performance across a broad suite of core capabilities

•     Well-established national security business platform                                                     Information Analytics
•     Long-standing customer relationship through an average of 20+ years with
      top clients
                                                                                                               Management Support

                                       KEY STATISTICS                                                          Training
    $255M                                    $20M                                            89%
FY20E Revenue 1                       FY20E Adj. EBITDA 1,2                                 Prime1             Technical Engineering
                        760                                            93%
                      Employees                                    TS & TS/SCI(3)

                       1 Projected for CY20E
                       2                                                                                                               5 |
    PAE PROPRIETARY      Adjusted EBITDA, Adjusted EBITDA margins and free cash flow are non-GAAP
                       financial measures. For a discussion of non-GAAP financial measures, see slide 2.
                       3 As of 6/30/20
CENTRA INVESTMENT THESIS
    Acquisition further diversifies portfolio while significantly expanding the addressable market

                                                                  Investment Impacts to PAE’s Portfolio

     Significantly Increases                            Increases PAE’s total addressable market by approximately $36 billion in annual spending
      Addressable Market

      Broadens Service and                              Adds new, value-add service and technology offerings to PAE’s portfolio
      Technology Offerings

Expands Customer Footprint and                          Expands PAE into new Intelligence, DoD and DHS customers in addition to providing access to several
       Contract Vehicles                                large contract vehicles

Provides Additional Stability to                        Provides an additional ~$1B of backlog (~4.0x CY2020 revenue1) with limited recompete risk
       Financial Profile

    Adds Uniquely Qualified                             Provides highly skilled and cleared professionals with subject matter expertise across a broad range of
    Employees to Workforce                              critical national security issues

                                                                                                                                                6 |
   PAE PROPRIETARY
                        1   Based on CY2020 financial estimates
CENTRA ADDRESSABLE MARKET EXPANSION
  Expands PAE’s total addressable market (“TAM”) by ~$36 billion in attractive mission critical areas

                   Additional                                                                                                   PAE’s End-Market
Market Area                                Services                       PAE’s New Market Segments
                   TAM (FY20)                                                                                                    Opportunities

                                       Mission operations
                                   support and turnkey secure
                                    communications solutions                      Intel Analysis              Program Support
Intelligence         $15B              for the intelligence                           (~$7B)                       (~$4B)
                                           community
                                                                 SATCOM Services              Terrestrial Network
                                                                     (~$1.5B)                       (~$2.5B)

                                       Specialized training,
                                     including realistic field                 C5ISR Engineering               Intel Training
                                     exercises and advanced                         (~$4B)                         (~$1B)
                                       technology training,
Defense              $18B             technical engineering
                                   support and other support             Technical
                                             services                 Advisory (~$12B)               DoD Training (~$1.2B)

                                    Management support to
Homeland              $3B          multiple offices within DHS
                                                                         Information
                                                                        Analytics (~$2B)
                                                                                                         Management
                                                                                                        Support (~$1B)

                                                                      Sources: RSAdvisors analysis                                      7 |
 PAE PROPRIETARY
LONG-STANDING RELATIONSHIPS WITHIN THE NATIONAL SECURITY COMMUNITY
 CENTRA maintains long and tenured relationships with critical intelligence, defense and national and homeland security agencies

                                                                                                                                  Other
   LONG TENURED CUSTOMER RELATIONSHIPS                                                                                             1%

    Air Force                                26 years1                                                           Civilian
                                                                                                                  14%

  Intelligence                            22 years1

    DARPA                                 22 years                                                                       FY20E
                                                                                                                                                   Intelligence
                                                                                                     Defense            Revenue                    Community
      DHS2                          16 years                                                          28%                                              57%

       FBI                          16 years

      DTRA                      9 years

                                                                                             1 Tenure includes subsidiary relationships with USAF and
                                                                                                                                                          8 |
PAE PROPRIETARY                                                                              NGA, respectively, prior to acquisitions
                                                                                             2 Relationship since inception of agency
STRATEGIC RATIONALE
 Substantial Whitespace Opportunity for Growth

                                                                              PAE CENTRA
                                                 Intelligence Analysis              ✓
                                                 Training Services             ✓    ✓
                           Key Capabilities      Communication Solutions            ✓
                                                 Program Management Support         ✓
                                                 Technical Engineering              ✓
                                                 Intelligence Community        ✓    ✓
                                                 NGA                                ✓
                            Key Customers
                                                 DARPA                              ✓
                                                 DHS                           ✓    ✓
                                                 NGA JANUS                          ✓
                             Key Contract        FBI SIAS                           ✓
                               Vehicles          DHS IDIQ                           ✓
                                                 DARPA TTO                          ✓
                                                 Others                             ✓

                                                                                           99 ||
PAE
PAEPROPRIETARY
    PROPRIETARY
CHARLIE PEIFFER
      Chief Financial Officer
PAE PRO FORMA CAPITAL STRUCTURE
       PAE’s successful debt refinancing enables this acquisition

                                   CAPITALIZATION                                                                06/28/20 1                                                       Pro Forma 12/31/20 1

                       Asset-Based Revolving Loan Credit Facility                                                      $0                                                                 $0

                                  1st Lien Term Loan 2                                                               $499                                                                $740

                                   2nd Lien Term Loan                                                                $129                                                                 $0

                              Delayed-Draw Term Loan 2                                                                 NA                                                                 $60

                                       Total Debt 2                                                                  $628                                                                $800

                                           Less:

                                  Cash & Equivalents 2                                                               $139                                                                $100

                                        Net Debt 2                                                                   $489                                                                $700

                  CY20 Adjusted EBITDA guidance as of 8/6/2020 2,3                                                   $175                                                                $195

                         Net Debt / CY20 Adjusted EBITDA 2,3                                                          2.8x                                                                3.6x

                   1 In millions                                                                                                                                                                     11 |
                   2 Based on CY2020 financial estimates
                   3 Adjusted EBITDA, Adjusted EBITDA margins and free cash flow are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see slide 2.
PAE PROPRIETARY
CENTRA TRANSACTION OVERVIEW

            EV Multiple                                       8.8x PF 2020 Adjusted EBITDA (1)

            Purchase Price                                    $208 million, net of tax benefits

            Pro Forma Leverage                                3.6x net leverage, with ample liquidity

                                                              Transaction will be funded through cash on hand and utilization
            Funding
                                                              of delayed draw term loan
                                                              Accretive to organic revenue growth, adjusted EBITDA margins 2
            Financial Benefits
                                                              and free cash flow per share
                                                              Increases financial stability with about $1B of backlog (~4.0x
            Backlog
                                                              Backlog / CY2020 Revenue (3))

            Timeline                                          Expected close late 2020 upon customary regulatory approvals
                        Source: PAE management
                       1 Includes $4 million of cost synergies expected to be realized in FY 2021                                                                                        12 |
PAE PROPRIETARY        2 Adjusted EBITDA and Adjusted EBITDA margins and free cash flow are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see slide 2.

                       3 Based on CY2020 financial estimates
STRONG FREE CASH FLOW GENERATION ENABLES RAPID DE-LEVERING
                                                                                                                                         NET LEVERAGE RATIO
                                                                                                                                                     3.6x

                                                                                                                                                                                     3.1x
    Commitment to de-lever rapidly through use of
    excess free cash flow for debt repayment
                                                                                                                   2.7x
    Expected net debt at close of $700 million

                                                                                                       PAE
                                                                                                       Standalone                            PAE + CENTRA                          PAE + CENTRA
                                                                                                       12/31/20 est. 1,2                     PF 2020 1,2                           PF 20212,3

                    Source: PAE management
                   1 Based on CY2020 financial estimates                                                                                                                          13 |
PAE PROPRIETARY    2 Adjusted EBITDA, Adjusted EBITDA margins and free cash flow are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see slide 2.

                   3 Net Debt / PF Adj. FY21P EBITDA based on preliminary CY2021 financial estimates and $4M of cost synergies expected to be realized
SUMMARY TRANSACTION HIGHLIGHTS
Focused on value creation and balance sheet flexibility

        EXPANSION OF PAE                                                    ACCRETIVE TO                                                                        COMMITMENT TO DE-
        PORTFOLIO                                                           MARGINS AND FREE                                                                    LEVER RAPIDLY
                                                                            CASH FLOW                                                                           Capital-light business model
        Expands PAE’s total addressable
        market by ~$36 billion in attractive                                                                                                                    enables rapid de-levering
                                                                            Attractive margin profile driven by
        mission-critical areas                                              high-end services

                                                                                                                                                                3.1x Net Debt / PF Adj. FY21 EBITDA 3
        Broadens service and technology
                                                                            Immediately accretive to PAE adjusted
        offerings
                                                                            EBITDA margin profile; increases PF CY20
                                                                            adjusted EBITDA margins by ~10 bps 1,2
        Expands customer footprint and contract
        vehicles

       Adds uniquely qualified employees to
       workforce

                             Source: PAE management
                             1   Based on CY2020 financial estimates                                                                                                                           14 |
PAE PROPRIETARY              2 Adjusted EBITDA and Adjusted EBITDA margins and free cash flow are non-GAAP financial measures. For a discussion of non-GAAP financial measures, see slide 2.
                             3 Net Debt / PF Adj. FY21P EBITDA based on preliminary CY2021 financial estimates and $4M of cost synergies expected to be realized
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