PAE Incorporated

Good morning and welcome to the PAE conference call. This conference call is being recorded. At this time, I would like to turn the call over to Mark Zindler, PAE's Vice President of Investor Relations.

Good morning and thank you for joining us on rather short notice. Today, we announced that PAE has agreed to acquire Centra Technology in an all-cash transaction. The press release and presentation slides to be utilized in conjunction with today's call can be found at investors.pae.com. Please take a moment to obtain the presentation slides as we intend to utilize them during this call. We have filed a Form 8K regarding this announcement, and I ask that you refer to that filing as well. Joining me today to discuss the announced acquisition are PAE's President and CEO John Heller and CFO Charlie Pifer. Management may make forward-looking statements during the call regarding future events, anticipated future trends, and anticipated future performance of the company as more fully described on slide two. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These factors are described in our SEC filings. Please refer to our transaction announcement press release for PAE's complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Management will also discuss non-GAAP financial measures during this call, and we remind you that these non-GAAP financial measures are not a substitute for their comparable GAAP measures. Management will also discuss projections during this call. These projections should not be relied upon as necessarily indicative of future results. As you turn to page three of the presentation slides, it is my pleasure to introduce PAE's President and CEO, John Heller.

Thank you, Mark, and thank you all for joining us this morning on such short notice. Starting on slide four, I am pleased to announce that PAE has entered into agreement to acquire Centra Technology, an independent provider of high-end intelligence support, information analytics, engineering services, and other advanced technology solutions for $208 million net of tax benefits. This deal represents an exciting opportunity for PAE to expand our intelligence analysis portfolio. As I discussed on our first quarterly call in March of this year, our M&A strategy is focused on extending into adjacent business areas, adding complementary capabilities, and expanding our core addressable market while delivering meaningful synergies. Following the onset of the pandemic and the temporary closing of the credit markets, we had to put our M&A initiatives on hold. As the credit markets reopen and we successfully refinanced our debt structure last week, we are now in position and incredibly pleased to enter into this transaction. And as it is well aligned with our growth strategy, we're excited. Recognized as a premier provider of intelligence and national security mission support, we are incredibly pleased to be adding such a successful business to PAE. Centra maintains long and tenured relationships with critical intelligence, defense, and national and homeland security agencies. And this acquisition will create for shareholders, customers, and PAE and Centra employees. Furthermore, this transaction is firmly aligned with PAE's strategy of expanding the business to higher margin market areas. We expect the transaction to close in the fourth quarter of this year. and once finalized, the business combination will expand PAE's portfolio with access to new capabilities, customers, and highly sought-after contract vehicles. The transaction brings new value-added service and technology offerings to the portfolio, including intelligence analysis, communication systems integration, and research and development services. It's highly complementary aligned with our strategy of providing higher-end managed services with virtually no overlap with our existing customers or bid pipeline. Centra will expand PAE's customer reach and add numerous attractive IDIQ contract vehicles to PAE's portfolio. Moreover, the transaction is expected to be accretive to organic revenue growth, adjusted EBITDA margins, and free cash flow per share. Turning to slide five, let me step back and provide an overview of Centra technology. Centra has approximately 760 employees, about 700 of whom hold TSSCI clearances with subject matter expertise across a wide range of critical national security issues. Their strategy is focused on providing mission critical services to the Intel community and other U.S. national security customers. with very little overlap with PAE's existing customer relationships. As you can see on the slide, Centra has developed capabilities in innovative, high-end market areas that will enhance PAE's strategy of moving up the value chain in pursuit of higher-end government contracts. Centra is expected to generate about $255 million in calendar year revenue, approximately $20 million of adjusted EBITDA, equating to a 7.8% margin, and minimal capital expenditures. Turning to slide six, let me hit home the key highlights and rationale for this investment. As I mentioned earlier, Central will increase our addressable market and will bring new value-added service and technology offerings. We'll share the details on the next slide, but through access to new market segments and new customers, Central will increase PAE's addressable market by about $36 billion and attractive mission-critical business areas. Central will further enhance PAE's stability and financial profile via about $1 billion of backlog, equating to a strong ratio of four times revenue. And as I mentioned earlier, they have a highly qualified and skilled workforce with nearly 700 employees with top-secret clearances and a substantial opportunity to grow the highly cleared workforce across PAE. Moving to slide seven, this illustrates the key tenet of the strategic rationale for this transaction. As PAE is executed with prior M&A transactions, the combination with Centra yields significant incremental addressable market expansion. This is the white space opportunity that you've heard Charlie and I comment on numerous occasions. By combining Centra's capabilities with these new customers, It opens up exciting new market segments for PAE that were previously out of reach. These market segments, Intel Analysis, Intel Training, C5ISR, and R&D Services, to name a few, are all adjacent market segments to PAE's existing line of business and are now actionable and in play. Moving to slide eight. As you can see, Accenture has long-standing relationships within the national security community. These customers are highly complementary with PAE's existing customers and will substantially increase our exposure across the intel community. Furthermore, we will add highly sought-after relationships with a variety of Department of Defense and other federal civilian agencies, further enhancing our customer diversification. On slide nine, this really helps visualize how complementary CENTRA will be to PAE in terms of capabilities, customers, and contract vehicles. As we provided here, there is very little overlap between the two organizations, and this is why we are so excited in terms of the resulting increase to the addressable market and potential revenue synergies. Now, let me hand it over to Charlie to discuss the transaction details and key financial metrics.