FALLS CHURCH, Va., March 11, 2020 (GLOBE NEWSWIRE) -- PAE Incorporated (NASDAQ: PAE, PAEWW), today announced fourth-quarter and full year 2019 financial and operating results.

CEO Commentary

"We had a strong fourth quarter as we delivered revenue and adjusted EBITDA that exceeded our expectations," said PAE’s President and Chief Executive Officer John Heller. "We are successfully executing our strategy to drive top line revenue growth, generate free cash flow and deliver exceptional performance to our customers. We entered 2020 with strong fundamentals in place – a robust federal spending environment, a high-quality sales pipeline and a talented team positioned to drive growth and increase shareholder value."

Fourth-Quarter 2019 Results

Revenues for the quarter of $697.1 million increased $25.0 million, or 3.7%, compared to the prior year quarter. The improvement was primarily attributable to new service awards within both our Global Mission Services (“GMS”) and National Security Solutions (“NSS”) segments.

Operating loss for the quarter was $3.2 million, compared with operating income of $12.1 million in the prior year quarter. The decrease in operating income resulted primarily from set-up costs on new business awards and one-time impacts from increased operating costs.

Net loss attributed to Shay Holding Corporation for the quarter was $14.6 million compared to a $13.1 million loss in the prior year quarter due to the factors impacting operating income.

Adjusted EBITDA for the quarter was $37.5 million, or 5.4% of revenue, compared to $37.1 million, or 5.5% of revenue, in the prior year quarter. The modest variance was driven by the increase in revenue.

Global Mission Services
GMS revenues for the quarter of $533.6 million increased $11.2 million, or 2.1%, compared to the prior year quarter. The improvement was primarily attributable to new service awards.

GMS operating income for the quarter was $15.4 million, compared to $21.2 million, in the prior-year quarter. The decrease in operating income year-over-year was driven by higher non-recurring operating expenses.

GMS adjusted operating income² for the quarter was $33.5 million, or 6.3% of revenue, compared to $28.6 million, or 5.5% of revenue, in the prior year quarter. Adjusted operating income increased year-over-year primarily due to higher revenue and improved performance on international programs as well as normalizing for certain one-time, non-recurring operating expenses.

National Security Solutions
NSS revenues for the quarter of $163.5 million increased $13.8 million, or 9.2%, compared to the prior year quarter. The improvement was primarily attributable to new service awards.

NSS operating loss for the quarter was $13.7 million, compared to a loss of $5.2 million in the prior year quarter. The increase in operating loss year-over-year was driven primarily by set-up costs on new business awarded in the third quarter of 2019, new business delays and one-time impacts from increased operating costs.

NSS adjusted operating income³ for the quarter was $3.9 million, or 2.4% of revenue, compared to $8.5 million, or 5.7% of revenue, in the prior year quarter. The decrease in adjusted operating income year-over-year was primarily due to set-up costs on new business awarded in the third quarter of 2019, new business delays and one-time impacts from increased operating costs.

Full-Year 2019 Results

Revenues of approximately $2.8 billion for the fiscal year ended December 31, 2019 increased by $155.3 million, or 6.0%, from the comparable period in 2018. The increase in revenues was primarily attributable to contract growth across current programs and new program awards. Revenue for the GMS and NSS segments increased $130.9 million and $24.4 million, respectively.

Operating income for the year was $26.8 million, compared with operating income of $50.1 million in the prior year. The decrease in operating income resulted primarily from an increase in cost of revenues driven by the sale of substantially all the assets of one of PAE’s subsidiaries, PAE ISR LLC (“ISR”). The sale of the ISR assets resulted in the recognition of a loss of $32.8 million. The increase in cost of revenues was partially offset by a reduction in selling, general and administrative expenses.

The net loss attributed to Shay Holding Corporation for 2019 was $49.8 million, compared with a net loss of $34.5 million in 2018. The increase in net loss for the fiscal year ended December 31, 2019 as compared to the fiscal year ended December 31, 2018 was driven primarily by the factors impacting operating income.

Adjusted EBITDA for 2019 was $166.7 million, or 6.0% of revenue, compared with $157.4 million, or 6.0% of revenue, in 2018. The improvement was primarily attributable to the increase in revenue.

Global Mission Services
GMS revenues of $2.1 billion for fiscal year 2019 increased $130.9 million, or 6.6%, compared to the prior year. The increase was driven equally by new business awards and on-contract growth across the GMS business areas.

GMS operating income of $92.4 million for fiscal year 2019 increased by $3.2 million, or 3.6%, from the comparable period in 2018. The variance was driven by the increase in revenue, which was partially offset by higher cost of revenues.

GMS adjusted operating income for fiscal year 2019 was $126.1 million, or 6.0% of revenue, compared to $113.8 million, or 5.8% of revenue, in the prior year. Adjusted operating income increased over the prior year primarily from the increase in revenue and margin expansion from on-contract growth, partially offset by new business set-up costs.

National Security Solutions
NSS revenues of $664.2 million for fiscal year 2019 increased by $24.4 million, or 3.8%, from the comparable period in 2018. This increase was primarily driven by new business awards.

NSS operating loss of $36.9 million for the fiscal year ended December 31, 2019 increased by $24.4 million from the comparable period in 2018. The higher loss was primarily due to pretax losses relating to the ISR operations, partially offset by the factors impacting NSS revenues.

NSS adjusted operating income for fiscal year 2019 was $40.6 million, or 6.1% of revenue, compared to $43.6 million, or 6.8% of revenue, in the prior year. Adjusted operating income decreased over the prior year primarily because of set-up costs on new business, new business delays and one-time impacts from increased operating costs.

Cash Flow Summary

Total cash flows used in operating activities for the fourth quarter were $12.2 million. The $28.0 million improvement in cash used in operating activities compared to the prior year period was primarily due to improved cash collections.

Total cash flows provided by operating activities for the year were $116.6 million, a $173.5 million increase from the prior year, also due to improved cash collections and higher adjusted EBITDA.

As of December 31, 2019, PAE had cash and cash equivalents totaling $68.0 million and $121.8 million of availability under its asset-based revolving loan credit facility. In addition, PAE made $99.9 million in net repayments on long-term debt during 2019.

Business Development Highlights and Contract Awards

Net bookings totaled $3.1 billion in fiscal year 2019, representing a book-to-bill ratio of 1.1x for the year. The net bookings were primarily on-contract growth and new business awards.

Notable recent awards received included:

• Army Contracting Command (ACC) Orlando: PAE’s NSS segment was awarded the Afghan National Army Special Operations Command, Afghanistan Special Security Forces (ASSF) task order on the Enterprise Training Support MAC ID/IQ Contract (ETSC), with a value of more than $150 million over three years. The customer, PEO STI, selected PAE to provide all personnel, equipment, supplies, transportation, tools, materials and supervision necessary to train, advise, assist, and mentor and implement POI-based training methodologies to increase Afghan Special Security Forces (ASSF) capacity and capability. The ASSF task order is a new business prime task order award for PAE. This award along with 4 previous awards on this contract vehicle places NSS as the top awardee on the ETSC IDIQ vehicle.
• Department of Justice: PAE’s GMS segment was awarded a $330 million, 7-year worldwide training and support services contract to support the International Criminal Investigative Training Assistance Program (ICITAP).
• National Oceanic and Atmospheric Administration: PAE’s GMS segment was awarded a $81 million, 4-year National Data Buoy Contract (NDBC) to provide operations and maintenance of the Marine Observation Network. Located at the Stennis Space Center (SSC), NDBC’s mission is to provide a real-time, end-to-end capability from the collection of marine atmospheric and oceanographic data to its transmission, quality control and distribution.

The Company’s backlog at the end of the quarter was $6.4 billion, of which $1.5 billion was funded.

Transaction

On February 10, 2020 Gores Holdings III, Inc., a Special Purpose Acquisition Company (“SPAC”), completed the acquisition of Shay Holding Corporation, as described in more detail in the Basis of Presentation section. In connection with the acquisition, the name of “Gores Holdings III, Inc.” was changed to “PAE Incorporated” at closing, and as a result of the acquisition, PAE became a publicly listed company. PAE’s common stock and warrants are now listed on NASDAQ under the symbols “PAE” and “PAEWW”, respectively.

2020 Financial Outlook

The table below summarizes the Company’s fiscal year 2020 guidance.

Adjusted EBITDA is a non-GAAP financial measure. The company is not providing a quantitative reconciliation of adjusted EBITDA in its 2020 financial guidance in reliance on the “unreasonable efforts” exception for forward-looking non-GAAP measures set forth in SEC rules because certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated without unreasonable effort and expense. In this regard, the company does not provide a reconciliation of forward-looking adjusted EBITDA (non-GAAP) to GAAP net income, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain deductions for non-GAAP exclusions used to calculate projected net income may vary significantly based on actual events, the company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP net income being materially less than is indicated by estimated adjusted EBITDA (non-GAAP). In addition, the company does not provide a reconciliation of forward-looking free cash flow (non-GAAP) to GAAP cash flows provided by operating activities and GAAP cash used in investing activities, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. Because certain line items used to calculate projected cash flows provided by operating activities and cash used in investing activities may vary significantly based on actual events, the company is not able to forecast on a GAAP basis with reasonable certainty all line items needed in order to provide a GAAP calculation of projected free cash flow at this time.

About PAE

For more than 60 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 more than 20,000 on all seven continents and in approximately 60 countries, PAE delivers a broad range of operational support services to meet the critical needs of our clients. Our headquarters is in Falls Church, Virginia. Find us online at pae.com, on Facebook, Twitter and LinkedIn.