PAE - Earnings call transcript Q2 2021

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Mark Zindler

Good morning, and thank you for participating in PAE's Second Quarter 2021 Earnings Announcement. We hope you've had an opportunity to read the release we issued earlier this morning. We've also provided presentation slides on the Investor Relations section of our website.

Joining me today to discuss our business and financial results is Charlie Peiffer, Interim President and Chief Executive Officer.

Following our prepared remarks, we will close with a question-and-answer session. statements and call of the forward-looking anticipated future the make trends future anticipated may during regarding the events, company. Management future performance of risks you performance difficult caution that statements not We such to predict. and uncertainties and guarantees involve that are are future a differ to of results statements may in forward-looking from materially Actual factors. projected those the due variety These factors described are in our SEC filings. to PAE's complete disclosure. for earnings forward-looking release press our Please refer statement undertake any obligation to statements. or not update do We and non-GAAP substitute Management you measures GAAP financial we will call, measures a remind these this not measures. discuss for financial non-GAAP also that during comparable are their Reconciliations press of financial release the today. to the presentation measures investor comparable earlier issued GAAP these non-GAAP and in are contained measures And will now call over I the turn to Peiffer. Charlie

Charlie Peiffer

us earnings continued momentum second joining improvement a second our the the third for Thank in generated quarter, quarter. with pleased saw net you conference positive first half year. I'm for margin bookings. this quarter I'm the has the for results second encouraged strong in and of of our significant the We for our month morning and call. expansion all The

the For of key fundamentals and of today's the with the I'll the business second call, overview of start an quarter. highlights

and on Revenue our of perspectives due several margin the quarter our expectations growth address below with I'll addition, expansion timing In PAE's first macro industry trends compared slightly the XXXX. competitive second results, strong IDIQ on X% our we revenue delivering to organic in quarter and to the Beginning positioning. was internal vehicles. performed well,

second the line been revenue we year. delivering of to orders half task However, the have have now and of these growth in the sight awarded,

than fewer to to staffing and plan and at new a travel bids increased and this increases continued measured to immigration-related regards to logistics we've in to on disruptions more billion least see levels our continue operating with programs, $XX billion submit in With business. is return normal year COVID-XX, to $X efforts. We training

disruptions business. We we impacts our to variant, the to seen of the monitoring Delta but date, are new have not

also Moving approximately contract the of on in second NSS see over and approximately financial by driven XXXX. more areas. achieved sizable half several in We growth The We a driven to variety to both results. and immigration-related organic and grew Metis growth. year-over-year, COVID-XX our XX% companies business business of by grew and legacy our the by CENTRA were growth wins detailed last programs pleased to on core return X% training on-contract recovery year business X%

grew and ability our wins. It's for primarily Our strong this X% segment proud to margin grew such adjusted strategy. of our execute new driven margins -- about by year-over-year expansion business further validation quarter. teams more GMS I'm EBITDA really driving our of

year. the over the prior of COVID-XX This basis the last contracted of period. this and Our cost proposals points acceleration reduction primarily year nonlabor in XX by driven margins bid about was year, and revenue

This issue that will in so isolated a programs. handful a and release You our to is cash was negative earnings was for quarter. the timing of flow note

falls receivables which third collected million June, planned $XX in approximately that of quarter, days X in our fiscal last our the During quarter. for fiscal second were we

progress in a earlier, the the activity and improvement experienced As to award seen we've I quarter. we discussed quarter, for third continued solid start

across awards test you and infrastructure earnings and our intelligent solutions, we mission solutions, highlighted release, the training As note business in will portfolio readiness demonstrated analytics, our diverse management.

which the a awards including broad to demonstrated quarter Pacific awards reach, we that strategically. be notable continue region, second will Asia emphasized several our also The region geographic in

late protest protest a third should June we We rendered on Court regarding subsequently be believe Office Next, CBP decision Government the a and the filed Claims. of award, Accountability $X.X the by our with billion Federal quarter. X denied

at pipeline is the $X.X Now about I'll bid business which are new provide $X.X billion the billion of awards and end of quarter. awards. evaluation, about We $X.X recompete billion under had of a approximately in summary the

which We business. new also process, had an incremental $X.X of almost the proposal billion is in writing all

the Space currently addition, GMS protested was NASA The recompete following quarter, award $XXX end was Space Office. Houston, the the and approximately of in contract at Government at the -- Center awarded and competitor, million Center Johnson protest second In a by Accountability Texas. subsequently Johnson is that pending

a billion GMS in submitted under the our is we're $X.X and great billion Johnson Assuming billion are Department Center, is pleased $X.X approximately awaiting of and close task second it report billion billion recompete new awards billion than into quarter, more $X.X CBP awards, were that winning and new time. to in recompete backlog successful of that will we take PAE's Space I'm opportunities. including team. we're awards. awards. than during upheld, business services by award all Justice waiting at point in orders support program, about business are $X.X and we X recompete accomplishment $X the both in NSS, our litigation More which Within MEGA to $X.X of At

from we bid earlier, I'll a and expect demand perspective, attractive are customer to continue moment more of with provide federal and focus diversified From environment. themes to bid defense, billion than XX% reach this this closely GMS aligned intelligence at new our areas address $X pursuing. customers, global Across forecasting key step our mentioned about benefit take an strategic our XX% PAE, bid priorities. a we with of we being and I set commentary to are general capabilities civilian about the to business opportunities. to back year As billion total. least NSS additional and We're $XX to

we Engineering of including several USAID, awarded infrastructure USAID in Department and State, wins Global had Bangladesh, are with management seat the we Services the on a key Within IDIQ. Architect

our see foreign and given advantage. presence such positioned X prioritization areas services, initiatives, development, geographically, from international continued all And which we're In unique on terms intelligence a capability, immigration administration DoD the competitive of well continents, we as policy in readiness analytics. is

are we on region, intense which focused the previously, of PACOM the we will we particularly As a be believe foreseeable region focus for noted future.

operating Agency Corps further Logistics Air region. the our with Korea in support PACOM awards contract solidify Japan base Marine position for in and Defense strong in Station growing at recent the services Our

are We contract well vehicles. of positioned also in terms

our to continue IDIQs further will to attractive portfolio. pursue We enhance

In we past addition, tremendous successful our execute teams, believe by we is I can won execution our a IDIQs objectives years. financial the moving forward on already near-term the forward. have This development to accomplishment we business and look on over based positions several

minutes Next, I'll few discussing Afghanistan, spend its a business. our impact on and

Defense and our comprised is our in call, in of Department Afghanistan programs. discussed of revenue I prior As of Department State

seeing State Strategy, revenue program, the third enter of of team. demobilization The the quarter. extremely logistics X% of -- our for significant the ongoing the the in revenue, and in demonstrate NMS June, and DoD efficient NMS XXXX, of professionalism ground I'm exposure X% was successful to was by and National quick-turn Department of proud Maintenance effort revenue forces. concluded and Kabul demobilization in are department approximately contractors, very and primarily roughly leadership DoD regard With we U.S. and effectively the which keeping programs, state at was troops or support the our our Maintenance we the driven on U.S. with the and maintenance ceasing Afghanistan. provided process open. by was the Embassy As government on administration's Biden support end Afghan U.S. both Based program decision on from the the withdraw vehicle team to of

we our his profitability. concerns, of revenue despite expectation grown from With government and defense, the Even elaborate the to a a currently our monitoring budget or and explore Our if fiscal for we're financial in the not remainder current understanding not pleased the in Department financial any will accustomed are civilian impact will we CR to XXXX of intelligence we federal regard Mark PAE direction federal to and changes the do and results operations. discussions discussions, regarding But headed variety concluding in further Thus of far, NMS our operating environment, the of address scenarios XXXX and government see with negotiations. program resolution, guidance to based are anticipate that is the security the budgets. year, date ongoing the State business on reiterating is continuing start that we a to we will are industry remarks. Afghanistan. under reductions the have to year outlook

Mark before our addresses provide CEO update on the Lastly, financial an process. results, recruitment I'll search

for months, interviewed on numerous that we and search track to highly momentum communicated, building we we X second we meantime, As execute the estimate. see estimated take results. believe to I'll to we plan call frame. this overview about to X financial the and qualified our that, for XXXX reason strategic CEO no the the revise process against of candidates, The time an XXXX. our has within over Mark previously and are are committee hand our continuing With to In this expectation name quarter will was

Mark Zindler

morning, of discussion quarter start a Thanks, I'll overview our followed takeaways. of provide and results, second joining Good us guidance. call. thanks everyone I'll an on to the Charlie. with by for XXXX XXXX key

confident for was and generated year. timing we based revenue our and lower our strong discussed, the than was which activity. award remain but in strong margins, improvement Charlie delivered flow our solid we EBITDA below to on bid experienced As Revenue contract cash expectations internal quarter adjusted in our guidance due plan, considerations. we a slightly Operating a submissions, in

was As days guidance had this that the XX. quarter the on reiterating That June. our of the our for of collecting fiscal are the results last of ending operating remainder our collected planned we Consequently, year. anticipated $XX X at Charlie cash year, we collected based and the discussed, over for second on we flow of activity receivables full million June end

X%, results. of growth approximately revenue, represented the and organic prior Moving first CENTRA X% line top detailed Metis revenue. new over delivered existing the programs I'll quarter. over X% contract acquisitions Legacy Revenue on year. and increases $XXX about with million in over delivered from which GMS to the revenue. representing revenue, about grew We benefited second year the The higher and $XX respectively, nonlabor awards, volume million about in prior growth year quarter. start and NSS quarter business prior

of bid quarter. higher and XX the to relative an nonlabor of basis EBITDA Second internal and the reduction in proposal revenue modestly due year was the plan, the primarily acceleration our was in contraction point quarter X.X%, year to costs last quarter and prior than margin margins adjusted

the adjusted quarter. an over approximate in Second $XX about was grew the $XX used million, X% income for net quarter increase prior year. million Cash to activities operating

this quarter. which were X days As by driven fiscal first I the was of payment the collected discussed, customer third delays,

customer through used $XX a life primarily costs driven CapEx, customer cash quarter, contract. investing charges for the We'll of the approximately addition, million approximately over supporting by $XX the in in recover In program. activities was million these

Moving GMS volume last quarter expenses, SG&A reductions declined this higher the the to at the next to second the X.X%. about segment revenue including to an our and proposal bid GMS for X% quarter margin in new business Margins grew wins, year, revenue second due offset prior quarter million and program relative results. timing. revenue year costs to over due due period primarily prior in adjusted reduction in $XX a quarter of operating income by nonlabor to increase partially quarter.

to profit immigration losses prior $XX NSS the declined recent former We program driven driven $XX growth and programs of segment. volume revenue NSS and by year million million, acquisitions. of due the performance. recovery. the improved increased proposal primarily set-aside adjusted quarter-over-quarter period by million on about income increase to by revenue organic revenue, timing which margins and quarter,, impacting to business the caused the X% was headwinds the due last in to relative generated bid attributable Moreover, and delivered this comparisons. the our this operating prior quarter. net small year of quarter second longer are Turning to COVID-XX training year same the no to costs NSS NSS in year adjustments $XXX

Workday accounting track cost-point completed CENTRA of on back-office moving to The to integration, and next efforts our resources and single be including the system is human a third instance of the to system integration during our quarter. Moving Metis.

about As rate full track cost year on synergies a expected to communicated, fiscal $X year the run million fiscal XXXX cost XXXX. million $X previously result, and in we realizing or meet savings exceed cost starting synergy are in in we've estimates

out As revenue the our to contributions. and successful be year. CENTRA will and third integration separate quarter, quarter will feasible identify it efforts, we of Thus, discussed last of due this this by Metis the we to quarter, not separately results be CENTRA Metis

outlook our the guidance. half results financial our XXXX year, year to Based XXXX on we first reiterating in the March. guidance remainder for we're provided and the Moving on of full

to as of is follows: $X.XX financial range $X.XX in revenue the Our billion billion. expect We guidance

adjusted cash operations. contracts. midpoint our X% XX expect expect in We new And improvement least approximately a of is $XXX the point XX% and guidance, EBITDA approximately over representing in recompete from million about from $XXX basis revenue business flow XXXX. we in of backlog, At $XXX range million the midpoint to million, guidance of X% at awards is at is from the

takes the million for our Other available presentation the rate shifted For flow the we anticipate in operator, the in open $XX of awards. of million are Investors of earnings that back-end by moderately XXXX our the the into lastly, remainder EBITDA tax business into run guidance Act section $XX third assumptions of of continue and With the about driven guidance and website. The adjusted operations CARES assumed million new quarter from account deferral payroll be And year, questions. cash accounts call payment. operations revenue $XX performance. factors timing our approximate for to of quarterly key collections the that, weighted, from expected on cash receivable to let's

Operator

[Operator CJS first line comes the from of with Moore question Instructions] Our Chris Securities.

Chris Moore

So if just the half of it simplistically a brings kind bit that, in first half 'XX revenue, you at first below guidance. double look little EBITDA,

the on in walk that the So guidance revenue particularly through can taper light the in revenue you and off of EBITDA kind maybe QX? will assumptions hitting of Afghanistan

Charlie Peiffer

Thanks, Chris. Sure.

about half, will task is to the growth on-contract driver half, coming key first volume between really from going existing growth. million top order on at Including look bridge second the at the you is when look $XXX you of line be IDIQ. in on-contract As that contribution be

will versus So Africa, seats that half we first these driving example, second that as performance. in on are quick-turn like an have opportunities be half

billion evaluation $X for about roughly new in have We business.

-- before, of billion be range, XX% $XX you told and bids XX% to submitted we As to that's going see business. that's we that in be to new

for business to So a this industry average. business uptick new already our see And in see win our have win we rate we are rate percentage. not you already perspective, be can of a assumptions from amount to -- a in evaluation this year. new significant significant then We're looking us point expect

contributing see then you're won to half, to see extent, first COVID you as seen we see going range, the So which would an it's we're the to percentage perspective, normal. half. in going things uptick we've to orders, to XXs nonlabor different nonlabor higher -- returning be a where normal a the second higher some revenue the material of than mid-XX low of have which, in And from in start percentage to

Chris Moore

very Got helpful. it. Very,

me. for one last Just

talk So impact on labor a availability, the are tighter Can and about wages you bit front of higher center. both PAE?

Charlie Peiffer

Yes.

from in time that talent. our, big ability to biggest it standpoint impact the now, what get on talent intel retain we're takes a we really various haven't haven't -- good ensuring Right hire to our pipeline and weren't market, the is retain forward. our the workforce cleared intel of programs. a seen people solid that we a headwind out But much going requirements to we able on we've coming haven't and of truthfully the where necessarily and the We through acquire seen than other area I'll focused people where the funnel, labor space work seen call, of got

Operator

Brian with next Our comes from of the Gesuale question line James. Raymond

Brian Gesuale

and in did terms kind Afghanistan. and consider gauge milestones of so I the security, few what more should we little front the you news with put how the on over since the color in appreciate bit there? impacts of on it's that really Could a we're side maybe commentary Embassy your to been next Embassy specific seeing quarters business any the workforce, that with center

Charlie Peiffer

discussed when of at before, program back and we at NMS look is step the Brian, end effectively you Afghanistan, concluding the June. as

demobilize we The and approach customer we have the that professionalism the manner great positive taken feedback a to the manner. in effort. that we've effective the an and has job taken that with that been have ensure think an I team in in orderly supporting demobilizing we and extremely received from did

be materials going have to that We route. en some are

the really just statement out stay to about recognize program. in or So in region, to committed the we'll the third definitely play tail some through specifically in the position, years. the U.S. When revenue operations. prior that think but is seen the it's you maintain State this quarter, region and U.S. in presence Department We've Embassy

new. is not this something So

expect that significant raised, revenue on a impacts but that don't our see any or see monitoring in concerns we Afghanistan, security we change. the been to program. the So currently including We're have to profitability don't situation

Brian Gesuale

And maybe PACOM the area. you you opportunities pretty some significant the that as It that sounds Can and like region high follow-up. domain. to look one on focusing a us that you've you're for of little give build bit are points and strategy talked the you if just there in looking to strategically I'd the Great. opportunities PACOM of about at the certainly

Charlie Peiffer

been Sure. island. It's started win expansion with That's on port the largest of to retaining the ours. on of be recompete area There's in area. going the the an It -- Guam. U.S. always focus port

that So that's The foothold looking us. we're positive to there, for positioned Corps expansion. so establish to support is a Marine well help

great that we So see opportunity, and contract. as a a that's long-term

operations. to the -- continue Iwakuni There the and is we're look that the first that going Iwatuni what the year of support at the we up then about, our at in are normally been that had that are though under LOGCAP. good competitive awarded we expand. opportunities it's what win be we're which it's we're that we presence call, specific that And properly be There's looking areas see I'll would effective look And opportunities we will coming a BOSS customer. So to that region other it's and touches I And think think performance. statement you that solution in like awards DLA. beyond are to that, provide DLA, really and to just that think then our even opportunities facility there recent on we with us we areas a can PACOM positioned. I outside a DLA protested, talked what of more Korea, it's support give is recent And

Operator

Deutsche with from Sameer Our comes next the question Kalucha of line Bank.

Sameer Kalucha

costs. noted proposal acceleration You in some

going. was kind I the these on or costs you on? So spend is where projects being proposals of elevated more wondering What provide color if could are focused

Charlie Peiffer

about No comment -- bid Yes. was really loading driven our of couple problem. our proposal The the and front-end items. of by spending a

all, it's the traditionally of of have areas markets. been that acceleration core opportunities our in in First

So its services for infrastructure. development, international and OCONUS example, also immigration foreign then diplomacy,

You couple the or that acquisition. the with what of white synergies space we coming out revenue call

in going the already and we've So before spending. analysis. things training, are an that see half when why CENTRA $X like billion we've of billion logistics the $X.X we training, submission, seen key and all that Metis. acquisitions said we're the the the first that of discussed logistics And -- out SOCOM drivers of and the $XX with And is bid to intel SOCOM expect, first the of come of uptick worth through analysis done and billion of the intel year really you this that that to with of reference in half the

play just our we out been So part the in really we're of and to the see presented, with [MBA] that have submitted strategy, was spent and half. bids the opportunities these can you first excited of start amount that

Sameer Kalucha

clarification going projects kind do of bit to then a or any forward? And things that maybe flow What the kind to? And contracts just related or is timing. it. little Got of you on anticipate similar elaboration cash maybe what

Charlie Peiffer

we We something forward. an don't -- expect expectation similar from standpoint, going

received our million third in our $XX the XX in in wouldn't XX, do the customers. fall didn't the habits collecting We collected and the perspective. where fiscal which June fall collection, -- second quarter. quarter. fiscal them I we're discussed, deviation didn't we fiscal not -- does that between anticipated quarter, not As June situation second was falls say our those It's falls in just expect a happen a to and of a from happen. payment It going it expected we timing from --

of taking wouldn't had issue. one focused do to the ensure to -- put repeat quarter handful were been contracts already a are set would to to that I issue. on we those and I to the call drove in collected systemic addressed ensure those processes each future. this steps systemic case, get there's call very it improve or of making month and a of that We a comfortable collections that what identified organization -- had not those that, a the in already has contracts not a It's we have is quarter, outside sure circumstances different that that more fall that but collected. They the those. in in The place. it already billed and we're in We've

Sameer Kalucha

it. did a Got bring just On changes, search is last CEO the management up, you on then And track. one.

outlined. What -- still You're that the GMS X during in Any to the you can other updates? senior positions color like as that the there, quarter you changed the any well? provide on months about President X

Charlie Peiffer

comment then are I we search. on to just Sure. first about our in we'll talk operating the rhythm, want and where

when was Anderson was the John and we had here President. was operating changed Chuck CEO, here as -- the here as the haven't rhythm Chuck We as

changed hasn't rhythm operating our So whatsoever.

been deviating not change no regard, be. and will never from from So there strategy. our there's that We're

Our strategy is clear. We're that strategy. executing

focus. no about The where talked We change the CEO rhythm when is the is in be something operating the brought it's of going So contingent to position CEO in that's with President on on or appropriate we to you're I search. It change has that going ensure or see mean thumbprint really the think put don't board. opportunity on the there's to his the her wait to an And so that organization. right replacement. CEO I'd now that that fill position. to rather doesn't follow CEO started. haven't replacement --

possible, externally. We to together have slates what's started understand internally pull and both to

through that. working we're so And

once where be going and we're winds positioned search, clear and out move who position. up process start well CEO with that the we'll that in So it's to

Operator

line Sharpe with Stanley. question Instructions] [Operator the Matt Morgan Our next from comes of

Matt Sharpe

contrast one Charlie, the the community I it quarter, and CENTRA of just growth strip I good you're your if sort strategic growth like it's seeing looks underlying either pretty around demand intelligence or of peers, which business your heard wanted to ongoing in Metis reemerging we've some to areas. from where since there, and somewhat Even getting touch on is awarded. new out challenges

So can set perspective just or the observations moment? maybe you and moment share on demand the of customer what and at that at sort your award you're seeing flow terms in the of

Charlie Peiffer

when the pre post I think is So and way. look would you of intel acquisition, it way this at

position We delay. of the the opportunities business continuation the that awards. has have Metis line And some and up do some those only our with see core CENTRA. of near-term strengthens There that we acquisition certainly been with

even -- one been delayed. of recompetes Some our has

-- through to space, across seen an is organic see the the continue in we importantly, it's That that But do I'm true. what So not with acquisitions, even industry. to have. aside, we grow intel the as entire a not put saying that -- but more opportunity we it's had additional business It's opportunities the we core, the the haven't only market. that in organically

about. this evaluation As regarding -- and are we the with through end will towards bid compete. opportunities if potentially and we're I asking has to our of mentioned a there's I response in In intel of pipeline a year, if us to solid [BNP], about in positioned have well good our you come work think the pretty could competitors And the in proposal that out some there's them. reaching that to team we amount of question qualification -- think cases, be

sign PAE with that that acquisitions, much the to think and stronger I with reckon see someone that's future. competitor a the a So people in

Matt Sharpe

with to one of it. associated COVID-XX just revenue update Got Delta within Any Any logistics maybe to Fantastic. respect then sort of with GMS? travel the challenges reemergence risk or operations? tied here. variant the or on And there

Charlie Peiffer

place that. all customer, related on not operation operating. approach and stands are have are own. those -- vaccination requirements the place of level, we Each the haven't impact any its kind the requirements to site, the in But We that on given in seen by

significant not point. have variant this seen we so any relates the to And at as impact Delta it

Matt Sharpe

change Got if The then last I And one, CapEx guide. quarter-over-quarter it. may. one

how I quarter, think requirements. $XX going about And is should we line profile a here this forward? program quarter, million you were sustaining at $X the what you million last Is CapEx But some or one-timer? think exactly that? item this mentioned a

Charlie Peiffer

Yes. our said spending said infrastructure would some program-driven. $X We've And we in CapEx always to really the going CapEx is be other cost that be any before million than that always range.

there's with on this about the then new that's case port So in in need It's here, contract. are support put being a fair that to talking procured of It's also a we're a cranes amount large the -- of combination equipment investments on Guam place. contract. be volume. And also, there

but recovered through the depreciation. with that So billing we're are cost, that customer we back incurring getting

from everyone CapEx And in it's that issue just want in cost We'll just XX standpoint of no the We're that recover is the that there's a XX-year contract. costs. there. over it's the And calibrated of get to -- the I the the that's So to life contract. contract. significant year specific recovering our we're this

that time there So period, a over wasn't investment. of lot

equipment So today. that's replaced, contract be at some in time, we point are and in had the to this where

Operator

will now back questions. the I closing to are remarks. Zindler no turn for further call There Mark

Mark Zindler

reach to are you participating there please much. Thank Well, any If much. so your today's and support, questions, thank out thanks for on me. you call. continued Thanks very for

Charlie Peiffer

care. Take

Operator

Ladies today's and Thank gentlemen, you conference concludes this for call. your participation.

You may now disconnect.

PAE (PAE) 7 Aug 212021 Q2 Earnings call transcript