PAE to Acquire CENTRA Technology - October 26, 2020 - PAE Investor Relations ...
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PAE to Acquire CENTRA Technology
October 26, 2020
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 |
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 6/30/20CENTRA 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 estimatesCENTRA 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 PROPRIETARYLONG-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 agencySTRATEGIC 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
PROPRIETARYCHARLIE PEIFFER
Chief Financial OfficerPAE 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 PROPRIETARYCENTRA 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 estimatesSTRONG 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 realizedSUMMARY 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 realizedYou can also read
